Bloomin' Brands, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries. Cautionary Statement This Quarterly Report on Form 10-Q (the “Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following: (i) Consumer reactions to public health and food safety issues; (ii) The severity, extent and duration of the COVID-19 pandemic, its impacts on our business and results of operations, financial condition and liquidity, including any adverse impact on our stock price and on the other factors listed below, and the responses of domestic and foreign federal, state and local governments to the pandemic; (iii) Minimum wage increases and additional mandated employee benefits; (iv) Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants; (v) Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates; (vi) Our ability to recruit and retain high-quality leadership, restaurant-level management and team members; 33 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (vii) Our ability to preserve and grow the reputation and value of our brands, particularly in light of changes in consumer engagement with social media platforms and limited control with respect to the operations of our franchisees; (viii) Our ability to protect our information technology systems from interruption or security breach, including cyber security threats, and to protect consumer data and personal employee information; (ix) Fluctuations in the price and availability of commodities; (x) Dependence on a limited number of suppliers and distributors to meet our beef and other major product supply needs; (xi) The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates; (xii) Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations, including tax laws and unanticipated liabilities, and the impact of litigation; (xiii) Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits, including by maintaining relationships with third party delivery apps and services; (xiv) Our ability to implement our remodeling, relocation and expansion plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants; (xv) Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events; (xvi) The effects of our substantial leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry, and our exposure to interest rate risk in connection with our variable-rate debt; (xvii) Any impairment in the carrying value of our goodwill or other intangible or long-lived assets and its effect on our financial condition and results of operations; and (xviii) Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 27, 2020. In light of these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. 34 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Overview We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of June 27, 2021, we owned and operated 1,163 restaurants and franchised 321 restaurants across 47 states, Guam and 19 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Financial Highlights Our financial highlights for the thirteen weeks ended June 27, 2021 (“second quarter of 2021”) include the following: • U.S. combined and Outback Steakhouse comparable restaurant sales of 84.6% and 65.8%, respectively, relative to the second quarter of 2020, and 12.1% and 11.3%, respectively, relative to the second quarter of 2019; • Increase in Total revenues of 86.2% in the second quarter of 2021, as compared to the second quarter of 2020, and 5.4% as compared to the second quarter of 2019; • Restaurant-level operating margin of 20.3% for the second quarter of 2021, as compared to 2.1% and 15.0% for the second quarters of 2020 and 2019, respectively; • Income (loss) from operations of $124.6 million in the second quarter of 2021, as compared to $(111.9) million and $43.5 million in the second quarters of 2020 and 2019, respectively; and • Diluted earnings (loss) per share attributable to common stockholders of $0.75 in the second quarter of 2021 as compared to $(1.05) and $0.32 in the second quarters of 2020 and 2019, respectively. Key Performance Indicators Key measures that we use in evaluating our restaurants and assessing our business include the following: • Average restaurant unit volumes — average sales (excluding gift card breakage) per restaurant to measure changes in customer traffic, pricing and development of the brand; • Comparable restaurant sales — year-over-year comparison of sales volumes (excluding gift card breakage) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants; • System-wide sales — total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands; • Restaurant-level operating margin, Income (loss) from operations, Net income (loss) and Diluted earnings (loss) 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 Food and beverage costs, Labor and other related expenses and Other restaurant operating expenses (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations and Comprehensive Income (Loss). The following categories of our revenue and operating expenses are not included in restaurant-level 35 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period: (i) Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income. (ii) Depreciation and amortization which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants. (iii) General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices. (iv) Asset impairment charges and restaurant closing costs which are not reflective of ongoing restaurant performance in a period. Restaurant-level operating margin excludes various expenses, as discussed above, that are essential to support the operations of our restaurants and may materially impact our Consolidated Statements of Operations. As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, Net income (loss) or Income (loss) from operations. In addition, our presentation of restaurant-level operating margin may not be comparable to similarly titled measures used by other companies in our industry; • Adjusted restaurant-level operating margin, Adjusted income (loss) from operations, Adjusted net income (loss) and Adjusted diluted earnings (loss) per share — non-GAAP financial measures utilized to evaluate our operating performance. We believe that our use of non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board of Directors evaluate our operating performance, allocate resources and administer employee incentive plans; and • Customer satisfaction scores — measurement of our customers’ experiences in a variety of key areas. 36 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Selected Operating Data The table below presents the number of our restaurants in operation as of the periods indicated: Number of restaurants (at end of the period): JUNE 27, 2021 JUNE 28, 2020 U.S.: Outback Steakhouse Company-owned 566 567 Franchised 131 141 Total 697 708 Carrabba’s Italian Grill Company-owned 199 199 Franchised 20 21 Total 219 220 Bonefish Grill Company-owned 179 182 Franchised 7 7 Total 186 189 Fleming’s Prime Steakhouse & Wine Bar Company-owned 64 65 Other Company-owned (1) 8 5 U.S. total 1,174 1,187 International: Company-owned Outback Steakhouse—Brazil (2) 113 103 Other (1)(3) 34 30 Franchised Outback Steakhouse—South Korea (3) 108 85 Other (1) 55 55 International total 310 273 System-wide total 1,484 1,460 ____________________ (1) U.S. Other Company-owned included four and three fast-casual Aussie Grill locations as of June 27, 2021 and June 28, 2020, respectively. International Franchised Other included three and two fast-casual Aussie Grill locations as of June 27, 2021 and June 28, 2020, respectively. International Company-owned Other included two and one fast-casual Aussie Grill locations as of June 27, 2021 and June 28, 2020, respectively. (2) The restaurant counts for Brazil are reported as of May 31, 2021 and 2020, respectively, to correspond with the balance sheet dates of this subsidiary. (3) Franchised Outback Steakhouse - South Korea included 32 and 10 international dark kitchens that offer delivery only as of June 27, 2021 and June 28, 2020, respectively. In addition, we had one international dark kitchen included within Company-owned Other as of both periods presented. 37 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations The following table sets forth the percentages of certain items in our Consolidated Statements of Operations in relation to Total revenues or Restaurant sales, for the periods indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Revenues Restaurant sales 97.9 % 99.6 % 98.5 % 99.1 % Franchise and other revenues 2.1 0.4 1.5 0.9 Total revenues 100.0 100.0 100.0 100.0 Costs and expenses Food and beverage costs (1) 29.6 31.4 29.7 31.8 Labor and other related (1) 28.0 35.7 28.0 32.7 Other restaurant operating (1) 22.1 30.9 22.7 27.0 Depreciation and amortization 3.8 7.9 4.0 5.9 General and administrative 6.2 9.6 6.0 8.8 Provision for impaired assets and restaurant closings 0.5 4.3 0.4 4.2 Total costs and expenses 88.4 119.3 89.6 109.7 Income (loss) from operations 11.6 (19.3) 10.4 (9.7) Loss on extinguishment and modification of debt (0.2) (*) (0.1) (*) Other income (expense), net — 0.1 * (*) Interest expense, net (1.4) (3.0) (1.4) (1.8) Income (loss) before provision (benefit) for income taxes 10.0 (22.2) 8.9 (11.5) Provision (benefit) for income taxes 2.1 (6.2) 1.4 (3.5) Net income (loss) 7.9 (16.0) 7.5 (8.0) Less: net income (loss) attributable to noncontrolling interests 0.2 (0.1) 0.2 * Net income (loss) attributable to Bloomin’ Brands 7.7 % (15.9) % 7.3 % (8.0) % ________________ (1) As a percentage of Restaurant sales. * Less than 1/10 th of one percent of Total revenues. RESTAURANT SALES Following is a summary of the change in Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 28, 2020 $ 576.3 $ 1,572.5 Change from: Comparable restaurant sales 473.5 479.6 Restaurant openings 13.6 26.6 Restaurant closures (7.2) (26.0) Effect of foreign currency translation (1.0) (18.0) For the periods ended June 27, 2021 $ 1,055.2 $ 2,034.7 The increase in Restaurant sales during the thirteen weeks ended June 27, 2021 was primarily due to: (i) higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and (ii) the opening of 32 new restaurants not included in our comparable restaurant sales base. The increase in Restaurant sales was partially offset by the closure of 34 restaurants since March 29, 2020. 38 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The increase in Restaurant sales during the twenty-six weeks ended June 27, 2021 was primarily due to: (i) higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and (ii) the opening of 35 new restaurants not included in our comparable restaurant sales base. The increase in Restaurant sales was partially offset by the closure of 39 restaurants since December 29, 2019 and the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. Average Restaurant Unit Volumes and Operating Weeks Following is a summary of the average restaurant unit volumes and operating weeks, for the periods indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Average restaurant unit volumes (weekly): U.S. Outback Steakhouse $ 78,201 $ 46,278 $ 75,813 $ 58,201 Carrabba’s Italian Grill $ 66,258 $ 35,394 $ 63,605 $ 45,395 Bonefish Grill $ 63,772 $ 25,866 $ 59,014 $ 40,292 Fleming’s Prime Steakhouse & Wine Bar $ 105,891 $ 36,649 $ 93,204 $ 59,027 International Outback Steakhouse - Brazil (1) $ 29,569 $ 17,731 $ 36,205 $ 43,512 Operating weeks: U.S. Outback Steakhouse 7,362 7,466 14,745 14,965 Carrabba’s Italian Grill 2,587 2,648 5,174 5,300 Bonefish Grill 2,337 2,464 4,677 4,934 Fleming’s Prime Steakhouse & Wine Bar 832 850 1,657 1,730 International Outback Steakhouse - Brazil 1,465 1,354 2,877 2,657 ____________________ (1) Translated at average exchange rates of 5.45 and 5.15 for the thirteen weeks ended June 27, 2021 and June 28, 2020, respectively, and 5.36 and 4.39 for the twenty-six weeks ended June 27, 2021 and June 28, 2020, respectively. 39 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Comparable Restaurant Sales, Traffic and Average Check Per Person Increases (Decreases) Following is a summary of comparable restaurant sales, traffic and average check per person increases (decreases), for the periods indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Comparable to 2019 (1) Comparable to 2020 Comparable to 2019 Comparable to 2019 (1) Comparable to 2020 Comparable to 2019 Year over year percentage change: Comparable restaurant sales (stores open 18 months or more): U.S. (2) Outback Steakhouse 11.3 % 65.8 % (32.9) % 2.3 % 28.8 % (20.6) % Carrabba’s Italian Grill 16.7 % 84.3 % (36.7) % 7.7 % 38.4 % (22.2) % Bonefish Grill 4.2 % 141.2 % (56.8) % (6.3) % 43.5 % (34.7) % Fleming’s Prime Steakhouse & Wine Bar 24.4 % 182.6 % (56.3) % 3.6 % 55.6 % (33.6) % Combined U.S. 12.1 % 84.6 % (39.4) % 1.9 % 34.4 % (24.2) % International Outback Steakhouse - Brazil (3) (36.3) % 78.8 % (63.9) % (26.2) % 2.7 % (27.4) % Traffic: U.S. Outback Steakhouse 4.4 % 51.4 % (31.0) % (2.7) % 21.9 % (20.2) % Carrabba’s Italian Grill 13.0 % 57.2 % (28.1) % 5.8 % 27.0 % (16.7) % Bonefish Grill 3.9 % 52.4 % (29.8) % (4.7) % 22.4 % (20.6) % Fleming’s Prime Steakhouse & Wine Bar 11.9 % 97.0 % (43.5) % (3.5) % 33.5 % (28.0) % Combined U.S. 6.2 % 53.6 % (30.6) % (1.4) % 23.2 % (19.8) % International Outback Steakhouse - Brazil (20.3) % 63.0 % (48.5) % (13.6) % 8.9 % (19.0) % Average check per person (4): U.S. Outback Steakhouse 6.9 % 14.4 % (1.9) % 5.0 % 6.9 % (0.4) % Carrabba’s Italian Grill 3.7 % 27.1 % (8.6) % 1.9 % 11.4 % (5.5) % Bonefish Grill 0.3 % 88.8 % (27.0) % (1.6) % 21.1 % (14.1) % Fleming’s Prime Steakhouse & Wine Bar 12.5 % 85.6 % (12.8) % 7.1 % 22.1 % (5.6) % Combined U.S. 5.9 % 31.0 % (8.8) % 3.3 % 11.2 % (4.4) % International Outback Steakhouse - Brazil (15.8) % 22.2 % (15.2) % (12.4) % (4.5) % (8.4) % ____________________ (1) Represents comparable restaurant sales, traffic and average check per person increases (decreases) relative to fiscal year 2019 for improved comparability due to the impact of COVID-19 on fiscal year 2020 restaurant sales. (2) Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening. (3) Excludes the effect of fluctuations in foreign currency rates. Includes trading day impact from calendar period reporting. (4) Average check per person includes the impact of menu pricing changes, product mix and discounts. 40 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Franchise and other revenues THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Franchise revenues (1) $ 12.2 $ 2.0 $ 19.0 $ 11.5 Other revenues (2) 9.9 0.2 11.2 2.8 Franchise and other revenues $ 22.1 $ 2.2 $ 30.2 $ 14.3 ____________________ (1) Represents franchise royalties, advertising fees and initial franchise fees. Franchise revenues increased during the thirteen and twenty-six weeks ended June 27, 2021 primarily due to higher franchise sales partially offset by a reduction in the royalty and advertising fee percentages resulting from our December 2020 resolution agreement with Out West, our largest U.S. franchisee. (2) During the thirteen and twenty-six weeks ended June 27, 2021, we recognized $6.3 million of other revenues in connection with favorable court rulings in Brazil regarding the calculation methodology and taxable base of PIS and COFINS taxes. The amount recognized as a result of the favorable court rulings primarily represents refundable PIS and COFINS taxes for prior years, including accrued interest, and will be recovered by offsetting future PIS and COFINS taxes due. COSTS AND EXPENSES Food and beverage costs THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Food and beverage costs $ 312.1 $ 180.8 $ 604.0 $ 500.5 % of Restaurant sales 29.6 % 31.4 % (1.8) % 29.7 % 31.8 % (2.1) % Food and beverage costs decreased as a percentage of Restaurant sales during the thirteen weeks ended June 27, 2021 as compared to the thirteen weeks ended June 28, 2020 primarily due to: (i) 1.2% from increases in average check per person, primarily driven by reduced discounting and changes in product mix, (ii) 0.2% from the impact of certain cost savings initiatives and (iii) 0.2% from reduced commodity costs, primarily due to vendor rebates. Food and beverage costs decreased as a percentage of Restaurant sales during the twenty-six weeks ended June 27, 2021 as compared to the twenty-six weeks ended June 28, 2020 primarily due to: (i) 1.1% from increases in average check per person, primarily driven by reduced discounting and changes in product mix, (ii) 0.6% from the impact of certain cost savings initiatives and (iii) 0.4% from inventory obsolescence and spoilage costs during 2020 associated with the COVID-19 pandemic. Labor and other related expenses THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Labor and other related $ 295.0 $ 205.5 $ 569.6 $ 514.8 % of Restaurant sales 28.0 % 35.7 % (7.7) % 28.0 % 32.7 % (4.7) % Labor and other related expenses decreased as a percentage of Restaurant sales during the thirteen weeks ended June 27, 2021 as compared to the thirteen weeks ended June 28, 2020 primarily due to 11.4% from leveraging increased restaurant sales. This decrease was partially offset by an increase as a percentage of Restaurant sales of: (i) 2.4% from the 2020 benefit of employee retention credits from relief pay, (ii) 0.8% from higher management bonus and (iii) 0.2% from wage rate increases. Labor and other related expenses decreased as a percentage of Restaurant sales during the twenty-six weeks ended June 27, 2021 as compared to the twenty-six weeks ended June 28, 2020 primarily due to 4.3% from leveraging increased restaurant sales and 1.6% from the 2020 impact of net relief pay. These decreases were partially offset by 41 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued increases as a percentage of Restaurant sales of 0.8% from higher management bonus and 0.3% from wage rate increases. Other restaurant operating expenses THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Other restaurant operating $ 233.5 $ 177.8 $ 462.7 $ 424.4 % of Restaurant sales 22.1 % 30.9 % (8.8) % 22.7 % 27.0 % (4.3) % Other restaurant operating expenses decreased as a percentage of Restaurant sales during the thirteen weeks ended June 27, 2021 as compared to the thirteen weeks ended June 28, 2020 primarily due to: (i) 7.8% from leveraging increased restaurant sales, (ii) 3.3% from a decrease in off-premises related costs and (iii) 1.0% from lower advertising expense. These decreases were partially offset by increases as a percentage of Restaurant sales of 3.0% from higher operating and utilities expense and 0.3% from higher insurance costs. Other restaurant operating expenses decreased as a percentage of Restaurant sales during the twenty-six weeks ended June 27, 2021 as compared to the twenty-six weeks ended June 28, 2020 primarily due to: (i) 2.9% from leveraging increased restaurant sales, (ii) 1.7% from lower advertising expense and (iii) 0.3% from a decrease in off-premises related costs. These decreases were partially offset by an increase as a percentage of Restaurant sales of 0.6% from higher operating and utilities expense. Subsequent to June 27, 2021, we entered into the Royalty Termination Agreement and made a cash payment of $61.9 million to the Carrabba’s Founders. See Note 20 - Subsequent Events for additional details regarding the Royalty Termination Agreement. We recorded Carrabba’s Italian Grill royalty expense of $2.7 million, $3.8 million and $6.6 million during the twenty-six weeks ended June 27, 2021, fiscal year 2020 and fiscal year 2019, respectively. Depreciation and amortization THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Depreciation and amortization $ 40.5 $ 45.8 $ (5.3) $ 81.8 $ 94.1 $ (12.3) Depreciation and amortization expense decreased during the thirteen weeks ended June 27, 2021 as compared to the thirteen weeks ended June 28, 2020 primarily due to impairment and decreased capital expenditures. Depreciation and amortization expense decreased during the twenty-six weeks ended June 27, 2021 as compared to the twenty-six weeks ended June 28, 2020 primarily due to impairment, decreased capital expenditures and the effect of foreign currency translation. 42 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued General and administrative General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the change in General and administrative expense for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 28, 2020 $ 55.5 $ 140.3 Change from: Employee stock-based compensation 4.7 6.2 Incentive compensation 4.0 3.9 Deferred compensation 2.2 2.4 Expected credit losses and contingent lease liabilities 1.1 (6.5) Travel and entertainment 0.9 (2.4) Severance (1.0) (9.5) Transformational costs (2.3) (7.6) Other 1.4 (3.1) For the periods ended June 27, 2021 $ 66.5 $ 123.7 Provision for impaired assets and restaurant closings THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Provision for impaired assets and restaurant closings $ 5.2 $ 25.0 $ (19.8) $ 7.4 $ 66.3 $ (58.9) During the thirteen and twenty-six weeks ended June 28, 2020, we recognized asset impairment and closure charges of $24.8 million and $56.5 million, respectively, within the U.S. segment, and $0.3 million and $3.6 million, respectively, within the international segment, primarily related to the COVID-19 pandemic. Included in the amount for the thirteen and twenty-six weeks ended June 28, 2020 were pre-tax asset impairments and closure costs of $20.9 million in connection with the closure of 22 restaurants and from the update of certain cash flow assumptions, including lease renewal considerations. We also recognized asset impairment charges related to transformational initiatives of $6.3 million during the twenty-six weeks ended June 28, 2020, which were not allocated to our operating segments. The remaining impairment and closure charges during the periods presented resulted primarily from locations identified for relocation or closure. See Note 4 - Impairments and Exit Costs of the Notes to Consolidated Financial Statements for further information. Income (loss) from operations THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Income (loss) from operations $ 124.6 $ (111.9) $ 236.5 $ 215.6 $ (153.5) $ 369.1 % of Total revenues 11.6 % (19.3) % 30.9 % 10.4 % (9.7) % 20.1 % Income from operations generated during the thirteen weeks ended June 27, 2021 as compared to Loss from operations during the thirteen weeks ended June 28, 2020 was primarily due to: (i) an increase in comparable restaurant sales, (ii) COVID-19 pandemic related asset impairment and closure charges during 2020, (iii) a decrease in off-premises related costs, (iv) lower advertising expense and (v) favorable court rulings in Brazil related to value-added taxes recorded in other revenues. These increases were partially offset by: (i) higher operating and 43 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued utilities expense, (ii) the 2020 benefit of employee retention credits from relief pay, (iii) higher incentive compensation and (iv) higher management bonus. Income from operations generated during the twenty-six weeks ended June 27, 2021 as compared to Loss from operations during the twenty-six weeks ended June 28, 2020 was primarily due to: (i) an increase in comparable restaurant sales, (ii) COVID-19 pandemic related charges during 2020, (iii) lower advertising expense, (iv) the 2020 impact of net relief pay, (v) the impact of restructuring and transformational initiatives during 2020 and (vi) the impact of certain cost savings initiatives. These increases were partially offset by additional: (i) management bonus, (ii) incentive compensation and (iii) operating and utilities expense. Interest expense, net THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Interest expense, net $ 15.0 $ 16.6 $ (1.6) $ 29.6 $ 28.3 $ 1.3 The decrease in Interest expense, net for the thirteen weeks ended June 27, 2021 as compared to the thirteen weeks ended June 28, 2020 was primarily due to lower revolver borrowings and lower interest rates on our unhedged variable rate debt, partially offset by interest expense from our 2029 Notes issued in April 2021. The increase in Interest expense, net for the twenty-six weeks ended June 27, 2021 as compared to the twenty-six weeks ended June 28, 2020 was primarily due to interest expense from our 2025 Notes issued in May 2020 and our 2029 Notes issued in April 2021, partially offset by lower revolver borrowings and lower interest rates on our unhedged variable rate debt. Provision (benefit) for income taxes THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED JUNE 27, 2021 JUNE 28, 2020 Change JUNE 27, 2021 JUNE 28, 2020 Change Effective income tax rate 21.1 % 27.9 % (6.8) % 15.9 % 30.4 % (14.5) % The effective income tax rate for the thirteen and twenty-six weeks ended June 27, 2021 decreased by 6.8 and 14.5 percentage points, respectively, as compared to the thirteen and twenty-six weeks ended June 28, 2020. These decreases were primarily due to the benefit of FICA tax credits on certain employees’ tips reducing the effective tax rate in 2021 as a result of forecasted pre-tax book income as compared to increasing the effective tax rate in 2020 as a result of forecasted pre-tax book loss. SEGMENT PERFORMANCE We consider our restaurant concepts and international markets as operating segments, which reflects how we manage our business, review operating performance and allocate resources. Resources are allocated and performance is assessed by our CEO, whom we have determined to be our CODM. We aggregate our operating segments into two reportable segments, U.S. and international. The U.S. segment includes all restaurants operating 44 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued in the U.S. while restaurants operating outside the U.S. are included in the international segment. The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse United States of America Carrabba’s Italian Grill Bonefish Grill Fleming’s Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba’s Italian Grill (Abbraccio) Brazil _________________ (1) Includes franchise locations. Revenues for both segments include only transactions with customers and exclude intersegment revenues. Excluded from 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 twenty-six weeks ended June 28, 2020, we recorded $2.4 million and $24.6 million, respectively, of pre-tax charges as a part of transformational initiatives. 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 19 - Segment Reporting of the Notes to Consolidated Financial Statements for reconciliations of segment income (loss) from operations to the consolidated operating results. Restaurant-level operating margin is widely regarded in the industry as a useful metric to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. See the Overview-Key Performance Indicators and Non-GAAP Financial Measures sections of Management’s Discussion and Analysis for additional details regarding the calculation of restaurant-level operating margin. U.S. Segment THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Revenues Restaurant sales $ 990,293 $ 536,767 $ 1,890,352 $ 1,421,656 Franchise and other revenues 12,765 313 17,624 9,921 Total revenues $ 1,003,058 $ 537,080 $ 1,907,976 $ 1,431,577 Restaurant-level operating margin 21.7 % 3.2 % 20.5 % 8.4 % Income (loss) from operations $ 165,297 $ (62,921) $ 287,032 $ (51,542) Operating income (loss) margin 16.5 % (11.7) % 15.0 % (3.6) % 45 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Restaurant sales Following is a summary of the change in U.S. segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 28, 2020 $ 536.8 $ 1,421.7 Change from: Comparable restaurant sales 453.0 481.4 Restaurant openings 7.4 12.7 Restaurant closures (6.9) (25.4) For the periods ended June 27, 2021 $ 990.3 $ 1,890.4 The increase in U.S. Restaurant sales during the thirteen weeks ended June 27, 2021 was primarily due to higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and the opening of 11 new restaurants not included in our comparable restaurant sales base. The increase in U.S. Restaurant sales was partially offset by the closure of 33 restaurants since March 29, 2020. The increase in U.S. Restaurant sales during the twenty-six weeks ended June 27, 2021 was primarily due to higher comparable restaurant sales from in-restaurant dining and strong retention of off-premises sales and the opening of 11 new restaurants not included in our comparable restaurant sales base. The increase in U.S. Restaurant sales was partially offset by the closure of 38 restaurants since December 29, 2019. Income (loss) from operations U.S. Income from operations generated during the thirteen weeks ended June 27, 2021 as compared to Loss from operations during the thirteen weeks ended June 28, 2020 was primarily due to: (i) an increase in comparable restaurant sales, (ii) COVID-19 pandemic related asset impairment and closure charges during 2020, (iii) a decrease in off-premises related costs and (iv) lower advertising expense. These increases were partially offset by: (i) higher operating and utilities expense, (ii) the 2020 benefit of employee retention credits from relief pay, (iii) higher management bonus and (iv) higher incentive compensation. U.S. Income from operations generated during the twenty-six weeks ended June 27, 2021 as compared to Loss from operations during the twenty-six weeks ended June 28, 2020 was primarily due to: (i) an increase in comparable restaurant sales, (ii) COVID-19 pandemic related charges during 2020, (iii) lower advertising expense, (iv) net relief pay in 2020 and (v) the impact of certain cost savings initiatives. These increases were partially offset by higher management bonus and higher operating and utilities expense. International Segment THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Revenues Restaurant sales $ 64,934 $ 39,494 $ 144,326 $ 150,842 Franchise and other revenues 9,374 1,885 12,537 4,377 Total revenues $ 74,308 $ 41,379 $ 156,863 $ 155,219 Restaurant-level operating margin 3.2 % (21.8) % 9.3 % 8.0 % Income (loss) from operations $ 2,470 $ (17,070) $ 6,007 $ (10,283) Operating income (loss) margin 3.3 % (41.3) % 3.8 % (6.6) % 46 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Restaurant sales Following is a summary of the change in international segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED For the periods ended June 28, 2020 $ 39.5 $ 150.8 Change from: Comparable restaurant sales 20.5 (1.8) Restaurant openings 6.2 13.9 Effect of foreign currency translation (1.0) (18.0) Restaurant closures (0.3) (0.6) For the periods ended June 27, 2021 $ 64.9 $ 144.3 The increase in international Restaurant sales during the thirteen weeks ended June 27, 2021 was primarily due to higher comparable restaurant sales principally attributable to the impact of the COVID-19 pandemic on fiscal year 2020 international Restaurant sales and the opening of 21 new restaurants not included in our comparable restaurant sales base. The decrease in international Restaurant sales during the twenty-six weeks ended June 27, 2021 was primarily due to the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar partially offset by the opening of 24 new restaurants not included in our comparable restaurant sales base. Income (loss) from operations International Income from operations generated during the thirteen weeks ended June 27, 2021, as compared to Loss from operations during the thirteen weeks ended June 28, 2020, was primarily due to: (i) higher restaurant sales due to the reopening of restaurant dining rooms and increases in average check per person, (ii) favorable court rulings in Brazil related to value-added taxes recorded in other revenues and (iii) a decrease in off-premises related costs. These increases were partially offset by additional: (i) utilities, rent and operating expense, (ii) higher labor costs and (iii) commodity inflation. International Income from operations generated during the twenty-six weeks ended June 27, 2021, as compared to Loss from operations during the twenty-six weeks ended June 28, 2020, was primarily due to: (i) higher restaurant sales from increases in average check per person and the reopening of restaurant dining rooms, (ii) lower labor costs and (iii) favorable court rulings in Brazil related to value-added taxes recorded in other revenues. These increases were partially offset by additional: (i) commodity inflation, (ii) utilities and operating expense and (iii) incremental off-premises related costs. 47 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Non-GAAP Financial Measures System-Wide Sales - System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. For a summary of sales of Company-owned restaurants, refer to Note 3 - Revenue Recognition of the Notes to Consolidated Financial Statements. The following table provides a summary of sales of franchised restaurants 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. THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 U.S. Outback Steakhouse $ 119 $ 58 $ 211 $ 174 Carrabba’s Italian Grill 12 6 22 17 Bonefish Grill 3 1 5 4 U.S. total 134 65 238 195 International Outback Steakhouse-South Korea 72 56 146 110 Other 27 4 51 26 International total 99 60 197 136 Total franchise sales (1) $ 233 $ 125 $ 435 $ 331 _____________________ (1) Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income (Loss). 48 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Restaurant-level operating margin - The following tables reconcile consolidated and segment Income (loss) from operations and the corresponding margins to Restaurant-level operating income (loss) and the corresponding margins for the periods indicated: Consolidated THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Income (loss) from operations $ 124,637 $ (111,912) $ 215,635 $ (153,480) Operating income (loss) margin 11.6 % (19.3) % 10.4 % (9.7) % Less: Franchise and other revenues 22,139 2,198 30,161 14,298 Plus: Depreciation and amortization 40,539 45,784 81,765 94,052 General and administrative 66,462 55,487 123,710 140,289 Provision for impaired assets and restaurant closings 5,177 24,959 7,377 66,277 Restaurant-level operating income $ 214,676 $ 12,120 $ 398,326 $ 132,840 Restaurant-level operating margin 20.3 % 2.1 % 19.6 % 8.4 % U.S. THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Income (loss) from operations $ 165,297 $ (62,921) $ 287,032 $ (51,542) Operating income (loss) margin 16.5 % (11.7) % 15.0 % (3.6) % Less: Franchise and other revenues 12,765 313 17,624 9,921 Plus: Depreciation and amortization 33,579 37,308 67,224 74,948 General and administrative 22,953 18,343 44,045 49,223 Provision for impaired assets and restaurant closings 5,676 24,781 7,139 56,475 Restaurant-level operating income $ 214,740 $ 17,198 $ 387,816 $ 119,183 Restaurant-level operating margin 21.7 % 3.2 % 20.5 % 8.4 % International THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Income (loss) from operations $ 2,470 $ (17,070) $ 6,007 $ (10,283) Operating income (loss) margin 3.3 % (41.3) % 3.8 % (6.6) % Less: Franchise and other revenues 9,374 1,885 12,537 4,377 Plus: Depreciation and amortization 5,565 5,884 11,285 12,642 General and administrative 4,116 4,146 8,721 10,402 Provision for impaired assets and restaurant closings (708) 296 (1) 3,640 Restaurant-level operating income (loss) $ 2,069 $ (8,629) $ 13,475 $ 12,024 Restaurant-level operating margin 3.2 % (21.8) % 9.3 % 8.0 % 49 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted restaurant-level operating margin - The following tables present the percentages of certain operating cost financial statement line items in relation to Restaurant sales for the periods indicated: THIRTEEN WEEKS ENDED JUNE 27, 2021 JUNE 28, 2020 REPORTED ADJUSTED REPORTED ADJUSTED (1) Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage costs 29.6 % 29.6 % 31.4 % 31.2 % Labor and other related 28.0 % 28.0 % 35.7 % 35.7 % Other restaurant operating 22.1 % 22.1 % 30.9 % 30.4 % Restaurant-level operating margin 20.3 % 20.3 % 2.1 % 2.7 % TWENTY-SIX WEEKS ENDED JUNE 27, 2021 JUNE 28, 2020 REPORTED ADJUSTED REPORTED ADJUSTED (1) Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage costs 29.7 % 29.7 % 31.8 % 31.4 % Labor and other related 28.0 % 28.0 % 32.7 % 32.7 % Other restaurant operating 22.7 % 22.7 % 27.0 % 27.0 % Restaurant-level operating margin 19.6 % 19.6 % 8.4 % 8.9 % _________________ (1) Includes unfavorable (favorable) adjustments recorded in Other restaurant operating expense (unless otherwise noted below) for the following activities, as described in the Adjusted income (loss) from operations, Adjusted net income (loss) and Adjusted diluted earnings (loss) per share table below for the periods indicated: THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (dollars in millions) JUNE 28, 2020 JUNE 28, 2020 COVID-19 related costs (1) $ (3.7) $ (9.9) Restaurant relocations, asset impairments and closing costs — 2.7 $ (3.7) $ (7.2) _________________ (1) Includes $1.2 million and $7.3 million of adjustments for the thirteen and twenty-six weeks ended June 28, 2020, respectively, recorded in Food and beverage costs. 50 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted income (loss) from operations, Adjusted net income (loss) and Adjusted diluted earnings (loss) per share THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED (in thousands, except per share data) JUNE 27, 2021 JUNE 28, 2020 JUNE 27, 2021 JUNE 28, 2020 Income (loss) from operations $ 124,637 $ (111,912) $ 215,635 $ (153,480) Operating income (loss) margin 11.6 % (19.3) % 10.4 % (9.7) % Adjustments: Legal and other matters (1) (6,337) — (6,337) 178 COVID-19-related costs (2) — 30,342 — 79,218 Severance and other transformational costs (3) — 2,415 — 24,647 Restaurant relocations, asset impairments and closing costs (4) — — — (2,205) Total income (loss) from operations adjustments (6,337) 32,757 (6,337) 101,838 Adjusted income (loss) from operations $ 118,300 $ (79,155) $ 209,298 $ (51,642) Adjusted operating income (loss) margin 11.0 % (13.7) % 10.2 % (3.3) % Diluted net income (loss) attributable to common stockholders $ 82,545 $ (92,256) $ 152,098 $ (130,363) Convertible senior notes if-converted method interest adjustment, net of tax (5) — — 691 — Net income (loss) attributable to common stockholders 82,545 (92,256) 151,407 (130,363) Adjustments: Income (loss) from operations adjustments (6,337) 32,757 (6,337) 101,838 Loss on extinguishment and modification of debt 2,073 — 2,073 — Amortization of debt discount (6) — 1,379 — 1,379 Total adjustments, before income taxes (4,264) 34,136 (4,264) 103,217 Adjustment to provision for income taxes (7) 1,243 (6,474) 1,243 (28,469) Redemption of preferred stock in excess of carrying value (8) — — — 3,496 Net adjustments (3,021) 27,662 (3,021) 78,244 Adjusted net income (loss) $ 79,524 $ (64,594) $ 148,386 $ (52,119) Diluted earnings (loss) per share attributable to common stockholders (9) $ 0.75 $ (1.05) $ 1.38 $ (1.49) Adjusted diluted earnings (loss) per share (9)(10) $ 0.81 $ (0.74) $ 1.53 $ (0.60) Diluted weighted average common shares outstanding (9) 109,805 87,496 110,223 87,312 Adjusted diluted weighted average common shares outstanding (9)(10) 98,574 87,496 97,011 87,312 _________________ (1) The thirteen and twenty-six weeks ended June 27, 2021 includes the recognition of recoverable PIS and COFINS taxes, including accrued interest, within other revenues as a result of favorable court rulings in Brazil during the second quarter of 2021. (2) Costs incurred in connection with the COVID-19 pandemic, primarily consisting of fixed asset and right-of-use asset impairments, restructuring charges, inventory obsolescence and spoilage, contingent lease liabilities and current expected credit losses. See Note 2 - COVID-19 Charges of the Notes to Consolidated Financial Statements for additional details regarding the impact of certain COVID-19 pandemic related charges on our financial results. (3) Severance, professional fees and other costs incurred as a result of transformational and restructuring activities. (4) Includes asset impairment charges and accelerated depreciation incurred in connection with our relocation program and a lease termination gain of $2.8 million. (5) Adjustment for interest expense related to the 2025 Notes weighted for the portion of the period prior to our election under the 2025 Notes indenture to settle the principal portion of our 2025 Notes in cash. The calculation of adjusted diluted earnings per share excludes 2025 Notes interest adjustment. (6) Amortization of the debt discount related to the issuance of the 2025 Notes. See Note 10 - 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. 51 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (9) Due to the GAAP net loss, the effect of dilutive securities was excluded from the calculation of GAAP diluted loss per share for the thirteen and twenty-six weeks ended June 28, 2020. (10) For the twenty-six weeks ended June 27, 2021, adjusted diluted weighted average common shares outstanding was calculated assuming our February 2021 election to settle the principal portion of the 2025 Notes in cash was in effect for the entire period. For the thirteen and twenty-six weeks ended June 27, 2021, adjusted diluted weighted average common shares outstanding was calculated excluding the dilutive effect of 11,231 and 10,442 shares, respectively, to be issued upon conversion of the 2025 Notes to satisfy the amount in excess of the principal since the Convertible Note Hedge Transactions offset the dilutive impact of the shares underlying the 2025 Notes. Liquidity and Capital Resources LIQUIDITY 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. Cash and Cash Equivalents - As of June 27, 2021, we had $101.3 million in cash and cash equivalents, of which $35.0 million was held by foreign affiliates. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit repatriation. As of June 27, 2021, we had aggregate accumulated foreign earnings of approximately $38.8 million. This amount consisted primarily of historical earnings from 2017 and prior that were previously taxed in the U.S. under the 2017 Tax Cuts and Jobs Act and post-2017 foreign earnings, which we may repatriate to the U.S. without additional U.S. federal income tax. These amounts are no longer considered indefinitely reinvested in our foreign subsidiaries. Capital Expenditures - We estimate that our capital expenditures will total approxim a tely $140 million to $150 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 raw material constraints and restrictions imposed by our borrowing arrangements. Under the Second Amended and Restated Credit Agreement, we are limited to $200.0 million of aggregate capital expenditures during the year ended December 26, 2021. Credit Facilities - Following is a summary of our outstanding credit facilities as of the dates indicated and principal payments and debt issuance during the period indicated: SENIOR SECURED CREDIT FACILITY FORMER CREDIT FACILITY TOTAL CREDIT FACILITIES (dollars in thousands) TERM LOAN A REVOLVING FACILITY TERM LOAN A REVOLVING FACILITY 2025 NOTES 2029 NOTES Balance as of December 27, 2020 $ — $ — $ 425,000 $ 447,000 $ 230,000 $ — $ 1,102,000 2021 new debt 200,000 271,000 — 15,000 — 300,000 786,000 2021 payments — (137,000) (425,000) (462,000) — — (1,024,000) Balance as of June 27, 2021 $ 200,000 $ 134,000 $ — $ — $ 230,000 $ 300,000 $ 864,000 Weighted-average interest rate, as of June 27, 2021 2.59 % 2.59 % 5.00 % 5.13 % Principal maturity date April 2026 April 2026 May 2025 April 2029 As of June 27, 2021, we had $645.3 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $20.7 million. 52 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued On August 2, 2021, we made a cash payment of $61.9 million to the Carrabba’s Founders in connection with the Royalty Termination Agreement detailed in Note 20 - Subsequent Events. This cash payment was funded primarily by borrowings on our revolving credit facility and the remainder from cash on hand. 2029 Notes - On April 16, 2021, we issued $300.0 million aggregate principal amount of senior unsecured notes due 2029. The 2029 Notes will mature on April 15, 2029, unless earlier redeemed or purchased by us. The 2029 Notes bear cash interest at an annual rate of 5.125% payable semi-annually in arrears on April 15 and October 15 of each year, beginning on October 15, 2021. The net proceeds from the 2029 Notes were approximately $294.5 million, after deducting the initial purchaser’s discount and our offering expenses. The net proceeds were used to repay a portion of our outstanding Term loan A and revolving credit facility in conjunction with the refinancing of our Former Credit Facility. Second Amended and Restated Credit Agreement - On April 16, 2021, we and OSI, as co-borrowers, entered into the Second Amended and Restated Credit Agreement which provides for senior secured financing of up to $1.0 billion consisting of a $200.0 million Term loan A and an $800.0 million revolving credit facility. The Senior Secured Credit Facility matures on April 16, 2026 and replaced our Former Credit Facility financing of up to $1.5 billion. The Second Amended and Restated Credit Agreement limits, subject to certain exceptions, our ability and the ability of our subsidiaries to: incur additional indebtedness; make significant payments; sell assets; pay dividends and other restricted payments; make certain investments; acquire certain assets; effect mergers and similar transactions; and effect certain other transactions with affiliates. The Second Amended and Restated Credit Agreement also prohibits us from paying certain dividends and making certain restricted payments and acquisitions until we are in compliance with our TNLR covenant for the period ended September 26, 2021. Our Senior Secured Credit Facility contains mandatory prepayment requirements for Term loan A, including the requirement that we prepay outstanding amounts under these loans with 50% of our annual excess cash flow, as defined in the Second Amended and Restated Credit Agreement, commencing with the fiscal year ending December 25, 2022. The amount of outstanding loans required to be prepaid in accordance with the debt covenants may vary based on our CSSNLR and year end results. Other than the annual required minimum amortization premiums of $10.0 million, we do not anticipate any other payments will be required through June 26, 2022. See Note 9 - Long-term Debt, Net for additional details regarding the 2029 Notes and Second Amended and Restated Credit Agreement. As of June 27, 2021 and December 27, 2020, 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. 53 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued SUMMARY OF CASH FLOWS The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated: TWENTY-SIX WEEKS ENDED (dollars in thousands) JUNE 27, 2021 JUNE 28, 2020 Net cash provided by (used in) operating activities $ 283,182 $ (3,313) Net cash used in investing activities (42,625) (48,001) Net cash (used in) provided by financing activities (248,018) 169,655 Effect of exchange rate changes on cash and cash equivalents 128 (2,955) Net (decrease) increase in cash, cash equivalents and restricted cash $ (7,333) $ 115,386 Operating activities - Net cash provided by operating activities during the twenty-six weeks ended June 27, 2021, as compared to net cash used in operating activities during the twenty-six weeks ended June 28, 2020, was primarily due to: (i) an increase in restaurant-level operating margin, (ii) timing of operational receipts and payments and (iii) a decrease in relief pay primarily due to the reopening of our restaurant dining rooms. These increases were partially offset by: (i) timing of collections of gift card receivables, (ii) deferral of payroll tax payments in 2020 as a result of the CARES Act, (iii) lower utilization of inventory on hand and (iv) cash paid to terminate interest rate swap agreements. Investing activities - The decrease in net cash used in investing activities during the twenty-six weeks ended June 27, 2021 as compared to the twenty-six weeks ended June 28, 2020 was primarily due to higher proceeds from the disposal of property, fixtures and equipment and lower capital expenditures. Financing activities - Net cash used in financing activities during the twenty-six weeks ended June 27, 2021, as compared to net cash provided by financing activities during the twenty-six weeks ended June 28, 2020, was primarily due to: (i) net repayments on our revolving credit facility during 2021 as compared to net borrowings during 2020, (ii) proceeds from the issuance of the 2025 Notes and related warrants during 2020 and (iii) net repayment of our Term loan A in conjunction with the refinance of our Senior Secured Credit Facility. These decreases were partially offset by: (i) proceeds from the issuance of the 2029 Notes, (ii) premium payments for Convertible Note Hedge Transactions during 2020, (iii) payment of cash dividends on our common stock during 2020 and (iv) proceeds from the exercise of stock-based compensation during 2021 as compared to payment of taxes from the exercise of stock-based compensation during 2020. FINANCIAL CONDITION Following is a summary of our current assets, current liabilities and working capital (deficit) as of the periods indicated: (dollars in thousands) JUNE 27, 2021 DECEMBER 27, 2020 Current assets $ 247,063 $ 323,854 Current liabilities 913,456 950,104 Working capital (deficit) $ (666,393) $ (626,250) Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $303.0 million and $381.6 million as of June 27, 2021 and December 27, 2020, respectively, and (ii) current operating lease liabilities of $177.8 million and $176.8 million as of June 27, 2021 and December 27, 2020, 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 54 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued companies). We operate successfully with negative working capital because cash collected on restaurant sales are typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are typically used to service debt obligations and to make capital expenditures. Deferred Compensation Programs - The deferred compensation obligation due to managing and chef partners was $21.3 million and $28.1 million as of June 27, 2021 and December 27, 2020, respectively. We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or rabbi trust account for settlement of our obligations under the deferred compensation plans. The rabbi trust is funded through our voluntary contributions. The obligation for managing and chef partners’ deferred compensation was fully funded as of June 27, 2021. Other Compensation Programs - Certain U.S. partners participate in a non-qualified long-term compensation program that we fund as the obligation for each participant becomes due. DIVIDENDS AND SHARE REPURCHASES We did not pay dividends or repurchase any shares of our outstanding common stock during the thirteen weeks ended June 27, 2021. The terms of our Second Amended and Restated Credit Agreement contain certain restrictions on cash dividends and share repurchases until after TNLR covenant compliance is met for the period ending September 26, 2021. Following is a summary of our dividends and share repurchases from fiscal year 2015 through June 27, 2021: (dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES TOTAL Fiscal year 2015 $ 29,332 $ 169,999 $ 199,331 Fiscal year 2016 31,379 309,887 341,266 Fiscal year 2017 30,988 272,736 303,724 Fiscal year 2018 33,312 113,967 147,279 Fiscal year 2019 35,734 106,992 142,726 Fiscal year 2020 17,480 — 17,480 First fiscal quarter 2021 — — — Second fiscal quarter 2021 — — — Total $ 178,225 $ 973,581 $ 1,151,806 Recently Issued Financial Accounting Standards For a description of recently issued Financial Accounting Standards that we adopted during the twenty-six weeks ended June 27, 2021 and, that are applicable to us and likely to have material effect on our consolidated financial statements, but have not yet been adopted, see Note 1 - Description of the Business and Basis of Presentation of the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. 55 Table of Contents BLOOMIN’ BRANDS, INC.