<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 MARCH 29, 1998
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 7, 1998: 3,597,705 SHARES OF COMMON STOCK, PAR VALUE $.01.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CASA OLE' RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
12/28/97 3/29/98
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 986,024 $ 44,325
Royalties receivable 111,964 110,836
Receivables from affiliates 13,000 13,000
Other receivables 338,599 318,269
Inventory 423,237 387,977
Taxes receivable 102,409 0
Prepaid expenses and other current assets 546,287 515,012
--------------- ---------------
Total current assets 2,521,520 1,389,419
--------------- ---------------
Property, plant and equipment 21,748,741 22,138,618
Less accumulated depreciation 4,450,221 4,788,999
--------------- ---------------
Net property, plant and equipment 17,298,520 17,349,619
Other assets 6,688,098 6,898,240
--------------- ---------------
$ 26,508,138 $ 25,637,278
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,150,000 $ 1,000,000
Accounts payable 1,097,238 1,088,058
Income taxes payable 0 218,514
Accrued sales and liquor taxes 348,397 324,696
Accrued payroll and taxes 1,121,011 815,025
Accrued expenses 828,356 252,252
--------------- ---------------
Total current liabilities 4,545,002 3,698,545
--------------- ---------------
Long-term debt, net of current portion 10,106,871 9,623,538
Other liabilities 121,075 115,639
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized 0 0
Capital stock, $0.01 par value, 20,000,000 shares
authorized, 4,732,705 shares issued 47,327 47,327
Additional paid-in capital 20,685,610 20,685,610
Retained earnings 2,352,253 2,816,619
Treasury stock, cost of 1,135,000 shares (11,350,000) (11,350,000)
--------------- ---------------
Total stockholders' equity 11,735,190 12,199,556
--------------- ---------------
$ 26,508,138 $ 25,637,278
=============== ===============
</TABLE>
2
<PAGE> 3
CASA OLE' RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK PERIODS ENDED
(AS RESTATED)
3/30/97 3/29/98
--------------- ----------------
<S> <C> <C>
Revenues:
Restaurant sales $ 5,417,907 $ 11,519,196
Franchise fees 270,670 272,230
Other 16,825 53,499
--------------- ----------------
5,705,402 11,844,925
--------------- ----------------
Costs and expenses:
Cost of sales 1,321,254 3,079,186
Labor 1,834,510 3,871,551
Restaurant operating expenses 1,205,165 2,532,545
General and administrative 603,829 1,076,177
Depreciation and amortization 108,024 422,714
--------------- ----------------
5,072,782 10,982,173
--------------- ----------------
Operating income 632,620 862,752
--------------- ----------------
Other income (expense):
Interest income 59,212 3,358
Interest expense (11,564) (214,905)
Other, net 2,213 38,861
--------------- ----------------
49,862 (172,686)
--------------- ----------------
Income before income taxes expense and extraordinary item 682,481 690,066
Income tax expense 256,746 265,675
--------------- ----------------
Net income before extraordinary item 425,735 424,391
Extraordinary item (net of tax of $25,025) 0 39,975
--------------- ----------------
Net income $ 425,735 $ 464,366
=============== ================
Basic and diluted income per share (before extraordinary item) $ 0.12 $ 0.12
=============== ================
Basic and diluted income per share (extraordinary item) 0.00 0.01
=============== ================
Basic and diluted income per share 0.12 0.13
=============== ================
Weighted average number of shares (diluted) 3,598,185 3,597,705
=============== ================
</TABLE>
3
<PAGE> 4
CASA OLE' RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK PERIODS ENDED
3/30/97 3/29/98
---------------- ----------------
(AS RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 425,735 $ 464,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 108,024 422,714
Gain on early extinguishment of debt 0 (39,975)
Gain on sale of fixed assets 0 (16,268)
Changes in assets and liabilities, net of acquisition:
Royalties receivable 625 1,128
Receivable from affiliates 2,000 0
Other receivables (4,628) 20,330
Income tax receivable/payable (28,253) 295,898
Inventory 9,718 27,464
Prepaids and other current assets (108,849) (21,087)
Accounts payable (59,426) (9,180)
Accrued expenses and other liabilities 46,176 (911,227)
Other assets (140,720) (58,364)
---------------- ----------------
Total adjustments (175,333) (288,567)
Net cash provided by operating activities 250,402 175,799
---------------- ----------------
Cash flows from investing activities:
Issuance of notes receivable (115,000) 0
Purchase of property, plant and equipment (1,329,719) (549,165)
---------------- ----------------
Net cash used in investing activities (1,444,719) (549,165)
---------------- ----------------
Cash flows from financing activities:
Net borrowings under line of credit agreement 0 300,000
Payments of notes payable (161,233) (868,333)
---------------- ----------------
Net cash used in financing activities (161,233) (568,333)
Decrease in cash and cash equivalents (1,355,550) (941,699)
Cash and cash equivalents at beginning of period 6,419,305 986,024
---------------- ----------------
Cash and cash equivalents at end of period $ 5,063,755 $ 44,325
================ ================
Supplemental disclosure of cash flow information: Cash paid during the period:
Interest $ 5,747 $ 323,215
Income taxes $ 285,000 $ 1,745
Non-cash activities:
Exchange of note for equipment and inventory $ 0 $ 207,800
Note issued for purchase of restaurant $ 750,000 $ 0
</TABLE>
4
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CASA OLE' RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Casa Ole' Restaurants, Inc. (the "Company"),
the accompanying consolidated 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 March 29, 1998, and the consolidated
statements of income and cash flows for the 13-week periods ended March
29, 1998 and March 30, 1997. The consolidated statements of income for
the 13-week period ended March 29, 1998 are not necessarily indicative
of the results to be expected for the full year.
Beginning in fiscal 1998, the Company changed its fiscal
quarters to four thirteen week quarters. For comparative purposes,
fiscal 1997 consolidated statements of income and cash flows have been
restated for the 13-week period ended March 30, 1997.
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.
Effective the first quarter of fiscal 1998, the Company
changed its estimate of the useful lives of certain recently acquired
fixed assets. As a result of this change, income before income taxes
increased approximately $132,000, net income increased approximately
$81,000 and basic and diluted earnings per share increased
approximately $0.02 in the first quarter.
The Company does not have or participate in transactions
involving derivative, financial and commodity instruments.
3. PRO FORMA DATA
On July 2, 1997, the Company purchased 100% of the outstanding
stock of Monterey's Acquisition Corp. ("MAC"). The Company purchased
the shares of common stock for $4.0 million, paid off outstanding debt
and accrued interest totaling $7.1 million and funded various other
agreed upon items approximating $500,000. Approximately $6.0 million of
goodwill was recorded as a result of this purchase. At the time of the
acquisition, MAC owned and operated 26 restaurants in Texas and
Oklahoma under the names "Monterey's Tex-Mex Cafe," "Monterey's Little
Mexico" and "Tortuga Cantina."
5
<PAGE> 6
The table below presents unaudited pro forma income statement
information as if the Company had purchased MAC at the beginning of
fiscal 1997. Pro forma adjustments were made to remove consulting fees
that are non-continuing, amortize the resulting goodwill over 40 years
and remove the pre-acquisition goodwill amortization, reflect net
interest expense on the debt resulting from the acquisition and record
additional income tax at an effective rate of 37.5% on the combined
income of the Company and MAC. The acquisition was accounted for as a
purchase.
<TABLE>
<CAPTION>
13 Week
Period Ending
3/30/97
-------
<S> <C>
Revenues............................................................... $10,796,270
Net income............................................................. $ 561,406
Diluted income per share............................................... $ 0.16
</TABLE>
The pro forma information does not purport to be indicative of
results of operations which would have occurred had the acquisition
been consummated on the date indicated or future results of operations.
4. NEW FINANCIAL ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, "Earnings
per Share", specifies new measurement, presentation and disclosure
requirements for earnings per share and is required to be applied
retroactively upon initial adoption. The Company has adopted SFAS No.
128 effective with the release of December 28, 1997 earnings data, and
accordingly, has restated herein all previously reported income per
share data. Basic income per share is based on the weighted average
shares outstanding without any dilutive effects considered. Diluted
income per share reflects dilution from all contingently issuable
shares, including options and warrants. For the first quarter ended
March 30, 1997, the effect of dilutive stock options increase the
weighted average shares outstanding by 480 shares which does not affect
the determination of diluted income per share. For the first quarter
ended March 29, 1998, there is no difference between basic and diluted
income per share.
AICPA Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities", requires that costs of start-up activities be
expensed as incurred effective for financial statements for fiscal
years beginning after December 15, 1998.
5. EXTINGUISHMENT OF DEBT
In fiscal 1997, the Company acquired the assets of one of its
franchise locations for a $750,000 note payable to the prior
franchisee. During the first quarter of 1998, the Company accepted an
offer from the prior franchisee to prepay the remaining $450,000
balance of the note for a discounted sum of $385,000, resulting in a
gain, net of taxes, of $39,975.
6
<PAGE> 7
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 within 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; geographic concentration; increasing 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 28, 1997, that attempt to advise interested parties of the
risks and factors that may affect the Company's business.
RESULTS OF OPERATIONS
The Company closed on its purchase of 100% of the outstanding
stock of Monterey's Acquisition Corp. ("MAC") on July 2, 1997.
Accordingly, the results of operations for the first quarter ending
March 29, 1998 presented below include the operations of the 27 MAC
units. Pro forma information as if the Company had owned MAC for the 13
weeks ended March 30, 1997 is presented in note 3 of the notes to
consolidated financial statements included herein. Beginning in fiscal
1998, the Company changed its fiscal quarters to four thirteen week
quarters. For comparative purposes, fiscal 1997 consolidated statements
of income and cash flows have been restated for the 13-week period
ended March 30, 1997.
Revenues. The Company's revenues for the first quarter of
fiscal 1998 were up 107.6% to $11.8 million over revenues of $5.7
million for the same quarter a year ago. Restaurant sales for the first
quarter of 1998 were up $6.1 million over the same quarter a year ago,
to $11.5 million. Sales at the thirteen restaurants operating in both
fiscal quarters (same-stores) were down 3.5% over last year's same
quarter, offsetting the overall sales increase by $147,000. The 27 MAC
units contributed $5.7 million in the first quarter (the 26 MAC
same-store sales were up 5.24% over last year's same quarter). On a
pro forma basis, same-store sales were up 1.3%. The remaining
increase was due to the additional sales contributed by the Company's
new stores.
Costs and Expenses. Cost of sales, consisting primarily of
food and beverage costs, increased in the first quarter of 1998 to
26.7% of restaurant sales as compared with 24.4% in the same period in
1997. This increase is attributable, in part, to an increase in the
proportion of MAC units, which have a higher average cost of sales than
Casa Ole units. Also contributing to the increase is the new emphasis
placed on value perception within the Casa Ole concept, achieved
primarily by increasing portion sizes. The Company estimates that food
cost increased 2.3% on a comparable period basis. Approximately one
quarter of that increase was offset by menu price increases.
7
<PAGE> 8
Labor and other related expenses decreased as a percentage of
restaurant sales by 0.3% to 33.6% in the first quarter of 1998 as
compared with 33.9% in the same period in 1997. This decrease is due in
part to the closure of one under-performing store and the sale of
another under-performing store in fiscal 1997.
Restaurant operating expenses, which primarily includes rent,
utilities, repair and maintenance and advertising, decreased as a
percentage of restaurant sales by 0.2% to 22.0% in the first quarter of
1998 as compared with 22.2% in the same period in 1997.
General and administrative expenses (G&A) decreased as a
percentage of total revenues by 1.5% to 9.1% in the first quarter of
1998 as compared with 10.6% in the same period in 1997. This decrease
is due in part to the administrative efficiencies gained with the
purchase of Monterey's Acquisition Corp.
Depreciation and amortization expense increased as a
percentage of total revenues by 1.7% to 3.6% in the first quarter of
1998 as compared with 1.9% in the same period in 1997. This increase is
the direct result of the addition of depreciable assets related to the
Company's three new store openings since the first quarter of 1997,
along with added depreciation and amortization related to the purchase
of MAC. Effective the first quarter of fiscal 1998, the Company changed
its estimate of the useful lives of certain recently acquired fixed
assets to reflect actual useful lives and industry practice (see note
2).
Other Income (Expense). Net other income (expense) decreased
from income to an expense for the first quarter of 1998, a change of
approximately $223,000. The net decrease was due to the reduction in
interest income as the proceeds from the 1996 initial public offering
were used for construction projects and the debt incurred related to
the purchase of MAC.
Income Tax Expense. The Company's effective tax rate for
fiscal 1998 is 38.5%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $176,000 for the
13 weeks ended March 29, 1998, compared to $250,000 for the same period
last year. As of March 29, 1998, the Company had a working capital
deficit of $2.3 million, which is common in the restaurant industry,
since restaurant companies do not typically require a significant
investment in either accounts receivable or inventory.
During the first 13 weeks of 1998, capital expenditures on property,
plant and equipment were approximately $550,000 as compared to
$1.3 million for the same period of 1997. Capital expenditures
during the quarter included the remodeling of two restaurants, one in
Copperas Cove, Texas and another in Houston, Texas. Although primarily
paid for by the landlord, capital expenditures also included the
relocation of an existing restaurant in Houston, Texas. Immediately
after the first quarter ended, the Company remodeled a third restaurant
and began remodeling three other restaurants. Currently the Company has
one new restaurant site under construction scheduled to open in the
second quarter of fiscal 1998 and two sites near ground breaking
scheduled to open in the fourth quarter of fiscal 1998. Additionally,
the Company had cash outlays for necessary replacement of equipment in
various older units. The Company estimates its capital expenditures
during the second quarter will approximate $900,000.
The Company has a credit facility with NationsBank of Texas,
N.A., consisting of a term note payable over six years and a revolving
credit line that matures into a term note in April 1999. During the
first quarter of 1998, the Company paid down approximately $600,000 in
debt. At March 29, 1998, the Company had $5.3 million outstanding under
the term facility and approximately $5.3 million outstanding under the
revolver. Available credit approximated $1.2 million at March 29,
1998.
8
<PAGE> 9
The Company's management is currently negotiating a sale
leaseback agreement that will include forward commitments for unit
development for fiscal 1998 and fiscal 1999. Management believes that a
sale leaseback arrangement, along with operating cash flow and the
Company's revolving line of credit with NationsBank, will be sufficient
to meet its operating requirements and to finance its expansion plans
(exclusive of any acquisitions) through the end of the 1999 fiscal
year.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit
Number Document Description
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K during the
quarter ended March 29, 1998.
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 8, 1998 By: /s/ Louis P. Neeb
----------------------
Louis P. Neeb
Chairman of the Board, President
& Chief Executive Officer
(Principal Executive Officer)
Dated: May 8, 1998 By: /s/ Andrew J. Dennard
--------------------------
Andrew J. Dennard
Vice President, Controller & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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: May 8, 1998 By:
Louis P. Neeb ---------------------------
Chairman of the Board, President
& Chief Executive Officer
(Principal Executive Officer)
Dated: May 8, 1998 By:
Andrew J. Dennard ---------------------------
Vice President, Controller & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
10
<PAGE> 11
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 44,325
<SECURITIES> 0
<RECEIVABLES> 472,105
<ALLOWANCES> 30,000
<INVENTORY> 387,977
<CURRENT-ASSETS> 1,389,419
<PP&E> 22,138,618
<DEPRECIATION> 4,788,999
<TOTAL-ASSETS> 25,637,278
<CURRENT-LIABILITIES> 3,698,545
<BONDS> 9,623,538
0
0
<COMMON> 47,327
<OTHER-SE> 12,152,229
<TOTAL-LIABILITY-AND-EQUITY> 25,637,278
<SALES> 11,844,925
<TOTAL-REVENUES> 11,844,925
<CGS> 3,079,186
<TOTAL-COSTS> 3,079,186
<OTHER-EXPENSES> 7,902,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 214,905
<INCOME-PRETAX> 690,066
<INCOME-TAX> 265,675
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 39,975
<CHANGES> 0
<NET-INCOME> 464,366
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
