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Commitments and Contingencies
9 Months Ended
Sep. 27, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Severance Costs
During the third quarter of 2016, the Company recorded a charge for severance expenses of $2.5 million. The charge was recorded in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations. The severance expenses primarily relate to the termination benefits for Kevin Reddy, who resigned from his position as the Chairman of the Board and from his position as the Company’s Chief Executive Officer in July 2016. Under the release agreement executed with Mr. Reddy, he is entitled to certain severance payments, including payments totaling one and one-half times his current base salary and COBRA premiums for eighteen months. The severance payments of $1.3 million owed to Mr. Reddy and one other former employee subsequent to September 27, 2016 are recorded in accrued expenses and other current liabilities in the Company’s unaudited condensed consolidated balance sheets.

Data Security Incident

Overview

On June 28, 2016, the Company announced that a data security incident compromised the security of the payment information of some customers who used debit or credit cards at certain Noodles & Company locations between January 31, 2016 and June 2, 2016. Credit and debit cards used at the affected locations are no longer at risk from the malware involved in this incident, and the Company has been implementing additional security procedures to further secure customers’ debit and credit card information.

Processor Assessments

The Company expects payment card companies to issue assessments to the Company’s credit card processor for card replacement and card issuer losses alleged to be associated with the data security incident. The credit card processor, in turn, will likely seek indemnification from the Company for these amounts, as provided for under the agreement between the Company and the credit card processor. At present, the Company cannot reasonably estimate the range of potential losses that will be associated with the payment card companies’ expected claims for non-ordinary course operating expenses and alleged card issuer losses and/or card replacement costs, although some amount of losses are probable in the Company’s judgment. This range is not reasonably estimable because the Company has not yet received third-party card issuer loss reporting from the payment card networks, the investigation into the matter is ongoing and there are significant factual and legal issues to be resolved. Although the Company maintains data security liability insurance, it currently believes that it is possible that the ultimate amount paid by the Company with respect to this matter will be in excess of the limits of the data security liability insurance coverage applicable to claims of this nature. It is possible that losses associated with the data privacy incident, including losses associated with these assessments, could have a material impact on the Company’s results of operations in future periods. The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is probable that a loss will be incurred and the minimum amount of the loss is reasonably estimable.


Data Security Litigation

In addition to claims by payment card companies with respect to the data security incident, Selco Community Credit Union filed a purported class action lawsuit against the Company in the United States District Court for the District of Colorado on September 6, 2016 alleging that the Company negligently failed to provide adequate security to protect the personal and financial information of customers of Selco and other similarly situated credit unions, banks and other financial institutions alleged to be part of the putative class (the “Selco Litigation”). The complaint in the Selco Litigation also claims the Company violated Section 5 of the Federal Trade Commission Act, which prohibits unfair practices in or affecting commerce, and it seeks monetary damages, injunctive relief and attorneys’ fees.

Midwest America Federal Credit Union and Veridian Credit Union also filed a purported class action lawsuit against the Company in the United States District Court for the District of Colorado on October 6, 2016 on behalf of itself and similarly situated credit unions, banks and other financial institutions containing the same allegations and seeking the same remedies as the Complaint in the Selco Litigation (the “Midwest America Litigation”).

Kemba Financial Credit Union also filed a purported class action lawsuit against the Company in the United States District Court for the District of Colorado on October 24, 2016 on behalf of itself and similarly situated credit unions, banks and other financial institutions containing the same allegations and seeking the same remedies as the complaints in the Selco Litigation and the Midwest America Litigation (the “Kemba Financial Litigation”).

The Company intends to seek to consolidate the Selco Litigation, the Midwest America Litigation and the Kemba Financial Litigation, and it intends to vigorously defend these actions. The Company cannot reasonably estimate the range of potential losses that will be associated with these actions because each is at an early stage. Although the Company maintains data security liability insurance, it currently believes that it is possible that the ultimate amount paid by the Company with respect to this matter will be in excess of the limits of the Company’s data security liability insurance coverage applicable to claims of this nature. It is possible that losses associated with the data privacy incident, including losses associated with these actions, could have a material impact on the Company’s results of operations in future periods. The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is probable that a loss will be incurred and the amount of the loss is reasonably estimable.

Fees and Costs

The Company has incurred fees and costs associated with this data security incident, including legal fees, investigative fees, other professional fees and costs of communications with customers, all of which to date have been paid or reimbursed by its data security liability insurer. The Company expects to continue to incur significant fees and costs associated with the data security incident in future periods. Fees and costs related to the data security incident may also include other liabilities to payment card networks, liabilities from future litigation, governmental investigations and enforcement proceedings and capital investments for remediation activities, among others. The aggregate amount of such fees and costs cannot be reasonably estimated by the Company at present, but these fees and costs may be in excess of the limit that the data security liability insurer will pay or reimburse, in which case the Company will bear these fees and costs. It is possible that losses associated with the data privacy incident, including such fees and costs, could have a material impact on the Company’s results of operations in future periods.
Insurance Coverage

As discussed above, to limit its exposure to losses arising from matters such as the data security incident, the Company maintained at the time of the incident and continues to maintain data privacy liability insurance coverage. This coverage, and certain other customary business insurance coverage, has reduced the Company’s exposure related to the data security incident. The Company will pursue the maximum recoveries available under these policies.

Labor Law Matter

As the Company reported in its Quarterly Reports on Form 10-Q for the quarters ended March 29, 2016 and June 28, 2016, Carrie Castillo, Anastassia Letourneau and Jacquelyn Myhre, former employees of the Company, filed a purported collective and class action lawsuit against the Company on March 10, 2016 alleging violations of the Fair Labor Standards Act and Illinois and Minnesota wage laws (the “Labor Laws”) in the United States District Court for the Northern District of Illinois. The plaintiffs filed the case on their behalf and on behalf of all assistant general managers employed by the Company since January 5, 2013 whom the Company classified as exempt employees, and they allege that the Company violated the Labor Laws by not paying overtime compensation to its assistant general managers. The plaintiffs were seeking, on behalf of themselves and members of the putative class, unpaid overtime compensation, liquidated damages and available penalties under applicable state laws, a declaratory judgment, an injunction and attorneys’ fees and costs. In the third quarter of 2016, the Company and the plaintiffs in the litigation agreed in principle to settle the litigation. To cover the estimated costs of the settlement, including estimated payments to any opt-in members and class attorneys, as well as related settlement administration costs, the Company recorded a charge of $3.0 million in the third quarter of 2016.  The charge was recorded in general and administrative expenses in the Company’s unaudited condensed consolidated statements of operations and in accrued expenses and other current liabilities in the Company’s unaudited condensed consolidated balance sheets. The settlement is subject to approval of the United States District Court for the Northern District of Illinois.

Other Matters

In the normal course of business, the Company is subject to other proceedings, lawsuits and claims. Such matters are subject to many uncertainties, and outcomes are not predictable. Consequently, the Company is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters as of September 27, 2016. These matters could affect the operating results of any one financial reporting period when resolved in future periods. The Company believes that an unfavorable outcome with respect to these matters is remote or if an unfavorable result occurs, the potential range of loss is not material to its consolidated financial statements. Significant increases in the number of these claims, or one or more successful claims that result in greater liabilities than the Company currently anticipates, could materially and adversely affect its business, financial condition, results of operations or cash flows.