1 unchanged sentence
The occurrence of any of the following risks could materially and adversely affect our business, prospects, financial condition, results of operations, and cash flow.
−Removed: Risks Related to Our Business and Industry
−Removed: Our growth strategy depends in part on opening new restaurants in existing and new markets and expanding our franchise system.
+Added: Risks Related to Our Operations
+Added: The COVID-19 pandemic and measures intended to prevent its spread may have a significant negative impact on our business, sales, results of operations and financial condition.
+Added: The global pandemic resulting from the outbreak of COVID-19 has disrupted El Pollo Loco’s restaurant operations beginning in March 2020.
+Added: In response to federal, state and local mandates (subject to exceptions for certain state and local mandates) aimed at limiting the spread of COVID-19, we and our franchisees have experienced temporary closures of some restaurants, closures of dining rooms, limited capacity restrictions and/or decreased operating hours for some restaurants.
+Added: Furthermore, the decrease in discretionary consumer spending as a result of the COVID-19 outbreak has decreased demand for our products.
+Added: This decrease in demand, as well as the actions described above, have resulted in declines in revenue and also led to us delaying certain rent payments on the majority of our leased properties, resulting in rent abatement and/or deferment with our landlords for those properties.
+Added: If additional outbreaks of COVID-19 at a significant number of our locations require us to temporarily close those locations for disinfection or result in a large number of our employees becoming ill with COVID-19 and being unable to work, our business and results of operations could be further adversely affected, which may also impact our financial condition.
+Added: Further, any shutdowns, closures or disruptions in the operations of our suppliers caused by COVID-19 outbreaks or federal, state or local mandates to limit the spread of COVID-19 could adversely impact the ability of suppliers to supply us and our franchisees with the products needed to operate our business and negatively impact our business.
+Added: COVID-19 may also adversely affect our ability to implement our growth plans, including delays in the opening or construction of new restaurants.
+Added: As this situation is ongoing and the duration and severity of the COVID-19 pandemic, including the severity and transmission rates of COVID-19 variants, resurgences of COVID-19 that may continue to occur, and the availability, distribution and efficacy of COVID-19 vaccine, continues to be uncertain at this time, it is difficult to forecast any long-term impacts on our future operating results or predict when our operations will return to full service.
+Added: However, if the COVID-19 pandemic continues for a sustained period of time or if conditions worsen, our sales and operating costs may be materially adversely affected, which could impact our asset values, including goodwill, derivative instruments and long-lived assets, as well as our ability to meet certain covenant provisions in our debt arrangements in future periods, and have a material adverse effect on our financial results, future operations and liquidity.
+Added: Even after the COVID-19 pandemic has subsided, we may continue to experience negative impacts to our financial results due to COVID-19’s global economic impact, including the availability of credit generally, adverse impacts on our liquidity, and/or decreases in consumer discretionary spending that depress demand for our products.
+Added: The global effects of the pandemic may also contribute to a prolonged economic slowdown or recession.
+Added: Risks related to the impact of an economic downturn are described in our risk factor titled, “ We are vulnerable to changes in economic conditions and consumer preferences ” below.
+Added: In addition, even after the COVID-19 pandemic has subsided, the perceived risk of infection or concern of a resurgence of the COVID-19 outbreak may continue to adversely affect traffic to our restaurants and, in turn, may have a material adverse effect on our business, liquidity, financial condition and results of operations, particularly if there is a recurrence of the COVID-19 virus.
+Added: We are also subject to all of the foregoing risks in connection with the outbreak of other diseases, epidemics or pandemics, or similar public threats or fear of such events.
We may be unsuccessful in opening new company-operated or franchised restaurants or in establishing new markets, which could adversely affect our growth.
One of the key means to achieving our growth strategy is and will be through opening new restaurants and operating those restaurants on a profitable basis.
−Removed: We opened two new company-operated restaurants in fiscal 2019 and plan to open three to four in fiscal 2020.
−Removed: Our franchisees opened two new restaurants in fiscal 2019 and plan to open five to eight in fiscal 2020.
+Added: We opened one new company-operated restaurant in fiscal 2020 and plan to open
+Added: three to five in fiscal 2021.
+Added: Our franchisees opened three new restaurants in fiscal 2020 and plan to open four to six in fiscal 2021.
The ability to open new restaurants is dependent upon a number of factors, many of which are beyond our control, including our and our franchisees’ abilities to:
8 unchanged sentences
respond effectively to any changes in local, state, and federal law and regulations that adversely affect our and our franchisees’ costs or abilities to open new restaurants;
−Removed: control construction and equipment cost increases for new restaurants.
−Removed: There is no guarantee that a sufficient number of suitable restaurant sites will be available in desirable areas or on terms that are acceptable to us in order to achieve our growth plan.
−Removed: If we are unable to open new restaurants or sign new franchisees, or if restaurant openings are significantly delayed, our earnings or revenue growth and our business could be materially and adversely affected, as we expect a portion of our growth to come from new locations.
+Added: and control construction and equipment cost increases for new restaurants.
+Added: If we are unable to successfully manage these risks and open new restaurants or sign new franchisees as anticipated, or if restaurant openings are significantly delayed, we could face increased costs and lower than anticipated sales and earnings in future periods.
As part of our longer-term growth strategy, we may enter into geographic markets in which we have little or no prior operating or franchising experience, through company-operated restaurant growth and franchise development agreements.
The challenges of entering new markets include (i) difficulties in hiring and training experienced personnel, (ii) unfamiliarity with local real estate markets and demographics, (iii) consumer unfamiliarity with our brand, and (iv) competitive and economic conditions, consumer tastes, and discretionary spending patterns that are different from and more difficult to predict or satisfy than in our existing markets.
−Removed: Consumer recognition of our brand has been important for our success in our existing markets.
−Removed: In addition, restaurants that we open in new markets may take longer to reach expected sales and profit levels on a consistent basis, and may have higher construction, occupancy, and operating costs, than restaurants that we open in existing markets, thereby affecting our overall profitability.
Any failure on our part to recognize or respond to these challenges may adversely affect the success of any new restaurants.
Expanding our franchise system could require the implementation, expense, and successful management of enhanced business support systems, management information systems, and financial controls, as well as additional staffing, franchise support, and capital expenditures and working capital.
−Removed: At the end of fiscal 2009, we had 21 system-wide restaurants, all originally developed by franchisees, open east of the Rocky Mountains.
−Removed: However, by 2012, all of these restaurants had been closed.
−Removed: We may encounter similar issues with our current growth strategy, which could materially and adversely affect our business, financial condition, results of operations, and cash flow.
Due to brand recognition and logistical synergies, as part of our growth strategy, we also intend to open new restaurants in areas where we have existing restaurants.
1 unchanged sentence
We may not be able to compete successfully, including with other quick-service and fast casual restaurants.
−Removed: Intense competition in the restaurant industry could make it more difficult to expand our business, and could also have a negative impact on our operating results, if customers favor our competitors or if we are forced to change our pricing and other marketing strategies.
The food service industry, and particularly its QSR and fast casual segments, is intensely competitive.
+Added: Competition in our industry is primarily based on price, convenience, quality of service, brand recognition, restaurant location, and type and quality of food, and our market position is based on balancing price and quality.
+Added: These competitive factors are particularly applicable in markets in which we have expanded relatively rapidly and relatively recently, such as Texas.
In addition, the greater Los Angeles area, the primary market in which we compete, consists of what we believe to be the most competitive Mexican-inspired QSR and fast casual market in the United States.
We expect competition in this market and in each of our other markets to continue to be intense, because consumer trends are favoring limited service restaurants that offer healthier menu items made with better-quality products, and many limited service restaurants are responding to these trends.
−Removed: Competition in our industry is primarily based on price, convenience, quality of service, brand recognition, restaurant location, and type and quality of food.
−Removed: If our company-operated and franchised restaurants cannot compete successfully with other QSR and fast casual restaurants in new and existing markets, we could lose customers and our revenue could decline.
−Removed: Our market position is based on balancing price and quality, and drift in our competitive position, or popular perception of or interest in our position, could harm our sales, brand, and support among customers.
−Removed: Our company-operated and franchised restaurants compete with national and regional QSR and fast casual restaurant chains for customers, restaurant locations, and qualified management and other staff.
Moreover, we may also compete with companies outside the QSR and fast casual segment of the restaurant industry.
1 unchanged sentence
Meal kit delivery companies and other eat-at-home options also present some degree of competition for our restaurants.
−Removed: Compared with us, some of our competitors have substantially greater financial and other resources, have been in business longer, have greater brand recognition, or are better-established in the markets where our restaurants are located or are planned to be located.
−Removed: These competitive factors are particularly applicable in markets in which we have expanded relatively rapidly and relatively recently, such as Texas.
−Removed: Any of these competitive factors may materially and adversely affect our business, financial condition, and results of operations.
−Removed: A prolonged economic downturn could materially affect us in the future.
−Removed: The restaurant industry is dependent upon consumer discretionary spending.
−Removed: A prolonged economic downturn or an economic recession could impact the public’s ability and desire to spend discretionary dollars as a result of job losses, home foreclosures, significantly-reduced home values, investment losses, bankruptcies, and reduced access to credit, which could result in lower levels of customer transactions and lower average check sizes in our restaurants.
−Removed: If the economy experiences another significant decline, our business, results of operations, our ability to access the capital markets and our ability to comply with the terms of our secured revolving credit facility could be materially and adversely affected, and we and our franchisees might decelerate the number and timing of new restaurant openings.
−Removed: Deterioration in customer transactions or a reduction in average check size would negatively impact our revenues and our profitability and could result in further reductions in staff levels, additional impairment charges, and potential restaurant closures.
−Removed: We are vulnerable to changes in consumer preferences and economic conditions that could harm our business, financial condition, results of operations, and cash flow.
−Removed: Food service businesses depend on consumer discretionary spending and are often affected by changes in consumer tastes, national, regional, and local economic conditions, and demographic trends.
−Removed: Factors such as traffic patterns, weather, fuel prices, local demographics, and the type, number, and locations of competing restaurants may adversely affect the performances of individual locations.
−Removed: In addition, economic downturns, inflation, or increased food or energy costs could harm the restaurant industry in general and our locations in particular.
−Removed: An outbreak of disease, epidemic or pandemic, or similar public threat, or fear of such an event, that negatively impacts consumer spending or consumers' willingness to dine out could have a material impact on our business, financial condition and operating results and could also adversely impact the economy generally.
−Removed: Adverse changes affecting consumer preferences or economic conditions within the restaurant industry or the economy more generally could reduce consumer transactions or impose practical limits on pricing that could harm our business, financial condition, results of operations, and cash flow.
+Added: If our company-operated and franchised restaurants cannot compete successfully, especially with other QSR and fast casual restaurants, in new and existing markets, we could lose customers and our revenue could decline, which may materially and adversely affect our business, financial condition, and results of operations.
+Added: We are vulnerable to changes in economic conditions and consumer preferences.
+Added: The restaurant industry is dependent upon consumer discretionary spending, which may be affected by a prolonged economic downturn or an economic recession.
+Added: If the economy experiences another significant decline, our business, results of operations, our ability to access the capital markets and our ability to comply with the terms of our secured
+Added: revolving credit facility could be materially and adversely affected, and we and our franchisees might decelerate the number and timing of new restaurant openings.
+Added: Adverse changes affecting consumer preferences, local demographics, an outbreak of disease, epidemic or pandemic, or similar public threat or fear of such an event, regional or local economic conditions affecting consumer spending or increasing food or energy costs could also reduce consumer transactions or impose practical limits on pricing that could harm our business, financial condition, results of operations, and cash flow.
Further, there can be no assurance that consumers will continue to regard chicken-based or Mexican-inspired food favorably or that we will be able to develop new products that appeal to consumer preferences.
Our business, financial condition, and results of operations depend in part on our ability to anticipate, identify, and respond to changing consumer preferences and economic conditions.
−Removed: See also "-A prolonged downturn could materially affect us in the future" below.
Political and social factors, including regarding trade, immigration or customer preferences, could negatively impact our business.
Our success is dependent upon continued customer acceptance of our Mexican-inspired food.
−Removed: Increases in tariffs, restrictions on trade, or other deterioration in American political or economic relations with Mexico, or a decrease in American consumers’
−Removed: interest in Mexican-inspired food, could harm our brand and profitability.
+Added: Increases in tariffs, restrictions on trade, or other deterioration in American political or economic relations with Mexico, or a decrease in American consumers’ interest in Mexican-inspired food, could harm our brand and profitability.
Additionally, changes in trade, labor, or immigration policy could raise our input prices, or reduce the supply of immigrants who are in many cases our customers or employees, diminishing our sales and increasing our labor costs.
−Removed: Our business is geographically concentrated in the greater Los Angeles area, and we could be negatively affected by conditions specific to that region.
+Added: Our business could be negatively affected by regional geographic concentrations.
Our company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.3% of our revenue in fiscal 2020 and approximately 70.5% in fiscal 2019.
−Removed: Adverse changes in demographic, unemployment, economic, or regulatory conditions in the greater Los Angeles area or in the State of California, including, but not limited to, enforcement policies for and changes in immigration law, have had and may continue to have material adverse effects on our business.
−Removed: We believe that an increase in unemployment would have a negative impact on transactions in our restaurants.
−Removed: As a result of our concentration in the greater Los Angeles area, we have been disproportionately affected by the above adverse economic conditions as compared to other national chain restaurants.
−Removed: Our business is vulnerable to natural disasters given its geographic concentration and real estate intensive nature.
−Removed: Since our business is geographically concentrated in the greater Los Angeles area, we could be negatively affected by weather conditions specific to that region, including fires, earthquakes, or other natural disasters.
+Added: Adverse changes in demographic, unemployment, economic, or regulatory conditions in the greater Los Angeles area or in the State of California, including, enforcement policies for and changes in immigration law, have had and may continue to have material adverse effects on our business.
+Added: We also may be negatively affected by weather conditions specific to the Los Angeles region, including fires, earthquakes, or other natural disasters.
Additionally, outside of Los Angeles, many of our restaurants are clustered around major cities in Northern California, Texas, and elsewhere, and prolonged or severe inclement weather could affect our sales at restaurants in locations that experience such conditions.
Localized disasters, especially exacerbated by climate change, including wildfires, hurricanes, and flooding, could impair our assets and operations in those areas.
−Removed: For example, in the third quarter of 2017, the Houston metropolitan area was impacted by Hurricane Harvey and resultant flooding.
−Removed: This caused for us, among other effects, temporary store closures and food spoilage.
−Removed: We may also suffer unexpected losses resulting from natural disasters or other catastrophic events affecting our areas of operation, such as droughts, black outs, local strikes, terrorist attacks, increases in energy prices, explosions, or other natural or man-made disasters.
−Removed: The incidence and severity of catastrophes are inherently unpredictable, and our losses from catastrophes could be substantial.
+Added: Any other events disrupting businesses, consumer discretionary spending or our employee population in the greater Los Angeles area could also have an outsized negative impact on our business or results of operations.
+Added: For example, near the end of fiscal 2020, the Los Angeles market was heavily impacted by a spike in COVID-19 cases, which disproportionately impacted our business due to our high concentration in this market.
+Added: If the Los Angeles market experiences another severe COVID-19 outbreak, we may experience further disruptions to our business that could be material.
Our long-term success depends in part on our ability to effectively identify and secure appropriate sites for new restaurants.
−Removed: We intend to develop new restaurants in our existing markets, expand our footprint into adjacent markets and selectively enter into new markets.
In order to build new restaurants, we must first identify markets where we can enter or expand our footprint, taking into account numerous factors, including the location of our current restaurants, local economic trends, population density, area demographics, cost of construction and real estate and geography.
6 unchanged sentences
proximity of potential restaurant sites to existing restaurants;
−Removed: anticipated commercial, residential and infrastructure development near the potential restaurant site;
−Removed: availability of acceptable lease terms and arrangements, including construction costs.
+Added: anticipated commercial,
+Added: residential and infrastructure development near the potential restaurant site;
+Added: and availability of acceptable lease terms and arrangements, including construction costs.
In addition, competition for restaurant sites in our target markets can be intense, and development and leasing costs are increasing.
1 unchanged sentence
We have incurred, and may continue to incur, significant impairment of certain of our assets, in particular in our new markets.
−Removed: During fiscal 2019 , we determined that the carrying value of assets at certain restaurants may not be recoverable.
−Removed: As a result, we recorded a $3.6 million impairment expense primarily related to the carrying value of the right-of-use assets ("ROU asset") of four restaurants sold to franchisees during fiscal 2019, and the long-lived assets of one restaurant in California.
−Removed: In fiscal 2018 , we recorded a non-cash impairment charge of $5.1 million , primarily related to the carrying value of four restaurants in Arizona, California and Texas, including a restaurant in Texas that opened in early 2018.
−Removed: In fiscal 2017 , we recorded a non-cash impairment charge of $32.6 million , primarily related to the carrying value of the assets of 23 restaurants in Arizona, California and Texas.
−Removed: The impairment expense for fiscal 2017 included an impairment expense of $27.7 million , representing the entire value of capitalized assets of all of the company-operated restaurants in Texas, net of previously recorded depreciation.
−Removed: Factors which led to the impairment of our Texas restaurants included operating results, which indicated that the restaurants would not achieve the sales volumes required to generate positive cash flows or improve profitability in the Texas market, along with the related future cash flow assumptions, including comparable sales rate growth and restaurant operating costs, over the remaining lease terms and the age of the restaurants in Texas.
−Removed: The restaurants in Texas began opening in late 2014, causing a higher net book value at the time of impairment testing, and increased difficulty projecting results for newer restaurants in newer markets.
−Removed: Given the difficulty in projecting results for newer restaurants in newer markets, we are also monitoring the recoverability of the carrying value of the assets of several other restaurants on an ongoing basis.
−Removed: For those restaurants, if expected performance improvements are not realized, an impairment charge may be recognized in future periods, and such charge could be material.
+Added: The recognition of impairment charges may adversely affect our future operations and results.
+Added: In assessing the recoverability of our long-lived assets, we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors.
+Added: There is uncertainty in the projected undiscounted future cash flows used in our impairment review analysis, which requires the use of estimates and assumptions.
+Added: If actual performance does not achieve the projections, or if the assumptions used change in the future, we may be required to recognize impairment charges in future periods, and such charges could be material.
+Added: Given the difficulty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, we monitor the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.
Asset impairments to new units or future capital expenditures could present additional exposure.
3 unchanged sentences
Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs.
−Removed: Although we try to manage the impact that fluctuations in food costs have on our operating results, we are susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal economic fluctuations, weather conditions, global demand, food shortages, food safety concerns, infectious diseases, fluctuations in the U.S.
+Added: We are susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal economic fluctuations, weather conditions, global demand, food shortages, food safety concerns, infectious diseases, fluctuations in the U.S.
dollar, product recalls, and government regulations, including tariffs and other import restrictions on foreign produce and other goods.
−Removed: At times the costs of many foods for humans and animals, including corn, wheat, corn flour and other flour, rice, and cooking oil, have increased markedly, resulting in upward pricing pressures on almost all of our raw ingredients, including chicken and other meats, and increasing our food costs.
Environmental and weather-related issues, such as freezes, drought and climate change, may also lead to increases, temporary or permanent, or spikes in the prices of some ingredients, such as produce and meat.
−Removed: Issues affecting the availability of produce, poultry, or other proteins such as shrimp, including blight, disease, and overfishing, have in the past and may in the future also raise their prices.
−Removed: Any increase in the prices of the ingredients most critical to our menu, such as chicken, corn, cheese, avocados, beans, rice, and tomatoes, could adversely compress our margins, or cause us to raise our prices, reducing customer demand.
+Added: Any increase in the prices of the ingredients most critical to our menu, in particular chicken, as well as corn, cheese, avocados, beans, rice, and tomatoes, could adversely compress our margins, or cause us to raise our prices, reducing customer demand.
Alternatively, in the event of cost increases with respect to one or more of our raw ingredients, we might choose to temporarily suspend serving menu items, such as guacamole or one or more of our salsas, rather than pay the increased cost.
−Removed: Additionally, a substantial volume of produce and other items are procured from Mexico, and occasionally other countries including Chile and Peru.
−Removed: Any new or increased import duties, tariffs or taxes, or other changes in U.S.
+Added: Additionally, as a substantial volume of produce and other items are procured from Mexico, and occasionally other countries including Chile and Peru, any new or increased import duties, tariffs or taxes, or other changes in U.S.
trade or tax policy could result in higher food and supply costs that would adversely impact our financial results.
9 unchanged sentences
If we implement further menu price increases in the future to protect our margins, average check size and restaurant transactions could be materially and adversely affected, at both company-operated and franchised restaurants.
−Removed: Negative publicity could reduce sales at some or all of our restaurants.
−Removed: We are, from time to time, faced with negative publicity at one or more of our restaurants relating to (i) food quality;
−Removed: (ii) the safety, sanitation, and welfare of chicken, which is our principal food product;
−Removed: (iii) restaurant facilities;
−Removed: (iv) customer complaints or litigation alleging illness or injury;
−Removed: (v) health inspection scores;
−Removed: (vi) integrity of our or our suppliers’ food processing and other policies, practices, and procedures;
−Removed: (vii) employee relationships;
−Removed: or (viii) other matters.
−Removed: Negative publicity can adversely affect us, regardless of whether an allegation is valid or whether we are held to be responsible.
−Removed: In addition, the negative impact of adverse publicity relating to one restaurant may extend far beyond the restaurant involved to affect some or all of our other restaurants, including our franchised restaurants.
−Removed: For example, we, or other chicken purveyors or restaurant companies generally, could come under criticism from animal rights and welfare activists for our business practices or those of our suppliers.
−Removed: Such criticisms could impair our brand, our restaurant sales, our hiring, our expansion plans, and the performance of our franchisees.
−Removed: If we changed our practices because of concerns about animal welfare, or in response to such criticisms, our costs might increase, or we might have to change our suppliers or our menu.
+Added: Social media and negative publicity could have a material adverse impact on our business.
+Added: Negative publicity at one or more of our restaurants relating to food safety, sanitation, employee relationships or other matters can adversely affect us, regardless of whether an allegation is valid or whether we are held to be responsible.
+Added: In addition, the negative impact of adverse publicity relating to one restaurant may extend far beyond the restaurant involved to affect some or all of our other restaurants, including our franchised restaurants, due to policy changes we may implement as a result.
The risk of negative publicity is particularly great with respect to our franchised restaurants, because we are limited in the manner in which we can regulate them, especially on a real-time basis.
A similar risk exists with respect to food service businesses unrelated to us, if customers mistakenly associate those unrelated businesses with our operations.
−Removed: Our inability or failure to recognize, respond to and effectively manage the accelerated impact of social media could have a material adverse impact on our business.
−Removed: There has been a widespread and dramatic increase in the use of social media platforms that allow users to access a broad audience of consumers and other interested persons.
−Removed: The availability of information on social media can be virtually immediate, as can its impact, and users of many social media platforms can post information without filters or checks on the accuracy of the content posted.
−Removed: Adverse information concerning our restaurants or brand, whether accurate or inaccurate, may be posted on such platforms at any time and can quickly reach a wide audience.
+Added: Adverse information concerning our restaurants or brand, whether accurate or inaccurate, may also be posted on social media platforms at any time and can quickly reach a wide audience.
The resulting harm to our reputation may be immediate, without affording us an opportunity to correct or otherwise respond to the information, and it is challenging to monitor and anticipate developments on social media in order to respond in an effective and timely manner.
As a result, social media may exacerbate the risks we face related to negative publicity.
−Removed: In addition, although search engine marketing, social media and other new technological platforms offer great opportunities to increase awareness of and engagement with our restaurants and brand, our failure to use social media effectively in our marketing efforts may further expose us to the risks associated with the accelerated impact of social media.
−Removed: Many of our competitors are expanding their use of social media and the social media landscape is rapidly evolving, potentially making more traditional social media platforms obsolete.
+Added: In addition, many of our competitors are expanding their use of social media and the social media landscape is rapidly evolving, potentially making more traditional social media platforms obsolete.
As a result, we need to continuously innovate and develop our social media strategies in order to maintain broad appeal with guests and brand relevance, and we may not do so effectively.
2 unchanged sentences
Our ability to continue to expand our digital business, delivery orders and catering is uncertain, and these new business lines are subject to risks.
−Removed: For the year ended December 25, 2019 , December 26, 2018 and December 27, 2017 , 3.7% , 2.1% and 1.1% of our revenue was derived from digital and delivery orders, respectively.
−Removed: This growth rate may not be sustainable for even the short term, and if our digital business does not continue to expand it may be difficult for us to achieve our planned sales growth.
−Removed: We have also increased our efforts to promote delivery orders, which have also grown considerably.
We rely on third-party providers to fulfill delivery orders, and the ordering and payment platforms used by these third parties, or our mobile app or online ordering system, could be damaged or interrupted by technological failures, user errors, cyber-attacks or other factors, which may adversely impact our sales through these channels and could negatively impact our brand.
10 unchanged sentences
Food-borne illness and other food safety and quality concerns may negatively impact our business and profitability.
−Removed: Incidents or reports of food- or water-borne illness or other food safety issues, food contamination or tampering, employee hygiene or cleanliness failures, or improper employee conduct at our restaurants could lead to product liability or other claims.
+Added: Incidents or reports of food- or water-borne illness or other food safety issues, food contamination or tampering, employee hygiene or cleanliness failures, or improper employee conduct at our restaurants could lead to product liability
+Added: or other claims.
Such incidents or reports could negatively affect our brand and reputation as well as our business, revenues, and profits.
−Removed: Similar incidents or reports occurring at QSRs unrelated to us could likewise create negative publicity, which could negatively impact consumer behavior towards us.
−Removed: We cannot guarantee that our internal controls and training will be fully effective in preventing all food-borne illnesses.
−Removed: Additionally, no food safety protocols can completely eliminate the risk of food-borne illness in any restaurant, including as a result of possible failure by restaurant personnel or suppliers to follow food safety policies and procedures.
Furthermore, our reliance on third-party food processors makes it difficult to monitor food safety compliance, and may increase the risk that a food-borne illness would affect multiple locations rather than a single restaurant.
3 unchanged sentences
This risk would exist even if it were later determined that an illness had been wrongly attributed to one of our restaurants
−Removed: A number of other restaurant chains have experienced incidents related to food-borne illnesses that have had material adverse impacts on their operations, and we cannot guarantee that we could avoid a similar impact upon the occurrence of a similar incident at one of our restaurants.
−Removed: Additionally, even if food-borne illnesses were not identified at El Pollo Loco restaurants, our restaurant sales could be adversely affected, both financially and otherwise, if instances of food-borne illnesses at other restaurant chains were highly publicized.
+Added: Additionally, even if food or water-borne illnesses or other food safety issues or incidents were not identified at El Pollo Loco restaurants, our restaurant sales could be adversely affected, both financially and otherwise, if instances of similar incidents or reports at other QSRs or restaurant chains were highly publicized.
In addition, our restaurant sales could be adversely affected by publicity regarding other high-profile illnesses such as avian flu that customers may associate with our food products.
−Removed: We rely on only one company to distribute substantially all of our products to company-operated and franchised restaurants, and on a limited number of companies to supply chicken.
Failure to receive timely deliveries of food or other supplies could result in a loss of revenue and materially and adversely impact our operations.
Our and our franchisees’ ability to maintain consistent quality menu items and prices significantly depends upon our ability to acquire fresh food products, including the highest-quality chicken and related items, from reliable sources, in accordance with our specifications and on a timely basis.
−Removed: Shortages or interruptions in the supply of fresh food products, caused by unanticipated demand, problems in production or distribution, contamination of food products, an outbreak of poultry disease, inclement weather, or other conditions, could materially and adversely affect the availability, quality, and cost of ingredients, which would adversely affect our business, financial condition, results of operations, and cash flows.
+Added: Shortages or interruptions in the supply of fresh food products, caused by unanticipated demand, problems in production or distribution, including as a result of the COVID-19 pandemic and restrictions implemented to counter its spread, contamination of food products, an outbreak of poultry disease, inclement weather, or other conditions, could materially and adversely affect the availability, quality, and cost of ingredients, which would adversely affect our business, financial condition, results of operations, and cash flows.
We have contracts with a limited number of suppliers for the chicken and other food and supplies for our restaurants.
3 unchanged sentences
Our level of indebtedness, and restrictions under our credit facility, could materially and adversely affect our business, financial condition, and results of operations.
−Removed: We have substantial debt service obligations.
−Removed: At December 25, 2019 , our total debt was $97.0 million , and we had $44.6 million of credit available under our secured revolving credit facility, which was reduced by $8.4 million from outstanding letters of credit.
Our level of indebtedness could have significant effects on our business, such as:
3 unchanged sentences
placing us at a competitive disadvantage compared with our competitors with less debt;
−Removed: exposing us to risks inherent in interest rate fluctuations, because our borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.
+Added: and exposing us to risks inherent in interest rate fluctuations, because our borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.
In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet our other cash needs.
9 unchanged sentences
(“EPL”), which owns our operating assets.
−Removed: As a result, we are dependent on loans, dividends, and other payments from EPL, our operating company and indirect wholly owned subsidiary, and from EPL Intermediate, Inc.
−Removed: (“Intermediate”), our direct wholly owned subsidiary, to generate the funds necessary to meet our financial obligations and to pay dividends on our common stock.
+Added: As a result, we are dependent on loans, dividends, and other payments from EPL, our operating company and indirect wholly owned subsidiary, and from EPL Intermediate, Inc., our direct wholly owned subsidiary, to generate the funds necessary to meet our financial obligations and to pay dividends on our common stock.
Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions.
Although we do not expect to pay dividends on our common stock for the foreseeable future, if we are unable to obtain funds from our subsidiaries, we may be unable to, or our board may exercise its discretion not to, pay dividends
−Removed: Under our secured revolving credit facility, 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 our past or present officers, directors, or employees (or their estates) 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 our secured revolving credit facility.
Our marketing programs may not be successful, and our new menu items, advertising campaigns, and restaurant designs and remodels may not generate increased sales or profits.
5 unchanged sentences
The challenging economic environment may affect our franchisees, with adverse consequences to us.
−Removed: We rely in part on our franchisees and the manner in which they operate their locations to develop and promote our business.
−Removed: As of December 25, 2019 , our top 10 franchisees operated 68.6% of our franchised restaurants and two franchisees operated 34.5% of our franchised restaurants.
−Removed: Due to the continuing challenging economic environment, it is possible that some franchisees could file for bankruptcy or become delinquent in their payments to us, which could have significant adverse impacts on our business, due to loss or delay in payments of (i) royalties, (ii) information technology (“IT”) support service fees, (iii) contributions to our advertising funds, and (iv) other fees.
+Added: Due to the challenging economic environment, it is possible that some franchisees could file for bankruptcy or become delinquent in their payments to us, which could have significant adverse impacts on our business, due to loss or delay in payments of (i) royalties, (ii) information technology (“IT”) support service fees, (iii) contributions to our advertising funds, and (iv) other fees.
Bankruptcies by our franchisees could (i) prevent us from terminating their franchise agreements, so that we could offer their territories to other franchisees, (ii) negatively impact our market share and operating results, as we might have fewer well-performing restaurants, and (iii) adversely impact our ability to attract new franchisees.
−Removed: As of December 25, 2019 , we had executed development agreements that represent commitments to open 54 franchised restaurants at various dates through 2028.
−Removed: Although we have developed criteria to evaluate and screen prospective developers and franchisees, we cannot be certain that the developers and franchisees that we select will have the business acumen or financial resources necessary to open and operate successful franchises in their franchise areas, and state franchise laws may limit our ability to terminate or modify these franchise arrangements.
−Removed: Moreover, franchisees may fail to operate their restaurants in fashions consistent with our standards and requirements, or to hire and train qualified managers and other restaurant personnel.
−Removed: Failures of developers and franchisees to open and operate franchises successfully could materially and adversely affect our reputation, brand, business, financial condition, results of operations, cash flows, and ability to attract prospective franchisees.
Franchisees may not have access to the financial or management resources that they need to open the restaurants contemplated by their agreements with us, or be able to find suitable sites on which to develop those restaurants.
4 unchanged sentences
Also, we sublease certain restaurants to some existing California franchisees.
−Removed: If any such franchisees cannot meet their financial obligations under their subleases, or otherwise fail to honor or default under the terms of their subleases, we will be financially obligated under a master lease and could be materially and adversely affected.
+Added: If any such franchisees cannot meet their financial obligations under their subleases, or otherwise fail to honor or default under the terms of their subleases, especially where state franchise laws may limit our ability to terminate or modify these franchise arrangements, we will be financially obligated under a master lease and could be materially and adversely
In the past, franchisees have entered bankruptcy or receivership, which can lead to sale or closure of franchises, cause underperformance or underinvestment in capital expenditures, or lead to nonpayment of us or other creditors, and these circumstances could recur in the future.
7 unchanged sentences
Our growth depends on maintaining amicable relations with our franchisees, including their participation in and adherence to our restaurant operating guidelines.
−Removed: Although we believe we generally enjoy a positive working relationship with our franchisees, they are independent business operators, and they may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under the franchise agreement.
−Removed: Because our ability to control our franchisees is limited, disagreement may lead to inaction by our franchisees with respect to our initiatives, or even disputes with our franchisees.
−Removed: We expect such disputes to occur from time to time as we continue to offer franchises due to our size and the general nature of the franchisor-franchisee relationship.
−Removed: Disputes between us and our franchisees, whether in court, arbitration or otherwise, could relate to either party’s actual or alleged violation of its contractual, statutory or common law obligations.
−Removed: Unfavorable judgments, awards or settlements relating to franchisee disputes could result in monetary or injunctive relief against us, including the voiding of non-compete, territorial exclusivity, or other development-related provisions upon which we rely to protect our brand.
−Removed: For example, in a recent suit where a franchisee challenged the enforceability of the territorial exclusivity clause in its franchise agreement with us, a jury found in favor of the franchisee.
−Removed: Although we are vigorously appealing the judgment, if this or similar clauses were held unenforceable, we could be negatively impacted.
−Removed: To the extent that we have such disputes, the attention, time, and financial resources of our management and our
−Removed: franchisees may be diverted from our restaurants, which could have a material adverse effect on our (and our franchisees’) business, financial condition, results of operations, and cash flows, as well as our ability to attract new franchisees.
+Added: Because our ability to control our franchisees is limited, disagreement may lead to inaction by our franchisees with respect to our initiatives, or even disputes with our franchisees, in court, arbitration or otherwise, including disputes related to an actual or alleged violation of contractual, statutory or common law obligations.
+Added: Such disputes occur from time to time as we continue to offer franchises due to our size and the general nature of the franchisor-franchisee relationship.
+Added: Unfavorable judgments, awards or settlements relating to franchisee disputes could result in monetary or injunctive relief against us, including the voiding of non-compete, territorial exclusivity, or other development-related provisions upon which we rely to protect our brand, that could have a material adverse effect on our business and results of operations.
+Added: Disputes with franchisees also divert the attention, time, and financial resources of our management and our franchisees from our restaurants, which could have a material adverse effect on our (and our franchisees’) business, financial condition, results of operations, and cash flows, as well as our ability to attract new franchisees.
Even our success in franchisee disputes could damage our (or our franchisees’) finances or operations, as well as our relationships with our franchisees and our ability to attract new franchisees given the negative connotations of any franchisor-franchisee disputes.
9 unchanged sentences
If a successful claim is made against us and is not covered by our insurance or exceeds our policy limits, our business may be negatively and materially impacted.
+Added: We are locked into long-term and non-cancelable leases, and may be unable to renew leases at the ends of their terms.
+Added: Many of our restaurant leases are non-cancelable and typically have initial terms of up to 20 years and up to four renewal terms of five years that we may exercise at our option.
+Added: Even if we close a restaurant, we may remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term.
+Added: In addition, in connection with leases for restaurants that we will continue to operate, we may, at the end of the lease term and any renewal period for a restaurant, be unable to renew the lease without
+Added: substantial additional cost, if at all.
+Added: As a result, we may close or relocate the restaurant, which could subject us to construction and other costs and risks.
+Added: Additionally, the revenue and profit, if any, generated at a relocated restaurant might not equal the revenue and profit generated at its prior location.
+Added: Risks Related to Information Technology and Data Security
Information technology system failures or breaches of our network security could interrupt our operations and adversely affect our business.
−Removed: We rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants.
−Removed: Security breaches of our networks and systems, including those caused by physical or electronic break-ins, computer viruses, malware, worms, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering, including through social engineering such as phishing attacks, coordinated denial-of-service attacks and similar breaches, could result in, among other things, system disruptions, shutdowns, unauthorized access to or disclosure of confidential information, misappropriation of our or our customers’ proprietary or confidential information, breach of our legal, regulatory or contractual obligations, inability to access or rely upon critical business records or systems or other delays in our operations.
+Added: From time to time, we experience security breaches of our networks and systems.
+Added: These security breaches may include those caused by physical or electronic break-ins, computer viruses, malware, worms, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering, including through social engineering such as phishing attacks, coordinated denial-of-service attacks and similar breaches, could result in, among other things, system disruptions, shutdowns, unauthorized access to or disclosure of confidential information, misappropriation of our or our customers’ proprietary or confidential information, breach of our legal, regulatory or contractual obligations, inability to access or rely upon critical business records or systems or other delays in our operations.
In some cases, it may be difficult to anticipate or immediately detect such incidents and the damage they cause.
4 unchanged sentences
If we are unable to protect our customers’ payment method data or personal information, we could be exposed to data loss, litigation, liability, and reputational damage.
−Removed: We accept electronic payment cards from our customers in our restaurants.
−Removed: Customers also have the ability to pay for online orders with their mobile phones using a stored value component built into our app.
−Removed: For the fiscal year ended December 25, 2019 , approximately 56.3% of our sales were attributable to credit/debit card transactions, and credit/debit card usage could continue to increase.
−Removed: A number of restaurant operators and retailers have experienced actual or potential security breaches in which credit/debit card information may have been compromised or stolen.
−Removed: While we have taken reasonable steps to prevent the occurrence of security breaches in this respect, it is possible that these measures may not be adequate and we may in the future become subject to claims for purportedly fraudulent transactions arising out of the actual or alleged theft of credit/debit card information.
−Removed: We may also be subject to lawsuits or other proceedings in the future relating to these types of incidents.
−Removed: Proceedings related to theft of credit/debit card information may be brought by payment card providers, banks, and credit unions that issue cards, cardholders (either individually or as part of a class action lawsuit), and federal and state regulators.
−Removed: Any such proceedings could distract our management team members from running our business and cause us to incur significant unplanned losses and expenses.
−Removed: We also sell and accept for payment, El Pollo Loco gift cards, and our loyalty rewards program provides points that can be redeemed for purchases.
−Removed: Like credit and debit cards, gift cards and rewards points are vulnerable to theft, whether physical or electronic.
−Removed: We believe that our gift cards are primarily vulnerable to physical theft, as we have implemented gift card policies such as requiring a physical card to be presented when redeeming value from a gift card;
−Removed: however, there could be instances of
−Removed: non-compliance with these policies.
−Removed: We believe that, due to their electronic nature, rewards points and payment information stored within our app are primarily vulnerable to hacking.
−Removed: Customers affected by any loss of data or funds could litigate against us, and security breaches or even unsuccessful attempts at hacking could harm our reputation, and guarding against or responding to hacks could require significant time and resources.
−Removed: We also receive and maintain certain personal information about our customers and team members.
−Removed: The use of this information by us is regulated at the federal and state levels.
−Removed: If our security and information systems are compromised or our team members fail to comply with these laws and regulations and this information is obtained by unauthorized persons or used inappropriately, it could adversely affect our reputation, as well as the results of operations, and could result in litigation against us or the imposition of penalties.
−Removed: In addition, our ability to accept credit/debit cards as payment in our restaurants and online depends on us maintaining our compliance status with standards set by the PCI Security Standards Council.
−Removed: These standards, set by a consortium of the major credit card companies, require certain levels of system security and procedures to protect our customers’ credit/debit card information as well as other personal information.
−Removed: Privacy and information security laws and regulations change over time, including the California Consumer Privacy Act (“CCPA”) which took effect January 1, 2020.
−Removed: The CCPA imposes new obligations on certain companies doing business in California with respect to the personal information of California residents.
−Removed: This includes new notice and privacy policy requirements, and new obligations to respond to requests to know and access to personal information, to delete personal information and to say no to the sale of personal information, which may impose significant costs on us.
−Removed: Compliance with the CCPA and other legal and regulatory changes may result in cost increases due to necessary system and process changes.
+Added: We collect and retain internal and customer data, including personally identifiable information of our employees and customers.
+Added: It is possible that measures we have taken to prevent the occurrence of security breaches may not be adequate and we may in the future become subject to claims or proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of credit/debit card information.
+Added: Any such claims or proceedings could distract our management team members from running our business, adversely affect our reputation, and cause us to incur significant unplanned losses and expenses.
+Added: We are also subject to federal and state laws regulating the collection and use of personal information of our employees and customers, including the California Consumer Privacy Act (“CCPA”), which took effect January 1, 2020.
+Added: In addition, our ability to accept credit/debit cards as payment in our restaurants and online depends on us maintaining our compliance status with standards set by the PCI Security Standards Council, which require certain levels of system security and procedures to protect our customers’ credit/debit card information as well as other personal information.
+Added: Compliance with these standards and regulations may impose significant costs on us.
Further, while we have implemented policies and procedures to ensure compliance with the CCPA, the California Attorney General has not yet finalized his regulations for the CCPA and the manner in which the California Attorney General may interpret and enforce the CCPA is uncertain.
−Removed: Despite our diligent efforts, we may not be successful in complying with such regulations due to both internal and external factors.
Noncompliance with the CCPA and other privacy laws could result in injunctions, fines and/or proceedings against us by governmental agencies or others.
There could also be uncertainty surrounding compliance with privacy laws in other jurisdictions such as state-specific laws which may conflict with existing legislation or future laws and regulations.
+Added: Risks Related to Intellectual Property
The failure to enforce and maintain our trademarks and protect our other intellectual property could materially and adversely affect our business, including our ability to establish and maintain brand awareness.
−Removed: We have registered El Pollo Loco ®, Pollo Bowl ®, The Crazy Chicken ®, and certain other names used by our restaurants as trademarks or service marks with the PTO and El Pollo Loco® in approximately 42 foreign countries.
−Removed: In addition, the El Pollo Loco logo, website name and address, and Facebook, Twitter, Instagram and YouTube accounts are our intellectual property.
−Removed: The success of our business strategy depends on our continued ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products.
+Added: The success of our business strategy depends on our ability to use our existing trademarks and service marks in order to increase brand awareness and further develop our branded products.
If our efforts to protect our intellectual property are inadequate, or if any third-party misappropriates or infringes upon our intellectual property, whether in print, on the Internet, or through other media, our brands and branded products could fail to maintain or achieve market acceptance and the value of our brands could be harmed, materially and adversely affecting our business.
−Removed: There can be no assurance that all of the steps that we have taken to protect our intellectual property in the United States and in foreign countries will be adequate.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States.
+Added: Any litigation to enforce our intellectual property rights will likely be costly and may not be successful.
We maintain the recipe for our chicken marinade, as well as certain proprietary standards, specifications, and operating procedures, as trade secrets or confidential proprietary information.
2 unchanged sentences
If any of our trade secrets or proprietary information were to be disclosed to or independently developed by a competitor, our business, financial condition, and results of operations could be materially and adversely affected.
−Removed: In addition, any litigation to enforce our intellectual property rights will likely be costly and may not be successful.
−Removed: Although we believe that we have sufficient rights to all of our trademarks and service marks, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand.
+Added: In addition, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand.
Any such litigation may be costly and could divert resources from our business.
Moreover, if we are unable to successfully defend against such claims, we may be prevented from using our trademarks or service marks in the future and may be liable for damages, which in turn could have a material adverse effect on our business, financial condition and results of operations.
+Added: Risks Related to Government Regulation and Litigation
Matters relating to employment and labor law may adversely affect our business.
5 unchanged sentences
These types of employee claims could also be asserted against us, on a co-employer theory, by employees of our franchisees.
−Removed: A significant increase in the number of these claims, or an increase in the number of successful claims, could materially and adversely affect our business, financial condition, results of operations, and cash flows.
−Removed: We are also subject in the ordinary course of business to employee claims against us based, among other things, on discrimination, harassment, wrongful termination, or violation of wage and labor laws.
−Removed: Such claims could also be asserted against us by employees of our franchisees.
−Removed: These claims may divert our financial and management resources that would otherwise be used to benefit our operations.
−Removed: The on-going expense of any resulting lawsuits, and any substantial settlement payment or damage award against us, could adversely affect our business, brand image, employee recruitment, financial condition, operating results, or cash flows.
−Removed: Restaurant companies have been the targets of class action lawsuits and other proceedings alleging, among other things, violations of federal and state workplace and employment laws.
−Removed: Proceedings of this nature are costly, divert management attention, and, if successful, can result in payment of substantial damages or settlement costs.
−Removed: Our business is subject to the risk of litigation by employees, consumers, suppliers, stockholders, and others through private actions, class actions, administrative proceedings, regulatory actions, and other litigation.
−Removed: The outcome of litigations, particularly class and regulatory actions, is difficult to assess or quantify.
−Removed: In recent years, restaurant companies, including us, have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state laws regarding workplace and employment conditions, discrimination, and similar matters.
−Removed: A number of these lawsuits have resulted in payments of substantial damages by the defendants.
−Removed: Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, overtime eligibility of managers, and failure to pay for all hours worked.
−Removed: In the past, we have been a party to wage and hour class action lawsuits and are currently a party to such lawsuits on behalf of purported classes.
−Removed: See additional information presented in "Note 13.
−Removed: Commitments and Contingencies—Legal Matters" in the accompanying "Notes to Consolidated Financial Statements" in this Annual Report.
+Added: A significant increase in the number of these claims, or an increase in the number of successful claims, could materially and adversely affect our business, brand image, employee recruitment, financial condition, results of operations, or cash flows.
+Added: We are from time to time the target of class action lawsuits and other claims proceedings, which could adversely affect our business and results of operations.
+Added: Our business is subject to the risk of litigation by employees, customers, suppliers, stockholders, and others through private actions, class actions, administrative proceedings, regulatory actions, and other litigation, including actions regarding workplace and employment conditions, discrimination, and similar matters, and we are currently a party to wage and hour class action lawsuits.
+Added: See additional information presented in Note 13 “Commitments and Contingencies—Legal Matters” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report.
Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illnesses or injuries that they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food-borne illnesses or accidents in our restaurants.
−Removed: We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including contract claims.
+Added: We are also subject to a variety of other claims from
+Added: third parties arising in the ordinary course of our business, including contract claims.
The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers.
3 unchanged sentences
In addition, claims may generate negative publicity, which could reduce customer traffic and sales.
−Removed: Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters.
+Added: Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters.
A judgment or other liability in excess of our insurance coverage for any claims, or any adverse publicity resulting from claims, could adversely affect our business and results of operations.
1 unchanged sentence
Labor is a primary component in the cost of operating our company-operated and franchised restaurants.
−Removed: If we or our franchisees face labor shortages or increased labor costs, because of increased competition for employees, a decrease in the labor supply due to changes in immigration policy including barriers to immigrants entering, working in, or remaining in the United States, higher employee-turnover rates, unionization of restaurant workers, or increases in federal, state, or local minimum wages or in other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance), our and our franchisees’ operating expenses could increase, and our growth could be adversely affected.
−Removed: We have a substantial number of hourly employees who are paid wage rates at or based on the applicable federal, state, or local minimum wage, and increases in the minimum wage will increase our labor costs and the labor costs of our franchisees.
−Removed: The California minimum wage rose to $13.00 per hour on January 1, 2020, and is scheduled to rise to (i) $14.00 per hour on January 1, 2021, and (ii) $15.00 per hour on January 1, 2022, subject, in each case, to the governor’s ability to pause any scheduled increase (“off-ramp” provisions) for one year if either economy or budget conditions are met.
−Removed: Initial determinations are to be made by the governor by August 1 of each year prior to a January increase.
−Removed: The governor makes the final determination by September 1.
−Removed: Thereafter, the state minimum wage is to be indexed annually for inflation.
−Removed: Local minimum wages may exceed or ramp up faster than state levels.
−Removed: In particular, the minimum wage in the City of Los Angeles and the unincorporated areas of the County of Los Angeles is scheduled to rise to $15.00 by July 1, 2020 in accordance with a June 2015 ordinance.
−Removed: On September 29, 2015, the Board of Supervisors of the County of Los Angeles adopted an ordinance amending the Los Angeles County Code and establishing a countywide minimum wage covering unincorporated areas of the county following the same schedule.
−Removed: Other municipalities have followed and may continue to follow the trend of increasing local minimum wages exceeding state levels.
−Removed: In 2019 , approximately 70.5% of our revenue, excluding franchise advertising revenue, came from company-operated and franchised restaurants in the greater Los Angeles area, including 9.6% from the City of Los Angeles, 36.4% from other incorporated cities in the County of Los Angeles, and 1.3% from unincorporated areas of the County of Los Angeles.
−Removed: Those restaurants that are not directly covered by these ordinances may be covered by future ordinances, may face competitive or political pressures to match these wage levels, or may suffer from any regional economic distress caused by these ordinances.
−Removed: Federally-mandated, state-mandated, or locally-mandated minimum wages may be further raised in the future.
−Removed: We may be unable to increase our menu prices in order to pass future increased labor costs on to our customers, in which case our margins would be negatively affected.
+Added: If we or our franchisees face labor shortages or increased labor costs, because of increased competition for employees, a decrease in the labor supply due to changes in immigration policy including barriers to immigrants entering, working in, or remaining in the United States, higher employee-turnover rates, unionization of restaurant workers, or increases in federal, state, or local minimum wages or in other employee benefits costs (including costs associated with health insurance coverage or workers’ compensation insurance) or for other reasons, our and our franchisees’ operating expenses could increase, and our growth could be adversely affected.
+Added: See also our risk factor titled “ The recent outbreak of COVID-19 and measures intended to prevent its spread may have a significant negative impact on our business, sales, results of operations and financial condition” for labor shortage risks we may face in connection with the COVID-19 pandemic.
+Added: Federally-mandated, state-mandated, or locally-mandated minimum wages have recently increased in several jurisdictions, including the State of California and Los Angeles County, and may be further raised in the future.
+Added: We may be unable to sufficiently increase our menu prices in order to pass future increased labor costs on to our customers, in which case our margins would be negatively affected.
Also, reduced margins of franchisees could make it more difficult to sell franchises.
−Removed: And if menu prices were increased by us and our franchisees to cover increased labor costs, the higher prices could adversely affect sales and thereby reduce our margins and the royalties that we receive from franchisees.
+Added: In addition, increases in menu prices by us and our franchisees to cover increased labor costs could have the effect of lowering sales, which would thereby reduce our margins and the royalties that we receive from franchisees.
In addition, our success depends in part upon our and our franchisees’ ability to attract, motivate, and retain a sufficient number of well-qualified restaurant operators, management personnel, and other employees.
1 unchanged sentence
In addition, limited service restaurants have traditionally experienced relatively high employee turnover rates.
−Removed: Although we have not yet experienced any significant problems in recruiting or retaining employees, our and our franchisees’ inability to recruit and retain qualified individuals could delay planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could increase our and our franchisees’ labor costs and have a material adverse effect on our business, financial condition, results of operations, and cash flows.
−Removed: If we or our franchisees are unable to recruit and retain sufficiently qualified individuals, our business and our growth could be adversely affected.
−Removed: Competition for qualified employees could require us or our franchisees to pay higher wages, which could also result in higher labor costs.
−Removed: We are locked into long-term and non-cancelable leases, and may be unable to renew leases at the ends of their terms.
−Removed: Many of our restaurant leases are non-cancelable and typically have initial terms of up to 20 years and up to four renewal terms of five years that we may exercise at our option.
−Removed: Even if we close a restaurant, we may remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term.
−Removed: In addition, in connection with leases for restaurants that we will continue to operate, we may, at the end of the lease term and any renewal period for a restaurant, be unable to renew the lease without substantial additional cost, if at all.
−Removed: As a result, we may close or relocate the restaurant, which could subject us to construction and other costs and risks.
−Removed: Additionally, the revenue and profit, if any, generated at a relocated restaurant might not equal the revenue and profit generated at its prior location.
−Removed: We and our franchisees are subject to extensive government regulations that could result in claims leading to increased costs and restrict our ability to operate or sell franchises.
−Removed: We and our franchisees are subject to extensive government regulations at the federal, state, and local levels, including, but not limited to, regulations relating to preparation and sale of food, zoning and building codes, franchising, land use, and employee, health, sanitation, and safety matters.
−Removed: We and our franchisees are required to obtain and maintain a wide variety of government licenses, permits, and approvals.
−Removed: Difficulty or failure in obtaining these in the future could result in delaying or canceling the opening of new restaurants.
−Removed: Local authorities may suspend or deny renewal of our government licenses if they determine that our operations do not meet their standards for initial grant or renewal.
−Removed: This risk will increase if there is a major change in the licensing requirements affecting our types of restaurants.
−Removed: The Patient Protection and Affordable Care Act of 2010 (the “PPACA”) requires employers such as us to provide adequate and affordable health insurance for all qualifying employees or to pay a monthly per-employee fee or penalty for non-compliance.
−Removed: In past years, we experienced a marginal enrollment increase in our health plans with newly eligible employees as a result of the PPACA.
−Removed: In early 2017, the PPACA was undermined through executive and Congressional action and in March 2017, the U.S.
−Removed: House of Representatives introduced legislation known as the American Health Care Act (the "AHCA").
−Removed: The House of Representatives recently voted to pass the AHCA and the Senate is currently expected to consider an alternative version of the AHCA.
−Removed: It is expected that Congress will continue to consider this or similar legislation to amend or repeal significant provisions of the PPACA, but it remains uncertain when or if the provisions of such legislation will become law, or the extent to which any changes may impact our business.
−Removed: Any future cost increases may be material and could lead to future modifications to our business practices that may be disruptive to our operations and impact our ability to attract and retain personnel.
−Removed: We are also subject to regulation by the Federal Trade Commission and subject to state laws that govern the offer, sale, renewal, and termination of franchises and our relationships with our franchisees.
−Removed: Failure to comply with these laws and regulations in any jurisdiction or to obtain required approvals could result in a ban on or temporary suspension of franchise sales, fines, or the requirement that we make a rescission offer to our franchisees, any of which could affect our ability to open new restaurants in the future and thus could materially and adversely affect our business and operating results.
−Removed: Any such failure could also subject us to liability to our franchisees.
−Removed: We are increasingly subject to environmental regulations, which may increase our cost of doing business and affect the manner in which we operate.
−Removed: Environmental regulations could increase the level of our taxation and future regulations could impose restrictions or increase the costs associated with food, food packaging, and other supplies, transportation costs, and utility costs.
−Removed: Complying with environmental regulations may cause our results of operations to suffer.
−Removed: We cannot predict what environmental regulations or legislation will be enacted in the future, how existing or future environmental laws will be administered or applied, or the level of costs that we may incur to comply with, or satisfy claims relating to, such laws and regulations.
−Removed: Changes in health, safety, construction, labor, environmental, or other laws or regulations, including changes to or repeal of the PPACA, could impose costs upon us, including transition costs.
+Added: Our and our franchisees’ inability to recruit and retain qualified individuals could delay planned openings of new restaurants or result in higher employee turnover in existing restaurants, which could increase our and our franchisees’ labor costs and have a material adverse effect on our business, financial condition, results of operations, and cash flows.
+Added: Competition for qualified employees could also require us or our franchisees to pay higher wages, which could also result in higher labor costs.
+Added: We are subject to extensive laws, government regulation, and other legal requirements and our failure to comply with existing or new laws and regulations could adversely affect our operational efficiencies, ability to attract and retain talent and results of operations.
+Added: Our business is subject to extensive federal, state and local laws and regulations, including those relating to:
+Added: preparation, sale and labeling of food, including regulations of the Food and Drug Administration, which oversees the safety of the entire food system, including inspections and mandatory food recalls, menu labeling and nutritional content;
+Added: employment practices and working conditions, including minimum wage rates, wage and hour practices, labor relations, paid and family leave, workplace safety, immigration, overtime, discrimination and harassment, among others;
+Added: health, sanitation, safety and fire standards;
+Added: building and zoning requirements, including state and local licensing and regulation governing the design and operation of facilities and land use;
+Added: public accommodations and safety conditions, including the Americans with Disabilities Act and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations, and other areas;
+Added: environmental matters, such as animal health
+Added: and welfare, climate change, the reduction of greenhouse gases, water consumption, the discharge, storage, handling, release, and disposal of hazardous or toxic substances, and local ordinances restricting the types of packaging we can use in our restaurants;
+Added: public company compliance, disclosure and governance matters, including accounting and tax regulations, SEC and The Nasdaq Stock Market LLC (“Nasdaq”) disclosure requirements;
+Added: and data privacy laws and standards for the protection of personal information, including social security numbers, financial information (including credit card numbers), and health information, and payment card industry standards and requirements.
+Added: Compliance with these laws and regulations, and future new laws or changes in these laws or regulations that impose additional requirements, can be costly.
+Added: Any failure or perceived failure to comply with these laws or regulations could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability.
+Added: Changes in health, safety, construction, labor, environmental, or other laws or regulations, including changes to or repeal of the Patient Protection and Affordable Care Act (“PPACA”), could impose costs upon us, including transition costs.
Such transition costs could include uncertainties about how the new laws or regulations might be interpreted, enforced, or litigated by either regulators or private parties.
1 unchanged sentence
For example, changes to health insurance law could diminish our customers’ disposable incomes and thus reduce their frequency of eating or ordering out, even from QSR or fast casual restaurants, including us.
−Removed: Legislation and regulations requiring the display and provision of nutritional information for our menu offerings, new information or attitudes regarding diet and health, or adverse opinions about the health effects of consuming our menu offerings, could affect consumer preferences and negatively impact our results of operations.
−Removed: Government regulation and consumer eating habits may impact our business as a result of changes in attitudes regarding diet and health or new information regarding the health effects of consuming our menu offerings.
−Removed: These changes have resulted in, and may continue to result in, the enactment of laws and regulations that impact the ingredients and nutritional content of our menu offerings, or laws and regulations requiring us to disclose the nutritional content of our food offerings.
−Removed: The PPACA establishes a uniform, federal requirement for certain restaurants to post certain nutritional information on their menus.
−Removed: Specifically, the PPACA amended the Federal Food, Drug, and Cosmetic Act to require that chain restaurants with 20 or more locations, operating under the same name and offering substantially the same menus, publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake.
−Removed: The PPACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this information.
−Removed: The PPACA further permits the U.S.
−Removed: Food and Drug Administration to require covered restaurants to make additional nutrient disclosures, such as disclosure of trans-fat content.
−Removed: An unfavorable report on, or reaction to, our menu ingredients, the size of our portions, or the nutritional content of our menu items could negatively influence the demand for our offerings.
−Removed: Currently, it is uncertain how proposed legislative changes will impact the PPACA or the extent to which any changes may impact our business.
−Removed: Furthermore, a number of states, counties, and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose certain nutritional information to customers, or have enacted legislation restricting the use of certain types of ingredients in restaurants.
−Removed: California, our largest market, is one of these, although its menu labeling law has been superseded by the PPACA.
−Removed: While we believe that our food is generally healthier than that of our peers, customers may disagree or change their dining habits to avoid QSR-like restaurants altogether.
−Removed: Compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items may be costly and time-consuming.
−Removed: Additionally, if consumer health regulations or consumer eating habits change significantly,
−Removed: we may be required to modify or discontinue certain menu items, and we may experience higher costs associated with the implementation of those changes.
−Removed: Additionally, some government authorities are increasing regulations regarding trans-fats and sodium, which may require us to limit or eliminate trans-fats and sodium in our menu offerings, or switch to higher-cost ingredients, or which may hinder our ability to operate in certain markets.
+Added: Legislation and regulations regarding certain of our menu offerings, new information or attitudes regarding diet and health, or adverse opinions about the health effects of consuming our menu offerings, could affect consumer preferences and negatively impact our results of operations.
+Added: Certain government authorities are increasing regulations regarding trans-fats and sodium, which may require us to limit or eliminate trans-fats and sodium in our menu offerings, or switch to higher-cost ingredients, or which may hinder our ability to operate in certain markets.
Some jurisdictions have proposed increasing taxes on certain products, such as sodas, which may affect sales volumes of those products.
11 unchanged sentences
Business—Environmental Matters.”
−Removed: We are required to pay our pre-IPO owners for certain tax benefits, which amounts are expected to be material.
−Removed: We entered into an income tax receivable agreement (the “TRA”) with the stockholders of the Company immediately prior to the initial public offering ("IPO"), which provides for payment by us to our pre-IPO stockholders of 85% of the amount of cash savings, if any, in federal, state, local, and foreign income tax that we and our subsidiaries actually realize (or are deemed to realize in the case of an early termination by us or a change of control) as a result of the utilization of our net operating losses and other tax attributes attributable to periods prior to July 2014 together with interest accrued at a rate of LIBOR plus 200 basis points from the date the applicable tax return is due (without extension) until paid.
−Removed: Our payments under the TRA may be material.
−Removed: As of December 25, 2019 , we had an accrued payable related to this agreement of approximately $8.2 million .
−Removed: In fiscal 2019 , we paid $5.8 million to our pre-IPO stockholders under the TRA.
−Removed: TRA payment obligations are obligations of Holdings and not of its subsidiaries.
−Removed: The actual amounts and utilization of net operating losses and other tax attributes, as well as the amounts and timing of any payments under the TRA, will vary depending upon a number of factors, including the amount, character, and timing of Holdings’ and its subsidiaries’ taxable income in the future.
−Removed: Our counterparties under the TRA will not reimburse us for any benefits that are subsequently disallowed, although any future payments would be adjusted to the extent possible to reflect the result of such disallowance.
−Removed: As a result, in such circumstances, we could make payments under the TRA greater than our actual cash tax savings.
−Removed: If we undergo a change of control as defined in the TRA, the TRA will terminate, and we will be required to make a payment equal to the present value of expected future payments under the TRA, which payment would be based on certain assumptions, including assumptions related to our future taxable income.
−Removed: Additionally, if we or a direct or indirect subsidiary transfer any asset to a corporation with which we do not file a consolidated tax return, we will be treated as having sold that asset for its fair market value in a taxable transaction for purposes of determining the cash savings in income tax under the TRA.
−Removed: Any such payment resulting from a change of control or asset transfer could be substantial and could exceed our actual cash tax savings.
−Removed: A recent court judgment includes an injunction which could have an adverse impact on our business, financial conditions and results of operations in 2020 and beyond.
−Removed: Our growth strategy depends in part on opening new restaurants in existing and new markets and expanding our franchise system.
−Removed: A key part of this expansion is our ability to enter into franchise agreements for restaurants to be located in certain desirable geographic areas.
−Removed: In a recent lawsuit in the Los Angeles Superior Court, an existing franchisee challenged our right to open new restaurants within a certain distance from that franchisee’s existing restaurant.
−Removed: A jury found in favor of the franchisee and, among other things, the trial court issued an injunction requiring us to revise our franchise agreement and franchise disclosure document in a manner that limits our rights to open new restaurants within certain proximities of existing franchised restaurants.
−Removed: See additional information presented in "Note 13.
−Removed: Commitments and Contingencies—Legal Matters" in the accompanying "Notes to Consolidated Financial Statements" in this Annual Report.
−Removed: We are appealing that decision, and our motion to stay the injunctive relief was denied by the trial and appellate courts.
−Removed: We therefore are now required to use an amended franchise agreement and franchise disclosure document that includes the terms specified in the injunction, including constraints on the locations at which we can open new restaurants.
−Removed: Although most of the locations protected from development by the injunction are not in markets in which we had intended to open restaurants under our current growth strategy, nevertheless, and especially in existing markets with many franchised restaurants, the injunctive relief may adversely impact our growth, which may adversely affect our business, financial condition and results of operations.
−Removed: Risks Related to Ownership of Our Common Stock
+Added: Risks Related to Certain of our Stockholders
If the ownership of our common stock continues to be highly concentrated, it may prevent minority stockholders from influencing significant corporate decisions and may result in conflicts of interest.
6 unchanged sentences
This concentration of ownership may delay, deter, or prevent acts that would be favored by our other stockholders.
−Removed: While our board has determined that director John Roth, a general partner of Freeman Spogli and its CEO, satisfies the criteria for an independent director under applicable rules of The Nasdaq Stock Market LLC (the “Nasdaq"), the interests of Trimaran and Freeman Spogli may not always coincide with our interests or the interests of our other stockholders.
+Added: While our board has determined that director John Roth, a general partner of Freeman Spogli and its CEO, satisfies the criteria for an independent director under applicable Nasdaq rules, the interests of Trimaran and Freeman Spogli may not always coincide with our interests or the interests of our other stockholders.
This concentration of ownership may also have the effect of delaying, deterring, or preventing a change in control of us.
4 unchanged sentences
Trimaran and Freeman Spogli engage in a range of investing activities, including investments in restaurants and other consumer-related companies in particular.
−Removed: While our board has determined that director John Roth, a general partner of Freeman Spogli and its CEO, satisfies the criteria for an independent director under NASDAQ rules, in the ordinary course of their business activities, Trimaran and Freeman Spogli may engage in activities where their interests conflict with our interests or those of our stockholders.
+Added: In the ordinary course of their business activities, Trimaran and Freeman Spogli may engage in activities where their interests conflict with our interests or those of our stockholders.
Our amended and restated certificate of incorporation provides that none of LLC or any of its officers, directors, employees, agents, shareholders, members, partners, principals, affiliates and managers (including, inter alia, Trimaran and Freeman Spogli) has a duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in which we operate.
2 unchanged sentences
In addition, Trimaran and Freeman Spogli may have an interest in pursuing acquisitions, divestitures, and other transactions that, in their judgment, could enhance their investment in us, even though those transactions might involve risks to you, such as debt-financed acquisitions.
−Removed: We do not anticipate paying any dividends on our common stock in the foreseeable future.
−Removed: We do not expect to declare or pay any cash or other dividends in the foreseeable future on our common stock, because we intend to use cash flow generated by operations to grow our business.
−Removed: Our secured revolving credit facility restricts our ability to pay cash dividends on our common stock.
−Removed: We may also enter into other credit agreements or other borrowing arrangements in the future that restrict or limit our ability to pay cash dividends on our common stock.
−Removed: See “- Our level of indebtedness, and restrictions under our credit facility, could materially and adversely affect our business, financial condition, and results of operations .”
−Removed: Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect our business and the market price of our common stock .
−Removed: Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which require significant resources and management oversight.
−Removed: Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules.
−Removed: We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective.
−Removed: Matters impacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules.
−Removed: There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
−Removed: Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting.
−Removed: This could materially adversely affect us by, for example, leading to a decline in the market price for our common stock and impairing our ability to raise capital.
−Removed: Additionally, as we are no longer an emerging growth company, as defined by the JOBS Act, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis.
−Removed: If we cannot maintain effective disclosure controls and procedures or internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.
−Removed: The market price and trading volume of our common stock have been and may be volatile, which could result in rapid and substantial losses for our stockholders.
−Removed: The market price of our common stock has fluctuated and may continue to fluctuate, or may decline significantly in the future.
−Removed: Shares of our common stock were sold in our IPO in July 2014 at a price of $15.00 per share, and our common stock has subsequently traded as high as $41.70 and as low as $9.05.
−Removed: Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
−Removed: variations in our quarterly or annual operating results;
−Removed: changes in our earnings estimates, if provided, or differences between our actual financial and operating results and those expected by investors and analysts;
−Removed: the contents of published research reports about us or our industry, or the failure of securities analysts to cover our common stock;
−Removed: additions or departures of key management personnel;
−Removed: any increased indebtedness that we may incur in the future;
−Removed: announcements by us or others and developments affecting us;
−Removed: actions by institutional stockholders;
−Removed: litigation and governmental investigations;
−Removed: legislative or regulatory changes;
−Removed: judicial pronouncements interpreting laws and regulations;
−Removed: changes in government programs;
−Removed: changes in market valuations of similar companies;
−Removed: speculation or reports by the press or investment community with respect to us or our industry in general;
−Removed: announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures, or capital commitments;
−Removed: general market, political, and economic conditions, including local conditions in the markets in which we operate.
−Removed: These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance.
−Removed: The stock market in general has from time to time experienced extreme price and volume fluctuations, including recently.
−Removed: In addition, in the past, following periods of volatility in the overall market and decreases in the market price of a company’s securities, securities class action litigation has often been instituted against that company.
−Removed: We are currently defending against such litigation.
−Removed: See additional information presented in "Note 13.
−Removed: Commitments and Contingencies—Legal Matters" in the accompanying "Notes to Consolidated Financial Statements" in this Annual Report.
−Removed: Such litigation could result in substantial costs and a diversion of our management’s attention and resources.
+Added: We are required to pay our pre-IPO owners for certain tax benefits, which amounts are expected to be material.
+Added: We entered into an income tax receivable agreement (the “TRA”) with the stockholders of the Company immediately prior to the initial public offering (“IPO”), which provides for payment by us to our pre-IPO stockholders of 85% of the amount of cash savings, if any, in federal, state, local, and foreign income tax that we and our subsidiaries actually realize (or are deemed to realize in the case of an early termination by us or a change of control) as a result of the utilization of our net operating losses and other tax attributes attributable to periods prior to July 2014 together with interest accrued at a rate of LIBOR plus 200 basis points from the date the applicable tax return is due (without extension) until paid.
+Added: Our payments under the TRA may be material.
+Added: As of December 30, 2020, we had an accrued payable related to this agreement of approximately $3.1 million.
+Added: In fiscal 2020, we paid $5.2 million to our pre-IPO stockholders under the TRA.
+Added: TRA payment obligations are obligations of Holdings and not of its subsidiaries.
+Added: The actual amounts and utilization of net operating losses and other tax attributes, as well as the amounts and timing of any payments under the TRA, will vary depending upon a number of factors, including the amount, character, and timing of Holdings’ and its subsidiaries’ taxable income in the future.
+Added: Our counterparties under the TRA will not reimburse us for any benefits that are subsequently disallowed, although any future payments would be adjusted to the extent possible to reflect the result of such disallowance.
+Added: As a result, in such circumstances, we could make payments under the TRA greater than our actual cash tax savings.
+Added: If we undergo a change of control as defined in the TRA, the TRA will terminate, and we will be required to make a payment equal to the present value of expected future payments under the TRA, which payment would be based on certain assumptions, including assumptions related to our future taxable income.
+Added: Additionally, if we or a direct or indirect subsidiary transfer any asset to a corporation with which we do not file a consolidated tax return, we will be treated as having sold that asset for its fair market value in a taxable transaction for purposes of determining the cash savings in income tax under the TRA.
+Added: Any such payment resulting from a change of control or asset transfer could be substantial and could exceed our actual cash tax savings.
+Added: Risk Factors Related to Our Common Stock
Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.
8 unchanged sentences
Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us.
−Removed: The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets.
+Added: The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets, including shares of our common stock currently held by the LLC.
The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that such sales could occur.
3 unchanged sentences
Any such sales, or the prospect of any such sales, could materially impact the market price of our common stock.
+Added: Further, pursuant to the terms of the LLC’s limited liability company operating agreement (the “LLC Agreement”), the LLC Agreement can terminate, in which case the LLC will begin the process of dissolving and winding up its affairs, at the earlier of (i) the election of the managing member, or (ii) six years following the completion of our IPO, or July 27, 2020.
+Added: If the process of winding up the LLC and distribution of shares of our common stock begins and all or a
+Added: substantial portion of these shares are sold into the public markets, or if it is perceived that they will be resold, the trading price of our common stock could decline.
Delaware law, our organizational documents, and our existing and future debt agreements may impede or discourage a takeover, depriving our investors of the opportunity to receive a premium for their shares.
9 unchanged sentences
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings;
−Removed: provide that, on or after the date that LLC ceases to beneficially own at least 40% of the total votes eligible to be cast in the election of directors, a 75% supermajority vote will be required to amend or repeal provisions relating to, among other things, the classification of the board of directors, the filling of vacancies on the board of directors, and the advance notice requirements for stockholder proposals and director nominations.
+Added: and provide that, on or after the date that LLC ceases to beneficially own at least 40% of the total votes eligible to be cast in the election of directors, a 75% supermajority vote will be required to amend or repeal provisions relating to, among other things, the classification of the board of directors, the filling of vacancies on the board of directors, and the advance notice requirements for stockholder proposals and director nominations.
In addition, our secured revolving credit facility imposes, and we anticipate that documents governing our future indebtedness may impose, limitations on our ability to enter into change of control transactions.
1 unchanged sentence
The foregoing factors, as well as significant common stock ownership by Trimaran and Freeman Spogli, could impede a merger, takeover, or other business combination, or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances, could reduce the market value of our common stock.
+Added: General Risk Factors
+Added: Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect our business and the market price of our common stock.
+Added: Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which require significant resources and management oversight.
+Added: Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules.
+Added: We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective.
+Added: Matters impacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules.
+Added: There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements.
+Added: Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting.
+Added: This could materially adversely affect us by, for example, leading to a decline in the market price for our common stock and impairing our ability to raise capital.
UNRESOLVED STAFF COMMENTS
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.