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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 4, 2020
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)
| | | | | | | | |
Delaware | | 84-1573084 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
6312 S. Fiddlers Green Circle, Suite 200N
Greenwood Village, Colorado 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 ☒ 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 Filer | ☐ | | Accelerated Filer | ☒ |
Non-accelerated Filer | ☐ | | Smaller 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 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, 2020, there were 15,541,851 shares of the registrant's common stock, par value of $0.001 per share outstanding.
RED ROBIN GOURMET BURGERS, INC.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | | | | |
| | (Unaudited) | | |
(in thousands, except for share amounts) | | October 4, 2020 | | December 29, 2019 |
Assets: | | | | |
Current assets: | | | | |
Cash and cash equivalents | | $ | 27,367 | | | $ | 30,045 | |
Accounts receivable, net | | 9,024 | | | 22,372 | |
Inventories | | 24,496 | | | 26,424 | |
Income tax receivable | | 63,066 | | | 5,308 | |
Prepaid expenses and other current assets | | 11,652 | | | 21,338 | |
Total current assets | | 135,605 | | | 105,487 | |
Property and equipment, net | | 446,083 | | | 518,013 | |
Right of use assets, net | | 415,948 | | | 426,248 | |
Goodwill | | — | | | 96,397 | |
Intangible assets, net | | 25,440 | | | 29,975 | |
Other assets, net | | 10,195 | | | 61,460 | |
Total assets | | $ | 1,033,271 | | | $ | 1,237,580 | |
Liabilities and stockholders' equity: | | | | |
Current liabilities: | | | | |
Accounts payable | | $ | 18,940 | | | $ | 33,040 | |
Accrued payroll and payroll-related liabilities | | 26,878 | | | 35,221 | |
Unearned revenue | | 42,564 | | | 54,223 | |
Current portion of lease obligations | | 62,032 | | | 42,699 | |
Current portion of long-term debt | | 9,692 | | | — | |
Accrued liabilities and other | | 42,987 | | | 29,403 | |
Total current liabilities | | 203,093 | | | 194,586 | |
Long-term debt | | 206,375 | | | 206,875 | |
Long-term portion of lease obligations | | 450,751 | | | 465,435 | |
Other non-current liabilities | | 19,858 | | | 10,164 | |
Total liabilities | | 880,077 | | | 877,060 | |
Stockholders' equity: | | | | |
Common stock; $0.001 par value: 45,000 shares authorized; 20,449 and 17,851 shares issued; 15,548 and 12,923 shares outstanding as of October 4, 2020 and December 29, 2019 | | 20 | | | 18 | |
Preferred stock, $0.001 par value: 3,000 shares authorized; no shares issued and outstanding as of October 4, 2020 and December 29, 2019 | | — | | | — | |
Treasury stock 4,901 and 4,928 shares, at cost, as of October 4, 2020 and December 29, 2019 | | (199,908) | | | (202,313) | |
Paid-in capital | | 242,048 | | | 213,922 | |
Accumulated other comprehensive loss, net of tax | | (5,494) | | | (4,373) | |
Retained earnings | | 116,528 | | | 353,266 | |
Total stockholders' equity | | 153,194 | | | 360,520 | |
Total liabilities and stockholders' equity | | $ | 1,033,271 | | | $ | 1,237,580 | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
(in thousands, except for share amounts) | | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Revenues: | | | | | | | | |
Restaurant revenue | | $ | 197,009 | | | $ | 289,862 | | | $ | 658,587 | | | $ | 992,764 | |
Franchise and other revenues | | 3,469 | | | 4,360 | | | 9,078 | | | 19,305 | |
| | | | | | | | |
Total revenues | | 200,478 | | | 294,222 | | | 667,665 | | | 1,012,069 | |
Costs and expenses: | | | | | | | | |
Restaurant operating costs (excluding depreciation and amortization shown separately below): | | | | | | | | |
Cost of sales | | 46,037 | | | 69,017 | | | 155,243 | | | 235,119 | |
Labor | | 74,344 | | | 104,870 | | | 255,652 | | | 354,302 | |
Other operating | | 37,631 | | | 44,317 | | | 124,585 | | | 142,882 | |
Occupancy | | 22,099 | | | 24,942 | | | 76,514 | | | 85,420 | |
Depreciation and amortization | | 19,173 | | | 21,280 | | | 68,053 | | | 71,087 | |
Selling, general, and administrative expenses | | 21,284 | | | 36,776 | | | 82,483 | | | 120,126 | |
Pre-opening costs | | 89 | | | — | | | 245 | | | 319 | |
Other charges | | 4,416 | | | (1,757) | | | 138,296 | | | 17,488 | |
Total costs and expenses | | 225,073 | | | 299,445 | | | 901,071 | | | 1,026,743 | |
| | | | | | | | |
Loss from operations | | (24,595) | | | (5,223) | | | (233,406) | | | (14,674) | |
Other expense: | | | | | | | | |
Interest expense, net and other | | 2,280 | | | 1,812 | | | 7,629 | | | 7,203 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Loss before income taxes | | (26,875) | | | (7,035) | | | (241,035) | | | (21,877) | |
Income tax benefit | | (20,696) | | | (5,214) | | | (4,297) | | | (21,676) | |
Net loss | | $ | (6,179) | | | $ | (1,821) | | | $ | (236,738) | | | $ | (201) | |
Loss per share: | | | | | | | | |
Basic | | $ | (0.40) | | | $ | (0.14) | | | $ | (16.98) | | | $ | (0.02) | |
Diluted | | $ | (0.40) | | | $ | (0.14) | | | $ | (16.98) | | | $ | (0.02) | |
Weighted average shares outstanding: | | | | | | | | |
Basic | | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
Diluted | | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
| | | | | | | | |
Other comprehensive income (loss): | | | | | | | | |
Foreign currency translation adjustment | | $ | 9 | | | $ | (262) | | | $ | (1,121) | | | $ | (185) | |
Other comprehensive income (loss), net of tax | | 9 | | | (262) | | | (1,121) | | | (185) | |
Total comprehensive loss | | $ | (6,170) | | | $ | (2,083) | | | $ | (237,859) | | | $ | (386) | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Loss, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | Shares | | Amount | | Shares | | Amount | | | Total |
Balance, December 29, 2019 | | 17,851 | | | $ | 18 | | | 4,928 | | | $ | (202,313) | | | $ | 213,922 | | | $ | (4,373) | | | $ | 353,266 | | | $ | 360,520 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (39) | | | 1,605 | | | (1,388) | | | — | | | — | | | 217 | |
| | | | | | | | | | | | | | | | |
Acquisition of treasury stock | | — | | | — | | | 72 | | | (1,635) | | | — | | | — | | | — | | | (1,635) | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 712 | | | — | | | — | | | 712 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (174,298) | | | (174,298) | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (1,147) | | | — | | | (1,147) | |
| | | | | | | | | | | | | | | | |
Balance, April 19, 2020 | | 17,851 | | | $ | 18 | | | 4,961 | | | $ | (202,343) | | | $ | 213,246 | | | $ | (5,520) | | | $ | 178,968 | | | $ | 184,369 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | 2,598 | | | 2 | | | — | | | — | | | 28,723 | | | — | | | — | | | 28,725 | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (59) | | | 2,398 | | | (2,228) | | | — | | | — | | | 170 | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,071 | | | — | | | — | | | 1,071 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (56,261) | | | (56,261) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 17 | | | — | | | 17 | |
Balance, July 12, 2020 | | 20,449 | | | $ | 20 | | | 4,902 | | | $ | (199,945) | | | $ | 240,812 | | | $ | (5,503) | | | $ | 122,707 | | | $ | 158,091 | |
Issuance of common stock, $0.001 par value, net of stock issuance costs | | — | | | — | | | — | | | — | | | (7) | | | — | | | — | | | (7) | |
Exercise of options, issuance of restricted stock, shares exchanged for exercise and tax, and stock issued through employee stock purchase plan | | — | | | — | | | (1) | | | 37 | | | (73) | | | — | | | — | | | (36) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-cash stock compensation | | — | | | — | | | — | | | — | | | 1,316 | | | — | | | — | | | 1,316 | |
Net loss | | — | | | — | | | — | | | — | | | — | | | — | | | (6,179) | | | (6,179) | |
Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 9 | | | — | | | 9 | |
Balance, October 4, 2020 | | 20,449 | | | $ | 20 | | | 4,901 | | | $ | (199,908) | | | $ | 242,048 | | | $ | (5,494) | | | $ | 116,528 | | | $ | 153,194 | |
See Notes to Condensed Consolidated Financial Statements.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Treasury Stock | | | | Accumulated Other Comprehensive Loss, net of tax | | | | |
| | Paid-in Capital | | | Retained Earnings | | |
(in thousands) | | 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.
RED ROBIN GOURMET BURGERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
(in thousands) | | October 4, 2020 | | October 6, 2019 | | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (236,738) | | | $ | (201) | | | |
Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | | | | | | |
Depreciation and amortization | | 68,053 | | | 71,087 | | | |
Gift card breakage | | (2,329) | | | (4,899) | | | |
Goodwill and restaurant asset impairment | | 116,193 | | | 14,064 | | | |
Non-cash other charges | | (2,438) | | | (11,135) | | | |
Deferred income tax provision (benefit) | | 52,439 | | | (27,477) | | | |
Stock-based compensation expense | | 3,082 | | | 2,539 | | | |
Other, net | | 639 | | | 665 | | | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | 13,250 | | | 14,059 | | | |
Income tax receivable | | (57,756) | | | 941 | | | |
Prepaid expenses and other current assets | | 11,229 | | | 1,426 | | | |
Lease assets, net of liabilities | | 19,194 | | | (266) | | | |
Trade accounts payable and accrued liabilities | | (9,864) | | | (6,657) | | | |
Unearned revenue | | (9,331) | | | (12,564) | | | |
Other operating assets and liabilities, net | | 11,976 | | | 35 | | | |
Net cash (used in) provided by operating activities | | (22,401) | | | 41,617 | | | |
Cash flows from investing activities: | | | | | | |
Purchases of property, equipment, and intangible assets | | (14,870) | | | (33,078) | | | |
Proceeds from sales of real estate and property, plant, and equipment and other investing activities | | 739 | | | 178 | | | |
Net cash used in investing activities | | (14,131) | | | (32,900) | | | |
Cash flows from financing activities: | | | | | | |
Borrowings of long-term debt | | 168,000 | | | 211,500 | | | |
Payments of long-term debt and finance leases | | (159,004) | | | (216,918) | | | |
Purchase of treasury stock | | (1,635) | | | (2,434) | | | |
Debt issuance costs | | (2,952) | | | — | | | |
Proceeds from issuance of common stock, net of stock issuance costs | | 28,945 | | | — | | | |
Proceeds from exercise of stock options and employee stock purchase plan | | 666 | | | 696 | | | |
Net cash provided by (used in) financing activities | | 34,020 | | | (7,156) | | | |
Effect of exchange rate changes on cash | | (166) | | | 81 | | | |
Net change in cash and cash equivalents | | (2,678) | | | 1,642 | | | |
Cash and cash equivalents, beginning of period | | 30,045 | | | 18,569 | | | |
Cash and cash equivalents, end of period | | $ | 27,367 | | | $ | 20,211 | | | |
| | | | | | |
Supplemental disclosure of cash flow information | | | | | | |
Income taxes (refund received) paid | | $ | (2,391) | | | $ | 3,140 | | | |
Interest paid, net of amounts capitalized | | 7,514 | | | 7,799 | | | |
Change in construction related payables | | $ | 462 | | | $ | 3,902 | | | |
See Notes to Condensed Consolidated Financial Statements.
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 4, 2020, the Company owned and operated 444 restaurants located in 38 states. The Company also had 103 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 29, 2019 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 29, 2019, filed with the SEC on February 25, 2020.
Our current and prior year periods, period end dates, and number of weeks included in the period are summarized in the table below:
| | | | | | | | | | | | | | |
Periods | | Period End Date | | Number of Weeks in Period |
Current and Prior Fiscal Quarters: | | | | |
Third Quarter 2020 | | October 4, 2020 | | 12 |
Third Quarter 2019 | | October 6, 2019 | | 12 |
Second Quarter 2020 | | July 12, 2020 | | 12 |
Second Quarter 2019 | | July 14, 2019 | | 12 |
First Quarter 2020 | | April 19, 2020 | | 16 |
First Quarter 2019 | | April 21, 2019 | | 16 |
Current and Prior Fiscal Years: | | | | |
Fiscal Year 2020 | | December 27, 2020 | | 52 |
Fiscal Year 2019 | | December 29, 2019 | | 52 |
Reclassifications
Certain amounts presented in prior periods have been reclassified to conform with the current period presentation. As of December 29, 2019, the Company reclassified $5.3 million from Prepaid expenses and other current assets to Income tax receivable on the condensed consolidated balance sheets. For the forty weeks ended October 6, 2019, the Company reclassified the following within net cash (used in) provided by operating activities on the condensed consolidated statements of cash flows: $14.1 million from Non-cash other charges to Goodwill and restaurant asset impairment, $0.9 million from Prepaid expenses and other current assets to Income tax receivable, and $0.3 million from Other operating assets and liabilities, net to Lease assets, net of liabilities.
Recent Accounting Pronouncements
Income Taxes
In December 2019, the Financial Accounting Standards Board ("FASB") issued Update 2019-12, Income Taxes ("Topic 740") as part of its Simplification Initiative. This guidance provides amendments to simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This guidance is effective for annual and interim reporting periods beginning after December 15, 2020, and early adoption is permitted. We are currently 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.
2. COVID-19 Pandemic
Overview
Due to the novel coronavirus ("COVID-19") pandemic, we continue to navigate an unprecedented time for our business and industry. During the third quarter 2020, the Company continued to expand outdoor seating capacity at reopened Company-owned restaurants in accordance with local limits. Reopening dining rooms and expanding seating capacity was executed with the health, safety, and well-being of Red Robin's Team Members, Guests, and communities in mind, and strict adherence to US Centers for Disease Control and Prevention, state, and local guidelines as our top priority. The COVID-19 pandemic has had a material adverse effect on our business, and we expect the impact from COVID-19 will continue to negatively affect our business.
Franchise Revenue
In response to COVID-19's effect on our franchise operations, we temporarily abated franchise royalty payments and advertising contributions effective March 20, 2020. During periods of abated payments, franchise revenue was not recognized or collected from our franchisees. Abated royalty payments and advertising contributions will not be collected by the Company. The Company began charging and collecting partial franchise royalty payments and advertising contributions during the latter half of the second fiscal quarter of 2020, which continued throughout the Company's third fiscal quarter. As of the end of the third quarter of 2020, the Company had resumed charging full royalty and advertising contributions to our franchisees. Franchised restaurants operate under contractual arrangements with the Company, and the payments specified in the franchise contracts are accounted for under ASC Topic 606, Revenue from Contracts with Customers.
Rent
In response to the impact of COVID-19 on our operations, beginning April 1, 2020 the Company stopped making full lease payments under its existing lease agreements. During the suspension of payments, the Company continued to recognize expenses and liabilities for lease obligations and corresponding right-of-use assets on the balance sheet in accordance with ASC Topic 842.
We are engaging in ongoing constructive discussions with landlords regarding the potential restructuring of lease payments and rent concessions. As of October 4, 2020, the Company has contractually negotiated rent concessions with many of its landlords, with negotiations complete on approximately 50% of its leases. The types of rent concessions the Company has negotiated include early termination, early renewal, rent deferral, and rent abatement.
For contractual rent concessions that do not substantially change the total cash flows of the lease, the Company has elected to account for these concessions assuming the existing lease agreements provide enforceable rights and obligations consistent with the relief issued by the Financial Accounting Standards Board titled ASC Topic 842 and ASC Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Relief"). For leases where the rent concession did not substantially change the total cash flows, the concession was accounted for as a remeasurement to the lease liability based on the original discount rate with a corresponding adjustment to the right-of-use asset. Additionally, the classification of the leases was not reassessed. The Company recorded a $2.2 million remeasurement to increase the lease liability and right-of-use asset resulting from contractual rent concessions under the FASB relief during the third fiscal quarter of 2020.
For contractual rent concessions that substantially changed the total cash flows of the lease and did not qualify for the FASB relief, we applied the modification framework in accordance with ASC Topic 842, Leases. The Company reassessed lease classification for rent concessions that did not qualify for the FASB relief. During the third fiscal quarter of 2020, it was concluded no leases changed classification between operating and finance. Based on updated discount rates, a $10.1 million remeasurement was recorded to increase the lease liability and a $9.9 million adjustment, net of broker's fees, was recorded to increase the right-of-use asset during the third fiscal quarter of 2020. Contractual rent concessions granted to the Company during the third fiscal quarter of 2020 did not grant the right to use additional assets not included in the original lease contracts, so no separate contracts were accounted for as part of the rent concession modifications.
Restaurant Assets
During the twelve weeks ended October 4, 2020, the Company recognized $3.3 million of impairment related to assets at two permanently closed Company-owned restaurants. These impairment charges were included in Restaurant closure and refranchising costs in Other charges (gains) on the condensed consolidated statements of operation and comprehensive loss.
Income Tax
The March 19, 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") created an opportunity for the Company to carry back 2019 and 2020 net operating losses ("NOL's"). Upon filing of its 2019 federal tax return during the third quarter of 2020 and gaining further interpretations and expert technical guidance surrounding the application of the CARES Act, the Company recorded an additional $42.8 million in federal income tax receivables to Income tax receivable on the condensed consolidated balance sheets and recorded a related income tax benefit to the condensed consolidated statements of operation and comprehensive loss. After consideration for the adjustments of carrybacks due to the CARES Act, we have a combined federal and state valuation allowance of $67.1 million, which was recorded to Other assets, net on the condensed consolidated balance sheets. Subsequent to our third quarter balance sheet date, the Company received $49.4 million in cash tax refunds, including interest, and currently expects to receive between $12 million to $15 million of additional cash tax refunds within the next 12 months. A portion of this refund was used to make a $42 million repayment on the Company's credit facility on October 30, 2020.
As of October 4, 2020, the Company had $9.7 million of net operating loss carryforwards for state income tax purposes that arose from the 2019 and 2020 tax years. The Company reclassified this amount from state tax current receivable which was recorded in Prepaid expenses and other current assets as of our second fiscal quarter of 2020, to state deferred tax asset which is recorded to Other Assets, net on the condensed consolidated balance sheets as a result of the CARES Act legislation and in conjunction with the filing of our state tax returns during our third fiscal quarter. Of these state net operating loss carryforwards, approximately $0.2 million may expire, if unused, in 2024. The remaining state net operating losses approximating $9.5 million may expire, if unused, through 2039 or in some cases will be retained for an indefinite period. The utilization of net operating loss carryforwards may be limited to 80% of taxable income in any given year. As states' CARES legislation continues to evolve these estimates may change. The total $67.1 million valuation allowance includes the $9.7 million state NOL's recorded as of October 4, 2020.
3. 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 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Restaurant revenue | | $ | 197,009 | | | $ | 289,862 | | | $ | 658,587 | | | $ | 992,764 | |
Franchise revenue(1) | | 2,584 | | | 3,727 | | | 5,861 | | | 13,479 | |
Gift card breakage | | 523 | | | 580 | | | 2,329 | | | 4,899 | |
Other revenue | | 362 | | | 53 | | | 888 | | | 927 | |
Total revenues | | $ | 200,478 | | | $ | 294,222 | | | $ | 667,665 | | | $ | 1,012,069 | |
———————————————————
(1) The decrease in Franchise revenue is driven by the temporary abatement and non-collection of franchise payments. See Note 2, COVID-19 Pandemic, for further discussion.
Contract liabilities
Components of Unearned revenue in the accompanying condensed consolidated balance sheets are as follows (in thousands):
| | | | | | | | | | | |
| October 4, 2020 | | December 29, 2019 |
Unearned gift card revenue | $ | 31,514 | | | $ | 43,544 | |
Deferred loyalty revenue | $ | 11,050 | | | $ | 10,679 | |
Revenue recognized in the condensed consolidated statements of operations and comprehensive loss 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 4, 2020 | | October 6, 2019 |
Gift card revenue | $ | 16,191 | | | $ | 19,400 | |
4. Leases
Leases are included in right-of-use assets, net, current portion of lease obligations, and long-term portion of lease liabilities on our condensed consolidated balance sheet as of October 4, 2020 and December 29, 2019 as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
October 4, 2020 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 11,463 | | | $ | 404,485 | | | $ | 415,948 | |
| | | | | | |
Current portion of lease obligations | | 1,122 | | | 60,910 | | | 62,032 | |
Long-term portion of lease obligations | | 12,666 | | | 438,085 | | | 450,751 | |
Total | | $ | 13,788 | | | $ | 498,995 | | | $ | 512,783 | |
| | | | | | |
December 29, 2019 | | Finance | | Operating | | Total |
Right of use assets, net | | $ | 7,552 | | | $ | 418,696 | | | $ | 426,248 | |
| | | | | | |
Current portion of lease obligations | | 725 | | | 41,974 | | | 42,699 | |
Long-term portion of lease obligations | | 8,822 | | | 456,613 | | | 465,435 | |
Total | | $ | 9,547 | | | $ | 498,587 | | | $ | 508,134 | |
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 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Operating lease cost | | $ | 14,992 | | | $ | 17,298 | | | $ | 51,931 | | | $ | 58,412 | |
Finance lease cost: | | | | | | | | |
Amortization of right of use assets | | 227 | | | 193 | | 615 | | | 634 |
Interest on lease liabilities | | 150 | | | 122 | | 412 | | | 416 |
Total finance lease cost | | $ | 377 | | | $ | 315 | | | $ | 1,027 | | | $ | 1,050 | |
Variable lease cost | | 5,902 | | | 6,653 | | | 19,207 | | | 22,185 | |
Total | | $ | 21,271 | | | $ | 24,266 | | | $ | 72,165 | | | $ | 81,647 | |
Maturities of our lease liabilities as of October 4, 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Finance Leases | | Operating Leases | | Total |
Remainder of 2020 | $ | 548 | | | $ | 29,370 | | | $ | 29,918 | |
2021 | 1,450 | | | 76,091 | | | 77,541 | |
2022 | 1,570 | | | 73,899 | | | 75,469 | |
2023 | 1,449 | | | 71,855 | | | 73,304 | |
2024 | 1,469 | | | 69,883 | | | 71,352 | |
Thereafter | 11,686 | | | 396,286 | | | 407,972 | |
Total future lease liability | $ | 18,172 | | | $ | 717,384 | | | $ | 735,556 | |
Less imputed interest | 4,384 | | | 218,389 | | | 222,773 | |
Fair value of lease liability | $ | 13,788 | | | $ | 498,995 | | | $ | 512,783 | |
Supplemental cash flow information related to leases is as follows (in thousands, except other information):
| | | | | | | | | | | | | | | | |
| | Forty Weeks Ended | | |
| | October 4, 2020 | | October 6, 2019 | | |
Cash flows from operating activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Operating leases | | $ | 33,034 | | | $ | 58,930 | | | |
Finance leases | | 412 | | | 383 | | | |
Cash flows from financing activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Finance leases | | 196 | | | 686 | | | |
Cash paid for amounts included in the measurement of lease liabilities: | | $ | 33,642 | | | $ | 59,999 | | | |
| | | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 31,731 | | | $ | 10,396 | | | |
Right of use assets obtained in exchange for finance lease obligations | | $ | 4,581 | | | $ | 1,669 | | | |
| | | | | | |
Other information related to operating leases as follows: | | | | | | |
Weighted average remaining lease term | | 10.33 years | | 10.84 years | | |
Weighted average discount rate | | 7.12 | % | | 7.33 | % | | |
| | | | | | |
Other information related to finance leases as follows: | | | | | | |
Weighted average remaining lease term | | 11.93 years | | 11.63 years | | |
Weighted average discount rate | | 4.93 | % | | 4.71 | % | | |
5. Goodwill and Intangible Assets
The following table presents goodwill as of October 4, 2020 and December 29, 2019 (in thousands):
| | | | | | | | |
Balance, December 29, 2019 | | $ | 96,397 | |
Foreign currency translation adjustment | | (983) | |
Goodwill impairment(1) | | (95,414) | |
Balance, October 4, 2020 | | $ | — | |
———————————————————
(1) See Note 2, COVID-19 Pandemic, for further discussion of goodwill impairment recognized during the forty weeks ended October 4, 2020.
The following table presents intangible assets as of October 4, 2020 and December 29, 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | October 4, 2020 | | December 29, 2019 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | | | | | | | |
Franchise rights | | $ | 50,584 | | | $ | (36,813) | | | $ | 13,771 | | | $ | 53,336 | | | $ | (35,896) | | | $ | 17,440 | |
Leasehold interests | | 13,001 | | | (9,155) | | | 3,846 | | | 13,001 | | | (8,794) | | | 4,207 | |
Liquor licenses and other | | 9,961 | | | (9,598) | | | 363 | | | 10,737 | | | (9,869) | | | 868 | |
| | $ | 73,546 | | | $ | (55,566) | | | $ | 17,980 | | | $ | 77,074 | | | $ | (54,559) | | | $ | 22,515 | |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Liquor licenses and other | | $ | 7,460 | | | $ | — | | | $ | 7,460 | | | $ | 7,460 | | | $ | — | | | $ | 7,460 | |
Intangible assets, net | | $ | 81,006 | | | $ | (55,566) | | | $ | 25,440 | | | $ | 84,534 | | | $ | (54,559) | | | $ | 29,975 | |
6. 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.
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 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Basic weighted average shares outstanding | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
Dilutive effect of stock options and awards | — | | | — | | | — | | | — | |
Diluted weighted average shares outstanding | 15,540 | | | 12,959 | | | 13,945 | | | 12,967 | |
| | | | | | | |
Awards excluded due to anti-dilutive effect on diluted loss per share | 895 | | | 358 | | | 480 | | | 405 | |
7. Other Charges (Gains)
Other charges (gains) consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Twelve Weeks Ended | | Forty Weeks Ended |
| | October 4, 2020 | | October 6, 2019 | | October 4, 2020 | | October 6, 2019 |
Goodwill impairment | | $ | — | | | $ | — | | | $ | 95,414 | | | $ | — | |
Restaurant asset impairment | | — | | | — | | | 20,779 | | | 14,064 | |
Restaurant closure and refranchising costs (gains) | | 3,982 | | | (3,922) | | | 12,990 | | | (2,617) | |
Litigation contingencies | | — | | | — | | | 4,500 | | | — | |
Board and stockholder matter costs | | 4 | | | 1,311 | | | 2,453 | | | 2,463 | |
COVID-19 related costs | | 430 | | | — | | | 1,279 | | | — | |
Severance and executive transition | | — | | | 594 | | | 881 | | | 2,958 | |
| | | | | | | | |
| | | | | | | | |
Executive retention | | — | | | 260 | | | — | | | 620 | |
Other charges (gains) | | $ | 4,416 | | | $ | (1,757) | | | $ | 138,296 | | | $ | 17,488 | |
We performed a goodwill impairment analysis during the first quarter of 2020 resulting in full impairment of our goodwill balance. The goodwill impairment was measured as the amount by which the carrying amount of the reporting unit, including goodwill, exceeded its fair value.
The Company recognized non-cash impairment charges related to restaurant assets at 30 and 29 Company-owned restaurants during the forty weeks ended October 4, 2020 and October 6, 2019 resulting from quantitative impairment analyses. Additionally, the Company recognized non-cash impairment charges of $