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 September 28, 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 November 5, 1997
Common Stock 14,834,600 shares
TACO CABANA, INC.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 28, 2
1997 and December 29, 1996
Condensed Consolidated Statements of Operations for the 3
Thirteen Weeks Ended September 28, 1997 and September
29, 1996
Condensed Consolidated Statements of Operations for the 4
Thirty-Nine Weeks Ended September 28, 1997 and
September 29, 1996
Condensed Consolidated Statements of Cash Flows for the 5
Thirty-Nine Weeks Ended September 28, 1997 and
September 29, 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 7-14
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1, 2, 3 and 5 have been omitted since the
registrant has no reportable events in relation to the
items
Item 4. Submission of Matters to a vote of Security 15
Holders
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
TACO CABANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
December 29, September 28,
1996 1997
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 748,000 $ 218,000
Receivables, net 792,000 751,000
Inventory 1,858,000 2,257,000
Prepaid expenses 1,353,000 1,640,000
Pre-opening costs, net 129,000 540,000
Federal income taxes receivable 363,000 1,578,000
Deferred income taxes 1,827,000 1,454,000
------------ ----------
Total current assets 7,070,000 8,438,000
PROPERTY AND EQUIPMENT, net 88,963,000 92,428,000
NOTES RECEIVABLE, net 738,000 358,000
INTANGIBLE ASSETS, net 45,394,000 44,535,000
OTHER ASSETS 541,000 491,000
----------- ----------
TOTAL $142,706,000 $146,250,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,181,000 $ 3,611,000
Accrued liabilities 3,171,000 2,900,000
Current maturities of long-term debt
and capital leases 2,409,000 1,692,000
Line of credit 625,000 3,684,000
----------- ----------
Total current liabilities 10,386,000 11,887,000
LONG-TERM OBLIGATIONS, net of current
maturities:
Capital leases 4,041,000 3,869,000
Long-term debt 6,593,000 9,237,000
---------- ----------
Total long-term obligations 10,634,000 13,106,000
ACQUISITION LIABILITIES 4,212,000 3,523,000
DEFERRED LEASE PAYMENTS 657,000 543,000
DEFERRED INCOME TAXES 3,645,000 5,585,000
STOCKHOLDERS' EQUITY:
Common stock 157,000 157,000
Additional paid-in capital 97,095,000 97,095,000
Retained earnings 15,920,000 17,915,000
Less: Treasury stock at cost
(872,000 shares) - (3,561,000)
----------- -----------
Total stockholders' equity 113,172,000 111,606,000
----------- -----------
TOTAL $142,706,000 $146,250,000
============ ============
See Notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
September September
29, 1996 28, 1997
---------- ----------
REVENUES:
Restaurant sales $33,676,000 $34,967,000
Franchise fees and royalty income 134,000 84,000
----------- -----------
Total revenues 33,810,000 35,051,000
------------ -----------
COSTS AND EXPENSES:
Restaurant cost of sales 10,770,000 10,873,000
Labor 8,843,000 9,794,000
Occupancy 2,038,000 2,123,000
Other restaurant operating costs 6,013,000 6,899,000
General and administrative 1,616,000 1,515,000
Depreciation and amortization 2,285,000 2,698,000
----------- -----------
Total costs and expenses 31,565,000 33,902,000
----------- -----------
INCOME FROM OPERATIONS 2,245,000 1,149,000
----------- -----------
INTEREST EXPENSE, NET (308,000) (256,000)
----------- -----------
INCOME BEFORE INCOME TAXES 1,937,000 893,000
----------- -----------
PROVISION FOR INCOME TAXES (717,000) (331,000)
NET INCOME $ 1,220,000 $ 562,000
=========== ===========
NET INCOME PER SHARE $ 0.08 $ 0.04
=========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 16,014,352 15,036,811
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirty-Nine Week Ended
------------------------------
September September
29, 1996 28, 1997
---------- ---------
REVENUES:
Restaurant sales $ 99,969,000 $99,171,000
Franchise fees and royalty income 413,000 267,000
------------ -----------
Total revenues 100,382,000 99,438,000
------------ -----------
COSTS AND EXPENSES:
Restaurant cost of sales 31,546,000 30,607,000
Labor 26,082,000 27,173,000
Occupancy 6,134,000 6,222,000
Other restaurant operating costs 17,956,000 18,650,000
General and administrative 4,933,000 5,089,000
Depreciation and amortization 6,868,000 7,758,000
Litigation settlement 3,400,000 -
----------- -----------
Total costs and expenses 96,919,000 95,499,000
----------- -----------
INCOME FROM OPERATIONS 3,463,000 3,939,000
----------- -----------
INTEREST EXPENSE, NET (1,076,000) (772,000)
----------- -----------
INCOME BEFORE INCOME TAXES 2,387,000 3,167,000
PROVISION FOR INCOME TAXES (986,000) (1,172,000)
NET INCOME $ 1,401,000 $1,995,000
=========== ==========
NET INCOME PER SHARE $ 0.09 $ 0.13
=========== ==========
WEIGHTED AVERAGE SHARES
OUTSTANDING 15,952,239 15,474,687
=========== ==========
See notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Thirty-Nine Weeks Ended
-------------------------------
September September
29, 1996 28, 1997
---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,401,000 $ 1,995,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,868,000 7,758,000
Deferred income taxes 735,000 2,313,000
Capitalized interest - (88,000)
Deferred lease payments (277,000) (114,000)
Changes in operating working capital
items (573,000) (2,188,000)
---------- -----------
Net cash provided by operating
activities 8,154,000 9,676,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (5,811,000) (12,838,000)
Proceeds from sales of property and
equipment - 1,379,000
Investment in joint venture (250,000) -
----------- ----------
Net cash used for investing activities (6,061,000) (11,459,000)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable
and draws on line of credit - 13,173,000
Principal payments under long-term debt
and line of credit (4,006,000) (8,213,000)
Principal payments under capital leases (164,000) (146,000)
Purchase of treasury stock - (3,561,000)
Exercise of stock options 119,000 -
----------- -----------
Net cash provided (used) by financing
activities (4,051,000) 1,253,000
------------ -----------
NET DECREASE IN CASH (1,958,000) (530,000)
CASH AND CASH EQUIVALENTS, beginning of
period 2,749,000 748,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 791,000 $ 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 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
thirteen weeks and the thirty-nine weeks ended September 28,
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
Thirty-Nine Weeks Ended
-----------------------
September September
29, 1996 28, 1997
(Unaudited) (Unaudited)
----------- -----------
Cash paid for interest $ 901,000 $ 890,000
Interest capitalized on construction - 88,000
costs
Cash paid for income taxes 52,000 74,000
Cash received for income taxes - 4,000
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. As of November 1,
1997 the Company had 111 company-owned, one joint-venture owned
and 10 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 nine months of the 1997 fiscal year.
During the thirty-nine weeks ended September 28, 1997, the
Company opened three free-standing restaurants and two non-
traditional restaurants located with in grocery stores. The
Company converted two free-standing Sombrero Rosa restaurants and
two Two Pesos mall units to the Taco Cabana concept during the
same period. Additionally, the Company acquired one restaurant
from a franchisee, 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.
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.
13 Weeks Ended 39 Weeks Ended
--------------- --------------
September September September September
29, 1996 28, 1997 29, 1996 28, 1997
--------- --------- --------- ---------
Operating Statement Data:
REVENUES:
Restaurant sales 99.6% 99.8% 99.6% 99.7%
Franchise fees and
royalty income 0.4 0.2 0.4 0.3
------ ------ ------ -----
Total revenues 100.0% 100.0% 100.0% 100.0%
====== ====== ====== ======
COSTS AND EXPENSES:
Restaurant cost of sales 32.0% 31.1% 31.6% 30.9%
(1)
Labor (1) 26.3 28.0 26.1 27.4
Occupancy (1) 6.1 6.1 6.1 6.3
Other restaurant
operating costs (1) 17.9 19.7 18.0 18.8
General and
administrative costs 4.8 4.3 4.9 5.1
Depreciation and
amortization 6.8 7.7 6.8 7.8
Litigation settlement - - 3.4 -
----- ------ ----- -----
INCOME FROM OPERATIONS 6.6 3.3 3.4 4.0
----- ------ ----- -----
INTEREST EXPENSE, net (0.9) (0.7) (1.1) (0.8)
----- ------ ----- -----
INCOME BEFORE INCOME TAXES 5.7 2.5 2.4 3.2
BENEFIT (PROVISION) FOR
INCOME TAXES (2.1) (0.9) (1.0) (1.2)
----- ----- ----- -----
NET INCOME 3.6% 1.6% 1.4% 2.0%
===== ===== ===== =====
Restaurant Data:
Company-owned
restaurants:
Beginning of period 104 107 106 104
Opened - 2 - 5
Acquired - 1 - 1
Closed - - (2) -
---- ---- ---- ----
End of period 104 110 104 110
Franchised (2)and joint-
venture owned
restaurants: 20 11 20 11
---- ---- ---- ----
Total restaurants: 124 121 124 121
==== ==== ==== ====
(1)Percentage is calculated based upon restaurant sales.
(2)Excludes Two Pesos licensed restaurants.
The Thirteen Weeks Ended September 28, 1997 Compared to the
Thirteen Weeks Ended September 29, 1996
Restaurant Sales. Restaurant sales increased by $1.3 million, or
3.8%, to $35.0 million for the third quarter of 1997 from $33.7
million for the third quarter in 1996. Management attributes
much of the increase in sales to the increased number of Company
owned stores during the thirteen weeks ended September 28, 1997
compared to the same period in 1996. Comparable store sales,
defined as Taco Cabana restaurants that have been open 18 months
or more at the beginning of the quarter, increased 0.1%. The
Company is continuing to monitor and assess the performance of
its seven units in the Denver, Colorado market. Despite the
commitment of increased advertising and marketing resources to
such units during the thirteen week period ended September 28,
1997, gross sales at such units have not materially increased and
have averaged approximately $10,300 per week during the thirteen
week period ended September 28, 1997. There can be no assurance
that the Company will be able to improve the performance of such
units or that the Company will not find it necessary to close
some or all of such units, which would have a material effect
upon results of operations.
Franchise Fees and Royalty Income. Franchise and royalty fees
decreased by $50,000 to $84,000 for the third quarter of 1997
compared to the third 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
third quarter in 1997 compared to the third quarter in 1996.
Cost of Sales. Restaurant cost of sales, calculated as a
percentage of restaurant sales, decreased to 31.1% in the third
quarter of 1997 from 32.0% for the third quarter of 1996. The
decrease was due primarily to the continued negotiation of
favorable commodity prices as well as continued operational
emphasis on this area.
Labor. Labor costs increased during the third quarter of 1997
compared to the third quarter of 1996, primarily due to the
greater number of restaurants in operation during the quarter. As
a percentage of sales, labor costs increased to 28.0% in the
third quarter of 1997 compared to 26.3% in the third quarter of
1996. This increase is due to new restaurant openings as well as
management's commitment to increase staffing levels at the
restaurant level in order to provide a consistent guest
experience.
Occupancy. Occupancy costs increased slightly during the third
quarter of 1997 compared to the third quarter of 1996. The
increase is primarily attributable to the greater number of
Company owned restaurants in operation during the quarter. As a
percentage of restaurant sales, occupancy costs were 6.1% in the
third quarter of 1997 and 1996.
Other Restaurant Operating Costs. Other restaurant operating
costs increased during the third quarter of 1997 as compared to
the same period of 1996. As a percentage of restaurant sales,
other restaurant operating costs increased to 19.7% compared to
17.9% in the third quarter of 1996. The increase is primarily
due to additional marketing expenditures during the third quarter
of 1997 compared to the third quarter of 1996 as well as
increased utility costs due to warm weather.
General and Administrative. General and administrative expenses
decreased during the third quarter of 1997 to $1.5 million from
$1.6 million in the comparable period of 1996. As a percentage
of total revenues, general and administrative expenses decreased
to 4.3% for the third quarter of 1997 from 4.8% for the
comparable period in 1996. The decrease is primarily
attributable to lower bonus accruals during 1997.
Depreciation and amortization expense consisted of the following:
Thirteen Weeks Ended
--------------------------
September 29, September
1996 28, 1997
(Unaudited) (Unaudited)
------------- -----------
Depreciation of property and equipment $ 1,822,000 $ 2,214,000
Amortization of intangible assets 416,000 382,000
Amortization of pre-opening costs 47,000 102,000
Depreciation expense increased by approximately $392,000 for the
quarter ended September 28, 1997 compared to the quarter ended
September 29, 1996. The increase was primarily due to capital
expenditures at existing restaurants during the past twelve
months and the opening of six Company owned restaurants.
Interest Expense, net. Interest expense, net of interest
capitalized on construction costs, decreased to $256,000 in the
third quarter of 1997 from $308,000 in the same period in 1996.
In addition the Company capitalized $43,000 of interest during
the third quarter of 1997. No interest was capitalized during
the third quarter of 1997. The Company earned $22,000 of
interest income during the thirteen weeks ended September 28,
1997, compared to $53,000 of interest income earned during the
thirteen weeks ended September 29, 1996. The decrease was due to
a reduction in short-term investments during the twelve months
ended September 28, 1997.
Net Income and Net Income Per Share. Net income decreased to
$562,000 for the third quarter of 1997 from $1,220,000 for the
same period in 1996. Net income was 1.6% of total revenues for
the third quarter of 1997 compared to 3.6% for the same period in
1996. Earnings per share was $0.04 for the third quarter of 1997
compared to $0.08 in the same period of 1996. Management
believes that the decrease is largely due to higher costs at
Company-owned restaurants.
The Thirty-Nine Weeks Ended September 28, 1997 Compared to the
Thirty-Nine Weeks Ended September 29, 1996
Restaurant Sales. Restaurant sales decreased by $ 798,000, or .8%,
to $99.2 million for the thirty-nine weeks ended September 28, 1997
from $100 million for the comparable period in 1996. Management
attributes much of the decline in sales to increased levels of
competition in the Company's core markets and inclement weather
during the first quarter of 1997. Comparable store sales
decreased 3.2% during the thirty-nine weeks ended September 28,
1997. The Company is continuing to monitor and assess the
performance of its seven units in the Denver, Colorado market.
Despite the commitment of increased advertising and marketing
resources to such units during the thirty-nine weeks ended
September 28, 1997, gross sales at such units have not materially
increased and have averaged approximately $9,000 per week during
the thirty-nine weeks ended September 28, 1997. There can be no
assurance that the Company will be able to improve the
performance of such units or that the Company will not find it
necessary to close some or all of such units, which would have a
material effect upon results of operations.
Franchise Fee and Royalty Income. Franchise and royalty fees
decreased by $146,000 to $267,000 for the thirty-nine weeks
ended September 28, 1997 compared to the same period of 1996,
due primarily to a decrease in the number of franchise restaurants
open during the thirty-nine weeks ended September 28, 1997
compared to the same period in 1996.
Cost of Sales. Restaurant cost of sales, calculated as a
percentage of restaurant sales, decreased to 30.9% in the thirty-
nine weeks ended September 28, 1997 from 31.6% for the thirty-
nine weeks ended September 29, 1996. The decrease was due
primarily to the continued negotiation of favorable commodity
prices as well as continued operational emphasis on this area.
Labor. Labor costs increased by $1.1 million during the thirty-
nine weeks ended September 28, 1997 compared to the same period
of 1996. As a percentage of sales, labor costs increased to
27.4% in the thirty-nine week ended September 28, 1997 compared
to 26.1% in the same period of 1996. The increase is due to lower
average unit volumes as well as management's commitment to
increase staffing levels at the restaurant level in order to
provide a consistent guest experience.
Occupancy. Occupancy costs increased slightly during the thirty-
nine weeks ended September 28, 1997 compared to the same period
in 1996. As a percentage of restaurant sales, occupancy costs
increased to 6.3% in the thirty-nine weeks ended September 28,
1997 compared to 6.1% in the same period of 1996. The increase is
due to the opening of six new restaurants during the last twelve
months.
Other restaurant operating costs. Other restaurant operating
costs increased by $694,000 during the thirty-nine weeks ended
September 28, 1997 compared to the same period of 1996. As a
percentage of restaurant sales, other restaurant operating costs
increased to 18.8% during the thirty-nine weeks ended September
28, 1997 compared to 18.0% in the same period of 1996 primarily
due to decreased sales at the restaurant level. The increase is
due to additional marketing expenditures during the thirty nine
weeks ended September 28, 1997 compared to the same period in
1996.
General and Administrative. General and administrative expenses
increased to $5.1 million from $4.9 million, and increased as a
percentage of total revenues to 5.1% for the thirty-nine weeks
ended September 28, 1997 from 4.9% 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, offset by lower
bonus accruals.
Depreciation and amortization expense consisted of the following:
Thirty-Nine Weeks Ended
-----------------------
September September
29. 1996 28, 1997
(Unaudited) (Unaudited)
----------- -----------
Depreciation of property and equipment $ 5,158,000 $ 6,351,000
Amortization of intangible assets 1,236,000 1,194,000
Amortization of pre-opening costs 474,000 213,000
Depreciation expense increased by approximately $1.2 million for
the thirty-nine weeks ended September 28, 1997 compared to the
thirty-nine weeks ended September 29, 1996. The increase was due
primarily to six restaurant openings during the most recent
twelve month period, as well as capital expenditures at existing
restaurants during the past twelve months. Amortization of pre-
opening costs decreased by approximately $261,000 in the thirty-
nine weeks ended September 28, 1997 compared to the thirty-nine
weeks ended September 29, 1996.
Interest Expense, net. Interest expense, net of interest
capitalized on construction costs, decreased to $772,000 in the
thirty-nine weeks ended September 28, 1997 from $1.1 million in
the thirty-nine weeks ended September 29, 1996 primarily as a
result of average debt outstanding being reduced by $2.2. million
during the thirty nine weeks ended September 28, 1997 compared to
the same period in 1996. In addition, the Company capitalized
$88,000 of interest during the thirty-nine weeks ended September
28, 1997. No interest was capitalized during the same period of
1996. The Company earned $64,000 of interest income during the
thirty-nine weeks ended September 28, 1997, compared to $155,000
of interest income earned during the thirty-nine weeks ended
September 29, 1996. The decrease was due to a reduction in short-
term investments during the twelve months ended September 28,
1997.
Net Income and Net Income Per Share. Net income increased to
$1,995,000 for the thirty-nine weeks ended September 28, 1997
from $1,401,000 for the same period in 1996. Net income was 2.0%
of total revenues for the thirty-nine weeks ended September 28,
1997 compared to 1.4% for the thirty-nine weeks ended September
29, 1996. Earnings per share was $0.13 for the thirty-nine weeks
ended September 28, 1997 compared to earnings per share of $0.09
in the same period of 1996. Disregarding the litigation
settlement recorded in the second quarter of 1996, the Company
would have reported net income of $3,645,000 for the thirty-nine
weeks ended September 29, 1996, equal to $0.23 per share.
Disregarding the litigation settlement, management believes that
the decrease in net income 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, long-term debt and
capital leases. The Company maintains loan facilities totaling
$20.0 million, including a $5.0 million unsecured revolving line
of credit. As of November 5, 1997, $12.9 million was outstanding
under these facilities.
Net cash provided by operating activities was $9.7 million for
the thirty-nine weeks ended September 28, 1997, and $8.2 million
for the thirty-nine weeks ended September 29, 1996. Net cash used
in investing activities was $11.5 million for the thirty-nine
weeks ended September 28, 1997, representing primarily capital
expenditures for improvements to existing restaurants, the
construction of three free-standing and two non-traditional
restaurants, and the conversion of two Sombrero Rosa and two Two
Pesos restaurants to the Taco Cabana concept, compared to $6.1
million for the thirty-nine weeks ended September 29, 1996,
representing primarily capital expenditures for improvements to
existing restaurants.
Net cash provided by financing activities was $1.3 million for
the thirty-nine weeks ended September 28, 1997, representing
primarily borrowings under the Company's debt facilities,
compared to net cash used by financing activities of $4.1 million
in the same period of 1996, representing repayment of the
Company's line of credit and long-term debt.
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. As of September 28, 1997 the Company had repurchased
872,000 shares at an average cost of $4.08 per share. The
timing, price, quantity and manner of remaining purchases, if
any, will be made at the discretion of management and will be
dependent upon market conditions. The Company has funded the
repurchases through available bank credit facilities, as well as
the liquidation of the Company's short term investment portfolio.
Remaining purchases, if any, will be funded through a combination
of cash provided by operations and available bank credit
facilities.
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 thirty-nine weeks ended September
28, 1997.
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
$258,000 in the thirty-nine weeks ended September 28, 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 will
receive funds upon the actual disposition of these properties.
During the third quarter of 1997, the Company sold properties
relating to the special charge which resulted in proceeds of
$603,000. In addition, certain acquisition and accrued
liabilities related to the Two Pesos acquisition were reduced by
payments of approximately $971,000 during the thirty-nine weeks
ended September 28, 1997.
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 1998, including the planned opening of two
to three free-standing restaurants during the remainder of 1997
and twelve to fifteen free-standing restaurants during 1998.
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 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 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held on August 12, 1997,
the Company's stockholders elected five directors and approved an
amendment to the Taco Cabana 1994 Stock Option Plan ("the Plan")
to increase the number of shares authorized for issuance from
500,000 shares to 1,250,000 shares. There were 11,622,016 votes
cast for the amendment to the Plan and 1,578,847 votes cast
against the amendment to the Plan and 42,963 votes abstaining
from voting on the amendment to the Plan.. There were no broker
non-votes with regards to the election of the directors and the
amendment to the Plan. With regard to the election of the
directors, the votes were as follows:
For Withheld
---------- --------
Stephen V. Clark 12,516,867 159,719
William J. Nimmo 13,195,333 156,354
Richard Sherman 13,194,933 156,754
Cecil Schenker 13,186,973 164,714
Lionel Sosa 13,188,690 162,997
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by
this report.
Dated: November 12, Taco Cabana, Inc.
1997
/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
Exhibit 11
TACO CABANA, INC.
Information Supporting
Per Share Computations
13 Weeks Ended 39 Weeks Ended
-------------- --------------
September 29, September 28, September 29, September 28,
1996 1997 1996 1997
------------- ----------- ------------ -------------
Net Income $ 1,220,000 $ 562,000 $1,401,000 $1,995,000
Net Income per share Computation:
Average Common Shares
Outstanding 15,700,302 15,036,811 15,690,674 15,474,687
Common stock equivalents -
dilutive options 314,050 - 261,565 -
----------- ---------- ---------- ----------
Average outstanding common
and common equivalent
shares 16,014,352 15,036,811 15,952,239 15,474,687
Net Income per share $ 0.08 $ 0.04 $ 0.09 $ 0.13
========== ========== ========== ==========
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<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 218,000
<SECURITIES> 0
<RECEIVABLES> 1,144,000
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