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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 26, 1999
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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 2000 was approximately $27,560,869. This amount
excludes 4,934,448 shares of the Registrant's common stock held by executive
officers, directors and affiliated parties at February 16, 2000. Exclusion of
such shares should not be construed to indicate that any such person
possesses the power, direct or indirect, to direct or cause the direction of
the management or policies of the Registrant or that such person is
controlled by or under common control with the Registrant.
As of February 16, 2000, there were 8,871,715 shares of the Registrant's common
stock, par value $0.001 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PART III incorporates information by reference from the definitive proxy
statement for the 2000 Annual Meeting of Stockholders to be held on June 6,
2000.
2
RUBIO'S RESTAURANTS, INC.
TABLE OF CONTENTS
Page
----
PART I
Item 1 Business 4
Item 2. Properties 18
Item 3. Legal Proceedings 18
Item 4. Submission of Matters to a Vote of Security Holders 18
PART II
Item 5. Market for Registrant's Common Equity and Related 18
Stockholders Matters
Item 6. Selected Financial Data 19
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of Operations 20
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure 27
Part III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
Part IV
Item 14. Exhibits and Financial Statement Schedules 27
Signatures 29
3
PART I
Item 1. BUSINESS
This annual report on Form 10-K 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 "Risks
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 annual report.
As of March 16, 2000, we own and operate 95 high-quality, quick-service
Mexican restaurants that offer traditional Mexican cuisine combined with fresh
seafood indicative of the Baja region of Mexico. Our restaurants are located in
California, Arizona, Nevada, Utah and Colorado.
RUBIO'S BAJA GRILL CONCEPT
The Rubio's Baja Grill concept successfully evolved from the original
"Rubio's, Home of the Fish Taco" concept, which our co-founder Ralph Rubio first
developed following his college spring break trips to the Baja peninsula of
Mexico in the mid-1970s. Ralph opened the first Rubio's restaurant with his
father, Rafael, over 17 years ago in the Mission Bay area of San Diego. Building
on the success of our original "fish taco" concept, we later expanded our menu
offerings and upgraded our store layout to appeal to a broader customer base. We
believe the "Rubio's Baja Grill" concept is uniquely positioned between the
quick-service and casual dining segments of the restaurant industry. The
critical elements of our market positioning are as follows:
- DISTINCTIVE, FRESH, HIGH-QUALITY FOOD. We seek to differentiate
ourselves from other quick-service and fast food Mexican restaurants
by offering high-quality products made-to-order using authentic
regional Baja Mexican recipes. We have experienced a high degree of
success to date developing distinctive and flavorful offerings that
generate strong customer loyalty and are often described as
"craveable." Our signature items include our Baja-style fish tacos as
well as limited time promotions such as our lobster burrito, crab and
shrimp enchilada and tequila shrimp burrito. Our menu is served at
both lunch and dinner. It features a variety of other freshly prepared
items, including tacos and burritos made with chargrilled chicken,
steak, shrimp and a featured "fish of the day", as well as grilled
quesadillas. Freshly prepared salsas are offered at our complimentary
salsa bar. Our menu also includes reduced fat "Healthmex" offerings
and "Kid Pesky" meals designed for children.
- CASUAL, FUN DINING EXPERIENCE. We strive to promote an enjoyable
overall customer experience by creating a fun and relaxed setting in
each of our restaurants. Unlike the generic decor of a typical fast
food restaurant, our restaurants are designed to create an authentic
personality capturing the relaxed, beach-like atmosphere of the Baja
region of Mexico. Our design elements include colorful Mexican tiles,
saltwater aquariums with tropical fish, Baja beach photos and tropical
prints, surfboards on the walls and authentic palm-thatched patio
umbrellas, or palapas, in most existing locations.
- EXCELLENT DINING VALUE. Our restaurants offer guests high-quality food
typically associated with sit-down, casual dining restaurants at
quick-service prices. In addition to favorable prices, we offer the
convenience and rapid delivery of a traditional quick-service format.
We provide guests a clean and comfortable environment in which to
enjoy their meal on site. We also offer guests the convenience of
take-out service. We believe the strong value we deliver to our
customers is
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critical to building strong repeat business and customer loyalty. We
were incorporated in California in May 1985, and reincorporated in
Delaware in October 1997. We have a wholly owned subsidiary, Rubio's
Restaurants of Nevada, Inc., which was incorporated in Nevada in 1997.
OUR BUSINESS STRATEGIES
Our business objective is to become the leading high-quality, quick-service
Mexican restaurant brand nationwide. In order to achieve our business
objective, we have developed the following strategies:
- CREATE A DISTINCTIVE CONCEPT AND BRAND. Our restaurants provide guests
with a distinctive dining experience which, we believe, helps promote
frequent visiting patterns and strong customer loyalty. We continue to
focus on several key initiatives designed to enhance the performance of
our existing restaurants and strengthen our brand identity. These
initiatives include developing and expanding proprietary menu offerings
such as the Baja-style fish taco, lobster burrito and "Baja Bowl," a
flavorful combination of chargrilled steak or chicken served over rice
and beans with fresh tomatoes, onions and cilantro. In addition, we
focus on securing high-visibility, high-traffic store locations and
promoting the awareness of our brand through comprehensive regional and
local media campaigns. As a result of these initiatives, we experienced
comparable store sales increases of 6.0% in 1999, 10.4% in 1998 and
18.0% in 1997.
- ACHIEVE ATTRACTIVE RESTAURANT-LEVEL ECONOMICS. We believe that we have
been able to achieve attractive operating results due to the broad appeal
of our concept, careful site selection and cost-effective development,
consistent application of our management and training programs and
favorable product costs. We utilize centralized information and
accounting systems which allow our management to monitor and control
labor, food and other direct operating expenses, and provide them with
timely access to financial and operating data. We believe we achieve a
lower-than-average product cost compared to our competitors, due to the
popularity of our fish items versus higher-cost items such as chicken
and steak. We also believe that our culture and emphasis on training
leads to a lower employee turnover ratio, and therefore higher
productivity, compared to many of our competitors.
- EXECUTE DISCIPLINED EXPANSION STRATEGY. We believe that our restaurant
concept has broad national appeal and that, as a result, we have
significant opportunities to expand our operations and generate attractive
unit level economics. With the addition of selected senior management
in operations, development, marketing and finance in 1996, we
implemented an accelerated expansion strategy. Our current expansion
plan calls for us to open 36 restaurants in 2000. Through our rigorous
site selection process and criteria developed by our real estate
committee, we principally target high-traffic, high-visibility
locations in urban and suburban markets with medium to high family
income levels.
- ENSURE HIGH-QUALITY GUEST EXPERIENCE. We strive to provide a consistent,
high-quality guest experience in order to generate frequent visiting
patterns and brand loyalty. To achieve this goal, we focus on creating a
fun, team-like culture for our restaurant employees, which we believe
fosters a friendly and inviting atmosphere for our guests. Through
extensive training, experienced restaurant-level management and rigorous
operational controls, we seek to ensure prompt, friendly and efficient
service to our guests. Our commitment to making each guest's experience a
consistently positive one is evidenced by Rubio's list of "House Rules",
which is prominently displayed in each restaurant and defines the high
level of quality and service our guests can expect from us. Overall, we
design our concept to appeal to a broad variety of guests, including
families, and believe the cleanliness of our facilities provides an
additional advantage over many of our competitors.
5
UNIT ECONOMICS
In 1999, the 59 units open the entire year generated on a per unit
basisaverage sales of $944,000, average operating income of $170,000, or 18.1%
of sales, and average cash flow of $208,000, or 22.1% of sales. Comparable
restaurant sales increased 6.0% in 1999, following a 10.4% increase in 1998.
We currently have 23 units open outside California. Of these, eight units
have over 12 months of operating results. These units generated average sales of
$905,000 for the most recent 12 months, average operating income of $128,000, or
14.2% of sales, and average cash flow of $174,000 or 19.2% of sales. These
results are not necessarily indicative of the results we will obtain in
connection with the other units currently open, or those we may open in the
future.
We currently lease all of our restaurant locations with the exception of one
owned building. We plan to continue to lease substantially all of our future
restaurant locations in order to minimize the cash investment associated with
each unit. Our site selection strategy is to locate our restaurants in
high-profile, high-traffic locations, preferably on an end-cap location in line
with other retail properties.
Historically, the size of our restaurants has generally ranged from 1,800 to
3,600 square feet, excluding our smaller, food court locations. We expect the
size of our future sites to range from 2,000 to 2,400 square feet. We intend to
continue to develop restaurants that will require, on average, a total cash
investment of approximately $380,000, including pre-opening expenses of $20,000.
6
EXISTING AND PROPOSED LOCATIONS
The following table sets forth information about our existing and proposed
Units. As of March 16, 2000, we operate 33 restaurants in San Diego county, 37
restaurants in greater Los Angeles, which includes Los Angeles, Orange, San
Bernardino, Ventura and Riverside counties, 11 restaurants in Phoenix/Tucson,
Arizona, five restaurants in Las Vegas, Nevada, four restaurants in Denver,
Colorado, three restaurants in Salt Lake City, Utah and two in the Sacramento,
California area. In addition, we license our concept to other restaurant
operators for three non-traditional locations at Qualcomm Stadium, the San Diego
International Airport food court and the Del Mar Thoroughbred Club. Eight of the
31 units we plan to open in the balance of 2000 are under construction. We have
signed leases for an additional 27 units. The majority of our units are in
high-traffic retail centers, and are not stand-alone units.
Under Lease
Locations Opened Construction Stores
- --------- ------ ------------ ------
San Diego Area 33 1 1
Los Angeles Area 37 2 16
Phoenix/Tucson Area 11 1 4
Las Vegas Area 5 - 1
Denver Area 4 - 3
Salt Lake City Area 3 3 1
Sacramento Area 2 1 1
-- -- --
Totals 95 8 27
== == ==
EXPANSION AND SITE SELECTION
We plan to open 36 units during 2000, five of which have opened to date, and
44 units in 2001. Leases for seven of the 44 units to be opened in 2001 have
been signed. We opened our first unit outside of California in Phoenix, Arizona
in April 1997. We currently operate a total of 23 units outside of California,
including eleven in Arizona, five in Las Vegas, four in Denver and three in
Utah.
Our expansion strategy targets major metropolitan areas that have attractive
demographic characteristics. Once a metropolitan area is selected, we identify
viable trade areas that have high-traffic patterns, strong demographics, such as
high density of white collar families, medium to high family incomes, high
education levels, and density of both daytime employment and residential
developments, limited competition within the trade area and strong retail and
entertainment developments. Within a desirable trade area, we select sites that
provide specific levels of visibility, accessibility, parking, co-tenancy and
exposure to a large number of potential customers.
We believe that the quality of our site selection criteria is critical to
our continuing success. Therefore, our senior management team is actively
involved in the selection of each new market and specific site, personally
visiting all new markets and most sites or conducting a video site tour of all
sites prior to granting final approval. Each new market and site must be
approved by our Real Estate Site Acquisition Committee, which consists of
members of senior management. This process allows us to analyze each potential
location taking into account its effect on all aspects of our business.
In connection with our strategy to rapidly expand into selected markets, we
expect to initiate a franchising program sometime in 2000. Adopting a
franchising strategy will require the Company to devote management and financial
resources to build the operational infrastructure needed to support the
franchise of our restaurants. Once implemented, the franchising program will
earn revenue through initial franchise fees payable to the Company by
franchisees and through royalty income based on a percentage of restaurant
sales. Franchising programs typically involve substantially lower initial cash
investments compared to unit expansion strategies where company-owned units are
developed and leased.
7
MENU
Our menu features made-to-order burritos, soft-shell tacos, and quesadillas
made with marinated, chargrilled chicken breast and lean steak, as well as
seafood indicative of the Baja region of Mexico, such as chargrilled mahi mahi,
sauteed shrimp and our signature Baja-style fish taco. Side items including our
chips, beans and rice are all made fresh daily. Other ingredients, such as our
fresh, handmade guacamole, shredded natural cheeses and our zesty chipotle
sauce, also contribute to our quality image and distinctive flavor profiles. We
also offer a self-serve salsa bar where guests can choose from three different
salsas made fresh every day at each restaurant. Our prices range from $1.79 for
a Baja-style fish taco to $5.79 for a Cabo Combo, which includes a shrimp
burrito, fish taco, chips and beans. Most units also offer a selection of
imported Mexican and domestic beers.
To provide added variety, from time to time we introduce limited time
offerings such as our lobster burrito, tequila shrimp burrito, "killer" shark
tacos, shrimp and crab enchiladas and Baja Bowls. Some of these items have been
permanently added to the menu, such as the Baja Bowl. Other items, such as the
lobster burrito, are offered seasonally due to limited availability.
Substantially all of our units include a HealthMex section on their menu and
Kid Pesky meals designed for children. Our HealthMex items are designed to have
less than 22% of their calories from fat, and include a chargrilled mahi mahi
taco or a chargrilled chicken burrito served on a whole wheat tortilla.
The Kid Pesky meals consist of a choice of a fish taco, chicken taquitos,
quesadilla or a bean and cheese burrito, along with a side dish, drink, churro
dessert and toy surprise.
DECOR AND ATMOSPHERE
We believe that the decor and atmosphere of our restaurants is a critical
factor in our guests' overall dining experience. We strive to create the
relaxed, casual environment that is reminiscent of the Baja region of Mexico.
Our design elements include colorful Mexican tiles, saltwater aquariums with
tropical fish, Baja beach photos and tropical prints, surfboards on the walls
and authentic palm-thatched patio umbrellas, or palapas, in most existing
locations. We believe the decor and atmosphere of our restaurants appeal to a
broad variety of consumers, including families.
MARKETING
We utilize broadcast advertising as a marketing tool to increase our brand
awareness, attract new guests and build customer loyalty. Our advertising is
designed to portray ourselves as a high-quality, quick-service Mexican food
restaurant and to promote special offers to increase sales. Examples of these
offers include limited-time-only product introductions, such as our lobster
burrito or tequila shrimp burrito, as well as price promotions, such as our
99-cent fish taco special. Media used for these promotions include television,
radio, coupons and in-store merchandising materials. We believe word-of-mouth
advertising is also a key component in attracting new guests.
As part of our expansion strategy, we select target markets which we believe
will support multiple units and the efficient use of broadcast advertising. Upon
entry into each new market, we also hire local public relations firms to help
establish brand awareness for our restaurants as we build toward media
efficiency. In 1999, we spent approximately $2.1 million on marketing. We expect
our marketing expenditures to increase as we add new restaurants and expand into
new markets.
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OPERATIONS
UNIT MANAGEMENT AND EMPLOYEES
Our typical restaurant employs one general manager, one to two assistant
managers and 22 to 25 hourly employees, approximately 60% of which are full-time
employees and approximately 40% of which are part-time employees. The general
manager is responsible for the day-to-day operations of the restaurant,
including food quality, service, staffing and purchasing. We seek to hire
experienced general managers and staff and to motivate and retain them by
providing opportunities for increased responsibilities and advancement, as well
as performance-based cash incentives. These performance incentives are tied to
sales, profitability and qualitative measures such as mystery shoppers, who
anonymously evaluate individual restaurants. We also grant general managers
options to purchase shares of our common stock when hired or promoted. All
employees working more than 20 hours per week are eligible for health benefits
and participation in our 401(k) plan.
We currently employ 13 district managers, each of whom reports to a regional
manager. These district managers direct unit management in all phases of
restaurant operations, as well as assist in opening new units. We also grant
district managers options to purchase shares of our common stock when hired or
promoted.
TRAINING
We strive to maintain quality and consistency in each of our units through
the careful training and supervision of personnel and the establishment of, and
adherence to, high standards relating to personnel performance, food and
beverage preparation and maintenance of facilities. We have implemented a
training program that is designed to teach new managers the technical and
supervisory skills necessary to direct the operations of our restaurants in a
professional and profitable manner. Each manager must successfully complete a
five-week training course, which includes hands-on experience in both the
kitchen and dining areas. We have also prepared operations manuals and
videotapes relating to food and beverage handling, preparation and service. In
addition, we maintain a continuing education program to provide our unit
managers with ongoing training and support. We strive to maintain a
team-oriented atmosphere and instill enthusiasm and dedication in our employees.
We regularly solicit employee suggestions concerning the improvement of our
operations in order to be responsive to both them and our guests.
QUALITY CONTROLS
Our emphasis on excellent customer service is enhanced by our quality
control programs. We welcome comments on the quality of service and food at our
restaurants by maintaining a toll-free customer hotline and distributing
customer surveys. District managers are directly responsible for ensuring that
these comments are addressed to achieve a high level of customer satisfaction.
Our Director of Food and Beverage is also responsible for ensuring product
consistency and quality among our restaurants. Furthermore, we engage a
third-party service whereby an anonymous customer or mystery shopper evaluates
and reports to management key elements of the Rubio's experience, including
product quality, cleanliness and customer service.
HOURS OF OPERATIONS
Our units are generally open Sunday through Thursday from 10:30 a.m. until
10:00 p.m., and on Friday and Saturday from 10:30 a.m. until 11:00 p.m.
MANAGEMENT INFORMATION SYSTEMS
All of our restaurants use computerized point-of-sale systems, which are
designed to improve operating efficiency, provide corporate management timely
access to financial and marketing data, and reduce restaurant and corporate
administrative time and expense. These systems record each order and print the
9
food requests in the kitchen for the cooks to prepare. The data captured for
use by operations and corporate management includes gross and net sales
amounts, cash and credit card receipts, and quantities of each menu item
sold. Sales and receipts information is generally transmitted to the
corporate office daily, where it is reviewed and reconciled by the accounting
department before being recorded in the accounting system. The daily sales
information is polled nightly to the corporate office and distributed to
management via an intranet web page each morning. A back office system,
including personal computers, has been installed in all operating units. This
system allows managers to compare actual food cost to ideal food costs on a
daily basis. On a monthly basis, a trend report of actual food cost compared
to ideal food cost is also generated.
Our corporate systems provide management with operating reports that show
restaurant performance comparisons with budget and prior year results both for
the current accounting period and year-to-date, as well as trend formats by both
dollars and percents of sales. These systems allow us to closely monitor
restaurant sales, cost of sales, labor expense and other restaurant trends on a
daily, weekly, and monthly basis. We believe these systems will enable both unit
and corporate management to adequately manage the operational and financial
performance of the restaurants in support of our planned expansion.
PURCHASING
The Company strives to obtain consistently high-quality ingredients at
competitive prices from reliable sources. To attain operating efficiencies and
to provide fresh ingredients for our food products while obtaining the lowest
possible prices for the required quality, purchasing employees at the corporate
office control the purchasing of food items through buying from a variety of
national, regional and local suppliers at negotiated prices. Most food, produce
and other products are shipped from a central distributor directly to the units
two to four times per week. Tortillas are delivered daily from local suppliers
to ensure product freshness. We do not maintain a central food product warehouse
or commissary. As is typical in this industry, we do not have any long-term
contracts with our food suppliers. We have not experienced significant delays in
receiving our food and beverage inventories, restaurant supplies or equipment.
COMPETITION
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 this 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 its direct and indirect competitors are
well-established national, regional or local chains and have substantially
greater financial, marketing, personnel and other resources. We also compete
with many other retail establishments for site locations.
TRADEMARKS
We have registered trademarks and service marks include "Rubio's," "Baja
Grill," "Home of the Fish Taco," "HealthMex" and "Pesky" with the United States
Patents and Trademark Office. We believe that the trademarks, service marks and
other proprietary rights have significant value and are important to the
marketing of our restaurant concept.
EMPLOYEES
As of February 23, 2000, we had approximately 2,738 employees, including
approximately 43 employees located at the corporate headquarters.
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GOVERNMENT REGULATION
Our restaurants are subject to licensing and regulation by state and local
health, sanitation, safety, fire and other authorities, including licensing and
regulation requirements for the sale of alcoholic beverages and food. To date,
we have not experienced an inability to obtain or maintain any necessary
licenses, permits or approvals, including restaurant, alcoholic beverage and
retail licensing. In addition, the development and construction of additional
units are also be subject to compliance with applicable zoning, land use and
environmental regulations.
RISKS 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 annual 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.
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.
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.
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 March 16, 2000, we have opened 95 restaurants, 33 restaurants in San
Diego county, 37 restaurants in greater Los Angeles, which includes Los Angeles,
Orange, San Bernardino, Ventura and Riverside counties, 11 restaurants in
Phoenix/Tucson, Arizona, five restaurants in Las Vegas, Nevada, four restaurants
in Denver, Colorado, three restaurants in Salt Lake City, Utah and two in the
Sacramento, California area. We plan to open 36 restaurants in 2000, 5 of which
have been opened to date. Sixteen of the 36 planned 2000 openings are outside
Southern California. We plan to open an additional 44 restaurants in 2000. Our
ability to successfully achieve our expansion strategy will depend on a variety
of factors, many of which are beyond our control.
11
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;
- 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.
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;
- 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.
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,
12
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.
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
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.
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 the recently completed initial public
offering 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.
13
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 March 16, 2000 all but seven 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.
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.
14
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.
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
15
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.
IF WE ADOPT A FRANCHISING STRATEGY, WE MAY BE UNSUCCESSFUL IN EXECUTING
A FRANCHISING PROGRAM.
We may use a franchise strategy in selected markets. If we adopt a
franchising strategy, 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 not yet established any criteria to evaluate
prospective franchisees. 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 standards.
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.
OUR COMMON STOCK MAY NOT DEVELOP AN ACTIVE, LIQUID TRADING MARKET.
We only recently completed our initial public offering. Prior to this
offering, there was no public market for our common stock. We cannot predict
whether an active trading market in our common stock will develop or how liquid
that market might become.
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 March 8, 2000, the executive officers, directors and entities
affiliated with them, in the aggregate, beneficially own approximately 35.3%
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.
16
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.
MANAGEMENT
OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES
Our executive officers and key employees are as follows:
NAME AGE POSITION WITH THE COMPANY
- ------------------------ --- ------------------------------------------------
Ralph Rubio............. 44 President, Chief Executive Officer and Director
Stephen J. Sather....... 52 Chief Operating Officer
Joseph N. Stein......... 39 Chief Strategic and Financial Officer
Richard Rubio........... 36 Vice President of Real Estate Development
Bruce Frazer............ 40 Chief Marketing Officer
Ted Frumkin............. 38 Director of Real Estate
RALPH RUBIO, a co-founder, has served as President, Chief Executive Officer
and Director since our inception in January 1983. Prior to founding Rubio's, Mr.
Rubio was employed in restaurant management and in various other positions at
the Old Spaghetti Factory, Hungry Hunter and Harbor House restaurant chains. Mr.
Rubio has more than 20 years of experience in the restaurant industry.
STEPHEN J. SATHER has served as Chief Operating Officer since July 1998.
He has served as Vice President of Operations from February 1996 to July
1998. Prior to joining us, Mr. Sather served as Vice President of New
Concepts for Rally's Hamburgers, Inc., a publicly held company, from December
1993 to February 1996. Prior to that, Mr. Sather served as Senior Vice
President of Operations for La Salsa Holding Company, a privately held
company, from December 1992 until November 1993. From April 1986 until
November 1992, Mr. Sather was employed by Taco Bell Corporation, a publicly
held company, and served as Director of New Concepts when he left. Mr. Sather
has more than 25 years of experience in the restaurant industry.
JOSEPH N. STEIN was elected Chief Strategic and Financial Officer in April
1999. Prior to joining us, Mr. Stein served as Executive Vice President and
Chief Administrative Officer of Checkers Drive-In Restaurants, Inc., a publicly
held company, from January 1997 to April 1999, and as Executive Vice President
and Chief Financial Officer of Rally's Hamburgers, Inc., a publicly held
company, from December 1997 to April 1999. From May 1995 to January 1997, Mr.
Stein was employed at CKE Restaurants, Inc., a publicly held company, serving as
Senior Vice President and Chief Financial Officer. From April 1990 to May 1995,
Mr. Stein held various executive positions at Fidelity National Title Insurance
Company, a publicly held company, including Senior Vice President and Director
of National Agency Operations. Mr. Stein has more than 13 years of experience in
the restaurant industry.
RICHARD RUBIO has served as Vice President of Real Estate Development since
November 1994. From October 1990 until November 1994, Mr. Rubio served as Vice
President of Construction, and has served in various other positions with us
since June 1983.
17
BRUCE FRAZER has served as Chief Marketing Officer since July 1999. He has
served as Vice President of Marketing from June 1996 to July 1999. Prior to
joining us, Mr. Frazer served as Vice President of Food & Beverage/Product
Marketing at Family Restaurants, Inc. from May 1994 until May 1996. From
December 1984 until April 1994, Mr. Frazer was employed at Foodmaker, Inc., a
publicly held company, serving as Vice President of Product Marketing when he
left. Mr. Frazer has more than 15 years of experience in the restaurant
industry.
TED FRUMKIN has served as Director of Real Estate since May 1996. Prior to
joining us, Mr. Frumkin served as Real Estate Manager at Office Depot Inc., a
publicly held company, from December 1994 until May 1996. From July 1991 until
December 1994, Mr. Frumkin served as Real Estate Manager at Wal-Mart Stores
Inc., a publicly held company. Prior to that, Mr. Frumkin served as Real Estate
Manager at Taco Bell Corporation, a publicly held company, from December 1985
until July 1991.
Item 2: PROPERTIES
Our corporate headquarters are located in Carlsbad, California. We occupy
this facility under a lease which terminates on August 31, 2005, with options to
extend the lease for an additional 13 years. We lease each of our restaurant
facilities with the exception of the El Cajon unit, which is covered by a ground
lease. The majority of the leases are for 10-year terms and include options to
extend the terms. The majority of the leases also include both fixed rate and
percentage-of-sales rent provisions.
Item 3. LEGAL PROCEEDINGS
We are currently not a party to any litigation that could have a
material adverse effect on our results of operations and financial position or
its business and are not aware that any such litigation is threatened.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of stockholders of the company during
the quarter ended December 26, 1999.
PART II
Item 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Our common stock is listed on the Nasdaq National Market under the
symbol RUBO. Our common stock began trading on May 21, 1999.
The following table sets forth, for the periods indicated, the high and
low closing sales prices for our common stock for each quarter in the last
fiscal year following the May 21, 1999 completion of our initial public
offering, as regularly reported on the Nasdaq National Market. Such quotations
represent inter-dealer prices without retail markup, markdown or commission and
may not necessarily represent actual transactions.
HIGH LOW
--------- -------
Second Quarter 1999 $16.50 $13.25
Third Quarter 1999 $15.50 $ 6.50
Fourth Quarter 1999 $10.00 $ 6.00
Since our initial public offering in May, 1999, we have not declared or
paid any cash dividends on our common stock. We currently intend to retain all
earnings for the operation and expansion of our business and do not anticipate
paying any cash dividends in the foreseeable future. As of March 15, 2000, there
were approximately 6,938 beneficial stockholders of our common stock, including
255 holders of record.
18
(b) The registration statement on Form S-1 filed by us with the SEC in
connection with our initial public offering (File No. 333-75087) as amended, was
declared effective by the SEC on May 20, 1999. Our net proceeds after deducting
the total expenses was approximately $23.4 million. Subsequent to our initial
public offering, as disclosed in our initial public offering prospectus, a
portion of the offering proceeds were used to repay the remaining $1.5 million
balance of our term loan agreement with a financial institution. The remaining
proceeds have conformed with our intended use outlined in the prospectus. We
currently have approximately $16 million remaining from our initial public
offering.
PART II
Item 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and
accompanying notes thereto and with Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included elsewhere in
this Annual Report on Form 10-K. The consolidated statement of operations data
for the years ended December 28, 1997, December 27, 1998 and December 26, 1999
and the consolidated balance sheet data at December 27, 1998 and December 26,
1999 are derived from, and are qualified by reference to, the consolidated
financial statements included elsewhere in this Annual Report on Form 10-K,
which has been audited by Deloitte & Touche LLP. The consolidated statement of
operations data for the years ended December 31, 1995 and December 29, 1996 are
derived from consolidated financial statements not included in this Annual
19
Report on Form 10-K, which have also been audited. These historical results
are not necessarily indicative of the results to be expected in the future.
FISCAL
---------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- --------- -------- --------
(In thousands, except share data)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Sales................................. $ 14,811 $ 19,523 $ 29,704 $ 44,699 $ 67,854
Costs and expenses:
Cost of sales....................... 3,587 5,068 8,659 13,074 19,976
Restaurant labor, occupancy and other 8,141 10,441 15,639 22,616 33,984
General and administrative
expenses........................... 2,596 3,176 4,253 6,148 7,968
Depreciation and amortization........ 478 735 1,259 1,946 2,993
Pre-opening expenses................. -- 18 271 319 662
Loss on asset impairment............. -- -- 387 -- --
--------- -------- --------- -------- --------
Operating income (loss)................ 9 85 (764) 596 2,271
Other income (expense):
Interest income (expense), net...... (58) 17 (75) 268 501
Miscellaneous income (expense)....... 111 1 (6) (10) --
Gain (loss) on disposal/sale of
property........................... 2 (2) (56) (5) (4)
--------- -------- --------- -------- --------
Total other income (expense)....... 55 16 (137) 253 497
--------- -------- --------- -------- --------
Income (loss) before income taxes...... 64 101 (901) 849 2,768
Income tax benefit (expense)........... (48) (29) (99) 66 (1,117)
--------- -------- --------- -------- --------
Net income (loss)...................... $ 16 $ 72 $ (1,000) $ 915 $ 1,651
--------- -------- --------- -------- --------
--------- -------- --------- -------- --------
Net income (loss) attributable to
common stockholders.................. $ (39) $ 3 $ (1,095) $ 568 $ 1,513
--------- -------- --------- -------- --------
--------- -------- --------- -------- --------
Net income (loss) per share
Basic................................ $ (0.04) $ -- $ (1.08) $ 0.55 $ 0.26
Diluted.............................. (0.04) -- (1.08) 0.14 0.20
Shares used in computing net income
(loss) per share
Basic................................ 1,000 1,008 1,010 1,033 5,741
Diluted.............................. 1,000 1,026 1,010 6,418 8,094
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $ 1,004 $ 633 $ 866 $ 786 $ 3,459
Total assets.............................. 7,813 13,375 23,054 25,751 50,038
Long-term debt, including current portion. 1,923 2,483 2,562 1,856 --
Redeemable convertible preferred stock.... 3,171 7,550 17,003 17,695 --
Total stockholders' equity..... 4,317 8,474 (141) 196 43,122
- -----------------
Please see the consolidated financial statements and related notes appearing
elsewhere in this report for the determination of number of shares used in
computing basic and diluted net income (loss) per share.
Net income (loss) attributable to common stockholders includes the effect of
the accretion on the redeemable convertible preferred stock which reduces net
income (loss) attributable to common stockholders for the related periods. Net
income attributable to common stockholders for the fiscal 1998 diluted earnings
per share calculation is $915,000. The difference from the basic calculation is
due to the reversal of the accretion on the redeemable convertible preferred
stock as such stock is assumed to be converted to common stock for purposes of
the diluted calculation.
Net income for fiscal year 1998 was favorably impacted by the reversal of a
$452,000 deferred tax asset allowance that was previously provided for in fiscal
year 1997. We eliminated the valuation allowance in 1998 due to our belief that
current year activity made realization of such benefit more likely than not.
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH OUR CONSOLIDATED FINANCIAL STATEMENTS AND
NOTES APPEARING ELSEWHERE IN THIS REPORT. SEE "RISK FACTORS" REGARDING CERTAIN
FACTORS KNOWN TO US THAT COULD CAUSE REPORTED FINANCIAL INFORMATION NOT TO BE
NECESSARILY INDICATIVE OF FUTURE RESULTS.
20
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 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 our comparable restaurant base, we introduce a restaurant into our
comparable restaurant base once it has been in operation for 15 calendar months.
Sales represent gross sales less sales taxes, coupons and other discounts.
Cost of sales is composed of food, beverage, and paper supply expense.
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 costs, 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 opening.
We have leased all of our facilities, except for one building, in order to
minimize the cash investment associated the each unit. The majority of our
leases are for 10-year terms and include options to expend the terms. The
majority of our leases also include fixed rate and percentage-of-sales rent
provisions.
21
RESULTS OF OPERATIONS
Our operating results, expressed as a percentage of sales, were as follows:
FISCAL
---------------------------------
1997 1998 1999
-------- --------- --------
Sales........................................ 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales.............................. 29.2 29.2 29.4
Restaurant labor, occupancy and other...... 52.6 50.6 50.1
General and administrative expenses........ 14.3 13.8 11.7
Depreciation and amortization.............. 4.2 4.4 4.4
Pre-opening expenses....................... 0.9 0.7 1.0
Loss on asset impairment................... 1.3 -- --
-------- -------- --------
Operating income (loss)...................... (2.5) 1.3 3.4
Other income (expense):
Interest income (expense), net............. (0.3) 0.6 0.7
Miscellaneous income (expense)............. -- -- --
Gain (loss) on disposal/sale of property... (0.2) -- --
-------- -------- --------
Total other income (expense)............. (0.5) 0.6 0.7
-------- -------- --------
Income (loss) before income taxes............ (3.0) 1.9 4.1
Income tax (expense) benefit................. (0.3) 0.1 (1.7)
-------- -------- --------
Net income (loss)............................ (3.3)% 2.0% 2.4%
-------- -------- --------
-------- -------- --------
52 WEEKS ENDING DECEMBER 26, 1999 COMPARED TO THE 52 WEEKS ENDING DECEMBER 27,
1998
Results of operations reflect a full 52 weeks of operations for 59
restaurants and 43 restaurants for the periods ending December 26, 1999 and
December 27, 1998, respectively. Results of operations also reflect a partial
period of operations for 31 and 16 restaurants for the 52 weeks ended December
26, 1999 and December 27, 1998, respectively.
SALES. Sales increased $23.2 million, or 51.8%, to $67.9 million for the 52
weeks ended December 26, 1999 from $44.7 million for the 52 weeks ended December
27, 1998. This increase was principally due to the $8.9 million in sales
generated by a full year of operations from the units opened in 1998 which have
been opened for less than 15 months, combined with the $11.9 million from the 31
units opened during 1999. In addition, comparable unit sales increased $2.4
million, or 6.0%. Units enter the comparable store base after 15 full months of
operation. The comparable unit sales increase was primarily driven by; 1) the
success of the $0.99 Fish Taco, Tequila Shrimp Burrito, Lobster Burrito, and the
Crab and Shrimp Enchilada promotions, 2)slightly weaker sales in the early part
of 1998 due to poor weather and 3) a price increase of approximately a 1.5% at
the beginning of 1999.
COST OF SALES. Cost of sales as a percentage of sales increased to 29.4% in
the 52 weeks ended December 26, 1999 from 29.2% in the 52 weeks ended December
27, 1998 primarily due to inefficiencies in our new markets.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy, and other
decreased as a percentage of sales to 50.1% for the 52 weeks ended December 26,
1999 from 50.6% in the 52 weeks ended December 27, 1998. The improvement as a
percentage of sales is primarily a function of leveraging our fixed costs as our
average unit volume increases. The improvements in our fixed costs were slightly
offset by an increase in labor. This labor increase was due primarily to
expected inefficiencies in the new stores.
22
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $8.0 million for the 52 weeks ended December 26, 1999 from $6.1
million for the 52 weeks ended December 27, 1998. The increase is primarily due
to increases in salary and benefits related to the hiring of additional
corporate employees and field management required to support and manage unit
expansion, 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 11.7% in 1999 from 13.8% in 1998 primarily due to our
expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $3.0 million in the 52 weeks ended December 26, 1999 from $1.9
million in the 52 weeks ended December 27, 1998. The $1.1 million increase was
primarily due to the additional depreciation on the 31 new units opened during
1999 and the 16 new units opened during 1998. As a percentage of sales,
depreciation and amortization remained constant at 4.4% of sales in both 1999
and 1998.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $662,000 for the 52
weeks ended December 26, 1999 from $319,000 for the 52 weeks ended December 27,
1998 primarily due to the increase in unit openings to 31 in 1999 compared to 16
in 1998. In addition, we opened restaurants in four new markets. The first store
in a new market will typically have higher opening costs than a new store in an
existing market.
INTEREST INCOME (EXPENSE), NET. Net interest income increased to $501,000
for the 52 weeks ended December 26, 1999 from $268,000 in net interest income
for the 52 weeks ending December 27, 1998. Interest income increased to $654,000
for the 52 weeks ended December 26, 1999 from $521,000 for the 52 weeks ended
December 27, 1998 due to increase in cash available for investing after our May
1999 initial public offering. In addition, interest expense declined to $153,000
in 1999 from $253,000 in 1998 as a result of the repayment of all long-term debt
with the proceeds from the May 1999 initial public offering.
INCOME TAXES. The provision for income taxes in the 52 weeks ended December
26, 1999 and December 27, 1998 is based on the approximate annual effective tax
rate applied to the respective period's pretax book income (loss). The 40.4% tax
rate applied to 1999 comprises the federal and state statutory rates based on
the annual effective rate for 1999. The 7.8% tax benefit applied to 1998 is
primarily a result of the recognition of 1997 net deferred tax assets previously
valued, due to the 1998 net income and the future realizability of such net
deferred tax assets.
YEAR ENDED DECEMBER 27, 1998 COMPARED TO YEAR ENDED DECEMBER 28, 1997
Results of operations reflect a full year of operations of 43 restaurants
and 31 restaurants for the years ended December 27, 1998 and December 28, 1997,
respectively. Results of operations also reflect partial year of operations of
16 restaurants and 12 restaurants for the years ended December 27, 1998 and
December 28, 1997, respectively. Net income in 1998 was $915,000 as compared to
a net loss of $1,000,000 in 1997. Net income attributable to common stockholders
for 1998 was $568,000 as compared to a net loss of $1,095,000 in 1997. Net
income for fiscal year 1998 was favorably impacted by the reversal of a $452,000
deferred tax asset allowance that was previously provided for in fiscal year
1997. The factors contributing to these results are discussed below.
SALES. Sales increased $15.0 million, or 50.5%, to $44.7 million in 1998
from $29.7 million in 1997. This increase was principally due to $6.4 million in
sales generated by a full year of operations from 12 units opened in 1997 and
$5.7 million in sales derived from the 16 units opened in 1998, along with a
comparable unit sales increase of $2.8 million, or 10.4%. The comparable unit
23
sales increase was driven both by the momentum generated by the Baja Grill
concept, as well as the success of the lobster burrito promotion, which took
place from June through September 1998. We also introduced a price increase of
approximately 1.5% at the beginning of 1998.
COST OF SALES. Cost of sales as a percentage of sales remained constant at
29.2% in 1998 and 1997.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy and other
decreased as a percentage of sales to 50.6% in 1998 from 52.6% in 1997. This
reduction was due primarily to lower labor, minimum rent and other fixed unit
operating expenses as a percentage of sales as a result of the efficiencies
associated with increased unit sales. In addition, there were non-recurring
expenses incurred in 1997, related to the modification of our restaurant
concept. These one-time expenses included higher levels of hourly employee
training and operating supplies, resulting in higher 1997 total expenses in this
category.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $6.1 million in 1998 from $4.3 million in 1997, primarily due to
$1.0 million in salary and benefits related to the hiring of additional
corporate employees and field management required to support and manage unit
expansion, $296,000 related to a senior management bonus expense incurred in
1998 which was not incurred in 1997, and $586,000 in other corporate level
expenses related to our business growth. General and administrative expenses
decreased as a percentage of sales to 13.8% in 1998 from 14.3% in 1997 primarily
due to our expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased to
$1.9 million in 1998 from $1.3 million in 1997. The increase was primarily due
to the additional depreciation on the 16 new units opened during 1998.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $319,000 in 1998
from $271,000 in 1997 primarily due to the increase in unit openings in 1998 to
16 from 12 in the prior period.
LOSS ON ASSET IMPAIRMENT. There was no loss on asset impairment in 1998.
Loss on asset impairment of $387,000 in 1997 reflects the difference between the
carrying value and the estimated fair value of the assets of one restaurant
location.
INTEREST INCOME (EXPENSE), NET. Net interest income increased to $268,000 in
1998 from $75,000 in net interest expense in 1997. This increase was primarily
due to an increase in interest income from $188,000 in 1997 to $521,000 in 1998
resulting from interest and other investment income associated with the
investment of the net proceeds from our $10.1 million preferred stock private
placement in November 1997.
INCOME TAXES. The provision (benefit) for income taxes in 1998 and 1997 is
based on the approximate tax rate applied to the respective year's pre-tax book
income (loss). The 7.8% tax benefit applied in 1998 is primarily a result of the
recognition of prior year net deferred tax assets previously valued, due to the
current year net income and the future realizability of such net deferred tax
assets.
Historically, we have experienced seasonal variability in our quarterly
operating results with higher sales per restaurant in the second and third
quarters than in the first and fourth quarters. The higher sales in the second
and third quarters affect profitability by reducing the impact of our
restaurants' fixed and semi-fixed costs, as well as through increased revenues.
This seasonal impact on our operating results is expected to continue.
24
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
during the past three years.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our capital requirements in recent years through cash flow from
operations, private placement of preferred stock, bank debt, and the public sale
of equity securities. We generated $4.6 million in cash flow from operating
activities for the 52 weeks ended December 26, 1999 and $4.2 million for the 52
weeks ended December 27, 1998. The $4.2 million in 1998 includes a $1.2 million
increase in accounts payable, of which $720,000 are costs related to two stores
opened close to year end.
Net cash generated from financing activities was $21.7 million for the 52 weeks
ended December 26, 1999 compared to net cash used of $0.7 million for the 52
weeks ended December 27, 1998. Financing activities in 1999 primarily consisted
of the initial public offering of our common stock, which generated $23.4
million net of offering costs. Part of the offering proceeds were used to repay
the remaining $1.5 million balance of our term loan agreement with a financial
institution. The remaining proceeds were primarily used toward the development
and opening of new restaurants and the purchase of investments.
Net cash used in investing activities was $23.6 million for the 52 weeks ended
December 26, 1999 compared to $3.6 million for the 52 weeks ended December 27,
1998, due to the increase in cash available for investing after our May 1999
initial public offering. Financing activities in 1998 primarily consisted of
$0.6 million in debt payments on our long-term debt. In addition, we have a $7.5
million line of credit agreement with a financial institution, but as of
December 26, 1999 there was no outstanding balance under this agreement.
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 (9.18% at December 26, 1999).
Our principal financial needs arise from the development and opening of new
units. We incurred $13.8 million in capital expenditures during the 52 weeks
ended December 26, 1999, of which, $12.0 million was for new unit openings and
$0.6 million was for point of sale systems upgrades and a company-wide back
office system roll-out. During the 52 weeks ended December 27, 1998, we incurred
$6.9 million in capital expenditures, of which $6.6 million was for new unit
openings and $0.3 was for corporate expenditures.
Total capital expenditures in 2000 are expected to be approximately $15.0
million, of which approximately $13.6 is expected to be invested in the opening
of new restaurants. We plan to open 36 units in 2000 and 44 units in 2001. We
expect that future locations will generally cost approximately $360,000 per unit
net of landlord allowances and excluding pre-opening expenses. Pre-opening
expenses are expected to average approximately $20,000 per restaurant.
We lease restaurant and office facilities and real property under operating
leases expiring through 2014. Our future minimum lease payments for our
headquarters and restaurants are expected to be as follows: $5.9 million in
2000, $5.9 million 2003, $5.8 million in 2004 and $19.4 million thereafter.
We believe that the anticipated cash flow from operations combined with funds
anticipated to be available from a credit facility will be sufficient to satisfy
our working capital and capital expenditure 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 my cause us to seek additional
25
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.
Item 7A. 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 (9.18% at
December 26, 1999). 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.
RESULTS OF YEAR 2000 ISSUE
We have reviewed both our information technology and our non-information
technology systems to determine whether they were year 2000 compliant. To date,
have had no guest related, material processing or significant supplier or
service provider issues with respect to the year 2000 issue. To date, we have
incurred costs of less than $25,000 in connection with our year 2000 plan. No
additional costs related to the Year 2000 issue are expected.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, as amended in June 1999 by SFAS No. 137
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 137
establishes accounting and reporting standards for derivative instruments,
including derivative instruments embedded in other contracts, and for hedging
activities. SFAS No. 137 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. We have not yet assessed the effect of this
standard on our current reporting and disclosures.
In April 1998, Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities" was issued by the Accounting Standards Executive Committee.
SOP 98-5 provides guidance on the financial reporting of start-up costs and
organization costs. It requires costs of start-up activities and organization
costs to be expensed as incurred, and is effective for fiscal years beginning
after December 15, 1998. We chose to early adopt this SOP for the fiscal year
ended December 28, 1997. The adoption of this SOP did not have a material effect
on our operations.
PART II - FINANCIAL INFORMATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements as of December 26, 1999
and December 27, 1998, and for each of the three years in the period ended
December 26, 1999 and the report of independent public accountants are included
in this report as listed in the index on page F-1 of this report (Item 14(a))
(1) and (2).
26
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVES OF THE REGISTRANT
The information required by this item is incorporated by reference from
the Proxy Statement in the section entitled "Election of Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934." The
balance of the response to this item regarding information on our executive
officers is contained in the discussion entitled "Our Executive Officers and Key
Employees" in Part I of this report.
Item 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from
the section entitled "Executive Compensation and Other Information" in our Proxy
Statement for the 2000 annual meeting of stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section entitled "Ownership of Securities" in our Proxy Statement for the
2000 annual meeting of stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from
the section entitled "Certain Transactions" in our Proxy Statement for the 2000
annual meeting of stockholders.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
See index to financial statements on page F-1 for a list
of the financial statements being filed herein.
(a)(2) Financial Statement Schedules
None required.
(a)(3) Exhibits
See Exhibits below for all Exhibits being filed or
incorporated by reference herein.
27
NUMBER DESCRIPTION
------ -----------
3.1 Second Amended and Restated Certificate of Incorporation.
(Exhibit 3.2)
3.2 Restated Bylaws (Exhibit 3.4)
4.1(1) Specimen common stock certificate.
10.1(1) Amended and Restated Investors' Rights Agreement,
dated November 19, 1997 (Exhibit 10.7).
10.2(1) Amendment No. 1 to the Amended and Restated
Investors' Rights Agreement, dated December 31,
1997 (Exhibit 10.8).
10.3(1) Amendment No. 2 to the Amended and Restated
Investors' Rights Agreement, dated May 1998
(Exhibit 10.9).
10.4(1) Amended and Restated Stock Restriction Agreement,
dated November 19, 1997 (Exhibit 10.10).
10.5(1) Series D Preferred Stock Purchase Warrant granted to
FSC Corp., dated May 11, 1998 (Exhibit 10.12).
10.6(1) Stock Purchase Agreement, dated June 16, 1998
(Exhibit 10.13).
10.7(1) Revolving Credit and Term Loan Agreement between us
and BankBoston, N.A., dated May 1998
(Exhibit 10.14).
10.8(1) Lease Agreement between us and Macro Plaza
Enterprises, dated October 27, 1997 (Exhibit
10.15).
10.9(1) First Amendment to Lease Agreement between us and
Cornerstone Corporate Centre, LLC, dated October
16, 1998 (Exhibit 10.16).
10.10(1) Agreement between us and Service America Corporation
dated April 9, 1992 (Exhibit 10.17).
10.11(1) Test Agreement between us and Host International,
Inc., dated August 4, 1995 (Exhibit 10.18).
10.12(1) Amendment to Agreement between us and Pacific Basin
Foods, Inc., dated November 20, 1998 (Exhibit
10.20).
10.13(1) Agreement between us and Coca-Cola US Fountain, dated
March 10, 1998 (Exhibit 10.21).
10.14(1) Agreement between us and Dr. Pepper/Seven Up, Inc.,
dated June 23, 1998 (Exhibit 10.22).
10.15(1) Rental Agreement between us and Premier Food
Services, Inc., dated July 10, 1998 (Exhibit
10.23).
10.16(1) Letter Agreement between us and Volume Service America, dated
March 29, 1999 (Exhibit 10.24)
10.17(1)(2) Form of Indemnification Agreement between us and each
of its directors (Exhibit 10.25).
10.18(1)(2) Form of Indemnification Agreement between us and each
of its officers(Exhibit 10.26).
10.19(1)(2) 1993 Stock Option/Stock Issuance Plan, as amended
(Exhibit 10.27).
10.20(1)(2) 1993 Stock Option/Stock Issuance Plan Form of Notice
of Grant of Stock Option (Exhibit 10.28).
10.21(1)(2) 1993 Stock Option/Stock Issuance Plan Form of Stock
Option Agreement (Exhibit 10.29).
10.22(1)(2) 1993 Stock Option/Stock Issuance Plan Form of Stock
Purchase Agreement (Exhibit 10.30).
10.23(1)(2) 1993 Stock Option/Stock Issuance Plan Form of
Restricted Stock Issuance Agreement (Exhibit
10.31).
10.24(1)(2) 1995 Stock Option/Stock Issuance Plan (Exhibit 10.32).
10.25(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Notice
of Grant of Stock Option (Exhibit 10.33).
10.26(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Stock
Option Agreement (Exhibit 10.34).
10.27(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Stock
Purchase Agreement (Exhibit 10.35).
10.28(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Stock
Issuance Agreement (Exhibit 10.36).
10.29(1)(2) 1998 Stock Option/Stock Issuance Plan (Exhibit 10.37).
10.30(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Notice
of Grant of Stock Option (Exhibit 10.38).
28
10.31(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Stock
Option Agreement (Exhibit 10.39).
10.32(1)(2) 1998 Stock Option/Stock Issuance Plan Form of
Addendum to Stock Option Agreement (Exhibit 10.40).
10.33(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Stock
Purchase Agreement (Exhibit 10.41).
10.34(1)(2) 1998 Stock Option/Stock Issuance Plan Form of
Addendum to Stock Purchase Agreement (Exhibit
10.42).
10.35(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Stock
Issuance Agreement (Exhibit 10.43).
10.36(1)(2) 1998 Stock Option/Stock Issuance Plan Form of
Addendum to Stock Issuance Agreement (Exhibit
10.44).
10.37(1)(2) 1999 Stock Incentive Plan (Exhibit 10.45).
10.38(1)(2) Employee Stock Purchase Plan (Exhibit
10.46).
10.39(1)(2) Letter Agreement between us and Host International, Inc., dated
May 18, 1999 (Exhibit 10.47).
21.1(1) Subsidiary List.
23.1 Independent Auditors' Consent.
24.1 Powers of Attorney (Included under the caption
"Signatures").
27.1 Financial Data Schedule for the year ended December
26, 1999.
- ---------------------------
(1) Incorporated by reference to the above noted exhibit to our Registration
Statement S-1 (333-75087) filed with the SEC on March 26, 1999, as amended.
(2) Management contract or compensation plan.
(b) Reports on Form 8-K
None.
(c) Exhibits
The exhibits required by this Item are listed under Item
14(a)(3).
(d) Financial Statements Schedules
The financial statement schedules required by this Item are
listed under Item 14(a)(2).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 24, 2000 RUBIO'S RESTAURANTS, INC.
/s/ Ralph Rubio
----------------------------------------
Ralph Rubio
Chief Executive Officer, President, and Chairman
29
POWER OF ATTORNEY
Know all persons by these present, that each person whose signature appears
below constitutes and appoints Ralph Rubio or Joseph N. Stein, his or her
attorney-in-fact, with power of substitution in any and all capacities, to sign
any amendments to this Annual Report on Form 10-K, and to file the same with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that the
attorney-in-fact or his or her substitute or substitutes may do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Ralph Rubio
- -----------------------------------------
Ralph Rubio Chief Executive Officer, March 24, 2000
President, and Chairman
(Principal Executive Officer)
/s/ Joseph N. Stein
- -----------------------------------------
Joseph N. Stein Chief Strategic and Financial March 24, 2000
Officer (Principal Financial and
Accounting Officer)
/s/ Kyle A. Anderson
- -----------------------------------------
Kyle A. Anderson Director March 24, 2000
/s/ Craig Andrews
- -----------------------------------------
Craig Andrews Director March 24, 2000
/s/ Michael Dooling
- -----------------------------------------
Michael Dooling Director March 24, 2000
/s/ Kim Lopdrup
- -----------------------------------------
Kim Lopdrup Director March 24, 2000
/s/ Timothy J. Ryan
- -----------------------------------------
Timothy J. Ryan Director March 24, 2000
30
RUBIO'S RESTAURANTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 26, 1999 and December 27, 1998 F-3
Consolidated Statements of Operations for Fiscal Years 1999, 1998 and 1997 F-4
Consolidated Statements of Equity for Fiscal Years 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for Fiscal Years 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Rubio's Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Rubio's
Restaurants, Inc. and subsidiary (the "Company") as of December 27, 1998 and
December 26, 1999, and the related consolidated statements of operations,
stockholders' equity and of cash flows for each of the three years in the period
ended December 26, 1999. 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 generally accepted auditing
standards. 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 Rubio's Restaurants, Inc. and
subsidiary as of December 27, 1998 and December 26, 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 26, 1999 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Diego, California
February 21, 2000
F-2
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 27, December 26,
1998 1999
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 787 $ 3,459
Short-term investments 2,722 7,376
Other receivables 170 579
Income taxes receivable 99 215
Inventory 360 618
Prepaid expenses 295 562
Deferred income taxes 53 50
------- -------
Total current assets 4,486 12,859
INVESTMENTS 3,391 8,544
PROPERTY- net 17,133 27,923
OTHER ASSETS 347 439
DEFERRED INCOME TAXES 394 273
------- -------
TOTAL $25,751 $50,038
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,943 $ 3,235
Accrued expenses and other liabilities 2,150 2,572
Current portion of long-term debt 743 --
Income taxes payable 105 --
------- -------
Total current liabilities 5,941 5,807
DEFERRED RENT 805 1,109
LONG-TERM DEBT 1,114 --
------- -------
Total liabilities 7,860 6,916
------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
REDEEMABLE CONVERTIBLE PREFERRED STOCK:
Series B redeemable ($4.04 per share liquidation preference),
$.001 par value, 1,092,007 shares authorized, issued
and outstanding in 1998 3,409 --
Series C redeemable ($6.27 per share liquidation preference),
$.001 par value, 793,640 shares authorized, issued
and outstanding in 1998 4,254 --
Series D redeemable ($7.77 per share liquidation preference),
$.001 par value, 1,524,595 shares authorized, 1,452,491
issued and outstanding in 1998 10,032 --
------- -------
Total redeemable convertible preferred stock 17,695 --
------- -------
STOCKHOLDERS' EQUITY:
Convertible preferred stock Series A ($2.00 per share liquidation
preference), $.001 par value, 1,973,395 shares authorized,
1,924,747 issued and outstanding in 1998 2 --
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,
1,048,600 issued and outstanding in 1998 and 8,871,775 issued
and outstanding in 1999 1 9
Paid-in capital -- 41,357
Deferred compensation 23 88
Accumulated other comprehensive income 44 29
Retained earnings 126 1,639
------- -------
Total stockholders' equity 196 43,122
------- -------
TOTAL $25,751 $50,038
------- -------
------- -------
F-3
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended
---------------------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------- ------------- -------------
SALES $ 29,704 $ 44,699 $ 67,854
COSTS AND EXPENSES:
Cost of sales 8,659 13,074 19,976
Restaurant labor, occupancy and other 15,639 22,616 33,984
General and administrative expenses 4,254 6,148 7,968
Depreciation and amortization 1,259 1,946 2,993
Pre-opening expenses 271 319 662
Loss on asset impairment 387 - -
-------- -------- --------
OPERATING INCOME (LOSS) (765) 596 2,271
-------- -------- --------
OTHER INCOME (EXPENSE):
Interest and investment income 188 521 654
Interest expense (263) (253) (153)
Miscellaneous expense (5) (10) -
Loss on disposal/sale of property (56) (5) (4)
-------- -------- --------
Other income (loss) - net (136) 253 497
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES (901) 849 2,768
INCOME TAX (EXPENSE) BENEFIT (99) 66 (1,117)
-------- -------- --------
NET INCOME (LOSS) $ (1,000) $ 915 $ 1,651
-------- -------- --------
-------- -------- --------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS: (NOTE 8)
Basic $ (1,095) $ 568 $ 1,513
-------- -------- --------
-------- -------- --------
Diluted $ (1,095) $ 915 $ 1,651
-------- -------- --------
-------- -------- --------
NET INCOME (LOSS) PER SHARE:
Basic $ (1.08) $ 0.55 $ 0.26
-------- -------- --------
-------- -------- --------
Diluted $ (1.08) $ 0.14 $ 0.20
-------- -------- --------
-------- -------- --------
SHARES USED IN CALCULATING
NET INCOME (LOSS) PER SHARE:
Basic 1,010 1,033 5,741
--------- --------- ---------
--------- --------- ---------
Diluted 1,010 6,418 8,094
--------- --------- ---------
--------- --------- ---------
F-4
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
(In thousands, except number of shares)
CONVERTIBLE ACCUMULATED
PREFERRED STOCK OTHER
SERIES A COMMON STOCK COMPRE-
---------------------- ---------------------- PAID-IN DEFERRED HENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION INCOME
--------- ----------- --------- ----------- --------- ----------- ------------
BALANCE, DECEMBER 29, 1996 1,973,395 $ 2 1,010,107 $ 1 $ 28
Exercise of common stock options -- -- 450 -- --
Net loss -- -- -- -- --
Accretion of redemption--preferred stock -- -- -- -- --
--------- ----------- --------- ----------- ---------
BALANCE, DECEMBER 28, 1997 1,973,395 2 1,010,557 1 28
Exercise of common stock options -- -- 38,043 -- 52
Repurchase shares of Series A preferred stock (48,648) -- -- -- (80)
Deferred compensation--stock options -- -- -- -- -- $ 23
Net income -- -- -- -- -- --
Accretion of redemption--preferred stock -- -- -- -- -- --
Other comprehensive income:
Net unrealized gain on available-for-sale
investments, net of $31 tax -- -- -- -- -- -- $ 44
Total comprehensive income -- -- -- -- -- -- --
------------
--------- ----------- --------- ----------- --------- ----------- ------------
BALANCE, DECEMBER 27, 1998 1,924,747 2 1,048,600 1 -- 23 44
Stock options exercised 33,987 -- 53
Deferred compensation-stock options 65
Accretion of redemption preferred stock
Series A preferred stock converted to common (1,924,747) (2) 1,924,747 2
Series B preferred stock converted to common 1,092,007 1 3,432
Series C preferred stock converted to common 793,640 1 4,258
Series D preferred stock converted to common 1,452,491 2 10,140
Initial Public Offering-net of $2,636 in
offering costs 2,486,748 2 23,474
Exercise of Warrants 39,555 -- --
Net income
Other comprehensive income:
Net unrealized loss on available-for-sale
investments, net of $10 tax credit (15)
Total comprehensive income
----------- ---------- ---------- ---------- ----------- ------------ ---------
BALANCE, DECEMBER 26, 1999 -- $ -- 8,871,775 $ 9 $ 41,357 $ 88 $ 29
----------- ---------- ---------- ---------- ----------- ------------ ---------
RETAINED TOTAL
EARNINGS TOTAL COMPRE-
(ACCUMULATED STOCKHOLDER'S HENSIVE
DEFICIT) EQUITY INCOME
----------- ------------- -------
BALANCE, DECEMBER 29, 1996 $ 923 $ 954
Exercise of common stock options -- --
Net loss (1,000) (1,000)
Accretion of redemption--preferred stock (95) (95)
----------- -------------
BALANCE, DECEMBER 28, 1997 (172) (141)
Exercise of common stock options -- 52
Repurchase shares of Series A preferred stoc (270) (350)
Deferred compensation--stock options -- 23
Net income 915 915 $ 915
Accretion of redemption--preferred stock (347) (347)
Other comprehensive income:
Net unrealized gain on available-for-sale
investments, net of $31 tax -- 44 44
-----------
Total comprehensive income -- -- $ 959
---------- ----------- -----------
BALANCE, DECEMBER 27, 1998 126 196
Stock options exercised 53
Deferred compensation-stock options 65
Accretion of redemption preferred stock (138) (138)
Series A preferred stock converted to common --
Series B preferred stock converted to common 3,433
Series C preferred stock converted to common 4,259
Series D preferred stock converted to common 10,142
Initial Public Offering-net of $2,636 in
offering costs 23,476
Exercise of Warrants --
Net income 1,651 1,651 1,651
Other comprehensive income:
Net unrealized loss on available-for-sale
investments, net of $10 tax credit (15) (15)
-----------
Total comprehensive income $1,636
----------- ------------ -----------
BALANCE, DECEMBER 26, 1999 $ 1,639 $ 43,122 -----------
----------- ------------
F-5
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED
----------------------------------------
DECEMBER 28, DECEMBER 27, DECEMBER 26,
1997 1998 1999
------------ -------------- -----------
OPERATING ACTIVITIES:
Net income (loss) $ (1,000) $ 915 $ 1,651
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,259 1,946 2,993
Deferred compensation -- 23 65
Loss on asset impairment 387 -- --
Loss on disposal/sale of property 56 5 4
Changes in assets and liabilities:
Other receivables 12 (157) (409)
Income taxes receivable 9 (96) (116)
Inventory (80) (106) (258)
Prepaid expenses 52 (121) (267)
Other assets 56 (146) (92)
Deferred income taxes 34 (447) 110
Accounts payable 540 1,177 292
Accrued expenses and other liabilities. 535 924 422
Income taxes payable -- 105 (105)
Deferred rent 136 167 304
------------ -------------- -----------
Cash provided by operating activities 1,996 4,189 4,594
------------ -------------- -----------
INVESTING ACTIVITIES:
Proceeds from sale of property 9 7 26
Purchase of property (6,423) (6,924) (13,813)
Purchases of investments (17,264) (29,648) (112,436)
Sales and maturities of investments 12,291 32,955 102,629
------------ -------------- -------------
Cash used for investing activities (11,387) (3,610) (23,594)
------------ -------------- -------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 837 2,228 --
Principal payments on long-term debt (758) (2,934) (1,856)
Payments under line of credit -- -- (1,000)
Proceeds from line of credit borrowing -- -- 1,000
Proceeds from sale of redeemable preferred stock 9,388 350 --
Transfer of cash from restricted deposit 157 -- --
Repurchase of Series A preferred stock -- (350) --
Initial public offering-net of $2,636 in offering costs -- -- 23,476
Stock offering costs (5) --
Proceeds from exercise of stock options -- 52 53
------------ -------------- -----------
Cash provided by (used for) financing activities 9,624 (659) 21,673
------------ -------------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 233 (80) 2,673
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 633 866 786
------------ -------------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 866 $ 786 $ 3,459
------------ -------------- -----------
------------ -------------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 261 $ 220 $ 166
Cash paid (refunded) for income taxes- net $ (61) $ 403 $ 1,202
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Holding gains (losses) on available-for-sale
investments, before tax $ -- $ 75 $ (25)
F-6
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS--Rubio's Restaurants, Inc. was incorporated in
California in 1985 and reincorporated in Delaware in 1997 (see Note 7). Rubio's
Restaurants, Inc. has a wholly-owned subsidiary which was incorporated in Nevada
in 1997. As of December 26, 1999, Rubio's Restaurants, Inc. and its subsidiary
(collectively, the "Company") , own and operate a chain of 90 restaurants and
three concessions in California, Nevada, Arizona, Colorado and Utah.
PRINCIPALS OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary.
BASIS OF FINANCIAL STATEMENT PRESENTATION--The Company operates and reports
on a 52-53 week fiscal year ending on the Sunday closest to December 31.
ACCOUNTING 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 and contingencies at the date of the financial statements and the
reported amounts of revenues and expenses during the year. Actual results may
differ from those estimates.
CASH EQUIVALENTS--Cash equivalents consist of money market instruments
purchased with an original maturity date of three months or less.
INVESTMENTS--The Company's investments are composed primarily of commercial
paper, corporate bonds, tax-free municipals and mortgage-backed securities.
While it is the Company's general intent to hold such securities until maturity,
management will occasionally sell particular securities for cash flow purposes.
Therefore, pursuant to Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," the
Company's investments are classified as available-for-sale based upon the
Company's intent, and are accounted for at fair market value. The fair market
value of such investments is determined based on quoted market prices at
December 26, 1999. Holding gains and losses on these investments are included as
other accumulated comprehensive income in the statements of stockholders'
equity. Short-term investments are investments with original maturities of
greater than three months and remaining maturities of less than one year, or
investments that are reasonably expected to be realized in cash or consumed in
operations over the next year (see Note 2).
INVENTORY--Inventory consists of food, beverage and restaurant supplies and
is stated at the lower of cost (first-in, first-out method) or market.
PROPERTY--Property is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets or the remaining lease term, whichever is less. The Company capitalizes
costs related to construction of new leased restaurant facilities. The lives for
equipment are 3 - 7 years and for building and leasehold improvements, 5 - 20
years.
The Company periodically assesses its ability to recover the carrying value
of its long-lived assets. If management concludes that the carrying value will
not be recovered, an impairment write-down is recorded to reduce the asset to
its estimated fair value.
In 1997, in accordance with SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets to be Disposed Of," the Company recorded a loss of $386,928
on long-lived assets where circumstances indicated that the assets were impaired
based on the expected future cash flows of one of the restaurant locations.
Impairment is reviewed at the lowest levels for which there are identifiable
cash flows that are independent of the cash flows of other groups of assets. In
the Company's
F-7
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
circumstances, such analysis is performed on an individual restaurant basis. The
impairment charge was the difference between the carrying value and the
estimated fair value of the assets. The Company estimated fair values based on
sales prices for comparable assets. The Company will continue to operate this
store to the end of the lease term. The Company did not have any impairment
losses in fiscal 1998 or 1999.
DEFERRED RENT--Rent expense on operating leases with scheduled or minimum
rent increases is expensed on the straight-line basis over the lease terms.
Deferred rent represents the excess of rent charged to expense over rent payable
under the lease agreement.
UNEARNED USAGE ALLOWANCE--The Company receives payments from the Company's
beverage suppliers under the suppliers' marketing allowance programs and records
such amounts as an unearned usage allowance. The Company recognizes the usage
allowance as a reduction to cost of sales based on the actual quantity purchased
on a monthly basis.
STORE PRE-OPENING EXPENSES--Costs incurred in connection with the training
of personnel and promotion of new store openings are expensed as incurred.
ADVERTISING--Advertising costs incurred to produce media advertising for new
campaigns are expensed in the year in which the advertising first takes place.
Other advertising costs are expensed when incurred. Net advertising costs
included in Restaurant, Labor & Other Expenses totaled $2.1 million, $1.4
million and $1.1 million, respectively, for the years 1999, 1998 and 1997.
STOCK-BASED COMPENSATION--Effective January 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123
encourages, but does not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board ("APB") Opinion 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 fair market value of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock (see Note 7).
CONCENTRATION OF CREDIT RISK--The Company invests its excess cash in money
market accounts and debt securities. The Company has not experienced any
material losses on its cash accounts or other investments.
EARNINGS PER SHARE--In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, "Earnings Per Share" (EPS), effective for
all financial statements issued after December 15, 1997. SFAS No. 128 requires
dual presentation of "Basic" and "Diluted" EPS by entities with complex capital
structures, replacing "Primary" and "Fully Diluted" EPS under APB Opinion No.
15. Basic EPS is computed by dividing net income or loss attributable to common
stockholders by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock (convertible preferred
stock, warrants to purchase common stock and common stock options using the
treasury stock method) were exercised or converted into common stock. Potential
common shares in the diluted EPS computation are excluded where their effect
would be antidilutive. EPS for all periods have been computed in accordance with
SFAS No. 128 (see Note 8).
F-8
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
RECENT ACCOUNTING PRONOUNCEMENTS-- In April 1998, Statement of Position
("SOP") 98-5, "Reporting on the Costs of Start-Up Activities" was issued by the
Accounting Standards Executive Committee. SOP 98-5 provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred, and is
effective for fiscal years beginning after December 15, 1998. The Company early
adopted this SOP for the fiscal year ended December 28, 1997. The adoption of
this SOP did not have a material effect on the results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for fiscal years beginning after
June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts, and for hedging activities.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133"-an amendment of FASB Statement No. 133. SFAS No. 137 defers
the effective date of SFAS No. 133 to fiscal years beginning after June 15,
2000. The adoption of this FASB will not have a material effect on the results
of operations.
2. BALANCE SHEET DETAILS as of December 27, 1998 and December 26, 1999,
respectively: (in thousands)
1998 1999
------------- -------------
PROPERTY--at cost:
Building and leasehold improvements $ 11,209 $ 17,308
Equipment and furniture 10,319 17,395
Construction in process and related costs 1,060 1,586
------------- -------------
22,588 36,289
Less: accumulated depreciation and amortization (5,455) (8,366)
------------- -------------
Total $ 17,133 $ 27,923
OTHER ASSETS:
Long-term deposits $ 269 $ 366
Other 78 73
------------- ------------
Total $ 347 $ 439
------------- ------------
------------- ------------
ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation $ 1,069 $ 1,161
Sales taxes 334 499
Vacation pay 248 300
Unearned usage allowance 206 95
Other 293 517
------------- ------------
Total $ 2,150 $ 2,572
------------- ------------
------------- ------------
F-9
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
2. BALANCE SHEET DETAILS as of December 27, 1998 and December 26, 1999,
respectively: (in thousands) (continued)
1998 1999
------------- -------------
INVESTMENTS:
Corporate Bonds -- $ 6,177
Mortgage and Asset-backed securities $ 1,201 2,645
Commercial Paper -- 2,371
Tax Free Municipals -- 1,761
Municipal Bonds -- 1,503
U.S. Treasury notes 4,912 1,121
Agencies -- 342
------------- ------------
6,113 15,920
Less current portion (2,722) (7,376)
------------- ------------
Non-current $ 3,391 $ 8,544
------------- ------------
------------- ------------
3. LONG-TERM DEBT AND CREDIT FACILITIES
CAPITAL EXPANSION LINE--In 1997, the Company obtained a $3,000,000 capital
expansion line (the "Capital line") with a bank which provided for interest at
1.0% over the bank's referenced rate (8.50% at December 28, 1997). The purpose
of the Capital line was to assist the Company in financing leasehold
improvements and equipment in new restaurant locations. Interest expense for the
borrowings under the Capital line was $262,622, $82,081 and $0 for the years
ended December 28,1997, December 27, 1998 and December 26, 1999, respectively.
The Company refinanced the remaining borrowings under the Capital line with the
Term Loan in May 1998.
TERM LOAN--In May 1998, the Company entered into a term loan (the "Term
Loan") with another bank to refinance the remaining borrowings under the Capital
line. On April 1, 1999, the Company amended the Revolving Credit and Term Loan
Agreement. The amendment eliminated the provision to prepay the Term Loan
including interest not later than 90 days after the completion of an initial
public offering. The amendment also provides for a decrease in the interest
rate, at the election of the Company, to a bank reference rate plus 0.75% or an
adjusted LIBOR plus 3.0% per annum (9.18% at December 26, 1999). There was
$1,856,433 and $0 outstanding under the Term Loan as of December 27, 1998 and
December 26, 1999, respectively. Interest expense was $171,494 and $153,258
under the Term Loan for the years ended December 27, 1998 and December 26, 1999,
respectively. The Term Loan was paid off in its entirety in May of 1999 after
receiving proceeds from the Company's initial public offering.
REVOLVING LINE OF CREDIT--In May 1998, the Company entered into a revolving
line of credit (the "Credit line") in conjunction with the Term Loan. On April
1, 1999, the Company amended the Revolving Credit and Term Loan Agreement. The
amendment decreased the rate for any unused commitment fees to 0.375%. In
addition, the amendment provides for a decrease in the interest rate, at the
election of the Company, to a bank reference rate plus 0.75% or and an adjusted
LIBOR plus 3.0% per annum (9.18% at December 26, 1999). Principal and interest
payments due under the Credit line are payable upon or before maturity at May
12, 2001. There were no borrowings outstanding against the Credit line at
December 26, 1999.
The Term Loan and Credit line contain various covenants including a fixed
charge coverage ratio, minimum interest coverage ratio, and maximum total
leverage ratio, and place certain restrictions on fixed asset purchases. The
Term Loan and Credit
F-10
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
3. LONG-TERM DEBT AND CREDIT FACILITIES (continued)
line restrict the payment of cash dividends and other stock redemptions or
repurchases, as defined in the agreement, without prior consent of the lender.
Borrowings under the Credit line and the Term Loan are secured by the Company's
assets. The Company was in compliance with all such covenants as of December 26,
1999.
The following summarizes the balances outstanding as long-term debt as of
December 27, 1998 and December 26, 1999:
1998 1999
------------ -----------
Term Loan, total quarterly installment payments of
$185,643, interest payable in arrears ranging
from 9.14% to 9.25% $ 1,856 $ --
Less current portion (742) --
------------ ------------
Long-term debt $ 1,114 $ --
------------ ------------
------------ ------------
4. COMMITMENTS AND CONTINGENCIES
The Company leases restaurant and office facilities, vehicles, and office
equipment under various operating leases expiring through 2013. The leases
generally provide renewal options from three to ten years. Certain leases are
subject to minimum annual increases based upon the consumer price index, not to
exceed specific maximum amounts. Certain leases have built-in contingent
percentage rents based upon sales, and other leases pass through common area
charges to the Company. Rental expense under these operating leases was
$2,495,415, $3,545,546 and $5,350,047 for fiscal years 1997, 1998 and 1999,
respectively.
Future minimum annual lease commitments, as of December 26, 1999, are as
follows (in thousands):
FISCAL YEAR
- -----------
2000 $ 5,852
2001 5,909
2002 5,855
2003 5,860
2004 5,791
Thereafter 19,390
------------
Total $ 48,657
------------
------------
EMPLOYEE SAVINGS PLAN--On January 31, 1997, the Company adopted a defined
contribution benefit 401(k) plan. This plan allows eligible employees to
contribute a percentage of their salary, subject to annual limits. The Company
matches 25% of each eligible employee's contributions up to 6% of their gross
salary. The contributions vest over a five-year period. The Company contributed
$42,913 to the plan for the year ended December 26, 1999.
F-11
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the deferred tax (provision)
benefit is determined under the liability method. Under this method, deferred
tax assets and liabilities are recognized based on differences between the
financial statement and tax basis of assets and liabilities using presently
enacted tax rates.
The components of the income taxes expense for the years ended December
28, 1997, December 27, 1998 and December 26, 1999 are as follows: (in thousands)
1997 1998 1999
---------- ----------- -----------
Federal (expense) benefit:
Current $ 42 $ (307) $ (736)
Deferred (127) 368 (134)
State (expense) benefit:
Current 10 (105) (246)
Deferred (24) 110 (1)
---------- ----------- -----------
Total income tax (expense) benefit $ (99) $ 66 $ (1,117)
The income tax expense differs from the Federal statutory rate because of
the effect of the following items for the years ended December 28, 1997,
December 27, 1998 and December 26, 1999:
1997 1998 1999
--------- --------- ---------
Statutory rate 34.0 % (35.0)% (34.0)%
State income taxes, net of Federal benefit (1.1) (5.9) (5.9)
Non-deductible items ( .1) (.9) (.3)
Valuation allowance (49.2) 53.2 -
Other 5.3 (3.6) (.1)
--------- --------- ---------
Effective tax (expense) benefit rate (11.1)% 7.8 % (40.3)%
--------- --------- ---------
--------- --------- ---------
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for reporting and the
amounts used for income tax purposes.
The tax effects of items comprising the Company's net deferred tax assets as
of December 27, 1998 and December 26, 1999 are as follows: (in thousands)
1998 1999
----------- -----------
Deferred rent $ 353 $ 475
Differences between book and tax basis of property (326) (462)
Reserves currently not deductible 262 231
Deferred compensation -- 37
Credits 245 148
Other (18) (49)
Unrealized gain on investments (31) (20)
State taxes (38) (37)
----------- -----------
Net deferred tax assets 447 323
Less: current portion (53) (50)
----------- -----------
Net non-current asset $ 394 $ 273
----------- -----------
----------- -----------
F-12
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
5. INCOME TAXES (continued)
The Company has Federal credit carryforwards available to offset future tax
liabilities of $148,046.
The Company provided a valuation allowance equal to the net deferred tax
asset as of December 28, 1997, but eliminated the valuation allowance in 1998
due to management's belief that current year activity made realization of
such benefit more likely than not.
6. CONVERTIBLE AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
Upon the Company's initial public offering in May 1999, Convertible
Preferred Stock Series A (approximately 1.9 million shares) and all Redeemable
Convertible Preferred Stock, Series B, C and D (approximately 3.4 million
shares) were automatically converted into the Company's common stock. The
conversion of the preferred stock was on a 1 for 1 basis. Upon conversion of the
preferred stock, all preferred stock dividends and other rights previously
assigned ceased.
7. STOCKHOLDERS' EQUITY
REINCORPORATION--In 1997, the Company changed its state of incorporation
from California to Delaware. In connection with this change, the outstanding
shares of the Company's no par value common and convertible preferred stock were
converted into and exchanged for an equal number of shares of $.001 par value
common and convertible preferred stock of the Delaware entity. The financial
statements for all periods presented reflect this change.
INITIAL PUBLIC OFFERING--The Company completed its initial public offering
on May 21, 1999 (the "Offering"). The Offering resulted in the issuance of
2,486,748 shares of common stock at $10.50 per share, resulting in net proceeds
to the Company of approximately $23.5 million. In connection with the Offering,
39,555 shares of common stock were issued upon the exercise of certain
outstanding warrants.
COMMON STOCK--Holders of common stock are entitled to one vote per share.
The rights of the common stock are subject to prior rights of the preferred
stock.
DEBT ISSUE COSTS--In connection with the Term Loan (see Note 3), the Company
issued a warrant to purchase up to 45,000 shares (subject to adjustment under a
formula defined in the warrant) of the Company's common stock. The warrant is
exercisable under certain conditions specified in the warrant. The warrant term
extends until the earlier of December 31, 2002 or the business day preceding an
acquisition. The exercise price is $7.19454 per share. The fair value of the
warrant upon date of issuance was not material.
STOCK OPTIONS AND PURCHASE PLANS
i) 1995 STOCK OPTION/STOCK ISSUANCE PLAN--On May 30, 1996, the stockholders
of the Company approved the 1995 Stock Option/Stock Issuance Plan (the "Plan").
The Plan supersedes and incorporates all options outstanding under the 1993
Stock Option Plan. The Plan provides for the issuance of incentive and
nonstatutory options and for the purchase of common stock for eligible
individuals. The Board of Directors administers the Plan.
Each option granted under the Plan has a maximum term of either five or ten
years (depending on stock ownership) and will be subject to earlier termination
in the event of the optionee's termination of service. The 1995 Plan was
incorporated into the 1999 Stock Incentive Plan.
F-13
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
7. STOCKHOLDERS' EQUITY (continued)
ii) 1998 STOCK OPTION/STOCK ISSUANCE PLAN--On March 27, 1998, the
stockholders of the Company approved the 1998 Stock Option/Stock Issuance Plan
(the "1998 Plan"). The 1998 Plan provides for the issuance of incentive and
nonstatutory options and for the purchase of common stock for eligible
individuals. The Board of Directors administers the 1998 Plan. The stock
issuable under the 1998 Plan is shares of authorized but unissued or reacquired
common stock.
Each option granted under the 1998 Plan has a maximum term of either five or
ten years (depending on stock ownership) and will be subject to earlier
termination in the event of the optionee's termination of service. The 1998 Plan
was incorporated into the 1999 Stock Incentive Plan.
iii) 1999 STOCK INCENTIVE PLAN--On March 18, 1999 and March 24, 1999, the
Board of Directors and the stockholders, respectively, of the Company approved
the 1999 Stock Incentive Plan (the "1999 Plan"). All outstanding options under
the 1993 Stock Option Plan, the 1995 Stock Option/Stock Issuance Plan and the
1998 Stock Option/Stock Issuance Plan (collectively, the "predecessor plans")
are incorporated into the 1999 Plan. No further grants will be made under the
predecessor plans. Except as otherwise noted below, the options previously
granted under the predecessor plans will have substantially the same terms as in
effect for new grants made under the 1999 Plan.
The stock issuable under the 1999 Plan shall be shares of authorized but
unissued or reacquired common stock, including shares repurchased by the Company
on the open market. A total of 1,123,938 shares of common stock have been
authorized for issuance under the 1999 Plan, which includes the shares subject
to outstanding options under the predecessor plans. As of December 26, 1999,
501,125 options were available for grant under the predecessor plans. The number
of shares of common stock reserved for issuance under the 1999 Plan will
automatically increase on the first trading day in January each year, beginning
in calendar year 2000. The increase will be equal to 3% of the total number of
shares of common stock outstanding as of the last trading day in December of the
preceding year, not to exceed 450,000 shares in any given year. In addition, no
participant in the 1999 Plan may be granted stock options, separately
exercisable stock appreciation rights and direct stock issuances for more than
500,000 shares of common stock in the aggregate per calendar year. Each option
shall have a maximum term of either five or ten years, depending on the related
program, and will be subject to earlier termination in the event of the
optionee's termination of service.
The 1999 Plan is divided into five separate components; (1) the
discretionary option grant program, (2) the stock issuance program, (3) the
salary investment option grant program, (4) the automatic option grant program
and (5) the director fee option grant program.
1) The discretionary option grant and 2) stock issuance programs provide for
the issuance of incentive and nonstatutory options for eligible employees. The
option exercise price per share is fixed by the 1999 Plan administrator in
accordance with the following provisions: (1) the exercise price shall not be
less than 100% of the fair market value per share of the common stock on the
date of grant, and (2) if the person to whom the option is granted is a 10%
stockholder, then the exercise price per share shall not be less than 110% of
the fair market value per share of the common stock on the date of grant. The
purchase price for stock issuances is determined by the 1999 Plan administrator
and shall not be less than 100% of the fair market value of a share of common
stock at the time of issuance. Each option shall be exercisable at such time or
times, during such period and for such number of shares as shall be determined
by the 1999 Plan administrator as set forth in the related individual option
agreements.
F-14
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
7. STOCKHOLDERS' EQUITY (continued)
3) The salary investment option grant program, if activated, would be
available to executive officers and other highly compensated eligible employees.
The participants may elect, prior to the start of a calendar year, to reduce
their base salary by a specific dollar amount not less than $10,000 nor more
than $50,000. The options will be exercisable at a price equal to one-third of
the fair market value of the options at grant date. The options will vest
monthly for one year and are subject to full and immediate vesting upon certain
changes in ownership of the Company.
4) The automatic option grant program is available to non-employee board
members. When the 1999 Plan becomes effective, eligible individuals will
automatically receive an option grant for 25,000 shares on the date of joining
the board provided that they have not been previously employed by the Company.
In addition, at the date of each annual meeting of stockholders, each
non-employee board member will automatically be granted an option to purchase
5,000 shares of common stock, provided that the individual has served on the
board for at least six months. All grants under the automatic option grant
program vest immediately upon issuance. The exercise price per share shall be
equal to 100% of the fair market value of the common stock on the date of grant.
5) The director fee option grant program allows, if activated, for
non-employee board members to apply any of their annual retainer fees to the
acquisition of a special option grant. The options will be exercisable at a
price equal to one-third of the fair market value of the options at the grant
date. The options will vest monthly for one year and are subject to full and
immediate vesting upon certain changes in ownership of the Company.
The board may amend or modify the 1999 Plan at any time, subject to any
required stockholder approval. The 1999 Plan will terminate at the earliest of
(1) March 17, 2009, (2) the date on which all shares available for issuance
under our 1999 Plan have been issued as fully-vested shares or (3) the
termination of all outstanding options in connection with certain ownership
changes.
iv) 1999 EMPLOYEE STOCK PURCHASE PLAN--On March 18, 1999 and March 24, 1999,
the Board of Directors and stockholders, respectively, approved the 1999
Employee Stock Purchase Plan ("ESPP"). The ESPP became effective upon the
execution of the underwriting agreement and pricing of the common stock with
respect to the Company's initial public offering. The ESPP allows eligible
employees, as specified in the ESPP, to purchase shares of common stock in
semi-annual intervals through payroll deductions under this plan. The
accumulated payroll deductions will be applied to the purchase of shares on the
employee's behalf at a price per share equal to 85% of the lower of (1) the fair
market value of the Company's common stock at the date of entry into the current
offering period or (2) the fair market value on the purchase date. An initial
reserve of 200,000 shares of common stock has been authorized for issuance under
the ESPP. The Board of Directors may alter, suspend or discontinue the ESPP.
However, certain amendments to the ESPP may require stockholder approval.
F-15
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
7. STOCKHOLDERS' EQUITY (continued)
The following is a summary of stock option activity for fiscal 1997, 1998
and 1999:
SHARES
----------------------- WEIGHTED
OPTIONS AVERAGE EXERCISE
AVAILABLE OPTIONS PRICE
FOR GRANT OUTSTANDING PER SHARE
---------- ----------- -----------------
Balance at December 29, 1996 160,523 154,370 $ 1.40
Authorized
Granted (87,930) 87,930 1.54
Exercised (450) 1.00
Forfeited 17,200 (17,200) 1.50
---------- -----------
Balance at December 28, 1997 89,793 224,650 1.33
Authorized 150,000 - -
Granted (137,140) 137,140 2.63
Exercised (38,043) 1.39
Forfeited 43,207 (43,207) 1.75
---------- -----------
Balance at December 27, 1998 145,860 280,540 1.96
Authorized 700,000 - -
Granted (405,950) 405,950 9.72
Exercised (33,987) 1.57
Forfeited 61,215 (61,215) 5.77
---------- -----------
Balance at December 26, 1999 501,125 591,288 6.77
---------- -----------
---------- -----------
Exercisable, December 28, 1997 66,010 1.33
-----------
-----------
Exercisable, December 27, 1998 92,585 1.46
-----------
-----------
Exercisable, December 26, 1999 178,702 4.09
-----------
-----------
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its employee stock option plans (see Note 1). Under APB Opinion
No. 25, the Company will record compensation expense resulting from the
difference between the respective grant price per share and the estimated fair
market value of the common stock at the dates of grant. Total deferred
compensation for fiscal 1998 grants was $300,540 and will be recorded ratably
over the vesting period of the respective options. For the year ended December
26, 1999 the Company recorded $64,532 of deferred compensation expense
associated with these option grants.
F-16
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
7. STOCKHOLDERS' EQUITY (continued)
The following table summarizes the impact on the Company's net income (loss)
had compensation cost been determined based upon the fair value at the grant
date for awards under the stock option plans consistent with the methodology
prescribed under SFAS No. 123: (in thousands, except per share data)
FISCAL YEARS
-------------------------------------
1997 1998 1999
---------- ------------- ----------
Net income (loss) attributable to common stockholders:
Basic $ (1,095) $ 568 $ 1,513
Diluted (1,095) 915 1,651
As adjusted under SFAS No. 123:
Net income (loss):
Basic $ (1,127) $ 520 $ 1,228
Diluted (1,127) 868 1,366
Net income (loss) per share:
Basic $ (1.12) $ 0.50 $ 0.21
Diluted (1.12) 0.14 0.17
The following table summarizes the weighted average fair value at grant date
for the options granted during fiscal 1997, 1998 and 1999 using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
FISCAL YEARS
------------------------------------
1997 1998 1999
--------- ------------- ----------
Expected dividend None None None
Expected stock price volatility None None 57%
Risk-free interest rate 6.00% 5.60% 5.14%
Assumed forfeiture rate 20% 10% 15%
Expected lives of options 8 years 5 years 5 years
Weighted average fair value per share $0.58 $0.57 $5.59
The estimated fair value of options granted is subject to the assumptions
made and if the assumptions changed, the estimated fair value amounts could be
significantly different.
The following table summarizes information as of December 26, 1999
concerning currently outstanding and exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ---------------------
WEIGHTED AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
NUMBER CONTRACTUAL LIFE AVERAGE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------------- --------------- ----------- ---------
$1.00----$2.00......... 204,258 7 $ 1.67 116,331 $ 1.56
$4.00----$9.00......... 169,370 9 $ 7.98 27,371 $ 7.26
$10.00--$10.00......... 192,000 9 $ 10.00 35,000 $ 10.00
$15.00--$15.60......... 25,660 9 $ 15.00 0 $ 0.00
----------- -----------
591,288 $ 6.77 178,702 $ 4.09
----------- -----------
----------- -----------
F-17
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
8. EARNINGS PER SHARE
Reconciliation of basic and diluted earnings per share in accordance with
SFAS No. 128 (see Note 1) is as follows: (in thousands, except per share data)
FISCAL YEAR
-----------------------------------------
1997 1998 1999
------------ ------------- ------------
Numerator
Basic:
Net income (loss) $ (1,000) $ 915 $ 1,651
Accretion on redeemable
convertible preferred stock (95) (347) (138)
------------ ------------- ------------
Net income (loss) attributable
to common stockholders (1,095) 568 1,513
Diluted:
Reversal of accretion on redeemable
convertible preferred stock -- 347 138
------------ ------------- ------------
Net income (loss) attributable
to common stockholders $ (1,095) $ 915 $ 1,651
------------ ------------- ------------
------------ ------------- ------------
FISCAL YEAR
-----------------------------------------
1997 1998 1999
------------ ------------ ------------
Denominator
Basic:
Weighted average common shares
Outstanding 1,010 1,034 5,741
------------ ------------ ------------
Total weighted average common
shares outstanding 1,010 1,034 5,741
Diluted:
Effect of dilutive securities:
Common stock options -- 121 241
Conversion of convertible
preferred stock -- 5,263 2,112
----------- ----------- ------------
Total weighted average common
and potential common shares
outstanding 1,010 6,418 8,094
----------- ----------- ------------
----------- ----------- ------------
Earnings (loss) per share:
Basic $ (1.08) $ 0.55 $ 0.26
Diluted $ (1.08) $ 0.14 $ 0.20
9. SEGMENTED INFORMATION
The Company owns and operates high-quality, quick-service Mexican
restaurants under the name "Rubio's Baja Grill," with restaurants primarily in
California, Arizona and Nevada. In accordance with SFAS No. 131, the Company
currently considers its business to consist of one reportable operating segment.
F-18
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 28, 1997, DECEMBER 27, 1998 AND DECEMBER 26, 1999
10. SUBSEQUENT EVENTS
Stock Options -
On January 14, 2000, an additional 134,573 Incentive Stock Options and
23,627 Non-Qualified Options to purchase shares of common stock were issued at
$7.375 per share, subject to five year vesting.
On February 3, 2000, an additional 55,160 Non-Qualified Options to
purchase shares of common stock were issued at $7.1875 per share, subject to
five year vesting.
11. QUARTERLY FINANCIALS (UNAUDITED)
Summarized unaudited quarterly financial data (in thousands, except
income per share) for fiscal 1999 and 1998 was as follows:
Fiscal 1999
----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total revenues $14,383 $16,322 $19,729 $17,421
Income from operations 72 603 1,574 22
Net income 45 394 1,090 122
Diluted net income (loss) per share $ (0.04) $ 0.05 $ 0.12 $ 0.01
Fiscal 1998
-----------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
Total revenues $ 9,217 $10,907 $12,935 $11,640
Income (loss) from operations (254) 282 637 (68)
Net income (loss) (180) 347 742 6
Diluted net income (loss) per share $ (0.26) $ 0.05 $ 0.12 $ (0.08)
F-19
EXHIBIT INDEX TO FORM 10-K
RUBIO'S RESTAURANTS, INC.
NUMBER DESCRIPTION
3.1 Second Amended and Restated Certificate of Incorporation. (Exhibit 3.2)
3.2 Restated Bylaws (3.4)
4.1(1) Specimen common stock certificate.
10.1(1) Amended and Restated Investors' Rights Agreement, dated November 19, 1997 (Exhibit 10.7).
10.2(1) Amendment No. 1 to the Amended and Restated Investors' Rights Agreement, dated December 31,
1997 (Exhibit 10.8).
10.3(1) Amendment No. 2 to the Amended and Restated Investors' Rights Agreement, dated May 1998
(Exhibit 10.9).
10.4(1) Amended and Restated Stock Restriction Agreement, dated November 19, 1997 (Exhibit 10.10).
10.5(1) Series D Preferred Stock Purchase Warrant granted to FSC Corp., dated May 11, 1998 (Exhibit
10.12).
10.6(1) Stock Purchase Agreement, dated June 16, 1998 (Exhibit 10.13).
10.7(1) Revolving Credit and Term Loan Agreement between us and BankBoston, N.A., dated May 1998
(Exhibit 10.14).
10.8(1) Lease Agreement between us and Macro Plaza Enterprises, dated October 27, 1997 (Exhibit
10.15).
10.9(1) First Amendment to Lease Agreement between us and Cornerstone Corporate Centre, LLC, dated
October 16, 1998 (Exhibit 10.16).
10.10(1) Agreement between us and Service America Corporation dated April 9, 1992 (Exhibit 10.17).
10.11(1) Test Agreement between us and Host International, Inc., dated August 4, 1995 (Exhibit
10.18).
10.12(1) Amendment to Agreement between us and Pacific Basin Foods, Inc., dated November 20, 1998
(Exhibit 10.20).
10.13(1) Agreement between us and Coca-Cola US Fountain, dated March 10, 1998 (Exhibit 10.21).
10.14(1) Agreement between us and Dr. Pepper/Seven Up, Inc., dated June 23, 1998 (Exhibit 10.22).
10.15(1) Rental Agreement between us and Premier Food Services, Inc., dated July 10, 1998 (Exhibit
10.23).
10.16(1) Letter Agreement Between us and Volume Service America, dated March 29, 1999 (Exhibit
10.24).
10.17(1)(2) Form of Indemnification Agreement between us and each of its directors (Exhibit 10.25).
10.18(1)(2) Form of Indemnification Agreement between us and each of its officers(Exhibit 10.26).
10.19(1)(2) 1993 Stock Option/Stock Issuance Plan, as amended (Exhibit 10.27).
10.20(1)(2) 1993 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option (Exhibit
10.28).
10.21(1)(2) 1993 Stock Option/Stock Issuance Plan Form of Stock Option Agreement (Exhibit 10.29).
10.22(1)(2) 1993 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement (Exhibit 10.30).
10.23(1)(2) 1993 Stock Option/Stock Issuance Plan Form of Restricted Stock Issuance Agreement (Exhibit
10.31).
10.24(1)(2) 1995 Stock Option/Stock Issuance Plan (Exhibit 10.32).
10.25(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option (Exhibit
10.33).
10.26(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Stock Option Agreement (Exhibit 10.34).
10.27(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement (Exhibit 10.35).
10.28(1)(2) 1995 Stock Option/Stock Issuance Plan Form of Stock Issuance Agreement (Exhibit 10.36).
10.29(1)(2) 1998 Stock Option/Stock Issuance Plan (Exhibit 10.37).
10.30(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Notice of Grant of Stock Option (Exhibit
10.38).
10.31(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Stock Option Agreement (Exhibit 10.39).
10.32(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Option Agreement (Exhibit
10.40).
10.33(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Stock Purchase Agreement (Exhibit 10.41).
10.34(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Purchase Agreement (Exhibit
10.42).
10.35(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Stock Issuance Agreement (Exhibit 10.43).
10.36(1)(2) 1998 Stock Option/Stock Issuance Plan Form of Addendum to Stock Issuance Agreement (Exhibit
10.44).
10.37(1)(2) 1999 Stock Incentive Plan (Exhibit 10.45).
10.38(1)(2) Employee Stock Purchase Plan (Exhibit 10.46).
10.39(1)(2) Letter Agreement Between us and Host International, Inc., dated May 18, 1999. (Exhibit
10.47).
21.1(1) Subsidiary List.
23.1 Independent Auditors' Consent.
24.1 Powers of Attorney (Included under the caption "Signatures").
27.1 Financial Data Schedule for the year ended December 26, 1999.
- ---------------------------
(1) Incorporated by reference to the above noted exhibit to our Registration
Statement S-1 (333-75087) filed with the SEC on March 26, 1999, as amended.
(2) Management contract or compensation plan.