<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended April 20, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 1-10576
SANTA BARBARA RESTAURANT GROUP, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter.)
DELAWARE 33-0403086
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
360 S. HOPE AVENUE, SUITE C300
SANTA BARBARA, CALIFORNIA 93105
---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE: (805) 563-3644
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
--- ---
As of May 25, 2000, the registrant had 18,509,987 shares outstanding of
its Common Stock, $.08 par value.
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SANTA BARBARA RESTAURANT GROUP, INC.
INDEX TO FORM 10-Q
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets at April 20, 2000
and December 30, 1999............................................... 3
Condensed Consolidated Statements of Operations for the sixteen
weeks ended April 20, 2000 and April 22, 1999 ...................... 4
Condensed Consolidated Statements of Cash Flows for the sixteen
weeks ended April 20, 2000 and April 22, 1999....................... 5
Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................... 13
Item 6. Exhibits and Reports on Form 8-K.................................... 13
Signature................................................................... 13
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
SANTA BARBARA RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 20, December 30,
2000 1999
--------- ------------
(Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................. $ 3,279 $ 3,371
Short-term investments .................................... 830 1,065
Accounts receivable, net of allowance for doubtful accounts
of $411,000 in 2000 and $338,000 in 1999 ................ 1,619 1,794
Current portion of notes receivable ....................... 691 700
Current portion of related party notes receivable ......... 1,913 2,006
Inventories ............................................... 1,540 1,476
Current deferred tax assets ............................... 1,300 1,300
Prepaid expenses .......................................... 319 617
Other current assets ...................................... 633 594
-------- --------
Total current assets ............................. 12,124 12,923
Property and equipment, net ................................... 38,139 38,015
Property under capital leases, net ............................ 4,219 4,477
Investments in affiliated companies ........................... 1,479 2,637
Notes receivable, net ......................................... 1,001 1,035
Related party notes receivable, net ........................... 100 100
Costs in excess of net assets of businesses acquired, net of
accumulated amortization of $1,004,000 in 2000 and $764,000
in 1999 ..................................................... 30,066 30,217
Deferred tax assets ........................................... 555 555
Other assets .................................................. 1,985 2,047
-------- --------
$ 89,668 $ 92,006
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt .................... $ 1,249 $ 1,252
Current portion of capital lease obligations .............. 934 960
Accounts payable and accrued expenses ..................... 5,854 7,125
Accrued salaries, wages and employee benefits ............. 3,772 3,698
Other current liabilities ................................. 5,656 5,946
-------- --------
Total current liabilities ........................ 17,465 18,981
Long-term debt, less current installments ..................... 5,236 5,030
Capital lease obligations, less current portion ............... 4,409 4,708
Other long-term liabilities ................................... 4,732 5,345
Shareholders' equity:
Common stock, $.08 par value, authorized 50,000,000 shares;
20,736,330 shares issued and 18,554,387 and 18,590,878
outstanding in 2000 and 1999, respectively ............... 1,659 1,659
Additional paid in capital .................................. 73,617 73,617
Less cost of treasury stock, 2,181,943 and 2,145,452 shares
in 2000 and 1999, respectively ........................... (3,720) (3,671)
Accumulated deficit ......................................... (13,730) (13,663)
-------- --------
Total shareholders' equity ....................... 57,826 57,942
-------- --------
$ 89,668 $ 92,006
======== ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
3
<PAGE> 4
SANTA BARBARA RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Sixteen Weeks Sixteen Weeks
Ended Ended
April 20, 2000 April 22, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Restaurant operations .......................... $ 40,999 $ 29,648
Franchised restaurants ......................... 1,207 945
Other .......................................... 112 145
-------- --------
Total revenues ............................... 42,318 30,738
-------- --------
Restaurant operating costs:
Food and packaging ............................. 13,186 9,906
Payroll and other employee benefits ............ 13,477 9,993
Occupancy and other operating costs ............ 9,548 6,447
-------- --------
Total restaurant operating costs ............. 36,211 26,346
-------- --------
Advertising .................................... 1,314 968
Pre-opening expense ............................ 77 171
General and administrative ..................... 3,577 2,593
-------- --------
Total ........................................ 4,968 3,732
-------- --------
Operating income ............................... 1,139 660
Interest expense ............................... (300) (145)
Other income (expense), net .................... (932) 141
-------- --------
Income (loss) before income taxes .............. (93) 656
Income tax expense (benefit) ................... (26) 189
-------- --------
Net income (loss) .............................. $ (67) $ 467
======== ========
Basic net income (loss) per share ................ $ (.01) $ .03
======== ========
Diluted net income (loss) per share .............. $ (.01) $ .03
======== ========
Basic weighted average shares outstanding......... 18,486 15,283
======== ========
Diluted weighted average shares outstanding ...... 18,486 15,505
======== ========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
4
<PAGE> 5
SANTA BARBARA RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Sixteen Weeks Sixteen Weeks
Ended Ended
April 20, 2000 April 22, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ (67) $ 467
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:
Depreciation and amortization ......................... 1,930 1,245
Loss on investments in affiliated companies ........... 1,169 68
Changes in operating assets and liabilities:
Accounts receivable ................................... 175 (147)
Inventory, prepaids and other current assets .......... 195 118
Accounts payable and accrued expenses ................. (1,271) 1,319
Accrued salaries, wages and employee benefits ......... 74 (219)
Other current liabilities ............................. (290) (818)
------- -------
Net cash provided by operating activities ................ 1,915 2,033
------- -------
Cash flows from investing activities:
Proceeds from maturity of short-term investments ........... 245 --
Purchases of short-term investments ........................ (10) (478)
Issuance of related party notes receivable ................. -- (1,946)
Collection on related party and notes receivable ........... 136 44
Net change in other assets ................................. (31) 167
Purchases of property and equipment ........................ (1,563) (1,218)
------- -------
Net cash used in investing activities ................... (1,223) (3,431)
------- -------
Cash flows from financing activities:
Repayment of capital lease obligations ..................... (325) (279)
Repayment of revolving line of credit and long-term debt ... (297) (12)
Proceeds from long-term borrowings ......................... 500 --
Purchase of treasury stock ................................. (49) --
Net change in other long-term liabilities .................. (613) (522)
------- -------
Net cash used in financing activities ................... (784) (813)
------- -------
Net decrease in cash and cash equivalents .................... (92) (2,211)
Cash and cash equivalents at beginning of period ............. 3,371 7,043
------- -------
Cash and cash equivalents at end of period ................... $ 3,279 $ 4,832
======= =======
Supplemental information:
Cash paid during the period for:
Interest ................................................ $ 271 $ 134
Income taxes ............................................ $ 1 $ 8
Non cash investing and financing activities:
Issuance of common stock to acquire related party notes
receivable ............................................ $ -- $ 2,646
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
5
<PAGE> 6
SANTA BARBARA RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. COMPANY
Santa Barbara Restaurant Group, Inc., a Delaware corporation, and subsidiaries
(the "Company") is engaged in the food service industry. Information relating to
periods ending prior to July 15, 1999 included in this report relates to the
historical operations of the Company and, except as otherwise indicated, does
not reflect the operations of La Salsa, Inc. ("La Salsa") which the Company
acquired on July 15, 1999 in a purchase business combination. At April 20, 2000,
the Company operated 52 JB's restaurants, 24 Timber Lodge Steakhouse
restaurants, six Galaxy Diner restaurants, 48 La Salsa restaurants and five
Green Burrito restaurants. The Company also has 34 Green Burrito stand-alone
franchise restaurants, 214 dual-concept franchise restaurants, 46 La Salsa
franchise restaurants and 30 franchised JB's restaurants for a total of 459
restaurants.
2. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of the
Company and its subsidiaries have been prepared in accordance with generally
accepted accounting principles, the instructions to Form 10-Q and Article 10 of
Regulation S-X. These statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Form 10-K for the year ended December 30, 1999.
In the opinion of management, all adjustments, consisting of normal recurring
adjustments considered necessary for a fair presentation, have been included.
Operating results for interim periods are not necessarily indicative of results
expected for a full year.
Certain prior year amounts in the accompanying condensed consolidated financial
statements have been reclassified to conform with the fiscal 2000 presentation.
3. ACQUISITION OF LA SALSA, INC.
The following table presents selected unaudited pro forma results of operations
for the Company, assuming the La Salsa acquisition had occurred on January 1,
1999. The unaudited pro forma results of operations do not reflect certain cost
savings that management believes may be realized following the acquisition. The
pro forma results of operations are not indicative of the results of operations
of the combined companies that would have occurred had the acquisition occurred
on January 1, 1999, nor are they indicative of future operating results.
Period ended
April 22,
1999
----------------
(Amounts in
thousands except
share and per
share amounts)
Total revenues................................... $39,876
Net income....................................... $ 369
EPS - basic...................................... $ .02
EPS - diluted.................................... $ .02
Weighted averages shares outstanding - basic... 19,782
Weighted average shares outstanding - diluted... 20,004
6
<PAGE> 7
4. SEGMENT AND RELATED INFORMATION
The Company has three reportable segments in fiscal 2000: Family Dining,
Steakhouse and Quick Serve Mexican.
The Family Dining segment includes the Company's JB's and Galaxy Diner
restaurants which serve breakfast, lunch and dinner. The Steakhouse segment is
comprised of Timber Lodge Steakhouse which serves dinner only. The Quick Serve
Mexican segment is comprised of La Salsa and Green Burrito restaurants which are
positioned in the "fast food" segment of the restaurant industry. The Company
evaluates the performance of its operating segments based on income (loss)
before income taxes.
Summarized financial information concerning the Company's reportable segments is
shown in the following table. The corporate assets consist of corporate cash and
cash equivalents, short-term investments, investments in affiliated companies,
corporate notes receivable, and deferred income taxes for all periods presented.
The corporate component of segment profit (loss) before tax includes corporate
general and administrative expenses, interest income and our equity loss
generated from our investments in affiliated companies for all periods
presented. The equity loss generated from our investments in affiliates was $1.2
million in 2000 and $68,000 in 1999. In 1999, the corporate component of segment
profit (loss) before tax also includes $630,000 of costs incurred related to an
attempted acquisition.
<TABLE>
<CAPTION>
Quick
Family Serve
Dining Steakhouse Mexican Corporate Total
------- ---------- ------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Sixteen Weeks Ended April 20, 2000
Revenues............................... $16,457 $13,703 $12,158 $ -- $42,318
Interest income........................ 52 20 3 102 177
Interest expense....................... (113) (14) (173) -- (300)
Depreciation and amortization.......... 652 635 643 -- 1,930
Pre-opening expense.................... -- 77 -- -- 77
Segment profit (loss) before tax....... (410) 731 748 (1,162) (93)
Total assets as of April 20, 2000...... $29,185 $29,188 $25,120 $6,175 $89,668
Sixteen Weeks Ended April 22, 1999
Revenues............................... $17,513 $11,906 $1,319 $ -- $30,738
Interest income........................ 65 15 -- 109 189
Interest expense....................... (145) -- -- -- (145)
Depreciation and amortization.......... 591 578 76 -- 1,245
Pre-opening expense.................... -- 171 -- -- 171
Segment profit (loss) before tax....... 776 429 193 (742) 656
Total assets as of December 30, 1999... $30,666 $29,186 $24,690 $7,464 $92,006
</TABLE>
5. RELATED PARTY NOTES RECEIVABLE
The Company acquired $4.9 million of 13.0% senior secured Checkers Drive-In
Restaurants, Inc. ("Checkers") debt from three unaffiliated parties during the
quarter ended April 22, 1999. First, on March 30, 1999, the Company acquired
$3.0 million of Checkers senior secured debt in exchange for approximately
998,000 unregistered shares of the Company's common stock. The Company recorded
the difference between the fair market value of the Company's common stock and
the stated value of the note receivable as a reduction, or discount, to the note
receivable from Checkers in the amount of $350,000. Second, on April 8, 1999,
the Company acquired, for cash, approximately $1.9 million of Checkers senior
secured debt from two unaffiliated parties. The $4.9 million of 13% senior
secured debt provides for the payment of monthly interest, and the principal
balance is due on April 30, 2000.
7
<PAGE> 8
On April 30, 2000, Checkers paid in full the remaining principal and interest
balance of $2.0 million.
The Company and Checkers share certain officers and directors. Additionally, CKE
Restaurants, Inc. ("CKE") and Fidelity National Financial, Inc., related parties
of the Company, maintain an equity interest in Checkers and/or hold notes
receivable from Checkers.
Additionally, in 1999 the Company issued promissory notes to certain executives
in the total amount of $153,000 which remain outstanding at April 20, 2000.
6. CALCULATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Sixteen Sixteen
Weeks Ended Weeks Ended
April 20, April 22,
2000 1999
----------- -----------
(In thousands, except share
and per share amounts)
<S> <C> <C>
Basic Earnings Per Share:
Numerator
Net income (loss) .................................. $ (67) $ 467
======== ========
Denominator
Weighted average shares outstanding ................ 18,586 15,462
Escrowed restricted shares ......................... (100) (179)
-------- --------
Basic weighted average shares outstanding .......... 18,486 15,283
======== ========
Basic earnings (loss) per share: ................... $ (.01) $ .03
======== ========
Diluted Earnings Per Share:
Numerator
Net income (loss) .................................. $ (67) $ 467
======== ========
Denominator
Basic weighted average shares outstanding .......... 18,486 15,283
Incremental common shares attributable to exercise of:
Escrowed restricted shares ......................... -- 179
Outstanding options ................................ -- 43
-------- --------
-- 222
Diluted weighted average shares outstanding .......... 18,486 15,505
======== ========
Diluted earnings per share ........................... $ (.01) $ .03
======== ========
</TABLE>
8
<PAGE> 9
7. SALE OF JB'S FAMILY RESTAURANTS, INC.
On March 14, 2000, the Company entered into a definitive Stock Purchase
Agreement (the "Agreement") to sell its JB's Family Restaurants, Inc.
subsidiary, the owner and operator of JB's and Galaxy Diner restaurants and
franchisor of JB's restaurants. The transaction, which is subject to certain
conditions including the buyer's receipt of acceptable financing, is scheduled
to close by the end of the third quarter of fiscal 2000. However, there can be
no assurance that the transaction will close in a timely manner, if at all. The
Company is retaining certain liabilities related to the JB's subsidiary.
The sale price is expected to be less than the carrying value of JB's as of the
date of the closing, and as such the transaction, if consummated, may result in
a loss. The Company has entered into the Agreement because it wants to focus its
business on its steakhouse segment and quick-service Mexican segment, which has
grown due to the acquisition of La Salsa. If JB's is not sold pursuant to the
Agreement, the net assets of JB's would be recoverable from operations based
upon current cash forecasts. Additionally, the family dining segment has not
been considered a discontinued operation at this time because certain conditions
to close, as delineated in the Agreement, have yet to occur.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On July 15, 1999, the Company completed the acquisition of La Salsa, Inc. in a
business combination accounted for as a purchase. The following Management's
Discussion and Analysis should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto. The addition
of 52 Company-operated and 45 franchised restaurants associated with the
acquisition are the principal reasons for the significant differences when
comparing results of operations for the quarter ended April 20, 2000 with the
results of operations for the quarter ended April 22, 1999. The comparability of
future periods will also be affected by the aforementioned transactions and may
also from time to time be affected by the implementation of the Company's
acquisition strategy. The costs associated with integrating new restaurants or
underperforming or unprofitable restaurants, if any, acquired or otherwise
operated by the Company, may have a material adverse effect on the Company's
results of operations.
All statements, other than statements of historical fact, included in this Form
10-Q are, or may be deemed to be, "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934. Such forward-looking statements
involve assumptions, known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements contained in this Form
10-Q. Such potential risks and uncertainties include, without limitation,
competitive pricing and other pressures from other restaurant operations,
economic conditions generally and in the Company's primary markets, consumer
spending patterns, perceived quality and value of the Company's products,
availability of capital, cost of labor, food costs, occupancy costs and other
risk factors detailed in other of the Company's filings with the Securities and
Exchange Commission. The forward-looking statements are made as of the date of
this Form 10-Q and the Company assumes no obligation to update the
forward-looking statements or to update the reasons actual results could differ
from those projected in such forward-looking statements. Therefore, readers are
cautioned not to place undue reliance on these forward-looking statements.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total revenues,
unless otherwise indicated, of certain items included in the Company's condensed
consolidated statements of operations for the first quarter of fiscal 2000, and
the first quarter of fiscal 1999.
<TABLE>
<CAPTION>
Sixteen Weeks Sixteen Weeks
Ended April 20, Ended April 22,
2000(1) 1999
--------------- ---------------
<S> <C> <C>
Revenues:
Restaurant operations ............. 96.9% 96.5%
Franchised restaurants and other .. 3.1 3.5
----- -----
Total revenues ................. 100.0 100.0
----- -----
Restaurant operating costs: (2)
Food and packaging ................ 32.2 33.4
Payroll and other employee benefits 32.9 33.7
Occupancy and other operating costs 23.3 21.8
----- -----
88.4 88.9
Advertising (2) ..................... 3.2 3.3
Pre-opening expense (2) ............. 0.2 0.6
General and administrative .......... 8.5 8.4
----- -----
Operating income .................... 2.7 2.1
Interest expense .................... (0.7) (0.5)
Other income (expense), net ......... (2.2) 0.5
Income (loss) before income taxes ... (0.2) 2.1
Income tax expense (benefit) ........ (0.1) 0.6
----- -----
Net income (loss) ................... (0.1)% 1.5%
===== =====
</TABLE>
-----------------
(1) Includes the operating results of La Salsa for the entire first quarter of
fiscal 2000.
(2) As a percentage of revenues from Company-operated restaurants.
Revenues from Company-operated restaurants increased $11.4 million to $41.0
million for the first quarter of fiscal 2000 as compared with revenues of $29.6
million during the first quarter of fiscal 1999. The increase in revenues is
mostly attributable to the addition of La Salsa restaurants as of July 15, 1999
which generated $10.6 million in revenues during the first quarter of fiscal
2000. Additionally, the same store sales of Timberlodge and Green Burrito
restaurants have increased 8.0% and 1.3%, respectively.
Revenues from franchised restaurants increased $262,000 to $1.2 million for the
first quarter of fiscal 2000 as compared with revenues of $945,000 during the
first quarter of fiscal 1999. The increase in revenues from franchised
restaurants is principally due to the addition of $369,000 in royalties earned
by the La Salsa franchise system. The increase generated by the La Salsa
franchise system is offset by decreased franchise fees earned by Green Burrito
due to fewer franchise openings in the first quarter of 2000 compared to the
first quarter of 1999.
Food and packaging costs as a percentage of Company-operated restaurant sales
decreased to 32.2% for the first quarter of fiscal 2000 as compared with 33.4%
during the first quarter of fiscal 1999. The decrease is primarily due to the
addition of La Salsa restaurants in July 1999 which operate with significantly
lower food and packaging costs as a percent of sales as compared to the other
concepts operated by the Company.
Payroll and other employee benefits decreased as a percentage of
Company-operated restaurant sales to 32.9% for the first quarter of fiscal 2000
as compared with 33.7% for the first quarter of fiscal 1999. The decrease is
attributable to the addition of La Salsa in July 1999 which operates with lower
payroll and other employee benefits costs as a percentage of restaurant sales
than either Green Burrito, Timberlodge or JB's.
Occupancy and other operating costs increased as a percentage of
Company-operated restaurant sales to 23.3% for the first quarter of fiscal 2000
as compared with 21.8% for the first quarter of fiscal 1999. The increase in
occupancy and other operating costs is attributable to the addition of La Salsa
in fiscal 1999 which operates with higher occupancy and other costs as a
percentage of restaurant sales than either JB's or Timberlodge.
10
<PAGE> 11
Advertising costs decreased to 3.2% of Company-operated restaurant sales for the
first quarter of fiscal 2000 as compared with 3.3% for the first quarter of
fiscal 1999. The Company has not changed its target spending level of three to
four percent of restaurant sales to be allocated to advertising.
Pre-opening expense decreased $94,000 to $77,000 from $171,000 for the first
quarter of fiscal 2000 compared to the first quarter of 1999. The decrease
relates to the fact that there is only one conversion of a JB's to a Timberlodge
underway during the first quarter of 2000 compared with two conversions in the
first quarter of 1999.
General and administrative expenses were $3.6 million or 8.5% of total revenues
for the first quarter of fiscal 2000 compared to $2.6 million or 8.4% for the
first quarter of 1999. The prior year general and administrative expenses
included a charge of approximately $630,000 for costs incurred by the Company
related to an attempted acquisition. The remaining increase in general and
administrative expense as a percentage of total revenues is attributable to the
addition of La Salsa, which operates with higher general and administrative
expenses as a percentage of sales than the other concepts operated by the
Company.
Interest expense increased as a percentage of total revenues from 0.5% in the
first quarter of 1999 to 0.7% in the first quarter of 2000 due to the addition
of debt related to the La Salsa credit facility.
Other income (expense), net, primarily reflects interest income on invested
cash, short-term investments, notes receivable and the Company's proportionate
share of earnings or losses earned by our equity investments in Checkers and
CKE. The other expense, net in the current quarter relates to recording losses
in the amount of $1.2 million in our investments in affiliates, offset primarily
by interest income earned on invested cash and notes receivable.
YEAR 2000
The Company has addressed the potential business risks associated with the Year
2000. The Year 2000 issue involved the use of a two-digit year field instead of
a four-digit year field in computer systems. If computer systems cannot
distinguish between the year 1900 and the year 2000, system failures or other
computer errors could result. To date, the Company is not aware of the
occurrence of any significant Year 2000 problems being reported. Some business
risks associated with the Year 2000 issue may remain throughout 2000. However,
it is not anticipated that future Year 2000 issues, if any, will have a material
adverse effect on the Company.
EFFECT OF INFLATION
Food and labor costs are significant inflationary factors in the Company's
operations. Many of the Company's employees are paid hourly rates related to the
statutory minimum wage; therefore, increases in the minimum wage increase the
Company's costs. In addition, most of the Company's leases require it to pay
base rents with escalation provisions based on the consumer price index, in
addition to percentage rentals based on revenues, and to pay taxes, maintenance,
insurance, repairs, and utility costs, all of which are expenses subject to
inflation. The Company has generally been able to offset the effects of
inflation to date through small menu price increases. There can be no assurance
that the Company will be able to continue to offset the effects of inflation
through menu price increases.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, and hedging activities. SFAS
133, as amended by SFAS 137, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company has not determined whether the
application of this accounting standard will have a material impact on its
financial position, results of operations or liquidity.
11
<PAGE> 12
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin 101 ("SAB101") "Revenue Recognition in Financial Statements." This
Staff Accounting Bulletin summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company does not expect the adoption of SAB101 to have a
material impact on the Company's consolidated results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $3.3 million at April 20, 2000 and
$3.4 million at December 30, 1999. The decrease in cash and cash equivalents is
primarily due to the use of approximately $1.6 million to fund purchases of
equipment and other capital improvements and $784,000 utilized in financing
activities partially offset by $1.9 million provided by operating activities and
$245,000 in proceeds received from the maturity of certain short-term
investments.
Net cash provided by operating activities was $1.9 million during the first
quarter of fiscal 2000 which included a decrease in accounts payable and accrued
expenses of $1.3 million partially offset by the current quarter depreciation
and amortization expense of $1.9 million, as well as $1.2 million in non-cash
losses recorded in our investments in affiliated companies. Investing activities
required the Company to use $1.2 million in cash to fund $1.6 million of capital
additions offset by proceeds from the maturity of short-term investments of
$245,000. Financing activities required the Company to use $0.6 million of cash
to reduce other long-term liabilities and $0.6 million of cash to repay capital
lease obligations and long-term debt, partially offset by current borrowings of
$500,000.
During the first quarter of 2000, the Company started the final conversion of
one under-performing JB's restaurant to the Timber Lodge Steakhouse concept at
an anticipated conversion cost of approximately $1.0 million including
pre-opening costs. The Company also re-imaged seven La Salsa restaurants during
the first quarter of fiscal 2000 at an average cost of approximately $65,000 per
restaurant. The Company plans to open up to three new Timber Lodge Steakhouse
restaurants in Minnesota and North Dakota during fiscal 2000 which will require
the use of approximately $4.9 million of cash. The Company also plans to open
one new La Salsa restaurant at a cost of approximately $350,000 and re-image up
to eleven additional La Salsa restaurants at an average cost of approximately
$65,000 per restaurant during fiscal 2000.
The Company believes it will be able to meet its working capital requirements
through its cash flows from operations or through borrowings from its existing
credit facility. The Company may require additional funds to support its working
capital requirements or for other purposes, including acquisitions, and may seek
to raise such additional funds through public or private equity and/or debt
financings, the sale of assets or from other sources. In addition, substantially
all of the real properties owned by the Company and used for its restaurant
operations are unencumbered and could be used by the Company as collateral for
debt financing; however, there can be no assurance that real estate financing or
other financing will be available or that, if available, such financing will be
obtainable on terms favorable to the Company.
MARKET RISK
The Company maintains investments in the publicly-traded common stock of certain
affiliated companies. The fair value of these securities at April 20, 2000 was
$1.6 million. The potential loss in fair value, using hypothetical 10% and 20%
declines in prices, is estimated to be approximately $160,000 and $320,000,
respectively. Such loss in fair value would not impact the Company's financial
position, results of operations or cash flows, unless the Company liquidated
their investments in affiliated companies, as such investments are accounted for
under the equity method of accounting. Accordingly, such investments will not be
adjusted to market value unless an other than temporary impairment exists.
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<PAGE> 13
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 2000, the Company settled the lawsuit involving its Green Burrito
subsidiary entitled Jack E. Brown, et al. v. Santa Barbara Restaurant Group,
Inc. Pursuant to the settlement, the plaintiffs in the action will re-image
their Green Burrito restaurants as "Grill" restaurants, with a yet to be
determined new name, which emphasizes charbroiled, authentic Mexican food. The
plaintiffs will also receive specified royalty reductions and be eligible for
loans from the Company to pay up to $27,500 of the costs for re-imaging each of
their units and up to $7,500 to pay attorney fees. The Company also committed to
offering the same proposal to the operators of the 35 other free standing Green
Burrito units to incentivize them to re-image their restaurants in the same
manner. The Company also intends to appoint Robert Hall, one of the Company's
largest Green Burrito franchisees, and Ruben Rodriquez, the original founder of
the Green Burrito concept, to the Board of Directors of the Company's
subsidiary, Green Burrito Franchise Corporation, to help spearhead the changes
to the restaurants and menu.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 11 -- Calculation of Earnings per Share
Exhibit 27 -- Financial Data Schedule (included in electronic filing
only)
(b) Current Reports on Form 8-K:
(i) None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Santa Barbara Restaurant Group, Inc.
(Registrant)
Date: June 5, 2000 By: /s/ TED ABAJIAN
--------------------------------
Ted Abajian
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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