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) July 14, 2024 December 31, 2023
Assets:
Current assets:
Cash and cash equivalents $ 23,135 $ 23,634
Accounts receivable, net 12,617 21,592
Inventories 27,252 26,839
Prepaid expenses and other current assets 13,876 11,785
Restricted cash 7,992 7,931
Total current assets 84,872 91,781
Property and equipment, net 223,350 261,258
Operating lease assets, net 352,654 361,609
Intangible assets, net 15,064 15,491
Other assets, net 13,192 11,795
Total assets $ 689,132 $ 741,934
Liabilities and stockholders ' equity (deficit):
Current liabilities:
Accounts payable $ 31,737 $ 27,726
Accrued payroll and payroll-related liabilities 35,274 32,524
Unearned revenue 16,703 36,067
Current portion of operating lease obligations 51,912 43,819
Accrued liabilities and other 54,028 46,201
Total current liabilities 189,654 186,337
Long-term debt 162,309 182,594
Long-term portion of operating lease obligations 364,082 383,439
Other non-current liabilities 9,630 10,006
Total liabilities 725,675 762,376
Commitments and contingencies (see Note 8. Commitments and Contingencies)
Stockholders' equity (deficit):
Common stock; $ 0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,755 and 15,528 shares outstanding as of July 14, 2024 and December 31, 2023
20 20
Preferred stock, $ 0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of July 14, 2024 and December 31, 2023
— —
Treasury stock 4,694 and 4,921 shares, at cost, as of July 14, 2024 and December 31, 2023
( 166,585 ) ( 174,702 )
Paid-in capital 224,425 229,680
Accumulated other comprehensive loss, net of tax ( 36 ) ( 22 )
Accumulated deficit ( 94,367 ) ( 75,418 )
Total stockholders' equity (deficit) ( 36,543 ) ( 20,442 )
Total liabilities and stockholders' equity (deficit) $ 689,132 $ 741,934
See Notes to Condensed Consolidated Financial Statements
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RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Twelve Weeks Ended Twenty-Eight Weeks Ended
(in thousands, except for per share amounts) July 14, 2024 July 9, 2023 July 14, 2024 July 9, 2023
Revenues:
Restaurant revenue $ 294,457 $ 293,281 $ 673,025 $ 700,174
Franchise revenue 4,287 3,544 9,628 8,826
Other revenue 1,410 1,823 6,042 7,460
Total revenues 300,154 298,648 688,695 716,460
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Cost of sales 69,444 71,372 159,653 171,042
Labor 113,908 109,678 262,866 255,100
Other operating 51,783 51,842 118,273 123,892
Occupancy 24,595 23,482 56,023 53,283
Depreciation and amortization 13,402 15,756 31,556 37,581
Selling, general, and administrative expenses 28,652 26,864 68,041 61,387
Pre-opening costs — 4 — 586
Other charges (gains), net 2,931 ( 10,607 ) ( 1,045 ) ( 848 )
Total costs and expenses 304,715 288,391 695,367 702,023
Income (loss) from operations ( 4,561 ) 10,257 ( 6,672 ) 14,437
Other expense:
Interest expense 5,107 6,483 12,587 14,252
Interest income and other, net
( 139 ) ( 304 ) ( 451 ) ( 655 )
Income (loss) before income taxes
( 9,529 ) 4,078 ( 18,808 ) 840
Income tax provision (benefit)
( 40 ) 156 141 176
Net income (loss) $ ( 9,489 ) $ 3,922 $ ( 18,949 ) $ 664
Income (loss) per share:
Basic $ ( 0.61 ) $ 0.24 $ ( 1.21 ) $ 0.04
Diluted $ ( 0.61 ) $ 0.24 $ ( 1.21 ) $ 0.04
Weighted average shares outstanding:
Basic 15,680 16,037 15,608 16,014
Diluted 15,680 16,291 15,608 16,367
Other comprehensive income (loss):
Foreign currency translation adjustment $ 4 $ 4 $ ( 14 ) $ 11
Other comprehensive income (loss), net of tax 4 4 ( 14 ) 11
Total comprehensive income (loss) $ ( 9,485 ) $ 3,926 $ ( 18,963 ) $ 675
See Notes to Condensed Consolidated Financial Statements.
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RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ' EQUITY (DEFICIT)
(Unaudited)
Common Stock Treasury Stock Accumulated
Other
Comprehensive
Income/(Loss),
net of tax
Paid-in
Capital Accumulated Deficit
(in thousands) Shares Amount Shares Amount Total
Balance, December 31, 2023 20,449 $ 20 4,921 $ ( 174,702 ) $ 229,680 $ ( 22 ) $ ( 75,418 ) $ ( 20,442 )
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 84 ) 3,011 ( 3,382 ) — — ( 371 )
Non-cash stock compensation — — — — 1,190 — — 1,190
Net loss — — — — — — ( 9,460 ) ( 9,460 )
Other comprehensive income (loss), net of tax — — — — — ( 18 ) — ( 18 )
Balance, April 21, 2024 20,449 $ 20 4,837 $ ( 171,691 ) $ 227,488 $ ( 40 ) $ ( 84,878 ) $ ( 29,101 )
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 143 ) 5,106 ( 4,919 ) — — 187
Non-cash stock compensation — — — — 1,856 — — 1,856
Net loss — — — — — — ( 9,489 ) ( 9,489 )
Other comprehensive income (loss), net of tax — — — — — 4 — 4
Balance, July 14, 2024 20,449 $ 20 4,694 $ ( 166,585 ) $ 224,425 $ ( 36 ) $ ( 94,367 ) $ ( 36,543 )
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Common Stock Treasury Stock Accumulated
Other
Comprehensive
Income/(Loss),
net of tax
Paid-in
Capital Accumulated Deficit
(in thousands) Shares Amount Shares Amount Total
Balance, December 25, 2022 20,449 $ 20 4,515 $ ( 182,810 ) $ 238,803 $ ( 34 ) $ ( 54,190 ) $ 1,789
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 129 ) 5,330 ( 5,106 ) — — 224
Non-cash stock compensation — — — — 2,179 — — 2,179
Net income (loss) — — — — — — ( 3,256 ) ( 3,256 )
Other comprehensive income (loss), net of tax — — — — — 8 — 8
Balance, April 16, 2023 20,449 $ 20 4,386 $ ( 177,480 ) $ 235,876 $ ( 26 ) $ ( 57,445 ) $ 945
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan — — ( 250 ) 9,933 ( 8,297 ) — — 1,636
Acquisition of treasury stock — — 382 ( 4,999 ) — — — ( 4,999 )
Non-cash stock compensation — — — — 1,519 — — 1,519
Net income (loss) — — — — — — 3,922 3,922
Other comprehensive income (loss), net of tax — — — — — 4 — 4
Balance, July 9, 2023 20,449 $ 20 4,518 $ ( 172,546 ) $ 229,098 $ ( 22 ) $ ( 53,524 ) $ 3,026
See Notes to Condensed Consolidated Financial Statements.
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RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Eight Weeks Ended
(in thousands) July 14, 2024 July 9, 2023
Cash flows from operating activities:
Net income (loss) $ ( 18,949 ) $ 664
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 31,556 37,581
Asset impairment 1,128 2,387
Non-cash other charges (gains), net 539 ( 619 )
Stock-based compensation expense 3,046 3,691
Gain on sale of restaurant property
( 7,425 ) ( 14,803 )
Other, net 1,074 251
Changes in operating assets and liabilities, net of business acquisition:
Accounts receivable 8,778 8,703
Income tax receivable 197 102
Inventories ( 492 ) ( 225 )
Prepaid expenses and other current assets ( 86 ) ( 386 )
Operating lease assets, net of liabilities ( 224 ) ( 6,879 )
Trade accounts payable and accrued liabilities 16,171 500
Unearned revenue ( 19,364 ) ( 13,230 )
Other operating assets and liabilities, net ( 1,703 ) 488
Net cash provided by operating activities 14,246 18,225
Cash flows from investing activities:
Purchases of property, equipment, and intangible assets ( 13,856 ) ( 25,814 )
Net proceeds from sale-leaseback 23,271 28,451
Proceeds from sales of property and equipment and other investing activities — 794
Acquisition of franchised restaurants — ( 3,529 )
Net cash provided by (used in) investing activities 9,415 ( 98 )
Cash flows from financing activities:
Proceeds from borrowings on revolving credit facilities 25,500 —
Repayments of borrowings on revolving credit facilities ( 25,500 ) ( 15,000 )
Repayments of borrowings on term loan ( 21,232 ) ( 1,500 )
Repayments of finance lease obligations ( 619 ) ( 448 )
Purchase of treasury stock — ( 4,999 )
(Uses) Proceeds from other financing activities, net ( 2,246 ) 1,861
Net cash used in financing activities ( 24,097 ) ( 20,086 )
Effect of exchange rate changes on cash ( 2 ) —
Net change in cash and cash equivalents, and restricted cash ( 438 ) ( 1,959 )
Cash and cash equivalents, and restricted cash, beginning of period 31,565 58,206
Cash and cash equivalents, and restricted cash, end of period $ 31,127 $ 56,247
Supplemental disclosure of cash flow information
Income tax paid, net $ 47 $ 104
Interest paid, net of amounts capitalized $ 10,767 $ 11,495
Right of use assets obtained in exchange for operating lease obligations $ 17,832 $ 34,928
Right of use assets obtained in exchange for finance lease obligations $ — $ 82
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 July 14, 2024, the Company owned and operated 411 restaurants located in 39 states. The Company also had 92 franchised full-service restaurants in 14 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 Condensed Consolidated Financial Statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of December 31, 2023 has been derived from the audited Condensed 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 Condensed Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 28, 2024.
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, Prior and Upcoming Fiscal Quarters:
First Quarter 2024
April 21, 2024 16
First Quarter 2023
April 16, 2023 16
Second Quarter 2024
July 14, 2024 12
Second Quarter 2023
July 9, 2023 12
Third Quarter 2024
October 6, 2024 12
Third Quarter 2023
October 1, 2023 12
Current and Prior Fiscal Years:
Fiscal Year 2024
December 29, 2024 52
Fiscal Year 2023
December 31, 2023 53
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Reclassifications
Certain amounts presented have been reclassified to conform with the current period presentation. The reclassifications had no effect on the Company’s consolidated results. We made adjustments to the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) to disaggregate franchise and other revenue and to disaggregate interest expense and interest income and other, net. Additionally, we made adjustments to the Condensed Consolidated Statements of Cash Flows to disaggregate borrowings and repayments on revolving credit facilities, repayments on the term loan and finance lease obligations and to reclassify gift card breakage within unearned revenue.
Recently Issued and Recently Adopted Accounting Standards
In December 2023, FASB issued Update 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures which updates income tax disclosures related to the rate reconciliation and requires disclosure of income taxes paid by jurisdiction. The amendment also provides further disclosure comparability. The amendment is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied prospectively. However, retrospective application is permitted. We do not expect these amended disclosures will have a material impact to the Company's Consolidated Financial Statements or Notes to the Consolidated Financial Statements upon adoption.
In November 2023, FASB issued Update 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which updates reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments are effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. Management is currently evaluating this ASU to determine its impact on the Company’s disclosures.
We reviewed all other recently issued accounting pronouncements and concluded they were either not applicable or not expected to have a significant impact on the Company's Condensed Consolidated Financial Statements.
Summary of Significant Accounting Policies
Revenue Recognition - Revenues consist of sales from restaurant operations (including third party delivery), franchise revenue, and other revenue including gift card breakage and miscellaneous revenue. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant Guest, franchisee, or other customer.
The Company recognizes revenues from restaurant operations when payment is tendered at the point of sale, as the Company's performance obligation to provide food and beverage to the customer has been satisfied.
The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. We recognize revenue from gift cards as either: (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.
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During the second quarter of fiscal 2024, we re-launched our Red Robin Royalty TM program ("Royalty"). Under the re-launched program, Royalty members generally earn points for every dollar spent. We may also periodically offer promotions, which typically provide the customer with the opportunity to earn bonus points or other rewards. Upon reaching certain point thresholds, Royalty members earn rewards that may be redeemed for food and beverage items. Earned rewards generally expire 90 days after they are issued, and points generally expire if a qualifying purchase is not made within 365 days of the last purchase. We defer revenue based on the estimated stand-alone selling price of points or rewards earned by customers as each point or reward is earned, net of points or rewards we do not expect to be redeemed. Our estimate of points and rewards expected to be redeemed is based on historical Company-specific data. We evaluate Royalty redemption rates annually, or more frequently as circumstances warrant. Estimating future redemption rates requires judgment based on current and historical trends, and actual redemption rates may vary from our estimates.
Revenues we receive from our franchise arrangements include sales-based royalties, advertising fund contributions, and franchise fees. Red Robin franchisees are required to remit 4.0 % to 5.0 % of their revenues as royalties to the Company and contribute up to 3 % of revenues to two national advertising funds. 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 Income (Loss) in accordance with ASC Topic 606, Revenue from Contracts with Customers .
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.
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2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by type of good or service (in thousands):
Twelve Weeks Ended Twenty-Eight Weeks Ended
July 14, 2024 July 9, 2023 July 14, 2024 July 9, 2023
Restaurant revenue $ 294,457 $ 293,281 $ 673,025 $ 700,174
Franchise revenue 4,287 3,544 9,628 8,826
Gift card breakage 1,025 533 5,188 5,342
Other revenue 385 1,290 854 2,118
Total revenues $ 300,154 $ 298,648 $ 688,695 $ 716,460
Contract Liabilities
Components of Unearned revenue in the Condensed Consolidated Balance Sheets are as follows (in thousands):
July 14, 2024 December 31, 2023
Unearned gift card revenue $ 14,899 $ 28,558
Unearned Royalty revenue
1,804 7,509
Unearned revenue
$ 16,703 $ 36,067
Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands):
Twenty-Eight Weeks Ended
July 14, 2024 July 9, 2023
Gift card revenue $ 14,539 $ 16,038
We recognize Royalty revenue within Restaurant revenue in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) when a customer redeems an earned reward. Unearned revenue associated with Royalty is included in Unearned revenue in our Condensed Consolidated Balance Sheets.
Changes in our unearned revenue balance related to our Royalty program (in thousands):
Twelve Weeks Ended Twenty-Eight Weeks Ended
July 14, 2024 July 9, 2023 July 14, 2024 July 9, 2023
Unearned Royalty revenue, beginning balance
$ 8,032 $ 11,356 $ 7,509 $ 11,107
Revenue deferred 715 2,247 3,039 4,763
Revenue recognized (1)
( 6,943 ) ( 1,980 ) ( 8,744 ) ( 4,247 )
Unearned Royalty revenue, ending balance
$ 1,804 $ 11,623 $ 1,804 $ 11,623
(1) Restaurant revenue includes an approximately $ 6.4 million credit related to the transition to the new Royalty program in the second quarter of 2024, primarily due to the cancellation of unused points that were earned more than 365 days prior to the launch of the new program.
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3. Leases
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 Income (Loss) as follows (in thousands):
Twelve Weeks Ended Twenty-Eight Weeks Ended
July 14, 2024 July 9, 2023 July 14, 2024 July 9, 2023
Operating lease cost $ 17,412 $ 16,279 $ 40,418 $ 37,174
Finance lease cost:
Amortization of right of use assets 216 221 504 549
Interest on lease liabilities 106 111 243 284
Total finance lease cost $ 322 $ 332 $ 747 $ 833
Variable lease cost 4,538 4,477 10,441 10,269
Total $ 22,272 $ 21,088 $ 51,606 $ 48,276
Refer to Footnote 5, Other Charges (Gains), net , for information regarding the sale-leaseback transactions completed during the year to date periods ended July 14, 2024 and July 9, 2023, respectively.
4. Earnings (Loss) Per Share
Basic earnings (loss) per share amounts are calculated by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings 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 earnings per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the Company was in a net loss position for both the quarter to date and year to date periods ended July 14, 2024, all potentially dilutive common shares are considered anti-dilutive.
The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):
Twelve Weeks Ended Twenty-Eight Weeks Ended
July 14, 2024 July 9, 2023 July 14, 2024 July 9, 2023
Basic weighted average shares outstanding 15,680 16,037 15,608 16,014
Dilutive effect of stock options and awards — 254 — 353
Diluted weighted average shares outstanding 15,680 16,291 15,608 16,367
Awards excluded due to anti-dilutive effect on diluted income (loss) per share 1,996 560 1,668 577
5. Other Charges (Gains), net
Other charges (gains), net consisted of the following (in thousands):
Twelve Weeks Ended Twenty-Eight Weeks Ended
July 14, 2024 July 9, 2023 July 14, 2024 July 9, 2023
Gain on sale of restaurant property
$ — $ ( 14,586 ) $ ( 7,425 ) $ ( 14,586 )
Litigation contingencies
356 1,240 776 5,540
Restaurant closure costs, net
423 ( 112 ) 597 1,638
Severance and executive transition
137 962 1,082 2,854
Asset impairment
1,128 1,693 1,128 2,387
Asset disposal and other, net
825 83 2,620 1,144
Closed corporate office costs, net of sublease income 62 113 177 175
Other charges (gains), net $ 2,931 $ ( 10,607 ) $ ( 1,045 ) $ ( 848 )
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Gain on Sale of Restaurant Property
During the first quarter of fiscal 2024, the Company sold ten restaurant properties for total proceeds of $ 23.9 million in a sale-leaseback transaction that resulted in a gain, net of expenses of $ 7.4 million. During the second quarter of fiscal 2023, the Company sold nine restaurant properties for total proceeds of $ 28.5 million in a sale-leaseback transaction that resulted in a gain, net of expenses of $ 14.6 million.
Severance and Executive Transition
During the quarter and year to date periods of fiscal 2024, the Company incurred costs primarily related to a reduction in force of Team Members. During the second quarter and year to date periods of fiscal 2023, the Company incurred severance and executive transition costs associated with changes in leadership positions.
Asset Impairment
During the second quarter of fiscal 2024, the Company recognized non-cash impairment charges primarily related to the closure of two locations. During the second quarter and year to date periods of fiscal 2023, the Company recognized non-cash impairment charges primarily related to impairments of long-lived assets at four underperforming locations and the closed corporate office. See Note 7. Fair Value Measurements.
Asset Disposal and Other
Asset disposals and other relate primarily to terminated capital projects.
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6. Borrowings
Borrowings as of July 14, 2024 and December 31, 2023 are summarized below (in thousands):
July 14, 2024 Variable
Interest Rate December 31, 2023 Variable
Interest Rate
Term loan $ 167,911 12.10 % $ 189,143 11.62 %
Total borrowings 167,911 189,143
Less: unamortized debt issuance costs and discounts 5,602 6,549
Long-term debt $ 162,309 $ 182,594
Revolving line of credit unamortized deferred financing charges: $ 625 $ 752
Credit Agreement
On March 4, 2022, the Company entered into a 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 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. As of July 14, 2024, quarterly principal payments are no longer required as a result of the debt repayments from the proceeds of the recent sale-leaseback transactions. 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, 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.
As of July 14, 2024, the Company had outstanding borrowings under the Credit Facility of $ 162.3 million, in addition to amounts issued under letters of credit of $ 7.7 million. As of December 31, 2023, the Company had outstanding borrowings under the Credit Facility of $ 182.6 million, in addition to amounts issued under letters of credit of $ 7.7 million.
Red Robin International, Inc., is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of the 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.
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.
On July 17, 2023, the Company amended the Credit Agreement (the “Credit Agreement Amendment”) to, among other things, remove the previously included $ 50.0 million aggregate cap on sale-leasebacks of Company-owned real property that are permitted under the Credit Agreement, subject to certain conditions set forth in the Credit Agreement.
The summary descriptions of the Credit Agreement, the Security Agreement, and the Credit Agreement Amendment do not purport to be complete and are qualified in their entirety by reference to the full text of each agreement, each of which was filed February 28, 2024, as an exhibit to the Annual Report on Form 10-K.
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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 Condensed 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 (in thousands):
July 14, 2024 Level 1 Level 2 Level 3
Assets:
Investments in rabbi trust $ 2,055 $ 2,055 $ — $ —
Total assets measured at fair value $ 2,055 $ 2,055 $ — $ —
December 31, 2023 Level 1 Level 2 Level 3
Assets:
Investments in rabbi trust $ 2,079 $ 2,079 $ — $ —
Total assets measured at fair value $ 2,079 $ 2,079 $ — $ —
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value in 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.
During 2024 and 2023, the Company 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.
During the second quarter of fiscal 2024, we impaired long-lived assets at two restaurant locations that we closed during the quarter with a carrying value of approximately $ 3.1 million. We determined the fair value of these long-lived assets to be $ 0.9 million as a result of the closures, resulting in a $ 1.1 million impairment charge and a $ 1.1 million decrease in right of use assets due to remeasurement. During the first half of fiscal 2023, we impaired long-lived assets at four restaurant locations and the closed corporate office with carrying values of $ 12.4 million. We determined the fair value of these long-lived assets to be $ 10.0 million, resulting in impairment charges of $ 2.4 million during the quarter and year to date periods ended July 9, 2023.
Disclosures of Fair Value of Other Assets and Liabilities
The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of July 14, 2024, the fair value of the credit facility was approximately $ 168.3 million and the principal amount carrying value was $ 167.9 million. The credit facility term loan is reported net of $ 5.6 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of July 14, 2024. The carrying value of the credit facility was $ 189.1 million and the fair value of the credit facility was $ 186.9 million as of December 31, 2023. The interest rate on the credit facility represents a level 2 fair value input.
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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.
As of July 14, 2024, we had reserves of $ 8.1 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. 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. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.
As of July 14, 2024, we had non-cancellable purchase commitments primarily related to certain vendors who provide food and beverage and other supplies to our restaurants, for an aggregate of $ 202.2 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.
9. Subsequent Events
Subsequent to the second quarter of fiscal 2024, the Company entered into the Second Amendment to our Credit Agreement (the “Second Amendment”). The Second Amendment amends the Credit Agreement to, among other things:
• increase the required Maximum Net Total Leverage Ratio beginning in the third fiscal quarter of 2024 through the third fiscal quarter of 2025;
• increase the aggregate revolving commitments by $ 15.0 million to $ 40.0 million on the Second Amendment effective date through the third fiscal quarter of 2025;
• remove the variable Pricing Grid and increase the Applicable Margin on all Term Loans and Revolving Facility Loans that are SOFR Loans to 7.50 % per annum and that are ABR Loans to 6.50 % per annum;
• add certain additional reporting requirements.
In conjunction with the Second Amendment, the Company paid certain customary amendment fees to the lenders under the credit facility totaling approximately $ 2.9 million. Terms in this section that are capitalized but not defined have the meanings given to them in the Second Amendment. The summary description of the Second Amendment does not purport to be complete and is qualified in its entirety to the full text of the Second Amendment, which is attached hereto as Exhibit 10.6 and is incorporated by reference herein.
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