El Pollo Loco 2015 Annual Report Download - page 77

Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred Financing Fees
Deferred financing fees are capitalized and amortized over the period of the loan on a straight-line basis, which approximates the effective
interest method. Included in other assets are fees (net of accumulated amortization) of $1.5 million and $7.8 million as of December 31, 2014
and December 25, 2013, respectively. Amortization expense for deferred financing costs was $1.3 million, $2.0 million and $2.1 million for the
years ended December 31, 2014, December 25, 2013, and December 26, 2012 respectively, and is reflected as a component of interest expense
in the accompanying consolidated statements of operations. In conjunction with the October 11, 2013, refinancing of the Company’s debt, $8.1
million of unamortized deferred financing costs related to the prior debt were written off. In conjunction with the 2014 repayment and
refinancing of the Company’s debt, $6.6 million of unamortized deferred financing costs related to the 2013 Credit Agreements were written off
(see Notes 6 and 7).
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment on a restaurant-by-restaurant basis whenever events or changes in circumstances
indicate that the carrying value of certain assets may not be recoverable. If the Company concludes that the carrying value of certain assets will
not be recovered based on expected undiscounted future cash flows, an impairment write-
down is recorded to reduce the assets to their estimated
fair value. The Company recorded non-cash impairment charges of $293,000, $27,000, and $42,000 for the years ended December 31,
2014, December 25, 2013, and December 26, 2012, respectively.
Insurance Reserves
The Company is responsible for workers’ compensation, general and health insurance claims up to a specified aggregate stop loss amount. The
Company maintains a reserve for estimated claims both reported and incurred but not reported, based on historical claims experience and other
assumptions. At December 31, 2014 and December 25, 2013, the Company had accrued $3,818,000 and $3,597,000, respectively, and such
amounts are reflected as accrued insurance in the accompanying consolidated balance sheets. The expense for such reserves for the years ended
December 31, 2014, December 25, 2013 and December 26, 2012 totaled $6,124,000, $6,912,000, and $8,361,000, respectively. These amounts
are included in labor and related expenses and general and administrative expenses on the accompanying consolidated statements of operations.
Restaurant and Franchise Revenue
Revenues from the operation of company-operated restaurants are recognized as food and beverage products are delivered to customers and
payment is tendered at the time of sale. The Company presents sales net of sales-related taxes and promotional allowances. Promotional
allowances amounted to approximately $7.2 million, $5.7 million and $4.0 million during the years ended December 31, 2014, December 25,
2013, and December 26, 2012, respectively. Franchise revenue consists of franchise royalties, initial franchise fees, license fees due from
franchisees, IT support services and rental income for leases and subleases to franchisees. Franchise royalties are based upon a percentage of net
sales of the franchisee and are recorded as income as such sales are earned by the franchisees. Initial franchise and license fees are recognized
when all material obligations have been performed and conditions have been satisfied, typically when operations of the franchised restaurant
have commenced. Initial franchise fees recognized during the years ended December 31, 2014, December 25, 2013, and December 26, 2012,
totaled $631,000, $521,000, and $186,000, respectively. The Company recognizes renewal fees when a renewal agreement with a franchisee
becomes effective.
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