-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LUJFcH0gYSoqtFifOmNNKNbm5yENZaxj5mGZuJ3n64CDze4A7KyfrDg/W1jW5cxh RZoZLnlkoTg562GJ09wwaA== 0000899078-96-000034.txt : 19960320 0000899078-96-000034.hdr.sgml : 19960320 ACCESSION NUMBER: 0000899078-96-000034 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960319 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EL CHICO RESTAURANTS INC CENTRAL INDEX KEY: 0000719961 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 750982250 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12802 FILM NUMBER: 96536097 BUSINESS ADDRESS: STREET 1: 12200 STEMMONS FREEWAY STREET 2: STE 100 CITY: DALLAS STATE: TX ZIP: 75234 BUSINESS PHONE: 2142415500 MAIL ADDRESS: STREET 1: 12200 STEMMONS FREEWAY STREET 2: STE 100 CITY: DALLAS STATE: TX ZIP: 75234 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHWEST CAFES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: EL CHICO CORP/TX DATE OF NAME CHANGE: 19910109 10-K 1 EL CHICO 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the year ended: December 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission file number: 0-12802 El Chico Restaurants, Inc. (Exact name of registrant as specified in its charter) Texas 75-0982250 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 12200 Stemmons, Suite 100 Dallas, Texas 75234 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 241-5500 Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.10 par value 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 The aggregate market value of the voting stock held by nonaffiliates of the registrant as of March 4, 1996 was $35,321,367. As of that date, there were 4,095,231 shares of the registrant's Common Stock, par value $.10, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement to be furnished to shareholders in connection with its Annual Meeting of Shareholders to be held on May 2, 1996, are incorporated by reference in Parts I and III of this Form 10-K. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. PART I ITEM 1. BUSINESS. El Chico Restaurants, Inc. (generally referred to herein together with its predecessor and subsidiaries as the "Company" unless the context otherwise requires) was incorporated in Texas in 1957 as a successor to a restaurant business operated since 1940. The Company's primary business is operating and franchising full-service, family-style restaurants under the name "El Chico" that offer moderately priced, high quality, Mexican- style cuisine and alcoholic beverages. As of December 31, 1995, a total of 101 restaurants were in operation in Alabama, Arkansas, Florida, Georgia, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Oklahoma, South Carolina, Tennessee, and Texas, of which 72 were Company-operated and 29 were franchised. Included in the 72 Company-owned restaurants were one restaurant under the name "Casa Rosa Restaurante", and two restaurants under the name "Cantina Laredo". During 1995, the Company opened six Company-owned El Chico restaurants, purchased an El Chico restaurant from an existing franchisee, and opened one franchised El Chico restaurant. The Company also is engaged in designing and supplying food-service equipment through its Pronto Design and Supply, Inc. subsidiary. El Chico Restaurants In addition to offering Mexican-style cuisine, El Chico restaurants offer a limited number of non-Mexican and children's items. The Company continually evaluates and revises its menu to improve its products. The restaurants, which cater to families, are open daily for lunch and dinner and offer entrees that generally range from $3.99 to $10.99. Alcoholic beverages, which are served primarily with meals (as opposed to bar service), generated approximately 8.0 percent of all restaurant revenues for 1995. The average El Chico restaurant seats approximately 200 people, and the average restaurant size is approximately 5,600 square feet. The decor generally features painted stucco walls, complementary furnishings, and a bar area. The exterior of the freestanding restaurants reflects a style of Mexican architecture. During 1992, the Company began to remodel the interiors and exteriors of virtually every Company-owned El Chico restaurant, utilizing features of a newly designed prototype restaurant. This remodel program was completed during 1993. The Company believes that periodic remodels are important to maintaining the competitiveness of its restaurants. During 1995, the Company began to remodel the interiors and exteriors of certain new restaurants opened in 1993 and 1994, including retrofitting of full-service bars, as well as further upgrades of older restaurants. The Company anticipates continuing these remodeling programs in 1996 and thereafter. -1- The Company makes centralized purchasing arrangements for the basic ingredients of its menu items in order to secure favorable prices and uniform quality specifications. The Company currently purchases most ingredients and supplies through a single distributor under a contract that may be terminated upon 12 months' written notice to its distributor. In the event that for any reason the Company's primary distributor ceases to meet the Company's needs, the Company does not anticipate that it would have significant difficulty in obtaining food items and supplies at competitive prices from other sources. The Company utilizes local advertising for individual restaurants and broadcast advertising where market penetration is efficient as well as public relations activities aimed at individual restaurants and entire markets. The Company's advertising campaigns emphasize freshness, quality food, good service and value. In 1995, the Company terminated its agreement with its previous advertising agency and began a search, which was completed successfully in early 1996, for a new agency. During 1995, the Company's expenditures for advertising were approximately 2 percent of Company-owned restaurant revenues. Franchised Restaurants Generally, the El Chico restaurants franchised by the Company operate for an initial term of 15 years, require an initial franchise fee of $35,000, a continuing royalty fee of 4 percent of the franchisee's gross revenues, and a marketing fee of 1 percent of such gross revenues. The Company exercises stringent qualification criteria in selecting its franchisees. Among the criteria for selection are the franchisee's financial strength, successful history of restaurant business management, and commitment to the Company's high standards of business conduct. The Company's franchisees are required to comply with the Company's standards and operating guidelines. The Company regularly reviews the performance of its franchisees to ensure such compliance. Specialty Restaurants As of December 31, 1995, the Company owned and operated two types of specialty restaurants consisting of two Cantina Laredo restaurants and one Casa Rosa Restaurante. The Company presently has no plans to develop additional specialty restaurants under either existing or new concepts, but it has been presented with site opportunities for new Cantina Laredo restaurants which have been considered on a case-by-case basis as would other such opportunities if presented in the future. New Restaurant Construction Management estimates that the cost of building, equipping, and opening a new freestanding El Chico restaurant will range from $1,425,000 to $2,350,000, including approximately $290,000 -2- to $830,000 for land, approximately $600,000 to $760,000 for sitework, construction, and landscaping, and approximately $535,000 to $760,000 for equipment, furniture, and opening costs. The cost of developing new Company restaurants will vary, primarily because of varying costs of land, sitework, signage, pre-opening, and labor. During 1995, seven Company-owned El Chico restaurants were opened, including one El Chico restaurant which was purchased from an existing franchisee. By the end of 1996, the Company expects to open two to four additional El Chico restaurants and remodel eight to twelve El Chico restaurants including retrofitting of full-service bars in certain recently opened restaurants without such features. Service Marks The Company has obtained federal registration of the service mark "El Chico", the El Chico design, and other related service marks. The El Chico service mark is also currently registered in 10 states. These service marks are of material importance to the operation of the Company's business. The Company has also federally registered service marks for "Casa Rosa Restaurante", "Cantina Laredo", and a design that features the phrase "Cuellars' El Chico". Employees As of December 31, 1995, the Company employed approximately 3,900 persons (including full- and part-time personnel), of whom 3,800 were restaurant employees and 100 were restaurant supervision and corporate employees. Company restaurants employ an average of approximately 50 to 60 full- or part-time employees. None of the Company's employees are covered by collective bargaining agreements, and the Company has never experienced a major work stoppage, strike, or labor dispute. The Company considers its employee relations to be good. Competition The restaurant business is highly competitive, and competition among restaurants serving Mexican cuisine is increasing. The Company believes that the principal competitive factors in its restaurant business are quality, value, service, atmosphere, and location. The Company's restaurants compete with many food service operations in the vicinity of each restaurant, including restaurants specializing in Mexican food. The Company believes that its competitive position in certain markets is enhanced by regional name recognition and by its moderately priced menu, quality food, and a comfortable, full-service, family-oriented dining atmosphere. Other companies, however, continue to open restaurants similar to the Company's -3- restaurants, and certain of these competitors have greater resources than the Company. Governmental Regulation The Company is subject to various federal, state, and local laws affecting its business. Many stringent and varied requirements of local governmental bodies with respect to zoning, land use, and environmental factors have increased and can be expected to continue to increase both the cost of and the time required for constructing new restaurants as well as the cost of operating Company restaurants. The Company's restaurants are subject to various health, sanitation, and safety standards and are also subject to state and local licensing and regulation with respect to the service of alcoholic beverages. The service of alcoholic beverages is material to the business of the Company. The failure to receive or retain, or a delay in obtaining, a liquor license in a particular location could adversely affect the Company's operations in that location. Liquor licenses must be renewed annually. The Company has not encountered any significant problems relating to alcoholic beverage licenses and permits to date. The Company may be subject in certain states to "dram-shop" statutes, which may establish liability for improper alcoholic beverage service. The Company carries liquor liability coverage as part of its existing comprehensive general liability insurance. The Company is also subject to state and federal labor laws. These include the Fair Labor Standards Act, which governs such matters as minimum wages, overtime, and other working conditions; the Immigration and Naturalization Act, which governs employee citizenship requirements; and the Americans with Disabilities Act, which governs non-discriminating employment practices and reasonable accommodations for disabled persons, both employees and customers. A significant portion of the Company's food service personnel are paid at rates related to the federal minimum wage; and, accordingly, increases in the minimum wage increase the Company's labor costs. The Company has managed cost increases from past minimum wage increases by adjusting prices, adding and deleting menu items, and changing plate presentations, but the ability to manage future increases thusly would depend on the size of such increases, their timing, and the competitive environment. In recent years many states have enacted laws regulating franchise operations. Much of this legislation requires detailed disclosure in the offer and sale of franchises and the registration of the franchisor with state administrative agencies. The Company is also subject to Federal Trade Commission regulations relating to disclosure requirements in the sale of franchises. Additionally, certain states have enacted, and others may enact, legislation governing the termination and -4- non-renewal of franchises and other aspects of the franchise relationship that are intended to protect franchisees. The foregoing matters may result in some modifications in the Company's franchising activities and some delays or failures in enforcing certain of its rights and remedies under license and lease agreements. The laws applicable to franchise operations and relationships are developing rapidly, and the Company is unable to predict the effect on its intended operations of additional requirements or restrictions that may be enacted or promulgated or of court decisions that may be adverse to franchisors. Effective September 1, 1991, the Company elected to become a non-subscriber of the Texas Workers' Compensation Act. Upon this election, excess liability insurance was acquired, and an employee benefit trust was established to provide for benefits in the event of injury. Indications are that this election has been favorable; however, the Texas Workers' Compensation Act has undergone certain favorable reforms, with further changes expected. Management reviews this election periodically. ITEM 2. PROPERTIES. As of December 31, 1995, the Company owned 19 of its restaurant locations and leased the remaining 53 restaurant locations. The leases have terms that expire between 1996 and 2010, excluding renewal options not yet exercised, and have an average remaining term of approximately six years. The leases generally provide for rentals ranging from 3 percent to 6 percent of gross restaurant sales, with a stated minimum rental. Under substantially all of its leases, the Company is required to pay real estate taxes, insurance, and maintenance expenses. Construction is expected to begin in March on a leased site replacing an existing store in Richardson, Texas and during the second quarter on a site owned by the Company in Lexington, Kentucky. Of the 72 restaurants operated by the Company as of December 31, 1995, 53 were freestanding buildings, nine were located in strip shopping centers, and 10 were located in shopping malls. As of the same date, two of the Company's 29 franchised restaurant locations were owned by the Company and leased by the Company to the franchisees, one was leased by the Company and subleased to a franchisee, and 26 were directly leased or owned by the franchisees. As of March 4, 1996, the Company owned four tracts of raw land, which are located adjacent to (i) an existing franchised location, (ii) two open and operating Company-owned locations, and (iii) a closed Company-owned location. In addition to these -5- tracts, during 1995 the Company purchased two separate tracts of land for future development. As of the same date, the Company owned two parcels of real estate, one of which is leased to a non-related business. In addition, there are two locations that are leased by the Company and subleased to non-related businesses. During 1993, the Company purchased a 67,665 square foot office facility, where it had been leasing approximately 20,000 square feet of space. The Company continues to office in the facility and is leasing the majority of the remaining square footage to unrelated businesses. A 15,000 square foot warehouse is leased which houses restaurant equipment and is located in close proximity to the office facility. The Company also owns a tract of land consisting of approximately one acre and an 8,000 square foot building in Carrollton, Texas. This property is utilized primarily for the training of restaurant management. ITEM 3. LEGAL PROCEEDINGS. Although the Company is a defendant in various lawsuits arising out of the ordinary course of its business, in the opinion of management, these lawsuits will not have a material adverse effect upon the Company's business or financial position. -6- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of the Company's shareholders during the fourth quarter of the year ended December 31, 1995. Executive Officers of the Registrant As of March 4, 1996, the executive officers of the Company were as follows: Name Age Position with Company Joseph S. Thomson 66 Chairman of the Board Wallace A. Jones 44 President, Chief Executive Officer and Director Lawrence E. White 45 Executive Vice President and Chief Financial Officer John A. Cuellar 50 Senior Vice President, Secretary, General Counsel, and Director Charles A. Cooper 44 Vice President, Development Gary R. Rustmann 42 Vice President, Operations Michael E. Sick 41 Vice President, Marketing Susan R. Holland 39 Treasurer, Controller The terms of office and biographical data with respect to Messrs. Joseph S. Thomson, and Wallace A. Jones, as set forth under the heading "Election of Directors" in the definitive Proxy Statement regarding the Annual Meeting of Shareholders of the Company to be held on May 2, 1996, are incorporated herein by reference. Lawrence E. White joined the Company as Chief Financial Officer in May 1992. During the period from September 1994 to January 1995, Mr. White held the interim position of Chief Operating Officer in addition to his duties as Chief Financial Officer. From September 1989 to April 1992, Mr. White served as Senior Vice President and Treasurer of Metromedia Steakhouses, Inc., having responsibility for financial management of both Ponderosa Steakhouses and Bonanza Family Restaurants as well as a meat-processing and food-distribution subsidiary. From February 1987 to September 1989, Mr. White was employed by TGI Friday's, -7- Inc., where he served as Director of Financial Planning and Analysis, and later served as Treasurer. Prior to Mr. White's tenure at TGI Friday's, he held financial positions at Lone Star Technologies, Inc., and at Ford Motor Company. John A. Cuellar has served as a director and Vice President of the Company since July 1974. In December 1982, Mr. Cuellar also assumed the positions of General Counsel and Secretary of the Company. In February 1993, Mr. Cuellar was elected Senior Vice President. In September 1994, Mr. Cuellar was elected as interim Chairman of the Board, and served in that capacity until November 1994. Mr. Cuellar serves on the Board of Link Financial Services Corporation, which provides financial and planning services to profit and nonprofit corporations and other entities. Charles A. Cooper assumed his present position as Vice President, Development in February 1993. Mr. Cooper joined the Company in April 1991 as Director of Real Estate and in April 1992 assumed responsibilities as Director of Franchising and Development. From September 1988 to April 1991, Mr. Cooper served as Director of Marketing with S.W.S. Realty, Inc. From December 1977 to August 1988, Mr. Cooper served in various capacities including President of National Retail Properties Corporation, a subsidiary of Southland Investment Properties. Gary R. Rustmann joined the Company as Vice President, Operations in January 1995. From December 1994 to January 1995, Mr. Rustmann was employed with Brinker International, Inc. Mr. Rustmann was a restaurant owner from April 1994 to November 1994. From September 1982 to April 1994, Mr. Rustmann was employed by Brinker International, Inc., his latest position being Regional Vice President for Midwest operations of the Chili's restaurant concept. Michael E. Sick joined the Company as Vice President, Marketing in February 1995. From July 1994 until January 1995, Mr. Sick served as Vice President of Marketing for Pearle Vision. From November 1986 to July 1994, Mr. Sick was employed by Jack in the Box Restaurants, initially as Director-Field Marketing and Promotion and from April 1991 as Vice President-Field Marketing and Promotion. Susan R. Holland joined the Company as Controller in November 1985 and has served as Treasurer since August 1990. From December 1984 to November 1985, Ms. Holland was self- employed as a Certified Public Accountant. From August 1978 to December 1984, Ms. Holland was with Grant Thornton, with her last position being Audit Manager. -8- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's common stock is quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") National Market System under the symbol "ELCH". The following table sets forth the high and low sale prices as reported on the NASDAQ National Market System for the periods indicated. Calendar Year 1995 High Low First Quarter $ 11.75 $ 7.63 Second Quarter $ 9.88 $ 7.63 Third Quarter $ 12.63 $ 9.38 Fourth Quarter $ 12.13 $ 9.00 Calendar Year 1994 First Quarter $ 17.75 $ 14.50 Second Quarter $ 15.50 $ 13.25 Third Quarter $ 16.00 $ 9.75 Fourth Quarter $ 12.88 $ 8.13 To date, the Company has not paid any cash dividends on shares of common stock. It is the general policy of the Company to retain earnings to support the Company's growth. On December 29, 1994 the Board of Directors authorized the repurchase of up to 210,000 shares of the Company's outstanding common stock in the open market. As of March 15, 1995, 210,000 shares had been purchased at an average price of $10.35, for a total purchase of $2,173,975. Subsequently, on February 15, 1996, the Board of Directors authorized the repurchase of up to 409,000 shares of the Company s outstanding common stock from time to time in the open market. As of March 4, 1996, there have been no shares purchased under this authorization. As of March 4, 1996, the number of record holders of the Company's common stock was approximately 400, and the Company estimates that as of that date there were 1,800 beneficial owners of its stock. -9- ITEM 6. SELECTED FINANCIAL DATA. The following summary of selected financial data has been derived from the more detailed Consolidated Financial Statements and Notes thereto of the Company contained elsewhere in this report or previous reports.
Year Ended Year Ended Year Ended Transitio n Period Ended Fiscal Year Ended December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992 (1) June 1, 1992 (3) May 27, 1991 (In Thousands Except Per Share Amounts) Income Statement Information: Revenues . . . . . . . $104,618 $97,826 $88,465 $51,257 $90,818 $84,465 Income (loss) before income taxes . . . . . $5,592 $5,581 $4,339 $2,912 (2) $(1,568)(4)$1,870 Net earnings (loss) . . $3,958 $3,728 $2,713 $ 2,135(2) $ (969) $1,242 Net earnings (loss) per share . . . . . . . . . $ 0.98 $ 0.88 $ 0.64 $ 0.49 $ (0.22 ) $ 0.28 Balance Sheet Information: Total assets . . . . . $51,039 $43,964 $37,347 $31,730 $32,499 $32,338 Long-term debt . . . . $8,435 $5,533 $3,303 $1,109 $1,215 $1,358 Stockholders' equity . $32,497 $28,882 $24,844 $21,900 $22,679 $23,259
(1) On November 6, 1992, the Company changed its fiscal year from the Monday nearest May 31 to December 31. See Management's Discussion and Analysis of Financial Condition and Results of Operations for comparisons to comparable periods. (2) Includes a tax-free gain of $847,000 on disposition of one of the Company's specialty restaurants. (3) Fiscal 1992 includes 53 weeks of operations. (4) During fiscal 1992, the Company recorded a pre-tax special charge of $3,977,000 to provide for: write-downs of underperforming restaurants and other properties and assets, higher than expected insurance costs, and costs associated with personnel changes. -10- -11- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations The Consolidated Statements of Operations reported herein represent results of operations for the years ended December 31, 1995, 1994, and 1993. The following table summarizes key results of operations:
Year Year Year Ended Ended Ended December 31,December 31,December 31, 1995 1994 1993 (Dollar Amounts in Thousands) Number of Company-owned restaurants . . . . . . . 72 65 61 Number of franchised restaurants . . . . . . . 29 29 29 Weighted average annual sales per Company-owned restaurant $1,479 $ 1,60 0 $ 1,46 9 Revenues from Company operations . . . . . . . $104,8 16 $ 97,8 26 $ 88,4 65 Net sales from Company operations . . . . . . . $101,6 28 $ 94,9 01 $ 84,2 09 Income before taxes . . . $5,592 $ 5,58 1 $ 4,33 9 Net income . . . . . . . $3,958 $ 3,72 8 $ 2,71 3 Profit margin . . . . . . 3.8% 3.8% 3.1% Comparative Performance 1995 vs 1994 Net sales for Company-owned restaurants increased 7.1 percent to $101,628,000 in 1995 from $94,901,000 in 1994. The increase in sales is due to an increase in the average number of stores operating throughout 1995 versus 1994. Weighted average annual sales per Company-owned restaurant decreased 7.6 percent and same-store sales decreased 2.2 percent including a decrease in El Chico concept same-store sales of 2.5 percent. As a result of mix changes and certain menu price increases associated with a new menu introduction, the Company s check-average increased approximately 1.7 percent in 1995. The Company has used a same- store sales convention that reflects new stores beginning when they were opened for the full quarter of the prior year. Because of the potentially significant impact of initially high, but rapidly declining volumes after opening ( honeymoon effect ) the Company will adopt a new convention in 1996 that adds new stores to the same-store sales comparison in the quarter in which they -12- reach their 18-month anniversary. Seven stores were opened during 1995, including one purchased from an existing franchisee. Franchise revenue decreased from $2,093,000 to $2,082,000 as a result of a decrease in the average number of stores operating throughout 1995 versus 1994. This decrease was partly offset by an increase in franchise same-store sales of 0.7 percent. During 1995, the Company purchased an El Chico restaurant from a franchisee and opened one new franchise store. Food costs decreased from 25.6 percent of sales to 25.4 percent due to a decrease in the cost of beef, avocados and beans. -13- Labor costs remained unchanged at 33.1 percent of sales. Hourly labor cost decreased as a percentage of sales as a result of eliminating the restaurant cashier position by changing to a server-banking system, and from converting certain restaurant employees from minimum wage to tipped compensation. This decrease was offset by management compensation expense, which increased as a percentage of sales as a result of lower weighted average sales per restaurant. Operating costs increased from 28.3 percent of sales to 28.6 percent due to an increase in supplies, repair and maintenance and property taxes partly offset by decreased laundry and insurance costs. At the end of 1994, the Company converted from cloth napkins to paper napkins which resulted in reduced laundry costs, partly offset by an increase in supply costs. Pronto Design and Supply, Inc. ( Pronto ) is a wholly owned subsidiary in the business of designing food-service kitchens and supplying the related equipment. Equipment sales increased from $832,000 to $908,000 primarily reflecting sales to a new franchise restaurant. Equipment cost of sales increased as a percentage of sales due to a decrease in vendor rebate income relative to sales. Vendor rebate income includes rebates on outside sales as well as rebates on equipment purchases for El Chico restaurants. General and administrative costs increased from $8,967,000 to $9,227,000 as a result of increased employee costs, an increase in the number of multi-unit restaurant supervisors and increased training wages. These increases were partly offset by decreased professional fees, incentive bonuses and travel. Interest expense increased from $146,000 to $602,000, primarily as a result of increased borrowings, partly offset by a decline in interest rates. Interest income decreased from $88,000 to $78,000 due to a decline in average invested cash balances. The income tax provision decreased as a percent of income before taxes due to an increase in the FICA tip credit and lower state taxes. Comparative Performance 1994 vs 1993 Net sales for Company-owned restaurants increased 12.7 percent to $94,901,000 in 1994 from $84,209,000 in 1993. The increase in sales is due to an increase in the average number of stores operating throughout 1994 versus 1993, an increase in weighted average annual sales per Company-owned restaurant of 8.9 percent and an increase in same-store sales. Same-store sales increased 3.8 percent including an increase in El Chico concept -14- same-store sales of 4.3 percent. Ten new stores were opened and six stores were closed during 1994. Franchised revenue increased primarily as a result of an improvement of same-store sales of 2.8 percent. Food costs increased from 25.5 percent of sales to 25.6 percent of sales primarily as a result of increased produce costs experienced during the first quarter of 1994. Labor costs increased from 33.0 percent of sales to 33.1 percent reflecting increased restaurant management incentive compensation partly offset by lower hourly labor. Operating costs increased from 28.0 percent to 28.3 percent of sales as a result of an increase in deferred pre-opening amortization expense and an increase in advertising and promotional costs partially offset by lower supply and insurance costs. Pronto sales decreased from $2,209,000 to $832,000 as the result of Pronto directing its resources on El Chico restaurant growth rather than the development of outside sales. Equipment cost of sales decreased as the result of lower outside sales and an increase in vendor rebate income relative to sales. General and administrative costs were basically unchanged at $8,967,000 in 1994 versus $8,957,000 in 1993. Interest expense increased from $75,000 to $146,000, primarily as a result of increased borrowings and interest rates partly offset by increased capitalization of interest. Interest income decreased from $157,000 to $88,000 due to a decline in average invested cash balances. Restaurant Closings The loss on sale or disposition of assets primarily represents the following: 1994 the write-down of asset values for two restaurants, the loss incurred on the closing of two restaurants and the gain realized on the sale of one restaurant; 1993 the loss on the closing of two restaurants, the gain on the sale of land, a provision for the closing of three restaurants and various asset dispositions related to remodels. As of December 31, 1995, and December 31, 1994, accrued liabilities and other long-term liabilities included $190,000, for future rent and other expenses related to store closings. Liquidity and Capital Resources The Company has an unsecured credit facility with a $16,000,000 commitment comprised of a $15,000,000 revolving line of credit and a $1,000,000 letter of credit facility. The line -15- of credit matures on December 31, 1997, and may be converted to a term loan, payable quarterly on a 10-year amortization schedule, and maturing on December 31, 1999. Both the line of credit and the term loan bear interest at the Company's option of prime rate or up to six-month LIBOR plus 0.75 percent. Both rates are subject to maintaining certain financial covenants, and interest is payable upon maturity of the LIBOR advances or quarterly for prime rate advances. In addition, a commitment fee of 0.25 percent is payable quarterly on any unused commitments. As of December 31, 1995, $8,375,000 was outstanding under the line of credit. The credit facility was obtained for the funding of the construction of new Company-owned restaurants, remodeling existing restaurants, and the purchase of the Company's headquarters facility during 1993. The Company plans to open approximately two to four El Chico restaurants and remodel eight to twelve El Chico restaurants and estimates capital expenditures during 1996 to be approximately $7,000,000 to $11,000,000, which will be funded by internal operations and the existing credit facility. The credit facility also may be used for the repurchase of the Company s common stock with certain limitations. The board of directors has authorized the repurchase of up to 409,000 shares of the Company s common stock from time-to-time in the open market. Working capital decreased from a deficit of $4,006,000 at December 31, 1994 to a deficit of $4,696,000 at December 31, 1995, primarily as a result of an increase in capital expenditures. Cash flows generated from operations of new and existing restaurants and borrowings were offset by capital expenditures. During 1995, certain menu prices were increased as part of a new menu introduction to improve merchandising of products. Additional menu price adjustments to the extent permitted by competition or changes in menu mix may be required to offset increased costs. -16- Accounting Matters In March 1995, the Financial Accounting Standards Board (the FASB ) issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires that long- lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recovered. This Statement is effective for financial statements for fiscal years beginning after December 15, 1995. The Company does not expect that its adoption will have a material effect on its financial position or results of operations. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, which establishes financial accounting and reporting standards for stock-based employee compensation plans. This Statement is effective for transactions entered into in fiscal years that begin after December 15, 1995, with possible pro forma disclosures for awards granted in fiscal years that begin after December 15, 1994. The Company will adopt the intrinsic value based method of accounting for employee stock based compensation. ITEM 8. FINANCIAL STATEMENTS. The Financial Statements are set forth herein commencing on page F-1. -17- PART III ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The information set forth under the heading "Election of Directors" contained in the definitive Proxy Statement regarding the Annual Meeting of Shareholders of the Company to be held on May 2, 1996 (the "Definitive Proxy Statement") sets forth certain information with respect to the directors of the Company, some of whom are also executive officers, and is incorporated herein by reference. Certain information with respect to the remaining executive officers of the Company is set forth under the caption "Executive Officers" in Part I of this Report. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated by reference from the Definitive Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated by reference from the Definitive Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is incorporated by reference from the Definitive Proxy Statement. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 10-K. (a) The following documents are being filed as part of this Annual Report on Form 10-K: 1. Financial Statements: The Financial Statements are listed in the Index to Consolidated Financial Statements on Page 16 of this Report. 2. Exhibits. -18- Exhibit No. Exhibit 3.1 Restated Articles of Incorporation of the Company, as amended. 3.2 Bylaws of the Company, as currently in effect. 4.1* Specimen certificate evidencing Common Stock. 4.1 Rights Agreement, dated February 9, 1995, by and between the Company and Society National Bank. 4.2 Rights Agreement, dated as of February 9, 1995 between the Company and Society National Bank, as Rights Agent. 10.1 Description of Executive Short-Term Bonus Plan. (a) 10.2* Incentive Stock Option Plan. (a) 10.3** Amendment to Stock Option Plan (formerly the Incentive Stock Option Plan). (a) 10.4 Amendment No. 2 to Stock Option Plan. (a) 10.5 Amendment No. 3 to Stock Option Plan. (a) 10.6** Form of Stock Option Agreement, as amended--Stock Option Plan. (a) 10.7 Profit Sharing Plan and Trust Agreement. (a) 10.8** 1986 Employee Stock Bonus Plan. (a) 10.9** Lease dated May 15, 1985, between the Company, as lessee, and Frank Cuellar and Sons, Inc., as lessor, as corrected February 25, 1986, and amended July 18, 1986. 10.10 Distribution Service Agreement dated March 3, 1993, by and between The SYGMA Network and the Company. 10.11*** Stock Option Plan for Non-employee Directors and Form of Stock Option Agreement. (a) 10.12 1990 Long-Term Incentive Plan. (a) 10.13 Nonemployee Director Stock Bonus Plan. (a) 10.14 1992 Stock Option Plan. (a) 10.15 Employment Agreement with Wallace A. Jones dated November 10, 1994. (a) -19- 11 Earnings Per Share Calculations. 21 List of Subsidiaries. 23 Consent of KPMG Peat Marwick LLP. 27 Financial Data Schedule. * Filed as an exhibit to the Company's registration Statement on Form S-1 (No. 2-83955) effective June 30, 1983, and incorporated herein by reference. ** Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 29, 1987, and incorporated herein by reference. *** Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 30, 1988, and incorporated herein by reference. Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 28, 1990, and incorporated herein by reference. Filed as an exhibit to the Company's annual report on Form 10-K for the fiscal year ended May 27, 1991, and incorporated herein by reference. Filed as an exhibit to the Company's quarterly report on Form 10-Q for the quarter ended August 19, 1991, and incorporated herein by reference. Filed as an exhibit to the Company's transition report on Form 10-K for the transition period ended December 31, 1992, and incorporated herein by reference. Filed as an exhibit to the Company's annual report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference. Incorporated by reference from the Company's current report on Form 8-K filed on February 21, 1995. Incorporated by reference from the Company's registration statement on Form 8-A filed on February 21, 1995 (File No. 0-12802). (a) Compensation plan, benefit plan or employment contract or arrangement. Filed as an exhibit to the Company s annual report on Form 10-K for the year ended December 31, 1994, and incorporated herein by reference. -20- Incorporated by reference from Exhibit 1 of the Company s Registration Statement on Form 8-A, filed by the Company with the Securities and Exchange Commission on February 21, 1995. -21- El Chico Restaurants, Inc. and Subsidiaries INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Consolidated Financial Statements: Independent Auditors Report F-1 Consolidated Balance Sheets at December 31, 1995 and 1994 F-2 Consolidated Statements of Operations for the years ended December 31, 1995, 1994, and 1993 F-3 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1995, 1994, and 1993 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994, and 1993 F-5 Notes to Consolidated Financial Statements F-6 -22- All schedules have been omitted as the required information is not applicable, not required, or the information is included in the consolidated financial statements or notes thereto. -23- INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders El Chico Restaurants, Inc.: We have audited the consolidated financial statements of El Chico Restaurants, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of El Chico Restaurants, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Dallas, Texas February 7, 1996 F-1
El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Expect Par Values) December 31, 1995 1994 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 266 $ 727 Accounts receivable 979 852 Income tax receivable 66 Inventories 1,100 1,189 Prepaid expenses and other 1,346 1,488 Deferred income taxes (Note H) 71 56 Total current assets 3,828 4,312 PROPERTY AND EQUIPMENT, NET (Note B) 46,209 38,559 OTHER ASSETS AND DEFERRED COSTS 1,002 1,093 TOTAL ASSETS $51,039 $43,964 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt (Note D) $ 25 $ 22 Trade accounts payable 4,384 4,089 Accrued liabilities (Note C) 4,115 4,034 Income taxes payable 173 Total current liabilities 8,524 8,318 LONG-TERM DEBT, less current maturities (Note D) 8,435 5,533 OTHER LONG-TERM LIABILITIES 1,240 926 DEFERRED INCOME TAXES (Note H) 343 305 COMMITMENTS AND CONTINGENCIES (Note E) STOCKHOLDERS' EQUITY (Note F): Preferred stock - authorized 1,000,000 shares of $.10 par value; none issued Common stock - authorized 10,000,000 shares of $.10 par value; issued 4,746,975 and 4,743,640 shares in 1995 and 1994, respectively 475 474 Additional paid-in capital 15,895 14,583 Retained earnings 21,938 17,980 Unamortized value of restricted stock issued (59) (68) 38,249 32,969 F-2 Less treasury stock - at cost 651,744 and 615,263 shares in 1995 and 1994, respectively (5,752) (4,087) Total stockholders' equity 32,497 28,882 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $51,039 $43,964
The accompanying notes are an integral part of these consolidated financial statements. F-3 El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands of Dollars, Except per Share Amounts)
Year Ended December 31, 1995 1994 1993 Revenues: Sales from Company-owned restaurants $ 101,62 8 $94,901 $84,209 Equipment sales 908 832 2,209 Franchise revenues 2,082 2,093 2,047 104,618 97,826 88,465 Costs and expenses: Restaurant cost of sales - food and beverage 25,772 24,273 21,515 Restaurant cost of sales - labor 33,637 31,435 27,819 Restaurant operating expenses 29,084 26,881 23,577 Cost of equipment sales 782 590 1,972 General and administrative 9,227 8,967 8,957 Loss on sale or disposition of assets (Note G) 41 368 Interest expense 602 146 75 Interest income (78) (88) (157) 99,026 92,245 84,126 Income before income taxes 5,592 5,581 4,339 Income tax provision (Note H) 1,634 1,853 1,626 NET EARNINGS $ 3,958 $ 3,728 $ 2,713 Net earnings per common share $ 0.98 $ 0.88 $ 0.64 Weighted average number of shares and share equivalents outstanding 4,046,489 4,260,292 4,253,555 Fully diluted net earnings per common share $ 0.98 $ 0.88 $ 0.63 F-4 Fully diluted weighted average number of shares and share equivalents outstanding 4,055,028 4,260,499 4,321,398
The accompanying notes are an integral part of these consolidated financial statements. F-5
El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In Thousands of Dollars) Unamortized Additional Value of Common Stock Paid-InRetainedRestrictedTreasury Shares Amount Capital EarningsStock Issue Stock Total Balances at December 31, 1992 4,686,308 $469 $13,970 $11,539 ($83) ($3,995) $21,900 Net earnings 2,713 2,713 Issuance of common stock under stock bonus plan, net 77 (16) (12) 49 Issuance of common stock pursuant to stock option plan 33,665 3 216 (69) 150 Amortization of restricted stock issue 32 32 Balances at December 31, 1993 4,719,973 472 14,263 14,252 (67) (4,076) 24,844 Net earnings 3,728 3,728 Issuance of common stock under stock bonus plan, net 71 (57) (11) 3 Issuance of common stock pursuant to stock option plan 23,667 2 249 251 Amortization of restricted stock issue 56 56 Balances at December 31, 1994 4,743,640 474 14,583 17,980 (68) (4,087) 28,882 Net earnings 3,958 3,958 Purchase of treasury stock (2,174) (2,174) Issuance of common stock under stock bonus plan, net 52 (53) 9 8 Issuance of common stock pursuant to stock option plan 3,335 1 1,260 500 1,761 Amortization of restricted stock issue 62 62 Balances at December 31, 1995 4,746,975 $475 $15,895 $21,938 ($59) ($5,752) $32,497 F-6
The accompanying notes are an integral part of these consolidated financial statements. F-7
El Chico Restaurants, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) Year Ended December 31, 1995 1994 1993 Cash flows from operating activities: Net earnings $3,958 $3,728 $2,713 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of property and equipment 5,107 4,831 4,098 Amortization of deferred costs 1,333 1,257 273 Loss on sale or disposition of assets 41 368 Deferred income taxes 23 419 222 Increase in accounts receivable (127) (155) Decrease (increase) in income tax receivable (66) 792 (792) Decrease (increase) in inventories 89 120 (179) Decrease (increase) in prepaid expenses and other (103) (385) 399 Decrease (increase) in other assets and deferred costs (1,242) (1,133) (894) Increase (decrease in trade accounts payable and accrued liabilities 376 (353) 1,234 Increase (decrease) in income taxes payable (173) 173 (602) Increase (decrease) in other long-term liabilities 314 254 (232) Other 412 125 4 Net cash provided by operating activities 9,901 9,714 6,612 Cash flows from investing activities: Proceeds from sale of property and equipment 1,449 405 Purchases of property and equipment (13,015) (13,784) (15,557) Net cash used in investing activities (13,015) (12,335) (15,152) Cash flows from financing activities: Borrowings of long-term debt 2,925 2,250 3,200 Repayment of long-term debt (20) (18) (1,132) Purchase of treasury stock (2,174) (69) Proceeds from note receivable 245 Issuance of common stock 1,677 273 296 Net cash provided byfinancing activities2,6532,5052,295 NET DECREASE IN CASH (461) (116) (6,245) F-8 Cash and cash equivalents at beginning of year 727 843 7,088 Cash and cash equivalents at end of year $ 266 $ 727 $ 843 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest (net of amount capitalized) $ 551 $ 99 $ 71 Income taxes $1,911 $1,010 $2,660
The accompanying notes are an integral part of these consolidated financial statements. F-9 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995, 1994, and 1993 NOTE A - SUMMARY OF ACCOUNTING POLICIES A summary of the significant accounting policies applied in the preparation of the accompanying consolidated financial statements follows: Principles of Consolidation The consolidated financial statements include the accounts of El Chico Restaurants, Inc. and its subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. Inventories Inventories, which consist primarily of food products, are stated at the lower of cost or market. Cost is determined using the first-in, first-out method. Property and Equipment Property and equipment are recorded at cost. Depreciation and amortization are provided in amounts sufficient to amortize the cost of depreciable assets to operations over their estimated service lives of three to 30 years. Leasehold improvements are amortized over the lives of the respective leases, including renewal periods when the Company intends to exercise renewal options, or the service lives of the improvements, whichever is shorter. The straight-line method of depreciation is followed for substantially all assets for financial reporting purposes, while accelerated methods are used for tax purposes. Interest is capitalized with the construction of new restaurants as part of the asset to which it relates. Interest capitalized during 1995, 1994 and 1993 was not material. Preopening Costs Restaurant preopening costs, comprised primarily of the cost of hiring and training restaurant employees, are amortized over the initial twelve months of a restaurant's operations. Franchise Fee Revenue F-10 Franchise fee revenue is recognized when all material services or conditions relating to the sale have been substantially performed or satisfied by the Company, but no sooner than the commencement of operations by the franchisee. Franchise revenues for each period presented in the consolidated statement of operations relate substantially to royalties paid by franchisees. Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE A - SUMMARY OF ACCOUNTING POLICIES - Continued Income Taxes The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Earnings Per Common Share Earnings per common share is based on the weighted average number of shares and common share equivalents outstanding during each period determined using the treasury stock method. Primary common share equivalents are determined based on the average market price exceeding the exercise price of the stock options while fully diluted are determined based on the higher of the average or the ending market price exceeding the exercise price of the stock options. Use of Estimates Management of the Company has made a number of estimates and assumptions relating to the reporting of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial F-11 statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. NOTE B - PROPERTY AND EQUIPMENT Property and equipment consists of: December 31, 1995 1994 (In Thousands) Land $ 7,732 $ 6,079 Buildings and improvements 16,136 16,064 Leasehold improvements 27,878 23,753 Equipment, furniture and fixtures 17,871 23,800 Construction in progress 438 433 70,055 70,129 Less accumulated depreciation and amortization (23,846) (31,570) $46,209 $38,559 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE C - ACCRUED LIABILITIES Accrued liabilities consist of: December 31, 1995 1994 (In Thousands) Compensation and related taxes $1,689 $1,849 Insurance claims and administration 750 805 Taxes, other than income and payroll 838 576 Rent 353 349 Provision for restaurant closings 63 63 Other 422 392 $4,115 $4,034 NOTE D - LONG-TERM DEBT Long-term debt consists of: December 31, 1995 1994 (In Thousands) Note payable to a bank under credit facility (see below) $8,375 $5,450 F-12 Other 85 105 8,460 5,555 Less current maturities (25) (22) $8,435 $5,533 The existing unsecured credit facility consists of a $16,000,000 commitment comprised of a $15,000,000 revolving line of credit and a $1,000,000 letter of credit facility. The line of credit matures on December 31, 1997, and may be converted to a term loan, payable quarterly on a 10-year amortization schedule, and maturing on December 31, 1999. Both the line of credit and the term loan bear interest at the Company's option of prime rate or up to six-month LIBOR plus 0.75 percent. Interest is payable upon maturing of the LIBOR advances or quarterly for prime rate advances. The facility is subject to maintaining certain financial covenants. At December 31, 1995, $7,000,000 of the amount outstanding bore interest at LIBOR plus 0.75 percent, or 6.625 percent and the remaining $1,375,000 outstanding bore interest at prime, or 8.0 percent. In addition, an annual commitment fee of 0.25 percent is payable quarterly on any unused commitment. The carrying amount of the credit facility at December 31, 1995 and 1994 approximates the fair value since the borrowings bear interest at current market rates. F-13 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE D - LONG TERM DEBT - Continued Scheduled maturities of long-term debt as of December 31, 1995 are as follows (in thousands): Fiscal Year 1996 $ 25 1997 25 1998 864 1999 7,546 $8,460 NOTE E - COMMITMENTS AND CONTINGENCIES The Company leases land, buildings and equipment under noncancellable operating leases expiring at various dates through 2024. The following is a schedule of minimum rental payments under such leases (in thousands): 1996 $ 3,312 1997 3,281 1998 2,667 1999 2,580 2000 2,057 Thereafter 8,745 $22,642 Most land and building lease agreements provide for contingent rentals based on sales. Rental expense for all leases was as follows (in thousands): Year Ended December 31, 1995 1994 1993 Minimum rentals $3,262 $2,805 $2,973 Contingent rentals 510 645 853 $3,772 $3,450 $3,826 The Company is a defendant in various lawsuits arising in the ordinary course of its business. The majority of these suits are covered by insurance. In the opinion of management, none of these lawsuits will have a material adverse effect, individually or in the aggregate, upon the Company's financial position or results of operations. F-14 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE F - STOCKHOLDERS' EQUITY The Company has incentive stock option plans covering key employees and a plan covering non-employee directors with 857,000 shares and 100,000 shares reserved, respectively. As of December 31, 1995, options covering 253,751 shares were exercisable at prices ranging from $3.16 to $12.13. Transactions during 1995, 1994, and 1993 were as follows: Option Price Shares Per Share Total (In thousands ) Options outstanding at December 31, 1992 239,004 $3.16 - 9.56 $1,739 Granted Exercised Forfeited 625,000 (33,665) (4,669) 9.63 3.18 - 3.63 3.63 6,016 (115) (17) Options outstanding at December 31, 1993 825,670 3.16 - 9.63 7,623 Granted 260,000 11.00 - 12.12 3,140 Exercised (23,667) 3.18 - 9.56 (184) Forfeited (342,001) 3.63 - 9.625 (3,289) Options outstanding at December 31, 1994 720,002 3.16 - 12.13 7,290 Granted 98,500 8.13 - 11.00 1,030 Exercised (170,001) 3.18 - 9.63 (1,615) Forfeited (10,000) 11.00 (110) Options outstanding at December 31, 1995 638,501 $ 3.16 - 12.13 $6,595 In February 1995, the Company s Board of Directors adopted a Shareholder Rights Plan pursuant to which purchase rights (the F-15 Rights ) were issued to holders of its common stock at the rate of one Right for each share of common stock. The Rights will trade with the Company s common stock until exercisable. The Rights became exercisable ten days after any person or group acquires 20 percent or more of the Company s outstanding common stock or announces a tender offer for 30 percent or more of the Company s outstanding common stock. The Rights thereafter entitle the holder to purchase one one-thousandth of a share of Preferred Stock for $48.00, and, under certain circumstances, would be modified to entitle certain holders to purchase additional Common Stock of the Company having a market value of two times the $48.00 exercise price of the Right, or to purchase common stock of an acquiring company having a market value of two times the $48.00 exercise price of the Right. The Rights expire on December 31, 2004 and may be redeemed by the Company for one cent per Right under certain circumstances. On October 27, 1995, options were granted to purchase 138,000 shares at $10.00 per share, subject to shareholder approval at the May 2, 1996 Shareholders Meeting. F-16 El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE G - LOSS ON SALE OR DISPOSITION OF ASSETS Management reviews each restaurant regularly to determine that expected undiscounted cash flows are adequate to recover the related investment. When expected cash flows are inadequate, the Company writes down the asset to its recoverable value. Asset values for two restaurants were written-down $220,000 during 1994 as future operations are not expected to provide sufficient cash flow to recover the related investments. In addition, during 1994, the Company closed six restaurants. One restaurant was sold resulting in a gain of $439,000, one was closed at a loss of $202,000, one was closed with minimal costs and the remaining three closings were provided for in 1993. No restaurants were closed during 1995. NOTE H - INCOME TAXES The provision for income taxes consists of the following (in thousands): Year Ended December 31, 1995 1994 1993 Federal: Current $1,536 $1,258 $1,124 Deferred 23 419 222 State 75 176 280 $1,634 $1,853 $1,626 The types of temporary differences between the tax and financial reporting bases of assets and liabilities that give rise to the deferred income tax assets (liabilities) and their related tax effects are as follows (in thousands): December 31, 1995 1994 Deferred tax assets: Insurance reserves $362 $458 Provision for restaurant closings 65 65 Deferred compensation 125 64 Other 12 23 Total deferred tax assets 564 610 Deferred tax liabilities: Property and equipment (747) (585) F-17 Restaurant preopening costs (89) (274) Total deferred tax liabilities (836) (859) Net deferred tax liability ($272) ($249) El Chico Restaurants, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED NOTE H - INCOME TAXES - Continued The Company believes that the deferred tax assets at December 31,1995 and 1994 will be realized based upon historical levels of income and through reversals of existing taxable temporary differences during the carryforward period. The Company's effective income tax rate differs from the expected federal statutory income tax rate as a result of the following: Year Ended December 31, 1995 1994 1993 Expected income tax provision 34.0% 34.0% 34.0% State income taxes 0.5 3.3 4.3 FICA tip and TJTC tax credits (5.9) (5.1) (1.3) Other 0.6 1.0 0.5 Income tax provision 29.2% 33.2% 37.5% F-18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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: EL CHICO RESTAURANTS, INC. By:/s/ Wallace A. Jones Wallace A. Jones, President and Chief Executive Officer Date: March 14, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Wallace A. Jones Wallace A. Jones President and Chief Executive Officer (Principal Executive March 14, 1996 /s/ Lawrence E. White Lawrence E. White Executive Vice President and Chief Financial Officer (Principal March 14, 1996 /s/ John A. Cuellar John A. Cuellar Senior Vice President, Secretary, General Counsel and Director March 14, 1996 /s/ Grahame N. Clark, Jr. Grahame N. Clark, Director March 14, 1996 /s/ Jack D. Knox Jack D. Knox Director March 14, 1996 /s/ Joseph V. Mariner, Jr. Joseph V. Director March 14, 1996 /s/ Carmen C. Summers Carmen C. Summers Director March 14, 1996 /s/ Joseph S. Thomson Joseph S. Thomson Chairman of the Board March 14, 1996 F-19 Exhibit 11 El Chico Restaurants, Inc. Computation of Per Share Data (In thousands of dollars, except per share amounts) Year Ended December 31, 1995 1994 1993 Computation of earnings per share: Net earnings $3,958 $ 3,728 $2,713 Weighted average number of common shares outstanding during the year 4,017,086 4,108,9104,093,701 Net effect of dilutive stock options based on the treasury stock method using the average market price 29,403 151,382 159,854 Shares used for computation 4,046,489 4,260,2924,253,555 Earnings per share $ 0.98 $ 0.88 $ 0.64 Computation of fully diluted earnings per share: Net earnings $3,958 $ 3,728 $2,713 Weighted average number of common shares outstanding during the year 4,017,086 4,108,9104,093,701 Net effect of dilutive stock options based on the treasury stock method using the greater of the average or ending price 37,942 151,589 227,697 Shares used for computation 4,055,028 4,260,4994,321,398 F-20 Fully diluted earnings per share $ 0.98 $ 0.88 $ 0.63 F-21
EXHIBIT 21 LIST OF SUBSIDIARIES JURISDICTION OF VOTING STOCK OWNED NAME OF SUBSIDIARY FORMATION BY THE COMPANY El Chico Realty Corporation Texas 100% Concepts, Inc. Texas 100% El Chico Bebidas Company Texas 23% El Chico Restaurants of Louisiana, Inc. Delaware 100% El Chico Corporation of Oklahoma, Inc. Oklahoma 100% El Chico Restaurant No. 20, Inc. Delaware 100% Southwest Cafes of Tennessee, Inc. Tennessee 100% El Chico Corporation Georgia 100% El Chico Corporation of Alabama Alabama 100% El Chico Corporation of Florida Florida 100% Pronto Design & Supply, Inc. Texas 100% Nuevo Ventures, Inc. Texas 100% El Chico Restaurants of Kentucky, Inc. Kentucky 100% El Chico Restaurants of Ohio, Inc. Ohio 100% El Chico Restaurants of Indiana, Inc. Indiana 100% El Chico Restaurants of Illinois, Inc. Illinois 100% El Chico Service Company Delaware 100% ECRT, Inc. Delaware 100% NOTE: Texas El Chico Restaurants, L.P. is a Limited Partnership between two wholly owned subsidiaries - El Chico Service Company and ECRT, Inc. SUBSIDIARIES OF CONCEPTS, INC. JURISDICTION OFVOTING STOCK OWNED NAME OF SUBSIDIARYINCORPORATIONBY CONCEPTS, INC. Concepts Beverages of Oklahoma City, Inc. Oklahoma 100% Concepts Beverages of South Meridian, Inc. Oklahoma 100% SUBSIDIARIES OF EL CHICO CORPORATION OF OKLAHOMA, INC. VOTING STOCK OWNED BY JURISDICTION OFEL CHICO CORPORATION NAME OF SUBSIDIARYINCORPORATIONOF OKLAHOMA, INC. Bebidas Company of Tulsa, Inc. Oklahoma 100% Bebidas Company of Oklahoma City, Inc. Oklahoma 100% Bebidas Company of Midwest City, Inc. Oklahoma 100% Bebidas Company of Tulsa No. 65, Inc. Oklahoma 100% Bebidas Company of Oklahoma City No. 36, Inc. Oklahoma 100% Bebidas Company of Oklahoma City No. 101, Inc. Oklahoma 100% Bebidas Company of Broken Arrow, Inc. Oklahoma 100% Bebidas Company of Oklahoma City No. 37, Inc. Oklahoma 100% Bebidas Company of Tulsa No. 23, Inc. Oklahoma 100% Bebidas Company of Edmond, Inc. Oklahoma 100% F-22
EX-99 2 CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT The Board of Directors El Chico Restaurants, Inc.: We consent to incorporation by reference in the registration statement (No. 33-63474) on Form S-8 of El Chico Restaurants, Inc. of our report dated February 7, 1996, relating to the consolidated balance sheets of El Chico Restaurants, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10-K of El Chico Restaurants, Inc. KPMG Peat Marwick LLP Dallas, Texas March 17, 1996 EX-27 3 EL CHICO FDS
5 0000719961 EL CHICO RESTUARANTS, INC 1,000 12-MOS DEC-31-1995 DEC-31-1995 266 0 979 0 1,100 3,828 70,055 23,846 51,039 8,524 0 475 0 0 32,022 51,039 101,628 104,618 25,772 98,502 (78) 0 602 5,592 1,634 0 0 0 0 3,958 .98 .98
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