El Pollo Loco 2015 Annual Report Download - page 58

Table of Contents
Gain on Disposition of Restaurants
On September 24, 2014, we completed an agreement to sell six company-operated restaurants in the greater San Antonio area to AA Pollo,
resulting in cash proceeds of $5.4 million. Goodwill was decremented by $650,000, based on a calculation of the fair value of the restaurants
sold relative to the fair value of the reporting unit retained. We recognized a net gain of $2.7 million on this transaction, which is recorded as a
gain on disposition of restaurants in the accompanying statement of operations. These six restaurants are now included in our franchised
restaurant totals.
Interest Expense, Net
Interest expense, net, decreased $18.3 million in fiscal 2014, compared to fiscal 2013. This decrease was due primarily to the 2013 Refinancing,
which reduced the interest rate on our debt, to the repayment of the 2013 Second Lien Term Loan with IPO proceeds, and to the 2014
Refinancing in the fourth quarter of fiscal 2014, which further reduced the interest rate on our debt.
Early Extinguishment of Debt
The proceeds from our IPO in July 2014 were primarily used to repay the 2013 Second Lien Term Loan. In conjunction with this repayment, we
incurred an extinguishment of debt charge of $5.1 million, consisting of $1.5 million in call premium, $2.7 million related to the write-off of
remaining unamortized deferred finance costs, and $0.9 million relating to the write-off of unamortized discount. In December 2014, in
conjunction with our 2014 Refinancing, the 2013 First Lien Term Loan was repaid in full, which resulted in a $4.6 million extinguishment of
debt charge, consisting of $3.9 million related to the write-off of deferred financing costs and $0.7 million related to the write-
off of unamortized
discount.
Secondary Offering Expense
After our IPO in July 2014, we had a follow-on offering of shares on November 25, 2014. In conjunction with this secondary offering, we
incurred approximately $0.7 million in charges for underwriting discounts, commissions, and professional fees and expenses related to this
transaction.
Income Tax Receivable Agreement
On July 30, 2014, we entered into the TRA (see Item 13, “Certain Relationships and Related Transactions, and Director Independence—Income
Tax Receivable Agreement”). The TRA calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we realize in our taxes as
a result of utilizing our net operating losses and other tax attributes attributable to preceding periods. In connection with the TRA, we amended
the 2013 First Lien Credit Agreement to permit dividend payments to us by our subsidiaries in amounts up to $11 million per fiscal year, not to
exceed $33 million in the aggregate, while the 2013 First Lien Credit Agreement was outstanding. In fiscal 2014, we incurred charges totaling
approximately $41 million relating to the present value of our total estimated TRA payments. We are permitted to make TRA payments under
the 2014 Revolver.
Benefit (Provision) for Income Taxes
In fiscal 2014, we recorded an income tax benefit of $63.0 million, compared to an income tax provision of $1.4 million in fiscal 2013. After
evaluating all of the positive and negative evidence, including our continued profitability and the reduction in interest expense resulting from the
2013 Refinancing and from our completed IPO and the resultant repayment of the 2013 Second Lien Term Loan, we concluded that it was more
likely than not that our deferred tax assets would be realized. As a result, in fiscal 2014, we released our valuation allowance of approximately
$65 million. In addition, we applied for various tax credits that resulted in $6.7 million of additional deferred tax assets and tax benefits.
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