<PAGE> 1
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended OCTOBER 4, 1996
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 number: 0-28234
CASA OLE' RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0493269
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1135 EDGEBROOK, HOUSTON, TEXAS 77034-1899
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 713/943-7574
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of each of the issuer's classes of common stock,
as of November 14, 1996: 3,597,705 SHARES OF COMMON STOCK, PAR VALUE $.01.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASA OLE' RESTAURANTS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 12/29/95 10/4/96
- ------ ------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,003,585 $ 8,231,594
Royalties receivable 125,983 99,780
Receivables from affiliates 32,701 --
Other receivables 33,554 133,461
Notes receivable from related parties 38,964 28,964
Inventory 160,442 165,288
Prepaid expenses and other current assets 84,337 291,979
------------ ------------
Total current assets 1,479,566 8,951,066
------------ ------------
Property, plant and equipment 4,787,706 5,887,216
Less accumulated depreciation 3,408,945 3,405,233
------------ ------------
Net property, plant and equipment 1,378,761 2,481,983
------------ ------------
Other assets -- 20,929
============ ============
$ 2,858,327 $ 11,453,978
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Current installments of long-term debt $ 182,959 $ 42,824
Accounts payable 267,956 424,509
Accrued income taxes -- 126,541
Accrued sales and liquor taxes 116,474 130,201
Accrued payroll and taxes 127,951 204,571
Accrued expenses 166,261 232,674
------------ ------------
Total current liabilities 861,601 1,161,320
------------ ------------
Long-term debt 62,486 2,629
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized -- --
Capital stock 141,660 47,327
Additional paid-in capital 2,069,922 20,700,302
Retained earnings (deficit) (77,342) 892,400
Treasury stock, at cost (200,000) (11,350,000)
------------ ------------
Total stockholders' equity 1,934,240 10,290,029
------------ ------------
$ 2,858,327 $ 11,453,978
============ ============
</TABLE>
2
<PAGE> 3
CASA OLE' RESTAURANTS, INC.
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
40-WEEK PERIODS ENDED 12-WEEK PERIODS ENDED
10/6/95 10/4/96 10/6/95 10/4/96
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 12,780,576 $ 13,122,072 $ 3,798,108 $ 4,031,790
Franchise fees 686,686 741,656 268,434 269,648
Other 41,158 49,658 17,534 2,401
------------ ------------ ------------ ------------
13,508,420 13,913,386 4,084,076 4,303,839
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 3,214,175 3,296,137 978,789 1,012,382
Restaurant operating expenses 7,537,789 7,230,063 2,194,407 2,215,251
General and administrative 1,480,796 1,581,590 412,179 483,593
Depreciation and amortization 202,720 133,353 55,799 39,459
------------ ------------ ------------ ------------
12,435,480 12,241,143 3,641,174 3,750,685
------------ ------------ ------------ ------------
Operating income 1,072,940 1,672,243 442,902 553,154
Other income (expense):
Interest (31,947) 174,742 (6,877) 109,064
Other, net 57,991 172,889 2,515 32,199
------------ ------------ ------------ ------------
26,044 347,631 (4,362) 141,263
Income before income tax expense 1,098,984 2,019,874 438,540 694,417
Income tax expense 57,273 596,742 17,316 249,360
------------ ------------ ------------ ------------
Net income $ 1,041,711 $ 1,423,132 $ 421,224 $ 445,057
============ ============ ============ ============
Pro forma income statement data:
Net income as reported $ 1,041,711 $ 1,423,132 $ 421,224 $ 445,057
Pro forma adjustments:
Compensation and related party
expense arrangements 630,770 161,700 189,231 --
Provision for income taxes (582,736) (210,422) (214,960) --
============ ============ ============ ============
Pro forma net income $ 1,089,745 $ 1,374,410 $ 395,495 $ 445,057
============ ============ ============ ============
Pro forma net income per share $ 0.39 $ 0.42 $ 0.14 $ 0.12
============ ============ ============ ============
Pro forma weighted average
number of shares 2,793,116 3,303,874 2,793,116 3,713,280
============ ============ ============ ============
</TABLE>
3
<PAGE> 4
CASA OLE' RESTAURANTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
4-WEEK PERIODS ENDED
----------------------------
October 6, October 4,
1995 1996
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,041,711 $ 1,423,132
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 202,720 133,353
(Gain) loss on sale of fixed assets (1,948) 28,035
Changes in assets and liabilities:
Royalties receivable -- 26,203
Receivable from affiliates (92,292) 32,701
Other receivables (145,377) (99,907)
Inventory 2,612 (4,846)
Prepaids and other current assets (30,304) (207,642)
Accounts payable (138,148) 156,553
Accrued expenses and other liabilities 117,670 91,379
Other assets (22,904) (20,929)
---------- ------------
Total adjustments (107,971) 134,900
---------- ------------
Net cash provided by operating activities 933,740 1,558,032
---------- ------------
Cash flows from investing activities:
Collection (issuance) of notes receivable (103,965) 10,000
Purchase of property, plant and equipment (78,111) (1,324,607)
Proceeds from sale of property, plant
and equipment 5,000 6,100
---------- ------------
Net cash used in investing activities (177,076) (1,308,507)
---------- ------------
Cash flows from financing activities:
Payment of dividends and distributions (655,000) (1,313,417)
Proceeds from sale of common stock -- 19,787,996
Purchase of treasury stock -- (11,350,000)
Payments of notes payable (112,193) (146,095)
---------- ------------
Net cash provided by (used in)
financing activities (767,193) 6,978,484
---------- ------------
Increase in cash and cash equivalents (10,529) 7,228,009
Cash and cash equivalents at beginning of period 947,497 1,003,585
---------- ------------
Cash and cash equivalents at end of period $ 936,968 $ 8,231,594
========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 43,032 $ 18,532
Income taxes $ -- $ 390,000
Non-cash transactions during the period:
Equipment disposal for note payable balance $ -- $ 53,897
Accrual of distributions $ -- $ 191,922
</TABLE>
4
<PAGE> 5
CASA OLE' RESTAURANTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Casa Ole Restaurants, Inc. (the "Company"), the
accompanying combined financial statements contain all adjustments
(consisting only of normal recurring accruals and adjustments) necessary
for a fair presentation of the combined financial position as of October
4, 1996, and the combined statements of income and cash flows for the
40-week and 12-week periods ended October 4, 1996 and October 6, 1995.
The combined statements of income for the 40-week and 12-week periods
ended October 4, 1996, are not necessarily indicative of the results to
be expected for the full year.
2. ACCOUNTING POLICIES
During the interim periods the Company follows the accounting
policies set forth in its combined financial statements in its
Prospectus dated April 25, 1996. Reference should be made to such
financial statements for information on such accounting policies and
further financial details.
3. PRO FORMA DATA
The pro forma income statement data reflects adjustments to
compensation and related party expense arrangements, and reflects an
adjustment to the provision for income taxes to reflect a 37% effective
tax rate, as if the Company had been taxed as a C corporation prior to
the effective date of the Company's initial public offering.
Pro forma weighted average shares for the 40-week and 12-week
periods ended October 6, 1995, and the 16-week period ended April 19,
1996, represent the number of shares (2,732,705) issued pursuant to the
contribution agreement for the predecessor companies (effective April
24, 1996) and 60,411 shares assumed to be issued to fund certain S
corporation distributions. Pro forma weighted average shares for the
24-week and 12-week periods ended October 4, 1996, represent the number
of shares (2,732,705) issued pursuant to the contribution agreement for
the predecessor companies, reduced by redeemed shares and increased by
shares issued in the Company's initial public offering, along with
common equivalent shares (stock options and warrants) determined using
the treasury stock method.
4. INITIAL PUBLIC OFFERING
The Company announced its initial public offering of 2,000,000
shares of Common Stock at a price of $11.00 per share on April 25, 1996.
On May 1, 1996, the Company redeemed 1,135,000 shares of Common Stock
for $10.00 per share from a principal of the Company.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements written in the
meaning of the Private Securities Litigation Reform Act of 1995. Such forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: accelerating growth strategy;
dependence on executive officers, substantially all of whom recently joined the
Company; geographic concentration increases susceptibility to adverse
conditions in the region; changes in consumer tastes and eating habits;
national, regional or local economic and real estate conditions; demographic
trends; inclement weather; traffic patterns; the type, number and location of
competing restaurants; inflation; increased food, labor and benefit costs; the
availability of experienced management and hourly employees; seasonality and
the timing of new restaurant openings; changes in governmental regulations;
dram shop exposure; and other factors not yet experienced by the Company. The
use of words such as "believes", "anticipates", "expects", "intends" and
similar expressions are intended to identify forward-looking statements, but
are not the exclusive means of identifying such statements. Readers are urged
to carefully review and consider the various disclosures made by the Company in
this report and in the Company's Prospectus dated April 25, 1996, that attempt
to advise interested parties of the risks and factors that may affect the
Company's business.
RESULTS OF OPERATIONS
Revenues. The Company's revenues for the third quarter of fiscal 1996
of $4.3 million were up 5.4% over revenues of $4.1 million for the same quarter
a year ago. Restaurant sales for the third quarter of 1996 were up $234,000
over the same quarter a year ago, to $4.0 million. Sales at restaurants
operating in both fiscal quarters ("same-stores") were up 7.0% over last year's
same quarter. This increase was principally the result of increased volume for
the operating restaurants, along with a slight menu price increase that was
rolled out during the latter half of the third quarter.
Revenues for the 40 weeks ended October 4, 1996, increased $405,000, or
3.0%, to $13.9 million from $13.5 for the same period a year ago. Of the
increase, $341,000 was in restaurant sales. Same-store sales for the 40 weeks
ended October 4, 1996, were up 5.8% over the same period last year. Prior year
revenues included the operations of two restaurants that did not conform to the
Company's current operating model. One of those restaurants was closed during
the first quarter of 1995, and the other restaurant was closed near the end of
the second quarter of 1995. Sales of approximately $432,000 were generated by
these restaurants during fiscal 1995.
Costs and Expenses. Cost of sales as a percentage of restaurant sales
during the current quarter decreased to 25.1% from 25.8% in the same quarter
last year. Cost of sales was unusually high in three of the Company's units in
the prior year quarter. Controls were reviewed and costs in these units were
brought back in line during the fourth quarter of fiscal 1995. The current
quarter cost of sales as a percentage of restaurant sales is comparable to the
first two quarters of fiscal 1996.
For the 40 weeks ended October 4, 1996, cost of sales as a percentage of
restaurant sales remained 25.1%, as compared to the same period last year.
Restaurant operating expenses increased $21,000, or 0.9%, in the third
quarter of 1996, as compared with the third quarter of 1995. As a percentage
of restaurant sales, restaurant operating expenses decreased to 54.9% in the
current quarter, as compared to 57.8% in the same quarter last year.
Restaurant operating expenses in the third quarter of 1995 included
approximately $68,000 of related party salary expense that is not a component
of the current quarter expenses, along with $38,000 of final operating
6
<PAGE> 7
expenses on the closed unit. After giving effect to these, restaurant
operating expenses as a percentage of restaurant sales would have been 55.4%
for the third quarter of 1995. The decline in the current quarter from 55.4%
to 54.9 % is substantially due to the nature of fixed costs, primarily manager
salaries, relative to increased sales.
For the 40-week period ended October 4, 1996, restaurant operating
expenses decreased 4.1%, or $308,000, from the same period last year. As a
percentage of restaurant sales, restaurant operating expenses decreased to
55.1% from 59.0% in the same period last year. Adjusting the prior year
expenses for the impact of related party salary expense as well as
significantly higher operating expenses associated with the two stores that
were closed during fiscal 1995, restaurant operating expenses as a percentage
of restaurant sales would have been 55.5% for the 40-week period ended October
6, 1995.
General and administrative expenses (G&A) increased $71,000, or 17.3%,
in the current quarter as compared with the prior year's same quarter. As a
percentage of total revenues, G&A increased to 11.2% in the third quarter of
1996, from 10.1% in the third quarter of 1995. The prior year G&A included
approximately $121,000 of related party expense that is not a component of the
current quarter expenses. Giving effect to this, G&A as a percentage of total
revenues would have been 7.1% for the quarter ended October 6, 1995. The
increase from 7.1% to 11.2% is due primarily to expenses related to being
publicly traded and expenses incurred as the Company prepares for growth,
including directors and officers liability insurance, directors' fees, legal
expenses and travel. Additionally, during the current quarter a $60,000 bonus
accrual for store-level management employees was implemented in anticipation of
year-end payment. During the prior year the Company did not have a store-level
bonus program.
For the 40 weeks ended October 4, 1996, G&A increased $101,000, or 6.8%,
over the same period a year ago. As a percentage of total revenues, G&A was
11.4%, up from 11.0% for the same period last year. Removing the effect of
various related party pro forma expenses that occurred prior to the initial
public offering, G&A as a percentage of total revenues would have been 10.2%
for the 40-week period ended October 4, 1996, as compared to 7.1% for the same
period last year. This increase is explained by the same factors discussed
above for the current quarter.
Depreciation and amortization expense (D&A) as a percentage of total
revenues decreased from 1.4% in the third quarter of 1995 to 0.9% in the third
quarter of 1996. For the 40 weeks ended October 4, 1996, D&A as a percentage
of total revenues was 1.0%, as compared to 1.5% for the same period last year.
These decreases as a percentage of total revenues were the result of using
accelerated methods of depreciation on equipment in the early years of
equipment life, combined with the relatively small amount of equipment
additions made by the Company during the current quarter and year-to-date. As
the Company opens new restaurants, depreciation expense as a percentage of
total revenues is expected to increase.
Other Income (Expense). Net other income as a percentage of total
revenues increased from a loss of 0.1% in the third quarter of 1995 to income
of 3.3% in the third quarter of 1996. This increase was due to a $116,000
increase in net interest income related to the investment of the initial public
offering proceeds and approximately $30,000 in other income related to various
vendor rebates.
For the 40-week period ended October 4, 1996, net other income as a
percentage of total revenues was 2.5%, compared to 0.2% for the same period a
year ago. This increase was due to the aforementioned items, along with a
refund during the first quarter of 1996 of approximately $60,000 related to the
overpayment of rent that occurred over the past four years.
Income Tax Expense. Prior to the Company's initial public offering,
substantially all of the predecessor corporations elected to be taxed as S
corporations under the provisions of Subchapter S of the Internal Revenue Code.
As a result of such election, federal income taxes on the net income of these
corporations were payable personally by the shareholders. The provision for
income taxes reflected in the financial statements prior to the effective date
of the initial public offering is for state franchise taxes on all restaurants
and for federal income taxes on the predecessor corporations that were taxable
as C
7
<PAGE> 8
corporations. The effective tax rates on those corporations were less than the
expected rates due to applicable graduated tax rates. The provision for income
taxes reflected in the financial statements subsequent to the effective date of
the initial public offering reflects an estimated 37% effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $1,558,000 for the 40
weeks ended October 4, 1996, compared to $934,000 for the same period last
year. This increase is attributed to an increase in net income combined with
changes in certain components of working capital. Although it is common in the
restaurant industry to operate with a working capital deficit, the Company is
operating with positive working capital due to its cash and cash equivalents
remaining from the initial public offering.
During the first 40 weeks of 1996, capital expenditures were
approximately $1,325,000 as compared to approximately $80,000 for the same
period of 1995. During the current quarter the Company purchased real estate
for its restaurant sites in Lubbock and Plainview, Texas, constructed its
prototype restaurant on land it purchased last quarter in Copperas Cove, Texas,
and replaced necessary equipment in various units.
Pursuant to the terms of the reorganization of the Company,
distributions of approximately $1.3 million that related to undistributed
income through the date of the initial public offering were made during the
second quarter to shareholders of all but one of the predecessor corporations.
The remaining distribution of $192,000 was calculated and accrued during the
third quarter. Payment of this final distribution occurred early in the fourth
quarter.
In late April 1996, the Company received the proceeds from its initial
public offering of 2,000,000 shares of Common Stock at $11.00 per share. On
May 1, the Company used $11.35 million of the proceeds to redeem 1,135,000
shares of Common Stock owned by Michael D. Domec. The remainder of the
proceeds, net of offering expenses, are being and will continue to be used to
finance the development or acquisition of additional restaurants, remodel
existing restaurants, install point of sale systems and fund general corporate
expenses.
Capital expenditures over the next 12 months are anticipated to
approximate $7.2 million, exclusive of any potential franchisee acquisitions.
Over the next 12 months the Company anticipates opening eight units through a
combination of Company-owned and market partner arrangements. At the end of
the current quarter, the real estate for three of the eight sites had been
purchased and another of the sites was under a ground lease. In addition to
expenditures related to the construction of these eight units, the Company
anticipates that it will secure real estate for two units that are anticipated
to open during the last quarter of fiscal 1997. Along with new unit expansion,
the Company will continue its remodel and point-of-sale upgrade program.
At the end of the third quarter, construction was under way on the
location in Copperas Cove, Texas. That unit opened on October 28.
Construction is also in process on a land lease in Bellmead (Waco), Texas,
which is anticipated to open during the first half of December. The Company is
in the permitting phase on real estate in both Lubbock and Plainview, Texas.
These two locations are anticipated to open during the first half of fiscal
1997. On October 14, 1996, the Company acquired the assets and assumed the
operations of its franchised restaurant in Corpus Christi.
Cash flow from operations and the remaining proceeds from the initial
public offering, combined with the availability under the $10 million credit
facility, are anticipated to be sufficient to fund these planned capital
expenditures. The Company has an option, subject to negotiation of a
definitive acquisition agreement, to acquire two units from one of its
franchisees. The option expires on September 30, 1997. Projected capital
expenditures over the next 12 months do not include any amounts related to the
potential exercise of such option.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number: Document Description
------- --------------------
<S> <C>
11.1 Statement re Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CASA OLE' RESTAURANTS, INC.
Dated: November 14, 1996 By: /s/ Louis P. Neeb
-------------------------------------
Louis P. Neeb
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: November 14, 1996 By: /s/ Stacy M. Riffe
-------------------------------------
Stacy M. Riffe
Vice President, Chief Financial
Officer, Secretary & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number: Document Description
------- --------------------
<S> <C>
11.1 Statement re Computation of Net Income Per Share
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11.1
CASA OLE' RESTAURANTS, INC.
COMPUTATION OF NET INCOME PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
40-WEEK PERIODS ENDED 12-WEEK PERIODS ENDED
10/6/95 10/4/96 10/6/95 10/4/96
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income (or pro forma income) applicable
to common stock $ 1,089,745 $ 1,374,410 $ 395,495 $ 445,057
=========== =========== =========== ===========
Computation of weighted average common shares:
Shares issued pursuant to
contribution agreement 2,732,705 2,732,705 2,732,705 2,732,705
Shares assumed issued to
fund certain distributions 60,411 -- 60,411 --
Shares issued in initial public offering -- 2,000,000 -- 2,000,000
Shares redeemed -- (1,135,000) -- (1,135,000)
Effect of days outstanding on
weighted average calculation -- (361,447) -- --
Assumed net common share
equivalents of options and warrants
using the treasury stock method -- 67,616 -- 115,575
----------- ----------- ----------- -----------
2,793,116 3,303,874 2,793,116 3,713,280
=========== =========== =========== ===========
Pro forma net income per share $ 0.39 $ 0.42 $ 0.14 $ 0.12
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> DEC-27-1996
<PERIOD-END> OCT-04-1996
<CASH> 8,231,594
<SECURITIES> 0
<RECEIVABLES> 262,205
<ALLOWANCES> 0
<INVENTORY> 165,288
<CURRENT-ASSETS> 8,951,066
<PP&E> 5,887,216
<DEPRECIATION> 3,405,233
<TOTAL-ASSETS> 11,453,978
<CURRENT-LIABILITIES> 1,161,320
<BONDS> 0
0
0
<COMMON> 47,327
<OTHER-SE> 10,242,702
<TOTAL-LIABILITY-AND-EQUITY> 11,453,978
<SALES> 13,122,072
<TOTAL-REVENUES> 13,913,386
<CGS> 3,296,137
<TOTAL-COSTS> 10,526,200
<OTHER-EXPENSES> 1,714,943
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (174,742)
<INCOME-PRETAX> 2,019,874
<INCOME-TAX> 596,742
<INCOME-CONTINUING> 1,423,132
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,423,132
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
