What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-07-31 compared with 2020-05-01 · 231 added, 141 removed, 320 unchanged (54% of the section changed)

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● ability to protect our name and logo and other proprietary intellectual property;

other risks set forth in our filings with the SEC from time to time, including under Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 26, 2018, which such filings are available online at www.sec.gov , at www.elpolloloco.com or upon request from El Pollo Loco.

● other risks set forth in our filings with the SEC from time to time, including under Item 1A, Risk Factors in this quarterly report on Form 10-Q, under Item 1A, Risk Factors in our annual report on Form 10-K for the year ended December 25, 2019 and under Item 1A, Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 25, 2020, which such filings are available online at www.sec.gov , at www.elpolloloco.com or upon request from El Pollo Loco.

We caution you that the important factors referenced above may not contain all of the factors that are important to you.

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Our distinctive menu features our signature product--citrus-marinated fire-grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken.

We serve individual and family-sized chicken meals, a variety of Mexican and LA-inspired entrees, and sides, and, throughout the year, on a limited-time basis, additional proteins like shrimp.

We serve individual and family-sized chicken meals, a variety of Mexican and

LA-inspired entrees, and sides, and, throughout the year, on a limited-time basis, additional proteins like shrimp.

Our entrees include favorites such as our Chicken Avocado Burrito, Under 500 Calorie entrees, chicken tostada salads, and Pollo Bowls.

Our famous Creamy Cilantro dressings and salsas are prepared fresh daily, allowing our customers to create their favorite flavor profiles to enhance their culinary experience.

Our distinctive menu with healthier alternatives appeals to consumers across a wide variety of socio-economic

backgrounds and drives our balanced composition of sales throughout the day (our “day-part mix”), including at lunch and dinner.

Our distinctive menu with healthier alternatives appeals to consumers across a wide variety of socio-economic backgrounds and drives our balanced composition of sales throughout the day (our “day-part mix”), including at lunch and dinner.

COVID-19 Impact

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus ("COVID-19") originating in Wuhan, China and the risks to the international community as the virus spreads globally beyond its point of origin.

On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The COVID-19 pandemic has disrupted our restaurant operations.

All of our restaurants are operating on a take-away, mobile pick-up and delivery basis only, as well as maintaining drive-thru operations where available, in order to protect our employees and customers from the spread of this virus, and in light of the government-mandated closures to our dining rooms.

The COVID-19 pandemic has significantly disrupted our restaurant operations.

Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home"

directives, and restaurant restrictions - including government-mandated dining room closures - that limited business to off-premise services only (take-out, drive-thru and delivery).

Historically, approximately 20% of the Company’s sales are associated with dine-in service.

In May 2020, the “stay at home” directive was modified in most areas in which the Company operates, allowing for the opening of lower-risk workplaces, including restaurants, but with restrictions such as limited capacity.

However, in recent months a surge in the COVID-19 pandemic has caused many state and local governments to re-implement certain restrictions to try and contain the spread of the virus.

Except for nine restaurants in Houston and one in Utah, all of our restaurants are operating on a take-away, mobile pick-up and delivery basis, as well as maintaining drive-thru operations where available, in order to protect our employees and customers from the spread of the COVID-19 pandemic and to comply with the government mandates.

Due to the impact of the COVID-19 pandemic, during the thirteen and twenty-six weeks ended June 24, 2020, we temporarily closed 31 restaurants, 30 of which have reopened and one remained closed as of June 24, 2020.

Similarly, franchisees have temporarily closed 21 restaurants, of which 17 have reopened and four remain closed as of June 24, 2020.

As of June 24, 2020, we have not permanently closed any restaurants due to the COVID-19 pandemic.

Below is a summary of other actions we have taken, or plan to take to enhance financial and operating flexibility for the Company and for our franchisees, and to protect our employees and customers:

● As a precautionary measure, we bolstered our existing cash position by fully drawing down our $150 million 2018 Revolver, adding $34.5 million of cash to our balance sheet.

We have temporarily suspended all but essential capital spending and share repurchase activity, reevaluated essential support center general and administrative expenses, and fine-tuned our restaurant labor model based on dining room closures and lower sales volumes.

For our franchisees, we are deferring 50% of their April royalties until July 1, 2020, when such royalties will begin to be repaid in even monthly installments over the remainder of fiscal 2020.

● We have temporarily suspended all share repurchase activity, significantly reduced capital spending, reevaluated essential support center general and administrative expenses, and fine-tuned our restaurant labor model based on indoor dining room restrictions, limited dining room capacity in restaurants located in geographies where indoor dining is permitted, dining room closures and fluctuating sales volume.

● For our franchisees, we deferred 50% of their April royalties until July 1, 2020, when such royalties began to be repaid in even monthly installments over the remainder of fiscal 2020.

In addition, we deferred 100% of our franchisees’ 2020 remodel and new restaurant build requirements until 2021.

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and our meaningful value platform.

We delayed making April rent payments on the majority of our leased properties and we are currently negotiating rent abatement and/or deferment with our landlords for those properties.

● We delayed making April, May and June rent payments on the majority of our leased properties, and we have reached rent abatement and/or deferment agreements with our landlords for those properties.

● We have taken advantage of provisions available under the CARES Act.

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The disruption in operations has led to us considering the impact of the COVID-19 pandemic on our liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others.

If these disruptions continue, we expect a continued material negative impact on our financial results, future operations and liquidity.

The extent of such negative impact will be determined, in part, by the COVID-19 pandemics longevity and severity.

If these disruptions to our operations from COVID-19 pandemic continue, they may have a material negative impact on our financial results, future operations and liquidity.

The extent of such negative impact will depend, in part, on the COVID-19 pandemics longevity and severity.

Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate material adverse impact on tour consolidated financial condition, liquidity, and future results of operations is uncertain.

See Item 1A, Risk Factors for additional information.

Growth Strategies and Outlook

As of March 25, 2020 , we had 479 locations in six states.

As of June 24, 2020, we had 479 locations in six states.

In fiscal 2019, we opened two new company-operated and two new franchised restaurants all in California.

For the thirteen weeks ended March 25, 2020 , no new company-operated restaurants were opened and one franchised restaurant in California was opened.

For the twenty-six weeks ended June 24, 2020, one new company-operated restaurant was opened in Nevada, which was in process prior to the COVID-19 pandemic, and two franchised restaurants, one in California and one in Arizona, were opened.

As a result of the COVID-19 crisis, we have suspended company-operated new unit development until the timing of the economic recovery and our business improvement becomes more clear.

In addition, we are allowing franchisees to defer their 2020 new unit development obligations until 2021.

As a result, we now expect to open one company-operated and one franchised restaurant, both of which are currently in progress, during the remainder of 2020.

As a result, we do not expect to open any additional company-operated or franchised restaurant during the remainder of 2020.

It is our intention to return to the following long-term growth strategy after the impact of the COVID-19 pandemic subsides.

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To increase comparable restaurant sales, we plan to increase customer frequency, attract new customers, and improve per-person spend.

These growth rates are not guaranteed.

Success of these growth plans is not guaranteed.

Highlights and Trends

Comparable Restaurant Sales

System-wide, for the thirteen weeks ended March 25, 2020 , comparable restaurant sales decreased by 1.5% , from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales, for the thirteen weeks ended March 25, 2020 , decreased by 0.7% .

For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of a 3.8% increase in average check size, and a 4.5% decline in transactions.

For franchised restaurants, comparable restaurant sales decreased 2.2% for the thirteen weeks ended March 25, 2020 .

Refer to Comparable Restaurant Sales definition in "Key Performance Indicators" section below.

System-wide, for the thirteen and twenty-six weeks ended June 24, 2020, comparable restaurant sales decreased by 9.7% and 5.7%, respectively, from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen and twenty-six weeks ended June 24, 2020 decreased by 8.5% and 4.7%, respectively.

For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of a decline in transactions of 25.4%, partially offset by an approximately 22.5% increase in average check size, and the year-to-date change in comparable restaurant sales consisted of a 15.2% decline in transactions, partially offset by a 12.4% increase in average check size.

For franchised restaurants, comparable restaurant sales decreased 10.6% and 6.4% for the thirteen and twenty-six weeks ended June 24, 2020, respectively.

Refer to Comparable Restaurant Sales definition in "Key Performance Indicators"

section below.

Restaurant Development

Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirteen weeks ended March 25, 2020 , were as follows.

Thirteen Weeks Ended

Our restaurant counts at the beginning and end of each of the last three fiscal years and the twenty-six weeks ended June 24, 2020, were as follows.

Twenty-Six Weeks Ended

Fiscal Year Ended

March 25, 2020

June 24, 2020

Company-operated restaurant activity:

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Restaurant Remodeling

As of March 25, 2020 , together with our franchisees, we had remodeled 34 company-operated and 45 franchised restaurants using our newest Vision restaurant design.

As of June 24, 2020, together with our franchisees, we had remodeled 34 company-operated and 45 franchised restaurants using our newest Vision restaurant design.

The Vision design elevates the brand image with exterior and interior features that embrace the brand’s authentic roots with warm textures, rustic elements and a focus on the signature open kitchen layout established in previous designs.

As of March 25, 2020 , including new builds and remodels, we had 120 restaurants open with the Vision design in our system.

As of June 24, 2020, including new builds and remodels, we had 120 restaurants open with the Vision design in our system.

Remodeling is a use of cash and has implications for our net property and equipment owned and depreciation and amortization line items on our condensed consolidated balance sheets and consolidated statements of income, among others.

The cost of our restaurant remodels varies depending on the scope of work required, but on average, the

investment is $0.3 million to $0.4 million per restaurant.

The cost of our restaurant remodels varies depending on the scope of work required, but on average, the investment is $0.3 million to $0.4 million per restaurant.

We believe that our remodeling program will result in higher restaurant revenue and a strengthened brand.

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We also believe that our remodels using this new design will result in higher restaurant revenue and a strengthened brand.

This new design replaces our “Vision” design, which was implemented in 2016.

However, given the uncertainty surrounding the severity and longevity of the COVID-19 pandemic, as a precautionary measure we have suspended all but essential capital spending, which includes remodels, and we have deferred our franchisee's 2020 remodel requirement until 2021.

If tests are successful, this new design will replace our “Vision” design, which was implemented in 2016.

However, given the uncertainty surrounding the severity and longevity of the COVID-19 pandemic, as a precautionary measure we have significantly reduced capital spending in 2020 and plan to limit our remodels to two restaurants using the new design in the fourth quarter.

We do not expect our franchisees to complete any remodels in 2020 as we have deferred their remodel requirements until 2021.

During the second quarter of 2017, we introduced a new loyalty rewards points program in an effort to increase sales and loyalty among our customers, by offering rewards that incentivize customers to visit our restaurants more often each month.

Customers earn 1 point for each $1 spent and 100 points can be redeemed for a $10 reward to be used for a future purchase.

Customers earn points for each dollars spent and 100 points can be redeemed for a $10 reward to be used for a future purchase.

If a customer does not earn or use points within a one-year period, their account is deactivated and all points expire.

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When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated.

The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a $10 reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote.

A portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty point’s terms.

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As points are available for redemption past the quarter earned, a portion of the revenue associated with the earned points will be deferred until redemption or expiration.

As of March 25, 2020 and December 25, 2019 , the revenue allocated to loyalty points that have not been redeemed are $1.0 million and $1.1 million , respectively, which are reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

The Company had almost 1.7 million loyalty program members as of March 25, 2020 .

As of both June 24, 2020, and December 25, 2019, the revenue allocated to loyalty points that have not been redeemed are $1.1 million, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

The Company had over 1.8 million loyalty program members as of June 24, 2020.

Critical Accounting Policies and Use of Estimates

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For a summary of our critical accounting policies and a discussion of our use of estimates, see “Critical Accounting Policies and Use of Estimates” in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended December 25, 2019.

There have been no material changes to our critical accounting policies or uses of estimates since our annual report on Form 10-K, other than the adoption of Topic 842, as described in Note 1 and Note 11 to Item 1 above.

There have been no material changes to our critical accounting policies or uses of estimates since our annual report on Form 10-K.

Recent Accounting Pronouncements

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We review long-lived assets such as property, equipment, and intangibles on a unit-by-unit basis for impairment when events or circumstances indicate a carrying value of the assets that may not be recoverable.

We determine if there is impairment at the

restaurant level by comparing undiscounted future cash flows from the related long-lived assets to their respective carrying values, and record an impairment charge when appropriate.

We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets to their respective carrying values and record an impairment charge when appropriate.

In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions.

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When the Company closes a restaurant, it will evaluate the ROU asset for impairment, based on anticipated sublease recoveries.

The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense, in addition to property tax and common area maintenance ("CAM") charges for closed restaurants.

Interest Expense, Net

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Comparison of Results of Income

Our operating results for the thirteen weeks ended March 25, 2020 and March 27, 2019 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared below.

Our operating results for the thirteen weeks ended June 24, 2020 and June 26, 2019 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared below.

Thirteen Weeks Ended

March 25, 2020

March 27, 2019

June 24, 2020

June 26, 2019

Increase / (Decrease)

Statements of Income Data

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Loss on disposal of assets

Recovery of securities lawsuits related legal expenses and other insurance claims

Impairment and closed-store reserves

Loss on assets held for sale

Total expenses

Income from operations

Interest expense, net of interest income

Income tax receivable agreement expense (income)

Income before provision for income taxes

Provision for income taxes

(1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator.

All other percentages use total revenue.

Our operating results for the twenty-six weeks ended June 24, 2020 and June 26, 2019 and expressed as percentages of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared below.

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

Increase / (Decrease)

Statements of Income Data

Company-operated restaurant revenue

Franchise revenue

Franchise advertising fee revenue

Total revenue

Cost of operations

Food and paper costs(1)

Labor and related expenses(1)

Occupancy and other operating expenses(1)

Company restaurant expenses(1)

General and administrative expenses

Franchise expenses

Depreciation and amortization

Loss on disposal of assets

Recovery of securities lawsuits related legal expenses and other insurance claims

Impairment and closed-store reserves

Loss on assets held for sale

Total expenses

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Interest expense, net of interest income

Income tax receivable agreement (income) expense

Income tax receivable agreement expense

Income before provision for income taxes

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For the quarter, company-operated restaurant revenue decreased $12.4 million, or 12.4%, from the comparable period in the prior year.

The decline in company-operated restaurant sales was primarily due to a $5.0 million decrease in revenue from the closure of four restaurants and the 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the first quarter of 2019.

Additionally, there was a decrease in company-operated restaurant revenue of $0.6 million from a 0.7% decrease in company-operated comparable restaurant sales, which we believe was primarily related to the impact of the COVID-19 pandemic.

The decline in company-operated restaurant sales was primarily due to a decrease in company-operated restaurant revenue of $8.1 million due to an 8.5% decrease in company-operated comparable restaurant sales, which we believe was primarily related to the impact of the COVID-19 pandemic.

See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.

This company-operated restaurant sales decrease was partially offset by an increase of $0.8 million of non-comparable restaurant sales on restaurants that had not been open the fifteen months required to be included in comparable restaurant sales and $0.3 million related to an increase in revenue recognized from our loyalty points program.

The company-operated comparable restaurant sales decrease consisted of a decline in transactions of 4.5% , partially offset by an increase in average check size of 3.8% .

Additionally, there was a $4.2 million decrease in revenue from the closure of two restaurants and the 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the second quarter of 2019 and a $0.7 million decrease due to temporary closures.

This company-operated restaurant sales decrease was partially offset by an increase of $0.6 million of non-comparable restaurant sales on restaurants that had not been open the fifteen months required to be included in comparable restaurant sales.

The company-operated comparable restaurant sales decrease consisted of a decline in transactions of 25.4%, partially offset by an approximately 22.5% increase in average check size.

Year-to-date, company-operated restaurant revenue decreased $16.9 million, or 8.6%, from the comparable period in the prior year.

The decline in company-operated restaurant sales was primarily due to a $9.4 million decrease in revenue from the closure of four restaurants and the 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the first quarter of 2019, a decrease in company-operated restaurant revenue of $8.7 million from a 4.7% decrease in company-operated comparable restaurant sales, which we believe was primarily related to the impact of the COVID-19 pandemic and a $0.4 million decrease due to temporary closures.

This company-operated restaurant sales decrease was partially offset by an increase of $1.4 million of non-comparable restaurant sales on restaurants that

had not been open the fifteen months required to be included in comparable restaurant sales and a $0.2 million increase in revenue recognized for our loyalty points program.

The company-operated comparable restaurant sales decrease consisted of a decline in transactions of 15.2%, partially offset by a 12.4% increase in average check size.

Franchise Revenue

For the quarter, franchise revenue increased $0.6 million , or 9.6% , from the comparable period in the prior year.

This increase was primarily due to the opening of three new franchised restaurants and revenue generated from 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the first quarter of 2019.

This franchise revenue increase was partially offset by a franchise comparable restaurant sales decrease of 2.2% , which we believe was primarily due to the COVID-19 pandemic, and the closure of six franchise locations during the same period.

For the quarter, franchise revenue decreased $1.2 million, or 15.1%, from the comparable period in the prior year.

This decrease was primarily due to a franchise comparable restaurant sales decrease of 10.6%, which we believe was primarily due to the COVID-19 pandemic, the closure of eight franchise locations during or subsequent to the second quarter of 2019 and a decrease in fees received from franchised restaurants related to their use of our point-of-sales system.

See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.

This franchise revenue decrease was partially offset by the opening of two new franchised restaurants and revenue generated from 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the second quarter of 2019.

Year-to-date, franchise revenue decreased $0.6 million, or 4.0%, from the comparable period in the prior year.

This decrease was primarily due to a franchise comparable restaurant sales decrease of 6.4%, which we believe was primarily due to the COVID-19 pandemic, the closure of eight franchise locations during the same period and a decrease in fees received from franchised restaurants related to their use of our point-of-sales system.

See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.

This franchise revenue decrease was partially offset by the opening of four new franchised restaurants and revenue generated from 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the first quarter of 2019.

Franchise Advertising Fee Revenue

For the quarter, franchise advertising fee revenue increased $0.1 million , or 1.6% , from the comparable period in the prior year.

As advertising fee revenue is a percentage of franchisees' revenue, this increase was primarily due to an increase in the number of franchise locations, partially offset by lower comparable sales resulting, we believe from the impact of the COVID-19 pandemic.

For the quarter, franchise advertising fee revenue decreased $0.5 million, or 8.9%, from the comparable period in the prior year.

Year-to-date, franchise advertising fee revenue decreased $0.4 million, or 3.8%, from the comparable period in the prior year.

As advertising fee revenue is a percentage of franchisees’ revenue, both the quarter and year-to-date increases were primarily due to an increase in the number of franchise locations, partially offset by the lower comparable sales discussed above.

Food and Paper Costs

For the quarter, food and paper costs decreased $5.0 million, or 18.0%, from the comparable period in the prior year, primarily due to a $4.3 million decrease in food costs and a $0.7 million decrease in paper costs.

The decrease in food and paper costs, for the quarter, resulted primarily from lower company transactions, due to the COVID-19 pandemic, partially offset by higher commodity inflation.

Year-to-date, food and paper costs decreased $6.6 million, or 12.0%, from the comparable period in the prior year, due to a $5.6 million decrease in food costs and a $1.0 million decrease in paper costs.

The decrease in food and paper costs, for the quarter and year-to-date periods, resulted primarily from lower company transactions, due to the COVID-19 pandemic and lower food waste.

For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 26.1%, down from 27.8% in the comparable period of the prior year.

The percentage decrease for the quarter period was due primarily to an increase in pricing, partially offset by commodity inflation.

Year-to-date, food and paper costs as a percentage of company-operated restaurant revenue were 26.9%, down from 27.9% in the comparable period of the prior year.

The percentage decrease for the quarter and year-to-date periods was due primarily to an increase in pricing, lower food usage and effective waste management, partially offset by commodity inflation and unfavorable sales mix.

Labor and Related Expenses

For the quarter, labor and related expenses decreased $3.5 million, or 12.0%, from the comparable period in the prior year.

The decrease for the quarter was due primarily to a reduction in labor by restaurants closed or sold to franchisees, partially offset by the impact of the minimum wage increases in California and Los Angeles during fiscal 2019 and 2020 and higher workers' compensation expense due to increased claims activity.

Year-to-date, labor and related expenses decreased $4.4 million, or 7.5%, from the comparable period in the prior year.

The decrease for the quarter and year-to-date periods was due primarily to a reduction in labor by restaurants closed or sold to franchisees, adjustments to the labor model based on dining room closures, operating hours and lower sales volumes and lower group insurance expense due to decreased claims activity.

These decreases were partially offset by higher wages primarily due to minimum wage increases in California and, specifically, Los Angeles during fiscal 2019 and 2020.

For the quarter, labor and related expenses as a percentage of company-operated restaurant revenue were 29.4%, up from 29.2% in the comparable period in the prior year.

The increase for the quarter was due primarily to minimum wage increases in California and Los Angeles and higher workers’ compensation expense due to increased claims activity.

Partially offsetting these increases was the positive impact from pricing increases.

Year-to-date payroll and benefit expenses as a percentage of company-operated restaurant revenue were 30.2%, up from 29.8% in the comparable period in the prior year.

The increases for the

quarter and year-to-date periods were due primarily to sales deleverage, wage increases in California, specifically, Los Angeles and labor costs associated with the COVID-19 pandemic.

Partially offsetting these increases were the positive impacts of an increase in pricing and labor efficiencies.

Occupancy and Other Operating Expenses

For the quarter, occupancy and other operating expenses decreased $1.1 million, or 4.8%, from the comparable period of the prior year.

The decrease was primarily due to a $0.6 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees, a $0.4 million decrease in repair and maintenance costs, a $0.2 million decrease in advertising expenses, a $0.2 million decrease in utilities costs and a $0.1 million decrease in other operating expenses.

These decreases were partially offset by a $0.4 million increase in customer order delivery fees due to an increase in delivery orders.

Occupancy and other operating expenses as a percentage of company-operated restaurant revenue was 23.9% for both the current quarter and comparable prior period.

The decrease was primarily due to a $0.5 million decrease in advertising expenses, a $0.5 million decrease in utilities costs, a $0.3 million decrease in credit card fees, primarily related to a decrease in rates and transactions, a $0.3 million decrease in repair and maintenance costs, a $0.1 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees and a $0.3 million decrease in other operating expenses.

These decreases were partially offset by a $0.9 million increase in customer order delivery fees payable to third parties due to an increase in delivery orders.

Year-to-date, occupancy and other operating expenses decreased $2.2 million, or 4.8%, from the comparable period of the prior year.

The decrease was primarily due to a $0.8 million decrease in repair and maintenance costs, a $0.8 million decrease in advertising expenses, a $0.7 million decrease in utilities costs, a $0.6 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees, a $0.3 million decrease in credit card fees primarily related to a decrease in rates and transactions, and a $0.3 million decrease in other operating expenses.

These decreases were partially offset by a $1.3 million increase in customer order delivery fees payable to third parties due to an increase in delivery orders.

For the quarter, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 25.0% up from 23.0% in the comparable period in the prior year.

Year-to-date, occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.4%, up from 23.4% in the comparable period of the prior year.

The increases for the quarter and year-to-date periods resulted primarily from the increases noted above and sales deleverage.

General and Administrative Expenses

For the quarter, general and administrative expenses decreased $2.0 million , or 17.8% , from the comparable period in the prior year.

The decrease for the quarter was due primarily to a $1.7 million decrease in legal expenses related primarily due to a decrease in securities class action litigation costs and a $0.6 million decrease in labor related costs, primarily related to a decrease in management bonus expense.

These were partially offset by a $0.3 million increase in other general and administrative expenses.

For the quarter, general and administrative expenses as a percentage of total revenue were 8.9% , down from 10.4% in the comparable period of the prior year.

The percentage decrease is primarily due to the cost decreases discussed above.

Loss on held for sale assets

During the thirteen weeks ended March 27, 2019 , we agreed in principle to sell four restaurants within the San Francisco area to an existing franchisee.

Additionally, we agreed in principle to sell seven restaurants in the Phoenix area to another existing franchisee.

The net assets were recorded to assets held for sale at the lower of carrying value or fair value less costs to sell, which resulted in a loss on held for sale assets of $4.1 million for the thirteen weeks ended March 27, 2019 .

These transactions were completed in the second quarter of 2019.

For the quarter, general and administrative expenses increased $1.1 million, or 11.9%, from the comparable period in the prior year.

The increase for the quarter was due primarily to a $1.9 million increase in legal expenses, primarily related to a $2.5 million settlement accrual related to an agreement in principle to resolve the longstanding lawsuit involving a contract dispute with one of the Company’s franchisees concerning asserted territory rights, partially offset by a $0.7 million decrease in labor related costs, primarily related to a decrease in management bonus expense and a $0.1 million decrease in other general and administrative expenses.

Year-to-date, general and administrative expenses decreased $0.9 million, or 4.3%, from the comparable period in the prior year.

The decrease for the year-to-date period was due primarily to a $1.3 million decrease in labor related costs, primarily related to a decrease in management bonus expense.

This decrease was partially offset by a $0.3 million increase in legal expenses related primarily to a $2.5 million legal settlement accrual, discussed above, partially offset by a decrease in securities class action litigation costs, and a $0.1 million increase in other general and administrative expenses.

For the quarter, general and administrative expenses as a percentage of total revenue were 10.5%, up from 8.2% in the comparable period of the prior year.

The percentage increase is primarily due to the decline in revenue, as well as the cost increases discussed above.

Year-to-date, general and administrative expenses as a percentage of total revenue were 9.7%, up from 9.3% in the comparable period of the prior year.

The percentage increase is primarily due to the decline in revenue, partially offset by the cost decreases discussed above.

Recovery of Securities Class Action Legal Expenses and Other Insurance Claims

During the thirteen and twenty-six weeks ended June 24, 2020, we received insurance proceeds of $0.1 million related to a property claim.

During the thirteen and twenty-six weeks ended June 26, 2019, we received insurance proceeds of $10.0 million related to the settlement of the securities class action lawsuit.

See Note 7, Commitments and Contingencies, Legal Matters.

Loss on Disposition of Restaurants

During the thirteen and twenty-six weeks ended June 26, 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the

Phoenix area to another existing franchisee.

We determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative selling price.

Cash proceeds included upfront consideration for the sale of the restaurants and franchise fees, as well as future cash consideration for royalties and lease payments.

We also considered the future lease payments in allocating the initial cash consideration received.

The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements.

We initially defer and subsequently recognize the franchise fees over the term of the franchise agreement.

Future royalty income is also recognized in revenue as earned.

These sales resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $0.9 million and $5.1 million for the thirteen and twenty-six weeks ended June 26, 2019, respectively.

These restaurants are included in the total number of franchised El Pollo Loco restaurants.

Impairment and Closed-Store Reserves

During the thirteen weeks ended March 25, 2020 , we recognized a $1.9 million non-cash impairment charge for the thirteen weeks ended March 25, 2020 , primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of three restaurants in California.

The Company did not recognize any impairment charges for the thirteen weeks ended March 27, 2019 .

During the thirteen and twenty-six weeks ended June 24, 2020, we recognized a $0.1 million and $2.0 million non-cash impairment charge, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of three restaurants in California.

During each of the thirteen and twenty-six weeks ended June 26, 2019, we recorded a non-cash impairment charge of $0.2 million, primarily related to the carrying value of the assets of one restaurant in California.

Given the inherent uncertainty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

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Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense.

During the thirteen weeks ended March 25, 2020 , we recognized $0.5 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

During the thirteen weeks ended March 27, 2019 , we closed one restaurant in California and one restaurant in Texas and recognized $0.3 million primarily related to the amortization of ROU assets for the two closed stores.

During the thirteen and twenty-six weeks ended June 24, 2020, we recognized $0.4 million and $0.9 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

During the twenty-six weeks ended June 26, 2019, we closed one restaurant in California and one restaurant in Texas and recognized $0.3 million and $0.6 million of closed-store reserve expense for the thirteen and twenty-six weeks ended June 26, 2019, respectively, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

Interest Expense, Net

For the quarter, interest expense, net, was consistent with the prior period.

For each of the quarter and year-to-date periods, interest expense, net, was consistent with the prior period.

Income Tax Receivable Agreement

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The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.

For the thirteen weeks ended March 25, 2020 we recorded income tax receivable agreement income of $0.1 million , and for the thirteen weeks ended March 27, 2019 , we recorded income tax receivable agreement expense of $0.2 million .

For the thirteen and twenty-six weeks ended June 24, 2020 we recorded income tax receivable agreement expense of $0.3 million and $0.2 million, respectively, and for the thirteen and twenty-six weeks ended June 26, 2019 we recorded income tax receivable agreement income of $0.1 million and income tax receivable agreement expense of $0.1 million, respectively.

Provision for Income Taxes

For the quarter ended March 25, 2020 , we recorded an income tax provision of $1.3 million , reflecting an estimated effective tax rate of 26.5% .

For the quarter ended March 27, 2019 , we recorded an income tax provision of $0.3 million , reflecting an estimated effective tax rate of approximately 27.7% .

The difference between the 21.0% statutory rate and the Company’s effective tax rate of 26.5% for the quarter-to-date ended March 25, 2020 is primarily a result of state taxes, a Work Opportunity Tax Credit benefit, the Company’s valuation allowance against certain state credits as a result of future forecasted income apportioned to the state jurisdiction, non-deductible executive compensation and changes to total expected TRA payments due to changes in future forecasted taxable income.

For the quarter ended June 24, 2020, we recorded an income tax provision of $0.8 million, reflecting an estimated effective tax rate of 12.0%.

For the quarter ended June 26, 2019, we recorded an income tax provision of $5.7 million, reflecting an estimated effective tax rate of approximately 28.7%.

Year-to-date ended June 24, 2020, we recorded an income tax provision of $2.1 million, reflecting an estimated effective tax rate of approximately 18.4%.

Year-to-date ended June 26, 2019 we recorded an income tax provision of $6.0 million, reflecting an estimated effective tax rate of approximately 28.6%%.

The difference between the 21.0% statutory rate and the Company’s effective tax rate of 18.4% for the year-to-date ended June 24, 2020 is primarily a result of state taxes, a Work Opportunity Tax Credit benefit, the change in valuation allowance against certain state credits as a result of future forecasted income apportioned to the state

jurisdiction, non-deductible executive compensation, changes to total expected TRA payments due to changes in future forecasted taxable income and windfall tax benefit related to stock options exercised, recorded as a discrete item during the thirteen and twenty-six weeks ended June 24, 2020.

Key Performance Indicators

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Seasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter.

Our revenue per restaurant is typically lower in the first and fourth quarters due to reduced January and December traffic and higher in the second and third

Our revenue per restaurant is typically lower in the first and fourth quarters due to reduced January and December traffic and higher in the second and third quarters.

As a result of seasonality, our quarterly and annual results of operations and key performance indicators such as company-operated restaurant revenue and comparable restaurant sales may fluctuate.

In addition, we expect our quarterly company-operated restaurant revenue and comparable restaurant sales to fluctuate significantly due to the current COVID-19 pandemic.

In addition, we expect our quarterly company-operated restaurant revenue and comparable restaurant sales to continue to fluctuate significantly due to the current COVID-19 pandemic.

See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.

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Comparable restaurant sales exclude restaurants closed during the applicable period.

At March 25, 2020 and March 27, 2019 , there were 472 and 458 comparable restaurants, 191 and 200 company-operated restaurants and 281 and 258 franchised restaurants, respectively.

At June 24, 2020 and June 26, 2019, there were 469 and 459 comparable restaurants, 191 and 199 company-operated restaurants and 278 and 260 franchised restaurants, respectively.

Comparable restaurant sales indicate the performance of existing restaurants, since new restaurants are excluded.

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Restaurant contribution is defined as company-operated restaurant revenue less company restaurant expenses which includes food and paper cost, labor and related expenses and occupancy and other operating expenses, where applicable.

Restaurant contribution excludes certain costs, such as general and administrative expenses, depreciation and amortization, impairment and closed-store reserve and other costs that are considered normal operating costs and accordingly, restaurant contribution is not indicative of overall Company results and does not accrue directly to the benefit of stockholders because of the exclusion of certain corporate-level expenses.

benefit of stockholders because of the exclusion of certain corporate-level expenses.

Restaurant contribution margin is defined as restaurant contribution as a percentage of net company-operated restaurant revenue.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Dollar amounts in thousands)

March 25, 2020

March 27, 2019

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Restaurant contribution:

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Loss on disposal of assets

Loss on assets held for sale

Franchise revenue

Franchise advertising fee revenue

Recovery of securities lawsuits related legal expenses and other insurance claims

Impairment and closed-store reserves

Loss on sale of restaurants

Restaurant contribution

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EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under GAAP.

requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our on-going operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our on-going operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their usefulness as comparative measures.

We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from such non-GAAP financial measures.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Amounts in thousands)

March 25, 2020

March 27, 2019

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Non-GAAP adjustments:

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Loss on disposal of assets (b)

Loss on assets held for sale (c)

Recovery of securities lawsuits related legal expense and other insurance claims (c)

Impairment and closed-store reserves (d)

Income tax receivable agreement (income) expense (e)

Securities class action legal expense (f)

Legal settlements (g)

Pre-opening costs (h)

Executive transition costs (i)

Loss on disposition of restaurants (e)

Income tax receivable agreement expense (income) (f)

Securities class action legal expense (g)

Legal settlements (h)

Pre-opening costs (i)

Executive transition costs (j)

Adjusted EBITDA

Includes non-cash, stock-based compensation.

Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

During the thirteen weeks ended March 27, 2019 , we agreed in principle to sell four restaurants within the San Francisco area to an existing franchisee.

Additionally, we agreed in principle to sell seven restaurants in the Phoenix area to another existing franchisee.

These transactions were completed in the second quarter of 2019.

Includes costs related to impairment of long-lived assets and closing restaurants.

three restaurants in California.

The Company did not recognize any impairment charges for the thirteen weeks ended March 27, 2019 .

(a) Includes non-cash, stock-based compensation.

(b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.

(c) During the thirteen and twenty-six weeks ended June 24, 2020, we received insurance proceeds of $0.1 million related to a property claim.

During the thirteen and twenty-six weeks ended June 26, 2019, we received insurance proceeds of $10.0 million related to the settlement of the securities class action lawsuit.

See Note 7, “Commitments and Contingencies, Legal Matters.”

(d) Includes costs related to impairment of long-lived assets and closing restaurants.

During the thirteen and twenty-six weeks ended June 26, 2019, we recorded a non-cash impairment charge of $0.2 million, primarily related to the carrying value of the assets of one restaurant in California.

Given the difficulty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

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Additionally, any property tax and CAM payments relating to closed restaurants are included within closed-store expense.

During the thirteen weeks ended March 25, 2020 , we recognized $0.5 million of closed-store reserve expense, related to the amortization of ROU assets, property tax and common area maintenance ("CAM") payments for our closed locations.

On July 30, 2014, we entered into the TRA.

This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.

For the thirteen weeks ended March 25, 2020 and March 27, 2019 , income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

Consists of costs related to the defense of securities lawsuits.

See "Note 7, Commitments and Contingencies, Legal Matters."

Includes amounts incurred related to the payment of the final settlement amounts for multiple wage and hour class action suits.

Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

During the twenty-six weeks ended June 26, 2019, we closed one restaurant in California and one restaurant in Texas, and recognized $0.3 million and $0.6 million of closed-store reserve expense for the thirteen and twenty-six weeks ended June 26, 2019, respectively, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.

(e) During the thirteen and twenty-six weeks ended June 26, 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.

These sales resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $0.9 million and $5.1 million for the thirteen and twenty-six weeks ended June 26, 2019, respectively.

These restaurants are now included in our franchised restaurant totals.

(f) On July 30, 2014, we entered into the TRA.

This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes

attributable to preceding periods.

For the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019, income tax receivable agreement expense (income) consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.

(g) Consists of costs related to the defense of securities lawsuits.

See "Note 7, Commitments and Contingencies, Legal Matters."

(h) Includes an accrual related to an agreement in principle to resolve the longstanding lawsuit involving a contract dispute with one of the Company’s franchisees concerning asserted territory rights, as well as amounts incurred related to the payment of the final settlement amounts for consolidated wage and hour class action lawsuits resolved in prior quarters.

(i) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs.

These are generally incurred over the three to five months prior to opening.

Pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant.

Includes costs associated with the transition of our CEO, such as CEO sign-on bonus.

(j) Includes costs associated with the transition of our CEO, such as CEO sign-on bonus.

Liquidity and Capital Resources

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We believe that our sources of liquidity and capital are sufficient to finance our continued operations for at least the next twelve months from the filing of the condensed consolidated financial statements.

However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread (including government-mandated closures of our dining rooms) and the possibility of a resurgence of the COVID-19 outbreak, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread (including government-mandated closures of our dining rooms) and the possibility of a subsequent resurgence of the COVID-19 outbreak after the current outbreak subsides, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

The following table presents summary cash flow information for the periods indicated.

Thirteen Weeks Ended

Twenty-Six Weeks Ended

(Amounts in thousands)

March 25, 2020

March 27, 2019

Net cash (used in) provided by

June 24, 2020

June 26, 2019

Net cash provided by (used in)

Operating activities

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Financing activities

Net increase (decrease) in cash

Net increase in cash

Operating Activities

For the thirteen weeks ended March 25, 2020 , net cash used in operating activities increased by approximately $17.5 million from the comparable period of the prior year.

This was due primarily to a $16.3 million payment related to our wage and hour class action settlements (see Note 7) and unfavorable working capital fluctuations.

For the twenty-six weeks ended June 24, 2020, net cash provided by operating activities decreased by approximately $1.8 million from the comparable period of the prior year.

This was due primarily to a decline in profitability after non-cash items, which we believe related to the COVID-19 pandemic, and unfavorable working capital fluctuations.

Investing Activities

For the thirteen weeks ended March 25, 2020 , net cash used in investing activities decreased by $2.6 million from the comparable period of the prior year.

This was due primarily to fewer major facilities and information technology projects, as well as opening no new company restaurant and completing no remodels in the thirteen weeks ended March 25, 2020 compared to no new company restaurants and one completed remodel in the thirteen weeks ended March 27, 2019 .

Given the uncertainty surrounding the severity and longevity of the COVID-19 pandemic, as a precautionary measure we have suspended all but essential capital spending.

For the twenty-six weeks ended June 24, 2020, net cash used in investing activities increased by $1.4 million from the comparable period of the prior year.

This was due primarily to cash proceeds of $4.8 million received during the twenty-six weeks ended June 26, 2019 related to the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.

In addition, there was one new company restaurant, which was in process prior to the COVID-19 pandemic, and no

remodels completed in twenty-six weeks ended June 24, 2020 and no new company stores and three remodels completed in the twenty-six weeks ended June 26, 2019.

Given the uncertainty surrounding the severity and longevity of the COVID-19 pandemic, as a precautionary measure we have significantly reduced capital spending.

Financing Activities

For the thirteen weeks ended March 25, 2020 , net cash provided by financing activities increased by $50.6 million from the comparable period of the prior year.

This increase was due primarily to an increase in net borrowings of $47.5 million on the 2018 Revolver during the thirteen weeks ended March 25, 2020 , primarily as a precautionary measure to bolster our existing cash position in light of the current COVID-19 pandemic, as well as to provide for the $16.3 million litigation settlement payment.

Additionally, there was a $3.0 million cash outflow related to stock buybacks in thirteen weeks ended March 27, 2019 .

As of March 25, 2020, we have no remaining borrowing capacity under our 2018 Revolver.

For the twenty-six weeks ended June 24, 2020, net cash provided by financing activities increased by $51.1 million from the comparable period of the prior year.

This increase was due primarily to an increase in net borrowings of $30.8 million on the 2018 Revolver during the twenty-six weeks ended June 24, 2020, primarily as a precautionary measure to bolster our existing cash position in light of the current COVID-19 pandemic, as well as to provide for the $16.3 million litigation settlement payment.

In addition, for the twenty-six weeks ended June 26, 2019, the Company had $18.2 million of cash outflow related to stock buybacks.

Debt and Other Obligations

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Borrowings under the 2018 Revolver may be repaid and reborrowed.

The interest rate range was 3.11% to 3.29% for the thirteen weeks ended March 25, 2020 , respectively, and 3.96% to 4.01% for the thirteen weeks ended March 27, 2019 .

The interest rate range was 1.67% to 3.11% and 1.67% to 3.29% for the thirteen and twenty-six weeks ended June 24, 2020, respectively, and 3.90% to 6.00% for each of the thirteen and twenty-six weeks ended June 26, 2019.

The 2018 Credit Agreement contains certain financial covenants.

The Company was in compliance with the financial covenants as of March 25, 2020 .

However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a resurgence of the COVID-19 outbreak, the Company's financial performance and liquidity could be further impacted and could impact the Company's ability to comply with certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

At March 25, 2020 , $8.4 million of letters of credit and $141.5 million of borrowings were outstanding under the 2018 Revolver.

There were $0.1 million remaining borrowings available under the 2018 Revolver at March 25, 2020 .

The Company was in compliance with the financial covenants as of June 24, 2020.

However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a resurgence of the COVID-19 outbreak after the initial outbreak subside, the Company’s financial performance and liquidity could be further impacted and could impact the Company’s ability to comply with certain financial covenants required in our 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

At June 24, 2020, $11.1 million of letters of credit and $138.8 million of borrowings were outstanding under the 2018 Revolver.

There were $0.1 million remaining borrowings available under the 2018 Revolver at June 24, 2020.

During the year ended December 25, 2019, we entered into an interest rate swap with a notional amount of $40.0 million, related to the outstanding borrowings under our 2018 Revolver.

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Contractual Obligations

Our contractual commitments outstanding on March 25, 2020 have not changed materially since our annual report on Form 10-K for the year ended December 25, 2019 other than an increase in net borrowings of $47.5 million on the 2018 Revolver during the thirteen weeks ended March 25, 2020 and the impact of our delay in making April rent payments on the majority of our leased properties, refer to COVID-19 impact in "Overview" section above.

These relate to future (i) debt payments, including expected interest expense, calculated based on current interest rates, (ii) restaurant operating lease payments, (iii) income tax receivable agreement payments, and (iv) purchasing commitments for chicken.

Our contractual obligations outstanding on June 24, 2020 have not changed materially since those disclosed under “Debt and Other Obligations – Contractual Obligations” in Part II, Item 7 of our annual report on Form 10-K for the year ended December 25, 2019 other than an increase in net borrowings of $41.8 million on the 2018 Revolver during the twenty-six weeks ended June 24, 2020 and the impact of our delay in making April, May and June rent payments on the majority of our leased properties.

Refer to COVID-19 impact in "Overview"

section above for additional information.

Our contractual commitments relate to future (i) debt payments, including expected interest expense, calculated based on current interest rates, (ii) restaurant operating lease payments, (iii) income tax receivable agreement payments, and (iv) purchasing commitments for chicken.

Off-Balance Sheet and Other Arrangements

As of March 25, 2020 and December 25, 2019 , we were using $8.4 million of borrowing capacity on the 2018 Revolver for letters of credit in support of our insurance programs.

Additionally, subsequent to March 25, 2020 , the Company issued a $2.7 million letter of credit to support its Surety demand related to an appeal bond used to secure a judgment against the Company.

See additional information presented in "Note 13 Commitments and Contingencies—Legal Matters" in the accompanying "Notes to Consolidated Financial Statements."

As of June 24, 2020, and December 25, 2019, we were using $11.1 million of borrowing capacity on the 2018 Revolver for letters of credit in support of our insurance programs, as well as to support our Surety demand related to an appeal bond used to secure a judgment against the Company.

See additional information presented in "Note 7 Commitments and Contingencies—Legal Matters"

in the accompanying "Notes to Consolidated Financial Statements."

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis