May 14, 1997
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, 1997
Gentlemen:
We are transmitting electronically the Form 10-Q for El Chico
Restaurants, Inc. for the quarter ended March 31, 1997.
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
Vice President, Treasurer &
Controller
/ktc
cc: National Assoc. of Securities Dealers, Inc.
(w/enclosures)
Lawrence E. White
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, 1997
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 (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)
(972) 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 April 30, 1997.
Common Stock, $0.10 par value: 3,706,335.
================================================================<PAGE>
EL CHICO RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Par Value Amounts)
March 31, December 31,
1997 1996
(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 107 $ 216
Accounts Receivable 1,282 1,154
Inventories 1,003 976
Prepaid Expenses and Other 1,123 1,330
Deferred Income Taxes 471 824
------ ------
Total Current Assets 3,986 4,500
Property and Equipment - Net 41,583 40,535
Other Assets and Deferred Costs 634 681
Deferred Income Taxes 2,372 1,946
------ ------
$ 48,575 $ 47,662
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Debt $ 194 $ 27
Trade Accounts Payable 4,428 4,459
Accrued Liabilities 3,085 5,114
Income Taxes Payable 243 570
------ ------
Total Current Liabilities 7,950 10,170
Long-Term Debt, Less Current Maturities 10,662 9,765
Other Long-Term Liabilities 3,222 1,442
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
4,750,142 Shares in 1997 and 1996 475 475
Additional Paid-In Capital 15,938 15,925
Retained Earnings 19,308 18,876
Unamrt Value of Restr Stk Issued (26) (37)
------ ------
35,695 35,239
Less Treasury Stock - At Cost, 1,057,760
Shares in 1997 and 1996 (8,954) (8,954)
------ ------
26,741 26,285
------ ------
$ 48,575 $ 47,662
====== ======
<PAGE>
EL CHICO RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
Quarter Ended
March 31, 1997 March 31, 1996
Revenues:
Sales from Company-Owned
restaurants $ 23,743 $ 25,346
Equipment sales 64 176
Franchise revenues 447 492
------- -------
24,254 26,014
------- -------
Cost and Expenses:
Restaurant cost of sales - food
and beverage 6,255 6,997
Restaurant cost of sales - labor 8,083 8,645
Restaurant operating expenses 6,749 7,982
Cost of equipment sales 52 146
General and administrative 2,345 2,378
Interest expense 189 157
Interest income (19) (14)
------- -------
23,654 26,291
------- -------
Income (loss) before income taxes 600 (277)
Income tax provision (benefit) 168 (82)
------- -------
NET EARNINGS (LOSS) $ 432 $ (195)
======= =======
Net earnings (loss) per common share $ 0.12 $ (0.05)
======= =======
Weighted average number of shares and
share equivalents outstanding 3,708,834 4,091,221
========= =========
<PAGE>
EL CHICO RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
Quarter Ended
March 31, 1997 March 31, 1996
Cash Flows from Operating Activities:
Net Earnings (Loss) $ 432 $ (195)
Adj to Reconcile Net Earnings (Loss)
to Net Cash Provided by (Used in)
Operating Activities:
Depreciation and Amortization of
Property and Equipment 1,263 1,565
Amortization of Deferred Costs 102 240
Deferred Income Taxes (73) (78)
Dec (Increase) in Accts Receivable (128) 66
Increase in Income Tax Receivable -- (88)
Decrease (Increase) in Inventories (27) 73
Dec (Incr) in Prepd Expenses and Other 207 (182)
Incr in Other Assets and Deferred Csts (55) (42)
Decr in Trade Accts Pay and Accr Liab (2,060) (1,457)
Decrease in Income Taxes Payable (327) --
Incr in Other Long-Term Liabilities 1,780 31
Other 30 43
----- ------
Net Cash Provided by (Used in)
Operating Activities 1,144 (24)
----- ------
Cash Flows from Investing Activities:
Purchase of Property and Equipment (2,323) (1,161)
----- ------
Net Cash Used in Investing Activities (2,323) (1,161)
----- ------
Cash Flows from Financing Activities:
Borrowings of Long-Term Debt 1,070 1,800
Purchase of Treasury Stock -- (203)
----- ------
Net Cash Provided by Financing Activities 1,070 1,597
----- ------
Net (Increase) Decrease in Cash (109) 412
Cash and Cash Equivalents at Begng of Period 216 266
----- ------
Cash and Cash Equivalents at End of Period $107 $678
====== ======<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, 1997
and March 31, 1996 and financial position at March 31, 1997. The
adjustments consist only of normal recurring items. The results of
operations for the quarter ended March 31, 1997 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, 1996 Annual Report on Form 10-K should be read in conjunction with
the consolidated condensed financial statements included herein.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking statements regarding management's present plans or
expectations for new restaurant openings, remodels, other capital
expenditures, the financing thereof, and disposition of impaired
restaurants involve risks and uncertanties relative to return expections
and related allocation of resources, and changing economic or competitive
conditions, as well as the negotiation of agreements with third parties,
which could cause actual results to differ from present plans or
expections, and such differences could be material. Similarly,
forward-looking statements regarding management's present expections for
operating results involve risks and uncertanties relative to these and
other factors, such as advertising effectiveness and the ability to
achieve cost reductions, which also would cause actual results to differ
from present plans. Such differences could be material. Management does
not expect to update such forward-looking statements continually as
conditions change, and readers should consider that such statements speak
only as to the date hereof.
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. Principally because of a special charge recorded
during the second quarter of 1996, the interest on the line of credit has
been at LIBOR plus 1.75 percent and/or prime plus 0.50 percent since
August 14, 1996 until certain financial results are met. In addition,
the Company has entered into an interest rate swap on a notional balance
of $5 million, under which a fixed rate of 6.61 percent is paid against
a floating rate equal to three-month LIBOR. A commitment fee of .25
percent is payable quarterly on any unused commitments. As of March 31,
1997, $10,800,000 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 and has been
used for repurchase of the Company's common stock subject to certain
limitations. The Company plans to open one to three El Chico restaurants
and one Cantina Laredo restaurant and remodel approximately ten to twelve
El Chico restaurants during 1997 and estimates capital expenditures
during 1997 to be approximately $10,000,000 to $11,000,000, which will
be funded by internal operations and the existing credit facility.
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 decreased from a deficit of
$5,670,000 at December 31, 1996 to a deficit of $3,964,000 at March 31,
1997, primarily as a result of a reclassification of accrued liabilities,
associated with the second quarter 1996 special charge, to "Other Long-
Term Liabilities" reflecting present plans for disposition of these
properties.
Results of Operations
---------------------
Revenues for the quarter ended March 31, 1997 were $24.3 million, a
decrease of 6.8 percent, as compared to $26.0 million for the quarter
ended March 31, 1996. Company-owned restaurant sales included in these
amounts were $23.7 million and $25.3 million, respectively, a decrease
of 6.3 percent, reflecting a decrease in the number of stores and a
decline in comparable Company-owned El Chico concept restaurant sales of
3.5 percent.
Franchise-related income decreased for the quarter due to a decrease
in the number of revenue-producing stores and a decrease in comparable
store sales of 1.8 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 due to
Pronto focusing its efforts on Company store remodels rather than outside
sales.
Restaurant food costs for the quarter decreased as a percentage of
sales to 26.3 percent from 27.6 percent. Food cost was unusually high
a year ago as a result of certain programs initiated to improve value
perception such as 99-cent beer and margaritas, aggressive offering of
free tortillas and product introductions with high food costs. The
majority of these programs have been discontinued or scaled back.
Restaurant labor at 34.0 percent of sales was about the same as the
prior year's 34.1 percent. Hourly labor decreased as a percentage of
sales and was partly offset by an increase in management compensation
expense, due to an increase in the average number of managers per
restaurant and an increase in average compensation per manager.
Operating expenses for the quarter decreased as a percentage of sales
from 31.5 percent to 28.4 percent as a result of lower depreciation,
preopening, repair and maintenance and advertising costs. Depreciation
declined due to the closing of under-performing stores during 1996.
General and administrative costs for the quarter decreased $33,000
due to fewer field supervisors, partly offset by increased professional
fees and the costs of continuing education programs for existing
managers.
Interest expense increased for the quarter due to an increase in
average outstanding debt and interest rates.
As of March 31, 1997 there were 67 Company-operated restaurants and
28 franchised restaurants.
Accounting Matters
------------------
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, Earnings Per Share (Statement 128). Statement 128
specifies the computations, presentation and disclosure requirements for
earning sper share (EPS) for entities with publicly held common stock or
potential common stock. Statement 128 replaces primary EPS and fully
diluted EPS with basic EPS and diluted EPS, respectively. Statement 128
is effective for financial statements for both interim and annual periods
ending after December 15, 1997, with earlier application not permitted.
If such early application were permitted, management believes the impact
of the adoption would not have a material impact on the reported EPS at
March 31, 1997 due to the anti-dilutive nature of the majority of the
Company's common share equivalents at March 31, 1997.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On May 8, 1997, the Company held its annual meeting of
shareholders. At such meeting, the shareholders elected directors of the
Company.
The votes for directors were as follows.
Nominee For Withheld
Wallace A. Jones 2,759,465 20,680
Grahame N. Clark, Jr. 2,761,465 18,680
Jack D. Knox 2,450,865 329,280
Joseph V. Mariner, Jr. 2,757,965 22,180
Joseph S. Thomson 2,758,921 21,224
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, 1997.
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 14, 1997 By: /s/Susan R. Holland
----------------------
Vice President, Treasurer &
Controller
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