Quarterly Report (10-q)

Date : 11/05/2019 @ 10:17PM
Source : Edgar (US Regulatory)
Stock : Red Robin Gourmet Burgers Inc (RRGB)
Quote : 27.5  0.74 (2.77%) @ 9:02PM
After Hours
Last Trade
Last $ 27.50 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the quarterly period ended October 6, 2019

or
o
 
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)
Delaware
 
84-1573084
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
6312 S. Fiddler’s Green Circle, Suite 200 N
 
 
Greenwood Village, CO
 
80111
(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 ý   No o

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 ý  No o

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 filer o
 
Accelerated filer ý
Non-accelerated filer o
 
Smaller reporting company o
 
 
Emerging growth company o

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. o

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

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
 
Trading symbol(s)
 
Name of each exchange on which registered
Common Stock, $0.001 par value
 
RRGB
 
NASDAQ (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 November 4, 2019, there were 12,939,670 shares of the registrant's common stock, par value of $0.001 per share outstanding.



RED ROBIN GOURMET BURGERS, INC.

1


PART I — FINANCIAL INFORMATION
ITEM 1.    Financial Statements (unaudited)
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 
 
(Unaudited)
 
 
 
 
October 6, 2019
 
December 30, 2018
Assets:
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
20,211

 
$
18,569

Accounts receivable, net
 
11,470

 
25,034

Inventories
 
27,053

 
27,370

Prepaid expenses and other current assets
 
16,450

 
27,576

Total current assets
 
75,184

 
98,549

Property and equipment, net
 
522,387

 
565,142

Right of use assets, net
 
441,701

 

Goodwill
 
96,162

 
95,838

Intangible assets, net
 
30,937

 
34,609

Other assets, net
 
79,288

 
49,803

Total assets
 
$
1,245,659

 
$
843,941

Liabilities and stockholders equity:
 
 
 
 
Current liabilities:
 
 
 
 
Accounts payable
 
$
37,050

 
$
39,024

Accrued payroll and payroll-related liabilities
 
37,542

 
37,922

Unearned revenue
 
37,913

 
55,360

Short-term portion of lease obligations
 
43,303

 
786

Accrued liabilities and other
 
41,823

 
38,057

Total current liabilities
 
197,631

 
171,149

Deferred rent
 

 
75,675

Long-term debt
 
188,875

 
193,375

Long-term portion of lease obligations
 
481,295

 
9,414

Other non-current liabilities
 
10,067

 
11,523

Total liabilities
 
877,868

 
461,136

Stockholders equity:
 
 
 
 
Common stock; $0.001 par value: 45,000 shares authorized; 17,851 and 17,851 shares issued; 12,957 and 12,971 shares outstanding
 
18

 
18

Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding
 

 

Treasury stock 4,894 and 4,880 shares, at cost
 
(201,350
)
 
(201,505
)
Paid-in capital
 
213,141

 
212,752

Accumulated other comprehensive loss, net of tax
 
(4,986
)
 
(4,801
)
Retained earnings
 
360,968

 
376,341

Total stockholders’ equity
 
367,791

 
382,805

Total liabilities and stockholders equity
 
$
1,245,659

 
$
843,941


See Notes to Condensed Consolidated Financial Statements.

2


RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME
(In thousands, except per share amounts)
(Unaudited)
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
 
October 6, 2019
 
October 7, 2018
 
October 6, 2019
 
October 7, 2018
Revenues:
 
 
 
 
 
 
 
 
Restaurant revenue
 
$
289,862

 
$
290,218

 
$
992,764

 
$
1,015,312

Franchise and other revenues
 
4,360

 
4,659

 
19,305

 
16,472

Total revenues
 
294,222

 
294,877

 
1,012,069

 
1,031,784

Costs and expenses:
 
 
 
 
 
 
 
 
Restaurant operating costs (excluding depreciation and amortization shown separately below):
 
 
 
 
 
 
 
 
Cost of sales
 
69,017

 
69,003

 
235,119

 
242,392

Labor
 
104,870

 
102,322

 
354,302

 
351,813

Other operating
 
44,317

 
43,612

 
142,882

 
141,305

Occupancy
 
24,942

 
26,629

 
85,420

 
88,099

Depreciation and amortization
 
21,280

 
21,819

 
71,087

 
73,335

Selling, general, and administrative expenses
 
36,776

 
28,780

 
120,126

 
110,715

Pre-opening costs
 

 
387

 
319

 
2,093

Other (gains) charges
 
(1,757
)
 
520

 
17,488

 
17,422

Total costs and expenses
 
299,445

 
293,072

 
1,026,743

 
1,027,174

 
 
 
 
 
 
 
 
 
(Loss) income from operations
 
(5,223
)
 
1,805

 
(14,674
)
 
4,610

Other expense:
 
 
 
 
 
 
 
 
Interest expense, net and other
 
1,812

 
2,295

 
7,203

 
8,087

Loss before income taxes
 
(7,035
)
 
(490
)
 
(21,877
)
 
(3,477
)
Income tax benefit
 
(5,214
)
 
(2,199
)
 
(21,676
)
 
(7,692
)
Net (loss) income
 
$
(1,821
)
 
$
1,709

 
$
(201
)
 
$
4,215

(Loss) earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.14
)
 
$
0.13

 
$
(0.02
)
 
$
0.32

Diluted
 
$
(0.14
)
 
$
0.13

 
$
(0.02
)
 
$
0.32

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
12,959

 
12,994

 
12,967

 
12,977

Diluted
 
12,959

 
13,054

 
12,967

 
13,064

 
 
 
 
 
 
 
 
 
Other comprehensive (loss) income:
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 
$
(262
)
 
$
261

 
$
(185
)
 
$
(509
)
Other comprehensive (loss) income, net of tax
 
(262
)
 
261

 
(185
)
 
(509
)
Total comprehensive (loss) income
 
$
(2,083
)
 
$
1,970

 
$
(386
)
 
$
3,706

See Notes to Condensed Consolidated Financial Statements.

3


RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)
(Unaudited)
 
 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Loss,
net of tax
 
 
 
 
 
 
Paid-in
Capital
 
 
Retained
Earnings
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Total
Balance, December 30, 2018
 
17,851

 
$
18

 
4,880

 
$
(201,505
)
 
$
212,752

 
$
(4,801
)
 
$
376,341

 
$
382,805

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan
 

 

 
(32
)
 
1,344

 
(1,204
)
 

 

 
140

Acquisition of treasury stock
 

 

 
31

 
(974
)
 

 

 

 
(974
)
Non-cash stock compensation
 

 

 

 

 
477

 

 

 
477

Net income
 

 

 

 

 

 

 
639

 
639

Other comprehensive loss
 

 

 

 

 

 
(329
)
 

 
(329
)
Topic 842 transition impairment, net of tax
 

 

 

 

 

 

 
(15,172
)
 
(15,172
)
Balance, April 21, 2019
 
17,851

 
$
18

 
4,879

 
$
(201,135
)
 
$
212,025

 
$
(5,130
)
 
$
361,808

 
$
367,586

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan
 

 

 
(30
)
 
1,208

 
(907
)
 

 

 
301

Acquisition of treasury stock
 

 

 
17

 
(501
)
 

 

 

 
(501
)
Non-cash stock compensation
 

 

 

 

 
941

 

 

 
941

Net income
 

 

 

 

 

 

 
981

 
981

Other comprehensive income
 

 

 

 

 

 
406

 

 
406

Balance, July 14, 2019
 
17,851

 
$
18

 
4,866

 
$
(200,428
)
 
$
212,059

 
$
(4,724
)
 
$
362,789

 
$
369,714

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan
 

 

 
(1
)
 
37

 
(44
)
 

 

 
(7
)
Acquisition of treasury stock
 

 

 
29

 
(959
)
 

 

 

 
(959
)
Non-cash stock compensation
 

 

 

 

 
1,126

 

 

 
1,126

Net loss
 

 

 

 

 

 

 
(1,821
)
 
(1,821
)
Other comprehensive loss
 

 

 

 

 

 
(262
)
 

 
(262
)
Balance, October 6, 2019
 
17,851

 
$
18

 
4,894

 
$
(201,350
)
 
$
213,141

 
$
(4,986
)
 
$
360,968

 
$
367,791


See Notes to Condensed Consolidated Financial Statements.

4


RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(In thousands)

 
 
Common Stock
 
Treasury Stock
 
 
 
Accumulated
Other
Comprehensive
Loss,
net of tax
 
 
 
 
 
 
Paid-in
Capital
 
 
Retained
Earnings
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
Total
Balance, December 31, 2017
 
17,851

 
$
18

 
4,897

 
$
(202,485
)
 
$
210,708

 
$
(3,566
)
 
$
382,760

 
$
387,435

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan
 

 

 
(26
)
 
1,042

 
(1,167
)
 

 

 
(125
)
Non-cash stock compensation
 

 

 

 

 
1,287

 

 

 
1,287

Net income
 

 

 

 

 

 

 
4,380

 
4,380

Other comprehensive loss
 

 

 

 

 

 
(273
)
 

 
(273
)
Balance April 22, 2018
 
17,851

 
$
18

 
4,871

 
$
(201,443
)
 
$
210,828

 
$
(3,839
)
 
$
387,140

 
392,704

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan
 

 

 
(22
)
 
961

 
(545
)
 

 

 
416

Non-cash stock compensation
 

 

 

 

 
1,069

 

 

 
1,069

Net loss
 

 

 

 

 

 

 
(1,874
)
 
(1,874
)
Other comprehensive loss
 

 

 

 

 

 
(497
)
 

 
(497
)
Balance July 15, 2018
 
17,851

 
$
18

 
4,849

 
$
(200,482
)
 
$
211,352

 
$
(4,336
)
 
$
385,266

 
$
391,818

Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan
 

 

 
(2
)
 
70

 
(94
)
 

 

 
(24
)
Acquisition of treasury stock
 

 

 
8

 
(336
)
 

 

 

 
(336
)
Non-cash stock compensation
 

 

 

 

 
744

 

 

 
744

Net income
 

 

 

 

 

 

 
1,709

 
1,709

Other comprehensive income
 

 

 

 

 

 
261

 

 
261

Balance October 7, 2018
 
17,851

 
$
18

 
4,855

 
$
(200,748
)
 
$
212,002

 
$
(4,075
)
 
$
386,975

 
$
394,172



See Notes to Condensed Consolidated Financial Statements.

5


RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Forty Weeks Ended
 
 
October 6, 2019
 
October 7, 2018
Cash flows from operating activities:
 
 
 
 
Net (loss) income
 
$
(201
)
 
$
4,215

Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
71,087

 
73,335

Gift card breakage
 
(4,899
)
 
(2,210
)
Unpaid other charges
 
2,929

 
13,925

Deferred income tax benefit
 
(27,477
)
 
(11,569
)
Stock-based compensation expense
 
2,539

 
3,101

Other, net
 
665

 
1,033

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
14,059

 
15,268

Prepaid expenses and other current assets
 
2,367

 
10,156

Trade accounts payable and accrued liabilities
 
(6,657
)
 
(4,127
)
Unearned revenue
 
(12,564
)
 
(15,450
)
Other operating assets and liabilities, net
 
(231
)
 
1,103

Net cash provided by operating activities
 
41,617

 
88,780

Cash flows from investing activities:
 
 
 
 
Purchases of property, equipment, and intangible assets
 
(33,078
)
 
(39,842
)
Proceeds from sales of real estate and property, plant, and equipment and other investing activities
 
178

 
265

Net cash used in investing activities
 
(32,900
)
 
(39,577
)
Cash flows from financing activities:
 
 
 
 
Borrowings of long-term debt
 
211,500

 
194,500

Payments of long-term debt and finance leases
 
(216,918
)
 
(240,553
)
Purchase of treasury stock
 
(2,434
)
 
(337
)
Proceeds from exercise of stock options and employee stock purchase plan
 
696

 
733

Net cash used in financing activities
 
(7,156
)
 
(45,657
)
Effect of exchange rate changes on cash
 
81

 
(892
)
Net change in cash and cash equivalents
 
1,642

 
2,654

Cash and cash equivalents, beginning of period
 
18,569

 
17,714

Cash and cash equivalents, end of period
 
$
20,211

 
$
20,368

 
 
 
 
 
Supplemental disclosure of cash flow information
 
 
 
 
Income taxes paid
 
$
3,140

 
$
1,286

Interest paid, net of amounts capitalized
 
$
7,799

 
$
7,638

Change in construction related payables
 
$
3,902

 
$
(1,084
)
See Notes to Condensed Consolidated Financial Statements.

6


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 develops, operates, and franchises full-service restaurants in North America. As of October 6, 2019, the Company owned and operated 471 restaurants located in 38 states and two Canadian provinces. The Company also had 90 franchised full-service restaurants in 16 states as of October 6, 2019. 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 30, 2018 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 30, 2018, filed with the SEC on February 27, 2019.
The Company’s quarter that ended October 6, 2019 is referred to as third quarter 2019, or the twelve weeks ended October 6, 2019; the second quarter ended July 14, 2019 is referred to as second quarter 2019, or the twelve weeks ended July 14, 2019; the first quarter ended April 21, 2019 is referred to as first quarter 2019, or the sixteen weeks ended April 21, 2019; and together, the first, second, and third quarters of 2019 are referred to as the forty weeks ended October 6, 2019. The Company’s quarter that ended October 7, 2018 is referred to as third quarter 2018, or the twelve weeks ended October 7, 2018; the second quarter ended July 15, 2018 is referred to as second quarter 2018, or the twelve weeks ended July 15, 2018; the first quarter ended April 22, 2018 is referred to as first quarter 2018, or the sixteen weeks ended April 22, 2018; and together, the first, second, and third quarters of 2018 are referred to as the forty weeks ended October 7, 2018. The Company’s fiscal year 2019 comprises 52 weeks and will end on December 29, 2019.
Reclassifications
Certain amounts presented in prior periods have been reclassified to conform with the current period presentation. For the forty week period ended October 7, 2018, the Company reclassified gift card breakage of $2.2 million from Other, net to its own line item presented in the adjustments to reconcile net (loss) income to net cash provided by operating activities on the condensed consolidated statement of cash flows. For the fiscal year ended December 30, 2018, the Company reclassified unfavorable lease rights of $1.4 million from Deferred rent to Other non-current liabilities on the condensed consolidated balance sheets. Management believes this presentation better reflects the nature of these liabilities subsequent to the adoption of Topic 842, as defined in Note 3, Leases.

7



Recently Issued Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Update 2016-13, Financial Instruments - Credit Losses (“Topic 326”), subsequently amended by various standard updates. This guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information when determining credit loss estimates and requires financial assets to be measured net of expected credit losses at the time of initial recognition. This guidance is effective for annual and interim reporting periods beginning after December 15, 2019 using a modified retrospective adoption method. Early adoption is permitted. The Company will adopt this guidance beginning with its fiscal first quarter 2020 and will apply it retrospectively at the beginning of the period of adoption through a cumulative-effect adjustment to retained earnings. We are evaluating the full impact this guidance will have on our consolidated financial statements.
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.


8


2. Revenue
Disaggregation of revenue
In the following table, revenue is disaggregated by type of good or service (in thousands):
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
 
October 6, 2019
 
October 7, 2018
 
October 6, 2019
 
October 7, 2018
Restaurant revenue
 
$
289,862

 
$
290,218

 
$
992,764

 
$
1,015,312

Franchise revenue
 
3,727

 
3,914

 
13,479

 
13,363

Gift card breakage
 
580

 
536

 
4,899

 
2,210

Other revenue
 
53

 
209

 
927

 
899

Total revenues
 
$
294,222

 
$
294,877

 
$
1,012,069

 
$
1,031,784

Contract liabilities
Unearned gift card revenue at October 6, 2019 and December 30, 2018 was $27.4 million and $45.4 million. Deferred loyalty revenue, which was also included in Unearned revenue in the accompanying condensed consolidated balance sheets, was $10.5 million and $10 million at October 6, 2019 and December 30, 2018.
Revenue recognized in the condensed consolidated statements of operations and comprehensive (loss) income for the redemption 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 6, 2019
 
October 7, 2018
Gift card revenue
 
$
19,400

 
$
16,842


9


3. Leases
Adoption of FASB Accounting Standards Update ("ASU") 2016-02
On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842) ("Topic 842") along with related clarifications and improvements using the modified retrospective approach without application to prior periods. This guidance requires the recognition of liabilities for lease obligations and corresponding right-of-use assets on the balance sheet and disclosure of key information about leasing arrangements. We applied the practical expedients that do not require us to reassess existing contracts for embedded leases, to separate lease and non-lease components for our population of operating assets, or to reassess lease classification or initial direct costs.
The effect of the changes made to our consolidated December 31, 2018 balance sheet as a result of the adoption of Topic 842 was as follows (in thousands):
 
 
Balance at December 30, 2018
 
Adjustments due to Topic 842
 
Balance at December 31, 2018
 
 
 
 
Balance sheet
 
 
 
 
 
 
Non-current assets
 
 
 
 
 
 
Right of use assets, net
 
$

 
$
478,268

 
$
478,268

Prepaid expenses and other current assets
 
27,576

 
(6,592
)
 
20,984

 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
Short-term portion of lease obligations
 
786

 
40,606

 
41,392

Non-current liabilities
 
 
 
 
 

Deferred Rent
 
75,675

 
(75,675
)
 

Long-term portion of lease obligations
 
9,414

 
506,745

 
516,159

 
 
 
 
 
 
 
Stockholders’ equity:
 
 
 
 
 
 
Retained earnings
 
$
376,341

 
$
(15,172
)
 
$
361,169

This change did not have any impact on our consolidated statement of operations or consolidated statement of cash flows.
Leases
The Company leases land, buildings, and equipment used in its operations under operating and finance leases. Our leases generally have remaining terms of 1-15 years, most of which include options to extend the leases for additional 5-year periods. Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods up to a term of 20 years.
We determine if a contract contains a lease at inception. Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. We estimate this rate based on prevailing financial market conditions, comparable company and credit analysis, and management judgment.
Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce our right-of-use asset related to the lease. These are amortized through the right-of-use asset as reductions of expense over the lease term.
Some of our leases include rent escalations based on inflation indexes and fair market value adjustments. Certain leases contain contingent rental provisions that include a fixed base rent plus an additional percentage of the restaurant’s sales in excess of stipulated amounts. Operating lease liabilities are calculated using the prevailing index or rate at lease commencement. Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

10


Leases are included in right-of-use assets, net, short-term portion of lease obligations, and long-term portion of lease liabilities on our condensed consolidated balance sheet as of October 6, 2019 as follows (in thousands):
 
 
Finance
 
Operating
 
Total
Right of use assets, net
 
$
8,675

 
$
433,026

 
$
441,701

Short-term portion of lease obligations
 
947

 
42,356

 
43,303

Long-term portion of lease obligations
 
10,214

 
471,081

 
481,295

Total
 
$
11,161

 
$
513,437

 
$
524,598

We have elected the short-term lease recognition exemption for all applicable classes of underlying assets. Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.
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 as follows (in thousands):
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
 
October 6, 2019
 
October 6, 2019
Operating lease cost
 
$
17,298

 
$
58,412

Finance lease cost:
 
 
 
 
Amortization of right of use assets
 
193

 
635

Interest on lease liabilities
 
122

 
415

Total finance lease cost
 
315

 
1,050

Variable lease cost
 
6,653

 
22,186

Total
 
$
24,267

 
$
81,648

Maturities of our lease liabilities as of October 6, 2019 were as follows (in thousands):
 
Finance Leases
 
Operating Leases
 
Total
Remainder of 2019
$
280

 
$
12,997

 
$
13,277

2020
1,396

 
78,135

 
79,531

2021
1,437

 
77,392

 
78,829

2022
1,283

 
74,865

 
76,148

2023
1,220

 
72,339

 
73,559

Thereafter
8,824

 
451,232

 
460,056

Total future lease liability
14,440

 
766,960

 
781,400

Less imputed interest
3,279

 
253,523

 
256,802

Fair value of lease liability
$
11,161

 
$
513,437

 
$
524,598


11


As previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting guidance, maturities of lease liabilities were as follows as of December 30, 2018 (in thousands):
 
 
Capital
Leases
 
Operating
Leases
2019
 
$
1,234

 
$
80,367

2020
 
1,242

 
76,936

2021
 
1,240

 
70,419

2022
 
1,063

 
61,649

2023
 
1,019

 
54,121

Thereafter
 
7,552

 
206,879

Total
 
13,350

 
$
550,371

Less amount representing interest
 
(3,150
)
 
 

Present value of future minimum lease payments
 
10,200

 
 

Less current portion
 
(786
)
 
 

Long-term capital lease obligations
 
$
9,414

 
 

Supplemental cash flow information related to leases is as follows:
 
 
Forty Weeks Ended
 
 
October 6, 2019
Cash paid for amounts included in the measurement of lease liabilities (in thousands):
 
$
60

Right of use assets obtained in exchange for operating lease obligations following the adoption of Topic 842 (in thousands):
 
$
10

Right of use assets obtained in exchange for finance lease obligations following the adoption of Topic 842 (in thousands):
 
$
2

 
 
 
Other information related to operating leases as follows:
 
 
Weighted average remaining lease term
 
11 years

Weighted average discount rate
 
7.33
%
 
 
 
Other information related to financing leases as follows:
 
 
Weighted average remaining lease term
 
12 years

Weighted average discount rate
 
4.71
%

4. Goodwill and Intangible Assets
The following table presents goodwill as of October 6, 2019 and December 30, 2018 (in thousands):
Balance, December 30, 2018
 
$
95,838

Foreign currency translation adjustment
 
324

Balance, October 6, 2019
 
$
96,162

The Company recorded no goodwill impairment losses in the period presented in the table above or any prior periods.

12


The following table presents intangible assets as of October 6, 2019 and December 30, 2018 (in thousands):
 
 
October 6, 2019
 
December 30, 2018
 
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Carrying
Amount
Intangible assets subject to amortization:
 
 
 
 
 
 
 
 
 
 
 
 
Franchise rights
 
$
53,336

 
$
(35,124
)
 
$
18,212

 
$
54,404

 
$
(33,160
)
 
$
21,244

Favorable leases
 
13,001

 
(8,642
)
 
4,359

 
13,001

 
(8,136
)
 
4,865

Liquor licenses and other
 
10,737

 
(9,831
)
 
906

 
10,810

 
(9,770
)
 
1,040

 
 
$
77,074

 
$
(53,597
)
 
$
23,477

 
$
78,215

 
$
(51,066
)
 
$
27,149

Indefinite-lived intangible assets:
 
 
 
 
 
 
 
 
 
 
 
 
Liquor licenses and other
 
$
7,460

 
$

 
$
7,460

 
$
7,460

 
$

 
$
7,460

Intangible assets, net
 
$
84,534

 
$
(53,597
)
 
$
30,937

 
$
85,675

 
$
(51,066
)
 
$
34,609

5. Earnings Per Share
Basic earnings per share amounts are calculated by dividing net income 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 reflect the potential dilution that could occur if holders of options exercised their options into common stock.
The Company uses the treasury stock method to calculate the effect of outstanding stock options. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding as follows (in thousands):
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
October 6, 2019
 
October 7, 2018
 
October 6, 2019
 
October 7, 2018
Basic weighted average shares outstanding
12,959

 
12,994

 
12,967

 
12,977

Dilutive effect of stock options and awards

 
60

 

 
87

Diluted weighted average shares outstanding
12,959

 
13,054

 
12,967

 
13,064

 
 
 
 
 
 
 
 
Awards excluded due to anti-dilutive effect on diluted earnings per share
358

 
548

 
405

 
428


13


6. Other (Gains) Charges
Other (gains) charges consist of the following (in thousands):
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
 
October 6, 2019
 
October 7, 2018
 
October 6, 2019
 
October 7, 2018
Asset impairment
 
$

 
$

 
$
14,064

 
$
9,643

Executive transition and severance
 
594

 

 
2,958

 

Restaurant closure gains
 
(3,922
)
 

 
(2,617
)
 

Board and stockholder matter costs
 
1,311

 

 
2,463

 

Litigation contingencies
 

 

 

 
4,000

Reorganization costs
 

 
520

 

 
3,273

Spiral menu disposal
 

 

 

 
506

Executive retention
 
260

 

 
620

 

Other (gains) charges
 
$
(1,757
)
 
$
520

 
$
17,488

 
$
17,422

In second quarter 2019, the Company determined 29 Company-owned restaurants were impaired and recognized a non-cash impairment charge of $14.1 million. In second quarter 2018, the Company determined eight Company-owned restaurants were impaired and recognized a non-cash impairment charge of $9.6 million. The Company recognized the non-cash impairment charges included in asset impairment above resulting from the continuing and projected future results of these restaurants, primarily through projected cash flows. Non-cash impairment charges resulting from restaurant closures are included within restaurant closure gains.
7. Borrowings
Long-term debt as of October 6, 2019 and December 30, 2018 was $188.9 million and $193.4 million.
On June 30, 2016, the Company entered into a credit facility (the “Credit Facility”), which provides for a $400 million revolving line of credit with a sublimit for the issuance of up to $25 million in letters of credit and swingline loans up to $15 million. On August 19, 2019, the Company entered into a second amendment (the “Amendment”) to the Credit Facility. The Amendment increases the lease adjusted leverage ratio to 5.0x through December 29, 2019 before returning to 4.75x thereafter. In addition, the Amendment revises the definition of permitted acquisitions under the Credit Facility to correspond with the change to the lease adjusted leverage ratio and clarifies the classification of existing capital and operating leases. The Company's lease adjusted leverage ratio was 4.55x as of October 6, 2019. The lease adjusted leverage ratio is defined in Section 1.1 of the Credit Facility, which is filed as Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on July 5, 2016, as further amended by the Amendment filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on August 23, 2019.
The Credit Facility matures on June 30, 2021. As of October 6, 2019, the Company had outstanding borrowings under the Credit Facility of $188.0 million, in addition to amounts issued under letters of credit of $7.5 million. The amounts issued under letters of credit reduce the amount available under the facility but were not recorded as debt. As of December 30, 2018, the Company had outstanding borrowings under the Credit Facility of $192.5 million, in addition to amounts issued under letters of credit of $7.8 million. No outstanding borrowings were considered short-term as of October 6, 2019 and December 30, 2018.
Loan origination costs associated with the Credit Facility are included as deferred costs in Other assets, net in the accompanying condensed consolidated balance sheets. Unamortized debt issuance costs were $1.2 million and $1.7 million as of October 6, 2019 and December 30, 2018.

14


8. 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 following tables present the Company’s assets measured at fair value on a recurring basis as of October 6, 2019 and December 30, 2018 (in thousands):
 
 
October 6, 2019
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Investments in rabbi trust
 
$
7,109

 
$
7,109

 
$

 
$

Total assets measured at fair value
 
$
7,109

 
$
7,109

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
December 30, 2018
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
Investments in rabbi trust
 
$
8,198

 
$
8,198

 
$

 
$

Total assets measured at fair value
 
$
8,198

 
$
8,198

 
$

 
$

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, goodwill, and other intangible assets. These assets are measured at fair value if determined to be impaired.
Disclosures of Fair Value of Other Assets and Liabilities
The Company’s liabilities under its Credit Facility and finance leases are carried at historical cost in the accompanying condensed consolidated balance sheets. Both the Credit Facility and the Company’s finance lease obligations are measured using level 2 inputs. The carrying value of the Credit Facility approximates fair value as the interest rate on this instrument approximates current market rates. For disclosure purposes, the Company estimated the fair value of the finance lease obligations using discounted cash flow analysis based on market rates obtained from independent third parties for similar types of debt.
The following table presents the carrying value and estimated fair value of the Company’s finance lease obligations as of October 6, 2019 and December 30, 2018 (in thousands):
 
 
October 6, 2019
 
December 30, 2018
 
 
Carrying Value
 
Estimated Fair Value
 
Carrying Value
 
Estimated Fair Value
Finance lease obligations
 
$
11,161

 
$
10,839

 
$
10,200

 
$
10,143

9. Commitments and Contingencies
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 alleging illness, injury, or other food quality, health, or operational issues. Evaluating contingencies related to litigation is a complex process involving subjective judgment on the potential outcome of future events, and the ultimate resolution of litigated claims may differ from our current analysis. We review the adequacy of accruals and disclosures pertaining to litigation matters each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements. While it is not possible to predict the outcome of these claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the condensed consolidated financial statements.
Amounts recorded in the periods presented for litigation contingencies related to employment claims are disclosed in Note 6, Other (Gains) Charges.

15


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 2019 and 2018 refer to the twelve and forty week periods ending October 6, 2019 and October 7, 2018, respectively, unless otherwise indicated.
Overview
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries (“Red Robin,” “we,” “us,” “our” or the “Company”), primarily develops, operates, and franchises full-service restaurants with 561 locations in North America. As of October 6, 2019, the Company operated 471 Company-owned restaurants located in 38 states and two Canadian provinces. The Company also had 90 franchised full-service restaurants in 16 states as of October 6, 2019. The Company operates its business as one operating and one reportable segment.
The following summarizes the operational and financial highlights during the twelve and forty weeks ended October 6, 2019:
Financial performance.
Restaurant revenue decreased $0.4 million, or 0.1%, to $289.9 million for the twelve weeks ended October 6, 2019, as compared to the twelve weeks ended October 7, 2018, due to a $4.8 million decrease from closed restaurants, partially offset by a $4.4 million, or 1.6%, increase in comparable restaurant revenue. Restaurant revenue decreased $22.5 million, or 2.2%, to $992.8 million for the forty weeks ended October 6, 2019, as compared to the forty weeks ended October 7, 2018, due to a $12.0 million, or 1.2%, decrease in comparable restaurant revenue, a $9.5 million, or 0.9% decrease from closed restaurants, and a $1.0 million unfavorable foreign currency exchange impact.
Restaurant operating costs, as a percentage of restaurant revenue, increased 70 basis points to 83.9% for the twelve weeks ended October 6, 2019, as compared to 83.2% for the twelve weeks ended October 7, 2018. The increase was primarily due to higher average wages, increased manager staffing levels, and higher third-party delivery expense driven by increasing volumes, partially offset by a decrease in occupancy costs due to restaurant closures. For the forty weeks ended October 6, 2019, restaurant operating costs, as a percentage of restaurant revenue increased 130 basis points to 82.4%, as compared to 81.1% for the same period in 2018. The increase was primarily due to higher average wages, increased manager staffing levels, and higher third-party delivery expense driven by increasing volumes, offset by a decrease in occupancy costs due to restaurant closures, and lower food and beverage costs.
Net loss was $1.8 million for the twelve weeks ended October 6, 2019 compared to net income of $1.7 million for the twelve weeks ended October 7, 2018. Diluted loss per share was $0.14 for the twelve weeks ended October 6, 2019, as compared to diluted earnings per share of $0.13 for the twelve weeks ended October 7, 2018. Excluding a gain included in Other (gains) charges of $0.23 for lease terminations for previously closed restaurants, and costs included in Other (gains) charges of $0.07 for board and stockholder matter costs, $0.04 for executive transition and severance, and $0.02 for executive retention, adjusted loss per share for the twelve weeks ended October 6, 2019 was $0.24. Excluding charges of $0.03 for reorganization costs, adjusted earnings per diluted share for the twelve weeks ended October 7, 2018 was $0.16.
Net loss was $0.2 million for the forty weeks ended October 6, 2019 compared to net income of $4.2 million for the forty weeks ended October 7, 2018. Diluted loss per share was $0.02 for the forty weeks ended October 6, 2019, as compared to diluted earnings per share of $0.32 for the forty weeks ended October 7, 2018. Excluding charges included in Other (gains) charges of $0.80 for asset impairment, $0.17 for executive transition and severance, $0.14 for board and stockholder matter costs, and $0.04 for executive retention, and a gain included in Other (gains) charges of $0.15 for lease terminations for previously closed restaurants, adjusted earnings per diluted share for the forty weeks ended October 6, 2019 was $0.98. Excluding charges of $0.55 for asset impairment, $0.23 for litigation contingencies, $0.18 for reorganization costs, and $0.03 for spiral menu disposal, adjusted earnings per diluted share for the forty weeks ended October 7, 2018 was $1.31.

16



Marketing. Our Red Robin Royalty™ loyalty program operates in all our U.S. and Canadian Company-owned Red Robin restaurants and has been rolled out to most of our franchised restaurants. We engage our guests through Red Robin Royalty with offers designed to increase frequency of visits as a key part of our overall marketing strategy. We also inform enrolled guests early about new menu items to generate awareness and trial of these offerings. Our media buying approach is concentrated on generating significant reach and frequency while on-air. In addition, we use digital, social, and earned media to target and more effectively reach specific segments of our guest base.
Restaurant Data
The following table details restaurant unit data for our Company-owned and franchised locations for the periods indicated:
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
 
October 6, 2019
 
October 7, 2018
 
October 6, 2019
 
October 7, 2018
Company-owned:
 
 
 
 
 
 
 
 
Beginning of period
 
472

 
484

 
484

 
480

Opened during the period(1)
 
1

 
2

 

 
8

Closed during the period
 
(2
)
 
(1
)
 
(13
)
 
(3
)
End of period
 
471

 
485

 
471

 
485

Franchised:
 
 
 
 
 
 
 
 
Beginning of period
 
90

 
88

 
89

 
86

Opened during the period
 

 
1

 
1

 
3

End of period
 
90

 
89

 
90

 
89

Total number of restaurants
 
561

 
574

 
561

 
574

________________________________________________________
(1) The restaurant opened during the twelve weeks ended October 6, 2019 consisted of the reopening of one restaurant which was temporarily closed in the second quarter of 2019. Restaurants opened during the twelve and forty weeks ended October 7, 2018 consisted entirely of completed new restaurant openings.


17


Results of Operations
Operating results for each fiscal period presented below are expressed as a percentage of total revenues, except for the components of restaurant operating costs, which are expressed as a percentage of restaurant revenue.
This information has been prepared on a basis consistent with our audited 2018 annual financial statements, with the exception of changes made due to the adoption of Topic 842, and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the periods presented. Our operating results may fluctuate significantly as a result of a variety of factors, and operating results for any period presented are not necessarily indicative of results for a full fiscal year.
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
 
 
October 6, 2019
 
October 7, 2018
 
October 6, 2019
 
October 7, 2018
Revenues:
 
 
 
 
 
 
 
 
Restaurant revenue
 
98.5
 %
 
98.4
 %
 
98.1
 %
 
98.4
 %
Franchise and other revenues
 
1.5

 
1.6

 
1.9

 
1.6

Total revenues
 
100.0

 
100.0

 
100.0

 
100.0

 
 
 
 
 
 
 
 
 
Costs and expenses:
 
 
 
 
 
 
 
 
Restaurant operating costs (exclusive of depreciation and amortization shown separately below):
 
 
 
 
 
 
 
 
Cost of sales
 
23.8

 
23.8

 
23.7

 
23.9

Labor
 
36.2

 
35.3

 
35.7

 
34.7

Other operating
 
15.3

 
15.0

 
14.4

 
13.9

Occupancy
 
8.6

 
9.2

 
8.6

 
8.7

Total restaurant operating costs
 
83.9

 
83.2

 
82.4

 
81.1

Depreciation and amortization
 
7.2

 
7.4

 
7.0

 
7.1

Selling, general and administrative
 
12.5

 
9.8

 
11.8

 
10.7

Pre-opening and acquisition costs
 

 
0.1

 

 
0.2

Other (gains) charges
 
(0.6
)
 
0.2

 
1.7

 
1.7

(Loss) income from operations
 
(1.8
)
 
0.6

 
(1.4
)
 
0.4

 
 
 
 
 
 
 
 
 
Interest expense, net and other
 
0.6

 
0.8

 
0.7

 
0.8

Loss before income taxes
 
(2.4
)
 
(0.2
)
 
(2.2
)
 
(0.3
)
Income tax benefit
 
(1.8
)
 
(0.7
)
 
(2.1
)
 
(0.7
)
Net (loss) income
 
(0.6
)%
 
0.6
 %
 
 %
 
0.4
 %
___________________________________
Certain percentage amounts in the table above do not total due to rounding as well as restaurant operating costs being expressed as a percentage of restaurant revenue and not total revenues.

18



Revenues
 
 
Twelve Weeks Ended
 
Forty Weeks Ended
(Revenues in thousands)
 
October 6, 2019
 
October 7, 2018
 
Percent Change
 
October 6, 2019
 
October 7, 2018
 
Percent Change
Restaurant revenue
 
$
289,862

 
$
290,218

 
(0.1
)%
 
$
992,764

 
$
1,015,312

 
(2.2
)%
Franchise royalties, fees and other revenue
 
4,360

 
4,659

 
(6.4
)%
 
19,305

 
16,472

 
17.2
 %
Total revenues
 
$
294,222

 
$
294,877

 
(0.2
)%
 
$
1,012,069

 
$
1,031,784

 
(1.9
)%
Average weekly sales volumes in Company-owned restaurants(1)
 
$
51,221

 
$
49,925

 
2.6
 %
 
$
51,961

 
$
52,379

 
(0.8
)%
Total operating weeks
 
5,659

 
5,805