Back to GetFilings.com
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 31, 2000
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 this 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 28, 2001 was approximately $24,607,510. This amount
excludes 2,955,736 shares of the registrant's common stock held by the executive
officers, directors and affiliated parties at February 28, 2001. 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 28, 2001, there were 8,921,193 shares of the registrant's common
stock, par value $0.001 per share, outstanding.
1
DOCUMENTS INCORPORATED BY REFERENCE
PART III incorporates information by reference from our definitive proxy
statement for the 2001 annual meeting of stockholders to be held on June 8,
2001.
Certain exhibits filed with our prior registration statements and Forms 10-K,
8-K and 10-Q are incorporated by reference into PART IV of this report.
2
RUBIO'S RESTAURANTS, INC.
TABLE OF CONTENTS
Page
----
PART I
Item 1. Business 4
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a Vote of Security Holders 20
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters 21
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 23
Item 7A. Quantitative and Qualitative Disclosure About Market Risk 29
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 30
PART III
Item 10. Directors and Executive Officers of the Registrant 30
Item 11. Executive Compensation 30
Item 12. Security Ownership of Certain Beneficial Owners
and Management 30
Item 13. Certain Relationships and Related Transactions 30
PART IV
Item 14. Exhibits and Financial Statement Schedules 30
Signatures 32
3
This annual report on Form 10-K may contain projections, estimates and
other forward-looking statements that involve a number of risks and
uncertainties, including but not limited to, those discussed under "Risk
Factors" under Item 1 below. 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.
We have registered trademarks and service marks including "Rubio's,"
"Rubio's Baja Grill, Home of the Fish Taco," "Home of the Fish Taco,"
"HealthMex" and "Pesky" with the United States Patents and Trademark Office.
PART I.
Item 1. BUSINESS
As of February 28, 2001, we own and operate 128 high-quality,
quick-service Mexican restaurants that offer traditional Mexican cuisine
combined with fresh seafood indicative of the Baja region of Mexico. We were
incorporated in California in 1985 and re-incorporated 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 restaurants are located in
California, Arizona, Nevada, Colorado and Utah.
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 18 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, 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
4
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 prices generally lower than those at
casual dining restaurants. 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
critical to building strong repeat business and customer
loyalty.
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. We experienced comparable store sales
increases of 0.6% in 2000, 6.0% in 1999 and 10.4% in 1998.
- ACHIEVE ATTRACTIVE RESTAURANT-LEVEL ECONOMICS. We believe that
we have been able to achieve attractive operating results in
our core markets due to the 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 high-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 industry averages.
- EXECUTE DISCIPLINED EXPANSION STRATEGY. We believe that our
restaurant concept has significant opportunities for expansion
and that a growth strategy balancing company owned unit growth
with franchise unit growth will allow us to grow the brand in
a high quality manner. Our current expansion plan calls for us
to open approximately 18 company owned restaurants and our
franchisees to open two restaurants in fiscal 2001. 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.
5
- FOCUS ON BUILDING SALES AT EXISTING RESTAURANTS. We believe
that the Company has an opportunity to improve earnings by
increasing sales at restaurants that are already open,
especially in our newer markets. We will conduct marketing
research to understand our markets and guests and to refine
our marketing tactics. We plan to expand the role of our
outside advertising agency and our internal marketing
department to find new ways to build frequency in our
restaurants.
- 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.
6
UNIT ECONOMICS
In 2000, the 90 units open the entire year generated on a per unit
basis average sales of $896,000, average operating income of $130,000, or 14.5%
of sales, and average cash flow of $166,000, or 18.6% of sales. Comparable
restaurant sales increased 0.6% in 2000, following a 6.0% increase in 1999 and a
10.4% increase in 1998.
We currently have 35 units open outside of California. As of year-end
2000, 22 of these units have over 12 months of operating results. In 2000, the
22 units open outside of California for more than 12 months generated average
sales of $733,000, average operating income of $36,000, or 4.9% of sales, and
average cash flow of $75,000 or 10.3% 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 to $450,000, excluding pre-opening
expenses between $19,000 and $25,000 per unit.
EXISTING AND PROPOSED LOCATIONS
The following table sets forth information about our existing and
proposed units. As of February 28, 2001, we operate 50 restaurants in greater
Los Angeles, which includes Los Angeles, Orange, San Bernardino, Ventura and
Riverside counties, 37 restaurants in San Diego county, 15 restaurants in
Phoenix/Tucson, Arizona, nine restaurants in Denver, Colorado, six restaurants
in Salt Lake City, Utah, five restaurants in Las Vegas, Nevada, four in the
Sacramento, California area and two in the San Francisco, 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. Six of the 18 units we
plan to open in the balance of 2001 are under construction. We have signed
leases for all 18 units scheduled to open in 2001 and 8 signed leases for 2002
openings. The majority of our units are in high-traffic retail centers, and are
not stand-alone units.
Under Lease
Locations Opened Construction Stores
- --------- ------ ------------ ------
Los Angeles Area 50 1 12
San Diego Area 37 - 1
Phoenix/Tucson Area 15 2 3
Denver Area 9 - -
Salt Lake City Area 6 - -
Las Vegas Area 5 - -
Sacramento Area 4 1 1
San Francisco Area 2 2 1
--- - --
Totals 128 6 18
=== = ==
7
EXPANSION AND SITE SELECTION
We currently plan to open 18 units during 2001, two of which have
opened as of February 28, 2001, and approximately 8 units in 2002. Leases for
the eight units to be opened in 2002 have been signed. We opened our first unit
outside of California in Phoenix, Arizona in April 1997. We currently operate a
total of 35 units outside of California, including 15 in Arizona, nine in
Denver, six in Utah and five in Las Vegas.
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 visiting most sites or conducting a video site tour
prior to granting final approval. Each new market and site must be approved by
our Real Estate 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 expand into selected markets, we
initiated a franchising program in 2000. This franchising strategy requires us
to devote management and financial resources to build the operational
infrastructure needed to support the franchise of our restaurants. Once fully
implemented, the franchising program will earn revenue as follows: 1) area
development fees, 2) new store opening fees and 3) royalties. All fees received
from franchised operations are included in revenue as earned. Area development
fees are recognized as revenue on the occurrence of certain deliverables: 1) 50%
at the time an initial comprehensive analysis of the entire market is delivered
to the franchisee and 2) 50% ratably recognized as an updated analysis per
restaurant site is delivered. New store opening fees are recognized as revenue
in the month a franchisee location opens. Royalties from franchised restaurants
are recorded in revenue as earned. Our franchising program is typically expected
to involve, on average, initial cash investments of approximately $12,000 to
$37,000 compared to initial cash investments, on average, of approximately
$380,000 to $450,000, excluding pre-opening expenses for unit expansion
strategies where company-owned units are developed and leased. As of February
28, 2001, we have two signed franchisee agreements. One agreement represents a
commitment to open 8 units. The other agreement represents a commitment to open
6 units. In conjunction with these signed agreements, we received $140,000 in
area development fees, of which $40,000 was recognized as income in 2000. We
also incurred $346,000 of expense related to franchising in fiscal year 2000.
None of these committed units are open as of February 28, 2001.
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
chipolte 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 $1.89 for a Baja-style fish taco to $6.29 for a Lobster Combo, which
includes a lobster burrito, fish taco, chips and beans. Most units also offer a
selection of imported Mexican and domestic beers.
8
To provide added variety, from time to time we introduce limited time
offerings such as our lobster burrito, tequila shrimp burrito, 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 20% 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 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 use 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 2000, we spent approximately $3.2 million on
marketing. We expect our marketing expenditures to increase as we add new
restaurants and expand into new markets.
OPERATIONS
UNIT MANAGEMENT AND EMPLOYEES
Our typical restaurant employs one general manager, one to two
assistant managers and 18 to 22 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
9
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 30 hours per week are eligible for health benefits
and employees over 18 years of age and working more than 20 hours per week are
eligible to participate in our 401(k) plan.
We currently employ 19 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 and regional 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
supervisor 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 OPERATION
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. to 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 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
10
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 ingredient 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 in most of our units to ensure product freshness. We do not
maintain a central food product warehouse or commissary. We do however, maintain
some products in third party warehouses for certain seafood items. As is typical
in this industry, we do not have any long-term contracts with our food
suppliers. We do have some contracts ranging from six to 15 months for pollock,
chicken and some beef. 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 our 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 including "Rubio's,"
"Rubio's Baja Grill, Home of the Fish Taco," "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.
11
EMPLOYEES
As of February 28, 2001, we had approximately 2,656 employees. The
total employee count is approximately comprised of: 2,314 hourly employees, 278
restaurant managers, 19 district and regional managers, and 45 employees located
at the corporate headquarters. Approximately 60%, or 1,388 hourly employees are
considered to be full-time and approximately 40%, or 926 hourly employees are
considered to be part-time.
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 subject to compliance with applicable zoning, land use
and environmental regulations.
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about these risks, together
with the other information contained in this 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:
- lack of market awareness or acceptance of our restaurant
concept in new geographic areas;
- 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; and
- potential difficulties related to management of operations
located in a number of broadly dispersed locations.
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.
12
IF WE ARE NOT ABLE TO SUCCESSFULLY PURSUE OUR EXPANSION STRATEGY, OUR
BUSINESS AND RESULTS OF OPERATIONS MAY BE ADVERSELY IMPACTED.
We intend to continue to pursue an expansion strategy. Since 1996, and
as of February 28, 2001, we have opened 97 restaurants, 38 restaurants in
greater Los Angeles, California which includes Los Angeles, Orange, San
Bernardino, Ventura and Riverside counties, 18 restaurants in San Diego county,
15 restaurants in Phoenix/Tucson, Arizona, nine restaurants in Denver, Colorado,
six restaurants in Salt Lake City, Utah, five restaurants in Las Vegas, Nevada,
four in the Sacramento, California area and two in the San Francisco, California
area. We currently plan to open approximately 18 restaurants in 2001, two of
which have been opened as of February 28, 2001. Ten of the 18 planned 2001
openings are outside Southern California. We currently plan to open
approximately 8 restaurants in 2002. Our ability to successfully achieve our
expansion strategy will depend on a variety of factors, many of which are beyond
our control.
These factors include:
- our ability to operate our restaurants profitably;
- our ability to respond effectively to the intense competition
in the quick-service restaurant industry;
- 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 need for additional capital and our ability to obtain such
capital on favorable terms or at all; 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;
13
- 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.
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.
WE HAVE RECENTLY INITIATED A FRANCHISE STRATEGY. WE MAY BE UNSUCCESSFUL
IN FULLY EXECUTING THIS PROGRAM.
We started a franchise program by entering into an agreement with a
franchisee in late October 2000. We had a total of two franchise agreements
signed as of December 31, 2000. These agreements represent commitments to
open 14 units. In conjunction with these signings, we received $140,000 in
franchise fees and were able to recognize $40,000 of that as income in 2000.
We also incurred $346,000 of expense related to franchising in fiscal year
2000. As of February 28, 2001 no franchisee restaurants are open. Our
inability to successfully execute our franchising program could adversely
affect our business and results of operations. The opening and success of
franchised restaurants is dependent on a number of factors, including
availability of suitable sites, negotiations of acceptable lease or purchase
terms for new locations, permitting and government regulatory compliance and
the ability to meet construction schedules. The franchisees may not have all
these 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.
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;
14
- 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.
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 initial public offering completed
in May 1999, together with anticipated cash flow from operations and funds
anticipated to be available from a credit facility will be sufficient to satisfy
our working capital requirements for at least the next 12 months. We plan to
incur substantial costs over the near-term in connection with our expansion
plans. We may need to seek additional financing sooner than we anticipate as a
result of the following factors:
- changes in our operating plans;
- changes in 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.
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
15
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.
IF WE ARE NOT ABLE TO ANTICIPATE AND REACT TO INCREASES IN 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. On January 1, 2001, the California minimum wage was increased to
$6.25 per hour from $5.75. On January 1, 2002, the California minimum wage will
increase from $6.25 to $6.75 per hour. Similar proposals may come before
legislators or voters in other jurisdictions in which we operate or seek to
operate. Such minimum wage increases could have a material adverse effect on our
business and results of operations.
THE RESTAURANT INDUSTRY IS INTENSELY COMPETITIVE AND WE MAY NOT HAVE
THE RESOURCES TO COMPETE ADEQUATELY.
The restaurant industry is intensely competitive. There are many
different segments within the restaurant industry that are distinguished by
types of service, food types and price/value relationships. We position our
restaurants in the high-quality, quick-service Mexican food segment of the
industry. In this segment, our direct competitors include Baja Fresh, La Salsa
and Chipotle. We also compete indirectly with full-service Mexican restaurants
including Chevy's, Chi Chi's and El Torito, and fast food restaurants,
particularly those focused on Mexican food such as Taco Bell and Del Taco.
Competition in our industry segment is based primarily upon food quality, price,
restaurant ambiance, service and location. 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,
utility costs, increased food, labor and employee benefit costs and the
availability of experienced management and hourly employees may also adversely
affect the restaurant industry in general and our units in particular.
OUR 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 four trademarks and
have seven
16
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
incur costs through the payment of damages, licensing fees to a prior user or
registrant of similar intellectual property, or attorney's fees or other legal
costs as well.
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.
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 February 28, 2001 all but 15 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 CURRENT INSURANCE MAY NOT PROVIDE ADEQUATE LEVELS OF COVERAGE
AGAINST CLAIMS.
There are types of losses we may incur that may be uninsurable or that
we believe are not economically insurable, such as losses due to earthquakes and
other natural disasters. In view of the location of many of our existing and
planned units, our operations are particularly susceptible to damage and
disruption caused by earthquakes. Further, we do not currently maintain any
insurance coverage for employee-related litigation or the effects of adverse
publicity. In addition, punitive damage awards are generally not covered by
insurance. We may also be subject to litigation which, regardless of the
outcome, could result in adverse publicity and damages. Such litigation, adverse
publicity or damages could have a material adverse effect on our business and
results of operations.
17
THE LARGE NUMBER OF SHARES ELIGIBLE FOR PUBLIC SALE COULD CAUSE OUR
STOCK PRICE TO DECLINE.
The market price of our common stock could decline as a result of sales
by our existing stockholders of a large number of shares of our common stock in
the market or the perception that such sales could occur. These sales also might
make it more difficult for us to sell equity securities in the future at a time
and at a price that we deem appropriate.
OUR COMMON STOCK MAY NOT DEVELOP AN ACTIVE, LIQUID TRADING MARKET.
We completed our initial public offering in May 1999. Prior to this
offering, there was no public market for our common stock. An active trading
market in and increased liquidity of our common stock may not develop.
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 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 February 28, 2001, the executive officers, directors and entities
affiliated with them, in the aggregate, beneficially own approximately 34.9% of
our outstanding common stock. These stockholders are able to exercise control
over all matters requiring approval by our stockholders, including the election
of directors and approval of significant corporate transactions. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company.
ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND DELAWARE LAW
COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT.
The anti-takeover provisions in our certificate of incorporation, our
bylaws and Delaware law could make it more difficult for a third party to
acquire us. As a result of these provisions, we could delay, deter or prevent a
takeover attempt or third party acquisition that our stockholders consider to be
in their best interest, including a takeover attempt that results in a premium
over the market price for the shares held by our stockholders.
18
MANAGEMENT
OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES
As of March 27, 2001, our executive officers and key employees are as
follows:
NAME AGE POSITION WITH THE COMPANY
- --------------------------------- ------- ------------------------------------------------------------------------
Ralph Rubio.................. 45 President, Chief Executive Officer and Director
Stephen J. Sather............ 53 Chief Operating Officer
Joseph N. Stein.............. 40 Chief Strategic and Financial Officer
John Ramsay.................. 41 Vice President of Franchise
Ted Frumkin.................. 39 Vice President of Real Estate
Alison Glenn-Delaney......... 40 Vice President of Marketing
Ira Fils..................... 35 Vice President of Finance
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 21 years of experience in the
restaurant industry.
STEPHEN J. SATHER was promoted to Chief Operating Officer in 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 26 years of
experience in the restaurant industry.
JOSEPH N. STEIN was appointed 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 14 years of
experience in the restaurant industry.
JOHN RAMSAY has served as our Vice President of Franchise since March
2000. From January 1994 to March 2000, he was Vice President of Franchise
Development for Long John Silver's, a publicly held company, in Lexington,
Kentucky. From September 1992 to January 1994, he was Director of Franchise
Development for Long John Silver's. Mr. Ramsay was employed by Sbarro
Restaurants, Inc., a publicly held company, in Commack, New York from August
1988 to March 1992 in the positions of Director of Design and Construction and
Director of Franchise Development.
19
TED FRUMKIN was promoted to Vice President of Real Estate in September
2000. Before this promotion he 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.
ALISON GLENN-DELANEY has served as Vice President of Marketing since
February 2001. Prior to joining us, Ms. Glenn-Delaney served as Vice President
of Marketing at American Hospitality Concepts, Inc., a privately held company,
from May 1998 to February 2000. Prior to that, Ms. Glenn-Delaney served as Vice
President of Taco Cabana, a publicly held company, from January 1996 to January
1998, and Ruby Tuesday Inc., a publicly held company, from August 1993 to
January 1996. Prior to that, Ms. Glenn-Delaney served as Director of Marketing
for Metromedia Steakhouses, L.P. Ponderosa Division from 1986 to 1993. Ms.
Glenn-Delaney has over 17 years of experience in the restaurant industry.
IRA FILS has served as Vice President of Finance since January 2001.
Before this promotion he served as Director of Financial Analysis and Planning
from October 1998 to December 2000. Prior to joining us, Mr. Fils served as
Finance Manager and Senior Financial Analyst at The Walt Disney Company, a
publicly held company, in Anaheim, California, from February 1996 to September
1998. From May 1995 to February 1996, Mr. Fils served as Manager of Financial
Planning & Analysis at American Restaurant Group, a private company, in Newport
Beach, California. Mr. Fils was employed at Family Restaurants, Inc., a publicly
held company, in Irvine, California, from June 1989 to May 1995 in various
financial and analyst positions. Mr. Fils has more than 11 years of experience
in the restaurant industry.
Item 2. PROPERTIES
Our corporate headquarters are located in Carlsbad, California. The
principal executive offices of our wholly-owned subsidiary, Rubio's Restaurants
of Nevada, Inc. are also located in Carlsbad, California. We occupy our
headquarters under a lease that 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 the Company owns the
building but leases the land. 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.
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 31, 2000.
20
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 since 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
First Quarter 2000 $ 9.00 $ 6.28
Second Quarter 2000 $ 8.69 $ 6.13
Third Quarter 2000 $10.25 $ 5.81
Fourth Quarter 2000 $ 6.63 $ 2.56
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 6, 2001, there
were approximately 7,547 beneficial stockholders of our common stock, including
323 holders of record. Our revolving line of credit agreement restricts the
payment of cash dividends and other stock redemptions or repurchases, as defined
in the agreement, without prior consent of the lender.
(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. 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, which has been to construct new restaurants and
to fund our working capital needs. These expenditures were approximately $15.9
million. We currently have approximately $6.0 million remaining from our initial
public offering.
PART II
Item 6. SELECTED FINANCIAL DATA
Our fiscal year is 52 or 53 weeks, ending the Sunday closest to
December 31. Fiscal year 2000 includes 53 weeks and fiscal years 1996 through
1999 include 52 weeks.
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the accompanying
notes included on pages F-1 through F-18 of this annual report on Form 10-K and
21
with Management's Discussion and Analysis of Financial Condition and Results of
Operations included under Item 7, under Part II of this annual report on Form
10-K. These historical results are not necessarily indicative of the results to
be expected in the future.
Fiscal
---------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Restaurant sales......................... $ 19,523 $ 29,704 $ 44,699 $ 67,854 $ 95,693
Franchise revenue........................ -- -- -- -- 40
------------ ------------ ------------ ------------ ------------
Total revenue.......................... 19,523 29,704 44,699 67,854 95,733
Costs and expenses:
Cost of sales.......................... 5,068 8,659 13,074 19,976 28,348
Restaurant labor, occupancy and other.. 10,441 15,639 22,616 33,984 50,445
General and administrative expenses.... 3,176 4,253 6,148 7,968 10,722
Depreciation and amortization.......... 735 1,259 1,946 2,993 4,296
Pre-opening expenses................... 18 271 319 662 758
Loss on asset impairment............... -- 387 -- -- 2,237
------------ ------------ ------------ ------------ ------------
Operating (loss) income.................. 85 (764) 596 2,271 (1,073)
Other income (expense):
Interest income (expense), net......... 17 (75) 268 501 708
Miscellaneous income (expense), net.... 1 (6) (10) -- --
Loss on disposal/sale of property...... (2) (56) (5) (4) (27)
------------ ------------ ------------ ------------ ------------
Total other income (expense), net........ 16 (137) 253 497 681
------------ ------------ ------------ ------------ ------------
(Loss) income before income taxes...... 101 (901) 849 2,768 (392)
Income tax benefit (expense)........... (29) (99) 66 (1,117) 161
------------ ------------ ------------ ------------ ------------
Net (loss) income...................... $ 72 $ (1,000) $ 915 $ 1,651 $ (231)
============ ============ ============ ============ ============
Net (loss) income attributable to
common stockholders $ 3 $ (1,095) $ 568 $ 1,513 $ (231)
============ ============ ============ ============ ============
Net (loss) income per share
Basic.................................. $ -- $ (1.08) $ 0.55 $ 0.26 $ (0.03)
Diluted................................ -- (1.08) 0.14 0.20 (0.03)
Shares used in computing net (loss)
income per share
Basic.................................. 1,008 1,010 1,033 5,741 8,883
Diluted................................ 1,026 1,010 6,418 8,094 8,883
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................ $ 633 $ 866 $ 786 $ 3,459 $ 1,311
Total assets............................. 13,375 23,054 25,751 50,038 52,267
Long-term debt, including current portion 2,483 2,562 1,856 -- --
Redeemable convertible preferred stock... 7,550 17,003 17,695 -- --
Total stockholders' equity............... 8,474 (141) 196 43,122 42,956
- ----------------
Please see the consolidated financial statements and related notes appearing
on pages F-1 through F-18 of this report for the determination of number of
shares used in computing basic and diluted net (loss) income per share.
Net (loss) income attributable to common stockholders includes the effect of
the accretion on the redeemable convertible preferred stock which
(increases)reduces net (loss) income attributable to common stockholders for the
related periods. Net income attributable to common stockholders for the fiscal
years 1998 and 1999 diluted earnings per share calculation is $915,000 and
$1,651,000, respectively. 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.
22
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" UNDER ITEM 1, OF
PART I OF THIS REPORT REGARDING CERTAIN FACTORS KNOWN TO US THAT COULD CAUSE
REPORTED FINANCIAL INFORMATION NOT TO BE NECESSARILY INDICATIVE OF FUTURE
RESULTS.
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 36 in 2000.
As a result of our 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.
Revenues represent gross restaurant sales less coupons and other
discounts and includes franchise revenue for 2000. 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 and includes franchise expense for 2000.
Pre-opening expenses, which are expensed as incurred, consist of the
costs of hiring and training the initial workforce, travel, the cost of food
used in training, the cost of the initial stocking of operating supplies and
other direct costs related to opening.
RESULTS OF OPERATIONS
All comparisons under this heading between 1998, 1999 and 2000 refer
to the 52-week period ended December 27, 1998, the 52-week period ended December
26, 1999, and the 53-week period ended December 31, 2000, respectively, unless
otherwise indicated.
23
Our operating results, expressed as a percentage of sales, were as
follows:
FISCAL
--------------------------------------------------------
1998 1999 2000
---------------- --------------- ----------------
Revenue (1)............................................. 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales........................................ 29.2 29.4 29.6
Restaurant labor, occupancy and other................ 50.6 50.1 52.7
General and administrative expenses (2).............. 13.8 11.7 11.2
Depreciation and amortization........................ 4.4 4.4 4.5
Pre-opening expenses................................. 0.7 1.0 0.8
Loss on asset impairment............................. -- -- 2.3
---------------- --------------- ----------------
Operating (loss) income 1.3 3.4 (1.1)
Other income (expense):
Interest income (expense), net....................... 0.6 0.7 0.7
Miscellaneous income (expense), net.................. -- -- --
Loss on disposal/sale of property.................... -- -- --
---------------- --------------- ----------------
Total other income, net........................ 0.6 0.7 0.7
---------------- --------------- ----------------
(Loss) income before income taxes....................... 1.9 4.1 (0.4)
Income tax benefit (expense) ........................... 0.1 (1.7) 0.2
---------------- --------------- ----------------
Net (loss) income....................................... 2.0% 2.4% (0.2)%
================ =============== ================
(1) Includes $40,000 in franchise revenue for 2000.
(2) Includes $346,000 in franchise expense for 2000.
53 WEEKS ENDED DECEMBER 31, 2000 COMPARED TO THE 52 WEEKS ENDED DECEMBER 26,
1999
Results of operations reflect 53 weeks of operations for 90 restaurants
and partial period operations for 36 restaurants for the 53 weeks ended December
31, 2000. Results of operations also reflect 52 weeks of operations for 59
restaurants and a partial period of operations for 31 restaurants for the 52
weeks ended December 26, 1999.
REVENUE. Restaurant sales increased $27.8 million or 40.9%, to $95.7
million for the 53 weeks ended December 31, 2000 from $67.9 million for the 52
weeks ended December 26, 1999. The increase in 2000 included restaurant sales of
approximately $1.7 million for the additional week. The increase was also due in
part to $11.3 million in sales generated by a full year of operations from units
opened in 1998 and 1999 that were not in our comparable unit base yet, combined
with the $14.8 million from the 36 units opened in 2000. In addition, total
sales from all units that comprise our comparable base increased $1.6 million
(53 weeks vs. 52 week basis). Comparable unit sales on a 53 week vs. 53 week
basis were up $363,000, or 0.6%. Units enter the comparable store base after 15
full months of operation. The positive increase in comparable store sales was
due to a 2.4% increase in the average check amount, offset by a 1.8% decrease in
transactions due to the limited success of promotional efforts in fiscal 2000.
COST OF SALES. Cost of sales as a percentage of sales increased to
29.6% in the 53 weeks ended December 31, 2000 from 29.4% in the 52 weeks ended
December 26, 1999 primarily due to inefficiencies in our new markets and higher
costs incurred relating to certain menu changes made in July 2000.
RESTAURANT LABOR, OCCUPANCY AND OTHER. Restaurant labor, occupancy, and
other increased as a percentage of sales to 52.7% for the 53 weeks ended
December 31, 2000 from 50.1% in the 52 weeks ended December 26, 1999. The
increase as a percentage of sales is due in part to an increase in total direct
24
labor of 1.3%. These labor increases were due to expected inefficiencies in the
new stores, increasing mix of stores located in newer markets which have on
average lower initial annual sales volumes than our mature markets and overall
wage inflation. In addition, we experienced one-time training costs related to
our new menu board and burrito enhancement rollout of approximately $191,000.
The menu board rollout was completed in the third quarter of fiscal 2000.
Another factor causing this increase was the higher electricity costs in the San
Diego area. Utility costs increased 0.3% from the prior year. The other areas
contributing to the increase were occupancy (0.6%, due to opening restaurants in
higher profile areas), advertising (0.2%), labor related (0.1%) and in repairs
(0.2%). 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. On January 1, 2001, the California minimum wage was increased to
$6.25 per hour from $5.75. On January 1, 2002, the California minimum wage is
schedule to increase from $6.25 to $6.75. This increase may have a material
impact on our results in fiscal 2002.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased to $10.7 million for the 53 weeks ended December 31, 2000
from $8.0 million for the 52 weeks ended December 26, 1999. The increase was
primarily due to increases in salary and benefits related to the hiring of
additional corporate employees and field management and other corporate level
expenses required to support and manage unit and franchise expansion. General
and administrative expenses decreased as a percentage of sales to 11.2% in 2000
from 11.7% in 1999 primarily due to our expanding revenue base.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased to $4.3 million in the 53 weeks ended December 31, 2000 from $3.0
million in the 52 weeks ended December 26, 1999. The $1.3 million increase was
primarily due to the additional depreciation on the 36 new units opened during
2000 and the 31 new units opened during 1999. As a percentage of sales,
depreciation and amortization increased to 4.5% in 2000 versus 4.4% in 1999.
PRE-OPENING EXPENSES. Pre-opening expenses increased to $758,000 for
the 53 weeks ended December 31, 2000 from $662,000 for the 52 weeks ended
December 26, 1999 primarily due to the increase in unit openings to 36 in 2000
compared to 31 in 1999. The average pre-opening cost per new unit opening year
over year remained approximately the same at $21,000 per unit.
LOSS ON ASSET IMPAIRMENT. In 2000, we recorded a $2.2 million charge
related to the impairment of a select number of underperforming restaurants as
required under Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." We currently do not plan to close any restaurants. There was no impairment
expense recorded in 1999.
INTEREST INCOME (EXPENSE), NET. Net interest income increased to
$708,000 for the 53 weeks ended December 31, 2000 from $501,000 in net interest
income for the 52 weeks ending December 26, 1999. Interest income increased to
$824,000 for the 53 weeks ended December 31, 2000 from $654,000 for the 52 weeks
ended December 26, 1999. The increase is primarily due to realizing a full
twelve months of additional cash available for investing in fiscal 2000 after
our initial public offering, which was completed in May 1999. In addition,
interest expense declined to $116,000 in 2000 from $153,000 in 1999. This
decrease is primarily due to the repayment of all long-term debt in 1999 with
the proceeds from our initial public offering.
25
INCOME TAXES. The provision for income taxes for the 53 weeks ended
December 31, 2000 and 52 weeks ended December 26, 1999 is based on the
approximate annual effective tax rate applied to the respective period's pretax
book (loss) income. The 41.1% tax benefit applied to 2000 comprises the federal
and state statutory rates based on the annual effective rate on a pre-tax loss
of $392,000 for 2000. The 40.3% tax rate applied to 1999 comprises the federal
and state statutory rates based on the annual effective rate on pre-tax income
of $2,768,000 for 1999.
52 WEEKS ENDED DECEMBER 26, 1999 COMPARED TO THE 52 WEEKS ENDED
DECEMBER 27, 1998
Results of operations reflect a full 52 weeks of operations for 59
restaurants and a partial period of operations for 31 restaurants for the period
ended December 26, 1999. Results of operations also reflect a full 52 weeks of
operations for 43 restaurants and a partial period of operations for 16
restaurants for the period ended December 27, 1998.
REVENUE. Restaurant 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 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.
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.
26
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 an 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. 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.
SEASONALITY
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.
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 $6.2 million in cash flow from
operating activities for the 53 weeks ended December 31, 2000 and $4.6 million
for the 52 weeks ended December 26, 1999. The $1.6 million increase is due to
higher cash flow from operations on 90 restaurants for a full year and 36
restaurants for a partial year in 2000 compared to cash flows from operations on
59 restaurants for a full year and 31 restaurants for a partial year in 1999.
Net cash used in investing activities was $8.4 million for the 53 weeks
ended December 31, 2000 compared to $23.6 million for the 52 weeks ended
December 26, 1999. The $15.2 million decrease was primarily due to sales and
maturities of investments that were primarily used to fund our 36 restaurant
openings and our new menu board conversion in fiscal 2000.
27
Net cash generated from financing activities was $35,000 for the 53
weeks ended December 31, 2000 compared to net cash provided of $21.7 million for
the 52 weeks ended December 26, 1999. Financing activities in 2000 primarily
consisted of proceeds from exercises of common stock options, which generated
$37,000. Cash generated from financing activities in 1999 were primarily due to
the initial public offering, which generated $23.4 million net of offering
costs. Offsetting the cash generated from the initial public offering were
payments on our debt totaling $1.9 million.
In addition, we have a $12.0 million revolving line of credit agreement
with a financial institution that matures July 2004, but as of December 31, 2000
there was no outstanding balance under this agreement. Interest on the revolving
line of credit is calculated on the lower of either a bank reference rate plus
1% - 2% or on an adjusted LIBOR plus 2.5% - 3.5% per annum (8.90% at December
31, 2000).
Our funds are principally used for the development and opening of new
units. We incurred $16.6 million in capital expenditures during the 53 weeks
ended December 31, 2000, of which, $12.9 million was for newly opened units,
$1.0 million for future openings, $1.0 million for menu board upgrades, remodels
and point of sale system upgrades, $0.9 million for existing locations and $0.8
million for corporate and information technology expenditures. During the 52
weeks ended December 26, 1999, we incurred $13.8 million in capital
expenditures, of which $10.7 million was for newly opened units, $1.3 million
for future openings, $0.8 million for corporate expenditures, $0.6 for
point-of-sale system upgrades and a company-wide back office system roll-out and
$0.4 for existing locations.
We currently expect total capital expenditures in 2001 to be
approximately $11.5 million, of which approximately $8.6 million is expected to
be invested in the opening of new restaurants. We currently plan to open
approximately 18 units in 2001 and approximately 8 units in 2002. We currently
expect that future locations will generally cost between $380,000 and $450,000
per unit, net of landlord allowances and excluding pre-opening expenses. Some
units may exceed this range due to the area in which they are built and the
specific requirements of the project. Pre-opening expenses are expected to
average between $19,000 and $25,000 per restaurant.
We lease restaurant and office facilities and real property under
operating leases expiring through 2014. We have leased all of our facilities,
except for one building, to minimize the cash investment associated with each
unit. The majority of our leases are for 10-year terms and include options to
extend the terms. The majority of our leases also include fixed rate and
percentage-of-sales rent provisions. Our future minimum lease payments for our
headquarters and restaurants are expected to be as follows: $8.3 million in
2001, $8.3 million 2002, $8.3 million in 2003, $8.2 million in 2004, $8.1
million in 2005 and $26.5 million thereafter.
We believe that the anticipated cash flow from operations combined with
funds anticipated to be available from a $12.0 million credit facility and funds
of approximately $6.0 million remaining from our initial public offering will be
sufficient to satisfy our working capital and capital expenditure requirements
for at least the next 12 months. For additional information regarding our credit
facility, see Note 3 of our Notes to Consolidated Financial Statements on page
F-10 of this report. We plan to incur substantial costs over the near term in
connection with our expansion program. Changes in our operating plans, changes
in our expansion plans, lower than anticipated sales, increased expenses,
potential acquisitions or other events my cause us to seek additional financing
sooner than anticipated. Additional financing may not be available on acceptable
terms, or at all. Failure to obtain additional financing as needed could have a
material adverse effect on our business and results of operations.
28
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 and asset-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 $12.0 million revolving line of credit
agreement with a financial institution. Interest on the revolving line of
credit is calculated on the lower of either a bank reference rate plus 1% -
2%, or an adjusted LIBOR plus 2.5% - 3.5% per annum (8.90% at December 31,
2000). 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.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133, as amended, establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. The new standard became effective for the
Company on January 1, 2001. At present, the Company does not hold any derivative
instruments nor does it engage in hedging activities. The initial adoption of
SFAS No. 133 did not have a material effect on the Company's consolidated
financial position or the results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which summarized the SEC's interpretation of applying accounting
principles generally accepted in the United States of America to revenue
recognition in the financial statements. SAB No. 101 was subsequently amended in
June 2000 and became effective in the current year. Based on the Company's
current revenue recognition policies, the adoption of SAB No. 101, as amended,
did not have a material impact on the Company's consolidated financial position
or the results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB No. 25" ("FIN No. 44"). FIN No. 44
clarifies the application of APB Opinion No. 25 for certain issues including:
(a) the definition of employee for purposes of applying APB Opinion No. 25, (b)
the criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN No. 44 took effect
July 1, 2000. The adoption of FIN No. 44 did not have a material effect on the
Company's consolidated financial position or the results of operations.
29
PART II - FINANCIAL INFORMATION
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements as of December 31, 2000 and
December 26, 1999, and for each of the three years in the period ended December
31, 2000 and the independent auditors' report are included in this report as
listed in the index on page F-1 of this report (Item 14 (a)) (1) and (2).
Supplementary unaudited quarterly financial data for fiscal years 2000 and 1999
are included in this report on page F-18.
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
our definitive proxy statement for the 2001 annual meeting of stockholders 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
definitive proxy statement for the 2001 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 definitive proxy statement
for the 2001 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 definitive proxy statement
for the 2001 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.
30
NUMBER DESCRIPTION
3.1(1) Second Amended and Restated Certificate of
Incorporation. (Exhibit 3.2)
3.2(1) Restated Bylaws (Exhibit 3.4)
3.3 Amendment of Bylaws
3.4 Certificate of Amendment to the Bylaws
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
Investor's 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).
31
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) 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).
10.40(3) Agreement between us and Alliant Food Services, Inc.,
dated January 21, 2000.
10.41(4) Second Amendment to the Credit Agreement between us
and Fleet National Bank dated August 15, 2000.
10.42 Form of Franchise Agreement as of March 15, 2001.
21.1(1) Subsidiary List.
23.1 Independent Auditors' Consent.
24.1 Powers of Attorney (Included under the caption
"Signatures").
- --------------------
(1) Incorporated by reference to the above noted exhibit to our
registration statement on Form S-1 (333-75087) filed with the SEC on
March 26, 1999, as amended.
(2) Management contract or compensation plan.
(3) Incorporated by reference to Exhibit 10.1 to our quarterly report on
Form 10-Q filed with the SEC on May 9, 2000.
(4) Incorporated by reference to Exhibit 10.1 to our quarterly report on
Form 10-Q filed with the SEC on November 8, 2000.
(a) Reports on Form 8-K
None.
(b) Exhibits
The exhibits required by this Item are listed under Item 14(a)(3).
(c) Financial Statement 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 duly authorized.
Dated: March 27, 2001 RUBIO'S RESTAURANTS, INC.
/s/ Ralph Rubio
--------------------------------------
Ralph Rubio
Chief Executive Officer, President and
Chairman
32
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, President March 27, 2001
and Chairman (Principal Executive
Officer)
/s/ Joseph N. Stein
- -----------------------------------------
Joseph N. Stein Chief Strategic and Financial Officer March 27, 2001
(Principal Financial and Accounting
Officer)
/s/ Kyle A. Anderson
- -----------------------------------------
Kyle A. Anderson Director March 27, 2001
/s/ Craig Andrews
- -----------------------------------------
Craig Andrews Director March 27, 2001
/s/ Michael Dooling
- -----------------------------------------
Michael Dooling Director March 27, 2001
/s/ Kim Lopdrup
- -----------------------------------------
Kim Lopdrup Director March 27, 2001
/s/ Timothy J. Ryan
- -----------------------------------------
Timothy J. Ryan Director March 27, 2001
33
RUBIO'S RESTAURANTS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 26, 1999 and December 31, 2000 F-3
Consolidated Statements of Operations for Fiscal Years 1998, 1999 and 2000 F-4
Consolidated Statements of Stockholders' Equity for Fiscal Years 1998, 1999
and 2000 F-5
Consolidated Statements of Cash Flows for Fiscal Years 1998, 1999 and 2000 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 26, 1999 and
December 31, 2000, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Rubio's Restaurants, Inc. and
subsidiary as of December 26, 1999 and December 31, 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000 in conformity with accounting principles generally accepted in
the United States of America.
DELOITTE & TOUCHE LLP
San Diego, California
February 15, 2001
F-2
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 26, December 31,
1999 2000
---------------- ----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,459 $ 1,311
Short-term investments 7,376 6,809
Other receivables 579 1,138
Income taxes receivable 215 288
Inventory 618 2,020
Prepaid expenses 562 581
Deferred income taxes 50 -
---------------- ----------------
Total current assets 12,859 12,147
INVESTMENTS 8,544 908
PROPERTY - net 27,923 37,917
OTHER ASSETS 439 426
DEFERRED INCOME TAXES 273 869
---------------- ----------------
TOTAL $ 50,038 $ 52,267
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,235 $ 4,328
Accrued expenses and other liabilities 2,572 3,359
Deferred income taxes - 6
---------------- ----------------
Total current liabilities 5,807 7,693
DEFERRED RENT 1,109 1,518
DEFERRED FRANCHISE INCOME - 100
---------------- ----------------
Total liabilities 6,916 9,311
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares
issued or outstanding - -
Common stock, $.001 par value, 75,000,000 shares authorized, 8,871,775 issued
and outstanding in 1999, and 8,894,440 issued and outstanding in 2000
9 9
Paid-in capital 41,357 41,394
Deferred compensation 88 137
Accumulated other comprehensive income 29 8
Retained earnings 1,639 1,408
---------------- ----------------
Total stockholders' equity 43,122 42,956
---------------- ----------------
TOTAL $ 50,038 $ 52,267
================ ================
See notes to consolidated financial statements.
F-3
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Years Ended
----------------------------------------------------------
December 27, December 26, December 31,
1998 1999 2000
----------------- ---------------- -----------------
REVENUE:
Restaurant sales $ 44,699 $ 67,854 $ 95,693
Franchise revenue - - 40
----------------- ---------------- -----------------
TOTAL REVENUE 44,699 67,854 95,733
COSTS AND EXPENSES:
Cost of sales 13,074 19,976 28,348
Restaurant labor, occupancy and other 22,616 33,984 50,445
General and administrative expenses 6,148 7,968 10,722
Depreciation and amortization 1,946 2,993 4,296
Pre-opening expenses 319 662 758
Loss on asset impairment - - 2,237
----------------- ---------------- -----------------
TOTAL COSTS AND EXPENSES 44,103 65,583 96,806
----------------- ---------------- -----------------
OPERATING (LOSS) INCOME 596 2,271 (1,073)
OTHER INCOME (EXPENSE):
Interest and investment income 521 654 824
Interest expense (253) (153) (116)
Miscellaneous expense - net (10) - -
Loss on disposal/sale of property (5) (4) (27)
----------------- ---------------- -----------------
Other income - net 253 497 681
----------------- ---------------- -- -----------------
(LOSS) INCOME BEFORE INCOME TAXES 849 2,768 (392)
INCOME TAX BENEFIT (EXPENSE) 66 (1,117) 161
----------------- ---------------- -----------------
NET (LOSS) INCOME $ 915 $ 1,651 $ (231)
================= ================ =================
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS:
Basic $ 568 $ 1,513 $ (231)
================= ================ =================
Diluted $ 915 $ 1,651 $ (231)
================= ================ =================
NET (LOSS) INCOME PER SHARE:
Basic $ 0.55 $ 0.26 $ (0.03)
================= ================ =================
Diluted $ 0.14 $ 0.20 $ (0.03)
================= ================ =================
SHARES USED IN CALCULATING NET (LOSS) INCOME PER SHARE:
Basic 1,033 5,741 8,883
================= ================ =================
Diluted 6,418 8,094 8,883
================= ================ =================
See notes to consolidated financial statements.
F-4
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
(In thousands, except number of shares)
Convertible
Preferred Stock
Series A Common Stock Deferred
---------------------------- --------------------------- Paid-In Compen-
Shares Amount Shares Amount Capital sation
-------------- ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 29, 1997 1,973,395 $ 2 1,010,557 $ 1 $ 28
Exercise of common stock 38,043 52
options
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
Total comprehensive income
-------------- ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 27, 1998 1,924,747 2 1,048,600 1 23
Exercise of common stock options 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
Total comprehensive income
-------------- ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 26, 1999 - $ - 8,871,775 9 41,357 88
Exercise of common stock options 22,665 37
Deferred compensation-stock
options 49
Net loss
Other comprehensive income:
Net unrealized loss on
available-for-sale
investments, net of $14 tax
credit
Total comprehensive loss
-------------- ---------- ------------ ----------- ------------ -----------
BALANCE, DECEMBER 31, 2000 - $ - 8,894,440 $ 9 $ 41,394 $ 137
============== ========== ============ =========== ============ ===========
Accumulated Retained
Other Earnings Total Total
Compre- (Accumu- Stock- Compre-
hensive lated holders' hensive
Income Deficit) Equity Income
---------- ------------ ------------- ----------
BALANCE, DECEMBER 29, 1997 $ (172) $ (141)
Exercise of common stock
options 52
Repurchase shares of Series A
preferred stock (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 44
----------
Total comprehensive income $ 959
---------- ------------ ------------- ==========
BALANCE, DECEMBER 27, 1998 44 126 196
Exercise of common stock option 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) (15)
----------
Total comprehensive income $ 1,636
---------- ------------ ------------- ==========
BALANCE, DECEMBER 26, 1999 29 1,639 43,122
Exercise of common stock option 37
Deferred compensation-stock
options 49
Net loss (231) (231) $ (231)
Other comprehensive income:
Net unrealized loss on
available-for-sale
investments, net of $14 tax (21) (21) (21)
credit ----------
$ (252)
---------- ------------ ------------- ==========
Total comprehensive loss $ 8 $ 1,408 $ 42,956
========== ============ =============
BALANCE, DECEMBER 31, 2000
See notes to consolidated financial statements.
F-5
RUBIO'S RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended
----------------------------------------------------------
December 27, December 26, December 31,
1998 1999 2000
----------------- ---------------- -----------------
OPERATING ACTIVITIES:
Net (loss) income $ 915 $ 1,651 $ (231)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 1,946 2,993 4,296
Deferred compensation 23 65 49
Loss on asset impairment - - 2,237
Loss on disposal/sale of property 5 4 27
Changes in assets and liabilities:
Other receivables (157) (409) (559)
Income taxes receivable (96) (116) (73)
Inventory (106) (258) (1,402)
Prepaid expenses (121) (267) (18)
Deferred income taxes (447) 110 (540)
Other assets (146) (92) 13
Accounts payable 1,177 292 1,093
Accrued expenses and other liabilities 924 422 787
Income taxes payable 105 (105) -
Deferred rent 167 304 409
Deferred franchise income - - 100
----------------- ---------------- -----------------
Cash provided by operating activities 4,189 4,594 6,188
----------------- ---------------- -----------------
INVESTING ACTIVITIES:
Proceeds from sale of property 7 26 -
Purchase of property (6,924) (13,813) (16,554)
Purchases of investments (29,648) (112,436) (27,163)
Sales and maturities of investments 32,955 102,629 35,346
----------------- ---------------- -----------------
Cash used for investing activities (3,610) (23,594) (8,371)
----------------- ---------------- -----------------
FINANCING ACTIVITIES:
Proceeds from long-term debt 2,228 - -
Principal payments on long-term debt (2,934) (1,856) -
Proceeds under revolving line of credit - 1,000 -
Payments under revolving line of credit - (1,000) -
Proceeds from sale of redeemable preferred stock 350 - -
Repurchase of Series A preferred stock (350) - -
Initial public offering-net of $2,636 in offering costs - 23,476 -
Proceeds from exercise of common stock options 52 53 37
Other (5) - (2)
----------------- ---------------- -----------------
Cash provided by (used for) financing activities (659) 21,673 35
----------------- ---------------- -----------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (80) 2,673 (2,148)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 866 786 3,459
----------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 786 $ 3,459 $ 1,311
================= ================ =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 220 $ 166 $ -
Cash paid for income taxes--net $ 403 $ 1,202 $ 439
See notes to consolidated financial statements.
F-6
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
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. Rubio's Restaurants,
Inc. has a wholly-owned subsidiary, Rubio's Restaurants of Nevada, Inc.
(collectively, the "Company"). As of December 31, 2000 the Company owns and
operates a chain of 126 restaurants and three concessions in California,
Arizona, Nevada, Colorado and Utah.
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary. All
significant intercompany transactions and accounts have been eliminated in
consolidation.
FISCAL YEAR--The Company operates and reports on a 52-53 week fiscal year
ending on the Sunday closest to December 31. Fiscal years 1998 and 1999, ended
on December 27, 1998 and December 26, 1999, respectively, included 52 weeks.
Fiscal year 2000, ended on December 31, 2000, included 53 weeks.
ACCOUNTING ESTIMATES--The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America 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
corporate bonds, mortgage and asset-backed securities, commercial paper,
tax-free municipals, municipal bonds, U.S. Treasury notes and agencies. 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 31, 2000. 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.
INVENTORY--Inventory consists of food, beverage and restaurant supplies
and is stated at the lower of cost (first-in, first-out method) or market value.
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.
F-7
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 the fourth quarter of fiscal year 2000, in accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," the Company recorded a loss of $2.2 million on
long-lived assets where circumstances indicated that the assets were impaired
based on the expected future cash flows of certain 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 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 currently plans to
continue to operate these stores to the end of their lease terms.
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.
USAGE ALLOWANCE--The Company receives payments in arrears from the
Company's beverage suppliers under the suppliers' marketing allowance programs
and records such amounts as a receivable. The Company recognizes the usage
allowance as a reduction to cost of sales based on the actual quantity purchased
on a monthly basis.
REVENUE RECOGNITION---Revenue recognition consists of the following:
RESTAURANT SALES: Revenues from the operation of Company-owned
restaurants are recognized when sales occur.
FRANCHISE REVENUE: Franchise revenue is comprised of 1) area
development fees, 2) new store opening fees and 3) royalties. All fees
received from franchised operations are included in revenue as earned. Area
development fees are recognized as revenue on the occurrence of certain
deliverables: 1) 50% at the time an initial comprehensive analysis of the
entire market is delivered to the franchisee and 2) 50% ratably recognized as
an updated analysis per restaurant site is delivered. New store opening fees
are recognized as revenue in the month a franchisee location opens. Royalties
from franchised restaurants are recorded in revenue as earned.
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. Advertising costs
included in restaurant labor, occupancy and other expenses totaled $1.4 million,
$2.1 million and $3.2 million, respectively, for fiscal years 1998, 1999 and
2000.
STOCK-BASED COMPENSATION--The Company follows 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
F-8
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 value of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
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--Basic earnings per share is computed by dividing net
income or loss attributable to common stockholders by the weighted average of
common shares outstanding for the period. Diluted earnings per share 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 earnings
per share computation are excluded where their effect would be antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133, as amended, establishes accounting and
reporting standards for derivative instruments and for hedging activities. It
requires an entity to recognize all derivatives as either assets or liabilities
on the balance sheet and measure those instruments at fair value. The new
standard became effective for the Company on January 1, 2001. At present, the
Company does not hold any derivative instruments nor does it engage in hedging
activities. The initial adoption of SFAS No. 133 did not have a material effect
on the Company's consolidated financial position or the results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements," which summarized the SEC's interpretation of applying accounting
principles generally accepted in the United States of America to revenue
recognition in the financial statements. SAB No. 101 was subsequently amended in
June 2000 and became effective in fiscal 2000. Based on the Company's current
revenue recognition policies, the adoption of SAB No. 101, as amended, did not
have a material impact on the Company's consolidated financial position or the
results of operations.
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - an Interpretation of APB No. 25" ("FIN No. 44"). FIN No. 44
clarifies the application of APB Opinion No. 25 for certain issues including:
(a) the definition of employee for purposes of applying APB Opinion No. 25, (b)
the criteria for determining whether a plan qualifies as a noncompensatory plan,
(c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN No. 44 took effect
July 1, 2000. The adoption of FIN No. 44 did not have a material effect on the
Company's consolidated financial position or the results of operations.
F-9
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
2. BALANCE SHEET DETAILS as of December 26, 1999 and December 31, 2000,
respectively (in thousands):
1999 2000
---------------- -----------------
OTHER RECEIVABLES:
Tenant improvement receivables $ 384 $ 604
Beverage usage receivable - 248
Accrued interest receivable 166 133
Other 29 153
---------------- -----------------
Total $ 579 $ 1,138
================ =================
PROPERTY-at cost:
Building and leasehold improvements $ 17,308 $ 24,843
Equipment and furniture 17,395 23,862
Construction in process and related costs 1,586 1,545
---------------- -----------------
36,289 50,250
Less: accumulated depreciation and amortization (8,366) (12,333)
---------------- -----------------
Total $ 27,923 $ 37,917
================ =================
OTHER ASSETS:
Long-term deposits $ 366 $ 328
Other 73 98
---------------- -----------------
Total $ 439 $ 426
================ =================
ACCRUED EXPENSES AND OTHER LIABILITIES:
Compensation $ 1,161 $ 992
Sales taxes 499 877
Vacation pay 300 445
Other deferred income - 150
Unearned usage allowance 95 47
Other 517 848
---------------- -----------------
Total $ 2,572 $ 3,359
================ =================
INVESTMENTS:
Corporate bonds $ 6,177 $ 5,403
Mortgage and asset-backed securities 2,645 1,211
Commercial paper 2,371 499
Tax free municipals 1,761 254
Municipal bonds 1,503 350
U.S. Treasury notes 1,121 -
Agencies 342 -
---------------- -----------------
15,920 7,717
Less: current portion (7,376) (6,809)
---------------- -----------------
Non-current $ 8,544 $ 908
================ =================
3. CREDIT FACILITIES
REVOLVING LINE OF CREDIT--On August 15, 2000, the Company amended its
existing $7,500,000 revolving line of credit. The revolving line of credit,
which was to mature in May 2001, has been increased to $12,000,000 with a
maturity date of July 2004. The fee charged for any unused portion of the
revolving line of credit as of December 31, 2000 was 0.375%. The fee charged
on any unused portion of the revolving line of credit is based on certain
leverage ratios and ranges from the lower of either a bank reference rate
plus 1% - 2%, or an adjusted LIBOR rate plus 2.5% - 3.5% per annum (8.90% at
December 31, 2000). As of December 31, 2000, there were no borrowings against
the revolving line of credit, as amended.
The revolving line of credit agreement contains various covenants
including a fixed charge coverage ratio, minimum interest coverage ratio, and
maximum total leverage ratio, and places certain restrictions on fixed asset
purchases. The revolving line of credit restricts the payment of cash dividends
and other stock redemptions or repurchases. Borrowings under the revolving line
of credit are secured by the Company's assets.
F-10
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
4. COMMITMENTS AND CONTINGENCIES
The Company leases restaurant and office facilities, vehicles, and office
equipment under various operating leases expiring through 2014. The leases
generally provide renewal options from three to ten years. Certain leases are
subject to scheduled annual increases or 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 $3,545,546, $5,350,047 and $7,788,284 for fiscal years
1998, 1999 and 2000, respectively. Contingent percentage rent based on sales
included in rental expense was $122,125, $195,102 and $273,399 for fiscal years
1998, 1999 and 2000, respectively.
Future minimum annual lease commitments, as of December 31, 2000, are as
follows (in thousands):
FISCAL YEAR
- -----------
2001 $ 8,314
2002 8,259
2003 8,262
2004 8,206
2005 8,100
Thereafter 26,535
-----------------
$ 67,676
=================
EMPLOYEE SAVINGS PLAN--The Company has 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 gross salary. The Company's contributions
vest over a five-year period. The Company contributed $43,573, $42,913 and
$48,424 for fiscal years 1998, 1999 and 2000.
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 benefit
(provision) is determined under the liability method. Under this method,
deferred tax assets and liabilities are recognized based on differences between
the financial statements and tax basis of assets and liabilities using presently
enacted tax rates.
The components of income tax expense for the years ended December 27,
1998, December 26, 1999 and December 31, 2000 are as follows (in thousands):
1998 1999 2000
----------------- ---------------- -----------------
Federal (expense) benefit:
Current $ (307) $ (736) $ (312)
Deferred 368 (134) 437
State (expense) benefit:
Current (105) (246) (53)
Deferred 110 (1) 89
----------------- ---------------- -----------------
Total income tax benefit (expense) $ 66 $ (1,117) $ 161
================= ================ =================
The income tax benefit (expense) differs from the Federal statutory rate
because of the effect of the following items for the years ended December 27,
1998, December 26, 1999 and December 31, 2000:
1998 1999 2000
----------------- ---------------- -----------------
Statutory rate (35.0)% (34.0)% 34.0%
State income taxes, net of Federal benefit (5.9) (5.9) 6.0
Non-deductible items (.9) (.3) (2.6)
Valuation allowance 53.2 - -
Other (3.6) (.1) 3.7
----------------- ---------------- -----------------
Effective tax benefit (expense) rate 7.8% (40.3)% 41.1%
================= ================ =================
F-11
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
5. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for financial
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 26, 1999 and December 31, 2000 are as follows (in thousands):
1999 2000
---------------- -----------------
Deferred rent $ 475 $ 650
Federal credits 148 216
Reserves currently not deductible 231 162
Deferred compensation 37 59
State taxes (37) (67)
Difference between book and tax basis of property (462) (58)
Unrealized gain on investments (20) (8)
Other (49) (91)
---------------- -----------------
Net deferred tax asset $ 323 $ 863
================ =================
Net current (liability) asset $ 50 $ (6)
================ =================
Net non-current asset $ 273 $ 869
================ =================
The Company has Federal credit carryforwards available to offset future
tax liabilities of $216,000.
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
INITIAL PUBLIC OFFERING--The Company completed its initial public
offering (the "Offering") on May 21, 1999. The Offering resulted in the issuance
of 2,486,748 shares of our common stock at $10.50 per share, resulting in net
proceeds to us of approximately $23.5 million. In connection with the offering,
39,555 shares of our 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.
F-12
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
7. STOCKHOLDERS' EQUITY (continued)
DEBT ISSUE COSTS--In connection with the revolving line of credit (see
Note 3), we issued a warrant to purchase up to 45,000 shares of the Company's
common stock (subject to adjustment under a formula defined in the warrant). The
warrant is exercisable under certain specified conditions. 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 "1995 Plan"). The 1995 Plan supersedes and incorporates all options
outstanding under the 1993 Stock Option Plan. The 1995 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 1995
Plan.
Each option granted under the 1995 Plan has a maximum term of either five
or ten years (depending on stock ownership) and is 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.
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
stock.
Each option granted under the 1998 Plan has a maximum term of either five
or ten years (depending on stock ownership) and is 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 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, new grants made under the 1999 Plan have substantially
the same terms as options previously granted under the predecessor plans.
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 1,390,091 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. 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
F-13
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
7. STOCKHOLDERS' EQUITY (continued)
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 is 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.
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 common stock 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. Eligible individuals will automatically receive an option grant for
25,000 shares on the date of joining the board providing 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 common stock 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.
F-14
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
7. STOCKHOLDERS' EQUITY (continued)
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.
The following is a summary of stock option activity for fiscal 1998, 1999
and 2000:
Shares Weighted
------------------------------------- Average
Options Exercise
Available for Options Price Per
Grant Outstanding Share
----------------- ---------------- -----------------
Balance at December 29, 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
Authorized 266,153 - -
Granted (699,620) 699,620 7.09
Exercised - (22,665) 1.68
Forfeited 229,009 (229,009) 7.61
----------------- ----------------
Balance at December 31, 2000 296,667 1,039,234 6.91
================= ================
Exercisable, December 27, 1998 92,585 1.46
================
Exercisable, December 26, 1999 178,702 4.09
================
Exercisable, December 31, 2000 318,536 5.91
================
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
F-15
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
7. STOCKHOLDERS' EQUITY (continued)
compensation for fiscal 1998 grants was $300,540 and will be recorded ratably
over the vesting period of the respective options. The Company recorded $22,881,
$64,532 and $49,488 of deferred compensation expense associated with these
option grants for fiscal years 1998, 1999 and 2000, respectively.
The following table summarizes the impact on the Company's net (loss)
income 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
----------------------------------------------------------
1998 1999 2000
----------------- ---------------- -----------------
Net (loss) income attributable to common stockholders:
Basic $ 568 $ 1,513 $ (231)
Diluted 915 1,651 (231)
As adjusted under SFAS No. 123:
Net (loss) income:
Basic $ 520 $ 1,228 $ (716)
Diluted 868 1,366 (716)
Net (loss) income per share:
Basic $ 0.50 $ 0.21 $ (0.08)
Diluted 0.14 0.17 (0.08)
The weighted average fair value at the date of grant for options granted
during 1998, 1999 and 2000 was $0.57, $5.59 and $4.74 per share, respectively.
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions:
Fiscal Years
----------------------------------------------------------
1998 1999 2000
----------------- ---------------- -----------------
Expected dividend None None None
Expected stock price volatility None 57% 80%
Risk-free interest rate 5.60% 5.14% 5.88%
Assumed forfeiture rate 10% 15% 15%
Expected lives of options 5 years 5 years 5 years
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 31, 2000
concerning currently outstanding and exercisable options:
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life (Years) Price Exercisable Price
- ---------------------------------- ---------------- ----------------- -------------- ---------------- --------------
$1.00----$2.00............... 163,050 6 $ 1.65 132,998 $ 1.60
$4.00----$9.00............... 654,574 9 $ 7.11 99,482 $ 7.97
$10.00--$10.00............... 213,200 8 $ 10.00 83,114 $ 10.00
$15.00--$15.60............... 8,410 8 $ 15.24 2,942 $ 15.23
---------------- ----------------
1,039,234 $ 6.91 318,536 $ 5.91
================ ================
F-16
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
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 Years
----------------------------------------------------------
1998 1999 2000
----------------- ---------------- -----------------
Numerator
Basic:
Net (loss) income $ 915 $ 1,651 $ (231)
Accretion on redeemable convertible preferred stock (347) (138) -
----------------- ---------------- -----------------
Net (loss) income attributable to common
stockholders 568 1,513 (231)
Diluted:
Reversal of accretion on redeemable convertible
preferred stock 347 138 -
----------------- ---------------- -----------------
Net (loss) income attributable to common
stockholders $ 915 $ 1,651 $ (231)
================= ================ =================
Fiscal Years
----------------------------------------------------------
1998 1999 2000
----------------- ---------------- -----------------
Denominator
Basic:
Weighted average common shares
outstanding 1,033 5,741 8,883
Diluted:
Effect of dilutive securities:
Common stock options 122 241 -
Conversion of convertible preferred stock 5,263 2,112 -
----------------- ---------------- -----------------
Total weighted average common and potential common
shares outstanding 6,418 8,094 8,883
================= ================ =================
(Loss) earnings per share:
Basic $0.55 $0.26 $(0.03)
Diluted $0.14 $0.20 $(0.03)
In fiscal year 2000, the Company excluded the effect of 141,966 common
stock options in the calculation of diluted earnings per share as the affect
would be antidilutive.
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, Nevada, Colorado and Utah. In accordance with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Company currently considers its business to consist of one reportable operating
segment.
10. SUBSEQUENT EVENTS
STOCK OPTIONS--On January 23, 2001, non-qualified stock options were
granted to purchase 206,916 shares of common stock at $4.6875 per share,
subject to five-year vesting.
F-17
RUBIO'S RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
YEARS ENDED DECEMBER 27, 1998, DECEMBER 26, 1999 AND DECEMBER 31, 2000
11. QUARTERLY FINANCIALS (UNAUDITED)
Summarized unaudited quarterly financial data (in thousands, except
income per share) for fiscal 2000 and 1999 was as follows:
Fiscal 2000
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
Total revenues $19,929 $23,462 $26,324 $25,978
Income(loss) from operations $ 249 $ 947 $ 1,061 $(3,330)
Net income(loss) $ 269 $ 701 $ 707 $(1,908)
Basic net income (loss) per share $ 0.03 $ 0.08 $ 0.08 $ (0.21)
Diluted net income (loss) per share $ 0.03 $ 0.08 $ 0.08 $ (0.21)
Fiscal 1999
---------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
Total revenues $14,383 $16,322 $19,729 $17,420
Income from operations $ 72 $ 603 $ 1,574 $ 22
Net income $ 45 $ 394 $ 1,090 $ 122
Basic net income (loss) per share $ (0.04) $ 0.08 $ 0.12 $ 0.01
Diluted net income (loss) per share $ (0.04) $ 0.05 $ 0.12 $ 0.01
The sum of the quarterly earnings per share amounts do not equal the
annual amount as the calculations are performed individually each quarter.
F-18