What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-04 compared with 2022-08-05 · 229 added, 245 removed, 566 unchanged (46% of the section changed)

3 unchanged sentences

(Amounts in thousands, except share data)

September 28,

Current assets:

31 unchanged sentences

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

37,002,513 and 36,601,648 shares issued and outstanding as June 29, 2022 and December 29, 2021, respectively

37,053,405 and 36,601,648 shares issued and outstanding as September 28, 2022 and December 29, 2021, respectively

Additional paid-in-capital

8 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Company-operated restaurant revenue

11 unchanged sentences

Loss on disposal of assets

Loss on assets held for sale

Loss on disposition of restaurants

Impairment and closed-store reserves

2 unchanged sentences

Interest expense, net

Income tax receivable agreement expense (income)

Income tax receivable agreement income

Income before provision for income taxes

7 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Other comprehensive income (loss)

Changes in derivative instruments

Unrealized net gains arising during the period from interest rate swap

Reclassifications of losses into net income

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

Reclassifications of (gains) losses into net income

Income tax expense

Other comprehensive income, net of taxes

Other comprehensive (loss) income, net of taxes

Comprehensive income

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Thirteen Weeks Ended June 29, 2022

(Amounts in thousands, except share data)

Thirteen Weeks Ended September 28, 2022

Comprehensive

Stockholders’

Balance, March 30, 2022

Balance, June 29, 2022

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, June 29, 2022

Thirteen Weeks Ended June 30, 2021

Balance, September 28, 2022

Thirteen Weeks Ended September 29, 2021

Comprehensive

Stockholders’

Balance, March 31, 2021

Balance, June 30, 2021

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

1 unchanged sentence

Other comprehensive income, net of tax

Balance, June 30, 2021

Twenty-Six Weeks Ended June 29, 2022

Balance, September 29, 2021

Thirty-Nine Weeks Ended September 28, 2022

Comprehensive

4 unchanged sentences

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

1 unchanged sentence

Other comprehensive income, net of tax

Balance, June 29, 2022

Twenty-Six Weeks Ended June 30, 2021

Balance, September 28, 2022

Thirty-Nine Weeks Ended September 29, 2021

Comprehensive

4 unchanged sentences

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

Repurchase of common stock

Forfeiture of common stock related to restricted shares

Other comprehensive (loss) income, net of tax

Balance, June 30, 2021

Other comprehensive income, net of tax

Balance, September 29, 2021

See notes to condensed consolidated financial statements (unaudited).

2 unchanged sentences

(Amounts in thousands)

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

Cash flows from operating activities:

3 unchanged sentences

Income tax receivable agreement income

Loss on assets held for sale

Loss on disposition of restaurants

Loss on disposal of assets

20 unchanged sentences

Payment of obligations under finance leases

Net cash flows provided by (used in) financing activities

Deferred financing costs for revolver loan

Net cash flows used in financing activities

Increase (decrease) in cash and cash equivalents

1 unchanged sentence

Cash and cash equivalents, end of period

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

Supplemental cash flow information

10 unchanged sentences

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

At June 29, 2022, the Company operated 188 and franchised 293 El Pollo Loco restaurants.

At September 28, 2022, the Company operated 190 and franchised 297 El Pollo Loco restaurants.

Basis of Presentation

23 unchanged sentences

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

While all of the Company’s restaurants had dining rooms open as of June 29, 2022, the Company continues to experience staffing challenges, which resulted in reduced operating hours and service channels at some of the Company restaurants, as well as higher wage inflation, overtime costs and other labor related costs.

Further, the Company experienced inflationary pressures and supply chain disruptions that resulted in increased commodity prices and impacted the Company’s business and results of operations during the thirteen and twenty-six weeks ended June 29, 2022.

The Company expects these pressures to continue during the rest of fiscal 2022.

During the thirteen and twenty-six weeks ended June 29, 2022, the Company incurred $ 0.3 million and $ 2.6 million, respectively, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

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

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

The Company may face future business disruption and related risks resulting from the ongoing COVID-19 pandemic or from another pandemic, epidemic or infectious disease outbreak, or from broader macroeconomic trends, any of which could have a significant impact on our business.

During both thirteen weeks ended September 28, 2022 and September 29, 2021, respectively, the Company incurred $ 0.5 million in COVID-19 related expenses, primarily due to leaves of absence.

During the thirty-nine weeks ended September 28, 2022 and September 29, 2021, respectively, the Company incurred $ 3.1 million and $ 3.5 million, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

While all of the Company’s restaurants had dining rooms open as of September 28, 2022, the Company continues to experience staffing challenges, including higher wage inflation, overtime costs and other labor related costs.

Further, the Company continues to experience inflationary pressures, which resulted in increased commodity prices and impacted the Company’s business and results of operations during the thirteen and thirty-nine weeks ended September 28, 2022.

The Company expects these pressures to continue during the remainder of fiscal 2022.

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

Cash and Cash Equivalents

1 unchanged sentence

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

At June 29, 2022, the Company’s total debt was $ 40.0 million.

At September 28, 2022, the Company’s total debt was $ 20.0 million.

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

Based on current operations, the Company believes that its cash flow from operations and available cash of $ 34.3 million at June 29, 2022 will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements.

Based on current operations, the Company believes that its cash flow from operations and available cash of $ 19.3 million at September 28, 2022 will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements.

Recently Adopted Accounting Pronouncements

Subsequent Events

2022 Credit Agreement

On July 27, 2022, the Company refinanced the 2018 Revolver, pursuant to a credit agreement (the “2022 Credit Agreement”) among EPL, as borrower, the Company and Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $ 150 million five-year senior secured revolving facility (the “2022 Revolver”).

In connection with the refinancing, the 2018 Credit Agreement (as defined below) was terminated.

The 2022 Revolver includes a sub limit of $ 15.0 million for letters of credit and a sub limit of $ 15.0 million for swingline loans.

On July 29, 2022, the Company made a $ 20.0 million payment to the 2022 Revolver and the outstanding balance as of August 4, 2022 was $ 20.0 million.

The proceeds of the 2022 Revolver were used to refinance and terminate the 2018 Revolver and may also be used from time to time for general corporate purposes.

The 2022 Revolver will mature on July 27, 2027 .

The obligations of EPL under the 2022 Credit Agreement and related loan documents are guaranteed by the Company and Intermediate and the obligations of each of the Company, EPL and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority (subject to permitted liens) lien on substantially all of their respective assets (subject to customary exceptions).

Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either the secured overnight financing rate (“SOFR”) or a base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid.

The base rate is calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the published of Bank of America prime rate, or (c) Term SOFR with a term of one-month plus 1.00 %.

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

Borrowings under the 2022 Revolver may be repaid and reborrowed.

The 2022 Credit Agreement includes negative covenants and financial covenants, including, among others, the following (all subject to certain exceptions):

a maximum lease-adjusted consolidated leverage ratio covenant, a minimum consolidated fixed charge coverage ratio, and limitations on (among others) indebtedness, liens, investments, asset sales, mergers, consolidations, liquidations, dispositions, restricted payments, negative pledges, transactions with affiliates, sale-leaseback transactions and prepayments of certain debt.

The 2022 Credit Agreement also includes certain affirmative covenants and events of default.

In connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap previously used to hedge interest rate risk.

In settlement of this swap, the Company received approximately $ 0.6 million.

The remaining amount in accumulated other comprehensive income (“AOCI”) related to the hedging relationship will be reclassified into earnings when the hedged forecasted transaction is reported in earnings.

On October 11, 2022, the Company announced that its Board of Directors declared a special dividend of $ 1.50 per share on the common stock, par value $ 0.01 per share, of the Company (the “Common Stock”).

The special dividend is payable on November 9, 2022, to stockholders of record, including holders of restricted stock and restricted stock units, at the close of business on October 24, 2022.

In addition, on October 11, 2022, the Company announced that its Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $ 20.0 million of shares of the Company’s Common Stock.

The repurchase program will terminate on March 28, 2024, may be modified, suspended or discontinued at any time, and does not obligate the Company to acquire any particular number of shares.

Lastly, on November 3, 2022, the Company borrowed $ 46.0 million on its 2022 Revolver and outstanding borrowings as of November 3, 2022 were $ 66.0 million.

After payment of the special dividend, the Company is expected to have approximately $ 10.0 million in cash on hand.

Concentration of Risk

1 unchanged sentence

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

The Company had one supplier to whom amounts due totaled 24.1 % and 26.1 % of the Company’s accounts payable at June 29, 2022 and December 29, 2021, respectively.

Purchases from the Company’s largest supplier totaled 27.4 % and 28.5 % of total expenses for the thirteen and twenty-six weeks ended June 29, 2022 and 26.2 % and 26.6 % of total expenses for the thirteen and twenty-six weeks ended June 30, 2021.

Company -operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.9 % of total revenue for both the thirteen and twenty-six weeks ended June 29, 2022 and 70.6 % and 70.4 % for the thirteen and twenty-six weeks ended June 30, 2021, respectively.

The Company had one supplier to whom amounts due totaled 25.2 % and 26.1 % of the Company’s accounts payable at September 28, 2022 and December 29, 2021, respectively.

Purchases from the Company’s largest supplier totaled 28.4 % and 28.5 % of total expenses for the thirteen and thirty-nine weeks ended September 28, 2022 and 27.0 % and 28.1 % of total expenses for the thirteen and thirty-nine weeks ended September 29, 2021.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.9 % and 71.2 % of total revenue for the thirteen and thirty-nine weeks ended September 28, 2022 and 71.6 % and 70.8 % for the thirteen and thirty-nine weeks ended September 29, 2021, respectively.

Goodwill and Indefinite Lived Intangible Assets

10 unchanged sentences

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

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

exceeds the reporting unit’s fair value;

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

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

4 unchanged sentences

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

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 29, 2022.

Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and twenty-six weeks ended June 29, 2022.

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 28, 2022.

Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 28, 2022.

Fair Value Measurements

10 unchanged sentences

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

See Note 4, “Long-Term Debt” for further discussion regarding the Company’s interest rate swap.

The following table presents fair value for the interest rate swap at June 29, 2022 (in thousands):

Fair Value Measurements Using

Other assets - Interest rate swap

In connection with the Company’s entry into the 2022 Credit Agreement (as defined below), it terminated the interest rate swap in July 2022 previously used to hedge interest rate risk.

In settlement of this swap, the Company received approximately $ 0.6 million.

See Note 4, “Long-Term Debt” for further discussion regarding the Company’s interest rate swap and its termination.

The following table presents fair value for the interest rate swap at December 29, 2021 (in thousands):

3 unchanged sentences

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

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and twenty-six weeks ended June 29, 2022, reflecting certain property and equipment assets and right-of-use (“ROU”) assets for which an impairment loss was recognized during the corresponding periods, as discussed under Note 2,

“Property and Equipment” and immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and thirty-nine weeks ended September 28, 2022, reflecting certain property and equipment assets and right-of-use (“ROU”) assets for which an impairment loss was recognized during the corresponding periods, as discussed under Note 2, “Property and Equipment” and immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 29, 2022 Using

Ended June 29, 2022

Thirty-Nine Weeks

Fair Value Measurements at September 28, 2022 Using

Ended September 28, 2022

Impairment Losses

1 unchanged sentence

Certain property and equipment, net

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

Certain ROU assets, net

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and thirty-nine weeks ended September 29, 2021, reflecting certain property and equipment assets and ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):

Thirteen Weeks

Twenty-Six Weeks

Fair Value Measurements at June 30, 2021 Using

Ended June 30, 2021

Thirty-Nine Weeks

Fair Value Measurements at September 29, 2021 Using

Ended September 29, 2021

Impairment Losses

1 unchanged sentence

Certain property and equipment, net

Certain property and equipment, held for sale

Certain ROU assets, net

2 unchanged sentences

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

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

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

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

2 unchanged sentences

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

The Company determined that triggering events occurred for certain restaurants during the thirteen and twenty-six weeks ended June 29, 2022 that required an impairment review of certain of the Company’s long-lived and ROU assets.

Based on the results of the analysis, the Company recorded non-cash impairment charges of $ 0.2 million and $ 0.3 million for the thirteen and twenty-six weeks ended June 29, 2022, respectively, primarily related to the long-lived assets of one restaurant in California.

The Company recorded a non-cash impairment charge of $ 0.4 million and $ 0.7 million for the thirteen and twenty-six weeks ended June 30, 2021, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019, the carrying value of the ROU assets of one restaurant in California and the long-lived assets of three restaurants in California .

The Company determined that triggering events occurred for certain restaurants during the thirteen and thirty-nine weeks ended September 28, 2022 that required an impairment review of certain of the Company’s long-lived and ROU assets.

Based on the results of the analysis, the Company recorded non-cash impairment charges of $ 0.1 million and $ 0.4 million for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, primarily related to the long-lived assets of one restaurant in California.

The Company recorded a non-cash impairment charge of $ 0.1 million and $ 0.7 million for the thirteen and thirty-nine weeks ended September 29, 2021, respectively, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019, the carrying value of the ROU assets of one restaurant in California and the long-lived assets of three restaurants in California .

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

3 unchanged sentences

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

Additionally, any property tax and common area maintenance (“CAM”) payments relating

to closed restaurants are included within closed-store expense.

During the thirteen and twenty-six weeks ended June 29, 2022, the Company recognized less than $ 0.1 million and $ 0.1 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

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

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

During the thirteen and thirty-nine weeks ended September 28, 2022, the Company recognized less than $ 0.1 million and $ 0.2 million, respectively, of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

During the thirteen and thirty-nine weeks ended September 29, 2021, the Company recognized less than $ 0.1 million and $ 0.4 million of closed-store reserve expense, respectively, primarily related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

Derivative Financial Instruments

The Company uses an interest rate swap, a derivative instrument, to hedge interest rate risk and not for trading purposes.

The derivative contract is entered into with a financial institution.

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

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

The Company used an interest rate swap, a derivative instrument, to hedge interest rate risk and not for trading purposes.

The derivative contract was entered into with a financial institution.

In connection with the Company’s entry into the 2022 Credit Agreement (as defined below), it terminated the interest rate swap on July 28, 2022.

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

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

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

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 to earnings immediately.

As a result of the use of an interest rate swap, the Company is exposed to risk that the counterparty will fail to meet its contractual obligations.

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

As of June 29, 2022, the counterparty to the Company’s interest rate swap has performed in accordance with its contractual obligation.

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

11 unchanged sentences

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

The Company had no accrual for interest or penalties at June 29, 2022 or at December 29, 2021.

The Company did no t recognize interest or penalties during the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021, respectively, since there were no material unrecognized tax benefits.

The Company had no accrual for interest or penalties at September 28, 2022 or at December 29, 2021.

The Company did no t recognize interest or penalties during the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021, respectively, since there were no material unrecognized tax benefits.

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

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

For the thirteen and twenty-six weeks ended June 29, 2022, the Company recorded income tax receivable agreement income of $ 0.2 million and $ 0.3 million, respectively, and for the thirteen and twenty-six weeks ended June 30, 2021, the Company recorded income tax receivable agreement expense of less than $ 0.1 million and income tax receivable agreement income of less than $ 0.1 million, respectively, in each case, related to the amortization of interest expense related to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income.

For the thirteen and thirty-nine weeks ended September 28, 2022, the Company recorded income tax receivable agreement income of less than $ 0.1 million and $ 0.3 million, respectively, and for both the thirteen and thirty-nine weeks ended September 29, 2021, the Company recorded income tax receivable agreement income of less than $ 0.1 million, in each case, related to the amortization of interest expense related to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income.

The Coronavirus Aid, Relief and Economic Security Act provides for the deferral of employer Social Security taxes that are otherwise owed for wage payment and the creation of refundable employee retention credits.

2 unchanged sentences

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

June 29, 2022

September 28, 2022

December 29, 2021

3 unchanged sentences

accumulated depreciation and amortization

Depreciation expense was $ 3.6 million and $ 3.9 million for the thirteen weeks ended June 29, 2022 and June 30, 2021, respectively, and $ 7.2 million and $ 7.9 million for the twenty-six weeks ended June 29, 2022 and June 30, 2021, respectively .

Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $ 0.2 million and $ 0.3 million for the thirteen and twenty-six weeks ended June 29, 2022, respectively, primarily related to the carrying value of the long-lived assets of one restaurant in California.

During the thirteen and twenty-six weeks ended June 30, 2021, the Company recorded non-cash impairment charges of less than $ 0.1 million and $ 0.3 million, respectively, primarily related to the carrying value of the assets of three restaurants in California.

Depreciation expense was $ 3.5 million and $ 3.7 million for the thirteen weeks ended September 28, 2022 and September 29, 2021, respectively, and $ 10.7 million and $ 11.5 million for the thirty-nine weeks ended September 28, 2022 and September 29, 2021, respectively .

Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $ 0.1 million and $ 0.4 million for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, primarily related to the carrying value of the long-lived assets of one restaurant in California.

During the thirteen and thirty-nine weeks ended September 29, 2021, the Company recorded non-cash impairment charges of less than $ 0.1 million and $ 0.3 million, respectively, primarily related to the carrying value of the assets of three restaurants in California.

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

STOCK-BASED COMPENSATION

At June 29, 2022, options to purchase 1,183,873 shares of common stock were outstanding, including 628,053 vested and 555,820 unvested.

At September 28, 2022, options to purchase 1,181,944 shares of common stock were outstanding, including 659,861 vested and 522,083 unvested.

Unvested options vest over time;

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

At June 29, 2022, 203,569 premium options, which are options granted above the stock price at date

of grant, remained outstanding.

A summary of stock option activity as of June 29, 2022 and changes during the twenty-six weeks ended June 29, 2022 is as follows:

At September 28, 2022, 203,569 premium options, which are options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of September 28, 2022 and changes during the thirty-nine weeks ended September 28, 2022 is as follows:

Weighted-Average

6 unchanged sentences

Forfeited, cancelled or expired

Outstanding - June 29, 2022

Vested and expected to vest at June 29, 2022

Exercisable at June 29, 2022

Outstanding - September 28, 2022

Vested and expected to vest at September 28, 2022

Exercisable at September 28, 2022

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

June 29, 2022

June 30, 2021

September 28, 2022

September 29, 2021

Expected volatility

2 unchanged sentences

Expected dividends

At June 29, 2022, the Company had total unrecognized compensation expense of $ 2.7 million related to unvested stock options, which it expects to recognize over a weighted-average period of 3.39 years.

A summary of restricted share activity as of June 29, 2022 and changes during the twenty-six weeks ended June 29, 2022 is as follows:

At September 28, 2022, the Company had total unrecognized compensation expense of $ 2.5 million related to unvested stock options, which it expects to recognize over a weighted-average period of 3.20 years.

A summary of restricted share activity as of September 28, 2022 and changes during the thirty-nine weeks ended September 28, 2022 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

Unvested shares at June 29, 2022

At June 29, 2022, the Company had unrecognized compensation expense of $ 6.6 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.83 years.

Total stock-based compensation expense was $ 1.0 million and $ 1.8 million for the thirteen and twenty-six weeks ended June 29, 2022, respectively, and $ 1.0 million and $ 1.9 million for the thirteen and twenty-six weeks ended June 30, 2021.

Unvested shares at September 28, 2022

At September 28, 2022, the Company had unrecognized compensation expense of $ 6.4 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.76 years.

Total stock-based compensation expense was $ 1.0 million and $ 2.8 million for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, and $ 1.0 million and $ 2.9 million for the thirteen and thirty-nine weeks ended September 29, 2021.

LONG-TERM DEBT

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”).

On July 27, 2022, the Company refinanced and terminated its credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, the Company and Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provided for a $ 150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”).

The 2018 Revolver was refinanced pursuant to a credit agreement (the “2022 Credit Agreement”) among EPL, as borrower, the Company and Intermediate, as guarantors, Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto, which provides for a $ 150.0 million five-year senior secured revolving credit facility (the “2022 Revolver”).

In connection with the refinancing, the 2018 Credit Agreement was terminated.

The 2022 Revolver includes a sub limit of $ 15.0 million for letters of credit and a sub limit of $ 15.0 million for swingline loans.

The 2022 Revolver and 2022 Credit Agreement will mature on July 27, 2027 .

The obligations under the 2018 Credit Agreement and related loan documents are guaranteed

by Holdings and Intermediate.

The obligations under the 2022 Credit Agreement and related loan documents are guaranteed by Holdings and Intermediate.

The obligations of Holdings, EPL and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.

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.

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

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

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

The special dividend announced by the Company’s Board of Directors on October 11, 2022 is permitted under the terms of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the preceding sentence.

Under the 2022 Revolver, Holdings is restricted from making 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 2022 Revolver.

The base rate is

calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the published Bank of America prime rate, or (c) Term SOFR with a term of one-month SOFR plus 1.00 %.

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

Borrowings under the 2022 Revolver may be repaid and reborrowed.

The interest rate range was 1.70 % to 2.87 % and 1.35 % to 2.87 % for the thirteen and twenty-six weeks ended June 29, 2022, respectively, and 1.35 % to 1.36 % and 1.35 % to 1.65 % for the thirteen and twenty-six weeks ended June 30, 2021.

The interest rate range was 2.87 % to 6.00 % and 1.35 % to 6.00 % for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, and 1.34 % to 1.35 % and 1.34 % to 1.65 % for the thirteen and thirty-nine weeks ended September 29, 2021.

The 2022 Credit Agreement contains certain financial covenants.

The Company was in compliance with the financial covenants as of June 29, 2022.

At June 29, 2022, $ 10.0 million of letters of credit and $ 40.0 million in borrowings under the 2018 Revolver were outstanding.

The Company had $ 100.0 million in borrowing availability under the 2018 Revolver at June 29, 2022.

On July 27, 2022, the 2018 Revolver was refinanced pursuant to a new 2022 Credit Agreement among EPL, as borrower, the Company and Intermediate, as guarantors, the lenders and other parties party thereto and Bank of America, N.A., as administrative agent, swingline lender and letters of credit issuer, which provides for a $ 150.0 million five-year senior secured revolving facility.

In connection with the refinancing, the 2018 Credit Agreement was terminated.

On July 29, 2022, the Company made a $ 20.0 million payment to the 2022 Revolver and the outstanding balance as of August 4, 2022 was $ 20.0 million.

For more information regarding the 2022 Credit Agreement, see Note 1, “Subsequent Events ― 2022 Credit Agreement.”

No amounts were paid on the 2018 Revolver during the thirteen and twenty-six weeks ended June 29, 2022.

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

The Company was in compliance with the financial covenants as of September 28, 2022.

At September 28, 2022, $ 10.0 million of letters of credit and $ 20.0 million in borrowings under the 2022 Revolver were outstanding.

The Company had $ 120.0 million in borrowing availability under the 2022 Revolver at September 28, 2022.

On July 27, 2022, the Company refinanced and terminated the 2018 Revolver pursuant to the 2022 Credit Agreement.

During both the thirteen and thirty-nine weeks ended September 28, 2022 the Company paid down $ 20.0 million on the 2022 Revolver.

During the thirty-nine weeks ended September 29, 2021, the Company paid down $ 22.8 million on the 2018 Revolver none of which was paid during the thirteen weeks ended September 29, 2021.

Interest Rate Swap

1 unchanged sentence

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

Under the terms of the swap agreement, the variable LIBOR-based component of interest payments was converted to a fixed rate of 1.31 %, plus applicable margin, which was 1.5 % for the twenty-six weeks ended June 29, 2022.

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

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

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

Subsequent to the quartet-end, in connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap previously used to hedge interest rate risk.

In settlement of this swap, the Company received approximately $ 0.6 million.

In connection with the Company’s entry into the 2022 Credit Agreement, it terminated the interest rate swap on July 28, 2022 which was previously used to hedge interest rate risk.

Prior to the interest rate swap termination, the swap was a highly effective cash flow hedge.

In settlement of this swap, the Company received approximately $ 0.6 million and derecognized the corresponding interest rate swap asset.

The remaining amount in AOCI related to the hedging relationship will be reclassified into earnings when the hedged forecasted transaction is reported in earnings.

For the twenty-six weeks ended June 29, 2022, the swap was a highly effective cash flow hedge.

As of June 29, 2022, the estimated net losses included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $ 0.1 million, based on current LIBOR interest rates.

As of September 28, 2022, the estimated net gains included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings in the next 12 months is $ 0.3 million, based on current Term SOFR interest rates.

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

June 29, 2022

September 28, 2022

December 29, 2021

Other assets - Interest rate swap

Other liabilities - Interest rate swap

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Interest expense on hedged portion of debt

Interest expense on interest rate swap

Interest expense on debt and derivatives, net

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021 (in thousands):

Interest (income) expense on interest rate swap

Interest (income) expense on debt and derivatives, net

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021 (in thousands):

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

Loss Reclassified from

1 unchanged sentence

Net Gain (Loss) Recognized in OCI

AOCI into Interest expense

AOCI into Interest (Income) Expense

Net Gain Recognized in OCI

AOCI into Interest expense

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

AOCI into Interest (Income) Expense

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Interest rate swap

2 unchanged sentences

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

June 29, 2022

September 28, 2022

December 29, 2021

9 unchanged sentences

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

June 29, 2022

September 28, 2022

December 29, 2021

11 unchanged sentences

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

Sather, CA 12760-VCL in the Delaware Court of Chancery.

Sather, CA 12760-VCL in the Delaware Court of

The Diep action is also purportedly brought on behalf of Holdings, names the same defendants and asserts substantially the same claims on substantially the same alleged facts as does Galustyan.

10 unchanged sentences

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

The court approved the settlement of $ 625,000 , less Plaintiffs’ fees of $ 156,250 , on September 10, 2021, and dismissed all claims brought, or

that could have been brought, against Settling Defendants.

In connection with this settlement, the Company received $ 469,000 in insurance proceeds, which was recorded within general and administrative expenses in the Company’s statement of income for the year ended December 29, 2021.

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

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

12 unchanged sentences

These contracts have terms extending through the end of 2024.

At June 29, 2022, the Company’s total estimated commitment to purchase chicken was $ 26.0 million.

At September 28, 2022, the Company’s total estimated commitment to purchase chicken was $ 9.3 million.

Contingent Lease Obligations

As a result of assigning the Company’s interest in obligations under real estate leases in connection with the sale of company-operated restaurants to some of the Company’s franchisees, the Company is contingently liable on four lease agreements.

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

As of June 29, 2022, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 2.5 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at June 29, 2022 was $ 2.1 million.

As of September 28, 2022, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 2.4 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at September 28, 2022 was $ 1.9 million.

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

2 unchanged sentences

Employment Agreements

As of June 29, 2022, the Company had employment agreements with three of the officers of the Company.

As of September 28, 2022, the Company had employment agreements with three of the officers of the Company.

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

4 unchanged sentences

EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021.

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021.

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

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Weighted-average shares outstanding—basic

2 unchanged sentences

RELATED PARTY TRANSACTIONS

Trimaran Pollo Partners, L.L.C.

(“LLC”) owns approximately 45.3 % of the Company’s outstanding common stock as of June 29, 2022.

This large position means that LLC and its majority owners—predecessors and affiliates of, and certain funds managed by, Trimaran Capital Partners and Freeman Spogli & Co.

(collectively, “Trimaran” and “Freeman Spogli,” respectively)—possess significant influence when stockholders vote on matters such as election of directors, mergers, consolidations and acquisitions, the sale of all or substantially all of the Company’s assets, decisions affecting the Company’s capital structure, amendments to the Company’s amended and restated certificate of incorporation or amended and restated by-laws, and the Company’s winding up and dissolution.

The Company’s amended and restated certificate of incorporation provides that (i) so long as LLC beneficially owns, directly or indirectly, more than 40 % of the Company’s common stock, any member of the Board of Directors or the entire Board of Directors may be removed from office at any time with or without cause by the affirmative vote of a majority of the Company’s common stock, and (ii) prior to the date the LLC ceases to beneficially own, directly or indirectly, 40 % or more of the Company’s common stock, stockholders representing at least 40 % of the Company’s common stock may call a special meeting of the Company’s stockholders.

As of September 28, 2022, Trimaran Pollo Partners, L.L.C.

(“LLC”), FS Equity Partners V, L.P.

and FS Affiliates V, L.P.

own approximately 30.2 %, 14.7 % and 0.2 %, respectively, of our outstanding common stock.

FS Equity V and FS Affiliates V, which previously indirectly held shares of our common stock through LLC, received shares directly on August 31, 2022, upon LLC’s pro rata distribution in kind of shares of our common stock to FS Equity V and FS Affiliates V.

REVENUE FROM CONTRACTS WITH CUSTOMERS

12 unchanged sentences

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

As of June 29, 2022 and December 29, 2021, the revenue allocated to loyalty points that have not been redeemed was $ 0.6 million and $ 0.7 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

As of September 28, 2022 and December 29, 2021, the revenue allocated to loyalty points that have not been redeemed was $ 0.5 million and $ 0.7 million, respectively, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

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

16 unchanged sentences

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

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

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

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

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

3 unchanged sentences

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

As of June 29, 2022, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

As of September 28, 2022, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

Disaggregated revenue

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

Thirty-Nine Weeks Ended

September 28,

September 29,

September 28,

September 29,

Core Market (1) :

13 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Greater Los Angeles area market

1 unchanged sentence

Contract balances

The following table provides information about the change in the franchise contract liability balances during the twenty-six weeks ended June 29, 2022 and June 30, 2021 (in thousands) :

The following table provides information about the change in the franchise contract liability balances during the thirty-nine weeks ended September 28, 2022 and September 29, 2021 (in thousands):

December 29, 2021

1 unchanged sentence

Additional contract liability

June 29, 2022

September 28, 2022

December 30, 2020

1 unchanged sentence

Additional contract liability

June 30, 2021

September 29, 2021

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

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

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

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

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

The following table illustrates the estimated revenue to be recognized in future periods related to performance obligations under the applicable contracts that are unsatisfied as of June 29, 2022 (in thousands):

Franchise revenues:

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

September 28,

Loyalty rewards liability, beginning balance

2 unchanged sentences

Loyalty rewards liability, ending balance

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of June 29, 2022 to be recognized within one year .

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of September 28, 2022 to be recognized within one year .

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

September 28,

Gift card liability

1 unchanged sentence

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

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

4 unchanged sentences

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

As of June 29, 2022, the Company had three leases that it had entered into, but had not yet commenced.

As of September 28, 2022, the Company had one lease that it had entered into, but had not yet commenced.

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

9 unchanged sentences

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

During the thirteen and twenty-six weeks ended June 29, 2022, the Company reassessed the lease terms on nine and thirteen restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew.

As a result of the reassessment, an additional $ 6.0 million and $ 8.5 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 29, 2022, respectively, were recognized and will be amortized over the new lease term.

During the thirteen and twenty-six weeks ended June 30, 2021, the Company reassessed the lease terms on five and twelve restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew.

This reassessment resulted in an additional $ 6.5 million and $ 11.2 million of ROU asset and lease liabilities for the thirteen and twenty-six weeks ended June 30, 2021, respectively, which were recognized and will be amortized over the new lease term.

The reassessments had an impact on the original lease classification of one property during the thirteen weeks ended June 29, 2022 which represented $ 0.7 million of the $ 6.0 million total additional ROU asset and lease liabilities for the period.

During the thirteen and thirty-nine weeks ended September 28, 2022, the Company reassessed the lease terms on five and 18 restaurants, respectively, due to certain triggering events, such as the addition of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew.

As a result of the reassessment, an additional $ 2.0 million and $ 10.5 million of ROU asset and lease liabilities for the thirteen and thirty-nine weeks ended September 28, 2022, respectively, were recognized and will be amortized over the new lease term.

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

of significant leasehold improvements with useful lives that extend past the current lease expiration, the decision to terminate a lease, or the decision to renew.

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

The reassessments had an impact on the original lease classification of one property during the thirty-nine weeks ended September 28, 2022 which represented $ 0.7 million of the $ 10.5 million total additional ROU asset and lease liabilities for the period.

There were no reassessments that impacted the original lease classification during the thirteen weeks ended September 28, 2022.

Additionally, as the Company adopted all practical expedients available under Topic 842, no reallocation between lease and non-lease components was necessary.

4 unchanged sentences

The Company does not have any related party leases.

During the twenty-six weeks ended June 29, 2022, the Company did no t record any non-cash impairment charges.

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

During the thirty-nine weeks ended September 28, 2022, the Company recorded a less than $ 0.1 million non-cash impairment charge related to one restaurant in California.

The Company recorded a $ 0.4 million non-cash impairment charge for the thirty-nine weeks ended September 29, 2021 related to one restaurant closed in Texas in 2019 and one restaurant in California.

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

12 unchanged sentences

Thirteen Weeks Ended

June 29, 2022

June 30, 2021

September 28, 2022

September 29, 2021

Finance lease cost:

6 unchanged sentences

Total lease cost

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

Finance lease cost:

8 unchanged sentences

Thirteen Weeks Ended

Twenty-Six Weeks Ended

June 29, 2022

June 30, 2021

June 29, 2022

June 30, 2021

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

During the thirteen and twenty-six weeks ended June 29, 2022 and June 30, 2021, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

Twenty-Six Weeks Ended June 29, 2022

Twenty-Six Weeks Ended June 30, 2021

During the thirteen and thirty-nine weeks ended September 28, 2022 and September 29, 2021, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

Thirty-Nine Weeks Ended September 28, 2022

Thirty-Nine Weeks Ended September 29, 2021

Cash paid for amounts included in the measurement of lease liabilities

12 unchanged sentences

Weighted-average discount rate—operating leases

Information regarding the Company’s minimum future lease obligations as of June 29, 2022 is as follows (in thousands):

Information regarding the Company’s minimum future lease obligations as of September 28, 2022 is as follows (in thousands):

Operating Leases

13 unchanged sentences

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

These lease agreements generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues.

agreements generally provide for a fixed base rent and, in some instances, contingent rent based on a percentage of gross operating profit or net revenues.

All leases are considered operating leases.

2 unchanged sentences

Additionally, there are no related party leases.

The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended June 29, 2022 and June 30, 2021.

The Company received $ 0.2 million of lease income from company-owned locations for each of the twenty-six weeks ended June 29, 2022 and June 30, 2021.

The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended September 28, 2022 and September 29, 2021.

The Company received $ 0.3 million of lease income from company-owned locations for each of the thirty-nine weeks ended September 28, 2022 and September 29, 2021.

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

What changed 10-Q

Item 1. Financial Statements