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☒
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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Delaware
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20-3563182
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State or other jurisdiction of
incorporation or organization
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(I.R.S. Employer
Identification No.)
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3535 Harbor Blvd., Suite 100, Costa Mesa, California
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92626
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(Address of principal executive offices)
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(Zip Code)
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Title of each class
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Name of each exchange on which registered
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Common Stock
, par value $0.01 per share
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The NASDAQ Stock Market LLC
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Large accelerated filer
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☐
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Accelerated filer
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☒
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Non-accelerated filer
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☐
(Do not check if a smaller reporting company)
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Smaller reporting company
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☐
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Emerging growth company
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☒
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PART I
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Item 1. Business
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Item 1A. Risk Factors
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Item 1B. Unresolved Staff Comments
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Item 2. Properties
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Item 3. Legal Proceedings
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Item 4. Mine Safety Disclosures
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PART II
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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Item 6. Selected Financial Data
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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Item 8. Financial Statements and Supplementary Data
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A. Controls and Procedures
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Item 9B. Other Information
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PART III
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Item 10. Directors, Executive Officers and Corporate Governance
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Item 11. Executive Compensation
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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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Item 13. Certain Relationships and Related Transactions, and Director Independence
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Item 14. Principal Accounting Fees and Services
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PART IV
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Item 15. Exhibits, Financial Statement Schedules
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Item 16. Form 10-K Summary
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Signatures
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Exhibit Index
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•
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the adverse impact of economic conditions on our (i) operating results and financial condition, (ii) ability to comply with the terms and covenants of our debt agreements, and (iii) ability to pay or refinance our existing debt or to obtain additional financing;
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•
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vulnerability to changes in consumer preferences and economic conditions;
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•
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vulnerability to conditions in the greater Los Angeles area;
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•
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vulnerability to natural disasters given the geographic concentration and real estate intensive nature of our business;
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•
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ability to open new restaurants in new and existing markets, including difficulty in finding sites and in negotiating acceptable leases;
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•
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delayed or canceled future restaurant openings;
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•
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restaurant closures, due to financial performance or otherwise;
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•
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increases in chicken and other input costs;
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•
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negative publicity, whether or not valid;
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•
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concerns about food safety and quality and about food-borne illness, particularly avian flu;
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•
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dependence on frequent and timely deliveries of food and supplies;
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•
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problems with our primary distributor;
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•
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our history of net losses, including the possibility of future net losses;
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•
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our ability to service our level of indebtedness;
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•
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our ability to compete successfully with other quick-service and fast casual restaurants;
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•
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underperformance of new menu items, advertising campaigns, and restaurant designs and remodeling activity;
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•
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our reliance on our franchisees, who may incur financial hardships, lose access to credit, close restaurants, or declare bankruptcy;
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•
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our limited control over our franchisees;
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•
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potential liability for franchisee acts;
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•
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ability to protect our name and logo and other proprietary intellectual property;
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•
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loss of the abilities, experience, and knowledge of current directors and officers;
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•
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difficulties in acclimating a new Chief Executive Officer ("CEO");
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•
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matters relating to employment and labor laws;
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•
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impact from litigation such as wage and hour class action lawsuits;
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•
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labor shortages and increased labor costs;
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•
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our ability and the ability of our franchisees to renew leases at the end of their terms;
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•
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status of our relationships with franchisees;
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•
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impact from federal, state, and local regulations relating to preparation and sale of food, zoning and building codes, and employee, environmental, taxation and other matters;
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•
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impact from our income tax receivable agreement (the “TRA”);
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•
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conflicts of interest with our largest stockholders;
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•
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that El Pollo Loco Holdings, Inc. is a holding company with no operations that relies on its operating subsidiaries to provide it with funds;
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•
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timing of our emerging growth company eligibility under the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”);
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•
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the impact of any security breaches of confidential customer information in connection with our electronic process of credit and debit card transactions;
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•
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the impact of any failure of our information technology system or any breach of our network security;
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•
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changes in accounting standards; and
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•
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other risks described under Risk Factors.
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ITEM 1.
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BUSINESS
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ITEM 1A.
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RISK FACTORS
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•
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identify available and suitable restaurant sites;
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•
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compete for restaurant sites;
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•
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reach acceptable agreements regarding the lease or purchase of locations;
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•
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obtain or have available the financing required to acquire and operate a restaurant, including construction and opening costs;
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•
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respond to unforeseen engineering or environmental problems with leased premises;
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•
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avoid the impact of inclement weather and natural and man-made disasters;
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•
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hire, train, and retain the skilled management and other employees necessary to meet staffing needs;
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•
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obtain, in a timely manner and for an acceptable cost, required licenses, permits, and regulatory approvals;
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•
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respond effectively to any changes in local, state, and federal law and regulations that adversely affect our and our franchisees’ costs or abilities to open new restaurants; and
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•
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control construction and equipment cost increases for new restaurants.
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•
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limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy, and other purposes;
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•
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requiring us to dedicate a portion of our cash flow from operations to pay interest on our debt, which could reduce availability of our cash flow to fund working capital, capital expenditures, acquisitions, execution of our growth strategy, and other general corporate purposes;
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•
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making us more vulnerable to adverse changes in general economic, industry, government regulatory, and competitive conditions in our business by limiting our ability to plan for and react to changing conditions;
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•
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placing us at a competitive disadvantage compared with our competitors with less debt; and
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•
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exposing us to risks inherent in interest rate fluctuations, because our borrowings are at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.
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•
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govern activities or operations that may have adverse environmental effects, such as discharges into the air and water, as well as waste handling and disposal practices for solid and hazardous wastes; and
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•
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impose liability for the costs of cleaning up, and the damage resulting from, sites of past spills, disposals, or other releases of hazardous materials.
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•
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variations in our quarterly or annual operating results;
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•
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changes in our earnings estimates, if provided, or differences between our actual financial and operating results and those expected by investors and analysts;
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•
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the contents of published research reports about us or our industry, or the failure of securities analysts to cover our common stock;
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•
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additions or departures of key management personnel;
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•
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any increased indebtedness that we may incur in the future;
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•
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announcements by us or others and developments affecting us;
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•
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actions by institutional stockholders;
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•
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litigation and governmental investigations;
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•
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legislative or regulatory changes;
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•
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judicial pronouncements interpreting laws and regulations;
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•
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changes in government programs;
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•
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changes in market valuations of similar companies;
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•
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speculation or reports by the press or investment community with respect to us or our industry in general;
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•
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announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic relationships, joint ventures, or capital commitments; and
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•
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general market, political, and economic conditions, including local conditions in the markets in which we operate.
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•
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provide for a classified board of directors with staggered three-year terms;
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•
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do not permit cumulative voting in the election of directors, which would allow a minority of stockholders to elect director candidates;
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•
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delegate the sole power to a majority of the board of directors to fix the number of directors;
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•
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provide the power to our board of directors to fill any vacancy on our board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise;
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•
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authorize the issuance of “blank check” preferred stock without any need for action by stockholders;
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•
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eliminate the ability of stockholders to call special meetings of stockholders;
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•
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establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings; and
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•
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provide that, on or after the date that LLC ceases to beneficially own at least 40% of the total votes eligible to be cast in the election of directors, a 75% supermajority vote will be required to amend or repeal provisions relating to, among other things, the classification of the board of directors, the filling of vacancies on the board of directors, and the advance notice requirements for stockholder proposals and director nominations.
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ITEM 1B.
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UNRESOLVED STAFF COMMENTS
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ITEM 2.
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PROPERTIES
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State
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Company-
Operated
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Franchised
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Total
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|||
California
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163
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|
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216
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379
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Nevada
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22
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5
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27
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Arizona
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7
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20
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27
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Texas
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19
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|
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20
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|
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39
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Utah
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1
|
|
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4
|
|
|
5
|
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Total
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212
|
|
|
265
|
|
|
477
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ITEM 3.
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LEGAL PROCEEDINGS
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ITEM 4.
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MINE SAFETY DISCLOSURE
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Low
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High
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||||
Fiscal 2016:
|
|
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|
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||
First Quarter (December 31, 2015-March 30, 2016)
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$
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10.21
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$
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15.44
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Second Quarter (March 31, 2016-June 29, 2016)
|
$
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10.50
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|
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$
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14.98
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Third Quarter (June 30, 2016-September 28, 2016)
|
$
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12.16
|
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$
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14.61
|
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Fourth Quarter (September 29, 2016-December 28, 2016)
|
$
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10.08
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$
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13.50
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Fiscal 2017:
|
|
|
|
|
|
||
First Quarter (December 29, 2016-March 29, 2017)
|
$
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10.75
|
|
|
$
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13.55
|
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Second Quarter (March 30, 2017-June 28, 2017)
|
$
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11.50
|
|
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$
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14.85
|
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Third Quarter (June 29, 2017-September 27, 2017)
|
$
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11.00
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$
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14.35
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Fourth Quarter (September 28, 2017-December 27, 2017)
|
$
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9.55
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$
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12.55
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Date
|
LOCO
|
|
NASDAQ
Composite
|
|
S&P Supercomposite
Restaurants Index
|
||||||
July 25, 2014
|
$
|
100.00
|
|
|
$
|
100.00
|
|
|
$
|
100.00
|
|
September 24, 2014
|
$
|
148.65
|
|
|
$
|
102.61
|
|
|
$
|
99.36
|
|
December 31, 2014
|
$
|
83.10
|
|
|
$
|
107.02
|
|
|
$
|
105.22
|
|
April 1, 2015
|
$
|
104.91
|
|
|
$
|
110.61
|
|
|
$
|
112.22
|
|
July 1, 2015
|
$
|
85.19
|
|
|
$
|
113.95
|
|
|
$
|
119.52
|
|
September 30, 2015
|
$
|
44.86
|
|
|
$
|
105.30
|
|
|
$
|
121.36
|
|
December 30, 2015
|
$
|
52.77
|
|
|
$
|
115.81
|
|
|
$
|
127.95
|
|
March 30, 2016
|
$
|
55.97
|
|
|
$
|
111.68
|
|
|
$
|
133.22
|
|
June 29, 2016
|
$
|
52.73
|
|
|
$
|
109.97
|
|
|
$
|
128.46
|
|
September 28, 2016
|
$
|
54.35
|
|
|
$
|
122.74
|
|
|
$
|
127.33
|
|
December 28, 2016
|
$
|
52.43
|
|
|
$
|
125.90
|
|
|
$
|
136.03
|
|
March 29, 2017
|
$
|
49.94
|
|
|
$
|
136.91
|
|
|
$
|
141.62
|
|
June 28, 2017
|
$
|
59.09
|
|
|
$
|
145.13
|
|
|
$
|
157.36
|
|
September 27, 2017
|
$
|
49.94
|
|
|
$
|
150.61
|
|
|
$
|
150.68
|
|
December 27, 2017
|
$
|
41.61
|
|
|
$
|
162.38
|
|
|
$
|
165.58
|
|
ITEM 6.
|
SELECTED FINANCIAL DATA
|
|
Fiscal Year
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Revenue
|
|
|
|
|
|
|
|
|
|
||||||||||
Company-operated restaurant revenue
|
$
|
376,615
|
|
|
$
|
355,468
|
|
|
$
|
332,040
|
|
|
$
|
322,516
|
|
|
$
|
294,327
|
|
Franchise revenue
|
25,086
|
|
|
24,655
|
|
|
23,017
|
|
|
22,345
|
|
|
20,400
|
|
|||||
Total revenue
|
401,701
|
|
|
380,123
|
|
|
355,057
|
|
|
344,861
|
|
|
314,727
|
|
|||||
Cost of operations
|
|
|
|
|
|
|
|
|
|
||||||||||
Food and paper costs
|
109,898
|
|
|
107,218
|
|
|
105,917
|
|
|
102,611
|
|
|
93,589
|
|
|||||
Labor and related expenses
|
106,584
|
|
|
97,471
|
|
|
84,231
|
|
|
80,646
|
|
|
75,669
|
|
|||||
Occupancy and other operating expenses
|
85,631
|
|
|
78,263
|
|
|
69,977
|
|
|
68,538
|
|
|
63,150
|
|
|||||
Gain on recovery of insurance proceeds, lost profits
|
—
|
|
|
(502
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Company restaurant expenses
|
302,113
|
|
|
282,450
|
|
|
260,125
|
|
|
251,795
|
|
|
232,408
|
|
|||||
General and administrative expenses
|
38,523
|
|
|
34,661
|
|
|
28,997
|
|
|
29,519
|
|
|
25,506
|
|
|||||
Franchise expenses
|
3,335
|
|
|
3,823
|
|
|
3,456
|
|
|
3,704
|
|
|
3,841
|
|
|||||
Depreciation and amortization
|
18,128
|
|
|
16,053
|
|
|
13,092
|
|
|
11,538
|
|
|
10,213
|
|
|||||
Loss on disposal of assets
|
799
|
|
|
674
|
|
|
471
|
|
|
646
|
|
|
868
|
|
|||||
Expenses related to fire loss
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Gain on recovery of insurance proceeds, property,
equipment and expenses |
—
|
|
|
(741
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Recovery of securities lawsuits related legal expenses
|
(1,666
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Asset impairment and closed-store reserves
|
33,645
|
|
|
8,554
|
|
|
92
|
|
|
1,033
|
|
|
(101
|
)
|
|||||
Total expenses
|
394,877
|
|
|
345,522
|
|
|
306,233
|
|
|
298,235
|
|
|
272,735
|
|
|||||
Gain on disposition of restaurants
|
—
|
|
|
28
|
|
|
—
|
|
|
2,658
|
|
|
400
|
|
|||||
Income from operations
|
6,824
|
|
|
34,629
|
|
|
48,824
|
|
|
49,284
|
|
|
42,392
|
|
|||||
Interest expense, net
|
3,278
|
|
|
3,155
|
|
|
3,707
|
|
|
18,062
|
|
|
36,334
|
|
|||||
Early extinguishment of debt
|
—
|
|
|
—
|
|
|
—
|
|
|
9,718
|
|
|
21,530
|
|
|||||
Expenses related to selling shareholders
|
—
|
|
|
—
|
|
|
50
|
|
|
667
|
|
|
—
|
|
|||||
Income tax receivable agreement (income) expense
|
(5,570
|
)
|
|
352
|
|
|
156
|
|
|
41,382
|
|
|
—
|
|
|||||
Income (loss) before (provision) benefit for income taxes
|
9,116
|
|
|
31,122
|
|
|
44,911
|
|
|
(20,545
|
)
|
|
(15,472
|
)
|
|||||
(Provision) benefit for income taxes
|
(497
|
)
|
|
(12,783
|
)
|
|
(20,857
|
)
|
|
63,008
|
|
|
(1,401
|
)
|
|||||
Net income (loss)
|
$
|
8,619
|
|
|
$
|
18,339
|
|
|
$
|
24,054
|
|
|
$
|
42,463
|
|
|
$
|
(16,873
|
)
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
$
|
0.22
|
|
|
$
|
0.48
|
|
|
$
|
0.63
|
|
|
$
|
1.32
|
|
|
$
|
(0.59
|
)
|
Diluted
|
$
|
0.22
|
|
|
$
|
0.47
|
|
|
$
|
0.62
|
|
|
$
|
1.24
|
|
|
$
|
(0.59
|
)
|
Weighted average shares used in computing net income (loss) per share
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
38,453,347
|
|
|
38,357,805
|
|
|
37,949,316
|
|
|
32,285,484
|
|
|
28,712,622
|
|
|||||
Diluted
|
39,086,676
|
|
|
39,026,950
|
|
|
39,039,558
|
|
|
34,346,241
|
|
|
28,712,622
|
|
|||||
Consolidated Statements of Cash Flows Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Net cash provided by operating activities
|
$
|
53,671
|
|
|
$
|
49,299
|
|
|
$
|
57,971
|
|
|
$
|
26,085
|
|
|
$
|
19,700
|
|
Net cash used in investing activities
|
$
|
(36,238
|
)
|
|
$
|
(35,202
|
)
|
|
$
|
(30,835
|
)
|
|
$
|
(21,401
|
)
|
|
$
|
(13,787
|
)
|
Net cash used in financing activities
|
$
|
(11,051
|
)
|
|
$
|
(18,030
|
)
|
|
$
|
(32,534
|
)
|
|
$
|
(10,200
|
)
|
|
$
|
(10,385
|
)
|
|
Fiscal Year
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
Balance Sheet Data—Consolidated (at period end):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
$
|
8,550
|
|
|
$
|
2,168
|
|
|
$
|
6,101
|
|
|
$
|
11,499
|
|
|
$
|
17,015
|
|
Net property
(1)
|
$
|
102,794
|
|
|
$
|
118,470
|
|
|
$
|
102,421
|
|
|
$
|
82,090
|
|
|
$
|
68,641
|
|
Total assets
|
$
|
442,711
|
|
|
$
|
471,305
|
|
|
$
|
461,028
|
|
|
$
|
455,306
|
|
|
$
|
416,942
|
|
Total debt
(2)
|
$
|
93,316
|
|
|
$
|
104,461
|
|
|
$
|
123,638
|
|
|
$
|
165,846
|
|
|
$
|
289,242
|
|
Total stockholders’ equity
|
$
|
274,950
|
|
|
$
|
265,182
|
|
|
$
|
244,633
|
|
|
$
|
210,400
|
|
|
$
|
48,536
|
|
(1)
|
Net property consists of property owned, net of accumulated depreciation and amortization.
|
(2)
|
Total debt consists of borrowings under the 2014 Revolver, 2013 Credit Agreements, and 2011 Financing Agreements (each, as defined in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Debt and Other Obligations”), and our capital lease obligations.
|
ITEM 7.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
|
Fiscal Year
|
||||||||||
(Dollar amounts in thousands)
|
2017
|
|
2016
|
|
2015
|
||||||
Company-operated restaurant revenue
|
$
|
376,615
|
|
|
$
|
355,468
|
|
|
$
|
332,040
|
|
Franchise revenue
|
25,086
|
|
|
24,655
|
|
|
23,017
|
|
|||
Total Revenue
|
401,701
|
|
|
380,123
|
|
|
355,057
|
|
|||
Franchise revenue
|
(25,086
|
)
|
|
(24,655
|
)
|
|
(23,017
|
)
|
|||
Sales from franchised restaurants
|
465,149
|
|
|
439,973
|
|
|
421,344
|
|
|||
System-wide sales
|
$
|
841,764
|
|
|
$
|
795,441
|
|
|
$
|
753,384
|
|
|
Fiscal Year
|
||||||||||
(Dollar amounts in thousands)
|
2017
|
|
2016
|
|
2015
|
||||||
Company-operated restaurant revenue
|
$
|
376,615
|
|
|
$
|
355,468
|
|
|
$
|
332,040
|
|
Company restaurant expenses
|
302,113
|
|
|
282,450
|
|
|
260,125
|
|
|||
Restaurant contribution
|
$
|
74,502
|
|
|
$
|
73,018
|
|
|
$
|
71,915
|
|
Restaurant contribution margin (%)
|
19.8
|
%
|
|
20.5
|
%
|
|
21.7
|
%
|
|
Fiscal Year
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
Net income
|
$
|
8,619
|
|
|
$
|
18,339
|
|
|
$
|
24,054
|
|
Non-GAAP adjustments:
|
|
|
|
|
|
|
|
|
|||
Provision for income taxes
|
497
|
|
|
12,783
|
|
|
20,857
|
|
|||
Interest expense, net
|
3,278
|
|
|
3,155
|
|
|
3,707
|
|
|||
Depreciation and amortization
|
18,128
|
|
|
16,053
|
|
|
13,092
|
|
|||
EBITDA
|
$
|
30,522
|
|
|
$
|
50,330
|
|
|
$
|
61,710
|
|
Stock based compensation expense
(a)
|
1,056
|
|
|
1,063
|
|
|
539
|
|
|||
Loss on disposal of assets
(b) (c)
|
799
|
|
|
674
|
|
|
471
|
|
|||
Expenses related to fire loss
(c)
|
—
|
|
|
48
|
|
|
—
|
|
|||
Gain on recovery of insurance proceeds, property, equipment,
and expenses (c) |
—
|
|
|
(741
|
)
|
|
—
|
|
|||
Recovery of securities lawsuits related legal expense(d)
|
(1,666
|
)
|
|
—
|
|
|
—
|
|
|||
Asset impairment and closed-store reserves
(e)
|
33,645
|
|
|
8,554
|
|
|
92
|
|
|||
Gain on disposition of restaurants
(f)
|
—
|
|
|
(28
|
)
|
|
—
|
|
|||
Expense related to selling shareholders
(g)
|
—
|
|
|
—
|
|
|
50
|
|
|||
Income tax receivable agreement (income) expense
(h)
|
(5,570
|
)
|
|
352
|
|
|
156
|
|
|||
Securities class action legal expense
(i)
|
4,236
|
|
|
2,696
|
|
|
993
|
|
|||
Pre-opening costs
(j)
|
1,981
|
|
|
2,624
|
|
|
1,456
|
|
|||
Executive transition costs(k)
|
284
|
|
|
—
|
|
|
—
|
|
|||
Adjusted EBITDA
|
$
|
65,287
|
|
|
$
|
65,572
|
|
|
$
|
65,467
|
|
(a)
|
Includes non-cash, stock-based compensation.
|
(b)
|
Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or equipment.
|
(c)
|
In November 2015,
one
of the Company’s restaurants incurred damage resulting from a fire. In fiscal 2016, we incurred costs directly related to the fire of less than
$0.1 million
, disposed of assets of an additional
$0.1 million
and recognized gains of
$0.7 million
, related to the reimbursement of property and equipment and expenses incurred and
$0.5 million
related to the reimbursement of lost profits. The reimbursement of lost profits is included in the accompanying consolidated statements of income, for fiscal 2016, as a reduction of company restaurant expenses. The Company received from the insurance company cash of
$1.4 million
, net of the insurance deductible, during fiscal 2016. In fiscal 2015, the Company disposed of
$0.1 million
of assets related to the fire. The restaurant was reopened for business on March 14, 2016.
|
(d)
|
In fiscal
2017
, we received insurance proceeds of
$1.7 million
related to the reimbursement of certain legal expenses paid in prior years for the defense of securities lawsuits. See the Notes to the Condensed Consolidated Financial Statements, Note 13, Commitments and Contingencies, Legal Matters.
|
(e)
|
Includes costs related to impairment of long-lived assets and closing restaurants. During fiscal
2017
, we determined that the carrying value of the assets of
21
restaurants, in Arizona, California and Texas, may not be recoverable. Additionally, we made a strategic decision to close two additional restaurants in Texas. As a result, we recorded a
$32.6 million
expense, primarily related to the impairment of the assets of the restaurants and includes expense of
$27.7 million
, representing the entire remaining value of capitalized assets of all of our company-operated restaurants in Texas, net of previously recorded depreciation. During fiscal
2017
, we closed four restaurants in Texas, one of which was fully impaired during the fourth quarter of 2016, one of which was impaired during the third quarter of 2016 and the other two were impaired in fiscal
2017
. Additionally, we closed one restaurant in Arizona, which was fully impaired in the third quarter of 2016. These closures resulted in closed-store reserve expenses of
$1.1 million
during fiscal
2017
.
|
(f)
|
On June 16, 2016, we completed an agreement to sell one company-operated restaurant in Tucson, Arizona to a franchisee, resulting in cash proceeds of $1.5 million and a net gain of less than $0.1 million, which is recorded as a gain on disposition of restaurants in the accompanying consolidated statement of income. This restaurant is now included in our franchised restaurant totals.
|
(g)
|
Costs related to the sale, in the second quarter of 2015, of 5.4 million shares of common stock in a block trade to various investors, by our largest shareholder, which was at that time our majority shareholder, pursuant to Rule 144 under the Securities Act. This shareholder owns stock in us not registered under the Securities Act. Under our stockholders agreement, this shareholder may require us to register stock in us that it owns, under the Securities Act. In that event, we are responsible for all registration expenses. In lieu of the shareholder’s exercise of its registration rights, we agreed to bear the expenses incident to the shareholder’s sale of these shares using Rule 144.
|
(h)
|
On July 30, 2014, we entered into the TRA. This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods. For the years ended
December 27, 2017
,
December 28, 2016
, and
December 30, 2015
, income tax receivable agreement (income) expense consisted of the amortization of interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments. For fiscal 2017, the income tax receivable agreement income was primarily due to the Tax Act, and the resulting changes to the Federal corporate income tax rate.
|
(i)
|
Consists of costs related to the defense of securities lawsuits. See the Notes to the Condensed Consolidated Financial Statements, Note 13, Commitments and Contingencies, Legal Matters.
|
(j)
|
Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during training, marketing costs, and other related pre-opening costs. These are generally incurred over the three to five months prior to opening. Pre-opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant.
|
(k)
|
Includes costs associated with the transition of our CEO, such as executive recruiting costs.
|
|
Fiscal Year
|
|||||||
|
2017
|
|
2016
|
|
2015
|
|||
Company-operated restaurant activity:
|
|
|
|
|
|
|
|
|
Beginning of period
|
201
|
|
|
186
|
|
|
172
|
|
Openings
|
16
|
|
|
18
|
|
|
14
|
|
Restaurant sale to franchisee
|
—
|
|
|
(1
|
)
|
|
—
|
|
Closures
|
(5
|
)
|
|
(2
|
)
|
|
—
|
|
Restaurants at end of period
|
212
|
|
|
201
|
|
|
186
|
|
Franchised restaurant activity:
|
|
|
|
|
|
|
|
|
Beginning of period
|
259
|
|
|
247
|
|
|
243
|
|
Openings
|
7
|
|
|
13
|
|
|
5
|
|
Restaurant sale to franchisee
|
—
|
|
|
1
|
|
|
—
|
|
Closures
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
Restaurants at end of period
|
265
|
|
|
259
|
|
|
247
|
|
Total restaurant activity:
|
|
|
|
|
|
|
|
|
Beginning of period
|
460
|
|
|
433
|
|
|
415
|
|
Openings
|
23
|
|
|
31
|
|
|
19
|
|
Closures
|
(6
|
)
|
|
(4
|
)
|
|
(1
|
)
|
Restaurants at end of period
|
477
|
|
|
460
|
|
|
433
|
|
•
|
Under Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes (“ASC 740”), we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. The Tax Act lowers the corporate income tax rate from 35% to 21%. We have estimated the impact of the revaluation of our deferred tax assets and liabilities, which resulted in a decrease to our net deferred income tax liability by $1.4 million and is reflected as a decrease in our income tax expense in our results for fiscal 2017.
|
•
|
The reduced corporate tax rate, also resulted in a Tax Receivable Agreement “TRA” benefit to the provision for income tax expense for fiscal 2017 in the amount of $2.0 million.
|
•
|
The Tax Act is generally effective for tax years beginning after December 31, 2017. As such, the reduction in the corporate income tax rate from 35% to 21% will be effective for the fiscal year ended December 26, 2018.
|
|
Fiscal Year
|
|||||||||||||||||||
|
2017
(52-Weeks)
|
|
2016
(52-Weeks)
|
|
Increase / (Decrease)
|
|||||||||||||||
|
($ ,000)
|
|
(%)
|
|
($ ,000)
|
|
(%)
|
|
($ ,000)
|
|
(%)
|
|||||||||
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Company-operated restaurant revenue
|
$
|
376,615
|
|
|
93.8
|
|
|
$
|
355,468
|
|
|
93.5
|
|
|
$
|
21,147
|
|
|
5.9
|
|
Franchise revenue
|
25,086
|
|
|
6.2
|
|
|
24,655
|
|
|
6.5
|
|
|
431
|
|
|
1.7
|
|
|||
Total revenue
|
401,701
|
|
|
100.0
|
|
|
380,123
|
|
|
100.0
|
|
|
21,578
|
|
|
5.7
|
|
|||
Cost of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Food and paper costs
(1)
|
109,898
|
|
|
29.2
|
|
|
107,218
|
|
|
30.2
|
|
|
2,680
|
|
|
2.5
|
|
|||
Labor and related expenses
(1)
|
106,584
|
|
|
28.3
|
|
|
97,471
|
|
|
27.4
|
|
|
9,113
|
|
|
9.3
|
|
|||
Occupancy and other operating expenses
(1)
|
85,631
|
|
|
22.7
|
|
|
78,263
|
|
|
22.0
|
|
|
7,368
|
|
|
9.4
|
|
|||
Gain on recovery of insurance proceeds, lost profits
(1)
|
—
|
|
|
—
|
|
|
(502
|
)
|
|
(0.1
|
)
|
|
502
|
|
|
(100.0
|
)
|
|||
Company restaurant expenses
(1)
|
302,113
|
|
|
80.2
|
|
|
282,450
|
|
|
79.5
|
|
|
19,663
|
|
|
7.0
|
|
|||
General and administrative expenses
|
38,523
|
|
|
9.6
|
|
|
34,661
|
|
|
9.1
|
|
|
3,862
|
|
|
11.1
|
|
|||
Franchise expenses
|
3,335
|
|
|
0.8
|
|
|
3,823
|
|
|
1.0
|
|
|
(488
|
)
|
|
(12.8
|
)
|
|||
Depreciation and amortization
|
18,128
|
|
|
4.5
|
|
|
16,053
|
|
|
4.2
|
|
|
2,075
|
|
|
12.9
|
|
|||
Loss on disposal of assets
|
799
|
|
|
0.2
|
|
|
674
|
|
|
0.2
|
|
|
125
|
|
|
18.5
|
|
|||
Expenses related to fire loss
|
—
|
|
|
—
|
|
|
48
|
|
|
0.0
|
|
|
(48
|
)
|
|
(100.0
|
)
|
|||
Gain on recovery of insurance proceeds, property,
equipment and expenses |
—
|
|
|
—
|
|
|
(741
|
)
|
|
(0.2
|
)
|
|
741
|
|
|
(100.0
|
)
|
|||
Recovery of securities lawsuits related legal expenses
|
(1,666
|
)
|
|
(0.4
|
)
|
|
—
|
|
|
—
|
|
|
(1,666
|
)
|
|
NA
|
|
|||
Asset impairment and closed-store reserves
|
33,645
|
|
|
8.4
|
|
|
8,554
|
|
|
2.3
|
|
|
25,091
|
|
|
293.3
|
|
|||
Total expenses
|
394,877
|
|
|
98.3
|
|
|
345,522
|
|
|
90.9
|
|
|
49,355
|
|
|
14.3
|
|
|||
Gain on disposition of restaurants
|
—
|
|
|
0.0
|
|
|
28
|
|
|
0.0
|
|
|
(28
|
)
|
|
(100.0
|
)
|
|||
Income from operations
|
6,824
|
|
|
1.7
|
|
|
34,629
|
|
|
9.1
|
|
|
(27,805
|
)
|
|
(80.3
|
)
|
|||
Interest expense, net
|
3,278
|
|
|
0.8
|
|
|
3,155
|
|
|
0.8
|
|
|
123
|
|
|
3.9
|
|
|||
Income tax receivable agreement (income) expense
|
(5,570
|
)
|
|
(1.4
|
)
|
|
352
|
|
|
0.1
|
|
|
(5,922
|
)
|
|
(1,682.4
|
)
|
|||
Income before provision for income taxes
|
9,116
|
|
|
2.3
|
|
|
31,122
|
|
|
8.2
|
|
|
(22,006
|
)
|
|
(70.7
|
)
|
|||
Provision for income taxes
|
(497
|
)
|
|
(0.1
|
)
|
|
(12,783
|
)
|
|
(3.4
|
)
|
|
12,286
|
|
|
(96.1
|
)
|
|||
Net income
|
$
|
8,619
|
|
|
2.1
|
|
|
$
|
18,339
|
|
|
4.8
|
|
|
$
|
(9,720
|
)
|
|
(53.0
|
)
|
(1)
|
Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator. All other percentages use total revenue.
|
•
|
Under Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes (“ASC 740”), we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. The Tax Act lowers the corporate income tax rate from 35% to 21%. We have estimated the impact of the
|
•
|
The reduced corporate tax rate, also resulted in a Tax Receivable Agreement “TRA” benefit to the provision for income tax expense for fiscal 2017 in the amount of $2.0 million.
|
•
|
The Tax Act is generally effective for tax years beginning after December 31, 2017. As such, the reduction in the corporate income tax rate from 35% to 21% will be effective for the fiscal year ended December 26, 2018.
|
|
Fiscal Year
|
|||||||||||||||||||
|
2016
(52-Weeks)
|
|
2015
(52-Weeks)
|
|
Increase / (Decrease)
|
|||||||||||||||
|
($ ,000)
|
|
(%)
|
|
($ ,000)
|
|
(%)
|
|
($ ,000)
|
|
(%)
|
|||||||||
Statements of Income Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Company-operated restaurant revenue
|
$
|
355,468
|
|
|
93.5
|
|
|
$
|
332,040
|
|
|
93.5
|
|
|
$
|
23,428
|
|
|
7.1
|
|
Franchise revenue
|
24,655
|
|
|
6.5
|
|
|
23,017
|
|
|
6.5
|
|
|
1,638
|
|
|
7.1
|
|
|||
Total revenue
|
380,123
|
|
|
100.0
|
|
|
355,057
|
|
|
100.0
|
|
|
25,066
|
|
|
7.1
|
|
|||
Cost of operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Food and paper costs
(1)
|
107,218
|
|
|
30.2
|
|
|
105,917
|
|
|
31.9
|
|
|
1,301
|
|
|
1.2
|
|
|||
Labor and related expenses
(1)
|
97,471
|
|
|
27.4
|
|
|
84,231
|
|
|
25.4
|
|
|
13,240
|
|
|
15.7
|
|
|||
Occupancy and other operating expenses
(1)
|
78,263
|
|
|
22.0
|
|
|
69,977
|
|
|
21.1
|
|
|
8,286
|
|
|
11.8
|
|
|||
Gain on recovery of insurance proceeds, lost profits
(1)
|
(502
|
)
|
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|
(502
|
)
|
|
N/A
|
|
|||
Company restaurant expenses
(1)
|
282,450
|
|
|
79.5
|
|
|
260,125
|
|
|
78.3
|
|
|
22,325
|
|
|
8.6
|
|
|||
General and administrative expenses
|
34,661
|
|
|
9.1
|
|
|
28,997
|
|
|
8.2
|
|
|
5,664
|
|
|
19.5
|
|
|||
Franchise expenses
|
3,823
|
|
|
1.0
|
|
|
3,456
|
|
|
1.0
|
|
|
367
|
|
|
10.6
|
|
|||
Depreciation and amortization
|
16,053
|
|
|
4.2
|
|
|
13,092
|
|
|
3.7
|
|
|
2,961
|
|
|
22.6
|
|
|||
Loss on disposal of assets
|
674
|
|
|
0.2
|
|
|
471
|
|
|
0.1
|
|
|
203
|
|
|
43.1
|
|
|||
Expenses related to fire loss
|
48
|
|
|
0.0
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
N/A
|
|
|||
Gain on recovery of insurance proceeds, property,
equipment and expenses
|
(741
|
)
|
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
(741
|
)
|
|
N/A
|
|
|||
Asset impairment and closed-store reserves
|
8,554
|
|
|
2.3
|
|
|
92
|
|
|
0.0
|
|
|
8,462
|
|
|
9,197.8
|
|
|||
Total expenses
|
345,522
|
|
|
90.9
|
|
|
306,233
|
|
|
86.2
|
|
|
39,289
|
|
|
12.8
|
|
|||
Gain on disposition of restaurants
|
28
|
|
|
0.0
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
100.0
|
|
|||
Income from operations
|
34,629
|
|
|
9.1
|
|
|
48,824
|
|
|
13.8
|
|
|
(14,195
|
)
|
|
(29.1
|
)
|
|||
Interest expense, net
|
3,155
|
|
|
0.8
|
|
|
3,707
|
|
|
1.0
|
|
|
(552
|
)
|
|
(14.9
|
)
|
|||
Expenses related to selling shareholders
|
—
|
|
|
—
|
|
|
50
|
|
|
0.0
|
|
|
(50
|
)
|
|
(100.0
|
)
|
|||
Income tax receivable agreement expense
|
352
|
|
|
0.1
|
|
|
156
|
|
|
0.0
|
|
|
196
|
|
|
125.6
|
|
|||
Income before provision for income taxes
|
31,122
|
|
|
8.2
|
|
|
44,911
|
|
|
12.6
|
|
|
(13,789
|
)
|
|
(30.7
|
)
|
|||
Provision for income taxes
|
(12,783
|
)
|
|
(3.4
|
)
|
|
(20,857
|
)
|
|
(5.9
|
)
|
|
8,074
|
|
|
(38.7
|
)
|
|||
Net income
|
$
|
18,339
|
|
|
4.8
|
|
|
$
|
24,054
|
|
|
6.8
|
|
|
$
|
(5,715
|
)
|
|
(23.8
|
)
|
(1)
|
Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant revenue as the denominator. All other percentages use total revenue.
|
|
Fiscal Year
|
||||||||||
(Amounts in thousands)
|
2017
|
|
2016
|
|
2015
|
||||||
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
|||
Operating activities
|
$
|
53,671
|
|
|
$
|
49,299
|
|
|
$
|
57,971
|
|
Investing activities
|
(36,238
|
)
|
|
(35,202
|
)
|
|
(30,835
|
)
|
|||
Financing activities
|
(11,051
|
)
|
|
(18,030
|
)
|
|
(32,534
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
$
|
6,382
|
|
|
$
|
(3,933
|
)
|
|
$
|
(5,398
|
)
|
|
Payments Due by Period
|
||||||||||||||||||
(Amounts in thousands)
|
Total
|
|
2018
|
|
2019-
2020
|
|
2021-
2022
|
|
2023 and
thereafter
|
||||||||||
Operating leases
|
$
|
298,149
|
|
|
$
|
25,270
|
|
|
$
|
48,921
|
|
|
$
|
44,376
|
|
|
$
|
179,582
|
|
Capital leases
|
420
|
|
|
172
|
|
|
149
|
|
|
99
|
|
|
—
|
|
|||||
Long-term debt
|
102,196
|
|
|
3,054
|
|
|
99,142
|
|
|
—
|
|
|
—
|
|
|||||
Income tax receivable agreement
|
21,975
|
|
|
8,281
|
|
|
8,528
|
|
|
3,950
|
|
|
1,216
|
|
|||||
Purchasing commitments—chicken
|
30,835
|
|
|
30,835
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
453,575
|
|
|
$
|
67,612
|
|
|
$
|
156,740
|
|
|
$
|
48,425
|
|
|
$
|
180,798
|
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 8.
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
Audited Consolidated Financial Statements
|
|
Report of Independent Registered Public Accounting Firm
|
|
Consolidated Balance Sheets—December 27, 2017 and December 28, 2016
|
|
Consolidated Statements of Income—For the years ended December 27, 2017, December 28, 2016, and December 30, 2015
|
|
Consolidated Statements of Changes in Stockholders’ Equity—For the years ended December 27, 2017, December 28, 2016, and December 30, 2015
|
|
Consolidated Statements of Cash Flows—For the years ended December 27, 2017, December 28, 2016 and December 30, 2015
|
|
Notes to Consolidated Financial Statements
|
|
December 27, 2017
|
|
December 28, 2016
|
||||
Assets
|
|
|
|
|
|
||
Current assets:
|
|
|
|
|
|
||
Cash and cash equivalents
|
$
|
8,550
|
|
|
$
|
2,168
|
|
Restricted cash
|
—
|
|
|
125
|
|
||
Accounts and other receivables, net
|
7,212
|
|
|
6,919
|
|
||
Inventories
|
2,289
|
|
|
2,112
|
|
||
Prepaid expenses and other current assets
|
2,679
|
|
|
3,104
|
|
||
Total current assets
|
20,730
|
|
|
14,428
|
|
||
Property and equipment owned, net
|
102,794
|
|
|
118,470
|
|
||
Property held under capital lease, net
|
40
|
|
|
64
|
|
||
Goodwill
|
248,674
|
|
|
248,674
|
|
||
Trademarks
|
61,888
|
|
|
61,888
|
|
||
Other intangible assets, net
|
377
|
|
|
484
|
|
||
Deferred tax assets
|
7,167
|
|
|
25,905
|
|
||
Other assets
|
1,041
|
|
|
1,392
|
|
||
Total assets
|
$
|
442,711
|
|
|
$
|
471,305
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
||
Current liabilities:
|
|
|
|
|
|
||
Current portion of obligations under capital leases
|
$
|
132
|
|
|
$
|
144
|
|
Accounts payable
|
12,307
|
|
|
11,637
|
|
||
Accrued salaries and vacation
|
7,339
|
|
|
5,754
|
|
||
Accrued insurance
|
5,851
|
|
|
5,444
|
|
||
Accrued income taxes payable
|
35
|
|
|
120
|
|
||
Accrued interest
|
110
|
|
|
198
|
|
||
Current portion of income tax receivable agreement payable
|
8,281
|
|
|
12,349
|
|
||
Other accrued expenses and current liabilities
|
13,270
|
|
|
9,672
|
|
||
Total current liabilities
|
47,325
|
|
|
45,318
|
|
||
Revolver loan
|
93,000
|
|
|
104,000
|
|
||
Obligations under capital leases, net of current portion
|
184
|
|
|
317
|
|
||
Deferred taxes
|
—
|
|
|
18,488
|
|
||
Other intangible liabilities, net
|
786
|
|
|
1,012
|
|
||
Income tax receivable agreement payable, net of current portion
|
13,694
|
|
|
26,306
|
|
||
Other noncurrent liabilities
|
12,772
|
|
|
10,682
|
|
||
Total liabilities
|
167,761
|
|
|
206,123
|
|
||
Commitments and contingencies
|
|
|
|
|
|
||
Stockholders’ Equity
|
|
|
|
|
|
||
Preferred stock, $0.01 par value—100,000,000 shares authorized; none issued or
outstanding
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value—200,000,000 shares authorized; 38,661,850 and
38,473,772 shares issued and outstanding
|
387
|
|
|
385
|
|
||
Additional paid-in capital
|
372,990
|
|
|
371,843
|
|
||
Accumulated deficit
|
(98,427
|
)
|
|
(107,046
|
)
|
||
Total stockholders’ equity
|
274,950
|
|
|
265,182
|
|
||
Total liabilities and stockholders’ equity
|
$
|
442,711
|
|
|
$
|
471,305
|
|
For the Years Ended
|
December 27, 2017
|
|
December 28, 2016
|
|
December 30, 2015
|
||||||
Revenue
|
|
|
|
|
|
|
|
|
|||
Company-operated restaurant revenue
|
$
|
376,615
|
|
|
$
|
355,468
|
|
|
$
|
332,040
|
|
Franchise revenue
|
25,086
|
|
|
24,655
|
|
|
23,017
|
|
|||
Total revenue
|
401,701
|
|
|
380,123
|
|
|
355,057
|
|
|||
Cost of operations
|
|
|
|
|
|
|
|
|
|||
Food and paper costs
|
109,898
|
|
|
107,218
|
|
|
105,917
|
|
|||
Labor and related expenses
|
106,584
|
|
|
97,471
|
|
|
84,231
|
|
|||
Occupancy and other operating expenses
|
85,631
|
|
|
78,263
|
|
|
69,977
|
|
|||
Gain on recovery of insurance proceeds, lost profits
|
—
|
|
|
(502
|
)
|
|
—
|
|
|||
Company restaurant expenses
|
302,113
|
|
|
282,450
|
|
|
260,125
|
|
|||
General and administrative expenses
|
38,523
|
|
|
34,661
|
|
|
28,997
|
|
|||
Franchise expenses
|
3,335
|
|
|
3,823
|
|
|
3,456
|
|
|||
Depreciation and amortization
|
18,128
|
|
|
16,053
|
|
|
13,092
|
|
|||
Loss on disposal of assets
|
799
|
|
|
674
|
|
|
471
|
|
|||
Expenses related to fire loss
|
—
|
|
|
48
|
|
|
—
|
|
|||
Gain on recovery of insurance proceeds, property,
equipment and expenses
|
—
|
|
|
(741
|
)
|
|
—
|
|
|||
Recovery of securities lawsuits related legal expenses
|
(1,666
|
)
|
|
—
|
|
|
—
|
|
|||
Asset impairment and closed-store reserves
|
33,645
|
|
|
8,554
|
|
|
92
|
|
|||
Total expenses
|
394,877
|
|
|
345,522
|
|
|
306,233
|
|
|||
Gain on disposition of restaurants
|
—
|
|
|
28
|
|
|
—
|
|
|||
Income from operations
|
6,824
|
|
|
34,629
|
|
|
48,824
|
|
|||
Interest expense—net of interest income of $25, $28, and $49 for the years
ended December 27, 2017, December 28, 2016, and December 30, 2015,
respectively
|
3,278
|
|
|
3,155
|
|
|
3,707
|
|
|||
Expenses related to selling shareholders
|
—
|
|
|
—
|
|
|
50
|
|
|||
Income tax receivable agreement (income) expense
|
(5,570
|
)
|
|
352
|
|
|
156
|
|
|||
Income before provision for income
taxes
|
9,116
|
|
|
31,122
|
|
|
44,911
|
|
|||
Provision for income taxes
|
(497
|
)
|
|
(12,783
|
)
|
|
(20,857
|
)
|
|||
Net income
|
$
|
8,619
|
|
|
$
|
18,339
|
|
|
$
|
24,054
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|||
Basic
|
$
|
0.22
|
|
|
$
|
0.48
|
|
|
$
|
0.63
|
|
Diluted
|
$
|
0.22
|
|
|
$
|
0.47
|
|
|
$
|
0.62
|
|
Weighted average shares used in computing net income per share:
|
|
|
|
|
|
|
|
|
|||
Basic
|
38,453,347
|
|
|
38,357,805
|
|
|
37,949,316
|
|
|||
Diluted
|
39,086,676
|
|
|
39,026,950
|
|
|
39,039,558
|
|
|
Common Stock
|
|
Additional
Paid-in Capital
|
|
Accumulated Deficit
|
|
Total
Stockholders’ Equity
|
|||||||||||
|
Shares
|
|
Amount
|
|
|
|
||||||||||||
Balance, December 31, 2014
|
37,420,450
|
|
|
$
|
374
|
|
|
$
|
359,465
|
|
|
$
|
(149,439
|
)
|
|
$
|
210,400
|
|
Stock based compensation
|
—
|
|
|
—
|
|
|
539
|
|
|
—
|
|
|
539
|
|
||||
Issuance of common stock upon exercise of stock options
|
863,985
|
|
|
9
|
|
|
4,211
|
|
|
—
|
|
|
4,220
|
|
||||
Excess income tax benefit related to share-based
compensation plans |
—
|
|
|
—
|
|
|
5,420
|
|
|
—
|
|
|
5,420
|
|
||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
24,054
|
|
|
24,054
|
|
||||
Balance, December 30, 2015
|
38,284,435
|
|
|
383
|
|
|
369,635
|
|
|
(125,385
|
)
|
|
244,633
|
|
||||
Stock based compensation
|
—
|
|
|
—
|
|
|
1,063
|
|
|
—
|
|
|
1,063
|
|
||||
Issuance of common stock related to restricted shares
|
41,611
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||
Issuance of common stock upon exercise of stock options
|
147,726
|
|
|
2
|
|
|
976
|
|
|
—
|
|
|
978
|
|
||||
Excess income tax benefit related to share-based
compensation plans |
—
|
|
|
—
|
|
|
169
|
|
|
—
|
|
|
169
|
|
||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
18,339
|
|
|
18,339
|
|
||||
Balance, December 28, 2016
|
38,473,772
|
|
|
385
|
|
|
371,843
|
|
|
(107,046
|
)
|
|
265,182
|
|
||||
Stock based compensation
|
—
|
|
|
—
|
|
|
1,056
|
|
|
—
|
|
|
1,056
|
|
||||
Issuance of common stock related to restricted shares
|
170,417
|
|
|
2
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
||||
Issuance of common stock upon exercise of stock options
|
17,661
|
|
|
|
|
|
93
|
|
|
—
|
|
|
93
|
|
||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
8,619
|
|
|
8,619
|
|
||||
Balance, December 27, 2017
|
38,661,850
|
|
|
$
|
387
|
|
|
$
|
372,990
|
|
|
$
|
(98,427
|
)
|
|
$
|
274,950
|
|
For the Years Ended
|
December 27, 2017
|
|
December 28, 2016
|
|
December 30, 2015
|
||||||
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|||
Net income
|
$
|
8,619
|
|
|
$
|
18,339
|
|
|
$
|
24,054
|
|
Adjustments to reconcile changes in net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization
|
18,128
|
|
|
16,053
|
|
|
13,092
|
|
|||
Stock-based compensation expense
|
1,056
|
|
|
1,063
|
|
|
539
|
|
|||
Fire insurance proceeds for expenses paid and lost profit
|
—
|
|
|
611
|
|
|
—
|
|
|||
Income tax receivable agreement (income) expense
|
(5,570
|
)
|
|
352
|
|
|
156
|
|
|||
Gain on disposition of restaurants
|
—
|
|
|
(28
|
)
|
|
—
|
|
|||
Loss on disposal of assets
|
799
|
|
|
674
|
|
|
471
|
|
|||
Gain on recovery of insurance proceeds, property, equipment and expenses
|
—
|
|
|
(741
|
)
|
|
—
|
|
|||
Gain on recovery of insurance proceeds, lost profits
|
—
|
|
|
(502
|
)
|
|
—
|
|
|||
Impairment of property and equipment
|
32,594
|
|
|
8,400
|
|
|
181
|
|
|||
Closed-store reserves
|
1,051
|
|
|
154
|
|
|
(89
|
)
|
|||
Amortization of deferred financing costs
|
304
|
|
|
304
|
|
|
304
|
|
|||
Amortization of favorable and unfavorable leases, net
|
(119
|
)
|
|
(82
|
)
|
|
(156
|
)
|
|||
Excess income tax benefit related to share-based compensation plans
|
—
|
|
|
(169
|
)
|
|
(5,420
|
)
|
|||
Deferred income taxes, net
|
250
|
|
|
12,390
|
|
|
15,249
|
|
|||
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|||
Accounts and other receivables, net
|
(294
|
)
|
|
(844
|
)
|
|
(427
|
)
|
|||
Inventories
|
(177
|
)
|
|
(221
|
)
|
|
1
|
|
|||
Prepaid expenses and other current assets
|
425
|
|
|
(448
|
)
|
|
2,452
|
|
|||
Income taxes receivable/payable
|
(85
|
)
|
|
222
|
|
|
5,589
|
|
|||
Other assets
|
47
|
|
|
107
|
|
|
91
|
|
|||
Accounts payable
|
1,088
|
|
|
(4,579
|
)
|
|
2,317
|
|
|||
Accrued salaries and vacation
|
1,585
|
|
|
(939
|
)
|
|
(1,311
|
)
|
|||
Accrued insurance
|
407
|
|
|
423
|
|
|
1,203
|
|
|||
Payment related to tax receivable agreement
|
(11,109
|
)
|
|
(3,236
|
)
|
|
—
|
|
|||
Other accrued expenses and liabilities
|
4,547
|
|
|
1,996
|
|
|
(325
|
)
|
|||
Restricted cash
|
125
|
|
|
—
|
|
|
—
|
|
|||
Net cash provided by operating activities
|
53,671
|
|
|
49,299
|
|
|
57,971
|
|
|||
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|||
Proceeds from disposition of restaurant
|
—
|
|
|
1,465
|
|
|
—
|
|
|||
Proceeds from fire insurance for property and equipment
|
—
|
|
|
743
|
|
|
—
|
|
|||
Purchase of property and equipment
|
(36,238
|
)
|
|
(37,410
|
)
|
|
(30,835
|
)
|
|||
Net cash flows used in investing activities
|
(36,238
|
)
|
|
(35,202
|
)
|
|
(30,835
|
)
|
|||
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|||
Proceeds from borrowings on revolver and term loans
|
8,000
|
|
|
—
|
|
|
—
|
|
|||
Payments on revolver loan
|
(19,000
|
)
|
|
(19,000
|
)
|
|
(42,000
|
)
|
|||
Proceeds from issuance of common stock upon exercise of stock options, net of expenses
|
93
|
|
|
978
|
|
|
4,254
|
|
|||
Payment of obligations under capital leases
|
(144
|
)
|
|
(177
|
)
|
|
(208
|
)
|
|||
Excess income tax benefit related to share-based compensation plans
|
—
|
|
|
169
|
|
|
5,420
|
|
|||
Net cash flows used in financing activities
|
(11,051
|
)
|
|
(18,030
|
)
|
|
(32,534
|
)
|
|||
Increase (decrease) in cash and cash equivalents
|
6,382
|
|
|
(3,933
|
)
|
|
(5,398
|
)
|
|||
Cash and cash equivalents, beginning of year
|
2,168
|
|
|
6,101
|
|
|
11,499
|
|
|||
Cash and cash equivalents, end of year
|
$
|
8,550
|
|
|
$
|
2,168
|
|
|
$
|
6,101
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|||
Cash paid for interest, net of capitalized interest
|
$
|
3,314
|
|
|
$
|
3,086
|
|
|
$
|
3,487
|
|
Cash paid during the year for income taxes, net
|
$
|
336
|
|
|
$
|
171
|
|
|
$
|
18
|
|
Noncash investing and financing activity
|
|
|
|
|
|
|
|
|
|||
Unpaid purchases of property and equipment
|
$
|
4,741
|
|
|
$
|
5,158
|
|
|
$
|
3,201
|
|
Cashless stock option exercise
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
34
|
|
Favorable leasehold interests
|
1 to 18 years (remaining lease term)
|
Unfavorable leasehold interest liability
|
1 to 20 years (remaining lease term)
|
•
|
Level 1: Quoted prices for identical instruments in active markets.
|
•
|
Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.
|
•
|
Level 3: Unobservable inputs used when little or no market data is available.
|
|
|
|
Fair Value Measurements Using
|
|
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Impairment Losses
|
||||||||||
Property and equipment owned, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
32,594
|
|
|
|
|
Fair Value Measurements Using
|
|
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Impairment Losses
|
||||||||||
Property and equipment owned, net
|
$
|
1,614
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,614
|
|
|
$
|
8,400
|
|
|
|
|
Fair Value Measurements Using
|
|
|
||||||||||||||
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Impairment Losses
|
||||||||||
Property and equipment owned, net
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
181
|
|
|
December 27, 2017
|
|
December 28, 2016
|
||||
Land
|
$
|
12,323
|
|
|
$
|
12,323
|
|
Buildings and improvements
|
124,056
|
|
|
125,159
|
|
||
Other property and equipment
|
64,712
|
|
|
65,831
|
|
||
Construction in progress
|
8,225
|
|
|
11,539
|
|
||
|
209,316
|
|
|
214,852
|
|
||
Less: accumulated depreciation and amortization
|
(106,522
|
)
|
|
(96,382
|
)
|
||
|
$
|
102,794
|
|
|
$
|
118,470
|
|
|
December 27, 2017
|
|
December 28, 2016
|
||||
Beginning balance
|
$
|
120,700
|
|
|
$
|
120,700
|
|
Accumulated impairment charges
|
(58,812
|
)
|
|
(58,812
|
)
|
||
Ending balance
|
$
|
61,888
|
|
|
$
|
61,888
|
|
|
December 27, 2017
|
|
December 28, 2016
|
||||
Favorable leasehold interest
|
$
|
6,038
|
|
|
$
|
6,038
|
|
Less: accumulated amortization
|
(5,661
|
)
|
|
(5,554
|
)
|
||
Total favorable leasehold interest, net
|
$
|
377
|
|
|
$
|
484
|
|
Unfavorable leasehold interest liability
|
$
|
(9,156
|
)
|
|
$
|
(9,156
|
)
|
Less: accumulated amortization
|
8,370
|
|
|
8,144
|
|
||
Unfavorable leasehold interest liability, net
|
$
|
(786
|
)
|
|
$
|
(1,012
|
)
|
For the Years Ending
|
Favorable Leasehold
Interest
|
|
Unfavorable Leasehold
Interest
|
||||
December 26, 2018
|
$
|
97
|
|
|
$
|
(144
|
)
|
December 25, 2019
|
94
|
|
|
(136
|
)
|
||
December 30, 2020
|
85
|
|
|
(123
|
)
|
||
December 29, 2021
|
64
|
|
|
(120
|
)
|
||
December 28, 2022
|
37
|
|
|
(107
|
)
|
||
Thereafter
|
—
|
|
|
(156
|
)
|
||
Total
|
$
|
377
|
|
|
$
|
(786
|
)
|
|
Capital Leases
|
|
Operating Leases
|
||||||||||||
For the Years Ending
|
Minimum
Lease
Payments
|
|
Minimum
Sublease
Income
|
|
Minimum
Lease
Payments
|
|
Minimum
Sublease
Income
|
||||||||
December 26, 2018
|
$
|
172
|
|
|
$
|
—
|
|
|
$
|
25,270
|
|
|
$
|
932
|
|
December 25, 2019
|
95
|
|
|
—
|
|
|
25,102
|
|
|
728
|
|
||||
December 30, 2020
|
54
|
|
|
—
|
|
|
23,818
|
|
|
455
|
|
||||
December 29, 2021
|
54
|
|
|
—
|
|
|
22,669
|
|
|
466
|
|
||||
December 28, 2022
|
45
|
|
|
—
|
|
|
21,706
|
|
|
466
|
|
||||
Thereafter
|
—
|
|
|
—
|
|
|
179,582
|
|
|
1,158
|
|
||||
Total
|
$
|
420
|
|
|
$
|
—
|
|
|
$
|
298,147
|
|
|
$
|
4,205
|
|
Less: imputed interest (11.0% to 14.8%)
|
(104
|
)
|
|
|
|
|
|
|
|
|
|
||||
Present value of capital lease obligations
|
316
|
|
|
|
|
|
|
|
|
|
|
||||
Less: current maturities
|
(132
|
)
|
|
|
|
|
|
|
|
|
|
||||
Noncurrent portion
|
$
|
184
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
December 27, 2017
|
|
December 28, 2016
|
|
December 30, 2015
|
||||||
Base rent
|
$
|
24,384
|
|
|
$
|
22,089
|
|
|
$
|
19,944
|
|
Contingent rent
|
259
|
|
|
209
|
|
|
96
|
|
|||
Less: sublease income
|
(2,334
|
)
|
|
(2,540
|
)
|
|
(2,620
|
)
|
|||
Net rent expense
|
$
|
22,309
|
|
|
$
|
19,758
|
|
|
$
|
17,420
|
|
For the Years Ending
|
|
|
|
December 26, 2018
|
$
|
274
|
|
December 25, 2019
|
184
|
|
|
December 30, 2020
|
188
|
|
|
December 29, 2021
|
146
|
|
|
December 28, 2022
|
132
|
|
|
Thereafter
|
352
|
|
|
Total future minimum rental income
|
$
|
1,276
|
|
|
December 27, 2017
|
|
December 28, 2016
|
||||
Accrued sales and property taxes
|
$
|
4,792
|
|
|
$
|
4,223
|
|
Gift card liability
|
2,319
|
|
|
1,870
|
|
||
Other
|
6,159
|
|
|
3,579
|
|
||
Total other accrued expenses and current liabilities
|
$
|
13,270
|
|
|
$
|
9,672
|
|
|
December 27, 2017
|
|
December 28, 2016
|
||||
Deferred rent
|
$
|
9,403
|
|
|
$
|
8,328
|
|
Other
|
3,369
|
|
|
2,354
|
|
||
Total noncurrent liabilities
|
$
|
12,772
|
|
|
$
|
10,682
|
|
For the Years Ended
|
December 27, 2017
|
|
December 28, 2016
|
|
December 30, 2015
|
||||||
Current income taxes:
|
|
|
|
|
|
|
|
|
|||
Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
250
|
|
|
224
|
|
|
188
|
|
|||
Total current
|
250
|
|
|
224
|
|
|
188
|
|
|||
Deferred income taxes:
|
|
|
|
|
|
|
|
|
|||
Federal
|
1,495
|
|
|
9,660
|
|
|
8,871
|
|
|||
State
|
192
|
|
|
2,730
|
|
|
6,378
|
|
|||
Total deferred
|
1,687
|
|
|
12,390
|
|
|
15,249
|
|
|||
Charge in lieu of tax (attributable to stock options)
|
—
|
|
|
169
|
|
|
5,420
|
|
|||
Adjustment to deferred taxes for tax rate change
|
(1,440
|
)
|
|
—
|
|
|
—
|
|
|||
Tax provision for income taxes
|
$
|
497
|
|
|
$
|
12,783
|
|
|
$
|
20,857
|
|
For the Years Ended
|
December 27, 2017
|
|
December 28, 2016
|
|
December 30, 2015
|
|||
Statutory federal income tax rate of 35% applied to
earnings before income taxes and extraordinary items |
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
TRA expense
|
(21.4
|
)
|
|
0.4
|
|
|
0.1
|
|
Revaluation of deferred taxes
|
(15.8
|
)
|
|
—
|
|
|
—
|
|
Change in valuation allowance
|
10.9
|
|
|
1.3
|
|
|
6.5
|
|
WOTC Credit
|
(2.5
|
)
|
|
(0.8
|
)
|
|
—
|
|
State tax benefit (net of federal benefit)
|
0.6
|
|
|
5.0
|
|
|
5.1
|
|
State tax credits
|
—
|
|
|
—
|
|
|
(0.6
|
)
|
Other
|
(1.3
|
)
|
|
0.2
|
|
|
0.3
|
|
Total
|
5.5
|
%
|
|
41.1
|
%
|
|
46.4
|
%
|
|
December 27, 2017
|
|
December 28, 2016
|
||||
Deferred assets:
|
|
|
|
|
|
||
Capital leases
|
$
|
90
|
|
|
$
|
197
|
|
Accrued vacation
|
428
|
|
|
658
|
|
||
Accrued legal
|
—
|
|
|
308
|
|
||
Deferred rent
|
3,516
|
|
|
4,351
|
|
||
Accrued workers’ compensation
|
1,450
|
|
|
1,932
|
|
||
Enterprise zone and other credits
|
12,722
|
|
|
11,982
|
|
||
Net operating losses
|
13,488
|
|
|
30,452
|
|
||
Fixed assets
|
4,176
|
|
|
—
|
|
||
Other
|
2,261
|
|
|
2,737
|
|
||
Total deferred tax assets
|
38,131
|
|
|
52,617
|
|
||
Valuation allowance
|
(4,306
|
)
|
|
(3,311
|
)
|
||
Net deferred tax assets
|
33,825
|
|
|
49,306
|
|
||
Deferred liabilities:
|
|
|
|
|
|
||
Goodwill
|
(6,037
|
)
|
|
(8,809
|
)
|
||
Trademark
|
(17,613
|
)
|
|
(26,463
|
)
|
||
Prepaid expense
|
(380
|
)
|
|
(523
|
)
|
||
Fixed asset
|
—
|
|
|
(1,771
|
)
|
||
Other
|
(2,628
|
)
|
|
(4,323
|
)
|
||
Deferred tax liabilities
|
(26,658
|
)
|
|
(41,889
|
)
|
||
Net deferred tax asset
|
$
|
7,167
|
|
|
$
|
7,417
|
|
Range of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted-Average
Remaining
Contractual Life
(in Years)
|
|
Weighted-
Average Exercise
Price
|
|
Number
Exercisable
|
|
Weighted-Average
Exercise Price
|
||||||
$4.09
|
|
105,418
|
|
|
5.48
|
|
$
|
4.09
|
|
|
105,418
|
|
|
$
|
4.09
|
|
$5.84
|
|
1,599,944
|
|
|
4.49
|
|
5.84
|
|
|
1,599,944
|
|
|
$
|
5.84
|
|
|
$9.65 - $13.95
|
|
464,709
|
|
|
8.68
|
|
12.49
|
|
|
82,424
|
|
|
$
|
11.99
|
|
|
$15.00
|
|
139,032
|
|
|
6.58
|
|
15.00
|
|
|
121,654
|
|
|
$
|
15.00
|
|
|
$4.09 - $15.00
|
|
2,309,103
|
|
|
5.51
|
|
$
|
7.65
|
|
|
1,909,440
|
|
|
$
|
6.59
|
|
For the Years Ended
|
December 27, 2017
|
|
December 28, 2016
|
|
December 30, 2015
|
||||||
Numerator:
|
|
|
|
|
|
|
|
|
|||
Net income
|
$
|
8,619
|
|
|
$
|
18,339
|
|
|
$
|
24,054
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|||
Weighted-average shares outstanding—Basic
|
38,453,347
|
|
|
38,357,805
|
|
|
37,949,316
|
|
|||
Weighted-average shares outstanding—Diluted
|
39,086,676
|
|
|
39,026,950
|
|
|
39,039,558
|
|
|||
Net income per share—Basic
|
$
|
0.22
|
|
|
$
|
0.48
|
|
|
$
|
0.63
|
|
Net income per share—Diluted
|
$
|
0.22
|
|
|
$
|
0.47
|
|
|
$
|
0.62
|
|
Anti-dilutive securities not considered in diluted EPS
calculation
|
747,985
|
|
|
468,705
|
|
|
214,411
|
|
For the Years Ended
|
December 27, 2017
|
|
December 28, 2016
|
|
December 30, 2015
|
|||
Weighted-average shares outstanding—Basic
|
38,453,347
|
|
|
38,357,805
|
|
|
37,949,316
|
|
Dilutive effect of stock options and restricted shares
|
633,329
|
|
|
669,145
|
|
|
1,090,242
|
|
Weighted-average shares outstanding—Diluted
|
39,086,676
|
|
|
39,026,950
|
|
|
39,039,558
|
|
|
2017
|
|
2016
|
||||||||||||||||||||||
(Dollar amounts in thousands, except
share data)
|
Dec.
|
|
Sept.
|
|
June
|
|
Mar
|
|
Dec.
|
|
Sept.
|
|
July
|
|
Apr
|
||||||||||
Selected Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Total revenue ($)
|
95,202
|
|
|
101,155
|
|
|
105,573
|
|
|
99,771
|
|
|
92,479
|
|
|
95,816
|
|
|
97,474
|
|
|
94,354
|
|
||
(Loss) income from Operations ($)
|
(9,665
|
)
|
|
(5,612
|
)
|
|
12,740
|
|
|
9,361
|
|
|
1,926
|
|
|
9,008
|
|
|
13,401
|
|
|
10,294
|
|
||
(Benefit) provision for income taxes
|
(4,757
|
)
|
(3
|
)
|
(2,457
|
)
|
|
4,244
|
|
|
3,467
|
|
|
853
|
|
|
2,830
|
|
|
5,339
|
|
|
3,761
|
|
|
Net (loss) income ($)
|
(38
|
)
|
|
(4,039
|
)
|
|
7,819
|
|
|
4,877
|
|
|
418
|
|
|
5,211
|
|
|
7,267
|
|
|
5,443
|
|
||
Per Share Data
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net (loss) income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Basic
|
—
|
|
|
(0.11
|
)
|
|
0.20
|
|
|
0.13
|
|
|
0.01
|
|
|
0.14
|
|
|
0.19
|
|
|
0.14
|
|
||
Diluted
|
—
|
|
|
(0.11
|
)
|
|
0.20
|
|
|
0.12
|
|
|
0.01
|
|
|
0.13
|
|
|
0.19
|
|
|
0.14
|
|
||
Weighted average shares used in computing net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Basic
|
38,465,208
|
|
|
38,462,100
|
|
|
38,449,240
|
|
|
38,437,020
|
|
|
38,437,020
|
|
|
38,415,189
|
|
|
38,294,575
|
|
|
38,284,435
|
|
||
Diluted
|
38,465,208
|
|
(4)
|
38,462,100
|
|
(4
|
)
|
39,123,961
|
|
|
39,079,007
|
|
|
39,108,967
|
|
|
39,083,577
|
|
|
38,962,802
|
|
|
39,001,078
|
|
|
Selected Operating Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Number of restaurants (at period end)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Company-operated
|
212
|
|
|
208
|
|
|
208
|
|
|
204
|
|
|
201
|
|
|
193
|
|
|
188
|
|
|
188
|
|
||
Franchised
|
265
|
|
|
265
|
|
|
264
|
|
|
263
|
|
|
259
|
|
|
253
|
|
|
251
|
|
|
248
|
|
||
System-wide
|
477
|
|
|
473
|
|
|
472
|
|
|
467
|
|
|
460
|
|
|
446
|
|
|
439
|
|
|
436
|
|
||
Average unit volume (AUV)
(company-operated)
(1)
|
1,787
|
|
|
1,922
|
|
|
1,995
|
|
|
1,913
|
|
|
1,790
|
|
|
1,929
|
|
|
1,970
|
|
|
1,936
|
|
||
Comparable restaurant sales growth (%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Company-operated
|
0.9
|
|
|
0.9
|
|
|
2.4
|
|
|
(0.4
|
)
|
|
(0.6
|
)
|
|
1.4
|
|
|
2.0
|
|
|
(0.6
|
)
|
||
Franchised
|
1.9
|
|
|
2.4
|
|
|
3.2
|
|
|
(0.2
|
)
|
|
(1.9
|
)
|
|
1.8
|
|
|
2.7
|
|
|
1.8
|
|
||
System-wide
|
1.4
|
|
|
1.7
|
|
|
2.9
|
|
|
(0.3
|
)
|
|
(1.3
|
)
|
|
1.6
|
|
|
2.4
|
|
|
0.7
|
|
||
Restaurant contribution margin (%)
|
18.4
|
|
|
18.3
|
|
|
21.8
|
|
|
20.3
|
|
|
18.5
|
|
|
20.9
|
|
|
22.0
|
|
|
20.7
|
|
(1)
|
AUVs consist of average annualized sales of all company-owned restaurants over the fiscal quarter.
|
(2)
|
Due to the use of weighted average shares outstanding for each quarter of computing earnings per share, the sum of the quarterly per share amounts may not equal the per share amount for the year.
|
(3)
|
The Company recorded a benefit for income taxes of
$4.8 million
in the fourth quarter of 2018 related to the newly enacted tax reform. The Tax Act had the following effects on our income tax expense for the year ended December 27, 2017, all of which impacted the fourth quarter:
|
•
|
Under Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 740, Income Taxes (“ASC 740”), we are required to revalue any deferred tax assets or liabilities in the period of enactment of change in tax rates. The Tax Act lowers the corporate income tax rate from 35% to 21%. We have estimated the impact of the
|
•
|
The reduced corporate tax rate, also resulted in a Tax Receivable Agreement “TRA” benefit to the provision for income tax expense for fiscal 2017 in the amount of
$2.0 million
.
|
•
|
The Tax Act is generally effective for tax years beginning after December 31, 2017. As such, the reduction in the corporate income tax rate from 35% to 21% will be effective for the fiscal year ended December 26, 2018.
|
(4)
|
Due to a loss for the period,
zero
incremental shares are included because the effect would be antidilutive.
|
ITEM 9.
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
ITEM 9A.
|
CONTROLS AND PROCEDURES
|
1.
|
Certain accounting staff shared accounting system password information and access with an external consultant, who was not engaged through standard Company channels and subject to standard terms and conditions of engagement, who conducted standard accounting functions and had system administrator access.
|
2.
|
Certain accounting staff, on several occasions, used passwords from other Company employees to enter data for approval on those employees’ behalf and then approved the resulting transactions in the accounting system, thereby circumventing controls over segregation of duties.
|
1.
|
Increased awareness among accounting and information system employees of our existing password, data security and access, and accounting entry policies.
|
2.
|
Designed and implemented controls over system access and password assignments so that users cannot circumvent these controls.
|
3.
|
Changed our vendor approval and payment procedures so that accounting staff in relevant positions cannot engage or pay vendors without additional review and adherence to standard Company policies and provisions for engagement.
|
ITEM 9B.
|
OTHER INFORMATION
|
ITEM 10.
|
DIRECTORS
, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
ITEM 12.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
ITEM 15.
|
EXHIBITS
, FINANCIAL STATEMENT SCHEDULES
|
(1)
|
Financial Statements: Consolidated financial statements filed as part of this report are listed under Item 8. Financial Statements and Supplementary Data.
|
(2)
|
Financial Statement Schedules: None.
|
(3)
|
Exhibits: The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as part of this report.
|
ITEM 16.
|
FORM
10-K SUMMARY
|
|
EL POLLO LOCO HOLDINGS, INC.
|
||
|
|
|
|
|
By:
|
|
/s/ Stephen J. Sather
|
|
|
|
Stephen J. Sather
|
|
|
|
President and Chief Executive Officer
|
|
Date:
|
March 9, 2018
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Stephen J. Sather
|
|
Director, President and Chief Executive Officer (principal executive officer)
|
|
March 9, 2018
|
Stephen J. Sather
|
|
|
|
|
|
|
|
|
|
/s/ Laurance Roberts
|
|
Chief Financial Officer (principal financial and accounting officer)
|
|
March 9, 2018
|
Laurance Roberts
|
|
|
|
|
|
|
|
|
|
/s/ Michael G. Maselli
|
|
Chairman and Director
|
|
March 9, 2018
|
Michael G. Maselli
|
||||
|
|
|
|
|
/s/ Dean C. Kehler
|
|
Director
|
|
March 9, 2018
|
Dean C. Kehler
|
||||
|
|
|
|
|
/s/ John M. Roth
|
|
Director
|
|
March 9, 2018
|
John M. Roth
|
||||
|
|
|
|
|
/s/ Douglas J. Babb
|
|
Director
|
|
March 9, 2018
|
Douglas J. Babb
|
||||
|
|
|
|
|
/s/ Samuel N. Borgese
|
|
Director
|
|
March 9, 2018
|
Samuel N. Borgese
|
||||
|
|
|
|
|
/s/ Mark Buller
|
|
Director
|
|
March 9, 2018
|
Mark Buller
|
|
|
|
|
|
|
|
|
|
/s/ William R. Floyd
|
|
Director
|
|
March 9, 2018
|
William R. Floyd
|
|
|
|
|
|
|
|
|
|
/s/ Carol Lynton
|
|
Director
|
|
March 9, 2018
|
Carol Lynton
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
|||||||
Number
|
|
Description
|
|
Filed
Herewith
|
|
Form
|
|
Period
Ended
|
|
Exhibit
|
|
Filing
Date
|
|
SEC File Number
|
|
3.1
|
|
|
|
|
10-Q
|
|
6/25/2014
|
|
3.1
|
|
|
9/5/2014
|
|
001-36556
|
|
3.2
|
|
|
|
|
10-Q
|
|
6/25/2014
|
|
3.2
|
|
|
9/5/2014
|
|
001-36556
|
|
10.1
|
|
|
|
|
10-Q
|
|
9/24/2014
|
|
10.1
|
|
|
11/7/2014
|
|
001-36556
|
|
10.2
|
|
|
|
|
8-K
|
|
N/A
|
|
10.1
|
|
|
8/22/2014
|
|
001-36556
|
|
10.3
|
|
|
|
|
8-K
|
|
N/A
|
|
10.2
|
|
|
8/22/2014
|
|
001-36556
|
|
10.4
|
|
|
|
|
S-1/A
|
|
N/A
|
|
10.14
|
|
|
7/14/2014
|
|
333-197001
|
|
10.5
|
|
|
|
|
S-1
|
|
N/A
|
|
10.3
|
|
|
6/24/2014
|
|
333-197001
|
|
10.6
|
|
|
|
|
S-1
|
|
N/A
|
|
10.4
|
|
|
6/24/2014
|
|
333-197001
|
|
10.7
|
|
|
|
|
S-1
|
|
N/A
|
|
10.5
|
|
|
6/24/2014
|
|
333-197001
|
|
10.8
|
|
|
|
|
S-1
|
|
N/A
|
|
10.6
|
|
|
6/24/2014
|
|
333-197001
|
|
10.9
|
|
|
|
|
S-1
|
|
N/A
|
|
10.7
|
|
|
6/24/2014
|
|
333-197001
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
|||||||
Number
|
|
Description
|
|
Filed
Herewith
|
|
Form
|
|
Period
Ended
|
|
Exhibit
|
|
Filing
Date
|
|
SEC File Number
|
|
10.10
|
|
|
|
|
S-1
|
|
N/A
|
|
10.8
|
|
|
6/24/2014
|
|
333-197001
|
|
10.11
|
|
|
|
|
S-1
|
|
N/A
|
|
10.9
|
|
|
6/24/2014
|
|
333-197001
|
|
10.12
|
|
|
|
|
S-1
|
|
N/A
|
|
10.12
|
|
|
6/24/2014
|
|
333-197001
|
|
10.13
|
|
|
|
|
S-1
|
|
N/A
|
|
10.13
|
|
|
6/24/2014
|
|
333-197001
|
|
10.14*
|
|
|
|
|
S-1
|
|
N/A
|
|
10.14
|
|
|
6/24/2014
|
|
333-197001
|
|
10.15*
|
|
|
|
|
S-1
|
|
N/A
|
|
10.15
|
|
|
6/24/2014
|
|
333-197001
|
|
10.17*
|
|
|
|
|
S-1
|
|
N/A
|
|
10.17
|
|
|
6/24/2014
|
|
333-197001
|
|
10.18*
|
|
|
|
|
S-1
|
|
N/A
|
|
10.18
|
|
|
6/24/2014
|
|
333-197001
|
|
10.19*
|
|
|
|
|
S-1/A
|
|
N/A
|
|
10.22
|
|
|
7/22/2014
|
|
333-197001
|
|
10.20*
|
|
|
|
|
S-1
|
|
N/A
|
|
10.19
|
|
|
6/24/2014
|
|
333-197001
|
|
10.21*
|
|
|
|
|
S-1
|
|
N/A
|
|
10.20
|
|
|
6/24/2014
|
|
333-197001
|
|
10.22*
|
|
|
|
|
S-1/A
|
|
N/A
|
|
10.25
|
|
|
7/22/2014
|
|
333-197001
|
|
10.23*
|
|
|
|
|
S-1/A
|
|
N/A
|
|
10.26
|
|
|
7/22/2014
|
|
333-197001
|
|
10.24*
|
|
|
|
|
S-1/A
|
|
N/A
|
|
10.27
|
|
|
7/22/2014
|
|
333-197001
|
|
10.25
|
|
|
|
|
8-K
|
|
N/A
|
|
10.1
|
|
|
12/16/2014
|
|
001-36556
|
|
10.26*
|
|
|
|
|
10-Q
|
|
3/30/2016
|
|
10.26
|
|
|
5/6/2016
|
|
001-36556
|
|
10.27*
|
|
|
|
|
10-Q
|
|
6/29/2016
|
|
10.27
|
|
|
8/5/2016
|
|
001-36556
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
|||||||
Number
|
|
Description
|
|
Filed
Herewith
|
|
Form
|
|
Period
Ended
|
|
Exhibit
|
|
Filing
Date
|
|
SEC File Number
|
|
10.28*
|
|
|
|
|
10-Q
|
|
9/28/2016
|
|
10.28
|
|
|
11/4/2016
|
|
001-36556
|
|
10.29*
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
||
10.30*
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
||
21.1
|
|
|
|
|
S-1
|
|
N/A
|
|
21.1
|
|
|
6/24/2014
|
|
333-197001
|
|
23.1
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
24.1
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2
|
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS
|
|
XBRL Instance Document
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
X
|
|
|
|
|
|
|
|
|
|
|
|
*
|
This exhibit is a management contract or a compensatory plan or arrangement.
|
**
|
Furnished herewith. Pursuant to Item 601(b)(32)(ii) of Regulation S-K (17 C.F.R. § 229.601(b)(32)(ii)), this certification is deemed furnished, not filed, for purposes of section 18 of the Exchange Act, nor is it otherwise subject to liability under that section. It will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except if the registrant specifically incorporates it by reference.
|
1.
|
Term of Employment; Executive Representation
.
|
(a)
|
Employment Term
. Subject to the terms and conditions set forth in this Agreement, the term of Executive's employment under this Agreement shall commence on March 12, 2018 (the “
Effective Date
”) and end on the fiftieth month anniversary of the Effective Date (the “
Initial Employment Term
”) and on such date and on each subsequent anniversary of such date, the term shall, without further action by Executive or Company, be extended by an additional one-year period (each such one year term, the “
Renewal Employment Term
”) subject to earlier termination as provided in this Agreement; provided, however, that either Company or Executive may, by written notice to the other given not less than 60 days prior to the scheduled expiration of the Initial Employment Term or Renewal Employment Term (a “
Non-Renewal Notice
”), as applicable, cause the term not to extend (the period during which Executive is employed under the terms of this Agreement, including the Initial Employment Term and all Renewal Employment Terms, is referred to herein as the “
Employment Term
”). The Employment Term shall also terminate earlier upon termination of Executive's employment as set forth in Section 7.
|
(b)
|
Executive Representation
. Executive hereby represents to the Company that the execution and delivery of this Agreement by Executive and the Company and the performance by Executive of the Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a party or otherwise bound.
|
2.
|
Position
.
|
(a)
|
During the Employment Term, Executive shall serve as the Company’s President and Chief Executive Officer and shall principally perform Executive’s duties to the Company and its affiliates from the Company’s offices in the Orange County,
|
(b)
|
During the Employment Term, Executive will devote Executive’s full business time and best efforts to the performance of Executive’s duties hereunder and will not engage in any other business, profession or occupation (including in an advisory capacity, consulting capacity, or otherwise) for compensation or otherwise, provided, following the one-year anniversary of the Effective Date, subject to the consent of the Board, not to be unreasonably withheld, Executive may serve as a member of a board of directors of one for-profit entity that is not a competitor to the Company if such service does not materially interfere with his duties hereunder.
|
3.
|
Compensation
.
|
(a)
|
During the Employment Term, the Company shall pay Executive a base salary (the “
Base Salary
”) at the annual rate of $550,000 (less applicable withholding taxes), payable in regular installments in accordance with the Company’s usual payment practices. Executive shall be entitled to such increases in Executive’s Base Salary, if any, as may be determined from time to time in the sole discretion of the Board.
|
(b)
|
With respect to each full calendar year during the Employment Term, Executive shall be eligible to earn an annual bonus award (an “
Annual Bonus
”) based on the achievement of specified performance goals, which shall be determined by the Board in its sole discretion within ninety (90) days following the commencement of each calendar year, with a targeted bonus equal to one hundred percent (100%) of Executive’s then current Base Salary (the “
Target Bonus
”). The Annual Bonus, if any, will be paid between January 1 and March 15 of the year following the year to which it relates.
|
(c)
|
At the discretion of the Board, during the Employment Term, starting in 2019, Executive will be eligible to receive an annual discretionary equity grant, with the amount and terms thereof determined by the Board. Executive will not be eligible to receive an equity grant in 2018.
|
4.
|
Sign on Awards
|
(a)
|
Equity
. As soon as reasonably practical following the Effective Date (but no later than within 5 business days following the opening of the next open trading window of the Company), Executive will receive the following equity grants
|
(i)
|
Approximately $750,000 worth of time-vested 10-year options that will vest 25%/year;
|
(ii)
|
Approximately $1,000,000 worth of time-vested restricted stock units (or restricted shares) that will vest 25%/year, and
|
(iii)
|
Approximately $750,000 worth of performance-vested restricted stock units (or restricted shares) (“
Sign-on Grant PSUs”
): 50% vest upon achievement of $15 stock price and 50% vest upon achievement of $20 stock price, in each case (A) during a minimum of 20 consecutive trading days, in each case either prior to the 5th anniversary of grant (“
End Date
”), or (B) in connection with the occurrence of a Change in Control (with respect to Sign-on Grant, as such term is defined in the Company’s 2014 Omnibus Equity Incentive Plan and, with respect to equity awards other than Sign-on Grant, as defined in the Company’s Equity Incentive Plan pursuant to which such awards were granted, the “
Change in Control
”). Any Sign-on PSUs which do not vest on or prior to the earlier of the End Date or Change in Control shall be forfeited for no consideration.
|
(b)
|
Cash
. Within 30 days of the Effective Date, the Company shall pay Executive a lump sum cash payment of $250,000. If Executive resigns without Good Reason or is terminated by the Company for Cause prior to the twelve month anniversary of the Effective Date, the Executive will repay such amount to the Company within 30 days of such termination. If Executive resigns without Good Reason or is terminated by the Company for Cause prior to the eighteen month anniversary of the Effective Date (but after the twelve month anniversary of the Effective Date), the Executive will repay 50% of such amount to the Company within 30 days of such termination.
|
(c)
|
Relocation
. To assist the Executive with Executive’s relocation expenses, within 30 days of the Effective Date, the Company will pay Executive a cash lump sum payment of $100,000.
|
(d)
|
Indemnification
. The Executive shall be covered under the Company’s directors and officers liability insurance during the Employment Term and thereafter to the same extent as such coverage is provided from time to time to officers of the Company.
|
5.
|
Employee Benefits
. During the Employment Term, Executive shall be provided, in accordance with the terms of the Company’s employee benefit plans as in effect from time to time, health insurance, retirement benefits and fringe benefits (collectively “
Employee Benefits
”) on the same basis as those benefits are generally made available to other senior executives of the Company. Executive shall be provided with annual vacation of four (4) weeks per each twelve (12) month period and additional weeks on a basis consistent with Company policy. During the Employment Term, the Company shall provide Executive with an automobile allowance substantially similar to the allowance provided by the Company to other similarly situated senior executives of the Company.
|
6.
|
Business Expenses
. During the Employment Term, reasonable, documented business expenses incurred by Executive in the performance of Executive’s duties hereunder shall be reimbursed by the Company in accordance with Company policies.
|
7.
|
Termination
. The Employment Term and Executive’s employment hereunder may be terminated early by either party at any time and for any reason;
provided
that Executive will be required to give the Company at least ninety (90) days advance written notice of any resignation of Executive’s employment. Notwithstanding any other provision of this Agreement, the provisions of this Section 7 shall exclusively govern Executive’s rights upon termination of employment with the Company and its affiliates prior to expiration of the Employment Term.
|
(a)
|
By the Company For Cause or By Executive’s Resignation without Good Reason
.
|
(i)
|
The Employment Term and Executive’s employment hereunder may be terminated by the Company for Cause (as defined below) or by Executive’s resignation without Good Reason (as defined below).
|
(ii)
|
For purposes of this Agreement, “
Cause
” shall mean (a) action by the Executive that constitute acts of (1) fraud; (2) embezzlement; (3) gross insubordination; (4) gross misconduct; (5) material dishonesty which causes material harm to the Company; (b) the Executive’s inability, failure, or refusal to perform any duty, responsibility, or obligation of his position, which (to the extent such inability, failure, or refusal to perform is curable in the judgment of the Company) is not cured by the Executive within five (5) days after receiving written notice from the Company of such inability, failure; (c) Executive's commission of a felony; (d) Executive’s substance abuse or alcohol abuse which renders the Executive unfit to perform his duties; or (e) any breach of the covenants set forth in Section 8 of this Agreement by Executive. Any voluntary termination of employment by the Executive in anticipation of an involuntary termination of the Executive’s employment by the Company for Cause shall be deemed to be a termination for Cause.
|
(iii)
|
If Executive’s employment is terminated by the Company for Cause, or if Executive resigns without Good Reason, Executive shall be entitled to receive:
|
(A)
|
the Base Salary through the date of termination;
|
(B)
|
except in the case of termination for Cause, any Annual Bonus earned but unpaid as of the date of termination for any previously completed calendar year;
|
(C)
|
reimbursement for any unreimbursed business expenses properly incurred by Executive in accordance with Company policy prior to the date of Executive’s termination; and
|
(D)
|
such Employee Benefits, if any, as to which Executive may be entitled under the employee benefit plans of the Company;
|
(E)
|
any additional amounts or benefits due under any applicable plan, program, agreement or arrangement of the Company or its affiliates or pursuant to applicable law (the amounts described in clauses (A) through (E) hereof being referred to as the “
Accrued Rights
”). The Accrued Rights under this Section 7 shall in all events be paid in accordance with the Company’s normal payroll procedures, expense reimbursement procedures or plan terms, as applicable.
|
(b)
|
Disability or Death
.
|
(i)
|
The Employment Term and Executive’s employment hereunder shall terminate upon Executive’s death or if Executive (A) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and health plan, or disability plan, covering employees of the Company or an affiliate of the Company (such incapacity is hereinafter referred to as “
Disability
”).
|
(ii)
|
Upon termination of Executive’s employment hereunder for either Disability or death, Executive or Executive’s estate (as the case may be) shall be entitled to receive:
|
(A)
|
the Accrued Rights; and
|
(B)
|
the Annual Bonus, if any, that the Executive would have been entitled to receive pursuant to Section 3(b) hereof in respect of the year in which such termination occurs based upon the actual achievement of the performance goals, multiplied by a fraction the numerator of which is the number of days Executive is employed by the Company in such year and the denominator of which is the total number of days in such year, payable when such Annual Bonus would have otherwise been payable in accordance with Section 3(b) had the Executive’s employment not terminated (the "
Pro-Rata Bonus
").
|
(c)
|
By the Company Without Cause or by Executive’s Resignation with Good Reason
.
|
(i)
|
The Employment Term and Executive’s employment hereunder may be terminated by the Company without Cause or by Executive with Good Reason.
|
(ii)
|
For purposes of this Agreement, “
Good Reason
” shall mean:
|
(A)
|
Executive’s relocation, without his consent and other than for a temporary work assignment, by the Company outside Orange County, California;
|
(B)
|
a material diminution of Executive’s authority, duties, title or responsibilities as set forth in Section 2(a) hereof;
|
(C)
|
a reduction of Executive’s Base Salary (as increased from time to time) as set forth in Section 3(a) hereof;
|
(D)
|
the material failure of the Company to provide or cause to be provided to Executive any of the Employee Benefits described in Section 5 hereof; or
|
(E)
|
a requirement that Executive report to anyone other than the Board;
provided
that none of the events described in clauses (A) through (E) of this Section 7(c)(ii) shall constitute Good Reason unless Executive shall have notified the Company in writing describing the event which constitutes Good Reason within thirty (30) days of the initial occurrence of such event and then only if the Company shall have failed to cure such event within thirty (30) days after the Company’s receipt of such written notice.
|
(iii)
|
If Executive’s employment is terminated by the Company without Cause (other than by reason of death or Disability), by Executive with Good Reason or by reason of Employment Term expiring as a result of the Company delivering to the Executive the Non-Renewal Notice (such event, the “
Company Non-Renewal
”), Executive shall be entitled to receive:
|
(A)
|
the Accrued Rights;
|
(B)
|
subject to Executive’s execution of a general release of claims in a form reasonably determined by the Company (the “
Release
”), the expiration of the applicable revocation period with respect to such Release within sixty (60) days following the date of termination or, in the case of Company Non-Renewal, expiration of the Employment Term, as applicable, and Executive’s continued compliance with the provisions of Section 8 and 9, the Pro-Rata Bonus;
|
(C)
|
subject to Executive’s execution of a Release, the expiration of the applicable revocation period with respect to such Release within sixty (60) days following the date of termination or, in the case of Company Non-Renewal, expiration of the Employment Term, as applicable, and Executive’s continued compliance with the provisions of Section 8 and 9, continued payment of the Base Salary in accordance with the Company's normal payroll practices for a period of eighteen (18) months following the date of such termination or, in the case of Company Non-Renewal, expiration of the Employment Term, as applicable, which shall commence on the sixtieth (60
th
) day following such termination or, in the case of Company Non-Renewal, expiration of the Employment Term, as
|
(D)
|
if such termination or, in the case of Company Non-Renewal, expiration of the Employment Term, as applicable, occurs on or after the effective date of a Change in Control but prior to the twenty-four (24) months anniversary of the effective date of such Change in Control, subject to Executive’s execution of a Release, the expiration of the applicable revocation period with respect to such Release within sixty (60) days following the date of termination or, in the case of Company Non-Renewal, expiration of the Employment Term, as applicable, and Executive’s continued compliance with the provisions of Section 8 and 9, all of Executive’s then outstanding equity awards (including Sign-on Grant, but excluding Sign-on Grant PSUs or any other equity award(s) the performance vesting of which is tested at the time of the Change in Control) will vest (with performance conditions deemed achieved at target).
|
(d)
|
Notice of Termination
. Any purported termination of employment by the Company or by Executive (other than due to Executive’s death) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 12(g) hereof. For purposes of this Agreement, a “
Notice of Termination
” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.
|
8.
|
Non-Interference/Non-Solicitation
. Executive acknowledges and recognizes that in the course of performing services for the Company, Executive will have access to certain confidential and proprietary information of the Company and its affiliates that is extremely valuable to the Company and its affiliates and is not known to the general public. Accordingly, Executive agrees as follows:
|
(a)
|
Executive agrees that during the term of employment and until the first anniversary of the date of termination of Executive's employment with the Company or any subsidiary of the Company, as the case may be (the "
Restricted Period
"), the Executive will not directly or indirectly, use any Company Confidential Information (as defined in Section 9) to interfere with business
|
(b)
|
Executive further agrees that during the Restricted Period, Executive will not, directly or indirectly, (i) solicit or encourage any employee of the Company or its affiliates to leave the employment of the Company or its affiliates, or (ii) solicit or encourage to cease to work with the Company or its affiliates any consultant then under contract with the Company or its affiliates;
provided
,
however
, that general advertising not directed specifically at employees of the Company or any affiliate shall not be deemed to violate this Section 8(b).
|
(c)
|
It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 8 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that any restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.
|
9.
|
Confidentiality and Cooperation
. Executive will not at any time (whether during or after Executive's employment with the Company) disclose or use for Executive's own benefit or purposes or the benefit or purposes of any other person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade secrets, information, data, or other confidential information relating to customers, development programs, costs, marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes, financing methods, plans, or the business and affairs of the Company generally, or of any subsidiary or affiliate of the Company (“
Company Confidential Information
”);
provided
that the foregoing shall not apply to information which is not unique to the Company or which is generally known to the industry or the public other than as a result of Executive's breach of this covenant;
provided
further that the foregoing shall not apply when Executive is required to divulge, disclose or make accessible such information by a court of competent jurisdiction or an individual duly appointed thereby, by any administrative body or legislative body (including a committee thereof) having supervisory authority over the business of the Company, or by any administrative body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose or make accessible such information. Executive agrees that upon termination of Executive's employment with the Company for any reason, he will return to the Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies thereof or therefrom, in any way
|
10.
|
DEFEND TRADE SECRETS ACT.
|
(a)
|
Notwithstanding anything set forth in this Agreement to the contrary, Executive shall not be prohibited from reporting possible violations of federal or state law or regulation to any governmental agency or entity or making other disclosures that are protected under the whistleblower provisions of federal or state law or regulation, nor is Executive required to notify the Company regarding any such reporting, disclosure or cooperation with the government.
|
(b)
|
Pursuant to Section 1833(b) of the Defend Trade Secrets Act of 2016, Executive acknowledges that he shall not have criminal or civil liability under any federal or State trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and (B) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Nothing in this Agreement is intended to conflict with Section 1833(b) of the Defend Trade Secrets Act of 2016 or create liability for disclosures of trade secrets that are expressly allowed by such section.
|
11.
|
Specific Performance
. Executive acknowledges and agrees that the Company's remedies at law for a breach or threatened breach of any of the provisions of Section 8 or Section 9 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, shall be entitled to cease making any payments or providing any benefit otherwise required by this Agreement and obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.
|
12.
|
Miscellaneous
.
|
(a)
|
Governing Law
. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to conflicts of laws principles thereof.
|
(b)
|
Entire Agreement/Amendments
. This Agreement contains the entire understanding of the parties with respect to the employment of Executive by the Company. There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement supersedes any other agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof which have been made by either party. This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.
|
(c)
|
No Waiver
. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
|
(d)
|
Severability
. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.
|
(e)
|
Assignment
. This Agreement shall not be assignable by Executive. This Agreement may be assigned by the Company to a company which is a successor in interest to substantially all of the business operations of the Company. Such assignment shall become effective when the Company notifies the Executive of such assignment or at such later date as may be specified in such notice. Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such successor company,
provided
that any assignee expressly assumes the obligations, rights and privileges of this Agreement.
|
(f)
|
Successors Binding Agreement
. This Agreement shall inure to the benefit of and be binding upon personal or legal representatives, executors, administrators, successors, heirs, distributes, devises and legatees.
|
(g)
|
Notice
. For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth below Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
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(h)
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Withholding Taxes
. The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
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(i)
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Section 409A
. The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the "
Code
"), to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, Executive shall not be considered to have terminated employment with the Company for purposes of any payments under this Agreement which are subject to Section 409A of the Code until the Executive has incurred a “separation from service” from the Company within the meaning of Section 409A of the Code. Each amount to be paid or benefit to be provided under this Agreement shall be construed as a separate identified payment for purposes of Section 409A of the Code. Without limiting the foregoing and notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement during the six-month period immediately following an Executive’s separation from service shall instead be paid on the first business day after the date that is six months following the Executive’s separation from service (or, if earlier, the Executive’s date of death). To the extent required to avoid an accelerated or additional tax under Section 409A of the Code, amounts reimbursable to Executive under this Agreement shall be paid to Executive on or before the last day of the year following the year in which the expense was incurred and the amount of expenses eligible for reimbursement (and in kind benefits provided to Executive) during one year may not affect amounts reimbursable or provided in any subsequent year. The Company makes no representation that any or all of the payments described in this Agreement will be exempt from or comply with Section 409A of the Code and makes no undertaking to preclude Section 409A of the Code from applying to any such payment.
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(j)
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Counterparts
. This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
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EL POLLO LOCO, INC.
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STEPHEN J. SATHER
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/s/ Edith R. Austin
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/s/ Stephen J. Sather
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By: Edith R. Austin
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Its: Corporate Secretary
Date: 02/28/2018
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Date: 02/28/2018
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STEPHEN J. SATHER (“Executive”)
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/s/ Stephen J. Sather
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Date: 02/28/2018
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/s/ Stephen J. Sather
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Stephen J. Sather
President and Chief Executive Officer
(Principal Executive Officer)
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/s/ Laurance Roberts
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Laurance Roberts
Chief Financial Officer
(Principal Financial Officer)
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/s/ Stephen J. Sather
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Stephen J. Sather
President and Chief Executive Officer
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/s/ Laurance Roberts
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Laurance Roberts
Chief Financial Officer
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