Item 1. Financial Statements
ITEM 1. Financial Statements (unaudited)
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except for per share amounts) October 2, 2022 December 26, 2021
Assets:
Current assets:
Cash and cash equivalents $ 50,040 $ 22,750
Accounts receivable, net 11,915 21,400
Inventories 25,212 25,219
Income tax receivable 754 15,824
Prepaid expenses and other current assets 13,044 16,963
Restricted cash 8,090 —
Total current assets 109,055 102,156
Property and equipment, net 342,386 386,336
Operating lease assets, net 375,747 400,825
Intangible assets, net 19,320 21,292
Other assets, net 14,434 18,389
Total assets $ 860,942 $ 928,998
Liabilities and stockholders ' equity:
Current liabilities:
Accounts payable $ 33,814 $ 32,510
Accrued payroll and payroll-related liabilities 34,040 32,584
Unearned revenue 37,539 54,214
Current portion of operating lease obligations 47,726 48,842
Current portion of long-term debt 2,000 9,692
Accrued liabilities and other 50,482 45,458
Total current liabilities 205,601 223,300
Long-term debt 189,320 167,263
Long-term portion of operating lease obligations 401,274 435,136
Other non-current liabilities 13,120 26,325
Total liabilities 809,315 852,024
Commitments and contingencies (see Note 8. Commitments and Contingencies)
Stockholders ' equity:
Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,900 and 15,722 shares outstanding as of October 2, 2022 and December 26, 2021
20 20
Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 2, 2022 and December 26, 2021
— —
Treasury stock 4,549 and 4,727 shares, at cost, as of October 2, 2022 and December 26, 2021
( 184,169 ) ( 192,803 )
Paid-in capital 242,235 242,560
Accumulated other comprehensive income (loss), net of tax ( 51 ) 1
Retained earnings (deficit) ( 6,408 ) 27,196
Total stockholders' equity 51,627 76,974
Total liabilities and stockholders ' equity
$ 860,942 $ 928,998
See Notes to Condensed Consolidated Financial Statements
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RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Twelve Weeks Ended Forty Weeks Ended
(in thousands, except for per share amounts) October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Revenues:
Restaurant revenue $ 282,449 $ 270,202 $ 951,718 $ 861,036
Franchise and other revenues 4,439 5,242 24,810 17,658
Total revenues 286,888 275,444 976,528 878,694
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Cost of sales 70,640 62,671 234,283 193,754
Labor 100,522 99,725 340,273 310,333
Other operating 52,858 51,462 172,725 156,102
Occupancy 22,828 22,519 76,406 74,233
Depreciation and amortization 17,368 18,881 58,924 63,984
Selling, general, and administrative expenses 35,692 30,343 102,168 89,299
Pre-opening costs 217 418 514 792
Other charges (gains), net ( 5,217 ) 1,561 8,236 9,228
Total costs and expenses 294,908 287,580 993,529 897,725
Loss from operations ( 8,020 ) ( 12,136 ) ( 17,001 ) ( 19,031 )
Other expense:
Interest expense, net and other 4,590 2,870 16,151 9,986
Loss on debt refinancing
Interest income and other, net
Total other expenses 4,590 2,870 16,151
Loss before income taxes ( 12,610 ) ( 15,006 ) ( 33,152 ) ( 29,017 )
Income tax provision (benefit) ( 43 ) ( 26 ) 453 ( 328 )
Net loss $ ( 12,567 ) $ ( 14,980 ) $ ( 33,605 ) $ ( 28,689 )
Loss per share:
Basic $ ( 0.79 ) $ ( 0.95 ) $ ( 2.12 ) $ ( 1.83 )
Diluted $ ( 0.79 ) $ ( 0.95 ) $ ( 2.12 ) $ ( 1.83 )
Weighted average shares outstanding:
Basic 15,892 15,709 15,816 15,647
Diluted 15,892 15,709 15,816 15,647
Other comprehensive income (loss):
Foreign currency translation adjustment $ ( 45 ) $ ( 6 ) $ ( 51 ) $ 14
Other comprehensive income (loss), net of tax ( 45 ) ( 6 ) ( 51 ) 14
Total comprehensive loss $ ( 12,612 ) $ ( 14,986 ) $ ( 33,656 ) $ ( 28,675 )
See Notes to Condensed Consolidated Financial Statements.
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RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY
(Unaudited)
Common Stock Treasury Stock Accumulated
Other
Comprehensive
Income/(Loss),
net of tax
Paid-in
Capital Retained
Earnings (Deficit)
(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 (loss), net of tax — — — — — 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 income (loss), net of tax — — — — — ( 18 ) — ( 18 )
Balance, July 10, 2022 20,449 $ 20 4,550 $ ( 184,205 ) $ 239,607 $ ( 6 ) $ 6,159 $ 61,575
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 1 ) 36 ( 40 ) — — ( 4 )
Non-cash stock compensation — — — — 2,668 — — 2,668
Net loss — — — — — — ( 12,567 ) ( 12,567 )
Other comprehensive income (loss), net of tax — — — — — ( 45 ) — ( 45 )
Balance, October 2, 2022 20,449 $ 20 4,549 $ ( 184,169 ) $ 242,235 $ ( 51 ) $ ( 6,408 ) $ 51,627
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Common Stock Treasury Stock Accumulated
Other
Comprehensive
Income/(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 (loss), net of tax — — — — — 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 income (loss), net of tax — — — — — ( 1 ) — ( 1 )
Balance, July 11, 2021 20,449 $ 20 4,732 $ ( 193,039 ) $ 238,677 $ 16 $ 63,489 $ 109,163
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 5 ) 220 ( 280 ) — — ( 60 )
Non-cash stock compensation — — — — 2,048 — — 2,048
Net loss — — — — — — ( 14,980 ) ( 14,980 )
Other comprehensive income (loss), net of tax — — — — — ( 6 ) — ( 6 )
Balance, October 3, 2021 20,449 $ 20 4,727 $ ( 192,819 ) $ 240,445 $ 10 $ 48,509 $ 96,165
See Notes to Condensed Consolidated Financial Statements.
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RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Forty Weeks Ended
(in thousands) October 2, 2022 October 3, 2021
Cash flows from operating activities:
Net loss $ ( 33,605 ) $ ( 28,689 )
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 58,924 63,984
Gift card breakage ( 8,289 ) ( 3,231 )
Restaurant asset impairment 13,048 1,357
Non-cash other charges, net ( 2,287 ) 319
Stock-based compensation expense 8,229 4,501
(Gain) loss on sale of property, plant, and equipment ( 9,204 ) —
Other, net 3,240 2,228
Changes in operating assets and liabilities:
Accounts receivable 9,487 4,544
Income tax receivable 15,163 520
Inventories ( 217 ) —
Prepaid expenses and other current assets 2,183 1,014
Operating lease assets, net of liabilities ( 10,562 ) ( 12,711 )
Trade accounts payable and accrued liabilities 9,621 16,948
Unearned revenue ( 8,386 ) ( 4,286 )
Other operating assets and liabilities, net ( 8,545 ) ( 8,881 )
Net cash provided by operating activities 38,800 37,617
Cash flows from investing activities:
Purchases of property, equipment, and intangible assets ( 27,036 ) ( 19,987 )
Proceeds from sales of property and equipment and other investing activities 8,739 20
Net cash used in investing activities ( 18,297 ) ( 19,967 )
Cash flows from financing activities:
Borrowings of long-term debt 282,151 109,500
Payments of long-term debt and finance leases ( 266,275 ) ( 125,216 )
Debt issuance costs ( 4,869 ) ( 870 )
Proceeds related to real estate sale 3,856 —
Proceeds from other financing activities, net 58 549
Net cash provided by (used in) financing activities 14,921 ( 16,037 )
Effect of exchange rate changes on cash ( 44 ) 28
Net change in cash and cash equivalents, and restricted cash 35,380 1,641
Cash and cash equivalents, beginning of period 22,750 16,116
Cash and cash equivalents, and restricted cash, end of period $ 58,130 $ 17,757
Supplemental disclosure of cash flow information
Income tax refunds received, net $ ( 14,729 ) $ ( 840 )
Interest paid, net of amounts capitalized $ 11,387 $ 7,586
See Notes to Condensed Consolidated Financial Statements.
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RED ROBIN GOURMET BURGERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Recent Accounting Pronouncements
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of October 2, 2022, the Company owned and operated 424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year.
The accompanying Condensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of December 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
Third Quarter 2022
October 2, 2022 12
Third Quarter 2021
October 3, 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 October 3, 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.
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Change in Accounting Estimate - Gift Card Breakage
As part of its annual assessment of gift card breakage and during the forty weeks ended October 2, 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 forty weeks ended October 2, 2022. The Company does not expect the impact of this change in estimate to be material to its future financial statements.
Recent Tax Legislation
The CHIPS and Science Act of 2022 (CHIPS) and the Inflation Reduction Act (IRA) of 2022 were signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company is currently evaluating the impact of CHIPS and IRA, but at present does not expect that any of the provisions included in these acts would result in a material impact to our deferred tax assets, liabilities, or income taxes payable.
2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by type of good or service (in thousands):
Twelve Weeks Ended Forty Weeks Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Restaurant revenue $ 282,449 $ 270,202 $ 951,718 $ 861,036
Franchise revenue 4,249 4,303 14,891 13,123
Gift card breakage (1)
190 438 8,290 3,231
Other revenue — 501 1,629 1,304
Total revenues $ 286,888 $ 275,444 $ 976,528 $ 878,694
(1) During the forty weeks ended October 2, 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 Note 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):
October 2, 2022 December 26, 2021
Unearned gift card revenue $ 23,971 $ 41,128
Deferred loyalty revenue $ 13,568 $ 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):
Forty Weeks Ended
October 2, 2022 October 3, 2021
Gift card revenue $ 19,788 $ 14,448
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3. Leases
The Company's finance and operating lease assets and liabilities as of October 2, 2022 and December 26, 2021 were as follows (in thousands):
October 2, 2022 Finance (1)
Operating (2)
Lease assets, net (3)
$ 7,233 $ 375,747
Current portion of lease obligations 1,015 47,726
Long-term portion of lease obligations 8,630 401,274
Total $ 9,645 $ 449,000
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 October 2, 2022 and December 26, 2021 Condensed 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 October 2, 2022 and December 26, 2021 Condensed 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 Forty Weeks Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Operating lease cost $ 15,793 $ 16,061 $ 53,904 $ 53,765
Finance lease cost:
Amortization of right of use assets 261 197 841 657
Interest on lease liabilities 111 131 408 407
Total finance lease cost $ 372 $ 328 $ 1,249 $ 1,064
Variable lease cost 4,130 4,496 15,136 15,271
Total $ 20,295 $ 20,885 $ 70,289 $ 70,100
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Maturities of our lease liabilities as of October 2, 2022 were as follows (in thousands):
Finance Leases Operating Leases
Remainder of 2022 $ 260 $ 13,829
2023 1,386 76,978
2024 1,479 76,047
2025 1,189 71,921
2026 1,245 66,078
Thereafter 6,454 323,647
Total future lease payments $ 12,013 $ 628,500
Less imputed interest 2,368 179,500
Total lease liability $ 9,645 $ 449,000
Supplemental cash flow and other information related to leases is as follows (in thousands, except other information):
Forty Weeks Ended
October 2, 2022 October 3, 2021
Cash flows from operating activities
Cash paid related to lease liabilities
Operating leases $ 65,943 $ 68,036
Finance leases 408 406
Cash flows from financing activities
Cash paid related to lease liabilities
Finance leases 1,048 1,447
Cash paid for amounts included in the measurement of lease liabilities: $ 67,399 $ 69,889
Right of use assets obtained in exchange for operating lease obligations $ 11,604 $ 27,483
Right of use assets obtained in exchange for finance lease obligations $ 541 $ 988
Other information related to operating leases as follows:
Weighted average remaining lease term (years) 9.21 9.86
Weighted average discount rate 7.24 % 7.01 %
Other information related to finance leases as follows:
Weighted average remaining lease term (years) 10.49 11.04
Weighted average discount rate 4.89 % 4.56 %
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 each of the twelve and forty weeks ended October 2, 2022 and October 3, 2021, all potentially dilutive common shares are considered anti-dilutive.
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The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):
Twelve Weeks Ended Forty Weeks Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Basic weighted average shares outstanding 15,892 15,709 15,816 15,647
Dilutive effect of stock options and awards — — — —
Diluted weighted average shares outstanding 15,892 15,709 15,816 15,647
Awards excluded due to anti-dilutive effect on diluted loss per share 869 545 1,010 390
5. Other Charges (Gains), net
Other charges (gains), net consisted of the following (in thousands):
Twelve Weeks Ended Forty Weeks Ended
October 2, 2022 October 3, 2021 October 2, 2022 October 3, 2021
Asset impairment $ 2,187 $ — $ 13,048 $ 1,357
Gain on sale of restaurant property ( 9,204 ) — ( 9,204 ) —
Executive transition 1,825 — 1,954 —
Other financing costs 1,022 — 1,392 —
COVID-19 related charges 123 299 423 1,112
Restaurant closure costs (gains) ( 1,570 ) 1,102 309 5,301
Closed corporate office, net of sublease income 267 — 267 —
Litigation contingencies 133 160 47 1,330
Board and stockholder matter costs — — — 128
Other charges (gains), net $ ( 5,217 ) $ 1,561 $ 8,236 $ 9,228
The Company recognized non-cash impairment charges primarily related to restaurant assets at one and ten Company-owned restaurants during the twelve and forty weeks ended October 2, 2022, respectively, and one Company-owned restaurant for the forty weeks ended October 3, 2021.
During the second quarter of 2022 the Company closed on an agreement to sell a restaurant property that the Company owned and leased back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $ 3.9 million, which represented a portion of the total consideration 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. During third quarter of 2022, the Company received the remaining proceeds, upon which the lease terminated and the sale transaction was completed, and recognized a $ 9.2 million gain on the sale of the restaurant property . The initial net proceeds of $ 3.9 million are included within cash flows from financing activities and the final proceeds received of $ 8.5 million are included within cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 2, 2022.
Executive transition costs include costs associated with transitioning to a new Chief Executive Officer.
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 Credit Facility. See Note 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.
Restaurant closure costs (gains) include the ongoing restaurant operating costs of the Company-owned restaurants incurred for permanently closed restaurants and closed restaurant lease termination gains or losses.
Closed corporate office, net of sublease income includes expense and sublease income related to a corporate office facility that was vacated and subleased.
Litigation contingencies during the twelve and forty weeks ended October 2, 2022 include the impact of cash proceeds received by the Company related to certain legal claims. Litigation contingencies during the twelve and forty weeks ended October 2, 2022 and October 3, 2021 include legal settlement costs accrued related to pending or threatened litigation.
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Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board member in the first quarter of 2021.
6. Borrowings
Borrowings as of October 2, 2022 and December 26, 2021 are summarized below (in thousands):
October 2, 2022 Weighted
Average
Interest Rate December 26, 2021 Weighted
Average
Interest Rate
Revolving line of credit $ — $ 57,000
Term loan 199,000 8.70 % 119,080 7.10 %
Notes payable, non-current 875 875
Total borrowings 199,875 176,955
Less: unamortized debt issuance costs and discounts (1)
8,555 —
Less: current portion of long-term debt 2,000 9,692
Long-term debt $ 189,320 $ 167,263
Revolving line of credit unamortized deferred financing charges (1) :
$ 1,042 $ 2,015
(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 (collectively, the "Credit Facility"). 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 Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0 % of the original principal amount of the term loan. The Credit Agreement's interest rate 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 0.5 % per annum, or (c) one-month term SOFR plus 1.0 % per annum. The variable interest rate on the term loan was 10.31 % as of October 2, 2022.
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 replaced 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.
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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.
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, which were filed as exhibits to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2022.
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 forty weeks ended October 2, 2022. In association with the execution 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 October 2, 2022 and December 26, 2021 (in thousands):
October 2, 2022 Level 1 Level 2 Level 3
Assets:
Investments in rabbi trust $ 4,020 $ 4,020 $ — $ —
Total assets measured at fair value $ 4,020 $ 4,020 $ — $ —
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 (Gains), net.
We impaired long-lived restaurant assets with a carrying value (including right of use lease assets) of $ 5.8 million and $ 27.3 million, recognizing an impairment expense of $ 2.2 million and $ 13.0 million during the twelve and forty weeks ended October 2, 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 $ 3.6 million and $ 14.3 million in the twelve and forty weeks ended October 2, 2022, respectively. The impairment was recorded as a result of quantitative impairment analyses.
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Disclosures of Fair Value of Other Assets and Liabilities
The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of October 2, 2022, the fair value of the credit facility was approximately $ 194.8 million and the principal amount carrying value was $ 199.0 million. The credit facility term loan is reported net of $ 8.6 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of October 2, 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.
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 condensed 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 October 2, 2022, we had a balance of $ 4.5 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 October 2, 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 $ 128.4 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.