What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-07 compared with 2020-10-30 · 255 added, 421 removed, 551 unchanged (55% of the section changed)

3 unchanged sentences

(Amounts in thousands, except share data)

September 23,

Current assets:

4 unchanged sentences

Total current assets

Property and equipment owned, net

Property and equipment, net

Property and equipment held under finance lease, net

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

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

Deferred tax assets

6 unchanged sentences

Accrued insurance

Accrued income taxes payable

Accrued interest

9 unchanged sentences

Total liabilities

Commitments and contingencies

Commitments and contingencies (Note 7)

Stockholders’ Equity

2 unchanged sentences

Common stock, $ 0.01 par value, 200,000,000 shares authorized;

36,441,369 and 35,126,582 shares issued and outstanding

36,478,683 and 36,423,505 shares issued and outstanding as of March 31, 2021 and December 30, 2020, respectively

Additional paid-in-capital

Accumulated deficit

Accumulated other comprehensive (loss) income

Accumulated other comprehensive loss

Total stockholders’ equity

5 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

Company-operated restaurant revenue

6 unchanged sentences

Occupancy and other operating expenses

Gain on recovery of insurance proceeds, lost profits

Company restaurant expenses

3 unchanged sentences

Loss on disposal of assets

Recovery of securities lawsuits related legal expenses and other insurance claims

Impairment and closed-store reserves

Loss on disposition of restaurants

Total expenses

1 unchanged sentence

Interest expense, net

Income tax receivable agreement (income) expense

Income tax receivable agreement income

Income before provision for income taxes

7 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Other comprehensive income (loss)

March 31, 2021

March 25, 2020

Other comprehensive income

Changes in derivative instruments

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

Reclassifications of losses (gains) into net income

Income tax (expense) benefit

Unrealized net gains arising during the period from interest rate swap

Reclassifications of losses into net income

Income tax expense

Other comprehensive income (loss), net of taxes

Comprehensive income

See notes to condensed consolidated financial statements (unaudited).

EL POLLO LOCO HOLDINGS, INC.

1 unchanged sentence

(Amounts in thousands, except share data)

Thirteen Weeks Ended September 23, 2020

Comprehensive

Stockholders’

(Loss) Income

Balance, June 24, 2020

Stock-based compensation

Issuance of common stock related to restricted stock

Issuance of common stock upon exercise of stock options

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, September 23, 2020

Thirteen Weeks Ended September 25, 2019

Comprehensive

Stockholders’

Balance, June 26, 2019

Stock-based compensation

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Repurchase of common stock

( 2,825,896 )

Other comprehensive income, net of tax

Balance, September 25, 2019

Thirty-Nine Weeks Ended September 23, 2020

Thirteen Weeks Ended March 31, 2021

Comprehensive

3 unchanged sentences

Stock-based compensation

Issuance of common stock related to restricted stock

Issuance of common stock upon exercise of stock options

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive loss, net of tax

Balance, September 23, 2020

Thirty-Nine Weeks Ended September 25, 2019

Balance, March 31, 2021

Thirteen Weeks Ended March 25, 2020

Comprehensive

Stockholders’

Income (Loss)

Balance, December 25, 2019

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Shares repurchased for employee tax withholdings

Repurchase of common stock

( 4,384,732 )

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, September 25, 2019

Balance, March 25, 2020

See notes to condensed consolidated financial statements (unaudited)

EL POLLO LOCO HOLDINGS, INC.

1 unchanged sentence

(Amounts in thousands)

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Cash flows from operating activities:

1 unchanged sentence

Depreciation and amortization

Bad debt expense

Stock-based compensation expense

Income tax receivable agreement expense (income)

Loss on disposition of restaurants

Income tax receivable agreement income

Loss on disposal of assets

1 unchanged sentence

Amortization of deferred financing costs

Amortization of favorable and unfavorable leases, net

Deferred income taxes, net

Changes in operating assets and liabilities:

Accounts and other receivables, net

Accounts and other receivables

Prepaid expenses and other current assets

Income taxes receivable/payable

Accounts payable

1 unchanged sentence

Accrued insurance

Income taxes payable

Other accrued expenses and liabilities

Net cash flows provided by operating activities

Net cash flows provided by (used in) operating activities

Cash flows from investing activities:

Proceeds from disposition of restaurants

Purchase of property and equipment

1 unchanged sentence

Cash flows from financing activities:

Minimum tax withholdings related to net share settlements

Proceeds from borrowings on revolver and swingline loans

Payments on revolver and swingline loan

Borrowings on revolver and swingline loan

Proceeds from issuance of common stock upon exercise of stock options, net of expenses

Payment of obligations under finance leases

Stock buybacks

Net cash flows used in financing activities

Increase in cash and cash equivalents

Net cash flows (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Supplemental cash flow information

Cash paid during the period for interest

Cash paid during the period for income taxes

Unpaid purchases of property and equipment

Unpaid stock buybacks

See notes to the condensed consolidated financial statements (unaudited).

See notes to condensed consolidated financial statements (unaudited).

EL POLLO LOCO HOLDINGS, INC.

5 unchanged sentences

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

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

At March 31, 2021, the Company operated 198 and franchised 283 El Pollo Loco restaurants.

Basis of Presentation

1 unchanged sentence

generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the Company’s consolidated financial position and results of operations and cash flows for the periods presented.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair statement of the Company’s consolidated financial position and results of operations and cash flows for the periods presented.

Interim results of operations are not necessarily indicative of the results that may be achieved for the full year.

5 unchanged sentences

Every six or seven years, a 53-week fiscal year occurs.

Fiscal 2020 is a 53-week year ending on December 30, 2020, and fiscal 2019 was a 52-week year ending on December 25, 2019.

Fiscal 2021 is a 52-week year ending on December 29, 2021, and fiscal 2020 was a 53-week year ended on December 30, 2020.

Revenues, expenses, and other financial and operational figures may be elevated in a 53-week year.

1 unchanged sentence

Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc.

(“Intermediate”), guarantee EPL’s 2018 Revolver (as defined below) on a full and unconditional basis (see Note 4), and Intermediate has no subsidiaries other than EPL.

(“Intermediate”), guarantee EPL’s 2018 Revolver (as defined below) on a full and unconditional basis (see Note 4, “Long-Term Debt”), and Intermediate has no subsidiaries other than EPL.

EPL is a separate and distinct legal entity and has no obligation to make funds available to Intermediate.

7 unchanged sentences

The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, lease accounting matters, stock-based compensation, income tax receivable agreement liability, contingent liabilities and income tax valuation allowances.

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

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

The COVID-19 pandemic has significantly disrupted consumer demand, as well as the Company’s restaurant operations.

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

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

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

Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, “stay at home” directives, and restaurant restrictions - including government-mandated dining room closures - that limited business to off-premise services only (take-out, drive-thru and delivery).

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

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

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

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

however, while most of the Company’s markets outside of California have dining rooms open at a limited capacity, the majority of the Company’s restaurants in California are continuing to operate on a take-away, mobile pick-up and delivery basis, as well as maintaining drive-thru operations where available, in order to protect their employees and customers from the spread of the COVID-19 pandemic and to comply with the government mandates.

Due to the impact of the COVID-19 pandemic, during the thirteen and thirty-nine weeks ended September 23, 2020, we temporarily closed 40 restaurants and 65 restaurants, respectively, of which all but three have reopened as of September 23, 2020.

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

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

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

Management has taken precautionary actions, such as initially drawing on its 2018 Revolver, which has since been paid down (see Note 4), temporarily suspending all but essential capital spending and share repurchase activity, reevaluating essential support center general and administrative expenses and fine-tuning its restaurant labor model based on indoor dining room restrictions, limited dining room capacity in restaurants located in geographies where indoor dining is permitted, dining room closures and fluctuating sales volumes.

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

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

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

In addition, we deferred 100% of our franchisees’ 2020 remodel and new restaurant build requirements until 2021 Management is continually evaluating the impact of the global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary.

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

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

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

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

Many state and local governments continue to periodically implement certain restrictions to try and contain the spread of the virus.

As of March 31, 2021, the majority of the Company’s restaurants have dining rooms open at a limited capacity and continue to maintain take-away, mobile pick-up, delivery, and drive-thru operations where available.

During the last two months of 2020 and early 2021, the Los Angeles market was heavily impacted by an increase in COVID-19 cases.

Due to our high concentration of restaurants in this market, the Company was disproportionately impacted by this spike.

During the thirteen weeks ended March 31, 2021, the Company temporarily closed 45 restaurants, of which all have reopened as of March 31, 2021.

Similarly, during the thirteen weeks ended March 31, 2021, certain of the Company’s franchisees temporarily closed 15 restaurants, all of which have reopened as of March 31, 2021.

For both franchise-operated and company-operated restaurants, this represents total temporary closures and may include more than one closure for the same restaurant.

These closures typically lasted from one to three days .

As of March 31, 2021, the Company had not permanently closed any restaurants due to the COVID-19 pandemic.

See “Subsequent Events” below for the status of temporary restaurant closures after March 31, 2021

During the thirteen weeks ended March 31, 2021, the Company incurred $ 2.8 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

Subsequent Events

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

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

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

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

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

Subsequent to March 31, 2021, the Company has temporarily closed two restaurants, typically for one to three days , and franchisees have not temporarily closed any restaurants.

As of May 6, 2021, all company-operated and franchise locations remained open.

The Company has evaluated subsequent events that have occurred after March 31, 2021, and determined that there were no other events or transactions occurring during this reporting period that require recognition or disclosure in the condensed consolidated financial statements.

Cash and Cash Equivalents

The Company considers all highly-liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.

The Company considers all liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.

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

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

At March 31, 2021, the Company’s total debt was $ 53.8 million.

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

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

Based on current operations, the Company believes that its cash flow from operations and available cash of $ 6.7 million at March 31, 2021 will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements.

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

Gain on Recovery of Insurance Proceeds, Lost Profits

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

Recovery of Securities Class Action Legal Expenses and Other Insurance Claims

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

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

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

Loss on Disposition of Restaurants

During the thirty-nine weeks ended September 25, 2019, the Company completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.

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

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

The Company considered the future lease payments in allocating the initial cash consideration received.

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

The Company initially defers and subsequently recognizes the franchise fees over the term of the franchise agreement.

Future royalty income is also recognized in revenue as earned.

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

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

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2020-04, "Reference Rate Reform (Topic 848):

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

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

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

The Company adopted this ASU on March 12, 2020.

The adoption of ASU 2020-04 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In February 2018, the FASB issued ASU No.

2018-13, "Fair Value Measurement (Topic 820):

Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,"

which finalizes proposed ASU No.

2015-350, and of the same name as part of its disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by U.S.

GAAP that is most important to users of each entity’s financial statements.

The Company adopted ASU No.

2018-13 during the first quarter of 2020.

In January 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2021-01, “Reference Rate Reform (Topic 848):

Scope” which clarifies the FASB’s recent rate reform guidance in

Topic 848, Reference Rate Reform, that optional expedients and exceptions therein for contract modification and hedge accounting apply to derivatives that are affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and the use of new interest rate benchmarks.

ASU 2021-01 is effective immediately.

Entities may choose to apply the amendments retrospectively as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date within an interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued.

The Company adopted this ASU on January 7, 2021.

The adoption of ASU 2021-01 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In June 2016, the FASB issued ASU No.

2016-13, "Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,"

which finalizes proposed ASU No.

2012-260 "Financial Instruments—Credit Losses (Subtopic 825-15)"

and adds Topic 326 "Financial Instruments—Credit Losses", to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

The Company adopted ASU No.

2016-13 during the first quarter of 2020.

In October 2020, the FASB issued ASU No.

2020-10, “Codification Improvements,” which improve the consistency of the codification by including all disclosure guidance in the appropriate Disclosure Section (Section 50).

ASU 2020-10 is effective for annual periods beginning after December 15, 2020, and for interim periods within annual periods beginning after December 15, 2020.

The Company adopted this ASU during the first quarter of 2021.

The adoption of ASU 2020-10 did not have a significant impact on the Company’s consolidated financial position or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes", which modifies Topic 740 to simplify the accounting for income taxes.

2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”, which modifies Topic 740 to simplify the accounting for income taxes.

ASU 2019-12 is effective for financial statements issued for annual periods beginning after December 15, 2020, and for the interim periods therein.

The adoption of ASU 2019-12 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

The Company adopted this ASU during the first quarter of 2021.

The adoption of ASU 2019-12 did not have a significant impact on the Company’s consolidated financial position or results of operations.

Concentration of Risk

1 unchanged sentence

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

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

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

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

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

The Company had one supplier to whom amounts due totaled 28.5 % of the Company’s accounts payable at March 31, 2021.

At December 30, 2020, the Company had two suppliers to whom amounts due totaled 24.2 % and 11.4 % of the Company’s accounts payable.

Purchases from the Company’s largest supplier totaled 25.5 % of total expenses for the thirteen weeks ended March 31, 2021, and 27.4 % of total expenses for the thirteen weeks ended March 25, 2020.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.1 % of total revenue for the thirteen weeks ended March 31, 2021, and 72.4 % for the thirteen weeks ended March 25, 2020.

Goodwill and Indefinite Lived Intangible Assets

5 unchanged sentences

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

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

The Company determined there was no decrement of goodwill related to the disposition of restaurants during the thirteen weeks ended March 25, 2020.

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

3 unchanged sentences

If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired.

If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

If the carrying amount of a reporting unit

exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

4 unchanged sentences

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

Due to the recent impact of the COVID-19 pandemic to the global economy, including but not limited to, the volatility of the Company’s stock price as well as that of its competitors and the challenging environment for the restaurant industry generally, the Company determined that there were indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 23, 2020.

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

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

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen weeks ended March 31, 2021.

Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen weeks ended March 31, 2021.

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

11 unchanged sentences

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

“Long-Term Debt"

for further discussion regarding our interest rate swaps.

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

See Note 4, “Long-Term Debt” for further discussion regarding our interest rate swaps.

The following table presents fair value for the interest rate swap at March 31, 2021 (in thousands):

Fair Value Measurements Using

2 unchanged sentences

Fair Value Measurements Using

Other assets - Interest rate swap

Other non-current liabilities - Interest rate swap

Certain assets and liabilities are measured at fair value on a nonrecurring basis.

In other words, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (e.g.

when there is evidence of impairment).

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

(in thousands):

Thirteen Weeks

Thirty-Nine Weeks

Fair Value Measurements at September 23, 2020 Using

Ended September 23, 2020

Impairment Losses

In other words, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (e.g., when there is evidence of impairment).

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen weeks ended March 31, 2021 reflecting certain property and equipment assets and right-of-use (“ROU”) assets, for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Impairment Losses

Certain property and equipment owned, net

Certain property and equipment, net

Certain ROU assets, net

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

(in thousands):

Thirteen Weeks

Thirty-Nine Weeks

Fair Value Measurements at September 25, 2019 Using

Ended September 25, 2019

Impairment Losses

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen weeks ended March 25, 2020 reflecting certain property and equipment assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Impairment Losses

Certain property and equipment owned, net

Certain property and equipment, net

Certain ROU assets, net

Impairment of Long-Lived Assets and ROU Assets

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

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

carrying value of the restaurant’s assets.

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

3 unchanged sentences

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

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

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

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

The Company determined that triggering events occurred for certain restaurants during the thirteen weeks ended March 31, 2021 that required an impairment review of certain of the Company’s long-lived and ROU assets.

Based on the results of the analysis, the Company recorded non-cash impairment charges of $ 0.3 million for the thirteen weeks ended March 31, 2021, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019 and the long-lived assets of three restaurants in California.

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

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

3 unchanged sentences

The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense.

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

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

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

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

During the thirteen weeks ended March 31, 2021, the Company recognized $ 0.3 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

During the thirteen weeks ended March 25, 2020, the Company

recognized $ 0.5 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

Derivative Financial Instruments

2 unchanged sentences

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

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

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

For any derivative instruments not designated as hedging instruments, the gain or loss will be recognized in earnings immediately.

2 unchanged sentences

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

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

As of March 31, 2021, the counterparty to the Company’s interest rate swap has performed in accordance with its contractual obligation.

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

1 unchanged sentence

On a periodic basis, the Company assesses the probability that its net deferred tax assets, if any, will be recovered.

If, after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by charging to tax expense to reserve the portion of deferred tax assets which are not expected to be realized.

If, after evaluating all of the positive and negative evidence, a conclusion is made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by charging to tax expense a reserve for the portion of deferred tax assets which are not expected to be realized.

The Company reviews its filing positions for all open tax years in all U.S.

7 unchanged sentences

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

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

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

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

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

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

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

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

The tax provisions include a correction of a previous drafting error related to quality improvement property ("QIP") and immediate refundability of all remaining alternative minimum tax ("AMT") credits.

The Company had no accrual for interest or penalties at March 31, 2021 or at December 30, 2020.

During fiscal 2020 the Company recognized interest of $ 0.1 million related to the Notice of Proposed Adjustment (“NOPA”), discussed below.

The Company did not recognize interest or penalties during the thirteen weeks ended March 25, 2020, since there were no material unrecognized tax benefits.

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

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

For the thirteen weeks ended March 31, 2021, the Company recorded income tax receivable

agreement income of less than $ 0.1 million, and for the thirteen weeks ended March 25, 2020, the Company recorded income tax receivable agreement income of $ 0.1 million, related to the amortization of interest expense related to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income.

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

The tax provisions include a correction of a previous drafting error related to quality improvement property (“QIP”) and immediate refundability of all remaining alternative minimum tax (“AMT”) credits.

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

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

During the thirteen weeks ended March 25, 2020, the Company received a NOPA for the years ended December 27, 2017 and December 28, 2016, related to the Company’s methodology regarding its ordering of utilization of AMT NOL.

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

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

As a result of the CARES Act, discussed above, this amount is immediately refundable upon filing of a Form 1139, which the Company filed during fiscal 2020 and recognized a receivable, included in Accounts and other receivables within the condensed consolidated balance sheet as of March 31, 2021.

Subsequent to March 31, 2021, the Company received a refund totaling $ 0.5 million.

PROPERTY AND EQUIPMENT

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

September 23, 2020

March 31, 2021

December 30, 2020

3 unchanged sentences

accumulated depreciation and amortization

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

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

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

Depreciation expense was $ 3.9 million and $ 4.4 million for the thirteen weeks ended March 31, 2021 and March 25, 2020, respectively.

Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $ 0.2 million for the thirteen weeks ended March 31, 2021, primarily related to the carrying value of the assets of three restaurants in California.

During the thirteen weeks ended March 25, 2020, the Company recorded non-cash impairment charges of $ 1.4 million, primarily related to the carrying value of the assets of three restaurants in California.

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

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

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

STOCK-BASED COMPENSATION

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

At March 31, 2021, options to purchase 969,447 shares of common stock were outstanding, including 623,588 that are vested and 345,859 that are unvested.

Unvested options vest over time;

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

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

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

At March 31, 2021, 260,967 premium options, which are options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of March 31, 2021 and changes during the thirteen weeks ended March 31, 2021 is as follows:

Weighted-Average

Contractual Life

Intrinsic Value

Exercise Price

(in thousands)

Outstanding - December 30, 2020

Forfeited, cancelled or expired

Outstanding - September 23, 2020

Vested and expected to vest at September 23, 2020

Exercisable at September 23, 2020

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

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

Outstanding - March 31, 2021

Vested and expected to vest at March 31, 2021

Exercisable at March 31, 2021

At March 31, 2021, the Company had total unrecognized compensation expense of $ 0.9 million related to unvested stock options, which it expects to recognize over a weighted-average period of 1.77 years.

A summary of restricted share activity as of March 31, 2021 and changes during the thirteen weeks ended March 31, 2021 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

Unvested shares at September 23, 2020

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

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

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

Unvested shares at March 31, 2021

Unvested shares at March 31, 2021, included 652,027 unvested restricted shares, 36,058 unvested performance stock units and 48,078 unvested restricted units.

At March 31, 2021, the Company had unrecognized compensation expense of $ 5.6 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.58 years, unrecognized compensation expense of $ 0.1 million related to performance stock units, which it expects to recognize over a weighted-average period of 2.11 years and unrecognized compensation expense of $ 0.3 million related to unvested restricted units, which it expects to recognize over a weighted-average period of 1.11 years.

Total stock-based compensation expense was $ 0.9 million for the thirteen weeks ended March 31, 2021, and $ 0.5 million for the thirteen weeks ended March 25, 2020.

LONG-TERM DEBT

6 unchanged sentences

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

The base rate is calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the published Bank of America prime rate, or (c) LIBOR plus 1.00 %.

The base rate is calculated as the highest of (a) the federal funds

rate plus 0.50 %, (b) the published Bank of America prime rate, or (c) LIBOR plus 1.00 %.

For LIBOR loans, the margin is in the range of 1.25 % to 2.25 %, and for base rate loans the margin is in a range of 0.25 % to 1.25 %.

Borrowings under the 2018 Revolver may be repaid and reborrowed.

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

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

The interest rate range was 1.36 % to 1.65 % for the thirteen weeks ended March 31, 2021 respectively, and 3.11 % to 3.29 % for the thirteen weeks ended March 25, 2020.

The 2018 Credit Agreement contains certain financial covenants.

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

The Company was in compliance with the financial covenants as of March 31, 2021.

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

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

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

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

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

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

At March 31, 2021, $ 8.4 million of letters of credit and $ 53.8 million in borrowings under the 2018 Revolver were outstanding.

The Company had $ 87.8 million in borrowing availability under the 2018 Revolver at March 31, 2021.

During the thirteen weeks ended March 31, 2021, the Company elected to pay down $ 9.0 million on its 2018 Revolver.

During the thirteen weeks ended March 25, 2020, the Company borrowed $ 44.5 million, net of pay downs of $ 8.0 million on the Company’s 2018 Revolver, primarily as a precautionary measure to bolster its existing cash position, related to the uncertainty regarding the COVID-19 pandemic, as well as to fund settlement payments.

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

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

Interest Rate Swap

1 unchanged sentence

The objective of the interest rate swap was to reduce the Company’s exposure to interest rate risk for a portion of its variable-rate interest payments on its borrowings under the 2018 Revolver.

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

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

Under the terms of the swap agreement, the variable LIBOR-based component of interest payments was converted to a fixed rate of 1.31 %, plus applicable margin, which was 1.5% for the thirteen weeks ended March 31, 2021.

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

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

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

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

For the thirteen weeks ended March 31, 2021, the swap was a highly effective cash flow hedge.

As of March 31, 2021, the estimated net loss included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $ 0.5 million, based on current LIBOR interest rates.

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

September 23, 2020

March 31, 2021

December 30, 2020

Other assets - Interest rate swap

Other liabilities - Interest rate swap

1 unchanged sentence

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

Interest expense on hedged portion of debt

1 unchanged sentence

Interest expense on debt and derivatives, net

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

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen weeks ended March 31, 2021 and March 25, 2020 (in thousands):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

Loss (Gain) Reclassified from

Net (Loss) Gain Recognized in OCI

AOCI into Interest expense

Net (Loss) Gain Recognized in OCI

AOCI into Interest expense

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

March 31, 2021

March 25, 2020

Interest rate swap

2 unchanged sentences

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

September 23, 2020

March 31, 2021

December 30, 2020

4 unchanged sentences

Current portion of lease payment deferrals

Current portion of employer social security tax deferral

Total other accrued expenses and current liabilities

1 unchanged sentence

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

September 23, 2020

March 31, 2021

December 30, 2020

1 unchanged sentence

Derivative liability

Lease payment deferrals - net of current portion

Employer social security tax deferral

8 unchanged sentences

The court recently certified two classes of plaintiffs - one class encompasses restaurant employees who were not provided proper rest breaks because they were not allowed to leave the premises during their breaks and the other class encompasses restaurant employees who were required to wait at the restaurant after they finished working for the night until the manager set the alarm for safety purposes.

The parties reached a settlement in principle on January 24, 2019 of all claims brought on behalf of the 32,000 + putative class members in the Olvera , as well as all claims for failure to pay overtime compensation, failure to provide meal periods and rest breaks, and failure to provide itemized wage statements brought in the class actions captioned Martha Perez v.

The parties reached a settlement in principle on January 24, 2019 of all claims brought on behalf of the 32,000 + putative class members in Olvera , as well as all claims for failure to pay overtime compensation, failure to provide meal periods and rest breaks, and failure to provide itemized wage statements brought in the class actions captioned Martha Perez v.

El Pollo Loco, Inc.

11 unchanged sentences

The Company fully expects to have to defend against similar lawsuits in the future.

Daniel Turocy, et al.

El Pollo Loco Holdings, Inc., et al.

8:15-cv-01343) was filed in the United States District Court for the Central District of California on August 24, 2015, and Ron Huston, et al.

El Pollo Loco Holdings, Inc., et al.

8:15-cv-01710) was filed in the United States District Court for the Central District of California on October 22, 2015.

The two lawsuits have been consolidated, with co-lead plaintiffs and class counsel.

A consolidated complaint was filed on January 29, 2016, on behalf of co-lead plaintiffs and others similarly situated, alleging violations of federal securities laws in connection with Holdings common stock purchased or otherwise acquired and the purchase of call options or the sale of put options, between May 1, 2015 and August 13, 2015 (the “Class Period”).

The named defendants are Holdings;

Sather, Laurance Roberts, and Edward J.

Valle (collectively, the “Individual Defendants”);

and Trimaran Pollo Partners, LLC, Trimaran Capital Partners, and Freeman Spogli & Co.

(collectively, the “Controlling Shareholder Defendants”).

Among other things, Plaintiffs allege that, in 2014 and early 2015, Holdings suffered losses due to rising labor costs in California and, in an attempt to mitigate the effects of such rising costs, removed a $ 5 value option from the Company’s menu, which resulted in a decrease in traffic from value-conscious consumers.

Plaintiffs further allege that during the Class Period, Holdings and the Individual Defendants made a series of materially false and misleading statements that concealed the effect that these factors were having on store sales growth, resulting in Holdings stock continuing to be traded at artificially inflated prices.

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

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

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

On July 25, 2016, the Court issued an order granting, without prejudice, Defendants’ Motion to Dismiss plaintiff’s complaint for failure to state a claim.

Plaintiffs were granted leave to amend their complaint, and filed an amended complaint on August 22, 2016.

Defendants moved to dismiss the amended complaint, and on March 20, 2017, the Court dismissed the amended complaint and granted Plaintiffs leave to file another amended complaint.

Plaintiffs filed another amended complaint on April 17, 2017.

Defendants filed a motion to dismiss the amended complaint on or about May 17, 2017.

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

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

certified a class as to all of Plaintiffs’ claims.

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

On October 19, 2018 the Ninth Circuit Court of Appeals denied the petition.

On January 23, 2019, the parties filed a Notice of Settlement and Joint Request for Order to Stay Proceedings, stating the parties have reached an agreement in principle to settle the claims and allegations in the action and are negotiating the terms of a Stipulation of Settlement.

On January 24, 2019, the Court ordered that all proceedings in the action be stayed until April 3, 2019, on or before which the parties were to file and did so file a Stipulation of Settlement and a motion for preliminary approval of the settlement.

The court granted preliminary approval of the settlement on May 13, 2019.

Defendants maintain that the Plaintiffs’ claims are without merit, and entered into the settlement with Plaintiffs to eliminate the uncertainties, burden and expense of further protracted litigation.

A $ 20.0 million accrual of an expected settlement amount related to this matter was recorded as of December 26, 2018 and all settlement payments were made during the year ended December 25, 2019.

On or about November 5, 2015, a purported Holdings shareholder filed a derivative complaint on behalf of Holdings in the Court of Chancery of the State of Delaware against certain Holdings officers, directors and Trimaran Pollo Partners, L.L.C., under the caption Armen Galustyan v.

2 unchanged sentences

The Holdings shareholder’s requested remedies include an award of compensatory damages to Holdings, as well as a court order to improve corporate governance by putting forward for stockholder vote certain resolutions for amendments to Holdings’ Bylaws or Certificate of Incorporation.

The parties have stipulated to, which the court has ordered, a stay of these proceedings pending the outcome of Turocy v.

El Pollo Loco Holdings, Inc ., discussed above.

The Holdings shareholder voluntarily dismissed the action on October 7, 2020.

A second purported Holdings shareholder filed a derivative complaint on or about September 23, 2016, under the caption Diep v.

4 unchanged sentences

The court denied defendants’ motion to dismiss the complaint for failure to state a claim.

On January 17, 2018, the court entered an order granting the parties’ stipulation staying all proceedings in the Diep action for five months or until the completion of an investigation of the allegations in the action by a special litigation committee of the Holdings board of directors (the "SLC").

On February 13, 2019, after concluding its investigation, the SLC filed a motion to dismiss the Diep action.

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

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

Further briefing on the motion is ongoing.

Following discovery related to the SLC’s motion, on September 25, 2020, the SLC filed a motion to dismiss the Diep action.

On April 23, 2021, the court held a hearing on the SLC’s motion to dismiss, and the court’s ruling is pending.

The Company believes that a loss is currently not probable or estimable under ASC 450, "Contingencies", and as of March 31, 2021 no accrual has been made with regard to this case.

Handlers-Bryman and Michael D.

7 unchanged sentences

In addition to an unspecified amount of damages and costs of the lawsuit, Plaintiffs sought reformation of the contract, declaratory relief, disgorgement of alleged revenues and profits, injunctive relief, and a judicial mandate requiring us to either transfer the company-operated locations to Plaintiffs or to continuously disgorge to Plaintiffs the unjust enrichment allegedly obtained by us through the operation of the company-operated restaurants in Lancaster.

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

Pollo Loco restaurants “in the immediate vicinity of or adjacent to” Plaintiffs’ restaurant in Lancaster.

On April 24, 2017, four days before the commencement of trial, Plaintiffs filed a voluntary dismissal, without prejudice, of the Lancaster Lawsuit without any payment or other concession by us.

4 unchanged sentences

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

The court elected not to present the cause of action for

intentional interference with prospective business to the jury.

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

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

6 unchanged sentences

The court also awarded Plaintiffs restitution of $ 4,356,600 for “impact damages” arising out of our construction of the two new company-operated El Pollo Loco restaurants in Lancaster.

The court, reversing its previous position, held that these damages could be awarded in addition to the "lost opportunity damages"

awarded by the jury.

The court, reversing its previous position, held that these damages could be awarded in addition to the “lost opportunity damages” awarded by the jury.

Thus, the court entered a total monetary judgment of $ 8,837,806 .

9 unchanged sentences

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

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

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

During fiscal 2020, the Company reached an agreement with the Plaintiffs to resolve the lawsuit for a payment by the Company of $ 2.5 million, which was recorded within operating expenses in the Company’s statement of operations for the fiscal year ended December 30, 2020.

Additionally, during fiscal 2020, the matter was formally resolved.

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

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

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

The settlement payment of $ 2.5 million has been made in the third quarter of 2020 and the appeal bond has been released.

On or about November 9, 2020, a former employee filed a representative action for violation of the Private Attorneys General Act of 2004 (“PAGA”) pursuant to Labor Code sections 2698 et seq.

in the Superior Court of the State of California, County of Los Angeles, under the caption Kenneth E.

Reising, et al v.

El Pollo Loco, Inc., et al (Case No.

20STCV42951) on behalf of all non-exempt employees from June 19, 2020 to the present, alleging certain violations of California labor laws.

The claims include failure to pay overtime compensation, failure to provide meal periods and rest breaks, failure to reimburse employees for business expenses, failure to provide suitable seating, and failure to provide accurate itemized wage statements.

The requested remedies include statutory penalties and reasonable attorneys’ fees

No specific amount of damages sought was specified in the complaint.

The Company filed an Answer to the complaint on or about January 5, 2021.

Based on the assessment by management of the numerous legal arguments that can be raised on this claim, the Company believes that a loss is currently not probable or estimable under ASC 450, “Contingencies”, and as of March 31, 2021 no accrual has been made with regard to the verdict.

On or about February 4, 2021, a former employee filed a class action in the Superior Court of the State of California, County of Riverside, under the caption Brandie Crispin, et al v.

El Pollo Loco, Inc.

et al (Case No.

CVRI2100490) on behalf of all putative class members (all non-exempt General Managers from February 4, 2017 to the present) alleging certain violations of California labor laws.

The claims include failure to pay overtime compensation, failure to provide meal periods and rest breaks, and failure to provide accurate itemized wage statements.

The putative lead plaintiff’s requested remedies include compensatory damages, statutory penalties, injunctive relief, and reasonable attorneys’ fees and costs.

No specific amount of damages sought was specified in the complaint.

Plaintiff filed a first amended complaint on April 12, 2021, which dismissed the class action claims and added a representative action for violation of the Private Attorneys General Act of 2004 (“PAGA”) pursuant to Labor Code sections 2698.

The Company will file a responsive pleading to the first amended complaint on or before May 12, 2021.

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

5 unchanged sentences

These contracts have terms extending through the end of 2024.

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

At March 31, 2021, the Company’s total estimated commitment to purchase chicken was $ 25.7 million.

Contingent Lease Obligations

1 unchanged sentence

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

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

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

As of March 31, 2021, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 2.9 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at March 31, 2021 was $ 2.7 million.

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

9 unchanged sentences

The Company also intends to enter into indemnification agreements with future directors and officers.

NET INCOME PER SHARE

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

EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen weeks ended March 31, 2021 and March 25, 2020.

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

On August 2, 2018, the Company announced that the Board of Directors had authorized a stock repurchase program.

The Company entered into a stock repurchase plan on August 28, 2018 (the “2018 Stock Repurchase Plan”), which allowed for the repurchase of up to $ 20.0 million of the Company’s common stock.

The 2018 Stock Repurchase Plan commenced on November 6, 2018 and terminated on June 26, 2019.

On April 30, 2019, as part of the Company’s focus on stockholder returns, the Board of Directors approved a new stock repurchase program.

The Company entered into a stock repurchase plan May 17, 2019 (the “2019 Stock Repurchase Plan”), which allowed for the repurchase up to $ 30.0 million of the Company’s common stock.

The 2019 Stock Repurchase Plan commenced on June 27, 2019, and was exhausted on September 26, 2019.

Under the 2019 Stock Repurchase Plan, the Company was permitted to repurchase its common stock from time to time, in amounts and at prices that the Company deemed appropriate, subject to market conditions and other considerations.

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

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

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

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

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

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

Weighted-average shares outstanding—basic

15 unchanged sentences

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

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

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

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

4 unchanged sentences

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

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

As of March 31, 2021 and December 30, 2020, the revenue allocated to loyalty points that have not been redeemed was $ 0.7 million and $ 0.9 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

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

16 unchanged sentences

Both sales-based fees qualify under the royalty constraint exception, and do not require an estimate of future transaction price.

Additionally, the Company is utilizing the practical expedient available under ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”) regarding disclosure of the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied for sales-based royalties.

Additionally, the Company is utilizing the practical expedient available under ASC Topic 606, “Revenue from Contracts with Customers” (“Topic 606”)

regarding disclosure of the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied for sales-based royalties.

In certain franchise agreements, the Company offers a discounted renewal to incentivize future renewals after the end of the initial franchise term.

3 unchanged sentences

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

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

As of March 31, 2021, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

Disaggregated revenue

1 unchanged sentence

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23,

September 25,

September 23,

September 25,

Core Market (1) :

9 unchanged sentences

Total revenue

(1) Core Market includes markets with existing company-operated restaurants at the time of the Company’s Initial Public Offering ("IPO") on July 28, 2014.

(1) Core Market includes markets with existing company-operated restaurants at the time of the Company’s on July 28, 2014.

(2) Non-Core Market includes markets entered into by the Company subsequent to the IPO date.

The following table presents our revenues disaggregated by geographic market:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

Greater Los Angeles area market

1 unchanged sentence

Contract balances

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

The following table provides information about the change in the franchise contract liability balances during the thirteen weeks ended March 31, 2021 and March 25, 2020 (in thousands) :

December 30, 2020

1 unchanged sentence

Additional contract liability

September 23, 2020

March 31, 2021

December 25, 2019

Revenue recognized - beginning balance

Additional contract liability

Revenue recognized - additional contract liability

September 25, 2019

March 25, 2020

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

2 unchanged sentences

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

The following table illustrates the estimated revenue to be recognized in future periods related to performance obligations under the applicable contracts that are unsatisfied as of September 23, 2020 (in thousands):

Franchise revenues:

2020 (remaining)

Changes in the loyalty rewards program liability included in deferred revenue within other accrued expenses and current liabilities on the condensed consolidated balance sheets were as follows (in thousands):

Loyalty rewards liability, beginning balance

Revenue deferred

Revenue recognized

Loyalty rewards liability, ending balance

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of March 31, 2021 to be recognized within one year .

The gift card liability included in other accrued expenses and current liabilities on the condensed consolidated balance sheets was as follows (in thousands):

Gift card liability

Revenue recognized from the redemption of gift cards that was included in other accrued expenses and current liabilities at the beginning of the year was as follows (in thousands):

Revenue recognized from gift card liability balance at the beginning of the year

Contract Costs

The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606.

Adoption of Topic 842 "Leases"

On December 27, 2018, the Company adopted Topic 842, using the effective date method, recognizing and measuring all leases that existed as of December 27, 2018.

The Company recorded a cumulative-effect adjustment as of December 27, 2018.

All leases that either (1) commenced, or (2) were modified or re-measured after December 27, 2018 are accounted for under Topic 842.

As a result of Topic 842, the Company recognized a ROU asset of $ 205.2 million and a lease liability of $ 222.3 million on its consolidated balance sheet as of December 27, 2018.

However, the adoption of Topic 842 did not result in a material impact on the Company’s consolidated statement of operations or consolidated statement of cash flows.

Nature of leases

1 unchanged sentence

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

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

As of March 31, 2021, the Company had one lease that it had entered into, but had not yet commenced.

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

1 unchanged sentence

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

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

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

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

Additionally, a number of the Company’s leases have payments, which increase at pre-determined dates based on the change in the consumer price index.

For all leases, the Company also reimburses the landlord for non-lease components, or items that are not considered components of a contract, such as common area maintenance, property tax and insurance costs.

For all leases, the Company also reimburses the landlord for non-lease components, or items that are not considered components of a contract, such as CAM, property tax and insurance costs.

While the Company determined not to separate lease and non-lease components, these payments are based on actual costs, making them variable consideration and excluding them from the calculations of the ROU asset and lease liability.

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

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

useful life that extend past the original lease term.

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

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

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

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

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

During the thirteen weeks ended March 31, 2021, the Company reassessed the lease terms on seven restaurants due to certain triggering events, such as the addition of significant leasehold improvements, the decision to terminate a lease, or the decision to renew.

As a result of the reassessment, an additional $ 4.7 million of ROU asset and lease liabilities for

the thirteen weeks ended March 31, 2021, were recognized and will be amortized over the new lease term.

During the thirteen weeks ended March 25, 2020, the Company reassessed the lease terms on three restaurants due to the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease or the decision to renew leases.

This resulted in an additional $ 0.3 million of ROU asset and lease liability for the thirteen weeks ended March 31, 2020, which will be recognized over the new lease term.

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

5 unchanged sentences

The Company does not have any related party leases.

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

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

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

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

During the thirteen weeks ended March 31, 2021, the Company determined that the carrying value of ROU assets at one restaurant was not recoverable.

As a result, the Company recorded a less than $ 0.1 million non-cash impairment charge for the thirteen weeks ended March 31, 2021, related to one restaurant closed in 2019.

The Company recorded a $ 0.5 million non-cash impairment charge for the thirteen weeks ended March 25, 2020, primarily related to one restaurant in Texas, sold to franchisees in the prior year.

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

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

11 unchanged sentences

Thirteen Weeks Ended

September 23, 2020

September 25, 2019

Finance lease cost:

Interest on lease liabilities

Operating lease cost

Short-term lease cost

Variable lease cost

Sublease income

Total lease cost

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

Finance lease cost:

7 unchanged sentences

The following table presents the Company’s total lease cost on the condensed consolidated statements of income (in thousands):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

March 31, 2021

March 25, 2020

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

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

Thirty-Nine Weeks Ended September 23, 2020

Thirty-Nine Weeks Ended September 25, 2019

During the thirteen weeks ended March 31, 2021 and March 25, 2020, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

March 31, 2021

March 25, 2020

Cash paid for amounts included in the measurement of lease liabilities

4 unchanged sentences

Operating lease ROU assets

Finance lease ROU assets obtained in exchange for lease liabilities:

Finance lease ROU assets

Derecognition of ROU assets due to terminations, impairment or modifications

Other Information

Weighted-average remaining lease term—finance leases

Weighted-average remaining lease term—operating leases

Weighted-average remaining years in lease term—finance leases

Weighted-average remaining years in lease term—operating leases

Weighted-average discount rate—finance leases

Weighted-average discount rate—operating leases

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

Information regarding the Company’s minimum future lease obligations as of March 31, 2021 is as follows (in thousands):

Operating Leases

9 unchanged sentences

Noncurrent portion

Information regarding the Company’s minimum future lease obligations as of December 25, 2019 is as follows (in thousands):

Finance Leases

Operating Leases

For the Years Ending

December 30, 2020

December 29, 2021

December 28, 2022

December 27, 2023

December 25, 2024

imputed interest (3.96% to 11.10%)

Present value of capital lease obligations

current maturities

Noncurrent portion

Short-Term Leases

1 unchanged sentence

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

In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to the COVID-19 pandemic as lease modifications.

The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic, provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee.

During the fiscal 2020, the Company received non-substantial concessions from certain landlords in the form of rent deferrals and abatements.

The Company elected to not account for these rent concessions as lease modifications.

The rent concessions are recorded as part of other accrued expenses.

The recognition of rent concessions did not have a material impact on the Company’s condensed consolidated financial statements as of March 31, 2021.

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

4 unchanged sentences

Additionally, there are no related party leases.

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

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

The Company received $ 0.1 million of lease income from company-owned locations for both thirteen weeks ended March 31, 2021 and March 25, 2020.

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

What changed 10-Q

Item 1. Financial Statements