El Pollo Loco 2015 Annual Report Download - page 81

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Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Earnings per Share
Earnings per share (“EPS”) is calculated using the weighted average number of common shares outstanding during each period. Diluted EPS
assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the
income per share. For purposes of this calculation, options are considered to be common stock equivalents and are only included in the
calculation of diluted earnings per share when their effect is dilutive. The shares used to compute basic and diluted net income (loss) per share
represent the weighted-average common shares outstanding.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers (“ASU 2014-09”),
which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle
of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the
consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core
principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
GAAP.
The revised revenue standard is effective for public entities for annual periods beginning after December 15, 2016, and interim periods therein,
using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting
period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU
2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of
the Company’s pending adoption of ASU 2014-09 on the Company’s financial statements and has not yet determined the method by which it
will adopt the standard in 2017.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15, Going Concern (“ASU 2014-15”). ASU 2014-15 provides GAAP
guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going
concern and about related footnote disclosures. For each reporting period, management will be required to evaluate whether there are conditions
or events that raise substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial
statements are issued. The standard will be effective for annual periods ending after December 15, 2016, and interim periods within annual
periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial
statements have not previously been issued. Upon adoption the Company will use the guidance in ASU 2014-15 to assess going concern.
Franchise Development Option Agreement with Related Party
On July 11, 2014, EPL and Trimaran Pollo Partners, L.L.C. (“LLC”) entered into a Franchise Development Option Agreement relating to
development of our restaurants in the New York–Newark, NY–NJ–CT–PA Combined Statistical Area (the “Territory”). EPL granted LLC the
exclusive option to develop and open fifteen restaurants in the Territory over five years (the “Initial Option”), and, provided that the Initial
Option is exercised, the exclusive option to develop and open up to an additional one hundred restaurants in the Territory over ten years. The
Franchise Development Option Agreement terminates (i) ten years after execution, or (ii) if the Initial Option is exercised, five years after that
exercise. LLC may only exercise the Initial Option if EPL first determines to begin development of company-operated restaurants in the
Territory or support the development of the Territory. We have no current intention to begin development in the Territory.
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