<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 2, 2000
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
MEXICAN 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 8, 2000: 3,661,705 SHARES OF COMMON STOCK, PAR VALUE $.01.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEXICAN RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS 4/2/00 1/2/00
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 415,248 $ 743,935
Royalties receivable 93,778 42,660
Other receivables 504,405 448,468
Inventory 690,492 701,195
Taxes receivable 40,118 120,427
Prepaid expenses and other current assets 566,039 522,379
------------ ------------
Total current assets 2,310,080 2,579,064
------------ ------------
Property, plant and equipment 23,986,500 23,360,615
Less accumulated depreciation (6,271,977) (5,879,908)
------------ ------------
Net property, plant and equipment 17,714,523 17,480,707
Deferred tax assets 1,390,873 1,390,873
Property held for resale 1,100,000 1,100,000
Other assets 8,388,389 8,492,657
------------ ------------
$ 30,903,865 $ 31,043,301
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 0 $ 0
Accounts payable 1,574,914 2,422,503
Accrued sales and liquor taxes 228,966 175,932
Accrued payroll and taxes 1,239,607 877,085
Accrued expenses 336,687 587,116
------------ ------------
Total current liabilities 3,380,174 4,062,636
------------ ------------
Long-term debt, net of current portion 9,123,320 8,963,320
Other liabilities 423,703 372,571
Deferred gain 3,188,917 3,252,440
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 20,121,076 20,537,076
Retained earnings 5,540,516 5,157,931
Deferred compensation (211,168) 0
Treasury stock, cost of 1,071,000 and 1,135,000 shares, respectively (10,710,000) (11,350,000)
------------ ------------
Total stockholders' equity 14,787,751 14,392,334
------------ ------------
$ 30,903,865 $ 31,043,301
============ ============
</TABLE>
2
<PAGE> 3
MEXICAN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK 13-WEEK
PERIOD ENDED PERIOD ENDED
4/02/00 4/04/99
------------ ------------
<S> <C> <C>
Revenues:
Restaurant sales $ 15,545,467 $ 11,936,794
Franchise fees and royalties 341,839 251,483
Other 5,402 69,603
------------ ------------
15,892,708 12,257,880
------------ ------------
Costs and expenses:
Cost of sales 4,410,447 3,312,168
Labor 5,214,059 3,988,221
Restaurant operating expenses 3,556,370 2,662,434
General and administrative 1,374,593 1,210,201
Depreciation and amortization 496,000 359,706
Pre-opening costs 50,901 50,051
------------ ------------
15,102,370 11,582,781
Operating income 790,338 675,099
------------ ------------
Other income (expense):
Interest income 4,416 7,282
Interest expense (204,898) (55,613)
Other, net (1,271) 14,902
------------ ------------
(201,753) (33,429)
------------ ------------
Income before income tax expense 588,585 641,670
Income tax expense 206,000 247,365
------------ ------------
Net income $ 382,585 $ 394,305
============ ============
Basic and diluted income per share $ 0.11 $ 0.11
------------ ------------
Weighted average number of shares (basic) 3,620,914 3,597,705
============ ============
Weighted average number of shares (diluted) 3,620,953 3,597,705
============ ============
</TABLE>
3
<PAGE> 4
MEXICAN RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
13-WEEK PERIODS ENDED
4/2/00 4/4/99
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 382,585 $ 394,305
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred compensation 12,832 0
Depreciation and amortization 496,000 359,706
Deferred gain amortization (63,523) (63,524)
Deferred taxes 0 48,125
(Gain) loss on sale of fixed assets 9,671 0
Changes in assets and liabilities:
Royalties receivable (51,118) 16,850
Other receivables (55,937) (94,401)
Income tax receivable/payable 80,309 59,486
Inventory 10,703 8,989
Prepaid and other current assets (48,810) (61,711)
Other assets 24,324 (324,188)
Accounts payable (847,589) 189,567
Accrued expenses and other liabilities 165,127 (3,319)
Other liabilities 51,132 0
----------- -----------
Total adjustments (216,879) 135,580
----------- -----------
Net cash provided by operating activities 165,706 529,885
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (830,792) (1,583,892)
Proceeds from sale of property, plant and equipment 176,399 36,140
----------- -----------
Net cash provided by (used in) investing activities (654,393) (1,547,752)
----------- -----------
Cash flows from financing activities:
Net borrowings under line of credit 160,000 1,000,000
----------- -----------
Net cash provided by (used in ) financing activities 160,000 1,000,000
----------- -----------
Decrease in cash and cash equivalents (328,687) (17,867)
----------- -----------
Cash and cash equivalents at beginning of period 743,935 462,847
----------- -----------
Cash and cash equivalents at end of period $ 415,248 $ 444,980
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 204,498 $ 47,153
Income Taxes $ 96,500 $ 350,000
Non-cash investing and financing activity:
Issuance of restricted stock $ 224,000 $ --
</TABLE>
4
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MEXICAN RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Mexican 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 2, 2000, and the consolidated statements
of income and cash flows for the 13-week periods ended April 2, 2000
and April 4, 1999. The consolidated statements of income for the
13-week period ended April 2, 2000 is 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. ACQUISITION OF LA SENORITA RESTAURANTS
On April 30, 1999, the Company closed on its acquisition of La
Senorita Restaurants. The Company acquired the operations of five
company-owned restaurants, a 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).
The table below presents pro forma income statement
information as if the Company had purchased La Senorita at the
beginning of the fiscal year. Pro forma adjustments are to remove
compensation that is non-continuing, amortize the resulting goodwill
over 15 years, reflect net interest expense on the debt resulting from
the acquisition and record additional income tax at an effective rate
of 38.5% on the combined income of the Company and La Senorita. This
acquisition was accounted for as a purchase.
<TABLE>
<CAPTION>
13-WEEKS 13-WEEKS
ENDED ENDED
4/02/00 4/04/99
<S> <C> <C>
Revenues................................................................... $ 15,892,708 $ 14,029,907
Net Income................................................................. $ 382,585 $ 443,468
Diluted income per share................................................... $ 0.11 $ 0.12
</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.
Allocation of purchase price for La Senorita is as follows:
<TABLE>
<S> <C>
Working Capital............................................................ $ 37,000
Furniture, Fixtures & Equipment............................................ $ 1,216,000
Goodwill................................................................... $ 2,830,000
Other...................................................................... $ 50,000
-----------
$ 4,133,000
</TABLE>
5
<PAGE> 6
4. NET INCOME (LOSS) PER COMMON SHARE
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. Stock options outstanding at April 2,
2000 of 725,270 shares were not considered in the computation of net
income per common share for the quarter then ended because the exercise
price exceeded the average market price for the quarter. For the
thirteen weeks ended April 2, 2000 inclusion of option shares would be
antidilutive. Stock options outstanding at April 4, 1999 of 808,270
shares were not considered in the computation of net income per common
share for the quarter because the exercise price exceeded the average
market price for the period. For the thirteen weeks ended April 4, 1999
inclusion of option shares would be antidilutive.
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 2, 2000, 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 2000 were up $3.6 million or 29.7% to $15.9 million compared
with the same quarter a year ago. Restaurant sales for the first
quarter of 2000 were up $3.6 million compared with the same quarter a
year ago, to $15.5 million. La Senorita, which was acquired on April
30, 1999, contributed $1.8 million in restaurant sales in the first
quarter of fiscal 2000. Six new restaurants were opened and two
restaurants were closed since the end of the first quarter of fiscal
1999. Total system sales at restaurants operating in both fiscal
quarters (same-stores) increased 2.8% over last year's same quarter.
Company-owned same-store sales for the quarter increased 3.5%.
Franchise-owned same-stores sales for the quarter increased 1.9%. Due
to the Company's focus on its development of higher volume Tortuga
Coastal Cantina and La Senorita restaurants, company-owned average
weekly unit sales increased 11.5%.
Costs and Expenses. Cost of sales, consisting primarily of
food and beverage costs, but also including paper and supplies,
increased as a percentage of restaurant sales in the first quarter of
2000 to 28.4% as compared with 27.7% in the same quarter in 1999. The
increase was primarily due to higher costs of sales associated with La
Senorita, the restaurant chain that was acquired on April 30, 1999, and
with the non-core stores located in Idaho. Historically, the La
Senorita chain has higher costs of sales than the Company's
pre-acquisition average cost of sales. Also, new restaurants that have
been open
6
<PAGE> 7
less than one year also have higher than average costs of sales. As
these restaurants mature, their costs of sales should improve.
Excluding the impact of La Senorita, the non-core restaurants and new
restaurants, costs of sales would have been lower than the first
quarter a year ago. Although cheese costs were down compared with the
same quarter a year ago, beef and produce costs were higher.
Labor and other related expenses increased as a percentage of
restaurant sales by 10 basis points to 33.5% in the first quarter of
2000 as compared with 33.4% in the same quarter in 1999. The increase
was primarily due to hourly labor expenses, which was mitigated by a
decline in management, workmen's compensation and group insurance
expenses.
Restaurant operating expenses, which primarily includes rent,
property taxes, utilities, repair and maintenance and advertising,
increased as a percentage of restaurant sales by 60 basis points to
22.9% in the first quarter of 2000 as compared with 22.3% in the same
quarter in 1999. The increase was primarily due to higher advertising
expenses.
General and administrative expenses decreased as a percentage
of total revenues by 120 basis points to 8.6% in the first quarter of
2000 as compared with 9.9% in the same quarter in 1999. The decrease
was primarily due to the absorption of general and administrative
expenses over a larger revenue base.
Depreciation and amortization expense increased as a
percentage of total revenues by 20 basis points to 3.1% in the first
quarter of 2000 as compared with 2.9% in the same quarter in 1999. The
increase was primarily due to the La Senorita acquisition. Further, six
new restaurants were opened since the end of the first quarter of
fiscal 1999.
Pre-opening costs decreased as a percentage of total revenue
by 10 basis points to 0.3% in the first quarter of 2000 compared with
0.4% in the same quarter in 1999. Pre-opening costs average $50,000 per
new restaurant. One new restaurant was opened in each of the comparable
quarters.
Other Income (Expense). Net other income (expense) increased
100 basis points to 1.3% in the first quarter of 2000 as compared with
0.3% in the same quarter in 1999. The increase was primarily due to
interest expense, which increased approximately $150,000. Since the
first quarter of 1999, new interest expense has been incurred due to
new restaurant development and the acquisition of La Senorita.
Income Tax Expense. The Company's effective tax rate for the
first quarter 2000 was 35.0% compared with 38.5% the same quarter a
year ago. The decrease in the effective tax rate is primarily due to
the Company's utilization of the Workers Opportunity Tax Credit (WOTC).
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $165,706 for the
13 week period ended April 2, 2000, compared to $529,885 for the same
period last year. As of April 2, 2000, 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 2000, capital expenditures on
property, plant and equipment were approximately $ 830,000 as compared
to $1.6 million for the same period in 1999. Capital expenditures
included the remodeling of two restaurants. The Company plans to
remodel the La Senorita restaurants in the second half of the fiscal
year. One previously closed restaurant was reopened after a concept
conversion from a Casa Ole to a Tortuga Coastal Cantina. No new
restaurants are currently under construction, but the Company has
secured a site for one additional Tortuga Coastal Cantina that should
open during the third quarter. 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
$2.2 million.
7
<PAGE> 8
The Company has a $10.0 million credit facility with Bank of
America. The interest rate is either the prime rate or LIBOR plus a
range of stipulated percentages. Accordingly, the Company is impacted
by changes in the prime rate and LIBOR. The Company is subject to a
non-use fee (ranging from 0.25% to 0.5%) on the unused portion of the
revolver from the date of the credit agreement. As of April 2, 2000,
the Company had $9.1 million outstanding on the revolving line of
credit. The acquisition of La Senorita, which closed on April 30, 1999,
used approximately $4.0 million of the revolving line. The balance was
used for new restaurant construction, remodeling and other working
capital needs. The Company anticipates that debt will decline
approximately $1.0 million by the end of this fiscal year. The maturity
date of the credit facility is July 15, 2002; however, the credit
facility will be reduced by $500,000 on December 31, 2000 and $1.0
million on December 31, 2001.
The Company also has a $9.8 million forward commitment
agreement with Franchise Finance Corporation of America ("FFCA"). At
April 2, 2000, the Company had approximately $9.8 million available
under the FFCA forward commitments.
The Company's management believes that the 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have or participate in transactions
involving derivative, financial and commodity instruments. The
Company's long-term debt bears interest at floating market rates. Based
on amount outstanding at April 2, 2000, a 1% change in interest rates
would change interest expense by $25,000.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document Description
------- --------------------
<S> <C>
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.
MEXICAN RESTAURANTS, INC.
Dated: May 10, 2000 By: /s/ Louis P. Neeb
----------------------
Louis P. Neeb
Chairman of the Board & Chief Executive Officer
(Principal Executive Officer)
Dated: May 10, 2000 By: /s/ Andrew J. Dennard
--------------------------
Andrew J. Dennard
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
10
<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.
MEXICAN RESTAURANTS, INC.
Dated: May 10, 2000 By:
Louis P. Neeb -----------------------
Chairman of the Board
& Chief Executive Officer
(Principal Executive Officer)
Dated: May 10, 2000 By:
Andrew J. Dennard -----------------------
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
11
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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> APR-02-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 415,248
<SECURITIES> 0
<RECEIVABLES> 598,183
<ALLOWANCES> 0
<INVENTORY> 690,492
<CURRENT-ASSETS> 2,310,080
<PP&E> 23,986,500
<DEPRECIATION> 6,271,977
<TOTAL-ASSETS> 30,903,865
<CURRENT-LIABILITIES> 3,380,174
<BONDS> 0
0
0
<COMMON> 47,327
<OTHER-SE> 14,740,424
<TOTAL-LIABILITY-AND-EQUITY> 30,903,865
<SALES> 15,545,467
<TOTAL-REVENUES> 15,892,708
<CGS> 4,410,447
<TOTAL-COSTS> 15,102,370
<OTHER-EXPENSES> 1,271
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204,898
<INCOME-PRETAX> 588,585
<INCOME-TAX> 206,000
<INCOME-CONTINUING> 382,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 382,585
<EPS-BASIC> 0.11
<EPS-DILUTED> 0.11
</TABLE>
