Bloomin' Brands, Inc. 10-Q

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) The severity, extent and duration of the COVID-19 pandemic, its impacts on our business and results of operations, financial condition and liquidity, including any adverse impact on our stock price and on the other factors listed below, and the responses of domestic and foreign federal, state and local governments to the pandemic; (ii) Consumer reactions to public health and food safety issues; (iii) Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants; (iv) Minimum wage increases and additional mandated employee benefits; (v) Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates; (vi) Our ability to protect our information technology systems from interruption or security breach, including cyber security threats, and to protect consumer data and personal employee information; 32 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (vii) Fluctuations in the price and availability of commodities; (viii) 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; (ix) Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits; (x) Our ability to implement our remodeling, relocation and expansion plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants; (xi) The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates; (xii) Our ability to preserve and grow the reputation and value of our brands, particularly in light of changes in consumer engagement with social media platforms; (xiii) Any impairment in the carrying value of our goodwill or other intangible or long-lived assets and its effect on our financial condition and results of operations; (xiv) Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events; (xv) The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt; 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 29, 2019. 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. 33 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Overview We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of June 28, 2020, we owned and operated 1,151 restaurants and franchised 309 restaurants across 47 states, Puerto Rico, Guam and 20 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Executive Summary Our financial results for the thirteen weeks ended June 28, 2020 (“second quarter of 2020”) include the following: • A decrease in Total revenues of 43.4% in the second quarter of 2020, as compared to the second quarter of 2019, primarily due to: (i) significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic, (ii) the net impact of restaurant closures and openings, (iii) lower franchise revenue and (iv) the effect of foreign currency translation of the Brazil Real relative to the U.S. dollar. • Loss from operations of $(111.9) million in the second quarter of 2020, as compared to income from operations of $43.5 million in the second quarter of 2019, was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including asset impairment charges, incremental delivery related costs and relief pay (net of tax credits) and (ii) higher labor costs and commodity inflation. These decreases are partially offset by: (i) reduced operating, advertising and utilities expense, (ii) cost savings from our restructuring and transformation initiatives and (iii) cost savings from waste reduction initiatives. Recent Developments - COVID-19 In response to the COVID-19 pandemic, governmental authorities took dramatic action in an effort to slow the spread of the disease. Along with many other restaurant businesses across the country, we temporarily limited our services in the U.S. to carry-out and delivery only beginning March 20, 2020. In early May 2020, we began to reopen our restaurant dining rooms with limited seating capacity in compliance with state and local regulations and as of June 28, 2020 we had reopened substantially all of our restaurant dining rooms with limited seating capacity. The temporary closure of our dining rooms and the limitations on seating capacity in our reopened dining rooms has resulted in significantly reduced traffic in our restaurants. Recently, there has been a significant increase in reported COVID-19 cases in certain states, including Florida and Texas. This has resulted in some local governments responding by taking additional measures, including implementing a further reduction of in-restaurant capacity in certain locations. Although this is a developing situation, to this point these capacity reductions have had a minimal impact on overall sales trends. When we are able to increase the capacity of our reopened dining rooms, it is uncertain whether customer traffic will return to levels prior to the outbreak of COVID-19. Even if consumer demand recovers, governmental restrictions may again limit the capacity of our dining rooms or services we may provide in the future. As a result, we expect our results for the foreseeable future will be significantly adversely impacted. In response to the pandemic, we have tightly managed expenses while taking steps to secure our liquidity position . See the subsection below e ntitled “ Liquidity and Capital Resources ” for furthe r details. 34 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Key Performance Indicators Key measures that we use in evaluating our restaurants and assessing our business include the following: • Average restaurant unit volumes —average sales (excluding gift card breakage) per restaurant to measure changes in customer traffic, pricing and development of the brand; • Comparable restaurant sales —year-over-year comparison of sales volumes (excluding gift card breakage) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants; • System-wide sales —total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands; • Restaurant-level operating margin, (Loss) income from operations, Net (loss) income and Diluted (loss) 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 Statements 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 (loss) income or (Loss) income from operations. In addition, our presentation of restaurant-level operating margin may not be comparable to similarly titled measures used by other companies in our industry; • Adjusted restaurant-level operating margin, Adjusted (loss) income from operations, Adjusted net (loss) income and Adjusted diluted (loss) earnings per share —non-GAAP financial measures utilized to evaluate our operating performance. We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. 35 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board of Directors evaluate our operating performance, allocate resources and administer employee incentive plans; and • Customer satisfaction scores —measurement of our customers’ experiences in a variety of key areas. Selected Operating Data The table below presents the number of our restaurants in operation as of the periods indicated: Number of restaurants (at end of the period): JUNE 28, 2020 JUNE 30, 2019 U.S.: Outback Steakhouse Company-owned 567 579 Franchised 141 148 Total 708 727 Carrabba’s Italian Grill Company-owned 199 205 Franchised 21 21 Total 220 226 Bonefish Grill Company-owned 182 190 Franchised 7 7 Total 189 197 Fleming’s Prime Steakhouse and Wine Bar Company-owned 65 69 Other Company-owned 5 3 U.S. total 1,187 1,222 International: Company-owned Outback Steakhouse—Brazil (1) 103 97 Other (2) 30 27 Franchised Outback Steakhouse—South Korea (2) 85 70 Other (3) 55 51 International total 273 245 System-wide total 1,460 1,467 ____________________ (1) The restaurant counts for Brazil are reported as of May 31, 2020 and 2019, respectively, to correspond with the balance sheet dates of this subsidiary. (2) As of June 30, 2019, we had 11 international “dark kitchen” locations that offer delivery and carryout only. One of these locations was included within Company-owned Other and 10 were included in Franchised Outback Steakhouse - South Korea. (3) Includes two and one fast-casual Aussie Grill locations as of June 28, 2020 and June 30, 2019, respectively. 36 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations The following table sets forth, for the periods indicated, the percentages of certain items in our Consolidated Statements of Operations in relation to Total revenues or Restaurant sales, as indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 Revenues Restaurant sales 99.6 % 98.4 % 99.1 % 98.5 % Franchise and other revenues 0.4 1.6 0.9 1.5 Total revenues 100.0 100.0 100.0 100.0 Costs and expenses Cost of sales (1) 31.4 31.1 31.8 31.4 Labor and other related (1) 35.7 30.0 32.7 29.3 Other restaurant operating (1) 30.9 24.0 27.0 23.2 Depreciation and amortization 7.9 4.9 5.9 4.6 General and administrative 9.6 7.0 8.8 6.6 Provision for impaired assets and restaurant closings 4.3 0.2 4.2 0.3 Total costs and expenses 119.3 95.7 109.7 94.1 (Loss) income from operations (19.3) 4.3 (9.7) 5.9 Loss on modification of debt (*) — (*) — Other income (expense), net 0.1 * (*) (*) Interest expense, net (3.0) (1.3) (1.8) (1.1) (Loss) income before (benefit) provision for income taxes (22.2) 3.0 (11.5) 4.8 (Benefit) provision for income taxes (6.2) 0.1 (3.5) 0.4 Net (loss) income (16.0) 2.9 (8.0) 4.4 Less: net (loss) income attributable to noncontrolling interests (0.1) 0.1 * 0.1 Net (loss) income attributable to Bloomin’ Brands (15.9) % 2.8 % (8.0) % 4.3 % ________________ (1) As a percentage of Restaurant sales. * Less than 1/10 th of one percent of Total revenues. RESTAURANT SALES Following is a summary of the change in Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 30, 2019 $ 1,005.7 $ 2,117.3 Change from: Comparable restaurant sales (408.1) (505.3) Restaurant closures (15.2) (23.8) Effect of foreign currency translation (8.3) (18.7) Divestiture of restaurants through refranchising transactions — (11.2) Restaurant openings 2.2 14.2 For the periods ended June 28, 2020 $ 576.3 $ 1,572.5 The decrease in Restaurant sales during the thirteen weeks ended June 28, 2020 was primarily due to: (i) significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic, (ii) the closure of 43 restaurants since March 31, 2019 and (iii) the effect of foreign currency translation of the Brazilian Real 37 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued relative to the U.S. dollar. The decrease in Restaurant sales was partially offset by the opening of 26 new restaurants not included in our comparable restaurant sales base. The decrease in Restaurant sales during the twenty-six weeks ended June 28, 2020 was primarily due to: (i) significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic, (ii) the closure of 49 restaurants since December 30, 2018, (iii) the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar and (iv) domestic refranchising. The decrease in restaurant sales was partially offset by the opening of 28 new restaurants not included in our comparable restaurant sales base. Average Restaurant Unit Volumes and Operating Weeks Following is a summary of the average restaurant unit volumes and operating weeks, for the periods indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 Average restaurant unit volumes (weekly): U.S. Outback Steakhouse $ 46,278 $ 69,497 $ 58,201 $ 73,344 Carrabba’s Italian Grill $ 35,394 $ 56,285 $ 45,395 $ 58,188 Bonefish Grill $ 25,866 $ 60,018 $ 40,292 $ 61,833 Fleming’s Prime Steakhouse & Wine Bar $ 36,649 $ 81,754 $ 59,027 $ 86,496 International Outback Steakhouse - Brazil (1) $ 17,731 $ 66,829 $ 43,512 $ 70,754 Operating weeks: U.S. Outback Steakhouse 7,466 7,538 14,965 15,065 Carrabba’s Italian Grill 2,648 2,665 5,300 5,559 Bonefish Grill 2,464 2,467 4,934 4,925 Fleming’s Prime Steakhouse & Wine Bar 850 910 1,730 1,820 International Outback Steakhouse - Brazil 1,354 1,257 2,657 2,453 ____________________ (1) Translated at average exchange rates of 5.15 and 3.91 for the thirteen weeks ended June 28, 2020 and June 30, 2019, respectively, and 4.39 and 3.85 for the twenty-six weeks ended June 28, 2020 and June 30, 2019, respectively. 38 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), for the periods indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 Year over year percentage change: Comparable restaurant sales (stores open 18 months or more): U.S. (1) Outback Steakhouse (32.9) % 1.3 % (20.6) % 2.4 % Carrabba’s Italian Grill (36.7) % (1.6) % (22.2) % (0.6) % Bonefish Grill (56.8) % 0.1 % (34.7) % 1.0 % Fleming’s Prime Steakhouse & Wine Bar (56.3) % 1.6 % (33.6) % 1.1 % Combined U.S. (39.4) % 0.6 % (24.2) % 1.6 % International Outback Steakhouse - Brazil (2) (63.9) % 3.5 % (27.4) % 3.6 % Traffic: U.S. Outback Steakhouse (31.0) % (1.6) % (20.2) % (1.0) % Carrabba’s Italian Grill (28.1) % (1.4) % (16.7) % (1.4) % Bonefish Grill (3) (29.8) % (1.5) % (20.6) % (1.7) % Fleming’s Prime Steakhouse & Wine Bar (43.5) % 3.6 % (28.0) % 0.8 % Combined U.S. (3) (30.6) % (1.4) % (19.8) % (1.2) % International Outback Steakhouse - Brazil (48.5) % 1.2 % (19.0) % (0.7) % Average check per person (4): U.S. Outback Steakhouse (1.9) % 2.9 % (0.4) % 3.4 % Carrabba’s Italian Grill (8.6) % (0.2) % (5.5) % 0.8 % Bonefish Grill (27.0) % 1.6 % (14.1) % 2.7 % Fleming’s Prime Steakhouse & Wine Bar (12.8) % (2.0) % (5.6) % 0.3 % Combined U.S. (8.8) % 2.0 % (4.4) % 2.8 % International Outback Steakhouse - Brazil (15.2) % 2.1 % (8.4) % 4.4 % ____________________ (1) Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening. (2) Excludes the effect of fluctuations in foreign currency rates. Includes trading day impact from calendar period reporting. (3) In Q2 2020, Bonefish Grill replaced guest count with entrée count to measure restaurant traffic. Bonefish Grill and Combined U.S. traffic for the twenty-six weeks ended June 28, 2020 were calculated using the entrée count methodology for Bonefish Grill as if the new methodology was in effect at the start of the fiscal year, which would have increased traffic for Bonefish Grill and Combined U.S. for the thirteen weekend ended March 29, 2020 by 3.1% and 0.5%, respectively. (4) Average check per person includes the impact of menu pricing changes, product mix and discounts. 39 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 TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 Franchise revenues (1) $ 2.0 $ 12.8 $ 11.5 $ 26.6 Other revenues 0.2 3.4 2.8 6.1 Franchise and other revenues $ 2.2 $ 16.2 $ 14.3 $ 32.7 ____________________ (1) Represents franchise royalties, advertising fees and initial franchise fees. COSTS AND EXPENSES Cost of sales THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change Cost of sales $ 180.8 $ 312.7 $ 500.5 $ 664.8 % of Restaurant sales 31.4 % 31.1 % 0.3 % 31.8 % 31.4 % 0.4 % Cost of sales increased as a percentage of Restaurant sales during the thirteen weeks ended June 28, 2020 as compared to the thirteen weeks ended June 30, 2019 primarily due to 0.7% from commodity cost inflation and 0.5% related to a reduction in rebates from our vendors, partially offset by a decrease as a percentage of Restaurant sales of 0.7% from cost savings attributable to waste reduction initiatives and 0.2% from increases in average check per person. Cost of sales increased as a percentage of Restaurant sales during the twenty-six weeks ended June 28, 2020 as compared to the twenty-six weeks ended June 30, 2019 primarily due to 0.4% from commodity cost inflation and 0.2% related to a reduction in rebates from our vendors, partially offset by a decrease as a percentage of Restaurant sales of 0.4% from increases in average check per person. Labor and other related expenses THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change Labor and other related $ 205.5 $ 301.2 $ 514.8 $ 620.2 % of Restaurant sales 35.7 % 30.0 % 5.7 % 32.7 % 29.3 % 3.4 % Labor and other related expenses increased as a percentage of Restaurant sales during the thirteen weeks ended June 28, 2020 as compared to the thirteen weeks ended June 30, 2019 primarily due to: (i) 3.5% from decreased restaurant sales, (ii) 1.9% from relief pay primarily for hourly employees impacted by the closure of dining rooms due to COVID-19, offset by employee retention tax credits and (iii) 0.9% from higher labor costs. These increases were partially offset by a decrease as a percentage of Restaurant sales of 0.4% due to reduced workers’ compensation expense. Labor and other related expenses increased as a percentage of Restaurant sales during the twenty-six weeks ended June 28, 2020 as compared to the twenty-six weeks ended June 30, 2019 primarily due to: (i) 1.7% from relief pay primarily for hourly employees impacted by the closure of dining rooms due to COVID-19, offset by employee retention tax credits, (ii) 1.6% from decreased restaurant sales and (iii) 0.4% from higher labor costs. 40 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Other restaurant operating expenses THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change Other restaurant operating $ 177.8 $ 240.9 $ 424.4 $ 491.7 % of Restaurant sales 30.9 % 24.0 % 6.9 % 27.0 % 23.2 % 3.8 % Other restaurant operating expenses increased as a percentage of Restaurant sales during the thirteen weeks ended June 28, 2020 as compared to the thirteen weeks ended June 30, 2019 primarily due to the impact of shifting to an off-premise only operational model in March 2020 including, 7.2% from decreased restaurant sales and 3.8% from incremental delivery related costs. These increases were partially offset by a decrease as a percentage of Restaurant sales of 3.8% from reduced operating, advertising and utilities expense and 0.3% from the write-off of straight-line rent in connection with the COVID-19 Restructuring. Other restaurant operating expenses increased as a percentage of Restaurant sales during the twenty-six weeks ended June 28, 2020 as compared to the twenty-six weeks ended June 30, 2019 primarily due to the impact of shifting to an off-premise only operational model in March 2020 including, 3.2% from decreased restaurant sales and 1.9% from incremental delivery related costs. These increases were partially offset by a decrease as a percentage of Restaurant sales of 1.1% from reduced utilities, advertising and operating expense. Depreciation and amortization THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change Depreciation and amortization $ 45.8 $ 49.8 $ (4.0) $ 94.1 $ 99.3 $ (5.2) Depreciation and amortization expense decreased during the thirteen and twenty-six weeks ended June 28, 2020 as compared to the thirteen and twenty-six weeks ended June 30, 2019 primarily due to impairment related to COVID-19 and transformational initiatives and the effect of foreign currency translation. 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 periods indicated below: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 30, 2019 $ 72.0 $ 142.5 Change from: Travel and entertainment (1) (7.9) (7.5) Compensation, benefits and payroll tax (4.5) (6.0) Legal and professional fees (2.5) (4.0) Deferred compensation (2.4) (3.5) Expected credit losses and contingent lease liabilities (0.1) 7.4 Transformational costs (2) 2.1 7.5 Severance 0.5 5.3 Other (1.7) (1.4) For the periods ended June 28, 2020 $ 55.5 $ 140.3 _________________ (1) Includes decreases of $5.4 million and $3.7 million for managing partner conference costs, net of cancellation fees during the thirteen and twenty-six weeks ended June 28, 2020, respectively. (2) Primarily consist of consulting fees incurred in connection with our transformation initiative. 41 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Provision for impaired assets and restaurant closings THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change Provision for impaired assets and restaurant closings $ 25.0 $ 1.9 $ 23.1 $ 66.3 $ 5.5 $ 60.8 During the thirteen and twenty-six weeks ended June 28, 2020, we recognized asset impairment and closure charges related to the COVID-19 pandemic of $25.0 million and $56.3 million, respectively, in the U.S. segment (including the COVID-19 Restructuring) and $0.3 million and $3.6 million, respectively, in the international segment. We also recognized asset impairment charges related to transformational initiatives of $6.3 million during the twenty-six weeks ended June 28, 2020, which were not allocated to our operating segments. COVID-19 Restructuring - During the thirteen and twenty-six weeks ended June 28, 2020, we recognized pre-tax asset impairments and closure costs of $20.9 million in connection with the closure of 22 restaurants and from the update of certain cash flow assumptions, including lease renewal considerations. The remaining impairment and closing charges during the periods presented resulted primarily from locations identified for remodel, relocation or closure and certain other assets. See Note 4 - Impairments, Exit Costs and Disposals of the Notes to Consolidated Financial Statements for further information. (Loss) income from operations THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change (Loss) income from operations $ (111.9) $ 43.5 $ (155.4) $ (153.5) $ 126.0 $ (279.5) % of Total revenues (19.3) % 4.3 % (23.6) % (9.7) % 5.9 % (15.6) % Loss from operations generated during the thirteen weeks ended June 28, 2020, as compared to income from operations during the thirteen weeks ended June 30, 2019 was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including asset impairment charges, incremental delivery related costs and relief pay (net of tax credits) and (ii) higher labor costs and commodity inflation. These losses were partially offset by: (i) reduced operating, advertising and utilities expense, (ii) cost savings from our restructuring and transformation initiatives and (iii) cost savings from waste reduction initiatives. Loss from operations generated during the twenty-six weeks ended June 28, 2020, as compared to income from operations during the twenty-six weeks ended June 30, 2019 was primarily d ue to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including asse t impairment charges, incremental delivery related costs and relief pay (net of tax credits) and (ii) higher labor costs and commodity inflation. These losses were partially offset by reduced utilities, advertising and operating expense. Interest expense, net THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change Interest expense, net $ 16.6 $ 12.4 $ 4.2 $ 28.3 $ 23.6 $ 4.7 The increase in Interest expense, net for the thirteen and twenty-six weeks ended June 28, 2020 as compared to the thirteen and twenty-six weeks ended June 30, 2019 was primarily due to higher interest expense from issuance of 42 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued our convertible senior notes and additional draws on our revolving credit facility, partially offset by lower interest rates on our unhedged variable rate debt balances. (Benefit) provision for income taxes THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 28, 2020 JUNE 30, 2019 Change JUNE 28, 2020 JUNE 30, 2019 Change Effective income tax rate 27.9 % 3.9 % 24.0 % 30.4 % 6.6 % 23.8 % The effective income tax rate for the thirteen and twenty-six weeks ended June 28, 2020 increased by 24.0 and 23.8 percentage points as compared to the thirteen and twenty-six weeks ended June 30, 2019. These increases were primarily due to the benefit of the tax credits for FICA taxes on certain employees’ tips and the forecasted 2020 pre-tax book loss. SEGMENT PERFORMANCE We consider our restaurant concepts and international markets as operating segments, which reflects how we manage our business, review operating performance and allocate resources. Resources are allocated and performance is assessed by our CEO, whom we have determined to be our CODM. We aggregate our operating segments into two reportable segments, U.S. and international. The U.S. segment includes all restaurants operating in the U.S. while restaurants operating outside the U.S. are included in the international segment. The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse United States of America Carrabba’s Italian Grill Bonefish Grill Fleming’s Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba’s Italian Grill (Abbraccio) Brazil _________________ (1) Includes franchise locations. Revenues for both segments include only transactions with customers and exclude intersegment revenues. Excluded from (Loss) income from operations for U.S. and international are certain legal and corporate costs not directly related to the performance of the segments, most stock-based compensation expenses and certain bonus expenses. During the thirteen and twenty-six weeks ended June 28, 2020, we recorded $2.4 million and $24.6 million, respectively, of pre-tax charges as a part of transformational initiatives implemented in connection with our previously announced review of strategic alternatives. These costs were primarily recorded within General and administrative expense and Provision for impaired assets and restaurant closings and were not allocated to our segments since our CODM does not consider the impact of transformational initiatives when assessing segment performance. Refer to Note 21 - Segment Reporting of the Notes to Consolidated Financial Statements for a reconciliation of segment (loss) income from operations to the consolidated operating results. 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 43 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Management’s Discussion and Analysis for additional details regarding the calculation of restaurant-level operating margin. U.S. Segment THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 Revenues Restaurant sales $ 536,767 $ 900,616 $ 1,421,656 $ 1,901,429 Franchise and other revenues 313 13,603 9,921 27,297 Total revenues $ 537,080 $ 914,219 $ 1,431,577 $ 1,928,726 Restaurant-level operating margin 3.2 % 14.5 % 8.4 % 15.6 % (Loss) income from operations $ (62,921) $ 78,814 $ (51,542) $ 191,849 Operating (loss) income margin (11.7) % 8.6 % (3.6) % 9.9 % Restaurant sales Following is a summary of the change in U.S. segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 30, 2019 $ 900.6 $ 1,901.4 Change from: Comparable restaurant sales (348.7) (449.7) Restaurant closures (14.7) (22.2) Restaurant openings (0.4) 3.4 Divestiture of restaurants through refranchising transactions — (11.2) For the periods ended June 28, 2020 $ 536.8 $ 1,421.7 The decrease in U.S. Restaurant sales during the thirteen weeks ended June 28, 2020 was primarily due to significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic and the closure of 34 restaurants since March 31, 2019. The decrease in U.S. Restaurant sales during the twenty-six weeks ended June 28, 2020 was primarily due to: (i) significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic, (ii) the closure of 40 restaurants since December 30, 2018 and (iii) refranchising of certain Company-owned restaurants. The decrease in Restaurant sales was partially offset by the opening of eight new restaurants not included in our comparable restaurant sales base. Income from operations Th e decrease in U.S. income from operations generated during the thirteen weeks ended June 28, 2020 as compared to the thirteen weeks ended June 30, 2019, was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including asset impairment charges, incremental delivery related costs and relief pay (net of tax credits) and (ii) higher labor costs and commodity inflation. These losses were partially offset by: (i) reduced operating, advertising and utilities expense and (ii) cost savings from waste reduction initiatives. The decrease in U.S. income from operations generated during the twenty-six weeks ended June 28, 2020, as compared to income from operations during the twenty-six weeks ended June 30, 2019 was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, 44 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued including asset impairment charges, incremental delivery related costs and relief pay (net of tax credits) and (ii) higher labor costs and commodity inflation. These losses were partially offset by reduced operating, utilities and advertising expense. International Segment THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 Revenues Restaurant sales $ 39,494 $ 105,071 $ 150,842 $ 215,900 Franchise and other revenues 1,885 2,640 4,377 5,435 Total revenues $ 41,379 $ 107,711 $ 155,219 $ 221,335 Restaurant-level operating margin (21.8) % 18.4 % 8.0 % 20.4 % (Loss) income from operations $ (17,070) $ 6,909 $ (10,283) $ 20,629 Operating (loss) income margin (41.3) % 6.4 % (6.6) % 9.3 % Restaurant sales Following is a summary of the change in international segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 30, 2019 $ 105.1 $ 215.9 Change from: Comparable restaurant sales (59.4) (55.6) Effect of foreign currency translation (8.3) (18.7) Restaurant closures (0.5) (1.6) Restaurant openings 2.6 10.8 For the periods ended June 28, 2020 $ 39.5 $ 150.8 The decrease in international Restaurant sales during the thirteen weeks ended June 28, 2020 was primarily due to significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic and the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. The decrease in Restaurant sales was partially offset by the opening of 18 new restaurants not included in our comparable restaurant sales base. The decrease in international Restaurant sales during the twenty-six weeks ended June 28, 2020 was primarily due to significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic and the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. The decrease in Restaurant sales was partially offset by the opening of 20 new restaurants not included in our comparable restaurant sales base. Income from operations The decrease in international income from operations during the thirteen weeks ended June 28, 2020 as compared to the thirteen weeks ended June 30, 2019 was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including incremental delivery related costs and inventory obsolescence and (ii) commodity inflation. These decreases were partially offset by reduced utility, operating, rent and advertising expense and lower labor costs. The decrease in international income from operations during the twenty-six weeks ended June 28, 2020 as compared to the twenty-six weeks ended June 30, 2019 was primarily due to: (i) significantly lower comparable restaurant sales and costs incurred in connection with the COVID-19 pandemic, including inventory obsolescence 45 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued and incremental delivery related costs and (ii) commodity inflation. These decreases were partially offset by reduced advertising, utility and rent expense and lower labor costs. Non-GAAP Financial Measures 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. For a summary of sales of Company-owned restaurants, refer to Note 3 - Revenue Recognition of the Notes to Consolidated Financial Statements. The following table provides a summary of sales of franchised restaurants, which are not included in our consolidated financial results. Franchise sales within this table do not represent our sales and are 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 TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 U.S. Outback Steakhouse $ 58 $ 125 $ 174 $ 263 Carrabba’s Italian Grill (1) 6 14 17 17 Bonefish Grill 1 3 4 7 U.S. total $ 65 $ 142 $ 195 $ 287 International Outback Steakhouse-South Korea $ 56 $ 47 $ 110 $ 104 Other 4 26 26 53 International total $ 60 $ 73 $ 136 $ 157 Total franchise sales (2) $ 125 $ 215 $ 331 $ 444 _____________________ (1) In March 2019, we sold 18 Carrabba’s Italian Grill locations, which are now operated as franchises. (2) Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive (Loss) Income. 46 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued 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 JUNE 28, 2020 JUNE 30, 2019 U.S. GAAP ADJUSTED (1) U.S. GAAP ADJUSTED Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 31.4 % 31.2 % 31.1 % 31.1 % Labor and other related 35.7 % 35.7 % 30.0 % 30.0 % Other restaurant operating 30.9 % 30.4 % 24.0 % 23.9 % Restaurant-level operating margin 2.1 % 2.7 % 15.0 % 15.0 % TWENTY-SIX WEEKS ENDED JUNE 28, 2020 JUNE 30, 2019 U.S. GAAP ADJUSTED (1) U.S. GAAP ADJUSTED Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 31.8 % 31.4 % 31.4 % 31.4 % Labor and other related 32.7 % 32.7 % 29.3 % 29.3 % Other restaurant operating 27.0 % 27.0 % 23.2 % 23.2 % Restaurant-level operating margin 8.4 % 8.9 % 16.1 % 16.1 % _________________ (1) Includes unfavorable (favorable) adjustments recorded in Other restaurant operating expense (unless otherwise noted below) for the following activities, as described in the Adjusted (loss) income from operations, Adjusted net (loss) income and Adjusted diluted (loss) earnings per share table below for the periods indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 28, 2020 Restaurant and asset impairments and closing costs $ — $ 2.8 Restaurant relocations and related costs — (0.1) COVID-19 related costs (1) (3.7) (9.9) $ (3.7) $ (7.2) _________________ (1) Includes $1.2 million and $7.3 million of adjustments for the thirteen and twenty-six weeks ended June 28, 2020, respectively, recorded in Cost of sales. 47 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted (loss) income from operations, Adjusted net (loss) income and Adjusted diluted (loss) earnings per share THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (in thousands, except per share data) JUNE 28, 2020 JUNE 30, 2019 JUNE 28, 2020 JUNE 30, 2019 (Loss) income from operations $ (111,912) $ 43,460 $ (153,480) $ 125,954 Operating (loss) income margin (19.3) % 4.3 % (9.7) % 5.9 % Adjustments: COVID-19 related costs (1) 30,342 — 79,218 — Severance and other transformational costs (2) 2,415 748 24,647 3,603 Restaurant relocations and related costs (3) — 952 592 1,984 Legal and contingent matters — — 178 — Restaurant and asset impairments and closing costs (4) — 2,039 (2,797) 4,170 Total income from operations adjustments $ 32,757 $ 3,739 $ 101,838 $ 9,757 Adjusted (loss) income from operations $ (79,155) $ 47,199 $ (51,642) $ 135,711 Adjusted operating (loss) income margin (13.7) % 4.6 % (3.3) % 6.3 % Net (loss) income attributable to common stockholders $ (92,256) $ 29,021 $ (130,363) $ 93,321 Adjustments: (Loss) income from operations adjustments 32,757 3,739 101,838 9,757 Amortization of debt discount (5) 1,379 — 1,379 — Total adjustments, before income taxes 34,136 3,739 103,217 9,757 Adjustment to provision for income taxes (6) (6,474) (413) (28,469) (1,232) Redemption of preferred stock in excess of carrying value (7) — — 3,496 — Net adjustments 27,662 3,326 78,244 8,525 Adjusted net (loss) income $ (64,594) $ 32,347 $ (52,119) $ 101,846 Diluted (loss) earnings per share attributable to common stockholders (8) $ (1.05) $ 0.32 $ (1.49) $ 1.02 Adjusted diluted (loss) earnings per share (8) $ (0.74) $ 0.36 $ (0.60) $ 1.11 Diluted weighted average common shares outstanding (8) 87,496 90,953 87,312 91,807 _________________ (1) Represents costs incurred in connection with the economic impact of the COVID-19 pandemic, primarily consisting of fixed asset and right-of-use asset impairments, restructuring charges, inventory obsolescence and spoilage, contingent lease liabilities and current expected credit losses. See Note 2 - COVID-19 Charges of the Notes to Consolidated Financial Statements for additional details regarding the impact of the COVID-19 pandemic on our financial results. (2) Relates to severance and other costs incurred as a result of transformational and restructuring activities. (3) Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program. (4) Includes a lease termination gain of $2.8 million during the twenty-six weeks ended June 28, 2020 and asset impairment charges and related costs primarily related to approved closure and restructuring initiatives in 2019. (5) Represents the amortization of the debt discount related to the issuance of the 2025 Notes. See Note 12 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for details. (6) Represents income tax effect of the adjustments for the periods presented. (7) Represents consideration paid in excess of the carrying value for the redemption of preferred stock of our Abbraccio subsidiary. (8) Due to the net loss, the effect of dilutive securities was excluded from the calculation of diluted (loss) earnings per share for the thirteen and twenty-six weeks ended June 28, 2020. 48 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Liquidity and Capital Resources LIQUIDITY Typically, cash flows generated from operating activities and availability under our revolving credit facility are our principal sources of liquidity, which we use for operating expenses, payments on our debt, remodeling or relocating older restaurants, obligations related to our deferred compensation plans and investment in technology. Substantially all of our restaurants are currently operating at reduced capacities or, in some cases, off-premises only due to the COVID-19 pandemic which has negatively impacted our operating cashflows. In response to the COVID-19 pandemic, we have tightly managed expenses while prioritizing supporting our workforce and our off-premises business. In addition, we have taken several precautionary measures to preserve liquidity, including the following: • we suspended our quarterly cash dividend and stock repurchases; • we significantly reduced marketing and tightly managed other expenses; • we substantially limited capital expenditures to facility maintenance in support of our off-premises business; and • we engaged in constructive dialogue with our landlords regarding rent abatements and deferrals. The above actions are in addition to the significant cost cutting measures for fiscal 2020 that we announced and implemented earlier in the year. In addition, on March 16, 2020, in order to increase our cash position and preserve financial flexibility, we drew down substantially all remaining availability under our revolving credit facility. In May 2020, we issued $230.0 million aggregate principal amount of 5.00% convertible senior notes due 2025. Net proceeds from the 2025 Notes were approximately $221.6 million, after deducting the initial purchaser’s discounts and commissions and our offering expenses. See “ 2025 Notes” below for additional details regarding the convertible senior notes. In June 2020, we repaid $360.0 million on our revolving credit facility with cash on hand, a portion of which was proceeds from the 2025 Notes. Cash and Cash Equivalents - As of June 28, 2020, we had $181.4 million in cash and cash equivalents, of which $26.7 million was held by foreign affiliates. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit repatriation. As of June 28, 2020, we had aggregate accumulated foreign earnings of approximately $54.8 million. This amount consisted primarily of historical earnings from 2017 and prior that were previously taxed in the U.S. under the 2017 Tax Cuts and Jobs Act and post-2017 foreign earnings, which we may repatriate to the U.S. without additional U.S. federal income tax. These amounts are no longer considered indefinitely reinvested in our foreign subsidiaries. Closure and Restructuring Initiatives - Total aggregate future undiscounted cash expenditures of $12.1 million to $14.8 million related to lease liabilities for certain closure and restructuring initiatives are expected to occur over the remaining lease terms through January 2029. Capital Expenditures - We estimate that our capital expenditures will total approxim ately $100.0 million to $110.0 million in 2020. 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 49 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued arrangements. Under the Amended Credit Agreement, we are limited to $100.0 million of aggregate capital expenditures for the four fiscal quarters through March 28, 2021. Credit Facilities - As of June 28, 2020, we had $1.3 billion of outstanding borrowings under our Senior Secured Credit Facility and 2025 Notes. Following is a summary of our outstanding credit facilities as of the dates indicated and principal payments and debt issuance during the period indicated: SENIOR SECURED CREDIT FACILITY TOTAL CREDIT FACILITIES (dollars in thousands) TERM LOAN A REVOLVING FACILITY 2025 NOTES Balance as of December 29, 2019 $ 450,000 $ 599,000 $ — $ 1,049,000 2020 new debt — 505,000 230,000 735,000 2020 payments (12,500) (489,000) — (501,500) Balance as of June 28, 2020 $ 437,500 $ 615,000 $ 230,000 $ 1,282,500 Weighted-average interest rate, as of June 28, 2020 2.90 % 2.89 % 5.00 % Principal maturity date November 2022 November 2022 May 2025 As of June 28, 2020, we had $364.8 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $20.2 million. Amended Credit Agreement - On May 4, 2020, we and OSI, as co-borrowers, entered into the Amended Credit Agreement which provides relief for the financial covenant to maintain a specified quarterly TNLR. Without such amendment, violation of financial covenants under the original credit agreement could have resulted in default. The Amended Credit Agreement waives the TNLR requirement for the remainder of fiscal year 2020 and requires a TNLR based on a seasonally annualized calculation of Consolidated EBITDA not to exceed the following thresholds for the periods indicated: QUARTERLY PERIOD ENDED MAXIMUM RATIO March 28, 2021 (1) 5.50 to 1.00 June 27, 2021 (2) 5.00 to 1.00 September 26, 2021 and thereafter (3) 4.50 to 1.00 ________________ (1) Seasonally annualized Consolidated EBITDA calculated as Consolidated EBITDA for the fiscal quarter ending March 28, 2021 divided by 34.1%. (2) Seasonally annualized Consolidated EBITDA calculated as Consolidated EBITDA for the two consecutive quarters ending June 27, 2021 divided by 58.5%. (3) Seasonally annualized Consolidated EBITDA calculated as Consolidated EBITDA for the three consecutive quarters ending September 26, 2021 divided by 77.0%. Under the terms of the Amended Credit Agreement, we are required to meet minimum monthly liquidity threshold of $125.0 million through March 28, 2021, calculated as the sum of available capacity under our revolving credit facility, unrestricted domestic cash on hand and up to $25.0 million of unrestricted cash held by foreign subsidiaries. We are also prohibited from making certain restricted payments, investments or acquisitions until after September 26, 2021, with an exception for investments in our foreign subsidiaries which are capped at $27.5 million. Repurchasing shares of our outstanding common stock and paying dividends are also restricted until after September 26, 2021 under the terms of the Amended Credit Agreement. Interest rates under the Amended Credit Agreement are 275 and 175 basis points above the Eurocurrency Rate and Base Rate, respectively, and letter of credit fees and fees for the daily unused availability under the revolving credit facility are 2.75% and 0.40%, respectively, subject to reversion to rates under the original credit agreement when we 50 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued are in compliance with the TNLR covenant for the test period ending September 26, 2021. We are also subject to a 0% Eurocurrency floor under the Amended Credit Agreement. The Amended Credit Agreement contains term loan mandatory prepayment requirements of 50% of our annual excess cash flow (as defined in the Amended Credit Agreement) after December 27, 2020. The amount outstanding required to be prepaid may vary based on our leverage ratio and year end results. Other than the annual required minimum amortization premiums of $31.3 million, we do not anticipate any other payments will be required through June 27, 2021. As of June 28, 2020 and December 29, 2019, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt cov enants during the next 12 months. 2025 Notes - On May 8, 2020, we completed a $200.0 million principal amount private offering of 5.00% convertible senior notes due 2025 and on May 12, 2020, issued an additional $30.0 million principal amount in connection with the option granted to the initial purchasers as part of the offering. The 2025 Notes will mature on May 1, 2025, unless earlier converted, redeemed or purchased by us. The 2025 Notes bear cash interest at an annual rate of 5.00%, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2020. The initial conversion rate applicable to the 2025 Notes is 84.122 shares of common stock per $1,000 principal amount of 2025 Notes, or a total of approximately 19.348 million shares for the total $230.0 million principal amount. This initial conversion rate is equivalent to an initial conversion price of approximately $11.89 per share. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, based on the applicable conversion rate. We expect to settle the principal amount of our outstanding convertible senior notes in cash and any excess in shares. Net proceeds from this offering were approximately $221.6 million, after deducting the initial purchaser’s discounts and commissions and our offering expenses. Convertible Note Hedge and Warrant Transactions - In connection with the offering of the 2025 Notes , we entered into Convertible Note Hedge Transactions with the Hedge Counterparties. Concurrently with our entry into the Convertible Note Hedge Transactions, we also entered into separate Warrant Transactions with the Hedge Counterparties collectively relating to the same number of shares of our common stock. The portion of the net proceeds from our offering of the 2025 Notes that was used to pay the premium on the Convertible Note Hedge Transactions (calculated after taking into account our proceeds from the Warrant Transactions) was approximately $19.6 million. See Note 12 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for additional details regarding the convertible senior notes and related hedge and warrant transactions. 51 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued SUMMARY OF CASH FLOWS The following table presents a summary of our cash flows (used in) provided by operating, investing and financing activities for the periods indicated: TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 28, 2020 JUNE 30, 2019 Net cash (used in) provided by operating activities $ (3,313) $ 132,443 Net cash used in investing activities (48,001) (73,854) Net cash provided by (used in) financing activities 169,655 (63,415) Effect of exchange rate changes on cash and cash equivalents (2,955) (157) Net increase (decrease) in cash, cash equivalents and restricted cash $ 115,386 $ (4,983) Operating activities - Net cash (used in) provided by operating ac tivities decreased du ring the twenty-six weeks ended June 28, 2020, as compared to the twenty-six weeks ended June 30, 2019 primarily due to a decrease in net restaurant sales and relief payments made to employees, net of employee retention tax credits as a result of the COVID-19 pandemic. These decreases were partially offset by: (i) decreased variable operating costs as a result of lower net restaurant sales, (ii) decreased rent payments, (iii) the timing of collections of receivables, (iv) deferral of payroll tax payments as a result of the CARES Act, (v) lower inventory purchases and (vi) lower income tax and interest payments. Investing activities - Net cash used in investing activities during the twenty-six weeks ended June 28, 2020 primarily consisted of capital expenditures, partially offset by withdrawals from company-owned life insurance policies. Net cash used in investing activities during the twenty-six weeks ended June 30, 2019 primarily consisted of capital expenditures, partially offset by proceeds from sale-leasebac k transactions. Financing activities - Net cash provided by financing activities during the twenty-six weeks ended June 28, 2020 primarily consisted of proceeds from issuance of convertible senior notes and related warrants transactions and drawdowns on our revolving credit facility, net of repayments, partially offset by: (i) premium payments for Convertible Note Hedge Transactions, (ii) payment of cash dividends on our common stock, (iii) the repayment of long-term debt, (iv) issuance costs and financing fees in connection with our 2025 Notes and Amended Credit Agreement and (v) partner equity plan payments. Net cash used in financing activities during the twenty-six weeks ended June 30, 2019 primarily consisted of: (i) the repurchase of common stock, (ii) payment of cash dividends on our common stock, (iii) the repayment of long-term debt and (iv) partner equity plan payments. Net cash used in financing activities was partially offset by drawdowns on our revolving credit facility, net of repayments. FINANCIAL CONDITION Following is a summary of our current assets, current liabilities and working capital (deficit) as of the periods indicated: (dollars in thousands) JUNE 28, 2020 DECEMBER 29, 2019 Current assets $ 327,583 $ 340,468 Current liabilities 810,838 962,021 Working capital (deficit) $ (483,255) $ (621,553) 52 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The change in net working capital (deficit) during the twenty-six weeks ended June 28, 2020 is primarily due to: (i) cash proceeds from the issuance of the 2025 Notes, (ii) a decrease in Accounts payable due to lower vendor activity and capital expenditures in connection with COVID-19 and (iii) a decrease in Unearned revenue related to the seasonal fluctuation of the sale and redemption of gift cards. Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $293.6 million and $369.3 million as of June 28, 2020 and December 29, 2019, respectively, and (ii) current operating lease liabilities of $177.2 million and $171.9 million as of June 28, 2020 and December 29, 2019, respectively, with the corresponding operating right-of-use assets recorded as non-current on our Consolidated Balance Sheets. 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 are 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 typically used to service debt obligations and to make capital expenditures. Deferred Compensation Programs - The deferred compensation obligation due to managing and chef partners was $35.5 million and $49.0 million as of June 28, 2020 and December 29, 2019, respectively. We invest in various corporate-owned life insurance policies (“COLI assets”), 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 $0.1 million as of June 28, 2020. We use capital to fund the deferred compensation plans and currently expect cash funding of $9.0 million to $11.0 million for 2020. We will also fund a portion of our 2020 obligation with $9.1 million expected to be withdrawn from our COLI assets in 2020. Through June 28, 2020 we have withdrawn $5.4 million of COLI assets to fund deferred compensation plan obligations. 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. Other Compensation Programs - Certain U.S. partners participate in a non-qualified long-term compensation program that we fund as the obligation for each participant becomes due. DIVIDENDS AND SHARE REPURCHASES We did not pay dividends or repurchase any shares of our outstanding common stock during the thirteen weeks ended June 28, 2020. The terms of our Amended Credit Agreement contain certain restrictions on cash dividends and share repurchases until after September 26, 2021 and we are compliant with our financial covenants. 53 Table of Contents 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 fiscal year 2015 through June 28, 2020: (dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES (1) TOTAL Fiscal year 2015 $ 29,332 $ 169,999 $ 199,331 Fiscal year 2016 31,379 309,887 341,266 Fiscal year 2017 30,988 272,736 303,724 Fiscal year 2018 33,312 113,967 147,279 Fiscal year 2019 35,734 106,992 142,726 First fiscal quarter 2020 17,480 — 17,480 Total $ 178,225 $ 973,581 $ 1,151,806 ________________ (1) Excludes share repurchases for the settlement of taxes related to equity awards of $180, $447, and $770 for fiscal years 2017, 2016 and 2015, respectively. Recently Issued Financial Accounting Standards For a description of recently issued Financial Accounting Standards that we adopted during the twenty-six weeks ended June 28, 2020 and, that are applicable to us and likely to have material effect on our consolidated financial statements, but have not yet been adopted, see Note 1 - Description of the Business and Basis of Presentation of the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. 54 Table of Contents BLOOMIN’ BRANDS, INC.