Attached files
file | filename |
---|---|
EX-32.2 - EPL Intermediate, Inc. | v184821_ex32-2.htm |
EX-31.1 - EPL Intermediate, Inc. | v184821_ex31-1.htm |
EX-31.2 - EPL Intermediate, Inc. | v184821_ex31-2.htm |
EX-10.1 - EPL Intermediate, Inc. | v184821_ex10-1.htm |
EX-99.1 - EPL Intermediate, Inc. | v184821_ex99-1.htm |
EX-32.1 - EPL Intermediate, Inc. | v184821_ex32-1.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
x QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
quarterly period ended March 31, 2010
or
¨ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from __________ to __________
Commission
File No. 333-115644
EPL
Intermediate, Inc.
(Exact
Name of Registrant as Specified in Its Charter)
Delaware
|
13-4092105
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer
|
Incorporation
or Organization)
|
Identification
No.)
|
3535
Harbor Blvd., Suite 100
|
|
Costa
Mesa, California
|
92626
|
(Address
of Principal Executive Offices)
|
(Zip
Code)
|
(714)
599-5000
(Registrant’s
Telephone Number, Including Area Code)
Not
Applicable
(Former
Name, Address or Fiscal Year if Changed from Last Report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes o No o Not
applicable. Registrant is a voluntary filer.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company, as
defined in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
Accelerated filer o
Non-accelerated filer x Smaller reporting
company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No
x
As of May
17, 2010, the registrant had 100 shares of its common stock, $.01 par value,
outstanding.
TABLE
OF CONTENTS
Item
|
Page
|
||
PART I – FINANCIAL
INFORMATION
|
|||
1.
|
Condensed
Consolidated Financial Statements (Unaudited)
|
3
|
|
2.
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
29
|
|
4T.
|
Controls
and Procedures
|
29
|
|
PART II – OTHER
INFORMATION
|
|||
1.
|
Legal
Proceedings
|
30
|
|
5.
|
Other
Information
|
30
|
|
6.
|
Exhibits
|
31
|
2
Item
1. Financial Statements
EPL
INTERMEDIATE, INC.
(A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts
in thousands)
DECEMBER
30,
|
MARCH
31,
|
|||||||
2009
|
2010
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
and cash equivalents
|
$ | 11,277 | $ | 10,875 | ||||
Restricted
cash
|
131 | 131 | ||||||
Accounts
and other receivables-net
|
9,607 | 6,148 | ||||||
Inventories
|
1,606 | 1,600 | ||||||
Prepaid
expenses and other current assets
|
5,262 | 5,618 | ||||||
Deferred
income taxes
|
327 | 327 | ||||||
Total
current assets
|
28,210 | 24,699 | ||||||
PROPERTY
OWNED—Net
|
77,344 | 77,034 | ||||||
PROPERTY
HELD UNDER CAPITAL LEASES—Net
|
524 | 485 | ||||||
GOODWILL
|
249,924 | 249,924 | ||||||
DOMESTIC
TRADEMARKS
|
91,788 | 91,788 | ||||||
OTHER
INTANGIBLE ASSETS—Net
|
1,900 | 1,774 | ||||||
OTHER
ASSETS
|
12,200 | 11,487 | ||||||
TOTAL
ASSETS
|
$ | 461,890 | $ | 457,191 |
See
notes to condensed consolidated financial statements
(unaudited).
|
(continued)
|
3
EPL
INTERMEDIATE, INC.
(A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(Amounts
in thousands, except share data)
DECEMBER
30,
|
MARCH
31,
|
|||||||
2009
|
2010
|
|||||||
LIABILITIES
AND STOCKHOLDER'S EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Current
portion of obligations under capital leases
|
$ | 341 | $ | 276 | ||||
Accounts
payable
|
20,607 | 13,459 | ||||||
Accrued
salaries
|
4,289 | 2,657 | ||||||
Accrued
vacation
|
2,010 | 2,109 | ||||||
Accrued
insurance
|
1,545 | 1,926 | ||||||
Accrued
income taxes payable
|
15 | 61 | ||||||
Accrued
interest
|
3,432 | 11,644 | ||||||
Accrued
advertising
|
96 | 106 | ||||||
Other
accrued expenses and current liabilities
|
5,239 | 5,101 | ||||||
Total
current liabilities
|
37,574 | 37,339 | ||||||
NONCURRENT
LIABILITIES:
|
||||||||
Senior
secured notes (2012 Notes)
|
130,407 | 130,561 | ||||||
Senior
unsecured notes payable (2013 Notes)
|
106,347 | 106,389 | ||||||
PIK
Notes (2014 Notes)
|
29,342 | 29,342 | ||||||
Obligations
under capital leases—less current portion
|
1,763 | 1,708 | ||||||
Deferred
income taxes
|
37,776 | 38,495 | ||||||
Other
intangible liabilities—net
|
3,998 | 3,793 | ||||||
Other
noncurrent liabilities
|
10,673 | 10,985 | ||||||
Total
noncurrent liabilities
|
320,306 | 321,273 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
STOCKHOLDER'S
EQUITY
|
||||||||
Common
stock, $.01 par value—20,000 shares authorized; 100 shares
issued and outstanding
|
- | - | ||||||
Additional
paid-in-capital
|
199,733 | 199,926 | ||||||
Accumulated
Deficit
|
(95,723 | ) | (101,347 | ) | ||||
Total
stockholder's equity
|
104,010 | 98,579 | ||||||
TOTAL
|
$ | 461,890 | $ | 457,191 |
See
notes to condensed consolidated financial statements
(unaudited).
|
(concluded)
|
4
EPL
INTERMEDIATE, INC.
(A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts
in thousands)
13
Weeks Ended
April
1,
|
13
Weeks Ended
March
31,
|
|||||||
2009
|
2010
|
|||||||
OPERATING
REVENUE:
|
||||||||
Restaurant
revenue
|
$ | 65,925 | $ | 63,418 | ||||
Franchise
revenue
|
4,708 | 4,574 | ||||||
Total
operating revenue
|
70,633 | 67,992 | ||||||
OPERATING
EXPENSES:
|
||||||||
Product
cost
|
20,961 | 19,778 | ||||||
Payroll
and benefits
|
17,688 | 17,529 | ||||||
Depreciation
and amortization
|
2,830 | 2,581 | ||||||
Other
operating expenses
|
25,109 | 23,751 | ||||||
Total
operating expenses
|
66,588 | 63,639 | ||||||
OPERATING
INCOME
|
4,045 | 4,353 | ||||||
INTEREST
EXPENSE—Net
|
6,044 | 9,232 | ||||||
CHANGE
IN FAIR VALUE OF INTEREST RATE SWAP
|
(203 | ) | - | |||||
OTHER
INCOME
|
(452 | ) | - | |||||
LOSS
BEFORE PROVISION FOR INCOME TAXES
|
(1,344 | ) | (4,879 | ) | ||||
(BENEFIT)
PROVISION FOR INCOME TAXES
|
(67 | ) | 745 | |||||
NET
LOSS
|
$ | (1,277 | ) | $ | (5,624 | ) |
See notes
to condensed consolidated financial statements (unaudited).
5
EPL
INTERMEDIATE, INC.
(A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts
in thousands)
13 Weeks Ended
|
||||||||
April
1,
|
March
31,
|
|||||||
2009
|
2010
|
|||||||
CASH
FLOWS - OPERATING ACTIVITIES:
|
||||||||
Net
loss
|
$ | (1,277 | ) | $ | (5,624 | ) | ||
Adjustments
to reconcile net loss to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
2,830 | 2,581 | ||||||
Stock-based
compensation expense
|
172 | 193 | ||||||
Interest
accretion
|
961 | 196 | ||||||
Loss
on disposal of assets
|
- | 84 | ||||||
Gain
on repurchase of bonds
|
(452 | ) | - | |||||
Asset
impairment
|
1,996 | 16 | ||||||
Closed
store reserve
|
- | 910 | ||||||
Amortization
of deferred financing costs
|
327 | 692 | ||||||
Amortization
of favorable / unfavorable leases
|
(47 | ) | (79 | ) | ||||
Deferred
income taxes
|
(111 | ) | 718 | |||||
Change
in fair value of interest rate swap
|
(203 | ) | - | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
and other receivables-net
|
(23 | ) | 3,459 | |||||
Inventories
|
142 | 6 | ||||||
Prepaid
expenses and other current assets
|
(438 | ) | (356 | ) | ||||
Income
taxes receivable / payable
|
43 | 46 | ||||||
Other
assets
|
6 | 19 | ||||||
Accounts
payable
|
(339 | ) | (7,800 | ) | ||||
Accrued
salaries and vacation
|
(792 | ) | (1,533 | ) | ||||
Accrued
insurance
|
(224 | ) | 381 | |||||
Other
accrued expenses and current and noncurrent liabilities
|
2,903 | 7,488 | ||||||
Net
cash provided by operating activities
|
5,474 | 1,397 | ||||||
CASH
FLOW -INVESTING ACTIVITIES
|
||||||||
Purchase
of property
|
(2,884 | ) | (1,679 | ) | ||||
CASH
FLOWS - FINANCING ACTIVITIES
|
||||||||
Payment
of obligations under capital leases
|
(162 | ) | (120 | ) | ||||
Payments
on debt
|
(255 | ) | - | |||||
Repurchase
of notes
|
(1,470 | ) | - | |||||
Deferred
financing costs
|
(117 | ) | - | |||||
Net
cash used in financing activities
|
(2,004 | ) | (120 | ) |
See
notes to condensed consolidated financial statements
(unaudited).
|
(continued)
|
6
EPL
INTERMEDIATE, INC.
(A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts
in thousands)
13
Weeks Ended
|
||||||||
April
1,
|
March
31,
|
|||||||
2009
|
2010
|
|||||||
INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS
|
$ | 586 | $ | (402 | ) | |||
CASH
AND CASH EQUIVALENTS—
|
||||||||
Beginning
of period
|
1,076 | 11,277 | ||||||
CASH
AND CASH EQUIVALENTS—
|
||||||||
End
of period
|
$ | 1,662 | $ | 10,875 | ||||
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW
|
||||||||
INFORMATION—Cash
paid during the period for:
|
||||||||
Interest
(net of amounts capitalized)
|
$ | 1,574 | $ | 124 | ||||
Income
taxes, net
|
$ | - | $ | (20 | ) | |||
SUPPLEMENTAL
SCHEDULE OF NON-CASH ACTIVITIES:
|
||||||||
Unpaid
purchases of property and equipment
|
$ | 411 | $ | 681 |
See
notes to the condensed consolidated financial statements
(unaudited).
|
(concluded)
|
7
EPL
INTERMEDIATE, INC.
(A
Wholly-Owned Subsidiary of El Pollo Loco Holdings, Inc.)
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
Basis of Presentation
The
accompanying condensed consolidated financial statements are unaudited. EPL
Intermediate, Inc. (“Intermediate”) and its wholly owned subsidiary El Pollo
Loco, Inc. (“EPL” and jointly with Intermediate, the “Company,”) prepared these
condensed consolidated financial statements in accordance with Article 10 of
Regulation S-X. In compliance with those instructions, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted.
The
accompanying condensed consolidated financial statements include all adjustments
(consisting of normal recurring adjustments and accruals) that management
considers necessary for a fair presentation of its financial position and
results of operations for the interim periods presented. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be expected for the entire year.
The
accompanying condensed consolidated financial statements should be read in
conjunction with the Company’s audited consolidated financial statements and the
related notes thereto included in the Company’s Annual Report on Form 10-K for
the year ended December 30, 2009 (File No. 333-115644) as filed with the
Securities and Exchange Commission (the “Commission”) on March 30,
2010.
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 2009, which ended December 30, 2009, was a 52-week
fiscal year. Fiscal year 2010, which will end December 29, 2010, is a 52-week
year.
The
Company is a wholly-owned subsidiary of El Pollo Loco Holdings, Inc.
(“Holdings”), which is a wholly owned indirect subsidiary of Chicken Acquisition
Corp. (“CAC”) which is 99% owned by Trimaran Pollo Partners, LLC (the “LLC”).
The Company’s activities are performed principally through its wholly-owned
subsidiary, EPL, which develops, franchises, licenses, and operates
quick-service restaurants under the name El Pollo Loco®.
2.
Cash
Restricted
cash
As of
March 31, 2010 and December 30, 2009, the Company had recorded $0.1 million as
restricted cash on the accompanying condensed consolidated balance
sheet. This amount serves as collateral to Bank of America for the
Company’s remaining Bank of America company credit cards as of March
31, 2010 as the Company transferred its banking relationship to another
commercial bank.
Concentration
of credit risk
The
Company maintains all of its cash at one commercial bank. Balances on
deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to
specified limits. Our balances in excess of the FDIC limits are
uninsured.
8
3.
Other Intangible Assets and Liabilities
Other
intangible assets and liabilities consist of the following (in
thousands):
December 30, 2009
|
March
31, 2010
|
|||||||||||||||||||||||
Gross
|
Net
|
Gross
|
Net
|
|||||||||||||||||||||
Carrying
|
Accumulated
|
Carrying
|
Carrying
|
Accumulated
|
Carrying
|
|||||||||||||||||||
Amount
|
Amortization
|
Amount
|
Amount
|
Amortization
|
Amount
|
|||||||||||||||||||
Favorable
leasehold interest
|
$
|
5,862
|
$
|
(3,962
|
)
|
$
|
1,900
|
$
|
5,862
|
$
|
(4,088
|
)
|
$
|
1,774
|
||||||||||
Unfavorable
leasehold interest liability
|
$
|
(9,156
|
)
|
$
|
5,158
|
$
|
(3,998
|
)
|
$
|
(9,156
|
)
|
$
|
5,363
|
$
|
(3,793
|
)
|
Favorable
leasehold interest represents the asset in excess of the approximate fair market
value of the leases. The amount is being amortized over the approximate average
life of the leases and is shown as other intangible assets-net on the
accompanying condensed consolidated balance sheets.
Unfavorable
leasehold interest liability represents the liability in excess of the
approximate fair market value of the leases. The amount is being amortized over
the approximate average life of the leases. This amount is shown as
other intangible liabilities-net on the accompanying condensed consolidated
balance sheets. Amortization for other intangible assets and liabilities was
$67,000 for the 13-week period ended April 1, 2009 and $79,000 for the 13-week
period ended March 31, 2010.
The
estimated net amortization credits for the Company’s favorable and unfavorable
leasehold interests for each of the five succeeding fiscal years is as follows
(in thousands):
Year Ending December
|
||||
2010
(April 1st –
December 29th)
|
$
|
(248)
|
||
2011
|
(290)
|
|||
2012
|
(275)
|
|||
2013
|
(213)
|
|||
2014
|
(227)
|
|||
2015
|
(156)
|
4.
Asset Impairment
The
Company reviews its long-lived assets for impairment on a
restaurant-by-restaurant basis whenever events or changes in circumstances
indicate that the carrying value of certain assets may not be recoverable. If
the Company concludes that the carrying value of certain assets will not be
recovered based on expected undiscounted future cash flows, an impairment
write-down is recorded to reduce the assets to their estimated fair value. As a
result of this review, the Company recorded an impairment charge of
approximately $2.0 million in March 2009 for two under-performing
company-operated stores that will continue to be operated. This impairment
charge is included in other operating expenses in the accompanying condensed
consolidated statements of operations. No material impairment charges
were recorded in the 13 weeks ended March 31, 2010.
5. Fair Value
Measurement
The
Company’s financial assets and liabilities, which include financial instruments
as defined by ASC 820 include cash and cash equivalents, accounts receivable,
accounts payable and certain accrued expenses, long-term debt and derivatives.
The Company believes the carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable and certain accrued expenses approximate fair value
due to their short term maturities. Long term debt is considered by the Company
to be representative of current market rates. Accordingly, the Company estimates
that the recorded amounts approximate fair market value. The fair value of the
Company’s derivative is determined based on observable inputs that are
corroborated by market data.
9
The
following table summarizes the valuation of the Company’s financial instrument
by the fair value hierarchy as of April 1, 2009.
(dollars
in thousands):
Level 1
|
Level 2
|
Level 3
|
Total
|
|||||||||||||
Liabilities
at fair value:
|
||||||||||||||||
Derivative
financial instrument—2009
|
$
|
—
|
$
|
1,846
|
$
|
—
|
$
|
1,846
|
6.
Stock-Based Compensation
As of
March 31, 2010, options to purchase 286,992 shares of common stock of CAC were
outstanding, including 65,740 options that are fully vested. The remaining
options partially vest upon the Company’s attaining annual financial or other
goals, with the remaining unvested portion vesting on the sixth or seventh
anniversary of the grant date or vesting 100% upon the occurrence of an initial
public offering of at least $50 million or a change in control of CAC. All
options were granted with an exercise price equal to the fair value of the
common stock on the date of grant.
Changes
in stock options for the thirteen weeks ended March 31, 2010 are as
follows:
Weighted-
|
||||||||||||||||
Average
|
||||||||||||||||
Remaining
|
||||||||||||||||
Weighted-
Average
|
Contractual
Life
|
Aggregate
Intrinsic
|
||||||||||||||
Shares
|
Exercise Price
|
(in Years)
|
Value
|
|||||||||||||
Outstanding—December
30, 2009
|
289,217
|
$
|
71.22
|
|||||||||||||
Grants
(weighted-average fair value of $20.21 per share)
|
2,225
|
$
|
46.00
|
|||||||||||||
Exercised
|
-
|
$
|
||||||||||||||
Canceled
|
4,450
|
$
|
||||||||||||||
Outstanding—March
31, 2010
|
286,992
|
$
|
70.79
|
5.2
|
$
|
2,425,806
|
||||||||||
Vested
and expected to vest – March 31, 2010
|
283,491
|
$
|
70.79
|
5.2
|
$
|
2,425,806
|
||||||||||
Exercisable –
March 31, 2010
|
65,740
|
$
|
9.10
|
1.8
|
$
|
2,425,806
|
The
intrinsic value is calculated as the difference between the estimated market
value as of March 31, 2010 and the exercise price of options that are
outstanding and exercisable.
As of
March 31, 2010, there was total unrecognized compensation expense of $2.8
million related to unvested stock options, which the Company expects to
recognize over a weighted-average period of 3.25 years or earlier in the event
of an initial public offering of our common stock or change in
control.
In
accordance with the Restricted Stock Plan adopted in 2008, the Company granted
404 shares in 2009 of which 50% vested in January 2010 and granted 598 shares in
the first quarter of 2010, none of which have vested. The restricted
stock expense recorded in the thirteen weeks ended March 31, 2010 related to
these vested shares was immaterial.
10
7.
Commitments and Contingencies
Legal
Matters
On or
about April 16, 2004, former managers Haroldo Elias, Marco Ramirez and Javier
Rivera filed a purported class action lawsuit in the Superior Court of the State
of California, County of Los Angeles, against EPL on behalf of all putative
class members (former and current general managers and restaurant managers from
April 2000 to present) alleging certain violations of California labor laws,
including alleged improper classification of general managers and restaurant
managers as exempt employees. Plaintiffs’ requested remedies include
compensatory damages for unpaid wages, interest, certain statutory penalties,
disgorgement of alleged profits, punitive damages and attorneys’ fees and costs
as well as certain injunctive relief. The parties reached an agreement to settle
this matter for $8 million which was accrued for in the fourth quarter of 2009.
The Company funded the settlement on January 14, 2010. The Court
granted final approval of the classwide settlement and entered Final Judgment at
a hearing on April 20, 2010.
On or
about October 18, 2005, Salvador Amezcua, on behalf of himself and all others
similarly situated, filed a purported class action complaint against EPL in the
Superior Court of the State of California, County of Los Angeles. Carlos Olvera
replaced Mr. Amezcua as the named class representative on August 16, 2006. This
action alleges certain violations of California labor laws and the California
Business and Professions Code, based on, among other things, failure to pay
overtime compensation, failure to provide meal periods, unlawful deductions from
earnings and unfair competition. Plaintiffs’ requested remedies include
compensatory and punitive damages, injunctive relief, disgorgement of profits
and reasonable attorneys’ fees and costs. This lawsuit was deemed related to and
was included as part of the Elias settlement discussed above.
On June
22, 2006, the Company filed a complaint for declaratory relief, breach of
written contract and bad faith against Arch Specialty Insurance Company
(Arch), seeking damages and equitable relief for Arch’s refusal to carry
out the obligations of its insurance contract to defend and indemnify, among
other things, the Company in the EPL-Mexico v. EPL-USA trademark litigation
settled in June 2008. The parties agreed to settle this matter for a payment by
Arch to the Company of $4.5 million which was recorded as a receivable as of
December 30, 2009. The basic terms of the agreement were confirmed in late
December 2009 and the settlement payment was received by the Company on February
2, 2010. The appeal was dismissed on February 23, 2010.
In April
2007, Dora Santana filed a purported class action in state court in Los Angeles
County on behalf of all “Assistant Shift Managers.” Plaintiff alleges wage and
hour violations including working off the clock, failure to pay overtime, and
meal break violations on behalf of the purported class, currently defined as all
Assistant Managers from April 2003 to present. The parties have agreed to settle
this matter for approximately $0.9 million and have executed a Settlement
Agreement. This amount was accrued for as of December 30, 2009. The Court
granted preliminary approval of the settlement on February 25, 2010. A hearing
for final court approval is scheduled for July 22, 2010.
On May
30, 2008, Jeannette Delgado, a former Assistant Manager filed a purported class
action on behalf of all hourly (i.e. non-exempt) employees of EPL in state court
in Los Angeles County alleging violations of certain California labor laws and
the California Business and Professions Code including failure to pay overtime,
failure to provide meal periods and rest periods and unfair business practices.
By statute, the purported class extends back four years, to May 30, 2004.
Plaintiff’s requested remedies include compensatory and punitive damages,
injunctive relief, disgorgement of profits and reasonable attorneys’ fees and
costs. The parties have agreed to settle this matter for approximately $1.5
million and have executed a Settlement Agreement. This amount was accrued for as
of December 30, 2009. The Court granted preliminary approval of the
settlement on February 25, 2010, and the hearing for final court approval has
been set for August 20, 2010.
Martin
Penaloza, a former Assistant Manager, filed a purported class action on May 26,
2009 in Superior Court in Orange County, California. The claims, requested
remedies, and potential class in this case overlap those in the Delgado lawsuit
and will be included in that settlement.
In
September 2008, the excess insurance carrier in the settled Mexico trademark
litigation, American International Specialty Lines Insurance Company, filed an
action for declaratory judgment seeking to have the Court determine that it is
not required to indemnify EPL for any amounts awarded against it (or paid in
settlement) in the underlying Mexico trademark litigation. This lawsuit was
stayed pending the outcome of the Arch litigation described above, and trial is
currently underway. No amounts have been accrued related to this
matter as of March 31, 2010.
The
Company is also involved in various other claims and legal actions that arise in
the ordinary course of business. We do not believe that the ultimate resolution
of these other actions will have a material adverse effect on our financial
position, results of operations, liquidity and capital resources. A significant
increase in the number of claims or an increase in amounts owing under
successful claims could materially adversely affect our business, financial
condition, results of operation and cash flows. In 2009, we accrued
$10.4 million for litigation settlements inclusive of the matters discussed
above. Due to payments made during the first quarter of 2010, the remaining
accrued liability was $3.0 million at March 31, 2010.
11
Purchasing
Commitments
The
Company has entered into long-term beverage supply agreements with certain major
beverage vendors. Pursuant to the terms of these arrangements, marketing rebates
are provided to the Company and its franchisees from the beverage vendors based
upon the dollar volume of purchases for system-wide restaurants which will vary
according to their demand for beverage syrup and fluctuations in the market
rates for beverage syrup. These contracts have terms extending into 2011 and
2012 with an estimated Company obligation totaling $7.1 million.
In March
2010, EPL executed a chicken supply contract with a vendor that has pricing
relatively flat compared to the prior year’s expired contract. The
agreement provides for prices and minimum quantities of chicken totaling $20.3
million that EPL must purchase from such vendor for a period of two
years. Additionally, EPL has a balance of approximately 10 months
remaining on contracts with certain other vendors for chicken totaling
approximately $20.2 million.
EPL has a
fixed price steak supply contract with a vendor that was finalized in
2010. The contract requires that the Company purchase a quantity
totaling approximately $3.7 million and expires on December 31,
2010. At March 31, 2010, our remaining obligation under the contract
was approximately $2.5 million.
Contingent
Lease Obligations
As a result of assigning our interest
in obligations under real estate leases in connection with the sale of
Company-owned restaurants to some of our franchisees, we are contingently liable
on six lease agreements. These leases have various terms, the latest
of which expires in 2015. As of March 31, 2010, the potential amount
of undiscounted payments we could be required to make in the event of
non-payment by the primary lessee was approximately $1.3 million. The
present value of these potential payments discounted at our estimated pre-tax
cost of debt at March 31, 2010 was approximately $1.0 million. Our franchisees
are primarily liable on the leases. We have cross-default provisions
with these franchisees that would put them in default of their franchise
agreement in the event of non-payment under the leases. We believe
these cross-default provisions reduce the risk that we will be required to make
payments under these leases.
8.
Senior Secured Notes (2009 Notes)
In
December 2003, EPL issued notes, consisting of $110.0 million of senior
secured notes (the “2009 Notes”) accruing interest at 9.25% per annum due
December 2009. In May of 2009, the Company repurchased, at par, the remaining
outstanding $250,000 balance of these 2009 Notes.
9.
Senior Secured Notes (2012 Notes)
On May
22, 2009, EPL issued $132.5 million aggregate principal amount of 11¾% senior
secured notes due December 1, 2012 (the “2012 Notes”) in a private
placement. EPL sold the 2012 Notes at an issue price equal to 98.0%
of the principal amount, resulting in gross proceeds to EPL of $129.9 million
before expenses and fees. At March 31, 2010, the Company had $130.6
million outstanding in aggregate principal amount of the 2012 Notes. The
principal value of the 2012 Notes will increase (representing accretion of
original issue discount) from the date of original issuance so that the accreted
value of the 2012 Notes will be equal to the full principal amount of $132.5
million at maturity. Interest is payable each year in June and December
beginning December 1, 2009. The 2012 Notes are guaranteed by Intermediate and
are secured by a second priority lien on substantially all of the Company’s
assets, which includes all of the outstanding common stock of
EPL. The 2012 Notes may be redeemed at a premium, at the discretion
of EPL, after March 1, 2011, or sooner in connection with certain equity
offerings. If EPL undergoes certain changes of control, each holder of the notes
may require EPL to repurchase all or a part of its notes at a price of 101% of
the principal amount. The Indenture governing the 2012 Notes contains
a number of covenants that, among other things, restrict, subject to certain
exceptions, EPL’s ability to incur additional indebtedness, pay dividends or
certain restricted payments, make certain investments, sell assets, create
liens, merge and enter into certain transactions with its affiliates. As of
March 31, 2010, EPL’s fixed charge coverage ratio was 1:18 to 1:00 which does
not meet the required 2:00 to 1:00 coverage ratio. Accordingly, EPL is not
permitted to incur additional indebtedness. A failure to comply with this ratio
affects only EPL's ability to incur additional indebtedness and does not
constitute a default under the 2012 notes.
12
EPL
incurred direct finance costs of approximately $9.2 million in connection with
this offering and registration of these notes. These costs have been capitalized
and are included in other assets in the accompanying condensed consolidated
balance sheets, and the related amortization is reflected as a component of
interest expense in the accompanying condensed consolidated statement of
operations. The Company used the net proceeds from the 2012 Notes to repay the
credit facility with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner
& Smith Incorporated and Bank of America, N.A. (see Note 11) and its
2009 Notes (see Note 8), and for general corporate purposes. In December
2009, we completed the exchange of these notes for registered, publicly tradable
notes that have substantially identical terms of these notes.
10.
Senior Unsecured Notes Payable (2013 Notes)
EPL has
outstanding $106.4 million aggregate principal amount of 11¾% senior notes due
November 15, 2013 (the "2013 Notes"). Interest is payable in May and November
beginning May 15, 2006. The 2013 Notes are unsecured, are guaranteed by
Intermediate, and may be redeemed, at the discretion of the issuer, after
November 15, 2009. The indenture contains certain provisions which may prohibit
EPL’s ability to incur additional indebtedness, sell assets, engage in
transactions with affiliates, and issue or sell preferred stock, among other
items.
In
October 2006, EPL completed the exchange of the 2013 Notes for registered,
publicly tradable notes that have substantially identical terms as the 2013
Notes. The costs incurred in connection with the offering of the 2013 Notes have
been capitalized and are included in other assets in the accompanying condensed
consolidated balance sheets, and the related amortization is reflected as a
component of interest expense in the accompanying condensed consolidated
financial statements. The Company used the proceeds from the 2013 Notes to
purchase substantially all of the outstanding 2009 Notes (Note 8).
The
Company purchased $2.0 million in principal amount of the 2013 Notes at a price
of $1.5 million in March 2009. The net purchase price was 74% of the principal
amount of such notes and resulted in a net gain of $0.5 million which is
included in other income in the condensed consolidated statement of operations.
The gain of $0.5 million is net of the write-off of prorated deferred finance
costs of $0.1 million.
As a
holding company, the stock of EPL constitutes Intermediate’s only material
asset. Consequently, EPL conducts all of the Company’s consolidated operations
and owns substantially all of the consolidated operating assets. Intermediate
has no material assets or operations; the Company’s principal source of the cash
required to pay its obligations is the cash that EPL generates from its
operations. EPL is a separate and distinct legal entity, has no obligation to
make funds available to Intermediate, and the 2013 Notes and the 2012 Notes (see
Note 9) have restrictions that limit distributions or dividends that may be paid
by EPL to Intermediate. Conditions that would allow for distributions or
dividends to be made include compliance with a fixed charge coverage ratio test
(as defined in the applicable indentures) and cash received from the proceeds of
new equity contributions. As of March 31, 2010, EPL is restricted from incurring
additional indebtedness, as it does not currently meet the 2:00 to 1:00
fixed charge coverage ratio required under its 2012 and 2013 Notes. This
restriction does not apply to the existing loan availability of $6.2 million
under the revolving line of credit. There are also some allowed distributions,
payments and dividends for other specific events. Distributions, dividends or
investments would also be limited to 50% of consolidated net income under
certain circumstances.
11.
Notes Payable to Merrill Lynch, Bank of America, et al and Revolving Credit
Facility
On
November 18, 2005, EPL entered into a senior secured credit facility with
Intermediate, as parent guarantor, Merrill Lynch Capital Corporation, as
administrative agent, the other agents identified therein, Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank of America,
N.A., as lead arrangers and book managers, and a syndicate of financial
institutions and institutional lenders. The credit facility provided for a
$104.5 million term loan and $25.0 million in revolving availability. The
Company repaid the credit facility in full in May 2009 with the proceeds of the
2012 Notes and replaced the revolving loan with the new credit facility
described in Note 12.
The
credit facility bore interest, payable quarterly, at a Base Rate as defined in
the credit facility or LIBOR, at EPL’s option, plus an applicable margin. The
applicable margin was based on EPL’s financial performance, as defined in the
credit facility. The applicable margin rate for the term loan remained constant
at 2.50% with respect to LIBOR and at 1.50% with respect to Base Rate. See below
for the interest rates on the portion of the term loan represented by an
interest rate swap. The credit facility was secured by a first-priority pledge
by Holdings of all of the outstanding stock of Intermediate, a first priority
pledge by Intermediate of all of EPL’s outstanding stock and a first
priority security interest in substantially all of EPL’s tangible and intangible
assets. In addition, the credit facility was guaranteed by Intermediate and
Holdings.
The
credit facility required the prepayment of the term loan in an amount equal to
50% of Excess Operating Cash Flow if, at the end of the fiscal year, the
Consolidated Leverage Ratio was less than 5:00 to 1:00. Excess Operating Cash
Flow was defined as an amount equal to Consolidated EBITDA minus Consolidated
Financial Obligations and other specific payments and adjustments. The Excess
Operating Cash Flow for 2008 was $9.4 million. The Company made the required
prepayment of $4.7 million in April 2009.
13
In the
past, to help mitigate risk, the Company entered into an interest rate swap
agreement. The agreement was terminated in the second quarter of 2009. The
interest rate swap agreement was intended to reduce interest rate risk
associated with variable interest rate debt. The Company had $0.2 million of
income during the thirteen weeks ended April 1, 2009 related to the change in
the fair value of the interest rate swap agreement.
12.
Revolving Credit Facility
On May
22, 2009, EPL entered into a credit agreement (the "Credit Facility") with
Intermediate as guarantor, Jefferies Finance LLC, as administrative and
syndication agent and the various lenders. The Credit Facility provides for a
$12.5 million revolving line of credit with borrowings limited at any time to
the lesser of (i) $12.5 million and (ii) the Company’s consolidated cash flow
for the most recently completed trailing twelve consecutive months. Utilizing
the Credit Facility, $6.3 million of letters of credit were issued and
outstanding as of March 31, 2010.
The
Credit Facility bears interest, payable quarterly, at an Alternate Base Rate (as
defined in the Credit Facility) or LIBOR, at EPL's option, plus an applicable
margin. The applicable margin rate is 5.50% with respect to LIBOR and 4.50% with
respect to Alternate Base Rate advances. The Credit Facility is secured by a
first priority lien on substantially all of the Company’s assets and is
guaranteed by Intermediate. The Credit Facility matures on July 22,
2012.
The
Credit Facility contains a number of covenants that, among other things,
restrict, subject to certain exceptions, the Company’s ability to (i) incur
additional indebtedness or issue preferred stock; (ii) create liens on assets;
(iii) engage in mergers or consolidations; (iv) sell assets; (v) make certain
restricted payments; (vi) make investments, loans or advances; (vii) make
certain acquisitions; (viii) engage in certain transactions with affiliates;
(ix) change the Company’s lines of business or fiscal year; and (x) engage in
speculative hedging transactions. In addition, the Credit Facility requires
the Company to maintain, on a consolidated basis, a minimum level of
consolidated cash flow at all times. As of March 31, 2010, the Company was in
compliance with all of the financial covenants contained in the Credit Facility
and had $6.2 million available for borrowings under the revolving line of
credit.
13.
PIK Notes (2014 Notes)
At March
31, 2010, Intermediate had $29.3 million outstanding in aggregate principal
amount of the 14½% PIK notes due 2014. No cash interest accrued on
these notes prior to November 15, 2009. Instead, the principal value of these
notes increased (representing accretion of original issue discount) from the
date of original issuance until but not including November 15, 2009 at a rate of
14½% per annum compounded annually, so that the accreted value of these notes on
November 15, 2009 was equal to the full principal amount of $29.3 million due at
maturity.
Beginning
on November 15, 2009, cash interest accrued on these notes at an annual rate of
14½% per annum payable semi-annually in arrears on May 15 and November 15 of
each year, beginning May 15, 2010. Principal is due on November 15, 2014. The
indenture governing these notes restricts Intermediate’s and EPL’s ability to,
among other items, incur additional indebtedness, sell assets, engage in
transactions with affiliates and issue or sell preferred stock. The indenture
governing these notes also limits the ability of EPL to make dividend or other
payments to Intermediate and for Intermediate or EPL to make payments to El
Pollo Loco Holdings, Inc., the immediate parent corporation. As of
March 31, 2010, EPL is restricted from making distributions, payments or
dividends to Intermediate above an aggregate amount of $5 million, as
EPL does not currently meet the 2.0 to 1 fixed charge coverage ratio required
under EPL’s 2012 and 2013 Notes. There are some allowed
distributions, payments and dividends for specific
events.
These
notes are effectively subordinated to all existing and future indebtedness and
other liabilities of EPL. These notes are unsecured and are not guaranteed. If
any of these notes are outstanding at May 15, 2011, Intermediate is required to
redeem for cash a portion of each note then outstanding at 104.5% of the
accreted value of such portion of such note, plus accrued and unpaid interest,
if any. This payment is currently estimated to be approximately $10.6 million.
Additionally, Intermediate may, at its discretion, redeem any or all of these
notes, subject to certain provisions contained in the indenture governing these
notes. As a holding company, Intermediate has no direct operations and
substantially no assets other than ownership of 100% of the stock of
EPL. Intermediate’s principal source of the cash required to pay its
obligations is the cash that EPL generates from its operations. EPL
is a separate and distinct legal entity and has no obligation to make funds
available to Intermediate. See Note 15 for condensed consolidating
financial statements of Intermediate and EPL.
14
In
October 2006, Intermediate completed the exchange of these notes for registered,
publicly tradable notes that have substantially identical terms as these notes.
The costs incurred in connection with the registration of these notes were
capitalized and included in other assets in the consolidated balance sheets and
the related amortization was reflected as a component of interest expense in the
condensed consolidated statements of operations.
14.
Income Taxes
The
Company’s taxable income or loss is included in the consolidated federal and
state income tax returns of CAC. The Company records its provision for income
taxes based on its separate stand-alone operating results using the asset and
liability method.
As of
December 30, 2009 and March 31, 2010, the Company has no material unrecognized
tax benefits.
The
Company will continue to classify income tax penalties and interest as part of
the provision for income taxes in its Condensed Consolidated Statements of
Operations. The Company has not recorded accrued interest and penalties on
uncertain tax positions as of March 31, 2010. The Company’s liability for
uncertain tax positions is reviewed periodically and is adjusted as events occur
that affect the estimated liability for additional taxes, such as the lapsing of
applicable statutes of limitations, the conclusion of tax audits, the
measurement of additional estimated liabilities based on current calculations,
the identification of new uncertain tax positions, the release of administrative
tax guidance affecting the Company’s estimates of tax liabilities, or the
rendering of court decisions affecting its estimates of tax
liabilities.
The
Company recorded a full valuation allowance on its deferred tax assets in 2009
due to uncertainties surrounding the Company’s ability to generate future
taxable income to realize such deferred income tax assets. In evaluating
the need for a valuation allowance, the Company made judgments and estimates
related to future taxable income, the timing of the reversal of temporary
differences and facts and circumstances. The Company continues to maintain
a full valuation allowance against its deferred tax assets as of March 31,
2010. However, subsequent changes in facts and circumstances that affect
the Company’s judgments or estimates in determining the proper deferred tax
assets or liabilities could materially affect the valuation
allowance.
15
15.
Financial Information for Parent Guarantor and Subsidiary
The
following presents condensed consolidating financial information for the
Company, segregating: (1) Intermediate, the parent which has unconditionally
guaranteed, jointly and severally the 2012 Notes and has pledged its investment
in the common stock of EPL as collateral for the 2012 Notes; and (2) EPL, the
issuer of the 2012 Notes that also unconditionally guaranteed, jointly and
severally the 2012 Notes. EPL is a wholly owned subsidiary of
Intermediate.
As of
March 31, 2010 and for the Thirteen Weeks Ended March 31, 2010
(in
thousands)
Consolidated
|
||||||||||||||||||||
EPL
|
Intermediate
|
Subtotal
|
Eliminations
|
Total
|
||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
Assets
|
$ | 25,006 | $ | 126,141 | $ | 151,147 | $ | (126,448 | ) | $ | 24,699 | |||||||||
Property
and Equipment
|
77,519 | - | 77,519 | - | 77,519 | |||||||||||||||
Other
Assets
|
354,717 | 3,275 | 357,992 | (3,019 | ) | 354,973 | ||||||||||||||
Total
Assets
|
457,242 | 129,416 | 586,658 | (129,467 | ) | 457,191 | ||||||||||||||
LIABILITIES
& EQUITY
|
||||||||||||||||||||
Current
liabilities
|
38,770 | 1,588 | 40,358 | (3,019 | ) | 37,339 | ||||||||||||||
Non-current
liabilities
|
292,485 | 29,249 | 321,734 | (461 | ) | 321,273 | ||||||||||||||
Equity
|
125,987 | 98,579 | 224,566 | (125,987 | ) | 98,579 | ||||||||||||||
Total
Liabilities & Equity
|
457,242 | 129,416 | 586,658 | (129,467 | ) | 457,191 | ||||||||||||||
Revenues
|
67,992 | - | 67,992 | - | 67,992 | |||||||||||||||
Operating
Expenses
|
63,574 | 65 | 63,639 | - | 63,639 | |||||||||||||||
Operating
income (loss)
|
4,418 | (65 | ) | 4,353 | - | 4,353 | ||||||||||||||
Investment
in subsidiary
|
- | 4,574 | 4,574 | (4,574 | ) | - | ||||||||||||||
Interest
Expense and other
|
8,155 | 1,077 | 9,232 | - | 9,232 | |||||||||||||||
Provision
(Benefit) for income taxes
|
837 | (92 | ) | 745 | - | 745 | ||||||||||||||
Net
Income (loss)
|
(4,574 | ) | (5,624 | ) | (10,198 | ) | 4,574 | (5,624 | ) | |||||||||||
Cash
flow provided by (used in) operations
|
1,398 | (1 | ) | 1,397 | - | 1,397 | ||||||||||||||
Cash
flow used in investing activities
|
(1,679 | ) | - | (1,679 | ) | - | (1,679 | ) | ||||||||||||
Cash
flow used in financing activities
|
(120 | ) | - | (120 | ) | - | (120 | ) | ||||||||||||
Net
decrease in cash
|
(401 | ) | (1 | ) | (402 | ) | - | (402 | ) | |||||||||||
Cash
and equivalents at beginning of period
|
11,126 | 151 | 11,277 | - | 11,277 | |||||||||||||||
Cash
and equivalents at end of period
|
10,725 | 150 | 10,875 | - | 10,875 |
16
As of
December 30, 2009
(in
thousands)
Consolidated
|
||||||||||||||||||||
EPL
|
Intermediate
|
Subtotal
|
Eliminations
|
Total
|
||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
Assets
|
$ | 28,516 | $ | 130,524 | $ | 159,040 | $ | (130,830 | ) | $ | 28,210 | |||||||||
Property
and Equipment
|
77,868 | - | 77,868 | - | 77,868 | |||||||||||||||
Other
Assets
|
355,541 | 3,342 | 358,883 | (3,071 | ) | 355,812 | ||||||||||||||
Total
Assets
|
461,925 | 133,866 | 595,791 | (133,901 | ) | 461,890 | ||||||||||||||
LIABILITIES
& EQUITY
|
||||||||||||||||||||
Current
liabilities
|
40,132 | 514 | 40,646 | (3,072 | ) | 37,574 | ||||||||||||||
Non-current
liabilities
|
291,425 | 29,342 | 320,767 | (461 | ) | 320,306 | ||||||||||||||
Equity
|
130,368 | 104,010 | 234,378 | (130,368 | ) | 104,010 | ||||||||||||||
Total
Liabilities & Equity
|
461,925 | 133,866 | 595,791 | (133,901 | ) | 461,890 |
For the
Thirteen Weeks Ended April 1, 2009
(in
thousands)
Revenues
|
70,633 | - | 70,633 | - | 70,633 | |||||||||||||||
Operating
Expenses
|
66,504 | 84 | 66,588 | - | 66,588 | |||||||||||||||
Operating
income (loss)
|
4,129 | (84 | ) | 4,045 | - | 4,045 | ||||||||||||||
Investment
in subsidiary
|
- | 312 | 312 | (312 | ) | - | ||||||||||||||
Interest
Expense and other
|
4,457 | 932 | 5,389 | - | 5,389 | |||||||||||||||
Benefit
for income taxes
|
(16 | ) | (51 | ) | (67 | ) | - | (67 | ) | |||||||||||
Net
Income (loss)
|
(312 | ) | (1,277 | ) | (1,589 | ) | 312 | (1,277 | ) | |||||||||||
Cash
flow provided by operations
|
5,474 | - | 5,474 | - | 5,474 | |||||||||||||||
Cash
flow used in investing activities
|
(2,884 | ) | - | (2,884 | ) | - | (2,884 | ) | ||||||||||||
Cash
flow used in financing activities
|
(2,004 | ) | - | (2,004 | ) | - | (2,004 | ) | ||||||||||||
Net
increase in cash
|
586 | - | 586 | - | 586 | |||||||||||||||
Cash
and equivalents at beginning of period
|
926 | 150 | 1,076 | - | 1,076 | |||||||||||||||
Cash
and equivalents at end of period
|
1,512 | 150 | 1,662 | - | 1,662 |
17
16.
New Accounting Pronouncements
Consolidation
of Variable Interest Entities – Amended
(Included in Accounting Standards
Codification (“ASC”) 810 “Consolidation”; previously SFAS No. 167
“Amendments to FASB Interpretation No. 46(R)”) In June 2009,
the FASB issued SFAS No. 167, “Amendments to FASB Interpretation
No. 46(R),” (“SFAS No. 167”) which amends the consolidation guidance that
applies to variable interest entities under FIN 46(R). SFAS No. 167 changes
how a company determines when an entity that is insufficiently capitalized or is
not controlled through voting (or similar rights) should be consolidated. This
statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2009. The adoption
of ASC 810 “Consolidation” did not have a material impact on our consolidated
financial position or results of operations.
In
January 2010, the FASB issued ASU 2010-06, which amends ASC 820 to add new
requirements for disclosures about transfers into and out of Levels 1 and 2 and
separate disclosures about purchases, sales, issuances, and settlements relating
to Level 3 measurements. The ASU also clarifies existing fair value disclosures
about the level of disaggregation and about inputs and valuation techniques used
to measure fair value. The ASU is effective for the first reporting period
(including interim periods) beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal years beginning
after December 15, 2010, and for interim periods within those fiscal years. The
adoption of ASU 2010-06 did not have a material impact on our consolidated
financial position or results of operations.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
You
should read the following discussion together with our condensed consolidated
financial statements and related notes thereto included elsewhere in this
filing.
Certain
statements contained within this report constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are those that do not relate solely to historical
fact. They include, but are not limited to, any statement that may predict,
forecast, indicate or imply future results, performance, achievements or events.
They may contain words such as “believe,” “anticipate,” “expect,” “estimate,”
“intend,” “project,” “plan,” “will,” “should,” “may,” “could” or words or
phrases of similar meaning.
These
forward-looking statements reflect our current views with respect to future
events and are based on assumptions and are subject to risks and uncertainties.
Also, these forward-looking statements present our estimates and assumptions
only as of the date of this report. Except for our ongoing obligation to
disclose material information as required by federal securities laws, we do not
intend to update you concerning any future revisions to any forward-looking
statements to reflect events or circumstances occurring after the date of this
report.
Factors
that could cause actual results to differ materially from those expressed or
implied by the forward-looking statements include but are not limited to the
adverse impact of economic conditions on our operating results and financial
condition, on our ability to comply with the terms and covenants of our debt
agreements and on our ability to pay or to refinance our existing debt or to
obtain additional financing; our substantial level of indebtedness;
food-borne-illness incidents; negative publicity, whether or not valid;
increases in the cost of chicken; our dependence upon frequent
deliveries of food and other supplies; our vulnerability to changes in consumer
preferences and economic conditions; our sensitivity to events and conditions in
the greater Los Angeles area, our largest market; our ability to compete
successfully with other quick service and fast casual restaurants; our ability
to expand into new markets; our reliance on our franchisees, who have also been
adversely impacted by the recession; matters relating to labor laws and the
adverse impact of related litigation, including wage and hour class actions; our
ability to support our franchise system; our ability to renew leases
at the end of their term; the impact of applicable federal, state or local
government regulations; our ability to protect our name and logo and other
proprietary information; litigation we face in connection with our operations. .
Actual results may differ materially due to these risks and uncertainties and
those described in our Annual Report on Form 10-K (File No. 333-115644) as filed
with the Securities and Exchange Commission on March 30, 2010, as updated from
time to time in our quarterly reports and current reports filed with the
Commission.
18
We use 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
2009, which ended December 30, 2009, was a 52-week fiscal year. Fiscal year 2010
which will end December 29, 2010, is also a 52-week fiscal year.
References
to “our restaurant system” or “system-wide” mean both company-operated and
franchised restaurants. Unless otherwise indicated, references to “our
restaurants” or results or statistics attributable to one or more restaurants
without expressly identifying them as company-operated, franchise or the entire
restaurant system mean our company-operated restaurants only.
Overview
EPL
Intermediate, Inc. (“Intermediate”) through its wholly-owned subsidiary El Pollo
Loco, Inc. (“EPL” and together with Intermediate, the “Company,” “we,” “us” and
“our”) owns, operates and franchises restaurants specializing in marinated
flame-grilled chicken. Our distinct menu, inspired by the kitchens of Mexico,
features our authentic recipe flame-grilled chicken, which along with our
service format and value price points, serves to differentiate our unique
brand. We offer high-quality, freshly-prepared food commonly found in
fast casual restaurants, while at the same time providing the value and
convenience typically available at traditional QSR chains. Our
restaurants are located principally in California, with additional restaurants
in Arizona, Colorado, Connecticut, Georgia, Illinois, Missouri, Nevada, New
Jersey, Oregon, Texas, Utah, and Virginia. Our typical restaurant is a
freestanding building ranging from approximately 2,200 to 2,600 square feet with
seating for approximately 60 customers and offering drive-thru
convenience.
Our store
counts at April 1, 2009, March 31, 2010 and December 30, 2009 are set forth
below:
El
Pollo Loco Restaurants
April 1,
2009
|
March 31,
2010
|
December 30,
2009
|
||||||||||
Company-owned
|
166
|
171
|
172
|
|||||||||
Franchised
|
251
|
241
|
243
|
|||||||||
System-wide
|
417
|
412
|
415
|
During
the 13 weeks ended March 31, 2010, the Company did not open any new restaurants
and closed one restaurant. During this same 13week period, our franchisees did
not open any new restaurants and closed two restaurants.
We plan
to open a total of two company-operated restaurants in fiscal 2010. We believe
our franchisees will open a total of three to four new restaurants in fiscal
2010. The growth in new restaurant openings and the rate of
restaurant closings have been, and are expected to continue to be, negatively
impacted by the economic climate, as discussed below. In response to
this challenging economic environment, we are adjusting our growth strategy for
the future to focus on a new generation (Gen3) reduced cost restaurant that we
believe will appeal to both single unit and multi-unit
franchisees. The Gen3 is designed to offer the same features (with
fewer seats and no salsa bar) of a typical 2,600 square foot free-standing
drive-thru restaurant, at about half the cost. The Gen3, which will
range from 1,800 to 2,200 square feet, will have reduced construction costs and
a shorter build-out period than our existing restaurant design.
At the
end of the first quarter of 2010, we had 19 system-wide restaurants open in
markets east of the Rockies. The 19 open stores are experiencing a wide range of
sales volumes, and a majority of them have sales volumes that are significantly
less than the chain average due to the lack of brand awareness in the new
markets.
Our
revenue is derived from two primary sources, company-operated restaurant revenue
and franchise revenue, the latter of which is comprised principally of franchise
royalties and to a lesser extent franchise fees and sublease rental income. A
common measure of financial performance in the restaurant industry is
“same-store sales.” A restaurant enters our comparable restaurant base for the
calculation of same-store sales the first full week after the 15-month
anniversary of its opening. For the 13 weeks ended March 31, 2010, same-store
sales for restaurants system-wide decreased 6.7% compared to the corresponding
period in 2009. System-wide same-store sales include same-store sales at all
company-owned stores and franchise-owned stores, as reported by franchisees. We
use system-wide sales information in connection with store development
decisions, planning and budgeting analyses. This information is useful in
assessing consumer acceptance of our brand and facilitates an understanding of
financial performance as our franchisees pay royalties (included in franchise
revenues) and contribute to advertising pools based on a percentage of their
sales. Same-store sales at company-operated restaurants decreased
5.4% for the 13 weeks ended March 31, 2010 compared to the 13 weeks ended April
1, 2009.
19
Changes
in company-operated restaurant revenue reflect changes in the number of
company-operated restaurants and changes in same-store sales, which are impacted
by price and transaction volume changes. The depressed economy and
increased unemployment, especially in California, negatively impacted our
transaction volume in the first quarter of 2010. Consumers are eating out less,
and when they do eat out, are more sensitive to price increases and are looking
for specials and promotions. This has an impact on both same-store sales and on
restaurant margins. We believe 2010 will be as challenging as 2009 from an
economic standpoint and will make it difficult to achieve same-store sales
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. In California, our largest market, at March
2010, unemployment was 12.6% compared to 9.7% nationally.
Franchise
revenue consists of royalties, initial franchise fees revenue, IT support
services fees and franchise rental income. Royalties average 4% of the
franchisees’ net sales. During 2009 and first quarter 2010, due to adverse
economic conditions, some of our franchises were late in the payment of
franchise fees due us and one franchisee filed for bankruptcy in 2009 (we
purchased four of its stores and five other stores were closed). As
of March 31, 2010, we had commitments from franchisees to open 75 restaurants at
various dates through 2024. However, the current adverse economic and liquidity
conditions have caused some franchisees to delay the opening of new restaurants
under existing development agreements or to terminate such
agreements. As a result of these conditions, we estimate that as few
as 18 of those restaurants could open. As of March 31, 2010 we were legally
authorized to market franchises in 40 states. We have entered into development
agreements that usually result in area development fees being recognized as the
related restaurants open. Due to the recession and associated
liquidity crisis, most of our developing franchisees are having a difficult time
obtaining financing for new restaurants. Additionally, some of our franchisees
that operate other restaurant concepts have incurred significant loss of cash
flow due to declining sales in these other concepts, as well as their El Pollo
Loco restaurants. This has had the effect of slowing development of new El Pollo
Loco restaurants, especially in new markets. In addition, the
economic conditions have had a negative effect on our ability to recruit and
financially qualify new single-unit and developing franchisees. We
expect these trends to continue at least through 2010. We expect that
many of the franchisees who have development agreements will not be able to meet
the new unit opening dates required under the agreements. There were two
franchise development agreements that were terminated in the quarter and as a
result, the Company recognized approximately $240,000 of income related to those
terminations in the first quarter of 2010.
We sublease facilities to
certain franchisees and the sublease rent is included in our franchise revenue.
This revenue exceeds rent payments made under the leases that are included in
franchise expense. Since we do not expect to lease or sublease new
properties to our franchisees as we expand our franchise restaurants, we expect
the portion of franchise revenue attributable to franchise rental income to
decrease over time.
Product
cost, which includes food and paper costs, is our largest single expense.
Chicken accounts for the largest part of product cost, which was approximately
10.7% of revenue for company-owned restaurants in the first thirteen weeks ended
March 31, 2010. These costs are subject to increase or decrease based
on commodity cost changes and depend in part on the success of controls we have
in place to manage product cost in the restaurants. We currently have three
contracts for chicken. Two of the contracts have a floor and ceiling
price for chicken which expire in February 2011. In March 2010,
we entered into a new contract for two years that has a fixed price for the term
of the agreement. The new chicken contract that we entered into in
2010 has pricing that is relatively consistent compared to the prior year’s
expired contract.
Payroll
and benefits make up the next largest single expense. Payroll and benefits have
been and remain subject to inflation, including minimum wage increases and
expenses for health insurance and workers’ compensation insurance. A significant
number of our hourly staff are paid at rates consistent with the applicable
federal or state minimum wage and, accordingly, increases in the minimum wage
will increase our labor cost. Should there be any increases in minimum wages,
there is no assurance that we will be able to increase menu prices in the future
to offset any of these increased costs. Workers’ compensation insurance costs
are subject to a number of factors, including the impact of legislation. We have
seen an overall reduction in the number of workers’ compensation claims due to
employee safety initiatives that we implemented in 2002. This has
resulted in lower workers’ compensation expenses in the thirteen weeks ended
March 31, 2010, compared to the period in 2009. We self-insure employee health
benefits. We cannot estimate at this time the effect that the
recently passed healthcare reform legislation will have on our self insurance
programs or on our business, financial condition, results of operations or cash
flow, although we expect that it will increase our health insurance costs
significantly and, accordingly, have a negative impact on us and on some of our
franchisees.
Depreciation
and amortization expense consists primarily of depreciation of property and
equipment of our restaurants.
Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.
20
Restaurant
other operating expense includes occupancy, advertising and other costs such as
utilities, repair and maintenance, janitorial and cleaning and operating
supplies.
Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. Franchise
expense usually fluctuates primarily as subleases expire and is to some degree
based on rents that are tied to a percentage of sales calculation. Because we do
not expect to lease or sublease new properties to our franchisees as we expand
our franchise restaurants, we expect franchise expense as a percentage of
franchise revenue to decrease over time. Expansion of our franchise operations
does not require us to incur material additional capital
expenditures.
General
and administrative expense includes all corporate and administrative functions
that support existing operations and provide the infrastructure to facilitate
our growth. These expenses are impacted by litigation costs, directors and
officers insurance, compliance with laws relating to corporate governance and
public disclosure, and audit and tax fees.
2010
First Quarter Initiatives
In
January 2010, we introduced a new protein, steak, to our menu as a limited time
offer promotion. The citrus-marinade and signature
flame-grilling technique on our steak products provides an additional choice for
our customers to enjoy, in addition to our flame-grilled chicken products. As of
the thirteen weeks ended March 31, 2010, the limited time steak offerings were
approximately 7.5% of our total sales mix as a percent of restaurant sales and
after evaluation, steak has become a permanent addition to our
menu.
We are
currently “refreshing” the majority of our company-owned stores to improve the
appearance of our units. The “refresh” scope of work may include a fresh coat of
paint to the interior and/or exterior, wallpaper, restroom finishes, replace
lighting and ceilings and replace tables, chairs, and artwork in the
restaurants. As of April 2010, the Company had “refreshed” approximately 99
restaurants. The “refresh” of an approximate target of 116 company-owned
restaurants is expected to be completed by the end of June 2010. We
estimate our total cost to “refresh” Company stores to be approximately $3.0
million. Additionally, over 100 franchisee-owned restaurants have been scoped
for the “refresh” program in 2010. In order to conserve capital until
our operating results improve, the Company believes this is the best alternative
to a complete and more expensive “re-image” program at this time.
Results
of Operations
Our
operating results for the 13 weeks ended April 1, 2009 and March 31, 2010 are
expressed as a percentage of restaurant revenue below:
|
13 Weeks Ended
|
|||||||
April
1,
2009
|
March
31,
2010
|
|||||||
Operating
Statement Data:
|
||||||||
Restaurant
revenue
|
100.0
|
%
|
100.0
|
%
|
||||
Product
cost
|
31.8
|
31.2
|
||||||
Payroll
and benefits
|
26.8
|
27.6
|
||||||
Depreciation
and amortization
|
4.3
|
4.1
|
||||||
Other
operating expenses
|
38.1
|
37.5
|
||||||
Operating
income
|
6.1
|
6.9
|
||||||
Interest
expense-net
|
9.2
|
14.6
|
||||||
Change
in fair value of interest rate swap
|
(0.3
|
)
|
0.0
|
|||||
Other
income
|
(0.7
|
)
|
0.0
|
|||||
Loss
before provision for income taxes
|
(2.0
|
)
|
(7.7
|
)
|
||||
Provision
(benefit) for income taxes
|
(0.1
|
)
|
1.2
|
|||||
Net
loss
|
(1.9
|
)
|
(8.9
|
)
|
||||
Supplementary
Operating Statement Data:
|
||||||||
Restaurant
other operating expense
|
22.8
|
24.8
|
||||||
Franchise
expense
|
1.5
|
1.6
|
||||||
General
and administrative expense (1)
|
13.8
|
11.1
|
||||||
Total
other operating expenses
|
38.1
|
37.5
|
(1)
General and administrative expenses as a percent of total operating revenue for
2009 and 2010 were 12.8% and 10.3%, respectively.
21
13
Weeks Ended March 31, 2010 Compared to 13 Weeks Ended April 1, 2009
Restaurant
revenue decreased $2.5 million, or 3.8%, to $63.4 million for the 13 weeks ended
March 31, 2010 from $65.9 million for the 13 weeks ended April 1, 2009. This
decrease was primarily due to a reduction of $3.5 million in restaurant revenue
resulting from a 5.4% decrease in company-operated same-store sales for the 2010
period from the 2009 period. Restaurants enter the comparable restaurant base
for same-store sales the first full week after that restaurant’s fifteen-month
anniversary. The components of the company-operated comparable sales decrease
were attributed to a transaction decrease of 6.9%, and a check average increase
of 1.7%. Check average increased and transactions decreased in the first quarter
of 2010 compared to the first quarter of 2009 mainly due to deep discount
promotions in the first quarter of 2009 that increased traffic and lowered check
averages in that period. In addition, the company-operated same-store
sales decrease reflects intense competition and a general sales softness in the
QSR industry due to higher unemployment, the recession and other adverse
economic and consumer confidence factors that escalated in 2009 and are expected
to continue through the remainder of 2010 and possibly into 2011. The
decrease was also due to lost sales of $0.3 million from the closure of two
company-operated restaurants in 2010 of which one was managed by EPL through a
management agreement with a franchisee and $0.3 million for a restaurant closed
in 2009. Additionally, revenue decreased $0.3 million for restaurants opened in
2008, but not yet in the comparable store base. These decreases were
partially offset by $0.9 million of revenue from four restaurants opened in
fiscal 2009 and also by $0.9 million of revenue from four restaurants purchased
from a franchisee in September 2009.
Franchise
revenue decreased $0.1 million, or 2.8%, to $4.6 million for the 13 weeks ended
March 31, 2010 from $4.7 million for the 13 weeks ended April 1, 2009. This
decrease is due primarily to lower royalties and percentage rent income, which
are based on sales, resulting from a 7.5% decrease in franchise-operated
same-store sales for the 2010 period from the 2009
period. Franchise-operated same-store sales were impacted by the same
adverse factors that affected company-operated same-store sales described above.
Additionally, revenue was impacted by the closure of one and thirteen
franchise units in 2010 and 2009, respectively and partially offset by the five
openings in 2009. The decrease in franchise revenue was partially offset by $0.2
million in revenue recognized on nonrefundable advance payments due to
nonperformance of certain obligations within the development agreements with two
of our franchisees.
Product
costs decreased $1.2 million, or 5.6%, to $19.8 million for the 13 weeks ended
March 31, 2010 from $21.0 million for the 13 weeks ended April 1, 2009. This
decrease resulted primarily from lower sales due to the decrease in
company-operated same-store sales for the 2010 period. This decrease was
partially offset by the additional restaurants opened.
Product cost as a
percentage of restaurant revenue was 31.2% for the 13 weeks ended March 31, 2010
compared to 31.8% for the 13 weeks ended April 1, 2009. This decrease resulted
primarily from certain contracts for non-ingredient items that were renewed with
favorable pricing compared to the prior year and promotions in the prior year
which featured deep discounts. These decreases were partially offset
by the introduction of our steak products which have a lower gross margin than
our overall chicken products. Overall, we expect pressure on commodity costs for
the remainder of 2010.
Payroll
and benefit expenses decreased $0.2 million, or 0.9%, to $17.5 million for the
13 weeks ended March 31, 2010 from $17.7 million for the 13 weeks ended April 1,
2009. This decrease resulted from fewer employees needed to support
the lower sales volume for the 2010 period. The decrease was partially offset by
increased labor costs required to train our restaurant employees for our steak
product introduction and the additional restaurants opened.
22
As a
percentage of restaurant revenue, these costs increased 0.8% to 27.6% for the
2010 period from 26.8% for the 2009 period mainly due to the
deleverage caused by lower sales and increased training mentioned
above.
Depreciation
and amortization decreased $0.2 million, or 8.8%, to $2.6 million for the 13
weeks ended March 31, 2010 compared to $2.8 million for the 13 weeks ended April
1, 2009. This decrease was mainly attributed to a portion of
our point of sale equipment in our restaurants becoming fully depreciated and no
longer having amortization expense of our franchise network intangible asset
that was fully impaired in 2009. These decreases were partially
offset by additional restaurants opened.
Depreciation
and amortization as a percentage of restaurant revenue decreased slightly to
4.1% for the thirteen weeks ended March 31, 2010 compared with 4.3% for the
thirteen weeks ended April 1, 2009.
Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.
Restaurant
other operating expense, which includes utilities, repair and maintenance,
advertising, property taxes, occupancy and other operating expenses, increased
$0.7 million, or 4.5%, to $15.7 million for the 13 weeks ended March 31, 2010
from $15.0 million for the 13 weeks ended April 1, 2009. This increase is mainly
attributed to the reasons noted below.
Restaurant
other operating expense as a percentage of restaurant revenue increased to 24.8%
for the 2010 period from 22.8% for the 2009 period. The increase was due to
higher advertising expense of 0.8% as a percentage of restaurant revenue or $0.4
million. Advertising expense each quarter may be above or below our
planned annual rate of approximately 4% of revenue, depending on the timing of
marketing promotions and the relative weights and price of media spending. The
increase was also attributed to higher utility expense of 0.4% of restaurant
revenue, or $0.2 million mainly due to an increase in natural gas prices. The
increase was also attributed to higher repair and maintenance cost in the
current period of 0.3% as a percentage of restaurant revenue, or $0.2
million. The expense was higher as the timing of repairs can
fluctuate, and also due to the deleverage caused by the lower sales in the
current period.
Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. This expense
usually fluctuates primarily as subleases expire and to some degree based on
rents that are tied to a percentage of sales calculation. Franchise expense
remained flat at $1.0 million for the 13 weeks ended March 31, 2010 and April 1,
2009.
General
and administrative expense decreased $2.1 million, or 22.6%, to $7.0 million for
the 13 weeks ended March 31, 2010 from $9.1 million for the 13 weeks ended April
1, 2009. The decrease was mainly attributed to a decrease in asset impairment
charges in 2010 of $2.0 million partially offset by an increase in closed store
reserve charges of $0.9 million and lower: legal fees of $0.4 million, salaries
and wages of $0.2 million due to reduced headcount due to work force reductions
in 2009, severance of $0.2 million and outside services of $0.1
million.
General
and administrative expense as a percentage of total revenue decreased 2.5% to
10.3% for the 13 weeks ended March 31, 2010 from 12.8% for the 13 weeks ended
April 1, 2009. The decrease was due to the reasons noted above which was
partially offset by lower total revenue.
Interest
expense, net of interest income, increased $3.2 million, or 53%, to $9.2 million
for the 13 weeks ended March 31, 2010 from $6.0 million for the 13 weeks ended
April 1, 2009. Due to issuing $132,500,000 aggregate principal amount of 11¾%
senior secured notes in May, 2009 and paying off our 2009 senior secured notes,
our average debt balances for the 13 weeks ended March 31, 2010, increased to
$268.2 million compared to $240.7 million for the thirteen weeks ended April 1,
2009 and our average interest rate increased to 12.55% for the thirteen weeks
ended March 31, 2010 compared to 8.86% for the 2009 period.
The
Company had $0.2 million in income for the 2009 period related to the change in
the fair value of the interest rate swap agreement. The fixed
interest rate that the Company agreed to pay was higher than the floating rate
estimated for the life of the agreement. The Company terminated the
interest rate swap agreement in the second quarter of 2009.
The
Company had $0.5 million in other income in the 2009 period attributed to a net
gain on the repurchase of a portion of the 2013 notes. This gain was
net of the portion of the deferred finance costs associated with the
notes. No bonds were repurchased in the first quarter of
2010.
Despite
having a loss for the thirteen weeks ended March 31, 2010, we had a
provision for income tax expense of $0.7 million, primarily related to the
effect of changes in our deferred taxes and the related effect of maintaining a
full valuation allowance against certain of our deferred tax assets as of March
31, 2010. For the thirteen weeks ended April 1, 2009, we had an income tax
benefit of $0.1 million.
As a
result of the factors noted above, we had a net loss of $5.6 million for the 13
weeks ended March 31, 2010 compared to a net loss of $1.3 million for the 13
weeks ended April 1, 2009.
23
13
Weeks Ended April 1, 2009 Compared to 13 Weeks Ended March 26, 2008
Restaurant
revenue decreased $0.4 million, or 0.6%, to $65.9 million for the 13 weeks ended
April 1, 2009 from $66.3 million for the 13 weeks ended March 26, 2008. This
decrease was primarily due to a reduction of $3.6 million in restaurant revenue
resulting from a 5.4% decrease in company-operated same-store sales for the 2009
period from the 2008 period. Restaurants enter the comparable restaurant base
for same-store sales the first full week after that restaurant’s fifteen-month
anniversary. The components of the company-operated comparable sales decrease
were price increases totaling approximately 3.6% in May, October and various
other times after March 26, 2008, a transaction decrease of 4.5%, and a menu mix
decrease of 4.5%. The transaction decrease reflects intense competition and a
general sales softness in the QSR industry due to higher unemployment, the
recession and other adverse economic and consumer confidence factors that
escalated in the first quarter of 2009 and are expected to continue through at
least the remainder of 2009. The decrease was also due to lost sales
of $0.4 million from the closure of three company-operated restaurants in
2008. The decrease was partially offset by an increase in restaurant
revenue of $3.4 million from ten restaurants opened in 2007 and 2008 and also by
$0.2 million from one restaurant opened in 2009.
Franchise
revenue decreased $0.2 million, or 3.0%, to $4.7 million for the 13 weeks ended
April 1, 2009 from $4.9 million for the 13 weeks ended March 26, 2008. This
decrease is due primarily to decreased royalties and percentage rent income,
which is based on sales, resulting from a 6.4% decrease in franchise-operated
same-store sales for the 2009 period from the 2008
period. Franchise-operated same-store sales were impacted by the same
adverse factors that affected company-operated same-store sales described
above.
Product
costs decreased $0.6 million, or 2.9%, to $21.0 million for the 13 weeks ended
April 1, 2009 from $21.6 million for the 13 weeks ended March 26, 2008. This
decrease resulted primarily from lower sales due to the decrease in
company-operated same-store sales for the 2009 period.
Product
cost as a percentage of restaurant revenue was 31.8% for the 13 weeks ended
April 1, 2009 compared to 32.6% for the 13 weeks ended March 26, 2008. This 0.8%
decrease resulted primarily from the menu price increases taken in May and
October 2008, partially offset by increases in commodity cost. Overall, we
expect continued pressure on commodity costs in 2009.
Payroll
and benefit expenses remained flat at $17.7 million for the 13 weeks ended April
1, 2009 and March 26, 2008.
As a
percentage of restaurant revenue, these costs increased 0.1% to 26.8% for the
2009 period from 26.7% for the 2008 period due to the decrease in restaurant
revenue.
Depreciation
and amortization decreased $0.2 million, or 5.2%, to $2.8 million for the 13
weeks ended April 1, 2009 compared to $3.0 million for the 13 weeks ended March
26, 2008. This decrease is mainly attributed to some of the point of sale
equipment in our restaurants becoming fully depreciated at the end of
2008.
These
costs as a percentage of restaurant revenue decreased slightly to 4.3% for the
2009 period compared with 4.5% for the 2008 period.
Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.
Restaurant
other operating expense, which includes utilities, repair and maintenance,
advertising, property taxes, occupancy and other operating expenses, increased
$0.3 million, or 2.4%, to $15.0 million for the 13 weeks ended April 1, 2009
from $14.7 million for the 13 weeks ended March 26, 2008. This increase is
mainly attributed to new restaurants and the reasons noted below.
Restaurant
other operating expense as a percentage of restaurant revenue increased to 22.8%
for the 2009 period from 22.1% for the 2008 period. The increase in operating
costs was due to a 0.6% increase in occupancy costs as a percentage of revenue,
which was primarily a result of higher rent expense in the current period mainly
due to new stores in the current period. The increase was also attributed to
higher advertising expense of 0.2% as a percentage of revenue. Advertising
expense each quarter may be above or below our planned annual rate of
approximately 4% of revenue, depending on the timing of marketing promotion and
the relative weights and price of media spending. The increase was also
attributed to higher credit card fees of 0.1% as a percentage of revenue which
was due to a higher number of credit card transactions and increased credit card
fees. The increase in restaurant other operating expense was partially offset by
a decrease of 0.3% in utilities as a percentage of revenue which was mainly due
to lower gas prices in the current period and also a 0.2% decrease in preopening
costs as a percentage of revenue due to fewer stores opened in the
current period.
24
Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. This expense
usually fluctuates primarily as subleases expire and to some degree based on
rents that are tied to a percentage of sales calculation. Franchise expense
remained flat at $1.0 million for the 13 weeks ended April 1, 2009 and March 26,
2008.
General
and administrative expense increased $2.2 million, or 33.2%, to $9.1 million for
the 13 weeks ended April 1, 2009 from $6.9 million for the 13 weeks ended March
26, 2008. The increase was primarily attributed to an impairment charge in the
current period of $2.0 million, which was recorded by the Company for two
under-performing company-operated stores that will continue to operate and also
due to a gain on sale of land of $0.3 million in the 2008 period that did not
recur in the current period, partially offset by a decrease in legal fees of
$0.2 million in the current period.
General
and administrative expense as a percentage of total revenue increased 3.1% to
12.8% for the 13 weeks ended April 1, 2009 from 9.7% for the 13 weeks ended
March 26, 2008. This increase was attributed to the reasons noted above and
lower revenue.
Interest
expense, net of interest income, decreased $1.2 million, or 15.7%, to $6.0
million for the 13 weeks ended April 1, 2009 from $7.2 million for the 13 weeks
ended March 26, 2008. Our average debt balances for the 2009 period decreased to
$240.7 million compared to $256.8 million for the 2008 period and our average
interest rate decreased to 8.86% for the 2009 period compared to 10.46% for the
2008 period.
The
Company had $0.2 million in income in the 2009 period related to the change in
the fair value of the interest rate swap agreement. The fixed
interest rate that the Company agreed to pay was higher than the floating rate
estimated for the life of the agreement that it will receive, resulting in an
estimated $1.8 million liability at April 1, 2009. This is a
reduction of the liability that was recorded at December 2008, resulting in
income of $0.2 million. The amount of the liability will increase or decrease
over the term of the swap agreement based on increases or decreases to the Libor
rate.
The
Company had $0.5 million in other income in the 2009 period attributed to a net
gain on the repurchase of a portion of the 2013 Notes. This gain is
net of the portion of the deferred finance costs associated with the
notes.
Our
provision for income taxes consisted of an income tax benefit of $0.1 million
and $0.3 million for the 13-week periods ended April 1, 2009 and March 26, 2008,
respectively, for an effective tax rate of 5.0% for 2009 and 37.1% for
2008.
As a
result of the factors above we had a net loss of $1.3 million and $0.5 million
for the 13 weeks ended April 1, 2009 and March 26, 2008, respectively, or (1.9)%
and (0.7)% as a percentage or restaurant revenue, for the 13 weeks ended April
1, 2009 and March 26, 2008, respectively.
Liquidity
and Capital Resources
Our
principal liquidity requirements are to service our debt and meet our capital
expenditure needs. At March 31, 2010, our total debt was $268.3 million,
compared to $268.2 million at December 30, 2009. Assuming we don’t buy back any
of these outstanding bonds, in May 2011, Intermediate is required to make a
redemption of a portion of our 2014 Notes at an estimated cost of approximately
$10.6 million. See “Debt and Other Obligations” below. Our ability to
make payments on our indebtedness, and to fund planned capital expenditures will
depend on our available cash and our ability to generate adequate cash flows in
the future, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control. Based on our current level of operations, we believe our
cash flow from operations, available cash of $10.9 million at March 31, 2010 and
the approximately $6.2 million that EPL had available at March 31, 2010, under
its credit agreement will be adequate to meet our liquidity needs for the next
12 months. The current economic crisis and resulting severely constrained
liquidity conditions, however, could make it more difficult or costly for us to
obtain debt financing or to refinance our existing debt if it becomes necessary,
and could make sources of liquidity unavailable. See “Debt and Other
Obligations”.
In the 13
week period ended March 31, 2010, our capital expenditures totaled $1.7 million,
consisting mainly of $1.1 million for restaurant image “refreshes” and $0.5
million for capitalized repairs of existing sites. Due to a reduced number of
expected new store openings in 2010 compared to prior years but increased
restaurant image “refreshes” in 2010, we expect our capital expenditures for
2010 to be approximately $7.0 to $8.0 million.
25
Cash and
cash equivalents, including restricted cash, decreased $0.4 million from $11.4
million at December 31, 2009 to $11.0 million at March 31, 2010. See “Working
Capital and Cash Flows” below for information explaining this
decrease. We cannot provide assurance that our business will generate
sufficient cash flow from operations or that future borrowings will be available
to EPL under EPL’s senior secured credit facilities in an amount sufficient to
enable us to service our indebtedness or to fund our other liquidity and capital
needs. If we acquire additional restaurants from franchisees, our
debt service requirements could increase. In addition, we may fund
restaurant openings through credit received by trade suppliers and landlord
contributions. If our cash flow from operations is inadequate to meet
our obligations under our indebtedness we may need to refinance all or a portion
of our indebtedness, including the notes, on or before maturity. We
cannot provide assurance that we will be able to refinance any of our
indebtedness, if necessary, on commercially reasonable terms or at
all.
As
discussed in Note 7, Commitments and Contingencies in our condensed and
consolidated financial statements, we are involved in various lawsuits,
including wage and hour class action lawsuits. In order to mitigate the adverse
effects of these cases, such as on-going legal expense, diversion of management
time, and the risk of a substantial judgment against us (which could occur even
if we believe we have a strong legal basis for our position), we have in the
past, and may in the future, settle these cases. Any substantial settlement
payments or damage awards against us if the cases go to trial could have a
material adverse effect on our liquidity and financial condition. In fiscal 2009
we agreed to settle various lawsuits for payments totaling $10.4 million of
which $8.0 million were made in January 2010. These payments were partially
offset by a $4.5 million settlement award we received in February
2010.
As a
holding company, the stock of EPL constitutes our only material asset. EPL
conducts all of our consolidated operations and owns substantially all of our
consolidated operating assets. Our principal source of the cash required to pay
our obligations is the cash that EPL generates from its operations. EPL is a
separate and distinct legal entity, has no obligation to make funds available to
us and currently has restrictions that limit distributions or dividends to be
paid by EPL to us. Furthermore, subject to certain restrictions, EPL is
permitted under the terms of EPL’s senior secured credit facilities and the
indentures governing the 2012 Notes, 2013 Notes and 2014 Notes to incur
additional indebtedness that may severely restrict or prohibit EPL from making
distributions or loans, or paying dividends, to us. If we are unable to obtain
cash from EPL or other sources, we will not be able to meet our debt and other
obligations. For the cash interest payment of approximately $2.1 million that
was due on May 15, 2010 for the 2014 Notes, EPL made a cash dividend
distribution to Intermediate to fully cover this cash interest
payment. As mentioned in this paragraph, EPL may or may not make
future funds available to Intermediate to service its debt. See “Debt and Other
Obligations – 2014 and 2013 Notes” for a description of a mandatory debt
redemption obligation we have in May 2011.
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 interest expense, lower sales and margins, and capital
expenditures. We typically do not have significant receivables or
inventories and we receive trade credit based upon negotiated terms in
purchasing food and supplies. Funds available from cash sales and franchise
revenue not needed immediately to pay for food and supplies or to finance
receivables or inventories typically have been used for the capital expenditures
referenced above and/or debt service payments under our existing indebtedness.
We expect our negative working capital balances to continue to increase, based
on the continuation of the economic downturn and our plan to continue to open
new restaurants.
During
the 13 weeks ended March 31, 2010, our cash and cash equivalents, including
restricted cash, decreased by $0.4 million to $11.0 million from the period
ended December 30, 2009. This decrease was due to the $1.7 million used for
capital expenditures and $0.1 million of capital lease payments offset by the
$1.4 million in cash provided from operating activities. The $1.2 million
decline in capital expenditures for the 13 week period 2010 compared to 2009 was
mainly due to decreased spending on new restaurants as we concentrated on
“refreshing” the majority of our units.
Debt
and Other Obligations
Credit
Facility
On May
22, 2009, EPL entered into a credit agreement (the "Credit Facility") with
Intermediate as guarantor, Jefferies Finance LLC, as administrative and
syndication agent, and the various lenders. The Credit Facility provides for a
$12.5 million revolving line of credit with borrowings limited at any time to
the lesser of (i) $12.5 million and (ii) the Company’s consolidated cash flow
for the most recently completed trailing twelve consecutive
months. EPL has $6.3 million of letters of credit outstanding as of
March 31, 2010.
The
Credit Facility bears interest, payable quarterly, at an Alternate Base Rate or
LIBOR, at EPL's option, plus an applicable margin. The applicable margin rate is
5.50% with respect to LIBOR and 4.50% with respect to Alternate Base Rate
advances. The Credit Facility is secured by a first priority lien on
substantially all of the Company’s assets and is guaranteed by Intermediate. The
Credit Facility matures on July 22, 2012.
26
The
Credit Facility contains a number of covenants that, among other things,
restrict, subject to certain exceptions, the Company’s ability to (i) incur
additional indebtedness or issue preferred stock; (ii) create liens on assets;
(iii) engage in mergers or consolidations; (iv) sell assets; (v) make certain
restricted payments; (vi) make investments, loans or advances; (vii) make
certain acquisitions; (viii) engage in certain transactions with affiliates;
(ix) change the Company’s lines of business or fiscal year; and (x) engage in
speculative hedging transactions. In addition, the Credit Agreement will require
the Company to maintain, on a consolidated basis, a minimum level of
consolidated cash flow at all times. As of March 31, 2010, the Company was in
compliance with all of the financial covenants contained in the Credit Facility
and had $6.2 million available for borrowings under the revolving line of
credit.
2012
Notes
On May
22, 2009, EPL issued $132,500,000 aggregate principal amount of 11 3/4%
senior secured notes due December 1, 2012 (the “2012 Notes”) in a private
placement. EPL sold the 2012 Notes at an issue price equal to 98.0% of the
principal amount, resulting in gross proceeds to EPL of $129,850,000 before
expenses and fees. Interest is payable each year in June and December beginning
December 1, 2009. The 2012 Notes are guaranteed by Intermediate and are secured
by a second priority lien on substantially all of the Company’s assets. The 2012
Notes may be redeemed at a premium, at the discretion of EPL, after March 1,
2011, or sooner in connection with certain equity offerings. If EPL undergoes
certain changes of control, each holder of the notes may require EPL to
repurchase all or a part of its notes at a price of 101% of the principal
amount. The Indenture governing the 2012 Notes contains a number of covenants
that, among other things, restrict, subject to certain exceptions, EPL’s ability
to incur additional indebtedness; pay dividends or certain restricted payments;
make certain investments; sell assets; create liens; merge; and enter into
certain transactions with its affiliates. As of March 31, 2010, we had $130.6
million outstanding in aggregate principal amount under our 2012 Notes. The
principal value of the 2012 Notes will increase (representing accretion of
original issue discount) from the date of original issuance so that the accreted
value of the 2012 Notes will be equal to the full principal amount of $132.5
million at maturity.
In
connection with the issuance of the 2012 notes, EPL filed a registration
statement on Form S-4 with the SEC in October 2009 and in December 2009, we
completed the exchange of these notes for registered, publicly traded notes that
have substantially identical terms of these notes.
EPL
incurred direct finance costs of approximately $9.2 million in connection with
sale of the 2012 Notes and the registration of these notes. These costs have
been capitalized and are included in other assets in the Company’s balance
sheet, and the related amortization is reflected as a component of interest
expense in the condensed consolidated statement of operations. The Company used
the net proceeds from the 2012 Notes to repay the credit facility with Merrill
Lynch, Bank of America, et al (which provided for a $104.5 million term loan and
a $25.0 million revolving loan) and its 9 ¼% Senior Secured Notes due
2009.
As of
March 31, 2010, we calculated our “fixed charge coverage ratio” (as defined
in the indenture governing the 2012 Notes) at 1.18 to 1. The indenture permits
us to incur indebtedness or issue disqualified stock, and the Company’s
restricted subsidiaries to incur indebtedness or issue preferred stock, if our
fixed charge coverage ratio for the most recently ended four full fiscal
quarters would have been at least 2.0 to 1, as determined on a pro forma basis
as if such indebtedness had been incurred or the disqualified stock or the
preferred stock had been issued at the beginning of such four-quarter period.
Since EPL does not currently meet the fixed charge coverage ratio, EPL is not
permitted to incur additional indebtedness under the terms of the 2012 Notes. A
failure to meet the ratios affects only our ability to incur additional
indebtedness and does not constitute a default under these Notes.
2014
and 2013 Notes
At March 31, 2010, Intermediate had
$29.3 million outstanding in aggregate principal amount of 14½% Senior Discount
Notes due 2014. No cash interest accrued on the 2014 Notes prior to November 15,
2009. Instead, the principal value of the 2014 Notes increased (representing
accretion of original issue discount) from the date of original issuance until
but not including November 15, 2009 at a rate of 14 ½ % per annum compounded
annually, so that the accreted value of the 2014 Notes on November 15, 2009 was
equal to the full principal amount of $29.3 million at maturity. Beginning on
November 15, 2009, interest accrues on the 2014 Notes at an annual rate of 14 ½
% per annum payable
semi-annually in arrears on May 15 and November 15 of each year, beginning May
15, 2010. Principal is due on November 15, 2014. The 2014 Notes are unsecured
and are not guaranteed.
27
If any of
the 2014 Notes are outstanding at May 15, 2011, Intermediate is required to
redeem for cash a portion of each note then outstanding at 104.5% of the
accreted value of such portion of such note, plus accrued and unpaid interest,
if any. Based on the principal amount of the 2014 Notes outstanding at March 31,
2010, it is estimated that we will be required to pay approximately $10.6
million in May 2011 to satisfy the mandatory redemption requirement.
Additionally, we may, at our discretion, redeem any or all of these notes,
subject to certain provisions contained in the indenture governing these
notes. As a holding company, Intermediate has no direct operations
and substantially no assets other than ownership of 100% of the stock of EPL.
Intermediate’s principal source of the cash required to pay its obligations is
the cash that EPL generates from its operations, EPL is a separate and distinct
legal entity and has no obligation to make funds available to
Intermediate. See Note 15 to our Condensed Consolidated Financial
Statements for condensed consolidating financial statements of Intermediate and
EPL.
As of
March 31, 2010, we had $106.4 million outstanding in aggregate principal amount
of 11 3/4% senior secured notes due 2013.
As of
March 31, 2010, we calculated our “fixed charge coverage ratio” and our
“consolidated leverage ratio” (as defined in the indenture governing the
2014 Notes) at 1.15 to 1 and 7.01 to 1, respectively. Similar ratios exist in
the indenture governing the 2013 Notes. The indenture permits us to incur
indebtedness that (a) is contractually subordinated to the 2014 Notes, (b) has a
maturity date after November 15, 2014, and (c) does not provide for payment of
cash interest prior to November 15, 2014. The indenture also permits us to incur
indebtedness if our fixed charge coverage ratio for the most recently ended four
full fiscal quarters would have been at least 2.0 to 1, and if our consolidated
leverage ratio would have been equal to or less than 7.5 to 1, all as determined
on a pro forma basis as if such indebtedness had been incurred at the beginning
of such four-quarter period. Since EPL does not currently meet the fixed charge
coverage ratio, EPL is not permitted to incur additional indebtedness under the
terms of the 2013 and 2014 Notes. A failure to meet the ratios affects only our
ability to incur additional indebtedness and does not constitute a default under
these Notes.
Other
Obligations
At March
31, 2010, we had outstanding letters of credit totaling $6.3 million, which
served primarily as collateral for our various workers’ compensation insurance
programs.
We have
certain land and building leases for which the building portion is treated as a
capital lease. These assets are amortized over the shorter of the lease term or
useful life.
Franchisees
pay a monthly advertising fee of 4% of gross sales for the Los Angeles,
California designated market area and 5% of gross sales for other markets.
Pursuant to our Franchise Disclosure Document, we contribute, where we have
company-operated restaurants, to the advertising fund on the same basis as
franchised restaurants. Under our franchise agreements, we are obligated to use
all advertising fees collected from franchisees to purchase, develop and engage
in advertising, public relations and marketing activities to promote the El
Pollo Loco®
brand.
Critical
Accounting Policies and Estimates
The
preparation of our financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. On an ongoing basis, we evaluate our estimates and judgments, including
those related to recoverability of fixed assets, intangible assets, closed
restaurants, workers’ compensation insurance, the cost of our self-insured
health benefits, the realization of gross deferred tax assets, tax reserves, and
contingent liabilities including the outcome of litigation. We base our
estimates and judgments on historical experience and on various other factors
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. A summary
of our critical accounting policies and estimates is included in our Annual
Report on Form 10-K (File No. 333-115644) as filed with the Securities and
Exchange Commission on March 30, 2010.
28
Litigation
Contingency
As
discussed in Note 7 to our Condensed Consolidated Financial Statements in
Part I of this Report, we are subject to employee claims against us based, among
other things, on discrimination, harassment, wrongful termination, or violation
of wage and labor laws in the ordinary course of business. These
claims may divert our financial and management resources that would otherwise be
used to benefit our operations. In recent years a number of restaurant companies
have been subject to wage and hour class action lawsuits alleging violations of
federal and state labor laws. A number of these lawsuits have
resulted in the payment of substantial damages by the defendants. We
are currently a defendant in several wage and hour class action
lawsuits. Since our insurance carriers have denied coverage of these
claims, a significant judgment against us could adversely affect our financial
condition and adverse publicity resulting from these allegations could adversely
affect our business. In an effort to mitigate these adverse consequences, we
have in the past, and could in the future, seek to settle certain of these
lawsuits. The on-going expense of these lawsuits, and any substantial
settlement payment or judgment against us, could adversely affect our business,
financial condition, operating results or cash flows. In 2009, we
accrued $10.4 million for litigation settlements. Due to payments made during
the first quarter of 2010, the remaining accrued liability was $3.0 million at
March 31, 2010.
Off-Balance
Sheet and Other Arrangements
As of
March 31, 2010 and April 1, 2009, we had approximately $6.3 million and $6.3
million, respectively, of borrowing capacity on the revolving portion of our
senior credit facility pledged as collateral to secure outstanding letters of
credit.
As a
result of assigning our interest in obligations under real estate leases in
connection with the sale of company-owned restaurants to some of our
franchisees, we are contingently liable on six lease
agreements. These leases have various terms, the latest of which
expires in 2015. As of March 31, 2010, the potential amount of
undiscounted payments we could be required to make in the event of non-payment
by the primary lessee was approximately $1.3 million. The present
value of these potential payments discounted at our estimated pre-tax cost of
debt at March 31, 2010 was approximately $1.0 million. Our franchisees are
primary liable on the leases. We have cross-default provisions with
these franchisees that would put them in default of their franchise agreement in
the event of non-payment under the leases. We believe these
cross-default provisions reduce our risk that we will be required to make
payments under these leases.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
The
inherent risk in market risk sensitive instruments and positions primarily
relates to potential losses arising from adverse changes in interest rates. We
are subject to market risk from exposure to changes in interest rates based on
our financing activities. This exposure relates to borrowings under EPL’s senior
secured credit facility that bears interest at floating rates. As of March
31, 2010, we had no amounts outstanding under this facility.
We
purchase food and other commodities for use in our operations based on market
prices established with our suppliers. Many of the commodities purchased
by us can be subject to volatility due to market supply and demand factors
outside of our control. To manage this risk in part, we attempt to enter
into fixed price or floor/ceiling purchase commitments, with terms typically of
one to two years, for our chicken requirements. Substantially all of our
food and supplies are available from several sources, which help to diversify
our overall commodity cost risk. In addition, we may have the ability to
increase certain menu prices, or vary certain menu items offered, in response to
food commodity price increases. We do not use financial instruments to hedge
commodity prices, since our purchase arrangements with suppliers, to the extent
that we can enter into such arrangements, help control the ultimate cost that we
pay.
Item
4T. Controls and Procedures
Our Chief
Executive Officer and Chief Financial Officer have concluded that the design and
operation of our disclosure controls and procedures are effective as of March
31, 2010. This conclusion is based on an evaluation conducted under the
supervision and with the participation of Company management. Disclosure
controls and procedures are those controls and procedures which are designed to
ensure that information required to be disclosed in our SEC filings and
submissions is accumulated and communicated to management and is recorded,
processed, summarized and reported in a timely manner and in accordance with SEC
rules and regulations.
There
have been no changes in our internal control over financial reporting that
occurred during our 13 weeks ended March 31, 2010 that materially affect, or are
reasonably likely to materially affect, our internal control over financial
reporting.
29
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
The
information set forth in Note 7 to our Condensed Consolidated Financial
Statements in Part I of this Report is incorporated herein by this
reference.
Also see
our Annual Report on Form 10-K for the year ended December 30, 2009 as filed
with the SEC on March 30, 2010.
Item
5. Other Information
On May
17, 2010, the Company issued a press release reporting results of operations for
the first quarter ended March 31, 2010. A copy of the press release
is being furnished as Exhibit 99.1 hereto and is incorporated herein by this
reference. We do not intend for this exhibit to be incorporated by reference
into any other filings we make with the SEC. This information is provided in
this Report in response to Item 2.02, Results of Operations and Financial
Condition, and Item 9.01, Financial Statements and Exhibits, of Form 8-K in lieu
of filing a Form 8-K.
30
Item
6. Exhibits
Exhibit
|
||
Number
|
Description of
Documents
|
|
10.1
|
Agreement
dated February 26, 2010, between El Pollo Loco, Inc. and Koch Foods,
Inc.*
|
|
31.1
|
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934
|
|
31.2
|
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934
|
|
32.1
|
Certification
Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
Act of 1934
|
|
32.2
|
Certification
Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
Act of 1934
|
|
99.1
|
Press
Release dated May 17, 2010
|
|
*Certain
confidential portions of this exhibit have been redacted and filed
separately with the Commission pursuant to a Confidential Treatment
Request.
|
31
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
EPL INTERMEDIATE,
INC.
|
|
Date:
May 17, 2010
|
By:
|
/s/ Stephen E. Carley
|
|
Stephen
E. Carley
|
|
|
President
|
|
|
||
|
By:
|
/s/ Gary Campanaro
|
|
Gary
Campanaro
|
|
|
Chief
Financial Officer and
Treasurer
|
32
EXHIBIT
INDEX
Exhibit
|
||
Number
|
Description of
Documents
|
|
10.1
|
Agreement
dated February 26, 2010, between El Pollo Loco, Inc. and Koch Foods,
Inc.*
|
|
31.1
|
Certification
Pursuant to Rule 13-a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934
|
|
31.2
|
Certification
Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
Act of 1934
|
|
32.1
|
Certification
Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
Act of 1934
|
|
32.2
|
Certification
Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
Act of 1934
|
|
99.1
|
Press
Release dated May 17, 2010
|
|
*Certain
confidential portions of this exhibit have been redacted and filed
separately with the Commission pursuant to a Confidential Treatment
Request.
|
33