-----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, Rbrdvh5xb/fHS/2OpqL49gwAK7xetSqOu2YAazAffzNTaDp4eX690bZbe1JCzWme 6BgOI6P0ut2uDMHHdaL4kw== 0000891082-97-000016.txt : 19971114 0000891082-97-000016.hdr.sgml : 19971114 ACCESSION NUMBER: 0000891082-97-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970928 FILED AS OF DATE: 19971112 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: SEC FILE NUMBER: 000-20716 FILM NUMBER: 97714790 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 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 September 28, 1997 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 November 5, 1997 Common Stock 14,834,600 shares TACO CABANA, INC. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at September 28, 2 1997 and December 29, 1996 Condensed Consolidated Statements of Operations for the 3 Thirteen Weeks Ended September 28, 1997 and September 29, 1996 Condensed Consolidated Statements of Operations for the 4 Thirty-Nine Weeks Ended September 28, 1997 and September 29, 1996 Condensed Consolidated Statements of Cash Flows for the 5 Thirty-Nine Weeks Ended September 28, 1997 and September 29, 1996 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of 7-14 Financial Condition and Results of Operations PART II. OTHER INFORMATION Items 1, 2, 3 and 5 have been omitted since the registrant has no reportable events in relation to the items Item 4. Submission of Matters to a vote of Security 15 Holders Item 6. Exhibits and Reports on Form 8-K 15 Signature 16 TACO CABANA, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) December 29, September 28, 1996 1997 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 748,000 $ 218,000 Receivables, net 792,000 751,000 Inventory 1,858,000 2,257,000 Prepaid expenses 1,353,000 1,640,000 Pre-opening costs, net 129,000 540,000 Federal income taxes receivable 363,000 1,578,000 Deferred income taxes 1,827,000 1,454,000 ------------ ---------- Total current assets 7,070,000 8,438,000 PROPERTY AND EQUIPMENT, net 88,963,000 92,428,000 NOTES RECEIVABLE, net 738,000 358,000 INTANGIBLE ASSETS, net 45,394,000 44,535,000 OTHER ASSETS 541,000 491,000 ----------- ---------- TOTAL $142,706,000 $146,250,000 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,181,000 $ 3,611,000 Accrued liabilities 3,171,000 2,900,000 Current maturities of long-term debt and capital leases 2,409,000 1,692,000 Line of credit 625,000 3,684,000 ----------- ---------- Total current liabilities 10,386,000 11,887,000 LONG-TERM OBLIGATIONS, net of current maturities: Capital leases 4,041,000 3,869,000 Long-term debt 6,593,000 9,237,000 ---------- ---------- Total long-term obligations 10,634,000 13,106,000 ACQUISITION LIABILITIES 4,212,000 3,523,000 DEFERRED LEASE PAYMENTS 657,000 543,000 DEFERRED INCOME TAXES 3,645,000 5,585,000 STOCKHOLDERS' EQUITY: Common stock 157,000 157,000 Additional paid-in capital 97,095,000 97,095,000 Retained earnings 15,920,000 17,915,000 Less: Treasury stock at cost (872,000 shares) - (3,561,000) ----------- ----------- Total stockholders' equity 113,172,000 111,606,000 ----------- ----------- TOTAL $142,706,000 $146,250,000 ============ ============ See Notes to Condensed Consolidated Financial Statements. TACO CABANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Thirteen Weeks Ended ---------------------------- September September 29, 1996 28, 1997 ---------- ---------- REVENUES: Restaurant sales $33,676,000 $34,967,000 Franchise fees and royalty income 134,000 84,000 ----------- ----------- Total revenues 33,810,000 35,051,000 ------------ ----------- COSTS AND EXPENSES: Restaurant cost of sales 10,770,000 10,873,000 Labor 8,843,000 9,794,000 Occupancy 2,038,000 2,123,000 Other restaurant operating costs 6,013,000 6,899,000 General and administrative 1,616,000 1,515,000 Depreciation and amortization 2,285,000 2,698,000 ----------- ----------- Total costs and expenses 31,565,000 33,902,000 ----------- ----------- INCOME FROM OPERATIONS 2,245,000 1,149,000 ----------- ----------- INTEREST EXPENSE, NET (308,000) (256,000) ----------- ----------- INCOME BEFORE INCOME TAXES 1,937,000 893,000 ----------- ----------- PROVISION FOR INCOME TAXES (717,000) (331,000) NET INCOME $ 1,220,000 $ 562,000 =========== =========== NET INCOME PER SHARE $ 0.08 $ 0.04 =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 16,014,352 15,036,811 =========== =========== See Notes to Condensed Consolidated Financial Statements. TACO CABANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the Thirty-Nine Week Ended ------------------------------ September September 29, 1996 28, 1997 ---------- --------- REVENUES: Restaurant sales $ 99,969,000 $99,171,000 Franchise fees and royalty income 413,000 267,000 ------------ ----------- Total revenues 100,382,000 99,438,000 ------------ ----------- COSTS AND EXPENSES: Restaurant cost of sales 31,546,000 30,607,000 Labor 26,082,000 27,173,000 Occupancy 6,134,000 6,222,000 Other restaurant operating costs 17,956,000 18,650,000 General and administrative 4,933,000 5,089,000 Depreciation and amortization 6,868,000 7,758,000 Litigation settlement 3,400,000 - ----------- ----------- Total costs and expenses 96,919,000 95,499,000 ----------- ----------- INCOME FROM OPERATIONS 3,463,000 3,939,000 ----------- ----------- INTEREST EXPENSE, NET (1,076,000) (772,000) ----------- ----------- INCOME BEFORE INCOME TAXES 2,387,000 3,167,000 PROVISION FOR INCOME TAXES (986,000) (1,172,000) NET INCOME $ 1,401,000 $1,995,000 =========== ========== NET INCOME PER SHARE $ 0.09 $ 0.13 =========== ========== WEIGHTED AVERAGE SHARES OUTSTANDING 15,952,239 15,474,687 =========== ========== See notes to Condensed Consolidated Financial Statements. TACO CABANA, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Thirty-Nine Weeks Ended ------------------------------- September September 29, 1996 28, 1997 ---------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,401,000 $ 1,995,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,868,000 7,758,000 Deferred income taxes 735,000 2,313,000 Capitalized interest - (88,000) Deferred lease payments (277,000) (114,000) Changes in operating working capital items (573,000) (2,188,000) ---------- ----------- Net cash provided by operating activities 8,154,000 9,676,000 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (5,811,000) (12,838,000) Proceeds from sales of property and equipment - 1,379,000 Investment in joint venture (250,000) - ----------- ---------- Net cash used for investing activities (6,061,000) (11,459,000) ----------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable and draws on line of credit - 13,173,000 Principal payments under long-term debt and line of credit (4,006,000) (8,213,000) Principal payments under capital leases (164,000) (146,000) Purchase of treasury stock - (3,561,000) Exercise of stock options 119,000 - ----------- ----------- Net cash provided (used) by financing activities (4,051,000) 1,253,000 ------------ ----------- NET DECREASE IN CASH (1,958,000) (530,000) CASH AND CASH EQUIVALENTS, beginning of period 2,749,000 748,000 ---------- ---------- CASH AND CASH EQUIVALENTS, end of period $ 791,000 $ 218,000 ========== ========== 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 29, 1996. Recently Issued Accounting Pronouncements - In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings Per Share" which is required to be adopted by the Company in the reporting period ending December 28, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating basic earnings per share, the dilutive effect of stock options will be excluded. The Company has determined there would be no impact of SFAS 128 on the calculation of earnings per share for the thirteen weeks and the thirty-nine weeks ended September 28, 1997. 2. 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. 3. Supplemental Disclosure of Cash Flow Information Thirty-Nine Weeks Ended ----------------------- September September 29, 1996 28, 1997 (Unaudited) (Unaudited) ----------- ----------- Cash paid for interest $ 901,000 $ 890,000 Interest capitalized on construction - 88,000 costs Cash paid for income taxes 52,000 74,000 Cash received for income taxes - 4,000 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 November 1, 1997 the Company had 111 company-owned, one joint-venture owned and 10 franchised restaurants. The Company's revenues are derived primarily from sales by company-owned restaurants, with franchise fees and royalty income contributing less than 1% of total revenues for the first nine months of the 1997 fiscal year. During the thirty-nine weeks ended September 28, 1997, the Company opened three free-standing restaurants and two non- traditional restaurants located with in grocery stores. The Company converted two free-standing Sombrero Rosa restaurants and two Two Pesos mall units to the Taco Cabana concept during the same period. Additionally, the Company acquired one restaurant from a franchisee, a franchisee of the Company closed one restaurant, and a franchisee of the Company, in which the Company has a joint venture interest, closed two restaurants. The following table sets forth for the periods indicated the percentage relationship to total revenues, unless otherwise indicated, of certain income statement data. The table also sets forth certain restaurant data for the periods indicated. 13 Weeks Ended 39 Weeks Ended --------------- -------------- September September September September 29, 1996 28, 1997 29, 1996 28, 1997 --------- --------- --------- --------- Operating Statement Data: REVENUES: Restaurant sales 99.6% 99.8% 99.6% 99.7% Franchise fees and royalty income 0.4 0.2 0.4 0.3 ------ ------ ------ ----- Total revenues 100.0% 100.0% 100.0% 100.0% ====== ====== ====== ====== COSTS AND EXPENSES: Restaurant cost of sales 32.0% 31.1% 31.6% 30.9% (1) Labor (1) 26.3 28.0 26.1 27.4 Occupancy (1) 6.1 6.1 6.1 6.3 Other restaurant operating costs (1) 17.9 19.7 18.0 18.8 General and administrative costs 4.8 4.3 4.9 5.1 Depreciation and amortization 6.8 7.7 6.8 7.8 Litigation settlement - - 3.4 - ----- ------ ----- ----- INCOME FROM OPERATIONS 6.6 3.3 3.4 4.0 ----- ------ ----- ----- INTEREST EXPENSE, net (0.9) (0.7) (1.1) (0.8) ----- ------ ----- ----- INCOME BEFORE INCOME TAXES 5.7 2.5 2.4 3.2 BENEFIT (PROVISION) FOR INCOME TAXES (2.1) (0.9) (1.0) (1.2) ----- ----- ----- ----- NET INCOME 3.6% 1.6% 1.4% 2.0% ===== ===== ===== ===== Restaurant Data: Company-owned restaurants: Beginning of period 104 107 106 104 Opened - 2 - 5 Acquired - 1 - 1 Closed - - (2) - ---- ---- ---- ---- End of period 104 110 104 110 Franchised (2)and joint- venture owned restaurants: 20 11 20 11 ---- ---- ---- ---- Total restaurants: 124 121 124 121 ==== ==== ==== ==== (1)Percentage is calculated based upon restaurant sales. (2)Excludes Two Pesos licensed restaurants. The Thirteen Weeks Ended September 28, 1997 Compared to the Thirteen Weeks Ended September 29, 1996 Restaurant Sales. Restaurant sales increased by $1.3 million, or 3.8%, to $35.0 million for the third quarter of 1997 from $33.7 million for the third quarter in 1996. Management attributes much of the increase in sales to the increased number of Company owned stores during the thirteen weeks ended September 28, 1997 compared to the same period in 1996. Comparable store sales, defined as Taco Cabana restaurants that have been open 18 months or more at the beginning of the quarter, increased 0.1%. The Company is continuing to monitor and assess the performance of its seven units in the Denver, Colorado market. Despite the commitment of increased advertising and marketing resources to such units during the thirteen week period ended September 28, 1997, gross sales at such units have not materially increased and have averaged approximately $10,300 per week during the thirteen week period ended September 28, 1997. There can be no assurance that the Company will be able to improve the performance of such units or that the Company will not find it necessary to close some or all of such units, which would have a material effect upon results of operations. Franchise Fees and Royalty Income. Franchise and royalty fees decreased by $50,000 to $84,000 for the third quarter of 1997 compared to the third quarter of 1996, due primarily to a decrease in franchise royalties. This decrease was due to a decrease in the number of franchise restaurants open during the third quarter in 1997 compared to the third quarter in 1996. Cost of Sales. Restaurant cost of sales, calculated as a percentage of restaurant sales, decreased to 31.1% in the third quarter of 1997 from 32.0% for the third quarter of 1996. The decrease was due primarily to the continued negotiation of favorable commodity prices as well as continued operational emphasis on this area. Labor. Labor costs increased during the third quarter of 1997 compared to the third quarter of 1996, primarily due to the greater number of restaurants in operation during the quarter. As a percentage of sales, labor costs increased to 28.0% in the third quarter of 1997 compared to 26.3% in the third quarter of 1996. This increase is due to new restaurant openings as well as management's commitment to increase staffing levels at the restaurant level in order to provide a consistent guest experience. Occupancy. Occupancy costs increased slightly during the third quarter of 1997 compared to the third quarter of 1996. The increase is primarily attributable to the greater number of Company owned restaurants in operation during the quarter. As a percentage of restaurant sales, occupancy costs were 6.1% in the third quarter of 1997 and 1996. Other Restaurant Operating Costs. Other restaurant operating costs increased during the third quarter of 1997 as compared to the same period of 1996. As a percentage of restaurant sales, other restaurant operating costs increased to 19.7% compared to 17.9% in the third quarter of 1996. The increase is primarily due to additional marketing expenditures during the third quarter of 1997 compared to the third quarter of 1996 as well as increased utility costs due to warm weather. General and Administrative. General and administrative expenses decreased during the third quarter of 1997 to $1.5 million from $1.6 million in the comparable period of 1996. As a percentage of total revenues, general and administrative expenses decreased to 4.3% for the third quarter of 1997 from 4.8% for the comparable period in 1996. The decrease is primarily attributable to lower bonus accruals during 1997. Depreciation and amortization expense consisted of the following: Thirteen Weeks Ended -------------------------- September 29, September 1996 28, 1997 (Unaudited) (Unaudited) ------------- ----------- Depreciation of property and equipment $ 1,822,000 $ 2,214,000 Amortization of intangible assets 416,000 382,000 Amortization of pre-opening costs 47,000 102,000 Depreciation expense increased by approximately $392,000 for the quarter ended September 28, 1997 compared to the quarter ended September 29, 1996. The increase was primarily due to capital expenditures at existing restaurants during the past twelve months and the opening of six Company owned restaurants. Interest Expense, net. Interest expense, net of interest capitalized on construction costs, decreased to $256,000 in the third quarter of 1997 from $308,000 in the same period in 1996. In addition the Company capitalized $43,000 of interest during the third quarter of 1997. No interest was capitalized during the third quarter of 1997. The Company earned $22,000 of interest income during the thirteen weeks ended September 28, 1997, compared to $53,000 of interest income earned during the thirteen weeks ended September 29, 1996. The decrease was due to a reduction in short-term investments during the twelve months ended September 28, 1997. Net Income and Net Income Per Share. Net income decreased to $562,000 for the third quarter of 1997 from $1,220,000 for the same period in 1996. Net income was 1.6% of total revenues for the third quarter of 1997 compared to 3.6% for the same period in 1996. Earnings per share was $0.04 for the third quarter of 1997 compared to $0.08 in the same period of 1996. Management believes that the decrease is largely due to higher costs at Company-owned restaurants. The Thirty-Nine Weeks Ended September 28, 1997 Compared to the Thirty-Nine Weeks Ended September 29, 1996 Restaurant Sales. Restaurant sales decreased by $ 798,000, or .8%, to $99.2 million for the thirty-nine weeks ended September 28, 1997 from $100 million for the comparable period in 1996. Management attributes much of the decline in sales to increased levels of competition in the Company's core markets and inclement weather during the first quarter of 1997. Comparable store sales decreased 3.2% during the thirty-nine weeks ended September 28, 1997. The Company is continuing to monitor and assess the performance of its seven units in the Denver, Colorado market. Despite the commitment of increased advertising and marketing resources to such units during the thirty-nine weeks ended September 28, 1997, gross sales at such units have not materially increased and have averaged approximately $9,000 per week during the thirty-nine weeks ended September 28, 1997. There can be no assurance that the Company will be able to improve the performance of such units or that the Company will not find it necessary to close some or all of such units, which would have a material effect upon results of operations. Franchise Fee and Royalty Income. Franchise and royalty fees decreased by $146,000 to $267,000 for the thirty-nine weeks ended September 28, 1997 compared to the same period of 1996, due primarily to a decrease in the number of franchise restaurants open during the thirty-nine weeks ended September 28, 1997 compared to the same period in 1996. Cost of Sales. Restaurant cost of sales, calculated as a percentage of restaurant sales, decreased to 30.9% in the thirty- nine weeks ended September 28, 1997 from 31.6% for the thirty- nine weeks ended September 29, 1996. The decrease was due primarily to the continued negotiation of favorable commodity prices as well as continued operational emphasis on this area. Labor. Labor costs increased by $1.1 million during the thirty- nine weeks ended September 28, 1997 compared to the same period of 1996. As a percentage of sales, labor costs increased to 27.4% in the thirty-nine week ended September 28, 1997 compared to 26.1% in the same period of 1996. The increase is due to lower average unit volumes as well as management's commitment to increase staffing levels at the restaurant level in order to provide a consistent guest experience. Occupancy. Occupancy costs increased slightly during the thirty- nine weeks ended September 28, 1997 compared to the same period in 1996. As a percentage of restaurant sales, occupancy costs increased to 6.3% in the thirty-nine weeks ended September 28, 1997 compared to 6.1% in the same period of 1996. The increase is due to the opening of six new restaurants during the last twelve months. Other restaurant operating costs. Other restaurant operating costs increased by $694,000 during the thirty-nine weeks ended September 28, 1997 compared to the same period of 1996. As a percentage of restaurant sales, other restaurant operating costs increased to 18.8% during the thirty-nine weeks ended September 28, 1997 compared to 18.0% in the same period of 1996 primarily due to decreased sales at the restaurant level. The increase is due to additional marketing expenditures during the thirty nine weeks ended September 28, 1997 compared to the same period in 1996. General and Administrative. General and administrative expenses increased to $5.1 million from $4.9 million, and increased as a percentage of total revenues to 5.1% for the thirty-nine weeks ended September 28, 1997 from 4.9% for the comparable period in 1996. This increase was primarily attributable to the addition of corporate support staff, as well as an increased level of expenditures to support the Company's operations, offset by lower bonus accruals. Depreciation and amortization expense consisted of the following: Thirty-Nine Weeks Ended ----------------------- September September 29. 1996 28, 1997 (Unaudited) (Unaudited) ----------- ----------- Depreciation of property and equipment $ 5,158,000 $ 6,351,000 Amortization of intangible assets 1,236,000 1,194,000 Amortization of pre-opening costs 474,000 213,000 Depreciation expense increased by approximately $1.2 million for the thirty-nine weeks ended September 28, 1997 compared to the thirty-nine weeks ended September 29, 1996. The increase was due primarily to six restaurant openings during the most recent twelve month period, as well as capital expenditures at existing restaurants during the past twelve months. Amortization of pre- opening costs decreased by approximately $261,000 in the thirty- nine weeks ended September 28, 1997 compared to the thirty-nine weeks ended September 29, 1996. Interest Expense, net. Interest expense, net of interest capitalized on construction costs, decreased to $772,000 in the thirty-nine weeks ended September 28, 1997 from $1.1 million in the thirty-nine weeks ended September 29, 1996 primarily as a result of average debt outstanding being reduced by $2.2. million during the thirty nine weeks ended September 28, 1997 compared to the same period in 1996. In addition, the Company capitalized $88,000 of interest during the thirty-nine weeks ended September 28, 1997. No interest was capitalized during the same period of 1996. The Company earned $64,000 of interest income during the thirty-nine weeks ended September 28, 1997, compared to $155,000 of interest income earned during the thirty-nine weeks ended September 29, 1996. The decrease was due to a reduction in short- term investments during the twelve months ended September 28, 1997. Net Income and Net Income Per Share. Net income increased to $1,995,000 for the thirty-nine weeks ended September 28, 1997 from $1,401,000 for the same period in 1996. Net income was 2.0% of total revenues for the thirty-nine weeks ended September 28, 1997 compared to 1.4% for the thirty-nine weeks ended September 29, 1996. Earnings per share was $0.13 for the thirty-nine weeks ended September 28, 1997 compared to earnings per share of $0.09 in the same period of 1996. Disregarding the litigation settlement recorded in the second quarter of 1996, the Company would have reported net income of $3,645,000 for the thirty-nine weeks ended September 29, 1996, equal to $0.23 per share. Disregarding the litigation settlement, management believes that the decrease in net income is largely due to lower sales at Company-owned restaurants. 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. As of November 5, 1997, $12.9 million was outstanding under these facilities. Net cash provided by operating activities was $9.7 million for the thirty-nine weeks ended September 28, 1997, and $8.2 million for the thirty-nine weeks ended September 29, 1996. Net cash used in investing activities was $11.5 million for the thirty-nine weeks ended September 28, 1997, representing primarily capital expenditures for improvements to existing restaurants, the construction of three free-standing and two non-traditional restaurants, and the conversion of two Sombrero Rosa and two Two Pesos restaurants to the Taco Cabana concept, compared to $6.1 million for the thirty-nine weeks ended September 29, 1996, representing primarily capital expenditures for improvements to existing restaurants. Net cash provided by financing activities was $1.3 million for the thirty-nine weeks ended September 28, 1997, representing primarily borrowings under the Company's debt facilities, compared to net cash used by financing activities of $4.1 million in the same period of 1996, representing repayment of the Company's line of credit and long-term debt. On April 16, 1997, the Company's Board of Directors approved a plan to repurchase up to 1,500,000 shares of the Company's common stock. As of September 28, 1997 the Company had repurchased 872,000 shares at an average cost of $4.08 per share. The timing, price, quantity and manner of remaining purchases, if any, will be made at the discretion of management and will be dependent upon market conditions. The Company has funded the repurchases through available bank credit facilities, as well as the liquidation of the Company's short term investment portfolio. Remaining purchases, if any, will be funded through a combination of cash provided by operations and available bank credit facilities. The special charge recorded during the fourth quarter of 1996 included an accrual of approximately $1.0 million for the estimated lease obligations, legal and professional costs and other costs associated with the closing of two of the three restaurants operated by a joint venture in which the Company has a 50% interest. Cash requirements for this accrual were approximately $25,000 in the thirty-nine weeks ended September 28, 1997. 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 $258,000 in the thirty-nine weeks ended September 28, 1997. 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. During the third quarter of 1997, the Company sold properties relating to the special charge which resulted in proceeds of $603,000. In addition, certain acquisition and accrued liabilities related to the Two Pesos acquisition were reduced by payments of approximately $971,000 during the thirty-nine weeks ended September 28, 1997. 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 1998, including the planned opening of two to three free-standing restaurants during the remainder of 1997 and twelve to fifteen free-standing restaurants during 1998. 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. Forward-Looking Statements Statements in this quarterly report, including those contained in the foregoing discussion and other items herein, concerning the Company which are (a) projections of revenues, capital expenditures or other financial items, (b) statements of plans and objectives for future operations, (c) statements of future economic performance, or (d) statements of assumptions or estimates underlying or supporting the foregoing are forward- looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. The ultimate accuracy of forward-looking statements is subject to a wide range of business risks and changes in circumstances, and actual results and outcomes often differ from expectations. Any number of important factors could cause actual results to differ materially from those in the forward-looking statements herein, including the following: the timing and extent of changes in prices; actions of our customers and competitors; state and federal environmental, economic, safety and other policies and regulations, any changes therein, and any legal or regulatory delays or other factors beyond the Company's control; execution of planned capital projects; weather conditions affecting the Company's operations or the areas in which the Company's products are marketed; natural disasters affecting operations; and adverse rulings, judgments, or settlements in litigations or other legal matters. The Company undertakes no obligation to publicly release the result of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of stockholders held on August 12, 1997, the Company's stockholders elected five directors and approved an amendment to the Taco Cabana 1994 Stock Option Plan ("the Plan") to increase the number of shares authorized for issuance from 500,000 shares to 1,250,000 shares. There were 11,622,016 votes cast for the amendment to the Plan and 1,578,847 votes cast against the amendment to the Plan and 42,963 votes abstaining from voting on the amendment to the Plan.. There were no broker non-votes with regards to the election of the directors and the amendment to the Plan. With regard to the election of the directors, the votes were as follows: For Withheld ---------- -------- Stephen V. Clark 12,516,867 159,719 William J. Nimmo 13,195,333 156,354 Richard Sherman 13,194,933 156,754 Cecil Schenker 13,186,973 164,714 Lionel Sosa 13,188,690 162,997 Item 6. Exhibits and Reports on Form 8-K No reports on Form 8-K were filed during the period covered by this report. Dated: November 12, Taco Cabana, Inc. 1997 /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-11 2 Exhibit 11 TACO CABANA, INC. Information Supporting Per Share Computations 13 Weeks Ended 39 Weeks Ended -------------- -------------- September 29, September 28, September 29, September 28, 1996 1997 1996 1997 ------------- ----------- ------------ ------------- Net Income $ 1,220,000 $ 562,000 $1,401,000 $1,995,000 Net Income per share Computation: Average Common Shares Outstanding 15,700,302 15,036,811 15,690,674 15,474,687 Common stock equivalents - dilutive options 314,050 - 261,565 - ----------- ---------- ---------- ---------- Average outstanding common and common equivalent shares 16,014,352 15,036,811 15,952,239 15,474,687 Net Income per share $ 0.08 $ 0.04 $ 0.09 $ 0.13 ========== ========== ========== ========== EX-27 3
5 9-MOS DEC-28-1997 DEC-30-1996 SEP-28-1997 218,000 0 1,144,000 35,000 2,257,000 8,438,000 120,302,000 27,874,000 146,250,000 11,887,000 9,237,000 0 0 157,000 111,449,000 146,250,000 99,171,000 99,438,000 30,607,000 57,780,000 32,630,000 0 772,000 3,167,000 1,172,000 1,995,000 0 0 0 1,995,000 .13 .13
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