BUCA INC /MN - 10-K Annual Report

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 or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

The aggregate market value of the common stock held by non-affiliates of the registrant as of March 20, 2002 was $289,053,704, based on the closing sale price for BUCA, Inc.’s common stock on that date. This number is provided only for the purpose of this report on Form 10-K and does not represent an admission by either the registrant or any such person as to the status of such person.

The information presented in this Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements have been made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts, but rather are based on our current expectations, estimates and projections about the restaurant industry, and our beliefs and assumptions. We intend words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will” and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control and are difficult to predict. These factors could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties are described in the risk factors and elsewhere in this Annual Report on Form 10-K. We caution you not to place undue reliance on these forward-looking statements, which reflect our management’s view only as of the date of this Annual Report on Form 10-K. We are not obligated to update these statements or publicly release the result of any revisions to them to reflect events or circumstances after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events.

Unless otherwise indicated, references to “2001” mean BUCA, Inc.’s fiscal year ended December 30, 2001, references to “2000” mean BUCA, Inc.’s fiscal year ended December 31, 2000, references to “1999” mean BUCA, Inc.’s fiscal year ended December 26, 1999, references to “1998” mean BUCA, Inc.’s fiscal year ended December 27, 1998, and references to “1997” mean BUCA, Inc.’s fiscal year ended December 28, 1997.

BUCA, Inc. owns and operates full service restaurants under the names Buca di Beppo and Vinny Testa’s Italian-American restaurants. Our Buca di Beppo restaurants offer high quality, immigrant Southern Italian cuisine served family-style in large portions in a fun and energetic atmosphere that parodies the decor and ambiance of post-War Italian/American restaurants.

Buca di Beppo’s food is based on authentic family recipes enjoyed for generations in the villages of Southern Italy and then adapted to American ingredients. Our oversized portions, served family-style on large platters, are designed to overwhelm guests with an abundance of high quality food. In family-style serving, each item is shared by the entire table, which encourages guests to interact and enjoy the meal together. Each Buca di Beppo restaurant is open for dinner only.

In January 2002, we purchased the assets of the nine Vinny Testa’s restaurants in the Greater Boston and Philadelphia areas. Vinny Testa’s restaurants are based upon re-creations of the neighborhood Italian eateries prominent in the neighborhoods of lower Manhattan, Brooklyn and South Philadelphia in the 1940’s. The menu includes both individual and family-style portions. Vinny Testa’s is open for both lunch and dinner.

We design each of our restaurants to be a fun, high-energy destination. Each Buca di Beppo and Vinny Testa’s restaurant in a market is unique, which reinforces our image as a collection of neighborhood restaurants. Our food, decor and family-style servings all promote a fun, celebratory and socially interactive dining experience that emulates a traditional Italian/American meal. We believe that our restaurants provide superior unit level economics. We are pursuing a rapid, but disciplined expansion strategy. Our objective is to become the dominant Southern Italian restaurant concept in each of our markets.

We believe that the authenticity, quality and consistency of our food are the most important component of our long-term success. In contrast to the levity of our decor and ambiance, we take menu development and food preparation very seriously. Our Buca di Beppo menu is based on authentic family recipes enjoyed for generations in the villages of Southern Italy and then adapted to American ingredients. We make regular trips to Southern Italy and Sicily to find new recipes for our menu that are then extensively tested and refined before introduction in our restaurants.

Some of Buca di Beppo’s most popular menu items include the Buca di Beppo 1893 Salad, Chicken Cacciatore, Spaghetti with half-pound Meat Balls, Eggplant Parmigiana, Ravioli al Pomodoro, Veal Marsala, Garlic Mashed Potatoes, Pizza Arrabiatta and Tiramisu. Our foods, often seasoned with garlic and served with vine-ripened tomatoes, communicate the pure, powerful flavors of the immigrant Southern Italian kitchen. We also offer Daily Specials centered around a genre of Southern Italian cooking called “cucina di povera,” which translates as “cuisine of the poor.” We believe that our Daily Specials play a vital role in keeping the menu fresh and allow us to test prospective menu items.

Beginning in fiscal 2001, we have added a Baked Specialties menu to each of our Buca di Beppo restaurants and introduced Buca per Due, which means “Buca for Two.” The Baked Specialties are offered every day to our customers. The Baked Specialty menu includes some of our most popular baked specials such as Baked Ravioli, Cannelloni, Manicotti, and Stuffed Shells. Buca per Due marries a portion of our Baked Specialties with a portion of one of our most popular entrée items and are served on our traditional family-style platters, allowing groups of two to four diners to enjoy a wider selection of our food each time they visit.

Vinny Testa’s menu features a variety of pasta, meat, poultry, and seafood items, appetizers, soups, salads and desserts. Menu items include Fried Calamari, Warm Tomato Salad, Veal Parmigiana, Spaghetti Marinara, Linguini with Clam Sauce, Lasagna, Pollo Griglia, Veal Marsala and Cannoli. The menu portions can be served in either individual portions or family-style. Combinations of various items are also offered, including such items as Chicken and Eggplant Parmigiana; Shrimp and Chicken Piccata and Veal Parmigiana, Sausage, Meatball and Spaghetti.

To ensure that the food we are serving is of consistently high quality, we have developed extensive quality control practices. For example, every member of our kitchen staff must participate in a thorough training program. We also have strict specifications that ensure only high quality ingredients are used in our food. A kitchen manager or chef at each restaurant is responsible for making a final check of each item to assure it meets our high quality standards before it leaves the kitchen.

Our menu pricing is consistent within a market, but may differ slightly market to market. At our Buca di Beppo restaurants, main menu items, Baked Specialties, and Buca per Due range in price from $6.95 to $22.95, while Daily Specials are typically priced higher. All of the menu items are designed to be shared by the entire party at the table. The average check per Buca di Beppo guest in fiscal 2001 was approximately $20.50, including beverages. In fiscal 2001, alcoholic beverages, primarily table wine, accounted for approximately 25 percent of in-restaurant sales for our Buca di Beppo restaurants open at lease three years.

Restaurant Management. Our ability to effectively manage restaurants in a diverse geographic area will continue to be critical to our overall success. We currently have seven Divisional Vice Presidents of Operations overseeing our Buca di Beppo restaurants. Each Divisional Vice President is expected to effectively manage up to 15 restaurants. Our Divisional Vice Presidents supervise each Paisano Partner within his or her territory with the goal of achieving an expected return on investment through the successful implementation and operation of our Buca di Beppo concept. We believe that our Divisional Vice Presidents can accomplish this broad supervisory task in large part because of the experience and high caliber of our Paisano Partners. In addition, because Buca di Beppo is a dinner only concept, the number of meal shifts that the Paisano Partner and, indirectly, the Divisional Vice President, must supervise are less than most restaurants in the industry. The typical Buca di Beppo restaurant management team consists of the Paisano Partner, Kitchen Manager, Assistant General Manager and Assistant Kitchen Manager. Under the Paisano Partner program, this management team receives a percentage of incremental restaurant cash flow after their restaurant achieves certain minimum performance levels. Each member of our restaurant management team is cross-trained in all operational areas. As we grow our restaurants and expand geographically, we expect to add additional Divisional Vice Presidents.

At this time, we have two Regional Directors of Operations that supervise our nine Vinny Testa’s restaurants. The Regional Directors supervise the General Manager and report directly to our Senior Vice President of Operations. Because Vinny Testa’s serves lunch, the restaurants typically employ more managers than a Buca di Beppo restaurant. The typical Vinny Testa’s restaurant team consists of a General Manager, an Executive Chef, one or two Sous Chefs, and two to three Assistant Managers. Currently, all managers earn

incentives through a bonus plan that is based on their restaurant’s performance in the area of sales, cost management and quality of operations. Also, each management team can earn cash rewards based upon their teams performance in relationship to other restaurant teams in the areas of profitability, quality of operations, training and development. During fiscal 2002 we expect to convert the Vinny Testa’s management team to the Paisano Partner program.

Recruiting. We actively recruit and select individuals who share our passion for guest service. Testing and multiple interviews are used to aid in the selection of new employees at all levels. We have developed a competitive compensation plan for restaurant management that includes a base salary, competitive benefits package, including a 401(k) plan, and participation in a management incentive plan that rewards the restaurant management team for achieving performance objectives. All of our employees are entitled to discounted meals at our restaurants. All Buca di Beppo restaurant employees also are invited to the daily pre-shift meal held at each restaurant. Buca di Beppo enjoys the recruiting advantage of primarily being a one-meal-period-only restaurant concept, which provides employees with a more regular schedule than they might have at other restaurant concepts. In addition, because they are working only a dinner shift, where tips are usually greater than other meals, Buca di Beppo servers realize better per hour compensation than most other multiple meal concepts. It is our policy to promote from within, but we recognize the need to supplement this policy with outside recruiting at this stage of our growth and as new markets are opened.

Training. We provide all new employees with intensive training to ensure they are provided with the tools to excel in their position. This training encompasses classroom instruction, on-the-job training programs for each position, and testing of the new employee’s progress at pre-determined stages within the training schedule. Each new member of the restaurant management team participates in a 12-week training program. All management employees receive kitchen training. All field management employees are required to complete a minimum of one week of training at “Buca University.” Buca University is a training program held at our headquarters in Minneapolis, Minnesota. This program combines hands-on training conducted in the five restaurants in the Minneapolis market with classroom instruction lead by senior management of each of the various Home Office departments. In addition to the formal training programs, we maintain detailed operating procedure manuals, standards, controls, food line management systems and a food culture book to complement the training received at all levels.

Operational Control Systems. All of our restaurants use personal computer systems integrated with management systems to monitor restaurant sales, product costs and labor costs on a daily basis. Financial controls are maintained through a centralized accounting system, which includes a sophisticated theoretical food cost program and a labor scheduling and tracking program. Physical inventories of food and beverage items are taken on a weekly basis. Daily, weekly and monthly financial information is provided to management for analysis and comparison to our budget and to comparable restaurants. We closely monitor restaurant sales, cost of sales, labor and other restaurant trends on a daily, weekly and monthly basis. We believe that our current systems are adequate for our planned expansion strategy.

Hours of Restaurant Operation. Buca di Beppo restaurants are open seven days a week for dinner only, typically opening at 5 p.m. during the week and noon on the weekends and closing at 10 p.m. on weekdays and 11 p.m. on weekends. Vinny Testa’s restaurants are open for lunch and dinner seven days a week from 11:30 a.m. to 11 p.m. Both restaurants are closed for Thanksgiving and Christmas.

Our marketing strategy is to communicate the BUCA, Inc., Buca di Beppo and Vinny Testa’s brands through creative and non-traditional avenues. We focus our efforts on getting people in the local community, particularly civic, business and media leaders, to talk about the Buca di Beppo and Vinny Testa’s experience. We expect to continue investing approximately two to three percent of our restaurant sales on marketing efforts in the future.

We began testing radio advertising in fiscal 2001. The early tests, although limited, were promising. We plan to expand this radio advertising in fiscal 2002 beginning in the second quarter. We expect to run some type of radio advertising in over half of our markets in fiscal 2002. We also plan to support several markets with outdoor advertising, such as billboards, during fiscal 2002.

In connection with new restaurant openings, we contract with local public relations firms to assist us in establishing and sustaining the Buca di Beppo and Vinny Testa’s brands. By organizing events such as pre-opening parties and concierge dinners, these firms focus primarily on introducing Buca di Beppo and Vinny Testa’s restaurants to opinion leaders, such as civic and media personalities, and to hospitality industry leaders such as key hotel staff, meeting planners and convention and visitors bureau representatives.

We sustain restaurant awareness primarily through unpaid media exposure and word-of-mouth advertising, including grassroots neighborhood marketing efforts, primarily driven by the Paisano Partner. Buca di Beppo restaurants have achieved particular success by delivering a sample of menu items to drive-time radio personalities and morning television hosts, earning free media exposure, and often invitations for scheduled return engagements, while developing relationships with high-profile media personalities.

To reinforce our image as a collection of unique neighborhood restaurants, each Paisano Partner works diligently to establish a community presence. Through ongoing neighborhood marketing efforts, supported by our marketing department, each Paisano Partner establishes relationships with area businesses and residents, participates in high-profile events and festivals and takes advantage of opportunities to introduce area residents and workers to the restaurant. Because of their credibility as local business owners and community members, Paisano Partners play an integral role in establishing our restaurants in the neighborhood.

We utilize a variety of printed marketing materials, including restaurant location brochures, hotel concierge cards, take out menus and direct mailings. Typical themes in these materials include: “Recorded Music in Every Room,” “Cocktails in the Lounge and at Your Table” and “Vinyl Booths Mean No Static Cling For the Ladies.” All marketing communications work to establish each of our restaurants as a distinct, casual and welcoming neighborhood Southern Italian restaurant.

We strive to obtain high quality menu ingredients and other supplies and services for our operations from reliable sources at competitive prices. To this end, we continually research and evaluate various ingredients and products in an effort to maintain the highest quality and to be responsive to changing consumer tastes. Our centralized purchasing staff, under the direction of our Vice President of Finance and Purchasing, procures the products specified by our Culinary Department, specifies the products to be used at our restaurants, designates the vendors and provides suppliers with detailed ingredient specifications. To maximize purchasing efficiencies and to provide for the freshest ingredients for our menu items, each restaurant’s management team determines the quantities of food and supplies required. To obtain the lowest possible prices for the required high quality and consistency, each restaurant orders items primarily from our national food distributor, SYSCO Corporation, on terms negotiated by our centralized purchasing staff. We believe that all essential food and beverage products are available from several qualified suppliers at competitive prices should an alternative source be required.

We have registered the servicemarks “BUCA,” “BEPPO,” “BUCA DI BEPPO,” VINNY TESTA’S,” VINNY TESTA’S BAR RISTORANTE & design, Cherubs and Bowl design, Curtain design, Smoking Cherub design and People Toasting With Wine design with the United States Patent and Trademark Office. We have federal trademark applications pending for the following marks: “BUCA BREATH,” “BUCA BREATH. ACCEPT ONLY THE ORIGINAL,” “BUCA DI BEPPO (stylized),” “BUCA DI BEPPO” & design, Mama Buca I design, Mama Buca II design, Pouring Chianti Bottle design, and VINNY TESTA’S & design. In addition, we have a Canadian trademark application pending for the service mark “VINNY TESTA’S.” We believe that our trademarks, service marks, trade dress and other proprietary rights have significant value and are important to the marketing of our restaurant concept. We have in the past protected our proprietary rights and expect to continue to vigorously protect those rights in the future. We cannot predict, however, whether steps taken by us to protect our proprietary rights will be adequate to prevent misappropriation and/or infringement of these rights or the use by others of restaurant features based upon, or otherwise similar to, our overall concept. It may be difficult for us to prevent others from copying discrete elements of our concept and any litigation to enforce our rights will likely be costly. In addition, other local restaurant operations may claim that our name is confusingly similar to their names and may try to prevent us from using our marks in those locales.

The Buca di Beppo concept was created in Minneapolis in 1993 by our founder, Philip A. Roberts, and originally operated by a company owned by Mr. Roberts, Don W. Hays and Peter J. Mihajlov. On December 31, 1994, Parasole Restaurant Holdings, Inc., a diversified restaurant company operating in the Minneapolis/St. Paul metropolitan area, acquired this company. Messrs. Roberts, Hays and Mihajlov are the principle shareholders of Parasole. From January 1995 through September 1996, BUCA operated as a wholly owned subsidiary of Parasole. On September 30, 1996, BUCA, Inc. was spun-off from Parasole through a share dividend of our common stock pro rata among the Parasole shareholders to create a better vehicle for obtaining financing for our expansion plans. In January 2002, we purchased the assets of the nine Vinny Testa’s restaurants. The Vinny Testa’s concept was established in Boston in 1993.

The restaurant industry is intensely competitive. We compete on the basis of taste, quality, price of food offered, guest service, location, ambiance and overall dining experience. We have many well-established competitors, both nationally and locally owned Italian and non-Italian concepts, with substantially greater financial resources and a longer history of operations than we do. Their resources and market presence may provide advantages in marketing, purchasing and negotiating leases. We compete with other restaurant and retail establishments for sites. Changes in consumer tastes, economic conditions, demographic trends and the location and number of, and type of food served by, competing restaurants could adversely affect our business, as could the unavailability of experienced management and hourly employees.

Our restaurants are subject to regulation by federal agencies and to licensing and regulation by state and local health, sanitation, building, zoning, safety, fire and other departments relating to the development and operation of restaurants. These regulations include matters relating to environmental, building, construction and zoning requirements and the preparation and sale of food and alcoholic beverages. Our facilities are licensed and subject to regulation under state and local fire, health and safety codes.

Each of our restaurants is required to obtain a license to sell alcoholic beverages on the premises from a state authority and, in certain locations, county and/or municipal authorities. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operations of each of our restaurants, including minimum age of patrons and employees; hours of operation; advertising; wholesale purchasing; inventory control and handling; and storage and dispensing of alcoholic beverages. We have not encountered any material problems relating to alcoholic beverage licenses to date. The failure to receive or retain a liquor license in a particular location could adversely affect that restaurant and our ability to obtain such a license elsewhere.

We are subject to “dram-shop” statutes in the states in which our restaurants are located. These statutes generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated individual. We carry liquor liability coverage as part of our existing comprehensive general liability insurance, which we believe is consistent with coverage carried by other entities in the restaurant industry. Although we are covered by insurance, a judgement against us under a dram-shop statute in excess of our liability coverage could have a material adverse effect on us.

Our operations are also subject to federal and state laws governing such matters as wages, working conditions, citizenship requirements and overtime. Some states have set minimum wage requirements higher than the federal level. Significant numbers of hourly personnel at our restaurants are paid at rates related to the federal minimum wage and, accordingly, increases in the minimum wage will increase labor costs. We are also subject to the Americans With Disability Act of 1990, which, among other things, may require certain renovations to our restaurants to meet federally mandated requirements. The cost of these renovations is not expected to materially affect us.

To continue to grow, we must open new Buca di Beppo and Vinny Testa’s restaurants on a timely and profitable basis. We have experienced delays in restaurant openings from time to time and may experience delays in the future. Delays or failures in opening new restaurants could materially adversely affect our business, financial condition, operating results or cash flows. We expanded from 11 restaurants at the end of fiscal 1997 to 68 restaurants at the end of fiscal 2001. We acquired nine Vinny Testa’s restaurants in January 2002 and expect to open a total of 14 Buca di Beppo restaurants during fiscal 2002. Our ability to expand successfully will depend on a number of factors, some of which are beyond our control, including the:

In addition, we contemplate entering new markets in which we have no operating experience. These new markets may have different demographic characteristics, competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause our new restaurants to be less successful in these new markets than in our existing markets. Furthermore, a sustained history of significant

We face many business risks associated with rapidly growing companies, including the risk that our existing management, information systems and financial controls will be inadequate to support our planned expansion. We cannot predict whether we will be able to respond on a timely basis to all of the changing demands that our planned expansion will impose on management and these systems and controls. If we fail to continue to improve management, information systems and financial controls or encounter unexpected difficulties during expansion, our business, financial condition, operating results or cash flows could be materially adversely affected.

Furthermore, we may seek to acquire other operations. To do so successfully, we would need to identify suitable acquisition candidates, obtain financing on acceptable terms and negotiate acceptable acquisition terms. Even if we are successful in completing acquisitions, they may have a material adverse effect on our operating results, particularly in the fiscal quarters immediately following the completion of an acquisition, while the acquisition is being integrated into our operations. In January 2002, we acquired the assets of nine Vinny Testa’s restaurants. We do not currently have any definitive agreements, arrangements or understandings regarding any other particular acquisition.

Our operating results will fluctuate significantly because of several factors, including the timing of new restaurant openings and related expenses; profitability of new restaurants; increases or decreases in comparable restaurant sales; general economic conditions; seasonality of restaurant sales; consumer confidence in the economy; changes in consumer preferences; competitive factors and weather conditions. As a result, our operating results may fall below the expectations of public market analysts and investors. In that event, the price of our common stock would likely decrease.

In the past, our pre-opening costs have varied significantly from quarter to quarter primarily due to the timing of restaurant openings. We typically incur most pre-opening costs for a new restaurant within the two months immediately preceding, and the month of, its opening. In addition, our labor and operating costs for a newly opened restaurant during the first three to six months of operation are materially greater than what can be expected after that time, both in aggregate dollars and as a percentage of restaurant sales. Accordingly, the volume and timing of new restaurant openings in any quarter has had, and is expected to continue to have, a significant impact on quarterly pre-opening costs and labor and direct and occupancy costs. Due to these factors, results for a quarter may not be indicative of results to be expected for any other quarter or for a full fiscal year. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of our historical operating results.

Our profitability depends in part on our ability to anticipate and react to changes in food costs. We rely on SYSCO Corporation, a national food distributor, as the primary distributor of our food. Although we believe that alternative distribution sources are available, any increase in distribution prices or failure to perform by SYSCO could cause our food costs to increase. Further, various factors beyond our control, including adverse weather conditions and governmental regulation, may affect our food costs. We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could materially adversely affect our business, financial condition, operating results or cash flows.

Shifts in consumer preferences away from our cuisine or dining style could materially adversely affect our future profitability. Also, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing, either of which could materially adversely affect our business, financial condition, operating results or cash flows.

We intend to expend significant financial and management resources on the development of additional restaurants. We cannot predict whether we will be able to sustain revenue growth, profitability or positive cash flow in the future. Failure to achieve these objectives may cause our stock price to decline and make it difficult to raise additional capital. See “Item 6. Selected Consolidated Financial Data” for the history of our losses prior to fiscal 1999.

The restaurant industry is highly competitive. Due to our limited financial resources and operating history, we may be unable to compete effectively with larger, better-established competitors, which have substantially greater financial resources and operating histories than we do. We will likely face direct competition with these competitors in each of the markets we enter. See “Item 1. Business—Competition” for a discussion of the competition we face.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff and wait staff, necessary to keep pace with our expansion schedule. Qualified individuals needed to fill these positions are in short supply in certain areas, and the inability to recruit and retain such individuals may delay the planned openings of new restaurants or result in high employee turnover in existing restaurants, which could have a material adverse effect on our business, financial condition, operating results or cash flows. Additionally, competition for qualified employees could require us to pay higher wages to attract sufficient employees, which could result in higher labor costs.

Our business depends on obtaining and maintaining required food service, health department and liquor licenses for each of our restaurants. If we fail to hold all necessary licenses, we may be forced to delay or cancel new restaurant openings and close or reduce operations at existing locations. In addition, our sale of alcoholic beverages subjects us to “dram shop” statutes in most states. These statutes allow an injured person to recover damages from an establishment that served alcoholic beverages to an intoxicated person. If we receive a judgment substantially in excess of our insurance coverage, or if we fail to maintain our insurance coverage, our business, financial condition, operating results or cash flows could be materially and adversely affected. See “Item 1. Business—Government Regulation” for a discussion of the regulations we must comply with.

We are from time to time the subject of complaints or litigation from guests alleging illness, injury or other food quality, health or operational concerns. Adverse publicity resulting from these allegations may materially adversely affect us and our restaurants, regardless of whether the allegations are valid or whether we are held liable. These claims may divert our financial and management resources that would otherwise be used to benefit the future performance of our operations.

not be able to obtain additional financing on acceptable terms. If adequate funds are not available, we will have to curtail projected growth, which could materially adversely affect our business, financial condition, operating results or cash flows. Moreover, if we issue additional equity securities, your holdings may be diluted.

We have comprehensive insurance, including general liability, fire, extended coverage and employee practices liability coverage. However, there are certain types of losses that may be uninsurable or that we believe are not economically insurable, such as earthquakes and other natural disasters. In view of the location of many of our existing and planned restaurants in California and other earthquake prone areas of the United States, our operations are susceptible to damage and disruption caused by earthquakes. In the event of an earthquake or other natural disaster affecting one or more geographic areas of our operations, we could suffer a loss of the capital invested in, as well as anticipated earnings from, the damaged or destroyed properties. In addition, we do not currently maintain any insurance coverage for the effects of adverse publicity and any adverse publicity could have a material adverse effect on our business, financial condition, results of operations and cash flows.

The September 11, 2001 terrorist attacks on the United Stated had a significant negative impact on the portion of our business that is celebratory in nature and adversely affected our restaurant sales and profitability. With the threats of additional terrorist attacks and the continuing uncertainty created by the war on terrorism, there is a potential for a continued downturn in the economy and a decrease in consumer spending. These factors, should they continue, could adversely affect our restaurant sales, operations and profitability.

Prior to our spin-off in late fiscal 1996, we were a member of the consolidated tax group of Parasole Restaurant Holdings, Inc. Under the Internal Revenue Code, as a former member of the consolidated tax group, we could be held liable for unpaid federal tax liabilities, if any, of the consolidated tax group through the end of 1996 in the event of nonpayment by Parasole.

We lease the land and building at 42 of our Buca di Beppo restaurant locations and all nine of our Vinny Testa’s restaurant locations. Of our remaining restaurant locations, we lease the land and own the building at 23 and own the land and building at ten. Current restaurant leases have expiration dates ranging from 2003 to 2022, with all but one of the leases providing for an option to renew for a minimum of one additional five-year term.

Market	Number of Buca di Beppo Restaurants	Number of Vinny Testa Restaurants
Phoenix, Arizona	3
Los Angeles, California	9
Sacramento, California	1
San Diego, California	2
San Francisco, California	3
Denver, Colorado	2
Colorado Springs, Colorado	1
Daytona Beach, Florida	1
Miami, Florida	2
Orlando, Florida	1
Naples, Florida	1
Tampa Bay, Florida	2
Atlanta, Georgia	1
Honolulu, Hawaii	1
Chicago, Illinois.	4
Indianapolis, Indiana	3
Des Moines, Iowa	1
Kansas City, Kansas/Missouri	2
Louisville, Kentucky	1
Boston, Massachusetts		8
Detroit, Michigan	3
Minneapolis, Minnesota	5
Omaha, Nebraska	1
Las Vegas, Nevada	2
Albuquerque, New Mexico	1
Buffalo, New York	1
Albany, New York	1
Cincinnati, Ohio	1
Cleveland, Ohio	2
Columbus, Ohio	2
Philadelphia, Pennsylvania	3	1
Pittsburgh, Pennsylvania	1
Austin, Texas	1
Dallas, Texas	2
Houston, Texas	2
Salt Lake City, Utah	1
Seattle, Washington	2
Milwaukee, Wisconsin	1
Washington, District of Columbia	2

From time to time, we are a defendant in litigation arising in the ordinary course of our business, including claims resulting from “slip and fall” accidents, claims under federal and state laws governing access to public accommodations, employment-related claims and claims from guests alleging illness, injury or other food quality, health or operational concerns. To date, none of this litigation, some of which is covered by insurance, has had a material effect on us.

Name	Age	Position
Joseph P. Micatrotto	50	Chairman of the Board, President and Chief Executive Officer
Greg A. Gadel	42	Executive Vice President, Chief Financial Officer, Treasurer and Secretary
Lane Schmiesing	44	Senior Vice President of Marketing
Joseph J. Kohaut	40	Senior Vice President of Operations
Jennifer Percival	42	Senior Vice President of Family Resources

Joseph P. Micatrotto joined BUCA in 1996 as our President and Chief Executive Officer, and as a director and in July 1999 became the Chairman of the Board. Mr. Micatrotto’s 28-year career in restaurant management includes being CEO of Panda Management Company, Inc.where he led the company’s expansion and President and CEO of Chi-Chi’s Mexican Restaurante, Inc., where he was instrumental in its national growth. Mr. Micatrotto is active on various boards and industry groups including the National Restaurant Association.

Greg A. Gadel has been BUCA’s Chief Financial Officer and Treasurer since 1997, its Secretary since 1998 and its Executive Vice President since 2001. Prior to joining BUCA, Mr. Gadel was CFO for the 32-unit restaurant chain, Leeann Chin. He also previously served as Vice President and Controller for the largest Chi-Chi’s franchisee, Consul Corporation. He has also worked for Marriott, McDonald’s and the Deloitte & Touche LLP accounting firm. He has more than 17 of years experience in the restaurant industry. Mr. Gadel is a member of the American Institute of Certified Public Accountants.

Lane Schmiesing joined BUCA in 1997 as Vice President of Marketing and in 2000 became Senior Vice President of Marketing. Mr. Schmiesing was formerly with Rare Hospitality, Inc., where he spent three years as Vice President of Marketing. He brings more than 20 years of restaurant marketing experience to BUCA. He has developed award winning advertising and promotional campaigns for such brands as Dairy Queen, Bonanza Restaurants and Longhorn Steakhouses. Mr. Schmiesing is a member of the board of directors of the Marketing Executive Group of the National Restaurant Association.

Joseph J. Kohaut joined BUCA in 1997 as a Divisional Vice President and in 2001 became Senior Vice President of Operations. From 1994 to 1997, Mr. Kohaut was a regional manager with Panda Management Company, Inc. where he was responsible for developing his region from five to 14 operating units. Mr. Kohaut has more than 20 years of restaurant industry experience, including general management and operations positions with Chi-Chi’s Mexican Restaurante, Inc. and Ground Round prior to joining Panda. He is a member of the board of directors of the American Beverage Institute.

Jennifer Percival joined BUCA in 1999 as Vice President of Family Resources and in 2001 became Senior Vice President of Family Resources. Ms. Percival was previously with Lufthansa Service USA Corp.’s Venice Market division, a Dallas-based company operating in-flight catering and specialty concepts, where she served as Vice President of Human Resources for the United States. Ms. Percival has more than 23 years of restaurant industry and human resources experience. Prior to her work with Lufthansa, she held various management and human resources positions with La Madeleine and TGI Friday’s restaurant companies.

Our common stock trades on the Nasdaq National Market System under the symbol “BUCA.” As of March 12, 2002 there were approximately 279 record holders of our common stock. The following table sets forth for the quarters indicated the high and low sales prices of our common stock, as reported by the Nasdaq Stock Market.

Period	High	Low
2000 First Quarter	15.2500	8.3750
2000 Second Quarter	18.0000	11.5000
2000 Third Quarter	18.2500	10.1250
2000 Fourth Quarter	17.0625	10.4375
2001 First Quarter	21.7500	12.6250
2001 Second Quarter	26.5300	16.5000
2001 Third Quarter	21.5100	10.9300
2001 Fourth Quarter	15.8000	9.9800

We have never declared or paid cash dividends. We currently intend to retain all future earnings for the operation and expansion of our business and do not anticipate paying cash dividends on the common stock in the foreseeable future. Any payment of cash dividends in the future will be at the discretion of our board of directors and will depend upon our results of operations, earnings, capital requirements, contractual restrictions and other factors deemed relevant by our board. In addition, our current credit facility prohibits us from paying any cash dividends without our lender’s consent.

The following selected consolidated statements of operations and balance sheet data for the five fiscal years ended December 30, 2001 are derived from our audited consolidated financial statements. The consolidated financial statements and their notes for each of the three fiscal years ended December 30, 2001, and the report of independent public accountants on those years, are included elsewhere in this Annual Report on Form 10-K. This selected consolidated financial data should be read in conjunction with the consolidated financial statements and their notes, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other financial information included elsewhere in this Annual Report on Form 10-K.

	Fiscal Year Ended
	December 28, 1997		December 27, 1998		December 26, 1999		December 31, 2000		December 30, 2001
Restaurant sales	$	19,030	$	38,483	$	71,528	$	129,790	$	175,635
Restaurant costs:
Product		5,520		10,876		19,723		34,016		44,234
Labor		6,478		12,342		23,069		41,113		55,598
Direct and occupancy		3,750		8,078		14,551		25,405		39,865
Depreciation and amortization		781		1,617		3,169		6,190		9,593

Total restaurant costs		16,529		32,913		60,512		106,724		149,290
General and administrative expenses		3,760		5,568		5,924		7,562		10,454
Pre-opening costs		1,140		1,895		3,600		4,423

Minnesota		41-1802364
(State or other jurisdiction of		(I.R.S. employer
incorporation or organization)		Identification no.)