UNITED STATES
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, 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 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 7, 1996:
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, 1996 and September 30, 1995 (unaudited) 2
Consolidated Condensed Statements of Operations
for the Three-Months and Nine-Months Ended
June 30, 1996 and 1995 (unaudited) 3
Consolidated Condensed Statements of Cash Flows
for the Nine-Months Ended June 30, 1996
and 1995 (unaudited) 4
Notes to Consolidated Condensed Financial Statements 6
Independent Accountants' Review 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 - see discussion in Note 3 5
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 13
SIGNATURES 14
<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, 1996
and for the three-month and nine-month periods ended June 30, 1996
and 1995 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
consolidated financial statements and the notes thereto included in
the Company's annual report on Form 10-K for the fiscal year ended
September 30, 1995. In the opinion of the Company, all adjustments,
consisting only of normal recurring adjustments except as discussed
in the notes to the consolidated condensed financial statements,
necessary to present fairly the financial position of the Company as
of June 30, 1996, 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, 1996.
Deloitte & Touche LLP, independent public accountants, has made
a limited review of the consolidated condensed financial statements
as of June 30, 1996 and for the three-month and nine-month periods
ended June 30, 1996 and 1995 included herein.
-1-
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
June 30, September 30,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,061,000 $ 1,199,000
Accounts and notes receivable-current portion 251,000 486,000
Income taxes receivable 15,000 1,227,000
Inventories 646,000 907,000
Prepaid expenses 106,000 267,000
Deferred income taxes 264,000 294,000
Total current assets 2,343,000 4,380,000
PROPERTY, PLANT AND EQUIPMENT (AT COST):
Land 3,446,000 3,446,000
Buildings 10,535,000 10,346,000
Leasehold improvements 22,663,000 22,465,000
Equipment and furniture 28,824,000 29,612,000
Construction in progress 517,000
Total 65,468,000 66,386,000
Less accumulated depreciation and amortization (31,804,000) (30,353,000)
Property, plant and equipment-net 33,664,000 36,033,000
OTHER ASSETS:
Deferred income taxes 2,942,000 2,909,000
Other, including noncurrent portion of receivables 845,000 1,065,000
Total other assets 3,787,000 3,974,000
TOTAL $ 39,794,000 $ 44,387,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,190,000 $ 1,209,000
Accrued wages and bonuses 1,700,000 2,141,000
Other current liabilities 1,846,000 2,120,000
Total current liabilities 4,736,000 5,470,000
OTHER LIABILITIES:
Long-term debt 5,248,000 8,705,000
Accrued insurance costs 3,176,000 3,031,000
Other 50,000 193,000
Total other liabilities 8,474,000 11,929,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock
Common stock 440,000 440,000
Additional paid-in capital 18,632,000 18,633,000
Retained earnings 8,490,000 8,894,000
Cumulative foreign currency translation adjustment (515,000) (449,000)
Stock notes receivable from officers (463,000) (530,000)
Stockholders' equity 26,584,000 26,988,000
TOTAL $ 39,794,000 $ 44,387,000
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended June 30 Nine Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
SALES $ 18,005,000 $ 20,596,000 $ 53,380,000 $ 61,374,000
COSTS AND EXPENSES:
Food costs 4,870,000 5,859,000 14,717,000 17,603,000
Restaurant labor and related expenses 6,651,000 7,559,000 19,972,000 23,229,000
Restaurant operating expenses 4,079,000 4,876,000 12,130,000 14,073,000
Depreciation and amortization 976,000 1,139,000 2,969,000 3,485,000
General and administrative expenses 1,170,000 1,447,000 3,778,000 4,218,000
Restructuring charges 7,572,000 7,572,000
Total 17,746,000 28,452,000 53,566,000 70,180,000
OPERATING INCOME (LOSS) 259,000 (7,856,000) (186,000) (8,806,000)
INTEREST EXPENSE (112,000) (167,000) (456,000) (399,000)
OTHER, INCLUDING INTEREST INCOME 58,000 159,000 217,000 226,000
EARNINGS (LOSS) BEFORE INCOME TAXES 205,000 (7,864,000) (425,000) (8,979,000)
PROVISION (BENEFIT) FOR INCOME TAXES 84,000 (2,516,000) (153,000) (2,906,000)
NET EARNINGS (LOSS) $ 121,000 $ (5,348,000) $ (272,000) $ (6,073,000)
NET EARNINGS (LOSS) PER SHARE $ 0.03 $ (1.22) $ (0.06) $ (1.38)
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Nine Months Nine Months
Ended June 30, Ended June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ (272,000) $ (6,073,000)
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Restructuring charges 7,268,000
Depreciation and amortization 2,969,000 3,485,000
Provision (benefit) for deferred income taxes (4,000) (2,268,000)
Amortization of restaurant start-up costs 36,000 96,000
Payment of restaurant start-up costs (62,000)
(Gain) loss on sale of assets (109,000) 1,000
Minority interest in net earnings (loss) (136,000)
Changes in operating assets and liabilities:
Accounts and notes receivable 219,000 394,000
Income taxes receivable 1,212,000 (651,000)
Inventories, prepaid expenses and other asset 446,000 785,000
Accounts payable and accrued expenses (712,000) (1,633,000)
Other 33,000
Total adjustments 4,090,000 7,279,000
Net cash provided by operating activi 3,818,000 1,206,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (621,000) (6,545,000)
Proceeds from sale of assets 228,000 193,000
Net cash (used in) investing activiti (393,000) (6,352,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term borrowings, net (20,000)
Long-term borrowings 22,767,000 36,785,000
Repayments of long-term borrowings (26,224,000) (32,315,000)
Proceeds from increase in minority interest 100,000
Dividends paid (132,000) (660,000)
Payments received on officer stock notes 67,000 76,000
Net cash provided (used) by financing (3,542,000) 3,986,000
EFFECT OF FOREIGN EXCHANGE RATE
CHANGE ON CASH (21,000) 28,000
NET DECREASE IN CASH AND
CASH EQUIVALENTS (138,000) (1,132,000)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 1,199,000 1,661,000
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,061,000 $ 529,000
SUPPLEMENTAL INFORMATION:
Income taxes paid $ 14,000 $ 30,000
Assets sold for notes receivable 125,000
Interest paid, net of capitalized amounts 450,000 369,000
<FN>
See notes to consolidated condensed financial statements.
</FN>
</TABLE>
<PAGE>
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. NET LOSS PER SHARE
Net 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 the three-months and nine-months
ended June 30, 1996 and 1995.
2. LONG-TERM DEBT
The Company's revolving credit and term loan agreement ("Loan
Agreement") with a bank includes various financial covenants.
Due to net losses incurred by the Company in the quarter ended
December 31, 1995 and each of the three consecutive quarters
ended June 30, 1995, the Company violated certain of these
covenants. The bank has granted permanent waivers for each of
those specific covenant violations.
In June 1996, the Loan Agreement was amended to reduce the
revolving credit line to $7.25 million effective June 30, 1996
and extend its termination date to July 31, 1997. The amendment
reduces the credit limit at the end of each subsequent quarter by
$750,000. It further reduces the limit by 75% of the Company's
excess cash flow (as defined in the agreement) for each fiscal
quarter on the last day of the first month after each quarter
end. Cash capital expenditures and cash dividend payments are
limited by the amendment to $850,000 and $150,000 per fiscal
year, respectively.
At June 30, 1996, the Company had $2,020,000 available under the
bank credit line. The credit limit was reduced to $7,232,750 on
July 31, 1996 based on excess cash flow for the quarter ended
June 30, 1996. The Company had $2,942,250 available under the
bank credit line on July 31, 1996.
Management is taking steps to comply with all of the 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 15 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.
-5-
<PAGE>
3. STOCKHOLDERS' RIGHTS PLAN AND PREFERRED STOCK PURCHASE RIGHTS
In January 1996, the Company's Board of Directors adopted a
Stockholders' Rights Plan to replace a similar plan which expired
on March 31, 1996. Under the new plan, the Company declared a
dividend distribution of one preferred share purchase right
(Right) for each share of common stock outstanding at the close
of business on March 29, 1996. Each Right entitles the holder to
buy one one-thousandth of a share of the Company's
newly-designated Series A Junior Participating Preferred Stock,
for the exercise price of $10 per one one-thousandth of a
Preferred Share, subject to adjustment.
If any person or group (other than certain current stockholders
and their affiliates, associates and successors, which may
acquire up to 28%) acquires 15% of the Common Stock, all
stockholders except the acquiring person (Acquiror) will be
entitled to purchase Common Stock having twice the market value
of the Rights exercise price. If the Company is involved in a
merger or other business combination, or sells 50% or more of its
assets or earning power, all of the Stockholders, other than the
Acquiror, will be entitled to purchase Common Shares of the other
person having twice the market value of the exercise price.
Under the Plan's exchange provision, any time after such an
acquisition but before any person acquires a majority of the
Common Stock, the Board of Directors may exchange all or part of
the outstanding Rights (other than the Rights of the Acquiror)
for Common Stock at a ratio of one Right per share.
The Rights trade with the common stock, and are not exercisable
or transferable apart from the common stock until 10 days after a
person or group acquires, or announces a tender offer for, 15% or
more of the Company's outstanding common stock. Before
acquisition by someone of beneficial ownership of 15% or more of
the Company's common stock, the Rights are redeemable by the
Board for $.01 per Right. The Rights expire on March 27, 2006.
Under the Plan, the Company's Board of Directors has designated
10,000 shares of preferred stock as Series A Junior Participating
Preferred Stock. This designation is part of the 500,000 shares
of preferred stock, par value $10, previously authorized, none is
issued.
4. CASH DIVIDEND
On January 24, 1996, the Company's board of directors declared a
$.015 per common share semi-annual cash dividend. The dividend
was paid on June 11, 1996 to holders of record on May 28, 1996.
On December 12, 1995, the Company paid a cash dividend of $.015
per common share to holders of record on November 28, 1995.
-6-
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Pancho's Mexican Buffet, Inc.:
We have reviewed the accompanying consolidated condensed balance
sheet of Pancho's Mexican Buffet, Inc. and subsidiaries as of June
30, 1996, the related consolidated condensed statements of operations
for the three-month and nine-month periods ended June 30, 1996 and
1995, and the consolidated condensed statements of cash flows for the
nine-month periods ended June 30, 1996 and 1995. 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 applying
analytical review procedures to financial data and of 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, 1995,
and the related consolidated statements of operations, stockholders'
equity and cash flows for the year then ended (not presented herein),
and in our report dated November 7, 1995, 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, 1995, 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 1, 1996
-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, 1996 the Company's current ratio was 0.5 to 1, down
0.3 from September 30, 1995. The current ratio decreased mainly
because about $1.2 million received for income taxes receivable was
used to reduce long-term debt. Cash and cash equivalents decreased
$138,000 in the nine-month period to $1,061,000 at June 30, 1996, as
cash provided by operations was used primarily to pay down long-term
debt.
Net operating cash flow increased $2.6 million for the nine-months
ended June 30, 1996 versus the same period last year. The increase
in positive cash flow was due largely to the receipt of about $1.2
million of income tax refunds in 1996. Plus, in the nine-months
ended June 30, 1995, the Company used $921,000 more to reduce
accounts payable and accrued liabilities than for the same period in
1996.
The Company invested $621,000 cash for property additions in the
nine-months ended June 30, 1996, primarily to remodel existing
restaurants and complete the Guadalajara location, which opened in
October 1995. The Company received $228,000 from the sale of excess
equipment. No other new locations have been opened or under
construction in fiscal 1996.
No new restaurants are currently planned, as management intends to
focus on improving sales and profitability and reducing debt.
Capital spending to remodel existing restaurants and to install
restaurant computer systems will continue within the constraints of
available cash flows and the loan agreement restriction of $850,000
per fiscal year (see Note 2 to the consolidated condensed financial
statements).
In the nine-months ended June 30, 1995, the Company invested $6.5
million cash, primarily to build four new restaurants, remodel
existing locations and install new restaurant computer systems.
Financing activities used net cash of $3,542,000 in the current
nine-month period, as long-term debt was reduced by $3.5 million and
cash dividends of $132,000 were paid. In the nine-months ended June
30, 1995, financing activities provided net cash of $4.0 million,
from net long-term borrowings of $4.5 million, primarily to fund new
restaurant construction, less dividends of $660,000.
-8-
<PAGE>
On January 24, 1996, the Company's board of directors declared a
$.015 per common share semi-annual cash dividend, changing from
quarterly dividends. The dividend was paid on June 11, 1996 to
holders of record on May 28, 1996. On December 12, 1995, the Company
paid a cash dividend of $.015 per common share to holders of record
on November 28,1995.
The current loan agreement limits cash dividends to $150,000 per
fiscal year. As the Company has paid $132,000 for cash dividends in
fiscal 1996, no other cash dividends are planned for this fiscal
year. Future cash dividends will depend on earnings, financial
position, capital requirements and other relevant factors.
The Company's revolving credit and term loan agreement ("Loan
Agreement") with a bank includes various financial covenants. Due to
the net losses incurred by the Company in the quarter ended December
31, 1995 and each of the three quarters ended June 30, 1995, the
Company violated certain of these covenants. The bank has granted
permanent waivers for each of those specific covenant violations.
In June 1996, the Loan Agreement was amended to reduce the revolving
credit line to $7.25 million effective June 30, 1996 and extend its
termination date to July 31, 1997. The amendment reduces the credit
limit at the end of each subsequent quarter by $750,000. It further
reduces the credit limit by 75% of the Company's excess cash flow (as
defined in the agreement) for each fiscal quarter on the first month
end after each quarter end. Cash capital expenditures and dividend
payments are limited by the amendment to $850,000 and $150,000 per
fiscal year, respectively.
At June 30, 1996, the Company had $2,020,000 available under the bank
credit line. On July 31, 1996, the credit limit was reduced to
$7,232,750 based on excess cash flow for the quarter ended June 30,
1996. The Company had $2,942,250 available under the credit line on
July 31, 1996.
Management is taking steps to comply with all of the 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 15 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.
-9-
<PAGE>
The Company believes it will realize substantial benefits from using
federal employer tax credits and carryforwards and state NOL
carryforwards to reduce future federal and state income tax
liabilities. If the Company's results of operations do not timely
achieve levels needed to use the employer tax credits or the state
NOL carryforwards, they could expire before use, resulting in a
charge against income.
In the nine-months ended June 30, 1996, deferred tax assets increased
a net amount of $3000, due primarily to tax benefits from the current
operating loss, more employment tax credit carryforwards and more
insurance reserves, mostly offset by net decreases in restructuring
and other reserves and the reversal of tax-book basis differences.
Results of Operations
Sales decreased $7,994,000 (13.0%) and $2,591,000 (12.6%) for the
nine-months and three-months ended June 30, 1996 compared to the same
periods last year. The 12 restaurants closed in fiscal 1995
represented $5.2 million and $1.6 million of the sales decrease from
the nine-months and quarter ended June 30, 1995. Same-store (stores
open throughout all of the current and prior year periods) sales were
down 8.5% and 8.2% in the current nine-month period and quarter,
respectively. Four new restaurants opened since October 1994 added
sales of $1,802,000 for the current nine months and $451,000 for the
current quarter.
Average sales for restaurants open throughout the first nine months
were down 6.8%, to $826,000, compared to the same period last year.
Average sales for restaurants open throughout the current quarter
were $279,000 versus $299,000 for the third quarter of fiscal 1995.
Food costs were down 1.1% of sales for the nine-months and 1.4% of
sales for the three-months ended June 30, 1996 compared with the same
periods in fiscal 1995. The decreases resulted from more
cost-efficient preparation methods and recipes combined with changes
in food offerings, implemented to maintain or improve quality while
lowering costs.
Restaurant labor and related expenses were down 0.4% of sales for the
nine-month period, but up 0.2% for the third quarter 1996 versus the
third quarter 1995, due to an equal increase in restaurant management
bonuses. By executing a rigorous labor control program, management
has maintained fairly stable labor cost percentage of sales
comparisons despite declining sales.
-10-
<PAGE>
New federal minimum wage levels are expected to become effective
October 1, 1996. The Company plans to offset the labor cost
increases due to new minimum wage levels with price increases.
For the nine-months ended June 30, restaurant operating costs were
down 0.2% of sales versus the same period last year, due principally
to lower advertising expenses. Restaurant operating expenses
decreased 1.0% of sales for the current quarter from the prior year
quarter, due to lower advertising costs and other cost reductions.
Depreciation and amortization decreased $516,000 and $163,000 for the
nine-months and three-months ended June 30, 1996 from the same
periods in fiscal 1995. Reductions from restaurant closings and
impairments were partially offset by the opening of four new
restaurants since October 1994, in Pasadena, Baytown, and Galveston,
Texas and in Guadalajara, Mexico.
General and administrative expenses were up 0.2% of sales for the
nine-months ended June 30, 1996 versus the same period in fiscal
1995. The year-to-date percentage increase resulted from the effect
of lower sales despite a $440,000 expense reduction. For the quarter
ended June 30, general and administrative expenses decreased 0.5% of
sales in 1996 versus 1995, due primarily to staff reductions and
other cost cutting efforts.
In June 1995, the Company adopted a restructuring plan in an effort
to return to profitability. Under 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 to
write down leasehold improvements and equipment and $948,000 for
remaining lease costs and other exit costs of the restaurant
closings. The impairment charge 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.
Interest expense rose $57,000 year-to-date compared to the same
period in fiscal 1995 due to higher interest rates and less interest
capitalization due to reduced construction activity. Interest
expense was $55,000 lower for the third quarter of fiscal 1996 than
in 1995, and $39,000 lower than the second quarter of fiscal 1996, as
the Company has significantly reduced its debt during 1996. The
Company plans to continue reducing its debt, which should yield lower
interest expense each quarter, barring major interest rate increases.
-11-
<PAGE>
The benefit for income taxes was $153,000 for the current
nine-months, an effective rate of about 36.0%, versus an effective
rate of 38.4% for fiscal year 1995. Both effective benefit rates
reflect the Company's tax planning strategies considering its net
loss results, but 1996 includes losses in Mexico for which no tax
benefit is recognized.
Due to the factors discussed above, the Company reported net losses
of $272,000 and $6,073,000 for the nine-months ended June 30, 1996
and 1995, respectively. For the quarters ended June 30, the Company
reported net income of $121,000 in 1996 versus a loss of $5,348,000
in 1995. The nine-months and quarter for fiscal 1996 showed sales
declines that limited profitability despite extensive cost cutting
programs by the Company. The Company's future earnings depend
largely on improving sales and maintaining tight cost controls in the
highly-competitive restaurant industry.
Other Uncertainties and Trends
Mexico is currently experiencing an economic crisis stemming from the
December 1994 devaluation of the Mexican peso. Management believes
that the economic difficulties in Mexico will have a long-term
negative impact on the Company's Guadalajara restaurant, and,
accordingly, an impairment charge of $812,000 was recorded during the
quarter ended June 30, 1995.
The long-term impact of this economic crisis on the Company's
restaurant operations is difficult to estimate. Since opening in
late October 1995, sales for the Company's Guadalajara restaurant
have been lower than expected, resulting in a net operating loss for
that location's first eight months of operation. Management is
currently evaluating methods to improve sales and reduce costs.
Future Company restaurant development in Mexico depends on the
success of the Guadalajara restaurant.
The Company has invested about $1.8 million in this restaurant and
expects that some additional investment may be required. If the
restaurant continues to incur negative cash flows or operating
losses, more operating, impairment or restaurant closing losses may
be recognized in future periods.
In accordance with Statement of Financial Accounting Standards No.
52, "Foreign Currency Translation," the net effect of foreign
currency exchange rate changes for the investment in Mexican
operations is shown in the Cumulative foreign currency translation
adjustment in Stockholders' Equity. If the Mexican operations were
disposed or abandoned, then the Cumulative foreign currency
translation adjustment balance would result in a charge to earnings.
The debit balance for this item increased $66,000 to $515,000 at June
30, 1996 from September 30, 1995, as the Mexican peso was further
devalued versus the U.S. dollar.
-12-
<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(v) Fifth Amendment to Revolving Credit and Term Loan
Agreement
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, 1996
-13-
<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 13, 1996 /s/Hollis Taylor
Hollis Taylor, President and Chief
Executive Officer (Principal Executive
Officer)
August 13, 1996 /s/W. Brad Fagan
Brad Fagan, Vice President, Treasurer,
Controller and Assistant Secretary
(Principal Financial and Accounting
Officer)
-14-
<PAGE>
EXHIBIT 15
Pancho's Mexican Buffet, Inc.:
We have reviewed in accordance with standards established by the
American Institute of Certified Public Accountants the unaudited
interim financial information of Pancho's Mexican Buffet, Inc. and
subsidiaries for the nine-months and three-months ended June 30, 1996
and 1995, as indicated in our report dated August 1, 1996; 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,
1996, 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 of 1933, 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.
/s/DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Fort Worth, Texas
August 12, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed balance sheets as of June 30, 1996 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-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,061,000
<SECURITIES> 0
<RECEIVABLES> 251,000
<ALLOWANCES> 0
<INVENTORY> 646,000
<CURRENT-ASSETS> 2,343,000
<PP&E> 65,468,000
<DEPRECIATION> 31,804,000
<TOTAL-ASSETS> 39,794,000
<CURRENT-LIABILITIES> 4,736,000
<BONDS> 0
0
0
<COMMON> 440,000
<OTHER-SE> 26,144,000
<TOTAL-LIABILITY-AND-EQUITY> 39,794,000
<SALES> 53,380,000
<TOTAL-REVENUES> 53,380,000
<CGS> 14,717,000
<TOTAL-COSTS> 49,788,000
<OTHER-EXPENSES> 3,778,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 456,000
<INCOME-PRETAX> (425,000)
<INCOME-TAX> (153,000)
<INCOME-CONTINUING> (272,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (272,000)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
FIFTH AMENDMENT TO REVOLVING
CREDIT AND TERM LOAN AGREEMENT
THIS FIFTH AMENDMENT TO REVOLVING CREDIT AND TERM LOAN AGREEMENT
(hereinafter called this "Amendment") is entered into on July 9,
1996, to be effective as of June 28,1996, between PMB
Enterprises West, Inc., a New Mexico corporation (the
"Borrower") and Wells Fargo Bank (Texas), National Association,
formerly First Interstate Bank of Texas, N.A. (the "Bank").
W I T N E S S E T H:
WHEREAS, the Borrower and First Interstate Bank of Texas, N.A.
("FITX") entered into a Revolving Credit and Term Loan Agreement
dated February 16, 1994 (hereinafter called the "Original
Agreement"), whereby, upon the terms and conditions therein
stated, the Bank agreed to make available to the Borrower a
credit facility upon the terms and conditions set forth in the
Agreement; and
WHEREAS, the Borrower and FITX entered into that certain First
Amendment to Revolving Credit and Term Loan Agreement dated
February 9, 1995; and
WHEREAS, the Borrower and FITX entered into that certain Second
Amendment to Revolving Credit and Term Loan Agreement dated May
9, 1995; and
WHEREAS, the Borrower and FITX entered into that certain Third
Amendment to Revolving Credit and Term Loan Agreement dated
September 29, 1995; and
WHEREAS, the Borrower and FITX entered into that certain Fourth
Amendment to Revolving Credit and Term Loan Agreement dated
February 16, 1996 (the Original Agreement, as amended by the
First, Second, Third and Fourth Amendments is hereinafter
referred to as the "Agreement"); and
WHEREAS, the Borrower and the Bank have agreed to certain
further amendments to the Agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants
and agreements herein contained, the parties to this Amendment
hereby agree as follows:
SECTION 1. Terms Defined in Agreement. As used in this
Amendment, except as may otherwise be provided herein, all
capitalized terms which are defined in the Agreement shall have
the same meaning herein as therein, all of such terms and their
definitions being incorporated herein by reference.
SECTION 2. Amendments to Agreement. Subject to the conditions
precedent set forth in Section 3 hereof, the Agreement is hereby
amended as follows:
(a) The definition of "Termination Date" is hereby deleted from
Article I of the Agreement and the following definition is
substituted in lieu thereof:
"Termination Date" shall mean (i) July 31, 1997, or (ii) such
later date to which the Revolving Credit Period is extended
pursuant to Section 2.01(b) hereof.
(b) The Agreement hereby is amended by deleting Section 2.01(b)
therefrom and substituting the following Section 2.01(b) in lieu
thereof:
(b) Review of Revolving Loan Commitments. Prior to the
Termination Date, Bank and Company shall review the revolving
loan commitments hereunder, and Bank and Company may, at that
time, mutually agree to extend the termination of the revolving
line of credit. If, at the time of any of the above-described
reviews of the revolving line of credit, Bank and Company do not
mutually agree to extend the then existing Termination Date of
the revolving line of credit, then the Termination Date shall
not be extended and the unpaid balance of the Note shall be due
and payable in full on the then existing Termination date.
Notwithstanding anything herein, Bank shall have no obligation
whatsoever to extend the Termination Date.
(c) The Agreement hereby is amended by deleting Section 2.03
therefrom and substituting the following Section 2.03 in lieu
thereof:
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 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 one-half percentage
points (2.50%) or (b) the Maximum Rate. 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.
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.
SECTION 3. Conditions of Effectiveness.
(a) The Bank has relied upon the representations and warranties
contained in this Amendment in agreeing to the amendments to the
Agreement set forth herein and the amendments to the Agreement
set forth herein are conditioned upon and subject to the
accuracy of each and every representation and warranty of the
Borrower made or referred to herein, and performance by the
Borrower of its obligations to be performed under the Agreement
on or before the date of this Amendment (except to the extent
amended herein).
(b) The amendments to the Agreement set forth herein are
further conditioned upon receipt by the Bank of certificates of
the Secretary or Assistant Secretary of the Borrower setting
forth resolutions of its Board of Directors and attesting to the
incumbency of certain officers of the Borrower in form and
substance reasonably satisfactory to the Bank with respect to
this Amendment.
SECTION 4. Representations and Warranties of the Borrower. The
Borrower represents and warrants to the Bank, with full
knowledge that the Bank is relying on the following
representations and warranties in executing this Amendment, as
follows:
(a) The Borrower has corporate power and authority to execute,
deliver and perform this Amendment, and all corporate action on
the part of the Borrower requisite for the due execution,
delivery and performance of this Amendment has been duly and
effectively taken.
(b) The Agreement as amended by this Amendment and the Loan
Documents and each and every other document executed and
delivered in connection with this Amendment to which the
Borrower or any of its Subsidiaries is a party constitute the
legal, valid and binding obligations of the Borrower and any of
its Subsidiaries to the extent it is a party thereto,
enforceable against such Person in accordance with their
respective terms.
(c) This Amendment does not and will not violate any provisions
of the articles or certificate of incorporation or bylaws of the
Borrower, or any contract, agreement, instrument or requirement
of any Governmental Authority to which the Borrower is subject.
The Borrower's execution of this Amendment will not result in
the creation or imposition of any lien upon any properties of
the Borrower, other than those permitted by the Agreement and
this Amendment.
(d) The Borrower's execution, delivery and performance of this
Amendment do not require the consent or approval of any other
Person, including, without limitation, any regulatory authority
or governmental body of the United States of America or any
state thereof or any political subdivision of the United States
of America or any state thereof.
(e) All financial information previously presented to the Bank
fairly present the financial condition of the Borrower and its
Subsidiaries as at the date of such information and the results
of the operations of the Borrower and its Subsidiaries for the
periods ended on such dates, all in accordance with GAAP applied
on a consistent basis, and since May 31, 1996 there has been no
material adverse change in such condition or operations.
(f) The Borrower has performed and complied with all agreements
and conditions contained in the Agreement required to be
performed or complied with by the Borrower prior to or at the
time of delivery of this Amendment.
(g) After giving effect to this Amendment, no Default or Event
of Default exists and all of the representations and warranties
contained in the Agreement and all instruments and documents
executed pursuant thereto or contemplated thereby are true and
correct in all material respects on and as of this date.
(h) Nothing in this Section 4 of this Amendment is intended to
amend any of the representations or warranties contained in the
Agreement or of the Loan Documents to which the Borrower or any
of the Subsidiaries is a party.
SECTION 5. Reference to and Effect on the Agreement.
(a) Upon the effectiveness of Sections 1 and 2 hereof, on and
after the date hereof, each reference in the Agreement to "this
Agreement", "hereunder", "hereof", "herein", or words of like
import, shall mean and be a reference to the Agreement as
amended hereby.
(b) Except as specifically amended by this Amendment, the
Agreement shall remain in full force and effect and is hereby
ratified and confirmed.
SECTION 6. No Waiver. Except as specifically amended hereby,
the Borrower agrees that no Event of Default and no Default has
been waived or remedied by the execution of this Amendment by
the Bank and any such Default or Event or Default heretofore
arising and currently continuing shall continue after the
execution and delivery hereof.
SECTION 7. Cost, Expenses and Taxes. The Borrower agrees to pay
on demand all reasonable costs and expenses of the Bank in
connection with the preparation, reproduction, execution and
delivery of this Amendment and the other instruments and
documents to be delivered hereunder, including reasonable
attorneys' fees and out-of-pocket expenses of the Bank. In
addition, the Borrower shall pay any and all stamp and other
taxes and fees payable or determined to be payable in connection
with the execution and delivery, filing or recording of this
Amendment and the other instruments and documents to be
delivered hereunder, and agrees to save the Bank harmless from
and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes or fees.
SECTION 8. Extent of Amendments. Except as otherwise expressly
provided herein, the Agreement and the other Loan Documents are
not amended, modified or affected by this Amendment. The
Borrower ratifies and confirms that (i) except as expressly
amended hereby, all of the terms, conditions, covenants,
representations, warranties and all other provisions of the
Agreement remain in full force and effect, (ii) each of the
other Loan Documents are and remain in full force and effect in
accordance with their respective terms, and (iii) all property
securing the obligations of Borrower under the Agreement is
unimpaired by this Amendment.
SECTION 9. Grant and Affirmation of Security Interest. The
Borrower hereby grants a security interest in the Collateral
described in the Security Agreements to secure payment and
performance of the Note, as renewed, rearranged and extended
hereby, and the obligations described in the Agreement and all
documents and instruments executed in connection therewith and
Borrower hereby confirms and agrees that any and all liens,
security interests and other security or Collateral now or
hereafter held by the Bank as security for payment and
performance of the obligations hereby are renewed and carried
forth to secure payment and performance of all of the
obligations. The Security Agreements and the Deeds of Trust are
and remain legal, valid and binding obligations of the parties
thereto, enforceable in accordance with their respective terms.
SECTION 10. Guaranties. Each of the Guarantors hereby consents
to and accepts the terms and conditions of this Amendment,
agrees to be bound by the terms and conditions hereof and
ratifies and confirms that its continuing Guaranty Agreement,
executed and delivered to the Bank as of February 16, 1994,
guaranteeing payment of the obligations, is and remains in full
force and effect and secures payment of, among other things, the
Note as renewed, rearranged and extended hereby.
SECTION 11. Execution and Counterparts. This Amendment may be
executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed
and delivered shall be deemed to be an original and all of which
taken together shall constitute but one and the same instrument.
Delivery of an executed counterpart of the signature page of
this Amendment by facsimile shall be equally as effective as
delivery of a manually executed counterpart of this Amendment.
SECTION 12. Governing Law. This Amendment shall be governed by
and construed in accordance with the laws of the State of Texas.
SECTION 13. Headings. Section headings in this Amendment are
included herein for convenience and reference only and shall not
constitute a part of this Amendment for any other purpose.
SECTION 14. Arbitration Program. The parties agree to be
bound by the terms and provisions of the current Arbitration
Program of First Interstate Bank of Texas, N.A., which is
incorporated by reference herein and is acknowledged as received
by the parties pursuant to which any and all disputes arising
hereunder, under the Agreement, under any of the other Loan
Documents, or under any of the documents and instruments
contemplated thereby, or pertaining hereto or thereto, shall be
resolved by mandatory binding arbitration upon the request of
any party.
SECTION 15. NO ORAL AGREEMENTS. THE AGREEMENT (AS AMENDED BY
THIS AMENDMENT) AND THE OTHER LOAN DOCUMENTS, REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED
BY EVIDENCE OF PRIOR CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto
duly authorized.
BORROWER:
PMB ENTERPRISES WEST, INC.
By:/s/Hollis Taylor________
Name: Hollis Taylor
Title: President & CEO
BANK:
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
By:/s/Kimberly K. Welch____
Name: Kimberly K. Welch
Title: Assistant Vice President
CONSENTED AND AGREED TO THIS 9th day of
July, 1996:
PANCHO'S MEXICAN BUFFET, INC.
By:/s/Hollis Taylor______________
Name: Hollis Taylor
Title: President & CEO
PMB INTERNATIONAL, INC.
By:/s/Hollis Taylor_______________
Name: Hollis Taylor
Title: President & CEO
PAMEX OF TEXAS, INC.
By:/s/Carolyn Tetts_________
Name: Carolyn Tetts
Title: Secretary & Treasurer
