SECURITIES AND
EXCHANGE COMMISSION


Washington,
D.C. 20549





Form
10-Q





x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
quarterly period ended July 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 o Not
applicable.  Registrant is a voluntary filer.





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
August 14, 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
                  153.
                  
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  274T.
                  
                  Controls
      and Procedures
                  27PART II – OTHER
      INFORMATION1.
                  
                  Legal
      Proceedings
                  285.
                  
                  Other
      Information
                  286.
                  
                  Exhibits
                  29


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,
                  
                  
                  JUNE 30,2008
                  
                  
                  2009ASSETSCURRENT
      ASSETS:Cash
      and cash equivalents
                  
                  $
                  1,076
                  
                  
                  $
                  10,595Restricted
      cash
                  
                  
                  -
                  
                  
                  
                  6,723Accounts
      receivable—net
                  
                  
                  4,472
                  
                  
                  
                  5,556Inventories
                  
                  
                  1,756
                  
                  
                  
                  1,679Prepaid
      expenses and other current assets
                  
                  
                  4,640
                  
                  
                  
                  5,215Income
      taxes receivable
                  
                  
                  43
                  
                  
                  
                  81Deferred
      income taxes
                  
                  
                  1,740
                  
                  
                  
                  -Total
      current assets
                  
                  
                  13,727
                  
                  
                  
                  29,849PROPERTY
      OWNED—Net
                  
                  
                  84,321
                  
                  
                  
                  80,781PROPERTY
      HELD UNDER CAPITALLEASES—Net
                  
                  
                  732
                  
                  
                  
                  620GOODWILL
                  
                  
                  252,418
                  
                  
                  
                  252,418DOMESTIC
      TRADEMARKS
                  
                  
                  103,100
                  
                  
                  
                  103,100OTHER
      INTANGIBLE ASSETS—Net
                  
                  
                  9,157
                  
                  
                  
                  8,565OTHER
      ASSETS
                  
                  
                  6,310
                  
                  
                  
                  13,323TOTAL
      ASSETS
                  
                  $
                  469,765
                  
                  
                  $
                  488,656





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,
                
                
                JUNE 30,2008
                
                
                2009LIABILITIES
      AND STOCKHOLDER'S EQUITYCURRENT
      LIABILITIES:Revolving
      credit facility
                
                $
                5,000
                
                
                $
                -Current
      portion of note payable
                
                
                5,889
                
                
                
                -Current
      portion of senior secured notes
                
                
                250
                
                
                
                -Current
      portion of obligations under capital leases
                
                
                601
                
                
                
                467Accounts
      payable
                
                
                12,441
                
                
                
                16,240Accrued
      salaries
                
                
                3,410
                
                
                
                3,938Accrued
      vacation
                
                
                2,075
                
                
                
                2,195Accrued
      insurance
                
                
                1,723
                
                
                
                1,698Accrued
      interest
                
                
                1,658
                
                
                
                3,357Accrued
      advertising
                
                
                380
                
                
                
                -Other
      accrued expenses and current liabilities
                
                
                6,196
                
                
                
                4,700Total
      current liabilities
                
                
                39,623
                
                
                
                32,595NONCURRENT
      LIABILITIES:Senior
      secured notes (2012 Notes)
                
                
                -
                
                
                
                129,931Senior
      unsecured notes payable (2013 Notes)
                
                
                108,163
                
                
                
                106,263PIK
      Notes (2014 Notes)
                
                
                25,980
                
                
                
                27,854Note
      payable—less current portion
                
                
                93,464
                
                
                
                -Obligations
      under capital leases—less current portion
                
                
                2,104
                
                
                
                1,914Deferred
      income taxes
                
                
                26,136
                
                
                
                46,685Other
      intangible liabilities—net
                
                
                4,883
                
                
                
                4,431Other
      noncurrent liabilities
                
                
                12,832
                
                
                
                11,289Total
      noncurrent liabilities
                
                
                273,562
                
                
                
                328,367COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDER'S
      EQUITYCommon
      stock, $.01 par value—20,000 shares authorized;  100 shares
      issued and outstanding
                
                
                -
                
                
                
                -Additional
      paid-in-capital
                
                
                200,046
                
                
                
                199,681Accumulated
      Deficit
                
                
                (43,466
                )
                
                
                (71,987
                )Total
      stockholder's equity
                
                
                156,580
                
                
                
                127,694TOTAL
                
                $
                469,765
                
                
                $
                488,656





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 June 30,
                    
                    
                    26 Weeks Ended June 30,2008
                    
                    
                    2009
                    
                    
                    2008
                    
                    
                    2009OPERATING
      REVENUE:Restaurant
      revenue
                    
                    $
                    70,827
                    
                    
                    $
                    67,779
                    
                    
                    $
                    137,153
                    
                    
                    $
                    133,704Franchise
      revenue
                    
                    
                    5,560
                    
                    
                    
                    4,885
                    
                    
                    
                    10,412
                    
                    
                    
                    9,593Total
      operating revenue
                    
                    
                    76,387
                    
                    
                    
                    72,664
                    
                    
                    
                    147,565
                    
                    
                    
                    143,297OPERATING
      EXPENSES:Product
      cost
                    
                    
                    22,643
                    
                    
                    
                    22,199
                    
                    
                    
                    44,237
                    
                    
                    
                    43,160Payroll
      and benefits
                    
                    
                    18,459
                    
                    
                    
                    18,082
                    
                    
                    
                    36,143
                    
                    
                    
                    35,770Depreciation
      and amortization
                    
                    
                    3,106
                    
                    
                    
                    2,806
                    
                    
                    
                    6,091
                    
                    
                    
                    5,636Other
      operating expenses
                    
                    
                    35,200
                    
                    
                    
                    25,437
                    
                    
                    
                    57,667
                    
                    
                    
                    50,546Total
      operating expenses
                    
                    
                    79,408
                    
                    
                    
                    68,524
                    
                    
                    
                    144,138
                    
                    
                    
                    135,112OPERATING
      INCOME (LOSS)
                    
                    
                    (3,021
                    )
                    
                    
                    4,140
                    
                    
                    
                    3,427
                    
                    
                    
                    8,185INTEREST
      EXPENSE—Net
                    
                    
                    6,445
                    
                    
                    
                    8,382
                    
                    
                    
                    13,617
                    
                    
                    
                    14,426OTHER
      EXPENSE
                    
                    
                    -
                    
                    
                    
                    646
                    
                    
                    
                    -
                    
                    
                    
                    443OTHER
      INCOME
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (452
                    )LOSS
      BEFORE PROVISIONFOR INCOME TAXES
                    
                    
                    (9,466
                    )
                    
                    
                    (4,888
                    )
                    
                    
                    (10,190
                    )
                    
                    
                    (6,232
                    )PROVISION
      (BENEFIT) FOR INCOME TAXES
                    
                    
                    (3,880
                    )
                    
                    
                    22,356
                    
                    
                    
                    (4,148
                    )
                    
                    
                    22,289NET
      LOSS
                    
                    $
                    (5,586
                    )
                    
                    $
                    (27,244
                    )
                    
                    $
                    (6,042
                    )
                    
                    $
                    (28,521
                    )





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)





26 Weeks Ended June 30,2008
                
                
                2009CASH
      FLOWS FROM OPERATINGACTIVITIES:Net
      loss
                
                $
                (6,042
                )
                
                $
                (28,521
                )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                6,091
                
                
                
                5,636Stock-based
      compensation expense
                
                
                384
                
                
                
                237Interest
      accretion
                
                
                1,911
                
                
                
                2,040Gain
      on disposal of assets
                
                
                (340
                )
                
                
                -Gain
      on repurchase of bonds
                
                
                -
                
                
                
                (452
                )Asset
      impairment
                
                
                -
                
                
                
                1,996Amortization
      of deferred financing costs
                
                
                891
                
                
                
                2,144Amortization
      of favorable / unfavorable leases
                
                
                (61
                )
                
                
                (89
                )Deferred
      income taxes
                
                
                (4,214
                )
                
                
                22,289Excess
      tax benefits related to exercise / cancellation of stock
      options
                
                
                31
                
                
                
                -Litigation
      settlement
                
                
                10,764
                
                
                
                -Change
      in fair value of interest rate swap
                
                
                -
                
                
                
                231Changes
      in operating assets and liabilities:Notes
      and accounts receivable—net
                
                
                (1,421
                )
                
                
                (1,084
                )Inventories
                
                
                (43
                )
                
                
                77Prepaid
      expenses and other current assets
                
                
                (1,592
                )
                
                
                (575
                )Income
      taxes receivable / payable
                
                
                (102
                )
                
                
                (38
                )Other
      assets
                
                
                4
                
                
                
                (132
                )Accounts
      payable
                
                
                3,388
                
                
                
                4,421Accrued
      salaries and vacation
                
                
                (150
                )
                
                
                648Accrued
      insurance
                
                
                170
                
                
                
                (25
                )Other
      accrued expenses and current and noncurrent liabilities
                
                
                1,264
                
                
                
                (1,956
                )Net
      cash provided by operating activities
                
                
                10,933
                
                
                
                6,847CASH
      FLOW FROM INVESTING ACTIVITIES:Proceeds
      from asset disposition
                
                
                1,080
                
                
                
                -Purchase
      of property
                
                
                (9,278
                )
                
                
                (4,362
                )Restricted
      cash
                
                
                -
                
                
                
                (6,723
                )Net
      cash used in investing activities
                
                
                (8,198
                )
                
                
                (11,085
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of common stock
                
                
                50
                
                
                
                -Repurchase
      of common stock
                
                
                (47
                )
                
                
                (602
                )Excess
      tax benefits related to exercise / cancellation of stock
      options
                
                
                (31
                )
                
                
                -Capital
      contribution
                
                
                12,000
                
                
                
                -Proceeds
      from borrowings
                
                
                -
                
                
                
                133,850Payment
      of obligations under capital leases
                
                
                (600
                )
                
                
                (324
                )Payments
      on debt
                
                
                (4,087
                )
                
                
                (108,603
                )Repurchase
      of notes
                
                
                (9,850
                )
                
                
                (1,470
                )Deferred
      financing costs
                
                
                -
                
                
                
                (9,094
                )Net
      cash (used in) provided by financing activities
                
                
                (2,565
                )
                
                
                13,757





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)





26 Weeks Ended June 30,2008
                          
                          
                          2009INCREASE
      IN CASH ANDCASH EQUIVALENTS
                          
                          $
                          170
                          
                          
                          $
                          9,519CASH
      AND CASH EQUIVALENTS—Beginning
      of period
                          
                          
                          3,841
                          
                          
                          
                          1,076CASH
      AND CASH EQUIVALENTS—End
      of period
                          
                          $
                          4,011
                          
                          
                          $
                          10,595SUPPLEMENTAL
      DISCLOSURE OF CASH FLOW INFORMATION—Cash paid during the period
      for:Interest
      (net of amounts capitalized)
                          
                          $
                          11,022
                          
                          
                          $
                          8,874Income
      taxes
                          
                          $
                          164
                          
                          
                          $
                          38SUPPLEMENTAL
      SCHEDULE OF NON-CASH ACTIVITIES:Unpaid
      purchases of property and equipment
                          
                          $
                          1,210
                          
                          
                          $
                          200Litigation
      settlement paid by Chicken Acquisition Corp. on behalf of the Company,
      treated as a capital contribution
                          
                          $
                          10,764
                          
                          
                          $
                          -





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 June 25, 2008 and July 1, 2009 as June 30, 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 99% 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®.





The
Company evaluated subsequent events for recognition or disclosure through August
14, 2009, which was the date the Company filed this form 10-Q with the
Securities and Exchange Commission.





2.
Restricted Cash





As of
June 30, 2009 the Company had recorded $6.7 million as restricted cash on the
accompanying condensed consolidated balance sheet.  This amount serves
as collateral to Bank of America mainly for our outstanding letters of credit of
$6.3 million as of June 30, 2009. The majority of this restriction should
terminate once we have completed our transfer of these letters of credit from
Bank of America to a new financial institution.





3.
Other Intangible Assets and Liabilities





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





December 31, 2008
                        
                        June
      30, 2009Gross
                        
                        
                        
                        Net
                        
                        Gross
                        
                        
                        
                        NetCarrying
                        
                        Accumulated
                        
                        Carrying
                        
                        Carrying
                        
                        Accumulated
                        
                        CarryingAmount
                        
                        Amortization
                        
                        Amount
                        
                        Amount
                        
                        Amortization
                        
                        AmountFranchise
      network
                        
                        $
                        8,000
                        
                        
                        $
                        (1,425
                        )
                        
                        $
                        6,575
                        
                        
                        $
                        8,000
                        
                        
                        $
                        (1,654
                        )
                        
                        $
                        6,346Favorable
      leasehold interest
                        
                        
                        5,862
                        
                        
                        
                        (3,280
                        )
                        
                        
                        2,582
                        
                        
                        
                        5,862
                        
                        
                        
                        (3,643
                        )
                        
                        
                        2,219Other
      intangible assets
                        
                        $
                        13,862
                        
                        
                        $
                        (4,705
                        )
                        
                        $
                        9,157
                        
                        
                        $
                        13,862
                        
                        
                        $
                        (5,297
                        )
                        
                        $
                        8,565Unfavorable
      leasehold interest liability
                        
                        $
                        (9,156
                        )
                        
                        $
                        4,273
                        
                        
                        $
                        (4,883
                        )
                        
                        $
                        (9,156
                        )
                        
                        $
                        4,725
                        
                        
                        $
                        (4,431
                        )


8


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
$168,000 for the 26-week period ended June 30, 2008 and $140,000 for the 26-week
period ended June 30, 2009.




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
      (July 1st–
      December 31st)
                  
                  $
                  1152010
                  
                  
                  1302011
                  
                  
                  1672012
                  
                  
                  1822013
                  
                  
                  2442014
                  
                  
                  230





4.
Asset Impairment





The
Company periodically reviews the performance of company-operated stores on a
restaurant-by-restaurant basis 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.  There was
no impairment recorded in the second quarter of 2009. This impairment charge is
included in other operating expenses in the accompanying condensed consolidated
statements of operations. There were no impairment charges in the comparable
2008 periods.





5.
Stock-Based Compensation





As of
June 30, 2009, options to purchase 280,801 shares of common stock of CAC were
outstanding, including 70,673 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 or 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 of the common stock on the date
of grant.





Changes
in stock options for the six months ended June 30, 2009 are as
follows:





Weighted-AverageRemainingWeighted-
                                          Average
                                        
                                        
                                        Contractual
                                          Life
                                        
                                        Aggregate
                                          IntrinsicShares
                                        
                                        
                                        Exercise Price
                                        
                                        
                                        (in
      Years)
                                        
                                        Value
      (000’s)Outstanding—December
      31, 2008
                                        
                                        
                                        307,556
                                        
                                        
                                        $
                                        69.42Exercised
                                        
                                        
                                        (8,977
                                        )
                                        
                                        $
                                        -Canceled
                                        
                                        
                                        (17,778
                                        )
                                        
                                        $
                                        -Outstanding—June
      30, 2009
                                        
                                        
                                        280,801
                                        
                                        
                                        $
                                        70.47
                                        
                                        
                                        
                                        5.7
                                        
                                        
                                        $
                                        -Vested
      and expected to vest – June 30, 2009
                                        
                                        
                                        277,375
                                        
                                        
                                        $
                                        70.47
                                        
                                        
                                        
                                        5.7
                                        
                                        
                                        $
                                        -Exercisable –
      June 30, 2009
                                        
                                        
                                        70,673
                                        
                                        
                                        $
                                        9.26
                                        
                                        
                                        
                                        2.6
                                        
                                        
                                        $
                                        4,151


9


The
intrinsic value is calculated as the difference between the estimated market
value as of June 30, 2009 and the exercise price of options that are outstanding
and exercisable.





As of
June 30, 2009, there was unrecognized compensation expense of $2.6 million
related to unvested stock options, which the Company expects to recognize over a
weighted-average period of 3.6 years or earlier in the event of an initial
public offering of our common stock or change in control.





6.
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 September 18,
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 has
appealed.  The opening brief on appeal has been filed by Arch and the
Company’s responsive brief is due by the end of September 2009.


10


In April
2007, Dora Santana filed a purported class action in Superior Court of
California for 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 has been 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.  The
parties have reached an agreement in principle to settle this matter and are in
the process of finalizing that agreement.  The Company has accrued the
estimated settlement expense of $0.9 million and it is included in other
operating expenses in the accompanying condensed consolidated statement of
operations.





On or
about October 4, 2007, Robyn James, a former General Manager, filed a lawsuit in
Superior Court of California 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.  The Court granted summary judgment
motions on all causes of action in favor of all defendants and issued a Judgment
on June 11, 2009 consistent with that ruling.





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 Superior
Court of California for 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.  The parties have reached an agreement in principle to
settle this matter and executed a Memorandum of Understanding in June
2009.  The classwide settlement requires Court approval, and it is
expected that administration of the settlement can be completed by year
end.  The Company has accrued the estimated settlement expense of $1.5
million and it is included in other operating expenses in the accompanying
condensed consolidated statement of operations. The final amount of the
settlement could be materially different from the $1.5 million that was accrued
depending on a variety of circumstances being met.





On or
about February 2, 2009, Sunset & Westridge, LLC, landlord of a restaurant
site in St. George, Utah, filed suit against EPL in California 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.  The Company has filed a cross claim to
recover specific fees pursuant to the terms of the lease.  The parties
are conducting discovery including depositions. 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 May 26, 2009 in Superior Court in Orange County, California, Martin
Penaloza, a former Assistant Manager, filed a purported class action on behalf
of all non-exempt employees.  The claims, requested remedies, and
potential class in this case overlap those in the Delgado and Santana cases
discussed above.  The parties are currently engaged in settlement
negotiations.  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 significant cash
payments resulting from successful claims against the Company or settlements
could have a material adverse affect on the Company’s business, financial
condition, results of operation and cash flows. Except for the Delgado and
Santana cases, the Company has not recorded any reserves for litigation
contingencies.


11


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 $5.3 million remaining as of June 30, 2009.





In March
2009, EPL executed contracts with two chicken 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 Company’s remaining obligation under the contracts at June 30, 2009 was
approximately $22.8 million.





7.
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. In May of
2009, the Company repurchased, at par, the remaining outstanding $250,000
balance of these Notes.





8.
Senior Secured Notes (2012 Notes)





On May
22, 2009, EPL issued $132,500,000 aggregate principal amount of 11 3/4%
senior secured notes due December 1, 2012 (the “2012 Notes”) in a private
placement.  EPL sold the 2012 Notes at an issue price equal to 98.0%
of the principal amount, resulting in gross proceeds to EPL of $129,850,000
before expenses and fees.  Interest is payable each year in June and
December beginning December 1, 2009. The 2012 Notes are guaranteed by
Intermediate and are secured by a second priority lien on substantially all of
the Company’s assets, which includes all of the outstanding common stock of
EPL.  The 2012 Notes may be redeemed at a premium, at the discretion
of EPL, after March 1, 2011, or sooner in connection with certain equity
offerings. If EPL undergoes certain changes of control, each holder of the notes
may require EPL to repurchase all or a part of its notes at a price of 101% of
the principal amount.  The Indenture governing the 2012 Notes contains
a number of covenants that, among other things, restrict, subject to certain
exceptions, EPL’s ability to incur additional indebtedness; pay dividends or
certain restricted payments; make certain investments; sell assets; create
liens; merge; and enter into certain transactions with its
affiliates.





In
connection with the issuance of the 2012 notes, EPL agreed to file a
registration statement within 150 days after the issuance of the 2012 Notes, and
to cause such registration statement to become effective within 240 days after
the issuance of the 2012 Notes, to enable the holders to exchange the privately
placed 2012 Notes for publicly registered notes with, subject to limited
exceptions, identical terms. If such deadlines are not satisfied, or if the
exchange of the 2012 Notes is not completed by 360 days after the issuance of
the 2012 Notes, the interest rate borne by the Notes will be increased by
one-quarter of one percent per annum on a quarterly basis; provided that the
aggregate increase in such annual interest rate may in no event exceed one
percent.





EPL
incurred direct finance costs of approximately $9.0 million in connection with
this offering. Included in these costs are the estimated costs to be incurred
for the registration statement. These costs 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 statement of operations. The Company used the net
proceeds from the 2012 Notes to repay the credit facility with Merrill Lynch,
Bank of America, et al (see Note 10) and its 9.25% Senior Secured Notes due 2009
(see Note 7), and for general corporate purposes.





9.
Senior Unsecured Notes Payable (2013 Notes)





EPL has
outstanding 2013 Notes, consisting of $106.3 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.


12


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,
the 2012 Notes and the 2014 Notes (see Notes 8 and 12) 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 applicable
indentures) and cash received from the proceeds of new equity contributions. As
of June 30, 2009, we are restricted from incurring additional indebtedness, as
EPL does not currently meet the 2.0 to 1 fixed charge coverage ratio required
under our 2012 and 2013 Notes. This restriction does not apply to the existing
loan availability of $6.2 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 the 2013 Notes at a price
of $1.5 million in March 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.





10.
Notes Payable to Merrill Lynch, Bank of America, et al and Revolving Credit
Facility





On
November 18, 2005, EPL entered into a senior secured 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 provided for a
$104.5 million term loan and $25.0 million in revolving availability. The
Company repaid the credit facility in full in May 2009 with the proceeds of the
2012 Notes and replaced the revolving loan with the new credit facility
described in Note 11.





The
credit facility bore interest, payable quarterly, at a Base Rate or LIBOR, at
EPL’s option, plus an applicable margin. The applicable margin was based on
EPL’s financial performance, as defined. The applicable margin rate for the term
loan remained constant at 2.50% with respect to LIBOR and at 1.50% with respect
to Base Rate.  See below for the interest rates on the portion of the
term loan represented by an interest rate swap. The credit facility was 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 was guaranteed
by the Company and Holdings.





The
credit facility required 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 was less than 5.0:1.0.  Excess Operating
Cash Flow was 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.





In the
past, to help mitigate risk, we entered into an interest rate swap
agreement.  The agreement was terminated in the second quarter of
2009.  The interest rate swap agreement was intended to reduce
interest rate risk associated with variable interest rate debt.  The
Company had $0.4 million and $0.2 million in expense for the 13 and 26 weeks
ending June 30, 2009, respectively, related to the change in the fair value of
the interest rate swap agreement.


13


11.
Revolving Credit Facility





On May
22, 2009, EPL entered into a credit agreement (the "Credit Facility") with
the Company as guarantor, Jefferies Finance LLC, as administrative and
syndication agent and the various lenders. The Credit Facility provides for a
$12.5 million revolving line of credit with borrowings limited at any time to
the lesser of (i) $12.5 million or (ii) the Company’s consolidated cash
flow for the most recently completed trailing twelve consecutive
months.  Utilizing the Credit Facility, $6.3 million of letters of
credit were issued and outstanding as of June 30, 2009 (see Note 2 for
additional letters of credits that are outstanding).





The
Credit Facility bears interest, payable quarterly, at an Alternate Base Rate or
LIBOR, at EPL's option, plus an applicable margin. The applicable margin rate is
5.50% with respect to LIBOR and 4.50% with respect to Alternate Base Rate
advances.  The Credit Facility is secured by a first priority lien on
substantially all of the Company’s assets and is guaranteed by Intermediate. The
Credit Facility matures on July 22, 2012.





The
Credit Facility contains a number of covenants that, among other things,
restrict, subject to certain exceptions, the Company’s ability to (i) incur
additional indebtedness or issue preferred stock; (ii) create liens on assets;
(iii) engage in mergers or consolidations; (iv) sell assets; (v) make certain
restricted payments; (vi) make investments, loans or advances; (vii) make
certain acquisitions; (viii) engage in certain transactions with affiliates;
(ix) change the Company’s lines of business or fiscal year; and (x) engage in
speculative hedging transactions. In addition, the Credit Agreement requires the
Company to maintain, on a consolidated basis, a minimum level of consolidated
cash flow at all times.  As of June 30, 2009, the Company was in
compliance with all of the financial covenants contained in the Credit Facility
and had $6.2 million available for borrowings under the revolving line of
credit.





12.
PIK Notes (2014 Notes)





At
December 31, 2008 and June 30, 2009, the Company had $26.0 million and $27.9
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 9).





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.


14


13.
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 was
$0.7 million as of December 31, 2008 and June 30, 2009. 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
June 30, 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.





The
Company recorded a full valuation allowance of $21.3 million in the current
period to reduce deferred tax assets to the balance that is more likely than not
to be realized. In evaluating the need for a valuation allowance, the Company
made judgments and estimates related to future taxable income and existing facts
and circumstances.   The Company believes that the valuation allowance
recorded at June 30, 2009 is appropriate for the
circumstances.  However, subsequent changes in facts and circumstances
that affect the Company’s judgments or estimates in determining the proper
deferred tax assets or liabilities could materially affect the recorded
balances.





14.
New Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 165,
“Subsequent Events” (“SFAS 165”). SFAS 165 incorporates the subsequent events
guidance contained in the auditing standards literature into authoritative
accounting literature. It also requires entities to disclose the date through
which they have evaluated subsequent events and whether the date corresponds
with the release of their financial statements. SFAS 165 is effective for all
interim and annual periods ending after June 15, 2009. The Company adopted SFAS
165 upon its issuance and it had no material impact on its consolidated
financial statements. See Note 1 - “Basis of Presentation” for this new
disclosure.





In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No.
46(R)” (“SFAS 167”). SFAS 167 amends certain requirements of FASB Interpretation
No. 46(R) to improve financial reporting by companies involved with variable
interest entities and to provide more relevant and reliable information to users
of financial statements. SFAS 167 is effective for fiscal years beginning after
November 15, 2009. The Company is currently evaluating the impact that the
adoption of SFAS 167 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.





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.


15


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, California 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 June 25, 2008
and July 1, 2009 as June 30, 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, Missouri, Nevada, New Jersey, Oregon, Texas, Utah, and
Virginia. 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 June 30, 2009 and 2008, and December 31, 2008 are set forth
below:





El Pollo Loco RestaurantsJune 30,
                  
                  
                  December 31,2008
                  
                  
                  2009
                  
                  
                  2008Company-owned
                  
                  
                  162
                  
                  
                  
                  167
                  
                  
                  
                  165Franchised
                  
                  
                  244
                  
                  
                  
                  250
                  
                  
                  
                  248System-wide
                  
                  
                  406
                  
                  
                  
                  417
                  
                  
                  
                  413





During
the six months ended June 30, 2009, the Company opened two new restaurants and
franchisees opened four new restaurants and closed two
restaurants.


16


We plan
to open approximately four company-operated restaurants in fiscal 2009 in an
effort to conserve capital. We believe our franchisees will open approximately
eight 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.





At the
end of the second quarter of 2009, we had 19 restaurants open in new markets
east of the Rockies. The 19 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 our 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 June 30, 2009, same-store
sales for restaurants system-wide decreased 6.8%, and for the 26 weeks ended
June 30, 2009, same-store sales for restaurants system-wide decreased 6.3%,
compared to the corresponding periods 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 7.0% for the 13 weeks ended June 30,
2009, and same-store sales at company-operated restaurants decreased 6.2% for
the 26 weeks ended June 30, 2009, compared to the corresponding periods 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, menu mix 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 six months of 2009 resulted in our first
decline in six-month 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 June 30, 2009,
unemployment was 11.6% compared to 9.5% 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 June 30, 2009, we had commitments from
franchisees to open 144 restaurants at various dates through 2015. However, the
current 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 through 2015. As of July 13, 2009 we were
legally authorized to market franchises in 44 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
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 current 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.


17


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, which was approximately
14.1% of revenue from company-owned restaurants in the first six months 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 U.S. chicken
supplier in 2008 which is a minority supplier to the Company. 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, in 2009, we have seen most commodity prices begin to decline
from their mid-2008 highs.




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 increased 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
implemented which has resulted in a reduction in our workers’ compensation
expense.





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 could be high in 2009 due to the ongoing wage and hour class
action lawsuits.


18


Results
of Operations





Our
operating results for the 13 weeks ended June 30, 2008 and 2009 are expressed as
a percentage of restaurant revenue below:





13 Weeks EndedJune 30,2008
                            
                            
                            2009Operating
      Statement Data:Restaurant
      revenue
                            
                            
                            100.0
                            %
                            
                            
                            100.0
                            %Product
      cost
                            
                            
                            32.0
                            
                            
                            
                            32.8Payroll
      and benefits
                            
                            
                            26.1
                            
                            
                            
                            26.7Depreciation
      and amortization
                            
                            
                            4.4
                            
                            
                            
                            4.1Other
      operating expenses
                            
                            
                            49.7
                            
                            
                            
                            37.5Operating
      income (loss)
                            
                            
                            (4.3
                            )
                            
                            
                            6.1Interest
      expense-net
                            
                            
                            9.1
                            
                            
                            
                            12.4Other
      expense
                            
                            
                            0.0
                            
                            
                            
                            1.0Loss
      before provision for income taxes
                            
                            
                            (13.4
                            )
                            
                            
                            (7.2
                            )Provision
      (benefit) for income taxes
                            
                            
                            (5.5
                            )
                            
                            
                            33.0Net
      loss
                            
                            
                            (7.9
                            )
                            
                            
                            (40.2
                            )Supplementary
      Operating Statement Data:Restaurant
      other operating expense
                            
                            
                            22.6
                            
                            
                            
                            23.5Franchise
      expense
                            
                            
                            1.5
                            
                            
                            
                            1.4General
      and administrative expense
                            
                            
                            25.6
                            
                            
                            
                            12.6Total
      other operating expenses
                            
                            
                            49.7
                            
                            
                            
                            37.5





13
Weeks Ended June 30, 2009 Compared to 13 Weeks Ended June 30, 2008





Restaurant
revenue decreased $3.0 million, or 4.3%, to $67.8 million for the 13 weeks ended
June 30, 2009 from $70.8 million for the 13 weeks ended June 30, 2008. This
decrease was primarily due to a reduction of $4.9 million in restaurant revenue
resulting from a 7.0% 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 2.1% in May, October and various
other times in 2008, a transaction increase of 3.1%, and a menu mix decrease of
12.2%. The menu mix decrease is a result of deep discounting in the current
period and customers switching to lower priced menu items.  Restaurant
revenue was also partially impacted by a one-day promotion in the current period
offering a free 2-piece chicken meal, resulting in increased transactions and a
lower check average.  The company-operated same-store sales 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 half of 2009 and are
expected to continue through at least the remainder of 2009.  The
decrease was also due to lost sales of $0.5 million from the closure of three
company-operated restaurants in 2008.  The decrease was partially
offset by an increase in restaurant revenue of $1.8 million from nine
restaurants opened in 2008 and also by $0.6 million from two restaurants opened
in 2009.





Franchise
revenue decreased $0.7 million, or 12.1%, to $4.9 million for the 13 weeks ended
June 30, 2009 from $5.6 million for the 13 weeks ended June 30, 2008. This
decrease is due primarily to decreased development fees which are attributed to
fewer franchised restaurant openings in the current period and also due to lower
royalties and percentage rent income, which are based on sales, resulting from a
6.6% 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 $0.4 million, or 2.0%, to $22.2 million for the 13 weeks ended
June 30, 2009 from $22.6 million for the 13 weeks ended June 30, 2008. This
decrease resulted primarily from lower sales due to the decrease in
company-operated same-store sales for the 2009 period.


19


Product
cost as a percentage of restaurant revenue was 32.8% for the 13 weeks ended June
30, 2009 compared to 32.0% for the 13 weeks ended June 30, 2008. This 0.8%
increase resulted primarily from the increases in commodity costs and higher and
more frequent discounting in the current period, partially offset by menu price
increases taken in May and October 2008. Approximately 0.2% of the 0.8% increase
was due to a one-day promotion in the current period that offered a free 2-piece
chicken meal. Overall, we expect continued pressure on commodity costs in
2009.





Payroll
and benefit expenses decreased $0.4 million, or 2.0%, to $18.1 million for the
13 weeks ended June 30, 2009 from $18.5 million for the 13 weeks ended June 30,
2008.  This decrease resulted primarily from fewer employees needed to
support the lower sales volume for the 2009 period.





As a
percentage of restaurant revenue, these costs increased 0.6% to 26.7% for the
2009 period from 26.1% for the 2008 period due to the decrease in restaurant
revenue and the one-day promotion in the current period that offered a free
2-piece chicken meal.





Depreciation
and amortization decreased $0.3 million, or 9.7%, to $2.8 million for the 13
weeks ended June 30, 2009 compared to $3.1 million for the 13 weeks ended June
30, 2008. This decrease is mainly attributed to a portion 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 0.3% to 4.1% for the 2009
period compared with 4.4% 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, decreased
$0.1 million, or 0.7%, to $15.9 million for the 13 weeks ended June 30, 2009
from $16.0 million for the 13 weeks ended June 30, 2008. This decrease is mainly
attributed to the reasons noted below.





Restaurant
other operating expense as a percentage of revenue increased to 23.5% for the
2009 period from 22.6% for the 2008 period. The increase in operating costs as a
percentage of revenue was due to a 0.7% 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, higher
general liability expense in the current period which was attributed to an
increased number of claims in the current period and also to the deleverage
caused by the decreasing sales. The increase was also attributed to higher
advertising expense of 0.5% 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 as a percentage of revenue was partially
offset by a decrease of 0.5% in utilities as a percentage of revenue which was
mainly due to lower natural gas prices in the current period and also a 0.1%
decrease in preopening costs as a percentage of revenue due to fewer stores
opened in the current quarter.




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 June 30, 2009 and
2008.





General
and administrative expense decreased $9.6 million, or 52.9%, to $8.6 million for
the 13 weeks ended June 30, 2009 from $18.2 million for the 13 weeks ended June
30, 2008. The decrease was primarily attributed to lower legal fees due to a
$10.7 million expense in the prior year quarter to settle the EPL-Mexico v.
EPL-USA trademark litigation that did not recur in the current
period.  The decrease was also attributed to lower salaries and wages
due to lower headcount and was partially offset by legal settlement accruals in
the current period of $2.4 million.


20


General
and administrative expense as a percentage of revenue decreased 13.0% to 12.6%
for the 13 weeks ended June 30, 2009 from 25.6% for the 13 weeks ended June 30,
2008. This decrease was attributed to the reasons noted above.





Interest
expense, net of interest income, increased $2.0 million, or 30.1%, to $8.4
million for the 13 weeks ended June 30, 2009 from $6.4 million for the 13 weeks
ended June 30, 2008. Our average debt balances for the 2009 period increased to
$253.2 million compared to $250.5 million for the 2008 period and our average
interest rate increased to 9.68% for the 2009 period compared to 9.52% for the
2008 period. The increase in interest expense was also attributed to the write
off of deferred finance costs related to our credit facility which was paid in
full in May 2009.





The
Company had $0.6 million in other expense in the 2009 period primarily 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.  The Company terminated the interest rate swap agreement in
the second quarter of 2009.





Despite
having a loss for the 13 weeks ended June 30, 2009, our provision for income
taxes consisted of an income tax expense of $22.4 million as we recorded a full
valuation allowance of $21.3 million against our deferred tax assets in the
current period. We had an income tax benefit of  $3.9 million for the
13-week period ended June 30, 2008.





As a
result of the factors above we had a net loss of $27.2 million and $5.6 million
for the 13 weeks ended June 30, 2009 and 2008, respectively, or (40.2)% and
(7.9)% as a percentage of restaurant revenue, respectively.





26
Weeks Ended June 30, 2009 Compared to 26 Weeks Ended June 30, 2008





Our
operating results for the 26 weeks ended June 30, 2008 and 2009 are expressed as
a percentage of restaurant revenue below:





26 Weeks EndedJune 30,2008
                    
                    
                    2009Operating
      Statement Data:Restaurant
      revenue
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Product
      cost
                    
                    
                    32.3
                    
                    
                    
                    32.3Payroll
      and benefits
                    
                    
                    26.4
                    
                    
                    
                    26.8Depreciation
      and amortization
                    
                    
                    4.4
                    
                    
                    
                    4.2Other
      operating expenses
                    
                    
                    42.0
                    
                    
                    
                    37.8Operating
      income
                    
                    
                    2.5
                    
                    
                    
                    6.1Interest
      expense-net
                    
                    
                    9.9
                    
                    
                    
                    10.8Other
      expense
                    
                    
                    0.0
                    
                    
                    
                    0.3Other
      income
                    
                    
                    0.0
                    
                    
                    
                    (0.3
                    )Loss
      before provision for income taxes
                    
                    
                    (7.4
                    )
                    
                    
                    (4.7
                    )Provision
      (benefit) for income taxes
                    
                    
                    (3.0
                    )
                    
                    
                    16.7Net
      loss
                    
                    
                    (4.4
                    )
                    
                    
                    (21.3
                    )Supplementary
      Operating Statement Data:Restaurant
      other operating expense
                    
                    
                    22.4
                    
                    
                    
                    23.1Franchise
      expense
                    
                    
                    1.4
                    
                    
                    
                    1.5General
      and administrative expense
                    
                    
                    18.2
                    
                    
                    
                    13.2Total
      other operating expenses
                    
                    
                    42.0
                    
                    
                    
                    37.8


21


Restaurant
revenue decreased $3.4 million, or 2.5%, to $133.7 million for the 26 weeks
ended June30, 2009 from $137.2 million for the 26 weeks ended June 30, 2008.
This decrease was primarily due to a reduction of $8.5 million in restaurant
revenue resulting from a 6.2% decrease in company-operated same-store sales for
the 2009 period compared to 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 2.6% in May, October
and various other times after March 31, 2008, a transaction decrease of 0.7%,
and a menu mix decrease of 8.1%. The menu mix decrease is a result of deep
discounting in the current period and customers switching to lower priced menu
items. The company-operated same-store sales 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 2009 and are expected to continue through at least the
remainder of 2009.  The decrease was also due to lost sales of $0.9
million from the closure of three company-operated restaurants in
2008.  The decrease was partially offset by an increase in restaurant
revenue of $5.2 million from ten restaurants opened in 2007 and 2008 and also by
$0.8 million from two restaurants opened in 2009.





Franchise
revenue decreased $0.8 million, or 7.9%, to $9.6 million for the 26 weeks ended
June 30, 2009 from $10.4 million for the 26 weeks ended June 30, 2008. This
decrease is due primarily to decreased development fees which are attributed to
fewer franchised restaurant openings in the current period and also due to lower
royalties and percentage rent income, which are 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 $1.1 million, or 2.4%, to $43.2 million for the 26 weeks ended
June 30, 2009 from $44.2 million for the 26 weeks ended June 30, 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 32.3% for the 26 weeks ended June
30, 2009 and 2008. The menu price increases taken in May and October 2008 offset
the increases in commodity costs and the impact of the increased discounting in
the current period. Overall, we expect continued pressure on commodity costs in
2009.





Payroll
and benefit expenses decreased $0.3 million, or 1.0%, to $35.8 million for the
26 weeks ended June 30, 2009 from $36.1 million for the 26 weeks ended June 30,
2008. This decrease resulted primarily from fewer employees needed to support
the lower sales volume for the 2009 period.





As a
percentage of restaurant revenue, these costs increased 0.4% to 26.8% for the
2009 period from 26.4% for the 2008 period due to the decrease in restaurant
revenue.





Depreciation
and amortization decreased $0.5 million, or 7.5%, to $5.6 million for the 26
weeks ended June 30, 2009 compared to $6.1 million for the 26 weeks ended June
30, 2008. This decrease is mainly attributed to a portion 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 4.2% for the
2009 period compared with 4.4% 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
$0.2 million, or 0.8%, to $30.9 million for the 26 weeks ended June 30, 2009
from $30.7 million for the 26 weeks ended June 30, 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 23.1% for the
2009 period from 22.4% 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 and higher general liability expense which was
attributed to an increased number of claims in the current period. The increase
was also attributed to higher advertising expense of 0.3% 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 0.4% in utilities as a percentage of
revenue which was mainly due to lower natural 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.


22


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
decreased slightly to $1.9 million for the 26 weeks ended June 30, 2009 compared
to $2.0 million for the 26 weeks ended June 30, 2008.





General
and administrative expense decreased $7.3 million, or 29.3%, to $17.7 million
for the 26 weeks ended June 30, 2009 from $25.0 million for the 26 weeks ended
June 30, 2008. The decrease was primarily attributed to lower legal fees due to
a $10.7 million expense in the prior period to settle the EPL-Mexico v. EPL-USA
trademark litigation that did not recur in the current period.  The
decrease was also due to lower salaries and wages of $0.5 million due to
decreased headcount and also to lower travel and entertainment expenses of $0.4
million in the current period due to the Company’s focus on reducing
expenses.  The decrease was partially offset by 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, legal
settlement accruals in the current period of $2.4 million and a gain on sale of
land of $0.3 million in the 2008 period that did not recur in the 2009
period.





General
and administrative expense as a percentage of revenue decreased 5.0% to 13.2%
for the 26 weeks ended June 30, 2009 from 18.2% for the 26 weeks ended June 30,
2008. This decrease was attributed to the reasons noted above.





Interest
expense, net of interest income, increased $0.8 million, or 5.9%, to $14.4
million for the 26 weeks ended June 30, 2009 from $13.6 million for the 26 weeks
ended June 30, 2008. The increase in interest expense was attributed to the
write off of deferred finance costs related to our credit facility which was
paid in full in May 2009.





The
Company had $0.4 million in other expense in the 2009 period primarily 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.  The Company terminated the interest rate swap agreement in
the second quarter of 2009.





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.





Despite
having a loss for the 26 weeks ended June 30, 2009, our provision for income
taxes consisted of an income tax expense of $22.3 million as we recorded a full
valuation allowance of $21.3 million against our deferred tax assets in the
current period.  We had an income tax benefit of $4.1 million for the
26-week period ended June 30, 2008.





As a
result of the factors above we had a net loss of $28.5 million and $6.0 million
for the 26 weeks ended June 30, 2009 and 2008, respectively, or (21.3)% and
(4.4)% as a percentage of restaurant revenue, respectively.





Liquidity
and Capital Resources





Our
principal liquidity requirements are to service our debt and meet our capital
expenditure needs. At June 30, 2009, our total debt was $266.4 million, compared
to $241.5 million at December 31, 2008. See “Debt and Other Obligations” below.
Our ability to make payments on our indebtedness, and to fund planned capital
expenditures will depend on our available cash and 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 $6.2 million that EPL had available at June 30, 2009, under its
credit agreement 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.


23


Our
previous credit facility required the prepayment of the related 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 was 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 12 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.




In the
six-month period ended June 30, 2009, our capital expenditures totaled $4.4
million, consisting of $2.8 million for new restaurants, $0.9 million for
capitalized repairs of existing sites, $0.4 million related to other projects
and $0.3 million related to remodels. 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, including restricted cash, increased $16.2 million from $1.1
million at December 31, 2008 to $17.3 million at June 30, 2009. See “Working
Capital and Cash Flows” below for information explaining this
increase.  We cannot assure you 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 additional restaurants from franchisees, our
debt service requirements could increase.  In addition, we may fund
restaurant openings through credit received by trade suppliers and landlord
contributions.  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.  We
cannot provide assurance that we will be able to refinance any of our
indebtedness, if necessary, on commercially reasonable terms or at
all.





As
discussed in Note 6, 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. 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
indentures governing the 2012 Notes, 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.


24


During
the twenty six weeks ended June 30, 2009, our cash and cash equivalents,
including restricted cash, increased by $16.2 million to $17.3 million from the
period ended December 31, 2008. This increase was due to the $129.9 million of
cash proceeds received from our 2012 Note offering, $4.0 million from short-term
borrowings under our prior revolver facility and $0.1 million from our operating
activities.  These increases were partially offset by the $108.6
million used to payoff our bank term loan and revolver, $9.0 million in fees and
costs incurred in connection with the 2012 Note offering and $4.4 million
primarily related to capital expenditures for new restaurants.  The
$4.9 million decline in purchases of property for the 26 week period 2009
compared to 2008 was mainly due to decreased spending on new restaurants as we
had fewer openings in the current period.





Debt
and Other Obligations





On May
22, 2009, EPL entered into a credit agreement (the "Credit Facility") with
Intermediate as guarantor, Jefferies Finance LLC, as administrative and
syndication agent and the various lenders. The Credit Facility provides for a
$12.5 million revolving line of credit with borrowings limited at any time to
the lesser of (i) $12.5 million and (ii) the Company’s consolidated cash flow
for the most recently completed trailing twelve consecutive
months.  EPL has $12.6 million of letters of credit outstanding as of
June 30, 2009 (see Notes 2 and 11).





The
Credit Facility bears interest, payable quarterly, at an Alternate Base Rate or
LIBOR, at EPL's option, plus an applicable margin. The applicable margin rate is
5.50% with respect to LIBOR and 4.50% with respect to Alternate Base Rate
advances.  The Credit Facility is secured by a first priority lien on
substantially all of the Company’s assets and is guaranteed by Intermediate. The
Credit Facility matures on July 22, 2012.





The
Credit Facility contains a number of covenants that, among other things,
restrict, subject to certain exceptions, the Company’s ability to (i) incur
additional indebtedness or issue preferred stock; (ii) create liens on assets;
(iii) engage in mergers or consolidations; (iv) sell assets; (v) make certain
restricted payments; (vi) make investments, loans or advances; (vii) make
certain acquisitions; (viii) engage in certain transactions with affiliates;
(ix) change the Company’s lines of business or fiscal year; and (x) engage in
speculative hedging transactions. In addition, the Credit Agreement will require
the Company to maintain, on a consolidated basis, a minimum level of
consolidated cash flow at all times.  As of June 30, 2009, The Company
was in compliance with all of the financial covenants contained in the Credit
Facility and had $6.2 million available for borrowings under the revolving line
of credit.





On May
22, 2009, EPL issued $132,500,000 aggregate principal amount of 11 3/4%
senior secured notes due December 1, 2012 (the “2012 Notes”) in a private
placement.  EPL sold the 2012 Notes at an issue price equal to 98.0%
of the principal amount, resulting in gross proceeds to EPL of $129,850,000
before expenses and fees.  Interest is payable each year in June and
December beginning December 1, 2009. The 2012 Notes are guaranteed by
Intermediate and are secured by a second priority lien on substantially all of
the Company’s assets.  The 2012 Notes may be redeemed at a premium, at
the discretion of EPL, after March 1, 2011, or sooner in connection with certain
equity offerings. If EPL undergoes certain changes of control, each holder of
the notes may require EPL to repurchase all or a part of its notes at a price of
101% of the principal amount.  The Indenture governing the 2012 Notes
contains a number of covenants that, among other things, restrict, subject to
certain exceptions, EPL’s ability to incur additional indebtedness; pay
dividends or certain restricted payments; make certain investments; sell assets;
create liens; merge; and enter into certain transactions with its
affiliates.  As of June 30, 2009, we had $129.9 million outstanding in
aggregate principal amount under our 2012 Notes.





EPL
incurred direct finance costs of approximately $9.0 million in connection with
sale of the 2012 Notes. Included in these costs are the estimated costs to be
incurred to file a registration statement. These costs have been capitalized and
are included in other assets in the Company’s balance sheet, and the related
amortization is reflected as a component of interest expense in the condensed
consolidated statement of operations. The Company used the net proceeds from the
2012 Notes to repay the credit facility with  Merrill Lynch, Bank of
America, et al (which provided for a $104.5 million term loan and a $25.0
million revolving loan) and its 9 1⁄4% Senior Secured Notes due
2009.


25


As of
June 30, 2009, we calculated our “fixed charge coverage ratio” (as defined
in the indenture governing the 2012 Notes) at 1.57 to 1. The indenture permits
us to incur indebtedness or issue disqualified stock, and the Company’s
restricted subsidiaries may incur indebtedness or issue preferred stock if our
fixed charge coverage ratio for the most recently ended four full fiscal
quarters would have been at least 2.0 to 1, all as determined on a pro forma
basis as if such indebtedness had been incurred or the disqualified stock or the
preferred stock had been issued 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 2012
Notes.  A failure to meet the ratios affects only our ability to incur
additional indebtedness and does not constitute a default under these
Notes.





At
June 30, 2009, we had $27.9 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 12 to our Condensed
Consolidated Financial Statements.





As of
June 30, 2009, we had $106.3 million outstanding in aggregate principal amount
under our 2013 Notes. The Company purchased, at par, the $250,000 remaining
balance of the 2009 Notes in May of 2009 with the proceeds of the 2012
Notes.  The Company used $13.6 million of proceeds from operations to
repurchase a portion of the 2013 Notes in 2008.  See Notes 7 and 8 to
our Condensed Consolidated Financial Statements.





As of
June 30, 2009, we calculated our “fixed charge coverage ratio” and our
“consolidated leverage ratio” (as defined in the indenture governing the
2014 Notes) at 1.88 to 1 and 5.47 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.





At June
30, 2009, we had outstanding letters of credit totaling $12.6 million, which
served as collateral for our various workers’ compensation insurance programs
(see Notes 2 and 11).





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





Franchisees
pay a monthly advertising fee of 4% of gross sales for the Los Angeles,
California designated market area and 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.


26


Litigation
Contingency





As
discussed in Note 6 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 recorded a reserve of $2.4 million in the current period
for estimated legal settlements of two cases, but we have not recorded reserves
for any other litigation contingencies.





Off-Balance
Sheet and Other Arrangements





As of
June 30, 2009 and 2008, we had approximately $6.2 million and $7.4 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 facility that bears interest at floating rates. As of June
30, 2009, we had no amounts outstanding under this facility.





In the
past, to help mediate risk, we entered into an interest rate swap
agreement.  The agreement was terminated in the second quarter of
2009.  The interest rate swap agreement was intended to reduce
interest rate risk associated with variable interest rate debt.  The
company had $0.4 million and $0.2 million in expense for the 13 and 26 weeks
ending June 30, 2009, respectively, related to the change in the fair value of
the interest rate swap agreement.





Item
4T. Controls and Procedures





Our Chief
Executive Officer and Chief Financial Officer have concluded that the design and
operation of our disclosure controls and procedures are effective as of June 30,
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 26 weeks ended June 30, 2009 that materially affect; or are
reasonably likely to materially affect; our internal control over financial
reporting.


27


PART
II – OTHER INFORMATION





Item
1. Legal Proceedings





The
information set forth in Note 6 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
5.  Other Information





On June
4, 2009, Jay R. Bloom resigned as a director of the Company and Jeffrey
Naumowitz was elected to replace him.  Mr. Naumowitz was elected as
the designee of Trimaran Capital. LLC, pursuant to the Second Amended and
Restated Limited Liability Operating Agreement of Trimaran Pollo Partners, LLC
(the “LLC”) dated December 26, 2007.  The LLC is the indirect 99%
owner of the Company.





During
the second quarter Peter Bassi, Steven Shulman and Dennis Lombardi resigned as
directors of the Company.  After these resignations, the eight-person
board of directors consists of six designees of our principal shareholders, our
chief executive officer, and one independent director, who will continue to
serve on the audit committee.  These resignations will assist the
Company’s cost-cutting efforts.





On August
13, 2009, the Company issued a press release reporting results of operations for
the second quarter and six month periods ended June 30, 2009.  A copy
of the press release is being furnished as Exhibit 99.1 hereto and is
incorporated herein by this reference. We do not intend for this exhibit to be
incorporated by reference into any other filings we make with the SEC. This
information is provided in this Report in response to Item 2.02, Results of
Operations and Financial Condition, and Item 9.01, Financial Statements and
Exhibits, of Form 8-K in lieu of filing a Form 8-K.




28




Item
6. Exhibits.




ExhibitNumber
              
              Description of
      Documents1.1
              
              Purchase
      Agreement, dated May 14, 2009, by and among El Pollo Loco, Inc., EPL
      Intermediate, Inc. and Jefferies & Company. (1)4.1
              
              Indenture,
      dated as of May 22, 2009, among El Pollo Loco, Inc., EPL Intermediate,
      Inc. and The Bank of New York Mellon Trust Company,
  N.A.(1)4.2
              
              Registration
      Rights Agreement, dated as of May 22, 2009, among El Pollo Loco, Inc., EPL
      Intermediate, Inc. and Jefferies & Company, Inc.
(1)10.1
              
              Credit
      Agreement, dated as of May 22, 2009, among El Pollo Loco, Inc., EPL
      Intermediate, Inc., the Lenders named therein and Jefferies Finance LLC
      (1)10.2
              
              Employment
      Agreement between El Pollo Loco, Inc. and Gary Campanaro dated June 24,
      2009*31.1
              
              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 193499.1
              
              Press
      Release dated August 13, 2009





(1)
            Incorporated
      by reference to the EPL Intermediate, Inc. (file no. 333-115644) Current
      Report on Form 8-K filed on May 26,
2009.





*
Management contracts and compensatory plans and arrangements.


29


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:
      August 14, 2009
                By:
                /s/
      Stephen E. CarleyStephen
      E. CarleyPresidentBy:
                /s/
      Gary CampanaroGary
      CampanaroChief
      Financial Officer and
Treasurer




30


EXHIBIT
INDEX





ExhibitNumber
              
              Description of
      Documents1.1
              
              Purchase
      Agreement, dated May 14, 2009, by and among El Pollo Loco, Inc., EPL
      Intermediate, Inc. and Jefferies & Company. (1)4.1
              
              Indenture,
      dated as of May 22, 2009, among El Pollo Loco, Inc., EPL Intermediate,
      Inc. and The Bank of New York Mellon Trust Company,
  N.A.(1)4.2
              
              Registration
      Rights Agreement, dated as of May 22, 2009, among El Pollo Loco, Inc., EPL
      Intermediate, Inc. and Jefferies & Company, Inc.
(1)10.1
              
              Credit
      Agreement, dated as of May 22, 2009, among El Pollo Loco, Inc., EPL
      Intermediate, Inc., the Lenders named therein and Jefferies Finance LLC
      (1)10.2
              
              Employment
      Agreement between El Pollo Loco, Inc. and Gary Campanaro dated June 24,
      2009*31.1
              
              Certification
      Pursuant to Rule 13-a-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 193499.1
              
              Press
      Release dated August 13, 2009





(1)
            Incorporated
      by reference to the EPL Intermediate, Inc. (file no. 333-115644) Current
      Report on Form 8-K filed on May 26,
2009.





*
Management contracts and compensatory plans and arrangements.


31