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UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended April 1, 2001
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: 0-28234
MEXICAN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0493269
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1135 EDGEBROOK, HOUSTON, TEXAS 77034-1899
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 713-943-7574
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common stock, as
of May 11, 2001: 3,522,905 shares of common stock, par value $.01.
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Mexican Restaurants, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS 4/1/01 12/31/00
------------ ------------
Current assets:
Cash and cash equivalents $ 1,116,230 $ 636,334
Royalties receivable 69,342 66,798
Other receivables 673,518 611,603
Inventory 591,219 718,629
Taxes receivable 90,283 257,080
Prepaid expenses and other current assets 704,914 529,830
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Total current assets 3,245,506 2,820,274
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Property, plant and equipment 25,639,040 25,550,871
Less accumulated depreciation (7,661,554) (7,339,223)
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Net property, plant and equipment 17,977,486 18,211,648
Deferred tax assets 1,108,456 1,167,661
Property held for resale 1,100,000 1,100,000
Other assets 8,376,181 8,209,243
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$ 31,807,629 $ 31,508,826
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ -- $ --
Accounts payable 2,285,918 2,953,649
Accrued sales and liquor taxes 495,665 452,617
Accrued payroll and taxes 1,198,397 1,006,457
Accrued expenses 906,764 327,390
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Total current liabilities 4,886,744 4,740,113
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Long-term debt, net of current portion 8,100,000 8,300,000
Other liabilities 584,654 537,219
Deferred gain 2,981,975 3,042,832
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized -- --
Capital stock, $0.01 par value, 20,000,000 shares
authorized, 4,732,705 shares issued 47,327 47,327
Additional paid-in capital 20,121,076 20,121,076
Retained earnings 6,409,764 6,025,121
Deferred compensation (161,193) (171,519)
Treasury stock, cost of 1,191,000 and 1,135,000 shares, respectively (11,162,718) (11,133,343)
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Total stockholders' equity 15,254,256 14,888,662
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$ 31,807,629 $ 31,508,826
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MEXICAN RESTAURANTS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
13-WEEK 13-WEEK
PERIOD ENDED PERIOD ENDED
04/01/01 4/02/00
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Revenues:
Restaurant sales $ 15,451,021 $ 15,545,467
Franchise fees and royalties 306,491 341,839
Other 20,489 5,402
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15,778,001 15,892,708
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Costs and expenses:
Cost of sales 4,249,537 4,410,447
Labor 5,111,579 5,214,059
Restaurant operating expenses 3,784,719 3,556,370
General and administrative 1,295,250 1,374,593
Depreciation and amortization 573,593 496,000
Pre-opening costs 254 50,901
Asset impairments and restaurant closing costs -- --
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15,014,932 15,102,370
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Operating income (loss) 763,069 790,338
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Other income (expense):
Interest income 10,674 4,416
Interest expense (191,752) (204,898)
Other, net 9,768 (1,271)
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(171,310) (201,753)
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Income before income tax expense 591,759 588,585
Income tax expense 207,116 206,000
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Net income $ 384,643 $ 382,585
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Basic and diluted income per share $ 0.11 $ 0.11
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Weighted average number of shares (basic and diluted) 3,526,107 3,620,914
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3,530,718 3,620,953
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MEXICAN RESTAURANTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
13-WEEK PERIODS ENDED
4/1/01 4/2/00
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Cash flows from operating activities:
Net income $ 384,643 $ 382,585
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred compensation 10,326 12,832
Depreciation and amortization 573,593 496,000
Deferred gain amortization (60,857) (63,523)
Deferred taxes 59,205 --
Loss on sale of fixed assets 1,368 9,671
Changes in assets and liabilities:
Royalties receivable (2,544) (51,118)
Other receivables (61,915) (55,937)
Income tax receivable/payable 166,797 80,309
Inventory 127,410 10,703
Prepaid and other current assets (182,010) (48,810)
Other assets (9,886) 24,324
Accounts payable (667,731) (847,589)
Accrued expenses and other liabilities 814,362 165,127
Other liabilities 49,150 51,132
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Total adjustments 817,268 (216,879)
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Net cash provided by operating activities 1,201,911 165,706
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Cash flows from investing activities:
Payment for purchase of acquisition, net of cash acquired -- --
Purchase of property, plant and equipment (492,640) (830,792)
Proceeds from sale of property, plant and equipment -- 176,399
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Net cash used in investing activities (492,640) (654,393)
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Cash flows from financing activities:
Net borrowings under line of credit (200,000) 160,000
Purchase of treasury stock (29,375) --
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Net cash provided by (used in) financing activities (229,375) 160,000
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Increase (decrease) in cash and cash equivalents 479,896 (328,687)
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Cash and cash equivalents at beginning of period 636,334 743,935
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Cash and cash equivalents at end of period $ 1,116,230 $ 415,248
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Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 93,161 $ 345,655
Income Taxes $ 7,375 $ 679,463
Non-cash investing and financing activity:
Sale of property for note receivable $ 244,109 $ --
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MEXICAN RESTAURANTS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of Mexican Restaurants, Inc. (the "Company"), the
accompanying consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals and adjustments) necessary
for a fair presentation of the consolidated financial position as of
April 1, 2001, and the consolidated statements of income and cash flows
for the 13-week periods ended April 1, 2001 and April 2, 2000. The
consolidated statements of income for the 13-week period ended April 1,
2001 is not necessarily indicative of the results to be expected for the
full year.
2. Accounting Policies
During the interim periods the Company follows the accounting
policies set forth in its consolidated financial statements in its
Annual Report and Form 10-K (file number 0-28234). Reference should be
made to such financial statements for information on such accounting
policies and further financial details.
3 Net Income (loss) per Common Share
Basic income per share is based on the weighted average shares
outstanding without any dilutive effects considered. Diluted income per
share reflects dilution from all contingently issuable shares, including
options and warrants. Stock options and warrants outstanding at April 1,
2001 and April 2, 2000 of 949,570 and 725,270 shares, respectively, were
not considered in the computation of net income per common share because
the effect of their inclusion would have been antidilutive.
Item 2 Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Special Note Regarding Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company 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: accelerating growth strategy; dependence on
executive officers; geographic concentration; increasing susceptibility
to adverse conditions in the region; changes in consumer tastes and
eating habits; national, regional or local economic and real estate
conditions; demographic trends; inclement weather; traffic patterns; the
type, number and location of competing restaurants; inflation; increased
food, labor and benefit costs; the availability of experienced
management and hourly employees; seasonality and the timing of new
restaurant openings; changes in governmental regulations; dram shop
exposure; and other factors not yet experienced by the Company. The use
of words such as "believes", "anticipates", "expects", "intends" and
similar expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements. Readers
are urged to carefully review and consider the various disclosures made
by the Company in this report and in the Company's Annual Report and
Form 10-K for the fiscal year ended December 31, 2000, that attempt to
advise interested parties of the risks and factors that may affect the
Company's business.
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Results of Operations
Revenues. The Company's revenues for the first quarter of fiscal
2001 were down $114,707 or 0.7% to $15.8 million compared with the same
quarter a year ago. Restaurant sales for the first quarter of 2001 were
down $94,446 compared with the same quarter a year ago, to $15.5
million. The decline was due to a decrease in the number of restaurants.
Two restaurants were closed, one was converted to a franchise and one
new restaurant was opened since the end of the first quarter of fiscal
2000. Company-owned same-store sales for the quarter increased 2.8%.
Franchise-owned same-stores sales for the quarter increased 2.1%.
Costs and Expenses. Cost of sales, consisting primarily of food
and beverage costs, but also including paper and supplies, decreased as
a percentage of restaurant sales in the first quarter of 2001 to 27.5%
as compared with 28.4% in the same quarter in fiscal 2000. The
improvement was primarily due to a menu price increase across all
concepts, except Casa Ole. This was partly offset by small increases in
meat and cheese prices.
Labor and other related expenses decreased as a percentage of
restaurant sales to 33.1% in the first quarter of 2001 as compared with
33.5% in the same quarter in fiscal year 2000. The decrease was
primarily due to operating improvements at the Tortuga Coastal Cantina
restaurants. The improvement was also partly due to last year's closure
of under performing restaurants. Offsetting these improvements were
workers' compensation insurance increases of 120.0%.
Restaurant operating expenses, which primarily includes rent,
property taxes, utilities, repair and maintenance, liquor taxes and
advertising, increased as a percentage of restaurant sales to 24.5% in
the first quarter of 2001 as compared with 22.9% in the same quarter in
fiscal 2000. The majority of the increase was due to higher utility
costs.
General and administrative expenses decreased by 5.8%, or $79,343
from the same quarter in fiscal 2000. The decrease was due primarily to
staff reductions in January 2001, resulting in a decrease in
compensation costs. General and administrative expenses were 8.2% of
total revenues in the first quarter of fiscal 2001 compared to 8.6% in
the first quarter of fiscal 2000.
Depreciation and amortization expense of $573,593, increased by
$77,393 compared to the same quarter in the last fiscal year. This was
due to the addition of two new stores in February and October 2000, four
remodelings during fiscal 2000, as well as other fixed asset additions
in the last four quarters. The closed restaurants mentioned above had
relatively low book values of fixed assets so their closure did not
significantly reduce depreciation.
Pre-opening costs decreased approximately $50,000 as no new
restaurants were opened in the first quarter of 2001. One new restaurant
was opened in the first quarter of fiscal 2000.
Other Income (Expense). Net other income (expense) of $171,310
decreased by $30,443 compared to the same quarter in the last fiscal
year. The decrease was due primarily to a decreased level of debt and a
reduction in interest rates. The average debt balance was 9.1% lower
than the balance in the comparable quarter last year.
Income Tax Expense. The Company's effective tax rate was 35.0%
in both the 1st quarter of 2001 and the comparable quarter last year.
Expense changed by less than $1,200.
Liquidity and Capital Resources
Net cash provided by operating activities was $1.2 million for
the 13-week period ended April 1, 2001, compared to $0.2 million for the
same period last year. As of April 1, 2001, the Company had a working
capital deficit of $1.6 million, which is common in the restaurant
industry, since restaurant companies do not typically require a
significant investment in either accounts receivable or inventory.
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During the first 13 weeks of 2001, capital expenditures on
property, plant and equipment were approximately $0.5 million as
compared to $0.8 million for the same period in 2000. Capital
expenditures included the remodeling of two restaurants. Additionally,
the Company had cash outlays for necessary replacement of equipment and
leasehold improvements in various older units. The Company estimates its
capital expenditures for the remainder of the fiscal year will be
approximately $1.1 million.
The Company has a $9.5 million credit facility with Bank of
America. At December 31, 2001, the credit facility will be reduced to
$8.5 million and will mature on July 15, 2002. The interest rate is
either the prime rate or LIBOR plus a stipulated percentage.
Accordingly, the Company is impacted by changes in the prime rate and
LIBOR. The Company is subject to a non-use fee ranging from 0.25% to
0.5% on the unused portion of the revolver from the date of the credit
agreement. As of April 1, 2000, the Company had $8.1 million outstanding
on the revolving line of credit. The acquisition of La Senorita, which
closed on April 30, 1999, used $4.2 million of the revolving line. The
balance was used for new restaurant construction, remodeling and other
working capital needs.
Bank of America notified the Company in early February 2001 that
it was asking the Company to find a replacement lender. They also
indicated that to facilitate the effort they were moving the Company's
account to the bank's Special Assets Group. As of December 31, 2000, the
Company was in compliance with all of its loan covenants. However, based
on tighter covenants that went into effect in the first quarter of
fiscal 2001, the Company was out of compliance with a loan covenant at
the end of the first quarter of fiscal 2001 and anticipates being out of
compliance at the end of the second quarter. The bank, in return for
additional fees and an increase in interest rates, has agreed to waive
the 2001 first and second quarter lack of compliance and amend certain
future covenant ratios under the debt agreement. The Company has
received and is evaluating alternative finance proposals from several
lenders. The goal is to enter into a term loan for at least $5.0
million, and to establish a new revolving line of credit. Without
property sales, the Company anticipates that it will use excess cash
flow during fiscal 2001 to pay down approximately $2.0 million of
outstanding indebtedness.
The Company also has a $9.8 million forward commitment agreement
with Franchise Finance Corporation of America ("FFCA"). At April 1,
2001, the Company had approximately $9.8 million available under the
FFCA forward commitments.
The Company's management believes that with its forward
commitments with Franchise Finance Corporation of America, along with
operating cash flow and the Company's revolving line of credit with Bank
of America (and its successor), funds will be sufficient to meet
operating requirements and to finance routine capital expenditures and
remodels through the end of the 2001 fiscal year.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities ("SFAS 133"), was issued
by the Financial Accounting Standards Board in June 1998. SFAS 133
standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under the
standard, entities are required to carry all derivative instruments in
the statement of financial position at fair value. The Company adopted
SFAS 133 beginning in fiscal year 2001. The Company does not expect the
adoption of SFAS 133 to have a material effect on its financial
condition or results of operation because the Company does not enter
into derivative or other financial instruments for trading or
speculative purposes nor does the Company use or intend to use
derivative financial instruments or derivative commodity instruments.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
The Company does not have or participate in transactions
involving derivative, financial and commodity instruments. The Company's
long-term debt bears interest at floating market rates. Based on amount
outstanding at April 1, 2001, a 1% change in interest rates would change
interest expense by $20,000.
PART II - OTHER INFORMATION
Not Applicable
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mexican Restaurants, Inc.
Dated: May 15, 2001 By: /s/ Curt Glowacki
Curt Glowacki ------------------------
Chief Executive Officer
(Principal Executive Officer)
Dated: May 15, 2001 By: /s/ Andrew J. Dennard
Andrew J. Dennard ------------------------
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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