UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 29, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ______________
Commission file number: 0-28234
MEXICAN RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS
(State or other jurisdiction of 76-0493269
incorporation or organization) (IRS Employer Identification Number)
1135 EDGEBROOK, HOUSTON, TEXAS 77034-1899
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 713-943-7574
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]
Number of shares outstanding of each of the issuer's classes of common stock, as
of August 1, 2003: 3,384,605 SHARES OF COMMON STOCK, PAR VALUE $.01.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEXICAN RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS 6/29/2003 12/29/2002
------------ ------------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 306,114 $ 526,536
Royalties receivable 146,192 142,031
Other receivables 634,510 659,901
Inventory 503,011 557,555
Taxes receivable 356,604 382,882
Prepaid expenses and other current assets 483,481 592,075
------------ ------------
Total current assets 2,429,912 2,860,980
------------ ------------
Property, plant and equipment 28,428,669 27,347,171
Less accumulated depreciation (11,815,081) (10,706,035)
------------ ------------
Net property, plant and equipment 16,613,588 16,641,136
Deferred tax assets 302,957 454,453
Property held for resale 963,605 963,605
Other assets 8,055,277 8,062,605
------------ ------------
$ 28,365,339 $ 28,982,779
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,800,000 $ 1,000,000
Accounts payable 1,668,219 1,879,171
Accrued sales and liquor taxes 502,771 441,264
Accrued payroll and taxes 1,091,902 999,403
Accrued expenses 697,867 1,277,525
------------ ------------
Total current liabilities 5,760,759 5,597,363
------------ ------------
Long-term debt, net of current portion 2,000,000 3,400,000
Other liabilities 871,844 852,214
Deferred gain 2,081,426 2,185,498
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized -- --
Capital stock, $0.01 par value, 20,000,000 shares
authorized, 4,732,705 shares issued 47,327 47,327
Additional paid-in capital 20,121,076 20,121,076
Retained earnings 9,260,679 8,577,725
Deferred compensation (68,259) (88,911)
Treasury stock, cost of 1,348,100 common shares (11,709,513) (11,709,513)
------------ ------------
Total stockholders' equity 17,651,310 16,947,704
------------ ------------
$ 28,365,339 $ 28,982,779
============ ============
2
MEXICAN RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
13-WEEK 13-WEEK 26-WEEK 26-WEEK
PERIOD ENDED PERIOD ENDED PERIOD ENDED PERIOD ENDED
06/29/03 06/30/02 06/29/03 06/30/02
------------ ------------ ------------ ------------
Revenues:
Restaurant sales $ 14,536,258 $ 15,252,133 $ 28,912,148 $ 30,237,031
Franchise fees and royalties 268,258 307,913 559,515 622,843
Other 6,058 11,233 10,132 17,658
------------ ------------ ------------ ------------
14,810,574 15,571,279 29,481,795 30,877,532
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales 4,093,740 4,198,866 7,996,186 8,245,060
Labor 4,882,235 5,000,758 9,700,106 9,882,310
Restaurant operating expenses 3,730,547 3,656,919 7,286,885 7,314,637
General and administrative 1,251,272 1,275,223 2,634,980 2,622,979
Depreciation and amortization 592,184 554,635 1,172,710 1,097,051
Pre-opening costs 91,941 93,669 --
------------ ------------ ------------ ------------
14,641,919 14,686,401 28,884,536 29,162,037
------------ ------------ ------------ ------------
Operating income 168,655 884,878 597,259 1,715,495
------------ ------------ ------------ ------------
Other income (expense):
Interest income 6,770 17,330 13,653 27,172
Interest expense (65,410) (84,625) (135,892) (203,949)
Other, net 181,658 7,410 516,185 29,379
------------ ------------ ------------ ------------
123,018 (59,885) 393,946 (147,398)
------------ ------------ ------------ ------------
Income before income tax expense 291,673 824,993 991,205 1,568,097
Income tax expense 77,829 230,998 308,251 476,222
------------ ------------ ------------ ------------
Net income $ 213,844 $ 593,995 $ 682,954 $ 1,091,875
============ ============ ============ ============
Basic income per share $ 0.06 $ 0.17 $ 0.20 $ 0.31
============ ============ ============ ============
Diluted income per share $ 0.06 $ 0.17 $ 0.20 $ 0.31
============ ============ ============ ============
Weighted average number of shares (basic) 3,384,605 3,470,851 3,384,605 3,487,840
============ ============ ============ ============
Weighted average number of shares (diluted) 3,421,061 3,581,074 3,426,129 3,569,353
============ ============ ============ ============
3
MEXICAN RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
26-WEEK PERIODS ENDED
------------------------------
6/29/2003 06/30/02
----------- -----------
Cash flows from operating activities:
Net income $ 682,954 $ 1,091,875
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred compensation 20,652 20,652
Depreciation and amortization 1,172,710 1,097,051
Deferred gain amortization (104,072) (104,070)
Deferred taxes 151,496 238,505
Loss (gain) on sale of property, plant & equipment (476,627) 10,182
Changes in assets and liabilities:
Royalties receivable (4,161) (15,527)
Other receivables 25,391 29,616
Income tax receivable/payable 26,278 140,864
Inventory 54,544 62,812
Prepaid and other current assets 108,594 25,727
Other assets (36,583) (5,572)
Accounts payable (210,952) (17,810)
Accrued expenses and other liabilities (425,652) (623,620)
Other liabilities 19,630 201,837
----------- -----------
Total adjustments 321,248 1,060,647
----------- -----------
Net cash provided by operating activities 1,004,202 2,152,522
----------- -----------
Cash flows from investing activities:
Insurance proceeds from fire loss on building 488,629 --
Purchase of property, plant and equipment (1,113,253) (915,743)
Proceeds from sale of property, plant and equipment -- 78,000
Payment received on note for sale of property -- 10,096
----------- -----------
Net cash used in investing activities (624,624) (827,647)
----------- -----------
Cash flows from financing activities:
Net borrowings (payments) under line of credit (600,000) (950,000)
Purchase of treasury stock -- (366,871)
----------- -----------
Net cash used in financing activities (600,000) (1,316,871)
----------- -----------
Decrease in cash and cash equivalents (220,422) 8,004
----------- -----------
Cash and cash equivalents at beginning of period 526,536 311,423
----------- -----------
Cash and cash equivalents at end of period $ 306,114 $ 319,427
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period:
Interest $ 139,067 $ 182,912
Income Taxes $ 172,600 $ 106,615
Non-cash investing and financing activity:
Sale of property for note receivable $ -- $ 398,047
4
MEXICAN RESTAURANTS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the opinion of Mexican Restaurants, Inc. (the "Company"), the
accompanying consolidated financial statements contain all adjustments
(consisting only of normal recurring accruals and adjustments) necessary
for a fair presentation of the consolidated financial position as of June
29, 2003, and the consolidated statements of income for the 13-week and
26-week periods and cash flows for the 26-week period ended June 29, 2003
and June 30, 2002. The consolidated statements of income for the 13-week
and 26-week periods ended June 29, 2003 are not necessarily indicative of
the results to be expected for the full year.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 requires the Company to record the
fair value of an asset retirement obligation as a liability in the period
in which it incurs a legal obligation associated with the retirement of
tangible long-lived assets that result from the acquisition, construction,
development, and/or normal use of the assets. The Company also records a
corresponding asset that is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation,
the obligation will be adjusted at the end of each period to reflect the
passage of time and changes in the estimated future cash flows underlying
the obligation. The Company adopted SFAS No. 143 on January 1, 2003. The
adoption of SFAS No. 143 did not have a material effect on the Company's
financial statements.
In April 2002, the FASB issued SFAS No. 145, Rescission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections. SFAS No. 145 amends existing guidance on reporting
gains and losses on the extinguishment of debt to prohibit the
classification of the gain or loss as extraordinary, as the use of such
extinguishments have become part of the risk management strategy of many
companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback
accounting for certain lease modifications that have economic effects
similar to sale-leaseback transactions. The Company adopted SFAS No. 145 on
January 1, 2003. The adoption of SFAS No. 145 did not have a material
effect on the Company's financial statements.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
94-3, Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity. The Company adopted SFAS No. 146 on
January 1, 2003. The adoption of SFAS No. 146 did not have a material
effect on the Company's financial statements.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, and interpretation of FASB Statements
No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34. This
Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
guarantees issued. The Interpretation also clarifies that a guarantor is
required to recognize, at inception of a guarantee, a liability for the
fair value of the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation were applicable to guarantees
issued or modified after December 31, 2002 and did not have a material
effect on the Company's financial statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition
for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement No. 123 to require prominent
disclosures in both annual and interim financial statements. Certain of the
disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these consolidated
financial statements.
5
2. ACCOUNTING POLICIES
During the interim periods the Company follows the accounting policies
set forth in its consolidated financial statements in its Annual Report and
Form 10-K (file number 0-28234). Reference should be made to such financial
statements for information on such accounting policies and further
financial details.
3. NET INCOME (LOSS) PER COMMON SHARE
Basic income per share is based on the weighted average shares
outstanding without any dilutive effects considered. Diluted income per
share reflects dilution from all contingently issuable shares, including
options and warrants. As of June 29, 2003 and June 30, 2002, the Company
had 1,036,970 and 1,066,770 options and warrants outstanding, respectively.
As of June 29, 2003 and June 29, 2002, such stock options and warrants have
the effect of increasing basic weighted average shares outstanding by
36,456 and 110,223 for the 13-week periods and 41,524 and 81,513 for the
26-week periods, respectively.
4. SFAS NO. 148. "ACCOUNTING FOR STOCK-BASED COMPENSATION"
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting
for Stock-Based Compensation, to provide alternative methods of transition
for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of Statement No. 123 to require prominent
disclosures in both annual and interim financial statements. Certain of the
disclosure modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these consolidated
financial statements.
The Company has adopted the disclosure-only provisions of SFAS No.
123, "(Accounting for Stock-Based Compensation,)" and has accounted for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "(Accounting for Stock Issued
to Employees)" and related interpretations. Accordingly, no compensation
cost has been recognized for stock options or warrants. Had compensation
cost for the Company's outstanding stock options and warrants been
determined based on the fair value at the grant date for awards consistent
with the provisions of SFAS No. 123, the Company's net income and net
income per share would have been reduced to the pro forma amounts indicated
below for the 13 week periods and 26 week periods ended June 29, 2003 and
June 30, 2002, respectively:
13 WEEKS ENDED
-----------------------------
6/30/02 6/29/03
----------- -----------
Net income - as reported ................................................... $ 593,995 $ 213,844
Proforma net income - pro forma for SFAS No. 123 and 148 ................... 592,127 206,830
Net income per share basic and diluted - as reported ...................... 0.17 0.06
Pro forma net income per share basic and diluted- pro forma for SFAS No. 123 0.17 0.06
26 WEEKS ENDED
-----------------------------
6/30/02 6/29/03
----------- -----------
Net income - as reported ................................................... $ 1,091,875 $ 682,954
Proforma net income - pro forma for SFAS No. 123 and 148 ................... 1,088,140 673,999
Net income per share basic and diluted - as reported ...................... 0.31 0.20
Pro forma net income per share basic and diluted- pro forma for SFAS No. 123 0.31 0.20
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the
following: growth strategy; dependence on executive officers; geographic
concentration; increasing susceptibility to adverse conditions in the
region; changes in consumer tastes and eating habits; national, regional or
local economic and real estate conditions; demographic trends; inclement
weather; traffic patterns; the type, number and location of competing
restaurants; inflation; increased food, labor and benefit costs; the
availability of experienced management and hourly employees; seasonality
and the timing of new restaurant openings; changes in governmental
regulations; dram shop exposure; and other factors not yet experienced by
the Company. The use of words such as "believes", "anticipates", "expects",
"intends" and similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying such statements.
Readers are urged to carefully review and consider the various disclosures
made by the Company in this report and in the Company's Annual Report and
Form 10-K for the fiscal year ended December 29, 2002, that attempt to
advise interested parties of the risks and factors that may affect the
Company's business.
RESULTS OF OPERATIONS
Revenues. The Company's revenues for the second quarter of fiscal 2003
were down $760,705 or 4.9% to $14.8 million compared with the same quarter
one year ago. Restaurant sales for the second quarter of fiscal 2003 were
down $715,875 or 4.7% compared with the same quarter one year ago, to $14.5
million. The decrease reflects a decline in same-store sales, partially
offset by one new restaurant opening. Total system sales at restaurants
operating in both fiscal quarters ("same-stores") decreased 4.9 %.
Company-owned same-store sales for the quarter decreased 5.1%.
Franchise-owned same-store sales for the quarter decreased 4.7%. The
Company believes the decline is due primarily to the weak economy in the
regions where the Company's stores are concentrated.
On a year-to-date basis, the Company's revenues were down $1.4 million
or 4.5% to $29.5 million compared with the same 26-week period in fiscal
2002. Restaurant sales were down $1.3 million or 4.4% to $28.9 million
compared with the same 26-week period in fiscal 2002. The decrease reflects
a decline in same-store sales, partially offset by one new restaurant
opening. Year-to-date total system same-store sales decreased 4.1% from the
comparable period in fiscal 2002. Company-owned same-store sales for the
26-week period decreased 4.2% and franchise-owned same-store sales for the
26-week period decreased 4.0% from comparable period in fiscal 2002.
Costs and Expenses. Cost of sales, consisting primarily of food and
beverage costs, but also including paper and supplies, increased 70 basis
points as a percentage of restaurant sales in the second quarter of fiscal
2003 to 28.2% from 27.5% for the same quarter in fiscal 2002. The increase
reflects higher produce and paper and cleaning supplies expenses.
On a year-to-date basis, cost of sales increased 40 basis points as a
percentage of restaurant sales to 27.7% from 27.3% from the comparable
period in fiscal 2002. The increase was due to the same factors discussed
above.
Labor and other related expenses as a percentage of restaurant sales
increased 80 basis points to 33.6% in the second quarter of fiscal 2003
from 32.8% for the same quarter in fiscal 2002. Although absolute labor
cost decreased $118,523, labor increased as a percentage of restaurant
sales reflecting the semi-fixed nature of management, workers compensation
and health insurance costs relative to declining same-store sales.
7
On a year-to-date basis, labor and other related expenses as a
percentage of restaurant sales increased 90 basis points to 33.6% from
32.7% for the comparable period in fiscal 2002. The increase was due to the
same factors discussed above.
Restaurant operating expenses, which primarily includes rent, property
taxes, utilities, repair and maintenance, liquor taxes and advertising, as
a percentage of restaurant sales increased 170 basis points to 25.7% in the
second quarter of fiscal 2003 from 24.0% in the same quarter in fiscal
2002. The increase reflects higher insurance premiums, utility expenses and
fixed restaurant expenses relative to declining same-store sales.
On a year-to-date basis, restaurant operating expenses increased 100
basis points to 25.2% from 24.2% for the comparable period in fiscal 2002.
The increase was due to the same factors discussed above.
General and administrative expenses as a percentage of total sales
increased 20 basis points to 8.6% in the second quarter of fiscal 2003 from
8.4% in the same quarter in fiscal year 2002. General and administrative
costs for the second quarter of fiscal year 2003 were comparable on a
dollar basis to the second quarter in fiscal year 2002. The increase as a
percentage of sales reflects declining same-store sales.
On a year-to-date basis, general and administrative expenses increased
as a percentage of total sales 40 basis points to 9.1% compared with 8.7%.
The increase was due to the same factors discussed above.
Depreciation and amortization expense as a percentage of total sales
increased 50 basis points to 4.1% in the second quarter of fiscal 2003 from
3.6% for the same quarter in fiscal 2002. The increase, in part, reflects
declining same-store sales. In absolute dollars, depreciation and
amortization increased $37,549 to $592,184 for the second quarter of fiscal
2003 due to new asset additions and restaurant remodels.
On a year-to-date basis, depreciation and amortization expense as a
percentage of total sales increased 50 basis points to 4.1% from 3.6% for
the comparable period in fiscal 2002. The increase, in part, reflects
declining same-store sales. In absolute dollars, depreciation and
amortization increased $75,659 to $1,172,710 for the comparable 26-week
period due to new asset additions and restaurant remodels.
The Company did not open new restaurants in the first quarter of
fiscal 2003 and opened one new restaurant in the second quarter of 2003,
incurring $91,941 in pre-opening expenses. No new restaurants were opened
during the 26-week period in fiscal year 2002.
Other Income (Expense). For the second quarter of fiscal 2003,
interest expense decreased by $19,215 to $65,410 compared with the second
quarter in fiscal 2002, reflecting a lower average debt balance in the
second quarter of fiscal 2003. Total debt as of June 29, 2003 was $3.8
million compared with $5.6 million as of June 30, 2002. Other, net
increased, reflecting a partial gain of $161,442 for insurance proceeds
received from fire damage at the Company's Humble, Texas restaurant
location.
On a year-to-date basis, interest expense decreased by $68,057,
reflecting a lower average debt balance. Other, net increased reflecting a
gain of $477,508 for insurance proceeds received from fire damage at the
Humble, Texas restaurant location.
Income Tax Expense. For the second quarter of fiscal 2003, the
Company's effective tax rate was 26.7% as compared with 28.0% in the same
quarter in fiscal 2002. The effective tax rate is a function of
year-to-date annualizing, the effects of permanent and temporary
differences, the alternative minimum tax and the utilization of tax
credits.
8
LIQUIDITY AND CAPITAL RESOURCES
The Company met its capital requirements for the 26-weeks ended June
29, 2003 with cash generated by operations. As of June 29, 2003, the
Company's operations generated approximately $1.0 million in cash, as
compared with $2.2 million in the same period one year ago. As of June 29,
2003, the Company had a working capital deficit of approximately $3.3
million, of which $1.8 million is due to Fleet National Bank under the
terms of its credit agreement ($250,000 per quarter payment on the term
note and $800,000 due on the revolver by June 29, 2004). 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.
The Company's principal capital requirements are the funding of
routine capital expenditures, new restaurant development or acquisitions
and remodeling of older units. During the first 26 weeks of fiscal 2003,
capital expenditures on property, plant and equipment were approximately
$1.1 million as compared to $915,743 for the first 26 weeks of fiscal 2002.
The capital expenditures were for necessary replacement of equipment and
leasehold improvements in various older units. On April 17, 2003, the
Company acquired an existing franchise restaurant in a sale-leaseback
transaction. The Company closed, remodeled and reopened the restaurant on
May 19, 2003, spending $317,000 on the remodel. The Company plans to
modestly remodel one additional restaurant during the balance of fiscal
year 2003. The Company estimates its capital expenditures for the remainder
of the fiscal year will be approximately $750,000.
On June 29, 2001, the Company re-financed $7.8 million of its debt
with Fleet National Bank. The credit facility with Fleet is for $10.0
million and consists of a $5.0 million term note that requires quarterly
principal payments of $250,000 and matures on June 29, 2006 and a $5.0
million revolving line of credit that matures on June 29, 2004. The
interest rate is either the prime rate or LIBOR plus a stipulated
percentage. Accordingly, the Company is impacted by changes in the prime
rate and LIBOR. The Company is subject to a non-use fee of 0.5% on the
unused portion of the revolver from the date of the credit agreement. The
Company paid down $600,000 of its indebtedness during the first 26 weeks of
fiscal year 2003. As of June 29, 2003, the Company had $3.8 million
outstanding on the credit facility. In August 2003, the Bank approved an
amendment of the existing credit facility, effective June 29, 2003 that
amended the minimum rolling twelve-month EBITDA and the cash flow coverage
covenants. As of June 29, 2003, the Company was in compliance with
covenants as amended. Had the amendment not been obtained, the Company
would have been out of compliance. We expect that we will be in compliance
with the covenants in the credit facility, as amended, for the next twelve
months.
Over the last several years, the Company's debt was incurred to carry
out acquisitions in 1997 and 1999, to develop new restaurants, and to
remodel existing restaurants, as well as to accommodate other working
capital needs. The Company anticipates that it will use excess cash flow
during the remainder of fiscal year 2003 to pay down debt approximately
$1.0 million.
The Company's management believes that with its operating cash flow
and the Company's revolving line of credit with Fleet National Bank, funds
will be sufficient to meet operating requirements and to finance routine
capital expenditures and remodels through the end of the 2003 fiscal year.
Unless the Company violates an important debt covenant, the Company's
credit facility with Fleet National Bank is not subject to triggering
events that would cause the credit facility to become due sooner than the
maturity dates described above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have or participate in transactions involving
derivative, financial and commodity instruments. The Company's long-term
debt bears interest at floating market rates. Based on amount outstanding
at June 29, 2003, a 1% change in interest rates would change interest
expense by $9,500.
9
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company
carried out an evaluation, under the supervision and with the participation
of the Company's management, including the Company's President and Chief
Executive Officer together with the Company's Chief Financial Officer, of
the effectiveness of the design and operation of the Company's disclosure
controls and procedures, as such term is defined under Rule 13a-15(e) under
the Securities Exchange Act of 1934. Based upon the evaluation, the
Company's President and Chief Executive Officer and the Company's Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company (including its subsidiaries) required to be
included in the Company's periodic SEC filings. There have been no
significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to the date of
the evaluation.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of shareholders on Friday, May 23,
2003. At the annual meeting, the Company's shareholders took the following
actions:
1) By a vote of 3,195,076 for, 18,760 against or withheld, 0
abstaining and 0 broker non-votes, the shareholders elected Larry
N. Forehand as Class I Director for a term expiring at the annual
meeting to be held in 2006 and until his successor is elected and
qualified.
2) By a vote of 3,195,076 for, 18,760 against or withheld, 0
abstaining and 0 broker non-votes, the shareholders elected
Thomas E. Martin as Class I Director for a term expiring at the
annual meeting to be held in 2006 and until his successor is
elected and qualified.
3) By a vote of 3,195,076 for, 18,760 against or withheld, 0
abstaining and 0 broker non-votes, the shareholders elected David
Nierenberg as Class I Director for a term expiring at the annual
meeting to be held in 2006 and until his successor is elected and
qualified.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
Exhibit
Number Document Description
------- --------------------
31.1 Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) REPORTS ON FORM 8-K
There have been no reports on Form 8-K filed
during the Company's fiscal quarter ended June
29, 2003.
10
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEXICAN RESTAURANTS, INC.
Dated: August 18, 2003 By: /s/ Curt Glowacki
Curt Glowacki -------------------------
Chief Executive Officer
(Principal Executive Officer)
Dated: August 18, 2003 By: /s/ Andrew J. Dennard
Andrew J. Dennard -------------------------
Senior Vice President, Chief Financial
Officer & Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
11
INDEX TO EXHIBITS
Exhibit
Number Document Description
------- --------------------
31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002