rrgb-20201004

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


☐						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.

T a b l e o f C o n t e n t s

RED ROBIN GOURMET BURGERS, INC.

TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30

T a b l e o f C o n t e n t s

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.

T a b l e o f C o n t e n t s

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.

T a b l e o f C o n t e n t s

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.

T a b l e o f C o n t e n t s

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.

T a b l e o f C o n t e n t s

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.

T a b l e o f C o n t e n t s

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

Third Quarter 2019

October 6, 2019

Second Quarter 2020

July 12, 2020

Second Quarter 2019

July 14, 2019

First Quarter 2020

April 19, 2020

First Quarter 2019

April 21, 2019

Current and Prior Fiscal Years:

Fiscal Year 2020

December 27, 2020

Fiscal Year 2019

December 29, 2019

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.

Table of Contents

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.

Table of Contents

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

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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.

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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.

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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 $