What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-16 compared with 2021-02-18 · 190 added, 222 removed, 683 unchanged (38% of the section changed)

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 25, 2021, 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 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.

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 25, 2021 and December 26, 2020, the related consolidated statements of comprehensive income, stockholders’ deficit, and cash flows for each of the fiscal years in the three-year period ended December 25, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 16, 2022 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

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Other Information

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Directors, Executive Officers and Corporate Governance

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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 .

001-37425) and incorporated herein by reference.

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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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.

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Common Stock.

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.

10.1 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 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.

10.2 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.

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

10.6† Amendment One to Wingstop Inc.

2015 Omnibus Incentive Compensation Plan, filed as exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 27, 2015 (File No.

10.4† Amendment One to the Wingstop Inc.

2015 Omnibus Incentive Compensation Plan, effective as of June 11, 2015, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 27, 2015 (File No.

001-37425) and incorporated herein by reference.

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

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.

2015 Omnibus Incentive Compensation Plan, filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 28, 2020 (File No.

001-37425) and incorporated herein by reference.

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

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 .

2015 Omnibus Incentive Compensation Plan, filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (File No.

001-37425) and incorporated herein by reference.

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

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.

2015 Omnibus Incentive Compensation Plan, filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (File No.

001-37425) and incorporated herein by reference.

10.9† Amended and Restated Form of Stock 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 for the quarterly period ended March 28, 2020 (File No.

001-37425) and incorporated herein by reference.

10.10† Wingstop Inc.

Amended and Restated Executive Severance Plan, effective as of February 26, 2019, filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K (File No.

001-37425) for the fiscal year ended December 29, 2018 and incorporated herein by reference.

Amended and Restated Executive Severance Plan, effective as of February 26, 2019, filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (File No.

001-37425) and incorporated herein by reference.

10.11† Form of Wingstop Inc.

Executive Severance Plan Participation Agreement, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K (File No.

001-37425) for the fiscal year ended December 29, 2018 and incorporated herein by reference.

Executive Severance Plan Participation Agreement, filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2018 (File No.

001-37425) and incorporated herein by reference.

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

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 , 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.

and Charles Morrison, filed as Exhibit 10.18 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2019 (File No.

001-37425) and incorporated herein by reference.

10.13† 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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10.14† Wingstop Inc.

Employee Stock Purchase Plan, filed as exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q (File No.

001-37425) for the quarterly period ended March 30, 2019 and incorporated by reference herein.

Employee Stock Purchase Plan, filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2019 (File No.

001-37425) and incorporated herein by reference.

21.1* List of Subsidiaries of Wingstop Inc.

23.1* Consent of KPMG LLP, independent registered public accounting firm.

23.2* Consent of Ernst & Young LLP, independent registered public accounting firm.

31.1* Certification of Chief Executive Officer, pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2* Certification of Chief Financial Officer, pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

24.1* Powers of Attorney (included on the signature page to this Annual Report on Form 10-K)

31.1* Certification of Chief Executive Officer, pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2* Certification of Chief Financial Officer, pursuant to Rule 13a-14(a) or 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1** Certification of Chief Executive Officer, pursuant to 18 U.S.C.

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Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS* Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.INS* Inline XBRL Instance Document (XBRL tags are embedded within the Inline XBRL document).

101.SCH* Inline XBRL Taxonomy Extension Schema Document.

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101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104* Cover Page Interactive Data File (formatted as Inline XBRL and Contained in Exhibit 101).

104* Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

___________________

* 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.

** The certifications attached as Exhibits 32.1 and 32.2 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 except to the extent the registrant specifically incorporates it by reference.

† Indicates management contract or compensatory plan or arrangement.

Form 10-K Summary

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/s/ Charles R.

Morrison February 17, 2021

Morrison Chairman and Chief Executive Officer (Principal Executive Officer)

/s/ Michael J.

Skipworth February 17, 2021

Skipworth Chief Financial Officer (Principal Financial and Accounting Officer)

/s/ Lynn Crump-Caine February 17, 2021

Lynn Crump-Caine Lead Independent Director

/s/ Krishnan Anand February 17, 2021

Krishnan Anand Director

Goebel February 17, 2021

Goebel Director

Morrison Chairman and Chief Executive Officer February 16, 2022

Morrison (Principal Executive Officer)

Kaleida Chief Financial Officer February 16, 2022

Kaleida (Principal Financial and Accounting Officer)

/s/ Lynn Crump-Caine Lead Independent Director February 16, 2022

Lynn Crump-Caine

/s/ Krishnan Anand Director February 16, 2022

Krishnan Anand

Goebel Director February 16, 2022

/s/ Michael J.

Hislop February 17, 2021

Hislop Director

Lavelle February 17, 2021

Lavelle Director

Hislop Director February 16, 2022

Lavelle Director February 16, 2022

/s/ Kilandigalu M.

Madati February 17, 2021

Madati Director February 16, 2022

Kilandigalu M.

Madati Director

/s/ Wesley S.

McDonald February 17, 2021

McDonald Director

McDonald Director February 16, 2022

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID 185 )

Consolidated Balance Sheets as of December 25, 2021 and December 26, 2020

Consolidated Statements of Operations for the fiscal years ended December 26, 2020, December 28, 2019, and December 29, 2018

Consolidated Statement of Stockholders’ Deficit for the fiscal years ended December 26, 2020, December 28, 2019, and December 29, 2018

Consolidated Statements of Comprehensive Income for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019

Consolidated Statements of Stockholders’ Deficit for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019

Consolidated Statements of Cash Flows for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019

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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.

and subsidiaries (the Company) as of December 25, 2021 and December 26, 2020, the related consolidated statements of comprehensive income, stockholders’ deficit, and cash flows for each of the fiscal years in the three-year period ended December 25, 2021, 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 25, 2021 and December 26, 2020, and the results of its operations and its cash flows for each of the fiscal years in the three-year period ended December 25, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have 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 25, 2021, 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 16, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of December 30, 2018, due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), as amended.

Basis for Opinion

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(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.

The communication of a 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

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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 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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February 16, 2022

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Wingstop Inc.

and Subsidiaries

Opinion on the Financial Statements

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.

Basis for Opinion

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 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 the financial statements are free of material misstatement, whether due to error or fraud.

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 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

We served as the Company's auditor from 2014 to 2019.

Dallas, Texas

February 17, 2021

WINGSTOP INC.

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Additional paid-in-capital 463 421

Accumulated deficit ( 342,028 ) ( 210,275 )

Retained deficit ( 310,031 ) ( 342,028 )

Accumulated other comprehensive loss ( 256 ) —

Total stockholders' deficit ( 309,525 ) ( 341,310 )

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AND SUBSIDIARIES

Consolidated Statements of Operations

Consolidated Statements of Comprehensive Income

(amounts in thousands, except per share data)

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

Other income ( 135 ) — —

Income before income tax expense 58,907 26,943 25,765

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Dividends per share $ 0.62 $ 5.50 $ 0.40

Other comprehensive income (loss)

Currency translation adjustment $ ( 256 ) $ — $ —

Other comprehensive income (loss) ( 256 ) — —

Comprehensive income $ 42,402 $ 23,306 $ 20,476

(1) Cost of sales includes all operating expenses of company-owned restaurants, including advertising expenses, and excludes depreciation and amortization, which are presented separately.

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Paid-In Capital

Accumulated Deficit Total Stockholders’ Deficit

Retained Deficit Accumulated Other Comprehensive Loss Total Stockholders’ Deficit

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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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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Dividends declared on common stock and equivalents — — ( 10,335 ) ( 8,746 ) — ( 19,081 )

Currency translation adjustment — — — — ( 256 ) ( 256 )

Balance at December 25, 2021 29,837,454 299 463 ( 310,031 ) ( 256 ) ( 309,525 )

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Stock-based compensation expense 9,631 8,558 6,974

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

Gain on disposal of assets ( 3,497 ) ( 3,093 ) —

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

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Proceeds from sales of assets 7,207 4,800 —

Payments for investments (Note 10) ( 4,163 ) — —

Cash used in investing activities ( 29,853 ) ( 7,987 ) ( 23,731 )

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Cash used in financing activities ( 23,389 ) ( 19,448 ) ( 14,617 )

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

Net increase (decrease) in cash, cash equivalents, and restricted cash ( 4,364 ) 38,095 235

Cash, cash equivalents, and restricted cash at beginning of period 59,270 21,175 20,940

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Supplemental information:

Accrued capital expenditures $ 5,074 $ — $ —

Cash paid for interest $ 15,035 $ 14,549 $ 16,929

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The Company's restaurant base is 98 % franchised, with 1,695 franchised locations (including 197 international locations) and 36 company-owned restaurants as of December 25, 2021.

The Company operates as a single segment for reporting purposes.

Summary of Significant Accounting Policies

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The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions, primarily related to long-lived asset valuation, indefinite and finite lived intangible asset valuation, income taxes, leases, stock-based compensation, contingencies, and common stock equity valuations.

generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions, primarily related to long-lived asset valuation, indefinite and finite lived intangible asset valuation, income taxes, investments, leases, stock-based compensation, contingencies, and common stock equity valuations.

These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the period.

Although management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, actual results could differ from those estimates.

(d) Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive income is the same as net income for all periods presented.

Therefore, a separate statement of comprehensive income (loss) is not included in the accompanying consolidated financial statements.

(e) Cash, Cash Equivalents, and Restricted Cash

(d) Cash, Cash Equivalents, and Restricted Cash

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

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Total cash, cash equivalents, and restricted cash $ 54,906 $ 59,270

(f) Accounts Receivable

(e) Accounts Receivable

Accounts receivable, net of allowance for doubtful accounts, consists primarily of accrued royalty fee receivables, collected weekly in arrears, and vendor rebates.

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On a continuing basis, management analyzes delinquent receivables, which are charged off against the existing allowance account when determined to be uncollectible.

(g) Inventories

(f) Inventories

Inventories, which consist of food and beverage products, paper goods, and supplies, are valued at the lower of cost (first-in, first-out) or market.

(h) Property and Equipment

(g) Property and Equipment

Property and equipment is recorded at cost less accumulated depreciation.

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Building 40 years

Leasehold and other improvements Lesser of the expected lease term or useful life

Leasehold and other improvements Lesser of 7 to 10 years or the expected lease term

Equipment, furniture and fixtures 3 to 7 years

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Improvements to leased properties are depreciated over the shorter of their useful life or the lease term, which includes a fixed, non-cancelable lease term plus any reasonably assured renewal periods.

(i) Impairment or Disposal of Long-Lived Assets

(h) Impairment or Disposal of Long-Lived Assets

Property and equipment and finite-life intangible assets are reviewed for impairment periodically and whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

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The Company did no t record any impairment losses on long-lived assets in fiscal years 2021, 2020, or 2019.

(j) Goodwill and Indefinite-Lived Intangible Assets

(i) 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 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.

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 2021, 2020, or 2019.

It is possible that changes in circumstances or changes in management’s judgments, assumptions, and estimates could result in an impairment charge of a portion or all of its goodwill or other intangible assets.

(j) Foreign Currency Translation

The foreign currency translation adjustment included in the Consolidated Statements of Comprehensive Income represents the unrealized impact of translating our foreign investment.

This amount is not included in Net income and would only be realized upon disposition of our investment.

The related Accumulated other comprehensive loss is presented in the Consolidated Balance Sheets.

(k) Revenue Recognition

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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.

Accordingly, these taxes are not included in gross revenue.

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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.

These incentives are recognized as earned throughout the year and are classified as a reduction in Cost of sales with any consideration received in excess of the total expense of the vendor’s products included within Royalty revenue, franchise fees and other within the Consolidated Statements of Operations.

The incentives recognized were approximately $ 8.7 million, $ 7.9 million, and $ 10.6 million, during fiscal years 2021, 2020, and 2019, respectively, of which $ 1.6 million, $ 1.3 million, and $ 1.6 million was classified as a reduction in Cost of sales during fiscal years 2021, 2020, and 2019, respectively.

1 unchanged sentence

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.

Under this program, domestic franchisees contributed 4 % of gross sales for fiscal years 2021, 2020, and 2019.

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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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 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.

Ad Fund contributions and expenditures are reported on a gross basis on the Consolidated Statements of Comprehensive Income, 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.

Beginning in the first quarter of 2021, headcount-related expenses for employees that provide services directly to the Ad Fund are presented within Advertising expenses on the Consolidated Statements of Comprehensive Income.

Prior to the first quarter of 2021, these expenses were presented within Selling, general and administrative.

Prior period amounts have been reclassified to conform to the current presentation.

This reclassification had no impact on operating income, balance sheets, or statements of cash flows.

Headcount-related expenses associated with the Ad Fund were $ 8.6 million, $ 7.9 million, and $ 7.1 million in fiscal years 2021, 2020, and 2019, respectively.

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

Company-owned restaurants incurred advertising expenses of $ 3.3 million, $ 3.3 million, and $ 2.9 million in fiscal years 2021, 2020, and 2019, respectively.

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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

Historically, the Company had two reporting segments:

franchise operations and company restaurant operations.

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

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

ASU 2016-02 amended the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting.

The new guidance also required additional disclosures about leases.

The Company adopted the requirements of the new standard as of the first day of fiscal year 2019 using the modified retrospective approach without restating comparative periods.

As part of our adoption, we elected the package of practical expedients, as well as the hindsight practical expedient, permitted under the new guidance, which, among other things, allowed the Company to continue utilizing historical classification of leases.

In addition, we elected not to separate non-lease components for our real estate leases.

The adoption of the new standard resulted in the recording of a right-of-use asset of approximately $ 8.5 million and lease liabilities of approximately $ 10.3 million, and had an immaterial impact on retained earnings as of the beginning of fiscal year 2019.

The standard did not materially impact our Consolidated Statements of Operations and had no impact on cash flows.

(q) Recent Accounting Pronouncements

We reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact on our consolidated financial statements.

(2) Earnings Per Share

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Diluted weighted average shares outstanding 29,944 29,804 29,670

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.

We had approximately 3,000 , 1,000 , and 3,000 equity awards outstanding at December 25, 2021, December 26, 2020, and December 28, 2019, respectively, that were excluded from the dilutive earnings per share calculation because the effect would have been anti-dilutive.

(3) Dividends

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Subsequent to the end of fiscal year 2021, on February 15, 2022, the Company’s board of directors declared a quarterly dividend of $ 0.17 per share of common stock, to be paid on March 25, 2022 to stockholders of record as of March 11, 2022, totaling approximately $ 5.1 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.

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.

No special dividends were declared or paid during fiscal years 2021 and 2019.

(4) Fair Value Measurements

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Level 2 $ 477,600 $ 480,676 $ 480,000 $ 483,365

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

Investments (Note 10) (2)

Level 3 $ 4,151 $ 4,151 $ — $ —

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

(2) The fair values of our investments were not significant and were based on our review of information provided by the investment managers or investees.

(5) Accounts Receivable, net

Accounts receivables, net, consist of the following (in thousands):

Accounts receivable, net, consist of the following (in thousands):

2021 December 26,

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Royalties receivable (net of allowance for doubtful accounts of $ 0 and $ 1,053 , respectively)

Gift card receivable 78 477

Other receivables, net 1,916 888

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Depreciation expense was $ 5.6 million, $ 5.2 million, and $ 3.1 million for the fiscal years ended December 25, 2021, December 26, 2020, and December 28, 2019, respectively.

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

The Company’s goodwill and other intangible assets arose from Wingstop’s acquisition of the equity interests of Wingstop Holdings, Inc.

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

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

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.

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(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.

Amortization expense for definite-lived intangibles was $ 2.3 million, in fiscal years 2021 and 2020, and $ 2.4 million in fiscal year 2019.

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

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Inventories 484 396

Other current assets 794 —

Total $ 4,928 $ 5,532

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Stock based compensation 921 738

Deferred rent 358 394

Lease liabilities 3,747 1,798

Intangible assets 87 82

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Intangible assets ( 10,518 ) ( 10,599 )

Right of use assets ( 3,411 ) ( 1,440 )

Property and equipment ( 5,693 ) ( 2,059 )

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

In fiscal year 2019, the Internal Revenue Service commenced an examination of the Company’s U.S.

income tax return for fiscal years 2016 and 2017.

The Company's income tax returns prior to tax year 2018 are generally considered closed to examination by the applicable tax authorities.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

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As of December 25, 2021 and December 26, 2020, the accrued interest and penalties on the unrecognized tax benefits were $ 429,000 and $ 325,000 , respectively, excluding any related income tax benefits.

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.

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 Comprehensive Income.

At December 25, 2021 and December 26, 2020, the amount of unrecognized tax benefits was $ 1,055,000 and $ 794,000 , respectively, which, if ultimately recognized, would reduce the Company’s effective tax rate.

(10) Investments

In the second quarter of 2021, a wholly-owned subsidiary of the Company acquired a 20 % non-controlling interest in Wingstop’s United Kingdom master franchisee, Lemon Pepper Holdings Ltd., (“LPH”) for an aggregate amount of $ 4.2 million.

Substantially all of the investment consisted of bonds issued by a subsidiary of LPH, which are recorded on an amortized cost basis.

The fair value of the bonds approximates the current carrying value and was determined using Level 3 inputs.

In addition, the Company received 20 % of the outstanding stock, which will be accounted for using the equity method of accounting, under which the Company’s share of the income of the investee will be recorded in Other income on the Consolidated Statements of Comprehensive Income.

The company recorded adjustments of $ 12,000 to the carrying amount in 2021.

(11) Debt Obligations

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2020-1 Class A-2 Senior Secured Notes $ 477,600 $ 480,000

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

Debt issuance costs, net of amortization ( 8,206 ) ( 9,467 )

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Long-term debt, net $ 469,394 $ 466,933

As of December 26, 2020, the scheduled principle payments on debt were as follows (in thousands):

As of December 25, 2021 the Company’s leverage ratio under the Class A-2 Notes was less than 5.0 x.

Per the terms of the Company’s debt agreements, principal payments can be suspended at the borrower’s election until the repayment date as long as the Company maintains a leverage ratio of less than 5.0 x.

Accordingly, the Company has elected to suspend payments following the principal payment made in the third quarter of 2021, and the entire outstanding balance of $ 477.6 million of the Class A-2 notes has been classified as long-term debt due after fiscal year 2026.

Fiscal year 2022 $ —

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Securitized Financing Facility

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 .

In October 2020, the Company completed a transaction to refinance its previous 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.

A portion of the proceeds of the 2020 Class A-2 Notes was used to repay the principal outstanding on the previous securitized financing facility 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 25, 2021.

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”).

The 2020 Notes were 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 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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There were no amounts drawn down on the letters of credit as of December 25, 2021.

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.

During the fourth quarter of 2020, as a result of the repayment of the remaining $ 332.8 million of principal outstanding on the previous securitized financing facility, 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 and $ 8.2 million of make-whole interest premium costs associated with the early repayment of the previous securitized financing facility.

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.

The 2020 Notes are also subject to customary rapid amortization events provided for in the indenture, including events tied to failure to maintain stated debt service coverage ratios, the sum of global gross sales for specified restaurants being below certain levels on certain measurement dates, certain change of control and manager termination events, an event of default, and the failure to repay or refinance the 2020 Class A-2 Notes on the applicable scheduled maturity date.

refinance the 2020 Class A-2 Notes on the applicable scheduled maturity date.

The 2020 Notes are also subject to certain customary events of default, including events relating to non-payment of required interest, principal or other amounts due on or with respect to the 2020 Notes, failure to comply with covenants within certain time frames, certain bankruptcy events, breaches of specified representations and warranties, failure of security interests to be effective, and certain judgments.

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2021 December 26,

Operating lease cost (a)

Operating lease cost (1)

$ 2,294 $ 2,439

Variable lease cost (b)

Variable lease cost (2)

Total lease cost $ 2,823 $ 3,048

(a) Includes short-term leases, which are immaterial.

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

(1) Includes short-term leases, which are immaterial.

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

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

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In the opinion of management, the amount of ultimate liability with respect to those actions should not have a material adverse impact on financial position, results of operations, or cash flows.

Many of the food products the Company purchases are subject to changes in the price and availability of food commodities, including chicken.

The Company works with its suppliers and uses a mix of forward pricing protocols for certain items under which we agree with our supplier on fixed prices for deliveries at some time in the future, fixed pricing protocols under which we agree on a fixed price with our supplier for the duration of that protocol, and formula pricing protocols under which the prices we pay are based on a specified formula related to the prices of the goods, such as spot prices.

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).

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 12 months or less).

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

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The Wingstop Inc.

2015 Omnibus Equity Incentive Plan (the "2015 Plan"), was adopted in June 2015 and is currently the only plan under which the Company currently grants awards.

2015 Omnibus Equity Incentive Plan (the "2015 Plan"), was adopted in June 2015 and is the only plan under which the Company currently grants awards.

The 2015 Plan provides for the grant or award of stock options, stock appreciation rights, restricted stock awards, restricted stock units, performance unit awards, performance share awards, cash-based awards and other stock-based awards to employees, directors, and other eligible persons.

Awards issued under the 2015 Plan expire ten years from the date of the grant.

As of December 25, 2021, there were approximately 1.5 million shares available for future grants under the 2015 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.

Service-based awards contain a service-based, or time-based, vesting provision.

Performance-based options contain performance-based vesting provisions based on the Company meeting certain Adjusted EBITDA profitability targets or sales targets for the vesting period.

In the event of a change in control of the Company (as defined in the 2015 Plan), unless otherwise determined by the board of directors or the Compensation Committee of the board of directors, each outstanding award will become fully vested immediately prior to the change in control and shall be exchanged for cash.

Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant).

The Company recognized approximately $ 8.6 million, $ 7.0 million, and $ 3.7 million in stock compensation expense for fiscal years 2020, 2019, and 2018, respectively, with a corresponding increase to additional paid-in-capital.

Stock compensation expense is included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

In the event of a change in control of the Company (as defined in the 2015 Plan and unless otherwise determined by the board of directors or the Compensation Committee of the board of directors), each outstanding award will become fully vested immediately prior to the change in control and shall be exchanged for cash.

Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite employee service period.

The Company recognized approximately $ 9.6 million, $ 8.6 million, and $ 7.0 million in stock compensation expense for fiscal years 2021, 2020, and 2019, respectively, with a corresponding increase to

additional paid-in-capital.

Stock compensation expense is included in Selling, general and administrative in the Consolidated Statements of Comprehensive Income.

Assumptions made regarding forfeitures in determining the remaining unamortized share-based compensation are re-evaluated periodically.

Stock Options

The following table summarizes stock option activity (in thousands, except per share data):

Stock Options Weighted Average Exercise Price Aggregate Intrinsic Value Weighted Average Remaining Term

Outstanding - December 28, 2019 134 $ 5.72 $ 10,801 3.8

The following table summarizes stock option activity:

Number of Shares

(in thousands) Weighted Average Exercise Price Aggregate Intrinsic Value

(in thousands) Weighted Average Remaining Term (in years)

Stock options outstanding at December 26, 2020 69 $ 78.40 $ 4,291 9.1

Options granted 42 $ 129.11

Options exercised ( 6 ) $ 66.94

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

The total grant-date fair value of stock options vested during each of the fiscal years 2020, 2019, and 2018 was $ 0.2 million, $ 0.5 million, and $ 0.5 million, respectively.

Options forfeited ( 11 ) $ 104.99

Stock options outstanding at December 25, 2021 94 $ 98.87 $ 6,997 8.6

Stock options exercisable at December 25, 2021 18 $ 79.57 $ 1,678 8.2

The total intrinsic value of stock options exercised was $ 0.6 million, $ 15.8 million, and $ 6.7 million for fiscal years 2021, 2020, and 2019, respectively.

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):

Stock Options Weighted average

grant-date fair value

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

Granted 68 22.99

Vested ( 17 ) 10.00

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

As of December 25, 2021, there was $ 1.8 million of total unrecognized stock compensation expense related to non-vested stock options, which will be recognized over a weighted average period of approximately 1.7 years.

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

The estimated fair value of each option granted is determined 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 Company used the simplified method for determining the expected life of the options.

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

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Risk-free interest 0.6 % 0.7 %

Expected life 4.2 years

Expected life 4.2 years 4.2 years

Expected dividend yield 0.4 % 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

The following table summarizes activity related to restricted stock units and performance stock units (“PSUs”) (in thousands, except per share data):

Restricted Stock Units Weighted Average Grant Date Fair Value Performance Stock Units Weighted Average Grant Date Fair Value

Outstanding - December 28, 2019 82 $ 52.73 169 $ 55.92

Expected volatility 41.8 % 34.4 %

Weighted-average grant date fair value $ 42.51 $ 22.99

Restricted Stock Units

Restricted stock units are granted to employees and vest in equal annual amounts over a three year period.

The fair value of restricted stock units is based on the closing price on the date of grant.

The following table summarizes activity related to restricted stock units:

Number of Shares

(in thousands) Weighted Average Grant Date Fair Value

Nonvested restricted stock units at December 26, 2020 54 $ 76.27

Units granted 26 138.38

Units vested ( 28 ) 67.23

Units canceled ( 14 ) 64.59 ( 8 ) 66.04

Outstanding - December 26, 2020 54 $ 76.27 153 $ 69.08

The fair value of restricted stock units and PSUs is based on the closing price on the date of grant.

The restricted stock units granted during fiscal year 2020 vest over a three year service period.

Units forfeited ( 11 ) 109.43

Nonvested restricted stock units at December 25, 2021 41 $ 111.52

As of December 25, 2021, total unrecognized compensation expense related to unvested restricted stock units was $ 3.2 million, which is expected to be recognized over a weighted-average period of 1.6 years.

The weighted-average grant date fair value of restricted stock units granted was $ 138.38 , $ 94.12 , and $ 68.40 in fiscal years 2021, 2020, and 2019, respectively.

total fair value of restricted stock units that vested in fiscal years 2021, 2020, and 2019 was $ 1.9 million, $ 1.8 million, and $ 1.8 million, respectively.

During fiscal year 2019, there was a modification to certain awards resulting in additional compensation expense of $ 0.7 million over the remaining term of the awards.

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 .

The remaining 40,000 PSUs are subject to a service condition and a performance vesting condition based on certain operational metrics.

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.

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.

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.

Performance Stock Units

Performance stock units (“PSUs”) represent a right to receive a certain number of shares of common stock based on the achievement of company performance goals and continued employment during the vesting period.

Performance stock units cliff-vest at the end of a three year service period or vest in equal annual amounts over a three year period.

Vested amounts may range from 0 % to a maximum of 500 % of targeted amounts depending on the achievement of performance measures at the end of each vesting period.

Such performance measures are based on the Company meeting certain Adjusted EBITDA profitability targets, return on incremental investment targets, or sales targets for the vesting period.

The fair value of PSUs is based on the closing price on the date of grant.

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.

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

Certain of the PSUs granted in fiscal year 2020 are subject to a service condition and a market 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.

These PSUs were valued based on a Monte Carlo simulation model to reflect the impact of the total stockholder return market condition.

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

The following table summarizes activity related to performance stock units:

Number of Shares

(in thousands) Weighted Average Grant Date Fair Value

Nonvested performance stock units at December 26, 2020 153 $ 69.08

Units granted (a)

Units vested (a)

( 121 ) $ 54.83

Units forfeited ( 10 ) $ 104.27

Nonvested performance stock units at December 25, 2021 136 $ 101.77

(a) Includes 61,000 incremental PSUs granted in fiscal year 2018 that vested in fiscal year 2021 at greater than 100% of target based on performance.

As of December 25, 2021, total unrecognized compensation expense related to unvested PSUs was $ 10.4 million, which is expected to be recognized over a weighted average period of 2.0 years.

The weighted-average grant date fair value of performance stock units granted was $ 96.16 , $ 86.03 , and $ 71.22 in fiscal years 2021, 2020, and 2019, respectively.

The total fair value of performance stock units that vested in fiscal years 2021, 2020, and 2019 was $ 6.6 million, $ 2.2 million, and $ 1.2 million, respectively.

(16) 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.

During fiscal year 2021, the Company completed the sale of six company-owned restaurants in the Colorado market to one existing franchisee for aggregate proceeds of $ 7.2 million.

In connection with the sale of the restaurants, the Company recorded a $ 3.5 million pre-tax gain on the sale of the related assets and liabilities, which was net of a $ 80,000 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 net gain on these restaurant sales was recorded in Gain on sale of restaurants and other expense, net in the Consolidated Statements of Comprehensive Income as of December 25, 2021.

The Company acquired three restaurants from franchisees during the fiscal year ended December 25, 2021, six restaurants during the fiscal year ended December 26, 2020 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.

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Total purchase price $ 4,876 $ 6,735 $ 1,233

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

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

The acquisitions were accounted for as business combinations.

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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 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.

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 25, 2021.

Approximately $ 10.4 million and $ 9.8 million of deferred revenue as

of December 25, 2021 and December 26, 2020, respectively, relates to restaurants that have not yet opened, so the fees are not yet being amortized.

The weighted average remaining amortization period for deferred franchise and renewal fees related to open restaurants is 7.3 years.

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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