What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-10-30 compared with 2020-07-31 · 162 added, 150 removed, 401 unchanged (44% 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 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.

● 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 25, 2019, under Item 1A, Risk Factors in our quarterly report on Form 10-Q for the quarter ended March 25, 2020 and under Item 1A, Risk Factors in our quarterly report on Form 10-Q for the quarter ended June 24, 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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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.

In May 2020, the “stay at home” directive was temporarily 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 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, we have not permanently closed any restaurants due to the COVID-19 pandemic.

Below is a summary of other actions we have taken 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 initially bolstered our existing cash position by fully drawing down our $150 million 2018 Revolver, adding $34.5 million of cash to our balance sheet.

However, subsequent to the initial drawdown, we paid down $57.7 million on our 2018 Revolver.

See Note 4 to Item 1 above for further details regarding our current debt balances.

Subsequent to September 23, 2020, we made an additional voluntary pre-payment of $28.0 million on the 2018 Revolver.

Refer to “Subsequent Events” in Note 1 to Item 1 above.

● 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.

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● For our employees, we continue to implement actions to help protect them from the coronavirus while working in our restaurants.

These include implementing enhanced cleaning procedures in our restaurants, providing gloves and masks to all system restaurant employees, installing plexiglass shields at company restaurant cashier stations and initiating other social distancing measures.

These include implementing pre-shift health assessments, enhanced cleaning procedures in our restaurants, providing gloves and masks to all system restaurant employees, installing plexiglass shields at company restaurant cashier stations and initiating other social distancing measures.

We are providing extended sick leave benefits to employees impacted by COVID-19, and we have granted two weeks paid leave for employees who are 65 or older.

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and our meaningful value platform.

Additionally, we have added curbside pick-up, enabling customers to pick-up their orders from the safety of their own cars.

● 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.

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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.

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, 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 materiality of the adverse impact on our consolidated financial condition, liquidity, and future results of operations is uncertain.

Growth Strategies and Outlook

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

As of September 23, 2020, we had 478 locations in six states.

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

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.

For the thirty-nine weeks ended September 23, 2020, one new company-operated restaurant was opened in Nevada, which was in process prior to the COVID-19 pandemic, and two franchised restaurants were opened, one in California and one in Arizona.

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.

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Comparable Restaurant Sales

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.

System-wide, for the thirteen and thirty-nine weeks ended September 23, 2020, comparable restaurant sales increased by 1.8% and decreased by 3.2%, respectively, from the comparable period in the prior year.

For company-operated restaurants, comparable restaurant sales for the thirteen and thirty-nine weeks ended September 23, 2020 increased by 0.2% and decreased by 3.0%, respectively.

For company-operated restaurants, the quarter’s change in comparable restaurant sales consisted of an approximately 18.1% increase in average check size, partially offset by a decline in transactions of 15.2%, and the year-to-date change in comparable restaurant sales consisted of a 15.2% decline in transactions, partially offset by a 14.4% increase in average check size.

For franchised restaurants, comparable restaurant

sales increased 3.0% and decreased 3.3% for the thirteen and thirty-nine weeks ended September 23, 2020, respectively.

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

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Restaurant Development

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

Our restaurant counts at the beginning and end of each of the last three fiscal years and the thirty-nine weeks ended September 23, 2020, were as follows.

Thirty-Nine Weeks Ended

Fiscal Year Ended

June 24, 2020

September 23, 2020

Company-operated restaurant activity:

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Restaurant Remodeling

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.

As of September 23, 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 June 24, 2020, including new builds and remodels, we had 120 restaurants open with the Vision design in our system.

As of September 23, 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.

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

The cost of our Vision design restaurant remodels varied depending on the scope of work required, but on average, the investment was $0.3 million to $0.4 million per restaurant.

We believe that our Vision design remodeling program resulted in higher restaurant revenue and a strengthened brand.

In addition, we are currently working on a new asset design that we believe will clearly differentiate and communicate our brand, both on the exterior and interior.

We believe that this new design will deliver good new unit volumes and cash on cash returns in both existing and new markets.

We believe that this new design will deliver improved unit volumes and cash on cash returns in both existing and new markets.

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

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

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 purchase.

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.

Additionally, if a reward is not used within six months, it expires.

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

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 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 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.

As of both September 23, 2020 and December 25, 2019, the revenue allocated to loyalty points that have not been redeemed is $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 had almost 2.0 million loyalty program members as of September 23, 2020.

Critical Accounting Policies and Use of Estimates

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Recent Accounting Pronouncements

Recent accounting pronouncements are described in Note 1 to our condensed consolidated financial statements included elsewhere in this report.

Recent accounting pronouncements are described in Note 1 to our condensed consolidated financial statements included in Item 1 above.

Key Financial Definitions

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company-operated restaurant revenue, franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and franchise advertising fee revenue.

See Note 10 to Item I above for further details regarding our revenue recognition policy.

See Note 10 to Item 1 above for further details regarding our revenue recognition policy.

Food and Paper Costs

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Labor and related expenses include wages, payroll taxes, workers’ compensation expense, benefits, and bonuses paid to our restaurant management teams.

Like other expense items, we expect labor costs to grow proportionately as our restaurant revenue grows.

Like other expense items, we expect labor costs to grow proportionately as our

restaurant revenue grows.

Factors that influence labor costs include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, health care costs, and the performance of our restaurants.

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If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material.

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

When the Company closes a restaurant, it will evaluate the right-of-use (“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.

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Comparison of Results of Income

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.

Our operating results for the thirteen weeks ended September 23, 2020 and September 25, 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

June 24, 2020

June 26, 2019

September 23, 2020

September 25, 2019

Increase / (Decrease)

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Occupancy and other operating expenses (1)

Gain on recovery of insurance proceeds, lost profits (1)

Company restaurant expenses (1)

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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

Loss on disposition of restaurants

Total expenses

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Interest expense, net of interest income

Income tax receivable agreement expense (income)

Income tax receivable agreement income

Income before provision for income taxes

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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

Our operating results for the thirty-nine weeks ended September 23, 2020 and September 25, 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.

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

Increase / (Decrease)

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Occupancy and other operating expenses(1)

Gain on recovery of insurance proceeds, lost profits(1)

Company restaurant expenses(1)

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Impairment and closed-store reserves

Loss on assets held for sale

Loss on disposition of restaurants

Total expenses

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Interest expense, net of interest income

Income tax receivable agreement expense

Income tax receivable agreement expense (income)

Income before provision for income taxes

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For the quarter, company-operated restaurant revenue decreased $1.8 million, or 1.8%, from the comparable period in the prior year.

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.

The decline in company-operated restaurant sales was primarily due to a decrease in company-operated restaurant revenue of $1.9 million from the closure of two restaurants and the five company-operated restaurants sold by the Company to franchisees during or subsequent to the third quarter of 2019, a $0.6 million decrease due to temporary restaurant closures due to the COVID-19 pandemic and a $0.2 million decrease in revenue recognized for our loyalty points program.

This company-operated restaurant sales decrease was partially offset by an increase of $0.7 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 an increase of $0.2 million due to a 0.2% increase in company-operated comparable restaurant sales.

The company-operated comparable restaurant sales increase consisted of an approximately 18.1% increase in average check size, partially offset by a decline in transactions of 15.2%.

It is uncertain whether the increase in average check size will persist once the pandemic ends.

Year-to-date, company-operated restaurant revenue decreased $18.7 million, or 6.3%, from the comparable period in the prior year.

The decline in company-operated restaurant sales was primarily due to a $11.3 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 $8.5 million due to a 3.0% decrease in company-operated comparable restaurant sales, which we believe was primarily related to the impact of the COVID-19 pandemic, and a $1.0 million decrease due to temporary restaurant closures due to the COVID-19

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

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 $2.1 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 14.4% increase in average check size.

It is uncertain whether the increase in average check size will persist once the pandemic ends.

Franchise Revenue

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.

For the quarter, franchise revenue increased $0.5 million, or 7.0%, from the comparable period in the prior year.

This increase was primarily due to a franchise comparable restaurant sales increase of 3.0%, the opening of two new franchised restaurants and revenue generated from five company-operated restaurants sold by the Company to franchisees during or subsequent to the third quarter of 2019, and revenue recognized related to franchise development agreements.

This franchise revenue increase was partially offset by the closure of nine franchise locations during or subsequent to the third quarter of 2019.

Year-to-date, franchise revenue decreased less than $0.1 million, or 0.3%, from the comparable period in the prior year.

This decrease was primarily due to a franchise comparable restaurant sales decrease of 3.3%, which we believe was primarily due to the COVID-19 pandemic, the closure of nine franchise locations during or subsequent to the first 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 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.

This franchise revenue decrease was almost fully 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 decreased $0.5 million, or 8.9%, from the comparable period in the prior year.

For the quarter, franchise advertising fee revenue increased $0.2 million, or 3.1%, from the comparable period in the prior year.

Year-to-date, franchise advertising fee revenue decreased $0.2 million, or 1.4%, 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.

As advertising fee revenue is a percentage of franchisees’ revenue, both the quarter and year-to-date fluctuations were due to the increases and decreases noted in franchise revenue above.

Food and Paper Costs

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Year-to-date, food and paper costs decreased $9.2 million, or 11.1%, from the comparable period in the prior year, due to a $8.1 million decrease in food costs and a $1.1 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.

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, lower food waste and a vendor rebate received.

For the quarter, food and paper costs as a percentage of company-operated restaurant revenue were 25.6%, down from 27.8% in the comparable period of the prior year.

Year-to-date, food and paper costs as a percentage of company-operated restaurant revenue were 26.4%, 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.

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

Labor and Related Expenses

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Year-to-date, labor and related expenses decreased $4.9 million, or 5.6%, 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.

These decreases were partially offset by higher wages primarily due to minimum wage increases in California during fiscal 2019 and 2020, and labor costs associated with the COVID-19 pandemic.

For the quarter, labor and related expenses as a percentage of company-operated restaurant revenue were 29.6%, consistent with the comparable period in the prior year.

This percentage was impacted by wage increases in California and labor costs associated with the COVID-19 pandemic, offset by an increase in pricing and labor efficiencies.

Year-to-date payroll and benefit expenses as a percentage of company-operated restaurant revenue were 30.0%, up from 29.7% 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.

The increase for the year-to-date period was due primarily to sales deleverage, wage increases in California, 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 $0.5 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.

For the quarter, occupancy and other operating expenses was flat from the comparable period of the prior year.

Fluctuations in occupancy and other expenses consisted primarily of a $0.6 million increase in customer order delivery fees payable to third parties due to an increase in delivery orders and a $0.2 million increase in other operating expenses.

These increases were offset by a $0.3 million decrease in utilities costs, a $0.2 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees, and a decrease in other operating expenses of $0.3 million.

Year-to-date, occupancy and other operating expenses decreased $2.2 million, or 3.2%, 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.

The decrease was primarily due to a $1.0 million decrease in repair and maintenance costs, a $1.0 million decrease in utilities costs, a $0.9 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees, a $0.8 million decrease in advertising expenses, a $0.4 million decrease in credit card fees primarily related to a decrease in rates and transactions and a $0.1 million decrease in other operating expenses.

These decreases were partially offset by a $2.0 million increase in customer order delivery fees payable to third parties due to an increase in delivery orders.

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

Gain on Recovery of Insurance Proceeds, Lost Profits

During the thirteen and thirty-nine weeks ended September 23, 2020, we 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.

General and Administrative Expenses

For the quarter, general and administrative expenses increased $0.3 million, or 2.8%, 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.

The increase for the quarter was due primarily to a $0.8 million increase in labor related costs, primarily related to an increase in management bonus expense, and a $0.4 million increase in stock compensation expenses.

This increase was partially offset by a $0.4 million decrease in legal expenses, a $0.2 million decrease in restaurant pre-opening costs, a $0.2 million decrease in recruiting costs and a $0.1 million decrease in other general and administrative expenses.

Year-to-date, general and administrative expenses decreased $0.6 million, or 2.1%, 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.

The decrease for the year-to-date period was due primarily to a $0.6 million decrease in labor related costs, largely related to a decrease in management bonus expense, decrease in severance expense and lower group insurance costs.

Additionally, there was a $0.1 million decrease in legal expenses related primarily to a decrease in securities class action litigation costs, partially offset by a $2.5 million legal settlement related to the resolution of the longstanding lawsuit involving a contract dispute with one of the Company’s franchisees concerning asserted territory rights.

These decreases were partially offset by 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 8.8%, up from 8.5% 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 9.4%, up from 9.0% 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.

The percentage increase for the quarter and year-to-date periods resulted primarily from the decline in revenue, as well as the cost increases 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.

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

During the thirty-nine weeks ended September 25, 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.

During the thirteen and thirty-nine weeks ended September 25, 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.

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

Impairment and Closed-Store Reserves

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.

During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized a $1.5 million and $3.5 million non-cash impairment charge, 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.

During the thirteen and thirty-nine weeks ended September 25, 2019, we recorded a non-cash impairment charge of $0.1 million and $0.3 million, respectively, 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 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.

During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized $0.3 million and $1.1 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 thirty-nine weeks ended September 25, 2019, we 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 our closed locations.

Interest Expense, Net

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

For each of the quarter and year-to-date periods, interest expense, net, decreased $0.2 million from the comparable period in the prior year.

The decrease is primarily related to lower interest rates and lower outstanding balances on our 2018 Revolver.

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 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.

For the thirteen and thirty-nine weeks ended September 23, 2020, we 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 we recorded income tax receivable agreement income of $0.2 million and $0.1 million, respectively.

Provision for Income Taxes

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.

For the quarter ended September 23, 2020, we recorded an income tax provision of $1.6 million, reflecting an estimated effective tax rate of 14.2%.

For the quarter ended September 25, 2019, we recorded an income tax provision of $2.9 million, reflecting an estimated effective tax rate of approximately 31.5%.

Year-to-date ended September 23, 2020, we recorded an income tax provision of $3.7 million, reflecting an estimated effective tax rate of approximately 16.3%.

Year-to-date ended September 25, 2019, we recorded an income tax provision of $9.0 million, reflecting an estimated effective tax rate of approximately 29.5%.

The difference between the 21.0% statutory rate and the Company’s effective tax rate of 16.3% for the year-to-date ended September 23, 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 thirty-nine weeks ended September 23, 2020.

Key Performance Indicators

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Comparable restaurant sales exclude restaurants closed during the applicable period.

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.

At September 23, 2020 and September 25, 2019, there were 468 and 462 comparable restaurants, 191 and 198 company-operated restaurants and 277 and 264 franchised restaurants, respectively.

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

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Weekly AUVs consist of comparable restaurant sales over a seven-day period from Thursday to Wednesday.

Annual AUVs are calculated using the following methodology:

Annual AUVs are

calculated using the following methodology:

First, we divide our total net sales for all company-operated restaurants for the fiscal year by the total number of restaurant operating weeks during the same period.

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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.

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

Thirty-Nine Weeks Ended

(Dollar amounts in thousands)

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Restaurant contribution:

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EBITDA and Adjusted EBITDA as presented in this report are supplemental measures of our performance that are neither required by, nor presented in accordance with, GAAP.

EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP, or as alternatives to cash flow from operating activities as a measure of our liquidity.

activities as a measure of our liquidity.

In addition, in evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we will incur expenses or charges such as those added back to calculate EBITDA and Adjusted EBITDA.

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Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

(Amounts in thousands)

June 24, 2020

June 26, 2019

June 24, 2020

June 26, 2019

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Non-GAAP adjustments:

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Loss on disposition of restaurants (e)

Income tax receivable agreement expense (income) (f)

Income tax receivable agreement (income) expense (f)

Securities class action legal expense (g)

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(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.

(c) During thirty-nine weeks ended September 23, 2020, we received insurance proceeds of $0.1 million related to a property claim.

During the thirteen and thirty-nine weeks ended September 25, 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.

During the thirteen and thirty-nine weeks ended September 23, 2020, we recognized $1.5 million and a $3.5 million, respectively, 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 four restaurants in California.

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

For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

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

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.

During the thirty-nine weeks ended September 25, 2019, we 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 our closed locations.

(e) During the thirteen and thirty-nine weeks ended September 25, 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 thirty-nine weeks ended September 25, 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.

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 thirty-nine weeks ended September 23, 2020 and September 25, 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.

(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.

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

(h) Includes an expense related to resolution of 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.

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Thus, we are able to sell many of our inventory items before we have to pay our suppliers for them.

Our restaurants do not require significant inventories or receivables.

Our restaurants do not require significant inventories or

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.

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

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

(Amounts in thousands)

June 24, 2020

June 26, 2019

September 23, 2020

September 25, 2019

Net cash provided by (used in)

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Operating Activities

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.

For the thirty-nine weeks ended September 23, 2020, net cash provided by operating activities increased by approximately $1.6 million from the comparable period of the prior year.

This increase was due primarily to favorable working capital fluctuations, partially offset by a decline in profitability after non-cash items for the thirty-nine weeks ended September 23, 2020 compared to the prior year, which we believe related to the COVID-19 pandemic.

Investing Activities

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.

For the thirty-nine weeks ended September 23, 2020, net cash used in investing activities decreased by $1.7 million from the comparable period of the prior year.

This was due primarily to purchases of property and equipment of $4.3 million in the thirty-nine weeks ended September 23, 2020 compared to $10.8 million in the thirty-nine weeks ended September 25, 2019.

This was partially offset by cash proceeds of $4.8 million received during the thirty-nine weeks ended September 25, 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.

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 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.

For the thirty-nine weeks ended September 23, 2020, net cash used in financing activities decreased by $13.0 million from the comparable period of the prior year.

This decrease was due primarily to $47.4 million of cash outflow related to stock buybacks during the thirty-nine weeks ended September 25, 2019 and $5.8 million of proceeds received from the issuance of common stock upon exercise of stock options during the thirty-nine weeks ended September 23, 2020.

This was partially offset by $13.2 million of net pay downs on the 2018 Revolver during the thirty-nine weeks ended September 23, 2020, compared to net borrowings of $27.0 million for the thirty-nine weeks ended September 25, 2019.

Debt and Other Obligations

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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.

Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and, (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.

officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.

Borrowings under the 2018 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either LIBOR or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid.

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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 each of 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 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.

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

There were $57.8 million remaining borrowings available under the 2018 Revolver at September 23, 2020.

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.

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 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 obligations outstanding on September 23, 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 (i) the impact of our delay in making April, May and June rent payments on the majority of our leased properties as discussed under to COVID-19 Impact in the "Overview"

section above and (ii) subsequent borrowings and pre-payments under our 2018 Revolver as disclosed under Note 4, “Long-Term Debt” in Item 1 above.

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 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."

As of September 23, 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.

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