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 30, 1997
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-20716
TACO CABANA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2201241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217
(Address of principal executive offices)
Telephone Number (210) 804-0990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days:
Yes X No
Indicate the number of shares of each of the
issuer's classes of common stock as of the latest
practicable date:
Class Outstanding at May 1, 1997
------------ --------------------------
Common Stock 15,706,537 shares
TACO CABANA, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at March 30, 1997 3
and December 29, 1996
Condensed Consolidated Statements of Income for the 4
Thirteen Weeks Ended March 30, 1997 and March 31, 1996
Condensed Consolidated Statements of Cash Flows for the 5
Thirteen Weeks Ended March 30, 1997 and March 31, 1996
Notes to Condensed Consolidated Financial Statements 6
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 12
Signature 13
TACO CABANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 29, March 30,
1996 1997
------------ ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 748,000 $ 2,028,000
Receivables, net 792,000 891,000
Inventory 1,858,000 2,059,000
Prepaid expenses 1,353,000 1,269,000
Pre-opening costs, net 129,000 232,000
Income taxes receivable 363,000 441,000
Deferred income taxes 1,827,000 2,215,000
----------- -----------
Total current assets 7,070,000 9,135,000
PROPERTY AND EQUIPMENT, net 88,963,000 88,842,000
NOTES RECEIVABLE, net 738,000 617,000
INTANGIBLE ASSETS, net 45,394,000 45,053,000
OTHER ASSETS 541,000 523,000
----------- -----------
TOTAL $142,706,000 $144,170,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,181,000 $ 3,584,000
Accrued liabilities 3,171,000 2,147,000
Current maturities of long-term debt
and capital leases 2,409,000 2,495,000
Line of credit 625,000 3,200,000
----------- -----------
Total current liabilities 10,386,000 11,426,000
LONG-TERM OBLIGATIONS, net of current
maturities:
Capital leases 4,041,000 3,986,000
Long-term debt 6,593,000 5,977,000
----------- -----------
Total long-term obligations 10,634,000 9,963,000
----------- -----------
ACQUISITION LIABILITIES 4,212,000 4,197,000
DEFERRED LEASE PAYMENTS 657,000 475,000
DEFERRED INCOME TAXES 3,645,000 4,381,000
STOCKHOLDERS' EQUITY:
Common stock 157,000 157,000
Additional paid-in capital 97,095,000 97,095,000
Retained earnings 15,920,000 16,476,000
----------- -----------
Total stockholders' equity 113,172,000 113,728,000
----------- -----------
TOTAL $142,706,000 $144,170,000
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
March 31, March 30,
1996 1997
-------------- -----------
REVENUES:
Restaurant sales $31,119,000 $30,100,000
Franchise fees and royalty income 145,000 86,000
---------- ----------
Total revenues 31,264,000 30,186,000
---------- ----------
COSTS AND EXPENSES:
Restaurant cost of sales 9,702,000 9,162,000
Labor 8,176,000 8,086,000
Occupancy 2,051,000 2,047,000
Other restaurant operating costs 5,658,000 5,476,000
General and administrative 1,732,000 1,792,000
Depreciation and amortization 2,367,000 2,490,000
---------- ----------
Total costs and expenses 29,686,000 29,053,000
---------- ----------
INCOME FROM OPERATIONS 1,578,000 1,133,000
---------- ----------
INTEREST EXPENSE, NET (412,000) (250,000)
---------- ----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 1,166,000 883,000
PROVISION FOR INCOME TAXES (432,000) (327,000)
---------- ----------
NET INCOME $ 734,000 $ 556,000
========== ==========
NET INCOME PER SHARE $ 0.05 $ 0.04
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 15,867,382 15,706,537
========== ==========
See Notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
March 31, March 30,
1996 1997
-------------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 734,000 $ 556,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 2,367,000 2,490,000
Deferred income taxes 453,000 348,000
Capitalized interest - (21,000)
Changes in operating working capital
items (2,406,000) (1,521,000)
---------- ----------
Net cash provided by operating activities 1,148,000 1,852,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,050,000) (2,562,000)
Investment in joint venture (250,000) -
----------- -----------
Net cash used for investing activities (1,300,000) (2,562,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
and draws on line of credit 730,000 2,949,000
Principal payments under long-term debt (446,000) (911,000)
Principal payments under capital leases (47,000) (48,000)
Exercise of stock options 6,000 -
---------- ----------
Net cash provided by financing activities 243,000 1,990,000
---------- ----------
NET INCREASE IN CASH 91,000 1,280,000
CASH AND CASH EQUIVALENTS, beginning of
period 2,749,000 748,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 2,840,000 $ 2,028,000
=========== ==========
See Notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Principles of Consolidation - The consolidated financial
statements include all accounts of Taco Cabana, Inc. and its
wholly-owned subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated.
The unaudited Condensed Consolidated Financial Statements
include all adjustments, consisting of normal, recurring
adjustments and accruals, which the Company considers
necessary for fair presentation of financial position and the
results of operations for the periods presented. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The interim financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the year
ended December 29, 1996.
Recently Issued Accounting Pronouncements - In February 1997,
the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share", which is required to be adopted by the
Company in the reporting period ending December 28, 1997. At
that time, the Company will be required to change the method
currently used to compute earnings per share and to restate
all prior periods. Under the new requirements for calculating
basic earnings per share, the dilutive effect of stock options
will be excluded. The Company has determined there would be no
impact of SFAS 128 on the calculation of earnings per share
for the quarter ended March 30, 1997.
2. Earnings per Share
Net income per share has been computed by dividing net income
by the weighted average number of common shares outstanding
during each period. Common stock equivalent shares, which
relate to stock options, are included in the weighted average
when the effect is dilutive.
3. Supplemental Disclosure of Cash Flow Information
Thirteen Weeks Ended
-----------------------
March 31, March 30,
1996 1997
---------- ----------
(Unaudited) (Unaudited)
Cash paid for interest $ 337,000 $ 211,000
Interest capitalized on construction
costs - 21,000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company commenced operations in 1978 with the opening of the
first Taco Cabana restaurant in San Antonio, Texas. As of May 1,
1997, the Company had 107 Company-owned restaurants and 14
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 1997 fiscal year.
During the thirteen weeks ended March 30, 1997, the Company
opened two non-traditional restaurants located within H-E-B
grocery stores. Additionally, a franchisee of the Company closed
one restaurant, and a franchisee of the Company, in which the
Company has a joint-venture interest, closed two restaurants.
Subsequent to March 30, 1997, the Company opened one free-
standing 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, March 30,
1996 1997
---------- ---------
Income Statement Data:
REVENUES:
Restaurant sales 99.5% 99.7%
Franchise fees and royalty income 0.5 0.3
----- -----
Total revenues 100.0% 100.0%
===== =====
COSTS AND EXPENSES:
Restaurant cost of sales (1) 31.2% 30.4%
Labor (1) 26.3 26.9
Occupancy (1) 6.6 6.8
Other restaurant operating costs (1) 18.2 18.2
General and administrative costs 5.5 5.9
Depreciation and amortization 7.6 8.2
----- -----
INCOME FROM OPERATIONS 5.0 3.8
INTEREST EXPENSE (1.3) (0.8)
----- -----
INCOME BEFORE INCOME TAXES 3.7 2.9
PROVISION FOR INCOME TAXES (1.4) (1.1)
----- -----
NET INCOME 2.3% 1.8%
===== =====
Restaurant Data:
Company-owned restaurants:
Beginning of period 106 104
Opened - 2
Closed (2) -
----- -----
End of period 104 106
FRANCHISED RESTAURANTS (2): 22 14
----- -----
TOTAL RESTAURANTS: 126 120
===== =====
(1) Percentage is calculated based upon restaurant sales.
(2) Excludes Two Pesos licensed restaurants.
The Thirteen Weeks Ended March 30, 1997 Compared to the Thirteen
Weeks Ended March 31, 1996
Restaurant Sales. Restaurant sales decreased by $1.0 million, or
3.3%, to $30.1 million for the first quarter of 1997 from $31.1
million for the first quarter in 1996. Comparable store sales,
defined as Taco Cabana restaurants that have been open 18 months
or more at the beginning of the quarter, decreased 4.2%.
Comparable store sales in the Company's core markets of San
Antonio, Austin, Houston and Dallas, which represent over 90% of
the Company's sales volume, decreased 2.2%. Management attributes
much of the decline in sales in its core markets to inclement
weather conditions and a decrease in advertising during the first
quarter of 1997 compared to the first quarter of 1996.
Franchise Fees and Royalty Income. Franchise and royalty fees
decreased by $59,000 to $86,000 for the first quarter of 1997
compared to the first quarter of 1996, due primarily to a
decrease in franchise royalties. This decrease was due to a
decrease in the number of franchise restaurants open during the
first quarter in 1997 compared to the first quarter in 1996.
Restaurant Cost of Sales. Restaurant cost of sales, calculated
as a percentage of restaurant sales, decreased to 30.4% in the
first quarter of 1997 from 31.2% for the first quarter of 1996.
The decrease was due primarily to the negotiation of favorable
commodity prices during 1996 as well as continued operational
emphasis on this area.
Labor. Labor costs calculated as a percentage of restaurant
sales increased to 26.9% during the first quarter of 1997 from
26.3% for the same period in 1996. The increase is due to the
impact from the federal minimum wage increase in October 1996, as
well as lower average unit volumes and an increase in wages paid
to restaurant management trainees during the first quarter of
1997 compared to the first quarter of 1996.
Occupancy. Occupancy costs decreased slightly during the first
quarter of 1997 compared to the first quarter of 1996. As a
percentage of restaurant sales, occupancy costs increased to 6.8%
in the first quarter of 1997 compared to 6.6% in the first
quarter of 1996, due to decreased sales at the restaurant level.
Other Restaurant Operating Costs. Other restaurant operating
costs decreased to $5.5 million in the first quarter of 1997
compared to $5.7 million in the first quarter of 1996. The
decrease is due to management's continued focus on unit level
operations and decreased sales at the restaurant level. As a
percentage of restaurant sales, other restaurant operating costs
remained constant at 18.2% for the first quarter of 1997 and for
the first quarter of 1996.
General and Administrative. General and administrative expenses
increased to $1.8 million from $1.7 million, and increased as a
percentage of total revenues to 5.9% for the first quarter of
1997 from 5.5% for the comparable period in 1996. This increase
was primarily attributable to the addition of corporate support
staff, as well as an increased level of expenditures to support
the Company's operations.
Depreciation and Amortization. Depreciation and amortization
expense consisted of the following:
Thirteen Weeks Ended
-----------------------
March 31, March 30,
1996 1997
--------- ----------
(Unaudited) (Unaudited)
Depreciation of property and
equipment $ 1,647,000 $ 2,035,000
Amortization of intangible assets 404,000 416,000
Amortization of pre-opening costs 316,000 39,000
Depreciation expense increased by approximately $388,000 for the
quarter ended March 30, 1997 compared to the quarter ended March
31, 1996. The increase was primarily due to capital expenditures
on existing restaurants during 1996. Amortization of pre-opening
expenses decreased by approximately $277,000 in the first quarter
of 1997 compared to the first quarter of 1996, due to the
decrease in the number of stores opened during the most recent
twelve-month period compared to the twelve-month period ended
March 31, 1996.
Interest Expense, net. Interest expense, net of interest
capitalized on construction costs, decreased to $250,000 in the
first quarter of 1997 from $412,000 in the first quarter of 1996,
primarily as a result of the repayment of $4.0 million of the
Company's outstanding borrowings during the twelve months ended
March 30, 1997. In addition, the Company capitalized $21,000 of
interest related to new restaurant construction. No interest was
capitalized during the first quarter of 1996. The Company earned
$31,000 of interest income during the first quarter of 1997 on
cash balances, compared to $40,000 of interest income during the
first quarter of 1996. The decrease was due to a reduction in
short-term investments during 1996.
Net Income and Earnings Per Share. Net income decreased to
$556,000 for the first quarter of 1997 from $734,000 for the same
period in 1996. Net income was 1.8% of total revenues for the
first quarter in 1997 compared to 2.3% in the first quarter of
1996. Earnings per share was $0.04 for the first quarter of 1997
compared to $0.05 in the same period of 1996. Management
believes that the decrease is largely due to lower sales at
Company-owned restaurants.
Liquidity and Capital Resources
Historically, the Company has financed business and expansion
activities by using funds generated from operating activities,
build-to-suit leases, equity financing, short and long-term debt
and capital leases. The Company maintains credit facilities
totaling $20.0 million, including a $5.0 million unsecured
revolving line of credit. As of May 1, 1997, $8.7 million had
been used under these facilities.
Net cash provided by operating activities was $1.9 million for
the thirteen weeks ended March 30, 1997, and $1.1 million for the
thirteen weeks ended March 31, 1996. Management attributes much
of the change to a reduction in cash utilized for accrued and
acquisition liabilities during the first quarter of 1997 compared
to the first quarter of 1996.
Net cash used in investing activities was $2.6 million for the
thirteen weeks ended March 30, 1997, representing primarily
capital expenditures for the construction of new restaurants and
improvements to existing restaurants. This compares to $1.3
million for the thirteen weeks ended March 31, 1996, representing
primarily capital expenditures for improvements to existing
restaurants and an investment of $250,000 in the Company's joint
venture.
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
$198,000 in the first quarter of 1997. Several of the restaurants
which have been closed, as well as the Company's previous
corporate offices, are currently for sale. Although there can be
no assurance of the particular price at which any of such
properties will be sold, the Company expects to receive funds
equal to or in excess of the carrying value 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 $387,000
during the first quarter of 1997.
The special charge recorded during the fourth quarter of 1996
included an accrual of approximately $1.0 million for the
estimated lease obligations, legal and professional costs and
other costs associated with the closing of two of the three
restaurants operated by a joint venture in which the Company has
a 50% interest. Cash requirements for this accrual were
approximately $25,000 in the first quarter of 1997.
On April 16, 1997 the Company's Board of Directors approved a
plan to repurchase up to 1,500,000 shares of the Company's common
stock. The timing, price, quantity and manner of purchases will
be made at the discretion of management and will depend on market
conditions. The Company will fund the repurchase program through
available bank credit facilities as well as the liquidation of
the Company's short term investment portfolio.
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 1997.
Impact of Inflation
Although increases in labor, food or other operating costs could
adversely affect the Company's operations, management does not
believe that inflation has had a material adverse effect on the
Company's operations to date.
Seasonality and Quarterly Results
The Company's sales fluctuate seasonally. Historically, the
Company's highest sales and earnings occur in the second and
third quarters. In addition, quarterly results are affected by
the timing of the opening and closing of stores. Therefore,
quarterly results cannot be used to indicate the results for the
entire year.
Forward-Looking Statements
Statements in this quarterly report, including those contained in
the foregoing discussion and other items herein, concerning the
Company which are (a) projections of revenues, capital
expenditures or other financial items, (b) statements of plans
and objectives for future operations, (c) statements of future
economic performance, or (d) statements of assumptions or
estimates underlying or supporting the foregoing are forward-
looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Act of
1934. The ultimate accuracy of forward-looking statements is
subject to a wide range of business risks and changes in
circumstances, and actual results and outcomes often differ from
expectations. Any number of important factors could cause actual
results to differ materially from those in the forward-looking
statements herein, including the following: the timing and
extent of changes in prices; actions of our customers and
competitors; state and federal environmental, economic, safety
and other policies and regulations, any changes therein, and any
legal or regulatory delays or other factors beyond the Company's
control; execution of planned capital projects; weather
conditions affecting the Company's operations or the areas in
which the Company's products are marketed; natural disasters
affecting operations; and adverse rulings, judgments, or
settlements in litigations or other legal matters. The Company
undertakes no obligation to publicly release the result of any
revisions to any such forward-looking statements that may be made
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
ITEM 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 12, 1997 Taco Cabana, Inc.
/s/ David G. Lloyd
----------------------------
David G. Lloyd
Senior 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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<PERIOD-END> MAR-30-1997
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