RED ROBIN GOURMET BURGERS INC 10-Q

ITEM 1. Financial Statements (unaudited) RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands, except for per share amounts) April 18, 2021 December 27, 2020 Assets: Current assets: Cash and cash equivalents $ 22,284 $ 16,116 Accounts receivable, net 10,916 16,510 Inventories 23,736 23,802 Income tax receivable 16,176 16,662 Prepaid expenses and other current assets 12,823 13,818 Total current assets 85,935 86,908 Property and equipment, net 405,157 427,033 Right of use assets, net 427,182 425,573 Intangible assets, net 23,741 24,714 Other assets, net 9,122 10,511 Total assets $ 951,137 $ 974,739 Liabilities and stockholders ' equity: Current liabilities: Accounts payable $ 25,520 $ 20,179 Accrued payroll and payroll-related liabilities 30,090 27,653 Unearned revenue 42,996 50,138 Current portion of lease obligations 51,369 55,275 Current portion of long-term debt 9,692 9,692 Accrued liabilities and other 44,524 39,617 Total current liabilities 204,191 202,554 Long-term debt 154,529 160,952 Long-term portion of lease obligations 463,729 465,233 Other non-current liabilities 16,402 25,287 Total liabilities 838,851 854,026 Commitments and contingencies (see note 9) Stockholders ' equity: Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,622 and 15,548 shares outstanding as of April 18, 2021 and December 27, 2020 20 20 Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of April 18, 2021 and December 27, 2020 — — Treasury stock 4,827 and 4,901 shares, at cost, as of April 18, 2021 and December 27, 2020 ( 196,883 ) ( 199,908 ) Paid-in capital 240,647 243,407 Accumulated other comprehensive income (loss), net of tax 17 ( 4 ) Retained earnings 68,485 77,198 Total stockholders' equity 112,286 120,713 Total liabilities and stockholders ' equity $ 951,137 $ 974,739 See Notes to Condensed Consolidated Financial Statements. 1 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (Unaudited) Sixteen Weeks Ended (in thousands, except for per share amounts) April 18, 2021 April 19, 2020 Revenues: Restaurant revenue $ 318,677 $ 301,434 Franchise and other revenues 7,598 4,631 Total revenues 326,275 306,065 Costs and expenses: Restaurant operating costs (excluding depreciation and amortization shown separately below): Cost of sales 69,166 70,426 Labor 111,659 118,566 Other operating 57,712 52,291 Occupancy 30,100 33,657 Depreciation and amortization 25,888 28,320 Selling, general, and administrative expenses 30,610 41,502 Pre-opening costs — 153 Other charges 5,471 119,379 Total costs and expenses 330,606 464,294 Loss from operations ( 4,331 ) ( 158,229 ) Other expense: Interest expense, net and other 4,330 3,370 Loss before income taxes ( 8,661 ) ( 161,599 ) Income tax provision 52 12,699 Net loss $ ( 8,713 ) $ ( 174,298 ) Loss per share: Basic $ ( 0.56 ) $ ( 13.51 ) Diluted $ ( 0.56 ) $ ( 13.51 ) Weighted average shares outstanding: Basic 15,579 12,903 Diluted 15,579 12,903 Other comprehensive income (loss): Foreign currency translation adjustment $ 21 $ ( 1,147 ) Other comprehensive income (loss), net of tax 21 ( 1,147 ) Total comprehensive loss $ ( 8,692 ) $ ( 175,445 ) See Notes to Condensed Consolidated Financial Statements. 2 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY (Unaudited) Common Stock Treasury Stock Accumulated Other Comprehensive (Loss) Income, net of tax Paid-in Capital Retained Earnings (in thousands) Shares Amount Shares Amount Total Balance, December 27, 2020 20,449 $ 20 4,901 $ ( 199,908 ) $ 243,407 $ ( 4 ) $ 77,198 $ 120,713 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 74 ) 3,025 ( 3,640 ) — — ( 615 ) Non-cash stock compensation — — — — 880 — — 880 Net loss — — — — — — ( 8,713 ) ( 8,713 ) Other comprehensive income — — — — — 21 — 21 Balance, April 18, 2021 20,449 $ 20 4,827 $ ( 196,883 ) $ 240,647 $ 17 $ 68,485 $ 112,286 Common Stock Treasury Stock Accumulated Other Comprehensive Loss, net of tax Paid-in Capital Retained Earnings (in thousands) Shares Amount Shares Amount Total Balance, December 29, 2019 17,851 $ 18 4,928 $ ( 202,313 ) $ 213,922 $ ( 4,373 ) $ 353,266 $ 360,520 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 39 ) 1,605 ( 1,388 ) — — 217 Acquisition of treasury stock — — 72 ( 1,635 ) — — — ( 1,635 ) Non-cash stock compensation — — — — 712 — — 712 Net loss — — — — — — ( 174,298 ) ( 174,298 ) Other comprehensive loss — — — — — ( 1,147 ) — ( 1,147 ) Balance, April 19, 2020 17,851 $ 18 4,961 $ ( 202,343 ) $ 213,246 $ ( 5,520 ) $ 178,968 $ 184,369 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Sixteen Weeks Ended (in thousands) April 18, 2021 April 19, 2020 Cash flows from operating activities: Net loss $ ( 8,713 ) $ ( 174,298 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 25,888 28,320 Gift card breakage ( 2,293 ) ( 1,414 ) Goodwill and restaurant asset impairment 1,242 110,912 Non-cash other charges 516 808 Deferred income tax provision — 21,152 Stock-based compensation expense 880 706 Other, net 1,528 784 Changes in operating assets and liabilities: Accounts receivable 5,567 11,711 Income tax receivable 510 ( 6,194 ) Inventories ( 41 ) 1,484 Prepaid expenses and other current assets 975 2,050 Lease assets, net of liabilities ( 6,312 ) 6,795 Trade accounts payable and accrued liabilities 12,413 ( 8,022 ) Unearned revenue ( 4,849 ) ( 9,460 ) Other operating assets and liabilities, net ( 8,379 ) 1,346 Net cash (used in) provided by operating activities 18,932 ( 13,320 ) Cash flows from investing activities: Purchases of property, equipment, and intangible assets ( 5,400 ) ( 8,746 ) Proceeds from sales of real estate and property, plant, and equipment and other investing activities — 43 Net cash used in investing activities ( 5,400 ) ( 8,703 ) Cash flows from financing activities: Borrowings of long-term debt 35,300 116,000 Payments of long-term debt and finance leases ( 42,322 ) ( 32,006 ) Purchase of treasury stock — ( 1,635 ) Debt issuance costs ( 616 ) ( 1,040 ) Proceeds from exercise of stock options and employee stock purchase plan 245 419 Net cash provided by (used in) financing activities ( 7,393 ) 81,738 Effect of exchange rate changes on cash 29 ( 840 ) Net change in cash and cash equivalents 6,168 58,875 Cash and cash equivalents, beginning of period 16,116 30,045 Cash and cash equivalents, end of period $ 22,284 $ 88,920 Supplemental disclosure of cash flow information Income tax refunds received, net $ ( 473 ) $ ( 11 ) Interest paid, net of amounts capitalized $ 3,182 $ 2,708 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents RED ROBIN GOURMET BURGERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Recent Accounting Pronouncements Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of April 18, 2021, the Company owned and operated 440 restaurants located in 38 states. The Company also had 103 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment. Basis of Presentation The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year. The accompanying Condensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been Condensed or omitted. The Condensed Consolidated Balance Sheet as of December 27, 2020 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim Condensed Consolidated Financial Statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 2020 filed with the SEC on March 3, 2021. Our current and prior year periods, period end dates, and number of weeks included in the period are summarized in the table below: Periods Period End Date Number of Weeks in Period Current and Prior Fiscal Quarters: First Quarter 2021 April 18, 2021 16 First Quarter 2020 April 19, 2020 16 Current and Prior Fiscal Years: Fiscal Year 2021 December 26, 2021 52 Fiscal Year 2020 December 27, 2020 52 Reclassifications Certain amounts presented have been reclassified within the April 19, 2020 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications from Other, net to Gift card breakage within Cash flows provided by (used in) operating activities, and from Prepaid expenses and other current assets to Income tax receivable within Changes in operating assets and liabilities. The reclassifications had no effect on the Company’s cash flows from operations. 5 Table of Contents Recent Accounting Pronouncements Income Taxes In December 2019, the Financial Accounting Standards Board ("FASB") issued Update 2019-12, Income Taxes ("Topic 740") as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for annual and interim reporting periods beginning after December 15, 2020, and early adoption is permitted. We adopted Topic 740 during the first quarter of fiscal year 2021, noting it did not have a material impact to the Company's Condensed Consolidated Financial Statements upon adoption. 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. We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's Condensed Consolidated Financial Statements. 2. COVID-19 Pandemic Overview Due to the novel coronavirus ("COVID-19") pandemic, we continue to navigate unprecedented times for our business and industry. The COVID-19 pandemic has had a material adverse effect on our business; with approved vaccines being distributed and administered, we expect our restaurants’ dining room capacity to continue to increase as public health conditions improve and restrictions are eased. The extent of the reopening process, along with the potential impact of the COVID-19 pandemic on consumer spending behavior, will determine the continued significance of the impact of the COVID-19 pandemic to our operating results and financial position. Rent In response to the impact of COVID-19 on our operations, beginning April 1, 2020 the Company stopped making full lease payments under its existing lease agreements. During the suspension of payments, the Company continued to recognize expenses and liabilities for lease obligations and corresponding right-of-use assets on the balance sheet in accordance with ASC Topic 842 . We are nearing the conclusion of ongoing discussions with landlords regarding restructuring lease payments and rent concessions. As of April 18, 2021, the Company has contractually negotiated rent concessions with the majority of its landlords. The types of rent concessions the Company has negotiated include early termination, early renewal, rent deferral, and rent abatement. For contractual rent concessions that do not substantially change the total cash flows of the lease, the Company has elected to account for these concessions assuming the existing lease agreements provide enforceable rights and obligations consistent with the relief issued by the Financial Accounting Standards Board titled ASC Topic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Relief") . For leases where the rent concession did not substantially change the total cash flows, the concession was accounted for as a remeasurement to the lease liability based on the original discount rate with a corresponding adjustment to the right-of-use asset. Additionally, the classification of the leases was not reassessed. 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 the first fiscal quarter of 2021, it was concluded no leases changed classification between operating and finance. Contractual rent concessions granted to the Company during the first fiscal quarter of 2021 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. 6 Restaurant Assets During the sixteen weeks ended April 18, 2021, the Company recognized $ 1.2 million of asset impairment related to property, plant, and equipment assets at one Company-owned restaurant. During first quarter 2021, the Company determined to permanently close this restaurant after it had remained temporarily closed since the beginning of the COVID-19 pandemic. These impairment charges were included in Other charges on the Condensed Consolidated Statements of Operation and Comprehensive Loss. Income Tax The March 19, 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") created an opportunity for the Company to carry back 2019 and 2020 net operating losses ("NOL's"). The 2019 federal NOL’s were carried back to previous tax periods and resulted in refunds received and recorded during 2020. In 2021, the Company expects to receive approximately $ 16 million of cash tax refunds from remaining federal and state NOL carrybacks. As of April 18, 2021, the Company had approximately $ 5.5 million of federal net operating loss carryforwards from the 2020 and 2021 tax years. The Company has approximately $ 12.6 million of net operating loss carryforwards for state income tax purposes that arose from the 2019, 2020, and 2021 tax years. The federal net operating loss carryforwards will be retained for an indefinite period. Of the state net operating loss carryforwards, approximately $ 0.2 million may expire, if unused, in 2024. The remaining state net operating losses approximating $ 12.4 million may expire, if unused, through 2039 or in some cases will be retained for an indefinite period. The utilization of net operating loss carryforwards may be limited to 80% of taxable income in any given year. The total $ 77.6 million valuation allowance includes $ 5.5 million federal NOL's and the $ 12.6 million state NOL's recorded as of April 18, 2021. 3. Revenue Disaggregation of revenue In the following table, revenue is disaggregated by type of good or service (in thousands): Sixteen Weeks Ended April 18, 2021 April 19, 2020 Restaurant revenue $ 318,677 $ 301,434 Franchise revenue (1) 4,877 2,897 Gift card breakage 2,293 1,414 Other revenue 428 320 Total revenues $ 326,275 $ 306,065 ——————————————————— (1) Franchise royalties and advertising contributions were temporarily abated and not collected at the end of the first quarter of 2020 due to the COVID-19 pandemic. Contract liabilities Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands): April 18, 2021 December 27, 2020 Unearned gift card revenue $ 30,686 $ 38,309 Deferred loyalty revenue $ 12,310 $ 11,829 Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands): Sixteen Weeks Ended April 18, 2021 April 19, 2020 Gift card revenue $ 9,020 $ 11,911 7 Table of Contents 4. Leases Leases are included in right-of-use assets, net, current portion of lease obligations, and long-term portion of lease liabilities on our Condensed Consolidated Balance Sheet as of April 18, 2021 and December 27, 2020 as follows (in thousands): April 18, 2021 Finance Operating Total Right of use assets, net $ 9,362 $ 417,820 $ 427,182 Current portion of lease obligations 856 50,513 51,369 Long-term portion of lease obligations 10,642 453,087 463,729 Total $ 11,498 $ 503,600 $ 515,098 December 27, 2020 Finance Operating Total Right of use assets, net $ 9,644 $ 415,929 $ 425,573 Current portion of lease obligations 1,078 54,197 55,275 Long-term portion of lease obligations 10,937 454,296 465,233 Total $ 12,015 $ 508,493 $ 520,508 The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our Condensed Consolidated Statement of Operations and Comprehensive Loss as follows (in thousands): Sixteen Weeks Ended April 18, 2021 April 19, 2020 Operating lease cost $ 21,461 $ 21,990 Finance lease cost: Amortization of right of use assets 263 203 Interest on lease liabilities 159 138 Total finance lease cost 422 $ 341 Variable lease cost 6,416 8,317 Total $ 28,299 $ 30,648 Maturities of our lease liabilities as of April 18, 2021 were as follows (in thousands): Finance Leases Operating Leases Total Remainder of 2021 $ 902 $ 56,528 $ 57,430 2022 1,327 78,064 79,391 2023 1,244 74,897 76,141 2024 1,264 72,696 73,960 2025 1,283 67,940 69,223 Thereafter 8,784 364,706 373,490 Total future lease liability $ 14,804 $ 714,831 $ 729,635 Less imputed interest 3,306 211,231 214,537 Fair value of lease liability $ 11,498 $ 503,600 $ 515,098 8 Table of Contents Supplemental cash flow and other information related to leases is as follows (in thousands, except other information): Sixteen Weeks Ended April 18, 2021 April 19, 2020 Cash flows from operating activities Cash paid related to lease liabilities Operating leases $ 27,998 $ 12,683 Finance leases 159 138 Cash flows from financing activities Cash paid related to lease liabilities Finance leases 599 — Cash paid for amounts included in the measurement of lease liabilities: $ 28,756 $ 12,821 Right of use assets obtained in exchange for operating lease obligations $ 13,448 $ 2,311 Other information related to operating leases as follows: Weighted average remaining lease term (years) 10.1 years 10.5 years Weighted average discount rate 6.96 % 7.38 % Other information related to finance leases as follows: Weighted average remaining lease term (years) 11.5 years 12.1 years Weighted average discount rate 4.56 % 4.86 % 5. Loss Per Share Basic loss per share amounts are calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted loss per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the company was in a net loss position for both the sixteen weeks ended April 18, 2021 and April 19, 2020, all potentially dilutive common shares are considered anti-dilutive. The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands): Sixteen Weeks Ended April 18, 2021 April 19, 2020 Basic weighted average shares outstanding 15,579 12,903 Dilutive effect of stock options and awards — — Diluted weighted average shares outstanding 15,579 12,903 Awards excluded due to anti-dilutive effect on diluted loss per share 241 318 9 Table of Contents 6. Other Charges Other charges consist of the following (in thousands): Sixteen Weeks Ended April 18, 2021 April 19, 2020 Restaurant closure and refranchising costs $ 2,447 $ 1,406 Restaurant asset impairment 1,242 15,498 Litigation contingencies 1,085 4,500 COVID-19 related costs 569 198 Board and stockholder matter costs 128 1,482 Goodwill impairment — 95,414 Severance and executive transition — 881 Other charges $ 5,471 $ 119,379 Restaurant closure and refranchising costs include the ongoing restaurant operating costs of the Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic, as well as any costs incurred for permanently closed restaurants including lease termination costs. The Company recognized non-cash impairment charges related to restaurant assets at one and 24 Company-owned restaurants during the sixteen weeks ended April 18, 2021 and April 19, 2020 resulting from quantitative impairment analyses. Litigation contingencies include legal settlement costs accrued within the period presented related to class action employment cases and other employment matters. COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members during the pandemic. Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board member in the first quarter of 2021 and to the recruitment and appointment of a new board member, and other board and stockholder matters in the first quarter of 2020. We performed a goodwill impairment analysis during the first quarter of 2020 resulting in full impairment of our goodwill balance. The goodwill impairment was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value. Severance and executive transition in 2020 primarily relates to severance costs associated with the reduction in force of restaurant support center Team Members in April 2020. 7. Borrowings Borrowings as of April 18, 2021 and December 27, 2020 are summarized below (in thousands): April 18, 2021 December 27, 2020 Borrowings Weighted Average Interest Rate Borrowings Weighted Average Interest Rate Revolving credit facility, term loan, and other long-term debt $ 164,221 6.30 % $ 170,644 4.50 % Total debt 164,221 170,644 Less current portion 9,692 9,692 Long-term debt $ 154,529 $ 160,952 Amounts issued under letters of credit $ 8,600 $ 8,700 10 Table of Contents Loan origination costs associated with the Company's credit facility are included as deferred costs in Other assets, net in the accompanying Condensed Consolidated Balance Sheets. Unamortized debt issuance costs were $ 2.4 million and $ 3.3 million as of April 18, 2021 and December 27, 2020. Second Amendment to Credit Agreement On February 25, 2021, the Company entered into the Second Amendment to Credit Agreement (the "Second Amendment"). 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; • 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; and • 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 execution of 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. Additionally, in conjunction with the execution of the Second Amendment, the company performed an analysis of the amendment under ASC Topic 470 , and determined that debt modification accounting was appropriate for our term loan and revolving credit facility due to the change in total capacity under the new amendment. During the first quarter of 2021, the Company expensed approximately $ 1.2 million of deferred financing charges related to a calculated reduction in total borrowing capacity of the revolver. 11 Table of Contents 8. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short term nature or maturity of the instruments. The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of April 18, 2021 and December 27, 2020 (in thousands): April 18, 2021 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 6,788 $ 6,788 $ — $ — Total assets measured at fair value $ 6,788 $ 6,788 $ — $ — December 27, 2020 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 6,740 $ 6,740 $ — $ — Total assets measured at fair value $ 6,740 $ 6,740 $ — $ — Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Assets and liabilities recognized or disclosed at fair value on the Condensed Consolidated Financial Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired. The Company has measured non-financial assets for impairment. We impaired long-lived restaurant assets at one Company-owned restaurant with a carrying value of $ 3.8 million (including right of use assets), recognizing an impairment expense of $ 1.2 million related to the net book value of long-lived restaurant assets for this restaurant. The impairment was recorded as a result of the decision to close this restaurant and nine additional restaurants which had also remained closed since the beginning of the COVID-19 pandemic, whose long-lived restaurant assets had no remaining net book value; see footnote 6 Other Charges of this Quarterly Report on Form 10-Q for additional detail. Disclosures of Fair Value of Other Assets and Liabilities The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. Due to market interest rates decreasing during fiscal year 2021, 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 April 18, 2021 were $ 163.3 million and $ 162.0 million. As of December 27, 2020, the carrying value and fair value of the credit facility were $ 169.8 million and $ 172.6 million. The interest rate on the credit facility represents a level 2 fair value input. 9. Commitments and Contingencies In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment related claims and claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows. 12 Table of Contents