NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business and Summary of Significant Accounting Policies
(a) Description of Business
Red Robin Gourmet Burgers, Inc., a Delaware corporation, together with its subsidiaries ("Red Robin," "we," "us," "our", or the "Company"), primarily operates, franchises, and develops casual dining restaurants in North America. As of December 26, 2021, the Company owned and operated 430 restaurants located in 38 states. The Company also had 101 casual dining restaurants operated by franchisees in 16 states and one Canadian province. The Company operates its business as one operating and one reportable segment.
(b) Basis of Presentation and Principles of Consolidation
The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States and include the accounts of Red Robin and its wholly owned subsidiaries after elimination of all intercompany accounts and transactions. The Company's fiscal year is 52 or 53 weeks ending the last Sunday of the calendar year. Year-end dates and the number of weeks in each fiscal year are shown in the table below for periods presented in the consolidated financial statements and for the upcoming fiscal year.
| | | | | | | | | | | | | | |
Fiscal Year | | Year End Date | | Number of Weeks in Fiscal Year |
Current and Prior Fiscal Years: | | | | |
2021 | | December 26, 2021 | | 52 |
2020 | | December 27, 2020 | | 52 |
2019 | | December 29, 2019 | | 52 |
Upcoming Fiscal Years: | | | | |
2022 | | December 25, 2022 | | 52 |
2023 | | December 31, 2023 | | 53 |
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 periods. The areas that require management's most significant estimates are impairment of long-lived assets, lease accounting, estimating fair value, and unearned revenue. Actual results could differ from those estimates.
(d) Immaterial Restatements
Subsequent to the issuance of the December 27, 2020 Consolidated Financial Statements, management concluded that Financing lease right of use assets, Current portion of financing lease obligations and Long-term portion of financing lease liabilities were incorrectly presented within the same financial statement line items as Operating lease right of use assets, Current portion of operating lease obligations, and Long-term portion of operating lease obligations, respectively, on the December 27, 2020 Consolidated Balance Sheet. To correct the classification of these assets and liabilities, $9.7 million of Financing lease right of use assets net was reclassified to Other assets, net, $1.1 million of the Current portion of financing lease obligations was reclassified to Accrued liabilities and other current liabilities, and $10.9 million of the Long-term portion of financing lease obligations was reclassified to Other non-current liabilities. Remaining balances in the captions pertain to Operating leases, and the financial statement line item descriptions were changed in the current year presentation to reflect this.
Additionally, subsequent to the issuance of the December 27, 2020 Consolidated Financial Statements, management concluded that the Company had incorrectly disclosed the Change in construction related payables, whereas the required disclosure presents the accrued capital expenditure amounts included in accounts payable and accrued expenses and other current liabilities as of year-end. The Company corrected the disclosure in the current year and corrected the financial statement line item description to Accrued purchases of property, equipment and intangible assets, and corrected the 2020 and 2019 amounts from $(0.9) million and $(3.9) million, respectively to $2.4 million and $3.3 million, respectively, within the Consolidated Statement of Cash Flows.
These restatements were related to presentation, and did not have any impact to retained earnings in the current or prior year presentations. Management has evaluated these errors and has determined, based on quantitative and qualitative factors that they were not material to the December 27, 2020 balance sheet or the cash flow statements for the year ended December 27, 2020 and December 29, 2019.
(e) Summary of Significant Accounting Policies
Revenue Recognition - Revenues consist of sales from restaurant operations (including third party delivery), franchise revenue, and other revenue including gift card breakage and miscellaneous revenue. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a restaurant Guest, franchisee, or other customer.
The Company recognizes revenues from restaurant operations when payment is tendered at the point of sale, as the Company's performance obligation to provide food and beverage to the customer has been satisfied.
The Company sells gift cards which do not have an expiration date, and it does not deduct dormancy fees from outstanding gift card balances. We recognize revenue from gift cards as either: (i) Restaurant revenue, when the Company's performance obligation to provide food and beverage to the customer is satisfied upon redemption of the gift card, or (ii) gift card breakage, as discussed below.
Red Robin Royalty™ deferred revenue primarily relates to a program in which registered members earn an award for a free entrée for every nine entrées purchased. Registered members can also earn an award if they visit a Red Robin restaurant 5 separate times within 5 weeks of joining our Royalty™ program. We recognize the current sale of an entrée and defer a portion of the revenue to reflect partial prepayment for the future entrée the member is entitled to receive. We estimate the future value of the award based on the historical average value of redemptions. We also estimate what portion of registered members are not likely to reach the ninth purchase or fifth visit based on historical activity and recognize the revenue related to those purchases from deferred revenue. We recognize the deferred revenue in restaurant revenue on earned rewards when the Company satisfies its performance obligation at redemption, or upon expiration. We compare the estimate of the value of future awards to historical redemptions to evaluate the reasonableness of the deferred amount.
Revenues we receive from our franchise arrangements include sales-based royalties, advertising fund contributions, area development fees, and franchise fees. Red Robin franchisees are required to remit 4.0% to 5.0% of their revenues as royalties to the Company and contribute up to 3.0% of revenues to two national advertising funds. The Company recognizes these sales-based royalties and advertising fund contributions as the underlying franchisee sales occur.
The Company also provides its franchisees with management expertise, training, pre-opening assistance, and restaurant operating assistance in exchange for area development fees and franchise fees. The Company capitalizes these fees upon collection from the franchisee, which then amortize over the contracted franchise term as the services comprising the performance obligation are satisfied. The Company typically grants franchise rights to franchisees for a term of 20 years, with the right to extend the term for an additional ten years if various conditions are satisfied by the franchisee.
Gift card breakage is recognized when the likelihood of a gift card being redeemed by the customer is remote and the Company determines there is not a legal obligation to remit the unredeemed gift card balance to the relevant jurisdiction. The determination of the gift card breakage rate is based upon the Company's specific historical redemption patterns. The Company recognizes gift card breakage by applying its estimate of the rate of gift card breakage on a pro rata basis over the period of estimated redemption.
Other revenue consists of miscellaneous revenues considered insignificant to the Company's business.
Cash and Cash Equivalents - The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Amounts receivable from credit card issuers are typically converted to cash within two days to four days of the original sales transaction and are considered to be cash equivalents.
Cash and cash equivalents are maintained with multiple financial institutions. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions with reputable credit and therefore bear minimal credit risk. The Company holds cash and cash equivalents at financial institutions in excess of amounts covered by the Federal Depository Insurance Corporation (the "FDIC") and sometimes invests excess cash in money market funds not insured by the FDIC. The Company periodically assesses the credit risk associated with these financial institutions and believes that the risk of loss is minimal.
Accounts Receivable, Net - Accounts receivable, net consists primarily of third party gift card receivables, third party delivery partner receivables, trade receivables due from franchisees for royalties and advertising fund contributions, and tenant improvement allowances. At the end of 2021, there was approximately $10.9 million of gift card receivables in accounts receivable related to gift cards that were sold by third party retailers compared to $7.6 million at the end of 2020. At the end of
2021, there was also approximately $3.0 million related to third party delivery partners in accounts receivable compared to approximately $4.0 million at the end of 2020.
Inventories - Inventories consist of food, beverages, and supplies valued at the lower of cost (first-in, first-out method) or net realizable value. At the end of 2021 and 2020, food and beverage inventories were $8.7 million and $6.8 million, respectively, and supplies inventories were $16.4 million and $17.0 million, respectively.
Property and Equipment, Net - Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are expensed as incurred. Depreciation is computed on the straight-line method based on the shorter of the estimated useful lives or the terms of the underlying leases of the related assets. Interest incurred on funds used to construct Company-owned restaurants is capitalized and amortized over the estimated useful life of the related assets.
The estimated useful lives for property and equipment are:
| | | | | |
Buildings | 5 years to 20 years |
Leasehold improvements | Shorter of lease term or estimated useful life, not to exceed 20 years |
Furniture, fixtures and equipment | 5 years to 20 years |
Computer equipment | 2 years to 5 years |
The Company capitalizes certain overhead related to the development and construction of its new restaurants as well as certain information technology infrastructure upgrades. Costs incurred for the potential development of restaurants that are subsequently terminated are expensed.
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.
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 of 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.
We elected the practical expedient that does not require us to separate lease and non-lease components for our population of real estate assets.
Intangible Assets, net - Intangible assets comprise primarily leasehold interests, acquired franchise rights, and the costs of purchased liquor licenses. Leasehold interests primarily represent the fair values of acquired lease contracts having contractual rents lower than fair market rents and are amortized on a straight-line basis over the remaining initial lease term. Acquired franchise rights, which represent the acquired value of franchise contracts, are amortized over the term of the franchise agreements. The costs of obtaining non-transferable liquor licenses from local government agencies are capitalized and generally amortized over a period of up to 20 years. The costs of purchasing transferable liquor licenses through open markets in jurisdictions with a limited number of authorized liquor licenses are capitalized as indefinite-lived intangible assets.
Liquor licenses with indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on prices in the open market for license in same or similar jurisdictions. Impairment charges of $0.5 million were recorded related to indefinite-lived intangibles in 2021. No impairment charges were recorded in 2020, or 2019.
Impairment of Long-Lived Assets - The Company reviews its long-lived assets, including restaurant sites, leasehold improvements, information technology systems, right of use assets, other fixed assets, and amortizable intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future undiscounted net cash flows expected to be generated by the assets. Identifiable cash flows are measured at the lowest level for which they are largely independent of the cash flows of other groups of assets and liabilities, generally at the restaurant level. If the assets are determined to be impaired, the amount of impairment recognized is the amount by which the carrying amount of the assets exceeds their fair value. Fair value is generally determined using forecasted cash flows discounted using an estimated weighted average cost of capital. Management may also utilize other market information to determine fair value when relevant information is available, such as market rent, when available, to estimate the fair value of a restaurant. Restaurant sites and other assets to be disposed of are reported at the lower of their carrying amount or fair value, less estimated costs to sell. Information technology systems, such as internal-use computer software, are reviewed and tested for recoverability if the internal-use computer software is not expected to provide substantive service potential, a significant change occurs in the extent or manner in which the software is used or is expected to be used, a significant change is made or will be made to the software program, or costs of developing or modifying internal-use software significantly exceed the amount originally expected to develop or modify the software.
Other Assets, net - Other assets, net consist primarily of assets related to various deposits, the employee deferred compensation plan, and unamortized debt issuance costs on the credit facility. Debt issuance costs are capitalized and amortized to interest expense on a straight-line basis which approximates the effective interest rate method over the term of the Company's long-term debt.
Advertising - Under the Company's franchise agreements, both the Company and the franchisees must contribute up to 3.0% of revenues to two national media advertising funds (the "Advertising Funds"). These Advertising Funds are used to build the Company's brand equity and awareness primarily through a national marketing strategy, including national television advertising, digital media, social media programs, email, loyalty, and public relations initiatives. Contributions to these Advertising Funds from franchisees are recorded as revenue under Franchise revenue in the consolidated statements of operations and comprehensive loss in accordance with ASC Topic 606, Revenue from Contracts with Customers.
Total advertising costs of $34.3 million, $24.9 million, and $44.3 million in 2021, 2020, and 2019 and were included in Selling, general, and administrative expenses.
Advertising production costs are expensed in the period when the advertising first takes place. Other advertising costs are expensed as incurred.
Self-Insurance Programs - The Company utilizes a self-insurance plan for health, general liability, and workers' compensation coverage. Predetermined loss limits have been arranged with insurance companies to limit the Company's per occurrence cash outlay. Accrued liabilities and other current liabilities and accrued payroll and payroll-related liabilities include the estimated cost to settle reported claims and incurred but unreported claims.
Legal Contingencies - In the normal course of business, we are subject to various legal proceedings and claims, the outcomes of which are uncertain. We record an accrual for legal contingencies when we determine it is probable that we have incurred a liability and we can reasonably estimate the amount of the loss. In making such determinations we evaluate, among other things, the probability of an unfavorable outcome, and when we believe it probable that a liability has been incurred, our ability to make a reasonable estimate of the loss.
Pre-opening Costs - Pre-opening costs are expensed as incurred. Pre-opening costs include rental expenses through the date of opening for each restaurant, travel expenses, wages, and benefits for the training and opening teams, as well as food, beverage, and other restaurant opening costs incurred prior to a restaurant opening for business. Costs related to preparing restaurants to introduce Donatos® will be expensed as incurred and included in pre-opening costs.
Income Taxes - Deferred tax liabilities are recognized for the estimated effects of all taxable temporary differences, and deferred tax assets are recognized for the estimated effects of all deductible temporary differences, net operating losses, and tax credit carryforwards. Realization of net deferred tax assets is dependent upon profitable operations and future reversals of existing taxable temporary differences. However, the amount of the deferred tax assets considered realizable could be adjusted if estimates of future taxable income during the carry forward period are increased or reduced or if there are differences in the timing or amount of future reversals of existing taxable temporary differences.
Pursuant to the guidance for uncertain tax positions, a taxpayer must be able to more likely than not sustain a position to recognize a tax benefit, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. The Company has analyzed filing positions in all of the federal, state, and foreign jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The only periods subject to examination for the Company's federal and state returns are the 2017 through 2021 tax years.
The Company records interest and penalties associated with audits as a component of income before taxes. Penalties are recorded in Selling, general, and administrative expenses, interest received is recorded in Interest income and other, net, and interest paid is recorded in Interest expense on the consolidated statements of operations and comprehensive loss. The Company recorded immaterial interest expense on the identified tax liabilities in 2021, 2020, and 2019. Approximately $1.1 million of interest income was recorded related to the $49.4 million federal cash tax refund received during the fourth quarter of 2020.
Loss Per Share - Basic loss per share amounts are calculated by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted loss per share amounts are calculated based upon the weighted average number of common and potentially dilutive common shares outstanding during the year. 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 and awards exercised their holdings into common stock. As the Company was in a net loss position for the fifty-two week period ended December 26, 2021, December 27, 2020, and December 29, 2019, all potentially dilutive common shares are considered anti-dilutive.
The Company uses the treasury stock method to calculate the impact of outstanding stock options and awards. Basic weighted average shares outstanding is reconciled to diluted weighted average shares outstanding for the fiscal years ended December 26, 2021, December 27, 2020, and December 29, 2019 as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Basic weighted average shares outstanding | 15,660 | | | 14,314 | | | 12,959 | |
Dilutive effect of stock options and awards | — | | | — | | | — | |
Diluted weighted average shares outstanding | 15,660 | | | 14,314 | | | 12,959 | |
| | | | | |
Awards excluded due to anti-dilutive effect on diluted earnings per share | 875 | | | 489 | | | 378 | |
Comprehensive Loss - Total comprehensive loss consists of the net loss and other gains and losses affecting stockholders' equity that, under U.S. GAAP, are excluded from net income. Other comprehensive (loss) income as presented in the consolidated statements of operations and comprehensive loss for 2021, 2020, and 2019 consisted of the foreign currency translation adjustment resulting from the Company's Canadian franchise operations.
Stock-Based Compensation - The Company maintains several equity incentive plans under which it may grant stock options, stock appreciation rights, restricted stock, stock variable compensation, or other forms of awards granted or denominated in the Company's common stock or units of the Company's common stock, as well as cash variable compensation awards to employees, non-employees, directors, and consultants. The Company also maintains an employee stock purchase plan. The Company issues shares relating to stock-based compensation plans and the employee stock purchase plan from treasury shares. We recognize compensation expenses for only the portion of share-based awards that are expected to vest. Therefore, we apply estimated forfeiture rates that are derived from our historical forfeitures of similar awards when a Team Member leaves the Company.
Deferred Compensation - The Company has assets and liabilities related to a deferred compensation plan. The assets of the deferred compensation plan are held in a rabbi trust, where they are invested in certain mutual funds that cover an investment spectrum range from equities to money market instruments. Fluctuations in the market value of the investments held in the trust result in the recognition of deferred compensation expense or income reported in Selling, general, and administrative expenses and recognition of investment gain or loss reported in Interest income and other, net, in the consolidated statements of operations and comprehensive loss.
Foreign Currency Translation - The Canadian Dollar is the functional currency for our Canadian franchise operations. Assets and liabilities denominated in Canadian Dollars are translated into U.S. Dollars at exchange rates in effect as of the balance sheet date. Income and expense accounts are translated using the average exchange rates prevailing throughout the period. The resulting translation adjustment is recorded as a separate component of Other comprehensive (loss) income. Gain or loss from foreign currency transactions is recognized in our consolidated statements of operations and comprehensive loss at the exchange rate in effect as of the date of the transaction.
During the fourth quarter of 2020, the Company substantially completed the exit of Company-owned restaurants in Canada resulting in the removal of the accumulated currency translation adjustment as a component of stockholders' equity and the recognition in Other charges on the consolidated statements of operations and comprehensive loss totaling a loss of $5.5 million.
Impact of COVID-19 Pandemic - The COVID-19 pandemic continues to create unprecedented challenges for our industry including government mandated restrictions, changing consumer behavior, labor and supply chain challenges, and wide spread inflationary costs. Even as government restrictions were lifted, and dining rooms returned to full capacity, the surge in the Delta and Omicron variants continued to highlight the critical importance of providing a safe environment for our Team Members and Guests.
In response to these COVID-19 challenges, the Company limited dining hours and seating capacity in order to preserve the consistent quality experience our Guests expect from us. Our ability to attract and retain Team Members has become more challenging in the current competitive job market. The challenges in hiring and retention and global supply chain disruptions have affected many of our vendor partners, resulting in intermittent product and distribution shortages.
We remain focused on proactively addressing these industry challenges, while delivering a memorable Guest experience and continuing to prioritize the satisfaction and retention of our Team Members.
2. Recent Accounting Pronouncements
Reference Rate Reform
In March 2020, FASB issued Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This update provides temporary optional expedients to applying the reference rate reform guidance to contracts that reference LIBOR or another reference rate expected to be discontinued. Under this update, contract modifications resulting in a new reference rate may be accounted for as a continuation of the existing contract. This guidance is effective upon issuance of the update and applies to contract modifications made through December 31, 2022. We are currently evaluating the 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 consolidated financial statements.
3. Revenue
Disaggregation of Revenue
In the following table, revenue is disaggregated by type of good or service (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 26, 2021 | | December 27, 2020 | | December 29, 2019 |
Restaurant revenue | | $ | 1,137,733 | | | $ | 854,136 | | | $ | 1,289,521 | |
Franchise revenue(1) | | 17,236 | | | 8,853 | | | 17,497 | |
Gift card breakage | | 5,373 | | | 4,516 | | | 6,776 | |
Other revenue | | 1,736 | | | 1,210 | | | 1,220 | |
Total revenues | | $ | 1,162,078 | | | $ | 868,715 | | | $ | 1,315,014 | |
———————————————————
(1) The decrease in Franchise revenue during 2020 was driven by the Company temporary abating franchise payments during the onset of the COVID-19 pandemic.
Contract Liabilities
Components of Unearned revenue in the consolidated balance sheets are as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 26, 2021 | | December 27, 2020 |
Unearned gift card revenue | | $ | 41,128 | | | $ | 38,309 | |
Deferred loyalty revenue | | $ | 13,086 | | | $ | 11,829 | |
Revenue recognized in the 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): | | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 26, 2021 | | December 27, 2020 | | December 29, 2019 |
Gift card revenue | | $ | 14,249 | | | $ | 16,385 | | | $ | 19,941 | |
4. Other Charges
Other charges consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 26, 2021 | | December 27, 2020 | | December 29, 2019 |
Restaurant closures and refranchising costs (gains) | | $ | 6,276 | | | $ | 19,846 | | | $ | (1,187) | |
Asset impairment | | 7,052 | | | 26,940 | | | 15,094 | |
Litigation contingencies | | 1,330 | | | 6,440 | | | — | |
COVID-19 related costs | | 1,288 | | | 1,858 | | | — | |
Board and shareholder matter costs | | 128 | | | 2,504 | | | 3,261 | |
Goodwill impairment | | — | | | 95,414 | | | — | |
Severance and executive transition | | — | | | 881 | | | 3,450 | |
Executive retention | | — | | | — | | | 980 | |
| | | | | | |
| | | | | | |
Other charges | | $ | 16,074 | | | $ | 153,883 | | | $ | 21,598 | |
Restaurant Closure and Refranchising Costs (Gains)
Restaurant closure costs represent costs incurred for permanently closed restaurants, including lease termination costs, as well as the ongoing restaurant operating costs of Company-owned restaurants that remained temporarily closed due to the COVID-19 pandemic.
During 2020, the Company temporarily closed 35 restaurants due to the onset of the COVID-19 pandemic. During periods of temporary closure, restaurant operating and occupancy costs were included in Restaurant closures and refranchising costs. The table below shows the disposition of these restaurants:
| | | | | | | | |
| | (Restaurants) |
Restaurants Temporarily closed in March, 2020 as a result of the COVID-19 Pandemic: | | 35 |
Temporarily closed restaurants re-opened in 2020: | | 17 |
Temporarily closed restaurants permanently closed in 2020: | | 6 |
Restaurants temporarily closed as of December 27, 2020: | | 12 |
Temporarily closed restaurants re-opened in 2021: | | 1 |
Temporarily closed restaurants permanently closed in 2021: | | 10 |
Restaurants temporarily closed as of December 26, 2021(1): | | 1 |
(1) The Company intends to re-open the remaining temporarily closed restaurant in the first fiscal quarter of 2022.
During 2021, the Company permanently closed 14 restaurants. Ten of these restaurants were initially temporarily closed due to COVID-19 in 2020.
During 2020, the Company permanently closed 11 restaurants. Six of these restaurants were initially temporarily closed due to COVID-19. Due to permanent closure of certain restaurants during 2020, we impaired long-lived assets at six of the 11 permanently closed restaurants totaling $5.7 million.
Additionally, during 2020, the Company substantially completed the exit of Company-owned restaurants in Canada and accordingly recognized the accumulated currency translation adjustment as a loss in Other charges on the consolidated statements of operations and comprehensive loss totaling $5.5 million.
During 2019, the Company closed 18 restaurants resulting in a gain of $1.2 million. The gain is driven by early lease terminations on previously closed restaurants.
Asset Impairment
During 2021, the Company determined long-lived assets at ten locations were impaired and recognized non-cash impairment charges of $6.4 million primarily related to the impairment of the long-lived assets associated with our excess properties.
Additionally, the Company recognized $0.5 million of non-cash impairment charges related to the impairment of long lived intangible assets related to quota state liquor licenses at seven locations.
During 2020, the Company impaired long-lived assets of 40 Company-owned restaurants and recognized non-cash impairment charges of $21.7 million. Additionally, the Company impaired information technology assets totaling $5.2 million due to the COVID-19 pandemic redirecting our implementation of certain digital platforms in order to accelerate our speed to market.
During 2019, the Company impaired long-lived assets of 29 Company-owned restaurants and recognized non-cash impairment charges of $15.1 million.
Litigation Contingencies
In 2021 and 2020, the Company recorded $1.3 million and $6.4 million, respectively, of contingencies related to litigation matters. See Note 13, Commitments and Contingencies, for further discussion.
COVID-19 Related Costs
In 2021 and 2020, the Company recorded $1.3 million and $1.9 million of costs, respectively, related to purchasing personal protective equipment for restaurant Team Members and Guests and providing emergency sick pay to restaurant Team Members during the pandemic.
Board and Stockholder Matters Costs
During 2021, the Company recorded an immaterial amount of board and stockholder matters costs.
During 2020, the Company recorded $2.5 million of board and stockholder matters costs primarily related to the shareholder rights plan and the recruitment and appointment of a new board member in the first quarter of 2020.
During 2019, the Company recorded $3.3 million of board and stockholder matters costs primarily related to the recruitment and appointment of the three new board members and the adoption of a shareholder rights plan.
Goodwill Impairment
The Company recognized full goodwill impairment during the first quarter of 2020 totaling $95.4 million resulting from the negative effects of COVID-19 on our business.
Severance and Executive Transition
During 2020, the Company recorded $0.9 million of severance and executive transition costs primarily related to severance costs associated with the reduction in force of restaurant support center Team Members in the first quarter of 2020.
During 2019, the Company recorded $3.5 million of severance and executive transition costs primarily related to the transition and realignment of our executive team, including the appointment of a new CEO in the third quarter of 2019.
Executive Retention
During 2019, the Company recorded $1.0 million of executive retention costs related to payments made to retain executive leadership believed to be critical to the ongoing operation of the Company during the uncertainty created following the retirement of our CEO in early April 2019 and throughout the subsequent transition period.
5. Property and Equipment, Net
Property and equipment consist of the following at December 26, 2021 and December 27, 2020 (in thousands):
| | | | | | | | | | | |
| December 26, 2021 | | December 27, 2020 |
Land | $ | 41,850 | | | $ | 41,850 | |
Buildings | 98,675 | | | 97,550 | |
Leasehold improvements | 684,235 | | | 682,449 | |
Furniture, fixtures, and equipment | 405,387 | | | 403,051 | |
Construction in progress | 8,866 | | | 5,086 | |
Property and equipment, gross | $ | 1,239,013 | | | $ | 1,229,986 | |
Accumulated depreciation and amortization | (852,677) | | | (802,953) | |
Property and equipment, net | $ | 386,336 | | | $ | 427,033 | |
Depreciation and amortization expense on property and equipment was $80.5 million in 2021, $83.2 million in 2020, and $87.4 million in 2019.
On January 25, 2022 the Company entered into a purchase and sale agreement to sell a location where the Company owns the real estate, contingent upon the completion of customary due diligence. If completed, this sale will result in a material gain during 2022.
6. Intangible Assets
The following table presents intangible assets as of December 26, 2021 and December 27, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 26, 2021 | | December 27, 2020 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets subject to amortization: | | | | | | | | | | | | |
Franchise rights | | $ | 49,328 | | | $ | (38,662) | | | $ | 10,666 | | | $ | 49,972 | | | $ | (36,815) | | | $ | 13,157 | |
Leasehold interests | | 13,001 | | | (9,681) | | | 3,320 | | | 13,001 | | | (9,254) | | | 3,747 | |
Liquor licenses and other | | 9,670 | | | (9,364) | | | 306 | | | 9,714 | | | (9,364) | | | 350 | |
| | $ | 71,999 | | | $ | (57,707) | | | $ | 14,292 | | | $ | 72,687 | | | $ | (55,433) | | | $ | 17,254 | |
Indefinite-lived intangible assets: | | | | | | | | | | | | |
Liquor licenses and other | | $ | 7,000 | | | $ | — | | | $ | 7,000 | | | $ | 7,460 | | | $ | — | | | $ | 7,460 | |
Intangible assets, net | | $ | 78,999 | | | $ | (57,707) | | | $ | 21,292 | | | $ | 80,147 | | | $ | (55,433) | | | $ | 24,714 | |
Immaterial impairment charges were recorded related to finite-lived intangibles resulting from the continuing and projected future results at Company-owned restaurants in 2021, 2020, and 2019. Impairment charges of $0.5 million were recorded related to indefinite-lived intangibles in 2021. No impairment charges were recorded related to indefinite-lived intangibles in 2020, and 2019.
The aggregate amortization expense related to intangible assets subject to amortization for 2021, 2020, and 2019 was $2.9 million, $4.4 million, and $4.4 million.
The estimated aggregate future amortization expense as of December 26, 2021 is as follows (in thousands):
| | | | | | | | |
2022 | | $ | 2,499 | |
2023 | | 2,362 | |
2024 | | 2,117 | |
2025 | | 1,777 | |
2026 | | 1,464 | |
Thereafter | | 4,073 | |
| | $ | 14,292 | |
7. Accrued Payroll and Payroll-Related Liabilities, and Accrued Liabilities and Other Current Liabilities
Accrued payroll and payroll-related liabilities consist of the following at December 26, 2021 and December 27, 2020 (in thousands):
| | | | | | | | | | | |
| December 26, 2021 | | December 27, 2020 |
Payroll and payroll-related taxes | $ | 15,290 | | | $ | 11,327 | |
Workers compensation insurance | 5,079 | | | 4,943 | |
Corporate and restaurant incentive compensation | 5,624 | | | 4,776 | |
Accrued vacation | 4,439 | | | 4,283 | |
Other | 2,152 | | | 2,324 | |
Accrued payroll and payroll-related liabilities | $ | 32,584 | | | $ | 27,653 | |
Accrued liabilities and other current liabilities consist of the following at December 26, 2021 and December 27, 2020 (in thousands):
| | | | | | | | | | | |
| December 26, 2021 | | December 27, 2020 |
CARES act deferred payroll tax | $ | 8,780 | | | $ | — | |
State and city sales tax payable | 6,960 | | | 3,487 | |
Real estate, personal property, state income, and other taxes payable | 6,696 | | | 6,501 | |
General liability insurance | 4,984 | | | 6,370 | |
Utilities | 2,569 | | | 2,747 | |
Legal | 2,455 | | | 10,480 | |
Accrued marketing | 2,108 | | | 282 | |
Current portion of finance lease liabilities | 1,194 | | | 1,078 | |
Other | 9,712 | | | 9,750 | |
Accrued liabilities and other current liabilities | $ | 45,458 | | | $ | 40,695 | |
8. Borrowings
Borrowings as of December 26, 2021 and December 27, 2020 are summarized below:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 26, 2021 | | December 27, 2020 |
(Dollars in thousands) | Borrowings | | Weighted Average Interest Rate | | Borrowings | | Weighted Average Interest Rate |
Revolving credit facility, term loan, and other long-term debt | $ | 176,955 | | | 7.10 | % | | $ | 170,644 | | | 4.50 | % |
Total debt | 176,955 | | | | | 170,644 | | | |
Less current portion | 9,692 | | | | | 9,692 | | | |
Long-term debt | $ | 167,263 | | | | | $ | 160,952 | | | |
Maturities of long-term debt as of December 26, 2021 are as follows (in thousands):
| | | | | |
2022 | $ | 9,692 | |
2023 | 166,388 | |
2024 | — | |
2025 | — | |
2026 | — | |
Thereafter | 875 | |
| $ | 176,955 | |
Credit Facility
As of December 26, 2021, the Company had outstanding borrowings under the credit facility of $176.1 million, in addition to amounts issued under letters of credit of $7.9 million. As of December 27, 2020, the Company had outstanding borrowings under the credit facility of $169.8 million, in addition to amounts issued under letters of credit of $8.7 million. The amounts issued under letters of credit reduce the amount available under the credit facility but are not recorded as debt. As of December 26, 2021 and December 27, 2020, the current portion of long-term borrowings under the credit facility totaled $9.7 million.
As of December 26, 2021, our credit facility primarily consisted of a $119.1 million dollar term loan, and a $57.0 million revolving line of credit. The term loan requires quarterly principal payments at a rate of 7.0% per annum of the original principal balance. The term loan and revolving line of credit bear interest at LIBOR with a floor of 1.0%, plus a spread of 6.0%, and both the term loan and the revolving line of credit mature on January 10, 2023.
Borrowings under the credit facility are secured by substantially all of the assets of the Company and are available to: (i) refinance certain existing indebtedness of the Company and its subsidiaries, (ii) finance restaurant construction costs, (iii) pay costs, fees, and expenses in connection with such new restaurant construction, (iv) pay any fees and expenses in connection with the credit facility, and (v) provide for the working capital and general corporate requirements of the Company, including permitted acquisitions and the redemption of capital stock. Restrictions on how borrowings are used by the Company are in place per requirements set forth by our lenders.
The Company was subject to a number of customary covenants under the credit facility, including limitations on additional borrowings, acquisitions, capital expenditures, share repurchases, lease commitments, dividend payments, and requirements to maintain certain financial ratios including the lease adjusted leverage ratio and fixed charge coverage ratio. However, the Third Amendment provided certain covenant relief to the Company through the end of 2021. Our debt covenant assessment is based on inputs subject to various risks and uncertainties caused by the COVID-19 pandemic, including forecasted revenues, expenses, and cash flows, current discount rates, growth rates, observable market data, and changes to the regulatory environment.
Third Amendment
In response to the continued uncertainty around the impact of industry labor and supply chain challenges as well as the COVID-19 Delta variant, the Company amended its current credit facility on November 9, 2021 (the "Third Amendment") to obtain additional flexibility to continue to implement our business strategy. The Third Amendment further amended the Company’s credit facility to, among other things:
•waive the application of the lease adjusted leverage ratio financial covenant (the "Leverage Ratio Covenant") for the third fiscal quarter of 2021
•increase the maximum leverage permitted for purposes of the Leverage Ratio Covenant for the fourth fiscal quarter of 2021 and the first, second and third fiscal quarters of 2022, with the definition of the Leverage Ratio Covenant also being amended to provide that it shall not be calculated on a basis that gives effect to a seasonally adjusted annualized consolidated EBITDA in future periods;
•decrease the minimum fixed charge coverage ratio required for purposes of the fixed charge coverage ratio financial covenant (the “FCCR Covenant”) for the first fiscal quarter of 2022, with the definition of the FCCR Covenant also being amended to account for cash tax refunds received in any future period and certain capital expenditures constituting "Expansion Capital Expenditures" being excluded from the calculation thereof;
•decrease the minimum liquidity required for purposes of the minimum liquidity covenant and provide for the testing of such minimum liquidity covenant at all times;
•make certain amendments to the Credit Facility to (i) provide that certain additional capital expenditures shall constitute "Expansion Capital Expenditures" and (ii) provide that "Expansion Capital Expenditures" shall be permitted for all periods on or prior to the last day of the fiscal quarter of the Company ending on or about October 2, 2022, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) such "Expansion Capital Expenditures" do not exceed certain agreed amounts in each fiscal quarter (with carryforward of unused amounts to the immediately succeeding fiscal quarter), and, for all periods thereafter, so long as (1) there is no default or event of default, (2) on a pro forma basis, Liquidity shall exceed a certain amount and (3) on a pro forma basis, lease adjusted leverage ratio shall not exceed 5.00x;
•increase the pricing under the Credit Facility for (a) the period from the Third Amendment Effective Date through the first interest determination date occurring after the last day of the fiscal quarter of the Company ending on or about
April 17, 2022 to LIBOR (subject to a 1% floor) plus 6.00% and (b) periods thereafter to LIBOR (to which a 1% LIBOR floor shall apply) plus 6.50%;
•provide that the previously agreed utilization fee of 0.75% per annum of the daily outstanding principal amount of term loans, revolving loans, swingline loans and letter of credit obligations under the Credit Facility shall be owing solely in respect of the period commencing on February 25, 2021 and ending on the Third Amendment Effective Date, with all such amounts payable on the Third Amendment Effective Date;
•reduce the aggregate revolving commitment to $75.0 million on the last day of the fiscal quarter of the Company ending on or about April 17, 2022;
•amend the anti-cash hoarding provision to require revolver repayments (but with no associated permanent reduction in the revolving commitment) to the extent that the Company’s consolidated cash on hand exceeds $30.0 million at any time;
•revise the requirement that the annual audited financial statements be delivered without a "going concern qualification" to permit such a qualification solely relating to (i) any impending debt maturity (whether under the Credit Facility or otherwise) or (ii) any actual or prospective inability to satisfy a financial maintenance covenant; and
•make certain amendments to the Credit Facility to address LIBOR transition matters.
The description above is a summary of the Third Amendment and is qualified in its entirety by the complete text of the agreement. In conjunction with the Second Amendment to the Amended and Restated Credit Facility (the "Second Amendment") on February 25, 2021 and Third Amendment, the Company paid certain customary amendment fees to the lenders under the Credit Facility totaling approximately $0.6 million and $0.8 million respectively, which will be capitalized as deferred loan fees and amortized over the remaining term of the Credit Facility.
During 2021, the Company expensed approximately $1.7 million of deferred financing charges related to calculated reductions in total borrowing capacity of the revolver associated with the Second and Third Amendments. The $1.7 million is included in interest expense on the Consolidated Statements of Operations and Comprehensive Loss for the year ended December 26, 2021.
New Credit Facility
On March 4, 2022, the Company replaced its Prior Credit Agreement with a new Credit Agreement (the "Credit Agreement") by and among the Company Red Robin International, Inc., as the borrower, the lenders from time to time party thereto, the issuing banks from time to time party thereto, Fortress Credit Corp., as Administrative Agent and as Collateral Agent and JPMorgan Chase Bank, N.A., as Sole Lead Arranger and Sole Bookrunner. The five-year $225.0 million Credit Agreement provides for a $25.0 million revolving line of credit and a $200.0 million term loan. The borrower maintains the option to increase the credit facility in the future, subject to lenders’ participation, by up to an additional $40.0 million in the aggregate on the terms and conditions set forth in the Credit Agreement.
The new credit facility will mature on March 4, 2027. No amortization is required with respect to the revolving credit facility. The term loans require quarterly principal payments in an aggregate annual amount equal to 1.0% of the original principal amount of the term loan. The new facility's interest rate references the Secured Overnight Financing Rate ("SOFR"), a new index calculated by short-term repurchase agreements and backed by U.S. Treasury securities, or the Alternate Base Rate ("ABR"), which represents the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% per annum, or (c) one-month term SOFR plus 1.00% per annum.
Red Robin International, Inc. is the borrower under the Credit Agreement, and certain of its subsidiaries and the Company are guarantors of borrower’s obligations under the Credit Agreement. Borrowings under the Credit Agreement are secured by substantially all of the assets of the borrower and the guarantors, including the Company, and are available to: (i) refinance certain existing indebtedness of the borrower and its subsidiaries, (ii) pay any fees and expenses in connection with the Credit Agreement, and (iii) provide for the working capital and general corporate requirements of the Company, the borrower and its subsidiaries, including permitted acquisitions and capital expenditures, but excluding restricted payments.
On March 4, 2022, Red Robin International, Inc., the Company, and the guarantors also entered into a Pledge and Security Agreement (the “Security Agreement”) granting to the Administrative Agent a first priority security interest in substantially all of the assets of the borrower and the guarantors to secure the obligations under the Credit Agreement. This new Security Agreement replaces the existing security agreement, dated January 10, 2020, which was entered into in connection with the Prior Credit Agreement.
Red Robin International, Inc. as the borrower is obligated to pay customary fees to the agents, lenders and issuing banks under the Credit Agreement with respect to providing, maintaining, or administering, as applicable, the credit facilities.
The summary descriptions of the Credit Agreement and the Security Agreement do not purport to be complete and are qualified in their entirety by reference to the full text of the Credit Agreement and the Security Agreement, respectively.
9. Fair Value Measurements
Fair value measurements are made under a three-tier fair value hierarchy, which prioritizes the inputs used in the measuring of fair value:
Level 1: Observable inputs that reflect unadjusted quote prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management's best estimate of fair value.
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 current liabilities approximate fair value due to the short-term nature or maturity of the instruments.
The Company maintains a rabbi trust to fund obligations under a deferred compensation plan. See Note 15, Employee Benefit Programs. Amounts in the rabbi trust are invested in mutual funds, which are designated as trading securities and carried at fair value and are included in Other assets, net in the accompanying consolidated balance sheets. Fair market value of mutual funds is measured using level 1 inputs (quoted prices for identical assets in active markets).
The following tables present the Company's assets measured at fair value on a recurring basis as of December 26, 2021 and December 27, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 26, 2021 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Investments in rabbi trust | | $ | 6,276 | | | $ | 6,276 | | | $ | — | | | $ | — | |
Total assets measured at fair value | | $ | 6,276 | | | $ | 6,276 | | | $ | — | | | $ | — | |
| | | | | | | | |
| | December 27, 2020 | | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | | |
Investments in rabbi trust | | $ | 6,740 | | | $ | 6,740 | | | $ | — | | | $ | — | |
Total assets measured at fair value | | $ | 6,740 | | | $ | 6,740 | | | $ | — | | | $ | — | |
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, right of use assets, and other intangible assets. These assets are measured at fair value if determined to be impaired.
During 2021, 2020, and 2019, the Company measured non-financial assets for impairment using continuing and projected future cash flows, as discussed in Note 4, Other Charges, which were based on significant inputs not observable in the market and thus represented a level 3 fair value measurement.
Based on our 2021, 2020 and 2019 impairment analyses, we impaired long-lived assets at ten, 40 and 29 locations with carrying values of $13.7 million, $67.3 million, and $17.3 million. We determined the fair value of these long-lived assets in 2021, 2020, and 2019 to be $7.2 million, $34.7 million and $2.2 million based on level 3 fair value measurements.
Liquor licenses with indefinite lives are reviewed for impairment annually or whenever events or changes in circumstances indicate the carrying amount may not be recoverable. If the carrying amount is not recoverable, we record an impairment charge for the excess of the carrying amount over the fair value. We determine fair value based on quoted prices in the active market for the license in the same or similar jurisdictions, representing a level 1 fair value measurement. During the fourth quarter of 2021, the Company performed its annual review of its indefinite lived liquor licenses that had a carrying value of $7.2 million, and recorded impairment charges of $0.5 million to indefinite-lived intangibles in 2021. No impairment charges were recorded to liquor licenses with indefinite lives in 2020, or 2019.
Disclosures of Fair Value of Other Assets and Liabilities
The Company's liability under its credit facility is carried at historical cost in the accompanying consolidated balance sheets. The carrying value approximated the fair value of the credit facility as of December 26, 2021 and December 27, 2020, as the interest rate on the instrument approximated current market rates. The interest rate on the credit facility represents a level 2 fair value input.
10. Leases
The Company's finance and operating lease assets and liabilities as of December 26, 2021 and December 27, 2020 as follows (in thousands):
| | | | | | | | | | | | | | | | |
December 26, 2021 | | Finance(1) | | Operating(2) | | |
Lease assets, net(3) | | $ | 9,664 | | | $ | 400,825 | | | |
| | | | | | |
Current portion of lease obligations | | 1,194 | | | 48,842 | | | |
Long-term portion of lease obligations | | 10,765 | | | 435,136 | | | |
Total | | $ | 11,959 | | | $ | 483,978 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our December 26, 2021 and December 27, 2020 Consolidated Balance Sheets.
(2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our December 26, 2021 and December 27, 2020 Consolidated Balance Sheets.
(3) The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets.
| | | | | | | | | | | | | | | | |
December 27, 2020 | | Finance(1) | | Operating(2) | | |
Lease assets, net(3) | | $ | 9,644 | | | $ | 415,929 | | | |
| | | | | | |
Current portion of lease obligations | | 1,078 | | | 54,197 | | | |
Long-term portion of lease obligations | | 10,937 | | | 454,296 | | | |
Total | | $ | 12,015 | | | $ | 508,493 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
(1) Finance lease assets and obligations are included in Other assets, net, Accrued liabilities and other current liabilities, and Other non-current liabilities on our December 26, 2021 and December 27, 2020 Consolidated Balance Sheets.
(2) Operating lease assets and obligations are included in Operating lease assets, net, Current portion of operating lease liabilities, and Long-term portion of operating lease liabilities on our December 26, 2021 and December 27, 2020 Consolidated Balance Sheets.
(3) The Lease assets, net caption includes the right of use assets associated with the Company's Finance and Operating leases, net of the associated amortization of these right of use assets.
The components of lease expense, including variable lease costs primarily consisting of common area maintenance charges and real estate taxes, are included in Occupancy on our consolidated statements of operations and comprehensive loss as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 26, 2021 | | December 27, 2020 | | December 29, 2019 |
Operating lease cost | | $ | 70,000 | | | $ | 67,320 | | | $ | 75,496 | |
Finance lease cost: | | | | | | |
Amortization of right of use assets | | 856 | | | 845 | | | 793 | |
Interest on lease liabilities (4) | | 532 | | | 534 | | | 544 | |
Total finance lease cost | | $ | 1,388 | | | $ | 1,379 | | | $ | 1,337 | |
Variable lease cost | | 19,812 | | | 24,482 | | | 29,300 | |
Total lease costs | | $ | 91,200 | | | $ | 93,181 | | | $ | 106,133 | |
(4) Interest on finance lease liabilities is recorded to interest expense in our consolidated statements of operations and comprehensive loss.
Maturities of our lease liabilities as of December 26, 2021 were as follows (in thousands):
| | | | | | | | | | | | | |
| Finance Leases | | Operating Leases | | |
2022 | $ | 1,716 | | | $ | 80,361 | | | |
2023 | 1,244 | | | 76,626 | | | |
2024 | 1,264 | | | 74,898 | | | |
2025 | 1,283 | | | 70,282 | | | |
2026 | 1,345 | | | 64,153 | | | |
Thereafter | 8,169 | | | 314,998 | | | |
Total future lease liability | $ | 15,021 | | | $ | 681,318 | | | |
Less imputed interest | 3,062 | | | 197,340 | | | |
Present value of lease liability | $ | 11,959 | | | $ | 483,978 | | | |
Supplemental cash flow information in thousands (except other information) related to leases is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 26, 2021 | | December 27, 2020 | | December 29, 2019 |
Cash flows from operating activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Operating leases | | $ | 81,520 | | | $ | 47,164 | | | $ | 78,260 | |
Finance leases | | 532 | | | 534 | | | 512 | |
Cash flows from financing activities | | | | | | |
Cash paid related to lease liabilities | | | | | | |
Finance leases | | 1,733 | | | 270 | | | 817 | |
Cash paid for amounts included in the measurement of lease liabilities | | $ | 83,785 | | | $ | 47,968 | | | $ | 79,589 | |
| | | | | | |
Right of use assets obtained in exchange for operating lease obligations | | $ | 28,738 | | | $ | 56,014 | | | $ | 12,580 | |
Right of use assets obtained in exchange for finance lease obligations | | $ | 1,170 | | | $ | 2,918 | | | $ | 1,606 | |
| | | | | | |
Other information related to operating leases as follows: | | | | | | |
Weighted average remaining lease term | | 9.69 years | | 10.24 years | | 10.70 years |
Weighted average discount rate | | 7.05 | % | | 6.90 | % | | 7.38 | % |
| | | | | | |
Other information related to financing leases as follows: | | | | | | |
Weighted average remaining lease term | | 10.81 years | | 11.76 years | | 12.37 years |
Weighted average discount rate | | 4.56 | % | | 4.56 | % | | 4.90 | % |
11. Income Taxes
Loss before income taxes includes the following components for the fiscal years ended December 26, 2021, December 27, 2020, and December 29, 2019 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
U.S. | | $ | (49,978) | | | $ | (262,728) | | | $ | (14,549) | |
Foreign | | (176) | | | (20,824) | | | (7,688) | |
Loss before income taxes | | $ | (50,154) | | | $ | (283,552) | | | $ | (22,237) | |
The benefit for income taxes for the fiscal years ended December 26, 2021, December 27, 2020, and December 29, 2019 consist of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Current: | | | | | | |
Federal | | $ | — | | | $ | (60,340) | | | $ | (3,054) | |
State | | (152) | | | 1,354 | | | (1,687) | |
Foreign | | — | | | — | | | — | |
Total current income tax (benefit) | | $ | (152) | | | $ | (58,986) | | | $ | (4,741) | |
Deferred: | | | | | | |
Federal | | $ | — | | | $ | 44,353 | | | $ | (10,994) | |
State | | — | | | 8,086 | | | 1,354 | |
Foreign | | — | | | (937) | | | 47 | |
Total deferred income tax expense (benefit) | | — | | | 51,502 | | | (9,593) | |
Income tax benefit | | $ | (152) | | | $ | (7,484) | | | $ | (14,334) | |
The reconciliation between the income tax benefit and the amount of income tax computed by applying the U.S. federal statutory rate to loss before income taxes as shown in the accompanying consolidated statements of operations and comprehensive loss for fiscal years ended December 26, 2021, December 27, 2020, and December 29, 2019 is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Tax provision at U.S. federal statutory rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
State income taxes | | 3.8 | | | 3.9 | | | 2.2 | |
FICA tip tax credits | | — | | | — | | | 46.0 | |
Foreign taxes versus U.S statutory rate | | — | | | 0.2 | | | 0.8 | |
Valuation allowance on deferred income tax assets | | (25.2) | | | (27.9) | | | (9.1) | |
Impact of CARES Act and related method changes | | — | | | 5.5 | | | — | |
Other tax credits | | — | | | — | | | 6.1 | |
Meals and entertainment | | — | | | — | | | (0.7) | |
Excess stock options | | 1.1 | | | (0.1) | | | (2.9) | |
Employee travel | | — | | | — | | | (0.1) | |
Other | | (0.4) | | | — | | | 1.2 | |
Effective tax rate | | 0.3 | % | | 2.6 | % | | 64.5 | % |
The Company had a tax benefit in all three years presented above, but due to the mathematical computation of tax benefit to book loss the effective tax rate in 2021, 2020, and 2019 are represented as a positive percentage. The decrease in the Company's effective tax benefit in 2021 is primarily due to the 2020 favorable rate impact of net operating loss carrybacks allowed as part of the CARES Act. The decrease in the 2020 effective tax benefit is primarily due to a decrease in credits and an increase in the valuation allowance.
The Company's federal and state deferred taxes at December 26, 2021 and December 27, 2020 are as follows (in thousands):
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
Deferred tax assets: | | | | |
Leasing transactions | | $ | 126,981 | | | $ | 134,471 | |
General business and other tax credits | | 40,472 | | | 40,366 | |
Net operating loss carryover | | 36,069 | | | 23,567 | |
Accrued compensation and related costs | | 9,738 | | | 11,893 | |
Goodwill | | 8,296 | | | 9,536 | |
Stock-based compensation | | 6,461 | | | 5,561 | |
Advanced payments | | 3,912 | | | 4,702 | |
Other non-current deferred tax assets | | 5,782 | | | 3,073 | |
Subtotal | | 237,711 | | | 233,169 | |
Valuation allowance | | (99,093) | | | (86,677) | |
Total | | $ | 138,618 | | | $ | 146,492 | |
| | | | |
Deferred tax liabilities: | | | | |
Leasing transactions | | $ | (108,067) | | | $ | (112,860) | |
Property and equipment | | (17,600) | | | (21,549) | |
Supplies inventory | | (4,128) | | | (4,267) | |
Prepaid expenses | | (2,517) | | | (2,884) | |
| | | | |
Other non-current deferred tax liabilities | | (6,306) | | | (4,932) | |
Total | | $ | (138,618) | | | $ | (146,492) | |
| | | | |
Net deferred tax asset | | $ | — | | | $ | — | |
The Company had net operating loss carryforwards for tax purposes of $36.1 million as of December 26, 2021. This is comprised of approximately $11.8 million of federal net operating loss carryovers, approximately $14.8 million of state net operating loss carryovers, and approximately $9.5 million of foreign net operating loss carryovers. The federal net operating loss has an indefinite carryforward period, the state net operating loss carryovers expire at various dates between 2025 and 2041, and the foreign net operating loss carryovers expire at various dates between 2035 and 2041.
As of December 26, 2021, the Company had a deferred tax asset of $39.3 million related to federal tax credits, which expire at various dates between 2037 and 2040. The Company also had a deferred tax asset of $1.2 million related to state tax credits which expire in 2024.
In assessing the realizability of deferred income tax assets, ASC 740 requires a more likely than not standard be met. If the Company determines that it is more likely than not that deferred income tax assets will not be realized, a valuation allowance must be established. The realization of deferred tax assets depends on the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies when making this determination. Due to the COVID-19 pandemic, the Company has experienced cumulative losses in recent years which is significant negative evidence that is difficult to overcome in order to reach a determination that a valuation allowance is not required. Projected future taxable income is positive subjective evidence but is not strong enough to overcome the recent cumulative loss objective evidence. Therefore, management determined that a full valuation allowance was required as of December 26, 2021 and at December 27, 2020.
Based on the Company's evaluation of its deferred tax assets, a valuation allowance of approximately $99.1 million has been recorded against the deferred tax asset for federal and state tax credits, federal and state deferred tax assets, all net operating loss carry forwards and the deferred taxes of our foreign subsidiary.
The following table summarizes the Company's unrecognized tax benefits at December 26, 2021, December 27, 2020, and December 29, 2019
(in thousands): | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
Beginning of year | | $ | 80 | | | $ | 104 | | | $ | 304 | |
Increase due to current year tax positions | | 3 | | | — | | | 52 | |
Due to decrease to a position taken in a prior year | | — | | | (24) | | | (170) | |
Settlements | | — | | | — | | | (16) | |
Reductions related to lapses in the statute of limitations | | (51) | | | — | | | (66) | |
End of year | | $ | 32 | | | $ | 80 | | | $ | 104 | |
The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is approximately $32 thousand. The Company does not anticipate significant changes in the aggregate amount of unrecognized tax benefits within the next 12 months, other than nominal tax settlements.
The Company had outstanding federal and state refund claims of approximately $15.8 million as of December 26, 2021. In January 2022, the Company received $2.4 million of those refund claims, and expects to receive the remaining $13.4 million over the next 12-18 months due to processing delays at the IRS.
12. Commitments and Contingencies
Because litigation is inherently unpredictable, assessing contingencies related to litigation is a complex process involving highly subjective judgment about potential outcomes of future events. When evaluating litigation contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the availability of appellate remedies, insurance coverage related to the claim or claims in question, the presence of complex or novel legal theories, and the ongoing discovery and development of information important to the matter. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated, or unrelated to possible outcomes, and as such are not meaningful indicators of our potential liability or financial exposure. Accordingly, we review the adequacy of accruals and disclosures each quarter in consultation with legal counsel, and we assess the probability and range of possible losses associated with contingencies for potential accrual in the consolidated financial statements. However, the ultimate resolution of litigated claims may differ from our current estimates
In the normal course of business, there are various claims in process, matters in litigation, and other contingencies. These include employment related claims and claims from Guests or Team Members alleging illness, injury, food quality, health, or operational concerns. To date, none of these claims, certain of which are covered by insurance policies, have had a material effect on the Company. While it is not possible to predict the outcome of these suits, legal proceedings, and claims with certainty, management is of the opinion that adequate provision for potential losses associated with these matters has been made in the financial statements and that the ultimate resolution of these matters will not have a material adverse effect on our financial position and results of operations. However, a significant increase in the number of these claims, or one or more successful claims resulting in greater liabilities than we currently anticipate, could materially and adversely affect our business, financial condition, results of operations, and cash flows.
As of December 26, 2021, we had a balance of $2.5 million for loss contingencies on our consolidated balance sheets. We ultimately may be subject to greater or less than the accrued amount.
As of December 26, 2021, we had purchase commitments to certain vendors who provide food and beverages and other supplies to our restaurants, for an aggregate of $155.9 million. We expect to fulfill our commitments under these agreements in the normal course of business, and as such, no liability has been recorded.
13. Stockholders' Equity
On August 9, 2018, the Company's board of directors authorized an increase to the Company's share repurchase program of approximately $21 million to a total of $75 million of the Company's common stock. The increased share repurchase authorization became effective on August 9, 2018 and will terminate upon completing repurchases of $75 million of common stock unless otherwise terminated by the board. Purchases under the repurchase program may be made in open market or privately negotiated transactions. Purchases may be made from time to time at the Company's discretion, and the timing and amount of any share repurchases will be determined based on share price, market conditions, legal requirements, and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common stock, and the Company may suspend or discontinue the repurchase program at any time. In 2021, the Company did not repurchase any shares under its share repurchase program. From the date of the current program approval through December 26, 2021, we have repurchased a total of 226,500 shares at an average price of $29.14 per share for an aggregate amount of $6.6 million. Accordingly, as of December 26, 2021, we had $68.4 million of availability under the current share repurchase program.
Effective March 14, 2020, the Company temporarily suspended its share repurchase program to provide additional liquidity during the COVID-19 pandemic. Our ability to repurchase shares is limited to conditions set forth by our lenders in the Second Amendment prohibiting us from repurchasing additional shares until the first fiscal quarter of 2022 at the earliest and not until we deliver a covenant compliance certificate demonstrating a lease adjusted leverage ratio less than or equal to 5.00:1.00.
14. Stock Incentive Plans
In May 2017, the Company's stockholders approved the 2017 Performance Incentive Plan (the "2017 Stock Plan"). Following the date of approval, all grants are made under the 2017 Stock Plan and no new awards may be granted under the Second Amended and Restated 2007 Performance Plan (the "2007 Stock Plan"). The 2017 Stock Plan authorizes the issuance of stock options, stock appreciation rights (SARs), and other forms of awards granted or denominated in the Company common stock or unit of the Company's common stock, as well as cash performance awards pursuant to the plan. Persons eligible to receive awards under the 2017 Stock Plan include officers, employees, directors, consultants, and other service providers or any affiliate of the Company. The maximum number of shares of the Company's common stock that may be issued or transferred pursuant to awards under the 2017 Stock Plan was 630,182 shares. The 2017 Stock Plan was amended in May 2019, and again in May 2020 to add an additional 660,000 and 275,000 shares, respectively, bringing the total to 1,565,182 shares as of December 26, 2021.
Vesting of the awards under the 2017 Stock Plan is determined at the date of grant by the plan administrator. Each award granted under the 2017 Stock Plan and 2007 Stock Plan fully vests, becomes exercisable and/or payable, as applicable, upon a change in control event. However, unless the individual award agreement provides otherwise, with respect to executive and certain other high level officers, upon the occurrence of a change in control, no award will vest unless such officers' employment with the Company is terminated by the Company without cause during the two years following such change in control event. Each award expires on such date as shall be determined at the date of grant; however, the maximum term of options, SARs, and other rights to acquire common stock under the plan is ten years after the initial date of the award, subject to provisions for further deferred payment in certain circumstances. Vesting of awards under these plans were generally time based over a period of one year to four years. As of December 26, 2021, 211,608 options and awards to acquire the Company's common stock remained outstanding under the 2007 Stock Plan; all remaining options and awards are outstanding under the 2017 Stock Plan.
Stock-based compensation costs recognized in 2021, 2020, and 2019 were $6.6 million, $4.3 million, and $3.3 million with related income tax benefits of $1.4 million, $0.3 million, and $0.3 million. As of December 26, 2021, there was $12.7 million of unrecognized compensation cost, excluding estimated forfeitures. Unrecognized compensation costs are expected to be recognized over the weighted average remaining vesting period of approximately 0.72 years for stock options, 1.05 years for the restricted stock units ("RSU"), and 1.29 years for the performance stock units ("PSU").
Stock Options
The tables below summarize the status of the Company's stock option plans (in thousands, except exercise price):
| | | | | | | | | | | | | | |
| | Stock Options |
| | Shares | | Weighted Average Exercise Price |
Outstanding, December 27, 2020 | | 470 | | | $ | 36.64 | |
Granted | | — | | | — | |
Forfeited/expired | | (13) | | | 34.67 | |
Exercised | | (4) | | | 14.12 | |
Outstanding, December 26, 2021 | | 453 | | | $ | 36.91 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Years of Contractual Life | | Aggregate Intrinsic Value |
Outstanding as of December 26, 2021 | | 453 | | | $ | 36.91 | | | 5.7 | | $ | 998 | |
Vested and expected to vest as of December 26, 2021(1) | | 436 | | | 37.81 | | | 5.6 | | 924 | |
Exercisable as of December 26, 2021 | | 299 | | | $ | 48.48 | | | 4.5 | | $ | 326 | |
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(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards.
The estimated fair value of each option granted is calculated using the Black-Scholes multiple option-pricing model, and expense is recognized straight line over the vesting period. No options were granted during 2021 or 2019. The average assumptions used in the model for the fiscal years ended December 26, 2021, December 27, 2020 and December 29, 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
Risk-free interest rate | — | | % | | 0.5 | | % | | — | | % |
Expected years until exercise | 0 years | | | 4.7 years | | | 0 years | |
Expected stock volatility | — | | % | | 61.0 | | % | | — | | % |
Dividend yield | — | | % | | — | | % | | — | | % |
Weighted average Black-Scholes fair value per share at date of grant | $ | — | | | | $ | 6.28 | | | | $ | — | | |
Total intrinsic value of options exercised (in thousands) | $ | 89 | | | | $ | 30 | | | | $ | 20 | | |
The risk-free interest rate was based on the rate for zero coupon U.S. Government issues with a remaining term similar to the expected life. The expected life of the options represents the period of time the options are expected to be outstanding and is based on historical trends and Team Member exercise patterns. The expected stock price volatility represents an average of the Company's historical volatility measured over a period approximating the expected life. The dividend yield assumption is based on the Company's history and expectations of dividend payouts.
Time-Based RSUs
During 2021, 2020, and 2019, the Company issued time-based restricted stock units ("RSUs") to certain employees as permitted under the 2017 Stock Plan. The Company can grant RSUs to its directors, executive officers, and other key employees. The RSUs granted to employees typically vest in equal installments over three to four years. For the Company's board of directors, RSUs vest in full on the earlier of the one-year anniversary of the grant date or the next annual stockholder meeting. Upon vesting, one share of the Company's common stock is issued for each RSU. The fair value of each RSU granted is equal to the market price of the Company's stock at the date of grant, and expense is recognized straight line over the vesting period.
The table below summarizes the status of the Company's time-based RSUs under the 2017 and 2007 Stock Plans (shares in thousands):
| | | | | | | | | | | | | | |
| | Restricted Stock Units |
| | Shares | | Weighted Average Grant-Date Fair Value (per share) |
Outstanding, December 27, 2020 | | 347 | | | $ | 19.74 | |
Awarded | | 257 | | | 34.72 | |
Forfeited | | (35) | | | 27.88 | |
Vested | | (150) | | | 17.93 | |
Outstanding, December 26, 2021(1) | | 419 | | | $ | 28.89 | |
(1) Awards expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards.
Performance Stock Units
During 2021, 2020, and 2019, the Company granted performance stock unit awards ("PSUs") to certain employees as permitted under the 2017 Stock Plan. Each PSU represents the right to receive one share of the Company's common stock on the payment date.
Prior to 2020, each PSU was divided into three equal tranches with applicable performance periods, typically consisting of a fiscal year, subject to the achievement of the applicable performance goals at target and applicable vesting conditions. Fair value of each PSU granted was equal to the market price of the Company's stock at the grant date, and expense is recognized ratably across the total performance period based on probability of achieving applicable performance goals. PSUs remain unvested until the end of the third performance period and are forfeited in the event of termination of employment of a grantee prior to the last day of the third performance period.
Beginning in 2020, the Company began granting PSU awards based on relative total stockholder return defined as increases in the Company's stock price during a performance period of three years as compared to the total stockholder return of a group of peer companies. Fair value of each PSU granted is determined by a Monte Carlo valuation model, and expense is recognized straight line over the performance period. PSUs remain unvested until the last day of the three year performance period and are forfeited in the event of termination of employment of a grantee prior to the last day of the three year performance period.
The table below summarizes the status of the Company's performance stock units under the 2017 Stock Plan (shares in thousands): | | | | | | | | | | | | | | |
| | Performance Stock Units |
| | Shares | | Weighted Average Grant-Date Fair Value (per share) |
Outstanding, December 27, 2020 | | 297 | | | $ | 20.52 | |
Awarded | | 100 | | | 53.49 | |
Forfeited | | (13) | | | 27.34 | |
Vested | | (4) | | | 61.25 | |
Outstanding, December 26, 2021(1) | | 380 | | | $ | 28.54 | |
(1) Awards expected to vest are the result of applying the pre-vesting forfeiture rate assumption to total outstanding options. The Company applies estimated forfeiture rates that are derived from our historical forfeitures of similar awards.
Long-Term Cash Incentive Plan
Beginning in 2020, the long-term cash incentive plan is based on relative total stockholder return defined as increases in the Company's stock price during a performance period of three years as compared to the total stockholder return of a group of peer companies. Compensation is recognized variably over the three year performance period based on a Monte Carlo valuation model. Beginning in 2017, the long-term cash incentive plan was based on operational metrics with three one year performance periods. Compensation expense for awards granted before 2020 is recognized variably over the performance period based on the plan-to-date performance achievement. All long-term cash incentive awards cliff vest after three years at the end of each performance cycle. In 2021, 2020, and 2019, the Company recorded $0.5 million, $0.2 million, and $0.2 million, respectively in compensation expense to Selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss related to the 2017 long-term cash incentive plan.
During 2021 and 2020, the long-term cash incentive plan payout totaled $0.3 million and $0.5 million, respectively. At December 26, 2021 and December 27, 2020, a $1.0 million and $0.8 million long-term cash incentive plan liability was included in Accrued payroll and payroll-related liabilities on the consolidated balance sheets.
15. Employee Benefit Programs
Employee Deferred Compensation Plan
The Company offers a deferred compensation plan that permits key employees and other members of management defined as highly compensated employees under the IRS code to defer portions of their compensation in a pre-tax savings vehicle that allows for retirement savings above 401(k) limits. Under this plan, eligible Team Members may elect to defer up to 75% of their base salary and up to 100% of variable compensation and commissions each plan year.
The assets of the deferred compensation plan are held in a rabbi trust, where they are invested in certain mutual funds that cover an investment spectrum ranging from equities to money market instruments and are available to satisfy the claims of the Company's creditors in the event of bankruptcy or insolvency. These mutual funds have published market prices and are reported at fair value. See Note 9, Fair Value Measurements. Changes in the market value of the investments held in the trust result in the recognition of a corresponding gain or loss reported in Interest income and other, net in the consolidated statements of operations and comprehensive loss. A corresponding change in the liability associated with the deferred compensation plan results in an offsetting deferred compensation expense, or reduction of expense, reported in Selling, general, and administrative expenses in the consolidated statements of operations and comprehensive loss.
The Company recognized $0.7 million of deferred compensation expense in 2021, $0.6 million in 2020, and $1.1 million in 2019. As of December 26, 2021 and December 27, 2020, $6.3 million and $6.7 million of deferred compensation assets are included in Other assets, net and $6.3 million and $6.7 million of deferred compensation plan liabilities are included in Other non-current liabilities in the accompanying consolidated balance sheets.
Employee Stock Purchase Plan
In July 2017, the Company adopted the Amended and Restated Employee Stock Purchase Plan (the "New Plan"). The New Plan authorized 100,000 shares of the Company's common stock for issuance. Under the New Plan, eligible Team Members may voluntarily contribute up to 15% of their salary, subject to limitations, to purchase common stock at a price equal to 85% of the fair market value of a share of the Company's common stock on the first day of each offering period or 85% of the fair market value of a share of the Company's common stock on the last day of each offering period, whichever amount is less. In general, all of the Company's officers and Team Members who have been employed by the Company for at least one year and who are regularly scheduled to work more than 20 hours per week are eligible to participate in this plan, which operates in the successive six months commencing on January 1 and July 1 of each fiscal year. During 2021, the Company issued a total of 42,563 shares under the New Plan with 119,426 shares available for future issuance. During 2020, the Company issued a total of 40,462 shares under the New Plan.
For 2021, in accordance with the guidance for accounting for stock compensation, the Company estimated the fair value of the awards granted pursuant to the stock purchase plan using the Black-Scholes multiple-option pricing model. The assumptions used in the model included 0.3% risk-free interest rate, 0.5 year expected life, expected volatility of 53.94%, and 0% dividend yield. The weighted average fair value per share at grant date was $4.36. For 2020, the assumptions used in the model included 0.1% risk-free interest rate, 0.5 year expected life, expected volatility of 50.40%, and 0% dividend yield. The weighted average fair value per share at grant date was $2.16. For 2019, the assumptions used in the model included 1.5% risk-free interest rate, 0.50 year expected life, expected volatility of 41.82%, and 0% dividend yield. The weighted average fair value per share at grant date was $7.56. The Company recognized $0.2 million of compensation expense related to this plan in 2021, $0.1 million in 2020, and $0.2 million in 2019.
Employee Defined Contribution Plan
The Company maintains a 401(k) Savings Plan ("401k Plan") which covers eligible Team Members who have satisfied the service requirements and reached 21 years of age. The 401k Plan, which qualifies under Section 401(k) of the Internal Revenue Code, allows Team Members to defer specified percentages of their compensation on a pre-tax basis. The Company may make matching contributions in an amount determined by the board of directors. In addition, the Company may contribute each period, at its discretion, an additional amount from profits. Employer matching contributions equal to 100% of the first 3% of compensation and 50% on the next 2% of compensation. The Company matches contributions when the employee contribution is made, and the employer matching contributions are not subject to a vesting schedule. The Company recognized matching contribution expense of $2.8 million in 2021, $2.5 million in 2020, and $3.0 million in 2019.