Bloomin' Brands, Inc. 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED) MARCH 27, 2022 DECEMBER 26, 2021 ASSETS Current assets Cash and cash equivalents $ 97,795 $ 87,585 Restricted cash and cash equivalents 101 1,472 Inventories 68,803 79,112 Other current assets, net 104,588 184,623 Total current assets 271,287 352,792 Property, fixtures and equipment, net 841,120 842,012 Operating lease right-of-use assets 1,124,517 1,130,873 Goodwill 273,474 268,444 Intangible assets, net 453,048 453,412 Deferred income tax assets, net 162,743 168,068 Other assets, net 77,167 78,670 Total assets $ 3,203,356 $ 3,294,271 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 172,709 $ 167,978 Accrued and other current liabilities 426,415 406,894 Unearned revenue 325,304 398,795 Current portion of long-term debt 11,220 10,958 Total current liabilities 935,648 984,625 Non-current operating lease liabilities 1,172,923 1,179,447 Long-term debt, net 711,025 782,107 Other long-term liabilities, net 90,503 125,242 Total liabilities 2,910,099 3,071,421 Commitments and contingencies (Note 14) Stockholders’ equity Bloomin’ Brands stockholders’ equity Preferred stock, $ 0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of March 27, 2022 and December 26, 2021 — — Common stock, $ 0.01 par value, 475,000,000 shares authorized; 89,185,040 and 89,252,823 shares issued and outstanding as of March 27, 2022 and December 26, 2021, respectively 892 893 Additional paid-in capital 1,115,458 1,119,728 Accumulated deficit ( 634,356 ) ( 698,171 ) Accumulated other comprehensive loss ( 190,431 ) ( 205,989 ) Total Bloomin’ Brands stockholders’ equity 291,563 216,461 Noncontrolling interests 1,694 6,389 Total stockholders’ equity 293,257 222,850 Total liabilities and stockholders’ equity $ 3,203,356 $ 3,294,271 The accompanying notes are an integral part of these consolidated financial statements. 3 Table of Contents BLOOMIN’ BRANDS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) THIRTEEN WEEKS ENDED MARCH 27, 2022 MARCH 28, 2021 Revenues Restaurant sales $ 1,123,575 $ 979,451 Franchise and other revenues 16,960 8,022 Total revenues 1,140,535 987,473 Costs and expenses Food and beverage costs 359,370 291,870 Labor and other related 312,511 274,638 Other restaurant operating 259,110 229,293 Depreciation and amortization 41,775 41,226 General and administrative 58,674 57,248 Provision for impaired assets and restaurant closings 1,839 2,200 Total costs and expenses 1,033,279 896,475 Income from operations 107,256 90,998 Other income, net — 21 Interest expense, net ( 13,633 ) ( 14,628 ) Income before provision for income taxes 93,623 76,391 Provision for income taxes 15,929 6,593 Net income 77,694 69,798 Less: net income attributable to noncontrolling interests 2,183 936 Net income attributable to Bloomin’ Brands $ 75,511 $ 68,862 Net income $ 77,694 $ 69,798 Other comprehensive income: Foreign currency translation adjustment 11,283 ( 6,575 ) Unrealized gain (loss) on derivatives, net of tax 573 ( 42 ) Reclassification of adjustments for loss on derivatives included in Net income, net of tax 681 3,003 Impact of terminated interest rate swaps included in Net income, net of tax 3,021 — Comprehensive income 93,252 66,184 Less: comprehensive income attributable to noncontrolling interests 2,183 936 Comprehensive income attributable to Bloomin’ Brands $ 91,069 $ 65,248 Earnings per share: Basic $ 0.85 $ 0.78 Diluted $ 0.73 $ 0.63 Weighted average common shares outstanding: Basic 89,355 88,367 Diluted 103,454 110,641 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents BLOOMIN’ BRANDS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) BLOOMIN’ BRANDS, INC. COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM- ULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL SHARES AMOUNT Balance, December 26, 2021 89,253 $ 893 $ 1,119,728 $ ( 698,171 ) $ ( 205,989 ) $ 6,389 $ 222,850 Net income — — — 75,511 — 2,183 77,694 Other comprehensive income, net of tax — — — — 15,558 — 15,558 Cash dividends declared, $ 0.14 per common share — — ( 12,559 ) — — — ( 12,559 ) Repurchase and retirement of common stock ( 551 ) ( 6 ) — ( 11,696 ) — — ( 11,702 ) Stock-based compensation — — 4,843 — — — 4,843 Common stock issued under stock plans (1) 483 5 880 — — — 885 Purchase of noncontrolling interests, net of tax of $ 888 — — 2,566 — — ( 4,454 ) ( 1,888 ) Distributions to noncontrolling interests — — — — — ( 2,641 ) ( 2,641 ) Contributions from noncontrolling interests — — — — — 217 217 Balance, March 27, 2022 89,185 $ 892 $ 1,115,458 $ ( 634,356 ) $ ( 190,431 ) $ 1,694 $ 293,257 BLOOMIN’ BRANDS, INC. COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM- ULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL SHARES AMOUNT Balance, December 27, 2020 87,856 $ 879 $ 1,132,808 $ ( 918,096 ) $ ( 211,446 ) $ 6,812 $ 10,957 Cumulative-effect from a change in accounting principle, net of tax — — ( 47,323 ) 4,370 — — ( 42,953 ) Net income — — — 68,862 — 936 69,798 Other comprehensive loss, net of tax — — — — ( 3,614 ) — ( 3,614 ) Stock-based compensation — 4,726 — — — 4,726 Common stock issued under stock plans (1) 999 10 7,428 — — — 7,438 Distributions to noncontrolling interests — — — — — ( 1,458 ) ( 1,458 ) Contributions from noncontrolling interests — — — — — 511 511 Balance, March 28, 2021 88,855 $ 889 $ 1,097,639 $ ( 844,864 ) $ ( 215,060 ) $ 6,801 $ 45,405 ________________ (1) Net of forfeitures and shares withheld for employee taxes. The accompanying notes are an integral part of these consolidated financial statements. 5 Table of Contents BLOOMIN’ BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, UNAUDITED) THIRTEEN WEEKS ENDED MARCH 27, 2022 MARCH 28, 2021 Cash flows provided by operating activities: Net income $ 77,694 $ 69,798 Adjustments to reconcile Net income to cash provided by operating activities: Depreciation and amortization 41,775 41,226 Amortization of debt discounts and issuance costs 1,065 1,308 Amortization of deferred gift card sales commissions 8,017 8,725 Provision for impaired assets and restaurant closings 1,839 2,200 Non-cash interest expense from terminated interest rate swaps 4,067 — Non-cash operating lease costs 20,477 19,502 Stock-based and other non-cash compensation expense 4,843 4,726 Deferred income tax expense 3,209 1,571 Other, net 2,229 ( 829 ) Change in assets and liabilities ( 18,080 ) ( 7,201 ) Net cash provided by operating activities 147,135 141,026 Cash flows used in investing activities: Capital expenditures ( 40,180 ) ( 17,411 ) Other investments, net 1,030 793 Net cash used in investing activities ( 39,150 ) ( 16,618 ) Cash flows used in financing activities: Repayments of long-term debt and finance lease obligations ( 2,863 ) ( 9,656 ) Proceeds from borrowings on revolving credit facilities 90,000 15,000 Repayments of borrowings on revolving credit facilities ( 160,000 ) ( 107,000 ) Proceeds from share-based compensation, net 885 7,438 Distributions to noncontrolling interests ( 2,641 ) ( 1,458 ) Contributions from noncontrolling interests 217 511 Purchase of noncontrolling interests ( 1,000 ) — Payments for partner equity plan ( 2,748 ) ( 1,747 ) Repurchase of common stock ( 10,402 ) — Cash dividends paid on common stock ( 12,559 ) — Net cash used in financing activities ( 101,111 ) ( 96,912 ) Effect of exchange rate changes on cash and cash equivalents 1,965 ( 1,246 ) Net increase in cash, cash equivalents and restricted cash 8,839 26,250 Cash, cash equivalents and restricted cash as of the beginning of the period 89,057 110,408 Cash, cash equivalents and restricted cash as of the end of the period $ 97,896 $ 136,658 Supplemental disclosures of cash flow information: Cash paid for interest $ 2,444 $ 10,230 Cash paid for income taxes, net of refunds $ 2,257 $ 2,150 Supplemental disclosures of non-cash investing and financing activities: Leased assets obtained in exchange for new operating lease liabilities $ 11,515 $ 14,819 Leased assets obtained in exchange for new finance lease liabilities $ 1,313 $ 15 (Decrease) increase in liabilities from the acquisition of property, fixtures and equipment $ ( 6,178 ) $ 2,005 The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Description of the Business and Basis of Presentation Description of the Business - Bloomin’ Brands (“Bloomin’ Brands” or the “Company”) owns and operates casual, upscale casual and fine dining restaurants. The Company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements. Basis of Presentation - The accompanying interim unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States (“U.S. GAAP”) for complete financial statements. In the opinion of the Company, all adjustments necessary for fair financial statement presentation for the periods presented have been included and are of a normal, recurring nature. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. These financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 26, 2021. Recently Issued Financial Accounting Standards Not Yet Adopted - In November 2021, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (“ASU No. 2021-10”), which requires financial statement footnote disclosure regarding government assistance accounted for by applying a grant or contribution accounting model by analogy. ASU No. 2021-10 is effective for the Company for the fiscal year ending December 25, 2022, with early adoption permitted. The Company is currently evaluating the impact the adoption of ASU No. 2021-10 will have on its financial statement disclosures. Recent accounting guidance not discussed herein is not applicable, did not have, or is not expected to have a material impact to the Company. Reclassifications - The Company reclassified certain items in the accompanying consolidated financial statements for prior periods to be comparable with the classification for the current period, including, but not limited to, presentation of certain items within the condensed consolidated statements of cash flows and certain notes to the consolidated financial statements. These reclassifications had no effect on previously reported net income. 2. Revenue Recognition The following table includes the categories of revenue included in the Company’s Consolidated Statements of Operations and Comprehensive Income for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Revenues Restaurant sales $ 1,123,575 $ 979,451 Franchise and other revenues Franchise revenues 13,406 6,789 Other revenues 3,554 1,233 Total Franchise and other revenues 16,960 8,022 Total revenues $ 1,140,535 $ 987,473 7 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table includes the disaggregation of Restaurant sales and franchise revenues, by restaurant concept and major international market, for the periods indicated: THIRTEEN WEEKS ENDED MARCH 27, 2022 MARCH 28, 2021 (dollars in thousands) RESTAURANT SALES FRANCHISE REVENUES RESTAURANT SALES FRANCHISE REVENUES U.S. Outback Steakhouse $ 595,393 $ 8,459 $ 547,195 $ 2,956 Carrabba’s Italian Grill 175,628 661 157,686 617 Bonefish Grill 151,416 177 126,974 130 Fleming’s Prime Steakhouse & Wine Bar 97,662 — 66,311 — Other 3,536 5 1,893 — U.S. total 1,023,635 9,302 900,059 3,703 International Outback Steakhouse Brazil 85,301 — 60,848 — Other (1) 14,639 4,104 18,544 3,086 International total 99,940 4,104 79,392 3,086 Total $ 1,123,575 $ 13,406 $ 979,451 $ 6,789 ________________ (1) Includes Restaurant sales for Company-owned Outback Steakhouse restaurants outside of Brazil and Abbraccio restaurants in Brazil. Franchise revenues primarily includes revenues from franchised Outback Steakhouse restaurants. The following table includes a detail of assets and liabilities from contracts with customers included on the Company’s Consolidated Balance Sheets as of the periods indicated: (dollars in thousands) MARCH 27, 2022 DECEMBER 26, 2021 Other current assets, net Deferred gift card sales commissions $ 13,033 $ 17,793 Unearned revenue Deferred gift card revenue $ 314,974 $ 387,945 Deferred loyalty revenue 8,217 9,386 Deferred franchise fees - current 439 443 Other 1,674 1,021 Total Unearned revenue $ 325,304 $ 398,795 Other long-term liabilities, net Deferred franchise fees - non-current $ 4,284 $ 4,280 The following table is a rollforward of deferred gift card sales commissions for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Balance, beginning of period $ 17,793 $ 19,300 Deferred gift card sales commissions amortization ( 8,017 ) ( 8,725 ) Deferred gift card sales commissions capitalization 4,169 3,499 Other ( 912 ) ( 572 ) Balance, end of period $ 13,033 $ 13,502 8 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table is a rollforward of unearned gift card revenue for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Balance, beginning of period $ 387,945 $ 373,048 Gift card sales 50,280 44,169 Gift card redemptions ( 116,622 ) ( 104,940 ) Gift card breakage ( 6,629 ) ( 6,202 ) Balance, end of period $ 314,974 $ 306,075 3. Earnings Per Share In February 2021, the Company provided the trustee of its convertible senior notes due in 2025 (the “2025 Notes”) notice of the Company’s irrevocable election to settle the principal portion of the 2025 Notes in cash and any excess in shares. As a result, subsequent to the election, only the amounts in excess of the principal amount are considered in diluted earnings per share. The amount of the 2025 Notes settled in shares of common stock will have a dilutive impact on diluted earnings per share when the average market price of the Company’s common stock for a given period exceeds the conversion price, which was initially $ 11.89 per share of common stock. In connection with the offering of the 2025 Notes, the Company entered into warrant transactions (the “Warrant Transactions”), which have a dilutive effect on the Company’s common stock to the extent the price of its common stock exceeds the strike price of the Warrant Transactions, which was initially $ 16.64 . In connection with dividends paid during the thirteen weeks ended March 27, 2022, the conversion price of the 2025 Notes decreased to $ 11.82 per share of common stock and the strike price of the related warrants decreased to $ 16.55 per share of common stock. The following table presents the computation of basic and diluted earnings per share for the periods indicated: THIRTEEN WEEKS ENDED (in thousands, except per share data) MARCH 27, 2022 MARCH 28, 2021 Net income attributable to Bloomin’ Brands $ 75,511 $ 68,862 Convertible senior notes if-converted method interest adjustment, net of tax (1) — 1,381 Diluted net income attributable to Bloomin’ Brands $ 75,511 $ 70,243 Basic weighted average common shares outstanding 89,355 88,367 Effect of dilutive securities: Stock options 370 709 Nonvested restricted stock units 279 503 Nonvested performance-based share units 276 94 Convertible senior notes (1) 8,732 15,193 Warrants 4,442 5,775 Diluted weighted average common shares outstanding 103,454 110,641 Basic earnings per share $ 0.85 $ 0.78 Diluted earnings per share $ 0.73 $ 0.63 ________________ (1) Adjustment for interest related to the 2025 Notes weighted for the portion of the period prior to the Company’s election under the 2025 Notes indenture to settle the principal portion of its 2025 Notes in cash. Effective with the Company’s election, there will be no further numerator adjustments for interest or denominator adjustments for shares required to settle the principal portion. 9 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Share-based compensation-related weighted average securities outstanding not included in the computation of earnings per share because their effect was antidilutive were as follows, for the periods indicated: THIRTEEN WEEKS ENDED (shares in thousands) MARCH 27, 2022 MARCH 28, 2021 Stock options 1,417 1,364 Nonvested restricted stock units 217 73 Nonvested performance-based share units 365 431 4. Stock-based Compensation Plans The Company recognized stock-based compensation expense as follows for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Performance-based share units $ 2,619 $ 1,469 Restricted stock units 1,810 2,366 Stock options 377 865 $ 4,806 $ 4,700 In February 2022, the Company granted 0.5 million performance-based share units (“PSUs”) subject to final payout modification by a Relative Total Shareholder Return (“Relative TSR”) modifier. This Relative TSR modifier can adjust the final payout outcome by 75 %, 100 % or 125 % of the achieved performance metric, with the overall payout capped at 200 % of the annual target grant. These PSUs have a three-year cliff vesting period and their fair value was estimated using the Monte Carlo simulation model. Assumptions used in the Monte Carlo simulation model and the grant date fair value of PSUs granted were as follows for the periods indicated: THIRTEEN WEEKS ENDED MARCH 27, 2022 MARCH 28, 2021 Assumptions: Risk-free interest rate (1) 1.64 % 0.20 % Dividend yield (2) 2.31 % — % Volatility (3) 49.11 % 48.45 % Grant date fair value per unit (4) $ 26.10 $ 29.73 ________________ (1) Risk-free interest rate is the U.S. Treasury yield curve in effect as of the grant date for the performance period of the unit. (2) Dividend yield is the level of dividends expected to be paid on the Company’s common stock over the expected term. (3) Based on the historical volatility of the Company’s stock over the last seven years. (4) Represents a premium above the per share value of the Company’s common stock for the Relative TSR modifier as of the grant date of 7.9 % and 14.3 % as of March 27, 2022 and March 28, 2021, respectively. The following represents unrecognized stock-based compensation expense and the remaining weighted average vesting period as of March 27, 2022: UNRECOGNIZED COMPENSATION EXPENSE (dollars in thousands) REMAINING WEIGHTED AVERAGE VESTING PERIOD (in years) Performance-based share units $ 21,163 1.6 Restricted stock units $ 12,002 2.2 10 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 5. Other Current Assets, Net Other current assets, net, consisted of the following as of the periods indicated: (dollars in thousands) MARCH 27, 2022 DECEMBER 26, 2021 Prepaid expenses $ 21,431 $ 21,194 Accounts receivable - gift cards, net 8,660 91,248 Accounts receivable - vendors, net 14,297 11,793 Accounts receivable - franchisees, net 1,345 1,701 Accounts receivable - other, net 21,665 18,353 Deferred gift card sales commissions 13,033 17,793 Company-owned life insurance policies 18,023 17,244 Other current assets, net 6,134 5,297 $ 104,588 $ 184,623 6. Long-term Debt, Net Following is a summary of outstanding Long-term debt, net as of the periods indicated: MARCH 27, 2022 DECEMBER 26, 2021 (dollars in thousands) OUTSTANDING BALANCE INTEREST RATE OUTSTANDING BALANCE INTEREST RATE Senior Secured Credit Facility: Term loan A (1) $ 192,500 1.76 % $ 195,000 1.60 % Revolving credit facility (2) 10,000 4.00 % 80,000 3.75 % Total Senior Secured Credit Facility 202,500 275,000 2025 Notes 230,000 5.00 % 230,000 5.00 % 2029 Notes 300,000 5.13 % 300,000 5.13 % Finance lease liabilities 3,380 2,376 Less: unamortized debt discount and issuance costs ( 13,433 ) ( 14,157 ) Less: finance lease interest ( 202 ) ( 154 ) Total debt, net 722,245 793,065 Less: current portion of long-term debt ( 11,220 ) ( 10,958 ) Long-term debt, net $ 711,025 $ 782,107 ________________ (1) Interest rate represents the weighted average interest rate as of the respective periods. (2) Interest rate represents the base rate option elected in anticipation of impending repayment. Debt Covenants - As of March 27, 2022 and December 26, 2021, the Company was in compliance with its debt covenants. Credit Agreement Amendment - On April 16, 2021, the Company and its wholly-owned subsidiary OSI Restaurant Partners, LLC (“OSI”), as co-borrowers, entered into the Second Amended and Restated Credit Agreement (the “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”). On April 26, 2022, the Company and OSI entered into the First Amendment to the Second Amended and Restated Credit Agreement and Incremental Amendment (the “Amended Credit Agreement”), which included an increase of the Company’s existing revolving credit facility from $ 800.0 million to $ 1.0 billion and a transition from London Inter-Bank Offered Rate (“LIBOR”) to Secured Overnight Financing Rate (“SOFR”) as the benchmark rate for 11 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued purposes of calculating interest under the Senior Secured Credit Facility. At closing, an incremental $ 192.5 million was drawn on the revolving credit facility to fully repay the outstanding balance of Term loan A. The total indebtedness of the Company remained unchanged as a result of the Amended Credit Agreement. Under the Amended Credit Agreement, the Company may elect an interest rate at each reset period based on the Base Rate or Adjusted Term SOFR, plus an applicable spread. The Base Rate option is the highest of: (i) the prime rate of Wells Fargo Bank, National Association, (ii) the federal funds effective rate plus 0.5 of 1.0% or (iii) the Adjusted Term SOFR with a one-month interest period plus 1.0 % (the “Base Rate”). The Adjusted Term SOFR option is the 30, 90 or 180-day SOFR, plus a term SOFR adjustment of 0.10 %, subject to a 0 % floor (the “Adjusted Term SOFR”). The interest rates are as follows: BASE RATE ELECTION ADJUSTED TERM SOFR ELECTION Revolving credit facility 50 to 150 basis points over the Base Rate 150 to 250 basis points over the Adjusted Term SOFR The transition to SOFR did not materially impact the interest rate applied to the Company’s borrowings. No other material changes were made to the terms of the Company’s Credit Agreement as a result of the Amended Credit Agreement. 7. Convertible Senior Notes 2025 Notes - The initial conversion rate applicable to the 2025 Notes was 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 was equivalent to an initial conversion price of approximately $ 11.89 per share. In connection with dividends paid during the thirteen weeks ended March 27, 2022, the conversion rate for the 2025 Notes decreased to approximately $ 11.82 per share, which represents 84.603 shares of common stock per $ 1,000 principal amount of the 2025 Notes, or a total of approximately 19.459 million shares. The following table includes the outstanding principal amount and carrying value of the 2025 Notes as of the periods indicated: (dollars in thousands) MARCH 27, 2022 DECEMBER 26, 2021 Long-term debt, net Principal $ 230,000 $ 230,000 Less: debt issuance costs (1) ( 5,495 ) ( 5,898 ) Net carrying amount $ 224,505 $ 224,102 ________________ (1) Debt issuance costs are amortized to Interest expense, net using the effective interest method over the 2025 Notes’ expected life. Following is a summary of interest expense for the 2025 Notes, by component, for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Coupon interest $ 2,875 $ 2,875 Deferred issuance cost amortization 404 381 Total interest expense (1) $ 3,279 $ 3,256 ________________ (1) The effective rate of the 2025 Notes over their expected life is 5.85 %. Based on the daily closing prices of the Company’s stock during the quarter ended March 27, 2022, holders of the 2025 Notes are eligible to convert their 2025 Notes during the second quarter of 2022. 12 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Convertible Note Warrant Transactions - The Warrant Transactions have a dilutive effect on the Company’s common stock to the extent that the price of its common stock exceeds the strike price of the Warrant Transactions. The strike price was initially $ 16.64 per share and is subject to certain adjustments under the terms of the Warrant Transactions. In connection with dividends paid during the thirteen weeks ended March 27, 2022, the strike price for the Warrant Transactions decreased to $ 16.55 . 8. Other Long-term Liabilities, Net Other long-term liabilities, net, consisted of the following as of the periods indicated: (dollars in thousands) MARCH 27, 2022 DECEMBER 26, 2021 Accrued insurance liability $ 30,779 $ 31,517 Deferred payroll tax liabilities (1) — 27,302 Executive management deferred compensation obligations 21,032 23,543 Other long-term liabilities 38,692 42,880 $ 90,503 $ 125,242 _______________ (1) During the thirteen weeks ended March 27, 2022, the Company reclassified $ 27.3 million of payroll taxes deferred under the Coronavirus, Aid, Relief and Economic Security Act to current. 9. Stockholders’ Equity Share Repurchases - On February 8, 2022, the Company’s Board of Directors (the “Board”) approved a share repurchase program (the “2022 Share Repurchase Program”) under which the Company was authorized to repurchase up to $ 125.0 million of its outstanding common stock. The 2022 Share Repurchase Program will expire on August 9, 2023. As of March 27, 2022, $ 113.3 million remained available for repurchase under the 2022 Share Repurchase Program. Following is a summary of the shares repurchased under the Company’s share repurchase program during fiscal year 2022: (in thousands, except per share data) NUMBER OF SHARES AVERAGE REPURCHASE PRICE PER SHARE AMOUNT First fiscal quarter (1) 551 $ 21.26 $ 11,702 ________________ (1) Subsequent to March 27, 2022, the Company repurchased 723 thousand shares of its common stock for $ 15.6 million under a Rule 10b5-1 plan. Dividends - The Company declared and paid dividends per share during fiscal year 2022 as follows: (dollars in thousands, except per share data) DIVIDENDS PER SHARE AMOUNT First fiscal quarter $ 0.14 $ 12,559 In April 2022, the Board declared a quarterly cash dividend of $ 0.14 per share, payable on May 25, 2022 to shareholders of record at the close of business on May 11, 2022 . 13 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Accumulated Other Comprehensive Loss (“AOCL”) - Following are the components of AOCL as of the periods indicated: (dollars in thousands) MARCH 27, 2022 DECEMBER 26, 2021 Foreign currency translation adjustment $ ( 184,197 ) $ ( 195,480 ) Unrealized loss on derivatives, net of tax ( 6,234 ) ( 10,509 ) Accumulated other comprehensive loss $ ( 190,431 ) $ ( 205,989 ) Following are the components of Other comprehensive income (loss) attributable to Bloomin’ Brands for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Foreign currency translation adjustment $ 11,283 $ ( 6,575 ) Unrealized gain (loss) on derivatives, net of tax 573 ( 42 ) Reclassification of adjustments for loss on derivatives included in Net income, net of tax (1) 681 3,003 Impact of terminated interest rate swaps included in Net income, net of tax 3,021 — Total unrealized gain on derivatives, net of tax 4,275 2,961 Other comprehensive income (loss) attributable to Bloomin’ Brands $ 15,558 $ ( 3,614 ) ________________ (1) See Note 10 - Derivative Instruments and Hedging Activities for the tax impact of reclassifications. 10. Derivative Instruments and Hedging Activities Cash Flow Hedges of Interest Rate Risk - In October 2018, the Company entered into variable-to-fixed interest rate swap agreements with 12 counterparties to hedge a portion of the cash flows of the Company’s variable rate debt. The swap agreements had an aggregate notional amount of $ 550.0 million and mature on November 30, 2022 . Under the terms of the swap agreements, the Company pays a weighted average fixed rate of 3.04 % on the notional amount and receives payments from the counterparty based on one-month LIBOR . During 2021, the Company terminated variable-to-fixed interest rate swap agreements with certain counterparties and as a result, as of March 27, 2022 had interest rate swap agreements remaining with two counterparties for an aggregate notional amount of $ 125.0 million. The Company’s swap agreements have been designated and qualify as cash flow hedges, are recognized on its Consolidated Balance Sheets at fair value and are classified based on the instruments’ maturity dates. As of March 27, 2022, the Company estimated $ 8.5 million will be reclassified to Interest expense, net through the November 2022 maturity date of the swaps, including interest expense related to the terminated swap agreements. The following table presents the fair value and classification of the Company’s swap agreements, as of the periods indicated: (dollars in thousands) MARCH 27, 2022 DECEMBER 26, 2021 CONSOLIDATED BALANCE SHEET CLASSIFICATION Interest rate swaps - liability (1) $ 1,368 $ 3,056 Accrued and other current liabilities Accrued interest $ 275 $ 276 Accrued and other current liabilities ____________________ (1) See Note 12 - Fair Value Measurements for fair value discussion of the interest rate swaps. 14 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table summarizes the effects of the swap agreements on Net income for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Interest rate swap expense recognized in Interest expense, net $ ( 917 ) $ ( 4,044 ) Income tax benefit recognized in Provision for income taxes 236 1,041 Total effects on Net income (1) $ ( 681 ) $ ( 3,003 ) ____________________ (1) Excludes the effects on Net income of terminated interest rate swaps. By utilizing the interest rate swaps, the Company is exposed to credit-related losses in the event that the counterparty fails to perform under the terms of the derivative contract. To mitigate this risk, the Company enters into derivative contracts with major financial institutions based upon credit ratings and other factors. The Company continually assesses the creditworthiness of its counterparties. As of March 27, 2022, all counterparties to the interest rate swaps had performed in accordance with their contractual obligations. The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if the repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on indebtedness. In connection with the Amended Credit Agreement, on April 26, 2022 the Company terminated its remaining variable-to-fixed interest rate swap agreements. Following these terminations, the unrealized losses related to the terminated swap agreements included in Accumulated other comprehensive loss will be amortized to Interest expense, net during 2022. 11. Leases The following table includes a detail of lease assets and liabilities included on the Company’s Consolidated Balance Sheets as of the periods indicated: (dollars in thousands) CONSOLIDATED BALANCE SHEET CLASSIFICATION MARCH 27, 2022 DECEMBER 26, 2021 Operating lease right-of-use assets Operating lease right-of-use assets $ 1,124,517 $ 1,130,873 Finance lease right-of-use assets (1) Property, fixtures and equipment, net 3,055 2,074 Total lease assets, net $ 1,127,572 $ 1,132,947 Current operating lease liabilities (2) Accrued and other current liabilities $ 177,633 $ 177,028 Current finance lease liabilities Current portion of long-term debt 1,220 958 Non-current operating lease liabilities (2) Non-current operating lease liabilities 1,172,564 1,178,998 Non-current finance lease liabilities Long-term debt, net 1,958 1,264 Total lease liabilities $ 1,353,375 $ 1,358,248 ________________ (1) Net of accumulated amortization of $ 3.7 million and $ 3.3 million as of March 27, 2022 and December 26, 2021, respectively. (2) Excludes current accrued contingent percentage rent of $ 4.0 million and $ 3.5 million, as of March 27, 2022 and December 26, 2021, respectively, and immaterial current and non-current COVID-19-related deferred rent accruals. 15 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Following is a summary of expenses and income related to leases recognized in the Company’s Consolidated Statements of Operations and Comprehensive Income for the periods indicated: CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME CLASSIFICATION THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Operating leases (1) Other restaurant operating $ 45,361 $ 44,792 Variable lease cost (2) Other restaurant operating 1,883 777 Finance leases: Amortization of leased assets Depreciation and amortization 337 262 Interest on lease liabilities Interest expense, net 32 36 Sublease revenue Franchise and other revenues ( 2,558 ) ( 835 ) Lease costs, net $ 45,055 $ 45,032 ________________ (1) Excludes rent expense for office facilities and Company-owned closed or subleased properties of $ 3.0 million and $ 3.5 million for the thirteen weeks ended March 27, 2022 and March 28, 2021, respectively, which is included in General and administrative expense. (2) Includes COVID-19-related rent abatements for the thirteen weeks ended March 28, 2021. The following table is a summary of cash flow impacts to the Company’s Consolidated Financial Statements related to its leases for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Cash flows from operating activities: Cash paid for amounts included in the measurement of operating lease liabilities $ 48,560 $ 52,717 12. Fair Value Measurements Fair value is the price that would be received for an asset or paid to transfer a liability, or the exit price, in an orderly transaction between market participants on the measurement date. Fair value is categorized into one of the following three levels based on the lowest level of significant input: Level 1 Unadjusted quoted market prices in active markets for identical assets or liabilities Level 2 Observable inputs available at measurement date other than quoted prices included in Level 1 Level 3 Unobservable inputs that cannot be corroborated by observable market data 16 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Fair Value Measurements on a Recurring Basis - The following table summarizes the Company’s financial assets and liabilities measured at fair value by hierarchy level on a recurring basis as of the periods indicated: MARCH 27, 2022 DECEMBER 26, 2021 (dollars in thousands) TOTAL LEVEL 1 LEVEL 2 TOTAL LEVEL 1 LEVEL 2 Assets: Cash equivalents: Fixed income funds $ 4,552 $ 4,552 $ — $ 6,714 $ 6,714 $ — Money market funds 9,828 9,828 — 9,039 9,039 — Restricted cash equivalents: Money market funds 101 101 — 1,472 1,472 — Total asset recurring fair value measurements $ 14,481 $ 14,481 $ — $ 17,225 $ 17,225 $ — Liabilities: Accrued and other current liabilities: Derivative instruments - interest rate swaps $ 1,368 $ — $ 1,368 $ 3,056 $ — $ 3,056 Total liability recurring fair value measurements $ 1,368 $ — $ 1,368 $ 3,056 $ — $ 3,056 Fair value of each class of financial instrument is determined based on the following: FINANCIAL INSTRUMENT METHODS AND ASSUMPTIONS Fixed income funds and Money market funds Carrying value approximates fair value because maturities are less than three months. Derivative instruments The Company’s derivative instruments include interest rate swaps. Fair value measurements are based on the contractual terms of the derivatives and use observable market-based inputs. The interest rate swaps are valued using a discounted cash flow analysis on the expected cash flows of each derivative using observable inputs including interest rate curves and credit spreads. The Company also considers its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. As of March 27, 2022 and December 26, 2021, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Interim Disclosures about Fair Value of Financial Instruments - The Company’s non-derivative financial instruments consist of cash equivalents, accounts receivable, accounts payable and current and long-term debt. The fair values of cash equivalents, accounts receivable and accounts payable approximate their carrying amounts reported on its Consolidated Balance Sheets due to their short duration. Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of the periods indicated: MARCH 27, 2022 DECEMBER 26, 2021 CARRYING VALUE FAIR VALUE LEVEL 2 CARRYING VALUE FAIR VALUE LEVEL 2 (dollars in thousands) Senior Secured Credit Facility: Term loan A $ 192,500 $ 188,169 $ 195,000 $ 190,125 Revolving credit facility $ 10,000 $ 9,750 $ 80,000 $ 76,926 2025 Notes $ 230,000 $ 441,515 $ 230,000 $ 447,615 2029 Notes $ 300,000 $ 286,647 $ 300,000 $ 304,395 17 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 13. Income Taxes THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Income before provision for income taxes $ 93,623 $ 76,391 Provision for income taxes $ 15,929 $ 6,593 Effective income tax rate 17.0 % 8.6 % The effective income tax rate for the thirteen weeks ended March 27, 2022 increased by 8.4 percentage points as compared to the thirteen weeks ended March 28, 2021. The increase was primarily due to the change in the amount and mix of forecasted pre-tax book income across the Company’s U.S. and international subsidiaries. On December 28, 2021, the U.S. Treasury and the Internal Revenue Service released final regulations that, among other things, provide guidance on several aspects of the foreign tax credit rules. As part of the guidance issued, these regulations change longstanding foreign tax credit regulations that now make foreign taxes paid to certain countries no longer creditable in the United States. The Company expects that a portion of post-2021 foreign taxes paid will not be creditable in the United States. Furthermore, the impact of these regulations will result in the utilization of a portion of existing prior year foreign tax credit carryforwards for which the Company had previously recorded a valuation allowance. The valuation allowance related to the credits expected to be utilized will be released during 2022. The impact of non-creditable foreign taxes and the release of the valuation allowance has been considered as part of the effective income tax rate for the thirteen weeks ended March 27, 2022. The Company has a blended federal and state statutory rate of approximately 26 %. The effective income tax rates for the thirteen weeks ended March 27, 2022 and March 28, 2021 were lower than the statutory rate primarily due to the benefit of FICA tax credits on certain employees’ tips. 14. Commitments and Contingencies Litigation and Other Matters - The Company is subject to legal proceedings, claims and liabilities, such as liquor liability, slip and fall cases, wage-and-hour and other employment-related litigation, which arise in the ordinary course of business. A reserve is recorded when it is both: (i) probable that a loss has occurred and (ii) the amount of loss can be reasonably estimated. There may be instances in which an exposure to loss exceeds the recorded reserve. The Company evaluates, on a quarterly basis, developments in legal proceedings that could cause an increase or decrease in the amount of the reserve that has been previously recorded, or a revision to the disclosed estimated range of possible losses, as applicable. The Company’s legal proceedings range from cases brought by a single plaintiff to threatened class actions with many putative class members. While some matters pending against the Company specify the damages claimed by the plaintiff or class, many seek unspecified amounts or are at very early stages of the legal process. Even when the amount of damages claimed against the Company are stated, the claimed amount may be exaggerated, unsupported or unrelated to possible outcomes, and as such, are not meaningful indicators of the Company’s potential liability or financial exposure. As a result, some matters have not yet progressed sufficiently through discovery or development of important factual information and legal issues to enable the Company to estimate an amount of loss or a range of possible loss. The Company recorded reserves of $ 7.5 million and $ 7.1 million for certain of its outstanding legal proceedings as of March 27, 2022 and December 26, 2021, respectively, within Accrued and other current liabilities and Other long-term liabilities on its Consolidated Balance Sheets. While the Company believes that additional losses beyond these accruals are reasonably possible, it cannot estimate a possible loss contingency or range of reasonably possible loss contingencies beyond these accruals. 18 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The Company intends to defend itself in legal matters. Some of these matters may be covered, at least in part, by insurance if they exceed specified retention or deductible amounts. However, it is possible that claims may be denied by the Company’s insurance carriers, the Company may be required by its insurance carriers to contribute to the payment of claims, or the Company’s insurance coverage may not continue to be available on acceptable terms or in sufficient amounts. The Company records receivables from third party insurers when recovery has been determined to be probable. The Company believes that the ultimate determination of liability in connection with legal claims pending against the Company, if any, in excess of amounts already provided for such matters in the consolidated financial statements, will not have a material adverse effect on its business, annual results of operations, liquidity or financial position. However, it is possible that the Company’s business, results of operations, liquidity, or financial condition could be materially affected in a particular future reporting period by the unfavorable resolution of one or more matters or contingencies during such period. Lease Guarantees - The Company assigned its interest, and is contingently liable, under certain real estate leases. These leases have varying terms, the latest of which expires in 2032. As of March 27, 2022, the undiscounted payments that the Company could be required to make in the event of non-payment by the primary lessees was approximately $ 24.2 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of March 27, 2022 was approximately $ 20.0 million. In the event of default, the indemnity clauses in the Company’s purchase and sale agreements govern its ability to pursue and recover damages incurred. As of March 27, 2022 and December 26, 2021, the Company’s recorded contingent lease liability was $ 9.0 million and $ 8.7 million, respectively. 15. Segment Reporting The Company considers its restaurant concepts and international markets as operating segments, which reflects how the Company manages its business, reviews operating performance and allocates resources. Resources are allocated and performance is assessed by the Company’s Chief Executive Officer (“CEO”), whom the Company has determined to be its Chief Operating Decision Maker (“CODM”). The Company aggregates its operating segments into two reportable segments, U.S. and international. The U.S. segment includes all restaurants operating in the U.S. while restaurants operating outside the U.S. are included in the international segment. The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse United States of America Carrabba’s Italian Grill Bonefish Grill Fleming’s Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba’s Italian Grill (Abbraccio) Brazil _________________ (1) Includes franchise locations. Segment accounting policies are the same as those described in Note 2 - Summary of Significant Accounting Policies in the Company’s Annual Report on Form 10-K for the year ended December 26, 2021. Revenues for all segments include only transactions with customers and exclude intersegment revenues. Excluded from 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. 19 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table is a summary of Total revenues by segment, for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Total revenues U.S. $ 1,036,407 $ 904,918 International 104,128 82,555 Total revenues $ 1,140,535 $ 987,473 The following table is a reconciliation of segment income from operations to Income before provision for income taxes, for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Segment income from operations U.S. $ 132,226 $ 121,735 International 8,884 3,537 Total segment income from operations 141,110 125,272 Unallocated corporate operating expense ( 33,854 ) ( 34,274 ) Total income from operations 107,256 90,998 Other income, net — 21 Interest expense, net ( 13,633 ) ( 14,628 ) Income before provision for income taxes $ 93,623 $ 76,391 The following table is a summary of Depreciation and amortization expense by segment for the periods indicated: THIRTEEN WEEKS ENDED (dollars in thousands) MARCH 27, 2022 MARCH 28, 2021 Depreciation and amortization U.S. $ 34,759 $ 33,645 International 5,537 5,720 Corporate 1,479 1,861 Total depreciation and amortization $ 41,775 $ 41,226 20 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS