What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-03 compared with 2020-02-25 · 528 added, 354 removed, 475 unchanged (65% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

Consolidated Statements of Operations and Comprehensive (Loss) Income

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Stockholders' Equity

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Notes to Consolidated Financial Statements

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Report of Independent Registered Public Accounting Firm

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We have audited the accompanying consolidated balance sheets of Red Robin Gourmet Burgers, Inc.

and subsidiaries (the Company) as of December 29, 2019 and December 30, 2018, the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 29, 2019, and the related notes (collectively, the consolidated financial statements).

and subsidiaries (the Company) as of December 27, 2020 and December 29, 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 27, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 27, 2020 and December 29, 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 27, 2020, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 29, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 25, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 27, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 3, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgment.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment of Long-lived Assets

As discussed in Note 1 to the consolidated financial statements, the Company reviews its long-lived assets, including restaurant locations for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted cash flows expected to be generated by the assets.

If the assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value.

Fair value is generally determined using forecasted cash flows discounted using an estimated weighted average cost of capital.

As of December 27, 2020, long-lived assets consisted of property and equipment, net of $427,033 thousand, intangible assets subject to amortization, net of $17,254 thousand, and right of use assets, net of $425,573 thousand, which primarily related to restaurant locations.

During the year ended December 27, 2020 the Company recorded an impairment of long-lived assets of $21,700 thousand.

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We identified the evaluation of the impairment analysis of long-lived assets as a critical audit matter.

There was a high degree of subjective auditor judgment in evaluating the estimated undiscounted future cash flows used to test restaurant locations for recoverability and the determination of fair value of restaurant locations when required.

Specifically, a high degree of subjective auditor judgment was required to evaluate future revenues and restaurant level expenses before occupancy as a percentage of future revenues of restaurant locations, including consideration of the impact of COVID-19.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s long-lived asset impairment process, including controls over the identification of restaurant locations at risk of impairment, the determination of estimated undiscounted future cash flows and the fair value of individual restaurant locations, as necessary, and controls over the key assumptions as noted above.

For certain restaurant locations, we (1) compared the Company’s historical revenue and restaurant level expenses before occupancy forecasts to actual revenue and restaurant level expenses before occupancy at the restaurant location level to assess management’s ability to accurately estimate, (2) compared the Company’s estimated future revenue growth rates to external sources and its peer companies, (3) compared the Company’s estimated restaurant level expenses before occupancy as a percentage of revenue to historical actual percentages, and (4) we evaluated the future revenues in consideration of planned business initiatives.

We have served as the Company’s auditor since 2015 .

Denver, Colorado

February 25, 2020

March 3, 2021

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RED ROBIN GOURMET BURGERS, INC.

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(In thousands, except per share amounts)

December 29, 2019

December 30, 2018

December 27, 2020 December 29, 2019

Current assets:

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Accounts receivable, net 16,510 22,372

Inventories 23,802 26,424

Income tax receivable 16,662 5,308

Prepaid expenses and other current assets 13,818 21,338

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Right of use assets, net 425,573 426,248

Goodwill — 96,397

Intangible assets, net 24,714 29,975

Other assets, net 10,511 61,460

Total assets $ 974,739 $ 1,237,580

Liabilities and stockholders' equity:

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Unearned revenue 50,138 54,223

Short-term portion of lease obligations

Current portion of lease obligations 55,275 42,699

Current portion of long-term debt 9,692 —

Accrued liabilities and other current liabilities 39,617 29,403

Total current liabilities 202,554 194,586

Deferred rent

Long-term debt 160,952 206,875

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45,000 shares authorized;

17,851 shares issued;

12,923 and 12,971 shares outstanding

20,449 and 17,851 shares issued;

15,548 and 12,923 shares outstanding as of December 27, 2020 and December 29, 2019

Preferred stock, $ 0.001 par value:

3,000 shares authorized;

no shares issued and outstanding

Treasury stock 4,928 and 4,880 shares, at cost

no shares issued and outstanding as of December 27, 2020 and December 29, 2019

Treasury stock 4,901 and 4,928 shares, at cost as of December 27, 2020 and December 29, 2019

( 199,908 ) ( 202,313 )

Paid-in capital 243,407 213,922

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See Notes to Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share amounts)

December 29, 2019

December 30, 2018

December 31, 2017

December 27, 2020 December 29, 2019 December 30, 2018

Restaurant revenue $ 854,136 $ 1,289,521 $ 1,316,209

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Labor (includes $ 157 , $ 161 , and $ 245 of stock-based compensation)

332,827 456,778 456,262

Other operating 164,468 186,476 182,084

Occupancy 99,521 111,798 114,146

Depreciation and amortization 87,557 91,790 95,371

Selling, general, and administrative expenses (includes $ 4,173 , $ 3,103 , and $ 3,803 of stock-based compensation)

106,822 155,978 146,458

Pre-opening costs 296 319 2,092

Other charges

153,883 21,598 39,131

Total costs and expenses 1,143,861 1,328,141 1,349,048

(Loss) income from operations

Loss from operations ( 275,146 ) ( 13,127 ) ( 10,485 )

Other expense (income):

Interest expense and other

Interest expense 10,163 10,178 10,704

Interest (income) and other, net ( 1,757 ) ( 1,068 ) 221

Total other expenses 8,406 9,110 10,925

(Loss) income before income taxes

Loss before income taxes ( 283,552 ) ( 22,237 ) ( 21,410 )

Income tax benefit ( 7,484 ) ( 14,334 ) ( 14,991 )

Net (loss) income

(Loss) earnings per share:

Net loss $ ( 276,068 ) $ ( 7,903 ) $ ( 6,419 )

Loss per share:

Basic $ ( 19.29 ) $ ( 0.61 ) $ ( 0.49 )

Diluted $ ( 19.29 ) $ ( 0.61 ) $ ( 0.49 )

Weighted average shares outstanding:

Other comprehensive income (loss):

Basic 14,314 12,959 12,976

Diluted 14,314 12,959 12,976

Other comprehensive (loss) income:

Foreign currency translation adjustment $ ( 1,115 ) $ 428 $ ( 1,235 )

Other comprehensive income (loss), net of tax

Total comprehensive (loss) income

Other comprehensive (loss) income, net of tax ( 1,115 ) 428 ( 1,235 )

Total comprehensive loss $ ( 277,183 ) $ ( 7,475 ) $ ( 7,654 )

See Notes to Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

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(In thousands)

Treasury Stock

Common Stock Treasury Stock Accumulated

Comprehensive

Balance, December 25, 2016

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan

Non-cash stock compensation

Other comprehensive income

Capital Retained

Shares Amount Shares Amount Total

Balance, December 31, 2017 17,851 $ 18 4,897 $ ( 202,485 ) $ 210,708 $ ( 3,566 ) $ 382,760 $ 387,435

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Non-cash stock compensation — — — — 4,051 — — 4,051

Net loss — — — — — — ( 6,419 ) ( 6,419 )

Other comprehensive loss — — — — — ( 1,235 ) — ( 1,235 )

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Topic 842 transition impairment, net of tax — — — — — — ( 15,172 ) ( 15,172 )

Net loss — — — — — — ( 7,903 ) ( 7,903 )

Other comprehensive income — — — — — 428 — 428

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 — — ( 99 ) 4,040 ( 3,720 ) — — 320

Acquisition of treasury stock — — 72 ( 1,635 ) — — — ( 1,635 )

Non-cash stock compensation — — — — 4,489 — — 4,489

Issuance of common stock, $0.001 par value, net of stock issuance costs 2,598 2 — — 28,716 — — 28,718

Release of foreign currency translation adjustment — — — — — 5,484 — 5,484

Net loss — — — — — — ( 276,068 ) ( 276,068 )

Other comprehensive loss — — — — — ( 1,115 ) — ( 1,115 )

Balance, December 27, 2020 20,449 $ 20 4,901 $ ( 199,908 ) $ 243,407 $ ( 4 ) $ 77,198 $ 120,713

See Notes to Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

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(In thousands)

December 29, 2019

December 30, 2018

December 31, 2017

December 27, 2020 December 29, 2019 December 30, 2018

Cash Flows From Operating Activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net loss $ ( 276,068 ) $ ( 7,903 ) $ ( 6,419 )

Adjustments to reconcile net loss to net cash provided by operating activities:

Depreciation and amortization 87,557 91,790 95,371

Gift card breakage ( 4,516 ) ( 6,776 ) ( 3,898 )

Other charges - asset impairment and unpaid other charges

Deferred income tax benefit

Goodwill and asset impairments 122,354 15,094 28,127

Non-cash other charges (gains) 2,837 ( 13,621 ) 7,588

Deferred income tax provision (benefit) 51,502 ( 9,640 ) ( 18,613 )

Stock-based compensation expense 4,330 3,344 4,048

Other, net 1,052 678 1,052

Changes in operating assets and liabilities:

Accounts receivable 5,601 2,766 2,922

Inventories 2,239 161 ( 830 )

Income tax receivable ( 11,276 ) ( 5,238 ) 1,359

Prepaid expenses and other current assets 7,443 ( 3,163 ) 5,389

Lease assets, net of liabilities 18,324 696 636

Trade accounts payable and accrued liabilities ( 9,566 ) ( 15,490 ) 5,685

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Debt issuance costs ( 2,952 ) ( 33 ) —

Proceeds from issuance of common stock, net of stock issuance costs 28,718 — —

Proceeds from exercise of stock options and employee stock purchase plan 666 724 914

Net cash provided by (used in) financing activities

Effect of Currency Translation on Cash

Net increase in cash and cash equivalents

Net cash (used in) provided by financing activities ( 11,704 ) 9,678 ( 74,298 )

Effect of exchange rate changes on cash ( 1,065 ) 913 ( 1,306 )

Net change in cash and cash equivalents ( 13,929 ) 11,476 855

Cash and cash equivalents, beginning of period 30,045 18,569 17,714

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Supplemental disclosure of cash flow information

Income taxes paid

Income taxes (refund received) paid $ ( 50,629 ) $ 3,237 $ 2,486

Interest paid, net of amounts capitalized 9,869 9,750 10,013

Change in accrued capital expenditures

Change in construction related payables $ ( 949 ) $ ( 3,910 ) $ ( 507 )

See Notes to Consolidated Financial Statements.

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RED ROBIN GOURMET BURGERS, INC.

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Year-end dates and the number of weeks in each fiscal year are shown in the table below for periods presented in this Form 10-K and for the upcoming fiscal year.

Year End Date

Number of Weeks in Fiscal Year

Fiscal Year Year End Date Number of Weeks in Fiscal Year

Current and Prior Fiscal Years:

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Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 periods.

The areas that require management’s most significant estimates are impairment of long-lived assets, goodwill, lease accounting, insurance/self-insurance reserves, estimating fair value, income taxes, unearned revenue, and stock-based compensation expense.

The areas that require management's most significant estimates are impairment of long-lived assets, lease accounting, estimating fair value, and unearned revenue.

Actual results could differ from those estimates.

Reclassifications - Certain amounts presented in prior periods have been reclassified to conform with the current period presentation.

For the fiscal year ended December 30, 2018, the Company reclassified unfavorable lease rights of $1.4 million from Deferred rent to Other non-current liabilities and reclassified the short-term portion of our lease obligations totaling $0.8 million from Accrued liabilities and other to its own line item on the consolidated balance sheets.

Management believes this presentation better reflects the nature of these liabilities subsequent to the adoption of Topic 842 (Leases), as defined in Note 10, Leases .

For the fiscal years ended December 30, 2018 and December 31, 2017 , the Company reclassified gift card breakage of $3.9 million and $4.0 million , respectively, from Other, net to its own line item presented in the adjustments to reconcile net (loss) income to net cash provided by operating activities on the consolidated statements of cash flows.

As of December 29, 2019, the Company reclassified $ 5.3 million from Prepaid expenses and other current assets to Income tax receivable on the consolidated balance sheets.

For the year ended December 29, 2019, the Company reclassified the following within net cash provided by operating activities on the consolidated statements of cash flows:

$ 15.1 million from Non-cash other charges to Goodwill and restaurant asset impairment, $ 5.2 million from Prepaid expenses and other current assets to Income tax receivable, $ 0.7 million from Other operating assets and liabilities, net to Lease assets, net of liabilities, and $ 0.2 million from Prepaid expenses and other current assets to Inventories.

For the year ended December 30, 2018, the Company reclassified the following within net cash provided by operating activities on the consolidated statements of cash flows:

$ 28.1 million from Non-cash other charges to Goodwill and restaurant asset impairment, $ 1.4 million from Prepaid expenses and other current assets to Income tax receivable, $ 0.8 million from Prepaid expenses and other current assets to Inventories, and $ 0.6 million from Other operating assets and liabilities, net to Lease assets, net of liabilities.

Revenue Recognition - Revenues consist of sales from restaurant operations, franchise revenue, and other revenue including gift card breakage and miscellaneous revenue.

The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant Guest, franchisee, or other customer.

The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company's performance obligation to provide food and beverage to the customer has been satisfied.

The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances.

We recognize revenue from gift cards as either:

(i) Restaurant revenue, when the Company's performance obligation to provide food and beverage to the customer is satisfied upon redemption of the gift card, or (ii) gift card breakage, as discussed below.

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Red Robin Royalty™ deferred revenue primarily relates to a program in which registered members earn an award for a free entrée for every nine entrées purchased.

We recognize the current sale of an entrée and defer a portion of the revenue to reflect partial pre-payment for the future entrée the member is entitled to receive.

We estimate the future value of the award based on the historical average value of redemptions.

We also estimate what portion of registered members are not likely to reach the ninth purchase based on historical activity and recognize the deferred revenue related to those purchases.

We recognize the deferred revenue in restaurant revenue on earned rewards when the Company satisfies its performance obligation at redemption, or upon expiration.

We compare the estimate of the value of future awards to historical redemptions to evaluate the reasonableness of the deferred amount.

Revenues we receive from our franchise arrangements include sales-based royalties, advertising fund contributions, area development fees, and franchise fees.

Red Robin franchisees are required to remit 4.0 % to 5.0 % of their revenues as royalties to the Company and contribute up to 3.0 % of revenues to two national advertising funds.

The Company recognizes these sales-based royalties and advertising fund contributions as the underlying franchisee sales occur.

The Company also provides its franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for area development fees and franchise fees.

The Company capitalizes these fees upon collection from the franchisee, which then amortize over the contracted franchise term as the services comprising the performance obligation are satisfied.

The Company typically grants franchise rights to franchisees for a term of 20 years, with the right to extend the term for an additional ten years if various conditions are satisfied by the franchisee.

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction.

The determination of the gift card breakage rate is based upon the Company's specific historical redemption patterns.

The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption.

Other revenue consists of miscellaneous revenues considered insignificant to the Company's business.

Cash Equivalents - The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.

Amounts receivable from credit card issuers are typically converted to cash within two to four days of the original sales transaction and are considered to be cash equivalents.

Amounts receivable from credit card issuers are typically converted to cash within two days to four days of the original sales transaction and are considered to be cash equivalents.

Cash and cash equivalents are maintained with multiple financial institutions.

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The Company holds cash and cash equivalents at financial institutions in excess of amounts covered by the Federal Depository Insurance Corporation (the "FDIC") and sometimes invests excess cash in money market funds not insured by the FDIC.

Accounts Receivable - Accounts receivable consists primarily of third-party gift card receivables, tenant improvement allowances, and trade receivables due from franchisees for royalties.

Accounts Receivable - Accounts receivable consists primarily of third party gift card receivables, third party delivery partner receivables, trade receivables due from franchisees for royalties, and tenant improvement allowances.

At the end of 2020, there was approximately $ 7.6 million of gift cards in transit in accounts receivable related to gift cards that were sold by third party retailers compared to $ 13.3 million at the end of 2019.

At the end of 2019, there was also approximately $0.6 million related to tenant improvement allowances in accounts receivable compared to $ 2.4 million at the end of 2018.

At the end of 2020, there was also approximately $ 4 million related to third party delivery partners in accounts receivable compared to $ 1.2 million at the end of 2019.

Inventories - Inventories consist of food, beverages, and supplies valued at the lower of cost (first-in, first-out method) or net realizable value.

At the end of 2019 and 2018, food and beverage inventories were $ 8.1 million and $ 8.7 million , respectively, and supplies inventories were $ 18.3 million and $ 18.6 million , respectively.

At the end of 2020 and 2019, food and beverage inventories were $ 6.8 million and $ 8.1 million, and supplies inventories were $ 17.0 million and $ 18.3 million.

Property and Equipment - Property and equipment are recorded at cost.

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The estimated useful lives for property and equipment are:

5 to 20 years

Leasehold improvements

Shorter of lease term or estimated useful life, not to exceed 20 years

Furniture, fixtures and equipment

5 to 20 years

Computer equipment

Buildings 5 years to 20 years

Leasehold improvements Shorter of lease term or estimated useful life, not to exceed 20 years

Furniture, fixtures and equipment 5 years to 20 years

Computer equipment 2 years to 5 years

The Company capitalizes certain overhead related to the development and construction of its new restaurants as well as certain information technology infrastructure upgrades.

Costs incurred for the potential development of restaurants that are subsequently terminated are expensed.

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Leases - The Company leases land, buildings, and equipment used in its operations under operating and finance leases.

Our leases generally have remaining terms of 1 - 15 years, most of which include options to extend the leases for additional 5 -year periods.

Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years.

We determine if a contract contains a lease at inception.

Operating lease assets and liabilities are recognized at the lease commencement date.

Operating lease liabilities represent the present value of lease payments not yet paid.

Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets.

To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases.

We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment.

Our leases typically contain rent escalations over the lease term.

We recognize expense for these leases on a straight-line basis over the lease term.

Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease.

These are amortized through the right-of-use asset as reductions of expense over the lease term.

Some of our leases include rent escalations based on inflation indexes and fair market value adjustments.

Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant's sales in excess of stipulated amounts.

Operating lease liabilities are calculated using the prevailing index or rate at lease commencement.

Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets.

Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.

We elected the practical expedient that does not require us to separate lease and non-lease components for our population of real estate assets.

Goodwill and Intangible Assets, net - Goodwill represents the excess of purchase price over the fair value of identifiable net assets acquired.

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Our decision to perform a qualitative impairment assessment in a given year is influenced by a number of factors, including the significance of the excess of the reporting unit's estimated fair value over carrying value at the last quantitative assessment date, the amount of time in between quantitative fair value assessments, and the price of our common stock.

The Company determined the sustained decrease in our stock price coupled with the closure of dining rooms and significant decline to the equity value of our peers and overall U.S.

stock market represented a goodwill impairment triggering event due to the COVID-19 pandemic.

We performed a quantitative analysis as of our first quarter ended April 19, 2020 to determine if impairment to our goodwill existed for our one reporting unit.

We used a blended approach in calculating fair value of our one reporting unit including the income approach, market approach, and market capitalization approach.

This analysis resulted in full impairment of our goodwill balance totaling $ 95.4 million included in Other charges on the consolidated statements of operations and comprehensive loss.

The goodwill impairment was measured as the amount by which the carrying value of the reporting unit, including goodwill, exceeded its fair value.

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The Company performed a qualitative assessment for the 2019 annual impairment evaluation at the end of the third fiscal quarter and determined goodwill was not impaired.

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By review of macroeconomic conditions, industry and market conditions, cost factors, overall financial performance compared with prior projections and prior actual financial results, other relevant entity-specific events, and changes in share price, we determined it was not more likely than not that the fair value of the reporting unit was less than its carrying amount.

The Company performed a quantitative assessment and determined that goodwill was not impaired as of October 7, 2018.

No indicators of impairment were identified from the date of our impairment test through the end of 2018.

Step one of the impairment test is based upon a comparison of the carrying value of net assets, including goodwill balances, to the fair value of net assets.

Fair value is measured using a combination of the market capitalization method, the income approach, and the market approach.

The market capitalization method uses the Company’s stock price to derive fair value.

The income approach consists of utilizing the discounted cash flow method that incorporates the Company’s estimates of future revenues and costs, discounted using a risk-adjusted discount rate.

The Company’s estimates used in the income approach are consistent with the plans and estimates used to manage operations.

The market approach utilizes multiples of profit measures in order to estimate the fair value of the assets.

The Company evaluates all methods to ensure reasonably consistent results.

Additionally, the Company evaluates the key input factors in the models used to determine whether a moderate change in any input factor or combination of factors would significantly change the results of the tests.

Liquor licenses with indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable.

If the carrying amount is not recoverable, we record an

impairment charge for the excess of the carrying amount over the fair value.

If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value.

We determine fair value based on prices in the open market for license in same or similar jurisdictions.

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Information technology systems, such as internal-use computer software, are reviewed and tested for recoverability if the internal-use computer software is not expected to provide substantive service potential, a significant change occurs in the extent or manner in which the software is used or is expected to be used, a significant change is made or will be made to the software program, or costs of developing or modifying internal-use software significantly exceed the amount originally expected to develop or modify the software.

Other Assets, net - Other assets, net consist primarily of assets related to various deposits, the employee deferred compensation plan and unamortized debt issuance costs on revolving credit facilities.

Other Assets, net - Other assets, net consist primarily of assets related to various deposits, the employee deferred compensation plan, and unamortized debt issuance costs on the credit facility.

Debt issuance costs are capitalized and amortized to interest expense on a straight-line basis which approximates the effective interest rate method over the term of the Company's long-term debt.

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These Advertising Funds are used to build the Company's brand equity and awareness primarily through a national marketing strategy, including national television advertising, digital media, social media programs, email, loyalty, and public relations initiatives.

Contributions to these Advertising Funds from franchisees are recorded as revenue under Franchise revenue in the consolidated statements of operations and comprehensive (loss) income in accordance with Topic 606 (Revenue from Contracts with Customers).

Total advertising costs were $ 44.3 million , $ 44.3 million , and $ 48 million in 2019, 2018, and 2017, respectively, and were included in Selling, general, and administrative expenses.

Contributions to these Advertising Funds from franchisees are recorded as revenue under Franchise revenue in the consolidated statements of operations and comprehensive loss in accordance with ASC Topic 606, Revenue from Contracts with Customers .

Total advertising costs were $ 24.9 million, $ 44.3 million, and $ 44.3 million in 2020, 2019, and 2018 and were included in Selling, general, and administrative expenses.

Advertising production costs are expensed in the period when the advertising first takes place.

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Predetermined loss limits have been arranged with insurance companies to limit the Company's per occurrence cash outlay.

Accrued liabilities and accrued payroll and payroll-related liabilities include the estimated cost to settle reported claims and incurred but unreported claims.

Accrued liabilities and other current liabilities and accrued payroll and payroll-related liabilities include the estimated cost to settle reported claims and incurred but unreported claims.

Legal Contingencies - In the normal course of business, we are subject to various legal proceedings and claims, the outcomes of which are uncertain.

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Costs related to preparing restaurants to introduce Donatos® will be expensed as incurred and included in pre-opening costs.

Income Taxes - Deferred tax liabilities are recognized for the estimated effects of all taxable temporary differences, and deferred tax assets are recognized for the estimated effects of all deductible temporary differences and net operating losses, if any, and tax credit carryforwards.

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Income Taxes - Deferred tax liabilities are recognized for the estimated effects of all taxable temporary differences, and deferred tax assets are recognized for the estimated effects of all deductible temporary differences, net operating losses, and tax credit carryforwards.

Realization of net deferred tax assets is dependent upon profitable operations and future reversals of existing taxable temporary differences.

However, the amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carry forward period are increased or reduced or if there are differences in the timing or amount of future reversals of existing taxable temporary differences.

We do not provide for deferred taxes on the excess of the financial reporting basis over the tax basis in our investments in foreign subsidiaries that are essentially permanent in duration.

We intend to reinvest earnings from our foreign subsidiaries, if any, in those operations for the foreseeable future.

We have not, nor do we anticipate the need to, repatriate funds to the U.S.

to satisfy domestic liquidity needs and, accordingly, we do not provide for U.S.

federal income and foreign withholding tax on

these earnings.

While we do not expect to repatriate cash to the U.S., if these funds were distributed to the U.S., in the form of dividends or otherwise, we would be subject to additional U.S.

income taxes.

Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

Pursuant to the guidance for uncertain tax positions, a taxpayer must be able to more likely than not sustain a position to recognize a tax benefit, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit.

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The Company records interest and penalties associated with audits as a component of income before taxes.

Penalties are recorded in Interest income and other, net, and interest paid or received is recorded in Interest expense and other in the consolidated statements of operations and comprehensive (loss) income.

Penalties are recorded in Selling, general, and administrative expenses, interest received is recorded in Interest income and other, net, and interest paid is recorded in Interest expense on the consolidated statements of operations and comprehensive loss.

The Company recorded immaterial interest expense on the identified tax liabilities in 2020, 2019, and 2018.

Earnings Per Share - Basic earnings per share amounts are calculated by dividing net income by the weighted average number of common shares outstanding during the year.

Diluted earnings per share amounts are calculated based upon the weighted average number of common and potentially dilutive common shares outstanding during the year.

Approximately $ 1.1 million of interest income was recorded related to the $ 49.4 million federal cash tax refund received during the fourth quarter of 2020.

Loss Per Share - Basic loss per share amounts are calculated by dividing net loss by the weighted average number of common shares outstanding during the year.

Diluted loss per share amounts are calculated based upon the weighted average number of common and potentially dilutive common shares outstanding during the year.

Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect.

Diluted earnings per share reflect the potential dilution that could occur if holders of options exercised their holdings into common stock.

The Company uses the treasury stock method to calculate the impact of outstanding stock options.

Diluted loss per share reflect the potential dilution that could occur if holders of options and awards exercised their holdings into common stock.

The Company uses the treasury stock method to calculate the impact of outstanding stock options and awards.

Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding for the fiscal years ended December 27, 2020, December 29, 2019, and December 30, 2018 as follows (in thousands):

2020 2019 2018

Basic weighted average shares outstanding 14,314 12,959 12,976

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Awards excluded due to anti-dilutive effect on diluted earnings per share 489 378 427

Comprehensive (Loss) Income - Comprehensive (loss) income consists of the net income or loss and other gains and losses affecting stockholders’ equity that, under U.S.

Comprehensive Loss - Total comprehensive loss consists of the net loss and other gains and losses affecting stockholders' equity that, under U.S.

GAAP, are excluded from net income.

Other comprehensive (loss) income as presented in the Consolidated Statements of Stockholders’ Equity for 2019, 2018, and 2017 consisted of the foreign currency translation adjustment resulting from the Company's Canadian restaurant operations.

Other comprehensive (loss) income as presented in the consolidated statements of operations and comprehensive loss for 2020, 2019, and 2018 consisted of the foreign currency translation adjustment resulting from the Company's Canadian restaurant operations.

Stock-Based Compensation - The Company maintains several equity incentive plans under which it may grant stock options, stock appreciation rights, restricted stock, stock variable compensation, or other forms of awards granted or denominated in the Company's common stock or units of the Company's common stock, as well as cash variable compensation awards to employees, non-employees, directors, and consultants.

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The assets of the deferred compensation plan are held in a rabbi trust, where they are invested in certain mutual funds that cover an investment spectrum range from equities to money market instruments.

Increases in the market value of the investments held in the trust result in the recognition of deferred compensation expense reported in Selling, general, and administrative expenses and recognition of investment gain reported in Interest income and other, net, in the consolidated statements of operations and comprehensive income (loss).

Decreases in the market value of the investments held in the trust result in the recognition of a reduction to deferred compensation expense and recognition of investment loss reported in Interest income and other, net, in the consolidated statements of operations and comprehensive income (loss).

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Foreign Currency Translation - The Canadian Dollar is the functional currency for our Canadian restaurant operations.

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The resulting translation adjustment is recorded as a separate component of Other comprehensive (loss) income.

Gain or loss from foreign currency transactions is recognized in our consolidated statements of operations and comprehensive (loss) income.

Revenue Recognition

Revenues consist of sales from restaurant operations, franchise revenue, and other revenue including gift card breakage and miscellaneous revenue.

The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant Guest, franchisee, or other customer.

Restaurant revenue

The Company recognizes revenues from restaurant sales when payment is tendered at the point of sale, as the Company’s performance obligation to provide food and beverage to the customer has been satisfied.

The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances.

We recognize revenue from gift cards as either:

(i) Restaurant revenue, when the Company’s performance obligation to provide food and beverage to the customer is satisfied upon redemption of the gift card, or (ii) gift card breakage, as discussed in Other revenue below.

Red Robin Royalty™ deferred revenue primarily relates to a program in which registered members earn an award for a free entrée for every nine entrées purchased.

We recognize the current sale of an entrée and defer a portion of the revenue to reflect partial pre-payment for the future entrée the member is entitled to receive.

We estimate the future value of the award based on the historical average value of redemptions.

We also estimate what portion of registered members are not likely to reach the ninth purchase based on historical activity and recognize the deferred revenue related to those purchases.

We recognize the deferred revenue in restaurant revenue on earned rewards when the Company satisfies its performance obligation at redemption, or upon expiration.

We compare the estimate of the value of future awards to historical redemptions to evaluate the reasonableness of the deferred amount.

Gain or loss from foreign currency transactions is recognized in our consolidated statements of operations and comprehensive loss.

During the fourth quarter of 2020, the Company substantially completed the exit of Company-owned restaurants in Canada resulting in the removal of the accumulated currency translation adjustment as a component of stockholders' equity and the recognition in Other charges on the consolidated statements of operations and comprehensive loss totaling a loss of $ 5.5 million.

COVID-19 Pandemic

Due to the COVID-19 pandemic, we continue to navigate unprecedented times for our business and industry.

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.

Franchise Revenue

Revenues we receive from our franchise arrangements include sales-based royalties, advertising fund contributions, area development fees, and franchise fees.

Red Robin franchisees are required to remit 4.0% to 5.0% of their revenues as royalties to the Company and contribute up to 3.0% of revenues to two national advertising funds.

The Company recognizes these sales-based royalties and advertising fund contributions as the underlying franchisee sales occur.

The Company also provides its franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for area development fees and franchise fees.

The Company capitalizes these fees upon collection from the franchisee, which then amortize over the contracted franchise term as the services comprising the performance obligation are satisfied.

The Company typically grants franchise rights to franchisees for a term of 20 years , with the right to extend the term for an additional ten years if various conditions are satisfied by the franchisee.

Other revenue

The determination of the gift card breakage rate is based upon the Company’s specific historical redemption patterns.

The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption.

Other revenue also consists of miscellaneous revenues considered insignificant to the Company’s business.

In response to COVID-19's effect on our franchisee's operations throughout 2020, we temporarily abated franchise royalty payments and advertising contributions at various times during the year.

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.

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 .

Rent and Leases

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.

The Company has concluded negotiations with many of its landlords representing more than 75 % of its leases as of December 27, 2020.

Rent concessions agreed upon 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 a $ 8.6 million remeasurement to increase the lease liability and right-of-use asset resulting from contractual rent concessions under the FASB relief during 2020 and recorded an additional $ 1.1 million of broker's fees to the right-of-use asset.

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.

During 2020, one lease changed classification from operating to finance, and one lease changed classification from finance to operating.

Based on updated discount rates, a $ 49.0 million remeasurement was recorded to increase the lease liability and a $ 49.2 million adjustment, inclusive of broker's fees, was recorded to increase the right-of-use asset during 2020.

Contractual rent concessions granted to the Company during 2020 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.

As discussed in Note 1, Description of Business and Summary of Significant Accounting Policies , the Company recognized full goodwill impairment during the first quarter of 2020 totaling $ 95.4 million resulting from the negative effects of COVID-19 on our business.

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Restaurant Assets

During 2020, the Company recognized $ 21.7 million of impairment related to restaurant assets included in Other charges on the consolidated statements of operations and comprehensive loss resulting from the continuing and projected future results of 40 Company-owned restaurants.

Restaurant asset impairment of $ 5.7 million was related to six permanently closed Company-owned restaurants and included in Restaurant closure and refranchising costs in Note 5, Other Charges .

Additional restaurant asset impairment was recognized during the fourth quarter of 2020 due to planned permanent closures of certain temporarily closed restaurants.

Although current fiscal year to date results continue to align with management's forecast, the increase in reported COVID-19 cases during the fourth quarter of 2020 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.

Our restaurant asset impairment assessment is based on inputs subject to various risks and uncertainties caused by the COVID-19 pandemic, including forecasted revenues, expenses, and cash flows, current discount rates, growth rates, observable market data, and changes to the regulatory environment.

If reported COVID-19 cases increase or other factors associated with the pandemic develop, management's forecast could change in future periods requiring additional restaurant asset impairment.

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.

Under provisions of the CARES Act, we are deferring approximately $ 18 million in payroll taxes to be paid in fiscal years 2022 and 2023.

On February 25, 2021, the Company entered into the Second Amendment to our credit facility.

The Second Amendment further amends the credit facility to, among other things:

• suspend the application of (a) the lease adjusted leverage ratio financial covenant (the "LALR ratio") and (b) the fixed charge coverage ratio (the "FCC ratio") for the first and second fiscal quarters of 2021;

• increase the maximum leverage permitted for purposes of the LALR ratio for the fourth fiscal quarter of 2021 and the first and second fiscal quarters of 2022;

• for the third and fourth fiscal quarters of 2021 and the first fiscal quarter of 2022, provide that (a) the LALR ratio will be calculated using a seasonally adjusted annualized consolidated EBITDA for the applicable period since the beginning of the third fiscal quarter and (b) the FCC ratio will be calculated only for the applicable periods since the beginning of the third fiscal quarter of 2021;

• revise the FCC ratio to account for cash tax refunds received in fiscal year 2021;

• amend the minimum liquidity covenant such that is it measured as of the last day of each applicable fiscal quarter and (a) for the first and second quarters of 2021, requires minimum liquidity of $ 55 million and (b) for the third and fourth fiscal quarters of 2021, requires minimum liquidity of $ 42 million;

• remove provisions requiring mandatory prepayments from net cash proceeds of certain equity issuances and convertible debt issuances;

• shorten the maturity date applicable to the revolver and term loan to January 10, 2023;

• reduce the aggregate revolving commitment to $ 130 million on the Second Amendment effective date and to $ 100 million at the end of the third fiscal quarter of 2021;

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• increase the pricing under the credit facility for (a) the period from the Second Amendment effective date through the first interest determination date occurring after the fourth fiscal quarter of 2021 to LIBOR (subject to a 1 % floor) plus 4.50 % and (b) periods thereafter to LIBOR (subject to a 1 % floor) plus 4 %;

• require the payment of a utilization fee (paid on the revolver maturity date) equal to 0.75 % per annum of the daily outstanding principal balance of term loans, revolving loans, swingline loans, and letter of credit obligations from the Second Amendment effective date to the first interest determination date occurring after the fourth fiscal quarter of 2021;

• subject to limited exceptions and other limitations, prohibit certain capital expenditures, restricted payments, acquisitions, and other investments until the Company delivers a compliance certificate for a fiscal quarter (beginning with third fiscal quarter of 2021 and the fourth fiscal quarter of 2021 specifically for restricted payments) demonstrating a LALR ratio less than or equal to 5.00 :1.00;

• amend the maximum allowable cash on hand provision to require revolver payments (but with no associated permanent reduction in the revolving commitment) to the extent that the Company's consolidated cash on hand exceeds $ 35 million at any time.

In conjunction with the Second Amendment, the Company paid certain customary amendment fees to the lenders under the credit facility totaling approximately $ 0.6 million which will be capitalized as deferred loan fees and amortized over the remaining term of the credit facility.

Disaggregation of Revenue

In the following table, revenue is disaggregated by type of good or service (in thousands):

December 29, 2019

December 30, 2018

December 31, 2017

December 27, 2020 December 29, 2019 December 30, 2018

Restaurant revenue $ 854,136 $ 1,289,521 $ 1,316,209

Franchise revenue (1)

8,853 17,497 17,409

Gift card breakage 4,516 6,776 3,898

Other revenue 1,210 1,220 1,047

Total revenues $ 868,715 $ 1,315,014 $ 1,338,563

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(1) The decrease in Franchise revenue during 2020 was driven by the temporary abatement and non-collection of franchise payments.

See Note 2, COVID-19 Pandemic , for further discussion.

Contract Liabilities

Unearned gift card revenue at December 29, 2019 and December 30, 2018 was $43.5 million and $45.3 million .

Deferred loyalty revenue, which was also included in Unearned revenue in the accompanying consolidated balance sheets, was $10.7 million and $10.0 million at December 29, 2019 and December 30, 2018 .

Revenue recognized in the 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):

December 29, 2019

December 30, 2018

December 31, 2017

Components of Unearned revenue in the consolidated balance sheets are as follows (in thousands):

December 27, 2020 December 29, 2019

Unearned gift card revenue $ 38,309 $ 43,544

Deferred loyalty revenue $ 11,829 $ 10,679

Revenue recognized in the consolidated statements of operations and comprehensive loss 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):

December 27, 2020 December 29, 2019 December 30, 2018

Gift card revenue $ 16,385 $ 19,941 $ 17,487

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Recent Accounting Pronouncements

Current Expected Credit Losses

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Update 2016-13, Financial Instruments - Credit Losses (“Topic 326”), subsequently amended by various standard updates.

This guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when determining credit loss estimates and requires financial assets to be measured net of expected credit losses at the time of initial recognition.

This guidance is effective for annual and interim reporting periods beginning after December 15, 2019 using a modified retrospective adoption method.

Early adoption is permitted.

We evaluated the guidance by reviewing our trade and other receivable balances and grouping them into asset pools based on similar risk characteristics.

We then reviewed our asset pools for collectibility using a broad range of factors including historical collections data as well as qualitative analysis of both historical and prospective factors to develop an expected loss rate.

We then applied the expected loss rate to the asset pools to determine the expected impact of our adoption of the standard.

Based on our analysis, we do not expect to recognize a material impact upon adoption in the first quarter of 2020.

In December 2019, the Financial Accounting Standards Board ("FASB") issued Update 2019-12, Income Taxes ("Topic 740") as part of its Simplification Initiative.

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This guidance is effective for annual and interim reporting periods beginning after December 15, 2020, and early adoption is permitted.

We plan to adopt during the first quarter of 2021, and we expect an immaterial impact to the consolidated financial statements.

Reference Rate Reform

In March 2020, FASB issued Update 2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference LIBOR or another reference rate expected to be discontinued.

Under this update, contract modifications resulting in a new reference rate may be accounted for as a continuation of the existing contract.

This guidance is effective upon issuance of the update and applies to contract modifications made through December 31, 2022.

We are currently evaluating the full impact this guidance will have on our consolidated financial statements.

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Other charges consist of the following (in thousands):

December 29, 2019

December 30, 2018

December 31, 2017

December 27, 2020 December 29, 2019 December 30, 2018

Goodwill impairment $ 95,414 $ — $ —

Asset impairment 26,940 15,094 28,127

Executive transition and severance

Board and stockholder matter costs

Executive retention

Restaurant closures and refranchising

Restaurant closure and refranchising costs (gains) 19,846 ( 1,187 ) —

Litigation contingencies 6,440 — 4,795

Board and stockholder matters costs 2,504 3,261 —

COVID-19 related costs 1,858 — —

Severance and executive transition 881 3,450 —

Executive retention — 980 —

Reorganization costs — — 3,273

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Other charges $ 153,883 $ 21,598 $ 39,131

Goodwill Impairment

The Company recognized full goodwill impairment during the first quarter of 2020 totaling $ 95.4 million resulting from the negative effects of COVID-19 on our business.

See Note 1, Description of Business and Summary of Significant Accounting Policies , for further discussion.

Asset Impairment

During 2019, the Company determined long-lived assets at 29 Company-owned restaurants were impaired and recognized a non-cash impairment charge of $15.1 million .

During 2018 and 2017, the Company impaired long-lived assets of 41 and 13 Company-owned restaurants and recognized non-cash impairment charges of $ 28.1 million and $ 6.9 million , respectively.

19 of the 41 restaurants impaired in 2018 had immaterial impairments.

The Company recognized the asset impairment charges resulting from the continuing and projected future results of these restaurants, primarily through projected cash flows.

The fair value measurement for asset impairment is based on significant inputs not observed in the market and thus represents a level 3 fair value measurement.

Each restaurant’s past and present operating performance was reviewed in combination with projected future results, primarily through projected undiscounted cash flows.

The Company compared the carrying amount of each restaurant’s assets to its fair value as estimated by management.

The fair value of the long-lived assets is generally determined using a discounted cash flow projection model.

In certain cases, management uses other market information, when available, to estimate the fair value of a restaurant.

The impairment charges represent the excess of each restaurant’s carrying amount over its estimated fair value.

Executive Transition and Severance

During 2019, the Company recorded $3.5 million of executive transition and severance costs primarily related to the transition and realignment of our executive team, including the appointment of a new CEO in the third quarter of 2019.

Board and Stockholder Matter Costs

During 2019, the Company recorded $3.3 million of board and stockholder matter costs primarily related to the recruitment and appointment of the three new board members and the adoption of a shareholder rights plan.

Executive Retention

During 2019, the Company recorded $1.0 million of executive retention costs related to payments made to retain executive leadership believed to be critical to the ongoing operation of the Company during the uncertainty created following the retirement of our CEO in early April 2019 and throughout the subsequent transition period.

The retention agreement is filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on April 21, 2019.

Restaurant Closures and Refranchising

During 2020, the Company determined long-lived assets at 40 Company-owned restaurants were impaired and recognized non-cash impairment charges of $ 21.7 million.

See Note 2, COVID-19 Pandemic , for further discussion.

Additionally, the Company impaired information technology assets totaling $ 5.2 million due to the COVID-19 pandemic redirecting our implementation of certain digital platforms in order to accelerate our speed to market.

During 2019 and 2018, the Company impaired long-lived assets of 29 and 41 Company-owned restaurants and recognized non-cash impairment charges of $ 15.1 million and $ 28.1 million.

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Restaurant Closure and Refranchising Costs

During 2020, the Company temporarily closed 35 restaurants due to COVID-19.

Of the temporarily closed restaurants, we permanently closed six restaurants and reopened 17 restaurants as of the end of 2020.

During periods of temporary closure, restaurant operating and occupancy costs were included in Restaurant closures and refranchising costs.

In total, the Company permanently closed 11 restaurants, of which six were initially temporarily closed due to COVID-19.

Due to permanent closure of certain restaurants during 2020, we impaired long-lived assets at six of the 11 permanently closed restaurants totaling $ 5.7 million.

Additionally, during 2020, the Company substantially completed the exit of Company-owned restaurants in Canada and accordingly recognized the accumulated currency translation adjustment as a loss in Other charges on the consolidated statements of operations and comprehensive loss totaling $ 5.5 million.

During 2019, the Company closed 18 restaurants resulting in a gain of $ 1.2 million.

The gain on restaurant closures was driven by favorable lease terminations at the closed restaurant locations.

Non-cash impairment charges relating to restaurant closures are included in Restaurant Closures and Refranchising component of other charges.

During 2018 and 2017, the Company closed four and three restaurants, respectively.

The related restaurant closure costs were immaterial.

The Company evaluates restaurants that are sold or closed and allocates goodwill based on the relative fair value of the disposal restaurants to the Company’s reporting unit.

Since restaurant operations are typically valued based on cash flow from operations, the Company compares the historical cash flow from the closed restaurants to the cash flow from the reporting unit to determine the relative value.

The goodwill allocated to the restaurants closed in 2019, 2018, and 2017 was immaterial.

The gain is driven by early lease terminations on previously closed restaurants.

During 2018, the Company closed four restaurants resulting in immaterial restaurant closure costs.

Litigation Contingencies

In 2018, the Company recorded $ 4.8 million of litigation contingencies for employment-related claims.

Smallwares Disposal

During 2018, the Company recorded $2.9 million of costs related to the disposal of smallwares.

In 2020, the Company recorded $ 6.4 million of legal settlement costs primarily related to class action employment cases.

See Note 13, Commitments and Contingencies , for further discussion.

In 2018, the Company recorded $ 4.8 million of litigation contingencies for class action employment cases that were settled in January 2021.

Board and Stockholder Matters Costs

During 2020, the Company recorded $ 2.5 million of board and stockholder matters costs primarily related to the shareholder rights plan and the recruitment and appointment of a new board member in the first quarter of 2020.

During 2019, the Company recorded $ 3.3 million of board and stockholder matters costs primarily related to the recruitment and appointment of the three new board members and the adoption of a shareholder rights plan.

COVID-19 Related Costs

In 2020, the Company recorded $ 1.9 million of costs related to purchasing personal protective equipment for restaurant Team Members and Guests and providing emergency sick pay to restaurant Team Members during the pandemic.

Severance and Executive Transition

During 2020, the Company recorded $ 0.9 million of severance and executive transition costs primarily related to severance costs associated with the reduction in force of restaurant support center Team Members in the first quarter of 2020.

During 2019, the Company recorded $ 3.5 million of severance and executive transition costs primarily related to the transition and realignment of our executive team, including the appointment of a new CEO in the third quarter of 2019.

Executive Retention

During 2019, the Company recorded $ 1.0 million of executive retention costs related to payments made to retain executive leadership believed to be critical to the ongoing operation of the Company during the uncertainty created following the retirement of our CEO in early April 2019 and throughout the subsequent transition period.

Reorganization Costs

During 2018, the Company recorded $ 3.3 million of severance costs related to the reorganization in first quarter 2018.

Smallwares Disposal

During 2018, the Company recorded $ 2.9 million of costs related to the disposal of smallwares.

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Property and Equipment

Property and equipment consist of the following at December 27, 2020 and December 29, 2019 (in thousands):

December 29, 2019

December 30, 2018

December 27, 2020 December 29, 2019

Land $ 41,850 $ 41,850

Buildings 97,550 96,944

Leasehold improvements 682,449 708,954

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Construction in progress 5,086 13,697

Property and equipment, at cost

Property and equipment, gross $ 1,229,986 $ 1,273,319

Accumulated depreciation and amortization ( 802,953 ) ( 755,306 )

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Foreign currency translation adjustment ( 983 ) 559

The Company recorded no goodwill impairment losses in the period presented in the table above or any prior periods.

Goodwill impairment (1)

Balance, end $ — $ 96,397

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(1) See Note 2, COVID-19 Pandemic , for further discussion of goodwill impairment recognized during 2020.

The following table presents intangible assets as of December 27, 2020 and December 29, 2019 (in thousands):

December 29, 2019

December 30, 2018

December 27, 2020 December 29, 2019

Amount Accumulated

Amortization Net

Amount Accumulated

Amortization Net

Intangible assets subject to amortization:

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Liquor licenses and other 9,714 ( 9,364 ) 350 10,737 ( 9,869 ) 868

$ 72,687 $ ( 55,433 ) $ 17,254 $ 77,074 $ ( 54,559 ) $ 22,515

Indefinite-lived intangible assets:

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Intangible assets, net $ 80,147 $ ( 55,433 ) $ 24,714 $ 84,534 $ ( 54,559 ) $ 29,975

No impairment charges were recorded related to indefinite-lived intangibles in 2019, 2018, and 2017.

There were immaterial impairments of franchise rights and liquor licenses subject to amortization related to the 29 restaurants impaired in 2019, immaterial impairments of franchise rights, leasehold interests, and liquor licenses subject to amortization related to the

41 restaurants impaired in 2018, and immaterial impairments of franchise rights and liquor licenses subject to amortization related to the 13 restaurants impaired in 2017, which are discussed in Note 4, Other Charges.

There were no other impairments of intangible assets subject to amortization in 2019, 2018, or 2017.

The aggregate amortization expense related to intangible assets subject to amortization for 2019, 2018, and 2017 was $4.4 million , $4.3 million , and $4.9 million , respectively.

Immaterial impairment charges were recorded related to finite-lived intangibles resulting from the continuing and projected future results at Company-owned restaurants in 2020, 2019, and 2018, and no impairment charges were recorded related to indefinite-lived intangibles in 2020, 2019, and 2018.

The aggregate amortization expense related to intangible assets subject to amortization for 2020, 2019, and 2018 was $ 4.4 million, $ 4.4 million, and $ 4.3 million.

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The estimated aggregate future amortization expense as of December 27, 2020 is as follows (in thousands):

Thereafter 5,656

Accrued Payroll and Payroll-Related Liabilities, and Accrued Liabilities and Other Current Liabilities

Accrued payroll and payroll-related liabilities consist of the following at December 27, 2020 and December 29, 2019 (in thousands):

December 29, 2019

December 30, 2018

December 27, 2020 December 29, 2019

Payroll and payroll-related taxes $ 11,327 $ 16,736

Workers compensation insurance 4,943 5,720

Accrued vacation

Corporate and restaurant incentive compensation 4,776 5,397

Accrued vacation 4,283 5,451

Other 2,324 1,917

Accrued payroll and payroll-related liabilities $ 27,653 $ 35,221

Accrued liabilities and other current liabilities consist of the following at December 27, 2020 and December 29, 2019 (in thousands):

December 29, 2019

December 30, 2018

State and city sales tax payable

General liability insurance

December 27, 2020 December 29, 2019

Legal $ 10,480 $ 4,290

Real estate, personal property, state income, and other taxes payable 6,501 1,135

General liability insurance 6,370 6,622

State and city sales tax payable 3,487 6,776

Utilities 2,747 2,791

Other 10,032 7,789

Accrued liabilities and other current liabilities $ 39,617 $ 29,403

Borrowings as of December 27, 2020 and December 29, 2019 are summarized below (in thousands):

December 29, 2019

December 30, 2018

Interest Rate

December 27, 2020 December 29, 2019

Borrowings Weighted

Interest Rate Borrowings Weighted

Interest Rate

Revolving credit facility and other long-term debt

Revolving credit facility, term loan, and other long-term debt $ 170,644 4.50 % $ 206,875 5.10 %

Total debt 170,644 206,875

Current portion 9,692 —

Long-term debt $ 160,952 $ 206,875

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Maturities of long-term debt as of December 27, 2020 are as follows (in thousands):

Revolving Credit Facility

On June 30, 2016 , the Company entered into a credit facility (the “Credit Facility”), which provides for a $400 million revolving line of credit with a sublimit for the issuance of up to $25 million in letters of credit and swingline loans up to $15 million .

The Credit Facility also includes an option to increase the amount available under the credit facility up to an additional $100 million in the aggregate, subject to the lenders' participation.

The Credit Facility also provides a Canadian Dollar borrowing sublimit equivalent to $20 million .

Borrowings under the New Credit Facility, if denominated in U.S.

Thereafter 875

Credit Facility

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 for a total borrowing capacity of $ 300 million.

In addition, the credit facility allows for the issuance of $ 25 million in letters of credit, swingline loans up to $ 15 million, and the option to increase the borrowing capacity by up to an additional $ 100 million subject to lenders' participation.

The credit facility also provides for a Canadian Dollar borrowing sub-limit equivalent to $ 20 million and limits sale leasebacks transactions to $ 50 million.

In connection with the termination of the credit facility and new borrowings under the credit facility, the Company repaid all outstanding borrowings, accrued interest, and fees under the previous credit facility.

Borrowings refinanced under the credit facility totaled $ 186.6 million, net of loan origination fees.

The credit facility will mature on January 10, 2023.

The term loan requires quarterly principal payments at a rate of 7.0 % per annum of the original principal balance.

Borrowings under the revolving line of credit and term loans denominated in U.S.

Dollars, are subject to rates based on the London Interbank Offered Rate ("LIBOR") plus a spread based on leverage or a base rate plus a spread based on leverage (base rate is the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5 %, and (c) LIBOR for an Interest Period of one month plus 1 %).

Borrowings under the Credit Facility, if denominated in Canadian Dollars, are subject to rates based on LIBOR plus a spread based on leverage or a base rate plus a spread based on leverage (base rate is the highest of (a) the Canadian Prime Rate and (b) the Canadian Dealer Offered Rate (“CDOR Rate”) for an interest period of one month plus 1% ).

On August 19, 2019, the Company entered into a second amendment (the “Amendment”) to the Credit Facility.

The Amendment increases the lease adjusted leverage ratio to 5.0 through December 29, 2019 .

In addition, the Amendment revises the definition of permitted acquisitions under the Credit Facility to correspond with the change to the lease adjusted leverage ratio and clarifies the classification of existing capital and operating leases.

The Company's lease adjusted leverage ratio was 4.72 as of December 29, 2019 .

The Credit Facility matures on June 30, 2021 .

Borrowings under the Credit Facility are secured by first priority liens and security interests in substantially all of the Company's assets, including the capital stock of certain Company subsidiaries, and are available for financing activities including restaurant construction costs, working capital, and general corporate purposes, including, among other uses, to refinance certain indebtedness, permitted acquisitions, and redemption of capital stock.

As of December 29, 2019 , the Company had outstanding borrowings under the Credit Facility of $206.0 million , in addition to amounts issued under letters of credit of $7.5 million .

Additional pricing on the credit facility is effective per the Second Amendment.

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 reference rate.

On May 29, 2020, the Company entered into the First Amendment to the Credit Agreement and Waiver (the "First 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 First Amendment was contingent on the Company raising capital of at least $ 25 million.

As a result of the First 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 First 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 First Amendment.

Borrowings under the credit facility are secured by substantially all of the assets of the Company and are available to:

(i) refinance certain existing indebtedness of the Company and its subsidiaries, (ii) finance restaurant construction costs, (iii) pay costs, fees, and expenses in connection with such new restaurant construction, (iv) pay any fees and expenses in connection with the credit facility, and (v) provide for the working capital and general corporate requirements of the Company, including permitted acquisitions and the redemption of capital stock.

Restrictions on how borrowings are used by the Company are in place per requirements set forth by our lenders.

Tabl e of Contents

The Company will continue to be subject to a number of customary covenants under the credit facility, including limitations on additional borrowings, acquisitions, capital expenditures, share repurchases, lease commitments, dividend payments, and requirements to maintain certain financial ratios including the lease adjusted leverage ratio and fixed charge coverage ratio.

However, the First Amendment provides certain covenant relief to the Company through the end of the third quarter of 2021.

The Company was in compliance with such covenants as of December 27, 2020.

Our debt covenant assessment is based on inputs subject to various risks and uncertainties caused by the COVID-19 pandemic, including forecasted revenues, expenses, and cash flows, current discount rates, growth rates, observable market data, and changes to the regulatory environment.

As of December 27, 2020, the Company had outstanding borrowings under the credit facility of $ 169.8 million, in addition to amounts issued under letters of credit of $ 8.7 million.

The amounts issued under letters of credit reduce the amount available under the Credit Facility but were not recorded as debt.

No outstanding borrowings were considered short-term as of December 29, 2019 and December 30, 2018 .

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.

The amounts issued under letters of credit reduce the amount available under the credit facility but are not recorded as debt.

As of December 27, 2020, the current portion of long-term borrowings under the credit facility totaled $ 9.7 million;

no outstanding borrowings under the prior credit facility were considered current as of December 29, 2019.

On February 25, 2021, the Company entered into the Second Amendment to the credit facility, which is discussed further in Note 2, COVID-19 Pandemic .

Covenant relief and other provisions of the First Amendment discussed above were changed upon execution of the Second Amendment.

Loan origination costs associated with the credit facility are included as deferred costs in Other assets, net in the accompanying consolidated balance sheets, except for the current portion of these costs which is included in Prepaid expenses and other current assets.

Unamortized debt issuance costs were $1.0 million and $1.7 million as of December 29, 2019 and December 30, 2018 , respectively.

The Company is subject to a number of customary covenants under its Credit Facility, including limitations on additional borrowings, acquisitions, capital expenditures, share repurchases, lease commitments, dividend payments, and requirements to maintain certain financial ratios.

The Company was in compliance with such covenants as of December 29, 2019 .

New Credit Facility

On January 10, 2020, the Company replaced its prior Credit Facility with a new Amended and Restated Credit Agreement (the "New Credit Facility") which provides for a $161.5 million revolving line of credit and a $138.5 million term loan for a total borrowing capacity of $300 million .

In addition, the New Credit Facility allows for the issuance of $25 million in letters of credit, swingline loans up to $15 million , and the option to increase the borrowing capacity by up to an additional $100 million subject to lenders' participation.

The New Credit Facility also provides for a Canadian Dollar borrowing sublimit equivalent to $20 million and limits sale leasebacks transactions to $50 million .

In connection with the termination of the Credit Facility and new borrowings under the New Credit Facility, the Company paid off all outstanding borrowings, accrued interest, and fees under the Credit Facility.

Borrowings refinanced under the New Credit Facility totaled $186.6 million , net of loan origination fees.

The New Credit Facility will mature on January 10, 2025.

No amortization is required with respect to the revolving line of credit, and the term loans require quarterly principal payments at a rate of 7.0% per annum of the original principal balance.

Borrowings under the revolving line of credit and term loans denominated in U.S.

Dollars, are subject to rates based on the London Interbank Offered Rate (“LIBOR”) plus a spread based on leverage or a base rate plus a spread based on leverage (base rate is the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% , and (c) LIBOR for an Interest Period of one month plus 1% ).

Borrowings denominated in Canadian Dollars, are subject to rates based on LIBOR plus a spread based on leverage or a base rate plus a spread based on leverage (base rate is the highest of (a) the Canadian Prime Rate and (b) the Canadian Dealer Offered Rate (“CDOR Rate”) for an interest period of one month plus 1% ).

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.

Borrowings under the New Credit Facility are secured by substantially all of the assets of the Company and are available to:

(i) refinance certain existing indebtedness of the Company and its subsidiaries, (ii) finance restaurant construction costs, (iii) pay costs, fees, and expenses in connection with such new restaurant construction, (iv) pay any fees and expenses in connection with the New Credit Facility, and (v) provide for the working capital and general corporate requirements of the Company, including permitted acquisitions and the redemption of capital stock.

The Company will continue to be subject to a number of customary covenants under the New Credit Facility, including limitations on additional borrowings, acquisitions, capital expenditures, share repurchases, lease commitments, dividend payments, and requirements to maintain certain financial ratios including the lease adjusted leverage ratio.

From the closing date of the New Credit Facility to the end of the Company's fiscal year 2020, the maximum allowed lease adjusted leverage ratio is 5.0 .

The maximum allowable lease adjusted leverage ratio then decreases to 4.75 during fiscal year 2021 and decreases again to 4.50 during fiscal year 2022 and thereafter.

Unamortized debt issuance costs were $ 3.3 million and $ 1.0 million as of December 27, 2020 and December 29, 2019.

Fair Value Measurements

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The value of the deferred compensation plan liability is dependent upon the fair value of the assets held in the rabbi trust and therefore is not measured at fair value.

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The following tables present the Company's assets measured at fair value on a recurring basis as of December 27, 2020 and December 29, 2019 (in thousands):

December 29, 2019

December 27, 2020 Level 1 Level 2 Level 3

Investments in rabbi trust $ 6,740 $ 6,740 $ — $ —

Total assets measured at fair value $ 6,740 $ 6,740 $ — $ —

December 30, 2018

December 29, 2019 Level 1 Level 2 Level 3

Investments in rabbi trust $ 7,337 $ 7,337 $ — $ —

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recognized or disclosed at fair value on the 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.

During 2019 and 2018, the Company measured non-financial assets for impairment semi-annually using continuing and projected future cash flows, as discussed in Note 4 , Other Charges , which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement.

Based on our 2019 and 2018 semi-annual impairment analyses, we impaired long-lived assets at 29 and 41 company-owned restaurants with carrying values of $17.3 million and $34.1 million , respectively.

19 of the 41 restaurants impaired in 2018 has immaterial impairments.

We determined the fair value of these long-lived assets in 2019 and 2018 to be $2.2 million and $6.0 million , respectively, based on level 3 fair value measurements.

During 2020 and 2019, the Company measured non-financial assets for impairment using continuing and projected future cash flows, as discussed in Note 5, Other Charges , which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement.

Based on our 2020 and 2019 impairment analyses, we impaired long-lived assets at 40 and 29 Company-owned restaurants with carrying values of $ 67.3 million and $ 17.3 million.

We determined the fair value of these long-lived assets in 2020 and 2019 to be $ 34.7 million and $ 2.2 million based on level 3 fair value measurements.

See Note 1, Description of Business and Summary of Significant Accounting Policies , 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 consolidated balance sheets.

The carrying value of the Credit Facility approximates fair value as the interest rate on this instrument approximates current market rates.

Due to market interest rates decreasing during 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 December 27, 2020 were $ 169.8 million and $ 172.6 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.

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This guidance requires the recognition of liabilities for lease obligations and corresponding right of use assets on the balance sheet and disclosure of key information about leasing arrangements.

We applied the practical expedients that do not require us to reassess existing contracts for embedded leases, to separate lease and non-lease components for our population of real estate assets, or to reassess lease classification or initial direct costs.

The effect of the changes made to our consolidated December 31, 2018 balance sheet as a result of the adoption of Topic 842 was as follows (in thousands):

Balance at December 30, 2018

Adjustments due to Topic 842

Balance at December 31, 2018

We applied the practical expedients that do not require us to reassess existing contracts for embedded leases, to separate leases and non-lease components for our population of real estate assets, or to reassess lease classification or initial direct costs.

Tabl e of Contents

The effects of the changes made to our consolidated balance sheet as of December 30, 2018 as a result of the adoption of Topic 842 was as follows (in thousands):

Balance at December 30, 2018 Adjustments due to Topic 842 Balance at December 30, 2018

Balance Sheet

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Current liabilities

Short-term portion of lease obligations

Current portion of lease obligations 786 40,606 41,392

Non-current liabilities

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Retained earnings $ 376,341 $ ( 15,172 ) $ 361,169

This change did not have any impact on our consolidated statement of operations or consolidated statement of cash flows.

The Company leases land, buildings, and equipment used in its operations under operating and finance leases.