-----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, TR0EymaorN073YVS9yv7c8sOUbL7RnCWt0/vqj4zbm+iRRI1XBb71KdDj8cg/KNm uv+wa0qoNbCAyYTPu3hS0Q== 0000891082-96-000010.txt : 19960814 0000891082-96-000010.hdr.sgml : 19960814 ACCESSION NUMBER: 0000891082-96-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: TACO CABANA INC CENTRAL INDEX KEY: 0000891082 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 742201241 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20716 FILM NUMBER: 96610643 BUSINESS ADDRESS: STREET 1: 8918 TESORO DRIVE STREET 2: SUITE 200 CITY: SAN ANTONIO STATE: TX ZIP: 78217-6219 BUSINESS PHONE: 2108040990 MAIL ADDRESS: STREET 1: 3309 SAN PEDRO AVE CITY: SAN ANTONIO STATE: TX ZIP: 78212 10-Q 1 TACO CABANA, INC. FORM 10-Q 6/30/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 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 30, 1996 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-20716 TACO CABANA, INC. (Exact name of registrant as specified in its charter) DELAWARE 74-2201241 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 8918 Tesoro Drive, Suite 200 San Antonio, Texas 78217 (Address of principal executive offices) Telephone Number (210) 804-0990 (Registrant's telephone number, including area code) 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 the number of shares of each of the issuer's classes of common stock as of the latest practicable date: Class Outstanding at August 1, 1996 ----------- ----------------------------- Common Stock 15,697,162 shares TACO CABANA, INC. INDEX Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets at June 30, 1996 2 and December 31, 1995 Condensed Consolidated Statements of Operations for the 3 Thirteen Weeks Ended June 30, 1996 and July 2, 1995 Condensed Consolidated Statements of Operations for the 4 Twenty-Six Weeks Ended June 30, 1996 and July 2, 1995 Condensed Consolidated Statements of Cash Flows for the 5 Twenty-Six Weeks Ended June 30, 1996 and July 2, 1995 Notes to Condensed Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial 8-15 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 15 Items 2 through 5 have been omitted since the registrant has no reportable events in relation to the items Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 TACO CABANA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) June 30, December 31, 1996 1995 -------- ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 2,838,000 $ 2,749,000 Receivables, net 1,430,000 1,376,000 Inventory 1,837,000 1,846,000 Prepaid expenses 1,266,000 1,700,000 Pre-opening costs, net 82,000 500,000 Income taxes receivable 3,361,000 2,777,000 Deferred income taxes 1,765,000 497,000 ----------- ----------- Total current assets 12,579,000 11,445,000 PROPERTY AND EQUIPMENT, net 87,088,000 87,695,000 NOTES RECEIVABLE, net 798,000 780,000 INTANGIBLE ASSETS, net 46,220,000 47,038,000 OTHER ASSETS 844,000 934,000 INVESTMENT IN JOINT VENTURE 936,000 686,000 ----------- ----------- TOTAL $148,465,000 $148,578,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,460,000 $ 5,409,000 Accrued liabilities 3,148,000 3,864,000 Accrued litigation settlement 2,950,000 - Current maturities of long-term debt and capital leases 2,150,000 2,074,000 Line of credit 41,000 2,186,000 ----------- ----------- Total current liabilities 12,749,000 13,533,000 LONG-TERM OBLIGATIONS, net of current maturities: Capital leases 4,144,000 4,242,000 Long-term debt 9,810,000 10,788,000 ----------- ----------- Total long-term obligations 13,954,000 15,030,000 ACQUISITION LIABILITIES 4,497,000 4,888,000 DEFERRED LEASE PAYMENTS 736,000 935,000 DEFERRED INCOME TAXES 3,979,000 1,865,000 STOCKHOLDERS' EQUITY: Common stock 157,000 157,000 Additional paid-in capital 96,996,000 96,954,000 Retained earnings 15,397,000 15,216,000 ----------- ----------- Total stockholders' equity 112,550,000 112,327,000 ----------- ----------- TOTAL $148,465,000 $148,578,000 =========== =========== See Notes to Condensed Consolidated Financial Statements. TACO CABANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Thirteen Weeks Ended ---------------------------- June 30, July 2, 1996 1995 ---------- ---------- REVENUES: Restaurant sales $35,174,000 $36,755,000 Franchise fees and royalty income 134,000 180,000 ---------- ---------- Total revenues 35,308,000 36,935,000 ---------- ---------- COSTS AND EXPENSES: Restaurant cost of sales 11,074,000 11,822,000 Labor 9,064,000 9,514,000 Occupancy 2,045,000 2,063,000 Other restaurant operating costs 6,284,000 6,977,000 General and administrative 1,585,000 1,503,000 Depreciation and amortization 2,216,000 2,634,000 Litigation settlement 3,400,000 - Special charge - 8,100,000 Reserve for notes and other receivables - 3,500,000 ---------- ---------- Total costs and expenses 35,668,000 46,113,000 ---------- ---------- LOSS FROM OPERATIONS (360,000) (9,178,000) ---------- ---------- INTEREST EXPENSE, NET (356,000) (389,000) ---------- ---------- LOSS BEFORE BENEFIT FOR INCOME TAXES (716,000) (9,567,000) ---------- ---------- BENEFIT FOR INCOME TAXES 163,000 3,539,000 ---------- ---------- NET LOSS $ (553,000) $(6,028,000) ========== ========== NET LOSS PER SHARE $ (0.04) $ (0.39) ========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING 15,687,689 15,564,162 ========== ========== See notes to Condensed Consolidated Financial Statements. TACO CABANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Twenty-Six Weeks Ended ------------------------------ June 30, July 2, 1996 1995 ----------- ---------- REVENUES: Restaurant sales $66,293,000 $68,820,000 Franchise fees and royalty income 280,000 952,000 ---------- ---------- Total revenues 66,573,000 69,772,000 ---------- ---------- COSTS AND EXPENSES: Restaurant cost of sales 20,777,000 22,195,000 Labor 17,239,000 17,992,000 Occupancy 4,096,000 4,087,000 Other restaurant operating costs 11,942,000 13,231,000 General and administrative 3,317,000 2,901,000 Depreciation and amortization 4,584,000 5,077,000 Litigation settlement 3,400,000 - Special charge - 8,100,000 Reserve for notes and other receivables - 3,500,000 ---------- ---------- Total costs and expenses 65,355,000 77,083,000 ---------- ---------- INCOME (LOSS) FROM OPERATIONS 1,218,000 (7,311,000) ---------- ---------- INTEREST EXPENSE, NET (768,000) (609,000) ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 450,000 (7,920,000) ---------- ---------- BENEFIT (PROVISION) FOR INCOME TAXES (269,000) 2,930,000 ---------- ----------- NET INCOME (LOSS) $ 181,000 $ (4,990,000) ========== =========== NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.32) ========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 5,952,239 15,564,162 ========== =========== See notes to Condensed Consolidated Financial Statements. TACO CABANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Twenty-Six Weeks Ended ------------------------------ June 30, July 2, 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 181,000 $(4,990,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,584,000 5,077,000 Litigation settlement 2,950,000 - Deferred income taxes 846,000 (2,306,000) Special charge - 8,100,000 Reserve for notes and other receivables - 3,500,000 Changes in operating working capital items (2,366,000) (8,625,000) --------- --------- Net cash provided by operating activities 6,195,000 756,000 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (2,753,000) (14,387,000) Investment in joint venture (250,000) - ---------- ---------- Net cash used for investing activities (3,003,000) (14,387,000) CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments under long-term debt and line of credit (3,047,000) (694,000) Principal payments under capital leases (98,000) (67,000) Exercise of stock options 42,000 9,000 Proceeds from issuance of notes payable - 10,203,000 ---------- ---------- Net cash provided (used) by financing activities (3,103,000) 9,451,000 ---------- ---------- NET INCREASE (DECREASE) IN CASH 89,000 (4,180,000) CASH AND CASH EQUIVALENTS, beginning of period 2,749,000 7,275,000 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 2,838,000 $ 3,095,000 ========== ========== See notes to Condensed Consolidated Financial Statements. TACO CABANA, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation Principles of Consolidation - The consolidated financial statements include all accounts of Taco Cabana, Inc. and its wholly-owned subsidiaries (the"Company"). All significant intercompany balances and transactions have been eliminated. The unaudited Condensed Consolidated Financial Statements include all adjustments, consisting of normal, recurring adjustments and accruals, which the Company considers necessary for fair presentation of financial position and the results of operations for the periods presented. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1995. 2. Litigation Settlement On July 24, 1996, the Company approved a proposed settlement (the "Settlement") of A.L. Park, et al. v. Taco Cabana, Inc., et al., (the "Lawsuit"), a suit originally filed in September 1995 seeking status as a class action. Under the terms of the Settlement, the plaintiffs will receive a total of $6.0 million. The Company's insurance carrier will pay $3.05 million in cash, while the Company will pay $2.95 million consisting of, at the Company's option, cash or shares of the Company's common stock. Additionally, the Company has accrued $450,000 for the payment of legal and related expenses incurred and anticipated to be incurred in connection with the Settlement. As of June 30, 1996, the Company has paid approximately $200,000 in legal expenses relating to the lawsuit. The Company denies any liability or wrongdoing in connection with the Lawsuit. The Settlement is contingent upon execution of a definitive settlement agreement, approval by a sufficient percentage of the potential class plaintiffs, U.S. District Court approval, and certain other conditions. 3. Special Charge During the second quarter of 1995, the Company recorded a reserve for notes and other receivables of $3.5 million and a special charge of $8.1 million. The charges were the result of a comprehensive review of the operations of the Company performed by management during the second quarter of 1995 and included approximately $2.6 million for market value adjustments resulting from a decision to close six Company-owned restaurants (including one mall unit). As of June 30, 1996, all of the identified restaurants had been closed. 4. Earnings per Share Net income per share has been computed by dividing net income by the weighted average number of common shares outstanding during each period. Common stock equivalent shares, which relate to stock options, are included in the weighted average when the effect is dilutive. 5. Supplemental Disclosure of Cash Flow Information Twenty-Six Weeks Ended ---------------------- June 30, July 2, 1996 1995 --------- --------- (Unaudited) (Unaudited) Cash paid for interest $ 655,000 $ 540,000 Interest capitalized on construction costs - 99,000 Cash paid for income taxes - 400,000 Notes receivable acquired in exchange for property, plant and equipment - 1,286,000 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The Company commenced operations in 1978 with the opening of the first Taco Cabana restaurant in San Antonio. As of August 1, 1996, the Company had 104 company-owned, three joint-venture owned and 19 franchised restaurants. The Company's revenues are derived primarily from sales by company-owned restaurants, with franchise fees and royalty income currently contributing less than 1% of total revenues for the first six months of the 1996 fiscal year. On July 24, 1996, the Company approved a proposed settlement (the "Settlement") of A.L. Park, et al. v. Taco Cabana, Inc., et al., (the "Lawsuit"), a suit originally filed in September 1995 seeking status as a class action. Under the terms of the Settlement, the plaintiffs will receive a total of $6.0 million. The Company's insurance carrier will pay $3.05 million in cash, while the Company will pay $2.95 million consisting of, at the Company's option, cash or shares of the Company's common stock. Additionally, the Company has accrued $450,000 for the payment of legal and related expenses incurred and anticipated to be incurred in connection with the Settlement. The Company denies any liability or wrongdoing in connection with the Lawsuit. The Settlement is contingent upon execution of a definitive settlement agreement, approval by a sufficient percentage of the potential class plaintiffs, U.S. District Court approval, and certain other conditions. During the second quarter of 1995, the Company recorded a reserve for notes and other receivables of $3.5 million and a special charge of $8.1 million. The charges were the result of a comprehensive review of the operations of the Company performed by management during the second quarter of 1995 and included approximately $2.6 million for market value adjustments resulting from a decision to close six Company-owned restaurants (including one mall unit). As of June 30, 1996, all of the identified restaurants had been closed. During the twenty-six weeks ended June 30, 1996, the Company closed two Company-owned restaurants and a franchisee of the Company, in which the Company has a joint-venture interest, opened one restaurant. The following table sets forth for the periods indicated the percentage relationship to total revenues, unless otherwise indicated, of certain operating statement data. The table also sets forth certain restaurant data for the periods indicated. 13 Weeks Ended 26 Weeks Ended ------------------ ----------------- June 30, July 2, June 30, July 2, 1996 1995 1996 1995 ------- ------- -------- ------- Operating Statement Data: REVENUES: Restaurant sales 99.6% 99.5% 99.6% 98.6% Franchise fees and royalty income 0.4 0.5 0.4 1.4 ----- ----- ----- ----- Total revenues 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== COSTS AND EXPENSES: Restaurant cost of sales (1) 31.5% 32.2% 31.3% 32.3% Labor (1) 25.8 25.9 26.0 26.1 Occupancy (1) 5.8 5.6 6.2 5.9 Other restaurant operating costs (1) 17.9 19.0 18.0 19.2 General and administrative costs 4.5 4.1 5.0 4.2 Depreciation and amortization 6.3 7.1 6.9 7.3 Litigation settlement 9.6 - 5.1 - Special charge - 21.9 - 11.6 Reserve for notes and other receivables - 9.5 - 5.0 INCOME (LOSS) FROM OPERATIONS (1.0) (24.8) 1.8 (10.5) INTEREST EXPENSE, net (1.0) (1.1) (1.2) (0.9) ----- ----- ---- ----- INCOME (LOSS) BEFORE INCOME TAXES (2.0) (25.9) 0.7 (11.4) BENEFIT (PROVISION) FOR INCOME TAXES 0.5 9.6 (0.4) 4.2 ----- ----- ----- ----- NET INCOME (LOSS) (1.6)% (16.3)% 0.3% (7.2)% ===== ===== ===== ===== Restaurant Data: Company-owned restaurants: Beginning of period 104 106 106 104 Opened - 5 - 10 Sold (refranchised) - - - (3) Closed - (2) (2) (2) --- --- --- --- End of period 104 109 104 109 Franchised and joint-venture owned restaurants: End of period 22 27 22 27 --- --- --- --- Total restaurants: End of period 126 136 126 136 === === === === (1) Percentage is calculated based upon restaurant sales. The Thirteen Weeks Ended June 30, 1996 Compared to the Thirteen Weeks Ended July 2, 1995 Revenues. Restaurant sales decreased by $1.6 million, or 4.3%, to $35.2 million for the second quarter of 1996 from $36.8 million for the second quarter in 1995. Sales from restaurants opened after January 1, 1995 accounted for an increase of $824,000. This increase was offset by sales from restaurants which were closed after July 2, 1995 of $1.4 million, as well as a decrease in sales of approximately $1.0 million for restaurants opened or acquired prior to January 1, 1995. Comparable store sales, defined as Taco Cabana restaurants that have been open 18 months or more at the beginning of the quarter, decreased 1.2% during the second quarter of 1996. Management attributes much of this decline in sales to increased levels of competition in the Company's core markets and the cannibalization of revenues at existing restaurants upon the opening of newer restaurants. Costs and Expenses. Restaurant cost of sales, calculated as a percentage of restaurant sales, decreased to 31.5% in the second quarter of 1996 from 32.2% for the second quarter of 1995. The decrease was due primarily to the negotiation of favorable commodity prices. Labor costs calculated as a percentage of restaurant sales improved slightly in the second quarter of 1996 compared to the same period in 1995. Occupancy costs remained relatively constant in the second quarter of 1996 compared to the same period in 1995. Other restaurant operating costs as a percentage of restaurant sales decreased to 17.9% in the second quarter of 1996 from 19.0% for the same period of 1995. This decrease is due primarily to management's increased focus on unit level operations. General and administrative expenses increased to $1.6 million from $1.5 million, and increased as a percentage of total revenues to 4.5% for the second quarter of 1996 from 4.1% for the comparable period in 1995. This increase was primarily attributable to the addition of management, as well as an increased level of expenditures to support the Company's operations. Depreciation and amortization expense consisted of the following: Thirteen Weeks Ended ------------------------ June 30, 1996 July 2, 1995 ------------- ------------ (Unaudited) (Unaudited) Depreciation of property and equipment $ 1,689,000 $1,495,000 Amortization of intangible assets 416,000 397,000 Amortization of pre-opening costs 111,000 742,000 Depreciation expense increased by approximately $194,000 for the quarter ended June 30, 1996 compared to the quarter ended July 2, 1995. The increase was due primarily to restaurant openings during 1995, as well as capital expenditures during the first six months of 1996. Amortization of pre-opening costs decreased by approximately $631,000 in the second quarter of 1996 compared to the second quarter of 1995, due to the decrease in the number of stores opened during the most recent twelve-month period compared to the twelve-month period ended July 2, 1995. The litigation settlement recorded during the second quarter of 1996 includes the expected payment of $2.95 million consisting of, at the Company's option, cash or shares of the Company's common stock. Additionally, the amount recorded includes $450,000 for the payment of legal and related expenses incurred and anticipated to be incurred in connection with the litigation settlement. See item 1. "Legal Proceedings" and note 2. "Litigation Settlement" to the Condensed Consolidated Financial Statements. Interest Expense, net. Interest expense, net of interest capitalized on construction costs, decreased to $403,000 in the second quarter of 1996 from $455,000 in the second quarter of 1995 as a result of the repayment of a substantial portion of the Company's line of credit during the second quarter of 1996. No interest was capitalized during the second quarter of 1996. The Company earned $47,000 of interest income during the second quarter of 1996 on cash balances compared to $66,000 of interest income earned during the second quarter of 1995. Net Loss and Net Loss Per Share. The Company recorded a net loss of $553,000 for the second quarter of 1996 compared to a net loss of $6,028,000 for the comparable period of 1995. The recorded net loss was 1.6% as a percentage of total revenues for the second quarter of 1996 compared to a net loss equal to 16.3% of total revenues in the second quarter of 1995. The loss per share was $0.04 for the second quarter of 1996 compared to a net loss per share of $0.39 in the comparable period of 1995. Disregarding the litigation settlement, recorded in the second quarter of 1996, the Company would have reported net income of $1,691,000 for the second quarter of 1996, equal to $0.11 per share. Disregarding the reserve for receivables and the special charge recorded in the second quarter of 1995, the Company would have reported net income of $1,280,000 equal to $0.08 per share during the second quarter of 1995. Excluding the litigation loss, the reserve for receivables and the special charge, management believes that the remaining changes are largely due to improved operating margins at the restaurant level. The Twenty-Six Weeks Ended June 30, 1996 Compared to the Twenty-Six Weeks Ended July 2, 1995 Revenues. Restaurant sales decreased by $2.5 million, or 3.7%, to $66.3 million for the twenty-six weeks ended June 30, 1996 from $68.8 million for the comparable period in 1995. Sales from restaurants opened after January 1, 1995 accounted for an increase of $2.5 million. This increase was offset by sales from restaurants which were closed after July 2, 1995 of $3.0 million, as well as a decrease in sales of approximately $2.0 million for restaurants opened or acquired prior to January 1, 1995. Comparable store sales, defined as Taco Cabana restaurants that have been open 18 months or more at the beginning of the year, decreased 1.8% during the twenty-six weeks ended June 30, 1996. Management attributes much of this decline in sales to the cannibalization of revenues at existing restaurants upon the opening of newer restaurants, increased levels of competition in the Company's core markets and inclement weather during the first quarter of 1996. Franchise and royalty fees decreased by $672,000 to $280,000 for the twenty-six weeks ended June 30, 1996 compared to the same period of 1995, due primarily to decreased revenues related to new franchise development agreements. Costs and Expenses. Restaurant cost of sales, calculated as a percentage of restaurant sales, decreased to 31.3% in the twenty-six weeks ended June 30, 1996 from 32.3% for the twenty-six weeks ended July 2, 1995. The decrease was due primarily to the negotiation of favorable commodity prices. Labor costs calculated as a percentage of restaurant sales improved slightly during the twenty-six weeks ended June 30, 1996 compared to the same period in 1995. Occupancy costs remained relatively constant during the twenty-six weeks ended 1996 compared to the same period in 1995. Other restaurant operating costs as a percentage of restaurant sales decreased to 18.0% in the twenty-six weeks ended June 30, 1996 from 19.2% for same period of 1995. This decrease is due primarily to management's increased focus on unit level operations. General and administrative expenses increased to $3.3 million from $2.9 million, and increased as a percentage of total revenues to 5.0% for the second quarter of 1996 from 4.2% for the comparable period in 1995. This increase was primarily attributable to the addition of management, as well as an increased level of expenditures to support the Company's operations. Depreciation and amortization expense consisted of the following: Twenty-Six Weeks Ended ---------------------- June 30, July 2, 1996 1995 ---------- --------- (Unaudited) (Unaudited) Depreciation of property and equipment $ 3,337,000 $ 2,912,000 Amortization of intangible assets 820,000 814,000 Amortization of pre-opening costs 427,000 1,351,000 Depreciation expense increased by approximately $425,000 for the twenty-six weeks ended June 30, 1996 compared to the twenty-six weeks ended July 2, 1995. The increase was due primarily to restaurant openings during 1995, as well as capital expenditures during the first six months of 1996. Amortization of pre-opening costs decreased by approximately $924,000 in the twenty-six weeks ended June 30, 1996 compared to the twenty-six weeks ended July 2, 1995, due to the decrease in the number of stores opened during the most recent twelve-month period compared to the twelve-month period ended July 2, 1995. The litigation settlement recorded during the second quarter of 1996 includes the expected payment of $2.95 million consisting of, at the Company's option, cash or shares of the Company's common stock. Additionally, the amount recorded includes $450,000 for the payment of legal and related expenses incurred and anticipated to be incurred in connection with the litigation settlement. See item 1. "Legal Proceedings" and note 2. "Litigation Settlement" to the Condensed Consolidated Financial Statements. Interest Expense, net. Interest expense, net of interest capitalized on construction costs, increased to $870,000 in the twenty-six weeks ended June 30, 1996 from $761,000 in the twenty-six weeks ended July 2, 1995, primarily as a result of interest expense associated with usage of the Company's line of credit during the first quarter of 1996. No interest was capitalized during the twenty-six weeks ended June 30, 1996. The Company earned $102,000 of interest income during the twenty-six weeks ended June 30, 1996, compared to $152,000 of interest income earned during the twenty-six weeks ended July 2, 1995. Net Income (Loss) and Net Income (Loss) Per Share. Net income increased to $181,000 for the twenty-six weeks ended June 30, 1996 from a net loss of $4,990,000 for the same period in 1995. Net income was 0.3% of total revenues for the twenty-six weeks ended June 30, 1996 compared to a net loss of 7.2% for the twenty-six weeks ended July 2, 1995. Earnings per share was $0.01 for the twenty-six weeks ended June 30, 1996 compared to a loss per share of $0.32 in the same period of 1995. Disregarding the litigation settlement, recorded in the second quarter of 1996, the Company would have reported net income of $2,425,000 for the twenty-six weeks ended June 30, 1996, equal to $0.15 per share. Disregarding the reserve for receivables and the special charge recorded in the second quarter of 1995, the Company would have reported net income of $2,318,000 equal to $0.15 per share during the twenty-six weeks ended July 2, 1995. Liquidity and Capital Resources Historically, the Company has financed business and expansion activities by using funds generated from operating activities, build-to-suit leases, equity financing, long- term debt and capital leases. The Company maintains loan facilities totaling $20.0 million, including a $5.0 million unsecured revolving line of credit for construction or operating funds. As of August 1, 1996, $8.8 million had been used under these facilities. Net cash provided by operating activities was $6.2 million for the twenty-six weeks ended June 30, 1996, and $756,000 for the twenty-six weeks ended July 2, 1995. Net cash used in investing activities was $3.0 million for the twenty-six weeks ended June 30, 1996, representing primarily capital expenditures for improvements to existing restaurants, compared to $14.4 million for the twenty-six weeks ended July 2, 1995. Net cash used in financing activities was $3.1 million for the twenty-six weeks ended July 2, 1996 representing primarily repayment of the Company's line of credit and long-term debt compared to net cash provided from financing activities of $9.5 million in the same period of 1995 representing borrowings from the Company's debt facilities. As discussed in "Legal Proceeding" in item 1. and note 2. "Litigation Settlement" to the Condensed Consolidated Financial Statements, the Company approved a proposed settlement of A.L. Park, et al. v. Taco Cabana, Inc., et al., a suit originally filed in September 1995 seeking status as a class action. Under the terms of the Settlement, the plaintiffs will receive a total of $6.0 million. The Company's insurance carrier will pay $3.05 million in cash, while the Company will pay $2.95 million consisting of, at the Company's option, cash or shares of the Company's common stock. Additionally, the Company has accrued $450,000 for the payment of legal and related expenses incurred and anticipated to be incurred in connection with the Settlement. As of June 30, 1996, the Company has paid approximately $200,000 in legal expenses relating to the lawsuit. The special charge recorded in the second quarter of 1995 included an accrual of approximately $1.2 million to record the estimated monthly lease payments, net of expected sublease receipts, associated with certain restaurants which have been closed. Cash requirements for this accrual were approximately $137,000 in the twenty-six weeks ended June 30, 1996. Several of the restaurants which have been closed, as well as the Company's previous corporate offices, are currently for sale. Although there can be no assurance of the particular price at which any of such properties will be sold, the Company will receive funds upon the actual disposition of these properties. In addition, certain acquisition and accrued liabilities related to the Two Pesos acquisition were reduced by payments of approximately $608,000 during the twenty-six weeks ended June 30, 1996. The Company believes that existing cash balances, funds generated from operations, its ability to borrow, and the possible use of lease financing will be sufficient to meet the Company's capital requirements through 1996. Impact of Inflation Although increases in labor, food or other operating costs could adversely affect the Company's operations, management does not believe that inflation has had a material adverse effect on the Company's operations to date. Seasonality and Quarterly Results The Company's sales fluctuate seasonally. Historically, the Company's highest sales and earnings occur in the second and third quarters. In addition, quarterly results are affected by the timing of the opening and closing of stores. Therefore, quarterly results cannot be used to indicate results for the entire year. Item 1. Legal Proceedings On July 24, 1996, the Company approved a proposed settlement ("the Settlement") of A.L. Park, et al. v. Taco Cabana, Inc., et al., (the "Lawsuit"), a suit originally filed in September 1995 seeking status as a class action. Under the terms of the Settlement, the plaintiffs will receive a total of $6.0 million. The Company's insurance carrier will pay $3.05 million in cash, while the Company will pay $2.95 million consisting of, at the Company's option, cash or shares of the Company's common stock. Additionally, the Company has reserved $450,000 for the payment of legal and related expenses incurred and anticipated to be incurred in connection with the Settlement. The Company denies any liability or wrongdoing in connection with the Lawsuit. The Settlement was entered into to avoid continuing distraction of management, reduce overall legal cost liability and exposure to risk of adverse outcome. The Settlement is contingent upon execution of a definitive settlement agreement, approval by a sufficient percentage of the potential class plaintiffs, U.S. District Court approval, and certain other conditions. Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed during the period covered by this report. Signature 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. Dated: August 13, 1996 Taco Cabana, Inc. /s/ David G. Lloyd ------------------------------ David G. Lloyd Vice President, Chief Financial Officer, Secretary and Treasurer Signing on behalf of the registrant and as the principal financial and accounting officer EX-27 2
5 6-MOS DEC-29-1996 JUN-30-1996 (1,265,000) 4,103,000 1,925,000 495,000 1,837,000 12,579,000 105,347,000 18,259,000 148,465,000 12,749,000 9,810,000 0 0 157,000 112,393,000 148,465,000 66,293,000 66,573,000 20,777,000 37,861,000 3,400,000 0 768,000 450,000 269,000 181,000 0 0 0 181,000 0.01 0.01
EX-11 3 Exhibit 11 TACO CABANA, INC. Information Supporting Per Share Computations 13 Weeks Ended 26 Weeks Ended -------------- -------------- June 30, July 2, June 30, July 2, 1996 1995 1996 1995 --------- ---------- -------- ---------- Net Income $ (553,000) $(6,028,000) $ 181,000 $(4,990,000) Net Income per share Computation: Average Common Shares Outstanding 15,687,689 15,564,162 15,685,360 15,564,162 Common stock equivalents- dilutive options - - 266,379 - ---------- ---------- ---------- ---------- Average outstanding common and common equivalent shares 15,687,689 15,564,162 15,952,239 15,564,162 Net Income per share $ (0.04) $ (0.39) $ 0.01 $ (0.32) ========= ========= ========= ======== -----END PRIVACY-ENHANCED MESSAGE-----