SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ TO _______
Commission File No. 0-4678
Pancho's Mexican Buffet, Inc.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1292166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3500 Noble Avenue, Fort Worth, Texas 76111
(Address of principal executive offices) (Zip Code)
817-831-0081
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 of Common Stock outstanding as of August 11, 1995:
4,397,559.
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements:
Introduction 1
Consolidated Condensed Balance Sheets,
June 30, 1995 and September 30, 1994 2
Consolidated Condensed Statements of
Operations for the Three-Months and
Nine-Months Ended June 30, 1995 and 1994 3
Consolidated Condensed Statements of Cash
Flows for the Nine-Months Ended
June 30, 1995 and 1994 4
Notes to Consolidated Condensed Financial
Statements 5
Independent Accountants' Report 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II. Other Information
Item 1. Legal Proceedings (no response required)
Item 2. Changes in Securities (no response required)
Item 3. Defaults Upon Senior Securities (no
response required)
Item 4. Submission of Matters to a Vote of
Security Holders (no response required)
Item 5. Other Information (no response required)
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated condensed financial statements included herein
have been prepared by the Company without audit as of June 30, 1995
and for the three-month and nine-month periods ended June 30, 1995
and 1994 pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures
normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K. In the opinion of the Company,
all adjustments, consisting only of normal recurring adjustments
except as discussed in the notes to consolidated condensed financial
statements, necessary to present fairly the financial position of the
Company as of June 30, 1995 and the results of operations and cash
flows for the indicated periods have been included. The results of
operations for such interim periods are not necessarily indicative of
the results to be expected for the fiscal year ending
September 30, 1995.
Deloitte & Touche LLP, independent public accountants, has made
a limited review of the consolidated condensed financial statements
as of June 30, 1995 and for the three-month and nine-month periods
ended June 30, 1995 and 1994 included herein.
-1-
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
June 30, September 30,
1995 1994
<CAPTION>
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 529,000 $ 1,661,000
Accounts and notes receivable-current portion 240,000 656,000
Income taxes receivable 739,000 88,000
Inventories 1,043,000 1,635,000
Prepaid expenses 313,000 502,000
Deferred income taxes 391,000 224,000
Total current assets 3,255,000 4,766,000
PROPERTY, PLANT AND EQUIPMENT (AT COST):
Land 3,728,000 3,897,000
Buildings 10,158,000 11,146,000
Leasehold improvements 23,980,000 26,018,000
Equipment and furniture 30,158,000 31,511,000
Construction in progress 1,912,000 1,812,000
Total 69,936,000 74,384,000
Less accumulated depreciation and amortization (32,754,000) (32,547,000)
Property, plant and equipment-net 37,182,000 41,837,000
OTHER ASSETS:
Deferred income taxes 3,023,000 922,000
Other, including noncurrent portion of receivables 1,198,000 1,634,000
Total other assets 4,221,000 2,556,000
TOTAL $ 44,658,000 $ 49,159,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,195,000 $ 3,133,000
Accrued wages and bonuses 1,509,000 2,390,000
Other current liabilities 2,145,000 1,757,000
Total current liabilities 4,849,000 7,280,000
OTHER LIABILITIES:
Long-term debt 10,310,000 5,840,000
Accrued insurance costs 2,541,000 2,605,000
Other 604,000 141,000
Total other liabilities 13,455,000 8,586,000
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 138,000
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 555,000 555,000
Additional paid-in capital 26,217,000 26,217,000
Retained earnings 8,249,000 14,718,000
Cumulative foreign currency translation adjustment (438,000) (30,000)
Treasury stock (7,699,000) (7,699,000)
Stock notes receivable from officers (530,000) (606,000)
Stockholders' equity 26,354,000 33,155,000
TOTAL $ 44,658,000 $ 49,159,000
</TABLE>
See notes to consolidated condensed financial statements.
-2-
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
SALES $ 20,596,000 $ 21,975,000 $ 61,374,000 $ 63,878,000
COSTS AND EXPENSES:
Food costs 5,859,000 5,764,000 17,603,000 17,380,000
Restaurant labor and related expenses 7,559,000 7,699,000 23,229,000 22,938,000
Restaurant operating expenses 4,876,000 4,963,000 14,073,000 13,822,000
Depreciation and amortization 1,139,000 1,116,000 3,485,000 3,270,000
General and administrative expenses 1,447,000 1,498,000 4,218,000 4,125,000
Restructuring charges 7,572,000 7,572,000 (264,000)
Total 28,452,000 21,040,000 70,180,000 61,271,000
OPERATING INCOME (LOSS) (7,856,000) 935,000 (8,806,000) 2,607,000
INTEREST EXPENSE (167,000) (399,000) (7,000)
OTHER, INCLUDING INTEREST INCOME 159,000 10,000 226,000 29,000
EARNINGS (LOSS) BEFORE INCOME TAXES (7,864,000) 945,000 (8,979,000) 2,629,000
PROVISION (BENEFIT) FOR INCOME TAXES (2,516,000) 340,000 (2,906,000) 946,000
NET EARNINGS (LOSS) $ (5,348,000) $ 605,000 $ (6,073,000) $ 1,683,000
NET EARNINGS (LOSS) PER SHARE $ (1.22) $ .14 $ (1.38) $ .38
</TABLE>
See notes to consolidated condensed financial statements.
-3-
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (6,073,000) $ 1,683,000
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Restructuring charges 7,268,000
Depreciation and amortization 3,485,000 3,270,000
Provision (benefit) for deferred income taxes (2,268,000) 505,000
Amortization of restaurant start-up costs 96,000 63,000
Payment of restaurant start-up costs (62,000) (100,000)
(Gain) loss on sale of assets 1,000 22,000
Income tax benefit from exercise of stock options 20,000
Minority interest in net earnings (loss) (136,000)
Changes in operating assets and liabilities:
Accounts and notes receivable 394,000 (242,000)
Income taxes receivable (651,000) (186,000)
Inventories, prepaid expenses and other assets 785,000 888,000
Accounts payable and accrued expenses (1,633,000) (1,427,000)
Total adjustments 7,279,000 2,813,000
Net cash provided by operating activities 1,206,000 4,496,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (6,545,000) (8,448,000)
Proceeds from sale of assets 193,000 670,000
Other (345,000)
Net cash (used in) investing activities (6,352,000) (8,123,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Long-term borrowings 36,785,000 6,790,000
Repayments of long-term borrowings (32,315,000) (3,880,000)
Proceeds from increase in minority interest 100,000
Proceeds from exercise of stock options 286,000
Treasury stock purchases (3,000)
Dividends paid (660,000) (791,000)
Payments received on officer stock notes 76,000 76,000
Net cash provided by financing activities 3,986,000 2,478,000
EFFECT OF FOREIGN EXCHANGE RATE
CHANGE ON CASH 28,000
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,132,000) (1,149,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,661,000 1,569,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 529,000 $ 420,000
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 30,000 $ 694,000
Assets sold for notes receivable 125,000 160,000
Interest paid, net of capitalized amounts 369,000 48,000
</TABLE>
See notes to consolidated condensed financial statements.
-4-
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. NET EARNINGS (LOSS) PER SHARE
Net earnings (loss) per share is based on the weighted average
number of shares and equivalent shares (including stock options,
when dilutive) outstanding during each period. The weighted
average of such shares was 4,398,000 for both the three-months
and nine-months ended June 30, 1995, compared to 4,446,000 and
4,443,000 for the same periods last year.
2. RESTRUCTURING COSTS
In June 1995, the Company adopted a restructuring plan in an
effort to return to profitability. The plan included closing
eight to ten underperforming restaurants, and evaluating for
potential asset write downs other restaurants operating at lower
sales volumes and the Company's constructed but unopened
restaurant in Guadalajara, Mexico.
In connection with the plan, a restructuring charge of $7,572,000
before income taxes was recorded for the closing of nine
restaurants and the impairment of eight others, including the
restaurant in Guadalajara, Mexico. The charge included
$6,624,000 for the write down of leasehold improvements and
equipment and $948,000 for remaining lease costs and other exit
costs associated with the restaurant closings. The charge for
impairments was determined in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of."
The assets of closed locations were written down to net
realizable value, resulting in an impairment charge of
$2,367,000. The net book value after the write down of property,
plant and equipment related to the Company's closed restaurant
locations was $663,000 at June 30, 1995. Management expects to
realize over $400,000 of this carrying value through asset sales
in the next year. The remaining restaurant equipment will either
be sold or used elsewhere in the Company's operations. Sales for
the nine closed locations were $1,442,000 and $4,652,000,
respectively, for the three-months and nine-months ended
June 30, 1995.
An impairment charge of $3,445,000 was recognized during the
quarter for seven low sales volume restaurants that the Company
intends to continue to operate. Due to the low or negative
projected cash flows of these restaurants, fair value of the
assets was based upon their estimated resale value.
-5-
<PAGE>
As a result of the economic crisis in Mexico stemming from the
December 1994 peso devaluation, the Company's investment in a
restaurant in Guadalajara was also evaluated for impairment and a
charge of $812,000 was recorded. Fair value of the assets was
estimated based upon the discounted expected future cash flows
from operation of the restaurant.
Current and deferred income tax benefits of $2,366,000 were
recognized in the United States in connection with the
restructuring. No tax benefits were currently recognized for the
write down of assets in Mexico.
During the first quarter of fiscal 1994, the Company reported a
pre-tax benefit of $264,000 related to a reevaluation of
previously established restructuring reserves. The reevaluation
resulted from the sale of a restaurant site purchased for
expansion in 1989 in Jacksonville, Florida and the sublease of a
closed restaurant location in Littleton, Colorado.
3. LONG-TERM DEBT
The Company's revolving credit and term loan agreement ("Loan
Agreement") with a bank includes various financial covenants. As
a result of the net losses incurred by the Company in each of the
three quarters ended June 30, 1995, the Company violated certain
of these covenants. The bank has subsequently granted permanent
waivers for each of these covenant violations. However, in order
to obtain the bank waivers, the Company has agreed to
collateralize the loan with substantially all of its assets, and
is in the process of completing the necessary legal documents to
provide the bank with such collateral.
In February 1995, the Loan Agreement was amended to increase the
revolving credit line to $12 million through December 31, 1995
and extend its termination date to March 1, 1997. The credit
line reverts to $10 million effective January 1, 1996. At June
30, 1995, the Company had $1,690,000 available under the bank
credit line.
4. CASH DIVIDEND
On July 28, 1995, the Company's board of directors declared a
$.015 per common share quarterly cash dividend. The dividend
will be paid on September 12, 1995 to holders of record on
August 29, 1995.
5. STATEMENT OF OPERATIONS RECLASSIFICATION
The statement of operations has been reformatted to provide more
detailed information on costs and expenses. Prior period amounts
have been reclassified to conform to the current period
presentation.
-6-
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Pancho's Mexican Buffet, Inc.:
We have made a review of the consolidated condensed balance sheet of
Pancho's Mexican Buffet, Inc. and subsidiaries as of June 30, 1995,
and the related consolidated condensed statements of operations for
the three-month and nine-month periods ended June 30, 1995 and 1994
and cash flows for the nine-month periods ended June 30, 1995 and
1994. These consolidated condensed financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical review procedures to financial data
and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit
in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the consolidated condensed financial
statements referred to above for them to be in conformity with
generally accepted accounting principles.
We previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1994,
and related consolidated statements of earnings, stockholders' equity
and cash flows for the year then ended (not presented herein), and in
our report dated November 4, 1994, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated condensed
balance sheet as of September 30, 1994, is fairly stated in all
material respects in relation to the consolidated balance sheet from
which it has been derived.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
August 8, 1995
-7-
<PAGE>
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
As of June 30, 1995, the Company's current ratio was 0.7 to 1, which
was unchanged compared to September 30, 1994. Cash and cash
equivalents decreased $1,132,000 during the nine-month period to a
balance of $529,000 at June 30, 1995, as cash provided by operating
and financing activities was exceeded by capital expenditures.
Operating activities provided net cash of $1,206,000 for the
nine-month period ended June 30, 1995, compared to $4,496,000 for the
same period last year. The Company incurred a net loss of $6,073,000
during the 1995 period, versus a net profit of $1,683,000 in 1994.
The 1995 period included a pre-tax, largely non-cash restructuring
charge of $7,572,000 for restaurant closings and impairments.
Operating cash flow decreased due largely to the decline in
profitability.
Financing activities, which provided cash of $3,986,000 during the
nine-month period, consisted primarily of net long term borrowings of
$4,470,000 and the payment of quarterly cash dividends.
Investing activities used $6,352,000 of cash during the nine-month
period. Cash was used for the construction of new restaurants,
remodeling of existing restaurants, restaurant computer system
installations and payment of accrued construction costs from the
prior year. Two new Pancho's Mexican Buffet restaurants, in Pasadena
and Baytown, Texas, were opened during the nine-month period and two
former Emiliano's Buffet Mexicano restaurants were reopened as
Pancho's. A third Pancho's was opened in Galveston, Texas on July
13, 1995.
The Company has also entered into a joint venture to build and
operate a restaurant in Guadalajara, Mexico which is now expected to
open in the first quarter of fiscal 1996 (see "Other Uncertainties
and Trends"). No additional new restaurants are planned at this
time, as management intends to focus on improving sales and
profitability and reducing debt. Capital expenditures to remodel
existing restaurants and install restaurant computer systems will
continue within the constraint of available operating cash flow.
The Company's revolving credit and term loan agreement ("Loan
Agreement") with a bank includes various financial covenants. As a
result of the net losses incurred by the Company in each of the three
quarters ended June 30, 1995, the Company violated certain of these
covenants. The bank has subsequently granted permanent waivers for
each of these covenant violations. However, in order to obtain the
bank waivers, the Company has agreed to collateralize the loan with
substantially all of its assets, and is in the process of completing
the necessary legal documents to provide the bank with such
collateral.
-8-
<PAGE>
Management is taking steps to ensure that the Company will be able to
comply with all of its covenants under the Loan Agreement in the
future. However, should the bank decline to waive a future covenant
violation, the bank would be required under the Loan Agreement to
give the Company 30 days written notice of the violation, after which
time the Company would be in default. At the bank's option, it could
then declare the loan principal and all accrued interest current and
payable and/or refuse to make additional advances on the credit line.
The Company could then be forced to seek alternative sources of
financing.
In February 1995, the Loan Agreement was amended to increase the
revolving credit line to $12 million through December 31, 1995 and
extend its termination date to March 1, 1997. The credit line
reverts to $10 million effective January 1, 1996. At June 30, 1995,
the Company had $1,690,000 available under the line.
On July 28, 1995, the Company's board of directors declared a $.015
per common share quarterly cash dividend. The dividend will be paid
on September 12, 1995 to holders of record on August 29, 1995. The
dividend was reduced from a quarterly rate of $.03 per share to $.015
per share due to the Company's recent financial performance. Future
cash dividends will depend on earnings, financial position, capital
requirements and other relevant factors.
Results of Operations
Sales decreased $1,379,000 (6.3%) and $2,504,000 (3.9%) for the
three-months and nine-months ended June 30, 1995 compared to the same
periods last year. New restaurants provided $2.3 million and $7.6
million, respectively, in additional revenue for the quarter and
nine-months, and a price increase in December 1993 added
approximately $839,000 to sales for the nine-months. Lower
comparable store sales, however, along with reduced revenue due to
restaurant closings and the outsourcing of the Company's grocery
distribution operation in September 1994, more than offset these
increases.
Average sales for restaurants open throughout the current three-month
and nine-month periods were $302,000 and $896,000 compared to
$310,000 and $910,000 for the same periods a year ago.
Comparable-store sales (sales for restaurants open throughout the
period in both fiscal 1995 and 1994) were down 13.1% for the third
quarter of 1995 compared to being up 9.2% last year. Year-to-date,
comparable store sales were down 11.8% compared to an increase of
13.1% in 1994. Comparable-store sales for the first nine months of
fiscal 1994 reflect record increases, primarily due to the completion
of an aggressive soup/salad and dessert bar conversion program,
effective television advertising and a December 1993 price increase.
Food costs as a percentage of sales increased 2.2% and 1.5% for the
three-months and nine-months ended June 30, 1995 compared to the same
periods a year ago. Recipe and food offering changes, combined with
higher produce and shortening prices, resulted in the increases.
Food offerings, preparation methods and recipes were modified during
the Company's fiscal third quarter to improve quality and preserve
variety while lowering product cost. The benefit of these changes,
as well as seasonally lower produce prices, should be fully realized
in the quarter ending September 30, 1995.
-9-
<PAGE>
Restaurant labor and related expenses as a percentage of sales
increased 1.7% and 1.9% for the current three-month and nine-month
periods compared to the same periods in 1994. Sharply lower
comparable-store sales raised labor costs as a percentage of sales in
established restaurants, while normally higher labor costs in new
stores also contributed to the increase, particularly in the first
quarter.
Restaurant operating expenses as a percentage of sales for the
current three-month and nine-month periods were 23.7% and 22.9%
compared to 22.6% and 21.6% for the same periods last year.
Relatively fixed costs, such as rent and utilities, generally
increased as a percentage of sales in the current three-month and
nine-month periods due to lower comparable-store sales.
Depreciation and amortization increased $23,000 and $93,000 for the
three-months and nine-months ended March 31, 1995 compared to the
prior year. Restaurant closings and impairments are expected to
reduce depreciation expense by approximately $240,000 a quarter.
This decrease will be offset somewhat by the opening of restaurants
in Galveston, Texas and Guadalajara, Mexico.
General and administrative expenses as a percentage of sales
increased 0.2% and 0.5%, respectively, for the current three-month
and nine-month periods compared to the same periods last year,
primarily due to lower sales.
In June 1995, the Company adopted a restructuring plan in an effort
to return to profitability. The plan included closing eight to ten
underperforming restaurants, and evaluating for potential asset write
downs other restaurants operating at lower sales volumes and the
Company's constructed but unopened restaurant in Guadalajara, Mexico.
In connection with the plan, a restructuring charge of $7,572,000
before income taxes was recorded for the closing of nine restaurants
and the impairment of eight others, including the restaurant in
Guadalajara, Mexico. The charge included $6,624,000 for the write
down of leasehold improvements and equipment and $948,0020 for
remaining lease costs and other exit costs associated with the
restaurant closings. The charge for impairments was determined in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Sales for the nine closed
locations were $1,442,000 and $4,652,000, respectively, for the
three-months and nine-months ended June 30, 1995. See Note 2 to
consolidated condensed financial statements for more information.
During the first quarter of fiscal 1994, the Company reported a
pre-tax benefit of $264,000 related to a reevaluation of previously
established restructuring reserves. The reevaluation resulted from
the sale of a restaurant site purchased for expansion in 1989 in
Jacksonville, Florida and the sublease of a closed restaurant
location in Littleton, Colorado.
Interest expense increased $167,000 and $392,000 for the current
three-month and nine-month periods compared to the same periods in
1994 due to increased debt, higher interest rates and less interest
capitalization due to reduced construction activity.
-10-
<PAGE>
Significant current and deferred income tax benefits were recognized
for the current three-month and nine-month periods as a result of
restructuring charges and operating losses. Income tax assets were
recognized for these benefits based upon tax loss carry back
opportunities and the Company's long history of taxable income. No
tax benefits were currently recognized for the write down of assets
in Mexico.
Due to restructuring charges, weak sales and other factors discussed
above, the Company reported a net loss of $5,873,000 for the
nine-month period ended June 30, 1995 compared to net earnings of
$1,683,000 for the same period last year. These results were far
below the expectations of both management and the investment
community, including those viewpoints expressed on Page 6 of the
Company's annual report under the caption "What Wall Street Says
About Pancho's Mexican Buffet"(1). Management believes that
appropriate actions are being taken to return the Company to
consistent profitability. However, the restaurant industry is
intensely competitive, and the Company's future earnings will largely
depend on its ability to generate a sustained improvement in sales.
Other Uncertainties and Trends
Mexico is currently experiencing an economic crisis stemming from the
December 1994 devaluation of the Mexican peso. The Company has
substantially completed construction of the building and installation
of equipment for its planned restaurant in Guadalajara, Mexico, but
has delayed the restaurant opening to make adjustments in menu and
purchasing plans due to the high cost of imported food products in
Mexico following the devaluation.
Management believes that the economic difficulties in Mexico will
have a long-term negative impact on the Company's planned restaurant
operations, and, accordingly, an impairment charge of $812,000 was
recorded during the quarter ended June 30, 1995. See Note 2 to
consolidated condensed financial statements.
However, the long-term impact of this economic crisis on the
Company's planned restaurant operations is difficult to estimate.
The Company has invested $1.5 million in this restaurant and expects
that an additional $200,000 investment will be required. If the
Company's restaurant performs below current projected levels,
additional operating, impairment or restaurant closing losses could
be recognized in future periods. Future Company restaurant
development in Mexico will depend upon the success of the Guadalajara
restaurant.
---------------------------------------------------------------------
(1) Pursuant to Item 601(b)(13) of Regulation S-K promulgated by
the Securities and Exchange Commission (SEC), the section of
the Company's 1994 Annual Report on page 6 under the caption
"What Wall Street Says About Pancho's Mexican Buffet" is not
deemed to be filed with the SEC for purposes of the
Securities Exchange Act nor shall such section of the 1994
Annual Report be deemed to be incorporated by reference in
any past or future filing by the Company under the Securities
Exchange Act or the Securities Act of 1933, as amended.
-11-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K
Exhibit
Number
2 Not applicable
4 Not applicable
10(r) Second Amendment to Revolving Credit and Term
Loan Agreement dated May 9, 1995, between PMB
Enterprises West, Inc. and First Interstate Bank
of Texas, N.A.
11 Not required--explanation of net earnings (loss) per share
computation is contained in notes to consolidated
condensed financial statements.
15 Letter re: unaudited interim financial
information
18 Not applicable
19 Not applicable
22 Not applicable
23 Not applicable
24 Not applicable
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 30, 1995
-12-
<PAGE>
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.
PANCHO'S MEXICAN BUFFET, INC.
August 11, 1995 /s/ HOLLIS TAYLOR
Hollis Taylor, President and Chief Executive
Officer (Principal Executive Officer)
August 11, 1995 /s/ DAVID ODEN
David Oden, Vice President, Treasurer,
Chief Financial Officer and Assistant Secretary
(Principal Financial and Accounting Officer)
-13-
<PAGE>
SECOND AMENDMENT TO REVOLVING
CREDIT AND TERM AGREEMENT
This Second Amendment To Revolving Credit and Term Loan
Agreement (this "Second Amendment") is made by and among PMB
Enterprises West, Inc., a New Mexico corporation, and First Interstate
Bank of Texas, N.A.
WHEREAS, the parties entered into that one certain Revolving
Credit and Term Loan Agreement dated February 16, 1994 (the Revolving
Credit and Term Loan Agreement dated February 16, 1994 and all
amendments thereto are hereinafter collectively referred to as the
"Loan Agreement"); and
WHEREAS, the parties entered into that one certain First
Amendment To Revolving Credit and Term Loan Agreement dated February
9, 1995; and
WHEREAS, the parties desire to amend the Loan Agreement in
certain respects.
NOW THEREFORE, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, it is agreed by and
among the parties as follows:
1.
Section 2.03 of the Loan Agreement is amended to read in its
entirety as follows:
2.03. Interest Rates. The unpaid principal of each
Floating Prime Advance shall bear interest from the date of advance
until paid at a rate per annum which shall from day to day be equal to
the lesser of: (a) the Floating Prime Rate in effect from day to day
or (b) the Maximum Rate. The unpaid principal of each Eurodollar
Advance shall bear interest from the day of advance until paid at a
rate per annum which shall be equal to the lesser of (a) the sum of
the Adjusted Interbank Rate for the applicable Interest Period, plus
one and three eights percent (1.375%) or (b) the Maximum Rate if as of
<PAGE>
the end of the most recent month the ratio of Funded Debt as of the
end of such month to Net Cash Flow for the 12 month period ending as
of the end of the most recent month is equal to or less than 1.0 to
1.0. The unpaid principal of each Eurodollar Advance shall bear
interest from the date of advance until paid at a rate per annum which
shall be equal to the lesser of (a) the sum of the Adjusted Interbank
Rate for the applicable Interest Period, plus one and one half percent
(1.5%) or (b) the Maximum Rate if as of the end of the most recent
month the ratio of Funded Debt as of the end of such month to Net Cash
Flow for the 12 month period ending as of the end of the most recent
month is greater than 1.0 to 1.0 but equal to or less than 1.5 to 1.0.
The unpaid principal of each Eurodollar Advance shall bear interest
from the date of advance until paid at a rate per annum which shall be
equal to the lesser of (a) the sum of the Adjusted Interbank Rate for
the applicable Interest Period, plus one and three quarter percent
(1.75%) or (b) the Maximum Rate if as of the end of the most recent
month the ratio of the Funded Debt as of the end of such month to Net
Cash Flow for the 12 month period ending as of the end of the most
recent month is greater than 1.5 to 1.0 but equal to or less than 2.0
to 1.0. The unpaid principal of each Eurodollar Advance shall bear
interest from the date of advance until paid at a rate per annum which
shall be equal to the lesser of (a) the sum of the Adjusted Interbank
Rate for the applicable Interest Period, plus two percent (2.0%) or
(b) the Maximum Rate if as of the end of the most recent month the
ratio of the Funded Debt as of the end of such month to Net Cash Flow
for the 12 month period ending as of the end of the most recent month
is greater than 2.0 to 1.0 but equal to or less than 2.5 to 1.0. The
unpaid principal of each Eurodollar Advance shall bear interest from
the date of advance until paid at a rate per annum which shall be
equal to the lesser of (a) the sum of the Adjusted Interbank Rate for
the applicable Interest Period, plus two and three eighths percent
(2.375%) or (b) the Maximum Rate if as of the end of the most recent
month the ratio of the Funded Debt as of the end of such month to Net
Cash Flow for the 12 month period ending as of the end of the most
recent month is greater than 2.5 to 1.0. All past due principal of,
and to the extent permitted by applicable law, interest on the Note
shall bear interest at the Past Due Rate. If converted to Term Loan
pursuant to Section 3.01 hereof, the converted principal amount of the
Note shall continue to bear interest as provided in Section 3.02.
Notwithstanding the foregoing, the unpaid principal balance of the
Note shall bear interest as provided in Section 4.05(c) hereof, upon
the occurrence of the circumstances described in such section.
- 2 -
<PAGE>
2.
Section 8.01(a) of the Loan Agreement is amended to read in its
entirety as follows:
8.01. Financial Statements. Deliver to Bank in duplicate:
(a) Monthly Statements: as soon as practicable and in any
event within 30 days after the end of each monthly period
in each fiscal year, a Consolidated statement of
operations of Pancho's Mexican Buffet, Inc. and its
Subsidiaries as at the end of such monthly period, setting
forth in each case in comparative form figures for the
corresponding period in the preceding fiscal year, all in
reasonable detail and prepared by an authorized financial
officer of the Company and a Consolidated balance sheet of
Pancho's Mexican Buffet, Inc. and its Subsidiaries as of
the end of such monthly period, setting forth in each case
in comparative form figures for the prior fiscal year end,
in reasonable detail and prepared by an authorized
financial officer of the Company.
3.
Section 9.01 and Section 9.02 of the Loan Agreement are amended
to read in their entirety as follows:
9.01. Funded Debt to Net Cash Flow. Permit the ratio of
Funded Debt as of the end of any month to Net Cash
Flow of Pancho's Mexican Buffet, Inc. and its
Subsidiaries for the 12 month period ending as of
the end of the preceding month to be greater than
2.8 to 1.0 at any time on or before September 30,
1995 or to be greater than 2.5 to 1.0 at any time
after September 30, 1995; or
9.02 Indebtedness to Net Worth. Permit the ratio of the
total Indebtedness of Pancho's Mexican Buffet, Inc.
and its Subsidiaries as of the end of the most
recent month to Consolidated Tangible Net Worth as
of the end of the most recent month to be greater
than .70 to 1.0; or
4.
At the time of execution of this Second Amendment, Borrower
agrees to pay all expenses incurred by Bank in connection with this
Second Amendment (including reasonable attorneys fees).
- 3 -
<PAGE>
5.
This Second Amendment shall be binding upon and inure to the
benefit of the parties and their respective heirs, successors and
assigns.
6.
THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT AMONG THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
Executed to be effective as of May 9, 1995.
PMB ENTERPRISES WEST, INC.
By:/s/ DAVID ODEN
David Oden, Vice President
BORROWER
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:/s/ KIMBERLY K. WHITE
Kimberly K. White, Banking Officer
BANK
f-0042946.01
- 4 -
<PAGE>
EXHIBIT 15
Pancho's Mexican Buffet, Inc.:
We have made a review in accordance with standards established by the
American Institute of Certified Public Accountants of the unaudited
interim financial information of Pancho's Mexican Buffet, Inc. and
subsidiaries for the three-month and nine-month periods ended June
30, 1995 and 1994, as indicated in our report dated August 8, 1995.
Because we did not perform an audit, we expressed no opinion on that
information.
We are aware that our report referred to above, which is included in
your Quarterly Report on Form 10-Q for the quarter ended June 30,
1995, is incorporated by reference in Registration Statements No.
2-86238 and No. 33-60178 on Form S-8.
We are also aware that the aforementioned report, pursuant to Rule
436(c) under the Securities Act, is not considered a part of the
Registration statement prepared or certified by an accountant or a
report prepared or certified by an accountant within the meaning of
Sections 7 and 11 of that Act.
DELOITTE & TOUCHE LLP
Fort Worth, Texas
August 8, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS AS OF JUNE 30, 1995 AND THE CONSOLIDATED
CONDENSED STATEMENT OF OPERATIONS FOR THE NINE-MONTHS THEN ENDED, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 529,000
<SECURITIES> 0
<RECEIVABLES> 240,000
<ALLOWANCES> 0
<INVENTORY> 1,043,000
<CURRENT-ASSETS> 3,255,000
<PP&E> 69,936,000
<DEPRECIATION> (32,754,000)
<TOTAL-ASSETS> 44,658,000
<CURRENT-LIABILITIES> 4,849,000
<BONDS> 0
<COMMON> 555,000
0
0
<OTHER-SE> 25,799,000
<TOTAL-LIABILITY-AND-EQUITY> 44,658,000
<SALES> 61,374,000
<TOTAL-REVENUES> 61,374,000
<CGS> 17,603,000
<TOTAL-COSTS> 58,390,000
<OTHER-EXPENSES> 11,790,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 399,000
<INCOME-PRETAX> (8,979,000)
<INCOME-TAX> (2,906,000)
<INCOME-CONTINUING> (6,073,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,073,000)
<EPS-PRIMARY> (1.38)
<EPS-DILUTED> (1.38)
</TABLE>
