Bloomin' Brands, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s discussion and analysis of financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and the related notes. Unless the context otherwise indicates, as used in this report, the term the “Company,” “we,” “us,” “our” and other similar terms mean Bloomin’ Brands, Inc. and its subsidiaries. Cautionary Statement This Quarterly Report on Form 10-Q (the “Report”) includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “feels,” “seeks,” “forecasts,” “projects,” “intends,” “plans,” “may,” “will,” “should,” “could” or “would” or, in each case, their negative or other variations or comparable terminology, although not all forward-looking statements are accompanied by such terms. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this Report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Although we base these forward-looking statements on assumptions that we believe are reasonable when made, we caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and industry developments may differ materially from statements made in or suggested by the forward-looking statements contained in this Report. In addition, even if our results of operations, financial condition and liquidity, and industry developments are consistent with the forward-looking statements contained in this Report, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause actual results to differ materially from statements made or suggested by forward-looking statements include, but are not limited to, the following: (i) Consumer reactions to public health and food safety issues; (ii) The severity, extent and duration of the COVID-19 pandemic, its impacts on our business and results of operations, financial condition and liquidity, including any adverse impact on our stock price and on the other factors listed below, and the responses of domestic and foreign federal, state and local governments to the pandemic; (iii) Minimum wage increases, additional mandated employee benefits and fluctuations in the cost and availability of employees; (iv) Fluctuations in the price and availability of commodities, including supplier freight charges and restaurant distribution expenses, and other impacts of inflation; (v) Our ability to compete in the highly competitive restaurant industry with many well-established competitors and new market entrants; 27 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (vi) Economic conditions and their effects on consumer confidence and discretionary spending, consumer traffic, the cost and availability of credit and interest rates; (vii) Our ability to recruit and retain high-quality leadership, restaurant-level management and team members; (viii) Our ability to preserve and grow the reputation and value of our brands, particularly in light of changes in consumer engagement with social media platforms and limited control with respect to the operations of our franchisees; (ix) Our ability to protect our information technology systems from interruption or security breach, including cyber security threats, and to protect consumer data and personal employee information; (x) Dependence on a limited number of suppliers and distributors to meet our beef, chicken and other major product supply needs; (xi) The effects of international economic, political and social conditions and legal systems on our foreign operations and on foreign currency exchange rates; (xii) Our ability to comply with governmental laws and regulations, the costs of compliance with such laws and regulations and the effects of changes to applicable laws and regulations, including tax laws and unanticipated liabilities, and the impact of any litigation; (xiii) Our ability to effectively respond to changes in patterns of consumer traffic, consumer tastes and dietary habits, including by maintaining relationships with third party delivery apps and services; (xiv) Our ability to implement our remodeling, relocation and expansion plans due to uncertainty in locating and acquiring attractive sites on acceptable terms, obtaining required permits and approvals, recruiting and training necessary personnel, obtaining adequate financing and estimating the performance of newly opened, remodeled or relocated restaurants; (xv) Seasonal and periodic fluctuations in our results and the effects of significant adverse weather conditions and other disasters or unforeseen events; (xvi) The effects of our leverage and restrictive covenants in our various credit facilities on our ability to raise additional capital to fund our operations, to make capital expenditures to invest in new or renovate restaurants and to react to changes in the economy or our industry; (xvii) Any impairment in the carrying value of our goodwill or other intangible or long-lived assets and its effect on our financial condition and results of operations; and (xviii) Such other factors as discussed in Part I, Item IA. Risk Factors of our Annual Report on Form 10-K for the year ended December 26, 2021. Given these risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. Any forward-looking statement that we make in this Report speaks only as of the date of such statement, and we undertake no obligation to update any forward-looking statement or to publicly announce the results of any revision to any of those statements to reflect future events or developments. Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless specifically expressed as such, and should only be viewed as historical data. 28 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Overview We are one of the largest casual dining restaurant companies in the world with a portfolio of leading, differentiated restaurant concepts. As of September 25, 2022, we owned and operated 1,176 full-service restaurants and off-premises only kitchens and franchised 332 full-service restaurants and off-premises only kitchens across 47 states, Guam and 15 countries. We have four founder-inspired concepts: Outback Steakhouse, Carrabba’s Italian Grill, Bonefish Grill and Fleming’s Prime Steakhouse & Wine Bar. Financial Highlights - Our financial highlights for the thirteen weeks ended September 25, 2022 include the following: • U.S. combined and Outback Steakhouse comparable restaurant sales of 1.4% and 2.3%, respectively; • Increase in Total revenues of 4.5%, as compared to the third quarter of 2021; • Operating income and restaurant-level operating margins of 4.9% and 13.1%, respectively, as compared to 1.5% and 10.3%, respectively, for the third quarter of 2021; • Operating income of $51.3 million, as compared to $14.8 million in the third quarter of 2021; and • Diluted earnings per share of $0.34 as compared to $0.03 for the third quarter of 2021. Key Financial Performance Indicators - Key measures that we use in evaluating our restaurants and assessing our business include the following: • Average restaurant unit volumes — average sales (excluding gift card breakage) per restaurant to measure changes in customer traffic, pricing and development of the brand; • Comparable restaurant sales — year-over-year comparison of the change in sales volumes (excluding gift card breakage) for Company-owned restaurants that are open 18 months or more in order to remove the impact of new restaurant openings in comparing the operations of existing restaurants; • System-wide sales — total restaurant sales volume for all Company-owned and franchise restaurants, regardless of ownership, to interpret the overall health of our brands; • Restaurant-level operating margin, Income from operations, Net income and Diluted earnings per share — financial measures utilized to evaluate our operating performance. Restaurant-level operating margin is a non-GAAP financial measure widely regarded in the industry as a useful metric to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these purposes, overall and particularly within our two segments. Our restaurant-level operating margin is expressed as the percentage of our Restaurant sales that Food and beverage costs, Labor and other related expenses and Other restaurant operating expenses (including advertising expenses) represent, in each case as such items are reflected in our Consolidated Statements of Operations and Comprehensive Income. The following categories of our revenue and operating expenses are not included in restaurant-level operating margin because we do not consider them reflective of operating performance at the restaurant-level within a period: (i) Franchise and other revenues which are earned primarily from franchise royalties and other non-food and beverage revenue streams, such as rental and sublease income; (ii) Depreciation and amortization which, although substantially all of which is related to restaurant-level assets, represent historical sunk costs rather than cash outlays for the restaurants; (iii) General and administrative expense which includes primarily non-restaurant-level costs associated with support of the restaurants and other activities at our corporate offices; and 29 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued (iv) Asset impairment charges and restaurant closing costs which are not reflective of ongoing restaurant performance in a period. Restaurant-level operating margin excludes various expenses, as discussed above, that are essential to support the operations of our restaurants and may materially impact our Consolidated Statements of Operations and Comprehensive Income. As a result, restaurant-level operating margin is not indicative of our consolidated results of operations and is presented exclusively as a supplement to, and not a substitute for, Net income or Income from operations. In addition, our presentation of restaurant-level operating margin may not be comparable to similarly titled measures used by other companies in our industry; • Adjusted restaurant-level operating margin, Adjusted income from operations, Adjusted net income and Adjusted diluted earnings per share — non-GAAP financial measures utilized to evaluate our operating performance. We believe that our use of these non-GAAP financial measures permits investors to assess the operating performance of our business relative to our performance based on U.S. GAAP results and relative to other companies within the restaurant industry by isolating the effects of certain items that may vary from period to period without correlation to core operating performance or that vary widely among similar companies. However, our inclusion of these adjusted measures should not be construed as an indication that our future results will be unaffected by unusual or infrequent items or that the items for which we have made adjustments are unusual or infrequent or will not recur. We believe that the disclosure of these non-GAAP measures is useful to investors as they form part of the basis for how our management team and Board evaluate our operating performance, allocate resources and administer employee incentive plans. 30 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Selected Operating Data - The table below presents the number of our full-service restaurants in operation as of the periods indicated: Number of restaurants (at end of the period): SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 U.S. Outback Steakhouse Company-owned 564 564 Franchised 128 130 Total 692 694 Carrabba’s Italian Grill Company-owned 199 199 Franchised 19 20 Total 218 219 Bonefish Grill Company-owned 173 178 Franchised 7 7 Total 180 185 Fleming’s Prime Steakhouse & Wine Bar Company-owned 64 64 Aussie Grill Company-owned (1) 5 4 U.S. total 1,159 1,166 International Company-owned Outback Steakhouse - Brazil (2) 137 113 Other (1)(2)(3) 33 33 Franchised Outback Steakhouse - South Korea (1) 83 77 Other (3) 50 54 International total 303 277 System-wide total 1,462 1,443 System-wide total - Company-owned 1,175 1,155 System-wide total - Franchised 287 288 ____________________ (1) Previously presented restaurant counts as of September 26, 2021 have been adjusted to exclude off-premises only locations included in the table below. (2) The restaurant counts for Brazil, including Abbraccio restaurants within International Company-owned Other, are reported as of August 31, 2022 and 2021, respectively, to correspond with the balance sheet dates of this subsidiary. (3) International Company-owned Other included two Aussie Grill locations as of September 25, 2022 and September 26, 2021. International Franchised Other included three Aussie Grill locations as of September 25, 2022 and September 26, 2021. The table below presents the number of our off-premises only kitchens in operation as of the periods indicated: Number of kitchens (at end of the period) (1): SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 U.S. Company-owned 1 3 International Company-owned — 1 Franchised - South Korea 45 37 System-wide total 46 41 ____________________ (1) Excludes virtual concepts that operate out of existing restaurants and sports venue locations. 31 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Results of Operations The following table sets forth the percentages of certain items in our Consolidated Statements of Operations in relation to Total revenues or Restaurant sales for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Revenues Restaurant sales 98.5 % 98.6 % 98.5 % 98.6 % Franchise and other revenues 1.5 1.4 1.5 1.4 Total revenues 100.0 100.0 100.0 100.0 Costs and expenses Food and beverage costs (1) 32.0 30.5 32.3 30.0 Labor and other related (1) 29.1 29.1 28.2 28.4 Other restaurant operating (1) 25.8 30.1 24.2 25.2 Depreciation and amortization 4.0 4.0 3.8 4.0 General and administrative 5.3 5.8 5.2 5.9 Provision for impaired assets and restaurant closings 0.2 0.2 0.1 0.3 Total costs and expenses 95.1 98.5 92.6 92.5 Income from operations 4.9 1.5 7.4 7.5 Loss on extinguishment and modification of debt — — (3.1) (0.1) Loss on fair value adjustment of derivatives, net — — (0.5) — Other income, net — * — * Interest expense, net (1.2) (1.4) (1.3) (1.4) Income before provision (benefit) for income taxes 3.7 0.1 2.5 6.0 Provision (benefit) for income taxes 0.6 (0.4) 1.0 0.8 Net income 3.1 0.5 1.5 5.2 Less: net income attributable to noncontrolling interests 0.1 0.2 0.2 0.2 Net income attributable to Bloomin’ Brands 3.0 % 0.3 % 1.3 % 5.0 % ________________ (1) As a percentage of Restaurant sales. * Less than 1/10 th of one percent of Total revenues. REVENUES Restaurant sales Following is a summary of the change in Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 26, 2021 $ 996.7 $ 3,031.4 Change from: Comparable restaurant sales (1) 34.9 212.6 Restaurant openings (1) 18.0 46.0 Restaurant closures (1) (8.2) (24.7) Effect of foreign currency translation (1.0) 7.6 For the periods ended September 25, 2022 $ 1,040.4 $ 3,272.9 ____________________ (1) Summation of quarterly changes for restaurant openings, closures and comparable restaurant sales will not total to annual amounts as the restaurants that meet the definition of each will differ each period based on when the restaurant opened or closed. 32 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The increase in Restaurant sales during the thirteen weeks ended September 25, 2022 was primarily due to higher comparable restaurant sales and the opening of 42 new restaurants not included in our comparable restaurant sales base. The increase in Restaurant sales was partially offset by the closure of 22 restaurants since June 27, 2021. The increase in Restaurant sales during the thirty-nine weeks ended September 25, 2022 was primarily due to: (i) higher comparable restaurant sales, (ii) the opening of 54 new restaurants not included in our comparable restaurant sales base and (iii) the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. The increase in Restaurant sales was partially offset by the closure of 25 restaurants since December 27, 2020. Average Restaurant Unit Volumes and Operating Weeks Following is a summary of the average restaurant unit volumes and operating weeks for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Average restaurant unit volumes (weekly): U.S. Outback Steakhouse $ 72,834 $ 70,849 $ 77,106 $ 74,163 Carrabba’s Italian Grill $ 62,010 $ 61,518 $ 65,309 $ 62,910 Bonefish Grill $ 57,998 $ 57,844 $ 62,811 $ 58,626 Fleming’s Prime Steakhouse & Wine Bar $ 97,053 $ 95,777 $ 109,112 $ 94,064 International Outback Steakhouse - Brazil (1) $ 60,711 $ 49,841 $ 58,722 $ 40,848 Operating weeks: U.S. Outback Steakhouse 7,331 7,344 21,968 22,089 Carrabba’s Italian Grill 2,576 2,587 7,741 7,761 Bonefish Grill 2,253 2,327 6,807 7,004 Fleming’s Prime Steakhouse & Wine Bar 832 832 2,496 2,489 International Outback Steakhouse - Brazil 1,745 1,485 4,971 4,362 ____________________ (1) Translated at average exchange rates of 5.18 and 5.15 for the thirteen weeks ended September 25, 2022 and September 26, 2021, respectively, and 5.16 and 5.27 for the thirty-nine weeks ended September 25, 2022 and September 26, 2021, respectively. 33 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Comparable Restaurant Sales, Traffic and Average Check Per Person Increases (Decreases) Following is a summary of comparable restaurant sales, traffic and average check per person increases (decreases) for the periods indicated: THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Year over year percentage change: Comparable restaurant sales (stores open 18 months or more): U.S. (1) Outback Steakhouse 2.3 % 18.3 % 3.4 % 25.3 % Carrabba’s Italian Grill 0.7 % 28.8 % 3.6 % 35.1 % Bonefish Grill (0.9) % 36.6 % 5.9 % 41.2 % Fleming’s Prime Steakhouse & Wine Bar 1.3 % 59.6 % 15.7 % 56.9 % Combined U.S. 1.4 % 25.5 % 4.8 % 31.4 % International Outback Steakhouse - Brazil (2) 30.1 % 109.8 % 48.7 % 29.4 % Traffic: U.S. Outback Steakhouse (6.8) % 14.8 % (5.5) % 19.6 % Carrabba’s Italian Grill (8.4) % 27.1 % (4.4) % 27.0 % Bonefish Grill (8.3) % 25.6 % (3.3) % 23.4 % Fleming’s Prime Steakhouse & Wine Bar (4.8) % 48.4 % 5.8 % 38.1 % Combined U.S. (7.2) % 19.3 % (4.7) % 21.9 % International Outback Steakhouse - Brazil 16.7 % 62.5 % 32.1 % 25.2 % Average check per person (3): U.S. Outback Steakhouse 9.1 % 3.5 % 8.9 % 5.7 % Carrabba’s Italian Grill 9.1 % 1.7 % 8.0 % 8.1 % Bonefish Grill 7.4 % 11.0 % 9.2 % 17.8 % Fleming’s Prime Steakhouse & Wine Bar 6.1 % 11.2 % 9.9 % 18.8 % Combined U.S. 8.6 % 6.2 % 9.5 % 9.5 % International Outback Steakhouse - Brazil 13.1 % 45.5 % 16.5 % 5.5 % ____________________ (1) Relocated restaurants closed more than 60 days are excluded from comparable restaurant sales until at least 18 months after reopening. (2) Excludes the effect of fluctuations in foreign currency rates. Includes trading day impact from calendar period reporting. (3) Includes the impact of menu pricing changes, product mix and discounts. The thirteen weeks ended December 25, 2022 will include the impact of Hurricane Ian which is estimated to be 0.3% to U.S. comparable sales and approximately $0.03 to diluted earnings per share, inclusive of storm-related costs. 34 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Franchise and other revenues THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Franchise revenues $ 11.8 $ 12.9 $ 37.8 $ 31.9 Other revenues (1) 3.6 0.8 10.8 12.0 Franchise and other revenues $ 15.4 $ 13.7 $ 48.6 $ 43.9 ____________________ (1) The thirteen and thirty-nine weeks ended September 26, 2021 include an adjustment of $(3.2) million to reduce our initial recorded estimate and net $3.1 million benefit, respectively, from the recognition of recoverable PIS and COFINS taxes within other revenues recognized in connection with favorable court rulings in Brazil regarding the calculation methodology and taxable base for prior years. COSTS AND EXPENSES Food and beverage costs THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE Food and beverage costs $ 332.9 $ 304.3 $ 1,056.8 $ 908.3 % of Restaurant sales 32.0 % 30.5 % 1.5 % 32.3 % 30.0 % 2.3 % Food and beverage costs increased as a percentage of Restaurant sales during the thirteen weeks ended September 25, 2022 as compared to the thirteen weeks ended September 26, 2021 primarily due to 3.5% from commodity inflation and 0.5% from product mix. These increases were partially offset by decreases as a percentage of Restaurant sales of 2.2% from increases in average check per person, primarily driven by an increase in menu pricing, and 0.3% from the impact of certain cost saving initiatives. Food and beverage costs increased as a percentage of Restaurant sales during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 primarily due to 4.0% from commodity inflation, partially offset by a decrease as a percentage of Restaurant sales of 1.8% from increases in average check per person, primarily driven by an increase in menu pricing. In aggregate, menu pricing increases during 2022 have trailed the current level of commodity inflation. Labor and other related expenses THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE Labor and other related $ 303.2 $ 290.2 $ 924.5 $ 859.9 % of Restaurant sales 29.1 % 29.1 % — % 28.2 % 28.4 % (0.2) % Labor and other related expenses were flat as a percentage of Restaurant sales during the thirteen weeks ended September 25, 2022 as compared to the thirteen weeks ended September 26, 2021 primarily due to decreases of 1.7% from leveraging increased restaurant sales due to increases in average check per person and lapping the impact of COVID-19, primarily in Brazil. These decreases were partially offset by an increase as a percentage of Restaurant sales of 1.8% from higher labor costs primarily due to wage rate inflation. Labor and other related expenses decreased as a percentage of Restaurant sales during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 primarily due to 2.0% from 35 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued leveraging increased restaurant sales due to increases in average check per person and lapping the impact of COVID-19, primarily in Brazil. These decreases were offset by an increase as a percentage of Restaurant sales of 2.0% from higher labor cost primarily due to wage rate inflation. Other restaurant operating expenses THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE Other restaurant operating $ 267.9 $ 299.8 $ 790.6 $ 762.5 % of Restaurant sales 25.8 % 30.1 % (4.3) % 24.2 % 25.2 % (1.0) % During the thirteen weeks ended September 26, 2021, we entered into the Royalty Termination Agreement with the Carrabba’s Founders for $61.9 million in cash. See Note 15 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional details. Other restaurant operating expenses decreased as a percentage of Restaurant sales during the thirteen weeks ended September 25, 2022 as compared to the thirteen weeks ended September 26, 2021 primarily due to 6.2% from lapping the Carrabba’s Italian Grill royalty termination and 0.9% from leveraging increased restaurant sales due to lapping the impact of COVID-19, primarily in Brazil, and increases in average check per person. These decreases were partially offset by increases as a percentage of Restaurant sales of 1.5% from higher operating expenses including utilities, primarily due to inflation, and 1.1% from higher advertising expense. Other restaurant operating expenses decreased as a percentage of Restaurant sales during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 primarily due to 2.0% from lapping the Carrabba’s Italian Grill royalty termination, and 1.5% from leveraging increased restaurant sales due to increases in average check per person and lapping the impact of COVID-19, primarily in Brazil. These decreases were partially offset by increases as a percentage of Restaurant sales of 1.5% from higher operating expenses including utilities, primarily due to inflation, and 0.8% from higher advertising expense. General and administrative General and administrative expense includes salaries and benefits, management incentive programs, related payroll tax and benefits, other employee-related costs and professional services. Following is a summary of the change in General and administrative expense for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 26, 2021 $ 58.9 $ 182.6 Change from: Employee stock-based compensation (3.6) (8.3) Incentive compensation (2.8) (10.4) Compensation, benefits and payroll tax 2.3 6.0 Travel and entertainment 1.1 4.1 Other 0.2 — For the periods ended September 25, 2022 $ 56.1 $ 174.0 36 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Provision for impaired assets and restaurant closings THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE Provision for impaired assets and restaurant closings $ 2.1 $ 1.6 $ 0.5 $ 4.1 $ 9.0 $ (4.9) Impairment and closure charges during the periods presented resulted primarily from locations identified for closure. Income from operations THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE Income from operations $ 51.3 $ 14.8 $ 36.5 $ 246.3 $ 230.5 $ 15.8 % of Total revenues 4.9 % 1.5 % 3.4 % 7.4 % 7.5 % (0.1) % The increase in Income from operations generated during the thirteen weeks ended September 25, 2022 as compared to the thirteen weeks ended September 26, 2021 was primarily due to: (i) lapping the Carrabba’s Italian Grill royalty termination, (ii) increases in average check per person, (iii) lapping the impact of COVID-19, primarily in Brazil, and (iv) lower share-based and incentive compensation. These increases were partially offset by: (i) commodity inflation, (ii) higher labor cost primarily due to wage rate inflation, (iii) higher operating expenses including utilities, primarily due to inflation, and (iv) an increase in advertising costs. The increase in Income from operations generated during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 was primarily due to: (i) increases in average check per person, (ii) lapping the Carrabba’s Italian Grill royalty termination, (iii) lapping the impact of COVID-19, primarily in Brazil, and (iv) lower share-based and incentive compensation. These increases were partially offset by: (i) commodity inflation, (ii) higher labor cost primarily due to wage rate inflation, (iii) higher operating expenses including utilities, primarily due to inflation, and (iv) an increase in advertising costs. Loss on extinguishment and modification of debt and Loss on fair value adjustment of derivatives, net In connection with the 2025 Notes Partial Repurchase, we 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 during the thirty-nine weeks ended September 25, 2022. See Note 8 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for additional details. Interest expense, net THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE Interest expense, net $ 12.7 $ 14.2 $ (1.5) $ 38.9 $ 43.9 $ (5.0) The decrease in Interest expense, net for the thirteen weeks ended September 25, 2022 as compared to the thirteen weeks ended September 26, 2021 was primarily due to: (i) the 2025 Notes Partial Repurchase in May 2022, (ii) repayment of the Term loan A in April 2022 and (iii) the impact of our April 2021 interest rate swap terminations. These decreases were partially offset by increases in interest expense from higher balances and interest rates on revolver debt. 37 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The decrease in Interest expense, net for the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 was primarily due to the repayment of Term loan A in April 2022 and the 2025 Notes Partial Repurchase in May 2022. These decreases were partially offset by increases from the issuance of the 2029 Notes in April 2021. Provision (benefit) for income taxes THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 CHANGE Income before provision (benefit) for income taxes $ 38.6 $ 0.6 $ 38.0 $ 82.1 $ 184.6 $ (102.5) Provision (benefit) for income taxes $ 5.6 $ (4.5) $ 10.1 $ 33.0 $ 24.8 $ 8.2 Effective income tax rate 14.4 % (NM) NM 40.2 % 13.5 % 26.7 % ________________ 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 our 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. SEGMENT PERFORMANCE The following is a summary of reporting segments: REPORTABLE SEGMENT (1) CONCEPT GEOGRAPHIC LOCATION U.S. Outback Steakhouse United States of America Carrabba’s Italian Grill Bonefish Grill Fleming’s Prime Steakhouse & Wine Bar International Outback Steakhouse Brazil, Hong Kong/China Carrabba’s Italian Grill (Abbraccio) Brazil _________________ (1) Includes franchise locations. Revenues for both segments include only transactions with customers and exclude intersegment revenues. Excluded from Income 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. Refer to Note 16 - Segment Reporting of the Notes to Consolidated Financial Statements for reconciliations of segment income from operations to the consolidated operating results. Restaurant-level operating margin is widely regarded in the industry as a useful non-GAAP measure to evaluate restaurant-level operating efficiency and performance of ongoing restaurant-level operations, and we use it for these 38 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued purposes, overall and particularly within our two segments. See the Overview-Key Financial Performance Indicators and Non-GAAP Financial Measures sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional details regarding the calculation of restaurant-level operating margin. U.S. Segment 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 $ 910,679 $ 898,790 $ 2,920,241 $ 2,789,142 Franchise and other revenues 11,842 13,943 37,314 31,567 Total revenues $ 922,521 $ 912,733 $ 2,957,555 $ 2,820,709 Restaurant-level operating margin 12.7 % 10.0 % 15.2 % 17.1 % Income from operations $ 68,501 $ 47,294 $ 305,347 $ 334,326 Operating income margin 7.4 % 5.2 % 10.3 % 11.9 % Restaurant sales Following is a summary of the change in U.S. segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED (1) THIRTY-NINE WEEKS ENDED (1) For the periods ended September 26, 2021 $ 898.8 $ 2,789.1 Change from: Comparable restaurant sales 12.8 135.1 Restaurant openings 7.3 20.7 Restaurant closures (8.2) (24.7) For the periods ended September 25, 2022 $ 910.7 $ 2,920.2 ____________________ (1) Summation of quarterly changes will not total to annual amounts as the restaurants that meet the definition of each change category will differ each period based on when the restaurant opened or closed. The increase in U.S. Restaurant sales during the thirteen weeks ended September 25, 2022 was primarily due to higher comparable restaurant sales and the opening of 13 new restaurants not included in our comparable restaurant sales base. The increase was partially offset by the closure of 21 restaurants since June 27, 2021. The increase in U.S. Restaurant sales during the thirty-nine weeks ended September 25, 2022 was primarily due to higher comparable restaurant sales and the opening of 16 new restaurants not included in our comparable restaurant sales base. The increase in U.S. Restaurant sales was partially offset by the closure of 24 restaurants since December 27, 2020. Income from operations The increase in U.S. Income from operations generated during the thirteen weeks ended September 25, 2022 as compared to the thirteen weeks ended September 26, 2021 was primarily due to lapping the Carrabba’s Italian Grill royalty termination and increases in average check per person. These increases were partially offset by: (i) commodity inflation, (ii) higher labor cost primarily due to wage rate inflation, (iii) higher operating expenses including utilities and (iv) higher advertising expense. 39 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The decrease in U.S. Income from operations generated during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 was primarily due to: (i) commodity inflation, (ii) higher labor cost primarily due to wage rate inflation, (iii) higher operating expenses including utilities and (iv) higher advertising expense. These decreases were partially offset by increases in average check per person and lapping the Carrabba’s Italian Grill royalty termination. International Segment 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 $ 129,696 $ 97,928 $ 352,627 $ 242,254 Franchise and other revenues 3,546 (198) 11,278 12,339 Total revenues $ 133,242 $ 97,730 $ 363,905 $ 254,593 Restaurant-level operating margin 18.5 % 12.8 % 17.8 % 10.7 % Income from operations $ 15,849 $ 1,412 $ 38,859 $ 7,419 Operating income margin 11.9 % 1.4 % 10.7 % 2.9 % Restaurant sales Following is a summary of the change in international segment Restaurant sales for the periods indicated: (dollars in millions) THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED For the periods ended September 26, 2021 $ 97.9 $ 242.3 Change from: Comparable restaurant sales (1) 22.1 77.5 Restaurant openings (1) 10.7 25.3 Effect of foreign currency translation (1.0) 7.6 For the periods ended September 25, 2022 $ 129.7 $ 352.7 ____________________ (1) Summation of quarterly changes for restaurant openings and comparable restaurant sales will not total to annual amounts as the restaurants that meet the definition of each will differ each period based on when the restaurant opened. The increase in international Restaurant sales during the thirteen weeks ended September 25, 2022 was primarily due to higher comparable restaurant sales in Brazil and the opening of 29 new restaurants not included in our comparable restaurant sales base. The increase in international Restaurant sales during the thirty-nine weeks ended September 25, 2022 was primarily due to: (i) higher comparable restaurant sales in Brazil, (ii) the opening of 38 new restaurants not included in our comparable restaurant sales base and (iii) the effect of foreign currency translation of the Brazilian Real relative to the U.S. dollar. Income from operations The increase in international Income from operations generated during the thirteen weeks ended September 25, 2022 as compared to the thirteen weeks ended September 26, 2021 was primarily due to: (i) the recovery of in-restaurant dining in Brazil and (ii) increases in average check per person. These increases were partially offset by decreases primarily due to: (i) product mix, (ii) labor inflation and (iii) commodity inflation. 40 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The increase in international Income from operations generated during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 was primarily due to: (i) the recovery of in-restaurant dining in Brazil and (ii) increases in average check per person. These increases were partially offset by decreases primarily due to commodity and labor inflation. Non-GAAP Financial Measures Consolidated restaurant-level operating income and adjusted restaurant-level operating income and corresponding margins non-GAAP reconciliations - The following table reconciles consolidated Income from operations and the corresponding margins to restaurant-level operating income and adjusted restaurant-level operating income and the corresponding margins for the periods indicated: Consolidated THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Income from operations $ 51,309 $ 14,837 $ 246,284 $ 230,472 Operating income margin 4.9 % 1.5 % 7.4 % 7.5 % Less: Franchise and other revenues 15,388 13,745 48,592 43,906 Plus: 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 Restaurant-level operating income $ 136,248 $ 102,384 $ 501,003 $ 500,710 Restaurant-level operating margin 13.1 % 10.3 % 15.3 % 16.5 % Adjustments: Royalty termination expense (1) — 61,880 — 61,880 Legal and other matters (2) — 2,761 — 2,761 Total restaurant-level operating income adjustments — 64,641 — 64,641 Adjusted restaurant-level operating income $ 136,248 $ 167,025 $ 501,003 $ 565,351 Adjusted restaurant-level operating margin 13.1 % 16.8 % 15.3 % 18.6 % _________________ (1) Payment to the Carrabba’s Founders in connection with the Royalty Termination Agreement. See Note 15 - Commitments and Contingencies of the Notes to Consolidated Financial Statements for additional details regarding the Royalty Termination Agreement. (2) The thirteen and thirty-nine weeks ended September 26, 2021 include an accrual for Imposto sobre Serviços (“ISS”), a Brazilian municipal service tax, in connection with royalties from our Brazilian subsidiary over the past five years, including related penalties and interest, recorded within Other restaurant operating expense as a result of an unfavorable Brazilian Supreme Court ruling. 41 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Segment adjusted restaurant-level operating margin non-GAAP reconciliations - The following tables reconcile segment Income from operations and the corresponding margins to segment restaurant-level operating income and adjusted restaurant-level operating income and the corresponding margins for the periods indicated: U.S. THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Income from operations $ 68,501 $ 47,294 $ 305,347 $ 334,326 Operating income margin 7.4 % 5.2 % 10.3 % 11.9 % Less: Franchise and other revenues 11,842 13,943 37,314 31,567 Plus: Depreciation and amortization 34,432 33,421 102,735 100,645 General and administrative 22,339 21,998 69,432 66,043 Provision for impaired assets and restaurant closings 2,068 1,539 2,317 8,678 Restaurant-level operating income $ 115,498 $ 90,309 $ 442,517 $ 478,125 Restaurant-level operating margin 12.7 % 10.0 % 15.2 % 17.1 % Adjustments: Royalty termination expense (1) — 61,880 — 61,880 Total restaurant-level operating income adjustments — 61,880 — 61,880 Adjusted restaurant-level operating income $ 115,498 $ 152,189 $ 442,517 $ 540,005 Adjusted restaurant-level operating margin 12.7 % 16.9 % 15.2 % 19.4 % ________________ (1) Payment to the Carrabba’s Founders in connection with the Royalty Termination Agreement. International THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Income from operations $ 15,849 $ 1,412 $ 38,859 $ 7,419 Operating income margin 11.9 % 1.4 % 10.7 % 2.9 % Less: Franchise and other revenues 3,546 (198) 11,278 12,339 Plus: Depreciation and amortization 5,882 5,843 17,438 17,128 General and administrative 5,828 5,060 16,087 13,781 Provision for impaired assets and restaurant closings — 28 1,775 27 Restaurant-level operating income $ 24,013 $ 12,541 $ 62,881 $ 26,016 Restaurant-level operating margin 18.5 % 12.8 % 17.8 % 10.7 % Adjustments: Legal and other matters (1) — 2,761 — 2,761 Total restaurant-level operating income adjustments — 2,761 — 2,761 Adjusted restaurant-level operating income $ 24,013 $ 15,302 $ 62,881 $ 28,777 Adjusted restaurant-level operating margin 18.5 % 15.6 % 17.8 % 11.9 % ________________ (1) The thirteen and thirty-nine weeks ended September 26, 2021 include an accrual for ISS, a Brazilian municipal service tax, in connection with royalties from our Brazilian subsidiary over the past five years, including related penalties and interest, recorded within Other restaurant operating expense as a result of an unfavorable Brazilian Supreme Court ruling. 42 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted restaurant-level operating margin non-GAAP reconciliations (continued) - The following tables present the percentages of certain operating cost financial statement line items in relation to Restaurant sales for the periods indicated: THIRTEEN WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 REPORTED ADJUSTED REPORTED ADJUSTED (1) Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage costs 32.0 % 32.0 % 30.5 % 30.5 % Labor and other related 29.1 % 29.1 % 29.1 % 29.1 % Other restaurant operating 25.8 % 25.8 % 30.1 % 23.6 % Restaurant-level operating margin 13.1 % 13.1 % 10.3 % 16.8 % THIRTY-NINE WEEKS ENDED SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 REPORTED ADJUSTED REPORTED ADJUSTED (1) Restaurant sales 100.0 % 100.0 % 100.0 % 100.0 % Food and beverage costs 32.3 % 32.3 % 30.0 % 30.0 % Labor and other related 28.2 % 28.2 % 28.4 % 28.4 % Other restaurant operating 24.2 % 24.2 % 25.2 % 23.0 % Restaurant-level operating margin 15.3 % 15.3 % 16.5 % 18.6 % _________________ (1) See the Consolidated restaurant-level operating income and adjusted restaurant-level operating income and corresponding margins non-GAAP reconciliations table above for details regarding the restaurant-level operating margin adjustments. All restaurant-level operating margin adjustments for the periods presented were recorded within Other restaurant operating expense. Adjusted income from operations non-GAAP reconciliations - The following table reconciles Income from operations and the corresponding margins to adjusted income from operations and the corresponding margins 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 Income from operations $ 51,309 $ 14,837 $ 246,284 $ 230,472 Operating income margin 4.9 % 1.5 % 7.4 % 7.5 % Adjustments: Total restaurant-level operating margin adjustments (1) — 64,641 — 64,641 Legal and other matters (2) — 3,204 — (3,133) Total income from operations adjustments — 67,845 — 61,508 Adjusted income from operations $ 51,309 $ 82,682 $ 246,284 $ 291,980 Adjusted operating income margin 4.9 % 8.2 % 7.4 % 9.5 % _________________ (1) See the Consolidated restaurant-level operating income and adjusted restaurant-level operating income and corresponding margins non-GAAP reconciliations table above for details regarding the restaurant-level operating income adjustments. (2) The thirteen and thirty-nine weeks ended September 26, 2021 include an adjustment to reduce our initial recorded estimate and net benefit, respectively, from the recognition of recoverable PIS and COFINS taxes, including accrued interest within other revenues as a result of favorable court rulings in Brazil. 43 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Adjusted net income and Adjusted diluted earnings per share non-GAAP reconciliations - The following table reconciles Diluted net income attributable to Bloomin’ Brands to adjusted net income and adjusted 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 Diluted net income attributable to Bloomin’ Brands $ 31,986 $ 3,449 $ 43,862 $ 155,316 Convertible senior notes if-converted method interest adjustment, net of tax (1) — — — 460 Net income attributable to Bloomin’ Brands 31,986 3,449 43,862 154,856 Adjustments: Income from operations adjustments (2) — 67,845 — 61,508 Loss on extinguishment and modification of debt (3) — — 107,630 2,073 Loss on fair value adjustment of derivatives, net (3) — — 17,685 — Total adjustments, before income taxes — 67,845 125,315 63,581 Adjustment to provision for income taxes (4) — (15,878) 1,322 (14,635) Net adjustments — 51,967 126,637 48,946 Adjusted net income $ 31,986 $ 55,416 $ 170,499 $ 203,802 Diluted earnings per share $ 0.34 $ 0.03 $ 0.44 $ 1.42 Adjusted diluted earnings per share (5) $ 0.35 $ 0.57 $ 1.84 $ 2.10 Diluted weighted average common shares outstanding 94,736 107,783 99,609 109,410 Adjusted diluted weighted average common shares outstanding (5) 91,046 97,307 92,877 97,110 _________________ (1) Adjustment for interest expense related to the 2025 Notes weighted for the portion of the period prior to our election under the 2025 Notes indenture to settle the principal portion of the 2025 Notes in cash. (2) See the Adjusted income from operations non-GAAP reconciliations table above for details regarding Income from operations adjustments. (3) The thirty-nine weeks ended September 25, 2022 include losses in connection with the 2025 Notes Partial Repurchase and Amended Credit Agreement. See Note 8 - Convertible Senior Notes and Note 7 - Long-term Debt, Net , respectively, of the Notes to Consolidated Financial Statements for additional details. (4) The tax effect of non-GAAP adjustments were determined based on the nature of the underlying non-GAAP adjustments and their relevant jurisdictional tax rates. For the thirty-nine weeks ended September 25, 2022, the primary difference between the GAAP and adjusted effective income tax rates relate to certain non-deductible losses and other tax costs associated with the 2025 Notes Partial Repurchase. (5) Adjusted diluted weighted average common shares outstanding was calculated excluding the dilutive effect of 3,690 and 10,476 shares for the thirteen weeks ended September 25, 2022 and September 26, 2021, respectively, and 6,732 and 10,453 shares for the thirty-nine weeks ended September 25, 2022 and September 26, 2021, respectively, to be issued upon conversion of the 2025 Notes to satisfy the amount in excess of the principal since our convertible note hedge offsets the dilutive impact of the shares underlying the 2025 Notes. For the thirty-nine weeks ended September 26, 2021, adjusted diluted weighted average common shares outstanding was also calculated assuming our February 2021 election to settle the principal portion of the 2025 Notes in cash was in effect for the entire period. System-Wide Sales - System-wide sales is a non-GAAP financial measure that includes sales of all restaurants operating under our brand names, whether we own them or not. Management uses this information to make decisions about future plans for the development of additional restaurants and new concepts, as well as evaluation of current operations. System-wide sales comprise sales of Company-owned and franchised restaurants. For a summary of sales of Company-owned restaurants, refer to Note 2 - Revenue Recognition of the Notes to Consolidated Financial Statements. 44 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued The following table provides a summary of sales of franchised restaurants for the periods indicated, which are not included in our consolidated financial results. Franchise sales within this table do not represent our sales and are presented only as an indicator of changes in the restaurant system, which management believes is important information regarding the health of our restaurant concepts and in determining our royalties and/or service fees. THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED (dollars in millions) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 U.S. Outback Steakhouse $ 119 $ 118 $ 377 $ 329 Carrabba’s Italian Grill 12 10 37 32 Bonefish Grill 3 3 9 8 U.S. total 134 131 423 369 International Outback Steakhouse - South Korea 77 73 220 219 Other (1) 24 26 86 77 International total 101 99 306 296 Total franchise sales (2) $ 235 $ 230 $ 729 $ 665 _____________________ (1) Includes franchise sales for off-premises only kitchens in South Korea. (2) Franchise sales are not included in Total revenues in the Consolidated Statements of Operations and Comprehensive Income. Liquidity and Capital Resources Cash and Cash Equivalents As of September 25, 2022, we had $90.7 million in cash and cash equivalents, of which $34.5 million was held by foreign affiliates. The international jurisdictions in which we have significant cash do not have any known restrictions that would prohibit repatriation. As of September 25, 2022, we had aggregate accumulated foreign earnings of approximately $28.6 million. This amount consisted primarily of historical earnings from 2017 and prior that were previously taxed in the U.S. under the 2017 Tax Cuts and Jobs Act and post-2017 foreign earnings, which we may repatriate to the U.S. without additional material U.S. federal income tax. These amounts are not considered indefinitely reinvested in our foreign subsidiaries. 45 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Borrowing Capacity and Debt Service Credit Facilities - Following is a summary of our outstanding credit facilities as of the dates indicated and principal payments and debt issuance during the period indicated: SENIOR SECURED CREDIT FACILITY TOTAL CREDIT FACILITIES (dollars in thousands) TERM LOAN A REVOLVING FACILITY 2025 NOTES 2029 NOTES Balance as of December 26, 2021 $ 195,000 $ 80,000 $ 230,000 $ 300,000 $ 805,000 2022 new debt — 929,500 — — 929,500 2022 payments (195,000) (589,500) (125,000) — (909,500) Balance as of September 25, 2022 $ — $ 420,000 $ 105,000 $ 300,000 $ 825,000 Interest rates, as of September 25, 2022 (1) 4.26 % 5.00 % 5.13 % Principal maturity date April 2026 May 2025 April 2029 ____________________ (1) Interest rate for revolving credit facility represents the weighted average interest rate as of September 25, 2022. As of September 25, 2022, we had $560.0 million in available unused borrowing capacity under our revolving credit facility, net of letters of credit of $20.0 million. Credit Agreement Amendment - On April 26, 2022, we and OSI entered into the Amended Credit Agreement, which included an increase of our existing revolving credit facility from $800.0 million to $1.0 billion and a transition from LIBOR to 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. Our total indebtedness remained unchanged as a result of the Amended Credit Agreement. The transition to SOFR did not materially impact the interest rate applied to our borrowings. See Note 7 - Long-term Debt, Net of the Notes to Consolidated Financial Statements for additional details regarding the Amended Credit Agreement. Our Amended Credit Agreement contains various financial and non-financial covenants. A violation of these covenants could negatively impact our liquidity by restricting our ability to borrow under the revolving credit facility and cause an acceleration of the amounts due under the credit facilities. See Note 13 - Long-term Debt, Net in our Annual Report on Form 10-K for the year ended December 26, 2021 for further information. As of September 25, 2022 and December 26, 2021, we were in compliance with our debt covenants. We believe that we will remain in compliance with our debt covenants during the next 12 months. 2025 Notes Partial Repurchase - On May 25, 2022, we and the Noteholders entered into the Exchange Agreements in which the Noteholders agreed to exchange $125.0 million in aggregate principal amount of our outstanding 2025 Notes for $196.9 million in cash, plus accrued interest, and approximately 2.3 million shares of our common stock. In connection with the 2025 Notes Partial Repurchase, we entered into the Note Hedge Early Termination Agreements and the Warrant Early Termination Agreements. Upon settlement, we 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. See Note 8 - Convertible Senior Notes of the Notes to Consolidated Financial Statements for additional details regarding the 2025 Notes Partial Repurchase and related Note Hedge Early Termination Agreements and Warrant Early Termination Agreements. 46 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Use of Cash Cash flows generated from operating activities and availability under our revolving credit facility are our principal sources of liquidity, which we use for operating expenses, debt payments, share repurchases and dividend payments, development of new restaurants, remodeling or relocating older restaurants and investment in technology. We believe that our expected liquidity sources are adequate to fund debt service requirements, lease obligations, capital expenditures and working capital obligations during the 12 months following this filing. However, our ability to continue to meet these requirements and obligations will depend on, among other things, our ability to achieve anticipated levels of revenue and cash flow and our ability to manage costs and working capital successfully. Capital Expenditures - We estimate that our capital expenditures will total approximately $200 million to $210 million in 2022. The amount of actual capital expenditures may be affected by general economic, financial, competitive, legislative and regulatory factors, among other things, including raw material constraints. Dividends and Share Repurchases - In October 2022, our Board declared a quarterly cash dividend of $0.14 per share, payable on November 23, 2022. Future dividend payments are dependent on our earnings, financial condition, capital expenditure requirements, surplus and other factors that our Board considers relevant, as well as continued compliance with the financial covenants in our debt agreements. On February 8, 2022, our Board approved the 2022 Share Repurchase Program under which we are authorized to repurchase up to $125.0 million of our outstanding common stock. The 2022 Share Repurchase Program will expire on August 9, 2023. As of September 25, 2022, we had $44.0 million remaining available for repurchase under the 2022 Share Repurchase Program. Following is a summary of dividends and share repurchases from fiscal year 2015 through September 25, 2022: (dollars in thousands) DIVIDENDS PAID SHARE REPURCHASES TOTAL Fiscal year 2015 $ 29,332 $ 169,999 $ 199,331 Fiscal year 2016 31,379 309,887 341,266 Fiscal year 2017 30,988 272,736 303,724 Fiscal year 2018 33,312 113,967 147,279 Fiscal year 2019 35,734 106,992 142,726 Fiscal year 2020 17,480 — 17,480 Fiscal year 2021 — — — First fiscal quarter 2022 12,559 11,702 24,261 Second fiscal quarter 2022 12,418 35,749 48,167 Third fiscal quarter 2022 12,475 33,549 46,024 Total (1) $ 215,677 $ 1,054,581 $ 1,270,258 ________________ (1) Subsequent to September 25, 2022, we repurchased $13.8 million of our common stock under a Rule 10b5-1 plan through October 28, 2022. Deferred Compensation Programs - The deferred compensation obligation due to managing and chef partners was $5.2 million and $15.5 million as of September 25, 2022 and December 26, 2021, respectively. We invest in various corporate-owned life insurance policies, which are held within an irrevocable grantor or rabbi trust account for settlement of our obligations under the deferred compensation plans. The obligation for managing and chef partners’ deferred compensation was fully funded as of September 25, 2022. 47 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued Summary of Cash Flows and Financial Condition Cash Flows - The following table presents a summary of our cash flows provided by (used in) operating, investing and financing activities for the periods indicated: THIRTY-NINE WEEKS ENDED (dollars in thousands) SEPTEMBER 25, 2022 SEPTEMBER 26, 2021 Net cash provided by operating activities $ 292,579 $ 304,246 Net cash used in investing activities (121,455) (69,085) 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) Operating activities - The decrease in net cash provided by operating activities during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 was primarily due to the timing of operational payments and receipts and increased employee compensation payments, partially offset by lapping cash paid in connection with the Carrabba’s Italian Grill royalty termination during 2021. Investing activities - The increase in net cash used in investing activities during the thirty-nine weeks ended September 25, 2022 as compared to the thirty-nine weeks ended September 26, 2021 was primarily due to higher capital expenditures. Financing activities - The decrease in net cash used in financing activities during the thirty-nine weeks ended September 25, 2022 as compared the thirty-nine weeks ended September 26, 2021 was primarily due to net draws on the revolving credit facility during 2022, generally used to settle debt obligations in excess of the principal balance due in connection with the 2025 Notes Partial Repurchase, partially offset by the repurchase of common stock and payment of cash dividends on our common stock. Financial Condition - Following is a summary of our current assets, current liabilities and working capital (deficit) as of the periods indicated: (dollars in thousands) SEPTEMBER 25, 2022 DECEMBER 26, 2021 Current assets $ 275,710 $ 352,792 Current liabilities 911,322 984,625 Working capital (deficit) $ (635,612) $ (631,833) Working capital (deficit) includes: (i) Unearned revenue primarily from unredeemed gift cards of $291.8 million and $398.8 million as of September 25, 2022 and December 26, 2021, respectively, and (ii) current operating lease liabilities of $181.4 million and $177.0 million as of September 25, 2022 and December 26, 2021, respectively, with the corresponding operating right-of-use assets recorded as non-current on our Consolidated Balance Sheets. We have, and in the future may continue to have, negative working capital balances (as is common for many restaurant companies). We operate successfully with negative working capital because cash collected on restaurant sales is typically received before payment is due on our current liabilities, and our inventory turnover rates require relatively low investment in inventories. Additionally, ongoing cash flows from restaurant operations and gift card sales are typically used to service debt obligations and to make capital expenditures. Recently Issued Financial Accounting Standards For a description of recently issued Financial Accounting Standards that we adopted during the thirty-nine weeks ended September 25, 2022 and, that are applicable to us and likely to have material effect on our consolidated 48 Table of Contents BLOOMIN’ BRANDS, INC. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Continued financial statements, but have not yet been adopted, see Note 1 - Description of the Business and Basis of Presentation of the Notes to Consolidated Financial Statements of this Quarterly Report on Form 10-Q. 49 Table of Contents BLOOMIN’ BRANDS, INC.