<PAGE> 1
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 JUNE 29, 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 August 6, 1997: 8,164,564 shares of
common stock, par value $.01.
Page 1 of 21
<PAGE> 2
POLLO TROPICAL, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
QUARTER ENDED JUNE 29, 1997
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Condensed Consolidated Balance Sheets
December 29, 1996 and June 29, 1997..................................... 3
Condensed Consolidated Statements of Income
Three Months and Six Months Ended June 30, 1996 and June 29, 1997....... 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1996 and June 29, 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 4. Submission of Matters to a Vote of Security Holders.............. 20
Item 6. Exhibits and Reports on Form 8-K ................................ 20
Signature Page ........................................................... 21
</TABLE>
Page 2 of 21
<PAGE> 3
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 29, June 29,
1996 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................................... $ 94,490 $ 1,139,181
Inventories ................................................... 314,865 324,395
Prepaid expenses .............................................. 294,589 501,249
Prepaid income taxes .......................................... 354,062 44,570
Deferred income taxes ......................................... 1,583,649 789,723
Other current assets .......................................... 554,689 467,856
----------- -----------
Total current assets ......................................... 3,196,344 3,266,974
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization ................................. 42,539,997 38,616,585
DEFERRED RESTAURANT PRE-OPENING COSTS, net ....................... 99,213 31,816
INTANGIBLE ASSETS, net ........................................... 431,892 447,365
LEASEHOLD ACQUISITION COSTS, net ................................. 1,423,334 1,379,578
DEPOSITS AND DEFERRED COSTS ON FUTURE
RESTAURANT LOCATIONS .......................................... 93,338 17,902
NOTE RECEIVABLE, net of current portion .......................... -- 850,975
OTHER ASSETS ..................................................... 737,345 697,488
----------- -----------
Total assets ................................................. $48,521,463 $45,308,683
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .............................................. $ 2,673,868 $ 2,373,445
Accrued liabilities ........................................... 1,545,805 2,862,435
Current maturities of long-term debt .......................... 83,773 94,135
Accrued restaurant closure expenses ........................... 6,273,830 4,603,203
----------- -----------
Total current liabilities .................................... 10,577,276 9,933,218
LONG-TERM DEBT, net of current maturities ........................ 11,290,952 6,537,538
DEFERRED RENT .................................................... 1,361,353 1,442,463
DEFERRED FRANCHISE FEE INCOME .................................... 270,000 200,000
DEFERRED INCOME TAXES ............................................ 879,830 753,090
----------- -----------
Total liabilities ............................................ 24,379,411 18,866,309
----------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock ............................................... -- --
Common stock .................................................. 81,498 81,781
Additional paid-in capital .................................... 21,708,161 21,858,597
Retained earnings ............................................. 2,352,393 4,501,996
----------- -----------
Total shareholders' equity ................................... 24,142,052 26,442,374
----------- -----------
Total liabilities and shareholders' equity ................... $48,521,463 $45,308,683
=========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 21
<PAGE> 4
POLLO TROPICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
--------------------------------------- ---------------------------------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
------------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales $16,247,877 $16,194,943 $30,744,245 $31,816,551
Franchise revenues 194,026 242,498 291,987 423,152
------------------ ----------------- ----------------- ------------------
16,441,903 16,437,441 31,036,232 32,239,703
------------------ ----------------- ----------------- ------------------
OPERATING EXPENSES:
Cost of sales 6,151,006 5,640,113 11,374,410 11,164,343
Restaurant payroll 4,027,719 3,770,262 7,722,126 7,471,827
Other restaurant operating expenses 3,344,200 3,003,221 6,136,182 5,668,812
General and administrative 1,296,737 1,440,521 2,621,358 2,902,578
Depreciation and amortization of property
and equipment 556,367 501,400 1,084,409 999,145
Amortization of deferred restaurant
pre-opening costs 131,787 29,537 260,514 86,802
Other amortization 48,507 59,143 114,963 125,205
------------------ ------------------ ------------------ -------------------
15,556,323 14,444,197 29,313,962 28,418,712
------------------ ------------------ ------------------ -------------------
INCOME FROM OPERATIONS 885,580 1,993,244 1,722,270 3,820,991
------------------ ------------------ ------------------ -------------------
OTHER INCOME (EXPENSES):
Interest, net (247,764) (144,523) (494,756) (362,859)
Other, net 11,550 5,137 22,651 8,410
------------------ ----------------- ------------------ -------------------
(236,214) (139,386) (472,105) (354,449)
----------------- ----------------- ------------------ -------------------
INCOME BEFORE INCOME TAXES 649,366 1,853,858 1,250,165 3,466,542
PROVISION FOR INCOME TAXES 246,694 704,280 474,938 1,316,939
------------------ ------------------ ------------------ -------------------
NET INCOME $ 402,672 $ 1,149,578 $ 775,227 $ 2,149,603
=================== ================== ================== ===================
NET INCOME PER COMMON SHARE $ 0.05 $ 0.14 $ 0.10 $ 0.26
=================== ================== ================== ===================
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 8,154,087 8,272,230 8,147,105 8,246,147
=================== ================== ================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4 of 21
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months Ended
------------------------------------------------
June 30, June 29,
1996 1997
------------------ ---------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ..................................................... $ 775,227 $2,149,603
------------------ --------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................. 1,459,886 1,211,152
Loss on disposal of property and equipment..................... 123,869 6,481
Deferred rent.................................................. 98,257 81,110
Amortization of stock based compensation....................... 3,858 33,788
Deferred income taxes ......................................... 144,325 667,186
Amortization of deferred loan costs............................ -- 5,072
Changes in operating assets and liabilities:
(Increase) decrease in-
Inventories ................................................ (25,654) (9,530)
Prepaid expenses ........................................... (137,238) (206,660)
Prepaid income taxes........................................ 142,170 337,117
Other current assets ....................................... 13,244 39,251
Deferred restaurant pre-opening costs....................... (226,591) (19,404)
Other assets ............................................... 76,741 39,857
Increase (decrease) in-
Accounts payable and accrued liabilities ................... 835,617 1,029,503
Deferred franchise fee income............................... (175,000) (70,000)
Accrued restaurant closure expenses......................... (103,224) 982,405
------------------ -------------------
Total adjustments .......................................... 2,230,260 4,127,328
------------------ -------------------
Net cash provided by operating activities .................. 3,005,487 6,276,931
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................... (3,156,587) (616,098)
Payment for intangible assets .................................. (4,567) (38,036)
Payment for leasehold acquisition costs......................... (2,049) --
(Increase) decrease in deposits and deferred costs on future
restaurant locations......................................... 103,332 75,436
------------------ -------------------
Net cash used in investing activities ...................... (3,059,871) (578,698)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit agreement.... 413,171 (4,742,845)
Proceeds from issuance of common stock.......................... 13,049 89,303
------------------ -------------------
Net cash provided by (used in) financing activities ........ 426,220 (4,653,542)
------------------ -------------------
Net increase in cash and cash equivalents .................. 371,836 1,044,691
Cash and cash equivalents, beginning of period.................. 691,324 94,490
------------------ -------------------
Cash and cash equivalents, end of period ....................... $1,063,160 $1,139,181
================== ===================
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for-
Interest, net............................................... $ 542,032 $295,711
================== ===================
Income taxes ............................................... $ 158,086 $253,085
================== ===================
Tax benefit from stock options recorded to additional
paid-in capital........................................... $ 42,058 $27,628
================== ===================
Noncash investing and financing activities:
Note received from sale of company owned store............ -- $880,000
================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5 of 21
<PAGE> 6
POLLO TROPICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 29, 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 three months and six months ended June 29, 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 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, monthly payments and a balloon payment due in five years
from the date of the note. The note is secured by a mortgage on the restaurant
location.
Page 6 of 21
<PAGE> 7
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. stores 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.
Page 7 of 21
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's operating results showed continued improvement during the second
quarter ended June 29, 1997 reflecting several strategic changes made in 1996
which will continue to affect operating results in 1997. The Company operated
the second 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 continue to have positive
results for the fifth consecutive quarter with same-store sales increasing 4.3%
for the second quarter ended June 29, 1997 compared with the same quarter of the
prior year ended June 30, 1996. The Company believes that the trend of
improvement in same-store sales is primarily due to the more effective
implementation 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, a successful new product launch and
improved customer service. The Company expects restaurant revenue to be lower in
the third quarter of 1997, as compared to the same period of the prior year,
because of fewer stores operating during the period resulting from the strategic
decision to focus Company-owned growth in the South and Central Florida markets
and to close the six stores outside of those markets. The Company also made the
strategic decision to upgrade the organization with an emphasis on improved
controls and operational execution. As a result of these changes and other
factors, the Company's income from operations continued to improve to 12.3% as a
percentage of restaurant sales for the second quarter of 1997 compared with 5.4%
for the same period of the prior year.
Two additional franchised units opened in Puerto Rico, one additional unit
opened in the Dominican Republic and the first franchised unit opened in Ecuador
during the second quarter of 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 franchise units open 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 franchise restaurants open or when such agreements terminate. Additionally,
when franchise restaurants become operational the Company receives continuing
royalties based on sales. As the
Page 8 of 21
<PAGE> 9
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.
Page 9 of 21
<PAGE> 10
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 Six Months Ended
--------------------------- ---------------------------
June 30, June 29, June 30, June 29,
1996 1997 1996 1997
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating expenses:
Cost of sales............................. 37.9% 34.8% 37.0% 35.1%
Restaurant payroll........................ 24.8 23.3 25.1 23.5
Other restaurant operating expenses....... 20.6 18.5 20.0 17.8
General and administrative expenses....... 7.9 8.8 8.4 9.0
Depreciation and amortization of
property and equipment.................. 3.4 3.1 3.5 3.1
Amortization of deferred restaurant
pre-opening costs....................... .8 .2 .9 .3
Other amortization........................ .3 .4 .4 .4
Income from operations...................... 5.4 12.3 5.6 12.0
Other expenses.............................. 1.5 .9 1.5 1.1
Net income.................................. 2.5% 7.1% 2.5% 6.8%
RESTAURANT DATA:
Aggregate restaurant sales increase from
prior period.............................. 12% -- 8% 3%
Number of restaurants open at end of
period.................................... 40 35 40 35
</TABLE>
Page 10 of 21
<PAGE> 11
QUARTER ENDED JUNE 29, 1997 COMPARED TO QUARTER ENDED JUNE 30, 1996
RESTAURANT SALES. Restaurant sales for the quarter ended June 29, 1997
decreased $53,000 (.3%) to $16.2 million from $16.3 million for the comparable
quarter of 1996. This decrease in restaurant sales was primarily due to a fewer
number of restaurants open during the quarter ended June 29, 1997 as compared to
the same period of the prior year resulting from the closing of five restaurants
in the fourth quarter of 1996 and one restaurant in the first quarter of 1997.
During the quarter, 35 restaurants operated for the full quarter as compared to
the prior year quarter when 37 restaurants operated for the full quarter and
three operated for part of the 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 June 29, 1997 increased 4.3% from the comparable
quarter of 1996.
FRANCHISE REVENUES. Franchise revenues for the quarter ended June 29,
1997 increased $48,000 to $242,000 from $194,000 for the comparable 1996 period.
Franchise revenues generally consist of initial franchise fees which are
recognized when a restaurant opens, continuing royalties 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 quarter ended June 29, 1997 as the area development
agreement with Carrols Corporation was terminated during the quarter. The
Chairman of Carrols Corporation also serves as an outside director of Pollo
Tropical. Forfeitures of exclusivity fees of $112,500 were recognized due to the
termination of an area development agreement during the quarter ended June 30,
1996.
During the quarter ended June 29, 1997, two franchise restaurants
opened in Puerto Rico, one franchise restaurant opened in the Dominican Republic
and the first franchise restaurant opened in Ecuador which brings the total
number of franchise restaurants open as of the end of the quarter to 14. The
Company anticipates the opening of two to three additional international
franchise restaurants during the remainder of 1997.
Page 11 of 21
<PAGE> 12
COST OF SALES. Cost of sales which consists of food, beverage, and
paper and supply costs, decreased 310 basis points for the quarter ended June
29, 1997 to 34.8%, as a percentage of restaurant sales, from 37.9% for the
comparable quarter of the prior year. This was primarily due to favorably
re-negotiated contract prices on certain food and paper items and distribution
services, improved operating efficiencies and controls, the change in the
Company's strategy of concentrating store growth in its core markets of South
and Central Florida, and selective menu re-pricing implemented in the third
quarter of Fiscal 1996. These factors were offset by a sales mix change driven
by the introduction of a pork product with higher relative food costs, as well
as an increase in the average market price for chicken.
RESTAURANT PAYROLL. Restaurant payroll expense, which consists of
restaurant management and hourly employee wages, payroll taxes, workers'
compensation insurance and group health insurance, decreased 150 basis points
for the quarter ended June 29, 1997 to 23.3%, as a percentage of restaurant
sales, from 24.8% 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
June 29, 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.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses consist of all restaurant operating costs other than cost of sales,
payroll expenses and include occupancy costs, utilities and advertising
expenses. These expenses decreased 210 basis points for the quarter ended June
29, 1997 to 18.5%, as a percentage of restaurant sales, from 20.6% for the
comparable period of the prior year. The largest component of this decrease was
a reduction of expenditures incurred in re-imaging the concept in non-core
markets during the quarter ended June 30, 1996 for which no expenditures were
incurred for the quarter ended June 30, 1997. The decrease in operating expenses
was also a result of a decrease in occupancy costs of 60 basis points to 4.1%,
as a percentage of restaurant sales, from 4.7%, for the comparable quarter of
the prior year, as a result of the Company's strategy of concentrating
Page 12 of 21
<PAGE> 13
growth in its core markets of South and Central Florida which have lower
occupancy costs relative to their sales. In addition, the fixed cost nature of
occupancy costs relative to the higher sales volume experienced during the
quarter also contributed to the percentage decrease.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased 90 basis points for the quarter ended June 29, 1997 to 8.8%,
as a percentage of total revenues, from 7.9% for the comparable quarter of the
prior year. This increase was primarily due to the write-off of costs incurred
in investigating and obtaining certain potential restaurant sites which the
Company has decided to no longer pursue, and to an increase in expenses for
outside professional fees.
DEPRECIATION AND AMORTIZATION OF PROPERTY AND EQUIPMENT. Depreciation
and amortization of property and equipment decreased 30 basis points for the
quarter ended June 29, 1997 to 3.1%, 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 June 29, 1997 as compared to the same period of the prior year.
This decrease was partially offset by the three new stores added during the
second quarter 1996 and one during the first quarter of 1997.
AMORTIZATION OF DEFERRED RESTAURANT PRE-OPENING COSTS. Amortization of
deferred pre-opening costs decreased 60 basis points for the quarter ended June
29, 1997 to .2%, as a percentage of restaurant sales, from .8% for the
same period of the prior year. This decrease was the result of fewer new
restaurants opened during the 12 months ended June 29, 1997 as compared to the
12 months ended June 30, 1996.
OTHER AMORTIZATION. Other amortization which consists of amortization
of intangibles such as trademarks, prepaid loan costs, organization costs,
leasehold acquisition costs and deferred franchise
Page 13 of 21
<PAGE> 14
expenses increased slightly by 10 basis points for the quarter ended June 29,
1997, to .4%, as a percentage of restaurant sales, from .3% for the comparable
quarter of the prior year.
OTHER INCOME (EXPENSES). The Company incurred interest costs of
$152,940 during the quarter ended June 29, 1997, of which $1,034 was capitalized
as construction cost. Such interest cost was further offset by $7,383 in
interest income. During the same quarter of the prior year, the Company incurred
interest costs of $271,878 of which $17,805 was capitalized as construction
cost. Such interest cost was further offset by $6,309 in interest income. This
decrease was primarily the result of the lower average balance of debt under the
revolving line of credit during the quarter ended June 29, 1997 as compared with
the comparable quarter of the prior year.
Page 14 of 21
<PAGE> 15
SIX MONTHS ENDED JUNE 29, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
RESTAURANT SALES. Restaurant sales for the six months ended June 29,
1997 increased $1.1 million (3%) to $31.8 million from $30.7 million for the
comparable six months of 1996. This increase was attributable to a sales
increase in restaurants opened for the entire six months for both years.
Same-store sales for the six months increased 6% from the comparable period of
the prior year. This increase was offset by fewer restaurants open during the
six months ended June 29, 1997 as compared to the same period of the prior year.
During the six months ended June 29, 1997, 34 restaurants operated for the full
six months and two operated for part of the six months, as compared to the prior
year six months when 36 restaurants operated for the full six months and four
operated for part of the six months.
FRANCHISE REVENUES. Franchise revenues for the six months ended June
29, 1997 increased $131,000 to $423,000 for the six months ended June 29, 1997
from $292,000 for the six months ended June 30, 1996. Franchise revenues
generally consists of initial franchise fees which are recognized when a
restaurant opens, continuing royalties 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 six months ended June 29, 1997 as the area development agreement with
Carrols Corporation was terminated during the quarter. The Chairman of Carrols
Corporation also serves as an outside director of Pollo Tropical. Forfeitures of
exclusivity fees of $112,500 were recognized due to the termination of an area
development agreement during the six months ended June 30, 1996.
During the six months ended June 29, 1997, four franchise restaurants
were opened in Puerto Rico, two franchise restaurants opened in the Dominican
Republic, and one franchise restaurant opened in Ecuador. The Company
anticipates the opening of two to three additional franchise restaurants during
the remainder of 1997.
Page 15 of 21
<PAGE> 16
COST OF SALES. Cost of sales which consists of food, beverage and paper
and supply costs, decreased 190 basis points for the six months ended June 29,
1997 to 35.1%, as a percentage of restaurant sales, from 37.0% for the
comparable six months of the prior year. This was primarily due to favorably
re-negotiated contract prices on certain food and paper items and distribution
services, selective menu re-pricing implemented in the third quarter of Fiscal
1996, the change in the Company's strategy of concentrating store growth in its
core markets of South and Central Florida, and improved operating efficiencies
and controls. These factors were offset by a sales mix change driven by the
introduction of a pork product with higher relative food costs, as well as an
increase in the average market price for chicken.
RESTAURANT PAYROLL. Restaurant payroll expense, which consists of
restaurant management and hourly employee wages, payroll taxes, workers'
compensation insurance and group health insurance, decreased 160 basis points
for the six months ended June 29, 1997 to 23.5%, as a percentage of restaurant
sales, from 25.1% for the comparable period of the prior year. 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 in the six months ended June
29, 1997 and increased controls placed on labor scheduling at the unit level
further reduced payroll as a percentage of restaurant sales as compared to the
comparable period of the prior year.
OTHER RESTAURANT OPERATING EXPENSES. Other restaurant operating
expenses consist of all restaurant operating costs other than payroll expenses
and include occupancy costs, utilities and advertising expenses. These expenses
decreased 220 basis points for the six months ended June 29, 1997 to 17.8%, as a
percentage of restaurant sales, from 20.0% for the comparable period of the
prior year. The largest component of the decrease in other restaurant operating
expenses was due to occupancy costs which decreased 70 basis points to 4.2%, as
a percentage of restaurant sales, from 4.9% during the comparable period of the
prior year. This decrease was due to the Company's strategy of concentrating
growth in its core markets of South and Central Florida which have lower
occupancy costs relative to
Page 16 of 21
<PAGE> 17
their sales. Another component of this change was advertising expense which
decreased 60 basis points to 4.9%, as a percentage of restaurant sales, from
5.5% during the comparable period of the prior year, as a result of the
Company's strategy of concentrating growth in its core markets of South and
Central Florida eliminating the marketing expenditures for the five restaurants
closed during the second half of 1996 and the one restaurant closed during the
first half of 1997. The decrease in other restaurant operating expenses was also
a result of a decrease in utilities expense of 50 basis points to 4.2%, as a
percentage of restaurant sales, from 4.7% for the comparable period of the prior
year, as a result of the Company's strategy of concentrating growth in its core
markets of South and Central Florida which have lower utilities expenses
relative to their sales. In addition, the fixed cost nature of occupancy costs
and utility costs relative to the higher sales volume experienced during the six
months also contributed to the percentage decrease.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
for the six months ended June 29, 1997 increased 60 basis points for the six
months ended June 29, 1997 to 9.0%, as a percentage of restaurant sales, from
8.4% for the comparable period 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
six months ended June 29, 1997 to 3.1%, as a percentage of restaurant sales,
from 3.5% for the comparable period of the prior year. This decrease was
primarily due to the to 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 six months ended June 29, 1997 as compared to the same
period of the prior year.
Page 17 of 21
<PAGE> 18
AMORTIZATION OF DEFERRED RESTAURANT PRE-OPENING COSTS. Amortization of
deferred restaurant pre-opening costs decreased by 60 basis points for the six
months ended June 29, 1997 to .3%, as a percentage of restaurant sales, from .9%
for the six months ended June 29, 1997 as compared to the same period of the
prior year. This decrease was the result of fewer new restaurants being opened
during the latest 12 months as compared to the 12 month period ended June 30,
1996.
OTHER AMORTIZATION. Other amortization consists of amortization of
intangibles such as trademarks, prepaid loan costs, organization costs,
leasehold acquisition costs and deferred franchise expenses. Other amortization
remained level at .4%, as a percentage of restaurant sales, for the six months
ended June 29, 1997 as compared to the same quarter of the prior year.
OTHER INCOME (EXPENSES). The Company incurred interest costs of
$371,471 during the six months ended June 29, 1997 of which $1,034 was
capitalized as construction cost. Such interest cost was further offset by
$7,578 in interest income. During the same six month period of the prior year
the Company incurred interest costs of $542,032 of which $37,661 was capitalized
as construction cost, and was offset by interest income of $9,615. This decrease
was primarily the result of the lower average balance of debt under the
revolving line of credit during the six months ended June 29, 1997 as compared
with the comparable six months of the prior year.
Page 18 of 21
<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 six months ended June 29, 1997, the Company generated an
aggregate of $6.3 million of cash flow from operations and reduced its long-term
indebtedness by $4.7 million. Capital expenditures for the six months totaled
$616,000. The anticipated capital needed for the development of the restaurant
to be opened in the third quarter is approximately $600,000.
The Company has a $25 million 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 June 29, 1997. As of June 29, 1997, there was an
additional borrowing capacity under the credit line of $18.4 million, and as of
August 5, 1997 the available borrowing capacity under the line was $19.9
million.
The Company anticipates that the funds under its existing credit
facility combined with cash flow from operations will be sufficient to fund its
planned new restaurant openings and other cash needs throughout 1997.
Page 19 of 21
<PAGE> 20
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of Shareholders on May 22, 1997. At
such meeting the Shareholders (i) elected three members to the
Company's Board of Directors (Messrs. Stuart J. Harris, Ronald L.
Miller and Clayton E. Wilhite, 6,571,868, 6,572,179 and 6,572,179
shares voted for, respectively, 8,761, 8,450 and 8,450 shares voted
against, respectively, and no shares abstained), and (ii) ratified the
reappointment of Arthur Andersen LLP as the Company's independent
public accountants (6,559,304 shares voted for, 9,998 shares voted
against, and 11,327 shares abstained). Messrs. Larry J. Harris,
Nicholas A. Castaldo, Alan Vituli and Craig Nash continue their term as
members of the Company's Board of Directors.
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
2nd Quarter 10-Q (for SEC use only)
(b) During the quarter ended June 29, 1997, the Company did not file
any reports on Form 8-K.
All other items under Part II are not applicable.
Page 20 of 21
<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: August 13, 1997
Page 21 of 21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED INCOME STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> MAR-31-1997
<PERIOD-END> JUN-29-1997
<CASH> 1,139,181
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 324,395
<CURRENT-ASSETS> 3,266,974
<PP&E> 45,254,256
<DEPRECIATION> 6,637,671
<TOTAL-ASSETS> 45,308,683
<CURRENT-LIABILITIES> 9,933,218
<BONDS> 0
0
0
<COMMON> 81,781
<OTHER-SE> 26,360,593
<TOTAL-LIABILITY-AND-EQUITY> 45,308,683
<SALES> 31,816,551
<TOTAL-REVENUES> 32,239,703
<CGS> 11,164,343
<TOTAL-COSTS> 17,254,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 362,859
<INCOME-PRETAX> 3,466,542
<INCOME-TAX> 1,316,939
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,149,603
<EPS-PRIMARY> .26
<EPS-DILUTED> .0
</TABLE>
