EPL Intermediate, Inc. Announces Results for the Year Ended December 31, 2008

EPL Intermediate, Inc. ('El Pollo Loco' or the 'Company'), parent company of El Pollo Loco, Inc., today reported results for its year ended December 31, 2008. For purposes of simplicity, the Company has described the fiscal years ended December 31, 2008 and December 26, 2007 as December 31, 2008 and December 31, 2007, respectively.

El Pollo Loco reported operating revenue for the year ended December 31, 2008 of $298.9 million, which is an increase of $19.9 million, or 7.1%, over operating revenues for the year ended December 31, 2007 of $279.0 million. Operating revenue includes sales from company-owned stores and revenue earned from our franchise activities. The increase in company-operated restaurant revenue is attributed to several factors, including growth in the number of new company and franchise-operated restaurants, price increases of 2.0% and 1.2% in January and October, respectively, and 0.5% in smaller increases taken at different times in 2008, an extra week of sales in 2008 compared to 2007 due to our 53/52 week years, and a 0.2% increase in same-store sales. El Pollo Loco was able to achieve growth in company-operated restaurant revenue despite a transaction decrease of 1.9%, which reflected the higher unemployment and reduced discretionary spending caused by the current economic crisis.

Same-store sales for the system (includes both company and franchise locations) and company-operated stores both increased a modest 0.2% in 2008, also reflecting the difficult economic environment and intense competition. Restaurants enter the comparable restaurant base for same-store sales the first full week after that restaurant's 15-month anniversary.

Changes in operating expenses in 2008 (during which we had as extra week of operations compared to 2007) include:

●, an increase in product cost of $8.2 million, or 10.1%, to $89.4 million for 2008 from $81.2 million for 2007.

Product costs were 32.1% as a percentage of restaurant revenue for 2008 compared to 31.2% for 2007. The 0.9% increase in 2008 resulted primarily from increases in commodity costs, offset partially by menu price increases taken in 2008.

●, an increase in payroll and benefit expenses of $5.6 million, or 8.3%, to $73.1 million for 2008 from $67.5 million for 2007. This increase is primarily attributed to more restaurants opened, the additional week of salaries of approximately $1.1 million in 2008 since it was a 53-week year, and the California minimum wage increase effective January 1, 2008.

As a percentage of restaurant revenue, payroll and benefits expenses increased 0.3% to 26.3% for 2008 from 26.0% for 2007.


●, an increase in general and administrative expenses of $9.1 million for the 2008 period due to a $10.7 million expense in the second quarter to settle litigation between El Pollo Loco Mexico, S. A. de C.V. and El Pollo Loco, Inc. Excluding this settlement expense, general and administrative expense decreased $1.6 million, or 5.3%, to $28.6 million for 2008 from $30.2 million in 2007.

Excluding the settlement expense, general and administrative expense as a percentage of restaurant revenue was 10.3% and 11.6% for 2008 and 2007, respectively. This percentage decrease in general and administrative expenses was primarily due to a $2.8 million loss recognized in the 2007 period from the sale of eight company restaurants that did not occur in the 2008 period. The decrease was also due to lower bonus expense of $1.9 million as we did not achieve our budget goals in 2008 and decreased expense for outside services of $0.6 million, which is primarily attributed to decreased spending on Sarbanes Oxley compliance. The decrease in expense was partially offset by a non-cash impairment charge in the current period of $1.9 million, which was recorded by the Company for three under-performing company-operated stores that will continue to operate, and higher salaries and wages of $1.5 million attributed primarily to increased headcount and the additional week of salaries of $0.3 million in 2008 since it was a 53-week year.

Due to the downturn in the economy and its adverse effect on estimated cash flow, and based on an independent valuation of the Company, El Pollo Loco recorded a goodwill impairment of $24.5 million and a $17.6 million impairment of domestic trademarks in 2008. The impairments recorded in 2008 are non-cash in nature and do not affect our liquidity, cash flows, or compliance with our debt covenants.

Primarily as a result of the litigation settlement and goodwill impairment, operating income (loss) decreased $53.3 million to ($25.1) million for 2008 from $28.2 million for 2007.

Interest expense, net of interest income, decreased $3.2 million, or 10.9%, to $26.0 million in 2008 from $29.2 million in 2007. During 2008, we repurchased a portion of our 2014 and 2013 Notes, so our average debt balances for 2008 decreased to $251.9 million compared to $262.2 million for 2007, and our average interest rate decreased to 9.81% for 2008 from 10.61% for 2007.

Our provision for income taxes consisted of an income tax benefit of $12.1 million in 2008 compared to income tax expense of $3.1 million in 2007.

As a result of the aggregate of $42.1 million in goodwill and domestic trademarks impairment charges and the $10.7 million litigation settlement expense in 2008, the Company had a net loss for the year ended December 31, 2008 of $39.5 million, or (14.2%) as a percentage of restaurant revenue, compared to a net loss of $4.0 million, or (1.6%), for the year ended December 31, 2007. Excluding these two items, the Company would have had pre-tax net income of $1.3 million compared to the prior year's pre-tax loss of $0.9 million.

Commenting on the Company's 2008 results, Stephen E. Carley, president and CEO of El Pollo Loco, Inc., said, 'During 2008, we experienced an increasingly difficult economy that drew intense, year round competition from quick service restaurant chains in the form of widespread discounting and value menus. Despite these challenges, we were able to maintain positive system-wide same-store sales growth for the ninth consecutive year.

'As we anticipated, 2009 is proving to be even more challenging with further contraction in the economy, a continuing slowdown in consumer spending, accelerating job losses, and the fiercest competition ever for consumers' shrinking dollars,' said Carley. 'Additionally, restaurant companies continue to face increases in commodity costs, along with higher labor costs due to state and federal minimum wage increases. While we implemented menu price increases in January and October of 2008 to partially offset these cost increases, if inflationary pressures require more aggressive menu price increases to protect margins, restaurant traffic could continue to be at risk.'

Carley added, 'Despite the bleak outlook for the U.S. economy in 2009, we are keenly focused on turning this turbulent time into a defining event that strengthens our brand. Our focus in 2009 will be on delivering exceptional guest service, designing a compelling and less costly restaurant prototype to fuel our future growth, developing appealing new products featuring our citrus-marinated, flame-grilled chicken that fit consumers' changing lifestyles and palates, and introducing promotions that deliver the price-value equation consumers demand during these challenging times.'

Addressing the Company's expansion, Carley said, 'We continued our restaurant growth in 2008, opening 30 restaurants, nine are company-owned and 21 are franchised locations. Our 2008 development included our first restaurants in Washington, Oregon, Virginia and Utah.'

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