SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the year ended: December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number: 0-12802
El Chico Restaurants, Inc.
(Exact name of registrant as specified in its charter)
Texas 75-0982250
(State or other jurisdiction of
(I.R.S. Employer Identification No.)
incorporation or organization)
12200 Stemmons, Suite 100
Dallas, Texas 75234
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code: (214)
241-5500
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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
The aggregate market value of the voting stock held by
nonaffiliates of the registrant as of March 4, 1996 was
$35,321,367. As of that date, there were 4,095,231 shares of the
registrant's Common Stock, par value $.10, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be
furnished to shareholders in connection with its Annual
Meeting of Shareholders to be held on May 2, 1996, are
incorporated by reference in Parts I and III of this Form 10-K.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
<PAGE>
PART I
ITEM 1. BUSINESS.
El Chico Restaurants, Inc. (generally referred to herein
together with its predecessor and subsidiaries as the "Company"
unless the context otherwise requires) was incorporated in Texas
in 1957 as a successor to a restaurant business operated since
1940. The Company's primary business is operating and
franchising full-service, family-style restaurants under the name
"El Chico" that offer moderately priced, high quality, Mexican-
style cuisine and alcoholic beverages. As of December 31, 1995,
a total of 101 restaurants were in operation in Alabama,
Arkansas, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana,
Mississippi, Missouri, Oklahoma, South Carolina, Tennessee, and
Texas, of which 72 were Company-operated and 29 were franchised.
Included in the 72 Company-owned restaurants were one restaurant
under the name "Casa Rosa Restaurante", and two restaurants under
the name "Cantina Laredo". During 1995, the Company opened six
Company-owned El Chico restaurants, purchased an El Chico
restaurant from an existing franchisee, and opened one franchised
El Chico restaurant. The Company also is engaged in designing
and supplying food-service equipment through its Pronto Design
and Supply, Inc. subsidiary.
El Chico Restaurants
In addition to offering Mexican-style cuisine, El Chico
restaurants offer a limited number of non-Mexican and children's
items. The Company continually evaluates and revises its menu to
improve its products.
The restaurants, which cater to families, are open daily for
lunch and dinner and offer entrees that generally range from
$3.99 to $10.99. Alcoholic beverages, which are served primarily
with meals (as opposed to bar service), generated approximately
8.0 percent of all restaurant revenues for 1995.
The average El Chico restaurant seats approximately 200
people, and the average restaurant size is approximately 5,600
square feet. The decor generally features painted stucco walls,
complementary furnishings, and a bar area. The exterior of the
freestanding restaurants reflects a style of Mexican
architecture. During 1992, the Company began to remodel the
interiors and exteriors of virtually every Company-owned El Chico
restaurant, utilizing features of a newly designed prototype
restaurant. This remodel program was completed during 1993. The
Company believes that periodic remodels are important to
maintaining the competitiveness of its restaurants. During 1995,
the Company began to remodel the interiors and exteriors of
certain new restaurants opened in 1993 and 1994, including
retrofitting of full-service bars, as well as further upgrades of
older restaurants. The Company anticipates continuing these
remodeling programs in 1996 and thereafter.
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The Company makes centralized purchasing arrangements for
the basic ingredients of its menu items in order to secure
favorable prices and uniform quality specifications. The Company
currently purchases most ingredients and supplies through a
single distributor under a contract that may be terminated upon
12 months' written notice to its distributor. In the event that
for any reason the Company's primary distributor ceases to meet
the Company's needs, the Company does not anticipate that it
would have significant difficulty in obtaining food items and
supplies at competitive prices from other sources.
The Company utilizes local advertising for individual
restaurants and broadcast advertising where market penetration is
efficient as well as public relations activities aimed at
individual restaurants and entire markets. The Company's
advertising campaigns emphasize freshness, quality food, good
service and value. In 1995, the Company terminated its agreement
with its previous advertising agency and began a search, which
was completed successfully in early 1996, for a new agency.
During 1995, the Company's expenditures for advertising were
approximately 2 percent of Company-owned restaurant revenues.
Franchised Restaurants
Generally, the El Chico restaurants franchised by the
Company operate for an initial term of 15 years, require an
initial franchise fee of $35,000, a continuing royalty fee of
4 percent of the franchisee's gross revenues, and a marketing fee
of 1 percent of such gross revenues.
The Company exercises stringent qualification criteria in
selecting its franchisees. Among the criteria for selection are
the franchisee's financial strength, successful history of
restaurant business management, and commitment to the Company's
high standards of business conduct. The Company's franchisees
are required to comply with the Company's standards and operating
guidelines. The Company regularly reviews the performance of its
franchisees to ensure such compliance.
Specialty Restaurants
As of December 31, 1995, the Company owned and operated two
types of specialty restaurants consisting of two Cantina Laredo
restaurants and one Casa Rosa Restaurante. The Company presently
has no plans to develop additional specialty restaurants under
either existing or new concepts, but it has been presented with
site opportunities for new Cantina Laredo restaurants which have
been considered on a case-by-case basis as would other such
opportunities if presented in the future.
New Restaurant Construction
Management estimates that the cost of building, equipping,
and opening a new freestanding El Chico restaurant will range
from $1,425,000 to $2,350,000, including approximately $290,000
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to $830,000 for land, approximately $600,000 to $760,000 for
sitework, construction, and landscaping, and approximately
$535,000 to $760,000 for equipment, furniture, and opening costs.
The cost of developing new Company restaurants will vary,
primarily because of varying costs of land, sitework, signage,
pre-opening, and labor.
During 1995, seven Company-owned El Chico restaurants were
opened, including one El Chico restaurant which was purchased
from an existing franchisee. By the end of 1996, the Company
expects to open two to four additional El Chico restaurants and
remodel eight to twelve El Chico restaurants including
retrofitting of full-service bars in certain recently opened
restaurants without such features.
Service Marks
The Company has obtained federal registration of the service
mark "El Chico", the El Chico design, and other related service
marks. The El Chico service mark is also currently registered in
10 states. These service marks are of material importance to the
operation of the Company's business. The Company has also
federally registered service marks for "Casa Rosa Restaurante",
"Cantina Laredo", and a design that features the phrase
"Cuellars' El Chico".
Employees
As of December 31, 1995, the Company employed approximately
3,900 persons (including full- and part-time personnel), of whom
3,800 were restaurant employees and 100 were restaurant
supervision and corporate employees. Company restaurants employ
an average of approximately 50 to 60 full- or part-time
employees. None of the Company's employees are covered by
collective bargaining agreements, and the Company has never
experienced a major work stoppage, strike, or labor dispute. The
Company considers its employee relations to be good.
Competition
The restaurant business is highly competitive, and
competition among restaurants serving Mexican cuisine is
increasing. The Company believes that the principal competitive
factors in its restaurant business are quality, value, service,
atmosphere, and location. The Company's restaurants compete with
many food service operations in the vicinity of each restaurant,
including restaurants specializing in Mexican food. The Company
believes that its competitive position in certain markets is
enhanced by regional name recognition and by its moderately
priced menu, quality food, and a comfortable, full-service,
family-oriented dining atmosphere. Other companies, however,
continue to open restaurants similar to the Company's
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restaurants, and certain of these competitors have greater
resources than the Company.
Governmental Regulation
The Company is subject to various federal, state, and local
laws affecting its business. Many stringent and varied
requirements of local governmental bodies with respect to zoning,
land use, and environmental factors have increased and can be
expected to continue to increase both the cost of and the time
required for constructing new restaurants as well as the cost of
operating Company restaurants. The Company's restaurants are
subject to various health, sanitation, and safety standards and
are also subject to state and local licensing and regulation with
respect to the service of alcoholic beverages. The service of
alcoholic beverages is material to the business of the Company.
The failure to receive or retain, or a delay in obtaining, a
liquor license in a particular location could adversely affect
the Company's operations in that location. Liquor licenses must
be renewed annually. The Company has not encountered any
significant problems relating to alcoholic beverage licenses and
permits to date.
The Company may be subject in certain states to "dram-shop"
statutes, which may establish liability for improper alcoholic
beverage service. The Company carries liquor liability coverage
as part of its existing comprehensive general liability
insurance.
The Company is also subject to state and federal labor laws.
These include the Fair Labor Standards Act, which governs such
matters as minimum wages, overtime, and other working conditions;
the Immigration and Naturalization Act, which governs employee
citizenship requirements; and the Americans with Disabilities
Act, which governs non-discriminating employment practices and
reasonable accommodations for disabled persons, both employees
and customers. A significant portion of the Company's food
service personnel are paid at rates related to the federal
minimum wage; and, accordingly, increases in the minimum wage
increase the Company's labor costs. The Company has managed cost
increases from past minimum wage increases by adjusting prices,
adding and deleting menu items, and changing plate presentations,
but the ability to manage future increases thusly would depend on
the size of such increases, their timing, and the competitive
environment.
In recent years many states have enacted laws regulating
franchise operations. Much of this legislation requires detailed
disclosure in the offer and sale of franchises and the
registration of the franchisor with state administrative
agencies. The Company is also subject to Federal Trade
Commission regulations relating to disclosure requirements in the
sale of franchises. Additionally, certain states have enacted,
and others may enact, legislation governing the termination and
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non-renewal of franchises and other aspects of the franchise
relationship that are intended to protect franchisees. The
foregoing matters may result in some modifications in the
Company's franchising activities and some delays or failures in
enforcing certain of its rights and remedies under license and
lease agreements. The laws applicable to franchise operations
and relationships are developing rapidly, and the Company is
unable to predict the effect on its intended operations of
additional requirements or restrictions that may be enacted or
promulgated or of court decisions that may be adverse to
franchisors.
Effective September 1, 1991, the Company elected to become a
non-subscriber of the Texas Workers' Compensation Act. Upon this
election, excess liability insurance was acquired, and an
employee benefit trust was established to provide for benefits in
the event of injury. Indications are that this election has been
favorable; however, the Texas Workers' Compensation Act has
undergone certain favorable reforms, with further changes
expected. Management reviews this election periodically.
ITEM 2. PROPERTIES.
As of December 31, 1995, the Company owned 19 of its
restaurant locations and leased the remaining 53 restaurant
locations. The leases have terms that expire between 1996 and
2010, excluding renewal options not yet exercised, and have an
average remaining term of approximately six years. The leases
generally provide for rentals ranging from 3 percent to 6 percent
of gross restaurant sales, with a stated minimum rental. Under
substantially all of its leases, the Company is required to pay
real estate taxes, insurance, and maintenance expenses.
Construction is expected to begin in March on a leased site
replacing an existing store in Richardson, Texas and during the
second quarter on a site owned by the Company in Lexington,
Kentucky.
Of the 72 restaurants operated by the Company as of December
31, 1995, 53 were freestanding buildings, nine were located in
strip shopping centers, and 10 were located in shopping malls.
As of the same date, two of the Company's 29 franchised
restaurant locations were owned by the Company and leased by the
Company to the franchisees, one was leased by the Company and
subleased to a franchisee, and 26 were directly leased or owned
by the franchisees.
As of March 4, 1996, the Company owned four tracts of raw
land, which are located adjacent to (i) an existing franchised
location, (ii) two open and operating Company-owned locations,
and (iii) a closed Company-owned location. In addition to these
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tracts, during 1995 the Company purchased two separate tracts of
land for future development. As of the same date, the Company
owned two parcels of real estate, one of which is leased to a
non-related business. In addition, there are two locations that
are leased by the Company and subleased to non-related
businesses.
During 1993, the Company purchased a 67,665 square foot
office facility, where it had been leasing approximately 20,000
square feet of space. The Company continues to office in the
facility and is leasing the majority of the remaining square
footage to unrelated businesses. A 15,000 square foot warehouse
is leased which houses restaurant equipment and is located in
close proximity to the office facility. The Company also owns a
tract of land consisting of approximately one acre and an 8,000
square foot building in Carrollton, Texas. This property is
utilized primarily for the training of restaurant management.
ITEM 3. LEGAL PROCEEDINGS.
Although the Company is a defendant in various lawsuits
arising out of the ordinary course of its business, in the
opinion of management, these lawsuits will not have a material
adverse effect upon the Company's business or financial position.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's
shareholders during the fourth quarter of the year ended December
31, 1995.
Executive Officers of the Registrant
As of March 4, 1996, the executive officers of the Company
were as follows:
Name Age Position with Company
Joseph S. Thomson 66 Chairman of the Board
Wallace A. Jones 44 President, Chief Executive
Officer and Director
Lawrence E. White 45 Executive Vice President
and
Chief Financial Officer
John A. Cuellar 50 Senior Vice President,
Secretary,
General Counsel, and Director
Charles A. Cooper 44 Vice President, Development
Gary R. Rustmann 42 Vice President, Operations
Michael E. Sick 41 Vice President, Marketing
Susan R. Holland 39 Treasurer, Controller
The terms of office and biographical data with respect to
Messrs. Joseph S. Thomson, and Wallace A. Jones, as set forth
under the heading "Election of Directors" in the definitive Proxy
Statement regarding the Annual Meeting of Shareholders of the
Company to be held on May 2, 1996, are incorporated herein by
reference.
Lawrence E. White joined the Company as Chief Financial
Officer in May 1992. During the period from September 1994 to
January 1995, Mr. White held the interim position of Chief
Operating Officer in addition to his duties as Chief Financial
Officer. From September 1989 to April 1992, Mr. White served as
Senior Vice President and Treasurer of Metromedia Steakhouses,
Inc., having responsibility for financial management of both
Ponderosa Steakhouses and Bonanza Family Restaurants as well as a
meat-processing and food-distribution subsidiary. From February
1987 to September 1989, Mr. White was employed by TGI Friday's,
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Inc., where he served as Director of Financial Planning and
Analysis, and later served as Treasurer. Prior to Mr. White's
tenure at TGI Friday's, he held financial positions at Lone Star
Technologies, Inc., and at Ford Motor Company.
John A. Cuellar has served as a director and Vice President
of the Company since July 1974. In December 1982, Mr. Cuellar
also assumed the positions of General Counsel and Secretary of
the Company. In February 1993, Mr. Cuellar was elected Senior
Vice President. In September 1994, Mr. Cuellar was elected as
interim Chairman of the Board, and served in that capacity until
November 1994. Mr. Cuellar serves on the Board of Link Financial
Services Corporation, which provides financial and planning
services to profit and nonprofit corporations and other entities.
Charles A. Cooper assumed his present position as Vice
President, Development in February 1993. Mr. Cooper joined the
Company in April 1991 as Director of Real Estate and in April
1992 assumed responsibilities as Director of Franchising and
Development. From September 1988 to April 1991, Mr. Cooper
served as Director of Marketing with S.W.S. Realty, Inc. From
December 1977 to August 1988, Mr. Cooper served in various
capacities including President of National Retail Properties
Corporation, a subsidiary of Southland Investment Properties.
Gary R. Rustmann joined the Company as Vice President,
Operations in January 1995. From December 1994 to January 1995,
Mr. Rustmann was employed with Brinker International, Inc. Mr.
Rustmann was a restaurant owner from April 1994 to November 1994.
From September 1982 to April 1994, Mr. Rustmann was employed by
Brinker International, Inc., his latest position being Regional
Vice President for Midwest operations of the Chili's restaurant
concept.
Michael E. Sick joined the Company as Vice President,
Marketing in February 1995. From July 1994 until January 1995,
Mr. Sick served as Vice President of Marketing for Pearle Vision.
From November 1986 to July 1994, Mr. Sick was employed by Jack in
the Box Restaurants, initially as Director-Field Marketing and
Promotion and from April 1991 as Vice President-Field Marketing
and Promotion.
Susan R. Holland joined the Company as Controller in
November 1985 and has served as Treasurer since August 1990.
From December 1984 to November 1985, Ms. Holland was self-
employed as a Certified Public Accountant. From August 1978 to
December 1984, Ms. Holland was with Grant Thornton, with her last
position being Audit Manager.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is quoted on the National
Association of Securities Dealers Automated Quotation System
("NASDAQ") National Market System under the symbol "ELCH". The
following table sets forth the high and low sale prices as
reported on the NASDAQ National Market System for the periods
indicated.
Calendar Year 1995 High Low
First Quarter $ 11.75 $ 7.63
Second Quarter $ 9.88 $ 7.63
Third Quarter $ 12.63 $ 9.38
Fourth Quarter $ 12.13 $ 9.00
Calendar Year 1994
First Quarter $ 17.75 $ 14.50
Second Quarter $ 15.50 $ 13.25
Third Quarter $ 16.00 $ 9.75
Fourth Quarter $ 12.88 $ 8.13
To date, the Company has not paid any cash dividends on
shares of common stock. It is the general policy of the Company
to retain earnings to support the Company's growth.
On December 29, 1994 the Board of Directors authorized the
repurchase of up to 210,000 shares of the Company's outstanding
common stock in the open market. As of March 15, 1995, 210,000
shares had been purchased at an average price of $10.35, for a
total purchase of $2,173,975.
Subsequently, on February 15, 1996, the Board of Directors
authorized the repurchase of up to 409,000 shares of the
Company s outstanding common stock from time to time in the open
market. As of March 4, 1996, there have been no shares purchased
under this authorization.
As of March 4, 1996, the number of record holders of the
Company's common stock was approximately 400, and the Company
estimates that as of that date there were 1,800 beneficial owners
of its stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The following summary of selected financial data has been
derived from the more detailed Consolidated Financial Statements
and Notes thereto of the Company contained elsewhere in this
report or previous reports.
<TABLE>
<CAPTION>
Year
Ended Year
Ended Year
Ended Transitio
n
Period
Ended Fiscal Year Ended
December
31,
1995 December
31,
1994 December
31,
1993 December
31,
1992 (1) June 1,
1992 (3) May 27,
1991
(In Thousands Except Per Share Amounts)
Income Statement Information:
<S> <C> <C> <C> <C> <C> <C>
Revenues . . . . . . . $104,618 $97,826 $88,465 $51,257 $90,818 $84,465
Income (loss) before
income taxes . . . . . $5,592 $5,581 $4,339 $2,912 (2) $(1,568)(4)$1,870
Net earnings (loss) . . $3,958 $3,728 $2,713 $ 2,135(2) $ (969) $1,242
Net earnings (loss) per
share . . . . . . . . . $
0.98 $ 0.88 $ 0.64 $ 0.49 $
(0.22
) $
0.28
Balance Sheet
Information:
Total assets . . . . . $51,039 $43,964 $37,347 $31,730 $32,499 $32,338
Long-term debt . . . . $8,435 $5,533 $3,303 $1,109 $1,215 $1,358
Stockholders' equity . $32,497 $28,882 $24,844 $21,900 $22,679 $23,259
</TABLE>
(1) On November 6, 1992, the Company changed its fiscal year
from the Monday nearest May 31 to December 31. See
Management's Discussion and Analysis of Financial Condition
and Results of Operations for comparisons to comparable
periods.
(2) Includes a tax-free gain of $847,000 on disposition of one
of the Company's specialty restaurants.
(3) Fiscal 1992 includes 53 weeks of operations.
(4) During fiscal 1992, the Company recorded a pre-tax special
charge of $3,977,000 to provide for: write-downs of
underperforming restaurants and other properties and
assets, higher than expected insurance costs, and costs
associated with personnel changes.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
The Consolidated Statements of Operations reported herein
represent results of operations for the years ended December 31,
1995, 1994, and 1993. The following table summarizes key results
of operations:
<TABLE>
<CAPTION>
Year Year Year
Ended Ended Ended
December 31,December 31,December 31,
1995 1994 1993
(Dollar Amounts in
Thousands)
Number of Company-owned
<S> <C> <C> <C>
restaurants . . . . . . . 72 65 61
Number of franchised
restaurants . . . . . . . 29 29 29
Weighted average annual
sales per
Company-owned restaurant $1,479 $ 1,60
0 $ 1,46
9
Revenues from Company
operations . . . . . . . $104,8
16 $ 97,8
26 $ 88,4
65
Net sales from Company
operations . . . . . . . $101,6
28 $ 94,9
01 $ 84,2
09
Income before taxes . . . $5,592 $ 5,58
1 $ 4,33
9
Net income . . . . . . . $3,958 $ 3,72
8 $ 2,71
3
Profit margin . . . . . . 3.8% 3.8% 3.1%
Comparative Performance 1995 vs 1994
Net sales for Company-owned restaurants increased 7.1
percent to $101,628,000 in 1995 from $94,901,000 in 1994. The
increase in sales is due to an increase in the average number of
stores operating throughout 1995 versus 1994. Weighted average
annual sales per Company-owned restaurant decreased 7.6 percent
and same-store sales decreased 2.2 percent including a decrease
in El Chico concept same-store sales of 2.5 percent. As a result
of mix changes and certain menu price increases associated with a
new menu introduction, the Company s check-average increased
approximately 1.7 percent in 1995. The Company has used a same-
store sales convention that reflects new stores beginning when
they were opened for the full quarter of the prior year. Because
of the potentially significant impact of initially high, but
rapidly declining volumes after opening ( honeymoon effect ) the
Company will adopt a new convention in 1996 that adds new stores
to the same-store sales comparison in the quarter in which they
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reach their 18-month anniversary. Seven stores were opened
during 1995, including one purchased from an existing franchisee.
Franchise revenue decreased from $2,093,000 to $2,082,000 as
a result of a decrease in the average number of stores operating
throughout 1995 versus 1994. This decrease was partly offset by
an increase in franchise same-store sales of 0.7 percent. During
1995, the Company purchased an El Chico restaurant from a
franchisee and opened one new franchise store.
Food costs decreased from 25.6 percent of sales to 25.4
percent due to a decrease in the cost of beef, avocados and
beans.
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Labor costs remained unchanged at 33.1 percent of sales.
Hourly labor cost decreased as a percentage of sales as a result
of eliminating the restaurant cashier position by changing to a
server-banking system, and from converting certain restaurant
employees from minimum wage to tipped compensation. This
decrease was offset by management compensation expense, which
increased as a percentage of sales as a result of lower weighted
average sales per restaurant.
Operating costs increased from 28.3 percent of sales to 28.6
percent due to an increase in supplies, repair and maintenance
and property taxes partly offset by decreased laundry and
insurance costs. At the end of 1994, the Company converted from
cloth napkins to paper napkins which resulted in reduced laundry
costs, partly offset by an increase in supply costs.
Pronto Design and Supply, Inc. ( Pronto ) is a wholly owned
subsidiary in the business of designing food-service kitchens and
supplying the related equipment. Equipment sales increased from
$832,000 to $908,000 primarily reflecting sales to a new
franchise restaurant. Equipment cost of sales increased as a
percentage of sales due to a decrease in vendor rebate income
relative to sales. Vendor rebate income includes rebates on
outside sales as well as rebates on equipment purchases for El
Chico restaurants.
General and administrative costs increased from $8,967,000
to $9,227,000 as a result of increased employee costs, an
increase in the number of multi-unit restaurant supervisors and
increased training wages. These increases were partly offset by
decreased professional fees, incentive bonuses and travel.
Interest expense increased from $146,000 to $602,000,
primarily as a result of increased borrowings, partly offset by a
decline in interest rates. Interest income decreased from
$88,000 to $78,000 due to a decline in average invested cash
balances.
The income tax provision decreased as a percent of income
before taxes due to an increase in the FICA tip credit and lower
state taxes.
Comparative Performance 1994 vs 1993
Net sales for Company-owned restaurants increased 12.7
percent to $94,901,000 in 1994 from $84,209,000 in 1993. The
increase in sales is due to an increase in the average number of
stores operating throughout 1994 versus 1993, an increase in
weighted average annual sales per Company-owned restaurant of 8.9
percent and an increase in same-store sales. Same-store sales
increased 3.8 percent including an increase in El Chico concept
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same-store sales of 4.3 percent. Ten new stores were opened and
six stores were closed during 1994.
Franchised revenue increased primarily as a result of an
improvement of same-store sales of 2.8 percent.
Food costs increased from 25.5 percent of sales to 25.6
percent of sales primarily as a result of increased produce costs
experienced during the first quarter of 1994.
Labor costs increased from 33.0 percent of sales to 33.1
percent reflecting increased restaurant management incentive
compensation partly offset by lower hourly labor.
Operating costs increased from 28.0 percent to 28.3 percent
of sales as a result of an increase in deferred pre-opening
amortization expense and an increase in advertising and
promotional costs partially offset by lower supply and insurance
costs.
Pronto sales decreased from $2,209,000 to $832,000 as the
result of Pronto directing its resources on El Chico restaurant
growth rather than the development of outside sales. Equipment
cost of sales decreased as the result of lower outside sales and
an increase in vendor rebate income relative to sales.
General and administrative costs were basically unchanged at
$8,967,000 in 1994 versus $8,957,000 in 1993.
Interest expense increased from $75,000 to $146,000,
primarily as a result of increased borrowings and interest rates
partly offset by increased capitalization of interest. Interest
income decreased from $157,000 to $88,000 due to a decline in
average invested cash balances.
Restaurant Closings
The loss on sale or disposition of assets primarily
represents the following: 1994 the write-down of asset values
for two restaurants, the loss incurred on the closing of two
restaurants and the gain realized on the sale of one restaurant;
1993 the loss on the closing of two restaurants, the gain on
the sale of land, a provision for the closing of three
restaurants and various asset dispositions related to remodels.
As of December 31, 1995, and December 31, 1994, accrued
liabilities and other long-term liabilities included $190,000,
for future rent and other expenses related to store closings.
Liquidity and Capital Resources
The Company has an unsecured credit facility with a
$16,000,000 commitment comprised of a $15,000,000 revolving line
of credit and a $1,000,000 letter of credit facility. The line
-15-
<PAGE>
of credit matures on December 31, 1997, and may be converted to a
term loan, payable quarterly on a 10-year amortization schedule,
and maturing on December 31, 1999. Both the line of credit and
the term loan bear interest at the Company's option of prime rate
or up to six-month LIBOR plus 0.75 percent. Both rates are
subject to maintaining certain financial covenants, and interest
is payable upon maturity of the LIBOR advances or quarterly for
prime rate advances. In addition, a commitment fee of 0.25
percent is payable quarterly on any unused commitments. As of
December 31, 1995, $8,375,000 was outstanding under the line of
credit. The credit facility was obtained for the funding of the
construction of new Company-owned restaurants, remodeling
existing restaurants, and the purchase of the Company's
headquarters facility during 1993. The Company plans to open
approximately two to four El Chico restaurants and remodel eight
to twelve El Chico restaurants and estimates capital expenditures
during 1996 to be approximately $7,000,000 to $11,000,000, which
will be funded by internal operations and the existing credit
facility. The credit facility also may be used for the
repurchase of the Company s common stock with certain
limitations. The board of directors has authorized the
repurchase of up to 409,000 shares of the Company s common stock
from time-to-time in the open market.
Working capital decreased from a deficit of $4,006,000 at
December 31, 1994 to a deficit of $4,696,000 at December 31,
1995, primarily as a result of an increase in capital
expenditures. Cash flows generated from operations of new and
existing restaurants and borrowings were offset by capital
expenditures.
During 1995, certain menu prices were increased as part of a
new menu introduction to improve merchandising of products.
Additional menu price adjustments to the extent permitted by
competition or changes in menu mix may be required to offset
increased costs.
-16-
<PAGE>
Accounting Matters
In March 1995, the Financial Accounting Standards Board (the
FASB ) issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, which requires that long-
lived assets and certain identifiable intangibles to be held and
used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset
may not be recovered. This Statement is effective for financial
statements for fiscal years beginning after December 15, 1995.
The Company does not expect that its adoption will have a
material effect on its financial position or results of
operations.
In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based
Compensation, which establishes financial accounting and
reporting standards for stock-based employee compensation plans.
This Statement is effective for transactions entered into in
fiscal years that begin after December 15, 1995, with possible
pro forma disclosures for awards granted in fiscal years that
begin after December 15, 1994. The Company will adopt the
intrinsic value based method of accounting for employee stock
based compensation.
ITEM 8. FINANCIAL STATEMENTS.
The Financial Statements are set forth herein commencing on page
F-1.
-17-
<PAGE>
PART III
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information set forth under the heading "Election of
Directors" contained in the definitive Proxy Statement regarding
the Annual Meeting of Shareholders of the Company to be held on
May 2, 1996 (the "Definitive Proxy Statement") sets forth
certain information with respect to the directors of the Company,
some of whom are also executive officers, and is incorporated
herein by reference. Certain information with respect to the
remaining executive officers of the Company is set forth under
the caption "Executive Officers" in Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by
reference from the Definitive Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is incorporated by
reference from the Definitive Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by
reference from the Definitive Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON
FORM 10-K.
(a) The following documents are being filed as part of this
Annual Report on Form 10-K:
1. Financial Statements: The Financial Statements are
listed in the Index to Consolidated Financial Statements
on Page 16 of this Report.
2. Exhibits.
-18-
<PAGE>
Exhibit No. Exhibit
3.1 Restated Articles of Incorporation of the Company, as
amended.
3.2 Bylaws of the Company, as currently in effect.
4.1* Specimen certificate evidencing Common Stock.
4.1 Rights Agreement, dated February 9, 1995, by and between the
Company and Society National Bank.
4.2 Rights Agreement, dated as of February 9, 1995 between the
Company and Society National Bank, as Rights Agent.
10.1 Description of Executive Short-Term Bonus
Plan. (a)
10.2* Incentive Stock Option Plan. (a)
10.3** Amendment to Stock Option Plan (formerly the Incentive Stock Option Plan). (a)
10.4 Amendment No. 2 to Stock Option Plan. (a)
10.5 Amendment No. 3 to Stock Option Plan. (a)
10.6** Form of Stock Option Agreement, as
amended--Stock Option Plan. (a)
10.7 Profit Sharing Plan and Trust Agreement. (a)
10.8** 1986 Employee Stock Bonus Plan. (a)
10.9** Lease dated May 15, 1985, between the
Company, as lessee, and Frank Cuellar and
Sons, Inc., as lessor, as corrected February
25, 1986, and amended July 18, 1986.
10.10 Distribution Service Agreement dated March 3,
1993, by and between The SYGMA Network and the Company.
10.11*** Stock Option Plan for Non-employee Directors
and Form of Stock Option Agreement. (a)
10.12 1990 Long-Term Incentive Plan. (a)
10.13 Nonemployee Director Stock Bonus Plan. (a)
10.14 1992 Stock Option Plan. (a)
10.15 Employment Agreement with Wallace A. Jones
dated November 10, 1994. (a)
-19-
<PAGE>
11 Earnings Per Share Calculations.
21 List of Subsidiaries.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
* Filed as an exhibit to the Company's registration Statement
on Form S-1 (No. 2-83955) effective June 30, 1983, and
incorporated herein by reference.
** Filed as an exhibit to the Company's annual report on Form
10-K for the fiscal year ended May 29, 1987, and
incorporated herein by reference.
*** Filed as an exhibit to the Company's annual report on Form
10-K for the fiscal year ended May 30, 1988, and
incorporated herein by reference.
Filed as an exhibit to the Company's annual report on Form
10-K for the fiscal year ended May 28, 1990, and
incorporated herein by reference.
Filed as an exhibit to the Company's annual report on
Form 10-K for the fiscal year ended May 27, 1991, and
incorporated herein by reference.
Filed as an exhibit to the Company's quarterly report on
Form 10-Q for the quarter ended August 19, 1991, and
incorporated herein by reference.
Filed as an exhibit to the Company's transition report on
Form 10-K for the transition period ended December 31, 1992,
and incorporated herein by reference.
Filed as an exhibit to the Company's annual report on Form
10-K for the year ended December 31, 1993, and incorporated
herein by reference.
Incorporated by reference from the Company's current report
on Form 8-K filed on February 21, 1995.
Incorporated by reference from the Company's registration
statement on Form 8-A filed on February 21, 1995 (File No.
0-12802).
(a) Compensation plan, benefit plan or employment contract or
arrangement.
Filed as an exhibit to the Company s annual report on Form
10-K for the year ended December 31, 1994, and incorporated
herein by reference.
-20-
<PAGE>
Incorporated by reference from Exhibit 1 of the Company s
Registration Statement on Form 8-A, filed by the Company
with the Securities and Exchange Commission on February 21,
1995.
-21-
<PAGE>
El Chico Restaurants, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements:
Independent Auditors Report
F-1
Consolidated Balance Sheets at December 31, 1995 and 1994 F-2
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994, and 1993
F-3
Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 31, 1995, 1994, and 1993 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993
F-5
Notes to Consolidated Financial Statements
F-6
-22-
<PAGE>
All schedules have been omitted as the required information is
not applicable, not required, or the information is included in
the consolidated financial statements or notes thereto.
-23-
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
El Chico Restaurants, Inc.:
We have audited the consolidated financial statements of El
Chico Restaurants, Inc. and subsidiaries as listed in the
accompanying index. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of El Chico Restaurants, Inc. and subsidiaries
as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 7, 1996
F-1
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
El Chico Restaurants, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Expect Par Values)
December 31,
1995 1994
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 266 $ 727
Accounts receivable 979 852
Income tax receivable 66
Inventories 1,100 1,189
Prepaid expenses and other 1,346 1,488
Deferred income taxes (Note H) 71 56
Total current assets 3,828 4,312
PROPERTY AND EQUIPMENT, NET (Note B) 46,209 38,559
OTHER ASSETS AND DEFERRED COSTS 1,002 1,093
TOTAL ASSETS $51,039 $43,964
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt (Note
D) $ 25 $ 22
Trade accounts payable 4,384 4,089
Accrued liabilities (Note C) 4,115 4,034
Income taxes payable 173
Total current liabilities 8,524 8,318
LONG-TERM DEBT, less current maturities
(Note D) 8,435 5,533
OTHER LONG-TERM LIABILITIES 1,240 926
DEFERRED INCOME TAXES (Note H) 343 305
COMMITMENTS AND CONTINGENCIES (Note E)
STOCKHOLDERS' EQUITY (Note F):
Preferred stock - authorized 1,000,000
shares
of $.10 par value; none issued
Common stock - authorized 10,000,000
shares of $.10 par value;
issued 4,746,975 and 4,743,640 shares in
1995 and 1994, respectively 475 474
Additional paid-in capital 15,895 14,583
Retained earnings 21,938 17,980
Unamortized value of restricted stock
issued (59) (68)
38,249 32,969
F-2
<PAGE>
Less treasury stock - at cost 651,744 and
615,263 shares in
1995 and 1994, respectively (5,752) (4,087)
Total stockholders' equity 32,497 28,882
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $51,039 $43,964
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
El Chico Restaurants, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except per Share Amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
Revenues:
Sales from Company-owned
<S> <C> <C> <C>
restaurants $ 101,62
8 $94,901 $84,209
Equipment sales 908 832 2,209
Franchise revenues 2,082 2,093 2,047
104,618 97,826 88,465
Costs and expenses:
Restaurant cost of sales -
food and beverage 25,772 24,273 21,515
Restaurant cost of sales -
labor 33,637 31,435 27,819
Restaurant operating expenses 29,084 26,881 23,577
Cost of equipment sales 782 590 1,972
General and administrative 9,227 8,967 8,957
Loss on sale or disposition
of assets (Note G) 41 368
Interest expense 602 146 75
Interest income (78) (88) (157)
99,026 92,245 84,126
Income before
income taxes 5,592 5,581 4,339
Income tax provision (Note H) 1,634 1,853 1,626
NET EARNINGS $ 3,958 $ 3,728 $ 2,713
Net earnings per common share $
0.98 $
0.88 $
0.64
Weighted average number of
shares and share
equivalents outstanding 4,046,489 4,260,292 4,253,555
Fully diluted net earnings per
common share $
0.98 $
0.88 $
0.63
F-4
<PAGE>
Fully diluted weighted average
number of
shares and share equivalents
outstanding 4,055,028 4,260,499 4,321,398
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
El Chico Restaurants, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars)
Unamortized
Additional Value of
Common Stock Paid-InRetainedRestrictedTreasury
Shares Amount Capital EarningsStock Issue Stock
Total
Balances at December 31,
<C> <C> <C> <C> <C> <C> <C> <C>
1992 4,686,308 $469 $13,970 $11,539 ($83) ($3,995) $21,900
Net earnings 2,713 2,713
Issuance of common stock
under
stock bonus plan, net 77 (16) (12) 49
Issuance of common stock
pursuant
to stock option plan 33,665 3 216 (69) 150
Amortization of restricted
stock issue 32 32
Balances at December 31,
1993 4,719,973 472 14,263 14,252 (67) (4,076) 24,844
Net earnings 3,728 3,728
Issuance of common stock
under
stock bonus plan, net 71 (57) (11) 3
Issuance of common stock
pursuant
to stock option plan 23,667 2 249 251
Amortization of restricted
stock issue 56 56
Balances at December 31,
1994 4,743,640 474 14,583 17,980 (68) (4,087) 28,882
Net earnings 3,958 3,958
Purchase of treasury stock (2,174) (2,174)
Issuance of common stock
under
stock bonus plan, net 52 (53) 9 8
Issuance of common stock
pursuant
to stock option plan 3,335 1 1,260 500 1,761
Amortization of restricted
stock issue 62 62
Balances at December 31,
1995 4,746,975 $475 $15,895 $21,938 ($59) ($5,752) $32,497
F-6
<PAGE>
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
El Chico Restaurants, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
Year Ended December 31,
1995 1994 1993
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $3,958 $3,728 $2,713
Adjustments to reconcile net
earnings to
net cash provided by operating
activities:
Depreciation and amortization
of property and equipment 5,107 4,831 4,098
Amortization of deferred costs 1,333 1,257 273
Loss on sale or disposition of
assets 41 368
Deferred income taxes 23 419 222
Increase in accounts receivable (127) (155)
Decrease (increase) in income
tax receivable (66) 792 (792)
Decrease (increase) in
inventories 89 120 (179)
Decrease (increase) in prepaid
expenses and other (103) (385) 399
Decrease (increase) in other
assets and deferred costs (1,242) (1,133) (894)
Increase (decrease in trade
accounts payable and accrued
liabilities 376 (353) 1,234
Increase (decrease) in income
taxes payable (173) 173 (602)
Increase (decrease) in other
long-term liabilities 314 254 (232)
Other 412 125 4
Net cash provided by
operating activities 9,901 9,714 6,612
Cash flows from investing activities:
Proceeds from sale of property and
equipment 1,449 405
Purchases of property and equipment (13,015) (13,784) (15,557)
Net cash used in investing
activities (13,015) (12,335) (15,152)
Cash flows from financing activities:
Borrowings of long-term debt 2,925 2,250 3,200
Repayment of long-term debt (20) (18) (1,132)
Purchase of treasury stock (2,174) (69)
Proceeds from note receivable 245
Issuance of common stock 1,677 273 296
Net cash provided byfinancing activities2,6532,5052,295
NET DECREASE IN CASH (461) (116) (6,245)
F-8
<PAGE>
Cash and cash equivalents at beginning
of year 727 843 7,088
Cash and cash equivalents at end of
year $ 266 $ 727 $ 843
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest (net of amount
capitalized) $ 551 $
99 $
71
Income taxes $1,911 $1,010 $2,660
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE>
El Chico Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994, and 1993
NOTE A - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in
the preparation of the accompanying consolidated financial
statements follows:
Principles of Consolidation
The consolidated financial statements include the accounts of
El Chico Restaurants, Inc. and its subsidiaries (the Company).
All significant intercompany accounts and transactions have
been eliminated.
Inventories
Inventories, which consist primarily of food products, are
stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are provided in amounts sufficient to amortize
the cost of depreciable assets to operations over their
estimated service lives of three to 30 years. Leasehold
improvements are amortized over the lives of the respective
leases, including renewal periods when the Company intends to
exercise renewal options, or the service lives of the
improvements, whichever is shorter. The straight-line method
of depreciation is followed for substantially all assets for
financial reporting purposes, while accelerated methods are
used for tax purposes.
Interest is capitalized with the construction of new
restaurants as part of the asset to which it relates.
Interest capitalized during 1995, 1994 and 1993 was not
material.
Preopening Costs
Restaurant preopening costs, comprised primarily of the cost
of hiring and training restaurant employees, are amortized
over the initial twelve months of a restaurant's operations.
Franchise Fee Revenue
F-10
<PAGE>
Franchise fee revenue is recognized when all material services
or conditions relating to the sale have been substantially
performed or satisfied by the Company, but no sooner than the
commencement of operations by the franchisee. Franchise
revenues for each period presented in the consolidated
statement of operations relate substantially to royalties paid
by franchisees.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.
El Chico Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued
Income Taxes
The Company accounts for income taxes using the asset and
liability method. Under the asset and liability method,
deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of
a change in tax rates is recognized in income in the period
that includes the enactment date.
Earnings Per Common Share
Earnings per common share is based on the weighted average
number of shares and common share equivalents outstanding
during each period determined using the treasury stock method.
Primary common share equivalents are determined based on the
average market price exceeding the exercise price of the stock
options while fully diluted are determined based on the higher
of the average or the ending market price exceeding the
exercise price of the stock options.
Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets, liabilities,
revenues and expenses and the disclosure of contingent assets
and liabilities to prepare these consolidated financial
F-11
<PAGE>
statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
NOTE B - PROPERTY AND EQUIPMENT
Property and equipment consists of:
December 31,
1995 1994
(In Thousands)
Land $ 7,732 $ 6,079
Buildings and improvements 16,136 16,064
Leasehold improvements 27,878 23,753
Equipment, furniture and
fixtures 17,871 23,800
Construction in progress 438 433
70,055 70,129
Less accumulated
depreciation
and amortization (23,846) (31,570)
$46,209 $38,559
El Chico Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - ACCRUED LIABILITIES
Accrued liabilities consist of:
December 31,
1995 1994
(In Thousands)
Compensation and related taxes $1,689 $1,849
Insurance claims and
administration 750 805
Taxes, other than income and
payroll 838 576
Rent 353 349
Provision for restaurant closings 63 63
Other 422 392
$4,115 $4,034
NOTE D - LONG-TERM DEBT
Long-term debt consists of:
December 31,
1995 1994
(In Thousands)
Note payable to a bank under credit
facility (see below) $8,375 $5,450
F-12
<PAGE>
Other 85 105
8,460 5,555
Less current maturities (25) (22)
$8,435 $5,533
The existing unsecured credit facility consists of a
$16,000,000 commitment comprised of a $15,000,000 revolving
line of credit and a $1,000,000 letter of credit facility.
The line of credit matures on December 31, 1997, and may be
converted to a term loan, payable quarterly on a 10-year
amortization schedule, and maturing on December 31, 1999.
Both the line of credit and the term loan bear interest at the
Company's option of prime rate or up to six-month LIBOR plus
0.75 percent. Interest is payable upon maturing of the LIBOR
advances or quarterly for prime rate advances. The facility
is subject to maintaining certain financial covenants. At
December 31, 1995, $7,000,000 of the amount outstanding bore
interest at LIBOR plus 0.75 percent, or 6.625 percent and the
remaining $1,375,000 outstanding bore interest at prime, or
8.0 percent. In addition, an annual commitment fee of 0.25
percent is payable quarterly on any unused commitment. The
carrying amount of the credit facility at December 31, 1995
and 1994 approximates the fair value since the borrowings bear
interest at current market rates.
F-13
<PAGE>
El Chico Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG TERM DEBT - Continued
Scheduled maturities of long-term debt as of December 31, 1995
are as follows (in thousands):
Fiscal Year
1996 $ 25
1997 25
1998 864
1999 7,546
$8,460
NOTE E - COMMITMENTS AND CONTINGENCIES
The Company leases land, buildings and equipment under
noncancellable operating leases expiring at various dates
through 2024. The following is a schedule of minimum rental
payments under such leases (in thousands):
1996 $ 3,312
1997 3,281
1998 2,667
1999 2,580
2000 2,057
Thereafter 8,745
$22,642
Most land and building lease agreements provide for contingent
rentals based on sales. Rental expense for all leases was as
follows (in thousands):
Year Ended December 31,
1995 1994 1993
Minimum
rentals $3,262 $2,805 $2,973
Contingent
rentals 510 645 853
$3,772 $3,450 $3,826
The Company is a defendant in various lawsuits arising in the
ordinary course of its business. The majority of these suits
are covered by insurance. In the opinion of management, none
of these lawsuits will have a material adverse effect,
individually or in the aggregate, upon the Company's financial
position or results of operations.
F-14
<PAGE>
El Chico Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY
The Company has incentive stock option plans covering key
employees and a plan covering non-employee directors with
857,000 shares and 100,000 shares reserved, respectively. As
of December 31, 1995, options covering 253,751 shares were
exercisable at prices ranging from $3.16 to $12.13.
Transactions during 1995, 1994, and 1993 were as follows:
Option Price
Shares Per
Share Total
(In
thousands
)
Options outstanding at
December 31, 1992 239,004 $3.16 -
9.56 $1,739
Granted
Exercised
Forfeited 625,000
(33,665)
(4,669) 9.63
3.18 -
3.63
3.63
6,016
(115)
(17)
Options outstanding at
December 31, 1993 825,670 3.16 -
9.63 7,623
Granted 260,000 11.00 -
12.12 3,140
Exercised (23,667) 3.18 -
9.56 (184)
Forfeited (342,001) 3.63 -
9.625 (3,289)
Options outstanding at
December 31, 1994 720,002 3.16 -
12.13 7,290
Granted 98,500 8.13 -
11.00 1,030
Exercised (170,001) 3.18 -
9.63 (1,615)
Forfeited (10,000) 11.00 (110)
Options outstanding at
December 31, 1995 638,501 $ 3.16 -
12.13 $6,595
In February 1995, the Company s Board of Directors adopted a
Shareholder Rights Plan pursuant to which purchase rights (the
F-15
<PAGE>
Rights ) were issued to holders of its common stock at the
rate of one Right for each share of common stock. The Rights
will trade with the Company s common stock until exercisable.
The Rights became exercisable ten days after any person or
group acquires 20 percent or more of the Company s outstanding
common stock or announces a tender offer for 30 percent or
more of the Company s outstanding common stock. The Rights
thereafter entitle the holder to purchase one one-thousandth
of a share of Preferred Stock for $48.00, and, under certain
circumstances, would be modified to entitle certain holders to
purchase additional Common Stock of the Company having a
market value of two times the $48.00 exercise price of the
Right, or to purchase common stock of an acquiring company
having a market value of two times the $48.00 exercise price
of the Right. The Rights expire on December 31, 2004 and may
be redeemed by the Company for one cent per Right under
certain circumstances.
On October 27, 1995, options were granted to purchase 138,000
shares at $10.00 per share, subject to shareholder approval at
the May 2, 1996 Shareholders Meeting.
F-16
<PAGE>
El Chico Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE G - LOSS ON SALE OR DISPOSITION OF ASSETS
Management reviews each restaurant regularly to determine that
expected undiscounted cash flows are adequate to recover the
related investment. When expected cash flows are inadequate,
the Company writes down the asset to its recoverable value.
Asset values for two restaurants were written-down $220,000
during 1994 as future operations are not expected to provide
sufficient cash flow to recover the related investments. In
addition, during 1994, the Company closed six restaurants.
One restaurant was sold resulting in a gain of $439,000, one
was closed at a loss of $202,000, one was closed with minimal
costs and the remaining three closings were provided for in
1993. No restaurants were closed during 1995.
NOTE H - INCOME TAXES
The provision for income taxes consists of the following (in
thousands):
Year Ended December 31,
1995 1994 1993
Federal:
Current $1,536 $1,258 $1,124
Deferred 23 419 222
State 75 176 280
$1,634 $1,853 $1,626
The types of temporary differences between the tax and
financial reporting bases of assets and liabilities that give
rise to the deferred income tax assets (liabilities) and their
related tax effects are as follows (in thousands):
December 31,
1995 1994
Deferred tax assets:
Insurance reserves $362 $458
Provision for restaurant
closings 65 65
Deferred compensation 125 64
Other 12 23
Total deferred tax assets 564 610
Deferred tax liabilities:
Property and equipment (747) (585)
F-17
<PAGE>
Restaurant preopening costs (89) (274)
Total deferred tax
liabilities (836) (859)
Net deferred tax liability ($272) ($249)
El Chico Restaurants, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE H - INCOME TAXES - Continued
The Company believes that the deferred tax assets at December
31,1995 and 1994 will be realized based upon historical levels
of income and through reversals of existing taxable temporary
differences during the carryforward period.
The Company's effective income tax rate differs from the
expected federal statutory income tax rate as a result of the
following:
Year Ended December 31,
1995 1994 1993
Expected income tax
provision 34.0% 34.0% 34.0%
State income taxes 0.5 3.3 4.3
FICA tip and TJTC tax
credits (5.9) (5.1) (1.3)
Other 0.6 1.0 0.5
Income tax provision
29.2% 33.2% 37.5%
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized:
EL CHICO RESTAURANTS, INC.
By:/s/ Wallace A. Jones
Wallace A. Jones, President
and
Chief Executive Officer
Date: March 14, 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Wallace A.
Jones
Wallace A. Jones President and Chief
Executive Officer
(Principal Executive March 14,
1996
/s/ Lawrence E.
White
Lawrence E. White Executive Vice President
and Chief Financial
Officer (Principal March 14,
1996
/s/ John A.
Cuellar
John A. Cuellar Senior Vice President,
Secretary, General
Counsel and Director March 14,
1996
/s/ Grahame N.
Clark, Jr.
Grahame N. Clark, Director March 14,
1996
/s/ Jack D. Knox
Jack D. Knox Director March 14,
1996
/s/ Joseph V.
Mariner, Jr.
Joseph V. Director March 14,
1996
/s/ Carmen C.
Summers
Carmen C. Summers Director March 14,
1996
/s/ Joseph S.
Thomson
Joseph S. Thomson Chairman of the Board March 14,
1996
F-19
<PAGE>
Exhibit 11
El Chico Restaurants, Inc.
Computation of Per Share Data
(In thousands of dollars, except per share amounts)
Year Ended December 31,
1995 1994 1993
Computation of earnings per
share:
Net earnings $3,958 $ 3,728 $2,713
Weighted average number
of common shares
outstanding during the
year 4,017,086 4,108,9104,093,701
Net effect of dilutive
stock options based
on the treasury stock
method using the
average market price 29,403 151,382 159,854
Shares used for
computation 4,046,489 4,260,2924,253,555
Earnings per share $
0.98 $
0.88 $
0.64
Computation of fully diluted
earnings per share:
Net earnings $3,958 $ 3,728 $2,713
Weighted average number
of common shares
outstanding during the
year 4,017,086 4,108,9104,093,701
Net effect of dilutive
stock options based
on the treasury stock
method using the
greater of the average
or ending price 37,942 151,589 227,697
Shares used for
computation 4,055,028 4,260,4994,321,398
F-20
<PAGE>
Fully diluted
earnings per share $
0.98 $
0.88 $
0.63
F-21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 21
LIST OF SUBSIDIARIES
JURISDICTION OF
VOTING STOCK OWNED
NAME OF SUBSIDIARY FORMATION BY THE COMPANY
<S> <C> <C>
El Chico Realty Corporation Texas 100%
Concepts, Inc. Texas 100%
El Chico Bebidas Company Texas 23%
El Chico Restaurants of Louisiana, Inc. Delaware 100%
El Chico Corporation of Oklahoma, Inc. Oklahoma 100%
El Chico Restaurant No. 20, Inc. Delaware 100%
Southwest Cafes of Tennessee, Inc. Tennessee 100%
El Chico Corporation Georgia 100%
El Chico Corporation of Alabama Alabama 100%
El Chico Corporation of Florida Florida 100%
Pronto Design & Supply, Inc. Texas 100%
Nuevo Ventures, Inc. Texas 100%
El Chico Restaurants of Kentucky, Inc. Kentucky 100%
El Chico Restaurants of Ohio, Inc. Ohio 100%
El Chico Restaurants of Indiana, Inc. Indiana 100%
El Chico Restaurants of Illinois, Inc. Illinois 100%
El Chico Service Company Delaware 100%
ECRT, Inc. Delaware 100%
NOTE: Texas El Chico Restaurants, L.P. is a Limited Partnership between two
wholly owned subsidiaries - El Chico Service Company and ECRT, Inc.
SUBSIDIARIES OF CONCEPTS, INC.
JURISDICTION OFVOTING STOCK OWNED
NAME OF SUBSIDIARYINCORPORATIONBY CONCEPTS, INC.
Concepts Beverages of Oklahoma City, Inc. Oklahoma 100%
Concepts Beverages of South Meridian, Inc. Oklahoma 100%
SUBSIDIARIES OF EL CHICO CORPORATION OF OKLAHOMA, INC.
VOTING STOCK OWNED BY
JURISDICTION OFEL CHICO CORPORATION
NAME OF SUBSIDIARYINCORPORATIONOF OKLAHOMA, INC.
Bebidas Company of Tulsa, Inc. Oklahoma 100%
Bebidas Company of Oklahoma City, Inc. Oklahoma 100%
Bebidas Company of Midwest City, Inc. Oklahoma 100%
Bebidas Company of Tulsa No. 65, Inc. Oklahoma 100%
Bebidas Company of Oklahoma City No. 36, Inc. Oklahoma 100%
Bebidas Company of Oklahoma City No. 101, Inc. Oklahoma 100%
Bebidas Company of Broken Arrow, Inc. Oklahoma 100%
Bebidas Company of Oklahoma City No. 37, Inc. Oklahoma 100%
Bebidas Company of Tulsa No. 23, Inc. Oklahoma 100%
Bebidas Company of Edmond, Inc. Oklahoma 100%
F-22
</TABLE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
El Chico Restaurants, Inc.:
We consent to incorporation by reference in the registration
statement (No. 33-63474) on Form S-8 of El Chico Restaurants,
Inc. of our report dated February 7, 1996, relating to the
consolidated balance sheets of El Chico Restaurants, Inc. and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three year
period ended December 31, 1995, which report appears in the
December 31, 1995 annual report on Form 10-K of El Chico
Restaurants, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
March 17, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000719961
<NAME> EL CHICO RESTUARANTS, INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 979
<ALLOWANCES> 0
<INVENTORY> 1,100
<CURRENT-ASSETS> 3,828
<PP&E> 70,055
<DEPRECIATION> 23,846
<TOTAL-ASSETS> 51,039
<CURRENT-LIABILITIES> 8,524
<BONDS> 0
<COMMON> 475
0
0
<OTHER-SE> 32,022
<TOTAL-LIABILITY-AND-EQUITY> 51,039
<SALES> 101,628
<TOTAL-REVENUES> 104,618
<CGS> 25,772
<TOTAL-COSTS> 98,502
<OTHER-EXPENSES> (78)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 602
<INCOME-PRETAX> 5,592
<INCOME-TAX> 1,634
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,958
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
