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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 26, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-26125
RUBIO'S RESTAURANTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-0100303
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1902 WRIGHT PLACE, SUITE 300, CARLSBAD, CALIFORNIA 92008
(Address of Principal Executive Offices)
(760) 929-8226
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. (1) Yes X No
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(2) Yes X No
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As of April 14, 2000 there were 8,880,911 shares of the Registrant's common
stock, par value $0.001 per share, outstanding.
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RUBIO'S RESTAURANTS, INC.
TABLE OF CONTENTS
<TABLE>
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Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
December 26, 1999 and March 26, 2000 3
Consolidated Statements of Operations for the
thirteen weeks ended March 28, 1999 and March
26, 2000 4
Consolidated Statements of Cash Flows for the
thirteen weeks ended March 28, 1999
and March 26, 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
</TABLE>
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 26, March 26,
1999 2000
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<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,459 $ 4,526
Short-term investments 7,376 6,641
Other receivables 579 527
Income taxes receivable 215 215
Inventory 618 1,046
Prepaid expenses 562 866
Deferred income taxes 50 55
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Total current assets 12,859 13,876
INVESTMENTS 8,544 6,020
PROPERTY- net 27,923 30,008
OTHER ASSETS 439 421
DEFERRED INCOME TAXES 273 273
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TOTAL $50,038 $50,598
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,235 $ 3,592
Accrued expenses and other liabilities 2,572 2,225
Income taxes payable - 177
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Total current liabilities 5,807 5,994
DEFERRED RENT 1,109 1,196
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Total liabilities 6,916 7,190
COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value, 5,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.001 par value, 75,000,000 shares authorized,
8,871,775 issued and outstanding in 1999 and 8,879,911 issued
and outstanding in 2000 9 9
Paid-in capital 41,357 41,366
Deferred compensation 88 103
Accumulated other comprehensive income 29 22
Retained earnings 1,639 1,908
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Total stockholders' equity 43,122 43,408
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TOTAL $50,038 $50,598
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</TABLE>
See notes to unaudited consolidated financial statements.
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RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the 13 Weeks Ended
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March 28, March 26,
1999 2000
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<S> <C> <C>
SALES $ 14,383 $ 19,929
COSTS AND EXPENSES:
Cost of sales 4,247 5,865
Restaurant labor, occupancy and other 7,254 10,352
General and administrative expenses 2,075 2,374
Depreciation and amortization 641 902
Pre-opening expenses 94 187
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OPERATING INCOME 72 249
OTHER INCOME (EXPENSE):
Interest and investment income 63 225
Interest expense (56) (22)
Loss on disposal/sale of property (4) (3)
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Other income - net 3 200
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INCOME BEFORE INCOME TAXES 75 449
INCOME TAX EXPENSE (30) (180)
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NET INCOME $ 45 $ 269
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NET (LOSS) INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
Basic $ (41) $ 269
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Diluted $ (41) $ 269
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HISTORIC NET (LOSS) INCOME PER SHARE:
Basic $ (0.04) $ 0.03
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Diluted $ (0.04) $ 0.03
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HISTORIC SHARES USED IN CALCULATING
HISTORIC NET (LOSS) INCOME PER SHARE:
Basic 1,049 8,874
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Diluted 1,049 9,021
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</TABLE>
See notes to unaudited consolidated financial statements.
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RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the 13 Weeks Ended
-----------------------------------
March 28, 1999 March 26, 2000
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 45 $ 269
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 641 902
Deferred compensation 16 15
Loss on disposal/sale of property 4 3
Changes in assets and liabilities:
Other receivables (210) 52
Inventory (11) (428)
Prepaid expenses (151) (304)
Other assets (46) 18
Accounts payable (235) 357
Accrued expenses and other liabilities 51 (347)
Income taxes payable (65) 177
Deferred rent 86 87
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Cash provided by operating activities 125 801
INVESTING ACTIVITIES:
Purchase of property (2,564) (2,990)
Purchases of investments (8,970) (7,567)
Sales and maturities of investments 11,929 10,814
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Cash provided by investing activities 395 257
FINANCING ACTIVITIES:
Principal payments on long-term debt (185) -
Stock offering costs - (2)
Proceeds from exercise of stock options 3 11
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Cash (used for) provided by financing activities (182) 9
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INCREASE IN CASH AND CASH EQUIVALENTS 338 1,067
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 786 3,459
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,124 $ 4,526
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 53 $ -
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Cash paid for income taxes $ 95 $ 3
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SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Holding gains (losses) on available-for-sale investments, before tax $ 19 $ (12)
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</TABLE>
See notes to unaudited consolidated financial statements.
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RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been
prepared by Rubio's Restaurants, Inc. and its wholly-owned subsidiary
(collectively, the "Company") without audit, in accordance with the instructions
to Form 10-Q and therefore does not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in accordance with generally accepted accounting principles.
UNAUDITED INTERIM FINANCIAL DATA - In the opinion of management,
the unaudited consolidated financial statements for the interim periods
presented reflect all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations as of and for such periods indicated. These consolidated financial
statements and notes thereto should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended December 26, 1999
included in the Company's Form 10-K. Results for the interim periods presented
herein are not necessarily indicative of results which may be reported for any
other interim period or for the entire fiscal year.
2. BALANCE SHEET DETAILS AS OF DECEMBER 26, 1999 AND MARCH 26, 2000,
respectively: (in thousands)
<TABLE>
<CAPTION>
1999 2000
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<S> <C> <C>
PROPERTY - at cost:
Building and leasehold improvements $ 17,308 $ 18,694
Equipment and furniture 17,395 18,480
Construction in process and related costs 1,586 2,095
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36,289 39,269
Less: accumulated depreciation and amortization (8,366) (9,261)
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Total $ 27,923 $ 30,008
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OTHER ASSETS:
Long-term deposits $ 366 $ 362
Other 73 59
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Total $ 439 $ 421
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ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation $ 1,161 $ 814
Sales taxes 499 647
Vacation pay 300 331
Unearned usage allowance 95 -
Other 517 433
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Total $ 2,572 $ 2,225
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</TABLE>
3. LONG-TERM DEBT AND CREDIT FACILITIES
REVOLVING LINE OF CREDIT - As of March 26, 2000, there were no borrowings
against the Credit Line.
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RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
4. EARNINGS PER SHARE
Reconciliation of basic and diluted earnings per share in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," is as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------
March 28, March 26,
1999 2000
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<S> <C> <C>
Numerator
Basic:
Net Income $ 45 $ 269
Accretion on redeemable convertible preferred stock (86) -
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Net (loss) income attributable to common
stockholders (41) 269
Diluted:
Reversal of accretion on redeemable convertible
preferred stock - -
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Net (loss) income attributable to common
stockholders $ (41) $ 269
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Denominator
Basic:
Weighted average common shares outstanding 1,049 8,874
Diluted:
Effect of dilutive securities:
Common stock options - 147
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Total weighted average common and potential
common shares outstanding 1,049 9,021
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(Loss) earnings per share:
Basic $ (0.04) $ 0.03
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Diluted $ (0.04) $ 0.03
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</TABLE>
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report on Form 10-Q may contain certain projections,
estimates and other forward-looking statements that involve a number of risks
and uncertainties, including without limitation, those discussed below at "Risk
Factors." While this outlook represents our current judgment on the future
direction of the business, such risks and uncertainties could cause actual
results to differ materially from any future performance suggested below. We
undertake no obligation to release publicly the results of any revisions to
these forward-looking statements to reflect events or circumstances arising
after the date of this quarterly report.
OVERVIEW
We opened our first restaurant under the name "Rubio's, Home of the
Fish Taco" in 1983 and grew steadily through 1994, at which time we operated 17
units. We accelerated the number of restaurant openings in recent years, going
from six new restaurants in 1995 to 31 in 1999. As of March 26, 2000, we have
opened 6 new restaurants in the current year. In addition, in order to continue
to expand into new markets, we are currently initiating a franchise program.
As a result of our rapid expansion, period to period comparisons of our
financial results may not be meaningful. When a new unit opens, it will
typically incur higher than normal levels of food and labor costs until new
personnel gain experience. Hourly labor schedules are gradually adjusted
downward during the first three months of a restaurant opening, in order to
reach operating efficiencies similar to those at established units. In
calculating comparable restaurant sales, we introduce a restaurant into our
comparable restaurant base once it has been in operation for 15 calendar months.
Sales represents gross sales less sales taxes, coupons and other
discounts. Cost of sales is composed of food, beverage and paper supply
expenses. Components of restaurant labor, occupancy and other expenses include
direct hourly and management wages, bonuses, fringe benefit costs, rent and
other occupancy costs, advertising and promotion, operating supplies, utilities,
maintenance and repairs and other operating expenses.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide
infrastructure to facilitate our future growth. Components of this category
include management, supervisory and staff salaries and employee benefits,
travel, information systems, training, corporate rent and professional and
consulting fees.
Pre-opening expenses which are expensed as incurred, consist of the
costs of hiring and training the initial workforce, travel, the cost of food
used in training, the cost of the initial stocking of operating supplies and
other direct costs related to the opening.
We have leased all of our facilities, except for one building, in order
to minimize the cash investment associated with each unit. The majority of our
leases are for 10-year terms and include options to extend the terms. The
majority of our leases also include both fixed rate and percentage-of-sales rent
provisions.
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We use a 52- or 53-week fiscal year ending on the Sunday nearest
December 31. The three-month periods ended March 26, 2000 and March 28, 1999
each consisted of 13 weeks.
RESULTS OF OPERATIONS
13 WEEKS ENDED MARCH 28, 1999 COMPARED TO THE 13 WEEKS ENDED MARCH 26,
2000
Our operating results for the 13 weeks, expressed as a percentage of
sales, were as follows:
<TABLE>
<CAPTION>
For 13 Weeks Ended
------------------------------
March 28, March 26,
1999 2000
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<S> <C> <C>
Sales 100.0% 100.0%
Costs and expenses:
Cost of sales 29.5 29.4
Restaurant labor, occupancy and other 50.4 52.0
General and administrative expenses 14.4 11.9
Depreciation and amortization 4.5 4.5
Pre-opening expenses 0.7 0.9
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Operating income 0.5 1.3
Other income - net - 1.0
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Income before income taxes 0.5 2.3
Income tax expense (0.2) (0.9)
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Net income 0.3% 1.4%
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</TABLE>
Results of operations reflect a full 13 weeks of operations for 96
restaurants and 59 restaurants for the periods ended March 26, 2000 and March
28, 1999, respectively. Results of operations also reflect a partial period of
operations for 6 restaurants and 5 restaurants for the 13 weeks ended March 26,
2000 and March 28, 1999, respectively.
SALES. Sales increased $5.5 million, or 38.6%, to $19.9 million for the 13 weeks
ended March 26, 2000 from $14.4 million for the 13 weeks ended March 28, 1999.
This increase was principally due to the $5.6 million in sales generated by a
full quarter of operations from the non-comparable 31 units opened in 1999,
combined with the $0.7 million from the 6 units opened during 2000. The three
non-comparable units open in 1998 had an unfavorable variance to prior year of
$0.2 million. In addition, comparable unit sales increased slightly by $11,000,
or 0.1%.
COST OF SALES. Cost of sales as a percentage of sales decreased slightly to
29.4% in the 13 weeks ended March 26, 2000 from 29.5% in the 13 weeks ended
March 28, 1999. This decrease was primarily a function of changes in product
mix, which represents the costs associated with our guest's menu selections.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and other
increased as a percentage of sales to 52.0% for the 13 weeks ended March 26,
2000 from 50.4% in the 13 weeks ended March 28, 1999. The increase as a
percentage of sales is primarily due to an increase in total direct labor of
1.1%. These labor increases were due to expected inefficiencies in the new
stores and to the increasing mix of stores located in newer markets which have
on average lower initial annual sales volumes than our mature markets. Facility
costs increased as a percentage of sales by 0.6%, also as a result of the high
mix of stores located in newer markets opening with lower initial sales than our
mature markets.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.4 million for the 13 weeks ended March 26, 2000 from $2.1
million for the 13 weeks ended March 28, 1999. The increase was primarily due to
increases in salaries and benefits related to the hiring of additional
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corporate employees and field management personnel as well as other corporate
level expenses required to support and manage unit expansion. General and
administrative expenses decreased as a percentage of sales to 11.9% in 2000 from
14.4% in 1999 primarily due to our expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$902,000 in the 13 weeks March 26, 2000 from $641,000 in the 13 weeks ended
March 28, 1999. The $261,000 increase was primarily due to the additional
depreciation on the 31 new units opened during 1999 and the 6 new
units opened during 2000. As a percentage of sales, depreciation and
amortization remained flat at 4.5% in the 13 weeks ended March 26, 2000 and in
the 13 weeks ended March 28, 1999, respectively.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $187,000 for the 13
weeks ended March 26, 2000 from $94,000 for the 13 weeks ended March 28, 1999
primarily due to the increase in unit openings to 6 in 2000 compared to five in
1999 and expenses related to three units opened the first day of the second
quarter.
OTHER INCOME - NET. Other income - net increased to $200,000 for the 13 weeks
ended March 26, 2000 from $3,000 in other income - net in the 13 weeks ended
March 28, 1999. The increase is primarily due to an increase in the cash
available for investing after our initial public offering, which was completed
in May 1999. Interest and investment income increased to $225,000 for the 13
weeks ended March 26, 2000 from $63,000 in the 13 weeks ended March 28, 1999.
Interest expense declined to $22,000 for the 13 weeks ended March 26, 2000 from
$56,000 in the 13 weeks ended March 28, 1999. This decrease is due to the
repayment of all long-term debt with the proceeds from our initial public
offering.
INCOME TAXES. The provision for income taxes in the 13 weeks ended March 26,
2000 and March 28, 1999, respectively, is based on the approximate annual
effective tax rate applied to the respective quarter's pretax book income. The
40% tax rate applied in 2000 comprises the federal and state statutory rates
based on the estimated annual effective rate for 2000.
INFLATION
Components of our operations subject to inflation include food, beverage, lease
and labor costs. Our leases require us to pay taxes, maintenance, repairs,
insurance and utilities, all of which are subject to inflationary increases. We
believe inflation has not had a material impact on our results of operations in
recent years.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years through cash
flow from operations, private placements of preferred stock, bank debt, and the
public sale of equity securities.
We generated $0.8 million in cash flow from operating activities for
the 13 weeks ended March 26, 2000 compared to $0.1 million for the 13 weeks
ended March 28, 1999.
Net cash provided by investing activities was $0.3 million for the 13
weeks ended March 26, 2000 compared to net cash provided by investing activities
of $0.4 million for the 13 weeks ended March 28, 1999.
Net cash provided by financing activities was $9,000 in the 13 weeks
ended March 26, 2000 compared to a net use of $182,000 for the 13 weeks ended
March 28, 1999. In addition, we have a $7.5 million line of credit agreement
with a financial institution. As of March 26, 2000, there were no borrowings
against the line of credit.
Our principal uses of cash in 2000 were the development and opening of
new restaurants and the purchase of investments from the net proceeds of our
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initial public offering. We incurred $3.0 million in capital expenditures during
the 13 weeks ended March 26, 2000, of which $2.7 million was for new unit
openings and $0.2 million was for maintenance expenditures on existing locations
and $0.1 million for corporate expenditures. During the 13 weeks ended March 28,
1999, we incurred $2.6 million in capital expenditures, of which $1.8 million
was for new unit openings, $0.4 million was for existing locations and $0.4
million was for corporate expenditures and point-of-sale remodels.
We believe that the proceeds from the initial public offering completed
in May 1999 together with anticipated cash flow from operations and funds
anticipated to be available from a credit facility will be sufficient to satisfy
our working capital requirements for at least the next 12 months. We plan to
incur substantial costs over the near term in connection with our expansion
program. Changes in our operating plans, acceleration of our expansion plans,
lower than anticipated sales, increased expenses, potential acquisitions or
other events may cause us to seek additional financing sooner than anticipated.
Additional financing may not be available on acceptable terms, or at all.
Failure to obtain additional financing as needed could have a material adverse
effect on our business and results of operations.
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this quarterly report, before you decide
to buy our common stock. If any of the following risks actually occur, our
business would likely suffer. In such case, the trading price of our common
stock could decline, and you may lose all or part of the money you paid to buy
our common stock.
OUR PLANNED EXPANSION INTO NEW GEOGRAPHIC AREAS INVOLVES A NUMBER OF
RISKS WHICH COULD DELAY OR PREVENT THE OPENING OF PLANNED NEW RESTAURANTS.
Almost all of our current restaurants are located in the southwest
region of the United States. Our planned expansion into geographic areas outside
the Southwest involves a number of risks, including:
- uncertainties related to local demographics, tastes and
preferences;
- local custom, wages, costs and other legal and economic conditions
particular to new regions;
- the need to develop relationships with local distributors and
suppliers for fresh produce, fresh tortillas and other ingredients;
- potential difficulties related to management of operations located
in a number of broadly dispersed locations; and
- lack of market awareness or acceptance of our restaurant concept in
new geographic areas.
We may not be successful in addressing these risks. We also may not be
able to open our planned new operations on a timely basis, or at all in these
new areas. Delays in opening or failure to open planned new restaurants outside
the Southwest could have a material adverse effect on our business and results
of operations. We currently anticipate that our new restaurants will take
several months to reach planned operating levels due to inefficiencies typically
associated with expanding into new regions, such as lack of market awareness,
acceptance of our restaurant concept and inability to hire sufficient staff.
IF WE ARE NOT ABLE TO SUCCESSFULLY PURSUE OUR RAPID EXPANSION STRATEGY,
OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED.
We intend to continue to pursue a rapid expansion strategy. Since 1996,
and as of March 26, 2000, we have opened 96 restaurants, 33 restaurants in San
Diego county, 38 restaurants in greater Los Angeles, which includes Los Angeles,
Orange, San Bernardino, Ventura and Riverside counties, 11 restaurants in
Phoenix/Tucson, Arizona, five restaurants in Las Vegas, Nevada, four
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restaurants in Denver, Colorado, three restaurants in Salt Lake City, Utah and
two in the Sacramento, California area. We plan to open 36 restaurants in 2000,
6 of which have been opened to date. Sixteen of the 36 planned 2000 openings are
outside Southern California. Our ability to successfully achieve our expansion
strategy will depend on a variety of factors, many of which are beyond our
control.
These factors include:
- our ability to locate suitable restaurant sites or negotiate
acceptable lease terms;
- our ability to obtain required local, state and federal
governmental approvals and permits related to construction of
the sites, food and alcoholic beverages;
- our dependence on contractors to construct new restaurants in a
timely manner;
- our ability to attract, train and retain qualified and experienced
restaurant personnel and management;
- our ability to operate our restaurants profitably;
- our need for additional capital and our ability to obtain such
capital on favorable terms or at all;
- our ability to respond effectively to the intense competition in
the quick-service restaurant industry; and
- general economic conditions.
If we are not able to successfully address these factors, we may not be
able to expand at a rate currently contemplated by our strategy, and our
business and results of operations may be adversely impacted.
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO SEASONALITY
AND OTHER FACTORS, WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR COMMON
STOCK.
Our business is subject to seasonal fluctuations. Historically, sales
in most of our restaurants have been higher during the second and third quarters
of each fiscal year. As a result, we expect our highest earnings to occur in the
second and third quarters of each fiscal year.
In addition to seasonality, our quarterly and annual operating results
and comparable unit sales may fluctuate significantly as a result of a variety
of factors, including:
- labor costs for our hourly and management personnel, including
increases in federal or state minimum wage requirements;
- fluctuations in food costs, particularly the cost of chicken, beef,
fish, cheese and produce;
- the timing of new restaurant openings and related expenses;
- the amount of sales contributed by new and existing restaurants;
- our ability to achieve and sustain profitability on a quarterly or
annual basis;
- consumer confidence;
- changes in consumer preferences;
- the level of competition from existing or new competitors in the
quick-service restaurant industry;
- factors associated with closing a unit, including payment of the
base rent for the balance of the lease term;
- impact of weather on revenues and costs of food; and
- general economic conditions.
Accordingly, results for any one quarter or for any year are not
necessarily indicative of results to be expected for any other quarter or for
any year. Comparable unit sales for any particular future period may decrease.
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THE RESTAURANT INDUSTRY IS INTENSELY COMPETITIVE AND WE MAY NOT HAVE
THE RESOURCES TO COMPETE ADEQUATELY.
The restaurant industry is intensely competitive. There are many
different segments within the restaurant industry that are distinguished by
types of service, food types and price/value relationships. We position our
restaurants in the high-quality, quick-service Mexican food segment of the
industry. In this segment, our direct competitors include Baja Fresh, La Salsa
and Chipotle. We also compete indirectly with full-service Mexican restaurants
including Chevy's, Chi Chi's and El Torito, and fast food restaurants,
particularly those focused on Mexican food such as Taco Bell and Del Taco.
Competition in our industry segment is based primarily upon food quality, price,
restaurant ambiance, service and location. Although we believe we compete
favorably with respect to each of these factors, many of our direct and indirect
competitors are well-established national, regional or local chains and have
substantially greater financial, marketing, personnel and other resources than
we do. We also compete with many other retail establishments for site locations.
The performance of individual units may also be affected by factors
such as traffic patterns, demographic considerations and the type, number and
proximity of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefit costs and the availability of
experienced management and hourly employees may also adversely affect the
restaurant industry in general and our units in particular.
THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL TO OPERATE
AND MANAGE OUR RESTAURANTS IS EXTREMELY IMPORTANT AND OUR FAILURE TO DO SO COULD
ADVERSELY AFFECT US.
Our success and the success of our individual restaurants depend upon
our ability to attract and retain highly motivated, well-qualified restaurant
operators and management personnel, as well as a sufficient number of qualified
employees, including guest service and kitchen staff, to keep pace with our
expansion schedule. Qualified individuals needed to fill these positions are in
short supply in some geographic areas. Our ability to recruit and retain such
individuals may delay the planned openings of new restaurants or result in
higher employee turnover in existing restaurants, which could have a material
adverse effect on our business or results of operations. We also face
significant competition in the recruitment of qualified employees. In addition,
we are heavily dependent upon the services of our officers and key management
involved in restaurant operations, marketing, finance, purchasing, expansion,
human resources and administration. The loss of any of these individuals could
have a material adverse effect on our business and results of operations. We
currently do not have employment agreements with any of our employees.
OUR RESOURCES MAY BE STRAINED IN IMPLEMENTING OUR BUSINESS STRATEGY.
Our growth strategy will place a strain on our management, financial
and other resources. To manage our growth effectively, we must maintain the
level of quality and service at our existing and future restaurants. We must
also continue to enhance our operational, financial and management systems and
locate, hire, train and retain experienced and dedicated operating personnel,
particularly managers. We may not be able to effectively manage any one or more
of these or other aspects of our expansion. Failure to do so could have a
material adverse effect on our business and results of operations.
WE MAY BE UNABLE TO FUND OUR SUBSTANTIAL WORKING CAPITAL REQUIREMENTS
AND MAY NEED ADDITIONAL FUNDING SOONER THAN WE ANTICIPATE.
We believe that the proceeds from our initial public offering
completed in May 1999 together with anticipated cash flow from operations and
funds anticipated to be available from a credit facility will be sufficient
to satisfy our working capital requirements for at least the next 12 months.
We plan to incur substantial costs over the near-term in connection with our
expansion plans. We may need to seek additional financing sooner than we
anticipate as a result of the following factors:
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- changes in our operating plans;
- acceleration of our expansion plans;
- lower than anticipated sales of our menu offerings;
- increased food and/or labor costs; and
- potential acquisitions.
Additional financing may not be available on acceptable terms, or at all. If we
fail to get additional financing as needed, our business and results of
operations would likely suffer.
UNANTICIPATED COSTS OR DELAYS IN THE DEVELOPMENT OR CONSTRUCTION OF OUR
RESTAURANTS COULD PREVENT OUR TIMELY AND COST-EFFECTIVE OPENING OF NEW
RESTAURANTS.
We depend on contractors and real estate developers to construct our
restaurants. Many factors may adversely affect the cost and time associated with
the development and construction of our restaurants, including:
- labor disputes;
- shortages of materials and skilled labor;
- adverse weather;
- unforeseen engineering problems;
- environmental problems;
- construction or zoning problems;
- local government regulations;
- modifications in design; and
- other unanticipated increases in costs.
Any of these factors could give rise to delays or cost overruns which
may prevent us from developing additional restaurants within our anticipated
budgets or time periods. Any such failure could have a material adverse effect
on our business and results of operations.
OUR RESTAURANTS ARE CONCENTRATED IN THE SOUTHWEST REGION OF THE UNITED
STATES, AND THEREFORE, OUR BUSINESS IS SUBJECT TO FLUCTUATIONS IF ADVERSE
BUSINESS CONDITIONS OCCUR IN THAT REGION.
As of March 26, 2000 all but seven of our existing restaurants are
located in the southwest region of the United States. Accordingly, we are
susceptible to fluctuations in our business caused by adverse economic or other
conditions in this region, including natural or other disasters. Our significant
investment in, and long-term commitment to, each of our units limits our ability
to respond quickly or effectively to changes in local competitive conditions or
other changes that could affect our operations. In addition, some of our
competitors have many more units than we do. Consequently, adverse economic or
other conditions in a region, a decline in the profitability of several existing
units or the introduction of several unsuccessful new units in a geographic area
could have a more significant effect on our results of operations than would be
the case for a company with a larger number of restaurants or with more
geographically dispersed restaurants.
OUR FAILURE OR INABILITY TO ENFORCE OUR TRADEMARKS AND TRADE NAMES
COULD ADVERSELY AFFECT OUR EFFORTS TO ESTABLISH BRAND EQUITY.
Our ability to successfully expand our concept will depend on our
ability to establish and maintain "brand equity" through the use of our
trademarks, service marks, trade dress and other proprietary intellectual
property, including our name and logos. We currently hold three trademarks and
have seven service marks relating to our brand. Some or all of the rights in our
intellectual property may not be enforceable, even if registered, against any
prior users of similar intellectual property or our competitors who seek to
utilize similar intellectual property in areas where we operate or intend to
conduct operations. If we fail to enforce any of our intellectual property
rights, we may be unable to capitalize on our efforts to establish brand equity.
It is also possible that we will encounter claims from prior users of similar
intellectual property in areas where we operate or intend to conduct
14
<PAGE>
operations. Claims from prior users could limit our operations and possibly
cause us to pay damages or licensing fees to a prior user or registrant of
similar intellectual property.
IF WE ARE NOT ABLE TO ANTICIPATE AND REACT TO OUR FOOD AND LABOR COSTS,
OUR PROFITABILITY COULD BE ADVERSELY AFFECTED.
Our restaurant operating costs principally consist of food and labor
costs. Our profitability is dependent on our ability to anticipate and react to
changes in food and labor costs. Various factors beyond our control, including
adverse weather conditions and governmental regulation, may affect our food
costs. We may not be able to anticipate and react to changing food costs,
whether through our purchasing practices, menu composition or menu price
adjustment in the future. In the event that food and labor price increases cause
us to increase our menu prices, we face the risk that our guests will choose to
patronize lower-cost restaurants. Failure to react to changing food costs or to
retain guests if we are forced to raise menu prices could have a material
adverse effect on our business and results of operations.
A substantial number of our employees are subject to various minimum
wage requirements. Many of our employees work in restaurants located in
California and receive salaries equal to or slightly greater than the California
minimum wage. Effective March 1, 1998, the minimum wage in California increased
to $5.75 per hour from $5.15. Similar proposals may come before legislators or
voters in other jurisdictions in which we operate or seek to operate. Such
minimum wage increases could have a material adverse effect on our business and
results of operations.
AS A RESTAURANT SERVICE PROVIDER, WE COULD BE SUBJECT TO ADVERSE
PUBLICITY OR CLAIMS FROM OUR GUESTS.
We may be the subject of complaints or litigation from guests alleging
food-related illness, injuries suffered on the premises or other food quality,
health or operational concerns. Adverse publicity resulting from such
allegations may materially affect us and our restaurants, regardless of whether
such allegations are true or whether we are ultimately held liable. We may also
be the subject of complaints or allegations from current, former or prospective
employees from time to time. A lawsuit or claim could result in an adverse
decision against us that could have a material adverse effect on our business
and results of operations.
WE MAY NOT BE ABLE TO OBTAIN AND MAINTAIN STATE AND LOCAL PERMITS
NECESSARY TO OPERATE OUR UNITS.
The failure to maintain necessary licenses, permits or approvals,
including food and alcoholic beverage licenses, or to comply with other
government regulations could have a material adverse effect on our business and
results of operations. In addition, difficulties or failures in obtaining
required licenses and approvals will result in delays in, or cancellations of,
the opening of new units. Restaurants are subject to licensing and regulations
by state and local health, environmental, labor relations, sanitation, building,
zoning, land use and environmental regulations. There can be no assurance that
we will be able to obtain necessary variances or other approvals on a
cost-effective and timely basis in order to construct and develop units in the
future. Changes in any or all of these laws or regulations, such as
government-imposed paid leaves of absence or mandated health benefits, could
have a material adverse effect on our business and results of operations.
OUR CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE
AGAINST CLAIMS.
There are types of losses we may incur that may be uninsurable or that
we believe are not economically insurable, such as losses due to earthquakes and
other natural disasters. In view of the location of many of our existing and
planned units, our operations are particularly susceptible to damage and
disruption caused by earthquakes. Further, we do not currently maintain any
insurance coverage for employee-related litigation or the effects of adverse
15
<PAGE>
publicity. In addition, punitive damage awards are generally not covered by
insurance. We may also be subject to litigation which, regardless of the
outcome, could result in adverse publicity and damages. Such litigation, adverse
publicity or damages could have a material adverse effect on our business and
results of operations.
WE ARE CURRENTLY INITIATING A FRANCHISING PROGRAM. WE MAY BE
UNSUCCESSFUL IN EXECUTING THIS PROGRAM.
We are planning to use a franchise strategy in selected markets. Our
failure to successfully execute a franchising program could adversely affect our
business and results of operations. We have not used franchising to date and may
not be successful in implementing a franchise program in the future. We have
established preliminary criteria to evaluate prospective franchisees. We may be
unable to identify and attract franchisees that have the business abilities or
access to financial resources necessary to open our restaurants or to
successfully develop or operate our restaurants in their franchise areas in a
manner consistent with our criteria and standards.
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE OUR
STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales
by our existing stockholders of a large number of shares of our common stock in
the market or the perception that such sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate.
OUR COMMON STOCK MAY NOT DEVELOP AN ACTIVE, LIQUID TRADING MARKET.
We only recently completed our initial public offering. Prior to this
offering, there was no public market for our common stock. We cannot predict
whether an active trading market in our common stock will develop or how liquid
that market might become.
THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET
VOLATILITY.
The stock market has experienced extreme price and volume fluctuations.
The trading price of our common stock could be subject to wide fluctuations in
response to a number of factors, including:
- - fluctuations in our quarterly or annual results of operations;
- - changes in published earnings estimates by analysts and whether our
earnings meet or exceed such estimates;
- - additions or departures of key personnel; and
- - changes in overall stock market conditions, including the stock prices of
other restaurant companies.
In the past, companies that have experienced volatility in the market
price of their stock have been the object of securities class action litigation.
If we were subject to securities class action litigation, it could result in
substantial costs and a diversion of our management's attention and resources.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS MAY CONFLICT WITH YOUR
INTERESTS.
As of March 26, 2000, the executive officers, directors and entities
affiliated with them, in the aggregate, beneficially own approximately 36.4% of
our outstanding common stock. These stockholders are able to exercise control
over all matters requiring approval by our stockholders, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company.
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ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW
COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.
The anti-takeover provisions in our certificate of incorporation, our
bylaws and Delaware law could make it more difficult for a third party to
acquire us. As a result of these provisions, we could delay, deter or prevent a
takeover attempt or third party acquisition that our stockholders consider to be
in their best interest, including a takeover attempt that results in a premium
over the market price for the shares held by our stockholders.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposures are related to our cash, cash equivalents and
investments. We invest our excess cash in highly liquid short-term investments
with maturities of less than one year and corporate bonds, mortgage-backed
securities, commercial paper, tax free municipals, municipal bonds, U.S.
Treasury notes and agencies with maturities in excess of one year. These
investments are not held for trading or other speculative purposes. Changes in
interest rates affect the investment income we earn on our investments and,
therefore, impact our cash flows and results of operations.
In addition, we have a $7.5 million line of credit agreement with a
financial institution. Interest on the line is calculated on either a bank
reference rate plus 0.75% or on an adjusted LIBOR plus 3.0% per annum. However,
there currently is no outstanding balance under this agreement. Should we draw
on this line in the future, changes in interest rates would affect the interest
expense on these loans and, therefore, impact our cash flows and results of
operations.
Many of the food products purchased by us are affected by changes in
weather, production, availability, seasonality and other factors outside our
control. In an effort to control some of this risk, we have entered into some
fixed price purchase commitments with terms of less than a year. In addition, we
believe that almost all of our food and supplies are available from several
sources, which helps to control food commodity risks.
17
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) The registration statement on Form S-1 filed by us with the SEC in
connection with our initial public offering (File No. 333-75087) as amended, was
declared effective by the SEC on May 20, 1999. Our net proceeds after deducting
the total expenses was approximately $23.4 million. Subsequent to our initial
public offering, as disclosed in our initial public offering prospectus, a
portion of the offering proceeds were used to repay the remaining $1.5 million
balance of our term loan agreement with a financial institution. The remaining
proceeds have conformed with our intended use outlined in the prospectus. We
currently have approximately $13 million remaining from our initial public
offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 3.1 (1) Amended and Restated Certificate of Incorporation
3.2 (1) Restated Bylaws
10.1 (2) Agreement between us and Alliant Food Services, Inc.,
dated January 21, 2000.
27.1 Financial Data Schedule
-------------------------------------------------------------------
(1) Filed as an exhibit to Registrant's Registration Statement on
Form S-1, and incorporated herein by reference.
(2) Certain confidential portions of this exhibit were omitted by
marking such portions with asterisks (the "Mark"). This
exhibit has been filed separately with the Secretary of
the Commission without the Mark pursuant to the
Company's Application Requesting Confidential Treatment.
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during the
13 weeks ended March 26, 2000.
18
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 9, 2000 RUBIO'S RESTAURANTS, INC.
/s/ Joseph N. Stein
---------------------------------------------
Joseph N. Stein
Chief Strategic and Financial Officer
(Principal Financial and Accounting Officer)
19
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<PAGE>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 26, 2000 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 26, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> DEC-27-1999
<PERIOD-END> MAR-26-2000
<CASH> 4,526
<SECURITIES> 6,641
<RECEIVABLES> 527
<ALLOWANCES> 0
<INVENTORY> 1,046
<CURRENT-ASSETS> 13,876
<PP&E> 30,008
<DEPRECIATION> (9,261)
<TOTAL-ASSETS> 50,598
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0
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<COMMON> 9
<OTHER-SE> 43,399
<TOTAL-LIABILITY-AND-EQUITY> 50,598
<SALES> 19,929
<TOTAL-REVENUES> 19,929
<CGS> 5,865
<TOTAL-COSTS> 19,680
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<INCOME-TAX> (180)
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