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Dynamic quotes 
OFFON

DEL TACO RESTAURANTS, INC.

(TACO)
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DEL TACO RESTAURANTS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

07/23/2021 | 06:05am EDT
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Company's audited consolidated
financial statements for the fiscal year ended December 29, 2020, and related
notes thereto, along with the related Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the Company's Annual
Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on
March 11, 2021.
In addition to historical information, this discussion and analysis contains
forward-looking statements that involve risks and uncertainties such as the
number of restaurants we intend to open and estimates of our effective tax
rates. We use words such as "estimates," "projected," "expects," "anticipates,"
"forecasts," "plans," "intends," "believes," "seeks," "may," "will," "should,"
"future," "propose," "preliminary," "guidance" and variations of these words or
similar expressions (or the negative versions of such words or expressions) to
identify forward-looking statements.  These statements are based on assumptions
and information available to us as of the date any such statements are made and
are subject to risks and uncertainties.  These risks and uncertainties include,
without limitation, the impact of the COVID-19 pandemic, consumer demand, our
inability to successfully open company-operated or franchise-operated
restaurants or establish new markets, competition in our markets, our inability
to grow and manage growth profitably, adverse changes in food and supply costs,
our inability to access additional capital, changes in applicable laws or
regulations, food safety and foodborne illness concerns, our inability to manage
existing and to obtain additional franchisees, our inability to attract and
retain qualified personnel, our inability to profitably expand into new markets,
changes in, or the discontinuation of the Company's repurchase program, and the
possibility that we may be adversely affected by other economic, business,
and/or competitive factors.  Our actual results may differ materially from those
anticipated in these forward-looking statements due to these risks and
uncertainties, as well as others, including, without limitation, those discussed
in Part I. Item 1A. Risk Factors in our Annual Report on Form 10-K for our
fiscal year ended December 29, 2020. We assume no obligation to update or revise
these forward-looking statements as a result of new information, future events
or any other reason.
Fiscal Year
We operate on a 52- or 53-week fiscal year ending on the Tuesday closest to
December 31 for financial reporting purposes. Fiscal year 2021 is the 52-week
period ended December 28, 2021 ("Fiscal 2021"). Fiscal year 2020 is the 52-week
period ended December 29, 2020 ("Fiscal 2020").
Overview
We are a nationwide operator and franchisor of restaurants featuring fresh and
fast cuisine, including both Mexican inspired and American classic dishes. As of
June 15, 2021, we have 601 Del Taco restaurants, a majority of these in the
Pacific Southwest. In each of our restaurants, our food is made to order in
working kitchens. We serve our customers fresh and high-quality food typical of
fast casual restaurants but with the speed, convenience and value associated
with traditional quick service restaurants ("QSRs"). With attributes of both a
fast casual restaurant and a QSR - a combination we call QSR+ - we occupy a
place in the restaurant market distinct from our competitors. With a menu
designed to appeal to a wide variety of budgets and tastes and recently updated
interior and exterior designs across most of our entire system, we believe that
we are poised for growth, operating within the fastest growing segment of the
restaurant industry, the limited service restaurant ("LSR") segment. With high
quality food and attractive price points, we believe we offer a compelling value
proposition relative to both QSR and fast casual peers.

Highlights and Trends
Second Quarter 2021 Highlights
Our second quarter 2021 results and highlights include the following:
•Total revenues increased 19.5% for the twelve weeks ended June 15, 2021 to
$125.0 million compared to $104.6 million for the twelve weeks ended June 16,
2020. Total revenues increased 12.2% for the twenty-four weeks ended June 15,
2021 to $240.5 million compared to $214.4 million for the twenty-four weeks
ended June 16, 2020. The increase in both the twelve and twenty-four weeks ended
June 15, 2021 is primarily due to an increase in company-operated and
franchise-operated same store sales.
•For the twelve weeks ended June 15, 2021, system-wide same store sales
increased 17.8%, company-operated same store sales increased 18.3% and
franchise-operated same store sales increased 17.2%. For the twenty-four weeks
ended June 15, 2021, system-wide same store sales increased 13.5%,
company-operated same store sales increased 11.5% and franchise-operated same
store sales increased 15.6%.
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•During the twelve weeks ended June 15, 2021, we opened two new
franchise-operated restaurants. During the twelve weeks ended June 16, 2020, we
sold one company-operated restaurant to a franchisee, closed one
company-operated restaurant and closed two franchise-operated restaurants.
•During the twenty-four weeks ended June 15, 2021, we opened two new
company-operated restaurants, opened five new franchise-operated restaurants and
closed two franchise-operated restaurants. During the twenty-four weeks ended
June 16, 2020, we opened two new company-operated restaurants, opened one new
franchise-operated restaurant, sold six company-operated restaurants to
franchisees, closed two company-operated restaurants and closed four
franchise-operated restaurants.
Same Store Sales
Same store sales growth reflects the change in year-over-year sales for the same
store base. We include a restaurant in the same store base in the accounting
period following its 18th full month of operations and exclude restaurant
closures. The following table shows the same store sales growth for the twelve
and twenty-four weeks ended June 15, 2021 and June 16, 2020:
                                                               12 Weeks Ended                                 24 Weeks Ended
                                                   June 15, 2021           June 16, 2020          June 15, 2021           June 16, 2020
Company-operated same store sales                          18.3  %                (12.6) %                11.5  %                 (7.7) %
Franchise-operated same store sales                        17.2  %                 (7.2) %                15.6  %                 (5.6) %
System-wide same store sales                               17.8  %                (10.1) %                13.5  %                 (6.7) %



Restaurant Development
Del Taco restaurant counts at the end of the twelve and twenty-four weeks ended
June 15, 2021 and June 16, 2020 were as follows:
                                                                       12 Weeks Ended                                     24 Weeks Ended
                                                            June 15, 2021              June 16, 2020          June 15, 2021              June 16, 2020
Company-operated restaurant activity:
Beginning of period                                                297                        296                    295                         300
Openings                                                             -                          -                      2                           2
Closures                                                             -                         (1)                     -                          (2)

Sold to franchisees                                                  -                         (1)                     -                          (6)
Restaurants at end of period                                       297                        294                    297                         294
Franchise-operated restaurant activity:
Beginning of period                                                302                        300                    301                         296
Openings                                                             2                          -                      5                           1
Closures                                                             -                         (2)                    (2)                         (4)
Purchased from Company                                               -                          1                      -                           6

Restaurants at end of period                                       304                        299                    304                         299
Total restaurant activity:
Beginning of period                                                599                        596                    596                         596
Openings                                                             2                          -                      7                           3
Closures                                                             -                         (3)                    (2)                         (6)
Restaurants at end of period                                       601                        593                    601                         593



The closures presented in the table above represent permanent closures of restaurants. Temporary closures, which can occur for a variety of reasons, are not reflected as a reduction in this table. Our franchisees are independent businesses and decisions to close restaurants can be impacted by numerous factors that are outside of our control, including but not limited to, franchisees' agreements with their landlords and lenders.

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Since 2012, we have focused on repositioning our brand, increasing brand
awareness, strengthening operational capabilities and refinancing indebtedness
to build a foundation for future organic and new unit growth. New restaurant
development is expected to contribute to our growth strategy. While the COVID-19
pandemic impacted our restaurant development plans for Fiscal 2020 due to the
significant uncertainties that resulted from the impact of dine-in operating
restrictions, various social distancing measures and stay-at-home orders on
customer re-engagement with our brand and the short- and long-term impact on
consumer discretionary spending, we and our franchisees plan to continue
restaurant development during 2021, including the recent launch of our new
"Fresh Flex" prototype restaurant design. We plan to open 13 system-wide
restaurants in Fiscal 2021. From time to time, we and our franchisees may close
restaurants.
Key Performance Indicators

In assessing the performance of our business, management utilizes a variety of
financial and performance measures.
These key measures include company restaurant sales, same store sales,
company-operated average unit volumes, restaurant contribution and restaurant
contribution margin, number of new restaurant openings, EBITDA and Adjusted
EBITDA.
Company Restaurant Sales
Company restaurant sales consists of sales of food and beverages in
company-operated restaurants net of promotional allowances, employee meals and
other discounts. Company restaurant sales in any period are directly influenced
by the number of operating weeks in such period, the number of open restaurants,
same store sales and per restaurant sales.
Seasonal factors and the timing of holidays cause revenue to fluctuate from
quarter to quarter. Revenue per restaurant is typically lower in the first
quarter due to reduced January traffic. As a result of seasonality, quarterly
and annual results of operations and key performance indicators, such as company
restaurant sales and same store sales, may fluctuate.
Same Store Sales
We regularly monitor company, franchise and total system same store sales. Same
store sales growth reflects the change in year-over-year sales for the
comparable company, franchise and total system restaurant base. We include a
restaurant in the same store base in the accounting period following its 18th
full month of operations and exclude restaurant closures. As of June 15, 2021
and June 16, 2020, there were 290 and 281 restaurants, respectively, in the
comparable company-operated restaurant base. As of June 15, 2021 and June 16,
2020, there were 291 and 279 restaurants, respectively, in the comparable
franchise-operated restaurant base. This measure highlights the performance of
existing restaurants as the impact of new restaurant openings is excluded. Same
store sales growth can be generated by an increase in the number of transactions
and/or by increases in the average check resulting from a shift in menu mix
and/or higher prices resulting from new products, promotions or price increases.
Company-Operated Average Unit Volumes
We measure company-operated average unit volumes ("AUVs") on both a weekly and
an annual basis. Weekly AUVs are calculated by dividing the sales from
comparable company-operated restaurants over a seven day period from Wednesday
to Tuesday by the number of comparable restaurants. Annual AUVs are calculated
by dividing sales for the trailing 52-week period for all company-operated
restaurants that are in the comparable base by the total number of restaurants
in the comparable base for such period. This measurement allows management to
assess changes in consumer traffic and spending patterns at our company-operated
restaurants and the overall performance of the restaurant base.
Restaurant Contribution and Restaurant Contribution Margin
Restaurant contribution and restaurant contribution margin are neither required
by, nor presented in accordance with United States generally accepted accounting
principles ("U.S. GAAP"). Restaurant contribution is defined as company
restaurant sales less restaurant operating expenses, which are food and paper
costs, labor and related expenses and occupancy and other operating expenses.
Restaurant contribution margin is defined as restaurant contribution as a
percentage of company restaurant sales. Restaurant contribution and restaurant
contribution margin are supplemental measures of operating performance of
restaurants and the calculations thereof may not be comparable to those reported
by other companies. Restaurant contribution and restaurant contribution margin
have limitations as analytical tools and should not be considered in isolation
or as substitutes for analysis of results as reported under U.S. GAAP.
Management believes that restaurant contribution and restaurant contribution
margin are important tools for investors because they are widely-used metrics
within the restaurant industry to evaluate restaurant-level productivity,
efficiency and performance. Management uses restaurant contribution and
restaurant
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contribution margin as key performance indicators to evaluate the profitability
of incremental sales at Del Taco restaurants, to evaluate restaurant performance
across periods and to evaluate restaurant financial performance compared with
competitors. See the heading entitled "Management's Use of Non-GAAP Financial
Measures" for the reconciliation of restaurant contribution to the most directly
comparable GAAP financial measure.
Number of New Restaurant Openings
The number of restaurant openings reflects the number of new restaurants opened
by us and our franchisees during a particular reporting period. Before a new
restaurant opens, we and our franchisees incur pre-opening costs, as described
below. Some new restaurants open with an initial start-up period of higher than
normal sales volumes, which subsequently decrease to stabilized levels.
Typically, new restaurants experience normal inefficiencies in the form of
higher food and paper, labor and other direct operating expenses and, as a
result, restaurant contribution margins are generally lower during the start-up
period of operation. Typically, the average start-up period after which new
company restaurant sales and restaurant operating expenses normalize is
approximately 26 to 52 weeks. In new markets, the length of time before average
company restaurant sales and restaurant operating expenses for new restaurants
stabilize is less predictable and can be longer as a result of limited knowledge
of these markets and consumers' limited awareness of our brand. When we enter
new markets, we may be exposed to start-up times that are longer and restaurant
contribution margins that are lower than typical historical experience, and
these new restaurants may not be profitable and their sales performance may not
follow historical patterns.
EBITDA and Adjusted EBITDA
EBITDA represents net income (loss) before interest expense, provision (benefit)
for income taxes, depreciation and amortization. Adjusted EBITDA represents net
income (loss) before interest expense, provision (benefit) for income taxes,
depreciation, amortization and items that we do not consider representative of
ongoing operating performance, as identified in the reconciliation table under
the heading entitled "Management's Use of Non-GAAP Financial Measures."
EBITDA and Adjusted EBITDA as presented in this quarterly report are
supplemental measures of performance that are neither required by, nor presented
in accordance with U.S. GAAP. EBITDA and Adjusted EBITDA are not measurements of
financial performance under U.S. GAAP and should not be considered as
alternatives to net income (loss), income (loss) from operations or any other
performance measures derived in accordance with U.S. GAAP or as alternatives to
cash flow from operating activities as a measure of liquidity. In addition, in
evaluating EBITDA and Adjusted EBITDA, you should be aware that in the future we
may incur expenses or charges such as those added back to calculate EBITDA and
Adjusted EBITDA. Our presentation of EBITDA and Adjusted EBITDA should not be
construed as an inference that future results will be unaffected by unusual or
nonrecurring items.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should
not consider them in isolation, or as substitutes for analysis of results as
reported under U.S. GAAP. Some of these limitations include but are not limited
to:

(i)they do not reflect cash expenditures, or future requirements for capital
expenditures or contractual commitments;
(ii)they do not reflect changes in, or cash requirements for, working capital
needs;
(iii)they do not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments, on debt;
(iv)although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the future,
and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such
replacements;
(v)they do not adjust for all non-cash income or expense items that are
reflected in the statements of cash flows;
(vi)they do not reflect the impact of earnings or charges resulting from matters
we consider not to be indicative of ongoing operations; and
(vii)other companies in the industry may calculate these measures differently
than we do, limiting their usefulness as comparative measures.
We compensate for these limitations by providing specific information regarding
the U.S. GAAP amounts excluded from such non-GAAP financial measures. We further
compensate for the limitations in the use of non-GAAP financial measures by
presenting comparable U.S. GAAP measures more prominently.
We believe EBITDA and Adjusted EBITDA facilitate operating performance
comparisons from period to period by isolating the effects of some items that
vary from period to period without any correlation to core operating performance
or that vary
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widely among similar companies. These potential differences may be caused by
variations in capital structures (affecting interest expense), tax positions
(such as the impact on periods or changes in effective tax rates or net
operating losses) and the age and book depreciation of facilities and equipment
(affecting relative depreciation expense). We also present EBITDA and Adjusted
EBITDA because (i) we believe these measures are frequently used by securities
analysts, investors and other interested parties to evaluate companies in their
industry, (ii) we believe investors will find these measures useful in assessing
our ability to service or incur indebtedness, and (iii) we use EBITDA and
Adjusted EBITDA internally as benchmarks to compare performance to that of
competitors. See the heading entitled "Management's Use of Non-GAAP Financial
Measures" for the reconciliation of EBITDA and Adjusted EBITDA to net income
(loss).
Key Financial Definitions
Company Restaurant Sales
Company restaurant sales represents sale of food and beverages in
company-operated restaurants, net of promotional allowances, employee meals and
other discounts. Company restaurant sales in any period is directly influenced
by the number of operating weeks in such period, the number of open restaurants,
same store sales performance and per-restaurant sales.
Franchise Revenue
Franchise revenue consists of franchise royalty income from franchisees and, to
a lesser extent, franchise renewal fees and franchise fees from franchise owners
for new franchise restaurant openings. Franchise fees are collected upon signing
a franchise agreement and deferred and recognized as revenue over the term of
the franchise agreement and franchise renewal fees are deferred and recognized
over the term of the franchise renewal agreement. To a lesser extent, franchise
revenue also includes pass-through fees for services, such as software
maintenance and technology subscriptions, since we are considered the principal
related to the purchase and sale of the services to the franchisee and have no
remaining performance obligations. The related expenses are recognized in
occupancy and other - franchise subleases and other.
Franchise Advertising Contributions
Franchise advertising contributions consist of a percentage of a franchise
restaurant's net sales, typically 4%, paid to the Company for advertising and
promotional services that the Company provides. The offset is recorded to
franchise advertising expenses.
Franchise Sublease and Other Income
Franchise sublease and other income primarily consists of rental income received
from franchisees related to properties where we have subleased a leasehold
interest to the franchisee but remain primarily liable to the landlord. The
related expenses are recognized in occupancy and other - franchise subleases and
other. Franchise sublease and other income also includes rental income for
closed restaurant properties where we have subleased to a third party but remain
primarily liable to the landlord. The related expenses are recognized in
restaurant closure charges, net. Franchise sublease and other income also
includes information technology hardware such as point of sale equipment,
tablets, kitchen display systems, servers, scanners and printers that we
occasionally purchase from third party vendors and then sell to franchisees.
Since we are considered the principal related to the purchase and sale of the
hardware to the franchisee and have no remaining performance obligations, the
franchisee reimbursement is recognized as franchise sublease and other income
upon transfer of the hardware. The related expenses are recognized in occupancy
and other - franchise subleases and other.
Food and Paper Costs
Food and paper costs include the direct costs associated with food, beverage and
packaging of menu items. The components of food and paper costs are variable in
nature, change with sales volume and are impacted by menu mix and are subject to
increases or decreases based on fluctuations in commodity, distribution and
transportation costs. Other important factors causing fluctuations in food and
paper costs include seasonality, promotional activity and restaurant level
management of food and paper waste. Food and paper are a significant expense and
can be expected to grow proportionally as company restaurant sales grows.
Labor and Related Expenses
Labor and related expenses include all restaurant-level management and hourly
labor costs, including wages, benefits, bonuses, workers' compensation expense,
group health insurance, paid leave and payroll taxes. Like other expense items,
we expect labor and related expenses to grow proportionately as company
restaurant sales grows. Factors that influence fluctuations in
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labor and related expenses include minimum wage, paid sick leave and payroll tax
legislation, health care and workers compensation costs and the performance of
Del Taco restaurants.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses include all other restaurant-level
operating expenses, such as rent, utilities, restaurant supplies, repairs and
maintenance, credit and debit card processing fees, advertising, insurance,
common area maintenance, real estate taxes, third party delivery fees and other
restaurant operating costs, including net expenses incurred for employees who
are not providing services due to COVID-19.
General and Administrative Expenses
General and administrative expenses are comprised of expenses associated with
corporate and regional supervision functions that support the operations of
existing restaurants and development of new restaurants, including compensation
and benefits, travel expenses, stock-based compensation expenses, legal and
professional fees, information systems, corporate office occupancy costs and
other related corporate costs. Also included are expenses above the restaurant
level, including salaries for field management, such as area and regional
managers, and franchise operational support. General and administrative expenses
also include legal, accounting, insurance, investor relations and other expenses
that are incurred as a public company.
Franchise Advertising Expenses
Franchise advertising expenses consist of the franchise portion of advertising
expense.
Depreciation and Amortization
Depreciation and amortization expenses are periodic non-cash charges that
consist of depreciation of fixed assets, including leasehold improvements and
restaurant and other equipment, and amortization of various intangible assets
primarily including franchise rights and capitalized software.
Occupancy and Other - Franchise Subleases and Other
Occupancy and other - franchise subleases includes rent, property taxes and
common area maintenance paid on properties subleased to franchisees where we
remain primarily liable to the landlord, as well as other franchise expenses
related to information technology hardware that we occasionally purchase from
third party vendors and then sell to franchisees and recognize in franchise
sublease and other income.
Pre-opening Costs
Pre-opening costs are incurred in connection with opening of new restaurants and
incurred prior to opening, including restaurant labor related to the hiring and
training of restaurant employees, as well as supplies, occupancy costs including
cash and non-cash rent expense and other operating expenses directly associated
with the opening of new restaurants. Pre-opening costs are expensed as incurred.
Impairment of Goodwill
Goodwill arises from the excess purchase price over acquired net assets,
including identifiable intangible assets, in business combinations. Goodwill is
not amortized, and is instead reviewed for impairment annually, or more
frequently if events and circumstances indicate that it might be impaired. The
amount by which the carrying amount of the Company exceeds its fair value is
recorded as impairment of goodwill.
Impairment of Trademarks
The Company's trademarks are not amortized, but instead are tested for
impairment annually in the fourth quarter of each fiscal year or more frequently
if events and circumstances indicate that the assets might be impaired. When
events or circumstances indicate the carrying value of the Company's trademarks
may not be recoverable, an appropriate impairment charge is recorded.
Impairments could increase if performance of the Company is not sufficient to
recover the carrying amount of its trademarks.
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Impairment of Long-Lived Assets
We review long-lived assets such as leasehold improvements, restaurant and other
equipment and operating lease right-of-use assets on a unit-by-unit basis for
impairment. When events or circumstances indicate the carrying value of the
assets may not be recoverable, an appropriate impairment charge is recorded.
Impairments could increase if performance of company-operated restaurants is not
sufficient to recover the carrying amount of the related long-lived assets.
Restaurant Closure Charges, Net
Restaurant closure charges, net, consist primarily of (1) rent expense related
to previously closed restaurants; (2) non-lease executory costs for closed
restaurants, including any positive or negative adjustments to these amounts as
more information becomes available; and (3) direct costs related to restaurant
closures.
Loss on Disposal of Assets and Adjustments to Assets Held For Sale, Net
Loss on disposal of assets and adjustments to assets held for sale, net includes
the loss on disposal of assets related to sales, retirements and replacement or
write-off of leasehold improvements, furniture, fixtures or equipment in the
ordinary course of business, impairment losses to reduce the carrying amount for
assets held for sale to estimated fair value less costs to sell, remeasurement
losses for assets held for sale reclassified back to held for use, gains or
losses associated with sale-leaseback transactions, gains or losses associated
with the sale of company-operated restaurants to franchisees and gains or losses
from the write-off of right-of-use assets and operating lease liabilities
related to the termination of leases.
Interest Expense
Interest expense consists primarily of interest expense on outstanding debt
including finance lease obligations and other debt. Deferred financing costs and
debt discount are amortized at cost over the life of the related debt.
Other Income
Other income consists of proceeds received on a legal settlement related to
construction defects at a company-operated restaurant.
Provision (Benefit) for Income Taxes
Provision (benefit) for income taxes consists of federal and state current and
deferred income tax expense.
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Results of Operations
Comparison of Results of Operations for the Twelve Weeks Ended June 15, 2021 and
Twelve Weeks Ended June 16, 2020
The following table presents operating results for the twelve weeks ended
June 15, 2021 and twelve weeks ended June 16, 2020, in absolute terms and
expressed as a percentage of total revenue (or company restaurant sales), as
compared below:

                                                                                12 Weeks Ended
                                                           June 15, 2021                               June 16, 2020                         Increase / (Decrease)
(Dollar amounts in thousands)                        ($)                   (%)                   ($)                   (%)                  ($)                 (%)
Statement of Operations Data:
Revenue:
Company restaurant sales                       $     113,004                 90.4  %       $      95,261                 91.1  %       $   17,743                 18.6  %
Franchise revenue                                      5,604                  4.5                  4,520                  4.3               1,084                 24.0
Franchise advertising contributions                    4,189                  3.4                  2,783                  2.7               1,406       

50.5

Franchise sublease and other income                    2,174                  1.7                  2,006                  1.9                 168                  8.4
Total revenue                                        124,971                100.0                104,570                100.0              20,401                 19.5
Operating expenses
Restaurant operating expenses:
Food and paper costs                                  28,797                 25.5    (1)          25,642                 26.9    (1)        3,155       

12.3

Labor and related expenses                            37,214                 32.9    (1)          31,609                 33.2    (1)        5,605       

17.7

Occupancy and other operating expenses                25,605                 22.7    (1)          22,389                 23.5    (1)        3,216       

14.4

Total restaurant operating expenses                   91,616                 81.1    (1)          79,640                 83.6    (1)       11,976                 15.0
General and administrative                            11,382                  9.1                  9,432                  9.0               1,950                 20.7
Franchise advertising expenses                         4,189                  3.4                  2,783                  2.7               1,406       

50.5

Depreciation and amortization                          5,984                  4.8                  6,285                  6.0                (301)      

(4.8)

Occupancy and other-franchise subleases
and other                                              2,092                  1.7                  1,727                  1.7                 365                 21.1
Pre-opening costs                                         59                    -                     63                  0.1                  (4)                (6.3)

Restaurant closure charges, net                          386                  0.3                    499                  0.5                (113)      

(22.6)

Loss on disposal of assets and
adjustments to assets held for sale, net                  52                    -                    435                  0.4                (383)     

(88.0)

Total operating expenses                             115,760                 92.6                100,864                 96.5              14,896       

14.8

Income from operations                                 9,211                  7.4                  3,706                  3.5               5,505                148.5
Other expense, net
Interest expense                                         701                  0.6                  1,281                  1.2                (580)               (45.3)

Total other expense, net                                 701                  0.6                  1,281                  1.2                (580)      

(45.3)

Income from operations before provision
for income taxes                                       8,510                  6.8                  2,425                  2.3               6,085       

250.9

Provision for income taxes                             2,508                  2.0                  3,001                  2.9                (493)      

(16.4)

Net income (loss)                              $       6,002                  4.8  %       $        (576)                (0.6) %       $    6,578                *



(1)As a percentage of company restaurant sales.
*Immaterial/not meaningful
Company Restaurant Sales
Company restaurant sales increased $17.7 million, or 18.6%, for the twelve weeks
ended June 15, 2021, primarily due to an increase in company-operated same store
sales of 18.3% due in part to the negative impact of COVID-19 on prior year
sales.
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Franchise Revenue
Franchise revenue increased $1.1 million, or 24.0%, for the twelve weeks ended
June 15, 2021, primarily due to an increase in franchise-operated same store
sales of 17.2% as well as additional franchise-operated restaurants open during
2021 compared to 2020.
Franchise Advertising Contributions
Franchise advertising contributions increased $1.4 million, or 50.5%, for the
twelve weeks ended June 15, 2021 and is directly related to franchise revenue.
In addition, starting the last fiscal week of the first quarter of 2020, as a
result of the COVID-19 pandemic, the Company reduced franchise advertising
contributions from 4.0% to 2.5% of franchise restaurant net sales for eight
weeks.
Franchise Sublease and Other Income
Franchise sublease and other income increased $0.2 million, or 8.4%, for the
twelve weeks ended June 15, 2021, primarily due to an increase in other income
related to information technology hardware that we purchase from third party
vendors and then sell to franchisees.
Food and Paper Costs
Food and paper costs increased $3.2 million, or 12.3%, for the twelve weeks
ended June 15, 2021 primarily due to the increase in company restaurant sales.
As a percentage of company restaurant sales, food and paper costs were 25.5% for
the twelve weeks ended June 15, 2021 compared to 26.9% for the twelve weeks
ended June 16, 2020. This percentage decrease was primarily the result of menu
price increases.
Labor and Related Expenses
Labor and related expenses increased $5.6 million, or 17.7%, for the twelve
weeks ended June 15, 2021, primarily due to an increase in company restaurant
sales and a California minimum wage increase on January 1, 2021. As a percentage
of company restaurant sales, labor and related expenses were 32.9% for the
twelve weeks ended June 15, 2021 compared to 33.2% for the twelve weeks ended
June 16, 2020. This percentage decrease resulted primarily from the impact of
the same store sales increase including menu price increases, partially offset
by the impact of the increased California minimum wage and an increase in
workers compensation expense based on underlying claims activity.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses increased $3.2 million, or 14.4%, for the
twelve weeks ended June 15, 2021, primarily due to increased advertising, credit
card fees, rent expense, repairs and maintenance and utilities, partially offset
by lower net expenses related to COVID-19. As a percentage of company restaurant
sales, occupancy and other operating expenses were 22.7% for the twelve weeks
ended June 15, 2021 compared to 23.5% for the twelve weeks ended June 16, 2020.
This percentage decrease was primarily related to the impact of the same store
sales increase including menu price increases and lower net expenses related to
COVID-19, partially offset by increased advertising as a percent of company
restaurant sales.

General and Administrative Expenses
General and administrative expenses increased $2.0 million, or 20.7%, for the
twelve weeks ended June 15, 2021, primarily due to higher management incentive
compensation, legal expenses, salary expense, travel expense and stock-based
compensation expense. As a percentage of total revenue, general and
administrative expense was 9.1% for the twelve weeks ended June 15, 2021
compared to 9.0% for the twelve weeks ended June 16, 2020. The increase as a
percent of total revenue was primarily due to higher management incentive
compensation, mostly offset by the impact of higher revenue.
Franchise Advertising Expenses
Franchise advertising expenses increased $1.4 million, or 50.5%, for the twelve
weeks ended June 15, 2021 and are directly related to franchise advertising
expenses. These amounts offset against franchise advertising contributions
included in revenue. In addition, starting the last fiscal week of the first
quarter of 2020, as a result of the COVID-19 pandemic, the Company reduced
franchise advertising contributions from 4.0% to 2.5% of franchise restaurant
net sales for eight weeks.
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Depreciation and Amortization
Depreciation and amortization expenses were $6.0 million and $6.3 million for
the twelve weeks ended June 15, 2021 and June 16, 2020, respectively. The
decrease primarily reflects lower amortization and depreciation expense related
to fully depreciated assets. As a percentage of total revenue, depreciation and
amortization expenses were 4.8% for the twelve weeks ended June 15, 2021
compared to 6.0% for the twelve weeks ended June 16, 2020. The decrease as a
percent of total revenue was primarily due to lower amortization and
depreciation expense discussed above, as well as the impact of higher revenue.
Occupancy and Other - Franchise Sublease and Other
Occupancy and other - franchise sublease and other was $2.1 million and $1.7
million for the twelve weeks ended June 15, 2021 and June 16, 2020,
respectively. The increase is primarily due to an increase in other expenses
related to franchise information technology service contracts and information
technology hardware that we purchase from third party vendors and then sell to
franchisees.
Pre-opening Costs
Pre-opening costs were $0.1 million for both the twelve weeks ended June 15,
2021 and June 16, 2020 due to a similar level of pre-opening activity compared
to the prior year.
Restaurant Closure Charges, Net
Restaurant closure charges, net, were $0.4 million and $0.5 million for the
twelve weeks ended June 15, 2021 and June 16, 2020, respectively. The decrease
was due to lower rent and property tax expense related to previously closed
restaurants.
Loss on Disposal of Assets and Adjustments to Assets Held for Sale, Net
Loss on disposal of assets and adjustments to assets held for sale, net was $0.1
million and $0.4 million for the twelve weeks ended June 15, 2021 and June 16,
2020, respectively. Current year net loss on disposal of assets and adjustments
to assets held for sale primarily related to an adjustment to estimated net
realizable value for assets classified as held for sale and fixed asset
write-offs. Prior year net loss on disposal of assets and adjustments to assets
held for sale primarily related to the write-off of assets related to the
closure of one company-operated restaurant, an adjustment to estimated net
realizable value for assets classified as held for sale and a loss on the sale
of one company-operated restaurant.
Interest Expense
Interest expense was $0.7 million and $1.3 million for the twelve weeks ended
June 15, 2021 and June 16, 2020, respectively. The decrease is primarily due to
lower average outstanding balances and lower weighted average interest rates
during the twelve weeks ended June 15, 2021 compared to the prior year.
Provision for Income Taxes
The effective income tax rates were 29.5% for the twelve weeks ended June 15,
2021 and 123.8% for the twelve weeks ended June 16, 2020. The provision for
income taxes was $2.5 million for the twelve weeks ended June 15, 2021 and $3.0
million for the twelve weeks ended June 16, 2020. The income tax expense for the
twelve weeks ended June 15, 2021 is driven by our estimated annual effective
income tax rate which primarily consists of statutory federal and state tax
rates based on apportioned income and the impact of non-tax deductible
compensation to executives, partially offset by federal targeted job credits.
The income tax expense for the twelve weeks ended June 16, 2020 is driven by our
estimated effective income tax rate which primarily consists of statutory
federal and state tax rates based on estimated apportioned income for fiscal
year 2020 and the impact of non-tax deductible compensation to executives,
partially offset by federal targeted job credits.

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Results of Operations
Comparison of Results of Operations for the Twenty-Four Weeks Ended June 15,
2021 and Twenty-Four Weeks Ended June 16, 2020
The following table presents operating results for the twenty-four weeks ended
June 15, 2021 and twenty-four weeks ended June 16, 2020, in absolute terms and
expressed as a percentage of total revenue (or company restaurant sales), as
compared below:

                                                                                24 Weeks Ended
                                                           June 15, 2021                               June 16, 2020                          Increase / (Decrease)
(Dollar amounts in thousands)                        ($)                   (%)                   ($)                   (%)                  ($)                   (%)
Statement of Operations Data:
Revenue:
Company restaurant sales                       $     216,582                 90.1  %       $     195,594                 91.2  %       $    20,988                  10.7  %
Franchise revenue                                     10,809                  4.5                  8,911                  4.2                1,898                  21.3
Franchise advertising contributions                    8,014                  3.3                  5,994                  2.8                2,020                  33.7
Franchise sublease and other income                    5,097                  2.1                  3,881                  1.8                1,216                  31.3
Total revenue                                        240,502                100.0                214,380                100.0               26,122                  12.2
Operating expenses
Restaurant operating expenses:
Food and paper costs                                  55,449                 25.6    (1)          53,937                 27.6    (1)         1,512                   2.8
Labor and related expenses                            72,722                 33.6    (1)          66,545                 34.0    (1)         6,177                   9.3
Occupancy and other operating expenses                50,447                 23.3    (1)          46,797                 23.9    (1)         3,650                   7.8
Total restaurant operating expenses                  178,618                 82.5    (1)         167,279                 85.5    (1)        11,339                   6.8
General and administrative                            22,643                  9.4                 19,298                  9.0                3,345                  17.3
Franchise advertising expenses                         8,014                  3.3                  5,994                  2.8                2,020                  33.7
Depreciation and amortization                         11,931                  5.0                 12,422                  5.8                 (491)                 (4.0)
Occupancy and other-franchise subleases
and other                                              4,970                  2.1                  3,322                  1.5                1,648                  49.6
Pre-opening costs                                        255                  0.1                    296                  0.1                  (41)                (13.9)
Impairment of goodwill                                     -                    -                 87,277                 40.7              (87,277)    

(100.0)

Impairment of trademarks                                   -                    -                 11,900                  5.6              (11,900)    

(100.0)

Impairment of long-lived assets                            -                    -                  8,287                  3.9               (8,287)    

(100.0)

Restaurant closure charges, net                          798                  0.3                    993                  0.5                 (195)                (19.6)
Loss on disposal of assets and
adjustments to assets held for sale, net                  54                    -                    557                  0.3                 (503)                (90.3)
Total operating expenses                             227,283                 94.5                317,625                148.2              (90,342)                (28.4)
Income (loss) from operations                         13,219                  5.5               (103,245)               (48.2)             116,464              (112.8)
Other expense, net
Interest expense                                       1,422                  0.6                  2,789                  1.3               (1,367)                (49.0)
Other income                                            (373)                (0.2)                     -                    -                 (373)                *
Total other expense, net                               1,049                  0.4                  2,789                  1.3               (1,740)                (62.4)
Income (loss) from operations before
provision (benefit) for income taxes                  12,170                  5.1               (106,034)               (49.5)             118,204                 *
Provision (benefit) for income taxes                   3,537                  1.5                 (2,990)                (1.4)               6,527                 *
Net income (loss)                              $       8,633                  3.6  %       $    (103,044)               (48.1) %       $   111,677                 *



(1)As a percentage of company restaurant sales.
*Immaterial/not meaningful
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Company Restaurant Sales
Company restaurant sales increased $21.0 million, or 10.7%, for the twenty-four
weeks ended June 15, 2021, primarily due to an increase in company-operated same
store sales of 11.5% due in part to the negative impact of COVID-19 on prior
year sales.
Franchise Revenue
Franchise revenue increased $1.9 million, or 21.3%, for the twenty-four ended
June 15, 2021, primarily due to an increase in franchise-operated same store
sales of 15.6% as well as additional franchise-operated restaurants open during
2021 compared to 2020.
Franchise Advertising Contributions
Franchise advertising contributions increased $2.0 million, or 33.7%, for the
twenty-four weeks ended June 15, 2021 and is directly related to franchise
revenue. In addition, starting the last fiscal week of the first quarter of
2020, as a result of the COVID-19 pandemic, the Company reduced franchise
advertising contributions from 4.0% to 2.5% of franchise restaurant net sales
for eight weeks.
Franchise Sublease and Other Income
Franchise sublease and other income increased $1.2 million, or 31.3%, for the
twenty-four weeks ended June 15, 2021, primarily due to sublease income related
to the sale of six company-operated restaurants to franchisees during 2020, in
which we retained the leasehold interest to the real estate, as well as an
increase in other income related to information technology hardware that we
purchase from third party vendors and then sell to franchisees.
Food and Paper Costs
Food and paper costs increased $1.5 million, or 2.8%, for the twenty-four weeks
ended June 15, 2021 due to the increase in company restaurant sales, partially
offset by commodity deflation. As a percentage of company restaurant sales, food
and paper costs were 25.6% for the twenty-four weeks ended June 15, 2021
compared to 27.6% for the twenty-four weeks ended June 16, 2020. This percentage
decrease was the result of menu price increases and commodity deflation.
Labor and Related Expenses
Labor and related expenses increased $6.2 million, or 9.3%, for the twenty-four
weeks ended June 15, 2021, primarily due to an increase in company restaurant
sales and a California minimum wage increase on January 1, 2021. As a percentage
of company restaurant sales, labor and related expenses were 33.6% for the
twenty-four weeks ended June 15, 2021 compared to 34.0% for the twenty-four
weeks ended June 16, 2020. This percentage decrease resulted primarily from the
impact of the same store sales increase including menu price increases,
partially offset by the impact of the increased California minimum wage and an
increase in workers compensation expense based on underlying claims activity.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses increased $3.7 million, or 7.8%, for the
twenty-four weeks ended June 15, 2021, primarily due to increased advertising,
third party delivery fees, rent expense, utilities and credit card fees. As a
percentage of company restaurant sales, occupancy and other operating expenses
were 23.3% for the twenty-four weeks ended June 15, 2021 compared to 23.9% for
the twenty-four weeks ended June 16, 2020. This percentage decrease was
primarily related to the impact of the same store sales increase including menu
price increases, partially offset by increased advertising and third party
delivery fees as a percent of company restaurant sales.

General and Administrative Expenses
General and administrative expenses increased $3.3 million, or 17.3%, for the
twenty-four weeks ended June 15, 2021, primarily due to higher management
incentive compensation, legal expenses, salary expense and stock-based
compensation expense. As a percentage of total revenue, general and
administrative expense was 9.4% for the twenty-four weeks ended June 15, 2021
compared to 9.0% for the twenty-four weeks ended June 16, 2020. The increase as
a percent of total revenue was primarily due to higher management incentive
compensation, partially offset by the impact of higher revenue.
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Franchise Advertising Expenses
Franchise advertising expenses increased $2.0 million, or 33.7%, for the
twenty-four weeks ended June 15, 2021 and are directly related to franchise
advertising expenses. These amounts offset against franchise advertising
contributions included in revenue. In addition, starting the last fiscal week of
the first quarter of 2020, as a result of the COVID-19 pandemic, the Company
reduced franchise advertising contributions from 4.0% to 2.5% of franchise
restaurant net sales for eight weeks.
Depreciation and Amortization
Depreciation and amortization expenses were $11.9 million and $12.4 million for
the twenty-four weeks ended June 15, 2021 and June 16, 2020, respectively. The
decrease primarily reflects lower amortization and depreciation expense related
to fully depreciated assets. As a percentage of total revenue, depreciation and
amortization expenses were 5.0% for the twenty-four weeks ended June 15, 2021
compared to 5.8% for the twenty-four weeks ended June 16, 2020. The decrease as
a percent of total revenue was primarily due to lower amortization and
depreciation expense discussed above, as well as the impact of higher revenue.
Occupancy and Other - Franchise Sublease and Other
Occupancy and other - franchise sublease and other was $5.0 million and $3.3
million for the twenty-four weeks ended June 15, 2021 and June 16, 2020,
respectively. The increase is primarily due to sublease expense related to the
sale of six company-operated restaurants to franchisees during 2020, in which we
retained the leasehold interest to the real estate, as well as an increase in
other expenses related to information technology hardware that we purchase from
third party vendors and then sell to franchisees.
Pre-opening Costs
Pre-opening costs were $0.3 million for both the twenty-four weeks ended
June 15, 2021 and June 16, 2020 due to a similar level of pre-opening activity
compared to the prior year.
Impairment of Goodwill
No impairment charges were recorded during the twenty-four weeks ended June 15,
2021. The Company recorded a non-cash impairment charge of $87.3 million during
the twenty-four weeks ended June 16, 2020 related to an interim goodwill
impairment assessment performed during the first quarter of 2020 in response to
changes in business, market and economic conditions resulting from the COVID-19
pandemic coupled with a sustained decline in the Company's stock price, which
were indicators of potential goodwill impairment.
Impairment of Trademarks
No impairment charges were recorded during the twenty-four weeks ended June 15,
2021. The Company recorded a non-cash impairment charge of $11.9 million during
the twenty-four weeks ended June 16, 2020 related to an interim trademark
impairment assessment performed during the first quarter of 2020 in response to
changes in business, market and economic conditions resulting from the COVID-19
pandemic coupled with a sustained decline in the Company's stock price, which
were indicators of potential impairment.
Impairment of Long-Lived Assets
No impairment charges were recorded during the twenty-four weeks ended June 15,
2021. The Company recorded a non-cash impairment charge of $8.3 million during
the twenty-four weeks ended June 16, 2020 related to the evaluation of
long-lived assets underlying eight restaurants in California, Nevada and Georgia
which had indicators of impairment.
Restaurant Closure Charges, Net
Restaurant closure charges, net, were $0.8 million and $1.0 million for the
twenty-four weeks ended June 15, 2021 and June 16, 2020, respectively. The
decrease was due to lower rent and property tax expense related to previously
closed restaurants.
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Loss on Disposal of Assets and Adjustments to Assets Held for Sale, Net
Loss on disposal of assets and adjustments to assets held for sale, net was $0.1
million and $0.6 million for the twenty-four weeks ended June 15, 2021 and
June 16, 2020, respectively. Current year net loss on disposal of assets and
adjustments to assets held for sale primarily related to an adjustment to
estimated net realizable value for assets classified as held for sale and fixed
asset write-offs. Prior year net loss on disposal of assets and adjustments to
assets held for sale primarily related to an adjustment resulting from the
reclassification of 14 company-operated restaurants from held for sale to held
for use, losses on the closure of one company-operated restaurant, an adjustment
to estimated net realizable value for assets classified as held for sale and
losses on the sale of six company-operated restaurants, partially offset by a
gain from one sale-leaseback transaction.
Interest Expense
Interest expense was $1.4 million and $2.8 million for the twenty-four weeks
ended June 15, 2021 and June 16, 2020, respectively. The decrease is primarily
due to lower average outstanding balances and lower weighted average interest
rates during the twenty-four weeks ended June 15, 2021 compared to the prior
year.
Other Income
Other income was $0.4 million for the twenty-four weeks ended June 15, 2021 and
consisted of proceeds from a legal settlement related to construction defect
issues at a company-operated restaurant. There was no other income for the
twenty-four weeks ended June 16, 2020.
Provision (Benefit) for Income Taxes
The effective income tax rates were 29.1% for the twenty-four weeks ended
June 15, 2021 and 2.8% for the twenty-four weeks ended June 16, 2020. The
provision (benefit) for income taxes consisted of income tax expense of $3.5
million for the twenty-four weeks ended June 15, 2021 and income tax benefit of
$3.0 million for the twenty-four weeks ended June 16, 2020. The income tax
expense for the twenty-four weeks ended June 15, 2021 is driven by our estimated
annual effective income tax rate which primarily consists of statutory federal
and state tax rates based on apportioned income and the impact of non-tax
deductible compensation to executives, partially offset by federal targeted job
credits. The income tax benefit for the twenty-four weeks ended June 16, 2020 is
primarily impacted by impairment of non-tax deductible goodwill of $87.3 million
and reclassification of $3.5 million of goodwill from held for sale, as well as
statutory federal and state tax rates based on estimated apportioned income for
fiscal year 2020 and the impact of non-tax deductible compensation to
executives, partially offset by federal targeted job credits.
Liquidity and Capital Resources
Potential Impacts of Market Conditions on Capital Resources
We believe that cash from operations, together with our cash balance of $6.6
million and available borrowing capacity of $126.6 million at June 15, 2021,
will be sufficient to meet ongoing debt service requirements, operating lease
obligations, capital expenditures, working capital requirements and other needs
for at least the next 12 months. In addition, share repurchases and our
quarterly cash dividend may impact our available capital resources. Should our
business take longer to recover from the COVID-19 pandemic than we currently
anticipate, there are actions we can take to conserve liquidity.
Summary of Cash Flows
Our primary sources of liquidity and capital resources have been cash provided
from operations, cash and cash equivalents, and our senior secured credit
facilities. Our primary requirements for liquidity and capital are new
restaurants, existing restaurant capital investments (primarily maintenance),
investments in infrastructure and information technology, interest payments on
debt, lease obligations, income tax payments, purchases under our share
repurchase program, dividend payments, working capital and general corporate
needs. The working capital requirements are not significant since customers pay
for their purchases in cash or by payment card (credit or debit) at the time of
sale. Thus, we are able to sell many inventory items before we have to pay
suppliers for such items since we typically have payment terms for our food and
paper suppliers. Our company-operated restaurants do not require significant
inventories.
                                       33

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Table of Contents The following table presents summary cash flow information for the periods indicated (in thousands).


                                                24 Weeks Ended
                                      June 15, 2021       June 16, 2020
Net cash provided by (used in)
Operating activities                 $       21,268      $       21,461
Investing activities                        (11,306)            (11,917)
Financing activities                        (11,294)               (216)

Net (decrease) increase in cash $ (1,332) $ 9,328



Cash Flows Provided by Operating Activities
During the twenty-four weeks ended June 15, 2021, cash flows provided by
operating activities were $21.3 million. The cash flows provided by operating
activities resulted from net income of $8.6 million, non-cash adjustments for
asset depreciation and amortization of $12.1 million, amortization of operating
lease assets of $10.6 million, stock-based compensation of $2.9 million,
deferred income taxes of $0.7 million and a loss on disposal of assets and
adjustments to assets held for sale of $0.1 million, partially offset by net
working capital requirements of $13.3 million and other income of $0.4 million.
During the twenty-four weeks ended June 16, 2020, cash flows provided by
operating activities were $21.5 million. The cash flows provided by operating
activities resulted from a net loss of $103.0 million, non-cash adjustments for
goodwill impairment of $87.3 million, trademark impairment of $11.9 million,
long-lived asset impairment of $8.3 million, asset depreciation and amortization
of $12.6 million, amortization of operating lease assets of $10.2 million,
stock-based compensation of $2.6 million, a loss on disposal of assets and
adjustments to assets held for sale of $0.6 million and net working capital
requirements of $1.4 million, partially offset by deferred income taxes of $10.4
million.
Cash Flows Used in Investing Activities
During the twenty-four weeks ended June 15, 2021, cash flows used in investing
activities were $11.3 million, which was the result of purchase of property and
equipment and other assets of $11.3 million. For the twenty-four weeks ended
June 15, 2021, purchase of property and equipment was $9.6 million, including
approximately $7.6 million to maintain or enhance our existing restaurants and
information systems and for discretionary investment in equipment, technology
and remodeled restaurants, as well as approximately $2.0 million for new
restaurant construction. This was partially offset by proceeds received on a
legal settlement related to construction defects at a company-operated
restaurant of $0.4 million. Additionally, accrued capital expenditures decreased
$0.5 million, resulting in net cash paid of $9.7 million related to the purchase
of property and equipment during the twenty-four weeks ended June 15, 2021.
During the twenty-four weeks ended June 16, 2020, cash flows used in investing
activities were $11.9 million, which were primarily the result of purchase of
property and equipment and other assets of $14.6 million, partially offset by
proceeds from the disposal of property and equipment of $1.4 million and
proceeds from the sale of company-operated restaurants to franchisees for $1.3
million.
Cash Flows Used in Financing Activities
During the twenty-four weeks ended June 15, 2021, cash flows used in financing
activities were $11.3 million. The cash flows used in financing activities were
primarily the result of the repurchase of 316,450 shares of our common stock for
an aggregate purchase price of $3.1 million, dividend payments of $2.9 million,
payments of tax withholding of $0.2 million related to restricted stock vesting
and payments on finance leases and other debt totaling $0.1 million. In
addition, during the twenty-four weeks ended June 15, 2021, the Company borrowed
$15.0 million on its revolving credit facility and made payments of $20.0
million on its revolving credit facility.
During the twenty-four weeks ended June 16, 2020, cash flows used in financing
activities were $0.2 million. The cash flows used in financing activities were
primarily the result of payments of tax withholding of $0.1 million related to
restricted stock vesting and payments on finance leases totaling $0.1 million.
In addition, during the twenty-four weeks ended June 16, 2020, the Company
borrowed $65.0 million on the revolving credit facility and made payments of
$65.0 million on its revolving credit facility.
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Senior Credit Facility
During the fourth quarter of 2019, the Company refinanced the Senior Credit
Facility, which provides for a $250 million five-year senior secured revolving
facility. The Senior Credit Facility, as amended, includes a sub limit of
$35 million for letters of credit. The Senior Credit Facility, as amended, will
mature on September 19, 2024.
The Senior Credit Facility, as amended, contains certain financial covenants,
including the maintenance of a consolidated total lease adjusted leverage ratio
and a consolidated fixed charge coverage ratio. The Company was in compliance
with the financial covenants as of June 15, 2021.
As of June 15, 2021, the weighted-average interest rate on the outstanding
balance of the Senior Credit Facility was 1.86%. As of June 15, 2021, there were
$110.0 million of borrowings under the Senior Credit Facility and letters of
credit outstanding of $13.4 million. Unused borrowing capacity at June 15, 2021
was $126.6 million.
Stock Repurchase Program
In February 2016, the Board of Directors authorized a share repurchase program
under which we may purchase up to $25.0 million in the aggregate of our common
stock and warrants, which expires upon completion of the repurchase program,
unless terminated earlier by the Board of Directors. On August 23, 2016, we
announced that the Board of Directors increased the repurchase program by $25.0
million to $50.0 million. The Board of Directors authorized an additional
increase for the repurchase program effective July 23, 2018 of another $25.0
million to a total of $75.0 million. Purchases under the program may be made in
open market or privately negotiated transactions. During the twelve weeks ended
June 15, 2021, the Company repurchased 210,401 shares of common stock for an
average price per share of $10.07 for an aggregate cost of approximately $2.1
million, including incremental direct costs to acquire the shares. During the
twenty-four weeks ended June 15, 2021, the Company repurchased 316,450 shares of
common stock for an average price per share of $9.69 for an aggregate cost of
approximately $3.1 million, including incremental direct costs to acquire the
shares. As of June 15, 2021, there was approximately $15.0 million remaining
under the share repurchase program. All of the Company's outstanding warrants
expired on June 30, 2020. We have no obligations to repurchase shares under the
share repurchase program, and the timing and value of shares purchased, if any,
will depend on our stock price, market conditions and other factors.
Construction Defect Issues
During the second quarter of 2020, we identified various construction defects
related to three closed restaurants in Texas. During the fourth quarter of 2020,
we identified a fourth closed restaurant with construction defects. We believe
the issues are attributable to defective construction performed by the same
general contractor for all four restaurants. We plan to undertake voluntary
rehabilitation of the four properties, and while the full extent of voluntary
rehabilitation costs are not yet known, we are pursuing legal remedies against
the general contractor to recover future incurred costs.

Management's Use of Non-GAAP Financial Measures A reconciliation of company restaurant sales to restaurant contribution is provided below (in thousands):


                                                               12 Weeks Ended                                24 Weeks Ended
                                                    June 15, 2021          

June 16, 2020 June 15, 2021 June 16, 2020 Company restaurant sales

                           $     113,004          $ 

95,261 $ 216,582 $ 195,594 Restaurant operating expenses

                             91,616                 79,640                178,618                167,279
Restaurant contribution                            $      21,388          $ 

15,621 $ 37,964 $ 28,315 Restaurant contribution margin

                              18.9  %                16.4  %                17.5  %                14.5  %



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A reconciliation of income (loss) from operations to restaurant contribution is
provided below (in thousands):
                                                            12 Weeks Ended                                24 Weeks Ended
                                                 June 15, 2021          

June 16, 2020 June 15, 2021 June 16, 2020 Income (loss) from operations

                   $       9,211          $    

3,706 $ 13,219 $ (103,245) Less: Franchise revenue

                                      (5,604)                (4,520)               (10,809)                (8,911)
Franchise advertising contributions                    (4,189)                (2,783)                (8,014)                (5,994)
Franchise sublease income and other                    (2,174)                (2,006)                (5,097)                (3,881)

Plus:

General and administrative                             11,382                  9,432                 22,643                 19,298
Franchise advertising expenses                          4,189                  2,783                  8,014                  5,994
Depreciation and amortization                           5,984                  6,285                 11,931                 12,422
Occupancy and other - franchise subleases
and other                                               2,092                  1,727                  4,970                  3,322
Pre-opening costs                                          59                     63                    255                    296
Impairment of goodwill                                      -                      -                      -                 87,277
Impairment of trademarks                                    -                      -                      -                 11,900
Impairment of long-lived assets                             -                      -                      -                  8,287
Restaurant closure charges, net                           386                    499                    798                    993
Loss on disposal of assets and
adjustments to assets held for sale, net                   52                    435                     54                    557
Restaurant contribution                         $      21,388          $    

15,621 $ 37,964 $ 28,315 Company restaurant sales

                        $     113,004          $    

95,261 $ 216,582 $ 195,594 Restaurant contribution margin

                           18.9  %                16.4  %                17.5  %                14.5  %



The following table sets forth reconciliations of net income (loss) to EBITDA and Adjusted EBITDA (in thousands):

                                                                12 Weeks Ended                                  24 Weeks Ended
                                                     June 15, 2021           June 16, 2020           June 15, 2021           June 16, 2020
Net income (loss)                                  $        6,002         

$ (576) $ 8,633 $ (103,044) Non-GAAP adjustments: Provision (benefit) for income taxes

                        2,508                   3,001                   3,537                  (2,990)
Interest expense                                              701                   1,281                   1,422                   2,789
Depreciation and amortization                               5,984                   6,285                  11,931                  12,422
EBITDA                                                     15,195                   9,991                  25,523                 (90,823)
Stock-based compensation expense (a)                        1,519                   1,413                   2,919                   2,638
Loss on disposal of assets and adjustments
to assets held for sale, net (b)                               52                     435                      54                     557
Impairment of goodwill (c)                                      -                       -                       -                  87,277
Impairment of trademarks (d)                                    -                       -                       -                  11,900
Impairment of long-lived assets (e)                             -                       -                       -                   8,287
Restaurant closure charges, net (f)                           386                     499                     798                     993
Amortization of favorable and unfavorable
lease assets and liabilities, net (g)                         (85)                    (66)                   (171)                   (115)
Pre-opening costs (h)                                          59                      63                     255                     296
Sublease income for closed restaurants (i)                   (269)                   (248)                   (525)                   (498)
Executive transition costs (j)                                  -                       -                       -                     287
Other income (k)                                                -                       -                    (373)                      -
Adjusted EBITDA                                    $       16,857          $       12,087          $       28,480          $       20,799



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(a)Includes non-cash, stock-based compensation.
(b)Loss on disposal of assets and adjustments to assets held for sale, net
includes adjustments to reduce the carrying amount for assets held for sale to
estimated fair value less cost to sell, remeasurement losses for assets held for
sale reclassified back to held for use, loss or gain on disposal of assets
related to sales, retirements and replacement or write-off of leasehold
improvements or equipment in the ordinary course of business, net gains or
losses recorded associated with the sale of company-operated restaurants to
franchisees, gains from the write-off of right-of-use assets and operating lease
liabilities related to the termination of leases and net gains or losses
recorded associated with sale-leaseback transactions.
(c)Includes non-cash charges related to impairment of goodwill.
(d)Includes non-cash charges related to impairment of trademarks.
(e)Includes non-cash charges related to impairment of long-lived assets.
(f)Restaurant closure costs include rent expense, non-lease executory costs,
other direct costs associated with previously closed restaurants and future
obligations associated with the closure of a restaurant.
(g)Includes amortization of favorable lease assets and unfavorable lease
liabilities.
(h)Pre-opening costs consist of costs directly associated with the opening of
new restaurants and incurred prior to opening, including restaurant labor,
supplies, cash and non-cash rent expense and other related pre-opening costs.
These are generally incurred over the three to five months prior to opening.
(i)Includes other sublease income related to closed restaurants that have been
subleased to third parties.
(j)Includes costs associated with the transition of former Company executives,
such as severance expense.
(k)During 2021, other income consists of a legal settlement related to
construction defects at a company-operated restaurant.
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