El Pollo Loco 2015 Annual Report Download - page 23

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Table of Contents
and supplies for our restaurants. In addition, one company distributes substantially all of the products that we receive from suppliers to company-
operated and franchised restaurants. If that distributor or any supplier fails to perform as anticipated or seeks to terminate agreements with us, or
if there is any disruption in any of our supply or distribution relationships for any reason, our business, financial condition, results of operations,
and cash flows could be materially and adversely affected. If we or our franchisees temporarily close a restaurant or remove popular items from
a restaurant’s menu as a result of such a disruption, that restaurant may experience a significant reduction in revenue if our customers change
their dining habits as a result.
We have a history of net losses, and may incur losses in the future.
Before fiscal 2014, we incurred net losses in each of the preceding seven fiscal years. We may incur net losses in the future, and we cannot
guarantee that we will sustain profitability.
The failure to comply with our debt covenants, and the volatile credit and capital markets, could have material adverse effects on our
financial condition.
Our ability to manage our debt is dependent upon our level of positive cash flow from company-
operated and franchised restaurants, net of costs.
An economic downturn could negatively impact our cash flow. Credit and capital markets can be volatile, making it difficult for us to refinance
our existing debt or to obtain additional debt or equity financings in the future. Such constraints could increase our costs of borrowing and could
restrict our access to other potential sources of future liquidity. Our failure to comply with the debt covenants in our secured revolving credit
facility or to have sufficient liquidity to make interest and other payments required by our debt could result in a default on our debt and
acceleration of our borrowings, which would have a material adverse effect on our business and financial condition.
Our level of indebtedness could materially and adversely affect our business, financial condition, and results of operations.
We have substantial debt service obligations. At December 31, 2014, our total debt was approximately $166.0 million (including capital lease
obligations), and we had $35.0 million of credit available under our secured revolving credit facility, which was reduced by approximately $7.4
million from outstanding letters of credit.
Our level of indebtedness could have significant effects on our business, such as:
In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet
our other cash needs. If we are not able to pay our debts as they become due, we will be required to pursue one or more alternative strategies,
such as selling assets, refinancing or restructuring our indebtedness, or selling additional debt or equity securities. We may not be able to
refinance our debt or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we have to sell our assets, that sale
may negatively affect our ability to generate revenue.
19
• limiting our ability to borrow additional amounts to fund working capital, capital expenditures, acquisitions, debt service requirements,
execution of our growth strategy, and other purposes;
• requiring us to dedicate a portion of our cash flow from operations to pay interest on our debt, which could reduce availability of our cash
flow to fund working capital, capital expenditures, acquisitions, execution of our growth strategy, and other general corporate purposes;
• making us more vulnerable to adverse changes in general economic, industry, government regulatory, and competitive conditions in our
business by limiting our ability to plan for and react to changing conditions;
•
placing us at a competitive disadvantage compared with our competitors with less debt; and
• exposing us to risks inherent in interest rate fluctuations, because our borrowings are at variable rates of interest, which could result in
higher interest expense in the event of increases in interest rates.