What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-24 compared with 2020-02-26 · 381 added, 249 removed, 446 unchanged (59% of the section changed)

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We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts.

As of December 29, 2019 , we owned and operated 1,173 restaurants and franchised 300 restaurants across 48 states, Puerto Rico, Guam and 21 countries.

As of December 27, 2020, we owned and operated 1,157 restaurants and franchised 317 restaurants across 47 states, Guam and 20 countries.

We have four founder-inspired concepts:

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Our 2020 financial results include:

An increase in Total revenues of 0.3% to $4.1 billion in 2019 as compared to 2018 , driven primarily by higher comparable restaurant sales and the net impact of restaurant openings and closures.

These increases were partially offset by the effect of foreign currency translation and domestic refranchising.

Income from operations increased to $191.1 million in 2019 as compared to $145.3 million in 2018 , primarily due to higher comparable restaurant sales, the impact of certain cost savings initiatives and lower impairment charges and restaurant closing costs.

These increases were partially offset by labor, commodity and operating expense inflation, delivery rollout costs and the impact of deferred gain amortization no longer recognized upon adoption of the new lease standard.

Following is a summary of factors that impacted our operating results and liquidity in 2019 and significant actions we have taken during the year:

Refranchising - During 2019, we completed the sale of 18 of our U.S.

Company-owned Carrabba’s Italian Grill restaurants to an existing franchisee for cash proceeds of $3.6 million , net of certain purchase price adjustments.

See Note 4 - Disposals of the Notes to Consolidated Financial Statements for additional details.

Surplus Property Disposals - During 2019, we completed the sale of five of our U.S.

surplus properties to a franchisee 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 our Consolidated Statements of Operations and Comprehensive Income .

Share Repurchase Programs and Dividends - We repurchased 5.5 million shares of common stock during 2019 for a total of $107.0 million and paid $35.7 million of dividends.

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

• A decrease in Total revenues of (23.4)% to $3.2 billion in 2020 as compared to 2019, primarily due to:

(i) significantly lower comparable restaurant sales and franchise revenues principally attributable to the COVID-19 pandemic, (ii) the effect of foreign currency translation of the Brazil Real relative to the U.S.

dollar and (iii) the net impact of restaurant closures and openings.

• Loss from operations of $(175.0) million in 2020, as compared to income from operations of $191.1 million in 2019, was primarily due to significantly lower comparable restaurant sales and franchise revenues and costs incurred in connection with the COVID-19 pandemic, and costs incurred in connection with our transformation initiatives.

These losses were partially offset by reduced operating costs and a reduction in prep labor hours, offset by higher labor costs.

Business Strategies

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• Drive Long-Term Shareholder Value.

We plan to drive long-term shareholder value by reinvesting operational cash flow into our business, improving our credit profile and returning excess cash to shareholders through dividends and share repurchases.

We plan to drive long-term shareholder value by reinvesting operational cash flow into our business and improving our credit profile.

• Enrich Engagement Among Stakeholders.

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We continue to focus on existing geographic regions in South America, with strategic expansion in Brazil, and pursue global franchise opportunities.

We intend to fund our business strategies, drive revenue growth and margin improvement, in part by reinvesting savings generated by anticipated cost savings discussed below and productivity initiatives across our businesses.

Strategic Alternatives Review Update

In November 2019, we announced that we are exploring and evaluating strategic alternatives that have the potential to maximize value for our shareholders, including but not limited to, a possible sale of the Company.

Since then, management has been actively working with the Board of Directors and its financial and legal advisors to review all aspects of the business and available opportunities.

Concurrently, we have built a plan that supports a growth-focused, operations centric organization.

The pillars of this plan are as follows:

Aligned leadership, resources and structure to prioritize growth, efficiency and scale.

Simplified our corporate support functions to enable a more agile and operations-focused organization.

Rebalanced capital allocation policy, including doubling our dividend, while maintaining flexibility to pay down debt, repurchase shares and reinvest back in our business.

We are confident that these actions, coupled with our ongoing focus on driving sustainable healthy sales growth in our restaurants, will increase total shareholder return in 2020 and beyond.

We intend to fund our business strategies, drive revenue growth and margin improvement, in part by reinvesting savings generated by cost savings and productivity initiatives across our businesses.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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.

As of December 27, 2020, 85% of our restaurant dining rooms were open with many still subject to seating capacity restrictions.

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.

In response to the COVID-19 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.

Key Performance Indicators

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

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

• Restaurant-level operating margin, (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 expense (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations.

Our restaurant-level operating margin is expressed as the percentage of our Restaurant sales that Food and beverage costs, Labor and other related and Other restaurant operating expense (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:

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.

Depreciation and amortization which, although substantially all is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants.

General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices.

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 Statements of Operations and Comprehensive Income .

As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, net income or income from operations.

(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 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.

As a result, restaurant-level operating margin is not

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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 operating margin may not be comparable to similarly titled measures used by other companies in our industry;

Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income, Adjusted diluted earnings per share —non-GAAP financial measures utilized to evaluate our operating performance, which definitions, usefulness and reconciliations are described in more detail in the “Non-GAAP Financial Measures” section below;

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

• Consumer satisfaction scores —measurement of our consumers’ experiences in a variety of key areas.

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The table below presents the number of our restaurants in operation as of the periods indicated:

DECEMBER 27, 2020 DECEMBER 29, 2019

Number of restaurants (at end of the period):

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Company-owned 568 579

Franchised 138 145

Total 706 724

Carrabba’s Italian Grill

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Franchised 21 21

Total 220 225

Bonefish Grill

Company-owned 180 190

Franchised 7 7

Total 187 197

Fleming’s Prime Steakhouse & Wine Bar

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Company-owned (1) 5 4

total 1,181 1,218

International:

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Outback Steakhouse - Brazil (2) 109 99

Other (3) 33 29

Outback Steakhouse—South Korea (3) 95 72

Other (1) 56 55

International total 293 255

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____________________

In 2019, we sold 18 Carrabba’s Italian Grill restaurants, which are now operated as franchises.

Company-owned and International Franchised Other each include three and two fast-casual Aussie Grill locations as of December 27, 2020 and December 29, 2019, respectively.

(2) The restaurant counts for Brazil are reported as of November 30, 2020 and 2019, respectively, to correspond with the balance sheet dates of this subsidiary.

(3) As of December 27, 2020, we had 20 international dark kitchens that offer delivery only.

One of these locations was included within Company-owned Other and 19 were included in Franchised Outback Steakhouse - South Korea.

BLOOMIN’ BRANDS, INC.

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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:

The following table sets forth the percentages of certain items in our Consolidated Statements of Operations in relation to Total revenues or Restaurant sales for the periods indicated:

Restaurant sales 99.2 % 98.4 %

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Costs and expenses

Cost of sales (1)

Food and beverage costs (1) 31.3 31.4

Labor and other related (1) 32.0 29.6

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Total costs and expenses 105.5 95.4

Income from operations

Other expense, net

(Loss) income from operations (5.5) 4.6

Loss on modification of debt (*) —

Other income (expense), net * (*)

Interest expense, net (2.1) (1.2)

Income before Provision (benefit) for income taxes

Provision (benefit) for income taxes

net income attributable to noncontrolling interests

Net income attributable to Bloomin’ Brands

(Loss) income before (benefit) provision for income taxes (7.6) 3.4

(Benefit) provision for income taxes (2.6) 0.2

Net (loss) income (5.0) 3.2

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

Net (loss) income attributable to Bloomin’ Brands

(5.0) % 3.2 %

____________________

(1) As a percentage of Restaurant sales.

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Comparable restaurant sales (1) (826.8)

Restaurant openings (1)

Restaurant closings (66.1)

Effect of foreign currency translation (52.1)

Divestiture of restaurants through refranchising transactions (11.2)

Restaurant closings

Restaurant openings (1) 25.8

For fiscal year 2020 $ 3,144.6

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(1) Summation of quarterly changes for restaurant openings and comparable restaurant sales will not total to annual amounts as the restaurants that meet the definition of a comparable restaurant will differ each period based on when the restaurant opened.

The increase in Restaurant sales in 2019 as compared to 2018 was primarily due to higher comparable restaurant sales and sales from 40 new restaurants not included in our comparable restaurant sales base.

The increase in Restaurant sales was partially offset by:

(i) the effect of foreign currency translation of the Brazilian Real relative to the U.S.

dollar, (ii) domestic refranchising and (iii) the closing of 40 restaurants since December 31, 2017 .

The decrease in Restaurant sales in 2020 as compared to 2019 was primarily due to:

(i) significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic, (ii) the closure of 55 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 40 new restaurants not included in our comparable restaurant sales base.

Average Restaurant Unit Volumes and Operating Weeks

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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:

Comparable Restaurant Sales, Traffic and Average Check Per Person (Decreases) Increases

Following is a summary of comparable restaurant sales, traffic and average check per person (decreases) increases for the periods indicated:

Year over year percentage change:

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Combined U.S.

(19.9) % 1.2 %

International

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Combined U.S.

(3) (17.6) % (0.6) %

International

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Combined U.S.

(2.3) % 1.8 %

International

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For 2018, U.S.

comparable restaurant sales and traffic compare the 52 weeks from January 1, 2018 through December 30, 2018 to the 52 weeks from January 2, 2017 through December 31, 2017.

(1) Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening.

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Includes trading day impact from calendar period reporting.

Average check per person increases (decreases) include the impact of menu pricing changes, product mix and discounts.

(3) During 2020, Bonefish Grill replaced guest count with entrée count to measure restaurant traffic.

Bonefish Grill and Combined U.S.

traffic for 2020 was calculated using the entrée count methodology for Bonefish Grill as if the new methodology was in effect at the start of the fiscal year.

(4) Average check per person includes the impact of menu pricing changes, product mix and discounts.

BLOOMIN’ BRANDS, INC.

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(1) Represents franchise royalties, advertising fees and initial franchise fees.

COSTS AND EXPENSES

Cost of sales

Franchisee Deferred Payment Agreement - On December 27, 2020, we entered into an agreement (the “Resolution Agreement”) with Cerca Trova Southwest Restaurant Group, LLC (d/b/a Out West Restaurant Group) and certain of its affiliates (collectively, “Out West”), a franchisee of approximately 90 Outback Steakhouse restaurants in the western United States, primarily in California.

Under the terms of the Resolution Agreement, we agreed to permanently waive all past due royalties and advertising fees for the period of February 24, 2020 to July 26, 2020 and defer, among other items, all past due royalties and advertising fees for the period of July 27, 2020 to November 22, 2020 due to the significant impact of the COVID-19 pandemic on Out West’s business.

See Note 4 - Revenue Recognition of the Notes to Consolidated Financial Statements for further details regarding the Resolution Agreement.

Following is a summary of franchise and other revenues and comparable restaurant sales for Out West franchised locations for the periods indicated:

(dollars in millions) 2020 (1) 2019

Cost of sales

Franchise revenues $ 4.4 $ 27.9

Other revenues 1.0 4.5

Franchise and other revenues $ 5.4 $ 32.4

Out West comparable restaurant sales (stores open 18 months or more) (32.9) % (0.5) %

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(1) Includes Franchise and other revenues recognized from December 30, 2019 through February 23, 2020.

No Franchise and other revenues were recognized after February 23, 2020 since collectability was not reasonably assured.

In 2021, we anticipate franchise revenues from Out West to be materially consistent with 2020, assuming a consistent level of COVID-19-related operating restrictions to the level currently in place.

However, if government mandated dining room closures are lifted and seating capacity restrictions for the states Out West operates in are relaxed during 2021, our franchise revenues may increase.

COSTS AND EXPENSES

Food and beverage costs

(dollars in millions) 2020 2019 Change

Food and beverage costs $ 982.7 $ 1,277.8

% of Restaurant sales 31.3 % 31.4 % (0.1) %

Cost of sales, consisting of food and beverage costs, decreased as a percentage of Restaurant sales in 2019 as compared to 2018 primarily due to 0.6% from increases in average check per person and 0.4% from the impact of certain cost saving initiatives, partially offset by an increase as a percentage of Restaurant sales of 0.6% from commodity cost inflation.

In 2020 , we expect commodity costs to increase approximately 2% .

Food and beverage costs decreased as a percentage of Restaurant sales in 2020 as compared to 2019 primarily due to 0.4% from increases in average check per person and 0.3% from cost savings attributable to waste reduction initiatives, including menu simplification, partially offset by an increase as a percentage of Restaurant sales of 0.4% from commodity inflation.

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

In 2021, we expect commodity costs to remain flat.

Labor and other related expenses

(dollars in millions)

(dollars in millions) 2020 2019 Change

Labor and other related $ 1,005.3 $ 1,207.3

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Labor and other related expenses include all direct and indirect labor costs incurred in operations, including distribution expense to Restaurant Managing Partners, costs related to field deferred compensation plans and other field incentive compensation expenses.

Labor and other related expenses increased as a percentage of Restaurant sales in 2019 as compared to 2018 primarily due to 0.6% from wage rate increases, offset by decreases as a percentage of Restaurant sales of 0.4% from increases in average check per person and 0.2% from the impact of certain cost savings initiatives.

In 2020 , we anticipate approximately 3.5% labor cost inflation.

Labor and other related expenses increased as a percentage of Restaurant sales in 2020 as compared to 2019 primarily due to:

(i) 2.3% from decreased restaurant sales, (ii) 0.9% 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) 0.6% from higher labor costs.

These increases were partially offset by a decrease as a percentage of Restaurant sales of 1.4% from lower prep labor hours.

In 2021, we anticipate approximately 3.0% to 3.5% labor cost inflation.

Other restaurant operating expenses

(dollars in millions)

(dollars in millions) 2020 2019 Change

Other restaurant operating $ 846.6 $ 982.1

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A substantial portion of these expenses is fixed or indirectly variable.

Other restaurant operating expenses increased as a percentage of

Other restaurant operating expenses increased as a percentage of Restaurant sales in 2020 as compared to 2019 primarily due to lower sales volumes and costs incurred as a result of the COVID-19 pandemic, including 2.8% 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 2.0% from reduced advertising, utilities and operating expense.

Depreciation and amortization

(dollars in millions) 2020 2019 Change

Depreciation and amortization $ 180.3 $ 196.8 $ (16.5)

Depreciation and amortization decreased in 2020 as compared to 2019 primarily due to impairment and the effect of foreign currency translation.

In 2021, we anticipate approximately $165 million to $175 million of depreciation and amortization expense.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Restaurant sales in 2019 as compared to 2018 primarily due to:

(i) 0.5% from additional expense related to the rollout of delivery services, (ii) 0.4% from operating expense inflation and (iii) 0.3% from the impact of deferred gains on sale-leaseback transactions no longer recognized in 2019 as a result of adoption of the new lease accounting standard.

These increases were partially offset by decreases as a percentage of Restaurant sales of 0.5% from the impact of certain cost savings initiatives and 0.3% from increases in average check per person.

Depreciation and amortization

(dollars in millions)

Depreciation and amortization

Depreciation and amortization decreased in 2019 as compared to 2018 primarily due to:

(i) disposal of assets related to the sale-leaseback of certain properties, (ii) store closures and domestic refranchising and (iii) the effect of foreign currency translation.

These decreases were partially offset by additional depreciation expense related to restaurant openings, relocations and remodels.

General and administrative expenses

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For fiscal year 2019 $ 275.2

Incentive compensation

Foreign currency exchange

Compensation, benefits and payroll tax (11.2)

Travel and entertainment (1) (10.4)

Legal and professional fees (6.8)

Employee stock-based compensation (4.7)

Foreign currency exchange (4.3)

Deferred compensation (3.8)

Incentive compensation (3.2)

Transformational costs (2) 11.0

Expected credit losses and contingent lease liabilities 7.8

Severance 5.0

For fiscal year 2020 $ 254.4

____________________

(1) Includes managing partner conference costs.

(2) Primarily consists of consulting fees incurred in connection with our transformation initiatives.

In 2021, we anticipate approximately $225 million to $230 million of general and administrative expense.

Provision for impaired assets and restaurant closings

(dollars in millions)

(dollars in millions) 2020 2019 Change

Provision for impaired assets and restaurant closings $ 76.4 $ 9.1 $ 67.3

International Restructuring - We recognized asset impairment and closure charges of $2.0 million and $13.9 million during 2019 and 2018 , respectively, related to restructuring of certain international markets, including Puerto Rico and China, within the international segment.

Express Concept Restructuring - In 2018, we recognized asset impairment charges of $7.4 million related to the restructuring of our Express concept, within the U.S.

As a part of the restructuring, three Express locations closed during 2019.

COVID-19 Restructuring - During 2020, we recognized asset impairment and closure charges of $66.5 million and $3.6 million within the U.S.

and international segments, respectively, primarily related to the COVID-19 pandemic.

COVID-19-related pre-tax impairments and closure costs include $23.8 million in connection with the closure of 22 U.S.

restaurants and from the update of certain cash flow assumptions, including lease renewal considerations.

During 2020, we also recognized asset impairment charges related to transformational initiatives of $6.3 million, which were not allocated to our operating segments.

See Note 5 - Impairments, Exit Costs and Disposals of the Notes to Consolidated Financial Statements for further information.

International Restructuring - We recognized asset impairment and closure charges of $2.0 million during 2019, related to restructuring of certain international markets, including Puerto Rico within the international segment.

The remaining impairment and closing charges for the periods presented primarily resulted from locations identified for remodel, relocation or closure and certain other assets.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Refranchising - During 2019, we completed the sale of 18 of our U.S.

Company-owned Carrabba’s Italian Grill restaurants to an existing franchisee.

In connection with the sale of these restaurants, we recognized asset impairment charges of $5.5 million in 2018, within the U.S.

The remaining impairment and closing charges for the periods presented primarily resulted from approved store closure initiatives, locations identified for remodel, relocation or closure and certain other assets.

We continue to pursue refranchising opportunities in select markets as we look to further optimize our restaurant portfolio.

As a result of these transactions, we may record future net gains or losses, impairment charges and transaction related expenses.

Income from operations

(dollars in millions)

Income from operations

(Loss) income from operations

(dollars in millions) 2020 2019 Change

(Loss) income from operations $ (175.0) $ 191.1

% of Total revenues (5.5) % 4.6 % (10.1) %

The increase in Income from operations during 2019 as compared to 2018 was primarily due to:

(i) higher comparable restaurant sales, (ii) the impact of certain cost saving initiatives and (iii) lower impairment charges and restaurant closing costs.

These increases were partially offset by:

(i) labor, commodity and operating expense inflation, (ii) additional expense related to the rollout of delivery services and (iii) the impact of deferred gain amortization no longer recognized upon adoption of the new lease standard.

Loss from operations during 2020 as compared to income from operations during 2019 was primarily due to:

(i) significantly lower comparable restaurant sales and franchise revenues, 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) certain costs incurred in connection with our transformation initiatives.

These losses were partially offset by reduced advertising, utilities and operating expenses and a reduction in prep labor hours, offset by higher labor costs.

Interest expense, net

(dollars in millions)

(dollars in millions) 2020 2019 Change

Interest expense, net $ 64.4 $ 49.3 $ 15.1

The increase in Interest expense, net during 2019 as compared to 2018 was primarily due to a higher fixed rate on the notional amount of our derivative instruments and higher average interest rates and borrowings outstanding, partially offset from the derecognition of certain lease-related debt obligations due to adoption of the new lease accounting standard.

Provision (benefit) for income taxes

The increase in Interest expense, net during 2020 as compared to 2019 was primarily due to interest expense from our convertible senior notes issued in May 2020 and additional draws on our revolving credit facility, partially offset by lower interest rates on our unhedged variable rate debt balances.

See Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements for details regarding the 2021 interest expense impact from the adoption of Accounting Standards Update No.

(Benefit) provision for income taxes

(dollars in millions) 2020 2019 Change

(Loss) income before (benefit) provision for income taxes $ (239.5) $ 141.7 $ (381.2)

(Benefit) provision for income taxes $ (80.7) $ 7.6 $ (88.3)

Effective income tax rate 33.7 % 5.3 % 28.4 %

The net increase in the effective income tax rate in 2019 as compared to 2018 was primarily due to employment-related credits being a lower percentage of net income in 2019 , excess tax benefits from equity-based compensation arrangements recorded in 2018 and an increase in the foreign tax rate differential in 2019 .

These increases were partially offset by a decrease in valuation allowances recorded against deferred income tax assets in 2019 .

The effective income tax rate for 2019 was lower than the blended federal and state statutory rate of approximately 26%, primarily due to the benefit of tax credits for FICA taxes on certain employees’ tips.

The effective income tax rate for 2018 was lower than the blended federal and state statutory rate of approximately 26%, primarily due to the benefit of tax credits for FICA taxes on certain employees’ tips and excess tax benefits from equity-based compensation arrangements.

The net increase in the effective income tax rate in 2020 as compared to 2019 was primarily due to the benefit of the tax credits for FICA taxes on certain employees’ tips in 2020 and the 2020 pre-tax book loss.

We have a blended federal and state statutory rate of approximately 26%.

The effective income tax rate for 2020 was higher than the blended federal and state statutory rate primarily due to the benefit of tax credits for FICA taxes on certain employees’ tips.

The effective income tax rate for fiscal year 2019 was lower than the blended federal and state statutory rate primarily due to the benefit of tax credits for FICA taxes on certain employees’ tips.

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 Chief Executive Officer, whom we have determined to be our Chief Operating Decision Maker (“CODM”).

We aggregate our operating segments into two reportable segments, U.S.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

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 Chief Executive Officer, whom we have determined to be our Chief Operating Decision Maker.

We aggregate our operating segments into two reportable segments, U.S.

and international.

international.

segment includes all restaurants operating in the U.S.

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Revenues for both segments include only transactions with customers and excludes intersegment revenues.

Excluded from Income from operations for U.S.

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.

Refer to Note 21 - Segment Reporting of the Notes to Consolidated Financial Statements for a reconciliation of segment income from operations to the consolidated operating results.

During 2020, we recorded $32.4 million 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 23 - Segment Reporting of the Notes to Consolidated Financial Statements for a reconciliation of segment (loss) income from operations to the consolidated operating results.

(dollars in thousands) 2020 2019

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Restaurant-level operating margin 9.8 % 14.2 %

Income from operations

Operating income margin

(Loss) income from operations $ (1,630) $ 311,666

Operating (loss) income margin (0.1) % 8.5 %

Restaurant sales

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Comparable restaurant sales (1) (698.5)

Restaurant openings (1)

Divestiture of restaurants through refranchising transactions

Restaurant closures (63.4)

Divestiture of restaurants through refranchising transactions (11.2)

Restaurant openings (1) 8.0

For fiscal year 2020 $ 2,869.5

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Restaurant sales in 2019 were flat as compared to 2018 primarily due to higher comparable restaurant sales and sales from 12 new restaurants not included in our comparable restaurant sales base, offset by domestic refranchising and the closing of 22 restaurants since December 31, 2017 .

The decrease in U.S.

Restaurant sales in 2020 as compared to 2019 was primarily due to:

(i) significantly lower comparable restaurant sales principally attributable to the COVID-19 pandemic, (ii) the closure of 46 restaurants since December 30, 2018 and (iii) the refranchising of certain Company-owned restaurants.

The decrease in U.S.

Restaurant sales was partially offset by the opening of 11 new restaurants not included in our comparable restaurant sales base.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Income from operations

The increase in U.S.

Income from operations generated in 2019 as compared to 2018 was primarily due to:

(i) higher comparable restaurant sales, (ii) the impact of certain cost savings initiatives and (iii) lower impairment charges and restaurant closing costs.

These increases were partially offset by:

(Loss) income from operations

loss from operations generated during 2020 as compared to income from operations during 2019 was primarily due to significantly lower comparable restaurant sales and franchise revenues, 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).

These losses were partially offset by reduced advertising, utilities and operating expenses and a reduction in prep labor hours, offset by higher labor costs.

International Segment

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Restaurant-level operating margin 8.3 % 20.3 %

Income from operations

Operating income margin

(Loss) income from operations $ (13,479) $ 44,428

Operating (loss) income margin (4.7) % 9.8 %

Restaurant sales

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For fiscal year 2019 $ 440.3

Restaurant openings

Comparable restaurant sales (1) (128.3)

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Restaurant closures (2.7)

Restaurant openings (1) 17.9

For fiscal year 2020 $ 275.1

The increase in international Restaurant sales in 2019 as compared to 2018 was primarily due to sales from 28 new restaurants not included in our comparable restaurant sales base and higher comparable restaurant sales.

The increase in international Restaurant sales was partially offset by the effect of foreign currency translation of the Brazilian Real relative to the U.S.

dollar and the closing of 18 restaurants since December 31, 2017 .

Income from operations

The increase in international Income from operations in 2019 as compared to 2018 was primarily due to:

(i) lower impairment and restaurant closing costs, (ii) the impact of certain cost savings initiatives, (iii) higher comparable restaurant sales, (iv) improved operating performance by our Abbraccio concept and (v) lower General and administrative expense, primarily from lower severance costs.

These increases were partially offset by labor, operating and commodity expense inflation.

Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S.

GAAP, we provide certain non-GAAP measures, which present operating results on an adjusted basis.

These are supplemental measures of performance that are not required

____________________

The decrease in international Restaurant sales in 2020 as compared to 2019 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 Brazil Real relative to the U.S.

The decrease in international Restaurant sales was partially offset by the opening of 29 new restaurants not included in our comparable restaurant sales base.

(Loss) income from operations

International loss from operations generated during 2020 as compared to income from operations during 2019 was primarily due to:

(i) significantly lower comparable 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:

(i) reduced utilities, operating and advertising expenses, (ii) lower labor costs and (iii) lower General and administrative expense, primarily from the impact of foreign currency translation.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

by or presented in accordance with U.S.

Non-GAAP Financial Measures

In addition to the results provided in accordance with U.S.

GAAP, we provide certain non-GAAP measures, which present operating results on an adjusted basis.

These are supplemental measures of performance that are not required by or presented in accordance with U.S.

GAAP and include the following:

(i) system-wide sales, (ii) Adjusted restaurant-level operating margins, (iii) Adjusted income from operations and the corresponding margins, (iv) Adjusted net income and (v) Adjusted diluted earnings per share.

(i) system-wide sales, (ii) Adjusted restaurant-level operating margins, (iii) Adjusted (loss) income from operations and the corresponding margins, (iv) Adjusted net (loss) income and (v) Adjusted diluted (loss) earnings per share.

We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S.

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For a summary of sales of Company-owned restaurants, refer to Note 4 - 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.

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

The following table provides a summary of sales of franchised restaurants for the periods indicated, 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.

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Bonefish Grill 8 13

total $ 367 $ 553

International

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____________________

In 2019, we sold 18 Carrabba’s Italian Grill restaurants, which are now operated as franchises.

Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income .

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Adjusted restaurant-level operating margin - Restaurant-level operating margin is calculated as Restaurant sales after deduction of the main restaurant-level operating costs, which includes Cost of sales, Labor and other related and Other restaurant operating expense.

(1) Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive (Loss) Income.

Adjusted restaurant-level operating margin - Restaurant-level operating margin is calculated as Restaurant sales after deduction of the main restaurant-level operating costs, which includes Food and beverage costs, Labor and other related and Other restaurant operating expense.

Adjusted restaurant-level operating margin is Restaurant-level operating margin adjusted for certain items, as noted below.

The following tables show the percentages of certain operating cost financial statement line items in relation to Restaurant sales :

The following tables show the percentages of certain operating cost financial statement line items in relation to Restaurant sales for the periods indicated:

GAAP ADJUSTED (1) U.S.

GAAP ADJUSTED (1)

Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 %

Cost of sales

Food and beverage costs 31.3 % 30.9 % 31.4 % 31.4 %

Labor and other related 32.0 % 32.0 % 29.6 % 29.6 %

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_________________

Includes unfavorable (favorable) adjustments recorded in Other restaurant operating expense (unless otherwise noted below) for the following activities, as described in the Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share table below for the periods indicated:

(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:

(dollars in millions) 2020 2019

COVID-19-related costs (1) $ (14.3) $ —

Restaurant relocations and related costs (0.1) (0.6)

Legal and other matters (2) — 4.6

Restaurant and asset impairments and closing costs 2.8 4.3

Restaurant relocations and related costs

Includes adjustments of $2.7 million and $1.9 million recorded in Cost of sales and Other restaurant operating expense, respectively.

$ (11.6) $ 8.3

_________________

(1) Includes $11.0 million of adjustments recorded in Food and beverage costs.

(2) Includes adjustments of $2.7 million and $1.9 million recorded in Food and beverage costs and Other restaurant operating expense, respectively.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share - The following table reconciles Adjusted income from operations and the corresponding margins, Adjusted net income and Adjusted diluted earnings per share to their respective most comparable U.S.

Restaurant-level operating margin - The following tables reconcile consolidated and segment (Loss) income from operations and the corresponding margins to Restaurant-level operating income and the corresponding margins for the periods indicated:

Consolidated FISCAL YEAR

(dollars in thousands) 2020 2019

(Loss) income from operations $ (174,973) $ 191,090

Operating (loss) income margin (5.5) % 4.6 %

Franchise and other revenues 25,925 64,375

Depreciation and amortization 180,261 196,811

General and administrative 254,356 275,239

Provision for impaired assets and restaurant closings 76,354 9,085

Restaurant-level operating income $ 310,073 $ 607,850

Restaurant-level operating margin 9.9 % 14.9 %

(dollars in thousands) 2020 2019

(Loss) income from operations $ (1,630) $ 311,666

Operating (loss) income margin (0.1) % 8.5 %

Franchise and other revenues 15,995 53,250

Depreciation and amortization 144,298 152,882

General and administrative 88,536 101,374

Provision for impaired assets and restaurant closings 66,487 4,703

Restaurant-level operating income $ 281,696 $ 517,375

Restaurant-level operating margin 9.8 % 14.2 %

International FISCAL YEAR

(dollars in thousands) 2020 2019

(Loss) income from operations $ (13,479) $ 44,428

Operating (loss) income margin (4.7) % 9.8 %

Franchise and other revenues 9,930 11,125

Depreciation and amortization 23,722 27,491

General and administrative 18,916 26,540

Provision for impaired assets and restaurant closings 3,640 2,083

Restaurant-level operating income $ 22,869 $ 89,417

Restaurant-level operating margin 8.3 % 20.3 %

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 - The following table reconciles Adjusted (loss) income from operations and the corresponding margins, Adjusted (loss) net income and Adjusted diluted (loss) earnings per share to their respective most comparable U.S.

GAAP measures for the periods indicated:

(in thousands, except share and per share data) 2020 2019

Income from operations

Operating income margin

Severance (1)

Restaurant and asset impairments and closing costs (2)

(Loss) income from operations $ (174,973) $ 191,090

Operating (loss) income margin (5.5) % 4.6 %

COVID-19-related costs (1) $ 93,811 $ —

Severance and other transformational costs (2) 32,404 5,511

Restaurant relocations and related costs (3) 592 3,208

Legal and other matters (4) 178 (2,996)

Total income from operations adjustments

Adjusted income from operations

Adjusted operating income margin

Net income attributable to Bloomin’ Brands

Income from operations adjustments

Restaurant and asset impairments and closing costs (5) (2,797) 3,550

Total (loss) income from operations adjustments $ 124,188 $ 9,273

Adjusted (loss) income from operations $ (50,785) $ 200,363

Adjusted operating (loss) income margin (1.6) % 4.8 %

Net (loss) income attributable to common stockholders $ (162,211) $ 130,573

(Loss) income from operations adjustments 124,188 9,273

Amortization of debt discount (6) 6,275 —

Total adjustments, before income taxes $ 130,463 $ 9,273

Adjustment to provision for income taxes (7) (32,526) (1,263)

Redemption of preferred stock in excess of carrying value (8) 3,496 —

Net adjustments $ 101,433 $ 8,010

Adjusted net income

Diluted earnings per share

Adjusted diluted earnings per share

Adjusted net (loss) income $ (60,778) $ 138,583

Diluted (loss) earnings per share attributable to common stockholders (9) $ (1.85) $ 1.45

Adjusted diluted (loss) earnings per share (9) $ (0.69) $ 1.54

Diluted weighted average common shares outstanding (9) 87,468 89,777

_________________

Relates to severance expense incurred as a result of restructuring activities.

Represents asset impairment charges and related costs primarily related to:

(i) approved closure and restructuring initiatives, (ii) the restructuring of certain international markets, (iii) the restructuring of our Express concept in 2018 and (iv) reclassification of assets to held for sale in connection with refranchising certain restaurants in 2018.

Also includes gains on the sale of certain surplus properties of $3.8 million in 2019.

Represents asset impairment charges and accelerated depreciation incurred in connection with our relocation program.

Amount includes the recognition of certain value-added tax credits in Brazil of $4.6 million related to prior years offset by fees and expenses related to certain legal matters in 2019.

Represents income tax effect of the adjustments for the periods presented.

Liquidity and Capital Resources

Our liquidity sources consist of cash flow from operations, cash and cash equivalents and credit capacity under our credit facilities.

We expect to use cash primarily for general operating expenses, lease payments, share repurchases and dividend payments, payments on our debt, remodeling or relocating older restaurants, obligations related to our deferred compensation plans and investments in technology.

We believe that our expected liquidity sources are adequate to fund debt service requirements, lease obligations, capital expenditures and working capital obligations during the 12 months following this filing and beyond.

(1) 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 3 - COVID-19 Charges of the Notes to Consolidated Financial Statements for additional details regarding the impact of certain COVID-19 pandemic-related charges on our financial results.

(2) Severance, professional fees and other costs incurred as a result of transformational and restructuring activities.

(3) Asset impairment charges and accelerated depreciation incurred in connection with our relocation program.

(4) For 2019, includes the recognition of certain value-added tax credits in Brazil of $4.6 million related to prior years, offset by fees and expenses related to certain legal matters.

(5) Asset impairment charges and related costs during 2019 primarily related to approved closure and restructuring initiatives and the restructuring of certain international markets.

Amount also includes a lease termination gain of $2.8 million during 2020 and gains on the sale of certain surplus properties of $3.8 million during 2019.

(6) Amortization of the debt discount related to the issuance of the 2025 Notes.

See Note 14 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for details.

(7) Income tax effect of the adjustments for the periods presented.

(8) Consideration paid in excess of the carrying value for the redemption of preferred stock of our Abbraccio subsidiary.

(9) Due to the net loss, the effect of dilutive securities was excluded from the calculation of diluted and adjusted diluted loss per share for fiscal year 2020.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.

Liquidity and Capital Resources

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.

During 2020, the temporary closure of our dining rooms and the limitations on seating capacity due to the COVID-19 pandemic resulted in significantly reduced traffic in our restaurants which has negatively impacted our operating cashflows.

In response to the COVID-19 pandemic, we have tightly managed expenses while prioritizing support of our workforce, off-premises business and the safe reopening of our restaurant dining rooms.

In addition, we have taken several precautionary measures to preserve liquidity, including the following:

• suspended our quarterly cash dividend and stock repurchases;

• significantly reduced marketing and tightly managed other expenses;

• substantially limited capital expenditures to facility maintenance in support of our off-premises business and safe reopening of our restaurant dining rooms;

• engaged in constructive dialogue with our landlords regarding operating lease agreement amendments or deferrals.

The above actions are in addition to the significant cost cutting measures for 2020 that we announced and implemented earlier in the year.

In May 2020, we issued $230.0 million aggregate principal amount of 5.00% convertible senior notes due in 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.

Subsequent to December 27, 2020, we made payments of $92.0 million on our revolving credit facility.

After consideration of payments made on the revolving credit facility in the second half of 2020 and subsequent to 2020, our total outstanding debt approximates pre-COVID-19 levels.

However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully.

Cash and Cash Equivalents - As of December 27, 2020, we had $110.0 million in cash and cash equivalents, of which $40.4 million was held by foreign affiliates.

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See Note 21 - Income Taxes of the Notes to Consolidated Financial Statements for further information regarding our indefinite reinvestment assertion.

Closure Initiatives - Total aggregate future undiscounted cash expenditures of $11.3 million to $13.8 million related to lease liabilities for certain closure initiatives are expected to occur over the remaining lease terms with the final term ending in January 2029 .

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Closure and Restructuring Initiatives - Total aggregate future undiscounted cash expenditures of $9.7 million to $11.8 million related to lease liabilities for certain closure and restructuring initiatives are expected to occur over the remaining lease terms with the final term ending in January 2029.

Capital Expenditures - We estimate that our capital expenditures will total approximately $170 million to $185 million in 2021.

The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including restrictions imposed by our borrowing arrangements.

Credit Facilities - As of December 29, 2019 , we had $1.0 billion of outstanding borrowings under our Senior Secured Credit Facility.

We continue to evaluate whether we will make further payments of our outstanding debt ahead of scheduled maturities.

See Note 13 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information.

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 December 27, 2020, we had $1.1 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 periods indicated:

SENIOR SECURED CREDIT FACILITY

TOTAL CREDIT FACILITIES

REVOLVING FACILITY

SENIOR SECURED CREDIT FACILITY TOTAL CREDIT FACILITIES

TERM LOAN A REVOLVING FACILITY 2025 NOTES

(dollars in thousands)

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Weighted-average interest rate, as of December 27, 2020 2.88 % 2.88 % 5.00 %

Principal maturity date

November 2022

Principal maturity date November 2022 November 2022 May 2025

________________

Subsequent to December 29, 2019 , we made payments of $65.0 million , net of borrowings, on our revolving credit facility.

Credit Agreement - On November 30, 2017 , we and OSI, as co-borrowers, entered into a credit agreement (the “ Credit Agreement ”) with a syndicate of institutional lenders, providing for senior secured financing of up to $1.5 billion , consisting of a $500.0 million Term loan A and a $1.0 billion revolving credit facility (the “Senior Secured Credit Facility”), including letter of credit and swing line loan sub-facilities.

(1) Subsequent to December 27, 2020, we made payments of $92.0 million on our revolving credit facility.

As of December 27, 2020, we had $533.7 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $19.3 million.

Amended Credit Agreement - On November 30, 2017, we and OSI, as co-borrowers, entered into a credit agreement (the “Credit Agreement”) with a syndicate of institutional lenders, providing for senior secured financing of up to $1.5 billion, consisting of a $500.0 million Term loan A and a $1.0 billion revolving credit facility (the “Senior Secured Credit Facility”), including letter of credit and swing line loan sub-facilities.

Our Credit Agreement contains various financial and non-financial covenants.

A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities.

See Note 13 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information.

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 Total Net Leverage Ratio (“TNLR”).

Without such amendment, violation of financial covenants under the original credit agreement could have resulted in default.

The Amended Credit Agreement waived the TNLR requirement for the remainder of fiscal year 2020 and requires a TNLR based on a seasonally annualized calculation of Consolidated EBITDA (earnings before interest, taxes,

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Our Credit Agreement contains mandatory prepayment requirements of 50% of our annual excess cash flow, as defined in the Credit Agreement .

depreciation and amortization and certain other adjustments as defined in the Amended Credit Agreement) 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 a 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.

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 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 required minimum amortization premiums of $25.0 million , we do not anticipate any other payments will be required through December 27, 2020.

Debt Covenants - Our Credit Agreement contains various financial and non-financial covenants.

See Note 13 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for further information.

Other than the annual required minimum amortization premiums of $37.5 million, we do not anticipate any other payments will be required through December 26, 2021.

As of December 27, 2020 and December 29, 2019, we were in compliance with our debt covenants.

We believe that

we will remain in compliance with our debt covenants during the next 12 months and beyond.

We believe that we will remain in compliance with our debt covenants during the 12 months following the issuance of our financial statements.

2025 Notes - On May 8, 2020, we completed a $200.0 million principal amount private offering of 5.00% convertible senior notes due in 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 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.

Net proceeds from this offering were approximately $221.6 million, after deducting the initial purchaser’s discounts and commissions and our offering expenses.

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.

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

As of December 27, 2020, we had the option to 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.

In February 2021, we provided the trustee of the 2025 Notes notice of our irrevocable election under the indenture to settle the principal portion of the 2025 Notes in cash and any excess in shares.

Convertible Note Hedge and Warrant Transactions - In connection with the offering of the 2025 Notes , we 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 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, subject to customary anti-dilution adjustments, and for which we received proceeds that partially offset the cost of entering into the Convertible Note Hedge Transactions (the “Warrant Transactions”).

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 14 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for additional details regarding the convertible senior notes and related hedge and warrant transactions.

Cash Flow Hedges of Interest Rate Risk - We have variable-to-fixed interest rate swap agreements with 12 counterparties to hedge a portion of the cash flows of our variable rate debt.

The swap agreements have an aggregate notional amount of $550.0 million and mature on November 30, 2022.

We pay a weighted-average fixed rate of 3.04% on the notional amount and receive payments from the counterparties based on the one-month LIBOR rate.

We pay a weighted-average fixed rate of 3.04% on the notional amount and receive payments from the counterparties based on the one-month London Inter-Bank Offered Rate (“LIBOR”) rate.

See Note 17 - Derivative Instruments and Hedging Activities of the Notes to Consolidated Financial Statements for further information.

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Effect of exchange rate changes on cash and cash equivalents (2,174) (1,631)

Net decrease in cash, cash equivalents and restricted cash

Operating activities - Net cash provided by operating activities increased during 2019 as compared to 2018 primarily due to:

(i) the timing of collections of receivables, (ii) the timing of payments and (iii) lower purchases of inventory.

Net cash provided by operating activities was partially offset by higher income tax and interest payments.

Investing activities - Net cash used in investing activities during 2019 primarily consisted of capital expenditures, partially offset by proceeds from the disposal of property, fixtures and equipment and proceeds from sale-leaseback transactions.

Net cash used in investing activities during 2018 primarily consisted of capital expenditures, partially offset by proceeds from sale-leaseback transactions and proceeds from the disposal of property, fixtures and equipment.

Financing activities - Net cash used in financing activities during 2019 primarily consisted of the following:

(i) the repurchase of common stock, (ii) payment of cash dividends on our common stock, (iii) the net repayment of long-term debt and (iv) partner equity plan payments.

Net cash used in financing activities during 2018 primarily consisted of the following:

(i) the repurchase of common stock, (ii) payment of cash dividends on our common stock, (iii) the net repayment of long-term debt and (iv) partner

Net increase (decrease) in cash, cash equivalents and restricted cash $ 43,263 $ (4,678)

Operating activities - Net cash provided by operating activities decreased during 2020 as compared to 2019 primarily due to a decrease in net restaurant sales and lower gift card sales.

These decreases were partially offset by:

(i) decreased variable operating costs as a result of lower net restaurant sales, offset by relief payments made to employees as a result of the COVID-19 pandemic, (ii) deferral of payroll tax payments as a result of the CARES Act, (iii) the timing of collections of receivables and payments made, (iv) lower inventory purchases and (v) lower income tax payments.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

equity plan payments.

Net cash used in financing activities was partially offset by net proceeds from share-based compensation.

Investing activities - The decrease in net cash used in investing activities during 2020 as compared to 2019 was primarily due to:

(i) lower capital expenditures from liquidity management in response to the COVID-19 pandemic and restrictions under the Amended Credit Agreement and (ii) an increase in cash withdrawn from Company-owned life insurances policies to settle deferred compensation obligations, partially offset by lower proceeds from the disposal of property, fixtures and equipment and from sale-leaseback transactions.

Financing activities - The decrease in net cash used in financing activities during 2020 as compared to 2019 was primarily due to:

(i) proceeds from issuance of convertible senior notes and related warrant transactions and (ii) a decrease in the repurchase of our common stock and payment of dividends on our common stock from liquidity management in response to the COVID-19 pandemic and restrictions under the Amended Credit Agreement.

These decreases were partially offset by increases primarily due to:

(i) increased repayments on our revolving credit facility, net of drawdowns, (ii) premium payments for Convertible Note Hedge Transactions and (iii) issuance costs and financing fees in connection with our 2025 Notes and Amended Credit Agreement.

FINANCIAL CONDITION

Following is a summary of our current assets, current liabilities and working capital (deficit) as of the periods indicated:

(dollars in thousands)

(dollars in thousands) DECEMBER 27, 2020 DECEMBER 29, 2019

Current assets $ 323,854 $ 340,468

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Working capital (deficit) $ (626,250) $ (621,553)

_________________

During fiscal year 2019, net working capital (deficit) was negatively impacted by the recognition of approximately $170 million of current lease liabilities as a result of the adoption of the new lease accounting standard.

Working capital (deficit) includes:

(i) Unearned revenue primarily from unredeemed gift cards of $369.3 million and $342.7 million as of December 29, 2019 and December 30, 2018 , respectively and (ii) current operating lease liabilities of $171.9 million as of December 29, 2019 , with the corresponding operating right-of-use assets recorded as non-current on our Consolidated Balance Sheet.

(i) Unearned revenue primarily from unredeemed gift cards of $381.6 million and $369.3 million as of December 27, 2020 and December 29, 2019, respectively and (ii) current operating lease liabilities of $176.8 million and $171.9 million as of December 27, 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).

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The rabbi trust is funded through our voluntary contributions.

The unfunded obligation was $9.1 million and $26.3 million as of December 29, 2019 and December 30, 2018 , respectively.

We use working capital to fund the deferred compensation plans and currently expect annual cash funding of $9.0 million to $11.0 million in 2020.

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.

The obligation for U.S.

Partners’ deferred compensation was fully funded as of December 27, 2020.

From time to time, we may utilize operating cash for short periods to fund deferred compensation plan distributions due to restrictions on the timing of withdrawals from the “rabbi” trust account, however, once available for withdrawal, funds from the “rabbi” trust may be returned to operating cash.

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

Dividends - In 2019 and 2018 , we declared and paid quarterly cash dividends of $0.10 and $0.09 per share, respectively.

In February 2020, our Board declared a quarterly cash dividend of $0.20 per share, payable on March 13, 2020 .

Future dividend payments are dependent on our earnings, financial condition, capital expenditure requirements, surplus and other factors that our Board considers relevant.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Share Repurchases - Following is a summary of our share repurchase programs as of December 29, 2019 (dollars in thousands):

SHARE REPURCHASE PROGRAM

BOARD APPROVAL DATE

DIVIDENDS AND SHARE REPURCHASES

During the first quarter of 2020, we declared and paid dividends of $0.20 per share.

In May 2020, we entered into an Amended Credit Agreement, the terms of which contain certain restrictions on cash dividends and share repurchases until after September 26, 2021 and we are compliant with our financial covenants.

In 2019, we declared and paid quarterly cash dividends of $0.10 per share.

Following is a summary of our share repurchase programs as of December 27, 2020 (dollars in thousands):

SHARE REPURCHASE PROGRAM BOARD APPROVAL DATE AUTHORIZED REPURCHASED CANCELLED OR EXPIRED REMAINING

2014 December 12, 2014 $ 100,000 $ 100,000 $ — $ —

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2016 February 12, 2016 $ 250,000 139,892 $ 110,108 $ —

July 26, 2016

July 2016 July 26, 2016 $ 300,000 247,731 $ 52,269 $ —

2017 April 21, 2017 $ 250,000 195,000 $ 55,000 $ —

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The following table presents our dividends and share repurchases for the periods indicated:

(dollars in thousands)

DIVIDENDS PAID

SHARE REPURCHASES (1)

(dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES (1) TOTAL

Fiscal year 2020 $ 17,480 $ — $ 17,480

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Fiscal year 2016 31,379 309,887 341,266

Fiscal year 2015 29,332 169,999 199,331

Total $ 178,225 $ 973,581 $ 1,151,806

________________

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Our ability to pay dividends and make share repurchases is dependent on our ability to obtain funds from our subsidiaries, have access to our revolving credit facility and the existence of surplus.

Based on our Credit Agreement, restricted dividend payments can be made on an unlimited basis provided we are compliant with our debt covenants.

OFF-BALANCE SHEET ARRANGEMENTS

We guarantee certain lease agreements primarily related to divested restaurant properties in circumstances where we have assigned our lease interest.

See Note 22 - Commitments and Contingencies for additional details regarding our lease guarantees.

BLOOMIN’ BRANDS, INC.

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PAYMENTS DUE BY PERIOD

(dollars in thousands)

LESS THAN 1-3 3-5 MORE THAN

(dollars in thousands) TOTAL 1 YEAR YEARS YEARS 5 YEARS

Recorded Contractual Obligations

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Unrecorded Contractual Obligations

Interest (5) 132,958 55,114 62,511 15,333 —

Purchase obligations (6) 230,608 146,550 49,981 34,077 —

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Includes $1.0 billion related to lease renewal options that are reasonably certain of exercise.

Includes finance lease obligations.

Amount is net of unamortized debt issuance costs and discount of $2.7 million .

(2) Includes finance lease obligations and convertible senior notes.

Amount is not reduced by unamortized debt discount, debt issuance costs and finance lease interest totaling $67.9 million.

(3) Includes deferred compensation obligations, deposits and other accrued obligations due to our restaurant partners.

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and the approximate timing of the transaction.

We have purchase obligations with various vendors that consist primarily of inventory, advertising, restaurant-level service contracts and technology.

We have purchase obligations with various vendors that consist primarily of inventory, technology, advertising and restaurant-level service contracts.

Critical Accounting Policies and Estimates

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When evaluating for impairment, the total future undiscounted cash flows expected to be generated by the assets are compared to the carrying amount.

If the total future undiscounted cash flows expected to be generated by the assets are less than the carrying amount, this may be an indicator of impairment.

An impairment loss is recognized in earnings

If the total future undiscounted cash flows expected to be generated by the assets

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

when the asset’s carrying value exceeds its estimated fair value.

are less than the carrying amount, this may be an indicator of impairment.

An impairment loss is recognized in earnings when the asset’s carrying value exceeds its estimated fair value.

Fair value is generally estimated using a discounted cash flow model.

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If the qualitative assessment is not performed or if we determine that it is not more likely than not that the fair value of the reporting unit exceeds the carrying value, the fair value of the reporting unit is calculated.

Fair value of a reporting unit is the price a willing buyer would pay for the reporting unit and is estimated by utilizing a weighted average of the income approach, using a discounted cash flow model, and the market approach including the guideline public company method and guideline transaction method.

Fair value of a reporting unit is the price a willing buyer would pay for the reporting unit and is estimated by utilizing a weighted average of the income approach, using a discounted cash flow model, and, when appropriate, the market approach including the guideline public company method and guideline transaction method.

The key estimates and assumptions used in these models are future cash flow estimates, which are heavily influenced by revenue growth rates, operating margins and capital expenditures.

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The carrying value of the reporting unit is compared to its estimated fair value, with any excess of carrying value over fair value deemed to be an indicator of impairment.

The carrying value of goodwill as of December 29, 2019 was $288.4 million , which related to our U.S.

and international reporting units.

We performed our annual impairment test in the second quarter of 2019 by utilizing the qualitative approach and determined that there were no events or circumstances to indicate that it was more likely than not that the fair value of our reporting units was less than their carrying values.

The carrying value of goodwill as of December 27, 2020 was $271.2 million.

The COVID-19 outbreak was considered a triggering event during the first quarter of 2020 and therefore we performed a quantitative assessment for our four U.S.

and three international reporting units.

Based on this assessment, which utilized a discounted cash flow analysis, we recorded full impairment of goodwill related to our Hong Kong reporting unit of $2.0 million, within the international segment during the first quarter of 2020.

We also determined the fair value of each remaining reporting unit was more than 100% in excess of its carrying value with the exception of one international reporting unit, which had a goodwill carrying value of $69.3 million and a reporting unit fair value approximately 39% in excess of its reporting unit carrying value.

We also performed our annual impairment test in the second quarter of 2020 by utilizing the quantitative approach with the same assumptions and analysis used in the first quarter and determined that there were no additional events or circumstances to indicate that it was more likely than not that the fair value of our reporting units was less than their carrying values.

Our interim and annual impairment tests utilized a discounted cash flows model, using significant assumptions to project future cash flows including operating margins, to estimate the fair value of our reporting units.

Sales declines at our restaurants, unplanned increases in commodity or labor costs, deterioration in overall economic conditions and challenges in the restaurant industry may result in future impairment charges.

It is possible that changes in circumstances or changes in our judgments, assumptions and estimates could result in an impairment charge of a portion or all of our goodwill or other intangible assets.

Leases - On December 31, 2018, we adopted Accounting Standards Update (“ASU”) No.

Leases (Topic 842) (“ASU No.

2016-02”) and its applicable amendments (the “new lease standard”), as described in detail within Note 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

Upon adoption, we recognized right-of-use assets of $1.3 billion and corresponding lease liabilities of $1.5 billion.

We use judgment to determine the reasonably certain lease term, which in turn, impacts the applicable incremental borrowing rate (“IBR”) used to calculate the initial lease liability for each portfolio of leases.

We determined the present value of the lease liabilities by using a country specific IBR and applying a single rate to the respective portfolio of leases based on term, regardless of the underlying asset type.

The reasonably certain lease term used in the evaluation of existing leases at transition and new leases after adoption of the new lease standard includes renewal option periods only in instances in which the exercise of the renewal option is reasonably certain because failure to exercise such an option would result in an economic penalty.

Such an economic penalty would typically result from having to abandon a building or equipment with remaining economic value upon vacating a property.

Leases - We use judgment to determine the reasonably certain lease term, which in turn, impacts the applicable incremental borrowing rate (“IBR”) used to calculate the initial lease liability for each portfolio of leases.

BLOOMIN’ BRANDS, INC.

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

determined the present value of the lease liabilities by using a country specific IBR and applying a single rate to the respective portfolio of leases based on term, regardless of the underlying asset type.

Such an economic penalty would typically result from having to abandon a building or equipment with remaining economic value upon vacating a property.

We use our estimated IBR, which is derived from information available at the lease commencement date, in determining the present value of lease payments.

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Our liability for insurance claims was $52.8 million and $54.3 million as of December 27, 2020 and December 29, 2019, respectively.

In establishing our reserves, we consider certain actuarial assumptions and judgments regarding economic conditions, the frequency and severity of claims and claim development history and settlement practices.

In establishing our reserves, we consider certain actuarial assumptions and judgments regarding economic conditions, and the frequency and severity of claims.

Reserves recorded for workers’ compensation and general or liquor liability claims are discounted using the average of the one-year and five-year risk-free rate of monetary assets that have comparable maturities.

If actual results are not consistent with our estimates or assumptions, we may be exposed to losses or gains that could be material.

A 50 basis point change in the discount rate in our insurance claim liabilities as of December 29, 2019 , would have affected net earnings by $0.8 million in 2019 .

A 50 basis point increase to the discount rate and a decrease to a zero discount rate in our insurance claim liabilities as of December 27, 2020, would have affected net earnings by $0.8 million and $(0.4) million, respectively, in 2020.

Stock-Based Compensation - We have a stock-based compensation plan that permits the grant of stock options, stock appreciation rights, restricted stock units, performance awards and other stock-based awards to our management and other key employees.

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Forfeitures of share-based compensation awards are recognized as they occur.

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

Estimates and assumptions are based upon information currently available, including historical experience and current business and economic conditions.

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If we assumed that the PSU performance conditions for stock-based awards were not met, stock-based compensation expense would have decreased by $8.1 million for 2020, including reversal of expense recorded in prior years.

BLOOMIN’ BRANDS, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued

assumed that all granted PSU share awards met or will meet their maximum threshold, expense would have increased by $1.7 million for 2019 .

If we assumed that all granted PSU share awards met or will meet their maximum threshold, expense would have increased by $5.1 million for 2020.

Income Taxes - Deferred tax assets and liabilities are recognized based on the differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis.

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As of December 27, 2020, tax loss carryforwards and credit carryforwards that do not have a valuation allowance are expected to be recoverable within the applicable statutory expiration periods.

We currently expect to utilize general business tax credit carryforwards within a four to six year period.

We currently expect to utilize general business tax credit carryforwards within a 10-year period.

However, our 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.

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Recently Issued Financial Accounting Standards

For a description of recently issued Financial Accounting Standards that we adopted in 2019 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 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements of this Report.

For a description of recently issued Financial Accounting Standards that we adopted in 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 2 - Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements.

BLOOMIN’ BRANDS, INC.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis