What changed in this filing

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Item 1. Financial Statements

2023-05-05 compared with 2022-11-04 · 179 added, 301 removed, 494 unchanged (49% of the section changed)

3 unchanged sentences

(Amounts in thousands, except share data)

September 28,

Current assets:

16 unchanged sentences

Accrued income taxes payable

Accrued interest

Current portion of income tax receivable agreement payable

13 unchanged sentences

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

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

36,450,477 and 37,008,061 shares issued and outstanding as March 29, 2023 and December 28, 2022, respectively

Additional paid-in-capital

Accumulated deficit

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Total stockholders’ equity

5 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

Company-operated restaurant revenue

6 unchanged sentences

Occupancy and other operating expenses

Gain on recovery of insurance proceeds, lost profits, net

Company restaurant expenses

3 unchanged sentences

Loss on disposal of assets

Loss on disposition of restaurants

Gain on recovery of insurance proceeds, property, equipment and expenses

Gain on disposition of restaurants

Impairment and closed-store reserves

12 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

Other comprehensive income (loss)

March 29, 2023

March 30, 2022

Other comprehensive (loss) income

Changes in derivative instruments

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

Unrealized net gains arising during the period from interest rate swap

Reclassifications of (gains) losses into net income

Income tax expense

Income tax benefit (expense)

Other comprehensive (loss) income, net of taxes

4 unchanged sentences

(Amounts in thousands, except share data)

Thirteen Weeks Ended September 28, 2022

Comprehensive

Stockholders’

Balance, June 29, 2022

Stock-based compensation

Issuance of common stock related to restricted shares

Shares repurchased for employee tax withholdings

Other comprehensive income, net of tax

Balance, September 28, 2022

Thirteen Weeks Ended September 29, 2021

Comprehensive

Stockholders’

Balance, June 30, 2021

Stock-based compensation

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, September 29, 2021

Thirty-Nine Weeks Ended September 28, 2022

Thirteen Weeks Ended March 29, 2023

Comprehensive

3 unchanged sentences

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

Repurchase of common stock

Repurchase of common stock - excise tax

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, September 28, 2022

Thirty-Nine Weeks Ended September 29, 2021

Other comprehensive loss, net of tax

Balance, March 29, 2023

Thirteen Weeks Ended March 30, 2022

Comprehensive

3 unchanged sentences

Stock-based compensation

Issuance of common stock related to restricted shares

Issuance of common stock upon exercise of stock options, net

Shares repurchased for employee tax withholdings

Forfeiture of common stock related to restricted shares

Other comprehensive income, net of tax

Balance, September 29, 2021

Balance, March 30, 2022

See notes to condensed consolidated financial statements (unaudited).

2 unchanged sentences

(Amounts in thousands)

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Cash flows from operating activities:

Adjustments to reconcile net income to net cash flows provided by provided by operating activities:

Adjustments to reconcile net income to net cash flows provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Income tax receivable agreement income

Loss on disposition of restaurants

Fire insurance proceeds for expenses paid and lost profit

Loss on disposal of assets

Gain on recovery of insurance proceeds, property, equipment and expenses, net

Impairment of property and equipment

Gain on disposition of restaurants

Amortization of deferred financing costs

3 unchanged sentences

Prepaid expenses and other current assets

Income taxes receivable

Income taxes payable

Accounts payable

2 unchanged sentences

Other accrued expenses and liabilities

Net cash flows provided by operating activities

Net cash flows provided by (used in) operating activities

Cash flows from investing activities:

Proceeds from disposition of restaurants

Proceeds from fire insurance for property and equipment

Purchase of property and equipment

2 unchanged sentences

Payments on revolver and swingline loan

Minimum tax withholdings related to net share settlements

Repurchases of common stock

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

Payment of obligations under finance leases

Deferred financing costs for revolver loan

Net cash flows used in financing activities

Increase (decrease) in cash and cash equivalents

Net cash flows (used in) provided by financing activities

Decrease in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

Thirteen Weeks Ended

March 29, 2023

March 30, 2022

Supplemental cash flow information

2 unchanged sentences

Unpaid purchases of property and equipment

Unpaid repurchases of common stock

See notes to condensed consolidated financial statements (unaudited).

6 unchanged sentences

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

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

At March 29, 2023, the Company operated 187 and franchised 303 El Pollo Loco restaurants.

Basis of Presentation

15 unchanged sentences

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

EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively, subject to the terms of the 2022 Revolver.

EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively, subject to the terms of the 2022 Revolver (as defined below).

Principles of Consolidation

5 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.

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.

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

During the thirteen weeks ended March 29, 2023, the Company incurred $ 0.1 million in COVID-19 related expenses, primarily due to leaves of absence.

During the thirteen weeks ended March 30, 2022, the Company incurred $ 2.3 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay.

While the Company continues to experience staffing challenges, higher wages, overtime costs and increased commodity prices, these cost pressures are starting to moderate.

While the Company believes the trend towards more moderate labor related costs and less inflationary pressure continues, the Company cannot determine the ultimate impact of a potential resurgence of the COVID-19 pandemic (and related economic effects) and the current macroeconomic environment will have on the Company’s condensed consolidated financial condition, liquidity, and future results of operations.

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

At March 29, 2023, the Company’s total debt was $ 58.0 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 $ 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

Based on current operations, the Company believes that its cash flow from operations, available cash of $ 4.8 million at March 29, 2023 and the outstanding borrowing availability under the 2022 Revolver 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.

Subsequent Events

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.

Subsequent to the quarter-end, the Company borrowed $ 2.0 million on its 2022 Revolver and outstanding borrowings as of May 4, 2023 were $ 60.0 million.

Additionally, in an effort to reduce costs and redirect resources and to better support restaurant operations and future sales growth, on April 13, 2023 the Company made the decision to eliminate and restructure certain positions in the organization, which resulted in estimated one-time costs of approximately $ 1.1 million that will be recorded in the second quarter.

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 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.

The Company had one supplier to whom amounts due totaled 21.5 % and 41.7 % of the Company’s accounts payable at March 29, 2023 and December 28, 2022, respectively.

Purchases from the Company’s largest supplier totaled 26.5 % of total expenses for the thirteen w eeks ended March 29, 2023 and 29.7 % of total expenses for the thirteen weeks e nded March 30, 2022.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.7 % of total revenue for the thirteen weeks ended March 29, 2023 and 70.8 % for the thirteen weeks ended March 30, 2022, respectively.

Goodwill and Indefinite Lived Intangible Assets

3 unchanged sentences

Goodwill resulted from the acquisition of certain franchise locations.

Upon the sale or closure of a restaurant, the Company evaluates whether there is a decrement of goodwill.

Upon the sale or refranchising of a restaurant, the Company evaluates whether there is a decrement of goodwill.

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

The fair value of the portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated, future royalties the franchisee will pay the Company associated with the franchise agreement entered into simultaneously with the refranchising transition.

The fair value of the reporting unit retained is based on the price a willing buyer would pay for the reporting unit and includes the value of franchise agreements.

As such, the fair value of the reporting unit retained can include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from existing franchise businesses and company restaurant operations.

The Company did not record any decrement to goodwill related to the disposition of restaurants in fiscal 2023 and 2022.

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

10 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 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.

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen weeks ended March 29, 2023.

Accordingly, the Company did no t record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen weeks ended March 29, 2023.

Fair Value Measurements

6 unchanged sentences

Unobservable inputs used when little or no market data is available.

During fiscal 2019, the Company entered into an interest rate swap, which is required to be measured at fair value on a recurring basis.

The fair value was determined based on Level 2 inputs, which include valuation models, as reported by the Company’s counterparty.

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

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

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):

Fair Value Measurements Using

Other non-current liabilities - Interest rate swap

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

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

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and thirty-nine weeks ended September 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

Thirty-Nine Weeks

Fair Value Measurements at September 28, 2022 Using

Ended September 28, 2022

Impairment Losses

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen weeks ended March 29, 2023, 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):

Impairment Losses

Certain property and equipment, net

Certain ROU assets, net

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and thirty-nine weeks ended September 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

Thirty-Nine Weeks

Fair Value Measurements at September 29, 2021 Using

Ended September 29, 2021

Impairment Losses

The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen weeks ended March 30, 2022, 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):

Impairment Losses

Certain property and equipment, net

Certain ROU assets, net

Impairment of Long-Lived Assets and ROU Assets

6 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 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.

The Company determined that triggering events occurred for certain restaurants during the thirteen weeks ended March 29, 2023 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 less than $ 0.1 million for the thirteen weeks ended March 29, 2023, primarily related to the carrying value of the ROU assets of one restaurant in California.

The Company recorded a non-cash impairment charge of $ 0.1 million for the thirteen weeks ended March 30, 2022 primarily related to the long-lived assets of one restaurant 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 (and related economic effects), the Company is monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis.

For these restaurants, if expected performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.

2 unchanged sentences

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

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

During the thirteen and thirty-nine weeks ended September 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.

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

to closed restaurants are included within closed-store expense.

During the thirteen weeks ended March 29, 2023, the Company recognized less than $ 0.1 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

During the thirteen weeks ended March 30, 2022, the Company recognized less than $ 0.1 million of closed-store reserve expense primarily related to the amortization of ROU assets, property taxes and CAM payments for its closed locations.

Derivative Financial Instruments

6 unchanged sentences

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.

Gain on Recovery of Insurance Proceeds, Lost Profits

In September 2022, one of the Company’s restaurants incurred damage resulting from a fire.

In 2022, the Company disposed of less than $ 0.1 million of assets related to the fire.

The restaurant was reopened for business on October 27, 2022.

In fiscal 2023, the Company incurred costs directly related to the fire of less than $ 0.1 million.

The Company recognized gains of $ 0.2 million, related to the reimbursement of property and equipment and expenses incurred and $ 0.2 million related to the reimbursement of lost profits.

The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs, is included in the accompanying condensed consolidated statements of income, for fiscal 2023, as a reduction of company restaurant expenses.

The Company received from the insurance company cash of $ 0.4 million, net of the insurance deductible, during fiscal 2023.

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 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.

The Company had no accrual for interest or penalties at March 29, 2023 or at December 28, 2022.

The Company did no t

recognize interest or penalties during the thirteen weeks ended March 29, 2023 and March 30, 2022, 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 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.

For the thirteen weeks ended March 29, 2023, the Company recorded income tax receivable agreement income of $ 0.1 million and for the thirteen weeks ended March 30, 2022, the Company recorded income tax receivable agreement income of $ 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.

The total amount deferred as of December 30, 2020 was $ 4.9 million, of which 50 % was paid at the end of 2021 and the remaining 50 % is due by December 31, 2022.

The total amount deferred as of December 30, 2020 was $ 4.9 million, of which 50 % was paid at the end of 2021 and the remaining 50 % was paid at the end of 2022.

As of December 28, 2022, the Company made all deferred payroll tax payments and did not have any corresponding balances included in other non-current liabilities on the Company’s consolidated balance sheet.

Additionally, the Company assessed its eligibility for the business relief provision under the Coronavirus Aid, Relief and Economic Security Act known as the Employee Retention Credit (“ERC”), a refundable payroll tax credit for 50% of qualified wages paid during 2020.

The American Rescue Plan passed into law on March 11, 2021 extended the ERC through September 30, 2021, and the credit was increased to 70 % of qualified wages paid from January 1, 2021 through September 30, 2021.

During fiscal 2021, the Company recognized the ERC credit in the amount of $ 3.4 million as income as it is probable that it will comply with the ERC eligibility requirements.

The Company has elected an accounting policy to present government assistance as a reduction of the related expense.

The ERC credit was initially recorded as a receivable as part of the accounts and other receivable on the consolidated balance sheet for the year ended December 29, 2021 and as an offset to the corresponding payroll expense which is classified as part of the labor and other operating expenses on the consolidated statements of income for the year ended December 29, 2021.

During fiscal 2022, the Company received $ 3.1 million in ERC and the remaining $ 0.3 million continues to be recorded as a receivable as part of the accounts and other receivable on the condensed consolidated balance sheet for the thirteen weeks ended March 29, 2023.

PROPERTY AND EQUIPMENT

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

September 28, 2022

March 29, 2023

December 28, 2022

3 unchanged sentences

accumulated depreciation and amortization

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.

Depreciation expense was $ 3.6 million for both the thirteen weeks ended March 29, 2023 and March 30, 2022, respectively.

Based on the Company’s review of its long-lived assets for impairment, the Company did no t record any non-cash impairment charges for the thirteen weeks ended March 29, 2023.

During the thirteen weeks ended March 30, 2022, the Company recorded non-cash impairment charges of $ 0.1 million, primarily related to the carrying value of the long-lived assets of 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.

STOCK-BASED COMPENSATION

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

At March 29, 2023, options to purchase 1,056,119 shares of common stock were outstanding, including 613,376 vested and 442,743 unvested.

Unvested options vest over time;

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

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:

At March 29, 2023, 179,950 premium options, which are options granted above the stock price at date of grant, remained outstanding.

A summary of stock option activity as of March 29, 2023 and changes during the thirteen weeks ended March 29, 2023 is as follows:

Weighted-Average

6 unchanged sentences

Forfeited, cancelled or expired

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:

September 28, 2022

September 29, 2021

Expected volatility

Risk-free interest rate

Expected term (years)

Expected dividends

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:

Outstanding - March 29, 2023

Vested and expected to vest at March 29, 2023

Exercisable at March 29, 2023

At March 29, 2023, the Company had total unrecognized compensation expense of $ 1.9 million related to unvested stock options, which it expects to recognize over a weighted-average period of 2.81 years.

A summary of restricted share activity as of March 29, 2023 and changes during the thirteen weeks ended March 29, 2023 is as follows:

Weighted-Average

1 unchanged sentence

Forfeited, cancelled, or expired

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.

Unvested shares at March 29, 2023

At March 29, 2023, the Company had unrecognized compensation expense of $ 4.4 million related to unvested restricted shares, which it expects to recognize over a weighted-average period of 2.46 years.

Total stock-based compensation expense was $ 0.8 million for both the thirteen weeks ended March 29, 2023 and March 30, 2022.

On October 11, 2022, the Company’s Board of Directors approved a share repurchase program (the “2022 Stock Repurchase Plan”) under which the Company is authorized to repurchase up to $ 20.0 million of shares of its common stock.

The 2022 Stock Repurchase Plan 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.

Under the 2022 Stock Repurchase Plan, the Company is permitted to repurchase its common stock from time to time, in amounts and at prices that the Company deemed appropriate, subject to market conditions and other considerations.

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

For the thirteen weeks ended March 29, 2023, the Company repurchased 552,349 shares of common stock under the 2022 Stock Repurchase Plan, using open market purchases, for total consideration of approximately $ 6.2 million.

The common stock repurchased under 2022 Stock Repurchase Plan were retired upon repurchase.

LONG-TERM DEBT

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”).

$ 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”).

4 unchanged sentences

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.

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.

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 Bank of America prime rate, or (c) Term SOFR with a term of one-month SOFR plus 1.00 %.

The base rate is calculated as the highest of (a) the federal funds rate plus 0.50 %, (b) the published Bank of America prime rate, or (c) 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 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 interest rate range was 5.69 % to 6.30 % for the thirteen weeks ended March 29, 2023 under the 2022 Revolver and 1.35 % to 1.70 % for the thirteen weeks ended March 30, 2022 under the 2018 Revolver.

The 2022 Credit Agreement contains certain financial covenants.

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.

The Company was in compliance with the financial covenants as of March 29, 2023.

At March 29, 2023, $ 9.8 million of letters of credit and $ 58.0 million in borrowings under the 2022 Revolver were outstanding.

The Company had $ 82.2 million in borrowing availability under the 2022 Revolver at March 29, 2023.

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.

During the thirteen weeks ended March 29, 2023 the Company paid down $ 8.0 million on the 2022 Revolver.

No amounts were paid on the 2018 Revolver during the thirteen weeks ended March 30, 2022.

There are no required principal payments prior to maturity for the 2022 Revolver.

Interest Rate Swap

During the year ended December 25, 2019, the Company entered into a variable-to-fixed interest rate swap agreement with a notional amount of $ 40.0 million that matures in June 2023.

During the year ended December 25, 2019, the Company entered into a variable-to-fixed interest rate swap agreement with a notional amount of $ 40.0 million with a maturity date in June 2023.

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.

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 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.”

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.

2 unchanged sentences

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

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):

September 28, 2022

December 29, 2021

Other liabilities - Interest rate swap

As of March 29, 2023, 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 $ 0.1 million, based on current Term SOFR interest rates.

The following table summarizes the effect of the Company’s cash flow hedge accounting on the condensed consolidated statements of income (in thousands):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

Interest expense on hedged portion of debt

1 unchanged sentence

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

Thirty-Nine Weeks Ended

Loss Reclassified from

Net Gain (Loss) Recognized in OCI

AOCI into Interest (Income) Expense

The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the thirteen weeks ended March 29, 2023 and March 30, 2022 (in thousands):

(Gain) Loss Reclassified from

Net Gain Recognized in OCI

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

March 29, 2023

March 30, 2022

March 29, 2023

March 30, 2022

Interest rate swap

2 unchanged sentences

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

September 28, 2022

March 29, 2023

December 28, 2022

5 unchanged sentences

Deferred franchise and development fees

Employer social security tax deferral

Total other accrued expenses and current liabilities

1 unchanged sentence

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

September 28, 2022

March 29, 2023

December 28, 2022

Deferred franchise and development fees

Derivative liability

Employer social security tax deferral

Total other noncurrent liabilities

1 unchanged sentence

Legal Matters

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

Sather, et al.

The derivative complaint alleges that these defendants breached their fiduciary duties to Holdings and were unjustly enriched when they sold shares of Holdings at artificially inflated prices due to alleged misrepresentations and omissions regarding EPL’s comparable store sales in the second quarter of 2015.

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

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

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

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.

Defendants moved to stay or dismiss the Diep action.

On March 17, 2017, the Delaware court granted in part, and denied in part, the motion to stay the Diep action.

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

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

On September 25, 2020, after concluding its investigation, the SLC filed a motion to dismiss the Diep action and filed its investigative report under seal as an exhibit to the motion to dismiss.

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

Sather, Edward J.

Valle, Douglas K.

Ammerman, and Samuel N.

Borgese (collectively, the “Settling Defendants”).

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

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

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

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

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

Plaintiff filed its opening brief on December 6, 2021.

SLC filed its answering brief on December 20, 2021 and the public version of the brief was filed on January 7, 2022.

Plaintiffs filed the reply brief on January 4, 2022.

The hearing on the appeal took place on March 30, 2022.

On June 28, 2022, the court’s granting of the motion to dismiss against Trimaran was affirmed.

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

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

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

4 unchanged sentences

These contracts have terms extending through the end of 2024.

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

At March 29, 2023, the Company’s total estimated commitment to purchase chicken was $ 32.7 million.

Contingent Lease Obligations

1 unchanged sentence

These leases have various terms, the latest of which expires in 2038.

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.

As of March 29, 2023, the potential amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary lessee was $ 4.1 million.

The present value of these potential payments discounted at the Company’s estimated pre-tax cost of debt at March 29, 2023 was $ 2.8 million.

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

2 unchanged sentences

Employment Agreements

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

As of March 29, 2023, the Company had employment agreements with two 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 thirty-nine weeks ended September 28, 2022 and September 29, 2021.

Basic earnings per share (“EPS”) is calculated using the weighted-average number of shares of common stock outstanding during the thirteen weeks ended March 29, 2023 and March 30, 2022.

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

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

Weighted-average shares outstanding—basic

5 unchanged sentences

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

Weighted-average shares outstanding—basic

2 unchanged sentences

RELATED PARTY TRANSACTIONS

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.

On March 28, 2023, Trimaran Pollo Partners, L.L.C.

(“LLC”) and certain of LLC’s affiliates (collectively, the “Trimaran Group”) distributed substantially all of the shares of the Company’s common stock held by the Trimaran Group to their respective investors, members and limited partners.

The Trimaran Group intends to subsequently liquidate or distribute its remaining assets and wind up.

REVENUE FROM CONTRACTS WITH CUSTOMERS

6 unchanged sentences

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

Customers earn points for each dollar spent and 50 points can be redeemed for a $ 5 reward to be used for a future purchase.

Customers earn points for each dollar spent and points can be redeemed for multiple redemption options.

If a customer does not earn or use points within a one-year period, their account is deactivated and all points expire.

Additionally, if a reward is not used within six months , it expires.

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.

1 unchanged sentence

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

As of September 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.

As of both March 29, 2023 and December 28, 2022, the revenue allocated to loyalty points that have not been redeemed was $ 0.5 million, which is reflected in the Company’s accompanying condensed consolidated balance sheets within other accrued expenses and current liabilities.

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

16 unchanged sentences

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

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

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

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

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

3 unchanged sentences

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

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

As of March 29, 2023, there were no performance obligations related to hardware services that were unsatisfied or partially satisfied.

Disaggregated revenue

The following table presents the Company’s revenues disaggregated by revenue source and market (in thousands):

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28,

September 29,

September 28,

September 29,

Core Market (1) :

12 unchanged sentences

The following table presents the Company’s revenues disaggregated by geographic market:

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

Greater Los Angeles area market

1 unchanged sentence

Contract balances

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

The following table provides information about the change in the franchise contract liability balances during the thirteen weeks ended March 29, 2023 and March 30, 2022 (in thousands):

December 28, 2022

1 unchanged sentence

Additional contract liability

September 28, 2022

March 29, 2023

December 29, 2021

1 unchanged sentence

Additional contract liability

September 29, 2021

March 30, 2022

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

2 unchanged sentences

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

The following table illustrates the estimated revenue to be recognized in future periods related to performance obligations under the applicable contracts that are unsatisfied as of September 28, 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 September 28, 2022 to be recognized within one year .

The Company expects all loyalty points revenue related to performance obligations unsatisfied as of March 29, 2023 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

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

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

As of March 29, 2023, 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 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.

During the thirteen weeks ended March 29, 2023, the Company reassessed the lease terms on 12 restaurants 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 $ 10.1 million of ROU asset and lease liabilities for the thirteen weeks ended March 29, 2023 were recognized and will be amortized over the new lease term.

During the thirteen weeks ended March 30, 2022, the Company reassessed the lease terms on four restaurants 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 $ 2.5 million of ROU asset and lease liabilities for the thirteen weeks ended March 30, 2022 which were recognized and will be amortized over the new lease term.

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

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 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.

During the thirteen weeks ended March 29, 2023, the Company recorded a less than $ 0.1 million non-cash impairment charge primarily related to the carrying value of ROU assets of one restaurant in California.

The Company did not record any non-cash impairment charge for the thirteen weeks ended March 30, 2022.

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

September 28, 2022

September 29, 2021

Finance lease cost:

Amortization of right-of-use assets

Interest on lease liabilities

Operating lease cost

Short-term lease cost

Variable lease cost

Sublease income

Total lease cost

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

Finance lease cost:

7 unchanged sentences

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

Thirteen Weeks Ended

Thirty-Nine Weeks Ended

September 28, 2022

September 29, 2021

September 28, 2022

September 29, 2021

March 29, 2023

March 30, 2022

Lease cost – Occupancy and other operating expenses

4 unchanged sentences

Total lease cost

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

During the thirteen weeks ended March 29, 2023 and March 30, 2022, the Company had the following cash and non-cash activities associated with its leases (dollars in thousands):

March 29, 2023

March 30, 2022

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 September 28, 2022 is as follows (in thousands):

Information regarding the Company’s minimum future lease obligations as of March 29, 2023 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 .

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.

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.

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 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.

The Company received $ 0.1 million of lease income from company-owned locations for each of the thirteen weeks ended March 29, 2023 and March 30, 2022.

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