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) July 10, 2022 December 26, 2021 Assets: Current assets: Cash and cash equivalents $ 50,338 $ 22,750 Accounts receivable, net 12,578 21,400 Inventories 25,216 25,219 Income tax receivable 681 15,824 Prepaid expenses and other current assets 14,155 16,963 Restricted cash 8,676 — Total current assets 111,644 102,156 Property and equipment, net 354,199 386,336 Operating lease assets, net 383,500 400,825 Intangible assets, net 19,848 21,292 Other assets, net 15,188 18,389 Total assets $ 884,379 $ 928,998 Liabilities and stockholders ' equity: Current liabilities: Accounts payable $ 32,419 $ 32,510 Accrued payroll and payroll-related liabilities 33,070 32,584 Unearned revenue 37,832 54,214 Current portion of operating lease obligations 48,080 48,842 Current portion of long-term debt 2,000 9,692 Accrued liabilities and other 53,161 45,458 Total current liabilities 206,562 223,300 Long-term debt 189,373 167,263 Long-term portion of operating lease obligations 413,278 435,136 Other non-current liabilities 13,591 26,325 Total liabilities 822,804 852,024 Commitments and contingencies (see note 8) Stockholders ' equity: Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,899 and 15,722 shares outstanding as of July 10, 2022 and December 26, 2021 20 20 Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of July 10, 2022 and December 26, 2021 — — Treasury stock 4,550 and 4,727 shares, at cost, as of July 10, 2022 and December 26, 2021 ( 184,205 ) ( 192,803 ) Paid-in capital 239,607 242,560 Accumulated other comprehensive (loss) income, net of tax ( 6 ) 1 Retained earnings 6,159 27,196 Total stockholders' equity 61,575 76,974 Total liabilities and stockholders ' equity $ 884,379 $ 928,998 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 Twenty-Eight Weeks Ended (in thousands, except for per share amounts) July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021 Revenues: Restaurant revenue $ 288,657 $ 272,157 $ 669,269 $ 590,834 Franchise and other revenues 5,433 4,818 20,371 12,416 Total revenues 294,090 276,975 689,640 603,250 Costs and expenses: Restaurant operating costs (excluding depreciation and amortization shown separately below): Cost of sales 72,702 61,917 163,643 131,083 Labor 101,643 98,949 239,751 210,608 Other operating 52,003 46,928 119,867 104,640 Occupancy 22,980 21,614 53,579 51,714 Depreciation and amortization 17,637 19,215 41,556 45,103 Selling, general and administrative expenses 32,095 28,346 66,475 58,956 Pre-opening costs 235 374 297 374 Other charges, net 8,146 2,196 13,453 7,667 Total costs and expenses 307,441 279,539 698,621 610,145 Loss from operations ( 13,351 ) ( 2,564 ) ( 8,981 ) ( 6,895 ) Other expense: Interest expense, net and other 4,147 2,786 11,560 7,116 Loss before income taxes ( 17,498 ) ( 5,350 ) ( 20,541 ) ( 14,011 ) Income tax provision 434 ( 354 ) 496 ( 302 ) Net loss $ ( 17,932 ) $ ( 4,996 ) $ ( 21,037 ) $ ( 13,709 ) Loss per share: Basic $ ( 1.13 ) $ ( 0.32 ) $ ( 1.33 ) $ ( 0.88 ) Diluted $ ( 1.13 ) $ ( 0.32 ) $ ( 1.33 ) $ ( 0.88 ) Weighted average shares outstanding: Basic 15,830 15,665 15,783 15,617 Diluted 15,830 15,665 15,783 15,617 Other comprehensive loss: Foreign currency translation adjustment $ ( 18 ) $ ( 1 ) $ ( 7 ) $ 20 Other comprehensive (loss) income, net of tax ( 18 ) ( 1 ) ( 7 ) 20 Total comprehensive loss $ ( 17,950 ) $ ( 4,997 ) $ ( 21,044 ) $ ( 13,689 ) 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 26, 2021 20,449 $ 20 4,727 $ ( 192,803 ) $ 242,560 $ 1 $ 27,196 $ 76,974 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 64 ) 2,781 ( 2,846 ) — — ( 65 ) Non-cash stock compensation — — — — 3,042 — — 3,042 Net loss — — — — — — ( 3,105 ) ( 3,105 ) Other comprehensive income — — — — — 11 — 11 Balance, April 17, 2022 20,449 $ 20 4,663 $ ( 190,022 ) $ 242,756 $ 12 $ 24,091 $ 76,857 Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 113 ) 5,817 ( 5,691 ) — — 126 Non-cash stock compensation — — — — 2,542 — — 2,542 Net loss — — — — — — ( 17,932 ) ( 17,932 ) Other comprehensive loss — — — — — ( 18 ) — ( 18 ) Balance, July 10, 2022 20,449 $ 20 4,550 $ ( 184,205 ) $ 239,607 $ ( 6 ) $ 6,159 $ 61,575 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 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 See Notes to Condensed Consolidated Financial Statements. 3 Table of Contents RED ROBIN GOURMET BURGERS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Twenty-Eight Weeks Ended (in thousands) July 10, 2022 July 11, 2021 Cash flows from operating activities: Net loss $ ( 21,037 ) $ ( 13,709 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 41,556 45,103 Gift card breakage ( 8,099 ) ( 2,793 ) Restaurant asset impairment 10,861 1,357 Non-cash other charges, net ( 190 ) 509 Stock-based compensation expense 5,571 2,457 Other, net 2,783 1,913 Changes in operating assets and liabilities: Accounts receivable 8,825 5,159 Income tax receivable 15,242 334 Inventories ( 146 ) ( 594 ) Prepaid expenses and other current assets 2,707 1,454 Operating lease assets, net of liabilities ( 7,547 ) ( 8,927 ) Trade accounts payable and accrued liabilities 4,360 17,358 Unearned revenue ( 8,283 ) ( 3,814 ) Other operating assets and liabilities, net ( 10,164 ) ( 8,623 ) Net cash provided by operating activities 36,439 37,184 Cash flows from investing activities: Purchases of property, equipment, and intangible assets ( 15,893 ) ( 10,854 ) Proceeds from sales of real estate and property, plant, and equipment and other investing activities 269 20 Net cash used in investing activities ( 15,624 ) ( 10,834 ) Cash flows from financing activities: Borrowings of long-term debt 282,151 68,300 Payments of long-term debt and finance leases ( 265,744 ) ( 85,164 ) Debt issuance costs ( 4,869 ) ( 616 ) Proceeds related to real estate sale 3,856 — Proceeds from other financing activities, net 61 549 Net cash provided by (used in) financing activities 15,455 ( 16,931 ) Effect of exchange rate changes on cash ( 6 ) 34 Net change in cash and cash equivalents, and restricted cash 36,264 9,453 Cash and cash equivalents, beginning of period 22,750 16,116 Cash and cash equivalents, and restricted cash, end of period $ 59,014 $ 25,569 Supplemental disclosure of cash flow information Income tax refunds received, net $ ( 14,761 ) $ ( 628 ) Interest paid, net of amounts capitalized $ 7,462 $ 5,423 See Notes to Condensed Consolidated Financial Statements. 4 Table of Contents RED ROBIN GOURMET BURGERS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation and Recent Accounting Pronouncements Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of July 10, 2022, the Company owned and operated 426 restaurants located in 38 states. The Company also had 102 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 26, 2021 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 26, 2021 filed with the SEC on March 10, 2022. Our current, prior, and upcoming 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 2022 April 17, 2022 16 First Quarter 2021 April 18, 2021 16 Second Quarter 2022 July 10, 2022 12 Second Quarter 2021 July 11, 2021 12 Current and Prior Fiscal Years: Fiscal Year 2022 December 25, 2022 52 Fiscal Year 2021 December 26, 2021 52 Upcoming fiscal year: Fiscal Year 2023 December 31, 2023 53 Reclassifications Certain amounts presented have been reclassified within the July 11, 2021 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications from Lease assets, net of liabilities to Other operating assets and liabilities. The reclassifications had no effect on the Company’s cash flows from operations. 5 Table of Contents Change in Accounting Estimate - Gift Card Breakage As part of its annual assessment of gift card breakage and during the twenty-eight weeks ended July 10, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage to the updated estimated redemption pattern. As a result, the Company recognized $ 5.9 million of additional gift card breakage in Franchise and other revenues, partially offset by $ 0.6 million of associated commissions costs recognized in Selling, general and administrative expenses, in the first quarter of 2022. This change in accounting estimate decreased net loss by $ 5.2 million, or $ 0.33 per basic and diluted share for the twenty-eight weeks ended July 10, 2022. The Company does not expect the impact of this change in estimate to be material to its future 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 Twenty-Eight Weeks Ended July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021 Restaurant revenue $ 288,657 $ 272,157 $ 669,269 $ 590,834 Franchise revenue 4,362 3,944 10,642 8,820 Gift card breakage (1) 280 500 8,099 2,793 Other revenue 791 374 1,630 803 Total revenues $ 294,090 $ 276,975 $ 689,640 $ 603,250 (1) During the twenty-eight weeks ended July 10, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage revenue to the updated estimated redemption pattern. See Footnote 1, Basis of Presentation and Recent Accounting Pronouncements. Contract liabilities Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands): July 10, 2022 December 26, 2021 Unearned gift card revenue $ 25,260 $ 41,128 Deferred loyalty revenue $ 12,572 $ 13,086 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): Twenty-Eight Weeks Ended July 10, 2022 July 11, 2021 Gift card revenue $ 20,639 $ 10,945 6 Table of Contents 3. Leases The Company's finance and operating lease assets and liabilities as of July 10, 2022 and December 26, 2021 were as follows (in thousands): July 10, 2022 Finance (1) Operating (2) Lease assets, net (3) $ 7,494 $ 383,500 Current portion of lease obligations 1,029 48,080 Long-term portion of lease obligations 8,873 413,278 Total $ 9,902 $ 461,358 December 26, 2021 Finance (1) Operating (2) Lease assets, net (3) $ 9,664 $ 400,825 Current portion of lease obligations 1,194 48,842 Long-term portion of lease obligations 10,765 435,136 Total $ 11,959 $ 483,978 (1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our July 10, 2022 and December 26, 2021 Consolidated Balance Sheets. (2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our July 10, 2022 and December 26, 2021 Consolidated Balance Sheets. (3) The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets. 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 Twenty-Eight Weeks Ended July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021 Operating lease cost $ 16,422 $ 16,243 $ 38,111 $ 37,704 Finance lease cost: Amortization of right of use assets 238 197 580 460 Interest on lease liabilities 153 117 298 276 Total finance lease cost $ 391 $ 314 $ 878 $ 736 Variable lease cost 4,682 4,359 11,007 10,775 Total $ 21,495 $ 20,916 $ 49,996 $ 49,215 7 Table of Contents Maturities of our lease liabilities as of July 10, 2022 were as follows (in thousands): Finance Leases Operating Leases Remainder of 2022 $ 621 $ 33,689 2023 1,387 77,092 2024 1,480 75,483 2025 1,190 71,411 2026 1,246 65,683 Thereafter 6,440 325,096 Total future lease payments $ 12,364 $ 648,454 Less imputed interest 2,462 187,096 Total lease liability $ 9,902 $ 461,358 Supplemental cash flow and other information related to leases is as follows (in thousands, except other information): Twenty-Eight Weeks Ended July 10, 2022 July 11, 2021 Cash flows from operating activities Cash paid related to lease liabilities Operating leases $ 46,194 $ 47,727 Finance leases 298 276 Cash flows from financing activities Cash paid related to lease liabilities Finance leases 1,017 1,018 Cash paid for amounts included in the measurement of lease liabilities: $ 47,509 $ 49,021 Right of use assets obtained in exchange for operating lease obligations $ 7,773 $ 7,784 Right of use assets obtained in exchange for finance lease obligations $ 541 $ 751 Other information related to operating leases as follows: Weighted average remaining lease term (years) 9.39 10.01 Weighted average discount rate 7.20 % 7.01 % Other information related to finance leases as follows: Weighted average remaining lease term (years) 10.70 11.25 Weighted average discount rate 4.89 % 4.56 % On June 8, 2022 the Company closed on an agreement to sell a real estate property that the Company owned and lease it back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $ 3.9 million, which represents a portion of the total consideration to be received from the sale. The Company did not recognize a sale in the second quarter of 2022 as certain criteria to recognize a sale in accordance with ASC Topic 842, Leases , and ASC Topic 606, Revenue from Contracts with Customers , were not met. The Company did not derecognize the property, and the proceeds have been recorded on the Condensed Consolidated Balance Sheet in Accrued liabilities and other, and are included within cash flows from financing activities on the Condensed Consolidated Statements of Cash Flows for the twenty-eight weeks ended July 10, 2022. The Company expects to recognize a gain on this transaction when sale recognition criteria have been met. 8 Table of Contents 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 twenty-eight weeks ended July 10, 2022 and July 11, 2021, 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 Twenty-Eight Weeks Ended July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021 Basic weighted average shares outstanding 15,830 15,665 15,783 15,617 Dilutive effect of stock options and awards — — — — Diluted weighted average shares outstanding 15,830 15,665 15,783 15,617 Awards excluded due to anti-dilutive effect on diluted loss per share 983 241 806 308 5. Other Charges, net Other charges, net consisted of the following (in thousands): Twelve Weeks Ended Twenty-Eight Weeks Ended July 10, 2022 July 11, 2021 July 10, 2022 July 11, 2021 Asset Impairment $ 8,739 $ 115 $ 10,861 $ 1,357 Litigation contingencies ( 1,806 ) 85 ( 86 ) 1,170 Restaurant closure and refranchising costs 930 1,752 1,879 4,199 Other financing costs 61 — 370 — COVID-19 related charges 93 244 300 813 Executive transition 129 — 129 — Board and stockholder matter costs — — — 128 Other charges, net $ 8,146 $ 2,196 $ 13,453 $ 7,667 The Company recognized non-cash impairment charges primarily related to restaurant assets at six and nine Company-owned restaurants during the twelve and twenty-eight weeks ended July 10, 2022, respectively, and one Company-owned restaurant for the twenty-eight weeks ended July 11, 2021. Restaurant closure costs include the ongoing restaurant operating costs of the Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic, as well as any costs incurred for permanently closed restaurants including lease termination costs. Litigation contingencies during the twelve and twenty-eight weeks ended July 10, 2022 include the impact of cash proceeds received by the Company related to certain legal claims. Litigation contingencies during the twelve and twenty-eight weeks ended July 10, 2022 and July 11, 2021 include legal settlement costs accrued related to pending or threatened litigation. Other financing costs include fees related to the entry by the Company into the New Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the New Credit Facility. See Footnote 6. Borrowings . 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 related to the COVID-19 pandemic. Executive transition costs include costs associated with transitioning to a new Chief Executive Officer. Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board member in the first quarter of 2021. 9 Table of Contents 6. Borrowings Borrowings as of July 10, 2022 and December 26, 2021 are summarized below (in thousands): July 10, 2022 Weighted Average Interest Rate December 26, 2021 Weighted Average Interest Rate Revolving line of credit $ — $ 57,000 Term loan 199,500 8.70 % 119,080 7.10 % Notes payable, non-current 875 875 Total borrowings 200,375 176,955 Less: unamortized debt issuance costs and discounts (1) 9,002 — Less: current portion of long-term debt 2,000 9,692 Long-term debt $ 189,373 $ 167,263 Revolving line of credit unamortized deferred financing charges (1) : $ 0.9 $ 2.0 (1) Loan origination costs associated with the Company's credit facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Condensed Consolidated Balance Sheets. Credit Agreement On March 4, 2022, the Company replaced its prior amended and restated credit agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $ 225.0 million Credit Agreement provides for a $ 25.0 million revolving line of credit and a $ 200.0 million term loan. The borrower maintains the option to increase the Credit Agreement in the future, subject to lenders’ participation, by up to an additional $ 40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement. The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Agreement. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.00 % of the original principal amount of the term loan. The Credit Agreement's interest rate references 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. Red Robin International, Inc. is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments. On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement. This new Security Agreement replaces the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement. Red Robin International, Inc. as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities. In connection with entry into the new Credit Agreement, the Company’s Prior Credit Agreement was terminated. In connection with such termination and new borrowings under the new Credit Agreement, the Company paid off all outstanding borrowings, accrued interest, and fees under the Prior Credit Agreement. 10 Table of Contents The summary descriptions of the Credit Agreement and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Credit Agreement and the Security Agreement, respectively. During the first quarter of 2022, the Company expensed approximately $ 1.7 million of deferred financing charges related to the extinguishment of the Prior Credit Agreement on March 4, 2022. These charges were recorded to interest expense, net and other on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the twenty-eight weeks ended July 10, 2022. In association with the issuance of the new Credit Agreement, the Company recognized $ 4.8 million of deferred financing charges, and $ 6.1 million of original issuance discount. 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 Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets). The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of July 10, 2022 and December 26, 2021 (in thousands): July 10, 2022 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 4,261 $ 4,261 $ — $ — Total assets measured at fair value $ 4,261 $ 4,261 $ — $ — December 26, 2021 Level 1 Level 2 Level 3 Assets: Investments in rabbi trust $ 6,276 $ 6,276 $ — $ — Total assets measured at fair value $ 6,276 $ 6,276 $ — $ — 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, 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 Note 5, Other Charges, net . We impaired long-lived restaurant assets with a carrying value (including right of use lease assets) of $ 18.5 million and $ 21.6 million, recognizing an impairment expense of $ 8.7 million and $ 10.9 million during the twelve and twenty-eight weeks ended July 10, 2022, respectively, related to the net book value of these long-lived restaurant assets. We determined the fair value of these long-lived assets to be $ 9.8 million and $ 10.7 million in the twelve and twenty-eight weeks ended July 10, 2022, respectively. The impairment was recorded as a result of quantitative impairment analyses. 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 July 10, 2022, the fair value of the credit facility was approximately $ 195.1 million and the principal amount carrying value was $ 199.5 million. The credit facility term loan is reported net of $ 9.0 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of July 10, 2022. The carrying value approximated the fair value of the credit facility as of December 26, 2021, as the interest rate on the instrument approximated current market rates. The interest rate on the credit facility represents a level 2 fair value input. 11 Table of Contents 8. Commitments and Contingencies Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements. However, the ultimate resolution of litigated claims may differ from our current estimates. In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment related claims and claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows. As of July 10, 2022, we had a balance of $ 4.4 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. We ultimately may be subject to greater or less than the accrued amount. As of July 10, 2022, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $ 135.4 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded. 12 Table of Contents