BUCA, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal Years Ended December 30, 2007 and
December 31, 2006
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1.
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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Basis of Presentation
BUCA, Inc. and Subsidiaries (“BUCA,” “we,” “our,” or “us”) develop, own and operate Italian restaurants under the
name Buca di Beppo. At December 30, 2007, our 90 Buca di Beppo restaurants were located in 25 states and the District of Columbia.
As described in
Note 2,
Discontinued Operations and Assets Held for Sale
, we have reclassified Vinny T’s of Boston and three Buca di Beppo closed restaurants’ financial results as discontinued operations for all periods presented. These Notes
to Consolidated Financial Statements, except where otherwise indicated, relate to continuing operations only.
The accompanying financial statements have
been prepared on a going-concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. We recorded net losses of $16.2 million in fiscal 2007 and $3.6 million in fiscal 2006 and had an
accumulated deficit of $119.7 million as of December 30, 2007. Our net cash flows from operating activities has declined to a $2.5 million use of cash in fiscal year 2007 from cash flows provided by operating activities of $2.8 million in
fiscal 2006. As of March 10, 2008, we had outstanding borrowings of approximately $1.8 million under our revolving credit facility and our availability under the revolving credit facility was approximately $3.1 million. Our credit agreement
contains restrictive covenants and requirements that we comply with certain financial ratios. These covenants limit our ability to take various actions without the consent of our lender, including the incurrence of additional debt, the guaranteeing
of certain indebtedness and engaging in various types of transactions, including mergers and sales of assets, paying dividends and making distributions or other restricted payments, including investments. These covenants could have an adverse effect
on our business by limiting our ability to take advantage of business opportunities.
In addition, failure to maintain the covenants required by our credit
agreement could result in acceleration of the indebtedness under the credit facility. In fiscal 2007, we were in violation of certain covenants under the credit agreement, which covenants were subsequently amended and the non-compliance waived by
the lender. Our inability in the future to comply with the covenant requirements under the credit agreement or to obtain a waiver of any violations could impair our liquidity and limit our ability to operate.
Based on available funds, current plans and business conditions, we believe that our available cash, amounts available under our credit agreement and amounts expected to
be generated from future operations will be sufficient to meet our cash requirements through the end of fiscal 2008. Additionally, the proceeds from a potential sale-leaseback transaction would permit us, if necessary, to repay indebtedness under
the credit agreement. There can be, however, no assurances regarding these beliefs. If our plans are not achieved, there may be further negative effects on the results of operations and cash flows, which could have a material adverse effect on us.
Fiscal Periods
We utilize a 52 or 53 week fiscal year
ending on the last Sunday of December for financial reporting purposes. The fiscal year ended December 30, 2007 was a 52 week year. The fiscal year ended December 31, 2006 was a 53 week year.
Principles of Consolidation
The Consolidated Financial Statements
include the accounts of BUCA, Inc. and its Subsidiaries. All significant inter-company balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make
estimates and assumptions for the reporting period and as of the financial statement date. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts
of revenues and expenses. Actual results could differ from those estimates.
F-6
Fair Value of Financial Instruments
At December 30, 2007 and December 31, 2006, the fair values of cash, accounts receivable, and accounts payable approximate their carrying value due to the short-term nature of the instruments. The fair value
of debt approximates its carrying value based upon current rates available to us.
Accounts Receivable
Our accounts receivable consist primarily of amounts due from credit card processors and commercial customers we have extended credit to in the ordinary course of
business.
Inventories
Inventories, which consist of
food, beverage and restaurant supplies, are stated at the lower of cost or market. Cost is determined by the first-in, first-out method of valuation.
Property and Equipment
Land, buildings, leasehold improvements, tenant improvements and equipment are recorded at original cost less
accumulated depreciation and amortization. These assets are depreciated on a straight-line basis over the lesser of their estimated useful lives or associated lease term, ranging from three to 25 years. Land is not depreciated because we believe
that it retains its historical value. Our estimate of the useful life of equipment and buildings is based upon the historical life of similar assets in our industry. Depreciation periods are as follows:
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Land improvements
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Shorter of 25 years or length of remaining lease term
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Buildings
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Shorter of 25 years or length of remaining lease term
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Leasehold improvements
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Shorter of useful life of the asset or remaining lease term
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Furniture, fixtures and equipment
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3 to 7 years
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Computers and peripherals
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3 years
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The estimated useful lives and fair market value of these assets as well as our determination of what constitutes
a capitalized cost versus a repair and maintenance expense involves judgments by management. These judgments may produce materially different amounts of depreciation and amortization expense if different assumptions were used.
Impairment of Long-Lived Assets
We review our long-lived assets,
such as fixed assets and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or group of assets may not be recoverable, but at least quarterly. We consider a history of consistent and
significant operating losses to be a primary indicator of potential asset impairment. Assets are grouped and evaluated for impairment at the lowest level for which there are identifiable cash flows, primarily the individual restaurants. A restaurant
is deemed to be impaired if a forecast of its future operating cash flows directly related to the restaurant is less than its carrying amount. If a restaurant is determined to be impaired, the loss is measured as the amount by which the carrying
amount of the restaurant exceeds its fair value. Fair value is an estimate based on the best information available including prices for similar assets or the results of valuation techniques such as discounted estimated future cash flows, as if the
decision to continue to use the impaired restaurant was a new investment decision. Judgments and estimates made related to long-lived assets are affected by factors such as economic conditions, changes in historical resale values and changes in
operating performance. This process requires the use of estimates and assumptions, which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these assets.
Revenue Recognition
Revenues from restaurant sales
are recognized when payment is tendered at the point of sale. We present revenues net of sales taxes. Direct mail coupons and other in-restaurant promotions are recognized at the point of sale as a direct reduction of revenue. Revenues from our gift
cards (also known as stored value cards) are recognized upon redemption in our restaurants. Until the redemption of gift cards occurs, outstanding balances on such cards are recorded as unredeemed gift card liabilities on our accompanying
consolidated balance sheets. In addition, we recognize gift card breakage once customer redemption is considered remote.
Leases
In accordance with Statement of Financial Accounting Standards (SFAS) No. 13,
Accounting for Leases,
and subsequent amendments, each lease is evaluated at
inception to determine whether the lease will be accounted for as an operating or capital
F-7
lease. Minimum base rent for our operating leases, which generally have escalating rentals over the term of the lease, is recorded on a straight-line basis
over the entire lease term, including cancelable option periods where failure to exercise such options would result in economic penalty, not to exceed 25 years. The initial rent term includes the “build-out”, or rent holiday period,
for our leases, where no rent payments are typically due under the terms of the lease. Contingent rent expense, which is based on a percentage of revenue, is also recorded to the extent it exceeds minimum base rent per the lease agreement.
We account for construction allowances by recording a receivable when its collectibility is considered certain, depreciating the leasehold improvements
over the lesser of their useful lives or the full term of the lease, including renewal options and build-out periods, amortizing the construction allowance as a credit to rent expense over the full term of the lease, including renewal options and
build-out periods, and relieving the receivable once the cash is obtained from the landlord for the construction allowance.
We disburse cash for leasehold
improvements and furnishings, fixtures and equipment to build out and equip our leased premises. We may also expend cash for structural components of the building that we make to leased premises that generally are reimbursed to us by our
landlords as construction contributions pursuant to agreed-upon terms in our leases. Landlord construction contributions usually take the form of up-front cash, full or partial credits against minimum or percentage rents otherwise payable by
us, or a combination thereof. Depending on the specifics of the leased space, the lease agreement and in accordance with EITF 97-10,
The Effect of Lessee Involvement in Asset Construction
, during the construction period, the amounts paid for
structural components are recorded as either prepaid rent or construction-in-progress and the landlord construction contributions are recorded as either an offset to prepaid rent or as a deemed landlord financing liability.
Pre-opening Costs
Pre-opening costs, consisting primarily of manager
salaries and relocation expenses, employee payroll and related training costs incurred prior to the opening of the restaurant, are expensed as incurred.
Self-Insurance
We are self-insured for a significant portion of our current medical, dental, workers’ compensation and general
liability insurance programs. In estimating our self-insurance reserves, we utilize estimates of future losses, based upon our historical loss trends and historical industry data and actuarial estimates of settlement costs for incurred claims. These
reserves are monitored and adjusted when warranted by changing circumstances. Should an additional change in claims occur compared to our current estimates, our reserves could be either increased or decreased based upon that data. Any increases or
decreases in insurance reserves would be offset by a corresponding increase or decrease in insurance expense.
Estimated Liability for Closing
Restaurants
We make decisions to close restaurants based on prospects for estimated future profitability. We evaluate each restaurant’s
performance every quarter. When restaurants continue to perform poorly, we consider the demographics of the location, as well as the likelihood of being able to improve an unprofitable restaurant. If we determine that the restaurant will not, within
a reasonable period of time, operate at break-even cash flow or be profitable, we may close the restaurant.
The estimated liability for closing
restaurants on properties vacated is generally based on the term of the lease and the lease termination fee we expect to pay, as well as estimated maintenance costs until the lease has been abated. The amount of the estimated liability established
is generally the present value of these estimated future payments upon exiting the property. The interest rate used to calculate the present value of these liabilities is based on our incremental borrowing rate at the time the liability is
established.
A significant assumption used in determining the amount of the estimated liability for closing restaurants is the amount of the estimated
liability for future lease payments on vacant restaurants, which we determine based on our assessment of our ability to successfully negotiate early terminations of our lease agreements with our landlords or sublease the property. Additionally, we
estimate the cost to maintain leased and owned vacant properties until the lease has been abated. If the costs to maintain properties increase or it takes longer than anticipated to sell properties or sublease or terminate leases, we may need to
record additional estimated liabilities. If the leases on the vacant restaurants are not terminated or subleased on the terms we used to estimate the liabilities, we may be required to record losses in future periods. Conversely, if the leases on
the vacant restaurants are terminated or subleased on more favorable terms than we used to estimate the liabilities, we reverse previously established estimated liabilities, resulting in an increase in operating income.
Loss Contingencies
We maintain accrued liabilities and reserves
relating to the resolution of certain contingent obligations. Significant contingencies include those related to litigation. We account for contingent obligations in accordance with SFAS No. 5,
Accounting for Contingencies
, as
interpreted by Financial Accounting Standards Board (FASB) Interpretation No. 14 which requires that we assess
F-8
each contingency to determine estimates of the degree of probability and range of possible settlement. Contingencies which are deemed to be probable and
where the amount of such settlement is reasonably estimable are accrued in our financial statements. If only a range of loss can be determined, we accrue to the best estimate within that range; if none of the estimates within that range is better
than another, we accrue to the low end of the range.
The assessment of loss contingencies is a highly subjective process that requires judgments about
future events. Contingencies are reviewed at least quarterly to determine the adequacy of the accruals and related financial statement disclosure. The ultimate settlement of loss contingencies may differ significantly from amounts we have accrued in
our financial statements.
Advertising Costs
Advertising costs are expensed as incurred. Advertising costs were approximately $7.6 million and $7.8 million for fiscal years 2007 and 2006, respectively.
Income Taxes
Deferred income taxes are recognized for the tax consequences of differences between the tax basis of
assets and liabilities and their financial reporting amounts at each reporting date based on enacted tax laws and applicable statutory tax rates. A valuation allowance was recorded at December 30, 2007 and December 31, 2006 against net
deferred tax assets to reduce net deferred tax assets to zero as it was deemed more likely than not that they would not be realized in the future.
We have
capital loss carry forwards of $5.0 million, that will begin to expire in 2011, federal general business credits of approximately $4.5 million that will begin to expire in 2008 and net operating loss carry forwards of $19.4 million that will begin
to expire in 2023, if not used. We also have net state operating loss carry forwards of approximately $3.7 million, which, if not used, will begin to expire in 2014.
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48),
Accounting for Uncertainty in Income Taxes—An interpretation of FASB Statement No. 109
. The
Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attributes of income tax positions taken or expected to be taken
on a tax return. Under FIN 48, the impact of an uncertain tax position taken or expected to be taken on an income tax return must be recognized in the financial statements at the largest amount that is more-likely-than-not to be sustained upon audit
by the relevant taxing authority. An uncertain income tax position will not be recognized in the financial statements unless it is more likely than not of being sustained. We adopted the provisions of FIN 48 as of January 1, 2007. The impact of
adopting FIN 48 was not material as of the date of adoption or in subsequent periods.
The total amount of unrecognized tax benefits and related penalties
and interest is not material as of December 30, 2007. Therefore no amounts related to uncertain tax positions, penalties or interest have been recorded on the financial statements.
Share-Based Compensation
We account for our share-based compensation plans under the fair value recognition
provisions of SFAS No. 123(R),
Share-Based Payment,
using the modified prospective transition method. Under that transition method, compensation expense includes expense associated with the fair value of all awards granted on and after
December 26, 2005 (the beginning of our 2006 fiscal year), expense for the unvested portion of previously granted awards outstanding on December 26, 2005, and compensation for the discount eligible employees receive as part of the Employee
Stock Purchase Plan (ESPP).
We estimate the fair value of options granted using the Black-Scholes option valuation model and the assumptions shown in Note
15 to the accompanying condensed consolidated financial statements. We estimate the volatility of our common stock at the date of grant based on our historical volatility rate, consistent with SFAS No. 123(R) and Securities and Exchange
Commission Staff Accounting Bulletin No. 107 (SAB 107). Our decision to use historical volatility was based upon the lack of actively traded options on our common stock. We estimate the expected term consistent with the simplified method
identified in SAB 107 for share-based awards granted during fiscal 2006 and fiscal 2007. The simplified method calculates the expected term as the average of the vesting and contractual terms of the award. The risk-free interest rate assumption is
based on observed interest rates appropriate for the term of our employee options. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. For
options granted, we amortize the fair value on a straight-line basis. All options are amortized over the requisite service periods of the awards, which are generally the vesting periods. If factors change we may decide to use different assumptions
under the Black-Scholes option valuation model in the future, which could materially affect our net income and earnings per share.
F-9
Asset Retirement Obligation
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47),
Accounting for Conditional Asset Retirement Obligations—an Interpretation of FASB Statement No. 143
. We adopted FIN 47 as of December 25, 2005.
This Interpretation clarifies that the term “conditional asset retirement obligation,” as used in SFAS 143, refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the entity. Therefore, the timing and/or method of settlement may be conditional on a future event. Accordingly, an entity is required to recognize a liability for the fair
value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred—generally upon
acquisition, construction, or development and/or through the normal operation of the asset. Uncertainty about the timing and/or method of settlement of a conditional asset retirement obligation should be factored into the measurement of the
liability when sufficient information exists.
In accordance with FIN 47, liabilities for legal obligations stemming from the eventual retirement of
tangible long-lived assets (leasehold improvements) were recorded at fair value as of December 25, 2005, with a corresponding increase to the carrying values of the related long-lived assets. This liability will be increased over time by
applying the interest method of accretion to the liability and the capitalized costs will be depreciated over the useful life of the related long-live assets. The primary long-lived assets impacted by this adoption are restaurant leasehold
improvements.
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Asset retirement obligation December 31, 2006
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606
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Accretion expense
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57
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Asset retirement obligation December 30, 2007
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$
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663
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Recent Accounting Pronouncements
In March 2006, the Emerging Issues Task Force (EITF) issued EITF Issue 06-03,
How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross
versus Net Presentation)
. A consensus was reached that entities may adopt a policy of presenting sales taxes in the income statement on either a gross or net basis. If taxes are significant, an entity should disclose its policy of
presenting taxes and the amounts of taxes. The guidance is effective for periods beginning after December 15, 2006. We present revenues net of sales taxes. This issue did not impact the method for presenting these sales taxes in our
consolidated financial statements.
In September 2006, the FASB issued SFAS No. 157,
Fair Value Measurements
. SFAS No. 157 defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair
value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157 does not require any new fair value measurements. SFAS No. 157 is
effective for fiscal years beginning after December 15, 2007. We are currently evaluating the impact, if any, the adoption of SFAS No. 157 will have on our financial statements.
In February 2007, the FASB issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial Liabilities
, which permits entities to choose to
measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. We are currently evaluating the impact, if any, the adoption of SFAS No. 159 will have on our financial statements.
In
December 2007, the FASB issued SFAS No. 141(R)
Business Combinations
, which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, including
goodwill, the liabilities assumed and any non-controlling interest in the acquiree. SFAS 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141(R) is
effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adopting SFAS 141(R) will be dependent on the future
business combinations that we may pursue after its effective date.
In December 2007, the FASB issued SFAS No. 160
Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51
which changes the accounting and reporting for minority interests, which will be characterized as noncontrolling interests and classified as a component of an entity. SFAS
No. 160 is effective for fiscal years beginning after December 15, 2007. We are currently evaluating the impact, if any, the adoption of SFAS No. 160 will have on our financial statements.
F-10
In December 2007, the Securities and Exchange Commission (“
SEC
”) issued Staff Accounting
Bulletin No. 110 (“SAB 110”). SAB 110 amends and replaces Question 6 of Section D.2 of Topic 14,
Share-Based Payment
. SAB 110 expresses the views of the staff regarding the use of the “simplified” method in
developing an estimate of expected term of “plain vanilla” share options in accordance with FASB Statement No. 123(R),
Share Based Payment.
The use of the “simplified” method was scheduled to expire on
December 31, 2007. SAB 110 extends the use of the “simplified” method for “plain vanilla” awards in certain situations. We currently uses the “simplified” method to estimate the expected term for share option
grants as we do not have enough historical experience to provide a reasonable estimate. We will continue to use the “simplified” method until we have enough historical experience to provide a reasonable estimate of expected term in
accordance with SAB 110. SAB 110 is effective for options granted after December 31, 2007.
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2.
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DISCONTINUED OPERATIONS AND ASSETS HELD FOR SALE
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In 2005, our Board of
Directors approved the engagement of an investment banker to represent us in the planned sale of the Vinny T’s of Boston restaurants. Also in 2005, we closed three Buca di Beppo restaurants. The Vinny T’s of Boston brand and associated
assets and the three individual restaurants, as aggregated, meet the definition of a “component of an entity”. Operations and cash flows can be clearly distinguished and measured at the restaurant level and, when aggregated with the Vinny
T’s of Boston events noted above, the financial results of the three closed restaurants were determined to be material to our Consolidated Financial Statements. At December 25, 2005, Vinny T’s of Boston was accounted for as an
“asset held for sale” and, along with the three closed restaurants, was included in discontinued operations in the Consolidated Statements of Operations and assets held for sale in the Consolidated Balance Sheets in accordance with SFAS
No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets.
We completed the sale of the Vinny T’s of Boston restaurants to
Bertucci’s Corporation on September 25, 2006 (first day of our fiscal fourth quarter). Based on the sale proceeds, less anticipated costs to sell, we analyzed the carrying values of the Vinny T’s of Boston long-lived assets and
intangibles and recorded an impairment in accordance with SFAS No. 144 of approximately $0.4 million as of September 24, 2006. The sale price was $6.8 million; of which $3.0 million was paid in cash at the closing ($2.6 million net of
banker fees and other expenses) and $3.8 million was paid through a promissory note issued at closing. The sale resulted in a $0.3 million gain that was recorded as of December 31, 2006.
The promissory note was set to mature on June 15, 2008 or earlier upon the occurrence of certain other events, including a change in control of Bertucci’s or
the repayment or refinancing of Bertucci’s outstanding senior notes. Bertucci’s prepaid the note on July 17, 2007; as a result, we received $3.9 million in full payment of the note.
There were current liabilities of $0.3 million as of December 31, 2006 and there were no assets or liabilities classified as discontinued operations as of
December 30, 2007.
We closed three Buca di Beppo restaurants in November 2005. We reached agreement with the landlords of two of the restaurants to
terminate the leases and have reached an agreement to sublease one of the properties. The fair value of these liabilities were estimated in accordance with the requirements of SFAS No. 146,
Accounting for Costs Associated with Exit or
Disposal Activities.
This required us to either negotiate a settlement with the landlord or estimate the present value of the future minimum lease obligations offset by the estimated sublease rentals that could be reasonably obtained for the
properties.
Discontinued operations’ remaining liabilities are as follows (in thousands):
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Accrued exit costs at December 25, 2005
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$
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400
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Expenses accrued
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130
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Payments
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(273
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)
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Accrued exit costs at December 31, 2006
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$
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257
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Expenses accrued
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147
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Payments
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(404
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)
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Accrued exit costs at December 30, 2007
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$
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—
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F-11
Discontinued operations’ financial results consisted of (in thousands):
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Fiscal 2007
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Fiscal 2006
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Restaurant sales
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$
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—
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$
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22,950
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Restaurant costs
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66
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21,819
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Loss on impairment of long-lived assets (1)
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—
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147
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Lease termination costs and other
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142
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31
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Net (loss) income from discontinued operations
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$
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(208
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)
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$
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953
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(1)
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In fiscal 2006 we recorded a $0.1 million loss on the impairment of long-lived assets (net of the gain on sale) related to Vinny T’s of Boston restaurants.
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3.
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LOSS ON IMPAIRMENT AND SALE OF LONG-LIVED ASSETS
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In fiscal 2007, we
recorded a loss on the impairment of long-lived assets of $5.1 million primarily related to a $4.0 million write-down of three of our restaurants, a $0.6 million write-down of intangible assets, a $0.3 write down of liquor license assets and $0.2
million loss on the impairment of long-lived asset additions in restaurants that have been fully impaired. In fiscal 2006, we recorded a $0.3 million loss on the impairment of long-lived assets primarily related to asset additions in restaurants
that have been fully impaired in accordance with SFAS 144.
Inventories consisted of (in thousands):
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December 30,
2007
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December 31,
2006
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Food
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$
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1,185
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$
|
1,197
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Beverage
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1,067
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1,126
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Supplies
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3,832
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3,956
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Total inventories
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$
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6,084
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$
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6,279
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5. PROPERTY AND EQUIPMENT
Property and equipment consisted of (in thousands):
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December 30,
2007
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December 31,
2006
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Buildings and leasehold improvements
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$
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114,763
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$
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120,148
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Furniture, fixtures and equipment
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65,051
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65,067
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Land
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1,419
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|
|
2,596
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|
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181,233
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|
|
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187,811
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Accumulated depreciation and amortization
|
|
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(82,906
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)
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(75,622
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)
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|
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|
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Property and equipment, net
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$
|
98,327
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|
|
$
|
112,189
|
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The property and equipment balances include gross capitalized lease assets of $15.7 million for each of fiscal
2007 and 2006. The accumulated amortization balances for fiscal 2007 and 2006 include amortization of capitalized lease assets of $1.8 million and $1.0 million, respectively.
We capitalize interest during the construction period prior to the opening of a new restaurant or during the implementation of capitalized software. We capitalized approximately $23,000 and $30,000 in fiscal 2007 and
2006, respectively, of interest expense related to software implementations. The capitalized interest is depreciated over the life of the related assets.
Repair and maintenance expenses for fiscal 2007 and 2006 were approximately $9.6 million and $8.7 million, respectively.
F-12
Other assets, net of accumulated amortization, consisted of
(in thousands):
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December 30,
2007
|
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December 31,
2006
|
|
Liquor licenses
|
|
$
|
1,505
|
|
$
|
1,811
|
|
Loan acquisition costs
|
|
|
864
|
|
|
1,157
|
|
Escrow deposits
|
|
|
817
|
|
|
877
|
|
Trademarks
|
|
|
—
|
|
|
624
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
3,186
|
|
$
|
4,469
|
|
|
|
|
|
|
|
|
Accumulated amortization for loan acquisition costs was approximately $1.4 million at December 30, 2007 and
$0.9 at December 31, 2006.
Liquor licenses and trademarks are non-amortizing intangible assets with indefinite lives.
|
7.
|
OTHER ACCRUED EXPENSES
|
Accrued expenses consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
Accrued legal settlements
|
|
$
|
—
|
|
$
|
102
|
|
Accrued utilities
|
|
|
837
|
|
|
888
|
|
Accrued common area maintenance and percentage rent
|
|
|
216
|
|
|
210
|
|
Accrued credit card fees
|
|
|
602
|
|
|
360
|
|
Accrued interest
|
|
|
40
|
|
|
62
|
|
Other accrued expenses
|
|
|
3,181
|
|
|
1,873
|
|
|
|
|
|
|
|
|
|
Total other accrued expenses
|
|
$
|
4,876
|
|
$
|
3,495
|
|
|
|
|
|
|
|
|
Other liabilities consisted of (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
Deferred gain on sale and leaseback of property (1)
|
|
$
|
2,378
|
|
$
|
2,531
|
|
Long-term gift card liability
|
|
|
869
|
|
|
866
|
|
Asset retirement obligation
|
|
|
663
|
|
|
606
|
|
Other
|
|
|
52
|
|
|
34
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
3,962
|
|
$
|
4,037
|
|
|
|
|
|
|
|
|
|
(1)
|
In 2005, we recorded a deferred gain of $0.6 million on the sale and leaseback of a restaurant. In 2003, we recorded a $2.0 million deferred gain on the sale and leaseback of a
restaurant. These deferred gains are being recognized over the remainder of the 20-year initial operating lease term.
|
In 2004, we entered into a credit agreement with Wells
Fargo Foothill, Inc. and Ableco Finance LLC, as lenders, and with Wells Fargo Foothill, Inc., as the arranger and administrative agent for the lenders. The credit agreement originally provided for (a) a revolving credit facility in an aggregate
amount equal to the lesser of a borrowing base determined in accordance with the terms of the credit agreement and $20 million (including a letter of credit sub-facility of up to an aggregate of $5.0 million); (b) a term loan A facility of up
to an aggregate of $5 million; and (c) a term loan B facility of up to an aggregate of $15 million. The credit agreement expires on November 15, 2009.
We are also required under the loan documents to pay certain of our lenders an annual fee, an unused line of credit fee and a prepayment fee in the event of early termination of the agreement.
The credit agreement includes various affirmative and negative covenants, including certain financial covenants such as minimum EBITDA as defined in the agreement,
minimum fixed charge coverage ratio and maximum limits on capital expenditures and the acquisition or construction of new restaurants in any fiscal year. Payments under the credit agreement may be accelerated upon the occurrence of an event of
default, as defined in the credit agreement that is not otherwise waived or cured.
F-13
On September 9, 2005, we completed the sale and simultaneous leaseback of eight restaurant locations with affiliates
of CRIC Capital at a sale price of $17.5 million (the “Sale Leaseback Transaction”). The net proceeds of the Sale Leaseback Transaction were used to prepay, in its entirety, the outstanding term loan B facility with Ableco and to prepay a
portion of the outstanding term loan A facility with Wells Fargo Foothill. A premium equal to four percent of the outstanding principal amount of the term loan B was paid in connection with the prepayment of the term loan B facility. Concurrently
with the closing of the Sale Leaseback Transaction, we entered into an agreement (the “Amendment and Consent”) with the lenders. Pursuant to the Amendment and Consent, the lenders consented to the Sale Leaseback Transaction, agreed to
amend the minimum EBITDA coverage required for relevant testing periods in fiscal 2007, and agreed to amend the credit agreement in certain other respects. In consideration of the Amendment and Consent, we agreed to increase the interest rate on
each of the remaining term loan A facility and the revolving credit facility by 2.25% per annum.
On September 24, 2006, we completed the sale of
Vinny T’s of Boston restaurants to Bertucci’s at a sale price of $6.8 million; of which $3.0 million was paid in cash at the closing and $3.8 million was paid through a promissory note issued at closing. The net proceeds from the sale of
Vinny T’s of Boston were used to prepay, in its entirety, the outstanding term loan A facility with Wells Fargo Foothill and pay down a portion of our outstanding indebtedness under the Wells Fargo Foothill revolving credit facility. The
promissory note was set to mature on June 15, 2008 or earlier upon the occurrence of certain other events, including a change in control of Bertucci’s or the repayment or refinancing of Bertucci’s outstanding senior notes.
Bertucci’s prepaid the note on July 17, 2007; as a result, we received $3.9 million in full payment of the note which was applied against our outstanding borrowings under the revolving credit facility.
On March 8, 2007, we executed an amendment to our credit agreement with Wells Fargo Foothill. Pursuant to the amendment, the lenders agreed to expand our maximum
revolver amount to $25 million and agreed to amend the credit agreement in certain other respects. In exchange for the amendment, we paid our lender a fee of $50,000. As of April 1, 2007, July 1, 2007 and September 30, 2007, we
were in default of the financial covenant regarding minimum EBITDA. As of December 30, 2007, we were in default of the financial covenants regarding minimum EBITDA and fixed charge coverage. As a result, we negotiated and received waivers in
each of May 2007, August 2007, November 2007 and March 2008. In exchange for the waivers, we paid our lender a waiver fee of $25,000 in May 2007, $50,000 in August 2007, $75,000 in November 2007 and $150,000 in March 2008.
The interest rate on the revolving credit facility is Wells Fargo’s reference rate plus a margin. The specific margin corresponds to a range (0.5 to 2.0 percentage
points) as determined by our leverage ratio. We also have the option of utilizing a LIBOR rate plus a specific margin as determined by our leverage ratio. Our interest rate on the revolving credit facility was the Wells Fargo reference rate plus
2.00 percentage points which was 9.25% on December 30, 2007 and 10.75% on December 31, 2006. Under the credit facility, our annual capital expenditures are limited to $13 million and the agreement includes covenants that place restrictions
on sales of properties, transactions with affiliates, incurring additional debt, our ability to sign leases for new restaurants and require maintenance of certain financial covenants and other customary covenants.
Amounts borrowed under the credit facility are secured by substantially all of our tangible and intangible assets. As of March 10, 2008, we had outstanding
borrowings of approximately $1.8 million under our revolving credit facility and our availability under the revolving credit facility was approximately $3.1 million.
F-14
|
10.
|
LONG-TERM DEBT AND CAPITALIZED LEASES
|
Long-term debt and capital leases
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
Note payable in monthly installments, including interest at 12.0%, maturing September 2014, collateralized by leasehold
improvements
|
|
$
|
331
|
|
$
|
358
|
|
Note payable in semi-annual installments, including interest at 10.0%, maturing October 2011, collateralized by leasehold
improvements
|
|
|
143
|
|
|
172
|
|
Note payable in monthly installments, including interest at 10.0%, maturing March 2014, collateralized by leasehold
improvements
|
|
|
178
|
|
|
197
|
|
Capitalized leases payable in monthly installments, through September 2025
|
|
|
15,637
|
|
|
15,744
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
16,289
|
|
|
16,471
|
|
Current maturities
|
|
|
296
|
|
|
193
|
|
|
|
|
|
|
|
|
|
Total long-term maturities
|
|
$
|
15,993
|
|
$
|
16,278
|
|
|
|
|
|
|
|
|
The future maturities of long-term debt principal payments, including capital leases, are as follows (in
thousands):
|
|
|
|
|
|
2008
|
|
$
|
296
|
|
2009
|
|
|
378
|
|
2010
|
|
|
455
|
|
2011
|
|
|
514
|
|
2012
|
|
|
547
|
|
Thereafter
|
|
|
14,099
|
|
|
|
|
|
|
|
|
$
|
16,289
|
|
|
|
|
|
|
11.
|
COMMITMENTS AND CONTINGENCIES
|
Leases—
We are obligated under
various operating leases for restaurant and storage space and equipment. Generally, the base lease terms are between five and 25 years. Certain of the leases require the payment of contingent rentals based on a percentage of annual sales in excess
of stipulated minimums. The leases also require us to pay our pro rata share of real estate taxes, operating expenses, and common area costs. In addition, we have received lease incentives in connection with certain leases. We are recognizing the
benefits related to the lease incentives on a straight-line basis over the applicable lease term.
Straight-line minimum and contingent rent expense for
all operating leases was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Straight-line minimum rent
|
|
$
|
15,542
|
|
$
|
15,463
|
|
Contingent rent
|
|
|
8
|
|
|
177
|
|
|
|
|
|
|
|
|
|
Total rent expense
|
|
$
|
15,550
|
|
$
|
15,640
|
|
|
|
|
|
|
|
|
Approximate future minimum lease obligations, excluding percentage (contingent) rents, at December 30, 2007
are as follows (in thousands):
|
|
|
|
|
|
2008
|
|
$
|
15,599
|
|
2009
|
|
|
15,705
|
|
2010
|
|
|
15,866
|
|
2011
|
|
|
15,945
|
|
2012
|
|
|
15,979
|
|
Thereafter
|
|
|
161,423
|
|
|
|
|
|
|
Total future minimum base rents
|
|
$
|
240,517
|
|
|
|
|
|
Letters of Credit
—As credit guarantees to insurers, we are contingently liable under standby letters
of credit issued under our credit facility. As of December 30, 2007, we had $3.6 million of standby letters of credit related to our self-insurance liabilities. All standby letters of credit are renewable annually.
F-15
Litigation
— In February 2005, we announced that the SEC had informed us that it has issued a formal order of
investigation to determine whether there have been violations of the federal securities laws. On September 28, 2007, we announced that the SEC simultaneously commenced and settled with us a lawsuit alleging violations of federal securities
laws. The lawsuit and settlement relate to the SEC Enforcement Division’s investigation of certain accounting practices and other actions by former BUCA officials. Pursuant to the terms of the Consent and Final Judgment filed with the court for
its approval, we agreed, without admitting or denying any wrongdoing, to be enjoined from future violations of the securities laws. We were not required to pay any monetary fine in connection with the settlement.
Three virtually identical civil actions were commenced against our company and three former officers in the United States District Court for the District of Minnesota
between August 7, 2005 and September 7, 2005. The three actions have been consolidated. The four lead plaintiffs filed and served a Consolidated Amended Complaint (the “Complaint”) on January 11, 2006. The Complaint was
brought on behalf of a class consisting of all persons who purchased our common stock in the market during the time period from February 6, 2001 through March 11, 2005 (the “class period”). We filed a motion to dismiss the
Complaint, which was granted on October 16, 2006. On December 18, 2006, the lead plaintiffs filed a Second Amended Consolidated Complaint (“Second Complaint”). The Second Complaint alleged that in press releases and SEC filings
issued during the class period, defendants made materially false and misleading statements about our company’s income, revenues, and internal controls, which allegedly had the result of artificially inflating the market price for our stock. The
lead plaintiffs asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and sought compensatory damages in an unspecified amount, plus an award of attorneys’ fees and costs of litigation. We filed a motion to
dismiss the Second Complaint, which was granted on August 30, 2007. Judgment was entered against the plaintiffs. Plaintiffs filed an appeal to the United States Court of Appeals for the Eighth Circuit. On January 8, 2008, we announced that
we had reached a tentative agreement to settle the suit. The tentative agreement, which is still subject to final agreement and to approval by the court, would settle the suit on a class-wide basis in exchange for payment of $1.6 million, which
would be paid by our insurance carrier. We are not able to predict the ultimate outcome of this litigation, but it may be costly and disruptive. Federal securities litigation can result in substantial costs and divert our management’s attention
and resources, which may have a material adverse effect on our business and results of operations, including cash flows.
In January 2008, one of our
former hourly employees filed a purported class action suit against us in the Los Angeles County Superior Court, State of California, where it is currently pending. The complaint alleges causes of action for failure to pay wages/overtime, failure to
provide meal breaks, failure to provide accurate wage statements, failure to ensure that paychecks can be cashed without discount, failure to pay wages at termination, negligent misrepresentation, and unfair business practices. As part of the
lawsuit, the plaintiff seeks to collect certain civil penalties that could separately be assessed by the California Labor & Workforce Development Agency (“Agency”). To do so, the plaintiff must first notify the Agency of
the claimed Labor Code violations and provide the Agency with an opportunity to investigate the violations and issue citations, if any. On February 28, 2008, the Agency notified the parties of its intent to investigate the violations claimed by
plaintiff. We are not able to predict the ultimate outcome of this litigation, but it may be costly and disruptive. Lawsuits such as this can result in substantial costs and divert our management’s attention and resources, which may have a
material adverse effect on our business and results of operations, including cash flows.
We are subject to certain legal actions arising in the normal
course of business, none of which is expected to have a material adverse effect on our results of operations, financial condition or cash flows.
We are subject to taxation in the United States and various
state jurisdictions. Our tax years for 2004 through 2006 are subject to examination by the Internal Revenue Service. The total amount of unrecognized tax benefits and related penalties and interest is not material as of December 30, 2007. We do
not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.
The provision for income taxes
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
Fiscal 2006
|
|
Current: Federal
|
|
$
|
—
|
|
$
|
—
|
|
State
|
|
|
—
|
|
|
—
|
|
Deferred: Federal
|
|
|
—
|
|
|
—
|
|
State
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
—
|
|
$
|
—
|
|
|
|
|
|
|
|
|
F-16
The following is a reconciliation between the U. S. federal statutory rate and the effective tax rate:
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Federal statutory rate
|
|
34.0
|
%
|
|
34.0
|
%
|
|
State income taxes, net of federal benefit
|
|
3.5
|
|
|
3.3
|
|
|
Permanent differences
|
|
(0.5
|
)
|
|
(2.2
|
)
|
|
Valuation allowance
|
|
(32.2
|
)
|
|
(20.8
|
)
|
|
Change in state rate of deferred
|
|
(0.1
|
)
|
|
1.7
|
|
|
Other
|
|
(4.7
|
)
|
|
(16.0
|
)
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
0
|
%
|
|
0
|
%
|
|
|
|
|
|
|
|
|
The income tax effects of temporary differences that give rise to significant deferred tax assets and liabilities
are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
|
December 31,
2006
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards and tax credits
|
|
$
|
32,504
|
|
|
$
|
26,854
|
|
|
Property and equipment
|
|
|
8,868
|
|
|
|
7,276
|
|
|
Deferred rent
|
|
|
3,901
|
|
|
|
4,123
|
|
|
Insurance reserves
|
|
|
1,094
|
|
|
|
962
|
|
|
Litigation reserve
|
|
|
—
|
|
|
|
38
|
|
|
Other
|
|
|
1,708
|
|
|
|
1,138
|
|
|
Valuation allowance
|
|
|
(46,640
|
)
|
|
|
(38,915
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,435
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
1,435
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,435
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset:
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
NET LOSS FROM CONTINUING OPERATIONS PER SHARE
|
Net loss from continuing
operations per share is computed in accordance with SFAS No. 128,
Earnings per Share
. Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding. The following table sets forth the
calculation of basic and diluted net loss from continuing operations per common share (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
Fiscal 2006
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss from continuing operations
|
|
$
|
(15,967
|
)
|
|
$
|
(4,561
|
)
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic
|
|
|
20,451,954
|
|
|
|
20,494,007
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic and diluted
|
|
|
20,451,954
|
|
|
|
20,494,007
|
|
|
Basic and diluted net loss from continuing operations per common share
|
|
$
|
(0.78
|
)
|
|
$
|
(0.23
|
)
|
Diluted loss from continuing operations per common share excludes 2.1 million stock options at a weighted
average exercise price of $6.14 in fiscal 2007 and 1.3 million stock options at a weighted average exercise price of $7.15 in fiscal 2006 due to their anti-dilutive effect.
F-17
|
14.
|
EMPLOYEE BENEFIT PLANS
|
Employees who are age 21 or older and
work 500 hours during their first six months of service are eligible to participate in our 401(k) Plan. If an employee does not work 500 hours in their first six months of service, they must then work 1,000 hours during a plan year and
will become participants on the first day of the next plan year. Under the provisions of the plan, we may, at our discretion, make contributions to the 401(k) Plan. Participants are 100% vested in their own contributions. We made no
contributions to the plan during fiscal 2007 or 2006.
Our employee stock purchase plan enables eligible employees to purchase our common stock at 85% of
its fair market value on either the first or last day of the purchasing month. Eligible employees are required to have worked with us for at least one year and to have averaged 20 hours per week during the prior year. Shares were issued as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Shares purchased
|
|
|
68,037
|
|
|
45,797
|
|
Share high
|
|
$
|
4.82
|
|
$
|
4.81
|
|
Share low
|
|
$
|
0.99
|
|
$
|
3.83
|
In 2004, we established a Phantom Stock Plan as a performance incentive program for key restaurant management
personnel. The plan gives such managers the right to receive a cash payment equal to the value of a specified number of shares provided such manager remained our employee until at least December 31, 2005. After that date, but not later than
December 31, 2007, each such manager can request a payment from the company that is equal to the number of shares times the weighted average of the closing prices of our stock during the full calendar month preceding the month in which such
payment is requested. We retain the right to offset any amounts due to us from the manager, prior to issuing any payment under the plan. As of December 30, 2007, there was a total of 6,850 units or share equivalents that remained outstanding.
The amount accrued as of the end of fiscal 2007 was $6,782 related to this plan.
In October 2006, the compensation committee of our Board of Directors
granted to certain of our executives an aggregate of 230,150 shares of restricted stock under the 2006 Omibus Stock Plan, as amended. All such shares of restricted common stock vest and the related restrictions expire on July 26, 2009. However,
each executive’s restricted shares will vest immediately upon the earliest to occur of the executive’s death or disability or a Fundamental Change (as defined in the related agreement) of the company. If the executive’s employment is
terminated for any reason (other than death, disability, position elimination or a Fundamental Change) prior to vesting, the restricted shares will be forfeited. We are accounting for these restricted stock grants in accordance with SFAS 123(R).
In June 2007, the compensation committee of our Board of Directors granted to Mr. Doolin 140,000 shares of restricted stock under the 2006 Omibus
Stock Plan, as amended. All such shares of restricted common stock vest and the related restrictions expire on December 31, 2009. However, the restricted shares will vest immediately upon the earliest to occur of the executive’s death or
disability or a Fundamental Change (as defined in the related agreement) of the company. If the executive’s employment is terminated for any reason (other than death, disability, position elimination or a Fundamental Change) prior to vesting,
the restricted shares will be forfeited. We are accounting for these restricted stock grants in accordance with SFAS 123(R).
|
15.
|
STOCK-BASED COMPENSATION
|
We have stock-based compensation plans under
which we issue stock options, non-vested share awards (restricted stock) and discounted purchase rights. Our 2006 Omnibus Stock Plan (the 2006 Plan) allows our Board of Directors to grant options to purchase shares of our stock to eligible employees
for both incentive and non-statutory stock options. Options granted under the 2006 Plan vest as determined by the Board of Directors (generally five years) and are exercisable for a term not to exceed ten years. The 2006 Plan was approved by our
shareholders in June 2006, at which time we ceased granting any future awards under our prior stock option plans. A total of 2,100,000 shares are reserved under the 2006 Plan.
We previously issued stock options and granted restricted stock under our 1996 Incentive Stock Option Plan and our 2000 Stock Incentive Plan. Our Board of Directors no longer makes any additional grants under these
plans.
Our Employee Stock Purchase Plan (ESPP) permits eligible employees to purchase stock at 85% of the fair market value on either the first or last
day of the purchase period.
It is our policy to issue new shares when options are exercised, upon granting restricted stock and to fulfill employee
purchases through the ESPP.
F-18
We account for our share-based compensation plans under the fair value recognition provisions of SFAS No. 123(R),
Share-Based Payment,
using the modified prospective transition method. Under that transition method, compensation expense includes expense associated with the fair value of all awards granted on and after December 26, 2005 (the beginning
of our 2006 fiscal year), expense for the unvested portion of previously granted awards outstanding on December 26, 2005, and compensation for the discount eligible employees receive as part of the ESPP. We recognize compensation expense for
stock options and restricted stock awards on a straight-line basis over the requisite service period of the award. Total share-based compensation included in general and administrative expense in our Consolidated Statement of Operations for fiscal
2007 was $1.2 million compared to $1.0 million in fiscal 2006.
A summary of the status of our stock options is presented in the table and narrative below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Price Range
|
|
Options
Available For
Future Grant
|
|
Aggregate
Intrinsic Value
|
|
Outstanding, December 25, 2005
|
|
2,151,495
|
|
|
|
6.64
|
|
|
3.99-21.75
|
|
231,443
|
|
|
|
|
Granted
|
|
390,224
|
|
|
|
5.45
|
|
|
4.85-6.54
|
|
|
|
|
|
|
Exercised
|
|
(6,767
|
)
|
|
|
4.49
|
|
|
4.44-4.70
|
|
|
|
$
|
5,323
|
|
Terminated
|
|
(345,018
|
)
|
|
|
8.10
|
|
|
4.31-15.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006
|
|
2,189,934
|
|
|
$
|
6.22
|
|
$
|
3.99-21.75
|
|
1,708,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
116,000
|
|
|
|
3.82
|
|
|
2.07-5.86
|
|
|
|
|
|
|
Exercised
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
Terminated
|
|
(159,550
|
)
|
|
|
6.85
|
|
|
4.06-21.75
|
|
|
|
|
|
|
Expired
|
|
(9,668
|
)
|
|
|
5.98
|
|
|
5.63-6.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 30, 2007
|
|
2,136,716
|
|
|
$
|
6.06
|
|
|
2.07-16.63
|
|
1,513,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, December 30, 2007
|
|
1,625,949
|
|
|
$
|
6.30
|
|
$
|
3.99-16.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information regarding options outstanding and exercisable at December 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
|
Range of Exercise Prices
|
|
Number of
Shares
|
|
Weighted
Average
Remaining
Contractual Life
(Years)
|
|
Weighted
Average
Exercise Price
|
|
Aggregate
Intrinsic Value
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic Value
|
|
$2.07 - 5.00
|
|
577,000
|
|
7.23
|
|
$
|
4.31
|
|
$
|
—
|
|
475,900
|
|
$
|
4.42
|
|
$
|
—
|
|
5.01 - 8.00
|
|
1,345,432
|
|
6.68
|
|
|
5.89
|
|
|
—
|
|
935,765
|
|
|
5.97
|
|
|
—
|
|
8.01 - 11.00
|
|
47,850
|
|
2.52
|
|
|
10.42
|
|
|
—
|
|
47,850
|
|
|
10.42
|
|
|
—
|
|
11.01 - 15.00
|
|
153,434
|
|
2.72
|
|
|
11.99
|
|
|
—
|
|
153,434
|
|
|
11.99
|
|
|
—
|
|
15.01 - 16.63
|
|
13,000
|
|
3.40
|
|
|
15.59
|
|
|
—
|
|
13,000
|
|
|
15.59
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$2.07 - 16.63
|
|
2,136,716
|
|
6.43
|
|
$
|
6.06
|
|
$
|
—
|
|
1,625,949
|
|
$
|
6.30
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of each option is estimated on the date of grant using the Black-Scholes option-pricing model and
the assumptions noted in the following table. Forfeitures estimates are based on historical company experience and qualitative judgments regarding the employee population.
|
|
|
|
|
|
|
|
|
|
|
Assumptions
|
|
2007
|
|
|
2006
|
|
|
Expected volatility (1)
|
|
|
50.4
|
%
|
|
|
55.5
|
%
|
|
Expected dividends
|
|
|
None
|
|
|
|
None
|
|
|
Risk-free interest rate (2)
|
|
|
4.7
|
%
|
|
|
4.6
|
%
|
|
Expected term (in years) (3)
|
|
|
6.0 - 7.5
|
|
|
|
5.0 - 7.5
|
|
|
Weighted average grant date fair value
|
|
$
|
2.18
|
|
|
$
|
3.22
|
|
|
(1)
|
Expected stock price volatility is based on historical market price data.
|
F-19
|
(2)
|
Based on the U.S. Treasury interest rates whose term is consistent with the expected life of our stock options.
|
|
(3)
|
We estimate the expected term of stock options consistent with the simplified method identified in Staff Accounting Bulletin No. 107 which considers the average of the vesting
term and the contractual term to be the expected term.
|
There were no stock options exercised in fiscal 2007 and net cash proceeds from the
exercise of stock options were approximately $30,000 for fiscal 2006. The total fair value of shares vested during fiscal years 2007 and 2006 was approximately $0.4 million and $0.6 million, respectively.
The fair value of restricted share awards is determined based on the closing market price of our stock on the date of grant. Upon adoption of SFAS 123(R), we
reclassified unearned compensation within shareholders’ equity to additional paid-in-capital. A summary of the status of our restricted share awards as of December 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
Restricted Share Awards
|
|
Shares
|
|
|
Weighted-Average
Grant Date Fair
Value
|
|
Outstanding, December 25, 2005
|
|
244,000
|
|
|
$
|
5.48
|
|
Granted
|
|
309,359
|
|
|
|
5.42
|
|
Vested
|
|
—
|
|
|
|
|
|
Forfeited or expired
|
|
(19,600
|
)
|
|
|
5.52
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2006
|
|
533,759
|
|
|
|
5.44
|
|
Granted
|
|
148,566
|
|
|
|
3.59
|
|
Vested
|
|
(21,167
|
)
|
|
|
5.48
|
|
Forfeited or expired
|
|
(85,750
|
)
|
|
|
5.45
|
|
|
|
|
|
|
|
|
|
Outstanding, December 30, 2007
|
|
575,408
|
|
|
$
|
4.96
|
|
|
|
|
|
|
|
|
As of December 30, 2007, there was approximately $2.1 million of total unrecognized compensation cost related
to share-based compensation arrangements granted under all equity compensation plans. Total unrecognized compensation expense will be adjusted for future changes in estimated forfeitures. We expect to recognize that cost over a weighted-average
period of 2.4 years.
Paisano Partner Program
—Under our Paisano Partner and Chef Partner programs, the restaurant management team is paid based
on the results and profits of its restaurant on a monthly, quarterly and annual basis. Historically, Paisano Partners and Chef Partners also received stock options and Paisano Partners were required to purchase either $10,000 or $20,000 of our
common stock at fair market value while Chef Partners were required to purchase $5,000 of our common stock at fair market value at the time of employment in the position. We suspended the stock purchase portions of the programs in late 2007 pending
the results of our exploration of strategic alternatives. The Partner programs strive to motivate our restaurant general managers, whom we refer to as Paisano Partners, and kitchen managers, whom we refer to as Chef Partners, to act as partners in
the overall success of the company. We have the option, but not the obligation, to repurchase all of the shares purchased and paid for by a Partner under the program at the purchase price of the shares paid by the Partner either (1) upon the
initiation of bankruptcy proceedings by or against the Partner within five years after the purchase date of the equity interest or (2) if the Partner’s employment with us is terminated for any reason within five years after the purchase
date of the equity interest. We record the equity issuance as an increase to shareholder’s equity. If a Partner chooses to fund the purchase of the equity investment through a loan from us, we record a note receivable from shareholders. Because
the loan is made against an equity issuance of our stock, we record the remaining principal due on the loan as a reduction to shareholder’s equity. When a Partner makes a loan payment, we record interest income on, and a reduction in the
principal balance of, the loan in accordance with the amortization schedule for the loan. All loans to Partners are made at an 8% fixed interest rate and are primarily collected through automatic payroll deductions. In the case of termination of
employment of a Partner within five years after the purchase date of the equity interest, we either (1) continue to collect payments on the loan in accordance with its terms or (2) exercise our option to buy-out the Paisano Partner’s
entire equity interest purchased under the Partner program at the purchase price of the equity interest paid by the Partner and reduce our note receivable due from employee shareholders accordingly. The notes receivable balances related to stock
purchases by Paisano Partners and Chef Partners were approximately $920,000 and $1,116,000 as of December 30, 2007 and December 31, 2006, respectively. At December 30, 2007 and December 31, 2006, respectively, 300,339 and 271,155
shares of common stock were issued under the Paisano Partner program and as of December 30, 2007 and December 31, 2006 respectively, 81,335 and 79,277 shares were issued under the Chef Partner program.
F-20
|
16.
|
SUPPLEMENTAL CASH FLOW INFORMATION
|
The following is supplemental cash
flow information for the fiscal year ended (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 30,
2007
|
|
December 31,
2006
|
|
Cash paid for:
|
|
|
|
|
|
|
|
Interest (net of amounts capitalized)
|
|
$
|
2,157
|
|
$
|
2,575
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
Shareholder receivable from issuance of stock
|
|
|
355
|
|
|
846
|
|
Shareholder receivable reduction due to repurchase of common stock
|
|
|
280
|
|
|
254
|
On January 8, 2008, we issued a press release
announcing the departure of Wallace B. Doolin as the Company’s Chief Executive Officer and the appointment of John T. Bettin to serve as Chief Executive Officer and President of the company, effective on February 1, 2008. In connection
with this change, we entered into a Separation Agreement with Mr. Doolin. Under the terms of the Separation Agreement, Mr. Doolin remained as our Chief Executive Officer through January 31, 2008 and thereafter shall remain on our
Board of Directors as a director and Chairman until a successor is duly elected or appointed. We agreed to pay to Mr. Doolin a total of $583,000 in 12 equal monthly installments, which payments may accelerate upon a change of control (as
defined in the Separation Agreement). Mr. Doolin will also be eligible for continued health benefits and disability income benefits for 12 months following his separation. Mr. Doolin will receive no compensation or benefits (other than
ordinary expense reimbursement) for his service on the Board for one year following his separation.
|
18.
|
SELECTED QUARTERLY FINANCIAL DATA—Unaudited
|
The following tables
contain unaudited quarterly financial data from continuing operations (in thousands, except per share data and weighted average shares) for fiscal 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
Restaurant sales
|
|
$
|
62,811
|
|
|
$
|
62,084
|
|
|
$
|
56,540
|
|
|
$
|
64,117
|
|
|
Operating loss
|
|
|
(2,199
|
)
|
|
|
(2,619
|
)
|
|
|
(4,312
|
)
|
|
|
(4,713
|
)
|
|
Net loss from continuing operations
|
|
|
(2,623
|
)
|
|
|
(3,221
|
)
|
|
|
(4,827
|
)
|
|
|
(5,296
|
)
|
|
Net loss
|
|
$
|
(2,795
|
)
|
|
$
|
(3,253
|
)
|
|
$
|
(4,830
|
)
|
|
$
|
(5,297
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations per share—basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share—basic and diluted
|
|
$
|
(0.14
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
(0.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic and diluted
|
|
|
20,410,184
|
|
|
|
20,431,544
|
|
|
|
20,467,149
|
|
|
|
20,498,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2006
|
|
|
|
First Quarter
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
Restaurant sales
|
|
$
|
64,842
|
|
$
|
61,019
|
|
|
$
|
56,421
|
|
|
$
|
71,531
|
|
Operating income (loss)
|
|
|
1,877
|
|
|
(774
|
)
|
|
|
(4,218
|
)
|
|
|
1,266
|
|
Net income (loss) from continuing operations
|
|
|
1,143
|
|
|
(1,467
|
)
|
|
|
(4,950
|
)
|
|
|
713
|
|
Net income (loss)
|
|
$
|
1,270
|
|
$
|
(718
|
)
|
|
$
|
(5,103
|
)
|
|
$
|
943
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) from continuing operations per share—basic and diluted
|
|
$
|
0.05
|
|
$
|
(0.07
|
)
|
|
$
|
(0.24
|
)
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share—basic and diluted
|
|
$
|
0.06
|
|
$
|
(0.03
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
0.05
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—basic
|
|
|
20,503,773
|
|
|
20,525,656
|
|
|
|
20,534,848
|
|
|
|
20,474,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding—diluted
|
|
|
20,621,312
|
|
|
20,525,656
|
|
|
|
20,534,848
|
|
|
|
20,693,862
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22