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Idea performance

A low-risk bet on a buyout Long Red Robin Gourmet Burgers (RRGB) / Short the industry

Doug Bennett

June 29, 2012


2

Thesis

• Red Robin Gourmet Burgers (RRGB), an owner and operator of full-service

restaurants could be taken private within 6 months at $40-$43 per share, 30%-45%

above the current trading price of ~$30 per share

• Company communications positioning the company as a turnkey private equity

investment along with open market director purchases against a backdrop of

heightened private equity activity in the restaurant space suggest buyer interest is

high, yet market participants have not incorporated the probability of a near-term

buyout into the stock price

• Given its attractive relative valuation, the RRGB long can be paired with an industry

or market short to isolate the buyout bet and create an asymmetric risk-reward

tradeoff


3

Everyone wants a restaurant

• Deal activity in the casual dining segment has accelerated since the end of 2011

• The median EV/EBITDA multiple in casual dining transactions since late 2011 is

8.3x, with all transactions over $250m in enterprise value occurring at 8.4x or

higher

Deal announced Target Buyer Enterprise value ($ mil) EV/EBITDA multiple

6/25/2012 J. Alexander's Fidelity National Financial Inc 80.9 8.1x

5/22/2012 Benihana Angelo Gordon & Co LP 275.9 8.4x

5/1/2012 PF Chang's Centerbridge Capital Partners LLC 1,163.6 8.8x

2/6/2012 O'Charleys Fidelity National Financial Inc 282.0 8.4x

12/16/2011 Morton's Fertitta Morton's Restaurants Inc 179.0 7.4x

11/8/2011 McCormick & Schmick's Landry's Inc 131.9 8.0x

Source: Bloomberg, Analyst estimates Median 8.3x


4

Everyone wants a restaurant

• The median transaction multiple of 8.3x is just north of the 8.0x historical median

observed since the mid-1990’s

• Given Red Robin’s size and perceived positive attributes as a buyout candidate, it

would likely sell in the 8.4x-8.8x range (based on the recent Benihana and P.F.

Chang’s deals), which would imply a stock return of 30%-45%

Red Robin

Current 1996 - Mid 2011 Recent Benihana ($275m) PF Chang's ($1,150m)

EV/EBITDA 6.5x 8.0x 8.3x 8.4x 8.8x

LTM EBITDA 87.4 87.4 87.4 87.4 87.4

Enterprise value 566.6 699.0 725.2 733.9 768.9

Less: debt 137.9 137.9 137.9 137.9 137.9

Add: cash 38.0 38.0 38.0 38.0 38.0

Equity value 466.6 599.0 625.2 633.9 668.9

FD shares O/S 15.6 15.6 15.6 15.6 15.6

Price per share $30.00 $38.51 $40.20 $40.76 $43.00

Current price per share $30.00 $30.00 $30.00 $30.00 $30.00

Implied return 28% 34% 36% 43%

Median multiple Most recent comps

Source: Goldman Sachs


5

A turnkey private equity investment

• Private equity investors want to predictably grow the value of their equity

investment through asset/enterprise value growth and debt repayment over the life

of a 3-5 year investment

• Proven, long-lived restaurant companies with growth opportunities and excellent,

capital allocators leading them offer the predictability and reduced risk that private

equity investors want


6


• The company is positioned as just such a low-risk growth investment in recent

company presentations

• Focus on long history, established brand = lower risk

• Mix of low-risk and speculative growth opportunities to drive enterprise value

growth over the next 3-5 years


7


• Under operating and capital spending assumptions disclosed in the company’s April

2012 Analyst Day presentation, an LBO model suggests a private equity firm could

bid in the low $40’s for Red Robin’s stock and earn a 15%-20% IRR over 5 years

(see the Appendix for LBO model details and operating forecasts)

• If achieved, the return would compare favorably to historical IRR’s realized by US-

focused private equity funds, which suggests RRGB is interesting to PE firms at the

current price

Source: Preqin Special Report: US Private Equity, April 2012

LBO Summary (using management assumptions)

Current share price $30.00

Takeover price $42.00

Offer premium 40.0%

Transaction multiple 8.6x <--- in line with recent comps

Assumed 2016 exit multiple 7.0x 7.5x 8.0x 8.5x

Estimated IRR 15% 18% 20% 22%


8


• In addition to growth plans in the core Red Robin concept, management has also

provided details on the company’s newly developed concept, Red Robin Burger

Works (RRBW), a smaller-prototype, fast-casual concept that will be tested in 2012

• Though we assume no success and growth of RRBW in the LBO model, the

concept does provide private equity owners with another real option for growing

enterprise value under private ownership, which should support deal value

• There is some probability that building RRBW locations will become a superior

investment alternative to debt repayment prior to exit, in which case the concept

would improve private equity owners’ IRR on the deal

New store ROI targets

Full-size RR Mid-size RR RRBW

Sales per store ($m) $3.0 $2.4 $1.0

Store-level operating margin 20% 20% 20%

Operating income ($m) $0.6 $0.5 $0.2

Cash investment per new store ($m) $1.8 $1.2 $0.5

Cash-on-cash return 33% 40% 40%

Source: Company presentations , conference transcripts


9


• Red Robin CEO Steve Carley has extensive experience running a multi-unit (400+)

restaurant company under private equity ownership

• Carley leads a management team that understands capital allocation, a skill

essential for risk management and value creation over the life of a levered equity

investment

• Frequent mention is made of ROIC analysis for all competing uses of capital

• An in-place management team of this caliber with experience managing

levered companies is one less “to do” for a private equity investor and supports

deal value

• CEO, Red Robin Gourmet Burgers (Sept. 2010 – present) • Since being recruited from El Pollo Loco less than 2 years ago,

has implemented operating best practices to add 200 bps to

operating margin, increased EBITDA by roughly 20% and

established a results-oriented culture

• CEO, El Pollo Loco (Apr. 2001 – Sept. 2010) • Recruited to turn around El Pollo Loco while under private

ownership and remained CEO after 2005 sale to another private

equity firm


10


• Red Robin has no poison pill (expired after the May 2011 annual meeting)

• Red Robin shareholders voted to declassify the board at the May 2012 annual

meeting

• 7 of 10 board members will be elected for one-year terms at the 2013 annual

meeting

• All 10 board members will be elected for one-year terms beginning at the 2014

annual meeting, at which point the company will have a fully declassified board

• These actions send an important signal about the likely willingness of the board to

consider potential bids

• A Harvard Law School study examining hostile bids from 1996-2000 found that

companies with staggered boards were nearly twice as likely to remain

independent as those without (61% vs. 34%)

• Linked below, the study outlines the staggered board and details its historical

effectiveness in discouraging takeover attempts • http://www.law.harvard.edu/programs/olin_center/papers/pdf/353.pdf

http://www.law.harvard.edu/programs/olin_center/papers/pdf/353.pdf

http://www.law.harvard.edu/programs/olin_center/papers/pdf/353.pdf


11

RRGB board members see value at the current price

• Since May, four board members have bought Red Robin stock in the open market

at ~$30 per share

• Insiders have shown good timing investing in the stock over the last few years

• It is notable the recent buyers were board members who would have spoken to

financial sponsors’ bankers had those bankers approached them to gauge Red

Robin’s interest in a buyout

• The board members currently buying stock in the open market at ~$30 per

share would understand that a near-term buyout likely prices in the low $40’s • Largest recent buyer Robert Aiken is the CEO of Bolder Foods, a food manufacturing and

distribution-focused private equity firm

Date Insider Title Shares Avg. Price Total cost

6/21/2012 Lloyd Hill Director 1,000 $30.13 $30,130

6/14/2012 J. Taylor Simonton Director 1,000 $29.23 $29,230

6/13/2012 Glenn Kaufman Director 1,000 $29.22 $29,220

6/5/2012 Robert Aiken Director 100 $30.47 $3,047

6/4/2012 Robert Aiken Director 1,900 $30.26 $57,494

6/1/2012 Pattye Moore Director 1,000 $31.00 $31,000


12

RRGB board members see value at the current price

• The board members’ recent open market purchases were not made to meet

minimum ownership guidelines of $200,000 per director (cumulative cost basis)

• All recent buyers except Lloyd Hill were materially above the minimum stock

ownership guidelines set by the board prior to making the open market purchases,

which suggests the directors were buying for economic reasons

Date Insider Title Shares Avg. Price Total cost

6/21/2012 Lloyd Hill Director 1,000 $30.13 $30,130

6/14/2012 J. Taylor Simonton Director 1,000 $29.23 $29,230

6/13/2012 Glenn Kaufman Director 1,000 $29.22 $29,220

6/5/2012 Robert Aiken Director 100 $30.47 $3,047

6/4/2012 Robert Aiken Director 1,900 $30.26 $57,494

6/1/2012 Pattye Moore Director 1,000 $31.00 $31,000


13

Risk

• Entry point is attractive on an absolute basis if you think the current cash flow is

stable or will grow as the equity is trading at an 11% “run-rate” FCF yield

• RRGB is also relatively attractive, trading at the bottom of its comp range

Comparable trading multiples Ticker Equity value Enterprise value LTM EBITDA EV/EBITDA

Chipotle CMG 11,816 11,960 460 26.0x

Panera Bread PNRA 4,027 3,924 317 12.4x

BJ's Restaurants BJRI 1,023 984 82 11.9x

Buffalo Wild Wings BWLD 1,564 1,525 134 11.4x

Texas Roadhouse TXRH 1,326 1,328 139 9.5x

PF Chang's PFCB 1,093 1,040 118 8.8x

Sonic SONC 603 1,124 128 8.8x

Brinker International EAT 2,272 2,807 352 8.0x

Cracker Barrel CBRL 1,409 1,830 234 7.8x

Darden Restaurants DRI 6,296 8,417 1,089 7.7x

Cheesecake Factory CAKE 1,654 1,582 208 7.6x

Denny's DENN 408 606 80 7.6x

Einstein Noah BAGL 287 350 49 7.2x

Red Robin Gourmet Burgers RRGB 433 545 87 6.2x

Ruby Tuesday RT 425 730 119 6.1x

Source: Bloomberg Median 8.0x

Exclude changes in WC & one-time gains

Adj. CFO: $75m

Adj. capex: $25m Estimate “maintenance” capex

“Run-rate” free cash flow: $75m-$25m= $50m

Market cap: ~$450m

FCF Yield: $50m/$450m = 11%


14

Risk

• Its valuation at the bottom of the comparable trading range suggests the market is

at worst, incorporating a low probability of a buyout into the stock price and at best,

undervaluing the assets regardless of a buyout

• A paired short position in a basket of the comps noted previously would hedge

industry risk in the RRGB long and isolate the buyout bet

• The iShares Russell 2000 ETF (IWM) would also be a suitable short for the pair

given RRGB’s strong correlation with the index

Appendix


16

LBO Model

Assumptions Purchase Price Options Table

Sponsor Target IRR 15.0% Revolver 0.0x 0.0% Basic Shares Outst. 14.6 Options Strike ITM Proceeds

Exit Multiple 8.0x Senior Debt 3.0x 6.75% Current Share Price $30.00 0.9 $25.14 0.9 $21.8

Tax Rate 35.0% Subordinated Debt 2.0x 10.0% Offer Premium 40.0% 0.0 0.00 0.0 $0.0

Offer Price $42.00 0.0 0.00 0.0 $0.0

FD Shares Outst. 15.5 0.0 0.00 0.0 $0.0

FD Equity Offer Price $649.2 0.9 0.9 $21.8

Sources % Total Uses Free Cash Flow

Senior Debt $262.8 34.6% Purchase of Equity $649.2 2012E 2013E 2014E 2015E 2016E

Subordinated Debt 175.2 23.1% Refinance Net Debt 100.0 EBITDA 92.1 100.8 110.0 122.3 134.9

Mezzanine 0.0 0.0% Transaction Fees 10.0 Less: Investment in Working Capital 9.8 2.3 2.6 1.2 1.2

Option proceeds 21.8 2.9% Less: Capital Expenditures (32.0) (48.9) (62.0) (63.6) (50.2)

Sponsor Equity 299.3 39.4% Total $759.2 Less: Cash Interest (34.1) (32.3) (31.3) (30.3) (28.4)

Total $759.2 100.0% Less: Cash Taxes (0.3) (3.3) (6.0) (9.5) (13.6)

FCF available for debt paydown 35.6 18.6 13.3 20.0 43.9

Operating Assumptions Returns Analysis Sensitivity

Terminal EBITDA $ 134.9 Terminal EBITDA $ 134.9

2011A 2012E 2013E 2014E 2015E 2016E Exit Multiple 8.0x Exit Multiple 8.0x

Net Sales $ 914.9 $ 957.2 $ 1,002.9 $ 1,064.0 $ 1,133.4 $ 1,204.2 TEV $ 1,079.1 TEV $ 1,079.1

% Growth 4.6% 4.8% 6.1% 6.5% 6.2% Less: Net Debt 316.0 Less: Net Debt (316.0)

Equity Value $ 763.0 Equity Value $ 763.0

EBITDA $ 87.6 $ 92.1 $ 100.8 $ 110.0 $ 122.3 $ 134.9 Sponsor Ownership at Exit 97.0% Sponsor Ownership at Exit 97.0%

% Margin 9.6% 9.6% 10.0% 10.3% 10.8% 11.2% Sponsor Equity at Exit $ 740.1 Sponsor Equity at Exit $ 740.1

% Growth 5.1% 9.5% 9.2% 11.2% 10.3% Sponsor Equity at Closing 299.3 Sponsor Required IRR 15.0%

IRR % 19.8% Sponsor Equity at Closing $ 368.0

EBIT $ 28.0 $ 34.8 $ 41.7 $ 48.3 $ 57.6 $ 67.2 Net Debt at Closing 438.0

% Margin 3.1% 3.6% 4.2% 4.5% 5.1% 5.6% Implied TEV at Closing 806.0

% Growth 24.3% 19.8% 15.9% 19.1% 16.7% Less: Old Net Debt (100.0)

Less: Transaction Fees (10.0)

D&A $ 55.3 $ 57.3 $ 59.1 $ 61.7 $ 64.7 $ 67.7 Equity Offer Price $ 696.1

% Margin 6.0% 6.0% 5.9% 5.8% 5.7% 5.6% FD Shares Outst. 15.5

Implied Offer Price per Share $ 45.03

CapEx $ 0.0 $ 32.0 $ 48.9 $ 62.0 $ 63.6 $ 50.2 Implied Offer Premium 50.1%

% Sales 0.0% 3.3% 4.9% 5.8% 5.6% 4.2%

% D&A 0.0% 55.8% 82.8% 100.6% 98.2% 74.1%

Net Working Capital $(25.8) $(35.6) $(38.0) $(40.5) $(41.7) $(42.9)

% Sales (2.8%) (3.7%) (3.8%) (3.8%) (3.7%) (3.6%)


17

LBO Model (cont.)

Debt Schedule

Rate 2011A 2012E 2013E 2014E 2015E 2016E

Revolver 0.0%

Beg. Balance $0 $0 $0 $0 $0

Paydown 0 0 0 0 0

Ending Balance 0 0 0 0 0 0

Interest Expense 0 0 0 0 0

Senior Debt 6.8%

Beg. Balance $263 $228 $210 $198 $181

Paydown (35) (18) (12) (17) (40)

Ending Balance 263 228 210 198 181 141


Sub. Debt 10.0%

Beg. Balance $175 $175 $175 $175 $175

Paydown 0 0 0 0 0

Ending Balance 175 175 175 175 175 175


Mezzanine Debt 0.0%

Beg. Balance $0 $0 $0 $0 $0

Paydown 0 0 0 0 0

Ending Balance 0 0 0 0 0 0


Total Debt (net) $438 $403 $385 $373 $356 $316

Net Interest Expense 34 32 31 30 28

Credit Analysis

2011A 2012E 2013E 2014E 2015E 2016E

Cumulative Pay-down $0 $35 $53 $65 $82 $122

% of Initial Debt Raised 0.0% 8.0% 12.1% 14.8% 18.7% 27.9%

Leverage Ratios:

Total Debt / EBITDA 5.0x 4.4x 3.8x 3.4x 2.9x 2.3x

Total Debt / (EBITDA - Capex) 5.0x 6.7x 7.4x 7.8x 6.1x 3.7x

Coverage Ratios:

EBITDA / Interest Exp. 2.7x 3.1x 3.5x 4.0x 4.8x

(EBITDA - Capex) / Interest Exp. 1.8x 1.6x 1.5x 1.9x 3.0x


18

Projected income statement

Income statement 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Revenue:

Restaurant revenue 747.530 854.690 828.031 846.389 898.842 942.328 987.586 1048.131 1117.099 1187.342

Franchise royalties and fees 15.792 14.323 12.825 13.409 14.151 14.579 15.017 15.617 16.086 16.568

Other revenue 0.150 0.202 0.189 4.471 1.857 0.261 0.261 0.261 0.261 0.261

Total revenue 763.472 869.215 841.045 864.269 914.850 957.169 1002.863 1064.009 1133.446 1204.171

growth 23.40% 13.85% -3.24% 2.76% 5.85% 4.63% 4.77% 6.10% 6.53% 6.24%

Costs and expenses:

Restaurant operating expenses:

Cost of sales 171.236 203.463 199.195 206.639 227.063 239.351 250.847 266.225 283.743 301.585

Labor 254.279 289.702 287.981 300.878 303.503 315.965 329.501 349.701 372.712 396.148

Operating 106.632 123.823 122.183 125.137 124.238 129.339 134.880 142.440 151.062 159.765

Occupancy 46.340 56.908 62.420 63.055 65.785 68.486 71.420 75.423 79.988 84.597

Depreciation and amortization 43.659 51.687 57.166 56.738 55.272 57.255 59.066 61.705 64.732 67.719

Selling, general and administrative 73.749 83.379 76.260 88.836 98.988 105.000 107.000 110.210 113.516 116.922

Franchise development 4.069 4.597 4.203 4.122 4.136 4.261 4.389 4.565 4.701 4.843

Pre-opening costs 7.463 8.109 3.696 3.015 3.527 2.713 4.070 5.426 5.426 5.426

Asset impairment charge 0.000 1.906 0.000 6.116 4.337 0.000 0.000 0.000 0.000 0.000

Reacquired franchise and other acquisition costs1.821 0.451 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Legal settlement 1.653 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Significant and unusual items, net 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Total costs & expenses 710.901 824.025 813.104 854.536 886.849 922.371 961.173 1,015.696 1,075.881 1,137.005

EBIT 52.571 45.190 27.941 9.733 28.001 34.797 41.691 48.314 57.565 67.166

Other (income) expense:

Interest expense 9.629 8.557 6.903 5.112 5.885 5.885 7.499 6.768 6.037 5.306

Interest income (0.398) (0.320) (0.111) (0.063) (0.062) (0.065) (0.068) (0.072) (0.077) (0.082)

Gain on sale of property 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Loss on extinguishment of debt 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Other 0.042 0.014 (0.380) (0.046) 0.090 0.000 0.000 0.000 0.000 0.000

Total other expenses 9.273 8.251 6.412 5.003 5.913 5.820 7.431 6.696 5.960 5.224

EBT 43.298 36.939 21.529 4.730 22.088 28.977 34.260 41.618 51.605 61.943

Provision (benefit) for income taxes 12.647 9.813 3.930 (2.569) 1.511 5.795 8.565 10.404 18.062 21.680

Net income 30.651 27.126 17.599 7.299 20.577 23.182 25.695 31.213 33.543 40.263

Number of shares 15.619 14.590 14.590 14.590 14.590 14.590 14.590

EPS 1.59$ 1.76$ 2.14$ 2.30$ 2.76$

Reported EBIT 52.571 45.190 27.941 9.733 28.001 34.797 41.691 48.314 57.565 67.166

Add: extraordinary charges 3.474 2.357 0.000 6.116 4.337 0.000 0.000 0.000 0.000 0.000

Adj. EBIT 56.045 47.547 27.941 15.849 32.338 34.797 41.691 48.314 57.565 67.166

EBIT margin 7.3% 5.5% 3.3% 1.8% 3.5% 3.6% 4.2% 4.5% 5.1% 5.6%

Add: D&A 43.659 51.687 57.166 56.738 55.272 57.255 59.066 61.705 64.732 67.719

Adj. EBITDA 99.704 99.234 85.107 72.587 87.610 92.052 100.757 110.018 122.297 134.886

EBITDA margin 13.1% 11.4% 10.1% 8.4% 9.6% 9.6% 10.0% 10.3% 10.8% 11.2%


19

Projected income statement (common-size)

Common-size 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Revenue:

Restaurant revenue 97.91% 98.33% 98.45% 97.93% 98.25% 98.45% 98.48% 98.51% 98.56% 98.60%

Franchise royalties and fees 2.07% 1.65% 1.52% 1.55% 1.55% 1.52% 1.50% 1.47% 1.42% 1.38%

Other revenue 0.02% 0.02% 0.02% 0.52% 0.20% 0.03% 0.03% 0.02% 0.02% 0.02%

Total revenue 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Costs and expenses:


Cost of sales 22.43% 23.41% 23.68% 23.91% 24.82% 25.01% 25.01% 25.02% 25.03% 25.05%

Labor 33.31% 33.33% 34.24% 34.81% 33.18% 33.01% 32.86% 32.87% 32.88% 32.90%

Operating 13.97% 14.25% 14.53% 14.48% 13.58% 13.51% 13.45% 13.39% 13.33% 13.27%

Occupancy 6.07% 6.55% 7.42% 7.30% 7.19% 7.16% 7.12% 7.09% 7.06% 7.03%

Depreciation and amortization 5.72% 5.95% 6.80% 6.56% 6.04% 5.98% 5.89% 5.80% 5.71% 5.62%

Selling, general and administrative 9.66% 9.59% 9.07% 10.28% 10.82% 10.97% 10.67% 10.36% 10.02% 9.71%

Franchise development 0.53% 0.53% 0.50% 0.48% 0.45% 0.45% 0.44% 0.43% 0.41% 0.40%

Pre-opening costs 0.98% 0.93% 0.44% 0.35% 0.39% 0.28% 0.41% 0.51% 0.48% 0.45%

Asset impairment charge 0.00% 0.22% 0.00% 0.71% 0.47% 0.00% 0.00% 0.00% 0.00% 0.00%

Reacquired franchise and other acquisition costs 0.24% 0.05% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Legal settlement 0.22% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Significant and unusual items, net 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Total costs & expenses 93.11% 94.80% 96.68% 98.87% 96.94% 96.36% 95.84% 95.46% 94.92% 94.42%

EBIT 6.89% 5.20% 3.32% 1.13% 3.06% 3.64% 4.16% 4.54% 5.08% 5.58%


Interest expense 1.26% 0.98% 0.82% 0.59% 0.64% 0.61% 0.75% 0.64% 0.53% 0.44%

Interest income -0.05% -0.04% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01%

Gain on sale of property 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Loss on extinguishment of debt 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other 0.01% 0.00% -0.05% -0.01% 0.01% 0.00% 0.00% 0.00% 0.00% 0.00%

Total other expenses 1.21% 0.95% 0.76% 0.58% 0.65% 0.61% 0.74% 0.63% 0.53% 0.43%

EBT 5.67% 4.25% 2.56% 0.55% 2.41% 3.03% 3.42% 3.91% 4.55% 5.14%

Provision (benefit) for income taxes 29.21% 26.57% 18.25% -54.31% 6.84% 20.00% 25.00% 25.00% 35.00% 35.00%

Net income 4.01% 3.12% 2.09% 0.84% 2.25% 2.42% 2.56% 2.93% 2.96% 3.34%

EBITDA 13.06% 11.42% 10.12% 8.40% 9.58% 9.62% 10.05% 10.34% 10.79% 11.20%


20

Revenue assumptions

Revenue assumptions 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Company-owned mid/full size

Beginning of period 208 249 294 306 314 327 337 352 372 392

Opened during period 26 31 15 11 13 10 15 20 20 20

Acquired from franchisees 16 15 1 0 0 0 0 0 0 0

Closed during period -1 -1 -4 -3 0 0 0 0 0 0

End of period 249 294 306 314 327 337 352 372 392 412

Average weekly sales, net 52.737 52.533 54.043 54.583 55.129 55.681 56.237 56.800

growth -0.39% 2.87% 1.00% 1.00% 1.00% 1.00% 1.00%

Operating weeks 15,701 16,112 16,630 17,264 17,914 18,824 19,864 20,904

Operating weeks per avg store 52.3 52.0 51.9 52.0 52.0 52.0 52.0 52.0

Revenue 753.105 869.532 828.024 846.412 898.735 942.328 987.586 1048.131 1117.099 1187.342

Company-owned RR Burger Works

Beginning of period 0 0 0 0 0 0

Opened during period 0 0 0 0 0 0

Acquired from franchisees 0 0 0 0 0 0

Closed during period 0 0 0 0 0 0

End of period 0 0 0 0 0 0

Restaurant revenue (millions) 0 0 0 0 0

Average annual comps sales, net 1.250 1.263 1.275 1.288 1.301

Comp store sales growth, net 1.00% 1.00% 1.00% 1.00%

Franchised stores:

Beginning of period 139 135 129 133 136 137 137 137 137 137

Opened during period 14 10 5 7 3 2 0 0 0 0

Sold or closed during period -18 -16 -1 -4 -2 -2 0 0 0 0

End of period 135 129 133 136 137 137 137 137 137 137

Total system restuarants 384 423 439 450 464 474 489 509 529 549

Franchise royalties and fees per avg store 0.115 0.109 0.098 0.100 0.104 0.106 0.110 0.114 0.117 0.121

growth 2.7% 3.0% 4.0% 3.0% 3.0%

Total franchise royalties and fees 15.792 14.323 12.825 13.409 14.151 14.579 15.017 15.617 16.086 16.568

growth 3.0% 3.0% 4.0% 3.0% 3.0%

Other revenue: 0.15 0.202 0.189 4.471 1.857 0.261 0.261 0.261 0.261 0.261


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Cost assumptions

Cost assumptions 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Costs and expenses:


Cost of sales % Restaurant revenue 22.91% 23.81% 24.06% 24.41% 25.26% 25.40% 25.40% 25.40% 25.40% 25.40%

Labor Cost per avg store 1.113 1.067 0.960 0.971 0.947 0.952 0.956 0.966 0.976 0.985

% Restaurant revenue 34.02% 33.90% 34.78% 35.55% 33.77% 33.53% 33.36% 33.36% 33.36% 33.36%

Stock-based comp - labor Cost per avg store 0.005 0.005 0.005 0.003 0.002 0.004 0.004 0.004 0.004 0.004


Operating Cost per avg store 0.467 0.456 0.407 0.404 0.388 0.390 0.392 0.393 0.395 0.397


Occupancy Cost per avg store 0.203 0.210 0.208 0.203 0.205 0.206 0.207 0.208 0.209 0.210


Selling, general and administrative Total 73.749 83.379 76.260 88.836 98.988 105.000 107.000 110.210 113.516 116.922

% growth 58.87% 13.06% -8.54% 16.49% 11.43% 6.07% 1.90% 3.00% 3.00% 3.00%

Stock-based comp - SG&A Cost per avg store 0.025 0.021 0.018 0.011 0.008 0.009 0.010 0.011 0.012 0.013

% Total revenue 0.76% 0.64% 0.66% 0.38% 0.29% 0.32% 0.35% 0.38% 0.41% 0.44%

Franchise development % Franchise royalties & fees 25.77% 32.10% 32.77% 30.74% 29.23% 29.23% 29.23% 29.23% 29.23% 29.23%

Pre-opening costs Cost per new store 0.287 0.262 0.246 0.274 0.271 0.271 0.271 0.271 0.271 0.271

Asset impairment charge 0.000 1.906 0.000 6.116 4.337 0.000 0.000 0.000 0.000 0.000

Reacquired franchise and other acquisition costs 1.821 0.451 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Legal settlement 1.653 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

Significant and unusual items, net 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000


Interest expense % prior year's debt 6.26% 3.84% 3.61% 3.22% 3.75% 3.75% 3.75% 3.75% 3.75% 3.75%

Interest income % Cash & cash equivalents 3.08% 2.87% 0.55% 0.35% 0.18% 0.18% 0.18% 0.18% 0.18% 0.18%

Gain on sale of property 0.000 0.000 0.000 0.000 0.000 0 0 0 0 0

Loss on extinguishment of debt 0.000 0.000 0.000 0.000 0.000 0 0 0 0 0

Other 0.042 0.014 (0.380) (0.046) 0.090 0 0 0 0 0

Assumed tax rate 30.55% 12.44% 11.17% 18.29% 7.69% 20.00% 25.00% 25.00% 35.00% 35.00%


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Restaurant level operations

Restaurant-level operations 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec 31-Dec

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Restaurant revenue 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Cost of sales 22.91% 23.81% 24.06% 24.41% 25.26% 25.40% 25.40% 25.40% 25.40% 25.40%

Labor 34.02% 33.90% 34.78% 35.55% 33.77% 33.53% 33.36% 33.36% 33.36% 33.36%

Operating 14.26% 14.49% 14.76% 14.78% 13.82% 13.73% 13.66% 13.59% 13.52% 13.46%

Occupancy 6.20% 6.66% 7.54% 7.45% 7.32% 7.27% 7.23% 7.20% 7.16% 7.12%

System-wide operating margin 22.61% 21.15% 18.87% 17.80% 19.83% 20.08% 20.35% 20.45% 20.55% 20.66%


23

Red Robin management’s operating forecast