El Pollo Loco 2016 Annual Report Download - page 64

EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Property and Equipment Owned, Net
Propertyandequipmentisstatedatcostandisdepreciatedusingthestraight-linemethodovertheestimatedusefullivesoftheassets.Leaseholdimprovementsand
propertyheldundercapitalleasesareamortizedovertheshorteroftheirestimatedusefullivesortheremainingleaseterms.Forleaseswithrenewalperiodsatthe
Company’soption,theCompanygenerallyusestheoriginalleaseterm,excludingtheoptionperiods,todetermineestimatedusefullives;iffailuretoexercisea
renewaloptionimposesaneconomicpenaltyontheCompany,suchthatmanagementdeterminesattheinceptionoftheleasethatrenewalisreasonablyassured,
theCompanymayincludetherenewaloptionperiodinthedeterminationofappropriateestimatedusefullives.
Theestimatedusefulservicelivesareasfollows:

Buildings  20years
Landimprovements  3—30years
Buildingimprovements  3—10years
Restaurantequipment  3—10years
Otherequipment  2—10years
Leaseholdimprovements  Shorterofusefullifeorleaseterm

TheCompanycapitalizescertaindirectlyattributablecostsinconjunctionwithsiteselectionthatrelatetospecificsitesforplannedfuturerestaurants.The
Companyalsocapitalizescertaindirectlyattributablecosts,includinginterest,inconjunctionwithconstructingnewrestaurants.Thesecostsareincludedin
propertyandamortizedovertheshorterofthelifeoftherelatedbuildingsandleaseholdimprovementsortheleaseterm.Costsrelatedtoabandonedsitesandother
siteselectioncoststhatcannotbeidentifiedwithspecificrestaurantsarechargedtogeneralandadministrativeexpensesintheaccompanyingconsolidated
statementsofoperations.TheCompanycapitalizedinternalcostsrelatedtositeselectionandconstructionactivitiesof$1.1millionduringtheyearended
December30,2015.InternalcostsrelatedtositeselectionandconstructionactivitieswereimmaterialduringtheyearsendedDecember31,2014andDecember25,
2013.CapitalizedinternalinterestcostsrelatedtositeselectionandconstructionactivitieswereimmaterialduringtheyearsendedDecember30,2015,December
31,2014,andDecember25,2013.

Goodwill and Indefinite-Lived Intangible Assets
TheCompany’sindefinite-livedintangibleassetsconsistoftrademarks.Goodwillrepresentstheexcessofcostoverfairvalueofnetidentifiedassetsacquiredin
businesscombinationsaccountedforunderthepurchasemethod.GoodwillresultedfromtheAcquisitionandfromtheacquisitionofcertainfranchiselocations.
Uponthesaleofarestaurant,wedecrementgoodwill.Theamountofgoodwillthatweincludeinthecostbasisoftheassetsoldisdeterminedbasedontherelative
fairvalueoftheportionofthereportingunitdisposedcomparedtothefairvalueofthereportingunitretained.
Weperformannualimpairmenttestsforgoodwillduringthefourthfiscalquarterofeachyear,ormorefrequentlyifimpairmentindicatorsarise.
Wereviewgoodwillforimpairmentutilizingeitheraqualitativeassessmentoratwo-stepprocess.Ifwedecidethatitisappropriatetoperformaqualitative
assessmentandconcludethatthefairvalueofareportingunitmorelikelythannotexceedsitscarryingvalue,nofurtherevaluationisnecessary.Ifweperformthe
two-stepprocess,thefirststepofthegoodwillimpairmenttestisusedtoidentifypotentialimpairmentbycomparingthefairvalueofareportingunitwithits
carryingamount,includinggoodwill.Ifthefairvalueofareportingunitexceedsitscarryingamount,goodwillofthereportingunitisconsiderednotimpairedand
thesecondstepoftheimpairmenttestisunnecessary.Ifthecarryingamountofareportingunitexceedsitsfairvalue,thesecondstepisperformedtomeasurethe
amountofimpairmentbycomparingthecarryingamountofthegoodwilltoadeterminationoftheimpliedvalueofthegoodwill.Ifthecarryingamountof
goodwillisgreaterthantheimpliedvalue,animpairmentchargeisrecognizedforthedifference.
Weperformannualimpairmenttestsforindefinite-livedintangibleassetsduringthefourthfiscalquarterofeachyear,ormorefrequentlyifimpairmentindicators
arise.Animpairmenttestconsistsofeitheraqualitativeassessmentoracomparisonofthefairvalueofanintangibleassetwithitscarryingamount.Theexcessof
thecarryingamountofanintangibleassetoveritsfairvalueisitsimpairmentloss.
61