UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number: 0-20716
TACO CABANA, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 74-2201241
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8918 Tesoro Drive, Suite 200
San Antonio, Texas 78217
(Address of principal executive offices)
Telephone Number (210) 804-0990
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for
such shorter period that the registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days:
Yes X No
--- ---
Indicate the number of shares of each of the
issuer's classes of common stock as of the latest
practicable date:
Class Outstanding at August 1, 1996
----------- -----------------------------
Common Stock 15,697,162 shares
TACO CABANA, INC.
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1996 2
and December 31, 1995
Condensed Consolidated Statements of Operations for the 3
Thirteen Weeks Ended June 30, 1996 and July 2, 1995
Condensed Consolidated Statements of Operations for the 4
Twenty-Six Weeks Ended June 30, 1996 and July 2, 1995
Condensed Consolidated Statements of Cash Flows for the 5
Twenty-Six Weeks Ended June 30, 1996 and July 2, 1995
Notes to Condensed Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial 8-15
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Items 2 through 5 have been omitted since the registrant
has no reportable events in relation to the items
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
TACO CABANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1996 1995
-------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,838,000 $ 2,749,000
Receivables, net 1,430,000 1,376,000
Inventory 1,837,000 1,846,000
Prepaid expenses 1,266,000 1,700,000
Pre-opening costs, net 82,000 500,000
Income taxes receivable 3,361,000 2,777,000
Deferred income taxes 1,765,000 497,000
----------- -----------
Total current assets 12,579,000 11,445,000
PROPERTY AND EQUIPMENT, net 87,088,000 87,695,000
NOTES RECEIVABLE, net 798,000 780,000
INTANGIBLE ASSETS, net 46,220,000 47,038,000
OTHER ASSETS 844,000 934,000
INVESTMENT IN JOINT VENTURE 936,000 686,000
----------- -----------
TOTAL $148,465,000 $148,578,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,460,000 $ 5,409,000
Accrued liabilities 3,148,000 3,864,000
Accrued litigation settlement 2,950,000 -
Current maturities of long-term debt
and capital leases 2,150,000 2,074,000
Line of credit 41,000 2,186,000
----------- -----------
Total current liabilities 12,749,000 13,533,000
LONG-TERM OBLIGATIONS, net of current
maturities:
Capital leases 4,144,000 4,242,000
Long-term debt 9,810,000 10,788,000
----------- -----------
Total long-term obligations 13,954,000 15,030,000
ACQUISITION LIABILITIES 4,497,000 4,888,000
DEFERRED LEASE PAYMENTS 736,000 935,000
DEFERRED INCOME TAXES 3,979,000 1,865,000
STOCKHOLDERS' EQUITY:
Common stock 157,000 157,000
Additional paid-in capital 96,996,000 96,954,000
Retained earnings 15,397,000 15,216,000
----------- -----------
Total stockholders' equity 112,550,000 112,327,000
----------- -----------
TOTAL $148,465,000 $148,578,000
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Thirteen Weeks Ended
----------------------------
June 30, July 2,
1996 1995
---------- ----------
REVENUES:
Restaurant sales $35,174,000 $36,755,000
Franchise fees and royalty income 134,000 180,000
---------- ----------
Total revenues 35,308,000 36,935,000
---------- ----------
COSTS AND EXPENSES:
Restaurant cost of sales 11,074,000 11,822,000
Labor 9,064,000 9,514,000
Occupancy 2,045,000 2,063,000
Other restaurant operating costs 6,284,000 6,977,000
General and administrative 1,585,000 1,503,000
Depreciation and amortization 2,216,000 2,634,000
Litigation settlement 3,400,000 -
Special charge - 8,100,000
Reserve for notes and other
receivables - 3,500,000
---------- ----------
Total costs and expenses 35,668,000 46,113,000
---------- ----------
LOSS FROM OPERATIONS (360,000) (9,178,000)
---------- ----------
INTEREST EXPENSE, NET (356,000) (389,000)
---------- ----------
LOSS BEFORE BENEFIT FOR INCOME
TAXES (716,000) (9,567,000)
---------- ----------
BENEFIT FOR INCOME TAXES 163,000 3,539,000
---------- ----------
NET LOSS $ (553,000) $(6,028,000)
========== ==========
NET LOSS PER SHARE $ (0.04) $ (0.39)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 15,687,689 15,564,162
========== ==========
See notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Twenty-Six Weeks Ended
------------------------------
June 30, July 2,
1996 1995
----------- ----------
REVENUES:
Restaurant sales $66,293,000 $68,820,000
Franchise fees and royalty income 280,000 952,000
---------- ----------
Total revenues 66,573,000 69,772,000
---------- ----------
COSTS AND EXPENSES:
Restaurant cost of sales 20,777,000 22,195,000
Labor 17,239,000 17,992,000
Occupancy 4,096,000 4,087,000
Other restaurant operating costs 11,942,000 13,231,000
General and administrative 3,317,000 2,901,000
Depreciation and amortization 4,584,000 5,077,000
Litigation settlement 3,400,000 -
Special charge - 8,100,000
Reserve for notes and other
receivables - 3,500,000
---------- ----------
Total costs and expenses 65,355,000 77,083,000
---------- ----------
INCOME (LOSS) FROM OPERATIONS 1,218,000 (7,311,000)
---------- ----------
INTEREST EXPENSE, NET (768,000) (609,000)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 450,000 (7,920,000)
---------- ----------
BENEFIT (PROVISION) FOR INCOME
TAXES (269,000) 2,930,000
---------- -----------
NET INCOME (LOSS) $ 181,000 $ (4,990,000)
========== ===========
NET INCOME (LOSS) PER SHARE $ 0.01 $ (0.32)
========== ===========
WEIGHTED AVERAGE SHARES OUTSTANDING 5,952,239 15,564,162
========== ===========
See notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Twenty-Six Weeks Ended
------------------------------
June 30, July 2,
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 181,000 $(4,990,000)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 4,584,000 5,077,000
Litigation settlement 2,950,000 -
Deferred income taxes 846,000 (2,306,000)
Special charge - 8,100,000
Reserve for notes and other
receivables - 3,500,000
Changes in operating working capital
items (2,366,000) (8,625,000)
--------- ---------
Net cash provided by operating activities 6,195,000 756,000
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,753,000) (14,387,000)
Investment in joint venture (250,000) -
---------- ----------
Net cash used for investing activities (3,003,000) (14,387,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under long-term debt
and line of credit (3,047,000) (694,000)
Principal payments under capital leases (98,000) (67,000)
Exercise of stock options 42,000 9,000
Proceeds from issuance of notes payable - 10,203,000
---------- ----------
Net cash provided (used) by financing
activities (3,103,000) 9,451,000
---------- ----------
NET INCREASE (DECREASE) IN CASH 89,000 (4,180,000)
CASH AND CASH EQUIVALENTS, beginning of
period 2,749,000 7,275,000
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 2,838,000 $ 3,095,000
========== ==========
See notes to Condensed Consolidated Financial Statements.
TACO CABANA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
Principles of Consolidation - The consolidated financial
statements include all accounts of Taco Cabana, Inc. and its
wholly-owned subsidiaries (the"Company"). All significant
intercompany balances and transactions have been eliminated.
The unaudited Condensed Consolidated Financial Statements
include all adjustments, consisting of normal, recurring
adjustments and accruals, which the Company considers
necessary for fair presentation of financial position and
the results of operations for the periods presented. Certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or
omitted. The interim financial statements should be read in
conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
2. Litigation Settlement
On July 24, 1996, the Company approved a proposed settlement
(the "Settlement") of A.L. Park, et al. v. Taco Cabana,
Inc., et al., (the "Lawsuit"), a suit originally filed in
September 1995 seeking status as a class action.
Under the terms of the Settlement, the plaintiffs will
receive a total of $6.0 million. The Company's insurance
carrier will pay $3.05 million in cash, while the Company
will pay $2.95 million consisting of, at the Company's
option, cash or shares of the Company's common stock.
Additionally, the Company has accrued $450,000 for the
payment of legal and related expenses incurred and
anticipated to be incurred in connection with the
Settlement. As of June 30, 1996, the Company has paid
approximately $200,000 in legal expenses relating to the
lawsuit.
The Company denies any liability or wrongdoing in connection
with the Lawsuit. The Settlement is contingent upon
execution of a definitive settlement agreement, approval by
a sufficient percentage of the potential class plaintiffs,
U.S. District Court approval, and certain other conditions.
3. Special Charge
During the second quarter of 1995, the Company recorded a
reserve for notes and other receivables of $3.5 million and
a special charge of $8.1 million. The charges were the
result of a comprehensive review of the operations of the
Company performed by management during the second quarter of
1995 and included approximately $2.6 million for market
value adjustments resulting from a decision to close six
Company-owned restaurants (including one mall unit). As of
June 30, 1996, all of the identified restaurants had been
closed.
4. Earnings per Share
Net income per share has been computed by dividing net
income by the weighted average number of common shares
outstanding during each period. Common stock equivalent
shares, which relate to stock options, are included in the
weighted average when the effect is dilutive.
5. Supplemental Disclosure of Cash Flow Information
Twenty-Six Weeks Ended
----------------------
June 30, July 2,
1996 1995
--------- ---------
(Unaudited) (Unaudited)
Cash paid for interest $ 655,000 $ 540,000
Interest capitalized on construction
costs - 99,000
Cash paid for income taxes - 400,000
Notes receivable acquired in exchange
for property, plant and equipment - 1,286,000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company commenced operations in 1978 with the opening of
the first Taco Cabana restaurant in San Antonio. As of
August 1, 1996, the Company had 104 company-owned, three
joint-venture owned and 19 franchised restaurants. The
Company's revenues are derived primarily from sales by
company-owned restaurants, with franchise fees and royalty
income currently contributing less than 1% of total revenues
for the first six months of the 1996 fiscal year.
On July 24, 1996, the Company approved a proposed settlement
(the "Settlement") of A.L. Park, et al. v. Taco Cabana,
Inc., et al., (the "Lawsuit"), a suit originally filed in
September 1995 seeking status as a class action.
Under the terms of the Settlement, the plaintiffs will
receive a total of $6.0 million. The Company's insurance
carrier will pay $3.05 million in cash, while the Company
will pay $2.95 million consisting of, at the Company's
option, cash or shares of the Company's common stock.
Additionally, the Company has accrued $450,000 for the
payment of legal and related expenses incurred and
anticipated to be incurred in connection with the
Settlement.
The Company denies any liability or wrongdoing in connection
with the Lawsuit. The Settlement is contingent upon
execution of a definitive settlement agreement, approval by
a sufficient percentage of the potential class plaintiffs,
U.S. District Court approval, and certain other conditions.
During the second quarter of 1995, the Company recorded a
reserve for notes and other receivables of $3.5 million and
a special charge of $8.1 million. The charges were the
result of a comprehensive review of the operations of the
Company performed by management during the second quarter of
1995 and included approximately $2.6 million for market
value adjustments resulting from a decision to close six
Company-owned restaurants (including one mall unit). As of
June 30, 1996, all of the identified restaurants had been
closed.
During the twenty-six weeks ended June 30, 1996, the Company
closed two Company-owned restaurants and a franchisee of the
Company, in which the Company has a joint-venture interest,
opened one restaurant.
The following table sets forth for the periods indicated the
percentage relationship to total revenues, unless otherwise
indicated, of certain operating statement data. The table
also sets forth certain restaurant data for the periods
indicated.
13 Weeks Ended 26 Weeks Ended
------------------ -----------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
------- ------- -------- -------
Operating Statement Data:
REVENUES:
Restaurant sales 99.6% 99.5% 99.6% 98.6%
Franchise fees and royalty
income 0.4 0.5 0.4 1.4
----- ----- ----- -----
Total revenues 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
COSTS AND EXPENSES:
Restaurant cost of sales (1) 31.5% 32.2% 31.3% 32.3%
Labor (1) 25.8 25.9 26.0 26.1
Occupancy (1) 5.8 5.6 6.2 5.9
Other restaurant operating
costs (1) 17.9 19.0 18.0 19.2
General and administrative
costs 4.5 4.1 5.0 4.2
Depreciation and
amortization 6.3 7.1 6.9 7.3
Litigation settlement 9.6 - 5.1 -
Special charge - 21.9 - 11.6
Reserve for notes and other
receivables - 9.5 - 5.0
INCOME (LOSS) FROM
OPERATIONS (1.0) (24.8) 1.8 (10.5)
INTEREST EXPENSE, net (1.0) (1.1) (1.2) (0.9)
----- ----- ---- -----
INCOME (LOSS) BEFORE INCOME
TAXES (2.0) (25.9) 0.7 (11.4)
BENEFIT (PROVISION) FOR
INCOME TAXES 0.5 9.6 (0.4) 4.2
----- ----- ----- -----
NET INCOME (LOSS) (1.6)% (16.3)% 0.3% (7.2)%
===== ===== ===== =====
Restaurant Data:
Company-owned restaurants:
Beginning of period 104 106 106 104
Opened - 5 - 10
Sold (refranchised) - - - (3)
Closed - (2) (2) (2)
--- --- --- ---
End of period 104 109 104 109
Franchised and joint-venture
owned restaurants:
End of period 22 27 22 27
--- --- --- ---
Total restaurants:
End of period 126 136 126 136
=== === === ===
(1) Percentage is calculated based upon restaurant sales.
The Thirteen Weeks Ended June 30, 1996 Compared to the
Thirteen Weeks Ended July 2, 1995
Revenues. Restaurant sales decreased by $1.6 million, or
4.3%, to $35.2 million for the second quarter of 1996 from
$36.8 million for the second quarter in 1995. Sales from
restaurants opened after January 1, 1995 accounted for an
increase of $824,000. This increase was offset by sales from
restaurants which were closed after July 2, 1995 of $1.4
million, as well as a decrease in sales of approximately
$1.0 million for restaurants opened or acquired prior to
January 1, 1995. Comparable store sales, defined as Taco
Cabana restaurants that have been open 18 months or more at
the beginning of the quarter, decreased 1.2% during the
second quarter of 1996. Management attributes much of this
decline in sales to increased levels of competition in the
Company's core markets and the cannibalization of revenues
at existing restaurants upon the opening of newer
restaurants.
Costs and Expenses. Restaurant cost of sales, calculated as
a percentage of restaurant sales, decreased to 31.5% in the
second quarter of 1996 from 32.2% for the second quarter of
1995. The decrease was due primarily to the negotiation of
favorable commodity prices.
Labor costs calculated as a percentage of restaurant sales
improved slightly in the second quarter of 1996 compared to
the same period in 1995.
Occupancy costs remained relatively constant in the second
quarter of 1996 compared to the same period in 1995.
Other restaurant operating costs as a percentage of
restaurant sales decreased to 17.9% in the second quarter of
1996 from 19.0% for the same period of 1995. This decrease
is due primarily to management's increased focus on unit
level operations.
General and administrative expenses increased to $1.6
million from $1.5 million, and increased as a percentage of
total revenues to 4.5% for the second quarter of 1996 from
4.1% for the comparable period in 1995. This increase was
primarily attributable to the addition of management, as
well as an increased level of expenditures to support the
Company's operations.
Depreciation and amortization expense consisted of the
following:
Thirteen Weeks Ended
------------------------
June 30, 1996 July 2, 1995
------------- ------------
(Unaudited) (Unaudited)
Depreciation of property and
equipment $ 1,689,000 $1,495,000
Amortization of intangible assets 416,000 397,000
Amortization of pre-opening costs 111,000 742,000
Depreciation expense increased by approximately $194,000 for
the quarter ended June 30, 1996 compared to the quarter
ended July 2, 1995. The increase was due primarily to
restaurant openings during 1995, as well as capital
expenditures during the first six months of 1996.
Amortization of pre-opening costs decreased by approximately
$631,000 in the second quarter of 1996 compared to the
second quarter of 1995, due to the decrease in the number of
stores opened during the most recent twelve-month period
compared to the twelve-month period ended July 2, 1995.
The litigation settlement recorded during the second quarter
of 1996 includes the expected payment of $2.95 million
consisting of, at the Company's option, cash or shares of
the Company's common stock. Additionally, the amount
recorded includes $450,000 for the payment of legal and
related expenses incurred and anticipated to be incurred in
connection with the litigation settlement. See item 1.
"Legal Proceedings" and note 2. "Litigation Settlement" to
the Condensed Consolidated Financial Statements.
Interest Expense, net. Interest expense, net of interest
capitalized on construction costs, decreased to $403,000 in
the second quarter of 1996 from $455,000 in the second
quarter of 1995 as a result of the repayment of a
substantial portion of the Company's line of credit during
the second quarter of 1996. No interest was capitalized
during the second quarter of 1996. The Company earned
$47,000 of interest income during the second quarter of 1996
on cash balances compared to $66,000 of interest income
earned during the second quarter of 1995.
Net Loss and Net Loss Per Share. The Company recorded a net
loss of $553,000 for the second quarter of 1996 compared to
a net loss of $6,028,000 for the comparable period of 1995.
The recorded net loss was 1.6% as a percentage of total
revenues for the second quarter of 1996 compared to a net
loss equal to 16.3% of total revenues in the second quarter
of 1995. The loss per share was $0.04 for the second quarter
of 1996 compared to a net loss per share of $0.39 in the
comparable period of 1995. Disregarding the litigation
settlement, recorded in the second quarter of 1996, the
Company would have reported net income of $1,691,000 for the
second quarter of 1996, equal to $0.11 per share.
Disregarding the reserve for receivables and the special
charge recorded in the second quarter of 1995, the Company
would have reported net income of $1,280,000 equal to $0.08
per share during the second quarter of 1995. Excluding the
litigation loss, the reserve for receivables and the special
charge, management believes that the remaining changes are
largely due to improved operating margins at the restaurant
level.
The Twenty-Six Weeks Ended June 30, 1996 Compared to the
Twenty-Six Weeks Ended July 2, 1995
Revenues. Restaurant sales decreased by $2.5 million, or
3.7%, to $66.3 million for the twenty-six weeks ended June
30, 1996 from $68.8 million for the comparable period in
1995. Sales from restaurants opened after January 1, 1995
accounted for an increase of $2.5 million. This increase was
offset by sales from restaurants which were closed after
July 2, 1995 of $3.0 million, as well as a decrease in sales
of approximately $2.0 million for restaurants opened or
acquired prior to January 1, 1995. Comparable store sales,
defined as Taco Cabana restaurants that have been open 18
months or more at the beginning of the year, decreased 1.8%
during the twenty-six weeks ended June 30, 1996. Management
attributes much of this decline in sales to the
cannibalization of revenues at existing restaurants upon the
opening of newer restaurants, increased levels of
competition in the Company's core markets and inclement
weather during the first quarter of 1996. Franchise and
royalty fees decreased by $672,000 to $280,000 for the
twenty-six weeks ended June 30, 1996 compared to the same
period of 1995, due primarily to decreased revenues related
to new franchise development agreements.
Costs and Expenses. Restaurant cost of sales, calculated as
a percentage of restaurant sales, decreased to 31.3% in the
twenty-six weeks ended June 30, 1996 from 32.3% for the
twenty-six weeks ended July 2, 1995. The decrease was due
primarily to the negotiation of favorable commodity prices.
Labor costs calculated as a percentage of restaurant sales
improved slightly during the twenty-six weeks ended June 30,
1996 compared to the same period in 1995.
Occupancy costs remained relatively constant during the
twenty-six weeks ended 1996 compared to the same period in
1995.
Other restaurant operating costs as a percentage of
restaurant sales decreased to 18.0% in the twenty-six weeks
ended June 30, 1996 from 19.2% for same period of 1995. This
decrease is due primarily to management's increased focus on
unit level operations.
General and administrative expenses increased to $3.3
million from $2.9 million, and increased as a percentage of
total revenues to 5.0% for the second quarter of 1996 from
4.2% for the comparable period in 1995. This increase was
primarily attributable to the addition of management, as
well as an increased level of expenditures to support the
Company's operations.
Depreciation and amortization expense consisted of the
following:
Twenty-Six Weeks Ended
----------------------
June 30, July 2,
1996 1995
---------- ---------
(Unaudited) (Unaudited)
Depreciation of property and
equipment $ 3,337,000 $ 2,912,000
Amortization of intangible
assets 820,000 814,000
Amortization of pre-opening
costs 427,000 1,351,000
Depreciation expense increased by approximately $425,000 for
the twenty-six weeks ended June 30, 1996 compared to the
twenty-six weeks ended July 2, 1995. The increase was due
primarily to restaurant openings during 1995, as well as
capital expenditures during the first six months of 1996.
Amortization of pre-opening costs decreased by approximately
$924,000 in the twenty-six weeks ended June 30, 1996
compared to the twenty-six weeks ended July 2, 1995, due to
the decrease in the number of stores opened during the most
recent twelve-month period compared to the twelve-month
period ended July 2, 1995.
The litigation settlement recorded during the second quarter
of 1996 includes the expected payment of $2.95 million
consisting of, at the Company's option, cash or shares of
the Company's common stock. Additionally, the amount
recorded includes $450,000 for the payment of legal and
related expenses incurred and anticipated to be incurred in
connection with the litigation settlement. See item 1.
"Legal Proceedings" and note 2. "Litigation Settlement" to
the Condensed Consolidated Financial Statements.
Interest Expense, net. Interest expense, net of interest
capitalized on construction costs, increased to $870,000 in
the twenty-six weeks ended June 30, 1996 from $761,000 in
the twenty-six weeks ended July 2, 1995, primarily as a
result of interest expense associated with usage of the
Company's line of credit during the first quarter of 1996.
No interest was capitalized during the twenty-six weeks
ended June 30, 1996. The Company earned $102,000 of interest
income during the twenty-six weeks ended June 30, 1996,
compared to $152,000 of interest income earned during the
twenty-six weeks ended July 2, 1995.
Net Income (Loss) and Net Income (Loss) Per Share. Net
income increased to $181,000 for the twenty-six weeks ended
June 30, 1996 from a net loss of $4,990,000 for the same
period in 1995. Net income was 0.3% of total revenues for
the twenty-six weeks ended June 30, 1996 compared to a net
loss of 7.2% for the twenty-six weeks ended July 2, 1995.
Earnings per share was $0.01 for the twenty-six weeks ended
June 30, 1996 compared to a loss per share of $0.32 in the
same period of 1995. Disregarding the litigation settlement,
recorded in the second quarter of 1996, the Company would
have reported net income of $2,425,000 for the twenty-six
weeks ended June 30, 1996, equal to $0.15 per share.
Disregarding the reserve for receivables and the special
charge recorded in the second quarter of 1995, the Company
would have reported net income of $2,318,000 equal to $0.15
per share during the twenty-six weeks ended July 2, 1995.
Liquidity and Capital Resources
Historically, the Company has financed business and
expansion activities by using funds generated from operating
activities, build-to-suit leases, equity financing, long-
term debt and capital leases. The Company maintains loan
facilities totaling $20.0 million, including a $5.0 million
unsecured revolving line of credit for construction or
operating funds. As of August 1, 1996, $8.8 million had been
used under these facilities.
Net cash provided by operating activities was $6.2 million
for the twenty-six weeks ended June 30, 1996, and $756,000
for the twenty-six weeks ended July 2, 1995. Net cash used
in investing activities was $3.0 million for the twenty-six
weeks ended June 30, 1996, representing primarily capital
expenditures for improvements to existing restaurants,
compared to $14.4 million for the twenty-six weeks ended
July 2, 1995. Net cash used in financing activities was $3.1
million for the twenty-six weeks ended July 2, 1996
representing primarily repayment of the Company's line of
credit and long-term debt compared to net cash provided from
financing activities of $9.5 million in the same period of
1995 representing borrowings from the Company's debt
facilities.
As discussed in "Legal Proceeding" in item 1. and note 2.
"Litigation Settlement" to the Condensed Consolidated
Financial Statements, the Company approved a proposed
settlement of A.L. Park, et al. v. Taco Cabana, Inc., et
al., a suit originally filed in September 1995 seeking
status as a class action.
Under the terms of the Settlement, the plaintiffs will
receive a total of $6.0 million. The Company's insurance
carrier will pay $3.05 million in cash, while the Company
will pay $2.95 million consisting of, at the Company's
option, cash or shares of the Company's common stock.
Additionally, the Company has accrued $450,000 for the
payment of legal and related expenses incurred and
anticipated to be incurred in connection with the
Settlement. As of June 30, 1996, the Company has paid
approximately $200,000 in legal expenses relating to the
lawsuit.
The special charge recorded in the second quarter of 1995
included an accrual of approximately $1.2 million to record
the estimated monthly lease payments, net of expected
sublease receipts, associated with certain restaurants which
have been closed. Cash requirements for this accrual were
approximately $137,000 in the twenty-six weeks ended June
30, 1996. Several of the restaurants which have been closed,
as well as the Company's previous corporate offices, are
currently for sale. Although there can be no assurance of
the particular price at which any of such properties will be
sold, the Company will receive funds upon the actual
disposition of these properties. In addition, certain
acquisition and accrued liabilities related to the Two Pesos
acquisition were reduced by payments of approximately
$608,000 during the twenty-six weeks ended June 30, 1996.
The Company believes that existing cash balances, funds
generated from operations, its ability to borrow, and the
possible use of lease financing will be sufficient to meet
the Company's capital requirements through 1996.
Impact of Inflation
Although increases in labor, food or other operating costs
could adversely affect the Company's operations, management
does not believe that inflation has had a material adverse
effect on the Company's operations to date.
Seasonality and Quarterly Results
The Company's sales fluctuate seasonally. Historically, the
Company's highest sales and earnings occur in the second and
third quarters. In addition, quarterly results are affected
by the timing of the opening and closing of stores.
Therefore, quarterly results cannot be used to indicate
results for the entire year.
Item 1. Legal Proceedings
On July 24, 1996, the Company approved a proposed settlement
("the Settlement") of A.L. Park, et al. v. Taco Cabana,
Inc., et al., (the "Lawsuit"), a suit originally filed in
September 1995 seeking status as a class action.
Under the terms of the Settlement, the plaintiffs will
receive a total of $6.0 million. The Company's insurance
carrier will pay $3.05 million in cash, while the Company
will pay $2.95 million consisting of, at the Company's
option, cash or shares of the Company's common stock.
Additionally, the Company has reserved $450,000 for the
payment of legal and related expenses incurred and
anticipated to be incurred in connection with the
Settlement.
The Company denies any liability or wrongdoing in connection
with the Lawsuit. The Settlement was entered into to avoid
continuing distraction of management, reduce overall legal
cost liability and exposure to risk of adverse outcome. The
Settlement is contingent upon execution of a definitive
settlement agreement, approval by a sufficient percentage of
the potential class plaintiffs, U.S. District Court
approval, and certain other conditions.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the period covered
by this report.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Dated: August 13, 1996 Taco Cabana, Inc.
/s/ David G. Lloyd
------------------------------
David G. Lloyd
Vice President, Chief Financial
Officer, Secretary and Treasurer
Signing on behalf of the registrant
and as the principal financial and
accounting officer