UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Mark One
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended January 2, 2000
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 (IRS employer identification no.)
of incorporation or organization)
8918 Tesoro Drive, Suite 200, San Antonio, Texas 78217
(Address of principal executive offices, including ZIP Code)
(210) 804-0990
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which Registered
None None
Securities Registered Pursuant to Section 12(g) of the Act:
Title of Each Class
Common Stock, $0.01 par value
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
As of February 28, 2000, the aggregate market value of the voting stock
held by non-affiliates of the Registrant, based on the last sale price of the
Common Stock of the Registrant as quoted on the NASDAQ National Market was
$63,170,586 (for purposes of calculating this amount, only directors, officers,
and beneficial owners of 5% or more of the capital stock of the Registrant have
been deemed affiliates).
The number of shares of the Common Stock of the Registrant outstanding as
of February 28, 2000 was 11,586,375.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this report incorporates by reference certain portions of the
definitive proxy statement which the Registrant will file with the Securities
and Exchange Commission in connection with the Company's annual meeting of
stockholders following the fiscal year ended January 2, 2000.
FORM 10-K INDEX
PART I
ITEM 1. BUSINESS............................................ 3
ITEM 2. PROPERTIES.......................................... 10
ITEM 3. LEGAL PROCEEDINGS................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. 10
EXECUTIVE OFFICERS OF THE COMPANY................... 11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS................................. 12
ITEM 6. SELECTED FINANCIAL DATA............................. 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................. 15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK......................................... 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA......... 24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................. 24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.. 25
ITEM 11. EXECUTIVE COMPENSATION.............................. 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.......................................... 25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K......................................... 26
PART I
ITEM 1. BUSINESS
General
Taco Cabana, Inc., a Delaware corporation (the "Company" ), pioneered the
Mexican patio cafe concept with its first restaurant in 1978 and, as of January
2, 2000, operates and franchises a total of 119 such restaurants system-wide.
Of these, the Company owns and operates 109 Taco Cabana restaurants and
franchisees of the Company own and operate the remaining 10 Taco Cabana
restaurants. The Company's restaurants (including franchises) are located
primarily in Texas, and are also located in Georgia, Indiana, New Mexico, and
Oklahoma.
Taco Cabana restaurants feature generous portions of fresh, premium quality
Tex-Mex and traditional Mexican style food at an exceptional value. The
restaurants provide interior, semi-enclosed and patio dining areas with a
festive Mexican theme. Menu items include flame-grilled beef and chicken
fajitas served on sizzling iron skillets, " Chicken Flameante" TM (a marinated
rotisserie chicken), quesadillas, traditional Mexican and American breakfasts,
other Tex-Mex dishes and fresh, hot flour tortillas. Unlike many of its
competitors, the Company makes most menu items fresh daily in each of its
restaurants.
Taco Cabana Food and Pricing Philosophy
The Company is committed to selling premium food which it believes to be
among the highest quality of any chain in the restaurant industry. This process
begins with the selection of the freshest available ingredients. The Company's
menu items are prepared strictly in accordance with authentic and well-tested
recipes. Taco Cabana restaurants also offer a variety of beverage choices,
including margaritas and beer. Alcoholic beverages currently account for less
than 4% of gross sales.
The Ingredients. The Company has implemented a purchasing program
structured to ensure that all of the ingredients used in the preparation of the
Taco Cabana menu items are of the highest quality. The Company regularly
inspects its vendors to ensure both that the products purchased by the Company
conform to its standards, and that the prices offered are competitive. The meat
used in making fajitas as well as most other principal ingredients are purchased
through supply contracts to ensure availability and minimize the risks of price
fluctuation.
The Preparation. The menu items offered at any Taco Cabana restaurant are
prepared at that restaurant from fresh meat and produce ingredients delivered by
suppliers to most restaurants three times each week. The Company is committed
to differentiating itself from other quick service competitors by utilizing
fresh, high quality ingredients as well as the preparation of most items "from
scratch". In order to simplify operations and provide a more consistent
product, the Company has recently implemented the usage of a number of pre-
prepared items.
Pricing Philosophy. The Company offers value by pricing its menu items
below the price of comparable menu items in sit-down Mexican restaurants.
Although Taco Cabana's food costs (as a percentage of sales) are generally
higher than quick service chains as a result of the premium quality of
ingredients used, the Company believes that this point of differentiation
contributes to the achievement of average unit volumes in excess of most quick
service restaurants.
Taco Cabana Restaurants
Restaurant Layout. Taco Cabana restaurants average approximately 3,200
square feet (exclusive of the exterior dining area) and provide seating for
approximately 80 customers, with additional patio seating for approximately 50
customers.
Taco Cabana restaurants are typically distinctive in appearance, conveying
a Mexican theme and permitting easy identification by passing motorists.
Inside, exposed elements of the kitchen display the freshness of Taco Cabana's
food and the authenticity of its preparation. Taco Cabana's restaurant design
enables customers to observe fresh fajitas cooking on a charcoal grill, a
machine making fresh, hot flour tortillas, Chicken FlameanteTM rotating on spits
and the preparation of other food items. Upon entry, the customer places an
order selected from an overhead menu board, proceeds down a service line to
where the order is picked up, and then passes a Salsa Bar en route to the dining
area. The distinctive Salsa Bar offers Taco Cabana customers freshly prepared,
authentic Tex-Mex ingredients such as Salsa de Fuego (made with charred peppers
and tomatoes), pico de gallo and salsa (all "made from scratch" throughout the
day at each restaurant), cilantro, pickled jalapeno slices, crisp chopped
onions, and fresh sliced limes. According to the season, time of day and
personal preference, the customer may choose to dine either in the restaurant's
brightly colored and festive interior dining area or the semi-enclosed or
outdoor patio areas. The addition of traditional and contemporary Latin music,
tropical landscaping, and authentic decorative artifacts create an overall
dining environment which the Company believes is both attractive and festive.
Most Taco Cabana restaurants also offer drive-thru service.
The Company began constructing its new prototype restaurant in 1996 with
further improvements made to the design in 1998 and 1999. The prototypes
incorporate several new and different features that set them apart from Taco
Cabana restaurants previously constructed. The prototypes feature rounded
fronts, as well as Southwest accents such as a clay tile roof, heavy wood beams
and a trellis that shades the patio area, and add the use of bright colors
outside and inside, including colored tiles, doors, windows, and awnings.
Corrugated metal wall panels, aged wood finishes, and distressed stainless steel
counter tops are featured inside, all of which are intended to replicate an old
Mexican cafe. Backlit signage on the exterior of the building broadcasts the
unique menu items served at Taco Cabana. Favorite features retained from the
original Taco Cabana restaurants include display cooking where the guest can see
the food being prepared, liberal use of the Taco Cabana's signature pink color,
and the self-serve fresh Salsa Bar. The prototypes were designed to reduce
overall construction costs, improve functional efficiency, allow for better
guest service, and enhance Taco Cabana's unique patio cafe image. Since November
1996, the Company has opened 25 restaurants under this new design.
During 1997, the Company initiated a re-image program for existing
restaurants which incorporates many of the features of the new prototype design.
As of January 2, 2000, 69 restaurants were re-imaged or converted to the new
prototype design, bringing a system-wide total of 94 restaurants with the new
design. The Company expects to re-image the remaining restaurants during 2000.
Restaurant Locations. The following table sets forth the number of
restaurants as of January 2, 2000 by area of dominant influence ( "ADI") for
television and radio advertising:
ADI* Company-Owned Franchised(1) Total
San Antonio 33 0 33
Houston 31(2) 0 31
Austin 15 0 15
Dallas/Fort Worth 20 0 20
El Paso 6 0 6
Oklahoma City, Oklahoma 3 0 3
Bryan/College Station 0 2 2
Albuquerque, New Mexico 0 2 2
Amarillo 0 2 2
Atlanta, Georgia 0 1 1
Tulsa, Oklahoma 1 0 1
Waco 0 1 1
Corpus Christi 0 1 1
Ft. Wayne, Indiana 0 1 1
--- -- ---
Total 109 10 119
=== == ===
___________________________________________________________________
* All of the ADIs are located in Texas except as otherwise indicated.
(1) Represents franchised Taco Cabana restaurants.
(2) Includes three mall-unit Taco Cabana restaurants.
Customer Convenience
The Company operates its restaurants to enable customers to dine-in or
take-out, as they choose. In most cases, the restaurants also provide the
convenience of drive-thru windows which, in the aggregate, account for
approximately 40% of the Company's sales. A majority of the restaurants are
open 24 hours a day. This strategy is continually evaluated for economic
viability on a restaurant by restaurant basis.
Customer Service
The Company is committed to consistently providing personal, attentive and
efficient service in order to attract repeat customers. Restaurant and shift
managers are encouraged to follow a " front of the house" style of management,
which requires that the managers spend most of their time attending to customers
at the register, drive-thru windows or in the dining areas.
Marketing
The Company utilizes an integrated, multi-level marketing approach which
includes periodic company-wide promotions, direct mail, in-store promotions,
local store marketing, and other strategies, including the use of radio
advertising in its major markets. The Company expects to execute this plan
utilizing a marketing budget of approximately 3.65% of sales.
Expansion
The Company's near-term strategy is to achieve a dominant or leading
position among quick service Mexican food restaurants in each of its targeted
principal markets in order to obtain marketing and operating efficiencies. The
Company seeks to implement this strategy by selectively adding restaurants in
existing and new markets. The Company's 2000 objective is to continue expanding
into new markets. The Company plans to open fifteen freestanding restaurants in
2000, approximately twelve of which will be outside the State of Texas. The
Company will continue its development of the Oklahoma City and Tulsa markets and
will begin development of the Phoenix market. In conjunction with the opening
of the Company's new restaurants in the Tulsa market, an existing unit will be
closed.
The Company believes the site selection process is very important in
determining the potential success of a particular restaurant and senior
management devotes substantial time and resources to analyzing each prospective
site. The Company focuses on selecting locations which clear stringent hurdles
with regards to the projected return on initial investment. A variety of
factors are considered in the site selection process, including local market
demographics, site visibility and accessibility (including drive-by traffic and
ease of drive-thru accessibility), proximity to competitive operations, and
proximity to generators of potential customers, such as major retailers, retail
centers, medical or hospital facilities, office complexes, hotel concentrations,
and stadiums, arenas, theaters or other entertainment centers.
Restaurant Operations and Management
The Company seeks to maintain quality and consistency in its restaurant
operations by carefully training and supervising personnel and establishing
exacting standards relating to food quality, friendliness of service and
cleanliness of the restaurant facility. A Mystery Shop program requires random
visits with the purpose of scoring each restaurant on its food quality, friendly
service and cleanliness. The Company has also established an 800 hotline for
customer comments. It is the Company's policy to ensure that customers are
served quickly and that customers receive orders correctly filled and delivered
in a courteous manner.
The Company maintains financial and accounting controls for each of its
restaurants through use of centralized accounting and management information
systems. The Company has installed throughout all of its company-owned
restaurants an in-store computer-based management support system that allows for
daily polling of sales and labor information. Additionally, a separate
management information system has been developed and implemented in all
company-owned restaurants which provides for daily polling of food costs. This
system records the receipt of inventory through the scanning of bar-codes and
integrates with the point of sale system thus providing immediate cost of sales
data and inventory records. The system is designed to improve food cost
management, provide corporate management quicker access to financial data and
reduce the time devoted by its restaurant managers to administrative
responsibilities.
Operations are managed by restaurant general managers who complete an
intensive training program during which they are instructed in all areas of Taco
Cabana's restaurant operations. Such areas of training include food
preparation, customer service, cost controls, facility maintenance,
communications skills and employee relations. Restaurant general managers are
overseen by division leaders (individuals with responsibility for the operation
of multiple restaurants within a market) and by regional Vice Presidents of
Operations. An incentive plan has been established in which all restaurant and
division leaders participate. Awards under the incentive plan are tied to the
achievement of specified sales, profitability and qualitative performance goals.
In addition to the incentive plan, general managers and corporate staff are
periodically granted stock options which vest over five years.
Franchising Program
At January 2, 2000, the Company had five franchisees operating a total of
10 Taco Cabana restaurants. The Company did not enter into any new franchise
agreements during 1999 and does not currently anticipate new franchisee signings
during 2000.
Competition
Taco Cabana's restaurants compete both with fast food operations and with
traditional sit-down Mexican restaurants. Management believes that the
Company's combination of freshly prepared food, distinctive ambiance, and
superior service help to distinguish Taco Cabana restaurants from fast food
operations, while Taco Cabana's price-value relationship differentiates its
restaurants from more expensive sit-down or casual dining restaurants.
The food service industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
national, regional and locally-owned competitors in the Company's market areas,
some of which have greater financial and other resources than the Company. Some
of such competitors have also been in existence longer than the Company and are
better established in areas where Taco Cabana's restaurants are or will be
located. The restaurant business is often affected by changes in consumer
tastes, economic conditions, population, traffic patterns, availability of
employees and cost increases.
Employees
At January 2, 2000, the Company employed approximately 3,500 persons, of
whom approximately 3,400 were operations employees and the remainder were
corporate personnel. Most employees, other than restaurant management and
corporate personnel, are paid on an hourly basis. The Company believes that it
provides working conditions and wages that are comparable with those of other
companies in the restaurant industry operating in its market area. The
Company's employees are not covered by a collective bargaining agreement.
The Company does not subscribe to any workers' compensation insurance
program in the State of Texas, where the great majority of its company-owned
restaurants are currently located. As such, it is subject to negligence actions
by its employees and is not able to assert contributory negligence and certain
other defenses. In addition, employees might be able to recover certain types of
damages that would not be available to them if the Company subscribed to a
workers' compensation insurance program. The Company self-insures a portion of
such risk, and carries excess liability coverage that it believes is adequate.
This practice has not had any material adverse effect upon the Company's
operations or financial position since it was adopted in 1988.
Trademarks, Service Marks and Trade Dress
The Company regards its trademarks, service marks and trade dress as having
significant value and as being important to its marketing efforts. The Company
has registered its principal Taco Cabana logo and design with the United States
Patent and Trademark Office on the Principal Register as a service mark for its
restaurant services, has secured or has applied for state and federal
registrations of several other advertising or promotional marks, including
variations of its principal mark, and has applied for registrations in foreign
countries of its principal mark and several other marks. The Company's policy
is to pursue registration of its principal marks and to oppose strenuously any
infringement of its marks or trade dress.
Government Regulation
Each company-owned and franchised restaurant is subject to regulation by
federal agencies and to licensing and regulation by state and local health,
sanitation, safety, fire and other departments relating to the development and
operation of restaurants, including regulations relating to alcoholic beverage
sales, environmental, building and zoning requirements, preparation and sale of
food, and laws governing the Company's relationship with its employees,
including minimum wage requirements, overtime, working conditions and
citizenship requirements. Difficulties or failures in obtaining the required
licenses or approvals could delay or prevent the opening of new restaurants or
the continued operation of existing restaurants.
The Company is subject to Federal Trade Commission ( "FTC") regulation and
state laws which regulate the offer and sales of franchises. The Company may
also become subject to state laws which regulate substantive aspects of the
franchisor-franchisee relationship. The FTC requires the Company to furnish to
prospective franchisees a franchise offering circular containing prescribed
information. A number of states in which the Company might consider franchising
also regulate the offer and sale of franchises and require registration of the
franchise offering with state authorities. State laws that regulate the
franchisor-franchisee relationship presently exist in a substantial number of
states and bills have been introduced in Congress and other states from time to
time which would provide for regulation of the franchisor-franchisee
relationship in certain respects. Certain of such laws may restrict a
franchisor in the termination of a franchise agreement, although these
provisions have not had a significant effect on the Company's operations.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements. A significant number of the
Company's food service personnel are paid at rates related to the federal
minimum wage and increases in the minimum wage will increase the Company's labor
costs. The Company is subject to the Texas "dram-shop" laws and may be subject
to the " dram-shop" laws of certain other states. Dram-shop laws provide a
person injured by an intoxicated person the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
person. The Company is also subject to the Americans with Disabilities Act of
1990, which, among other things, may require certain minor further renovations
to existing restaurants to meet federally mandated access and use requirements.
The cost of these renovations is not expected to be material to the Company.
The Company must also comply with the Family Medical Leave Act (the "Family
Leave Act"), which covers employers of 50 or more persons at locations within
any 75-mile radius. The Family Leave Act requires covered employers to grant
eligible employees up to 12 weeks of unpaid leave for family and medical reasons
and to reinstate the employee to the same or an equivalent position at the end
of the leave. An employee may take leave for the birth, adoption, or foster care
of a child; for any serious health condition of a spouse, sibling, child or
parent; or for an employee's own serious health condition.
The Company believes that it is operating in substantial compliance with
applicable laws and regulations governing its operations.
Geographic Concentration
During fiscal 1999, approximately 98% of the Company's net sales were
derived from restaurants located in the State of Texas. As a result, the
Company's results of operations may be materially affected by weather, economic
or business conditions within these markets. Also, given the Company's present
geographic concentration, adverse publicity relating to Taco Cabana restaurants
could have a more pronounced adverse effect on the Company's overall sales than
might be the case if the Company's restaurants were more broadly dispersed.
ITEM 2. PROPERTIES
The Company currently owns 37 of its restaurant sites and owns an
additional thirteen buildings on properties with ground leases. The Company
leases its remaining restaurant locations. The Company may purchase a number of
its current and future restaurant locations where it is cost effective to do so.
Substantially all of Taco Cabana's restaurants are free-standing buildings. The
Company has typically needed 120 days after the signing of a lease and obtaining
required permits to complete construction and open a new restaurant. Additional
time is sometimes needed to obtain certain government approvals and licenses,
such as liquor licenses.
Properties leased by the Company are typically leased under "triple net"
leases that require the Company to pay real estate taxes and utilities and
maintain insurance with respect to the premises and, in many cases, to pay
contingent rentals based on sales in excess of specified amounts. The leases
have initial terms of 10 to 20 years with options to renew for additional
periods which range from 5 to 15 years. Approximately 90% of the Company's
current leases have remaining terms or renewal options extending more than five
years from January 2, 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to routine negligence or employment-related
litigation in the ordinary course of its business. No such pending matters,
individually or in the aggregate, are deemed to be material to the results of
operations or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter during the fourth quarter of the
Company's fiscal year ended January 2, 2000 to a vote of the Company's
stockholders, through the solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company and their respective ages are as
follows:
Name Age Position
Stephen V. Clark 46 Chief Executive Officer, President and
Director
Douglas Gammon 53 Senior Vice President - Human Resources
and People Development
Dennis Greenia 50 Senior Vice President Marketing
David G. Lloyd 36 Senior Vice President - Finance, Chief
Financial Officer, Secretary
and Treasurer
Mr. Clark has served as the Company's Chief Executive Officer since
November 1996, and as the President, Chief Operating Officer, and as a Director
since April 1995. Prior to that, Mr. Clark was with Church's Chicken, a
division of America's Favorite Chicken, for seventeen years with his final title
having been Senior Vice President and Concept General Manager. He also served
on the executive committee of America's Favorite Chicken and was on the Board of
Directors of Church's Operators Purchasing Association. In his final position
with America's Favorite Chicken, Mr. Clark was primarily responsible for the
day-to-day operations of over 1,100 company-owned and franchised units with
aggregate sales volume in excess of $600 million.
Mr. Gammon joined the Company in March 1997 as Senior Vice President, Human
Resources and People Development. From December 1989 to March 1997, Mr. Gammon
served as Vice President of Human Resources at Marriott International which has
over 15,000 employees in 50 states. Mr. Gammon has over 18 years of experience
in the human resources field as well as over six years experience in restaurant
operations. He was the past President for the Council of Hotel and Restaurant
Trainers.
Mr. Greenia joined the Company in July 1998 as Senior Vice President -
Marketing. From January 1989 to July 1998, Mr. Greenia served as President of
the Merrill Group, a marketing consulting firm in Atlanta, GA., whose clients
included the Coca-Cola Company, Dominos Pizza, Bally's Total Fitness and
Hardee's Foods. Mr. Greenia has over 19 years experience both nationally and
internationally in the food service industry, holding positions with Burger King
Corporation, J. Walter Thompson Advertising and Coca Cola USA. Mr. Greenia is
also a majority partner in Mobile Media Network of Atlanta, Inc.
Mr. Lloyd joined the Company in October 1994 as Vice President - Finance,
Chief Financial Officer, Secretary and Treasurer and was promoted to Senior Vice
President in May 1996. From August 1985 to October 1994, Mr. Lloyd served in
various capacities with Deloitte & Touche (the Company's independent auditors),
with his last position being Senior Audit Manager. Mr. Lloyd is a certified
public accountant.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock, $.01 par value, of the Company ("Common Stock") began
trading on the NASDAQ National Market on October 16, 1992, the effective date of
the Company's initial public offering. Prior to October 16, 1992, there was no
public market for the Common Stock.
The table below sets forth, for the periods indicated, the reported high
and low last sale prices of the Company's Common Stock, as reported on the
NASDAQ National Market:
High Low
Fiscal Year Ended January 2, 2000
Quarter Ended January 2, 2000 $ 9 9/16 $ 7 7/16
Quarter Ended October 3, 1999 10 3/4 7 7/8
Quarter Ended July 4, 1999 10 3/4 8 5/16
Quarter Ended April 4, 1999 9 7/16 8
Fiscal Year Ended January 3, 1999
Quarter Ended January 3, 1999 $ 7 3/4 $ 4 7/8
Quarter Ended September 27, 1998 6 5/8 4 7/8
Quarter Ended June 28, 1998 7 1/8 5 3/4
Quarter Ended March 29, 1998 7 1/16 4 7/16
As of February 28, 2000, the last reported sale price of the Common Stock
on the NASDAQ National Market System was $6 per share. As of February 28, 2000,
there were approximately 900 record holders of Common Stock.
The Company has never declared or paid cash dividends on the Common Stock
or any of its other securities. The Company presently intends to retain all
earnings for the operation and development of its business and does not
anticipate paying any cash dividends on the Common Stock in the foreseeable
future. Any future determination as to the payment of cash dividends will
depend on a number of factors, including future earnings, capital requirements,
the financial condition and prospects of the Company and present restrictions
under credit facilities, as well as such other factors as the Board of Directors
may deem relevant. There can be no assurance that the Company will pay any
dividends in the future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data, which set forth certain financial
information with respect to the Company, have been derived from the financial
statements of the Company. The financial statements of the Company for each of
the fiscal years in the five-year period ended January 2, 2000 have been audited
by Deloitte & Touche LLP, independent certified public accountants. The
following selected financial data should be read in conjunction with the
Consolidated Financial Statements and the notes thereto included elsewhere in
this report.
December 31,December 29,December 28,January 3,January 2,
1995 1996 1997 1999 2000
52 Weeks 52 Weeks 52 Weeks 53 Weeks 52 Weeks
----------- ----------- ----------- ---------- ---------
(in thousands, except per share data)
Income Statement Data:
REVENUES:
Restaurant sales $ 137,191 $ 131,680 $131,857 $142,592 $ 159,241
Franchise fees and
royalty income 1,342 516 346 358 359
--------- --------- -------- -------- ---------
Total revenues 138,533 132,196 132,203 142,950 159,600
COSTS AND EXPENSES:
Restaurant cost of sales and
operating costs 115,195 107,703 110,440 114,111 126,571
General and
administrative 6,068 6,445 6,964 7,829 7,907
Depreciation, amortization
and restaurant opening
costs 10,301 9,245 9,659 7,990 9,581
Special charges
(reversal) (1) 8,100 2,497 78,738 (2,665) -
Litigation
settlement (2) - 3,400 - - -
Reserve for notes and
other receivables (3) 3,500 - - - -
--------- --------- --------- --------- ---------
Total costs and
expenses 143,164 129,290 205,801 127,265 144,059
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM
OPERATIONS (4,631) 2,906 (73,598) 15,685 15,541
NON-OPERATING
INCOME (EXPENSE) (1,397) (1,348) (1,137) (1,951) (2,424)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE
INCOME TAXES (6,028) 1,558 (74,735) 13,734 13,117
(PROVISION) BENEFIT FOR
INCOME TAXES 2,230 (854) 1,537 - -
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (3,798) $ 704 $ (73,198) $ 13,734 $ 13,117
========= ========= ========= ========= =========
BASIC EARNINGS (LOSS)
PER SHARE (4) $ (0.24) $ 0.04 $ (4.78) $ 0.96 $ 0.99
========= ========= ========= ========= =========
DILUTED EARNINGS (LOSS)
PER SHARE (4) $ (0.24) $ 0.04 $ (4.78) $ 0.95 $ 0.97
========= ========= ========= ========= =========
Balance Sheet Data:
TOTAL ASSETS $148,578 $142,706 $ 76,260 $ 90,202 $101,005
LINE OF CREDIT,LONG-TERM
DEBT AND CAPITAL
LEASES, INCLUDING
CURRENT MATURITIES 19,290 13,668 19,323 30,324 39,908
STOCKHOLDERS' EQUITY 112,327 113,172 36,413 40,777 42,998
DIVIDENDS PER
COMMON SHARE - - - - -
(1) Includes the charge related to the 1995 operations review of $8.1 million,
the 1996 write-down of the Company's investment in a joint venture and the
accrual of related exit costs of $2.5 million, the 1997 charge for the
write-down of impaired assets and the closure of seventeen restaurants and
the reversal of special charges in 1998 as described in Note 2 to the
Consolidated Financial Statements.
(2) Includes the 1996 litigation settlement for $3.4 million pre-tax.
(3) Reserve resulted from the 1995 operations review.
(4) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Standards No. 128, Earnings Per
Share. For further discussion of earnings per share and the impact of
Statement No. 128, see Notes 1 and 11 to the Consolidated Financial
Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
The Company commenced operations in 1978 with the opening of its first Taco
Cabana restaurant in San Antonio. As of January 2, 2000, the Company had 109
company-owned restaurants, 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 1999 fiscal year.
During the fiscal year ended January 2, 2000, the Company opened ten
restaurants and closed three restaurants.
Results of Operations
The following table sets forth 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.
Fiscal Year Ended
----------------------------------
December 28, January 3, January 2,
1997 1999 2000
Income Statement Data:
REVENUES:
Restaurant sales 99.7% 99.7% 99.8%
Franchise fees and
royalty income 0.3 0.3 0.2
----- ----- -----
Total revenues 100.0 100.0 100.0
===== ===== =====
COSTS AND EXPENSES:
Restaurant cost of sales (1) 30.8 30.4 30.0
Labor (1) 27.4 26.8 27.5
Occupancy (1) 6.2 5.5 5.2
Other restaurant
operating costs (1) 19.3 17.3 16.8
General and
administrative costs 5.3 5.5 5.0
Depreciation, amortization
and restaurant opening costs 7.3 5.6 6.0
Special charge (reversal) 59.6 (1.9) -
----- ----- -----
INCOME (LOSS) FROM OPERATIONS (55.7) 11.0 9.7
INTEREST EXPENSE, NET (0.9) (1.4) (1.5)
----- ----- -----
INCOME (LOSS) BEFORE
INCOME TAXES (56.5) 9.6 8.2
INCOME TAXES 1.2 - -
----- ----- -----
NET INCOME (LOSS) (55.4)% 9.6% 8.2%
===== ===== =====
Restaurant Data:
COMPANY-OWNED RESTAURANTS:
Beginning of period 104 98 102
Opened 7 9 10
Acquired 1 - -
Closed (14) (5) (3)
---- ---- ----
End of period 98 102 109
FRANCHISED RESTAURANTS: 11 10 10
---- ---- ----
TOTAL RESTAURANTS: 109 112 119
==== ==== ====
______________
(1) As a percentage of restaurant sales.
Fiscal 1999 Compared to Fiscal 1998
Restaurant Sales. Restaurant sales increased $16.6 million, or 11.7%, to
$159.2 million for fiscal 1999 from $142.6 million for fiscal 1998. The
increase in sales is due to an increase in sales at existing restaurants and the
opening of new restaurants during 1999, offset by a decrease in sales from
restaurant closures. Comparable store sales, defined as Taco Cabana restaurants
that have been open 18 months or more at the beginning of each quarter,
increased 5.5% during 1999. Management attributes the increase in comparable
store sales to several factors including a more consistent marketing program, a
commitment to increased staffing levels at existing restaurants, a price
increase in the last quarter of 1998 and early 1999, and the ongoing reimage
program. Sales from restaurants opened after January 3, 1999 accounted for an
increase of $9.3 million. This increase was offset by restaurants closed during
1998 which accounted for sales of $1.3 million during 1998. Due to the fact
that the Company's fiscal year is a 52 - 53 week year ending on the closest
Sunday to December 31, fiscal year 1999 contained 52 weeks and fiscal year 1998
contained 53 weeks. The additional week in 1998 accounted for approximately
$2.6 million in sales.
Franchise Fees and Royalty Income. Franchise and royalty fees remained
relatively constant for fiscal 1999 compared to fiscal 1998. There were no new
franchisee openings or closures during 1999.
Restaurant Cost of Sales. Restaurant cost of sales, calculated as a
percentage of restaurant sales, decreased to 30.0% in 1999 from 30.4% in 1998.
The decrease was primarily due to menu price increases of 2.6% implemented in
the last quarter of 1998 and early 1999, continued improvements in the
management of food costs through utilizing increased controls and improved
purchasing programs, including the continued negotiation of favorable commodity
pricing. Management expects this amount, as a percentage of sales, to be
slightly lower or remain constant in 2000.
Labor. Labor costs, calculated as a percentage of restaurant sales,
increased to 27.5% for the year ended January 2, 2000 compared to 26.8% in 1998.
The increase in labor costs is due to management's continued commitment to
increased staffing levels at the restaurants in order to provide a consistent
guest experience as well as higher than normal labor costs at newer restaurants.
New restaurants generally have higher than normal costs for the first four to
six months of operations. Management expects labor costs as a percentage of
sales to be slightly higher in 2000 as the Company moves into new markets and
continues to invest in the guest experience.
Occupancy. Occupancy costs increased by $462,000 during 1999 compared to
1998. As a percentage of restaurant sales, occupancy costs decreased to 5.2% in
the year ended January 2, 2000 compared to 5.5% in 1998. The decrease is due to
an increase in average unit sales volumes during 1999, which was in turn
attributable to the opening of new restaurants with higher volumes and increased
sales at existing restaurants. Management expects the dollar amount to increase
due to new restaurant openings but continue to decrease as a percentage of sales
in 2000.
Other Restaurant Operating Costs. Other restaurant operating costs increased
by $2.1 million to $26.8 million for the year ended January 2, 2000 compared to
$24.7 million in the same period of 1998. As a percentage of restaurant sales,
other restaurant operating costs decreased to 16.8% for the year ended January
2, 2000 compared to 17.3% in the same period of 1998. The decrease as a
percentage of sales is primarily due to leverage from higher than average sales
along with a relatively flat dollar amount per store open. Management expects
this amount, as a percentage of sales, to be flat or slightly lower in 2000.
General and Administrative. General and administrative expenses decreased
as a percentage of total revenues to 5.0% for the year ended January 2, 2000
from 5.5% for the comparable period in 1998. This decrease was primarily
attributable to an increase in sales at existing restaurants and the opening of
new restaurants. Management expects this amount to remain constant, as a
percentage of sales, in 2000.
Depreciation, Amortization and Restaurant Opening Costs. Depreciation,
amortization and restaurant opening expenses consisted of the following:
Year Ended
------------------------
January 3, January 2,
1999 2000
Depreciation of property and
equipment ......................... $ 6,816,000 $ 8,175,000
Amortization of intangible
assets ............................ 569,000 586,000
Restaurant opening costs .......... 605,000 820,000
Depreciation expense increased by approximately $1.4 million for fiscal
1999 compared to fiscal 1998. The increase was due primarily to the addition of
new restaurants as well as continued capital improvements to existing
restaurants. Restaurants opened after January 1, 1998 accounted for $1.1
million of the increase. Restaurant opening costs increased by approximately
$215,000 during fiscal 1999 compared to fiscal 1998, due primarily to the
opening of three restaurants outside of existing markets. Management expects
these amounts to increase during 2000 due to the opening of new restaurants, the
opening of restaurants in new markets and the ongoing reimage program.
Interest Expense, net. Interest expense, net of interest income and
interest capitalized on construction costs, increased to $2.4 million in fiscal
1999 from $2.0 million in fiscal 1998, primarily as a result of additional
borrowings under the Company's debt facilities. In addition, the Company
capitalized $151,000 of interest during 1999 compared to $117,000 during 1998.
Income Taxes. Income tax expense was zero for 1998 and 1999 due to the
utilization of net operating loss carryforwards relating to the special charge
of 1997. Management anticipates paying alternative minimum taxes in 2000 at a
rate of approximately 20%.
Net Income and Net Income Per Share. The Company recorded net income of
$13.1 million for 1999 compared to $13.7 million for 1998. Diluted earnings per
share was $0.97 for 1999 compared to $0.95 in 1998. The decrease in net income
is primarily due to fiscal year 1999 containing 52 weeks compared to 53 weeks in
fiscal year 1998 and net income recorded in 1998 included a $2.7 million
reversal of a portion of the special charges recorded during 1996 and 1997. Net
income recorded in 1999 and 1998 does not include any income tax expense due to
the utilization of previously unrecognized net operating loss carryforwards
relating to the special charge recorded in 1997. Including a pro-forma income
tax expense utilizing the same rate as the prior year, excluding the special
charge reversal in 1998 and excluding the estimated impact of the additional
week in 1998, the Company would have reported net income of approximately $8.3
million, or $0.61 per share (diluted) in 1999 compared to net income of
approximately $6.6 million, or $0.45 per share (diluted) in 1998. Management
attributes the increase in net income and diluted earnings per share to higher
average weekly sales at existing restaurants, continued strong cost controls at
the restaurant level and fewer shares outstanding.
Fiscal 1998 Compared to Fiscal 1997
Restaurant Sales. Restaurant sales increased $10.7 million, or 8.1%, to
$142.6 million for fiscal 1998 from $131.9 million for fiscal 1997. The
increase in sales was due to an increase in sales at existing restaurants, an
additional week of sales in 1998 compared to 1997 and the opening of new
restaurants during 1998, offset by a decrease in sales from restaurant closures.
Comparable store sales, defined as Taco Cabana restaurants that have been open
18 months or more at the beginning of each quarter, increased 4.7% during 1998.
Management attributes the increase in comparable store sales to several factors
including a more consistent marketing program featuring a value meal message, a
commitment to increased staffing levels at existing restaurants and the ongoing
reimage program. The additional week of sales in 1998 was due to the fact the
Company's fiscal year is a 52 - 53 week year ending on the closest Sunday to
December 31. Fiscal year 1998 contained 53 weeks and fiscal year 1997 contained
52 weeks. The additional week accounted for approximately $2.6 million in
additional sales for 1998 compared to 1997. Sales from restaurants opened after
December 29, 1997 accounted for an increase of $8.3 million. This increase was
offset by restaurants closed during 1997 which accounted for sales of $7.1
million during 1997.
Franchise Fees and Royalty Income. Franchise and royalty fees remained
relatively constant for fiscal 1998 compared to fiscal 1997. There were no new
franchisee openings and one franchisee closing during 1998.
Restaurant Cost of Sales. Restaurant cost of sales, calculated as a
percentage of restaurant sales, decreased to 30.4% in 1998 from 30.8% in 1997.
The decrease was due primarily to a price increase taken in the first quarter of
1998 and continued improvements in the management of food costs through
utilizing increased controls and improved purchasing programs, including the
continued negotiation of favorable commodity pricing.
Labor. Labor costs, calculated as a percentage of sales, decreased to
26.8% for the year ended January 3, 1999 compared to 27.4% in 1997. Adjusting
for restaurants closed during 1997, comparable labor as a percentage of
restaurant sales during 1997 was 26.5%. The increase in comparable labor costs
is due to an increase in the minimum wage in September 1997 and management's
commitment to increased staffing levels at the restaurant in order to provide a
consistent guest experience as well as higher than normal labor costs at newer
restaurants. New restaurants generally have higher than normal costs for the
first four to six months of operations.
Occupancy. Occupancy costs decreased by $345,000 during 1998 compared to
1997. The decrease was primarily due to the closure of underperforming
restaurants during 1997. As a percentage of restaurant sales, occupancy costs
decreased to 5.5% in the year ended January 3, 1999 compared to 6.2% in 1997.
The decrease was due to an increase in average unit sales volumes during 1998,
which was in turn attributable to the closure of underperforming restaurants,
the opening of new restaurants with higher volumes and increased sales at
existing restaurants.
Other Restaurant Operating Costs. Other restaurant operating costs decreased
by $679,000 to $24.7 million for the year ended January 3, 1999 compared to
$25.4 million in the same period of 1997. As a percentage of restaurant sales,
other restaurant operating costs decreased to 17.3% for the year ended January
3, 1999 compared to 19.3% in the same period of 1997. The decrease was due to
decreased marketing and promotional activities and an increase in average unit
sales volumes. The decrease in marketing and promotional costs is attributed to
management's decision to exit the underperforming Colorado market in December
1997, as well as the decision to move to a radio only media strategy in 1998.
General and Administrative. General and administrative expenses increased
to $7.8 million from $7.0 million, and increased as a percentage of total
revenues to 5.5% for the year ended January 3, 1999 from 5.3% for the comparable
period in 1997. This increase was primarily attributable to an increased level
of expenditures to support the Company's operations, and an increase in the
bonus accrual during 1998.
Depreciation, Amortization and Restaurant Opening Costs. Depreciation,
amortization and restaurant opening expenses consisted of the following:
Year Ended
--------------------------
December 28, January 3,
1997 1999
Depreciation of property and
equipment ......................... $ 7,942,000 $ 6,816,000
Amortization of intangible assets 1,313,000 569,000
Restaurant opening costs .......... 404,000 605,000
Depreciation expense decreased by approximately $1.1 million for fiscal
1998 compared to fiscal 1997. The decrease was due primarily to the closure of
restaurants and write-down of assets in conjunction with the special charge
recorded in the fourth quarter of 1997, offset by new restaurants opened after
December 28, 1997, as well as continued capital improvements to existing
restaurants. Amortization of intangible assets decreased by approximately
$744,000 primarily due to the write-down of goodwill and other intangible assets
during the fourth quarter of 1997. Restaurant opening costs increased by
approximately $201,000 during fiscal 1998 compared to fiscal 1997, due to the
increase in the number of restaurants opened during 1998 compared to 1997.
Special Charge Reversal. As part of the special charges recorded in the
fourth quarter of 1996 and 1997, the Company reduced the carrying value of
assets and established reserves for the estimated lease liabilities associated
with restaurants that were closed. During 1998, the Company successfully
completed sales of several of these properties to third parties or negotiated
favorable lease terminations. The amount of the proceeds in excess of the
carrying value of the assets and the remaining lease liabilities was
approximately $2.7 million. This amount was recorded as a special charge
reversal during the fourth quarter of 1998.
Interest Expense, net. Interest expense, net of interest income and
interest capitalized on construction costs, increased to $2.0 million in fiscal
1998 from $1.1 million in fiscal 1997, primarily as a result of additional
borrowings under the Company's debt facilities. In addition, the Company
capitalized $117,000 of interest during 1998 compared to $147,000 during 1997.
Net Income (Loss) and Net Income (Loss) Per Share. The Company recorded
net income of $13.7 million for 1998 compared to a net loss of $73.2 million for
1997. Diluted earnings per share was $0.95 for 1998 compared to a loss per
share of $4.78 in 1997. The net income recorded in 1998 includes the reversal
of a portion of the special charges recorded during 1996 and 1997 totaling $2.7
million. Also, net income recorded in 1998 does not include any income tax
expense due to the utilization of previously unrecognized net operating loss
carryforwards relating to the special charge recorded in 1997. Including a pro-
forma income tax expense utilizing the same rate as the prior year, and
excluding the special charge reversal in 1998, the Company would have reported
net income of approximately $7.0 million, or $0.48 per share (diluted). The
loss recorded in 1997 includes special charges totaling $78.7 million pretax
($75.7 million after-tax, or $4.94 per share). Excluding these charges, the
Company would have reported net income of $2.5 million equal to $0.16 per share
in fiscal 1997. In summary, the increase in net income and diluted earnings per
share in 1998 is attributable to several factors including an increase in sales
at existing restaurants, continued strong cost controls, the closing of
underperforming restaurants and an extra week of operations in 1998 compared to
1997.
Year 2000
The Year 2000 ( "Y2K" ) issue is the result of computer programs written
using two digits (rather than four) to define the applicable year. Without
corrective actions, programs with date-sensitive logic may recognize "00" as
1900 rather than 2000. This problem could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in similar
normal business activities.
The Company relies to a large extent on computer technology to carry out
its day-to-day operations. For this reason, the Company implemented a Year 2000
project so that the Company's computer systems would function properly in the
year 2000 and thereafter. The Company's Year 2000 project involved the review
of a number of internal and third party systems. The Company completed its
system review and made certain modifications to its existing software and
systems and/or conversions to new software. The Company assessed the Year 2000
readiness of its third party business partners and developed contingency plans
for those that appeared to have substantial Year 2000 operational risks. There
were no major internal or third party systems issues reported over the year 2000
transition.
The total cost of the Year 2000 project was approximately $600,000 and was
funded through operating cash flows and borrowings from the Company's available
credit facilities.
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 currently
maintains credit facilities totaling $50 million, including a $5 million
unsecured revolving line of credit. As of February 28, 2000, the aggregate
outstanding balance under these commitments was $41.8 million.
Net cash provided by operating activities was $20.3 million for 1999,
compared to $15.7 million for 1998. Net cash used in investing activities was
$18.4 million for 1999, representing the construction of ten Company owned
restaurants, the reimaging of twenty-nine restaurants and capital expenditures
for improvements to existing restaurants, offset by the sale of assets
generating $1.3 million in proceeds. This compared to $16.9 million of net cash
used in investing activities for 1998, representing primarily the construction
of nine Company owned restaurants and the reimaging of twenty-seven restaurants,
offset by the sale of assets generating $4.3 million in proceeds.
Net cash used by financing activities was $1.3 million for 1999 representing
the purchase of $11.4 million of the Company's stock, which is held as treasury
stock, offset in part by $9.8 million in net borrowings under the Company's
credit facilities. This compared to net cash provided by financing activities
of $1.6 million in 1998, representing primarily net borrowings under the
Company's credit facilities, offset in part by the purchase of $10.3 million in
treasury stock.
The Company's Board of Directors previously approved plans to repurchase up
to a total of 4,500,000 shares of the Company's Common Stock. As of February
28, 2000, the Company had repurchased 4,450,000 shares at an average cost of
$6.50 per share. The Company has funded the repurchases primarily through
available bank credit facilities. The timing, price, quantity and manner of
future purchases will be made at the discretion of management and will depend
upon market conditions. The Company intends to fund additional share
repurchases, if any, through available credit under its bank credit facilities
and current cash flows from operations.
The special charges recorded in 1997 and 1995 included accruals totaling
approximately $10.2 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 $754,000
during year ended January 2, 2000. During the year ended January 2, 2000, the
Company sold properties relating to the special charges which resulted in
proceeds of $1.3 million, which approximated the carrying value of the assets
sold. The Company currently has two closed restaurant properties for sale which
were covered by the special charges. Although there can be no assurance of the
particular price at which 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 a prior acquisition were reduced by payments of
approximately $236,000 during the year ended January 2, 2000.
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 2000, including
the planned opening of fifteen restaurants and the reimaging of fourteen
restaurants. Total capital expenditures related to new restaurants are
estimated to be $19.0 to $22.0 million. The total for other capital
expenditures, including the cost of the reimagings, is estimated to be $4.0 to
$6.0 million. Total capital expenditures for 2000 are expected to approximate
$23.0 to $28.0 million.
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 of new stores, and
the Company's growth may offset the impact of seasonal influences. Therefore,
quarterly results are not indicative of results for the entire year.
Forward-Looking Statements
Statements in this annual report concerning Taco Cabana which are (a)
projections of revenues, costs, including trends in cost of sales, operating
costs, labor and general and administrative costs or other financial items, (b)
statements of plans and objectives for future operations, specifically
statements regarding planned restaurant openings, closings and reimages as well
as property sales, share repurchases and cash flows, (c) statements of future
economic performance, (d) statements of projected tax rates or the utilization
of net operating loss tax carryforwards, or (e) 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 Exchange Act of 1934. The ultimate accuracy of forward
- -looking statements is subject to a wide range of risks, uncertainties and
other factors which may cause actual results and outcomes to differ, often
materially, 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 of
commodities and supplies that the Company utilizes; cost and availability of
labor; actions of our customers and competitors; changes in state and federal
environmental, economic, safety and other policies and regulations 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; natural disasters affecting operations; and adverse rulings,
judgments, or settlements in litigation or other legal matters. The Company
disclaims any intention or obligation to update or revise any such forward-
looking statements, whether as a result of new information, future events or
otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates on
debt and changes in commodity prices.
The Company's exposure to interest rate risk currently consists of its
notes payable and outstanding line of credit. The Company has notes payable and
a line of credit which bear interest at the lesser of the London Interbank Offer
Rate plus 2.25% or the prime rate, adjusted quarterly. The aggregate balance
outstanding of these notes and the line of credit as of February 28, 2000 was
$41.8 million. The Company also has a note payable which bears interest at the
prime rate. The outstanding balance of this note as of February 28, 2000 was
$886,000. The impact on the Company's results of operations of a one-point
interest rate change on the outstanding balances under the notes payable and
line of credit as of February 28, 2000 would be approximately $430,000.
The Company purchases certain commodities such as beef, chicken, flour,
produce and dairy products. These commodities are generally purchased based
upon market prices established with vendors. These purchase arrangements may
contain contractual features that limit the price paid by establishing price
floors or caps. The Company does not use financial instruments to hedge
commodity prices because these purchase arrangements help control the ultimate
cost and any commodity price aberrations are generally short term in nature.
This market risk discussion contains forward-looking statements. Actual
results may differ materially from this discussion based upon general market
conditions and changes in financial markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are set forth in this
annual report on Form 10-K commencing on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The response to this Item required by Item 401 of Regulation S-K, with
respect to directors, is incorporated by reference to the information under the
caption "Directors and Executive Officers" in Taco Cabana's Proxy Statement
for the 2000 annual meeting of stockholders to be filed with the Securities and
Exchange Commission on or before May 1, 2000 and with respect to executive
officers, is contained in Part I, hereof under the caption "Executive Officers
of the Company". The response to this Item required by Item 405 of Regulation
S-K is incorporated by reference to the information under the caption
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" of Taco
Cabana's Proxy Statement for the 2000 annual meeting of stockholders to be filed
with the Securities and Exchange Commission on or before May 1, 2000.
ITEM 11. EXECUTIVE COMPENSATION
The response to this Item is incorporated by reference to the information
under the captions "Executive Compensation" , "Summary Compensation Table" ,
"Stock Option Plans and Director's Options" , "Option Grants in Last Fiscal
Year", and "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-
End Option Values" of Taco Cabana's Proxy Statement for the 2000 annual meeting
of stockholders to be filed with the Securities and Exchange Commission on or
before May 1, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this Item is incorporated by reference to the information
under the caption "Principal Stockholders" of Taco Cabana's Proxy Statement
for the 2000 annual meeting of stockholders to be filed with the Securities and
Exchange Commission on or before May 1, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets at January 3, 1999 and January 2, 2000
Consolidated Statements of Operations for the years ended December 28, 1997,
January 3, 1999 and January 2, 2000
Consolidated Statements of Stockholders' Equity for the years ended December 28,
1997, January 3, 1999 and January 2, 2000
Consolidated Statements of Cash Flows for the years ended December 28, 1997,
January 3, 1999 and January 2, 2000
Notes to Consolidated Financial Statements
Financial Statement Schedules
No financial statement schedules are submitted because of the absence of the
conditions under which they are required or because the required information is
included in the Consolidated Financial Statements or notes thereto.
Exhibits
3.1 Restated Certificate of Incorporation, filed on December 29, 1993.
(b)
3.2 Bylaws of Registrant. (a)
4.1 Form of Common Stock Certificate. (a)
4.2 Rights Agreement dated as of June 9, 1995, between Taco Cabana, Inc.
and Society National Bank, as Rights Agent. (c)
10.5 Sample Franchise Agreement. (a)
10.6 Sample Franchise Development Agreement. (a)
10.7 Sample Beverage Sublease Agreement. (a)
10.8 Sample Concessionaire Management Agreement. (a)
10.9* Amended and Restated Stock Option Plan. (a)
10.14* 1994 Stock Option Plan. (b)
10.20 Fifth Amended Loan Agreement with International Bank of Commerce (d)
21. Subsidiaries of the Registrant. (d)
23. Consent of Deloitte & Touche LLP. (d)
24. Powers of attorney to sign amendments to this report. Reference is
made to the signature page of this report.
27. Financial Data Schedule. (d)
________________________
* Executive compensation plan or arrangement.
(a) Filed as an exhibit to Form S-1 Registration Statement No. 33-51430,
effective October 16, 1992.
(b) Filed as an exhibit to Form 10-K for the fiscal year ended January 1,
1995.
(c) Filed as an exhibit to Form 8-A Registration Statement No. 0-20716,
effective June 9,1995.
(d) Filed herewith.
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TACO CABANA, INC.
By: STEPHEN V. CLARK
Stephen V. Clark
Chief Executive Officer and President
Date: March 29, 2000
Each person whose signature appears below authorizes Stephen V. Clark and
David G. Lloyd or either of them, each of whom may act without joinder of the
other, to execute in the name of each such person who is then an officer or
director of the Registrant and to file any amendments to this annual report on
Form 10-K necessary or advisable to enable the Registrant to comply with the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, which
amendments may make such changes in such report as such attorney-in-fact may
deem appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
and on the dates indicated.
Signature Title Date
STEPHEN V. CLARK Chief Executive Officer, March 29, 2000
Stephen V. Clark President and Director
(Principal Executive Officer)
DAVID G. LLOYD Senior Vice President - Finance, March 29, 2000
David G. Lloyd Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
WILLIAM J. NIMMO Director March 29, 2000
William J. Nimmo
ROD SANDS Director March 29, 2000
Rod Sands
CECIL SCHENKER Director March 29, 2000
Cecil Schenker
RICHARD SHERMAN Director March 29, 2000
Richard Sherman
LIONEL SOSA Director March 29, 2000
Lionel Sosa
EXHIBIT INDEX
Exhibit
No.
10.20 Fifth Amended Loan Agreement with International Bank of
Commerce.
21. Subsidiaries of the Registrant
23. Consent of Deloitte & Touche LLP
27. Financial Data Schedule
EXHIBIT 21
Subsidiaries of Registrant
TP Acquisition Corp., a Texas corporation
Get Real, Inc., a Delaware corporation
Texas Taco Cabana, L.P., a Texas limited partnership
T. C. Management Inc., a Delaware corporation
T.C Lease Holdings III, V and VI, Inc., a Texas corporation
Taco Cabana Multistate, Inc., a Delaware corporation
Colorado Cabana, Inc., a Colorado corporation
Taco Cabana Atlanta, Inc., a Delaware corporation
Taco Cabana Investments, Inc., a Delaware corporation
Taco Cabana Management, Inc., a Texas corporation
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
56438 and No. 33-98124 of Taco Cabana, Inc. on Form S-8 of our report dated
February 1, 2000 appearing in this Annual Report on Form 10-K of Taco Cabana,
Inc. for the year ended January 2, 2000.
DELOITTE & TOUCHE LLP
San Antonio, Texas
March 29, 2000
This page intentionally left blank.
TACO CABANA, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Consolidated Financial Statements:
Independent Auditors' Report F-2
Consolidated Balance Sheets at January 3, 1999
and January 2, 2000 F-3
Consolidated Statements of Operations for the Years Ended
December 28, 1997, January 3, 1999, and January 2, 2000 F-4
Consolidated Statements of Stockholders' Equity for the Years
Ended December 28, 1997, January 3, 1999 and January 2, 2000 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 28, 1997, January 3, 1999 and January 2, 2000 F-6
Notes to Consolidated Financial Statements F-8
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Taco Cabana, Inc.
We have audited the accompanying consolidated balance sheets of Taco Cabana,
Inc. and subsidiaries ("the Company" ) as of January 2, 2000 and January 3,
1999, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended January 2,
2000. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Taco Cabana, Inc. and subsidiaries
at January 2, 2000 and January 3, 1999, and the results of their operations and
their cash flows for each of the three years in the period ended January 2, 2000
in conformity with accounting principles generally accepted in the United States
of America.
DELOITTE & TOUCHE LLP
San Antonio, Texas
February 1, 2000
TACO CABANA, INC.
CONSOLIDATED BALANCE SHEETS
January 3, January 2,
ASSETS 1999 2000
CURRENT ASSETS:
Cash and cash equivalents $ 719,000 $ 1,303,000
Receivables, net 438,000 507,000
Inventory 2,273,000 2,413,000
Prepaid expenses 3,128,000 3,237,000
Federal income taxes receivable 200,000 200,000
----------- ------------
Total current assets 6,758,000 7,660,000
PROPERTY AND EQUIPMENT, net 72,250,000 82,616,000
NOTES RECEIVABLE 258,000 278,000
INTANGIBLE ASSETS, net 10,724,000 10,139,000
OTHER ASSETS 212,000 312,000
----------- ------------
TOTAL ASSETS $90,202,000 $101,005,000
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,362,000 $ 4,962,000
Accrued liabilities 5,265,000 6,063,000
Current maturities of long-term debt and
capital leases 5,704,000 5,251,000
Line of credit 3,550,000 1,000,000
----------- ------------
Total current liabilities 19,881,000 17,276,000
LONG-TERM OBLIGATIONS, net of current
maturities:
Capital leases 2,140,000 1,901,000
Long-term debt 18,930,000 31,756,000
----------- ------------
Total long-term obligations 21,070,000 33,657,000
ACQUISITION AND CLOSED RESTAURANT
LIABILITIES 7,713,000 6,330,000
DEFERRED LEASE PAYMENTS 761,000 744,000
STOCKHOLDERS' EQUITY:
Preferred stock, series A; $.01 par value,
100,000 shares authorized - -
Common stock; $.01 par value, 30,000,000
shares authorized - 15,907,937 and
13,435,575 shares issued at January 3,
1999 and January 2, 2000, respectively 159,000 134,000
Additional paid-in capital 98,056,000 84,731,000
Retained deficit (43,544,000) (30,427,000)
Treasury stock, at cost - 2,576,937 shares
at January 3, 1999 and 1,354,600 shares
at January 2, 2000 (13,894,000) (11,440,000)
----------- ------------
Total stockholders' equity 40,777,000 42,998,000
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $90,202,000 $101,005,000
=========== ============
See notes to consolidated financial statements.
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
--------------------------------------
December 28, January 3, January 2,
1997 1999 2000
(52 Weeks) (53 Weeks) (52 Weeks)
REVENUES:
Restaurant sales $ 131,857,000 $ 142,592,000 $ 159,241,000
Franchise fees and royalty
income 346,000 358,000 359,000
-------------- ------------- -------------
Total revenues 132,203,000 142,950,000 159,600,000
-------------- ------------- -------------
COSTS AND EXPENSES:
Restaurant cost of sales 40,668,000 43,347,000 47,764,000
Labor 36,169,000 38,185,000 43,715,000
Occupancy 8,185,000 7,840,000 8,302,000
Other restaurant operating
costs 25,418,000 24,739,000 26,790,000
General and administrative 6,964,000 7,829,000 7,907,000
Depreciation, amortization and
restaurant opening costs 9,659,000 7,990,000 9,581,000
Special charge (reversal) 78,738,000 (2,665,000) -
-------------- ------------- -------------
Total costs and expenses 205,801,000 127,265,000 144,059,000
-------------- ------------- -------------
INCOME (LOSS) FROM OPERATIONS (73,598,000) 15,685,000 15,541,000
INTEREST EXPENSE, NET (1,137,000) (1,951,000) (2,424,000)
-------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME
TAXES (74,735,000) 13,734,000 13,117,000
BENEFIT FOR INCOME TAXES 1,537,000 - -
-------------- ------------- -------------
NET INCOME (LOSS) $ (73,198,000) $ 13,734,000 $ 13,117,000
============== ============= =============
BASIC EARNINGS (LOSS) PER
SHARE $ (4.78) $ 0.96 $ 0.99
============== ============= =============
DILUTED EARNINGS (LOSS) PER
SHARE $ (4.78) $ 0.95 $ 0.97
============== ============= =============
See notes to consolidated financial statements.
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred
Stock Common Stock Additional Retained Treasury Stock
------------ --------------------- Paid-in Eanings ----------------------------
Amount Shares Amount Capital (Deficit) Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 30, 1996 $ - 15,706,537 $157,000 $97,095,000 $15,920,000 - $ -
Purchase of stock - - - - - 871,937 (3,561,000)
Net loss - - - - (73,198,000) - -
----- ---------- -------- ----------- ----------- ---------- -------------
BALANCE, December 28, 1997 - 15,706,537 157,000 97,095,000 (57,278,000) 871,937 (3,561,000)
Options exercised - 201,400 2,000 961,000 - - -
Purchase of stock - - - - - 1,705,000 (10,333,000)
Net income - - - - 13,734,000 - -
----- ---------- -------- ----------- ----------- ----------- -------------
BALANCE, January 3, 1999 - 15,907,937 159,000 98,056,000 (43,544,000) 2,576,937 (13,894,000)
Options exercised - 104,575 1,000 543,000 - - -
Purchase of stock - - - - - 1,354,600 (11,440,000)
Retirement of treasury stock - (2,576,937) (26,000) (13,868,000) - (2,576,937) 13,894,000
Net income - - - - 13,117,000 - -
----- ---------- ------- ----------- ----------- ---------- -------------
BALANCE, January 2, 2000 $ - 13,435,575 $134,000 $84,731,000 $(30,427,000) 1,354,600 $ (11,440,000)
===== ========== ======= =========== =========== ========== =============
</TABLE>
See notes to consolidated financial statements.
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
--------------------------------------
December 28, January 3, January 2,
1997 1999 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(73,198,000) $13,734,000 $13,117,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 9,659,000 7,385,000 8,761,000
Deferred income taxes (1,818,000) - -
Special charge (reversal) 78,738,000 (2,665,000) -
Capitalized interest (147,000) (117,000) (151,000)
Deferred income and lease
payments (157,000) 59,000 (17,000)
Decrease (increase) in assets:
Receivables 634,000 150,000 (89,000)
Inventory (656,000) (168,000) (140,000)
Prepaid expenses (1,018,000) (1,424,000) (109,000)
Federal income taxes receivable 163,000 - -
Other assets 58,000 21,000 (100,000)
(Decrease) increase in
liabilities:
Accounts payable and accrued
liabilities 2,328,000 (103,000) 398,000
Acquisition and closed
restaurant liabilities (1,656,000) (1,194,000) (1,348,000)
----------- ----------- -----------
Net cash provided by operating
activities 12,930,000 15,678,000 20,322,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment (16,812,000) (21,259,000) (19,763,000)
Proceeds from sales of property
and equipment 1,379,000 4,330,000 1,337,000
----------- ----------- -----------
Net cash used by investing
activities (15,433,000) (16,929,000) (18,426,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term
debt and draws on line of credit 18,423,000 14,469,000 20,045,000
Principal payments under long-
term debt and line of credit (11,074,000) (3,276,000) (10,246,000)
Principal payments under capital
leases (1,694,000) (192,000) (215,000)
Purchase of treasury stock (3,561,000) (10,333,000) (11,440,000)
Exercise of stock options - 963,000 544,000
----------- ----------- -----------
Net cash (used) provided by
financing activities 2,094,000 1,631,000 (1,312,000)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH (409,000) 380,000 584,000
CASH AND CASH EQUIVALENTS,
beginning of period 748,000 339,000 719,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period $339,000 $719,000 $1,303,000
=========== =========== ===========
(Continued)
TACO CABANA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUMMARY OF NON-CASH TRANSACTIONS:
During 1999, assets having a net book value of $439,000 were disposed of and
charged to acquisition and closed restaurant liabilities.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Year Ended
---------------------------------------
December 28, January 3, January 2,
1997 1999 2000
Cash paid for interest, net of
interest capitalized $1,171,000 $1,848,000 $2,092,000
Cash received for income taxes 4,000 9,000 -
Cash paid for income taxes 74,000 - 2,000
(Concluded)
See notes to consolidated financial statements.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
Nature of Operations - Taco Cabana, Inc. (the " Company" ) operates a chain
of Tex-Mex patio style quick service restaurants located primarily in the
Southwestern United States. At January 2, 2000, the Company owned and
operated a total of 109 units. There were also 10 Taco Cabana franchised
units.
Principles of Consolidation - The consolidated financial statements include
all accounts of the Company and its wholly-owned subsidiaries. All
significant inter-company balances and transactions have been eliminated.
Fiscal Year - The Company's accounting period is based upon a 52 or 53 week
fiscal year ending on the Sunday closest to December 31. The fiscal years
1997, 1998 and 1999 were comprised of the 52 weeks ended December 28, 1997,
the 53 weeks ended January 3, 1999 and the 52 weeks ended January 2, 2000.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Liquor Sales - To conform to state liquor laws, liquor licenses are
maintained and liquor sales are accounted for by a separate liquor
corporation. The liquor corporation pays the Company a management fee based
on liquor sales, reimburses the Company for its share of operating costs,
and pays base and additional rent based on liquor sales. In order to more
accurately reflect restaurant operations, all revenues and expenses relating
to liquor sales have been included in the consolidated financial statements
of the Company.
Inventory - Inventory is stated at the lower of cost using the first-in,
first-out method or market, and consists primarily of food products,
beverages and paper supplies.
Property and Equipment - Property and equipment is stated at cost. Equipment
and buildings under capital leases are stated at the lower of the present
value of minimum lease payments or fair market value of the asset at the
inception of the lease. Depreciation and amortization are provided using the
straight-line method over the estimated useful lives of the assets or the
applicable lease term, if less.
The estimated useful lives used in computing depreciation and amortization
are as follows:
Furniture, fixtures and equipment 2-10 years
Buildings 20-30 years
Leasehold improvements 5-30 years
Maintenance and repairs are charged to expense as incurred; improvements
which increase the value of the property and extend the useful life are
capitalized.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(Continued)
Intangible Assets - Goodwill, or the excess of acquisition costs over the
fair market value of the assets acquired and liabilities assumed, is
amortized using the straight-line method over 10 to 40 years. The trade
name and the rights to the Taco Cabana name are amortized using the
straight-line method over 40 years.
Franchise Income - The Company has sold franchises that give the franchisees
the right to operate Taco Cabana restaurants in specified areas. Generally,
each franchisee acquires the right to open three or more restaurants. A
development fee is recognized as income when the agreement is signed, while
the franchise fee on each restaurant is deferred until the opening of the
franchised restaurant. In addition, the franchise agreement requires a
franchise royalty fee and an advertising fee on gross sales; such fees are
recorded as income when earned. The Company has not recognized any
franchise fees in the fiscal years 1997, 1998 or 1999.
Concentrations of Credit Risk - Financial instruments that potentially
subject the Company to concentrations of credit risk consisted principally
of amounts due from franchisees and receivables from credit card sales.
These risks are limited due to their geographic dispersion. The Company has
no significant concentrations of credit risk.
Income Taxes - Deferred income taxes are recognized by applying statutory
tax rates in effect at the balance sheet date to differences between the
financial statement basis and the tax basis of assets and liabilities. The
resulting deferred tax assets and liabilities are adjusted to reflect
changes in tax laws or rates at the time such changes occur. Deferred tax
assets are reported net of an allowance that management believes reduces net
deferred tax assets to the amount that is more likely than not realizable.
Earnings (Loss) Per Share - Basic earnings per share is computed by dividing
income available to common stockholders by the weighted average number of
common shares outstanding for the reporting period. Diluted earnings per
share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock. Outstanding stock options issued by the Company represent the
only dilutive effect reflected in diluted weighted average shares.
Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers all highly liquid debt instruments with a remaining maturity at
the date of purchase of three months or less to be cash equivalents.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND NATURE OF OPERATIONS
(Continued)
Commitments and Contingencies - The Company does not subscribe to worker's
compensation insurance in its Texas market. The Company accrues for claims
based on historical actual payments made for such claims and expenses, as
well as an evaluation of current and anticipated claims and expenses. The
Company does maintain an excess liability coverage which management believes
is adequate to cover any substantial claims.
Stock-Based Compensation - The Company accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
( "APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
common stock at the date of grant over the amount an employee must pay to
acquire the stock. The Company has adopted the disclosure requirements of
Statement of Financial Accounting Standards ( "SFAS" ) No. 123, Accounting
for Stock-Based Compensation, as included in Note 12.
Reclassifications - Certain reclassifications have been made to the 1997 and
1998 consolidated financial statements to conform to the presentation and
classification used in fiscal 1998 and 1999.
2. SPECIAL CHARGE (REVERSAL)
During fiscal 1997 and 1998, the following special charge and reversal are
included in the Company's consolidated financial statements:
December 28, January 3,
1997 1999
Special charge (reversal) $78,738,000 $(2,665,000)
Pro forma income tax (benefit) provision (3,018,000) 986,000
Decrease (increase) on net income 75,720,000 (1,679,000)
Decrease (increase) per share $ 4.94 $ (0.12)
Fiscal 1998 - As part of the special charges recorded in the fourth quarter of
1996 and 1997, the Company reduced the carrying value of assets and established
reserves for the estimated lease liabilities associated with restaurants that
were closed. During 1998, the company successfully completed sales of several
of these properties to third parties or negotiated favorable lease terminations.
The amount of the proceeds in excess of the carrying value of the assets and the
remaining lease liabilities was approximately $2.7 million. This amount was
recorded as a special charge reversal during the fourth quarter of 1998.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SPECIAL CHARGE (REVERSAL) (Continued)
Fiscal 1997 - During the fourth quarter of fiscal 1997, management made the
decision to close the seven restaurants in its Colorado market. The Company
committed substantial resources to this market during 1997 in an attempt to
reverse trends of poor sales and losses. The desired results from the
implementation of the plan were not achieved and the decision to close the
market was made. These seven restaurants had total sales of approximately $3.0
million and operating losses of $2.1 million during the approximately eleven
months of 1997 that they were in operation.
Additionally, the Company continued to experience unfavorable sales trends
during 1997, concluding the year with comparable restaurant sales declining
2.9%. However, during the first six months of 1997, comparable restaurant sales
declined 4.8%. This trend compelled management to continue its evaluation of
the operating model of the Company. During this evaluation, management
concluded that certain volumes must be achieved in order to operate individual
restaurants in accordance with Company standards. These standards include food
quality, cleanliness, speed of service, and profitability. Management reviewed
all existing restaurants to determine which restaurants could not reasonably be
expected to achieve these volume levels, generally annual revenues of at least
$1 million. This led to the decision to close an additional ten restaurants.
Due to the significance of the closures described above, management performed an
evaluation of the recoverability of all remaining assets as described in
Statement of Financial Accounting Standards No. 121 ( "SFAS 121" ), Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. Management concluded from the results of this evaluation that a significant
impairment of intangible as well as long-lived assets was required to be
recognized. The impairment was reflective of a market value determined to be
less than the carrying value of approximately 40 restaurants, 31 of which were
acquired. The assets were tested for impairment by projecting cash flows for
individual restaurants based on recent results and trends specific to that
restaurant. The undiscounted projected cash flows for each restaurant were
compared to the carrying value for that restaurant, including allocated
goodwill, where applicable. If the undiscounted cash flows were less than the
carrying value, an impairment was deemed to have occurred. The amount of the
impairment was determined by calculating the difference between the present
value of the projected cash flows and the carrying value attributable to the
specific restaurant. The cash flows were discounted using the rate of return
the Company utilizes for approving new restaurant construction. Such discounted
cash flows are, in management's opinion, the best estimate of the assets current
value. Considerable management judgment is necessary to estimate future
discounted cash flows. Accordingly, actual results could vary significantly
from management's estimates.
The process described above resulted in the Company's recording a special charge
during the fourth quarter of 1997 of $78.7 million pre-tax, $75.7 million after-
tax, or $4.94 per share. This amount had the following components:
. Impairment of intangible assets of $33.1 million and impairment of long-
lived assets of $22.1 million for restaurants that will continue in
operation, based on the SFAS 121 analysis described above;
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. SPECIAL CHARGE (REVERSAL) (Continued)
. A provision of $23.3 million for the closure of seventeen restaurants,
including all of the restaurants in the Colorado market. The amount was
determined in accordance with FAS 121 and was comprised of:
. $13.3 million for the carrying value of the assets, net of estimated
proceeds of $1.5 million for the sale of restaurant properties;
. $9.0 million to record the estimated lease related obligations for
closed restaurants. This amount was determined as the lesser of the
present value of the monthly lease commitments, net of expected
sublease receipts, or lease termination provisions;
. $500,000 for severance and relocation benefits paid to employees
displaced by the restaurant closures;
. $500,000 for the probable settlement of a franchisee lawsuit related to
the Colorado market.
. The write-off of other assets totaling $200,000.
During 1997, the seventeen restaurants contributed a total of $9.6 million in
sales, and had operating losses totaling $2.5 million. In addition, the total
amount of depreciation recorded during 1997 relating to assets which were
impaired was approximately $2.5 million.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consisted of the following:
January 3, January 2,
1999 2000
Trade receivables:
Royalties $ 97,000 $ 75,000
Other 365,000 505,000
Notes receivable - current portion 78,000 26,000
-------- --------
Total 540,000 606,000
Less allowance for doubtful accounts (102,000) (99,000)
-------- --------
Receivables, net $438,000 $507,000
======== ========
Notes receivable - noncurrent:
Franchisees $258,000 $278,000
======== ========
Notes receivable from franchisees approximate fair value because the
underlying instruments have an interest rate that approximates current
market rates. The Company's allowance for doubtful accounts is reflected
as a reduction of receivables in the consolidated balance sheets.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consisted of the following:
January 3, January 2,
1999 2000
Property and equipment:
Land $20,384,000 $21,635,000
Furniture, fixtures and equipment 48,245,000 56,416,000
Leasehold improvements 13,820,000 18,272,000
Buildings 17,322,000 21,355,000
Construction in progress 920,000 616,000
----------- -----------
100,691,000 118,294,000
Less accumulated depreciation and
amortization (31,424,000) (39,007,000)
----------- -----------
Total 69,267,000 79,287,000
----------- -----------
Property and equipment held under
capital leases:
Buildings 4,401,000 4,915,000
Less accumulated amortization (1,418,000) (1,586,000)
----------- -----------
Total 2,983,000 3,329,000
----------- -----------
Property and equipment, net $72,250,000 $82,616,000
=========== ===========
At January 2, 2000, the Company had two properties held for sale. The total
carrying amount of these assets is $600,000, which management estimates to
be the net proceeds from the disposition of these assets. See Note 2.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consisted of the following:
January 3, January 2,
1999 2000
Intangible assets:
Goodwill $16,154,000 $16,154,000
Trade name 1,576,000 1,576,000
----------- -----------
17,730,000 17,730,000
Less accumulated amortization (7,006,000) (7,591,000)
----------- -----------
Intangible assets, net $10,724,000 $10,139,000
=========== ===========
Other assets:
Deposits $ 177,000 $ 184,000
Other 35,000 128,000
----------- -----------
Other assets $ 212,000 $ 312,000
=========== ===========
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
January 3, January 2,
1999 2000
Payroll related $2,380,000 $2,807,000
Closed restaurant obligations 740,000 798,000
Property taxes 557,000 583,000
Restaurant expenses 433,000 472,000
Interest 36,000 306,000
Employee injury 271,000 297,000
Legal 168,000 157,000
Other 680,000 643,000
---------- ----------
Total $5,265,000 $6,063,000
========== ==========
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LEASES
Operating Leases - The Company leases restaurant facilities under non-
cancelable operating leases with initial terms ranging from ten to twenty
years with options to renew. The future minimum lease commitments under all
non-cancelable operating lease obligations as of January 2, 2000 were as
follows:
Years ending:
2000 $ 7,710,000
2001 7,879,000
2002 7,671,000
2003 7,587,000
2004 7,459,000
Thereafter 34,889,000
-----------
Total $73,195,000
===========
The total rental expense for operating leases was approximately $6.6 million
for 1997, $6.2 million for 1998 and $6.7 million for 1999, including
additional rents of approximately $291,000, $185,000 and $215,000 for 1997,
1998 and 1999, respectively.
The Company remains contingently liable on eight operating leases which were
assigned to the purchasers of units previously sold or closed. Future
minimum lease commitments under these contingent obligations approximate
$669,000 in 2000, and a total of $2.4 million in 2001 through 2004.
Thereafter, the total minimum lease payments are approximately $ 2.0
million. The Company assesses the probability of its having to assume
primary liability under these assignments on an annual basis.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. LEASES (Continued)
Capital Leases - The Company leases certain buildings under capital lease
agreements with third parties. The leases have fifteen and twenty year
terms. Future minimum lease payments under the capital leases and the net
present value of the minimum lease payments at January 2, 2000 were:
Years ending:
2000 $ 445,000
2001 446,000
2002 446,000
2003 439,000
2004 368,000
Thereafter 846,000
-----------
Total minimum lease payments 2,990,000
Less amount representing interest at 9% to 13% 851,000
-----------
Net present value of minimum lease payments 2,139,000
Less current portion 238,000
-----------
Long-term portion of capital leases $ 1,901,000
===========
In addition to the minimum lease payments, several of the leases have a
contingent rental based on 5% to 6% of gross sales, if such amounts exceed
minimum rent. No payments have been made under these agreements.
Furthermore, certain leases have been guaranteed by a former employee of the
Company.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT
Long-term debt consisted of the following notes payable:
January 3, January 2,
1999 2000
Notes payable to a bank, bearing interest
at the lessor of prime or LIBOR plus
2.25% (8.25% at January 2, 2000),
collateralized by certain restaurant
assets, due in installments of principal
and interest through December 2006 $23,054,000 $35,815,000
Note payable to a bank, bearing interest
at prime (8.50% at January 2, 2000),
unsecured, due in monthly installments of
principal and interest through
April 2000 1,365,000 954,000
----------- -----------
Total 24,419,000 36,769,000
Less current maturities 5,489,000 5,013,000
----------- -----------
Long-term debt, net $18,930,000 $31,756,000
=========== ===========
The future minimum payments of long-term debt outstanding at January 2, 2000
were as follows:
Years ending:
2000 $ 5,013,000
2001 4,157,000
2002 4,519,000
2003 4,515,000
2004 11,000,000
Thereafter 7,565,000
---------------
Total $ 36,769,000
===============
The amounts stated in the Company's consolidated balance sheets for
long-term debt approximate fair value because the underlying note payable
balance fluctuates frequently or it is at a rate approximating current
market rates.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LINE OF CREDIT
During 1999 the Company had in place two secured credit facilities totaling
$40 million, including a $5 million revolving line of credit. On December
20, 1999 the credit facilities were amended and increased to a total of $50
million. As part of the amendment, the commitments were extended to
December 31, 2001. Interest on funds borrowed under the facilities are
charged at the prime rate or, at the Company's choice, 2.25% over the London
Interbank Offered Rate (LIBOR), adjusted quarterly. The credit facilities
are secured by property and equipment. The facilities contain certain
covenants, including cash flow to fixed charges ratio, minimum net worth,
debt to tangible net worth ratio, and intangible assets to net worth ratio
requirements. During the year ended January 2, 2000, the Company was in
compliance with all such covenants. At January 2, 2000, the Company had
approximately $9.0 million available for cash borrowings under these credit
facilities.
10.ACQUISITION AND CLOSED RESTAURANT LIABILITIES
The Company establishes acquisition liabilities, as necessary, in connection
with the purchase method of accounting for restaurants and other assets
it acquires. Such liabilities are primarily related to leases that were at
terms less favorable than market rates prevailing at the acquisition
date and anticipated restaurant closure costs, if any.
The liability established for leases in excess of the prevailing market were
based on current market rental rates at the date of acquisition as compared
to the terms of the leases acquired. This liability is being amortized as a
reduction of occupancy expense over the remaining term of the applicable
leases. The total amount of this reserve was $1.2 million and $1.0 million,
at January 3, 1999 and January 2, 2000, respectively. During 1998 and 1999,
approximately $181,000 and $170,000, respectively, of the balance was
amortized in this manner.
Acquisition liabilities include reserves established for the closure of
certain acquired restaurants. These restaurants were anticipated to be
closed at the time of acquisition. The amounts reserved were equal to the
value assigned to the building and equipment acquired, less any anticipated
salvage value, plus an amount estimated to terminate the lease prior to its
expiration date. The total amount of this reserve was $261,000 and $175,000
at January 3, 1999 and January 2, 2000, respectively. During 1998 and 1999,
approximately $1.0 million and $86,000, respectively, of this reserve
was utilized in the closure of restaurants. As part of the special charge
reversal recorded in 1998, the Company reversed $200,000 of this reserve.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10.ACQUISITION AND CLOSED RESTAURANT LIABILITIES (continued)
In 1997, as part of the special charge, the Company reserved amounts for
closed restaurant liabilities. The amounts reserved were equal to the lesser
of the present value of the monthly lease commitments, net of expected
sublease receipts, or lease termination provisions. These reserves were
approximately $6.2 million and $5.5 million at January 3, 1999 and
January 2, 2000, respectively. It is currently anticipated that payments
of approximately $800,000 will be made under lease and other obligations
during 2000. During 1998 and 1999, approximately $2.7 million and $754,000,
respectively, of this reserve was utilized in the closure of restaurants.
During 1998 and 1999, the Company received proceeds of approximately $4.3
million and $1.3 million, respectively, from the sales of closed restaurant
properties. As part of the special charge reversal recorded in 1998,
the Company re-evaluated lease obligations for closed restaurants and
reversed approximately $2.5 million of the lease liability reserves for such
restaurants.
11.EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
Year Ended
-----------------------------------------
December 28, January 3, January 2,
1997 1999 2000
Numerator for basic and
diluted earnings per
share - net income (loss) $(73,198,000) $13,734,000 $ 13,117,000
Denominator:
Denominator for basic
earnings per share -
weighted-average shares 15,314,665 14,336,526 13,199,044
Effect of dilutive securities -
Employee stock options - 140,067 366,806
------------ ----------- -------------
Denominator for diluted
earnings per share -
adjusted weighted-average
and assumed conversions 15,314,665 14,476,593 13,565,850
============ =========== =============
Basic earnings (loss)
per share $ (4.78) $ 0.96 $ 0.99
============ =========== =============
Diluted earnings (loss)
per share $ (4.78) $ 0.95 $ 0.97
============ =========== =============
For additional disclosures regarding outstanding employee stock options, see
Note 12.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS
Stock Options - The Company has stock option plans (the " Plans" ) for
employees, outside directors, and advisors of the Company covering 2,750,000
shares of the Company's common stock. Options under such plans generally become
exercisable ratably over a two to five year period. All options expire at the
earlier of termination of employment or ten years after the date of grant. The
Plans terminate in 2000 and in 2004. The Plans are administered by a committee
of outside members of the Board of Directors. In addition, certain directors
were awarded non-qualified stock options pursuant to the terms of separate
compensation agreements. At January 2, 2000, there were no shares available for
issuance. Options outstanding are as follows:
Weighted
Average
Total Options Exercise
Outstanding Price
Options outstanding, December 29, 1996 1,111,500 $ 6.18
Granted 379,750 4.63
Exercised - -
Expired or canceled (140,375) 8.57
---------
Options outstanding, December 28, 1997 1,350,875 $ 5.64
Granted 480,050 6.17
Exercised (201,400) 4.78
Expired or canceled (125,000) 5.24
---------
Options outstanding, January 3, 1999 1,504,525 $ 5.76
Granted 218,908 8.75
Exercised (104,575) 5.20
Expired or canceled (39,675) 7.05
---------
Options outstanding, January 2, 2000 1,579,183 $ 6.17
=========
Options exercisable, January 2, 2000 838,304 $ 5.82
=========
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS (Continued)
For the options outstanding at January 2, 2000, the weighted average
remaining life and exercise price of these outstanding options were 42
months and $6.12, respectively. In addition, the weighted average exercise
price of options granted during 1999 was $8.75.
SFAS No. 123, Accounting for Stock-Based Compensation, allows entities to
continue to use Accounting Principles Board (" APB") Opinion No. 25,
Accounting for Stock Issued to Employees. The Company has evaluated SFAS
No. 123 and intends to continue following APB Opinion No. 25. The pro-forma
compensation expense, net income (loss) and earnings (loss) per share which
were calculated as if SFAS No. 123 had been applied are as follows:
Year Ended
-----------------------------------------
December 28, January 3, January 2,
Pro Forma 1997 1999 2000
Compensation expense $ 555,000 $ 329,000 $ 380,000
Net income (loss) (73,548,000) 13,405,000 12,737,000
Basic earnings
(loss) per share $ (4.80) $ 0.94 $ 0.96
Diluted earnings
(loss) per share $ (4.80) $ 0.93 $ 0.94
The Black-Scholes option pricing model was used to determine the above pro-
forma information. The calculations relied upon estimates of the volatility
of the Company's stock and expected dividends, as well as determinations of
a risk-free interest rate and expected life of the options. A volatility
rate of 49.0% was used for options granted prior to 1994, 37.5% was used for
options granted during 1994, 36.0% was used for options granted during 1995
through 1996, 34.0% was used for options granted during 1997, 33.0% was used
for options granted during 1998, and 26% was used for options granted during
1999. Dividends were estimated at zero. The discount rate charged on loans
to depository institutions by the Federal Reserve Bank was used as the risk-
free interest rate. The discount rate was approximately 5.0% for all of
1999. The Company's options have a ten year life and vesting periods
ranging from two to five years.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.STOCKHOLDERS' EQUITY AND STOCK OPTIONS (Continued)
Preferred Stock Purchase Rights - In June 1995, the Company's Board of
Directors declared a distribution of one preferred stock purchase right for
each share of the Company's common stock. The rights were distributed on
June 20, 1995 to stockholders of record as of the close of business on that
day. Each right will entitle the holder to buy 1/1000 of a share of a newly
authorized Series A preferred stock at an exercise price of $37.50 per
right. The rights become exercisable on the tenth day after public
announcement that a person or group has acquired 15% or more of the
Company's common stock. The rights may be redeemed by the Company prior to
becoming exercisable by action of the Board of Directors at a redemption
price of $0.01 per right. If the Company is acquired in a merger or other
business combination transaction in which it is not the surviving
corporation, each right will entitle its holder to purchase stock of the
acquiring company having a market value of twice the exercise price. In the
event that the Company is the surviving corporation, each right will entitle
its holder to purchase the Company's common stock having a market value of
twice the exercise price of each right. At January 2, 2000, there were
12,080,975 rights outstanding.
Preferred Stock - In June 1995, in connection with its implementation of the
stockholders' rights plan discussed above, the Company authorized 100,000
shares of Series A, preferred stock with a par value of $0.01 per share,
which would become issuable only at such time, if ever, as the rights become
exercisable. As of January 2, 2000 there were no shares outstanding.
Treasury Stock - The Company's Board of Directors previously authorized the
purchase in the open market of up to 4,500,000 shares of the Company's
outstanding common stock. Through the first quarter of 1999, the Company had
repurchased 2,585,000 shares with an aggregate cost of $13.9 million.
During the first quarter, the Company retired all shares held as treasury
shares. The cost of retired shares in excess of par value has been charged
to additional paid in capital. Subsequent to the first quarter, the Company
repurchased an additional 1,354,600 shares at an aggregate cost of $11.4
million, which as of January 2, 2000 were held as treasury stock.
Subsequent to January 2, 2000, the Company purchased an additional 510,400
shares of the Company's common stock at an average price of $6.93.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13.INCOME TAXES
The provision (benefit) for income taxes differs from the amount computed
using statutory rates as shown below:
Year Ended
-------------------------------------------
December 28, January 3, January 2,
1997 1999 2000
Federal income tax at
starting date $(25,410,000) $4,670,000 $ 4,460,000
State income taxes 48,000 - -
Goodwill and other 4,819,000 (15,000) (339,000)
Change in valuation
allowance 19,006,000 (4,655,000) (4,121,000)
------------ ---------- -----------
Total $ (1,537,000) $ - $ -
============ ========== ===========
The provision (benefit) for income taxes is comprised of the following:
Year Ended
------------------------------------------
December 28, January 3, January 2,
1997 1999 2000
Current $ 281,000 $ - $ -
Deferred (1,818,000) - -
------------ ---------- ----------
Total $ (1,537,000) $ - $ -
============ ========== ==========
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES (Continued)
Deferred income taxes and benefits are provided for differences between the
financial statement carrying amount of existing assets and liabilities and
their respective tax bases. Significant deferred tax assets and liabilities
are as follows:
January 3, January 2,
1999 2000
Current:
Deferred Federal Tax Assets:
Workmen's compensation claims $ 337,000 $ 101,000
Accounts receivable 35,000 34,000
Accrued vacation 21,000 30,000
----------- -----------
Net Current Deferred Tax Asset $ 393,000 $ 165,000
=========== ===========
Noncurrent:
Deferred Federal Tax Assets:
Net operating loss carryforward $ 6,955,000 $ 4,672,000
General business tax credit
carryforward 590,000 655,000
Closed stores and lease liabilities 1,400,000 2,435,000
Alternative minimum tax credit
carryforward 1,277,000 997,000
Deferred rent 2,416,000 766,000
Other - Special charge 378,000 266,000
Charitable Contributions 51,000 149,000
Intangible Assets 1,857,000 1,591,000
Other - 159,000
----------- -----------
Total 14,924,000 11,690,000
----------- -----------
Deferred Federal Tax Liabilities:
Fixed assets (966,000) (1,625,000)
----------- -----------
Total (966,000) (1,625,000)
----------- -----------
Net Noncurrent Deferred Tax Asset 13,958,000 10,065,000
----------- -----------
Net Deferred Tax Asset before
valuation allowance 14,351,000 10,230,000
Valuation Allowance (14,351,000) (10,230,000)
----------- -----------
Net Deferred Tax Asset $ - $ -
=========== ===========
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13.INCOME TAXES (Continued)
At January 2, 2000, the Company had net operating loss, alternative minimum
tax and general business tax credit carry-overs of approximately $13.7
million, $997,000 and $655,000, respectively. A portion of the above carry-
overs resulted from a prior acquisition; the Company was allowed to utilize
the net operating loss of $5.4 million and tax credit carry-overs of
$178,000 that existed at the date of acquisition. However, because of the
change in ownership, the net operating loss carry-over utilization is
further limited to approximately $953,000 per year, and the tax credit
carry-over acquired from a prior acquisition is limited each year to the tax
equivalent of any remaining portion of the net operating loss limitation.
The net operating loss and tax credit carry-overs begin to expire in 2003
and 2000, respectively.
The alternative minimum tax credit carry-over and the remaining general
business credit carry-overs are available to offset future regular tax
liabilities. The general business credit begins to expire in 2007. The
alternative minimum tax credit has no expiration date.
14.LITIGATION SETTLEMENT AND LEGAL PROCEEDINGS
The Company is a party to routine negligence or employment-related litigation in
the ordinary course of its business. No such pending matters, individually or
in the aggregate, are deemed to be material to the results of operations or
financial condition of the Company.
TACO CABANA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15.QUARTERLY FINANCIAL DATA (Unaudited)
Quarter Ended
----------------------------------------------------
March 29, June 28, September 27, January 3,
1998 1998 1998 1999 (1)
Total revenues $ 32,407,000 $36,292,000 $36,270,000 $37,981,000
Gross profit 22,615,000 25,463,000 25,168,000 26,357,000
Net income applicable
to common stock 1,857,000 3,297,000 2,895,000 5,686,000
Basic earnings
per share $ 0.13 $ 0.22 $ 0.20 $ 0.42
Diluted earnings
per share $ 0.12 $ 0.22 $ 0.20 $ 0.41
Quarter Ended
-----------------------------------------------------
April 4, July 4, October 3, January 2,
1999 1999 1999 2000
Total revenues $ 36,910,000 $41,417,000 $41,449,000 $39,824,000
Gross profit 25,983,000 28,908,000 28,910,000 28,035,000
Net income applicable
to common stock 2,764,000 3,857,000 3,655,000 2,840,000
Basic earnings
per share $ 0.21 $ 0.29 $ 0.27 $ 0.22
Diluted earnings
per share $ 0.20 $ 0.28 $ 0.27 $ 0.22
(1) See Note 2 for discussion of the special charge reversal recorded in
this quarter.
FIFTH AMENDED LOAN AGREEMENT
This Fifth Amended Loan Agreement, dated as of the ___ day of December,
1999, is entered into by and among TACO CABANA, INC., a Delaware corporation,
TEXAS TACO CABANA, L.P., a Texas limited partnership, TP ACQUISITION CORP., a
Texas corporation, T.C. MANAGEMENT, INC., a Delaware corporation, TACO CABANA
MANAGEMENT, INC., a Texas corporation, and TACO CABANA MULTISTATE, INC., a
Delaware corporation (collectively the "Borrower"), and INTERNATIONAL BANK OF
COMMERCE, a state banking association (the "Lender").
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
SECTION 1. THE LOANS.
1.1 Loan Commitment. Subject to the terms and conditions hereof, the
Lender agrees to lend and advance to Borrower, from time to the time until
December 31, 2001 (the "Loan Commitment Period"), such sums as the Borrower may
request, but which shall not exceed, in the aggregate principal amount at any
one time outstanding, the amount of $45,000,000.00 ("Loan Commitment").
1.2 The Loans. Each borrowing under the Loan Commitment shall be referred
to herein as a "Loan" (and such borrowings shall be collectively referred as the
"Loans" ), shall be deemed a separate and independent loan and shall be
evidenced and secured as set forth below. The loans (the "Existing Loans" )
evidenced by the following described promissory notes (each a "Note" as such
term is used and defined herein) are also Loans governed by this Agreement: (i)
that certain real estate lien note in the original principal amount of Ten
Million and No/100 Dollars ($10,000,000.00) dated May 15, 1995, executed by
Borrower and being payable to the order of Lender; (ii) that certain real estate
lien note in the original principal amount of Three Million Seven Hundred
Thousand and No/100 Dollars ($3,700,000.00) dated August 8, 1997, executed by
Borrower and being payable to the order of Lender; (iii) that certain real
estate lien note in the original principal amount of Eleven Million and No/100
Dollars ($11,000,000.00) dated December 23, 1997, executed by Borrower and being
payable to the order of Lender; (iv) that certain real estate lien note in the
original principal amount of Thirteen Million Three Hundred and No/100 Dollars
($13,300,000.00) dated January 15, 1999, executed by Borrower and being payable
to the order of Lender and (v) that certain real estate lien note in the
original principal amount of Ten Million and No/100 Dollars ($10,000,000.00)
dated of even date, executed by Borrower and being payable to the order of
Lender
1.3. Note Interest. Subject to Section 7 herein, interest on the Loans
shall be calculated in accordance with the following:
a. All of the Loans shall bear interest at the Applicable Rate (as
defined below). For purposes hereof "Applicable Rate" shall mean, at any
time, the rate of interest per annum equal to the lesser of (i) at Borrower's
option exercised as set forth below, (A) the LIBOR Rate (as hereinafter defined)
then in effect plus two and 25/100th percent (2.25%), to be recomputed as of
each Interest Adjustment Date, or (B) the New York Prime (as hereinafter
defined), or (ii) the maximum rate of interest allowed by applicable law, as now
or hereafter in effect (the " Maximum Rate" ). The term "Interest Adjustment
Date" shall mean each of December 31, 1999, March 31, 2000, June 30, 2000,
September 30, 2000, December 31, 2000, March 30, 2001, June 30, 2001, September
30, 2001 and December 31, 2001. The "New York Prime Rate" shall mean the
floating annual lending rate of interest announced from time to time by the
Chase Manhattan Bank, N.A., New York, New York as its prime rate, if a prime
rate is not announced by Chase Manhattan Bank, N.A., then the term "New York
Prime Rate" shall mean the floating annual lending rate of interest announced
from time to time by Lender as its prime rate less one percent (1%). The term
"LIBOR Rate" shall mean, as of a particular date, the per annum rate of
interest identified as the three (3) months London Interbank offered Rate in the
"Money Rates" Section of the Southwest Edition of the Wall Street Journal
most recently published as of Interest Adjustment Date immediately previous to
such date; provided, however, that if the Wall Street Journal shall discontinue
or shall fail to regularly publish such rate in its " Money Rates" section or
should the LIBOR Rate become for any other reason unascertainable or be
construed by a court of competent jurisdiction as not constituting an index or
formula by which the foregoing described rate of interest can be determined,
then the LIBOR Rate option will no longer be available hereunder. Borrower
acknowledges that Lender makes no warranty or representation that the New York
Prime Rate, LIBOR Rate or Lender's prime rate are more favorable than another
rate or index, or that rates on other loans or credit facilities may not be
based on other indices, or that rates on loans to others may not be made below
such rates. Payments of interest under the Loans shall be payable quarterly.
b. Upon at least two (2) Business Days' prior written notice from Borrower
to Lender in substantially the form attached hereto as Exhibit "A" , Borrower
may, on any Interest Adjustment Date elect to use either the New York Prime Rate
or the LIBOR Rate for the calculation of the Applicable Rate; provided, however,
that the rate of interest as elected in this section must be the same rate of
interest as elected in Section 1.3 of that certain Fourth Amended Revolving Loan
Agreement dated of even date herewith by and between Borrower and Lender.
c. To the extent Borrower has not made an effective election under and in
accordance with this Section 1.3, the Applicable Rate shall be calculated using
the New York Prime Rate.
1.4 Commitment Fee. During the Loan Commitment Period, Borrower agrees to
pay to Lender a commitment fee computed at the rate of one-quarter of one
percent (0.25%) per annum on the daily average unused amount of the Loan
Commitment during each Quarterly Cycle (as hereinafter defined). Such
commitment fee shall be payable quarterly, in arrears, on the last day of each
March, June, September and December during the Loan Commitment Period,
commencing December 31, 1999 and continuing in consecutive quarterly payments
thereafter until the date of expiration of the Loan Commitment Period, on which
date any accrued and unpaid fee computed in accordance with the provisions of
this Section shall be due and payable. For purposes of this Section 1.4, the
term "Quarterly Cycle" shall refer to each calendar quarter during the Loan
Commitment Period.
1.5 Replaces Prior Commitment. This Fifth Amended Loan Agreement replaces
entirely that certain Fourth Amended Loan Agreement dated as of December 31,
1998 which governed the terms of a $35,000,000.00 loan commitment from Lender to
Taco Cabana, Inc. ("Prior Commitment"). The Borrower and Lender acknowledge
that the Prior Commitment is null and void and of no further force or effect.
1.6. Revolving Loan Agreement. The Borrower and Lender have entered into
a Fifth Amended Revolving Loan Agreement of even date herewith ("Revolving Loan
Agreement"). The term "Revolving Loan Documents" as used in this Fifth Amended
Loan Agreement shall have the meaning provided in the Revolving Loan Agreement.
SECTION 2. SECURITY AND COLLATERAL.
2.1 Composition of the Collateral. The Loans shall be secured primarily
with first liens and security interests upon those tracts of Borrower's real
property which are agreed upon between Borrower and Lender ("Security Tracts"),
together with the improvements, furniture, fixtures, equipment, accounts and
inventory located on, attributable to or used in connection with the Security
Tracts, as specifically set out in, and together with such other mortgages,
liens and security interests as set out in the Loan Documents set forth in
Section 3.2 below. The security granted by the Loan Documents shall constitute
collateral for the indebtedness established by the Loans and as otherwise
established and set out in the Loan Documents (cumulatively the "Secured
Indebtedness"). All of the mortgages, liens, security interests, and rights
granted to Lender by the Loan Documents shall secure any and all Secured
Indebtedness. Lender shall not be required to release any of the liens,
security interests, and rights granted or given to Lender by any of the Loan
Documents unless and until all of the Secured Indebtedness has been paid in
full. The Loan Documents shall provide that a default under any Loan Document
shall constitute a default under the Loan Documents for all Loans.
2.2 Priority of Liens. The liens, security interests, and rights granted
to Lender to secure the Secured Indebtedness shall be first and prior except for
(i) liens for ad valorem taxes not yet due or payable, and (ii) those matters
expressly approved by Lender, in advance and in writing, which approval Lender
is under no obligation to provide.
2.3 Perfection and Preservation of Liens. Borrower will (i) execute and
deliver to Lender from time to time at the request of Lender such documents or
instruments as Lender shall deem necessary or appropriate, and will take such
other and further actions as Lender may from time to time request, in order to
perfect, continue, protect and preserve the liens, security interests and rights
granted to Lender by the Loan Documents; and (ii) pay or reimburse the Lender
for all costs and taxes of filing or recording the same in such public offices
as the Lender may designate.
SECTION 3. CONDITIONS PRECEDENT.
The obligation of the Lender to make a Loan hereunder is subject to the
following conditions precedent:
3.1 Certain Events. The following conditions precedent must be fully
satisfied as of the date of any Loan:
a. No event of default under this Agreement or any Loan Document, as
defined below, shall have occurred, and no event shall have occurred and be
continuing that, with the giving of notice or passage of time, or both, would be
such an event of default.
b. Lender shall have received an appraisal of the fair market value
of the real property and improvements thereon to be granted as security for the
Loan, in a form, and prepared by an appraiser, approved by Lender, which
indicates that the amount of the proposed Loan is no greater than eighty percent
(80%) of the lesser of (i) the appraised fair market value of such property, or
(ii) the purchase price paid by Borrower for such property.
3.2 Documents Required for the Closing. Prior to any disbursement of any
Loan (the "Closing"), the following documents ("Loan Documents") shall have been
delivered to Lender, fully executed and acknowledged where required and all in
form and substance acceptable to Lender:
a. This Agreement.
b. A Real Estate Lien (Promissory) Note ("Note").
c. A Security Agreement between Borrower and Lender, granting to
Lender a security interest in, among other property, all of Borrower's right,
title and interest, whether now or hereafter acquired, in all accounts,
inventory and equipment, and all proceeds thereof, located on, attributable to
or used in connection with the Security Tracts.
d. A Deed of Trust, Assignment of Rents, Security Agreement and
Financing Statement from Borrower to Thomas L. Travis, Trustee for the benefit
of Lender, granting a first lien upon the real property and improvements thereon
to secure t he respective Loan.
e. Financing statements as Lender shall deem necessary to file from
time to time in order to perfect and preserve the security interests granted by
the Loan Documents.
f. A Commitment and Policy for Mortgagee Title Insurance issued by a
title company acceptable to Lender and for the aggregate amount of the
respective Loan.
g. A survey of the real property and improvement thereon prepared by
a surveyor acceptable to Lender.
h. Engineering and other information evidencing the absence of
pollution or contamination on the property being acquired and the suitability of
such property for Borrower's intended restaurant operation.
i. Tax Certificates evidencing that there are no ad valorem taxes or
assessments which are past due or payable.
j. Liability and casualty insurance coverage in an amount and issued
by carriers approved by Lender.
k. For the first Loan made hereunder, certified (as of the date of
Closing) copies of (i) resolutions of the Borrower's board of directors (for
each borrower which is a corporation) or a consent of all general partners (for
each Borrower which is a partnership) authorizing the execution, delivery, and
performance of this Agreement and the Loan Documents, and each other document to
be delivered pursuant hereto including a certification (dated the date of the
Closing) of the Borrower's secretary or its managing or general partner, as the
case may be, as to the incumbency and signatures of the officers of the Borrower
signing the Loan Documents, and each other document to be delivered pursuant
hereto; (ii) Borrower's bylaws, or partnership agreement, including all
amendments thereto; (iii) Borrower's articles of incorporation, including any
and all amendments thereto; and (iv) certificates as to the good standing of
Borrower from applicable governmental authorities. For each Loan after the
first Loan, Borrower shall deliver to Lender and the applicable title insurer
(i) a current written statement of the Borrower's corporate secretary or
managing partner, as the case may be, stating that each of the documents listed
in this Section 3.2(k) delivered in conjunction with the first Loan remains
valid, unamended and effective and applicable to the particular Loan to be made
(or, if such statement cannot truthfully be given then a current written
statement of Borrower's corporate secretary stating the particular reasons why
such statement cannot be truthfully given, together with any amended documents),
and (ii) any of the documents listed in this Section 3.2(k) which are required
by the title insurer for a particular Loan, in order to issue the required
mortgagee's title insurance policy.
l. Any and all other documents or instruments as may be required by
Lender.
m. Prior to the first Loan, and thereafter at the request of Lender,
a true and complete list of all legal actions, claims, proceedings,
investigations and notices thereof, against or affecting Borrower.
SECTION 4. REPRESENTATIONS AND WARRANTIES
4.1 Original. To induce the Lender to enter into this Agreement, and to
fund the Loans to be made hereunder, each Borrower represents and warrants to
the Lender as follows:
a. Borrower is a corporation or general partnership or limited
partnership, as applicable, duly organized, validly existing, and in good
standing under the laws of the state under which it was organized; Borrower has
the lawful power to own its properties and to engage in the business it
conducts, and is duly qualified and in good standing as a foreign corporation or
foreign partnership in the jurisdictions wherein the nature of the business
transacted by it or property owned by it makes such qualification necessary.
b. Borrower is not in default with respect to any of its existing
indebtedness, and the making and performance of the Loan Documents will not
immediately or with the passage of time, or the giving of notice, or both: (i)
Violate the charter or bylaw or partnership provisions of Borrower; or (ii)
Violate any Laws or result in a default under any contract, agreement, or
instrument to which Borrower is a party or by which Borrower or its property is
bound.
c. Borrower has the power and authority to enter into and perform
each of the Loan Documents to which it is a party, and to incur the obligations
herein and therein provided for, and has taken all corporate or partnership
action necessary to authorize the execution, delivery, and performance of this
Agreement and such other Loan Documents.
d. The Loan Documents are, and the Note when delivered will be,
valid, binding, and enforceable in accordance with their respective terms.
e. There is no pending order, notice, claim, litigation, proceeding,
or investigation against or affecting Borrower, whether or not covered by
insurance, that would materially and adversely affect the business of Borrower
if adversely determined.
f. All financial information given to Lender, including any
schedules and notes pertaining thereto, have been prepared in accordance with
generally accepted accounting principles consistently applied, and fully and
fairly present the financial condition of Borrower at the dates thereof and the
results of operations for the periods covered thereby, and there have been no
material adverse changes in the consolidated financial condition or business of
Borrower set forth therein, to the date hereof.
g. Except as otherwise permitted herein, Borrower has filed and paid
all federal, state, and local tax returns and other required reports and all
taxes, assessments, and other governmental charges that are due and payable
prior to the date hereof.
h. Except to the extent that the failure to comply would not
materially interfere with the conduct of the business of the Borrower, Borrower
has complied, and shall comply, with all applicable laws and regulations.
i. No representation or warranty by the Borrower contained herein or
in any Loan Document or certificate or other document furnished by the Borrower
contains any untrue or misleading statement of material fact or omits to state a
material fact necessary to make such representation or warranty not misleading
in light of the circumstances under which it was made.
j. Each consent, approval or authorization of, or filing,
registration, or qualification required to be obtained by Borrower in connection
with the execution and delivery of this Agreement, the Loan Documents, or the
undertaking or performance of any obligation hereunder or thereunder, has been
duly obtained.
4.2 Survival. All of the representations and warranties set forth in
Section 4.1 shall survive until all Secured Indebtedness is satisfied in full.
SECTION 5. COVENANTS OF BORROWER.
Borrower does hereby covenant and agree with the Lender that, so long as
any of the Secured Indebtedness remains unpaid, Borrower will comply with the
following covenants:
5.1 Affirmative Covenants.
a. Taco Cabana, Inc. will furnish to Lender within one hundred
twenty (120) days after the close of each fiscal year (or, in the event an
extension of the deadline for filing such information with the Securities and
Exchange Commission ("SEC") is required or authorized by the SEC, then within
one hundred eighty (180) days after the close of each fiscal year), for such
fiscal year, the following independently audited and prepared financial
information for itself and its subsidiaries prepared on a consolidated basis:
(i) a statement of stockholders' or partners' equity and a statement of changes
of cash flows; ; (ii) income statements; and (iii) balance sheets; , all in
reasonable detail, including all supporting schedules and comments, and
certified by an independent certified public accountant auditor, approved by
Lender, to have been prepared in accordance with generally accepted accounting
principles consistently applied.
b. Taco Cabana, Inc. will furnish to Lender within fifty (50) days
after the close of each quarterly accounting period in each fiscal year of each
Borrower and its subsidiaries, for such quarter, prepared on a consolidated
basis: (i) a statement of stockholders' or partners' equity and a statement of
changes in financial position; (ii) income statements; and (iii) balance sheets
as of the end of such quarterly period, all in reasonable detail, subject to
year-end audit adjustments, and certified by Taco Cabana Inc.'s secretary to
have been prepared in accordance with generally accepted accounting principles
consistently applied.
c. Borrower will furnish to Lender such other financial statements
or reports as Lender may reasonably and periodically require, including without
limitation balance sheets and income statements for each Borrower on an
individual basis.
d. Borrower will maintain its inventory, equipment, real estate, and
other properties in good condition and repair (normal wear and tear excepted);
will pay and discharge, or cause to be paid and discharged when due, the cost of
repairs to or maintenance of the same; and will pay or cause to be paid all
rental or mortgage payments due on such real estate. The Borrower hereby agrees
that, in the event Borrower fails to pay or cause to be paid any such payment,
the Lender may do so and on demand be reimbursed therefor by the Borrower.
e. In addition to any requirements in the Loan Documents, Borrower
will maintain, or cause to be maintained, public liability insurance and fire
and extended coverage insurance on all assets owned by them, all in such form
and amounts, and with such insurers, as are reasonably satisfactory to Lender.
Such policies shall contain a provision whereby they cannot be canceled except
after thirty (30) days' written notice to the Lender, and shall name Lender as
an additional insured. Borrower will furnish to the Lender such evidence of
insurance as the Lender may require. Borrower hereby agrees that, in the event
it or any Borrower fails to pay or cause to be paid the premium on any such
insurance, the Lender may do so and on demand be reimbursed therefor by the
Borrower.
f. Borrower will pay or cause to be paid when due all taxes,
assessments or fees imposed upon it or on any of its property or that it is
required to withhold and pay over, except when, prior to impending foreclosure
such taxes, assessments or fees are contested in good faith by appropriate
proceedings, with adequate reserves therefor having been set aside on its books.
g. Borrower will, when requested so to do, make available for
inspection by duly authorized representatives of the Lender any of their books
and records, and will furnish the Lender any information regarding their
business affairs and financial condition within a reasonable time after written
request therefor.
h. Borrower will take all necessary steps to preserve its corporate
or partnership existence and franchises and will comply with all present and
future Laws applicable to them in the operation of their respective businesses
and all material agreements to which they are subject.
i. Within ten (10) days after the Lender's request therefor,
Borrower will furnish the Lender with copies of federal income tax returns filed
by the Borrower.
j. Borrower will pay when due (or within applicable grace periods)
all indebtedness due third parties. If any Borrower defaults in the payment of
any principal (or installment thereof) of, or interest on, any such
indebtedness, the Lender shall have the right, but not the obligation, to pay
such interest or principal for the account of Borrower and be reimbursed by
Borrower therefor on demand.
k. The Borrower will notify the Lender immediately if it becomes
aware of the occurrence of any Event of Default, as defined below, or of any
fact, condition, or event that, with the giving of notice or passage of time, or
both, could become an Event of Default hereunder, or of the failure of Borrower
to observe any of its undertakings hereunder.
l. The Borrower's shareholders' or partners' equity (as determined
in accordance with generally accepted accounting principals consistently
applied) less the value of any intangible assets (as determined in accordance
with generally accepted accounting principles consistently applied) shall at all
times equal or exceed 90% of Tangible Net Worth of Borrower and Borrower's
Subsidiaries.
m. All cash, cash equivalents and funds derived from operations of
the Borrower shall be the property of the Borrower at the close of each business
day, unless such cash, cash equivalents and funds are utilized by other entities
for the payment of obligations in compliance with applicable law. This
provision is not intended to restrict Borrower's use of funds or Borrower's
usual and regular course of business.
n. The Borrower and its Subsidiaries have (i) initiated and will
pursue to completion a review and assessment of all areas within Borrower and
each of its Subsidiaries' business and operations (including those affected by
information received from suppliers and vendors ) that could reasonably be
expected to be adversely affected by the Year 2000 Problem, (ii) developed and
will pursue to completion a plan and timeline for addressing the Year 2000
Problem on a timely basis, and ( iii) to date, implemented that plan
substantially in accordance with that timetable. The Borrower reasonably
believes that all computer applications ( including those affected by
information received from its suppliers and vendors) that are material to
Borrower or any of its Subsidiaries' business and operations will on a timely
basis be Year 2000 Compliant, except to the extent that a failure to do so
could not reasonably be expected to have a Material
Adverse Effect.
o. The Borrower will promptly notify the Lender in the event the
Borrower discovers or determines that any computer application (including those
affected by information received from its suppliers and vendors ) that is
material to Borrower or any of its Subsidiaries' business and operations will
not be Year 2000 Compliant on a timely basis, except to the extent that such
failure could not reasonably be expected to have a Material Adverse Affect.
p. Borrower will maintain an average Quarterly Cash Flow (as
defined) for the immediately preceding four (4) fiscal quarters in an amount
equal to, or in excess of, $4,000,000.00.
5.2 Negative Covenants.
a. For so long as any indebtedness under the Loans remains
outstanding, Borrower shall not without the prior written consent of the holder
of the Note:
(1) Permit the ratio of Consolidated Cash Flow to Consolidated
Fixed Charges for the immediately preceding four (4) fiscal quarters to be less
than 2.0:1.0;
(2) Permit Consolidated Net Worth at any time to be less than
the Minimum Consolidated Net Worth (as defined below) then in effect.
(3) Permit the ratio of Debt to Consolidated Net Worth to be
greater than 1.0:1.0 at any time provided, however, that all treasury stock
purchases shall be excluded when calculating Consolidated Net Worth;
(4) Permit the ratio of Intangible Assets to Consolidated Net
Worth to be greater than 0.40:1.0 at any time; or
(5) Incur capital expenditures (as defined below): (i) in excess
of $25,000,000.00 during the 1999 fiscal year of Borrower; (ii) in excess of
$30,000,000.00 during the 2000 fiscal year of Borrower or (iii) in excess of
$35,000,000.00 during the 2001 fiscal year of Borrower.
For purposes of subsections 5.1(l), (n), (o) and (p), and this subsection
5.2(a), the following terms shall have the following meanings:
"Capital Expenditures" as to Borrower shall mean the aggregate amount
paid or accrued by Borrower and its Subsidiaries for the rental, lease, purchase
(including by way of the acquisition of securities of another person or entity),
construction or use of any property the value or cost of which, in accordance
with generally accepted accounting principles consistently applied would appear
on Borrower's balance sheet in the category of property, plant or equipment
"Consolidated Cash Flow" for any period shall mean the consolidated net
income of the Borrower and all Subsidiaries for such period (after having taken
into account the effects of income tax), plus (without duplication) interest
expense, depreciation, amortization and all other non-cash charges, all as
determined in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Fixed Charges" for any period shall mean (i) consolidated
interest expense, and obligations under capitalized leases for such period, plus
(ii) matured debt and any additional debt maturing within one year of the date
of determination, plus (iii) dividends and distributions to partners in respect
of their partnership interest, for the Borrower and all Subsidiaries, all as
determined in accordance with generally accepted accounting principles
consistently applied.
"Consolidated Net Worth" shall mean consolidated shareholders' or partners'
equity of the Borrower and all Subsidiaries as determined in accordance with
generally accepted accounting principles consistently applied.
"Debt" means, with respect to the Borrower and its Subsidiaries, on a
consolidated basis, (i) indebtedness for borrowed money or for the deferred
purchase price of property or services, (ii) obligations as lessee under leases
which shall have been or should be, in accordance with generally accepted
accounting principles, recorded as capital leases, (iii) obligations under
direct or indirect guaranties in respect of and obligations (contingent or
otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor
against loss in respect of, indebtedness or obligations of others of the kinds
referred to in clause (i) or (ii) above, and (iv) liabilities in respect of
unfunded vested benefits under plans covered by Title IV of the Employee
Retirement Income Security Act of 1974, as amended.
"Intangible Assets" means, with respect to the Borrower and its
Subsidiaries, on a consolidated basis, goodwill, organizational expenses,
trademarks, tradenames, and any other items which are treated as intangibles in
conformity with generally accepted accounting principles consistently applied.
"Material Adverse Effect" means a material adverse effect on (i) the
business, properties, prospects, operations or condition, financial or
otherwise, of the Borrower and its Subsidiaries, taken as a whole, (ii) the
ability of the Borrower to pay or perform Borrower's respective obligations,
liabilities and indebtedness under the Revolving Loan Documents as such payment
or performance becomes due in accordance with the terms thereof, or (iii) the
rights, powers and remedies of the Lender under any Revolving Loan Document or
the validity, legality or enforceability thereof.
"Minimum Consolidated Net Worth" means, during any calendar year,
($40,000,000.00 minus the amount paid by Borrower in any allowed purchase of
capital stock consummated pursuant to Section 5.25b), plus 50% of the
consolidated net income of Borrower (as determined in accordance with generally
accepted accounting principles, consistently applied) for the period commencing
January 1, 1999 to December 31 of the calendar year immediately prior to the
calendar year in which the determination of Minimum Tangible Net Worth is being
made.
"Quarterly Cash Flow" shall mean for any fiscal quarter of Borrower the
consolidated net income of Borrower and its Subsidiaries for such period (after
having taken into account the effects of income tax) plus (without duplication)
interest expense, depreciation, amortization and all other non-cash charges, all
as determined in accordance with generally accepted accounting principles
consistently applied.
"Subsidiaries" means all corporations or partnerships of which at least 99%
of the partnership interests, or of the shares of stock of every class of which,
outstanding at the time as of which any determination is being made, is owned by
the Borrower, either directly or through a Subsidiary. "Subsidiary" means each
of the Subsidiaries.
"Tangible Net Worth" means, with respect to the Borrower and its
Subsidiaries, on a consolidated basis, Consolidated Net Worth less the value of
any intangible assets as determined in accordance with generally accepted
accounting principles consistently applied.
"Year 2000 Compliant" means all computer applications (including those
affected by information received from its suppliers and vendors) that are
material to the Borrower or any of its Subsidiaries' business and operations
will on a timely basis be able to perform properly data-sensitive functions
involving all dates on and after January 1, 2000.
"Year 2000 Problem" means the risk that computer applications used by the
Borrower and its Subsidiaries (including those affected by information received
from its suppliers and vendors) may be unable to recognize and perform properly
data-sensitive functions involving certain dates on and after January 1, 2000.
b. No Borrower shall change its name, enter into any merger,
consolidation, reorganizations or recapitalization, or reclassify its capital
stock without the prior written consent of Lender, which consent shall not be
unreasonably withheld, except that Borrower shall be permitted to purchase
common stock of Borrower in an aggregate amount expended in the purchase thereof
after December 31, 1999, not to exceed $5,000,000.00.
c. No Borrower shall sell, transfer, lease, or otherwise dispose of
all, or (except in the ordinary course of business) any material part of, its
assets, without the prior written consent of Lender, which consent shall not be
unreasonably withheld.
d. No Borrower shall mortgage, pledge, grant, or permit to exist a
security interest in or lien upon any of the security given for the Loans, other
than pursuant to the Loan Documents and Revolving Loan Documents and statutory
liens in the ordinary course of its business.
e. Borrower shall not furnish the Lender with any certificate or
other document that will contain any untrue statement of material fact or that
will omit to state a material fact necessary to make it not misleading in light
of the circumstances under which it was furnished.
f. No Borrower shall transfer, alienate, sell, assign, or encumber
any of its capital stock or partnership interests in any Subsidiary.
g. No Borrower shall incur, create, assume, or permit any
indebtedness other than (i) under the Revolving Loan Documents and the Loan
Documents; (ii) obligations under leases for real or personal property used in
Borrower's business; (iii) loans between Borrowers; (iv) loans between Borrowers
and nonborrower Subsidiaries not exceeding the aggregate principal amount of
$100,000.00 without the consent of the Lender, which consent shall not be
unreasonably withheld; (v) normal accruals and trade accounts payable incurred
in the ordinary course of business; or otherwise become liable, directly or
indirectly, as guarantor or otherwise for any obligation (other than the
endorsement of commercial paper for deposit or collection in the ordinary course
of business and guaranties of affiliate transactions made in the ordinary course
of business).
h. Borrower shall not make any loans or advances to any officer,
shareholder, director, or employee of Borrower or of any Subsidiary which, at
ant time, exceed the outstanding aggregate principal amount of $300,000.00.
SECTION 6. DEFAULT.
6.1 Events of Default. The occurrence of any one or more of the following
events shall constitute an Event of Default hereunder:
a. Any installment of principal and/or interest on the Loans or any
other sums due by Borrower under the Loan Documents shall not be paid when due
and payable.
b. Any Borrower shall breach any of the affirmative or negative
covenants contained herein and the breach is not cured within five days of the
receipt of written notice of the breach from the Lender to the Borrower.
c. Any Borrower shall fail to perform, keep or otherwise observe any
other obligation, term, provision, covenant, warranty or representation
contained herein or in any of the Loan Documents and such failure is not cured
within five days of the receipt of written notice of the breach from the Lender
to the Borrower.
d. Any financial statement or report, representation, warranty, or
certificate made or furnished by any Borrower to the Lender hereunder or in
connection with this Agreement, any Loan or any Loan Documents, or in any
separate statement or document to be delivered under the Loan Documents to the
Lender, shall be materially false, incorrect, or incomplete when made or
furnished.
e. Any Borrower shall admit its inability to pay its debts as they
mature, or shall make an assignment for the benefit of its or any of its
creditors.
f. Proceedings in bankruptcy, or for the dissolution, full or
partial liquidation or reorganization of any Borrower, or for the readjustment
of any of their respective debts, under the Bankruptcy Code, as amended, or any
part thereof, or under any other laws, whether state or federal, for the relief
of debtors, now or hereafter existing, shall be commenced by Borrower.
g. If an application is made by any Borrower for the appointment of
a receiver, trustee, or custodian for Borrower or for any substantial part of
their respective assets, or any Borrower shall discontinue business or
materially change the nature of its business.
h. If a receiver, trustee, or custodian shall be appointed for any
Borrower or for any part of their respective assets, and shall not be discharged
within 30 days of such appointment.
i. If all or any of any borrower's assets are attached, seized,
subjected to a writ, or are levied upon, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors.
j. If any Borrower is permanently enjoined, restrained or in any way
prevented by court order from conducting any material part of its business
affairs.
k. If a notice of lien, levy or assessment is filed of record with
respect to all or any of Borrower's assets by the United States or any
department, agency or instrumentality thereof, or by any state, county,
municipality or other governmental agency, or if any taxes or debts owing at any
time or times hereafter to any one or more of them becomes a lien, upon all or
any material portion of Borrower's assets.
l. A judgment creditor of any Borrower shall obtain possession of
any of the collateral securing repayment of the Loans by any means, including,
but without limitation, levy, distraint, replevin, or self-help.
m. Any Event of Default occurs under the terms of any of the Loan
Documents or under the terms of any of the Revolving Loan Documents.
n. Any Borrower shall dissolve, liquidate, or otherwise terminate
its existence, or take any action to effect such termination.
o. Any Borrower shall suffer a final judgement in excess of
$250,000.00, and shall not discharge the same within thirty (30) days.
p. To furnish the Lender with any certificate or other document that
will contain any untrue statement of material fact or that will omit to state a
material fact necessary to make it not misleading in light of the circumstances
under which it was furnished.
q. Any material nonborrower Subsidiary shall have failed to pay when
due all taxes, assessments or fees imposed upon it or on any of its property or
that it is required to withhold and pay over, except when, prior to impending
foreclosure such taxes, assessments or fees are contested in good faith by
appropriate proceedings, with adequate reserves therefor having been set aside
on its books.
r. Any material nonborrower Subsidiary fails to take all necessary
steps to preserve its corporate or partnership existence and franchises, or
fails to comply with all present and future laws applicable to it in the
operation of its business and all material agreements to which it is subject.
s. Lender, at its discretion and after five days written notice
given to Borrower, deems itself to be adversely affected and/or insecure by
reason of any material change in any of Borrower's (including any endorsers
and/or guarantors) net worth, or by reason of any other material change of
condition whether or not described herein.
6.2 Remedies. Upon the occurrence of an Event of Default, Lender, at its
option, may:
a. Terminate any obligation to make any further Loans and declare
the entire principal balance of the Secured Indebtedness and all interest,
unpaid accrued and earned thereon to be immediately due and payable without
demand for payment, presentment for payment, notices of intention to accelerate
maturity, notices of election to accelerate maturity, protest and notice of
protest or any other notice whatsoever, all of which are hereby expressly
waived.
b. Enforce or avail itself of any and all rights and remedies given
to it by any or all of the Loan Documents.
c. Enforce or avail itself of all rights and remedies allowed by all
applicable laws.
SECTION 7. INTEREST LIMITATION
7.1 Limitation. Interest on the debt evidenced by the Notes or otherwise
in connection with the Loans shall not exceed the maximum amount of nonusurious
interest that may be contracted for, taken, reserved, charged, or received under
law; any interest in excess of that maximum amount shall be credited on the
principal of the debt or, if that has been paid, refunded. On any acceleration
or required or permitted prepayment, any such excess shall be canceled
automatically as of the acceleration or prepayment or, if already paid, credited
on the principal of the debt or, if the principal of the debt has been paid,
refunded. This provision overrides other provisions in this and all other
instruments concerning the debt. All sums paid or agreed to be paid for the
use, forbearance or detention of the indebtedness of Borrower to Lender shall,
to the extent permitted by applicable law, be amortized, prorated, allocated and
spread throughout the full stated term of such indebtedness until payment in
full so that the rate or amount of interest on account of such indebtedness does
not exceed the maximum rate of interest allowed by law for so long as such
indebtedness is outstanding, and to the extent that TEX. REV. CIV. STAT. Ann.
Art. 5069-1.04, as amended, is applicable to such indebtedness, the quarterly
rate ceiling from time to time in effect under such article shall be the
applicable ceiling. This provision overrides other provisions in this and all
other instruments concerning the debt.
SECTION 8. MISCELLANEOUS
8.1 No Permanent Waivers. No waiver at any time of the provisions or
conditions of this Agreement or of any of the other Loan Documents shall be
construed as a waiver of any of the other provisions or conditions hereof or
thereof nor be construed as a right to a subsequent waiver or any other
provisions or conditions.
8.2 Severability. Unenforceability for any reason against any person or
persons of any provision of this Loan Agreement, or of any of the other Loan
Documents or other Agreements between Borrower and the Lender, shall not limit
or impair the operation or validity of any other provisions of this Agreement or
any of the other Loan Documents.
8.3 Descriptive Headings. The descriptive headings of the various
sections and subsection of this Agreement and the Loan Documents and any
schedule, agreement or other instrument, executed with reference hereto are
inserted for convenience of reference only, do not constitute a part of any such
document and no inference is to be drawn from such headings. Whenever the
context shall require, words of any gender shall be deemed to include the other
genders and either the singular or the plural shall include the other.
8.4 Further Assurance. From time to time, Borrower will execute and
deliver to the Lender such additional documents and will provide such additional
information as the Lender may reasonably require to carry out the terms of this
Agreement and be informed of the Borrower's status and affairs.
8.5 Enforcement and Waiver by the Lender. All rights and remedies of the
Lender are cumulative and concurrent, and the exercise of one right or remedy
shall not be deemed a waiver or release of any other right or remedy. The
Lender shall have the right at all times to enforce the provisions of this
Agreement and the Loan Documents in strict accordance with the terms hereof and
thereof, notwithstanding any conduct or custom on the part of the Lender in
refraining from so doing at any time or times. Th failure of the Lender at any
time or times to enforce its rights under such provisions, strictly in
accordance with the same, shall not be construed as having created a custom in
any way or manner contrary to specific provisions of this Agreement or such Loan
Documents or as having in any way or manner modified or waived the same.
8.6 Expenses of the Lender. The Borrower will, on demand, pay, or
reimburse the lender, for all reasonable expenses, including the reasonable fees
and expenses of legal counsel for the Lender, incurred by the Lender in
connection with the preparation, administration, amendment, modification, or
enforcement of this Agreement and the Loan Documents, and the collection or
attempted collection of any and all Notes. All reasonable costs, including but
not limited to reasonable attorney's fees of Borrower, Lender, or other
interested parties, other professional fees, appraiser's and surveyor's fees,
taxes and all expenses of all kinds inured in connection with the Loans, shall
be borne by Borrower, and Borrower agrees to indemnify the Lender and save it
harmless from the payment, defense and/or expense of any claim or demand for
such fees, costs, taxes and expenses.
8.7 Notices. Any notices or consents required or permitted by this
Agreement shall be in writing and shall be deemed given when delivered in
person, or upon deposit in the U.S. Mail, if sent by certified mail, postage
prepaid, return receipt requested, as follows, unless such address is changed by
written notice hereunder:
a. If to Borrower:
Taco Cabana, Inc.
Texas Taco Cabana, L.P.
T.P. Acquisition Corp.
T.C. Management, Inc.
Taco Cabana Management, Inc.
Taco Cabana Multistate, Inc.
8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217
b. If to the Lender:
International Bank of commerce
130 East Travis
San Antonio, Texas 78205
Attention: Mr. Steve E. Edlund
8.8 RELEASE BY THE BORROWER. TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAWS, BORROWER RELEASES THE LENDER AND ITS DIRECTORS, OFFICERS,
ATTORNEYS, AGENTS, AND EMPLOYEES FROM ALL CLAIMS, CAUSES, DAMAGES, LIABILITY AND
RELATED EXPENSES ARISING OUT OF ANY ACT OR OMISSION ON THE PART OF ANY OF THEM,
WITH REGARD TO THIS AGREEMENT, WHICH DOES NOT INVOLVE FRAUD BAD FAITH OR
NEGLIGENCE BY LENDER OR ITS DIRECTORS, OFFICERS, ATTORNEYS, AGENTS OR EMPLOYEES.
8.9 Governing Law. This Agreement is made and accepted, and the
obligations of the parties set forth herein shall be performable, in the County
of Bexar and State of Texas, and this Agreement and all the Loan Documents shall
be governed by, and construed in accordance with, the laws of the State of Texas
except to the extent that such laws may be preempted by laws of the United
States of America. The parties hereby agree that this Agreement and the Loans
to be made pursuant hereto shall not be subject to the provisions of Chapter 15
of the Texas Credit Code.
8.10 Lender's Relationship to Other. Lender is not a partner or joint
venturer in any manner whatsoever with any Borrower.
8.11 Waiver, Modification. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought.
8.12 Cumulative Remedies. The right and remedies of the Lender under the
Loan Documents shall be cumulative and the exercise, or partial exercise, of any
such right or remedy shall not preclude the exercise of any other right or
remedy.
8.13 Binding Effect. This Loan Agreement shall be binding upon and inure
to the benefit of Borrower and Lender and their respective successors and
assigns, provided that no Borrower may assign its rights or obligations
hereunder. If more than one party executes this Agreement a Borrower, the term
"Borrower" shall mean and refer to each such party, jointly and severally.
8.14 Survival of Agreement. The provisions thereof shall survive the
execution of all instruments herein mentioned, and shall continue in full force
until the Secured Indebtedness is paid in full and shall prevail and control
over any conflicting provision contained elsewhere in the Loan Documents.
8.15 Entire Agreement. The Loan Documents embody the entire agreement
between the parties and supersedes all prior agreements and understandings, if
any, relating to the subject matter hereof. There are no oral agreements or
understandings between the parties which are not evidenced by the Loan
Documents.
8.16 Subsidiaries. Except where otherwise specified herein, the term
"Subsidiary" shall mean every entity of which more than fifty percent (50%) of
the outstanding voting stock or other ownership interests shall, at the time of
determination, be owned directly or indirectly by the named Borrower or through
one or more intermediaries of Borrower.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
THIS AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
WITNESS: BORROWER:
TACO CABANA, INC., a Delaware corporation
__________________________ By:______________________
Name:____________________ David G. Lloyd, Chief Financial Officer
TEXAS TACO CABANA, L.P., a Texas
limited partnership
By: TACO CABANA MANAGEMENT,
INC., a Texas corporation, General Partner
___________________________ By:_______________________
Name:______________________ David G. Lloyd, Chief Financial Officer
TP ACQUISITION CORP., a Texas corporation
____________________________ By:______________________
Name:_______________________ David G. Lloyd, Chief Financial Officer
T.C. MANAGEMENT, INC.,
a Delaware corporation
____________________________ By:______________________
Name:_______________________ David G. Lloyd, Chief Financial Officer
TACO CABANA MANAGEMENT, INC.,
a Texas corporation
_____________________________ By:______________________
Name:__________________________ David G. Lloyd, Chief Financial Officer
TACO CABANA MULTISTATE, INC.,
a Delaware corporation
_______________________________ By:______________________
Name:__________________________ David G. Lloyd, Chief Financial Officer
INTERNATIONAL BANK OF COMMERCE
By:______________________
Steve E. Edlund, Executive Vice President
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-END> JAN-02-2000
<CASH> 1,303,000
<SECURITIES> 0
<RECEIVABLES> 884,000
<ALLOWANCES> 99,000
<INVENTORY> 2,413,000
<CURRENT-ASSETS> 7,660,000
<PP&E> 123,209,000
<DEPRECIATION> 40,593,000
<TOTAL-ASSETS> 101,005,000
<CURRENT-LIABILITIES> 17,276,000
<BONDS> 0
0
0
<COMMON> 134,000
<OTHER-SE> 42,864,000
<TOTAL-LIABILITY-AND-EQUITY> 101,005,000
<SALES> 159,241,000
<TOTAL-REVENUES> 159,600,000
<CGS> 47,764,000
<TOTAL-COSTS> 118,269,000
<OTHER-EXPENSES> 25,790,000
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<INTEREST-EXPENSE> 2,424,000
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<NET-INCOME> 13,117,000
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