What changed in this filing

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Item 9A. Controls and Procedures

2021-02-18 compared with 2020-02-19 · 201 added, 278 removed, 704 unchanged (40% of the section changed)

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In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 28, 2019 to provide reasonable assurance that information we are required to disclose

in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 26, 2020 to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

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Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 26, 2020.

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework (2013) .

In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) .

Based on such assessment our management has concluded that, as of December 26, 2020, our internal control over financial reporting is effective based on those criteria.

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 26, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of December 28, 2019, the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended December 28, 2019, and the related notes (collectively, the consolidated financial statements), and our report dated February 19, 2020, expressed an unqualified opinion on those consolidated financial statements.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 26, 2020 and December 28, 2019, the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 26, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 17, 2021, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Directors, Executive Officers and Corporate Governance

Information required by this Item 10 will be included in our definitive Proxy Statement for the 2020 Annual Meeting of Shareholders and such disclosure is incorporated herein by reference.

Information required by this Item 10 will be included in our definitive Proxy Statement for the 2021 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

Executive Compensation

Information required by this Item 11 will be included in our definitive Proxy Statement for the 2020 Annual Meeting of Shareholders and such disclosure is incorporated herein by reference.

Information required by this Item 11 will be included in our definitive Proxy Statement for the 2021 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Information required by Item 201(d) of Regulation S-K, required by this Item 12 will be included in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

Information required by this Item 12 will be included in our definitive Proxy Statement for the 2021 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

Certain Relationships and Related Transactions, and Director Independence

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The Company’s independent registered public accounting firm is KPMG LLP.

Information regarding required by this Item 14 will be included in our definitive Proxy Statement for the 2020 Annual Meeting of Shareholders and such disclosure is incorporated herein by reference.

Information required by this Item 14 will be included in our definitive Proxy Statement for the 2021 Annual Meeting of Stockholders and such disclosure is incorporated herein by reference.

Exhibits and Financial Statement Schedules

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The exhibits listed below are filed or incorporated by reference as a part of this report.

Index to Exhibits

3.1 Amended and Restated Certificate of Incorporation of Wingstop Inc., filed as exhibit 3.1 to the Company’s Registration Statement on Form S-1/A (Registration No.

333-203891) on June 2, 2015 and incorporated herein by reference.

3.1 Amended and Restated Certificate of Incorporation of Wingstop Inc., as amended through June 15, 2020, filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 27, 2020 (File No.

001-37425) and incorporated by reference herein .

3.2 Amended and Restated Bylaws of Wingstop Inc., filed as Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2017 (File No.

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333-203891) on June 2, 2015 and incorporated herein by reference.

4.2 Base Indenture, dated as of November 14, 2018, by and between Wingstop Funding LLC, as Issuer, and Citibank, N.A., as Trustee and Securities Intermediary, filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K (File No.

001-37425) on November 14, 2018 and incorporated herein by reference.

4.3 Series 2018-1 Supplement to Base Indenture, dated as of November 14, 2018, by and between Wingstop Funding LLC, as Issuer of the Series 2018-1 fixed rate senior secured notes, Class A-2, and Series 2018-1 variable funding senior notes, Class A-1, and Citibank, N.A., as Trustee and Series 2018-1 Securities Intermediary, filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K (File No.

001-37425) on November 14, 2018 and incorporated herein by reference.

4.2 Amended and Restated Base Indenture, dated as of October 30, 2020, by and between Wingstop Funding LLC, as Issuer, and Citibank, N.A., as Trustee and Securities Intermediary, filed as Exhibit 4.1 to the Current Report on Form 8-K (File No.

001-37425) of the Company on November 2, 2020 and incorporated herein by reference.

4.3 Series 2020-1 Supplement to Base Indenture, dated as of October 30, 2020, by and between Wingstop Funding LLC, as Issuer of the Series 2020-1 fixed rate senior secured notes, Class A-2, and Series 2020-1 variable funding senior secured notes, Class A-1, and Citibank, N.A., as Trustee and Series 2020-1 Securities Intermediary, filed as Exhibit 4.2 to the Current Report on Form 8-K (File No.

001-37425) of the Company on November 2, 2020 and incorporated herein by reference.

4.4* Description of Wingstop Inc.

Common Stock.

10.1 Purchase Agreement, dated as of November 6, 2018, by and among the Company, certain indirect subsidiaries of the Company party thereto and Barclays Capital Inc., filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

001-37425) on November 7, 2018 and incorporated herein by reference.

10.2 Class A-1 Note Purchase Agreement, dated as of November 14, 2018, by and among Wingstop Funding LLC, as Issuer, each of Wingstop Guarantor LLC and Wingstop Franchising LLC, as Guarantor, Wingstop Restaurants Inc., as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, Barclays Bank PLC, Swingline Lender and Administrative Agent, and Barclays Bank PLC, New York Branch, as L/C Provider, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

10.1 Purchase Agreement, dated as of October 9, 2020, by and among the Company, certain indirect subsidiaries of the Company party thereto and Barclays Capital Inc., filed as Exhibit 99.1 to the Current Report on Form 8-K (File No.

001-37425) of the Company on October 9, 2020 and incorporated herein by reference.

10.2 Class A-1 Note Purchase Agreement, dated as of October 30, 2020, by and among Wingstop Funding LLC, as Issuer, each of Wingstop Guarantor LLC and Wingstop Franchising LLC, as Guarantor, Wingstop Restaurants Inc., as Manager, the conduit investors party thereto, the financial institutions party thereto, certain funding agents, Barclays Bank PLC, Swingline Lender and Administrative Agent, and Barclays Bank PLC, New York Branch, as L/C Provider, filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No.

001-37425) on November 2, 2020 and incorporated herein by reference.

10.3 Guarantee and Collateral Agreement, dated as of November 14, 2018, by and among Wingstop Guarantor LLC and Wingstop Franchising LLC, each as a Guarantor, in favor of Citibank, N.A., as Trustee, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No.

10.3 Amended and Restated Guarantee and Collateral Agreement, dated as of October 30, 2020, by and among Wingstop Guarantor LLC and Wingstop Franchising LLC, each as a Guarantor, in favor of Citibank, N.A., as Trustee, filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No.

001-37425) on November 2, 2020 and incorporated herein by reference.

10.4 Management Agreement, dated as of November 14, 2018, by and among Wingstop Funding LLC, Wingstop Franchising LLC, Wingstop Guarantor LLC.

10.4 Amended and Restated Management Agreement, dated as of October 30, 2020, by and among Wingstop Funding LLC, Wingstop Franchising LLC, Wingstop Guarantor LLC.

Wingstop Restaurants Inc., as Manager, and Citibank, N.A., as Trustee, filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K (File No.

001-37425) on November 2, 2020 and incorporated herein by reference.

10.5† Wing Stop Holding Corporation 2010 Stock Option Plan, filed as exhibit 10.2 to the Company’s Registration Statement on Form S-8 (Registration No.

333-00966) on June 22, 2015 and incorporated herein by reference.

10.6† Form of Option Award Agreement for Wing Stop Holding Corporation 2010 Stock Option Plan (Form 1), filed as exhibit 10.8 to the Company’s Registration Statement on Form S-1/A (Registration No.

333-203891) on June 2, 2015 and incorporated herein by reference.

10.7† Form of Option Award Agreement for Wing Stop Holding Corporation 2010 Stock Option Plan (Form 2), filed as exhibit 10.9 to the Company’s Registration Statement on Form S-1/A (Registration No.

333-203891) on June 2, 2015 and incorporated herein by reference.

10.8† Form of Option Award Agreement for Wing Stop Holding Corporation 2010 Stock Option Plan (Form 3), filed as exhibit 10.10 to the Company’s Registration Statement on Form S-1/A (Registration No.

333-203891) on June 2, 2015 and incorporated herein by reference.

10.9† Form of Option Award Agreement for Wing Stop Holding Corporation 2010 Stock Option Plan (Form 4), filed as exhibit 10.11 to the Company’s Registration Statement on Form S-1/A (Registration No.

333-203891) on June 2, 2015 and incorporated herein by reference.

10.5† Wingstop Inc.

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10.8† Amended and Restated Form of Performance-based Restricted Stock Unit Award Agreement under the Wingstop Inc.

2015 Omnibus Incentive Compensation Plan.

2015 Omnibus Incentive Compensation Plan , filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37425) for the quarterly period ended March 28, 2020 and incorporated herein by reference.

10.9† Amended and Restated Form of Service-based Restricted Stock Unit Award Agreement under the Wingstop Inc.

2015 Omnibus Incentive Compensation Plan.

2015 Omnibus Incentive Compensation Plan , filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K (File No.

001-37425) for the fiscal year ended December 28, 2019 and incorporated herein by reference .

10.10† Amended and Restated Form of Restricted Stock Award Agreement under the Wingstop Inc.

2015 Omnibus Incentive Compensation Plan.

2015 Omnibus Incentive Compensation Plan , filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K (File No.

001-37425) for the fiscal year ended December 28, 2019 and incorporated herein by reference .

10.11† Amended and Restated Form of Option Award Agreement under the Wingstop Inc.

2015 Omnibus Incentive Compensation Plan , filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37425) for the quarterly period ended March 28, 2020 and incorporated herein by reference.

10.12† Wingstop Inc.

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10.14† Amended and Restated Employment Agreement, dated November 13, 2019, by and between Wingstop Restaurants Inc.

and Charles Morrison.

and Charles Morrison , filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K (File No.

001-37425) for the fiscal year ended December 28, 2019 and incorporated herein by reference.

10.15† Letter Agreement between Wingstop Inc.

and Larry Kruguer, dated January 14, 2020.

10.20† Form of Change in Control Bonus Award Agreement filed as exhibit 10.15 to the Company’s Registration Statement on Form S-1/A (Registration No.

333-203891) on June 2, 2015 and incorporated herein by reference.

and Larry Kruguer, dated January 14, 2020 , filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K (File No.

001-37425) for the fiscal year ended December 28, 2019 and incorporated herein by reference.

10.16† Form of Indemnification Agreement, filed as exhibit 10.16 to the Company’s Registration Statement on Form S-1/A (Registration No.

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* Filed herewith.

** The certifications attached as Exhibits 32.1 and 32.2 are furnished herewith, are not deemed “filed” with the SEC and are not to be incorporated by reference into any filing of Wingstop Inc.

under the Securities Act or the Exchange Act, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

† Indicates management agreement.

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/s/ Charles R.

Chairman and Chief Executive Officer (Principal Executive Officer)

Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Chairman and Chief Executive Officer (Principal Executive Officer and duly authorized officer)

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name Title Date

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Wingstop Inc.

and subsidiaries (the Company) as of December 28, 2019, the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended December 28, 2019, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 28, 2019, and the results of its operations and its cash flows for the year ended December 28, 2019, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Wingstop Inc.

and subsidiaries (the Company) as of December 26, 2020 and December 28, 2019, the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 26, 2020, and the related notes (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 26, 2020 and December 28, 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 26, 2020, in conformity with U.S.

generally accepted accounting principles.

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Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

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

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 consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the consolidated 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 consolidated 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.

Evaluation of the sufficiency of audit evidence over royalty revenue and advertising fees

As discussed in Notes 1 and 16 to the consolidated financial statements, the Company recognized $75.1 million of royalty revenue and $55.9 million of advertising fees and related income for the year ended December 28, 2019.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated 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 consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated 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.

Evaluation of the sufficiency of audit evidence obtained over royalty revenue and advertising fees

As discussed in Notes 1 and 16 to the consolidated financial statements, the Company recognized $98.6 million of royalty revenue and $74.9 million of advertising fees for the year ended December 26, 2020.

Royalty revenue and advertising fees are calculated as a percentage of franchise restaurant sales over the term of the franchise agreement.

We identified the evaluation of the sufficiency of audit evidence obtained over royalty revenue and advertising fees as a critical audit matter.

This evaluation required especially challenging auditor judgment because such revenue streams are

dependent upon the franchise restaurant sales reported by the franchised restaurants through the franchisees' point-of-sale systems.

The primary procedures we performed to address this critical audit matter included the following.

We tested certain internal controls over the Company’s revenue process, including controls over (1) the royalty and advertising fund contribution rates, (2) the reconciliation of royalty revenue and advertising fees recognized with the amount of cash received from franchisees for royalty and advertising fees.

This evaluation required especially challenging auditor judgement because such revenue streams are dependent upon the franchise restaurant sales reported by the franchised restaurants through the franchisees’ point-of-sale systems.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue process, including controls over (1) the royalty and advertising fund contribution rates and (2) the reconciliation of royalty revenue and advertising fees recognized with the amount of cash received from franchisees for royalty and advertising fees.

We involved IT professionals with specialized skills and knowledge who assisted in testing the information systems used in the revenue process.

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Wingstop Inc.

and Subsidiaries (the Company) as of December 29, 2018, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two fiscal years in the period ended December 29, 2018, and the related notes (collectively referred to as the “consolidated financial statements”) (not presented separately herein).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2018, and the results of its operations and its cash flows for each of the two fiscal years in the period ended December 29, 2018, in conformity with U.S.

We have audited the accompanying consolidated statements of operations, stockholders’ deficit and cash flows for the fiscal year ended December 29, 2018, and the related notes (collectively referred to as the “consolidated financial statements”) (not presented separately herein).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the fiscal year ended December 29, 2018, in conformity with U.S.

generally accepted accounting principles.

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These financial statements are the responsibility of the Company's management.

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

Our responsibility is to express an opinion on the Company’s financial statements 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 audits in accordance with the standards of 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 the financial statements are free of material misstatement, whether due to error or fraud.

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.

Our audit 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.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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

/s/ ERNST & YOUNG LLP

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Royalty revenue, franchise fees and other $ 108,883 $ 88,291 $ 71,858

Advertising fees and related income 55,932 34,484 30,174

Advertising fees 74,930 55,932 34,484

Company-owned restaurant sales 64,998 55,453 46,839

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Depreciation and amortization 7,518 5,484 4,313

Gain on sale of restaurants and other expenses, net ( 3,093 ) — —

Total costs and expenses 191,421 156,775 114,654

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Interest expense, net 16,782 17,136 10,123

Other expense, net — 1,477 —

Loss on debt extinguishment and refinancing transactions 13,665 — 1,477

Income before income tax expense 26,943 25,765 26,927

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Shares issued under stock plans 208,261 2 515 — 517

Tax payments for restricted stock upon vesting ( 3,991 ) — — ( 183 ) ( 183 )

Stock-based compensation expense — — 3,725 — 3,725

Dividends paid — — ( 4,097 ) — ( 4,097 )

Dividends declared on common stock and equivalents — — ( 3,466 ) ( 188,724 ) ( 192,190 )

Balance at December 29, 2018 29,296,939 293 1,036 ( 226,159 ) ( 224,830 )

Adjustment for ASC 842 adoption — — — 154 154

Net income — — — 20,476 20,476

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Stock-based compensation expense — — 6,974 — 6,974

Dividends paid — — ( 3,466 ) ( 188,724 ) ( 192,190 )

Dividends declared on common stock and equivalents — — ( 8,145 ) ( 3,597 ) ( 11,742 )

Balance at December 28, 2019 29,457,228 295 552 ( 210,275 ) ( 209,428 )

Adjustment for ASC 842 adoption — — — 154 154

Net income — — — 23,306 23,306

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Stock-based compensation expense — — 8,558 — 8,558

Dividends paid — — ( 8,145 ) ( 3,597 ) ( 11,742 )

Dividends declared on common stock and equivalents — — ( 9,612 ) ( 154,719 ) ( 164,331 )

Balance at December 26, 2020 29,687,123 297 421 ( 342,028 ) ( 341,310 )

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Stock-based compensation expense 8,558 6,974 3,725

(Gain)/Loss on disposal of assets ( 3,093 ) — —

Loss on debt extinguishment and refinancing transactions 13,665 — 1,477

Amortization of debt issuance costs 1,567 1,586 506

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Purchases of property and equipment ( 6,052 ) ( 22,486 ) ( 3,982 )

Acquisition of restaurant from franchisee ( 1,245 ) ( 6,516 ) ( 3,949 )

Acquisitions of restaurants from franchisees ( 6,735 ) ( 1,245 ) ( 6,516 )

Proceeds from sales of assets 4,800 — —

Cash used in investing activities ( 7,987 ) ( 23,731 ) ( 10,498 )

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Repayments of long-term debt ( 333,600 ) ( 7,400 ) ( 364,858 )

Payment of deferred financing costs ( 15 ) ( 9,571 ) —

Payment of deferred financing costs and other debt-related costs ( 18,641 ) ( 15 ) ( 9,571 )

Tax payments for restricted stock upon vesting ( 340 ) ( 1,149 ) ( 183 )

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Cash used in financing activities ( 19,448 ) ( 14,617 ) ( 13,724 )

Net change in cash, cash equivalents, and restricted cash 235 14,548 699

Net increase in cash, cash equivalents, and restricted cash 38,095 235 14,548

Cash, cash equivalents, and restricted cash at beginning of period 21,175 20,940 6,392

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Wingstop Inc., together with its consolidated subsidiaries (collectively, “Wingstop” or the “Company”), is in the business of franchising and operating Wingstop restaurants.

As of December 28, 2019, 1,200 franchised restaurants were in operation domestically and 154 international franchised restaurants were in operation across nine countries.

As of December 28, 2019, the Company owned and operated 31 restaurants.

As of December 26, 2020, the Company had a total of 1,538 restaurants in its system.

The Company's restaurant base is 98 % franchised, with 1,506 franchised locations (including 179 international locations) and 32 company-owned restaurants as of December 26, 2020.

Summary of Significant Accounting Policies

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The Company continually monitors its positions with, and the credit quality of, the financial institutions in which it maintains its deposits and investments.

As of December 28, 2019 and December 29, 2018, we maintained balances in various cash accounts in excess of federally insured limits.

As of December 26, 2020 and December 28, 2019, the Company maintained balances in various cash accounts in excess of federally insured limits.

All highly liquid instruments purchased with an original maturity of three months or less are considered cash equivalents.

Restricted cash includes cash and cash equivalents held for future principal and interest payments as required by the Company's debt agreements.

The Company also has Advertising fund restricted cash, which can only be used for activities that promote the

Wingstop brand.

Restricted cash includes cash and cash equivalents held for future principal and interest payments as required by the Company's debt agreements (see Note 10).

The Company also has Advertising fund restricted cash, which can only be used for activities that promote the Wingstop brand.

Cash, cash equivalents, and restricted cash within the Consolidated Balance Sheets that are included in the Consolidated Statements of Cash Flows as of December 26, 2020 and December 28, 2019 were as follows (in thousands):

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The Company’s estimates of fair values are based on the best information available and require the use of estimates, judgments, and projections.

The Company did not record any impairment losses on long-lived assets in fiscal years 2019, 2018, or 2017.

The Company did no t record any impairment losses on long-lived assets in fiscal years 2020, 2019, or 2018.

(j) Goodwill and Indefinite-Lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of goodwill and trademarks, which are not subject to amortization.

On an annual basis (October 1 st of the fiscal year) and whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable, the Company reviews the recoverability of goodwill and indefinite-lived intangible assets.

On an annual basis (October 1 st of each fiscal year) and whenever events or changes in circumstances indicate that the carrying

amounts may not be recoverable, the Company reviews the recoverability of goodwill and indefinite-lived intangible assets.

No indications of impairment were identified during fiscal years 2020, 2019, or 2018.

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(k) Revenue Recognition

Revenues consist primarily of royalties, national advertising fund contributions, initial and renewal franchise fees, and upfront fees from development agreements and international territory agreements.

These performance obligations under franchise agreements consist of (a) a franchise license, (b) pre-opening services, such as training, and (c) ongoing services, such as management of the national advertising fund contributions, development of training materials and menu items, and restaurant monitoring.

These performance obligations are highly interrelated, so they are not considered to be individually distinct and therefore are accounted for as a single performance obligation, which is satisfied by providing a right to use our intellectual property over the term of each franchise agreement.

Revenues consist primarily of royalties, national advertising fund (the "Ad Fund") contributions, initial and renewal franchise fees, and upfront fees from development agreements and international territory agreements.

The Company's performance obligations under its franchise agreements consist of (a) a franchise license, (b) pre-opening services, such as training, and (c) ongoing services, such as management of the Ad Fund contributions, development of training materials and menu items, and restaurant monitoring.

These performance obligations are highly interrelated, so they are not considered to be individually distinct and therefore are accounted for as a single performance obligation, which is satisfied by providing a right to use the Company's intellectual property over the term of each franchise agreement.

Franchise fee, development fee and international territory fee payments received by the Company before the restaurant opens are recorded as deferred revenue in the Consolidated Balance Sheets.

Continuing royalties, which are a percentage of net sales of the franchisee, are recognized as revenue when earned.

The Company records food and beverage revenues from company-owned stores upon sale to the customer.

Royalties, including franchisee contributions to the Ad Fund, are calculated as a percentage of franchise restaurant sales over the term of the franchise agreement.

Initial and renewal franchise fees are payable by the franchisee prior to the restaurant opening or at the time of a renewal of an existing franchise agreement.

The Company's franchise agreement royalties, inclusive of Ad Fund contributions, represent sales-based royalties that are related entirely to the Company's performance obligation under the franchise agreement and are recognized as franchised restaurant sales occur.

Additionally, initial and renewal franchise fees are recognized as revenue on a straight-line basis over the term of the respective agreement.

The Company's performance obligation under development agreements and international territory agreements generally consists of an obligation to grant exclusive development rights over a stated term.

These development rights are not distinct from franchise agreements, so upfront fees paid by franchisees for development rights are apportioned to each franchised restaurant opened and accounted for as an initial franchise fee.

The Company records food and beverage revenues from company-owned restaurants upon sale to the customer.

The Company collects and remits sales, food and beverage, alcoholic beverage, and hospitality taxes on transactions with customers and reports such amounts under the net method in its Consolidated Statements of Operations.

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When gift cards are redeemed at a franchisee-operated restaurant, the revenue and related administrative costs are recognized by the franchisee.

The Company recognizes revenue and related administrative costs when gift cards are redeemed at Company-operated restaurants.

The Company recognizes revenue and related administrative costs when gift cards are redeemed at company-owned restaurants.

(l) Consideration from Vendors

The Company has entered into food and beverage supply agreements with certain major vendors.

Pursuant to the terms of these arrangements, rebates are provided to the Company from the vendors based upon the dollar volume of purchases for Company-operated restaurants and franchised restaurants.

Pursuant to the terms of these arrangements, rebates are provided to the Company from the vendors based upon the dollar volume of purchases for company-owned restaurants and franchised restaurants.

Additionally, the Company receives certain incentives from vendors to sponsor its annual franchisee convention.

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(m) Advertising Expenses

The Company administers the Ad Fund, for which a percentage of gross sales is collected from Wingstop restaurant franchisees and company-owned restaurants to be used for various forms of advertising for the Wingstop brand.

Under this program, franchisees contributed 4 % of gross sales for fiscal years 2019, and 3 % for fiscal years 2018 and 2017.

The Company administers the Ad Fund, for which a percentage of gross sales is collected from domestic restaurant franchisees and company-owned restaurants to be used for various forms of advertising for the Wingstop brand.

Under this program, domestic franchisees contributed 4 % of gross sales for fiscal years 2020 and 2019, and 3 % for fiscal year 2018.

The Company administers and directs the development of all advertising and promotion programs in the Ad Fund for which it collects advertising contributions in accordance with the provisions of its franchise agreements.

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The Company consolidates and reports all assets and liabilities of the Ad Fund as restricted assets of the Ad Fund and liabilities of the Ad Fund within current assets and current liabilities, respectively, in the Consolidated Balance Sheets.

The assets and liabilities of the Ad Fund consist primarily of cash, receivables, accrued expenses, other liabilities.

The assets and liabilities of the Ad Fund consist primarily of cash, receivables, accrued expenses, and other liabilities.

Pursuant to the Company’s franchise agreements, use of Ad Fund contributions is restricted to advertising, public relations, merchandising, similar activities, and administrative expenses to increase sales and further enhance the public reputation of the Wingstop brand.

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When contributions to the Ad Fund exceed the related advertising expenses, advertising costs are accrued up to the amount of the related contributions.

Ad Fund contributions and expenditures are reported on a gross basis in the Consolidated Statements of Operations, which are largely offsetting and

therefore do not impact our reported net income in years when contributions to the Ad Fund exceed advertising expenses incurred.

Ad Fund contributions and expenditures are reported on a gross basis in the Consolidated Statements of Operations, which are largely offsetting and therefore do not impact the Company's reported net income in years when contributions to the Ad Fund exceed advertising expenses incurred.

Administrative support services and compensation expenses of employees that provide services directly to the Ad Fund, are included in Selling, general and administrative expenses (“SG&A”) in the Consolidated Statements of Operations.

Advertising expenses incurred by company-owned restaurants are included within Cost of sales in the Consolidated Statements of Operations.

Company operated restaurants incurred advertising expenses of $ 2.9 million, $ 1.9 million, and $ 1.5 million in fiscal years 2019, 2018, and 2017, respectively.

Company-owned restaurants incurred advertising expenses of $ 3.3 million, $ 2.9 million, and $ 1.9 million in fiscal years 2020, 2019, and 2018, respectively.

The Company determines whether an arrangement is a lease at inception and leases restaurants and office space under operating leases.

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The Company files a consolidated federal income tax return including all of its subsidiaries.

Significant judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s income tax expense.

Judgment is required in evaluating the Company’s uncertain tax positions and determining the Company’s income tax expense.

The Company assesses the income tax position and records the liabilities for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting date.

(q) Business Segments

The Company identifies its reporting segments based on the organizational units used by management to monitor performance and make operating decisions.

These reporting segments are as follows:

Historically, the Company had two reporting segments:

franchise operations and company restaurant operations.

Franchise segment

The Franchise segment consists of our domestic and international franchise restaurants, which represent the majority of our system-wide restaurants.

As of December 28, 2019, the franchise operations segment consisted of 1,354 restaurants operated by Wingstop franchisees in the United States and nine countries outside of the United States as compared to 1,223 franchised restaurants in operation as of December 29, 2018.

Franchise operations revenue consists primarily of franchise royalty revenue, Ad Fund contributions, fees for the sale of franchise and development agreements, and international territory agreements.

Additionally, vendor rebates received for system-wide volume purchases in excess of the total expense of the vendor’s products are recognized as revenue of franchise operations.

Company Segment

As of December 28, 2019, the Company segment consisted of 31 company-owned restaurants, located in the United States, as compared to 29 company-owned restaurants as of December 29, 2018.

Company-owned restaurant sales consist primarily of food and beverage sales at company-operated restaurants.

Company-owned restaurant expenses consist primarily of operating expenses at company-operated restaurants and include food, beverage, labor, benefits, utilities, rent, and other operating costs.

Certain corporate related items are not allocated to the reportable segments and have historically consisted of transaction costs associated with debt refinancings and special dividends.

The Company allocates selling, general and administrative expenses based on the relative support provided to each reportable segment.

In accordance with Accounting Standards Codification 280 “Segment Reporting”, the Company uses the management approach for determining its reportable segments.

The management approach is based upon the way management reviews performance and allocates resources.

During the second fiscal quarter of 2020, the Company reevaluated its operating segments and determined it has one operating segment and one reporting segment due to changes in how the Company’s chief operating decision maker assesses the Company’s performance and allocates resources.

(r) Recent Accounting Pronouncements

Recently adopted

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-02, Leases (Topic 842), as amended (“ASU 2016-02”).

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(2) Earnings Per Share

Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the reporting period.

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of shares of common stock outstanding for the reporting period.

Diluted earnings per share reflects the potential dilution that could occur if securities convertible into, or other contracts to issue, common stock were exercised or converted into common stock.

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Diluted weighted average shares outstanding 29,804 29,670 29,587

We had approximately 3,000 , 3,000 , and 6,000 equity awards outstanding at December 28, 2019, December 29, 2018, and December 30, 2017, respectively, that were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

We had approximately 1,000 equity awards outstanding at December 26, 2020 and 3,000 equity awards outstanding at December 28, 2019, and December 29, 2018, respectively, that were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

(3) Dividends

The Company declared and paid dividends of $ 11.7 million, or $ 0.40 per common share, in fiscal year 2019, $ 192.2 million, or $ 6.54 per common share in fiscal year 2018, and $ 4.1 million, or $ 0.14 per common share in fiscal year 2017.

In connection with the Company's regular dividend program, the Company declared and paid dividends of $ 14.8 million, or $ 0.50 per common share, in fiscal year 2020, $ 11.7 million, or $ 0.40 per common share in fiscal year 2019, and $ 9.4 million, or $ 0.32 per common share in fiscal year 2018.

Subsequent to the end of fiscal year 2020, on February 16, 2021, the Company’s board of directors declared a quarterly dividend of $ 0.14 per share of common stock, to be paid on March 26, 2021 to stockholders of record as of March 5, 2021, totaling approximately $ 4.2 million.

Separate from the Company's regular dividend program, the Company declared and paid special dividends of $ 148.4 million, or $ 5.00 per share of common stock, in fiscal year 2020 and $ 182.8 million, or $ 6.22 per share of common stock, in fiscal year 2018.

No special dividends were declared or paid during fiscal year 2019.

(4) Fair Value Measurements

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Level 2 $ 480,000 $ 483,365 $ — $ —

2018-1 Class A-2 Senior Secured Notes (1)

Level 2 $ — $ — $ 317,600 $ 331,247

(1) The fair value of long-term debt was estimated using available market information.

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Vendor rebates receivable $ 1,944 $ 2,530

Royalties receivable, net 1,870 1,521

Royalties receivable (net of allowance for doubtful accounts of $ 1,053 and $ 24 , respectively)

Gift card receivable 78 477

Other receivables 298 535

Other receivables, net 810 298

Accounts receivable, net $ 4,929 $ 5,175

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2020 December 28,

Building 15,405 —

Construction in progress 2,853 16,188

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Leasehold and other improvements 9,876 9,021

Land 2,828 2,828

Property and equipment, gross 45,595 43,605

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Depreciation expense was $ 5.2 million, $ 3.1 million, and $ 2.1 million for the fiscal years ended December 26, 2020, December 28, 2019, and December 29, 2018, respectively.

On June 19, 2019, the Company entered into an agreement to purchase an office building for a purchase price of $ 18.3 million, which closed in the third quarter of 2019 and was funded with cash on hand.

The building will be used for the Company’s headquarters and is in Addison, Texas.

The building is included in construction in process within Property and equipment, net on the Consolidated Balance Sheet and will begin depreciating when the build out of the headquarters is complete and the assets are ready for their intended use, which is estimated to be at the beginning of fiscal year 2021.

In fiscal year 2019, the Company used cash on hand to purchase an office building for $ 18.3 million.

The building is located in Addison, Texas and is currently undergoing renovation to prepare it for use as the Company's corporate headquarters.

As of December 28, 2019, the building was included in construction in process within Property and equipment, net on the Consolidated Balance Sheets.

(7) Intangible Assets and Goodwill

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in April 2010, as well as the acquisition of restaurants from franchisees in 2020 and 2019.

Goodwill has been allocated to two reporting units, company-owned restaurants and franchised restaurants and represents the excess of purchase consideration transferred for the respective reporting unit over the fair value of the business at the time of the acquisition.

See Note 17 for the allocation of goodwill among the two reporting units.

Goodwill represents the excess of purchase consideration transferred for the respective reporting unit over the fair value of the business at the time of the acquisition.

The following is a summary of goodwill balances and activity (in thousands):

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Balance, beginning of period $ 50,188 $ 49,655

Acquisition of restaurants 533 3,098

Acquisition of restaurants, net 3,502 533

Balance, end of period $ 53,690 $ 50,188

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Intangible assets, net $ 49,331 $ 49,148

(1) Included within Other non-current assets net of associated accumulated amortization within

the Consolidated Balance Sheets.

(1) Included within Other non-current assets net of associated accumulated amortization within the Consolidated Balance Sheets.

Amortization expense for definite-lived intangibles was $ 2.3 million, $ 2.4 million, and $ 2.2 million for fiscal years 2020, 2019, and 2018, respectively.

Estimated amortization expense, principally related to customer relationships, for the five succeeding years and the aggregate thereafter is (in thousands):

Estimated amortization expense, principally related to customer relationships, for the five succeeding fiscal years and the aggregate thereafter is (in thousands):

Fiscal year 2021 $ 2,602

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Federal income tax receivable 3,602 667

Prepaid gift card expenses 120 289

Inventories 396 315

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2020 December 28,

Accrued payroll and bonuses $ 7,512 $ 5,183

Accrued payroll and incentive compensation $ 11,175 $ 7,512

Current portion of deferred revenues 3,221 2,622

Short term lease liability 2,385 1,806

Accrued interest 2,222 1,055

Gift card liability 1,363 1,758

Taxes payable 522 398

Other accrued liabilities 6,363 6,701

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(9) Income Taxes

Income tax expense for the fiscal years 2019, 2018 and 2017 consists of the following (in thousands):

Income tax expense for the fiscal years 2020, 2019, and 2018 consisted of the following (in thousands):

2020 December 28,

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Expected income tax expense at statutory rate $ 5,658 $ 5,411 $ 5,655

Tax Act impact on deferred taxes — — ( 3,647 )

Permanent differences ( 835 ) ( 1,462 ) ( 2,300 )

Excess tax benefits from equity compensation ( 3,963 ) ( 1,777 ) ( 1,669 )

Non-deductible expenses 690 942 207

State tax expense, net of federal benefit 620 985 520

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Foreign tax credits ( 191 ) ( 259 ) ( 241 )

(Decrease) increase in unrecognized tax benefit ( 128 ) 322 114

Increase (decrease) in unrecognized tax benefit 102 ( 128 ) 322

Other 530 ( 144 ) 173

Income tax expense $ 3,637 $ 5,289 $ 5,208

The components of deferred tax assets (liabilities) are as follows (in thousands):

The components of deferred tax assets (liabilities) were as follows (in thousands):

December 26, 2020 December 28, 2019

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Deferred revenue $ 4,873 $ 4,510

Accrued bonus 262 276

Accrued incentive compensation 1,089 262

Stock based compensation 738 776

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The state net operating loss carry forwards begin to expire in 2030.

The Company had a valuation allowance of $ 577,000 and $ 482,000 against its deferred tax assets as of December 28, 2019 and December 29, 2018, respectively.

In assessing whether a deferred tax asset will be realized, the Company considers whether it is more likely than not that some portion, or all of the deferred tax assets will not be realized.

The Company had a valuation allowance of $ 577,000 against its deferred tax assets as of December 26, 2020 and December 28, 2019.

In assessing whether a deferred tax asset will be realized, the Company considers whether it is more likely than not that either some portion or all of the deferred tax assets will not be realized.

The Company considers the reversal of existing taxable temporary differences, projected future taxable income and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, we believe it is more likely than not we will realize a portion of the benefits of the federal and state deductible differences with the exception of $ 39,000 and $ 538,000 , respectively.

Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, the Company believes it is more likely than not that it will realize a portion of the benefits of the federal and state deductible differences.

The Company files income tax returns, which are periodically audited by various federal and state jurisdictions.

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The Company recorded accrued interest related to the unrecognized tax benefits and penalties as a component of the provision for income taxes recognized in the Consolidated Statement of Operations.

At December 28, 2019 and December 29, 2018, the amount of unrecognized tax benefits was $ 1,699,000 and $ 913,000 of which, if ultimately recognized, would reduce the Company’s effective tax rate.

At December 26, 2020 and December 28, 2019, the amount of unrecognized tax benefits was $ 794,000 and $ 1,699,000 , respectively, which, if ultimately recognized, would reduce the Company’s effective tax rate.

(10) Debt Obligations

Long-term debt consists of the following components (in thousands):

Long-term debt consisted of the following components (in thousands):

December 26, 2020 December 28, 2019

2020-1 Class A-2 Senior Secured Notes $ 480,000 $ —

2018-1 Class A-2 Senior Secured Notes — 317,600

Debt issuance costs, net of amortization ( 9,467 ) ( 6,731 )

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Fiscal year 2024 4,800

Fiscal year 2025 4,800

Thereafter 457,200

Total $ 480,000

Securitized Financing Facility

On November 14, 2018, the Company completed a recapitalization in which certain of the Company’s subsidiaries issued notes pursuant to an asset-backed securitization.

The notes consisted of $ 320 million of Series 2018-1 4.970 % Fixed Rate Senior Secured Notes, Class A-2 with an anticipated term of five years (the “Class A-2 Notes”).

In connection with the issuance of the Class A-2 Notes, the Company also entered into a revolving financing facility of Series 2018-1 Variable Funding Senior Notes,

Class A-1 (the “Variable Funding Notes”), which permits borrowings of up to a maximum principal amount of $ 20 million, which may be used to issue letters of credit.

A portion of the proceeds of the Class A-2 Notes was used to repay the $ 215 million of principal outstanding on the outstanding term loan and revolving credit facility and to pay related transaction fees.

The additional net proceeds were used for general corporate purposes, which included a return of capital to the Company’s stockholders in 2018.

No borrowings were outstanding under the Variable Funding Notes as of December 28, 2019 or December 29, 2018.

The Class A-2 Notes and the Variable Funding Notes are referred to collectively as the “Notes” and were issued in a securitization transaction pursuant to which certain of the Company’s domestic and foreign revenue-generating assets, consisting principally of franchise-related agreements and intellectual property, were contributed or otherwise transferred to the Issuer and certain other limited-purpose, bankruptcy-remote, wholly owned indirect subsidiaries of the Company that act as guarantors of the Notes and that have pledged substantially all of their assets.

In November 2018, Wingstop Funding LLC (the “Issuer”), a limited-purpose, bankruptcy-remote, wholly-owned indirect subsidiary of the Company, issued Series 2018-1 4.97 % Fixed Rate Senior Secured Notes, Class A-2 (the “2018 Class A-2 Notes”) with an anticipated term of five years and an initial principal amount of $ 320 million.

In addition, the Issuer issued Series 2018-1 Variable Funding Senior Secured Notes, Class A-1 (the “2018 Variable Funding Notes”, and together with the 2018 Class A-2 Notes, the “2018 Notes”), which allowed the Issuer to borrow up to $ 20 million on a revolving basis.

A portion of the proceeds of the 2018 Class A-2 Notes were to repay approximately $ 215 million borrowed under the Company’s senior credit facility.

In October 2020, the Company completed a transaction to refinance its existing securitized financing facility with a new securitized financing facility, pursuant to which the Issuer issued $ 480.0 million of its Series 2020-1 2.84 % Fixed Rate Senior Notes, Class A-2 (the “2020 Class A-2 Notes”) with an anticipated term of seven years .

The Issuer also entered into a revolving financing facility of Series 2020-1 Variable Funding Senior Notes, Class A-1 (the “2020 Variable Funding Notes,” and together with the 2020 Class A-2 Notes, the “2020 Notes”), which permits borrowings of up to a maximum principal amount of $ 50 million, which may be used to issue letters of credit.

A portion of the proceeds of the 2020 Class A-2 Notes was used to repay the principal outstanding on the existing 2018 Notes and to pay related transaction fees and expenses.

The additional net proceeds were used to strengthen the Company's liquidity position and for general corporate purposes, which included a return of capital to the Company’s stockholders in 2020.

No borrowings were outstanding under the 2020 Variable Funding Notes as of December 26, 2020.

The 2018 and 2020 Notes were each issued in a securitization transaction, which is guaranteed by certain limited-purpose, bankruptcy-remote, wholly owned indirect subsidiaries of the Company and secured by a security interest in substantially all of their assets, including certain domestic and foreign revenue-generating assets, consisting principally of franchise-related agreements and intellectual property.

The 2018 Notes and 2020 Notes were issued pursuant to a base indenture and related supplemental indentures (collectively, the “Indenture”).

Interest and principal payments on the 2020 Class A-2 Notes are payable on a quarterly basis.

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If the Issuer has not repaid or refinanced the 2020 Class A-2 Notes prior to the anticipated repayment date, additional interest will accrue on the Notes.

The Variable Funding Notes accrue interest at a variable rate based on (i) the prime rate, (ii) overnight federal funds rates, (iii) the London interbank offered rate for U.S.

Dollars or (iv) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin, as more fully set forth in the Variable Funding Note Purchase Agreement.

The 2020 Variable Funding Notes accrue interest at a variable rate based on (i) the prime rate, (ii) the Eurodollar rate for U.S.

Dollars (or a benchmark replacement), or (iii) with respect to advances made by conduit investors, the weighted average cost of, or related to, the issuance of commercial paper allocated to fund or maintain such advances, in each case plus any applicable margin, as more fully set forth in the 2020 Variable Funding Note Purchase Agreement, dated October 30, 2020.

There is a commitment fee on the unused portion of the 2020 Variable Funding Notes facility, which is 30 basis points based on the utilization under the 2020 Variable Funding Notes facility.

As of December 28, 2019 and December 29, 2018, $ 4.0 million and $ 5.0 million, respectively, of letters of credit were outstanding against the Variable Funding Notes, which relate primarily to interest reserves required under the indenture.

There were no amounts drawn down on the letters of credit as of December 28, 2019 or December 29, 2018.

As of December 26, 2020, $ 4.9 million of letters of credit were outstanding against the 2020 Variable Funding Notes, which relate primarily to interest reserves required under the indenture.

There were no amounts drawn down on the letters of credit as of December 26, 2020.

Total debt issuance costs incurred and capitalized in connection with the issuance of the 2018 Notes were $ 8.8 million.

Previously capitalized financing costs of $ 1.5 million were expensed as a result of the refinancing in fiscal year 2018.

During the fourth quarter of 2020, as a result of the repayment of the remaining $ 332.8 million of principal outstanding on the existing 2018 Notes, the Company recorded a loss on debt extinguishment of $ 13.7 million, consisting of a $ 5.4 million write-off of previously capitalized financing costs associated with the 2018 Notes and $ 8.2 million of make-whole interest premium costs associated with the early repayment of the 2018 Class A-2 Notes.

Total debt issuance costs incurred and capitalized in connection with the issuance of the 2020 Notes were $ 10.4 million.

The 2020 Notes are subject to a series of covenants and restrictions customary for transactions of this type, including (i) that the Issuer maintains specified reserve accounts to be used to make required payments in respect of the 2020 Notes, (ii) provisions relating to optional and mandatory prepayments and the related payment of specified amounts, including specified make-whole payments in the case of the 2020 Class A-2 Notes under certain circumstances, (iii) certain indemnification payments in the event, among other things, that the assets pledged as collateral for the 2020 Notes are in stated ways defective or ineffective, and (iv) covenants relating to recordkeeping, access to information, and similar matters.

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As of December 26, 2020, the Company was in compliance with all financial covenants.

Senior credit facility

In January 2018, the Company entered into an amended senior secured credit facility (the “2018 Facility”), which replaced its senior secured credit facility dated June 30, 2016 (the “2016 Facility”).

The 2018 Facility included a term loan facility in an aggregate principal amount of $ 100 million and a revolving credit facility up to an aggregate principal amount of $ 150 million.

The Company used the proceeds from the 2018 Facility to refinance $ 133.8 million of indebtedness under the 2016 Facility and to pay a special dividend of $ 93.1 million to its stockholders.

Borrowings under the 2018 Facility bore interest, payable quarterly, at the Company’s option, at the base rate plus a margin ( 0.75 % to 1.75 %, dependent on the Company’s reported leverage ratio) or LIBOR plus a margin ( 1.75 % to 2.75 %, dependent on the Company’s reported leverage ratio).

The 2018 Facility had a maturity date of January 2023.

In conjunction with the 2018 Facility, the Company evaluated the refinancing of the 2016 Facility and determined $ 202.5 million should be accounted for as a debt modification and $ 47.5 million should be new debt issuance.

The Company incurred $ 1.0 million in financing costs of which $ 0.2 million was expensed and $ 0.8 million was capitalized.

The Company determines whether an arrangement is a lease at inception.

The Company has operating leases for office and retail space, as well as equipment.

Our leases have remaining terms of 0.8 years to 10.0 years, some of which include options to extend the lease term for up to ten years .

The Company's leases have remaining terms of 0.3 years to 8.8 years, some of which include options to extend the lease term for up to ten years .

Lease terms may include options to renew when it is reasonably certain that the Company will exercise that option.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments.

We have lease agreements that contain both lease and non-lease components.

For real estate leases, we account for lease components together with non-lease components (e.g., common-area maintenance).

Components of lease expense are as follows (in thousands):

The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments.

The Company has lease agreements that contain both lease and non-lease components.

For real estate leases, The Company accounts for lease components together with non-lease components (e.g., common-area maintenance).

Components of lease expense were as follows (in thousands):

2020 December 28,

Operating lease cost (a)

$ 2,439 $ 2,113

Variable lease cost (b)

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(b) Primarily related to adjustments for inflation, common area maintenance, and property tax.

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

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

2020 December 28,

Operating cash flow information:

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Right-of-use assets obtained in exchange for new operating lease liabilities $ 3,011 $ 1,352

Supplemental balance sheet information related to our operating leases is as follows:

Balance Sheet Classification December 28, 2019

Supplemental balance sheet information related to our operating leases is as follows (in thousands):

Balance Sheet Classification December 26, 2020 December 28, 2019

Right-of-use assets Other non-current assets $ 6,294 $ 8,242

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Non-current lease liabilities Other non-current liabilities 5,476 7,976

Weighted average lease term and discount rate information related to leases is as follows:

Weighted average remaining lease term of operating leases 5.4 years

Weighted average lease term and discount rate information related to leases was as follows:

2020 December 28,

Weighted average remaining lease term of operating leases 4.0 years 5.4 years

Weighted average discount rate of operating leases 3.58 % 4.77 %

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Total lease liabilities $ 7,861

As of December 29, 2018, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):

Fiscal year 2019 $ 2,181

Fiscal year 2020 2,214

Fiscal year 2021 2,005

Fiscal year 2022 1,800

Fiscal year 2023 1,523

Thereafter 2,145

Total $ 11,868

(12) Commitments and Contingencies

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The Company’s use of any forward pricing arrangements varies substantially from time to time and these arrangements tend to cover relatively short periods (i.e., typically twelve months or less).

Such contracts are used in the normal purchases of our food

products and not for speculative purposes, and as such are not required to be evaluated as derivative instruments.

Such contracts are used in the normal purchases of our food products and not for speculative purposes.

The Company does not enter into futures contracts or other derivative instruments.

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As of December 26, 2020, there were approximately 1.6 million shares available for future grants under the 2015 Plan.

Prior to the 2015 Plan, the Company granted awards under the 2010 Stock Option Plan.

Prior to the 2015 Plan, the Company granted awards under the Wing Stop Holding Corporation 2010 Stock Option Plan.

The options and restricted stock awards granted under the 2015 Plan are subject to either service-based or performance-based vesting.

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Options exercised ( 133 ) 5.52

Options canceled ( 4 ) 26.21

Outstanding - December 26, 2020 69 $ 78.40 $ 4,291 9.1

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The total intrinsic value of stock options exercised was $ 15.8 million, $ 6.7 million, and $ 7.6 million for fiscal years 2020, 2019, and 2018, respectively.

During fiscal year 2019, there was a modification to certain awards resulting in additional compensation of $ 0.2 million.

A summary of the status of non-vested options as of December 26, 2020 and the changes during the period then ended is presented below (in thousands, except per share data):

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Non-vested options - December 28, 2019 17 $ 10.20

Granted 68 22.99

Vested ( 17 ) 10.00

Forfeited ( 4 ) 29.33

Non-vested options - December 26, 2020 68 $ 23.01

As of December 28, 2019, there was $ 35.9 thousand of total unrecognized stock compensation expense related to non-vested stock options, which will be recognized over a weighted average period of less than one year.

As of December 26, 2020, there was $ 1.3 million of total unrecognized stock compensation expense related to non-vested stock options, which will be recognized over a weighted average period of approximately 2.2 years.

The estimated fair value of each option granted is calculated using the Black-Scholes option-pricing model.

Expected volatilities are based on volatilities from publicly traded companies operating in the Company’s industry.

The expected life of options granted is management’s best estimate using recent and expected transactions.

The risk-free rate for periods within the expected life of the option is based on the U.S.

Treasury yield curve in effect at the time of grant.

The weighted-average assumptions used in the model were as follows:

Risk-free interest 0.7 %

Expected life 4.2 years

Expected dividend yield 0.5 %

Volatility 34.4 %

The Company used the simplified method for determining the expected life of the options.

In addition, assumptions made regarding forfeitures in determining the remaining unamortized share-based compensation are re-evaluated periodically.

Restricted Stock Units and Performance Stock Units

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The Company granted 44,458 PSUs during fiscal year 2020 that are based on the outcome of certain performance criteria.

Of the total PSUs granted, 3,259 are subject to a service condition and a performance vesting condition based on the achievement of certain Adjusted EBITDA targets, as defined by the 2015 Plan, over a performance period of three years .

The remaining 41,199 PSUs are subject to the achievement of certain Adjusted EBITDA targets over a performance period of three years .

The maximum vesting percentage that could be realized for each of these PSUs is 250 %, based on the level of performance achieved for the respective awards, as well as a market vesting condition linked to the level of total stockholder return received by the Company ’ s stockholders during the performance period measured against the companies in the S&P 600 Restaurant Index (“TSR PSUs”).

The TSR PSUs were valued based on a Monte Carlo simulation model to reflect the impact of the total stockholder return market condition, resulting in a grant-date fair value range of $ 0.00 to $ 311.72 per unit based on the outcome of the performance condition.

The probability of satisfying a market condition is considered in the estimation of the grant-date fair value for TSR PSUs and the compensation cost is not reversed if the market condition is not achieved, provided the requisite service has been provided.

During fiscal year 2019, the Company granted 86,333 PSUs that are based on the outcome of certain performance criteria.

Of the total PSUs granted, 46,333 are subject to a service condition and a performance vesting condition based on the achievement of certain Adjusted EBITDA targets, as defined by the 2015 Plan, over a performance period of one to three years .

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The amount of all PSU units granted in 2019 that can be earned ranges from 0 % to 100 %.

During fiscal year 2018, the Company granted 15,290 PSUs that are subject to a service condition and a performance vesting condition based on the level of new sales growth achieved over the performance period.

These awards had a grant-date fair value range of $ 0.00 to $ 179.27 per unit based on the outcome of the performance condition.

The compensation expense related to these PSUs is recognized over the vesting period when the achievement of the performance conditions becomes probable.

The total compensation cost for the PSUs is determined based on the most likely outcome of the performance condition and the number of awards expected to vest.

The Company granted 15,290 PSUs during fiscal year 2018 that are subject to a service condition and a performance vesting condition based on the level of new sales growth achieved over the performance period.

The maximum vesting percentage that could be realized for each of these PSUs is 500 %, based on the level of performance achieved for the respective awards, as well as a market vesting condition linked to the level of total stockholder return received by the Company ’ s stockholders during the performance period measured against the companies in the S&P 600 Restaurant Index (“TSR PSUs”).

The TSR PSUs were valued based on a Monte Carlo simulation model to reflect the impact of the total stockholder return market condition, resulting in a grant-date fair value range of $ 0.00 to $ 179.27 per unit based on the outcome of the performance condition.

As of December 26, 2020, total unrecognized compensation expense related to unvested PSUs was $ 8.2 million.

Restricted Stock Awards

The following table summarizes activity related to restricted stock awards (in thousands, except per share data):

Restricted Stock Awards Weighted Average Grant Date Fair Value

Outstanding - December 29, 2018 16 $ 36.02

Awards granted 4 88.12

Awards vested ( 8 ) 33.17

Awards canceled — —

Outstanding - December 28, 2019 12 $ 54.81

The fair value of the non-vested restricted stock awards is based on the closing price on the date of grant.

As of December 28, 2019, total unrecognized compensation expense related to unvested restricted stock awards was $ 0.5 million, which will be recognized over a weighted average period of approximately 1.4 years.

(15) Restaurant Acquisition

On August 22, 2019, the Company acquired one existing restaurant from a franchisee.

The total purchase price was $ 1.2 million, which was funded by cash flows from operations.

The following table summarizes the final allocation of the purchase price to the estimated fair value of assets acquired and liabilities assumed at the date of the acquisition (in thousands):

Purchase Price Allocation

August 22, 2019

Property and equipment $ 90

Reacquired franchise rights 610

Total purchase price $ 1,233

On February 19, 2018, April 16, 2018, and May 1, 2018, the Company acquired one existing Wingstop restaurant each from three separate franchisees.

The total purchase prices were $ 1.9 million, $ 1.9 million, and $ 2.2 million, respectively, which were funded by cash flows from operations.

The following table summarizes the final allocation of the purchase price to the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition, inclusive of adjustments made during the measurement period (in thousands):

Purchase Price Allocation

February 19, 2018 April 16, 2018 May 1, 2018

Acquisition Acquisition Acquisition

(15) Restaurant Transactions

During fiscal year 2020, the Company completed the sale of seven company-owned restaurants to two existing franchisees for aggregate proceeds of $ 4.8 million.

In connection with the sale of the restaurants, the Company recorded a $ 3.2 million pre-tax gain on the sale of the related assets and liabilities, which was net of a $ 58,000 reduction in goodwill.

The net gain on these restaurant sales was recorded in Gain on sale of restaurants and other expense, net in the Consolidated Statements of Operations.

The Company acquired six restaurants from franchisees during each of the fiscal years ended December 26, 2020 and December 29, 2018, and one restaurant during the fiscal year ended December 28, 2019.

The total purchase prices are reflected in the table below and were all funded by cash flows from operations.

The following table summarizes the allocations of the purchase prices to the estimated fair values of assets acquired and liabilities assumed as a result of these acquisitions (in thousands):

December 26, 2020 December 28, 2019 December 29, 2018

Working capital $ 40 $ — $ 49

2 unchanged sentences

Goodwill 3,560 533 3,098

Gift card liability ( 2 ) — —

Total purchase price $ 6,735 $ 1,233 $ 6,516

During the fourth quarter of 2018, the Company acquired three existing Wingstop restaurants from a franchisee for a total purchase price of $ 0.5 million.

The purchase price was allocated to property and equipment.

The results of operations of these locations are included in our Consolidated Statements of Operations since the date of acquisition.

The results of operations of these locations are included in the Consolidated Statements of Operations since the date of acquisition.

The acquisitions were accounted for as business combinations.

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(16) Revenue from Contracts with Customers

Revenue from contracts with customers consist primarily of royalties, Ad Fund contributions, initial and renewal franchise fees and upfront fees from development agreements and international territory agreements.

Our performance obligations under franchise agreements consist of (a) a franchise license, (b) pre-opening services, such as training, and (c) ongoing services, such as management of the Ad Fund, development of training materials and menu items and restaurant monitoring.

These performance obligations are highly interrelated so are not considered to be individually distinct and therefore are accounted for as a single performance obligation, which is satisfied by providing a right to use intellectual property over the term of each franchise agreement.

Royalties, including franchisee contributions to the Ad Fund, are calculated as a percentage of franchise restaurant sales over the term of the franchise agreement.

Initial and renewal franchise fees are payable by the franchisee prior to the restaurant opening or at the time of a renewal of an existing franchise agreement.

Our franchise agreement royalties, inclusive of Ad Fund contributions, represent sales-based royalties that are related entirely to our performance obligation under the franchise agreement and are recognized as franchised restaurant sales occur.

Additionally, under ASC 606, initial and renewal franchise fees are recognized as revenue on a straight-line basis over the term of the respective agreement.

Our performance obligation under development agreements and international territory agreements generally consists of an obligation to grant exclusive development rights over a stated term.

The following table represents a disaggregation of revenue from contracts with customers for the fiscal years 2020, 2019, and 2018 (in thousands):

2 unchanged sentences

Royalty revenue $ 98,554 $ 75,106 $ 61,882

Advertising fees and related income 55,932 34,484 30,174

Advertising fees 74,930 55,932 34,484

Franchise fees 3,656 4,087 2,924

Franchise fee, development fee, and international territory fee payments received by the Company are recorded as deferred revenue on the Consolidated Balance Sheet, which represents a contract liability.

Franchise fee, development fee, and international territory fee payments received by the Company are recorded as deferred revenue on the Consolidated Balance Sheets, which represents a contract liability.

Deferred revenue is reduced as fees are recognized in revenue over the term of the franchise license for the respective restaurant.

As the term of the franchise license is typically ten years, substantially all of the franchise fee revenue recognized in the current fiscal year was included in the deferred revenue balance as of December 29, 2018.

As the term of the franchise license is typically ten years , substantially all of the franchise fee revenue recognized in the current fiscal year was included in the

deferred revenue balance as of December 28, 2019.

Approximately $ 9.8 million and $ 8.3 million of deferred revenue as of December 26, 2020 and December 28, 2019, respectively, relates to restaurants that have not yet opened, so the fees are not yet being amortized.

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The Company did not have any material contract assets as of December 26, 2020.

(17) Business Segments

Information on segments and a reconciliation to income before taxes are as follows (in thousands):

2019 December 29,

2018 December 30,

Franchise segment $ 144,223 $ 106,342 $ 96,250

Company segment 55,453 46,839 37,069

Total segment revenue $ 199,676 $ 153,181 $ 133,319

Segment Profit:

Franchise segment $ 33,683 $ 30,645 $ 29,230

Company segment 9,218 10,303 4,643

Total segment profit 42,901 40,948 33,873

Corporate and other (1)

Interest expense, net 17,136 10,123 5,131

Other expense, net — 1,477 —

Income before taxes $ 25,765 $ 26,927 $ 28,742

Depreciation and amortization:

Franchise segment $ 3,870 $ 3,036 $ 2,220

Company segment 1,614 1,277 1,156

Total depreciation and amortization $ 5,484 $ 4,313 $ 3,376

Capital expenditures:

Franchise segment $ 21,119 $ 2,930 $ 864

Company segment (2)

1,367 1,052 1,671

Total capital expenditures $ 22,486 $ 3,982 $ 2,535

(1) Corporate and other includes corporate related items not allocated to reportable segments and consists primarily of transaction costs associated with the refinancings of our credit agreement and payment of a special dividend.

(2) Company segment excludes capital expenditures related to the acquisition of restaurants from franchisees (discussed in Note 15).

Information on segment assets and a reconciliation to consolidated assets are as follows (in thousands):

December 28, 2019 December 29, 2018

Segment assets:

Franchise segment $ 117,690 $ 97,455

Company segment 25,564 19,841

Total segment assets 143,254 117,296

Corporate and other (3)

22,859 22,453

Total assets $ 166,113 $ 139,749

(3) Corporate and other includes corporate related items not allocated to reportable segments and consists primarily of cash and cash equivalents, Ad Fund restricted assets, right-of-use assets associated with our operating leases, and capitalized costs associated with the issuance of indebtedness.

December 28, 2019 December 29, 2018

Segment goodwill:

Franchise segment $ 39,930 $ 39,930

Company segment 10,258 9,725

Total goodwill $ 50,188 $ 49,655

(18) Quarterly Financial Data (unaudited)

The following tables set forth certain unaudited consolidated financial information for each of the four quarters in 2019 and 2018 (in thousands, except per share data):

Quarter Ended

December 28, 2019 September 28, 2019 June 29, 2019 March 30, 2019 December 29, 2018 September 29, 2018 June 30, 2018 March 31, 2018

Total revenue $ 53,186 $ 49,875 $ 48,562 $ 48,053 $ 40,509 $ 38,246 $ 37,037 $ 37,389

Operating income 8,894 11,949 10,287 11,771 8,679 10,356 9,926 9,566

Net income 3,047 5,905 4,918 6,606 2,419 6,293 6,839 6,168

Earnings per share

Basic $ 0.10 $ 0.20 $ 0.17 $ 0.23 $ 0.08 $ 0.21 $ 0.23 $ 0.21

Diluted $ 0.10 $ 0.20 $ 0.17 $ 0.22 $ 0.08 $ 0.21 $ 0.23 $ 0.21

Weighted average shares outstanding

Basic 29,454 29,449 29,418 29,337 29,296 29,284 29,230 29,116

Diluted 29,709 29,696 29,667 29,637 29,620 29,584 29,528 29,503

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 9A. Controls and Procedures