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| CASA > SEC Filings for CASA > Form 10-Q on 13-May-2009 | All Recent SEC Filings |
13-May-2009
Quarterly Report
Special Note Regarding Forward-Looking Statements
This Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: national, regional or local economic and real estate conditions; inflation; increased food, labor and benefit costs; growth strategy; dependence on executive officers; geographic concentration; increasing susceptibility to adverse conditions in the region; changes in consumer tastes and eating and discretionary spending habits; the risk of food-borne illness; demographic trends; inclement weather; traffic patterns; the type, number and location of competing restaurants; the availability of experienced management and hourly employees; seasonality and the timing of new restaurant openings; changes in governmental regulations; dram shop exposure; and other factors not yet experienced by the Company. The use of words such as "believes", "anticipates", "expects", "intends" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Readers are urged to carefully review and consider the various disclosures made by us in this report and in our most recently filed Annual Report and Form 10-K that attempt to advise readers of the risks and factors that may affect our business. We undertake no obligation to update any such statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein, to reflect any change in our expectations with regard thereto or any change in events, conditions, circumstances or assumptions underlying such statements.
General
We operate and franchise Mexican-theme restaurants featuring various elements associated with the casual dining experience under the names Casa Olé, Monterey's Little Mexico, Monterey's Tex-Mex Café, Tortuga Coastal Cantina, Crazy Jose's and Mission Burrito. On April 7, 2009, we sold our La Senorita chain in order to focus our resources on our other store brands. At March 29, 2009 we operated 60 restaurants, franchised 18 restaurants and licensed one restaurant in various communities in Texas, Louisiana, Oklahoma and Michigan. As a result of our sale of the five-store La Señorita chain in April 2009, we now operate 55 restaurants and franchise 17 restaurants in Texas, Louisiana and Oklahoma.
Our primary source of revenues is the sale of food and beverages at Company-owned restaurants. We also derive revenues from franchise fees, royalties and other franchise-related activities with respect to our franchised restaurants. Franchise fee revenue from an individual franchise sale is recognized when all services relating to the sale have been performed and the restaurant has commenced operations. Initial franchise fees relating to area franchise sales are recognized ratably in proportion to the services that are required to be performed pursuant to the area franchise or development agreements and proportionately as the restaurants within the area are opened.
Since inception as a public company in 1996, we have primarily grown through the acquisition of other Mexican food restaurant companies.
Results of Continuing Operations
Revenues. Our revenues for the first quarter of fiscal year 2009 increased $619,201 or 3.3% to $19.2 million compared with $18.5 million for the same quarter in fiscal year 2008. Restaurant sales for first quarter 2009 increased by $616,001 or 3.3% to $19.0 million compared with $18.4 million for the first quarter of 2008. The increase in restaurant revenues primarily reflects an increase in same-store sales and new restaurants revenues. For the first quarter ended March 29, 2009, Company-owned same-restaurant sales increased approximately 0.6%, the seventh straight quarter of positive same-store sales. Franchised-owned same-restaurant sales, as reported by franchisees, increased approximately 2.3% over the same quarter in fiscal 2008.
Costs and Expenses. Costs of sales, consisting of food, beverage, liquor, supplies and paper costs, decreased as a percent of restaurant sales 60 basis points to 27.6% compared with 28.2% in the first quarter of fiscal year 2008. The decrease primarily reflects lower commodity prices in all categories except for produce, tortillas, paper and cleaning supplies.
Restaurant operating expenses, which primarily include rent, property taxes, utilities, repair and maintenance, liquor taxes, property insurance, general liability insurance and advertising, increased as a percentage of restaurant sales 20 basis points to 25.2% as compared with 25.0% in the first quarter of fiscal year 2008. The increase primarily reflects higher electricity and coupon expense, partially offset by lower semi-fixed costs, such as occupancy costs, reflecting leverage from increased same-store sales.
General and administrative expenses consist of expenses associated with corporate and administrative functions that support restaurant operations. As a percentage of total revenue, general and administrative expenses decreased 200 basis points to 8.8% for the first quarter of fiscal year 2009 as compared with 10.8% for the first quarter of fiscal year 2008. In absolute dollars, general and administrative costs were $307,332 lower in the first quarter of fiscal year 2009 compared with the first quarter of fiscal year 2008. General and administrative expenses as a percentage of total revenues decreased due to the planned reduction in salaries, bonuses and most department expenses.
Depreciation and amortization expenses include the depreciation of fixed assets and the amortization of intangible assets. Depreciation and amortization expense increased as a percentage of total sales 20 basis points to 4.5% for the first quarter of fiscal year 2009 as compared with 4.3% the same quarter in fiscal year 2008. Such expense for the first quarter of fiscal year 2009 was $69,850 higher than the first quarter in fiscal year 2008. The increase reflects additional depreciation expense for remodeled restaurants, new restaurants, and the replacement of equipment and leasehold improvements in various existing restaurants.
During the quarter ended March 29, 2009, we did not open any new restaurants or incur any pre-opening costs. Last year, we opened one new Mission Burrito restaurant during the first quarter of 2008, incurring $36,884 in pre-opening costs.
Impairment and Restaurant Closure Costs. In accordance with SFAS No. 144, "Accounting for the Impairments or Disposal of Long-Lived Assets", long-lived assets, such as property and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset.
The consolidated statements of income for the 13-week periods ended March 29, 2009 and March 30, 2008, include a separate line item for impairment and restaurant closure costs of $22,453 and $32,252, respectively, primarily related to two under-performing restaurants operating in the Houston area.
Gain on Involuntary Disposals. The consolidated statements of income for the 13-week periods ended March 29, 2009 and March 30, 2008, include a separate line item for a gain on involuntary disposals of $7,231 and $126,371, respectively. The gain of $7,231 resulted from proceeds received from two separate insurance claims related to a fire and a flood offset by expenses related to another claim related to Hurricane Ike. The gain of $126,371 resulted from the write-off of assets damaged by the February 19, 2008 fire at our Casa Olé restaurant located in Vidor, Texas, offset by insurance proceeds for the replacement of assets. We anticipate finalizing all insurance claims related to the property damage from last year's hurricanes and restaurant fires during fiscal year 2009.
Loss on Sale of Other Property and Equipment. The consolidated statements of income for the 13-week periods ended March 29, 2009 and March 30, 2008, include a separate line item for loss on sale of other property and equipment of $36,762 and $27,007, respectively, primarily related to the routine disposal of restaurant assets.
Other Income (Expense). Net expense decreased $81,396 to $50,713 in the first quarter of fiscal year 2009 compared with a net expense of $132,109 in the first quarter of fiscal year 2008. Interest expense decreased $79,329 to $62,194 in the first quarter of fiscal year 2009 compared with interest expense of $141,523 in the first quarter of fiscal year 2008. The decrease in interest expense reflects lower interest rates during the first quarter of fiscal year 2009 as compared to the first quarter of fiscal year 2008.
Liquidity and Capital Resources
We financed our capital expenditure requirements for the 13-week period ended March 29, 2009 primarily by drawing on our revolving line of credit and our operating cash flows. In the initial 13-week period of fiscal year 2009, we had cash flows provided by operating activities of $755,966, compared with cash flows provided by operating activities of $173,474 in the comparable 13-week period of fiscal year 2008. The increase in cash flows from operating activities reflects the increase in operating income. During the 13-week period ended March 29, 2009, we made a net draw of $100,000 on our line of credit. As of March 29, 2009, we had a working capital deficit (excluding assets held for sale) of $584,986 compared with a working capital deficit (excluding assets held for sale) of $1,023,766 at December 28, 2008. A working capital deficit is common in the restaurant industry, since restaurant companies do not typically require a significant investment in either accounts receivable or inventory.
Our principal capital requirements are the funding of routine capital expenditures, new restaurant development or acquisitions and remodeling of older units. During the 13-week period ended March 29, 2009, total cash used for capital requirements was approximately $716,000 used in continuing operations and approximately $6,000 used in discontinued operations, which included approximately $540,000 spent for routine capital expenditures, approximately $93,000 for new restaurant development, approximately $39,000 for replacement of damaged assets and approximately $50,000 for remodels. We did not open any new restaurants during the first quarter of fiscal year 2009. We expect to begin construction on our sixth Mission Burrito restaurant during the second quarter of 2009. We anticipate that we will spend approximately $2.1 million for capital expenditures during the remainder of fiscal year 2009.
We entered into a Credit Agreement with Wells Fargo Bank, N.A. ("Wells Fargo") in June 2007 (the "Wells Fargo Agreement"). In connection with the execution of the Wells Fargo Agreement, we paid off and terminated our then-existing credit facility with Bank of America. Originally, the Wells Fargo Agreement provided for a revolving loan of up to $10 million, but the Wells Fargo Agreement was amended effective December 28, 2008, reducing the revolving loan by the amount of the net proceeds received from the sale of La Senorita, which reduced the revolver availability to approximately $7.4 million on April 7, 2009. The Wells Fargo Agreement terminates on June 29, 2010. At our option, the revolving loan bears an interest rate equal to the Wells Fargo Base Rate plus a stipulated percentage or LIBOR plus a stipulated percentage. Accordingly, we are impacted by changes in the Base Rate and LIBOR. We are subject to a non-use fee of 0.50% on the unused portion of the revolver from the date of the Wells Fargo Agreement. The Wells Fargo Agreement also allows up to $2.0 million in annual stock repurchases. We have pledged the stock of our subsidiaries, our leasehold interests, our patents and trademarks and our furniture, fixtures and equipment as collateral for our credit facility with Wells Fargo.
Under the Wells Fargo Agreement, we are required to maintain certain minimum EBITDA levels, leverage ratios and fixed charge coverage ratios. During January 2009, we entered into an amendment to the Wells Fargo Agreement that amended the covenant effective December 28, 2008 and eliminated the minimum EBITDA requirement and instead added limits on our growth capital expenditures and reduced our revolving line of credit to approximately $7.4 million. Under the amendment, we must limit our capital expenditures for new restaurant development, acquisitions or remodels to $1.0 million in fiscal year 2009 and $1.2 million in fiscal year 2010. The amendment does not limit routine capital expenditures. We are currently in discussions with Wells Fargo Bank regarding the extension of our Credit Agreement beyond June 29, 2010.
Although the Wells Fargo Agreement permits us to implement a share repurchase program for up to $2.0 million annually under certain conditions, we currently have no repurchase programs in effect. Shares previously acquired are being held for general corporate purposes, including the offset of the dilutive effect on shareholders from the exercise of stock options.
On April 7, 2009, we sold substantially all of the operating assets and liabilities of our La Senorita restaurant chain located in Michigan for approximately $2.6 million. Proceeds from the sale were used to pay down long-term debt. The sale price is subject to adjustment within 60 days of closing to the extent that closing date working capital, as defined by the purchase agreement, is less or greater than approximately $69,000. We anticipate recording a gain on this sale of approximately $400,000, net of allocated goodwill in the second quarter of 2009.
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