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 September 24, 2017
 
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/e7c94dd13f27cdb9f1639f16ac06b5fd-blmnlogov3.jpg

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

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

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

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

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

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

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

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

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

As of October 31, 2017, 91,269,593 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 September 24, 2017
(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)
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
ASSETS
 
 
 
Current Assets
 
 
 
Cash and cash equivalents
$
98,697

 
$
127,176

Current portion of restricted cash and cash equivalents
3,735

 
7,886

Inventories
51,017

 
65,231

Other current assets, net
105,261

 
190,226

Total current assets
258,710

 
390,519

Restricted cash

 
1,124

Property, fixtures and equipment, net
1,184,251

 
1,237,148

Goodwill
315,264

 
310,055

Intangible assets, net
527,743

 
535,523

Deferred income tax assets
59,801

 
38,764

Other assets, net
127,185

 
129,146

Total assets
$
2,472,954

 
$
2,642,279

 
 
 
 
 
(CONTINUED...)
 
 
 
 
 

3

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY
 

 
 

Current Liabilities
 

 
 

Accounts payable
$
183,439

 
$
195,371

Accrued and other current liabilities
225,870

 
204,415

Unearned revenue
248,627

 
388,543

Current portion of long-term debt
58,826

 
35,079

Total current liabilities
716,762

 
823,408

Deferred rent
156,962

 
151,130

Deferred income tax liabilities
17,764

 
16,709

Long-term debt, net
1,141,866

 
1,054,406

Deferred gain on sale-leaseback transactions, net
188,363

 
181,696

Other long-term liabilities, net
214,026

 
219,030

Total liabilities
2,435,743

 
2,446,379

Commitments and contingencies (Note 15)


 


Mezzanine Equity
 
 
 
Redeemable noncontrolling interests
577

 
547

Stockholders’ Equity
 
 
 
Bloomin’ Brands Stockholders’ Equity
 
 
 
Preferred stock, $0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of September 24, 2017 and December 25, 2016

 

Common stock, $0.01 par value, 475,000,000 shares authorized; 91,164,470 and 103,922,110 shares issued and outstanding as of September 24, 2017 and December 25, 2016, respectively
912

 
1,039

Additional paid-in capital
1,077,607

 
1,079,583

Accumulated deficit
(961,318
)
 
(786,780
)
Accumulated other comprehensive loss
(91,547
)
 
(111,143
)
Total Bloomin’ Brands stockholders’ equity
25,654

 
182,699

Noncontrolling interests
10,980

 
12,654

Total stockholders’ equity
36,634

 
195,353

Total liabilities, mezzanine equity and stockholders’ equity
$
2,472,954

 
$
2,642,279

 
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
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017

SEPTEMBER 25, 2016

SEPTEMBER 24, 2017

SEPTEMBER 25, 2016
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
937,852

 
$
998,806

 
$
3,093,297

 
$
3,229,377

Franchise and other revenues
11,047

 
6,581

 
32,407

 
18,786

Total revenues
948,899

 
1,005,387

 
3,125,704

 
3,248,163

Costs and expenses
 

 
 

 
 

 
 

Cost of sales
296,632

 
322,080

 
984,510

 
1,044,179

Labor and other related
285,325

 
290,032

 
907,580

 
921,992

Other restaurant operating
231,293

 
243,175

 
723,357

 
747,189

Depreciation and amortization
47,826

 
48,551

 
142,479

 
145,206

General and administrative
66,063

 
65,072

 
215,059

 
208,663

Provision for impaired assets and restaurant closings
18,578

 
4,743

 
38,253

 
49,183

Total costs and expenses
945,717

 
973,653

 
3,011,238

 
3,116,412

Income from operations
3,182

 
31,734

 
114,466

 
131,751

Loss on defeasance, extinguishment and modification of debt

 
(418
)
 
(260
)
 
(26,998
)
Other income, net
7,531

 
2,079

 
14,761

 
2,059

Interest expense, net
(10,705
)
 
(10,217
)
 
(29,389
)
 
(33,394
)
Income before (benefit) provision for income taxes
8

 
23,178

 
99,578

 
73,418

(Benefit) provision for income taxes
(4,038
)
 
1,950

 
14,280

 
24,372

Net income
4,046

 
21,228

 
85,298

 
49,046

Less: net (loss) income attributable to noncontrolling interests
(290
)
 
495

 
1,422

 
3,015

Net income attributable to Bloomin’ Brands
$
4,336

 
$
20,733

 
$
83,876

 
$
46,031

 
 
 
 
 
 
 
 
Net income
$
4,046

 
$
21,228

 
$
85,298

 
$
49,046

Other comprehensive income:
 
 
 
 
 
 
 
Foreign currency translation adjustment
6,399

 
45,471

 
17,770

 
58,151

Unrealized gain (loss) on derivatives, net of tax
370

 
672

 
(139
)
 
(4,250
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax
492

 
947

 
1,919

 
2,902

Comprehensive income
11,307

 
68,318

 
104,848

 
105,849

Less: comprehensive (loss) income attributable to noncontrolling interests
(306
)
 
2,509

 
1,376

 
7,435

Comprehensive income attributable to Bloomin’ Brands
$
11,613

 
$
65,809

 
$
103,472

 
$
98,414

 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
Basic
$
0.05

 
$
0.19

 
$
0.85

 
$
0.41

Diluted
$
0.05

 
$
0.18

 
$
0.83

 
$
0.40

Weighted average common shares outstanding:
 
 
 
 
 
 
 
Basic
92,485

 
109,399

 
98,137

 
113,553

Diluted
95,655

 
112,430

 
101,497

 
116,516

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.08

 
$
0.07

 
$
0.24

 
$
0.21

 
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, EXCEPT PER SHARE DATA, UNAUDITED)

 
BLOOMIN’ BRANDS, INC.
 
 
 
 

COMMON STOCK

ADDITIONAL
PAID-IN
CAPITAL
 
ACCUM-ULATED
DEFICIT

ACCUMULATED
OTHER
COMPREHENSIVE
LOSS

NON-
CONTROLLING
INTERESTS

TOTAL
 
SHARES
 
AMOUNT
 
 
 
 
 
Balance, December 25, 2016
103,922

 
$
1,039

 
$
1,079,583

 
$
(786,780
)
 
$
(111,143
)
 
$
12,654

 
$
195,353

Net income

 

 

 
83,876

 

 
1,594

 
85,470

Other comprehensive income (loss), net of tax

 

 

 

 
19,596

 
(76
)
 
19,520

Cash dividends declared, $0.24 per common share

 

 
(23,677
)
 

 

 

 
(23,677
)
Repurchase and retirement of common stock
(13,807
)
 
(138
)
 

 
(272,598
)
 

 

 
(272,736
)
Stock-based compensation

 

 
17,969

 

 

 

 
17,969

Common stock issued under stock plans (1)
1,049

 
11

 
4,617

 
(180
)
 

 

 
4,448

Change in the redemption value of redeemable interests

 

 
(172
)
 

 

 

 
(172
)
Purchase of noncontrolling interests, net of tax of $45

 

 
(713
)
 

 

 
(180
)
 
(893
)
Distributions to noncontrolling interests

 

 

 

 

 
(4,158
)
 
(4,158
)
Contributions from noncontrolling interests

 

 

 

 

 
727

 
727

Cumulative-effect from a change in accounting principle

 

 

 
14,364

 

 

 
14,364

Other

 

 

 

 

 
419

 
419

Balance, September 24, 2017
91,164

 
$
912

 
$
1,077,607

 
$
(961,318
)
 
$
(91,547
)
 
$
10,980

 
$
36,634

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(CONTINUED...)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


6

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 27, 2015
119,215

 
$
1,192

 
$
1,072,861

 
$
(518,360
)
 
$
(147,367
)
 
$
13,574

 
$
421,900

Net income

 

 

 
46,031

 

 
2,420

 
48,451

Other comprehensive income (loss), net of tax

 

 

 

 
52,383

 
(89
)
 
52,294

Cash dividends declared, $0.21 per common share

 

 
(23,981
)
 

 

 

 
(23,981
)
Repurchase and retirement of common stock
(14,831
)
 
(148
)
 

 
(274,744
)
 

 

 
(274,892
)
Stock-based compensation

 


 
18,390

 

 

 

 
18,390

Tax shortfall from stock-based compensation

 

 
(410
)
 

 

 

 
(410
)
Common stock issued under stock plans (1)
811

 
8

 
3,654

 
(399
)
 

 

 
3,263

Change in the redemption value of redeemable interests

 

 
(1,349
)
 

 

 

 
(1,349
)
Purchase of noncontrolling interests, net of tax of $1,504

 

 
(1,000
)
 

 

 
581

 
(419
)
Distributions to noncontrolling interests

 

 

 

 

 
(4,245
)
 
(4,245
)
Contributions from noncontrolling interests

 

 

 

 

 
556

 
556

Balance, September 25, 2016
105,195

 
$
1,052

 
$
1,068,165

 
$
(747,472
)
 
$
(94,984
)
 
$
12,797

 
$
239,558

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

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

7

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Cash flows provided by operating activities:
 
 
 
Net income
$
85,298

 
$
49,046

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

 
 

Depreciation and amortization
142,479

 
145,206

Amortization of deferred discounts and issuance costs
2,240

 
3,862

Amortization of deferred gift card sales commissions
18,530

 
21,146

Provision for impaired assets and restaurant closings
38,253

 
49,183

Stock-based and other non-cash compensation expense
19,775

 
17,646

Deferred income tax (benefit) expense
(212
)
 
1,764

Gain on sale of a business or subsidiary
(15,787
)
 
(2,084
)
Loss on defeasance, extinguishment and modification of debt
260

 
26,998

Recognition of deferred gain on sale-leaseback transactions
(8,836
)
 
(3,353
)
Excess tax benefit from stock-based compensation

 
(1,214
)
Other non-cash items, net
4,690

 
(1,516
)
Change in assets and liabilities
(63,675
)
 
(83,124
)
Net cash provided by operating activities
223,015

 
223,560

Cash flows (used in) provided by investing activities:
 

 
 

Proceeds from sale-leaseback transactions, net
83,866

 
320,287

Proceeds from sale of a business, net of cash divested
38,980

 
23,009

Capital expenditures
(183,820
)
 
(185,581
)
Other investments, net
(1,561
)
 
(3,813
)
Net cash (used in) provided by investing activities
$
(62,535
)
 
$
153,902

 
 
 
 
 
(CONTINUED...)
 

8

Table of Contents
BLOOMIN’ BRANDS, INC.

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


 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Cash flows used in financing activities:
 
 
 
Proceeds from issuance of long-term debt, net
$
124,443

 
$
364,211

Defeasance, extinguishment and modification of debt

 
(478,906
)
Repayments of long-term debt
(64,578
)
 
(221,266
)
Proceeds from borrowings on revolving credit facilities, net
467,500

 
591,500

Repayments of borrowings on revolving credit facilities
(417,000
)
 
(377,500
)
Proceeds from failed sale-leaseback transactions, net
5,942

 

Proceeds from the exercise of share-based compensation
4,628

 
3,662

Distributions to noncontrolling interests
(4,158
)
 
(4,245
)
Contributions from noncontrolling interests
727

 
556

Purchase of limited partnership and noncontrolling interests
(5,354
)
 
(10,778
)
Repayments of partner deposits and accrued partner obligations
(11,763
)
 
(14,985
)
Repurchase of common stock
(272,916
)
 
(275,291
)
Excess tax benefit from stock-based compensation

 
1,214

Cash dividends paid on common stock
(23,677
)
 
(23,981
)
Net cash used in financing activities
(196,206
)
 
(445,809
)
Effect of exchange rate changes on cash and cash equivalents
1,972

 
5,250

Net decrease in cash, cash equivalents and restricted cash
(33,754
)
 
(63,097
)
Cash, cash equivalents and restricted cash as of the beginning of the period
136,186

 
155,374

Cash, cash equivalents and restricted cash as of the end of the period
$
102,432

 
$
92,277

Supplemental disclosures of cash flow information:
 

 
 

Cash paid for interest
$
27,897

 
$
32,726

Cash paid for income taxes, net of refunds
28,134

 
51,833

Supplemental disclosures of non-cash investing and financing activities:
 

 
 

Change in acquisition of property, fixtures and equipment included in accounts payable or capital lease liabilities
$
6,375

 
$
17,174

Purchase of noncontrolling interest included in accrued and other current liabilities

 
1,414


 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.    Description of the Business and Basis of Presentation

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

Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for fair financial statement presentation for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 25, 2016.

Recently Adopted Financial Accounting Standards - Effective December 26, 2016, the Company adopted Accounting Standards Update (“ASU”) 2016-09: “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU No. 2016-09”). ASU No. 2016-09 simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. Upon adoption, the Company made an accounting policy election to recognize forfeitures as they occur. Using the modified retrospective transition method required under the standard, the Company recorded a cumulative-effect adjustment for the adoption of ASU No. 2016-09 of $14.4 million for previously unrecognized excess tax benefits, which increased Deferred tax assets and reduced Accumulated deficit. The recognition of excess tax benefits and tax shortfalls in the income statement and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. The remaining provisions of ASU No. 2016-09 did not have a material impact on the Company’s Consolidated Financial Statements.

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

10

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

The following table provides additional details by financial statement line item of the adjusted presentation in the Company’s Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks ended September 25, 2016:
 
THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2016
(dollars in thousands)
AS REPORTED
 
2016-18 IMPACT
 
ADJUSTED
Cash flows provided by investing activities:
 
 
 
 
 
Decrease in restricted cash
$
40,977

 
$
(40,977
)
 
$

Increase in restricted cash
(18,739
)
 
18,739

 

Net cash provided by investing activities
$
176,140

 
$
(22,238
)
 
$
153,902

 
 
 
 
 
 
Net decrease in cash, cash equivalents and restricted cash
$
(40,863
)
 
$
(22,234
)
 
$
(63,097
)
Cash, cash equivalents and restricted cash as of the beginning of the period
132,337

 
23,037

 
155,374

Cash, cash equivalents and restricted cash as of the end of the period
$
91,474

 
$
803

 
$
92,277


Recently Issued Financial Accounting Standards Not Yet Adopted - In May 2014, the Financial Accounting Standards Board (“the FASB”) issued 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. The standard also requires additional disclosures about the nature, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company continues to assess the overall impact of the adoption of ASU No. 2014-09 on its Consolidated Financial Statements and related disclosures, and anticipates testing new controls and processes designed to comply with ASU No. 2014-09 throughout the remainder of 2017 to permit adoption on January 1, 2018.

While the Company continues to assess all potential impacts of the standard, it currently believes the most significant impact relates to accounting for gift card breakage and advertising fees charged to franchisees. Under the new standard, the Company expects to recognize gift card breakage proportional to actual gift card redemptions. Advertising fees charged to franchisees, which are currently recorded as a reduction to Other restaurant operating expenses, will be recognized as revenue. In addition, initial franchise fees will be recognized over the term of the franchise agreement, which is not expected to have a material impact on the Company’s Consolidated Financial Statements.

The Company intends to adopt ASU No. 2014-09 using the full retrospective transition method, which will result in restating each prior reporting period presented in the year of adoption. Additionally, a cumulative effect adjustment will be recorded to the opening balance of accumulated deficit as of the first day of fiscal year 2016, the earliest period presented. Adoption of ASU No. 2014-09 will also have a significant impact on the Company’s disclosures.

In February 2016, the FASB issued ASU No. 2016-02: “Leases (Topic 842)” (“ASU No. 2016-02”). ASU No. 2016-02 requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. ASU No. 2016-02 is effective for the Company in fiscal year 2019 and must be adopted using a modified retrospective approach. The Company is currently evaluating the impact that the adoption of ASU No. 2016-02 will have on its Consolidated Financial Statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU No. 2016-15”) which provides guidance on the statement of cash flows presentation of certain transactions where diversity in practice exists. ASU No. 2016-15 will be effective for the Company in fiscal year 2018, and early adoption is permitted. The Company does not expect ASU No. 2016-15 to have a material impact on its Consolidated Financial Statements.

11

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment,” (“ASU No. 2017-04”). ASU No. 2017-04 eliminates the second step of goodwill impairment, which requires a hypothetical purchase price allocation. Under ASU No. 2017-04, goodwill impairment will be calculated as the amount a reporting unit’s carrying value exceeds its calculated fair value. ASU No. 2017-04 will be applied prospectively and is effective for the Company in fiscal year 2020, with early adoption permitted. The Company does not expect the adoption of ASU No. 2017-04 to have a material impact on its Consolidated Financial Statements.

In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU No. 2017-12”) which provides guidance for reporting the economic results of hedging activities and to simplify the disclosures of risk exposures and hedging strategies. ASU No. 2017-12 will be effective for the Company in fiscal year 2019, with early adoption permitted. The Company is currently evaluating the impact of ASU No. 2017-12 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.    Disposals

Refranchising - During the thirteen weeks ended June 25, 2017, the Company completed the sale of 54 of its existing U.S. Company-owned Outback Steakhouse and Carrabba’s Italian Grill locations to two of its existing franchisees (the “Buyers”) for aggregate cash proceeds of $36.2 million, net of certain closing adjustments. The transactions resulted in an aggregate net gain of $7.4 million, recorded within Other income, net, in the Consolidated Statements of Operations and Other Comprehensive Income, and is net of an impairment of $1.7 million related to certain Company-owned assets leased to the Buyers. Included in the cash proceeds are initial franchise fees of $2.2 million that are recorded within Franchise and other revenues in the Consolidated Statements of Operations and Other Comprehensive Income.

These restaurants are now operated as franchises by the Buyers and the Company remains contingently liable on certain real estate lease agreements assigned to the Buyers. See Note 15 - Commitments and Contingencies for additional details regarding lease guarantees.

Other - During the thirteen weeks ended September 24, 2017, the Company closed and completed the sale of one U.S. Company-owned Carrabba’s Italian Grill location for a purchase price of $9.9 million, net of closing costs. The sale resulted in a net gain of $8.4 million, recorded within Other income, net, in the Consolidated Statements of Operations and Other Comprehensive Income.

Outback Steakhouse South Korea - In 2016, the Company completed the sale of its Outback Steakhouse subsidiary in South Korea (“Outback Steakhouse South Korea”). Following is the Income (loss) before income taxes of Outback Steakhouse South Korea included in the Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 25, 2016
 
SEPTEMBER 25, 2016
Income (loss) before income taxes (1)
$
2,246

 
$
(32,348
)
________________
(1)
Includes impairment charges of $39.6 million for Assets held for sale during the thirty-nine weeks ended September 25, 2016. Includes a gain of $2.1 million on the sale of Outback Steakhouse South Korea for the thirteen and thirty-nine weeks ended September 25, 2016.


12

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

3.    Impairments and Exit Costs

The components of Provision for impaired assets and restaurant closings are as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Impairment losses
 
 
 
 
 
 
 
U.S.
$
12,339

 
$
5,267

 
$
13,272

 
$
5,348

International
1,903

 

 
1,903

 
39,636

Total impairment losses
$
14,242

 
$
5,267

 
$
15,175

 
$
44,984

Restaurant closure expenses
 
 
 
 
 
 
 
U.S.
$
4,336

 
$
(524
)
 
$
23,078

 
$
4,325

International

 

 

 
(126
)
Total restaurant closure expenses
$
4,336

 
$
(524
)
 
$
23,078

 
$
4,199

Provision for impaired assets and restaurant closings
$
18,578

 
$
4,743

 
$
38,253

 
$
49,183


Closure Initiative and Restructuring Costs - Following is a summary of expenses related to the 2017 Closure Initiative and Bonefish Restructuring (the “Closure Initiatives”) recognized in the Company’s Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Impairment, facility closure and other expenses
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$
1,848

 
$

 
$
19,051

 
$

Bonefish Restructuring (2)
1,924

 
(685
)
 
2,733

 
3,695

Provision for impaired assets and restaurant closings
$
3,772

 
$
(685
)
 
$
21,784

 
$
3,695

Severance and other expenses
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$

 
$

 
$
2,948

 
$

Bonefish Restructuring (2)

 

 

 
601

General and administrative
$

 
$

 
$
2,948

 
$
601

Reversal of deferred rent liability
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$

 
$

 
$
(4,761
)
 
$

Bonefish Restructuring (2)

 
(609
)
 

 
(3,410
)
Other restaurant operating
$

 
$
(609
)
 
$
(4,761
)
 
$
(3,410
)
 
$
3,772

 
$
(1,294
)
 
$
19,971

 
$
886

________________
(1)
On February 15, 2017 and August 28, 2017, the Company decided to close 43 underperforming restaurants in the U.S. and two Abbraccio restaurants outside of the core markets of São Paulo and Rio de Janeiro in Brazil (the “2017 Closure Initiative”). Most of these restaurants were closed in 2017 to date, with the balance mostly closing as leases and certain operating covenants expire or are amended or waived. Expenses of $1.9 million related to the 2017 Closure Initiative for the thirteen and thirty-nine weeks ended September 24, 2017 were recognized within the International segment, with all other expenses recognized within the U.S. segment.
(2)
On February 12, 2016, the Company decided to close 14 Bonefish Grill restaurants (the “Bonefish Restructuring”). The Company expects to substantially complete these restaurant closings through the first quarter of 2019. Expenses related to the Bonefish Restructuring are recognized within the U.S. segment.


13

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Surplus Properties - The Company owns certain U.S. restaurant properties and assets that are no longer utilized to operate its restaurant concepts (“surplus properties”). Surplus properties primarily consist of closed properties which include land and a building, and liquor licenses not needed for operations. Surplus properties may be classified in the Consolidated Balance Sheets as assets held for sale or as assets held and used when the Company does not expect to sell these assets within the next 12 months. Following is a summary of the carrying value and number of surplus properties as of the dates indicated:
(dollars in thousands)
CONSOLIDATED BALANCE SHEET CLASSIFICATION
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Surplus properties - assets held for sale
Other current assets, net
 
$
3,690

 
$
676

Surplus properties - assets held and used
Property, fixtures and equipment, net
 
23,599

 
34,501

Total surplus properties
 
 
$
27,289

 
$
35,177

 
 
 
 
 
 
Number of surplus properties owned
 
 
21

 
18


During the thirteen and thirty-nine weeks ended September 24, 2017, the Company recognized impairment charges of $9.5 million in connection with the remeasurement of certain held and used surplus properties currently leased to the owners of its former restaurant concepts.

Other Impairments - During the thirteen and thirty-nine weeks ended September 25, 2016, the Company recognized impairment charges of $3.2 million for its Puerto Rico subsidiary, within the U.S. segment.

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

Projected Future Expenses and Cash Expenditures - The Company currently expects to incur additional charges for the Closure Initiatives over the next two years, including costs associated with lease obligations, employee terminations and other closure-related obligations. Following is a summary of remaining estimated pre-tax expense by type as of September 24, 2017:
Estimated future expense (dollars in millions)
2017 CLOSURE INITIATIVE
 
BONEFISH RESTRUCTURING
Lease related liabilities, net of subleases
$
3.2

to
$
4.1

 
$
2.2

to
$
5.1

Employee severance and other obligations
0.4

to
0.8

 
0.3

to
0.5

Total estimated future expense
$
3.6

to
$
4.9

 
$
2.5

to
$
5.6

 
 
 
 
 
 
 
 
Total estimated future cash expenditures (dollars in millions)
$
25.3

to
$
29.5

 
$
10.1

to
$
12.3


Total future undiscounted cash expenditures for the 2017 Closure Initiative and Bonefish Restructuring, primarily related to lease liabilities, are expected to occur over the remaining lease terms with the final term ending in January 2029 and October 2024, respectively.


14

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, primarily associated with the Closure Initiatives, during the thirty-nine weeks ended September 24, 2017:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
Beginning of the period
$
6,557

Charges
24,426

Cash payments
(7,963
)
Adjustments
(1,348
)
End of the period (1)
$
21,672

________________
(1)
As of September 24, 2017, the Company had exit-related accruals of $6.4 million recorded in Accrued and other current liabilities and $15.3 million recorded in Other long-term liabilities, net in the Consolidated Balance Sheet.

4.    Earnings Per Share

The following table presents the computation of basic and diluted earnings per share:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(in thousands, except per share data)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Net income attributable to Bloomin’ Brands
$
4,336

 
$
20,733

 
$
83,876

 
$
46,031

 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
92,485

 
109,399

 
98,137

 
113,553

 
 
 
 
 
 
 
 
Effect of diluted securities:
 
 
 
 
 
 
 
Stock options
2,781

 
2,720

 
2,948

 
2,719

Nonvested restricted stock and restricted stock units
389

 
311

 
392

 
242

Nonvested performance-based share units

 

 
20

 
2

Diluted weighted average common shares outstanding
95,655

 
112,430

 
101,497

 
116,516

 
 
 
 
 
 
 
 
Basic earnings per share
$
0.05

 
$
0.19

 
$
0.85

 
$
0.41

Diluted earnings per share
$
0.05

 
$
0.18

 
$
0.83

 
$
0.40


Dilutive securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(shares in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Stock options
6,065

 
5,530

 
5,663

 
5,079

Nonvested restricted stock and restricted stock units
179

 
103

 
174

 
285

Nonvested performance-based share units
134

 
130

 
256

 
99



15

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

5.    Stock-based Compensation Plans

The Company recognized stock-based compensation expense as follows:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Stock options
$
2,705

 
$
2,929

 
$
8,404

 
$
8,971

Restricted stock and restricted stock units
2,527

 
2,322

 
7,769

 
6,901

Performance-based share units
(235
)
 
21

 
1,001

 
1,773

 
$
4,997

 
$
5,272

 
$
17,174

 
$
17,645


During the thirty-nine weeks ended September 24, 2017, the Company made grants to its employees of 1.3 million stock options, 0.6 million time-based restricted stock units and 0.4 million performance-based share units.

Assumptions used in the Black-Scholes option pricing model and the weighted-average fair value of option awards granted were as follows:
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Assumptions:
 
 
 
Weighted-average risk-free interest rate (1)
1.92
%
 
1.32
%
Dividend yield (2)
1.84
%
 
1.59
%
Expected term (3)
6.3 years

 
6.1 years

Weighted-average volatility (4)
33.72
%
 
35.18
%
 
 
 
 
Weighted-average grant date fair value per option
$
5.09

 
$
5.28

________________
(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 simplified method of estimating the expected term is used since the Company does not have significant historical exercise experience for its stock options.
(4)
Volatility is based on the historical volatilities of the Company’s stock.

The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of September 24, 2017:
 
UNRECOGNIZED COMPENSATION EXPENSE
(dollars in thousands)
 
REMAINING WEIGHTED-AVERAGE VESTING PERIOD
(in years)
Stock options
$
17,189

 
2.4
Restricted stock and restricted stock units
$
22,588

 
2.6
Performance-based share units
$
1,733

 
1.9

As of September 24, 2017, the maximum number of shares of common stock available for issuance pursuant to the Bloomin’ Brands, Inc. 2016 Omnibus Incentive Compensation Plan was 3,991,216.


16

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

6.    Other Current Assets, Net

Other current assets, net, consisted of the following:
(dollars in thousands)
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Prepaid expenses
$
36,481

 
$
35,298

Accounts receivable - gift cards, net
11,588

 
102,664

Accounts receivable - vendors, net
4,677

 
10,107

Accounts receivable - franchisees, net
3,345

 
1,677

Accounts receivable - other, net
32,274

 
20,497

Assets held for sale
4,055

 
1,331

Other current assets, net
12,841

 
18,652

 
$
105,261

 
$
190,226


7.     Property, Fixtures and Equipment, Net

During the thirty-nine weeks ended September 24, 2017, the Company entered into sale-leaseback transactions with third-parties in which it sold 26 restaurant properties at fair market value for gross proceeds of $92.5 million. In connection with the sale-leaseback transactions, the Company recorded deferred gains of $19.4 million, which are amortized to Other restaurant operating expense in the Consolidated Statements of Operations and Comprehensive Income over the initial term of each lease, ranging from 10 to 20 years.

8.     Goodwill and Intangible Assets, Net

The following table is a rollforward of goodwill:
(dollars in thousands)
U.S.
 
INTERNATIONAL
 
CONSOLIDATED
Balance as of December 25, 2016
$
172,424

 
$
137,631

 
$
310,055

Translation adjustments

 
6,866

 
6,866

Divestitures (1)
(1,657
)
 

 
(1,657
)
Balance as of September 24, 2017
$
170,767

 
$
144,497

 
$
315,264

________________
(1)
During the thirty-nine weeks ended September 24, 2017, the Company disposed of Goodwill in connection with the sale of 54 of its U.S. Company-owned Outback Steakhouse and Carrabba’s Italian Grill locations to existing franchisees.

The Company performed its annual assessment for impairment of goodwill and other indefinite-lived intangible assets during the fiscal second quarters of 2017 and 2016. In connection with these assessments, the Company did not record any goodwill or indefinite-lived intangible impairment charges.


17

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

9.    Long-term Debt, Net

Following is a summary of outstanding long-term debt:
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
(dollars in thousands)
OUTSTANDING BALANCE
 
INTEREST RATE
 
OUTSTANDING BALANCE
 
INTEREST RATE
Senior Secured Credit Facility:
 
 
 
 
 
 
 
Term loan A (1)
$
247,500

 
3.23
%
 
$
258,750

 
2.63
%
Term loan A-1
135,000

 
3.20
%
 
140,625

 
2.70
%
Term loan A-2
125,000

 
3.20
%
 

 
%
Revolving credit facility (1)
672,500

 
3.21
%
 
622,000

 
2.67
%
Total Senior Secured Credit Facility
$
1,180,000

 
 
 
$
1,021,375

 
 
PRP Mortgage Loan

 
%
 
47,202

 
3.21
%
Financing obligations
19,583

 
7.45% to 7.60%

 
19,595

 
7.45% to 7.60%

Capital lease obligations
2,138

 
 
 
2,364

 
 
Other notes payable
944

 
0.00% to 2.18%

 
1,776

 
0.00% to 7.00%

Less: unamortized debt discount and issuance costs
(1,973
)
 
 
 
(2,827
)
 
 
 
$
1,200,692

 
 
 
$
1,089,485

 
 
Less: current portion of long-term debt
(58,826
)
 
 
 
(35,079
)
 
 
Long-term debt, net
$
1,141,866

 
 
 
$
1,054,406

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

Credit Agreement Amendment - On May 22, 2017, OSI Restaurant Partners, LLC (“OSI”), a wholly-owned subsidiary of the Company, entered into an amendment (the “Amendment”) to its existing credit agreement, dated October 26, 2012 (as previously amended, the “Credit Agreement”). The Amendment provided an incremental Term loan A-2 in an aggregate principal amount of $125.0 million. No other material changes were made to the terms of OSI’s Credit Agreement as a result of the Amendment.

The following is a summary of required principal payments for the Amendment (dollars in thousands):
SCHEDULED QUARTERLY PAYMENT DATES
 
TERM LOAN A-2
September 30, 2017 through June 30, 2018
 
$
2,344

September 30, 2018 through March 31, 2019
 
$
3,125


Maturities - Following is a summary of principal payments of the Company’s total consolidated debt outstanding as of September 24, 2017:
(dollars in thousands)
SEPTEMBER 24, 2017
Year 1
$
58,826

Year 2
1,121,102

Year 3
519

Year 4
458

Year 5
310

Thereafter
19,477

Total
$
1,200,692


18

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Debt Covenants - As of September 24, 2017 and December 25, 2016, the Company was in compliance with its debt covenants.

10.    Redeemable Noncontrolling Interests

The Company consolidates subsidiaries in which it has noncontrolling interests that are permitted to deliver subsidiary shares in exchange for cash at a future date. The following table presents a rollforward of Redeemable noncontrolling interests during the periods indicated:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Balance, beginning of period
$
547

 
$
23,526

Change in redemption value of Redeemable noncontrolling interests
172

 
1,349

Foreign currency translation attributable to Redeemable noncontrolling interests
30

 
4,509

Net (loss) income attributable to Redeemable noncontrolling interests
(172
)
 
595

Purchase of Redeemable noncontrolling interests

 
(3,887
)
Balance, end of period
$
577

 
$
26,092


11.
Stockholders’ Equity

Share Repurchases - On July 26, 2016, the Company’s Board of Directors (“the Board”) approved a $300.0 million authorization (the “July 2016 Share Repurchase Program”). On April 21, 2017, the Board canceled the remaining $52.3 million of authorization under the July 2016 Share Repurchase Program and approved a new $250.0 million authorization (the “2017 Share Repurchase Program”). The 2017 Share Repurchase Program will expire on October 21, 2018. As of September 24, 2017, $55.0 million remained available for repurchase under the 2017 Share Repurchase Program. Following is a summary of the shares repurchased under the Company’s share repurchase programs during fiscal year 2017:

NUMBER OF SHARES
(in thousands)
 
AVERAGE REPURCHASE PRICE PER SHARE
 
AMOUNT
(dollars in thousands)
First fiscal quarter
2,887

 
$
18.37

 
$
53,053

Second fiscal quarter
7,030

 
$
20.72

 
145,675

Third fiscal quarter
3,890

 
$
19.03

 
74,008

Total common stock repurchases
13,807

 
$
19.75

 
$
272,736


Dividends - The Company declared and paid dividends per share during fiscal year 2017 as follows:
 
DIVIDENDS PER SHARE
 
AMOUNT
(dollars in thousands)
First fiscal quarter
$
0.08

 
$
8,254

Second fiscal quarter
0.08

 
8,054

Third fiscal quarter
0.08

 
7,369

Total cash dividends declared and paid
$
0.24

 
$
23,677


In October 2017, the Board declared a quarterly cash dividend of $0.08 per share, payable on November 22, 2017, to shareholders of record at the close of business on November 13, 2017.


19

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Accumulated Other Comprehensive Loss - Following are the components of Accumulated other comprehensive loss (“AOCL”):
(dollars in thousands)
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Foreign currency translation adjustment
$
(89,693
)
 
$
(107,509
)
Unrealized losses on derivatives, net of tax
(1,854
)
 
(3,634
)
Accumulated other comprehensive loss
$
(91,547
)
 
$
(111,143
)
 
Following are the components of Other comprehensive income (loss) during the periods presented:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Bloomin’ Brands:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
6,415

 
$
43,457

 
$
17,816

 
$
53,731

 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivatives, net of tax (1)
$
370

 
$
672

 
$
(139
)
 
$
(4,250
)
Reclassification of adjustment for loss on derivatives included in Net income, net of tax (2)
492

 
947

 
1,919

 
2,902

Total unrealized gain (loss) on derivatives, net of tax
$
862

 
$
1,619

 
$
1,780

 
$
(1,348
)
Other comprehensive income attributable to Bloomin’ Brands
$
7,277

 
$
45,076

 
$
19,596

 
$
52,383

 
 
 
 
 
 
 
 
Non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
(38
)
 
$
(65
)
 
$
(76
)
 
$
(89
)
Other comprehensive loss attributable to Non-controlling interests
$
(38
)
 
$
(65
)
 
$
(76
)
 
$
(89
)
 
 
 
 
 
 
 
 
Redeemable non-controlling interests:
 
 
 
 
 
 
 
Foreign currency translation adjustment
$
22

 
$
2,079

 
$
30

 
$
4,509

Other comprehensive income attributable to Redeemable non-controlling interests
$
22

 
$
2,079

 
$
30

 
$
4,509

________________
(1)
Unrealized gain (loss) on derivatives is net of tax (benefit) of $0.2 million and $0.4 million for the thirteen weeks ended September 24, 2017 and September 25, 2016, respectively, and ($0.1) million and ($2.7) million for the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively.
(2)
Reclassifications of adjustments for losses on derivatives are net of tax of $0.3 million and $0.6 million for the thirteen weeks ended September 24, 2017 and September 25, 2016, respectively, and $1.2 million and $1.9 million for the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively.

12.    Derivative Instruments and Hedging Activities

Interest Rate Risk - The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages economic risks, including interest rate risk, primarily by managing the amount, sources and duration of its debt funding and through the use of derivative financial instruments. The Company’s objectives in using interest rate derivatives, primarily interest rate swaps, are to add stability to interest expense and to manage its exposure to interest rate movements.
Currency Exchange Rate Risk - The Company is exposed to foreign currency exchange rate risk arising from transactions and balances denominated in currencies other than the U.S. dollar. The Company may use foreign currency forward contracts to manage certain foreign currency exposures.

20

Table of Contents
BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

DESIGNATED HEDGES
Cash Flow Hedges of Interest Rate Risk - On September 9, 2014, the Company entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receives payments from the counterparty based on the 30-day LIBOR rate.

The interest rate swaps, which have been designated and qualify as a cash flow hedge, are recognized on the Company’s Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. Fair value changes in the interest rate swaps are recognized in AOCL for all effective portions. Balances in AOCL are subsequently reclassified to earnings in the same period that the hedged interest payments affect earnings. The Company estimates $2.3 million will be reclassified to interest expense over the next twelve months.

The following table presents the fair value, accrued interest and classification of the Company’s interest rate swaps:
(dollars in thousands)
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
 
CONSOLIDATED BALANCE SHEET CLASSIFICATION
Interest rate swaps - liability
$
2,127

 
$
3,968

 
Accrued and other current liabilities
Interest rate swaps - liability
951

 
1,999

 
Other long-term liabilities, net
Total fair value of derivative instruments (1)
$
3,078

 
$
5,967

 
 
 
 
 
 
 
 
Accrued interest
$
217

 
$
408

 
Accrued and other current liabilities
____________________
(1)
See Note 13 - Fair Value Measurements for fair value discussion of the interest rate swaps.

The following table summarizes the effects of the interest rate swaps on Net income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Interest rate swap expense recognized in Interest expense, net (1)
$
(804
)
 
$
(1,545
)
 
$
(3,105
)
 
$
(4,756
)
Income tax benefit recognized in (Benefit) provision for income taxes
312

 
598

 
1,186

 
1,854

Total effects of the interest rate swaps on Net income
$
(492
)
 
$
(947
)
 
$
(1,919
)
 
$
(2,902
)
____________________
(1)
During the thirteen and thirty-nine weeks ended September 24, 2017 and September 25, 2016, the Company did not recognize any gain or loss as a result of hedge ineffectiveness.

The Company records its derivatives on the Consolidated Balance Sheets on a gross balance basis. The Company’s derivatives are subject to master netting arrangements. As of September 24, 2017, the Company did not have more than one derivative between the same counterparties and as such, there was no netting.

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 September 24, 2017, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations.


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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

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 September 24, 2017 and December 25, 2016, 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 $3.3 million and $6.4 million, respectively. As of September 24, 2017 and December 25, 2016, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of September 24, 2017 and December 25, 2016, it could have been required to settle its obligations under the agreements at their termination value of $3.3 million and $6.4 million, respectively.

13.    Fair Value Measurements

Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of the following three levels based on the lowest level of significant input:
Level 1
 
Unadjusted quoted market prices in active markets for identical assets or liabilities
Level 2
 
Observable inputs available at measurement date other than quoted prices included in Level 1
Level 3
 
Unobservable inputs that cannot be corroborated by observable market data

Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the dates indicated:
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
(dollars in thousands)
TOTAL
 
LEVEL 1
 
LEVEL 2
 
TOTAL
 
LEVEL 1
 
LEVEL 2
Assets:
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds
$
42

 
$
42

 
$

 
$
90

 
$
90

 
$

Money market funds
20,751

 
20,751

 

 
18,607

 
18,607

 

Restricted cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
Fixed income funds

 

 

 
552

 
552

 

Money market funds
3,735

 
3,735

 

 
2,518

 
2,518

 

Total asset recurring fair value measurements
$
24,528

 
$
24,528

 
$

 
$
21,767

 
$
21,767

 
$

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
Accrued and other current liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
$
2,127

 
$

 
$
2,127

 
$
3,968

 
$

 
$
3,968

Derivative instruments - commodities
52

 

 
52

 
157

 

 
157

Other long-term liabilities:
 
 
 
 
 
 
 
 
 
 
 
Derivative instruments - interest rate swaps
951

 

 
951

 
1,999

 

 
1,999

Total liability recurring fair value measurements
$
3,130

 
$

 
$
3,130

 
$
6,124

 
$

 
$
6,124



22

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Fair value of each class of financial instrument is determined based on the following:
FINANCIAL INSTRUMENT
 
METHODS AND ASSUMPTIONS
Fixed income funds and Money market funds
 
Carrying value approximates fair value because maturities are less than three months.
Derivative instruments
 
The Company’s derivative instruments include interest rate swaps and commodities. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. The Company also considers its own nonperformance risk and the respective counterparty’s nonperformance risk when performing fair value measurements. As of September 24, 2017 and December 25, 2016, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives.

Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 24, 2017
(dollars in thousands)
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (1)
 
TOTAL IMPAIRMENT
Assets held for sale
$
470

 
$
249

 
$
470

 
$
320

Property, fixtures and equipment
13,935

 
13,993

 
15,002

 
14,855

 
$
14,405

 
$
14,242

 
$
15,472

 
$
15,175

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 25, 2016
 
SEPTEMBER 25, 2016
(dollars in thousands)
CARRYING VALUE (2)
 
TOTAL IMPAIRMENT
 
CARRYING VALUE (2)
 
TOTAL IMPAIRMENT
Assets held for sale
$
1,356

 
$
3,209

 
$
45,351

 
$
42,926

Property, fixtures and equipment
12,064

 
2,058

 
12,064

 
2,058

 
$
13,420

 
$
5,267

 
$
57,415

 
$
44,984

________________
(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 with all assets measured using executed sales contracts (Level 2).

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


23

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of the dates indicated:
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
 
CARRYING VALUE
 
FAIR VALUE
 
CARRYING VALUE
 
FAIR VALUE
(dollars in thousands)
 
LEVEL 2
 
LEVEL 3
 
 
LEVEL 2
 
LEVEL 3
Senior Secured Credit Facility:
 
 
 
 
 
 
 
 
 
 
 
Term loan A
$
247,500

 
$
246,881

 
$

 
$
258,750

 
$
257,780

 
$

Term loan A-1
135,000

 
134,663

 

 
140,625

 
140,098

 

Term loan A-2
125,000

 
124,688

 

 

 

 

Revolving credit facility
672,500

 
668,297

 

 
622,000

 
617,335

 

PRP Mortgage Loan

 

 

 
47,202

 

 
47,202

Other notes payable
944

 

 
926

 
1,776

 

 
1,659


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.
PRP Mortgage 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.

14.    Income Taxes

 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
(Benefit) provision for income taxes
$
(4,038
)
 
$
1,950

 
$
14,280

 
$
24,372

Effective income tax rate
(NM)

 
8.4
%
 
14.3
%
 
33.2
%
____________________
NM    Not meaningful.

The decrease in the effective tax rate for the thirteen weeks ended September 24, 2017 was primarily due to the benefit of employment-related credits relative to lower forecasted pre-tax income for the 2017 tax year. The benefit for income taxes recorded for the thirteen weeks ended September 24, 2017 includes the impact of changes to the estimate of the forecasted full-year effective tax rate relative to prior quarters in 2017. 

The effective income tax rate for the thirty-nine weeks ended September 24, 2017 decreased 18.9% as compared to the thirty-nine weeks ended September 25, 2016. Approximately 13.5% of this net decrease was due to impairment and additional tax liabilities recorded in connection with the sale of Outback Steakhouse South Korea in 2016. The remaining decrease was primarily due to the impact of certain favorable discrete tax items recorded in 2017 and lower forecasted pre-tax book income for the 2017 tax year.

The Company has a blended federal and state statutory rate of approximately 39%. The effective income tax rate for the thirteen weeks ended September 24, 2017 was lower than the statutory rate primarily due to the benefit of changes to the estimate of the forecasted full-year effective tax rate relative to prior quarters in 2017 and employment-related tax credits. The effective income tax rate for the thirty-nine weeks ended September 24, 2017 was lower than the

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

statutory rate primarily due to the benefit of employment-related tax credits and certain favorable discrete tax items recorded in 2017.

15.    Commitments and Contingencies

Litigation and Other Matters - The Company had $3.7 million and $3.5 million of liabilities recorded for various legal matters as of September 24, 2017 and December 25, 2016, respectively.

In November 2015, David Sears and Elizabeth Thomas, two former Outback Steakhouse managers (“Manager Plaintiffs”), sent a demand letter seeking unpaid overtime compensation on behalf of all managers and kitchen managers employed at Outback Steakhouse restaurants from November 2012 to present. The Manager Plaintiffs claim that managers were not assigned sufficient management duties to qualify as exempt from overtime. In December 2016, the Company agreed to a tentative class settlement for eligible kitchen managers and during the second quarter of 2017, the class period closed and the Company made final payment to the class of $2.3 million.

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, with the exception of wage-and-hour cases which are not covered by insurance. 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 - As a result of the Company assigning its interest in obligations under real estate leases in connection with the sale of certain restaurants, the Company is contingently liable on certain lease agreements. These leases have varying terms, the latest of which expires in 2032. As of September 24, 2017, the undiscounted payments the Company could be required to make in the event of non-payment by the primary lessees was approximately $26.9 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of September 24, 2017 was approximately $17.2 million. In the event of default, the indemnity clauses in the Company’s purchase and sale agreements govern its ability to pursue and recover damages incurred. The Company believes the financial strength and operating history of the buyers significantly reduces the risk that it will be required to make payments under these leases. Accordingly, no liability has been recorded.

16.    Segment Reporting

The Company has two reportable segments, U.S. and International, which reflects how the Company manages its business, reviews operating performance and allocates resources. The U.S. segment includes all brands operating in the U.S. while brands operating outside the U.S. are included in the International segment. Resources are allocated and performance is assessed by the Company’s Chief Executive Officer (“CEO”), whom the Company has determined to be its Chief Operating Decision Maker (“CODM”). Following is a summary of reporting segments:
SEGMENT
 
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

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 25, 2016. Revenues for all segments

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

include only transactions with customers and include no intersegment revenues. Excluded from net income from operations for U.S. and International are certain legal and corporate costs not directly related to the performance of the segments, stock-based compensation expenses and certain bonus expenses.

The following table is a summary of Total revenue by segment:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Total revenues
 
 
 
 
 
 
 
U.S.
$
832,073

 
$
893,906

 
$
2,782,060


$
2,896,666

International
116,826

 
111,481

 
343,644

 
351,497

Total revenues
$
948,899

 
$
1,005,387

 
$
3,125,704

 
$
3,248,163


The following table is a reconciliation of Segment income (loss) from operations to Income before (benefit) provision for income taxes:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Segment income (loss) from operations
 
 
 
 
 
 
 
U.S.
$
28,139

 
$
61,905

 
$
204,153

 
$
268,754

International
8,442

 
8,277

 
26,923

 
(14,947
)
Total segment income from operations
36,581

 
70,182

 
231,076

 
253,807

Unallocated corporate operating expense
(33,399
)
 
(38,448
)
 
(116,610
)
 
(122,056
)
Total income from operations
3,182

 
31,734

 
114,466

 
131,751

Loss on defeasance, extinguishment and modification of debt

 
(418
)
 
(260
)
 
(26,998
)
Other income, net
7,531

 
2,079

 
14,761

 
2,059

Interest expense, net
(10,705
)
 
(10,217
)
 
(29,389
)
 
(33,394
)
Income before (benefit) provision for income taxes
$
8

 
$
23,178

 
$
99,578

 
$
73,418


The following table is a summary of Depreciation and amortization expense by segment:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017

SEPTEMBER 25, 2016
Depreciation and amortization
 
 
 
 
 
 
 
U.S.
$
37,186

 
$
39,346

 
$
111,192

 
$
116,508

International
7,036

 
5,978

 
20,550

 
19,479

Corporate
3,604

 
3,227

 
10,737

 
9,219

Total depreciation and amortization
$
47,826

 
$
48,551

 
$
142,479

 
$
145,206


26

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BLOOMIN’ BRANDS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - Continued

Geographic areas — International revenues are defined as revenues generated from restaurant sales originating in a country other than the U.S. The following table details Total revenues by major geographic area:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
U.S.
$
832,073

 
$
893,906

 
$
2,782,060

 
$
2,896,666

International
 
 
 
 
 
 
 
Brazil
108,503

 
87,188

 
308,384

 
228,197

Other
8,323

 
24,293

 
35,260

 
123,300

Total revenues

$
948,899

 
$
1,005,387

 
$
3,125,704

 
$
3,248,163



27

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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 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)
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;

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

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

(vii)
Our ability to implement our expansion, remodeling and relocation plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training

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BLOOMIN’ BRANDS, INC.

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

necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants;

(viii)
Our ability to protect our information technology systems from interruption or security breach and to protect consumer data and personal employee information;

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

(x)
Our ability to preserve and grow the reputation and value of our brands;

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

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

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

(xiv)
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;

(xv)
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

(xvi)
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 25, 2016.

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.



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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 September 24, 2017, we owned and operated 1,197 restaurants and franchised 294 restaurants across 48 states, Puerto Rico, Guam and 19 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar.
Executive Summary

Our financial results for the thirteen weeks ended September 24, 2017 (“third quarter of 2017”) include the following:

A decrease in Total revenues of 5.6% to $948.9 million in the third quarter of 2017, as compared to the third quarter of 2016, primarily due to refranchising internationally and domestically and the net impact of restaurant closings and new restaurant openings, partially offset by an increase in franchise and other revenues.

Income from operations of $3.2 million in the third quarter of 2017, as compared to $31.7 million in the third quarter of 2016, decreased primarily due to lower operating margin at the restaurant-level and certain impairment charges and restaurant closing costs, partially offset by increases primarily in franchise and other revenues.

Following is a summary of significant actions we have taken and other factors that impacted our operating results and liquidity to date in 2017:

Surplus Properties - During the thirteen and thirty-nine weeks ended September 24, 2017, we recognized impairment charges of $9.5 million in connection with the remeasurement of certain held and used surplus properties currently leased to the owners of our former restaurant concepts. See Note 3 - Impairments and Exit Costs of our Notes to Consolidated Financial Statements for additional details regarding surplus properties.

Sale of Carrabba’s Italian Grill Restaurant - During the thirteen weeks ended September 24, 2017, we closed and completed the sale of one U.S. Company-owned Carrabba’s Italian Grill location for a purchase price of $9.9 million, net of closing costs. The sale resulted in a net gain of $8.4 million, recorded within Other income, net, in the Consolidated Statements of Operations and Other Comprehensive Income.

Sale-leaseback Transactions - During the thirty-nine weeks ended September 24, 2017, we entered into sale-leaseback transactions with third-parties in which we sold 26 restaurant properties at fair market value for gross proceeds of $92.5 million.

Refranchising - During the thirteen weeks ended June 25, 2017, we completed the sale of 54 of our existing U.S. Company-owned Outback Steakhouse and Carrabba’s Italian Grill locations for aggregate cash proceeds of $36.2 million, net of certain closing adjustments. The transactions resulted in an aggregate net gain of $7.4 million within Other income, net, in the Consolidated Statements of Operations and Other Comprehensive Income. See Note 2 - Disposals of our Notes to Consolidated Financial Statements for additional details.

2017 Closure Initiative - On February 15, 2017, we decided to close 43 underperforming restaurants. Most of these restaurants were closed in 2017 to date, with the balance closing as leases and certain operating covenants expire or are amended or waived. See Note 3 - Impairments and Exit Costs of our Notes to Consolidated Financial Statements for additional details regarding the 2017 Closure Initiative.

Credit Agreement Amendment - On May 22, 2017, OSI entered into an Amendment to its existing Credit Agreement, dated October 26, 2012. The Amendment provided an incremental Term loan A-2 in an aggregate principal amount of $125.0 million, a portion of which was used to repay outstanding borrowings under our revolving credit facility. See

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Table of Contents
BLOOMIN’ BRANDS, INC.

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

Note 9 - Long-term Debt, Net of our Notes to Consolidated Financial Statements for additional details regarding the Amendment to the Credit Agreement.

Share Repurchase Programs - We repurchased 13.8 million shares of common stock year-to-date for a total of $272.7 million and had $55.0 million remaining available for repurchase under the 2017 Share Repurchase Program, through the date of this filing.

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 for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants;

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

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

Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. Our restaurant-level operating margin is expressed as the percentage of our Restaurant sales that Cost of sales, Labor and other related and Other restaurant operating (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statement of Operations. The following categories of our revenue and operating expenses are not included in restaurant-level operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period:

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

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


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Table of Contents
BLOOMIN’ BRANDS, INC.

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

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, 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 areas.

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):
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
U.S.
 
 
 
Outback Steakhouse
 
 
 
Company-owned (1)
584

 
651

Franchised (1)
156

 
105

Total
740

 
756

Carrabba’s Italian Grill
 
 
 
Company-owned (1)
226

 
243

Franchised (1)
3

 
2

Total
229

 
245

Bonefish Grill
 
 
 
Company-owned
195

 
204

Franchised
7

 
6

Total
202

 
210

Fleming’s Prime Steakhouse & Wine Bar
 
 
 
Company-owned
68

 
67

Express
 
 
 
Company-owned
1

 

International
 
 
 
Company-owned
 
 
 
Outback Steakhouse - Brazil (2)
87

 
81

Other
36

 
24

Franchised


 


Outback Steakhouse - South Korea
74

 
72

Other
54

 
52

Total
251

 
229

System-wide total
1,491

 
1,507

____________________
(1)
In April 2017, we sold 53 Outback Steakhouse restaurants and one Carrabba’s Italian Grill restaurant which are now operated as franchises under agreements with the Buyers.
(2)
The restaurant counts for Brazil are reported as of August 31, 2017 and 2016, 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 and Comprehensive Income in relation to Total revenues or Restaurant sales, as indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Revenues
 

 
 
 
 
 
 
Restaurant sales
98.8
 %
 
99.3
 %
 
99.0
 %
 
99.4
 %
Franchise and other revenues
1.2

 
0.7

 
1.0

 
0.6

Total revenues
100.0

 
100.0

 
100.0

 
100.0

Costs and expenses
 

 
 

 
 

 
 
Cost of sales (1)
31.6

 
32.2

 
31.8

 
32.3

Labor and other related (1)
30.4

 
29.0

 
29.3

 
28.6

Other restaurant operating (1)
24.7

 
24.3

 
23.4

 
23.1

Depreciation and amortization
5.0

 
4.8

 
4.6

 
4.5

General and administrative
7.0

 
6.5

 
6.9

 
6.4

Provision for impaired assets and restaurant closings
2.0

 
0.5

 
1.2

 
1.5

Total costs and expenses
99.7

 
96.8

 
96.3

 
95.9

Income from operations
0.3

 
3.2

 
3.7

 
4.1

Loss on defeasance, extinguishment and modification of debt

 
(*)

 
(*)

 
(0.8
)
Other income, net
0.8

 
0.2

 
0.4

 
*

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

 
2.3

 
3.2

 
2.3

(Benefit) provision for income taxes
(0.4
)
 
0.2

 
0.5

 
0.8

Net income
0.4

 
2.1

 
2.7

 
1.5

Less: net (loss) income attributable to noncontrolling interests
(*)

 
*

 
*

 
0.1

Net income attributable to Bloomin’ Brands
0.4
 %
 
2.1
 %
 
2.7
 %
 
1.4
 %
________________
(1)
As a percentage of Restaurant sales.
*
Less than 1/10th of one percent of Total revenues.

RESTAURANT SALES

Following is a summary of the change in Restaurant sales for the thirteen and thirty-nine weeks ended September 24, 2017:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
For the period ended September 25, 2016
$
998.8

 
$
3,229.4

Change from:
 
 
 
Divestiture of restaurants through refranchising transactions
(56.3
)
 
(167.0
)
Restaurant closings
(21.6
)
 
(62.0
)
Comparable restaurant sales
(3.8
)
 
1.2

Restaurant openings
18.3

 
58.7

Effect of foreign currency translation
2.5

 
33.0

For the period ended September 24, 2017
$
937.9

 
$
3,093.3



33

Table of Contents
BLOOMIN’ BRANDS, INC.

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

The decrease in Restaurant sales in the thirteen weeks ended September 24, 2017 was primarily attributable to: (i) refranchising internationally and domestically and (ii) the closing of 46 restaurants since June 26, 2016, partially offset by the opening of 46 new restaurants not included in our comparable restaurant sales base.

The decrease in Restaurant sales in the thirty-nine weeks ended September 24, 2017 was primarily attributable to: (i) refranchising internationally and domestically and (ii) the closing of 55 restaurants since December 27, 2015. The decrease in restaurant sales was partially offset by: (i) the opening of 65 new restaurants not included in our comparable restaurant sales base and (ii) the effect of foreign currency translation, due to appreciation of the Brazil Real.

Average Restaurant Unit Volumes and Operating Weeks
Following is a summary of the average restaurant unit volumes and operating weeks:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Average restaurant unit volumes:
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
$
62,733

 
$
61,588

 
$
67,112

 
$
65,845

Carrabba’s Italian Grill
$
51,226

 
$
51,374

 
$
56,016

 
$
55,974

Bonefish Grill
$
53,666

 
$
55,125

 
$
58,727

 
$
59,365

Fleming’s Prime Steakhouse & Wine Bar
$
68,761

 
$
68,510

 
$
79,300

 
$
79,561

International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil (1)
$
83,856

 
$
79,133

 
$
85,214

 
$
72,022

Operating weeks:
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
7,592

 
8,463

 
23,785

 
25,347

Carrabba’s Italian Grill
2,950

 
3,163

 
8,974

 
9,507

Bonefish Grill
2,542

 
2,652

 
7,690

 
8,014

Fleming’s Prime Steakhouse & Wine Bar
875

 
871

 
2,624

 
2,587

International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
1,137

 
1,042

 
3,310

 
3,026

____________________
(1)
Translated at an average exchange rate of 3.22 and 3.30 for the thirteen weeks ended September 24, 2017 and September 25, 2016, respectively and 3.20 and 3.59 for the thirty-nine weeks ended September 24, 2017 and September 25, 2016, respectively.


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Table of Contents
BLOOMIN’ BRANDS, INC.

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

Comparable Restaurant Sales, Traffic and Average Check Per Person Increases (Decreases)
Following is a summary of comparable restaurant sales, traffic and average check per person increases (decreases):
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Year over year percentage change:
 
 
 
 
 
 
 
Comparable restaurant sales (stores open 18 months or more) (1):
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
0.6
 %
 
(0.7
)%
 
0.8
 %
 
(1.6
)%
Carrabba’s Italian Grill
(2.8
)%
 
(2.1
)%
 
(2.1
)%
 
(2.9
)%
Bonefish Grill
(4.3
)%
 
1.7
 %
 
(2.4
)%
 
(0.1
)%
Fleming’s Prime Steakhouse & Wine Bar
(1.0
)%
 
(1.9
)%
 
(1.8
)%
 
(0.3
)%
Combined U.S. (2)
(1.0
)%
 
(0.7
)%
 
(0.5
)%
 
(1.5
)%
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil (3)
4.8
 %
 
7.3
 %
 
6.9
 %
 
6.9
 %
 
 
 
 
 
 
 
 
Traffic:
 
 
 
 
 

 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
0.1
 %
 
(6.5
)%
 
(1.1
)%
 
(5.1
)%
Carrabba’s Italian Grill
(4.2
)%
 
(4.5
)%
 
(4.5
)%
 
(2.5
)%
Bonefish Grill
(5.7
)%
 
(2.0
)%
 
(3.5
)%
 
(3.3
)%
Fleming’s Prime Steakhouse & Wine Bar
(6.5
)%
 
(2.9
)%
 
(6.6
)%
 
(1.6
)%
Combined U.S.
(1.9
)%
 
(5.4
)%
 
(2.3
)%
 
(4.2
)%
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
(1.5
)%
 
1.4
 %
 
(0.1
)%
 
0.2
 %
 
 
 
 
 
 
 
 
Average check per person increases (decreases) (4):
 
 
 
 
 
 
 
U.S.
 
 
 
 
 
 
 
Outback Steakhouse
0.5
 %
 
5.8
 %
 
1.9
 %
 
3.5
 %
Carrabba’s Italian Grill
1.4
 %
 
2.4
 %
 
2.4
 %
 
(0.4
)%
Bonefish Grill
1.4
 %
 
3.7
 %
 
1.1
 %
 
3.2
 %
Fleming’s Prime Steakhouse & Wine Bar
5.5
 %
 
1.0
 %
 
4.8
 %
 
1.3
 %
Combined U.S.
0.9
 %
 
4.7
 %
 
1.8
 %
 
2.7
 %
International
 
 
 
 
 
 
 
Outback Steakhouse - Brazil
6.2
 %
 
6.0
 %
 
6.8
 %
 
6.6
 %
____________________
(1)
Comparable restaurant sales exclude the effect of fluctuations in foreign currency rates. Relocated international restaurants closed more than 30 days and relocated U.S. restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening.
(2)
Combined U.S. comparable restaurant sales for the thirteen weeks ended September 24, 2017 includes an estimated (1.0%) impact related to hurricanes that occurred during the quarter.
(3)
Includes trading day impact from calendar period reporting.
(4)
Increases (decreases) in average check per person includes the impact of menu pricing changes, product mix and discounts.


35

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Franchise and other revenues
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Franchise revenues (1)
$
7.9

 
$
5.2

 
$
23.7

 
$
14.2

Other revenues
3.1

 
1.4

 
8.7

 
4.6

Franchise and other revenues
$
11.0

 
$
6.6

 
$
32.4

 
$
18.8

____________________
(1)
Represents franchise royalties and initial franchise fees.

COSTS AND EXPENSES

Cost of sales
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Cost of sales
$
296.6

 
$
322.1

 
 
 
$
984.5

 
$
1,044.2

 
 
% of Restaurant sales
31.6
%
 
32.2
%
 
(0.6
)%
 
31.8
%
 
32.3
%
 
(0.5
)%

Cost of sales, consisting of food and beverage costs, decreased as a percentage of Restaurant sales in the thirteen weeks ended September 24, 2017 as compared to the thirteen weeks ended September 25, 2016. The decrease as a percentage of Restaurant sales was primarily due to 0.7% from the impact of certain cost saving initiatives and 0.5% in lower beef costs, partially offset by an increase primarily attributable to 0.6% for other commodity costs.

Cost of sales decreased as a percentage of Restaurant sales in the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016. The decrease as a percentage of Restaurant sales was primarily due to: (i) 0.5% from increases in average check per person, (ii) 0.4% lower beef costs and (iii) 0.3% from the impact of certain cost saving initiatives. These decreases were partially offset by increases as a percentage of Restaurant sales primarily attributable to: (i) 0.5% for other commodity costs and (ii) 0.2% for product investments at Outback Steakhouse.

In fiscal year 2018, we expect low single digit commodity cost inflation.

Labor and other related expenses
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Labor and other related
$
285.3

 
$
290.0

 
 
 
$
907.6

 
$
922.0

 
 
% of Restaurant sales
30.4
%
 
29.0
%
 
1.4
%
 
29.3
%
 
28.6
%
 
0.7
%

Labor and other related expenses increased as a percentage of Restaurant sales in the thirteen weeks ended September 24, 2017 as compared to the thirteen weeks ended September 25, 2016. The increase as a percentage of Restaurant sales was primarily due to 1.4% of higher kitchen and service labor costs due to wage rate increases and 0.2% of costs related to hurricanes that occurred during the quarter. The increase was offset by a decrease as a percentage of Restaurant sales primarily due to 0.2% from increases in average check per person.


36

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Labor and other related expenses increased as a percentage of Restaurant sales in the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016. The increase as a percentage of Restaurant sales was primarily due to 1.5% of higher kitchen and service labor costs due to wage rate increases and investments in our service model. The increase was partially offset by decreases as a percentage of Restaurant sales primarily due to: (i) 0.5% from increases in average check per person and (ii) 0.2% impact from the sale of Outback Steakhouse South Korea in 2016.

In fiscal year 2018, we anticipate approximately 4.0% of labor cost inflation.

Other restaurant operating expenses
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Other restaurant operating
$
231.3

 
$
243.2

 
 
 
$
723.4

 
$
747.2

 
 
% of Restaurant sales
24.7
%
 
24.3
%
 
0.4
%
 
23.4
%
 
23.1
%
 
0.3
%

Other restaurant operating expenses increased as a percentage of Restaurant sales in the thirteen weeks ended September 24, 2017 as compared to the thirteen weeks ended September 25, 2016. The increase as a percentage of Restaurant sales was primarily due to: (i) 0.9% from operating expense inflation and (ii) 0.6% from higher rent expense due to the sale-leaseback of certain properties. These increases were partially offset by decreases as a percentage of Restaurant sales primarily due to: (i) 0.7% from higher advertising expense in 2016, (ii) 0.3% from the impact of certain cost saving initiatives and (iii) 0.2% from increases in average check per person.

Other restaurant operating expenses increased as a percentage of Restaurant sales in the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016. The increase as a percentage of Restaurant sales was primarily due to: (i) 0.5% from higher rent expense due to the sale-leaseback of certain properties and (ii) 0.4% from operating expense inflation. These increases were partially offset by decreases as a percentage of Restaurant sales primarily due to: (i) 0.6% from higher advertising expense in 2016 and (ii) 0.2% from the impact of certain cost saving initiatives.

Depreciation and amortization
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Depreciation and amortization
$
47.8

 
$
48.6

 
$
(0.8
)
 
$
142.5

 
$
145.2

 
$
(2.7
)

Depreciation and amortization expense decreased in the thirteen and thirty-nine weeks ended September 24, 2017 as compared to the thirteen and thirty-nine weeks ended September 25, 2016. The decrease was primarily due to: (i) disposal of assets related to the sale-leaseback of certain properties, (ii) refranchising internationally and domestically and (iii) assets impaired in connection with the 2017 Closure Initiative, partially offset by additional depreciation expense related to the opening of new restaurants and the relocation or remodel of existing restaurants.


37

Table of Contents
BLOOMIN’ BRANDS, INC.

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

General and administrative

General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the change in general and administrative expense for the thirteen and thirty-nine weeks ended September 24, 2017:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
For the period ended September 25, 2016
$
65.1

 
$
208.7

Change from:
 
 
 
Life insurance and deferred compensation
1.1

 
1.6

Computer expense
1.1

 
1.5

Legal and professional fees
0.5

 
2.8

Incentive compensation
(2.2
)
 
(0.4
)
Foreign currency exchange
(0.1
)
 
2.5

Compensation, benefits and payroll tax

 
(4.6
)
Other
0.6

 
3.0

For the period ended September 24, 2017
$
66.1

 
$
215.1


Provision for impaired assets and restaurant closings
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Provision for impaired assets and restaurant closings
$
18.6

 
$
4.7

 
$
13.9

 
$
38.3

 
$
49.2

 
$
(10.9
)

Sale of Outback Steakhouse South Korea - On July 25, 2016, we completed the sale of Outback Steakhouse South Korea. In connection with the decision to sell Outback Steakhouse South Korea, we recognized an impairment charge of $39.6 million during thirty-nine weeks ended September 25, 2016.

Closure Initiatives - Following is a summary of expenses related to the Closure Initiatives recognized in Provision for impaired assets and restaurant closings in our Consolidated Statements of Operations and Comprehensive Income for the periods indicated:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Impairment, facility closure and other expenses
 
 
 
 
 
 
 
2017 Closure Initiative (1)
$
1.8

 
$

 
$
19.1

 
$

Bonefish Restructuring (1)
$
1.9

 
$
(0.7
)
 
$
2.7

 
$
3.7

________________
(1)
We expect to incur additional charges of approximately $3.2 million to $4.1 million for the 2017 Closure Initiative and $2.2 million to $5.1 million for the Bonefish Restructuring, respectively, over the next two years, including costs associated with lease obligations.

Surplus Properties - During the thirteen and thirty-nine weeks ended September 24, 2017, we recognized impairment charges of $9.5 million in connection with the remeasurement of certain held and used surplus properties currently leased to the owners of our former restaurant concepts.

Other Impairments - During the thirteen and thirty-nine weeks ended September 25, 2016, we recognized impairment charges of $3.2 million for our Puerto Rico subsidiary.


38

Table of Contents
BLOOMIN’ BRANDS, INC.

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

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

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

Income from operations
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Income from operations
$
3.2

 
$
31.7

 
$
(28.5
)
 
$
114.5

 
$
131.8

 
$
(17.3
)
% of Total revenues
0.3
%
 
3.2
%
 
(2.9
)%
 
3.7
%
 
4.1
%
 
(0.4
)%

The decrease in income from operations generated in the thirteen weeks ended September 24, 2017 as compared to the thirteen weeks ended September 25, 2016 was primarily due to: (i) a decrease in restaurant-level operating margin and (ii) certain impairment charges and restaurant closing costs. These decreases were partially offset by increases primarily in franchise and other revenues.

The decrease in income from operations generated in the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016 was primarily due to: (i) a decrease in restaurant-level operating margin, (ii) certain impairment charges and restaurant closing costs and (iii) higher general and administrative expense. These decreases were partially offset by increases primarily due to: (i) increases in franchise and other revenues and (ii) impairment related to the sale of Outback Steakhouse South Korea in 2016.

Loss on defeasance, extinguishment and modification of debt

In connection with the PRP Mortgage Loan Amendment in July 2016 and the defeasance of our 2012 CMBS loan in February 2016, we recognized a loss on defeasance, extinguishment and modification of debt of $0.4 million and $27.0 million for the thirteen and thirty-nine weeks ended September 25, 2016, respectively.

Other income, net
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Other income, net
$
7.5

 
$
2.1

 
$
5.4

 
$
14.8

 
$
2.1

 
$
12.7


Other income, net, includes items deemed to be non-operating based on management’s assessment of the nature of the item in relation to our core operations. Other income, net, for the thirteen weeks ended September 24, 2017 includes a net gain of $8.4 million from the sale of one U.S. Company-owned Carrabba’s Italian Grill location, and for the thirty-nine weeks ended September 24, 2017 an aggregate net gain of $7.4 million in connection with the sale of 54 of our U.S. Company-owned locations to two of our existing franchisees during the second quarter of 2017. We recorded a gain of $2.1 million from the sale of Outback Steakhouse South Korea within Other income, net, during the thirteen and thirty-nine weeks ended September 25, 2016.


39

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Interest expense, net
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Interest expense, net
$
10.7

 
$
10.2

 
$
0.5

 
$
29.4

 
$
33.4

 
$
(4.0
)

The change in Interest expense, net was primarily due to decreases related to the February 2016 refinancing and subsequent repayment of the PRP Mortgage loan in April 2017 and increases related to additional draws on our revolving credit facility and our May 2017 incremental Term loan A-2.

(Benefit) provision for income taxes
 
THIRTEEN WEEKS ENDED
 
 
 
THIRTY-NINE WEEKS ENDED
 
 
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
Change
Effective income tax rate
(NM)
 
8.4
%
 
(NM)
 
14.3
%
 
33.2
%
 
(18.9
)%
____________________
NM    Not meaningful.

The decrease in the effective tax rate for the thirteen weeks ended September 24, 2017 was primarily due to the benefit of employment-related credits relative to lower forecasted pre-tax income for the 2017 tax year. The benefit for income taxes recorded for the thirteen weeks ended September 24, 2017 includes the impact of changes to the estimate of the forecasted full-year effective tax rate relative to prior quarters in 2017. 

The effective income tax rate for the thirty-nine weeks ended September 24, 2017 decreased 18.9% as compared to the thirty-nine weeks ended September 25, 2016. Approximately 13.5% of this net decrease was due to impairment and additional tax liabilities recorded in connection with the sale of Outback Steakhouse South Korea in 2016. The remaining decrease was primarily due to the impact of certain favorable discrete tax items recorded in 2017 and lower forecasted pre-tax book income for the 2017 tax year.

SEGMENT PERFORMANCE

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

Revenues for both segments include only transactions with customers and include no intersegment revenues. Excluded from net income from operations for U.S. and International are legal and certain corporate costs not directly related to the performance of the segments, certain stock-based compensation expenses and certain bonus expenses.


40

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Following is a reconciliation of segment income (loss) from operations to the consolidated operating results:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Segment income (loss) from operations
 
 
 
 
 
 
 
U.S.
$
28,139

 
$
61,905

 
$
204,153

 
$
268,754

International
8,442

 
8,277

 
26,923

 
(14,947
)
Total segment income from operations
36,581

 
70,182

 
231,076

 
253,807

Unallocated corporate operating expense
(33,399
)
 
(38,448
)
 
(116,610
)
 
(122,056
)
Total income from operations
3,182

 
31,734

 
114,466

 
131,751

Loss on defeasance, extinguishment and modification of debt

 
(418
)
 
(260
)
 
(26,998
)
Other income, net
7,531

 
2,079

 
14,761

 
2,059

Interest expense, net
(10,705
)
 
(10,217
)
 
(29,389
)
 
(33,394
)
Income before (benefit) provision for income taxes
$
8

 
$
23,178

 
$
99,578

 
$
73,418

 
Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. See the Overview-Key Performance Indicators section of Management’s Discussion and Analysis for additional details regarding the calculation of restaurant-level operating margin.

U.S. Segment
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
823,916

 
$
889,350

 
$
2,758,165

 
$
2,882,091

Franchise and other revenues
8,157

 
4,556

 
23,895

 
14,575

Total revenues
$
832,073

 
$
893,906

 
$
2,782,060

 
$
2,896,666

Restaurant-level operating margin
12.2
%
 
14.1
%
 
14.7
%
 
15.7
%
Income from operations
$
28,139

 
$
61,905

 
$
204,153

 
$
268,754

Operating income margin
3.4
%
 
6.9
%
 
7.3
%
 
9.3
%

Restaurant sales

Following is a summary of the change in U.S. segment Restaurant sales for the thirteen and thirty-nine weeks ended September 24, 2017:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
For the period ended September 25, 2016
$
889.4

 
$
2,882.1

Change from:
 
 
 
Divestiture of restaurants through refranchising transactions
(44.6
)
 
(76.5
)
Restaurant closings
(21.2
)
 
(60.7
)
Comparable restaurant sales
(6.9
)
 
(12.2
)
Restaurant openings
7.3

 
25.5

For the period ended September 24, 2017
$
824.0

 
$
2,758.2



41

Table of Contents
BLOOMIN’ BRANDS, INC.

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

The decrease in U.S. Restaurant sales in the thirteen weeks ended September 24, 2017 was primarily attributable to: (i) the refranchising of certain U.S. Company-owned restaurants in April 2017, (ii) the closing of 44 restaurants since June 26, 2016 and (iii) lower comparable restaurant sales, partially offset by the opening of 12 new restaurants not included in our comparable restaurant sales base.

The decrease in U.S. Restaurant sales in the thirty-nine weeks ended September 24, 2017 was primarily attributable to: (i) the refranchising of certain U.S. Company-owned restaurants in April 2017, (ii) the closing of 52 restaurants since December 27, 2015 and (iii) lower comparable restaurant sales, partially offset by the opening of 18 new restaurants not included in our comparable restaurant sales base.

Restaurant-level operating margin

The decrease in U.S. restaurant-level operating margin in the thirteen weeks ended September 24, 2017 as compared to the thirteen weeks ended September 25, 2016, was primarily due to: (i) higher labor costs, (ii) operating expense inflation and (iii) higher net rent expense due to the sale-leaseback of certain properties. These decreases were partially offset by the impact of certain cost saving initiatives and lower advertising expense.

The decrease in U.S. restaurant-level operating margin in the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016, was primarily due to: (i) higher labor costs, (ii) operating expense inflation and (iii) higher net rent expense due to the sale-leaseback of certain properties. These decreases were partially offset by: (i) increases in average check per person, (ii) lower advertising expense and (iii) the impact of certain cost saving initiatives.

Income from operations

The decreases in U.S. income from operations generated in the thirteen and thirty-nine weeks ended September 24, 2017 as compared to the thirteen and thirty-nine weeks ended September 25, 2016, was primarily due to: (i) lower operating margin at the restaurant-level and (ii) certain impairment charges and restaurant closing costs. These decreases were partially offset by increases primarily in franchise and other revenues.

International Segment
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Revenues
 
 
 
 
 
 
 
Restaurant sales
$
113,936

 
$
109,456

 
$
335,132

 
$
347,286

Franchise and other revenues
2,890

 
2,025

 
8,512

 
4,211

Total revenues
$
116,826

 
$
111,481

 
$
343,644

 
$
351,497

Restaurant-level operating margin
20.7
%
 
18.2
%
 
20.7
%
 
17.9
 %
Income (loss) from operations
$
8,442

 
$
8,277

 
$
26,923

 
$
(14,947
)
Operating income (loss) margin
7.2
%
 
7.4
%
 
7.8
%
 
(4.3
)%


42

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Restaurant sales

Following is a summary of the change in International segment Restaurant sales for the thirteen and thirty-nine weeks ended September 24, 2017:
(dollars in millions)
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
For the period ended September 25, 2016
$
109.5

 
$
347.3

Change from:
 
 
 
Restaurant openings
11.0

 
33.2

Comparable restaurant sales
3.1

 
13.4

Effect of foreign currency translation
2.5

 
33.0

Refranchising of Outback Steakhouse South Korea
(11.7
)
 
(90.5
)
Restaurant closings
(0.4
)
 
(1.3
)
For the period ended September 24, 2017
$
114.0

 
$
335.1


The increase in Restaurant sales in the thirteen weeks ended September 24, 2017 was primarily attributable to (i) the opening of 34 new restaurants not included in our comparable restaurant sales base, (ii) an increase in comparable restaurant sales and (iii) the effect of foreign currency translation of the Brazil Real relative to the U.S. dollar, partially offset by the refranchising of Outback Steakhouse South Korea in 2016.

The decrease in Restaurant sales in the thirty-nine weeks ended September 24, 2017 was primarily attributable to the refranchising of Outback Steakhouse South Korea in 2016, partially offset by: (i) the opening of 47 new restaurants not included in our comparable restaurant sales base, (ii) the effect of foreign currency translation of the Brazil Real relative to the U.S. dollar and (iii) an increase in comparable restaurant sales.

Restaurant-level operating margin

The increase in International restaurant-level operating margin in the thirteen weeks ended September 24, 2017 as compared to the thirteen weeks ended September 25, 2016 was primarily due to: (i) increases in average check per person and (ii) the impact of the sale of Outback Steakhouse South Korea in 2016. These increases were partially offset by: (i) higher labor and commodity inflation and (ii) operating expense inflation.

The increase in International restaurant-level operating margin in the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016 was primarily due to: (i) increases in average check per person, (ii) the impact of the sale of Outback Steakhouse South Korea in 2016 and (iii) the impact of certain cost saving initiatives. These increases were partially offset by higher labor and commodity inflation.

Income from operations

The increase in International income from operations in the thirteen weeks ended September 24, 2017 as compared to the thirteen weeks ended September 25, 2016 was primarily due to higher operating margin at the restaurant-level, partially offset by certain impairment charges.

The increase in International income from operations in the thirty-nine weeks ended September 24, 2017 as compared to the thirty-nine weeks ended September 25, 2016 was primarily due to: (i) impairment related to the sale of Outback Steakhouse South Korea in 2016, (ii) higher operating margin at the restaurant-level and (iii) an increase in franchise and other revenues, partially offset by higher General and administrative expense. General and administrative expense for the International segment increased primarily from the effects of foreign currency exchange.


43

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S. GAAP, we provide certain non-GAAP measures, which present operating results on an adjusted basis. These are supplemental measures of performance that are not required by or presented in accordance with U.S. GAAP and include the following: (i) system-wide sales, (ii) Adjusted restaurant-level operating margins, (iii) Adjusted income from operations and the corresponding margins, (iv) Adjusted net income and (v) Adjusted diluted earnings per share.

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.

These non-GAAP financial measures are not intended to replace U.S. GAAP financial measures, and they are not necessarily standardized or comparable to similarly titled measures used by other companies. We maintain internal guidelines with respect to the types of adjustments we include in our non-GAAP measures. These guidelines endeavor to differentiate between types of gains and expenses that are reflective of our core operations in a period, and those that may vary from period to period without correlation to our core performance in that period. However, implementation of these guidelines necessarily involves the application of judgment, and the treatment of any items not directly addressed by, or changes to, our guidelines will be considered by our disclosure committee. Refer to the reconciliations of non-GAAP measures for descriptions of the actual adjustments made in the current periods and the corresponding prior periods.

As previously announced, based on a review of our non-GAAP presentations, we determined that, commencing with our results for the first fiscal quarter of 2017, when presenting the non-GAAP measures Adjusted income from operations and the corresponding margins, Adjusted net income and Adjusted diluted earnings per share, we will no longer adjust for expenses incurred in connection with our remodel program or intangible amortization recorded as a result of the acquisition of our Brazil operations. We recast historical comparable periods to conform to the revised presentation.


44

Table of Contents
BLOOMIN’ BRANDS, INC.

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

System-Wide Sales

System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. Following is a summary of sales of Company-owned restaurants:
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
COMPANY-OWNED RESTAURANT SALES
(dollars in millions)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
U.S.
 
 
 
 
 
 
 
Outback Steakhouse (1)
$
476

 
$
521

 
$
1,596

 
$
1,668

Carrabba’s Italian Grill (1)
151

 
162

 
502

 
532

Bonefish Grill
137

 
147

 
452

 
476

Fleming’s Prime Steakhouse & Wine Bar
60

 
60

 
208

 
206

Total
$
824

 
$
890

 
$
2,758

 
$
2,882

International
 
 
 
 
 
 
 
Outback Steakhouse-Brazil
$
95

 
$
83

 
$
282

 
$
218

Outback Steakhouse-South Korea (2)

 
11

 

 
90

Other
19

 
15

 
53

 
39

Total
$
114

 
$
109

 
$
335

 
$
347

Total Company-owned restaurant sales
$
938

 
$
999

 
$
3,093

 
$
3,229

_____________________
(1)
In April 2017, we sold 53 Outback Steakhouse restaurants and one Carrabba’s Italian Grill restaurant which are now operated as franchises under agreements with the Buyers.
(2)
On July 25, 2016, we sold our restaurant locations in South Korea, converting all restaurants in that market to franchised locations.

The following table provides a summary of sales of franchised restaurants, which are not included in our consolidated financial results, and our income from the royalties and/or service fees that franchisees pay us based generally on a percentage of sales. The following table does not represent our sales and is presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees.
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
FRANCHISE SALES (dollars in millions) (1)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
U.S.
 
 
 
 
 
 
 
Outback Steakhouse (2)
$
123

 
$
85

 
$
327

 
$
260

Carrabba's Italian Grill (2)
3

 
3

 
7

 
9

Bonefish Grill
3

 
3

 
11

 
10

Total
129

 
91

 
345

 
279

International
 
 
 
 
 
 
 
Outback Steakhouse-South Korea (3)
43

 
30

 
127

 
30

Other
28

 
28

 
85

 
84

Total
71

 
58

 
212

 
114

Total franchise sales (1)
$
200

 
$
149

 
$
557

 
$
393

Income from franchise sales (4)
$
8

 
$
5

 
$
24

 
$
14

_____________________
(1)
Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income.
(2)
In April 2017, we sold 53 Outback Steakhouse restaurants and one Carrabba’s Italian Grill restaurant which are now operated as franchises under agreements with the Buyers.

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Table of Contents
BLOOMIN’ BRANDS, INC.

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

(3)
On July 25, 2016, we sold our restaurant locations in South Korea, converting all restaurants in that market to franchised locations.
(4)
Represents franchise royalties and initial franchise fees included in the Consolidated Statements of Operations and Comprehensive Income in Franchise and other revenues.

Adjusted restaurant-level operating margin

The following table shows the percentages of certain operating cost financial statement line items in relation to Restaurant sales:
 
THIRTEEN WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
U.S. GAAP
 
ADJUSTED
 
U.S. GAAP
 
ADJUSTED (1)
Restaurant sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Cost of sales
31.6
%
 
31.6
%
 
32.2
%
 
32.2
%
Labor and other related
30.4
%
 
30.4
%
 
29.0
%
 
29.0
%
Other restaurant operating
24.7
%
 
24.7
%
 
24.3
%
 
24.4
%
 
 
 
 
 
 
 
 
Restaurant-level operating margin
13.3
%
 
13.3
%
 
14.4
%
 
14.3
%
 
 
 
 
 
 
 
 
 
THIRTY-NINE WEEKS ENDED
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
U.S. GAAP
 
ADJUSTED (2)
 
U.S. GAAP
 
ADJUSTED (3)
Restaurant sales
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Cost of sales
31.8
%
 
31.8
%
 
32.3
%
 
32.3
%
Labor and other related
29.3
%
 
29.3
%
 
28.6
%
 
28.6
%
Other restaurant operating
23.4
%
 
23.6
%
 
23.1
%
 
23.2
%
 
 
 
 
 
 
 
 
Restaurant-level operating margin
15.4
%
 
15.3
%
 
16.0
%
 
15.9
%
_________________
(1)
Includes adjustments for the write-off of $0.2 million of deferred rent liabilities associated with our relocation program, recorded in Other restaurant operating.
(2)
Includes adjustments for the write-off of $5.5 million of deferred rent liabilities associated with the 2017 Closure Initiative and our relocation program, recorded in Other restaurant operating.
(3)
Includes adjustments for the write-off of $1.9 million of deferred rent liabilities, primarily associated with the Bonefish Restructuring, recorded in Other restaurant operating.


46

Table of Contents
BLOOMIN’ BRANDS, INC.

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

Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share
 
THIRTEEN WEEKS ENDED
 
THIRTY-NINE WEEKS ENDED
(in thousands, except per share data)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
 
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Income from operations
$
3,182

 
$
31,734

 
$
114,466

 
$
131,751

Operating income margin
0.3
%
 
3.2
%
 
3.7
%
 
4.1
%
Adjustments:
 
 
 
 
 
 
 
Asset impairments and related costs (1)
10,566

 
3,208

 
10,566

 
43,231

Restaurant impairments and closing costs (2)
4,726

 
(685
)
 
20,925

 
1,435

Restaurant relocations and related costs (3)
3,743

 
1,141

 
8,101

 
2,047

Severance (4)
1,015

 

 
1,015

 
1,872

Transaction-related expenses (5)

 
1,047

 
1,447

 
1,513

Total income from operations adjustments
20,050

 
4,711

 
42,054

 
50,098

Adjusted income from operations
$
23,232

 
$
36,445

 
$
156,520

 
$
181,849

Adjusted operating income margin
2.4
%
 
3.6
%
 
5.0
%
 
5.6
%
 
 
 
 
 
 
 
 
Net income attributable to Bloomin’ Brands
$
4,336

 
$
20,733

 
$
83,876

 
$
46,031

Adjustments:
 
 
 
 
 
 
 
Income from operations adjustments
20,050

 
4,711

 
42,054

 
50,098

Gain on disposal of business and other costs (6)
(7,570
)
 
(2,084
)
 
(14,854
)
 
(2,084
)
Loss on defeasance, extinguishment and modification of debt (7)

 
418

 
260

 
26,998

Total adjustments, before income taxes
12,480

 
3,045

 
27,460

 
75,012

Adjustment to provision for income taxes (8)
(5,074
)
 
(2,338
)
 
(14,018
)
 
(9,382
)
Net adjustments
7,406

 
707

 
13,442

 
65,630

Adjusted net income
$
11,742

 
$
21,440

 
$
97,318

 
$
111,661

 
 
 
 
 
 
 
 
Diluted earnings per share
$
0.05

 
$
0.18

 
$
0.83

 
$
0.40

Adjusted diluted earnings per share
$
0.12

 
$
0.19

 
$
0.96

 
$
0.96

 
 
 
 
 
 
 
 
Diluted weighted average common shares outstanding
95,655

 
112,430

 
101,497

 
116,516

_________________
(1)
Represents asset impairment charges and related costs primarily associated with: (i) the remeasurement of certain surplus properties in 2017, (ii) our Puerto Rico subsidiary in 2016 and (iii) the decision to sell Outback Steakhouse South Korea in 2016.
(2)
Represents expenses incurred for approved closure and restructuring initiatives.
(3)
Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program.
(4)
Relates to severance expense incurred primarily as a result of: (i) restructuring of certain functions in 2017 and (ii) the relocation of our Fleming’s operations center to the corporate home office in 2016.
(5)
Relates primarily to the following: (i) professional fees related to certain income tax items in which the associated tax benefit is adjusted in Adjustments to provision for income taxes in 2017, as described in footnote 8 to this table, and (ii) costs incurred in connection with our sale-leaseback initiative in 2017 and 2016.
(6)
Primarily relates to: (i) the sale of 54 U.S. Company-owned restaurants to existing franchisees in the second quarter of 2017, (ii) a gain of the sale of one Carrabba's Italian Grill restaurant during the third quarter of 2017, (iii) expenses related to certain surplus properties during the third quarter of 2017 and (iv) the sale of Outback Steakhouse South Korea during the third quarter of 2016.
(7)
Relates to modification of our Credit Agreement in 2017 and amendments of the PRP Mortgage loan and the defeasance of the 2012 CMBS loan in 2016.
(8)
Represents income tax effect of the adjustments for the thirteen and thirty-nine weeks ended September 24, 2017 and September 25, 2016. Adjustments include the impact of excluding $4.6 million of discrete income tax items for the thirty-nine weeks ended September 24, 2017.


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BLOOMIN’ BRANDS, INC.

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

Liquidity and Capital Resources

LIQUIDITY

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

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

Cash and Cash Equivalents - As of September 24, 2017, we had $98.7 million in cash and cash equivalents, of which $36.8 million was held by foreign affiliates, a portion of which would be subject to additional taxes if repatriated to the United States. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit the repatriation of cash and cash equivalents.

Refranchising - In April 2017, we completed the sale of 54 of our existing Outback Steakhouse and Carrabba’s Italian Grill locations for aggregate cash proceeds of $36.2 million, net of certain closing adjustments. After completion of the sale, these restaurant locations are operated as franchises under an agreement with the Buyers.

Sale-Leaseback Transactions - During the thirty-nine weeks ended September 24, 2017, we entered into sale-leaseback transactions with third-parties in which we sold 26 restaurant properties at fair market value for gross proceeds of $92.5 million. With a portion of the proceeds from these transactions, we repaid the remaining balance of our PRP Mortgage Loan in April 2017.

Closure Initiatives - Total aggregate future undiscounted cash expenditures of $35.4 million to $41.8 million for the Closure Initiatives, primarily related to lease liabilities, are expected to occur over the remaining lease terms with the final term ending in January 2029.

Capital Expenditures - We estimate that our capital expenditures will total between $260.0 million and $280.0 million in 2017. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including restrictions imposed by our borrowing arrangements.


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BLOOMIN’ BRANDS, INC.

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

Credit Facilities - As of September 24, 2017, we had $1.2 billion of outstanding borrowings under our Senior Secured Credit Facility. Following is a summary of principal payments and debt issuance from December 25, 2016 to September 24, 2017:
 
SENIOR SECURED CREDIT FACILITY
 
PRP MORTGAGE LOAN
 
TOTAL CREDIT FACILITIES
 
TERM LOANS
 
REVOLVING FACILITY
 
 
(dollars in thousands)
A
 
A-1
 
A-2
 
 
 
Balance as of December 25, 2016
$
258,750

 
$
140,625

 
$

 
$
622,000

 
$
47,202

 
$
1,068,577

2017 new debt (1)

 

 
125,000

 
467,500

 

 
592,500

2017 payments
(11,250
)
 
(5,625
)
 

 
(417,000
)
 
(47,202
)
 
(481,077
)
Balance as of September 24, 2017
$
247,500

 
$
135,000

 
$
125,000

 
$
672,500

 
$

 
$
1,180,000

________________
(1)
On May 22, 2017, OSI entered into an Amendment to its Credit Agreement which provided an incremental Term loan A-2 in an aggregate principal amount of $125.0 million. A portion of the proceeds from Term loan A-2 were used to repay $25.0 million of our outstanding revolving credit facility.

We continue to evaluate whether we will make further payments of our outstanding debt ahead of scheduled maturities. Following is a summary of our outstanding credit facilities as of the dates indicated:
 
INTEREST RATE
SEPTEMBER 24, 2017
 
ORIGINAL FACILITY
 
PRINCIPAL MATURITY DATE
 
OUTSTANDING
(dollars in thousands)
 
 
 
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Term loan A, net of discount of $0.8 million (1)
3.23
%
 
$
300,000

 
May 2019
 
$
247,500

 
$
258,750

Term loan A-1
3.20
%
 
150,000

 
May 2019
 
135,000

 
140,625

Term loan A-2
3.20
%
 
125,000

 
May 2019
 
125,000

 

Revolving credit facility (1)
3.21
%
 
825,000

 
May 2019
 
672,500

 
622,000

Total Senior Secured Credit Facility
 
 
$
1,400,000

 
 
 
$
1,180,000

 
$
1,021,375

PRP Mortgage Loan
 
 
$
369,512

 
 
 
$

 
$
47,202

Total credit facilities
 
 
$
1,769,512

 
 
 
$
1,180,000

 
$
1,068,577

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

Credit Agreement - On May 22, 2017, OSI entered into an Amendment to its Credit Agreement which provided an incremental Term loan A-2 in an aggregate principal amount of $125.0 million. Proceeds from Term loan A-2 were used for general business purposes and to repay a portion of our outstanding revolving credit facility. As of September 24, 2017, we had $128.3 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $24.2 million.

The Credit Agreement contains term loan mandatory prepayment requirements of 50% of our annual excess cash flow, as defined in the Credit Agreement. The amount outstanding required to be prepaid may vary based on our leverage ratio and year end results. Other than the required minimum amortization premiums of $57.5 million, we do not anticipate any other payments will be required through September 30, 2018.
We are currently exploring options to address the 2019 maturity of our Senior Secured Credit Facility.
Debt Covenants - Our Credit Agreement contains various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities. See Note 11 - Long-term Debt, Net in our Annual Report on Form 10-K for the year ended December 25, 2016 for further information.


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BLOOMIN’ BRANDS, INC.

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

As of September 24, 2017 and December 25, 2016, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt covenants during the next 12 months.

Cash Flow Hedges of Interest Rate Risk - In September 2014, we entered into variable-to-fixed interest rate swap agreements with eight counterparties to hedge a portion of the cash flows of our variable rate debt. The swap agreements have an aggregate notional amount of $400.0 million, a start date of June 30, 2015, and mature on May 16, 2019. Under the terms of the swap agreements, we pay a weighted-average fixed rate of 2.02% on the $400.0 million notional amount and receive payments from the counterparty based on the 30-day LIBOR rate. We estimate $2.3 million will be reclassified to interest expense over the next twelve months. See Note 12 - Derivative Instruments and Hedging Activities of the Notes to Consolidated Financial Statements for further information.

SUMMARY OF CASH FLOWS

The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated:
 
THIRTY-NINE WEEKS ENDED
(dollars in thousands)
SEPTEMBER 24, 2017
 
SEPTEMBER 25, 2016
Net cash provided by operating activities
$
223,015

 
$
223,560

Net cash (used in) provided by investing activities
(62,535
)
 
153,902

Net cash used in financing activities
(196,206
)
 
(445,809
)
Effect of exchange rate changes on cash and cash equivalents
1,972

 
5,250

Net decrease in cash, cash equivalents and restricted cash
$
(33,754
)
 
$
(63,097
)

Operating activities - Net cash provided by operating activities was flat during the thirty-nine weeks ended September 24, 2017, as compared to the thirty-nine weeks ended September 25, 2016 primarily due to decreases from: (i) the timing of collections of receivables and (ii) the timing of payments. These decreases were offset by: (i) lower income tax payments and (ii) lower cash interest payments.

Investing activities - Net cash used in investing activities for the thirty-nine weeks ended September 24, 2017 consisted primarily of capital expenditures, partially offset by: (i) proceeds from sale-leaseback transactions and (ii) proceeds from refranchising transactions.

Net cash provided by investing activities for the thirty-nine weeks ended September 25, 2016 consisted primarily of: (i) proceeds from sale-leaseback transactions and (ii) proceeds from the sale of Outback Steakhouse South Korea, partially offset by capital expenditures.

Financing activities - Net cash used in financing activities for the thirty-nine weeks ended September 24, 2017 was primarily attributable to the following: (i) the repurchase of common stock, (ii) repayments on our PRP Mortgage Loan, (iii) payment of cash dividends on our common stock, (iv) repayments of partner deposits and accrued partner obligations and (v) the purchase of outstanding limited partnership interests in certain restaurants. Net cash used in financing activities was partially offset by proceeds from: (i) net proceeds from the incremental Term loan A-2, (ii) drawdowns on our revolving credit facility, net of repayments, and (iii) the sale of a property that did not qualify for sale-leaseback accounting.

Net cash used in financing activities for the thirty-nine weeks ended September 25, 2016 was primarily attributable to the following: (i) the defeasance of the 2012 CMBS loan and payments on our revolving credit facility and PRP Mortgage Loan, (ii) the repurchase of common stock, (iii) payment of cash dividends on our common stock, (iv) repayments of partner deposits and accrued partner obligations and (v) the purchase of outstanding limited partnership

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BLOOMIN’ BRANDS, INC.

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

interests in certain restaurants. Net cash used in financing activities was partially offset by proceeds from the PRP Mortgage loan.

FINANCIAL CONDITION

Following is a summary of our current assets, current liabilities and working capital (deficit):
(dollars in thousands)
SEPTEMBER 24, 2017
 
DECEMBER 25, 2016
Current assets
$
258,710

 
$
390,519

Current liabilities
716,762

 
823,408

Working capital (deficit)
$
(458,052
)
 
$
(432,889
)

Working capital (deficit) included Unearned revenue from unredeemed gift cards of $248.6 million and $388.5 million as of September 24, 2017 and December 25, 2016, respectively. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are used to service debt obligations and to make capital expenditures.

Deferred Compensation Programs - The deferred compensation obligation due to managing and chef partners was $98.2 million and $113.0 million as of September 24, 2017 and December 25, 2016, respectively. We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or “rabbi” trust account for settlement of our obligations under the deferred compensation plans. The rabbi trust is funded through our voluntary contributions. The unfunded obligation for managing and chef partners’ deferred compensation was $36.0 million as of September 24, 2017.

We use capital to fund the deferred compensation plans and currently expect annual cash funding of $16.0 million to $18.0 million. Actual funding of the deferred compensation obligations and future funding requirements may vary significantly depending on the actual performance compared to targets, timing of deferred payments of partner contracts, forfeiture rates, number of partner participants, growth of partner investments and our funding strategy.

DIVIDENDS AND SHARE REPURCHASES

Dividends - In October 2017, the Board declared a quarterly cash dividend of $0.08 per share, payable on November 22, 2017. Future dividend payments are dependent on our earnings, financial condition, capital expenditure requirements, surplus and other factors that the Board considers relevant.

Share Repurchases - On April 21, 2017, the Board approved the 2017 Share Repurchase Program, a new $250.0 million authorization which will expire on October 21, 2018. We had $55.0 million remaining available for repurchase under the 2017 Share Repurchase Program, as of the date of this filing.


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BLOOMIN’ BRANDS, INC.

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

Following is a summary of our dividends and share repurchases from December 29, 2014 through September 24, 2017:
(dollars in thousands)
DIVIDENDS PAID
 
SHARE REPURCHASES
 
TAXES RELATED TO SETTLEMENT OF EQUITY AWARDS
 
TOTAL
Fiscal year 2015
$
29,332

 
$
169,999

 
$
770

 
$
200,101

Fiscal year 2016
31,379

 
309,887

 
447

 
341,713

First fiscal quarter 2017
8,254

 
53,053

 
143

 
61,450

Second fiscal quarter 2017
8,054

 
145,675

 

 
153,729

Third fiscal quarter 2017
7,369

 
74,008

 
37

 
81,414

Total
$
84,388

 
$
752,622

 
$
1,397

 
$
838,407


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


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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk from changes in interest rates, changes in foreign currency exchange rates and changes in commodity prices. We believe that there have been no material changes in our market risk since December 25, 2016. See Part II, Item 7A., “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 25, 2016 for further information regarding market risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial and Administrative Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial and Administrative Officer concluded that our disclosure controls and procedures were effective as of September 24, 2017.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the thirteen weeks ended September 24, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II: OTHER INFORMATION

Item 1.    Legal Proceedings

For a description of our legal proceedings, see Note 15 - Commitments and Contingencies, of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

Item 1A. Risk Factors

In addition to the other information discussed in this report, please consider the factors described in Part I, Item 1A., “Risk Factors” in our 2016 Form 10-K which could materially affect our business, financial condition or future results. There have not been any material changes to the risk factors described in our 2016 Form 10-K, but these are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition or operating results.

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

There were no sales of equity securities during the third quarter of 2017 that were not registered under the Securities Act of 1933.

The following table provides information regarding our purchases of common stock during the thirteen weeks ended September 24, 2017:
REPORTING PERIOD
 
TOTAL NUMBER OF SHARES PURCHASED
 
AVERAGE PRICE PAID PER SHARE
 
TOTAL NUMBER OF SHARES PURCHASED AS PART OF PUBLICLY ANNOUNCED PLANS OR PROGRAMS
 
APPROXIMATE DOLLAR VALUE OF SHARES THAT MAY YET BE PURCHASED UNDER THE PLANS OR PROGRAMS (1)
June 26, 2017 through July 23, 2017
 
1,614,740

 
$
21.06

 
1,614,740

 
$
95,000,099

July 24, 2017 through August 20, 2017
 
1,584,850

 
$
17.48

 
1,584,754

 
$
67,300,395

August 21, 2017 through September 24, 2017
 
692,124

 
$
17.82

 
690,010

 
$
55,000,223

Total (2)
 
3,891,714

 
 
 
3,889,504

 


____________________
(1)
On April 21, 2017, the Board of Directors authorized the repurchase of $250.0 million of our outstanding common stock as announced in our press release issued on April 26, 2017 (the “2017 Share Repurchase Program”). The 2017 Share Repurchase Program will expire on October 21, 2018.
(2)
Common stock repurchased during the thirteen weeks ended September 24, 2017 represent shares repurchased under the 2017 Share Repurchase Program and 2,210 shares withheld for tax payments due upon vesting of employee restricted stock awards.


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Item 6. Exhibits

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

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



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SIGNATURE

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


Date:
November 3, 2017
 
BLOOMIN’ BRANDS, INC.
 
 
 
           (Registrant)
 
 
 
 
 
 
 
By: /s/ David J. Deno
 
 
 
David J. Deno
Executive Vice President and Chief Financial and
Administrative Officer
(Principal Financial and Accounting Officer)
 

 
[Remainder of page intentionally left blank]



Exhibit
Exhibit 31.1


CERTIFICATION

I, Elizabeth A. Smith, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Bloomin’ Brands, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date:
November 3, 2017
/s/ Elizabeth A. Smith
 
 
Elizabeth A. Smith
 
 
Chief Executive Officer
(Principal Executive Officer)


Exhibit
Exhibit 31.2


CERTIFICATION

I, David J. Deno, certify that:

1.
I have reviewed this Quarterly Report on Form 10-Q of Bloomin’ Brands, Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date:
November 3, 2017
/s/ David J. Deno
 
 
David J. Deno
 
 
Executive Vice President and Chief Financial and Administrative Officer
(Principal Financial Officer)


Exhibit


Exhibit 32.1



CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bloomin’ Brands, Inc. (the “Company”) on Form 10-Q for the quarter ended September 24, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Elizabeth A. Smith, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

Date:
November 3, 2017
/s/ Elizabeth A. Smith
 
 
Elizabeth A. Smith
 
 
Chief Executive Officer
(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to, and will be retained by, Bloomin’ Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.


Exhibit


Exhibit 32.2



CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bloomin’ Brands, Inc. (the “Company”) on Form 10-Q for the quarter ended September 24, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J. Deno, Executive Vice President and Chief Financial and Administrative Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

Date:
November 3, 2017
/s/ David J. Deno
 
 
David J. Deno
 
 
Executive Vice President and Chief Financial and Administrative Officer
(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to, and will be retained by, Bloomin’ Brands, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.