May 13, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Room 1004
Judiciary Plaza
Washington, D.C. 20549
RE: El Chico Restaurants, Inc. 10-Q for Quarter Ended March 31, 1996
Gentlemen:
We are transmitting electronically the Form 10-Q for El Chico
Restaurants, Inc. for the quarter ended March 31, 1996.
We are also forwarding three complete copies, one of which is manually
signed, to the National Association of Securities Dealers, Inc.
Sincerely,
Susan R. Holland
Treasurer, Controller
/ktc
cc: National Assoc. of Securities Dealers, Inc.
(w/enclosures)
Lawrence E. White
John A. Cuellar
Ron Frappier
Darl Hatfield
Britt Langford
<PAGE>
==============================================================
F O R M 1 0 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
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 0-12802
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.)
of incorporation or organization)
12200 Stemmons Freeway, Suite 100, Dallas, Texas 75234
(Address of principal executive offices)
(Zip Code)
(214) 241-5500
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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, 1996.
Common Stock, $0.10 par value: 3,952,831.
==================================================================<PAGE>
EL CHICO RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands of Dollars, Except Share and Par Value Amounts)
March 31, December 31,
1996 1995
(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 678 $ 266
Accounts Receivable 913 979
Income Tax Receivable 154 66
Inventories 1,027 1,100
Prepaid Expenses and Other 1,528 1,346
Deferred Income Taxes 22 71
------ -----
Total Current Assets 4,322 3,828
Property and Equipment - Net 45,777 46,209
Other Assets and Deferred Costs 805 1,002
------ ------
$ 50,904 $ 51,039
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of
Long-Term Debt $ 25 $ 25
Trade Accounts Payable 3,647 4,384
Accrued Liabilities 3,395 4,115
------ ------
Total Current Liabilities 7,067 8,524
Long-Term Debt, Less Current
Maturities 10,229 8,435
Other Long-Term Liabilities 1,271 1,240
Deferred Income Taxes 216 343
Stockholders' Equity:
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
4,749,475 and 4,746,975 Shares in
1996 and 1995 475 475
Additional Paid-In Capital 15,903 15,895
Retained Earnings 21,743 21,938
Unamortized Value of Restricted
Stock Issued (45) (59)
------ ------
38,076 38,249
Less Treasury Stock - At Cost, 674,511
and 651,744 Shares in 1996
and 1995, respectively (5,955) (5,752)
------ ------
32,121 32,497
------ ------
$ 50,904 $ 51,039
====== ======
<PAGE>
EL CHICO RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
Quarter Ended
March 31, 1996 March 31, 1995
Revenues:
Sales from Company-Owned
restaurants $25,346 $23,942
Equipment sales 176 192
Franchise revenues 492 461
------ ------
26,014 24,595
------ ------
Cost and Expenses:
Restaurant cost of sales - food
and beverage 6,997 6,076
Restaurant cost of sales - labor 8,645 8,140
Restaurant operating expenses 7,982 6,809
Cost of equipment sales 146 141
General and administrative 2,378 2,385
Interest expense 157 149
Interest income (14) (36)
------ ------
26,291 23,664
------ ------
Income (loss) before income taxes (277) 931
Income tax provision (benefit) (82) 306
------ ------
NET EARNINGS (LOSS) $ (195) $ 625
====== ======
Net earnings (loss) per
common share $(0.05) $ 0.15
Weighted average number of ====== ======
shares and share equivalents
outstanding 4,091,221 4,083,528
========= =========
<PAGE>
EL CHICO RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Quarter Ended
March 31, 1996 March 31, 1995
Cash Flows from Operating Activities:
Net Earnings (Loss) $(195) $624
Adjustments to Reconcile Net Earnings
(Loss) to Net
Cash Provided by (Used in) Operating Activities:
Depreciation and Amortization of Property
and Equipment 1,565 1,173
Amortization of Deferred Costs 240 355
Decrease in Accounts Receivable 66 183
Increase in Income Tax Receivable (88) --
Decrease (Increase) in Inventories 73 (63)
Decrease (Increase) in Prepaid Expenses
and Other (182) 158
Increase in Other Assets and Deferred Costs (42) (403)
Decrease in Trade Accounts Payable and
Accrued Liabilities (1,457) (1,211)
Increase in Income Taxes Payable -- 463
Increase in Other Long-Term Liabilities 31 93
Deferred Income Taxes (78) (130)
Other 43 40
------- -------
Net Cash Provided by (Used in)
Operating Activities (24) 1,282
------- -------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (1,161) (3,656)
------- -------
Net Cash Used in Investing Activities (1,161) (3,656)
------- -------
Cash Flows from Financing Activities:
Borrowings of Long-Term Debt 1,800 4,150
Purchase of Treasury Stock (203) (2,174)
------- -------
Net Cash Provided by Financing Activities 1,597 1,976
------- -------
Net (Increase) Decrease in Cash 412 (398)
Cash and Cash Equivalents at Beginning
of Period 266 727
------- -------
Cash and Cash Equivalents at End of Period $678 $329
======= =======
<PAGE>
EL CHICO RESTAURANTS, INC. AND SUBSIDIARIES
Note to Consolidated Condensed Financial Statements
(Unaudited)
1. Basis of presentation and other accounting information.
The consolidated condensed financial statements and information included
herein are unaudited; however, they reflect all adjustments which are,
in the opinion of Management, necessary for a fair statement of the
results of operations for the interim periods ended March 31, 1996 and
March 31, 1995 and financial position at March 31, 1996. The
adjustments consist only of normal recurring items. The results of
operations for the quarter ended March 31, 1996 are not necessarily
indicative of the results to be expected for the full fiscal year. The
notes to the consolidated financial statements contained in the December
31, 1995 Annual Report on Form 10-K should be read in conjunction with
the consolidated condensed financial statements.
2. Subsequent Event.
On April 25, 1996, the Company announced that it would incur a special
charge, during the second quarter, of approximately $6.2 million after
taxes to provide for the impairment and exit plans of six units slated
for closing, the impairment of the carrying values of three other stores
that will continue operating as well as a write-down of certain other
assets. One of the six stores to be closed is an older store that is
being closed and replaced with the new prototype. The effect of the
impairment, excluding the store to be replaced, will reduce depreciation
and amortization expense by $170,000 in the second quarter and by
$280,000 in the last half of the year. Collectively, the five stores
to be closed had sales of $903,000 and store operating loses of $250,000
in the first quarter.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 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 .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 .25 percent is payable quarterly on any unused
commitments. As of March 31, 1996, $10,175,000 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 ten to twelve El Chico restaurants and
estimates capital expenditures during 1996 to be approximately
$8,000,000 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.
During the quarter one Company-owned "El Chico" restaurant was closed in San
Angelo, Texas.
The Company is currently operating with a working capital deficit, which is
common in the restaurant industry, since restaurant companies do not
typically require a significant investment in either accounts receivable or
inventory. Working capital increased from a deficit of $4,696,000 at
December 31, 1995 to a deficit of $2,745,000 at March 31, 1996, primarily as
a result of an increase in cash and a decrease in accounts payable and
accrued liabilities.
Results of Operations
Revenues for the quarter ended March 31, 1996 were $26.0 million, an
increase of 5.8 percent, as compared to $24.6 million for the quarter
ended March 31, 1995. Company-owned restaurant sales included in these
amounts were $25.3 million and $23.9 million, respectively, an increase of
5.9 percent, reflecting the addition of new stores. Comparable Company-
owned El Chico concept restaurant sales were down 0.4 percent.
Comparable-store sales base reflects store operating for the full quarter
that were opened prior to October 1, 1994.
Franchise-related income increased for the quarter due to an increase in the
number of franchise stores and an increase in comparable store sales of 0.2
percent.
Pronto Design & Supply, Inc. (Pronto) is a wholly owned subsidiary in the
business of designing food-service kitchens and supplying the related
equipment. Equipment sales decreased for the quarter and cost of sales as
a percentage of sales increased due to a decline in kitchen design fees
which produce a higher profit margin.
Restaurant food costs for the quarter increased as a percentage of sales to
27.6 percent from 25.4 percent as a result of programs initiated to improve
value perception and sales, such as 99-cent beer and margaritas, aggressive
offering of free tortillas and product introductions with higher food costs,
as well as unfavorable performance-related increases. On a net basis
ingredient price increases had minimal effect on increased food costs.
Restaurant labor at 34.1 percent was about the same as the prior year's 34.0
percent. Hourly labor 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 payroll taxes and
management compensation expense, which increased as a percentage of sales as
a result of lower weighted average sales per restaurant. Payroll taxes were
higher as FICA paid on reported tips increased as a result of more employees
being compensated by tips.
Operating expenses for the quarter increased as a percentage of sales from
28.4 percent to 31.5 percent as a result of an increase in supply costs,
repair and maintenance costs and expenses related to the replacement of
point-of-sale equipment. In addition, operating expenses included
advertising production costs of $250,000 for the production of television
test commercials. These increases were partly offset by a decline in
laundry costs.
General and administrative costs for the quarter remained basically
unchanged with lower professional fees offset by increased field
supervision costs.
Interest expense increased for the quarter due to an increase in average
outstanding debt. Interest income for the quarter decreased due to a
decline in average invested cash balances. Interest income decreased
due to the non-recurrence of interest income on a tax refund in the
prior year.
The income tax provision decreased as a percent of income before taxes due
to an increase in the FICA tip credit.
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 May 8, 1996, 145,400 shares have been
purchased at an average price of $7.95 for a total purchase of $1,156,600.
At March 31, 1996 there were 71 Company-operated restaurants and 29
franchised restaurants.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27 Financial Data Schedule.
(b) No report on Form 8-K was filed or required to be filed during the
quarter ended March 31, 1996.
SIGNATURES
Pursuant to the requirements 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.
Date: May 13, 1996 By: /s/Susan R. Holland
Treasurer, Controller
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 678
<SECURITIES> 0
<RECEIVABLES> 913
<ALLOWANCES> 0
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<PP&E> 45,777
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<COMMON> 475
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0
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<INCOME-PRETAX> (277)
<INCOME-TAX> (82)
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