BLMN-6.29.14_10Q
 
 
 
 
 

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 June 29, 2014
 
or
[  ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to ______
Commission File Number: 001-35625


BLOOMIN’ BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
20-8023465
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. 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, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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

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

As of July 31, 2014, 125,592,965 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 June 29, 2014
(Unaudited)

TABLE OF CONTENTS

 
 
            
 
Page No.
Item 1.
3
 
 
 
 
 
 
 
 
            
3
 
 
 
 
5
 
 
 
 
6
 
 
 
 
8
 
 
 
 
10
 
 
 
Item 2.
22
 
 
 
Item 3.
45
 
 
 
Item 4.
45
 
 
 
 
 
 
 
 
Item 1.
46
 
 
 
Item 1A.
46
 
 
 
Item 2.
46
 
 
 
Item 6.
47
 
 
 
 
49

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) 
 
JUNE 29,
 
DECEMBER 31,
 
2014
 
2013
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
155,843

 
$
209,871

Current portion of restricted cash and cash equivalents
3,822

 
3,364

Inventories
65,337

 
80,613

Deferred income tax assets
70,033

 
70,802

Other current assets, net
132,879

 
119,381

Total current assets
427,914

 
484,031

Restricted cash
25,892

 
25,055

Property, fixtures and equipment, net
1,652,326

 
1,634,130

Goodwill
353,086

 
346,253

Intangible assets, net
610,782

 
617,133

Deferred income tax assets
3,372

 
2,392

Other assets, net
160,707

 
165,180

Total assets
$
3,234,079

 
$
3,274,174

 
 
 
 
 
(CONTINUED...)
 

3

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED) 


 
JUNE 29,
 
DECEMBER 31,
 
2014
 
2013
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
188,278

 
$
164,619

Accrued and other current liabilities
190,982

 
194,346

Current portion of partner deposits and accrued partner obligations
9,268

 
12,548

Unearned revenue
249,322

 
359,443

Current portion of long-term debt
22,328

 
13,546

Total current liabilities
660,178

 
744,502

Partner deposits and accrued partner obligations
75,780

 
78,116

Deferred rent
114,743

 
105,963

Deferred income tax liabilities
144,805

 
150,582

Long-term debt, net
1,382,161

 
1,405,597

Other long-term liabilities, net
253,896

 
284,721

Total liabilities
2,631,563

 
2,769,481

Commitments and contingencies (Note 12)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
23,043

 
21,984

Stockholders’ Equity
 
 
 
Bloomin’ Brands Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding at June 29, 2014 and December 31, 2013

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 125,597,371 and 124,784,124 shares issued and outstanding at June 29, 2014 and December 31, 2013, respectively
1,256

 
1,248

Additional paid-in capital
1,071,389

 
1,068,705

Accumulated deficit
(485,829
)
 
(565,154
)
Accumulated other comprehensive loss
(12,695
)
 
(26,418
)
Total Bloomin’ Brands stockholders’ equity
574,121

 
478,381

Noncontrolling interests
5,352

 
4,328

Total stockholders’ equity
579,473

 
482,709

Total liabilities, mezzanine equity and stockholders’ equity
$
3,234,079

 
$
3,274,174

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


4

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
1,104,437

 
$
1,007,991

 
$
2,254,962

 
$
2,090,347

Other revenues
6,475

 
10,865

 
13,809

 
20,759

Total revenues
1,110,912

 
1,018,856

 
2,268,771

 
2,111,106

Costs and expenses
 

 
 

 
 

 
 
Cost of sales
358,856

 
325,453

 
732,470

 
675,442

Labor and other related
302,472

 
284,028

 
613,890

 
583,895

Other restaurant operating
265,279

 
237,440

 
521,797

 
471,249

Depreciation and amortization
48,627

 
40,889

 
94,792

 
81,085

General and administrative
72,262

 
65,094

 
146,316

 
137,585

Provision for impaired assets and restaurant closings
1,025

 
689

 
7,089

 
2,585

Income from operations of unconsolidated affiliates

 
(2,623
)
 

 
(5,481
)
Total costs and expenses
1,048,521

 
950,970

 
2,116,354

 
1,946,360

Income from operations
62,391

 
67,886

 
152,417

 
164,746

Loss on extinguishment and modification of debt
(11,092
)
 
(14,586
)
 
(11,092
)
 
(14,586
)
Other income (expense), net
317

 
(133
)
 
153

 
(350
)
Interest expense, net
(15,109
)
 
(18,015
)
 
(31,707
)
 
(38,895
)
Income before provision (benefit) for income taxes
36,507

 
35,152

 
109,771

 
110,915

Provision (benefit) for income taxes
8,785

 
(41,312
)
 
26,949

 
(30,605
)
Net income
27,722

 
76,464

 
82,822

 
141,520

Less: net income attributable to noncontrolling interests
1,331

 
1,596

 
2,698

 
3,429

Net income attributable to Bloomin’ Brands
$
26,391

 
$
74,868

 
$
80,124

 
$
138,091

 
 
 
 
 
 
 
 
Net income
$
27,722

 
$
76,464

 
$
82,822

 
$
141,520

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
19,088

 
(8,144
)
 
13,723

 
(12,676
)
Comprehensive income
46,810

 
68,320

 
96,545

 
128,844

Less: comprehensive income attributable to noncontrolling interests
1,331

 
1,596

 
2,698

 
3,429

Comprehensive income attributable to Bloomin’ Brands
$
45,479

 
$
66,724

 
$
93,847

 
$
125,415

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.21

 
$
0.61

 
$
0.64

 
$
1.13

Diluted
$
0.21

 
$
0.58

 
$
0.63

 
$
1.08

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
125,229

 
122,858

 
124,889

 
122,052

Diluted
128,378

 
128,338

 
128,115

 
127,599

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

5

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, 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, 2013
124,784

 
$
1,248

 
$
1,068,705

 
$
(565,154
)
 
$
(26,418
)
 
$
4,328

 
$
482,709

Net income

 

 

 
80,124

 

 
2,258

 
82,382

Foreign currency translation adjustment

 

 

 

 
13,723

 

 
13,723

Stock-based compensation

 

 
8,032

 

 

 

 
8,032

Excess tax benefit on stock-based compensation

 

 
1,095

 

 

 

 
1,095

Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
813

 
8

 
5,485

 
(799
)
 

 

 
4,694

Purchase of limited partnership interests, net of tax of $6,519

 

 
(11,928
)
 

 

 
1,236

 
(10,692
)
Distributions to noncontrolling interests

 

 

 

 

 
(2,470
)
 
(2,470
)
Balance, June 29, 2014
125,597

 
$
1,256

 
$
1,071,389

 
$
(485,829
)
 
$
(12,695
)
 
$
5,352

 
$
579,473

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 


6

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(IN THOUSANDS, 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, 2012
121,148

 
$
1,211

 
$
1,000,963

 
$
(773,085
)
 
$
(14,801
)
 
$
5,917

 
$
220,205

Net income

 

 

 
138,091

 

 
3,429

 
141,520

Foreign currency translation adjustment

 

 

 

 
(12,676
)
 

 
(12,676
)
Release of valuation allowance related to purchases of limited partnerships and joint venture interests

 

 
15,669

 

 

 

 
15,669

Stock-based compensation

 


 
7,612

 

 

 

 
7,612

Common stock issued under stock plans, net of forfeitures and shares withheld for employee taxes
2,857

 
29

 
22,182

 
(370
)
 

 

 
21,841

Repayments of notes receivable due from stockholders

 

 
5,829

 

 

 

 
5,829

Distributions to noncontrolling interests

 

 

 

 

 
(4,526
)
 
(4,526
)
Balance, June 30, 2013
124,005

 
$
1,240

 
$
1,052,255

 
$
(635,364
)
 
$
(27,477
)
 
$
4,820

 
$
395,474



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

7

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Cash flows provided by operating activities:
 
 
 
Net income
$
82,822

 
$
141,520

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

 
 

Depreciation and amortization
94,792

 
81,085

Amortization of deferred financing fees
1,640

 
1,800

Amortization of capitalized gift card sales commissions
14,829

 
12,664

Provision for impaired assets and restaurant closings
7,089

 
2,585

Accretion on debt discounts
1,097

 
1,248

Stock-based and other non-cash compensation expense
9,672

 
10,328

Income from operations of unconsolidated affiliates

 
(5,481
)
Deferred income tax benefit
(372
)
 
(40,127
)
Loss on disposal of property, fixtures and equipment
1,077

 
279

Gain on life insurance and restricted cash investments
(1,732
)
 
(2,602
)
Loss on extinguishment and modification of debt
11,092

 
14,586

Recognition of deferred gain on sale-leaseback transaction
(1,070
)
 
(1,065
)
Excess tax benefits from stock-based compensation
(1,095
)
 

Change in assets and liabilities:
 

 
 

Decrease in inventories
15,724

 
12,952

Increase in other current assets
(25,212
)
 
(10,757
)
Decrease in other assets
5,320

 
4,468

Decrease in accounts payable and accrued and other current liabilities
(11,440
)
 
(28,776
)
Increase in deferred rent
8,482

 
9,698

Decrease in unearned revenue
(110,392
)
 
(108,832
)
Decrease in other long-term liabilities
(5,077
)
 
(853
)
Net cash provided by operating activities
97,246

 
94,720

Cash flows used in investing activities:
 

 
 

Purchases of life insurance policies
(1,040
)
 
(759
)
Proceeds from sale of life insurance policies
627

 
1,059

Proceeds from disposal of property, fixtures and equipment
562

 
2,939

Acquisition of business, net of cash acquired
(3,063
)
 

Capital expenditures
(97,619
)
 
(97,150
)
Decrease in restricted cash
13,556

 
13,267

Increase in restricted cash
(14,192
)
 
(12,460
)
Net cash used in investing activities
$
(101,169
)
 
$
(93,104
)
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

8

Table of Contents
BLOOMIN’ BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, UNAUDITED)


 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of senior secured Term loan A
$
297,088

 
$

Extinguishment and modification of senior secured term loan
(700,000
)
 

Repayments of long-term debt
(18,090
)
 
(33,859
)
Proceeds from borrowings on revolving credit facilities
415,000

 

Repayments of borrowings on revolving credit facilities
(15,000
)
 

Financing fees
(4,492
)
 
(12,519
)
Proceeds from the exercise of stock options
6,476

 
22,222

Distributions to noncontrolling interests
(2,470
)
 
(4,526
)
Purchase of limited partnership interests
(17,211
)
 

Repayments of partner deposits and accrued partner obligations
(13,909
)
 
(12,477
)
Repayments of notes receivable due from stockholders

 
5,829

Repurchase of common stock
(799
)
 
(370
)
Excess tax benefits from stock-based compensation
1,095

 

Tax withholding on performance-based share units
(364
)
 

Net cash used in financing activities
(52,676
)
 
(35,700
)
Effect of exchange rate changes on cash and cash equivalents
2,571

 
(5,165
)
Net decrease in cash and cash equivalents
(54,028
)
 
(39,249
)
Cash and cash equivalents at the beginning of the period
209,871

 
261,690

Cash and cash equivalents at the end of the period
$
155,843

 
$
222,441

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
30,790

 
$
37,338

Cash paid for income taxes, net of refunds
29,941

 
8,897

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Conversion of partner deposits and accrued partner obligations to notes payable
$
323

 
$
755

Acquisition of property, fixtures and equipment through accounts payable or capital lease liabilities
9,858

 
5,690

Release of valuation allowance through additional paid-in capital related to purchases of limited partnerships and joint venture interests

 
15,669

Deferred tax effect of purchase of noncontrolling interests
6,519

 


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

9

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)


1.           Basis of Presentation

Bloomin’ Brands, Inc. (“Bloomin’ Brands” or the “Company”) was formed by an investor group comprised of funds advised by Bain Capital Partners, LLC and Catterton Management Company, LLC, Chris T. Sullivan, Robert D. Basham, J. Timothy Gannon and certain members of management. Bloomin’ Brands is a holding company and conducts its operations through OSI Restaurant Partners, LLC (“OSI”), the Company’s primary operating entity, and New Private Restaurant Properties, LLC, an indirect wholly-owned subsidiary of the Company that leases certain Company-owned restaurant properties to a subsidiary of OSI.

The Company owns and operates casual, polished casual and fine dining restaurants primarily in the United States. The Company’s restaurant portfolio has five concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements.

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 the fair presentation of the Company’s results of operations, financial position and cash flows 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, 2013.

Change in Fiscal Year End - On January 3, 2014, the Board of Directors approved a change in the Company’s fiscal year end from a calendar year ending on December 31 to a 52-53 week year ending on the last Sunday in December, effective beginning with fiscal year 2014. The Company believes the change in fiscal year provides numerous benefits, including aligning the Company’s reporting periods to be more consistent with peer restaurant companies and improving comparability between periods by removing the effect of trading day on Restaurant sales and operating margins. The Company will continue reporting its Brazilian operations on a calendar-based one-month lag. All other international operations will be reported on a 52-53 week reporting period contemporaneously with the domestic operations.

The Company made the fiscal year change on a prospective basis and has not adjusted operating results for prior periods. The change impacts the prior year comparability of the Company’s fiscal quarters in 2014 and will result in shifts in the quarterly periods, which will have an impact on quarterly financial results. The twenty-six weeks ended June 29, 2014 included one less operating day than the comparable prior year period and the Company estimates that the associated impact was $7.5 million and $1.5 million on Total revenues and Net income attributable to Bloomin’ Brands, respectively. There was no impact to the quarterly financial results for the thirteen weeks ended June 29, 2014.

Reclassifications - The Company has reclassified certain items in the accompanying consolidated financial statements for prior periods to be comparable with the classification for the thirteen and twenty-six weeks ended June 29, 2014. These reclassifications had no effect on previously reported net income.

10

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

2.     Acquisitions

Acquisition of Controlling Interest in the Company’s Brazilian Operations - Prior to November 1, 2013, the Company held a 50% ownership interest in PGS Consultoria e Serviços Ltda. (the “Brazilian Joint Venture”) through a joint venture arrangement with PGS Participações Ltda, which operated Outback Steakhouse restaurants in Brazil. Effective November 1, 2013, the Company completed the acquisition of a controlling interest in the Brazilian Joint Venture, resulting in the consolidation of this entity.

Prior to the acquisition, the Company accounted for the Brazilian Joint Venture under the equity method of accounting. The Company’s share of earnings of $2.6 million and $5.5 million for the three and six months ended June 30, 2013, respectively, was recorded in Income from operations of unconsolidated affiliates in the Company’s Consolidated Statement of Operations and Comprehensive Income. The Brazilian Joint Venture’s results of operations for the thirteen and twenty-six weeks ended June 29, 2014 are reflected in the respective line items in the Company’s Consolidated Statement of Operations and Comprehensive Income.

Acquisition of Limited Partnership Interests - Effective January 1, 2014, the Company purchased the remaining partnership interests in certain of the Company’s limited partnerships that either owned or had a contractual right to varying percentages of cash flows in 37 Bonefish Grill restaurants for an aggregate purchase price of $17.2 million. These transactions resulted in a reduction of approximately $11.9 million in Additional paid-in capital in the Company’s Consolidated Balance Sheet at June 29, 2014.

The following table sets forth the effect of these transactions on stockholders’ equity attributable to Bloomin’ Brands (in thousands):

 
NET INCOME ATTRIBUTABLE TO BLOOMIN’ BRANDS AND TRANSFERS TO NONCONTROLLING INTERESTS
 
 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Net income attributable to Bloomin’ Brands
$
26,391

 
$
74,868

 
$
80,124

 
$
138,091

Transfers to noncontrolling interests:
 
 
 
 
 
 
 
Net decrease in Bloomin’ Brands additional paid-in capital for purchase of limited partnership interests

 

 
(11,928
)
 

Change from net income attributable to Bloomin’ Brands and transfers to noncontrolling
$
26,391

 
$
74,868

 
$
68,196

 
$
138,091


Acquisition of Franchised Restaurants - Effective March 1, 2014, the Company acquired two Bonefish Gill restaurants from a franchisee for a purchase price of approximately $3.2 million, including customary escrow amounts. The Consolidated Statement of Operations and Comprehensive Income includes the results of operations for these restaurants from the date of acquisition. The pro forma impact of the acquisition on prior periods is not presented as the impact was not material to reported results.

The Company allocated the purchase price to the assets acquired less the liabilities assumed based on their estimated fair value on the date of acquisition with the remaining $2.5 million of the purchase price allocated to goodwill. All goodwill recognized is expected to be deductible for tax purposes.


11

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

3.         Earnings Per Share

The computation of basic and diluted earnings per share is as follows (in thousands, except per share amounts):

 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Net income attributable to Bloomin’ Brands
$
26,391

 
$
74,868

 
$
80,124

 
$
138,091

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
125,229

 
122,858

 
124,889

 
122,052

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
  Stock options
3,051

 
5,342

 
3,121

 
5,204

  Nonvested restricted stock and restricted stock units
98

 
138

 
105

 
343

Diluted weighted average common shares outstanding
128,378

 
128,338

 
128,115

 
127,599

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.21

 
$
0.61

 
$
0.64

 
$
1.13

Diluted earnings per share
$
0.21

 
$
0.58

 
$
0.63

 
$
1.08


Potential common shares are excluded from the computation of diluted earnings per share when the effect would be anti-dilutive. Stock options are anti-dilutive when the exercise price of these instruments is greater than the average market price of the Company’s common stock for the period. Following are the weighted-average potential common shares excluded from diluted earnings per share as their effect is anti-dilutive (in thousands):

 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Stock options
2,688

 
1,276

 
2,307

 
1,673

Nonvested restricted stock and restricted stock units
174

 

 
197

 


4.         Stock-based Compensation

The Company’s 2012 Incentive Award Plan permits the grants of stock options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based awards to Company management and other key employees. The Company accounts for its stock-based employee compensation using a fair value-based method of accounting. The Company recognized stock-based compensation expense as follows (in thousands):

 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Stock options
$
3,098

 
$
2,321

 
$
5,566

 
$
6,306

Restricted stock and restricted stock units
989

 
501

 
1,738

 
876

Performance-based share units
177

 
196

 
535

 
265

 
$
4,264

 
$
3,018

 
$
7,839

 
$
7,447


During the twenty-six weeks ended June 29, 2014, the Company made grants to its employees of 1.3 million stock options, 0.3 million time-based restricted stock units and 0.1 million performance-based share units. The weighted-average grant date fair value per stock option was $11.88.


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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period at June 29, 2014:

 
UNRECOGNIZED
COMPENSATION EXPENSE
(in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD (in years)
Stock options
$
29,851

 
3.0
Restricted stock and restricted stock units
$
12,395

 
3.0
Performance-based share units
$
843

 
0.7

5.           Other Current Assets, Net

Other current assets, net, consisted of the following (in thousands):

 
JUNE 29,
 
DECEMBER 31,
 
2014
 
2013
Prepaid expenses
$
31,191

 
$
28,287

Accounts receivable - vendors, net
25,192

 
23,218

Accounts receivable - franchisees, net
1,448

 
1,394

Accounts receivable - other, net
37,795

 
33,086

Other current assets, net
37,253

 
33,396

 
$
132,879

 
$
119,381


6.     Goodwill and Intangible Assets, Net

Goodwill - The following table presents a rollforward of goodwill for the twenty-six weeks ended June 29, 2014 (in thousands):

Balance at December 31, 2013
 
$
346,253

Additions for purchases of franchised locations
 
2,461

Foreign currency translation adjustments
 
4,372

Balance at June 29, 2014
 
$
353,086


The Company performed an annual assessment of goodwill and other indefinite-lived intangible assets during the second quarters of 2014 and 2013. In connection with the annual assessment, no goodwill or indefinite-lived intangible asset impairments were recorded in the thirteen weeks and twenty-six weeks ended June 29, 2014 and the three and six months ended June 30, 2013.

Intangible Assets, net - Effective June 1, 2014, OSI and Carrabba’s Italian Grill, LLC (“Carrabba’s”), a wholly owned subsidiary of OSI, entered into a Third Amendment to the Royalty Agreement with the founders of Carrabba’s Italian Grill and their affiliated entities (collectively, the “Carrabba’s Founders”). The amendment provides that no continuing royalty fee will be paid to the Carrabba’s Founders for Carrabba’s restaurants located outside the United States.  Each Carrabba’s restaurant located outside the United States will pay a one-time lump sum royalty fee, which varies depending on the size of the restaurant. The one-time fee is $100,000 for restaurants 5,000 square feet or larger, $75,000 for restaurants 3,500 square feet or larger but less than 5,000 square feet and $50,000 for restaurants less than 3,500 square

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

feet. In connection with the amendment, the Company made a non-refundable payment of $1.0 million to the Carrabba’s Founders for the first ten restaurants of 5,000 square feet or more to be located outside the United States.

In addition, new Carrabba’s restaurants in the U.S. that first open on or after June 1, 2014 will pay a fixed royalty of 0.5 percent on sales occurring prior to 4 pm local time Monday through Saturday. Existing Carrabba’s restaurants in the U.S. that begin serving weekday lunch on or after June 1, 2014 will pay a fixed royalty of 0.5 percent on sales occurring prior to 4 pm local time Monday through Friday. In each case, these sales will be excluded in calculating the volume based royalty percentage on sales after 4 pm.

The payment to the Carrabba’s Founders was recorded as a Trade name in Intangible Assets, net, in the Consolidated Balance Sheet at June 29, 2014.

7.           Long-term Debt, Net

Following is a summary of outstanding long-term debt, (in thousands, except interest rate):

 
JUNE 29, 2014
 
DECEMBER 31, 2013
 
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A
$
300,000

 
2.12
%
 
$

 

Term loan B
225,000

 
3.50
%
 
935,000

 
3.50
%
Revolving credit facility
400,000

 
2.12
%
 

 

Total senior secured credit facility
925,000

 
 
 
935,000

 
 
2012 CMBS loan:
 
 
 
 
 
 
 
Mortgage loan (1)
307,559

 
4.05
%
 
311,644

 
4.02
%
First mezzanine loan
85,630

 
9.00
%
 
86,131

 
9.00
%
Second mezzanine loan
86,381

 
11.25
%
 
86,704

 
11.25
%
Total 2012 CMBS loan
479,570

 
 
 
484,479

 
 
Other notes payable
3,652

 
0.52% to 7.00%

 
6,186

 
0.58% to 7.00%

Sale-leaseback obligations
2,375

 


 
2,375

 


Capital lease obligations
946

 


 
1,255

 


 
$
1,411,543

 
 
 
$
1,429,295

 
 
Less: current portion of long-term debt
(22,328
)
 
 
 
(13,546
)
 
 
Less: unamortized debt discount
(7,054
)
 
 
 
(10,152
)
 
 
Long-term debt, net
$
1,382,161

 
 
 
$
1,405,597

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

Bloomin’ Brands, Inc. is a holding company and conducts its operations through its subsidiaries, certain of which have incurred indebtedness as described below.

Credit Agreement - On October 26, 2012, OSI entered into a credit agreement (“Credit Agreement”) with a syndicate of institutional lenders and financial institutions for a senior secured credit facility (the “Senior Secured Credit Facility”) of $1.225 billion. The Credit Agreement was comprised of a $1.0 billion Term loan B and a $225.0 million revolving credit facility, including letter of credit and swing-line loan sub-facilities. The Term loan B was issued with an original issue discount of $10.0 million.


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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

OSI amended the Credit Agreement in April 2013 in connection with a repricing of the Term loan B. In January 2014, the Credit Agreement was amended to align to the change in the Company’s fiscal year.

Amended Credit Agreement - OSI completed a refinancing of its Senior Secured Credit Facility and entered into an amendment to the Credit Agreement (“Amended Credit Agreement”) on May 16, 2014. The Amended Credit Agreement provides for senior secured financing of up to $1.125 billion, consisting of a new $300.0 million Term loan A, a $225.0 million Term loan B and a $600.0 million revolving credit facility, including letter of credit and swing-line loan sub-facilities. The Term loan A and revolving credit facility mature May 16, 2019, and the Term loan B matures on October 26, 2019. The Term loan A was issued with a discount of $2.9 million.

At closing, $400.0 million was drawn under the revolving credit facility. The proceeds of the Term loan A and the loans made at closing under the revolving credit facility were used to pay down a portion of OSI’s Term loan B under the Credit Agreement. The total indebtedness of the Company remained unchanged as a result of the refinancing.

The Company may elect an interest rate for the Amended Credit Agreement at each reset period based on the Base Rate or the Eurocurrency Rate. The Base Rate option is the highest of (i) the prime rate of Wells Fargo Bank, National Association, (ii) the federal funds effective rate plus 0.5 of 1.0% or (iii) the Eurocurrency rate with a one-month interest period plus 1.0% (the “Base Rate”). The Eurocurrency Rate option is the seven, 30, 60, 90 or 180-day Eurocurrency rate (“Eurocurrency Rate”). The interest rates are as follows:

 
 
BASE RATE ELECTION
 
EUROCURRENCY RATE ELECTION
Term loan A and revolving credit facility
 
75 to 125 basis points over Base Rate
 
175 to 225 basis points over the Eurocurrency Rate
Term loan B
 
150 basis points over Base Rate
 
250 basis points over the Eurocurrency Rate

Since the effective date of the Amended Credit Agreement, the Company has elected the Eurocurrency rate as its primary interest rate. Under the terms of the Amended Credit Agreement, the Term loan B interest rate determined using the Base Rate and Eurocurrency rate has minimum rates of 2.00% and 1.00%, respectively.

Fees on letters of credit and the daily unused availability under the revolving credit facility are 2.13% and 0.30%, respectively. At June 29, 2014, $29.6 million of the revolving credit facility was committed for the issuance of letters of credit and not available for borrowing.

Substantially all of the assets of the Company’s domestic subsidiaries collateralize the Senior Secured Credit Facility.

Commercial Mortgage-Backed Securities Loan - Effective March 27, 2012, New Private Restaurant Properties, LLC and two of the Company’s other indirect wholly-owned subsidiaries (collectively, “New PRP”) entered into a commercial mortgage-backed securities loan (the “2012 CMBS Loan”) with German American Capital Corporation and Bank of America, N.A. The 2012 CMBS Loan totaled $500.0 million at origination and was originally comprised of a first mortgage loan in the amount of $324.8 million, collateralized by 261 of the Company’s properties, and two mezzanine loans totaling $175.2 million. The loans have a maturity date of April 10, 2017.

The first mortgage loan has five fixed-rate components and a floating rate component. The fixed-rate components bear interest at rates ranging from 2.37% to 6.81% per annum. The floating rate component bears interest at a rate per annum equal to the 30-day London Interbank Offered Rate (“30-day LIBOR”) (with a floor of 1%) plus 2.37%. The first mezzanine loan bears interest at a rate of 9.00% per annum, and the second mezzanine loan bears interest at a rate of 11.25% per annum.

Debt Covenants and Other Restrictions - Borrowings under the Company’s debt agreements are subject to various covenants that limit the Company’s ability to: incur additional indebtedness; make significant payments; sell assets; pay dividends and other restricted payments; acquire certain assets; effect mergers and similar transactions; and effect

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

certain other transactions with affiliates. The Amended Credit Agreement also has a financial covenant to maintain a specified quarterly Total Net Leverage Ratio (“TNLR”). TNLR is the ratio of Consolidated Total Debt (Current portion of long-term debt and Long-term debt, net) to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization and certain other adjustments). The TNLR may not exceed a level set at 5.00 to 1.00 through fiscal 2017, with a step down to a maximum level of 4.75:1.00 in fiscal 2018 and thereafter.
The 2012 CMBS Loan also requires the Company to maintain an interest rate cap (“Rate Cap”) to limit the volatility of the floating rate component of the first mortgage loan within the 2012 CMBS loan. In April 2014, the Company’s Rate Cap expired. In connection with the expiration of the Rate Cap, the Company entered into a replacement rate cap (“Replacement Rate Cap”), with a notional amount of $48.7 million. Under the Replacement Rate Cap, if the 30-day LIBOR rate exceeds 7.00% per annum, the counterparty must pay to the Company such excess on the notional amount of the floating rate component. The Replacement Rate Cap had a nominal fair market value on June 29, 2014. The Replacement Rate Cap expires in April 2016.
Loss on Extinguishment and Modification of Debt - In connection with the second quarter refinancing of the Credit Agreement, the Company recognized loss on extinguishment and modification of debt of $11.1 million for the thirteen and twenty-six weeks ended June 29, 2014. The loss was comprised of the write-off of $5.5 million of deferred financing fees, the write-off of $4.9 million of unamortized debt discount and a prepayment penalty of $0.7 million.
Deferred financing fees - The Company deferred $3.8 million of financing costs incurred to complete the refinancing of the Senior Secured Credit Facility, all of which was capitalized during the second quarter of 2014. These deferred financing costs are included in the line item, “Other assets, net” in the Consolidated Balance Sheets.
Maturities - Following is a summary of principal payments of the Company’s total consolidated debt outstanding at June 29, 2014 (in thousands):
 
JUNE 29, 2014
Year 1
$
23,968

Year 2
27,174

Year 3
485,500

Year 4
22,526

Year 5
625,000

Thereafter
227,375

Total
$
1,411,543


The following is a summary of required amortization payments for Term loan A (in thousands):

SCHEDULED QUARTERLY PAYMENT PERIOD
 
QUARTERLY PAYMENT
September 30, 2014 through June 30, 2016
 
$
3,750

September 30, 2016 through June 30, 2018
 
$
5,625

September 30, 2018 through March 30, 2019
 
$
7,500


Since the inception of the Term loan B, OSI has made sufficient voluntary prepayments in excess of the remaining required amortization payments and, as a result, will not be required to make any further required amortization payments until the remaining balance of the loan reaches maturity in October 2019.

The Amended Credit Agreement contains mandatory prepayment requirements for Term loan A and Term loan B. Beginning with the fiscal year ended December 28, 2014, the Company is required to prepay outstanding amounts under its term loans with 50% of its annual excess cash flow, as defined in the Amended Credit Agreement. The amount

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

of outstanding term loans required to be prepaid in accordance with the debt covenants may vary based on the Company’s leverage ratio and year-end results.

8.     Other Long-term Liabilities, Net

The Company maintains an endorsement split-dollar insurance policy with a death benefit of $5.0 million for one of its current executive officers. The Company is the beneficiary of the policy to the extent of premiums paid or the cash value, whichever is greater, with the remaining death benefit being paid to personal beneficiaries designated by the executive officer.  

During the twenty-six weeks ended June 29, 2014 and the six months ended June 30, 2013, the Company terminated the split-dollar agreements with certain of its former executive officers in exchange for aggregate payments of $2.0 million and $4.2 million, respectively, in cash. Upon termination, the release of the death benefit and related liabilities, net of the associated cash termination payment, resulted in net gains of $1.9 million during the twenty-six weeks ended June 29, 2014 and $1.5 million and $3.7 million during the three and six months ended June 30, 2013, respectively. The net gains were recorded in General and administrative in the Consolidated Statements of Operations and Comprehensive Income.

At June 29, 2014 and December 31, 2013, the Company had $1.1 million and $5.0 million, respectively, recorded in Other long-term liabilities, net in its Consolidated Balance Sheets for the outstanding obligations under the endorsement split-dollar insurance policies.

9.           Fair Value Measurements

Restaurant Closure Initiative - In the fourth quarter of 2013, the Company completed an assessment of its restaurant base and decided to close 22 underperforming locations (“Restaurant Closure Initiative”). Following is a summary of Restaurant Closure Initiative expenses recognized in the Consolidated Statement of Operations and Comprehensive Income during the twenty-six weeks ended June 29, 2014 (in thousands):
DESCRIPTION
 
LOCATION OF CHARGE IN THE CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
 
AMOUNT
Restaurant closure expenses
 
Provision for impaired assets and restaurant closings
 
$
5,972

Severance and other liabilities
 
General and administrative
 
1,035

Deferred rent liability write-off
 
Other restaurant operating
 
(2,078
)
 
 
 
 
$
4,929


Fair Value Measurements on a Recurring Basis - The Company invested $14.5 million and $11.9 million of its excess cash in fixed income and money market funds classified as Cash and cash equivalents or Restricted cash in its Consolidated Balance Sheets as of June 29, 2014 and December 31, 2013, respectively, at a net value of 1:1 for each dollar invested. The fair value of the investments in these funds is determined by using quoted prices for identical assets in an active market. As a result, the Company has determined that the inputs used to value these investments fall within Level 1 of the fair value hierarchy.


17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table presents the Company’s fixed income and money market funds measured at fair value on a recurring basis at June 29, 2014 and December 31, 2013, aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

 
JUNE 29, 2014
 
DECEMBER 31, 2013
 
TOTAL
 
LEVEL 1
 
TOTAL
 
LEVEL 1
Assets:
 
 
 
 
 
 
 
Fixed income funds - cash equivalents
$
6,329

 
$
6,329

 
$
9,849

 
$
9,849

Money market funds - cash equivalents
7,938

 
7,938

 
1,988

 
1,988

Money market funds - restricted cash equivalents
240

 
240

 
68

 
68

Total recurring fair value measurements
$
14,507

 
$
14,507

 
$
11,905

 
$
11,905


In connection with the 2012 CMBS Loan, New PRP is required to maintain a Rate Cap. This interest rate cap had a nominal fair market value at June 29, 2014 and December 31, 2013, respectively and therefore was excluded from the applicable tables within this footnote.

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 tables summarize the fair value remeasurements for property, fixtures and equipment for the thirteen and twenty-six weeks ended June 29, 2014 aggregated by the level in the fair value hierarchy within which those measurements fall (in thousands):

 
JUNE 29, 2014
 
 
 
 
 
REMAINING FAIR VALUE
 
THIRTEEN WEEKS ENDED JUNE 29, 2014
 
CARRYING VALUE
 
LEVEL 2
 
LEVEL 3
 
TOTAL
IMPAIRMENT
Property, fixtures and equipment
$
2,351

 
$
1,735

 
$
616

 
$
407


 
JUNE 29, 2014
 
 
 
 
 
REMAINING FAIR VALUE
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
CARRYING VALUE
 
LEVEL 2
 
LEVEL 3
 
TOTAL
IMPAIRMENT
Property, fixtures and equipment
$
2,951

 
$
2,335

 
$
616

 
$
483


Impairment losses for property, fixtures and equipment and restaurant closure expenses are recognized in Provision for impaired assets and restaurant closings in the Consolidated Statements of Operations and Comprehensive Income.
During the thirteen and twenty-six weeks ended June 29, 2014, the Company incurred restaurant closing expenses of $0.6 million and $6.6 million, respectively. For the twenty-six weeks ended June 29, 2014, restaurant closing costs primarily related to the Restaurant Closure Initiative. The Company did not record material impairment charges of its property, fixtures and equipment during the three and six months ended June 30, 2013.

The Company used a third-party market appraisal (Level 2) and discounted cash flow models (Level 3) to estimate the fair value of the long-lived assets included in the table above.  Projected future cash flows, including discount rate and growth rate assumptions, are derived from current economic conditions, expectations of management and projected trends of current operating results.  
  

18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments at June 29, 2014 and December 31, 2013 consist of cash equivalents, restricted cash, accounts receivable, accounts payable and current and long-term debt.  The fair values of cash equivalents, restricted cash, accounts receivable and accounts payable approximate their carrying amounts reported in the Consolidated Balance Sheets due to their short duration.

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt at June 29, 2014 and December 31, 2013 aggregated by the level in the fair value hierarchy in which those measurements fall (in thousands):

 
JUNE 29, 2014
 
DECEMBER 31, 2013
 
 
 
FAIR VALUE
 
 
 
FAIR VALUE
 
CARRYING VALUE
 
LEVEL 2
 
LEVEL 3
 
CARRYING VALUE
 
LEVEL 2
 
LEVEL 3
Senior Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
Term loan A
$
300,000

 
$
299,250

 
$

 
$

 
$

 
$

Term loan B
225,000

 
225,000

 

 
935,000

 
936,169

 

Revolving credit facility
400,000

 
398,000

 

 

 

 

CMBS loan:
 
 
 
 
 
 
 
 
 
 
 
Mortgage loan
307,559

 

 
319,696

 
311,644

 

 
318,787

First mezzanine loan
85,630

 

 
85,630

 
86,131

 

 
86,131

Second mezzanine loan
86,381

 

 
87,245

 
86,704

 

 
87,571

Other notes payable
3,652

 

 
3,477

 
6,186

 

 
5,912


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.
CMBS loan
 
Assumptions derived from current conditions in the real estate and credit markets, changes in the underlying collateral and expectations of management.
Other notes payable
 
Discounted cash flow approach. Discounted cash flow inputs primarily include cost of debt rates which are used to derive the present value factors for the determination of fair value.

10.           Taxes

Income Taxes - The effective income tax rates for the thirteen and twenty-six weeks ended June 29, 2014 were 24.1% and 24.6%, respectively, compared to (117.5)% and (27.6)% for the three and six months ended June 30, 2013, respectively. The net increase in the effective income tax rates for the thirteen and twenty-six weeks ended June 29, 2014 was due to the following: (i) the release of the U.S. valuation allowance in the second quarter of 2013, (ii) a change in the blend of taxable income and tax rates across the Company’s domestic and international subsidiaries and (iii) the acquisition of limited partnership interests in 2013 and 2014, which resulted in increased income allocations.

The effective income tax rates for the thirteen and twenty-six weeks ended June 29, 2014 were lower than the blended federal and state statutory rate of 39.0% primarily due to the benefit of the expected tax credit for excess FICA tax on employee-reported tips and the foreign tax rate differential. The effective income tax rates for the three and six months ended June 30, 2013 were lower than the blended federal and state statutory rate of 38.7% primarily due to the benefit of the expected tax credit for excess FICA tax on employee-reported tips, the release of the valuation allowance, the elimination of noncontrolling interest and the foreign rate differential, together being such a large percentage of projected annual pretax income.


19

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

At June 29, 2014 and December 31, 2013, the Company had $15.4 million and $17.1 million, respectively, of unrecognized tax benefits.  Additionally, the Company had $1.0 million and $2.1 million, respectively, of interest and penalties related to uncertain tax positions at June 29, 2014 and December 31, 2013.  Of the total amount of unrecognized tax benefits, including accrued interest and penalties, $15.2 million and $17.2 million as of June 29, 2014 and December 31, 2013, respectively, if recognized, would impact the Company’s effective income tax rate.  The difference between the total amount of unrecognized tax benefits and the amount that would impact the effective income tax rate consists of items that are offset by deferred income tax assets and the federal income tax benefit of state income tax items.

The Company is currently under income tax examination by the Internal Revenue Service (“IRS”) for the year ended December 31, 2011. The Company is currently open to audit under the statute of limitations for the years ended December 31, 2007 through 2013. The Company and its subsidiaries’ state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2001 through 2012. The Company and its subsidiaries’ foreign income tax returns are open to audit under the statute of limitations for the years ended December 31, 2007 through 2013.

Payroll Taxes - The Company is currently under payroll tax examination by the IRS. In 2013, the IRS informed the Company that it proposed to issue an audit adjustment for the employer’s share of FICA taxes related to cash tips allegedly received and unreported by the Company’s tipped employees during calendar year 2010. The cash tips allegedly unreported by the tipped employees were based on an IRS estimate of the aggregate amount of tips directly received by tipped employees from the Company’s customers.

In March 2014, the IRS issued an audit adjustment of $5.0 million to the Company for the employer’s share of FICA taxes related to cash tips unreported by the Company’s employees during calendar year 2010. The Company remitted payment to the IRS in April 2014 to settle the calendar year 2010 audit adjustment.

Subsequently, the IRS indicated that the scope of the proposed adjustment would expand to include the 2011 and 2012 periods. In July 2014, the Company received a notice from the IRS regarding commencement of the 2011 payroll tax audit. At June 29, 2014, the Company had $12.0 million recorded in Accrued and other current liabilities in the Company’s Consolidated Balance Sheet for the payroll tax audits.

11.           Redeemable Noncontrolling Interests

The Company consolidates subsidiaries in Brazil and China, each of which have noncontrolling interests that are permitted to deliver subsidiary shares in exchange for cash at a future date. Redeemable noncontrolling interests are classified in Mezzanine equity in the Company’s Consolidated Balance Sheet.

The following table presents a rollforward of Redeemable noncontrolling interests for the twenty-six weeks ended June 29, 2014 (in thousands):

 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
Balance, beginning of period
$
21,984

Net income attributable to redeemable noncontrolling interests
1,059

Balance, end of period
$
23,043



20

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

12.           Commitments and Contingencies

On October 4, 2013, two then current employees (the “Nevada Plaintiffs”) filed a purported collective action lawsuit against the Company, OSI, and two of its subsidiaries in the U.S. District Court for the District of Nevada (Cardoza, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 2:13-cv-01820-JAD-NJK). The complaint alleges violations of the Fair Labor Standards Act by requiring employees to work off the clock, complete on-line training without pay, and attend meetings in the restaurant without pay. The suit seeks to certify a nationwide collective action that all hourly employees in all Outback Steakhouse restaurants would be permitted to join. The suit seeks an unspecified amount in back pay for the employees that join the lawsuit, an equal amount in liquidated damages, costs, expenses, and attorney’s fees. The Nevada Plaintiffs also filed a companion lawsuit in Nevada state court alleging that the Company violated the state break time rules. The Company believes these lawsuits are without merit, and is vigorously defending all allegations. However, the Company is unable to predict the outcome of this case.

On November 8, 2013, three employees of the Company’s franchisee (collectively, the “California Plaintiffs”) filed a purported class action lawsuit against the Company, OSI and OS Restaurant Services, LLC, two of its subsidiaries, and T-Bird Restaurant Group, Inc. (“T-Bird”), one of its franchisees in the California Superior Court, County of Alameda. The defendants removed the matter to the U.S. District Court for the Northern District of California in December 2013 (Holly Gehl, et al. v. Bloomin’ Brands, Inc., et al., Case No.: 4:13-cv-05961-KAW). The complaint alleges, among other things, violations of the California Labor Code, failure to pay overtime, failure to provide meal and rest periods and termination compensation, and violations of California’s Business and Professions Code. The complaint seeks, among other relief, class certification of the lawsuit, unspecified damages, costs and expenses, including attorney’s fees, and such other relief as the Court determines to be appropriate. The Company does not believe the California Plaintiffs have any standing to bring claims against the Company or its subsidiaries as all were employed by the Company’s franchisee. The Company intends to request that the court dismiss it and the Company’s subsidiaries from this action. Should the court deny the Company’s request for dismissal it will vigorously defend the lawsuit. However, the Company is unable to predict the outcome of this case.
 
13.         Recently Issued Financial Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09 “Revenue Recognition (Topic 606), Revenue from Contracts with Customers” (“ASU No. 2014-09”). ASU No. 2014-09 provides a single source of guidance for revenue arising from contracts with customers and supersedes current revenue recognition standards. 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. ASU No. 2014-09 will be effective for the Company on December 26, 2016 and is applied retrospectively to each period presented or as a cumulative effect adjustment at the date of adoption. The Company has not selected a transition method and is evaluating the impact this guidance will have on its financial position, results of operations and cash flows.
In April 2014, the FASB issued ASU No. 2014-08 “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity” (“ASU No. 2014-08”). ASU No. 2014-08 changes the criteria for reporting and revises the definition of discontinued operations while enhancing disclosures in this area. Additional disclosure requirements for discontinued operations and new disclosures for individually material disposal transactions that do not meet the revised definition of a discontinued operation will be applicable. ASU No. 2014-08 will be effective for the Company on December 29, 2014 with early adoption permitted. The impact of ASU No. 2014-08 on the Company’s financial position, results of operations and cash flows is dependent on the occurrence of future transactions or events.

Recent accounting guidance not discussed above is not applicable, did not have, or is not expected to have a material impact to the Company.


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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 contain these identifying words. 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)
The restaurant industry is a highly competitive industry with many well-established competitors;

(ii)
Our results can be impacted by patterns of customer traffic and our ability to effectively respond in a timely manner to changes in patterns of customer traffic; changes in consumer tastes and the level of consumer acceptance of our restaurant concepts (including consumer tolerance of our prices); local, regional, national and international economic and political conditions; the seasonality of our business; demographic trends; changes in consumer dietary habits; product mix; employee availability; the cost of advertising and media; the timing of restaurant operating expenses; government actions and policies; inflation or deflation; unemployment rates; interest rates; foreign exchange rates; and increases in various costs, including construction, real estate and health insurance costs;

(iii)
Commodities, including but not limited to, beef, chicken, shrimp, pork, seafood, dairy, produce, potatoes, onions and energy supplies, are subject to fluctuation in price and availability, and prices and other costs of our operations could increase more than we expect;

(iv)
Challenging economic conditions may affect our liquidity by adversely impacting numerous items that include, but are not limited to: consumer confidence and discretionary spending; the availability of credit presently

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

arranged from our revolving credit facilities; the future cost and availability of credit; interest rates; foreign currency exchange rates; and the liquidity or operations of our third-party vendors and other service providers;

(v)
Our ability to expand is dependent upon various factors such as the availability of attractive sites for new restaurants; our ability to obtain appropriate real estate sites at acceptable prices; our ability to obtain all required governmental permits including zoning approvals and liquor licenses on a timely basis; the impact of government moratoriums or approval processes, which could result in significant delays; our ability to obtain all necessary contractors and subcontractors; union activities such as picketing and hand billing that could delay construction; our ability to generate or borrow funds; our ability to negotiate suitable lease terms; our ability to recruit and train skilled management and restaurant employees; and our ability to receive the premises from the landlord’s developer without any delays;

(vi)
Weather, natural disasters and other disasters could result in construction delays or slower customer traffic and could adversely affect the results of one or more restaurants for an indeterminate amount of time;

(vii)
Our results can be negatively impacted by the effects of acts of war; periods of widespread civil unrest; actual or threatened armed conflicts or terrorist attacks, efforts to combat terrorism, or other military action affecting countries in which we do business and by the effects of heightened security requirements on local, regional, national, or international economies or consumer confidence;

(viii)
Our results can be impacted by tax and other legislation and regulation in the jurisdictions in which we operate and by accounting standards or pronouncements;

(ix)
Our results can be impacted by anticipated or unanticipated changes in our tax rates, exposure to additional income tax liabilities and a change in our ability to realize deferred tax benefits;

(x)
Minimum wage increases and mandated employee benefits could cause a significant increase in our labor costs;

(xi)
Our results can be impacted by consumer reaction to public health issues and perception of food safety;

(xii)
We could face liabilities if we are unable to protect our information technology systems or experience an interruption or breach of security that could prevent us from effectively operating our business, protecting customer credit and debit card data or personal employee information; and

(xiii)
Our substantial leverage and significant restrictive covenants in our various credit facilities could adversely affect our ability to raise additional capital to fund our operations, limit our ability to make capital expenditures to invest in new or renovate restaurants, limit our ability to react to changes in the economy or our industry, and expose us to interest rate risk in connection with our variable-rate debt.

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.

Note: Numerical figures included in this Report have been subject to rounding adjustments.


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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 June 29, 2014, we owned and operated 1,341 restaurants and franchised 161 restaurants across 48 states, Puerto Rico, Guam and 21 countries. We have five founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill, Fleming’s Prime Steakhouse and Wine Bar and Roy’s. Our concepts seek to provide a compelling customer experience combining great food, highly attentive service and lively and contemporary ambience at attractive prices. Our restaurants attract customers across a variety of occasions, including everyday dining, celebrations and business entertainment. Each of our concepts maintains a unique, founder-inspired brand identity and entrepreneurial culture, while leveraging our scale and enhanced operating model. We consider Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse and Wine Bar to be our core concepts. We are evaluating a plan to exit our Roy’s concept, but have not established a timeframe or committed to a specific plan to do so.
The restaurant industry is a highly competitive and fragmented industry and is sensitive to changes in the economy, trends in lifestyles, seasonality (customer traffic patterns at restaurants are generally highest in the first quarter of the year and lowest in the third quarter of the year) and fluctuating costs. Operating margins for restaurants can vary due to competitive pricing strategies, labor and fluctuations in prices of commodities, including beef, chicken, seafood, butter, cheese and produce, and other costs to operate a restaurant, such as rent, natural gas or utilities.  Restaurant companies tend to be focused on increasing market share, comparable restaurant sales growth and new unit growth. Competitive pressure for market share, commodity inflation, foreign currency exchange rates and other market conditions have had and could continue to have an adverse impact on our business.

Our industry is characterized by high initial capital investment, coupled with high labor costs. The combination of these factors underscores our initiative to drive increased sales at existing restaurants in order to raise margins and profits, because the incremental contribution to profits from every additional dollar of sales above the minimum costs required to open, staff and operate a restaurant is relatively high. Historically, we have not focused on growth in the number of restaurants just to generate additional sales. Our expansion and operating strategies have balanced investment and operating cost considerations in order to generate reasonable, sustainable margins and achieve acceptable returns on investment from our restaurant concepts.

Our strategic plan and operating model entails maintaining an experienced executive management team and adapting practices from the consumer products and retail industries to complement our restaurant acumen and enhance our brand management, analytics and innovation. This model keeps the customer at the center of our decision-making and focuses on continuous innovation and productivity to drive sustainable sales and profit growth. In addition, we believe that substantial development opportunities remain for our concepts in the U.S. and internationally.

We continue to balance near-term growth in market share with investments to achieve sustainable growth. In 2014, our key growth strategies, which are enabled by continued improvements in infrastructure and organizational effectiveness include:

Grow Comparable Restaurant Sales. We plan to continue to remodel our restaurants, use limited-time offers and multimedia marketing campaigns to drive traffic, selectively expand the lunch daypart and introduce innovative menu items, including through extensive menu refresh initiatives at Carrabba’s Italian Grill and Bonefish Grill, that match evolving consumer preferences.

Pursue New Domestic Development Opportunities with Strong Unit Level Economics. We believe that a substantial development opportunity remains for our concepts in the U.S. Our top domestic development priority is Bonefish Grill unit growth. We expect to open between 55 and 60 system-wide locations in 2014 of which we expect that approximately 50% will be domestic opportunities.


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BLOOMIN’ BRANDS, INC.

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

Pursue New Strategic International Development in Selected Markets. We believe the international business represents a significant growth opportunity and that we are well-positioned to continue to expand outside the U.S. We continue to focus on existing geographic regions in Latin America and Asia, with strategic expansion in selected emerging and high growth developed markets. We are focusing our existing market growth in Brazil and new market growth in China. We expect that approximately 50% of our new units in 2014 will be international opportunities, but will shift to a higher weight of international units as we continue to implement our international expansion plans.

To further development opportunities outside the U.S., we amended our royalty agreement with the Carrabba’s Founders. The amendment is effective June 1, 2014 and provides that no continuing royalty fee will be paid to the founders for Carrabba’s restaurants located outside the United States. Each Carrabba’s restaurant located outside the United States will pay a one-time lump sum royalty fee, which varies depending on the size of the restaurant.  We plan to expand Carrabba’s Italian Grill in Brazil, with the first opening expected in 2015.
The combination of macro-economic and other factors have put considerable pressure on sales in the casual dining industry both domestically and in our South Korean market.

Domestically, the ongoing impacts of high unemployment, continued reduced access to credit, governmental spending and budget matters, other national, regional and local regulatory and economic conditions, gasoline prices, reduced disposable consumer income and consumer confidence have had a negative effect on discretionary consumer spending.  

In our South Korean market, higher levels of household debt have impacted discretionary consumer spending, particularly in the casual dining environment. We expect an increasingly competitive market and reduced discretionary spending in South Korea to affect our comparable restaurant sales at least through the next 12 months.

As the macro-economic and other conditions persist domestically and in our South Korean market, we will continue to face increased pressure with respect to our pricing, traffic levels and commodity costs.  We believe that in this environment, we will need to maintain our focus on value and innovation as well as refreshing our restaurant base to continue to drive sales.
 
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 per restaurant to measure changes in customer traffic, pricing and development of the brand;

Comparable restaurant sales—year-over-year comparison of sales volumes for domestic, 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 and, in historical periods, unconsolidated joint venture restaurants, regardless of ownership, to interpret the overall health of our brands;

Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income, Adjusted diluted earnings per share, EBITDA and Adjusted EBITDA—non-GAAP financial measures utilized to evaluate

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

our operating performance, and for which definitions, usefulness and reconciliations are described in more detail in the “Non-GAAP Financial Measures” section below; and

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

Change in Fiscal Year End

On January 3, 2014, our Board of Directors approved a change in our fiscal year end from a calendar year ending on December 31 to a 52-53 week year ending on the last Sunday in December, effective beginning with fiscal year 2014. We believe the change in our fiscal year end provides numerous benefits, including aligning our reporting periods to be more consistent with peer restaurant companies and improving comparability between periods by removing the trading day effect on Restaurant sales and operating margins. We will continue reporting our Brazilian operations, on a calendar-based one-month lag. All other international operations will be reported on a 52-53 week reporting period contemporaneously with the domestic operations.

We made the fiscal year change on a prospective basis and have not adjusted operating results for prior periods. The change impacts the prior year comparability of our fiscal quarters and annual period in 2014 and will result in shifts in the quarterly periods, which will have an impact on our quarterly financial results. The twenty-six weeks ended June 29, 2014 included one less operating day than the comparable prior year period and we estimate that the impact is approximately $7.5 million and $1.5 million on Total revenues and Net income attributable to Bloomin’ Brands, respectively. There was no impact to the quarterly financial results for the thirteen weeks ended June 29, 2014.

The impact of the change in the reporting periods for fiscal year 2014 is as follows:

FISCAL PERIOD
 
2014 REPORTING PERIOD
 
2014 FISCAL
PERIOD DAYS
 
COMPARABLE
2013 FISCAL
PERIOD DAYS
 
FISCAL YEAR CHANGE IMPACT
(in operating days)
First fiscal quarter
 
January 1, 2014 to March 30, 2014
 
89
 
90
 
(1)
Second fiscal quarter
 
March 31, 2014 to June 29, 2014
 
91
 
91
 
Third fiscal quarter
 
June 30, 2014 to September 28, 2014
 
91
 
92
 
(1)
Fourth fiscal quarter
 
September 29, 2014 to December 28, 2014
 
91
 
92
 
(1)
Fiscal year
 
January 1, 2014 to December 28, 2014
 
362
 
365
 
(3)







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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:

 
JUNE 29,
 
JUNE 30,
 
2014
 
2013
Number of restaurants (at end of the period):
 
 
 
Outback Steakhouse
 
 
 
Company-owned—domestic
650

 
663

Company-owned—international (1) (2)
172

 
117

Franchised—domestic
104

 
106

Franchised and joint venture—international (1)
51

 
93

Total
977

 
979

Carrabba’s Italian Grill
 
 
 
Company-owned
240

 
234

Franchised
1

 
1

Total
241

 
235

Bonefish Grill
 
 
 
Company-owned
193

 
175

Franchised
5

 
7

Total
198

 
182

Fleming’s Prime Steakhouse and Wine Bar
 
 
 
Company-owned
66

 
65

Roy’s
 
 
 
Company-owned
20

 
22

System-wide total
1,502

 
1,483

____________________
(1)
Effective November 1, 2013, we acquired a controlling interest in the Brazilian Joint Venture resulting in the consolidation and reporting of 47 restaurants (as of the acquisition date) as Company-owned locations, which are reported as unconsolidated joint venture locations in the historical period presented.
(2)
The restaurant count for Brazil is reported as of May 31, 2014 to correspond with the balance sheet date of this subsidiary and, therefore, excludes two restaurants that opened in June 2014. Restaurant counts for our Brazilian operations were reported as of June 30th in the historical period presented.

We operate restaurants under brands that have similar economic characteristics, nature of products and services, class of customer and distribution methods, and as a result, aggregate our operating segments into a single reporting segment.




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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, percentages that items in our Consolidated Statements of Operations and Comprehensive Income are in relation to Total revenues or Restaurant sales, as indicated:

 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Revenues
 

 
 
 
 
 
 
Restaurant sales
99.4
 %
 
98.9
 %
 
99.4
 %
 
99.0
 %
Other revenues
0.6

 
1.1

 
0.6

 
1.0

Total revenues
100.0

 
100.0

 
100.0

 
100.0

Costs and expenses
 

 
 

 
 

 
 
Cost of sales (1)
32.5

 
32.3

 
32.5

 
32.3

Labor and other related (1)
27.4

 
28.2

 
27.2

 
27.9

Other restaurant operating (1)
24.0

 
23.6

 
23.1

 
22.5

Depreciation and amortization
4.4

 
4.0

 
4.2

 
3.8

General and administrative
6.5

 
6.4

 
6.4

 
6.5

Provision for impaired assets and restaurant closings
0.1

 
0.1

 
0.3

 
0.1

Income from operations of unconsolidated affiliates

 
(0.3
)
 

 
(0.3
)
Total costs and expenses
94.4

 
93.3

 
93.3

 
92.2

Income from operations
5.6

 
6.7

 
6.7

 
7.8

Loss on extinguishment and modification of debt
(1.0
)
 
(1.4
)
 
(0.5
)
 
(0.7
)
Other income (expense), net
*

 
(*)

 
*

 
(*)

Interest expense, net
(1.3
)
 
(1.8
)
 
(1.4
)
 
(1.8
)
Income before provision (benefit) for income taxes
3.3

 
3.5

 
4.8

 
5.3

Provision (benefit) for income taxes
0.8

 
(4.0
)
 
1.1

 
(1.4
)
Net income
2.5

 
7.5

 
3.7

 
6.7

Less: net income attributable to noncontrolling interests
0.1

 
0.2

 
0.2

 
0.2

Net income attributable to Bloomin’ Brands
2.4
 %
 
7.3
 %
 
3.5
 %
 
6.5
 %
 
 
 
 
 
 
 
 
Net income
2.5
 %
 
7.5
 %
 
3.7
 %
 
6.7
 %
Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
1.7

 
(0.8
)
 
0.6

 
(0.6
)
Comprehensive income
4.2

 
6.7

 
4.3

 
6.1

Less: comprehensive income attributable to noncontrolling interests
0.1

 
0.2

 
0.2

 
0.2

Comprehensive income attributable to Bloomin’ Brands
4.1
 %
 
6.5
 %
 
4.1
 %
 
5.9
 %
________________
(1)
As a percentage of Restaurant sales.
*
Less than 1/10th of one percent of Total revenues.



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BLOOMIN’ BRANDS, INC.

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

RESTAURANT SALES

Following is a summary of the changes in restaurants sales for the thirteen and twenty-six weeks ended June 29, 2014:
(dollars in millions):
THIRTEEN WEEKS ENDED
 
TWENTY-SIX WEEKS ENDED
For the period ended June 30, 2013
$
1,008.0

 
$
2,090.3

Change from:
 
 
 
Brazil acquisition (1)
71.6

 
139.5

Restaurant openings
34.6

 
66.2

Comparable restaurant sales
4.5

 
(10.3
)
Restaurant closings
(14.3
)
 
(23.2
)
Change in fiscal year

 
(7.5
)
For the period ended June 29, 2014
$
1,104.4

 
$
2,255.0

____________________
(1)
Includes restaurant sales for the 47 formerly unconsolidated joint venture restaurants in Brazil that were acquired November 1, 2013. Sales for restaurants opened in Brazil after November 1, 2013, are included in restaurant openings.

The increase in Restaurant sales in the thirteen weeks ended June 29, 2014 was primarily attributable to: (i) the consolidation of restaurant sales generated by restaurants in Brazil that were acquired November 1, 2013, (ii) the opening of 65 new restaurants not included in our comparable restaurant sales base and (iii) an increase in domestic comparable restaurant sales at our domestic existing restaurants. The increase in restaurant sales was partially offset by the closing of 29 restaurants since March 31, 2013, and lower comparable restaurant sales in South Korea.

For the twenty-six weeks ended June 29, 2014, the increase in Restaurant sales was primarily attributable to the consolidation of restaurant sales generated by restaurants in Brazil that were acquired November 1, 2013 and the opening of 73 new restaurants not included in our comparable restaurant sales base. The increase in restaurant sales was partially offset by: (i) the closing of 32 restaurants since December 31, 2012, (ii) a decrease in comparable restaurant sales at our existing restaurants, primarily in South Korea and (iii) one less operating day due to a change in our fiscal year-end.


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BLOOMIN’ BRANDS, INC.

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

Comparable Domestic Restaurant Sales and Menu Price Increases
Following is a summary of comparable domestic restaurant sales and domestic general menu price increases:
 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Comparable restaurant sales (stores open 18 months or more):
 
 
 
 
 

 
 
Outback Steakhouse
0.9
 %
 
2.8
%
 
0.8
 %
 
2.6
 %
Carrabba’s Italian Grill
(1.2
)%
 
0.3
%
 
(1.5
)%
 
(0.7
)%
Bonefish Grill
0.3
 %
 
0.2
%
 
(0.6
)%
 
0.4
 %
Fleming’s Prime Steakhouse and Wine Bar
3.6
 %
 
3.8
%
 
2.6
 %
 
4.5
 %
Combined (concepts above)
0.6
 %
 
2.0
%
 
0.3
 %
 
1.8
 %
Year over year percentage change:
 
 
 
 
 

 
 
Menu price increases: (1)
 
 
 
 
 

 
 
Outback Steakhouse
2.1
 %
 
2.7
%
 
2.3
 %
 
2.4
 %
Carrabba’s Italian Grill
2.6
 %
 
2.2
%
 
2.7
 %
 
1.8
 %
Bonefish Grill
2.8
 %
 
1.9
%
 
2.7
 %
 
1.9
 %
Fleming’s Prime Steakhouse and Wine Bar
3.4
 %
 
3.3
%
 
3.6
 %
 
2.7
 %
____________________
(1)
The stated menu price changes exclude the impact of product mix shifts to new menu offerings.

Our comparable domestic restaurant sales represent the growth from restaurants opened 18 months or more. For the thirteen weeks ended June 29, 2014, blended domestic comparable restaurant sales increased due to increases in general menu prices offset by changes in the mix in our product sales. Changes in our product mix were driven primarily by lunch expansion and promotions. Traffic for the thirteen weeks ended June 29, 2014 was flat compared to the three months ended June 30, 2013.
For the twenty-six weeks ended June 29, 2014, blended domestic comparable restaurant sales increased due to increases in general menu prices offset by changes in the mix in our product sales and decreases in customer traffic. Changes in product mix were due to lunch expansion and promotions. Customer traffic decreased primarily due to unfavorable winter weather conditions and continuing macro-economic conditions that have had a negative effect on discretionary consumer spending, partially offset by lunch expansion across certain concepts.

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BLOOMIN’ BRANDS, INC.

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

Average Domestic Restaurant Unit Volumes and Operating Weeks
Following is a summary of the domestic average restaurant unit volumes and operating weeks for:
 
THIRTEEN
WEEKS ENDED
JUNE 29, 2014
 
THREE
MONTHS ENDED
JUNE 30, 2013
 
TWENTY-SIX
WEEKS ENDED
JUNE 29, 2014
 
SIX
MONTHS ENDED
JUNE 30, 2013
Average restaurant unit volumes (weekly):
 
 
 
 
 
 
 
Outback Steakhouse
$
63,836

 
$<