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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 23, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 001-36556

EL POLLO LOCO HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-3563182

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

3535 Harbor Blvd., Suite 100, Costa Mesa, California

92626

(Address of principal executive offices)

(Zip Code)

(714) 599-5000

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

LOCO

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes      No

As of October 23, 2020, there were 36,446,736 shares of the issuer’s common stock outstanding.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)

    

September 23,

    

December 25,

    

2020

    

2019

Assets

  

Current assets:

  

  

Cash and cash equivalents

$

29,529

$

8,070

Accounts and other receivables, net

 

10,842

 

8,505

Inventories

 

1,937

 

2,009

Prepaid expenses and other current assets

 

2,555

 

5,718

Income tax receivable

 

 

376

Total current assets

 

44,863

 

24,678

Property and equipment owned, net

 

80,545

 

91,778

Property and equipment held under finance lease, net

 

52

 

Property and equipment held under operating leases, net ("ROU asset")

 

180,781

 

192,395

Goodwill

 

248,674

 

248,674

Trademarks

 

61,888

 

61,888

Deferred tax assets

 

3,565

 

3,709

Other assets

 

1,280

 

1,630

Total assets

$

621,648

$

624,752

Liabilities and Stockholders’ Equity

 

  

 

  

Current liabilities:

 

  

 

  

Current portion of obligations under finance leases

$

50

$

34

Current portion of obligations under operating leases

 

19,847

 

16,406

Accounts payable

 

6,238

 

5,627

Accrued salaries and vacation

 

9,929

 

8,618

Accrued insurance

 

10,256

 

9,440

Accrued income taxes payable

 

1,888

 

Accrued interest

 

143

 

302

Current portion of income tax receivable agreement payable

 

5,160

 

4,935

Other accrued expenses and current liabilities

 

16,216

 

28,597

Total current liabilities

 

69,727

 

73,959

Revolver loan

 

83,800

 

97,000

Obligations under finance leases, net of current portion

 

94

 

83

Obligations under operating leases, net of current portion

 

182,753

 

197,492

Deferred taxes

 

1,325

 

1,672

Income tax receivable agreement payable, net of current portion

 

3,101

 

3,301

Other noncurrent liabilities

 

9,772

 

5,679

Total liabilities

 

350,572

 

379,186

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; 36,441,369 and 35,126,582 shares issued and outstanding

 

364

 

351

Additional paid-in-capital

 

338,622

 

330,950

Accumulated deficit

 

(66,969)

 

(85,988)

Accumulated other comprehensive (loss) income

 

(941)

 

253

Total stockholders’ equity

 

271,076

 

245,566

Total liabilities and stockholders’ equity

$

621,648

$

624,752

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except share data)

    

Thirteen Weeks Ended

    

Thirty-Nine Weeks Ended

    

September 23, 2020

September 25, 2019

September 23, 2020

September 25, 2019

Revenue

 

  

 

  

 

  

 

  

 

Company-operated restaurant revenue

$

97,276

$

99,052

$

277,617

$

296,341

Franchise revenue

 

7,781

 

7,273

 

21,562

 

21,635

Franchise advertising fee revenue

 

5,922

 

5,742

 

16,567

 

16,808

Total revenue

 

110,979

 

112,067

 

315,746

 

334,784

Cost of operations

 

  

 

  

 

  

 

  

Food and paper cost

 

24,922

 

27,512

 

73,357

 

82,550

Labor and related expenses

 

28,756

 

29,292

 

83,208

 

88,140

Occupancy and other operating expenses

 

23,836

 

23,844

 

67,867

 

70,103

Gain on recovery of insurance proceeds, lost profits

(2,000)

(2,000)

Company restaurant expenses

 

75,514

 

80,648

 

222,432

 

240,793

General and administrative expenses

 

9,803

 

9,539

 

29,599

 

30,235

Franchise expenses

 

7,572

 

7,006

 

21,110

 

20,692

Depreciation and amortization

 

4,092

 

4,343

 

12,629

 

13,558

Loss on disposal of assets

 

29

 

35

 

156

 

213

Recovery of securities lawsuits related legal expenses and other insurance claims

 

 

 

(123)

 

(10,000)

Impairment and closed-store reserves

 

1,776

 

367

 

4,615

 

1,241

Loss on disposition of restaurants

 

 

11

 

 

5,062

Total expenses

 

98,786

 

101,949

 

290,418

 

301,794

Income from operations

 

12,193

 

10,118

 

25,328

 

32,990

Interest expense, net

 

770

 

973

 

2,583

 

2,754

Income tax receivable agreement (income) expense

 

(144)

 

(197)

 

26

 

(120)

Income before provision for income taxes

 

11,567

 

9,342

 

22,719

 

30,356

Provision for income taxes

 

1,647

 

2,940

 

3,700

 

8,954

Net income

$

9,920

$

6,402

$

19,019

$

21,402

Net income per share

 

  

 

  

 

  

 

  

Basic

$

0.28

$

0.18

$

0.54

$

0.57

Diluted

$

0.28

$

0.18

$

0.53

$

0.56

Weighted-average shares used in computing net income per share

 

  

 

  

 

  

 

  

Basic

 

35,471,452

 

35,859,502

 

34,989,007

 

37,484,372

Diluted

 

36,064,559

 

36,397,368

 

35,609,320

 

38,173,097

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Amounts in thousands)

    

Thirteen Weeks Ended

    

Thirty-Nine Weeks Ended

September 23, 2020

September 25, 2019

September 23, 2020

    

September 25, 2019

Net income

$

9,920

$

6,402

$

19,019

$

21,402

Other comprehensive income (loss)

 

  

 

  

 

 

Changes in derivative instruments

 

  

 

  

 

 

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

 

(36)

 

171

 

(1,791)

 

171

Reclassifications of losses (gains) into net income

 

114

 

(29)

 

156

 

(29)

Income tax (expense) benefit

 

(20)

 

(38)

 

441

 

(38)

Other comprehensive income (loss), net of taxes

 

58

 

104

(1,194)

 

104

Comprehensive income

$

9,978

$

6,506

$

17,825

$

21,506

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except share data)

Thirteen Weeks Ended September 23, 2020

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss) Income

    

Equity

Balance, June 24, 2020

35,854,122

$

359

$

334,088

$

(76,889)

$

(999)

$

256,559

Stock-based compensation

 

 

909

 

 

 

909

Issuance of common stock related to restricted stock

2,798

Issuance of common stock upon exercise of stock options

593,180

6

3,675

3,681

Shares repurchased for employee tax withholdings

(2,925)

(51)

(51)

Forfeiture of common stock related to restricted shares

(5,806)

 

(1)

 

1

 

 

 

Other comprehensive income, net of tax

 

 

 

 

58

 

58

Net income

 

 

 

9,920

 

 

9,920

Balance, September 23, 2020

36,441,369

$

364

$

338,622

$

(66,969)

$

(941)

$

271,076

Thirteen Weeks Ended September 25, 2019

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Equity

Balance, June 26, 2019

37,732,948

$

377

$

358,335

$

(95,888)

$

262,824

Stock-based compensation

 

 

668

 

 

 

668

Shares repurchased for employee tax withholdings

(4,176)

 

 

(46)

 

 

 

(46)

Forfeiture of common stock related to restricted shares

(9,160)

Repurchase of common stock

(2,825,896)

 

(28)

 

(29,910)

 

 

 

(29,938)

Other comprehensive income, net of tax

104

104

Net income

 

 

 

6,402

 

 

6,402

Balance, September 25, 2019

34,893,716

$

349

$

329,047

$

(89,486)

$

104

$

240,014

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Thirty-Nine Weeks Ended September 23, 2020

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income (Loss)

    

Equity

Balance, December 25, 2019

35,126,582

$

351

$

330,950

$

(85,988)

$

253

$

245,566

Stock-based compensation

 

 

2,170

 

 

 

2,170

Issuance of common stock related to restricted stock

439,061

4

(4)

Issuance of common stock upon exercise of stock options

965,736

10

5,836

5,846

Shares repurchased for employee tax withholdings

(23,118)

(331)

(331)

Forfeiture of common stock related to restricted shares

(66,892)

 

(1)

 

1

 

 

 

Other comprehensive loss, net of tax

 

 

 

 

(1,194)

 

(1,194)

Net income

 

 

 

19,019

 

 

19,019

Balance, September 23, 2020

36,441,369

$

364

$

338,622

$

(66,969)

$

(941)

$

271,076

Thirty-Nine Weeks Ended September 25, 2019

    

    

    

    

    

Accumulated

    

  

    

    

    

Additional

    

    

Other

    

Total

Common Stock

Paid-in

Accumulated

Comprehensive

Stockholders’

    

Shares

    

Amount

    

Capital

    

Deficit

    

Income

    

Equity

Balance, December 26, 2018

39,009,451

$

390

$

375,734

$

(110,888)

$

265,236

Stock-based compensation

 

 

1,797

 

 

 

1,797

Issuance of common stock related to restricted shares

292,211

 

3

 

(3)

 

 

 

Issuance of common stock upon exercise of stock options

6,709

 

 

34

 

 

 

34

Shares repurchased for employee tax withholdings

(29,923)

 

(1)

 

(294)

 

 

 

(295)

Repurchase of common stock

(4,384,732)

 

(43)

 

(48,221)

 

 

 

(48,264)

Other comprehensive income, net of tax

104

104

Net income

 

 

 

21,402

 

 

21,402

Balance, September 25, 2019

34,893,716

$

349

$

329,047

$

(89,486)

$

104

$

240,014

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

    

Thirty-Nine Weeks Ended

    

    

September 23, 2020

September 25, 2019

    

Cash flows from operating activities:

  

  

Net income

$

19,019

$

21,402

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

 

 

Depreciation and amortization

 

12,629

 

13,558

Bad debt expense

190

Stock-based compensation expense

 

2,170

 

1,797

Income tax receivable agreement expense (income)

 

26

 

(120)

Loss on disposition of restaurants

 

 

5,062

Loss on disposal of assets

 

156

 

213

Impairment of property and equipment

 

3,478

 

283

Amortization of deferred financing costs

 

189

 

189

Amortization of favorable and unfavorable leases, net

 

 

(362)

Deferred income taxes, net

 

(110)

 

8,583

Changes in operating assets and liabilities:

 

 

Accounts and other receivables, net

 

(2,527)

 

(1,257)

Inventories

 

72

 

261

Prepaid expenses and other current assets

 

3,163

 

868

Other assets

 

159

 

(118)

Accounts payable

 

476

 

(1,657)

Accrued salaries and vacation

 

1,311

 

2,259

Accrued insurance

 

816

 

1,863

Income taxes payable

 

2,264

 

102

Other accrued expenses and liabilities

 

(9,962)

 

(21,031)

Net cash flows provided by operating activities

 

33,519

 

31,895

Cash flows from investing activities:

 

Proceeds from disposition of restaurants

 

 

4,770

Purchase of property and equipment

 

(4,349)

 

(10,848)

Net cash flows used in investing activities

 

(4,349)

 

(6,078)

Cash flows from financing activities:

 

  

 

  

Minimum tax withholdings related to net share settlements

 

(331)

 

(341)

Payments on revolver and swingline loan

 

(65,700)

 

(15,000)

Borrowings on revolver and swingline loan

52,500

42,000

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

 

5,846

 

80

Payment of obligations under finance leases

 

(26)

 

(61)

Stock buybacks

(47,395)

Net cash flows used in financing activities

 

(7,711)

 

(20,717)

Increase in cash and cash equivalents

 

21,459

 

5,100

Cash and cash equivalents, beginning of period

 

8,070

 

6,969

Cash and cash equivalents, end of period

$

29,529

$

12,069

    

Thirty-Nine Weeks Ended

    

September 23, 2020

September 25, 2019

Supplemental cash flow information

 

  

 

  

 

Cash paid during the period for interest

$

2,381

$

2,400

Cash paid during the period for income taxes

$

1,632

$

268

Unpaid purchases of property and equipment

$

881

$

2,577

Unpaid stock buybacks

$

$

1,004

See notes to the condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Overview

El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and indirect subsidiaries are collectively referred to herein as “we,” “us” or the “Company.” The Company’s activities are conducted principally through its indirect wholly-owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses, and operates quick-service restaurants under the name El Pollo Loco® and operates under one operating segment. At September 23, 2020, the Company operated 196 and franchised 282 El Pollo Loco restaurants.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the Company’s consolidated financial position and results of operations and cash flows for the periods presented. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The condensed consolidated financial statements and related notes do not include all information and footnotes required by GAAP for annual reports. This quarterly report should be read in conjunction with the consolidated financial statements included in the Company’s annual report on Form 10-K for the year ended December 25, 2019.

The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of the calendar year. In a 52-week fiscal year, each quarter includes 13 weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations. Every six or seven years, a 53-week fiscal year occurs. Fiscal 2020 is a 53-week year ending on December 30, 2020, and fiscal 2019 was a 52-week year ending on December 25, 2019. Revenues, expenses, and other financial and operational figures may be elevated in a 53-week year.

Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s 2018 Revolver (as defined below) on a full and unconditional basis (see Note 4), and Intermediate has no subsidiaries other than EPL. EPL is a separate and distinct legal entity and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to Intermediate and to Holdings, respectively, subject to the terms of the 2018 Revolver.

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and revenue and expenses during the periods reported. Actual results could materially differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible assets and property and equipment, insurance reserves, lease accounting matters, stock-based compensation, income tax receivable agreement liability, contingent liabilities and income tax valuation allowances.

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COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China ("COVID-19") and the risks to the international community as the virus spreads globally beyond its point of origin. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The COVID-19 pandemic has significantly disrupted consumer demand, as well as the Company’s restaurant operations. Following the pandemic declaration in March 2020, federal, state and local governments began to respond to the public health crisis by requiring social distancing, "stay at home" directives, and restaurant restrictions - including government-mandated dining room closures - that limited business to off-premise services only (take-out, drive-thru and delivery). Historically, approximately 20% of the Company’s sales are associated with dine-in service. In May 2020, the “stay at home” directive was modified in most areas in which the Company operates, allowing for the opening of lower-risk workplaces, including restaurants, but with restrictions such as limited capacity. However, in July a surge in the COVID-19 pandemic caused many state and local governments to re-implement certain additional restrictions to try and contain the spread of the virus. As of September 23, 2020, the majority of the Company’s restaurants were permitted to be open with limited capacity; however, while most of the Company’s markets outside of California have dining rooms open at a limited capacity, the majority of the Company’s restaurants in California are continuing to operate on a take-away, mobile pick-up and delivery basis, as well as maintaining drive-thru operations where available, in order to protect their employees and customers from the spread of the COVID-19 pandemic and to comply with the government mandates. Due to the impact of the COVID-19 pandemic, during the thirteen and thirty-nine weeks ended September 23, 2020, we temporarily closed 40 restaurants and 65 restaurants, respectively, of which all but three have reopened as of September 23, 2020. Similarly, during the thirteen and thirty-nine weeks ended September 23, 2020, franchisees temporarily closed 15 restaurants and 36 restaurants, respectively, of which all but three have reopened as of September 23, 2020. As of September 23, 2020, the Company had not permanently closed any restaurants due to the COVID-19 pandemic.

The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Management has taken precautionary actions, such as initially drawing on its 2018 Revolver, which has since been paid down (see Note 4), temporarily suspending all but essential capital spending and share repurchase activity, reevaluating essential support center general and administrative expenses and fine-tuning its restaurant labor model based on indoor dining room restrictions, limited dining room capacity in restaurants located in geographies where indoor dining is permitted, dining room closures and fluctuating sales volumes. Additionally, management delayed making April, May and June rent payments on the majority of its leased properties and has reached agreements for rent abatement and/or deferment with the Company’s landlords for those properties. See Note 5 “Other Accrued Expenses and Current Liabilities” and Note 6 “Other Noncurrent Liabilities” for details of these balances. For our franchisees, we deferred 50% of their April royalties until July 1, 2020, when such royalties began to be repaid in even monthly installments over the remainder of fiscal 2020. In addition, we deferred 100% of our franchisees’ 2020 remodel and new restaurant build requirements until 2021 Management is continually evaluating the impact of the global crisis on its financial condition, liquidity, operations, suppliers, industry, and workforce and will take additional actions as necessary. The disruption in operations led to the Company considering the impact of the COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and ROU assets, goodwill and intangible assets, among others. If these disruptions to the Company’s operations from the COVID-19 pandemic continue or worsen, they may have a material negative impact on the Company’s consolidated financial condition, future results of operations and liquidity. The extent of such negative impact will depend, in part, on the longevity and severity of the COVID-19 pandemic.

Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate impact that the COVID-19 pandemic will have on the Company’s consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate materiality of the adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain.

Subsequent Events

Subsequent to September 23, 2020, the Company has temporarily closed eight restaurants, typically for one to three days, and franchisees have not temporarily closed any restaurants. As of October 29, 2020, two company-operated and three franchise locations remained closed.

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Subsequent to September 23, 2020, the Company made a voluntary $28.0 million pre-payment on its 2018 Revolver. As of October 30, 2020, the Company had $55.8 million in outstanding borrowings under the 2018 Revolver and $85.8 million in borrowing availability.

The Company has evaluated subsequent events that have occurred after September 23, 2020, and determined that there were no other events or transactions occurring during this reporting period that require recognition or disclosure in the condensed consolidated financial statements.

Cash and Cash Equivalents

The Company considers all highly-liquid instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.

Liquidity

The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodels and maintenance), interest payments on our debt, lease obligations and working capital and general corporate needs. At September 23, 2020, the Company’s total debt was $83.8 million. The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory, and other factors that are beyond the Company’s control. Based on current operations, the Company believes that its cash flow from operations and available cash of $29.5 million at September 23, 2020 will be adequate to meet the Company’s liquidity needs for the next twelve months from the date of filing of these condensed consolidated financial statements. However, depending on the severity and longevity of the COVID-19 pandemic, the Company’s financial performance and liquidity could be further impacted and could impact the Company’s ability to meet certain covenants required in its 2018 Credit Agreement (as defined below), specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.

Gain on Recovery of Insurance Proceeds, Lost Profits

During the thirteen and thirty-nine weeks ended September 23, 2020, the Company received business interruption insurance proceeds of $2.0 million, primarily related to restaurant sales losses and expenses related to the COVID-19 pandemic and resulting dining room closures.

Recovery of Securities Class Action Legal Expenses and Other Insurance Claims

During the thirty-nine weeks ended September 23, 2020, the Company received insurance proceeds of $0.1 million related to a property claim. During the thirty-nine weeks ended September 25, 2019, the Company received insurance proceeds of $10.0 million related to the settlement of a securities class action lawsuit. See Note 7, “Commitments and Contingencies, Legal Matters.”

Loss on Disposition of Restaurants

During the thirty-nine weeks ended September 25, 2019, the Company completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee. The Company determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated to the separate elements based on their relative standalone selling price. Cash proceeds included upfront consideration for the sale of the restaurants and franchise fees, as well as future cash consideration for royalties and lease payments. The Company considered the future lease payments in allocating the initial cash consideration received. The cash consideration per restaurant for franchise fees is consistent with the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements. The Company initially defers and subsequently recognizes the franchise fees over the term of the franchise agreement. Future royalty income is also recognized in revenue as earned.

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These sales resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $5.1 million for the thirty-nine weeks ended September 25, 2019. These restaurants have been included in the total number of franchised El Pollo Loco restaurants since completion of their sales.

Recently Adopted Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional guidance, for a limited time, to ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. ASU 2020-04 is effective for a limited time, from March 12, 2020, through December 31, 2022. The Company adopted this ASU on March 12, 2020. The adoption of ASU 2020-04 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In February 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement," which finalizes proposed ASU No. 2015-350, and of the same name as part of its disclosure framework project, which focuses on improving the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by U.S. GAAP that is most important to users of each entity’s financial statements. The Company adopted ASU No. 2018-13 during the first quarter of 2020. The adoption of ASU 2018-13 did not have a significant impact on the Company’s consolidated financial position or results of operations.

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which finalizes proposed ASU No. 2012-260 "Financial Instruments—Credit Losses (Subtopic 825-15)" and adds Topic 326 "Financial Instruments—Credit Losses", to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted ASU No. 2016-13 during the first quarter of 2020. The adoption of ASU 2016-03 did not have a significant impact on the Company’s consolidated financial position or results of operations.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes", which modifies Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued for annual periods beginning after December 15, 2020, and for the interim periods therein. The adoption of ASU 2019-12 is not expected to have a significant impact on the Company’s consolidated financial position or results of operations.

Concentration of Risk

Cash and cash equivalents are maintained at financial institutions and, at times, these balances may exceed federally-insured limits. The Company has never experienced any losses related to these balances.

The Company had no supplier to whom amounts due totaled more than 10% of the Company’s accounts payable at September 23, 2020. At December 25, 2019, the Company had one supplier to whom amounts due totaled 11.7% of the Company’s accounts payable. Purchases from the Company’s largest supplier totaled 26.7% and 26.8% of total expenses for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and 29.0% and 28.9% of total expenses for the thirteen and thirty-nine weeks ended September 25, 2019.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.2% and 71.5% of total revenue for the thirteen and thirty-nine weeks ended September 23, 2020, respectively, and 71.5% and 70.0% for the thirteen and thirty-nine weeks ended September 25, 2019.

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Goodwill and Indefinite Lived Intangible Assets

The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified assets acquired in business combinations accounted for under the purchase method. The Company does not amortize its goodwill and indefinite-lived intangible assets. Goodwill resulted from the acquisition of certain franchise locations.

Upon the sale or closure of a restaurant, the Company evaluates whether there is a decrement of goodwill. The amount of goodwill included in the cost basis of the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting unit retained. The Company determined there was no decrement of goodwill related to the disposition of restaurants during the thirteen and thirty-nine weeks ended September 25, 2019.

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

The Company reviews goodwill for impairment utilizing either a qualitative assessment or a fair value test by comparing the fair value of a reporting unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the fair value test, the Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.

The Company performs an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is recognized as an impairment loss.

The assumptions used in the estimate of fair value are generally consistent with the past performance of the Company’s reporting segment and are also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of changing economic and competitive conditions.

Due to the recent impact of the COVID-19 pandemic to the global economy, including but not limited to, the volatility of the Company’s stock price as well as that of its competitors and the challenging environment for the restaurant industry generally, the Company determined that there were indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 23, 2020. As such, the Company performed an impairment assessment for both goodwill and indefinite-lived intangible assets and concluded that the fair value of these assets substantially exceeded their carrying values. Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 23, 2020. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Quoted prices for identical instruments in active markets.
Level 2: Observable 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.

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Level 3: Unobservable inputs used when little or no market data is available.

During fiscal 2019, the Company entered into an interest rate swap, which is required to be measured at fair value on a recurring basis. The fair value was determined based on Level 2 inputs, which include valuation models, as reported by the Company’s counterparty. These valuation models use a discounted cash flow analysis on the cash flows of the derivative based on the terms of the contract and the forward yield curves adjusted for the Company’s credit risk. The key inputs for the valuation models are observable market prices, discount rates, and forward yield curves. See Note 4. “Long-Term Debt" for further discussion regarding our interest rate swaps. The following table presents fair value for the interest rate swap at September 23, 2020 (in thousands):

Fair Value Measurements Using

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

Other non-current liabilities - Interest rate swap

$

1,328

$

$

1,328

$

The following table presents fair value for the interest rate swap at December 25, 2019 (in thousands):

Fair Value Measurements Using

    

Fair Value

    

Level 1

    

Level 2

    

Level 3

Other assets - Interest rate swap

$

360

$

$

360

$

Certain assets and liab