El Pollo Loco 2016 Annual Report Download - page 18

incidentatoneofourrestaurants.Additionally,eveniffood-borneillnesseswerenotidentifiedatElPolloLocorestaurants,ourrestaurantsalescouldbeadversely
affectedifinstancesoffood-borneillnessesatotherrestaurantchainswerehighlypublicized.Inaddition,ourrestaurantsalescouldbeadverselyaffectedby
publicityregardingotherhigh-profileillnessessuchasavianfluthatcustomersmayassociatewithourfoodproducts.
We rely on only one company to distribute substantially all of our products to company-operated and franchised restaurants, and on a limited number of
companies to supply chicken. Failure to receive timely deliveries of food or other supplies could result in a loss of revenue and materially and adversely impact
our operations.
Ourandourfranchisees’abilitytomaintainconsistentqualitymenuitemsandpricessignificantlydependsuponourabilitytoacquirefreshfoodproducts,
includingthehighest-qualitychickenandrelateditems,fromreliablesources,inaccordancewithourspecificationsandonatimelybasis.Shortagesor
interruptionsinthesupplyoffreshfoodproducts,causedbyunanticipateddemand,problemsinproductionordistribution,contaminationoffoodproducts,an
outbreakofpoultrydisease,inclementweather,orotherconditions,couldmateriallyandadverselyaffecttheavailability,quality,andcostofingredients,which
wouldadverselyaffectourbusiness,financialcondition,resultsofoperations,andcashflows.Wehavecontractswithalimitednumberofsuppliersforthechicken
andotherfoodandsuppliesforourrestaurants.Inaddition,onecompanydistributessubstantiallyalloftheproductsthatwereceivefromsupplierstocompany-
operatedandfranchisedrestaurants.Ifthatdistributororanysupplierfailstoperformasanticipatedorseekstoterminateagreementswithus,orifthereisany
disruptioninanyofoursupplyordistributionrelationshipsforanyreason,ourbusiness,financialcondition,resultsofoperations,andcashflowscouldbe
materiallyandadverselyaffected.Ifweorourfranchiseestemporarilyclosearestaurantorremovepopularitemsfromarestaurant’smenuasaresultofsucha
disruption,thatrestaurantmayexperienceasignificantreductioninrevenueifourcustomerschangetheirdininghabitsasaresult.
We have a history of net losses, and may incur losses in the future.
Beforefiscal2014,weincurrednetlossesineachoftheprecedingsevenfiscalyears.Wemayincurnetlossesinthefuture,andwecannotguaranteethatwewill
sustainprofitability.
The failure to comply with our debt covenants, and the volatile credit and capital markets, could have material adverse effects on our financial condition.
Ourabilitytomanageourdebtisdependentuponourlevelofpositivecashflowfromcompany-operatedandfranchisedrestaurants,netofcosts.Aneconomic
downturncouldnegativelyimpactourcashflow.Creditandcapitalmarketscanbevolatile,makingitdifficultforustorefinanceourexistingdebtortoobtain
additionaldebtorequityfinancingsinthefuture.Suchconstraintscouldincreaseourcostsofborrowingandcouldrestrictouraccesstootherpotentialsourcesof
futureliquidity.Ourfailuretocomplywiththedebtcovenantsinoursecuredrevolvingcreditfacilityortohavesufficientliquiditytomakeinterestandother
paymentsrequiredbyourdebtcouldresultinadefaultonourdebtandaccelerationofourborrowings,whichwouldhaveamaterialadverseeffectonourbusiness
andfinancialcondition.
Our level of indebtedness could materially and adversely affect our business, financial condition, and results of operations.
Wehavesubstantialdebtserviceobligations.AtDecember30,2015,ourtotaldebtwasapproximately$123.6million(includingcapitalleaseobligations),andwe
had$69.8millionofcreditavailableunderoursecuredrevolvingcreditfacility,whichwasreducedbyapproximately$7.2millionfromoutstandinglettersof
credit.
Ourlevelofindebtednesscouldhavesignificanteffectsonourbusiness,suchas:
·limitingourabilitytoborrowadditionalamountstofundworkingcapital,capitalexpenditures,acquisitions,debtservicerequirements,executionofour
growthstrategy,andotherpurposes;
·requiringustodedicateaportionofourcashflowfromoperationstopayinterestonourdebt,whichcouldreduceavailabilityofourcashflowtofund
workingcapital,capitalexpenditures,acquisitions,executionofourgrowthstrategy,andothergeneralcorporatepurposes;
·makingusmorevulnerabletoadversechangesingeneraleconomic,industry,governmentregulatory,andcompetitiveconditionsinourbusinessbylimiting
ourabilitytoplanforandreacttochangingconditions;
·placingusatacompetitivedisadvantagecomparedwithourcompetitorswithlessdebt;and
·exposingustorisksinherentininterestratefluctuations,becauseourborrowingsareatvariableratesofinterest,whichcouldresultinhigherinterest
expenseintheeventofincreasesininterestrates.
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