El Pollo Loco 2016 Annual Report Download - page 62

EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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30,2015,theCompanyoperated186(137inthe
greaterLosAngelesarea)andfranchised247(138inthegreaterLosAngelesarea)ElPolloLocorestaurants.Inaddition,theCompanycurrentlylicensestwo
restaurantsinthePhilippines.TheCompany’slargeststockholderis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43.7%ownership
interestasofDecember30,2015.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.
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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30,2015,theCompany’stotaldebt
(includingcapitalleaseliabilities)was$123.6million.TheCompany’sabilitytomakepaymentsonitsindebtednessandtofundplannedcapitalexpenditureswill
dependonavailablecashanditsabilitytogenerateadequatecashflowsinthefuture,which,toacertainextent,issubjecttogeneraleconomic,financial,
competitive,legislative,regulatoryandotherfactorsthatarebeyondtheCompany’scontrol.Basedoncurrentoperations,theCompanybelievesthatitscashflows
fromoperations,availablecashof$6.1millionatDecember30,2015andavailableborrowingsunderthe2014Revolver(whichavailabilitywas$69.8millionat
December30,2015)willbeadequatetomeettheCompany’sliquidityneedsforthenext12months.
Basis of Presentation
TheCompanyusesa52-or53-weekfiscalyearendingonthelastWednesdayofthecalendaryear.Ina52-weekfiscalyear,eachquarterincludes13weeksof
operations;ina53-weekfiscalyear,thefirst,secondandthirdquarterseachinclude13weeksofoperationsandthefourthquarterincludes14weeksofoperations.
Everysixorsevenyearsa53-weekfiscalyearoccurs.Fiscal2014wasa53-weekyear,endedonDecember31,2014.Fiscal2015and2013were52-weekyears,
endedDecember30,2015andDecember25,2013,respectively.
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