Bloomin' Brands, Inc. 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED) SEPTEMBER 27, 2020 DECEMBER 29, 2019 ASSETS Current assets Cash and cash equivalents $ 160,032 $ 67,145 Restricted cash and cash equivalents 2,482 — Inventories 58,844 86,861 Other current assets, net 76,837 186,462 Total current assets 298,195 340,468 Property, fixtures and equipment, net 900,883 1,036,077 Operating lease right-of-use assets 1,192,035 1,266,548 Goodwill 269,738 288,439 Intangible assets, net 461,041 470,615 Deferred income tax assets, net 146,707 73,426 Other assets, net 98,999 117,110 Total assets $ 3,367,598 $ 3,592,683 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 116,323 $ 174,877 Accrued and other current liabilities 406,926 391,451 Unearned revenue 280,124 369,282 Current portion of long-term debt 35,600 26,411 Total current liabilities 838,973 962,021 Non-current operating lease liabilities 1,230,008 1,279,051 Deferred income tax liabilities, net — 13,777 Long-term debt, net 1,112,290 1,022,293 Other long-term liabilities, net 173,772 138,060 Total liabilities 3,355,043 3,415,202 Commitments and contingencies (Note 20) 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 27, 2020 and December 29, 2019 — — Common stock, $ 0.01 par value, 475,000,000 shares authorized; 87,572,904 and 86,945,869 shares issued and outstanding as of September 27, 2020 and December 29, 2019, respectively 875 869 Additional paid-in capital 1,126,146 1,094,338 Accumulated deficit ( 903,885 ) ( 755,089 ) Accumulated other comprehensive loss ( 218,002 ) ( 169,776 ) Total Bloomin’ Brands stockholders’ equity 5,134 170,342 Noncontrolling interests 7,421 7,139 Total stockholders’ equity 12,555 177,481 Total liabilities and stockholders’ equity $ 3,367,598 $ 3,592,683 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents BLOOMIN’ BRANDS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Revenues Restaurant sales $ 766,487 $ 951,816 $ 2,338,985 $ 3,069,145 Franchise and other revenues 4,773 15,328 19,071 48,060 Total revenues 771,260 967,144 2,358,056 3,117,205 Costs and expenses Food and beverage costs 230,547 300,375 730,998 965,165 Labor and other related 246,861 288,552 761,667 908,780 Other restaurant operating 207,301 240,372 631,702 732,121 Depreciation and amortization 43,417 47,926 137,469 147,196 General and administrative 57,443 66,570 197,732 209,114 Provision for impaired assets and restaurant closings ( 54 ) 1,391 66,223 6,917 Total costs and expenses 785,515 945,186 2,525,791 2,969,293 (Loss) income from operations ( 14,255 ) 21,958 ( 167,735 ) 147,912 Loss on modification of debt — — ( 237 ) — Other income (expense), net 1 11 ( 211 ) ( 145 ) Interest expense, net ( 18,300 ) ( 13,256 ) ( 46,647 ) ( 36,885 ) (Loss) income before (benefit) provision for income taxes ( 32,554 ) 8,713 ( 214,830 ) 110,882 (Benefit) provision for income taxes ( 14,776 ) ( 660 ) ( 70,210 ) 6,051 Net (loss) income ( 17,778 ) 9,373 ( 144,620 ) 104,831 Less: net (loss) income attributable to noncontrolling interests ( 141 ) 125 ( 116 ) 2,262 Net (loss) income attributable to Bloomin’ Brands ( 17,637 ) 9,248 ( 144,504 ) 102,569 Redemption of preferred stock in excess of carrying value — — ( 3,496 ) — Net (loss) income attributable to common stockholders $ ( 17,637 ) $ 9,248 $ ( 148,000 ) $ 102,569 Net (loss) income $ ( 17,778 ) $ 9,373 $ ( 144,620 ) $ 104,831 Other comprehensive (loss) income: Foreign currency translation adjustment ( 4,095 ) ( 10,133 ) ( 41,202 ) ( 12,854 ) Unrealized gain (loss) on derivatives, net of tax 261 ( 2,036 ) ( 14,631 ) ( 13,656 ) Reclassification of adjustment for loss on derivatives included in Net (loss) income, net of tax 2,962 812 6,943 578 Comprehensive (loss) income ( 18,650 ) ( 1,984 ) ( 193,510 ) 78,899 Less: comprehensive (loss) income attributable to noncontrolling interests ( 141 ) 297 ( 780 ) 2,450 Comprehensive (loss) income attributable to Bloomin’ Brands $ ( 18,509 ) $ ( 2,281 ) $ ( 192,730 ) $ 76,449 (Loss) earnings per share attributable to common stockholders: Basic $ ( 0.20 ) $ 0.11 $ ( 1.69 ) $ 1.15 Diluted $ ( 0.20 ) $ 0.11 $ ( 1.69 ) $ 1.14 Weighted average common shares outstanding: Basic 87,558 86,843 87,394 89,484 Diluted 87,558 87,305 87,394 90,306 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents BLOOMIN’ BRANDS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) BLOOMIN’ BRANDS, INC. COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM- ULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL SHARES AMOUNT Balance, June 28, 2020 87,534 $ 875 $ 1,123,613 $ ( 886,248 ) $ ( 217,130 ) $ 8,088 $ 29,198 Net loss — — — ( 17,637 ) — ( 141 ) ( 17,778 ) Other comprehensive loss, net of tax — — — — ( 872 ) — ( 872 ) Stock-based compensation — — 2,712 — — — 2,712 Common stock issued under stock plans (1) 39 — ( 179 ) — — — ( 179 ) Distributions to noncontrolling interests — — — — — ( 745 ) ( 745 ) Contributions from noncontrolling interests — — — — — 219 219 Balance, September 27, 2020 87,573 $ 875 $ 1,126,146 $ ( 903,885 ) $ ( 218,002 ) $ 7,421 $ 12,555 Balance, December 29, 2019 86,946 $ 869 $ 1,094,338 $ ( 755,089 ) $ ( 169,776 ) $ 7,139 $ 177,481 Cumulative-effect from a change in accounting principle, net of tax — — — ( 4,292 ) — — ( 4,292 ) Net loss — — — ( 144,504 ) — ( 116 ) ( 144,620 ) Other comprehensive loss, net of tax — — — — ( 48,743 ) ( 147 ) ( 48,890 ) Cash dividends declared, $ 0.20 per common share — — ( 17,480 ) — — — ( 17,480 ) Stock-based compensation — — 11,072 — — — 11,072 Consideration for preferred stock in excess of carrying value, net of tax — — ( 3,496 ) — 517 1,261 ( 1,718 ) Common stock issued under stock plans (1) 627 6 ( 3,047 ) — — — ( 3,041 ) Purchase of noncontrolling interests — — ( 58 ) — — 1 ( 57 ) Distributions to noncontrolling interests — — — — — ( 1,083 ) ( 1,083 ) Contributions from noncontrolling interests — — — — — 366 366 Equity component value of convertible note issuance, net of tax of $ 650 — — 64,367 — — — 64,367 Sale of common stock warrant — — 46,690 — — — 46,690 Purchase of convertible note hedge — — ( 66,240 ) — — — ( 66,240 ) Balance, September 27, 2020 87,573 $ 875 $ 1,126,146 $ ( 903,885 ) $ ( 218,002 ) $ 7,421 $ 12,555 (CONTINUED...) 5 Table of Contents BLOOMIN’ BRANDS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) BLOOMIN’ BRANDS, INC. COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM- ULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL SHARES AMOUNT Balance, June 30, 2019 86,827 $ 868 $ 1,099,598 $ ( 792,341 ) $ ( 157,346 ) $ 7,814 $ 158,593 Net income — — — 9,248 — 125 9,373 Other comprehensive (loss) income, net of tax — — — — ( 11,529 ) 172 ( 11,357 ) Cash dividends declared, $ 0.10 per common share — — ( 8,674 ) — — — ( 8,674 ) Stock-based compensation — — 4,613 — — — 4,613 Common stock issued under stock plans (1) 29 1 ( 155 ) — — — ( 154 ) Distributions to noncontrolling interests — — — — — ( 1,221 ) ( 1,221 ) Contributions from noncontrolling interests — — — — — 401 401 Balance, September 29, 2019 86,856 $ 869 $ 1,095,382 $ ( 783,093 ) $ ( 168,875 ) $ 7,291 $ 151,574 Balance, December 30, 2018 91,272 $ 913 $ 1,107,582 $ ( 920,010 ) $ ( 142,755 ) $ 9,087 $ 54,817 Cumulative-effect from a change in accounting principle, net of tax — — — 141,285 — — 141,285 Net income — — — 102,569 — 2,262 104,831 Other comprehensive (loss) income, net of tax — — — — ( 26,154 ) 222 ( 25,932 ) Cash dividends declared, $ 0.30 per common share — — ( 27,041 ) — — — ( 27,041 ) Repurchase and retirement of common stock ( 5,469 ) ( 55 ) — ( 106,937 ) — — ( 106,992 ) Stock-based compensation — 13,743 — — — 13,743 Common stock issued under stock plans (1) 1,053 11 1,255 — — — 1,266 Purchase of noncontrolling interests — — ( 157 ) — 34 82 ( 41 ) Distributions to noncontrolling interests — — — — — ( 5,228 ) ( 5,228 ) Contributions from noncontrolling interests — — — — — 866 866 Balance, September 29, 2019 86,856 $ 869 $ 1,095,382 $ ( 783,093 ) $ ( 168,875 ) $ 7,291 $ 151,574 ________________ (1) Net of forfeitures and shares withheld for employee taxes. The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents BLOOMIN’ BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, UNAUDITED) THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Cash flows provided by operating activities: Net (loss) income $ ( 144,620 ) $ 104,831 Adjustments to reconcile Net (loss) income to cash provided by operating activities: Depreciation and amortization 137,469 147,196 Amortization of debt discounts and issuance costs 6,504 1,891 Amortization of deferred gift card sales commissions 15,553 18,927 Provision for impaired assets and restaurant closings 66,223 6,917 Non-cash operating lease costs 55,401 54,815 Provision for expected credit losses and contingent lease liabilities 7,420 — Inventory obsolescence and spoilage 6,835 — Stock-based and other non-cash compensation expense 11,072 18,752 Deferred income tax benefit ( 80,201 ) ( 1,982 ) Loss on sale of a business or subsidiary — 206 Loss on modification of debt 237 — Loss (gain) on disposal of property, fixtures and equipment 1,055 ( 3,217 ) Other, net ( 2,460 ) ( 6,818 ) Change in assets and liabilities ( 25,517 ) ( 160,592 ) Net cash provided by operating activities 54,971 180,926 Cash flows used in investing activities: Proceeds from disposal of property, fixtures and equipment 2,088 16,418 Proceeds from sale-leaseback transactions, net — 3,052 Capital expenditures ( 66,956 ) ( 117,478 ) Other investments, net 8,706 4,298 Net cash used in investing activities $ ( 56,162 ) $ ( 93,710 ) (CONTINUED...) 7 Table of Contents BLOOMIN’ BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, UNAUDITED) THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Cash flows provided by (used in) financing activities: Repayments of long-term debt and finance lease obligations $ ( 19,798 ) $ ( 20,646 ) Proceeds from borrowings on revolving credit facilities, net 505,000 533,300 Repayments of borrowings on revolving credit facilities ( 549,000 ) ( 469,000 ) Financing fees ( 3,096 ) — Proceeds from issuance of convertible senior notes 230,000 — Proceeds from issuance of warrants 46,690 — Purchase of convertible note hedge ( 66,240 ) — Issuance costs related to convertible senior notes ( 8,416 ) — (Payments of taxes) proceeds from share-based compensation, net ( 3,041 ) 1,266 Distributions to noncontrolling interests ( 1,083 ) ( 5,228 ) Contributions from noncontrolling interests 366 866 Purchase of limited partnership and noncontrolling interests ( 57 ) ( 41 ) Payments for partner equity plan ( 12,517 ) ( 12,928 ) Repurchase of common stock — ( 106,992 ) Cash dividends paid on common stock ( 17,480 ) ( 27,041 ) Redemption of subsidiary preferred stock ( 1,475 ) — Net cash provided by (used in) financing activities 99,853 ( 106,444 ) Effect of exchange rate changes on cash and cash equivalents ( 3,293 ) ( 1,187 ) Net increase (decrease) in cash, cash equivalents and restricted cash 95,369 ( 20,415 ) Cash, cash equivalents and restricted cash as of the beginning of the period 67,145 71,823 Cash, cash equivalents and restricted cash as of the end of the period $ 162,514 $ 51,408 Supplemental disclosures of cash flow information: Cash paid for interest $ 35,425 $ 35,855 Cash paid for income taxes, net of refunds 4,198 20,025 Supplemental disclosures of non-cash investing and financing activities: Leased assets obtained in exchange for new operating lease liabilities $ 12,971 $ 43,101 Leased assets obtained in exchange for new finance lease liabilities 1,263 200 (Decrease) increase in liabilities from the acquisition of property, fixtures and equipment ( 7,174 ) 2,655 The accompanying notes are an integral part of these consolidated financial statements. 8 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Description of the Business and Basis of Presentation Description of the Business - Bloomin’ Brands (“Bloomin’ Brands” or the “Company”) owns and operates casual, upscale casual and fine dining restaurants. The Company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements. Basis of Presentation - The accompanying interim unaudited consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). 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 29, 2019. Risks and Uncertainties - In March 2020, the World Health Organization declared the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide. In response to COVID-19, the Company temporarily closed all restaurant dining rooms in the U.S. as of March 20, 2020 and shifted operations to provide only take-out and delivery service, resulting in significantly reduced traffic in its restaurants. In early May 2020, the Company began to reopen its restaurant dining rooms with limited seating capacity in compliance with state and local regulations. As of September 27, 2020, the Company’s restaurant dining rooms have reopened but many are still subject to seating capacity restrictions. The temporary closure of the Company’s dining rooms and the limitations on seating capacity in its reopened dining rooms have resulted in significantly reduced traffic in the Company’s restaurants. The negative effect of COVID-19 on the Company’s business was significant during the thirteen and thirty-nine weeks ended September 27, 2020. See Note 2 - COVID-19 Charges for details regarding certain charges resulting from the COVID-19 pandemic. The duration of the COVID-19 pandemic and its long-term impact on the Company’s business are uncertain at this time. Given the daily evolution of the pandemic and the global responses to curb its spread, the Company may be unable to accurately estimate the effects of the pandemic on its results of operations, financial condition, or liquidity for the foreseeable future. Recently Adopted Financial Accounting Standards - On December 30, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” (“ASU No. 2016-13”), which requires measurement and recognition of losses for financial instruments under the current expected credit loss model versus incurred losses under previous guidance. The Company’s adoption of ASU No. 2016-13 and its related amendments (“the new credit loss standard”) resulted in a cumulative-effect debit adjustment to the beginning balance of Accumulated deficit of $ 4.3 million, including $ 4.8 million of contingent lease liabilities related to lease guarantees and $ 1.0 million of incremental reserve for credit losses, net of a $ 1.5 million increase in deferred tax assets. Measurement processes and related controls have been implemented by the Company to ensure compliance with the new credit loss standard. See Note 18 - Allowance for Expected Credit Losses for additional details regarding the Company’s allowance for expected credit losses. On December 30, 2019, the Company adopted ASU No. 2018-15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract,” (“ASU No. 2018-15”), which clarifies the accounting for implementation 9 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued costs in cloud computing arrangements. Under ASU No. 2018-15, implementation costs incurred by customers in cloud computing arrangements are deferred and recognized over the term of the arrangement similar to internal-use software guidance. The Company contracts with 3 rd party information technology providers for various service arrangements including software, platform and information technology infrastructure. The capitalized implementation costs are recorded within Other assets, net on the Company’s Consolidated Balance Sheets and are amortized on a straight-line basis over the term of the hosting arrangements, including reasonably certain renewal periods, within the same financial statement line as the related hosting fees. The amortization of the Company’s current arrangements is recorded in General and administrative expense in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income. The Company’s prospective adoption of ASU No. 2018-15 did not have a material effect on its consolidated financial statements. In March 2020, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” (“ASU No. 2020-04”). The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. ASU No. 2020-04 was effective beginning March 12, 2020 and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company has elected to apply the hedge accounting expedients related to hedge effectiveness for future LIBOR-indexed cash flows, which enables the Company to continue to apply hedge accounting to hedging relationships impacted by reference rate reform. Application of these expedients allows for presentation of derivatives consistent with the Company’s historical presentation. The Company continues to evaluate the impact of the guidance and may apply other elections, as applicable. Recently Issued Financial Accounting Standards Not Yet Adopted - In August 2020, the FASB issued ASU No. 2020-06, “Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” (“ASU No. 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Specifically, ASU No. 2020-06 removes the separation models for convertible debt with a cash conversion feature or convertible instruments with a beneficial conversion feature. As a result, after adopting ASU No. 2020-06, the Company will no longer separately present the embedded conversion feature of its convertible debt within stockholders’ equity. ASU No. 2020-06 is effective for the Company in the first quarter of 2022, with early adoption permitted and may be adopted using either a full or modified retrospective approach. Upon adoption interest expense is expected to decrease due to the elimination of debt discount amortization. The Company is currently evaluating the full effect adopting ASU No. 2020-06 will have on its consolidated financial statements, including the timing and adoption approach. 10 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 2. COVID-19 Charges Following is a summary of the charges recorded in connection with the COVID-19 pandemic for the period indicated (dollars in thousands): CHARGES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME CLASSIFICATION THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2020 Inventory obsolescence and spoilage Food and beverage costs $ 6,748 Compensation for idle employees (1) Labor and other related 28,243 Other operating charges Other restaurant operating 2,467 Lease guarantee contingent liabilities (2) General and administrative 4,188 Allowance for expected credit losses (3) General and administrative 3,334 Other charges General and administrative 2,624 Right-of-use asset impairment (4) Provision for impaired assets and restaurant closings 25,740 Fixed asset impairment (4) Provision for impaired assets and restaurant closings 31,727 Goodwill and other impairment (5) Provision for impaired assets and restaurant closings 3,096 $ 108,167 ________________ (1) Represents relief pay for hourly employees impacted by the closure of dining rooms, net of $ 14.4 million of employee retention tax credits earned. (2) Represents additional contingent liabilities recorded for lease guarantees related to certain former restaurant locations now operated by franchisees or other third parties. (3) Includes additional reserves based on the Company’s increase in expected credit losses, primarily related to franchise receivables. (4) Includes impairments resulting from the remeasurement of assets utilizing projected future cash flows revised for current economic conditions, restructuring charges and the closure of certain restaurants. See Note 4 - Impairments, Exit Costs and Disposals for details regarding COVID-19 Restructuring costs. (5) Includes impairment of goodwill for the Company’s Hong Kong subsidiary. See Note 9 - Goodwill and Intangible Assets, Net for details regarding impairment of goodwill. 3. Revenue Recognition The following table includes the categories of revenue included in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Revenues Restaurant sales $ 766,487 $ 951,816 $ 2,338,985 $ 3,069,145 Franchise and other revenues Franchise revenue $ 4,216 $ 12,426 $ 15,716 $ 38,980 Other revenue 557 2,902 3,355 9,080 Total Franchise and other revenues $ 4,773 $ 15,328 $ 19,071 $ 48,060 Total revenues $ 771,260 $ 967,144 $ 2,358,056 $ 3,117,205 11 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following tables include the disaggregation of Restaurant sales and Franchise revenue, by restaurant concept and major international market, for the periods indicated: THIRTEEN WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 (dollars in thousands) RESTAURANT SALES FRANCHISE REVENUE RESTAURANT SALES FRANCHISE REVENUE U.S. Outback Steakhouse $ 443,286 $ 1,422 $ 499,903 $ 9,143 Carrabba’s Italian Grill 124,019 359 137,912 592 Bonefish Grill 100,410 44 132,267 186 Fleming’s Prime Steakhouse & Wine Bar 49,846 — 64,542 — Other 1,845 — 1,129 — U.S. total $ 719,406 $ 1,825 $ 835,753 $ 9,921 International Outback Steakhouse Brazil $ 32,485 $ — $ 94,430 $ — Other (1) 14,596 2,391 21,633 2,505 International total $ 47,081 $ 2,391 $ 116,063 $ 2,505 Total $ 766,487 $ 4,216 $ 951,816 $ 12,426 ________________ (1) Includes Restaurant sales for the Company’s Abbraccio concept in Brazil. THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 (dollars in thousands) RESTAURANT SALES FRANCHISE REVENUE RESTAURANT SALES FRANCHISE REVENUE U.S. Outback Steakhouse $ 1,320,524 $ 8,099 $ 1,613,723 $ 29,330 Carrabba’s Italian Grill 364,632 827 461,387 1,389 Bonefish Grill 299,226 184 436,766 596 Fleming’s Prime Steakhouse & Wine Bar 151,962 — 221,965 — Other 4,718 — 3,341 — U.S. total $ 2,141,062 $ 9,110 $ 2,737,182 $ 31,315 International Outback Steakhouse Brazil $ 148,078 $ — $ 267,980 $ — Other (1) 49,845 6,606 63,983 7,665 International total $ 197,923 $ 6,606 $ 331,963 $ 7,665 Total $ 2,338,985 $ 15,716 $ 3,069,145 $ 38,980 ________________ (1) Includes Restaurant sales for the Company’s Abbraccio concept in Brazil. 12 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table includes a detail of assets and liabilities from contracts with customers included on the Company’s Consolidated Balance Sheets as of the periods indicated: (dollars in thousands) SEPTEMBER 27, 2020 DECEMBER 29, 2019 Other current assets, net Deferred gift card sales commissions $ 12,585 $ 18,554 Unearned revenue Deferred gift card revenue $ 269,941 $ 358,757 Deferred loyalty revenue 9,711 10,034 Deferred franchise fees - current 472 491 Total Unearned revenue $ 280,124 $ 369,282 Other long-term liabilities, net Deferred franchise fees - non-current $ 4,301 $ 4,599 The following table is a rollforward of deferred gift card sales commissions for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Balance, beginning of period $ 13,624 $ 10,488 $ 18,554 $ 16,431 Deferred gift card sales commissions amortization ( 3,961 ) ( 4,838 ) ( 15,553 ) ( 18,927 ) Deferred gift card sales commissions capitalization 3,068 3,886 10,534 13,118 Other ( 146 ) ( 425 ) ( 950 ) ( 1,511 ) Balance, end of period $ 12,585 $ 9,111 $ 12,585 $ 9,111 The following table is a rollforward of unearned gift card revenue for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Balance, beginning of period $ 279,973 $ 227,372 $ 358,757 $ 333,794 Gift card sales 42,531 52,059 142,619 183,189 Gift card redemptions ( 49,964 ) ( 68,880 ) ( 220,549 ) ( 295,281 ) Gift card breakage ( 2,599 ) ( 3,492 ) ( 10,886 ) ( 14,643 ) Balance, end of period $ 269,941 $ 207,059 $ 269,941 $ 207,059 13 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 4. Impairments, Exit Costs and Disposals The components of Provision for impaired assets and restaurant closings are as follows for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Impairment losses U.S. (1) $ 332 $ 1,548 $ 55,045 $ 5,177 International (1) (2) — — 3,468 1,785 Corporate (3) 32 — 6,193 — Total impairment losses $ 364 $ 1,548 $ 64,706 $ 6,962 Restaurant closure (benefits) expenses U.S. (1) $ ( 418 ) $ ( 196 ) $ 1,344 $ ( 101 ) International (1) — 39 173 56 Total restaurant closure (benefits) expenses $ ( 418 ) $ ( 157 ) $ 1,517 $ ( 45 ) Provision for impaired assets and restaurant closings $ ( 54 ) $ 1,391 $ 66,223 $ 6,917 ________________ (1) U.S. and international impairment and closure charges for the thirteen and thirty-nine weeks ended September 27, 2020 primarily relate to the COVID-19 pandemic (including charges related to the COVID-19 Restructuring discussed below). See Note 2 - COVID-19 Charges for details regarding the impact of the COVID-19 pandemic on the Company’s financial results. (2) Includes goodwill impairment charges of $ 2.0 million during the thirty-nine weeks ended September 27, 2020. See Note 9 - Goodwill and Intangible Assets, Net for details regarding impairment of goodwill. (3) Corporate impairment charges primarily relate to transformational initiatives. COVID-19 Restructuring - During the thirty-nine weeks ended September 27, 2020, the Company recognized pre-tax asset impairments and closure costs in connection with the closure of 22 restaurants and from the update of certain cash flow assumptions, including lease renewal considerations (the “COVID-19 Restructuring”). Following is a summary of the COVID-19 Restructuring charges recognized in the Consolidated Statements of Operations and Comprehensive (Loss) Income for the period indicated (dollars in thousands): LOCATION OF CHARGE IN THE CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME THIRTY-NINE WEEKS ENDED DESCRIPTION SEPTEMBER 27, 2020 Property, fixtures and equipment impairments Provision for impaired assets and restaurant closings $ 16,932 Lease right-of-use asset impairments and closing costs Provision for impaired assets and restaurant closings 4,008 Severance and other expenses General and administrative 1,021 $ 21,961 Impairment and closure charges during the thirteen and thirty-nine weeks ended September 29, 2019 resulted primarily from locations identified for remodel, relocation or closure and certain other assets. 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 certain closure and restructuring initiatives, for the period indicated: THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 Balance, beginning of the period $ 14,542 Additions 2,103 Cash payments ( 3,327 ) Accretion 862 Adjustments 346 Balance, end of the period (1) $ 14,526 ________________ (1) As of September 27, 2020, the Company had exit-related accruals related to certain closure and restructuring initiatives of $ 4.4 million recorded in Accrued and other current liabilities and $ 10.1 million recorded in Non-current operating lease liabilities on its Consolidated Balance Sheet. Refranchising - During the thirteen weeks ended March 31, 2019, the Company completed the sale of 18 of its existing U.S. Company-owned Carrabba’s Italian Grill locations to an existing franchisee for cash proceeds of $ 3.6 million, net of certain purchase price adjustments. The Company remains contingently liable on certain real estate lease agreements assigned to the buyer. See Note 20 - Commitments and Contingencies for additional details regarding lease guarantees . Surplus Property Disposals - During the thirteen weeks ended September 29, 2019, the Company completed the sale of five of its U.S. surplus properties for cash proceeds of $ 12.7 million, net of certain purchase price adjustments. The transaction resulted in a net gain of $ 3.6 million, recorded within Other restaurant operating expense in the Consolidated Statements of Operations and Comprehensive (Loss) Income. 15 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 5. (Loss) Earnings Per Share The following table presents the computation of basic and diluted (loss) earnings per share attributable to common stockholders for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (in thousands, except per share data) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Net (loss) income attributable to Bloomin’ Brands $ ( 17,637 ) $ 9,248 $ ( 144,504 ) $ 102,569 Redemption of preferred stock in excess of carrying value (1) — — ( 3,496 ) — Net (loss) income attributable to common stockholders $ ( 17,637 ) $ 9,248 $ ( 148,000 ) $ 102,569 Basic weighted average common shares outstanding 87,558 86,843 87,394 89,484 Effect of diluted securities: Stock options — 272 — 541 Nonvested restricted stock units — 190 — 249 Nonvested performance-based share units — — — 32 Diluted weighted average common shares outstanding 87,558 87,305 87,394 90,306 Basic (loss) earnings per share attributable to common stockholders $ ( 0.20 ) $ 0.11 $ ( 1.69 ) $ 1.15 Diluted (loss) earnings per share attributable to common stockholders $ ( 0.20 ) $ 0.11 $ ( 1.69 ) $ 1.14 ________________ (1) Consideration paid in excess of carrying value for the redemption of preferred stock is considered a deemed dividend and, for purposes of calculating earnings per share, reduces net income attributable to common stockholders for the thirty-nine weeks ended September 27, 2020. See Note 14 - Stockholders’ Equity for additional details. Weighted-average securities outstanding not included in the computation of net (loss) earnings per share attributable to common stockholders because their effect was antidilutive were as follows, for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (shares in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Stock options 5,381 5,408 5,133 4,336 Nonvested restricted stock units 797 209 813 210 Nonvested performance-based share units 628 337 595 309 Convertible senior notes and warrants 38,696 — 20,695 — There are approximately 19.348 million shares of the Company’s common stock that underlie its senior convertible notes based on the initial conversion rate and full principal amount. The conversion spread on the Company’s convertible senior notes will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given period exceeds the conversion price of $ 11.89 per share of common stock. The Company expects to settle the principal amount of its outstanding convertible senior notes in cash and any excess in shares. As a result, upon conversion of the convertible senior notes, only the amounts in excess of the principal amount are considered in diluted earnings per share under the treasury stock method, if applicable. For the thirteen and thirty-nine weeks ended September 27, 2020, the convertible senior notes have been excluded from the computation of diluted earnings per share as the effect would be antidilutive given the Company’s net loss. Warrants to purchase approximately 19.348 million shares of the Company’s common shares at $ 16.64 per share were outstanding as of September 27, 2020 but were excluded from the computation of diluted earnings per share since the warrants’ strike price was greater than the average market price of the Company’s common stock during the period. See Note 12 - Convertible Senior Notes for additional information regarding the Company’s convertible senior notes. 16 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 6. Stock-based Compensation Plans The Company recognized stock-based compensation expense as follows for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Stock options $ 992 $ 1,316 $ 2,862 $ 3,888 Restricted stock units 2,303 2,389 6,326 6,548 Performance-based share units ( 588 ) 848 1,804 3,105 $ 2,707 $ 4,553 $ 10,992 $ 13,541 During the thirty-nine weeks ended September 27, 2020, the Company made grants of 0.1 million stock options, 0.5 million time-based restricted stock units and 0.5 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 for the periods indicated: THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Assumptions: Weighted-average risk-free interest rate (1) 0.90 % 2.34 % Dividend yield (2) 4.34 % 1.94 % Expected term (3) 5.5 years 4.8 years Weighted-average volatility (4) 30.43 % 31.05 % Weighted-average grant date fair value per option $ 3.12 $ 5.07 ________________ (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. The dividend yield for the thirty-nine weeks ended September 27, 2020 relates to options granted prior the Company’s Amended Credit Agreement which restricts the payment of dividends. See Note 11 - Long-term Debt, Net for dividend restriction details. (3) Expected term represents the period of time that the options are expected to be outstanding. The Company estimates the expected term based on historical exercise experience for its stock options. (4) Based on the historical volatility of the Company’s stock. The following represents unrecognized stock compensation expense and the remaining weighted-average vesting period as of September 27, 2020: UNRECOGNIZED COMPENSATION EXPENSE (dollars in thousands) REMAINING WEIGHTED-AVERAGE VESTING PERIOD (in years) Stock options $ 4,078 1.4 Restricted stock units $ 13,618 1.9 Performance-based share units $ 9,233 1.8 17 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 7. Other Current Assets, Net Other current assets, net, consisted of the following as of the periods indicated: (dollars in thousands) SEPTEMBER 27, 2020 DECEMBER 29, 2019 Prepaid expenses $ 18,837 $ 20,218 Accounts receivable - gift cards, net 14,013 104,591 Accounts receivable - vendors, net 6,631 13,465 Accounts receivable - franchisees, net 624 1,322 Accounts receivable - other, net 16,090 21,734 Deferred gift card sales commissions 12,585 18,554 Assets held for sale 3,786 3,317 Other current assets, net 4,271 3,261 $ 76,837 $ 186,462 8. Property, Fixtures and Equipment, Net Property, fixtures and equipment, net, consisted of the following as of the periods indicated: (dollars in thousands) SEPTEMBER 27, 2020 DECEMBER 29, 2019 Land $ 40,728 $ 42,570 Buildings 1,152,012 1,202,434 Furniture and fixtures 445,536 458,169 Equipment 616,780 665,815 Construction in progress 28,286 24,477 Less: accumulated depreciation ( 1,382,459 ) ( 1,357,388 ) $ 900,883 $ 1,036,077 9. Goodwill and Intangible Assets, Net Goodwill - The following table is a rollforward of goodwill: (dollars in thousands) U.S. INTERNATIONAL CONSOLIDATED Balance as of December 29, 2019 $ 170,657 $ 117,782 $ 288,439 Translation adjustments — ( 16,728 ) ( 16,728 ) Impairment charges — ( 1,973 ) ( 1,973 ) Balance as of September 27, 2020 $ 170,657 $ 99,081 $ 269,738 T he COVID-19 outbreak was considered a triggering event during the thirteen weeks ended March 29, 2020, indicating that the carrying amount of goodwill may not be recoverable. As a result, the Company performed a quantitative assessment for all reporting units to determine whether a reporting unit was impaired. Based on this assessment, which utilized a discounted cash flow analysis, the Company recorded full impairment of goodwill related to its Hong Kong reporting unit of $ 2.0 million, within the international segment, during the thirteen weeks ended March 29, 2020. Impairment was not recorded for any of the Company’s other reporting units as a result of the quantitative assessment. Annual Goodwill and Intangible Asset Impairment Assessment - The Company performs its annual assessment for impairment of goodwill and other indefinite-lived intangible assets as of the first day of its second fiscal quarter. Since the Company performed a quantitative assessment on the last day of the first fiscal quarter of 2020, as described above, the Company utilized the same assumptions and analysis in performing a quantitative annual 18 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued assessment in its second fiscal quarter and concluded that no additional impairment was required. In 2019, the Company performed a qualitative assessment and did no t record any impairment charges. 10. Other Assets, Net Other assets, net, consisted of the following as of the periods indicated: (dollars in thousands) SEPTEMBER 27, 2020 DECEMBER 29, 2019 Company-owned life insurance (1) $ 50,887 $ 60,126 Deferred debt issuance costs (2) 5,301 4,893 Liquor licenses 24,250 24,289 Other assets 18,561 27,802 $ 98,999 $ 117,110 ________________ (1) During the thirty-nine weeks ended September 27, 2020, the Company utilized $ 9.3 million of Company-owned life insurance policies to pay deferred compensation obligations. (2) Net of accumulated amortization of $ 8.4 million and $ 6.8 million as of September 27, 2020 and December 29, 2019, respectively. 11. Long-term Debt, Net Following is a summary of outstanding long-term debt, as of the periods indicated: SEPTEMBER 27, 2020 DECEMBER 29, 2019 (dollars in thousands) OUTSTANDING BALANCE INTEREST RATE OUTSTANDING BALANCE INTEREST RATE Senior Secured Credit Facility: Term loan A (1) $ 431,250 2.89 % $ 450,000 3.40 % Revolving credit facility (1) (2) 555,000 2.88 % 599,000 3.44 % Total Senior Secured Credit Facility $ 986,250 $ 1,049,000 Convertible Senior Notes (3) 230,000 5.00 % — Finance lease liabilities 2,375 2,308 Other — 50 2.18 % Less: unamortized debt discount and issuance costs ( 70,735 ) ( 2,654 ) Total debt, net $ 1,147,890 $ 1,048,704 Less: current portion of long-term debt ( 35,600 ) ( 26,411 ) Long-term debt, net $ 1,112,290 $ 1,022,293 ________________ (1) Interest rate represents the weighted-average interest rate for the respective periods. (2) Subsequent to September 27, 2020, the Company made a payment of $ 23.0 million on its revolving credit facility. (3) See Note 12 - Convertible Senior Notes for details regarding the convertible senior notes and related hedge and warrant transactions . Amended Credit Agreement - On May 4, 2020, the Company and its wholly-owned subsidiary OSI Restaurant Partners, LLC (“OSI”), as co-borrowers, entered into an amendment to the existing credit agreement, dated November 30, 2017 (the “Amended Credit Agreement”), which provides relief for the financial covenant to maintain a specified quarterly Total Net Leverage Ratio (“TNLR”). Without such amendment, violation of financial covenants under the original credit agreement could have resulted in default. TNLR is the ratio of Consolidated Total Debt (Current portion of long-term debt and Long-term debt, net of cash, excluding the convertible senior notes) to Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization and certain other adjustments as defined in the Amended Credit Agreement). 19 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 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 %. The Company is also required to meet a minimum monthly liquidity threshold of $ 125.0 million through March 28, 2021, calculated as the sum of available capacity under the Company’s revolving credit facility, unrestricted domestic cash on hand and up to $ 25.0 million of unrestricted cash held by foreign subsidiaries. Under the Amended Credit Agreement, the Company is limited to $ 100.0 million of aggregate capital expenditures for the four fiscal quarters through March 28, 2021. The Company is also prohibited from making certain restricted payments, investments or acquisitions until after September 26, 2021, with an exception for investments in the Company’s foreign subsidiaries which are capped at $ 27.5 million. Repurchasing shares of the Company’s outstanding common stock and paying dividends are also restricted until after September 26, 2021 and the Company is compliant with its financial covenants 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 the Company is in compliance with the TNLR covenant for the test period ending September 26, 2021. The Company is also subject to a 0 % Eurocurrency floor under the Amended Credit Agreement. Deferred Debt Issuance Costs - The Company deferred $ 2.9 million of debt issuance costs incurred in connection with the Amended Credit Agreement. Deferred debt issuance costs of $ 2.0 million associated with the revolving credit facility portion of the Amended Credit Agreement were recorded in Other assets, net and all other deferred debt issuance costs were recorded in Long-term debt, net during the thirteen weeks ended June 28, 2020. As of September 27, 2020 and December 29, 2019, the Company was in compliance with its debt covenants. 12. Convertible Senior Notes Convertible Senior Notes - On May 8, 2020, the Company 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 (collectively, the “2025 Notes”). The 2025 Notes are governed by the terms of an indenture between the Company and Wells Fargo Bank, National Association, as the Trustee. The 2025 Notes will mature on May 1, 2025 , unless earlier converted, redeemed or purchased by the Company. 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 2025 Notes are unsecured obligations and do not contain any financial covenants or restrictions on incurring additional indebtedness, paying dividends or issuing or repurchasing any securities. Events of default under the 20 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued indenture for the 2025 Notes include, among other things, a default in the payment when due of the principal of, or the redemption price for, any note and a default for 30 days in the payment when due of interest on any note. If an event of default, the principal amount of, and all accrued and unpaid interest on, all of the notes then outstanding will immediately become due and payable. 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. The conversion rate is subject to adjustment upon the occurrence of certain specified events. Noteholders may convert their notes at their option only in the circumstances described in the indenture. The Company will settle conversions by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, based on the applicable conversion rate. Net proceeds from the 2025 Notes offering were approximately $ 221.6 million, after deducting the initial purchaser’s discounts and commissions and the Company’s offering expenses. Upon issuance, the principal amount was separated into a liability and an equity component, such that interest expense reflects the Company’s nonconvertible debt interest rate. The initial carrying value of the 2025 Notes, excluding the discounts upon original issuance and third-party offering costs allocated to the liability, and recorded during the thirteen weeks ended June 28, 2020, is as follows (dollars in thousands): Liability component Principal $ 230,000 Less: Debt discount (1) ( 66,137 ) Less: Debt issuance costs (1) ( 5,996 ) Net carrying amount $ 157,867 Equity component (2) $ 64,367 ________________ (1) Debt discount and issuance costs are amortized to interest expense using the effective interest method over the expected life of the 2025 Notes. (2) Recorded in Additional paid-in capital on the Consolidated Balance Sheet. Includes $ 2.4 million of equity issuance costs and net deferred tax assets of $ 0.6 million. Convertible Note Hedge and Warrant Transactions - In connection with the offering of the 2025 Notes , the Company entered into convertible note hedge transactions (the “Convertible Note Hedge Transactions”) with certain of the initial purchasers of the 2025 Notes and/or their respective affiliates and other financial institutions (in this capacity, the “Hedge Counterparties”). Concurrently with the Company’s entry into the Convertible Note Hedge Transactions, the Company also entered into separate, warrant transactions with the Hedge Counterparties collectively relating to the same number of shares of the Company’s common stock, subject to customary anti-dilution adjustments, and for which the Company received proceeds that partially offset the cost of entering into the Convertible Note Hedge Transactions (the “Warrant Transactions”). The Convertible Note Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of the Company’s common stock that initially underlie the 2025 Notes , and are expected generally to reduce the potential equity dilution, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the 2025 Notes . The Warrant Transactions could have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the strike price of the Warrant Transactions. 21 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The strike price will initially be $ 16.64 per share and is subject to certain adjustments under the terms of the Warrant Transactions. The portion of the net proceeds to the Company from the offering of the 2025 Notes that was used to pay the premium on the Convertible Note Hedge Transactions, net of the proceeds to the Company from the Warrant Transactions, was approximately $ 19.6 million. The net costs incurred in connection with the Convertible Note Hedge Transactions and Warrant Transactions were recorded as a reduction to Additional paid-in capital on the Company’s Consolidated Balance Sheet during the thirteen weeks ended June 28, 2020. As these transactions meet certain accounting criteria, the Convertible Note Hedge Transactions and Warrant Transactions were recorded in stockholders’ equity, not accounted for as derivatives and are not remeasured each reporting period. 13. Other Long-term Liabilities, Net Other long-term liabilities, net, consisted of the following, as of the periods indicated: (dollars in thousands) SEPTEMBER 27, 2020 DECEMBER 29, 2019 Accrued insurance liability $ 32,592 $ 33,818 Chef and Restaurant Managing Partner deferred compensation obligations 35,273 47,831 Deferred payroll tax liabilities (1) 36,092 — Other long-term liabilities (2) 69,815 56,411 $ 173,772 $ 138,060 ________________ (1) Deferred payroll tax liabilities as allowed for in the Coronavirus, Aid, Relief and Economic Security Act (“CARES Act”). See Note 19 - Income Taxes for details regarding the CARES Act. (2) The increase in Other long-term liabilities during the thirty-nine weeks ended September 27, 2020, primarily relates to $ 8.7 million of additional contingent lease liabilities subsequent to the adoption of ASU No. 2016-13 and $ 2.8 million of additional interest rate swap liabilities. See Note 20 - Commitments and Contingencies and Note 15 - Derivative Instruments and Hedging Activities , respectively, for details regarding these increases. 14. Stockholders’ Equity Dividends - The Company declared and paid dividends per share during fiscal year 2020 as follows: (in thousands, except per share data) DIVIDENDS PER SHARE AMOUNT First fiscal quarter $ 0.20 $ 17,480 Redeemable Preferred Stock - In connection with the development of its Abbraccio Cucina Italiana (“Abbraccio”) concept in 2015, the Company entered into an investment agreement (the “Abbraccio Investment Agreement”) to sell preferred shares of its Abbraccio subsidiary (“Abbraccio Shares”) to certain investors. The Abbraccio Investment Agreement included a call option for the purchase of the Abbraccio Shares (the “Abbraccio Call Option”). During the thirteen weeks ended March 29, 2020, the Company exercised the Abbraccio Call Option to purchase all outstanding Abbraccio Shares for $ 1.0 million and recorded a reduction to Accumulated deficit and an increase in Net loss applicable to common stockholders of $ 3.5 million for the consideration paid in excess of the Abbraccio Shares’ carrying value. 22 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Accumulated Other Comprehensive Loss (“AOCL”) - Following are the components of AOCL as of the periods indicated: (dollars in thousands) SEPTEMBER 27, 2020 DECEMBER 29, 2019 Foreign currency translation adjustment $ ( 192,569 ) $ ( 152,031 ) Unrealized loss on derivatives, net of tax ( 25,433 ) ( 17,745 ) Accumulated other comprehensive loss $ ( 218,002 ) $ ( 169,776 ) Following are the components of Other comprehensive loss attributable to Bloomin’ Brands for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Foreign currency translation adjustment $ ( 4,095 ) $ ( 10,305 ) $ ( 40,538 ) $ ( 13,042 ) Unrealized gain (loss) on derivatives, net of tax (1) $ 261 $ ( 2,036 ) $ ( 14,631 ) $ ( 13,656 ) Reclassification of adjustments for loss on derivatives included in Net (loss) income, net of tax (2) 2,962 812 6,943 578 Total unrealized gain (loss) on derivatives, net of tax $ 3,223 $ ( 1,224 ) $ ( 7,688 ) $ ( 13,078 ) Other comprehensive loss attributable to Bloomin’ Brands $ ( 872 ) $ ( 11,529 ) $ ( 48,226 ) $ ( 26,120 ) ________________ (1) Unrealized gain (loss) on derivatives is net of tax of $ 0.1 million and $( 0.7 ) million for the thirteen weeks ended September 27, 2020 and September 29, 2019 and $( 5.1 ) million and $( 4.7 ) million for the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively. (2) Reclassifications of adjustments for loss on derivatives are net of tax. See Note 15 - Derivative Instruments and Hedging Activities for the tax impact of reclassifications. 15. Derivative Instruments and Hedging Activities Cash Flow Hedges of Interest Rate Risk - On October 24, 2018 and October 25, 2018 , the Company entered into variable-to-fixed interest rate swap agreements with 12 counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements have an aggregate notional amount of $ 550.0 million and mature on November 30, 2022 . Under the terms of the swap agreements, the Company pays a weighted-average fixed rate of 3.04 % on the notional amount and receives payments from the counterparty based on the one-month LIBOR rate. The Company’s swap agreements have been designated and qualify as cash flow hedges, are recognized on its Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. The Company estimates $ 16.0 million will be reclassified to interest expense over the next 12 fiscal months. The following table presents the fair value and classification of the Company’s swap agreements, as of the periods indicated : (dollars in thousands) SEPTEMBER 27, 2020 DECEMBER 29, 2019 CONSOLIDATED BALANCE SHEET CLASSIFICATION Interest rate swaps - liability $ 14,749 $ 7,174 Accrued and other current liabilities Interest rate swaps - liability 19,615 16,835 Other long-term liabilities, net Total fair value of derivative instruments - liabilities (1) $ 34,364 $ 24,009 Accrued interest $ 1,364 $ 632 Accrued and other current liabilities ____________________ (1) See Note 17 - Fair Value Measurements for fair value discussion of the interest rate swaps. 23 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued On May 4, 2020 , concurrent with entering into the Amended Credit Agreement, the Company de-designated its interest rate swap hedge relationship and modified its hedge documentation to more closely align with certain terms of the Amended Credit Agreement. On May 6, 2020, the Company re-designated the cash flow hedge relationship for the original $ 550.0 million notional amount, resulting in no impact to the Company’s consolidated financial statements as a result of the hedge activity. The following table summarizes the effects of the swap agreements on Net (loss) income for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Interest rate swap expense recognized in Interest expense, net $ ( 3,991 ) $ ( 1,095 ) $ ( 9,353 ) $ ( 779 ) Income tax benefit recognized in (Benefit) provision for income taxes 1,029 283 2,410 201 Total effects of the interest rate swaps on Net (loss) income $ ( 2,962 ) $ ( 812 ) $ ( 6,943 ) $ ( 578 ) 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 27, 2020 , all counterparties to the interest rate swaps had performed in accordance with their contractual obligations. The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if the repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on indebtedness. As of September 27, 2020 and December 29, 2019 , the fair value of the Company’s interest rate swaps was in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk, of $ 36.5 million and $ 24.8 million, respectively. As of September 27, 2020 and December 29, 2019 , the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions as of September 27, 2020 and December 29, 2019 , it could have been required to settle its obligations under the agreements at their termination value of $ 36.5 million and $ 24.8 million, respectively. 16. Leases In April 2020, the FASB issued a question and answer document focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19 (the “Lease Modification Q&A”). The Lease Modification Q&A provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease when the total cash flows resulting from the modified lease are substantially similar to the cash flows in the original lease. The Company elected this practical expedient for COVID-19-related rent concessions, primarily rent deferrals or rent abatements, and has elected not to remeasure the related lease liability and right-of-use asset for those leases. Rent deferrals are accrued with no impact to straight-line rent expense. Rent abatements are recognized as a reduction of variable rent expense in the month they occur. This election will continue while these concessions are in effect. 24 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table includes a detail of lease assets and liabilities included on the Company’s Consolidated Balance Sheets as of the periods indicated: (dollars in thousands) CONSOLIDATED BALANCE SHEET CLASSIFICATION SEPTEMBER 27, 2020 DECEMBER 29, 2019 Operating lease right-of-use assets Operating lease right-of-use assets $ 1,192,035 $ 1,266,548 Finance lease right-of-use assets (1) Property, fixtures and equipment, net 2,123 2,036 Total lease assets, net $ 1,194,158 $ 1,268,584 Current operating lease liabilities (2) Accrued and other current liabilities $ 177,713 $ 171,866 Current finance lease liabilities Current portion of long-term debt 1,225 1,361 Non-current operating lease liabilities Non-current operating lease liabilities 1,230,008 1,279,051 Non-current finance lease liabilities Long-term debt, net 1,150 947 Total lease liabilities $ 1,410,096 $ 1,453,225 ________________ (1) Net of accumulated amortization of $ 2.1 million and $ 1.3 million as of September 27, 2020 and December 29, 2019, respectively. (2) Excludes COVID-19-related deferred rent accruals of $ 14.4 million as of September 27, 2020 and accrued contingent percentage rent of $ 2.6 million and $ 2.4 million, as of September 27, 2020 and December 29, 2019, respectively. Following is a summary of expenses and income related to leases recognized in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the periods indicated: CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME CLASSIFICATION THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Operating leases (1) Other restaurant operating $ 45,341 $ 45,948 $ 133,999 $ 136,260 Variable lease cost Other restaurant operating ( 1,677 ) 933 ( 1,603 ) 2,498 Finance leases Amortization of leased assets Depreciation and amortization 328 365 985 1,049 Interest on lease liabilities Interest expense, net 37 64 120 209 Sublease revenue (2) Franchise and other revenues ( 409 ) ( 1,747 ) ( 2,195 ) ( 4,853 ) Lease costs, net $ 43,620 $ 45,563 $ 131,306 $ 135,163 ________________ (1) Excludes rent expense for office facilities and Company-owned closed or subleased properties of $ 3.6 million and $ 3.8 million for the thirteen weeks ended September 27, 2020 and September 29, 2019, respectively, and $ 10.4 million and $ 11.0 million for the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively, which is included in General and administrative expense. Also excludes certain supply chain related rent expense of $ 0.3 million for the thirteen weeks ended September 27, 2020 and September 29, 2019 and $ 1.0 million and $ 0.9 million for the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively, which is included in Food and beverage costs. (2) Excludes rental income from Company-owned properties of $ 0.4 million for the thirteen weeks ended September 29, 2019 and $ 0.3 million and $ 1.8 million for the thirty-nine weeks ended September 27, 2020 and September 29, 2019, respectively. The following table is a summary of other impacts to the Company’s Consolidated Financial Statements related to its leases for the periods indicated: THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Cash flows from operating activities: Cash paid for amounts included in the measurement of operating lease liabilities $ 127,642 $ 143,630 25 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 17. Fair Value Measurements Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of the following three levels based on the lowest level of significant input: Level 1 Unadjusted quoted market prices in active markets for identical assets or liabilities Level 2 Observable inputs available at measurement date other than quoted prices included in Level 1 Level 3 Unobservable inputs that cannot be corroborated by observable market data Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated: SEPTEMBER 27, 2020 DECEMBER 29, 2019 (dollars in thousands) TOTAL LEVEL 1 LEVEL 2 TOTAL LEVEL 1 LEVEL 2 Assets: Cash equivalents: Fixed income funds $ 8,607 $ 8,607 $ — $ 1,037 $ 1,037 $ — Money market funds 10,884 10,884 — 12,752 12,752 — Restricted cash equivalents: Money market funds 2,481 2,481 — — — — Total asset recurring fair value measurements $ 21,972 $ 21,972 $ — $ 13,789 $ 13,789 $ — Liabilities: Accrued and other current liabilities: Derivative instruments - interest rate swaps $ 14,749 $ — $ 14,749 $ 7,174 $ — $ 7,174 Other long-term liabilities: Derivative instruments - interest rate swaps 19,615 — 19,615 16,835 — 16,835 Total liability recurring fair value measurements $ 34,364 $ — $ 34,364 $ 24,009 $ — $ 24,009 Fair value of each class of financial instrument is determined based on the following: FINANCIAL INSTRUMENT METHODS AND ASSUMPTIONS Fixed income funds and Money market funds Carrying value approximates fair value because maturities are less than three months. Derivative instruments The Company’s derivative instruments include interest rate swaps. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. The Company also considers its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As of September 27, 2020 and December 29, 2019, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. 26 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, operating lease right-of-use assets, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. Carrying value after impairment approximates fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis, for the periods indicated: THIRTEEN WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 (dollars in thousands) REMAINING CARRYING VALUE TOTAL IMPAIRMENT REMAINING CARRYING VALUE TOTAL IMPAIRMENT Assets held for sale (1) $ — $ — $ 900 $ 100 Operating lease right-of-use assets (2) — ( 24 ) 293 622 Property, fixtures and equipment (3) 207 388 395 826 $ 207 $ 364 $ 1,588 $ 1,548 THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 (dollars in thousands) REMAINING CARRYING VALUE TOTAL IMPAIRMENT REMAINING CARRYING VALUE TOTAL IMPAIRMENT Assets held for sale (1) $ 1,182 $ 75 $ 2,049 $ 315 Operating lease right-of-use assets (2) 70,841 23,567 2,649 2,988 Property, fixtures and equipment (3) 27,978 38,381 1,351 3,659 Goodwill and other assets (4) 748 2,683 — — $ 100,749 $ 64,706 $ 6,049 $ 6,962 ____________________ (1) Assets generally measured using third-party market appraisals or executed sales contracts (Level 2). (2) Carrying values measured using Level 2 inputs to estimate fair value totaled $ 0.2 million during the thirty-nine weeks ended September 29, 2019. All other assets were valued using Level 3 inputs. Third-party market appraisals (Level 2) and discounted cash flow models (Level 3) were used to estimate fair value. (3) Carrying values measured using Level 2 inputs to estimate fair value totaled $ 2.2 million during the thirty-nine weeks ended September 27, 2020. All other assets were valued using Level 3 inputs. Third-party market appraisals (Level 2) and discounted cash flow models (Level 3) were used to estimate fair value. (4) Other assets generally measured using the quoted market value of comparable assets (Level 2). See Note 4 - Impairments, Exit Costs and Disposals for information regarding impairment charges resulting from the fair value measurement performed on a nonrecurring basis during the thirteen and thirty-nine weeks ended September 27, 2020. Projected future cash flows, including discount rate and growth rate assumptions, are derived from current economic conditions, expectations of management and projected trends of current operating results. As a result, the Company has determined that the majority of the inputs used to value its long-lived assets held and used are unobservable inputs that fall within Level 3 of the fair value hierarchy. In assessment of impairment for operating locations, the Company determined the fair values of individual operating locations using an income approach, which required discounting projected future cash flows. When determining the stream of projected future cash flows associated with an individual operating location, management made assumptions, including highest and best use and inputs from restaurant operations, where necessary, and about key variables including the following unobservable inputs: revenue growth rates, controllable and uncontrollable expenses, and asset residual values. In order to calculate the present value of those future cash flows, the Company discounted cash flow estimates at its weighted-average cost of capital applicable to the country in which the measured assets reside. 27 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table presents quantitative information related to certain unobservable inputs used in the Company’s Level 3 fair value measurements of Operating lease right-of-use assets and Property, fixtures and equipment for the impairment losses incurred during the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED UNOBSERVABLE INPUTS SEPTEMBER 27, 2020 SEPTEMBER 27, 2020 Weighted-average cost of capital 11.3 % 10.4 % to 11.3 % Long-term growth rate 1.5 % to 2.0 % 1.5 % to 2.0 % Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments consist of cash equivalents, accounts receivable, accounts payable and current and long-term debt. The fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts reported on its Consolidated Balance Sheets due to their short duration. Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of the periods indicated: SEPTEMBER 27, 2020 DECEMBER 29, 2019 CARRYING VALUE FAIR VALUE LEVEL 2 CARRYING VALUE FAIR VALUE LEVEL 2 (dollars in thousands) Senior Secured Credit Facility: Term loan A $ 431,250 $ 418,313 $ 450,000 $ 450,563 Revolving credit facility $ 555,000 $ 520,995 $ 599,000 $ 599,000 Convertible Senior Notes $ 230,000 $ 349,455 $ — $ — 18. Allowance for Expected Credit Losses The following is a rollforward of the allowance for trade receivable expected credit losses for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 27, 2020 Allowance for credit losses, beginning of period $ 4,566 $ 199 Adjustment for adoption of ASU No. 2016-13 — 1,018 Provision for expected credit losses 2 3,351 Charge-off of accounts ( 29 ) ( 29 ) Allowance for credit losses, end of period $ 4,539 $ 4,539 The Company is exposed to credit losses through its trade accounts receivable consisting primarily of amounts due for gift card, credit card, vendor, franchise and other receivables. Gift card, vendor and other receivables consist primarily of amounts due from gift card resellers and vendor rebates. Amounts due from franchisees consist of initial franchise fees, royalty income, and advertising fees. See Note 7 - Other Current Assets, Net for disclosure of trades receivables by category as of September 27, 2020 and December 29, 2019. Domestic credit card receivables are recorded within Cash and cash equivalents based on their short duration and reasonably assured settlement. The Company evaluates the collectability of trade receivables based on historical loss experience and risk pool and records periodic adjustments for factors such as deterioration of economic conditions, specific customer circumstances and changes in the aging of accounts receivable balances. For risk pools where there was no 28 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued established loss history, S&P speculative-grade default rates are utilized to calculate an estimated loss rate. Losses are charged off in the period in which they are determined to be uncollectable. The financial condition of the Company’s franchisees is largely dependent on the underlying business trends of its brands and market conditions within the casual dining restaurant industry. In March 2020, the Company fully reserved substantially all of its outstanding franchise receivables in response to the economic impact of the COVID-19 pandemic. See Note 2 - COVID-19 Charges for details regarding the impact of the COVID-19 pandemic on the Company’s financial results. The Company is also exposed to credit losses from off-balance sheet lease guarantees primarily related to the divestiture of certain formerly Company-owned restaurant sites. See Note 20 - Commitments and Contingencies for details regarding these lease guarantees. 19. Income Taxes THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 (Loss) income before (benefit) provision for income taxes $ ( 32,554 ) $ 8,713 $ ( 214,830 ) $ 110,882 (Benefit) provision for income taxes $ ( 14,776 ) $ ( 660 ) $ ( 70,210 ) $ 6,051 Effective income tax rate 45.4 % ( 7.6 ) % 32.7 % 5.5 % On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). Accordingly, the applicable provisions of the CARES Act have been reflected in the Company’s tax provision for the thirteen and thirty-nine weeks ended September 27, 2020. The CARES Act, among other items, includes U.S. corporate tax provisions related to the deferment of employer social security payments, employee retention credits, net operating loss (“NOL”) carryback periods, alternative minimum tax credits, modifications to interest deduction limitations and technical corrections on tax depreciation methods for qualified improvement property (“QIP”). The effective income tax rate for the thirteen and thirty-nine weeks ended September 27, 2020 increased by 53.0 and 27.2 percentage points as compared to the thirteen and thirty-nine weeks ended September 29, 2019. These increases were primarily due to the benefit of the tax credits for FICA taxes on certain employees’ tips, the forecasted 2020 pre-tax book loss and changes to the estimate of the forecasted full-year effective tax rate relative to prior quarters in 2020. As of December 29, 2019, the Company had $ 128.6 million in general business tax credits carryforwards, which have a 20-year carryforward period and are utilized on a first-in, first-out basis. The Company expects to increase its general business credit carryforwards in 2020 by approximately $ 20 million to $ 30 million as a result of additional credits generated in 2020 and the application of the QIP technical correction enacted as part of the CARES Act. The Company currently expects to utilize these tax credit carryforwards within a 10 year period. However, the Company’s ability to utilize these tax credits could be adversely impacted by, among other items, a future “ownership change” as defined under Section 382 of the Internal Revenue Code. The Company has a blended federal and state statutory rate of approximately 26 %. The effective income tax rate for the thirteen and thirty-nine weeks ended September 27, 2020 was higher than the statutory rate primarily due to the benefit of tax credits for FICA taxes on certain employees’ tips. Deferred Taxes - During the thirty-nine weeks ended September 27, 2020, Deferred income tax assets, net increased by $ 73.3 million primarily as a result of losses incurred during the period and tax credits for FICA taxes on certain employees’ tips. 29 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 20. Commitments and Contingencies Litigation and Other Matters - The Company had $ 5.2 million and $ 3.0 million of liabilities recorded for various legal matters as of September 27, 2020 and December 29, 2019, respectively. The Company is subject to legal proceedings, claims and liabilities, such as liquor liability, slip and fall cases, wage-and-hour and other employment-related litigation, which arise in the ordinary course of business and are generally covered by insurance if they exceed specified retention or deductible amounts. In the opinion of management, the amount of ultimate liability with respect to those actions will not have a material adverse impact on the Company’s financial position or results of operations and cash flows. Lease Guarantees - The Company assigned its interest, and is contingently liable, under certain real estate leases. These leases have varying terms, the latest of which expires in 2032. As of September 27, 2020, the undiscounted payments that the Company could be required to make in the event of non-payment by the primary lessees was approximately $ 29.0 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of September 27, 2020 was approximately $ 20.7 million. In the event of default, the indemnity clauses in the Company’s purchase and sale agreements govern its ability to pursue and recover damages incurred. In March 2020, the Company recorded $ 4.2 million of additional contingent lease liability in response to the economic impact of the COVID-19 pandemic. As of September 27, 2020, the Company’s recorded contingent lease liability was $ 9.7 million. See Note 2 - COVID-19 Charges for details regarding the impact of the COVID-19 pandemic on the Company’s financial results. During the third quarter of 2020, the Company received notices of default pertaining to three leases of divested restaurant properties in circumstances where the Company is contingently liable for the unpaid rent of the current operators. The Company is in communication with these operators and has encouraged the operators to negotiate with their landlords to defer or resolve payments. The Company believes losses above its recorded reserve are not probable at this time but will continue to closely monitor and assess this situation. 21. Segment Reporting The Company considers its restaurant concepts and international markets as operating segments, which reflects how the Company manages its business, reviews operating performance and allocates resources. Resources are allocated and performance is assessed by the Company’s Chief Executive Officer (“CEO”), whom the Company has determined to be its Chief Operating Decision Maker (“CODM”). The Company aggregates its operating segments into two reportable segments, U.S. and international. The U.S. segment includes all restaurants operating in the U.S. while restaurants operating outside the U.S. are included in the international segment. The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse United States of America Carrabba’s Italian Grill Bonefish Grill Fleming’s Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba’s Italian Grill (Abbraccio) Brazil _________________ (1) Includes franchise locations. 30 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 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 29, 2019. Revenues for all segments include only transactions with customers and exclude intersegment revenues. Excluded from Income (loss) 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 thirty-nine weeks ended September 27, 2020, the Company recorded $ 4.2 million and $ 28.8 million, respectively, of pre-tax charges as a part of transformational initiatives implemented in connection with its 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 the Company’s segments since the Company’s CODM does not consider the impact of transformational initiatives when assessing segment performance. The following table is a summary of Total revenue by segment, for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Total revenues U.S. $ 721,738 $ 848,444 $ 2,153,315 $ 2,777,170 International 49,522 118,700 204,741 340,035 Total revenues $ 771,260 $ 967,144 $ 2,358,056 $ 3,117,205 The following table is a reconciliation of Segment income (loss) from operations to (Loss) income before (benefit) provision for income taxes, for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Segment income (loss) from operations U.S. $ 29,574 $ 50,318 $ ( 21,968 ) $ 242,167 International ( 7,926 ) 10,550 ( 18,209 ) 31,179 Total segment income (loss) from operations 21,648 60,868 ( 40,177 ) 273,346 Unallocated corporate operating expense ( 35,903 ) ( 38,910 ) ( 127,558 ) ( 125,434 ) Total (loss) income from operations ( 14,255 ) 21,958 ( 167,735 ) 147,912 Loss on modification of debt — — ( 237 ) — Other income (expense), net 1 11 ( 211 ) ( 145 ) Interest expense, net ( 18,300 ) ( 13,256 ) ( 46,647 ) ( 36,885 ) (Loss) income before (benefit) provision for income taxes $ ( 32,554 ) $ 8,713 $ ( 214,830 ) $ 110,882 The following table is a summary of Depreciation and amortization expense by segment for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 SEPTEMBER 27, 2020 SEPTEMBER 29, 2019 Depreciation and amortization U.S. $ 35,056 $ 36,670 $ 110,004 $ 114,372 International 5,672 7,201 18,314 20,406 Corporate 2,689 4,055 9,151 12,418 Total depreciation and amortization $ 43,417 $ 47,926 $ 137,469 $ 147,196 31 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS