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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 26, 2000
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 333-62615
______________________________
ROMACORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4010466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9304 Forest Lane, Suite 200
Dallas, Texas 75243
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 343-7800
______________________________
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
______________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d)of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
As of March 26, 2000, 100 shares of Common Stock, $.01 par value, were
outstanding and held by Roma Restaurant Holdings, Inc.
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ROMACORP, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended March 26, 2000
PART I
ITEM 1. BUSINESS..................................... 2
ITEM 2. PROPERTIES................................. 6
ITEM 3. LEGAL PROCEEDINGS.......................... 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS........................... 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS................. 8
ITEM 6. SELECTED FINANCIAL DATA...................... 8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......... 9
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK........................... 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.... 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES......... 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.................................. 15
ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS............ 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT....................... 21
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS................................. 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.......................... 22
PART I
ITEM 1. BUSINESS
Romacorp, Inc. (the "Company") is the operator and franchisor of the
largest national, casual dining chain specializing in ribs with 228
restaurants located in 29 states in the United States and in 20 foreign
countries and territories. Founded in Miami in 1972, the Company's
restaurants are primarily located in Florida, Texas and California. Both
the Tony Roma's name and its "Famous for Ribs" and "Tony Roma's A Place
for Ribs" slogans are well-recognized throughout the United States. The
restaurants offer a full and varied menu, including ribs, chicken,
steaks, seafood, salads and other menu items in a casual atmosphere that
is suitable for the entire family. Since the inception of Tony Roma's,
its baby-back ribs have won numerous consumer and industry awards in over
25 markets. In addition to its award-winning ribs, the menu features its
signature deep fried onion ring loaf. As of March 26, 2000, the Company
operated 58 Company-owned and two joint-venture restaurants in 14 states
and through its subsidiaries, franchised 97 restaurants in 20 states and
71 restaurants in international locations.
The Tony Roma's concept is designed to serve a demographically and
geographically diverse customer base, with high quality food at moderate
prices. Entrees typically range in price from $4.99 to $12.99 for lunch
and $4.99 to $19.99 for dinner. Dessert selections range in price from
$1.99 to $3.99. Tony Roma's restaurants are generally located in
free-standing buildings with approximately 200 seats and separate bar areas.
The restaurants have a fun, comfortable atmosphere with distinctive and
varied decor and provide consumers with high quality, friendly service.
The Tony Roma's concept is appropriate for a wide variety of casual
dining occasions, including family dinners and business lunches.
To assure consistent product quality and to obtain optimum pricing,
purchases of food and restaurant equipment for the Tony Roma's
restaurants are made through a centralized purchasing function in its
corporate office in Dallas, Texas. The Company negotiates directly with
meat processors for its rib inventory, which is principally maintained
in various independent warehouses. Inventory is then shipped to
restaurants via commercial distributors. Produce and dairy products are
obtained locally. Food and equipment pricing information is also
generally available to the Tony Roma's franchisee community.
The Company is generally not dependent upon any one supplier for
availability of its products; its food and other products are generally
available from a number of acceptable sources. The Company has a policy
of maintaining alternate suppliers for most of its baseline products. The
Company does not manufacture any products or act as a middleman.
The Company utilizes local advertising for individual restaurants and
broadcast advertising where market penetration is efficient, as well as
public relations activities aimed at individual restaurants and entire
markets. The Company's advertising campaigns emphasize freshness,
quality food, good service and value. During the fiscal year ended March
26, 2000 ("fiscal 2000") the Company's expenditures for advertising were
3.4% of Company-owned restaurant revenues.
The Company (then Romacorp) was acquired in June 1993 by NPC
International, Inc. ("NPC"). On April 24, 1998, a recapitalization
agreement (the "Recapitalization") effective June 28, 1998 was executed
pursuant to which the former Romacorp, Inc. was renamed Roma Restaurant
Holdings, Inc. ("Holdings") and the assets, liabilities and operations
of Holdings were contributed to its newly-created, wholly-owned
subsidiary, Romacorp, Inc. ("Romacorp"). In the Recapitalization that was
executed by Holdings, NPC and Sentinel Capital Partners, L.P.
("Sentinel"), Holdings redeemed stock held by NPC and NPC forgave and
contributed to the capital of the Company a payable to NPC in the amount
of $33,731,000. After the Recapitalization, NPC held 20% and Sentinel,
through certain affiliates, held 80% of the equity of Holdings. In
conjunction with this transaction, $75,000,000 of 12% Senior Notes were
issued by the Company. The Company paid Holdings a dividend of
$75,351,000 consisting primarily of the proceeds from the 12% Senior
Notes, which was used by Holdings, along with Sentinel's equity
contribution, to effect the Recapitalization. This transaction was
accounted for as a leveraged recapitalization with the assets and
liabilities of the Company retaining their historical value.
Management Changes
In June 2000, the Company announced the departure of Robert B. Page
as President and Chief Executive Officer. Other management changes that
occurred during June 2000 included the departures of Jeff Waldrop, Vice
President of Operations; Scott Knode, Vice President of Real Estate and
Development; and Ron Long, Vice President of Purchasing. The Company is
actively recruiting to fill the President, Vice President of Operations
and Vice President of Purchasing positions at the date of this filing.
During the interim period, Richard A. Peabody, Vice President, Finance
and Chief Financial Officer has been named President (Acting).
Franchised Restaurants
Although the first Tony Roma's opened in 1972, franchising wasn't a
key element of Tony Roma's growth strategy until 1984. At March 26, 2000,
the Company had 50 franchisees operating 168 units worldwide. The largest
franchise holder operates a chain of 21 Tony Roma's restaurants. Although
there are some individual unit franchisees, the Company seeks to attract
franchisees who can develop several restaurants.
New domestic franchisees pay an initial franchise fee of $50,000 and
a continuing royalty of 4% of gross sales. In addition, franchisees are
required to contribute 0.5% of gross sales to a joint marketing account
and may be required to participate in local market advertising
cooperatives. All potential franchisees must meet certain operational and
financial criteria.
In return for the domestic franchisee's initial fee and royalties, the
Company provides a variety of services, including: (1) real estate
services, site selection criteria and review/advice on construction cost
and administration; (2) pre-opening and opening assistance, which include
an on-site training team to assist in recruitment, training,
organization, inventory planning and quality control; (3) centralized and
system-wide purchasing opportunities; (4) in-store management training
programs, advertising and marketing programs; and (5) various
administrative and training programs developed by the Company.
International franchisees receive a modified version of the services
described above. Currently, international franchises require a fee of
$30,000 per unit and royalty rate of 3% of gross sales. However, costs
associated with visits to international locations by Company personnel
are borne by the international franchisee. International franchise
holders also contribute 0.25% to a joint marketing account.
Competition
The restaurant industry is highly competitive with respect to price,
value, service, location and food quality. Tony Roma's has developed
brand identity within the casual theme segment and is the only national
chain to focus on ribs. On a local and regional basis, the Company
competes with smaller chains, which also specialize in ribs, and with
larger concepts that include ribs as a menu item.
Employees
As of March 26, 2000, the Company employed approximately 3,600
persons, including full-time and part-time personnel, of whom
approximately 3,530 were restaurant employees and 70 were restaurant
supervision and corporate employees. Company restaurants employ an
average of approximately 60 full-time or part-time employees. None of the
Company's employees are covered by collective bargaining agreements, and
the Company has never experienced a major work stoppage, strike, or labor
dispute. The Company considers its employee relations to be good.
Trade Names, Trademarks and Service Marks
The trade name "Tony Roma's" and all other trademarks, service marks,
symbols, slogans, emblems, logos, and designs used in the Tony Roma's
restaurant system are of material importance to its business. The
domestic trademark and franchise rights are owned by Roma Dining LP, an
affiliate of Romacorp, Inc., and international trademarks and franchise
rights are owned by Roma Systems, Inc., a wholly owned subsidiary of
Romacorp, Inc. A subsidiary, Roma Franchise Corporation, through a
license with Roma Dining LP, offers and services franchises in the United
States and Roma Systems, Inc. offers services and franchises
internationally. The use of these trademarks and franchise rights are
licensed to franchisees under franchise agreements for use with respect
to the operation and promotion of their Tony Roma's restaurants.
The location of the Company-owned and franchised restaurants as of March
26, 2000 is as follows:
State Company-Owned Joint Venture Franchised
---------- ------------- ------------- ----------
Alabama......................... 4 0 0
Alaska............................ 0 0 1
Arizona.......................... 0 0 6
Arkansas....................... 1 0 0
California...................... 4 1 32
Colorado........................ 0 0 5
Florida....................... 21 0 2
Georgia.......................... 1 0 0
Hawaii.......................... 0 0 4
Indiana........................ 0 0 1
Kentucky........................ 0 0 2
Louisiana....................... 1 0 0
Maine......................... 0 0 1
Maryland......................... 1 0 0
Minnesota...................... 0 0 2
Missouri........................ 1 0 0
Nebraska...................... 0 0 1
Nevada........................... 3 0 3
New York........................ 0 0 1
North Carolina................... 2 0 0
Ohio.......................... 0 0 4
Oklahoma........................ 2 0 0
Oregon....................... 0 0 3
South Carolina.................. 1 0 2
Tennessee....................... 3 0 0
Texas....................... 13 1 4
Utah......................... 0 0 7
Washington..................... 0 0 13
Wisconsin.................. 0 0 3
------- ------ ------
Total U.S............... 58 2 97
====== ====== ======
Foreign Country/Territory Franchised
--------------------------- ----------
Aruba........................ 1
Canada....................... 14
China..................................... 1
El Salvador............................... 1
Germany.................................. 1
Guam.................................. 2
Hong Kong.................................. 3
Indonesia................................. 2
Japan................................. 9
Korea................................. 4
Mexico................................ 12
Peru.................................. 2
Phillippines............................... 1
Puerto Rico................................ 3
Saipan............................... 1
Singapore............................. 2
Spain.......................... 9
Taiwan........................ 1
Thailand............................... 1
Venezuela............................... 1
-------
Total International......... 71
=======
Seasonality
Tony Roma's restaurant sales are traditionally higher from January to
March due to an increase in vacation and part-time residence activity in
warm weather climates and resort locations where a significant
number of the Company's restaurants are located.
Government Regulation
All of the Company's operations are subject to various federal, state
and local laws that affect its business, including laws and regulations
relating to health, sanitation, alcoholic beverage control and safety
standards. To date, federal and state environmental regulations have not
had a material effect on the Company's operations, but more stringent and
varied requirements of local governmental bodies with respect to zoning,
building codes, land use and environmental factors have in the past
increased, and can be expected in the future to increase, the cost of,
and the time required for, opening new restaurants. Difficulties or
failures in obtaining required licenses or approvals could delay or
prohibit the opening of new restaurants. In some instances, the Company
may have to obtain zoning variances and land use permits for its new
restaurants. The Company believes it is operating in compliance with all
material laws and regulations governing its operations.
The Company is also subject to the Fair Labor Standards Act, which
governs such matters as minimum wages, overtime and other working
conditions. A substantial majority of the Company's food service
personnel are paid at rates related to the minimum wage and other
employment laws and regulations. Accordingly, increases in the minimum
wage result in higher labor costs.
In recent years many states have enacted laws regulating franchise
operations. Much of this legislation requires detailed disclosure in the
offer and sale of franchises and the registration of the franchisor with
state administrative agencies. The Company is also subject to Federal
Trade Commission regulations relating to disclosure requirements in the
sale of franchises. Additionally, certain states have enacted, and others
may enact, legislation governing the termination and non-renewal of
franchises and other aspects of the franchise relationship that are
intended to protect franchisees. These matters may result in some
modifications in the Company's franchising activities and some delays or
failures in enforcing certain of its rights and remedies under license
and lease agreements. The laws that apply to franchise operations and
relationships are developing rapidly and the Company is unable to predict
the effect on its intended operations of additional requirements or
restrictions that may be enacted or promulgated or of court decisions
that may be adverse to franchisors.
Cautionary Factors That May Affect Future Results, Financial Condition
or Business
In order to take advantage of the safe harbor provisions for
forward-looking statements adopted by the Private Securities Litigation
Reform Act of 1995, the Company is hereby identifying important risks,
uncertainties and other factors that could affect the Company's actual
results of operations, financial condition or business and could cause
the Company's actual results of operations, financial condition or
business to differ materially (1) from its historical results of
operations, financial condition or business or (2) the results of
operation, financial condition or business contemplated by forward-
looking statements made in this Annual Report on Form 10-K or elsewhere
orally or in writing by, or on behalf of, the Company. Except for the
historical information contained in this Annual Report on Form 10-K, the
statements made in this Annual Report on Form 10-K are forward-looking
statements that involve such risks, uncertainties and other factors that
could cause or contribute to such differences including, but not limited
to, those described below.
Consumer Demand and Market Acceptance. Food service businesses are
often affected by changes in consumer tastes, national, regional and
local economic conditions and demographic trends. The performance of
individual restaurants may be adversely affected by factors such as
traffic patterns, demographic considerations and the type, number and
location of competing restaurants. Multi-unit food service chains such
as the Company's can also be materially and adversely affected by
publicity resulting from food quality, illness, injury and other health
concerns or operating issues stemming from the activities of one
restaurant or a limited number of restaurants, including restaurants
operated by the franchisor or another franchisee.
Training and Retention of Skilled Management and Other Restaurant
Personnel. The Company's success depends substantially upon its ability
to recruit, train and retain skilled management and other restaurant
personnel. There can be no assurance that labor shortages, economic
conditions or other factors will not adversely affect the ability of the
Company to satisfy its requirements in this area.
Ability to Locate and Secure Acceptable Restaurant Sites. The success
of restaurants is significantly influenced by location. There can be no
assurance that current locations will continue to be attractive or that
additional locations can be located and procured as demographic patterns
change. It is possible that the current locations or economic conditions
where restaurants are located could decline in the future, resulting in
potentially reduced sales in those locations. There is also no assurance
that further sites will produce the same results as past sites.
Competition. The Company's future performance will be subject to a
number of factors that affect the restaurant industry generally,
including competition. The restaurant business is highly competitive and
the competition can be expected to increase. Price, restaurant location,
food quality, quality and speed of service and attractiveness of
facilities are important aspects of competition as are the effectiveness
of marketing and advertising programs. The competitive environment is
also often affected by factors beyond the Company's or a particular
restaurant's control. The Company's restaurants compete with a wide
variety of restaurants ranging from national and regional restaurant
chains, some of which have substantially greater financial resources than
the Company, to locally owned restaurants. There is also active
competition for advantageous commercial real estate sites suitable for
restaurants.
Unforeseeable Events and Conditions. Unforeseeable events and
conditions, many of which are outside the control of the Company, can
affect consumer patterns in the restaurant industry. These events
include, among others, weather patterns, severe storms and power outages
and natural disasters. Specific examples include, but are not limited to,
the Company's concentration of Tony Roma's operations and franchisees in
Florida, California and Texas, all of which are areas that have
historically suffered from severe weather and natural disasters. There
can be no assurance that the Company's operations will not be adversely
affected by such events in the future.
Commodities Costs, Labor Shortages and Costs and Other Risks. The
Company's dependence on frequent deliveries of fresh produce and
groceries subjects it to the risk that shortages or interruptions in
supply, caused by adverse weather or other conditions, could adversely
affect the availability, quality and costs of ingredients used in the
Company's restaurants. Specifically, certain ingredients such as baby-
back ribs and chicken constitute a large percentage of the total cost of
the Company's food products. Unforeseeable increases in the cost of these
specific ingredients could significantly increase the Company's cost of
sales and correspondingly decrease the Company's operating income. In
addition, unfavorable trends or developments concerning factors such as
inflation, increased food, labor and employee benefit costs (including
increases in hourly wage and minimum unemployment tax rates), regional
weather conditions, interest rates and the availability of experienced
management and hourly employees may also adversely affect the food
service industry in general and the Company's results of operations and
financial condition in particular.
ITEM 2. PROPERTIES
Romacorp, Inc. selects all company-operated restaurant sites, and has
the right to approve all franchised restaurant locations. Sites are
selected using a screening model to analyze locations with an emphasis
on projected financial return, demographics (such as population density,
age and income distribution), analysis of restaurant competition in the
area, and an analysis of the site characteristics, including
accessibility, traffic counts, and visibility.
The current costs of constructing, equipping, and opening a new
freestanding restaurant range from $1,625,000 to $2,985,000, including
approximately $680,000 to $1,250,000 for land, approximately $495,000 to
$1,100,000 for sitework, construction, and landscaping, and approximately
$450,000 to $635,000 for furniture and opening costs. The cost of
developing new Company restaurants will vary, primarily because of
varying costs of land, sitework, signage and labor.
Units that are constructed within existing structures or mall areas are
typically less costly. The Company has developed standardized restaurant
designs using a freestanding building to be situated on a 1-1/2 acre
site. The design is continually revised and refined.
The 58 Company-owned Tony Roma's restaurants at March 26, 2000 are
owned and leased as follows:
Leased from unrelated parties 27
Land and building owned 21
Building owned by the Company and land leased 10
---
58
===
Some of the Company's leases contain percentage rent clauses,
typically 5% to 6% of gross sales, against which the minimum rent is
applied, and most are net leases under which the Company pays taxes,
maintenance, insurance, repairs and utility costs.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are engaged in ordinary and routine
litigation incidental to its business, but management does not anticipate
that any amounts that the Company may be required to pay by reason of
such litigation, net of insurance reimbursements, will have a materially
adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's sole
security holder, Roma Restaurant Holdings, Inc., during the fourth
quarter of the fiscal year ended March 26, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public trading market for the Company's common
stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the audited consolidated financial statements and the notes related
thereto of the Company included elsewhere in this report.
Fiscal Year Ended
March 26, March 28, March 29, March 23, March 24,
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(Dollars in thousands)
Income Statement Data:
Revenues
Net restaurant sales $109,952 $93,213 $86,408 $68,778 $51,499
Net franchise revenues 9,145 8,723 8,482 8,526 7,570
-------- ------ ------- ------- -------
Total revenues $119,097 $101,936 $94,890 $77,304 $59,069
Depreciation and
amortization $6,652 $6,670 $7,197 $5,425 $3,993
Asset impairment and other
loss provisions...... 1,486 - - - 3,500
Operating income...... 9,088 10,467 8,883 7,001 2,029
Net interest expense.... 9,741 8,147 2,412 1,550 876
Income tax expense
(benefit) (179) 925 2,315 2,017 545
Income (loss) before
cumulative effect of a change
in accounting principle and
extraordinary item.... (333) 1,661 4,165 3,476 351
Cumulative effect of a change
in accounting principle,
net of tax.............. (513) - - - -
Extraordinary gain on early
retirement of debt, net of
tax................ 592 - - - -
Net income (loss).... $(254) $1,661 $4,165 $3,476 $351
Other Financial Data:
Cash flows provided by (used in):
Operating activities... $11,513 $9,844 $9,874 $9,416 $5,355
Investing activities... (9,258) (9,524) (10,686) (24,758) (16,491)
Financing activities... (2,216) (320) 812 15,342 10,909
Balance Sheet Data:
Facilities and equipment,
net $60,704 $57,046 $52,600 $46,516 $25,755
Total assets........... 83,711 84,317 74,747 68,724 50,104
Total borrowings and
payables to affiliate (1) 77,242 80,290 35,717 34,611 19,574
Shareholder's equity
(deficit) (2)......... (8,938) (8,667) 31,292 27,127 23,651
Other Data:
EBITDA (3).............. $17,367 $17,403 $16,089 $12,468 $9,265
EBITDA Margin (3)(4).... 14.6% 17.1% 17.0% 16.1% 15.7%
-------------------
(1) Includes current portion of long-term borrowings.
(2) See "Item I Business" for a description of the Recapitalization
which was effective June 28, 1998.
(3) As used herein, "EBITDA" represents net income before the
cumulative effect of a change in accounting principle and
extraordinary item plus: (1) net interest; (2) income taxes; (3)
depreciation and amortization including amortization of start-up
costs; (4) loss provisions; and (5) impairments of long-lived
assets. The Company has included information concerning EBITDA in
this Form 10-K because it believes that such information is used by
certain investors as one measure of an issuer's historical ability
to service debt. EBITDA is not a measure determined in accordance
with Generally Accepted Accounting Principles and should not be
considered as an alternative to, or more meaningful than, earnings
from operations or other traditional indications of an issuer's
operating performance. EBITDA as presented may not be comparable to
EBITDA or other similarly titled measures defined and presented by
other companies.
(4) EBITDA margin represents EBITDA divided by total revenues.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the Company's historical consolidated
revenues for fiscal 2000, 1999 and 1998:
Fiscal Year
2000 1999 1998
------ ------ ------
Revenues (Dollars in millions)
Net restaurant sales........... $110.0 $93.2 $86.4
Net franchise revenues........ 9.1 8.7 8.5
------ ------ -----
Total revenues................ $119.1 $101.9 $94.9
====== ====== =====
The following table sets forth certain consolidated historical
financial data for the Company expressed as a percentage of net
restaurant sales for fiscal 2000, 1999 and 1998:
Fiscal Year
2000 1999 1998
------ ------ ------
Net restaurant sales.. 100.0% 100.0% 100.0%
Cost of sales..................... 32.0% 33.7% 33.6%
Direct labor............ 31.3% 30.9% 30.9%
Other (1)................... 24.0% 23.4% 24.3%
Total restaurant expenses...... 87.3% 88.0% 88.8%
------ ------ ------
Income from Company-owned restaurant
operations................ 12.7% 12.0% 11.2%
====== ===== ======
-----------------
(1) Other operating expenses include rent, depreciation and
amortization, advertising, utilities, supplies, and insurance among
other costs directly associated with operation of restaurant
facilities.
The following table sets forth the Company's system-wide number of
restaurants and restaurant sales for fiscal 2000, 1999 and 1998:
Fiscal Year
2000 1999 1998
----- ----- -----
Restaurants open (at end of fiscal year):
Company-operated................ 58 50 45
Joint venture....................... 2 2 2
Franchise........................... 168 159 147
----- ---- -----
Total......................... 228 211 194
===== ==== =====
System-wide restaurant sales: (Dollars in millions)
Company-operated restaurant sales....... $110.0 $93.2 $86.4
Joint venture restaurant sales.......... 3.3 3.3 3.3
Franchise restaurant sales............ 288.1 261.9 261.2
------ ------ ------
Total.............................. $401.4 $358.4 $350.9
====== ====== ======
Fiscal 2000 Compared to Fiscal 1999
Net restaurant sales. Net restaurant sales for the fifty-two weeks
ended March 26, 2000 increased $16.7 million, or 18.0%, to $110.0 million
from $93.2 million for the fifty-two weeks ended March 28, 1999. This
increase was due primarily to the addition of eight restaurants during
fiscal 2000 and the full year effect of six restaurants opened during
fiscal 1999. In addition, comparable store sales increased 1.7% in
fiscal 2000 for restaurants opened for more than 18 months.
Net franchise revenues. Net franchise revenues for fiscal 2000
increased $422,000 to $9.1 million due primarily to an increase in
royalty income resulting from a net increase of nine franchised units
during the year and a 1.5% comparable store sales increase. The revenue
increase was partially offset by an increase in franchise support
services.
Cost of sales. Cost of sales decreased to 32.0% of net restaurant
sales in fiscal 2000 compared with 33.7% in fiscal 1999 due primarily to
lower average rib costs per pound.
Direct labor. Direct labor costs, which include restaurant employees
salaries, wages, benefits, bonuses and related taxes increased to 31.3%
of net restaurant sales in fiscal 2000 compared with 30.9% in fiscal 1999
due primarily to increased costs for hourly employees.
Other. Other operating expenses increased to 24.0% of net restaurant
sales in fiscal 2000 compared with 23.4% in fiscal 1999 due primarily to
increases in advertising and rent expenses. The increase in rent expense
is due primarily to the impact of six sale-leaseback transactions that
were completed in fiscal 1999 and fiscal 2000.
General and administrative expenses. General and administrative
expenses increased $3.1 million in fiscal 2000 due in part to the full
year impact of additional staffing and related expenses that resulted
from the Recapitalization in fiscal 1999. The Company also experienced
increases in management training and field supervisory expense. The
effect of expensing pre-opening costs as incurred in fiscal 2000 rather
than amortizing such costs over 12 months in fiscal 1999 was $930,000 of
additional expense in fiscal 2000.
Asset impairments and other loss provisions. The Company recorded a
charge of $464,000 to reduce the asset carrying value of one under-
performing store and recorded an additional $100,000 of expense related
to the planned closure of that unit. The Company also recorded an expense
of $922,000 to reduce the book value of its investment in two joint
ventures and to reserve for the related receivables from the joint
ventures.
Interest expense. Interest expense increased $1.6 million due to the
full year impact of the Senior Notes that were issued in June 1998 in
conjunction with the Recapitalization.
Miscellaneous. Miscellaneous income decreased to $141,000 in fiscal
2000 from $266,000 in fiscal 1999 due primarily to the inclusion of
$169,000 of business interruption insurance proceeds in fiscal 1999
related to a restaurant destroyed by fire in fiscal 1998.
Tax provision. The Company's tax provision for fiscal 2000 resulted
in an effective tax rate of 35%. See Note 7 of the Notes to Consolidated
Financial Statements for a further discussion of the effective tax rate.
Cumulative effect of a change in accounting principle. Effective
March 29, 1999, the Company adopted Statement of Position 98-5,
"Accounting for Costs of Start-up Activities" ("SOP 98-5"), which
requires the Company to expense pre-opening costs as incurred rather than
the previous policy of amortizing those costs over a 12-month period, and
to report the initial adoption as a cumulative effect of a change in
accounting principle. Accordingly, $513,000 in pre-opening costs net of
taxes were recorded during the first quarter of the fiscal year ended
March 26, 2000 as a change in accounting principle.
Extraordinary gain on early retirement of debt. During the fourth
quarter of fiscal 2000, the Company repurchased Senior Notes with a face
value of $6 million at a discount resulting in an after-tax gain of
$592,000.
Fiscal 1999 Compared to Fiscal 1998
Net restaurant sales. Net restaurant sales for fiscal 1999 increased
$6.8 million, or 7.9%, to $93.2 million from $86.4 million in fiscal
1998. This increase was due primarily to the addition of six restaurants
and an increase in comparable sales growth of 1.8% for restaurants open
for more than 18 months, partly offset by one less week of sales in
fiscal 1999 versus fiscal 1998. In addition, menu prices were increased
in November 1999 by a weighted average of 6%.
Net franchise revenues. Net franchise revenues for fiscal 1999
increased $241,000 to $8.7 million due to a decrease in bad debt expense
and an increase in net franchise fees. These increases were partly
offset by a decrease in royalty income, resulting from one less week of
operations in fiscal 1999 versus fiscal 1998. Comparable store sales
were down 4.4%, primarily a result of the devaluation of Asian currency.
Cost of sales. Cost of sales as a percentage of net restaurant sales
remained basically unchanged at 33.7% versus 33.6% a year ago with
average rib costs per pound over the year being relatively flat compared
to the prior year.
Direct labor. Direct labor as a percentage of net restaurant sales
remained unchanged at 30.9%.
Other. Other operating expenses for fiscal 1999 decreased to 23.4%
from 24.3% primarily due to a decrease in rent and advertising expenses,
partly offset by an increase in depreciation expense resulting from the
addition of new restaurants. Rent expense declined as a percentage of
sales due to an increase in the number of owned restaurants versus leased
restaurants.
General and administrative expenses. General and administrative
expenses increased $151,000 to $9.4 million primarily due to increased
corporate staff, which was necessary under the new ownership, increased
professional fees and the addition of the management fee related to the
Recapitalization. These increases were offset by a decrease in pre-
opening costs resulting from fewer openings in fiscal 1999 than in 1998.
Pre-opening costs were amortized over a 12-month period following a
restaurant opening.
Interest expense. Interest expense increased $5.7 million due to
interest from the $75 million Senior Notes issued June 1998 in the
Recapitalization.
Miscellaneous. Miscellaneous income for fiscal 1999 includes $169,000
for business interruption insurance proceeds related to a restaurant
destroyed by fire in the prior year.
Tax provision. The Company's tax provision for fiscal 1999 resulted
in an effective tax rate of 35.8%, which is consistent with the prior
year rate of 35.7%. See Note 7 of the Notes to Consolidated Financial
Statements for a further discussion of the effective tax rate.
Liquidity and Capital Resources
The Company has a working capital deficit of $9.2 million at March 26,
2000, which is common in the restaurant industry, as restaurant companies
do not typically require a significant investment in accounts receivable
or inventory. The working capital deficit increased from $4.4 million at
March 28, 1999 due to the usage of ribs in storage, write-offs of
pre-opening costs related to the adoption of SOP 98-5 and increases in
accounts payable and accrued liabilities.
Concurrently with the consummation of the Recapitalization and the
issuance of $75 million in Senior Notes, the Company entered into a
Revolving Credit Facility. This five-year facility initially provided for
borrowings in an aggregate principal amount of up to $15 million with
interest, at the Company's option, of prime rate or up to six-month LIBOR
plus 2.25%. A commitment fee of .375% is payable monthly on any unused
commitments. During the fourth quarter of fiscal 2000, the Company
utilized $4.8 million of the facility to repurchase $6 million of the
Company's Senior Notes. As of March 26, 2000, $8.2 million was
outstanding under the facility.
In April 2000, the Company executed the First Amendment to Credit
Agreement (the "Amended Credit Agreement") which modified the terms of
the Revolving Credit Facility. The Amended Credit Agreement provides for
borrowings in an aggregate principal amount of up to $25 million until
April 2001; $24 million until April 2002; $22.5 million until April 2003;
and $20.5 million until June 2003 at which time the maximum borrowing is
reduced to $5.5 million. The terms of the Amended Credit Agreement
provide for interest rates ranging from the prime rate to prime plus 1.0%
or the six-month LIBOR plus 2.25% to LIBOR plus 3.25%. The Company
expects to pay the maximum interest rate during the first year of the
Amended Credit Agreement. Subsequent to executing the Amended Credit
Agreement, the Company utilized $9.6 million to repurchase Senior Notes
with a face value of $12.0 million.
In September 1998, the Company obtained a commitment from a financial
group to purchase, at the Company's option, eleven restaurants at a price
not to exceed $1.75 million each or $19 million in the aggregate and to
subsequently enter into a leaseback agreement with the Company as lessee.
The lease agreement provides for an initial minimum annual rent of 10%
of the purchase price, which will increase 6% on the third anniversary
of the lease and an additional 6% every three years thereafter. The lease
term will be for 15 years with two five-year renewal options. The minimum
annual rent for the renewal option periods will be set at fair market
value. This commitment originally was to expire on June 30, 2000 but has
been extended for a time sufficient to complete transactions related to
three additional properties. During fiscal 1999, $5.4 million of
sale-leaseback transactions were completed. During fiscal 2000, an additional
$5.9 million of sale-leaseback transactions were completed resulting in
total deferred gain under the arrangement of $717,000. This deferred gain
is reflected on the Consolidated Balance Sheets and will be recognized
over the 15-year initial term of the new leases.
The Company believes cash flow generated from operations and working
capital are principal indicators of its liquidity condition. The
Company's principal sources of liquidity on both a long-term and
short-term basis are cash flow generated from operations, the Revolving
Credit Facility and the commitment from a financial group to purchase and
leaseback eleven restaurant properties.
Net cash provided by operating activities was $11.5 million in fiscal
2000 compared to $9.8 million in fiscal 1999. During fiscal 2000,
inventories decreased by $2.0 million reflecting the usage of ribs in
storage that were purchased during the prior year, while accounts payable
increased by $1.4 million due primarily to the increased number of units.
During fiscal 2000, a note from a franchisee with a remaining principal
balance of $674,000 was collected. Net cash provided by operating
activities during fiscal 1999 was $9.8 million compared to $9.9 million
during fiscal 1998.
The Company utilized $9.3 million to fund investing activities during
fiscal 2000. Capital expenditures were $15.1 million during fiscal 2000
and were funded primarily through cash flow from operations and $5.9
million of net proceeds from the sale of assets related to the
sale-leaseback transactions. The Company opened eight new units and completed
one major rebuild during fiscal 2000. Approximately $14.7 million of the
capital expenditures were for the construction of new or rebuilt units.
The Company's net cash flows used in investing activities during fiscal
1999 was $9.5 million with capital expenditures of $15.1 million offset
by sale-leaseback proceeds of $5.5 million.
Financing activities for fiscal 2000 included the utilization of $4.8
million of the Revolving Credit Facility to repurchase $6.0 million of
Senior Notes. Excluding this repurchase of Senior Notes, the Company had
reduced its outstanding debt under the facility by $1.9 million during
fiscal 2000.
Rib Pricing
Baby-back ribs represent approximately 25% of the Company's cost of
sales. Because ribs are a by-product of pork processing, their price is
influenced largely by the demand for boneless pork. Historically, the
cost of baby-back ribs has been volatile. Significant changes in the
prices of ribs could significantly increase the Company's cost of sales
and adversely effect the business, results of operations and financial
condition of the Company. The Company has historically maintained an
inventory of ribs in storage to minimize the risk of these price
fluctuations and potential shortages. As of March 26, 2000, the Company
had significantly depleted its inventory of ribs in storage, thereby
increasing its exposure to rising costs due to required purchases on the
open market. During fiscal 2001, it is projected that the average price
of ribs will be 20%-25% higher than prices experienced during fiscal
2000.
Effects of Inflation
Inflationary factors such as increases in food and labor costs
directly affect the Company's operations. Because many of the Company's
restaurant employees are paid on an hourly basis, changes in rates
related to federal and state minimum wage and tip credit laws will effect
the Company's labor costs. The Company cannot always effect immediate
price increases to offset higher costs and no assurance can be given that
the Company will be able to do so in the future.
Year 2000 Issue
In conjunction with the Recapitalization, the Company entered into a
Transition Financial and Accounting Services Agreement (the "Transition
Services Agreement") with its former parent, NPC International, Inc.
(NPC) pursuant to which NPC provides accounting services, payroll
services and the use of NPC's proprietary point-of-sale system. During
1999, management reviewed NPC's plans for Year 2000 compliance and
verified that NPC had completed all modifications and testing, including
the point-of-sale system. The Company has experienced no Year 2000
related disruptions. Since the majority of the testing and verification
was performed by NPC, the Company incurred minimal cost related to the
Year 2000 compliance effort.
Forward-Looking Comments
The statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other statements that
are not historical facts contained in this Annual Report on Form 10-K are
forward-looking statements that involve estimates, risks and
uncertainties, including but not limited to: consumer demand and market
acceptance risk; the level of and the effectiveness of marketing
campaigns by the Company; training and retention of skilled management
and other restaurant personnel; the Company's ability to locate and
secure acceptable restaurant sites; the effect of economic conditions,
including interest rate fluctuations; the impact of competing restaurants
and concepts; new product introductions, product mix and pricing; the
cost of commodities and other food products; labor shortages and costs
and other risks detailed in this Annual Report on Form 10-K.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"),
"Accounting for Derivative Instruments and Hedging Activities." "SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. In June 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 ("SFAS No. 137"),
"Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133," which defers the
effective date of SFAS No. 133 until the Company's first quarter
financial statements in fiscal 2002. The Company is currently not
involved in derivative instruments or hedging activities, and therefore,
will measure the impact of this statement as it becomes necessary.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates
on debt and changes in commodity prices, particularly baby-back rib
prices.
The Company's exposure to interest rate risk relates to the variable
rate revolving credit loan that is benchmarked to United States and
European short-term interest rates. The Company does not use derivative
financial instruments to manage overall borrowing costs or reduce
exposure to adverse fluctuations in interest rates. The impact on the
Company's results of operations of a one point interest rate change on
the outstanding balance of the variable rate debt as of March 26, 2000
would be immaterial.
Baby-back ribs represent approximately 25% of the Company's cost of
sales. Because ribs are a by-product of pork processing, their price is
influenced largely by the demand for boneless pork. Historically, the
cost of baby-back ribs has been volatile. Significant changes in the
prices of ribs could significantly increase the Company's cost of sales
and adversely effect the business, results of operations and financial
condition of the Company. The Company actively manages its rib costs
through supply commitments in advance of a specific need. However, the
arrangements are terminable at will at the option of either party without
prior notice. Therefore, there can be no assurance that any of the supply
commitments will not be terminated in the future. As a result, the
Company is subject to the risk of substantial and sudden price increases,
shortages or interruptions in supply of such items, which could have a
material adverse effect on the business, financial condition and results
of operations of the Company.
The Company purchases certain other commodities used in food
preparation. These commodities are generally purchased based upon market
prices established with vendors. These purchase arrangements may contain
contractual features that limit the price paid by establishing certain
price floors or caps. The Company does not use financial instruments to
hedge commodity prices because these purchase arrangements help control
the ultimate cost paid and any commodity price aberrations are generally
short term in nature.
This market risk discussion contains forward-looking statements.
Actual results may differ materially from this discussion based upon
general market conditions and changes in domestic and global financial
markets.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are included under Item 14 of this Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES
The Company had no disagreements on accounting or financial matters
with its independent accountants to report under this Item 9.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names and ages of the directors and
executive officers of the Company. Executive officers serve at the
pleasure of the Board of Directors.
Name Age Position
---------------------- --- -------------------------------
David S. Lobel . . . . . . . 47 Chairman of the Board of Directors
Eric D. Bommer . . . . . . . 31 Director
Philip Friedman. . . . . . . 53 Director
John F. McCormack. . .. . . . 41 Director
Michael J. Myers . . .. . . . 58 Director
Jeffrey H. Hunter. . .. . . . 37 Vice President, Marketing
Richard A. Peabody . .. . . . 39 President (Acting) and Chief
Financial Officer
David G. Short . . . . . . . 61 Vice President, Legal, Secretary
and General Counsel
David S. Lobel serves as a director of the Company and Roma Restaurant
Holdings, Inc. ("Holdings"). Mr. Lobel founded Sentinel Capital Partners,
L.P. ("Sentinel") in 1995 and presently serves as Managing Partner. From
1981 to 1995, Mr. Lobel was employed by First Century Partners, a venture
capital affiliate of Salomon Smith Barney, and served as a general
partner of funds managed by First Century from 1983 to 1995. Mr. Lobel
serves on the boards of various private companies.
Eric D. Bommer serves as a director of the Company and Holdings. Mr.
Bommer joined Sentinel in March 1997 and serves as a Principal of the
firm. Prior to joining Sentinel, he was an associate at Gefinor
Acquisition Partners, L.P., a private equity investment partnership, from
June 1995 to March 1997. From 1993 to 1995, he worked in the Investment
Banking Division of CS First Boston. From 1992 to 1993, Mr. Bommer worked
at LaSalle Partners. Mr. Bommer serves on the boards of various private
companies.
Philip Friedman serves as a director of the Company and Holdings. Mr.
Friedman is President of McAlister's Corporation, operator and franchisor
of the McAlister's Deli restaurant chain. From June 1996 to January 1998,
Mr. Friedman was President of Panda Management Company, Inc., a developer
and operator of 300 quick-service chinese restaurants. In addition, from
June 1986 to the present, Mr. Friedman has been president of P. Friedman
and Associates, Inc., a restaurant consulting firm. Mr. Friedman serves
as a director of Paramark, Inc., Roadhouse Grill, Inc. and Eateries, Inc.
John F. McCormack serves as a director of the Company and Holdings.
Mr. McCormack co-founded Sentinel in 1995 and presently serves as Senior
Partner. From 1990 to 1995, Mr. McCormack served as Vice President at
First Century Partners, a venture capital affiliate of Salomon Smith
Barney. From 1983 to 1990, Mr. McCormack was employed by Coopers &
Lybrand, most recently as a Manager. Mr. McCormack serves on the boards
of various private companies.
Michael J. Myers serves as a director of the Company and Holdings. Mr.
Myers is the President of First Century Partners, a venture capital
affiliate of Salomon Smith Barney, and has been a Senior Advisory Partner
to Sentinel since 1995. Mr. Myers co-founded First Century Partners in
1972 and has served as its President since 1976. Mr. Myers is a director
of Office Depot and various private companies.
Jeffrey H. Hunter has been Vice President of Marketing since August
1998. Mr. Hunter served as Executive Director of Marketing for the
Captain D's division of Shoney's, Inc. from February 1992 to February
1998.
Richard A. Peabody was appointed President (Acting) in June 2000 and
has been Vice President, Finance and Chief Financial Officer since
January 2000. Mr. Peabody served as Senior Vice President and Chief
Financial Officer of Checkers Drive-in Restaurants, Inc. and Rally's
Hamburgers, Inc. from April 1999 to December 1999 and as Vice President
and Chief Financial Officer of Checkers from January 1998 to April 1999.
From December 1996 to December 1997, Mr. Peabody was Chief Administrative
Officer of Taco Bueno Restaurants, Inc. For more than eight years prior
to his employment with Taco Bueno Restaurants, Inc., Mr. Peabody held
various positions with Black-eyed Pea Management Corp.
David G. Short has been Vice President-Legal, General Counsel and
Secretary since September 1990. From 1986 to 1990, Mr. Short was Vice
President, Legal and General Counsel of TGI Friday's, Inc. Mr. Short
also served as Vice President of NPC International, Inc. and certain of
its affiliates until the Recapitalization.
ITEM 11. COMPENSATION OF EXECUTIVE OFFICERS
The following summarizes, for each of the three fiscal years ended
March 26, 2000, March 28, 1999, and March 29, 1998, the compensation
awarded to, earned by, or paid to each of the persons who qualified as
a "named executive officer" under item 402(b) of Regulation S-K.
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
---------------------------------- ------------
Other Securities
Annual Underlying All
Name and Fiscal Compensation Options Other
Principal Position Year Salary Bonus (1) (#)2) Compensation
----------------- ----- ------- ------- ------- ------- ---------
Robert B. Page (3) 2000 $205,846 $63,365 $4,704 8.8 $ -
Chief Executive 1999 194,231 38,472 4,668 - -
Officer 1998 160,000 23,207 9,760 - -
Jeff Waldrop (4) 2000 $156,231 $18,990 $4,704 3.3 $ -
Vice President, 1999 75,962 - 2,367 - -
Operations
Scott A. Knode (5) 2000 $147,789 $20,428 $4,704 3.3 $ -
Vice President, 1999 69,712 - 2,315 - -
Real Estate
and Development
David G. Short 2000 $144,583 $34,482 $8,504 3.3 $ -
Vice President, 1999 138,998 - 5,052 - -
Legal, Secretary 1998 132,500 - 9,147 - -
and General Counsel
Jeffrey H. Hunter 2000 $122,769 $17,308 $4,668 3.3 $ -
Vice President, 1999 69,231 - 2,721 - -
Marketing
------------------
(1) Includes profit sharing contributions, 401(k) plan matching
contributions, car allowance and insurance.
(2) The options listed were granted pursuant to a non-qualified stock
option plan of Holdings. Holdings holds 100% of the outstanding
shares of the Company and issued the options on May 12, 1999.
(3) Robert B. Page served as President from June 1994 to June 2000 at
which time his employment with the Company ended. He also served as
Chief Executive Officer of the Company and as a director of the
Company and Holdings.
(4) Jeff Waldrop served as Vice President of Operations from August
1998 to June 2000 at which time his employment with the Company ended.
(5) Scott A. Knode served as Vice President of Real Estate and
Development from September 1998 to June 2000 at which time his
employment with the Company ended.
Employment Agreements
In connection with the Recapitalization, the Company entered into
an employment agreement with Mr. Page. The agreement provides for: (1)
a three year employment term with an initial base of $200,000 per year
and a bonus, based upon EBITDA objectives, up to 50% of base
compensation; (2) severance benefits and noncompetition, nonsolicitation
and confidentiality agreements in certain situations; and (3) the grant
of certain stock options in Holdings; and (4) other terms and conditions
of Mr. Page's employment. Mr. Page's base compensation is reviewed
annually.
In January 2000, the Company entered into a letter of agreement with
Richard A. Peabody that provides he is entitled to a severance payment
of up to 12 months of his base salary in the event his position is
eliminated due to a change of control of the Company. The payments will
cease at such time as Mr. Peabody obtains employment elsewhere with a
comparable salary and responsibilities to his current position.
Option Grants in Last Fiscal Year
The following tables set forth information regarding options of
Holdings granted to the named executive officers during fiscal 2000.
Individual Grants
----------------------------------------- Potential
Realizable
Value at
% of Total Assumed Annual
Number of Options Rates of Stock
Securities Granted to Exercise Price Appreciation
Underlying Employees or Base for Option
Options in Price Expiration Term (1)
Name Granted Fiscal Year ($/Share) Date 5% ($) 10%($)
----------- --------- ---------- --------- --------- ------- ------
Robert B. Page
(2).... 8.8 21.6% $12,500 5/12/09 $69,178 $175,312
Jeff Waldrop
(2)...... 3.3 8.1% $12,500 5/12/09 $25,942 $65,742
Scott A. Knode
(2)...... 3.3 8.1% $12,500 5/12/09 $25,942 $65,742
David G. Short 3.3 8.1% $12,500 5/12/09 $25,942 $65,742
Jeffrey H.
Hunter... 3.3 8.1% $12,500 5/12/09 $25,942 $65,742
-------------------
(1) Calculated over a ten-year period, representing the terms of the
options. These are assumed rates of appreciation and are not
intended to forecast future appreciation of Holdings common stock.
(2) The employment by the Company of Robert B. Page, Jeff Waldrop and
Scott A. Knode ended in June 2000. In accordance with the terms of
the stock option plan, options are exercisable within 30 days of
the employee's termination date at which time the option expires.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option Values
Set forth below is information with respect to options exercised by
the named executive officers during fiscal 2000 and the number and value
of unexercised stock options held by such named executive officers at the
end of the fiscal year.
Value of
Unexercised
Number of In-the-Money
Unexercised Options Options
at FY-End(#) at FY-End($)(1)
------------- --------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise(#) Realized($) Unexercisable Unexercisable
---------- ------------ ----------- ------------ -------------
Robert B. Page
(2)........... -0- -0- 3.0/5.8 -0-/-0-
Jeff Waldrop
(2)............ -0- -0- 1.1/2.2 -0-/-0-
Scott A. Knode
(2).......... -0- -0- 1.1/2.2 -0-/-0-
David G. Short... -0- -0- 1.1/2.2 -0-/-0-
Jeffrey H. Hunter -0- -0- 1.1/2.2 -0-/-0-
--------------------------
(1) The common stock of Holdings is not traded on a public market. This
value of unexercised options is based on internal estimates.
(2) The employment by the Company of Robert B. Page, Jeff Waldrop and
Scott A. Knode ended in June 2000.
Compensation of Directors
The Company reimburses directors for out-of-pocket expenses incurred
by them in connection with services provided in such capacity. Mr. Myers
receives a quarterly payment of $7,500. Mr. Friedman receives a quarterly
payment of $3,500 and a payment of $1,000 per Board of Directors meeting.
In addition, on May 12, 1999, Mr. Friedman was awarded a stock option
grant to purchase .88 shares of Holdings common stock at $12,500 per
share, which option vests 25% a year over four years.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or has been an officer
or employee of the Company or any of its subsidiaries or had any
relationship requiring disclosure pursuant to Item 404 of Regulation S-K.
In fiscal 2000, no executive officer of the Company served as a director
of another entity, one of whose executive officers served on the
Compensation Committee or on the Company's Board of Directors. The
Company's Board of Directors, including members of the Compensation
Committee, also comprise the Board of Directors for Holdings, which owns
100% of the outstanding common stock of the Company.
The Company reimbursed Sentinel for all out-of-pocket expenses
incurred in connection with the Recapitalization. In addition, pursuant
to a management agreement, Sentinel receives a management fee equal to
$300,000 per year for the first two years of the term of the management
agreement and $500,000 per year thereafter, and will be reimbursed for
certain out-of-pocket expenses incurred in connection with Sentinel's
services provided to the Company.
Report of the Compensation and Benefits Committee
The Compensation Committee of the Board of Directors, comprised of
the undersigned non-employee directors of the Company, has the
responsibility for determining compensation plans for all executive
officers. Any recommendations are submitted to the full Board of
Directors for approval.
The Compensation Committee has adopted a policy that the Company's
executive compensation plan should have three principal components:
- Competitive base salaries. In order to attract and retain
high-quality management, the Company should offer appropriate
salaries commensurate with the skills and experience of the
individual. The Compensation Committee considers
recommendations by the Chief Executive Officer in determining
other executive base salaries,
as well as information on industry practice.
- A short-term bonus plan. To encourage and reward near-term
improvements in the Company's performance, the Compensation
Committee determined to offer an annual bonus plan based on
EBITDA objectives. "EBITDA"represents net income before the
cumulative effect of a change in accounting principle and
extraordinary item plus: (1) net interest; (2) income taxes; (3)
depreciation and amortization including amortization of start-up
costs; (4) loss provisions; and (5) impairments of long-lived
assets. The Compensation Committee believes EBITDA is an important
measure in determining the value of a privately-held company.
Provision also has been made for discretionary bonuses in certain
situations.
- A long-term incentive plan. The Compensation Committee determined
to establish a long-term incentive plan to accomplish the
following objectives:
- reward sustained performance;
- balance short-term and long-term focus;
- attract and retain qualified management;
- build executive equity ownership;
- align executive and ownership interest; and
- minimize adverse financial statement impact of awards.
To these ends, the Compensation Committee determined that stock option
awards to purchase common stock of Holdings are effective in
accomplishing the desired objectives.
The Compensation Committee is responsible for reviewing and recommending
base salary changes for executive officers. Effective with the
completion of the Recapitalization, Mr. Page was appointed Chief
Executive Officer, and a compensation package was determined based upon
industry averages, the size of the Company and Mr. Page's industry
experience. Compensation for other executive officers was determined by
considering market data for each officer's position, level of
responsibility, experience and past performance, as applicable.
The executive short-term bonus plan for fiscal 2000 was based upon an
EBITDA target which, when met, would pay a pre-determined bonus to each
executive officer.
The Compensation Committee also recommends awards under Holdings non-
qualified stock option plan. On May 12, 1999, stock option grants
totaling 40.7 shares were made to the Chief Executive Officer, the named
executive officers and certain other key employees. During the year,
options to purchase 3.3 shares lapsed. Options to purchase 5.5 shares
were granted to the new Chief Financial Officer and another key employee
on May 8, 2000. Each of these grants reflect an exercise price of $12,500
per share, which was determined to be the fair market value at the date
of grant as required by the stock option plan.
Federal income tax legislation has limited the deductibility of
certain compensation paid to the Chief Executive Officer and covered
employees to the extent the compensation exceeds $1,000,000.
Performance-based compensation and certain other compensation, as
defined, is not subject to the deduction limitation of this regulation.
It is not currently anticipated that any covered employee would earn
annual compensation in excess of the $1,000,000 limit under existing or
proposed compensation plans. The Company continually reviews its
compensation plans to minimize or avoid potential adverse effects of this
legislation. The Compensation Committee will consider recommending such
steps as may be required to qualify annual and long-term incentive
compensation for deductibility if that appears appropriate at some time
in the future.
Members of the Compensation and Benefits Committee
David S. Lobel, Chairman
Michael J. Myers
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number
of shares of common stock of the Company beneficially owned by the sole
shareholder.
Number Percent
Name of shares of class
--------------------------- --------- --------
Roma Restaurant Holdings, Inc. (1) 100 100%
----------------------
(1) As of March 26, 2000, the outstanding stock of Roma Restaurant
Holdings, Inc. was owned 22.2% by Sentinel Capital Partners, 37.0%
by Sentinel Capital Partners II, 19.8% by NPC International, Inc.
and the remaining 13.8% by unrelated third parties. The address of
Sentinel Capital Partners and Sentinel Capital Partners II is 777
Third Avenue, 32nd Floor, New York, New York 10017 and the address
of NPC International, Inc. is 14400 College Blvd., Lenexa, Kansas
66762.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transitional Financial and Accounting Services Agreement
In June 1998, the Company entered into the Transitional Financial
and Accounting Services Agreement (the "Transition Services Agreement")
whereby NPC continued to provide administrative services to the Company
for an initial fee of $16,000 per week for a period of up to one year.
Services provided include accounting services, payroll services and use
of NPC's proprietary point-of-sale ("POS") system. As part of the
Transition Services Agreement, the Company was granted a perpetual
license to use the POS system. Effective March 29, 1999, the Company
amended the contract whereby services will continue through July 2001
with a weekly base service fee of $14,300 during fiscal 2000, $15,000
during fiscal 2001, and $15,750 during fiscal 2002. In addition to the
base fee, an incremental weekly fee shall be paid for each restaurant
opened on or after March 29, 1999 in the amount of $160 for fiscal 2000,
$170 for fiscal 2001 and $180 for fiscal 2002. Pursuant to the Transition
Services Agreement, the Company paid NPC $777,000 and $564,000 during
fiscal 2000 and fiscal 1999, respectively. Management expects to extend
the Transition Services Agreement under terms and costs similar to these
currently in place.
Payment of Certain Fees and Expenses
The Company reimbursed Sentinel for all out-of-pocket expenses
incurred in connection with the Recapitalization. In addition, pursuant
to a management agreement, Sentinel receives a management fee equal to
$300,000 per year for the first two years of the term of the management
agreement and $500,000 per year thereafter, and will be reimbursed for
certain out-of-pocket expenses. The Company paid Sentinel $313,000 and
$231,000 during fiscal 2000 and fiscal 1999, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
(1) Financial Statements:
The response to this portion of Item 14 is submitted as a
separate section of this report. See Index to Financial
Statements at page F-1.
(2) Financial Statement Schedules:
All schedules have been omitted as the required information is
inapplicable or the information is presented in the financial
statements or related notes.
(3) Exhibits:
The exhibits listed on the accompanying index to exhibits at
page 24 are filed as part of this Annual Report on Form 10-K.
(4) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended March
26, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Dallas, the State of Texas, on June 23, 2000.
By: /s/Richard A. Peabody
-------------------------
Name: Richard A. Peabody
Title: President (Acting) and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
----------------- ------------------------ ----------
/s/David S. Lobel Chairman of the Board of June 23, 2000
------------------ Directors
David S. Lobel
/s/Richard A. Peabody President (Acting) and Chief June 23, 2000
---------------------- Financial Officer
Richard A. Peabody (principal financial officer
and accounting officer)
/s/Eric D. Bommer Director June 23, 2000
---------------------
Eric D. Bommer
/s/Philip Friedman Director June 23, 2000
---------------------
Philip Friedman
/s/John J. McCormack Director June 23, 2000
---------------------
John J. McCormack
/s/Michael J. Myers Director June 23, 2000
---------------------
Michael J. Myers
EXHIBITS INDEX
Exhibit
Number Description
2.1 Recapitalization Agreement dated April 24, 1998 by and
among the Company, NPC International, Inc., NPC Restaurant
Holdings, Inc. and Sentinel Capital Partners, L.P. (1)
2.2 Assignment Agreement dated July 1, 1998 by and among
Sentinel, Sentinel Capital Partners II, L.P. ("Sentinel
II"), Omega Partners, L.P. ("Omega"), Provident Financial
Group, Inc. ("Provident"), Travelers Casualty and Surety
Company ("Travelers I"), The Travelers Insurance Company
("Travelers II"), The Travelers Life and Annuity Company
("Travelers III") and the Phoenix Insurance Company
("Phoenix", and together with Sentinel II, Omega,
Provident, Travelers I, Travelers II, and Travelers III,
the "Assignees") (1)
3.1 Certificate of Incorporation of the Company (1)
3.2 By-laws of the Company (1).
10.1 Indenture dated as of July 1, 1998 between the Company, the
Guarantors named therein
and United States Trust Company of New York (1)
10.2 Purchase Agreement dated as of June 26, 1998 among the
Company, Salomon Brothers Inc.
and Schroder & Co. Inc. (1).
10.3 Registration Rights Agreement dated as of July 1, 1998
among the Company, the Guarantors
named therein, Salomon Brothers, Inc. and Schroder & Co.
Inc. (1)
10.4 Stockholders Agreement dated as of July 1, 1998 by and
among the Company, the Assignees and Holdings (1)
10.5 Registration Rights Agreement dated July 1, 1998 by and
among the Company, NPC Restaurant Holdings, Inc., Sentinel
Capital Partners L.P., Sentinel Capital Partners II, L.P.,
Omega Partners, L.P., Provident Financial Group, Inc.,
Travelers Casualty and Surety Company, Travelers Insurance
Company, The Travelers Life and Casualty and The Phoenix
Insurance Company (1)
10.6 Transitional Financial and Accounting Services Agreement
dated as of July 1, 1998 by and among NPC Management, Inc.
and the Company (1)
10.7 Management Services Agreement dated as of July 1, 1998 by
and among the Company and Sentinel (1)
10.8 Credit Agreement dated as of July 1, 1998 by and among the
Company, Roma Systems, Inc., Roma Franchise Corporation,
Roma Holdings, Inc., Roma Dining LP, The Provident Bank
and various lenders described therein (1)
10.9 Management Agreement dated as of July 1, 1998 by and among
the Company and Robert B. Page (2)
10.9a Amended and Restated Accounting and Management Information
Services Agreement dated January 20, 1999 (2)
*10.10 Amended Management Agreement dated as of May 12, 1999 by
and among the Company and Robert B. Page (2)
10.12 Letter of commitment dated September 4, 1998 to the Company
from CAPTEC Financial Group, Inc (2).
*10.13 Letter of employment and agreement dated as of January 3,
2000 by and among the Company and Richard A. Peabody (3)
10.14 First Amendment to Credit Agreement dated April 11, 2000 by
and among the Company,Roma Systems, Inc., Roma Franchise
Corporation, Roma Holdings, Inc., Roma Dining LP, The
Provident Bank and various lenders described therein (3)
21.1 Subsidiaries of the Issuer (3)
27.1 Financial Data Schedule
----------------------
(1) Filed as an exhibit to the Company's Form S-4, and incorporated
herein by reference.
(2) Filed as an exhibit to the Company's Form 10-K Annual Report
for the fiscal year ended March 28, 1999 and incorporated
herein by reference.
(3) Filed herewith.
(*) Management contract or compensation plan or arrangement.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
Report of Independent Auditors F-2
Consolidated Balance Sheets - Assets
As of March 26, 2000 and March 28, 1999 F-3
Consolidated Balance Sheets - Liabilities and
Stockholder's Equity (Deficit)
As of March 26, 2000 and March 28, 1999 F-4
Consolidated Statements of Operations
For the fiscal years ended March 26, 2000,
March 28, 1999 and March 29, 1998 F-5
Consolidated Statements of Changes in Stockholder's
Equity (Deficit)
For the fiscal years ended March 26, 2000,
March 28, 1999 and March 29, 1998 F-6
Consolidated Statements of Cash Flows
For the fiscal years ended March 26, 2000,
March 28, 1999 and March 29, 1998 F-7
Notes to Consolidated Financial Statements F-8
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Romacorp, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Romacorp, Inc. and Subsidiaries (the Company) as of March 26, 2000, and
March 28, 1999 and the related consolidated statements of operations,
changes in stockholder's equity (deficit), and cash flows for each of the
three fiscal years in the period ended March 26, 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. 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, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Romacorp, Inc. and Subsidiaries at March 26, 2000, and March 28, 1999 and
the consolidated results of their operations and their cash flows for
each of the three fiscal years in the period ended March 26, 2000, in
conformity with accounting principles generally accepted in the United
States.
Ernst & Young LLP
Kansas City, Missouri
April 27, 2000
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
March 26, March 28,
2000 1999
-------- --------
Current Assets:
Cash and cash equivalents................. $ 39 $ -
Accounts receivable, net.............. 2,062 1,637
Inventories of food and supplies.......... 1,083 3,051
Deferred income tax asset.................. 755 217
Prepaid expenses..................... 1,138 1,059
Preopening costs.......................... - 777
Other current assets...................... 26 14
------- -------
Total current assets............ 5,103 6,755
Facilities and equipment,net................ 60,704 57,046
Notes receivable, net........................ - 719
Goodwill, net of accumulated amortization
of $5,918 and $5,184, respectively..... 13,059 13,792
Deferred income tax asset................. 2,141 1,642
Other assets.......................... 245 1,074
Debt issuance costs, net of accumulated
amortization of $452 and $337,
respectively................... 2,459 3,289
------- -------
Total assets....................... $83,711 $84,317
======= ========
The accompanying notes are an integral part of these consolidated
financial statements
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
March 26, March 28,
2000 1999
--------- --------
Current Liabilities:
Accounts payable....................... $ 4,291 $ 2,933
Accrued interest......................... 2,134 2,291
Current portion of store closure reserve. 100 100
Checks written in excess of cash.......... - 296
Other accrued liabilities................. 7,425 5,565
Accrued income taxes.................... 381 -
------ ------
Total current liabilities....... 14,331 11,185
Senior notes................................ 69,000 75,000
Long-term debt............................. 8,242 5,290
Store closure reserve...................... 391 309
Deferred gain on sale of assets.............. 685 -
Long-term insurance reserves................. - 1,200
------ ------
Total liabilities............. 92,649 92,984
------ ------
Stockholder's Equity (Deficit):
Common stock, $.01 par value; 2,000 shares
authorized; 100 shares issued
and outstanding...................... - -
Paid-in capital.......................... 66,469 66,469
Retained earnings (deficit):
Dividends to Holdings................... (75,368) (75,351)
Other.............................. (39) 215
------ ------
Total........................ (75,407) (75,136)
Total stockholder's equity
(deficit)....................... (8,938) (8,667)
------- -------
Total liabilities and stockholder's
equity (deficit)..................... $83,711 $84,317
======= =======
The accompanying notes are an integral part of these consolidated
financial statements
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands)
For the Fiscal Year Ended
March 26, March 28, March 29,
2000 1999 1998
--------- -------- --------
Net restaurant sales........... $109,952 $ 93,213 $ 86,408
Net franchise revenues...... 9,145 8,723 8,482
------- ------- -------
Total revenues....... 119,097 101,936 94,890
Cost of sales........... 35,222 31,399 29,011
Direct labor.............. 34,422 28,836 26,694
Other..................... 26,375 21,819 21,038
General and administrative expenses 12,504 9,415 9,264
Impairment of long-lived assets.... 464 - -
Other loss provisions.............. 1,022 - -
------- ------- -------
Total operating expenses.... 110,009 91,469 86,007
------- ------- -------
Operating income................. 9,088 10,467 8,883
Other income (expense):
Interest expense............... (9,741) (8,147) (2,412)
Miscellaneous.................. 141 266 9
Income (loss) before income taxes,
cumulative effect of a change in
accounting principle and
extraordinary item............ (512) 2,586 6,480
Provision (benefit) for income taxes:
Current.................. 594 778 3,138
Deferred.................. (773) 147 (823)
------- ------- -------
(179) 925 2,315
------- ------- -------
Income (loss) before cumulative effect of
a change in accounting principle and
extraordinary item................. (333) 1,661 4,165
Cumulative effect of a change in accounting
principle, net of tax......... (513) - -
Extraordinary gain on early retirement
of debt, net of tax........... 592 - -
------- ------- -------
Net income (loss)............ $ (254) $ 1,661 $ 4,165
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements
ROMACORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY (DEFICIT)
(Dollars in Thousands)
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
------- ------- ------- -------- -----
Balances at March 23, 1997 100 $ - $17,444 $9,683 $27,127
Net income.................... - - - 4,165 4,165
----- ------ ------- ------- -------
Balance at March 28, 1998... 100 - 17,444 13,848 31,292
Net income from March 29, 1998
to June 28, 1998............. - - - 1,446 1,446
Payable to affiliate contributed
to capital............. - - 33,731 - 33,731
------ ------ ------- ------- -------
Balance at June 28, 1998 100 $ - $51,175 $15,294 $66,469
====== ====== ======= ======= =======
Contribution of Holdings net assets
to Romacorp, Inc. (Note 1) 100 $ - $66,469 $ - $66,469
Dividend to Holdings....... - - - (75,351) (75,351)
Net income from June 29, 1998 to
March 28, 1999........... - - - 215 215
------ ------ ------- ------- -------
Balance at March 28, 1999.... 100 - 66,469 (75,136) (8,667)
Dividend to Holdings........ - - - (17) (17)
Net loss................. - - - (254) (254)
------ ------ ------ ------- --------
Balance at March 26, 2000 100 $ - $66,469 $(75,407) $(8,938)
====== ====== ======= ========= ========
The accompanying notes are an integral part of these consolidated
financial statements
ROMACORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Fiscal Year Ended
March 26, March 28, March 29,
2000 1999 1998
------- ------- -------
Operating Activities:
Net income (loss).................... $(254) $1,661 $4,165
Adjustments to reconcile net income
(loss) to net cash flows
provided by operating activities:
Depreciation and amortization.. 6,652 5,750 5,260
Amortization of pre-opening costs - 920 1,937
Amortization of debt issuance costs 452 337 -
Deferred income taxes............ (773) 147 (823)
Cumulative effect of a change in
accounting principle, net of tax.. 513 - -
Impairment of long-lived assets.... 464 - -
Loss provisions................... 1,022 - -
Deferred gain on sale of assets..... (32) - -
Loss on disposal of assets........ 20 - -
Gain on repurchase of Senior Notes.. (592) - -
Change in assets and liabilities:
Accounts receivable, net.......... (425) (286) 122
Notes receivable, net............ 719 38 57
Inventories of food and supplies... 1,968 (1,542) (848)
Preopening costs................. - (1,231) (1,169)
Other current assets........... (91) (468) (71)
Accounts payable.............. 1,358 1,839 239
Accrued interest............. (157) 2,263 (18)
Other accrued liabilities..... 642 868 1,023
Income taxes payable....... 62 - -
Other................ (35) (452) -
------- ------- -------
Net cash flows provided by operating
activities.............. 11,513 9,844 9,874
------- ------- -------
Investing Activities:
Capital expenditures............ (15,092) (15,067) (10,610)
Proceeds from sale of assets...... 5,927 5,445 -
Changes in other assets, net...... (93) 98 (76)
------- ------- -------
Net cash flows used in investing
activities............... (9,258) (9,524) (10,686)
------- ------- -------
Financing Activities:
Proceeds from (repayments of)Senior
Notes (4,823) 75,000 -
Dividend to Holdings............... (17) (75,351) -
Net borrowings under line-of-credit
agreement.................... 2,952 5,290 -
Debt issuance costs............. (32) (3,626) -
Payments of debt................ - (1,333) (444)
Change in checks written in excess
of cash (296) 183 (294)
Net change in payable to affiliate.... - (483) 1,550
------ ------ ------
Net cash flows provided by (used in)
financing activities........ (2,216) (320) 812
Net Change in Cash and Cash Equivalents 39 - -
Cash and Cash Equivalents At Beginning
of Year......................... - - -
------- ------- -------
Cash and Cash Equivalents At End of
Year........................... $39 $ - $ -
======= ======= =======
Supplemental cash flow information:
Cash paid for interest....... $9,729 $4,919 $278
======= ======= =======
Cash paid for income taxes.. $267 $10 $ -
======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements
ROMACORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization, Operation and Basis of Presentation
The consolidated financial statements reflect the financial
information of Romacorp, Inc. and Subsidiaries through June 28, 1998,
the effective date of the Recapitalization (See Note 2). On that date,
the former Romacorp, Inc. was renamed Roma Restaurant Holdings, Inc.
("Holdings") and the assets, liabilities and operations of Holdings were
contributed to its newly-created, wholly-owned subsidiary, Romacorp
Operating Corporation, whose name was then changed to Romacorp, Inc.
Subsequent to June 28, 1998, the consolidated financial statements
reflect the financial information of the newly-created Romacorp, Inc.
and subsidiaries (the "Company") and include the Company's operation of
its owned restaurants and franchise revenue from franchisees' use of
trademarks and other proprietary information in the operation of Tony
Roma's restaurants. The Company maintains its corporate office in
Dallas, Texas, and through its subsidiaries provides menu development,
training, marketing and other administrative services related to the
operation of the Tony Roma's concept. All intercompany transactions
between Romacorp, Inc. and its subsidiaries have been eliminated.
Note 2. Recapitalization
The Company (then Romacorp) was acquired in June 1993 by NPC
International, Inc. ("NPC"). On April 24, 1998, a recapitalization
agreement (the "Recapitalization") effective June 28, 1998 was executed
pursuant to which the former Romacorp, Inc. was renamed Roma Restaurant
Holdings, Inc. ("Holdings") and the assets, liabilities and operations
of Holdings were contributed to its newly-created, wholly-owned
subsidiary, Romacorp, Inc. ("Romacorp"). In the Recapitalization that
was executed by Holdings, NPC and Sentinel Capital Partners, L.P.,
Holdings redeemed stock held by NPC and NPC forgave and contributed to
the capital of the Company a payable to NPC in the amount of
$33,731,000. After the Recapitalization, NPC held 20% and Sentinel
through certain affiliates ("Sentinel") held 80% of the equity of
Holdings. In conjunction with this transaction, $75,000,000 of 12%
Senior Notes were issued by the Company. The Company paid Holdings a
dividend of $75,351,000 consisting primarily of the proceeds from the
12% Senior Notes, which was used by Holdings, along with Sentinel's
equity contribution, to effect the Recapitalization. This transaction
was accounted for as a leveraged recapitalization with the assets and
liabilities of Romacorp, Inc. retaining their historical value.
Note 3. Summary of Significant Accounting Policies
Fiscal Year - The Company operates on a 52 or 53 week fiscal year
ending on the last Sunday before the last Tuesday in March. The fiscal
years ended March 26, 2000 and March 28, 1999, each contained 52 weeks.
The fiscal year ended March 29, 1998 contained 53 weeks.
Cash Equivalents - For purposes of the Consolidated Statements of
Cash Flows, the Company considers all highly liquid debt instruments
with an original maturity of three months or less to be cash
equivalents. For each period presented, substantially all cash was in
the form of depository accounts.
Inventories - Inventories of food and supplies are valued at the
lower of cost (first-in, first-out method) or market.
Pre-opening Costs - Effective March 29, 1999, the Company adopted
Statement of Position 98-5, "Accounting for Costs of Start-up
Activities" ("SOP 98-5") which requires the Company to expense
pre-opening costs as incurred rather than the previous policy of amortizing
those costs over a twelve month period, and to report the initial
adoption as a cumulative effect of a change in accounting principle.
Accordingly, $777,000 in pre-opening costs, net of taxes of $264,000,
were recorded during the first quarter of the fiscal year ended March
26, 2000 as a change in accounting principle.
Facilities and Equipment - Facilities and equipment are recorded at
cost. Depreciation is charged on the straight-line basis for buildings,
furniture and equipment over the estimated useful life of the asset.
Leasehold improvements are amortized on the straight-line method over
the life of the lease or the life of the improvements whichever is
shorter. Interest is capitalized with the construction of new
restaurants as part of the asset to which it relates. Interest
capitalized during fiscal years ended March 26, 2000, March 28, 1999,
and March 29, 1998 was $236,000, $116,000 and $332,000, respectively.
Long-lived Assets - The Company applies the provisions of Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("SFAS 121") in accounting for its long-lived assets, which requires
the write-down of certain intangibles and tangible property associated
with under-performing sites. The Company reviews the assets related to
store sites on a periodic basis and when events occur or circumstances
indicate that the asset value of a store is not recoverable, the Company
evaluates that store for impairment based on estimated future
nondiscounted cash flows attributable to that store. In the event such
cash flows are not expected to be sufficient to recover the recorded
value of the assets, the assets are written down to their estimated fair
values. The Company's estimates of fair values are based on the best
information available and require the use of estimates, judgements and
projections as considered necessary. The effect of applying SFAS 121
resulted in a reduction of facilities and equipment of $464,000 in the
fiscal year ended March 26, 2000.
Goodwill - Goodwill represents the excess of cost over the
identifiable net assets acquired and is amortized on the straight-line
method over periods ranging from 25 to 40 years.
Franchise Revenue - The franchise agreements for Tony Roma's
restaurants provide for an initial fee and continuing royalty payments
based upon gross sales, in return for operational support, product
development, marketing programs and various administrative services.
Royalty revenue is recognized on the accrual basis, although initial
fees are not recognized until the franchisee's restaurant is opened.
Fees for granting exclusive development rights to specific geographic
areas are recognized when the right has been granted and cash received
is non-refundable. Net franchise revenue is presented net of direct
expenses, which include labor, travel and related costs of Franchise
Business Managers, who operate as liaisons between the franchise
community and the franchisor. Direct costs also include bad debt expense
and opening costs, consisting primarily of training expenses.
Franchisees also participate in national and local marketing programs,
which are managed by the Company. The related funding for these programs
is separate and not included in the accompanying financial statements.
Fair Value of Financial Instruments - See Note 8 for a discussion of
the fair value of the Company's Senior Notes. As of March 26, 2000 and
March 28, 1999, the fair value of the Company's remaining financial
instruments, including cash equivalents, approximates their carrying
value.
Income Taxes - The Company's results prior to June 28, 1998, were
included in the consolidated federal income tax return of NPC
International, Inc. As a result of the Recapitalization (see Note 2),
the Company began filing its own federal income tax return subsequent to
June 28, 1998. The provisions for income taxes, reflected in the
accompanying statements, were calculated for the Company on a separate
return basis in accordance with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes."
Insurance Reserves - The Company is self-insured for certain risks
and is covered by insurance policies for other risks. The Company
maintains reserves for their policy deductibles and other program
expenses using case basis evaluations and other analyses. The reserves
include estimates of future trends in claim severity and frequency, and
other factors, which could vary as claims are ultimately settled.
Reserve estimates are continually reviewed and adjustments are reflected
in current operations. Changes in deductible amounts could impact both
the establishment of future reserves and/or the rate of premiums
incurred.
Advertising Costs - Advertising costs are expensed as incurred. The
Company incurred approximately $3,700,000, $2,700,000, and $2,700,000 of
such costs during the fiscal years ended March 26, 2000, March 28, 1999
and March 29, 1998, respectively.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications - Certain reclassifications have been made to prior
years' financial statements to conform to classifications used in the
current year.
Note 4. Accounts Receivable
Accounts receivable consists of the following:
March 26, March 28,
2000 1999
--------- ---------
(Dollars in thousands)
Franchise receivables............ $1,438 $1,303
Other receivables................ 738 408
------- -------
2,176 1,711
Allowance for doubtful accounts...... (114) (74)
------- -------
Net receivables.............. $2,062 $1,637
======= =======
Franchise receivables represent royalties due based on a percent of
sales at the franchisees' Tony Roma's restaurants, and for other
services provided, and fees assessed in accordance with the franchise
agreement. Other receivables include amounts due for the sale of raw
materials, principally ribs, which the Company has sold from its supply
to distributors and franchisees. Other receivables also includes
"banquet" sales to significant individual customers and other
miscellaneous items.
The Company generally does not require collateral on the accounts,
but has the right to terminate the franchise agreement in the event the
royalties becomes uncollectible.
Note 5. Facilities and Equipment
Facilities and equipment consists of the following:
Estimated March 26, March 28,
Useful Life 2000 1999
---------- --------- ---------
(Dollars in thousands)
Land......................... $14,594 $14,371
Buildings.................... 15-30 years 29,913 26,374
Leasehold improvements........... 5-20 years 14,356 12,050
Furniture and equipment....... 3-10 years 20,091 17,112
Construction in progress........ 4,103 4,756
------- -------
83,057 74,663
Less accumulated depreciation and
amortization.................. (22,353) (17,617)
-------- --------
Net facilities and equipment....... $60,704 $57,046
======= =======
Note 6. Accrued Liabilities
Accrued liabilities consists of the following:
March 26, March 28,
2000 1999
--------- ---------
(Dollars in thousands)
Compensation and related taxes....... $2,540 $2,129
Insurance claims and administration.. 1,284 812
Taxes other than income and payroll 1,324 961
Gift certificates.................. 851 595
Other....................... 1,426 1,068
------- -------
Total accrued liabilities...... $7,425 $5,565
======= =======
Note 7. Income Taxes
The provision (benefit) for income taxes consists of the following:
For the Fiscal Year Ended
March 26, March 28, March 29,
2000 1999 1998
--------- -------- --------
(Dollars in thousands)
Current:
Federal...................... $264 $533 $2,755
State........................ 50 25 99
Foreign...................... 280 220 284
------- ------- -------
594 778 3,138
Deferred:
Federal....................... (773) 147 (723)
State......................... - - (26)
Foreign....................... - - (74)
------- ------- -------
(773) 147 (823)
------- ------- -------
Income tax expense (benefit)...... $(179) $925 $2,315
======= ======= =======
The differences between the provision for income taxes and the
amount computed by applying the statutory federal income tax rate to
income (loss) before income taxes, cumulative effect of change in
accounting principle and extraordinary item are as follows:
For the Fiscal Year Ended
March 26, March 28, March 29,
2000 1999 1998
-------- -------- ---------
(Dollars in thousands)
Tax computed at statutory rate.... $(179) $905 $2,268
Goodwill amortization.............. 242 244 249
Tax credits....................... (292) (264) (372)
State taxes, net of federal effect,
and other....................... 50 40 170
-------- ------- -------
Provision for income taxes........ $(179) $925 $2,315
======== ======= ========
During the fiscal year ended March 26, 2000, an income tax benefit
of $264,000 was recorded as a cumulative effect of a change in
accounting principle and income tax expense of $319,000 was recorded as
extraordinary gain on early retirement of debt.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for federal and state
income tax purposes. Significant components of the Company's deferred
tax assets and liabilities are as follows:
March 26, March 28,
2000 1999
--------- ---------
Deferred tax assets: (Dollars in thousands)
Insurance reserves................ $303 $551
Store closure reserves............ 167 139
Accrued vacation.................. 256 199
Depreciation and asset impairment
adjustments.................... 1,227 700
Allowance for doubtful accounts..... 39 25
Joint venture reserves............... 461 -
Deferred gain...................... 233 -
Other, net......................... 210 509
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Total deferred tax assets......... 2,896 2,123
------- -------
Deferred tax liabilities:
Pre-opening expenses................ - 264
------- -------
Net deferred tax assets................ 2,896 1,859
Current.......................... 755 217
------- -------
Non-current...................... $2,141 $1,642
======= =======
A valuation allowance against deferred taxes is required if, based
on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The Company
believes that no valuation allowance is necessary.
Note 8. Senior Notes
In conjunction with the Recapitalization on June 28, 1998, the
Company issued $75 million of 12% Senior Notes due July 1, 2006 (the
"Senior Notes"). Interest on the notes accrues from the date of issuance
and is payable in arrears on January 1 and July 1 of each year
commencing January 1, 1999. As of March 26, 2000 and March 28, 1999, the
amounts outstanding were $69.0 million and $75.0 million, respectively.
The Senior Notes are secured by substantially all of the assets of the
Company. However, the debt outstanding under the Company's revolving
credit facility has a first priority lien on these same assets. See Note
9 for a discussion of the revolving credit facility.
During February 2000, the Company repurchased $6.0 million face value
of its Senior Notes on the open market at an average price of $803.75
per $1,000 principal amount. To accomplish this repurchase, the Company
obtained a waiver of certain restrictions associated with its revolving
credit facility. The repurchase of the Senior Notes resulted in
extraordinary gains, net of the write-off of associated debt issuance
costs and the effect of income taxes, of $592,000. See Note 9 for a
discussion of additional repurchases of Senior Notes that occurred in
April 2000.
As of March 26, 2000, the fair value of the remaining Senior Notes
is estimated to be in the range of $55.5 million and $58.0 million based
on the quoted market rates for the debt. As of March 28, 1999, the fair
value of the Senior Notes was estimated to be in the range of $72.0
million and $73.5 million.
Note 9. Long-term Debt
Long-term debt as of March 28, 1999 consists of a note payable to a
bank under a $15 million revolving credit facility which is secured by
substantially all of the assets of the Company, and bears interest at
the Company's option of prime rate or up to LIBOR plus 2.25%. Both rates
are subject to maintaining certain financial covenants, and interest is
payable upon maturity of the LIBOR or monthly for prime rate advances.
In addition, a commitment fee based on an annual rate of .375% is
payable monthly on all unused commitments.
In April 2000, the Company executed the First Amendment to Credit
Agreement (the "Amended Credit Agreement") which modified the terms of
the Revolving Credit Facility. The Amended Credit Agreement provides for
borrowings in an aggregate principal amount of up to $25 million until
April 2001; $24 million until April 2002; $22.5 million until April
2003; and $20.5 million until June 2003 at which time the maximum
borrowing is reduced to $5.5 million. The Amended Credit Agreement
expires in April 2005. The terms of the Amended Credit Agreement provide
for interest rates ranging from the prime rate to prime plus 1.0% or the
six-month LIBOR plus 2.25% to LIBOR plus 3.25%. Subsequent to executing
the Amended Credit Agreement, the Company utilized $9.6 million to
repurchase Senior Notes with a face value of $12.0 million.
Note 10. Commitments
The Company leases certain restaurant equipment and buildings under
operating leases. Rent expense for the fiscal years ended March 26,
2000, March 28, 1999, and March 29, 1998 was $4,960,000, $3,879,000, and
$3,879,000, respectively. Included in these amounts were additional
rentals of approximately $775,000, $724,000, and $712,000 for the
fiscal years ended March 26, 2000, March 28, 1999 and March 29, 1998,
respectively, which are based upon a percentage of sales in excess of a
base amount as specified in the lease. The majority of the Company's
leases contain renewal option(s) for 5 to 10 years. Renewal of the
remaining leases is dependent on mutually acceptable negotiations.
At March 26, 2000, minimum rental commitments under operating leases
that have initial or remaining non-cancelable lease terms in excess of
one year are as follows:
Fiscal Year
(Dollars in thousands)
2001............................ $4,172
2002............................ 3,993
2003............................ 3,645
2004............................ 3,351
2005............................ 3,215
Thereafter....................... 22,246
-------
$40,622
=======
In September 1998, the Company obtained a commitment from a financial
group to purchase, at the Company's option, eleven restaurants at a
price not to exceed $1.75 million each or $19.3 million in the aggregate
and to subsequently enter into a leaseback agreement with the Company as
lessee. The lease agreement provides for an initial minimum annual rent
of 10% of the purchase price, which will increase 6% on the third
anniversary of the lease and an additional 6% every three years
thereafter. The lease term will be for 15 years with two five year
renewal options. The minimum annual rent for the renewal option periods
will be set at fair market value. This commitment originally was to
expire on June 30, 2000 but has been extended for a time sufficient to
complete transactions related to three additional properties in the
fiscal year ending March 25, 2001.
During the fiscal years ended March 26, 2000 and March 28, 1999, the
Company completed $5.9 million and $5.5 million of sale-leaseback
transactions, respectively. The transactions during the fiscal year
ended March 26, 2000 resulted in a deferred gain of $717,000. This
deferred gain is being recognized over the 15-year initial term of the
new leases.
Note 11. Summarized Financial Information
Summarized financial information for Romacorp Inc., excluding the
assets, liabilities, and operations of its wholly-owned subsidiaries, is
as follows (in thousands):
For the Fiscal Year Ended
-------------------------------
March 26, March 28, March 29,
2000 1999 1998
-------- -------- --------
Total revenues........ $109,705 $93,213 $86,408
Total operating expense.... 109,235 92,120 86,496
Operating income (loss).... 471 1,093 (88)
Loss before income taxes.... 11,945 7,987 3,147
Net loss.............. 7,691 5,210 2,093
March 26, March 28, March 29,
2000 1999 1998
------- -------- ----------
Current assets............. $5,340 $6,388 $3,275
Noncurrent assets........ 95,694 88,421 74,957
Current liabilities........ 5,930 2,183 1,641
Noncurrent liabilities..... 78,318 101,293 45,299
Note 12. Related Party Transactions
In June 1998, the Company entered into a Transitional Financial
and Accounting Services Agreement (the "Transition Services Agreement")
whereby NPC continued to provide administrative services to the Company
for an initial fee of $16,000 per week for a period of up to one year.
Services provided included accounting services, payroll services and use
of NPC's proprietary restaurant technology system software (the "POS
System"). As part of the Transition Services Agreement, the Company was
granted a perpetual license to use the POS System. Effective March 29,
1999, the Company amended the contract whereby services will continue
through July 2001 with a weekly base service fee of $14,300 during
fiscal 2000, $15,000 during fiscal 2001, and $15,750 during fiscal 2002.
In addition to the base fee, an incremental weekly fee shall be paid for
each restaurant opened on or after March 29, 1999 in the amount of $160
for fiscal 2000, $170 for fiscal 2001 and $180 for fiscal 2002. Pursuant
to the Transition Services Agreement, the Company paid NPC $777,000 and
$564,000 during fiscal 2000 and fiscal 1999, respectively.
The Company reimbursed Sentinel for all out-of-pocket expenses
incurred in connection with the Recapitalization. In addition, pursuant
to a management agreement, Sentinel receives a management fee equal to
$300,000 per year for the first two years of the term of the management
agreement and $500,000 per year thereafter, and will be reimbursed for
certain out-of-pocket expenses. The Company paid Sentinel $313,000 and
$231,000 during fiscal 2000 and fiscal 1999, respectively.