El Pollo Loco 2015 Annual Report Download - page 73

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Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and
indirect subsidiaries are collectively known as the “Company.” The Company’s activities are conducted principally through its indirect
subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses and operates quick-service restaurants under the name El Pollo
Loco
®
. The restaurants, which are located principally in California but also in Arizona, Nevada, Texas, and Utah, specialize in flame-grilled
chicken in a wide variety of contemporary Mexican-
influenced entrees, including specialty chicken burritos, chicken quesadillas, chicken tortilla
soup, Pollo Bowls and Pollo Salads. At December 31, 2014, the Company operated 172 (134 in the greater Los Angeles area) and franchised 243
(137 in the greater Los Angeles area) El Pollo Loco restaurants. In addition, the Company currently licenses two restaurants in the Philippines
that are set to expire in 2016. The Company is a subsidiary of Trimaran Pollo Partners, L.L.C. (“LLC,” which is controlled by affiliates of
Trimaran Capital, L.L.C.). LLC acquired Chicken Acquisition Corp. (“CAC”), a predecessor of Holdings, on November 17, 2005 (the
“Acquisition”) and has a 59.2% ownership interest as of December 31, 2014. LLC’s only material asset is its investment in Holdings.
On April 22, 2014, CAC, its wholly owned subsidiary, Chicken Subsidiary Corp (“CSC”) and CSC’s wholly owned subsidiary, the former El
Pollo Loco Holdings, Inc. (“Old Holdings”) entered into the following reorganization transactions: (i) Old Holdings merged with and into CSC
with CSC continuing as the surviving corporation; (ii) CSC merged with and into CAC with CAC continuing as the surviving corporation and
(iii) CAC renamed itself El Pollo Loco Holdings, Inc.
Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee
EPL’s 2014 Revolver (see Note 6) on a full and unconditional basis and Intermediate has no subsidiaries other than EPL. EPL is a separate and
distinct legal entity, and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to Intermediate and
to Holdings, respectively.
Under the 2014 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1 million
per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates)
of the Company upon death, disability, or termination of employment, (ii) pay under its income tax receivable agreement (the “TRA”), and,
(iii) so long as no default or event of default has occurred and is continuing, (a) make non-
cash repurchases of equity interests in connection with
the exercise of stock options by directors and officers, provided that those equity interests represent a portion of the consideration of the exercise
price of those stock options, (b) pay up to $2.5 million per year pursuant to stock option plans, employment agreements, or incentive plans,
(c) make up to $5 million in other restricted payments per year, and (d) make other restricted payments, provided that such payments would not
cause, in each case, on a pro forma basis, (x) its lease-adjusted consolidated leverage ratio to equal or exceed 4.25 times and (y) its consolidated
fixed charge coverage ratio to be less than 1.75 times.
The Company operates in one operating segment. All significant revenues relate to retail sales of food and beverages to the general public
through either company or franchised restaurants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Liquidity
The Company’s principal liquidity requirements are to service its debt and meet capital expenditure needs. At December 31, 2014, the
Company’s total debt (including capital lease liabilities) was $165.8 million. The
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