SECURITIES AND
EXCHANGE COMMISSION
 Washington,
D.C. 20549
  Form 10-Q
  xQUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the
quarterly period ended April 1, 2009
  or
  o TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the
transition period from __________ to __________
  Commission
File No. 333-115644
  EPL
Intermediate, Inc.
 (Exact Name of Registrant as
Specified in Its Charter)
  Delaware
              
              13-4092105(State or Other Jurisdiction
      of
              
              (I.R.S.
      EmployerIncorporation or
      Organization)
              
              Identification
      No.)3535 Harbor Blvd., Suite
      100Costa Mesa,
      California
              
              92626(Address of Principal Executive
      Offices)
              
              (Zip
      Code)
  (714)
599-5000
 (Registrant’s
Telephone Number, Including Area Code)
 
 Not
Applicable
 (Former Name, Address or Fiscal Year
if Changed from Last Report)
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.   Yes oNo x
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).     Yes o     No
o
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company, as
defined in Rule 12b-2 of the Exchange Act.
 Large
accelerated filer oAccelerated filer oNon-accelerated filer xSmaller reporting
company o
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes o   No
x
  As of May
12, 2009, the registrant had 100 shares of its common stock, $.01 par value,
outstanding.
  
  TABLE OF
CONTENTS
  Item
                    
                    
                    PagePART I – FINANCIAL
      INFORMATION1.
                    
                    Condensed
      Consolidated Financial Statements (Unaudited)
                    32.
                    
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    143.
                    
                    Quantitative
      and Qualitative Disclosures About Market Risk
                    224T.
                    
                    Controls
      and Procedures
                    23PART II – OTHER
      INFORMATION1.
                    
                    Legal
      Proceedings
                    234.
                    
                    Submission
      of Matters to a Vote of Security Holders
                    236.
                    
                    Exhibits
                    23
  2
  PART
I – FINANCIAL INFORMATION
 
 Item
1. Financial Statements
  EPL
INTERMEDIATE, INC.
 (A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 (Amounts
in thousands)
 
 DECEMBER
      31,
                              
                              
                              MARCH
      31,2008
                              
                              
                              2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                              
                              $
                              1,076
                              
                              
                              $
                              1,662Accounts
      receivable—net
                              
                              
                              4,472
                              
                              
                              
                              4,495Inventories
                              
                              
                              1,756
                              
                              
                              
                              1,614Prepaid
      expenses and other current assets
                              
                              
                              4,640
                              
                              
                              
                              5,078Income
      taxes receivable
                              
                              
                              43
                              
                              
                              
                              -Deferred
      income taxes
                              
                              
                              1,740
                              
                              
                              
                              1,740Total
      current assets
                              
                              
                              13,727
                              
                              
                              
                              14,589PROPERTY
      OWNED—Net
                              
                              
                              84,321
                              
                              
                              
                              82,147PROPERTY
      HELD UNDER CAPITALLEASES—Net
                              
                              
                              732
                              
                              
                              
                              675GOODWILL
                              
                              
                              252,418
                              
                              
                              
                              252,418DOMESTIC
      TRADEMARKS
                              
                              
                              103,100
                              
                              
                              
                              103,100OTHER
      INTANGIBLE ASSETS—Net
                              
                              
                              9,157
                              
                              
                              
                              8,855OTHER
      ASSETS
                              
                              
                              6,310
                              
                              
                              
                              6,028TOTAL
      ASSETS
                              
                              $
                              469,765
                              
                              
                              $
                              467,812
 
 See
      notes to condensed consolidated financial statements.
                    (continued)
  3
 
 EPL
INTERMEDIATE, INC.
 (A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 (Amounts
in thousands, except share data)
 
  DECEMBER
      31,
                          
                          
                          MARCH
      31,2008
                          
                          
                          2009LIABILITIES
      AND STOCKHOLDER'S EQUITYCURRENT
      LIABILITIES:Revolving
      credit facility
                          
                          $
                          5,000
                          
                          
                          $
                          5,000Current
      portion of note payable
                          
                          
                          5,889
                          
                          
                          
                          5,667Current
      portion of senior secured notes
                          
                          
                          250
                          
                          
                          
                          250Current
      portion of obligations undercapital leases
                          
                          
                          601
                          
                          
                          
                          540Accounts
      payable
                          
                          
                          12,441
                          
                          
                          
                          11,691Accrued
      salaries
                          
                          
                          3,410
                          
                          
                          
                          2,570Accrued
      vacation
                          
                          
                          2,075
                          
                          
                          
                          2,123Accrued
      insurance
                          
                          
                          1,723
                          
                          
                          
                          1,499Accrued
      interest
                          
                          
                          1,658
                          
                          
                          
                          4,812Accrued
      advertising
                          
                          
                          380
                          
                          
                          
                          369Other
      accrued expenses and current liabilities
                          
                          
                          6,196
                          
                          
                          
                          5,777Total
      current liabilities
                          
                          
                          39,623
                          
                          
                          
                          40,298NONCURRENT
      LIABILITIES:Senior
      unsecured notes payable (2013 Notes)
                          
                          
                          108,163
                          
                          
                          
                          106,220PIK
      Notes (2014 Notes)
                          
                          
                          25,980
                          
                          
                          
                          26,899Note
      payable—less current portion
                          
                          
                          93,464
                          
                          
                          
                          93,431Obligations
      under capital leases—lesscurrent portion
                          
                          
                          2,104
                          
                          
                          
                          2,003Deferred
      income taxes
                          
                          
                          26,136
                          
                          
                          
                          26,025Other
      intangible liabilities—net
                          
                          
                          4,883
                          
                          
                          
                          4,648Other
      noncurrent liabilities
                          
                          
                          12,832
                          
                          
                          
                          12,813Total
      noncurrent liabilities
                          
                          
                          273,562
                          
                          
                          
                          272,039COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDER'S
      EQUITYCommon
      stock, $.01 par value—20,000 sharesauthorized; 100 shares
      issued and outstanding
                          
                          
                          -
                          
                          
                          
                          -Additional
      paid-in-capital
                          
                          
                          200,046
                          
                          
                          
                          200,218Accumulated
      Deficit
                          
                          
                          (43,466
                          )
                          
                          
                          (44,743
                          )Total
      stockholder's equity
                          
                          
                          156,580
                          
                          
                          
                          155,475TOTAL
                          
                          $
                          469,765
                          
                          
                          $
                          467,812
 
 See
      notes to condensed consolidated financial statements.
                  (concluded)
  4
 
 EPL
INTERMEDIATE, INC.
 (A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 (Amounts
in thousands)





13
      Weeks Ended March 31,2008
                    
                    
                    2009OPERATING
      REVENUE:Restaurant
      revenue
                    
                    $
                    66,326
                    
                    
                    $
                    65,925Franchise
      revenue
                    
                    
                    4,852
                    
                    
                    
                    4,708Total
      operating revenue
                    
                    
                    71,178
                    
                    
                    
                    70,633OPERATING
      EXPENSES:Product
      cost
                    
                    
                    21,594
                    
                    
                    
                    20,961Payroll
      and benefits
                    
                    
                    17,684
                    
                    
                    
                    17,688Depreciation
      and amortization
                    
                    
                    2,985
                    
                    
                    
                    2,830Other
      operating expenses
                    
                    
                    22,467
                    
                    
                    
                    25,109Total
      operating expenses
                    
                    
                    64,730
                    
                    
                    
                    66,588OPERATING
      INCOME
                    
                    
                    6,448
                    
                    
                    
                    4,045INTEREST
      EXPENSE—Net
                    
                    
                    7,172
                    
                    
                    
                    6,044CHANGE
      IN FAIR VALUE OF INTEREST RATE SWAP
                    
                    
                    -
                    
                    
                    
                    (203
                    )OTHER
      INCOME
                    
                    
                    -
                    
                    
                    
                    (452
                    )LOSS
      BEFORE PROVISIONFOR INCOME TAXES
                    
                    
                    (724
                    )
                    
                    
                    (1,344
                    )BENEFIT
      FOR INCOME TAXES
                    
                    
                    (268
                    )
                    
                    
                    (67
                    )NET
      LOSS
                    
                    $
                    (456
                    )
                    
                    $
                    (1,277
                    )





See notes
to condensed consolidated financial statements.





5





EPL
INTERMEDIATE, INC.


(A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Amounts
in thousands)


13
      Weeks Ended March 31,2008
                            
                            
                            2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                            
                            $
                            (456
                            )
                            
                            $
                            (1,277
                            )Adjustments
      to reconcile net loss to netcash provided by operating
      activities:Depreciation
      and amortization
                            
                            
                            2,985
                            
                            
                            
                            2,830Stock-based
      compensation expense
                            
                            
                            202
                            
                            
                            
                            172Interest
      accretion
                            
                            
                            1,033
                            
                            
                            
                            961Gain
      on disposal of assets
                            
                            
                            (340
                            )
                            
                            
                            -Gain
      on repurchase of bonds
                            
                            
                            -
                            
                            
                            
                            (452
                            )Asset
      impairment
                            
                            
                            -
                            
                            
                            
                            1,996Amortization
      of deferred financing costs
                            
                            
                            473
                            
                            
                            
                            327Amortization
      of favorable / unfavorable leases
                            
                            
                            (17
                            )
                            
                            
                            (47
                            )Deferred
      income taxes
                            
                            
                            (300
                            )
                            
                            
                            (111
                            )Excess
      tax benefits related to exercise / cancellation of stock
      options
                            
                            
                            31
                            
                            
                            
                            -Change
      in fair value of interest rate swap
                            
                            
                            -
                            
                            
                            
                            (203
                            )Changes
      in operating assets and liabilities:Notes
      and accounts receivable—net
                            
                            
                            (430
                            )
                            
                            
                            (23
                            )Inventories
                            
                            
                            (8
                            )
                            
                            
                            142Prepaid
      expenses and other current assets
                            
                            
                            (1,858
                            )
                            
                            
                            (438
                            )Income
      taxes receivable / payable
                            
                            
                            (79
                            )
                            
                            
                            43Other
      assets
                            
                            
                            (23
                            )
                            
                            
                            6Accounts
      payable
                            
                            
                            459
                            
                            
                            
                            (339
                            )Accrued
      salaries and vacation
                            
                            
                            782
                            
                            
                            
                            (792
                            )Accrued
      insurance
                            
                            
                            320
                            
                            
                            
                            (224
                            )Other
      accrued expenses and current and noncurrent liabilities
                            
                            
                            4,054
                            
                            
                            
                            2,903Net
      cash provided by operating activities
                            
                            
                            6,828
                            
                            
                            
                            5,474CASH
      FLOW FROM INVESTINGACTIVITIES:Proceeds
      from asset disposition
                            
                            
                            1,080
                            
                            
                            
                            -Purchase
      of property
                            
                            
                            (4,518
                            )
                            
                            
                            (2,884
                            )Net
      cash used in investing activities
                            
                            
                            (3,438
                            )
                            
                            
                            (2,884
                            )CASH
      FLOWS FROM FINANCINGACTIVITIES:Proceeds
      from issuance of common stock
                            
                            
                            50
                            
                            
                            
                            -Repurchase
      of common stock
                            
                            
                            (47
                            )
                            
                            
                            -Excess
      tax benefits related to exercise / cancellation of stock
      options
                            
                            
                            (31
                            )
                            
                            
                            -Capital
      contribution
                            
                            
                            8,000
                            
                            
                            
                            -Payment
      of obligations under capital leases
                            
                            
                            (305
                            )
                            
                            
                            (162
                            )Payments
      on debt
                            
                            
                            (3,831
                            )
                            
                            
                            (255
                            )Repurchase
      of notes
                            
                            
                            (7,875
                            )
                            
                            
                            (1,470
                            )Deferred
      financing costs
                            
                            
                            -
                            
                            
                            
                            (117
                            )Net
      cash used in financing activities
                            
                            
                            (4,039
                            )
                            
                            
                            (2,004
                            )





See
      notes to condensed consolidated financial statements.
                (continued)




6





EPL
INTERMEDIATE, INC.
 (A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts
in thousands)


13
      Weeks Ended March 31,2008
                                
                                
                                2009INCREASE
      (DECREASE) IN CASH AND CASH EQUIVALENTS
                                
                                $
                                (649
                                )
                                
                                $
                                586CASH
      AND CASH EQUIVALENTS—Beginning of period
                                
                                
                                3,841
                                
                                
                                
                                1,076CASH
      AND CASH EQUIVALENTS—End of period
                                
                                $
                                3,192
                                
                                
                                $
                                1,662SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWINFORMATION—Cash paid during the period
      for:Interest
      (net of amounts capitalized)
                                
                                $
                                2,121
                                
                                
                                $
                                1,574Income
      taxes
                                
                                $
                                107
                                
                                
                                $
                                -SUPPLEMENTAL
      SCHEDULE OF NON-CASH ACTIVITIES:Unpaid
      purchases of property and equipment
                                
                                $
                                153
                                
                                
                                $
                                411
 
 See
      notes to condensed consolidated financial statements.
                  (concluded)


7





EPL
INTERMEDIATE, INC.


(A
Wholly-Owned Subsidiary of El Pollo Loco Holdings, Inc.)




NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




1.
Basis of Presentation




The
accompanying condensed consolidated financial statements are unaudited. EPL
Intermediate, Inc. (“Intermediate”) and its wholly owned subsidiary El Pollo
Loco, Inc. (“EPL” and jointly with Intermediate, the “Company,”) prepared these
condensed consolidated financial statements in accordance with Article 10 of
Regulation S-X. In compliance with those instructions, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted.




The
accompanying condensed consolidated financial statements include all adjustments
(consisting of normal recurring adjustments and accruals) that management
considers necessary for a fair presentation of its financial position and
results of operations for the interim periods presented. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be expected for the entire year.




The
accompanying condensed consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and the
related notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 31, 2008 (File No. 333-115644) as filed with the
Securities and Exchange Commission (the “Commission”) on March 31,
2009.




The
Company uses a 52-53 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. Fiscal year 2008, which ended December 31, 2008, was a 53-week
fiscal year. Fiscal year 2009, which will end December 30, 2009, is a 52-week
year. For simplicity of presentation, the Company has described the periods
ended March 26, 2008 and April 1, 2009 as March 31, 2008 and 2009,
respectively.




The
Company is a wholly-owned subsidiary of El Pollo Loco Holdings, Inc.
(“Holdings”), which is a wholly owned indirect subsidiary of Chicken Acquisition
Corp. (“CAC”) which is owned by Trimaran Pollo Partners, LLC (the “LLC”). The
Company’s activities are performed principally through its wholly-owned
subsidiary, EPL, which develops, franchises, licenses, and operates
quick-service restaurants under the name El Pollo Loco®.




2.
Other Intangible Assets and Liabilities




Other
intangible assets and liabilities consist of the following (in
thousands):





December 31, 2008
                        
                        
                        March
      31, 2009Gross
                          Carrying
                          Amount
                        
                        
                        Accumulated
                          Amortization
                        
                        
                        Net
                          Carrying
                          Amount
                        
                        
                        Gross
                          Carrying
                          Amount
                        
                        
                        Accumulated
                          Amortization
                        
                        
                        Net
                          Carrying
                          AmountFranchise
      network
                        
                        $
                        8,000
                        
                        
                        $
                        (1,425
                        )
                        
                        $
                        6,575
                        
                        
                        $
                        8,000
                        
                        
                        $
                        (1,539
                        )
                        
                        $
                        6,461Favorable
      leasehold interest
                        
                        
                        5,862
                        
                        
                        
                        (3,280
                        )
                        
                        
                        2,582
                        
                        
                        
                        5,862
                        
                        
                        
                        (3,468
                        )
                        
                        
                        2,394Other
      intangible assets
                        
                        $
                        13,862
                        
                        
                        $
                        (4,705
                        )
                        
                        $
                        9,157
                        
                        
                        $
                        13,862
                        
                        
                        $
                        (5,007
                        )
                        
                        $
                        8,855Unfavorable
      leasehold interest liability
                        
                        $
                        (9,156
                        )
                        
                        $
                        4,273
                        
                        
                        $
                        (4,883
                        )
                        
                        $
                        (9,156
                        )
                        
                        $
                        4,508
                        
                        
                        $
                        (4,648
                        )




Favorable
leasehold interest represents the asset in excess of the approximate fair market
value of the leases. The amount is being amortized over the approximate average
life of the leases.




Unfavorable
leasehold interest liability represents the liability in excess of the
approximate fair market value of the leases. The amount is being amortized over
the approximate average life of the leases.  This amount is shown as
other intangible liabilities-net on the accompanying condensed consolidated
balance sheet. Amortization for other intangible assets and liabilities was
$97,000 for the 13-week period ended March 31, 2008 and $67,000 for the 13-week
period ended March 31, 2009.





8





The
estimated amortization for the Company’s amortizable intangible assets and
liabilities for each of the five succeeding fiscal years is as follows (in
thousands):




Year
      Ending December 312009
      (April 1st–
      December 31st)
                    
                    $
                    1882010
                    
                    
                    1302011
                    
                    
                    1672012
                    
                    
                    1822013
                    
                    
                    244




3.
Asset Impairment




The
Company periodically reviews the performance of company-operated stores for
indicators of asset impairment. If the Company concludes that the carrying value
of certain assets will not be recovered based on expected undiscounted future
cash flows, an impairment write-down is recorded to reduce the assets to their
estimated fair value. As a result of this review, the Company recorded an
impairment charge of approximately $2.0 million in March 2009 for two
under-performing company-operated stores that will continue to be operated. This
impairment charge is included in other operating expenses in the accompanying
condensed consolidated statements of operations. There was no impairment charge
in the first quarter of 2008.




4.
Stock-Based Compensation




As of
March 31, 2009, options to purchase 307,556 shares of common stock of CAC were
outstanding, including 79,650 options that are fully vested. The remaining
options partially vest upon the Company’s attaining annual financial or other
goals, with the remaining unvested portion vesting on the seventh anniversary of
the grant date and vesting 100% upon the occurrence of an initial public
offering of at least $50 million or a change in control of CAC. All options were
granted with an exercise price equal to the fair value on the date of
grant.




Changes
in stock options for the first quarter ended March 31, 2009 are as
follows:





Weighted-AverageRemainingWeighted-
                                  Average
                                
                                Contractual
                                  Life
                                
                                Aggregate
                                  IntrinsicShares
                                
                                Exercise Price
                                
                                (in
      Years)
                                
                                Value
      (000’s)Outstanding—December
      31, 2008
                                307,556
                                
                                $
                                69.42Granted
                                -
                                
                                $
                                -Exercised
                                -
                                
                                $
                                -Outstanding—March
      31, 2009
                                307,556
                                
                                $
                                69.42
                                
                                5.8
                                
                                $
                                194Vested
      and expected to vest – March 31, 2009
                                303,803
                                
                                $
                                69.42
                                
                                5.8
                                
                                $
                                191Exercisable –
      March 31, 2009
                                79,650
                                
                                $
                                8.55
                                
                                2.6
                                
                                $
                                4,898




The
intrinsic value is calculated as the difference between the estimated market
value as of March 31, 2009 and the exercise price of options that are
outstanding and exercisable.




In
accordance with the prospective method of adoption of Statement of Financial
Accounting Standard (“SFAS”) 123R, the Company recognized share-based
compensation expense before tax of $172,000 and $202,000 and a corresponding
decrease to net income of $163,000 and $127,000 during the 13 weeks ended March
31, 2009 and 2008, respectively, related to vesting of stock
options.




As of
March 31, 2009, there was unrecognized compensation expense of $2.9 million
related to unvested stock options, which the Company expects to recognize over a
weighted-average period of 3.8 years or earlier in the event of an initial
public offering of our common stock or change in control.





9





5.
Commitments and Contingencies




Legal
Matters




On or
about April 16, 2004, former managers Haroldo Elias, Marco Ramirez and Javier
Rivera filed a purported class action lawsuit in the Superior Court of the State
of California, County of Los Angeles, against EPL on behalf of all putative
class members (former and current general managers and restaurant managers from
April 2000 to present) alleging certain violations of California labor laws,
including alleged improper classification of general managers and restaurant
managers as exempt employees. Plaintiffs’ requested remedies include
compensatory damages for unpaid wages, interest, certain statutory penalties,
disgorgement of alleged profits, punitive damages and attorneys’ fees and costs
as well as certain injunctive relief.  The hearing on Plaintiffs’
motion for class certification is scheduled for June 16, 2009.  While
the Company intends to defend against this action vigorously, the ultimate
outcome of this case is presently not determinable as it is in a preliminary
phase. Thus, it is not possible at this time to determine the likelihood of an
adverse judgment or a likely range of damages in the event of an adverse
judgment




On or
about October 18, 2005, Salvador Amezcua, on behalf of himself and all others
similarly situated, filed a purported class action complaint against EPL in the
Superior Court of the State of California, County of Los Angeles. Carlos Olvera
replaced Mr. Amezcua as the named class representative on August 16, 2006. This
action alleges certain violations of California labor laws and the California
Business and Professions Code, based on, among other things, failure to pay
overtime compensation, failure to provide meal periods, unlawful deductions from
earnings and unfair competition. Plaintiffs’ requested remedies include
compensatory and punitive damages, injunctive relief, disgorgement of profits
and reasonable attorneys’ fees and costs.  The court denied EPL’s
motion to compel arbitration, and the Company appealed that decision. The Court
of Appeal issued its ruling on April 27, 2009 affirming the trial court ruling
on the arbitration issue.  While the Company intends to defend against
this action vigorously, the ultimate outcome of this case is presently not
determinable as it is in a preliminary phase. Thus, it is not possible at this
time to determine the likelihood of an adverse judgment or a likely range of
damages in the event of an adverse judgment.




On June
22, 2006, the Company filed a complaint for declaratory relief, breach of
written contract and bad faith against Arch Specialty Insurance Company
(Arch), seeking damages and equitable relief for Arch’s refusal to carry
out the obligations of its insurance contract to defend and indemnify, among
other things, the Company in the EPL-Mexico v. EPL-USA trademark litigation
settled in June 2008. Following a trial on the merits, the Court issued a final
decision on March 2, 2009 in favor of EPL, which Arch promptly appealed. 
The Company is awaiting a briefing schedule from the Court of
Appeal.




In April
2007, Dora Santana filed a purported class action in state court in Los Angeles
County on behalf of all “Assistant Shift Managers.” Plaintiff alleges wage and
hour violations including working off the clock, failure to pay overtime, and
meal break violations on behalf of the purported class, currently defined as all
Assistant Managers from April 2003 to present. Written discovery is completed on
the limited issue of class certification.  The Court has ordered that
plaintiffs file their motion for class certification no later than August 15,
2009.  While we intend to defend against this action vigorously, the
ultimate outcome of this case is presently not determinable as it is in a
preliminary phase. Thus, we cannot at this time determine the likelihood of an
adverse judgment or a likely range of damages in the event of an adverse
judgment.





On or
about October 4, 2007, Robyn James, a former General Manager, filed a lawsuit in
Superior Court for the County of Los Angeles. EPL was served on January 31,
2008. Plaintiff alleges race discrimination as well as retaliation and negligent
hiring and supervision. In addition to suing EPL, plaintiff has named as
individual defendants, the Area Leader of the two stores where she was assigned
and an Assistant Manager. Discovery is completed, and we have a hearing on
summary judgment motions filed on behalf of all defendants set on May 12,
2009.  While the Company intends to defend against this action
vigorously, the ultimate outcome of this case is presently not determinable.
Thus, it is not possible at this time to determine the likelihood of an adverse
judgment or a likely range of damages in the event of an adverse
judgment.




On May
30, 2008, Jeannette Delgado, a former Assistant Manager filed a purported class
action on behalf of all hourly (i.e. non-exempt) employees of EPL in state court
in Los Angeles County alleging violations of certain California labor laws and
the California Business and Professions Code including failure to pay overtime,
failure to provide meal periods and rest periods and unfair business practices.
By statute, the purported class extends back four years, to May 30, 2004.
Plaintiff’s requested remedies include compensatory and punitive damages,
injunctive relief, disgorgement of profits and reasonable attorneys’ fees and
costs. This lawsuit was served on the Company in early September 2008 and
discovery has begun. While the Company intends to defend against this action
vigorously, the ultimate outcome of this case is presently not determinable as
it is in a preliminary phase. Thus, it is not possible at this time to determine
the likelihood of an adverse judgment or a likely range of damages in the event
of an adverse judgment.





10





On or
about February 2, 2009, Sunset & Westridge, LLC, landlord of a restaurant
site in St. George, Utah, filed suit against EPL in Superior Court for the
County of Orange seeking declaratory relief for alleged breach of a commercial
lease.  Plaintiff alleges that the Company wrongfully terminated the lease
in question, citing force majeure delays as justification for missing the
delivery date on the property.  While the Company intends to defend against
this action vigorously, the ultimate outcome of this case is presently not
determinable as it is in a preliminary phase. Thus, it is not possible at this
time to determine the likelihood of an adverse judgment or a likely range of
damages in the event of an adverse judgment.




The
Company is also involved in various other claims and legal actions that arise in
the ordinary course of business. The Company does not believe that the ultimate
resolution of these other actions will have a material adverse effect on the
Company’s financial position, results of operations, liquidity and capital
resources. A significant increase in the number of claims or an increase in
amounts owing under successful claims could materially adversely affect the
Company’s business, financial condition, results of operation and cash flows.
The Company has not recorded any reserves for litigation
contingencies.





Purchasing
Commitments




The
Company has entered into long-term beverage supply agreements with certain major
beverage vendors. Pursuant to the terms of these arrangements, marketing rebates
are provided to the Company and its franchisees from the beverage vendors based
upon the dollar volume of purchases for company-operated restaurants and
franchised restaurants, respectively, which will vary according to their demand
for beverage syrup and fluctuations in the market rates for beverage syrup.
These contracts have terms extending into 2011 with an estimated Company
obligation totaling $5,900,000.





In March
2009, EPL executed chicken supply contracts with two suppliers that are
effective March 2009 and extend for two years.  The agreements provide for
prices and minimum quantities of chicken that EPL must purchase from each
supplier.  The contracts have an estimated Company obligation totaling
$26,000,000.





6.
Senior Secured Notes (2009 Notes)





In
December 2003, EPL issued the 2009 Notes, consisting of $110.0 million of senior
secured notes accruing interest at 9.25% per annum, due December 2009. At March
31, 2009, $250,000 principal amount of the 2009 Notes was
outstanding.




7.
Senior Unsecured Notes Payable (2013 Notes)




EPL has
outstanding 2013 Notes, consisting of $106.2 million aggregate principal amount
of 11 3/4% senior notes due 2013. Interest is payable in May and November
beginning May 15, 2006. The 2013 Notes are unsecured, are guaranteed by
Intermediate, and may be redeemed, at the discretion of the issuer, after
November 15, 2009. The indenture contains certain provisions which may prohibit
EPL’s ability to incur additional indebtedness, sell assets, engage in
transactions with affiliates, and issue or sell preferred stock, among other
items.





In
October 2006, EPL completed the exchange of the 2013 Notes for registered,
publicly tradable notes that have substantially identical terms as the 2013
Notes. The costs incurred in connection with the offering of the 2013 Notes have
been capitalized and are included in other assets in the accompanying balance
sheets, and the related amortization is reflected as a component of interest
expense in the accompanying condensed consolidated financial statements. The
Company used the proceeds from the 2013 Notes to purchase substantially all of
the outstanding 2009 Notes.




As a
holding company, the stock of EPL constitutes Intermediate’s only material
asset. Consequently, EPL conducts all of the Company’s consolidated operations
and owns substantially all of the consolidated operating assets. The Company’s
principal source of the cash required to pay its obligations is the cash that
EPL generates from its operations. EPL is a separate and distinct legal entity,
has no obligation to make funds available to Intermediate, and the 2013 Notes
and the 2014 Notes (see Note 9) have restrictions that limit distributions or
dividends that may be paid by EPL to Intermediate. Conditions that would allow
for distributions or dividends to be made include compliance with a fixed charge
coverage ratio test (as defined in the indenture governing the 2013 Notes) and
cash received from the proceeds of new equity contributions. As of March 31,
2009, we are restricted from incurring additional indebtedness, as EPL does not
currently meet the fixed charge coverage ratio. This restriction does not apply
to the existing loan availability of $13.7 million under the revolving line of
credit. There are also some allowed distributions, payments and dividends for
other specific events. Distributions, dividends or investments would also be
limited to 50% of consolidated net income under certain
circumstances.




The
Company purchased $2.0 million in principal amount of these Notes at a price of
$1.5 million in March of 2009.  The net purchase price was 74% of the
principal amount of such notes and resulted in a net gain of $0.5 million which
is included in other income in the condensed consolidated statement of
operations. The gain of $0.5 million is net of the write-off of prorated
deferred finance costs of $0.1 million.





11





8. Notes Payable to Merrill Lynch,
Bank of America, et al and Revolving Credit Facility




On
November 18, 2005, EPL entered into senior secured credit facilities (the
“Credit Facility”) with Intermediate, as parent guarantor, Merrill Lynch Capital
Corporation, as administrative agent, the other agents identified therein,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Bank of America, N.A., as lead arrangers and book managers, and a syndicate
of financial institutions and institutional lenders. The Credit Facility
provides for a $104.5 million term loan and $25.0 million in revolving
availability. Utilizing this senior secured revolving credit facility, EPL
issued $6.3 million of letters of credit as of March 31, 2009. Future principal
payments under the term loan at March 31, 2009 are as follows (in
thousands).




Year
      Ending December 312009
      (April 1st – December 31st)
                
                $
                5,4112010
                
                
                9882011
                
                
                92,699$
                99,098




The
Credit Facility bears interest, payable quarterly, at a Base Rate or LIBOR, at
EPL’s option, plus an applicable margin. The applicable margin is based on EPL’s
financial performance, as defined. The applicable margin rate for the term loan
remains constant at 2.50% with respect to LIBOR and at 1.50% with respect to
Base Rate.  The effective rate at March 31, 2009 for the term loan was
3.96%.  See below for the interest rates on the portion of the term
loan represented by an interest rate swap. The applicable margin rate for the
revolver as of March 31, 2009 was 2.50% with respect to LIBOR and 1.50% with
respect to Base Rate advances and thereafter ranges from 2.25% to 2.75% with
respect to LIBOR advances and 1.25% to 1.75% with respect to Base Rate advances.
The effective rate at March 31, 2009 for the revolver was 5.0%. The Credit
Facility is secured by a first-priority pledge by Holdings of all of the
outstanding stock of the Company, a first priority pledge by the Company of all
of EPL’s outstanding stock and a first priority security interest in
substantially all of EPL’s tangible and intangible assets. In addition, the
Credit Facility is guaranteed by the Company and Holdings. The Credit Facility
matures on November 18, 2011. As of March 31, 2009, EPL was in compliance with
all of the financial covenants contained in the Credit Facility and has $13.7
million available for borrowings under the revolving line of
credit.





The
credit facility requires the prepayment of the term loan in an amount equal to
50% of Excess Operating Cash Flow if, at the end of the fiscal year, the
Consolidated Leverage Ratio is less than 5.0:1.0.  Excess Operating
Cash Flow is defined as an amount equal to Consolidated EBITDA minus
Consolidated Financial Obligations and other specific payments and
adjustments.  The Excess Operating Cash Flow for 2008 was $9.4
million.  The Company made the required prepayment of $4.7 million in
April 2009.




To manage
or reduce the interest rate risk, the Company periodically enters into interest
rate swap transactions. The Company enters into these contracts with major
financial institutions, which may minimize its risk of credit loss. On June 26,
2008, the Company entered into an interest rate swap agreement with an effective
date of September 24, 2008 and a maturity date of June 30, 2010. The agreement
is based on the notional amount of $50.0 million. Under the terms of the
agreement, the Company agreed to make fixed rate payments on the notional amount
on a quarterly basis at increasing interest rates ranging from 3.17% to 4.61%
(3.68% at March 31, 2009), in exchange for receiving payments on the notional
amount at a floating rate based on the three-month LIBOR rate, on a quarterly
basis (4.0% at March 31, 2009). The interest rate swap agreement is intended to
reduce interest rate risk associated with variable interest rate debt. At March
31, 2009 and December 31, 2008, the fair value of the interest rate swap
liability was approximately $1.8 million and $2.0 million, respectively, and is
included in other noncurrent liabilities on the accompanying condensed
consolidated balance sheet. The fair value of the interest rate swap liability
decreased by approximately $0.2 million from December 31, 2008.




9.
PIK Notes (2014 Notes)




At
December 31, 2008 and March 31, 2009, the Company had $26.0 million and $26.9
million, respectively, outstanding in aggregate principal amount of the 2014
Notes. No cash interest will accrue on the 2014 Notes prior to November 15,
2009. Instead, the principal value of the 2014 Notes will increase (representing
accretion of original issue discount) from the date of original issuance until
but not including November 15, 2009 at a rate of 14 1/2% per annum compounded
annually, so that the accreted value of the 2014 Notes on November 15, 2009 will
be equal to the full principal amount of $29.3 million at maturity.




Beginning
on November 15, 2009, cash interest will accrue on the 2014 Notes at an annual
rate of 14 1/2% per annum payable semi-annually in arrears on May 15 and
November 15 of each year, beginning May 15, 2010. Principal is due on November
15, 2014. The indenture restricts the ability of Intermediate and its
subsidiaries to incur additional indebtedness, sell assets, engage in
transactions with affiliates, and issue or sell preferred stock, among other
items. The indenture also limits the ability of EPL or other subsidiaries to
make dividend or other payments to Intermediate and for Intermediate to make
payments to Holdings (see Note 7).





12





The 2014
Notes are effectively subordinated to all existing and future indebtedness and
other liabilities of the Company’s subsidiaries. The 2014 Notes are unsecured
and are not guaranteed. If any of the 2014 Notes are outstanding at May 15,
2011, the Company is required to redeem for cash a portion of each note then
outstanding at 104.5% of the accreted value of such portion of such note, plus
accrued and unpaid interest. Additionally, the Company may, at its discretion,
redeem any or all of the 2014 Notes, subject to certain provisions.




In
October 2006, Intermediate completed the exchange of the 2014 Notes for
registered, publicly tradable notes that have substantially identical terms as
the 2014 Notes. The costs incurred in connection with its registration of the
2014 Notes have been capitalized and are included in other assets in the
accompanying balance sheets and the related amortization is reflected as a
component of interest expense in the accompanying condensed consolidated
financial statements.





On
January 25, 2008, CAC made an $8.0 million capital contribution to the Company.
The Company used $7.9 million of these proceeds to repurchase a portion of the
outstanding 2014 Notes at a price that approximated their accreted
value.  The Company wrote-off the prorated deferred finance costs of
$0.1 million at that time.





10.
Income Taxes





The
Company’s taxable income or loss is included in the consolidated federal and
state income tax returns of CAC. The Company records its provision for income
taxes based on its separate stand-alone operating results using the asset and
liability method.




The
Company has determined that the total amount of unrecognized tax benefits as of
December 31, 2008 and March 31, 2009, was $0.7 million. The Company estimates
that the unrecognized tax benefit as of March 31, 2009 will not change
significantly within the next twelve months. The Company will continue to
classify income tax penalties and interest as part of the provision for income
taxes in its Consolidated Statements of Operations. The Company has not recorded
accrued interest and penalties on uncertain tax positions as of March 31, 2009.
The Company’s liability for uncertain tax positions is reviewed periodically and
is adjusted as events occur that affect the estimated liability for additional
taxes, such as the lapsing of applicable statutes of limitations, the conclusion
of tax audits, the measurement of additional estimated liabilities based on
current calculations, the identification of new uncertain tax positions, the
release of administrative tax guidance affecting the Company’s estimates of tax
liabilities, or the rendering of court decisions affecting its estimates of tax
liabilities.




11. New Accounting
Pronouncements




On April
1, 2009, the Financial Accounting Standards Board (“FASB”) issued FASB Staff
Position (“FSP”) FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from
Contingencies.” The FSP amends the guidance in FASB Statement No. 141
(Revised 2007), “Business
Combinations,” to: (i) require that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated. If fair value of such an
asset or liability cannot be reasonably estimated, the asset or liability would
generally be recognized in accordance with FASB Statement No. 5, “Accounting for
Contingencies,” and FASB Interpretation No. 14, “Reasonable Estimation of the Amount
of a Loss;” (ii) eliminate the requirement to disclose an estimate of the
range of outcomes of recognized contingencies at the acquisition date. For
unrecognized contingencies, the FASB decided to require that entities include
only the disclosures required by Statement No. 5 and that those disclosures be
included in the business combination footnote; and (iii) require that contingent
consideration arrangements of an acquiree assumed by the acquirer in a business
combination be treated as contingent consideration of the acquirer and should be
initially and subsequently measured at fair value in accordance with Statement
No. 141R. This FSP is effective for assets or liabilities arising from
contingencies in business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.  The Company is currently evaluating the impact, if any,
that the adoption of FSP FAS 141(R)-1 will have on its results of operations,
financial position, and cash flows.




On
April 9, 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly.” This FSP
(i) affirms that the objective of fair value when the market for an asset is not
active is the price that would be received to sell the asset in an orderly
transaction; (ii) clarifies and includes additional factors for determining
whether there has been a significant decrease in market activity for an asset
when the market for that asset is not active; (iii) eliminates the proposed
presumption that all transactions are distressed (not orderly) unless proven
otherwise. The FSP instead requires an entity to base its conclusion about
whether a transaction was not orderly on the weight of the evidence; (iv)
includes an example that provides additional explanation on estimating fair
value when the market activity for an asset has declined significantly; and (v)
requires an entity to disclose a change in valuation technique (and the related
inputs) resulting from the application of the FSP and to quantify its effects,
if practicable. This FSP applies to all fair value measurements when
appropriate. FSP FAS 157-4 must be applied prospectively and retrospective
application is not permitted. FSP FAS 157-4 is effective for interim and annual
periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also
early adopt FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments.”The Company is currently evaluating
the impact, if any, that the adoption of FSP FAS 157-4 will have on its results
of operations, financial position, and cash flows.





13




On April
9, 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments.” This FSP (i) changes existing guidance
for determining whether an impairment is other than temporary to debt
securities; (ii) replaces the existing requirement that the entity’s management
assert it has both the intent and ability to hold an impaired security until
recovery with a requirement that management assert: (a) it does not have the
intent to sell the security; and (b) it is more likely than not it will not have
to sell the security before recovery of its cost basis; (iii) incorporates
examples of factors from existing literature that should be considered in
determining whether a debt security is other-than-temporarily impaired; (iv)
requires that an entity recognize noncredit losses on held-to-maturity debt
securities in other comprehensive income and amortize that amount over the
remaining life of the security in a prospective manner by offsetting the
recorded value of the asset unless the security is subsequently sold or there
are additional credit losses; (v) requires an entity to present the total
other-than-temporary impairment in the statement of earnings with an offset for
the amount recognized in other comprehensive income; and (vi) requires an entity
to record a cumulative-effect adjustment as of the beginning of the period of
adoption to reclassify the noncredit component of a previously recognized
other-temporary impairment from retained earnings to accumulated other
comprehensive income if the entity does not intend to sell the security and it
is not more likely than not that the entity will be required to sell the
security before recovery. FSP FAS 115-2 and FAS 124-2 is effective for interim
and annual periods ending after June 15, 2009, with early adoption permitted for
periods ending after March 15, 2009. An entity may early adopt this FSP only if
it also elects to early adopt FSP FAS 157-4. The Company is currently
evaluating the impact, if any, that the adoption of FSP FAS 115-2 and FAS 124-2
will have on its results of operations, financial position, and cash
flows.




On April
9, 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair
Value of Financial Instruments.” This FSP amends FASB Statement No. 107,
“Disclosures about Fair Value
of Financial Instruments” to require an entity to provide disclosures
about fair value of financial instruments in interim financial information. This
FSP also amends Accounting Principles Board Opinion No. 28, “Interim Financial Reporting”
to require those disclosures in summarized financial information at interim
reporting periods. Under this FSP, a publicly traded company shall include
disclosures about the fair value of its financial instruments whenever it issues
summarized financial information for interim reporting periods. In addition, an
entity shall disclose in the body or in the accompanying notes of its summarized
financial information for interim reporting periods and in its financial
statements for annual reporting periods the fair value of all financial
instruments for which it is practicable to estimate that value, whether
recognized or not recognized in the statement of financial position, as required
by Statement No. 107. FSP 107-1 and APB 28-1 is effective for interim periods
ending after June 15, 2009, with early adoption permitted for periods ending
after March 15, 2009. However, an entity may early adopt these interim fair
value disclosure requirements only if it also elects to early adopt FSP FAS
157-4 and FSP FAS 115-2 and FAS 124-2. The Company is currently evaluating the
impact, if any, that the adoption of FSP FAS 107-1 and APB 28-1 will have on its
results of operations, financial position, and cash flows.




On April
13, 2009,the
Securities and Exchange Commission’s Office of the Chief Accountant and Division
of Corporation Finance issued SEC Staff Accounting Bulletin 111 (“SAB 111”). SAB
111 amends and replaces SAB Topic 5M, “Miscellaneous Accounting - Other
Than Temporary Impairment of Certain Investments in Equity Securities” to
reflect FSP FAS 115-2 and FAS 124-2. This FSP provides guidance for assessing
whether an impairment of a debt security is other than temporary, as well as how
such impairments are presented and disclosed in the financial statements. The
amended SAB Topic 5M maintains the prior staff views related to equity
securities but has been amended to exclude debt securities from its scope. SAB
111 is effective upon the adoption of FSP FAS 115-2 and FAS 124-2. The Company
is currently evaluating the impact, if any, that the adoption of SAB 111 will
have on its results of operations, financial position, and cash
flows.





Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations




You
should read the following discussion together with our unaudited condensed
consolidated financial statements and related notes thereto included elsewhere
in this filing.




Certain
statements contained within this report constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are those that do not relate solely to historical
fact. They include, but are not limited to, any statement that may predict,
forecast, indicate or imply future results, performance, achievements or events.
They may contain words such as “believe,” “anticipate,” “expect,” “estimate,”
“intend,” “project,” “plan,” “will,” “should,” “may,” “could” or words or
phrases of similar meaning.





14





These
forward-looking statements reflect our current views with respect to future
events and are based on assumptions and are subject to risks and uncertainties.
Also, these forward-looking statements present our estimates and assumptions
only as of the date of this report. Except for our ongoing obligation to
disclose material information as required by federal securities laws, we do not
intend to update you concerning any future revisions to any forward-looking
statements to reflect events or circumstances occurring after the date of this
report.




Factors
that could cause actual results to differ materially from those expressed or
implied by the forward-looking statements include the adverse impact of economic
conditions on our operating results and financial condition, on our ability to
comply with our debt covenants and on our ability to refinance our existing debt
or to obtain additional financing; our substantial level of indebtedness;
food-borne-illness incidents; negative publicity, whether or not valid;
increases in the cost of chicken;  our dependence upon frequent
deliveries of food and other supplies; our vulnerability to changes in consumer
preferences and economic conditions; our sensitivity to events and conditions in
the greater Los Angeles area, our largest market; our ability to compete
successfully with other quick service and fast casual restaurants; our ability
to expand into new markets; our reliance on our franchisees, who have also been
adversely impacted by the economic crisis; matters relating to labor laws and
the adverse impact of related litigation, including wage and hour class actions;
our ability to support our expanding franchise system; our ability to renew
leases at the end of their term; the impact of applicable federal, state or
local government regulations; our ability to protect our name and logo and other
proprietary information; and litigation we face in connection with our
operations. Actual results may differ materially due to these risks and
uncertainties and those described in our Annual Report on Form 10-K (File No.
333-115644) as filed with the Securities and Exchange Commission on March 31,
2009, as updated from time to time in our quarterly reports and current reports
filed with the Commission.




We use a
52-53 week fiscal year ending on the last Wednesday of the calendar year. For
simplicity of presentation, we have described the periods ended March 26, 2008
and April 1, 2009 as March 31, 2008 and 2009, respectively. 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. Fiscal year 2008, which ended
December 31, 2008, was a 53-week fiscal year. Fiscal year 2009 which will end
December 30, 2009, is a 52-week fiscal year.





References
to “our restaurant system” or “system-wide” mean both company-operated and
franchised restaurants. Unless otherwise indicated, references to “our
restaurants” or results or statistics attributable to one or more restaurants
without expressly identifying them as company-operated, franchise or the entire
restaurant system mean our company-operated restaurants only.





Overview




EPL
Intermediate, Inc. (“Intermediate”) through its wholly-owned subsidiary El Pollo
Loco, Inc. (“EPL” and jointly with Intermediate, the “Company,” “we,” “us” and
“our”) owns, operates and franchises restaurants specializing in marinated
flame-grilled chicken. Our restaurants are located principally in California,
with additional restaurants in Arizona, Colorado, Connecticut, Georgia,
Illinois, Massachusetts, Nevada, Oregon, Texas, Utah, Virginia and Washington.
Our typical restaurant is a freestanding building ranging from approximately
2,200 to 2,600 square feet with seating for approximately 60 customers and
offering drive-thru convenience.




Our store
counts at March 31, 2009 and 2008, and December 31, 2008 are set forth
below:





El
Pollo Loco Restaurants





March
      31,
                            
                            
                            December 31,
                            
                            
                            March
      31,2008
                            
                            
                            2008
                            
                            
                            2009Company-owned
                            
                            
                            159
                            
                            
                            
                            165
                            
                            
                            
                            166Franchised
                            
                            
                            232
                            
                            
                            
                            248
                            
                            
                            
                            251System-wide
                            
                            
                            391
                            
                            
                            
                            413
                            
                            
                            
                            417




During
the three months ended March 31, 2009, the Company opened 1 new restaurant and
franchisees opened 3 new restaurants.




We plan
to open approximately five company-operated restaurants in fiscal 2009. We
believe our franchisees will open approximately seven new restaurants in fiscal
2009. The growth in new restaurant openings has been, and is expected to
continue to be, negatively impacted by the economic climate, as discussed
below.  In response to the credit crisis, we are adjusting our growth
strategy to focus on a new generation (Gen3) reduced cost restaurant that we
believe will appeal to both single unit and multi-unit
franchisees.  The Gen3 is designed to offer the same features (with
fewer seats and no salsa bar) of a typical 2,600 square foot free-standing
drive-thru restaurant, at about half the cost.  The Gen3, which will
range from 1,800 to 2,200 square feet, will have reduced construction costs and
a shorter build-out period than our existing restaurant design.





15





At the
end of the first quarter of 2009, we had 18 restaurants open in new markets east
of the Rockies. The 18 open stores are experiencing a wide range of sales
volumes, and a majority of them have sales volumes that are significantly less
than the chain average due to the lack of brand awareness in the new
markets.




Our
revenue is derived from two primary sources, company-operated restaurant revenue
and franchise revenue, the latter of which is comprised principally of franchise
royalties and to a lesser extent franchise fees and sublease rental income. A
common measure of financial performance in the restaurant industry is
“same-store sales.” A restaurant enters the comparable restaurant base for the
calculation of same-store sales the first full week after the 15-month
anniversary of its opening. For the 13 weeks ended March 31, 2009, same-store
sales for restaurants system-wide decreased 5.9%, compared to the corresponding
period in 2008. System-wide same-store sales include same-store sales at all
company-owned stores and franchise-owned stores, as reported by franchisees. We
use system-wide sales information in connection with store development
decisions, planning and budgeting analyses. This information is useful in
assessing consumer acceptance of our brand and facilitates an understanding of
financial performance as our franchisees pay royalties (included in franchise
revenues) and contribute to advertising pools based on a percentage of their
sales.  Same-store sales at company-operated restaurants decreased
5.4% for the 13 weeks ended March 31, 2009 compared to the corresponding period
in 2008.




Changes
in company-operated restaurant revenue are due to changes in the number of
company-operated restaurants and to increases or decreases in same-store sales,
which may include price and transaction volume changes. We implemented menu
price increases in January, May and October 2008. Beginning in the third quarter
of 2008, the depressed economy and increased unemployment, especially in
California, negatively impacted our transaction volume and average check.
Consumers are eating out less, and when they do eat out, are more sensitive to
price increases and are looking for specials and promotions. This has an impact
on both same-store sales and on restaurant margins. The depressed economic and
employment conditions in the first quarter of 2009 resulted in our first decline
in same-store sales since 2000.  We expect the remainder of 2009 to be
just as challenging.   Many other factors can influence sales at
all or specific restaurants, including increased competition, strength of
marketing promotions, the restaurant manager’s operational execution and changes
in local market conditions and demographics. In California, our largest
market, at March 2009, unemployment was 11.2% compared to 8.5%
nationally.





Franchise
revenue consists of royalties, initial franchise fees, help desk revenue and
franchise rental income. Royalties average 4% of the franchisees’ net sales. New
franchise restaurant growth is dependent on our ability to sign development
agreements with experienced franchisees in new and existing
markets.   As of March 31, 2009, we had commitments from
franchisees to open 145 restaurants at various dates through 2015. However, the
adverse economic and liquidity conditions have caused some franchisees to delay
the opening of new restaurants under existing development
agreements.  As a result of these conditions, we estimate that as few
as 45 of those restaurants could open. As of April 30, 2009 we were legally
authorized to market franchises in 45 states. We have entered into development
agreements that usually result in area development fees being recognized as the
related restaurants open. Due to the recession and associated liquidity crisis,
most of our developing franchisees are having a difficult time obtaining
financing for new restaurants. Additionally, some of our franchisees who have
other restaurant concepts have incurred significant loss of cash flow due to
declining sales in these other concepts and one developing franchisee has filed
for bankruptcy in 2008. This has had the effect of slowing development of new El
Pollo Loco restaurants, especially in new markets.   In addition,
the economic conditions have had a negative effect on our ability to recruit and
financially qualify new single-unit and developing franchisees. We expect these
trends to continue at least through 2009. We expect that many of the franchisees
who have development agreements will not be able to meet the new unit opening
dates required under their agreements.





We
sublease facilities to certain franchisees and the sublease rent is included in
our franchise revenue. This revenue exceeds rent payments made under the leases
that are included in franchise expense. Since we do not expect to lease or
sublease new properties to our franchisees as we expand our franchise
restaurants, we expect the portion of franchise revenue attributable to
franchise rental income to decrease over time.




Product
cost, which includes food and paper costs, is our largest single expense.
Chicken accounts for the largest part of product cost, approximately 13.9% of
revenue from company-owned restaurants in the first quarter of
2009.  These costs are subject to increase or decrease based on
commodity cost changes and depend in part on the success of controls we have in
place to manage product cost in the restaurants.. We currently have four
contracts for chicken at higher prices than the expiring contracts that were
effective as of March 1, 2009.  Two of the contracts have a floor and
ceiling price for chicken and are for a term of two years.  The other
two contracts are one year with fixed pricing for the term of the
agreement.  We implemented price increases in January, May and October
2008 that partially mitigated the impact of higher chicken prices on our
profitability. We expect that the cost of chicken will continue to be negatively
affected by the reduced supply and by the bankruptcy of the largest chicken
supplier in 2008; there is no assurance that we will be able to increase menu
prices in the future to offset these increased costs. Overall commodity prices
increased significantly in 2008. Aside from chicken, we have recently seen most
commodity prices begin to decline from their mid-2008 highs.





16





Payroll
and benefits make up the next largest single expense. Payroll and benefits have
been and remain subject to inflation, including minimum wage increases and
expenses for health insurance and workers’ compensation insurance. A significant
number of our hourly staff are paid at rates consistent with the applicable
federal or state minimum wage and, accordingly, increases in the minimum wage
will increase our labor cost. The state of California (or largest market)
increased the minimum wage from $7.50 per hour to $8.00 per hour effective
January 1, 2008. The federal minimum wage increased from $5.85 to $6.55 per hour
effective July 24, 2008 and will increase to $7.25 per hour effective July 24,
2009. The Company implemented menu price increases totaling approximately 3.7%
throughout 2008 in order to mitigate the impact on profits of the minimum wage
increase and commodity increases. There is no assurance that we will be able to
increase menu prices in the future to offset these increased costs. Workers’
compensation insurance costs are subject to a number of factors, including the
impact of legislation. We have seen an overall reduction in the number of
workers’ compensation claims due to employee safety initiatives that we began
implementing in 2002. This has resulted in lower workers’ compensation expense
compared to previous years.





Depreciation
and amortization expense consists primarily of depreciation of property and
equipment of our restaurants and amortization of our franchise network
intangible asset.




Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.




Restaurant
other operating expense includes occupancy, advertising and other costs such as
utilities, repair and maintenance, janitorial and cleaning and operating
supplies.




Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. Franchise
expense usually fluctuates primarily as subleases expire and is to some degree
based on rents that are tied to a percentage of sales calculation. Because we do
not expect to lease or sublease new properties to our franchisees as we expand
our franchise restaurants, we expect franchise expense as a percentage of
franchise revenue to decrease over time. Expansion of our franchise operations
does not require us to incur material additional capital
expenditures.




General
and administrative expense includes all corporate and administrative functions
that support existing operations and provide the infrastructure to facilitate
our growth. These expenses have been impacted by litigation costs, rating agency
fees, directors and officers insurance, compliance with laws relating to
corporate governance and public disclosure, and audit fees. We do expect that
litigation expenses will be high in 2009 due to the ongoing wage and hour class
action lawsuits.





Results
of Operations




Our
operating results for the 13 weeks ended March 31, 2008 and 2009 are expressed
as a percentage of restaurant revenue below:





13
      Weeks EndedMarch
      31,2008
                          
                          
                          2009Operating
      Statement Data:Restaurant
      revenue
                          
                          
                          100.0
                          %
                          
                          
                          100.0
                          %Product
      cost
                          
                          
                          32.6
                          
                          
                          
                          31.8Payroll
      and benefits
                          
                          
                          26.7
                          
                          
                          
                          26.8Depreciation
      and amortization
                          
                          
                          4.5
                          
                          
                          
                          4.3Other
      operating expenses
                          
                          
                          33.9
                          
                          
                          
                          38.1Operating
      income
                          
                          
                          9.7
                          
                          
                          
                          6.1Change
      in fair value of interest rate swap
                          
                          
                          0.0
                          
                          
                          
                          (0.3
                          )Interest
      expense
                          
                          
                          10.8
                          
                          
                          
                          9.2Loss
      before income taxes
                          
                          
                          (1.1
                          )
                          
                          
                          (2.0
                          )Net
      loss
                          
                          
                          (0.7
                          )
                          
                          
                          (1.9
                          )Supplementary
      Operating Statement Data:Restaurant
      other operating expense
                          
                          
                          22.1
                          
                          
                          
                          22.8Franchise
      expense
                          
                          
                          1.5
                          
                          
                          
                          1.5General
      and administrative expense
                          
                          
                          10.3
                          
                          
                          
                          13.8Total
      other operating expenses
                          
                          
                          33.9
                          
                          
                          
                          38.1




17





13
Weeks Ended March 31, 2009 Compared to 13 Weeks Ended March 31,
2008




Restaurant
revenue decreased $0.4 million, or 0.6%, to $65.9 million for the 13 weeks ended
March 31, 2009 from $66.3 million for the 13 weeks ended March 31, 2008. This
decrease was primarily due to a reduction of $3.6 million in restaurant revenue
resulting from a 5.4% decrease in company-operated same-store sales for the 2009
period from the 2008 period. Restaurants enter the comparable restaurant base
for same-store sales the first full week after that restaurant’s fifteen-month
anniversary. The components of the company-operated comparable sales decrease
were price increases totaling approximately 3.6% in May, October and various
other times after March 31, 2008, a transaction decrease of 4.5%, and a menu mix
decrease of 4.5%. The transaction decrease reflects intense competition and a
general sales softness in the QSR industry due to higher unemployment, the
recession and other adverse economic and consumer confidence factors that
escalated in the first quarter of 2009 and are expected to continue through at
least the remainder of 2009.  The decrease was also due to lost sales
of $0.4 million from the closure of three company-operated restaurants in
2008.  The decrease was partially offset by an increase in restaurant
revenue of $3.4 million from ten restaurants opened in 2007 and 2008 and also by
$0.2 million from one restaurant opened in 2009.





Franchise
revenue decreased $0.2 million, or 3.0%, to $4.7 million for the 13 weeks ended
March 31, 2009 from $4.9 million for the 13 weeks ended March 31, 2008. This
decrease is due primarily to decreased royalties and percentage rent income,
which is based on sales, resulting from a 6.4% decrease in franchise-operated
same-store sales for the 2009 period from the 2008
period.  Franchise-operated same-store sales were impacted by the same
adverse factors that affected company-operated same-store sales described
above.




Product
costs decreased $0.6 million, or 2.9%, to $21.0 million for the 13 weeks ended
March 31, 2009 from $21.6 million for the 13 weeks ended March 31, 2008. This
decrease resulted primarily from lower sales due to the decrease in
company-operated same-store sales for the 2009 period.





Product
cost as a percentage of restaurant revenue was 31.8% for the 13 weeks ended
March 31, 2009 compared to 32.6% for the 13 weeks ended March 31, 2008. This
0.8% decrease resulted primarily from the menu price increases taken in May and
October 2008, partially offset by increases in commodity cost. Overall, we
expect continued pressure on commodity costs in 2009.





Payroll
and benefit expenses remained flat at $17.7 million for the 13 weeks ended March
31, 2009 and 2008.




As a
percentage of restaurant revenue, these costs increased 0.1% to 26.8% for the
2009 period from 26.7% for the 2008 period due to the decrease in restaurant
revenue.





Depreciation
and amortization decreased $0.2 million, or 5.2%, to $2.8 million for the 13
weeks ended March 31, 2009 compared to $3.0 million for the 13 weeks ended March
31, 2008. This decrease is mainly attributed to some of the point of sale
equipment in our restaurants becoming fully depreciated at the end of
2008.





These
costs as a percentage of restaurant revenue decreased slightly to 4.3% for the
2009 period compared with 4.5% for the 2008 period.




Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.




Restaurant
other operating expense, which includes utilities, repair and maintenance,
advertising, property taxes, occupancy and other operating expenses, increased
$0.3 million, or 2.4%, to $15.0 million for the 13 weeks ended March 31, 2009
from $14.7 million for the 13 weeks ended March 31, 2008. This increase is
mainly attributed to new restaurants and the reasons noted below.





Restaurant
other operating expense as a percentage of revenue increased to 22.8% for the
2009 period from 22.1% for the 2008 period. The increase in operating costs was
due to a 0.6% increase in occupancy costs as a percentage of revenue, which was
primarily a result of higher rent expense in the current period mainly due to
new stores in the current period. The increase was also attributed to higher
advertising expense of 0.2% as a percentage of revenue. Advertising expense each
quarter may be above or below our planned annual rate of approximately 4% of
revenue, depending on the timing of marketing promotion and the relative weights
and price of media spending. The increase was also attributed to higher
credit card fees of 0.1% as a percentage of revenue which was due to a higher
number of credit card transactions and increased credit card fees. The increase
in restaurant other operating expense was partially offset by a decrease of 0.3%
in utilities as a percentage of revenue which was mainly due to lower gas prices
in the current period and also a 0.2% decrease in preopening costs as a
percentage or revenue due to fewer stores opened in the current
period.





18





Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. This expense
usually fluctuates primarily as subleases expire and to some degree based on
rents that are tied to a percentage of sales calculation. Franchise expense
remained flat at $1.0 million for the 13 weeks ended March 31, 2009 and
2008.




General
and administrative expense increased $2.2 million, or 33.2%, to $9.1 million for
the 13 weeks ended March 31, 2009 from $6.9 million for the 13 weeks ended March
31, 2008. The increase was primarily attributed to an impairment charge in the
current period of $2.0 million, which was recorded by the Company for two
under-performing company-operated stores that will continue to operate and also
due to a gain on sale of land of $0.3 million in the 2008 period that did not
recur in the current period, partially offset by a decrease in legal fees of
$0.2 million in the current period.





General
and administrative expense as a percentage of revenue increased 3.5% to 13.8%
for the 13 weeks ended March 31, 2009 from 10.3% for the 13 weeks ended March
31, 2008. This increase was attributed to the reasons noted above and lower
revenue.





Interest
expense, net of interest income, decreased $1.2 million, or 15.7%, to $6.0
million for the 13 weeks ended March 31, 2009 from $7.2 million for the 13 weeks
ended March 31, 2008. Our average debt balances for the 2009 period decreased to
$240.7 million compared to $256.8 million for the 2008 period and our average
interest rate decreased to 8.86% for the 2009 period compared to 10.46% for the
2008 period.





The
Company had $0.2 million in income in the 2009 period related to the change in
the fair value of the interest rate swap agreement.  The fixed
interest rate that the Company agreed to pay was higher than the floating rate
estimated for the life of the agreement that it will receive, resulting in an
estimated $1.8 million liability at March 31, 2009.  This is a
reduction of the liability that was recorded at December 2008, resulting in
income of $0.2 million. The amount of the liability will increase or decrease
over the term of the swap agreement based on increases or decreases to the Libor
rate.





The
Company had $0.5 million in other income in the 2009 period attributed to a net
gain on the repurchase of a portion of the 2013 Notes.  This gain is
net of the portion of the deferred finance costs associated with the
notes.




Our
provision for income taxes consisted of an income tax benefit of $0.1 million
and $0.3 million for the 13-week periods ended March 31, 2009 and 2008,
respectively, for an effective tax rate of 5.0% for 2009 and 37.1% for
2008.




As a
result of the factors above we had a net loss of $1.3 million and $0.5 million
for the 13 weeks ended March 31, 2009 and 2008, respectively, or (1.9)% and
(0.7)% as a percentage or restaurant revenue, for the 13 weeks ended March 31,
2009 and 2008, respectively.





Liquidity
and Capital Resources




Our
principal liquidity requirements are to service our debt and meet our capital
expenditure needs. At March 31, 2009, our total debt was $240.0 million. See
“Debt and Other Obligations” below. Our ability to make payments on and to
refinance our indebtedness, and to fund planned capital expenditures will depend
on our 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 our control. Based on
our current level of operations, we believe our cash flow from operations,
available cash (including approximately $17 million available as capital
contributions from CAC) and the approximately $13.7 million that EPL had
available at March 31, 2009, under the revolving portion of its senior secured
credit facilities will be adequate to meet our liquidity needs for at least the
next 12 months. The current economic crisis and resulting severely constrained
liquidity conditions however, could make it more difficult or costly for us to
obtain debt financing or to refinance our existing debt if it becomes necessary,
and could make sources of liquidity unavailable. See “Debt and Other
Obligations” below.





The
credit facility requires the prepayment of the term loan in an amount equal to
50% of Excess Operating Cash Flow if, at the end of the fiscal year, the
Consolidated Leverage Ratio is less than 5.0:1.0.  Excess Operating
Cash Flow is defined as an amount equal to Consolidated EBITDA minus
Consolidated Financial Obligations and other specific payments and
adjustments.  Excess Operating Cash Flow for 2008 was $9.4
million.  The Company made the required prepayment of $4.7 million in
April 2009.




On
January 25, 2008, CAC made an $8 million capital contribution to the Company.
The Company used $7.9 million of these proceeds to repurchase a portion of
the outstanding 14.5% senior discount notes due 2014 (see Note 9 to our
Condensed Consolidated Financial Statements) at a price that approximated their
accreted value. In May of 2008, CAC made a $4.0 million capital contribution to
the Company that was used for normal operating purposes.  In June 2008
CAC paid a litigation settlement payment of $10,722,860 on behalf of
EPL.  This payment was accounted for as a capital contribution by CAC
to EPL.   CAC may make future capital contributions to the Company and
EPL for general corporate purposes.





19





In the
three-month period ended March 31, 2009, our capital expenditures totaled $2.9
million, consisting of $2.0 million for new restaurants, $0.5 million for
capitalized repairs of existing sites, and $0.4 million related to other
projects. Due to a reduced number of expected new store openings in 2009
compared to prior years, we expect our capital expenditures for 2009 to be
approximately $8.0 to $10.0 million.





Cash and
cash equivalents increased $0.6 million from $1.1 million at December 31, 2008
to $1.7 million at March 31, 2009. During 2009, we made $0.3 million in
principal repayments on EPL’s term loan and $1.6 million in interest payments.
The interest payments related primarily to the term loan, in the amount of $1.0
million. We also used $1.5 million of cash to repurchase a portion of our 2013
Notes.  We may in the future make additional repurchases of these
Notes to help facilitate compliance with our credit facility financial covenants
or to take advantage of favorable prices. There is no assurance that our
business will generate sufficient cash flow from operations or that future
borrowings will be available to EPL under EPL’s senior secured credit facilities
in an amount sufficient to enable us to service our indebtedness or to fund our
other liquidity needs. If we acquire restaurants from franchisees, our debt
service requirements could increase. In addition, we may fund restaurant
openings through credit received by landlord contributions and trade suppliers.
If our cash flow from operations is inadequate to meet our obligations under our
indebtedness we may need to refinance all or a portion of our indebtedness,
including the notes, on or before maturity. There is no assurance that we will
be able to refinance any of our indebtedness on commercially reasonable terms or
at all.





As
discussed in Note 5, Commitments and Contingencies, we are involved in various
lawsuits, including wage and hour class action lawsuits.  In order to
mitigate the adverse effects of these cases, such as on-going legal expense,
diversion of management time, and the risk of a substantial judgment against us
(which could occur even if we believe we have a strong legal basis for our
position), we may seek to settle these cases.  Any substantial
settlement payments or damage awards against us if the cases go to trial could
have a material adverse effect on our liquidity and financial
results.




As a
holding company, the stock of EPL constitutes our only material asset.
Consequently, EPL conducts all of our consolidated operations and owns
substantially all of our consolidated operating assets. Our principal source of
the cash required to pay our obligations is the cash that EPL generates from its
operations. EPL is a separate and distinct legal entity, has no obligation to
make funds available to us and currently has restrictions that limit
distributions or dividends to be paid by EPL to us. Furthermore, subject to
certain restrictions, EPL is permitted under the terms of EPL’s senior secured
credit facilities and the indenture governing the 2013 Notes and 2014 Notes to
incur additional indebtedness that may severely restrict or prohibit EPL from
making distributions or loans, or paying dividends to us.




Working
Capital and Cash Flows




We
presently have, in the past have had, and may have in the future, negative
working capital balances. The working capital deficit principally is the result
of our investment to build new restaurants, remodel and replace or improve
equipment in company-operated restaurants, and to acquire new restaurant
information systems. We do not have significant receivables or inventories and
we receive trade credit based upon negotiated terms in purchasing food and
supplies. Funds available from cash sales and franchise revenue not needed
immediately to pay for food and supplies or to finance receivables or
inventories typically have been used for the capital expenditures referenced
above and/or debt service payments under our existing indebtedness. We expect
our negative working capital balances to continue to increase, based on the
continuation of the economic downturn and our plan to continue to open new
restaurants.





Operating Activities.We had
net cash provided by operating activities of $5.5 million for the 13 weeks ended
March 31, 2009 compared with $6.8 million for the 13 weeks ended March 31, 2008.
Excluding the asset impairment of $2.0 million, the gain on repurchase of the
bonds of $0.5 million and the change in the fair value of the interest rate swap
agreement of $0.2 million, net income would have decreased $0.4 million over the
2008 period.  There were also decreased balances in accrued salaries
and vacation, accounts payable and changes in other accrued expenses and current
and noncurrent liability balances, which were attributed to timing, resulting in
the net $1.3 million decrease in cash provided by operating activities. These
decreases were partially offset by an increase in cash provided by operating
activities due to changes in prepaid expenses and other current asset
balances.  This was mainly attributed to increased prepaid advertising
and prepaid insurance in the 2008 period.





Investing Activities.We had
net cash used in investing activities of $2.9 million for the 13 weeks ended
March 31, 2009 compared with $3.4 million for the 13 weeks ended March 31, 2008.
The decrease in cash used in investing activities of $0.5 million was related to
$1.6 million in decreased expenditures primarily due to decreased spending on
new restaurants since we have fewer opening in the current period, partially
offset by proceeds received for asset dispositions of $1.1 million in the prior
period.




20




Financing Activities.We had
net cash used in financing activities of $2.0 million for the 13 weeks ended
March 31, 2009 compared with $4.0 million for the 13 weeks ended March 31, 2008.
The decrease of $2.0 million in cash used in financing activities in the 2009
period was primarily due to a reduction in the amount of cash used to repurchase
2014 Notes and the 2013 Notes of $6.4 million and a decrease in debt payments in
the current period of $3.6 million, partially offset by the capital contribution
of $8.0 million that was received in 2008 and did not recur in the current
period.





Debt
and Other Obligations




On
November 18, 2005, EPL entered into senior secured credit facilities with
Intermediate, as parent guarantor, Merrill Lynch Capital Corporation, as
administrative agent, the other agents identified therein, Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank of America,
N.A., as lead arrangers and book managers, and a syndicate of financial
institutions and institutional lenders. The senior secured credit facilities
provide for a $104.5 million term loan and $25.0 million in revolving
availability. In March 2007 we amended the credit facility to reduce the
interest rate and to modify in our favor the terms of certain restrictive
covenants. Due to the effect of the current economic downturn on our cash flows
and financial results, there is no assurance that we will be in compliance with
our debt covenants.





As of
March 31, 2009, EPL was in compliance with all of the financial covenants
contained in its senior credit facility. As of such date we calculated all
relevant ratios under its senior credit facility as follows:




•
            EPL’s “fixed charge coverage
      ratio” (as such term is defined in the senior credit agreement) was 1.24
      to 1; and





•
            EPL’s “leverage ratio” (as such
      term is defined in the senior credit agreement) was 4.40 to
      1.




These two
ratios were permitted to be no less than 1.0 to 1, and no greater than 4.50 to
1, respectively, as of such date. During 2009, the maximum leverage ratio
under the senior credit facility will reduce to 4.25:1 in the second and
third quarters and to 3.75:1 in the fourth quarter. As a result of the
leverage ratio reductions, if the adverse conditions in the economy in general,
and in California in particular, continue, and if we are unable to take certain
actions, such as reducing or refinancing outstanding debt, it is possible that
we may not be in compliance with the leverage ratio in future quarters. 
Such noncompliance would constitute an event of default under the senior credit
facility. If we were to fail to satisfy our financial covenants and we were
unable to negotiate a waiver or amendment of such covenants, the lenders
under the credit facility could accelerate repayment of the borrowings and
cross-defaults could be triggered under our outstanding bonds.




We have
certain land and building leases for which the building portion is treated as a
capital lease. These assets are amortized over the life of the respective
lease.





At March 31, 2009, we had
$26.9 million outstanding in aggregate principal amount of 141⁄2% Senior Discount
Notes due 2014. No cash interest will accrue on the 2014 Notes prior to November
15, 2009. Instead, the principal value of the 2014 Notes will increase
(representing accretion of original issue discount) from the date of original
issuance until but not including November 15, 2009 at a rate of 14 1⁄2 % per annum compounded
annually, so that the accreted value of the 2014 Notes on November 15, 2009 will
be equal to the full principal amount of $29.3 million at maturity. Beginning on
November 15, 2009, interest will accrue on the 2014 Notes at an annual rate of
14 1⁄2 % per annum
payable semi-annually in arrears on May 15 and November 15 of each year,
beginning May 15, 2010. Principal is due on November 15, 2014. On January 25,
2008, CAC made an $8.0 million capital contribution to the Company. The Company
used $7.9 million of these proceeds to repurchase a portion of these notes at a
price that approximated their accreted value. See Note 9 to our Condensed
Consolidated Financial Statements.





As of
March 31, 2009, we calculated our “fixed charge coverage ratio” and our
“consolidated leverage ratio” (as defined in the indenture governing the
2014 Notes) at 1.51 to 1 and 6.69 to 1, respectively. Similar ratios exist in
the indenture governing the 2013 Notes. The indenture permits us to incur
indebtedness that (a) is contractually subordinated to the 2014 Notes, (b) has a
maturity date after November 15, 2014, and (c) does not provide for payment of
cash interest prior to November 15, 2014. The indenture also permits us to incur
indebtedness if our fixed charge coverage ratio for the most recently ended four
full fiscal quarters would have been at least 2.0 to 1, and if our consolidated
leverage ratio would have been equal to or less than 7.5 to 1, all as determined
on a pro forma basis as if such indebtedness had been incurred at the beginning
of such four-quarter period. Since EPL does not currently meet the fixed charge
coverage ratio, EPL is not permitted to incur additional indebtedness under the
terms of the 2013 and 2014 Notes.  A failure to meet the ratios
affects only our ability to incur additional indebtedness and does not
constitute a default under these Notes.





As of
March 31, 2009, we had $250,000 and $106.2 million outstanding in aggregate
principal amount under our 2009 Notes (due December, 2009) and 2013 Notes,
respectively. The Company used $13.6 million of proceeds from operations to
repurchase a portion of the 2013 Notes in 2008.  See Notes 6 and 7 to
our Consolidated Financial Statements.





21





At March
31, 2009, we had outstanding letters of credit totaling $6.3 million, which
served as collateral for our various workers’ compensation insurance
programs.




Franchisees
pay a monthly advertising fee of 4% of gross sales for the Los Angeles
designated market area or 5% of gross sales for other markets. Pursuant to our
Franchise Disclosure Document, we contribute, where we have company-operated
restaurants, to the advertising fund on the same basis as franchised
restaurants. Under our franchise agreements, we are obligated to use all
advertising fees collected from franchisees to purchase, develop and engage in
advertising, public relations and marketing activities to promote the El Pollo
Loco®
brand.




Critical
Accounting Policies and Estimates




The
preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. On an ongoing basis, we evaluate our estimates and judgments,
including those related to recoverability of fixed assets, intangible assets,
closed restaurants, workers’ compensation insurance, the realization of gross
deferred tax assets, tax reserves, and contingent liabilities including the
outcome of litigation. We base our estimates and judgments on historical
experience and on various other factors that we believe to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions. A summary of our critical accounting
polices and estimates is included in our Annual Report on Form 10-K (File No.
333-115644) as filed with the Securities and Exchange Commission on March 31,
2009.





Litigation
Contingency





As
discussed in Note 5 to our unaudited consolidated financial statements in
Part I of this report, we are subject to employee claims against us based, among
other things, on discrimination, harassment, wrongful termination, or violation
of wage and labor laws in the ordinary course of business.  These
claims may divert our financial and management resources that would otherwise be
used to benefit our operations. In recent years a number of restaurant companies
have been subject to wage and hour class action lawsuits alleging violations of
federal and state labor laws.  A number of these lawsuits have
resulted in the payment of substantial damages by the defendants.  We
are currently a defendant in several wage and hour class action
lawsuits.  Since our insurance carriers have denied coverage of these
claims, a significant judgment against us could adversely affect our financial
condition and adverse publicity resulting from these allegations could adversely
affect our business. In an effort to mitigate these adverse consequences, we
could seek to settle certain of these lawsuits.  The on-going expense
of these lawsuits, and any substantial settlement payment or judgment against
us, could adversely affect our business, financial condition, operating results
or cash flows.  We have not recorded any reserves for any litigation
in our financial statements.





Off-Balance
Sheet and Other Arrangements





As of
March 31, 2009 and 2008, we had approximately $6.3 million and $13.8 million of
borrowing capacity on the revolving portion of our senior credit facility
pledged as collateral to secure outstanding letters of credit.





Item 3. Quantitative and Qualitative
Disclosures About Market Risk




The
inherent risk in market risk sensitive instruments and positions primarily
relates to potential losses arising from adverse changes in interest
rates.




We are
subject to market risk from exposure to changes in interest rates based on our
financing activities. This exposure relates to borrowings under EPL’s senior
secured credit facilities that are payable at floating rates of
interest.




A
hypothetical 10% fluctuation in the variable interest rate on our existing debt
of $54.1 million (current debt balance including revolver less $50.0 million
covered by an interest rate swap agreement) as of March 31, 2009 would result in
an increase in interest expense of approximately $0.2 million in a given year.
We do not consider the change in the fair value of our long-term fixed rate debt
resulting from a hypothetical 10% fluctuation in interest rates as of March 31,
2009 to be material.





22





To manage
or reduce the interest rate risk, the Company may periodically enter into
interest rate swap transactions. The Company enters into these contracts with
major financial institutions, which may minimize its risk of credit loss. On
June 26, 2008, the Company entered into an interest rate swap agreement with an
effective date of September 24, 2008 and a maturity date of June 30, 2010. The
agreement is based on the notional amount of $50.0 million. Under the terms of
the agreement, the Company agreed to make fixed rate payments on the notional
amount on a quarterly basis at increasing interest rates ranging from 3.17% to
4.61%, in exchange for receiving payments on the notional amount at a floating
rate based on the three-month LIBOR rate, on a quarterly basis. The interest
rate swap agreement is intended to reduce interest rate risk associated with
variable interest rate debt. At March 31, 2009, the fair value of the interest
rate swap was approximately $1.8 million and is included in other noncurrent
liabilities on the accompanying condensed consolidated balance
sheet.  The fixed interest rate that the Company agreed to pay was
higher than the floating rate estimated for the life of the agreement that it
will receive, resulting in a $1.8 million liability. The amount of the liability
will increase or decrease over the term of the swap agreement based on increases
or decreases to the Libor rate.





Item
4T. Controls and Procedures




Our Chief
Executive Officer and Senior Vice President of Finance have concluded that the
design and operation of our disclosure controls and procedures are effective as
of March 31, 2009. This conclusion is based on an evaluation conducted under the
supervision and with the participation of Company management. Disclosure
controls and procedures are those controls and procedures which are designed to
ensure that information required to be disclosed in our SEC filings and
submissions is accumulated and communicated to management and is recorded,
processed, summarized and reported in a timely manner and in accordance with SEC
rules and regulations.




There
have been no changes in our internal control over financial reporting that
occurred during our first 13 weeks ended March 31, 2009.




PART
II – OTHER INFORMATION




Item
1. Legal Proceedings




The
information set forth in Note 5 to our Unaudited Condensed Consolidated
Financial Statements in Part I of this Report is incorporated herein by this
reference.





Also see
our Annual Report on Form 10-K for the year ended December 31, 2008 as filed
with the SEC on March 31, 2009.





Item 4.  Submission of
Matters to a Vote of Security Holders.





On February 11, 2009, at a regular
annual meeting of the board of directors of El Pollo Loco Holdings, Inc., the
sole shareholder of the Company, the following persons were elected directors of
EPL Intermediate, Inc., each with 100 votes in favor:  Andrew R.
Heyer, Dean C. Kehler, Griffin Whitney, Jay R. Bloom, Alberto Robaina, John M.
Roth, Stephen E. Carley, Dennis Lombardi, Douglas K. Ammerman, Peter Bassi and
Steven Shulman.





Item 6.
Exhibits.




ExhibitNumber
              
              Description of
      Documents10.1
              *
              Letter
      Agreement dated February 28, 2009 between Simmons Prepared Foods Inc. and
      EPL10.2
              *
              Letter
      Agreement dated February 28, 2009 between Tyson Foods and
    EPL10.3
              *
              Letter
      Agreement dated February 28, 2009 between Koch Foods, Inc. and
      EPL10.4
              *
              Letter
      Agreement dated February 28, 2009 between Pilgrim’s Pride Corporation and
      EPL31.1
              
              Certification
      Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 193431.2
              
              Certification
      Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 193432.1
              
              Certification
      Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
      Act of 193432.2
              
              Certification
      Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
      Act of 1934





*Certain
confidential portions of this exhibit have been redacted and filed separately
with the Commission pursuant to a


Confidential
Treatment Request.





23





SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




EPL INTERMEDIATE,
      INCDate:
      May 12, 2009
              By:
              /s/ Stephen E. CarleyStephen
      E. CarleyPresidentBy:
              /s/ Gary CampanaroGary
      CampanaroChief
      Financial Officer and
Treasurer




24





EXHIBIT
INDEX





ExhibitNumber
              
              Description of
      Documents10.1
              *
              Letter
      Agreement dated February 28, 2009 between Simmons Prepared Foods Inc. and
      EPL10.2
              *
              Letter
      Agreement dated February 28, 2009 between Tyson Foods and
    EPL10.3
              *
              Letter
      Agreement dated February 28, 2009 between Koch Foods, Inc. and
      EPL10.4
              *
              Letter
      Agreement dated February 28, 2009 between Pilgrim’s Pride Corporation and
      EPL31.1
              
              Certification
      Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 193431.2
              
              Certification
      Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 193432.1
              
              Certification
      Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
      Act of 193432.2
              
              Certification
      Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
      Act of 1934





*Certain
confidential portions of this exhibit have been redacted and filed separately
with the Commission pursuant to a


Confidential
Treatment Request.





25