RED ROBIN GOURMET BURGERS INC 10-Q

ITEM 1. Financial Statements (unaudited) RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts) (Unaudited) July 12, 2020 December 29, 2019 Assets: Current assets: Cash and cash equivalents $ 26,138 $ 30,045 Accounts receivable, net 8,989 22,372 Inventories 24,983 26,424 Prepaid expenses and other current assets 46,817 26,646 Total current assets 106,927 105,487 Property and equipment, net 461,350 518,013 Right of use assets, net 415,900 426,248 Goodwill — 96,397 Intangible assets, net 26,537 29,975 Other assets, net 19,931 61,460 Total assets $ 1,030,645 $ 1,237,580 Liabilities and stockholders ' equity: Current liabilities: Accounts payable $ 19,906 $ 33,040 Accrued payroll and payroll-related liabilities 25,135 35,221 Unearned revenue 43,938 54,223 Current portion of lease obligations 62,068 42,699 Current portion of long-term debt 9,692 — Accrued liabilities and other 44,250 29,403 Total current liabilities 204,989 194,586 Long-term debt 197,798 206,875 Long-term portion of lease obligations 455,288 465,435 Other non-current liabilities 14,479 10,164 Total liabilities 872,554 877,060 Stockholders ' equity: Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 and 17,851 shares issued; 15,547 and 12,923 shares outstanding as of July 12, 2020 and December 29, 2019 20 18 Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of July 12, 2020 and December 29, 2019 — — Treasury stock 4,902 and 4,928 shares, at cost, as of July 12, 2020 and December 29, 2019 ( 199,945 ) ( 202,313 ) Paid-in capital 240,812 213,922 Accumulated other comprehensive loss, net of tax ( 5,503 ) ( 4,373 ) Retained earnings 122,707 353,266 Total stockholders' equity 158,091 360,520 Total liabilities and stockholders ' equity $ 1,030,645 $ 1,237,580 See Notes to Condensed Consolidated Financial Statements. 1 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME (In thousands, except per share amounts) (Unaudited) Twelve Weeks Ended Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019 Revenues: Restaurant revenue $ 160,144 $ 302,418 $ 461,578 $ 702,902 Franchise and other revenues 978 5,563 5,609 14,945 Total revenues 161,122 307,981 467,187 717,847 Costs and expenses: Restaurant operating costs (excluding depreciation and amortization shown separately below): Cost of sales 38,780 72,387 109,206 166,102 Labor 62,742 106,538 181,308 249,432 Other operating 34,663 43,000 86,954 98,565 Occupancy 20,758 25,458 54,415 60,478 Depreciation and amortization 20,560 21,369 48,880 49,807 Selling, general, and administrative expenses 19,697 35,234 61,199 83,350 Pre-opening costs 3 — 156 319 Other charges 14,501 16,847 133,880 19,245 Total costs and expenses 211,704 320,833 675,998 727,298 Loss from operations ( 50,582 ) ( 12,852 ) ( 208,811 ) ( 9,451 ) Other expense: Interest expense, net and other 1,979 2,153 5,349 5,391 Loss before income taxes ( 52,561 ) ( 15,005 ) ( 214,160 ) ( 14,842 ) Income tax provision (benefit) 3,700 ( 15,986 ) 16,399 ( 16,462 ) Net (loss) income $ ( 56,261 ) $ 981 $ ( 230,559 ) $ 1,620 (Loss) earnings per share: Basic $ ( 4.09 ) $ 0.08 $ ( 17.38 ) $ 0.12 Diluted $ ( 4.09 ) $ 0.08 $ ( 17.38 ) $ 0.12 Weighted average shares outstanding: Basic 13,741 12,970 13,262 12,969 Diluted 13,741 13,043 13,262 13,047 Other comprehensive income (loss): Foreign currency translation adjustment $ 17 $ 406 $ ( 1,130 ) $ 77 Other comprehensive income (loss), net of tax 17 406 ( 1,130 ) 77 Total comprehensive (loss) income $ ( 56,244 ) $ 1,387 $ ( 231,689 ) $ 1,697 See Notes to Condensed Consolidated Financial Statements. 2 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY (In thousands) (Unaudited) Common Stock Treasury Stock Accumulated Other Comprehensive Loss, net of tax Paid-in Capital Retained Earnings Shares Amount Shares Amount Total Balance, December 29, 2019 17,851 $ 18 4,928 $ ( 202,313 ) $ 213,922 $ ( 4,373 ) $ 353,266 $ 360,520 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 39 ) 1,605 ( 1,388 ) — — 217 Acquisition of treasury stock — — 72 ( 1,635 ) — — — ( 1,635 ) Non-cash stock compensation — — — — 712 — — 712 Net loss — — — — — — ( 174,298 ) ( 174,298 ) Other comprehensive loss — — — — — ( 1,147 ) — ( 1,147 ) Balance, April 19, 2020 17,851 $ 18 4,961 $ ( 202,343 ) $ 213,246 $ ( 5,520 ) $ 178,968 $ 184,369 Issuance of common stock, $ 0.001 par value, net of stock issuance costs 2,598 2 — — 28,723 — — 28,725 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 59 ) 2,398 ( 2,228 ) — — 170 Non-cash stock compensation — — — — 1,071 — — 1,071 Net loss — — — — — — ( 56,261 ) ( 56,261 ) Other comprehensive income — — — — — 17 — 17 Balance, July 12, 2020 20,449 $ 20 4,902 $ ( 199,945 ) $ 240,812 $ ( 5,503 ) $ 122,707 $ 158,091 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY (In thousands) (Unaudited) Common Stock Treasury Stock Accumulated Other Comprehensive Loss, net of tax Paid-in Capital Retained Earnings Shares Amount Shares Amount Total Balance, December 30, 2018 17,851 $ 18 4,880 $ ( 201,505 ) $ 212,752 $ ( 4,801 ) $ 376,341 $ 382,805 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 32 ) 1,344 ( 1,204 ) — — 140 Acquisition of treasury stock — — 31 ( 974 ) — — — ( 974 ) Non-cash stock compensation — — — — 477 — — 477 Net income — — — — — — 639 639 Other comprehensive loss — — — — — ( 329 ) — ( 329 ) Topic 842 transition impairment, net of tax — — — — — — ( 15,172 ) ( 15,172 ) Balance, April 21, 2019 17,851 $ 18 4,879 $ ( 201,135 ) $ 212,025 $ ( 5,130 ) $ 361,808 $ 367,586 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 30 ) 1,208 ( 907 ) — — 301 Acquisition of treasury stock — — 17 ( 501 ) — — — ( 501 ) Non-cash stock compensation — — — — 941 — — 941 Net income — — — — — — 981 981 Other comprehensive income — — — — — 406 — 406 Balance July 14, 2019 17,851 $ 18 4,866 $ ( 200,428 ) $ 212,059 $ ( 4,724 ) $ 362,789 $ 369,714 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 Cash flows from operating activities: Net (loss) income $ ( 230,559 ) $ 1,620 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 48,880 49,807 Gift card breakage ( 1,806 ) ( 4,320 ) Goodwill and restaurant asset impairment 116,193 14,064 Non-cash other charges 2,764 1,900 Deferred income tax provision (benefit) 42,686 ( 21,526 ) Stock-based compensation expense 1,771 1,415 Other, net 393 560 Changes in operating assets and liabilities: Accounts receivable 13,211 12,132 Prepaid expenses and other current assets ( 18,807 ) 3,459 Lease assets, net of liabilities 17,666 1,502 Trade accounts payable and accrued liabilities ( 9,374 ) ( 7,388 ) Unearned revenue ( 8,479 ) ( 11,343 ) Other operating assets and liabilities, net 6,854 ( 136 ) Net cash (used in) provided by operating activities ( 18,607 ) 41,746 Cash flows from investing activities: Purchases of property, equipment, and intangible assets ( 11,456 ) ( 21,168 ) Proceeds from sales of real estate and property, plant, and equipment and other investing activities 43 178 Net cash used in investing activities ( 11,413 ) ( 20,990 ) Cash flows from financing activities: Borrowings of long-term debt 135,000 162,000 Payments of long-term debt and finance leases ( 134,385 ) ( 174,464 ) Purchase of treasury stock ( 1,635 ) ( 1,475 ) Debt issuance costs ( 2,952 ) — Proceeds from issuance of common stock, net of stock issuance costs 29,675 — Proceeds from exercise of stock options and employee stock purchase plan 666 693 Net cash provided by (used in) financing activities 26,369 ( 13,246 ) Effect of exchange rate changes on cash ( 256 ) 115 Net change in cash and cash equivalents ( 3,907 ) 7,625 Cash and cash equivalents, beginning of period 30,045 18,569 Cash and cash equivalents, end of period $ 26,138 $ 26,194 Supplemental disclosure of cash flow information Income taxes (refund received) paid $ ( 3 ) $ 2,742 Interest paid, net of amounts capitalized 4,915 5,482 Change in construction related payables $ ( 1,449 ) $ 1,883 See Notes to Condensed Consolidated Financial Statements. 5 Table of Contents RED ROBIN GOURMET BURGERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Recent Accounting Pronouncements Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of July 12, 2020, the Company owned and operated 450 restaurants located in 38 states. The Company also had 102 franchised full-service restaurants in 16 states and one Canadian province as of July 12, 2020. The Company operates its business as one operating and one reportable segment. Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year. The accompanying condensed consolidated financial statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The condensed consolidated balance sheet as of December 29, 2019 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim condensed consolidated financial statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC on February 25, 2020. Our current and prior year periods, period end dates, and number of weeks included in the period are summarized in the table below: Periods Period End Date Number of Weeks in Period Current and Prior Fiscal Quarters: Second Quarter 2020 July 12, 2020 12 Second Quarter 2019 July 14, 2019 12 First Quarter 2020 April 19, 2020 16 First Quarter 2019 April 21, 2019 16 Current and Prior Fiscal Years: Fiscal Year 2020 December 27, 2020 52 Fiscal Year 2019 December 29, 2019 52 Reclassifications Certain amounts presented in prior periods have been reclassified to conform with the current period presentation. For the twenty-eight weeks ended July 14, 2019, the Company reclassified the following within net cash (used in) provided by operating activities on the condensed consolidated statements of cash flows: $ 14.1 million from Non-cash other charges to Goodwill and restaurant asset impairment and $ 1.5 million from Other operating assets and liabilities, net to Lease assets, net of liabilities. 6 Table of Contents Going Concern - Substantial Doubt Resolved As required by ASC Topic 205-40, Presentation of Financial Statements - Going Concern , management has assessed the Company's ability to continue as a going concern for one year from the financial statement issuance date for the fiscal quarter ended July 12, 2020. On May 29, 2020, the Company obtained the First Amendment to the Credit Agreement and Waiver (the "Amendment") to the Company's Amended and Restated Credit Agreement (the "Credit Facility"). The Amendment provided relief from our existing events of default under the Credit Facility and provided covenant relief subject to the successful completion of a $ 25 million capital raise on or before November 13, 2020, as further disclosed in Note 8, Borrowings . As of the issuance date of our first quarter 2020 financial statements, the Company disclosed, as required under applicable accounting standards, that substantial doubt existed surrounding the Company's ability to meet its obligations within one year of the issuance date of the first quarter Form 10-Q because the capital raise was outside of management's control at the time. On June 17, 2020, the Company issued 2.6 million shares of common stock raising proceeds of $ 28.7 million, net of stock issuance costs, through its at-the-market equity offering. The equity raise satisfied the terms of the Amendment, and management expects to remain in compliance with the Credit Facility covenants for at least twelve months from the issuance of the July 12, 2020 Form 10-Q. Management has concluded there is not a substantial doubt regarding the Company’s ability to continue as a going concern. Recent Accounting Pronouncements Income Taxes In December 2019, the Financial Accounting Standards Board ("FASB") issued Update 2019-12, Income Taxes ("Topic 740") as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for annual and interim reporting periods beginning after December 15, 2020, and early adoption is permitted. We are currently evaluating the full impact this guidance will have on our consolidated financial statements. We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's condensed consolidated financial statements. 2. COVID-19 Pandemic Overview Due to the novel coronavirus ("COVID-19") pandemic, we have navigated and continue to navigate an unprecedented time for our business and industry as we collectively work to maintain the stable operation of our business. During the second quarter of 2020, the Company began re-opening dining rooms at Company-owned restaurants in accordance with local limits with re-opened restaurants operating at no higher than 50% occupant capacity. Re-opening dining rooms was executed with the health, safety, and well-being of Red Robin's Team Members, Guests, and communities in mind, and strict adherence to US Centers for Disease Control ("CDC"), state, and local guidelines as our top priority. The COVID-19 pandemic has had a material adverse effect on our business, and we expect the impact from COVID-19 will continue to negatively affect our business through the remainder of fiscal year 2020. Franchise Revenue In response to COVID-19's effect on our franchise operations, we temporarily abated franchise royalty payments and advertising contributions effective March 20, 2020. During periods of abated payments, franchise revenue was not recognized or collected from our franchisees. Abated royalty payments and advertising contributions will not be collected by the Company. The Company began charging and collecting partial franchise royalty payments and advertising contributions during the latter half of the second fiscal quarter of 2020. Franchised restaurants operate under contractual arrangements with the Company, and the payments specified in the franchise contracts are accounted for under ASC Topic 606, Revenue from Contracts with Customers . 7 Rent In response to the impact of COVID-19 on our operations, beginning April 1, 2020 the Company stopped making full lease payments under its existing lease agreements. During the suspension of payments, the Company continued to recognize expenses and liabilities for lease obligations and corresponding right-of-use assets on the balance sheet in accordance with ASC Topic 842 . We are engaging in ongoing constructive discussions with landlords regarding the potential restructuring of lease payments and rent concessions. As of July 12, 2020, the Company has contractually negotiated rent concessions on certain leases. The types of rent concessions the Company has negotiated include early termination, early renewal, rent deferral, and rent abatement. For contractual rent concessions that do not substantially change the total cash flows of the lease, the Company has elected to account for these concessions assuming the existing lease agreements provide enforceable rights and obligations consistent with the relief issued by the Financial Accounting Standards Board titled ASC Topic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Relief") . For leases where the rent concession did not substantially change the total cash flows, the concession was accounted for as a remeasurement to the lease liability based on the original discount rate with a corresponding adjustment to the right-of-use asset. Additionally, the classification of the leases was not reassessed. The Company recorded an immaterial remeasurement to the lease liability and right-of-use asset resulting from contractual rent concessions under the FASB relief during the second fiscal quarter of 2020. For contractual rent concessions that substantially changed the total cash flows of the lease and did not qualify for the FASB relief, we applied the modification framework in accordance with ASC Topic 842 , Leases . The Company reassessed lease classification for rent concessions that did not qualify for the FASB relief, and it was concluded one lease changed from finance to operating and two leases changed from operating to finance. Based on updated discount rates, a $ 21.7 million remeasurement was recorded to increase the lease liability, a $ 21.7 million adjustment was recorded to increase the right-of-use asset, and an immaterial loss was recorded in Occupancy on the condensed consolidated statements of operations and comprehensive (loss) income. Contractual rent concessions granted to the Company did not grant the right to use additional assets not included in the original lease contracts, so no separate contracts were accounted for as part of the rent concession modifications. Goodwill We performed a goodwill impairment analysis during the first quarter of 2020 resulting in full impairment of our goodwill balance totaling $ 95.4 million. The goodwill impairment is included in Other charges on the condensed consolidated statements of operations and comprehensive (loss) income for the twenty-eight weeks ended July 12, 2020 and was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value. Restaurant Assets During the twelve weeks ended July 12, 2020, the Company recognized $ 5.3 million of impairment related to restaurant assets included in Other charges on the condensed consolidated statements of operations and comprehensive (loss) income resulting from the continuing and projected future results of 6 Company-owned restaurants. Restaurant asset impairment of $ 2.3 million was related to 4 permanently closed Company-owned restaurants and included in Restaurant closure and refranchising costs in Note 7, Other Charges . Additional restaurant asset impairment was recognized during the twelve weeks ended July 12, 2020 due to changes in management's forecast. Although current fiscal year to date results continue to align with management's forecast, the increase in reported COVID-19 cases across the United States and factors associated with the pandemic have changed management's expectation on the timing of the Company's recovery and projected results in future fiscal periods at certain restaurants. If reported COVID-19 cases continue to increase or other factors associated with the pandemic continue to develop, management's forecast could change in future periods requiring additional restaurant asset impairment. The Company recognized $ 15.5 million of impairment related to restaurant assets during the first quarter of 2020 resulting from the continuing and projected future results of 24 Company-owned restaurants. The restaurant asset impairment is included in Other charges on the condensed consolidated statements of operations and comprehensive (loss) income for the twenty-eight weeks ended July 12, 2020. Recoverability of restaurant assets, including restaurant sites, leasehold improvements, information technology systems, right-of-use assets, amortizable intangible assets, and other fixed assets, to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level. Each restaurant's past and present operating performance was reviewed in combination with projected future results primarily through projected undiscounted cash flows that included management's current expectation of future financial impacts from COVID-19. If the restaurant assets were determined to be impaired through comparison of the assets carrying value to its undiscounted cash flows, the Company compared the carrying amount of each restaurant's assets to its fair value as estimated by management to calculate the impairment amount. The fair value of restaurant assets is generally determined using a discounted cash flow projection model, which is based on significant inputs not observed in the market and represents a level 3 fair value measurement. In certain cases, management uses other market information, when available, to estimate the fair value of a restaurant's assets. The restaurant asset impairment charges represent the excess of the carrying amount over the estimated fair value of the restaurant assets calculated using a discounted cash flow projection model. Income Tax The March 19, 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") created an opportunity for the Company to carry back 2019 and 2020 projected net operating losses ("NOL's"). As a result, $ 35 million of federal and state tax receivables are recorded in Prepaid expenses and other current assets on the condensed consolidated balance sheets as of July 12, 2020 and are expected to generate projected cash tax refunds in the range of $ 14 million to $ 17 million within the next 12 months. The remaining receivables will be carried forward as allowed under applicable taxing jurisdictions. As a result of these projected NOL carrybacks, approximately $ 58 million of the previously utilized FICA tip tax credits will be reinstated. As of July 12, 2020, the existing $ 79 million FICA tip credit carryforwards will be utilized based on projected future taxable income, however they are anticipated to be replaced by originating FICA tip credits that are not projected to be utilized in the carry forward period. Therefore, a $ 79 million valuation allowance has been established for the FICA tip credit carryforwards. $ 27 million of the valuation allowance was recognized during the twelve weeks ended July 12, 2020. To the extent future actual taxable income exceeds the current projections, the FICA tip credit carryforwards may become realizable. The Company's $ 90 million deferred tax assets are recorded net of the $ 79 million valuation allowance in Other assets, net on the condensed consolidated balance sheets as of July 12, 2020. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the future reversals of existing deferred tax liabilities and projected taxable income, including whether future originating deductible temporary differences are likely to be realized. 3. Revenue Disaggregation of revenue In the following table, revenue is disaggregated by type of good or service (in thousands): Twelve Weeks Ended Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019 Restaurant revenue $ 160,144 $ 302,418 $ 461,578 $ 702,902 Franchise revenue (1) 380 4,389 3,277 9,752 Gift card breakage 392 639 1,806 4,320 Other revenue 206 535 526 873 Total revenues $ 161,122 $ 307,981 $ 467,187 $ 717,847 ——————————————————— (1) The decrease in Franchise revenue is driven by the temporary abatement and non-collection of franchise payments. See Note 2, COVID-19 Pandemic , for further discussion. Table of Contents Contract liabilities Components of Unearned revenue in the accompanying condensed consolidated balance sheets are as follows (in thousands): July 12, 2020 December 29, 2019 Unearned gift card revenue $ 33,306 $ 43,544 Deferred loyalty revenue $ 10,632 $ 10,679 Revenue recognized in the condensed consolidated statements of operations and comprehensive (loss) income for the redemption of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands): Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 Gift card revenue $ 12,990 $ 18,380 4. Leases Leases are included in right-of-use assets, net, current portion of lease obligations, and long-term portion of lease liabilities on our condensed consolidated balance sheet as of July 12, 2020 and December 29, 2019 as follows (in thousands): July 12, 2020 Finance Operating Total Right of use assets, net $ 11,340 $ 404,560 $ 415,900 Current portion of lease obligations 1,070 60,998 62,068 Long-term portion of lease obligations 12,532 442,756 455,288 Total $ 13,602 $ 503,754 $ 517,356 December 29, 2019 Finance Operating Total Right of use assets, net $ 7,552 $ 418,696 $ 426,248 Current portion of lease obligations 725 41,974 42,699 Long-term portion of lease obligations 8,822 456,613 465,435 Total $ 9,547 $ 498,587 $ 508,134 The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our condensed consolidated statement of operations as follows (in thousands): Twelve Weeks Ended Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019 Operating lease cost $ 14,949 $ 17,442 $ 36,939 $ 41,114 Finance lease cost: Amortization of right of use assets 185 193 388 441 Interest on lease liabilities 124 125 262 294 Total finance lease cost $ 309 $ 318 $ 650 $ 735 Variable lease cost 4,988 6,647 13,305 15,532 Total $ 20,246 $ 24,407 $ 50,894 $ 57,381 10 Table of Contents Maturities of our lease liabilities as of July 12, 2020 were as follows (in thousands): Finance Leases Operating Leases Total Remainder of 2020 $ 889 $ 49,486 $ 50,375 2021 1,393 75,225 76,618 2022 1,527 73,836 75,363 2023 1,406 71,959 73,365 2024 1,422 69,497 70,919 Thereafter 11,464 384,928 396,392 Total future lease liability $ 18,101 $ 724,931 $ 743,032 Less imputed interest 4,499 221,177 225,676 Fair value of lease liability $ 13,602 $ 503,754 $ 517,356 Supplemental cash flow information related to leases is as follows (in thousands, except other information): Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 Cash flows from operating activities Cash paid related to lease liabilities Operating leases $ 17,188 $ 39,407 Finance leases 262 261 Cash flows from financing activities Cash paid related to lease liabilities Finance leases — 461 Cash paid for amounts included in the measurement of lease liabilities: $ 17,450 $ 40,129 Right of use assets obtained in exchange for operating lease obligations $ 19,781 $ 7,022 Right of use assets obtained in exchange for finance lease obligations $ 4,224 $ 1,669 Other information related to operating leases as follows: Weighted average remaining lease term 10.44 years 11.17 years Weighted average discount rate 7.25 % 7.35 % Other information related to financing leases as follows: Weighted average remaining lease term 12.22 years 11.79 years Weighted average discount rate 4.96 % 4.74 % 5. Goodwill and Intangible Assets The following table presents goodwill as of July 12, 2020 and December 29, 2019 (in thousands): Balance, December 29, 2019 $ 96,397 Foreign currency translation adjustment ( 983 ) Goodwill impairment (1) ( 95,414 ) Balance, July 12, 2020 $ — ——————————————————— (1) See Note 2, COVID-19 Pandemic , for further discussion of goodwill impairment recognized during the twenty-eight weeks ended July 12, 2020. 11 Table of Contents The following table presents intangible assets as of July 12, 2020 and December 29, 2019 (in thousands): July 12, 2020 December 29, 2019 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Intangible assets subject to amortization: Franchise rights $ 50,584 $ ( 36,192 ) $ 14,392 $ 53,336 $ ( 35,896 ) $ 17,440 Leasehold interests 13,001 ( 9,056 ) 3,945 13,001 ( 8,794 ) 4,207 Liquor licenses and other 10,633 ( 9,893 ) 740 10,737 ( 9,869 ) 868 $ 74,218 $ ( 55,141 ) $ 19,077 $ 77,074 $ ( 54,559 ) $ 22,515 Indefinite-lived intangible assets: Liquor licenses and other $ 7,460 $ — $ 7,460 $ 7,460 $ — $ 7,460 Intangible assets, net $ 81,678 $ ( 55,141 ) $ 26,537 $ 84,534 $ ( 54,559 ) $ 29,975 6. (Loss) Earnings Per Share Basic (loss) earnings per share amounts are calculated by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period. Diluted (loss) earnings per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted (loss) earnings per share reflect the potential dilution that could occur if holders of options exercised their options into common stock. The Company uses the treasury stock method to calculate the effect of outstanding stock options. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands): Twelve Weeks Ended Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019 Basic weighted average shares outstanding 13,741 12,970 13,262 12,969 Dilutive effect of stock options and awards — 73 — 78 Diluted weighted average shares outstanding 13,741 13,043 13,262 13,047 Awards excluded due to anti-dilutive effect on diluted earnings per share 865 378 317 457 12 Table of Contents 7. Other Charges Other charges consist of the following (in thousands): Twelve Weeks Ended Twenty-Eight Weeks Ended July 12, 2020 July 14, 2019 July 12, 2020 July 14, 2019 Goodwill impairment $ — $ — $ 95,414 $ — Restaurant asset impairment 5,281 14,064 20,779 14,064 Restaurant closure and refranchising costs 7,602 1,001 9,008 1,305 Litigation contingencies — — 4,500 — Board and stockholder matter costs 967 1,152 2,449 1,152 Severance and executive transition — 370 881 2,364 COVID-19 related costs 651 — 849 — Executive retention — 260 — 360 Other charges $ 14,501 $ 16,847 $ 133,880 $ 19,245 The Company recognized non-cash impairment charges related to goodwill and assets at 10 and 34 Company-owned restaurants during the twelve and twenty-eight weeks ended July 14, 2020 resulting from quantitative impairment analyses; see Note 2, COVID-19 Pandemic, for further discussion. Non-cash impairment charges resulting from restaurant closures are included within Restaurant closure and refranchising costs. Restaurant closure and refranchising costs include the restaurant operating costs of the 35 Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic. Litigation contingencies include legal settlement costs related to two class action employment cases. Severance and executive transition in 2020 primarily relates to severance costs associated with the reduction in force of restaurant support center Team Members. COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members during the pandemic. 8. Borrowings Total borrowings as of July 12, 2020 and December 29, 2019 were $ 207.5 million and $ 206.9 million. As of July 12, 2020, the current portion of long-term borrowings was $ 9.7 million; no borrowings as of December 29, 2019 were classified as current. On January 10, 2020, the Company replaced its prior credit facility with a new Amended and Restated Credit Agreement (the "Credit Facility") which provides for a $ 161.5 million revolving line of credit and a $ 138.5 million term loan, which requires quarterly principal payments at a rate of 7.0 % per annum of the original principal balance, for a total borrowing capacity of $ 300 million. Borrowings under the Credit Facility are subject to interest rates based on the London Interbank Offered Rate ("LIBOR"). The publication of LIBOR is expected to discontinue in December 2021, however, we anticipate an amended credit agreement will be executed at the new applicable interest rate. The Credit Facility will mature on January 10, 2025. On May 29, 2020, the Company entered into the First Amendment to the Credit Agreement and Waiver (the "Amendment") which set forth the following: increased pricing under the Credit Facility, waiver of the lease adjusted leverage covenant ratio ("LALR ratio") and fixed charge coverage covenant ratio ("FCC ratio") for the remainder of fiscal year 2020, adjustments allowable during the first three fiscal quarters of 2021 to the LALR ratio, including increasing the maximum LALR ratio permitted and allowing the use of a seasonally adjusted annualized consolidated EBITDA in the LALR ratio calculation, and to the FCC ratio, including only being calculated for applicable periods since the beginning of 2021, and added various other additional covenant requirements. The covenant relief in the Amendment was contingent on the Company raising capital of at least $ 25 million. As a result of the Amendment, the Company repaid $ 59 million on the revolving line of credit such that the amount of the Company's consolidated cash on hand did not exceed $ 30 million as of the Amendment Effective Date; paid certain customary amendment fees to lenders and advisors totaling approximately $ 1.9 million, which were capitalized as deferred loan fees and will be amortized over the remaining term of the Credit Facility; and issued 2.6 million shares of common stock raising proceeds of $ 28.7 million, net of stock issuance costs, which were used to pay down the revolving line of credit as required by the Amendment. 13 Table of Contents As of July 12, 2020, the Company had outstanding borrowings under the Credit Facility of $ 206.6 million, in addition to amounts issued under letters of credit of $ 7.5 million. The amounts issued under letters of credit reduce the amount available under the facility but were not recorded as debt. As of December 29, 2019, the Company had outstanding borrowings under the prior credit facility of $ 206.0 million, in addition to amounts issued under letters of credit of $ 7.5 million. Loan origination costs associated with the Credit Facility are included as deferred costs in Other assets, net in the accompanying condensed consolidated balance sheets. Unamortized debt issuance costs were $ 3.7 million and $ 1.0 million as of July 12, 2020 and December 29, 2019. 9. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short term nature or maturity of the instruments. The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying condensed consolidated balance sheets as of July 12, 2020 and December 29, 2019 (in thousands): July 12, 2020 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 6,022 $ 6,022 $ — $ — Total assets measured at fair value $ 6,022 $ 6,022 $ — $ — December 29, 2019 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 7,337 $ 7,337 $ — $ — Total assets measured at fair value $ 7,337 $ 7,337 $ — $ — Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized or disclosed at fair value on the condensed consolidated financial statements on a nonrecurring basis include items such as property, plant and equipment, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired. As of July 12, 2020, the Company measured non-financial assets for impairment using continuing and projected future cash flows, as discussed in Note 2, COVID-19 Pandemic , which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. Based on our restaurant asset impairment analyses during fiscal year 2020, we impaired long-lived assets at 34 Company-owned restaurants with carrying values of $ 58 million. We determined the fair value of these long-lived restaurant assets to be $ 34.9 million. See Note 2, COVID-19 Pandemic , for discussion of the first quarter 2020 nonrecurring fair value measurement of goodwill and related impairment charges. Disclosures of Fair Value of Other Assets and Liabilities The Company's liability under its Credit Facility is carried at historical cost in the accompanying condensed consolidated balance sheets. Due to market interest rates decreasing during the second fiscal quarter of 2020, the Company determined the carrying value of the liability under its Credit Facility did not approximate fair value. The carrying value and fair value of the Credit Facility as of July 12, 2020 were $ 206.6 million and $ 217.6 million. As of December 29, 2019, the carrying value of the Credit Facility approximated fair value as the interest rate on the instrument approximated current market rates. The interest rate on the Credit Facility represents a level 2 fair value input. 14 Table of Contents 10. Commitments and Contingencies On July 14, 2017, a current hourly employee filed a class action lawsuit alleging that the Company failed to provide required meal breaks and rest periods and failed to reimburse business expenses, among other claims. The case is styled Manuel Vigueras v. Red Robin International, Inc. and is currently pending before the United States District Court in Santa Ana, California. In a related action, on September 21, 2017, a companion case, styled Genny Vasquez v. Red Robin International, Inc. was filed and is currently pending in California Superior Court in Santa Ana, California and involves claims under the California Private Attorneys' General Act that partially overlap the claims made in the Vigueras matter. In the first quarter of 2020, the Company reached a tentative settlement agreement resolving all claims and the cost of class administration in both cases for an aggregate $ 8.5 million. The Company is in the process of finalizing the settlement agreement, which will then be submitted to the court for approval. Court approval is required before any settlement agreement between the parties becomes final. An additional $ 4.5 million was accrued to reach the $ 8.5 million settlement amount during the first fiscal quarter of 2020. Amounts recorded in the periods presented for litigation contingencies are disclosed in Note 7, Other Charges . In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment-related claims and claims alleging illness, injury, or other food quality, health, or operational issues. Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis. We review the adequacy of accruals and disclosures pertaining to litigation matters each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements. While it is not possible to predict the outcome of these claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the condensed consolidated financial statements. 15 Table of Contents