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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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Form 10-Q



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



For the quarterly period ended September 30, 2004



or



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
|- | --------------------------------------------------------------------------------------------



For the transition period from  to



Commission File No. 333-115486



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El Pollo Loco, Inc.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0377527                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



3333 Michelson
Drive, Suite 550

Irvine, California 92612

(Address of principal executive offices)



Registrants telephone number, including area code:

(949) 399-2000



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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  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    Yes ̈No  x



As of November 11, 2004, the registrant had 100 shares of its common stock,
$.01 par value, outstanding.



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TABLE OF CONTENTS



|     |  |                                                                                       |  |     
|---- |  | ------------------------------------------------------------------------------------- |  | ----
|Item |  |                                                                                       |  | Page
|     |  | PART I                                                                                |  |     
|     |  |                                                                                      
|1.   |  | Financial Statements                                                                  |  | 4   
|     |  |                                                                                      
|2.   |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 12  
|     |  |                                                                                      
|3.   |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 18  
|     |  |                                                                                      
|4.   |  | Controls and Procedures                                                               |  | 18  
|     |  | PART II                                                                               |  |     
|     |  |                                                                                      
|6.   |  | Exhibits                                                                              |  | 20  



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FORWARD-LOOKING STATEMENTS



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.



Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include our substantial
level of indebtedness, food-borne-illness incidents, increases in the cost of chicken, our dependence upon frequent deliveries of food and other supplies, our vulnerability to changes in consumer preferences and economic conditions, our sensitivity
to events and conditions in the greater Los Angeles area, our ability to compete successfully with other quick service and fast casual restaurants, our ability to expand into new markets, our reliance in part on our franchisees, our ability to
support our expanding franchise system 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 Registration Statement on Form S-4/A (File No.
333-115486) as filed with the Securities and Exchange Commission on August 11, 2004.



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PART I



Item 1. Financial Statements



EL
POLLO LOCO, INC.

(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)



CONDENSED BALANCE SHEETS

(UNAUDITED) (In thousands)



|                                          |  |                  |         |                   |   |        
|----------------------------------------- |  | ---------------- | ------- | ----------------- | - | -------
|                                          |  | DECEMBER 31,2003 |         | SEPTEMBER 30,2004
|ASSETS                                    |  |                  |         |                   |   |        
|CURRENT ASSETS:                           |  |                  |         |                   |   |        
|Cash and cash equivalents                 |  | $                | 5,353   |                   | $ | 7,998  
|Notes and accounts receivablenet         |  |                  | 2,588   |                   |   | 2,803  
|Inventories                               |  |                  | 1,225   |                   |   | 1,054  
|Prepaid expenses and other current assets |  |                  | 2,562   |                   |   | 2,907  
|Income taxes receivable                   |  |                  | 709     |                   |   | 434    
|Deferred income taxes                     |  |                  | 2,893   |                   |   | 2,893  
|                                          |  |                  |         |                   |   |        
|Total current assets                      |  |                  | 15,330  |                   |   | 18,089 
|                                          |  |                  |         |                   |   |        
|PROPERTY OWNEDNet                        |  |                  | 59,397  |                   |   | 60,361 
|                                          |  |                  |         |                   |   |        
|PROPERTY HELD UNDER CAPITAL LEASESNet    |  |                  | 5,907   |                   |   | 4,919  
|                                          |  |                  |         |                   |   |        
|GOODWILL                                  |  |                  | 37,898  |                   |   | 38,989 
|                                          |  |                 
|DOMESTIC TRADEMARKS                       |  |                  | 19,800  |                   |   | 19,800 
|                                          |  |                 
|OTHER INTANGIBLE ASSETS                   |  |                  | 25,852  |                   |   | 24,132 
|                                          |  |                 
|OTHER ASSETS                              |  |                  | 679     |                   |   | 747    
|                                          |  |                  |         |                   |   |        
|TOTAL ASSETS                              |  | $                | 164,863 |                   | $ | 167,037
|                                          |  |                  |         |                   |   |        



See accompanying notes
to condensed financial statements.



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EL POLLO LOCO, INC.

(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)



CONDENSED BALANCE SHEETS

(UNAUDITED) (In thousands, except share data)



|                                                                                         |  |                   |         |   |                    |   |        
|---------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ------------------ | - | -------
|                                                                                         |  | DECEMBER 31, 2003 |         |   | SEPTEMBER 30, 2004
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIENCY)                                        |  |                   |         |   |                    |   |        
|                                                                                         |  |                  
|CURRENT LIABILITIES:                                                                     |  |                   |         |   |                    |   |        
|Current portion of notes payable to SunTrust Bank                                        |  | $                 | 3,667   |   |                    | $ | 3,667  
|Current portion of obligations under capital leases                                      |  |                   | 1,262   |   |                    |   | 1,208  
|Current portion of other notes payable                                                   |  |                   | 1,222   |   |                    |   | 593    
|Accounts payable                                                                         |  |                   | 8,779   |   |                    |   | 8,175  
|Accrued salaries                                                                         |  |                   | 5,707   |   |                    |   | 5,081  
|Accrued vacation                                                                         |  |                   | 1,285   |   |                    |   | 1,325  
|Accrued insurance                                                                        |  |                   | 2,248   |   |                    |   | 2,790  
|Income taxes payable                                                                     |  |                   |        |   |                    |   | 979    
|Accrued interest                                                                         |  |                   | 409     |   |                    |   | 3,177  
|Accrued advertising                                                                      |  |                   | 279     |   |                    |   |       
|Other accrued expenses and current liabilities                                           |  |                   | 4,242   |   |                    |   | 4,309  
|                                                                                         |  |                   |         |   |                    |   |        
|Total current liabilities                                                                |  |                   | 29,100  |   |                    |   | 31,304 
|                                                                                         |  |                   |         |   |                    |   |        
|NONCURRENT LIABILITIES:                                                                  |  |                   |         |   |                    |   |        
|Senior secured notes                                                                     |  |                   | 110,000 |   |                    |   | 110,000
|Notes payable to SunTrust Bankless current portion                                      |  |                   | 7,333   |   |                    |   | 5,500  
|Obligations under capital leasesless current portion                                    |  |                   | 7,922   |   |                    |   | 6,835  
|Other notes payableless current portion                                                 |  |                   | 1,824   |   |                    |   | 1,324  
|Deferred income taxes                                                                    |  |                   | 2,804   |   |                    |   | 2,804  
|Other noncurrent liabilities                                                             |  |                   | 8,496   |   |                    |   | 8,677  
|                                                                                         |  |                   |         |   |                    |   |        
|Total noncurrent liabilities                                                             |  |                   | 138,379 |   |                    |   | 135,140
|                                                                                         |  |                   |         |   |                    |   |        
|COMMITMENTS AND CONTINGENCIES                                                            |  |                   |         |   |                    |   |        
|                                                                                         |  |                  
|STOCKHOLDERS EQUITY (DEFICIENCY):                                                       |  |                   |         |   |                    |   |        
|Common stock, $.01 par value20,000 shares authorized; 100 shares issued and outstanding |  |                   |         |   |                    |   |        
|Additional paid-in-capital                                                               |  |                   |        |   |                    |   |       
|Accumulated other comprehensive income                                                   |  |                   |        |   |                    |   |       
|Retained earnings / (accumulated deficit)                                                |  |                   | (2,616  | ) |                    |   | 593    
|                                                                                         |  |                   |         |   |                    |   |        
|Total stockholders equity (deficiency)                                                  |  |                   | (2,616  | ) |                    |   | 593    
|                                                                                         |  |                   |         |   |                    |   |        
|TOTAL                                                                                    |  | $                 | 164,863 |   |                    | $ | 167,037
|                                                                                         |  |                   |         |   |                    |   |        



See accompanying notes
to condensed financial statements.



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EL POLLO LOCO, INC.

(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)



CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)

(In thousands)



|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | ----------------------- | - | ------ |  | ---- | ------- |  | - | -------
|                                                                                                                                                              |  | 13 Weeks Ended Sept 30, |        | 39 Weeks Ended Sept 30,
|                                                                                                                                                              |  | 2003                    |        | 2004                    |   | 2003   |  | 2004
|OPERATING REVENUE:                                                                                                                                            |  |                         |        |                         |   |        |  |      |         |  |   |        
|Restaurant revenue                                                                                                                                            |  | $                       | 50,338 |                         | $ | 52,747 |  | $    | 140,342 |  | $ | 155,351
|Franchise revenue                                                                                                                                             |  |                         | 3,462  |                         |   | 3,760  |  |      | 9,728   |  |   | 10,686 
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|Total operating revenue                                                                                                                                       |  |                         | 53,800 |                         |   | 56,507 |  |      | 150,070 |  |   | 166,037
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|OPERATING EXPENSES:                                                                                                                                           |  |                         |        |                         |   |        |  |      |         |  |   |        
|Product cost                                                                                                                                                  |  |                         | 15,138 |                         |   | 16,792 |  |      | 42,362  |  |   | 48,753 
|Payroll and benefits                                                                                                                                          |  |                         | 13,731 |                         |   | 14,001 |  |      | 39,267  |  |   | 42,028 
|Depreciation and amortization                                                                                                                                 |  |                         | 3,307  |                         |   | 3,470  |  |      | 9,398   |  |   | 9,901  
|Other operating expenses, net                                                                                                                                 |  |                         | 15,414 |                         |   | 16,880 |  |      | 43,900  |  |   | 50,290 
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|Total operating expenses                                                                                                                                      |  |                         | 47,590 |                         |   | 51,143 |  |      | 134,927 |  |   | 150,972
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|OPERATING INCOME                                                                                                                                              |  |                         | 6,210  |                         |   | 5,364  |  |      | 15,143  |  |   | 15,065 
|                                                                                                                                                              |  |                         |        |                        
|INTEREST EXPENSE, net                                                                                                                                         |  |                         | 1,481  |                         |   | 3,564  |  |      | 4,570   |  |   | 10,683 
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|INCOME BEFORE PROVISION FOR INCOME TAXES                                                                                                                      |  |                         | 4,729  |                         |   | 1,800  |  |      | 10,573  |  |   | 4,382  
|                                                                                                                                                              |  |                         |        |                        
|PROVISION FOR INCOME TAXES                                                                                                                                    |  |                         | 1,826  |                         |   | 114    |  |      | 4,222   |  |   | 1,173  
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|NET INCOME                                                                                                                                                    |  |                         | 2,903  |                         |   | 1,686  |  |      | 6,351   |  |   | 3,209  
|                                                                                                                                                              |  |                         |        |                        
|OTHER COMPREHENSIVE GAIN:                                                                                                                                     |  |                         |        |                         |   |        |  |      |         |  |   |        
|Unrealized net gain on valuation of interest rate swapnet of income taxes of $81 and $58 for the 13 weeks and 39 weeks ended September
30, 2003 respectively |  |                         | 116    |                         |   |       |  |      | 82      |  |   |       
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        
|COMPREHENSIVE INCOME                                                                                                                                          |  | $                       | 3,019  |                         | $ | 1,686  |  | $    | 6,433   |  | $ | 3,209  
|                                                                                                                                                              |  |                         |        |                         |   |        |  |      |         |  |   |        



See accompanying notes
to condensed financial statements.



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EL POLLO LOCO, INC.

(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)



CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)



|                                                                                  |  |                              |        |   |      |   |         |  
|--------------------------------------------------------------------------------- |  | ---------------------------- | ------ | - | ---- | - | ------- | -
|                                                                                  |  | 39 Weeks Ended September 30, |       
|                                                                                  |  | 2003                         |        |   | 2004 |  
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                              |        |   |      |   |         |  
|Net income                                                                        |  | $                            | 6,351  |   |      | $ | 3,209   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                              |        |   |      |   |         |  
|Depreciation and amortization of property and intangible assets                   |  |                              | 9,398  |   |      |   | 9,901   |  
|(Gain) loss on disposal of assets                                                 |  |                              | 17     |   |      |   | (393    | )
|Asset impairment                                                                  |  |                              |        |   |      |   | 588     |  
|Amortization of deferred financing costs                                          |  |                              | 363    |   |      |   | 940     |  
|Changes in operating assets and liabilities:                                      |  |                              |        |   |      |   |         |  
|Notes and accounts receivablenet                                                 |  |                              | (388   | ) |      |   | (215    | )
|Inventories                                                                       |  |                              | (34    | ) |      |   | 171     |  
|Prepaid expenses and other current assets                                         |  |                              | (732   | ) |      |   | (305    | )
|Income taxes receivable/payable                                                   |  |                              | 1,775  |   |      |   | 1,254   |  
|Other assets                                                                      |  |                              | (139   | ) |      |   | (68     | )
|Accounts payable                                                                  |  |                              | 3,472  |   |      |   | 592     |  
|Accrued salaries and vacation                                                     |  |                              | 57     |   |      |   | (586    | )
|Accrued insurance                                                                 |  |                              | 1,464  |   |      |   | 542     |  
|Accrued interest                                                                  |  |                              | (349   | ) |      |   | 2,768   |  
|Accrued advertising                                                               |  |                              | (534   | ) |      |   | (279    | )
|Other accrued expenses and current liabilities                                    |  |                              | 645    |   |      |   | 248     |  
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash provided by operating activities                                         |  |                              | 21,366 |   |      |   | 18,367  |  
|                                                                                  |  |                              |        |   |      |   |         |  
|CASH FLOW FROM INVESTING ACTIVITIES:                                              |  |                              |        |   |      |   |         |  
|Proceeds from asset disposition                                                   |  |                              | 3      |   |      |   | 1,295   |  
|Purchase of franchise restaurantsnet of cash acquired                            |  |                              | (1,288 | ) |      |   | (2,421  | )
|Purchase of property                                                              |  |                              | (7,498 | ) |      |   | (9,248  | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash used in investing activities                                             |  |                              | (8,783 | ) |      |   | (10,374 | )
|                                                                                  |  |                              |        |   |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                              |        |   |      |   |         |  
|Payment of obligations under capital leases                                       |  |                              | (794   | ) |      |   | (913    | )
|Payments on notes payable                                                         |  |                              | (6,229 | ) |      |   | (2,962  | )
|Deferred financing costs                                                          |  |                              |       |   |      |   | (1,473  | )
|                                                                                  |  |                              |        |   |      |   |         |  
|Net cash used in financing activities                                             |  |                              | (7,023 | ) |      |   | (5,348  | )
|                                                                                  |  |                              |        |   |      |   |         |  



(Continued)



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EL POLLO LOCO, INC.

(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)



CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)



|                                                                                             |  |                              |       |      |   |       |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | ----- | ---- | - | ----- | -
|                                                                                             |  | 39 Weeks Ended September 30, |      
|                                                                                             |  | 2003                         |       | 2004 |  
|INCREASE IN CASH AND CASH EQUIVALENTS                                                        |  | $                            | 5,560 |      | $ | 2,645 |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                               |  |                              | 2,895 |      |   | 5,353 |  
|                                                                                             |  |                              |       |      |   |       |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                     |  | $                            | 8,455 |      | $ | 7,998 |  
|                                                                                             |  |                              |       |      |   |       |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid (received) during the period for: |  |                              |       |      |   |       |  
|Interest                                                                                     |  | $                            | 2,875 |      | $ | 5,590 |  
|                                                                                             |  |                              |       |      |   |       |  
|Income taxes                                                                                 |  | $                            | 2,449 |      | $ | (79   | )
|                                                                                             |  |                              |       |      |   |       |  



SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:



As of September 30, 2004, the Company had included in
accounts payable $257 of unpaid deferred financing costs.



(Concluded)



See accompanying notes to condensed
financial statements.



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EL POLLO LOCO, INC.

(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)



NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)



1. Basis of Presentation



The accompanying condensed financial statements are unaudited. El Pollo Loco, Inc. (the Company) prepared these condensed financial statements in accordance with the Securities and Exchange Commissions instructions for
Quarterly Reports on Form 10-Q. 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
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 financial statements should be read in conjunction with the Companys audited financial statements and the related notes
thereto included in the Companys Registration Statement on Form S-4/A (File No. 333-115486) as filed with the Securities and Exchange Commission on August 11, 2004.



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 2003, which ended December 31, 2003,
was a 53-week fiscal year. Fiscal year 2004, which will end December 29, is a 52-week fiscal year. For simplicity of presentation, the Company has described the 13 week and 39 week periods ended September 24, 2003 and September 29, 2004 as September
30, 2003 and 2004, respectively.



The Company is a wholly-owned
subsidiary of EPL Intermediate, Inc. (EPLI), which is a wholly-owned subsidiary of EPL Holdings, Inc. (Holdings).



2. Sale and Acquisitions of Restaurants



In April 2004, the Company acquired the assets of two previously franchised restaurants (Cathedral City restaurants). The purchase price of $2.4 million
consisted of cash and was accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards (SFAS) No. 141, Business Combinations. In September 2004, the Company finalized its
allocation of the purchase price to the fair value of the acquired assets as follows: property, $1.3 million and goodwill $1.1 million. These amounts are substantially the same as the Companys preliminary allocation. Results of operations of
the Cathedral City restaurants are included in the Companys financial statements beginning April 2004.



In September 2004, the Company sold two restaurants to a franchisee for a total of $1.0 million. These restaurants had an aggregate net book value of $0.6
million, and after selling expenses of $0.1 million, the Company realized a $0.3 million gain that is included in other operating expenses in the accompanying condensed statements of income and comprehensive income.



3. Asset Impairment



The Company periodically reviews the performance of company-operated stores for indicators of asset impairment. If the
Company concludes that the carrying value of certain assets will not be recovered based on expected undiscounted future cash flows, an impairment write-down is recorded to reduce the assets to their estimated fair value. As a result of this review,
the Company recorded an impairment charge of $0.6 million in September 2004 for one under-performing company-operated store that will continue to be operated. The impairment charge is included in other operating expenses in the accompanying
condensed statements of income and comprehensive income.



4. Stock-Based
Compensation



The Company uses the intrinsic value method
to account for employee stock options in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Under APB Opinion No. 25, the Company does not recognize compensation expense related to employee stock options if the
exercise price of the options is equal to or greater than the market price of the underlying stock on the date of grant.



SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, the recognition of compensation expense for employee
stock-based compensation arrangements using the minimum value method of accounting. The Company has elected the disclosure only alternative permitted by SFAS No. 123 and has disclosed pro forma net income amounts using the minimum value
method.



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##### Table of Contents

Had compensation expense for the stock options in Holdings issued to and held by the Companys
employees and one member of the Companys board of directors been recognized based on the minimum value on the grant date under the methodology prescribed by SFAS No. 123, the Companys net income for the periods ended September 30, 2003
and 2004 would have been impacted as shown in the following table (in thousands):



|                                                                                                                                           |  |                              |       |                              |   |       |  |      |       |  |   |      
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------- | ----- | ---------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                                                                                                                                           |  | 13 Weeks Ended September 30, |       | 39 Weeks Ended September 30,
|                                                                                                                                           |  | 2003                         |       | 2004                         |   | 2003  |  | 2004
|Net income as reported                                                                                                                     |  | $                            | 2,903 |                              | $ | 1,686 |  | $    | 6,351 |  | $ | 3,209
|Deduct:                                                                                                                                    |  |                              |       |                              |   |       |  |      |       |  |   |      
|Total stock based employee compensation expense determined under the minimum value based method for all awards, net of related tax
effects |  |                              | 39    |                              |   | 18    |  |      | 118   |  |   | 53   
|                                                                                                                                           |  |                              |       |                              |   |       |  |      |       |  |   |      
|Pro forma net income                                                                                                                       |  | $                            | 2,864 |                              | $ | 1,668 |  | $    | 6,233 |  | $ | 3,156
|                                                                                                                                           |  |                              |       |                              |   |       |  |      |       |  |   |      



The minimum value of
each option grant is estimated on the grant date using the following assumptions for the 39 weeks ended September 30, 2003 and 2004: risk-free interest rate of 3.74% and 3.75%, respectively; expected volatility of 0% for each period; an expected
option life of 7.4 and 6.8 years, respectively, for each period; and no expected dividends for each period.



5. Senior Secured Notes Payable



On December 19, 2003, the Company issued $110.0 million aggregate principal amount of senior secured notes due 2009 (Senior Secured Notes) in a private offering. Interest accrues at 9.25% per annum and is payable semi-annually
in June and December. Principal is due December 18, 2009. On September 16, 2004 the Company completed the exchange of 100% of the outstanding principal of the Senior Secured Notes for registered, publicly tradable notes that have substantially
identical terms as the Senior Secured Notes. The Senior Secured Notes are secured by a second-priority lien on substantially all of the Companys and EPLIs assets and a second priority pledge from EPLI of all its outstanding stock of the
Company. The Company may, at its option, redeem some or all of the Senior Secured Notes prior to their maturity.



The Company incurred approximately $6.0 million of direct costs in connection with this offering. These costs have been capitalized and are included in
other intangible assets as deferred financing costs in the accompanying condensed balance sheets. Concurrent with the closing of the Senior Secured Notes, the Company amended its previously existing bank credit facility as described in Note 6.



The Company used $39.5 million of the proceeds from the Senior
Secured Notes offering to reduce its previously existing bank notes payable and used $70.0 million of the proceeds to pay a dividend to EPLI. EPLI applied the proceeds from the dividend to repurchase all of the outstanding shares of its preferred
stock in an aggregate amount of $20.1 million and to make a distribution to Holdings in the amount of $49.9 million, which Holdings subsequently distributed to its shareholders. In connection with that distribution, Holdings reduced the exercise
price of outstanding common stock options in Holdings previously issued to Company management and one member of the Companys Board of Directors (the Option Holders). In addition, the Company accrued in December 2003 and paid the
Option Holders in January 2004 $1.9 million in bonuses. The Company will make additional cash bonus payments to the Option Holders related to the revaluation of the stock options at various times through 2009 subject to their continued employment
and other conditions; these payments are estimated to aggregate approximately $1.1 million. The combined effect of the reduction in the exercise price of the options and the cash bonus payments is to restore the approximate economic position of the
Option Holders to that existing immediately before the dividend to the shareholders of Holdings.



6. SunTrust Bank Credit Facility



In connection with the Senior Secured Notes offering discussed in Note 5, the Companys Credit Facility with SunTrust Bank was amended on December 19, 2003. The amended Credit Facility consists of a $15.0 million
revolving loan (the Revolver) and an $11.0 million term loan (the Term Loan and together with the Revolver, the Amended Credit Facility). The Revolver has a $10.0 million sub-limit for letters of credit and a $5.0
million sub-facility. The Revolver and Term Loan mature on December 31, 2006. Availability of credit under the Revolver is governed by a borrowing base, determined as a multiple of earnings before interest, taxes, depreciation and amortization
(EBITDA), as defined in the agreement. The Amended Credit Facility is secured by a first-priority pledge by Holdings of all of the outstanding stock of EPLI, a first priority pledge by EPLI of all of the Companys outstanding stock
and a first priority security interest in substantially all the Companys tangible and intangible assets. In addition, the Amended Credit Facility is guaranteed by EPLI and Holdings.



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At December 31, 2003 and September 30, 2004, the Company had $11.0 million and $9.2 million,
respectively, outstanding under the Term Loan. At December 31, 2003 and September 30, 2004, the Company did not have any borrowings outstanding under the Revolver, but did have $4.6 million and $6.3 million in outstanding letters of credit at
December 31, 2003 and September 30, 2004, respectively. As of December 31, 2003 and September 30, 2004, the Company had $10.4 million and $8.7 million available for borrowing under the revolver, respectively.



7. EPL Intermediate, Inc. Senior Discount Notes



In March of 2004, EPLI sold $70.0 million in aggregate principal amount at
maturity of 121/2% Senior Discount Notes due 2010 (the Intermediate Notes). The Intermediate Notes
are unsecured. EPLI realized gross proceeds of $39.0 million from the sale of the Intermediate Notes. After offering expenses of approximately $2.0 million, the net proceeds of approximately $37.0 million were used to make a cash distribution to
Holdings, which applied the proceeds to pay a cash dividend to its stockholders. In connection with this transaction, the Company incurred approximately $1.3 million in expenses in April 2004 related to the revaluation of options it previously
issued to the Option Holders to purchase shares of common stock of Holdings. The Company will make additional cash bonus payments to the Option Holders related to the revaluation of the stock options at various times through 2009 subject to their
continued employment and other conditions; these payments are estimated to aggregate approximately $1.0 million. The combined effect of the reduction in the exercise price of the options and the cash bonus payments is to restore the approximate
economic position of the Option Holders to that existing immediately before the dividend to the shareholders of Holdings.



Although the Company is not obligated to pay any of EPLIs obligations related to the Intermediate Notes, EPLI is a holding company whose only
material asset is the Companys outstanding common stock. Therefore, the principal source of the cash required to pay the obligations of EPLI is the cash that the Company generates from its operations. No cash interest will accrue on the
Intermediate Notes prior to March 15, 2009. Instead, the principal value of the Intermediate Notes will increase (representing accretion of original issue discount) from the date of original issuance until but not including March 15, 2009 at a rate
of 121/2% per annum compounded annually, so that the accreted value of the Intermediate Notes on March 15, 2009
will be equal to the full principal amount at maturity. Beginning on March 15, 2009, cash interest will accrue on the Intermediate Notes at an annual rate of 121/2% per annum payable in arrears on March 15, 2010. Principal is also due March 15, 2010.



8. Income Taxes



The Company recorded a provision for income taxes of $1.8 million and $0.1 million for the 13 weeks ended September 30, 2003 and 2004, respectively, and
$4.2 million and $1.2 million for the 39 weeks ended September 30, 2003 and 2004, respectively. The effective tax rate for the 13 weeks and 39 weeks ended September 30, 2003 was 38.6% and 39.9%, respectively; the effective tax rate for the 13 weeks
and 39 weeks ended September 30, 2004 was 6.3% and 26.8%, respectively. The 2004 periods effective tax rates were impacted by the reversal of a prior year reserve in the third quarter of 2004 in the amount of $0.6 million related to the
resolution of uncertainty regarding certain outstanding tax items that had given rise to a reserve.



9. Commitments and Contingencies



There are various claims and pending legal actions against or indirectly involving the Company, including claims asserted by employees and other matters. It is the opinion of management, after considering a number of
factors, including but not limited to the current status of litigation (including any settlement discussions), the views of retained counsel, the nature of the litigation, the prior experience of the Company and the amounts that the Company has
accrued for known contingencies, that the ultimate disposition of these matters will not materially affect the financial position or results of operations of the Company.



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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 financial statements and related notes thereto included elsewhere in
this filing. This report contains certain forward-looking statements within the meaning of federal securities laws. See Forward-looking Statements above.



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 13 week and 39 week periods ended September 24, 2003 and September 29, 2004 as September 30, 2003 and 2004, 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. Approximately every six or seven years a 53-week fiscal year occurs. Fiscal year 2003, which ended December 31, 2003, was a 53-week
fiscal year. Because fiscal year 2003 had 53 weeks as compared to a normal 52 weeks, we have included in this report same-store sales comparisons for periods in 2003 compared to 2004 on a calendar month basis. Therefore, the third quarter fiscal
year 2003 and 2004 same store sales comparisons compare weeks 28 through 40 of fiscal 2003 with weeks 27 through 39 of fiscal 2004 because fiscal 2003 had 53 weeks as compared to a normal 52 weeks. Similarly, the first nine months 2003 and 2004 same
store sales comparison compare weeks 2 through 40 of fiscal 2003 with weeks 1 through 39 of fiscal 2004. Unless otherwise indicated, all other comparisons under this heading between the third quarters and first nine months of fiscal years 2003 and
2004 refer to the 13-week and 39-week periods ended September 30, 2003 and 2004, respectively. References to our restaurant system 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



El Pollo Loco, Inc. (the Company, we, us and our) owns, operates and
franchises quick service restaurants (QSR) specializing in marinated flame-grilled chicken. As of September 30, 2004, our restaurant system had 322 restaurants, consisting of 138 company-operated and 184 franchised locations, located
principally in California, with additional restaurants in Arizona, Nevada and Texas. In the third quarter of 2004, we opened one new company-operated and four new franchise restaurants and we sold two company operated restaurants to a franchisee.
Our typical restaurant is a freestanding building ranging from approximately 2,200 to 2,600 square feet with seating for approximately 60 customers and allowing drive-thru service.



Our total revenue is derived from two primary sources, company-operated restaurant revenue and franchise revenue, the latter
of which is comprised principally of franchise royalties, franchise fees and sublease rental income. For the 39 weeks ended September 30, 2004, same-store sales for restaurants systemwide increased 8.3% over the 39 weeks ended September 30, 2003.
This nine-month result decreased from the 10.4% same-store sales increase for restaurants systemwide in the second quarter of fiscal 2004. We believe that short term period comparable sales will be further adversely impacted as we compare against
strong numbers in prior year periods.



The increase in
company-operated restaurant revenue is due to growth in new company-operated restaurants and to increases in same-store sales, which includes price increases over this period. We expect to open four to eight company-operated restaurants per year
over the next few years, which is consistent with our company-operated restaurant growth. Many 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.



Franchise revenue consists of royalties, initial franchise fees and franchise rental income. Royalties average 4% of the franchisees net sales. We believe that new franchise restaurant growth will increase as we
sign development agreements with experienced franchisees in new and existing markets. We currently have the approvals necessary to market to both new and existing franchisees in all states except Virginia. In fiscal years 2003 and 2004, we entered
into area development agreements that, beginning in the fourth quarter of 2004 but primarily in fiscal years 2005, 2006 and 2007, will result in area development fees being recognized when the related restaurants open. 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 includes food and paper costs. This expense is our largest single expense, is subject to increase or decrease based on commodity cost
changes, and depends in part on the success of controls we have in place to manage product cost in the restaurants. In February 2004, our contracts with our chicken suppliers expired. We entered into new one-year contracts with our current suppliers
that expire in February 2005 that increased the price that we pay for chicken. We estimate that the higher contract prices will increase our product cost by over $1.7 million for fiscal year 2004. In anticipation of increased chicken prices, we
implemented menu price increases averaging 1.0% in January 2004. In addition, based on current market conditions, we believe that the cost of chicken could increase again when these one-year contracts expire.



Payroll and benefits make up the next largest single expense. Payroll and
benefits have been and remain subject to inflation, including salaries due to minimum wage increases and expenses for health insurance and workers compensation insurance. Workers compensation insurance costs are subject to a number of
factors, and although the state of California recently passed legislation designed to reduce workers compensation insurance expense to employers, we cannot predict whether such legislation will actually reduce our workers compensation
insurance expense. We have continued to see a reduction in the number of workers compensation claims due to employee safety initiatives that we began implementing in fiscal year 2003.



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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 to some degree
based on rents that are tied to a percentage of sales calculation. Since 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 has increased and is expected to continue to increase as a result of our sale of $110.0 million in aggregate principal
amount of 91/4% Senior Secured Notes due 2009 (the Senior Secured Notes) and EPL Intermediate,
Inc.s sale of $70.0 million in aggregate principal amount at maturity of 121/2% Senior Discount Notes due
2010 (the Intermediate Notes) and the exchange of both notes for registered notes under the Securities Act of 1933, as amended. We have incurred and will incur additional expenses due to rating agency fees, higher directors and officers
insurance, compliance with laws relating to corporate governance and public disclosure, and to the revaluation of common stock options of EPL Holdings, Inc. as a result of these two transactions. In addition, in the first nine months of fiscal year
2004, we began to incur additional costs associated with developing disclosure controls and procedures and implementing the level of internal controls required for a company with registered securities. We expect these costs to increase in future
periods. General and administrative expense has increased as a result of the new bonus arrangements that we implemented in connection with the sale of the Senior Secured Notes and the Intermediate Notes.



In December of 2003, we offered and sold the Senior Secured Notes. We used
the gross proceeds from the sale of such notes, along with cash on hand, to reduce our outstanding bank debt by $39.5 million, to make a cash distribution to our parent, EPL Intermediate, Inc., in the amount of $70.0 million and to pay
transaction-related fees and expenses of $6.0 million. EPL Intermediate, Inc. applied the proceeds received from us to repurchase all of the outstanding shares of its preferred stock in an aggregate amount of $20.1 million and to make a distribution
to its parent, EPL Holdings, Inc., in the amount of $49.9 million. EPL Holdings, Inc. applied the proceeds received from EPL Intermediate, Inc. to make a dividend on its outstanding common stock. In connection with the sale of the Senior Secured
Notes, we amended our senior credit agreement, which now provides for an $11.0 million term loan facility and a $15.0 million revolving credit facility (which was undrawn as of September 30, 2004, except for $6.3 million in outstanding letters of
credit).



In March of 2004, our parent, EPL Intermediate, Inc.,
offered and sold the Intermediate Notes. The net proceeds of the offering, after deducting expenses, were approximately $37 million, which EPL Intermediate, Inc. used to make a cash dividend to EPL Holdings, Inc. EPL Holdings, Inc. used the proceeds
received from EPL Intermediate, Inc. to make a dividend on its outstanding common stock. Although we are not obligated to pay any of EPL Intermediate, Inc.s obligations, EPL Intermediate, Inc. is a holding company whose only material asset is
our outstanding common stock. Therefore, the principal source of the cash required to pay the obligations of EPL Intermediate, Inc. is the cash that we generate from our operations.



Results of Operations



Our operating results for the 13 weeks ended September 30, 2003 and 2004 are expressed as a percentage of restaurant revenue below:



|                                     |  |                              |   |  |       |  
|------------------------------------ |  | ---------------------------- | - |  | ----- | -
|                                     |  | 13 Weeks Ended September 30, |  
|                                     |  | 2003                         |   |  | 2004  |  
|Income Statement Data:               |  |                              |   |  |       |  
|Restaurant revenue                   |  | 100.0                        | % |  | 100.0 | %
|Product cost                         |  | 30.1                         |   |  | 31.8  |  
|Payroll and benefits                 |  | 27.3                         |   |  | 26.5  |  
|Depreciation and amortization        |  | 6.6                          |   |  | 6.6   |  
|Other operating expenses             |  | 30.6                         |   |  | 32.0  |  
|Operating income                     |  | 12.3                         |   |  | 10.2  |  
|Interest expense                     |  | 2.9                          |   |  | 6.8   |  
|Income before income taxes           |  | 9.4                          |   |  | 3.4   |  
|Net income                           |  | 5.8                          |   |  | 3.2   |  
|                                     |  |                             
|Supplementary Income Statement Data: |  |                              |   |  |       |  
|Restaurant other operating expense   |  | 20.5                         |   |  | 20.3  |  
|Franchise expense                    |  | 1.8                          |   |  | 1.6   |  
|General and administrative expense   |  | 8.3                          |   |  | 10.1  |  
|Total other operating expenses       |  | 30.6                         |   |  | 32.0  |  



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13 Weeks Ended September 30, 2004 Compared to 13 Weeks Ended September 30, 2003



Restaurant revenue increased $2.4 million, or 4.8%, to $52.7 million for
the 13 weeks ended September 30, 2004 from $50.3 million for the 13 weeks ended September 30, 2003. This increase was primarily due to an additional $1.6 million in restaurant revenue resulting from a 3.3% increase in company-operated same-store
sales for the 2004 period from the 2003 period. The same store sales increase was primarily due to a stronger economy, new product introductions and menu price increases averaging 1% in each of January and September of 2004. Restaurants enter the
comparable restaurant base for same-store sales the first full week after that restaurants one-year anniversary. The increase in restaurant revenue was also due in part to $1.7 million in sales generated from three restaurants that opened in
2004 and two franchise restaurants that were acquired by the Company in 2004, combined with $0.3 million from one restaurant opened and one restaurant acquired from a franchisee in fiscal 2003. Restaurant revenue was reduced $0.2 million by the
closure of a restaurant and by the sale to a franchisee of two restaurants in 2004 and $0.8 million by the sale to franchisees of two restaurants and the closure of one restaurant in fiscal 2003.



Franchise revenue increased $0.3 million, or 8.6%, to $3.8 million for the 13
weeks ended September 30, 2004 from $3.5 million for the 13 weeks ended September 30, 2003. This increase is primarily due to an increase in royalties resulting from a 5.2% increase in franchise same-store sales.



Product cost increased $1.7 million, or 10.9%, to $16.8 million for the 13
weeks ended September 30, 2004 from $15.1 million for the 13 weeks ended September 30, 2003. These costs as a percentage of restaurant revenue were 31.8% for the 2004 period compared to 30.1% for the 2003 period. This 1.7% increase resulted
primarily from chicken prices increasing 1.0% as a percentage of restaurant revenue as our new chicken contract took effect in March.



Payroll and benefit expenses increased $0.3 million, or 2.0%, to $14.0 million for the 13 weeks ended September 30, 2004 from $13.7 million for the 13
weeks ended September 30, 2003. The increase in these costs is due to $0.3 million resulting from net two additional restaurants. However, as a percentage of restaurant revenue, these costs decreased 0.8% to, 26.5% for the 2004 period from 27.3% for
the 2003 period. This decrease was due primarily to the positive impact same-store sales in the 2004 period had on labor costs as we added a lower percentage of labor to support incremental sales at existing restaurants.



Depreciation and amortization increased $0.2 million, or 4.9%, to $3.5
million for the 13 weeks ended September 30, 2004 compared to $3.3 million for the 13 weeks ended September 30, 2003. These costs as a percentage of restaurant revenue remained the same at 6.6% for the 2004 and 2003 periods.



Restaurant other operating expense, which includes utilities, repair and
maintenance, advertising, property taxes, occupancy and other operating expenses, increased $0.4 million, or 3.9%, to $10.7 million for the 13 weeks ended September 30, 2004 from $10.3 million for the 13 weeks ended September 30, 2003. These costs
as a percentage of restaurant revenue decreased 0.2% to 20.3% for the 2004 period from 20.5% for the 2003 period. The increase in operating costs is due primarily to an impairment charge of $0.6 million, which was recorded by the Company for one
under-performing company-operated store that will continue to operate, partially offset by a gain of $0.3 million from the sale of two company stores to a franchisee. There was also an increase in operating costs from the prior year that included a
$0.1 million increase of the variable portion of operating expenses to support the higher same store sales in the 2004 period and $0.1 million due to higher occupancy costs.



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 $0.1 million, or 10.0%, to $0.8 million
for the 13 weeks ended September 30, 2004 compared to $0.9 million for the 13 weeks ended September 30, 2003.



General and administrative expense increased $1.1 million, or 27.7%, to $5.3 million for the 13 weeks ended September 30, 2004 from $4.2 million for the
13 weeks ended September 30, 2003. The largest component of the increase is due to $0.3 million in expenses for bonuses paid and accrued for option holders related to the revaluation of stock options. In addition, legal fees increased $0.1 million,
general liability increased $0.1 million and additional headcount and raises increased salary expense by $0.2 million for the 2004 period. General and administrative expense as a percentage of revenue was 10.0% and 8.3% for the thirteen weeks ended
September 30, 2004 and 2003, respectively.



Interest expense,
net of interest income, increased $2.1 million, or 140.7%, to $3.6 million for the 13 weeks ended September 30, 2004 from $1.5 million for the 13 weeks ended September 30, 2003. This increase is due to $2.5 million in additional interest expense
related to our issuance of the Senior Secured Notes in December 2003; this amount includes $0.4 million related to amortization of deferred financing costs. This increase is partially offset by $0.6 million in reduced interest expense due to lower
outstanding balances on our term loan under our senior credit facility. Our average debt balances for the 2004 period increased to $130.7 million compared to $66.0 million for the 2003 period and our average interest rate increased to 8.86% for the
2004 period compared to 3.47% for the 2003 period.



Our
provision for income taxes consisted of income tax expense of $0.1 million and $1.8 million for the 13 weeks ended September 30, 2004 and 2003, respectively, or an effective tax rate of 6.3% for 2004 and 38.6% for 2003. The 2004 periods
effective tax rate was impacted by the reversal of a prior year reserve in the amount of $0.6 million related to the resolution of uncertainty regarding certain outstanding tax items that had given rise to a reserve.



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Net income as a percentage of restaurant revenue decreased to 3.2% for the 13 weeks ended September 30,
2004 compared to 5.8% for the 13 weeks ended September 30, 2003 primarily due to higher interest expense and increased general and administrative expenses.



Our operating results for the 39 weeks ended September 30, 2003 and 2004 are expressed as a percentage of restaurant revenue below:



|                                     |  |                              |   |  |       |  
|------------------------------------ |  | ---------------------------- | - |  | ----- | -
|                                     |  | 39 Weeks Ended September 30, |  
|                                     |  | 2003                         |   |  | 2004  |  
|Income Statement Data:               |  |                              |   |  |       |  
|Restaurant revenue                   |  | 100.0                        | % |  | 100.0 | %
|Product cost                         |  | 30.2                         |   |  | 31.4  |  
|Payroll and benefits                 |  | 28.0                         |   |  | 27.1  |  
|Depreciation and amortization        |  | 6.7                          |   |  | 6.4   |  
|Other operating expenses             |  | 31.3                         |   |  | 32.4  |  
|Operating income                     |  | 10.8                         |   |  | 9.7   |  
|Interest expense                     |  | 3.3                          |   |  | 6.9   |  
|Income before income taxes           |  | 7.5                          |   |  | 2.8   |  
|Net income                           |  | 4.5                          |   |  | 2.1   |  
|                                     |  |                             
|Supplementary Income Statement Data: |  |                              |   |  |       |  
|Restaurant other operating expense   |  | 20.6                         |   |  | 19.9  |  
|Franchise expense                    |  | 1.8                          |   |  | 1.7   |  
|General and administrative expense   |  | 8.9                          |   |  | 10.8  |  
|Total other operating expenses       |  | 31.3                         |   |  | 32.4  |  



39 Weeks Ended
September 30, 2004 Compared to 39 Weeks Ended September 30, 2003



Restaurant revenue increased $15.0 million, or 10.7%, to $155.3 million for the 39 weeks ended September 30, 2004 from $140.3 million for the 39 weeks ended September 30, 2003. This increase was primarily due to an
additional $10.1 million in restaurant revenue resulting from a 7.3% increase in company-operated same-store sales for the 2004 period from the 2003 period, which was primarily due to a stronger economy, new product introductions and menu price
increases averaging 1% in each of January and September of 2004. The increase in restaurant revenue was also due in part to $3.1 million in sales generated from three restaurants we opened in 2004 and two franchise restaurants that we acquired in
2004 combined with $3.6 million from four restaurants we opened and one restaurant we acquired from a franchisee in fiscal 2003. Restaurant revenue was reduced $0.3 million due to our closing a restaurant and by our sale to a franchisee of two
company restaurants in 2004 and $2.2 million by our sale to franchisees of two restaurants and our closing one restaurant in fiscal 2003.



Franchise revenue increased $1.0 million, or 9.8%, to $10.7 million for the 39 weeks ended September 30, 2004 from $9.7 million for the 39 weeks ended
September 30, 2003. This increase is primarily due to an increase in royalties resulting from a 9.1% increase in franchise same-store sales.



Product cost increased $6.4 million, or 15.1%, to $48.8 million for the 39 weeks ended September 30, 2004 from $42.4 million for the 39 weeks ended
September 30, 2003. These costs as a percentage of restaurant revenue increased 1.2% to 31.4% for the 2004 period from 30.2% for the 2003 period. This increase is primarily due to chicken prices increasing 1.0% as a percentage of restaurant revenue
as our new contract took effect in March.



Payroll and benefit
expenses increased $2.8 million, or 7.0%, to $42.0 million for the 39 weeks ended September 30, 2004 from $39.2 million for the 39 weeks ended September 30, 2003. The increase in these costs is due to $1.5 million resulting from additional hourly
labor to support increased same-store sales and $1.3 million resulting from net four additional restaurants. However, as a percentage of restaurant revenue, these costs decreased 0.9% to, 27.1% for the 2004 period from 28.0% for the 2003 period.
This decrease was due primarily to the positive impact same-store sales in the 2004 period had on labor costs as we added a lower percentage of labor to support incremental sales at existing restaurants.



Depreciation and amortization increased $0.5 million, or 5.4%, to $9.9
million for the 39 weeks ended September 30, 2004 compared to $9.4 million for the 39 weeks ended September 30, 2003. These costs as a percentage of restaurant revenue decreased 0.3% to 6.4% for the 2004 period compared to 6.7% for the 2003 period.
This percentage decrease is primarily due to the increased same-store sales as this expense is relatively fixed and does not fluctuate with changes in sales volumes.



Restaurant other operating expense, which includes utilities, repair and maintenance, advertising, property taxes, occupancy
and other operating expenses, increased $2.1 million, or 7.1%, to $31.0 million for the 39 weeks ended September 30, 2004 from $28.9 million for the 39 weeks ended September 30, 2003. The increase in these costs is due to $1.0 million resulting from
the net four additional restaurants, $0.8 million related to expenses that are proportionally tied to increased same store sales due to the variable nature of the expenses, an impairment



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charge of $0.6 million, which was recorded by the Company for one under-performing company-operated store that will
continue to operate and increased advertising expenses of $0.3 million in the 2004 period, offset by lower operating supplies costs of $0.2 million and a gain on sale of $0.3 in the 2004 period. These costs as a percentage of restaurant revenue
decreased 0.7% to 19.9% for the 2004 period from 20.6% for the 2003 period, which can be attributed to the higher same store sales leverage on the relatively fixed portion of these costs.



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 increased $0.1 million, or 2.8%, to $2.6 million for
the 39 weeks ended September 30, 2004 compared to $2.5 million for the 39 weeks ended September 30, 2003 due to the $0.3 million of expenses incurred to participate in certain Chicago food festivals to support our franchisees expansion into
this market.



General and administrative expense increased $4.3
million, or 34.2%, to $16.7 million for the 39 weeks ended September 30, 2004 from $12.4 million for the 39 weeks ended September 30, 2003. This increase was due to $2.1 million in expenses for bonuses paid or accrued for option holders related to
the revaluation of stock options and increased legal fees of $0.6 million. Salary and bonus increases and the filling of vacant supervisor and support staff positions also resulted in $0.1 million and $0.6 million, respectively, of the increase.



Interest expense, net of interest income, increased $6.1
million, or 133.7%, to $10.7 million for the 39 weeks ended September 30, 2004 from $4.6 million for the 39 weeks ended September 30, 2003. This increase is due to $7.6 million in additional interest expense related to our issuance of the Senior
Secured Notes in December 2003; this amount includes $0.9 million related to amortization of deferred financing costs. This increase is partially offset by $1.8 million in reduced interest expense due to lower outstanding balances on our term loan
under our senior credit facility. Our average debt balances for the 2004 period increased to $131.6 million compared to $68.2 million for the 2003 period and our average interest rate increased to 8.8% for the 2004 period compared to 3.48% for the
2003 period.



Our provision for income taxes consisted of
income tax expense of $1.2 million and $4.2 million for the 39 weeks ended September 30, 2004 and 2003, respectively, or an effective tax rate of 26.8% and 40.0% respectively. The 2004 periods effective tax rate was impacted by the reversal of
a prior year reserve in the amount of $0.6 million related to the resolution of uncertainty regarding certain outstanding tax items that had given rise to a reserve.



Net income as a percentage of restaurant revenue decreased to 2.1% for the 39 weeks ended September 30, 2004 compared to
4.5% for the 39 weeks ended September 30, 2003 primarily due to higher interest expense, the bonus expense incurred related to the revaluation of options and increased legal expense.



Liquidity and Capital Resources



Our principal liquidity requirements are to service our debt and meet our capital expenditure needs. Our indebtedness at September 30, 2004 was $129.1
million. Our ability to make payments on and to refinance our indebtedness, and to fund planned capital expenditures will depend on our ability to generate cash 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 and available borrowings under the $15.0 million revolving portion
of our senior credit facility will be adequate to meet our future liquidity needs for the foreseeable future. Cash and cash equivalents increased $2.6 million from $5.4 million at December 31, 2003 to $8.0 million at September 30, 2004. During the
first nine months of fiscal 2004, we paid $1.5 million in deferred financing costs related to the December 2003 sale of the Senior Secured Notes. We also made cash bonus payments of $1.9 million in January 2004 and $1.3 million in April 2004 related
to the revaluation of stock options in connection with the debt transactions. We do not expect to pay significant additional deferred financing costs, and although we will make cash bonus payments in future years related to the revaluation of stock
options, the amounts paid will aggregate $2.1 million through 2009. In the first nine months of fiscal 2004, we made $3.0 million in principal repayments on our term loan and a cash payment of $5.0 million related to interest expense for the Senior
Secured Notes, which will be paid semiannually through 2009. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our senior credit facility in an amount
sufficient to enable us to service our indebtedness or to fund our other liquidity needs. If we acquire restaurants from franchisees, our debt service requirements could increase. In addition, we may fund restaurant openings through credit received
by 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 Senior Secured Notes and the
Intermediate Notes, on or before maturity. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.



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. As discussed above we spent cash on a number of items directly or
indirectly related to our and our parents debt financings.



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Operating Activities.We had net cash provided by operating activities of $18.4 million for the 39
weeks ended September 30, 2004 compared with net cash provided by operating activities of $21.4 million for the 39 weeks ended September 30, 2003. The decrease in cash provided by operating activities of $3.0 million in the 2004 period compared to
the 2003 period was primarily attributable to decreased net income in the 2004 period, decreased changes in accounts payable, accrued insurance and accrued salaries and vacation balances, offset partially by increased interest accruals in the 2004
period. In January 2004, we made $1.9 million in cash bonus payments related to the revaluation of stock options to acquire shares of the common stock of EPL Holdings, Inc. in connection with the sale of the Senior Secured Notes. An additional $1.3
million in cash was paid in April 2004 to make similar cash bonus payments in connection with the sale of the Intermediate Notes. We also made a cash payment of $5.0 million related to interest expense for the Senior Secured Notes, which will be
paid semiannually through 2009.



Investing Activities.We had net cash used in investing activities of $10.4 million for the 39 weeks ended September 30, 2004 compared with net cash used in investing activities of $8.8 million for the 39 weeks ended September 30, 2003. The increase in cash used in
investing activities of $1.6 million was related to timing of expenditures for new store construction. We also incurred capital expenditures of approximately $2.4 million in 2004 related to the acquisition of two franchise restaurants in the greater
Los Angeles area offset by proceeds from the sale of two company restaurants and land of $1.1 million. We expect to spend approximately $13.9 million in capital expenditures in fiscal 2004, which includes $2.4 million in capital expenditures to
complete the company-operated restaurant remodel program, $1.9 million to continue the rollout of new restaurant computer systems in our company-operated restaurants, $1.4 million to install chicken marinating tumblers in all company-operated
restaurants, $1.7 million for equipment replacements and other capital improvements of company-operated restaurants and approximately $5.9 million to acquire from franchisees and build new company-operated restaurants.



Financing Activities.We had net cash used in financing activities of
$5.4 million for the 39 weeks ended September 30, 2004 compared with net cash used in financing activities of $7.0 million for the 39 weeks ended September 30, 2003. The decrease in cash used in financing activities in the 2004 period was
attributable to $3.3 million less payments on the term loan portion of our senior credit facility offset partially by $1.5 million in deferred financing costs related to the issuance of the Senior Secured Notes that were paid in 2004.



Debt and Other Obligations



Our senior credit facility provides for an $11.0 million term loan and $15.0
million in revolving availability, with a $10.0 million sub limit for letters of credit. In addition, we have $110.0 million outstanding in aggregate principal amount of the Senior Secured Notes.



At September 30, 2004, we had certain secured loan commitments, which were
assumed in connection with purchases of restaurants from franchisees, of approximately $1.7 million.



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



At September 30, 2004, we had outstanding
letters of credit totaling $6.3 million, which served as collateral for our various workers compensation insurance programs.



Franchisees pay a monthly advertising fee of 4% of gross sales for the Los Angeles designated market area or 5% of gross sales for other markets. Pursuant
to our Uniform Franchise Offering Circular, 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.



In connection with the issuance of the Senior Secured Notes and the dividend paid by EPL Holdings, Inc. shortly thereafter, the exercise prices of
outstanding options to purchase shares of the common stock of EPL Holdings, Inc. were adjusted. In addition, we accrued in December 2003 and paid option holders in January 2004 $1.9 million in bonuses. We will make additional cash bonus payments to
the option holders related to the revaluation of the stock options at various times through 2009 subject to continued employment and other conditions, which we estimate will aggregate approximately $1.1 million. The combined effect of the adjustment
to the exercise price and such cash bonus payments was to restore the approximate economic position of such option holders to that existing immediately before the dividend that EPL Holdings, Inc. paid to its stockholders following the sale of the
Senior Secured Notes.



In connection with the issuance of the
Intermediate Notes in March 2004 and the dividend paid by EPL Holdings, Inc. shortly thereafter, the exercise prices of outstanding options to purchase shares of the common stock of EPL Holdings, Inc. were adjusted. In addition, we accrued and paid
option holders in April 2004 $1.3 million in bonuses. We will make additional cash bonus payments to the option holders related to the revaluation of the stock options at various times through 2009 subject to continued employment and other
conditions, which we estimate will aggregate approximately $1.0 million. The combined effect of the adjustment to the exercise price and such cash bonus payments will be to restore the approximate economic position of such option holders to that
existing immediately before the dividend that EPL Holdings, Inc. paid to its stockholders following the sale of the Intermediate Notes.



No cash interest will accrue on the Intermediate Notes prior to March 15, 2009. Instead, the principal value of the Intermediate Notes will increase
(representing accretion of original issue discount) from the date of original issuance until but not including March 15, 2009 at a rate of 121/2% per annum compounded annually, so that the accreted value of the Intermediate Notes on March 15, 2009 will be equal to the full principal amount at maturity. Beginning on March 15, 2009, cash
interest will accrue on the Intermediate Notes at an annual rate of 121/2% per annum payable in arrears on March
15, 2010. Principal is also due March 15, 2010.



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As of September 30, 2004, we were in compliance with all of the covenants contained in our senior credit
facility and in the indenture governing the Senior Secured Notes. As of such date we calculated all relevant ratios under our senior credit facility as follows:



| |  | our ratio of funded debt to Adjusted EBITDA (as such terms are defined in the senior credit agreement) was 3.38 to 1;
| | - | -------------------------------------------------------------------------------------------------------------------------



| |  | our ratio of senior funded debt to Adjusted EBITDA (as such terms are defined in the senior credit agreement) was 0.65 to 1;
| | - | --------------------------------------------------------------------------------------------------------------------------------



| |  | our interest coverage ratio (as such term is defined in the senior credit agreement) was 3.04 to 1; and
| | - | ---------------------------------------------------------------------------------------------------------



| |  | our fixed charge coverage ratio (as such term is defined in the senior credit agreement) was 1.39 to 1.
| | - | ---------------------------------------------------------------------------------------------------------



These four ratios were permitted to be no greater than 4.75 to 1, no greater
than 1.5 to 1, no less than 2.0 to 1 and no less than 1.1 to 1, respectively, as of such date. As of September 30, 2004, we calculated our fixed charge coverage ratio (as such term is defined in the indenture governing the Senior Secured
Notes), the only ratio under our indenture, at 2.90 to 1. Until December 15, 2005, the indenture permits us to incur indebtedness if our fixed charge coverage ratio for the most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such indebtedness was incurred would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds there from), as if such
indebtedness had been incurred at the beginning of such four-quarter period.



In addition, as of September 30, 2004, EPL Intermediate, Inc. calculated its fixed charge coverage ratio under the indenture governing the Intermediate Notes at 2.13 to 1. Such indenture permits EPL Intermediate,
Inc.s restricted subsidiaries (as such term is defined in such indenture), including us, to incur indebtedness, if EPL Intermediate, Inc.s fixed charge coverage ratio for the most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date on which such indebtedness was incurred would have been at least 2.0 to 1, as determined on a pro forma basis (including a pro forma application of the net proceeds
therefrom) as if such indebtedness had occurred at the beginning of such four-quarter period.



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 and contingent liabilities. 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. Refer to our
Registration Statement on Form S-4/A (File No. 333-115486) filed August 11, 2004 for discussion of our critical accounting policies and estimates.



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 our senior credit facility that are payable at floating rates of interest.



We do not consider the change in fair value of our long-term fixed rate debt resulting from a hypothetical 10% fluctuation
in interest rates, as of September 30, 2004 to be material.



Item 4. Controls and Procedures



We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act) that are designed to ensure that information that would be required to be
disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, and that such information is accumulated and communicated to our
management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that
any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.



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As of September 30, 2004, the end of the period covered by this report, we carried out an evaluation,
under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the
foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.



There have been no significant changes in our internal controls over financial reporting or in other factors that have materially affected that are
reasonably likely to materially affect our internal controls over financial reporting subsequent to the date we completed our evaluation.



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PART II



Item 6. Exhibits.



|               |  |                                                                                                                               
|-------------- |  | ------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Documents                                                                                                      
|31.1           |  | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|               | 
|31.2           |  | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                            
|               | 
|32.1           |  | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



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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.



|                        |  |                     |  |                                          
|----------------------- |  | ------------------- |  | -----------------------------------------
|                        |  | EL POLLO LOCO, INC.
|                        |  |                    
|Date: November 15, 2004 |  | By:                 |  | /s/ Stephen E. Carley                    
|                        |  |                     |  | Stephen E. Carley Chief Executive Officer
|                        |  |                    
|                        |  | By:                 |  | /s/ Joseph Stein                         
|                        |  |                     |  | Joseph Stein Chief Financial Officer     



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