UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-20716
TACO CABANA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2201241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217
(Address of principal executive offices)
Telephone Number (210) 804-0990
(Registrant's telephone number, including area code)
- - -------------------------------------------------------------
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days:
Yes X No
----- -----
Indicate the number of shares of each of the
issuer's classes of common stock as of the latest
practicable date:
Class Outstanding at May 1, 1996
----- --------------------------
Common Stock 15,687,162 shares
TACO CABANA, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at March 31, 1996 2
and December 31, 1995
Condensed Consolidated Statements of Income for the 3
Thirteen Weeks Ended March 31, 1996 and April 2, 1995
Condensed Consolidated Statements of Cash Flows for the 4
Thirteen Weeks Ended March 31, 1996 and April 2, 1995
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since the registrant
has no reportable events in relation to the items
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
TACO CABANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1996 1995
--------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,840,000 $ 2,749,000
Receivables, net 1,468,000 1,376,000
Inventory 1,762,000 1,846,000
Prepaid expenses 1,539,000 1,700,000
Pre-opening costs, net 189,000 500,000
Income taxes receivable 2,786,000 2,777,000
Deferred income taxes 676,000 497,000
----------- -----------
Total current assets 11,260,000 11,445,000
PROPERTY AND EQUIPMENT, net 87,067,000 87,695,000
NOTES RECEIVABLE, net 621,000 780,000
INTANGIBLE ASSETS, net 46,636,000 47,038,000
OTHER ASSETS 921,000 934,000
INVESTMENT IN JOINT VENTURE 936,000 686,000
----------- -----------
TOTAL $147,441,000 $148,578,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,500,000 $ 5,409,000
Accrued liabilities 2,477,000 3,864,000
Current maturities of long-term debt
and capital leases 2,128,000 2,074,000
Line of credit 2,916,000 2,186,000
----------- -----------
Total current liabilities 12,021,000 13,533,000
LONG-TERM OBLIGATIONS, net of current
maturities:
Capital leases 4,195,000 4,242,000
Long-term debt 10,288,000 10,788,000
----------- -----------
Total long-term obligations 14,483,000 15,030,000
----------- -----------
ACQUISITION LIABILITIES 4,577,000 4,888,000
DEFERRED LEASE PAYMENTS 796,000 935,000
DEFERRED INCOME TAXES 2,497,000 1,865,000
STOCKHOLDERS' EQUITY:
Common stock 157,000 157,000
Additional paid-in capital 96,960,000 96,954,000
Retained earnings 15,950,000 15,216,000
----------- -----------
Total stockholders' equity 113,067,000 112,327,000
----------- -----------
TOTAL $147,441,000 $148,578,000
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
March 31, April 2,
1996 1995
--------- --------
REVENUES:
Restaurant sales $31,119,000 $32,065,000
Franchise fees and royalty income 145,000 772,000
---------- ----------
Total revenues 31,264,000 32,837,000
---------- ----------
COSTS AND EXPENSES:
Restaurant cost of sales 9,702,000 10,374,000
Labor 8,176,000 8,478,000
Occupancy 2,051,000 2,024,000
Other restaurant operating costs 5,658,000 6,254,000
General and administrative 1,732,000 1,397,000
Depreciation and amortization 2,367,000 2,443,000
---------- ----------
Total costs and expenses 29,686,000 30,970,000
---------- ----------
INCOME FROM OPERATIONS 1,578,000 1,867,000
---------- ----------
INTEREST EXPENSE, NET (412,000) (220,000)
---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 1,166,000 1,647,000
---------- ----------
PROVISION FOR INCOME TAXES (432,000) (609,000)
---------- ----------
NET INCOME $ 734,000 $ 1,038,000
========== ==========
NET INCOME PER SHARE $ 0.05 $ 0.07
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 15,867,382 15,746,087
========== ==========
See notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
March 31, April 2,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 734,000 $ 1,038,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,367,000 2,443,000
Deferred income taxes 453,000 (217,000)
Changes in operating working capital
items (2,406,000) (2,854,000)
---------- ----------
Net cash provided by operating activities 1,148,000 410,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,050,000) (9,728,000)
Investment in joint venture (250,000) -
---------- ----------
Net cash used for investing activities (1,300,000) (9,728,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
and draws on line of credit 730,000 6,500,000
Principal payments under long-term debt (446,000) (209,000)
Principal payments under capital leases (47,000) (39,000)
Exercise of stock options 6,000 9,000
---------- ----------
Net cash provided by financing activities 243,000 6,261,000
---------- ----------
NET INCREASE (DECREASE) IN CASH 91,000 (3,057,000)
CASH AND CASH EQUIVALENTS, beginning of
period 2,749,000 7,275,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 2,840,000 $ 4,218,000
========== ==========
See notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Principles of Consolidation - The consolidated financial
statements include all accounts of Taco Cabana, Inc. and its
wholly-owned subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated.
The unaudited Condensed Consolidated Financial Statements
include all adjustments, consisting of normal, recurring
adjustments and accruals, which the Company considers
necessary for fair presentation of financial position and
the results of operations for the periods presented. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or
omitted. The interim financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
2. Special Charge
During the second quarter of 1995, the Company recorded a
reserve for notes and other receivables of $3.5 million and
a special charge of $8.1 million. The charges were the
result of a comprehensive review of the operations of the
Company performed by management during the second quarter of
1995 and included approximately $2.6 million for market
value adjustments resulting from a decision to close six
Company-owned restaurants (including one mall unit). As of
March 31, 1996, all of the identified restaurants had been
closed.
3. Earnings per Share
Net income per share has been computed by dividing net
income by the weighted average number of common shares
outstanding during each period. Common stock equivalent
shares, which relate to stock options, are included in the
weighted average when the effect is dilutive.
4. Supplemental Disclosure of Cash Flow Information
Thirteen Weeks Ended
----------------------
March 31, April 2,
1996 1995
--------- --------
(Unaudited) (Unaudited)
Cash paid for interest $ 337,000 $ 240,000
Interest capitalized on construction
costs - 72,000
Notes receivable acquired in
exchange for property, plant
and equipment - 1,286,000
5. Litigation
On September 13, 1995, a shareholder class action lawsuit
was filed in the federal district court in San Antonio,
Texas. The lawsuit names several of the current and former
officers, directors and principal stockholders of the
Company and underwriters of certain of the Company's public
offerings.
The lawsuit alleges that the defendants violated federal
securities laws by alleged misrepresentations which the
plaintiffs claim were designed to artificially inflate the
Company's stock price. The suit alleges that the defendants
misrepresented the condition of the Company's business,
principally with regard to the success of its acquisition of
Two Pesos restaurants, its future earnings prospects, and
its declining sales volume. The allegations cover the time
period from April 8, 1993 to September 17, 1994, including
public offerings of the Company's stock on July 7, 1993 and
December 7, 1993. The complaint seeks compensatory damages
and other relief allowed by law.
The Company believes that the allegations in the lawsuit are
without merit, and intends to vigorously defend against
them. The Company and individual defendants have filed
answers denying the claims. Concurrently, a counterclaim
and a motion for sanctions alleging that the complaint is
frivolous, requesting that the complaint be dismissed and
that the Court award sanctions against the plaintiffs was
filed.
While this action is in the early stages and it is not
possible at this time to determine the outcome of the
lawsuit or the potential effect of its resolution on the
Company's financial position or operating results, the
Company believes its defenses have merit.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company commenced operations in 1978 with the opening of
the first Taco Cabana restaurant in San Antonio. As of May
1, 1996, the Company had 104 Company-owned restaurants and 25
franchised restaurants. The Company's revenues are derived
primarily from sales by Company-owned restaurants, with
franchise fees and royalty income contributing less than 1%
of total revenues for the first quarter of the 1996 fiscal
year.
During the second quarter of 1995, the Company recorded a
reserve for notes and other receivables of $3.5 million and
a special charge of $8.1 million. The charges were the
result of a comprehensive review of the operations of the
Company performed by management during the second quarter of
1995 and included approximately $2.6 million for market
value adjustments resulting from a decision to close six
Company-owned restaurants (including one mall unit). As of
March 31, 1996, all of the identified restaurants had been
closed.
During the thirteen weeks ended March 31, 1996, the Company
closed two Company-owned restaurants and a franchisee of the
Company, in which the Company has a joint-venture interest,
opened one restaurant.
The following table sets forth for the periods indicated the
percentage relationship to total revenues, unless otherwise
indicated, of certain income statement data. The table also
sets forth certain restaurant data for the periods
indicated.
Thirteen Weeks Ended
--------------------
March 31, April 2,
1996 1995
--------- --------
Income Statement Data:
REVENUES:
Restaurant sales 99.5% 97.7%
Franchise fees and royalty income .5 2.3
----- -----
Total revenues 100.0% 100.0%
===== =====
COSTS AND EXPENSES:
Restaurant cost of sales (1) 31.2 32.4
Labor (1) 26.3 26.4
Occupancy (1) 6.6 6.3
Other restaurant operating
costs (1) 18.2 19.5
General and administrative
costs 5.5 4.3
Depreciation and amortization 7.6 7.4
INCOME FROM OPERATIONS 5.0 5.7
INTEREST EXPENSE (1.3) (.7)
----- -----
INCOME BEFORE INCOME TAXES 3.7 5.0
PROVISION FOR INCOME TAXES (1.4) (1.8)
----- -----
NET INCOME 2.3% 3.2%
===== =====
Restaurant Data:
Company-owned restaurants:
Beginning of period 106 104
Opened - 5
Sold (Refranchised) - (3)
Closed (2) -
----- -----
End of period 104 106
Franchised restaurants:
End of period 25 26
----- -----
Total restaurants:
End of period 129 132
===== =====
(1) Percentage is calculated based upon restaurant sales.
The Thirteen Weeks Ended March 31, 1996 Compared to the
Thirteen Weeks Ended April 2, 1995
Revenues. Restaurant sales decreased by $946,000, or 3.0%,
to $31.1 million for the first quarter of 1996 from $32.1
million for the first quarter in 1995. Sales from
restaurants opened after January 1, 1995 accounted for an
increase of $1.9 million. This increase was offset by sales
from restaurants which were closed after April 2, 1995 of
$1.6 million, as well as a decrease in sales of approximately
$1.2 million for restaurants opened or acquired prior to
January 1, 1995. Management attributes much of this decline
in sales to the cannibalization of revenues at existing
restaurants upon the opening of newer restaurants, increased
levels of competition in the Company's core markets and
inclement weather during the first quarter of 1996.
Franchise and royalty fees decreased by $627,000 to $145,000
for the first quarter of 1996 compared to the first quarter
of 1995, due primarily to decreased revenues related to new
franchise development agreements.
Costs and Expenses. Restaurant cost of sales, calculated as
a percentage of restaurant sales, decreased to 31.2% in the
first quarter of 1996 from 32.4% for the first quarter of
1995. The decrease was due primarily to the negotiation of
favorable commodity prices.
Other restaurant operating costs as a percentage of
restaurant sales decreased to 18.2% in the first quarter of
1996 from 19.5% for same period of 1995. This decrease is
due primarily to management's increased focus on unit level
operations.
General and administrative expenses increased to $1.7
million from $1.4 million, and increased as a percentage of
total revenues to 5.5% for the first quarter of 1996 from
4.3% for the comparable period in 1995. This increase was
primarily attributable to the addition of management,
as well as an increased level of expenditures to support
the Company's operations.
Depreciation and amortization expense consisted of the
following:
Thirteen Weeks Ended
----------------------
March 31, April 2,
1996 1995
--------- --------
(Unaudited) (Unaudited)
Depreciation of property and
equipment $ 1,647,000 $ 1,417,000
Amortization of intangible
assets 404,000 417,000
Amortization of pre-opening
costs 316,000 609,000
Depreciation expense increased by approximately $230,000 for
the quarter ended March 31, 1996 compared to the quarter
ended April 2, 1995. The increase was due to restaurant
openings during 1995. Amortization of pre-opening expenses
decreased by approximately $293,000 in the first quarter of
1996 compared to the first quarter of 1995, due to the
decrease in the number of stores opened during the most
recent twelve-month period compared to the twelve-month
period ended April 2, 1995.
Interest Expense, net. Interest expense, net of interest
capitalized on construction costs, increased to $467,000 in
the first quarter of 1996 from $306,000 in the first quarter
of 1995, primarily as a result of interest expense
associated with usage of the Company's line of credit. No
interest was capitalized during the first quarter of 1996. The
Company earned $55,000 of interest income during the first
quarter of 1996, compared to $86,000 of interest income
during the first quarter of 1995.
Net Income and Earnings Per Share. Net income decreased to
$734,000 for the first quarter of 1996 from $1,038,000 for
the same period in 1995. Net income was 2.3% of total
revenues for the first quarter in 1996 compared to 3.2% in
the first quarter of 1995. Earnings per share was $0.05 for
the first quarter of 1996 compared to $0.07 in the same
period of 1995.
Liquidity and Capital Resources
Historically, the Company has financed business and
expansion activities by using funds generated from operating
activities, build-to-suit leases, equity financing, short
and long-term debt and capital leases. The Company maintains
two secured credit facilities totaling $20 million,
including a $5 million revolving line of credit for
construction or operating funds. As of May 1, 1996, $10.4
million had been used under these facilities.
Net cash provided by operating activities was $1.1 million
for the thirteen weeks ended March 31, 1996, and $410,000
for the thirteen weeks ended April 2, 1995. Net cash used
in investing activities was $1.3 million for the thirteen
weeks ended March 31, 1996, and $9.7 million for the
thirteen weeks ended April 2, 1995.
The special charge recorded in the second quarter of 1995
included an accrual of approximately $1.2 million to record
the estimated monthly lease payments, net of expected
sublease receipts, associated with certain restaurants which
have been closed. Cash requirements for this accrual were
approximately $29,000 in the first quarter of 1996. Several
of the restaurants which have been closed, as well as the
Company's previous corporate offices, are currently for
sale. Although there can be no assurance of the particular
price at which any of such properties will be sold, the
Company will receive funds upon the actual disposition of
these properties. In addition, certain acquisition and
accrued liabilities related to the Two Pesos acquisition
were reduced by payments of approximately $517,000 during
the first quarter of 1996.
The Company believes that existing cash balances, funds
generated from operations, its ability to borrow, and the
possible use of lease financing will be sufficient to meet
the Company's capital requirements through 1996.
Seasonality and Quarterly Results
The Company's sales fluctuate seasonally. Historically, the
Company's highest sales and earnings occur in the second and
third quarters. In addition, quarterly results are affected
by the timing of the opening and closing of stores.
Therefore, quarterly results cannot be used to indicate the
results for the entire year.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the period covered
by this report.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: May 10, 1996 Taco Cabana, Inc.
/s/ David G. Lloyd
-------------------------------
David G. Lloyd
Vice President, Chief Financial
Officer, Secretary and Treasurer
Signing on behalf of the registrant
and as the principal financial and
accounting officer
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