UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 25, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number: 000-26125
RUBIO'S RESTAURANTS, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 33-0100303
(State or Other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
1902 WRIGHT PLACE, SUITE 300, CARLSBAD, CALIFORNIA 92008
(Address of Principal Executive Offices)
(760) 929-8226
(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. (1) Yes X No
----- -----
(2) Yes X No
----- -----
As of July 31, 2000, there were 8,885,213 shares of the Registrant's common
stock, par value $0.001 per share, outstanding.
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RUBIO'S RESTAURANTS, INC.
TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
June 25, 2000 and December 26, 1999 3
Consolidated Statements of Operations for the
thirteen weeks ended June 25, 2000 and June 27,
1999 and twenty-six weeks ended June 25,
2000 and June 27, 1999 4
Consolidated Statements of Cash Flows for the
twenty-six weeks ended June 25, 2000
and June 27, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 22
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 25, December 26,
2000 1999
----------- ------------
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,225 $ 3,459
Short-term investments 7,086 7,376
Other receivables 869 579
Income taxes receivable 215 215
Inventory 971 618
Prepaid expenses 564 562
Deferred income taxes 82 50
------- -------
Total current assets 16,012 12,859
INVESTMENTS 2,997 8,544
PROPERTY - net 32,500 27,923
OTHER ASSETS 403 439
DEFERRED INCOME TAXES 273 273
------- -------
TOTAL $52,185 $50,038
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,721 $ 3,235
Accrued expenses and other liabilities 3,636 2,572
Income taxes payable 451 -
------- -------
Total current liabilities 6,808 5,807
DEFERRED RENT 1,289 1,109
------- -------
Total liabilities 8,097 6,916
COMMITMENTS AND CONTINGENCIES (NOTE 3)
STOCKHOLDERS' EQUITY:
Preferred Stock, $.001 par value, 5,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, $.001 par value, 75,000,000 shares authorized,
8,881,774 issued and outstanding in 2000 and 8,871,775 issued
and outstanding in 1999 9 9
Paid-in capital 41,371 41,357
Deferred compensation 119 88
Accumulated other comprehensive income (20) 29
Retained earnings 2,609 1,639
------- ------
Total stockholders' equity 44,088 43,122
------- ------
TOTAL $52,185 $50,038
------- -------
------- -------
See notes to unaudited consolidated financial statements.
3
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
For the 13 Weeks Ended For the 26 Weeks Ended
--------------------------- ---------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
-------- -------- -------- --------
SALES $ 23,462 $ 16,322 $ 43,391 $ 30,705
COSTS AND EXPENSES:
Cost of sales 6,840 4,716 12,706 8,963
Restaurant labor, occupancy and other 11,928 8,112 22,279 15,366
General and administrative expenses 2,554 2,009 4,929 4,084
Depreciation and amortization 1,003 714 1,905 1,355
Pre-opening expenses 190 168 377 262
-------- -------- -------- --------
OPERATING INCOME 947 603 1,195 675
OTHER INCOME (EXPENSE):
Interest and investment income 248 102 474 165
Interest expense (22) (48) (44) (103)
Loss on disposal/sale of property (5) - (8) (5)
-------- -------- -------- --------
Other income - net 221 54 422 57
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 1,168 657 1,617 732
INCOME TAX EXPENSE (467) (263) (647) (293)
-------- -------- -------- --------
NET INCOME $ 701 $ 394 $ 970 $ 439
-------- -------- -------- --------
-------- -------- -------- --------
HISTORIC NET INCOME ATTRIBUTABLE TO
COMMON STOCKHOLDERS:
Basic $ 701 $ 342 $ 970 $ 301
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ 701 $ 394 $ 970 $ 439
-------- -------- -------- --------
-------- -------- -------- --------
HISTORIC NET INCOME PER SHARE:
Basic $ 0.08 $ 0.08 $ 0.11 $ 0.12
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $ 0.08 $ 0.05 $ 0.11 $ 0.06
-------- -------- -------- --------
-------- -------- -------- --------
HISTORIC SHARES USED IN CALCULATING HISTORIC
NET INCOME PER SHARE:
Basic 8,881 4,181 8,877 2,615
-------- -------- -------- --------
-------- -------- -------- --------
Diluted 9,034 7,603 9,024 7,081
-------- -------- -------- --------
-------- -------- -------- --------
See notes to unaudited consolidated financial statements.
4
RUBIO'S RESTAURANTS, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the 26 Weeks Ended
--------------------------------
June 25, 2000 June 27, 1999
------------- -------------
OPERATING ACTIVITIES:
Net income $ 970 $ 439
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,905 1,355
Deferred compensation 31 32
Loss on disposal/sale of property 8 5
Changes in assets and liabilities:
Other receivables (290) 40
Inventory (353) (119)
Prepaid expenses (2) (247)
Other assets 36 (103)
Deferred income taxes (32) (8)
Accounts payable (514) 1,143
Accrued expenses and other liabilities 1,064 772
Income taxes payable 451 160
Deferred rent 180 147
-------- --------
Cash provided by operating activities 3,454 3,616
-------- --------
INVESTING ACTIVITIES:
Proceeds from sale of property - 12
Purchase of property (6,490) (6,239)
Purchases of investments (16,121) (18,734)
Sales and maturities of investments 21,909 19,283
-------- --------
Cash used for investing activities (702) (5,678)
-------- --------
FINANCING ACTIVITIES:
Proceeds from initial public offering - 26,111
Proceeds from line of credit borrowing - 1,000
Stock offering costs (2) (2,844)
Principal payments on long-term debt - (1,856)
Payments under line credit - (1,000)
Proceeds from exercise of stock options 16 42
-------- --------
Cash provided by financing activities 14 21,453
-------- --------
INCREASE IN CASH AND CASH EQUIVALENTS 2,766 19,391
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,459 787
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,225 $ 20,178
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ - $ 155
-------- --------
-------- --------
Cash paid for income taxes $ 193 $ 133
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Holding (losses)/gains on available-for-sale investments, before tax $ (82) $ 8
-------- --------
-------- --------
See notes to unaudited consolidated financial statements.
5
RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial information has been
prepared by Rubio's Restaurants, Inc. and its wholly-owned subsidiary
(collectively, the "Company") without audit, in accordance with the
instructions to Form 10-Q and therefore does not include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in accordance with generally accepted accounting
principles.
UNAUDITED INTERIM FINANCIAL DATA - In the opinion of management, the
unaudited consolidated financial statements for the interim periods presented
reflect all adjustments, consisting of only normal recurring accruals,
necessary for a fair presentation of the financial position and results of
operations as of and for such periods indicated. These consolidated financial
statements and notes thereto should be read in conjunction with the
consolidated financial statements and notes thereto for the year ended
December 26, 1999 included in the Company's Form 10-K. Results for the
interim periods presented herein are not necessarily indicative of results
which may be reported for any other interim period or for the entire fiscal
year.
2. BALANCE SHEET DETAILS AS OF JUNE 25, 2000 AND DECEMBER 26, 1999,
respectively: (in thousands)
2000 1999
-------- --------
PROPERTY - at cost:
Building and leasehold improvements $ 20,677 $ 17,308
Equipment and furniture 20,023 17,395
Construction in process and related costs 2,064 1,586
-------- --------
42,764 36,289
Less: accumulated depreciation and amortization (10,264) (8,366)
-------- --------
Total $ 32,500 $ 27,923
-------- --------
-------- --------
OTHER ASSETS:
Long-term deposits $ 359 $ 366
Other 44 73
-------- --------
Total $ 403 $ 439
-------- --------
-------- --------
ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation $ 1,612 $ 1,161
Sales taxes 1,136 499
Vacation pay 355 300
Unearned usage allowance - 95
Other 533 517
-------- --------
Total $ 3,636 $ 2,572
-------- --------
-------- --------
3. LONG-TERM DEBT AND CREDIT FACILITIES
REVOLVING LINE OF CREDIT - As of June 25, 2000, there were no
borrowings against the Credit Line.
6
RUBIO'S RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
4. EARNINGS PER SHARE
Reconciliation of basic and diluted earnings per share in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" is as follows (in thousands, except per share data):
13 Weeks Ended 26 Weeks Ended
------------------------- -------------------------
June 25, June 27, June 25, June 27,
2000 1999 2000 1999
------- ------- ------- -------
Numerator
Basic:
Net Income $ 701 $ 394 $ 970 $ 439
Accretion on redeemable convertible preferred stock - (52) - (138)
------- ------- ------- -------
Net income attributable to common
stockholders 701 342 970 301
Diluted:
Reversal of accretion on redeemable convertible
preferred stock - 52 - 138
------- ------- ------- -------
Net income attributable to common
stockholders $ 701 $ 394 $ 970 $ 439
------- ------- ------- -------
------- ------- ------- -------
Denominator
Basic:
Weighted average common shares outstanding 8,881 4,181 8,877 2,615
Diluted:
Effect of dilutive securities:
Common stock options 153 276 147 241
Conversion of convertible preferred stock - 3,146 - 4,225
------- ------- ------- -------
Total weighted average common and potential
common shares outstanding 9,034 7,603 9,024 7,081
------- ------- ------- -------
------- ------- ------- -------
Earnings per share
Basic $ 0.08 $ 0.08 $ 0.11 $ 0.12
------- ------- ------- -------
------- ------- ------- -------
Diluted $ 0.08 $ 0.05 $ 0.11 $ 0.06
------- ------- ------- -------
------- ------- ------- -------
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This quarterly report on Form 10-Q may contain certain projections,
estimates and other forward-looking statements that involve a number of risks
and uncertainties, including without limitation, those discussed below at
"Risk Factors." While this outlook represents our current judgment on the
future direction of the business, such risks and uncertainties could cause
actual results to differ materially from any future performance suggested
below. We undertake no obligation to release publicly the results of any
revisions to these forward-looking statements to reflect events or
circumstances arising after the date of this quarterly report.
OVERVIEW
We opened our first restaurant under the name "Rubio's, Home of the
Fish Taco" in 1983 and grew steadily through 1994, at which time we operated
17 units. We accelerated the number of restaurant openings in recent years,
going from six new restaurants in 1995 to 31 in 1999. As of June 25, 2000, we
have opened 17 new restaurants in the current year. In addition, in order to
continue to expand into new markets, we are currently initiating a franchise
program.
As a result of our rapid expansion, period to period comparisons of
our financial results may not be meaningful. When a new unit opens, it will
typically incur higher than normal levels of food and labor costs until new
personnel gain experience. Hourly labor schedules are gradually adjusted
downward during the first three months of a restaurant opening, in order to
reach operating efficiencies similar to those at established units. In
calculating comparable restaurant sales, we introduce a restaurant into our
comparable restaurant base once it has been in operation for 15 calendar
months.
Sales represents gross sales less sales taxes, coupons and other
discounts. Cost of sales is composed of food, beverage and paper supply
expenses. Components of restaurant labor, occupancy and other expenses
include direct hourly and management wages, bonuses, fringe benefit costs,
rent and other occupancy costs, advertising and promotion, operating
supplies, utilities, maintenance and repairs and other operating expenses.
General and administrative expenses include all corporate and
administrative functions that support existing operations and provide
infrastructure to facilitate our future growth. Components of this category
include management, supervisory and staff salaries and employee benefits,
travel, information systems, training, corporate rent and professional and
consulting fees.
Pre-opening expenses which are expensed as incurred, consist of the
costs of hiring and training the initial workforce, travel, the cost of food
used in training, the cost of the initial stocking of operating supplies and
other direct costs related to the opening.
We have leased all of our facilities, except for one building, in
order to minimize the cash investment associated with each unit. The majority
of our leases are for 10-year terms and include options to extend the terms.
The majority of our leases also include both fixed rate and
percentage-of-sales rent provisions.
8
We use a 52- or 53-week fiscal year ending on the Sunday nearest
December 31. The three-month periods ended June 25, 2000 and June 27, 1999
each consisted of 13 weeks. The six-month periods ended June 25, 2000 and
June 27, 1999 each consisted of 26 weeks.
RESULTS OF OPERATIONS
13 WEEKS ENDED JUNE 25, 2000 COMPARED TO THE 13 WEEKS ENDED JUNE 27, 1999
Our operating results for the 13 weeks, expressed as a percentage of
sales, were as follows:
For 13 Weeks Ended
----------------------------------
June 25, June 27,
2000 1999
------------- -------------
Sales 100.0% 100.0%
Costs and expenses:
Cost of sales 29.2 28.9
Restaurant labor, occupancy and other 50.8 49.7
General and administrative expenses 10.9 12.3
Depreciation and amortization 4.3 4.4
Pre-opening expenses 0.8 1.0
--------- ---------
Operating income 4.0 3.7
Other income - net 0.9 0.3
--------- ---------
Income before income taxes 4.9 4.0
Income tax expense (2.0) (1.6)
--------- ---------
Net income 2.9% 2.4%
--------- ---------
--------- ---------
Results of operations reflect a full 13 weeks of operations for 96
restaurants and 64 restaurants for the periods ended June 25, 2000 and June
27, 1999, respectively. Results of operations also reflect a partial period
of operations for 11 restaurants and 7 restaurants for the 13 weeks ended
June 25, 2000 and June 27, 1999, respectively.
SALES. Sales increased $7.1 million, or 43.7%, to $23.5 million for the 13
weeks ended June 25, 2000 from $16.3 million for the 13 weeks ended June 27,
1999. This increase was principally due to the $4.0 million in sales
generated by a full quarter of operations from the non-comparable 31 units
opened in 1999, combined with the $2.8 million from the 17 units opened
during 2000. In addition, comparable unit sales increased by $0.3 million, or
2.1%.
COST OF SALES. Cost of sales as a percentage of sales increased slightly to
29.2% in the 13 weeks ended June 25, 2000 from 28.9% in the 13 weeks ended
June 27, 1999. This increase was primarily due to the timing of our higher
cost lobster promotion. In 2000, the lobster promotion was offered the entire
quarter. In 1999, the lobster promotion began in late May.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and other
increased as a percentage of sales to 50.8% for the 13 weeks ended June 25,
2000 from 49.7% in the 13 weeks ended June 27, 1999. The increase as a
percentage of sales is primarily due to an increase in total direct labor of
0.8%. These labor increases were due to expected inefficiencies in the new
stores and to the increasing mix of stores located in newer markets which
have on average lower initial annual sales volumes than our mature markets.
In addition, we experienced one-time training costs related to our new menu
board and burrito enhancement rollout. We expect to complete this training in
the third quarter of fiscal 2000.
9
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $2.6 million for the 13 weeks ended June 25, 2000 from $2.0
million for the 13 weeks ended June 27, 1999. The increase was primarily due
to increases in salaries and benefits related to the hiring of additional
corporate employees and field management personnel as well as other corporate
level expenses required to support and manage unit expansion. General and
administrative expenses decreased as a percentage of sales to 10.9% in 2000
from 12.3% in 1999, primarily due to our expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.0 million in the 13 weeks ended June 25, 2000 from $714,000 in the 13
weeks ended June 27, 1999. The increase was primarily due to the additional
depreciation on the 31 new units opened during 1999 and the 17 new units
opened during 2000. As a percentage of sales, depreciation and amortization
decreased slightly to 4.3% in the 13 weeks ended June 25, 2000 from 4.4% for
the 13 weeks ended June 27, 1999.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $190,000 for the 13
weeks ended June 25, 2000 from $168,000 for the 13 weeks ended June 27, 1999
primarily due to the increase in unit openings to 11 in the second quarter of
2000 compared to 7 in the second quarter of 1999.
OTHER INCOME - NET. Other income - net increased to $221,000 for the 13 weeks
ended June 25, 2000 from $54,000 in other income - net in the 13 weeks ended
June 27, 1999. Interest and investment income increased to $248,000 for the
13 weeks ended June 25, 2000 from $102,000 in the 13 weeks ended June 27,
1999. The increase is primarily due to an increase in the cash available for
investing after our initial public offering, which was completed in May 1999.
Interest expense declined to $22,000 for the 13 weeks ended June 25, 2000
from $48,000 in the 13 weeks ended June 27, 1999. This decrease is due to the
repayment of all long-term debt with the proceeds from our initial public
offering.
INCOME TAXES. The provision for income taxes in the 13 weeks ended June 25,
2000 and June 27, 1999, respectively, is based on the approximate annual
effective tax rate applied to the respective quarter's pretax book income.
The 40% tax rate applied in 2000 comprises the federal and state statutory
rates based on the estimated annual effective rate for 2000.
26 WEEKS ENDED JUNE 25, 2000 COMPARED TO THE 26 WEEKS ENDED JUNE 27, 1999
Our operating results for the 26 weeks, expressed as a percentage of
sales, were as follows:
For 26 Weeks Ended
----------------------------------
June 25, June 27,
2000 1999
------------- -------------
Sales 100.0% 100.0%
Costs and expenses:
Cost of sales 29.3 29.2
Restaurant labor, occupancy and other 51.3 50.0
General and administrative expenses 11.4 13.3
Depreciation and amortization 4.4 4.4
Pre-opening expenses 0.9 0.9
--------- ---------
Operating income 2.7 2.2
Other income - net 1.0 0.2
--------- ---------
Income before income taxes 3.7 2.4
Income tax expense (1.5) (1.0)
--------- ---------
Net income 2.2% 1.4%
--------- ---------
--------- ---------
10
Results of operations reflect a full 26 weeks of operations for 90
restaurants and 59 restaurants for the periods ended June 25, 2000 and June
27, 1999, respectively. Results of operations also reflect a partial period
of operations for 17 restaurants and 12 restaurants for the 26 weeks ended
June 25, 2000 and June 27, 1999, respectively.
SALES. Sales increased $12.7 million, or 41.3%, to $43.4 million for the 26
weeks ended June 25, 2000 from $30.7 million for the 26 weeks ended June 27,
1999. This increase was principally due to the $8.8 million in sales
generated by a full 26 weeks of operations from the non-comparable 31 units
opened in 1999, combined with the $3.6 million from the 17 units opened
during 2000. In addition, comparable unit sales increased by $0.3 million, or
1.2%.
COST OF SALES. Cost of sales as a percentage of sales increased slightly to
29.3% in the 26 weeks ended June 25, 2000 from 29.2% in the 26 weeks ended
June 27, 1999. This increase was primarily a function of changes in product
mix, which occur because of different menu promotions and changes in our
guests' ordering habits.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and other
increased as a percentage of sales to 51.3% for the 26 weeks ended June 25,
2000 from 50.0% in the 26 weeks ended June 27, 1999. The increase as a
percentage of sales is primarily due to an increase in total direct labor of
1.0%. These labor increases were due to expected inefficiencies in the new
stores and to the increasing mix of stores located in newer markets which
have on average lower initial annual sales volumes than our mature markets.
In addition, we experienced one-time training costs related to our new menu
board and burrito enhancement rollout. We expect to complete this training in
the third quarter of fiscal 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $4.9 million for the 26 weeks ended June 25, 2000 from $4.1
million for the 26 weeks ended June 27, 1999. The increase was primarily due
to increases in salaries and benefits related to the hiring of additional
corporate employees and field management personnel as well as other corporate
level expenses required to support and manage unit expansion. General and
administrative expenses decreased as a percentage of sales to 11.4% in 2000
from 13.3% in 1999 primarily due to our expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.9 million in the 26 weeks ended June 25, 2000 from $1.4 million in the 26
weeks ended June 27, 1999. The $0.5 million increase was primarily due to the
additional depreciation on the 31 new units opened during 1999 and the 17 new
units opened during 2000. As a percentage of sales, depreciation and
amortization was 4.4% in both 2000 and 1999.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $377,000 for the 26
weeks ended June 25, 2000 from $262,000 for the 26 weeks ended June 27, 1999
primarily due to the increase in unit openings to 17 in 2000 compared to 12
in 1999.
OTHER INCOME - NET. Other income - net increased to $422,000 for the 26 weeks
ended June 25, 2000 from $57,000 in other income - net in the 26 weeks ended
June 27, 1999. The increase is primarily due to an increase in the cash
available for investing after our initial public offering, which was
completed in May 1999. Interest and investment income increased to $474,000
for the 26 weeks ended June 25, 2000 from $165,000 in the 26 weeks ended June
27, 1999. Interest expense declined to $44,000 for the 26 weeks ended June
25, 2000 from $103,000 in the 26 weeks ended June 27, 1999. This decrease is
due to the repayment of all long-term debt with the proceeds from our initial
public offering.
INCOME TAXES. The provision for income taxes in the 26 weeks ended June 25,
2000 and June 27, 1999, respectively, is based on the approximate annual
11
effective tax rate applied to the respective quarter's pretax book income.
The 40% tax rate applied in 2000 comprises the federal and state statutory
rates based on the estimated annual effective rate for 2000.
INFLATION
Components of our operations subject to inflation include food,
beverage, lease and labor costs. Our leases require us to pay taxes,
maintenance, repairs, insurance and utilities, all of which are subject to
inflationary increases. We believe inflation has not had a material impact on
our results of operations in recent years and has been mitigated by price
increases taken in recent years.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years through cash
flow from operations, private placements of preferred stock, bank debt, and
the public sale of equity securities.
We generated $3.5 million in cash flow from operating activities for
the 26 weeks ended June 25, 2000 compared to $3.6 million for the 26 weeks
ended June 27, 1999.
Net cash used for investing activities was $0.7 million for the 26
weeks ended June 25, 2000 compared to net cash used for investing activities
of $5.7 million for the 26 weeks ended June 27, 1999.
Net cash provided by financing activities was $14,000 in the 26
weeks ended June 25, 2000, which primarily consisted of the exercise of stock
options compared to a net cash provided of $21.4 million for the 26 weeks
ended June 27, 1999, which primarily consisted of the proceeds from our
initial public offering. In addition, we have a $7.5 million line of credit
agreement with a financial institution. As of June 25, 2000, there were no
borrowings against the line of credit.
Our principal uses of cash in 2000 were the development and opening
of new restaurants. We incurred $6.5 million in capital expenditures during
the 26 weeks ended June 25, 2000, of which $5.4 million was for new unit
openings and $0.9 million was for maintenance expenditures on existing
locations and $0.2 million for corporate expenditures. During the 26 weeks
ended June 27, 1999, we incurred $6.2 million in capital expenditures, of
which $5.0 million was for new unit openings, $0.6 million was for existing
locations and $0.6 million was for corporate expenditures and point-of-sale
remodels.
We believe that the proceeds from the initial public offering
completed in May 1999 together with anticipated cash flow from operations and
funds anticipated to be available from a credit facility will be sufficient
to satisfy our working capital requirements for at least the next 12 months.
We plan to incur substantial costs over the near term in connection with our
expansion program. Changes in our operating plans, acceleration of our
expansion plans, lower than anticipated sales, increased expenses, potential
acquisitions or other events may cause us to seek additional financing sooner
than anticipated. Additional financing may not be available on acceptable
terms, or at all. Failure to obtain additional financing as needed could have
a material adverse effect on our business and results of operations.
RISK FACTORS
Any investment in our common stock involves a high degree of risk.
You should consider carefully the following information about these risks,
together with the other information contained in this quarterly report,
before you decide to buy our common stock. If any of the following risks
actually occur, our business would likely suffer. In such case, the trading
price of our common stock could decline, and you may lose all or part of the
money you paid to buy our common stock.
12
OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY DUE TO SEASONALITY
AND OTHER FACTORS, WHICH COULD HAVE A NEGATIVE EFFECT ON THE PRICE OF OUR COMMON
STOCK.
Our business is subject to seasonal fluctuations. Historically,
sales in most of our restaurants have been higher during the second and third
quarters of each fiscal year. As a result, we expect our highest earnings to
occur in the second and third quarters of each fiscal year.
In addition to seasonality, our quarterly and annual operating
results and comparable unit sales may fluctuate significantly as a result of
a variety of factors, including:
- labor costs for our hourly and management personnel, including
increases in federal or state minimum wage requirements;
- fluctuations in food costs, particularly the cost of chicken, beef,
fish, cheese and produce;
- utility cost increases;
- the timing of new restaurant openings and related expenses;
- the amount of sales contributed by new and existing restaurants;
- our ability to achieve and sustain profitability on a quarterly or
annual basis;
- consumer confidence;
- changes in consumer preferences;
- the level of competition from existing or new competitors in the
quick-service restaurant industry;
- factors associated with closing a unit, including payment of the
base rent for the balance of the lease term;
- impact of weather on revenues and costs of food; and
- general economic conditions.
Accordingly, results for any one quarter or for any year are not
necessarily indicative of results to be expected for any other quarter or for
any year. Comparable unit sales for any particular future period may decrease.
IF WE ARE NOT ABLE TO SUCCESSFULLY PURSUE OUR RAPID EXPANSION
STRATEGY, OUR BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED.
We intend to continue to pursue a rapid expansion strategy. Since
1996, and as of June 25, 2000, we have opened 76 restaurants, 15 restaurants
in San Diego county, 29 restaurants in greater Los Angeles, which includes
Los Angeles, Orange, San Bernardino, Ventura and Riverside counties, 13
restaurants in Phoenix/Tucson, Arizona, five restaurants in Las Vegas,
Nevada, five restaurants in Denver, Colorado, 6 restaurants in Salt Lake
City, Utah and three in the Sacramento, California area. We plan to open 36
restaurants in 2000, 17 of which have been opened to date. Fifteen of the 36
planned 2000 openings are outside Southern California. Our ability to
successfully achieve our expansion strategy will depend on a variety of
factors, many of which are beyond our control.
These factors include:
- our ability to locate suitable restaurant sites or negotiate
acceptable lease terms;
- our ability to obtain required local, state and federal governmental
approvals and permits related to construction of the sites, food and
alcoholic beverages;
- our dependence on contractors to construct new restaurants in a
timely manner;
- our ability to attract, train and retain qualified and experienced
restaurant personnel and management;
- our ability to operate our restaurants profitably;
- our need for additional capital and our ability to obtain such
capital on favorable terms or at all;
13
- our ability to respond effectively to the intense competition in the
quick-service restaurant industry; and
- general economic conditions.
If we are not able to successfully address these factors, we may not
be able to expand at a rate currently contemplated by our strategy, and our
business and results of operations may be adversely impacted.
WE ARE CURRENTLY INITIATING A FRANCHISING PROGRAM. WE MAY BE
UNSUCCESSFUL IN EXECUTING THIS PROGRAM.
We are planning to use a franchise strategy in selected markets. Our
failure to successfully execute a franchising program could adversely affect
our business and results of operations. We have not used franchising to date
and may not be successful in implementing a franchise program in the future.
We have established preliminary criteria to evaluate prospective franchisees
and have conducted preliminary interviews with these candidates. We may be
unable to identify and attract franchisees that have the business abilities
or access to financial resources necessary to open our restaurants or to
successfully develop or operate our restaurants in their franchise areas in a
manner consistent with our criteria and standards.
THE RESTAURANT INDUSTRY IS INTENSELY COMPETITIVE AND WE MAY NOT HAVE
THE RESOURCES TO COMPETE ADEQUATELY.
The restaurant industry is intensely competitive. There are many
different segments within the restaurant industry that are distinguished by
types of service, food types and price/value relationships. We position our
restaurants in the high-quality, quick-service Mexican food segment of the
industry. In this segment, our direct competitors include Baja Fresh, La
Salsa and Chipotle. We also compete indirectly with full-service Mexican
restaurants including Chevy's, Chi Chi's and El Torito, and fast food
restaurants, particularly those focused on Mexican food such as Taco Bell and
Del Taco. Competition in our industry segment is based primarily upon food
quality, price, restaurant ambiance, service and location. Although we
believe we compete favorably with respect to each of these factors, many of
our direct and indirect competitors are well-established national, regional
or local chains and have substantially greater financial, marketing,
personnel and other resources than we do. We also compete with many other
retail establishments for site locations.
The performance of individual units may also be affected by factors
such as traffic patterns, demographic considerations and the type, number and
proximity of competing restaurants. In addition, factors such as inflation,
increased food, labor and employee benefit costs and the availability of
experienced management and hourly employees may also adversely affect the
restaurant industry in general and our units in particular.
OUR PLANNED EXPANSION INTO NEW GEOGRAPHIC AREAS INVOLVES A NUMBER OF
RISKS WHICH COULD DELAY OR PREVENT THE OPENING OF PLANNED NEW RESTAURANTS.
Almost all of our current restaurants are located in the southwest
region of the United States. Our planned expansion into geographic areas
outside the Southwest involves a number of risks, including:
- uncertainties related to local demographics, tastes and preferences;
- local custom, wages, costs and other legal and economic conditions
particular to new regions;
- the need to develop relationships with local distributors and
suppliers for fresh produce, fresh tortillas and other ingredients;
- potential difficulties related to management of operations located
in a number of broadly dispersed locations; and
- lack of market awareness or acceptance of our restaurant concept in
new geographic areas.
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We may not be successful in addressing these risks. We also may not
be able to open our planned new operations on a timely basis, or at all in
these new areas. Delays in opening or failure to open planned new restaurants
outside the Southwest could have a material adverse effect on our business
and results of operations. We currently anticipate that our new restaurants
will take several months to reach planned operating levels due to
inefficiencies typically associated with expanding into new regions, such as
lack of market awareness, acceptance of our restaurant concept and inability
to hire sufficient staff.
WE MAY BE UNABLE TO FUND OUR SUBSTANTIAL WORKING CAPITAL
REQUIREMENTS AND MAY NEED ADDITIONAL FUNDING SOONER THAN WE ANTICIPATE.
We believe that the proceeds from our initial public offering
completed in May 1999 together with anticipated cash flow from operations and
funds anticipated to be available from a credit facility will be sufficient
to satisfy our working capital requirements for at least the next 12 months.
We plan to incur substantial costs over the near-term in connection with our
expansion plans. We may need to seek additional financing sooner than we
anticipate as a result of the following factors:
- changes in our operating plans;
- acceleration of our expansion plans;
- lower than anticipated sales of our menu offerings;
- increased food and/or labor costs; and
- potential acquisitions.
Additional financing may not be available on acceptable terms, or at
all. If we fail to get additional financing as needed, our business and
results of operations would likely suffer.
IF WE ARE NOT ABLE TO ANTICIPATE AND REACT TO OUR FOOD AND LABOR
COSTS, OUR PROFITABILITY COULD BE ADVERSELY AFFECTED.
Our restaurant operating costs principally consist of food and labor
costs. Our profitability is dependent on our ability to anticipate and react
to changes in food and labor costs. Various factors beyond our control,
including adverse weather conditions and governmental regulation, may affect
our food costs. We may not be able to anticipate and react to changing food
costs, whether through our purchasing practices, menu composition or menu
price adjustment in the future. In the event that food and labor price
increases cause us to increase our menu prices, we face the risk that our
guests will choose to patronize lower-cost restaurants.
Failure to react to changing food costs or to retain guests if we
are forced to raise menu prices could have a material adverse effect on our
business and results of operations.
A substantial number of our employees are subject to various minimum
wage requirements. Many of our employees work in restaurants located in
California and receive salaries equal to or slightly greater than the
California minimum wage. Effective March 1, 1998, the minimum wage in
California increased to $5.75 per hour from $5.15. Similar proposals may come
before legislators or voters in other jurisdictions in which we operate or
seek to operate. Such minimum wage increases could have a material adverse
effect on our business and results of operations.
THE ABILITY TO ATTRACT AND RETAIN HIGHLY QUALIFIED PERSONNEL TO
OPERATE AND MANAGE OUR RESTAURANTS IS EXTREMELY IMPORTANT AND OUR FAILURE TO
DO SO COULD ADVERSELY AFFECT US.
Our success and the success of our individual restaurants depend
upon our ability to attract and retain highly motivated, well-qualified
restaurant operators and management personnel, as well as a sufficient number
of qualified employees, including guest service and kitchen staff, to keep
pace with our
15
expansion schedule. Qualified individuals needed to fill these positions are
in short supply in some geographic areas. Our ability to recruit and retain
such individuals may delay the planned openings of new restaurants or result
in higher employee turnover in existing restaurants, which could have a
material adverse effect on our business or results of operations. We also
face significant competition in the recruitment of qualified employees. In
addition, we are heavily dependent upon the services of our officers and key
management involved in restaurant operations, marketing, finance, purchasing,
expansion, human resources and administration. The loss of any of these
individuals could have a material adverse effect on our business and results
of operations. We currently do not have employment agreements with any of our
employees.
OUR RESOURCES MAY BE STRAINED IN IMPLEMENTING OUR BUSINESS STRATEGY.
Our growth strategy will place a strain on our management, financial
and other resources. To manage our growth effectively, we must maintain the
level of quality and service at our existing and future restaurants. We must
also continue to enhance our operational, financial and management systems
and locate, hire, train and retain experienced and dedicated operating
personnel, particularly managers. We may not be able to effectively manage
any one or more of these or other aspects of our expansion. Failure to do so
could have a material adverse effect on our business and results of
operations.
UNANTICIPATED COSTS OR DELAYS IN THE DEVELOPMENT OR CONSTRUCTION OF
OUR RESTAURANTS COULD PREVENT OUR TIMELY AND COST-EFFECTIVE OPENING OF NEW
RESTAURANTS.
We depend on contractors and real estate developers to construct our
restaurants. Many factors may adversely affect the cost and time associated
with the development and construction of our restaurants, including:
- labor disputes;
- shortages of materials and skilled labor;
- adverse weather;
- unforeseen engineering problems;
- environmental problems;
- construction or zoning problems;
- local government regulations;
- modifications in design; and
- other unanticipated increases in costs.
Any of these factors could give rise to delays or cost overruns
which may prevent us from developing additional restaurants within our
anticipated budgets or time periods. Any such failure could have a material
adverse effect on our business and results of operations.
OUR RESTAURANTS ARE CONCENTRATED IN THE SOUTHWEST REGION OF THE
UNITED STATES, AND THEREFORE, OUR BUSINESS IS SUBJECT TO FLUCTUATIONS IF
ADVERSE BUSINESS CONDITIONS OCCUR IN THAT REGION.
As of June 25, 2000 all but 11 of our existing restaurants are
located in the southwest region of the United States. Accordingly, we are
susceptible to fluctuations in our business caused by adverse economic or
other conditions in this region, including natural or other disasters. Our
significant investment in, and long-term commitment to, each of our units
limits our ability to respond quickly or effectively to changes in local
competitive conditions or other changes that could affect our operations. In
addition, some of our competitors have many more units than we do.
Consequently, adverse economic or other conditions in a region, a decline in
the profitability of several existing units or the introduction of several
unsuccessful new units in a geographic area could have a more significant
effect on our results of operations than would be the case for a company with
a larger number of restaurants or with more geographically dispersed
restaurants.
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OUR FAILURE OR INABILITY TO ENFORCE OUR TRADEMARKS AND TRADE NAMES
COULD ADVERSELY AFFECT OUR EFFORTS TO ESTABLISH BRAND EQUITY.
Our ability to successfully expand our concept will depend on our
ability to establish and maintain "brand equity" through the use of our
trademarks, service marks, trade dress and other proprietary intellectual
property, including our name and logos. We currently hold three trademarks
and have seven service marks relating to our brand. Some or all of the rights
in our intellectual property may not be enforceable, even if registered,
against any prior users of similar intellectual property or our competitors
who seek to utilize similar intellectual property in areas where we operate
or intend to conduct operations. If we fail to enforce any of our
intellectual property rights, we may be unable to capitalize on our efforts
to establish brand equity. It is also possible that we will encounter claims
from prior users of similar intellectual property in areas where we operate
or intend to conduct operations. Claims from prior users could limit our
operations and possibly cause us to pay damages or licensing fees to a prior
user or registrant of similar intellectual property.
AS A RESTAURANT SERVICE PROVIDER, WE COULD BE SUBJECT TO ADVERSE
PUBLICITY OR CLAIMS FROM OUR GUESTS.
We may be the subject of complaints or litigation from guests
alleging food-related illness, injuries suffered on the premises or other
food quality, health or operational concerns. Adverse publicity resulting
from such allegations may materially affect us and our restaurants,
regardless of whether such allegations are true or whether we are ultimately
held liable. We may also be the subject of complaints or allegations from
current, former or prospective employees from time to time. A lawsuit or
claim could result in an adverse decision against us that could have a
material adverse effect on our business and results of operations.
WE MAY NOT BE ABLE TO OBTAIN AND MAINTAIN STATE AND LOCAL PERMITS
NECESSARY TO OPERATE OUR UNITS.
The failure to maintain necessary licenses, permits or approvals,
including food and alcoholic beverage licenses, or to comply with other
government regulations could have a material adverse effect on our business
and results of operations. In addition, difficulties or failures in obtaining
required licenses and approvals will result in delays in, or cancellations
of, the opening of new units. Restaurants are subject to licensing and
regulations by state and local health, environmental, labor relations,
sanitation, building, zoning, land use and environmental regulations. There
can be no assurance that we will be able to obtain necessary variances or
other approvals on a cost-effective and timely basis in order to construct
and develop units in the future. Changes in any or all of these laws or
regulations, such as government-imposed paid leaves of absence or mandated
health benefits, could have a material adverse effect on our business and
results of operations.
OUR CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE
AGAINST CLAIMS.
There are types of losses we may incur that may be uninsurable or
that we believe are not economically insurable, such as losses due to
earthquakes and other natural disasters. In view of the location of many of
our existing and planned units, our operations are particularly susceptible
to damage and disruption caused by earthquakes. Further, we do not currently
maintain any insurance coverage for employee-related litigation or the
effects of adverse publicity. In addition, punitive damage awards are
generally not covered by insurance. We may also be subject to litigation
which, regardless of the outcome, could result in adverse publicity and
damages. Such litigation, adverse publicity or damages could have a material
adverse effect on our business and results of operations.
17
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE OUR
STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of
sales by our existing stockholders of a large number of shares of our common
stock in the market or the perception that such sales could occur. These
sales also might make it more difficult for us to sell equity securities in
the future at a time and at a price that we deem appropriate.
THE MARKET PRICE OF OUR STOCK MAY BE ADVERSELY AFFECTED BY MARKET
VOLATILITY.
The stock market has experienced extreme price and volume
fluctuations. The trading price of our common stock could be subject to wide
fluctuations in response to a number of factors, including:
- fluctuations in our quarterly or annual results of operations;
- changes in published earnings estimates by analysts and whether our
earnings meet or exceed such estimates;
- additions or departures of key personnel; and
- changes in overall stock market conditions, including the stock
prices of other restaurant companies.
In the past, companies that have experienced volatility in the
market price of their stock have been the object of securities class action
litigation. If we were subject to securities class action litigation, it
could result in substantial costs and a diversion of our management's
attention and resources.
THE INTERESTS OF OUR CONTROLLING STOCKHOLDERS MAY CONFLICT WITH YOUR
INTERESTS.
As of June 25, 2000, the executive officers, directors and entities
affiliated with them, in the aggregate, beneficially own approximately 36.6%
of our outstanding common stock. These stockholders are able to exercise
control over all matters requiring approval by our stockholders, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control of our company.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW
COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.
The anti-takeover provisions in our certificate of incorporation,
our bylaws and Delaware law could make it more difficult for a third party to
acquire us. As a result of these provisions, we could delay, deter or prevent
a takeover attempt or third party acquisition that our stockholders consider
to be in their best interest, including a takeover attempt that results in a
premium over the market price for the shares held by our stockholders.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our market risk exposures are related to our cash, cash equivalents
and investments. We invest our excess cash in highly liquid short-term
investments with maturities of less than one year and corporate bonds,
mortgage-backed securities, commercial paper, tax free municipals, municipal
bonds, U.S. Treasury notes and agencies with maturities in excess of one
year. These investments are not held for trading or other speculative
purposes. Changes in interest rates affect the investment income we earn on
our investments and, therefore, impact our cash flows and results of
operations.
In addition, we have a $7.5 million line of credit agreement with a
financial institution. Interest on the line is calculated on either a bank
reference rate plus 0.75% or on an adjusted LIBOR plus 3.0% per annum.
However, there currently is no outstanding balance under this agreement.
Should we draw on this line in the future, changes in interest rates would
affect the interest expense on these loans and, therefore, impact our cash
flows and results of operations.
Many of the food products purchased by us are affected by changes in
weather, production, availability, seasonality and other factors outside our
control. In an effort to control some of this risk, we have entered into some
fixed price purchase commitments with terms of less than a year. In addition,
we believe that almost all of our food and supplies are available from
several sources, which helps to control food commodity risks.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) We currently have approximately $10.2 million remaining from our
initial public offering in May 1999. The use of proceeds for this reporting
period has conformed with our intended use outlined in the prospectus.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders was held on June 6, 2000. The stockholders
approved the following elections and proposals at the Annual Meeting:
Votes Votes Votes Broker
For Against Withheld Abstentions Non-Votes
1. Election of a Board of Directors to
serve until the date of the Annual
Meeting for their respective
staggered terms or until their
successors are duly elected and
qualified. The total number of votes
cast for, or withheld for
each nominee was as follows:
Nominee For Term
Ending
Ralph Rubio 2003 7,732,642 - - 13,283 -
Kyle Anderson 2003 7,732,642 - - 13,283 -
Craig Andrews 2002 7,732,642 - - 13,283 -
Kim Lopdrup 2002 7,732,642 - - 13,283 -
Michael Dooling 2001 7,732,642 - - 13,283 -
Timothy J. Ryan 2001 7,732,642 - - 13,283 -
2. Ratification of the appointment of
Deloitte & Touche LLP as independent
auditors for the fiscal year ending
December 31, 2000:
7,731,630 6,792 - 7,503 -
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 3.1 (1) Amended and Restated Certificate of Incorporation
3.2 (1) Restated Bylaws
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27.1 Financial Data Schedule
-------------------------------------------------------------------
(1) Filed as an exhibit to Registrant's Registration Statement on
Form S-1, and incorporated herein by reference.
b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Registrant during
the 13 weeks ended June 25, 2000.
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SIGNATURES
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 dully authorized.
Dated: August 7, 2000 RUBIO'S RESTAURANTS, INC.
/s/ Joseph N. Stein
---------------------------------------------
Joseph N. Stein
Chief Strategic and Financial Officer
(Principal Financial and Accounting Officer)
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