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FORM 10-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 SEPTEMBER 28, 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: 0-22422
POLLO TROPICAL, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 65-0100964
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
7300 N. KENDALL DRIVE, 8TH FLOOR, MIAMI, FLORIDA 33156
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 305/670-7696
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
------------ ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 3, 1997: 8, 176, 829 shares of common stock, par
value $.01.
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POLLO TROPICAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED SEPTEMBER 28, 1997
<TABLE>
<CAPTION>
Page
PART I - FINANCIAL INFORMATION
<S> <C>
Condensed Consolidated Balance Sheets
December 29, 1996 and September 28, 1997................................................ 3
Condensed Consolidated Statements of Income
Three Months and Nine Months Ended September 29, 1996 and September 28, 1997............ 4
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 29, 1996 and September 28, 1997............................. 5
Notes to Condensed Consolidated Financial Statements ..................................... 6
Management's Discussion and Analysis of Financial
Condition and Results of Operations .................................................... 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K ................................................ 20
Signature Page ........................................................................... 21
</TABLE>
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POLLO TROPICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, September 28,
1996 1997
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................... $ 94,490 $ 617,561
Inventories ................................................................ 271,996 259,956
Prepaid expenses ........................................................... 337,458 556,146
Prepaid income taxes ....................................................... 354,062 --
Deferred income taxes ...................................................... 1,583,649 414,578
Other current assets ....................................................... 554,689 419,552
----------- -----------
Total current assets ...................................................... 3,196,344 2,267,793
PROPERTY AND EQUIPMENT, net ................................................... 42,539,997 35,655,993
DEFERRED RESTAURANT PRE-OPENING COSTS, net .................................... 99,213 47,731
INTANGIBLE ASSETS, net ........................................................ 431,892 457,064
LEASEHOLD ACQUISITION COSTS, net .............................................. 1,423,334 1,357,700
DEPOSITS AND DEFERRED COSTS ON FUTURE
RESTAURANT LOCATIONS ....................................................... 93,338 123,456
NOTE RECEIVABLE, net of current portion ....................................... -- 845,122
OTHER ASSETS .................................................................. 737,345 743,348
----------- -----------
Total assets ............................................................... $48,521,463 $41,498,207
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................................... $ 2,673,868 $ 1,367,758
Accrued liabilities ........................................................ 1,545,805 3,217,754
Current maturities of long-term debt ....................................... 83,773 96,031
Income taxes payable ....................................................... -- 167,999
Accrued restaurant closure expenses ........................................ 6,273,830 2,487,382
----------- -----------
Total current liabilities ................................................. 10,577,276 7,336,924
LONG-TERM DEBT, net of current maturities ..................................... 11,290,952 3,726,494
DEFERRED RENT ................................................................. 1,361,353 1,433,214
DEFERRED FRANCHISE FEE INCOME ................................................. 270,000 262,500
DEFERRED INCOME TAXES ......................................................... 879,830 650,116
----------- -----------
Total liabilities ......................................................... 24,379,411 13,409,248
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock ............................................................ -- --
Common stock ............................................................... 81,498 81,970
Additional paid-in capital ................................................. 21,708,161 21,985,980
Retained earnings .......................................................... 2,352,393 6,021,009
----------- -----------
Total shareholders' equity ................................................ 24,142,052 28,088,959
----------- -----------
Total liabilities and shareholders' equity ................................ $48,521,463 $41,498,207
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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POLLO TROPICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
----------------------------- -----------------------------
September 29, September 28, September 29, September 28,
1996 1997 1996 1997
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales $ 17,238,169 $ 16,685,381 $ 47,982,414 $ 48,501,932
Franchise revenues 106,928 159,182 398,915 582,334
------------ ------------ ------------ ------------
17,345,097 16,844,563 48,381,329 49,084,266
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of sales 6,832,333 5,696,553 18,206,743 16,860,896
Restaurant payroll 4,264,993 3,827,530 11,987,119 11,299,357
Other restaurant operating expenses 3,193,958 2,883,517 9,330,140 8,552,329
General and administrative 1,296,617 1,316,644 3,917,975 4,219,222
Depreciation and amortization of property
and equipment 584,579 507,708 1,668,988 1,506,853
Amortization of deferred restaurant
pre-opening costs 160,861 13,025 421,375 99,827
Other amortization 56,052 23,095 171,015 148,300
Restaurant closure expenses, net (174,047) -- (174,047) --
------------ ------------ ------------ ------------
16,215,346 14,268,072 45,529,308 42,686,784
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 1,129,751 2,576,491 2,852,021 6,397,482
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSES):
Interest, net (254,951) (138,177) (749,707) (501,036)
Other, net 8,442 11,312 31,093 19,722
------------ ------------ ------------ ------------
(246,509) (126,865) (718,614) (481,314)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 883,242 2,449,626 2,133,407 5,916,168
PROVISION FOR INCOME TAXES 335,543 930,613 810,481 2,247,552
------------ ------------ ------------ ------------
NET INCOME $ 547,699 $ 1,519,013 $ 1,322,926 $ 3,668,616
============ ============ ============ ============
NET INCOME PER COMMON SHARE $ 0.07 $ 0.18 $ 0.16 $ 0.44
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,165,144 8,311,575 8,153,118 8,267,956
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------
September 29, September 28,
1996 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .......................................................... $ 1,322,926 $ 3,668,616
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ...................................... 2,261,378 1,754,980
Loss on disposal of property and equipment ......................... 167,019 53,562
Restaurant closure expenses, net ................................... (174,047) --
Deferred rent ...................................................... 147,386 71,861
Amortization of stock based compensation ........................... 5,787 61,017
Deferred income taxes .............................................. 314,626 939,357
Changes in operating assets and liabilities:
(Increase) decrease in-
Inventories ..................................................... (33,558) 12,040
Prepaid expenses ................................................ (182,982) (218,688)
Prepaid income taxes ............................................ 145,550 396,835
Other current assets ............................................ 24,002 155,170
Deferred restaurant pre-opening costs ........................... (225,027) (48,345)
Other assets .................................................... 100,135 (82,610)
Increase (decrease) in-
Accounts payable and accrued liabilities ........................ 37,794 365,839
Deferred franchise fee income ................................... (192,500) (7,500)
Income taxes payable ............................................ -- 167,999
Accrued restaurant closure expenses ............................. (98,810) 1,773,847
----------- -----------
Total adjustments ............................................... 2,296,753 5,395,364
----------- -----------
Net cash provided by operating activities ....................... 3,619,679 9,063,980
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ................................................ (3,675,016) (1,101,787)
Payments for intangible assets ...................................... (27,473) (37,591)
Payments for leasehold acquisition costs ............................ (2,049) (1,136)
Payments on note receivable ......................................... -- 7,422
(Increase) decrease in deposits and deferred costs on future
restaurant locations ............................................. 33,371 (30,118)
----------- -----------
Net cash used in investing activities ........................... (3,671,167) (1,163,210)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under revolving credit agreement ..................... (655,355) (7,552,200)
Proceeds from issuance of common stock .............................. 32,435 174,501
----------- -----------
Net cash used in financing activities ........................... (622,920) (7,377,699)
----------- -----------
Net (decrease) increase in cash and cash equivalents ............ (674,408) 523,071
Cash and cash equivalents, beginning of period ...................... 691,324 94,490
----------- -----------
Cash and cash equivalents, end of period ............................ $ 16,916 $ 617,561
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest, net ................................................... $ 762,603 $ 452,551
=========== ===========
Income taxes .................................................... $ 298,285 $ 638,085
=========== ===========
Tax benefit from stock options recorded to additional
paid-in capital ................................................ $ 123,039 $ 42,773
=========== ===========
Noncash investing and financing activities:
Note received from sale of company-owned store .............. -- $ 880,000
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of December 29, 1996, which has been
derived from audited financial statements, and the unaudited interim condensed
financial statements included herein, have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and note disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted pursuant to those rules and regulations, although the Company
believes that the disclosures made herein are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Company's Annual Report on Form 10-K (File No. 0-22422) for the year
ended December 29, 1996.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position of the
Company and the results of operations and cash flows for the periods indicated.
Results of operations for the quarter and nine months ended September 28, 1997
are not necessarily indicative of the results to be expected for the year ending
December 28, 1997.
(2) ACCOUNTING POLICIES
During interim periods the Company follows the accounting policies set forth in
its consolidated financial statements included in its Annual Report on Form 10-K
(File No. 0-22422). Reference should be made to such financial statements for
information on such accounting policies and further financial details. Certain
prior year amounts have been reclassified to conform to the current year
presentation.
(3) NEWLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No.
128 supersedes the previous standard (Accounting Principles Board Opinion No.
15), modifies the methodology for calculating earnings per share, and is
effective for annual periods ending after December 15, 1997; early adoption is
not permitted. Upon adoption in its annual financial statements for the year
ending December 28, 1997, the Company will be required to restate previously
reported earnings per share data to conform with the requirements of SFAS No.
128. Had the provisions of SFAS No. 128 been applicable to the accompanying
condensed consolidated financial statements, basic and diluted earnings per
share, as calculated in accordance with the provisions of SFAS No. 128, would
not have been different than the historical earnings per share amounts reported
herein.
(4) NOTE RECEIVABLE
In conjunction with the disposal and 1997 sale of a restaurant closed during the
fourth quarter of 1996, the Company recorded a note receivable in the amount of
$880,000. The note bears interest at a rate of 10% per annum based on a 15 year
amortization period. The note is secured by a mortgage on the restaurant
location.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q under "Management's Discussion and Analysis
of Financial Condition and Results of Operations" constitute "Forward Looking
Statements" within the meaning of the Private Securities Litigation Reform Act
of 1955. Such forward-looking statements involve known and unknown risks,
uncertainties, and other factors which may cause the actual results,
performance, or achievements of Pollo Tropical, Inc. restaurants to be
materially different from any future results, performance, or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: competition; success of operating initiatives;
advertising and promotional efforts; adverse publicity; acceptance of new
product offerings; availability, locations, and terms of sites for store
development and the real estate market conditions in general; changes in
business strategy or development plans; availability and terms of capital; food,
labor, and employee benefit costs; changes in government regulations; regional
weather conditions; and other factors referenced in this Form 10-Q or in the
Company's Annual Report on Form 10-K for the year ended December 29, 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's operating results continued to improve during the
third quarter ended September 28, 1997 reflecting the effective implementation
of several strategic changes during 1996 which should continue to affect
operating results through the remainder of 1997. The Company operated the third
quarter of 1997 with fewer restaurants compared to the same period of the prior
year resulting in a slight decline in total restaurant sales. However, the
implementation of effective marketing strategies continues to have positive
results for the sixth consecutive quarter with same-store sales increasing 1.4%
for the third quarter ended September 28, 1997 compared with the same quarter of
the prior year. The Company believes that the trend of improvement in same-store
sales is primarily due to continued refinement in its core markets of its
marketing strategies, including everyday value pricing on selected menu items,
separate advertising campaigns aimed toward its dual-target audiences, two
successful new product launches and improved customer service. The Company
expects restaurant sales to be higher in the fourth quarter of 1997, as compared
to the same period of the prior year, because of higher average unit volumes for
restaurants operating during the period. For the first time in nine quarters,
the market price for chicken was lower when compared to the same period of the
previous year and this trend is expected to continue during the remainder of
1997. Lower product cost, operational improvements and other factors have
contributed to a significant improvement in the Company's food costs. The
Company continues to upgrade the organization with an emphasis on improved
controls and operational execution. As a result of these and other factors, the
Company's income from operations continued to improve to 15.4%, as a percentage
of restaurant sales, for the third quarter of 1997 compared with 6.6% for the
same period of the prior year.
Four additional franchised units opened in Puerto Rico, two
franchised units opened in the Dominican Republic and one franchised unit opened
in Ecuador thus far in 1997, reflecting the strategic decision to grow the
franchise program through international area development agreements in Central
and South America and the Caribbean. The Company further expects to have
additional franchised units open
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in Ecuador as well as the first unit open in the Netherland Antilles by the end
of 1997. The Company receives exclusivity fees upon signing of area development
agreements. Such fees are recognized as revenue when franchised restaurants open
or when such agreements terminate. Additionally, when franchised restaurants
become operational, the Company receives continuing royalties based on sales. As
the Company does not control the timing of franchise openings and/or
terminations of agreements, the recognition of franchise revenues cannot be
accurately predicted and, therefore, may fluctuate significantly on a quarter to
quarter basis. The Company has developed, and continues to develop, its
corporate infrastructure in order to manage and administer its franchise
program.
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RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain
selected income statement data as a percentage of restaurant sales, except
general and administrative expenses, which is shown as a percentage of total
revenues, and certain restaurant data:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 29, September 28, September 29, September 28,
1996 1997 1996 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating expenses:
Cost of sales .............................................. 39.6% 34.1% 37.9% 34.8%
Restaurant payroll ......................................... 24.7 22.9 25.0 23.3
Other restaurant operating expenses ........................ 18.5 17.3 19.4 17.6
General and administrative expenses ........................ 7.5 7.8 8.1 8.6
Depreciation and amortization of
property and equipment ................................... 3.4 3.0 3.5 3.1
Amortization of deferred restaurant
pre-opening costs ........................................ .9 .1 .9 .2
Other amortization ......................................... .3 .1 .4 .3
Restaurant closure expenses, net ........................... (1.0) -- (.4) --
Income from operations ....................................... 6.6 15.4 5.9 13.2
Other expenses ............................................... 1.4 .8 1.5 1.0
Net income ................................................... 3.2% 9.1% 2.8% 7.6%
RESTAURANT DATA:
Aggregate restaurant sales increase
(decrease) from prior period.................................. 26% (3%) 14% 1%
Number of restaurants open at end of
period ..................................................... 40 36 40 36
</TABLE>
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QUARTER ENDED SEPTEMBER 28, 1997 COMPARED TO QUARTER ENDED SEPTEMBER 29, 1996
RESTAURANT SALES. Restaurant sales for the quarter ended September 28,
1997 decreased $553,000 (3%) to $16.7 million from $17.2 million for the
comparable quarter of 1996. This decrease in restaurant sales was primarily due
to a decrease in the number of stores open during the quarter ended September
28, 1997 as compared to the same period of the prior year resulting from the
closing of five stores in the fourth quarter of 1996 and one store in the first
quarter of 1997. During the quarter, 35 restaurants operated for the full
quarter and one new restaurant was open for part of the quarter, as compared to
the prior year quarter when 40 restaurants operated for the full quarter. The
decrease was offset by a sales increase in restaurants open for the entire
quarter for both years. Same-store sales for the quarter ended September 28,
1997 increased 1.4% from the comparable quarter of 1996.
FRANCHISE REVENUES. Franchise revenues for the quarter ended September
28, 1997 increased $52,000 to $159,000 from $107,000 for the comparable 1996
period. Franchise revenues generally consist of continuing royalties, initial
franchise fees, which are recognized when a restaurant opens, fees from
operating franchised restaurants, and forfeiture of exclusivity fees when area
development agreements are terminated. The Company anticipates the opening of
three additional international franchised restaurants during the remainder
of 1997.
COST OF SALES. Cost of sales which consists of food, beverage and paper
and supply costs, decreased 550 basis points for the quarter ended September 28,
1997 to 34.1%, as a percentage of restaurant sales, from 39.6% for the
comparable quarter of the prior year. This was due to a variety of factors
including favorably re-negotiated contract prices on certain food and paper
items and distribution services, improved operating efficiencies and controls, a
decrease in chicken prices, a sales mix change driven by the introduction of a
new product with lower relative food costs, as well as the effect of other
initiatives implemented during the previous twelve months. For the first time in
nine quarters, the Company's restaurant level margins were positively affected
by the lower market price for chicken
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when compared to the same quarter of the previous year. The Company expects that
the market price for chicken will remain lower during the remainder of 1997 when
compared to the same period of the previous year.
RESTAURANT PAYROLL. Restaurant payroll expense, which consists of
restaurant management and hourly employee wages, payroll taxes, workers'
compensation insurance and group health insurance, decreased 180 basis points
for the quarter ended September 28, 1997 to 22.9%, as a percentage of restaurant
sales, from 24.7% for the comparable quarter of the prior year. This decrease
was primarily due to the Company's strategy of concentrating growth in its core
markets of South and Central Florida which have lower payroll expenses relative
to their sales. In addition, higher average sales volumes for the quarter ended
September 28, 1997 and increased controls placed on labor scheduling at the unit
level further reduced payroll expense, as a percentage of restaurant sales, as
compared to the same quarter of the prior year. These factors were slightly
offset by the increase in the minimum wage which went into effect September 1,
1997. During the next year the Company expects that the higher minimum wage will
have a slightly adverse effect on restaurant payroll expense, as a percentage of
restaurant sales, when compared to the previous year.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses consist of all restaurant operating costs other than cost of sales and
payroll expenses and include occupancy costs, utilities and advertising
expenses. These expenses decreased 120 basis points for the quarter ended
September 28, 1997 to 17.3%, as a percentage of restaurant sales, from 18.5% for
the comparable quarter of the prior year. Occupancy and utilities costs
decreased 110 basis points to 8.3%, as a percentage of restaurant sales, from
9.4% during the comparable quarter of the prior year due to the Company's
strategy of concentrating growth in its core markets of South and Central
Florida which have lower occupancy and utilities costs relative to their sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 30 basis points for the quarter ended September 28, 1997 to
7.8%, as a percentage of total revenues, from 7.5%
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for the comparable quarter of the prior year. This increase is primarily due to
the timing of certain expenditures.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT. Depreciation
and amortization of property and equipment decreased 40 basis points for the
quarter ended September 28, 1997 to 3.0%, as a percentage of restaurant sales,
from 3.4% for the comparable quarter of the prior year. This decrease was
primarily due to the Company's strategy of concentrating growth in its core
markets of South and Central Florida which have lower depreciation costs
relative to their sales volumes and because of a fewer number of restaurants
operating during the quarter ended September 28, 1997 as compared to the same
period of the prior year.
AMORTIZATION OF DEFERRED RESTAURANT PRE-OPENING COSTS. Amortization of
deferred restaurant pre-opening costs decreased 80 basis points for the quarter
ended September 28, 1997 to .1%, as a percentage of restaurant sales, from .9%
for the same quarter of the prior year. This decrease was the result of fewer
new restaurants opened during the 12 months ended September 28, 1997 as compared
to the 12 months ended September 29, 1996.
OTHER AMORTIZATION. Other amortization which consists of amortization
of intangibles such as trademarks, organization costs, leasehold acquisition
costs and deferred franchise expenses decreased slightly by 20 basis points for
the quarter ended September 28, 1997 to .1%, as a percentage of restaurant
sales, from .3% for the comparable quarter of the prior year.
RESTAURANT CLOSURE EXPENSE. As of the quarter ended September 28, 1997,
the Company incurred no restaurant closure expenses as compared to the quarter
ended September 29, 1996, when the Company finalized the disposition of the
assets related to Fiscal 1995 closed restaurants, resulting in a gain of
$174,047. Any differences between estimated expenses of the disposition of
assets and the actual amounts of such expenses are recorded during the period
such differences become known.
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OTHER INCOME (EXPENSES). The Company incurred interest costs of
$166,150 during the quarter ended September 28, 1997, of which $2,988 was
capitalized as construction cost. Such interest cost was further offset by
$24,985 in interest income. During the same quarter of the prior year, the
Company incurred interest costs of $258,232 , of which no interest cost was
capitalized as construction cost. Such interest cost was further offset by
$3,281 in interest income. This decrease in interest costs was primarily the
result of the lower average balance of debt outstanding under the revolving line
of credit during the quarter ended September 28, 1997 as compared with the
comparable quarter of the prior year.
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NINE MONTHS ENDED SEPTEMBER 28, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 29, 1996
RESTAURANT SALES. Restaurant sales for the nine months ended September
28, 1997 increased $520,000 (1%) to $48.5 million from $48.0 million for the
comparable nine months of 1996. This increase was attributable to a sales
increase in restaurants open for the entire nine months for both years.
Same-store sales for the nine months increased 4.4% from the comparable nine
months of the prior year. This increase was offset by fewer restaurants open
during the nine months ended September 28, 1997 as compared to the same period
of the prior year. During the nine months ended September 28, 1997, 34
restaurants operated for the full nine months and two new restaurants operated
for part of the nine months, as compared to the prior year nine months when 36
restaurants operated for the full nine months and four new restaurants operated
for part of the nine months.
FRANCHISE REVENUES. Franchise revenues for the nine months ended
September 28, 1997 increased $183,000 to $582,000 from $399,000 for the nine
months ended September 29, 1996. Franchise revenues generally consist of
continuing royalties, initial franchise fees which are recognized when a
restaurant opens, and fees from operating franchised restaurants, and forfeiture
of exclusivity fees when area development agreements are terminated. Forfeitures
of exclusivity fees of $25,000 were recognized during the nine months ended
September 28, 1997. Forfeitures of exclusivity fees of $112,500 were recognized
due to the termination of an area development agreement during the nine months
ended September 29, 1996.
During the nine months ended September 28, 1997, four franchised
restaurants were opened in Puerto Rico, two franchised restaurants opened in the
Dominican Republic, and one franchised restaurant opened in Ecuador. The Company
anticipates the opening of two to three additional franchised restaurants during
the remainder of 1997.
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COST OF SALES. Cost of sales which consists of food, beverage and paper
and supply costs, decreased 310 basis points for the nine months ended September
28, 1997 to 34.8%, as a percentage of restaurant sales, from 37.9% for the
comparable nine months of the prior year. This was primarily due to favorably
re-negotiated contract prices on certain food and paper items and distribution
services, the change in the Company's strategy of concentrating store growth in
its core markets of South and Central Florida, selective menu re-pricing
implemented in the third quarter of 1996, and improved operating efficiencies
and controls.
RESTAURANT PAYROLL. Restaurant payroll expense, which consists of
restaurant management and hourly employee wages, payroll taxes, workers'
compensation insurance and group health insurance, decreased 170 basis points
for the nine months ended September 28, 1997 to 23.3%, as a percentage of
restaurant sales, from 25.0% as compared to the nine months ended September 29,
1996. This decrease was primarily due the Company's strategy of concentrating
growth in its core markets of South and Central Florida which have lower payroll
expenses relative to their sales. In addition, higher average sales volumes for
the nine months ended September 28, 1997 and increased controls placed on labor
scheduling at the unit level further reduced payroll expense, as a percentage of
restaurant sales, as compared to the comparable nine months of the prior year.
During the next year the Company expects that the higher minimum wage will have
a slightly adverse effect on restaurant payroll expense, as a percentage of
restaurant sales, when compared to the previous year.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses consist of all restaurant operating costs other than cost of sales and
payroll expenses and include occupancy costs, utilities and advertising
expenses. These expenses decreased 180 basis points for the nine months ended
September 28, 1997 to 17.6%, as a percentage of restaurant sales, from 19.4% for
the comparable nine months of the prior year. The largest component of the
decrease in other restaurant operating expenses was due to occupancy and
utilities costs which decreased 110 basis points to 8.4%, as a percentage of
16
<PAGE> 17
restaurant sales, from 9.5% during the comparable nine months of the prior year,
due to the Company's strategy of concentrating growth in its core markets of
South and Central Florida which have lower occupancy and utilities costs
relative to their sales. In addition, the fixed cost nature of occupancy and
utilities costs relative to the higher sales volume experienced during the nine
months also contributed to the improvement.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
for the nine months ended September 28, 1997 increased 50 basis points to 8.6%,
as a percentage of total revenues, from 8.1% for the comparable nine months of
the prior year. This increase was primarily due to an increase in expenses for
outside professional fees and to the write-off of costs incurred in
investigating and obtaining certain potential restaurant sites which the Company
has decided to no longer pursue.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT. Depreciation
and amortization of property and equipment decreased by 40 basis points for the
nine months ended September 28, 1997 to 3.1%, as a percentage of restaurant
sales, from 3.5% for the comparable nine months of the prior year. This decrease
was primarily due to the Company's strategy of concentrating growth in its core
markets of South and Central Florida which have lower depreciation costs
relative to their sales volumes and because of a fewer number of restaurants
operating during the nine months ended September 28, 1997 as compared to the
same period of the prior year.
AMORTIZATION OF DEFERRED RESTAURANT PRE-OPENING COSTS. Amortization of
deferred restaurant pre-opening costs decreased by 70 basis points for the nine
months ended September 28, 1997 to .2%, as a percentage of restaurant sales,
from .9% for the nine months ended September 29, 1996. This decrease was the
result of fewer new restaurants being opened during the latest 12 months as
compared to the 12 months ended September 29, 1996.
17
<PAGE> 18
OTHER AMORTIZATION. Other amortization consists of amortization of
intangibles such as trademarks, organization costs, leasehold acquisition costs
and deferred franchise expenses. Other amortization slightly decreased by 10
basis points for the nine months ended September 28, 1997 to .3%, as a
percentage of restaurant sales, from .4% for the nine months ended September 29,
1996.
RESTAURANT CLOSURE EXPENSE. As of the nine months ended September 28,
1997, the Company incurred no restaurant closure expenses as compared to the
nine months ended September 29, 1996, when the Company finalized the disposition
of the assets related to Fiscal 1995 closed restaurants resulting in a gain of
$174,047. Any differences between estimated expenses of the disposition of
assets and the actual amounts of such expenses are recorded during the period
such differences become known.
OTHER INCOME (EXPENSES). The Company incurred interest costs of
$537,621 during the nine months ended September 28, 1997, of which $4,022 was
capitalized as construction cost. Such interest cost was further offset by
$32,563 in interest income. During the same nine month period of the prior year
the Company incurred interest costs of $800,264, of which $37,661 was
capitalized as construction cost, and was offset by interest income of $12,896.
This decrease in interest costs was primarily the result of the lower average
balance of debt outstanding under the revolving line of credit during the nine
months ended September 28, 1997 as compared with the comparable nine months of
the prior year.
18
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
As is customary in the restaurant industry, the Company is able to
operate with a working capital deficit because its restaurant sales are in cash,
it receives trade credit from its vendors and its operations do not require
significant investment in receivables or inventories. Historically, the Company
has used the majority of its available capital for the development of new
restaurants. Consequently, prior to the Initial Public Offering in 1993 and
since the quarter ended April 3, 1994, the Company has operated with working
capital deficits.
During the nine months ended September 28, 1997, the Company generated
an aggregate of $9.1 million of cash flow from operations and reduced its
long-term indebtedness by $7.6 million. Capital expenditures for the nine months
totaled $1.1 million.
The Company has a line of credit facility from a commercial bank, which
provides for advances of up to $25 million; however, the lender has no
obligation to make further advances after July 13, 1998. Borrowing capacity
under the loan can also be used to secure letters of credit, $150,000 of which
were outstanding as of September 28, 1997. As of September 28, 1997, there was
an additional borrowing capacity under the credit line of $21.2 million, and as
of November 3, 1997 the available borrowing capacity under the line was $23.4
million.
The Company anticipates that the funds under its existing credit
facility combined with cash flow from operations will be sufficient to fund its
cash needs throughout the remainder of 1997.
19
<PAGE> 20
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description
------- -----------
27.1 Article 5 of Regulation S-X
Financial Data Schedule for
3rd Quarter 10-Q (for SEC use only)
(b) During the quarter ended September 28, 1997, the
Company did not file any reports on Form 8-K.
All other items under Part II are not applicable.
20
<PAGE> 21
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.
POLLO TROPICAL, INC.
/s/LARRY J. HARRIS
-----------------------------
LARRY J. HARRIS
Chief Executive Officer
/s/WILLIAM CARL DREW
-----------------------------
WILLIAM CARL DREW
Chief Financial Officer
/s/ VIVIAN LOPEZ-BLANCO
-----------------------------
VIVIAN LOPEZ-BLANCO
Controller
DATE: November 12, 1997
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS CONDENSED CONSOLIDATED INCOME STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 617,561
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 259,956
<CURRENT-ASSETS> 2,267,793
<PP&E> 42,751,273
<DEPRECIATION> 7,095,280
<TOTAL-ASSETS> 41,498,207
<CURRENT-LIABILITIES> 7,336,924
<BONDS> 0
0
0
<COMMON> 81,970
<OTHER-SE> 28,006,989
<TOTAL-LIABILITY-AND-EQUITY> 41,498,207
<SALES> 48,501,932
<TOTAL-REVENUES> 49,084,266
<CGS> 16,860,896
<TOTAL-COSTS> 25,825,888
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 501,036
<INCOME-PRETAX> 5,916,168
<INCOME-TAX> 2,247,552
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,668,616
<EPS-PRIMARY> .44
<EPS-DILUTED> 0
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