El Pollo Loco 2016 Annual Report Download - page 68

EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

AsofDecember30,2015andDecember31,2014,theCompanyhadnoassetsandliabilitiesmeasuredatfairvalueonarecurringbasis,exceptforoneinterestrate
capatDecember30,2015andtwointerestratecapsatDecember31,2014(whichareLevel3assets),whicharenotmaterial.
Certainassetsandliabilitiesaremeasuredatfairvalueonanonrecurringbasis.Inotherwords,theinstrumentsarenotmeasuredatfairvalueonanongoingbasis
butaresubjecttofairvalueadjustmentsonlyincertaincircumstances(forexample,whenthereisevidenceofimpairment).Duringthefiscalyearended
December31,2014,wedeterminedthataportionofourgoodwillshouldbedecrementedforthesaleoftheSanAntoniorestaurants.Wealsodeterminedthata
restaurantlocationwasimpairedandwrotedowntheunderlyingfixedassets.Thisdeterminationwasbasedontheprojecteddiscountedcashflowsrelatedtothe
restaurant.Basedontheseanalyses,wewroteoff$0.7millionand$0.2million,respectively.DuringthefiscalyearendedDecember25,2013,wedeterminedthat
aportionofourgoodwillshouldbedecrementedforaneminentdomainpurchasebytheStateofCalifornia.Thisdeterminationwasbasedontheprojected
discountedcashflowsrelatedtotherestaurant.Basedonthisanalysis,wewroteoff$0.6million.ThesevaluationsrepresentLevel3measurementsinthefairvalue
hierarchy.
Fair Value of Financial Instruments
Thecarryingamountsofcashandcashequivalents,restrictedcash,accountsreceivable,accountspayableandcertainaccruedexpensesapproximatefairvaluedue
totheirshort-termmaturities.Therecordedvalueofothernotespayableandseniorsecurednotespayableapproximatesfairvalue,basedonborrowingrates
currentlyavailabletotheCompanyforloanswithsimilartermsandremainingmaturities(Level3measurement).TherecordedvalueoftheTRAapproximatesfair
value,basedonborrowingratescurrentlyavailabletotheCompanyfordebtswithsimilartermsandremainingmaturities(Level3measurement).
Stock Based Compensation
Accountingliteraturerequirestherecognitionofcompensationexpenseusingafair-valuebasedmethodforcostsrelatedtoallshare-basedpaymentsincluding
stockoptionsandstockissuedundertheCompany’semployeestockplans.Theguidancealsorequirescompaniestoestimatethefairvalueofshare-basedpayment
awardsonthedateofgrantusinganoption-pricingmodel.Thecostisrecognizedonastraight-linebasisovertheperiodduringwhichanemployeeisrequiredto
provideservice,usuallythevestingperiod.Foroptionsthatarebasedonaperformancerequirement,thecostisrecognizedonanacceleratedbasisovertheperiod
inwhichtheperformancecriteriarelate.
Earnings per Share
Earningspershare(“EPS”)iscalculatedusingtheweightedaveragenumberofcommonsharesoutstandingduringeachperiod.DilutedEPSassumesthe
conversion,exerciseorissuanceofallpotentialcommonstockequivalentsunlesstheeffectistoreducealossorincreasetheincomepershare.Forpurposesofthis
calculation,optionsareconsideredtobecommonstockequivalentsandareonlyincludedinthecalculationofdilutedearningspersharewhentheireffectis
dilutive.Thesharesusedtocomputebasicanddilutednetincome(loss)persharerepresenttheweighted-averagecommonsharesoutstanding.
Recent Accounting Pronouncements
InFebruary2016,theFinancialAccountingStandardsBoard(“FASB”)issuedAccountingStandardsUpdate(“ASU”)2016-02,“Leases.”Thenewstandard
establishesaright-of-use(ROU)modelthatrequiresalesseetorecordaROUassetandaleaseliabilityonthebalancesheetforallleaseswithtermslongerthan12
months.Leaseswillbeclassifiedaseitherfinanceoroperating,withclassificationaffectingthepatternofexpenserecognitionintheincomestatement.Thenew
standardiseffectiveforfiscalyearsbeginningafterDecember15,2018,includinginterimperiodswithinthosefiscalyears.Earlyadoptionispermitted.A
modifiedretrospectivetransitionapproachisrequiredforlesseesforcapitalandoperatingleasesexistingat,orenteredintoafter,thebeginningoftheearliest
comparativeperiodpresentedinthefinancialstatements,withcertainpracticalexpedientsavailable.TheCompanyiscurrentlyevaluatingtheimpactofthe
pendingadoptionofthenewstandardontheconsolidatedfinancialstatements.
InJanuary2016,theFASBissuedASU2016-01,"FinancialInstruments–Overall:RecognitionandMeasurementofFinancialAssetsandFinancialLiabilities."
Thepronouncementrequiresequityinvestments(exceptthoseaccountedforundertheequitymethodofaccounting,orthosethatresultinconsolidationofthe
investee)tobemeasuredatfairvaluewithchangesinfairvaluerecognizedinnetincome,requirespublicbusinessentitiestousetheexitpricenotionwhen
measuringthefairvalueoffinancialinstrumentsfordisclosurepurposes,requiresseparatepresentationoffinancialassetsandfinancialliabilitiesbymeasurement
categoryandformoffinancialasset,andeliminatestherequirementforpublicbusinessentitiestodisclosethemethod(s)andsignificantassumptionsusedto
estimatethefair
65