SEC Filing | El Pollo Loco Holdings, Inc.

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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 28, 2022


☐	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, a 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 28, 2022, there were 37,049,182 shares of the issuer’s common stock outstanding.

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Table of Contents		Page

PART I—FINANCIAL INFORMATION		3
Item 1. Financial Statements.		3
Condensed Consolidated Balance Sheets (Unaudited)		3
Condensed Consolidated Statements of Income (Unaudited)		4
Condensed Consolidated Statements of Comprehensive Income (Unaudited)		5
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)		6
Condensed Consolidated Statements of Cash Flows (Unaudited)		8
Notes to Condensed Consolidated Financial Statements (Unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.		28
Item 3. Quantitative and Qualitative Disclosures About Market Risk.		45
Item 4. Controls and Procedures.		46

PART II—OTHER INFORMATION		47
Item 1. Legal Proceedings.		47
Item 1A. Risk Factors.		47
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		48
Item 3. Defaults Upon Senior Securities.		48
Item 4. Mine Safety Disclosures.		49
Item 5. Other Information.		49
Item 6. Exhibits.		50
Signatures		52

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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 28,		December 29,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	19,275	$	30,046
Accounts and other receivables, net		14,946		13,407
Inventories		2,209		2,318
Prepaid expenses and other current assets		2,977		3,732
Income tax receivable		570		—
Total current assets		39,977		49,503
Property and equipment, net		78,107		75,668
Property and equipment held under finance lease, net		1,565		1,635
Property and equipment held under operating leases, net ("ROU asset")		167,985		171,981
Goodwill		248,674		248,674
Trademarks		61,888		61,888
Deferred tax assets		1,253		2,245
Other assets		2,920		2,192
Total assets	$	602,369	$	613,786
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of obligations under finance leases	$	109	$	143
Current portion of obligations under operating leases		20,063		19,959
Accounts payable		12,486		10,626
Accrued salaries and vacation		6,975		11,539
Accrued insurance		11,286		11,193
Accrued income taxes payable		—		889
Current portion of income tax receivable agreement payable		417		437
Other accrued expenses and current liabilities		18,930		19,796
Total current liabilities		70,266		74,582
Revolver loan		20,000		40,000
Obligations under finance leases, net of current portion		1,653		1,712
Obligations under operating leases, net of current portion		167,562		171,651
Deferred taxes		6,739		5,464
Income tax receivable agreement payable, net of current portion		776		1,101
Other noncurrent liabilities		5,862		8,653
Total liabilities		272,858		303,163
Commitments and contingencies (Note 7)
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; 37,053,405 and 36,601,648 shares issued and outstanding as September 28, 2022 and December 29, 2021, respectively		370		365
Additional paid-in-capital		347,079		342,941
Accumulated deficit		(18,128)		(32,393)
Accumulated other comprehensive income (loss)		190		(290)
Total stockholders’ equity		329,511		310,623
Total liabilities and stockholders’ equity	$	602,369	$	613,786

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 28, 2022		September 29, 2021		September 28, 2022		September 29, 2021
Revenue
Company-operated restaurant revenue	$	103,174	$	99,986	$	303,585	$	301,117
Franchise revenue		9,543		8,918		28,862		24,919
Franchise advertising fee revenue		7,161		6,796		21,590		19,370
Total revenue		119,878		115,700		354,037		345,406
Cost of operations
Food and paper cost		30,163		26,698		89,586		78,971
Labor and related expenses		33,279		27,802		98,966		90,060
Occupancy and other operating expenses		26,920		25,108		76,597		74,288
Company restaurant expenses		90,362		79,608		265,149		243,319
General and administrative expenses		9,855		9,357		29,488		30,354
Franchise expenses		9,027		8,545		27,315		24,457
Depreciation and amortization		3,530		3,685		10,745		11,540
Loss on disposal of assets		21		83		129		194
Loss on disposition of restaurants		—		10		—		1,534
Impairment and closed-store reserves		219		167		598		1,091
Total expenses		113,014		101,455		333,424		312,489
Income from operations		6,864		14,245		20,613		32,917
Interest expense, net		108		449		957		1,399
Income tax receivable agreement income		(29)		(19)		(345)		(69)
Income before provision for income taxes		6,785		13,815		20,001		31,587
Provision for income taxes		1,776		3,654		5,736		8,644
Net income	$	5,009	$	10,161	$	14,265	$	22,943
Net income per share
Basic	$	0.14	$	0.28	$	0.39	$	0.64
Diluted	$	0.14	$	0.28	$	0.39	$	0.63
Weighted-average shares used in computing net income per share
Basic		36,402,899		36,067,754		36,329,938		35,930,246
Diluted		36,507,050		36,525,424		36,491,624		36,457,110

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 28, 2022		September 29, 2021		September 28, 2022		September 29, 2021
Net income	$	5,009	$	10,161	$	14,265	$	22,943
Other comprehensive income (loss)
Changes in derivative instruments
Unrealized net gains (losses) arising during the period from interest rate swap		43		(32)		974		44
Reclassifications of (gains) losses into net income		(369)		133		(197)		367
Income tax expense		—		(27)		(297)		(111)
Other comprehensive (loss) income, net of taxes		(326)		74		480		300
Comprehensive income	$	4,683	$	10,235	$	14,745	$	23,243

See notes to condensed consolidated financial statements (unaudited).

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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 28, 2022
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Income		Equity
Balance, June 29, 2022	37,002,513	$	369	$	346,095	$	(23,137)	$	516	$	323,843
Stock-based compensation	—		—		1,009		—		—		1,009
Issuance of common stock related to restricted shares	53,476		1		(1)		—		—		—
Shares repurchased for employee tax withholdings	(2,584)		—		(24)		—		—		(24)
Other comprehensive income, net of tax	—		—		—		—		(326)		(326)
Net income	—		—		—		5,009		—		5,009
Balance, September 28, 2022	37,053,405	$	370	$	347,079	$	(18,128)	$	190	$	329,511

	Thirteen Weeks Ended September 29, 2021
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		Loss		Equity
Balance, June 30, 2021	36,637,761	$	367	$	341,358	$	(48,732)	$	(607)		292,386
Stock-based compensation	—		—		1,042		—		—		1,042
Issuance of common stock upon exercise of stock options, net	41,216		—		300		—		—		300
Shares repurchased for employee tax withholdings	(2,446)		—		(45)		—		—		(45)
Forfeiture of common stock related to restricted shares	(5,084)		(1)		1		—		—		—
Other comprehensive income, net of tax	—		—		—		—		74		74
Net income	—		—		—		10,161		—		10,161
Balance, September 29, 2021	36,671,447	$	366	$	342,656	$	(38,571)	$	(533)	$	303,918

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	Thirty-Nine Weeks Ended September 28, 2022
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		(Loss) Income		Equity
Balance, December 29, 2021	36,601,648	$	365	$	342,941	$	(32,393)	$	(290)	$	310,623
Stock-based compensation	—		—		2,806		—		—		2,806
Issuance of common stock related to restricted shares	352,114		4		(4)		—		—		—
Issuance of common stock upon exercise of stock options, net	150,475		1		1,579		—		—		1,580
Shares repurchased for employee tax withholdings	(22,901)		—		(243)		—		—		(243)
Forfeiture of common stock related to restricted shares	(27,931)		—		—		—		—		—
Other comprehensive income, net of tax	—		—		—		—		480		480
Net income	—		—		—		14,265		—		14,265
Balance, September 28, 2022	37,053,405	$	370	$	347,079	$	(18,128)	$	190	$	329,511

	Thirty-Nine Weeks Ended September 29, 2021
								Accumulated
				Additional				Other		Total
	Common Stock			Paid-in		Accumulated		Comprehensive		Stockholders’
	Shares	Amount		Capital		Deficit		(Loss) Income		Equity
Balance, December 30, 2020	36,423,505	$	364	$	339,561	$	(61,514)	$	(833)	$	277,578
Stock-based compensation	—		—		2,936		—		—		2,936
Issuance of common stock related to restricted shares	206,098		2		(2)		—		—		—
Issuance of common stock upon exercise of stock options, net	132,760		1		865		—		—		866
Shares repurchased for employee tax withholdings	(40,384)		—		(705)		—		—		(705)
Forfeiture of common stock related to restricted shares	(50,532)		(1)		1		—		—		—
Other comprehensive income, net of tax	—		—		—		—		300		300
Net income	—		—		—		22,943		—		22,943
Balance, September 29, 2021	36,671,447	$	366	$	342,656	$	(38,571)	$	(533)	$	303,918

See notes to condensed consolidated financial statements (unaudited).

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EL POLLO LOCO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)



	Thirty-Nine Weeks Ended
	September 28, 2022		September 29, 2021
Cash flows from operating activities:
Net income	$	14,265	$	22,943
Adjustments to reconcile net income to net cash flows provided by provided by operating activities:
Depreciation and amortization		10,745		11,540
Stock-based compensation expense		2,806		2,936
Income tax receivable agreement income		(345)		(69)
Loss on disposition of restaurants		—		1,534
Loss on disposal of assets		129		194
Impairment of property and equipment		392		701
Amortization of deferred financing costs		292		188
Deferred income taxes, net		2,351		2,026
Changes in operating assets and liabilities:
Accounts and other receivables		(1,539)		(1,547)
Inventories		108		(27)
Prepaid expenses and other current assets		755		825
Income taxes receivable		(1,459)		3,616
Other assets		(150)		289
Accounts payable		1,285		(507)
Accrued salaries and vacation		(4,564)		(2,116)
Accrued insurance		93		615
Other accrued expenses and liabilities		(3,257)		(809)
Net cash flows provided by operating activities		21,907		42,332
Cash flows from investing activities:
Proceeds from disposition of restaurants		—		4,556
Purchase of property and equipment		(13,022)		(12,699)
Net cash flows used in investing activities		(13,022)		(8,143)
Cash flows from financing activities:
Payments on revolver and swingline loan		(20,000)		(22,800)
Minimum tax withholdings related to net share settlements		(243)		(705)
Proceeds from issuance of common stock upon exercise of stock options, net of expenses		1,580		866
Payment of obligations under finance leases		(124)		(100)
Deferred financing costs for revolver loan		(869)		—
Net cash flows used in financing activities		(19,656)		(22,739)
Increase (decrease) in cash and cash equivalents		(10,771)		11,450
Cash and cash equivalents, beginning of period		30,046		13,219
Cash and cash equivalents, end of period	$	19,275	$	24,669



	Thirty-Nine Weeks Ended
	September 28, 2022		September 29, 2021
Supplemental cash flow information
Cash paid during the period for interest	$	819	$	828
Cash paid during the period for income taxes	$	5,100	$	4,088
Unpaid purchases of property and equipment	$	3,030	$	2,259

See notes to 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 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 28, 2022, the Company operated 190 and franchised 297 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 statement of the Company’s condensed 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 29, 2021.

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 2022 and 2021 are both 52-week years, ending on December 28, 2022 and December 29, 2021, respectively. 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 2022 Revolver (as defined below) on a full and unconditional basis (see Note 4, “Long-Term Debt”), 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 2022 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

The Company may face future business disruption and related risks resulting from the ongoing COVID-19 pandemic or from another pandemic, epidemic or infectious disease outbreak, or from broader macroeconomic trends, any of which could have a significant impact on our business. During both thirteen weeks ended September 28, 2022 and September 29, 2021, respectively, the Company incurred $0.5 million in COVID-19 related expenses, primarily due to leaves of absence. During the thirty-nine weeks ended September 28, 2022 and September 29, 2021, respectively, the Company incurred $3.1 million and $3.5 million, in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. While all of the Company’s restaurants had dining rooms open as of September 28, 2022, the Company continues to experience staffing challenges, including higher wage inflation, overtime costs and other labor related costs. Further, the Company continues to experience inflationary pressures, which resulted in increased commodity prices and impacted the Company’s business and results of operations during the thirteen and thirty-nine weeks ended September 28, 2022. The Company expects these pressures to continue during the remainder of fiscal 2022.

Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate direct and indirect impact that the COVID-19 pandemic and related economic effects will have on the Company’s condensed 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 condensed consolidated financial condition, liquidity, and future results of operations is uncertain.

Cash and Cash Equivalents

The Company considers all 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 its debt, lease obligations and working capital and general corporate needs. At September 28, 2022, the Company’s total debt was $20.0 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 $19.3 million at September 28, 2022 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.

Recently Adopted Accounting Pronouncements

None.

Subsequent Events

On October 11, 2022, the Company announced that its Board of Directors declared a special dividend of $1.50 per share on the common stock, par value $0.01 per share, of the Company (the “Common Stock”). The special dividend is payable on November 9, 2022, to stockholders of record, including holders of restricted stock and restricted stock units, at the close of business on October 24, 2022.

In addition, on October 11, 2022, the Company announced that its Board of Directors approved a share repurchase program under which the Company is authorized to repurchase up to $20.0 million of shares of the Company’s Common Stock. The repurchase program will terminate on March 28, 2024, may be modified, suspended or discontinued at any time, and does not obligate the Company to acquire any particular number of shares.

Lastly, on November 3, 2022, the Company borrowed $46.0 million on its 2022 Revolver and outstanding borrowings as of November 3, 2022 were $66.0 million. After payment of the special dividend, the Company is expected to have approximately $10.0 million in cash on hand.

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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 one supplier to whom amounts due totaled 25.2% and 26.1% of the Company’s accounts payable at September 28, 2022 and December 29, 2021, respectively. Purchases from the Company’s largest supplier totaled 28.4% and 28.5% of total expenses for the thirteen and thirty-nine weeks ended September 28, 2022 and 27.0% and 28.1% of total expenses for the thirteen and thirty-nine weeks ended September 29, 2021.

Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 71.9% and 71.2% of total revenue for the thirteen and thirty-nine weeks ended September 28, 2022 and 71.6% and 70.8% for the thirteen and thirty-nine weeks ended September 29, 2021, respectively.

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 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.

The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during the thirteen and thirty-nine weeks ended September 28, 2022. 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 28, 2022.

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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.

●

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. In connection with the Company’s entry into the 2022 Credit Agreement (as defined below), it terminated the interest rate swap in July 2022 previously used to hedge interest rate risk. In settlement of this swap, the Company received approximately $0.6 million. See Note 4, “Long-Term Debt” for further discussion regarding the Company’s interest rate swap and its termination.

The following table presents fair value for the interest rate swap at December 29, 2021 (in thousands):


			Fair Value Measurements Using
	Fair Value		Level 1		Level 2		Level 3
Other non-current liabilities - Interest rate swap	$	396	$	—	$	396	$	—

Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on an ongoing basis, but are subject to fair value adjustments only in certain circumstances (e.g., when there is evidence of impairment).

The following non-financial instruments were measured at fair value, on a nonrecurring basis, as of and for the thirteen and thirty-nine weeks ended September 28, 2022, reflecting certain property and equipment assets and right-of-use (“ROU”) assets for which an impairment loss was recognized during the corresponding periods, as discussed under Note 2, “Property and Equipment” and immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):


									Thirteen Weeks		Thirty-Nine Weeks
			Fair Value Measurements at September 28, 2022 Using						Ended September 28, 2022		Ended September 28, 2022
	Total		Level 1		Level 2		Level 3		Impairment Losses		Impairment Losses
Certain property and equipment, net	$	—	$	—	$	—	$	—	$	100	$	353
Certain ROU assets, net	$	332	$	—	$	—	$	332	$	39	$	39

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The following non-financial instruments were measured at fair value on a nonrecurring basis as of and for the thirteen and thirty-nine weeks ended September 29, 2021, reflecting certain property and equipment assets and ROU assets for which an impairment loss was recognized during the corresponding periods, as discussed immediately below under “Impairment of Long-Lived Assets and ROU Assets” (in thousands):


									Thirteen Weeks		Thirty-Nine Weeks
			Fair Value Measurements at September 29, 2021 Using						Ended September 29, 2021		Ended September 29, 2021
	Total		Level 1		Level 2		Level 3		Impairment Losses		Impairment Losses
Certain property and equipment, net	$	—	$	—	$	—	$	—	$	34	$