What changed in this filing

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Item 1. Financial Statements

2020-10-30 compared with 2020-07-31 · 251 added, 229 removed, 721 unchanged (40% of the section changed)

3 unchanged sentences

(Amounts in thousands, except share data)

September 23,

Current assets:

5 unchanged sentences

Property and equipment owned, net

Property held under operating leases, net ("ROU asset")

Property and equipment held under finance lease, net

Property and equipment held under operating leases, net ("ROU asset")

Deferred tax assets

34 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Company-operated restaurant revenue

6 unchanged sentences

Occupancy and other operating expenses

Gain on recovery of insurance proceeds, lost profits

Company restaurant expenses

9 unchanged sentences

Interest expense, net

Income tax receivable agreement expense (income)

Income tax receivable agreement (income) expense

Income before provision for income taxes

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands, except share data)

(Amounts in thousands)

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Other comprehensive loss (income)

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Other comprehensive income (loss)

Changes in derivative instruments

Unrealized net losses arising during the period from interest rate swap

Reclassifications of losses into net income

Income benefit

Other comprehensive loss, net of taxes

Unrealized net (losses) gains arising during the period from interest rate swap

Reclassifications of losses (gains) into net income

Income tax (expense) benefit

Other comprehensive income (loss), net of taxes

Comprehensive income

2 unchanged sentences

(Amounts in thousands, except share data)

Thirteen Weeks Ended June 24, 2020

Thirteen Weeks Ended September 23, 2020

Comprehensive

Stockholders’

Income (Loss)

Balance, March 25, 2020

(Loss) Income

Balance, June 24, 2020

Stock-based compensation

3 unchanged sentences

Forfeiture of common stock related to restricted shares

Other comprehensive loss, net of tax

Balance, June 24, 2020

Thirteen Weeks Ended June 26, 2019

Other comprehensive income, net of tax

Balance, September 23, 2020

Thirteen Weeks Ended September 25, 2019

Comprehensive

Stockholders’

Balance, March 27, 2019

Balance, June 26, 2019

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Repurchase of common stock

( 2,825,896 )

Balance, June 26, 2019

Twenty-Six Weeks Ended June 24, 2020

Other comprehensive income, net of tax

Balance, September 25, 2019

Thirty-Nine Weeks Ended September 23, 2020

Comprehensive

8 unchanged sentences

Other comprehensive loss, net of tax

Balance, June 24, 2020

Twenty-Six Weeks Ended June 26, 2019

Balance, September 23, 2020

Thirty-Nine Weeks Ended September 25, 2019

Comprehensive

7 unchanged sentences

( 4,384,732 )

Balance, June 26, 2019

Other comprehensive income, net of tax

Balance, September 25, 2019

EL POLLO LOCO HOLDINGS, INC.

1 unchanged sentence

(Amounts in thousands)

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Bad debt expense

Stock-based compensation expense

Income tax receivable agreement expense

Income tax receivable agreement expense (income)

Loss on disposition of restaurants

24 unchanged sentences

Stock buybacks

Net cash flows provided by (used in) financing activities

Net cash flows used in financing activities

Increase in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents, end of period

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

Supplemental cash flow information

11 unchanged sentences

(“EPL”), which develops, franchises, licenses, and operates quick-service restaurants under the name El Pollo Loco® and operates under one operating segment.

At June 24, 2020, the Company operated 196 and franchised 283 El Pollo Loco restaurants.

At September 23, 2020, the Company operated 196 and franchised 282 El Pollo Loco restaurants.

Basis of Presentation

30 unchanged sentences

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 the Company’s 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 its 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, the Company has temporarily closed 31 restaurants, typically for one to three days , 30 of which have reopened and 1 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, the Company had not permanently closed any restaurants due to the COVID-19 pandemic.

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

As of September 23, 2020, the majority of the Company’s restaurants were permitted to be open with limited capacity;

however, while most of the Company’s markets outside of California have dining rooms open at a limited capacity, the majority of the Company’s restaurants in California are continuing to operate on a take-away, mobile pick-up and delivery basis, as well as maintaining drive-thru operations where available, in order to protect their 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 thirty-nine weeks ended September 23, 2020, we temporarily closed 40 restaurants and 65 restaurants, respectively, of which all but three have reopened as of September 23, 2020.

Similarly, during the thirteen and thirty-nine weeks ended September 23, 2020, franchisees temporarily closed 15 restaurants and 36 restaurants, respectively, of which all but three have reopened as of September 23, 2020.

As of September 23, 2020, the Company had not permanently closed any restaurants due to the COVID-19 pandemic.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report.

Management has taken precautionary actions, such as drawing on its 2018 Revolver (see Note 4), temporarily suspending all but essential capital spending and share repurchase activity, reevaluating essential support center general and administrative expenses and fine-tuning its 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 volumes.

Additionally, Management has delayed making April, May and June rent payments on the majority of its leased properties and has reached agreements for rent abatement and/or deferment with the Company’s landlords for those properties.

Management has taken precautionary actions, such as initially drawing on its 2018 Revolver, which has since been paid down (see Note 4), temporarily suspending all but essential capital spending and share repurchase activity, reevaluating essential support center general and administrative expenses and fine-tuning its 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 volumes.

Additionally, management delayed making April, May and June rent payments on the majority of its leased properties and has reached agreements for rent abatement and/or deferment with the Company’s landlords for those properties.

See Note 5 “Other Accrued Expenses and Current Liabilities” and Note 6 “Other Noncurrent Liabilities” for details of these balances.

For the Company’s franchisees, the Company deferred 50 % of their April royalties as well as 100 % of their 2020 remodel and new restaurant build requirements until 2021.

Management is continually evaluating the impact of the global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary.

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 Management is continually evaluating the impact of the global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary.

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

If these disruptions to the Company’s operations from the COVID-19 pandemic continue, they may have a material negative impact on the Company’s consolidated financial condition, future results of operations and liquidity.

The extent of such negative impact will depend, in part, on the longevity and severity of the pandemic.

If these disruptions to the Company’s operations from the COVID-19 pandemic continue or worsen, they may have a material negative impact on the Company’s consolidated financial condition, future results of operations and liquidity.

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

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

Subsequent Events

Subsequent to June 24, 2020, the Company has temporarily closed 36 restaurants, typically for one to three days , and franchisees have temporarily closed 11 restaurants.

As of July 31, 2020, four company-operated and three franchise locations remained closed.

Subsequent to June 24, 2020, the Surety, from whom the Company procured an appeal bond to secure the judgement against the Company in the matter of Janice P.

Handlers-Bryman and Michael D.

El Pollo Loco, Inc., released its collateral demand, freeing the $ 2.7 million Letter of Credit previously issued in April 2020.

Additionally,

subsequent to June 24, 2020, the Company reached an agreement in principle with the plaintiffs to resolve the lawsuit.

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

The Company has evaluated subsequent events that have occurred after June 24, 2020, and determined that there were no other events or transactions occurring during this reporting period that require recognition or disclosure in the condensed consolidated financial statements.

Subsequent to September 23, 2020, the Company has temporarily closed eight restaurants, typically for one to three days , and franchisees have not temporarily closed any restaurants.

As of October 29, 2020, two company-operated and three franchise locations remained closed.

Subsequent to September 23, 2020, the Company made a voluntary $ 28.0 million pre-payment on its 2018 Revolver.

As of October 30, 2020, the Company had $ 55.8 million in outstanding borrowings under the 2018 Revolver and $ 85.8 million in borrowing availability.

The Company has evaluated subsequent events that have occurred after September 23, 2020, and determined that there were no other events or transactions occurring during this reporting period that require recognition or disclosure in the condensed consolidated financial statements.

Cash and Cash Equivalents

1 unchanged sentence

The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on our debt, lease obligations and working capital and general corporate needs.

At June 24, 2020, the Company’s total debt was $ 138.8 million.

At September 23, 2020, the Company’s total debt was $ 83.8 million.

The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control.

Based on current operations, the Company believes that its cash flow from operations and available cash of $ 60.3 million at June 24, 2020 will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements.

Based on current operations, the Company believes that its cash flow from operations and available cash of $ 29.5 million at September 23, 2020 will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements.

However, depending on the severity and longevity of the COVID-19 pandemic, the Company’s financial performance and liquidity could be further impacted and could impact the Company’s ability to meet certain covenants required in its 2018 Credit Agreement (as defined below), specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

Gain on Recovery of Insurance Proceeds, Lost Profits

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company received business interruption insurance proceeds of $ 2.0 million, primarily related to restaurant sales losses and expenses related to the COVID-19 pandemic and resulting dining room closures.

Recovery of Securities Class Action Legal Expenses and Other Insurance Claims

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

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

During the thirty-nine weeks ended September 23, 2020, the Company received insurance proceeds of $ 0.1 million related to a property claim.

During the thirty-nine weeks ended September 25, 2019, the Company received insurance proceeds of $ 10.0 million related to the settlement of a 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, the Company 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.

The Company 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.

During the thirty-nine weeks ended September 25, 2019, the Company 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.

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.

3 unchanged sentences

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

These sales resulted in cash proceeds of $ 4.8 million and a net loss on sale of restaurants of $ 5.1 million for the thirty-nine weeks ended September 25, 2019.

These restaurants have been included in the total number of franchised El Pollo Loco restaurants since completion of their sales.

Recently Adopted Accounting Pronouncements

2 unchanged sentences

Facilitation of the Effects of Reference Rate Reform on Financial Reporting,"

which provides optional guidance, for a limited time, to ease the potential burden in accounting for or

recognizing the effects of reference rate reform on financial reporting.

which provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting.

ASU 2020-04 is effective for a limited time, from March 12, 2020, through December 31, 2022.

28 unchanged sentences

The Company has never experienced any losses related to these balances.

The Company had one supplier for which amounts due totaled 44.5 % and 11.7 % of the Company’s accounts payable at June 24, 2020 and December 25, 2019, respectively.

Purchases from the Company’s largest supplier totaled 26.4 % and 27.0 % of total expenses for the thirteen and twenty-six weeks ended June 24, 2020, respectively, and 30.3 % and 28.8 % of total expenses for the thirteen and twenty-six weeks ended June 26, 2019.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.1 % and 71.7 % of total revenue for the thirteen and twenty-six weeks ended June 24, 2020, respectively, and 69.3 % for each of the thirteen and twenty-six weeks ended June 26, 2019.

The Company had no supplier to whom amounts due totaled more than 10% of the Company’s accounts payable at September 23, 2020.

At December 25, 2019, the Company had one supplier to whom amounts due totaled 11.7 % of the Company’s accounts payable.

Purchases from the Company’s largest supplier totaled 26.7 % and 26.8 % of total expenses for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and 29.0 % and 28.9 % of total expenses for the thirteen and thirty-nine weeks ended September 25, 2019.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.2 % and 71.5 % of total revenue for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and 71.5 % and 70.0 % for the thirteen and thirty-nine weeks ended September 25, 2019.

Goodwill and Indefinite Lived Intangible Assets

5 unchanged sentences

The amount of goodwill included in the cost basis of the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting unit retained.

The Company determined there was no decrement of goodwill related to the disposition of restaurants during the thirteen and twenty-six weeks ended June 26, 2019.

The Company determined there was no decrement of goodwill related to the disposition of restaurants during the thirteen and thirty-nine weeks ended September 25, 2019.

The Company performs an annual impairment test for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise.

10 unchanged sentences

These assumptions are subject to change as a result of changing economic and competitive conditions.

Due to the recent impact of the COVID-19 pandemic to the global economy, including but not limited to, the volatility of the Company’s stock price as well as that of its competitors and the challenging environment for the restaurant industry generally, the Company determined that there were indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 24, 2020.

As such, the Company performed an impairment assessment for both goodwill and indefinite-lived intangible assets and concluded that the fair value of these assets substantially exceeded their carrying values.

Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 24, 2020.

Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 23, 2020.

T he ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

11 unchanged sentences

The key inputs for the valuation models are observable market prices, discount rates, and forward yield curves.

See "Note 4.

“Long-Term Debt"

for further discussion regarding our interest rate swaps.

The following table presents fair value for the interest rate swap at June 24, 2020 (in thousands):

The following table presents fair value for the interest rate swap at September 23, 2020 (in thousands):

Fair Value Measurements Using

6 unchanged sentences

when there is evidence of impairment).

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and twenty-six weeks ended June 24, 2020 (in thousands):

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and thirty-nine weeks ended September 23, 2020, reflecting certain property and equipment assets and right-of-use (“ROU”) assets, for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under "Impairment of Long-Lived Assets and ROU Assets."

(in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 24, 2020 Using

Ended June 24, 2020

Thirty-Nine Weeks

Fair Value Measurements at September 23, 2020 Using

Ended September 23, 2020

Impairment Losses

2 unchanged sentences

Certain ROU assets, net

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 26, 2019 (in thousands):

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and thirty-nine weeks ended September 25, 2019, reflecting certain property and equipment assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under "Impairment of Long-Lived Assets and ROU Assets"

(in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 26, 2019 Using

Ended June 26, 2019

Thirty-Nine Weeks

Fair Value Measurements at September 25, 2019 Using

Ended September 25, 2019

Impairment Losses

2 unchanged sentences

Impairment of Long-Lived Assets and ROU Assets

The Company reviews its long-lived and right-of-use assets ("ROU assets") for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain long-lived and ROU assets may not be recoverable.

The Company considers a triggering event related to long-lived assets or ROU assets in a net asset position to have occurred related to a specific restaurant if the restaurant’s cash flows for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets.

Additionally, the Company considers a triggering event related to ROU assets to have occurred related to a specific lease if the location has been subleased and future estimated sublease income is less than current lease payments.

The Company reviews its long-lived and ROU assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain long-lived and ROU assets may not be recoverable.

carrying value of the restaurant’s assets.

If the Company concludes that the carrying value of certain long-lived and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is recorded to reduce the long-lived or ROU assets to their estimated fair value.

2 unchanged sentences

If actual performance does not achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future periods, and such charges could be material.

The Company determined that triggering events occurred during each of the thirteen and twenty-six weeks ended June 24, 2020 that required an impairment review of the Company’s long-lived and ROU assets.

Based on the results of the analysis, the Company recorded non-cash impairment charges of $ 0.1 million and $ 2.0 million for the thirteen and twenty-six weeks ended June 24, 2020, respectively, 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 recorded a non-cash impairment charge of $ 0.2 million for both the thirteen and twenty-six weeks ended June 26, 2019, primarily related to the carrying value of one restaurant in California.

The Company determined that triggering events occurred during each of the thirteen and thirty-nine weeks ended September 23, 2020 that required an impairment review of the Company’s long-lived and ROU assets.

Based on the results of the analysis, the Company recorded non-cash impairment charges of $ 1.5 million and $ 3.5 million for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of four restaurants in California.

The Company recorded a non-cash impairment charge of $ 0.1 million and $ 0.3 million for the thirteen and thirty-nine weeks ended September 25, 2019, respectively, primarily related to the carrying value 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.

4 unchanged sentences

Additionally, any property tax and common area maintenance ("CAM") payments relating to closed restaurants are included within closed-store expense.

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

During the twenty-six weeks ended June 26, 2019, the Company 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 its closed locations.

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company recognized $ 0.3 million and $ 1.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

During the thirty-nine weeks ended September 25, 2019, the Company closed one restaurant in California and one restaurant in Texas, and recognized $ 0.3 million and $ 1.0 million of closed-store reserve expense for the thirteen and thirty-nine weeks ended September 25, 2019, respectively, primarily related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

Derivative Financial Instruments

1 unchanged sentence

The derivative contract is entered into with a financial institution.

The Company records the derivative instrument on its condensed consolidated balance sheet at fair value.

The Company records the derivative instrument on its condensed consolidated balance sheets at fair value.

The derivative instrument qualifies as a hedging instrument in a qualifying cash flow hedge relationship, and the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive (loss) income ("AOCI") and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.

3 unchanged sentences

To mitigate the counterparty credit risk, the Company will only enter into contracts with major financial institutions, based upon their credit ratings and other factors, and will continue to assess the creditworthiness of the counterparty.

As of June 24, 2020, the counterparty to the Company’s interest rate swap has performed in accordance with its contractual obligation.

As of September 23, 2020, the counterparty to the Company’s interest rate swap has performed in accordance with its contractual obligation.

The provision for income taxes, income taxes payable and deferred income taxes is determined using the asset and liability method.

7 unchanged sentences

Otherwise, the Company may not recognize any of the potential tax benefit associated with the position.

Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution.

The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion at the largest amount of tax benefit that is greater than 50 percent likely of being realized upon its effective resolution.

Unrecognized tax benefits involve management’s judgment regarding the likelihood of the benefit being sustained.

1 unchanged sentence

The Company’s policy is to recognize interest and penalties related to income tax matters in income tax expense.

The Company had no accrual for interest or penalties at June 24, 2020 or at December 25, 2019, and did not recognize interest or penalties during the thirteen and twenty-six weeks ended June 24, 2020 or June 26, 2019, since there were no material unrecognized tax benefits.

The Company had no accrual for interest or penalties at September 23, 2020 or at December 25, 2019.

During the thirteen and thirty-nine weeks ended September 23, 2020 the Company recognized interest of $ 0.1 million related to the Notice of Proposed Adjustment (“NOPA”), discussed below.

The Company did not recognize interest or penalties during the thirteen and thirty-nine weeks ended September 25, 2019, since there were no material unrecognized tax benefits.

Management believes no material changes to the amount of unrecognized tax benefits will occur within the next twelve months.

On July 30, 2014, the Company entered into the income tax receivable agreement (the "TRA"), which calls for the Company to pay to its pre-IPO stockholders 85 % of the savings in cash that the Company realizes in its income taxes as a result of utilizing its net operating losses and other tax attributes attributable to preceding periods.

For the thirteen and twenty-six weeks ended June 24, 2020, the Company 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, the Company recorded income tax receivable agreement income of $ 0.1 million and income tax receivable expense of $ 0.1 million, respectively, related to the amortization of interest expense related to our total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income.

For the thirteen and thirty-nine weeks ended September 23, 2020, the Company recorded income tax receivable agreement income of $ 0.1 million and income tax receivable expense of less than $ 0.1 million, respectively, and for the thirteen and thirty-nine weeks ended September 25, 2019, the Company recorded income tax receivable agreement income of $ 0.2 million and $ 0.1 million, respectively, related to the amortization of interest expense related to our total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income.

On March 27, 2020, President Trump signed into a law a stimulus package, the Coronavirus Aid, Relief and Economic Security ("CARES") Act, which contains several tax provisions and deferral of employer Social Security taxes that are otherwise owed for wage payments.

1 unchanged sentence

The new provisions did not have a material impact on the Company’s condensed consolidated financial statements.

During the twenty-six weeks ended June 24, 2020 the Company received a Notice of Proposed Adjustment ("NOPA"), for the years ended December 27, 2017 and December 28, 2016, related to the Company’s methodology regarding its ordering of utilization of AMT net operating losses ("NOL”).

During the thirty-nine weeks ended September 23, 2020, the Company received a NOPA for the years ended December 27, 2017 and December 28, 2016, related to the Company’s methodology regarding its ordering of utilization of AMT net operating losses ("NOL”).

This resulted in payment of $ 0.4 million, and the audit is closed.

As a result of the CARES Act, discussed above, this amount is immediately refundable upon filing of a Form 1139, which the Company filed during the thirteen and twenty-six weeks ended June 24, 2020 and recognized a receivable, included in Accounts and other receivables within the condensed consolidated balance sheet as of June 24, 2020.

As a result of the CARES Act, discussed above, this amount is immediately refundable upon filing of a Form 1139, which the Company filed during the thirty-nine weeks ended September 23, 2020 and recognized a receivable, included in Accounts and other receivables within the condensed consolidated balance sheet as of September 23, 2020.

PROPERTY AND EQUIPMENT

The costs and related accumulated depreciation and amortization of major classes of property and equipment are as follows (in thousands):

June 24, 2020

September 23, 2020

December 25, 2019

3 unchanged sentences

accumulated depreciation and amortization

Depreciation expense was $ 4.2 million and $ 4.5 million for the thirteen weeks ended June 24, 2020 and June 26, 2019, respectively, and $ 8.5 million and $ 9.2 million for the twenty-six weeks ended June 24, 2020 and June 26, 2019, respectively .

Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $ 0.1 million and $ 1.4 million for the thirteen and twenty-six weeks ended June 24, 2020, respectively, primarily related to the carrying value of the assets of three restaurants in California.

During the thirteen and twenty-six weeks ended June 26, 2019, the Company recorded non-cash impairment charges of $ 0.2 million, primarily related to

the carrying value of one restaurant in California.

Depreciation expense was $ 4.1 million and $ 4.3 million for the thirteen weeks ended September 23, 2020 and September 25, 2019, respectively, and $ 12.6 million and $ 13.6 million for the thirty-nine weeks September 23, 2020 and September 25, 2019, respectively .

Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $ 1.5 million and $ 2.9 million for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, primarily related to the carrying value of the assets of four restaurants in California.

During the thirteen and thirty-nine weeks ended September 25, 2019, the Company recorded non-cash impairment charges of $ 0.1 million and $ 0.3 million, respectively, primarily related to the carrying value of one restaurant in California.

D epending on the severity and longevity of the COVID-19 pandemic, the Company’s financial performance could be further impacted and it is possible that material impairments could be identified in future periods.

See “Impairment of Long-Lived Assets and ROU Assets” in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for additional information.

STOCK-BASED COMPENSATION

At June 24, 2020, options to purchase 1,641,851 shares of common stock were outstanding, including 1,258,437 vested and 383,414 unvested.

At September 23, 2020, options to purchase 1,035,866 shares of common stock were outstanding, including 689,166 vested and 346,700 unvested.

Unvested options vest over time;

however, upon a change in control, the Board of Directors may accelerate vesting.

At June 24, 2020, 820,342 premium options, options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of June 24, 2020 and changes during the twenty-six weeks ended June 24, 2020 is as follows:

At September 23, 2020, 303,786 premium options, options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of September 23, 2020 and changes during the thirty-nine weeks ended September 23, 2020 is as follows:

Weighted-Average

2 unchanged sentences

Forfeited, cancelled or expired

Outstanding - June 24, 2020

Vested and expected to vest at June 24, 2020

Exercisable at June 24, 2020

At June 24, 2020, the Company had total unrecognized compensation expense of $ 1.3 million related to unvested stock options, which it expects to recognize over a weighted-average period of 2.46 years.

A summary of restricted share activity as of June 24, 2020 and changes during the twenty-six weeks ended June 24, 2020 is as follows:

Outstanding - September 23, 2020

Vested and expected to vest at September 23, 2020

Exercisable at September 23, 2020

At September 23, 2020, the Company had total unrecognized compensation expense of $ 1.1 million related to unvested stock options, which it expects to recognize over a weighted-average period of 2.23 years.

A summary of restricted share activity as of September 23, 2020 and changes during the thirty-nine weeks ended September 23, 2020 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

Unvested shares at June 24, 2020

Unvested shares at June 24, 2020, included 733,885 unvested restricted shares, 36,058 unvested performance stock units and 48,078 unvested restricted units.

At June 24, 2020, the Company had unrecognized compensation expense of $ 8.0 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 3.22 years, unrecognized compensation expense of $ 0.1 million related to performance stock units, which it expects to recognize over a weighted-average period of 2.87 years and unrecognized compensation expense of $ 0.5 million related to unvested restricted units, which it expects to recognize over a weighted-average period of 1.87 years.

Total stock-based compensation expense was $ 0.7 million and $ 1.3 million for the thirteen and twenty-six weeks ended June 24, 2020, respectively, and $ 0.6 million and $ 1.1 million for the thirteen and twenty-six weeks ended June 26, 2019, respectively.

Unvested shares at September 23, 2020

Unvested shares at September 23, 2020, included 684,971 unvested restricted shares, 36,058 unvested performance stock units and 48,078 unvested restricted units.

At September 23, 2020, the Company had unrecognized compensation expense of $ 7.3 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 3.01 years, unrecognized compensation expense of $ 0.1 million related to performance stock units, which it expects to recognize over a weighted-average period of 2.62 years and unrecognized compensation expense of $ 0.4 million related to unvested restricted units, which it expects to recognize over a weighted-average period of 1.62 years.

Total stock-based compensation expense was $ 0.9 million and $ 2.2 million for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and $ 0.7 million and $ 1.8 million for the thirteen and thirty-nine weeks ended September 25, 2019, respectively.

LONG-TERM DEBT

2 unchanged sentences

The 2018 Revolver and 2018 Credit Agreement will mature on July 13, 2023 .

The obligations under the 2018 Credit Agreement and related

loan documents are guaranteed by the Company and Intermediate.

The obligations under the 2018 Credit Agreement and related loan documents are guaranteed by the Company and Intermediate.

The obligations of the Company, EPL and Intermediate under the 2018 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

4 unchanged sentences

Borrowings under the 2018 Revolver may be repaid and reborrowed.

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 both the thirteen and twenty-six weeks ended June 26, 2019.

The interest rate range was 1.67 % to 1.68 % and 1.67 % to 3.29 % for

the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and 3.65 % to 3.90 % and 3.65 % to 6.00 % for the thirteen and thirty-nine weeks ended September 25, 2019, respectively.

The 2018 Credit Agreement contains certain financial covenants.

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

The Company was in compliance with the financial covenants as of September 23, 2020.

However, depending on the severity and longevity of the COVID-19 pandemic, 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 the 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 in borrowings under the 2018 Revolver were outstanding.

The Company had $ 0.1 million in borrowing availability under the 2018 Revolver at June 24, 2020.

During the thirteen weeks ended June 24, 2020, the Company elected to pay down $ 2.7 million on its 2018 Revolver.

During the twenty-six weeks ended June 24, 2020, the Company borrowed $ 41.8 million, net of pay downs of $ 10.7 million on its 2018 Revolver, primarily as a precautionary measure to bolster its existing cash position, related to the uncertainty regarding the current COVID-19 pandemic, as well as to fund litigation settlement payments.

See Note 1 under "COVID-19"

for further details regarding the Company’s actions related to the COVID-19 pandemic and Note 7 for further details regarding the litigation settlement payments.

During the thirteen and twenty-six weeks ended June 26, 2019, the Company borrowed $ 14.0 million and $ 11.0 million, respectively, net of pay downs of $ 12.0 and $ 15.0 million of outstanding borrowings on the Company’s 2018 Revolver, primarily to fund settlement payments.

At September 23, 2020, $ 8.4 million of letters of credit and $ 83.8 million in borrowings under the 2018 Revolver were outstanding.

The Company had $ 57.8 million in borrowing availability under the 2018 Revolver at September 23, 2020.

During the thirteen weeks ended September 23, 2020, the Company elected to pay down $ 55.0 million on its 2018 Revolver.

During the thirty-nine weeks ended September 23, 2020, the Company paid down $ 13.2 million, net of borrowings of $ 52.5 million on its 2018 Revolver.

During the thirteen and thirty-nine weeks ended September 25, 2019, the Company borrowed $ 16.0 million and $ 27.0 million, respectively, net of pay downs of $ 15.0 million during the thirty-nine week period, on the Company’s 2018 Revolver, primarily to fund settlement payments.

There are no required principal payments prior to maturity for the 2018 Revolver.

See “Subsequent Events” in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for information regarding a $ 28.0 million pre-payment on the 2018 Revolver subsequent to September 23, 2020.

Interest Rate Swap

2 unchanged sentences

Under the terms of the swap agreement, the variable LIBOR-based component of interest payments was converted to a fixed rate of 1.31 %, plus applicable margin, which is currently 1.5 %.

The interest rate swap was designated as a cash flow hedge, as the changes in the future cash flows of the swap were expected to offset changes in expected future interest payments on the related variable-rate debt, in accordance with Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging.”

The changes in the fair value of the interest rate swap are not included in earnings, but are included in other comprehensive (loss) income (“OCI”).

These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are made on the variable rate borrowings.

For the thirteen and twenty-six weeks ended June 24, 2020, the swap was a highly effective cash flow hedge.

As of June 24, 2020, the estimated net loss included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $ 0.5 million, based on current LIBOR interest rates.

The following table shows the financial statement line item and amount of the Company’s cash flow hedge accounting on the condensed consolidated balance sheet (in thousands):

June 24, 2020

For the thirteen and thirty-nine weeks ended September 23, 2020, the swap was a highly effective cash flow hedge.

As of September 23, 2020, the estimated net loss included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $ 0.5 million, based on current LIBOR interest rates.

The following table shows the financial statement line item and amount of the Company’s cash flow hedge accounting on the condensed consolidated balance sheets (in thousands):

September 23, 2020

December 25, 2019

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Interest expense on hedged portion of debt

Interest expense on interest rate swap

Interest expense (income) on interest rate swap

Interest expense on debt and derivatives, net

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019 (in thousands):

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and thirty-nine weeks ended September 23, 2020 and September 25, 2019 (in thousands):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Loss Reclassified from

Net Loss Recognized in OCI

Thirty-Nine Weeks Ended

Loss (Gain) Reclassified from

Net (Loss) Gain Recognized in OCI

AOCI into Interest expense

Net Loss Recognized in OCI

Net (Loss) Gain Recognized in OCI

AOCI into Interest expense

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Interest rate swap

See Note 1 for the fair value of our derivative asset.

See Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for information about the fair value of the Company’s derivative asset.

OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES

Other accrued expenses and current liabilities consist of the following (in thousands):

June 24, 2020

September 23, 2020

December 25, 2019

7 unchanged sentences

Other noncurrent liabilities consist of the following (in thousands):

June 24, 2020

September 23, 2020

December 25, 2019

2 unchanged sentences

Lease payment deferrals - net of current portion

Employer social security tax deferral

Total other noncurrent liabilities

36 unchanged sentences

As a result, Plaintiffs and other members of the putative class allegedly suffered damages in connection with their purchase of Holdings’ stock during the Class Period.

In addition, Plaintiffs allege that the Individual Defendants and Controlling Shareholder Defendants had direct involvement in, and responsibility over, the operations of Holdings, and are presumed

to have had, among other things, the power to control or influence the transactions giving rise to the alleged securities law violations.

In addition, Plaintiffs allege that the Individual Defendants and Controlling Shareholder Defendants had direct involvement in, and responsibility over, the operations of Holdings, and are presumed to have had, among other things, the power to control or influence the transactions giving rise to the alleged securities law violations.

In both cases, Plaintiffs seek an unspecified amount of damages, as well as costs and expenses (including attorneys’ fees).

5 unchanged sentences

The Court denied Defendants’ motion to dismiss the third amended complaint on August 4, 2017.

On December 8, 2017, Plaintiffs filed a motion for class certification, and on July 3, 2018, the Court granted Plaintiffs’ motion and certified a class as to all of Plaintiffs’ claims.

On December 8, 2017, Plaintiffs filed a motion for class certification, and on July 3, 2018, the Court granted Plaintiffs’ motion and

certified a class as to all of Plaintiffs’ claims.

Defendants filed a petition for appellate review of a portion of the Court’s July 3, 2018 class certification order.

20 unchanged sentences

The SLC filed its investigative report under seal as an exhibit to the motion to dismiss.

Discovery related to the SLC’s motion is ongoing.

Following discovery related to the SLC’s motion, on September 25, 2020, the SLC filed its opening brief with the Delaware court in support of the motion to dismiss.

Further briefing on the motion is ongoing.

Handlers-Bryman and Michael D.

6 unchanged sentences

Plaintiffs asserted claims against us for, among other things, (i) breach of the implied covenant of good faith and fair dealing, (ii) intentional interference with prospective business, and (iii) unfair business practices.

In addition to an unspecified amount of damages and costs of the lawsuit, Plaintiffs sought reformation of the contract, declaratory relief, disgorgement of alleged revenues and profits, injunctive relief, and a judicial mandate requiring us to either transfer the company-operated locations to Plaintiffs or to continuously disgorge to Plaintiffs the unjust

enrichment allegedly obtained by us through the operation of the company-operated restaurants in Lancaster.

We denied Plaintiffs’ allegations as the franchise agreement did not grant Plaintiffs any exclusive territorial rights and, instead, expressly reserved for us the right to open and operate - and the right to grant others the right to open and operate - El Pollo Loco restaurants “in the immediate vicinity of or adjacent to” Plaintiffs’ restaurant in Lancaster.

5 unchanged sentences

The only cause of action that the court allowed to go to the jury was the cause of action for breach of the covenant of good faith and fair dealing.

The court elected not to present the cause of action for intentional interference with prospective business to the jury.

The court elected not to present the cause of action for

intentional interference with prospective business to the jury.

(The causes of action for reformation due to mistake and unconscionability, unfair business practices under California Business & Professions Code §17200 et seq., and declaratory relief were not presented to the jury as these types of equitable claims are to be decided by the court as a matter of law.) On December 11, 2017, the jury returned a verdict in favor of Plaintiffs finding that the Company breached the implied covenant of good faith and fair dealing by (1) constructing the two new company-operated El Pollo Loco restaurants in Lancaster, and (2) not offering the two new company-operated El Pollo Loco restaurants in Lancaster to Plaintiffs.

14 unchanged sentences

As required by California law, on or about August 16, 2018, the Company obtained an appeal bond through a Surety company to secure the trial court’s judgment during the pendency of the appeal.

The appeal on the merits is currently pending, but has been stayed pending the Parties’ agreement in principle to settle the matter, discussed immediately below.

On March 19, 2020, the Surety, One Beacon, from whom the Company procured the appeal bond to secure the judgment against the Company in the matter of Janice P.

3 unchanged sentences

On July 13, 2020, One Beacon agreed to release its collateral demand and returned the Letter of Credit to the Company.

Subsequent to June 24, 2020, the Company reached an agreement in principle with the Plaintiffs to resolve the lawsuit for a payment by the Company of $ 2.5 million, which was recorded within operating expenses in the Company’s condensed consolidated statement of income for the thirteen and twenty-six weeks ended June 24, 2020, contingent upon approval by the court of appeal of the terms of the parties’ proposed settlement.

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company reached an agreement with the Plaintiffs to resolve the lawsuit for a payment by the Company of $ 2.5 million, which was recorded within operating expenses in the Company’s condensed consolidated statement of income for the thirty-nine weeks ended September 23, 2020.

Additionally, during the thirteen and thirty-nine weeks ended September 23, 2020, the matter was formally resolved.

On September 2, 2020, the California Court of Appeals entered an order, following a motion for stipulated reversal of the trial court’s judgment jointly filed by the parties, reversing the trial court’s judgment in the case and instructing the trial court to dismiss the matter with prejudice.

On September 10, 2020, the trial court entered an order reversing its judgment and dismissing the case with prejudice.

The settlement payment of $ 2.5 million has been made and the appeal bond has been released.

The Company is also involved in various other claims and legal actions that arise in the ordinary course of business.

5 unchanged sentences

These contracts have terms extending through the end of 2024.

At June 24, 2020, the Company’s total estimated commitment to purchase chicken was $ 11.1 million.

At September 23, 2020, the Company’s total estimated commitment to purchase chicken was $ 3.7 million.

Contingent Lease Obligations

1 unchanged sentence

These leases have various terms, the latest of which expires in 2036 .

As of June 24, 2020, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 2.8 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at June 24, 2020 was $ 2.6 million.

As of September 23, 2020, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 3.1 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at September 23, 2020 was $ 2.8 million.

The Company’s franchisees are primarily liable on the leases.

1 unchanged sentence

The Company believes that these cross-default provisions reduce the risk that payments will be required to be made under these leases.

Due to the current uncertainty related to the COVID-19 pandemic and impact it has had on the ability of the Company’s franchisees to make their lease payments, the Company has recorded a $ 0.1 million liability in the Company’s condensed consolidated financial statements related to these contingent liabilities.

Due to the current uncertainty related to the COVID-19 pandemic and the impact it has had on the ability of the Company’s franchisees to make their lease payments, the Company has recorded a $ 0.1 million liability in the Company’s condensed consolidated financial statements related to these contingent liabilities.

Employment Agreements

6 unchanged sentences

NET INCOME PER SHARE

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen and twenty-six weeks ended June 24, 2020 and June 26, 2019.

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen and thirty-nine weeks ended September 23, 2020 and September 25, 2019.

Diluted EPS is calculated using the weighted-average number of shares of common stock outstanding and potentially dilutive during the period, using the treasury stock method.

7 unchanged sentences

The Company’s repurchases were executed using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.

For the thirteen and twenty-six weeks ended June 26, 2019, the Company repurchased 1,303,282 and 1,558,836 shares of common stock, respectively under the 2018 Stock Repurchase Plan, using open market purchases, for total consideration of approximately $ 14.9 million and $ 18.3 million, respectively.

For the thirteen weeks ended September 25, 2019, the Company repurchased 2,825,896 shares of common stock under the 2019 Stock Repurchase Plan, using open market purchases, for total consideration of approximately $ 29.9 million.

For the thirty-nine weeks ended September 25, 2019, the Company repurchased 1,558,836 shares of common stock under the 2018 Stock Repurchase Plan and 2,825,896 shares of common stock under the 2019 Stock Repurchase Plan,

using open market purchases, for total consideration of approximately $ 48.3 million.

The common stock repurchased under both the 2018 Stock Repurchase Plan and the 2019 Stock Repurchase Plan was retired upon repurchase.

Below are basic and diluted EPS data for the periods indicated, which are in thousands except for per share data:

Below are basic and diluted EPS data for the periods indicated (in thousands except for share and per share data):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Weighted-average shares outstanding—basic

15 unchanged sentences

The Company offers a loyalty rewards program, which awards a customer points for dollars spent.

When 100 points are accumulated a $ 10 reward to be used on future purchases is earned.

Customers earn points for each dollar spent and as of August 4, 2020, 50 points can be redeemed for a $ 5 reward to be used for a future

Prior to August 4, 2020, 100 points could be redeemed for a $ 10 reward.

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

2 unchanged sentences

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 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.

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

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 points terms.

As of September 23, 2020 and December 25, 2019, the revenue allocated to loyalty points that have not been redeemed was $ 1.0 million and $ 1.1 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

The Company expects the loyalty points to be redeemed and recognized over a one-year period.

22 unchanged sentences

As the Company is considered the principal in this relationship, payment for the hardware is considered revenue, and is received upon transfer of the goods from the Company to the franchisee.

As of June 24, 2020, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

As of September 23, 2020, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

Disaggregated revenue

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

September 23,

September 25,

September 23,

September 25,

Core Market (1) :

13 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Greater Los Angeles area market

1 unchanged sentence

Contract balances

The following table provides information about the change in the franchise contract liability balances during the twenty-six weeks ended June 24, 2020 and June 26, 2019 (in thousands) :

The following table provides information about the change in the franchise contract liability balances during the thirty-nine weeks ended September 23, 2020 and September 25, 2019 (in thousands) :

December 25, 2019

Revenue recognized - beginning balance

June 24, 2020

Additional contract liability

September 23, 2020

December 26, 2018

2 unchanged sentences

Revenue recognized - additional contract liability

June 26, 2019

September 25, 2019

The Company’s franchise contract liability includes development fees, initial franchise and license fees, franchise renewal fees, lease subsidies and royalty discounts and is included within other accrued expenses and current liabilities and other noncurrent liabilities within the accompanying condensed consolidated balance sheets.

The Company receives area development fees from franchisees when they execute multi-unit area development agreements.

Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a franchise

Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a franchise agreement.

Revenue is recognized from these agreements as the underlying performance obligation is satisfied, which is over the term of the agreement.

The following table illustrates the estimated revenue to be recognized in future periods related to performance obligations under the applicable contracts that are unsatisfied as of June 24, 2020 (in thousands):

Franchise revenues:

2020 (remaining)

Contract Costs

9 unchanged sentences

Additionally, the Company has various contracts with vendors that have been determined to contain an embedded lease in accordance with Topic 842.

As of June 24, 2020, the Company had no leases that it had entered into, but had not yet commenced.

As of September 23, 2020, the Company had three leases that it had entered into, but had not yet commenced.

The Company does not have control of the property until lease commencement.

1 unchanged sentence

The majority of the Company’s building and facilities leases are classified as operating leases;

however, the Company currently has one facility lease that is classified as a finance lease.

however, the Company currently has one facility and two equipment leases that are classified as finance leases.

Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues in excess of a defined amount.

3 unchanged sentences

The initial terms of land and restaurant building leases are generally 20 years , exclusive of options to renew.

These leases typically have four 5-year renewal options, which have generally been excluded in the calculation of the ROU asset and lease liability, as they are not considered reasonably certain to be exercised, unless (1) the renewal had already occurred as of the time of adoption of Topic 842, or (2) there have been significant leasehold improvements that have a useful life that extend past the original lease term.

useful life that extend past the original lease term.

Furthermore, there are no residual value guarantees and no restrictions imposed by the lease.

During the thirteen and twenty-six weeks ended June 24, 2020, the Company reassessed the lease terms on four and seven restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements, the decision to terminate a lease, or the decision to renew.

As a result of the reassessment, an additional $ 1.4 million and $ 1.7 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 24, 2020, respectively, were recognized and will be amortized over the new lease term.

During the thirteen and twenty-six weeks ended June 26, 2019, the Company reassessed the lease terms on three restaurants due to the addition of significant leasehold improvements with useful lives that extend past the current lease expiration.

This resulted in an additional $ 1.2 million of ROU asset and lease liability, which will be recognized over the new lease term.

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company reassessed the lease terms on two and nine restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements, the decision to terminate a lease, or the decision to renew.

As a result of the reassessment, an additional $ 0.3 million and $ 2.0 million of ROU asset and lease liabilities for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, were recognized and will be amortized over the new lease term.

During the thirteen and thirty-nine weeks ended September 25, 2019, the Company reassessed the lease terms on three and six restaurants, respectively, due to the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease or the decision to renew leases.

This resulted in an additional $ 2.0 million and $ 3.3 million of ROU asset and lease liability for the thirteen and thirty-nine weeks ended September 25, 2019, respectively, which will be recognized over the new lease term.

The reassessments did not have any impact on the original lease classification.

5 unchanged sentences

The Company does not have any related party leases.

During the twenty-six weeks ended June 24, 2020, the Company determined that the carrying value of ROU assets at one restaurant was not recoverable.

As a result, the Company recorded a $ 0.5 million impairment expense for the twenty-six weeks ended June 24, 2020, related to one restaurant in Texas, sold to franchisees in the prior year.

The Company did no t recognize any impairment related to ROU assets during the thirteen and twenty-six ended June 26, 2019.

During the thirty-nine weeks ended September 23, 2020, the Company determined that the carrying value of ROU assets at one restaurant was not recoverable.

As a result, the Company recorded a $ 0.5 million non-cash impairment charge for the thirty-nine weeks ended September 23, 2020, related to one restaurant in Texas, sold to franchisees in the prior year.

The Company did no t recognize any impairment related to ROU assets during the thirteen and thirty-nine ended September 25, 2019.

See “Impairment of Long-Lived Assets and ROU Assets” in Note 1, “Basis of Presentation and Summary of Significant Accounting Policies” for additional information.

Leases of equipment primarily consist of restaurant equipment, copiers and vehicles.

11 unchanged sentences

Thirteen Weeks Ended

June 24, 2020

June 26, 2019

September 23, 2020

September 25, 2019

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

4 unchanged sentences

Total lease cost

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

Finance lease cost:

8 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

During the twenty-six weeks ended June 24, 2020 and June 26, 2019, the Company had the following cash and non-cash activities associated with its leases (in thousands):

Twenty-Six Weeks Ended June 24, 2020

Twenty-Six Weeks Ended June 26, 2019

During the thirty-nine weeks ended September 23, 2020 and September 25, 2019, the Company had the following cash and non-cash activities associated with its leases (in thousands):

Thirty-Nine Weeks Ended September 23, 2020

Thirty-Nine Weeks Ended September 25, 2019

Cash paid for amounts included in the measurement of lease liabilities

10 unchanged sentences

Weighted-average discount rate—operating leases

Information regarding the Company’s minimum future lease obligations as of June 24, 2020 is as follows (in thousands):

Information regarding the Company’s minimum future lease obligations as of September 23, 2020 is as follows (in thousands):

Operating Leases

24 unchanged sentences

The Company has multiple short-term leases, which have terms of less than 12 months, and thus were excluded from the recognition requirements of Topic 842.

The Company has recognized these lease payments in its consolidated statements of operations on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

The Company is a lessor for certain property, facilities and equipment owned by the Company and leased to others, principally franchisees, under non-cancelable leases with initial terms ranging from three to 20 years .

4 unchanged sentences

Additionally, there are no related party leases.

The Company received $ 0.1 million and $ 0.2 million, respectively, of lease income from company-owned locations for the thirteen weeks ended June 24, 2020 and June 26, 2019.

For each of the twenty-six weeks ended June 24, 2020 and June 26, 2019, the Company received $ 0.3 million of lease income from company-owned locations .

The Company received $ 0.1 million of lease income from company-owned locations for both the thirteen weeks ended September 23, 2020 and September 25, 2019.

For both the thirty-nine weeks ended September 23, 2020 and September 25, 2019, the Company received $ 0.4 million of lease income from company-owned locations .

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 1. Financial Statements