<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Fiscal Year Ended December 26, 1999
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From _______________ to ________________.
Commission file number 0-25721
BUCA, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1802364
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1300 Nicollet Mall, Suite 5003
Minneapolis, Minnesota 55403
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(612) 288-2382
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: common stock,
par value $.01 per share
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the common stock held by non-affiliates of
the registrant as of March 14, 2000 was $85,121,580, based on the closing sale
price for BUCA's common stock on that date. This number is provided only for the
purpose of this report on Form 10-K and does not represent an admission by
either the registrant or any such person as to the status of such person.
As of March 14, 2000 the registrant had 10,873,667 shares of common stock
outstanding.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the annual meeting of
shareholders to be held April 28, 2000 are incorporated by reference in Part
III.
FORWARD-LOOKING STATEMENTS
The information presented in this Annual Report on Form 10-K under the
headings "Item 1. Business," "Item 2. Properties" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such
statements are subject to risks and uncertainties, including those discussed
under "Risk Factors" on pages 7-10 and "Cautionary Note Regarding Forward
Looking Statements" on page 7 of this Annual Report on Form 10-K, that could
cause actual results to differ materially from those projected. Because actual
results may differ, readers are cautioned not to place undue reliance on these
forward-looking statements.
Item 1. Business
Unless otherwise indicated, references to "2000" mean BUCA's fiscal year
ending December 31, 2000, references to "1999" mean BUCA's fiscal year ended
December 26, 1999, references to "1998" mean BUCA's fiscal year ending December
27, 1998, and references to "1997" mean BUCA's fiscal year ended December 28,
1997.
Overview
BUCA, Inc. owns and operates 39 full service, dinner-only restaurants under the
name BUCA di BEPPO. Our restaurants offer high quality, immigrant Southern
Italian cuisine served family-style in large portions in a fun and energetic
atmosphere that parodies the decor and ambiance of post-War Italian/American
restaurants.
Our food is based on authentic family recipes enjoyed for generations in the
villages of Southern Italy and then adapted to American ingredients. Our
oversized portions, served family-style on large platters, are designed to
overwhelm guests with an abundance of high quality food. In family-style
serving, each item is shared by the entire table, which encourages guests to
interact and enjoy the meal together. We believe that the generous portions,
combined with an average check per guest in fiscal 1999 of approximately $20.00,
including beverages, offer our guests exceptional value.
BUCA di BEPPO restaurants irreverently exaggerate the cliches of post-War
Italian/American restaurants found in Italian neighborhoods of large U.S.
cities. We design each of our restaurants to be a fun, high-energy destination.
Each BUCA di BEPPO restaurant in a market is unique, which reinforces our image
as a collection of neighborhood restaurants. Restaurant interiors are covered
with hundreds of vintage photos and icons of Italian heritage, and feature
lively music from classic artists such as Frank Sinatra and Dean Martin.
Restaurant exteriors feature flashing bare bulb signage, statuary and humorous
neon signs.
Our Menu
We believe that the authenticity, quality and consistency of our food is the
most important component of our long-term success. In contrast to the levity of
our decor and ambiance, we take menu development and food preparation very
seriously. Our menu is based on authentic family recipes enjoyed for generations
in the villages of Southern Italy and then adapted to American ingredients. We
make regular trips to Southern Italy and Sicily to find new recipes for our menu
that are then extensively tested and refined before introduction in our
restaurants.
Some of our most popular menu items include the BUCA di BEPPO 1893 salad,
chicken cacciatore, spaghetti with half-pound meat balls, eggplant parmigiana,
ravioli al pomodoro, veal marsala, garlic mashed potatoes, pizza arrabiatta and
tiramisu. Our foods, often seasoned with garlic and served with vine-ripened
tomatoes, communicate the pure, powerful flavors of the immigrant Southern
Italian kitchen. We also offer daily specials centered around a genre of
Southern Italian cooking called "cucina di povera," which translates as "cuisine
of the poor." We believe that our daily specials play a vital role in keeping
the menu fresh and allow us to test prospective permanent menu items. In fiscal
1999, daily specials accounted for approximately 16% of restaurant sales.
2
<PAGE>
To ensure that the food we are serving is of consistently high quality, we have
developed extensive quality control practices. For example, every member of our
kitchen staff must participate in a thorough training program. We also have
strict specifications that ensure only high quality ingredients are used in our
food. A kitchen manager at each restaurant is responsible for making a final
check of each item to assure it meets our high quality standards before it
leaves the kitchen.
Our menu pricing is consistent within a market, but may differ slightly from
one market to the next. Menu entrees range in price from $9.95 to $19.95 and
are designed to be shared by the entire party at the table. The average check
per guest in fiscal 1999 was approximately $20.00, including beverages. In
fiscal 1999, alcoholic beverages, primarily table wine, accounted for
approximately 26% of total restaurant sales from restaurants with at least one
full year of operating history. Alcoholic beverage sales as a percentage of
total restaurant sales from restaurants open at least two years increased to
27.5% in fiscal 1999 from 27.2% in fiscal 1998.
Operations
Restaurant Management. Our ability to effectively manage restaurants over a
diverse geographic area will continue to be critical to our overall success. We
currently have six Divisional Vice Presidents of Operations who report directly
to the Chief Operations Officer. Each Divisional Vice President is expected to
effectively manage up to 15 restaurants. Our Divisional Vice Presidents
supervise each Paisano within his or her territory with the goal of achieving an
expected return on investment through the successful implementation and
operation of the BUCA di BEPPO concept. We believe that our Divisional Vice
Presidents can accomplish this broad supervisory task in large part because of
the experience and high caliber of our Paisano Partners. In addition, because we
are a dinner-only concept, the number of meal shifts that the Paisano Partner
and, indirectly, the Divisional Vice President, must supervise are approximately
one-half of most restaurants in the industry. The typical restaurant management
team consists of the Paisano Partner, Kitchen Manager, Assistant General Manager
and Assistant Kitchen Manager. Under the Paisano Partners program, this
management team receives a percentage of incremental restaurant cash flow after
their restaurant achieves certain minimum performance levels. Each member of our
restaurant management team is cross-trained in all operational areas. As we grow
our restaurants and expand geographically, we expect to add additional
Divisional Vice Presidents.
Recruiting. We actively recruit and select individuals who share our passion of
guest service. Testing and multiple interviews are used to aid in the selection
of new employees at all levels. We have developed a competitive compensation
plan for restaurant management that includes a base salary, competitive
benefits package including a 401(k) plan, and participation in a management
incentive plan that rewards the restaurant management team for achieving
performance objectives. All of our employees are entitled to discounted meals
at our restaurants; in addition, all restaurant employees are invited to the
daily pre-shift meal held at each restaurant. We also enjoy the recruiting
advantage of being a one-meal-period-only restaurant concept, which provides
employees with a more regular schedule than they might have at other restaurant
concepts. In addition, because they are working only a dinner shift, where tips
are usually greater than other meals, servers realize better per hour
compensation than most other multiple meal concepts. It is our policy to
promote from within, but we recognize the need to supplement this policy with
outside recruiting at this stage of our growth and as new markets are opened.
3
<PAGE>
Training. We provide all new employees with intensive training to ensure they
are provided with the tools to excel in their position. This training
encompasses classroom instruction, on-the-job training programs for each
position, and testing of the new employee's progress at pre-determined stages
within the training schedule. Each new member of the restaurant management team
participates in a 12-week training program All management employees receive
kitchen training. Beginning in the summer of 1999, all field management
employees complete a minimum of one week of training at "Buca University." Buca
University is a training program held in Minneapolis, Minnesota. This program
combines hands-on training conducted in the four restaurants in the Minneapolis
market with classroom instruction from each of the various home office
departments. In addition to the formal training programs, we maintain detailed
operating procedure manuals, standards, controls, food line management systems
and a food culture book to complement the training received at all levels.
Operational Control Systems. All of our restaurants use personal computer
systems integrated with management systems to monitor restaurant sales, product
costs and labor costs on a daily basis. Financial controls are maintained
through a centralized accounting system, which includes a sophisticated
theoretical food cost program and a labor scheduling and tracking program.
Physical inventories of food and beverage items are taken on a weekly basis.
Daily, weekly and monthly financial information is provided to management for
analysis and comparison to our budget and to comparable restaurants. We closely
monitor restaurant sales, cost of sales, labor and other restaurant trends on a
daily, weekly and monthly basis. We believe that our current systems are
adequate for our planned expansion strategy.
Hours of Restaurant Operation. BUCA di BEPPO restaurants are open seven days a
week for dinner only, typically opening at 5:00 p.m. during the week and 4:00
p.m. on the weekends and closing at 10:00 p.m. on weekdays and 11:00 p.m. on
weekends. Additionally, our restaurants serve dinner all day on Sunday beginning
at noon.
Marketing
Our marketing strategy is to communicate the BUCA di BEPPO brand through many
creative and non-traditional avenues. We focus our efforts on getting people in
the local community, particularly civic, business and media leaders, to talk
about the BUCA di BEPPO experience. During fiscal 1999, we spent an aggregate of
2.4% of restaurant sales on marketing efforts. We expect to continue investing
approximately 2% to 3% of restaurant sales in marketing efforts in the future,
primarily in connection with the opening of new restaurants.
In connection with new restaurant openings, we contract with local public
relations firms to assist us in establishing and sustaining the BUCA di BEPPO
brand. By organizing events like pre-opening parties and concierge dinners,
these firms focus primarily on introducing BUCA di BEPPO restaurants to opinion
leaders, such as civic and media personalities, and to hospitality industry
leaders such as key hotel staff, meeting planners and convention and visitors
bureau representatives.
We sustain restaurant awareness primarily through unpaid media exposure and
word-of-mouth advertising, including grassroots neighborhood marketing efforts,
primarily by the Paisano Partner. BUCA di BEPPO restaurants have achieved
particular success by delivering a sample of menu items to drive-time radio
personalities and morning television hosts, earning free media exposure, and
often invitations for scheduled return engagements, while developing
relationships with high-profile media personalities.
4
<PAGE>
To reinforce our image as a collection of unique neighborhood restaurants, the
Paisano Partner works diligently to establish a community presence. Through
ongoing neighborhood marketing efforts, supported by our marketing department,
the Paisano Partner establishes relationships with area businesses and
residents, participates in high-profile events and festivals, and takes
advantage of opportunities to introduce area residents and workers to the
restaurant. Because of their credibility as local business owners and community
members, Paisano Partners play an integral role in establishing BUCA di BEPPO
in the neighborhood.
We engage to a limited extent in paid advertising, including billboards, radio
spots, and newspaper and magazine ads. We also utilize a variety of printed
marketing materials, including restaurant location brochures, hotel concierge
cards, take-out menus and direct mailings. Typical themes in these materials
include: "Recorded Music in Every Room," "Cocktails in the Lounge and at Your
Table" and "Vinyl Booths Mean No Static Cling For the Ladies." All marketing
communications work to establish each of our restaurants as an irreverent,
distinct, casual and welcoming neighborhood immigrant Southern Italian
restaurant.
Purchasing
We endeavor to obtain high quality menu ingredients and other supplies and
services for our operations from reliable sources at competitive prices. To
this end, we continually research and evaluate various ingredients and products
in an effort to maintain the highest quality and to be responsive to changing
consumer tastes. Our centralized purchasing staff, under the direction of our
Vice President of Purchasing, procures the products specified by our Food and
Beverage Department, specifies the products to be used at our restaurants,
designates the vendors and provides suppliers with detailed ingredient
specifications. To maximize purchasing efficiencies and to provide for the
freshest ingredients for our menu items, each restaurant's management
determines the quantities of food and supplies required. To obtain the lowest
possible prices for the required high quality and consistency, each restaurant
orders items primarily from our national food distributor, SYSCO Corporation,
on terms negotiated by our centralized purchasing staff. We believe that all
essential food and beverage products are available from several qualified
suppliers at competitive prices should an alternative source be required.
Employees
At December 26, 1999, we had 2,500 employees. 50 served in administrative or
executive capacities, 155 served as restaurant management personnel, and the
remainder were hourly restaurant personnel.
None of our employees are covered by collective bargaining agreements, and we
have never experienced an organized work stoppage or strike. We believe that
our working conditions and compensation packages are competitive and consider
relations with our employees to be very good.
Intellectual Property
We have registered the servicemarks "BUCA," "BEPPO" and "BUCA di BEPPO" with the
United States Patent and Trademark Office. We believe that our trademarks and
other proprietary rights have significant value and are important to the
marketing of our restaurant concept. We have in the past and expect to continue
to vigorously protect our proprietary rights. We cannot predict, however,
whether steps taken by us to protect our proprietary rights will be adequate to
prevent misappropriation of these rights or the use by others of restaurant
features based upon, or otherwise similar to, our concept. It may be difficult
for us to prevent others from copying elements of our concept and any litigation
to enforce our rights will likely be costly. In addition, other local restaurant
operations with names similar to those we use may try to prevent us from using
our marks in those locales.
5
<PAGE>
Competition
The restaurant industry is intensely competitive. We compete on the basis of
taste, quality, and price of food offered, guest service, location, ambiance
and overall dining experience. We have many well established competitors, both
nationally and locally owned Italian and non-Italian concepts, with
substantially greater financial resources and a longer history of operations
than we do. Their resources and market presence may provide advantages in
marketing, purchasing and negotiating leases. We compete with other restaurant
and retail establishments for sites. Changes in consumer tastes, economic
conditions, demographic trends and the location and number of, and type of food
served by, competing restaurants could adversely affect our business as could
the unavailability of experienced management and hourly employees.
Government Regulations
Our restaurants are subject to regulation by federal agencies and to licensing
and regulation by state and local health, sanitation, building, zoning, safety,
fire and other departments relating to the development and operation of
restaurants. These regulations include matters relating to environmental,
building, construction and zoning requirements and the preparation and sale of
food and alcoholic beverages. Our facilities are licensed and subject to
regulation under state and local fire, health and safety codes.
Each of our restaurants is required to obtain a license to sell alcoholic
beverages on the premises from a state authority and, in certain locations,
county and/or municipal authorities. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcoholic
beverage control regulations relate to numerous aspects of the daily operations
of each of our restaurants, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory control and
handling, and storage and dispensing of alcoholic beverages. We have not
encountered any material problems relating to alcoholic beverage licenses to
date. The failure to receive or retain a liquor license in a particular location
could adversely affect that restaurant and our ability to obtain such a license
elsewhere.
We are subject to "dram-shop" statutes in the states in which restaurants are
located. These statutes generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully
served alcoholic beverages to the intoxicated individual. We carry liquor
liability coverage as part of our existing comprehensive general liability
insurance, which we believe is consistent with coverage carried by other
entities in the restaurant industry. Although we are covered by insurance, a
judgement against us under a dram-shop statute in excess of our liability
coverage could have a material adverse effect on us.
Our operations are also subject to federal and state laws governing such
matters as wages, working conditions, citizenship requirements and overtime.
Some states have set minimum wage requirements higher than the federal level.
Significant numbers of hourly personnel at our restaurants are paid at rates
related to the federal minimum wage and, accordingly, increases in the minimum
wage will increase labor costs. Other governmental initiatives such as mandated
health insurance, if implemented, could adversely affect us as well as the
restaurant industry in general. We are also subject to the Americans With
Disability Act of 1990, which, among other things, may require certain
renovations to its restaurants to meet federally mandated requirements. The
cost of these renovations is not expected to materially affect us.
6
<PAGE>
Risk Factors
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements that
have been made pursuant to the provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are not historical facts,
but rather are based on our current expectations, estimates and projections
about the restaurant industry, and our beliefs and assumptions. We intend words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions to identify forward-looking statements.
These statements are not guarantees of future performance and are subject to
certain risks, uncertainties and other factors, some of which are beyond our
control and are difficult to predict. These factors could cause actual results
to differ materially from those expressed or forecasted in the forward-looking
statements. These risks and uncertainties are described in the following risk
factors and elsewhere in this Annual Report on Form 10-K. We caution you not to
place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this Annual Report on Form 10-K. We are
not obligated to update these statements or publicly release the result of any
revisions to them to reflect events or circumstances after the date of this
Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.
We May Be Unable to Sustain Profitability
Since we were formed, we have incurred net losses of approximately $6.1 million
through December 26, 1999, primarily due to new restaurant opening expenses and
the costs of hiring senior management to develop and implement our expansion
strategy. We intend to continue to expend significant financial and management
resources on the development of additional restaurants. We cannot predict
whether we will be able to achieve or sustain revenue growth, profitability or
positive cash flow in the future. Failure to achieve these objectives may cause
our stock price to decline and make it difficult to raise additional capital.
See "Item 6. Selected Consolidated Financial Data" and "Item 7. Management's
Discussion and Analysis of Financial Conditions and Results of Operations" for
information on the history of our losses.
Our Business Could Be Materially Adversely Affected if We Are Unable to Expand
in a Timely and Profitable Manner
To continue to grow, we must open new BUCA di BEPPO restaurants on a timely and
profitable basis. We have experienced delays in restaurant openings from time
to time and may experience delays in the future. Delays or failures in opening
new restaurants could materially adversely affect our business, financial
condition, operating results or cash flows. We expanded from 11 restaurants at
the end of fiscal 1997 to 34 restaurants at the end of fiscal 1999. We expect
to open an additional 17 restaurants during fiscal 2000, five of which are
already open. Our ability to expand successfully will depend on a number of
factors, some of which are beyond our control, including the:
. identification and availability of suitable restaurant sites;
. competition for restaurant sites;
. negotiation of favorable leases;
. timely development in certain cases of commercial, residential, street
or highway construction near our restaurants;
7
<PAGE>
. management of construction and development costs of new restaurants;
. securing of required governmental approvals and permits;
. recruitment of qualified operating personnel, particularly Paisano
Partners and kitchen managers;
. competition in new markets; and
. general economic conditions.
In addition, we contemplate entering new markets in which we have no operating
experience. These new markets may have different demographic characteristics,
competitive conditions, consumer tastes and discretionary spending patterns
than our existing markets, which may cause our new restaurants to be less
successful in these new markets than in our existing markets. Furthermore, a
history of operating losses at a restaurant could result in a charge for
impairment of assets. See note 1 to our audited consolidated financial
statements for a discussion of the asset impairment criteria.
We May Not Be Able to Achieve and Manage Planned Expansion
We face many business risks associated with rapidly growing companies,
including the risk that our existing management, information systems and
financial controls will be inadequate to support our planned expansion. We
cannot predict whether we will be able to respond on a timely basis to all of
the changing demands that our planned expansion will impose on management and
these systems and controls. If we fail to continue to improve management,
information systems and financial controls or encounter unexpected difficulties
during expansion, our business, financial condition, operating results or cash
flows could be materially adversely affected.
Furthermore, we may seek to acquire the operations of other restaurants. To do
so successfully, we would need to identify suitable acquisition candidates,
obtain financing on acceptable terms, and negotiate acceptable acquisition
terms. Even if we are successful in completing acquisitions, they may have a
material adverse effect on our operating results, particularly in the fiscal
quarters immediately following the completion of an acquisition, while the
acquisition is being integrated into our operations. We do not currently have
any definitive agreements, arrangements or understandings regarding any
particular acquisition.
We May be Unable to Fund Our Significant Future Capital Needs and We May Need
Additional Funding Sooner Than Anticipated
We will need substantial capital to finance our expansion plans, which require
funds for capital expenditures, preopening costs and potential initial
operating losses related to new restaurant openings. We may not be able to
obtain additional financing on acceptable terms. If adequate funds are not
available, we will have to curtail projected growth, which could materially
adversely affect our business, financial condition, operating results or cash
flows. Moreover, if we issue additional equity securities, your holdings may be
diluted.
We estimate that capital expenditures during fiscal 2000 will be approximately
$27.0 million and that capital expenditures during future years will exceed this
amount. In addition, we experienced negative cash flow from operations of
approximately $1.5 million in fiscal 1997, while experiencing a positive cash
flow from operations of approximately $338,000 in fiscal 1998 and approximately
$8.6 million in fiscal 1999. Although we expect that available borrowings,
combined with other resources, will be sufficient to fund our capital
requirements through fiscal 2000, this may not be the case. We may be required
to seek additional capital earlier than anticipated if:
. future actual cash flows from operations fail to meet our expectations;
. costs and capital expenditures for new restaurant development exceed
anticipated amounts;
. we are unable to obtain sale-leaseback financing of certain
restaurants;
. landlord contributions, loans and other incentives are lower than
expected;
. we are required to reduce prices to respond to competitive pressures;
or
. we are able to secure a greater number of attractive development sites
than currently anticipated.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" for a discussion of our
historical and anticipated capital needs.
Fluctuations in Our Operating Results
Our operating results will fluctuate significantly because of several factors,
including the timing of new restaurant openings and related expenses,
profitability of new restaurants, increases or decreases in comparable
restaurant sales, general economic conditions, consumer confidence in the
economy, changes in consumer preferences, competitive factors and weather
conditions. As a result, our operating results may fall below the expectations
of public market analysts and investors.
In the past, our preopening costs have varied significantly from quarter to
quarter primarily due to the timing of restaurant openings. We typically incur
most preopening costs for a new restaurant within the two months immediately
preceding, and the month of, its opening. In addition, our labor and operating
costs for a newly opened restaurant during the first three to six months of
operation are materially greater than what can be expected after that time, both
in aggregate dollars and as a percentage of restaurant sales. Accordingly, the
volume and timing of new restaurant openings in any quarter has had and is
expected to continue to have a significant impact on quarterly preopening costs
and labor and direct and occupancy costs. Due to these factors, results for a
quarter may not indicate results to be expected for any other quarter or for a
full fiscal year. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of our historical
operating results.
8
<PAGE>
Because of Our Small Restaurant Base, Our Operating Results Could Be Materially
Adversely Affected By the Negative Performance of a Small Number of Restaurants
We currently operate 39 restaurants, 19 of which opened in the last 12 months.
Due to our small restaurant base, poor operating results at any one or more
restaurants could materially adversely affect our business, financial
condition, operating results or cash flows. Our operating results achieved to
date may not be indicative of our future operating results with a larger number
of restaurants.
Increased Food Costs Could Materially Adversely Affect Our Operating Results
Our profitability depends in part on our ability to anticipate and react to
changes in food costs. We rely on SYSCO Corporation, a national food
distributor, as the primary distributor of our food. Although we believe that
alternative distribution sources are available, any increase in distribution
prices or failure to perform by SYSCO could cause our food costs to increase.
Further, various factors beyond our control, including adverse weather
conditions and governmental regulation, may affect our food costs. We cannot
predict whether we will be able to anticipate and react to changing food costs
by adjusting our purchasing practices and menu prices, and a failure to do so
could materially adversely affect our business, financial condition, operating
results or cash flows.
Changes in Consumer Preferences or Discretionary Consumer Spending Could
Negatively Impact Our Results
Our restaurants feature immigrant Southern Italian cuisine served family-style.
Our continued success depends, in part, upon the popularity of this type of
Italian cuisine and this style of informal dining. Shifts in consumer
preferences away from our cuisine or dining style could materially adversely
affect our future profitability. Also, our success depends to a significant
extent on numerous factors affecting discretionary consumer spending, including
economic conditions, disposable consumer income and consumer confidence.
Adverse changes in these factors could reduce guest traffic or impose practical
limits on pricing, either of which could materially adversely affect our
business, financial condition, operating results or cash flows.
We May Be Unable to Compete With Larger, Better Established Competitors
The restaurant industry is highly competitive. Due to our limited financial
resources and operating history, we may be unable to compete effectively with
our larger, better established competitors, which have substantially greater
financial resources and operating histories than we do. We will likely face
direct competition with these competitors in each of the markets we enter. See
"Item 1. Business--Competition" for a discussion of the competition we face.
We Could Face Potential Labor Shortages
Our success depends in part upon our ability to attract, motivate and retain a
sufficient number of qualified employees, including restaurant managers,
kitchen staff and wait staff, necessary to keep pace with our expansion
schedule. Qualified individuals needed to fill these positions are in short
supply in certain areas, and the inability to recruit and retain such
individuals may delay the planned openings of new restaurants or result in high
employee turnover in existing restaurants which could have a material adverse
effect on our business, financial condition, operating results or cash flows.
Additionally, competition for qualified employees could require us to pay
higher wages to attract sufficient employees, which could result in higher
labor costs.
9
<PAGE>
Our Operations Depend on Governmental Licenses and We May Face Liability Under
Dram Shop Statutes
Our business depends on obtaining and maintaining required food service and
liquor licenses for each of our restaurants. If we fail to hold all necessary
licenses, we may be forced to delay or cancel new restaurant openings and close
or reduce operations at existing locations. In addition, our sale of alcoholic
beverages subjects us to "dram shop" statutes in some states. These statutes
allow an injured person to recover damages from an establishment that served
alcoholic beverages to an intoxicated person. If we receive a judgment
substantially in excess of our insurance coverage, or if we fail to maintain
our insurance coverage, our business, financial condition, operating results or
cash flows could be materially and adversely affected. See "Item 1. Business--
Government Regulation" for a discussion of the regulations we must comply with.
Complaints or Litigation From Guests May Materially Adversely Affect Us
We are from time to time the subject of complaints or litigation from guests
alleging illness, injury or other food quality, health or operational concerns.
Adverse publicity resulting from these allegations may materially adversely
affect us and our restaurants, regardless of whether the allegations are valid
or whether BUCA is liable. These claims may divert our financial and management
resources that would otherwise be used to benefit the future performance of our
operations.
10
<PAGE>
We Could Face Consolidated Tax Group Liability
Prior to our spin-off in late fiscal 1996, we were a member of the consolidated
tax group of Parasole Restaurant Holdings, Inc. Under the Internal Revenue
Code, as a former member of the consolidated tax group, we could be held liable
for unpaid federal tax liabilities, if any, of the consolidated tax group
through the end of 1996 in the event of nonpayment by Parasole.
Item 2. Properties
We currently lease the land and building at all but nine of our restaurant
locations. Of our remaining restaurant locations, we lease the land and own the
building at six and own the land and building at three. Current restaurant
leases have expiration dates ranging from 2003 to 2018, with all of the leases
providing for an option to renew for a minimum of one additional five-year term.
We currently own and operate the following 39 restaurants, located in 24
markets:
<TABLE>
<CAPTION>
Location Date Opened Square Feet Seats
- -------- -------------- ----------- -----
<S> <C> <C> <C>
Minneapolis, Minnesota........................ July 1993 4,465 172
St. Paul, Minnesota........................... May 1994 9,991 375
Eden Prairie (Minneapolis), Minnesota......... June 1995 8,025 230
Milwaukee, Wisconsin.......................... November 1995 9,210 293
Palo Alto, California......................... July 1996 5,192 197
Seattle, Washington........................... November 1996 8,213 328
Chicago, Illinois............................. May 1997 5,340 185
Wheeling (Chicago), Illinois.................. May 1997 6,426 225
San Francisco, California..................... August 1997 6,393 202
Lynnwood (Seattle), Washington................ November 1997 6,890 262
Pasadena, California.......................... December 1997 6,739 250
Indianapolis, Indiana......................... February 1998 7,678 326
Encino (Los Angeles), California.............. March 1998 6,080 248
Redondo Beach (Los Angeles), California....... June 1998 6,152 272
Lombard (Chicago), Illinois................... July 1998 8,278 328
Scottsdale, Arizona........................... October 1998 8,230 298
Burnsville (Minneapolis), Minnesota........... November 1998 7,340 312
Westlake (Cleveland), Ohio.................... November 1998 9,430 256
Lenexa (Kansas City), Kansas.................. December 1998 7,494 298
Louisville, Kentucky.......................... January 1999 8,315 244
Claremont (Los Angeles), California........... April 1999 10,174 330
Cheektowaga (Buffalo), New York............... May 1999 8,025 252
Columbus, Ohio................................ May 1999 8,357 252
Washington, D.C. ............................. May 1999 9,050 306
Livonia (Detroit), Michigan................... June 1999 7,713 246
Daytona Beach, Florida........................ July 1999 7,621 246
Des Moines, Iowa.............................. July 1999 7,655 246
Campbell (San Jose), California............... September 1999 7,909 266
Sacramento, California........................ September 1999 8,279 289
Castleton (Indianapolis), Indiana............. September 1999 7,880 272
Jenkintown (Philadelphia), Pennsylvania....... October 1999 8,145 256
Denver, Colorado.............................. October 1999 10,050 246
Brea (Los Angeles), California................ November 1999 7,594 248
Chandler (Phoenix), Arizona................... December 1999 7,500 257
Summerlin (Las Vegas), Nevada................. January 2000 7,875 254
Maitland (Orlando), Florida................... January 2000 7,934 249
Tampa, Florida................................ February 2000 8,610 282
Albany, New York.............................. February 2000 10,365 250
Ft. Lauderdale, Florida....................... March 2000 7,570 242
</TABLE>
11
<PAGE>
We expect that twelve additional restaurants will open during the remainder of
fiscal 2000. Construction has commenced on eight of these sites, one each at
Universal Studios in Los Angeles, California; Las Vegas, Nevada; Philadelphia,
Pennsylvania; San Diego, California; Chicago, Illinois; Miami, Florida;
Pittsburgh, Pennsylvania; and Dallas, Texas. In addition, we have 12 signed
leases for future sites, including four sites we expect to open in fiscal 2000.
We are currently negotiating additional leases for potential future locations.
Item 3. Legal Proceedings
From time to time, we are a defendant in litigation arising in the ordinary
course of our business, including claims resulting from "slip and fall"
accidents, claims under federal and state laws governing access to public
accommodations, employment-related claims and claims from guests alleging
illness, injury or other food quality, health or operational concerns. To date,
none of such litigation, some of which is covered by insurance, has had a
material effect on us.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item X. Executive Officers of the Registrant
Our executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
------------------------------- ------- -----------------------------------------------------
<S> <C> <C>
Joseph P. Micatrotto 48 President, Chief Executive Officer and Chairman of
the Board
Greg A. Gadel 40 Chief Financial Officer, Treasurer and Secretary
Leonard A. Ghilani 38 Chief Operations Officer
</TABLE>
None of the above executive officers is related to each other or to any of
our other directors.
Joseph P. Micatrotto joined BUCA in 1996 as our President and Chief Executive
Officer, and as a director and in July 1999 became Chairman of the Board. Mr.
Micatrotto's twenty-six year career in restaurant management includes being CEO
of Panda Management Company, Inc. where he led the company's expansion and
president and CEO of Chi-Chi's Mexican Restaurant, Inc., where he was
instrumental in its national growth. Mr. Micatrotto is active on various boards
and industry groups. He currently serves on the board of directors of the
National Restaurant Association and the American Beverage Institute.
Greg A. Gadel has been BUCA's Chief Financial Officer and Treasurer since 1997
and its Secretary since 1998. Prior to joining BUCA, Mr. Gadel was CFO for the
32-unit restaurant chain, Leeann Chin. In addition he previously was vice
president and controller for the largest Chi-Chi's franchisee, Consul
Corporation. He has also worked for Marriott, McDonald's and the Deloitte &
Touche LLP accounting firm, and has over 16 years experience in the restaurant
industry. Mr. Gadel is a member of the American Institute of Certified Public
Accountants.
12
<PAGE>
Leonard A. Ghilani joined BUCA in 1998 as a Divisional Vice President and was
named Chief Operations Officer in 1999. He was previously with Einstein Noah
Bagel Corporation where he spent two and a half years as Vice President of
Operations. Prior to his employment with Einstein Noah Bagel Corporation, Mr.
Ghilani worked for Chi-Chi's Mexican Restaurant, Inc., where he held several
positions including Divisional Vice President, District Manager, General
Manager and Kitchen Manager.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock trades on the Nasdaq National Market System under the symbol
"BUCA." As of March 15, 2000 there were approximately 170 record holders of our
common stock. The following table sets forth for the quarters indicated the high
and low sales prices of our common stock since our initial public offering on
April 20, 1999, as reported by the Nasdaq Stock Market.
1999 High Low
- -------------------------------------------------------------------------
Second Quarter $ 20.125 $ 15.875
Third Quarter 18.625 10.250
Fourth Quarter 14.125 8.875
We have never declared or paid cash dividends. We currently intend to retain all
future earnings for the operation and expansion of our business and do not
anticipate paying cash dividends on the common stock in the foreseeable future.
Any payment of cash dividends in the future will be at the discretion of our
board of directors and will depend upon our results of operations, earnings,
capital requirements, contractual restrictions and other factors deemed relevant
by our board. In addition, our current credit facility prohibits us from paying
any cash dividends without our lender's consent.
Since September 26, 1999, we have sold the following securities pursuant to
exemption from registration under the Securities Act. All of the sales were made
in reliance upon the exemptions from registration provided under Section
3(a)(9), and under Section 4(2) and Regulation D of the Securities Act for
transactions not involving a public offering. All shares were issued directly by
us, no underwriters were involved and no discount, commission or other
transaction-related remuneration was paid:
1. On October 23, 1999, we issued 6,944 shares of common stock for
$50,000 or $7.20 per share, to an outside investor upon conversion of
a subordinated debenture in aggregate principal amount of $50,000 held
by the investor.
2. On October 25, 1999, we issued 6,944 shares of common stock for
$50,000 or $7.20 per share, to an outside investor upon conversion of
a subordinated debenture in aggregate principal amount of $50,000 held
by the investor.
13
<PAGE>
Item 6. Selected Financial Data
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except share, per share and operating data)
The following selected consolidated statements of operations and balance sheet
data for the five fiscal years ended December 26, 1999 are derived from our
audited consolidated financial statements. The consolidated financial
statements and their notes for each of the three fiscal years ended December
26, 1999, and the report of independent public accountants on those years, are
included elsewhere in this Annual Report on Form 10-K. This selected
consolidated financial data should be read in conjunction with the consolidated
financial statements and their notes, "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information included elsewhere in this Annual Report on Form 10-K. We changed
our fiscal year-end from December 31 to the last Sunday in December, beginning
with the fiscal year ended December 28, 1997.
<TABLE>
<CAPTION>
Fiscal Year Ended
-----------------------------------------------------
Dec. 31, Dec. 31, Dec. 28, Dec. 27, Dec. 26,
1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
Consolidated Statements
of
Operations Data:
<S> <C> <C> <C> <C> <C>
Restaurant sales........ $ 7,142 $ 11,316 $ 19,030 $ 38,483 $ 71,528
Restaurant costs:
Product................ 2,303 3,471 5,520 10,876 19,723
Labor.................. 2,258 3,723 6,478 12,342 23,069
Direct and occupancy... 1,270 2,242 3,750 8,078 14,551
Depreciation and
amortization........... 173 381 781 1,617 3,169
--------- --------- --------- --------- ---------
Total restaurant
costs................ 6,004 9,817 16,529 32,902 60,512
General and
administrative
expenses............... 656 1,988 3,760 5,579 5,924
Preopening costs........ 183 430 1,140 1,895 3,600
--------- --------- --------- --------- ---------
Operating income
(loss)................. 299 (919) (2,399) (1,893) 1,492
Interest income......... 55 79 158 152 495
Interest expense........ (274) (374) (655) (1,188) (499)
Subordinated debt
conversion costs....... -- -- -- -- (954)
--------- --------- --------- --------- ---------
Income (loss) before
income taxes,
cumulative effect of
change in accounting
principle and
extraordinary items.... 80 (1,214) (2,896) (2,929) 534
Provision (benefit) for
income taxes........... 43 (101) 72 17 (1,817)
--------- --------- --------- --------- ---------
Income (loss) before
cumulative effect of
change in accounting
principle and
extraordinary items.... 37 (1,113) (2,968) (2,946) 2,351
Cumulative effect of
change in accounting
principle related to
preopening costs....... -- -- (351) -- --
Extraordinary loss on
extinguishment of
debt................... -- -- -- -- (927)
--------- --------- --------- --------- ---------
Net income (loss)....... $ 37 $ (1,113) $ (3,319) $ (2,946) $ 1,424
========= ========= ========= ========= =========
Cumulative preferred
stock dividends,
accretion of preferred
stock to redemption
value, and change in
redeemable common
stock.................. -- (3,687) (1,986) (2,189) (744)
--------- --------- --------- --------- ---------
Net income (loss)
applicable to common
stock.................. $ 37 $ (4,800) $ (5,305) $ (5,135) $ 680
========= ========= ========= ========= =========
Net income (loss) per
share--basic........... $ .02 $ (1.96) $ (2.13) $ (2.04) $ .08
========= ========= ========= ========= =========
Net income (loss) per
share--diluted......... $ .02 $ (1.96) $ (2.13) $ (2.04) $ .08
========= ========= ========= ========= =========
Weighted average common
shares outstanding--
basic.................. 2,444,666 2,444,666 2,490,136 2,512,309 8,110,807
========= ========= ========= ========= =========
Weighted average common
shares outstanding--
diluted................ 2,444,666 2,444,666 2,490,136 2,512,309 8,654,536
========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Operating Data:
Comparable restaurant sales in-
crease(/1/)........................... 8.9% 13.3% 9.6%
Average weekly restaurant sales........ $47,579 $52,727 $54,229
Restaurants open at end of period...... 11 19 34
</TABLE>
<TABLE>
<CAPTION>
As of
-----------------------------------------------
Dec. 31, Dec. 31, Dec. 28, Dec. 27, Dec. 26,
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Cash and cash equivalents..... $ 805 $ 5,750 $ 6,099 $ 6,576 $ 1,726
Total assets.................. 4,477 12,771 21,288 37,560 75,945
Total debt, including current
portion...................... 3,011 3,940 5,460 7,866 1,738
Shareholders' (deficit) equi-
ty........................... (148) (4,942) (9,284) (13,540) 61,709
</TABLE>
- ---------------
(/1/)The calculation of comparable restaurant sales increase includes
restaurants open for 12 full calendar months, as adjusted to provide
comparable 52-week fiscal years.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of operations
should be read in conjunction with our consolidated financial statements and
their notes appearing elsewhere in this Annual Report on Form 10-K.
This Annual Report on Form 10-K, including the discussion below, contains
statements of a forward-looking nature relating to future events or our future
financial performance. You are cautioned that these statements are only
predictions, involve risks and uncertainties, and that actual events or results
may differ materially. In evaluating these statements, you should specifically
consider the various risk factors identified in this Annual Report on Form 10-K,
including the matters set forth under "Risk Factors," which would cause actual
results to differ materially from those indicated by the forward-looking
statements.
Overview
At December 26, 1999, we owned and operated 34 full-service, dinner-only
restaurants that offer high-quality, immigrant Southern Italian cuisine served
family-style in large portions in a fun and energetic atmosphere that parodies
the decor and ambiance of post-War Italian/American restaurants. Since late
1996, we have pursued a rapid but disciplined expansion strategy, opening two
restaurants in 1996, five in 1997, eight in 1998, and 15 in 1999. We intend to
open 17 new restaurants in fiscal 2000, of which five have opened through March
2000 and the remaining twelve have leases signed, of which eight are under
construction.
We believe that the sales growth pattern of our new restaurants in the two
years after they open differs from the typical sales growth pattern for new
restaurants in other casual dining concepts. Our restaurants typically
experience lower restaurant sales during the first twelve months after opening,
with significant comparable restaurant sales growth in the second year of
operation. In calculating comparable restaurant sales, we include a restaurant
in the comparable base once it has been open for 12 full calendar months. We
believe that we have this "discovery" growth pattern over the first two years
of operations because we rely primarily on word-of-mouth advertising and repeat
business to generate increased restaurant sales. This new restaurant-opening
trend has contributed to our high levels of comparable restaurant sales
increase of 8.9% in fiscal 1997, 13.3% in fiscal 1998 and 9.6% in fiscal 1999.
After two years of operation, our restaurants typically experience lower
comparable restaurant sales increases than those experienced in prior periods.
We expect this sales growth trend for new restaurants to generally continue in
the future; however, we also anticipate that in some markets, particularly as
we continue to develop additional restaurants in existing markets, this
discovery growth pattern could compress. In addition, as we continue to grow,
we expect that the impact of new restaurant openings on total comparable
restaurant sales will decrease as our mature restaurant base continues to
increase.
15
<PAGE>
We have expanded the use of daily specials and begun other measures to build
sales in existing restaurants and reduce our product costs as a percentage of
restaurant sales. Every day, every restaurant offers from two to four specials.
These daily specials are selected from a list of approximately 75 recipes.
These daily specials typically are priced higher than normal menu items and
generate higher margins. We have increased sales of specials to approximately
16% of restaurant sales for fiscal 1999 from approximately 15% of restaurant
sales for fiscal 1998. The increase in sales of specials along with price
increases of approximately 2% in fiscal 1997 and 3% in fiscal 1998 have
produced an increase in our average check from $17.50 in fiscal 1996 to $18.80
in fiscal 1997 and to $20.00 in fiscal 1998 and fiscal 1999.
We implemented a price increase on December 27, 1999, the first day of our 2000
fiscal year. The price increase impacted selected menu items and certain
specials. We anticipate that the net effect of this price change will be less
than 2%. This price increase is expected to cause product cost and labor cost
to decrease as a percentage of sales in fiscal 2000 compared with fiscal 1999.
In addition, the number of our restaurants operating in states with tip credit
is expected to continue to increase during fiscal 2000. In states with tip
credit, we are able to reduce tipped employees' wages up to a maximum of 50% of
minimum wage based upon reported tips. By the end of fiscal 2000, we expect
that 60% of our restaurants will be operating in states with tip credit.
Our restaurant sales are comprised almost entirely of the sales of food and
beverages. For fiscal 1999, alcohol sales accounted for approximately 26% of
total restaurant sales from our restaurants with at least one full year of
operating history. Product costs include the costs of food and beverages. Labor
costs include direct hourly and management wages, bonuses, taxes and benefits
for restaurant employees. Direct and occupancy costs include restaurant
supplies, marketing costs, rent, utilities, real estate taxes, repairs and
maintenance and other related costs. Depreciation and amortization principally
include depreciation on capital expenditures for restaurants. General and
administrative expenses are comprised of expenses associated with all corporate
and administrative functions that support existing operations, management and
staff salaries, employee benefits, travel, information systems and training and
market research. Preopening costs consist of direct costs related to hiring and
training the initial restaurant workforce and certain other direct costs
associated with opening new restaurants. Interest expense includes the cost of
interest expense on debt and interest income includes the interest income on
invested assets.
Results of Operations
Our operating results for fiscal years 1997, 1998, and 1999 expressed as a
percentage of restaurant sales were as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Restaurant sales....................... 100.0% 100.0% 100.0%
Restaurant costs
Product.............................. 29.0 28.3 27.6
Labor................................ 34.0 32.1 32.3
Direct and occupancy................. 19.7 21.0 20.3
Depreciation and amortization........ 4.1 4.2 4.4
----- ----- -----
Total restaurant costs............. 86.8 85.5 84.6
General and administrative expenses.... 19.8 14.5 8.3
Preopening costs....................... 6.0 4.9 5.0
----- ----- -----
Operating (loss) income................ (12.6) (4.9) 2.1
Interest income........................ (0.8) (0.4) (0.7)
Interest expense....................... 3.4 3.1 0.7
----- ----- -----
(Loss) income before income taxes and
other................................. (15.2)% (7.6)% 2.1%
===== ===== =====
</TABLE>
16
<PAGE>
Fiscal Year Ended December 26, 1999 Compared to Fiscal Year Ended December 27,
1998
Restaurant Sales. Restaurant sales increased by $33.0 million, or 85.9% to
$71.5 million in fiscal 1999 from $38.5 million in fiscal 1998. The increase
was attributable to restaurant sales of $16.5 million at new restaurants opened
in fiscal 1999 and to increased sales at restaurants open prior to fiscal 1999.
Comparable restaurant sales increased by 9.6% in fiscal 1999, primarily as a
result of an increase in guest visits of approximately 7.7% and a price
increase of approximately 3% in July 1998. The average check per guest remained
constant in fiscal 1998 and 1999 at $20.00. We expect the average check to
increase during fiscal 2000 due to the impact of the price increase implemented
on December 27, 1999 and the addition to the regular menu of three of our more
popular daily specials (Mozzarella Caprese, Prosciutto Rollato and Tortoni),
which are priced higher than other menu items in their categories.
Product. Product costs increased by $8.8 million to $19.7 million in fiscal 1999
from $10.9 million in fiscal 1998. Product costs as a percentage of restaurant
sales decreased to 27.6% in fiscal 1999 from 28.3% in fiscal 1998. This
reduction was a result of management's efforts to reduce the cost of food
products and improve margins, particularly at new restaurants. We expect product
costs to decrease as a percentage of sales in fiscal 2000 compared with fiscal
1999 due to management's continued efforts to reduce the cost of food products
and due to the price increase implemented on December 27, 1999.
Labor. Labor costs increased by $10.7 million to $23.1 million in fiscal 1999
from $12.4 million in fiscal 1998. Labor increased as a percentage of sales to
32.3% in fiscal 1999 from 32.1% in fiscal 1998. This increase resulted from the
impact of the new restaurant openings. Labor costs at new restaurants are
typically higher as a percentage of restaurant sales than labor costs at mature
restaurants. During 1999, 27% of the sales weeks came from restaurants open
less than six months, compared with only 24% in 1998. We expect labor costs to
decrease as a percentage of sales in fiscal 2000 compared with fiscal 1999 due
to management's continued efforts to reduce labor costs as a percentage of
sales, the price increase implemented on December 27, 1999 and the increased
percentage of our restaurants operating in states with tip credit.
Direct and Occupancy. Direct and occupancy costs increased by $6.5 million to
$14.6 million in fiscal 1999 from $8.1 million in fiscal 1998. Direct and
occupancy costs decreased as a percentage of sales to 20.3% in fiscal 1999 from
21.0% in fiscal 1998. This reduction in direct and occupancy costs is due
mainly to the increase in comparable restaurant sales, which leverages the
fixed component of direct and occupancy costs, principally fixed rent, real
estate taxes and utilities. We expect direct and occupancy costs as a
percentage of sales to remain fairly constant in fiscal 2000 compared with
fiscal 1999 as the impact of the price increase will be offset by annual cost
of living increases in minimum rent.
Depreciation and Amortization. Depreciation and amortization expenses increased
by $1.6 million to $3.2 million in fiscal 1999 from $1.6 million in fiscal
1998. This increase was the result of depreciation recognized on capital
expenditures for new restaurants.
General and Administrative. General and administrative expenses increased by
$356,000 to $5,924,000 in fiscal 1999 from $5,568,000 in fiscal 1998. General
and administrative expenses decreased as a percentage of sales to 8.3% in
fiscal 1999 from 14.5% in fiscal 1998. We expect that general and
administrative expenses will continue to increase in dollars in the future, but
continue to decrease as a percentage of sales because our expansion plans will
require proportionately smaller incremental increases in general and
administrative expenses.
17
<PAGE>
Preopening Costs. Preopening costs increased by $1.7 million to $3.6 million in
fiscal 1999 from $1.9 million in fiscal 1998. Preopening costs increased as a
percentage of sales to 5.0% in fiscal 1999 from 4.9% in fiscal 1998. This
increase was primarily a result of opening 15 restaurants in fiscal 1999 and
five in the first quarter of fiscal 2000 compared with 13 restaurants in fiscal
1998, with only one restaurant opened in the first quarter of fiscal 1999.
Since all preopening costs are expensed as incurred, a significant portion of a
new restaurant's preopening costs are expensed in the three months prior to
opening.
Interest (Income) Expense. Net interest expense decreased by $1,032,000 to
$4,000 in fiscal 1999 from $1,036,000 in fiscal 1998. This reduction in net
interest expense was due to the interest income that we earned on the
investment of our initial public offering proceeds in April, 1999 and the
repayment at that time of our $7.0 million term loan and $2.0 million line of
credit borrowings.
Provision/Benefit for Income Taxes. The benefit for income taxes of $2,435,000
was recorded as a $1,817,000 benefit to income taxes and as a $618,000
reduction to the extraordinary loss on extinguishment of debt to record this
item net of tax. We recorded the tax benefit for fiscal 1999 as the utilization
of the tax loss carry-forwards from prior years was deemed more likely than
not. These net operating loss carry-forwards begin to expire in fiscal 2003.
Fiscal Year Ended December 27, 1998 Compared to Fiscal Year Ended December 28,
1997
Restaurant Sales. Restaurant sales increased by $19.5 million, or 102.2% to
$38.5 million in fiscal 1998 from $19.0 million in fiscal 1997. The increase
was attributable to restaurant sales of $9.8 million at new restaurants
opened in fiscal 1998 and to increased sales at restaurants open prior to
fiscal 1998. Comparable restaurant sales increased by 13.3% in fiscal 1998,
primarily as a result of an increase in guest visits of approximately 7%, a
price increase of approximately 3% in July of 1998 and increased sales of daily
specials. The price increase and sales of daily specials resulted in an
increase in the average check per guest to $20.00 in fiscal 1998 from $18.80 in
fiscal 1997.
Product. Product cost increased by $5.4 million to $10.9 million in fiscal 1998
from $5.5 million in fiscal 1997. Product cost as a percentage of sales
decreased to 28.3% in fiscal 1998 from 29.0% in fiscal 1997. This reduction was
a result of management's efforts to reduce the cost of food products and
improve margins. We entered into an agreement with a national food distributor
which reduced our food product costs beginning in the second quarter of fiscal
1997. We also sought to increase the percentage of daily specials that are sold
at the restaurants.
Labor. Labor costs increased by $5.9 million to $12.4 million in fiscal 1998
from $6.5 million in fiscal 1997. Labor costs decreased as a percentage of
sales to 32.1% in fiscal 1998 from 34.0% in fiscal 1997. This decrease resulted
from a reduction in hourly labor to 18.3% of restaurant sales in fiscal 1998
from 19.0% in fiscal 1997. This decrease in hourly labor resulted from lower
average wage cost due to the opening of new restaurants in states that allow
tip credit toward minimum wage requirements. The decrease in labor as a
percentage of sales from fiscal 1997 to fiscal 1998 also resulted from improved
management of hourly staff levels, particularly during new restaurant openings.
18
<PAGE>
Direct and Occupancy. Direct and occupancy costs increased by $4.3 million to
$8.1 million in fiscal 1998 from $3.8 million in fiscal 1997. Direct and
occupancy costs increased as a percentage of sales to 21.0% in fiscal 1998 from
19.7% in fiscal 1997. This increase was a result of the higher occupancy costs
in our California restaurants opened in the last half of fiscal 1997 and during
fiscal 1998.
Depreciation and Amortization. Depreciation and amortization expenses increased
by $836,000 to $1,617,000 in fiscal 1998 from $781,000 in fiscal 1997. This
increase was the result of depreciation recognized on capital expenditures for
new restaurants.
General and Administrative. General and administrative expenses increased by
$1.8 million to $5.6 million in fiscal 1998 from $3.8 million in fiscal 1997.
General and administrative expenses decreased as a percentage of sales to 14.5%
in fiscal 1998 from 19.8% in fiscal 1997. This increase in dollars was
primarily the result of the addition of management personnel in fiscal 1997 and
fiscal 1998, resulting in $600,000 of additional compensation and benefits,
$300,000 of additional travel expenses and an increase in legal fees of
$600,000.
Preopening Costs. Preopening costs increased by $400,000 to $1.9 million in
fiscal 1998 from $1.5 million in fiscal 1997, including the cumulative effect
of the change in accounting principle related to preopening expenses, due to
the greater number of restaurants that were opened or under development in
fiscal 1998 compared to fiscal 1997.
Interest (Income) Expense. Net interest expense increased by $539,000 to
$1,036,000 in fiscal 1998 from $497,000 in fiscal 1997 due to an increase in
our long-term debt.
Provision for Income Taxes. The provision for income taxes for fiscal 1998 and
fiscal 1997 represents certain minimum state taxes based upon taxable factors
other than earnings and a minor charge for federal taxes primarily related to
deferred income taxes. We did not record a tax benefit in fiscal 1998 or fiscal
1997 for the losses generated in previous years as utilization of these losses
in future periods was not deemed more likely than not. The expected income tax
benefit derived by applying the statutory income tax rate has been eliminated
as a result of an increase in the deferred income tax asset valuation
allowance.
Quarterly Results
Our quarterly operating results will fluctuate significantly as a result of a
variety of factors, including the timing of new restaurant openings and related
expenses, profitability of new restaurants, increases or decreases in
comparable restaurant sales, general economic conditions, consumer confidence
in the economy, changes in consumer preferences, competitive factors and
weather conditions. In the past, we have experienced significant variability in
preopening costs from quarter to quarter. These fluctuations are primarily a
function of the timing of restaurant openings. We typically incur the most
significant portion of preopening costs associated with a given restaurant in
the three months prior to its opening. In addition, our experience to date has
been that labor and direct and occupancy costs associated with a newly opened
restaurant for the first three to six months of operation are materially
greater than what can be expected after that time, both in aggregate dollars
and as a percentage of restaurant sales. Accordingly, the volume and timing of
new restaurant openings in any quarter has had and is expected to continue to
have a significant impact on quarterly preopening costs and labor and direct
and occupancy costs.
19
<PAGE>
Liquidity and Capital Resources
Prior to fiscal 1999, we had incurred significant net losses, primarily due to
restaurant development and the costs of hiring senior management to develop and
implement our expansion strategy. In the past, we generated income from our
restaurant operations, but incurred aggregate net losses of $6.1 million
through December 26, 1999. We have funded our capital requirements through
sales of equity securities, debt financing and sale-leaseback arrangements. Net
cash provided by operating activities was $8.6 million in fiscal 1999 versus
$338,000 in fiscal 1998. We expect to continue to generate cash from operating
activities in future periods.
We use cash primarily to fund the development and construction of new
restaurants. Capital expenditures were $39.1 million in fiscal 1999 compared
with $17.9 million in fiscal 1998. We opened 15 restaurants in fiscal 1999 and
eight restaurants in fiscal 1998. Each new restaurant is expected to require,
on average, a total cash investment of between $1.0 million and $1.5 million,
excluding preopening costs expected to range from $175,000 to $210,000. To
date, the majority of our restaurants have been renovations of existing
facilities ranging in size from 4,500 to 10,400 square feet. We anticipate that
future restaurants will typically range in size from 7,000 to 9,000 square
feet. In 1999, we built six restaurants based upon our prototype designs. These
designs are expected to require between $1,500,000 and $2,000,000 in total cash
investment per restaurant. This investment represents an incremental $500,000
increase over the historical cash investment for remodeled restaurants.
However, the rental cost on these restaurants is also significantly lower than
on remodeled restaurants as our lease costs relate to the land only and not the
building. We have in the past and we may in the future acquire the land for our
restaurants. The cost of any land purchases is not included in the cash
investment amounts above. In the future we may refinance any purchases of land
or buildings through sale-leaseback transactions. We cannot predict whether
this financing will be available when needed or on terms acceptable to us.
Net cash provided by financing activities was $28.2 million in fiscal 1999
compared with $15.8 million in fiscal 1998. Financing activities in fiscal 1998
and 1999 consisted primarily of sales of equity securities and debt financing.
Upon completion of our initial public offering in April 1999, we obtained
approximately $34.3 million in net proceeds. A portion of the proceeds was used
to repay our $7.0 million term loan and $2.0 million in line of credit
borrowings. The remaining proceeds were used to fund operations, additional
restaurants and other corporate purposes.
We have a $15 million line of credit with US Bank, Bank of America and Fleet
National Bank. As of March 15, 2000, we had $8.0 million in outstanding
borrowings on our line. The line of credit expires in September 2001. The
borrowing rate on the line of credit is the lower of US Bank's reference rate or
LIBOR plus 1.875% to 2.375% (8.0% to 8.5%), dependent upon our meeting certain
financial ratios. We are required to pay 0.25% to 0.5% on all unused line of
credit funds. The credit agreement contains covenants that place restrictions on
sales of properties, transactions with affiliates, creation of additional debt
and other customary covenants. Borrowings under the credit agreement are
collateralized by substantially all of our assets. We are currently negotiating
with our lenders to increase the amount of our line of credit to $20 million. We
cannot predict whether our existing lenders will ultimately agree to an
increase.
Our capital requirements, including development costs related to the opening of
additional restaurants, have been and will continue to be significant. We will
20
<PAGE>
need substantial capital to finance our expansion plans, which require funds for
capital expenditures, preopening costs and initial operating losses related to
new restaurant openings. The adequacy of available funds and our future capital
requirements will depend on many factors, including the pace of expansion, the
costs and capital expenditures for new restaurant development and the nature of
contributions, loans and other arrangements negotiated with landlords. Although
we can make no assurance, we believe that cash flows from operations together
with our available borrowings will be sufficient to fund our capital
requirements through the year 2000. To fund future operations, we will need to
raise additional capital through public or private equity or debt financing to
continue our growth. In addition, we may from time to time consider acquiring
the operations of other restaurants. The sale of additional equity or debt
securities could result in additional dilution to our shareholders. We cannot
predict whether additional capital will be available on favorable terms, if at
all.
Inflation
The primary factors affecting our operations are food and labor costs. A large
number of our restaurant personnel are paid at rates based on the applicable
minimum wage, and increases in the minimum wage directly affect our labor
costs. To date, inflation has not had a material impact on our operating
results. See "Item 1. Business--Government Regulation" for a discussion of the
effects of changes in applicable minimum wage requirements.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk from changes in interest rates on borrowings
under our revolving line of credit that bears interest from time to time at the
lower of the lending bank's reference rate or LIBOR plus 1.875% to 2.375%.
Because we do not believe that changes in interest rates from the maximum
available borrowings under the revolving line of credit are material, we do not
believe this risk will be material. As of March 15, 2000, we had $8.0 million
in borrowings outstanding on our revolving line of credit.
We have no derivative financial instruments or derivative commodity instruments
in our cash and cash equivalents and marketable securities. We invest our cash
and cash equivalents and marketable securities in investment grade, highly
liquid investments, consisting of money market instruments, bank certificates
of deposit, overnight investments in commercial paper, and short term
government and corporate bonds.
Many of the food products purchased by us are affected by commodity pricing and
are, therefore, subject to price volatility caused by weather, production
problems, delivery difficulties and other factors which are outside our
control. To control this risk in part, we have fixed price purchase commitments
with terms of one year or less for food and supplies from vendors who supply
our national food distributor. In addition, we believe that substantially all
of our food and supplies are available from several sources, which helps to
control food commodity risks. We believe we have the ability to increase menu
prices, or vary the menu items offered, if needed in response to a food product
price increases. To compensate for a hypothetical price increase of 10% for
food and supplies, we would need to increase menu prices by an average of 3%,
which is consistent with our average price increase of 2% in fiscal 2000, 3% in
fiscal 1998 and 2% in fiscal 1997. Accordingly, we believe that a hypothetical
10% increase in food product costs would not have a material effect on our
operating results.
Item 8. Financial Statements and Supplementary Data
See the Consolidated Financial Statements filed with this Annual Report on Form
10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
21
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated by reference into this Annual Report on Form 10-K is the
information appearing under the headings "Election of Directors" and "Section
16(a) Beneficial Ownership Reporting Compliance" in our Proxy Statement for the
annual meeting of shareholders to be held April 28, 2000. See also Part I hereof
under the heading "Item X. Executive Officers of the Registrant."
Item 11. Executive Compensation
Incorporated by reference into this Annual Report on Form 10-K is the
information appearing under the headings "Executive Compensation" and "Director
Compensation" in our Proxy Statement for the annual meeting of shareholders to
be held April 28, 2000.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference into this Annual Report on Form 10-K is the
information appearing under the heading "Stock Ownership of Directors, Officers
and Principal Shareholders" in our Proxy Statement for the annual meeting of
shareholders to be held April 28, 2000.
Item 13. Certain Relationships and Related Transactions
Incorporated by reference into this Annual Report on Form 10-K is the
information appearing under the heading "Certain Transactions" in our Proxy
Statement for the annual meeting of shareholders to be held April 28, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Documents filed as part of this Annual Report on Form 10-K:
1. Consolidated Financial Statements:
Independent Auditors' Report
Consolidated Balance Sheets as of December 27, 1998 and
December 26, 1999
Consolidated Statements of Operations for the fiscal years ended
December 28, 1997, December 27, 1998 and December 26, 1999
Consolidated Statements of Shareholders' (Deficit) Equity for the
fiscal years ended December 28, 1997, December 27, 1998 and
December 26, 1999
Consolidated Statements of Cash Flows for the fiscal years ended
December 28, 1997, December 27, 1998 and December 26, 1999
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
None.
(b) Exhibits:
3.1 Amended and Restated Articles of Incorporation of the
Registrant.(/1/)
3.2 Amended and Restated By-Laws of the Registrant.(/2/)
4.1 Specimen of Common Stock certificate.(/3/)
10.1 1996 Stock Incentive Plan of BUCA, Inc. and Affiliated
Companies.(/4/)
10.2 Stock Option Plan for Non-Employee Directors.(/5/)
10.3 BUCA, Inc. Employee Stock Ownership Plan.(/6/)
10.4 BUCA, Inc. 401(k) Plan.(/7/)
10.5 Letter Agreement dated April 1, 1997 between the Registrant and
Greg A. Gadel.(/8/)
10.6 Credit Agreement dated as of September 27, 1999 among the
Registrant, as Borrower, and U.S. Bank National Association, Bank
of America, N.A. and BankBoston, N.A., as Lenders.(/9/)
10.7 First Amendment to Credit Agreement dated as of October 21, 1999
among the Registrant and the Lenders.(/10/)
10.8 Second Amendment to Credit Agreement dated as of December 24, 1999
among the Registrant and the Lenders. (/11/)
10.9 Third Amendment to Credit Agreement dated as of March 3, 2000
among the Registrant and the Lenders.(/12/)
10.10 Form of Series A Convertible Subordinated Debenture due July 30,
2001 of the Registrant.(/13/)
10.11 Form of Stock Purchase Warrant dated as of October 31, 1997.(/14/)
10.12 Form of Stock Purchase Warrant for the purchase of common stock of
the Registrant, dated May 19, 1998.(/15/)
10.13 Non-Statutory Stock Option Agreement between the Registrant and
1204 Harmon Partnership for the purchase of 24,000 shares of
common stock of the Registrant, dated as of June 1, 1998.(/16/)
10.14 Securities Purchase Agreement dated as of October 13, 1998 between
the Registrant and the Purchasers.(/17/)
10.15 Redemption Agreement between BUCA, Inc. and Parasole Restaurant
Holdings, Inc. regarding the Parasole Employee Stock Ownership
Plan.(/18/)
10.16 Amended and Restated Employment Agreement dated as of February 17,
1999, between the Registrant and Joseph P. Micatrotto.(/19/)
10.17 BUCA, Inc. Employee Stock Purchase Plan(/20/)
21.1 Subsidiaries of the Registrant.(/21/)
23.1 Consent of Deloitte & Touche LLP.
- --------
(1) Incorporated by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
22
<PAGE>
(2) Incorporated by reference to Exhibit 3.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(3) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(4) Incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(5) Incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(6) Incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(7) Incorporated by reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(8) Incorporated by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(9) Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ended September 26, 1999.
(10) Incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended September 26, 1999.
(11) Incorporated by reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (Registration No. 333-32794).
(12) Incorporated by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Registration No. 333-32794).
(13) Incorporated by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(14) Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(15) Incorporated by reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(16) Incorporated by reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(17) Incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(18) Incorporated by reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(19) Incorporated by reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(20) Incorporated by reference to Exhibit 99.3 to the Company's Registration
Statement on Form S-8 (Registration No. 333-78295).
(21) Incorporated by reference to Exhibit 21.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-32794).
(c) Reports on Form 8-K
No reports were filed on Form 8-K during the fourth quarter of the fiscal
year ended December 26, 1999.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 24, 2000.
BUCA, INC.
By /s/ Joseph P. Micatrotto
--------------------------------------------
Joseph P. Micatrotto
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on March 24, 2000.
/s/ Joseph P. Micatrotto
-----------------------------------------------
Joseph P. Micatrotto
Chairman, President and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ Greg A. Gadel
-----------------------------------------------
Greg A. Gadel,
Chief Financial Officer, Secretary and
Treasurer (Principal Financial Accounting
Officer)
/s/ Don W. Hays
-----------------------------------------------
Don W. Hays, Director
/s/ Peter J. Mihajlov
-----------------------------------------------
Peter J. Mihajlov, Director
/s/ Philip A. Roberts
-----------------------------------------------
Philip A. Roberts, Director
/s/ John P. Whaley
-----------------------------------------------
John P. Whaley, Director
/s/ David Yarnell
-----------------------------------------------
David Yarnell, Director
/s/ Paul Zepf
-----------------------------------------------
Paul Zepf, Director
<PAGE>
BUCA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of December 27, 1998 and December 26,
1999................................................................ F-3
Consolidated Statements of Operations for the fiscal years ended
December 28, 1997, December 27, 1998 and December 26, 1999.......... F-4
Consolidated Statements of Shareholders' (Deficit) Equity for the
fiscal years
ended December 28, 1997, December 27, 1998 and December 26, 1999.... F-5
Consolidated Statements of Cash Flows for the fiscal years ended
December 28, 1997, December 27, 1998 and December 26, 1999.......... F-6
Notes to Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
BUCA, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of BUCA, Inc. and
Subsidiaries (the Company) as of December 27, 1998 and December 26, 1999, and
the related consolidated statements of operations, shareholders' (deficit)
equity, and cash flows for each of the three fiscal years (each consisting of
52 weeks) in the period ended December 26, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of BUCA,
Inc. and Subsidiaries as of December 27, 1998 and December 26, 1999, and the
results of their operations and their cash flows for each of the three fiscal
years (each consisting of 52 weeks) in the period ended December 26, 1999 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in fiscal 1997
the Company changed its method of accounting for preopening costs.
Minneapolis, Minnesota
January 21, 2000
(March 3, 2000 as to Note 3)
F-2
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 27, December 26,
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 6,576 $ 1,726
Accounts receivable................................ 1,160 1,261
Inventories........................................ 935 2,293
Deferred income taxes.............................. 1,259
Prepaid expenses and other......................... 585 1,034
-------- -------
Total current assets............................. 9,256 7,573
PROPERTY AND EQUIPMENT, net.......................... 27,697 63,763
OTHER ASSETS......................................... 607 4,609
-------- -------
$ 37,560 $75,945
======== =======
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 2,637 $ 5,303
Accrued expenses................................... 3,258 6,614
Current maturities of long-term debt............... 205 50
-------- -------
Total current liabilities........................ 6,100 11,967
LONG-TERM DEBT, less current maturities.............. 7,661 1,688
OTHER LIABILITIES.................................... 366 581
REDEEMABLE STOCK:
Preferred stock, $.01 par value, cumulative, Series
A convertible--2,396,800 and 0 shares authorized;
2,240,000 and 0 shares issued and outstanding..... 9,665
Preferred stock, $.01 par value, cumulative, Series
B convertible--2,100,000 and 0 shares authorized;
1,922,222 and 0 shares issued and outstanding..... 9,441
Preferred stock, $.01 par value, cumulative, Series
C convertible--3,679,053 and 0 shares authorized;
2,614,634 and 0 shares issued and outstanding..... 13,154
Common stock, $.01 par value; 601,929 and 0 shares
issued and outstanding............................ 4,713
--------
36,973
SHAREHOLDERS' (DEFICIT) EQUITY:
Undesignated stock, 617,147 shares authorized, none
issued or outstanding
Common stock, $.01 par value--20,000,000 shares
authorized; 1,918,056 and 10,810,295 shares issued
and outstanding, respectively..................... 19 108
Additional paid-in capital......................... 76,547
Accumulated deficit................................ (13,266) (14,413)
-------- -------
(13,247) 62,242
Notes receivable from shareholders................. (293) (533)
-------- -------
Total shareholders' (deficit) equity............. (13,540) 61,709
-------- -------
$ 37,560 $75,945
======== =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Fiscal Years Ended December 28, 1997,
December 27, 1998, and December 26, 1999
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
RESTAURANT SALES.......................... $ 19,030 $ 38,483 $ 71,528
RESTAURANT COSTS
Product................................. 5,520 10,876 19,723
Labor................................... 6,478 12,342 23,069
Direct and occupancy.................... 3,750 8,078 14,551
Depreciation and amortization........... 781 1,617 3,169
---------- ---------- ----------
Total restaurant costs................. 16,529 32,913 60,512
GENERAL AND ADMINISTRATIVE EXPENSES....... 3,760 5,568 5,924
PREOPENING COSTS.......................... 1,140 1,895 3,600
---------- ---------- ----------
OPERATING (LOSS) INCOME................... (2,399) (1,893) 1,492
INTEREST INCOME........................... 158 152 495
INTEREST EXPENSE.......................... (655) (1,188) (499)
SUBORDINATED DEBT CONVERSION COSTS........ (954)
---------- ---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES,
EXTRAORDINARY ITEM, AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE........ (2,896) (2,929) 534
(PROVISION) BENEFIT FOR INCOME TAXES...... (72) (17) 1,817
---------- ---------- ----------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE..................... (2,968) (2,946) 2,351
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE RELATED TO PREOPENING COSTS.... (351)
EXTRAORDINARY LOSS ON EXTINGUISHMENT OF
DEBT, net of tax benefit of $618......... (927)
---------- ---------- ----------
NET (LOSS) INCOME......................... (3,319) (2,946) 1,424
CUMULATIVE PREFERRED STOCK DIVIDENDS,
ACCRETION OF PREFERRED STOCK TO
REDEMPTION VALUE, AND CHANGE IN
REDEEMABLE COMMON STOCK.................. (1,986) (2,189) (744)
---------- ---------- ----------
NET (LOSS) INCOME APPLICABLE TO COMMON
STOCK.................................... $ (5,305) $ (5,135) $ 680
========== ========== ==========
NET (LOSS) INCOME PER COMMON SHARE--BASIC
(NOTES 1 AND 6):
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE APPLICABLE TO
COMMON STOCK........................... $ (1.99) $ (2.04) $ 0.20
========== ========== ==========
NET (LOSS) INCOME APPLICABLE TO COMMON
STOCK.................................. $ (2.13) $ (2.04) $ 0.08
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 2,490,136 2,512,309 8,110,807
========== ========== ==========
NET (LOSS) INCOME PER COMMON SHARE--
DILUTED (NOTES 1 AND 6):
(LOSS) INCOME BEFORE EXTRAORDINARY ITEM
AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE APPLICABLE TO
COMMON STOCK........................... $ (1.99) $ (2.04) $ 0.19
========== ========== ==========
NET (LOSS) INCOME APPLICABLE TO COMMON
STOCK.................................. $ (2.13) $ (2.04) $ 0.08
========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING............................ 2,490,136 2,512,309 8,654,536
========== ========== ==========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' (Deficit) Equity
(in thousands, except for share data)
<TABLE>
<CAPTION>
Notes Total
Common Stock Additional Receivable Shareholders'
------------------ Paid-in Accumulated from (Deficit)
Shares Amount Capital Deficit Shareholders Equity
---------- ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1996................... 1,842,738 $ 18 $ (4,960) $(4,942)
Issuance of common
stock options........ $ 350 350
Issuance of common
stock warrants....... 544 544
Issuance of common
stock to
shareholders......... 65,766 1 389 $(275) 115
Repurchase of common
stock................ (9,258) (50) (50)
Payment of notes
receivable due from
shareholders......... 4 4
Change in redeemable
common stock......... (677) (677)
Preferred stock
dividends............ (556) (229) (785)
Accretion of preferred
stock................ (524) (524)
Net loss.............. (3,319) (3,319)
---------- ---- ------- -------- ----- -------
BALANCE AT DECEMBER 28,
1997................... 1,899,246 19 -- (9,032) (271) (9,284)
Issuance of common
stock warrants....... 761 761
Issuance of common
stock to
shareholders......... 28,882 200 (160) 40
Repurchase of common
stock................ (10,072) (60) (60)
Payment of notes
receivable due from
shareholders......... 138 138
Change in redeemable
common stock......... (650) (650)
Preferred stock
dividends............ (251) (1,041) (1,292)
Accretion of preferred
stock................ (247) (247)
Net loss.............. (2,946) (2,946)
---------- ---- ------- -------- ----- -------
BALANCE AT DECEMBER 27,
1998................... 1,918,056 19 -- (13,266) (293) (13,540)
Exercise of common
stock options........ 24,665 147 147
Issuance and exercise
of common stock
warrants............. 337,831 3 1,342 (1,345) --
Issuance of common
stock, net of
issuance costs of
$3,942............... 3,220,326 32 34,651 (400) 34,283
Conversion of
preferred stock to
common stock......... 4,505,239 45 32,959 33,004
Conversion of
redeemable common
stock to common
stock................ 597,162 6 4,670 4,676
Conversion of
convertible
subordinated
debentures........... 170,824 2 2,305 2,307
Common stock issued in
exchange for non-
detachable rights.... 40,195 1 481 (482) --
Repurchase of common
stock from
shareholders......... (7,977) (48) 40 (8)
Common stock issued
under employee stock
purchase plan........ 3,974 40 40
Accretion of preferred
stock................ (150) (150)
Preferred stock
dividends............ (594) (594)
Payments of notes
receivable due from
shareholders......... 120 120
Net income............ 1,424 1,424
---------- ---- ------- -------- ----- -------
BALANCE AT DECEMBER 26,
1999................... 10,810,295 $108 $76,547 $(14,413) $(533) $61,709
========== ==== ======= ======== ===== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Fiscal Years Ended December 28, 1997,
December 27, 1998, And December 26, 1999
(in thousands)
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income............................... $(3,319) $ (2,946) $ 1,424
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation and amortization................. 781 1,617 3,169
Cumulative effect of change in accounting
principle.................................... 351
Deferred income taxes......................... 34 (2,865)
Loss (gain) on sale of property and
equipment.................................... 112 (52)
Extraordinary loss on extinguishment of debt.. 1,545
Subordinated debt conversion costs............ 954
Amortization of debt discount................. 216
Issuance of common stock and common stock
options for services......................... 439
Change in assets and liabilities:
Accounts receivable......................... (130) (876) (101)
Inventories................................. (247) (390) (1,358)
Prepaid expenses and other.................. (370) (128) (449)
Accounts payable............................ 985 1,740 2,666
Accrued expenses............................ (137) 884 3,356
Other....................................... 51 273 215
------- -------- --------
Net cash (used in) provided by operating
activities............................... (1,450) 338 8,556
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale marketable
securities..................................... (33,223)
Sale and maturity of available-for-sale
marketable securities.......................... 33,223
Purchase of property and equipment.............. (7,896) (17,864) (39,130)
Proceeds from sale of property and equipment.... 2,263
Increase in other assets........................ (176) (48) (2,459)
------- -------- --------
Net cash used in investing activities..... (8,072) (15,649) (41,589)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowings......... 3,000
Payments on line of credit borrowings........... (3,000)
Proceeds from issuance of long-term debt........ 2,500 3,500 8,104
Principal payments on long-term debt and note
payable........................................ (889) (599) (13,995)
Loan and lease acquisition costs................ (251) (191) (477)
Collection on notes receivable from
shareholders................................... 4 80 120
Repurchase of common stock...................... (30) (8)
Repurchase of redeemable common stock........... (31)
Net proceeds from issuance of preferred stock... 8,537 12,958
Net proceeds from issuance of common stock...... 40 34,470
------- -------- --------
Net cash provided by financing
activities............................... 9,871 15,788 28,183
------- -------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS........... 349 477 (4,850)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.. 5,750 6,099 6,576
------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........ $ 6,099 $ 6,576 $ 1,726
======= ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
BUCA, INC. AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Fiscal Years Ended December 28, 1997, Decmber 27, 1998
and December 26, 1999
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation--BUCA, Inc. and Subsidiaries (BUCA or the Company)
develops and operates family-style, immigrant Southern Italian restaurants
located in Arizona, California, Colorado, Florida, Illinois, Indiana, Iowa,
Kansas, Kentucky, Michigan, Minnesota, Nevada, New York, Ohio, Pennsylvania,
Washington, Wisconsin, and the District of Columbia.
The Company manages its operations by restaurant. All of the Company's
restaurants operate under the same concept, are marketed to similar customers,
and have comparable economic characteristics. The Company has aggregated its
operating segments into one reportable segment.
The Company completed an initial public offering (the Offering) in April 1999,
in which 3,185,375 new shares of common stock were issued at a price of $12 per
share. Proceeds from the offering were $34,283,000, net of issuance costs
totaling $3,942,000. From the proceeds, $9 million was used to repay certain
indebtedness of the Company outstanding under its line of credit and term loan
agreements. The remaining net proceeds were used for development of new
restaurants and general corporate purposes.
Upon completion of the Offering, all outstanding shares of preferred stock were
converted to shares of common stock. Additionally, the Company recorded a
$954,000 charge to income related to the beneficial conversion feature of its
subordinated convertible debt.
Principles of Consolidation--The consolidated financial statements include the
accounts of the Company and its subsidiaries. All significant inter-company
balances and transactions have been eliminated.
Use of Estimates--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities.
Actual results could differ from those estimates.
Cash Equivalents--The Company considers all unrestricted demand deposits and
all unrestricted highly liquid debt instruments purchased with original
maturities of three months or less to be cash equivalents. At December 27, 1998
and December 26, 1999, cash equivalents consisted primarily of money market
funds.
Fair Value of Financial Instruments--At December 27, 1998 and December 26,
1999, the fair values of cash and cash equivalents, accounts receivable, and
accounts payable approximate their carrying value due to the short-term nature
of the instrument. The fair value of debt is estimated at its carrying value
based upon current rates available to the Company.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method of valuation. Inventories
consisted of the following as of December 27, 1998 and December 26, 1999 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Food ......................................................... $249 $ 479
Beverage...................................................... 272 548
Supplies...................................................... 414 1,266
---- ------
$935 $2,293
==== ======
</TABLE>
F-7
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other Assets--Other assets consisted of the following as of December 27, 1998
and December 26, 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Deferred income taxes........................................ $1,606
Escrow deposits.............................................. $131 1,568
Loan and lease acquisition costs, net........................ 365 285
Trademarks, net.............................................. 225
Liquor license and other..................................... 111 925
---- ------
$607 $4,609
==== ======
</TABLE>
Liquor licenses, loan and lease acquisition costs are being amortized over the
term of the related debt or lease (5 to 20 years). Trademarks are being
amortized over 10 years. Accumulated amortization for other assets as of
December 27, 1998 and December 26, 1999 was $206,000 and $97,000, respectively.
Accrued expenses--Accrued expenses consisted of the following as of December
27, 1998 and December 26, 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Accrued payroll and related benefits....................... $1,270 $2,263
Accrued construction....................................... 1,280
Gift certificate liability................................. 518 838
Accrued sales taxes........................................ 546 935
Other accrued expenses..................................... 924 1,298
------ ------
$3,258 $6,614
====== ======
</TABLE>
Recoverability of Long-Lived Assets--The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value amount of an asset or group of assets may not be recoverable. The Company
considers a history of operating losses to be its primary indicator of
potential impairment. Assets are grouped and evaluated for impairment at the
lowest level for which there are identifiable cash flows, individual
restaurants. A restaurant is deemed to be impaired if a forecast of
undiscounted future operating cash flows directly related to the restaurant is
less than its carrying amount. If a restaurant is determined to be impaired,
the loss is measured as the amount by which the carrying amount of the
restaurant exceeds its fair value. Fair value is an estimate based on the best
information available, including prices for similar assets or the results of
valuation techniques such as discounted estimated future cash flows as if the
decision to continue to use the impaired restaurant was a new investment
decision. The Company generally measures fair value by discounting estimated
future cash flows. Considerable management judgement is necessary to estimate
discounted future cash flows. Accordingly, actual results could vary
significantly from such estimates.
Stock Compensation--The Company accounts for its stock-based compensation
awards to employees under Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has disclosed the
required pro forma effect on net (loss) income as required by Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, in Note 11.
Net (Loss) Income Per Share-- Net (loss) income per common share is computed in
accordance with SFAS No. 128, Earnings Per Share. See Note 6 for a detailed
computation.
Post-employment and Post-retirement Benefits--The Company does not provide
post-employment health care or post-retirement benefits.
F-8
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Accounting Change--Effective January 1, 1997, the Company changed its method of
accounting for restaurant preopening costs in accordance with Statement of
Position (SOP) 98-5, Reporting on the Costs of Start-Up Activities. Costs
incurred in connection with the opening of new restaurants are expensed as
incurred.
Comprehensive Income--The Company does not have any items of other
comprehensive income in any of the periods presented.
Accounting Pronouncements--In June 1998, the Financial Accounting Standards
Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 establishes accounting and reporting standards
for derivative instruments and hedging activities. In June 1999, the FASB
issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 defers the effective date of SFAS No. 133 until the Company's first quarter
financial statements in fiscal 2001. Management has not yet determined the
effects SFAS No. 133 will have on its financial position or the results of its
operations.
Reclassification--Certain prior year amounts have been reclassified to conform
to the current year's presentation and to improve comparability with other
restaurant entities.
2. PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for renewals and
betterments are capitalized while repairs and maintenance costs are charged to
expense. The cost of property and equipment is depreciated on the straight-line
method over their estimated useful lives. Leasehold improvements are amortized
on the straight-line method over the shorter of the life of the lease including
extensions or their estimated useful lives. Estimated useful lives are as
follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Leasehold improvements.............................................. 5-20
Furniture, fixtures, and equipment.................................. 5-10
Building ........................................................... 30
</TABLE>
Property and equipment consisted of the following as of December 27, 1998 and
December 26, 1999 (in thousands)
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Leasehold improvements.................................. $19,214 $35,290
Furniture, fixtures, and equipment...................... 10,869 21,454
Land.................................................... 267 2,409
Building................................................ 114 10,441
------- -------
30,464 69,594
Less accumulated depreciation and amortization.......... (2,767) (5,831)
------- -------
$27,697 $63,763
======= =======
</TABLE>
In 1998, the Company sold the building and land associated with a restaurant in
Illinois for approximately $1,200,000 and simultaneously entered into an
operating lease for a term of 20 years. The assets were removed from the
financial statements and a deferred gain included as other liabilities on the
consolidated balance sheet of approximately $132,000 was recorded which is
being amortized over the lease term.
3. CREDIT FACILITY
In September 1999, the Company entered into a $15 million line of credit
agreement (the Agreement) with a group of financial institutions that extends
through September 27, 2001. At December 26, 1999, $10 million
F-9
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
was available with the remaining $5 million becoming available in March 2000 if
certain financial conditions are met. The borrowing rate on the Agreement is
the lesser of the lead financial institution's reference rate or LIBOR plus
1.875% to 2.375%, based upon certain financial ratios. The Company is required
to pay 0.25% to 0.50% (dependent upon the Company meeting certain financial
ratios) on all unused available funds. However, the fee for the $5 million in
funds becoming available in March 2000 is 0.1875% until the funds become
available. The Agreement precludes additional indebtedness, restricts dividend
payments, and requires the Company to maintain certain financial ratios. If the
required financial ratios are maintained and other conditions are met, as
defined in the Agreement, additional financing could be obtained and dividend
payments would be permitted from the proceeds of a public offering. The Company
was in violation of certain covenants at December 26, 1999. The financial
institutions waived these violations and amended the covenants effective March
3, 2000. Borrowings under the Agreement are collateralized by substantially all
of the assets of the Company. As of December 26, 1999, there were no borrowings
outstanding under the Agreement.
4. LONG-TERM DEBT
Long-term debt consisted of the following as of December 27, 1998 and December
26, 1999 (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Convertible subordinated debentures maturing July 2001 with
interest payable quarterly at the prime rate plus 1%, not
to exceed 12% per annum (8.75% and 9.5% at December 27,
1998 and December 26, 1999, respectively); includes call
premium accretion of $216,000 and $110,000, respectively... $1,996 $ 660
Notes payable, with interest payable monthly at 13.5% and
accretion of common stock warrant value of 4.4%. Net of
discount of $1,089,000 at December 27, 1998, resulting from
common stock warrants issued to lenders.................... 4,911
Note payable to bank........................................ 296
Note payable to bank........................................ 29
Note payable to bank........................................ 269
Note payable, guaranteed by U.S. Small Business
Administration............................................. 365
Note payable in monthly installments, including interest at
12.0%, maturing September 2014, collateralized by leasehold
improvements............................................... 495
Note payable in monthly installments, including interest at
11.0%, maturing June 2009, collateralized by leasehold
improvements............................................... 583
------ ------
Total..................................................... 7,866 1,738
Less current maturities..................................... (205) (50)
------ ------
Total current long-term maturities........................ $7,661 $1,688
====== ======
</TABLE>
The Company's loan agreements, among other things, preclude additional
indebtedness and dividend payments.
The holders of the convertible subordinated debentures are entitled, at their
option for a one-year period commencing on the date of the Offering, to convert
the entire principal amount held by such person into fully paid shares of
common stock at a 40% discount to the initial public offering price. In
accordance with EITF 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,
the Company recorded a $954,000 charge to income associated with the beneficial
conversion feature at the effective date of the Offering. In the event the
holder retains the debenture to maturity, the holder will be entitled to a
premium payment equal to 20% of the original principal sum of the debenture,
which was fully accreted in conjunction with the completion of the Offering.
The debentures are fully subordinated to all obligations of BUCA to the bank.
F-10
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1999, $1,476,000 of convertible subordinated debentures was converted
into 170,824 shares of common stock.
The future maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000............................................................... $ 50
2001............................................................... 716
2002............................................................... 62
2003............................................................... 70
2004............................................................... 78
Thereafter......................................................... 762
------
$1,738
======
</TABLE>
On February 5, 1999, the Company refinanced its existing term debt, excluding
the convertible subordinated debentures and the note payable guaranteed by the
U.S. Small Business Administration, with a $15 million credit arrangement. The
credit arrangement included a $7 million term loan and an $8 million revolving
line of credit. In conjunction with this refinancing, the Company recognized an
extraordinary loss on extinguishment of debt of approximately $1.3 million in
February 1999, which included deferred financing costs associated with the
refinanced debt.
In accordance with the credit agreement, the term loan was repaid in
conjunction with the Offering, along with borrowings under the revolving line
of credit of $2 million. Deferred financing costs of approximately $230,000
were recognized as an extraordinary loss on extinguishment of debt in
conjunction with the repayment in April 1999.
In September 1999, the Company replaced this line of credit agreement with a
new $15 million credit facility discussed in Note 3.
5. INCOME TAXES
Deferred income taxes are recognized for the tax consequences of differences
between the tax basis of assets and liabilities and their financial reporting
amounts at each reporting date based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable income. At December 27, 1998 the Company had recorded a valuation
allowance to reduce recorded deferred tax assets to zero because it was deemed
more likely than not that the deferred tax asset would not be realized.
At December 26, 1999, for income tax return purposes, the Company has estimated
net federal and state operating loss carryforwards of approximately $3,500,000
and $2,500,000, respectively. If not used, these carryforwards will begin to
expire in 2003. The valuation allowance was reversed in 1999 because it was
deemed more likely than not that all deferred tax assets will be realized.
The provision (benefit) for income taxes consisted of the following for the
fiscal years ended December 28, 1997, December 27, 1998, and December 26, 1999
(in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- -------
<S> <C> <C> <C>
Current, primarily federal............................ $38 $17 $ 430
Deferred: federal..................................... 34 (2,505)
state............................................ (360)
--- --- -------
Provision (benefit) for income taxes.................. $72 $17 $(2,435)
=== === =======
</TABLE>
F-11
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The reconciliation between taxes computed at the expected federal income tax
rate and the effective tax rate for the fiscal years ended December 28, 1997,
December 27, 1998, and December 26, 1999 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Tax (benefit) expense computed at statutory
rates...................................... $(1,162) $(1,025) $ 187
State taxes, net of federal effect.......... (129) (114) 26
Subordinated debt conversion costs.......... 380
Tip credit--FICA............................ 136
Other....................................... 12 199
Change in valuation allowance............... 1,363 1,144 (2,745)
------- ------- -------
$72 $17 $(1,817)
======= ======= =======
</TABLE>
The tax effect of significant temporary differences representing deferred tax
assets is as follows as of December 27, 1998 and December 26, 1999 (in
thousands):
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Current:
Unearned revenue...................................... $ 102
Prepaid costs......................................... (68)
Net operating loss carryforwards and other tax
credits.............................................. 1,253
Accrued liabilities................................... $ 131 36
Other................................................. (64)
Less valuation allowance.............................. (131)
------ ------
$ -- $1,259
====== ======
Noncurrent:
Preopening costs and property and equipment........... $1,101 $ 730
Call premium accretion................................ 84
Net operating loss carryforwards and other tax
credits.............................................. 1,380 756
Unearned revenue...................................... 109
Other................................................. 49 11
Less valuation allowance.............................. (2,614)
------ ------
$ -- $1,606
====== ======
</TABLE>
F-12
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. NET (LOSS) INCOME PER SHARE
The following table sets forth the computation of basic and diluted net (loss)
income per share (in thousands, except share and per share data):
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Numerator:
(Loss) income before extraordinary item
and cumulative effect of change in
accounting principle applicable to
common stock........................... $ (2,968) $ (2,946) $ 2,351
Cumulative preferrred stock dividends,
accretion of preferred stock to
redemption value and change in
redeemable common stock................ (1,986) (2,189) (744)
---------- ---------- ----------
(4,954) (5,135) 1,607
Cumulative effect of change in
accounting principle................... (351)
Extraordinary loss on extinguishment of
debt................................... (927)
---------- ---------- ----------
Numerator for basic and diluted net
(loss) income per common share--(loss)
income allocated to common
shareholders........................... $ (5,305) $ (5,135) $ 680
========== ========== ==========
Denominator:
Denominator for basic net (loss) income
per common share--weighted average
shares................................. 2,490,136 2,512,309 8,110,807
Effect of dilutive securities:
Stock warrants........................ 398,310
Stock options......................... 145,419
---------- ---------- ----------
Denominator for diluted net (loss)
income per common share--adjusted for
weighted average shares and assumed
conversions............................ 2,490,136 2,512,309 8,654,536
========== ========== ==========
Basic net (loss) income per share:
(Loss) income before extraordinary item
and cumulative effect of change in
accounting principle per common share.. $ (1.99) $ (2.04) $ 0.20
Cumulative effect of change in
accounting principle per common share.. (0.14)
Extraordinary item per common share..... (0.12)
---------- ---------- ----------
Net (loss) income per common share...... $ (2.13) $ (2.04) $ 0.08
========== ========== ==========
Diluted net (loss) income per common
share:
(Loss) income before extraordinary item
and cumulative effect of change in
accounting principle per common share.. $ (1.99) $ (2.04) $ 0.19
Cumulative effect of change in
accounting principle per common share.. (0.14)
Extraordinary item per common share..... (0.11)
---------- ---------- ----------
Net (loss) income per share............. $ (2.13) $ (2.04) $ 0.08
========== ========== ==========
</TABLE>
F-13
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Diluted (loss) income per common share excludes the following due to their
antidilutive effect:
<TABLE>
<CAPTION>
1997 1998 1999
------------------ ------------------ ----------------
Weighted Weighted Weighted
Average Average Average
Price Price Number Price
Number of Per Number of Per of Per
Shares Share Shares Share Shares Share
--------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Stock warrants.......... 218,420 $3.73 331,196 $2.46
Stock options........... 581,507 5.38 854,155 6.08 69,917 $11.24
Convertible preferred
stock.................. 2,774,808 6.14 4,505,239 6.76 (/1/) (/1/)
Convertible subordinated
debentures............. 565,079 3.15 439,506 4.05 137,313 7.20
</TABLE>
- --------
(/1/)Prior to the conversion of the convertible preferred stock into 4,505,239
shares of common stock in April 1999, the convertible preferred stock was
antidilutive.
7. EMPLOYEE BENEFIT PLANS
The BUCA employee stock ownership plan (ESOP) was established for the benefit
of eligible employees of BUCA. The BUCA ESOP was frozen upon its spin-off from
its former parent company's ESOT, Parasole Restaurant Holdings, Inc.
(Parasole). No contributions were made during 1997, 1998, or 1999. Prior to the
Offering, these shares were classified as redeemable stock on the consolidated
balance sheet. Upon completion of the Offering, these shares were reclassified
to shareholders' equity. At December 27, 1998 and December 26, 1999, 504,702
and 497,670 shares were held in the Parasole ESOT, respectively, and 97,227 and
95,937 shares were held in the BUCA ESOP, respectively.
Company employees with one year of service, age 21 or older, who worked at
least 1,000 hours in the prior year, are eligible to participate in the
Company's 401(k) Plan. Under the provisions of the plan, the Company may, at
its discretion, make contributions to the 401(k) Plan. Participants are 100%
vested in their own contributions. The Company made no contributions during
1997, 1998 or 1999.
In fiscal 1999, the Company established an employee stock purchase plan that
enables eligible employees to purchase the Company's common stock at 85% of its
fair market value on either the first or last day of the purchasing month.
Under the plan, 3,974 shares were issued at prices ranging from $9.83 to $14.66
in 1999.
8. COMMITMENTS AND CONTINGENCIES
Leases--The Company is obligated under various operating leases for restaurant
and storage space and equipment. Generally, the base lease terms are between 5
and 20 years. Certain of the leases provide for additional rents based on a
percentage of annual sales in excess of stipulated minimums. The leases also
require the Company to pay its pro rata share of real estate taxes, operating
expenses, and common area costs. In addition, the Company has received lease
incentives in connection with certain leases. The Company is recognizing the
benefits related to the lease incentives on a straight-line basis over the
applicable lease term. The Company has recorded deferred rent related to their
lease incentives of $239,000 and $204,000 as of December 27, 1998 and December
26, 1999, respectively.
Total rent expense, including real estate taxes, operating expenses, and
percentage rent, was $1,754,000, $3,812,000 and $6,719,000 in 1997, 1998, and
1999 respectively.
F-14
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Approximate future minimum lease obligations, including units that are not yet
open and excluding real estate taxes, operating expenses and percentage rents,
at December 26, 1999, are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
2000 .............................................................. $5,725
2001............................................................... 7,778
2002............................................................... 8,099
2003............................................................... 8,172
2004............................................................... 8,441
Thereafter......................................................... 49,685
-------
Total future minimum base rents.................................. $87,900
=======
</TABLE>
Litigation--The Company is subject to certain legal actions arising in the
normal course of business, none of which are expected to have a material effect
on the Company's results of operations, financial condition or cash flows.
9. RELATED-PARTY TRANSACTIONS
Management Agreement--The Company has entered into a management agreement with
Parasole to provide for certain management and administrative services.
Parasole may terminate the management agreement upon one year's written notice
and the Company may terminate the management agreement upon 60 days' written
notice. Management fees of approximately $332,500, $348,000 and $222,500 were
charged to operations in 1997, 1998, and 1999, respectively.
Purchase of Inventory--The Company has entered into a vendor relationship with
Parasole whereby the Company purchases bread products and a majority of the
dessert products offered at the Company's Minneapolis-Saint Paul metropolitan
area restaurants. The Company purchases the products at rates which management
believes approximate market rates. The relationship can terminate at any time
at the discretion of the Company; however, the Company expects this
relationship to continue. The Company purchased bakery products in the amount
of $180,000, $169,000 and $181,000 in 1997, 1998, and 1999, respectively.
Employment Agreement--The Company entered into an employment agreement with one
of its officers which requires the payment of annual compensation and certain
fringe benefits through 2003 and includes bonus provisions in the form of both
a stock grant and stock options.
10. PREFERRED STOCK
Series A Preferred Stock Private Placement--During October 1996, the Company
issued 2,240,000 shares of Series A preferred stock convertible into 1,493,331
shares of common stock. The stock accumulated dividends at a rate of $.2625 per
share annually beginning October 24, 1996. The Company received net proceeds of
$7,614,000 after the payment of $786,000 in related offering costs. The net
proceeds were used to pay off certain indebtedness and to fund expansion and
operating expenses.
Series B Preferred Stock Private Placement--During 1997, the Company issued a
total of 1,922,222 shares of Series B preferred stock convertible into
1,281,477 shares of common stock. The stock accumulated dividends at a rate of
$.315 per share annually beginning September 3, 1997. The Company received net
proceeds of $8,537,000 after the payment of $113,000 in related offering costs.
The net proceeds were used to fund expansion and operating expenses.
Series C Preferred Stock Private Placement--In October 1998, the Company sold
1,639,025 shares of Series C preferred stock convertible into 1,092,679 shares
of common stock. In December 1998, the Company sold an
F-15
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
additional 975,609 shares of Series C preferred stock convertible into 637,752
shares of common stock. The stock accumulated dividends at a rate of $.35875
per share annually beginning October 13, 1998. The Company received net
proceeds of $12,958,000 after the payment of $442,000 in related offering
expenses. The net proceeds were used to fund expansion, operating expenses, and
pay off certain indebtedness.
Additionally, the purchasers of the Series C preferred stock received 2,614,634
limited non-detachable rights. The rights entitled the holder to receive up to
approximately 610,000 (approximately 21,800 per quarter through October 2005)
additional shares of common stock if, on or prior to October 12, 2001, the
Company had not effected a qualified public offering or had a publicly traded
security with an average closing price of $18 per share for a period of at
least 120 consecutive trading days. In conjunction with the Offering, the
Company agreed to issue 40,195 shares of common stock, which approximated the
fair market value of the rights, in exchange for an agreement which resulted in
the termination of such rights.
Upon completion of the Company's stock offering in April 1999, the outstanding
shares of Series A, B and C preferred stock were converted into common stock.
There is no outstanding preferred stock as of December 26, 1999.
11. SHAREHOLDERS' EQUITY
Stock Split--On February 17, 1999, the Company effected a two-for-three reverse
stock split that has been retroactively reflected in the consolidated financial
statements.
Warrants--The Company has issued warrants to placement agents and debt holders
in connection with the issuance of debt and equity securities. The warrants are
exercisable at various dates through September 2004. The fair market value of
the warrants was recorded as additional paid-in capital. The excess of fair
market value over exercise price is being amortized over the respective debt
maturity term. A summary of the Company's common stock warrant activity is as
follows:
<TABLE>
<CAPTION>
Number of Weighted
Common Average
Stock Price
Shares Per Share
--------- ---------
<S> <C> <C>
Outstanding, December 31, 1996....................... 104,532 $5.63
Warrants issued--Series B placement agents........... 33,333 6.75
Warrants issued--debt holders........................ 80,555 0.01
-------- -----
Outstanding, December 28, 1997....................... 218,420 3.73
Warrants issued--debt holders........................ 112,776 0.01
-------- -----
Outstanding and exercisable, December 27, 1998....... 331,196 2.46
Warrants issued--Series B shareholders............... 66,661 0.01
Warrants exercised................................... (337,833) 1.62
Warrants surrendered................................. (45,267) 5.93
-------- -----
Outstanding and exercisable, December 26, 1999....... 14,757 $0.01
======== =====
</TABLE>
Stock Option Plans--During 1996, the Company adopted the 1996 Incentive Stock
Option Plan (the 1996 Plan), pursuant to which options to acquire an aggregate
of 433,333 shares of the Company's common stock may be granted. Under the 1996
Plan, the Board of Directors may grant options to purchase shares of the
Company's stock to eligible employees for both incentive and nonstatutory stock
options. Options granted under the 1996 Plan vest as determined by the Board of
Directors and are exercisable for a term not to exceed ten years.
F-16
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1998, 1999, and February 2000, the Board of Directors approved
amendments to the 1996 Plan to increase the number of shares available for
issuance under the 1996 Plan to 1,000,000, 1,500,000, and 1,800,000 shares,
respectively.
During 1996, the Company adopted the 1996 Stock Option Plan for Nonemployee
Directors (the Directors' Plan) pursuant to which options to acquire an
aggregate of 26,666 shares of the Company's common stock may be granted to
outside directors. Under the Directors' Plan, 1,333 options will automatically
be granted to each outside director upon election to the Board of Directors,
and thereafter 666 options will be granted annually for each year of continued
service by the outside director. Options granted under the Directors' Plan vest
over one year from date of grant and are exercisable for ten years. The
Director's Plan was terminated in 1999.
A summary of the status of the Company's stock options are presented in the
table and narrative below:
<TABLE>
<CAPTION>
Options
Weighted Available
Average For
Extended Future
Shares Price Price Range Grant
--------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Outstanding, December 31,
1996........................ 13,331 $4.84 $1.13- 5.63 413,335
Granted...................... 700,353 4.61 1.13- 6.75
Terminated................... (132,177) 1.25 1.13- 5.63
---------
Outstanding, December 28,
1997........................ 581,507 5.38 1.13- 6.75 111,826
Granted...................... 273,314 7.59 6.75- 7.68
Terminated................... (666) 7.68 7.68
---------
Outstanding, December 27,
1998........................ 854,155 6.08 1.13- 7.68 172,511
Granted...................... 514,749 10.96 7.68-16.50
Exercised.................... (24,665) 5.97 4.50- 7.68
Terminated................... (19,465) 7.31 5.63-11.00
---------
Outstanding, December 26,
1999........................ 1,324,774 $7.96 $1.13-16.50 54,929
=========
Exercisable, December 26,
1999........................ 385,805 $6.10 $1.13-11.25
========= ===== ===========
</TABLE>
Information regarding options outstanding and exercisable at December 26, 1999
is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
-------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 1.13- 4.50 76,187 5.87 $ 1.33 76,186 $ 1.33
5.63 313,662 7.48 5.63 130,910 5.63
6.75 192,192 7.89 6.75 57,192 6.75
7.68 235,317 8.79 7.68 66,851 7.68
8.88-10.69 213,750 9.97 10.68
10.75-16.50 293,666 9.35 11.22 54,666 11.25
--------- -------
$ 1.13-16.50 1,324,774 8.86 $ 7.96 385,805 $ 6.10
============ ========= ==== ====== ======= ======
</TABLE>
During 1998, the Company granted 16,000 stock options to a landlord at a price
of $6.75 per share which were outside of the two stock option plans.
F-17
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed by APB Opinion No. 25 and related
interpretations. No compensation cost has been recognized for options issued to
employees under the Plans when the exercise price of the options granted are at
least equal to the fair value of the common stock on the date of grant. Had
compensation costs for these plans been determined consistent with SFAS No.
123, the Company's net (loss) income would have been increased (decreased) to
the following pro forma amounts for 1997, 1998, and 1999 (in thousands, except
for per share data):
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -----
<S> <C> <C> <C>
Net (loss) income applicable to common stock:
As reported................................... $(5,305) $(5,135) $ 680
Pro forma..................................... (5,773) (5,380) 83
Net (loss) income per common share, basic:
As reported................................... $ (2.13) $ (2.04) $0.08
Pro forma..................................... (2.32) (2.14) 0.01
Net (loss) income per common share, diluted:
As reported................................... $ (2.13) $ (2.04) $0.08
Pro forma..................................... (2.32) (2.14) 0.01
</TABLE>
The fair value of each option grant for the pro forma disclosure required by
SFAS No. 123 is estimated on the grant date using the Black-Scholes option-
pricing model with the following assumptions and the results for the grants:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- -------
<S> <C> <C> <C>
Dividend yield............................. None None None
Expected volatility........................ None None 53.6%
Expected life of option.................... 7 years 7 years 7 years
Risk-free interest rate.................... 5.76-6.70% 4.63-5.68% 6.54%
</TABLE>
Paisano Partners Program--On January 1, 1997, the Company implemented the
Paisano Partners program for certain restaurant employees. This program
requires restaurant general managers known as Paisano Partners to purchase
approximately $20,000 of the Company's common stock and they also receive stock
options. In addition, kitchen managers also receive stock options. The Company
allows the Paisano Partners the option to finance the initial stock purchase
over five years at an interest rate of 8%. At December 27, 1998 and December
26, 1999, the notes receivable balances related to this financing of $293,000
and $533,000, respectively, were included as contra-equity. At December 27,
1998 and December 26, 1999, 60,416 and 88,468 shares of common stock were
issued under this program.
F-18
<PAGE>
BUCA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
12. SUPPLEMENTAL CASH FLOW INFORMATION
The following is supplemental cash flow information for the years ended:
<TABLE>
<CAPTION>
1997 1998 1999
---- ----- ------
<S> <C> <C> <C>
Cash paid during year for:
Interest............................................. $527 $ 714 $ 554
Income taxes......................................... 9 17 70
Non-cash investing and financing activities:
Property and equipment additions financed through
capital lease obligation 401
Shareholder receivable from issuance of common
stock............................................... 275 160 400
Shareholder receivable reduction due to retirement of
stock............................................... 58 40
Escrow deposit transferred to property and
equipment........................................... 551
Accretion of redeemable preferred stock to redemption
value............................................... 524 247 150
Dividends accrued on redeemable preferred stock...... 785 1,292 594
Change in value of redeemable common stock........... 677 650
Conversion of preferred stock to common stock........ 33,004
Conversion of redeemable common stock to common
stock............................................... 4,676
Conversion of convertible subordinated debentures to
common stock........................................ 2,307
</TABLE>
F-19
<PAGE>
Exhibit Index
Exhibit No. Description
- ----------- -----------
3.1 Amended and Restated Articles of Incorporation of the
Registrant.(/1/)
3.2 Amended and Restated By-Laws of the Registrant.(/2/)
4.1 Specimen of Common Stock certificate.(/3/)
10.1 1996 Stock Incentive Plan of BUCA, Inc. and Affiliated
Companies.(/4/)
10.2 Stock Option Plan for Non-Employee Directors.(/5/)
10.3 BUCA, Inc. Employee Stock Ownership Plan.(/6/)
10.4 BUCA, Inc. 401(k) Plan.(/7/)
10.5 Letter Agreement dated April 1, 1997 between the Registrant and
Greg A. Gadel.(/8/)
10.6 Credit Agreement dated as of September 27, 1999 among the
Registrant, as Borrower, and U.S. Bank National Association, Bank
of America, N.A. and BankBoston, N.A., as Lenders.(/9/)
10.7 First Amendment to Credit Agreement dated as of October 21, 1999
among the Registrant and the Lenders.(/10/)
10.8 Second Amendment to Credit Agreement dated as of December 24, 1999
among the Registrant and the Lenders. (/11/)
10.9 Third Amendment to Credit Agreement dated as of March 3, 2000
among the Registrant and the Lenders.(/12/)
10.10 Form of Series A Convertible Subordinated Debenture due July 30,
2001 of the Registrant.(/13/)
10.11 Form of Stock Purchase Warrant dated as of October 31, 1997.(/14/)
10.12 Form of Stock Purchase Warrant for the purchase of common stock of
the Registrant, dated May 19, 1998.(/15/)
10.13 Non-Statutory Stock Option Agreement between the Registrant and
1204 Harmon Partnership for the purchase of 24,000 shares of
common stock of the Registrant, dated as of June 1, 1998.(/16/)
10.14 Securities Purchase Agreement dated as of October 13, 1998 between
the Registrant and the Purchasers.(/17/)
10.15 Redemption Agreement between BUCA, Inc. and Parasole Restaurant
Holdings, Inc. regarding the Parasole Employee Stock Ownership
Plan.(/18/)
10.16 Amended and Restated Employment Agreement dated as of February 17,
1999, between the Registrant and Joseph P. Micatrotto.(/19/)
10.17 BUCA, Inc. Employee Stock Purchase Plan(/20/)
21.1 Subsidiaries of the Registrant.(/21/)
23.1 Consent of Deloitte & Touche LLP.
- --------
(1) Incorporated by reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
<PAGE>
(2) Incorporated by reference to Exhibit 3.5 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(3) Incorporated by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(4) Incorporated by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(5) Incorporated by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(6) Incorporated by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(7) Incorporated by reference to Exhibit 10.4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(8) Incorporated by reference to Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(9) Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the period ended September 26, 1999.
(10) Incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q for the period ended September 26, 1999.
(11) Incorporated by reference to Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (Registration No. 333-32794).
(12) Incorporated by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Registration No. 333-32794).
(13) Incorporated by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(14) Incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(15) Incorporated by reference to Exhibit 10.14 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(16) Incorporated by reference to Exhibit 10.15 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(17) Incorporated by reference to Exhibit 10.17 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(18) Incorporated by reference to Exhibit 10.18 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(19) Incorporated by reference to Exhibit 10.20 to the Company's Registration
Statement on Form S-1 (Registration No. 333-72593).
(20) Incorporated by reference to Exhibit 99.3 to the Company's Registration
Statement on Form S-8 (Registration No. 333-78295).
(21) Incorporated by reference to Exhibit 21.1 to the Company's Registration
Statement on Form S-1 (Registration No. 333-32794).
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-78295 on Form S-8 of BUCA, Inc. and Subsidiaries of our report dated January
21, 2000 (March 3, 2000 as to Note 3), included in the Annual Report on Form
10-K of BUCA, Inc. and Subsidiaries for the fiscal year ended December 26, 1999.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
March 24, 2000
