What changed in this filing

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Item 1. Financial Statements

2021-11-05 compared with 2021-08-06 · 254 added, 237 removed, 667 unchanged (42% of the section changed)

3 unchanged sentences

(Amounts in thousands, except share data)

September 29,

Current assets:

3 unchanged sentences

Income tax receivable

Assets held for sale

Total current assets

10 unchanged sentences

Accrued insurance

Accrued income taxes payable

Accrued interest

14 unchanged sentences

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

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

36,671,447 and 36,423,505 shares issued and outstanding as of September 29, 2021 and December 30, 2020, respectively

Additional paid-in-capital

8 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

Company-operated restaurant revenue

6 unchanged sentences

Occupancy and other operating expenses

Gain on recovery of insurance proceeds, lost profits

Company restaurant expenses

4 unchanged sentences

Recovery of securities lawsuits related legal expenses and other insurance claims

Loss on assets held for sale

Loss on disposition of restaurants

Impairment and closed-store reserves

12 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

Other comprehensive income (loss)

9 unchanged sentences

(Amounts in thousands, except share data)

Thirteen Weeks Ended June 30, 2021

Thirteen Weeks Ended September 29, 2021

Comprehensive

1 unchanged sentence

(Loss) Income

Balance, March 31, 2021

Balance, June 30, 2021

Stock-based compensation

Issuance of common stock related to restricted stock

Issuance of common stock upon exercise of stock options

1 unchanged sentence

Forfeiture of common stock related to restricted shares

Other comprehensive (loss) income, net of tax

Balance, June 30, 2021

Thirteen Weeks Ended June 24, 2020

Other comprehensive income, net of tax

Balance, September 29, 2021

Thirteen Weeks Ended September 23, 2020

Comprehensive

Stockholders’

Balance, March 25, 2020

Balance, June 24, 2020

Stock-based compensation

3 unchanged sentences

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

Other comprehensive income, net of tax

Balance, September 23, 2020

Thirty-Nine Weeks Ended September 29, 2021

Comprehensive

3 unchanged sentences

Stock-based compensation

Issuance of common stock related to restricted stock

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

1 unchanged sentence

Forfeiture of common stock related to restricted shares

Other comprehensive (loss) income, net of tax

Balance, June 30, 2021

Twenty-Six Weeks Ended June 24, 2020

Other comprehensive income, net of tax

Balance, September 29, 2021

Thirty-Nine Weeks Ended September 23, 2020

Comprehensive

7 unchanged sentences

Forfeiture of common stock related to restricted shares

Other comprehensive (loss) income, net of tax

Balance, June 24, 2020

Other comprehensive income, net of tax

Balance, September 23, 2020

See notes to condensed consolidated financial statements (unaudited)

2 unchanged sentences

(Amounts in thousands)

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 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 assets held for sale

Income tax receivable agreement (income) expense

Loss on disposition of restaurants

Loss on disposal of assets

5 unchanged sentences

Prepaid expenses and other current assets

Income taxes receivable/payable

Income taxes payable

Accounts payable

1 unchanged sentence

Accrued insurance

Payment related to tax receivable agreement

Other accrued expenses and liabilities

1 unchanged sentence

Cash flows from investing activities:

Proceeds from deposit for disposition of restaurants

Proceeds from disposition of restaurants

Purchase of property and equipment

6 unchanged sentences

Payment of obligations under finance leases

Net cash flows (used in) provided by financing activities

Increase (decrease) in cash and cash equivalents

Net cash flows used in financing activities

Increase in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

Supplemental cash flow information

10 unchanged sentences

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

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

At September 29, 2021, the Company operated 190 and franchised 290 El Pollo Loco restaurants.

Basis of Presentation

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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.

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.

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 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.

During the COVID-19 pandemic, the Company has experienced periods of significant disruption to its restaurant operations.

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

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

As of September 29, 2021, 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.

The Company continues to experience staffing challenges which resulted in reduced operating hours and service channels.

Further, there have been inflationary pressures due to supply chain disruptions that impacted the Company’s business and results of operations during the thirteen and thirty-nine weeks ended September 29, 2021 .

During the thirteen and thirty-nine weeks ended September 29, 2021, the Company incurred $ 0.5 million and $ 3.5 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company incurred $ 0.9 million and $ 2.0 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

Subsequent Events

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.

Bernard Acoca, the Company’s Chief Executive Officer and President, resigned from his position as Chief Executive Officer and President and as a member of the Board of Directors of the Company (the “Board”), effective as of October 15, 2021.

In connection with Mr.

Acoca’s resignation, the Board appointed Laurance Roberts as interim Chief Executive Officer of the Company (“Interim CEO”), effective as of October 15, 2021.

Roberts currently also serves as Chief Financial Officer of the Company and will continue in that role during his tenure as Interim CEO.

The Company has evaluated subsequent events that have occurred after September 29, 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 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 June 30, 2021, the Company’s total debt was $ 40.0 million.

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

At September 29, 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 $ 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.

Based on current operations, the Company believes that its cash flow from operations and available cash of $ 24.7 million at September 29, 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.

Loss on Disposition of Restaurants

On July 1, 2021 the Company completed the sale of eight restaurants within the Sacramento area to an existing franchisee.

The Company has 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.

The cash consideration per restaurant related to 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.

This sale resulted in cash proceeds of $ 4.6 million and a net loss on sale of restaurants of less than $ 0.1 million and $ 1.5 million for the thirteen and thirty-nine weeks ended September 29, 2021, respectively.

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

Recently Adopted Accounting Pronouncements

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

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

2021-05, “Leases (Topic 842):

Lessors – Certain Leases with Variable Lease Payments” which no longer requires a lessor to recognize a selling loss upon commencement of a lease with variable lease payments that prior to the amendment would have been classified as a sales-type or direct financing lease.

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

The adoption of ASU 2021-05 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In January 2021, the FASB issued ASU No.

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

18 unchanged sentences

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

The Company had no suppliers to whom amounts due totaled greater than 10% of the Company’s accounts payable at June 30, 2021.

The Company had no suppliers to whom amounts due totaled greater than 10% of the Company’s accounts payable at September 29, 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 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.

Purchases from the Company’s largest supplier totaled 27.0 % and 28.1 % of total expenses for the thirteen and thirty-nine weeks ended September 29, 2021, respectively, and 26.7 % and 26.8 % of total expenses for the thirteen and thirty-nine weeks ended September 23, 2020, respectively.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.6 % and 70.8 % of total revenue for the thirteen and thirty-nine weeks ended September 29, 2021, respectively, and 71.2 % and 71.5 % for the thirteen and thirty-nine weeks ended September 23, 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.

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

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

Goodwill resulted from the acquisition of certain franchise locations.

13 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 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.

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 29, 2021.

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 29, 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.

12 unchanged sentences

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

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

The following table presents fair value for the interest rate swap at September 29, 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 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):

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 29, 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

Thirty-Nine Weeks

Fair Value Measurements at September 29, 2021 Using

Ended September 29, 2021

Impairment Losses

1 unchanged sentence

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 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):

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 ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 24, 2020 Using

Ended June 24, 2020

Thirty-Nine Weeks

Fair Value Measurements at September 23, 2020 Using

Ended September 23, 2020

Impairment Losses

6 unchanged sentences

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.

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.

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.

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 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.

The Company determined that triggering events occurred for certain restaurants during the thirteen and thirty-nine weeks ended September 29, 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 $ 0.1 million and $ 0.7 million for the thirteen and thirty-nine weeks ended September 29, 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 $ 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.

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

4 unchanged sentences

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

During the thirteen and twenty-six weeks ended June 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.

During the thirteen and thirty-nine weeks ended September 29, 2021, the Company recognized less than $ 0.1 million and $ 0.4 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 thirty-nine weeks ended September 23, 2020, the Company recognized $ 0.3 million and $ 1.1 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 June 30, 2021, the counterparty to the Company’s interest rate swap has performed in accordance with its contractual obligation.

As of September 29, 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.

Deferred tax assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect in the years in which the temporary differences are expected to reverse.

temporary differences are expected to reverse.

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 June 30, 2021 or at December 30, 2020.

The Company had no accrual for interest or penalties at September 29, 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 and twenty-six weeks ended June 24, 2020, since there were no material unrecognized tax benefits.

The Company did not recognize interest or penalties during the thirteen and thirty-nine weeks ended September 23, 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 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.

For both the thirteen and thirty-nine weeks ended September 29, 2021, the Company recorded income tax receivable agreement income of less than $ 0.1 million, and 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 agreement expense of less than $ 0.1 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 law as a stimulus package, and contained several tax provisions, including 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 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.

Resolution of this NOPA 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.

The Company filed the Form 1139 during the year ended December 30, 2020 and received a refund totaling $ 0.5 million.

The CARES Act also provides for the deferral of employer Social Security taxes that are otherwise owed for wage payment and the creation of refundable employee retention credits.

The total amount deferred as of December 30, 2020 is $ 4.9 million, of which 50 % is due by December 31, 2021 and another 50 % is due by December 31, 2022.

The Company assessed its eligibility for the business relief provision under the CARES Act known as the Employee Retention Credit ("ERC"), a refundable payroll tax credit for 50% of qualified wages paid during 2020.

The American Rescue Plan passed into law on March 11, 2021 extended the ERC through December 31, 2021, and the credit was increased to 70 % of qualified wages paid from January 1, 2021 through December 31, 2021.

During the third quarter of 2021, the Company filed amended Form 941s with the Internal Revenue Service and recognized a credit of $ 3.2 million for the thirteen and thirty-nine weeks ended September 29, 2021 for the ERC, which is recorded as an offset to the

deferred portion of the employer social security tax liability and corresponding payroll tax expense and is classified as part of the labor and other operating expenses on the condensed consolidated statements of income and condensed consolidated balance sheet, respectively.

PROPERTY AND EQUIPMENT

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

June 30, 2021

September 29, 2021

December 30, 2020

3 unchanged sentences

accumulated depreciation and amortization

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.

Depreciation expense was $ 3.7 million and $ 4.1 million for the thirteen weeks ended September 29, 2021 and September 23, 2020, respectively, and $ 11.5 million and $ 12.6 million for the thirty-nine weeks ended September 29, 2021 and September 23, 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 thirty-nine weeks ended September 29, 2021, primarily related to the carrying value of the long-lived assets of three restaurants in California.

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company recorded non-cash impairment charges of $ 1.5 million and $ 2.9 million, respectively, primarily related to the carrying value of the long-lived assets of four 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 June 30, 2021, options to purchase 1,153,946 shares of common stock were outstanding, including 702,831 vested and 451,115 unvested.

At September 29, 2021, options to purchase 1,112,730 shares of common stock were outstanding, including 698,329 vested and 414,401 unvested.

Unvested options vest over time;

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

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:

At September 29, 2021, 212,196 premium options, which are options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of September 29, 2021 and changes during the thirty-nine weeks ended September 29, 2021 is as follows:

Weighted-Average

6 unchanged sentences

Forfeited, cancelled or expired

Outstanding - June 30, 2021

Vested and expected to vest at June 30, 2021

Exercisable at June 30, 2021

Outstanding - September 29, 2021

Vested and expected to vest at September 29, 2021

Exercisable at September 29, 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

September 29, 2021

September 23, 2020

Expected volatility

2 unchanged sentences

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:

At September 29, 2021, the Company had total unrecognized compensation expense of $ 2.2 million related to unvested stock options, which it expects to recognize over a weighted-average period of 3.03 years.

A summary of restricted share activity as of September 29, 2021 and changes during the thirty-nine weeks ended September 29, 2021 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

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.

Unvested shares at September 29, 2021

Unvested shares at September 29, 2021 included 568,006 unvested restricted shares, 36,058 unvested performance stock units and 24,039 unvested restricted units.

At September 29, 2021, the Company had unrecognized compensation expense of $ 6.6 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.66 years, unrecognized compensation expense of $ 0.1 million related to unvested performance stock units, which it expects to recognize over a weighted-average period of 1.61 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 0.61 years.

Total stock-based compensation expense was $ 1.0 million and $ 2.9 million for the thirteen and thirty-nine weeks ended September 29, 2021, respectively, and $ 0.9 million and $ 2.2 million for the thirteen and thirty-nine weeks ended September 23, 2020, respectively.

LONG-TERM DEBT

On July 13, 2018, the Company refinanced a credit agreement with Bank of America, N.A., initially entered into on December 11, 2014 (the “2014 Revolver”), pursuant to a credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, and the Company and Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $ 150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”).

The Company, as a guarantor, is a party to a credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, Intermediate, as a guarantor, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $ 150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”).

The 2018 Revolver includes a sub limit of $ 15.0 million for letters of credit and a sub limit of $ 15.0 million for swingline loans.

7 unchanged sentences

Borrowings under the 2018 Revolver may be repaid and reborrowed.

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 interest rate range was 1.34 % to 1.35 % and 1.34 % to 1.65 % for the thirteen and thirty-nine weeks ended September 29, 2021, respectively, and 1.67 % to 1.68 % and 1.67 % to 3.29 % for the thirteen and thirty-nine weeks ended September 23, 2020, respectively.

The 2018 Credit Agreement contains certain financial covenants.

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.

The Company was in compliance with the financial covenants as of September 29, 2021.

At September 29, 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 September 29, 2021.

During the thirty-nine weeks ended September 29, 2021, the Company elected to pay down $ 22.8 million on its 2018 Revolver.

No amounts were paid on the 2018 Revolver during the thirteen weeks ended September 29, 2021.

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 the Company’s 2018 Revolver.

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

2 unchanged sentences

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 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 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 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.

For the thirty-nine weeks ended September 29, 2021, the swap was a highly effective cash flow hedge.

As of September 29, 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 $ 0.6 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):

June 30, 2021

September 29, 2021

December 30, 2020

2 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 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 twenty-six weeks ended June 30, 2021 and June 24, 2020 (in thousands):

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and thirty-nine weeks ended September 29, 2021 and September 23, 2020 (in thousands):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Loss Reclassified from

4 unchanged sentences

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

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

Interest rate swap

2 unchanged sentences

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

June 30, 2021

September 29, 2021

December 30, 2020

1 unchanged sentence

Gift card liability

Accrued advertising

Accrued legal settlements and professional fees

1 unchanged sentence

Current portion of lease payment deferrals

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):

June 30, 2021

September 29, 2021

December 30, 2020

7 unchanged sentences

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

30-2014-00707367-CU-OE-CXC) on behalf of all putative class members (all hourly employees from 2010 to the present) alleging certain violations of California labor laws, including failure to pay overtime compensation, failure to provide meal periods and rest breaks, and failure to provide itemized wage statements.

30-2014-00707367-CU-

OE-CXC) on behalf of all putative class members (all hourly employees from 2010 to the present) alleging certain violations of California labor laws, including failure to pay overtime compensation, failure to provide meal periods and rest breaks, and failure to provide itemized wage statements.

The putative lead plaintiff’s requested remedies include compensatory and punitive damages, injunctive relief, disgorgement of profits, and reasonable attorneys’ fees and costs.

1 unchanged sentence

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.

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.

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, 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.

On May 21, 2021, while the SLC’s motion to dismiss the Diep action was pending, the Company filed a notice of proposed partial settlement of the Diep action with respect to defendants Kay Bogeajis, Laurance Roberts, Stephen J.

Sather, Edward J.

Valle, Douglas K.

Ammerman, and Samuel N.

Borgese (collectively, the “Settling Defendants”).

Defendant Trimaran Pollo Partners, LLC (“Trimaran”) was not a party to the settlement.

The court approved the settlement of $ 625,000 , less Plaintiffs’ fees of $ 156,250 , on September 10, 2021, and dismissed all claims brought, or that could have been brought, against Settling Defendants.

In connection with this settlement, the Company received $ 469,000 in insurance proceeds, which was recorded within general and administrative expenses in the Company’s statement of operations for the thirty-nine weeks ended September 29, 2021.

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

On October 4, 2021, Plaintiffs filed a notice of appeal of the court’s granting of the motion to dismiss against defendant Trimaran.

Handlers-Bryman and Michael D.

9 unchanged sentences

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.

10 unchanged sentences

As part of the final judgment, the court found El Pollo Loco liable and issued injunctive relief requiring El Pollo Loco to revise its franchise disclosure document and franchise agreement.

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 also awarded Plaintiffs restitution of $ 4,356,600 for “impact damages” arising out of the Company’s 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.

22 unchanged sentences

These contracts have terms extending through the end of 2024.

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

At September 29, 2021, the Company’s total estimated commitment to purchase chicken was $ 11.0 million.

Contingent Lease Obligations

1 unchanged sentence

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

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.

As of September 29, 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 $ 2.6 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at September 29, 2021 was $ 2.4 million.

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

1 unchanged sentence

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

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

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

Employment Agreements

The Company has employment agreements with three of the officers of the Company.

As of September 29, 2021, the Company had employment agreements with three of the officers of the Company.

These agreements provide for minimum salary levels, possible annual adjustments for cost-of-living changes, and incentive bonuses that are payable under certain business conditions.

4 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 and twenty-six weeks ended June 30, 2021 and June 24, 2020.

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 29, 2021 and September 23, 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

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 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 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.

As of September 29, 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.

22 unchanged sentences

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

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

As of September 29, 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

Thirty-Nine Weeks Ended

September 29,

September 23,

September 29,

September 23,

Core Market (1) :

13 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 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 twenty-six weeks ended June 30, 2021 and June 24, 2020 (in thousands) :

The following table provides information about the change in the franchise contract liability balances during the thirty-nine weeks ended September 29, 2021 and September 23, 2020 (in thousands) :

December 30, 2020

1 unchanged sentence

Additional contract liability

June 30, 2021

September 29, 2021

December 25, 2019

Revenue recognized - beginning balance

June 24, 2020

Additional contract liability

September 23, 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.

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

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

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

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

The following table illustrates the estimated revenue to be recognized in future periods related to performance obligations under the applicable contracts that are unsatisfied as of June 30, 2021 (in thousands):

Franchise revenues:

Remainder of 2021

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):

September 29,

Loyalty rewards liability, beginning balance

2 unchanged sentences

Loyalty rewards liability, ending balance

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of June 30, 2021 to be recognized within one year .

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of September 29, 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):

September 29,

Gift card liability

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 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 June 30, 2021, the Company had one lease that it had entered into, but had not yet commenced.

As of September 29, 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 nine equipment leases that are classified as finance leases.

however, the Company currently has two facilities 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 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.

During the thirteen and thirty-nine weeks ended September 29, 2021, the Company reassessed the lease terms on four and 16 restaurants, respectively, due to certain triggering events, such as 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.

As a result of the reassessment, an additional $ 2.6 million and $ 13.8 million of ROU asset and lease liabilities for the thirteen and thirty-nine weeks ended September 29, 2021, respectively, were recognized and will be amortized over the new lease term.

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company reassessed the lease terms on two and nine restaurants, respectively, due to 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 $ 0.3 million and $ 2.0 million of ROU asset and lease liability for the thirteen and thirty-nine weeks ended September 23, 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 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.

During the thirty-nine weeks ended September 29, 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 thirty-nine weeks ended September 29, 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 thirty-nine weeks ended September 23, 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.

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

11 unchanged sentences

Thirteen Weeks Ended

June 30, 2021

June 24, 2020

September 29, 2021

September 23, 2020

Finance lease cost:

6 unchanged sentences

Total lease cost

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

Finance lease cost:

8 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 30, 2021

June 24, 2020

June 30, 2021

June 24, 2020

Thirty-Nine Weeks Ended

September 29, 2021

September 23, 2020

September 29, 2021

September 23, 2020

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

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

During the thirty-nine weeks ended September 29, 2021 and September 23, 2020, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

Thirty-Nine Weeks Ended September 29, 2021

Thirty-Nine Weeks Ended September 23, 2020

Cash paid for amounts included in the measurement of lease liabilities

12 unchanged sentences

Weighted-average discount rate—operating leases

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

Information regarding the Company’s minimum future lease obligations as of September 29, 2021 is as follows (in thousands):

Operating Leases

17 unchanged sentences

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 June 30, 2021.

The recognition of rent concessions did not have a material impact on the Company’s condensed consolidated financial statements as of September 29, 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 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.

The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended September 29, 2021 and September 23, 2020.

The Company received $ 0.3 million and $ 0.4 million of lease income from company-owned locations for the thirty-nine weeks ended September 29, 2021 and September 23, 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