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Item 8. Financial Statements and Supplementary Data

2023-02-28 compared with 2022-03-10 · 230 added, 231 removed, 733 unchanged (39% of the section changed)

11 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Red Robin Gourmet Burgers, Inc.

and subsidiaries (the "Company") as of December 26, 2021, the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the period ended December 26, 2021, and the related notes (collectively, referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 26, 2021, and the results of its operations and its cash flows for the period ended December 26, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 26, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 10, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

We have audited the accompanying consolidated balance sheets of Red Robin Gourmet Burgers, Inc.

and subsidiaries (the "Company") as of December 25, 2022 and December 26, 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the periods ended December 25, 2022 and December 26, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 25, 2022 and December 26, 2021, and the results of its operations and its cash flows for the periods ended December 25, 2022 and December 26, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 25, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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The Company assesses long-lived assets for impairment at the individual restaurant-level whenever events and circumstances indicate the carrying amount of an asset group may not be recoverable.

During the fiscal year ended December 26, 2021, the Company recorded an impairment of $6.4 million related to long-lived assets associated with excess properties.

During 2022, the Company determined long-lived assets at 46 locations were impaired as a result of their cash flow analysis and recognized non-cash impairment charges of $38.0 million.

Long-lived assets are reviewed whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Expected undiscounted cash flows associated with an asset are the key factor in determining the recoverability of the asset.

Expected cash flows associated with an asset are the key factor in determining the recoverability of the asset.

Identifiable cash flows are measured at the restaurant-level.

The estimate of cash flows is based upon, among other things, certain assumptions about expected future operating performance, including assumptions of future revenue trends.

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

We identified the evaluation of long-lived asset impairment for restaurant sites, leasehold improvements, other fixed assets, right of use assets, and amortizable intangible assets, as a critical audit matter because of the significant judgments made by management to estimate the undiscounted cash flows, including assumptions about expected future operating performance, and the fair value of the right of use assets.

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

We identified the evaluation of long-lived asset impairment as a critical audit matter because of the significant judgments made by management to estimate the undiscounted cash flows, including assumptions about expected future operating performance, and the fair value of the lease assets.

This required a high degree of auditor judgment and an increased extent of effort, when performing audit procedures to evaluate whether management appropriately identified and evaluated potential impairment

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◦ Conducting a completeness assessment to determine whether additional impairment indicators were present during the period that were not identified by the Company.

• We tested the mathematical accuracy of management’s calculations and for a selection of restaurant sites, we tested the underlying source information.

• We tested the mathematical accuracy of management’s calculations and the underlying source of information for a selection of restaurant sites.

• We evaluated the reasonableness of the information in the Company’s forecasted undiscounted cash flows used in their recoverability and impairment analyses, by comparing the forecasts to

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◦ Internal communications between management and the Board of Directors

◦ Forecasted information included in analyst and industry reports for the Company and certain of its peer companies.

• We evaluated the Company’s forecasted undiscounted cash flows for consistency with evidence obtained in other areas of the audit.

◦ Forecasted information included in analyst and industry reports for the Company.

• We evaluated the Company’s forecasted undiscounted and discounted cash flows for consistency with evidence obtained in other areas of the audit.

• With the assistance of our fair value specialists, we evaluated the market rent by developing a range of independent estimates and comparing those to the market rent used by management.

1 unchanged sentence

Denver, Colorado

March 10, 2022

February 28, 2023

We have served as the Company's auditor since 2021.

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Red Robin Gourmet Burgers, Inc.

and subsidiaries (the Company) as of December 27, 2020, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the years in the two‑year period ended December 27, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 27, 2020, and the results of its operations and its cash flows for each of the years in the two‑year period ended December 27, 2020, in conformity with U.S.

We have audited the accompanying consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows of Red Robin Gourmet Burgers, Inc.

and subsidiaries (the Company) for the year ended December 31, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of operations of the Company and its cash flows for the year ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

1 unchanged sentence

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

We served as the Company’s auditor from 2015 to 2021 .

Denver, Colorado

March 3, 2021, except as to paragraph (d) of Note 1, which is as of March 10, 2022

March 3, 2021, except as to paragraph (c) of Note 1, which is as of March 10, 2022

RED ROBIN GOURMET BURGERS, INC.

8 unchanged sentences

Prepaid expenses and other current assets 12,938 16,963

Restricted cash 9,380 —

Total current assets 119,580 102,156

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Accumulated other comprehensive income (loss), net of tax ( 34 ) 1

Retained earnings 27,196 77,198

Retained (deficit) earnings ( 50,604 ) 27,196

Total stockholders' equity 5,375 76,974

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Pre-opening costs 568 1,410 296

Other charges

Other charges (includes $( 3,299 ), $ 0 , and $ 0 of stock-based compensation)

38,961 16,074 153,883

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Loss before income taxes ( 77,053 ) ( 50,154 ) ( 283,552 )

Income tax benefit ( 152 ) ( 7,484 ) ( 14,334 )

Income tax expense (benefit) 747 ( 152 ) ( 7,484 )

Net loss $ ( 77,800 ) $ ( 50,002 ) $ ( 276,068 )

5 unchanged sentences

Diluted 15,840 15,660 14,314

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation adjustment $ ( 35 ) $ 5 $ ( 1,115 )

Other comprehensive income (loss), net of tax 5 ( 1,115 ) 428

Other comprehensive (loss) income, net of tax ( 35 ) 5 ( 1,115 )

Total comprehensive loss $ ( 77,835 ) $ ( 49,997 ) $ ( 277,183 )

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(Loss) Income,

Capital Retained

net of tax Retained

Shares Amount Shares Amount Total

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Non-cash stock compensation — — — — 4,489 — — 4,489

Topic 842 transition impairment, net of tax — — — — — — ( 15,172 ) ( 15,172 )

Issuance of common stock.

$ 0.001 par value, net of stock issuance costs

2,598 2 — — 28,716 — — 28,718

Release of currency translation adjustment — — — — — 5,484 — 5,484

Net loss — — — — — — ( 276,068 ) ( 276,068 )

Other comprehensive income — — — — — 428 — 428

Other comprehensive loss — — — — — ( 1,115 ) — ( 1,115 )

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 — — ( 174 ) 7,105 ( 7,484 ) — — ( 379 )

Acquisition of treasury stock — — 72 ( 1,635 ) — — — ( 1,635 )

Non-cash stock compensation — — — — 6,637 — — 6,637

Issuance of common stock, $0.001 par value, net of stock issuance costs 2,598 2 — — 28,716 — — 28,718

Release of currency translation adjustment — — — — — 5,484 — 5,484

Net loss — — — — — — ( 276,068 ) ( 276,068 )

Other comprehensive loss — — — — — ( 1,115 ) — ( 1,115 )

Net income — — — — — — ( 50,002 ) ( 50,002 )

Other comprehensive income — — — — — 5 — 5

Balance, December 26, 2021 20,449 20 4,727 ( 192,803 ) 242,560 1 27,196 76,974

2 unchanged sentences

Net loss — — — — — — ( 77,800 ) ( 77,800 )

Other comprehensive income — — — — — 5 5

Other comprehensive loss — — — — — ( 35 ) — ( 35 )

Balance, December 25, 2022 20,449 $ 20 4,515 $ ( 182,810 ) $ 238,803 $ ( 34 ) $ ( 50,604 ) $ 5,375

10 unchanged sentences

Goodwill and asset impairments 38,534 7,052 122,354

Non-cash other charges 346 2,837 ( 13,621 )

Deferred income tax provision (benefit) — 51,502 ( 9,640 )

Non-cash other charges (gains) ( 3,440 ) 346 2,837

Deferred income tax provision — — 51,502

Stock-based compensation expense 6,294 6,622 4,330

Gain on sale of property ( 9,204 ) — —

Amortization of debt issuance costs 3,530 3,032 639

Other, net 287 71 413

11 unchanged sentences

Purchases of property, equipment and intangible assets ( 38,159 ) ( 42,261 ) ( 22,132 )

Proceeds from sales of real estate and property, plant, and equipment and other 20 739 279

Proceeds from sales of property and equipment, and other 8,591 20 739

Net cash used in investing activities ( 29,568 ) ( 42,241 ) ( 21,393 )

4 unchanged sentences

Debt issuance costs ( 4,869 ) ( 1,714 ) ( 2,952 )

Proceeds related to real estate sale 3,856 — —

Proceeds from issuance of common stock, net of stock issuance costs — — 28,718

2 unchanged sentences

Effect of exchange rate changes on cash ( 41 ) 20 ( 1,065 )

Net change in cash and cash equivalents 6,634 ( 13,929 ) 11,476

Net change in cash and cash equivalents, and restricted cash 35,456 6,634 ( 13,929 )

Cash and cash equivalents, beginning of period 22,750 16,116 30,045

Cash and cash equivalents, end of period $ 22,750 $ 16,116 $ 30,045

Cash and cash equivalents, and restricted cash, end of period $ 58,206 $ 22,750 $ 16,116

Supplemental disclosure of cash flow information

Income taxes (refund received) paid, net $ ( 962 ) $ ( 50,629 ) $ 3,237

Income taxes refund received, net $ ( 14,642 ) $ ( 962 ) $ ( 50,629 )

Interest paid, net of amounts capitalized 16,054 10,455 9,869

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2024 December 29, 2024 52

Certain amounts presented have been reclassified within the December 26, 2021 and December 27, 2020 Consolidated Statements of Cash Flows to conform with the current period presentation, including prior year reclassifications from Other, net to Amortization of debt issuance costs.

The reclassifications had no effect on the Company’s cash flows from operations.

(d) Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 periods.

1 unchanged sentence

Actual results could differ from those estimates.

(d) Immaterial Restatements

Subsequent to the issuance of the December 27, 2020 Consolidated Financial Statements, management concluded that Financing lease right of use assets, Current portion of financing lease obligations and Long-term portion of financing lease liabilities were incorrectly presented within the same financial statement line items as Operating lease right of use assets, Current portion of operating lease obligations, and Long-term portion of operating lease obligations, respectively, on the December 27, 2020 Consolidated Balance Sheet.

To correct the classification of these assets and liabilities, $ 9.7 million of Financing lease right of use assets net was reclassified to Other assets, net, $ 1.1 million of the Current portion of financing lease obligations was reclassified to Accrued liabilities and other current liabilities, and $ 10.9 million of the Long-term portion of financing lease obligations was reclassified to Other non-current liabilities.

Remaining balances in the captions pertain to Operating leases, and the financial statement line item descriptions were changed in the current year presentation to reflect this.

Additionally, subsequent to the issuance of the December 27, 2020 Consolidated Financial Statements, management concluded that the Company had incorrectly disclosed the Change in construction related payables, whereas the required disclosure presents the accrued capital expenditure amounts included in accounts payable and accrued expenses and other current liabilities as of year-end.

The Company corrected the disclosure in the current year and corrected the financial statement line item description to Accrued purchases of property, equipment and intangible assets, and corrected the 2020 and 2019 amounts from $( 0.9 ) million and $( 3.9 ) million, respectively to $ 2.4 million and $ 3.3 million, respectively, within the Consolidated Statement of Cash Flows.

These restatements were related to presentation, and did not have any impact to retained earnings in the current or prior year presentations.

Management has evaluated these errors and has determined, based on quantitative and qualitative factors that they were not material to the December 27, 2020 balance sheet or the cash flow statements for the year ended December 27, 2020 and December 29, 2019.

Change in Accounting Estimate - Gift Card Breakage

As part of its annual assessment of gift card breakage and during the fifty-two weeks ended December 25, 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 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 fifty-two weeks ended December 25, 2022.

The Company may record adjustments related to changes in estimated redemption patterns in the future which could be material.

Change in Accounting Estimate - Red Robin Loyalty Breakage

In the fourth quarter of 2022, the Company re-evaluated the estimated redemption pattern related to Red Robin Royalty benefits and aligned the recognition of loyalty breakage to the updated estimated redemption pattern.

As a result, the Company recognized an additional $ 2.9 million of loyalty breakage in Restaurant revenue.

The Company re-evaluates the estimated redemption pattern related to Red Robin Royalty each year and may record adjustments related to changes in estimated redemption patterns in the future which could be material.

(e) Summary of Significant Accounting Policies

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(i) Restaurant revenue, when the Company's performance obligation to provide food and beverage to the customer is satisfied upon redemption of the gift card, or (ii) gift card breakage, as discussed below.

Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction.

The determination of the gift card breakage rate is based upon the Company's specific historical redemption patterns.

The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption.

Red Robin Royalty™ deferred revenue primarily relates to a program in which registered members earn an award for a free entrée for every nine entrées purchased.

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The Company recognizes these sales-based royalties and advertising fund contributions as the underlying franchisee sales occur.

Contributions to these Advertising Funds from franchisees are recorded as revenue under Franchise revenue in the Consolidated Statements of Operations and Comprehensive Loss in accordance with ASC Topic 606, Revenue from Contracts with Customers .

The Company also provides its franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for area development fees and franchise fees.

The Company capitalizes these fees upon collection from the franchisee, which then amortize over the contracted franchise term as the services comprising the performance obligation are satisfied.

The Company typically grants franchise rights to franchisees for a term of 20 years, with the right to extend the term for an additional ten years if various conditions are satisfied by the franchisee.

The determination of the gift card breakage rate is based upon the Company's specific historical redemption patterns.

The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption.

Other revenue consists of miscellaneous revenues considered insignificant to the Company's business.

Cash and Cash Equivalents - The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.

Amounts receivable from credit card issuers are typically converted to cash within two days to four days of the original sales transaction and are considered to be cash equivalents.

The Company typically grants franchise rights to franchisees for a term of 20 years, with the right to extend the term for an additional 10 years if various conditions are satisfied by the franchisee.

Other revenue consists of gift card breakage, licensing income, and recycling income.

Cash and Cash Equivalents, and Restricted Cash - The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents.

Amounts receivable from credit card issuers are typically converted to cash within two to four days of the original sales transaction and are considered to be cash equivalents.

Cash and cash equivalents are maintained with multiple financial institutions.

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The Company periodically assesses the credit risk associated with these financial institutions and believes that the risk of loss is minimal.

The Company is required to carry restricted cash balances that are reserved as collateral for existing letters of credit.

The amounts issued under letters of credit, which are undrawn and expire in June 2023, totaled $ 9.1 million.

Accounts Receivable, Net - Accounts receivable, net consists primarily of third party gift card receivables, third party delivery partner receivables, trade receivables due from franchisees for royalties and advertising fund contributions, and tenant improvement allowances.

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We determine fair value based on prices in the open market for license in same or similar jurisdictions.

Impairment charges of $ 0.5 million were recorded related to indefinite-lived intangibles in 2021.

No impairment charges were recorded in 2020, or 2019.

Impairment of Long-Lived Assets - The Company reviews its long-lived assets, including restaurant sites, leasehold improvements, information technology systems, right of use assets, other fixed assets, and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Impairment charges of $ 0.5 million were recorded related to indefinite-lived intangibles in 2022 and $ 0.5 million were recorded in 2021.

No impairment charges were recorded in 2020.

Impairment of Long-Lived Assets - The Company reviews its long-lived assets, including restaurant sites, leasehold improvements, other fixed assets, information technology systems, right of use assets, and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of 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.

1 unchanged sentence

If the assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value.

Fair value is generally determined using forecasted cash flows discounted using an estimated weighted average cost of capital.

Management may also utilize other market information to determine fair value when relevant information is available, such as market rent, when available, to estimate the fair value of a restaurant.

Fair value is generally determined using projected cash flows discounted using an estimated weighted average cost of capital.

Management may also utilize other market information to determine fair value such as market rent and discount rates, to estimate the fair value of restaurant right of use lease assets.

Restaurant sites and other assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell.

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 in 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.

Other Assets, net - Other assets, net consist primarily of assets related to various deposits, the employee deferred compensation plan, and unamortized debt issuance costs on the credit facility.

Debt issuance costs are capitalized and amortized to interest expense on a straight-line basis which approximates the effective interest rate method over the term of the Company's long-term debt.

Other Assets, net - Other assets, net consist primarily of assets related to various deposits, the employee deferred compensation plan, and unamortized debt issuance costs on the revolving Credit Facility.

Debt issuance costs on the revolving Credit Facility are capitalized and amortized to interest expense on a straight-line basis which approximates the effective interest rate method over the term of the Company's long-term debt.

Advertising - Under the Company's franchise agreements, both the Company and the franchisees must contribute up to 3.0 % of revenues to two national media advertising funds (the "Advertising Funds").

These Advertising Funds are used to build the Company's brand equity and awareness primarily through a national marketing strategy, including national television advertising, digital media, social media programs, email, loyalty, and public relations initiatives.

Contributions to these Advertising Funds from franchisees are recorded as revenue under Franchise revenue in the consolidated statements of operations and comprehensive loss in accordance with ASC Topic 606, Revenue from Contracts with Customers .

Total advertising costs of $ 35.7 million, $ 34.3 million, and $ 24.9 million in 2022, 2021, and 2020 and were included in Selling, general, and administrative expenses.

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However, the amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carry forward period are increased or reduced or if there are differences in the timing or amount of future reversals of existing taxable temporary differences.

Pursuant to the guidance for uncertain tax positions, a taxpayer must be able to more likely than not sustain a position to recognize a tax benefit, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit.

likely to be realized upon resolution of the benefit.

The Company has analyzed filing positions in all of the federal, state, and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions.

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The Company recorded immaterial interest expense on the identified tax liabilities in 2022, 2021, and 2020.

Approximately $ 1.1 million of interest income was recorded related to the $ 49.4 million federal cash tax refund received during the fourth quarter of 2020.

Approximately $ 1.1 million of interest income was recorded related to a federal cash tax refund received during the fourth quarter of 2020.

Loss Per Share - Basic loss per share amounts are calculated by dividing net loss by the weighted average number of common shares outstanding during the year.

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Fluctuations in the market value of the investments held in the trust result in the recognition of deferred compensation expense or income reported in Selling, general, and administrative expenses and recognition of investment gain or loss reported in Interest income and other, net, in the consolidated statements of operations and comprehensive loss.

Foreign Currency Translation - The Canadian Dollar is the functional currency for our Canadian franchise operations.

Foreign Currency Translation - The Canadian Dollar is the functional currency for our Canadian entity operations.

Assets and liabilities denominated in Canadian Dollars are translated into U.S.

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The resulting translation adjustment is recorded as a separate component of Other comprehensive (loss) income.

Gain or loss from foreign currency transactions is recognized in our consolidated statements of operations and comprehensive loss at the exchange rate in effect as of the date of the transaction.

During the fourth quarter of 2020, the Company substantially completed the exit of Company-owned restaurants in Canada resulting in the removal of the accumulated currency translation adjustment as a component of stockholders' equity and the recognition in Other charges on the Consolidated Statements of Operations and Comprehensive Loss totaling a loss of $ 5.5 million.

Impact of COVID-19 Pandemic - 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 ability to attract and retain Team Members has become more challenging in the current competitive job market.

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 memorable Guest experience and continuing to prioritize the satisfaction and retention of our Team Members.

Recent Accounting Pronouncements

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Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference LIBOR or another reference rate expected to be discontinued.

This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference the London Interbank Offer Rate ("LIBOR") or another reference rate expected to be discontinued.

Under this update, contract modifications resulting in a new reference rate may be accounted for as a continuation of the existing contract.

This guidance is effective upon issuance of the update and applies to contract modifications made through December 31, 2022.

We are currently evaluating the impact this guidance will have on our consolidated financial statements.

We adopted Topic 848 during the first quarter of fiscal year 2022 in conjunction with the refinancing of our Credit Facility and its associated transition from LIBOR to the Secured Overnight Financing Rate ("SOFR"), noting it did not have a material impact to the Company's Consolidated Statements of Operations and Comprehensive Loss upon adoption.

We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's consolidated financial statements.

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Franchise revenue 19,306 17,236 8,853

17,236 8,853 17,497

Gift card breakage (1)

14,762 5,373 4,516

Other revenue 2,231 1,736 1,210

Total revenues $ 1,266,617 $ 1,162,078 $ 868,715

———————————————————

(1) The decrease in Franchise revenue during 2020 was driven by the Company temporary abating franchise payments during the onset of the COVID-19 pandemic.

(1) 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.

Description of Business and Summary of Significant Accounting Policies.

Contract Liabilities

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Gift card revenue $ 25,749 $ 14,249 $ 16,385

Other Charges

Other Charges (Gains), net

Other charges consist of the following (in thousands):

December 25, 2022 December 26, 2021 December 27, 2020

Restaurant closures and refranchising costs (gains) $ 6,276 $ 19,846 $ ( 1,187 )

Asset impairment $ 38,534 $ 7,052 $ 26,940

Gain on sale of restaurant property ( 9,204 ) — —

Severance and executive transition, net of $( 3,299 ) and $ 0 in stock-based compensation

Other financing costs 1,462 — —

Restaurant closure costs, net 828 6,276 19,846

Closed corporate office costs, net of sublease income 475 — —

COVID-19 related charges 438 1,288 1,858

Litigation contingencies 4,148 1,330 6,440

COVID-19 related costs 1,288 1,858 —

Board and shareholder matter costs 128 2,504 3,261

Board and stockholder matter costs — 128 2,504

Goodwill Impairment — — 95,414

Severance and executive transition — 881 3,450

Executive retention — — 980

Other charges $ 16,074 $ 153,883 $ 21,598

Restaurant Closure and Refranchising Costs (Gains)

Restaurant closure costs represent costs incurred for permanently closed restaurants, including lease termination costs, as well as the ongoing restaurant operating costs of Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic.

During 2020, the Company temporarily closed 35 restaurants due to the onset of the COVID-19 pandemic.

During periods of temporary closure, restaurant operating and occupancy costs were included in Restaurant closures and refranchising costs.

The table below shows the disposition of these restaurants:

(Restaurants)

Restaurants Temporarily closed in March, 2020 as a result of the COVID-19 Pandemic:

Temporarily closed restaurants re-opened in 2020:

Temporarily closed restaurants permanently closed in 2020:

Restaurants temporarily closed as of December 27, 2020:

Temporarily closed restaurants re-opened in 2021:

Temporarily closed restaurants permanently closed in 2021:

Restaurants temporarily closed as of December 26, 2021 (1) :

(1) The Company intends to re-open the remaining temporarily closed restaurant in the first fiscal quarter of 2022.

During 2021, the Company permanently closed 14 restaurants.

Ten of these restaurants were initially temporarily closed due to COVID-19 in 2020.

During 2020, the Company permanently closed 11 restaurants.

Six of these restaurants were initially temporarily closed due to COVID-19.

Due to permanent closure of certain restaurants during 2020, we impaired long-lived assets at six of the 11 permanently closed restaurants totaling $ 5.7 million.

Additionally, during 2020, the Company substantially completed the exit of Company-owned restaurants in Canada and accordingly recognized the accumulated currency translation adjustment as a loss in Other charges on the consolidated statements of operations and comprehensive loss totaling $ 5.5 million.

During 2019, the Company closed 18 restaurants resulting in a gain of $ 1.2 million.

The gain is driven by early lease terminations on previously closed restaurants.

Other charges (gains), net $ 38,961 $ 16,074 $ 153,883

Asset Impairment

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

During 2022, the Company determined long-lived assets at 46 locations were impaired and recognized non-cash impairment charges of $ 38.0 million related to the impairment of the long-lived assets associated with our properties, primarily due to restaurants that did not perform as expected as a result of cost pressures that reduced restaurant-level profitability.

Additionally, the Company recognized $ 0.5 million of non-cash impairment charges related to the impairment of long lived intangible assets related to quota state liquor licenses at six locations.

During 2021, the Company impaired long-lived assets of ten Company-owned restaurants and recognized non-cash impairment charges of $ 6.4 million.

Additionally, the Company recognized $ 0.5 million of non-cash impairment charges related to the impairment of long lived intangible assets related to quota state liquor licenses at seven locations.

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Additionally, 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 2019, the Company impaired long-lived assets of 29 Company-owned restaurants and recognized non-cash impairment charges of $ 15.1 million.

Litigation Contingencies

In 2021 and 2020, the Company recorded $ 1.3 million and $ 6.4 million, respectively, of contingencies related to litigation matters.

See Note 13, Commitments and Contingencies , for further discussion.

Gain on Sale of Restaurant Property

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 the 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 Consolidated Statements of Cash Flows for the year ended December 25, 2022.

Severance and Executive Transition

During 2022, the Company recorded $ 2.3 million of severance and executive transition costs primarily related to transitioning to a new Chief Executive Officer, and changes in other leadership positions as a result of our strategic pivot under the North Star plan and severance related to a reduction in force of restaurant support Team Members in the fourth quarter of 2022.

These costs are net of a $ 3.3 million stock-based compensation benefit primarily related to a change in estimated stock-based compensation forfeitures as a result of changes in executive leadership.

During 2020, the Company recorded $ 0.9 million of severance and executive transition costs primarily related to severance costs associated with the reduction in force of Restaurant Support Center Team Members in the first quarter of 2020.

Other Financing Costs

Other financing costs of $ 1.5 million 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.

Restaurant Closure Costs, net

Restaurant closure costs include costs incurred for permanently closed restaurants and closed restaurant lease termination gains or losses, as well as the ongoing restaurant operating costs of the Company-owned restaurants that temporarily closed due to the COVID-19 pandemic.

In 2022, 2021 and 2020, the Company recorded $ 0.8 million, $ 6.3 million, and $ 19.8 million of costs, respectively.

Closed Corporate Office Costs, Net of Sublease Income

Closed corporate office, net of sublease income includes expense and sublease income related to a corporate office facility that was vacated and subleased.

COVID-19 Related Costs

In 2021 and 2020, the Company recorded $ 1.3 million and $ 1.9 million of costs, respectively, related to purchasing personal protective equipment for restaurant Team Members and Guests and providing emergency sick pay to restaurant Team Members during the pandemic.

In 2022, 2021 and 2020, the Company recorded $ 0.4 million, $ 1.3 million, and $ 1.9 million of costs, respectively, related to purchasing personal protective equipment for restaurant Team Members and Guests and providing emergency sick pay to restaurant Team Members during the pandemic.

Litigation Contingencies

In 2022, 2021 and 2020, the Company recorded $ 4.1 million, $ 1.3 million, and $ 6.4 million respectively, of contingencies related to litigation matters.

Litigation contingencies during 2022 include the impact of cash proceeds received by the Company related to certain legal claims.

Commitments and Contingencies, for further discussion.

Board and Stockholder Matters Costs

During 2021, the Company recorded an immaterial amount of board and stockholder matters costs.

During 2021, the Company recorded $ 0.1 million of board and stockholder matters costs.

During 2020, the Company recorded $ 2.5 million of board and stockholder matters costs primarily related to the shareholder rights plan and the recruitment and appointment of a new board member in the first quarter of 2020.

During 2019, the Company recorded $ 3.3 million of board and stockholder matters costs primarily related to the recruitment and appointment of the three new board members and the adoption of a shareholder rights plan.

Goodwill Impairment

The Company recognized full goodwill impairment during the first quarter of 2020 totaling $ 95.4 million resulting from the negative effects of COVID-19 on our business.

Severance and Executive Transition

During 2020, the Company recorded $ 0.9 million of severance and executive transition costs primarily related to severance costs associated with the reduction in force of restaurant support center Team Members in the first quarter of 2020.

During 2019, the Company recorded $ 3.5 million of severance and executive transition costs primarily related to the transition and realignment of our executive team, including the appointment of a new CEO in the third quarter of 2019.

Executive Retention

During 2019, the Company recorded $ 1.0 million of executive retention costs related to payments made to retain executive leadership believed to be critical to the ongoing operation of the Company during the uncertainty created following the retirement of our CEO in early April 2019 and throughout the subsequent transition period.

Property and Equipment, Net

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Depreciation and amortization expense on property and equipment was $ 73.7 million in 2022, $ 80.5 million in 2021, and $ 83.2 million in 2020.

On January 25, 2022 the Company entered into a purchase and sale agreement to sell a location where the Company owns the real estate, contingent upon the completion of customary due diligence.

If completed, this sale will result in a material gain during 2022.

Intangible Assets

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Immaterial impairment charges were recorded related to finite-lived intangibles resulting from the continuing and projected future results at Company-owned restaurants in 2022, 2021, and 2020.

Impairment charges of $ 0.5 million were recorded related to indefinite-lived intangibles in 2021.

No impairment charges were recorded related to indefinite-lived intangibles in 2020, and 2019.

Impairment charges of $ 0.5 million were recorded related to indefinite-lived intangibles in 2022 and $ 0.5 million were recorded in 2021.

No impairment charges were recorded related to indefinite-lived intangibles in 2020.

The aggregate amortization expense related to intangible assets subject to amortization for 2022, 2021, and 2020 was $ 2.5 million, $ 2.9 million, and $ 4.4 million.

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Current portion of finance lease liabilities 1,094 1,194

Accrued severance 2,505 —

Other 7,284 9,712

Accrued liabilities and other current liabilities $ 49,498 $ 45,458

The CARES act deferred payroll tax amount was paid in full subsequent to our fiscal year end, and prior to the December 31, 2022 deadline for repayment.

Accrued severance represents one-time termination benefits primarily related to changes in leadership positions as a result of our strategic pivot under the North Star plan and a related reduction in force of restaurant support Team Members in 2022 and is accounted for in accordance with ASC Topic 420, Exit or Disposal Cost Obligations .

The Company expects to make the remaining payments related to these benefits in 2023.

The Company expects to incur a total of $ 4.2 million in termination benefits related to the North Star plan.

Approximately $ 3.0 million in one-time termination benefits was incurred and recorded in Other charges in the Consolidated Statements of Operations and Comprehensive Loss during the fifty-two week period ended December 25, 2022.

Restructuring costs were as follows:

Termination Benefits

Balance as of December 26, 2021

Charges 2,955

Cash Payments ( 450 )

Balance as of December 25, 2022

Borrowings as of December 25, 2022 and December 26, 2021 are summarized below:

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Interest Rate

Revolving credit facility, term loan, and other long-term debt $ 176,955 7.10 % $ 170,644 4.50 %

Total debt 176,955 170,644

Less current portion 9,692 9,692

Revolving line of credit $ 15,000 $ 57,000

Term loan 199,000 9.10 % 119,080 7.10 %

Notes payable 875 875

Total borrowings 214,875 176,955

unamortized debt issuance costs and discounts (1)

current portion of long-term debt 3,375 9,692

Long-term debt $ 203,155 $ 167,263

Revolving line of credit unamortized deferred financing charges (1) :

$ 988 $ 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 Consolidated Balance Sheets.

Maturities of long-term debt as of December 25, 2022 are as follows (in thousands):

Thereafter 875

(1) A typical fiscal year includes four principal payments of $ 0.5 million for a total of $ 2.0 million associated with the term loan;

however, as fiscal year 2023, comprises 53 weeks instead of 52 weeks, there will be one additional principal payment in 2023 compared to fiscal year 2022.

Description of Business and Summary of Significant Accounting Policies for details on our fiscal calendar.

Credit Facility

As of December 26, 2021, the Company had outstanding borrowings under the credit facility of $ 176.1 million, in addition to amounts issued under letters of credit of $ 7.9 million.

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

The amounts issued under letters of credit reduce the amount available under the credit facility but are not recorded as debt.

As of December 26, 2021 and December 27, 2020, the current portion of long-term borrowings under the credit facility totaled $ 9.7 million.

As of December 26, 2021, our credit facility primarily consisted of a $ 119.1 million dollar term loan, and a $ 57.0 million revolving line of credit.

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

The term loan and revolving line of credit bear interest at LIBOR with a floor of 1.0 %, plus a spread of 6.0 %, and both the term loan and the revolving line of credit mature on January 10, 2023.

Borrowings under the credit facility are secured by substantially all of the assets of the Company and are available to:

(i) refinance certain existing indebtedness of the Company and its subsidiaries, (ii) finance restaurant construction costs, (iii) pay costs, fees, and expenses in connection with such new restaurant construction, (iv) pay any fees and expenses in connection with the credit facility, and (v) provide for the working capital and general corporate requirements of the Company, including permitted acquisitions and the redemption of capital stock.

Restrictions on how borrowings are used by the Company are in place per requirements set forth by our lenders.

The Company was subject to a number of customary covenants under the credit facility, including limitations on additional borrowings, acquisitions, capital expenditures, share repurchases, lease commitments, dividend payments, and requirements to maintain certain financial ratios including the lease adjusted leverage ratio and fixed charge coverage ratio.

However, the Third Amendment provided certain covenant relief to the Company through the end of 2021.

Our debt covenant 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.

Third Amendment

In response to the continued uncertainty around the impact of industry labor and supply chain challenges as well as the COVID-19 Delta variant, the Company amended its current credit facility on November 9, 2021 (the "Third Amendment") to obtain additional flexibility to continue to implement our business strategy.

The Third Amendment further amended the Company’s credit facility to, among other things:

• waive the application of the lease adjusted leverage ratio financial covenant (the "Leverage Ratio Covenant") for the third fiscal quarter of 2021

• increase the maximum leverage permitted for purposes of the Leverage Ratio Covenant for the fourth fiscal quarter of 2021 and the first, second and third fiscal quarters of 2022, with the definition of the Leverage Ratio Covenant also being amended to provide that it shall not be calculated on a basis that gives effect to a seasonally adjusted annualized consolidated EBITDA in future periods;

• decrease the minimum fixed charge coverage ratio required for purposes of the fixed charge coverage ratio financial covenant (the “FCCR Covenant”) for the first fiscal quarter of 2022, with the definition of the FCCR Covenant also being amended to account for cash tax refunds received in any future period and certain capital expenditures constituting "Expansion Capital Expenditures" being excluded from the calculation thereof;

• decrease the minimum liquidity required for purposes of the minimum liquidity covenant and provide for the testing of such minimum liquidity covenant at all times;

• make certain amendments to the Credit Facility to (i) provide that certain additional capital expenditures shall constitute "Expansion Capital Expenditures" and (ii) provide that "Expansion Capital Expenditures" shall be permitted for all periods on or prior to the last day of the fiscal quarter of the Company ending on or about October 2, 2022, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) such "Expansion Capital Expenditures" do not exceed certain agreed amounts in each fiscal quarter (with carryforward of unused amounts to the immediately succeeding fiscal quarter), and, for all periods thereafter, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) on a pro forma basis, lease adjusted leverage ratio shall not exceed 5.00x;

• increase the pricing under the Credit Facility for (a) the period from the Third Amendment Effective Date through the first interest determination date occurring after the last day of the fiscal quarter of the Company ending on or about

April 17, 2022 to LIBOR (subject to a 1 % floor) plus 6.00 % and (b) periods thereafter to LIBOR (to which a 1 % LIBOR floor shall apply) plus 6.50 %;

• provide that the previously agreed utilization fee of 0.75 % per annum of the daily outstanding principal amount of term loans, revolving loans, swingline loans and letter of credit obligations under the Credit Facility shall be owing solely in respect of the period commencing on February 25, 2021 and ending on the Third Amendment Effective Date, with all such amounts payable on the Third Amendment Effective Date;

• reduce the aggregate revolving commitment to $ 75.0 million on the last day of the fiscal quarter of the Company ending on or about April 17, 2022;

• amend the anti-cash hoarding provision to require revolver repayments (but with no associated permanent reduction in the revolving commitment) to the extent that the Company’s consolidated cash on hand exceeds $ 30.0 million at any time;

• revise the requirement that the annual audited financial statements be delivered without a "going concern qualification" to permit such a qualification solely relating to (i) any impending debt maturity (whether under the Credit Facility or otherwise) or (ii) any actual or prospective inability to satisfy a financial maintenance covenant;

• make certain amendments to the Credit Facility to address LIBOR transition matters.

The description above is a summary of the Third Amendment and is qualified in its entirety by the complete text of the agreement.

In conjunction with the Second Amendment to the Amended and Restated Credit Facility (the "Second Amendment") on February 25, 2021 and Third Amendment, the Company paid certain customary amendment fees to the lenders under the Credit Facility totaling approximately $ 0.6 million and $ 0.8 million respectively, which will be capitalized as deferred loan fees and amortized over the remaining term of the Credit Facility.

During 2021, the Company expensed approximately $ 1.7 million of deferred financing charges related to calculated reductions in total borrowing capacity of the revolver associated with the Second and Third Amendments.

The $ 1.7 million is included in interest expense on the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 26, 2021.

New Credit Facility

On March 4, 2022, the Company replaced its 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.

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 Facility 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 new credit facility will mature on March 4, 2027 .

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

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.

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.

The variable interest rates were 9.81 % for the term loan and 10.44 % for the revolving line of credit as of December 25, 2022.

As of December 25, 2022, the Company had outstanding borrowings under the Credit Facility of $ 205.7 million net of $ 8.3 million of unamortized deferred financing charges and discounts, of which $ 3.4 million was classified as current.

As of December 26, 2021, the Company had outstanding borrowings under the credit facility under the Prior Credit Agreement 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.

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:

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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.

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.

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 Consolidated Statements of Operations and Comprehensive Loss for the fifty-two weeks ended December 25, 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.

Fair Value Measurements

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The Company maintains a rabbi trust to fund obligations under a deferred compensation plan.

See Note 15, Employee Benefit Programs.

Employee Benefit Programs.

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.

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Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Assets and liabilities recognized or disclosed at fair value on the 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.

During 2021, 2020, and 2019, the Company measured non-financial assets for impairment using continuing and projected future cash flows, as discussed in Note 4, Other Charges , which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement.

Based on our 2021, 2020 and 2019 impairment analyses, we impaired long-lived assets at ten , 40 and 29 locations with carrying values of $ 13.7 million, $ 67.3 million, and $ 17.3 million.

During 2022, 2021, and 2020, the Company measured non-financial assets for impairment using continuing and projected future cash flows, as discussed in Note 4.

Other Charges (Gains), net, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement.

Based on our 2022, 2021, and 2020 impairment analyses, we impaired long-lived assets at 46 , 10 and 40 locations with carrying values of $ 80.4 million, $ 13.7 million, and $ 67.3 million.

We determined the fair value of these long-lived assets in 2022, 2021, and 2020 to be $ 42.4 million, $ 7.2 million and $ 34.7 million based on level 3 fair value measurements.

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During the fourth quarter of 2022, the Company performed its annual review of its indefinite lived liquor licenses that had a carrying value of $ 6.7 million, and recorded impairment charges of $ 0.5 million to indefinite-lived intangibles in 2022.

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

Impairment charges of $ 0.5 million were recorded to liquor licenses with indefinite lives in 2021 and no impairment charges were recorded in 2020.

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 consolidated balance sheets.

The carrying value approximated the fair value of the credit facility as of December 26, 2021 and December 27, 2020, as the interest rate on the instrument approximated current market rates.

As of December 25, 2022, the fair value of the Credit Facility was approximately $ 205.1 million and the principal amount carrying value was $ 214.0 million.

The Credit Facility term loan is reported net of $ 8.3 million in unamortized discount and debt issuance costs in the consolidated balance sheet as of December 25, 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.

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Lease assets, net $ 7,551 $ 361,432

$ 9,664 $ 400,825

Current portion of lease obligations 1,094 47,394

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Total $ 10,052 $ 440,551

(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 December 26, 2021 and December 27, 2020 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 December 26, 2021 and December 27, 2020 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.

December 26, 2021 Finance (1)

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Lease assets, net $ 9,664 $ 400,825

$ 9,644 $ 415,929

Current portion of lease obligations 1,194 48,842

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(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 December 25, 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 consolidated statements of operations and comprehensive loss as follows (in thousands):

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Amortization of right of use assets (1)

1,121 856 845

Interest on lease liabilities (2)

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Total lease costs $ 90,548 $ 91,200 $ 93,181

(1) Amortization of finance lease right of use assets is recorded to depreciation and amortization in our Consolidated Statements of Operations and Comprehensive Loss.

(2) Interest on finance lease liabilities is recorded to interest expense in our Consolidated Statements of Operations and Comprehensive Loss.

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Other information related to operating leases as follows:

Weighted average remaining lease term 9.69 years 10.24 years 10.70 years

Weighted average remaining lease term 9.04 9.69 10.24

Weighted average discount rate 7.25 % 7.05 % 6.90 %

Other information related to financing leases as follows:

Weighted average remaining lease term 10.81 years 11.76 years 12.37 years

Weighted average remaining lease term 10.27 10.81 11.76

Weighted average discount rate 4.88 % 4.56 % 4.56 %

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State income taxes 4.0 3.8 3.9

FICA tip tax credits — — 46.0

Foreign taxes versus U.S statutory rate — — 0.2

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Impact of CARES Act and related method changes — — 5.5

Other tax credits — — 6.1

Meals and entertainment — — ( 0.7 )

Excess stock options ( 1.1 ) 1.1 ( 0.1 )

Employee travel — — ( 0.1 )

Other ( 0.7 ) ( 0.4 ) —

Effective tax rate ( 1.0 ) % 0.3 % 2.6 %

The Company had a tax benefit in all three years presented above, but due to the mathematical computation of tax benefit to book loss the effective tax rate in 2021, 2020, and 2019 are represented as a positive percentage.

The increase in tax expense for the year ended December 25, 2022, is primarily due to the 2022 impact of state taxes including minimum state income taxes and state franchise taxes as well as an adjustment to federal taxes.

The decrease in the Company's effective tax benefit in 2021 is primarily due to the 2020 favorable rate impact of net operating loss carrybacks allowed as part of the CARES Act.

The decrease in the 2020 effective tax benefit is primarily due to a decrease in credits and an increase in the valuation allowance.

The Company's federal and state deferred taxes at December 25, 2022 and December 26, 2021 are as follows (in thousands):

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The Company also had a deferred tax asset of $ 1.2 million related to state tax credits which expire in 2024.

In assessing the realizability of deferred income tax assets, ASC 740 requires a more likely than not standard be met.

If the Company determines that it is more likely than not that deferred income tax assets will not be realized, a valuation allowance must be established.

The Company establishes a valuation allowance to reduce the carrying amount of deferred income tax assets when it is more likely than not that it will not realize some portion or all the tax benefit of its deferred income tax assets.

The realization of deferred tax assets depends on the generation of future taxable income during the periods in which the temporary differences become deductible.

Management considers reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies when making this determination.

Due to the COVID-19 pandemic, the Company has experienced cumulative losses in recent years which is significant negative evidence that is difficult to overcome in order to reach a determination that a valuation allowance is not required.

Projected future taxable income is positive subjective evidence but is not strong enough to overcome the recent cumulative loss objective evidence.

Therefore, management determined that a full valuation allowance was required as of December 26 , 2021 and at December 27, 2020.

In making this determination, the Company considers all available positive and negative evidence including historical operating losses, the reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies.

In 2020, management determined that a full valuation allowance was required and has recorded a full valuation allowance as of December 25, 2022 and at December 26, 2021.

Based on the Company's evaluation of its deferred tax assets, a valuation allowance of approximately $ 116.3 million has been recorded against the deferred tax asset for federal and state tax credits, federal and state deferred tax assets, all net operating loss carry forwards and the deferred taxes of our foreign subsidiary.

The following table summarizes the Company's unrecognized tax benefits at December 26, 2021, December 27, 2020, and December 29, 2019

(in thousands):

The following table summarizes the Company's unrecognized tax benefits at December 25, 2022, December 26, 2021, and December 27, 2020 (in thousands):

2022 2021 2020

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End of year $ 185 32 $ 80

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $ 32 thousand.

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $ 0.2 million.

The Company does not anticipate significant changes in the aggregate amount of unrecognized tax benefits within the next 12 months, other than nominal tax settlements.

The Company had outstanding federal and state refund claims of approximately $ 0.6 million as of December 25, 2022.

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.

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.

Commitments and Contingencies

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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.

In the normal course of business, there are various claims in process, matters in litigation, administrative proceedings, and other contingencies.

These include employment related claims and class action lawsuits, claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns, and lease and other commercial disputes.

To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company.

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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 December 26, 2021, we had a balance of $ 2.5 million for loss contingencies on our consolidated balance sheets.

We ultimately may be subject to greater or less than the accrued amount.

As of December 25, 2022, we had a balance of $ 7.7 million for loss contingencies on our consolidated balance sheets, of which $ 3.0 million relates to a class action settlement that is scheduled to be paid in first quarter 2023.

We increased our estimate of loss contingency liabilities by approximately $ 4.1 million in the fourth quarter of 2022 related to changes during the fourth quarter in the status ongoing litigation matters.

We ultimately may be subject to greater or less than the accrued amount for this and other matters.

As of December 25, 2022, we had purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $ 142.1 million.

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Accordingly, as of December 25, 2022, we had $ 68.4 million of availability under the current share repurchase program.

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 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.

Stock Incentive Plans

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Stock-based compensation costs recognized in 2022, 2021, and 2020 were $ 6.3 million, $ 6.6 million, and $ 4.3 million with related income tax benefits of $ 0.6 million, $ 1.4 million, and $ 0.3 million.

The 2022 costs were comprised of $ 9.6 million stock-based compensation, partially offset by a $ 3.3 million reduction due to executive team forfeitures recorded in Other charges in the Consolidated Statements of Operations and Comprehensive Loss.

As of December 25, 2022, there was $ 8.7 million of unrecognized compensation cost, excluding estimated forfeitures.

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The average assumptions used in the model for the fiscal years ended December 25, 2022, December 26, 2021 and December 27, 2020 were as follows:

2021 2020 2019

Risk-free interest rate 0.5 %

Expected years until exercise 0 years 4.7 years 0 years

Expected years until exercise 4.7

Expected stock volatility 61.0 %

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Weighted average Black-Scholes fair value per share at date of grant $ 6.28

Total intrinsic value of options exercised (in thousands) $ 89 $ 30 $ 20

Total intrinsic value of options exercised was $ 4 thousand, $ 89 thousand, and $ 30 thousand in 2022, 2021, and 2020, respectively.

The risk-free interest rate was based on the rate for zero coupon U.S.

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Fair value of each PSU granted is determined by a Monte Carlo valuation model, and expense is recognized straight line over the performance period.

PSUs remain unvested until the last day of the three year performance period and are forfeited in the event of termination of employment of a grantee prior to the last day of the three year performance period.

PSUs remain unvested until the last day of the three year performance period and are generally forfeited in the event of termination of employment of a grantee prior to the last day of the three year performance period.

If the relative total stockholder return target is not met, compensation cost for these PSUs is not reversed.

The table below summarizes the status of the Company's performance stock units under the 2017 Stock Plan (shares in thousands):

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The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards.

Inducement Grants

The Company granted stock-based awards to certain of the Company’s new executive officers as inducements material to their commencement of employment and entry into an employment agreement with the Company.

The inducement grants were made in accordance with Nasdaq Listing Rule 5635(c)(4) and were not made under the 2017 Plan.

The inducement grants, which include PSU and RSU awards, are generally subject to substantially the same terms and conditions as grants that are made under the 2017 Plan and fair value is determined in the same manner as described for each grant type above.

The table below summarizes the status of the Company' inducement grants (shares in thousands):

Restricted Stock Units Performance Stock Units

Shares Weighted Average Grant-Date Fair Value (per share) Shares Weighted Average Grant-Date Fair Value (per share)

Outstanding, December 26, 2021

Awarded 188 7.57 124 6.13

Forfeited — — — —

Vested — — — —

Outstanding, December 25, 2022 (1)

188 $ 7.57 124 $ 6.13

(1) Awards expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options.

The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards.

Long-Term Cash Incentive Plan

Beginning in 2020, the long-term cash incentive plan is based on relative total stockholder return defined as increases in the Company's stock price during a performance period of three years as compared to the total stockholder return of a group of peer companies.

Compensation is recognized variably over the three year performance period based on a Monte Carlo valuation model.

Beginning in 2017, the long-term cash incentive plan was based on operational metrics with three one year performance periods.

Beginning in 2020, the long-term cash incentive plan is based on relative total stockholder return defined as increases in the Company's stock price during a performance period of 3 years as compared to the total stockholder return of a group of peer

Compensation is recognized variably over the 3 -year performance period based on a Monte Carlo valuation model.

Beginning in 2017, the long-term cash incentive plan was based on operational metrics with 3 one-year performance periods.

Compensation expense for awards granted before 2020 is recognized variably over the performance period based on the plan-to-date performance achievement.

All long-term cash incentive awards cliff vest after three years at the end of each performance cycle.

All long-term cash incentive awards cliff vest after 3 years at the end of each performance cycle.

In 2022, 2021, and 2020, the Company recorded $( 0.4 ) million, $ 0.5 million, and $ 0.2 million, respectively in compensation expense to Selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss related to the 2017 long-term cash incentive plan.

The amounts recorded in 2022 include the reversal of the expense related to 2020 grants for which performance targets were not met.

During 2022 and 2021, the long-term cash incentive plan payout totaled $ 0.0 million and $ 0.3 million, respectively.

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These mutual funds have published market prices and are reported at fair value.

See Note 9, Fair Value Measurements .

Fair Value Measurements.

Changes in the market value of the investments held in the trust result in the recognition of a corresponding gain or loss reported in Interest income and other, net in the Consolidated Statements of Operations and Comprehensive Loss.

A corresponding change in the liability associated with the deferred compensation plan results in an offsetting deferred compensation expense, or reduction of expense, reported in Selling, general, and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss.

The Company recognized $ 0.7 million of deferred compensation expense in 2021, $ 0.6 million in 2020, and $ 1.1 million in 2019.

The Company recognized a $ 0.8 million decrease in deferred compensation expense in 2022, and an increase in deferred compensation expenses of $ 0.7 million in 2021 and $ 0.6 million in 2020.

As of December 25, 2022 and December 26, 2021, $ 4.3 million and $ 6.3 million of deferred compensation assets are included in Other assets, net and $ 4.3 million and $ 6.3 million of deferred compensation plan liabilities are included in Other non-current liabilities in the accompanying Consolidated Balance Sheets.

Employee Stock Purchase Plan

In July 2017, the Company adopted the Amended and Restated Employee Stock Purchase Plan (the "New Plan").

The New Plan authorized 100,000 shares of the Company's common stock for issuance.

Under the New Plan, eligible Team Members may voluntarily contribute up to 15 % of their salary, subject to limitations, to purchase common stock at a price equal to 85 % of the fair market value of a share of the Company's common stock on the first day of each offering period or 85 % of the fair market value of a share of the Company's common stock on the last day of each offering period, whichever amount is less.

In July 2017, the Company adopted the Amended and Restated Employee Stock Purchase Plan (the "ESPP Plan").

The ESPP Plan authorized 100,000 shares of the Company's common stock for issuance.

In May 2020, our board of directors authorized the issuance of an additional 150,000 shares of the Company's common stock under the ESPP Plan.

In December 2022, our board of directors authorized the issuance of an additional 350,000 shares of the Company's common stock under the ESPP Plan, subject to approval by stockholders in 2023, increasing the shares authorized to be granted under the ESPP Plan to a total of 600,000 shares.

Under the ESPP Plan, eligible Team Members may voluntarily contribute up to 15 % of their salary, subject to limitations, to purchase common stock at a price equal to 85 % of the fair market value of a share of the Company's common stock on the first day of each offering period or 85 % of the fair market value of a share of the Company's common stock on the last day of each offering period, whichever amount is less.

In general, all of the Company's officers and Team Members who have been employed by the Company for at least one year and who are regularly scheduled to work more than 20 hours per week are eligible to participate in this plan, which operates in the successive six months commencing on January 1 and July 1 of each fiscal year.

During 2021, the Company issued a total of 42,563 shares under the New Plan with 119,426 shares available for future issuance.

During 2020, the Company issued a total of 40,462 shares under the New Plan.

During 2022, the Company issued a total of 63,841 shares under the ESPP Plan with 55,585 shares available for future issuance.

During 2021, the Company issued a total of 42,563 shares under the ESPP Plan.

For 2022, in accordance with the guidance for accounting for stock compensation, the Company estimated the fair value of the awards granted pursuant to the stock purchase plan using the Black-Scholes multiple-option pricing model.

The assumptions used in the model included 0.3 % risk-free interest rate, 0.5 year expected life, expected volatility of 53.94 %, and 0 % dividend yield.

The assumptions used in the model included risk-free interest rates from 1.84 % to 4.05 %, 0.5 year expected life, expected volatilities from 54.13 % to 55.00 %, and 0 % dividend yield.

The weighted average fair value per share at grant date was $ 0.99 .

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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 8. Financial Statements and Supplementary Data