What changed in this filing

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Item 1. Financial Statements

2021-08-06 compared with 2021-05-07 · 285 added, 187 removed, 619 unchanged (43% of the section changed)

8 unchanged sentences

Income tax receivable

Assets held for sale

Total current assets

1 unchanged sentence

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

22 unchanged sentences

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

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

36,637,761 and 36,423,505 shares issued and outstanding as of June 30, 2021 and December 30, 2020, respectively

Additional paid-in-capital

8 unchanged sentences

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Company-operated restaurant revenue

11 unchanged sentences

Loss on disposal of assets

Recovery of securities lawsuits related legal expenses and other insurance claims

Loss on assets held for sale

Impairment and closed-store reserves

2 unchanged sentences

Interest expense, net

Income tax receivable agreement income

Income tax receivable agreement expense (income)

Income before provision for income taxes

7 unchanged sentences

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Other comprehensive income

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Other comprehensive income (loss)

Changes in derivative instruments

Unrealized net gains arising during the period from interest rate swap

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

Reclassifications of losses into net income

Income tax expense

Income tax (expense) benefit

Other comprehensive income (loss), net of taxes

4 unchanged sentences

(Amounts in thousands, except share data)

Thirteen Weeks Ended March 31, 2021

Thirteen Weeks Ended June 30, 2021

Comprehensive

Stockholders’

Income (Loss)

Balance, December 30, 2020

(Loss) Income

Balance, March 31, 2021

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

Other comprehensive (loss) income, net of tax

Balance, June 30, 2021

Thirteen Weeks Ended June 24, 2020

Comprehensive

Stockholders’

Balance, March 25, 2020

Thirteen Weeks Ended March 25, 2020

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive (loss) income, net of tax

Balance, June 24, 2020

Twenty-Six Weeks Ended June 30, 2021

Comprehensive

Stockholders’

Income (Loss)

(Loss) Income

Balance, December 30, 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, March 25, 2020

Other comprehensive (loss) income, net of tax

Balance, June 30, 2021

Twenty-Six Weeks Ended June 24, 2020

Comprehensive

Stockholders’

(Loss) Income

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

Forfeiture of common stock related to restricted shares

Other comprehensive (loss) income, net of tax

Balance, June 24, 2020

See notes to condensed consolidated financial statements (unaudited)

2 unchanged sentences

(Amounts in thousands)

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

Cash flows from operating activities:

2 unchanged sentences

Stock-based compensation expense

Income tax receivable agreement income

Income tax receivable agreement expense (income)

Loss on assets held for sale

Loss on disposal of assets

9 unchanged sentences

Accrued insurance

Payment related to tax receivable agreement

Other accrued expenses and liabilities

Net cash flows provided by (used in) operating activities

Net cash flows provided by operating activities

Cash flows from investing activities:

Proceeds from deposit for disposition of restaurants

Purchase of property and equipment

3 unchanged sentences

Payments on revolver and swingline loan

Minimum tax withholdings related to net share settlements

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

4 unchanged sentences

Cash and cash equivalents, end of period

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Twenty-Six Weeks Ended

June 30, 2021

June 24, 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

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

At June 30, 2021, the Company operated 198 and franchised 282 El Pollo Loco restaurants.

Basis of Presentation

26 unchanged sentences

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

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.

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

As of June 30, 2021, nearly all of the Company’s restaurants have dining rooms open at full capacity and continue to maintain take-away, mobile pick-up, delivery, and drive-thru operations where available.

During the thirteen and twenty-six weeks ended June 30, 2021, the Company temporarily closed 5 and 45 restaurants, respectively, of which all have reopened as of June 30, 2021.

Similarly, during both thirteen and twenty-six weeks ended June 30, 2021, certain of the Company’s franchisees temporarily closed 27 restaurants, all of which have reopened as of June 30, 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.

As of June 30, 2021, the Company had not permanently closed any restaurants due to the COVID-19 pandemic.

During the thirteen and twenty-six weeks ended June 30, 2021, the Company incurred $ 0.2 million and $ 3.0 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

During both thirteen and twenty-six weeks ended June 24, 2020, the Company incurred $ 1.1 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

Subsequent Events

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.

Subsequent to June 30, 2021 , the Company completed the sale of eight restaurants in the Sacramento area to an existing franchisee.

See "Assets Held For Sale"

below for further details related to the accounting impact as of and for the thirteen and twenty-six weeks ended June 30, 2021.

As of August 5, 2021, all company-operated and franchise locations remained open.

The Company has evaluated subsequent events that have occurred after June 30, 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

1 unchanged sentence

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

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

At June 30, 2021, the Company’s total debt was $ 40.0 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 $ 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.

Based on current operations, the Company believes that its cash flow from operations and available cash of $ 12.6 million at June 30, 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.

Assets Held For Sale

During the thirteen and twenty-six weeks ended June 30, 2021, the Company agreed in principle to sell eight restaurants within the Sacramento area to an existing franchisee.

Assets are classified as held for sale if they meet the criteria outlined in Accounting Standards Codification (“ASC”) 360, Property, Plant and Equipment.

In accordance with applicable accounting guidance, the net assets of the eight restaurants were recorded at the lower of carrying value or fair value less costs to sell.

The Company classified $ 3.8 million of assets as held for sale, consisting of leasehold improvements and other property equipment, as of June 30, 2021, and recognized a loss on held for sale assets of $ 1.5 million for the thirteen and twenty-six weeks ended June 30, 2021.

Prior to June 30, 2021, we received $ 4.6 million of cash primarily representing the purchase price of the transaction.

The funds were recorded within our cash and cash equivalents and other accrued expenses and current liabilities within our condensed consolidated balance sheet.

Recently Adopted Accounting Pronouncements

1 unchanged sentence

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.

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.

16 unchanged sentences

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

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

The Company had no suppliers to whom amounts due totaled greater than 10% of the Company’s accounts payable at June 30, 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.

Purchases from the Company’s largest supplier totaled 26.2 % and 26.6 % of total expenses for the thirteen and twenty-six weeks ended June 30, 2021, respectively, and 26.4 % and 27.0 % of total expenses for the thirteen and twenty-six weeks ended June 24, 2020, respectively.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.6 % and 70.4 % of total revenue for the thirteen and twenty-six weeks ended June 30, 2021, respectively, and 71.1 % and 71.7 % twenty-six weeks ended June 24, 2020, respectively.

Goodwill and Indefinite Lived Intangible Assets

1 unchanged sentence

Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method.

The Company does not amortize its goodwill and indefinite-lived intangible assets.

does not amortize its goodwill and indefinite-lived intangible assets.

Goodwill resulted from the acquisition of certain franchise locations.

1 unchanged sentence

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 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.

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.

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 30, 2021.

Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 30, 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.

10 unchanged sentences

These valuation models use a discounted cash flow analysis on the cash flows of the derivative based on the terms of the contract and the forward yield curves adjusted for the Company’s credit risk.

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

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

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

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

The following table presents fair value for the interest rate swap at June 30, 2021 (in thousands):

Fair Value Measurements Using

5 unchanged sentences

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):

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and twenty-six weeks ended June 30, 2021, reflecting certain property and equipment assets and right-of-use (“ROU”) assets for which certain assets were classified as held for sale, and an impairment loss was recognized during the corresponding periods, as discussed under Note 2, “Property and Equipment” and immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 30, 2021 Using

Ended June 30, 2021

Impairment Losses

Certain property and equipment, net

Certain property and equipment, held for sale

Certain ROU assets, net

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):

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and twenty-six weeks ended June 24, 2020, reflecting certain property and equipment assets and ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 24, 2020 Using

Ended June 24, 2020

Impairment Losses

Certain property and equipment, net

5 unchanged sentences

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

The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs.

The fair value is measured on a nonrecurring basis

using unobservable (Level 3) inputs.

There is uncertainty in the projected undiscounted future cash flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions.

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 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.

The Company determined that triggering events occurred for certain restaurants during the thirteen and twenty-six weeks ended June 30, 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 $ 0.4 million and $ 0.7 million for the thirteen and twenty-six weeks ended June 30, 2021, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas that closed in 2019, the carrying value of the ROU assets of one restaurant in California and the long-lived assets of three restaurants in California.

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

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

4 unchanged sentences

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

During the thirteen 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.

During the thirteen and twenty-six weeks ended June 30, 2021, the Company recognized less than $ 0.1 million and $ 0.3 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

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

Derivative Financial Instruments

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

As of June 30, 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 a reserve for 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 March 31, 2021 or at December 30, 2020.

The Company had no accrual for interest or penalties at June 30, 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.

The Company did not recognize interest or penalties during the thirteen and twenty-six weeks ended June 24, 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.

For the thirteen and twenty-six weeks ended June 30, 2021, the Company recorded income tax receivable agreement expense of less than $ 0.1 million and income tax receivable agreement income of less than $ 0.1 million, respectively, and for the thirteen and twenty-six weeks ended June 24, 2020, the Company recorded income tax receivable agreement expense of $ 0.3 million and $ 0.2 million, respectively, 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, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into a law a stimulus package, 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 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 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.

During fiscal 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 NOLs.

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

As a result of the CARES Act, this amount was immediately refundable upon filing of a Form 1139, which the Company filed during the twenty-six weeks ended June 30, 2021 and 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):

March 31, 2021

June 30, 2021

December 30, 2020

3 unchanged sentences

accumulated depreciation and amortization

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.

Depreciation expense was $ 3.9 million and $ 4.2 million for the thirteen weeks ended June 30, 2021 and June 24, 2020, respectively, and $ 7.9 million and $ 8.5 million for the twenty-six weeks ended June 30, 2021 and June 24, 2020, respectively.

Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of less than $ 0.1 million and $ 0.3 million for the thirteen and twenty-six weeks ended June 30, 2021, respectively, primarily related to the carrying value of the assets of three restaurants in California.

During the thirteen and twenty-six weeks ended June 24, 2020, the Company recorded non-cash impairment charges of $ 0.1 million and $ 1.4 million, respectively, 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 Note 1, “Basis of Presentation and Summary of Significant Accounting Policies – Impairment of Long-Lived Assets and ROU Assets” for additional information.

Assets are classified as held for sale if they meet the criteria outlined in ASC 360, Property, Plant and Equipment .

In accordance with applicable accounting guidance, the net assets were recorded at the lower of carrying value or fair value less costs to sell.

The Company classified $ 3.8 million of assets as held for sale as of June30, 2021, and recognized a loss on held for sale assets of $ 1.5 million for the thirteen and twenty-six weeks ended June 30, 2021.

Prior to June 30, 2021, the Company received $ 4.6 million of cash primarily representing the purchase price of the transaction.

The funds were recorded within the Company’s cash and cash equivalents and other accrued expenses and current liabilities within the condensed consolidated balance sheet.

The eight restaurants were sold subsequent to June 30, 2021.

STOCK-BASED COMPENSATION

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.

At June 30, 2021, options to purchase 1,153,946 shares of common stock were outstanding, including 702,831 vested and 451,115 unvested.

Unvested options vest over time;

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

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:

At June 30, 2021, 243,950 premium options, which are options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of June 30, 2021 and changes during the twenty-six weeks ended June 30, 2021 is as follows:

Weighted-Average

5 unchanged sentences

Outstanding - December 30, 2020

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:

Forfeited, cancelled or expired

Outstanding - June 30, 2021

Vested and expected to vest at June 30, 2021

Exercisable at June 30, 2021

The fair value of each stock option was estimated on the grant date using an exercise price of the closing stock price on the day prior to date of grant and the Black-Scholes option-pricing model with the following weighted average assumptions:

June 30, 2021

June 24, 2020

Expected volatility

Risk-free interest rate

Expected term (years)

Expected dividends

At June 30, 2021, the Company had total unrecognized compensation expense of $ 2.4 million related to unvested stock options, which it expects to recognize over a weighted-average period of 3.21 years.

A summary of restricted share activity as of June 30, 2021 and changes during the twenty-six weeks ended June 30, 2021 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

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.

Unvested shares at June 30, 2021

Unvested shares at June 30, 2021 included 616,871 unvested restricted shares, 36,058 unvested performance stock units and 24,039 unvested restricted units.

At June 30, 2021, the Company had unrecognized compensation expense of $ 7.4 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.87 years, unrecognized compensation expense of $ 0.1 million related to performance stock units, which it expects to recognize over a weighted-average period of 1.86 years, and unrecognized compensation expense of $ 0.2 million related to unvested restricted units, which it expects to recognize over a weighted-average period of 0.86 years.

Total stock-based compensation expense was $ 1.0 million and $ 1.9 million for the thirteen and twenty-six weeks ended June 30, 2021, respectively, and $ 0.7 million and $ 1.3 million for the thirteen and twenty-six weeks ended June 24, 2020, respectively.

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 1.36 % 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 interest rate range was 1.35 % to 1.36 % and 1.35 % to 1.65 % for

the thirteen and twenty-six weeks ended June 30, 2021 respectively, and 1.67 % to 3.11 % and 1.67 % to 3.29 % for the thirteen and twenty-six weeks ended June 24, 2020, respectively.

The 2018 Credit Agreement contains certain financial covenants.

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 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.

The Company was in compliance with the financial covenants as of June 30, 2021.

At June 30, 2021, $ 8.4 million of letters of credit and $ 40.0 million in borrowings under the 2018 Revolver were outstanding.

The Company had $ 101.6 million in borrowing availability under the 2018 Revolver at June 30, 2021.

During the thirteen and twenty-six weeks ended June 30, 2021, the Company elected to pay down $ 13.8 million and $ 22.8 million, respectively, on its 2018 Revolver.

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

During the twenty-six weeks ended June 24, 2020, the Company borrowed $ 41.8 million, net of pay downs of $ 10.7 million on 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.

3 unchanged sentences

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

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

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

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

For the thirteen 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.

For the twenty-six weeks ended June 30, 2021, the swap was a highly effective cash flow hedge.

As of June 30, 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):

March 31, 2021

June 30, 2021

December 30, 2020

2 unchanged sentences

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Interest expense on hedged portion of debt

Interest expense (income) on interest rate swap

Interest expense on interest rate swap

Interest expense on debt and derivatives, net

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

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and twenty-six weeks ended June 30, 2021 and June 24, 2020 (in thousands):

Thirteen Weeks Ended

Loss (Gain) Reclassified from

Net (Loss) Gain Recognized in OCI

Twenty-Six Weeks Ended

Loss Reclassified from

Net Loss Recognized in OCI

AOCI into Interest expense

March 31, 2021

March 25, 2020

March 31, 2021

March 25, 2020

Net Gain (Loss) Recognized in OCI

AOCI into Interest expense

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Interest rate swap

2 unchanged sentences

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

March 31, 2021

June 30, 2021

December 30, 2020

4 unchanged sentences

Current portion of lease payment deferrals

Current portion of employer social security tax deferral

Deposit received on assets held for sale

Employer social security tax deferral

Total other accrued expenses and current liabilities

1 unchanged sentence

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

March 31, 2021

June 30, 2021

December 30, 2020

11 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 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.

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.

26 unchanged sentences

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.

On April 23, 2021, the court held a hearing on the SLC’s motion to dismiss, and, on May 21, 2021, the Company filed a notice of proposed partial settlement of the Diep action.

Subject to the approval of the court, the proposed settlement payment of $ 625,000 in cash by individual defendants will resolve all claims brought, or that could have been brought, against such defendants.

The Company believes that the gain has currently not been realized or considered realizable under ASC 450, "Contingencies", and as of June 30, 2021, no entries have been recorded with regard to this case.

On July 30, 2021, the court granted the SLC’s motion to dismiss with respect to the claims asserted against Trimaran Pollo Partners, LLC.

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.

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

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.

The corresponding dismissal was entered by the court on April 25, 2017.

The corresponding dismissal was entered by the court

on April 25, 2017.

On May 22, 2017, Plaintiffs filed a motion for relief from the dismissal which was granted by the court on June 29, 2017.

28 unchanged sentences

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.

The Company does not believe that the ultimate resolution of these other actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources.

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

The outcomes of these actions are not predictable but the Company does not believe that the ultimate resolution of these other actions will have a material adverse effect on its financial position, results of operations, liquidity, or capital resources.

A significant increase in the number of claims, or an increase in amounts owing under successful claims, could materially and adversely affect its business, consolidated financial condition, results of operations, and cash flows.

3 unchanged sentences

These contracts have terms extending through the end of 2024.

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

At June 30, 2021, the Company’s total estimated commitment to purchase chicken was $ 18.1 million.

Contingent Lease Obligations

1 unchanged sentence

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

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.

As of June 30, 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 $ 2.7 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at June 30, 2021 was $ 2.5 million.

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

10 unchanged sentences

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.

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen and twenty-six weeks ended June 30, 2021 and June 24, 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.

1 unchanged sentence

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Weighted-average shares outstanding—basic

22 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 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.

As of June 30, 2021 and December 30, 2020, the revenue allocated to loyalty points that have not been redeemed was $ 0.6 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 March 31, 2021, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

As of June 30, 2021, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

Disaggregated revenue

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

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 on July 28, 2014.

(1) Core Market includes markets with existing company-operated restaurants at the time of the Company’s IPO 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:

March 31, 2021

March 25, 2020

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 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 thirteen weeks ended March 31, 2021 and March 25, 2020 (in thousands) :

The following table provides information about the change in the franchise contract liability balances during the twenty-six weeks ended June 30, 2021 and June 24, 2020 (in thousands) :

December 30, 2020

1 unchanged sentence

Additional contract liability

March 31, 2021

June 30, 2021

December 25, 2019

Revenue recognized - beginning balance

March 25, 2020

June 24, 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 March 31, 2021 (in thousands):

Franchise revenues:

4 unchanged sentences

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 Company expects all loyalty points revenue related to performance obligations unsatisfied as of June 30, 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):

1 unchanged sentence

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):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

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

4 unchanged sentences

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

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

As of June 30, 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 two facility and six equipment leases that are classified as finance leases.

however, the Company currently has two facility and nine 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.

5 unchanged sentences

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

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.

During the thirteen and twenty-six weeks ended June 30, 2021, the Company reassessed the lease terms on five and twelve 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 $ 6.5 million and $ 11.2 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 30, 2021, respectively, were recognized and will be amortized over the new lease term.

During the thirteen and twenty-six weeks ended June 24, 2020, the Company reassessed the lease terms on four and seven restaurants, respectively, due to 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 reassessment resulted in an additional $ 1.4 million and $ 1.7 million of ROU asset and lease liability for the thirteen and twenty-six weeks ended June 24, 2020, respectively, which will be recognized over the new lease term.

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

5 unchanged sentences

The Company does not have any related party leases.

During the 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.

During the twenty-six weeks ended June 30, 2021, the Company determined that the carrying value of ROU assets at two restaurants was not recoverable.

As a result, the Company recorded a $ 0.4 million non-cash impairment charge for the twenty-six weeks ended June 30, 2021, related to one restaurant closed in Texas in 2019 and one restaurant in California.

The Company recorded a $ 0.5 million non-cash impairment charge for the twenty-six weeks ended June 24, 2020 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.

12 unchanged sentences

Thirteen Weeks Ended

March 31, 2021

March 25, 2020

June 30, 2021

June 24, 2020

Finance lease cost:

6 unchanged sentences

Total lease cost

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Operating lease cost

Short-term lease cost

Variable lease cost

Sublease income

Total lease cost

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

March 31, 2021

March 25, 2020

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

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

During the thirteen and twenty-six weeks ended June 30, 2021 and June 24, 2020, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

Twenty-Six Weeks Ended June 30, 2021

Twenty-Six Weeks Ended June 24, 2020

Cash paid for amounts included in the measurement of lease liabilities

8 unchanged sentences

Other Information

Weighted-average remaining years in lease term—finance leases

Weighted-average remaining years in lease term—operating leases

Weighted-average remaining lease term—finance leases

Weighted-average remaining 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 March 31, 2021 is as follows (in thousands):

Information regarding the Company’s minimum future lease obligations as of June 30, 2021 is as follows (in thousands):

Operating Leases

14 unchanged sentences

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.

During 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 recognition of rent concessions did not have a material impact on the Company’s condensed consolidated financial statements as of June 30, 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 thirteen weeks ended March 31, 2021 and March 25, 2020.

The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended June 30, 2021 and June 24, 2020.

The Company received $ 0.2 million and $ 0.3 million of lease income from company-owned locations for the twenty-six weeks ended June 30, 2021 and June 24, 2020, respectively.

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