What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-27 compared with 2023-03-02 · 380 added, 331 removed, 892 unchanged (44% of the section changed)

20 unchanged sentences

Related Party Transactions

Subsequent Events

Portillo's Inc.

1 unchanged sentence

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

T o the shareholders and the Board of Directors of Portillo's Inc.

To the stockholders and the Board of Directors of Portillo’s Inc.

Opinion on the Financial Statements

2 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and December 25, 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the financial statements, the Company has changed its method of accounting for leases effective December 27, 2021, due to adoption of FASB ASC 842, Leases, using the modified retrospective method.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

2 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes – Tax Receivable Agreement—Refer to Note 2 and Note 14 to the financial statements

Critical Audit Matter Description

On October 20, 2021, the Company completed its initial public offering in a series of transaction steps, which resulted in the Company owning a majority of PHD Group Holdings, LLC.

The Company is a C-corporation holding company owning a partnership interest in PHD Group Holdings, LLC, commonly referred to as an Up-C structure.

In connection with the initial public offering, the Company entered into a Tax Receivable Agreement ("TRA") and recorded a liability under the TRA.

Under the TRA, the Company will be required to pay certain pre-IPO owners 85% of the amount of cash savings, if any, in U.S.

federal, state, or local tax that the Company actually realizes.

The payments related to the initial and subsequent exchanges are treated as additional consideration paid, which in turn increases the tax basis of the Company’s investment in the Partnership.

Most of this tax basis is amortizable under requisite sections of the Internal Revenue Code.

Portillo's Inc.

Form 10-K | 37

The amounts payable, as well as the timing of such payments, under the TRA are dependent upon significant future events and assumptions, including among others:

(i) the amount and timing of exchanges, (ii) the characterization of the tax basis step-up, (iii) the depreciation and amortization periods that apply to the increase in tax basis (iv), the amount and timing of taxable income the Company generates in the future and (v) the U.S.

federal, state, and local income tax rates then applicable.

Given the complexity of the calculation and high volume of inputs used to estimate the TRA liability, performing audit procedures to evaluate the accuracy of the calculation and appropriateness of the inputs required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the TRA liability included the following, among others:

• We tested the effectiveness of controls over management’s determination of the TRA liability, including controls over significant tax judgments and estimates.

• With the assistance of our income tax specialists, our audit procedures related to the TRA liability included evaluating and assessing the following, among others:

◦ We evaluated the appropriateness of management’s application of the accounting for the TRA liability, and the reasonableness of the methods, inputs, and assumptions used by management to determine the TRA liability.

◦ We evaluated the impact of partnership exchange transactions on the computation of the TRA liability by performing testing, on a sample basis, of exchanges, tax basis amounts and calculations related to the step-up in basis.

◦ For each tax basis step-up captured by the TRA, we evaluated the characterization of the step-up for appropriateness and consistency with the TRA.

◦ We tested the appropriateness of the tax rates and tax amortization utilized in the determination of the TRA liability, by agreeing to the terms in the TRA and applicable federal and state tax laws.

◦ We evaluated the Company’s taxable income forecast as it relates to the estimated timing and amount of utilization of the tax basis step-up captured by the TRA.

◦ We tested the mathematical accuracy of the TRA liability calculation by recomputing the liability.

/s/ Deloitte & Touche LLP

Chicago, Illinois

March 2, 2023

February 27, 2024

We have served as the Company's auditor since 2014.

1 unchanged sentence

Form 10-K | 38

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Portillo’s Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Portillo’s Inc.

and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 27, 2024, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP

Chicago, Illinois

February 27, 2024

Portillo's Inc.

Form 10-K | 39

PORTILLO'S INC.

CONSOLIDATED BALANCE SHEETS

3 unchanged sentences

Cash and cash equivalents and restricted cash $ 10,438 $ 44,427

Accounts receivable 8,590 7,840

Accounts and tenant improvement receivables

Inventory 8,733 7,387

15 unchanged sentences

Current portion of long-term debt 7,500 4,155

Short-term debt 15,000 —

Current portion of Tax Receivable Agreement liability 4,428 813

5 unchanged sentences

Long-term debt, net of current portion 283,923 314,425

Deferred rent — 32,174

Tax Receivable Agreement liability 295,390 252,003

9 unchanged sentences

Additional paid-in-capital 308,212 260,664

Accumulated deficit ( 4,812 ) ( 15,950 )

Retained earnings (accumulated deficit)

13,612 ( 4,812 )

Total stockholders' equity attributable to Portillo's Inc.

14 unchanged sentences

Restaurant operating expenses:

Cost of goods sold, excluding depreciation and amortization 204,237 166,764 142,446

Food, beverage and packaging costs

230,869 204,237 166,764

Labor 173,868 154,392 138,788

9 unchanged sentences

Interest expense 27,470 27,644 39,694

Interest income

Tax Receivable Agreement liability adjustment ( 3,349 ) ( 5,345 ) —

26 unchanged sentences

100,000 $ 200,571 $ 140,709 — $ — — $ — $ — $ — $ — $ 140,709

Net income — — 12,263 — — — — — — — 12,263

Unit-based compensation — — 960 — — — — — — — 960

Repayment of subscription receivable — — 250 — — — — — — — 250

Issuance of common units — — 26 — — — — — — — 26

Redeemable preferred units accretion — 20,524 ( 20,524 ) — — — — — — — ( 20,524 )

Balance, as of December 27, 2020

100,000 $ 200,571 $ 140,709 — $ — — $ — $ — $ — $ — $ 140,709

Redeemable preferred units accretion and redemption premium

— 21,176 ( 21,176 ) — — — — — — — ( 21,176 )

Issuance of common units — — 100 — — — — — — — 100

1 unchanged sentence

Net income prior to the Transactions

— — 21,942 — — — — — — — 21,942

Unit-based compensation prior to the Transactions

— — 492 — — — — — — — 492

Effect of the Transactions

— — ( 142,566 ) 12,496,361 125 35,673,321 — 71,416 — 71,150 125

Issuance of Class A common stock sold in initial public offering, net of underwriting discounts of $ 29.1 million and other offering expenses of $ 7.1 million

1 unchanged sentence

Allocation of equity to non-controlling interests

— — — — — — — ( 185,980 ) — 185,980 —

Payoff of redeemable preferred units

( 100,000 ) ( 221,747 ) — — — — — — — — —

Net loss subsequent to the Transactions

— — — — — — — — ( 15,950 ) ( 19,408 ) ( 35,358 )

Equity-based compensation subsequent to the Transactions

— — — — — — — 14,477 — 14,420 28,897

Establishment of Tax Receivable Agreement liability and corresponding deferred tax assets

— — — — — — ( 85,715 ) — — ( 85,715 )

Balance, as of December 26, 2021

— $ — $ — 35,807,171 $ 358 35,673,321 $ — $ 186,856 $ ( 15,950 ) $ 252,142 $ 423,406

— — — — — — — — 10,851 6,306 17,157

Adoption of Accounting Standards Codification 842 - Leases

— — — — — — — — 287 174 461

Equity-based compensation expense

— — — — — — — 8,820 — 7,317 16,137

Activity under equity-based compensation plans

— — — 777,393 8 — — ( 606 ) — — ( 598 )

Redemption of LLC Units in connection with the secondary offering

— — — 11,836,159 118 ( 11,836,159 ) — ( 118 ) — — —

Non-controlling interest adjustment

— — — — — — — 89,374 — ( 89,374 ) —

Establishment of liabilities under tax receivable agreement and related changes to deferred tax assets associated with increases in tax basis

— — — — — — — ( 23,662 ) — — ( 23,662 )

Balance, as of December 25, 2022

— $ — $ — 48,420,723 $ 484 23,837,162 $ — $ 260,664 $ ( 4,812 ) $ 176,565 $ 432,901

See accompanying notes to consolidated financial statements.

5 unchanged sentences

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2023

Preferred Units Class A

Common Stock Class B

Units Amount Members' Equity Shares Amount Shares Amount Additional Paid-In Capital Accumulated Deficit Non-controlling interest Total Equity

Shares Amount Shares Amount Additional Paid-In Capital Retained Earnings (Accumulated Deficit)

Non-controlling interest Total Equity

Balance, as of December 25, 2022

1 unchanged sentence

Net income — — — — — 18,424 6,394 24,818

Adoption of Accounting Standards Codification 842 - Leases — — — — — — — — 287 174 461

Equity-based compensation expense — — — — 11,522 — 4,020 15,542

1 unchanged sentence

Redemption of LLC Units in connection with the secondary offering 6,350,717 64 ( 6,350,717 ) — ( 64 ) — — —

Redemption of LLC interests 13,519 — ( 13,519 ) — — — — —

Non-controlling interest adjustment — — — — 48,849 — ( 48,849 ) —

3 unchanged sentences

associated with increases in tax basis — — — — ( 13,712 ) — — ( 13,712 )

Distributions paid to non-controlling interest holders — — — — — — ( 399 ) $ ( 399 )

Balance, as of December 31, 2023

39 unchanged sentences

CASH FLOWS FROM FINANCING ACTIVITIES:

Repayments of short-term debt — — ( 15,000 )

Proceeds from short-term debt, net

Proceeds from long-term debt 300,000 — —

Payments of long-term debt ( 328,053 ) ( 3,324 ) ( 158,324 )

Proceeds from Paycheck Protection Program loan — — 10,000

Payment of long-term debt prepayment penalty — ( 3,100 ) —

Proceeds from equity offering, net of underwriting discounts 179,306 364,956 437,078

Repurchase of outstanding equity / Portillo's OpCo units ( 179,306 ) ( 364,956 ) ( 57,010 )

Payment of preferred units and preferred units liquidation — ( 221,747 ) —

Payment of initial public offering issuance costs ( 771 ) ( 6,279 ) —

Distributions paid to non-controlling interest holders ( 399 ) — —

Proceeds from stock option exercises 1,879 1,890 —

1 unchanged sentence

Proceeds from Employee Stock Purchase Plan purchases 527 129 —

Payments of Tax Receivable Agreement liability ( 813 ) — —

Payment of deferred financing costs ( 3,569 ) — —

Payment of initial public offering issuance costs — ( 771 ) ( 6,279 )

Payment of preferred units and preferred units liquidation — — ( 221,747 )

Payment of long-term debt prepayment penalty — — ( 3,100 )

Proceeds from issuance of common units — — 100

1 unchanged sentence

NET CASH USED IN FINANCING ACTIVITIES ( 16,933 ) ( 4,708 ) ( 8,783 )

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH 5,164 ( 2,169 ) 18,803

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS AND RESTRICTED CASH

( 33,989 ) 5,164 ( 2,169 )

CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF THE PERIOD 44,427 39,263 41,432

23 unchanged sentences

Portillo’s Inc.

(the "Company") was formed and incorporated as a Delaware corporation on June 8, 2021.

The Company was formed for the purpose of completing an initial public offering ("IPO") and related reorganization transactions (collectively, the "Transactions”) in order to carry on the business of PHD Group Holdings LLC and its subsidiaries ("Portillo's OpCo").

Following the consummation of the Transactions on October 20, 2021, the Company became the sole managing member of Portillo’s OpCo, and a s sole managing member, the Company operates and controls all of the business and affairs of Portillo's OpCo.

As a result, the Company consolidates the financial results of Portillo's OpCo and reports a non-controlling interest representing the economic interest in Portillo's OpCo held by the other members of Portillo's OpCo (the "pre-IPO LLC Members").

("Inc.") was formed and incorporated as a Delaware corporation on June 8, 2021.

was formed for the purpose of completing an initial public offering ("IPO") and related reorganization transactions (collectively, the "Transactions”) in order to carry on the business of PHD Group Holdings LLC and its subsidiaries ("Portillo's OpCo").

Following the consummation of the Transactions on October 20, 2021, Inc.

became the sole managing member of Portillo’s OpCo, and a s sole managing member, Inc.

operates and controls all of the business and affairs of Portillo's OpCo.

As a result, Inc.

consolidates the financial results of Portillo's OpCo and reports a non-controlling interest representing the economic interest in Portillo's OpCo held by the other members of Portillo's OpCo (the "pre-IPO LLC Members").

Unless the context otherwise requires, references to "we," "us," "our," "Portillo's," and the "Company" refer to Portillo's Inc.

and its subsidiaries, including Portillo's OpCo.

We operate fast-casual restaurants in Illinois, Indiana, California, Arizona, Florida, Wisconsin, Minnesota, Iowa and Michigan, along with two food production commissaries in Illinois.

As of December 25, 2022 and December 26, 2021, the Company had 71 and 68 restaurants in operation, respectively, excluding a restaurant owned by C&O Chicago, LLC ("C&O").

The Company also had two and three non-traditional locations in operation as of December 25, 2022 and December 26, 2021, respectively.

The Company operates fast-casual restaurants in 10 states, along with two food production commissaries in Illinois.

As of December 31, 2023 and December 25, 2022, the Company had 83 and 71 restaurants in operation, respectively).

The Company also had two non-traditional locations in operation as of December 31, 2023 and December 25, 2022.

These non-traditional locations include a food truck and a ghost kitchen (small kitchen with no store-front presence, used to fill online orders).

Portillo's Inc., additionally has a 50 % interest in a single restaurant owned by C&O, that is referred to in Note 2.

Summary Of Significant Accounting Policies.

There were no restaurant closings during any period presented in the financial statements.

Portillo's Inc., additionally has a 50 % interest in a single restaurant owned by C&O, which is excluded from the Company's restaurant count.

The Company’s principal corporate offices are located in Oak Brook, Illinois.

25 unchanged sentences

We will retain the benefit of the remaining 15 % of these tax savings.

Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.

Secondary Offerings

In the third quarter of 2022, the Company completed a secondary offering of 8,066,458 shares of the Company's Class A common stock at an offering price of $ 23.75 per share ("Q3 Secondary Offering").

We used all of the net proceeds from the Q3 Secondary Offering to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions.

The proceeds from the Q3 Secondary Offering were used to (i) purchase 2,123,899 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 5,942,559 LLC Units held by certain pre-IPO LLC Members.

In connection with the redemption, 5,942,559 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled and the Company received 5,942,559 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo.

As a result, Portillo’s did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change;

however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

In the fourth quarter of 2022, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 22.69 per share ("Q4 Secondary Offering").

We used all of the net proceeds from the Q4 Secondary Offering to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the shareholders of the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable.

The proceeds from the Q4 Secondary Offering were used to (i) purchase 2,106,400 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 5,893,000 LLC Units held by the pre-IPO LLC Members.

In the first quarter of 2023, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 21.05 per share.

On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the Company's Class A common stock at an offering price of $ 21.05 per share (collectively the "Q1 2023 Secondary Offering and Overallotment Option").

We used all of the net proceeds from the Q1 2023 Secondary Offering and Overallotment Option to purchase LLC Units and corresponding shares of Class B common stock from certain pre-IPO LLC Members and to repurchase shares of Class A common stock from the Blocker Companies at a price per LLC Unit or share of Class A common stock, as applicable, equal to the public offering price per share of Class A common stock, less the underwriting discounts and commissions.

The proceeds from the Q1 2023 Secondary Offering and Overallotment Option were used to (i) purchase 2,269,776 existing shares of Class A common stock from the shareholders of the Blocker Companies and (ii) redeem 6,350,717 LLC Units held by the pre-IPO LLC Members.

In connection with the redemption, 6,350,717 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled, and the Company received 6,350,717 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo.

1 unchanged sentence

however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

In the third and fourth quarters of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of $ 23.75 and $ 22.69 , respectively, per share.

As of December 31, 2023, the Company owned 76.1 % of Portillo's OpCo and the pre-IPO LLC Members owned the remaining 23.9 % of Portillo's OpCo.

4 unchanged sentences

The Company does not have any components of other comprehensive income (loss) recorded within its consolidated financial statements, and therefore, does not separately present a statement of comprehensive income (loss).

Portillo's Inc.

Form 10-K | 59

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company operates on a 52- or 53-week fiscal year ending on the Sunday on or prior to December 31.

1 unchanged sentence

The additional week in a 53-week fiscal year is added to the fourth quarter.

Fiscal 2022, 2021 and 2020 each consisted of 52 weeks.

Fiscal 2023 consisted of 53 weeks.

Both fiscal 2022 and 2021 each consisted of 52 weeks.

The 53rd week in fiscal 2023 coincided with Christmas, resulting in six operating days.

The fiscal periods presented in this report are years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively.

Unless otherwise stated, references to years in this report relate to fiscal years.

Portillo's Inc.

Form 10-K | 47

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Segment Reporting

3 unchanged sentences

Use of Estimates

The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of sales and expenses during the reporting period.

Actual results could differ from those estimates.

3 unchanged sentences

Restricted cash includes amounts that are held in the Company’s bank accounts subject to minimum balance requirements for medical claim disbursements.

Accounts Receivable

Accounts receivable consist primarily of vendor rebates, tenant improvement receivables, and delivery receivables as well as receivables from related parties (see Note 17.

Accounts and Tenant Improvement Receivables

Accounts and tenant improvement receivables consist primarily of vendor rebates, tenant improvement receivables, and delivery receivables as well as receivables from related parties (see Note 17.

Related Party Transactions).

The Company evaluates the collectability of its accounts receivable based on a variety of factors, including historical experience, current and future economic and market conditions and other factors.

The Company evaluates the collectability of its Accounts and tenant improvement receivables based on a variety of factors, including historical experience, current and future economic and market conditions and other factors.

Based on these factors, no allowance for uncollectible accounts was recorded at December 31, 2023 or December 25, 2022.

6 unchanged sentences

Inventories subject to these consignment arrangements are recorded on the Company’s consolidated balance sheet and were $ 0.9 million and $ 0.7 million as of December 31, 2023 and December 25, 2022, respectively.

Portillo's Inc.

Form 10-K | 60

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Equity Method Investment

7 unchanged sentences

Leasehold improvements are amortized over the shorter of the estimated lives of the asset or the lease term.

Portillo's Inc.

Form 10-K | 48

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company reviews its long-lived assets, including property and equipment, definite-lived intangible assets and operating lease assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable.

8 unchanged sentences

If the fair value of the reporting unit is less than its carrying value, an impairment loss is recorded for the difference between the fair value of the reporting unit and the carrying value of the reporting unit.

The Company’s indefinite-lived intangible assets consist of trade names and trade marks (collectively “trade names”).

The Company’s indefinite-lived intangible assets consist of trade names and trademarks (collectively “trade names”).

The Company estimates the fair value of its trade names using a relief-from-royalty income approach.

7 unchanged sentences

Level 3 - Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Portillo's Inc.

Form 10-K | 61

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Reverse Common Unit Split

On October 20, 2021, the members of Portillo's OpCo amended the LLC Agreement , effecting a 7.4-for-1 reverse common unit split.

All applicable unit data, per unit amounts and related information in the consolidated financial statements and notes thereto for the year ended December 27, 2020 have been adjusted retroactively to give effect to the 7.4-for-1 reverse common unit split.

Offering Costs

5 unchanged sentences

Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities.

The Company offers delivery services to its customers.

For delivery sales through Portillos.com or the Portillo's App, the Company recognizes revenue, including delivery fees, when the performance obligation is complete and the food is transferred to the customer.

For delivery sales through a non-Company owned channel, such as the delivery partner’s website or app, as of the end of 2021, we recognize marketplace sales, including third-party delivery menu price premiums, as revenue when control of the food is transferred to the delivery service, excluding any delivery or service fees charged to the customer.

Prior to the end of 2021, this price premium was previously recorded in cost of goods sold, excluding depreciation and amortization.

The amount of the price premium recorded in 2021 and prior periods is not material and there is no anticipated or actual impact on operating income or net income for any period.

The Company also offers delivery services to its customers.

Delivery sales are generally fulfilled by third-party delivery partners whether ordered through the Portillo's app and website ("Dispatch Sales") or through third-party delivery partners ("Marketplace Sales").

Dispatch Sales include delivery and service fees as the Company controls the delivery.

Revenue from Dispatch Sales is recognized when food is delivered to the customer.

For these sales, the Company receives payment directly from the customer at the time of sale.

Revenue for Marketplace Sales is recognized in the amount paid to the delivery partner by the customer for food and excludes delivery and service fees charged by the third-party delivery partner as the Company does not control the delivery.

Revenue from Marketplace Sales is recognized when food is delivered to the

Portillo's Inc.

Form 10-K | 49

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For these sales, the Company receives payment from the delivery partner subsequent to the transfer of order, which is generally paid one week in arrears.

For all delivery sales of food, the Company is considered the principal and recognizes revenue on a gross basis.

Generally, revenue is recognized as promised goods or services transfer to the guest or customer in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

12 unchanged sentences

Assets held in the rabbi trust are invested in mutual funds, which are purchased and held principally for the purpose of selling them in the near term, and are classified as trading securities and carried at fair value.

Portillo's Inc.

Form 10-K | 62

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Equity-Based Compensation

7 unchanged sentences

Eligible employees are able to contribute up to 15 % of their gross base earnings for purchases under the ESPP through regular payroll deductions, subject to an annual maximum dollar amount.

The expense incurred under the ESPP was immaterial for the year ended December 25, 2022 and is included within general and administrative expenses and labor in the consolidated statements of operations.

The expense incurred under the ESPP for the years ended December 31, 2023 and December 25, 2022, was immaterial.

The expense is included within general and administrative expenses and labor in the consolidated statement of operations.

Advertising and Marketing Expenses

3 unchanged sentences

and those expenses included in general and administrative expenses in the consolidated statements of operations primarily consist of branding initiatives.

The year-over-year change for 2023 is primarily related to an advertising campaign in the Chicagoland market in the fourth quarter of 2023.

Portillo's Inc.

Form 10-K | 50

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Cloud-Based Software Implementation Costs

The Company has entered into cloud-based software hosting arrangements for which it incurs implementation costs.

Certain costs incurred during the application development stage are capitalized and included within prepaid expenses or other assets, depending on the long or short-term nature of such costs, in line with the Company's policy on the accounting for prepaid software hosting arrangements.

Costs incurred during the preliminary project stage and post-implementation stage are expensed as incurred.

Capitalized cloud-based software implementation costs are amortized, beginning on the date the related software or module is ready for its intended use, on a straight-line basis over the remaining term of the hosting arrangement as a component of general and administrative expenses, the same line item as the expense for the associated hosting arrangement.

As of December 31, 2023, the Company had $ 2.0 million of capitalized cloud-based software implementation costs made up of $ 0.3 million recorded within prepaid expenses and $ 1.7 million recorded within other assets related to a new enterprise resource planning system.

On December 27, 2021, the Company adopted ASU 2016-02, Leases (Topic 842) , along with related clarifications and improvements, using a modified retrospective approach.

10 unchanged sentences

Operating lease assets and liabilities are recognized at the lease commencement date.

We make judgments regarding the probable term for each lease, which can impact the classification and accounting for a lease as operating or financing, as well as the amount of straight-lined rent expense in a particular period.

Generally, the leases for the Company's restaurant locations have an initial term of 10 years to 20 years and typically provide for renewal options in five-year increments, as well as rent escalations.

5 unchanged sentences

Once a restaurant opens, we record the straight-line lease expense and any contingent rent, if applicable, in occupancy on the consolidated statements of operations.

Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy and other operating expenses on the consolidated statements of operations and is generally considered to be variable rent.

Many of our leases also require us to pay real estate taxes, common area maintenance costs and other occupancy costs which are included in occupancy, other operating expenses, or pre-opening expenses on the consolidated statements of operations and is generally considered to be variable rent.

For leases with a lease term of 12 months or less ("short-term operating lease"), any fixed lease payments are recognized on a straight-line basis over such term, and are not recognized on the consolidated balance sheets.

Portillo's Inc.

Form 10-K | 63

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Per the ASC 842 requirements, a lessee is required to use the rate implicit in the lease when readily determinable;

7 unchanged sentences

We include these amounts in the measurement of the initial operating lease liability, which are also reflected as a reduction to the initial measurement of the right-of-use asset.

Portillo's Inc.

Form 10-K | 51

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Pre-Opening Expenses

12 unchanged sentences

The Company deferred approximately $ 5.4 million of federal payroll tax remittances under this provision as of December 27, 2020, of which $ 2.7 million was paid during the year ended December 26, 2021 and the remaining deferred balance of $ 2.7 million was paid during the year ended December 25, 2022.

The CARES Act provides refundable employee retention credits, which can be used to offset federal payroll tax liabilities.

For the year ended December 27, 2020, the Company recorded a benefit of $ 0.3 million, which is included in other income in the consolidated statement of operations.

Tax Receivable Agreement

The Company is party to a TRA with certain pre-IPO LLC Members that provides for the payment by the Company of 85 % of the amount of tax benefits, if any, that Portillo's Inc.

actually realizes or in some cases is deemed to realize as a result of certain transactions.

We account for the TRA liability in accordance with ASC 450 - Contingencies.

Amounts payable under the TRA are contingent upon, among other things, (i) generation of future taxable income over the term of the TRA and (ii) future changes in tax laws.

If we do not generate sufficient taxable income in the aggregate over the term of the TRA to utilize the tax benefits, then we would not be required to make the related TRA payments.

Therefore, we would only recognize a liability for TRA payments if we determine it is probable that we will generate sufficient future taxable income over the term of the TRA to utilize the related tax benefits.

The timing and amount of aggregate payments due under the TRA may vary based on a number of factors, including the amount and timing of taxable income generated by Portillo's OpCo each year and the applicable tax rates.

Refer to Note 1.

Description Of Business for additional information on the TRA.

The amounts recorded for both the deferred tax assets and the liability for the Company's obligations under the TRA will be estimated at the time of any purchase or exchange as a reduction to shareholders' equity, and the effects of changes in any of the Company's estimates after this date will be included in net income or loss.

Similarly, the effect of subsequent changes in the enacted tax rates will be included in net income or loss.

Earnings (Loss) Per Share

7 unchanged sentences

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No.

2020-04, Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

In October 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative, which amends the disclosure or presentation requirements related to various subtopics in the FASB Accounting Standards Codification (the “Codification”).

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

If, by June 30, 2027, the SEC has not removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed from the Codification and will not become effective for any entity.

The Company is currently evaluating the effect of adopting this ASU.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses on an interim and annual basis.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the effect of adopting this ASU.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) Improvements to Income Tax Disclosures, which requires public entities to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold on an annual basis.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the effect of adopting this ASU.

Recently Adopted Accounting Standards

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The pronouncement provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

1 unchanged sentence

FASB has extended the sunset date to December 31, 2024.

The Company does not believe the impact of the transition from LIBOR to alternative reference rates is material to its consolidated financial statements.

Subsequent Events for discussion of the New Credit Agreement, effective February 2, 2023.

Recently Adopted Accounting Standards

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) ("ASC 842"), along with related clarifications and improvements.

The pronouncement requires lessees to recognize a liability, which represents the discounted obligation to make future minimum lease payments, and a corresponding right-of-use asset on the balance sheet.

The guidance requires disclosure of key information about leasing arrangements that is intended to give financial statement users the ability to assess the amount, timing, and potential uncertainty of cash flows related to leases.

The update is effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

The Company adopted this standard effective December 27, 2021, electing the modified retrospective approach to apply the standard as of the transition date.

As a result, we did not apply the standard to the comparative periods presented.

We have elected the transition package of three practical expedients permitted under the new standard, which eliminates the requirement to reassess the conclusions about historical lease identifications, lease classifications, and initial direct costs.

We did not elect the hindsight practical expedient, which permits the use of hindsight when determining lease terms and impairments of right-of-use assets.

We elected to apply the practical expedient of combining lease and non-lease components.

Additionally, we elected to utilize the short-term lease exception policy, which allows us to not apply the recognition requirements of this standard to leases with a term of 12 months or less.

The adoption of this standard had a significant impact on the Company’s consolidated balance sheet as we recognized the right-of-use asset and lease liabilities for our operating leases.

The adoption had an immaterial impact on the consolidated statement of income, cash flows and overall liquidity.

Leases for additional information.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, which amends the disclosure requirements for fair value measurements by removing, modifying and adding certain disclosures.

The Company adopted this standard effective December 28, 2020.

The adoption of this new standard did not have a material effect on our consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which clarifies the accounting for implementation costs in cloud computing arrangements that is a service contract.

The Company adopted this standard effective December 28, 2020.

Subsequent to the adoption of ASU 2018-15, the Company capitalized such costs within other current assets or other assets on its consolidated balance sheets.

The Company amortizes the implementation costs once the system is ready for its intended use, on a straight-line basis, over the term of the related service agreements, including all reasonably certain renewals.

The amortization expense related to cloud computing arrangements that are service contracts are recorded within general and administrative expenses or other operating expenses on the Company's consolidated statements of operations.

The adoption of this new standard did not have a material effect on our consolidated financial statements.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which modifies certain technical guidelines for accounting for income taxes.

ASU 2019-12 is effective for reporting periods beginning after December 15, 2022, and early adoption is permitted.

The Company adopted the new standard as of December 28, 2020.

The adoption of this new standard did not have a material effect on our consolidated financial statements.

Portillo's Inc.

Form 10-K | 65

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In August 2020, the FASB issued ASU 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), an amendment that simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

The amendment simplifies accounting for convertible instruments by removing major separation models required under current accounting guidance.

In addition, the amendment removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exception, and also simplifies the diluted earnings per share calculation in certain areas.

The amendment is effective beginning after December 15, 2023, and early adoption is permitted.

The Company adopted the new standard as of December 28, 2020.

The adoption of this new standard did not have a material effect on our consolidated financial statements.

The Company does not believe the impact of the transition from LIBOR to alternative reference rates was material to its consolidated financial statements.

The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its consolidated financial statements.

2 unchanged sentences

Sales taxes collected from customers are excluded from revenues and the obligation is included in accrued liabilities until the taxes are remitted to the appropriate taxing authorities.

The Company offers delivery services to its customers.

Delivery services are fulfilled by the Company and third-party service providers.

In some cases, the Company makes delivery sales through Portillos.com or the Portillo's App ("Dispatch Sales").

In other cases, the Company makes delivery sales through a non-Company owned channel, such as the delivery partner’s website or app (“Marketplace Sales”).

With respect to Dispatch Sales, delivery may be performed by the Company or through a third-party service provider.

The Company recognizes revenue, including delivery fees, when the performance obligation is complete and the food is transferred to the customer.

For these sales, the Company receives payment directly from the customer at the time of sale.

With respect to Marketplace Sales, the Company recognizes revenue, including third-party menu price premiums, excluding delivery or service fees collected by the delivery partner, when the performance obligation is complete, and control of the food is transferred to the delivery partner.

The Company receives payment subsequent to the transfer of the food.

The payment terms with respect to Marketplace Sales are short-term in nature and are generally paid one week in arrears.

The Company also offers delivery services to customers which are generally classified as either Dispatch Sales or Marketplace Sales.

Refer to Note 2.

Summary Of Significant Accounting Policies for additional information regarding revenue recognition for Dispatch Sales and Marketplace Sales.

The Company sells gift cards which do not have expiration dates.

4 unchanged sentences

Gift card breakage is recorded within revenues, net in the consolidated statements of operations.

The Company recognized gift card breakage of $ 0.8 million in the year ended December 25, 2022 and $ 0.7 million in each of the years ended December 26, 2021 and December 27, 2020, respectively.

The Company recognized gift card breakage of $ 0.9 million, $ 0.8 million, and $ 0.7 million in the years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively.

Portillo's Inc.

Form 10-K | 53

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The Company’s revenue related to performance obligations not yet satisfied is revenue from gift cards sold but not yet redeemed.

6 unchanged sentences

Revenue recognized from gift card liability balance at the beginning of the year $ 3,822 $ 3,598 $ 3,279

Portillo's Inc.

Form 10-K | 66

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Inventories consisted of the following (in thousands):

Inventory consisted of the following (in thousands):

December 31, 2023 December 25, 2022

20 unchanged sentences

The market approach utilized publicly available market data, including publicly traded stock prices and total shares outstanding to determine the fair value of the reporting unit.

For indefinite-lived intangibles, the relief-from-royalty method estimates the fair value of an intangible asset based on what a third party would pay for the right to use that asset.

The most significant assumptions utilized in the relief-from-royalty method are projected revenues and the royalty rate.

No impairment charges were recognized for goodwill or indefinite-lived intangible assets for the years ended December 25, 2022, December 26, 2021 and December 27, 2020 .

Portillo's Inc.

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For indefinite-lived intangibles, the relief-from-royalty method estimates the fair value of an intangible asset based on what a third-party would pay for the right to use that asset.

The most significant assumptions utilized in the relief-from-royalty method are projected revenues and the royalty rate.

No impairment charges were recognized for goodwill or indefinite-lived intangible assets for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 .

Intangibles, net consisted of the following (in thousands):

As of December 31, 2023

Gross Carrying Amount Accumulated Amortization ASC 842 Adjustment Net Carrying Amount

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Indefinite-lived intangible assets:

2 unchanged sentences

Recipes 56,117 ( 27,206 ) 28,911

Covenants not-to-compete 40,799 ( 40,799 ) — —

Favorable rental contracts 2,991 ( 1,849 ) ( 1,142 ) —

$ 280,042 $ ( 27,206 ) $ 252,836

As of December 25, 2022

Gross Carrying Amount Accumulated Amortization Net Carrying Amount

Gross Carrying Amount Accumulated Amortization ASC 842 Adjustment

Net Carrying Amount

Indefinite-lived intangible assets:

9 unchanged sentences

Estimated Amortization

2028 and thereafter 17,977

Portillo's Inc.

4 unchanged sentences

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The carrying value of the Company's cash and cash equivalents and restricted cash, accounts receivable, accounts payable and all other current assets and liabilities approximate fair values due to the short-term nature of these financial instruments.

The carrying value of the Company's cash and cash equivalents and restricted cash, accounts and tenant improvement receivables, accounts payable and all other current assets and liabilities approximate fair values due to the short-term nature of these financial instruments.

Other assets consist of a deferred compensation plan with related assets held in a rabbi trust.

22 unchanged sentences

SUPPLEMENTAL BALANCE SHEET INFORMATION

Accounts and tenant improvement receivables consisted of the following (in thousands):

December 31, 2023 December 25, 2022

Tenant improvement receivable

$ 8,081 $ 3,218

Accounts receivable

$ 14,183 $ 8,590

Prepaid expenses consisted of the following (in thousands):

15 unchanged sentences

December 31, 2023 December 25, 2022

First Lien Term B-3 Loans $ 322,428 $ 325,752

Revolving Loans — —

2023 Term Loan

$ 294,375 $ —

2014 Term B-3 Loans

2023 Revolver Facility

Unamortized discount and debt issuance costs ( 2,952 ) ( 3,848 )

Total debt, net 306,423 318,580

current portion ( 4,155 ) ( 3,324 )

Short-term debt

Current portion of long-term debt

( 7,500 ) ( 4,155 )

Long-term debt, net $ 283,923 $ 314,425

The Company, through its wholly-owned subsidiaries, PHD Intermediate LLC (“Holdings”), Portillo’s Holdings LLC (the “Borrower”) and certain other subsidiaries entered into the First Lien Credit Agreement ("First Lien Credit Agreement"), dated as of August 1, 2014 and as amended October 25, 2016, May 18, 2018 and December 6, 2019, with UBS AG, Stamford Branch, as the administrative agent and collateral agent, and other lenders from time to time party thereto (the “First Lien Lenders”).

The First Lien Lenders extended credit in the form of (i) first lien initial term loans in an initial aggregate principal amount of $ 335.0 million and (ii) a revolving credit facility in an original principal amount equal to $ 30.0 million, including a letter of credit sub-facility with a $ 7.5 million sublimit (the “Revolving Facility” and the loans thereunder, the “Revolving Loans”).

On December 6, 2019, the Borrower entered a third amendment to the First Lien Credit Agreement (the “Third Amendment to First Lien Credit Agreement”) whereby the aggregate principal amount of the term loans as of the effective date of the Third Amendment to First Lien Credit Agreement was $ 332.4 million (the “First Lien Term B-3 Loans”), and the Revolving Facility was increased by $ 50 million.

The maturity date with respect to the First Lien Term B-3 Loans was extended to September 6, 2024 and the maturity date with respect to the Revolving Loans date was extended to June 6, 2024.

2023 Credit Agreement

On February 2, 2023 (the "Closing Date"), PHD Intermediate LLC (“Holdings”), Portillo’s Holdings LLC (the “Borrower”), the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender entered into a credit agreement (“2023 Credit Agreement”) which provides for a term A loan (the "2023 Term Loan") in an initial aggregate principal amount of $ 300.0 million and revolving credit commitments in an initial aggregate principal amount of $ 100.0 million (the “2023 Revolver Facility”).

The 2023 Term Loan and 2023 Revolver Facility are scheduled to mature on February 2, 2028.

Portillo's Inc.

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In connection with the Third Amendment to First Lien Credit Agreement, the interest rates spread for the First Lien Term B-3 Loans increased by 100 basis points to 5.50 % for the adjusted London interbank offered rate ("Eurocurrency Rate") loans.

As of December 25, 2022, December 26, 2021, and December 27, 2020 the interest rate on the First Lien Term B-3 Loans was 9.57 %, 6.50 %, and 6.50 %, respectively .

The 2023 Term Loan and the 2023 Revolver Facility will accrue interest at the forward-looking secured overnight financing rate (“SOFR”) plus an applicable rate determined upon the consolidated total net rent adjusted leverage ratio, subject to a floor of 0.00 % (plus a credit spread adjustment of 0.10 % per annum for 1-month interest periods and 0.15 % for 3-month interest periods).

As of December 31, 2023, the interest rates on the 2023 Term Loan and 2023 Revolver Facility were 8.00 % and 8.23 %, respectively.

Pursuant to the 2023 Credit Agreement, as of December 31, 2023, the commitment fees to maintain the 2023 Revolver Facility were 0.250 % and letter of credit fees were 2.75 %.

Commitment fees, letter of credit fees, and letter of credit fronting fees are recorded as interest expense in the consolidated statements of operations.

As of December 31, 2023, the effective interest rate for the 2023 Credit Agreement was 8.36 %.

The 2023 Term Loan will amortize in quarterly installments equaling an aggregate annual amount of $ 7.5 million for the first two (2) years following the Closing Date, (b) $ 15.0 million for the third (3rd) and fourth (4th) years following the Closing Date, and (c) $ 30.0 million for the fifth (5th) year following the Closing Date, commencing on the last day of the first full fiscal quarter ended after the Closing Date, with the balance payable on the final maturity date.

As of December 31, 2023, outstanding borrowings under the 2023 Credit Agreement totaled $ 309.4 million, comprising of $ 294.4 million under the 2023 Term Loan, and $ 15.0 million under the 2023 Revolver Facility.

Letters of credit issued under the 2023 Revolver Facility totaled $ 4.3 million.

As a result, as of December 31, 2023, the Company had $ 80.7 million available under the 2023 Revolver Facility.

2014 Credit Agreement

Holdings, the Borrower and certain of its subsidiaries entered into a credit agreement ("2014 Credit Agreement"), dated as of August 1, 2014 and as amended October 25, 2016, May 18, 2018 and December 6, 2019, with UBS AG, Stamford Branch, as the administrative agent and collateral agent, and other lenders from time to time party thereto (the “2014 Lenders”).

The 2014 Lenders extended credit in the form of (i) first lien initial term loans in an initial aggregate principal amount of $ 335.0 million and (ii) a revolving credit facility in an original principal amount equal to $ 30.0 million, including a letter of credit sub-facility with a $ 7.5 million sublimit (the “2014 Revolving Facility” and the loans thereunder, the “2014 Revolving Loans”).

On December 6, 2019, the Borrower entered a third amendment to the 2014 Credit Agreement (the “Third Amendment to 2014 Credit Agreement”) whereby the aggregate principal amount of the term loans as of the effective date of the Third Amendment to 2014 Credit Agreement was $ 332.4 million (the “2014 Term B-3 Loans”), and the 2014 Revolving Facility was increased to $ 50.0 million.

The maturity date with respect to the 2014 Term B-3 Loans was extended to September 6, 2024, and the maturity date with respect to the 2014 Revolving Loans was extended to June 6, 2024.

In connection with the Third Amendment to 2014 Credit Agreement, the interest rates spread for the 2014 Term B-3 Loans increased by 100 basis points to 5.50 % for the adjusted London interbank offered rate ("Eurocurrency Rate") loans.

As of December 25, 2022, and December 26, 2021, the interest rates on the 2014 Term B-3 Loans was 9.57 % and 6.50 %.

Beginning with December 31, 2019, the Company is required to pay on the last business day of each calendar quarter, March 31, June 30, September 30, and December 31, an aggregate principal amount of $ 0.8 million.

As of December 25, 2022 and December 26, 2021, the Company had no borrowings under the Revolving Facility.

As of December 25, 2022, December 26, 2021 and December 27, 2020, the interest rate on the Revolving Facility was 3.25 %, subject to change based on a consolidated first lien net leverage ratio as defined in the First Lien Credit Agreement.

As of December 25, 2022, December 26, 2021 and December 27, 2020, the commitment fees, pursuant to the First Lien, to maintain the Revolving Facility were 0.250 %.

Also pursuant to the First Lien Credit Agreement, as of December 25, 2022, December 26, 2021 and December 27, 2020, letter of credit fronting fees were 0.125 %, respectively.

Commitment fees and letter of credit fronting fees were recorded as interest expense in the consolidated statements of operations.

As of December 25, 2022, December 26, 2021, and December 27, 2020, the effective interest rate was 10.39 %, 7.63 %, and 7.38 %, r espectively.

The Company had $ 4.2 million of letters of credit issued against the Revolving Facility as of December 25, 2022 and December 26, 2021.

As of December 25, 2022, the Company had $ 45.8 million of availability under the Revolving Facility.

As of December 25, 2022, the Company had no borrowings under the 2014 Revolving Facility.

As of December 25, 2022, the interest rate on the 2014 Revolving Facility was 3.25 %, subject to change based on a consolidated first lien net leverage ratio as defined in the 2014 Credit Agreement.

As of December 25, 2022, the commitment fees, pursuant to the 2014 Credit Agreement, to maintain the 2014 Revolving Facility were 0.250 %.

Also pursuant to the 2014 Credit Agreement, as of December 25, 2022, letter of credit fronting fees were 0.125 %.

Commitment fees and letter of credit fronting fees are recorded as interest expense in the consolidated statements of operations.

As of December 25, 2022, the effective interest rate was 10.39 %.

The Company had $ 4.2 million of letters of credit issued against the 2014 Revolving Facility as of December 25, 2022.

On February 2, 2023, the Company used proceeds from the 2023 Term Loan and 2023 Revolver Facility, along with cash on hand, to pay off the 2014 Credit Agreement in full in the amount of $ 321.8 million.

The 2023 Revolver Facility under the 2023 Credit Agreement replaces the $ 50.0 million 2014 Revolving Facility under the 2014 Credit Agreement.

Portillo's Inc.

Form 10-K | 58

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Holdings, the Borrower and certain of its subsidiaries entered into the Second Lien Credit Agreement (the “Second Lien Credit Agreement”) dated as of August 1, 2014 and as amended on October 25, 2016 and December 6, 2019 with UBS AG, Stamford Branch, as administrative agent and collateral agent, and other lenders from time to time party thereto (the “Second Lien Lenders”).

10 unchanged sentences

Discount and Debt Issuance Costs

In connection with entering into the Third Amendment to First Lien Credit Agreement and the Second Amendment to Second Lien Credit Agreement, in each case, dated as of December 6, 2019, the Borrower paid debt issuance costs of $ 14.5 million, of which $ 13.3 million were capitalized and are being amortized over the term of the related debt agreements, and $ 1.2 million were expensed as incurred.

Portillo's Inc.

Form 10-K | 71

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In connection with the repayment of the Second Lien Term B-3 Loans as described above, deferred financing costs and original issuance discount of $ 4.2 million were recorded as a loss on debt extinguishment during the year ended December 26, 2021 in the consolidated statement of operations.

Pursuant to the 2023 Credit Agreement, the Company capitalized deferred financing costs and issuance discount of $ 3.6 million which will be amortized over the term of the 2023 Credit Agreement.

In connection with the repayment of the 2014 Credit Agreement and the Second Lien Term B-3 Loans as described above, deferred financing costs and original issuance discount of $ 3.5 million and $ 4.2 million were recorded as a loss on debt extinguishment during the year ended December 31, 2023 and December 26, 2021, respectively, in the consolidated statement of operations.

There were no debt extinguishments during the year ended December 25, 2022.

The Company amortized $ 0.4 million, $ 2.0 million and $ 2.1 million of deferred financing costs, respectively, during each of the years ended December 31, 2023, December 25, 2022 and December 26, 2021, which was included in interest expense in the consolidated statements of operations.

1 unchanged sentence

Total interest costs incurred were $ 27.5 million, $ 27.6 million and $ 39.7 million for the years ended December 31, 2023, December 25, 2022 and December 26, 2021, respectively.

Total loss on debt extinguishment was $ 7.3 million for the year ended December 26, 2021.

There was no such loss for the years ended December 25, 2022 and December 27, 2020.

As of December 31, 2023 and December 25, 2022, the fair value of long-term debt approximates the carrying value as it is variable rate debt.

The fair value measurement of this debt is considered Level 2 of the fair value hierarchy as inputs to interest are observable, unadjusted quoted prices in active markets for similar assets or liabilities.

Borrowings under the First Lien Credit Agreement are guaranteed by Holdings, the Borrower and certain of the Borrower’s subsidiaries, and Holdings, the Borrower and certain of the Borrower’s subsidiaries have pledged substantially all tangible and intangible assets as collateral, subject to certain exclusions and exceptions.

The Borrower is subject to certain financial and reporting covenants pursuant to the terms of the First Lien Credit Agreement.

These covenants are customary for these types of debt agreements.

As of December 25, 2022, the Company was in compliance with all covenants.

Subsequent Events for a description of a new credit agreement and the repayment of borrowings under the First Lien Credit Agreement.

Portillo's Inc.

Form 10-K | 59

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The 2023 Credit Agreement is guaranteed by all domestic subsidiaries of the Borrower (subject to customary exceptions) and secured by liens on substantially all of the assets of Holdings, the Borrower and the subsidiary guarantors (subject to customary exceptions).

The 2023 Credit Agreement also includes certain financial covenants with respect to cash interest coverage and total net rent adjusted leverage.

As of December 31, 2023, the Company was in compliance with all covenants in the 2023 Credit Agreement.

On December 27, 2021, the Company adopted ASU 2016-02, Leases (Topic 842) , along with related clarifications and improvements, using a modified retrospective approach.

11 unchanged sentences

1 The unamortized balance of a deferred gain associated with sale leaseback transactions totaling approximately $ 0.5 million was written-off to stockholders' equity on the date of transition.

Portillo's Inc.

Form 10-K | 72

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

A summary of operating lease right-of-use assets and liabilities is as follows (in thousands):

Operating leases Classification December 25, 2022

Operating leases Classification December 31, 2023 December 25, 2022

Right-of-use assets Operating lease assets $ 193,825 $ 166,808

193,825 166,808

Current lease liabilities Short-term operating lease liability 5,577 4,849

Non-current lease liabilities Long-term operating lease liability 238,414 200,166

$ 243,991 $ 205,015

Portillo's Inc.

Form 10-K | 60

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expense were as follows (in thousands):

Fiscal Year Ended

Operating leases Classification December 25, 2022

Fiscal Years Ended

Operating leases Classification December 31, 2023 December 25, 2022

Operating lease cost Occupancy

7 unchanged sentences

General and administrative expenses 3,714 3,604

$ 33,644 $ 30,037

A summary of lease terms and discount rates for operating leases is as follows:

Operating leases December 25, 2022

Operating leases December 31, 2023 December 25, 2022

Weighted-average remaining lease term (years):

Weighted-average discount rate:

Portillo's Inc.

Form 10-K | 73

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Supplemental cash flow information related to leases is as follows (in thousands):

Fiscal Year Ended

December 25, 2022

Fiscal Years End

December 31, 2023 December 25, 2022

Cash paid for amounts included in the measurement of lease liabilities:

10 unchanged sentences

As of December 31, 2023, operating lease payments include $ 442.6 million related to options to extend lease terms that are reasonably certain of being exercised and exclude $ 19.6 million of legally binding minimum payments for leases signed but not yet commenced.

Below are disclosures in accordance with the prior guidance, ASC 840, disclosed previously in our Annual Report on Form 10-K for the fiscal years ended December 26, 2021 and December 27, 2020.

A summary of rent expense under ASC 840 for operating lease agreements were as follows (in thousands):

Fiscal Years Ended

December 26, 2021 December 27, 2020

Minimum rentals $ 22,363 $ 19,787

Contingent rentals 679 486

Total rental expense $ 23,042 $ 20,273

Future minimum rental payments for our operating leases under ASC 840 for each of the next five years and in total were as follows as of December 26, 2021 (in thousands):

Year Ending Minimum Amount

2022 $ 20,298

Thereafter 508,217

Total minimum rental payments $ 612,621

Portillo's Inc.

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The above future minimum rental amounts exclude the amortization of deferred lease incentives, renewal options that are not reasonably assured of renewal, and contingent rent.

The Company generally has escalating rents over the term of the leases and records rent expense on a straight-line basis.

Below are disclosures in accordance with the prior guidance, ASC 840, disclosed previously in our Annual Report on Form 10-K for the fiscal year ended December 26, 2021.

A summary of rent expense under ASC 840 for operating lease agreements were as follows (in thousands):

Fiscal Year Ended

December 26, 2021

Minimum rentals $ 22,363

Contingent rentals 679

Total rental expense $ 23,042

STOCKHOLDER'S EQUITY

21 unchanged sentences

The Company received aggregate net proceeds of approximately $ 430.0 million after deducting underwriting discounts and commissions of $ 29.1 million and other offering expenses of approximately $ 7.1 million.

In connection with our IPO, we issued 12,496,361 shares of Class A common stock to pre-IPO LLC Members and 35,673,321 shares of Class B common stock to pre-IPO LLC Members.

Portillo's Inc.

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

In connection with our IPO, we issued 12,496,361 shares of Class A common stock to pre-IPO LLC Members and 35,673,321 shares of Class B common stock to pre-IPO LLC Members.

Redemption of LLC Units in connection with Secondary Offerings

As described in Note 1.

Description Of Business, in the third quarter of 2022, the Company completed the Q3 Secondary Offering of 8,066,458 shares of the Company's Class A common stock at an offering price of $ 23.75 per share.

As a result, Portillo's did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change;

however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

In the fourth quarter of 2022, the Company completed the Q4 Secondary Offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 22.69 per share ("Q4 Secondary Offering").

In connection with the redemption, 5,893,000 shares of Class B common stock were surrendered by the pre-IPO LLC Members and canceled and the Company received 5,893,000 newly-issued LLC Units, increasing the Company's total ownership interest in Portillo's OpCo.

As a result, Portillo's did not receive any proceeds from the offering, and the total number of shares of Class A common stock and Class B common stock did not change;

however, the number of outstanding shares of Class A common stock increased by the same number of the canceled shares of Class B common stock.

In the first quarter of 2023, the Company completed a secondary offering of 8,000,000 shares of the Company's Class A common stock at an offering price of $ 21.05 per share.

On April 5, 2023, the Underwriter exercised its overallotment option in part, to purchase an additional 620,493 shares of the Company's Class A common stock at an offering price of $ 21.05 per share.

Description Of Business for additional information.

As of December 31, 2023, the Company owned 76.1 % of Portillo's OpCo and the pre-IPO LLC Members owned the remaining 23.9 % of Portillo's OpCo.

1 unchanged sentence

Equity-Based Compensation Plan Activity

We received an aggregate of 777,393 LLC Units in connection with the activity under our equity-based compensation plans during December 25, 2022, related to the exercise of stock options, vested restricted stock awards and restricted stock units, and employee stock purchase plan purchases.

Equity-Based Compensation.

Portillo's Inc.

Form 10-K | 76

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

We received an aggregate of 717,416 and 777,393 LLC Units in connection with the activity under our equity-based compensation plans during the years ended December 31, 2023 and December 25, 2022, respectively, related to the exercise of stock options, vested restricted stock awards and restricted stock units, and employee stock purchase plan purchases.

Equity-Based Compensation for additional information.

NON-CONTROLLING INTERESTS

In connection with the Transactions described in Note 1.

Description Of Business we are the sole managing member of Portillo's OpCo, and as a result, consolidated the financial results of Portillo's OpCo.

We are the sole managing member of Portillo's OpCo, and as a result, consolidated the financial results of Portillo's OpCo.

We report a non-controlling interest representing the LLC Units in Portillo's OpCo held by pre-IPO LLC Members.

1 unchanged sentence

As such, future redemptions or direct exchanges of LLC Units in Portillo's OpCo by the pre-IPO LLC members will result in a change in ownership and reduce the amount recorded as non-controlling interest and increase additional paid-in capital.

In the third and fourth quarters of 2022, in connection with the secondary offerings described in Note 1.

Description Of Business, 5,942,559 and 5,893,000 LLC Units, respectively, were redeemed by the pre-IPO LLC Members for newly-issued shares of Class A common stock and we received 5,942,559 and 5,893,000 , respectively, newly-issued LLC Units, increasing our total ownership interest in Portillo's OpCo.

In the first and second quarters of 2023, in connection with the Q1 2023 Secondary Offering and Overallotment Option described in Note 1.

Description Of Business, 6,350,717 of LLC Units and corresponding shares of Class B common stock were redeemed, respectively, by the pre-IPO LLC Members for newly-issued shares of Class A common stock.

We received a total of 6,350,717 newly-issued LLC Units, increasing our total ownership interest in Portillo's OpCo.

As described in Note 1.

Description Of Business, in the third and fourth quarters of 2022, the Company completed two secondary offerings of 8,066,458 shares (including 66,458 shares sold to the underwriters pursuant to their overallotment option) and 8,000,000 shares, respectively, of the Company's Class A common stock at an offering price of $ 23.75 and $ 22.69 , respectively, per share.

The following table summarizes the LLC interest ownership by Portillo's Inc.

5 unchanged sentences

Pre-IPO LLC Members

17,472,926 23.9 % 23,837,162 33.0 %

Total 72,975,301 100.0 % 72,257,885 100.0 %

1 unchanged sentence

and the pre-IPO LLC Members.

The pre-IPO LLC Members' weighted average ownership percentage for the fiscal year ended December 25, 2022 was 45.8 %.

The pre-IPO LLC Members' weighted average ownership percentage for the fiscal years ended December 31, 2023 and December 25, 2022 was 25.9 % and 45.8 %, respectively.

The following table summarizes the effects of changes in ownership in Portillo's OpCo on the Company’s equity (in thousands):

Fiscal Year Ended

December 25, 2022

Portillo's Inc.

Form 10-K | 63

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended

December 31, 2023 December 25, 2022 December 26, 2021

Net income attributable to Portillo's Inc.

$ 18,424 $ 10,851 $ ( 15,184 )

Activity under equity-based compensation plans 953 ( 606 ) —

Non-controlling interest adjustments, including the secondary offerings 89,374

Redemption of LLC Units in connection with the secondary offerings ( 118 )

Non-controlling interest adjustment

48,849 89,374 —

Redemption of LLC Units

( 64 ) ( 118 ) —

Establishment of liabilities under Tax Receivable Agreement and related changes to deferred tax assets associated with increases in tax basis

( 13,712 ) ( 23,662 ) —

Total effect of changes in ownership interest on equity attributable to Portillo's Inc.

$ 54,450 $ 75,839 $ ( 15,184 )

EQUITY-BASED COMPENSATION

1 unchanged sentence

In connection with the IPO, the Company adopted the 2021 Equity Incentive Plan (the "2021 Plan").

The 2021 Plan is administered and interpreted by the Company's Board, including the authority to select persons to participate in the 2021 Plan, determine the form and substance of awards under the 2021 Plan, determine the conditions and restrictions, if any, subject to which such awards will be made, modify the terms of awards, accelerate the vesting of awards, and make determinations regarding a participant’s termination of employment or service for purposes of an award.

The 2021 Plan is administered and interpreted by the Company's Board, including the authority to select participants in the 2021 Plan, determine the form and substance of awards under the 2021 Plan, determine the conditions and restrictions, if any, subject to which such awards will be made, modify the terms of awards, accelerate the vesting of awards, and make determinations regarding a participant’s termination of employment or service for purposes of an award.

The types of awards available under the 2021 Plan include stock options (both incentive and non-qualified), stock appreciation rights ("SARs"), restricted stock awards ("RSAs"), restricted stock units ("RSUs"), and stock-based awards.

1 unchanged sentence

All awards granted to participants under the 2021 Plan will be represented by an award agreement.

Approximately 7.1 million shares of Class A common stock are available for awards.

Portillo's Inc.

Form 10-K | 77

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Approximately 7.1 million shares of Class A common stock were authorized for awards under the 2021 Plan.

Restricted Stock Units

10 unchanged sentences

As of December 31, 2023, there was $ 8.1 million of total unrecognized compensation cost related to unvested restricted stock units, which is expected to vest over a weighted-average period of 1.5 years.

Portillo's Inc.

Form 10-K | 64

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Restricted Stock Awards

1 unchanged sentence

The RSAs vested immediately upon grant with certain transfer restrictions.

RSAs surrendered to fulfill withholding tax obligations were not subject to any transfer restrictions, and 50 % of the balance of the underlying shares were subject to a one-year holding requirement, and the other 50 % of the balance of underlying shares was subject to a two-year holding requirement.

RSAs surrendered to fulfill withholding tax obligations were not subject to any transfer restrictions, and 50 % of the balance of the underlying shares were subject to a one-year holding requirement, and the balance of underlying shares was subject to a two-year holding requirement.

The fair value of the RSAs surrendered was determined using Portillo's closing stock price on the date of grant, which was $ 17.19 .

5 unchanged sentences

Annualized equity volatility 34.4 %

No RSAs were issued during the years ended December 31, 2023 and December 26, 2021.

Performance Stock Options

The Company has granted PSOs to certain executive officers that will be eligible to vest in three (3) tranches based on stock performance conditions (i) one-third (1/3rd) of the PSOs will vest on the third anniversary of the date of grant if the 20 -day volume-weighted average price ("VWAP") for a share of common stock is $ 30.00 per share ( 1.5 times the IPO price) measured over any twenty ( 20 ) consecutive trading day period commencing on the second anniversary of the date of grant and ending on the last trading day immediately preceding the third anniversary of the date of grant;

(ii) one-third (1/3rd) of the PSOs will vest on the fourth anniversary of the date of grant if the 20 -day VWAP for a share of common stock is $ 40.00 per share ( 2 times the IPO price) measured over any twenty ( 20 ) consecutive trading day period commencing on the third anniversary of the date of grant and ending on the last trading day immediately preceding the fourth anniversary of the date of grant;

and (iii) one-third (1/3rd) of the PSOs will vest on the fifth anniversary of the date of grant if the 20 -day VWAP for a share of common stock is $ 50.00 per share ( 2.5 times the IPO price) measured over any twenty ( 20 ) consecutive trading day period commencing on the fourth anniversary of the date of grant and ending on the last trading day immediately preceding the fifth anniversary of the date of grant.

The Company has granted performance stock options ("PSOs") to certain executive officers that will be eligible to vest in three (3) tranches based on stock performance conditions (i) one-third (1/3rd) of the PSOs will vest on the third anniversary of the IPO if the 20 -day volume-weighted average price ("VWAP") for a share of common stock is $ 30.00 per share ( 1.5 times the IPO price) measured over any twenty ( 20 ) consecutive trading day period commencing on the second anniversary of the IPO and ending on the last trading day immediately preceding the third anniversary of the IPO;

(ii) one-third (1/3rd) of the PSOs will vest on the fourth anniversary of the IPO if the 20 -day VWAP for a share of common stock is $ 40.00 per share ( 2 times the IPO price) measured over any twenty ( 20 ) consecutive trading day period commencing on the third anniversary of the IPO and ending on the last trading day immediately preceding the fourth anniversary of the IPO;

and (iii) one-third (1/3rd) of the PSOs will vest on the fifth anniversary of the IPO if the 20 -day VWAP for a share of common stock is $ 50.00 per share ( 2.5 times the IPO price) measured over any twenty ( 20 ) consecutive trading day period commencing on the fourth anniversary of the IPO and ending on the last trading day immediately preceding the fifth anniversary of IPO.

All PSOs are subject to continued service at each tranche date and if any tranches fail to vest, the unvested portion of such PSOs will be forfeited and will not be eligible to vest in subsequent years.

The awards granted are exercisable within a 10-year period from the date of grant.

Portillo's Inc.

Form 10-K | 78

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The grant date fair value of these awards was determined using a Monte-Carlo simulation model.

The fair value and weighted average assumptions used to estimate the fair value of these PSOs were as follows:

2023 2022 2021

Fair value $ 2.30 $ 7.93 $ 7.58

3 unchanged sentences

Annualized equity volatility 37.7 % 51.9 % 54.4 %

Portillo's Inc.

Form 10-K | 65

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Activity for the Company's PSOs was as follows:

33 unchanged sentences

Forfeited ( 56 ) 5.25

Expired ( 12 ) 5.63

Outstanding-December 31, 2023

6 unchanged sentences

The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which greatly affect the fair value of each stock option.

The weighted average assumptions used to estimate the fair value of stock options granted during the years ended December 26, 2021 and December 27, 2020 were as follows:

The weighted average assumptions used to estimate the fair value of stock options granted during the year ended December 26, 2021 was as follows:

Fair value of stock option $ 2.16

4 unchanged sentences

Equity-Based Compensation Expense

Equity-based compensation expense included in the Company’s consolidated statements of operations was as follows:

Equity-based compensation expense is calculated based on equity awards ultimately expected to vest and is reduced for estimated forfeitures.

Forfeitures are revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates and an adjustment to equity-based compensation expense will be recognized at that time.

Equity-based compensation expense included in the Company’s consolidated statements of operations was as follows (in thousands):

Fiscal Years Ended

3 unchanged sentences

Total equity-based compensation expense $ 15,542 $ 16,137 $ 30,708

Total equity-based compensation expense decreased from prior year primarily because the Company recognized a cash compensation expense of approximately $ 1.3 million and a non-cash compensation expense of approximately $ 26.2 million in fiscal year 2021, due to the aforementioned modification of performance-vesting awards.

Total equity-based compensation expense in 2022 decreased in comparison to 2021, primarily due to the recognition of cash compensation expense of approximately $ 1.3 million and a non-cash compensation expense of approximately $ 26.2 million in fiscal year 2021, due to the aforementioned modification of performance-vesting awards.

Employee Stock Purchase Plan

During the year ended December 25, 2022, the Company issued 6,831 shares under the ESPP.

During the year ended December 31, 2023, the Company issued 29,808 shares under the Employee Stock Purchase Plan ("ESPP").

The shares issued under the ESPP are net of shares withheld for taxes.

At December 31, 2023, 211,954 shares remained available for issuance under the ESPP.

The expense incurred under the ESPP for the year ended December 31, 2023 and year ended December 25, 2022, was immaterial.

The expense is included within general and administrative expenses and labor in the consolidated statement of operations.

Portillo's Inc.

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

As a result of the IPO and Transactions described in Note 1.

Description Of Business we became the sole managing member of Portillo's OpCo, and as a result, began consolidating the financial results of Portillo's OpCo.

We are the sole managing member of Portillo's OpCo, and consolidate the financial results of Portillo's OpCo.

Portillo's OpCo is treated as a partnership for U.S.

federal and most applicable state and local income tax purposes.

As a partnership, Portillo's OpCo is not subject to U.S.

As a partnership, Portillo's OpCo is generally not subject to U.S.

federal and certain state and local income taxes.

5 unchanged sentences

Fiscal Years Ended

December 25, 2022 December 26, 2021

December 31, 2023 December 25, 2022 December 26, 2021

Current income taxes:

11 unchanged sentences

Fiscal Years Ended

December 25, 2022 December 26, 2021

December 31, 2023 December 25, 2022 December 26, 2021

Expected U.S.

7 unchanged sentences

Income tax expense (benefit) $ 3,248 11.5 % $ 1,823 9.6 % $ ( 3,531 ) 20.9 %

Our effective income tax rates for the year ended December 25, 2022 and December 26, 2021 were 9.6 % and 20.9 %, respectively.

The change in our effective income tax rate from the year ended December 25, 2022 to the year ended December 26, 2021 was primarily driven by the change in the valuation allowance and the tax benefit from the exercise and vesting of equity-based awards.

The Company’s annual effective tax rate for the year ended December 25, 2022 and December 26, 2021 was less than the statutory rate of 21 % primarily because the Company is not liable for income taxes on the portion of OpCo’s earnings that are attributable to non-controlling interests and the change in valuation allowance.

Our effective income tax rates for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 were 11.5 %, 9.6 % and 20.9 %, respectively.

The change in our effective income tax rate from the year ended December 31, 2023 to the year ended December 25, 2022 was primarily driven by an increase in the Company's ownership interest in Portillo's OpCo, which increases its share of taxable income (loss) of Portillo's OpCo, partially offset by the decrease in the valuation allowance and the recording of net operating loss carryforwards.

The Company’s annual effective tax rate for the year ended December 31, 2023, December 25, 2022 and December 26, 2021 differs from the statutory rate of 21% primarily because the Company is not liable for income taxes on the portion of OpCo’s earnings that are attributable to non-controlling interests, deferred tax adjustments, impacts from equity-based award activity and the change in valuation allowance.

Portillo's Inc.

30 unchanged sentences

was formed in June 2021 and did not engage in any operations prior to the IPO and Transactions.

Portillo's Inc.

filed tax returns for tax year 2021, which is the first tax year subject to examination by taxing authorities for U.S.

Portillo's has filed all income tax returns for tax years through 2022.

These returns are subject to examination by taxing authorities for U.S.

federal and state income tax purposes.

3 unchanged sentences

As of December 31, 2023, there are no ongoing U.S.

federal or state income tax return examinations.

Portillo's Inc.

Form 10-K | 82

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

federal, state or local income tax return examinations.

Tax Receivable Agreement

3 unchanged sentences

These increases in tax basis may reduce the amounts that would otherwise be paid in the future to the U.S.

federal and state authorities.

They may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

federal, state and local authorities.

These increases may also decrease gains (or increase losses) on future dispositions of certain assets to the extent tax basis is allocated to those assets.

As of December 31, 2023, we estimate that our obligation for future payments under the TRA totaled $ 299.8 million.

Under the TRA, the Company will be generally required to pay certain of our pre-IPO LLC Members 85 % of the amount of cash savings, if any, in U.S.

federal, state, or local tax that the Company actually realizes (or is deemed to realize in certain circumstances) as a result of (i) our allocable share of existing tax basis in depreciable or amortizable assets relating to LLC Units acquired in the IPO, (ii) certain favorable tax attributes acquired by the Company from the Blocker Companies (including net operating losses and the Blocker Companies' allocable share of existing tax basis), (iii) increases in our allocable share of then existing tax basis in depreciable or amortizable assets, and adjustments to the tax basis of the tangible and intangible assets, of Portillo’s OpCo and its subsidiaries, as a result of (x) sales or exchanges of interests in Portillo’s OpCo (including the repayment of the redeemable preferred units) in connection with the IPO and (y) future exchanges of LLC Units by pre-IPO LLC Members for Class A common stock and (iv) certain other tax benefits related to entering into the TRA, including payments made under the TRA.

The Company expects to benefit from the remaining 15 % of any tax savings.

The Company expects a payment of $ 0.8 million to be paid within the next 12 months.

The Company made payments of $ 0.8 million under the TRA during the year ended December 31, 2023 relating to tax year 2021 and we expect a payment of

Portillo's Inc.

Form 10-K | 69

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

$ 4.4 million relating to tax year 2022 to be made within the next 12 months.

Refer to Note 1.

Description Of Business for additional information on the TRA.

EARNINGS (LOSS) PER SHARE

1 unchanged sentence

by the weighted-average number of Class A common stock outstanding.

As described in Note 1.

Description Of Business, in connection with the IPO, the Portillo's OpCo LLC Agreement was amended and restated to, among other things, (i) to authorize the issuance of two series of common stock and (ii) convert all outstanding equity interests (except for those redeemable preferred units which were redeemed in connection with the IPO) into LLC Units .

For purposes of calculating earnings per share, the prior period amounts have been retroactively adjusted to give effect to the above-mentioned amendment and resulting recapitalization.

The computations of earnings per share for periods prior to our IPO do not consider the 23,310,810 shares of Class A common stock issued to investors in our IPO.

Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to Portillo's Inc.

by the weighted-average number of dilutive securities, using the treasury stock method.

Portillo's Inc.

Form 10-K | 83

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The computations of basic and diluted earnings (loss) per share for the years ended December 25, 2022, December 26, 2021 and December 27, 2020 are as follows (in thousands, except per share amounts):

The computations of basic and diluted earnings (loss) per share for the years ended December 31, 2023, December 25, 2022 and December 26, 2021 are as follows (in thousands):

Fiscal Years Ended

December 31, 2023 December 25, 2022 December 26, 2021

Net income (loss) attributable to common unit holders $ 17,157 $ ( 34,592 ) $ ( 8,261 )

Net income (loss)

$ 24,818 $ 17,157 $ ( 34,592 )

Net income (loss) attributable to non-controlling interests 6,394 6,306 ( 19,408 )

4 unchanged sentences

Weighted-average number of common shares outstanding-diluted 57,308 42,716 35,807

Basic net income (loss) per share attributable to Portillo's Inc.

Basic net income (loss) per share

$ 0.34 $ 0.28 $ ( 0.42 )

Diluted net income (loss) per share attributable to Portillo's Inc.

Diluted net income (loss) per share

$ 0.32 $ 0.25 $ ( 0.42 )

12 unchanged sentences

As of December 31, 2023 and December 25, 2022, the Company recorded no loss contingencies.

RELATED PARTY TRANSACTIONS

As of December 25, 2022 and December 26, 2021, the related parties’ receivables balance consisted of $ 0.3 million and $ 0.4 million, respectively, due from C&O, which is included in accounts receivable in the consolidated balance sheet.

Stock Subscription Receivable

The Company previously issued 195,933 common units to the CEO and President for a unit subscription receivable of $ 1.0 million.

On August 13, 2021, the remaining stock subscription receivable of $ 0.2 million was fully repaid.

Portillo's Inc.

2 unchanged sentences

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

RELATED PARTY TRANSACTIONS

As of both December 31, 2023 and December 25, 2022, the related parties’ receivables balance consisted of $ 0.3 million, due from C&O, which is included in accounts and tenant improvement receivables in the consolidated balance sheet.

Noah Glass, a member of the Company's Board, is the founder and CEO of Olo, Inc.

3 unchanged sentences

December 31, 2023 December 25, 2022 December 26, 2021

Cost of goods sold, excluding depreciation and amortization $ 2,008 $ 633 $ 731

Food, beverage and packaging costs

$ 2,236 $ 2,008 $ 633

Other operating expenses 423 443 469

Net Olo-related costs $ 2,659 $ 2,451 $ 1,102

As of December 25, 2022 and December 26, 2021, $ 0.2 million and immaterial amounts, respectively, were payable to Olo and was included in accounts payable in the consolidated balance sheets.

In connection with the IPO, each option outstanding, whether vested or unvested, was substituted for an option to purchase a number of shares of Class A common stock, and the option holders received a cash payment.

Glass received $ 0.1 million with respect to these payments.

As of December 31, 2023 and December 25, 2022, $ 0.4 million and $ 0.2 million, respectively, were payable to Olo and were included in accounts payable in the consolidated balance sheets.

Tax Receivable Agreement

As described in Note 14.

Income Taxes, we entered into a TRA with certain members of Portillo's OpCo that provides for the payment by us of 85 % of the amount of tax benefits, if any, that Portillo's Inc.

We are party to a TRA with certain members of Portillo's OpCo that provides for the payment by us of 85 % of the amount of tax benefits, if any, that Portillo's Inc.

actually realizes or in some cases is deemed to realize as a result of certain transactions.

There were no amounts paid under the TRA for the years ended December 25, 2022 and December 26, 2021.

The Company made payments of $ 0.8 million under the TRA relating to tax year 2021 during the year ended December 31, 2023.

There were no amounts paid under the TRA during the years ended December 25, 2022 and December 26, 2021.

Fiscal Years Ended

3 unchanged sentences

Secondary Offerings

In the third and fourth quarters of 2022, in connection with the secondary offerings previously discussed in Note 1.

In connection with the secondary offerings previously discussed in Note 1.

Description Of Business, we purchased LLC Units and shares of Class A common stock using the proceeds of the secondary offering at a price equal to the public offering price less the underwriting discounts and commissions from certain pre-IPO LLC Members and shareholders of the Blocker Companies, including from funds affiliated with Berkshire Partners LLC, which is our controlling shareholder that beneficially owns approximately 30.6 % of the Company as of December 31, 2023.

SUBSEQUENT EVENTS

New Restaurants

The Company opened three restaurants subsequent to December 25, 2022 for a total of 74 restaurants, excluding C&O.

The three restaurants are located in Kissimmee, Florida, The Colony, Texas, and Tucson, Arizona.

Portillo's Inc.

Form 10-K | 71

PORTILLO'S INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

New Credit Agreement

On February 2, 2023, Holdings, the Borrower, the other Guarantors party thereto from time to time, each lender party thereto from time to time and Fifth Third Bank, National Association, as Administrative Agent, L/C Issuer and Swing Line Lender entered into a Credit Agreement (“New Credit Agreement”) which provides for a Term A Loan ("Term Loan") in an initial aggregate principal amount of $ 300.0 million and initial Revolving Credit Commitments in an initial aggregate principal amount of $ 100.0 million (the “New Revolver Facility”).

The New Credit Agreement is guaranteed by all domestic subsidiaries of the Borrower (subject to customary exceptions) and secured by liens on substantially all of the assets of Holdings, the Borrower and the subsidiary guarantors (subject to customary exceptions).

The New Credit Agreement also includes certain financial covenants with respect to cash interest coverage and total net rent adjusted leverage.

The Term Loan and New Revolver Facility are scheduled to mature on February 2, 2028.

The proceeds under the Term Loan and New Revolver Facility, along with cash on hand, were used to repay outstanding indebtedness under the First Lien Credit Agreement and to pay related transaction expenses.

The Company anticipates using the remainder of the loan proceeds for general corporate purposes and working capital needs.

The New Revolver Facility under the New Credit Agreement replaces the $ 50 million Revolving Facility under the First Lien Credit Agreement.

As of February 2, 2023, outstanding borrowings under the New Credit Agreement totaled $ 315.0 million, comprising $ 300.0 million under the Term Loan and $ 15.0 million under the New Revolver Facility, and letters of credit issued under the New Revolver Facility totaled $ 4.4 million.

As a result, as of February 2, 2023, the Company had $ 80.6 million available under the New Revolver Facility.

On February 28, 2023, the Company made a $ 5.0 million payment on the New Revolver Facility.

The outstanding balance of the New Revolver Facility upon payment is $ 10.0 million.

As a result, as of February 28, 2023, the Company had $ 85.6 million available under the New Revolver Facility.

Portillo's Inc.

Form 10-K | 86

Valuation and Qualifying Accounts

2 unchanged sentences

Fiscal year ended December 31, 2023

$ 11,349 $ 1,239 $ — $ 3,388 $ 9,200

Fiscal year ended December 25, 2022

$ 38,415 $ 2,277 $ — $ 29,343 $ 11,349

Fiscal year ended December 26, 2021

$ — $ 1,904 $ 36,511 (1) $ — $ 38,415

(1) Amounts relate to a valuation allowance established on deferred tax assets related to our investment in Portillo's OpCo.

3 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data