Bloomin' Brands, Inc. 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, UNAUDITED) SEPTEMBER 25, 2022 DECEMBER 26, 2021 ASSETS Current assets Cash and cash equivalents $ 90,678 $ 87,585 Restricted cash and cash equivalents 143 1,472 Inventories 83,250 79,112 Other current assets, net 101,639 184,623 Total current assets 275,710 352,792 Property, fixtures and equipment, net 875,567 842,012 Operating lease right-of-use assets 1,115,004 1,130,873 Goodwill 273,100 268,444 Intangible assets, net 449,975 453,412 Deferred income tax assets, net 158,883 168,068 Other assets, net 70,962 78,670 Total assets $ 3,219,201 $ 3,294,271 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Accounts payable $ 187,825 $ 167,978 Accrued and other current liabilities 430,185 406,894 Unearned revenue 291,831 398,795 Current portion of long-term debt 1,481 10,958 Total current liabilities 911,322 984,625 Non-current operating lease liabilities 1,160,657 1,179,447 Long-term debt, net 820,225 782,107 Other long-term liabilities, net 86,852 125,242 Total liabilities 2,979,056 3,071,421 Commitments and contingencies (Note 15) Stockholders’ equity Bloomin’ Brands stockholders’ equity Preferred stock, $ 0.01 par value, 25,000,000 shares authorized; no shares issued and outstanding as of September 25, 2022 and December 26, 2021 — — Common stock, $ 0.01 par value, 475,000,000 shares authorized; 88,449,929 and 89,252,823 shares issued and outstanding as of September 25, 2022 and December 26, 2021, respectively 884 893 Additional paid-in capital 1,159,722 1,119,728 Accumulated deficit ( 735,268 ) ( 698,171 ) Accumulated other comprehensive loss ( 186,840 ) ( 205,989 ) Total Bloomin’ Brands stockholders’ equity 238,498 216,461 Noncontrolling interests 1,647 6,389 Total stockholders’ equity 240,145 222,850 Total liabilities and stockholders’ equity $ 3,219,201 $ 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 THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Revenues Restaurant sales $ 1,040,375 $ 996,718 $ 3,272,868 $ 3,031,396 Franchise and other revenues 15,388 13,745 48,592 43,906 Total revenues 1,055,763 1,010,463 3,321,460 3,075,302 Costs and expenses Food and beverage costs 332,939 304,300 1,056,768 908,272 Labor and other related 303,244 290,246 924,514 859,883 Other restaurant operating 267,944 299,788 790,583 762,531 Depreciation and amortization 42,171 40,827 125,203 122,592 General and administrative 56,089 58,880 174,009 182,590 Provision for impaired assets and restaurant closings 2,067 1,585 4,099 8,962 Total costs and expenses 1,004,454 995,626 3,075,176 2,844,830 Income from operations 51,309 14,837 246,284 230,472 Loss on extinguishment and modification of debt — — ( 107,630 ) ( 2,073 ) Loss on fair value adjustment of derivatives, net — — ( 17,685 ) — Other income, net — 5 — 26 Interest expense, net ( 12,696 ) ( 14,245 ) ( 38,877 ) ( 43,863 ) Income before provision (benefit) for income taxes 38,613 597 82,092 184,562 Provision (benefit) for income taxes 5,563 ( 4,454 ) 33,028 24,827 Net income 33,050 5,051 49,064 159,735 Less: net income attributable to noncontrolling interests 1,064 1,602 5,202 4,879 Net income attributable to Bloomin’ Brands $ 31,986 $ 3,449 $ 43,862 $ 154,856 Net income $ 33,050 $ 5,051 $ 49,064 $ 159,735 Other comprehensive income: Foreign currency translation adjustment ( 13,041 ) 1,673 10,182 5,113 Unrealized (loss) gain on derivatives, net of tax — ( 153 ) 573 ( 323 ) Reclassification of adjustments for loss on derivatives included in Net income, net of tax — 1,519 954 6,036 Impact of terminated interest rate swaps included in Net income, net of tax 2,255 1,479 7,440 2,950 Comprehensive income 22,264 9,569 68,213 173,511 Less: comprehensive income attributable to noncontrolling interests 1,064 1,602 5,202 4,879 Comprehensive income attributable to Bloomin’ Brands $ 21,200 $ 7,967 $ 63,011 $ 168,632 Earnings per share: Basic $ 0.36 $ 0.04 $ 0.49 $ 1.74 Diluted $ 0.34 $ 0.03 $ 0.44 $ 1.42 Weighted average common shares outstanding: Basic 89,192 89,229 89,149 88,890 Diluted 94,736 107,783 99,609 109,410 The accompanying notes are an integral part of these consolidated financial statements. 4 Table of Contents BLOOMIN’ BRANDS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) BLOOMIN’ BRANDS, INC. COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM- ULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL SHARES AMOUNT Balance, June 26, 2022 90,151 $ 902 $ 1,169,697 $ ( 733,723 ) $ ( 176,054 ) $ 1,919 $ 262,741 Net income — — — 31,986 — 1,064 33,050 Other comprehensive loss, net of tax — — — — ( 10,786 ) — ( 10,786 ) Cash dividends declared, $ 0.14 per common share — — ( 12,475 ) — — — ( 12,475 ) Repurchase and retirement of common stock ( 1,746 ) ( 18 ) — ( 33,531 ) — — ( 33,549 ) Stock-based compensation — — 2,013 — — — 2,013 Common stock issued under stock plans (1) 45 — 487 — — — 487 Distributions to noncontrolling interests — — — — — ( 1,477 ) ( 1,477 ) Contributions from noncontrolling interests — — — — — 141 141 Balance, September 25, 2022 88,450 $ 884 $ 1,159,722 $ ( 735,268 ) $ ( 186,840 ) $ 1,647 $ 240,145 Balance, December 26, 2021 89,253 $ 893 $ 1,119,728 $ ( 698,171 ) $ ( 205,989 ) $ 6,389 $ 222,850 Net income — — — 43,862 — 5,202 49,064 Other comprehensive income, net of tax — — — — 19,149 — 19,149 Cash dividends declared, $ 0.42 per common share — — ( 37,452 ) — — — ( 37,452 ) Repurchase and retirement of common stock ( 4,058 ) ( 41 ) — ( 80,959 ) — — ( 81,000 ) Stock-based compensation — — 11,815 — — — 11,815 Common stock issued under stock plans (1) 942 9 2,485 — — — 2,494 Purchase of noncontrolling interests, net of tax of $ 254 — — ( 735 ) — — ( 3,915 ) ( 4,650 ) Distributions to noncontrolling interests — — — — — ( 6,631 ) ( 6,631 ) Contributions from noncontrolling interests — — — — — 602 602 Retirement of convertible senior note hedges — — 112,956 — — — 112,956 Retirement of warrants — — ( 97,617 ) — — — ( 97,617 ) Issuance of common stock from repurchase of convertible senior notes 2,313 23 48,542 — — — 48,565 Balance, September 25, 2022 88,450 $ 884 $ 1,159,722 $ ( 735,268 ) $ ( 186,840 ) $ 1,647 $ 240,145 5 Table of Contents BLOOMIN’ BRANDS, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (IN THOUSANDS, EXCEPT PER SHARE DATA, UNAUDITED) BLOOMIN’ BRANDS, INC. COMMON STOCK ADDITIONAL PAID-IN CAPITAL ACCUM- ULATED DEFICIT ACCUMULATED OTHER COMPREHENSIVE LOSS NON-CONTROLLING INTERESTS TOTAL SHARES AMOUNT Balance, June 27, 2021 89,211 $ 892 $ 1,109,904 $ ( 762,319 ) $ ( 202,188 ) $ 6,618 $ 152,907 Net income — — — 3,449 — 1,602 5,051 Other comprehensive income, net of tax — — — — 4,518 — 4,518 Stock-based compensation — — 5,593 — — — 5,593 Common stock issued under stock plans (1) 37 — ( 42 ) — — — ( 42 ) Purchase of noncontrolling interests — — 9 — — ( 12 ) ( 3 ) Distributions to noncontrolling interests — — — — — ( 2,062 ) ( 2,062 ) Contributions from noncontrolling interests — — — — — 374 374 Balance, September 26, 2021 89,248 $ 892 $ 1,115,464 $ ( 758,870 ) $ ( 197,670 ) $ 6,520 $ 166,336 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 — — — 154,856 — 4,879 159,735 Other comprehensive income, net of tax — — — — 13,776 — 13,776 Stock-based compensation — 20,100 — — — 20,100 Common stock issued under stock plans (1) 1,392 13 9,870 — — — 9,883 Purchase of noncontrolling interests — — 9 — — ( 12 ) ( 3 ) Distributions to noncontrolling interests — — — — — ( 6,203 ) ( 6,203 ) Contributions from noncontrolling interests — — — — — 1,044 1,044 Balance, September 26, 2021 89,248 $ 892 $ 1,115,464 $ ( 758,870 ) $ ( 197,670 ) $ 6,520 $ 166,336 ________________ (1) Net of forfeitures and shares withheld for employee taxes. The accompanying notes are an integral part of these consolidated financial statements. 6 Table of Contents BLOOMIN’ BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, UNAUDITED) ` THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Cash flows provided by operating activities: Net income $ 49,064 $ 159,735 Adjustments to reconcile Net income to cash provided by operating activities: Depreciation and amortization 125,203 122,592 Amortization of debt discounts and issuance costs 2,779 3,441 Amortization of deferred gift card sales commissions 18,213 19,277 Provision for impaired assets and restaurant closings 4,099 8,962 Non-cash interest expense from terminated interest rate swaps 10,014 3,973 Non-cash operating lease costs 62,539 57,791 Stock-based and other non-cash compensation expense 11,815 20,100 Deferred income tax expense 6,604 3,842 Loss on extinguishment and modification of debt 107,630 2,073 Loss on fair value adjustment of derivatives, net 17,685 — Other, net 5,381 ( 946 ) Change in assets and liabilities ( 128,447 ) ( 96,594 ) Net cash provided by operating activities 292,579 304,246 Cash flows used in investing activities: Proceeds from disposal of property, fixtures and equipment 207 7,052 Proceeds received on life insurance policies 14,598 9,270 Capital expenditures ( 137,260 ) ( 85,339 ) Other investments, net 1,000 ( 68 ) Net cash used in investing activities $ ( 121,455 ) $ ( 69,085 ) (CONTINUED...) 7 Table of Contents BLOOMIN’ BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS, UNAUDITED) THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Cash flows used in financing activities: Proceeds from issuance of long-term debt $ — $ 200,000 Repayments of long-term debt and finance lease obligations ( 196,076 ) ( 428,364 ) Proceeds from borrowings on revolving credit facilities 929,500 378,000 Repayments of borrowings on revolving credit facilities ( 589,500 ) ( 701,000 ) Financing fees ( 1,205 ) ( 5,868 ) Proceeds from issuance of senior notes — 300,000 Issuance costs related to senior notes — ( 5,546 ) Repurchase of convertible senior notes ( 196,919 ) — Proceeds from retirement of convertible senior note hedges 131,869 — Payments for retirement of warrants ( 114,825 ) — Proceeds from share-based compensation, net 2,494 9,883 Distributions to noncontrolling interests ( 6,631 ) ( 6,203 ) Contributions from noncontrolling interests 602 1,044 Purchase of noncontrolling interests ( 4,904 ) ( 3 ) Payments for partner equity plan ( 7,813 ) ( 7,135 ) Repurchase of common stock ( 79,900 ) — Cash dividends paid on common stock ( 37,452 ) — Net cash used in financing activities ( 170,760 ) ( 265,192 ) Effect of exchange rate changes on cash and cash equivalents 1,400 207 Net increase (decrease) in cash, cash equivalents and restricted cash 1,764 ( 29,824 ) 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 $ 90,821 $ 80,584 Supplemental disclosures of cash flow information: Cash paid for interest $ 23,050 $ 28,787 Cash paid for income taxes, net of refunds $ 25,354 $ 23,449 Supplemental disclosures of non-cash investing and financing activities: Leased assets obtained in exchange for new operating lease liabilities $ 44,556 $ 38,154 Leased assets obtained in exchange for new finance lease liabilities $ 2,417 $ 1,229 Increase in liabilities from the acquisition of property, fixtures and equipment $ 14,961 $ 3,006 The accompanying notes are an integral part of these consolidated financial statements. 8 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Description of the Business and Basis of Presentation Description of the Business - Bloomin’ Brands (“Bloomin’ Brands” or the “Company”) owns and operates casual, upscale casual and fine dining restaurants. The Company’s restaurant portfolio has four concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Additional Outback Steakhouse, Carrabba’s Italian Grill and Bonefish Grill restaurants in which the Company has no direct investment are operated under franchise agreements. Basis of Presentation - The accompanying interim unaudited 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. Upon adoption of ASU No. 2021-10 during the fourth quarter of 2022, the Company anticipates government assistance financial statement footnote disclosures within the 2022 Form 10-K, primarily in connection with employee retention credits provided under the Coronavirus, Aid, Relief and Economic Security (“CARES”) Act. 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. 9 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 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 THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Revenues Restaurant sales $ 1,040,375 $ 996,718 $ 3,272,868 $ 3,031,396 Franchise and other revenues Franchise revenues 11,826 12,908 37,828 31,918 Other revenues (1) 3,562 837 10,764 11,988 Total Franchise and other revenues 15,388 13,745 48,592 43,906 Total revenues $ 1,055,763 $ 1,010,463 $ 3,321,460 $ 3,075,302 ________________ (1) The thirteen and thirty-nine weeks ended September 26, 2021 include an adjustment of $( 3.2 ) million to reduce the Company’s initial recorded estimate and net $ 3.1 million benefit, respectively, within other revenues in connection with favorable court rulings in Brazil regarding the calculation methodology and taxable base of Program of Social Integration (“PIS”) and Contribution for the Financing of Social Security (“COFINS”) taxes. The net amount recognized as a result of the favorable court rulings primarily represents refundable PIS and COFINS taxes for prior years, including accrued interest. The following tables include the disaggregation of Restaurant sales and franchise revenues, by restaurant concept and major international market for the periods indicated: THIRTEEN WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 (dollars in thousands) RESTAURANT SALES FRANCHISE REVENUES RESTAURANT SALES FRANCHISE REVENUES U.S. Outback Steakhouse $ 536,793 $ 7,447 $ 523,142 $ 9,335 Carrabba’s Italian Grill 159,728 738 159,147 482 Bonefish Grill 130,669 163 134,603 169 Fleming’s Prime Steakhouse & Wine Bar 80,748 — 79,687 — Other 2,741 17 2,211 3 U.S. total 910,679 8,365 898,790 9,989 International Outback Steakhouse Brazil 105,932 — 74,020 — Other (1) 23,764 3,461 23,908 2,919 International total 129,696 3,461 97,928 2,919 Total $ 1,040,375 $ 11,826 $ 996,718 $ 12,908 ________________ (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. 10 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 (dollars in thousands) RESTAURANT SALES FRANCHISE REVENUES RESTAURANT SALES FRANCHISE REVENUES U.S. Outback Steakhouse $ 1,705,749 $ 24,062 $ 1,649,433 $ 20,709 Carrabba’s Italian Grill 505,546 2,196 488,241 1,764 Bonefish Grill 427,557 513 410,613 473 Fleming’s Prime Steakhouse & Wine Bar 272,343 — 234,099 — Other 9,046 30 6,756 3 U.S. total 2,920,241 26,801 2,789,142 22,949 International Outback Steakhouse Brazil 291,880 — 178,178 — Other (1) 60,747 11,027 64,076 8,969 International total 352,627 11,027 242,254 8,969 Total $ 3,272,868 $ 37,828 $ 3,031,396 $ 31,918 ________________ (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) SEPTEMBER 25, 2022 DECEMBER 26, 2021 Other current assets, net Deferred gift card sales commissions $ 10,798 $ 17,793 Unearned revenue Deferred gift card revenue $ 283,559 $ 387,945 Deferred loyalty revenue 5,226 9,386 Deferred franchise fees - current 457 443 Other 2,589 1,021 Total unearned revenue $ 291,831 $ 398,795 Other long-term liabilities, net Deferred franchise fees - non-current $ 4,244 $ 4,280 The following table is a rollforward of deferred gift card sales commissions for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Balance, beginning of the period $ 12,338 $ 12,548 $ 17,793 $ 19,300 Deferred gift card sales commissions amortization ( 4,755 ) ( 4,841 ) ( 18,213 ) ( 19,277 ) Deferred gift card sales commissions capitalization 3,836 3,698 13,441 12,494 Other ( 621 ) ( 573 ) ( 2,223 ) ( 1,685 ) Balance, end of the period $ 10,798 $ 10,832 $ 10,798 $ 10,832 11 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 THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Balance, beginning of the period $ 303,544 $ 293,955 $ 387,945 $ 373,048 Gift card sales 46,692 45,036 162,146 153,126 Gift card redemptions ( 63,041 ) ( 61,189 ) ( 252,091 ) ( 237,988 ) Gift card breakage ( 3,636 ) ( 3,598 ) ( 14,441 ) ( 13,982 ) Balance, end of the period $ 283,559 $ 274,204 $ 283,559 $ 274,204 3. Impairments and Exit Costs The components of Provision for impaired assets and restaurant closings are as follows for the period indicated: THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 26, 2021 Impairment losses U.S. $ 8,289 International 180 Corporate 257 Total impairment losses 8,726 Restaurant closure charges (benefits) U.S. 389 International ( 153 ) Total restaurant closure charges 236 Provision for impaired assets and restaurant closings $ 8,962 Impairment and closure charges during the period presented resulted primarily from locations identified for closure. Annual Goodwill and Intangible Asset Impairment Assessment - The Company performs its annual assessment for impairment of goodwill and other indefinite-lived intangible assets during its second fiscal quarter. The Company’s 2022 and 2021 assessments were qualitative. In connection with these assessments, the Company did no t record any impairment charges. Accrued Facility Closure and Other Costs Rollforward - The following table is a rollforward of the Company’s closed facility lease liabilities and other accrued costs associated with the closure and restructuring initiatives for the period indicated: THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 Balance, beginning of the period $ 8,485 Cash payments ( 2,813 ) Accretion 434 Adjustments ( 272 ) Balance, end of the period (1) $ 5,834 ________________ (1) As of September 25, 2022, the Company had exit-related accruals related to certain closure and restructuring initiatives of $ 1.5 million recorded in Accrued and other current liabilities and $ 4.3 million recorded in Non-current operating lease liabilities on its Consolidated Balance Sheet. 12 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 4. 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 . The following table presents the computation of basic and diluted earnings per share for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (in thousands, except per share data) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Net income attributable to Bloomin’ Brands $ 31,986 $ 3,449 $ 43,862 $ 154,856 Convertible senior notes if-converted method interest adjustment, net of tax (1) — — — 460 Diluted net income attributable to Bloomin’ Brands $ 31,986 $ 3,449 $ 43,862 $ 155,316 Basic weighted average common shares outstanding 89,192 89,229 89,149 88,890 Effect of dilutive securities: Stock options 173 864 261 913 Nonvested restricted stock units 117 286 167 380 Nonvested performance-based share units — — 96 31 Convertible senior notes (1)(2) 3,690 10,476 6,732 12,300 Warrants (2) 1,564 6,928 3,204 6,896 Diluted weighted average common shares outstanding 94,736 107,783 99,609 109,410 Basic earnings per share $ 0.36 $ 0.04 $ 0.49 $ 1.74 Diluted earnings per share $ 0.34 $ 0.03 $ 0.44 $ 1.42 ________________ (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 the 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. (2) During the thirty-nine weeks ended September 25, 2022, the Company repurchased $ 125.0 million of the 2025 Notes and retired the corresponding portion of the related warrants. See Note 8 - Convertible Senior Notes for additional details. 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 THIRTY-NINE WEEKS ENDED (shares in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Stock options 2,297 — 2,012 455 Nonvested restricted stock units 150 77 249 53 Nonvested performance-based share units 771 376 574 424 13 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 5. Stock-based Compensation Plans The Company recognized stock-based compensation expense as follows for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Performance-based share units (1) $ 67 $ 3,026 $ 5,526 $ 11,813 Restricted stock units 1,872 2,043 5,709 6,373 Stock options 38 495 470 1,829 $ 1,977 $ 5,564 $ 11,705 $ 20,015 ________________ (1) The thirteen and thirty-nine weeks ended September 25, 2022 include a cumulative life-to-date adjustment to decrease expense for PSUs granted in fiscal year 2020 based on revised Company projections of performance criteria set forth in the award agreements. The thirty-nine weeks ended September 26, 2021 includes a cumulative life-to-date adjustment to increase expense for PSUs granted in fiscal years 2019, 2020 and 2021 based on revised Company projections of performance criteria set forth in the award agreements. 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: THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 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 % for grants during the thirty-nine weeks ended September 25, 2022 and September 26, 2021, respectively. The following represents unrecognized stock-based compensation expense and the remaining weighted average vesting period as of September 25, 2022: UNRECOGNIZED COMPENSATION EXPENSE (dollars in thousands) REMAINING WEIGHTED AVERAGE VESTING PERIOD (in years) Performance-based share units $ 14,620 1.4 Restricted stock units $ 9,673 1.8 14 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 6. Other Current Assets, Net Other current assets, net, consisted of the following as of the periods indicated: (dollars in thousands) SEPTEMBER 25, 2022 DECEMBER 26, 2021 Prepaid expenses $ 31,468 $ 21,194 Accounts receivable - gift cards, net 8,584 91,248 Accounts receivable - vendors, net 18,348 11,793 Accounts receivable - franchisees, net 2,124 1,701 Accounts receivable - other, net 17,322 18,353 Deferred gift card sales commissions 10,798 17,793 Company-owned life insurance policies 7,420 17,244 Other current assets, net 5,575 5,297 $ 101,639 $ 184,623 7. Long-term Debt, Net Following is a summary of outstanding Long-term debt, net as of the periods indicated: SEPTEMBER 25, 2022 DECEMBER 26, 2021 (dollars in thousands) OUTSTANDING BALANCE INTEREST RATE OUTSTANDING BALANCE INTEREST RATE Senior Secured Credit Facility: Term loan A (1) $ — $ 195,000 1.60 % Revolving credit facility (2) 420,000 4.26 % 80,000 3.75 % Total Senior Secured Credit Facility 420,000 275,000 2025 Notes (3) 105,000 5.00 % 230,000 5.00 % 2029 Notes 300,000 5.13 % 300,000 5.13 % Finance lease liabilities 3,816 2,376 Less: unamortized debt discount and issuance costs (4) ( 6,836 ) ( 14,157 ) Less: finance lease interest ( 274 ) ( 154 ) Total debt, net 821,706 793,065 Less: current portion of long-term debt ( 1,481 ) ( 10,958 ) Long-term debt, net $ 820,225 $ 782,107 ________________ (1) Interest rate represents the weighted average interest rate as of December 26, 2021. (2) Interest rate represents the weighted average interest rate as of September 25, 2022 and the base rate option elected in anticipation of impending repayment as of December 26, 2021. (3) During the thirty-nine weeks ended September 25, 2022, the Company repurchased $ 125.0 million of the 2025 Notes. See Note 8 - Convertible Senior Notes for additional details. (4) In connection with the Amended Credit Agreement and the partial repurchase of the 2025 Notes, $ 5.7 million of debt issuance costs were written off during the thirty-nine weeks ended September 25, 2022. See Note 8 - Convertible Senior Notes for additional details. 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”), maturing on April 16, 2026. 15 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 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 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 rate spreads 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. As of September 25, 2022 and December 26, 2021, the Company was in compliance with its debt covenants. Following is a summary of principal payments of the Company’s total consolidated debt outstanding as of the period indicated: (dollars in thousands) SEPTEMBER 25, 2022 Year 1 $ 1,250 Year 2 1,202 Year 3 105,662 Year 4 420,350 Year 5 220 Thereafter 300,132 Total payments 828,816 Less: unamortized debt discount and issuance costs ( 6,836 ) Less: finance lease interest ( 274 ) Total principal payments $ 821,706 8. Convertible Senior Notes 2025 Notes - On May 25, 2022, the Company entered into exchange agreements (the “Exchange Agreements”) with certain holders (the “Noteholders”) of the 2025 Notes. The Noteholders agreed to exchange $ 125.0 million in aggregate principal amount of the Company’s outstanding 2025 Notes for $ 196.9 million in cash, plus accrued interest, and approximately 2.3 million shares of the Company’s common stock (the “2025 Notes Partial Repurchase”). Under the Exchange Agreements, the total amount of cash paid and number of shares of common stock issued by the Company were based upon the volume-weighted average price per share of the Company’s common stock during a ten-trading day averaging period ending on June 14, 2022. Upon entering into the Exchange Agreements, the conversion feature related to the 2025 Notes repurchased, as well as the settlements of the related 16 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued convertible senior note hedges and warrants, were subject to derivative accounting. In connection with the 2025 Notes Partial Repurchase, the Company recognized a loss on extinguishment of debt of $ 104.7 million and a loss on fair value adjustment of derivatives, net of $ 17.7 million, and recorded a $ 48.5 million increase to Additional paid-in capital during the thirty-nine weeks ended September 25, 2022. 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 thirty-nine weeks ended September 25, 2022, the conversion rate for the remaining 2025 Notes decreased to approximately $ 11.66 per share, which represents 85.743 shares of common stock per $ 1,000 principal amount of the 2025 Notes, or a total of approximately 9.003 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) SEPTEMBER 25, 2022 DECEMBER 26, 2021 Long-term debt, net Principal $ 105,000 $ 230,000 Less: debt issuance costs (1) ( 2,132 ) ( 5,898 ) Net carrying amount $ 102,868 $ 224,102 ________________ (1) Debt issuance costs are amortized to Interest expense, net using the effective interest method over the 2025 Notes’ expected life. During the thirty-nine weeks ended September 25, 2022, the Company wrote off $ 2.8 million of debt issuance costs as a result of the 2025 Notes Partial Repurchase. Following is a summary of interest expense for the 2025 Notes, by component for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Coupon interest $ 1,313 $ 2,875 $ 6,785 $ 8,625 Debt issuance cost amortization 190 392 963 1,159 Total interest expense (1) $ 1,503 $ 3,267 $ 7,748 $ 9,784 ________________ (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 September 25, 2022, the remaining holders of the 2025 Notes are eligible to convert their 2025 Notes during the fourth quarter of 2022. Convertible Note Hedge and Warrant Transactions - In connection with the 2025 Notes Partial Repurchase, the Company entered into partial unwind agreements with certain financial institutions relating to a portion of the convertible note hedge transactions (the “Note Hedge Early Termination Agreements”) and a portion of the Warrant Transactions (the “Warrant Early Termination Agreements”) that were previously entered into by the Company in connection with the issuance of the 2025 Notes. Upon settlement, the Company received $ 131.9 million for the Note Hedge Early Termination Agreements and paid $ 114.8 million for the Warrant Early Termination Agreements during the thirty-nine weeks ended September 25, 2022. In connection with the Note Hedge Early Termination Agreements and the Warrant Early Termination Agreements the Company recorded a $ 113.0 million increase and a $ 97.6 million decrease, respectively, to Additional paid-in capital during the thirty-nine weeks ended September 25, 2022. The remaining 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 17 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued dividends paid during the thirty-nine weeks ended September 25, 2022, the strike price for the remaining Warrant Transactions decreased to $16.33. 9. Other Long-term Liabilities, Net Other long-term liabilities, net, consisted of the following as of the periods indicated: (dollars in thousands) SEPTEMBER 25, 2022 DECEMBER 26, 2021 Accrued insurance liability $ 30,419 $ 31,517 Deferred payroll tax liabilities (1) — 27,302 Deferred compensation obligations 28,351 37,514 Other long-term liabilities 28,082 28,909 $ 86,852 $ 125,242 _______________ (1) During the thirty-nine weeks ended September 25, 2022, the Company reclassified $ 27.3 million of payroll taxes deferred under the CARES Act to current. 10. 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 September 25, 2022, $ 44.0 million remained available for repurchase under the 2022 Share Repurchase Program. Following is a summary of the shares repurchased under the 2022 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 551 $ 21.26 $ 11,702 Second fiscal quarter 1,761 $ 20.30 35,749 Third fiscal quarter 1,746 $ 19.21 33,549 Total common stock repurchases (1) 4,058 $ 19.96 $ 81,000 ________________ (1) Subsequent to September 25, 2022, the Company repurchased 682 thousand shares of its common stock for $ 13.8 million under a Rule 10b5-1 plan through October 28, 2022. 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 Second fiscal quarter 0.14 12,418 Third fiscal quarter 0.14 12,475 Total cash dividends declared and paid $ 0.42 $ 37,452 In October 2022, the Board declared a quarterly cash dividend of $ 0.14 per share, payable on November 23, 2022 to shareholders of record at the close of business on November 9, 2022 . 18 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Accumulated Other Comprehensive Loss (“AOCL”) - Following are the components of AOCL as of the periods indicated: (dollars in thousands) SEPTEMBER 25, 2022 DECEMBER 26, 2021 Foreign currency translation adjustment $ ( 185,298 ) $ ( 195,480 ) Unrealized loss on derivatives, net of tax ( 1,542 ) ( 10,509 ) Accumulated other comprehensive loss $ ( 186,840 ) $ ( 205,989 ) Following are the components of Other comprehensive (loss) income attributable to Bloomin’ Brands for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Foreign currency translation adjustment $ ( 13,041 ) $ 1,673 $ 10,182 $ 5,113 Unrealized (loss) gain on derivatives, net of tax — ( 153 ) 573 ( 323 ) Reclassification of adjustments for loss on derivatives included in Net income, net of tax (1) — 1,519 954 6,036 Impact of terminated interest rate swaps included in Net income, net of tax (1) 2,255 1,479 7,440 2,950 Total gain on derivatives, net of tax 2,255 2,845 8,967 8,663 Other comprehensive (loss) income attributable to Bloomin’ Brands $ ( 10,786 ) $ 4,518 $ 19,149 $ 13,776 ________________ (1) See Note 11 - Derivative Instruments and Hedging Activities for the tax impact of reclassifications and the terminated swaps. 11. 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 paid a weighted average fixed rate of 3.04 % on the notional amount and received payments from the counterparty based on one-month LIBOR . During 2021, the Company terminated its variable-to-fixed interest rate swap agreements with certain counterparties and as a result, as of December 26, 2021 had interest rate swap agreements remaining with two counterparties for an aggregate notional amount of $ 125.0 million. 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 loss related to the terminated swap agreements included in Accumulated other comprehensive loss is amortized to Interest expense, net during 2022. The Company’s swap agreements were designated and qualified as cash flow hedges, recognized on its Consolidated Balance Sheet at fair value as of December 26, 2021 and classified based on the instruments’ maturity dates. As of September 25, 2022, the Company estimated $ 2.2 million of interest expense from the terminated swap agreements will be reclassified to Interest expense, net through the November 2022 maturity date of the swaps. 19 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table presents the fair value and classification of the Company’s swap agreements as of the period indicated: (dollars in thousands) DECEMBER 26, 2021 CONSOLIDATED BALANCE SHEET CLASSIFICATION Interest rate swaps - liability (1) $ 3,056 Accrued and other current liabilities Accrued interest $ 276 Accrued and other current liabilities ____________________ (1) See Note 13 - Fair Value Measurements for fair value discussion of the interest rate swaps. The following table summarizes the effects of the swap agreements on Net income for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Interest rate swap agreements: Interest rate swap expense recognized in Interest expense, net $ — $ ( 2,045 ) $ ( 1,284 ) $ ( 8,127 ) Income tax benefit recognized in Provision (benefit) for income taxes — 526 330 2,091 Net effects of interest rate swap agreements $ — $ ( 1,519 ) $ ( 954 ) $ ( 6,036 ) Terminated interest rate swap agreements: Terminated interest rate swap expense recognized in Interest expense, net $ ( 3,034 ) $ ( 1,992 ) $ ( 10,014 ) $ ( 3,973 ) Income tax benefit recognized in Provision (benefit) for income taxes 779 513 2,574 1,023 Net effects of terminated interest rate swap agreements $ ( 2,255 ) $ ( 1,479 ) $ ( 7,440 ) $ ( 2,950 ) Total net effects on Net income $ ( 2,255 ) $ ( 2,998 ) $ ( 8,394 ) $ ( 8,986 ) 12. 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 SEPTEMBER 25, 2022 DECEMBER 26, 2021 Operating lease right-of-use assets Operating lease right-of-use assets $ 1,115,004 $ 1,130,873 Finance lease right-of-use assets (1) Property, fixtures and equipment, net 3,404 2,074 Total lease assets, net $ 1,118,408 $ 1,132,947 Current operating lease liabilities (2) Accrued and other current liabilities $ 181,427 $ 177,028 Current finance lease liabilities Current portion of long-term debt 1,481 958 Non-current operating lease liabilities (2) Non-current operating lease liabilities 1,160,392 1,178,998 Non-current finance lease liabilities Long-term debt, net 2,061 1,264 Total lease liabilities $ 1,345,361 $ 1,358,248 ________________ (1) Net of accumulated amortization of $ 3.4 million and $ 3.3 million as of September 25, 2022 and December 26, 2021, respectively. (2) Excludes current accrued contingent percentage rent of $ 3.3 million and $ 3.5 million, as of September 25, 2022 and December 26, 2021, respectively, and immaterial current and non-current COVID-19-related deferred rent accruals. 20 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 THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Operating leases (1) Other restaurant operating $ 45,817 $ 44,807 $ 136,757 $ 133,362 Variable lease cost (2) Other restaurant operating 1,519 1,574 5,021 3,082 Finance leases: Amortization of leased assets Depreciation and amortization 355 280 1,048 800 Interest on lease liabilities Interest expense, net 44 34 120 101 Sublease revenue Franchise and other revenues ( 2,455 ) ( 3,276 ) ( 7,449 ) ( 6,936 ) Lease costs, net $ 45,280 $ 43,419 $ 135,497 $ 130,409 ________________ (1) Excludes rent expense for office facilities and Company-owned closed or subleased properties of $ 3.1 million and $ 3.2 million for the thirteen weeks ended September 25, 2022 and September 26, 2021, respectively, and $ 9.1 million and $ 9.9 million for the thirty-nine weeks ended September 25, 2022 and September 26, 2021, respectively, which is included in General and administrative expense. (2) Includes COVID-19-related rent abatements for the thirteen and thirty-nine weeks ended September 26, 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: THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Cash flows from operating activities: Cash paid for amounts included in the measurement of operating lease liabilities $ 145,797 $ 155,661 13. 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 21 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: SEPTEMBER 25, 2022 DECEMBER 26, 2021 (dollars in thousands) TOTAL LEVEL 1 TOTAL LEVEL 1 LEVEL 2 Assets: Cash equivalents: Fixed income funds $ 6,277 $ 6,277 $ 6,714 $ 6,714 $ — Money market funds 10,254 10,254 9,039 9,039 — Restricted cash equivalents: Money market funds 143 143 1,472 1,472 — Total asset recurring fair value measurements $ 16,674 $ 16,674 $ 17,225 $ 17,225 $ — Liabilities: Accrued and other current liabilities: Derivative instruments - interest rate swaps $ — $ — $ 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 December 26, 2021, the Company has determined that the credit valuation adjustments are not significant to the overall valuation of its derivatives. Fair Value Measurements on a Nonrecurring Basis - Assets and liabilities that are measured at fair value on a nonrecurring basis relate primarily to property, fixtures and equipment, operating lease right-of-use assets, goodwill and other intangible assets, which are remeasured when carrying value exceeds fair value. Carrying value after impairment approximates fair value. The following table summarizes the Company’s assets measured at fair value by hierarchy level on a nonrecurring basis for the period indicated: THIRTY-NINE WEEKS ENDED SEPTEMBER 26, 2021 (dollars in thousands) REMAINING CARRYING VALUE (1) TOTAL IMPAIRMENT Operating lease right-of-use assets $ 7,651 $ 1,466 Property, fixtures and equipment 8,928 7,260 $ 16,579 $ 8,726 ________________ (1) All asset carrying values measured using discounted cash flow models (Level 3). 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. 22 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Debt is carried at amortized cost; however, the Company estimates the fair value of debt for disclosure purposes. The following table includes the carrying value and fair value of the Company’s debt by hierarchy level as of the periods indicated: SEPTEMBER 25, 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 $ — $ — $ 195,000 $ 190,125 Revolving credit facility $ 420,000 $ 409,500 $ 80,000 $ 76,926 2025 Notes $ 105,000 $ 178,869 $ 230,000 $ 447,615 2029 Notes $ 300,000 $ 252,471 $ 300,000 $ 304,395 14. Income Taxes THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Income before provision (benefit) for income taxes $ 38,613 $ 597 $ 82,092 $ 184,562 Provision (benefit) for income taxes $ 5,563 $ ( 4,454 ) $ 33,028 $ 24,827 Effective income tax rate 14.4 % (NM) 40.2 % 13.5 % ________________ NM Not meaningful. The provision for income taxes for the thirteen weeks ended September 25, 2022 increased primarily due to higher pre-tax book income across the Company’s U.S. and international subsidiaries. The benefit for income taxes for the thirteen weeks ended September 26, 2021 includes the impact of changes to the estimate of the forecasted full-year effective tax rate relative to prior quarters in 2021. The effective income tax rate for the thirty-nine weeks ended September 25, 2022 increased by 26.7 percentage points as compared to the thirty-nine weeks ended September 26, 2021. The increase was primarily due to the non-deductible losses associated with the 2025 Notes Partial Repurchase recorded during the thirty-nine weeks ended September 25, 2022. On September 16, 2022, the Company’s Brazilian subsidiary was granted a preliminary injunction granting it eligibility to benefit from a recent law in Brazil that established several emergency actions by the government to offset the economic effects of the COVID-19 pandemic for the tourism and events sector. The new law introduced a 100% exemption from Brazilian corporate income tax (IRPJ and CSLL) and federal value-added taxes (PIS and COFINS) for a period of 5 years. The injunction was issued as part of an ongoing lawsuit initiated by the Company’s Brazilian subsidiary due to the uncertainty regarding the restaurant industry’s eligibility for this exemption. The Company has not recognized a financial impact for the thirteen-week period ended September 25, 2022 as the Company continues to evaluate the exemption, the uncertainty and impacts of the injunction, and the best courses of action moving forward. A restaurant company employer may claim a credit against its federal income taxes for FICA taxes paid on certain tipped wages (the “FICA tax credit”). The level of FICA tax credits is primarily driven by U.S. Restaurant sales and is not impacted by costs incurred that may reduce pre-tax income. The effective income tax rate for the thirteen weeks ended September 25, 2022 was lower than the Company’s blended federal and state statutory rate of approximately 26 % primarily due to the benefit of FICA tax credits on certain tipped wages. 23 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The effective income tax rate for the thirty-nine weeks ended September 25, 2022 was higher than the statutory rate primarily due to the non-deductible losses associated with the 2025 Notes Partial Repurchase recorded during the thirty-nine weeks ended September 25, 2022. The effective income tax rates for the thirteen and thirty-nine weeks ended September 26, 2021 were lower than the statutory rate primarily due to the benefit of FICA tax credits on certain tipped wages. 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-2022 foreign taxes paid will not be creditable in the United States. Furthermore, the impact of these regulations will result in the utilization 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 has been released during the thirty-nine weeks ended September 25, 2022. 15. 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 $ 8.6 million and $ 7.1 million for certain of its outstanding legal proceedings as of September 25, 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. 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, 24 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued 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 September 25, 2022, the undiscounted payments that the Company could be required to make in the event of non-payment by the primary lessees was approximately $ 22.4 million. The present value of these potential payments discounted at the Company’s incremental borrowing rate as of September 25, 2022 was approximately $ 15.7 million. In the event of default, the indemnity clauses in the Company’s purchase and sale agreements generally govern its ability to pursue and recover damages incurred. As of September 25, 2022 and December 26, 2021, the Company’s recorded contingent lease liability was $ 7.5 million and $ 8.7 million, respectively. Royalty Termination - In August 2021, wholly-owned subsidiaries of the Company entered into the Purchase and Sale of Royalty Payment Stream and Termination of Royalty Agreement (the “Royalty Termination Agreement”) with the Carrabba’s Italian Grill founders (the “Carrabba’s Founders”), pursuant to which the Company’s obligation to pay future royalties on U.S. Carrabba’s Italian Grill restaurant sales and lump sum royalty fees on Carrabba’s Italian Grill (and Abbraccio) restaurants opened outside the U.S. was terminated. Upon execution of the Royalty Termination Agreement, the Company made a cash payment of $ 61.9 million to the Carrabba’s Founders, which was recorded in Other restaurant operating expense in its Consolidated Statements of Operations and Comprehensive Income during the thirteen weeks ended September 26, 2021. 16. Segment Reporting 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, certain insurance expenses and certain bonus expenses. The following table is a summary of Total revenues by segment for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Total revenues U.S. $ 922,521 $ 912,733 $ 2,957,555 $ 2,820,709 International 133,242 97,730 363,905 254,593 Total revenues $ 1,055,763 $ 1,010,463 $ 3,321,460 $ 3,075,302 25 Table of Contents BLOOMIN’ BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued The following table is a reconciliation of segment income from operations to Income before provision (benefit) for income taxes for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Segment income from operations U.S. $ 68,501 $ 47,294 $ 305,347 $ 334,326 International 15,849 1,412 38,859 7,419 Total segment income from operations 84,350 48,706 344,206 341,745 Unallocated corporate operating expense ( 33,041 ) ( 33,869 ) ( 97,922 ) ( 111,273 ) Total income from operations 51,309 14,837 246,284 230,472 Loss on extinguishment and modification of debt — — ( 107,630 ) ( 2,073 ) Loss on fair value adjustment of derivatives, net — — ( 17,685 ) — Other income, net — 5 — 26 Interest expense, net ( 12,696 ) ( 14,245 ) ( 38,877 ) ( 43,863 ) Income before provision (benefit) for income taxes $ 38,613 $ 597 $ 82,092 $ 184,562 The following table is a summary of Depreciation and amortization expense by segment for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Depreciation and amortization U.S. $ 34,432 $ 33,422 $ 102,735 $ 100,645 International 5,882 5,842 17,438 17,128 Corporate 1,857 1,563 5,030 4,819 Total depreciation and amortization $ 42,171 $ 40,827 $ 125,203 $ 122,592 26 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS