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) October 3, 2021 December 27, 2020 Assets: Current assets: Cash and cash equivalents $ 17,757 $ 16,116 Accounts receivable, net 11,939 16,510 Inventories 23,769 23,802 Income tax receivable 16,165 16,662 Prepaid expenses and other current assets 12,439 13,818 Total current assets 82,069 86,908 Property and equipment, net 388,881 427,033 Right of use assets, net 419,788 425,573 Intangible assets, net 22,419 24,714 Other assets, net 8,567 10,511 Total assets $ 921,724 $ 974,739 Liabilities and stockholders ' equity: Current liabilities: Accounts payable $ 34,638 $ 20,179 Accrued payroll and payroll-related liabilities 32,555 27,653 Unearned revenue 42,621 50,138 Current portion of lease obligations 49,894 55,275 Current portion of long-term debt 9,692 9,692 Accrued liabilities and other 42,240 39,617 Total current liabilities 211,640 202,554 Long-term debt 147,471 160,952 Long-term portion of lease obligations 450,673 465,233 Other non-current liabilities 15,775 25,287 Total liabilities $ 825,559 $ 854,026 Commitments and contingencies (see note 8) Stockholders ' equity: Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,722 and 15,548 shares outstanding as of October 3, 2021 and December 27, 2020 $ 20 $ 20 Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 3, 2021 and December 27, 2020 — — Treasury stock 4,727 and 4,901 shares, at cost, as of October 3, 2021 and December 27, 2020 ( 192,819 ) ( 199,908 ) Paid-in capital 240,445 243,407 Accumulated other comprehensive income (loss), net of tax 10 ( 4 ) Retained earnings 48,509 77,198 Total stockholders' equity 96,165 120,713 Total liabilities and stockholders ' equity $ 921,724 $ 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) Twelve Weeks Ended Forty Weeks Ended (in thousands, except for per share amounts) October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 Revenues: Restaurant revenue $ 270,202 $ 197,009 $ 861,036 $ 658,587 Franchise and other revenues 5,242 3,469 17,658 9,078 Total revenues 275,444 200,478 878,694 667,665 Costs and expenses: Restaurant operating costs (excluding depreciation and amortization shown separately below): Cost of sales 62,671 46,037 193,754 155,243 Labor 99,725 74,344 310,333 255,652 Other operating 51,462 37,631 156,102 124,585 Occupancy 22,519 22,099 74,233 76,514 Depreciation and amortization 18,881 19,173 63,984 68,053 General and administrative expenses 17,691 15,190 57,664 56,054 Selling expenses 12,652 6,094 31,635 26,429 Pre-opening costs 418 89 792 245 Other charges 1,561 4,416 9,228 138,296 Total costs and expenses 287,580 225,073 897,725 901,071 Loss from operations ( 12,136 ) ( 24,595 ) ( 19,031 ) ( 233,406 ) Other expense: Interest expense, net and other 2,870 2,280 9,986 7,629 Loss before income taxes ( 15,006 ) ( 26,875 ) ( 29,017 ) ( 241,035 ) Income tax benefit ( 26 ) ( 20,696 ) ( 328 ) ( 4,297 ) Net loss $ ( 14,980 ) $ ( 6,179 ) $ ( 28,689 ) $ ( 236,738 ) Loss per share: Basic $ ( 0.95 ) $ ( 0.40 ) $ ( 1.83 ) $ ( 16.98 ) Diluted $ ( 0.95 ) $ ( 0.40 ) $ ( 1.83 ) $ ( 16.98 ) Weighted average shares outstanding: Basic 15,709 15,540 15,647 13,945 Diluted 15,709 15,540 15,647 13,945 Other comprehensive (loss) income: Foreign currency translation adjustment $ ( 6 ) $ 9 $ 14 $ ( 1,121 ) Other comprehensive (loss) income, net of tax ( 6 ) 9 14 ( 1,121 ) Total comprehensive loss $ ( 14,986 ) $ ( 6,170 ) $ ( 28,675 ) $ ( 237,859 ) 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 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 95 ) 3,844 ( 3,547 ) — — 297 Non-cash stock compensation — — — — 1,577 — — 1,577 Net loss — — — — — — ( 4,996 ) ( 4,996 ) Other comprehensive (loss) — — — — — ( 1 ) — ( 1 ) Balance, July 11, 2021 20,449 $ 20 4,732 $ ( 193,039 ) $ 238,677 $ 16 $ 63,489 $ 109,163 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 5 ) 220 ( 280 ) — — ( 60 ) Non-cash stock compensation — — — — 2,048 — — 2,048 Net loss — — — — — — ( 14,980 ) ( 14,980 ) Other comprehensive loss — — — — — ( 6 ) — ( 6 ) Balance, October 3, 2021 20,449 $ 20 4,727 $ ( 192,819 ) $ 240,445 $ 10 $ 48,509 $ 96,165 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY (Unaudited) 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 Issuance of common stock, $ 0.001 par value, net of stock issuance costs 2,598 2 — — 28,723 — — 28,725 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 59 ) 2,398 ( 2,228 ) — — 170 Non-cash stock compensation — — — — 1,071 — — 1,071 Net loss — — — — — — ( 56,261 ) ( 56,261 ) Other comprehensive income — — — — — 17 — 17 Balance July 12, 2020 20,449 $ 20 4,902 $ ( 199,945 ) $ 240,812 $ ( 5,503 ) $ 122,707 $ 158,091 Issuance of common stock, $ 0.001 par value, net of stock issuance costs ( 7 ) ( 7 ) Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 1 ) 37 ( 73 ) — — ( 36 ) Non-cash stock compensation — — — — 1,316 — — 1,316 Net loss — — — — — — ( 6,179 ) ( 6,179 ) Other comprehensive income — — — — — 9 — 9 Balance, October 4, 2020 20,449 $ 20 4,901 $ ( 199,908 ) $ 242,048 $ ( 5,494 ) $ 116,528 153,194 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Forty Weeks Ended (in thousands) October 3, 2021 October 4, 2020 Cash flows from operating activities: Net loss $ ( 28,689 ) $ ( 236,738 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 63,984 68,053 Gift card breakage ( 3,231 ) ( 2,329 ) Goodwill and asset impairment 1,357 116,193 Non-cash other charges 319 ( 2,438 ) Deferred income tax provision — 52,439 Stock-based compensation expense 4,501 3,082 Other, net 2,228 639 Changes in operating assets and liabilities: Accounts receivable 4,544 13,250 Income tax receivable 520 ( 57,756 ) Prepaid expenses and other current assets 1,014 11,229 Lease assets, net of liabilities ( 12,628 ) 19,194 Trade accounts payable and accrued liabilities 16,948 ( 9,864 ) Unearned revenue ( 4,286 ) ( 9,331 ) Other operating assets and liabilities, net ( 8,964 ) 11,976 Net cash provided by (used in) operating activities 37,617 ( 22,401 ) Cash flows from investing activities: Purchases of property and equipment ( 19,987 ) ( 14,870 ) Proceeds from sales of real estate and property, plant, and equipment and other investing activities 20 739 Net cash used in investing activities ( 19,967 ) ( 14,131 ) Cash flows from financing activities: Borrowings of long-term debt 109,500 168,000 Payments of long-term debt and finance leases ( 125,216 ) ( 159,004 ) Purchase of treasury stock — ( 1,635 ) Debt issuance costs ( 870 ) ( 2,952 ) Proceeds from issuance of common stock, net of stock issuance costs — 28,945 Proceeds from exercise of stock options and employee stock purchase plan 549 666 Net cash (used in) provided by financing activities ( 16,037 ) 34,020 Effect of exchange rate changes on cash 28 ( 166 ) Net change in cash and cash equivalents 1,641 ( 2,678 ) Cash and cash equivalents, beginning of period 16,116 30,045 Cash and cash equivalents, end of period $ 17,757 $ 27,367 Supplemental disclosure of cash flow information Income tax refunds received, net $ ( 840 ) $ ( 2,391 ) Interest paid, net of amounts capitalized $ 7,586 $ 7,514 See Notes to Condensed Consolidated Financial Statements. 5 Table of Contents RED ROBIN GOURMET BURGERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Recent Accounting Pronouncements Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of October 3, 2021, the Company owned and operated 430 restaurants located in 38 states. The Company also had 101 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 Second Quarter 2021 July 11, 2021 12 Second Quarter 2020 July 12, 2020 12 Third Quarter 2021 October 3, 2021 12 Third Quarter 2020 October 4, 2020 12 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 October 4, 2020 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications within Changes in operating assets and liabilities. The reclassifications had no effect on the Company’s cash flows from operations. 6 Table of Contents Certain amounts presented have been reclassified within the October 4, 2020 Condensed Consolidated Statements Of Operations And Comprehensive Loss to present General and administrative expenses and Selling expenses separately for improved comparability and alignment with industry presentation. The reclassifications had no effect on the Company’s Total costs and expenses, Loss from operations, or Net loss. Recent Accounting Pronouncements 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. Revenue Disaggregation of revenue In the following table, revenue is disaggregated by type of good or service (in thousands): Twelve Weeks Ended Forty Weeks Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 Restaurant revenue $ 270,202 $ 197,009 $ 861,036 $ 658,587 Franchise revenue 4,303 2,584 13,123 5,861 Gift card breakage 438 523 3,231 2,329 Other revenue 501 362 1,304 888 Total revenues $ 275,444 $ 200,478 $ 878,694 $ 667,665 ——————————————————— Contract liabilities Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands): October 3, 2021 December 27, 2020 Unearned gift card revenue $ 29,599 $ 38,309 Deferred loyalty revenue $ 13,022 $ 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): Forty Weeks Ended October 3, 2021 October 4, 2020 Gift card revenue $ 14,448 $ 16,191 3. 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 October 3, 2021 and December 27, 2020 as follows (in thousands): 7 Table of Contents October 3, 2021 Finance Operating Total Right of use assets, net $ 9,774 $ 410,014 $ 419,788 Current portion of lease obligations 1,140 48,754 49,894 Long-term portion of lease obligations 10,813 439,860 450,673 Total $ 11,953 $ 488,614 $ 500,567 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): Twelve Weeks Ended Forty Weeks Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 Operating lease cost $ 16,061 $ 14,992 $ 53,765 $ 51,931 Finance lease cost: Amortization of right of use assets 197 227 657 615 Interest on lease liabilities 131 150 407 412 Total finance lease cost 328 $ 377 $ 1,064 $ 1,027 Variable lease cost 4,496 5,902 15,271 19,207 Total $ 20,885 $ 21,271 $ 70,100 $ 72,165 Maturities of our lease liabilities as of October 3, 2021 were as follows (in thousands): Finance Leases Operating Leases Total Remainder of 2021 $ 550 $ 14,740 $ 15,290 2022 1,327 79,038 80,365 2023 1,244 76,303 77,547 2024 1,264 74,575 75,839 2025 1,283 69,959 71,242 Thereafter 9,441 377,685 387,126 Total future lease liability $ 15,109 $ 692,300 $ 707,409 Less imputed interest 3,156 203,686 206,842 Carrying value of lease liability $ 11,953 $ 488,614 $ 500,567 8 Table of Contents Supplemental cash flow and other information related to leases is as follows (in thousands, except other information): Forty Weeks Ended October 3, 2021 October 4, 2020 Cash flows from operating activities Cash paid related to lease liabilities Operating leases $ 68,036 $ 33,034 Finance leases 406 412 Cash flows from financing activities Cash paid related to lease liabilities Finance leases 1,447 196 Cash paid for amounts included in the measurement of lease liabilities: $ 69,889 $ 33,642 Right of use assets obtained in exchange for operating lease obligations $ 27,483 $ 31,731 Right of use assets obtained in exchange for finance lease obligations $ 988 $ 4,581 Other information related to operating leases as follows: Weighted average remaining lease term 9.9 years 10.3 years Weighted average discount rate 7.01 % 7.12 % Other information related to finance leases as follows: Weighted average remaining lease term 11.0 years 11.9 years Weighted average discount rate 4.56 % 4.93 % 4. 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 twelve week and forty week periods ended October 3, 2021 and October 4, 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): Twelve Weeks Ended Forty Weeks Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 Basic weighted average shares outstanding 15,709 15,540 15,647 13,945 Dilutive effect of stock options and awards — — — — Diluted weighted average shares outstanding 15,709 15,540 15,647 13,945 Awards excluded due to anti-dilutive effect on diluted loss per share 545 895 390 480 9 Table of Contents 5. Other Charges Other charges consist of the following (in thousands): Twelve Weeks Ended Forty Weeks Ended October 3, 2021 October 4, 2020 October 3, 2021 October 4, 2020 Restaurant closure costs $ 1,102 $ 3,982 $ 5,301 $ 12,990 Asset impairment — — 1,357 20,779 Litigation contingencies 160 — 1,330 4,500 COVID-19 related costs 299 430 1,112 1,279 Board and stockholder matter costs — 4 128 2,453 Goodwill impairment — — — 95,414 Severance and executive transition — — — 881 Other charges $ 1,561 $ 4,416 $ 9,228 $ 138,296 Restaurant closure costs represent costs incurred for permanently closed restaurants, including lease termination costs, as well as the ongoing restaurant operating costs of Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic. During the forty weeks ended October 3, 2021, Asset impairment primarily related to the impairment of long-lived 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. During the twelve and forty weeks ended October 4, 2020 the Company recognized non-cash impairment charges related to restaurant assets at two and thirty-six Company-owned restaurants, respectively, 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 new board members, and other board and stockholder matters. 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. 6. Borrowings Borrowings as of October 3, 2021 and December 27, 2020 are summarized below (in thousands): October 3, 2021 December 27, 2020 Borrowings Weighted Average Interest Rate Borrowings Weighted Average Interest Rate Revolving credit facility, term loan, and other long-term debt $ 157,163 6.80 % $ 170,644 4.50 % Total debt 157,163 170,644 Less current portion 9,692 9,692 Long-term debt $ 147,471 $ 160,952 Amounts issued under letters of credit $ 8,600 $ 8,700 10 Table of Contents Loan origination costs associated with the Company's Amended and Restated Credit Agreement (the "Credit Facility") are included as deferred costs in Other assets, net in the accompanying Condensed Consolidated Balance Sheets. Unamortized debt issuance costs were $ 2.0 million and $ 3.3 million as of October 3, 2021 and December 27, 2020. Third Amendment to Credit Agreement In response to the continued uncertainty around the impact of industry labor and supply chain challenges as well as the COVID-19 Delta variant, the Company amended its current credit facility on November 9, 2021 (the "Third Amendment") to obtain additional flexibility to continue to implement our business strategy. The Company anticipates refinancing its Credit Facility in 2022. The Third Amendment further amends the Company’s Amended and Restated Credit Agreement (as amended, the "Credit Facility") to, among other things: • waive the application of the lease adjusted leverage ratio financial covenant (the "Leverage Ratio Covenant") for the third fiscal quarter of 2021 • increase the maximum leverage permitted for purposes of the Leverage Ratio Covenant for the fourth fiscal quarter of 2021 and the first, second and third fiscal quarters of 2022, with the definition of the Leverage Ratio Covenant also being amended to provide that it shall not be calculated on a basis that gives effect to a seasonally adjusted annualized consolidated EBITDA in future periods; • decrease the minimum fixed charge coverage ratio required for purposes of the fixed charge coverage ratio financial covenant (the “FCCR Covenant”) for the first fiscal quarter of 2022, with the definition of the FCCR Covenant also being amended to account for cash tax refunds received in any future period and certain capital expenditures constituting "Expansion Capital Expenditures" being excluded from the calculation thereof; • decrease the minimum liquidity required for purposes of the minimum liquidity covenant and provide for the testing of such minimum liquidity covenant at all times; • make certain amendments to the Credit Facility to (i) provide that certain additional capital expenditures shall constitute "Expansion Capital Expenditures" and (ii) provide that "Expansion Capital Expenditures" shall be permitted for all periods on or prior to the last day of the fiscal quarter of the Company ending on or about October 2, 2022, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) such "Expansion Capital Expenditures" do not exceed certain agreed amounts in each fiscal quarter (with carryforward of unused amounts to the immediately succeeding fiscal quarter), and, for all periods thereafter, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) on a pro forma basis, lease adjusted leverage ratio shall not exceed 5.00x ; • increase the pricing under the Credit Facility for (a) the period from the Third Amendment Effective Date through the first interest determination date occurring after the last day of the fiscal quarter of the Company ending on or about April 17, 2022 to LIBOR (subject to a 1.00 % floor) plus 6.00 % and (b) periods thereafter to LIBOR (to which a 1.00 % LIBOR floor shall apply) plus 6.50 %; • provide that the previously agreed utilization fee of 0.75 % per annum of the daily outstanding principal amount of term loans, revolving loans, swingline loans and letter of credit obligations under the Credit Facility shall be owing solely in respect of the period commencing on February 25, 2021 and ending on the Third Amendment Effective Date, with all such amounts payable on the Third Amendment Effective Date; • reduce the aggregate revolving commitment to $ 75,000,000 on the last day of the fiscal quarter of the Company ending on or about April 17, 2022; • amend the anti-cash hoarding provision to require revolver repayments (but with no associated permanent reduction in the revolving commitment) to the extent that the Company’s consolidated cash on hand exceeds $ 30,000,000 at any time; • revise the requirement that the annual audited financial statements be delivered without a "going concern qualification" to permit such a qualification solely relating to (i) any impending debt maturity (whether under the Credit Facility or otherwise) or (ii) any actual or prospective inability to satisfy a financial maintenance covenant; and • make certain amendments to the Credit Facility to address LIBOR transition matters. 11 Table of Contents The description above is a summary of the Third Amendment and is qualified in its entirety by the complete text of the agreement, which is incorporated herein by reference. In conjunction with the Third Amendment, the Company paid certain customary amendment fees to the lenders under the Credit Facility totaling approximately $ 0.8 million, which will be capitalized as deferred loan fees and amortized over the remaining term of the Credit Facility. 7. 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 October 3, 2021 and December 27, 2020 (in thousands): October 3, 2021 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 5,999 $ 5,999 $ — $ — Total assets measured at fair value $ 5,999 $ 5,999 $ — $ — 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 using continuing and projected future cash flows, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. See footnote 5 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. As of October 3, 2021, the carrying value of the liability under the Company's Credit Facility approximated fair value. 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. 8. 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. 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. 12 Table of Contents