<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 4, 1999
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 14, 1999: 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>
ASSETS 4/4/99 1/3/99
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 444,980 $ 462,847
Royalties receivable 53,861 70,711
Other receivables 374,736 280,335
Inventory 450,271 459,260
Taxes receivable 487,786 547,272
Prepaid expenses and other current assets 442,741 383,365
------------ ------------
Total current assets 2,254,375 2,203,790
------------ ------------
Property, plant and equipment 20,166,805 18,568,632
Less accumulated depreciation 4,844,036 4,526,005
------------ ------------
Net property, plant and equipment 15,322,769 14,042,627
Deferred tax assets 747,104 795,229
Other assets 6,649,900 6,379,332
------------ ------------
$ 24,974,148 $ 23,420,978
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 0 $ 0
Accounts payable 1,644,361 1,454,794
Accrued sales and liquor taxes 253,827 293,743
Accrued payroll and taxes 878,044 803,256
Accrued expenses 616,883 699,437
------------
------------ ------------
Total current liabilities 3,393,115 3,251,230
------------ ------------
Long-term debt, net of current portion 3,870,000 2,870,000
Other liabilities 279,228 234,864
Deferred gain 3,478,290 3,505,674
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 20,537,076 20,537,076
Retained earnings 4,719,112 4,324,807
Treasury stock, cost of 1,135,000 shares (11,350,000) (11,350,000)
------------ ------------
Total stockholders' equity 13,953,515 13,559,210
------------ ------------
$ 24,974,148 $ 23,420,978
============ ============
</TABLE>
2
<PAGE> 3
CASA OLE RESTAURANTS, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
13-Week 13-Week
PERIOD ENDED PERIOD ENDED
04/04/99 03/29/98
------------ ------------
<S> <C> <C>
Revenues:
Restaurant sales $ 11,936,794 $ 11,519,196
Franchise fees and royalties 251,483 257,638
Other 69,603 4,201
------------ ------------
12,257,880 11,781,035
------------ ------------
Costs and expenses:
Cost of sales 3,312,168 3,116,407
Labor 3,988,221 3,871,551
Restaurant operating expenses 2,662,434 2,473,812
General and administrative 1,210,201 1,033,799
Depreciation and amortization 359,706 359,171
Pre-open costs 50,051 63,543
------------ ------------
11,582,781 10,918,283
------------ ------------
Operating income 675,099 862,752
------------ ------------
Other income (expense):
Interest income 7,282 3,358
Interest expense (55,613) (214,905)
Other, net 14,902 38,861
------------ ------------
(33,429) (172,686)
------------ ------------
Income before income tax expense and extraordinary item 641,670 690,066
Income tax expense 247,365 265,675
------------ ------------
Income before extraordinary item 394,305 424,391
Extraordinary item (net of tax of $25,025) -- 39,975
------------ ------------
Net income $ 394,305 $ 464,366
============ ============
Basic and diluted income per share (before extraordinary item) $ 0.11 $ 0.12
============ ============
Basic and diluted income per share (extraordinary item) $ -- $ 0.01
============ ============
Basic and diluted income per share 0.11 0.13
============ ============
Weighted average number of shares (diluted) 3,597,705 3,597,705
============ ============
</TABLE>
3
<PAGE> 4
CASA OLE' RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK PERIODS ENDED
4/4/99 3/29/98
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 394,305 $ 464,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 359,706 422,714
Deferred gain amortization (63,524) 0
Deferred tax provision 48,125 0
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 effects of acquisition:
Royalties receivable 16,850 1,128
Other receivables (94,401) 20,330
Income tax receivable/payable 59,486 295,898
Inventory 8,989 27,464
Prepaids and other current assets (61,711) (21,087)
Accounts payable 189,567 (9,180)
Accrued expenses and other liabilities (3,319) (911,227)
Other assets (324,188) (58,364)
----------- -----------
Total adjustments 135,580 (288,567)
----------- -----------
Net cash provided by operating activities 529,885 175,799
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (1,583,892) (549,165)
Proceeds from sale of property, plant and equipment 36,140 0
----------- -----------
Net cash used in investing activities (1,547,752) (549,165)
----------- -----------
Cash flows from financing activities:
Net borrowings under line of credit agreement 1,000,000 300,000
Payments of notes payable 0 (868,333)
----------- -----------
Net cash used in financing activities 1,000,000 (568,333)
----------- -----------
Decrease in cash and cash equivalents (17,867) (941,699)
Cash and cash equivalents at beginning of period 462,847 986,024
----------- -----------
Cash and cash equivalents at end of period $ 444,980 $ 44,325
=========== ===========
Supplemental disclosure of cash flow information: Cash paid during the period:
Interest $ 47,153 $ 323,215
Income taxes $ 350,000 $ 1,745
Non-cash activities:
Exchange of note for equipment and inventory $ 0 $ 207,800
</TABLE>
4
<PAGE> 5
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 April 4, 1999, and the consolidated statements
of income and cash flows for the 13-week periods ended April 4, 1999
and March 29, 1998. The consolidated statements of income for the
13-week period ended April 4, 1999 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 consolidated 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.
The Company does not have or participate in transactions
involving derivative, financial and commodity instruments.
3. 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.
4. SALE-LEASEBACK TRANSACTION
On June 25, 1998, the Company completed a sale and leaseback
transaction involving the sale and lease back of the land, building and
improvements of 13 Company-owned restaurants. The properties were sold
for $11.5 million and resulted in a gain of approximately $3.5 million
that will be deferred and amortized over the terms of the leases, which
are 15 years each. The leases are classified as operating leases.
Future minimum lease payments under the non-cancelable
operating lease are:
<TABLE>
<S> <C>
1999 .................... $ 819,375
2000 .................... $ 1,114,350
2001 .................... $ 1,136,200
2002 .................... $ 1,158,924
2003 .................... $ 1,181,648
Thereafter .............. $12,465,557
-----------
$17,876,054
===========
</TABLE>
5. ACQUISITION OF LA SENORITA RESTAURANTS
On April 30, 1999 (during the second quarter of fiscal 1999),
the Company closed on its acquisition of La Senorita Restaurants. The
Company acquired the operations of five company-owned restaurants, a
general partnership interest in a sixth restaurant, and the rights to
the La Senorita franchise system. The purchase price was approximately
$4.0 million in cash financed with Bank of America (formerly
NationsBank).
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 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
January 3, 1999, 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 1999 were up $476,846 or 4.0% to $12.3 million compared with the
same quarter a year ago. Restaurant sales for the first quarter of 1999
were up $417,598 compared with the same quarter a year ago, to $11.9
million. The increase in restaurant sales is due to a net increase of
one restaurant compared with the same quarter a year ago. Since the end
of the first quarter of fiscal 1998, four new restaurants have opened
and three under-performing restaurants were either closed or sold.
Total system sales at restaurants operating in both fiscal quarters
(same-stores) increased 0.3% over last year's same quarter.
Company-owned same-store sales for the quarter were up 0.3%.
Franchise-owned same-stores sales for the quarter were also up 0.3%.
Costs and Expenses. Cost of sales, consisting primarily of food
and beverage costs, but also includes paper and supplies, increased as
a percentage of restaurant sales in the first quarter of 1999 to 27.8%
as compared with 27.1% in the same quarter in 1998. The increase was
due to higher cheese and meat costs. Cost of sales improved, however,
over the fourth quarter 1998.
Labor and other related expenses decreased as a percentage of
restaurant sales by 20 basis points to 33.4% in the first quarter of
1999 as compared with 33.6% in the same quarter in 1998. This
improvement is due in part to the continued improvement in hourly
employee utilization (especially in the Casa Ole restaurants). Benefits
and worker's compensation expenses were lower, and management expenses
were slightly higher.
6
<PAGE> 7
Restaurant operating expenses, which primarily includes rent,
utilities, repair and maintenance and advertising, increased as a
percentage of restaurant sales by 80 basis points to 22.3% in the first
quarter of 1999 as compared with 21.5% in the same quarter in 1998.
Compared to the first quarter a year ago, rent expense increased
approximately two hundred basis points due to last year's $11.5 million
sale and leaseback transaction which closed on June 30, 1998.
Improvements in other areas, however, mitigated the increase in rent
expense. With the exception of utilities and repair and maintenance,
most restaurant operating expenses improved as a percentage of sales
compared with the same quarter a year ago. The increase in rent expense
was partially offset by a reduction in interest and depreciation
expense.
General and administrative expenses increased as a percentage
of total revenues by 110 basis points to 9.9% in the first quarter of
1999 as compared with 8.8% in the same quarter in 1998. The increase
was primarily due to higher compensation and training expenses required
for the acquisition of La Senorita and the resumption of new restaurant
development.
Depreciation and amortization expense decreased as a
percentage of total revenues by 20 basis points to 2.9% in the first
quarter of 1999 as compared with 3.1% in the same quarter in 1998. This
decrease results primarily from the sale and leaseback transaction
involving the sale and lease back of land, building and improvements of
13 Company-owned restaurants. The leases are classified as operating
leases.
Other Income (Expense). Net other expense decreased as a
percentage of total revenues by 120 basis points to 0.3% in the first
quarter of 1999 as compared with 1.5% in the same quarter in 1998. The
improvement was primarily due to last year's $11.5 million sale and
leaseback transaction, the proceeds of which were used to pay off
long-term debt, thus reducing interest expense.
Income Tax Expense. The Company's effective tax rate for the
first quarter 1999 was 38.5%, comparable with the same quarter a year
ago.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $529,885 for the
13 week quarterly period ended April 4, 1999, compared to $175,799 for
the same quarter last year. As of April 4, 1999, the Company had a
working capital deficit of $1.1 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 1999, capital expenditures on
property, plant and equipment were approximately $1.6 million as
compared to $549,165 for the same quarter in 1998. Capital expenditures
included the remodeling of one restaurant. Six remodels are planned for
the remainder of the fiscal year. One previously closed restaurant was
reopened after a concept conversion (from a Casa Ole to a Monterey's
Little Mexico), and one new restaurant was opened just after the end of
the first quarter 1999. The Company currently has two new restaurant
sites under construction, one of which is scheduled to open in the
second quarter of fiscal 1999 and the other is scheduled to open in the
third quarter of fiscal 1999. Another two sites are currently under
negotiation and are scheduled to open in fiscal 1999 (both are existing
restaurant sites). Additionally, the Company had cash outlays for
necessary replacement of equipment and leasehold improvements in
various older units. The Company estimates its capital expenditures for
the remainder of the fiscal year will be approximately $6.6 million.
The Company has a $9.0 million revolving credit facility with
Bank of America (formerly NationsBank). The interest rate is either the
prime rate or LIBOR plus a stipulated percentage. Accordingly, the
Company is impacted by changes in the prime rate and LIBOR. The Company
is subject to a non-use fee of 0.35% on the unused portion of the
revolver from the date of the credit agreement. Within the terms of the
credit agreement, the Company must meet certain financial covenants.
Approximately $4.0 million of the revolver was used on April 30, 1999
for the acquisition of La Senorita. At April 4, 1999, the Company had
$3.9 million outstanding under the revolver and at April 30, 1999, the
Company had $1.1 million outstanding under the revolver.
7
<PAGE> 8
The Company also has a $14.5 million forward commitment
agreement with Franchise Finance Corporation of America ("FFCA"). At
April 4, 1999, the Company had approximately $12.2 million available
under the FFCA forward commitments.
The Company's management believes that the sale-leaseback
forward commitments with FFCA, along with operating cash flow and the
Company's revolving line of credit with Bank of America, will be
sufficient to meet its operating requirements and to finance its
expansion plans (exclusive of any acquisitions other than La Senorita)
through the end of the 2000 fiscal year.
Year 2000. In 1998, the Company reached a decision to continue
outsourcing its accounting processes. The new outsourcing group has set
up an accounting department on the premises of the Company and has
installed new computer hardware and software that is Year 2000 adapted.
Further, the Company is reviewing its information and other systems and
plans to modify those systems if they are not Year 2000 compliant.
The Company also has initiated discussions with its significant
suppliers and financial institutions to ensure that those parties have
appropriate plans to remediate Year 2000 issues where their systems
interface with the Company's systems or otherwise impact its
operations. The Company is assessing the extent to which its operations
are vulnerable should those organizations fail to remediate their
computer systems properly. Although management believes that the
Company's systems will be compliant on or before December 31, 1999, the
most likely "worst case" scenario would be that the Company may not be
able to process credit card transactions and/or experience delays in
food and supply orders. In the interim, there are other manual
procedures the Company could utilize in the event of a "worst case"
scenario. All maintenance and modification costs will be expensed as
incurred, while the cost of new computer hardware and software, if
material, is being capitalized and depreciated over its expected useful
life. The cost of the Year 2000 compliance program is not anticipated
to be greater than $50,000 or to have a material adverse effect on its
financial position or results of operations.
8
<PAGE> 9
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
The Company filed a report on Form 8-K during its second
fiscal quarter to report its acquisition of the La Senorita
Restaurants operations.
There were no reports filed on Form 8-K during the quarter
ended April 4, 1999.
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 17, 1999 By: /s/ Louis P. Neeb
--------------------------
Louis P. Neeb
Chairman of the Board &
Chief Executive Officer
(Principal Executive Officer)
Dated: May 17, 1999 By: /s/ Andrew J. Dennard
--------------------------
Andrew J. Dennard
Vice President, Chief Financial
Officer & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE> 11
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 17, 1999 By:
Louis P. Neeb ---------------------
Chairman of the Board
& Chief Executive Officer
(Principal Executive Officer)
Dated: May 17, 1999 By:
Andrew J. Dennard ---------------------
Vice President, Chief Financial
Officer & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
<PAGE> 12
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Document Description
-------- -----------------------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> APR-04-1999
<CASH> 444,980
<SECURITIES> 0
<RECEIVABLES> 458,597
<ALLOWANCES> (30,000)
<INVENTORY> 450,271
<CURRENT-ASSETS> 2,254,375
<PP&E> 20,166,805
<DEPRECIATION> 4,844,036
<TOTAL-ASSETS> 24,974,148
<CURRENT-LIABILITIES> 3,393,115
<BONDS> 0
0
0
<COMMON> 47,327
<OTHER-SE> 13,906,188
<TOTAL-LIABILITY-AND-EQUITY> 24,974,148
<SALES> 11,936,794
<TOTAL-REVENUES> 12,257,880
<CGS> 3,312,168
<TOTAL-COSTS> 8,270,613
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,613
<INCOME-PRETAX> 641,670
<INCOME-TAX> 247,365
<INCOME-CONTINUING> 394,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394,305
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
