El Pollo Loco 2015 Annual Report Download - page 80

Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
expected TRA payments, $4.2 million of which is included in other accrued expenses and current liabilities and $37.2 million of which is
included in other noncurrent liabilities, respectively on the consolidated balance sheet at December 31, 2014.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
As of December 31, 2014 and December 25, 2013, the Company had no assets and liabilities measured at fair value on a recurring basis, except
for two interest rate caps (which are Level 3 assets), which are not material.
Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, the instruments are not measured at fair value on
an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
During the fiscal year ended December 31, 2014, we determined that a portion of our goodwill should be decremented for the sale of the San
Antonio restaurants. We also determined that a restaurant location was impaired and wrote down the underlying fixed assets. This determination
was based on the projected cash flows related to the restaurant. Based on these analyses, we wrote off $0.7 million and $0.2 million,
respectively. During the fiscal year ended December 25, 2013, we determined that a portion of our goodwill should be decremented for the
eminent domain purchase by the State of California. This determination was based on the projected cash flows related to the restaurant. Based on
this analysis, we wrote off $0.6 million. These valuations represent Level 3 measurements in the fair value hierarchy.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and certain accrued expenses
approximate fair value due to their short-term maturities. The recorded value of other notes payable and senior secured notes payable
approximates fair value, based on borrowing rates currently available to the Company for loans with similar terms and remaining maturities
(Level 3 measurement). The recorded value of the TRA approximates fair value, based on borrowing rates currently available to the Company
for loans with similar terms and remaining maturities (Level 3 measurement).
Stock Based Compensation
Accounting literature requires the recognition of compensation expense using a fair-value based method for costs related to all share-based
payments including stock options and stock issued under the Company’s employee stock plans. The guidance also requires companies to
estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The cost is recognized on a straight-
line basis over the period during which an employee is required to provide service, usually the vesting period. For options that are based on a
performance requirement, the cost is recognized on an accelerated basis over the period in which the performance criteria relate.
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Level 1: Quoted prices for identical instruments in active markets.
• Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not
active; and model
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derived valuations whose inputs or significant value drivers are observable.
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Level 3: Unobservable inputs used when little or no market data is available.