<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 APRIL 18, 1997
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 Identification Number)
incorporation or organization)
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 May 29, 1997: 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 12/27/96 4/18/97
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,419,305 $ 4,540,243
Marketable securities (approximates fair value) 1,007,255 1,031,838
Royalties receivable 110,254 174,073
Receivables from affiliates 14,000 18,000
Other receivables 195,287 176,843
Notes receivable -- 115,000
Inventory 197,475 207,667
Prepaid expenses and other current assets 260,459 316,293
------------ ------------
Total current assets 8,204,035 6,579,957
------------ ------------
Property, plant and equipment 7,326,761 9,210,035
Less accumulated depreciation 3,470,953 3,570,327
------------ ------------
Net property, plant and equipment 3,855,808 5,639,708
Other assets 85,930 657,356
============ ============
$ 12,145,773 $ 12,877,021
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 34,469 $ 184,306
Accounts payable 532,039 448,250
Income taxes payable 352,375 43,371
Accrued sales and liquor taxes 132,407 106,430
Accrued payroll and taxes 266,597 265,171
Accrued expenses 29,420 57,045
------------ ------------
Total current liabilities 1,347,307 1,104,573
------------ ------------
Long-term debt -- 450,000
Deferred income taxes 35,577 35,577
Deferred franchise fees 42,500 42,500
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized -- --
Capital stock, $0.01 par value, 20,000,000 shares 47,327 47,327
authorized, 4,732,705 shares issued
Additional paid-in capital 20,685,610 20,685,610
Retained earnings 1,337,452 1,861,434
Treasury stock, cost of 1,135,000 shares (11,350,000) (11,350,000)
------------ ------------
Total stockholders' equity 10,720,389 11,244,371
------------ ------------
$ 12,145,773 $ 12,877,021
============ ============
</TABLE>
2
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CASA OLE' RESTAURANTS, INC.
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
16-WEEK PERIODS ENDED
4/19/96 4/18/97
----------- ----------
<S> <C> <C>
Revenues:
Restaurant sales $ 5,113,540 $6,668,193
Franchise fees 232,188 333,132
Other 19,672 20,708
----------- ----------
5,365,400 7,022,033
----------- ----------
Costs and expenses:
Cost of sales 1,133,088 1,462,107
Restaurant operating expenses 2,939,752 3,905,191
General and administrative 722,254 743,174
Depreciation and amortization 54,435 132,952
----------- ----------
4,849,529 6,243,424
----------- ----------
Operating income 515,871 778,609
----------- ----------
Other income (expense):
Interest (13,828) 58,644
Other, net 101,356 2,724
----------- ----------
87,528 61,368
----------- ----------
Income before income tax expense 603,399 839,977
Income tax expense 72,665 315,995
----------- ----------
Net income $ 530,734 $ 523,982
=========== ==========
Pro forma income statement data:
Net income as reported $ 530,734 $ 523,982
Pro forma adjustments:
Compensation and related party
expense arrangements 161,700 --
Provision for income taxes (210,422) --
----------- ----------
Pro forma net income $ 482,012 $ 523,982
=========== ==========
Pro forma net income and
net income per common share $ 0.17 $ 0.15
=========== ==========
Pro forma weighted average and weighted
average number of common shares 2,793,116 3,597,944
=========== ==========
</TABLE>
3
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CASA OLE' RESTAURANTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
16-WEEK PERIODS ENDED
4/19/96 4/18/97
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 530,734 $ 523,982
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 54,435 132,952
Loss on sale of fixed assets 13,005 --
Changes in assets and liabilities:
Royalties receivable 78,339 (63,819)
Receivable from affiliates 17,478 (4,000)
Other receivables (130,895) 18,444
Inventory 11,116 (10,192)
Prepaids and other current assets (122,611) (55,834)
Accounts payable (30,580) (83,789)
Accrued expenses and other liabilities 53,173 (308,782)
Other assets (24,349) 21,672
----------- -----------
Total adjustments (80,889) (353,348)
----------- -----------
Net cash provided by operating activities 449,845 170,634
----------- -----------
Cash flows from investing activities:
Proceeds from issuance of notes receivable (5,000) (115,000)
Purchase of marketable securities -- (24,583)
Purchase of property, plant and equipment (15,364) (1,759,950)
Proceeds from sale of property, plant
and equipment 6,100 --
----------- -----------
Net cash used in investing activities (14,264) (1,899,533)
----------- -----------
Cash flows from financing activities:
Payments of notes payable (24,601) (150,163)
----------- -----------
Net cash used in financing activities (24,601) (150,163)
----------- -----------
Increase (decrease) in cash and cash equivalents 410,980 (1,879,062)
Cash and cash equivalents at beginning of period 1,003,585 6,419,305
----------- -----------
Cash and cash equivalents at end of period $ 1,414,565 $ 4,540,243
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 15,402 $ 5,747
Income taxes $ -- $ 625,000
Non-cash activities:
Note issued for purchase of restaurant $ -- $ 750,000
</TABLE>
4
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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 consolidated financial
position as of April 18, 1997, and the consolidated statements of
income and cash flows for the 16-week periods ended April 18, 1997 and
April 19, 1996. The consolidated statement of income for the 16-week
period ended April 18, 1997, is not necessarily indicative of the
results to be expected for the full year.
To conform to the current year presentation, certain of the
April 19, 1996 balances have been reclassified. Specifically, paper
and supply costs were reclassified from cost of sales to restaurant
operating expenses.
2. ACCOUNTING POLICIES
During the interim periods the Company follows the accounting
policies set forth in its combined financial statements in its Annual
Report and Form 10-K, (file number 0-28234). Reference should be made
to such financial statements for information on such accounting
policies and further financial details.
3. OTHER ASSETS
Included in the April 19, 1997 balance of other assets is
$575,000 of goodwill related to the Company's acquisition of the
assets of its franchised unit in Victoria, Texas. The Company
purchased the assets for a $750,000 note payable to the prior
franchisee. The note is payable in five annual installments of
principal and accrued interest (6% per annum) beginning January 1,
1997. Goodwill is being amortized over 40 years.
4. PRO FORMA DATA
The April 19, 1996 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 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 16-week period ended April 18, 1997, 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.
5. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, Earnings Per Share. SFAS No. 128 replaces primary
earnings per share and fully diluted earnings
5
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per share with basic earnings per share (net income divided by the
weighted average common shares outstanding without the dilutive
effects of common stock equivalents) and diluted earnings per share,
respectively. SFAS No. 128 is effective for financial statements for
both interim and annual periods ending after December 15, 1997, with
earlier application not permitted. Effective December 1997, the
Company will be required to adopt SFAS No. 128.
6. 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.
6
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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 Annual Report and Form 10-K for the fiscal
year ended December 27, 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 first quarter of fiscal 1997
of $7.0 million were up 30.9% over revenues of $5.4 million for the same
quarter a year ago. Restaurant sales for the first quarter of 1997 were up $1.6
million over the same quarter a year ago, to $6.7 million. Sales at restaurants
operating in both fiscal quarters ("same-stores") were up 5.1% over last year's
same quarter, accounting for $260,000 of the increase. This increase was
principally the result of increased volume for the operating restaurants. The
remaining increase was due to the additional sales contributed by the Company's
new stores.
Costs and Expenses. Cost of sales as a percentage of restaurant sales
during the current quarter decreased to 21.9% from 22.2% in the same quarter
last year. This slight decrease was the result of the modest menu price
increases implemented in the fall of 1996.
Restaurant operating expenses increased $965,000, or 32.8%, in the
first quarter of 1997, as compared with the first quarter of 1996. As a
percentage of restaurant sales, restaurant operating expenses increased to
58.6% in the current quarter, as compared to 57.5% in the same quarter last
year. This 1.1% increase in the current quarter is substantially due to the
higher labor and training costs, and to a lesser degree, higher other operating
expenses, in the Company's new restaurants.
General and administrative expenses (G&A) increased $21,000, or 2.9%,
in the current quarter as compared with the prior year's same quarter. As a
percentage of total revenues, G&A decreased to 10.6% in the first quarter of
1997, from 13.5% in the first quarter of 1996. The prior year G&A included
approximately $161,700 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 10.4% for the quarter ended April 19, 1996. The slight
increase from 10.4% to 10.6% was due to pay rate increases for certain
employees effective at the beginning of fiscal 1997, the addition of corporate
personnel and the incurrence of certain expenses related to being a publicly
traded company, such as additional legal and insurance costs, which were not
incurred in the prior year same quarter.
7
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Depreciation and amortization expense (D&A) as a percentage of total
revenues increased from 1.0% in the first quarter of 1996 to 1.9% in the first
quarter of 1997. The $79,000 increase was a direct result of the Company's
three new store openings, along with added depreciation and amortization
related to two stores acquired from prior franchisees. As the Company opens new
restaurants, D&A as a percentage of total revenues is expected to increase.
Other Income (Expense). Net other income as a percentage of total
revenues decreased from 1.6%, or $88,000, in the first quarter of 1996 to 0.9%,
or $61,000, in the first quarter of 1997. During the first quarter of fiscal
1996, the Company received and recorded a $60,000 rent refund that related to
years prior to fiscal 1996. During the current year's first quarter, the
Company earned interest income on invested funds which it did not have in the
prior year.
Income Tax Expense. Prior to the Company's initial public offering in
April 1996, 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 first quarter of fiscal 1996 is for
state franchise taxes on all restaurants and for federal income taxes on the
predecessor corporations that were taxable as C 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 first
quarter of the current year reflects an estimated 37% effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $171,000 for the 16
weeks ended April 18, 1997, compared to $450,000 for the same period last year.
This decrease is attributed to a reduction in accrued liabilities for the
payment of federal income taxes, combined with other 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 primarily due to its cash and cash equivalents
remaining from the initial public offering.
During the first 16 weeks of 1997, capital expenditures on property,
plant and equipment were approximately $1.8 million as compared to
approximately $15,000 for the same period of 1996. Capital expenditures during
the quarter included the acquisition of real estate for its restaurant in
Pocatello, Idaho, which is anticipated to open in mid-July; construction costs
for the Company's prototype restaurant which opened in Plainview, Texas on
March 18; and construction costs on sites in Bryan and Lubbock, Texas, which
are anticipated to open in the second and third quarters, respectively.
Additionally, the Company had cash outlays for necessary replacement equipment
in various older units. In addition to capital outlays, the Company acquired
the assets of one of its franchise locations during the quarter for a $750,000
note payable to the prior franchisee, of which $575,000 was allocated to
goodwill and the remainder was allocated primarily to fixed assets.
Subsequent to the first quarter, the Company issued a press release
announcing its intent to acquire the stock of Monterey's Acquisition Corp.
("Monterey's"). Terms of the non-binding letter of intent include a total
purchase price of $11.0 million, including an assumption of debt of approx.
$7.0 million, plus the net working capital deficit of approximately $750,000.
The Company anticipates that, upon closing, it would immediately pay off much
or all of the outstanding debt with new debt from the Company's credit facility
with NationsBank of Texas, N.A., which would require modification to permit
such a use of proceeds. The remainder of the purchase price would be paid with
cash on hand or a combination of cash on hand and additional debt. Monterey's
operates 26 restaurants under the names "Monterey's Tex-Mex Cafe," "Monterey's
Little Mexico" and "Tortuga Cantina."
Exclusive of the anticipated acquisition of Monterey's or any
franchise acquisition, capital expenditures over the next 12 months are
anticipated to approximate $13 million. Over the next 12 months the Company
anticipates opening eight units through a combination of Company-owned and
market
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partner arrangements. At the end of the current quarter, the real estate
for three of the eight sites had been purchased and was under construction and
another of the sites was under lease. In addition to expenditures related to
the construction of these eight units, the Company anticipates that it will
secure real estate and begin construction for units that are anticipated to
open during the first quarter of fiscal 1998. Along with new unit expansion,
the Company will continue its remodel and point-of-sale upgrade program.
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 to acquire two units from one of its
franchisees. Such option must be exercised during July 1997 or the option
lapses. Projected capital expenditures over the next 12 months do not include
any amounts related to the potential exercise of such option.
9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit
Number Document Description
------- --------------------
11.1 Statement re Computation of Net Income Per Share
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
The Company filed a voluntary Form 8-K on May 9, 1997
regarding the Company's non-binding letter of intent for
the proposed acquisition of Monterey's Acquisition Corp.
10
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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: May 29, 1997 By: /s/ Louis P. Neeb
Louis P. Neeb -------------------
Chairman and Chief Executive Officer
(Principal Executive Officer)
Dated: May 29, 1997 By: /s/ Stacy M. Riffe
Stacy M. Riffe --------------------
Vice President, Chief Financial Officer,
Secretary & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
11
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INDEX TO EXHIBITS
Exhibit
Number Document Description
------- --------------------
11.1 Statement re Computation of Net Income Per Share
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
CASA OLE' RESTAURANTS, INC.
COMPUTATION OF NET INCOME PER SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
4/19/96 4/18/97
------------ ------------
<S> <C> <C>
Income (or pro forma income) applicable
to common stock $ 482,012 $ 523,982
============ ============
Computation of weighted average
common shares:
Shares issued pursuant to
contribution agreement 2,732,705 2,732,705
Shares assumed issued to
fund certain distributions 60,411 --
Shares issued in initial public offering -- 2,000,000
Shares redeemed -- (1,135,000)
Assumed net common share
equivalents of options and warrants
using the treasury stock method -- 239
------------ ------------
2,793,116 3,597,944
============ ============
Pro forma net income per share $ 0.17 $ 0.15
============ ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-26-1997
<PERIOD-END> APR-18-1997
<CASH> 4,540,243
<SECURITIES> 1,031,838
<RECEIVABLES> 483,916
<ALLOWANCES> 0
<INVENTORY> 207,667
<CURRENT-ASSETS> 6,579,957
<PP&E> 9,210,035
<DEPRECIATION> 3,570,327
<TOTAL-ASSETS> 12,877,021
<CURRENT-LIABILITIES> 1,104,573
<BONDS> 0
0
0
<COMMON> 47,327
<OTHER-SE> 11,197,044
<TOTAL-LIABILITY-AND-EQUITY> 12,877,021
<SALES> 6,668,193
<TOTAL-REVENUES> 7,022,033
<CGS> 1,462,107
<TOTAL-COSTS> 5,367,298
<OTHER-EXPENSES> 876,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (58,644)
<INCOME-PRETAX> 839,977
<INCOME-TAX> 315,995
<INCOME-CONTINUING> 523,982
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 523,982
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
