Company: FWRG
Filing Date: 2025-04-08
Form Type: ARS
Source: 0001789940-25-000033
Chunk: 121

Company: First Watch Restaurant Group, Inc.
Filing Date: 2025-04-08
Form: ARS
Chunk 121
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 operations prior to the August 2017 merger through which the Company became majority owned by Advent. Under the terms of an agreement with the previous stockholders, to the extent that these credits and carryforwards were utilized to reduce taxes payable, the Company was required to pay the previous stockholders an amount equal to tax savings. In accordance with the agreement, an initial contingent consideration liability of $1.2 million was recognized and adjusted periodically for estimated future use and the actual distributions to previous stockholders. By agreement the obligation would lapse following a change in control event. During the first quarter of 2024, Advent sold common stock of the Company through a secondary public offering. As a result, Advent no longer controlled a majority of the Company’s issued and outstanding shares of common stock. Advent’s first quarter sale, therefore, represents a change of control event as defined in the agreement. Given this change in control event, the remaining $0.6 million of the contingent consideration liability was released through Transaction expenses, net. Final payment to previous stockholders was made in the second quarter of 2024. FIRST WATCH RESTAURANT GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 81

Valuation Allowance Based upon an evaluation of the Company's deferred tax assets, Management has recognized a valuation allowance of $57.7 million and $48.1 million as of December 29, 2024 and December 31, 2023, respectively. The valuation allowance primarily relates to the Company’s federal tax credit carryforwards that are not expected to be realized prior to the statutory expiration of the carryforward. Management continues to monitor and evaluate the rationale for recording a valuation allowance for deferred tax assets. As the Company’s future taxable earnings increase and deferred tax assets are utilized, it is possible that a portion of the valuation allowance will no longer be needed. Release of any portion of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period of the release. The timing and amount of any release related to future taxable income is currently indeterminable. During the year ended December 31, 2023, a release of the valuation allowance related to certain state loss carryforwards decreased income tax expense by approximately $1.2 million. Changes in the deferred tax asset valuation allowance were as follows: (in thousands) Balance as of December 26, 2021 $ (35,863) Increase (5,891) Balance as of December