-----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, CaZDXodCLzHCkqED5dt7XvUbb9D8/HFrVDpUYrz8hUfRCOJ/VZc9hEXEvm9ud3kk RTAoJ4XNN8mH71JoMkQqkQ== 0000930661-00-003282.txt : 20010101 0000930661-00-003282.hdr.sgml : 20010101 ACCESSION NUMBER: 0000930661-00-003282 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001229 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PANCHOS MEXICAN BUFFET INC /DE CENTRAL INDEX KEY: 0000075929 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 751292166 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-04678 FILM NUMBER: 797773 BUSINESS ADDRESS: STREET 1: 3500 NOBLE AVENUE CITY: FORT WORTH STATE: TX ZIP: 76111-0407 BUSINESS PHONE: 8178310081 MAIL ADDRESS: STREET 1: PO BOX 7407 CITY: FT WORTH STATE: TX ZIP: 76111-0407 FORMER COMPANY: FORMER CONFORMED NAME: PAMEX FOODS INC DATE OF NAME CHANGE: 19820811 FORMER COMPANY: FORMER CONFORMED NAME: PANCHOS MEXICAN BUFFET INC DATE OF NAME CHANGE: 19720519 10-K405 1 0001.txt FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----------- SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2000 ___________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission File No. 0-04678 Pancho's Mexican Buffet, Inc. (Exact name of registrant as specified in its Charter) DELAWARE 75-1292166 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3500 Noble Avenue, Fort Worth, Texas 76111 (Address of principal executive offices) (Zip Code) 817-831-0081 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.10 per share (Title of Class) 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 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 the 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 [ X ]. The aggregate market value of the voting stock held by non-affiliates of the registrant on November 27, 2000, based on the actual stock price on such date was $4,003,918. Number of shares of Common Stock outstanding as of November 27, 2000:...............................................................1,474,017. DOCUMENTS INCORPORATED BY REFERENCE None. PART I Item 1. Business GENERAL The Company, Pancho's Mexican Buffet, Inc., and subsidiaries, is principally engaged in the operation and development of the Pancho's Mexican Buffet/(R)/ restaurant chain, serving Mexican food cafeteria style. However, Pancho's is more than a cafeteria because it features all-you-can-eat meals at a fixed price. Along the cafeteria line, servers fill a piping hot platter with a diner's choices from more than 20 items of freshly prepared Mexican food. Pancho's becomes a full-service restaurant when a diner is seated. A waitress or waiter brings refills, or other food a diner may request from the buffet, at no extra charge. For service, a diner simply raises the small flag on the table. The Company currently operates 48 restaurants located in the states of Texas (39), Louisiana (4), Arizona (2), Oklahoma (2) and New Mexico (1). Jesse Arrambide, a Company founder, developed and opened the first Pancho's Mexican Buffet in El Paso, Texas in 1958. The Company was organized under the laws of the State of Delaware in December 1968 to succeed to the business operated by predecessor corporations which were merged into the Company on January 23, 1969. The Company's principal offices are located at 3500 Noble Avenue, Fort Worth, Texas 76111 (telephone number [817] 831-0081). Business Development Starting in fiscal year 1999, the Company commissioned outside consultants to review the Pancho's concept and assist in developing a more modern prototype for future development and remodeling existing units. The goal of this reimaging program was to improve food offerings, service systems and physical facilities to achieve increased customer count. In October 1999, as part of the reimaging project, the Company began rolling out new recipes and salsa bars to all of its restaurants. The new recipes are generally spicier, with more complex flavor profiles to tempt today's more discerning palates. The Company's new, nine-variety salsa bar is designed to satisfy the widest variety of customer tastes. The new-look bar lists each salsa's fresh ingredients and includes "salsa meters" indicating the range of heat levels from mild to hot. Flavors include: Chili Pequin Salsa, Salsa Verde, Chimayo Red Chili, Pico de Gallo, Fresh Tomato, Fiery Chipotle, Fire Roasted Vegetable, Salsa Bravo, and Pancho's Original Salsa. Coinciding with the new and improved food offerings, the Company developed a new look and atmosphere for its restaurants providing customers with a high- energy and exciting dining environment. The new look includes updated and brighter color schemes, contemporary furniture and fixtures, and fiesta-style plates, tablecloths and decor, all providing a fun fiesta atmosphere to the restaurants. The Company invested $1.5 million over the past year and a half to develop the new concept. The Company remodeled three stores as prototypes to test the new look: one in Mesquite, Texas and two in Houston, Texas. The Mesquite, Texas location was closed for remodeling in August 1999 and reopened in December 1999 as "Pancho's Buffet & Grill(TM)". The restaurant has generated significant sales increases and positive customer response. The Mesquite remodel features an exciting new design with rich, bold colors, softer lighting and a high-energy atmosphere. The Company remodeled two stores in Houston, Texas under a slightly modified concept using the name "Panchito's $4.99 Buffet(TM)". The idea was to offer customers the same high quality buffet style 1 format utilizing a more limited and lower priced menu. The goal was to achieve operating efficiencies while developing a brand extension for smaller markets. Results were not persuasive enough to continue the concept, and the stores will be converted to the new Pancho's Mexican Buffet(R) (with new recipes and menu). Management believes that the "Panchito's" concept would be a viable concept in new markets or small markets where potential customers have not previously experienced the wider food variety of the Pancho's Mexican Buffet(R) core concept. With the successful results of the Pancho's Buffet & Grill(TM) in Mesquite, Texas, the Company plans to roll out the reimaging plan throughout the Company under the banners Pancho's Buffet & Grill(TM)and Pancho's Mexican Buffet(R). In connection with the reimaging plan, the Company has retained the services of an investment banking firm to explore strategic financial alternatives for the Company to enhance future growth and maximize shareholder value. Management intends to focus on the reimaging plan for the Company's existing restaurants to improve sales and profitability. The Company has developed various levels of remodels to achieve the new look at costs that range from $70,000 to $300,000 depending upon the location, estimated sales potential, and current condition. Management currently has no plans for new restaurants until the reimaging project is completed. Long term, the Company's strategy includes expanding within the Company's existing five-state market, and possibly other contiguous states. The Company has no plans for franchising; however, one Pancho's is currently being operated under a license agreement. The current Pancho's concept is designed to combine the serving speed and economy of cafeteria-style service within an environment typical of table service restaurants. The customer selects and is served food and beverage items from the serving line. When the patron is seated a uniformed employee serves chips, hot sauce, sopaipillas (Mexican bread), beverage refills and more food on request for the all-you-can-eat patrons. This is a unique variation of the traditional cafeteria concept, providing full table service after a customer has completed selection from the service line. The restaurants also feature self- service salsa bars and dessert bars to provide greater food variety and value. In its restaurants, the Company maintains distinctive styling and colorful decor using authentic artifacts in a Mexican motif. The Company continues to build brand awareness and customer loyalty while extending its leadership position in the casual and family dining and Mexican buffet segments. The Company is focused on improving unit economics and offering a wide variety of high quality menu items. Restaurant Operations The Company's restaurants serve continuously from 11:00 a.m. to 9:00 p.m. seven days a week. The restaurants are family-oriented and are designed to match serving-line service speed (three to three and one half patrons per minute) to seating capacity for optimum utilization of space and return on investment. Older Pancho's average approximately 7,300 square feet and seat 180 to 200 people. New restaurants, and higher volume restaurants in which seating capacity has been expanded, average approximately 9,000 square feet and seat 240 to 300 people. A typical new restaurant in a strip shopping center costs about $900,000 to $1,000,000 to develop, including equipment and leasehold improvements. Freestanding units cost from $1.5 million to $1.9 million for land, building and equipment. These development costs are based on the existing prototypes. The Company has not built any new restaurants since 1995. Inflation and changes to the Pancho's restaurant design may affect future development costs. 2 In addition to the all-you-can-eat buffet, the menu includes competitively priced limited-selection plates: the Super Combo value meal, lunch specials, fajitas, a taco salad, and a child's plate. Children five years of age and under are served free. Senior citizens who belong to Pancho's Seniors Club are given a 20% discount on their personal purchases. Beverages are priced separately. All menu items include the salsa bar and dessert bar. More than 20 items of Mexican food are served, including tamales, refried beans, Mexican rice, flautas, five kinds of enchiladas, red chili stew, green chili stew, chili rellenos, chili con queso, a variety of sauces, tacos, chalupas, pico de gallo, assorted relishes, chips, hot sauce and sopaipillas. Pancho's restaurants offer food to go, which accounted for 11.1% of sales for the year ended September 30, 2000. A variety of beverages are also available. Alcoholic beverages are served in 28 restaurants and accounted for 0.7% of the Company's sales for the year ended September 30, 2000. The Company has standard procedures for customer service, sanitation, food preparation and other operational matters. Depending on the size of the restaurant and the time of the year, each Pancho's restaurant will have from 30 to 90 employees. Each restaurant is under the direction of a general manager, associate manager and production manager (chef). Additionally, higher volume units have a first assistant manager who typically has completed the Company's formal Manager Training Program. The basic three-manager team participates in an incentive compensation program based upon sales and profitability of their specific restaurant. Company Area Supervisors and Production Supervisors inspect the restaurants regularly and assist the unit management to assure compliance with quality standards set by the Company. These supervisors also participate in incentive compensation based on the restaurant group for which they are responsible. Marketing and Advertising The Company emphasizes a Neighborhood Marketing Strategy in which local store marketing efforts reach out to each restaurant's specific neighborhood customers. Restaurant managers are encouraged to participate in community affairs and, with the assistance of the general office, to cater school, church and other community events. Pancho's supports local schools with free meal awards for honor roll and perfect attendance students, and sponsors sports leagues for local children. There is a birthday club for children under twelve which serves the child a free meal on his or her birthday and also provides a free gift for the birthday celebration. A senior citizens program includes registered membership that entitles the member to a 20% discount. Newspaper inserts, direct mail and billboard advertisements augment the neighborhood marketing. The Company uses customer and employee surveys and data gathered from point of sale systems to help develop and evaluate marketing strategy and tactics. Local store marketing programs tailored to each restaurant are developed and implemented quarterly. Purchasing and Distribution The Company uses The SYGMA Network, Inc. to purchase, warehouse and distribute substantially all the food products and supplies for the Company's restaurants. The SYGMA Network specializes in distribution for restaurant chains. SYGMA's nationwide distribution network gives the Company the ability to develop new markets without capital investments to expand an internal distribution system. The SYGMA Network is a subsidiary of SYSCO Corporation, one of the nation's largest food service and distribution organizations. The Company believes that its system of central purchasing and distribution is critical to control of product cost and quality and permits restaurant managers to concentrate on quality of food preparation and customer service. 3 Seasonality The Company's business is seasonal. Sales are typically higher in summer months and other periods when students are not in school. Trademarks The Company currently holds or has pending the following trademarks: Pancho's Mexican Buffet(R) Pancho's Buffet & Grill(TM) Panchito's Buffet(TM) the Panchito character Spanish Galleon(TM) The Company considers the Pancho's name to be very valuable to its operations as much of its customer loyalty has been dependent on brand recognition over the years. Trademarks are good for a duration of 10 years, and are renewable upon expiration. Human Resources On September 30, 2000, the Company employed approximately 2,001 employees, of whom 56 were corporate personnel, 1,931 were employed in the restaurants and 14 were employed in maintenance and construction. The Company considers its employee relations to be good. Most employees, other than restaurant management and corporate personnel, are paid on an hourly basis. The Company believes that it provides working conditions and wages that compare favorably with those of its competition. The Company's employees are not covered by a collective bargaining agreement. Competition All aspects of the restaurant business are highly competitive. Price, restaurant location, food quality, service and attractiveness of facilities are important aspects of competition. The competitive environment is often affected by factors beyond a particular restaurant's control, including changes in population, traffic patterns, economic conditions and consumer preferences. The Company's restaurants compete with a wide variety of Mexican food, fast food, value-priced and all-you-can-eat restaurants, ranging from national and regional restaurant chains to locally owned restaurants. The Company believes that its principal competitive strengths lie in the value, variety and quality of food products served, in the distinctive atmosphere and in the strength of the Pancho's Mexican Buffet(R) name. Financial Information About Segments Because the Company operates as a single business segment, no segment reporting is provided. See Note 1 to the Company's Consolidated Financial Statements. Forward-Looking Statements Certain statements in this report are forward-looking statements which represent the Company's expectations or beliefs concerning future events, including, but not limited to the following: statements regarding restaurant format or concept changes, remodeling plans, plans to sell assets, unit growth, capital expenditures, future borrowings, future cash flows, claims, payments and adjustments related to 4 expenditures, future borrowings, future cash flows, claims, payments and adjustments related to the Company's insurance reserves, and future results of operations. The Company warns that many factors could, individually or in aggregate, cause actual results to differ materially from those included in the forward-looking statements, including, without limitation, the following: the effects of changes in the Company's restaurant format or concept; consumer spending trends and habits; increased competition in the restaurant industry; weather conditions; the results of claims on the Company's insurance reserves; and laws and regulations affecting labor and employee benefit costs. The Company does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements pertain only to the date hereof. Item 2. Properties The Company owns a combination general office/warehouse building located at 3500 Noble Avenue, Fort Worth, Texas. The headquarters facility consists of general offices, freezer space of about 194,000 cubic feet, and warehouse dry storage of approximately 31,400 square feet. In fiscal 2000, the Company sold land and a warehouse that adjoined the general office/warehouse property. The Company owns the sites of seven operating restaurants. The Company is seeking to sell one closed restaurant site, including building and land, which it owns in Amarillo, Texas. Forty-one operating restaurants are occupied pursuant to lease agreements with various expiration dates into the year 2009. Leases typically provide for a minimum rental based on the cost of improvements provided by the lessor and a maximum rental based upon the gross sales of the facility. The Company does not deem any individual restaurant lease to be significant in relation to its overall operations. At September 30, 2000, the Company had remaining lease obligations on one closed restaurant location with the lease expiring in 2007. The location is subleased. The Company has leased its Fort Worth cold storage facility to a food manufacturing concern whose chairman and chief executive officer is a non- employee director of the Company. The remainder of the space formerly occupied by the Company's internal distribution operation is currently used for equipment and document storage and office space. Substantially all of the equipment and furniture used in the operation of the restaurants and the headquarters facility are owned by the Company. 5 The cities and towns where the Company's restaurants are located are listed below: Arizona: Texas: Humble Mesa Abilene Irving Phoenix Arlington-3 Killeen Baytown League City Louisiana: Beaumont Lewisville Baton Rouge Burleson Longview Bossier City Carrollton Mesquite Lafayette Conroe North Richland Hills Metairie Corpus Christi* Plano Dallas-3 Richardson New Mexico: Denton San Antonio Albuquerque El Paso** Sherman Euless Texarkana Oklahoma: Fort Worth-3 Tyler Oklahoma City Garland Waco Tulsa Houston-6
____________ * Operated by licensee ** Operated by A&A Foods Item 3. Legal Proceedings Not applicable. Item 4. Submission of Matters to a Vote of Security Holders None. 6 Executive Officers of the Registrant At the meeting of the Board of Directors of the Registrant, which immediately follows the annual meeting of stockholders, the Board of Directors elects officers for the Registrant. Such officers hold office until death, resignation, removal from office or until their successors are chosen and qualified.
Position and Office Period of Name with Registrant Present Office Age ---- ----------------------------------------- ----------------------- --- Jesse Arrambide, III.. Chairman of the Board and Since December 9, 1994 48 Chief Operations Office -- also Director and officer of subsidiary companies Hollis Taylor......... Director and President, Chief Since August 10, 1979 64 Executive Officer and Treasurer -- also Director and officer of subsidiary companies Samuel L. Carlson..... Director and Senior Vice Since December 21, 1988 64 President, Administration and Secretary -- also Director and officer of subsidiary companies Julie Anderson........ Vice President, Controller and Since May 26, 2000 31 Assistant Treasurer
Jesse Arrambide, III has been a Director since 1977. He has been Chairman of the Board of Directors since August 1993, and Chief Operations Officer since December 1994. He was Vice President, Operations from November 1984 to August 1993. Hollis Taylor has been a Director since March 1974. He has been President and Chief Executive Officer since August 1979. He was appointed Treasurer May 2000. Samuel L. Carlson has been a Director since November 1993. He has been Senior Vice President, Administration and Secretary since December 1988. On May 26, 2000, Julie Anderson was appointed Vice President, Controller, and Assistant Treasurer. She was previously the Company's accounting manager. Prior to joining the Company in 1999, Ms. Anderson, CPA, was the controller for Dealers Auto Auction (a Manheim Auction) based in Dallas, Texas. From 1993-1998 she was an accountant with Craig Hamilton & Company, P.C. and Arthur Andersen, LLP, public accounting firms. She received her BBA in Accounting from the University of Texas at Arlington. 7 PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Common Stock Data The Company's common stock is traded over-the-counter on the Nasdaq SmallCap Market System, under the symbol "PAMX." On November 27, 2000, the number of record holders was about 575, and the Company estimates that on that date there were an additional 800 beneficial owners. The following table sets forth the quarterly high and low bid prices of the common stock, as reported by Nasdaq, for the calendar quarters indicated. All per share amounts have been adjusted for the one-for-three reverse stock split effective January 27, 1999.
Sales Prices ------------ Fiscal Quarter Ended High Low -------------------- ----- ----- December 31, 1998............. 4.125 1.689 March 31, 1999................ 4.000 1.968 June 30, 1999................. 3.875 2.375 September 30, 1999............ 4.750 3.094 December 31, 1999............. 3.500 2.375 March 31, 2000................ 4.500 2.750 June 30, 2000................. 4.000 3.063 September 30, 2000............ 3.938 3.375
Common Stock Dividends The Company paid no cash dividends in 2000 or 1999. Future cash dividends will depend on earnings, financial position, capital requirements and other relevant factors. 8 Item 6. Selected Financial Data The following selected financial data of the Company for each of the five fiscal years ended September 30, 1996 through 2000 has been derived from the more detailed consolidated financial statements and notes thereto of the Company contained elsewhere in this report or in previous reports. PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA Fiscal Years Ended September 30,
2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (Dollars in thousands, except per share data) Sales $ 55,963 $ 57,403 $ 64,146 $ 66,957 $ 71,487 -------- -------- -------- -------- -------- Costs and Expenses: Food costs 14,788 15,214 17,413 18,792 19,681 Restaurant labor and related expenses 21,781 21,839 25,606 25,235 26,561 Restaurant operating expenses 12,516 11,913 14,904 15,799 16,508 Depreciation and amortization 1,959 1,958 2,808 3,426 3,949 General and administrative expenses 4,695 4,999 5,013 5,160 5,067 Asset impairment and restructuring charges (a) (c) 6,601 5,066 Preopening costs 54 -------- -------- -------- -------- -------- Total 55,793 55,923 72,345 73,478 71,766 -------- -------- -------- -------- -------- Operating Income (Loss) 170 1,480 (8,199) (6,521) (279) Interest Expense (17) (22) (212) (348) (540) Other, including interest income 96 418 198 303 269 -------- -------- -------- -------- -------- Earnings (loss) before income taxes 249 1,876 (8,213) (6,566) (550) -------- -------- -------- -------- -------- Income tax expense (benefit) (b) (12) 4,305 (1,850) (135) -------- -------- -------- -------- -------- Net earnings (loss) $ 249 $ 1,888 $(12,518) $ (4,716) $ (415) ======== ======== ======== ======== ======== Cash dividends $ - $ - $ 66 $ 132 $ 132 ======== ======== ======== ======== ======== Per Share Data: Net earnings (loss), basic and diluted $ 0.17 $ 1.29 $ (8.54) $ (3.21) $ (0.27) Cash dividends $ - $ - $ 0.045 $ 0.090 $ 0.090 At Year End: Total assets $ 17,364 $ 18,412 $ 20,418 $ 32,858 $ 37,968 Long-term debt $ 112 $ 222 $ 1,761 $ 2,287 $ 3,489 Stockholders' equity $ 12,047 $ 11,703 $ 9,724 $ 22,269 $ 26,521 Number of restaurants 48 48 48 57 65
- ------------- (a) Fiscal 1998 net loss includes asset impairment and restructuring charges of $6,601,000. This includes impairment charges of $5,681,000 to impair assets at 22 locations and restructuring charges of $920,000 to exit nine locations closed in 1998. (b) Fiscal 1998 net loss includes income tax expense of $4,305,000 resulting from providing a valuation allowance for deferred tax assets. (c) Fiscal 1997 includes asset impairment and restructuring charges of $5,066,000 to close seven restaurants, dispose of the Mexico joint venture, impair four other restaurants and increase restructuring reserves for two previously closed locations. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The following table sets forth for the periods indicated: (i) items in the consolidated statements of operations as a percentage of sales; (ii) average restaurant sales; and (iii) the number of restaurants open at the end of each year.
Percentage of Sales Years Ended September 30, ----------------------------------------------- 2000 1999 1998 -------------- -------------- -------------- Sales 100.0% 100.0% 100.0% ------------- ------------- ------------- Costs and Expenses: Food costs 26.4% 26.5% 27.1% Restaurant labor and related expenses 38.9% 38.0% 39.9% Restaurant operating expenses 22.4% 20.8% 23.2% Depreciation and amortization 3.5% 3.4% 4.4% General and administrative expenses 8.4% 8.7% 7.8% Asset impairment and restructuring charges (a) (c) 10.3% Preopening costs 0.1% ------------- ------------- ------------- Total 99.7% 97.4% 112.7% Operating Income (Loss) 0.3% 2.6% (12.7%) Interest Expense (0.3%) Other, including interest income 0.2% 0.7% 0.3% ------------- ------------- ------------- Earnings (loss) before income taxes 0.5% 3.3% (12.7%) Income tax expense (b) 6.7% ------------- ------------- ------------- Net earnings (loss) 0.5% 3.3% (19.4%) ============= ============= ============= Average sales (in thousands) for restaurants open throughout the year $ 1,168 $ 1,190 $ 1,192 ============= ============= ============= Number of restaurants open at end of year 48 48 48
Fiscal 2000 Compared to Fiscal 1999 Same-store sales decreased 3.1% in fiscal 2000, following an increase of 0.4% for 1999. Fourth quarter same-store sales were down 4.4% in 2000 compared with an increase of 0.1% for the same period in 1999. Same-Store Sales By Quarter
2000 1999 1998 -------------- -------------- -------------- 1st Quarter -2.4% -0.3% +2.7% 2nd Quarter -1.4% +1.2% +5.3% 3rd Quarter -1.9% +0.3% +1.9% 4th Quarter -4.4% +0.1% -1.6% Fiscal Year -3.1% +0.4% +2.1%
10 Total sales for 2000 were $56.0 million, down from $57.4 million in 1999. Average annual sales per unit were $1,168,000 for 2000 and $1,190,000 for 1999. The Company implemented a price increase of about 4.5% in the quarter ended December 31, 1999 to offset increases in labor costs and general inflation. This increase was rolled out to restaurants market by market during that quarter, so its effect for the fiscal year is estimated at about 4.1%. Fourth quarter total sales were $14.1 million in 2000 and $14.6 million in 1999. Average sales per unit were $294,000 and $303,000 for the quarters ended September 30, 2000 and 1999, respectively. Management believes that the sales decline is primarily due to the dated look of the Company's restaurants and has developed a reimaging plan to change the look of its restaurants, including changes in restaurant design, recipes, food offerings and cooking and service procedures. The new look for the Company's restaurants features a new logo, updated and brighter color schemes for a lively interior design, contemporary furniture and fixtures, softer lighting, exhibition grill cooking, and a high-energy, fiesta atmosphere. The Company's restaurant in Mesquite, Texas was completely remodeled in 1999 to serve as a prototype restaurant featuring the new look. The restaurant, located in the Dallas area, was temporarily closed in August 1999 for the remodel. The restaurant, reopened as Pancho's Buffet & Grill(TM) in December 1999, has received very good customer response and has seen a 41% comparable sales increase since the remodel. In October 1999, as part of the reimaging plan, the Company began rolling out new recipes and salsa bars to all of its restaurants. The new recipes are generally spicier, with more complex flavor profiles to tempt today's more discerning palates. The salsa bars feature a variety of exciting salsas, salad and other condiments. As a complement to the Mesquite prototype restaurant, Pancho's Buffet & Grill(TM), the Company developed its Panchito's $4.99 Buffet(TM) format offering customers a convenient all-you-can-eat buffet for only $4.99 per person. Two locations in Houston reopened in May and June of 2000 in the new Panchito's $4.99 Buffet(TM) format, which features the new look of the Company's reimaging plan but not all of the menu items and new recipes. The format was designed to reinvigorate certain smaller or lower sales units while achieving operating efficiencies to justify the lower buffet price. Sale results from the Panchito's $4.99 Buffet(TM) were not persuasive enough to continue the concept, however, and the stores will be converted to the new Pancho's Mexican Buffet(R) concept featuring the new recipes and menu items. With the successful results of the Pancho's Buffet & Grill(TM) in Mesquite, Texas, the Company plans to roll out the reimaging plan throughout the Company under the banners Pancho's Buffet & Grill(TM) and Pancho's Mexican Buffet(R). The Company is in the process of creating a three-year capital expenditure plan so that it may complete the remodels and put sales on an upward trend. No new restaurants were opened in 2000, and none are planned for fiscal 2001. Management plans to focus on continuing to improve same store sales and operating margins at its existing units before adding new locations. Sales discounts increased to 5% of sales in 2000 from 4.6% of sales in 1999. Fourth quarter discounts were 4.9% and 5.1% of sales for 2000 and 1999, respectively. To motivate new trials and more frequent visits, the Company relies heavily on discount coupons. The Company's discounting tactics include coupons distributed by direct mail, newspaper inserts and a variety of neighborhood marketing promotions. 11 The Company continues to emphasize a neighborhood marketing strategy to strengthen Pancho's ties to each restaurant's community. A portfolio of specific marketing tactics are developed for each location and complemented by existing Company programs such as the Birthday Club, School Rewards programs and Seniors Club. The Company reduced food cost 0.7% and 0.1% of sales for the quarter and year ended September 30, 2000, respectively. Food costs as a percentage of sales benefited from the fall 1999 price increase. This price increase offset the higher costs in many of the new recipes developed under the Company's reimaging project. Labor and related expenses increased 1.2% and 0.9% of sales for the 2000 fourth quarter and year, respectively, compared with the same 1999 periods. Due to settlement of claims for substantially less than reserved, the Company reduced its reserves for workers' injury insurance by $809,000 for the year ended September 30, 2000. The Company also reduced these reserves by $525,000 for the year ended September 30, 1999. After eliminating the benefit of these adjustments, labor costs rose 1.2% and 1.4% of sales for the quarter and year ended September 30, 2000. Wage rate inflation and the effect of lower sales were the main reasons for the labor cost increase. Due to the tight labor market, the Company's average hourly wage cost was 1.2% of sales higher in 2000 than in 1999. Pancho's prepares a large quantity and variety of fresh food throughout the day, and provides buffet-line and table service in each restaurant. Maintaining a high level of quality service, sanitation and food preparation is labor intensive. A tight labor market will continue to contribute to general wage inflation. Congress is considering various increases in the federal minimum wage to be mandated in the coming years. Higher wages will make it difficult for the Company to control labor and related costs unless it can improve the current sales trend. The Company will consider price increases and other methods to compensate for labor cost increases. Restaurant operating expenses include occupancy costs, utilities, liability insurance, maintenance expense, supplies, restaurant marketing and other related costs. This expense category increased 1.7% and 1.6% of sales for the 2000 fourth quarter and year, respectively. Due to the settlement of claims for substantially less than reserved, liability insurance reserves were reduced by $211,000 for the year ended September 30, 2000, and by $513,000 for the year ended September 30, 1999. After eliminating these adjustments, restaurant operating costs rose 1.7% and 1.1% of sales for the quarter and year ended September 30, 2000 versus the same period last year. Occupancy costs led the increase in operating expenses by 1.1% and 0.4% of sales for the 2000 fourth quarter and year respectively because of one-time adjustments made in fiscal 1999 for over accrued property taxes related to fiscal years 1998 and earlier. Utilities costs are up by 0.6% and 0.3% of sales for the 2000 fourth quarter and year due to higher gas and electric costs. The remaining increase in restaurant operating costs was due mainly to higher supplies costs incurred to purchase new uniforms and small wares to support the roll out of the new recipes and salsa bars as part of the reimaging plan. Fourth quarter store marketing expenses decreased 0.6% of sales for 2000 compared with 1999. Store marketing costs increased 0.1% of sales for the fiscal year 2000 over the fiscal year 1999. The Company's total marketing expenditures were up $53,000 for the year, primarily from increased printing costs for coupons. The Company invested 2.3% and 2.2% of sales in store marketing for 2000 and 1999, respectively. 12 The Company's general and administrative expenses are down 0.2% and 0.3% of sales for the quarter and year ended September 30, 2000 versus the same periods for 1999. The Company's Mesquite, Texas restaurant was closed from late August through November 1999 for a complete reimaging remodel and was reopened in December 1999 under the new name Pancho's Buffet & Grill(TM). Preopening costs of $43,000 for this unit were recorded in the first quarter of fiscal 2000, and no preopening costs were recorded in the prior year because no new or rebranded units were opened in the prior year. Preopening costs include labor related costs prior to opening, including recruiting expenses, food costs for preopening testing and training. The Company closed two locations in Houston, Texas during May and June of 2000 for remodeling to the Panchito's $4.99 Buffet(TM). Preopening costs for the two locations were $11,000. Total preopening costs for the fiscal year 2000 totaled $54,000. Impairment charges are determined in accordance with Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." No impairment charges were taken in 2000 or 1999. The Company adopted a restructuring plan in the quarter ended June 30, 1998 which involved closing nine restaurants. Only one site, located in Amarillo, Texas, remained in land and buildings held for sale at September 30, 2000. No restaurant closings are currently planned, but management will continue to evaluate operating results and consider closing other locations based on profitability and cash flow. No restaurants were closed in 2000 or 1999. The Company realized net gains on sale of assets of $52,000 and $367,000 in fiscal 2000 and 1999, respectively. Management believes that long-lived assets held for sale or future use are carried at the lower of depreciated cost or fair value. If conditions change and future circumstances indicate that long-lived assets are carried at more than net realizable future cash flows, then additional asset impairment charges would be necessary. In fiscal 2000, interest expense was $17,000 versus $22,000 in 1999, a $5,000 decrease. The Company paid off and terminated its bank line of credit during 1999, so the Company has incurred only small amounts of interest on vendor payables since then. Net deferred tax assets decreased $78,000 to $7.4 million in fiscal 2000, due mainly to the reduction in insurance reserves netted against unearned revenues. The valuation allowance was decreased by the same amount to match the net deferred tax asset balance. Accordingly, the Company recognized no net tax benefit for the year ended September 30, 2000. The valuation allowance was increased $7.3 million in 1998 to offset the Company's total net deferred tax assets. Due to the Company's net loss for the quarter ended June 30, 1998, combined with net losses for the three preceding fiscal years, it was considered necessary to provide a valuation allowance for all of its net deferred tax assets. Due to the 100% valuation allowance, the Company's net effective tax rate was virtually zero for 2000. As detailed in Note 6 to the consolidated financial statements, the effective tax rates differed from the base federal rate of 34% each year due primarily to changes in the valuation allowance, state income taxes and federal employer tax credits. The valuation allowance currently offsets the full amount of deferred tax assets net of deferred tax liabilities. Despite the valuation allowance, the deferred tax assets are still available to the Company for future use. If the Company maintains profitability, the Company may recognize tax benefits for all or a portion of the deferred tax assets at a future date, when the valuation allowance is reduced or the tax as- 13 sets realized. The deferred tax assets include federal employer tax credits and net operating loss (NOL) carryforwards which expire in years 2012 through 2020, and state NOL carryforwards which expire in years 2000 through 2014. Due to the factors discussed herein, the Company reported 2000 net earnings of $249,000, or $0.17 per share, compared with 1999 net earnings of $1.9 million, or $1.29 per share. The Company incurred a fourth quarter net loss of $191,000, or $0.13 per share, and achieved fourth quarter earnings of $128,000, or $0.08 per share, in 2000 and 1999, respectively. To aid in comparing operating results for 2000 and 1999, the table below summarizes the effect of certain gains, adjustments, charges and credits on operating income (loss) and net earnings (loss) for the quarters and years ended September 30, 2000 and 1999.
Three Months Ended Twelve Months Ended ------------------------------------------------------------------------------- September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------------------------------------------------------------------------- Operating income (loss) before adjustments................. $ (213,000) $ 103,000 $ (850,000) $ 442,000 Gain from insurance credits......... 1,020,000 1,038,000 ------------------------------------------------------------------------------- Operating income (loss)......... (213,000) 103,000 170,000 1,480,000 Gain on sale of assets.............. 9,000 8,000 52,000 367,000 Other income and expense............ 13,000 17,000 27,000 29,000 Tax benefit......................... 12,000 ------------------------------------------------------------------------------- Net earnings (loss)............. $ (191,000) $ 128,000 $ 249,000 $ 1,888,000
The Company's future profitability depends on increasing restaurant revenues and reducing key cost factors, particularly labor costs. Management plans to address these issues through its reimaging plan, marketing programs, reorganization of operations management, and the continuation of the Company's brand extension programs. Liquidity and Capital Resources for 2000 Compared with 1999 The Company's current ratio was flat at 0.4 to 1 for fiscal year 2000. Like many restaurant chains, the Company maintains a current ratio well below 1. Most of its current liabilities, primarily accounts payable, accrued payroll and accrued insurance costs, flow through operations and roll over rather than being reduced to zero in subsequent periods. Operating activities provided net cash of $1.2 million in fiscal 2000 compared with $1.6 million in 1999. The 2000 net earnings of $249,000 included non-cash charges of $2 million for depreciation and amortization. The 1999 net earnings of $1.9 million also included non-cash charges of $2 million for depreciation and amortization. The Company reduced its accrued insurance reserves by $1,020,000 and $1,038,000 in fiscal years 2000 and 1999, respectively. These reductions were based on updated liability estimates derived from additional information available in the periods involved, including the resolution of significant claims and a general improvement in claims experience. Effective for calendar year 2000, the Company is no longer self-insured, and is therefore no longer accruing additional insurance loss reserves. Investing activities used $1.4 million in 2000 and provided $988,000 in 1999. The Company received $530,000 for asset sales in 2000, primarily from the sale of a warehouse next to its corporate headquarters. The Company invested $2 million in capital additions in 2000, compared with $1.5 million in 1999. As part of its reimaging program, the Company completed the extensive remodel of its Mesquite, Texas location to use as a prototype for the new Pancho's Buffet & Grill(TM) concept, and started and completed remodels of two of its Houston, Texas locations to test the Panchito's $4.99 Buffet(TM) concept. 14 In order for the Company to complete its reimaging program to boost sales and profitability, management assumes that it will need to spend approximately $6 million over a three year period remodeling its restaurants. Management has developed a staggered rollout strategy to maximize resources and minimize restaurant downtime. The Company will complete more extensive remodels in above average stores it feels will benefit the greatest in terms of return of investment. Many stores will require more basic cosmetic changes, which include repainting, new seating, tablecloths, curtains and menu boards thus allowing the Company to maintain continuity and feel throughout the organization. In connection with the reimaging plan, the Company has retained the services of an investment banking firm to explore strategic financial alternatives for the Company to enhance future growth and maximize shareholder value. No new restaurants were opened or under construction in 2000, and none are planned for fiscal 2001. The Company expects to invest approximately $500,000 in capital additions in 2001 in addition to the capital expenditures for the reimaging program. The $500,000 will be used for routine capital replacements and will be spent within the constraints of available funds from operations. The Company also has one closed restaurant site held for sale, which would augment cash available for capital additions if sold. Financing activities consumed $74,000 and $1.8 million in 2000 and 1999, respectively, primarily to reduce debt. The Company paid off its bank credit line during 1999, and the only debt remaining is notes payable to buy out the lease obligations on closed units. The Company plans to finance its 2001 operations and capital additions, with the exception of store remodels, mainly with cash flow from operations and, possibly, the sale of the closed restaurant site held for sale. The Company does not currently have a line of credit to finance working capital needs. Although the Company expects cash flow from operations to be sufficient to fund its anticipated operating needs in fiscal 2001, management is pursuing a working capital line of credit for short-term operating needs. Proceeds from any borrowings on a line of credit will be used to provide additional liquidity during peak cyclical seasonal demands. No dividends have been paid since fiscal 1997, and the future payment of cash dividends will depend on the Company's earnings, financial position, capital requirements and other relevant factors. Operating Results for Fiscal 1999 Compared to Fiscal 1998 Same-store sales increased 0.4% in fiscal 1999, following an increase of 2.1% for 1998. Fourth quarter same-store sales were up 0.1% in 1999 compared with a decline of 1.6% for the same period in 1998. The 1999 increase was due primarily to sales gains at existing stores after nearby Pancho's were closed in July and August 1998. A price increase of about 1% implemented in April 1998 also contributed. Total sales for 1999 were $57.4 million, down from $64.1 million in 1998 due to the closings of nine underperforming units in July and August 1998. The closed units totaled $6.8 million in sales in 1998. Average annual sales per unit were $1,190,000 for 1999 and $1,192,000 for 1998. Average store sales were lower in 1999 due to the temporary closing for remodel of one above average sales unit in late August 1999. The same stores increase reflects the effect of eliminating that unit's sales from the 1998 average comparison. The closed unit reopened in December 1999. October and November 1998 sales for that unit totaled $225,000. Fourth quarter total sales were $14.6 million in 1999 and $15.6 million in 1998. The nine units closed in 1998 totaled $932,000 in sales in the fourth quarter of 1998. Average sales per unit were $303,000 and $305,000 for the quarters ended September 30, 1999 and 1998, respectively. 15 Sales discounts increased to 4.6% of sales in 1999 from 4.2% of sales in 1998. Fourth quarter discounts were 5.1% and 4.5% of sales for 1999 and 1998, respectively. The Company's discounting tactics included coupons distributed by direct mail, newspaper inserts and a variety of neighborhood marketing promotions. The Company continued to emphasize a neighborhood marketing strategy to strengthen Pancho's ties to each restaurant's community. A portfolio of specific marketing tactics were developed for each location and complemented by existing Company programs such as the Birthday Club, School Rewards programs and Seniors Club. To offset increases in labor costs and general inflation, the Company implemented price increases of about 4% in October and November 1999. No new restaurants were opened in 1999, and none were planned for fiscal 2000. Management planned to focus on continuing to improve same store sales and operating margins at its existing units before adding new locations. In 1999, the Company initiated a reimaging project to revitalize the Pancho's concept and improve sales trends. The reimaging initiative considered potential changes in restaurant design, recipes, food offerings and cooking and service procedures. One restaurant in Fort Worth was remodeled in 1999 to incorporate and test some of those changes. The Company's restaurant in Mesquite, Texas (Dallas area) was temporarily closed in late August 1999 for a more extensive remodel incorporating major changes in design and in cooking procedures. The Mesquite store reopened in December 1999 featuring a fresh, contemporary look with a new logo, lively interior design, new recipes and exhibition grill cooking. Additional remodels would be scheduled based upon customer response to the revamped Mesquite unit and available funds. In October 1999, as part of the reimaging project, the Company began rolling out new recipes and salsa bars to all of its restaurants. The new recipes were generally spicier, with more complex flavor profiles to tempt today's more discerning palates. The salsa bars featured a variety of exciting salsas, salad and other condiments. The Company reduced food cost 0.3% and 0.6% of sales for the quarter and year ended September 30, 1999, respectively. Food costs as a percentage of sales benefited from efficiencies after closing lower volume units in 1998 and the April 1998 price increase. Under its reimaging project, the Company began rolling out revamped recipes in October 1999. Many of these new recipes involved ingredients which the Company expected might cause some increase in food costs as a percentage of sales in fiscal 2000. Labor and related expenses decreased 0.1% and 1.9% of sales for the 1999 fourth quarter and year, respectively, compared with the same 1998 periods. Due to effective claims management and experience, the Company recognized benefits of $525,000 to reduce employee injury insurance reserves in the second and third quarters of 1999 and $57,000 in the fourth quarter of 1998. After eliminating those gains, labor and related costs were down 0.5% and 1.1% of sales for the quarter and year ended September 30, 1999, respectively. Labor costs were lower as a percentage of sales due to the greater efficiency of the higher volume stores left after the 1998 closings, despite wage rate inflation. Due to the tight labor market, the Company's average hourly wage cost was 5.3% higher in 1999 than in 1998. Pancho's prepares a large quantity and variety of fresh food throughout the day, and provides buffet-line and table service in each restaurant. Maintaining a high level of quality service, sanitation and food 16 preparation is labor intensive. A tight labor market continued to contribute to general wage inflation. Congress was considering various increases in the federal minimum wage to be mandated in the coming years. Higher wages made it difficult for the Company to control labor and related costs unless the sales trend improvement continued. The Company would consider price increases and other methods to compensate for labor cost increases. Restaurant operating expenses included supplies, maintenance expense, utilities, occupancy costs, insurance expense, and store marketing expenses. This expense category decreased 0.4% and 2.4% of sales for the 1999 fourth quarter and year, respectively. Due to effective case and risk management, the Company reduced insurance reserves by $513,000, $56,000 and $268,000 in 1999, fourth quarter 1998 and fiscal 1998, respectively. Eliminating those credits, restaurant operating expenses decreased 0.7% and 2.0% of sales for the 1999 fourth quarter and year, respectively. Closing nine lower sales units in 1998 helped reduce the cost-to-sales ratio of this category. Fourth quarter store marketing expenses increased 0.3% of sales for 1999 compared with 1998, as the Company spent more for fourth quarter promotions in 1999. Store marketing costs decreased 0.7% of sales for 1999. The Company spent $253,000 less for marketing research and consulting in 1999 and reduced advertising media costs $120,000. Spending on direct mail was $247,000 lower for the year as the Company increased promotional spending by $131,000, emphasizing newspaper inserts with coupons. The Company invested 2.2% and 2.9% of sales in store marketing for 1999 and 1998, respectively. Depreciation and amortization decreased $54,000, 0.1% of sales, and $850,000, 1% of sales, in the fourth quarter and year 1999, respectively, due to the asset write-downs taken in June 1998. In the quarter ended June 30, 1998, the Company impaired assets at 22 locations based on its continuing evaluation of recoverability of long-lived store assets at 13 locations and its plan to close and dispose of nine locations. The Company initially estimated asset impairment charges of $6,049,000 for the 22 restaurant sites, which included one previously closed and held for sale. In the 1998 fourth quarter, the Company reversed $368,000 of the impairment charge for land and buildings held for sale, based primarily on the October 1998 sale of one of the properties for significantly more than the previously estimated fair value less cost to sell. Impairment charges were determined in accordance with Statement of Financial Accounting Standard (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." No impairment charges were taken in 1999. The Company adopted a restructuring plan in the quarter ended June 30, 1998 which involved closing nine restaurants. The Company accrued exit costs of $920,000 for nine locations which were closed by August 10, 1998 under the plan. Four of those nine closures, plus one previously closed site were included in land and buildings held for sale at September 30, 1998. The Company completed the sale of four of those sites in 1999, so only one site remained in land and buildings held for sale at September 30, 1999. No other closings were currently planned, but management would continue to evaluate operating results and consider closing other locations based on profitability and cash flow. No restaurants were closed in 1999. The Company realized net gains on sale of assets of $367,000 and $153,000 in fiscal 1999 and 1998, respectively. Management believed that long-lived assets held for sale or future use are carried at the lower of depreciated cost or fair value. If conditions changed and future circumstances indicated that long-lived assets are carried at more than net realizable future cash flows, then additional asset impairment charges would be necessary. 17 In fiscal 1999, interest expense was $190,000 lower than in 1998. The Company paid off and terminated its bank line of credit before the 1999 fourth quarter, so interest expense was zero in the 1999 fourth quarter versus $42,000 in the 1998 fourth quarter. Net deferred tax assets decreased $702,000 to $7.4 million in fiscal 1999, due mainly to the reversal of a significant portion of the book-tax differences on fixed assets and accrued insurance costs. The tax provision of $702,000 was offset by a $702,000 decrease in the valuation allowance. The $12,000 tax benefit resulted from a tax refund received in 1999. The valuation allowance was increased $7.3 million in 1998 to offset the Company's total net deferred tax assets. Due to the Company's net loss for the quarter ended June 30, 1998, combined with net losses for the three preceding fiscal years, it was considered necessary to provide a valuation allowance for all of its net deferred tax assets. Due to the 100% valuation allowance, the Company's net effective tax rate was virtually zero for 1999. As detailed in Note 6 to the consolidated financial statements, the effective tax rates differed from the base federal rate of 34% each year due primarily to changes in the valuation allowance, state income taxes and federal employer tax credits. The valuation allowance offset the full amount of deferred tax assets net of deferred tax liabilities. Despite the valuation allowance, the deferred tax assets were still available to the Company for future use. If the Company maintained profitability, the Company might have recognized tax benefits for all or a portion of the deferred tax assets at a future date, when the valuation allowance is reduced or the tax assets realized. The deferred tax assets included federal employer tax credits and net operating loss (NOL) carryforwards which were to expire in years 2009 through 2014, and state NOL carryforwards which were to expire in years 2000 through 2014. Due to the factors discussed herein, the Company reported 1999 net earnings of $1.9 million, or $1.29 per share, compared with a 1998 net loss of $12.5 million, or $8.54 per share. The Company achieved fourth quarter net earnings of $128,000, or $0.08 per share, and $391,000, or $0.27 per share, in 1999 and 1998, respectively. The Company's future earnings depended largely on improving sales and maintaining tight cost controls in the highly competitive restaurant industry. To enhance potential profitability, the Company was seeking to develop a restaurant model that increases sales and lowers labor costs as a percentage of sales. The Company reopened its dramatically redesigned Mesquite unit in December 1999. Liquidity and Capital Resources for 1999 Compared to 1998 The Company's current ratio improved to 0.4 to 1 at September 30, 1999 from 0.3 to 1 at fiscal year end 1998. The current ratio increased in fiscal 1999 due to an increase in cash of $696,000 accumulated after paying off the bank line of credit in February 1999. Like many restaurant companies, much of the Company's current liabilities, primarily accounts payable and accrued wages and bonuses, flow though operations and roll over rather than being paid down to zero. Operating activities provided net cash of $1.6 million in fiscal 1999 compared with $847,000 in 1998. The 1999 net earnings of $1.9 million included non-cash charges of $2 million for depreciation and amortization. The 1998 net loss of $12,518,000 included non-cash charges of $2,808,000 for depreciation and amortization, $4,305,000 for deferred taxes, $5,681,000 to impair long-lived assets and $920,000 to reserve for exit costs of closed locations. Investing activities provided $988,000 in 1999 and used $436,000 in 1998. The Company received $2.5 million for asset sales in 1999, primarily from four previously closed restaurant sites sold in 1999. 18 The Company invested $1.5 million in capital additions in 1999, compared with $697,000 in 1998. In 1999, one location was remodeled to test restaurant design changes, and another remodel with more extensive changes was begun near the end of the year and completed in December 1999. Investment in other remodels, property improvements and restaurant computer upgrades was accelerated in 1999 to compensate for several years of limited investment due to debt restrictions. No new restaurants were opened or under construction in 1999, and none were planned for fiscal 2000. The Company expected to invest between $1 million and $2 million in capital additions in 2000. Capital expenditures to remodel existing restaurants, install restaurant computer systems and provide routine capital replacements would continue within the constraints of available funds. The Company also had one remaining closed restaurant site held for sale, which would augment cash available for capital additions if sold. The Company closed nine restaurants in 1998, as part of its restructuring plan, and provided estimated reserves to exit those locations. The Company sold the land and building for four of the closed sites in 1999, and is seeking to sell the land and building for the remaining closed location, which was included in land and buildings held for sale on the balance sheet. Financing activities consumed $1.9 million and $294,000 in 1999 and 1998, respectively, primarily to reduce debt. The Company paid off its bank credit line in 1999, and the only debt remaining are notes payable to buy out the lease obligations on closed units at a discount. The Company financed its 1999 operations and capital additions mainly with cash flow from operations. The Company paid a dividend of $.045 per share on December 9, 1997. The future payment of cash dividends would depend on the Company's earnings, financial position, capital requirements and other relevant factors. Seasonality The Company's business is seasonal. Sales are typically higher in summer months and other periods when students are not attending school. Impact of Inflation In the restaurant business, food, labor, and labor-related expenses are the major cost factors that effect profits. Many of the Company's employees are paid wages related to the statutory minimum wage, and any increase in the minimum wage would increase the Company's cost (Congress is considering various increases in the federal minimum wage to be mandated in the coming years). Also, most of the Company's leases require the payment of percentage rentals based on revenues, which, along with taxes, repairs and maintenance, utilities, and insurance are subject to inflation. The Company expects to be able to offset the effects of inflation through occasional price increases and savings from volume purchasing. Wage rate inflation drove the Company's average hourly wage costs up 1.2% of sales in 2000 and 5.3% of sales in 1999. To help offset the rising labor costs, the Company implemented a price increase of about 4.5% in November 1999. 19 Other Uncertainties and Trends In recent years, there has been accelerated development of value-priced menus and all-you-can-eat restaurant offerings. Pancho's Mexican Buffet/(R)/ has operated as a value-priced, all-you-can-eat concept for over 30 years and expects to compete effectively. SFAS No. 121 requires the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company considers a history of operating losses or negative cash flows to be its main indicators of potential impairment. Assets are generally evaluated for impairment at the restaurant level. If a restaurant continues to incur negative cash flows or operating losses, an impairment or restaurant closing charge may be recognized in future periods. Special Note Regarding Forward-Looking Information Certain statements in this report are forward-looking statements which represent the Company's expectations or beliefs concerning future events, including, but not limited to the following: statements regarding restaurant format or concept changes, remodeling plans, plans to sell assets, unit growth, capital expenditures, future borrowings, future cash flows, claims, payments and adjustments related to the Company's insurance reserves, and future results of operations. The Company warns that many factors could, individually or in aggregate, cause actual results to differ materially from those included in the forward-looking statements, including, without limitation, the following: the effects of changes in the Company's restaurant format or concept; consumer spending trends and habits; increased competition in the restaurant industry; weather conditions; the results of claims on the Company's insurance reserves; and laws and regulations affecting labor and employee benefit costs. The Company does not expect to update such forward-looking statements continually as conditions change, and readers should consider that such statements pertain only to the date hereof. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data The consolidated financial statements and related notes thereto required by this item are listed and set forth herein beginning on page 35. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. 20 PART III Item 10. Directors and Executive Officers of the Registrant (a) Directors of the Registrant
Proposed Term or Director Term to Name Age Since Expire All Positions Held Past Five Years ---- ----- ---------- --------- ---------------------------------- Samuel L. Carlson 64 1993 2004 Senior Vice President, Administration and Secretary. David Oden 40 1998 2004 Executive Vice President and Chief Financial Officer, TX C.C., Inc., operator of the Texas Land & Cattle Steak House Restaurant chain, since February 2000; Senior Vice President and Chief Financial Officer, TX. C. C., Inc., October 1998 to February 2000; Chief Financial Officer, TX. C. C., Inc. from July 1997 to October 1998; Senior Vice President and Chief Financial Officer, Silver Diner, Inc. from September 1995 to July 1997. Rudolph Rodriquez, Jr. 68 1993 2004 Chairman, and Chief Executive Officer, Rodriquez Festive Foods, Inc., a manufacturer of Mexican Food products; Advisory Board Member, Chase Bank of Texas NA, Fort Worth, Texas. Robert L. List 63 1993 2003 President, "Hammond's Candies Since 1920, LLC" since May 1997, and President, West Indies Candy Company; Director, Mercury Air Group, Inc. George N. Riordan 67 1994 2003 Managing partner, George Riordan & Co., investment bankers; Chairman of the Board, MSC Software Corporation, January 1997 to January 1999. Director 1983 to date. Hollis Taylor 64 1974 2003 President, Chief Executive Officer, and Treasurer. Jesse Arrambide, III 48 1977 2002 Chairman of the Board of Directors and Chief Operations Officer; President, A & A Foods, Inc. and President, A & A Foods No. 2, Inc. Joanne Keates 43 2000 2002 Director - Investor Relations for MSC Software Corporation since 1996. Partner, George Riordan & Co., investment bankers, from 1992 to 1996. Tomas Orendain 67 1993 2002 President, T.S. Orendain Associates, Inc., an architectural firm. Chairman of the Board, Orendain Telecommunication Services, Inc.
21 (b) Executive Officers of the Registrant The names and ages of all executive officers of the Registrant, as well as all persons chosen to become executive officers, together with the nature of any family relationships between them, all positions and offices with the Registrant held by each person named and the period during which each person named has served as such officer is included in Part I under the caption "Executive Officers of the Registrant". The information set forth under the caption "Executive Officers of the Registrant" in Part I is incorporated herein by reference. (c) Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Securities Exchange Act of 1934 requires the Company's Directors and executive officers, and persons who own more than ten percent of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission ("SEC") and the Nasdaq initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Executive officers, Directors and greater than ten-percent stockholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company and written representations from the executive officers and Directors that no other reports were required, for the year ended September 30, 2000, all Section 16(a) filing requirements applicable to its executive officers, Directors and greater than ten-percent beneficial owners were filed on a timely basis. 22 Item 11. Executive Compensation Summary Compensation Table The following sets forth information concerning the compensation of the Company's Chief Executive Officer and each of the other most highly compensated executive officers of the Company (the "Named Executive Officers") for the fiscal years shown, when compensation equaled or exceeded $100,000.
Long Term Compensation All Other Fiscal Annual Compensation Other Annual Awards Compensation ------------------------------------------- ------------ Name and Principal Position Year Salary ($) Bonus ($) (1) Bonus ($) (2) Compensation (3) Options (6) ($) (4) - --------------------------------- ------- ------------ ------------- --------------- ----------------- ------------ -------------- Hollis Taylor 2000 $ 195,000 $ 28,626 14,000 $ 3,465 President, Chief Executive 1999 195,000 $ 64,000 30,441 4,405 Officer and Treasurer 1998 194,465 31,949 4,496 Jesse Arrambide III 2000 160,000 13,254 10,000 640 Chairman of the Board and 1999 160,000 42,000 14,094 722 Chief Operations Officer 1998 155,557 15,975 722 Samuel L. Carlson 2000 125,000 21,469 1,211 Senior Vice President 1999 125,000 33,000 21,141 1,656 Administration and 1998 123,524 22,172 1,688 Secretary W. Brad Fagan (5) 2000 73,077 5,000 23 Vice President, Treasurer 1999 100,000 26,000 33 and Assistant Secretary 1998 95,382 390
- --------------------- (1) Annual incentive plan. (see Board Compensation Committee Report on --------------------- Executive Compensation) (2) Stock bonus program. (see Board Compensation Committee Report on Executive -------------------- Compensation) (3) "Other Annual Compensation" is intended to cover forms of annual compensation not properly categorized as salary or bonus, including perquisities. No named executive received such compensation or perquisities which exceeded a threshold level for disclosure purposes. (4) The totals in the columns reflect the value of the Company contributions to each named executive under the Employee Stock Purchase Program and additional life insurance. These amounts for the 2000 fiscal year were as follows: Hollis Taylor: $1,500 and $1,965. Jesse Arrambide III: $600 and $40. Samuel L. Carlson: $0 and $1,211 and W. Brad Fagan: $23 and $0. (5) Mr. Fagan resigned June 30, 2000. (6) Granted April 14, 2000 at $3.719. 23 Option Grants in Fiscal Year 2000
% of Potential Total Realized Value at Number of Options Assumed Annual Securities Granted to Rates of Stock Price Underlying Employees Exercise Appreciation Options in Fiscal Price Expiration for Option Term -------------------------------- Name Granted (#) Year ($/Sh) Date 5% ($) 10% ($) - ------------------------- -------------- -------------- ------------- -------------- ---------------- -------------- Hollis Taylor 14,000 20.2% 3.719 4/14/2010 $ 2,603 $ 5,207 Jesse Arrambide III 10,000 14.4% 3.719 4/14/2010 1,860 3,719
Aggregated Option Exercises in Fiscal Year 2000 and 2000 Fiscal Year-End Option Values Number of Unexercised Value of Unexercised Shares Options at In-The-Money Options at Acquired Value September 30, 2000 September 30, 2000 (1) (2) ----------------------------- -------------------------------- Name on Exercise Realized (1) Exercisable Unexercisable Exercisable Unexercisable - ------------------------- -------------- -------------- ------------- -------------- ---------------- -------------- Hollis Taylor 0 N.A. 24,666 14,000 $ - $ - Jesse Arrambide III 0 N.A. 24,666 10,000 - -
- ------------- (1) Market value less exercise price, before payment of applicable income taxes. (2) At September 30, 2000 the exercise price was higher than the market price of Company's stock. 24 Compensation of Directors Each member of the Board of Directors who is not an employee of the Company receives a Director's fee in the amount of $10,000 cash annually in addition to $500 cash for each board, committee or other official meeting attended, and reimbursement of actual expenses incurred. Directors who are not employees of the Company have in the past received options under both the Stock Option Plan for Non-Employee Directors and the 1992 Stock Option Plan. Non-employee Directors will receive future automatic option grants under the 1992 Stock Option Plan, and under the 1998 Restricted Stock Plan for Directors will receive shares of the Company's stock in the amount of $2,500 quarterly, based on market price. 1992 Stock Option Plan The 1992 Stock Option Plan ("1992 Plan") was approved by the shareholders at the Annual Meeting held January 27, 1993, and amended at the Annual Meeting held January 28, 1998. Under the 1992 Plan, each Director of the Company who was not an employee automatically received a non-qualified stock option immediately following the Annual Meeting of Stockholders held on January 27, 1993, in the amount of 1,666 shares of the Company's Common Stock. At each Annual Meeting of the stockholders thereafter, each Director of the Company who is not an employee of the Company will automatically receive a non-qualified stock option covering 1,333 shares of the Company's Common Stock. All options granted under the 1992 Plan will have an exercise price equal to the fair market value of the Common Stock on the date of the Annual Meeting of the stockholders to which it relates. Each option granted will have a term not to exceed ten (10) years and generally will become exercisable at the rate of twenty-five percent (25%) for each year the optionee remains with the Company as a Director. Options granted to a Director can, in no event, be exercised until the lapse of six (6) months from the date of grant. Other than in the case of a reincorporation of the Company in another state, in the event of (i) dissolution or liquidation of the Company, (ii) a transaction in which more than 50% of the shares of the Company that are entitled to vote are exchanged, or (iii) any merger or consolidation or other reorganization in which the Company is not the surviving corporation (or in which the Company becomes a subsidiary of another corporation), outstanding options under the 1992 Plan shall become fully exercisable immediately prior to any such event. Unless terminated earlier by reason of expiration of the option term, options under the 1992 Plan will terminate (a) three months after the optionee's directorship terminates for reasons other than death or disability; (b) 12 months after termination for disability; and (c) the normal termination date, in the case of death. All options granted under the 1992 Plan will be non- transferable by the optionee other than by will or the laws of descent and distribution. Such options may contain such other terms, provisions and conditions not inconsistent with the 1992 Plan. Pursuant to the terms of the 1992 Plan, 6,665 shares were granted at a price of $3.25 to non-employee Directors and 7,500, 49,500 and 6,000 shares at a price of $2.875, $3.719 and $3.563, respectively, were granted to officers and employees during the current fiscal year. On March 7, 2001, options covering 8,331 shares will automatically be granted to the non-employee directors. Options to purchase 173,765 shares of the Company's Common Stock were outstanding under the 1992 Plan as of September 30, 2000. No options were exercised during the 2000 fiscal year. Employment Contracts and Termination of Employment and Change-in-Control Arrangements There currently exist Employment Agreements between the Company and Messrs. Hollis Taylor, Jesse Arrambide, III and Sam L. Carlson, providing that Messrs. Taylor, Arrambide, and Carlson are to be em- 25 ployed by the Company at a base salary of not less that $195,000, $160,000, and $125,000 per year, respectively. These agreements are considered for automatic renewal on December 31 of each succeeding year for a period of five years, expressly subject to approval of the Compensation Committee. As these contracts have not been renewed, they are scheduled to expire by their terms on December 31, 2001, which is five years from the date of the last automatic renewal on December 31, 1996. During the term of the aforesaid Employment Agreements, these individuals are to serve as officers of the Company and perform such services similar to and not inconsistent with the present positions held by each with the Company. In addition, they shall be eligible to participate in all Company benefit, bonus and other plans. Under the terms of each Employment Agreement, such employment may be terminated for "cause" as defined in each Employment Agreement. See 1992 Stock Option Plan for a discussion of change in control provisions. Board Compensation Committee Report on Executive Compensation The Compensation Committee of the Board of Directors establishes the general compensation policies of the Company, the compensation plans and specific compensation levels for executive officers and administers the Company's annual incentive plan and stock option plan. The Compensation Committee is comprised of three independent, non-employee directors who have no interlocking relationships as defined by the SEC. The compensation committee relies primarily on data supplied by outside consultants. Base salary, annual incentive and long-term comparisons are made relative to companies within the food and restaurant industry with revenues closely comparable to the Company. The compensation program for executives is viewed as a total compensation package comprised of base salary, annual incentives and long-term capital appreciation opportunities in the form of stock options and a stock purchase program. The total cash compensation is comprised of base salaries that are targeted to be slightly less than the average market salaries for comparable companies with an annual incentive opportunity dependent upon Company performance. Annual Incentive The Officer's Bonus program is designed to reward executives for the annual growth of the Company. Officers become eligible for a bonus only after a predetermined level of consolidated earnings, before income taxes and payouts of officers' bonuses has been met. Once the plan target has been met, bonuses as a percentage of base salary are paid to executives based upon a graduated schedule. The bonus percentage depends upon the degree to which the plan was exceeded. Hollis Taylor is eligible for an additional 25% above the target bonus. To be eligible, all officers must be employed at the end of the fiscal year and any new officer would receive a bonus based on a pro-rata basis. Payment of bonuses is made after the annual audit. Incentive bonuses were not paid in fiscal 2000 as earnings before income taxes (including consideration for incentive bonus expense) did not meet the plan target. Long-term Incentives The stock bonus program utilized by the Company is designed to (1) align executives with the long-term goals of the Company, (2) create an environment whereby executives are aligned closely with shareholders and (3) encourage high levels of stock ownership. Primary emphasis of the total compensation package for executives is placed on the long-term component. The program of the Company provides loans to executives to purchase shares of stock at a fixed market price. The loan must be paid off ratably over ten years. If the financial position of the Company and individual performance warrants, the Company pays to the executive a stock bonus to cover the cost of the annual loan payment. While this program has been successful, the long-term incentive compensation is below market. 26 CEO Compensation The Compensation Committee believes that the Chief Executive Officer's (CEO) compensation should be influenced by Company performance. Therefore, although there is necessarily some subjectivity in setting the CEO's salary, elements of the compensation package are directly tied to Company performance. The Committee establishes the CEO's salary by reviewing annually the salaries of CEO's of comparably sized companies and their performance according to data obtained by the Committee from independent outside consultants. In addition, the CEO participates in the annual incentive plan described above. The number of shares granted to the CEO is determined by the subjective evaluation of the executive's ability to influence the Company's long-term growth and profitability. The CEO received a grant of 14,000 shares in fiscal 2000 at a market price of $3.719. All shares available to be purchased by the executive are granted at the current market price. A loan was made to the CEO in 1992 to purchase 6,666 shares at a market price of $23.625 per share. The loan is payable over ten years plus interest. It has been Company policy to bonus to the CEO in an amount to cover the annual loan cost if the Company is in a financial position to make such a payment and if the CEO's performance warranted such stock bonus. During the fiscal year, the Company paid a stock bonus of $28,626 to the CEO. Compensation Committee Robert L. List George N. Riordan Rudolph Rodriguez, Jr. 27 Company Stock Price Performance The graph below compares the cumulative total shareholder return on $100 invested at market close on September 30, 1995, assuming the reinvestment of all dividends, on the Common Stock of the Company for the last five years with the cumulative total return of the Nasdaq Stock Market Index (US Companies) and the Nasdaq Eating and Drinking places (US Companies). Comparison of Five Year-Cumulative Total Returns Performance Graph for Pancho's Mexican Buffet, Inc. [GRAPH APPEARS HERE]
Year Ended September 30 ----------------------------------------- 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- _______ Pancho's Mexican Buffet, Inc. 100.0 65.4 74.4 28.4 37.8 39.2 ----- ----- ----- ----- ----- __ __ __ Nasdaq Stock Market Index (US Companies) 100.0 118.7 162.9 165.5 270.4 359.0 ----- ----- ----- ----- ----- _ _ _ _ Nasdaq Eating & Drinking Planes (US Companies) 100.0 100.3 92.0 61.1 62.6 77.9 ----- ----- ----- ----- -----
Notes: A. The lines represent monthly index levels derived from compounded daily returns that include all dividends. B. The indexes are reweighted daily, using the market capitalization on the previous trading day. C. If the monthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used. D. The index level for all series was set to $100.00 on 9/29/1995. 28 Item 12. Security Ownership of Certain Beneficial Owners and Management As Of November 30, 2000 The Company has only one outstanding class of equity securities, its Common Stock, par value $.10. Unless otherwise indicated, all shares are owned directly and the owner has sole voting and investment powers with respect thereto. The security ownership, as of November 30, 2000, of certain beneficial owners known to the Company to own more than five percent of the Company's Common Stock was:
Name and Address of Amount and Nature of Percent Beneficial Owner Beneficial Ownership of Class ------------------- -------------------- --------- Stephen Oyster 140,092 9.50% 3825 Lake Austin Blvd. Austin, Texas 78703 Dimensional Fund Advisors Inc. (1) 84,363 5.72% 1299 Ocean Ave., 11th Floor Santa Monica, CA 90401 Carolina S. Arrambide (2) 79,974 5.43% 3116 Westador Drive Arlington, Texas 76015
_________________ (1) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed to have beneficial ownership of 84,363 shares of Pancho's Mexican Buffet, Inc., all of which shares are held in portfolios of DFA Investment Dimensions Group, Inc., a registered open-end investment company, or in series of The DFA Investment Trust Company, a Delaware business trust, or the DFA Group Trust and the DFA Participating Group Trust, investment vehicles for qualified employee benefit plans, all of which Dimensional Fund Advisors Inc. serves as investment manager. Dimensional disclaims beneficial ownership of all such shares. (2) Carolina S. Arrambide is the sole beneficiary of the Estate of Jesse Arrambide Jr. which includes 61,086 shares of Pancho's Mexican Buffet, Inc. common stock. Cede & Co. and other central clearinghouses were the record holders of approximately 1,103,145 shares (74.8%), which include shares beneficially owned by some of the entities listed above. 29 The security ownership as of November 30, 2000 including shares subject to options that are exercisable in the next 60 days, (all Common Stock) of (i) Directors and executive officers and (ii) Directors and executive officers as a group, was:
Name and Address of Amount and Nature of Percent Beneficial Owner Beneficial Ownership (1) (2) of Class -------------------- ----------------------------- --------- Hollis Taylor 67,982 (3) 4.11% Jesse Arrambide, III 37,966 (3) (6) 1.26% Samuel L. Carlson 20,886 2.29% Robert L. List 11,516 (4) * Rudolph Rodriguez, Jr. 12,849 (4) * Tomas S. Orendain 11,516 (4) * George N. Riordan 11,517 (7) * David Oden 4,556 (8) * Joanne Keates 677 * All Directors and executive officers as a group 179,465 (5) 10.85%
_________________ * Less than 1% (1) Includes shares purchased by the employee stock purchase plan through October 30, 2000. (2) Based on presently exercisable options which are indicated in the following footnotes to this table, the percentage ownership is calculated on the assumption that the shares presently purchasable, or purchasable within the next sixty days, underlying such options are outstanding. (3) This amount includes 24,666 shares subject to options that are exercisable within the next sixty days. (4) This amount includes 5,163 shares subject to options that are exercisable within the next sixty days. (5) This amount includes 69,735 shares that directors and executive officers have the right to acquire within the next sixty days through the exercise of stock options. (6) Estate of Jesse Arrambide has pledged 13,542 of the Company's common shares for various loans. Jesse Arrambide, III acts as Independent Executor and has sole voting power of these shares. Jesse Arrambide, III disclaims beneficial ownership of these securities. (7) This amount includes 4,497 shares subject to options that are exercisable within the next sixty days. (8) This amount includes 417 shares subject to options that are exercisable within the next sixty days. Item 13. Certain Relationships and Related Transactions Rudolph Rodriguez, Jr., Director, is Chairman and Chief Executive Officer of Rodriguez Festive Foods, Inc., which sold products to the Company's outside distributor, which are then purchased by the Company, in the amount of $1,172,482 during the fiscal year ended September 30, 2000. In the same fiscal year, Rodriguez Festive Foods, Inc. purchased items in the amount of $43,966 from the Company. Rodriguez Festive Foods, Inc. also leases the Company's cold storage facilities formerly used by the Company's food distribution center. The lease is for $5,000 per month expiring on October 31, 2000. Five-year option at $5,500 monthly effective November 1, 2000 has been exercised. All of the foregoing transactions with Rodriguez Festive Foods, Inc. were entered into in the ordinary course of business, and it is believed that the terms and conditions are no less favorable to the Company than they would have been for similar transactions with unrelated parties. Occasional sales of supplies and equipment are made on a cost plus basis to the family owned restaurant operations of Jesse Arrambide III, Chairman of the Board and Chief Operations Officer of the Company. Sales were $8,823 for the year ended September 30, 2000. 30 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. and 2. Financial Statements and Financial Statement Schedules - see Index to Consolidated Financial Statements and Schedules on page 35. 3. Exhibits Required by Item 601 of Regulation S-K Exhibit Number Description ------ ----------- 2 - Not applicable 3(a) - Certificate of Incorporation of Pancho's Mexican Buffet, Inc. (2) 3(b) - Certificates of Amendment of Certificate of Incorporation (3) 3(c) - Certificate of Amendment of Certificate of Incorporation (5) 3(d) - Certificate of Amendment of Certificate of Incorporation (8) 3(e) - Bylaws of Pancho's Mexican Buffet, Inc. as amended through October 5, 1990 (10) 3(f) - Agreement and Plan of Merger dated December 31, 1968 (1) 3(g) - Certificate of Amendment of Certificate of Incorporation, dated January 25, 1995 (15) 3(h) - Restated Certificate of Incorporation, as revised January 25, 1995 (15) 3(i) - Certificate of Amendment to Certificate of Incorporation, dated January 27, 1999 (24) 4(a) - Certificate of Incorporation and Bylaws of Registrant, as amended. See Exhibit 3 items above. 4(b) - Rights Agreement dated as of January 30, 1996, between Pancho's Mexican Buffet, Inc. and KeyCorp Shareholder Services, Inc. with Exhibit A (form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock), Exhibit B (form of Right Certificate), and Exhibit C (Summary of Rights to Purchase Series A Preferred Stock) attached (6) 4(c) - Amendment to Rights Agreement, dated July 25, 1997 (21) 9 - Not applicable 10(a) - 1982 Stock Option Plan for Non-Employee Directors of Pancho's Mexican Buffet, Inc. (4) 10(b) - Amendment No. 1 and 2 to 1982 Stock Option Plan for Non-Employee Directors of Pancho's Mexican Buffet, Inc. (9) 10(c) - 1982 Incentive Stock Option Plan of Pancho's Mexican Buffet, Inc. (4) 10(d) - Amendment No. 1, 2 and 3 to Pancho's Mexican Buffet, Inc. 1982 Incentive Stock Option Plan (9) 10(e) - Pancho's Mexican Buffet, Inc. Employee Stock Purchase Plan (4) 10(i) - Memo re: Officers Bonus Plan approved by Board of Directors of Pancho's Mexican Buffet, Inc. on February 28, 1986 (7) 10(j) - Note, security agreement and investment letter - re: sale of authorized but unissued Common Stock of the Registrant to four executive officers in 1992 (15) 10(k) - Employment Contracts between the Registrant and four executive officers dated May 23, 1986 and March 25, 1994 (15) 10(l) - Pancho's Mexican Buffet, Inc. Cafeteria Plan (9) 31 Exhibit Number Description ------ ----------- 10(m) - Amendment No. 4 to 1982 Incentive Stock Option Plan of Pancho's Mexican Buffet, Inc. (11) 10(n) - Amendment No. 3 to 1982 Stock Option Plan for Non- Employee Directors of Pancho's Mexican Buffet, Inc. (11) 10(0) - 1992 Stock Option Plan of Pancho's Mexican Buffet, Inc. (12) 10(p) - Revolving Credit and Term Loan Agreement dated February 16, 1994, between PMB Enterprises West, Inc. and First Interstate Bank of Texas, N.A. (13) 10(q) - First Amendment to Revolving Credit and Term Loan Agreement dated February 9,1995, between PMB Enterprises West, Inc. and First Interstate Bank of Texas, N.A. (14) 10(r) - Second Amendment to Revolving Credit and Term Loan Agreement dated May 9,1995, between PMB Enterprises West, Inc. and First Interstate Bank of Texas, N.A. (14) 10(s) - Third Amendment to Revolving Credit and Term Loan Agreement dated September 29, 1995 (15) 10(t) - Employment Contract between the Registrant and one executive officer, dated September 29, 1995 (15) 10(u) - Fourth Amendment to Revolving Credit and Term Loan Agreement dated February 16, 1996 (16) 10(v) - Fifth Amendment to Revolving Credit and Term Loan Agreement dated June 28, 1996 (17) 10(w) - Sixth Amendment to Revolving Credit and Term Loan Agreement dated December 16, 1996 (18) 10(x) - Amendment to Revolving Credit and Term Loan Agreement, dated February 11, 1997 (19) 10(y) - Amendment to Revolving Credit and Term Loan Agreement, dated March 31, 1997 (20) 10(z) - Seventh Amendment to Revolving Credit and Term Loan Agreement, dated December 1, 1997 (21) 10(aa) - Amendment Number One to Pancho's Mexican Buffet, Inc. 1992 Stock Option Plan (22) 10(ab) - Eighth Amendment to Revolving Credit and Term Loan Agreement, dated November 3, 1998 (23) 11 - Not required -- Explanation of earnings per share computation is contained in Notes to Consolidated Financial Statements. 12 - Not applicable 13 - Not applicable 16 - Not applicable 18 - Not applicable 21 - Subsidiaries of the registrant -- filed herewith 22 - Not applicable 24 - Not applicable 27 - Financial Data Schedule -- filed herewith 32 _____________ (1) Filed with the Commission as an Exhibit to Form S-1 Registration Statement No. 2-32378 -- such Exhibits are incorporated herein by reference. (2) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K as amended on Form 8 for the year ended September 30, 1981-- such Exhibits are incorporated herein by reference. (3) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1982 -- such Exhibit is incorporated herein by reference. (4) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1983 -- such Exhibits are incorporated herein by reference. (5) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1984 -- such Exhibits are incorporated herein by reference. (6) Filed with the Commission as an Exhibit to Form 8-A Registration Statement on February 21, 1996 -- such Exhibit is incorporated herein by reference. (7) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1986 -- such Exhibits are incorporated herein by reference. (8) Filed with the Commission as an Exhibit to Form S-2 Registration Statement No. 33-14484 on May 22, 1987 -- such Exhibit is incorporated herein by reference. (9) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1988 -- such Exhibits are incorporated herein by reference. (10) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1990 -- such Exhibits are incorporated herein by reference. (11) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1991-- such Exhibits are incorporated herein by reference. (12) Filed with the Commission as an Exhibit to the Company's Annual Report on Form 10-K for the year ended September 30, 1993 -- such Exhibits are incorporated herein by reference. (13) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended March 31, 1995 -- such Exhibits are incorporated herein by reference. (14) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended June 30, 1995 -- such Exhibits are incorporated herein by reference. (15) Filed with the Commission as an Exhibit to the Company's Annual Report on Form IO-K for the year ended September 30, 1995 -- such Exhibits are incorporated herein by reference. (16) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended March 31, 1996 -- such Exhibits are incorporated herein by reference. (17) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended June 30, 1996 -- such Exhibits are incorporated herein by reference. (18) Filed with the Commission as an Exhibit to form 10-K for the year ended September 30, 1996 -- such Exhibits are incorporated herein by reference. (19) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended December 31, 1996 -- such Exhibits are incorporated herein by reference. (20) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended March 31, 1997 -- such Exhibits are incorporated herein by reference. (21) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended June 30, 1997 -- such Exhibits are incorporated herein by reference. (22) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended December 31, 1997 -- such Exhibits are incorporated herein by reference. (23) Filed with the Commission as an Exhibit to Form 10-K for the year ended September 30, 1998 -- such Exhibits are incorporated herein by reference. (24) Filed with the Commission as an Exhibit to Form 10-Q for the quarter ended March 31, 1999 -- such Exhibits are incorporated herein by reference. 33 (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended September 30, 2000. (c) Exhibits required by Item 601 of Regulation S-K. See (a) (3) above. (d) Financial Statement Schedules for Form 10-K. All financial statement schedules are omitted, as the required information is not applicable or the information is presented in the consolidated financial statements or related notes. 34 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS For the Three Years Ended September 30, 2000 Page ---- Independent Auditors' Report................................ F-1 Consolidated Financial Statements: Consolidated Balance Sheets................................ F-2 Consolidated Statements of Operations...................... F-3 Consolidated Statements of Stockholders' Equity............ F-4 Consolidated Statements of Cash Flows...................... F-5 Notes to Consolidated Financial Statements................. F-6 All schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the consolidated financial statements or notes thereto. 35 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Pancho's Mexican Buffet, Inc. We have audited the consolidated balance sheets of Pancho's Mexican Buffet, Inc. and subsidiaries as of September 30, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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, such consolidated financial statements present fairly, in all material respects, the financial position of Pancho's Mexican Buffet, Inc. and subsidiaries at September 30, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2000, in conformity with auditing standards generally accepted in the United States of America. DELOITTE & TOUCHE LLP Fort Worth, Texas November 9, 2000 F-1 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS September 30, ------------------------------------------------------- 2000 1999 ----------------------- ------------------------ Current Assets: Cash and cash equivalents $ 900,000 $ 1,242,000 Accounts and notes receivable, current portion 152,000 208,000 Inventories 451,000 469,000 Prepaid expenses 130,000 242,000 ----------------------- ------------------------ Total current assets 1,633,000 2,161,000 ----------------------- ------------------------ Property, Plant and Equipment: Land 1,654,000 1,868,000 Buildings 6,633,000 6,900,000 Leasehold improvements 17,779,000 17,268,000 Equipment and furniture 21,013,000 21,469,000 Construction in progress 429,000 ----------------------- ------------------------ Total 47,079,000 47,934,000 Less accumulated depreciation and amortization (31,926,000) (32,392,000) ----------------------- ------------------------ Property, plant and equipment - net 15,153,000 15,542,000 ----------------------- ------------------------ Other Assets: Land and buildings held for sale 309,000 309,000 Other, including noncurrent portion of receivables 269,000 400,000 ----------------------- ------------------------ Total other assets 578,000 709,000 ----------------------- ------------------------ Total $ 17,364,000 $ 18,412,000 ======================= ======================== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 767,000 $ 701,000 Debt classified as current 107,000 139,000 Accrued wages and bonuses 1,317,000 1,734,000 Accrued insurance costs, current 425,000 1,087,000 Other current liabilities 1,825,000 1,331,000 ----------------------- ------------------------ Total current liabilities 4,441,000 4,992,000 ----------------------- ------------------------ Other Liabilities: Long-term debt 112,000 222,000 Capital leases 29,000 Accrued insurance costs, non-current 425,000 1,149,000 Restructuring reserves, non-current 310,000 346,000 ----------------------- ------------------------ Total other liabilities 876,000 1,717,000 ----------------------- ------------------------ Commitments and Contingencies Stockholders' Equity: Preferred stock, $10 par value (Authorized 500,000 shares, none issued.) Common stock, $.10 par value (Authorized 20,000,000 shares. Issued 1,492,021 and 1,485,406 shares, respectively. Outstanding 1,469,955 and 1,463,606 shares, respectively.) 149,000 149,000 Additional paid-in capital 19,013,000 18,988,000 Retained earnings (accumulated deficit) (6,948,000) (7,197,000) Stock notes receivable (98,000) (169,000) Treasury stock at cost (22,066 and 21,800 shares, respectively) (69,000) (68,000) ----------------------- ------------------------ Stockholders' equity 12,047,000 11,703,000 ----------------------- ------------------------ Total $ 17,364,000 $ 18,412,000 ======================= ========================
See notes to consolidated financial statements F-2 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended September 30, ----------------------------------------------------------------------- 2000 1999 1998 ------------------- ----------------- -------------------- Sales $ 55,963,000 $ 57,403,000 $ 64,146,000 ------------------- ----------------- -------------------- Costs and Expenses: Food costs 14,788,000 15,214,000 17,413,000 Restaurant labor and related expenses 21,781,000 21,839,000 25,606,000 Restaurant operating expenses 12,516,000 11,913,000 14,904,000 Depreciation and amortization 1,959,000 1,958,000 2,808,000 General and administrative expenses 4,695,000 4,999,000 5,013,000 Asset impairment and restructuring charges 6,601,000 Preopening costs 54,000 ------------------- ----------------- ------------------- Total 55,793,000 55,923,000 72,345,000 ------------------- ----------------- -------------------- Operating Income (Loss) 170,000 1,480,000 (8,199,000) Interest Expense (17,000) (22,000) (212,000) Other, including interest income 96,000 418,000 198,000 ------------------- ----------------- -------------------- Earnings (loss) before income taxes 249,000 1,876,000 (8,213,000) Income tax expense (benefit) (12,000) 4,305,000 ------------------- ----------------- ------------------- Net earnings (loss) $ 249,000 $ 1,888,000 $ (12,518,000) =================== ================= =================== Net earnings (loss) per share, basic and diluted $ 0.17 $ 1.29 $ (8.54) =================== ================= ===================
See notes to consolidated financial statements. F-3 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Retained Additional Earnings Common Stock Paid-in (Accumulated -------------------------- Shares Amount Capital Deficit) --------- -------- ------------ ------------ Balance, September 30, 1997 1,465,853 $146,000 $18,927,000 $ 3,499,000 Net loss (12,518,000) Dividends, $.045 per share (66,000) Treasury stock acquired Payments received on stock notes Stock issued 5,521 1,000 28,000 --------- -------- ------------ ------------ Balance, September 30, 1998 1,471,374 147,000 18,955,000 (9,085,000) Net earnings 1,888,000 Payments received on stock notes Stock issued 14,032 2,000 33,000 --------- -------- ------------ ------------ Balance, September 30, 1999 1,485,406 149,000 18,988,000 (7,197,000) Net earnings 249,000 Treasury stock issued Treasury stock acquired Payments received on stock notes Stock issued 6,615 25,000 --------- -------- ------------ ------------ Balance, September 30, 2000 1,492,021 $149,000 $19,013,000 $ (6,948,000) ========= ======== ============ ============ Stock Notes Receivable Treasury Stock from Stockholders' -------------------------- Shares Amount Officers Equity --------- ------------ ------------ ------------ Balance, September 30, 1997 2,800 $ (13,000) $ (290,000) $ 22,269,000 Net loss (12,518,000) Dividends, $.045 per share (66,000) Treasury stock acquired 19,000 (55,000) (55,000) Payments received on stock notes 65,000 65,000 Stock issued 29,000 ---------- ----------- ----------- ------------ Balance, September 30, 1998 21,800 (68,000) (225,000) 9,724,000 Net earnings 1,888,000 Payments received on stock notes 56,000 56,000 Stock issued 35,000 --------- ----------- ----------- ------------ Balance, September 30, 1999 21,800 (68,000) (169,000) 11,703,000 Net earnings 249,000 Treasury stock issued (400) 2,000 2,000 Treasury stock acquired 666 (3,000) (3,000) Payments received on stock notes 71,000 71,000 Stock issued 25,000 --------- ----------- ----------- ------------ Balance, September 30, 2000 22,066 $ (69,000) $ (98,000) $ 12,047,000 ========== =========== =========== ============
See notes to consolidated financial statements. F-4 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 30, ------------------------------------------------------- 2000 1999 1998 ------------------------------------------------------- Cash Flows From Operating Activities: Net earnings (loss) $ 249,000 $ 1,888,000 $ (12,518,000) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 1,959,000 1,958,000 2,808,000 Provision for deferred income taxes 4,305,000 Impairment of long-lived assets 5,681,000 Provision for restructuring reserves 920,000 Adjustment of insurance reserves (1,020,000) (1,038,000) (325,000) Gain on sale of assets (52,000) (367,000) (153,000) Stock compensation to outside directors 25,000 35,000 29,000 Other 2,000 (12,000) Changes in operating assets and liabilities: Accounts and notes receivable 54,000 (26,000) (6,000) Income taxes receivable 538,000 Inventories, prepaid expenses and other assets 141,000 227,000 (231,000) Accounts payable and accrued expenses (148,000) (635,000) 404,000 Restructuring reserves (42,000) (500,000) (658,000) -------------- ---------------- -------------- Net cash provided by operating activities 1,168,000 1,542,000 782,000 -------------- ---------------- -------------- Cash Flows From Investing Activities: Property additions (1,966,000) (1,485,000) (697,000) Proceeds from sale of assets 530,000 2,473,000 261,000 -------------- ---------------- -------------- Net cash provided by (used in) investing activities (1,436,000) 988,000 (436,000) -------------- ---------------- -------------- Cash Flows From Financing Activities: Short-term borrowings, net (32,000) (351,000) 298,000 Long-term borrowings 6,637,000 19,706,000 Repayments of long-term borrowings (110,000) (8,176,000) (20,232,000) Dividends paid (66,000) Treasury stock acquired (3,000) Payments on officer stock notes receivable 71,000 56,000 65,000 -------------- ---------------- -------------- Net cash used in financing activities (74,000) (1,834,000) (229,000) -------------- ---------------- -------------- Net Increase (Decrease) in Cash and Cash Equivalents (342,000) 696,000 117,000 Cash and Cash Equivalents at Beginning of Year 1,242,000 546,000 429,000 -------------- ---------------- -------------- Cash and Cash Equivalents at End of Year $ 900,000 $ 1,242,000 $ 546,000 ============== ================ ============== Supplemental Information: Income taxes paid and (refunds received), net $ $ (12,000) $ (541,000) Interest paid, net of capitalized amounts 17,000 37,000 206,000 Treasury stock acquired as reduction of receivables 55,000
See notes to consolidated financial statements F-5 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The accompanying consolidated financial statements include the accounts of Pancho's Mexican Buffet, Inc. and its subsidiaries (the Company). All material intercompany balances and transactions have been eliminated. Accounting Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those amounts. Account Classification Certain prior year amounts have been reclassified to conform to the current year presentation. Cash and Cash Equivalents For balance sheet classification and reporting cash flows, the Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. Inventories Inventories consist primarily of food and supplies, and are stated at the lower of cost (first-in, first-out basis) or market. Deferred Income Taxes The Company accounts for and reports income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Applying SFAS No. 109, deferred tax assets and liabilities are recognized for temporary differences caused when the tax basis of an asset or liability differs from that reported in the consolidated financial statements, and for carryforwards for tax credits and operating losses. 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. Deferred tax expense or benefit is recognized for the change in the asset or liability during the year. F-6 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Property, Plant and Equipment Depreciation is provided for buildings and equipment on a straight-line basis over the following estimated service lives: Buildings................................ 25 to 30 years Equipment and furniture ................. 3 to 10 years Leasehold improvements are amortized over the term of the lease or the life of the improvement, whichever is shorter. The Company capitalizes interest incurred on debt for major construction projects and includes the capitalized interest in the asset basis. No interest was capitalized in 2000, 1999 or 1998. Long-Lived Assets In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Company reviews long- lived assets to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or a group of assets may not be recoverable. The Company considers a history of operating losses or negative cash flows to be its main indicators of potential impairment. Assets are generally evaluated for impairment at the operating unit level. An asset or group of assets is deemed to be impaired if a forecast of undiscounted future cash flows (excluding interest expense) directly related to the asset(s), including disposal value if any, is less than the carrying amount(s). If an asset is determined to be impaired, the loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. Considerable management judgment is necessary to estimate cash flows and expected fair values. Accordingly, it is reasonably possible that actual results could vary significantly from such estimates. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less cost to sell. Assets held for sale are not depreciated. Preopening Costs Preopening costs are expensed as incurred. l-for-3 Reverse Stock Split At the Annual Meeting of Stockholders on January 27, 1999, the stockholders of the Company approved a one-for-three reverse stock split for the Company's common stock, effective January 27, 1999. All common stock share data and related stock option and earnings per share data in this report have been adjusted to reflect the reverse split. Under the reverse split, the common stock retained its previous par value of $.10 per share after the reverse split. Therefore, the dollar amount of common stock on the balance sheet was reduced to one-third of its previous balance, and additional paid-in capital was increased by that dollar amount. F-7 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Earnings (Loss) Per Share The Company adopted SFAS No. 128, "Earnings per Share," in fiscal 1998. This standard replaced previous generally accepted accounting principles for computing and disclosing earnings per share (EPS) information. Under SFAS No. 128, because it has potential common shares, the Company has a complex capital structure and must disclose both basic and diluted EPS. Basic EPS is computed by dividing income available to common shareholders by the weighted average number of shares outstanding. Diluted EPS adds the effect of all dilutive potential shares to the weighted average number of shares outstanding. The weighted average outstanding shares were 1,467,000, 1,460,000 and 1,465,000 for the years ended September 30, 2000, 1999, and 1998, respectively. Basic weighted average shares outstanding for 2000 were 1,466,000. For 1999, outstanding options had no dilutive effect because the average market price was less than the option exercise prices. Due to the net loss for 1998, the Company's potential common shares were antidilutive and excluded from the loss per share calculation, so diluted and basic loss per share are the same. At September 30, 2000, there were 173,765 options which represented potential common shares which could be dilutive in the future. Stock-Based Compensation The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," in fiscal 1997. Under the provisions of SFAS No. 123, companies can elect to account for stock-based compensation plans using a fair-value based method or continue measuring compensation expense for those plans using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. The Company has elected to continue using the intrinsic value method to account for its stock-based compensation plans. SFAS No. 123 requires companies electing to continue using the intrinsic value method to make certain pro forma disclosures (see Note 7). Business Segments In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. The Company operates as a single business segment. New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in its balance sheet and that it measure those instruments at fair value. SFAS No. 133 is effective for all fiscal quarters in fiscal years beginning after June 15, 2000. The impact that SFAS No. 133 will have on its financial condition and results of operations is not expected to be material. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, "Revenue Recognition in Financial Statements" (SAB 101). SAB 101 is effective for the Company's financial statements no later than the first quarter of fiscal year 2001 and requires the Company to recognize revenue only when it is realized or realizable and earned. The impact of the adoption of SAB 101 on the Company's financial position, results of operations, and cash flows is not expected to be material. F-8 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 2. OTHER CURRENT LIABILITIES Other current liabilities consist of:
September 30, . -------------------------- 2000 1999 . ---------- ---------- Accrued taxes other than income taxes ...... $1,027,000 $ 943,000 Unearned income ............................ 387,000 - Accrued annual percentage rent ............. 202,000 177,000 Restructuring reserves ..................... 161,000 167,000 Other ...................................... 48,000 44,000 ---------- ---------- Total ..................................... $1,825,000 $1,331,000 ========== ==========
3. LONG-TERM DEBT In February 1999, the Company paid off its outstanding bank debt. In April 1999, the Company terminated its revolving credit and term loan agreement with the bank. Notes payable were issued in fiscal 1998, 1997, and 1996 to buy out the remaining lease terms of certain closed locations. The long-term portion of those notes was $112,000 and $222,000 at September 30, 2000 and 1999, respectively. The current portion of $107,000 and $139,000 is reported as debt classified as current at September 30, 2000 and 1999, respectively. The effective interest rates range from 5.8% to 6.9%, with payments due monthly through November 2003. The combined maturities of Company debt as of September 30, 2000 are listed below:
Years ending September 30, ------------- 2001 .................................. $107,000 2002 .................................. 53,000 2003 .................................. 50,000 2004 .................................. 9,000 Later years ........................... 0 -------- $219,000 ========
4. OPERATING LEASES The Company leases restaurant facilities under operating leases with terms expiring at various dates into 2009, some of which contain renewal options. Certain of the leases have provisions for contingent rentals based on a percentage of the excess of restaurant sales over stipulated minimum sales. The minimum aggregate annual rentals required under operating leases in effect at September 30, 2000, exclusive of maintenance, taxes, etc., were as follows: F-9 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Years ending September 30, ------------- 2001......................................... $2,360,000 2002......................................... 2,061,000 2003......................................... 1,630,000 2004......................................... 1,164,000 2005......................................... 732,000 Later years.................................. 500,000 ---------- $8,447,000 ==========
The composition of total yearly rental expense for operating leases is:
September 30, ------------------------------------ 2000 1999 1998 ---------- ---------- ---------- Minimum rentals $2,497,000 $2,446,000 $2,638,000 Contingent rentals 203,000 203,000 190,000 Less: Sublease rentals (62,000) (34,000) (13,000) ---------- ---------- ---------- Total $2,638,000 $2,615,000 $2,815,000 ========== ========== ==========
5. CAPITAL LEASES In September of 2000, the Company obtained a capital lease for an office copier. The lease expires in 2005 and may be renewed annually thereafter, or the copier may be purchased. The copier is included in equipment and furniture on the balance sheet at $29,000 gross and net, as no amortization has yet been taken on it as of September 30, 2000. Minimum future lease payments and present value of the net minimum lease payments are as follows:
Years ending September 30, ------------- 2001 ............................................................. $ 8,000 2002 ............................................................. 8,000 2003 ............................................................. 8,000 2004 ............................................................. 8,000 2005 ............................................................. 8,000 -------- Total minimum lease payments .............................. 40,000 -------- Less: Imputed interest ........................................... (11,000) -------- Present value of net minimum lease payments ............... $ 29,000 ========
F-10 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (continued) 6. INCOME TAXES Income tax expense (benefit) consists of:
Years ended September 30, ---------------------------------------------------- 2000 1999 1998 -------------- -------------- ----------------- Current: U.S. federal $ - $ (12,000) $ - -------------- -------------- ----------------- Deferred: U.S. federal - - 3,802,000 State - - 503,000 -------------- -------------- ----------------- Combined deferred - - 4,305,000 -------------- -------------- ----------------- Income tax expense (benefit) $ - $ (12,000) $ 4,305,000 ============== ============== =================
The income tax expense (benefit) differs from the amounts computed by applying the U.S. federal statutory rate of 34 percent to the net earnings (loss) before income taxes as follows:
Years ended September 30, --------------------------------------------------- 2000 1999 1998 ------------- -------------- ---------------- Expected tax at federal statutory rate of 34% $ 85,000 $ 638,000 $ (2,792,000) Increase (decrease) in taxes due to: Change in valuation allowance (78,000) (702,000) 7,314,000 State income tax provision (benefit), net of federal income tax effect 43,000 116,000 (137,000) Tax effect of employer tax credits (42,000) (36,000) (90,000) Other differences (8,000) (28,000) 10,000 ------------- -------------- ---------------- Total expense (benefit) $ - $ (12,000) $ 4,305,000 ============= ============== ================
F-11 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Significant components of the Company's deferred tax assets and liabilities are as follows:
September 30, -------------------------------- 2000 1999 -------------- --------------- Deferred tax assets: Current: Restructuring costs, current $ 58,000 $ 61,000 Accrued vacation pay 136,000 137,000 Accrued insurance cost, current 57,000 392,000 Unearned revenue, current 32,000 - Current valuation allowance (283,000) (590,000) -------------- --------------- Current deferred tax asset, net of valuation allowance - - -------------- --------------- Noncurrent: Accrued insurance costs 136,000 262,000 Unearned revenue 105,000 - Federal operating loss carryforwards (expire 2012-2020) 3,859,000 3,650,000 Noncurrent restructuring costs 111,000 125,000 Alternative minimum tax carryforward 383,000 383,000 State net operating loss carryforwards (expire 2000-2014) 487,000 500,000 Property, plant and equipment 1,560,000 1,560,000 Federal employer tax credits (expire 2009-2020) 682,000 615,000 Noncurrent valuation allowance (7,077,000) (6,847,000) -------------- --------------- Noncurrent deferred tax asset, net of valuation allowance 246,000 248,000 -------------- --------------- Deferred tax liabilities: Noncurrent: Basis difference in note receivable 246,000 248,000 -------------- --------------- Total noncurrent deferred tax liabilities 246,000 248,000 -------------- --------------- Net noncurrent deferred income taxes $ - $ - ============== ===============
Deferred tax assets net of deferred tax liabilities decreased $78,000 to $7.4 million in the year ended September 30, 2000, due mainly to the reduction in insurance reserves offset by unearned revenues. The tax provision of $78,000 was offset by a $78,000 decrease in the valuation allowance. Deferred tax assets net of deferred tax liabilites decreased $702,000 to $7.4 million in the year ended September 30, 1999, due mainly to the reversal of a significant portion of the book-tax differences on fixed assets and accrued insurance costs. The tax provision of $702,000 was offset by a $702,000 decrease in the valuation allowance. The $12,000 income tax benefit resulted from a refund received in 1999. The valuation allowance was increased in 1998 to offset the Company's total net deferred tax assets. Due to the Company's net loss for the quarter ended June 30, 1998, combined with net losses for the three preceding fiscal years, it was considered necessary to provide a valuation allowance for all of its net deferred tax assets. F-12 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The valuation allowance currently offsets the full amount of the deferred tax assets net of deferred tax liabilities. Despite the valuation allowance, the deferred tax assets are still available to the Company for future use. If the Company maintains profitability, the Company may recognize tax benefits for all or a portion of the deferred tax assets at a future date, when the valuation allowance is reduced or the tax assets realized. The deferred tax assets include federal employer tax credits and net operating loss (NOL) carryforwards which expire in years 2012 through 2020, and state NOL carryforwards which expire in years 2000 through 2014. The amount of federal NOL carryforwards was $11,350,000 and $10,736,000 at September 30, 2000 and 1999, respectively. The amount of state NOL carryforwards was $19,936,000 and $19,917,000 at September 30, 2000 and 1999, respectively. 7. STOCKHOLDERS' EQUITY Stock Notes Receivable In April 1992, the Company sold 34,833 shares (adjusted for the 1999 l-for-3 reverse stock split) of common stock to certain officers in exchange for notes receivable in the amount of $758,000, the balance of which is shown in the balance sheet as a deduction from stockholders' equity. The notes bear interest at 7.83%, are payable in ten equal annual installments plus interest and are secured by the common stock. The shares were sold at the quoted market price on the day of sale. Stockholders' Rights Plan and Preferred Stock Purchase Rights In January 1996, the Company's Board of Directors adopted a Stockholders' Rights Plan (the Plan) to replace a similar plan which expired on March 31, 1996. Under the new plan, the Company declared a dividend distribution of one preferred share purchase right (Right) for each share of common stock outstanding at the close of business on March 29, 1996. Each Right entitles the holder to buy one one-thousandth of a share of the Company's newly-designated Series A Junior Participating Preferred Stock, for the exercise price of $10 per one one-thousandth of a Preferred Share, subject to adjustment. If any person or group (other than certain current stockholders and their affiliates, associates and successors, which may acquire up to 28%) acquires 15% of common stock, all stockholders except the acquiring person (Acquirer) will be entitled to purchase Common Stock having twice the market value of the Rights' exercise price. If the Company is involved in a merger or other business combination, or sells 50% or more of its assets or earning power, all of the stockholders, other than the Acquirer, will be entitled to purchase common stock of the other person having twice the market value of the exercise price. Under the Plan's exchange provision, any time after such an acquisition but before any person acquires a majority of the Common Stock, the Board of Directors may exchange all or part of the outstanding Rights (other than the Rights of the Acquirer) for Common Stock at a ratio of one Right per share. The Rights trade with the common stock, and are not exercisable or transferable apart from the common stock until 10 days after a person or group acquires, or announces a tender offer for, 15% or more of the Company's outstanding common stock. Before acquisition by someone of beneficial ownership of 15% or more of the Company's common stock, the Rights are redeemable by the Board for $.01 per Right. The Rights expire on March 27, 2006. Under the Plan, the Company's Board of Directors has designated 10,000 shares of preferred stock as Series A Junior Participating Preferred Stock. This designation is part of the 500,000 shares of preferred stock, par value $10, previously authorized. None is issued. F-13 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Stock Options The Company's stock option plans authorize the grant of options to purchase common stock to directors, officers, employees and consultants of the Company at prices not less than the fair market value of the stock at dates of grant. Outstanding options become exercisable cumulatively in four or five equal annual installments commencing one year from date of grant and expire ten years from the date of grant. Options may be granted through November 5, 2002. On January 28, 1998, at the Annual Meeting of Stockholders, the stockholders of the Company approved Amendment Number One to the 1992 Stock Option Plan. This amendment increased the number of shares which the Company may sell pursuant to options under the plan to 200,000 shares, from 133,333 shares. The amendment also increased the annual option grant to non-employee directors to 1,333 shares each from 667 shares each. Summary information on stock option activity is shown below.
2000 1999 1998 ------------------------------ ------------------------------- ------------------------------- Weighted- Weighted- Weighted- Number Average Number Average Number Average of Shares Exercise Price of Shares Exercise Price of Shares Exercise Price ----------- ---------------- ------------ ----------------- ------------ ----------------- Outstanding on October 1 108,963 $ 27.06 102,109 $ 28.68 134,867 $ 29.46 Granted 74,165 3.55 6,998 3.38 5,333 6.18 Exercised Forfeited/expired (9,363) 10.69 (144) 21.75 (38,091) 28.35 ----------- ------------ ------------ Outstanding September 30 173,765 17.79 108,963 27.06 102,109 28.68 ----------- ------------ ------------ Exercisable September 30 94,273 29.43 94,721 30.16 91,133 31.02 ----------- ------------ ------------ Common shares reserved and available for grant September 30 35,261 100,063 106,917 ----------- ------------ ------------
For shares outstanding at September 30, 2000:
Weighted- Weighted-Average Number Average Remaining Range of Exercise Prices of Shares Exercise Price Life in Years ------------------------ --------- -------------- ------------- $ 2.875 to $ 3.719 76,663 $ 3.55 9.3 $ 6.1875 to $ 9.5625 10,659 6.61 6.5 $17.625 to $21.75 9,454 20.38 2.4 $25.125 to $34.125 76,989 33.20 3.0 ------- -------------- --- $2.875 to $34.125 173,765 $ 17.79 6.0 -------- -------------- ---
F-14 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The weighted-average fair value of options granted was $2.24 in 2000, $2.47 in 1999, and $3.12 per share in 1998. The pro forma effects of reporting stock options using the fair value approach under SFAS No. 123 are shown below.
Year ended September 30 2000 1999 1998 ------------------------------- ------------------ ----------------- ------------------- Net earnings (loss) As reported $ 249,000 $ 1,888,000 $(12,518,000) Pro forma 194,000 1,874,000 (12,528,000) Net earnings (loss) per share As reported 0.17 1.29 (8.54) Pro forma 0.13 1.28 (8.55)
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions used for grants in 2000, 1999, and 1998.
2000 1999 1998 ------------------ ----------------- ------------------- Dividend yield 0.0% 0.0% 0.0% Expected volatility 60.0% 60.0% 50.0% Risk free interest rates 5.9% to 6.6% 4.7% 5.5% Expected life in years 10 10 5
Annual Stock Grant to Non-employee Directors Under the 1998 Restricted Stock Plan for Non-employee Directors, non-employee directors of the Company were granted $2,500 of common stock quarterly, based on the market price on the date of grant, for the second and third quarters of 2000. The value of shares granted and recognized as directors' compensation was $25,000 and $35,000 in 2000 and 1999, respectively. Preferred Stock Shares of preferred stock, when issued, will have such rights, preferences and privileges as shall be adopted by the Board of Directors. 8. EMPLOYEE BENEFIT PLANS Voluntary Employee Injury Benefit Plan Concurrent with its decision to become a non-subscriber to the Workers' Compensation Act of Texas in December 1990, the Company adopted a Voluntary Employee Injury Benefit (VEIB) Plan to provide benefits for employees located in Texas who incur job related injuries in connection with their employment. The VEIB Plan, which was subject to Employee Retirement Income Security Act (ERISA) rules and regulations, provided for medical, short-term wage replacement, dismemberment and death benefits. F-15 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Coverage under the VEIB Plan was provided by the Company and through excess liability insurance, which provided coverage for claims in excess of certain stipulated amounts. The consolidated statements of operations for the years ended September 30, 2000, and 1999 include provisions for estimated expenses of the VEIB Plan of $549,000 and $176,000, respectively. For fiscal 2000, the Company had a credit for its provision due to a reduction of the VEIB Plan liability reserves of $639,000 and due to termination of the VEIB Plan. The fiscal 1999 provision was reduced by $394,000 to reverse VEIB Plan liability reserves. The Company replaced its VEIB Plan with a guaranteed policy for workers' compensation in January of 2000. Bonus Plans The Company has a bonus plan for restaurant managers and supervisors which provides bonuses based on restaurant performance. Such bonuses amounted to $240,000, $438,000, and $480,000 for the years ended September 30, 2000, 1999 and 1998, respectively. The Company has a bonus plan for corporate officers as a group based on stipulated operating results. No bonuses were paid under the plan for 2000. A bonus of $203,000 was earned under the plan for 1999. No corporate officer bonuses were paid for the year ended September 30, 1998. A related bonus plan for other corporate employees paid $60,000 in 1999, and no bonuses for the years ended September 30, 2000 and 1998. An additional bonus plan compensates certain officers employed by the Company for the annual principal and interest payments on the stock notes receivable from officers (see Note 7). Under this plan, the Company recognized compensation expense of $95,000, $109,000, and $124,000 in fiscal years 2000, 1999 and 1998, respectively. Stock Purchase Plan The Company maintains a voluntary employee stock purchase plan for all eligible employees. The Company contributes 25% of the amount invested by the employee plus all commissions and brokerage fees. Company contributions vest immediately. Contributions are invested in common stock of the Company by a brokerage firm. The Company recognized expenses for contributions to the plan of $14,000, $14,000, and $15,000 for the years ended September 30, 2000, 1999 and 1998, respectively. 9. INSURANCE RESERVES At September 30, 2000, a total of $850,000 in insurance reserves was included on the Company's balance sheet, split between current and noncurrent liabilities. These are reserves for estimated losses on claims originating in prior years on the Company's retrospective insurance plans for workers' compensation and general liability, and on the self-insured Voluntary Employee Injury Benefits (VEIB) Plan. The Company has replaced its retrospective policies and self-insured insurance plans with guaranteed premium policies. The Company obtained guaranteed policies for workers' compensation in states other than Texas and general liability beginning in calendar year 1998. The Company replaced its VEIB Plan with its guaranteed workers' compensation policy effective for calendar year 2000. Therefore, the Company is no longer accruing for estimated self-insurance and retrospective insurance losses. F-16 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) Periodically, as claims are identified and resolved, the Company reassesses its insurance loss reserves. The Company reduced its reserves by $1,020,000 and $1,038,000 for the years ended September 30, 2000 and 1999, respectively. These reductions were based on updated liability estimates derived from additional information available in the periods involved, including the resolution of significant claims and a general improvement in claims experience. 10. RELATED PARTY TRANSACTIONS The Company makes occasional sales of supplies and equipment to the family- owned restaurant operations of the Chairman of the Company. Sales amounts were $8,000, $1,000, and $5,000 for the years ended September 30, 2000, 1999, and 1998, respectively. The Company purchases food products manufactured by a company whose chairman and chief executive officer is a non-employee director of the Company. Purchases were $1,172,000, $1,439,000, and $1,839,000 for the years ended September 30, 2000, 1999 and 1998, respectively. The same vendor purchased items from the Company in the amount of $44,000, $65,000, and $53,000 in 2000, 1999 and 1998, respectively. This vendor also leases the Company's cold-storage facilities. The lease term including options runs through October 31, 2005, and represented $60,000 of annual rental revenue for the Company in fiscal 2000, 1999 and 1998. 11. COMMITMENTS AND CONTINGENCIES The Company has employment contracts with four executives which call for payment of salaries and benefits at or above current levels throughout the contract periods. Those agreements expire in December 2001. The Company has been named in various lawsuits involving claims in the ordinary course of business, many of which are covered by insurance. Although the amounts of losses from such claims cannot be estimated, in the opinion of management, the ultimate disposition of these lawsuits and claims will not result in a material adverse effect on the Company's financial position, results of operations or cash flows. 12. ASSET IMPAIRMENT AND RESTRUCTURING COSTS In the quarter ended June 30, 1998, the Company impaired assets at 22 locations based on its continuing evaluation of recoverability of long-lived store assets at 13 locations and its intent to close and dispose of nine locations. The Company initially estimated asset impairment charges of $6,049,000 for 22 restaurant locations, including one previously closed and held for sale. In the 1998 fourth quarter, the Company reversed $368,000 of the impairment charge for land and buildings held for sale, primarily based on the sale of one of the properties completed in October 1998 for significantly more than the previously estimated fair value less cost to sell. Impairment charges were determined in accordance with Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of." The Company adopted a restructuring plan in the quarter ended June 30, 1998 which involved closing nine restaurants. The Company accrued exit costs of $920,000 for nine locations which were closed by August 10, 1998 under the plan. Four of those nine closed units, plus one previously closed, included Company- owned land and buildings which the Company planned to sell. Four of those sites were sold in 1999 and one is shown as land and building held for sale on the September 30, 2000, balance sheet. F-17 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) The Company paid $42,000, $500,000, and $658,000 in 2000, 1999 and 1998, respectively, against restructuring reserves, primarily lease and related expenses and exit costs. Sales for the nine restaurants closed under the 1998 restructuring plan were $6,832,000, for the year ended September 30, 1998. In the quarter ended March 31, 1997, the Company established a restructuring plan which included closing seven underperforming restaurants, disposing of the Mexico joint venture, impairing four other restaurants and increasing the reserves for lease buyout for two previously closed locations. 13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS In accordance with the provisions of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," the Company has estimated the fair value of financial instruments as of September 30, 2000. The estimated fair value amounts are determined by using available market information and appropriate valuation methodologies. The Company's financial instruments under SFAS No. 107 include: accounts receivable, notes receivable, notes payable, accounts payable and long-term debt. The Company has estimated that the carrying amounts of accounts receivable, notes payable and accounts payable approximate fair value due to the short-term maturities of these instruments. Notes receivable bear interest at a rate that approximates the current market rate, therefore, the carrying value approximates the fair value. F-18 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued) 14. SUMMARY OF QUARTERLY RESULTS (UNAUDITED) (Amounts in thousands except per share data)
Year ended September 30, 2000 ---------------------------------------------------------------------------------------- Quarter ended ---------------------------------------------------------------------- 12/31 3/31 6/30 9/30 Total ---------------- ----------------- ---------------- -------------- --------------- Sales $ 13,307 $ 14,155 $ 14,366 $ 14,135 $ 55,963 Operating income (loss) (369) 813 (61) (213) 170 Net earnings (loss) (377) 840 (23) (191) 249 Net earnings (loss) per share (0.26) 0.58 (0.02) (0.13) 0.17 Year ended September 30, 1999 ---------------------------------------------------------------------------------------- Quarter ended ---------------------------------------------------------------------- 12/31 3/31 6/30 9/30 Total ---------------- ----------------- ---------------- -------------- --------------- Sales $ 13,767 $ 14,350 $ 14,727 $ 14,559 $ 57,403 Operating income (loss) 7 424 946 103 1,480 Net earnings (loss) 114 562 1,084 128 1,888 Net earnings (loss) per share 0.08 0.39 0.74 0.08 1.29 Year ended September 30, 1998 ---------------------------------------------------------------------------------------- Quarter ended ---------------------------------------------------------------------- 12/31 3/31 6/30 9/30 Total ---------------- ----------------- ---------------- -------------- --------------- Sales $ 15,675 $ 16,128 $ 16,783 $ 15,560 $ 64,146 Operating income (loss) (472) (347) (7,769) 389 (8,199) Net earnings (loss) (298) (246) (12,365) 391 (12,518) Net earnings (loss) per share (0.20) (0.17) (8.44) 0.27 (8.54)
- -------------- (1) First quarter 2000 results include $137,000 to reduce insurance reserves for the Voluntary Employee Injury Benefit (VEIB) Plan, workers' compensation and general liability. (2) Second quarter 2000 results include $883,000 to reduce insurance reserves for the Voluntary Employee Injury Benefit (VEIB) Plan, workers' compensation and general liability. (3) Second quarter 1999 results include $248,000 to reduce insurance reserves for the Voluntary Employee Injury Benefit (VEIB) Plan, workers' compensation and general liability. (4) Third quarter 1999 results include $790,000 to reduce insurance reserves for the VEIB Plan, workers' compensation and general liability. (5) Fourth quarter 1998 results include a pre-tax benefit of $368,000 to reverse third quarter impairment charges on land and buildings held for sale. (6) Fourth quarter 1998 results include a pre-tax benefit of $113,000 to reduce insurance reserves for workers' compensation and general liability claims. (7) Third quarter 1998 results include pre-tax asset impairment and restructuring charges of $6,969,000. (8) Third quarter 1998 results include income tax expense of $4,305,000 to provide a valuation allowance for deferred tax assets net of deferred tax liabilities. (9) Second quarter 1998 results include a pre-tax benefit of $212,000 to reduce general liability insurance reserves. F-19 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. PANCHO'S MEXICAN BUFFET, INC. December 8, 2000 By /s/ HOLLIS TAYLOR ------------------------------------ Hollis Taylor, President and Chief Executive Officer (Principal Executive Officer) 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 and Title Date ------------------- ---- /s/ JESSE ARRAMBIDE, III December 8, 2000 - -------------------------------------------------------------------------- Jesse Arrambide, III, Chairman of the Board of Directors /s/ HOLLIS TAYLOR December 8, 2000 - -------------------------------------------------------------------------- Hollis Taylor, President and Chief Executive Officer and Director (Principal Executive Officer) and Treasurer (Principal Financial Officer) /s/ JULIE ANDERSON December 8, 2000 - -------------------------------------------------------------------------- Julie Anderson, Vice President, Controller and Assistant Treasurer (Principal Accounting Officer) /s/ SAMUEL L. CARLSON December 8, 2000 - -------------------------------------------------------------------------- Samuel L. Carlson, Director /s/ ROBERT L. LIST December 8, 2000 - -------------------------------------------------------------------------- Robert L. List, Director /s/ DAVID ODEN December 8, 2000 - -------------------------------------------------------------------------- David Oden, Director /s/ TOMAS ORENDAIN December 8, 2000 - -------------------------------------------------------------------------- Tomas Orendain, Director /s/ GEORGE N. RIORDAN December 8, 2000 - -------------------------------------------------------------------------- George N. Riordan, Director /s/ RUDOLPH RODRIGUEZ, JR. December 8, 2000 - -------------------------------------------------------------------------- Rudolph Rodriguez, Jr., Director /s/ JOANNE KEATES December 8, 2000 - -------------------------------------------------------------------------- Joanne Keates, Director
EX-21 2 0002.txt LIST OF SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF REGISTRANT PMB Enterprises West, Inc. PMB International, Inc. Pamex of Texas, Inc. EX-27 3 0003.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2000 AND THE CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR THEN ENDED, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR SEP-30-2000 OCT-01-1999 SEP-30-2000 900,000 0 152,000 0 451,000 1,633,000 47,079,000 31,926,000 17,364,000 4,441,000 0 0 0 149,000 11,898,000 17,364,000 55,963,000 55,963,000 14,788,000 51,098,000 0 0 17,000 249,000 0 249,000 0 0 0 249,000 .17 .17
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