What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2022-03-10 compared with 2021-03-03 · 154 added, 246 removed, 218 unchanged (65% of the section changed)

5 unchanged sentences

As of December 26, 2021, the Company operated 430 Company-owned restaurants located in 38 states.

The Company also had 103 franchised casual dining restaurants in 16 states and one Canadian province as of December 27, 2020.

The Company also had 101 franchised restaurants in 16 states and one Canadian province as of December 26, 2021.

The Company operates its business as one operating and one reportable segment.

6 unchanged sentences

Fiscal Year 2021 Accomplishments

Despite the COVID-19 pandemic, we made significant progress on our transformation strategy during fiscal year 2020 to solidify our financial longevity and develop a more robust enterprise business model.

Despite the continued challenges of the COVID-19 pandemic, and associated staffing and supply chain headwinds, we made significant progress on executing our strategic business model during fiscal year 2021.

Our accomplishments in 2021 include the following:

• Significantly grew off-premise sales, which more than doubled over the prior year;

• Continued Donatos® roll-out, in 79 restaurants as of December 27, 2020;

• Structurally improved restaurant and enterprise-level margin for the long-term compared to 2019;

◦ Reduced our menu by over one-third, improving operational execution and resulting in over $2 million in annual savings;

◦ Implemented new management labor structure which provides better supervisory coverage during peak hours and increases flexibility resulting in approximately $14 million in annual savings excluding labor savings associated with closed restaurants;

◦ Optimized our portfolio by completing lease negotiations for more than 75% of Company-owned restaurants resulting in 3% to 4% in occupancy expense savings over the remaining lease terms, as well as permanently closing select restaurants;

◦ Drove a permanent annual reduction in general and administrative expenses by more than 10%, or approximately $10 million, prior to future growth drivers and other inflationary costs.

• Reduced costs are expected to result in permanent incremental enterprise-level margin improvement of more than 100 basis points, as the Company returns to pre-COVID sales volumes;

• Implemented our TGX hospitality model, which combines technology and improved service coverage to deliver an elevated and more attentive Guest experience.

TGX improved speed of service (including decreased ticket and window times), increased cleanliness scores, and contributed to highest ever product quality and overall Guest satisfaction scores;

• Increased web traffic to drive a record number of Guests to our website, as well as increased social media engagement and a new high in total followers.

Tabl e of Contents

Company Response to COVID-19 Pandemic

Due to the COVID-19 pandemic, we continue to navigate an unprecedented time 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.

During 2020, the Company experienced dining room closures and indoor dining capacity limitations in accordance with local public health orders based on fluctuating COVID-19 cases during the year, particularly in our key states of California, Colorado, Oregon, and Washington that implemented more strict indoor dining restrictions.

Reopening dining rooms and expanding seating capacity was executed with the health, safety, and well-being of Red Robin's Team Members, Guests, and communities in mind with strict adherence to US Centers for Disease Control and Prevention, state, and local guidelines as our top priority.

We remain focused on expanding indoor and outdoor seating capacity, retaining higher off-premise sales levels compared to pre-COVID-19 levels, and consistently delivering a great Guest experience to continue to drive our improving sales.

As dining rooms reopen, we expect to build sales momentum from additional seating expansion, including use of outdoor all-weather tents and indoor booth and other partitions.

We continue to require Team Members to wear face coverings at all times and Guests to wear face coverings while entering, exiting, and walking around our restaurants.

Face masks are provided for Guests who arrive without one to ensure we are enabling the mutual safety of our Guests and Team Members.

Enhanced health and safety protocols remain in place across the business, including social distancing, face mask rules, daily symptom checks at the restaurants, emergency sick pay for hourly Team Members, and telecommuting policies for nearly all restaurant support center Team Members.

Sales and the Guest experience have been positively impacted by the accelerated implementation of our new TGX hospitality model, coupled with strong adherence to health and safety standards.

Notably, restaurants with reopened dining rooms are retaining meaningful off-premise sales, demonstrating the enduring and growing popularity of Red Robin for off-premise occasions.

Our new TGX hospitality model combines technology and improved service coverage to deliver an elevated and more attentive Guest experience.

TGX improved speed of service (including decreased ticket and window times), increased cleanliness scores, and contributed to highest ever product quality and overall Guest satisfaction scores.

TGX enables our servers to stay in their section the majority of the time to engage with Guests while server partners deliver food, beverages, refills, and clear dishes.

The use of handheld point-of-sale devices is critical to sending food orders to our kitchens and beverage orders to our server partners, ensuring speed of service, high quality food, and more attentive beverage and bottomless refills.

Additionally, we are particularly focused on our ability to execute a great off-premise experience.

We have put in place process and technology enhancements which streamlined and reduced friction in the ordering process, improved the accuracy of promise times for order pick-up and delivery, reinforced a triple check accuracy program ensuring every order goes through three checks before being handed to the Guest, added more convenient order pick up options, and dedicated assembly workspaces that can expand during peak periods.

With these measures in place, we are confident that we are delivering an elevated casual dining experience that differentiates Red Robin from the competition.

We secured the Company's liquidity position through our at-the-market equity offering resulting in net proceeds of $28.7 million, reductions in costs as discussed above, receipt of a $49.4 million federal cash tax refund, including interest, provided under provisions of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"), and approximately $16 million of additional federal cash tax refunds expected to be received in 2021.

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

The Company took additional actions during 2020 to improve liquidity and enhance financial flexibility in response to the COVID-19 pandemic, which enabled us to make significant progress on our transformation strategy as outlined above.

These actions included temporarily reducing executive base salaries, Board member cash retainer fees, restaurant support center and non-furloughed restaurant supervisory Team Members wages and salaries by 20%, eliminating more than 50 restaurant support center general and administrative positions, postponing or eliminating all non-essential spend, suspending stock repurchases, temporarily halting full lease payments, and engaging in constructive discussions with landlords to achieve restructuring of lease agreements, as well as rent and other concessions.

We believe the actions we have taken in response to COVID-19 will be sufficient to fund our lease obligations, capital expenditures, and working capital needs for the next 12 months and foreseeable future.

As of February 21, 2021, the Company had approximately $122 million of liquidity, including cash on hand and available borrowing capacity under the credit facility.

This liquidity amount includes the impact of a cash payment of $8.5 million paid during the first quarter of 2021 related to a class action settlement of legal matters originally filed in 2017.

Although franchisees have had to restrict dining room capacity and close indoor dining rooms as a result of state and local public health orders at various times throughout the year, as of December 27, 2020, the majority of our franchisees' restaurants indoor dining rooms were open, and all of our franchisees' restaurants were open for off-premise.

Tabl e of Contents

As of February 28, 2021, the Company had 372 total (comparable and non-comparable) indoor dining rooms reopened with limited capacity, representing approximately 87% of currently open Company-owned restaurants.

Notably, these restaurants have on average maintained off-premise sales that are more than two times what we generated before the pandemic after reopening dining rooms.

As of February 28, 2021, 12 restaurants remained temporarily closed due to the COVID-19 pandemic.

Of the 35 Company-owned restaurants initially closed due to the pandemic, 17 restaurants have been reopened and six restaurants have been permanently closed as of February 28, 2021.

We will continue to evaluate the potential timing of reopening these remaining temporarily closed restaurants.

Restaurant operating level expenses incurred for these restaurants during the temporary closures have been recorded in Restaurant closure and refranchising costs (gains) in Other charges;

see Note 5, Other Charges , in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Net comparable restaurant revenue and average weekly net sales per Company-owned restaurant with reopened indoor dining rooms for the Company's 28 day accounting periods through the second period of fiscal year 2021 and the most recent week ended February 28, 2021 are as follows:

Period Ended (2)

Reopened Company-owned Restaurant Indoor Dining Rooms (3)

1-Nov 29-Nov 27-Dec 24-Jan 21-Feb (4)

Net comparable restaurant revenues (13.7)% (20.7)% (23.3)% (8.1)% (16.3)% (9.1)%

Average weekly net sales per restaurant $42,778 $39,041 $40,578 $44,354 $41,998 $51,150

Number of comparable Company-owned restaurants (1)

362 245 236 299 354 360

———————————————————

(1) Net sales performance for Company-owned restaurants with reopened indoor dining rooms for the full period presented.

Restaurant count shown is as of the end of the period presented.

(2) The periods ended November 1, November 29, and December 27, 2020 comprise the Company's fourth fiscal quarter.

The periods ended January 24, 2021 and February 21, 2021, and the week ended February 28, 2021, fall within our first fiscal quarter of 2021, and amounts presented for the periods are preliminary and subject to closing adjustments.

The first fiscal quarter of 2021 is comprised of the four accounting periods ended April 18, 2021.

(3) Sales performance was negatively impacted in the fourth quarter of 2020 by rising COVID-19 cases resulting in new restrictions lowering or suspending dining room capacity and full restaurant closures being concentrated in our highest performing states of California, Colorado, Oregon, and Washington.

Additionally, the prior year sales amounts in the comparable base included higher holiday season sales volume.

(4) Period includes the impact of reduced traffic due to winter weather in February of approximately 2% to 3%.

Results for this period also include the impact of reopening indoor dining rooms in jurisdictions that require lower capacity than the existing base of restaurants.

(5) Period represents the results of the first week of our third fiscal period.

Net comparable restaurant revenue and average weekly net sales per Company-owned restaurant for the Company's 28 day accounting periods through the second period of fiscal year 2021 and the most recent week ended February 28, 2021 are as follows:

Period Ended (2)

Company-owned Restaurants (3)

1-Nov 29-Nov 27-Dec 24-Jan 21-Feb (4)

Net comparable restaurant revenues (15.4)% (28.8)% (39.5)% (27.0)% (22.4)% (13.3)%

Average weekly net sales per restaurant $42,509 $38,941 $35,716 $39,702 $41,624 $50,226

Number of comparable Company-owned restaurants (1)

412 412 412 413 411 411

———————————————————

(1) Comparable restaurants are those Company-owned restaurants that have operated five full fiscal quarters as of the period presented.

Restaurant count is as of the end of the period presented.

(2) The periods ended November 1, November 29, and December 27, 2020 comprise the Company's fourth fiscal quarter.

The first fiscal quarter of 2021 is comprised of the four accounting periods ended April 18, 2021.

Additionally, the prior year sales amounts in the comparable base included higher holiday season sales volume.

(4) Period includes the impact of reduced traffic due to winter weather in February of approximately 2% to 3%.

Results for this period also include the impact of reopening indoor dining rooms in jurisdictions that require lower capacity than the existing base of restaurants.

(5) Period represents the results of the first week of our third fiscal period.

We expect to see continued benefits from outdoor seating expansion of approximately 16 to 24 incremental seats where jurisdictions and weather allow.

Our outdoor seating expansions have added approximately 10% total capacity to restaurants with expanded outdoor seating.

We are encouraged by the positive trends in revenues and dining room openings in early 2021 as states have begun loosening indoor dining restrictions and COVID-19 vaccines have started to become more available.

These factors along with our business growth initiatives planned for 2021 and the improvements made to our business during 2020 have put the foundation in place to create sustainable long-term value as we move into a post-pandemic operating environment.

Tabl e of Contents

We believe Donatos® will generate annual Company pizza sales of more than $60 million and profitability of more than $25 million by 2023, when we expect to have completed our rollout to approximately 400 Company-owned restaurants.

In 2021, we plan to add Donatos® to approximately 120 restaurants bringing the total number of Company-owned restaurants that offer Donatos® to approximately 200 by the end of the year.

We expect restaurants with Donatos® to drive incremental flow-through of $45 thousand in the second year, yielding a three to four year payback period.

First year startup costs include pre-opening expense of $12 thousand, required first year marketing investments of $30 thousand, and capital of $145 thousand per restaurant.

As we look ahead to a post-pandemic operating environment, we are preparing our Team Members with a "Ready-Set-Reopen" training playbook to ensure a great experience as our Guests return to our dining rooms.

This prescriptive guide addresses short, medium, and long term actions required to continue building satisfaction with our Guests and guides best practices for resuming the operation of our indoor dining rooms at 100% capacity.

We also have several technology solutions we plan to roll out in late 2021, including website enhancements and a new Red Robin mobile app.

These initiatives are cost-effective channels to engage on a direct and personalized level with our Guests.

Our technology platforms are expected to grow revenue through higher order conversion and increased Guest frequency, while driving additional Royalty™ participation.

Additionally our new loyalty platform will allow us to better segment our Guests and target marketing campaigns in a more meaningful way.

Our off-premise execution enhancements support our ability to retain off-premise food and beverage sales of more than twice pre-pandemic levels while operating at 100% indoor capacity.

In the fourth quarter of 2019, off-premise sales comprised approximately 14% of total food and beverage sales.

• Sustained off-premises sales of more than double pre-pandemic levels, with off-premises sales mix of 31.4% for the fourth quarter of 2021, compared to approximately 14.0% in the fourth quarter of 2019.

Off-premises sales comprised $84.7 million, $85.1 million and $36.7 million of comparable restaurant revenue for the fourth quarters of 2021, 2020 and 2019, respectively;

• Continued Donatos® roll-out to 120 Company-owned restaurants, bringing the total number of restaurants with Donatos® to 198 restaurants as of December 26, 2021.

Restaurants that have been serving Donatos® pizza prior to 2021 are continuing to benefit from growing incremental sales beyond their first year as operations mature and brand affinity grows, with comparable restaurant revenue up 6.5% compared to 2019 in restaurants without supply chain issues;

• At the end of 2021, we were 93% staffed at the salaried manager positions, and 96% staffed in the General Manager role;

• Launched integrated and seamless digital ecosystem for our Guests, including mobile applications on both iOS and Android platforms, an improved and more relevant digital Guest experience consisting of a new and improved website, and the integration of a new loyalty program;

• Completed our lease renegotiation and restructuring initiative that we began in 2020 as a result of the COVID-19 pandemic, resulting in 3% to 4% occupancy savings over remaining lease terms on restructured leases.

COVID-19 Impact

The COVID-19 pandemic continues to create unprecedented challenges for our industry including government mandated restrictions, changing consumer behavior, labor and supply chain challenges, and wide spread inflationary costs.

Even as government restrictions were lifted, and dining rooms returned to full capacity, the surge in the Delta and Omicron variants continued to highlight the critical importance of providing a safe environment for our Team Members and Guests.

In response to these COVID-19 challenges, the Company limited dining hours and seating capacity in order to preserve the consistent quality experience our Guests expect from us.

Our disciplined Guest focus is delivered through our TGX hospitality model, off-premises enhancements, and our management labor model.

Our ability to attract and retain Team Members has become more challenging in the current competitive job market.

Staffing is our number one priority;

we have supported our staffing efforts through technology enhancements to the application and hiring process, improving our wage policies, holding national hiring days, and deploying internal and external resources to augment recruiting, hiring, and training efforts.

The challenges in hiring and retention and global supply chain disruptions have affected many of our vendor partners, resulting in intermittent product and distribution shortages.

We remain focused on proactively addressing these industry challenges, while delivering a great Guest experience and continuing to prioritize the satisfaction and retention of our Team Members.

Financial and Operational Highlights

The following summarizes the financial and operational highlights during the fifty-two weeks ended December 26, 2021:

• Restaurant revenue decreased $435.4 million, or 33.8%, to $854.1 million in 2020, as compared to 2019, due to a $330.1 million, or 28.5%, decrease in comparable restaurant revenue and a $105.3 million decrease from permanently closed restaurants.

• Restaurant operating costs, as a percentage of restaurant revenue, increased 1,110 basis points to 93.2% in 2020, as compared to 82.1% in 2019 primarily due to sales deleverage partially offset by savings initiatives.

Overall, the increase in restaurant operating costs as a percentage of restaurant revenue included a 480 basis point increase in other operating costs, a 360 basis point increase in labor costs, and a 300 basis point increase in occupancy costs, partially offset by a 30 basis point decrease in cost of sales.

• Net loss was $276.1 million in 2020 compared to net loss of $7.9 million in 2019.

Diluted loss per share was $19.29 in 2020, as compared to diluted loss per share of $0.61 in 2019.

Excluding costs per diluted share included in Other charges of $4.94 for goodwill impairment, $1.39 for restaurant asset impairment, $1.03 for restaurant closure and refranchising costs, $0.33 for litigation contingencies, $0.13 for board and stockholder matters costs, $0.10 for COVID-19 related costs, and $0.04 for severance and executive transition, adjusted loss per diluted share in 2020 was $11.33.

Excluding costs per diluted share of $0.86 for restaurant asset impairment, $0.19 for board and stockholder matter costs, $0.19 for severance and executive transition, $0.06 for executive retention, and a gain of $0.07 for restaurant closure and refranchising, adjusted earnings per diluted share in 2019 was $0.62.

• We believe the non-GAAP measure of adjusted (loss) earnings per share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP.

• Marketing - Our Red Robin Royalty™ loyalty program operates in all our Company-owned Red Robin restaurants and has been rolled out to most of our franchised restaurants.

We engage our Guests through Red Robin Royalty™ which allows for increased segmentation and more precise targeting of offers designed to increase frequency of visits as a key part of our overall marketing strategy.

Our media buying approach prioritizes digital, social, and owned channels including our website and email to effectively target and reach our Guests.

Tabl e of Contents

The Company provides guidance as it relates to selected information related to the Company's financial and operating performance, and such measures may differ from year to year.

Due to the uncertainty caused by the on-going COVID-19 pandemic, limited guidance is being provided for fiscal year 2021.

The Company currently expects the following in 2021:

• We expect that the recovery of our Western markets which represent a meaningful portion of our portfolio, pent up demand for casual dining, higher average Guest check with increasing on-premise dining, and industry restaurant closures will drive significant comparable restaurant revenue growth in 2021.

• We also currently expect that the combination of enterprise pricing, outdoor seating capacity expansions, restoration of full operating hours, and Donatos® expansion will generate incremental growth of mid-to-high single digit comparable restaurant revenue in 2021 beyond the benefits associated with the recovery;

• We expect capital expenditures of $45 million to $55 million, including continued investment in maintaining our restaurants and infrastructure with maintenance and systems capital, Donatos® expansion to approximately 120 restaurants, digital guest and operational technology solutions, and off-premise execution enhancements.

Restaurant revenue, compared to the same period in the prior year, is presented in the table below:

Restaurant revenue for the fifty-two weeks ended December 27, 2020

Increase in comparable (1) restaurant revenue

Increase in non-comparable restaurant revenue 7.0

Total increase 283.6

Restaurant revenue for the fifty-two weeks ended December 26, 2021

(1) Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.

Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below:

Fifty-two weeks ended 2021 compared to 2020

(Dollars in millions) December 26, 2021 December 27, 2020 Increase/(Decrease)

Restaurant revenue $ 1,137.7 $ 854.1 33.2 %

Restaurant operating costs:

(Percentage of Restaurant Revenue) (Basis Points)

Cost of sales 22.9 % 23.2 % (30)

Labor 36.0 39.0 (300)

Other operating 18.3 19.3 (100)

Occupancy 8.5 11.7 (320)

Total 85.7 % 93.2 % (750)

The following table summarizes Net loss, loss per diluted share, and adjusted loss per diluted share (a non-GAAP measure) for the fifty-two weeks ended December 26, 2021 and December 27, 2020;

Fifty-two Weeks Ended

(Dollars and shares in thousands, except per share amounts) December 26, 2021 December 27, 2020

Net loss as reported $ (50,002) $ (276,068)

Loss per share - diluted:

Net loss as reported $ (3.19) $ (19.29)

Restaurant closure costs 0.40 1.39

Asset impairment 0.45 1.88

Litigation contingencies 0.08 0.45

COVID-19 related costs 0.08 0.13

Board and stockholder matter costs 0.01 0.17

Goodwill impairment — 6.67

Severance costs — 0.06

Income tax effect (0.26) (2.79)

Adjusted loss per share - diluted $ (2.43) $ (11.33)

Weighted average shares outstanding

Basic 15,660 14,314

Diluted 15,660 14,314

We believe the non-GAAP measure of adjusted loss per diluted share gives the reader additional insight into the ongoing operational results of the Company, and it is intended to supplement the presentation of the Company's financial results in accordance with GAAP.

Adjusted loss per diluted share excludes the effects of goodwill impairment, asset impairment, litigation contingencies, board and stockholder matters costs, restaurant closure costs, severance and executive transition costs, executive retention costs, COVID-19 related costs, and related income tax effects.

Other companies may define adjusted net loss per share differently, and as a result our measure of adjusted loss per share may not be directly comparable to those of other companies.

Adjusted loss per share should be considered in addition to, and not as a substitute for, net loss as reported in accordance with U.S.

GAAP as a measure of performance.

Restaurant Data

The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:

Fifty-two Weeks Ended

December 26, 2021 December 27, 2020

1 unchanged sentence

Beginning of period 443 454

Sold to franchisee (2)

Opened during the period 1 —

Closed during the period (14) (11)

2 unchanged sentences

Opened during the period — 1

Acquired from corporate (2)

Closed during the period (2) —

End of period 101 103

1 unchanged sentence

———————————————————

(1) In addition to the permanent closures during 2020, 12 Company-owned restaurants that remained closed due to the COVID-19 pandemic as of December 27, 2020 may be reopened in 2021.

(2) During the fourth quarter of 2019, the Company sold 12 restaurants located in British Columbia, Canada to a franchisee.

Tabl e of Contents

The following table presents total Company-owned and franchised restaurants by state or province as of December 26, 2021:

Company-Owned Restaurants (1)

Franchised Restaurants

Company-Owned Restaurants Franchised Restaurants

California 59 —

23 unchanged sentences

———————————————————

(1) Includes 12 Company-owned restaurants that remained closed due to the COVID-19 pandemic as of December 27, 2020 which may be reopened in 2021.

Tabl e of Contents

Results of Operations

1 unchanged sentence

Certain percentage amounts in the table below do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.

December 27, 2020 December 29, 2019

Restaurant revenue 97.9 % 98.3 %

10 unchanged sentences

Depreciation and amortization 7.2 10.1

Selling, general, and administrative 12.3 11.9

Selling, general and administrative expenses 10.6 12.3

Pre-opening and acquisition costs 0.1 —

9 unchanged sentences

———————————————————

(1) Expressed as a percentage of restaurant revenue rather than total revenue

Tabl e of Contents

(1) Expressed as a percentage of restaurant revenue

(Revenues in thousands) 2021 2020 Percent Change

6 unchanged sentences

Net sales per square foot $ 425 $ 320 32.8 %

Restaurant revenue, which comprises primarily food and beverage sales, decreased $435.4 million in 2020, or 33.8%, as compared to 2019.

The decrease was due to a $330.1 million, or 28.5%, decrease in comparable restaurant revenue due to the COVID-19 pandemic and a $105.3 million decrease from closed restaurants.

The decrease in comparable restaurant revenue was driven by restaurants operating at limited occupant capacity for dining rooms that were opened during the pandemic, off-premise only restaurants with closed dining rooms, or closed restaurants due to the COVID-19 pandemic.

Components of comparable restaurant revenue included a 27.7% decrease in Guest count and a 0.8% decrease in average Guest check.

The decrease in average Guest check comprised a 3.4% decrease in menu mix, partially offset by a 2.2% increase in pricing and a 0.4% increase from lower discounting.

The decrease in menu mix was primarily driven by lower sales of beverages and Finest burgers as a result of limited dining room capacity at reopened restaurants and operating off-premise only at restaurants with closed dining rooms.

Restaurants which offered Donatos® during 2020 outperformed non-Donatos® restaurants with similar indoor dining restrictions by over 370 basis points in net comparable restaurant revenue, partially offsetting the decline in restaurant revenue.

Off-premise sales increased 136.2% and comprised 41.1% of total food and beverage sales in 2020.

Restaurant revenue, which comprises primarily food and beverage sales, increased $283.6 million in 2021, or 33.2%, as compared to 2020.

The increase was due to a $276.6 million, or 33.5%, increase in comparable restaurant revenue due to the COVID-19 pandemic and a $7.0 million increase primarily from reopened restaurants that were temporarily closed during 2020.

The comparable restaurant revenue increase was driven by a 22.3% increase in Guest count and an 11.2% increase in average Guest check.

The increase in average Guest check comprised a 6.7% increase in menu mix, and a 3.7% increase in pricing and a 0.8% increase from lower discounting.

The increase in menu mix was primarily driven by higher sales of beverages, appetizers, and limited time menu offerings with higher dine-in sales volumes.

Average weekly net sales volumes represent the total restaurant revenue for all Company-owned Red Robin restaurants for each time period presented, divided by the number of operating weeks in the period.

Comparable restaurant revenues include those restaurants that are in the comparable base based on operating five full fiscal quarters as of the end of each period presented.

Temporarily closed Company-owned restaurants due to the COVID-19 pandemic were not included in the comparable base for the fiscal year ended December 27, 2020.

Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes and changes in dining room capacity due to the COVID-19 pandemic, and the average square footage of our restaurants.

Temporarily closed Company-owned restaurants due to the COVID-19 pandemic were not included in the comparable base for the fiscal years ended December 26, 2021 and December 27, 2020.

Fluctuations in average weekly net sales volumes for Company-owned restaurants reflect the effect of comparable restaurant revenue changes as well as the performance of new and acquired restaurants during the period, the average square footage of our restaurants, as well as the impact of changing capacity limitations in response to COVID-19 levels in a given locality.

Net sales per square foot represents the total of restaurant revenue for Company-owned restaurants included in the comparable base divided by the total adjusted square feet of Company-owned restaurants included in the comparable base.

Franchise revenues comprise primarily royalty income and advertising fund contributions.

Franchise revenue decreased $8.6 million, or 49.4%, in 2020 compared to 2019 primarily due to temporary abatement of royalty fees and advertising contributions from our franchisees and lower revenues at franchisee restaurants during 2020 as a result of the COVID-19 pandemic.

Franchise revenue was not recognized or collected from our franchisees during periods of abatement.

Our franchisees reported a comparable restaurant revenue decrease of 27.5% during 2020 as compared to 2019.

Other revenue comprises primarily of gift card breakage, which represents the value associated with the portion of gift cards sold that are unlikely to be redeemed, and licensing royalties.

Franchise revenue primarily comprises royalty income and advertising fund contributions.

Franchise revenue increased $8.4 million, or 94.7%, in 2021 compared to 2020 primarily due to improved comparable franchise sales performance, and charging and collecting royalty payments and advertising contributions from our franchisees during 2021.

During 2020, the Company had temporarily abated franchisee royalty and advertising contribution payments in mid-March, and resumed collection during the latter half of the second fiscal quarter of 2020.

Other revenue is primarily comprised of gift card breakage, which represents the value associated with the portion of gift cards sold that are unlikely to be redeemed, and licensing royalties.

During 2021 and 2020, we recognized $5.4 million and $4.5 million of gift card breakage.

5 unchanged sentences

Cost of sales as a percentage of restaurant revenue decreased 30 basis points in 2021 as compared to 2020.

The decrease was primarily driven by lower promotional discounts and favorable contract agreements, partially offset by lower beverage and Finest burger mix primarily due to higher off-premise sales.

Tabl e of Contents

The decrease was primarily driven by pricing and favorable mix shifts, partially offset by commodity inflation.

(In thousands, except percentages) 2021 2020 Percent Change

2 unchanged sentences

Labor costs include restaurant-level hourly wages and management salaries as well as related taxes and benefits.

Labor as a percentage of restaurant revenue increased 360 basis points in 2020 as compared to 2019.

The increase was primarily driven by sales deleverage and higher hourly wage and benefit rates driven by shifting labor mix in support of higher off-premise sales, partially offset by temporary salary reductions, the new management labor structure, lower restaurant manager incentive compensation, and restaurant Team Member training costs.

Labor as a percentage of restaurant revenue decreased 300 basis points in 2021 as compared to 2020.

The decrease was primarily driven by staffing shortages, and sales leverage, partially offset by higher wage rates, staffing costs and increased restaurant management compensation costs in 2021.

Other Operating

3 unchanged sentences

Other operating costs include costs such as equipment repairs and maintenance costs, restaurant supplies, utilities, restaurant technology, and other miscellaneous costs including royalties paid to Donatos®.

Other operating costs as a percentage of restaurant revenue increased 480 basis points in 2020 as compared to 2019.

The increase was primarily due higher third party delivery fees driven by higher off-premise sales and sales deleverage impacts on restaurant supply, utility, and technology costs, partially offset by a decrease in restaurant janitorial and maintenance costs and credit card processing fees.

Other operating costs as a percentage of restaurant revenue decreased 100 basis points in 2021 as compared to 2020.

The decrease was primarily driven by sales leverage and lower utilities and supplies, partially offset by increased third party commissions and hiring advertisement costs.

(In thousands, except percentages) 2021 2020 Percent Change

2 unchanged sentences

Occupancy costs include fixed rents, property taxes, common area maintenance charges, general liability insurance, contingent rents, and other property costs.

In 2020, occupancy costs as a percentage of restaurant revenue increased 300 basis points as compared to 2019 primarily due to sales deleverage, partially offset by restaurant closures.

Our fixed rents in 2020 and 2019 were $66.1 million and $73.9 million, a decrease of $7.8 million due 11 restaurants permanently closed during 2020, 18 restaurants permanently closed during 2019, and the recognition of occupancy costs in Other charges for the temporarily closed Company-owned restaurants during periods of closure.

In 2021, occupancy costs as a percentage of restaurant revenue decreased 320 basis points as compared to 2020 primarily driven by sales leverage, savings from permanently closed restaurants and restructured leases.

Our fixed rents in 2021 and 2020 were $68.8 million and $66.1 million, an increase of $2.7 million due to the recognition of occupancy costs in Other charges for temporarily closed Company-owned restaurants during periods of closure due to the COVID-19 pandemic in 2020, partially offset by decreases from 14 restaurants permanently closed during 2021 and 11 restaurants permanently closed during 2020.

Depreciation and Amortization

3 unchanged sentences

Depreciation and amortization includes depreciation on capital expenditures for restaurants and corporate assets as well as amortization of acquired franchise rights, leasehold interests, and certain liquor licenses.

In 2020, depreciation and amortization expense as a percentage of revenue increased 310 basis points as compared to 2019 primarily due to sales deleverage.

Selling, General, and Administrative

In 2021, depreciation and amortization expense as a percentage of revenue decreased 290 basis points as compared to 2020.

The decreases are primarily due to net closed Company-owned restaurants, and sales leverage.

Selling, General, and Administrative expenses

(In thousands, except percentages) 2021 2020 Percent Change

Selling, general, and administrative $ 106,822 $ 155,978 (31.5) %

Selling, general, and administrative expenses $ 122,743 $ 106,822 14.9 %

As a percent of total revenues 10.6 % 12.3 % (1.7) %

Selling, general, and administrative costs include all corporate and administrative functions.

Components of this category include marketing and advertising costs;

corporate, regional, and franchise support salaries and benefits;

Components of this category include marketing and advertising costs, our restaurant support center, regional, and franchise support salaries and benefits;

professional and consulting fees;

2 unchanged sentences

and board of directors expenses.

Tabl e of Contents

Selling, general, and administrative costs decreased $49.2 million, or 31.5% in 2020 as compared to 2019.

The decrease was primarily related to a reduction in national and local media spend, decreased Team Member salaries and wages resulting from the reduction in force and temporary salary reductions, and decreased Team Member benefit, travel and entertainment, and professional services costs.

Selling, general, and administrative expense increased $15.9 million, or 14.9% in 2021 as compared to 2020.

The increase in selling, general, and administrative expenses in 2021 was primarily driven by the return of marketing spend closer to a more normalized level in 2021, merit increases and lapping temporary salary reductions in 2020, increased travel costs, and higher professional services spend.

Pre-opening Costs

2 unchanged sentences

As a percent of total revenues 0.1 % * *

* Percentage increases and decreases over 100 percent were not considered meaningful.

Pre-opening costs, which are expensed as incurred, comprise the costs related to preparing restaurants to introduce Donatos® and other initiatives, as well as direct costs, including labor, occupancy, training, and marketing, incurred related to opening new restaurants and hiring the initial work force.

1 unchanged sentence

Pre-opening costs for any given quarter will typically include expenses associated with restaurants opened during the quarter as well as expenses related to restaurants opening in subsequent quarters.

We incurred pre-opening costs during 2021 related to the rollout of Donatos® and the costs associated with opening one new restaurant.

We incurred pre-opening costs during 2020 related to the rollout of Donatos®.

As of December 27, 2020, there are 79 Company-owned restaurants serving Donatos®.

We plan to continue the rollout to approximately 120 restaurants in 2021 with full completion by 2023.

Rollout of Donatos® requires pre-opening expense of $12 thousand per restaurant.

The Company completed the rollout of 120 restaurants during the year ended December 26, 2021, and expects to continue its roll out of Donatos® to approximately 50 restaurants in 2022 with full completion by 2024.

Rollout of Donatos® requires pre-opening expense of approximately $12 thousand per restaurant.

Other Charges

(In thousands, except percentages) 2021 2020 Percent Change

Goodwill impairment $ 95,414 $ — *

Restaurant closures and refranchising costs $ 6,276 $ 19,846 (68.4) %

Asset impairment 7,052 26,940 (73.8) %

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

Litigation contingencies 1,330 6,440 (79.3) %

Board and stockholder matter costs 2,504 3,261 (23.2) %

COVID-19 related costs 1,288 1,858 (30.7) %

Board and shareholder matter costs 128 2,504 (94.9) %

Goodwill impairment — 95,414 *

Severance and executive transition — 881 *

Executive retention — 980 *

Other charges $ 16,074 $ 153,883

* Percentage increases and decreases over 100 percent were not considered meaningful.

During 2020, the Company recognized $21.7 million of impairment related to restaurant assets included in Asset impairment 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.

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.

Tabl e of Contents

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.

For further information on Other charges line items, refer to Note 5, Other Charges , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

For further information on Other charges line items, refer to Footnote 4, Other Charges , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Interest Expense and Interest Income

Interest expense in 2020 and 2019 was $10.2 million.

Interest expense in 2021 and 2020 was $14.2 million and $10.2 million, respectively.

Our weighted average interest rate in 2021 and 2020 was 7.1% and 4.5%.

2 unchanged sentences

Our effective tax rate was a 0.3% benefit in 2021 and a 2.6% benefit in 2020.

The decrease in tax benefit for the year ended December 27, 2020 is primarily due to a $79.4 million net valuation allowance and decrease in current year tax credits, partially offset by a decrease in income and the favorable rate impact of net operating loss ("NOL") carrybacks allowed as part of the CARES Act.

In addition to the cash tax refunds received during the year ended December 27, 2020, the Company expects to generate approximately $16 million of additional cash tax refunds within the next 12 months.

The decrease in tax benefit for the year ended December 26, 2021 is primarily due to the 2020 favorable rate impact of net operating loss ("NOL") carrybacks allowed as part of the CARES Act.

The Company had outstanding federal and state refund claims of approximately $15.8 million as of December 26, 2021.

In January 2022, the Company received $2.4 million of those refund claims and expects to receive the remaining $13.4 million over the next 12-18 months due to processing delays at the IRS.

Liquidity and Capital Resources

Cash and cash equivalents decreased $13.9 million to $16.1 million at December 27, 2020, from $30.0 million at the beginning of the fiscal year.

As the Company has stabilized its liquidity through its at-the-market equity offering, reduced overhead costs, and federal cash tax refunds provided under the provisions of the CARES Act, we expect to use available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on our long-term transformation strategy.

Cash and cash equivalents increased $6.7 million to $22.8 million at December 26, 2021, from $16.1 million at the beginning of the fiscal year.

As the Company continues to recover from the COVID-19 pandemic and generates operating cash flow, the Company is using available cash flow from operations to pay down debt, maintain existing restaurants and infrastructure, and execute on its long-term strategic initiatives.

As of December 26, 2021, the Company had approximately $57.7 million in liquidity, including cash on hand and available borrowing capacity under its credit facility.

2 unchanged sentences

Net cash used in investing activities (42,241) (21,393)

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

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

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

Net cash provided by (used) in financing activities 1,563 (11,704)

Effect of currency translation on cash 20 (1,065)

Net increase (decrease) in cash and cash equivalents $ 6,634 $ (13,929)

Operating Cash Flows

Net cash flows provided by operating activities decreased $37.7 million to $20.2 million in 2020 as compared to 2019.

The changes in net cash provided by operating activities are primarily attributable to a $139.7 million decrease in profit from operations, as well as changes in working capital as presented on the consolidated statements of cash flows.

Tabl e of Contents

Net cash flows provided by operating activities increased $27.1 million to $47.3 million in 2021 as compared to 2020.

The changes in net cash provided by operating activities are primarily attributable to a $163.4 million increase in profit from operations (defined as the change in operating margins from comparable and non-comparable restaurants), lower accounts receivable and higher accounts payable balances due to the timing of operational receipts and payments, as well as other changes in working capital as presented in the Consolidated Statements of Cash Flows.

Investing Cash Flows

Net cash flows used in investing activities decreased $35.6 million to $21.4 million in 2020 as compared to 2019.

The decrease was due to lower investment in restaurant maintenance, restaurant technology and infrastructure, Donatos®, and restaurant remodels and refreshes due to the COVID-19 pandemic.

Net cash flows used in investing activities increased $20.8 million to $42.2 million in 2021 as compared to 2020.

The increase is primarily due to adding Donatos® to 120 restaurants during 2021, as well as increased spending on restaurant improvements, and investments in technology.

The following table lists the components of our capital expenditures for each fiscal year presented (in thousands):

Restaurant maintenance capital and other $ 9,794 $ 17,288

Donatos® expansion $ 17,113 $ 2,620

Restaurant improvement capital and other 12,798 9,794

Investment in technology, infrastructure, and other 10,812 9,718

Donatos® 2,620 6,585

Restaurant remodels — 819

New restaurants and restaurant refreshes 1,538 —

Total capital expenditures $ 42,261 $ 22,132

Expenditures for Donatos® expansion include expenditures for kitchen equipment, other equipment and other capital costs associated with adding Donatos® to our restaurants, Restaurant improvement capital and other consists of capital equipment for our restaurants, Investment in technology, infrastructure and other consists of capital costs related to restaurant technology assets, capital overhead, and other items, and new restaurants and restaurant refreshes primarily relates to costs associated with the re-establishment of our new restaurant development program.

Financing Cash Flows

Net cash flows (used in) provided by financing activities decreased $21.4 million to $11.7 million in 2020 as compared to 2019.

The decrease primarily resulted from a $48.9 million increase in net repayments of long-term debt and a $2.9 million increase in cash paid for debt issuance costs, partially offset by $28.7 million net cash proceeds received from the issuance of common stock, a decrease of $1.8 million for cash used to repurchase the Company's common stock, and a decrease of $0.1 million in cash proceeds received from the exercise of stock awards and the employee stock purchase plan.

Credit Facility

As of December 27, 2020, the Company had outstanding borrowings under the credit facility of $169.8 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $8.7 million.

Net cash flows provided by (used in) financing activities increased $13.3 million to $1.6 million in 2021 as compared to 2020.

The increase primarily resulted from a $40.2 million increase in net draws of long-term debt, a decrease of $1.6 million for cash used to repurchase the Company's common stock due to the Company's financial covenants restricting the repurchase of common stock in 2021, and a $1.2 million decrease in cash paid for debt issuance costs in 2021 compared to 2020, partially offset by a $28.7 million decrease from net cash proceeds received from the issuance of common stock in 2020.

Prior Credit Facility

On November 9, 2021, the Company entered into the Third Amendment to the Company’s amended and restated credit facility (the "prior credit facility") to obtain additional flexibility to continue to implement our business strategy.

The Third Amendment, which waived compliance with the Leverage Ratio Covenant for the third fiscal quarter of 2021, and provided for adjustments during fourth fiscal quarter of 2021, also included certain amendments to the prior credit facility to address LIBOR transition matters.

As of December 26, 2021, the Company had outstanding borrowings under the prior credit facility of $176.1 million, of which $9.7 million was classified as current, in addition to amounts issued under letters of credit of $7.9 million.

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 Company had $111.8 million of available borrowing capacity under its credit facility.

Net repayments during 2020 totaled $36.2 million.

On January 10, 2020, the Company replaced its prior credit facility with the credit facility, the five-year Amended and Restated Credit Agreement, which provides for $161.5 million revolving line of credit and a $138.5 million term loan for a total borrowing capacity of $300 million.

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

The interest rates of the revolving line of credit and term loans are based on either LIBOR or a base rate defined by the agreement.

Due to the prolonged nature of the pandemic, the Company entered into the Second Amendment to its credit facility during the first quarter of 2021.

The Second Amendment provides increased financial flexibility in the near-term, as we continue to de-lever our balance sheet.

The Company obtained a waiver of certain financial covenants through July 11, 2021, followed by the introduction of more favorable covenant levels through the second quarter of 2022.

Among other things, the Second Amendment also increases pricing, shortens the maturity date of amounts under the credit facility to January 10, 2023, and reduces the borrowing capacity of the revolving loans.

For further discussion, see Note 2, COVID-19 Pandemic , of Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

LIBOR is set to terminate in December 2021;

however, we anticipate an amended credit agreement will be executed at the new applicable reference rate.

We are subject to a number of customary covenants under our credit facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments.

During the first quarter of 2020, we were not in compliance with our debt covenants due to negative effects on our business from the COVID-19 pandemic.

As a result, we entered into the First Amendment to Credit Agreement and Waiver (the "First Amendment") to our credit facility in May 2020, which waived compliance with the lease adjusted leverage ratio financial covenant ("LALR ratio") and the fixed charge coverage ratio financial covenant ("FCC ratio") through the end of 2020.

As of December 27, 2020, we were in compliance with all debt covenants.

Tabl e of Contents

As of December 26, 2021, the Company was in compliance with all covenants applicable to our credit facility, as amended.

For additional details regarding our prior credit facility, see Footnote 8, Borrowings included within the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

New Credit Facility

On March 4, 2022 the Company entered into a new Senior Secured Term Loan and Revolving Credit Facility (the "new credit facility").

The new facility references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S.

Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% per annum, or (c) one-month term SOFR plus 1.00% per annum.

We are subject to a number of customary covenants under our new credit facility, including limitations on additional borrowings, acquisitions, stock repurchases, sales of assets, and dividend payments, as well as a Total Net Leverage ratio covenant.

For additional details regarding our new credit facility, see Footnote 8, Borrowings included within the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Debt Outstanding

Total debt outstanding decreased $36.2 million to $170.6 million at December 27, 2020, from $206.9 million at December 29, 2019, due to net repayments of $36.2 million on the credit facility during 2020.

In response to the onset of the pandemic in early 2020, the Company drew down its remaining capacity under the credit facility.

Three large repayments were made during 2020 to repay these borrowings made as a result of the COVID-19 pandemic, including $59 million such that the amount of the Company's consolidated cash on hand did not exceed $30 million on the First Amendment effective date as required by the First Amendment, $28.7 million during the second quarter of 2020 from the net proceeds received from the at-the-market equity offering as required by the First Amendment, and $42 million during the fourth quarter of 2020 resulting from the $49.4 million federal cash tax refund received during the quarter.

Total debt outstanding increased $6.3 million to $177.0 million at December 26, 2021, from $170.6 million at December 27, 2020, due to net borrowings of $6.3 million on the credit facility during 2021.

As of December 26, 2021, the Company had $35 million of available borrowing capacity under its credit facility.

Net borrowings during 2021 totaled $6.3 million.

Share Repurchase

5 unchanged sentences

Effective March 14, 2020, the Company temporarily suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic.

Our ability to repurchase shares is limited to conditions set forth by our lenders in the Second Amendment to our credit facility prohibiting us from repurchasing additional shares until the first fiscal quarter of 2022 at the earliest and not until we deliver a covenant compliance certificate demonstrating a lease adjusted leverage ratio less than or equal to 5.00:1.00.

Our business is subject to seasonal fluctuations.

Prior to the COVID-19 pandemic, sales in most of our restaurants have been higher during the summer months and winter holiday season and lower during the fall season.

As a result, our quarterly operating results and comparable restaurant revenue may fluctuate significantly as a result of seasonality.

Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, and comparable restaurant sales for any particular future period may decrease.

As of December 26.

2021, our ability to repurchase shares was limited to conditions set forth by our lenders in the Second Amendment to our credit facility prohibiting us from repurchasing additional shares until the first fiscal quarter of 2022 at the earliest and not until we deliver a covenant compliance certificate demonstrating a lease adjusted leverage ratio less than or equal to 5.00:1.00.

The new credit facility limits our ability to repurchase shares to certain conditions set forth by our lenders in the new credit facility.

Contractual Obligations

14 unchanged sentences

———————————————————

(1) Long-term debt obligations primarily represent minimum required principal payments under our credit agreement including estimated interest of $25.9 million based on a 4.25% average borrowing interest rate.

(1) Long-term debt obligations primarily represent minimum required principal payments under our existing credit agreement as of December 26, 2021, including estimated interest of $12.4 million based on a 7% average borrowing interest rate.

(2) Finance lease obligations include interest of $3.1 million.

(3) Operating lease obligations exclude variable lease costs, such as sales based contingent rent, and include interest of $197.3 million.

(4) Purchase obligations includes the Company's share of system-wide commitments for food, beverage, and restaurant supply items.

These amounts require estimates and could vary due to the timing of volumes.

(4) Purchase obligations includes the Company's share of expected system-wide fixed price commitments for food, beverage, and restaurant supply items.

These amounts are estimates based on anticipated inventory needed for the Company's restaurants, and could vary due to the timing of volumes.

(5) Other non-current liabilities primarily represent the employee deferred compensation plan liability.

Refer to Note 15, Employee Benefit Programs , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

Tabl e of Contents

Financial Condition and Future Liquidity

We require capital principally to maintain, improve, and refurbish existing restaurants, support infrastructure needs, and for general operating purposes, as well as to grow the business through new restaurant construction.

In addition, we have and may continue to use capital to pay principal on our borrowings and repurchase our common stock as allowed by our credit agreement.

Our primary short-term and long-term sources of liquidity are expected to be cash flows from operations and our revolving credit facility.

Based upon current levels of operations and anticipated growth, we expect cash flows from operations and available borrowing capacity under the credit facility will be sufficient to meet debt service, capital expenditures, and working capital requirements for at least the next twelve months even with the expectation that the COVID-19 pandemic will continue to have a material adverse effect on our business.

Our primary short-term and long-term sources of liquidity are expected to be cash flows from operations and our credit facility.

Based upon current levels of operations and anticipated growth, and the diminishing impacts of the COVID-19 pandemic, we expect cash flows from operations and available borrowing capacity under the credit facility will be sufficient to meet debt service, capital expenditures, and working capital requirements for at least the next twelve months.

We and the restaurant industry in general maintain relatively low levels of accounts receivable and inventories, and vendors generally grant short-term trade credit for purchases, such as food and supplies.

12 unchanged sentences

Actual results may differ from these estimates, including our estimates of future restaurant level cash flows, which are subject to the current economic environment, and we might obtain different results if we use different assumptions or conditions.

We have identified the following as the Company's most critical accounting policies, which are most important to the portrayal of the Company's financial condition and results and require management's most subjective and complex judgment.

We have identified the following as the Company's most critical accounting policies and estimates, which are most important to the portrayal of the Company's financial condition and results and require management's most subjective and complex judgment.

Information regarding the Company's other significant accounting policies is disclosed in Note 1, Description of Business and Summary of Significant Accounting Policies , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

4 unchanged sentences

Management's estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, changes in economic conditions, changes to our business model, or changes in operating performance.

If the sum of the undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset.

Tabl e of Contents

Judgments made by management related to the expected useful lives of long-lived assets and our ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes in operating performance.

If the sum of the undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss.

The amount of the impairment loss is measured as the amount by which the carrying value exceeds the fair value of the asset, which is determined using discounted cash flows.

Judgments made by management related to our ability to realize undiscounted cash flows in excess of the carrying amounts of such assets are affected by factors such as the ongoing maintenance and improvements of the assets, changes in economic conditions, and changes in operating performance.

As the ongoing expected cash flows and carrying amounts of long-lived assets are assessed, these factors could cause us to realize a material impairment charge.

6 unchanged sentences

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

During 2020, we determined 40 Company-owned restaurants were impaired during our cash flow analysis which resulted in a non-cash impairment charge of $21.7 million resulting from the effects of the COVID-19 pandemic on our business.

During 2021, the Company determined long-lived assets at ten excess properties were impaired as a result of our cash flow analysis, and recognized non-cash impairment charges of $6.4 million primarily related to the impairment of the long-lived assets associated with excess properties.

During 2020, we impaired 40 Company-owned restaurants as a result of our cash flow analysis resulting in non-cash impairment charges of $21.7 million.

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 to 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.

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 2020, 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.

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.

We determine fair value based on quoted prices in the active market for the license in the same or similar jurisdictions, representing a level 1 fair value measurement.

During the fourth quarter of 2021, the Company performed its annual review of its indefinite lived liquor licenses that had a carrying value of $7.2 million, and recorded impairment charges of $0.5 million to indefinite-lived intangibles in 2021.

No impairment charges were recorded to liquor licenses with indefinite lives in 2020, or 2019.

Recently Issued Accounting Standards

See Note 3, Recent Accounting Pronouncements , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for our discussion of recently issued accounting standards.

Tabl e of Contents

See Footnote 2, Recent Accounting Pronouncements , of the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for our discussion of recently issued accounting standards.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis