-----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, A+1eBagkMV6D7EvdA5+NjeiMgPB/1k/d07V0YgJ5svRbMtwn/lvYuK0eH96vjkk1 RkGAOc9Py4PyKGfI8vUPAg== 0000075929-99-000012.txt : 19990813 0000075929-99-000012.hdr.sgml : 19990813 ACCESSION NUMBER: 0000075929-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990812 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-Q SEC ACT: SEC FILE NUMBER: 000-04678 FILM NUMBER: 99685589 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 ____ 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. 0-4678 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) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Number of shares of Common Stock outstanding as of August 10, 1999: 1,463,604. PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES INDEX Page No. Part I. Financial Information Item 1. Financial Statements: Introduction 1 Consolidated Condensed Balance Sheets, June 30, 1999 and September 30,1998 2 Consolidated Condensed Statements of Operations for the Three-Months and Nine-Months Ended June 30, 1999 and 1998 3 Consolidated Condensed Statements of Cash Flows for the Nine-Months Ended June 30, 1999 and 1998 4 Notes to Consolidated Condensed Financial Statements 5 Independent Accountants' Review Report 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk (no response required) Part II. Other Information Item 1. Legal Proceedings (no response required) Item 2. Changes in Securities (no response required) Item 3. Defaults Upon Senior Securities (no response required) Item 4. Submission of Matters to a Vote of Security Holders (no response required) Item 5. Other Information (no response required) Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION Item 1. Financial Statements The consolidated condensed financial statements included herein have been prepared by the company without audit as of June 30, 1999 and for the three-month and nine-month periods ended June 30, 1999 and 1998 pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated condensed financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the company's annual report on Form 10-K for the fiscal year ended September 30, 1998. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the fiscal year ending September 30, 1999. Deloitte & Touche LLP, independent public accountants, has made a limited review of the consolidated condensed financial statements as of June 30, 1999, and for the three-month and nine-month periods ended June 30, 1999 and 1998, included herein. page 1 PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS
June 30, September 30, 1999 1998 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,158,000 $ 546,000 Accounts and notes receivable, current portion 551,000 184,000 Inventories 473,000 473,000 Prepaid expenses 297,000 443,000 Total current assets 3,479,000 1,646,000 Property, plant and equipment: Land 1,868,000 1,867,000 Buildings 6,889,000 6,885,000 Leasehold improvements 17,583,000 17,472,000 Equipment and furniture 22,040,000 22,965,000 Construction in progress 29,000 Total 48,409,000 49,189,000 Less accumulated depreciation and amortization (33,095,000) (33,136,000) Property, plant and equipment - net 15,314,000 16,053,000 Other assets: Land and buildings held for sale 309,000 2,380,000 Other, including noncurrent portion of receivables 295,000 339,000 Total other assets 604,000 2,719,000 Total assets $ 19,397,000 $ 20,418,000 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,076,000 $ 1,227,000 Debt classified as current 148,000 490,000 Accrued wages and bonuses 1,828,000 1,420,000 Accrued insurance costs, current 1,252,000 1,150,000 Other current liabilities 1,637,000 1,864,000 Total current liabilities 5,941,000 6,151,000 Other liabilities: Long-term debt 250,000 1,761,000 Accrued insurance costs, non-current 1,297,000 2,417,000 Restructuring reserves, non-current 334,000 365,000 Total other liabilities 1,881,000 4,543,000 Commitments and Contingencies Stockholders' equity: Preferred stock Common stock 149,000 441,000 Additional paid-in capital 18,988,000 18,661,000 Retained earnings (accumulated deficit) (7,325,000) (9,085,000) Treasury stock at cost (68,000) (68,000) Stock notes receivable (169,000) (228,000) Stockholders' equity 11,575,000 9,724,000 Total liabilities and stockholders' equity $ 19,397,000 $ 20,418,000
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Nine Months Ended June 30, June 30, 1999 1998 1999 1998 Sales $ 14,727,000 $ 16,783,000 $ 42,844,000 $ 48,586,000 Costs and Expenses: Food costs 3,877,000 4,668,000 11,358,000 13,244,000 Restaurant labor and related expenses 5,425,000 6,685,000 16,059,000 19,407,000 Restaurant operating expenses 2,719,000 4,220,000 8,753,000 11,471,000 Depreciation and amortization 494,000 737,000 1,479,000 2,275,000 General and administrative expenses 1,266,000 1,273,000 3,818,000 3,808,000 Asset impairment and restructuring charges 6,969,000 6,969,000 Total 13,781,000 24,552,000 41,467,000 57,174,000 Operating Income (loss) 946,000 (7,769,000) 1,377,000 (8,588,000) Interest Expense (56,000) (22,000) (170,000) Other, including interest income 138,000 34,000 393,000 154,000 Earnings (loss) before income taxes 1,084,000 (7,791,000) 1,748,000 (8,604,000) Provision (benefit) for income taxes 4,574,000 (12,000) 4,305,000 Net earnings (loss) $ 1,084,000 $(12,365,000) $ 1,760,000 $(12,909,000) Basic and diluted earnings (loss) per share $ 0.74 $ (8.44) $ 1.21 $ (8.81) See notes to consolidated condensed financial statements.
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended June 30, 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 1,760,000 $(12,909,000) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 1,479,000 2,275,000 Provision for deferred income taxes 4,305,000 Impairment of long-lived assets 6,049,000 Provision for restructuring reserves 920,000 Gain on sale of assets (359,000) (118,000) Stock compensation to directors 35,000 Changes in operating assets and liabilities: Accounts and notes receivable 9,000 (2,000) Income taxes receivable 538,000 Inventories, prepaid expenses and other assets 157,000 (35,000) Accounts payable and accrued expenses (546,000) 618,000 Restructuring reserves (421,000) (474,000) Other 56,000 65,000 Net cash provided by operating activities 2,170,000 1,232,000 CASH FLOWS FROM INVESTING ACTIVITIES: Property additions (777,000) (513,000) Proceeds from sale of assets 2,072,000 207,000 Net cash provided (used) by investing activities 1,295,000 (306,000) CASH FLOWS FROM FINANCING ACTIVITIES: Short-term borrowings, net (342,000) 1,091,000 Long-term borrowings 6,650,000 14,126,000 Repayments of long-term borrowings (8,161,000) (14,792,000) Treasury stock acquired (12,000) Dividends paid (66,000) Net cash provided (used) by financing activities (1,853,000) 347,000 Net increase in cash and cash equivalents 1,612,000 1,273,000 Cash and cash equivalents, beginning of period 546,000 429,000 Cash and cash equivalents, end of period $ 2,158,000 $ 1,702,000 SUPPLEMENTAL INFORMATION: Income tax paid and refunds received, net $ 12,000 $ 541,000 Interest paid, net of capitalized amounts $ 37,000 $ 161,000 See notes to consolidated condensed financial statements.
PANCHO'S MEXICAN BUFFET, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) 1. NET EARNINGS (LOSS) PER SHARE The company reports earnings per share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." 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 1,463,000 and 1,458,000 for the three-months and nine-months ended June 30, 1999, respectively, and 1,466,000 and 1,465,000 for the same periods in 1998. The average prices of the company's common stock for the quarter and nine months ended June 30, 1999 were below the strike price of all outstanding options, therefore all the potential common shares were anti dilutive and excluded from the earnings per share calculation for those periods. Due to the net losses for the quarter and nine months ended June 30, 1998, the company's potential common shares were anti dilutive and excluded from the loss per share calculations for those periods. Therefore, there was no difference between basic and diluted earnings (loss) per share among the periods ended June 30, 1999 and 1998. At June 30, 1999, there were 108,963 options outstanding which represented potential common shares which could be dilutive in the future. 2. 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. The company's remaining long-term debt at June 30, 1999 represents notes payable issued in 1996 - 1998 to buy out the leases of certain closed locations. The current portion of those notes is included in debt classified as current at June 30, 1999 and September 30, 1998. 3. INCOME TAXES In the quarter ended June 30, 1998, the company increased its valuation allowance for deferred tax assets to offset all of its net deferred tax assets. This was considered necessary due to the company's net losses for that quarter and the previous three years. The net deferred tax assets were reduced by $396,000 and $639,000 for the three and nine months ended June 30, 1999 due to the net earnings for those periods. The valuation allowance was reduced by the same amounts to fully offset the net deferred tax asset balance. Accordingly, the company recognized no net tax expense in the quarter and nine months ended June 30, 1999. The company received a $12,000 tax refund which it reported as income tax benefit in the quarter ended March 31, 1999. At June 30, 1999, the valuation allowance of $7,500,000 offset the full amount of net deferred tax assets. 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 realized. The deferred tax assets include federal employer tax credits and net operating loss (NOL) carryforwards which expire in years 2009 through 2013, and state NOL carryforwards which expire in years 1999 through 2013. 4. 1-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 has 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. INDEPENDENT ACCOUNTANTS' REVIEW REPORT Pancho's Mexican Buffet, Inc.: We have reviewed the accompanying consolidated condensed balance sheet of Pancho's Mexican Buffet, Inc. and subsidiaries as of June 30, 1999, and the related consolidated condensed statements of operations for the three-month and nine-month periods ended June 30, 1999 and 1998 and cash flows for the nine-month periods then ended. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such consolidated condensed financial statements referred to above for them to be in conformity with generally accepted accounting principles. We previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of September 30, 1998, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein), and in our report dated November 13, 1998, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated condensed balance sheet as of September 30, 1998, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Fort Worth, Texas July 28, 1999 PART I. FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition As of June 30, 1999, the company's current ratio was 0.6 to 1, up from 0.3 to 1 on September 30, 1998. 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. The company's cash and cash equivalents balance has increased $1,612,000 since September 30, 1998. Operations provided $2.2 million and $1.2 million cash in the nine-months ended June 30, 1999 and 1998, respectively. The cash flow from the net profit of $1,760,000 in the first nine months of fiscal 1999 was improved by noncash depreciation and amortization of $1,479,000, and partially reduced by the payment of accrued liabilities and restructuring reserves. In the first nine months of 1999, the company received $2.1 million from the sale of three closed restaurant sites and other assets. The company sold another restaurant in late June for which it was paid in July. It has one other closed restaurant site held for sale. The company spent $777,000 for property additions in the first nine months of 1999, resulting in a net $1.3 million cash provided by investing activities. Capital additions in 1999 include $123,000 to remodel an existing restaurant in Fort Worth as a test site for developing a revitalized restaurant format. The company plans to continue to invest in developing an updated restaurant format and appearance, with the remodel of another test location scheduled to begin in August, 1999. The company plans to pay for remodels and other capital projects with cash on hand, operating cash flow and the proceeds from the sale of closed restaurant sites. No new restaurants are currently planned as the company continues to test changes to revitalize the restaurant format, and none were added last year. The company reduced its total debt by $1.9 million in the first nine months of 1999, paid off its bank debt in February and terminated the restrictive credit line agreement on that bank debt in April. The company reduced its accrued insurance costs by $790,000, $248,000 and $212,000 in the quarters ended June 30 and March 31, 1999 and March 31, 1998, 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. The company will continue to evaluate alternatives to reduce its exposure to claims risk and reserve fluctuations. The company has not declared a cash dividend in 1999. Future dividends may be declared at the discretion of the company's board of directors. Results of Operations Same-store sales rose 0.3% and 0.4% for the three months and nine months ended June 30, 1999 compared with the same periods last year. A price increase of about .5% in April 1998 contributed to the year-to-date increase. Also, Pancho's restaurants near those closed last year reported the most significant volume increases. Total sales for the quarter and nine months decreased $2.1 million and $5.8 million compared with last year's periods, respectively. The nine units closed under the 1998 restructuring plan accounted for $2.1 million and $5.9 million in sales in the quarter and nine months ended June 30, 1998, respectively. Average sales for restaurants open throughout the quarter and nine months ended June 30, 1999 grew 4.2% and 4.7%, to $306,000 and $891,000, respectively, compared with the same periods in 1998. Average sales increased mainly due to the closing of nine lower volume stores in 1998. The company plans to continue its neighborhood marketing strategy using company-wide and store-specific neighborhood marketing tactics. Neighborhood marketing strengthens Pancho's ties to each restaurant's immediate community with a portfolio of specific tactics developed for each location. A series of company-wide tactics and existing programs such as the Birthday Club and School Rewards programs complement the local tactics. Additional marketing efforts will be focused in markets which have lagged behind in sales comparisons. In 1999, the main company promotions have used newspaper inserts to distribute discount coupons. The company plans to continue using newspaper inserts with discounts to increase customer frequency and attract new customer trials. Customer discounts were 5.3% and 4.5% of sales for the quarter and nine months ended June 30, 1999, compared with 6.7% and 4% for the same periods in 1998. Stable to lower food prices helped the company reduce food cost 1.5% and 0.8% of sales for the current quarter and nine months, respectively, compared with the same periods in fiscal 1998. These cost factors also improved due to the relative efficiencies from closing lower sales volume stores in 1998. Due to effective risk and claims management, the company recognized benefits of $326,000 and $525,000 to reduce employee injury insurance reserves in the quarter and nine months ended June 30, 1999. After eliminating that gain, labor and related costs decreased 0.7% and 1.2% of sales for the three months and nine months ended June 30, 1999, compared with the same periods in 1998. This cost factor declined because labor costs include a semi-fixed element which declines as a percent of sales as sales volume increases. Therefore, closing nine lower volume stores in 1998 helped the company reduce labor as a percentage of sales. If the company is unable to further reduce labor cost factors with management efficiencies and sales growth, or if the minimum wage is increased, the company will consider additional price increases. Restaurant operating expenses include store marketing, maintenance, supplies, utilities and occupancy costs. Due to effective case and risk management, the company reduced general liability and insurance reserves by $464,000, $49,000 and $212,000 in the quarters ended June 30, 1999, and March 31, 1999 and 1998, respectively. Excluding those benefits, restaurant operating expenses decreased 3.5% and 2.4% of sales for the three months and nine months just ended, respectively. Closing nine lower sales units in 1998 helped reduce the cost-to-sales ratio of this category, particularly for maintenance, utilities and occupancy costs. Restaurant marketing and promotion costs decreased 1.6% and 1% of sales for the third quarter and nine months of 1999, respectively, versus 1998. The savings came mainly from reduced outside consulting and market research costs, lower ad media spending and efficiencies from using newspaper inserts rather than direct mail promotions. Due to the impairment of fixed assets for 22 locations in June 1998, depreciation and amortization decreased $243,000 and $796,000 for the quarter and nine-months ended June 30, 1999, respectively, compared to the same 1998 periods. General and administrative expenses rose 1% and 1.1% of sales for the quarter and nine months ended June 30, 1999, mainly due to the effect of lower total sales and accrued bonuses based on net earnings. In the quarter ended June 30, 1998, the company increased its valuation allowance for deferred tax assets to fully offset all of its net deferred tax assets. This was considered necessary due to the company's net losses for that quarter and the previous three years. The net deferred tax assets were reduced by $396,000 and $639,000 in the quarter and nine months ended June 30, 1999, respectively, due to the net earnings for those periods. The valuation allowance was reduced by the same amounts to fully offset the net deferred tax asset balance of $7,500,000 at June 30, 1999. Accordingly, the company recognized no net tax expense for the quarter and nine months ended June 30, 1999. The company received a $12,000 tax refund which it reported as income tax benefit in the quarter ended March 31, 1999. At June 30, 1999, the valuation allowance offset the full amount of net deferred tax assets. 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. The deferred tax assets include federal employer tax credits and net operating loss (NOL) carryforwards which expire in years 2009 through 2013, and state NOL carryforwards which expire in years 1999 through 2013. After excluding impairment and restructuring charges and gains from reducing insurance reserves from all periods, the company improved operating income by $956,000 and $2,170,000 for the quarter and nine months ended June 30, 1999, respectively, from significant losses for the same periods in 1998. The company's future profitability depends on its ability to continue to improve sales and manage costs. Net earnings improved due to the increase in operating results and greater gains on asset sales. Gains on sale of assets were $122,000 and $359,000 for the quarter and nine months ended June 30, 1999, compared with $26,000 and $118,000 for the same periods in 1998. Results of asset sales are included in Other, including interest income on the Statement of Operations. Market Listing of the Company's Common Stock On March 12, 1999, the market listing of the company's common stock was moved to the Nasdaq SmallCap Market from the Nasdaq National Market. Impact of Year 2000 Some computer hardware and software use only two digits to identify the year in date information. If not corrected, such systems could fail when processing dates for the year 2000 (Y2K) or later. The company is in the process of evaluating its risk and the related costs of updating its computer systems to properly process Y2K and later dates. The company has identified all significant hardware and applications that it believes will require modification to provide Y2K processing compliance. Internal and external resources are being used to make the required modifications and test Y2K processing. The key company systems for which Y2K problems might pose a significant risk are the company's restaurant point-of-sale (POS) register systems and the company's corporate accounting system. The company plans to complete the testing process for all significant applications by September 30, 1999. The company's stores depend on the POS systems for recording sales data, credit card processing, labor scheduling, time and attendance tracking, and certain order entry and inventory functions. Other technology-dependent functions at the stores are not significant. If the POS software is not fully remediated by December 31, 1999, current contingency plans call for using the existing software, which tests indicate is Y2K capable for the most significant functions. Restaurant management might have to perform labor scheduling manually, as was done for years, and do without certain management reports until complete remediation is achieved. If the company's corporate accounting system is not judged adequately remediated by October 31, 1999, the current contingency plan calls for the company to acquire alternate accounting software which is certified Y2K compliant. Conversion to new accounting software under such time pressure would increase the company's accounting costs, but would not be expected to affect the operations of the company's restaurants. The company has communicated with others with whom it does significant business to determine their Y2K readiness and the extent to which the company may be vulnerable to third-party Y2K problems. However, there can be no guarantee that the systems of other companies will be converted timely, or that a failure to convert by another company will not have a material adverse effect on the company. Any material disruption in utility services or the general economy due to Y2K problems could adversely affect the company's operations. The total cost to the company of these Y2K compliance activities has not been and is not expected to be material to its financial position, results of operations or cash flows. These costs and the date on which the company plans to complete the Y2K modifications and testing are based on management's best estimates, which were derived using numerous assumptions about future events, including the continued availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved, and actual results could differ from those plans. Other Uncertainties and Trends 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, plans to sell assets, unit growth, future capital expenditures, future borrowings, future cash flows, claims and payments related to the company's insurance reserves, future results of operations and Year 2000 remediation. 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: consumer spending trends and habits; increased competition in the restaurant industry; weather conditions; the results of claims on the company's insurance reserves and related adjustments to those reserves; laws and regulations affecting labor and employee benefit costs; and the availability and performance of internal and external Year 2000 remediation resources. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Required by Item 601 of Regulation S-K Exhibit Number 2 Not applicable 3 Certificate of Amendment to Certificate of Incorporation 4 Not applicable 10 Not applicable 11 Not required -- explanation of net earnings (loss) per share computation is contained in notes to consolidated condensed financial statements. 15 Letter re: unaudited interim financial information 18 Not applicable 19 Not applicable 22 Not applicable 23 Not applicable 24 Not applicable 27 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed in the quarter ended June 30, 1999. SIGNATURES Pursuant to the requirements 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. August 10, 1999 /s/ Hollis Taylor Hollis Taylor, President and Chief Executive Officer (Principal Executive Officer) August 10, 1999 /s/ W. Brad Fagan Brad Fagan, Vice President, Treasurer, Chief Financial Officer and Assistant Secretary (Principal Financial and Accounting Officer) EX-15 2 EXHIBIT 15 Pancho's Mexican Buffet, Inc.: We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited interim financial information of Pancho's Mexican Buffet, Inc. and subsidiaries for the three-month and nine-month periods ended June 30, 1999 and 1998, as indicated in our report dated July 28, 1999; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 1999, is incorporated by reference in Registration Statements No. 2-86238, No. 33-60178 as amended, and No. 333-48295 on Form S-8. We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE LLP Fort Worth, Texas July 28, 1999 EX-27 3
5 This schedule contains summary financial information extracted from the consolidated condensed balance sheets as of June 30, 1999 and the consolidated condensed statements of operations for the nine months then ended and is qualified in its entirety by reference to such consolidated condensed financial statements. 9-MOS SEP-30-1999 JUN-30-1999 2,158,000 0 551,000 0 473,000 3,479,000 48,409,000 33,095,000 19,397,000 5,941,000 0 0 0 149,000 11,426,000 19,397,000 42,844,000 42,844,000 11,358,000 37,649,000 3,818,000 0 22,000 1,748,000 (12,000) 1,760,000 0 0 0 1,760,000 1.21 1.21
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