19 unchanged sentences
El Pollo Loco is a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken and operates in the LSR segment.
−Removed: We strive to offer food that integrates the culinary traditions of Mexico with the healthier lifestyle of Los Angeles, a combination that we call “LA-Mex.” Our distinctive menu features our signature product--citrus-marinated fire-grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken.
+Added: We strive to offer food that integrates the culinary traditions of Mexico with the
+Added: healthier lifestyle of Los Angeles, a combination that we call “LA-Mex.” Our distinctive menu features our signature product--citrus-marinated fire-grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken.
We serve individual and family-sized chicken meals, a variety of Mexican and LA-inspired entrees, and sides, and, throughout the year, on a limited-time basis, additional proteins like shrimp.
3 unchanged sentences
COVID-19 Impact
−Removed: On January 30, 2020, the WHO announced a global health emergency in response to the emergence of COVID-19 and the risks to the international community as the virus spreads globally beyond its point of origin.
−Removed: On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
−Removed: The COVID-19 pandemic has significantly disrupted our restaurant operations.
−Removed: 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"
−Removed: directives, and restaurant restrictions - including government-mandated dining room closures - that limited business to off-premise services only (take-out, drive-thru and delivery).
−Removed: Historically, approximately 20% of our sales are associated with dine-in service.
−Removed: Many state and local governments continue to implement certain restrictions to try and contain the spread of the virus.
−Removed: As of December 30, 2020, the majority of our restaurants in markets outside of California have dining rooms open at a limited capacity, while the majority of our restaurants in California are continuing to operate on a take-away, mobile pick-up and delivery basis, as well as maintaining drive-thru operations where available to comply with the government mandates.
−Removed: Additionally, the Los Angeles market was heavily impacted by a spike in COVID-19 cases near the end of fiscal 2020.
−Removed: Due to our high concentration in this market, we were disproportionately impacted by this spike.
−Removed: Due to the impact of the COVID-19 pandemic, during the year ended December 30, 2020, we temporarily closed 154 restaurants, of which all but seven have reopened as of December 30, 2020.
−Removed: Similarly, during the year ended December 30, 2020, our franchisees temporarily closed 69 restaurants, of which all but three have reopened as of December 30, 2020.
−Removed: For both franchise-operated and company-operated restaurants, this represents total closures and may include more than one closure for the same restaurant.
−Removed: These closures typically lasted from one to three days.
−Removed: As of December 30, 2020, we had not permanently closed any restaurants due to the COVID-19 pandemic.
−Removed: Below is a summary of other actions we have taken to enhance financial and operating flexibility for the Company and for our franchisees, and to protect our employees and customers:
−Removed: ● As a precautionary measure, we initially bolstered our existing cash position by fully drawing down our $150 million 2018 Revolver, adding $34.5 million of cash to our balance sheet.
−Removed: However, subsequent to the initial drawdown, we paid down $78.7 million, net of additional borrowings, on our 2018 Revolver.
−Removed: See Note 6 “Long-Term Debt” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our current debt balances.
−Removed: ● We temporarily suspended all share repurchase activity, significantly reduced capital spending, reevaluated essential support center general and administrative expenses, and fine-tuned our restaurant labor model based on indoor dining room restrictions, limited dining room capacity in restaurants located in geographies where indoor dining is permitted, dining room closures and fluctuating sales volume.
−Removed: ● For our franchisees, we deferred 50% of their April royalties until July 1, 2020, when such royalties began to be repaid in even monthly installments over the remainder of fiscal 2020.
−Removed: As of December 30, 2020, all deferred royalty balances have been repaid.
−Removed: In addition, we deferred 100% of our franchisees’ 2020 remodel and new restaurant build requirements until the beginning of 2021.
−Removed: We also established a support team to assist franchisees in accessing funds and benefits provided by the CARES Act, which was signed into law on March 27, 2020.
−Removed: ● For our employees, we continue to implement actions to help protect them from the coronavirus while working in our restaurants.
−Removed: These include implementing pre-shift health assessments, enhanced cleaning procedures in our restaurants, providing gloves and masks to all system restaurant employees, installing plexiglass shields at company restaurant cashier stations and initiating other social distancing measures.
−Removed: We are providing extended sick leave benefits to employees impacted by COVID-19, and we initially granted two weeks paid leave for employees who are 65 or older.
−Removed: ● We have shifted our marketing to highlight our free delivery program;
−Removed: our Family Meals as a better for you and more affordable option;
−Removed: and our meaningful value platform.
−Removed: Additionally, we have added curbside pick-up, enabling customers to pick-up their orders from the safety of their own cars.
−Removed: ● We delayed making April, May and June rent payments on the majority of our leased properties, and we have reached rent abatement and/or deferment agreements with our landlords for those properties.
−Removed: ● We have taken advantage of provisions available under the CARES Act.
−Removed: Specifically, we have deferred payment of employer Social Security taxes that are otherwise owed for wage payments.
−Removed: During fiscal 2020, we incurred 4.9 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.
−Removed: The full impact of the COVID-19 outbreak continues to evolve as of the date of this report.
+Added: During the COVID-19 pandemic, we have experienced periods of significant disruption to our restaurant operations.
+Added: 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).
+Added: COVID-19 pandemic and the measures taken to prevent its spread have adversely affected our operations and financial results, particularly during fiscal 2020 as well as periods of 2021 when COVID-19 infections increased with the spread of new strains of the virus.
+Added: The disruption in operations has led to us considering the impact of the COVID-19 pandemic on our liquidity, debt covenant compliance, and recoverability of long-lived and right-of-use (“ROU”) assets, goodwill and intangible assets, among others.
We are continually evaluating the impact of the global crisis on our financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary.
−Removed: The disruption in operations has led to us considering the impact of the COVID-19 pandemic on our liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others.
−Removed: If these disruptions to our operations from the COVID-19 pandemic continue or worsen, they may have a material negative impact on our financial results, future operations and liquidity.
−Removed: The extent of such negative impact will depend, in part, on the longevity and severity of the COVID-19 pandemic, including the severity and transmission rates of COVID-19 variants, resurgences of COVID-19 that may continue to occur, the availability, distribution and efficacy of COVID-19 vaccines and how quickly and to what extent normal economic and operating conditions improve.
+Added: While all of our restaurants had dining rooms open as of December 29, 2021, we continue to experience staffing challenges, which resulted in reduced operating hours and service channels at some of our restaurants and resulted in higher wage inflation, overtime costs and other labor related costs.
+Added: Further, we experienced inflationary pressures due to supply chain disruptions that resulted in increased commodity prices and impacted our business and results of operations during the year ended December 29, 2021.
+Added: We expect these pressures to continue during fiscal 2022.
+Added: During fiscal 2021, we incurred $3.9 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.
+Added: During fiscal 2020, we incurred $4.9 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.
+Added: During fiscal 2021 as part of the CARES Act , we recognized the Employee Retention Credit (“ERC”) in the amount of $3.4 million, which is recorded as an offset to the corresponding payroll expense and is classified as part of the labor and other operating expenses on the consolidated statements of income for the year ended December 29, 2021.
+Added: See additional information presented in Note 2 “Summary of Significant Accounting Policies” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report.
Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate materiality of the adverse impact on our consolidated financial condition, liquidity, and future results of operations is uncertain.
Growth Strategies and Outlook
−Removed: It is our intention to return to the following long-term growth strategy after the impact of the COVID-19 pandemic subsides.
We plan to continue to expand our business, drive restaurant sales growth, and enhance our competitive positioning, by executing the following strategies :
−Removed: ● expand our restaurant base;
−Removed: ● in crease our comparable restaurant sales;
−Removed: ● enhance operations and leverage our infrastructure.
+Added: ● develop a people-first culture;
+Added: ● differentiate the brand ;
+Added: ● simplify operations;
+Added: ● accelerate new restaurant development.
As of December 29, 2021, we had 480 locations in six states.
−Removed: In fiscal 2020, we opened one new company-operated restaurant in Nevada, which was in process prior to the COVID-19 pandemic and our franchisees opened three new restaurants, two in California and one in Arizona.
−Removed: As a result of the COVID-19 crisis, we suspended company-operated new unit development until the timing of the economic recovery and our business improvement became more clear.
−Removed: In addition, we allowed franchisees to defer their 2020 new unit development obligations until 2021.
−Removed: In fiscal 2019, we opened two new company-operated restaurants and our franchisees opened two new restaurants, all in California.
−Removed: In 2021, we intend to open three to five new company-operated and four to six new franchised restaurants.
+Added: In fiscal 2021, we opened two new company-operated restaurants, one in Nevada and one in California, and our franchisees opened two new restaurants, one in Texas and one
+Added: in Louisiana.
+Added: In fiscal 2020, we opened one new company-operated restaurant in Nevada and our franchisees opened three new restaurants, two in California and one in Arizona.
+Added: In 2022, we intend to open three to six new company-operated and six to 10 new franchised restaurants.
To increase comparable restaurant sales, we plan to increase customer frequency, attract new customers, and improve per-person spend.
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Comparable Restaurant Sales
+Added: In fiscal 2021, comparable restaurant sales system-wide increased 12.1%.
In fiscal 2020, comparable restaurant sales system-wide decreased 2.4%.
−Removed: In fiscal 2019 and 2018, comparable restaurant sales system-wide increased 2.0% and 1.2%, respectively.
+Added: In fiscal 2019, comparable restaurant sales system-wide increased 2.0%.
Comparable restaurant sales growth/decline reflects the change in year-over-year sales for the comparable restaurant base.
1 unchanged sentence
System-wide comparable restaurant sales include restaurant sales at all comparable company-operated restaurants and at all comparable franchised restaurants, as reported by franchisees.
−Removed: Comparable restaurant sales at company-operated restaurants decreased 3.0% in fiscal 2020, increased 1.9% in fiscal 2019, and increased 0.4% in fiscal 2018.
+Added: Comparable restaurant sales at company-operated restaurants increased 7.6% in fiscal 2021, decreased 3.0% in fiscal 2020, and increased 1.9% in fiscal 2019.
+Added: For company-operated restaurants, the change in comparable restaurant sales consisted of a 6.3% increase in average check size and a 1.2% increase in transactions.
In fiscal 2020, the decrease in company-operated comparable restaurant sales was primarily the result of a decrease in transactions of 15.8%, partially offset by a 15.3% increase in average check size .
−Removed: The increase in average check includes a 4.1% and 3.6% benefit from gross menu price increases that were implemented during 2020 and 2019, respectively.
In fiscal 2019, the increase in company-operated comparable restaurant sales was primarily the result of an increase in average check size of 2.9%, partially offset by a decrease in transactions of 1.0%.
−Removed: In fiscal 2018, the increase in company-operated comparable restaurant sales was driven by an increase in average check size of 1.4%, partially offset by a decrease in transactions of 1.0%.
−Removed: In fiscal 2020, comparable restaurant sales at franchised restaurants decreased 2.0%.
−Removed: In fiscal 2019 and 2018, comparable restaurant sales at franchised restaurants increased 2.0% and 1.8%, respectively.
+Added: In fiscal 2021, comparable restaurant sales at franchised restaurants increased 15.3%.
+Added: In fiscal 2020, comparable restaurant sales at franchised restaurants decreased 2.0%, and in fiscal 2019, comparable restaurant sales at franchised restaurants increased 2.0%.
Restaurant Development
−Removed: In fiscal 2020, we opened one company-operated restaurant, and our franchisees opened three new restaurants.
+Added: In fiscal 2021, we opened two company-operated restaurants, and our franchisees opened two new restaurants.
From time to time, we and our franchisees close restaurants.
−Removed: In fiscal 2020, we did not close any restaurants.
−Removed: Our franchisees closed seven restaurants.
+Added: In fiscal 2021, we closed one company-operated restaurant.
+Added: Our franchisees closed two restaurants.
Our restaurant counts at the beginning and end of each of the last three years were as follows:
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Restaurants at end of period
−Removed: As of December 30, 2020, together with our franchisees, we have remodeled 34 company-operated and 45 franchised restaurants using our Vision restaurant design.
−Removed: The Vision design elevates the brand image with exterior and interior features that embrace the brand’s authentic roots with warm textures, rustic elements and a focus on the signature open kitchen layout established in previous designs.
−Removed: As of December 30, 2020, including new builds and remodels, we had 121 restaurants open with the "Vision"
−Removed: design in our system.
−Removed: Remodeling is a use of cash and has implications for our net property and depreciation line items on our consolidated balance sheets and statements of operations, among others.
−Removed: The cost of our restaurant remodels varies depending on the scope of work required, but on average the investment is
−Removed: $0.3 to $0.4 million per restaurant.
−Removed: We believe that our remodeling program will result in higher restaurant revenue and a strengthened brand.
−Removed: In addition, we have finalized a new restaurant design that we believe will clearly differentiate and communicate our brand, both on the exterior and interior.
−Removed: We believe that this new design will deliver good new unit volumes and cash on cash returns in both existing and new markets.
−Removed: We also believe that our remodels using this new design will result in higher restaurant revenue and a strengthened brand.
−Removed: As of the end of fiscal 2020, we have completed two remodels using the new asset design.
−Removed: If these are successful, beginning in 2021, this new design will replace our “Vision” design, which was implemented in 2016.
−Removed: However, given the uncertainty surrounding the severity and longevity of the COVID-19 pandemic, as a precautionary measure we significantly reduced capital spending, including limiting our remodels in 2020.
−Removed: Our franchisees did not complete any remodels in 2020 as we deferred their remodel requirements until 2021.
−Removed: However, in 2021 we plan on resuming our standard practices for remodels including 15 company-operated and 40 franchised restaurants.
−Removed: During the second quarter of 2017, we introduced a new loyalty rewards points program in an effort to increase sales and loyalty among our customers, by offering rewards that incentivize customers to visit our restaurants more often each month.
+Added: In 2020, we finalized a new restaurant design that we believe will clearly differentiate and communicate our brand, both on the exterior and interior.
+Added: We believe that our remodels using this new design will result in higher restaurant revenue and a strengthened brand.
+Added: As of December 29, 2021, we have completed 12 company-operated restaurants remodels using the new design, including 10 during fiscal 2021.
+Added: During 2021, our franchisees completed five remodels, two of
+Added: which used the new design.
+Added: In fiscal 2022, we plan to continue our standard practices for remodels, which includes completing a total of 10-15 company and 20-30 franchise remodels using the new design.
+Added: Remodeling is a use of cash and has implications for our net property and depreciation line items on our consolidated balance sheets and statements of income, among others.
+Added: The cost of our restaurant remodels varies depending on the scope of work required, but on average the investment is $0.3 to $0.4 million per restaurant.
+Added: Our Loco Rewards loyalty program offers rewards that incentivize customers to visit our restaurants more often each month.
Customers earn points for each dollar spent and as of August 4, 2020, 50 points can be redeemed for a $5 reward to be used for a future purchase.
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Additionally, if a reward is not used within six months, it expires.
−Removed: When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which
−Removed: a portion of the transaction price is allocated.
+Added: When a customer is part of the rewards program, the obligation to provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated.
The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote.
−Removed: A portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty point’s terms.
+Added: A portion of the transaction price is allocated to loyalty points on a pro-rata basis, based on stand-alone selling price, as determined by menu pricing and loyalty point’s terms.
In addition, customers can earn additional points and free entrées for a variety of engagement activities.
1 unchanged sentence
As of December 29, 2021, the amount of revenue deferred related to the earned points, net of redemptions, is $0.7 million.
−Removed: The Company had more than 2.1 million loyalty program members as of December 30, 2020.
+Added: We had more than 2.8 million members in the Loco Rewards loyalty program as of December 29, 2021.
Key Financial Definitions
Our revenue is derived from three primary sources:
−Removed: company-operated restaurant revenue, franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and franchise advertising fee revenue.
+Added: (i) company-operated restaurant revenue, (ii) franchise revenue, which is comprised primarily of franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and (iii) franchise advertising fee revenue.
See Note 15 “Revenue from Contracts with Customers” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our revenue recognition policy.
22 unchanged sentences
Impairment and Closed-Store Reserves
−Removed: We review long-lived assets such as property, equipment, and intangibles, as well as ROU assets in a net asset position, on a unit-by-unit basis for impairment when events or circumstances indicate a carrying value of the assets that may not be recoverable.
−Removed: We consider a triggering event, related to long-lived assets or ROU assets in a net asset position, to have occurred related to a specific restaurant if the restaurant’s cash flows for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets.
−Removed: Additionally, we consider 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 current lease payments.
−Removed: If we conclude 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.
−Removed: The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs.
−Removed: There is uncertainty in the projected undiscounted future cash flows used in our impairment review analysis, which requires the use of estimates and assumptions.
−Removed: If actual performance does not achieve the projections, or if the assumptions used change in the future, we may be required to recognize impairment charges in future periods, and such charges could be material.
−Removed: Prior to the adoption of Topic 842 "Leases,"
−Removed: closure costs include non-cash restaurant charges such as up-front expensing of the net present value of unpaid rent remaining on the life of a lease, offset by assumed sublease income.
−Removed: Upon the adoption of Topic 842, the Company no longer recognizes a closed-store reserve when the Company closes a restaurant, as a lease liability related to the future lease payments is already recognized.
−Removed: Rather, when a restaurant is
−Removed: closed, the Company will evaluate the ROU asset for impairment, based on anticipated sublease recoveries.
−Removed: The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense , in addition to property tax and common area maintenance ("CAM") charges for closed restaurants.
+Added: We review long-lived assets such as property, equipment, and intangibles on a unit-by-unit basis for impairment when events or circumstances indicate the carrying value of the assets may not be recoverable.
+Added: We determine if there is impairment at the restaurant level by comparing undiscounted future cash flows from the related long-lived assets to their respective carrying values and record an impairment charge when appropriate.
+Added: In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions.
+Added: If assets are determined to be impaired, the impairment charge is measured by calculating the amount by which the assets’ carrying amount exceeds its fair value.
+Added: This process of assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions, which are subject to a high degree of judgment.
+Added: If these assumptions change in the future, we may be required to record impairment charges for these assets and these charges could be material.
+Added: When we close a restaurant, we will evaluate the ROU asset for impairment, based on anticipated sublease recoveries.
+Added: The remaining value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense, in addition to property tax and common area maintenance (“CAM”) charges for closed restaurants.
Loss on Disposition of Restaurants
3 unchanged sentences
Debt issuance costs are amortized on a straight-line basis over the life of the related debt.
−Removed: Provision (Benefit) for Income Taxes
−Removed: Provision (benefit) for income taxes consists of federal and state tax expense (recoveries) on our income (loss), and changes to our deferred tax asset and deferred tax liability.
+Added: Provision for Income Taxes
+Added: Provision for income taxes consists of federal and state tax expense on our income, and changes to our deferred tax asset and deferred tax liability.
Results of Operations
2 unchanged sentences
Increase / (Decrease)
−Removed: Statements of Operations Data:
+Added: Statements of Income Data:
Company-operated restaurant revenue
26 unchanged sentences
Company-Operated Restaurant Revenue
−Removed: In fiscal 2020, company-operated restaurant revenue decreased $17.0 million, or 4.4%, due to a $11.9 million decrease in revenue from the closure of four restaurants and the 16 company-operated restaurants sold by the Company to franchisees during or subsequent to the first quarter of the prior year, a decrease in company-operated restaurant revenue of $11.2 million due to a 3.0% decrease in company-operated comparable restaurant sales, which we believe was primarily related to the impact of the COVID-19 pandemic, and a $1.8 million decrease due to temporary restaurant closures, primarily due to the COVID-19 pandemic.
+Added: In fiscal 2021, company-operated restaurant revenue increased $20.7 million, or 5.5%.
+Added: The increase in company-operated restaurant sales was primarily due to an increase in company-operated comparable restaurant revenue of $25.6 million, or 7.6%.
+Added: The company-operated comparable restaurant sales increase consisted of an approximately 6.3% increase in average check size and a 1.2% increase in transactions.
+Added: In addition, company-operated restaurant revenue was favorably impacted by $3.7 million of additional sales from restaurants that had not been open the fifteen months required to be included in comparable restaurant sales and a $1.7 million increase in revenue from restaurants that were temporarily closed due to the COVID-19 pandemic during the prior year.
+Added: This company-operated restaurant sales increase was partially offset by a $5.1 million decrease in revenue from the eight company-operated restaurants sold by the Company to an existing franchisee during 2021 and a $0.5 million decrease in revenue recognized for our loyalty points program.
+Added: Company-operated restaurant revenue was also negatively impacted by $4.6 million for the additional week of operations in 2020 as it was a 53-week fiscal year.
See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.
−Removed: This company-operated restaurant sales decrease was partially offset by an increase of $3.0 million of non-comparable restaurant sales on restaurants that had not been open the fifteen months required to be included in comparable restaurant sales and a $0.3 million increase in revenue recognized for our loyalty points program.
−Removed: Company-operated restaurant revenue was also favorably impacted by $4.6
−Removed: million for the additional week of operations in a 53-week fiscal year.
−Removed: The company-operated comparable restaurant sales decrease consisted of a decline in transactions of 15.8%, partially offset by a 15.3% increase in average check size.
−Removed: It is uncertain whether the increase in average check size will persist once the pandemic ends.
Franchise Revenue
In fiscal 2021, franchise revenue increased $4.3 million, or 14.7%.
−Removed: This increase was primarily due to the opening of three new franchised restaurants and sixteen company-operated restaurants sold by the Company to franchisees during or after the first quarter of the prior year, as well as $0.7 million for the additional week of franchise revenue recognized in a 53-week fiscal year.
−Removed: This franchise revenue increase was partially offset by a franchise comparable sales restaurant decline of 2.0%, which we believe was primarily due to the COVID-19 pandemic, and the closure of eight franchise locations during the same period.
−Removed: See above under “COVID-19 Impact” for additional information related to the impact of the COVID-19 pandemic on our business.
+Added: This increase was primarily due to a franchise comparable restaurant sales increa se of 15.3%, the opening of five restaurants during or subsequent to the first quarter of 2020 and revenue generated from eight company-operated restaurants sold by the Company to an existing franchisee during the year.
+Added: This franchise revenue increase was partially offset by the closure of nine franchise locations during the same period.
Franchise Advertising Fee Revenue
2 unchanged sentences
Food and Paper Costs
−Removed: Food and paper costs decreased $10.5 million, or 9.6%, in fiscal 2020, due to a $9.2 million decrease in food costs and a $1.3 million decrease in paper costs.
−Removed: The decrease in food and paper costs resulted primarily from lower company transactions due to the COVID-19 pandemic, lower food waste and increased efficiencies .
−Removed: These decreases were partially offset by a $1.2 million increase in food and paper costs for the additional week of operations in a 53-week fiscal year and commodity inflation.
−Removed: Food and paper costs as a percentage of company-operated restaurant revenue were 26.4% in fiscal 2020, compared to 27.9% in fiscal 2019.
−Removed: This percentage decrease was due primarily to an increase in pricing, partially offset by commodity inflation.
+Added: Food and paper costs increased $5.6 million, or 5.7%, in fiscal 2021, due to a $2.8 million increase in food costs and a $2.8 million increase in paper costs.
+Added: The increase in food and paper costs resulted primarily from a $0.9 million increase from restaurants opened during the current or prior year, higher company transactions and commodity inflation.
+Added: These increases were partially offset by a reduction of $1.4 million for restaurant locations sold to franchisees during fiscal 2021 and $1.2 million for the additional week of operations in 2020 which was a 53-week fiscal year.
+Added: Food and paper costs as a percentage of company-operated restaurant revenue were 26.4% in fiscal 2021, consistent with the prior year.
Labor and Related Expenses
−Removed: Labor and related expenses decreased $2.2 million, or 1.9%, in fiscal 2020.
−Removed: The decrease was due primarily to a reduction in labor by restaurants closed or sold to franchisees, adjustments to the labor model based on dining room closures, operating hours and lower sales volumes and lower group insurance and workers compensation expense due to decreased claims activity.
−Removed: These decreases were partially offset by higher wages primarily due to minimum wage increases in California during fiscal 2019 and 2020, labor costs associated with the COVID-19 pandemic, and $1.6 million for the additional week of operations in a 53-week fiscal year.
−Removed: Labor and related expenses as a percentage of company-operated restaurant revenue were 30.6% in fiscal 2020, compared to 29.8% in fiscal 2019.
−Removed: The increase was due primarily to wage increases in California and labor costs associated with the COVID-19 pandemic.
−Removed: Partially offsetting these increases were the positive impacts of an increase in pricing and labor efficiencies.
+Added: Labor and related expenses increased $5.9 million, or 5.1% in fiscal 2021.
+Added: The increase was due to a $4.0 million increase primarily related to minimum wage increases in California during fiscal 2020 and 2021 and other labor wage increases as a result of competitive pressure, a $3.0 million increase in overtime, a $1.3 million increase related to the 1.2% increase in year-over-year sales transactions, a $1.2 million increase from restaurants opened during or after the first quarter of the prior year, a $0.8 million increase in employee medical costs, $0.6 million in higher payroll taxes, a $0.7 million increase primarily related to employee training and a $1.9 million increase in other labor related expenses.
+Added: This labor and related expense increase was partially offset by recognizing a $3.4 million ERC, which is recorded as an offset to the corresponding payroll expense and is classified as part of the labor and other operating expenses on the consolidated statements of income for the year ended December 29, 2021.
+Added: See additional information presented in Note 2 “Summary of Significant Accounting Policies” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report.
+Added: In addition, the labor and related expenses increase was partially offset by a reduction of $1.8 million in labor for restaurant locations sold to franchisees during fiscal 2021, a reduction of $1.6 million for the additional week of operations in 2020 which was a 53-week fiscal year and a reduction of COVID-19 related expenses of $0.8 million.
+Added: Labor and related expenses as a percentage of company-operated restaurant revenue were 30.5% in fiscal 2021, consistent with the prior year .
Occupancy and Other Operating Expenses
Occupancy and other operating expenses increased $5.1 million, or 5.6%, in fiscal 2021.
−Removed: The increase was primarily due to a $2.5 million increase in customer order delivery fees payable to third parties due to an increase in delivery orders and a $0.3 million increase in other operating expenses, primarily related to the additional week of operations in a 53-week fiscal year.
−Removed: These increases were partially offset by an $0.8 million decrease in advertising expenses, a $0.7 million decrease in repair and maintenance costs, a $0.5 million decrease in utilities costs, and a $0.4 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants closed or sold to franchisees.
−Removed: Occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.7% in fiscal 2020, compared to 23.5% in fiscal 2019, primarily due to the increases noted above and sales deleverage.
+Added: The increase was primarily due to a $1.4 million increase in market place delivery fees, a $1.0 million increase in utilities costs, a $0.8 million increase in advertising expenses, a $0.8 million increase in repair and maintenance costs, a $0.3 million increase in operating supplies primarily related to COVID-19 and a $1.1 million increase in other operating expenses.
+Added: These increases were partially offset by a $0.3 million decrease in occupancy costs, primarily related to a reduction in rent expense from restaurants sold to franchisees during 2021.
+Added: Occupancy and other operating expenses as a percentage of company-operated restaurant revenue were 24.7% in fiscal 2021, consistent with the prior year.
Gain on Recovery of Insurance Proceeds, Lost Profits
1 unchanged sentence
General and Administrative Expenses
−Removed: General and administrative expenses decreased $4.4 million, or 11.1%, in fiscal 2020.
−Removed: The decrease was due primarily to a $3.5 million decrease in legal expenses related primarily to a decrease in securities class action litigation costs, a $1.2 million decrease in labor related costs, largely related to a decrease in management bonus expense, a decrease in severance expense and lower group insurance costs, partially offset by the impact of an additional week of operations in a 53-week fiscal year.
−Removed: Further, there was a $0.2 million decrease in recruiting costs and a $0.3 million decrease in other general and administrative expenses.
−Removed: These decreases were partially offset by a $0.8 million increase in stock compensation expenses.
−Removed: General and administrative expenses as a percentage of total revenue were 8.4% in fiscal 2020, compared to 9.1% in fiscal 2019.
−Removed: This decrease is primarily due to the cost decreases noted above.
+Added: General and administrative expenses increased $3.9 million, or 11.0%, in fiscal 2021.
+Added: The increase was due primarily to a $1.4 million increase in legal expenses, a $0.9 million increase in labor related costs, primarily related to an increase in management bonus expense, a $1.2 million increase in recruiting costs and other outside services fees and a $0.5 million increase in other general and administrative expenses.
+Added: These increases were partially offset by a $0.5 million impact from an additional week of operations in fiscal 2020, which was a 53-week fiscal year.
+Added: General and administrative expenses as a percentage of total revenue were 8.8% in fiscal 2021, up from 8.4% in fiscal 2020.
+Added: This increase is primarily due to the cost increases described above, partially offset by higher revenue.
Legal Settlements
2 unchanged sentences
Franchise expenses increased $4.1 million, or 14.2%, in fiscal 2021.
−Removed: The increase was primarily due to an increase in expenses initially paid by the Company on behalf of the franchisee, and subsequently reimbursed by the franchisee.
−Removed: Specifically, these expenses were related to advertising expenses and rent expense for locations sub-leased.
+Added: The increase was primarily due to an increase in advertising expenses, primarily resulting from higher franchise revenue and rent expense for locations sub-leased to franchisees that have a portion of the rent based on a percentage of revenue generated.
Recovery of Securities Class Action Legal Expenses and Other Insurance Claims
During fiscal 2020, we received insurance proceeds of $0.1 million related to a property claim.
−Removed: During fiscal 2019, we received insurance proceeds of $10.0 million related to the settlement of the securities class action lawsuit.
See Note 13, “Commitments and Contingencies—Legal Matters” in the accompanying "Notes to Consolidated Financial Statements"
1 unchanged sentence
Impairment and Closed-Store Reserves
+Added: During fiscal 2021, we recorded a $0.7 million non-cash impairment charge primarily related to the carrying value o f the ROU assets of one restaurant in Texas that closed in 2019, the carrying value of one restaurant in California that closed in 2021 and the long-lived assets of three restaurants in California.
During fiscal 2020, we recorded a $3.5 million non-cash impairment charge primarily related to the carrying value of the ROU assets of one restaurant in Texas and the long-lived assets of four restaurants in California.
−Removed: During fiscal 2019, we recorded a $3.6 million non-cash impairment charge primarily related to the carrying value of the ROU assets of four restaurants sold to franchisees and one restaurant closed during fiscal 2019, and the long-lived assets of one restaurant in California.
−Removed: 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.
−Removed: For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.
During fiscal 2021, we recognized $0.4 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations .
−Removed: During fiscal 2019, we closed two restaurants in California and two in Texas and recognized $1.3 million of closed-store reserve expense for fiscal 2019, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
+Added: During fiscal 2020, we recognized $1.2 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
+Added: Given the inherent uncertainty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, we are monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.
+Added: For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.
Loss on Disposition of Restaurants
−Removed: During fiscal 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.
−Removed: We determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative selling price.
−Removed: Cash proceeds
−Removed: included upfront consideration for the sale of the restaurants and franchise fees, as well as future cash consideration for royalties and lease payments.
−Removed: We also considered the future lease payments in allocating the initial cash consideration received.
−Removed: The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements.
−Removed: We initially defer and subsequently recognize the franchise fees over the term of the franchise agreement.
+Added: During fiscal 2021, we completed the sale of eight company-operated restaurants within the Sacramento area to an existing franchisee.
+Added: We determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative standalone selling price.
+Added: Cash proceeds included upfront consideration for the sale of the restaurants and franchise fees, as well as
+Added: future cash consideration for royalties.
+Added: 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.
+Added: 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.
−Removed: These sales resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $5.1 million for the fiscal year ended December 25, 2019.
+Added: This sale resulted in cash proceeds of $4.6 million and a net loss on sale of restaurants of $1.5 million for the fiscal year ended December 29, 2021.
These restaurants are included in the total number of franchised El Pollo Loco restaurants.
Interest Expense, Net
−Removed: For fiscal 2020, net interest expense, decreased by $0.4 million, primarily related to lower interest rates and lower outstanding balances on our 2018 Revolver.
+Added: For fiscal 2021, net interest expense, decreased by $1.5 million, primarily related to lower interest rates and lower outstanding balances on our 2018 Revolver (as defined below).
Income Tax Receivable Agreement
−Removed: On July 30, 2014, we entered into the TRA.
+Added: On July 30, 2014, we entered into the tax receivable agreement (the “TRA”) liability .
The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.
−Removed: In each of fiscal 2020 and fiscal 2019 we recognized income tax receivable agreement expense of $0.1 million.
+Added: In fiscal 2021 and fiscal 2020, we recognized income tax receivable agreement expense of less than $0.1 million and $0.1 million, respectively.
In fiscal 2021 and 2020, we paid $1.7 million and $5.2 million, respectively, to our pre-IPO stockholders under the TRA.
2 unchanged sentences
The difference between the 21.0% statutory rate and the Company’s effective tax rate of 26.2% for the year-to-date ended December 29, 2021 is primarily a result of windfall tax benefit related to stock options exercised and state taxes, a Work Opportunity Tax Credit benefit and the change in valuation allowance against certain state credits as a result of future forecasted income apportioned to the state jurisdiction.
−Removed: The difference between the 21.0% statutory rate and the Company’s effective tax rate of 28.0% for the year ended December 25, 2019 is primarily a result of state taxes and the change in valuation allowance against our deferred tax assets recorded in each of fiscal 2018 and fiscal 2017.
+Added: The difference between the 21.0% statutory rate and the Company’s effective tax rate of 18.8% for the year ended December 30, 2020 is primarily a result of state taxes, windfall tax benefit related to stock options exercised and state taxes , a Work Opportunity Tax Credit benefit and the change in valuation allowance against certain state credits as a result of future forecasted income apportioned to the state jurisdiction .
Fiscal Year 2020 Compared to Fiscal Year 2019
−Removed: Our operating results for the fiscal years ended December 25, 2019 and December 26, 2018, in absolute terms and expressed as a percentage of total revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated restaurant revenue, are compared below:
−Removed: Increase / (Decrease)
−Removed: Statements of Operations Data:
−Removed: Company-operated restaurant revenue
−Removed: Franchise revenue
−Removed: Franchise advertising fee revenue
−Removed: Total revenue
−Removed: Cost of operations
−Removed: Food and paper costs (1)
−Removed: Labor and related expenses (1)
−Removed: Occupancy and other operating expenses (1)
−Removed: Company restaurant expenses (1)
−Removed: General and administrative expenses
−Removed: Legal settlements
−Removed: Franchise expenses
−Removed: Depreciation and amortization
−Removed: Loss on disposal of assets
−Removed: Recovery of securities lawsuits related legal expenses
−Removed: Impairment and closed-store reserves
−Removed: Loss on disposition of restaurants
−Removed: Total expenses
−Removed: Income (loss) from operations
−Removed: Interest expense, net
−Removed: Income tax receivable agreement expense (benefit)
−Removed: Income (loss) before provision for income taxes
−Removed: Provision (benefit) for income taxes
−Removed: Net income (loss)
−Removed: (1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator.
−Removed: All other percentages use total revenue.
−Removed: Company-Operated Restaurant Revenue
−Removed: In fiscal 2019, company-operated restaurant revenue increased $2.3 million, or 0.6%, due to $7.6 million of additional sales from restaurants opened during or after the first quarter of the prior year.
−Removed: In addition, company-operated revenue was favorably impacted by an increase in company-operated comparable restaurant sales of $7.0 million, or 1.9%, and an increase in other revenue of $0.6 million.
−Removed: The growth in company-operated comparable restaurant sales was due primarily to an increase in average check size of 2.9%, partially offset by a decline in transactions of 1.0%, compared to the prior year.
−Removed: The increase in average check includes a 3.6% benefit from gross menu price increases that were implemented during 2018 and 2019.
−Removed: The increase in company-operated restaurant revenue was partially offset by $12.9 million of net impact of lost sales from restaurants closed in fiscal 2019 and 2018, and the 16 company-operated restaurants sold by the Company to franchisees during the 2019.
−Removed: Franchise Revenue
−Removed: In fiscal 2019, franchise revenue increased $3.0 million, or 11.8%.
−Removed: This increase was primarily due to higher fees received from franchised restaurants related to their use of our point-of-sales system, a franchise comparable restaurant sales increase of 2.0%, the opening of 11 new franchised restaurants during or after the first quarter of the prior year and 16 company-operated restaurants sold by the Company to franchisees during the year.
−Removed: This franchise revenue increase was partially offset by the closure of five franchise locations during the same period.
−Removed: Franchise Advertising Fee Revenue
−Removed: Franchise advertising fee revenue increased, which is paid as a percentage of the franchise restaurants' net sales, $1.2 million, or 5.5% from the comparable period in the prior year.
−Removed: This increase was primarily due to an increase in the number of franchise locations and increased franchise comparable restaurant sales.
−Removed: Food and Paper Costs
−Removed: Food and paper costs decreased $1.9 million, or 1.7%, in fiscal 2019, due to a $1.8 million decrease in food costs and a $0.1 million decrease in paper costs.
−Removed: The decrease in food and paper costs resulted primarily from lower company transactions, partially offset by higher commodity inflation.
−Removed: Food and paper costs as a percentage of company-operated restaurant revenue were 27.9% in fiscal 2019, compared to 28.6% in fiscal 2018.
−Removed: This percentage decrease was due primarily to an increase in pricing, partially offset by commodity inflation.
−Removed: Labor and Related Expenses
−Removed: Payroll and benefit expenses increased $4.3 million, or 3.8%, in fiscal 2019.
−Removed: This increase was due primarily to additional labor needs arising from the opening of two new restaurants in fiscal 2019 and eight new restaurants in fiscal 2018, minimum wage increases in California and, specifically, Los Angeles, and higher workers' compensation expense due to increased claims activity, partially offset by a reduction in labor for restaurant closures and locations sold to franchisees in fiscal 2019 and 2018.
−Removed: Payroll and benefit expenses as a percentage of company-operated restaurant revenue were 29.8% in fiscal 2019, compared to 28.9% in fiscal 2018.
−Removed: This increase was primarily due to the wage increases noted above, partially offset by higher restaurant revenue from increases in pricing.
−Removed: Occupancy and Other Operating Expenses
−Removed: Occupancy and other operating expenses increased $0.6 million, or 0.7%, in fiscal 2019.
−Removed: This increase for the year-to-date period was due to a $1.1 million increase in customer order delivery fees due to increased delivery orders, a $0.2 million increase in repair and maintenance costs and a $0.2 million increase in utilities costs.
−Removed: These increases were partially offset by a $0.8 million decrease in advertising costs and a $0.1 million decrease in other operating expenses.
−Removed: Occupancy and other operating expenses as a percentage of company-operated restaurant revenue was 23.5% for both fiscal 2019 and fiscal 2018, primarily due to the higher costs noted above, offset by increased pricing.
−Removed: General and Administrative Expenses
−Removed: General and administrative expenses decreased $9.9 million, or 19.6%, in fiscal 2019.
−Removed: The decrease for the year-to-date period was due primarily to (i) a $10.2 million decrease in legal expenses related primarily to a decrease in securities class action litigation costs, (ii) a $0.5 million decrease in restaurant pre-opening costs, (iii) a $0.3 million decrease in travel expense and (iv) a $0.3 million decrease in recruiting costs.
−Removed: These decreases were partially offset by a $0.6 million increase in labor related costs, primarily related to an increase in estimated management bonus expenses, a $0.5 million increase in stock compensation expenses and a $0.3 million increase in other general and administrative expenses.
−Removed: General and administrative expenses as a percentage of total revenue were 9.1% in fiscal 2019, compared to 11.5% in fiscal 2018.
−Removed: This decrease is primarily due to the cost decreases noted above.
−Removed: Legal Settlements
−Removed: Legal settlements decreased $36.3 million in fiscal 2019.
−Removed: The decrease was due to (i) an accrual in 2018 of a settlement amount in fiscal 2019 related to an agreement in principle to settle all claims and allegations for the securities class action as discussed in Note 13 “Commitments and Contingencies—Legal Matters"
−Removed: in the accompanying "Notes to Consolidated Financial Statements"
−Removed: in this Annual Report and (ii) an accrual in 2018 of an expected settlement amount related to an agreement in principle to settle all claims and allegations related to multiple wage and hour class action suits as discussed in Note 13 “Commitments and Contingencies—Legal Matters"
−Removed: in the accompanying "Notes to Consolidated Financial Statements"
−Removed: in this Annual Report.
−Removed: Franchise Expenses
−Removed: Franchise expenses increased $3.2 million, or 13.0%, in fiscal 2019.
−Removed: The increase for the year-to-date period was primarily due to increase in expenses initially paid by the Company on behalf of the franchisee, and subsequently reimbursed by the franchisee.
−Removed: Specifically, related to advertising expenses, rent expense for locations sub-leased and the franchisee use of our point-of-sale system.
−Removed: Impairment and Closed-Store Reserves
−Removed: During fiscal 2019, we determined that the carrying value of ROU assets and long-lived assets at certain restaurants may not be recoverable.
−Removed: As a result, we recorded a $3.6 million impairment expense primarily related to the carrying value of the ROU assets of four restaurants sold to franchisees and one restaurant closed during fiscal 2019, and the long-lived assets of one restaurant in California.
−Removed: During fiscal 2018, we determined that the carrying value of assets at certain restaurants may not be recoverable.
−Removed: As a result, we recorded a $5.1 million impairment expense primarily related to four restaurants in Arizona, California and Texas, including a restaurant in Texas that opened in early 2018.
−Removed: During fiscal 2018, we closed seven restaurants in Arizona, California and Texas.
−Removed: These closures resulted in closed-store reserve expenses of $4.5 million during fiscal 2018.
−Removed: Subsequent to the adoption of Topic 842, the Company no longer recognizes a closed-store reserve when the Company closes a restaurant, as there is already a lease liability on its books related to the future lease payments.
−Removed: Rather, when a restaurant is closed, the Company will evaluate the ROU Asset for impairment, based on anticipated sublease recoveries.
−Removed: The remaining value of the ROU Asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense.
−Removed: During fiscal 2019, the Company closed two restaurants in California and two in Texas and recognized $1.3 million of closed-store reserve expense for fiscal 2019, primarily related to the amortization of ROU assets for the closed stores.
−Removed: The Company continues to monitor the recoverability of the carrying value of the assets of several other restaurants.
−Removed: Interest Expense, Net
−Removed: For fiscal 2019, net interest expense, increased by $0.2 million, primarily due to higher outstanding balances on our 2018 Revolver, partially offset by interest income received related to the interest rate swap entered into during fiscal 2019.
−Removed: See Note 6 “Long-Term Debt-Interest Rate Swap"
−Removed: in the accompanying "Notes to Consolidated Financial Statements"
−Removed: in this Annual Report.
−Removed: Income Tax Receivable Agreement
−Removed: In fiscal 2019 we recognized income tax receivable agreement expense of $0.1 million as a result of changes to future forecasted results.
−Removed: In 2018, we incurred income tax receivable agreement income of $0.8 million, resulting from changes to future forecasted results and timing of the deductibility of certain temporary differences including the current year legal settlement accrual.
−Removed: In fiscal 2019 and 2018, we paid $5.8 million and $7.3 million, respectively, to our pre-IPO stockholders under the TRA.
−Removed: Provision for Income Taxes
−Removed: In fiscal 2019, we recorded an income tax expense of $9.7 million, compared to income tax benefit of $3.2 million in fiscal 2018, reflecting an estimated effective tax rate of 28.0% and 26.3%, respectively.
−Removed: The higher effective tax rate in 2019 resulted primarily from an increase in disallowed executive compensation under section 162(m) and a decrease in benefit from Workers Opportunity Tax Credit relative to pretax book income.
−Removed: In addition, there was a $1.0 million valuation allowance against our deferred tax assets recorded in each of fiscal 2018 and fiscal 2017.
−Removed: The valuation allowance against our deferred tax assets resulted from certain tax credits that may not be realizable prior to the time the credits expire.
+Added: Year-to-year comparisons of fiscal 2020 and fiscal 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 30, 2020, which was filed with the SEC on March 15, 2021.
Key Performance Indicators
1 unchanged sentence
These key measures include company-operated restaurant revenue, system-wide sales, comparable restaurant sales, company-operated average unit volumes ("AUV"), restaurant contribution, restaurant contribution margin, new restaurant openings, EBITDA, and Adjusted EBITDA.
−Removed: In fiscal 2020, our restaurants generated company-operated restaurant revenue of $374.1 million and system-wide sales of $879.6 million, and system comparable sales decline of 2.4%, consisting of company-operated restaurant comparable sales decline of 3.0% and franchised comparable sales decline of 2.0%.
−Removed: The company-operated comparable sales decrease consisted of a 15.8% transaction decrease, partially offset by a 15.3% check growth.
+Added: In fiscal 2021, our restaurants generated company-operated restaurant revenue of $394.7 million and system-wide sales of $973.2 million, and system comparable sales growth of 12.1%, consisting of company-operated restaurant comparable sales growth of 7.6% and franchised comparable sales growth of 15.3%.
+Added: The company-operated comparable sales increase consisted of a 6.3% increase in average check size.
In fiscal 2021, for company-operated restaurants, our annual AUV was $2.0 million, restaurant contribution margin was 18.4%, and Adjusted EBITDA was $63.4 million.
10 unchanged sentences
System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants.
−Removed: Our total revenue in our consolidated statements of operations is limited to company-operated restaurant revenue and franchise revenue from our franchisees.
+Added: Our total revenue in our consolidated statements of income is limited to company-operated restaurant revenue and franchise revenue from our franchisees.
Accordingly, system-wide sales should not be considered in isolation or as a substitute for our results as reported under GAAP.
16 unchanged sentences
Comparable restaurant sales indicate the performance of existing restaurants, since new restaurants are excluded.
−Removed: Comparable restaurant sales growth can be generated by an increase in the number of meals sold and/or by increases in the average check amount, resulting from a shift in menu mix and/or higher prices resulting from new products or price increases.
+Added: Comparable restaurant sales growth can be generated by an increase in the number of meals sold and/or by increases in the average check size, resulting from a shift in menu mix and/or higher prices resulting from new products or price increases.
Company-Operated Average Unit Volumes
1 unchanged sentence
Weekly AUVs consist of comparable restaurant sales over a seven-day period from Thursday to Wednesday.
−Removed: Annual AUVs are calculated using the following methodology:
+Added: Annual AUVs are calculated using a step process.
First, we divide our total net sales for all company-operated restaurants for the fiscal year by the total number of restaurant operating weeks during the same period.
Second, we annualize that average weekly per-restaurant sales figure by multiplying it by 52.
−Removed: An operating week is defined as a restaurant open for business over a seven-day
−Removed: period from Thursday to Wednesday.
+Added: An operating week is defined as a restaurant open for business over a seven-day period from Thursday to Wednesday.
This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall performance of our restaurant base.
12 unchanged sentences
Restaurant contribution:
−Removed: Income (loss) from operations
+Added: Income from operations
General and administrative expenses
7 unchanged sentences
Impairment and closed-store reserves
−Removed: Loss on sale of restaurants
+Added: Loss on disposition of restaurants
Restaurant contribution
26 unchanged sentences
We also present EBITDA and Adjusted EBITDA because (i) we believe that these measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to compare our performance to that of our competitors.
−Removed: The following table sets forth reconciliations of our net (loss) income to EBITDA and Adjusted EBITDA:
+Added: The following table sets forth reconciliations of our net income to EBITDA and Adjusted EBITDA:
(Amounts in thousands)
−Removed: Net income (loss)
Non-GAAP adjustments:
−Removed: Provision (benefit) for income taxes
+Added: Provision for income taxes
Interest expense, net of interest income
5 unchanged sentences
Loss on disposition of restaurants (e)
−Removed: Income tax receivable agreement expense (income) (f)
+Added: Income tax receivable agreement expense (f)
Securities class action legal expense (g)
3 unchanged sentences
Adjusted EBITDA
−Removed: (a) Includes non-cash, stock-based compensation, excluding stock-based compensation costs associated with the transition of our former CEO.
+Added: (a) Includes non-cash, stock-based compensation, excluding stock-based compensation costs associated with the transition of our former CEO in fiscal 2019.
(b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.
−Removed: (c) In fiscal 2020, we received insurance proceeds of $0.1 million related to a property claim.
−Removed: In fiscal 2019, we received insurance proceeds of $10.0 million related to the settlement of the securities class action lawsuit and in fiscal 2018 we received insurance proceeds of $8.4 million related to the reimbursement of certain legal expenses paid in prior years for the defense of securities lawsuits.
+Added: (c) In fiscal 2020, we received insurance proceeds of $0.1 million related to a property claim, and in fiscal 2019 we received insurance proceeds of $10.0 million related to the settlement of the securities class action lawsuit.
See Note 13 “Commitments and Contingencies—Legal Matters"
2 unchanged sentences
(d) Includes costs related to impairment of long-lived and ROU assets and closing restaurants.
−Removed: During fiscal 2020, we recorded non-cash impairment charges of $3.5 million for the year ended December 30, 2020, 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.
−Removed: Given the difficulty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, we are monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.
−Removed: For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.
+Added: During fiscal 2021, we recorded non-cash impairment charges of $0.7 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019, the ROU assets of one restaurant in California closed in 2021, and the long-lived assets of three restaurants in California.
D uring fiscal 2021, we recognized $0.4 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
+Added: In fiscal 2020, we recorded non-cash impairment charges of $3.5 million for the year ended December 30, 2020, 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.
+Added: During fiscal 2020, we recognized $1.2 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our closed locations.
In fiscal 2019, we recorded impairment charges of $3.6 million, primarily related to the carrying value of the ROU assets of four restaurants sold to franchisees and one restaurant closed during fiscal 2019, and the long-lived assets of one restaurant in California.
−Removed: Additionally, during fiscal 2019, we closed two restaurants in California and two restaurants in Texas and recognized $1.3 million of closed-store reserve expense for the fiscal year ended 2019, primarily related to the amortization, property taxes and CAM payments for our closed locations.
−Removed: In fiscal 2018, we recorded a non-cash impairment charge of $5.1 million, primarily related to the carrying value of four restaurants in Arizona, California and Texas, including a restaurant in Texas that opened in early 2018.
−Removed: Additionally, d uring fiscal 2018, we closed seven restaurants in Texas, California and Arizona.
−Removed: These closures resulted in closed-store reserve expenses of $4.5 million during fiscal 2018.
−Removed: (e) During fiscal 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee, seven company-operated restaurants in the Phoenix area to another existing franchisee and five company-operated restaurants in Texas to a third franchisee, which resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $5.1 million for the year ended December 25, 2019.
+Added: Additionally, during fiscal 2019, we closed two restaurants in California and two restaurants in Texas and recognized $1.3 million of closed-store reserve expense, primarily related to the amortization, property taxes and CAM payments for our closed locations.
+Added: (e) During fis cal 2021, we completed the sale of our eight restaurants within Sacramento area to an existing franchisee.
+Added: This sale resulted in cash proceeds of $4.6 million during the year ended December 29, 2021 and a net loss on sale of restaurants of $1.5 million for the year ended December 29, 2021.
+Added: During fiscal 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee, seven company-operated restaurants in the Phoenix area to another existing franchisee and five company-operated restaurants in Texas to a third franchisee.
+Added: The three sales during 2019 resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $5.1 million for the year ended December 25, 2019.
(f) On July 30, 2014, we entered into the TRA.
This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.
−Removed: For the years ended December 30, 2020, December 25, 2019 and December 26, 2018, income tax receivable agreement expense (income) consisted of the amortization of interest expense, changes to future forecasted results, changes in estimates for actual tax returns filed and the timing of deductibility of certain timing differences, including for fiscal 2018 the legal settlement accruals, related to our total expected TRA payments.
+Added: For the years ended December 29, 2021, December 30, 2020 and December 25, 2019, income tax receivable agreement expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.
(g) Consists of costs related to the defense of securities lawsuits.
+Added: During the year ended December 29, 2021, we received $0.5 million in insurance proceeds, net of legal expenses, related to the derivative complaint.
See Note 13 “ Commitments and Contingencies—Legal Matters "
2 unchanged sentences
(h) Fiscal 2020 consists of an expense of $2.6 million related to resolution of the longstanding lawsuit involving a contract dispute with one of the Company’s franchisees concerning asserted territory rights, as well as amounts incurred related to the payment of the final settlement amounts for consolidated wage and hour class action lawsuits resolved during fiscal 2020 .
−Removed: Legal settlements of $36.3 million in fiscal 2018 included (i) an accrual of an expected settlement amount in fiscal 2018 related to an agreement in principle to settle all claims and allegations for the securities class action and (ii) an accrual of an expected settlement amount in fiscal 2018 related to an agreement in principle to settle all claims and allegations, related to multiple wage and hour class action suits.
For additional information on legal settlements, see Note 13 “Commitments and Contingencies—Legal Matters"
4 unchanged sentences
Pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant.
−Removed: (j) Includes costs associated with the transition of our CEO, such as executive recruiting costs, stock-based compensation and CEO sign-on bonus associated with the transition of our former CEO in 2018.
+Added: (j) Includes costs associated with the transition of our former CEO, such as executive recruiting costs and stock-based compensation.
Liquidity and Capital Resources
−Removed: Our primary sources of liquidity and capital resources have been cash provided from operations, cash and cash equivalents, and the 2018 Revolver.
+Added: Our primary sources of liquidity and capital resources have been cash provided from operations, cash and cash equivalents, and the 2018 Revolver (as defined below).
Our primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (remodels and maintenance), legal defense costs, lease obligations, interest payments on our debt, working capital and general corporate needs .
2 unchanged sentences
Our restaurants do not require significant inventories or receivables.
−Removed: We believe that these sources of liquidity and capital are sufficient to finance our continued operations for at least the next 12 months from the issuance of the consolidated financial statements.
−Removed: However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread (including government-mandated closures of our dining rooms) and the possibility of a subsequent resurgence of the COVID-19 outbreak after the current outbreak subsides, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2018 Credit Agreement (as defined below), specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
+Added: We believe that these sources of liquidity and capital are sufficient to finance our continued operations, including planned capital expenditures, for at least the next 12 months from the issuance of the consolidated financial statements.
+Added: However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a subsequent resurgence of the COVID-19 outbreak, our financial performance and liquidity could be further impacted and could impact our ability to meet certain financial covenants required in our 2018 Credit Agreement (as defined below) , specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
The following table presents summary cash flow information for the years indicated:
4 unchanged sentences
Financing activities
−Removed: Net increase (decrease) in cash
+Added: Net increase in cash
Operating Activities
In fiscal 2021, net cash provided by operating activities increased by $11.6 million compared to fiscal 2020.
+Added: This increase was due primarily to an increase in profitability after non-cash items and favorable working capital fluctuations for the year ended December 29, 2021.
+Added: In fiscal 2020, net cash provided by operating activities increased by $4.4 million compared to fiscal 2019.
This increase was due primarily to favorable working capital fluctuations, partially offset by a decline in profitability after non-cash items for the year ended December 30, 2020 compared to the prior year, which we believe related to the COVID-19 pandemic.
−Removed: In fiscal 2019, net cash provided by operating activities decreased by $9.3 million compared to fiscal 2018.
−Removed: This was due primarily to unfavorable working capital fluctuations.
Investing Activities
+Added: In fiscal 2021, net cash used in investing activities increased by $5.8 million compared to fiscal 2020.
+Added: This increase was due primarily to opening two new company-operated restaurants and remodeling 10 restaurants during the year ended December 29, 2021 compared to opening one new company-operated restaurant and completing two new remodels during the year ended December 30, 2020.
+Added: This was partially offset by cash proceeds of $4.6 million received during the year ended December 29, 2021 related to the sale of eight restaurants within the Sacramento area to an existing franchisee.
In fiscal 2020, net cash used in investing activities decreased by $4.0 million compared to fiscal 2019.
2 unchanged sentences
Capital expenditures for these periods exclude unpaid purchases of property and equipment.
−Removed: In fiscal 2019, net cash used in investing activities decreased by $17.1 million compared to fiscal 2018.
−Removed: This was due to a decrease of $12.4 million in capital expenditure spending, due primarily to opening two new company-operated restaurants in fiscal 2019, compared to eight new restaurants in fiscal 2018, and cash proceeds of $4.8 million related to the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee.
−Removed: In fiscal 2019, we incurred capital expenditures of approximately $15.4 million, consisting of $6.6 million related to new restaurants, $2.4 million related to the remodeling of existing restaurants, and $6.4 million related to major maintenance and other corporate capital expenditures.
−Removed: Capital expenditures for these periods exclude unpaid purchases of property and equipment.
Financing Activities
−Removed: In fiscal 2020, net cash used by financing activities increased by $4.3 million compared to fiscal 2019.
−Removed: This increase was due primarily to $34.2 million of net pay downs on the 2018 Revolver during fiscal 2020, compared to net borrowings of $23.0 million in fiscal 2019.
−Removed: This was partially offset by $48.4 million of cash outflow related to stock buybacks in fiscal 2019 and an increase of $4.4 million of proceeds received from the issuance of common stock upon exercise of stock options in fiscal 2020 compared to fiscal 2019.
−Removed: In fiscal 2019, net cash used by financing activities increased by $5.1 million compared to fiscal 2018.
−Removed: This was due primarily to an increase in repurchases of common stock of $47.4 million and a decrease in proceeds received from stock option exercises of $0.4 million in fiscal 2019 compared to fiscal 2018, partially offset by an increase in net borrowings on our revolving debt of $42.7 million.
−Removed: Debt and Other Obligations
−Removed: Current Credit Agreement
−Removed: On July 13, 2018, the Company refinanced its credit agreement with Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto (the "2014 Revolver")
−Removed: pursuant to a credit agreement (the "2018 Credit Agreement") among El Pollo Loco, Inc.
−Removed: ("EPL"), our indirect wholly owned operating subsidiary, as borrower, and the Company and EPL Intermediate, Inc.
−Removed: ("Intermediate"), Holdings’ direct subsidiary, 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”).
−Removed: 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.
+Added: In fiscal 2021, net cash used in financing activities decreased by $5.9 million compared to fiscal 2020.
+Added: This decrease was due primarily to $22.8 million of net pay downs on the 2018 Revolver (as defined below) during fiscal 2021, compared to net pay downs of $34.2 million in fiscal 2020.
+Added: The change was partially offset by a decrease of $5.0 million in proceeds received from the issuance of common stock upon exercise of stock options in fiscal 2021 compared to fiscal 2020.
+Added: In fiscal 2020, net cash used in financing activities increased by $4.3 million compared to fiscal 2019.
+Added: This increase was due primarily to $34.2 million of net pay downs on the 2018 Revolver (as defined below) during fiscal 2020, compared to net borrowings of $23.0 million in fiscal 2019.
+Added: This was partially offset by $48.4 million of cash outflow related to
+Added: stock buybacks in fiscal 2019 and an increase of $4.4 million of proceeds received from the issuance of common stock upon exercise of stock options in fiscal 2020 compared to fiscal 2019.
+Added: Debt Obligations
+Added: 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”).
+Added: The 2018 Revolver, which is available pursuant to the 2018 Credit Agreement, includes a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans.
+Added: The 2018 Revolver and 2018 Credit Agreement will mature on July 13, 2023.
The obligations under the 2018 Credit Agreement and related loan documents are guaranteed by the Company and Intermediate.
The obligations of the Company, EPL and Intermediate under the 2018 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.
−Removed: Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.
−Removed: The 2018 Credit Agreement contains certain financial covenants.
−Removed: The Company was in compliance with all such covenants at December 30, 2020.
+Added: At December 29, 2021, $10.0 million of letters of credit and $40.0 million of the revolving line of credit were outstanding.
+Added: The amount available under the revolving line of credit was $100.0 million at December 29, 2021.
Borrowings under the 2018 Revolver (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.
4 unchanged sentences
The interest rate under the 2018 Revolver was 1.4% at December 29, 2021 and 1.6% under the 2018 Revolver at December 30, 2020.
−Removed: At December 30, 2020, $8.4 million of letters of credit and $62.8 million of the revolving line of credit were outstanding.
−Removed: The amount available under the revolving line of credit was $78.8 million at December 30, 2020.
+Added: Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the financial covenants applicable to the 2018 Revolver.
+Added: The 2018 Credit Agreement contains certain financial covenants.
+Added: The Company was in compliance with all such covenants at December 29, 2021.
During the year ended December 25, 2019, we entered into an interest rate swap with a notional amount of $40.0 million, related to the outstanding borrowings under our 2018 Revolver.
1 unchanged sentence
The interest rate swap matures in June 2023.
−Removed: Contractual Obligations
−Removed: The following table represents our contractual commitments to make future payments pursuant to our debt and other obligations disclosed above and pursuant to our restaurant operating leases outstanding as of December 30, 2020:
+Added: Material Cash Requirements
+Added: Our total capital expenditures for 2021 were $17.0 million.
+Added: In 2021, we spent approximately $7.0 million on the development and construction of our new restaurants.
+Added: The remaining $10.0 million of capital expenditures during 2021 were related to investments in existing restaurants, including new equipment and hardware, technology to optimize efficiencies, remodeling and similar improvements.
+Added: In 2022, we expect to incur between $20.0 million and $25.0 million in total capital expenditures, of which we expect $10.0 million to $12.0 million will be related to our construction of new restaurants, and $10.0 million to $13.0 million will be related to investments in existing restaurants, including new equipment and hardware, technology to optimize efficiencies, remodeling and similar improvements.
+Added: Finally, we expect a portion of our incurred capital expenditures in 2022 to be for additional corporate initiatives, including investments in
+Added: technology for support centers to boost innovation, enhancing the customer experience, and improving operations.
+Added: We expect to fund these capital expenditures primarily with operating cash flows.
+Added: The following table summarizes our other current and long-term material cash requirements as of December 29, 2021, which we expect to fund primarily with operating cash flows:
Payments Due by Period
5 unchanged sentences
Purchasing commitments—chicken (4)
−Removed: (1) Includes the impact of our delay in making April, May and June rent payments on the majority of our leased properties as discussed under the COVID-19 Impact in this section above at December 30, 2020.
+Added: (1) Operating and Finance Leases — Represents future minimum lease payments for our restaurants and the principal payments during the lease terms, respectively.
+Added: Refer to Note 5 “Leases” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our obligations and the timing of expected payments.
+Added: (2) Long-Term Debt — Represents our contractual debt obligations.
Includes expected interest expenses, calculated based on applicable interest rates at December 29, 2021.
−Removed: Off-Balance Sheet Arrangements
−Removed: At both December 30, 2020 and December 25, 2019, we had $8.4 million of borrowing capacity on the 2018 Revolver pledged as collateral to secure outstanding letters of credit.
−Removed: Critical Accounting Policies and Use of Estimates
+Added: Refer to Note 6 “Long-Term Debt” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our obligations and the timing of expected payments.
+Added: (3) Income Tax Receivable Agreement — Represents payments to our pre-IPO stockholders under the TRA.
+Added: Refer to Note 9 “Income Taxes” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our obligations and the timing of expected payments.
+Added: (4) Purchasing Commitments (Chicken) — Reflects contractual purchase commitments for goods related to restaurant operations.
+Added: Refer to Note 13 “Commitments and Contingencies” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our obligations.
+Added: Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that affect our reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities.
6 unchanged sentences
Our significant accounting policies are described in Note 2 “Summary of Significant Accounting Policies"
−Removed: in the accompanying "Notes to Consolidated Financial Statements"
−Removed: in this Annual Report.
+Added: in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report.
Revenue Recognition
2 unchanged sentences
In the case of gift card sales, we record revenue when the gift card is redeemed by the customer.
−Removed: We record royalties from franchised restaurant sales based on a percentage of restaurant revenues in the period that the related franchised restaurants’ revenues are earned.
+Added: We record royalties from
+Added: franchised restaurant sales based on a percentage of restaurant revenues in the period that the related franchised restaurants’ revenues are earned.
The initial franchise services, or exclusivity of the development agreements, are not distinct from the continuing rights or services offered during the term of the franchise agreement and are, therefore, treated as a single performance obligation.
As such, initial franchise and development fees received, and subsequent renewal fees, are recognized over the franchise, or renewal, term, which is typically 20 years.
−Removed: For additional information regarding the revenue recognition see "Note 2.
−Removed: Summary of Significant Accounting Policies"
−Removed: and "Note 15.
−Removed: Revenue from Contracts with Customers"
−Removed: in our accompanying "Notes to Consolidated Financial Statements"
−Removed: in this Annual Report.
Goodwill and Indefinite-Lived Intangible Assets, Net
8 unchanged sentences
Changes in these estimates and assumptions could materially affect our determinations of fair value and impairment.
−Removed: Due to the recent impact of the COVID-19 pandemic to the global economy, including but not limited to the volatility of our stock price as well as that of our competitors and the challenging environment for the restaurant industry generally, we determined that there were indicators of potential impairment of our goodwill and indefinite-lived intangible assets during fiscal 2020.
−Removed: As such, we performed an impairment assessment for both goodwill and indefinite-lived intangible assets and concluded that the fair value of these assets substantially exceeded their carrying values.
+Added: We determined that there were no indicators of potential impairment of our goodwill and indefinite-lived intangible assets during fiscal 2021.
Accordingly, we did not record any impairment to goodwill or indefinite-lived intangible assets during the year ended December 29, 2021.
T he ultimate severity and longevity of the COVID-19 pandemic and the extent and duration of any economic downturn is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.
−Removed: Long-Lived Assets
+Added: Long-Lived and ROU Assets
We state the value of our property and equipment, including primarily leasehold improvements and restaurant equipment, furniture, and fixtures, at cost, minus accumulated depreciation and amortization.
4 unchanged sentences
If we change our assumptions in the future, we may be required to record impairment charges for these assets.
−Removed: The Company reviews its long-lived assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain assets may not be recoverable.
−Removed: The Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s cash flows for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets.
+Added: The Company reviews its long-lived and ROU assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances indicate that the carrying value of certain assets may not be recoverable.
+Added: The Company considers a triggering event to have occurred related to a specific restaurant if the restaurant’s AUV for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets.
If the Company concludes that the carrying value of certain assets will not be recovered based on expected undiscounted future cash flows, an impairment write-down is recorded to reduce the assets to their estimated fair value.
5 unchanged sentences
We maintain a reserve for estimated claims both reported and incurred but not reported, based on historical claims experience and other assumptions.
−Removed: In estimating our insurance accruals, we utilize independent actuarial estimates of expected losses, which are based on statistical analyses of historical data.
+Added: In estimating our insurance accruals, we utilize independent actuarial estimates of
+Added: expected losses, which are based on statistical analyses of historical data.
Our actuarial assumptions are closely monitored and adjusted when warranted by changing circumstances.
9 unchanged sentences
We also make significant assumptions and judgments in determining an appropriate discount rate for property leases.
−Removed: These include using a consistent discount rate for a
−Removed: portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments.
+Added: These include using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease payments.
We utilize a third-party valuation firm to assist in determining the discount rate, based on the above assumptions.
For all other leases, we use the discount rate implicit in the lease, or the Company’s incremental borrowing rate.
−Removed: Franchise Operations
−Removed: We sublease a number of restaurant properties to our franchisees.
−Removed: As such, we remain principally liable for the underlying leases.
−Removed: If sales trends or economic conditions worsen for our franchisees, their financial health may worsen, our collection rates may decline, and we may be required to assume the responsibility for additional lease payments on what are presently franchised restaurants.
We use the asset and liability method of accounting for income taxes.
24 unchanged sentences
Unrecognized tax benefits involve our judgment regarding the likelihood of a benefit being sustained.
−Removed: The final resolutions of uncertain tax positions could result in adjustments to
−Removed: recorded amounts and affect our results of operations, financial position, and cash flows.
+Added: The final resolutions of uncertain tax positions could result in adjustments to recorded amounts and affect our results of operations, financial position, and cash flows.
However, we anticipate that any such adjustments would not materially impact our financial statements.
On July 30, 2014, we entered into the TRA.
−Removed: The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods.
−Removed: We are permitted to make TRA payments under the 2018 Revolver.
−Removed: In fiscal 2020, we recognized an expense of $0.1 million as a result of changes to future forecasted results and deduction of 2018 legal settlement accrual in current year.
−Removed: In fiscal 2019, we recognized an expense of less than $0.1 million as a result of changes to future forecasted results.
−Removed: In fiscal 2018, we recognized a benefit of $0.8 million, as a result of changes to future forecasted results and the timing of the deductibility of certain temporary differences including the current year legal settlement accruals.
+Added: The TRA calls for us to pay our pre-IPO stockholders 85% of the cash savings that we realize in our taxes as a result of utilizing our NOLs and other tax attributes attributable to preceding periods.
+Added: The TRA charge expense (benefit) is a permanent add-back to our taxable income.
+Added: TRA resulted in less than $0.1 million of expense in fiscal 2021 as a result of 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 , $0.1 million of expense in fiscal 2020 as a result of changes to future forecasted results and deduction on 2018 legal settlement accrual and $0.1 million of expense in fiscal 2019 as a result of changes to future forecasted results.
+Added: In fiscal 2021, 2020 and 2019, we paid $1.7 million, $5.2 million and $5.8 million, respectively, to our pre-IPO stockholders under the TRA.
In addition, in fiscal 2014, we applied for various tax credits that resulted in $6.7 million of additional deferred tax assets and tax benefits.
1 unchanged sentence
The fiscal 2021 provision includes a $6.2 million valuation allowance against our deferred tax asset, resulting from certain tax credits that may not be realizable prior to the time the credits expire.
−Removed: Also, in fiscal 2020, federal work opportunity tax credits (“WOTC”) of approximately $0.3 million were generated.
−Removed: On March 27, 2020, President Trump signed into a law a stimulus package, the Coronavirus Aid, Relief and Economic Security ("CARES") Act, which contains several tax provisions and deferral of employer Social Security taxes that are otherwise owed for wage payments.
−Removed: The tax provisions include a correction of a previous drafting error related to qualified improvement property ("QIP") and immediate refundability of all remaining alternative minimum tax ("AMT") credits.
−Removed: The new provisions did not have a material impact on our consolidated financial statements.
−Removed: During the year ended December 30, 2020, we received a Notice of Proposed Adjustment (“NOPA”) for the years ended December 27, 2017 and December 28, 2016, related to our methodology regarding the ordering of utilization of AMT NOLs.
−Removed: This resulted in payment of $0.4 million, and the audit is closed.
−Removed: As a result of the CARES Act, discussed above, this amount is immediately refundable upon filing of a Form 1139, which we filed during the year ended December 30, 2020 and recognized a receivable, included in Accounts and other receivables within the consolidated balance sheet as of December 30, 2020.
+Added: During fiscal 2020, we received a Notice of Proposed Adjustment for the years ended December 27, 2017 and December 28, 2016, related to our methodology regarding our ordering of NOL.
+Added: Resolution of this NOPA resulted in a payment of $0.4 million, and the audit is closed.
+Added: As a result of the CARES Act, this amount was immediately refundable upon filing of a Form 1139.
+Added: We filed the Form 1139 during the year ended December 30, 2020 and received a refund totaling $0.5 million.
Stock-Based Compensation
1 unchanged sentence
For awards that are based on a service requirement, the cost is recognized on a straight-line basis over the requisite service period, usually the vesting period.
−Removed: The Company did not grant any options during fiscal 2020.
−Removed: In fiscal 2020, the Company granted 415,022 restricted stock awards, with an exercise price equal to the fair market value of the common stock on the date of grant.
+Added: We granted 256,172 options during fiscal 2021.
+Added: In fiscal 2021, we granted 222,741 restricted stock awards, with an exercise price equal to the fair market value of the common stock on the date of grant.
The awards granted in fiscal 2021, 2020 and 2019 had a four-year vesting period for employees and three-year vesting period for directors.
−Removed: Included in the fiscal 2018 restricted stock award grants were 72,116 performance share units which have a five-year term.
−Removed: Performance share units are granted at fair market value on the date of grant and are subject to service-based and market-based vesting conditions.
−Removed: For stock options that were based on performance requirements, costs were recognized over the periods to which the performance criteria related.
−Removed: In order to calculate our stock options’ fair values and the associated compensation costs for share-based awards, we utilize the Black–Scholes option pricing model.
−Removed: Derivative Financial Instruments
−Removed: We use an interest rate swap, a derivative instrument, to hedge interest rate risk and is not used for trading purposes.
−Removed: The derivative contract is entered into with financial institutions.
−Removed: We record the derivative instrument at fair value within other assets on its consolidated balance sheet.
−Removed: The derivative instrument qualifies as a hedging instrument in a qualifying cash flow hedge relationship, the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings.
−Removed: For any derivative instruments not designated as hedging instruments, the gain or loss will be recognized in earnings immediately.
−Removed: If a derivative previously designated as a hedge is terminated, or no longer meets the qualifications for hedge accounting, any balances in AOCI will be reclassified into earnings immediately.
−Removed: As a result of the use of an interest rate swap, we are exposed to risk that the counterparty will fail to meet their contractual obligations.
−Removed: To mitigate the counterparty credit risk, we 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.
−Removed: As of December 30, 2020, the counterparty to our interest rate swap has performed in accordance with their contractual obligation
+Added: In order to calculate the grant date fair value for our stock options, we utilize the Black–Scholes option pricing model.
+Added: The model involves several assumptions including the expected term of the option, expected volatility and risk-free interest rate.
+Added: The volatility and the expected life assumptions were bas ed on our historical data.
+Added: If we changed our assumptions of stock price volatility or expected lives of our stock options, our stock-based compensation expense and results of operations may be materially different.
Recent Accounting Pronouncements
−Removed: Recent accounting pronouncements are described in Note 2 “Summary of Significant Accounting Policies"
−Removed: in our accompanying "Notes to Consolidated Financial Statements"
−Removed: in this Annual Report.
+Added: Recent accounting pronouncements are described in Note 2 “Summary of Significant Accounting Policies” in our accompanying “Notes to Consolidated Financial Statements” in this Annual Report.
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.