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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended October 2, 2022

or
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to            


Commission File Number: 001-34851

RED ROBIN GOURMET BURGERS, INC.
(Exact name of registrant as specified in its charter)
Delaware84-1573084
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
10000 E. Geddes Avenue, Suite 500
Englewood, Colorado    
     80112
(Address of principal executive offices)             (Zip Code)

(303) 846-6000
(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value
RRGBNasdaq(Global Select Market)

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
As of October 31, 2022, there were 15,928,045 shares of the registrant's common stock, par value of $0.001 per share outstanding.


RED ROBIN GOURMET BURGERS, INC.

i

PART I — FINANCIAL INFORMATION
ITEM 1.    Financial Statements (unaudited)
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except for per share amounts)October 2, 2022December 26, 2021
Assets:
Current assets:
Cash and cash equivalents$50,040 $22,750 
Accounts receivable, net11,915 21,400 
Inventories25,212 25,219 
Income tax receivable754 15,824 
Prepaid expenses and other current assets13,044 16,963 
Restricted cash8,090  
Total current assets109,055 102,156 
Property and equipment, net342,386 386,336 
Operating lease assets, net375,747 400,825 
Intangible assets, net19,320 21,292 
Other assets, net14,434 18,389 
Total assets$860,942 $928,998 
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable$33,814 $32,510 
Accrued payroll and payroll-related liabilities34,040 32,584 
Unearned revenue37,539 54,214 
Current portion of operating lease obligations47,726 48,842 
Current portion of long-term debt2,000 9,692 
Accrued liabilities and other50,482 45,458 
Total current liabilities205,601 223,300 
Long-term debt189,320 167,263 
Long-term portion of operating lease obligations401,274 435,136 
Other non-current liabilities13,120 26,325 
Total liabilities809,315 852,024 
Commitments and contingencies (see Note 8. Commitments and Contingencies)
Stockholders' equity:
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 shares issued; 15,900 and 15,722 shares outstanding as of October 2, 2022 and December 26, 2021
20 20 
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 2, 2022 and December 26, 2021
  
Treasury stock 4,549 and 4,727 shares, at cost, as of October 2, 2022 and December 26, 2021
(184,169)(192,803)
Paid-in capital242,235 242,560 
Accumulated other comprehensive income (loss), net of tax(51)1 
Retained earnings (deficit)(6,408)27,196 
Total stockholders' equity51,627 76,974 
Total liabilities and stockholders' equity
$860,942 $928,998 
See Notes to Condensed Consolidated Financial Statements
1

RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
Twelve Weeks EndedForty Weeks Ended
(in thousands, except for per share amounts)October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Revenues:
Restaurant revenue$282,449 $270,202 $951,718 $861,036 
Franchise and other revenues4,439 5,242 24,810 17,658 
Total revenues286,888 275,444 976,528 878,694 
Costs and expenses:
Restaurant operating costs (excluding depreciation and amortization shown separately below):
Cost of sales70,640 62,671 234,283 193,754 
Labor100,522 99,725 340,273 310,333 
Other operating52,858 51,462 172,725 156,102 
Occupancy22,828 22,519 76,406 74,233 
Depreciation and amortization17,368 18,881 58,924 63,984 
Selling, general, and administrative expenses35,692 30,343 102,168 89,299 
Pre-opening costs217 418 514 792 
Other charges (gains), net(5,217)1,561 8,236 9,228 
Total costs and expenses294,908 287,580 993,529 897,725 
Loss from operations(8,020)(12,136)(17,001)(19,031)
Other expense:
Interest expense, net and other4,590 2,870 16,151 9,986 
Loss on debt refinancing
Interest income and other, net
Total other expenses4,590 2,870 16,151 
Loss before income taxes(12,610)(15,006)(33,152)(29,017)
Income tax provision (benefit)(43)(26)453 (328)
Net loss$(12,567)$(14,980)$(33,605)$(28,689)
Loss per share:
Basic$(0.79)$(0.95)$(2.12)$(1.83)
Diluted$(0.79)$(0.95)$(2.12)$(1.83)
Weighted average shares outstanding:
Basic15,892 15,709 15,816 15,647 
Diluted15,892 15,709 15,816 15,647 
Other comprehensive income (loss):
Foreign currency translation adjustment$(45)$(6)$(51)$14 
Other comprehensive income (loss), net of tax(45)(6)(51)14 
Total comprehensive loss$(12,612)$(14,986)$(33,656)$(28,675)
See Notes to Condensed Consolidated Financial Statements.
2

RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common StockTreasury StockAccumulated
Other
Comprehensive
Income/(Loss),
net of tax
Paid-in
Capital
Retained
Earnings (Deficit)
(in thousands)SharesAmountSharesAmountTotal
Balance, December 26, 202120,449 $20 4,727 $(192,803)$242,560 $1 $27,196 $76,974 
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan— — (64)2,781 (2,846)— — (65)
Non-cash stock compensation— — — — 3,042 — — 3,042 
Net loss— — — — — — (3,105)(3,105)
Other comprehensive income (loss), net of tax— — — — — 11 — 11 
Balance, April 17, 202220,449 $20 4,663 $(190,022)$242,756 $12 $24,091 $76,857 
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan— — (113)5,817 (5,691)— — 126 
Non-cash stock compensation— — — — 2,542 — — 2,542 
Net loss— — — — — — (17,932)(17,932)
Other comprehensive income (loss), net of tax— — — — — (18)— (18)
Balance, July 10, 202220,449 $20 4,550 $(184,205)$239,607 $(6)$6,159 $61,575 
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan— — (1)36 (40)— — (4)
Non-cash stock compensation— — — — 2,668 — — 2,668 
Net loss— — — — — — (12,567)(12,567)
Other comprehensive income (loss), net of tax— — — — — (45)— (45)
Balance, October 2, 202220,449 $20 4,549 $(184,169)$242,235 $(51)$(6,408)$51,627 
3

Common StockTreasury StockAccumulated
Other
Comprehensive
Income/(Loss),
net of tax
Paid-in
Capital
Retained
Earnings
(in thousands)SharesAmountSharesAmountTotal
Balance, December 27, 202020,449 $20 4,901 $(199,908)$243,407 $(4)$77,198 $120,713 
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan— — (74)3,025 (3,640)— — (615)
Non-cash stock compensation— — — — 880 — — 880 
Net loss— — — — — — (8,713)(8,713)
Other comprehensive income (loss), net of tax— — — — — 21 — 21 
Balance, April 18, 202120,449 $20 4,827 $(196,883)$240,647 $17 $68,485 $112,286 
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan— — (95)3,844 (3,547)— — 297 
Non-cash stock compensation— — — — 1,577 — — 1,577 
Net loss— — — — — — (4,996)(4,996)
Other comprehensive income (loss), net of tax— — — — — (1)— (1)
Balance, July 11, 202120,449 $20 4,732 $(193,039)$238,677 $16 $63,489 $109,163 
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan— — (5)220 (280)— — (60)
Non-cash stock compensation— — — — 2,048 — — 2,048 
Net loss— — — — — — (14,980)(14,980)
Other comprehensive income (loss), net of tax— — — — — (6)— (6)
Balance, October 3, 202120,449 $20 4,727 $(192,819)$240,445 $10 $48,509 $96,165 
See Notes to Condensed Consolidated Financial Statements.
4

RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Forty Weeks Ended
(in thousands)October 2, 2022October 3, 2021
Cash flows from operating activities:
Net loss$(33,605)$(28,689)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization58,924 63,984 
Gift card breakage(8,289)(3,231)
Restaurant asset impairment13,048 1,357 
Non-cash other charges, net(2,287)319 
Stock-based compensation expense8,229 4,501 
(Gain) loss on sale of property, plant, and equipment(9,204) 
Other, net3,240 2,228 
Changes in operating assets and liabilities:
Accounts receivable9,487 4,544 
Income tax receivable15,163 520 
Inventories(217) 
Prepaid expenses and other current assets2,183 1,014 
Operating lease assets, net of liabilities(10,562)(12,711)
Trade accounts payable and accrued liabilities9,621 16,948 
Unearned revenue(8,386)(4,286)
Other operating assets and liabilities, net(8,545)(8,881)
Net cash provided by operating activities38,800 37,617 
Cash flows from investing activities:
Purchases of property, equipment, and intangible assets(27,036)(19,987)
Proceeds from sales of property and equipment and other investing activities8,739 20 
Net cash used in investing activities(18,297)(19,967)
Cash flows from financing activities:
Borrowings of long-term debt282,151 109,500 
Payments of long-term debt and finance leases(266,275)(125,216)
Debt issuance costs(4,869)(870)
Proceeds related to real estate sale3,856  
Proceeds from other financing activities, net58 549 
Net cash provided by (used in) financing activities14,921 (16,037)
Effect of exchange rate changes on cash(44)28 
Net change in cash and cash equivalents, and restricted cash35,380 1,641 
Cash and cash equivalents, beginning of period22,750 16,116 
Cash and cash equivalents, and restricted cash, end of period$58,130 $17,757 
Supplemental disclosure of cash flow information
Income tax refunds received, net$(14,729)$(840)
Interest paid, net of amounts capitalized$11,387 $7,586 
See Notes to Condensed Consolidated Financial Statements.
5

RED ROBIN GOURMET BURGERS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation and Recent Accounting Pronouncements
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin" or the "Company"), primarily operates, franchises, and develops full-service restaurants in North America. As of October 2, 2022, the Company owned and operated 424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Red Robin and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. The Company's financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The results of operations for any interim period are not necessarily indicative of results for the full year.
The accompanying Condensed Consolidated Financial Statements of Red Robin have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"), including the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in the Company's annual consolidated financial statements on Form 10-K have been condensed or omitted. The Condensed Consolidated Balance Sheet as of December 26, 2021 has been derived from the audited consolidated financial statements as of that date, but does not include all disclosures required for audited annual financial statements. For further information, please refer to and read these interim Condensed Consolidated Financial Statements in conjunction with the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 26, 2021 filed with the SEC on March 10, 2022.
Our current, prior, and upcoming year periods, period end dates, and number of weeks included in the period are summarized in the table below:
PeriodsPeriod End DateNumber of Weeks in Period
Current and Prior Fiscal Quarters:
First Quarter 2022
April 17, 202216
First Quarter 2021
April 18, 202116
Second Quarter 2022
July 10, 202212
Second Quarter 2021
July 11, 202112
Third Quarter 2022
October 2, 202212
Third Quarter 2021
October 3, 202112
Current and Prior Fiscal Years:
Fiscal Year 2022
December 25, 202252
Fiscal Year 2021
December 26, 202152
Upcoming fiscal year:
Fiscal Year 2023
December 31, 202353
Reclassifications
Certain amounts presented have been reclassified within the October 3, 2021 Condensed Consolidated Statement of Cash Flows to conform with the current period presentation, including prior year reclassifications from Lease assets, net of liabilities to Other operating assets and liabilities. The reclassifications had no effect on the Company’s cash flows from operations.

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Change in Accounting Estimate - Gift Card Breakage
As part of its annual assessment of gift card breakage and during the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage to the updated estimated redemption pattern. As a result, the Company recognized $5.9 million of additional gift card breakage in Franchise and other revenues, partially offset by $0.6 million of associated commissions costs recognized in Selling, general and administrative expenses, in the first quarter of 2022. This change in accounting estimate decreased net loss by $5.2 million, or $0.33 per basic and diluted share for the forty weeks ended October 2, 2022. The Company does not expect the impact of this change in estimate to be material to its future financial statements.
Recent Tax Legislation
The CHIPS and Science Act of 2022 (CHIPS) and the Inflation Reduction Act (IRA) of 2022 were signed into law by President Biden on August 9, 2022 and August 16, 2022, respectively. The legislation introduces new options for monetizing certain credits, a corporate alternative minimum tax, and a stock repurchase excise tax. The Company is currently evaluating the impact of CHIPS and IRA, but at present does not expect that any of the provisions included in these acts would result in a material impact to our deferred tax assets, liabilities, or income taxes payable.
2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by type of good or service (in thousands):
Twelve Weeks EndedForty Weeks Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Restaurant revenue$282,449 $270,202 $951,718 $861,036 
Franchise revenue4,249 4,303 14,891 13,123 
Gift card breakage(1)
190 438 8,290 3,231 
Other revenue 501 1,629 1,304 
Total revenues$286,888 $275,444 $976,528 $878,694 
(1)     During the forty weeks ended October 2, 2022, the Company re-evaluated the estimated redemption pattern related to gift cards and aligned the recognition of gift card breakage revenue to the updated estimated redemption pattern. See Note 1. Basis of Presentation and Recent Accounting Pronouncements.
Contract liabilities
Components of Unearned revenue in the accompanying Condensed Consolidated Balance Sheets are as follows (in thousands):
October 2, 2022December 26, 2021
Unearned gift card revenue$23,971 $41,128 
Deferred loyalty revenue$13,568 $13,086 
Revenue recognized in the Condensed Consolidated Statements of Operations and Comprehensive Loss for the redemption and breakage of gift cards that were included in the liability balance at the beginning of the fiscal year was as follows (in thousands):
Forty Weeks Ended
October 2, 2022October 3, 2021
Gift card revenue$19,788 $14,448 

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3. Leases
The Company's finance and operating lease assets and liabilities as of October 2, 2022 and December 26, 2021 were as follows (in thousands):
October 2, 2022
Finance(1)
Operating(2)
Lease assets, net(3)
$7,233 $375,747 
Current portion of lease obligations1,015 47,726 
Long-term portion of lease obligations8,630 401,274 
Total$9,645 $449,000 
December 26, 2021
Finance(1)
Operating(2)
Lease assets, net(3)
$9,664 $400,825 
Current portion of lease obligations1,194 48,842 
Long-term portion of lease obligations10,765 435,136 
Total$11,959 $483,978 
(1)     Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.
(2)     Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our October 2, 2022 and December 26, 2021 Condensed Consolidated Balance Sheets.
(3)     The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets.

The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our Condensed Consolidated Statement of Operations and Comprehensive Loss as follows (in thousands):
Twelve Weeks EndedForty Weeks Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Operating lease cost$15,793 $16,061 $53,904 $53,765 
Finance lease cost:
Amortization of right of use assets261 197 841 657 
Interest on lease liabilities111 131 408 407 
Total finance lease cost$372 $328 $1,249 $1,064 
Variable lease cost4,130 4,496 15,136 15,271 
Total$20,295 $20,885 $70,289 $70,100 
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Maturities of our lease liabilities as of October 2, 2022 were as follows (in thousands):
Finance Leases Operating Leases
Remainder of 2022$260 $13,829 
20231,386 76,978 
20241,479 76,047 
20251,189 71,921 
20261,245 66,078 
Thereafter6,454 323,647 
Total future lease payments$12,013 $628,500 
Less imputed interest2,368 179,500 
Total lease liability$9,645 $449,000 
Supplemental cash flow and other information related to leases is as follows (in thousands, except other information):
Forty Weeks Ended
October 2, 2022October 3, 2021
Cash flows from operating activities
Cash paid related to lease liabilities
Operating leases$65,943 $68,036 
Finance leases408 406 
Cash flows from financing activities
Cash paid related to lease liabilities
Finance leases1,048 1,447 
Cash paid for amounts included in the measurement of lease liabilities:$67,399 $69,889 
Right of use assets obtained in exchange for operating lease obligations$11,604 $27,483 
Right of use assets obtained in exchange for finance lease obligations$541 $988 
Other information related to operating leases as follows:
Weighted average remaining lease term (years)9.219.86
Weighted average discount rate7.24 %7.01 %
Other information related to finance leases as follows:
Weighted average remaining lease term (years)10.4911.04
Weighted average discount rate4.89 %4.56 %
4. Loss Per Share
Basic loss per share amounts are calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per share amounts are calculated based upon the weighted-average number of shares of common stock and potentially dilutive shares of common stock outstanding during the period. Potentially dilutive shares are excluded from the computation in periods in which they have an anti-dilutive effect. Diluted loss per share reflects the potential dilution that could occur if holders of options exercised their options into common stock. As the Company was in a net loss position for each of the twelve and forty weeks ended October 2, 2022 and October 3, 2021, all potentially dilutive common shares are considered anti-dilutive.
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The Company uses the treasury stock method to calculate the effect of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):
Twelve Weeks EndedForty Weeks Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Basic weighted average shares outstanding15,892 15,709 15,816 15,647 
Dilutive effect of stock options and awards    
Diluted weighted average shares outstanding15,892 15,709 15,816 15,647 
Awards excluded due to anti-dilutive effect on diluted loss per share869 545 1,010 390 
5. Other Charges (Gains), net
Other charges (gains), net consisted of the following (in thousands):
Twelve Weeks EndedForty Weeks Ended
October 2, 2022October 3, 2021October 2, 2022October 3, 2021
Asset impairment$2,187 $ $13,048 $1,357 
Gain on sale of restaurant property(9,204) (9,204) 
Executive transition1,825  1,954  
Other financing costs1,022  1,392  
COVID-19 related charges123 299 423 1,112 
Restaurant closure costs (gains)(1,570)1,102 309 5,301 
Closed corporate office, net of sublease income267  267  
Litigation contingencies133 160 47 1,330 
Board and stockholder matter costs   128 
Other charges (gains), net$(5,217)$1,561 $8,236 $9,228 
The Company recognized non-cash impairment charges primarily related to restaurant assets at one and ten Company-owned restaurants during the twelve and forty weeks ended October 2, 2022, respectively, and one Company-owned restaurant for the forty weeks ended October 3, 2021.
During the second quarter of 2022 the Company closed on an agreement to sell a restaurant property that the Company owned and leased back on a short-term basis. The Company collected initial net proceeds from the purchaser-lessor of $3.9 million, which represented a portion of the total consideration received from the sale. The Company did not recognize a sale in the second quarter of 2022 as certain criteria to recognize a sale in accordance with ASC Topic 842, Leases, and ASC Topic 606, Revenue from Contracts with Customers, were not met. During third quarter of 2022, the Company received the remaining proceeds, upon which the lease terminated and the sale transaction was completed, and recognized a $9.2 million gain on the sale of the restaurant property . The initial net proceeds of $3.9 million are included within cash flows from financing activities and the final proceeds received of $8.5 million are included within cash flows from investing activities on the Condensed Consolidated Statements of Cash Flows for the forty weeks ended October 2, 2022.
Executive transition costs include costs associated with transitioning to a new Chief Executive Officer.
Other financing costs include fees related to the entry by the Company into the new Credit Agreement (as defined below) on March 4, 2022 that were not capitalized with the closing of the Credit Facility. See Note 6. Borrowings.
COVID-19 related costs include the costs of purchasing personal protective equipment for restaurant Team Members and Guests and emergency sick pay provided to restaurant Team Members related to the COVID-19 pandemic.
Restaurant closure costs (gains) include the ongoing restaurant operating costs of the Company-owned restaurants incurred for permanently closed restaurants and closed restaurant lease termination gains or losses.
Closed corporate office, net of sublease income includes expense and sublease income related to a corporate office facility that was vacated and subleased.
Litigation contingencies during the twelve and forty weeks ended October 2, 2022 include the impact of cash proceeds received by the Company related to certain legal claims. Litigation contingencies during the twelve and forty weeks ended October 2, 2022 and October 3, 2021 include legal settlement costs accrued related to pending or threatened litigation.
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Board and stockholder matters costs were primarily related to the recruitment and appointment of a new board member in the first quarter of 2021.
6. Borrowings
Borrowings as of October 2, 2022 and December 26, 2021 are summarized below (in thousands):
October 2, 2022Weighted
Average
Interest Rate
December 26, 2021Weighted
Average
Interest Rate
Revolving line of credit$ $57,000 
Term loan199,000 8.70 %119,080 7.10 %
Notes payable, non-current875 875 
Total borrowings199,875 176,955 
Less: unamortized debt issuance costs and discounts(1)
8,555  
Less: current portion of long-term debt2,000 9,692 
Long-term debt$189,320 $167,263 
Revolving line of credit unamortized deferred financing charges(1):
$1,042 $2,015 
(1)     Loan origination costs associated with the Company's credit facility are included as deferred costs in Other assets, net for financing charges allocated to the Revolving line of credit, and Long-term debt for financing charges associated with the term loan in the accompanying Condensed Consolidated Balance Sheets.
Credit Agreement
On March 4, 2022, the Company replaced its prior amended and restated credit agreement (the "Prior Credit Agreement") with a new Credit Agreement (the "Credit Agreement") by and among the Company, Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and a $200.0 million term loan (collectively, the "Credit Facility"). The borrower maintains the option to increase the Credit Agreement in the future, subject to lenders’ participation, by up to an additional $40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement.
The Credit Facility will mature on March 4, 2027. No amortization is required with respect to the revolving Credit Facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0% of the original principal amount of the term loan. The Credit Agreement's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.5% per annum, or (c) one-month term SOFR plus 1.0% per annum. The variable interest rate on the term loan was 10.31% as of October 2, 2022.
Red Robin International, Inc. is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments.
On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement. This new Security Agreement replaced the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement.
Red Robin International, Inc. as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities.
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In connection with entry into the new Credit Agreement, the Company’s Prior Credit Agreement was terminated. In connection with such termination and new borrowings under the new Credit Agreement, the Company paid off all outstanding borrowings, accrued interest, and fees under the Prior Credit Agreement.
The summary descriptions of the Credit Agreement and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Credit Agreement and the Security Agreement, respectively, which were filed as exhibits to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 10, 2022.
During the first quarter of 2022, the Company expensed approximately $1.7 million of deferred financing charges related to the extinguishment of the Prior Credit Agreement on March 4, 2022. These charges were recorded to interest expense, net and other on the Condensed Consolidated Statements of Operations and Comprehensive Loss for the forty weeks ended October 2, 2022. In association with the execution of the new Credit Agreement, the Company recognized $4.8 million of deferred financing charges, and $6.1 million of original issuance discount.
7. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The carrying amounts of the Company's cash and cash equivalents, accounts receivable, accounts payable, and current accrued expenses and other liabilities approximate fair value due to the short term nature or maturity of the instruments.
The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets).
The following tables present the Company's assets measured at fair value on a recurring basis included in Other assets, net on the accompanying Condensed Consolidated Balance Sheets as of October 2, 2022 and December 26, 2021 (in thousands):
October 2, 2022Level 1Level 2Level 3
Assets:    
Investments in rabbi trust$4,020 $4,020 $ $ 
Total assets measured at fair value$4,020 $4,020 $ $ 
December 26, 2021Level 1Level 2Level 3
Assets:
Investments in rabbi trust$6,276 $6,276 $ $ 
Total assets measured at fair value$6,276 $6,276 $ $ 
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Assets and liabilities recognized or disclosed at fair value on the Condensed Consolidated Financial Statements on a nonrecurring basis include items such as property, plant and equipment, right of use assets, and other intangible assets. These assets are measured at fair value if determined to be impaired.
The Company has measured non-financial assets for impairment using continuing and projected future cash flows, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement. See Note 5. Other Charges (Gains), net.
We impaired long-lived restaurant assets with a carrying value (including right of use lease assets) of $5.8 million and $27.3 million, recognizing an impairment expense of $2.2 million and $13.0 million during the twelve and forty weeks ended October 2, 2022, respectively, related to the net book value of these long-lived restaurant assets. We determined the fair value of these long-lived assets to be $3.6 million and $14.3 million in the twelve and forty weeks ended October 2, 2022, respectively. The impairment was recorded as a result of quantitative impairment analyses.




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Disclosures of Fair Value of Other Assets and Liabilities
The Company's liability under its credit facility is carried at historical cost in the accompanying Condensed Consolidated Balance Sheets. As of October 2, 2022, the fair value of the credit facility was approximately $194.8 million and the principal amount carrying value was $199.0 million. The credit facility term loan is reported net of $8.6 million in unamortized discount and debt issuance costs in the Condensed Consolidated Balance Sheet as of October 2, 2022. The carrying value approximated the fair value of the credit facility as of December 26, 2021, as the interest rate on the instrument approximated current market rates. The interest rate on the credit facility represents a level 2 fair value input.
8. Commitments and Contingencies
Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the condensed consolidated financial statements. However, the ultimate resolution of litigated claims may differ from our current estimates.
In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment related claims and claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.
As of October 2, 2022, we had a balance of $4.5 million for loss contingencies included within Accrued liabilities and other on our Condensed Consolidated Balance Sheet. We ultimately may be subject to greater or less than the accrued amount.
As of October 2, 2022, we had non-cancellable purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $128.4 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.
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ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations provides a narrative of our financial performance and condition that should be read in conjunction with the accompanying Condensed Consolidated Financial Statements. All comparisons under this heading between 2022 and 2021 refer to the twelve and forty weeks ended October 2, 2022 and October 3, 2021, unless otherwise indicated.
Overview
Description of Business
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our," or the "Company"), primarily operates, franchises, and develops full-service restaurants with 525 locations in North America. As of October 2, 2022, the Company owned 424 restaurants located in 38 states. The Company also had 101 franchised full-service restaurants in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
Financial and Operational Highlights
The following summarizes the operational and financial highlights during the twelve weeks ended October 2, 2022:
Restaurant Revenue, compared to the same period in the prior year, is presented in the table below:
(millions)
Restaurant Revenue for the twelve weeks ended October 3, 2021
$270.2 
Increase/(decrease) in comparable restaurant revenue(1)
14.1 
Increase/(decrease) from non-comparable restaurants(1.9)
Total increase/(decrease)12.2 
Restaurant Revenue for the twelve weeks ended October 2, 2022
$282.4 
The following summarizes the operational and financial highlights during the forty weeks ended October 2, 2022:
(millions)
Restaurant Revenue for the forty weeks ended October 3, 2021
$861.0 
Increase/(decrease) in comparable restaurant revenue(1)
93.6 
Increase/(decrease) from non-comparable restaurants(2.9)
Total increase/(decrease)90.7 
Restaurant Revenue for the forty weeks ended October 2, 2022
$951.7 
(1)      Comparable restaurant revenue represents revenue from Company-owned restaurants that have operated five full quarters as of the end of the period presented.
Restaurant revenues and operating costs as a percentage of restaurant revenue for the period are detailed in the table below:
Twelve Weeks Ended
October 2, 2022October 3, 2021Increase/(Decrease)
Restaurant revenue (millions)$282.4 $270.2 4.5 %
Restaurant operating costs:(Percentage of Restaurant Revenue)(Basis Points)
Cost of sales25.0 %23.2 %180 
Labor35.6 36.9 (130)
Other operating18.7 19.0 (30)
Occupancy8.1 8.3 (20)
Total87.4 %87.5 %(10)
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Forty Weeks Ended
October 2, 2022October 3, 2021Increase/(Decrease)
Restaurant revenue (millions)$951.7 $861.0 10.5 %
Restaurant operating costs:(Percentage of Restaurant Revenue)(Basis Points)
Cost of sales24.6 %22.5 %210 
Labor35.8 36.0 (20)
Other operating18.1