SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2004
or
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 333-115486
El Pollo Loco, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 33-0377527 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
3333 Michelson Drive, Suite 550
Irvine, California 92612
(Address of principal executive offices)
Registrant’s telephone number, including area code:
(949) 399-2000
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 ¨ No x
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
As of May 13, 2004, the registrant had 100 shares of its common stock, $.01 par value, outstanding.
TABLE OF CONTENTS
| Item |
Page | |||
| PART I | ||||
| 1. | 4 | |||
| 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
12 | ||
| 3. | 18 | |||
| 4. | 18 | |||
| PART II | ||||
| 4. | 19 | |||
| 6. | 19 |
2
FORWARD-LOOKING STATEMENTS
Certain statements contained within this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “project,” “plan,” “will,” “should,” “may,” “could” or words or phrases of similar meaning.
These forward-looking statements reflect our current views with respect to future events and are based on assumptions and are subject to risks and uncertainties. Also, these forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing obligation to disclose material information as required by federal securities laws, we do not intend to update you concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date of this report.
Factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements include our substantial level of indebtedness, food-borne-illness incidents, increases in the cost of chicken, our dependence upon frequent deliveries of food and other supplies, our vulnerability to changes in consumer preferences and economic conditions, our sensitivity to events and conditions in the greater Los Angeles area, our ability to compete successfully with other quick service and fast casual restaurants, our ability to expand into new markets, our reliance in part on our franchisees, our ability to support our expanding franchise system and litigation we face in connection with our operations. Actual results may differ materially due to these risks and uncertainties and those described in our Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on May 13, 2004.
3
PART I
| Item 1. | Financial Statements |
EL POLLO LOCO, INC.
(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2003 AND MARCH 31, 2004 (UNAUDITED) (In thousands)
| DECEMBER 31, 2003 |
MARCH 31, 2004 | |||||
| ASSETS |
||||||
| CURRENT ASSETS: |
||||||
| Cash and cash equivalents |
$ | 5,353 | $ | 7,190 | ||
| Notes and accounts receivable—net |
2,588 | 2,903 | ||||
| Inventories |
1,225 | 1,023 | ||||
| Prepaid expenses and other current assets |
2,562 | 3,229 | ||||
| Income taxes receivable |
709 | 709 | ||||
| Deferred income taxes |
2,893 | 2,893 | ||||
| Total current assets |
15,330 | 17,947 | ||||
| PROPERTY OWNED—Net |
59,397 | 58,966 | ||||
| PROPERTY HELD UNDER CAPITAL |
||||||
| LEASES—Net |
5,907 | 5,622 | ||||
| GOODWILL |
37,898 | 37,898 | ||||
| DOMESTIC TRADEMARKS |
19,800 | 19,800 | ||||
| OTHER INTANGIBLE ASSETS—Net |
25,852 | 25,150 | ||||
| OTHER ASSETS |
679 | 633 | ||||
| TOTAL |
$ | 164,863 | $ | 166,016 | ||
See accompanying notes to condensed financial statements.
4
EL POLLO LOCO, INC.
(A Wholly Owned Subsidiary of EPL, Intermediate, Inc.)
CONDENSED BALANCE SHEETS
DECEMBER 31, 2003 AND MARCH 31, 2004 (UNAUDITED) (In thousands, except share data)
| DECEMBER 31, 2003 |
MARCH 31, 2004 |
|||||||
| LIABILITIES AND STOCKHOLDER’S DEFICIENCY |
||||||||
| CURRENT LIABILITIES: |
||||||||
| Current portion of notes payable to SunTrust Bank |
$ | 3,667 | $ | 3,667 | ||||
| Current portion of obligations under capital leases |
1,262 | 1,262 | ||||||
| Current portion of other notes payable |
1,222 | 1,102 | ||||||
| Accounts payable |
8,779 | 6,907 | ||||||
| Accrued salaries |
5,707 | 3,782 | ||||||
| Accrued vacation |
1,285 | 1,351 | ||||||
| Accrued insurance |
2,248 | 2,475 | ||||||
| Income taxes payable |
— | 1,170 | ||||||
| Accrued interest |
367 | 2,911 | ||||||
| Accrued advertising |
279 | 1,565 | ||||||
| Other accrued expenses and current liabilities |
4,284 | 3,888 | ||||||
| Total current liabilities |
29,100 | 30,080 | ||||||
| NONCURRENT LIABILITIES: |
||||||||
| Senior secured notes |
110,000 | 110,000 | ||||||
| Notes payable to SunTrust Bank—less current portion |
7,333 | 6,417 | ||||||
| Obligations under capital leases—less current portion |
7,922 | 7,636 | ||||||
| Other notes payable—less current portion |
1,824 | 1,722 | ||||||
| Deferred income taxes |
2,804 | 2,804 | ||||||
| Other noncurrent liabilities |
8,496 | 8,289 | ||||||
| Total noncurrent liabilities |
138,379 | 136,868 | ||||||
| COMMITMENTS AND CONTINGENCIES |
||||||||
| STOCKHOLDER’S DEFICIENCY: |
||||||||
| Common stock, $.01 par value – 20,000 shares authorized; 100 shares issued and outstanding |
— | — | ||||||
| Additional paid-in-capital |
— | — | ||||||
| Accumulated deficit |
(2,616 | ) | (932 | ) | ||||
| Total stockholder’s deficiency |
(2,616 | ) | (932 | ) | ||||
| TOTAL |
$ | 164,863 | $ | 166,016 | ||||
See accompanying notes to condensed financial statements.
5
EL POLLO LOCO, INC.
(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 26, 2003 AND MARCH 31, 2004 (UNAUDITED)
(In thousands)
| MARCH 26, 2003 |
MARCH 31, 2004 | ||||||
| OPERATING REVENUE: |
|||||||
| Restaurant revenue |
$ | 43,004 | $ | 50,454 | |||
| Franchise revenue |
2,976 | 3,387 | |||||
| Total operating revenue |
45,980 | 53,841 | |||||
| OPERATING EXPENSES: |
|||||||
| Product cost |
13,156 | 15,554 | |||||
| Payroll and benefits |
12,615 | 14,007 | |||||
| Depreciation and amortization |
2,995 | 3,176 | |||||
| Other operating expenses |
14,155 | 14,668 | |||||
| Total operating expenses |
42,921 | 47,405 | |||||
| OPERATING INCOME |
3,059 | 6,436 | |||||
| INTEREST EXPENSE—Net |
1,577 | 3,582 | |||||
| INCOME BEFORE PROVISION FOR INCOME TAXES |
1,482 | 2,854 | |||||
| PROVISION FOR INCOME TAXES |
608 | 1,170 | |||||
| NET INCOME |
874 | 1,684 | |||||
| OTHER COMPREHENSIVE LOSS: |
|||||||
| Unrealized net loss on valuation of interest rate swap—net of income taxes of $6 for the three months ended March 26, 2003 |
(9 | ) | — | ||||
| COMPREHENSIVE INCOME |
$ | 865 | $ | 1,684 | |||
See accompanying notes to condensed financial statements.
6
EL POLLO LOCO, INC.
(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 26, 2003 AND MARCH 31, 2004 (UNAUDITED)
(In thousands)
| MARCH 26, 2003 |
MARCH 31, 2004 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | 874 | $ | 1,684 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation and amortization of property and intangible assets |
2,994 | 3,176 | ||||||
| Loss on disposal of assets |
1 | — | ||||||
| Amortization of deferred financing costs |
118 | 293 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Notes and accounts receivable—net |
(27 | ) | (315 | ) | ||||
| Inventories |
7 | 202 | ||||||
| Prepaid expenses and other current assets |
(103 | ) | (667 | ) | ||||
| Income taxes receivable/payable |
(197 | ) | 1,170 | |||||
| Other assets |
(128 | ) | 46 | |||||
| Accounts payable |
1,842 | (443 | ) | |||||
| Accrued salaries and vacation |
(1,190 | ) | (1,859 | ) | ||||
| Accrued insurance |
151 | 227 | ||||||
| Accrued interest |
695 | 2,544 | ||||||
| Accrued advertising |
820 | 1,286 | ||||||
| Other accrued expenses and liabilities |
(1,029 | ) | (603 | ) | ||||
| Net cash provided by operating activities |
4,828 | 6,741 | ||||||
| CASH FLOW FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of property |
(1,857 | ) | (2,121 | ) | ||||
| Net cash used in investing activities |
(1,857 | ) | (2,121 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Payment of obligations under capital leases |
(251 | ) | (286 | ) | ||||
| Payments on notes payable |
(1,859 | ) | (1,138 | ) | ||||
| Proceeds from notes payable |
||||||||
| Deferred financing costs |
— | (1,359 | ) | |||||
| Net cash used in financing activities |
(2,110 | ) | (2,783 | ) | ||||
(Continued)
7
EL POLLO LOCO, INC.
(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)
CONDENSED STATEMENTS OF CASH FLOW
THREE MONTHS ENDED MARCH 26, 2003 AND MARCH 31, 2004 (UNAUDITED)
(In thousands)
| MARCH 26, 2003 |
MARCH 31, 2004 | |||||
| INCREASE IN CASH AND CASH EQUIVALENTS |
$ | 861 | $ | 1,837 | ||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
2,895 | 5,353 | ||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD |
$ | 3,756 | $ | 7,190 | ||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION—Cash paid during the period for: |
||||||
| Interest |
$ | 1,171 | $ | 180 | ||
| Income taxes |
$ | 805 | $ | — | ||
(Concluded)
See accompanying notes to condensed financial statements.
8
EL POLLO LOCO, INC.
(A Wholly Owned Subsidiary of EPL Intermediate, Inc.)
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
| 1. | Basis of Presentation |
The accompanying condensed financial statements are unaudited. El Pollo Loco, Inc. (the “Company”) prepared these condensed financial statements in accordance with the Securities and Exchange Commission’s instructions for Quarterly Reports on Form 10-Q. In compliance with those instructions, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.
The accompanying financial statements include all adjustments (consisting of normal recurring adjustments and accruals) that management considers necessary for a fair presentation of its financial position and results of operations for the interim periods presented. The results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.
The accompanying condensed financial statements should be read in conjunction with the Company’s audited financial statements and related notes thereto included in the Company’s Registration Statement on Form S-4 as filed with the Securities and Exchange Commission on May 13, 2004.
The Company uses a 52-, 53-week fiscal year ending on the last Wednesday of the calendar year. In a 52-week fiscal year, each quarter includes 13 weeks of operations; in a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations and the fourth quarter includes 14 weeks of operations. Fiscal year 2003, which ended December 31, 2003, was a 53-week fiscal year. Fiscal year 2004, which will end December 30, is a 52-week fiscal year.
The Company is a wholly-owned subsidiary of EPL Intermediate, Inc. (“EPLI”), which is a wholly-owned subsidiary of EPL Holdings, Inc. (“Holdings”).
| 2. | Stock-Based Compensation |
The Company uses the intrinsic value method to account for employee stock options in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees. Under APB Opinion No. 25, the Company does not recognize compensation expense related to employee stock options if the exercise price of the options is equal to or greater than the market price of the underlying stock on the date of grant.
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, the recognition of compensation expense for employee stock-based compensation arrangements using the minimum value method of accounting. The Company has elected the “disclosure only” alternative permitted by SFAS No. 123 and has disclosed pro forma net income amounts using the minimum value method. In accordance with SFAS No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure—an amendment of FASB Statement No. 123, the following pro forma disclosure is required.
Had compensation expense for the stock options in Holdings issued to and held by the Company’s employees and one member of its board of directors been recognized based on the minimum value on the grant date under the methodology prescribed by SFAS No. 123, the Company’s net income for the three months ended March 26, 2003 and March 31, 2004 would have been impacted as shown in the following table (in thousands):
| Three Months Ended | ||||||
| March 26, 2003 |
March 31, 2004 | |||||
| Net income, as reported |
$ | 874 | $ | 1,684 | ||
| Deduct: |
||||||
| Total stock based employee compensation expense determined under the minimum value based method for all awards, net of related tax effects |
37 | 20 | ||||
| </ | ||||||