El Pollo Loco 2016 Annual Report Download - page 41

2014 Refinancing
InDecember2014,werefinancedour$15millionfirstlienrevolvingcreditfacility(the“2013Revolver”)anda$190millionfirstlientermloanfacility(the“2013
FirstLienTermLoan,”and,togetherwiththe2013Revolver,the“2013FirstLienCreditAgreement”)byenteringintoa$200millionfirstlienrevolvingcredit
facility(the“2014Revolver”)(suchrefinancing,the“2014Refinancing”).The2014Revolvercarrieslongermaturitiesandlowerinterestratesthanthe
indebtednessthatitreplaced.The2014refinancingcombinedwiththepre-paymentof$42milliononthe2014Revolverin2015,resultedinareductionofinterest
expenseof$14.3millionin2015comparedto2014.
2013 Refinancing
InOctober2013,werefinancedour$12.5millionfirstlienrevolvingcreditfacility,$170millionfirstlientermloanfacility,and$105million17%SecondPriority
SeniorSecuredNotesdue2018(collectively,the“2011FinancingAgreements”)byenteringintothe2013FirstLienCreditAgreementanda$100millionsecond
lientermloanfacility(the“2013SecondLienTermLoan,”and,togetherwiththe2013FirstLienCreditAgreement,the“2013CreditAgreements”)(such
refinancing,the“2013Refinancing”).The2013CreditAgreementscarriedlongermaturitiesandlowerinterestratesthantheindebtednessthattheyreplaced.
Followingthecompletionofthe2013Refinancing,ourinterestexpensedeclinedbyapproximately$17.8milliononanannualizedbasis,orapproximately49%of
our$36.3millionofinterestexpenseinfiscal2013.Werepaidinfullthe2013SecondLienTermLoanwiththemajorityofthenetproceedsfromourIPO.
Critical Accounting Policies and Use of Estimates
ThepreparationofourconsolidatedfinancialstatementsinaccordancewithGAAPrequiresustomakeestimatesandjudgmentsthataffectourreportedamountsof
assets,liabilities,revenue,andexpenses,andrelateddisclosureofcontingentassetsandliabilities.Webaseourestimatesonhistoricalexperienceandonvarious
otherassumptionsthatwebelievetobereasonableundercurrentcircumstancesinmakingjudgmentsaboutthecarryingvalueofassetsandliabilitiesthatarenot
readilyavailablefromothersources.Weevaluateourestimatesonanon-goingbasis.Actualresultsmaydifferfromtheseestimatesunderdifferentassumptionsor
conditions.
Accountingpoliciesareanintegralpartofourfinancialstatements.Athoroughunderstandingoftheseaccountingpoliciesisessentialwhenreviewingourreported
resultsofoperationsandourfinancialposition.Managementbelievesthatthecriticalaccountingpoliciesandestimatesdiscussedbelowinvolvethemostdifficult
managementjudgments,duetothesensitivityofthemethodsandassumptionsused.OursignificantaccountingpoliciesaredescribedinNote2toourconsolidated
financialstatementsincludedelsewhereinthisreport.
Revenue Recognition
Werecordrevenuefromcompany-operatedrestaurantsasfoodandbeverageproductsaredeliveredtocustomersandpaymentistenderedatthetimeofsale.We
presentsalesnetofsales-relatedtaxesandpromotionalallowances.Inthecaseofgiftcardsales,werecordrevenuewhenthegiftcardisredeemedbythe
customer.Werecordroyaltiesfromfranchisedrestaurantsalesbasedonapercentageofrestaurantrevenuesintheperiodthattherelatedfranchisedrestaurants’
revenuesareearned.Franchisefeesandareadevelopmentfeesarerecognizedasincomewhenallmaterialservicesorconditionsrelatingtothesaleofthe
franchisehavebeensubstantiallyperformedorsatisfiedbyus.Bothfranchisefeesandareadevelopmentfeesgenerallyarerecognizedasincomeupontheopening
ofafranchisedrestaurantoruponterminationoftherelatedagreements.
Goodwill and Indefinite-Lived Intangible Assets, Net
Intangibleassetsconsistprimarilyofgoodwillandtrademarks.
Wedonotamortizeourgoodwillandindefinite-livedintangibleassets.Weperformanannualimpairmenttestforgoodwillduringthefourthfiscalquarterofeach
year,ormorefrequentlyifimpairmentindicatorsarise.ForourannualgoodwillimpairmentassessmentatDecember30,2015,weperformedaqualitative
assessmentandconcludedthatthefairvalueofthereportingunittowhichgoodwillwasassignedexceededourbookequity.Accordingly,wedidnotidentifyany
goodwillimpairment.
Weperformanannualimpairmenttestforindefinite-livedintangibleassetsduringthefourthfiscalquarterofeachyear,ormorefrequentlyifimpairment
indicatorsarise.Forourimpairmenttestforindefinite-livedintangibleassetsatDecember30,2015,weperformedaqualitativeassessmentandconcludedthatthe
fairvalueoftheindefinite-livedintangibleassetsexceededtheircarryingvalueandthattherewasnoimpairment.
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