UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE FISCAL YEAR ENDED DECEMBER 26, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-116310
Real Mex Restaurants, Inc.
(Exact name of Registrant as specified in its charter)
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DELAWARE
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13-4012902 |
(State or other jurisdiction of
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(I.R.S. Employer |
incorporation or organization)
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Identification No.) |
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5660 Katella Avenue, Suite 100, Cypress, CA
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90630 |
(Address of principal executive offices)
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(Zip Code) |
Registrants telephone number, including area code: (562) 346-1200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
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 registrants 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. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (check one)
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Large Accelerated Filer o
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Accelerated Filer o
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Non-Accelerated Filer þ
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Smaller Reporting Company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates
of the registrant is not applicable as no public market for the voting stock of the registrant
exists.
As of February 20, 2011, Real Mex Restaurants, Inc. had outstanding 1,000 shares of Common
Stock, par value $0.001 per share.
DOCUMENTS INCORPORATED BY REFERENCE:
None
FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities
Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements are those that do
not relate solely to historical fact. They include, but are not limited to, any statement that may
predict, forecast, indicate or imply future results, performance, achievements or events. They may
contain words such as believe, anticipate, expect, estimate, intend, project, plan,
will, should, may, or could or words or phrases of similar meaning. They may relate to,
among other things: our liquidity and capital resources; legal proceedings and regulatory matters
involving our Company; food-borne illness incidents; increases in the cost of ingredients; our
dependence upon frequent deliveries of food and other supplies; our vulnerability to changes in
consumer preferences and economic conditions; our ability to compete successfully with other casual
dining restaurants; our ability to expand; and anticipated growth in the restaurant industry and
our markets.
These forward-looking statements reflect our current views with respect to future events and
are based on assumptions and subject to risks and uncertainties, including, but not limited to,
economic, competitive, governmental and technological factors outside of our control, that may
cause actual results to differ materially from trends, plans or expectations set forth in the
forward-looking statements. These risks and uncertainties may include these factors and the risks
and uncertainties described in Item 1A Risk Factors of this report and elsewhere in this report.
Given these risks and uncertainties, we urge you to read this report completely and with the
understanding that actual future results may be materially different from what we plan or expect.
All of the forward-looking statements made in this Form 10-K are qualified by these cautionary
statements and we cannot assure you that the actual results or developments anticipated by our
Company will be realized or, even if substantially realized, that they will have the expected
consequences to or effects on our Company or our business or operations. In addition, these
forward-looking statements present our estimates and assumptions only as of the date of this
report. Except for any ongoing obligation to disclose material information as required by federal
securities laws, we do not intend to update you concerning any future revisions to any
forward-looking statements to reflect events or circumstances occurring after the date of this
report.
Unless otherwise provided in this report or the context otherwise requires, references to
we, us, Real Mex and Company refer to Real Mex Restaurants, Inc., and our consolidated
subsidiaries.
PART I
Our Company
We are one of the largest full service Mexican casual dining restaurant chain operators in the
United States in terms of number of restaurants. As of December 26, 2010, we had 181 restaurants,
located principally in California. Our four primary restaurant concepts, El Torito®, El Torito
Grill®, Chevys Fresh Mex® and Acapulco Mexican Restaurant®, offer a large variety of traditional,
innovative and authentic Mexican dishes and a wide selection of alcoholic beverages at moderate
prices, seven days a week for lunch and dinner, as well as Sunday brunch. Our restaurant concepts
feature fresh, high quality and flavorful foods, served in casual atmospheres. For fiscal year
2010, we generated revenues of $478.0 million, a decrease in same store sales of 2.3% from fiscal
year 2009, a net loss of $24.1 million and net cash provided by operating activities of $11.5
million.
Our fiscal year consists of 52 or 53 weeks and ends on the last Sunday in December of each
year. Fiscal year 2006 is comprised of 53 weeks and all other fiscal years presented are comprised
of 52 weeks. See additional breakdown of these years into reported periods in Managements
Discussion and Analysis of Financial Condition and Results of Operations.
Exchange Agreement
Effective November 13, 2008, our parent and each of our parents existing lenders executed an
agreement to exchange our parents then outstanding borrowings under its unsecured term loan
facility for 94.5% of the common stock of our parent (the Exchange). Immediately prior to the
Exchange, our parent effected a 100:1 reverse stock split of its common stock and after the
Exchange the immediately post-split existing holders retained 5.5% of the shares of our parents
common stock. Immediately after the Exchange, no stockholder, together with its affiliates, owned
more than 50% of the capital stock of our parent. In connection with the Exchange, certain terms
and conditions of our outstanding indebtedness were modified. See Managements Discussion and
Analysis of Financial Condition and Results of OperationsDebt and Other Obligations.
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Share Purchase
Effective June 28, 2010, immediately after we entered into a supplemental indenture, Sun
Cantinas, LLC (Sun Cantinas), an affiliate of Sun Capital Partners (Sun Capital), an
equityholder of our parent, acquired 43,338 shares of common stock of our parent (the Share
Purchase) from Cocina Funding Corp., L.L.C. (Cocina), an existing equityholder of our parent
managed by Farallon Capital Management, LLC (Farallon). As a result, Sun Cantinas and SCSF
Cantinas, LLC, another affiliate of Sun Capital, together own approximately 70% of the outstanding
common stock of our parent, and together are entitled, under the cumulative voting provisions of
our parents Certificate of Incorporation, to elect at least five members of the seven-member board
of directors of Real Mex and our parent, giving them the ability indirectly to control Real
Mex. Following the Share Purchase, Cocina holds approximately 13% of the outstanding common stock
of our parent, and no longer has a representative on the board of directors of Real Mex or our
parent. The Share Purchase was accounted for by our parent under the purchase method of accounting
and push-down accounting was applied to Real Mex. As a result of the Share Purchase, fiscal year
2010 is presented as the Predecessor Period from December 28, 2009 to June 27, 2010 and the
Successor Period subsequent to June 27, 2010.
Significant Stockholders of RM Restaurant Holding Corp.
Sun Capital is a leading private investment firm focused on leveraged buyouts, equity, debt,
and other investments in market-leading companies that can benefit from its in-house operating
professionals and experience. Sun Capital affiliates have invested in and managed more than 200
companies worldwide since Sun Capitals inception in 1995. Sun Capital has offices in Boca Raton,
Los Angeles and New York, and affiliates with offices in London, Paris, Frankfort, and Shenzhen and
Shanghai, China. Sun Capitals total investments in the restaurant industry make it one of the
largest operators of restaurant locations in the United States.
Farallon is an investment firm founded in 1986 which manages equity capital for institutions,
typically endowments and foundations, high net worth individuals, other pooled investment vehicles,
and charitable organizations. Farallon invests globally in debt and equity of public and private
companies.
Company Structure
The following chart summarizes our current organizational structure.
Our Restaurant Concepts
El Torito and El Torito Grill (42.7% of fiscal year 2010 restaurant revenues). Founded in
1954, El Torito has been a pioneer in the full service, casual dining Mexican restaurant segment in
California. As of December 26, 2010, we operated 67 El Torito restaurants, 8 El Torito
Grill restaurants and 2 Sinigual restaurants. This concept is the largest full service Mexican
casual dining restaurant chain in California in terms of number of restaurants. Our El Torito
concept is dedicated to fresh, quality ingredients and authentic, made-from-scratch Mexican
cuisine, including sizzling fajitas, hand-made tamales and traditional Mexican combination
platters.
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We feature authentic regional specialties created by our executive chef, Pepe Lopez. El Torito
restaurants are modeled after a traditional Mexican hacienda. Lunch and dinner entrees range in
price from $6.99 to $17.99 with an average check of $29.52 and $40.81 for El Torito and El Torito
Grill, respectively, for fiscal year 2010.
El Torito restaurants are primarily free standing buildings. The restaurants average
approximately 8,600 square feet with average seating of approximately 305 guests. All of the El
Torito properties are leased.
For those desiring a Mexican culinary experience, El Torito serves up distinctive drinks and
food offerings in a festive hacienda setting focused on Latin hospitality. In the El Torito
concept, we drive the traditionally slower day-parts of early evening and weekday traffic through
Happy Hour offers and specialty theme menus. During Happy Hour, guests enjoy value priced
appetizers and drinks, including $3 specials and our Buck It Up promotion, where guests may upgrade
their happy hour drinks to a premium liquor for $1. Our lunch buffet and Lunch Express entrees
offer guests value priced, time sensitive selections. We stimulate incremental traffic with value
promotions such as our longstanding Tacorito Tuesday program where guests may enjoy grilled
chicken, steak or carnitas tacos in the cantina, Kids Eat Free Wednesday and $2 off Cadillac
Margaritas on Thursdays.
Chevys (37.4% of fiscal year 2010 restaurant revenues). Chevys was founded in Alameda,
California in 1986. As of December 26, 2010, we operated 65 Company-owned restaurants and
franchised 23 restaurants. This concept is the second largest full service Mexican casual dining
restaurant chain in California in terms of number of restaurants. Chevys is a comfortable yet
high-energy restaurant concept that offers guests an array of freshly prepared Mexican dishes in an
ultra-casual atmosphere. We offer an extensive variety of Mexican dishes, utilize mesquite grilling
to create a unique flavor profile and also prepare traditional enchiladas, burritos and tacos, as
well as a variety of combination platters. The food menu is complemented by a wide selection of
margaritas and an assortment of Mexican and American beers. Lunch and dinner entrees range in price
from $7.99 to $16.99 with an average check of $30.17 for fiscal year 2010.
Chevys restaurants are primarily freestanding and located in high-traffic urban and suburban
areas. Chevys restaurants generally average approximately 7,700 square feet with average seating
for approximately 322 guests in the dining room and cantina. All of the Chevys properties are
leased. The restaurant design is cantina-style with a vibrant, ultra-casual layout. At Chevys we
prepare fresh tortillas for our guests which helps reinforce our commitment to freshness.
Chevys is a casual border cantina focused on fresh, from scratch, big-flavored food and
drinks. Chevys employs a number of promotions to drive sales during traditionally slower periods
anchored by Sunday promotions, which features value pricing on Cadillac Margaritas as well as $3
guacamole and $1 mini fried ice cream. Also featured are a popular Kids Eat Free Tuesday promotion
and a weekday Happy Hour with value drink pricing and half-price appetizers. Weekday lunch traffic
is boosted with a Fresh Mex Lunch Value Menu, which offers lunch portions on the very popular
Fajitas and a series of Lunch Bowls.
Acapulco (14.6% of fiscal year 2010 restaurant revenues). The first Acapulco restaurant opened
in Pasadena, California in 1960. As of December 26, 2010, we had 31 Acapulco restaurant locations.
This concept is the third largest full service Mexican casual dining restaurant chain in California
in terms of number of restaurants. We offer California style Mexican food featuring traditional
favorites as well as seafood specialties such as grilled halibut, shrimp and crab entrees. We also
feature a host of specialty drinks, including our signature Acapulco Gold Margarita made with
premium Jose Cuervo Gold Tequila. Lunch and dinner entrees range in price from $5.99 to $17.99 with
an average check of $26.07 for fiscal year 2010.
Acapulco restaurants are primarily freestanding and located in high-traffic urban and suburban
areas. Acapulco restaurants generally average approximately 8,300 square feet with average seating
for approximately 245 guests. Many locations have attractive outdoor patios. All but one of the
properties are leased. Acapulco currently uses three models for restaurant decor: Hacienda, Aztec
and Resort. The three styles, which are similar to one another, have allowed our Company to match
design and capital expenditures with each locations physical plant and the sites customer
demographics. A consistent appearance is achieved through similar exterior signage and the use of
Mexican furnishings and vibrant primary color schemes in interior design throughout all Acapulco
restaurants.
Acapulco is a casual, neighborhood Mexican restaurant featuring simple, value oriented, hearty
Mexican fare and drinks with a focus on Latin hospitality. Acapulco benefits from long-standing
value oriented day-part programs designed to drive incremental traffic during slow periods.
Beginning with Sunday brunch, guests can indulge in a champagne brunch with a variety of fresh
soups, chilled salads, a taco bar with handmade tortillas and a variety of traditional Mexican
favorites. Weekday value promotions include Happy Hour, Margarita Mondays, Kids Eat Free Tuesdays,
Crazy Combo Thursdays and a weekday lunch buffet for time sensitive guests.
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Other Restaurant Concepts (5.3% of fiscal year 2010 restaurant revenues). As of December 26,
2010, we operated 8 additional restaurant locations, all of which are also full service Mexican
formats, under the following brands: Las Brisas; Casa Gallardo; El Paso Cantina; and Who Song &
Larrys. We acquired most of these restaurants with the acquisition of El Torito Restaurants, Inc.
Our Real Mex Foods Subsidiary
Founded in 1970, our Real Mex Foods, Inc. (Real Mex Foods) subsidiary provides purchasing
and distribution services for the restaurant operations and manufactures specialty products for
sales to outside customers. Real Mex Foods has built significant expertise in the procurement,
manufacturing, distribution, and product development of Mexican foods, and provides a one-stop
source of supply needs to our restaurants on the West Coast and coordinates purchasing for all
non-West Coast U.S. restaurants. Our relationship with Real Mex Foods generates significant
purchasing economies of scale and ensures quality and consistency across our entire store base.
This enables our restaurant managers to spend more time focusing on operations, without the burden
of purchasing and supply management.
In addition to the internal benefits it provides, Real Mex Foods has a customer base with deep
relationships in the quick service restaurant, or QSR, casual dining, retail, and foodservice
channels. Real Mex Foods custom manufacturing and research and development, or R&D, capabilities
provide quality Mexican food products to QSR brands such as El Pollo Loco, Del Taco, Rubios, and
Baja Fresh in addition to private label products for retailers such as Trader Joes, Costco,
Ralphs, Vons and Albertsons and a proprietary line of entrées under the Real Mex Foods label.
Our Competitive Strengths
Leading Operator with Local Appeal. We are the largest operator of Mexican casual dining
restaurants in the U.S. and our El Torito, Chevys and Acapulco concepts are ranked #1, #2 and #3 in
market share, respectively, in California. While there is minimal overlap of our concepts due to
differing geographic concentrations, the high market density and long operating history of each
concept creates a strong brand identity and marketing efficiencies not available to our national
and mom and pop Mexican restaurant competitors. We believe our brands appeal to a wide
demographic and will continue to benefit from the growing demand for fresh, authentic Mexican food
and a fun, festive dining experience.
Demographic Trends and Long-Term Industry Dynamics. According to the U.S. Census Bureau,
California is expected to grow from 33.8 million people in 2000 to 46.4 million people by 2030, the
second largest incremental population increase of any state in the U.S. In addition, the U.S.
Census Bureau projects the Hispanic population, which accounts for approximately 18% of our total
restaurant revenue, to be the fastest growing demographic in the U.S., more than doubling in size
from 35.3 million people in 2000 to 73.0 million people by 2030. We expect to benefit from these
long-term demographic trends as we believe the Hispanic influence on dining trends will continue to
grow in tandem with population growth.
Our restaurants are positioned to benefit from the long-term trend of increased expenditure on
food consumed away from home. According to the USDA Economic Research Service, dollars spent on
food away from home was 49% of total dollars spent on food in 2009. Additionally, our Real Mex
Foods subsidiary is uniquely positioned to benefit and grow as a result of increasing consumer
demand for convenient, home meal replacement solutions through the manufacture of packaged entrées
sold through the grocery and club store channels and proprietary products developed for quick
service restaurants.
Fresh, Authentic, Mexican Food. Our food and beverage offerings range from guest favorites
such as sizzling fajitas, hand-made tamales and traditional Mexican combination platters to
authentic regional specialties created by our executive chef. We believe that these freshly
prepared made-from-scratch items underscore our authenticity. We prepare all our recipes with
fresh, high quality ingredients, from our salsa to our sizzling fajitas. El Torito is known for
tableside preparations, including our most popular appetizer, our guacamole, which is made to our
guests specifications at their table. Our food is complemented by a variety of specialty drinks,
including our Cadillac Margarita, made with premium 1800 Tequila and Grand Marnier.
Well Maintained Store Base. We have consistently invested in our restaurants in an effort to
uphold their image as attractive, well maintained concepts. Over the last four years, we have
invested significant discretionary capital in our restaurants to maintain a fresh and comfortable
dining experience which we believe sets us apart from our competitors.
Service. We train our servers to follow a service program designed to achieve fast and
consistent service while also promoting a casual and festive atmosphere. Our service program
outlines procedures, such as the servers first approach to the guest, product recommendations
throughout the visit, timing and manner of food delivery, plate clearing, payment processing and
bidding the guest farewell. Throughout the day, managers are responsible for generating energy and
enthusiasm throughout their restaurants by
circulating and visiting with guests at their tables. Our Tell Us About Us program offers
customers incentives to complete surveys about their experience. It is used by all of our brands
and provides constant, real-time feedback to management. Our primary goal is to ensure that every
guest leaves fully satisfied, thereby promoting repeat visits.
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Internal Production, Purchasing and Distribution Facilities. We centralize purchasing and
distribution for the majority of our raw ingredients, fresh products and alcoholic beverages
through our two purchasing and distribution facilities and manufacture food products through our
manufacturing plant. The purchasing and distribution facilities, encompassing approximately 67,000
square feet in Buena Park and 54,000 square feet in Union City enable us to order and deliver food
items and ingredients on a timely basis. We are able to leverage our purchasing power and reduce
delivery costs, contributing to our restaurant gross margins. Our manufacturing facility,
encompassing approximately 101,000 square feet, manufactures specialty products for sales to
outside customers, marketed under the Real Mex Foods® label, as well as co-packaged under our
Chevys and El Torito brands and other branded names. This facility also produces certain high
volume items for our Acapulco restaurants including soups, baked goods and sauce bases, enabling us
to maintain food quality and consistency while reducing costs. All three facilities have additional
capacity to allow for growth in our distribution operations and production for outside customers.
Business Strategy
Our primary business objective is to increase profitability through same store sales growth
and restaurant level margin improvements, identified reductions in overhead costs, and continued
growth in outside sales by Real Mex Foods. During fiscal year 2010, we experienced a 2.3%
decrease in comparable store sales, primarily as a result of the slowing U.S. economy which has
negatively impacted overall consumer traffic and the ability to increase prices in the restaurant
industry. While we do not expect a meaningful improvement in the economy in 2011, we intend to
focus on our guest service initiatives as well as providing compelling value based product
offerings to stabilize and improve our same store sales.
Same store sales and store margin improvements. At our El Torito concept, our intent is to
communicate our commitment to creating fresh, authentic Mexican dishes and drinks through
in-restaurant merchandising, direct mail, newspaper, internet advertising and public relations.
During fiscal year 2010, we sought to improve sales and margins through new product introductions
and signature specials during four promotional events. Our Acapulco concept has been built upon the
positioning of a family of local Mexican neighborhood restaurants delivering generous portions of
California-Mexican food and drink at a good value. In fiscal year 2010, we sustained the same
number of direct mail drops as in fiscal year 2009, but decreased the number of coupons issued
during the 4th quarter. We launched four promotions featuring new product introductions
as limited time offers and communicated these promotions vis-à-vis direct mail and in-restaurant
merchandising. At our Chevys concept, we leveraged our equity in Fresh Mex and further enhanced
the brand by incorporating fun and flavor into the concepts positioning. We introduced four
promotions that boasted fresh, fun and flavor and communicated the new offers through in-restaurant
merchandising and direct mail with coupon incentives.
Growth in Outside Sales by Real Mex Foods. In addition to serving as the proprietary foods
procurement, manufacturing, product development and distribution operation for our restaurants,
Real Mex Foods leverages its scale and expertise through the development, manufacture and
distribution of proprietary Mexican food products to more than 100 outside customers. In 2010, we
consciously decided to cease providing distribution services to a number of our smaller customers.
We changed our focus to the expansion of our retail fresh and frozen products sold under our brands
or under a licensing agreement with other concepts. We currently sell directly to or package for
quick service and casual dining restaurants, amusement parks, club stores, and food service,
retail, vending and institutional customers. We manufacture and sell a proprietary line of packaged
multi-serve entrées, including premium quality burritos, enchiladas and tamales under the Real Mex
Foods label, in more than 600 retail supermarkets. We believe we have the capacity and
manufacturing expertise to expand this business to include other products and to market these
products to additional customers in these and other business segments, with a focus on manufactured
products, which are more profitable than distribution-only accounts. Outside sales decreased 7.8%
from 2009 to 2010, primarily due to a decrease in distribution sales of approximately $3.1 million.
Expansion of the Chevys franchise network. We currently have 9 franchisees operating 23
franchised Chevys restaurants in 11 states. We plan to continue to support our existing franchisees
and develop new franchise relationships. These efforts are aimed at increasing Chevys brand
awareness and marketing efficiencies and to increase revenues from new store franchise fees along
with revenues from ongoing franchise royalties.
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Employees
As of December 26, 2010, we had 10,843 employees. Of these employees, 9,625 were employed as
restaurant hourly team members, 756 as restaurant managers, 328 as distribution and production
facility employees, and 134 as executive, senior, and general office staff. None of our workforce
is unionized.
Restaurant Staffing. Restaurants are assigned between three and five managers typically, a
general manager, one or more assistant managers and one chef. The average restaurant employs
approximately 57 team members approximately 35% of whom are in kitchen positions and 65% in
guest service positions. The actual number of team members in each restaurant varies depending on
sales volume, physical plant design, and unique operational needs.
Turnover. We believe one of our strengths is the relative stability of our employee staff. We
believe that in fiscal year 2010, our hourly turnover of 48.6% and our management turnover of 17.1%
continue to be better than industry average and provides stability in our staff.
Competition
The food service industry is competitive and affected by external changes such as economic
conditions, disposable income, consumer tastes, and changing population and demographics.
Competitive factors include: food quality, variety and price; customer service; location; the
number and proximity of competitors; decor; and public reputation. We consider our principal
competitors to be family dining venues and casual dining operations. Like other food service
operations, we follow changes in both consumer preferences for food and habits in patronizing
eating establishments. We intend to continue to expand into the specialty food market by selling
directly to or co-packaging for restaurants, food service companies and other customers and will as
a result face competition from other food service companies, many of which are more established
than us.
Intellectual Property
We have registered or filed applications to register certain names used by our restaurants and
our food manufacturing operations as trademarks or service marks with the United States Patent and
Trademark Office and in certain foreign countries, including the names Acapulco Mexican
Restaurant®, El Torito®, El Torito
Grill®, Sinigual®, Chevys Fresh
Mex® and Real Mex Foods®. The success of our business
strategy depends on our continued ability to use our existing trademarks and service marks in order
to increase brand awareness and further develop our branded products.
Government Regulation
Our business, including each of the restaurants we operate, is subject to extensive federal,
state and local government regulation, including those relating to, among others, public health,
sanitation and safety, zoning and fire codes. A failure to comply with one or more regulations
could result in the imposition of sanctions, including the closing of facilities for an
indeterminate period of time, or third party litigation, any of which could have a material adverse
effect on our Company and its results of operations. We are also subject to laws and regulations
governing our relationships with employees, including the Fair Labor Standards Act, the Immigration
Reform and Control Act, minimum wage requirements, overtime, reporting of tip income, work and
safety conditions and other regulations governing employment. Because a significant number of our
employees are paid at rates tied to the federal and California state minimum wage, an increase in
the minimum wage would increase our labor costs. An increase in the minimum wage rate or employee
benefits costs could have a material adverse effect on our results of operations.
Our restaurants sales of alcoholic beverages are subject to regulation in each state in which
we operate. Typically our restaurants licenses to sell alcoholic beverages must be renewed
annually and may be suspended or revoked at any time for cause. Alcoholic beverage control
regulations relate to various aspects of daily operations of our restaurants, including the minimum
age of patrons and employees, hours of operation, advertising, wholesale purchasing and inventory
control, handling and storage. In fiscal year 2010, approximately 25.2% of our restaurant revenues
were attributable to the sale of alcoholic beverages, and we believe that our ability to serve
alcohol is an important factor in attracting customers. The failure of any of our restaurants to
timely obtain and maintain liquor or other licenses, permits or approvals required to serve
alcoholic beverages or food could delay or prevent the opening of, or adversely impact the
viability of, the restaurant, and we could lose significant revenue.
Our restaurants are subject in each state in which we operate to dram shop laws, which allow
a person to sue us if that person was injured by an intoxicated guest who was wrongfully served
alcoholic beverages at one of our restaurants. A judgment against us under a dram shop law could
exceed our liability insurance coverage policy limits and could result in substantial liability for
us and have a material adverse effect on our profitability. Our inability to continue to obtain
such insurance coverage at reasonable costs also could have a material adverse effect on us.
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Our food manufacturing operations are subject to extensive regulation by the United States
Department of Agriculture, or USDA, and other state and local authorities. Our facilities and
products are subject to periodic inspection by federal, state and local authorities. We believe
that we are currently in substantial compliance with all material governmental laws and regulations
and maintain all material permits and licenses relating to our operations. We are required to have
a USDA inspector on site at our manufacturing facility to ensure compliance with USDA regulations.
Nevertheless, we cannot assure you that we are in full compliance with all such laws and
regulations or that we will be able to comply with any future laws and regulations in a
cost-effective manner. Failure by us to comply with applicable laws and regulations could subject
us to civil remedies, including fines, injunctions, recalls or seizures, as well as potential
criminal sanctions, all of which could have a material adverse effect on our business, financial
condition or results of operations.
We are also subject to the U.S. Bio-Terrorism Act of 2002 which, among other things, requires
us to provide specific information about the food products we ship in the U.S. and to register our
manufacturing facilities with the United States Food & Drug Administration, or FDA. In addition, we
are subject to the Nutrition Labeling and Education Act of 1990 and the regulations promulgated
there under by the FDA. This regulatory program prescribes the format and content of certain
information required to appear on the labels of food products.
Additionally, restaurants and other facilities use electricity and natural gas, which are
subject to various federal and state regulations concerning the allocation of energy. Our operating
costs have been and will continue to be affected by increases in the cost of energy.
Environmental Matters
Our operations are also subject to federal, state and local laws and regulations relating to
environmental protection, including regulation of discharges into the air and water. Under various
federal, state and local laws, an owner or operator of real estate may be liable for the costs of
removal or remediation of certain hazardous or toxic substances on or in such property. Such
liability may be imposed without regard to whether the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. Although we are not aware of
any material environmental conditions that require remediation by us under federal, state or local
law at our properties, we have not conducted a comprehensive environmental review of our properties
or operations and we cannot assure that we have identified all of the potential environmental
liabilities at our properties or that such liabilities would not have a material adverse effect on
our financial condition.
Our results of operations and financial condition can be adversely affected by numerous risks.
You should carefully consider the risk factors detailed below in conjunction with the other
information contained in this report. If any of the following risks actually occur, our business,
financial condition, operating results, cash flows and/or future prospects could be materially
adversely affected.
Risks Related to Our Company
The U.S. economic crisis adversely impacted our business and financial results in fiscal 2010 and a
prolonged recession could materially affect us in the future.
The restaurant industry is dependent upon consumer discretionary spending. The current
economic crisis has reduced consumer confidence to historic lows impacting the publics ability
and/or desire to spend discretionary dollars as a result of job losses, home foreclosures,
significantly reduced home values, investment losses, personal bankruptcies and reduced access to
credit, resulting in lower levels of guest traffic in our restaurants. If this difficult economic
situation continues for a prolonged period of time and/or deepens in magnitude, our business,
results of operation and ability to comply with the covenants under our credit facility could be
materially affected. Continued deterioration in customer traffic and/or a reduction in the average
amount guests spend in our restaurants will negatively impact our revenues and our profitability.
This could result in further reductions in staff levels, additional asset impairment charges and
potential restaurant closures.
Future recessionary effects on the Company are unknown at this time and could have a potential
material adverse effect on our financial position and results of operations. There can be no
assurance that the governments plan to stimulate the economy will restore consumer confidence,
stabilize the financial markets, increase liquidity and the availability of credit, or result in
lower unemployment.
9
We are vulnerable to changes in consumer preferences and economic and other conditions that could
harm our business, financial condition, and results of operations and cash flows.
Food service businesses are often affected by changes in consumer tastes, national, regional
and local economic conditions, demographic trends, consumer confidence in the economy and
discretionary spending priorities. Factors such as traffic patterns, weather conditions, local
demographics and the type, number and location of competing restaurants may adversely affect the
performance of individual locations. In addition, inflation and increased food and energy costs may
harm the restaurant industry in general and our locations in particular. Adverse changes in any of
these factors could reduce consumer traffic or impose practical limits on pricing, which could harm
our business, financial condition, results of operations and cash flows. We cannot assure you that
consumers will continue to regard our products favorably or that we will be able to develop new
products that appeal to consumer preferences. Any failure to satisfy consumer preferences could
have a materially adverse affect on our business. Our continued success will depend in part on our
ability to anticipate, identify and respond to changing consumer preferences and economic
conditions.
Our business is highly sensitive to events and conditions in the State of California.
A majority of our restaurants are located in California. Because of this geographic
concentration, we are susceptible to local and regional risks, such as energy shortages and related
increased costs, increased government regulation, adverse economic conditions, adverse weather
conditions, earthquakes and other natural disasters, any of which could have a material adverse
effect on our business, financial condition and results of operations. In light of our current
geographic concentration, adverse publicity relating to our restaurants could have a more
pronounced adverse effect on overall sales than might be the case if our restaurants were more
broadly dispersed.
Increases in the cost of ingredients could materially adversely affect our business, financial
condition, and results of operations and cash flows.
The cost, availability and quality of the ingredients we use to prepare our food and beverages
are subject to a range of factors, many of which are beyond our control. Changes in the cost of
such ingredients can result from a number of factors, including seasonality, political conditions,
weather conditions, shortages of ingredients and other factors. If we fail to anticipate and react
to increasing ingredient costs by adjusting our purchasing practices and menu price adjustments,
our cost of sales may increase and our operating results could be adversely affected.
Food-borne illness incidents could reduce our restaurant sales.
We cannot guarantee that our food handling policies and training at our restaurants and
distribution and manufacturing facilities will be fully effective in preventing all food-borne
illnesses. Furthermore, our reliance on third party suppliers makes it difficult to monitor food
safety compliance and increases the risk that food-borne illness would affect multiple locations
rather than single restaurants. Third party food suppliers and transporters outside of our control
could cause some food borne illness incidents. New illnesses resistant to our current precautions
may develop in the future, or diseases with long incubation periods could arise, that could give
rise to claims or allegations on a retroactive basis. One or more instances of food-borne illness
in one of our restaurants could negatively affect our restaurant sales if highly publicized. This
risk exists even if it were later determined that the illness was wrongly attributed to one of our
restaurants. A number of other restaurant chains have experienced incidents related to food borne
illnesses that have had a material adverse impact on their operations, and we cannot assure you
that we can avoid a similar impact upon the occurrence of a similar incident at our restaurants. In
addition, we may be subject to liability claims as a result of food-borne illnesses.
We depend upon frequent deliveries of food and other supplies.
Our ability to maintain consistent quality menu items depends in part upon our ability to
acquire fresh food products and related items, including essential ingredients used in the Mexican
restaurant business such as avocados, from reliable sources in accordance with our specifications.
Shortages or interruptions in the supply of fresh food products caused by unanticipated demand,
problems in production or distribution, contamination of food products, an outbreak of food-borne
diseases, inclement weather or other conditions could materially adversely affect the availability,
quality and cost of ingredients, which could adversely affect our business, financial condition,
results of operations and cash flows.
10
We have contracts with a large number of suppliers of most food, beverages and other supplies
for our restaurants. In addition, we distribute substantially all of the products we receive from
suppliers through our distribution facility. If suppliers do not perform adequately or if any one
or more of such entities seeks to terminate its agreement or fails to perform as anticipated, or if
there is any disruption in any of our supply relationships or distribution operations for any reason, it
could have a material adverse effect on our business, financial condition, results of operations
and cash flows. Our inability to replace our distribution operations and our suppliers in a short
period of time on acceptable terms could increase our costs and could cause shortages at our
restaurants of food and other items that may cause our restaurants to remove certain items from a
restaurants menu or temporarily close a restaurant. If we temporarily close a restaurant or remove
popular items from a restaurants menu, that restaurant may experience a significant reduction in
revenue during the time affected by the shortage or thereafter, as our customers may change their
dining habits as a result.
There is intense competition in the restaurant industry.
The restaurant business is intensely competitive with respect to food quality, price value
relationships, ambiance, service and location, and there are many well-established competitors with
substantially greater financial, marketing, personnel and other resources. In addition, many of our
competitors are well established in the markets where we operate. While we believe that our
restaurants are distinctive in design and operating concept, other companies may develop
restaurants that operate with similar concepts. In addition, with improving product offerings at
quick-service restaurants and grocery stores, coupled with the present state of the economy,
consumers may choose to trade down to these alternatives, which could also negatively affect
revenues.
Negative publicity relating to one of our restaurants could reduce sales at some or all of our
other restaurants.
We are, from time to time, faced with negative publicity relating to food quality, restaurant
facilities, health inspection scores, employee relationships or other matters at specific
restaurants. Adverse publicity may negatively affect us, regardless of whether the allegations are
valid or whether we are liable. In addition, the negative impact of adverse publicity relating to
one restaurant may extend far beyond the restaurant involved to affect some or all of our other
restaurants. A similar risk exists with respect to totally unrelated food service businesses, if
customers mistakenly associate such unrelated businesses with our own operations.
Changes in employment laws may adversely affect our business.
Various federal and state labor laws govern the relationship with our employees and affect
operating costs. These laws include minimum wage requirements, overtime, unemployment tax rates,
workers compensation rates and citizenship requirements. Significant additional government imposed
increases in the following areas could materially affect our business, financial condition,
operating results or cash flow:
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minimum wage; |
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paid leaves of absence; |
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provision to employees of mandatory health insurance; |
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tax reporting; and |
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revisions in the tax payment requirements for employees who receive gratuities. |
We may be subject to significant liability should the consumption of any of our specialty products
cause injury, illness or death.
We may be required to recall specialty products that we manufacture and co-package at our
manufacturing facility in the event of contamination, product tampering, mislabeling or damage to
our products. We cannot assure you that product liability claims will not be asserted against us or
that we will not be obligated to recall our products. A product liability judgment against us or a
product recall could have a material adverse effect on our business, financial condition or results
of operations.
Wage and hour class action lawsuits may adversely affect our business.
The Company is subject from time to time to employee claims based, among other things, on
discrimination, harassment, wrongful termination, or violation of wage and labor laws in the
ordinary course of business. These claims may divert our financial and management resources that
would otherwise be used to benefit our operations. In recent years a number of restaurant companies
have been subject to wage and hour class action lawsuits alleging violations of federal and state
labor laws. A number of these lawsuits have resulted in the payment of substantial damages by the
defendants. We have been and may in the future be named as a
defendant in wage and hour class action lawsuits. Any significant judgment against us or
settlement by us could adversely affect our financial condition and adverse publicity resulting
from these allegations could adversely affect our business.
11
The current economic crisis could have a material adverse impact on our landlords or other tenants
in shopping centers in which we are located, which in turn could negatively affect our financial
results.
If the recession continues or increases in severity, our landlords may be unable to obtain
financing or remain in good standing under their existing financing arrangements, resulting in
failures to satisfy lease covenants to us. In addition, other tenants at shopping centers in which
we are located or have executed leases may fail to open or may cease operations. If our landlords
fail to satisfy required co-tenancies, such failures may result in us terminating leases in these
locations. Also, decreases in total tenant occupancy in shopping centers in which we are located
may affect guest traffic at our restaurants. All of these factors could have a material adverse
impact on our operations.
Uninsured losses could occur.
We have comprehensive insurance, including general liability and property (including business
interruption) extended coverage. However, there are certain types of losses that may be uninsurable
or that we believe are not economical to fully insure, such as earthquakes and other natural
disasters. In view of the location of many of our existing restaurants in California, our
operations are particularly susceptible to damage and disruption caused by earthquakes. In the
event of an earthquake or other natural disaster affecting our geographic area of operations, we
could suffer a loss of the capital invested in, as well as anticipated earnings from, the damaged
or destroyed properties.
The failure to enforce and maintain our trademarks could materially adversely affect our ability to
establish and maintain brand awareness.
We have registered or filed applications to register certain names used by our restaurants and
our food manufacturing operations as trademarks or service marks with the United States Patent and
Trademark Office and in certain foreign countries, including the names Acapulco Mexican
Restaurant®, El Torito®, El Torito Grill®, Sinigual®, Chevys Fresh Mex® and Real Mex Foods®. The
success of our business strategy depends on our continued ability to use our existing trademarks
and service marks in order to increase brand awareness and further develop our branded products. If
our efforts to protect our intellectual property are not adequate, or if any third party
misappropriates or infringes our intellectual property, either in print or on the Internet, the
value of our brands may be harmed, which could have a material adverse effect on our business,
including the failure of our brands and branded products to achieve and maintain market acceptance.
We cannot assure you that all of the steps we have taken to protect our intellectual property
in the U.S. and foreign countries will be adequate. In addition, the laws of some foreign countries
do not protect intellectual property rights to the same extent as the laws of the U.S.
We may be locked into long-term and non-cancelable leases and may be unable to renew leases at the
end of their terms.
Many of our current leases are non-cancelable and typically have initial terms of 10 to 20
years and one or more renewal terms of three or more years that we may exercise at our option.
Leases that we enter into in the future likely will also be long-term and non-cancelable and have
similar renewal options. If we close a restaurant, we may remain committed to perform our
obligations under the applicable lease, which would include, among other things, payment of the
base rent for the balance of the lease term. Alternatively, at the end of the lease term and any
renewal period for a restaurant, we may be unable to renew the lease without substantial additional
cost, if at all. We may close or relocate the restaurant, which could subject us to construction
and other costs and risks, and could have a material adverse effect on our business. Additionally,
the revenue and profit, if any, generated at a relocated restaurant, may not equal the revenue and
profit generated at the existing restaurant. Furthermore, in the past, we have been forced to close
profitable restaurants due to the inability to renew a lease upon the expiration of its lease term
and we expect this to occur from time to time in the future.
If we face labor shortages or increased labor costs, our growth and operating results could be
adversely affected.
Labor is a primary component in the cost of operating our restaurants. If we face labor
shortages or increased labor costs because of increased competition for well-qualified employees,
higher employee turnover rates or increases in the federal or applicable state minimum wage or
other employee benefits costs (including costs associated with health insurance coverage), our
operating expenses could increase and our growth could be adversely affected. In addition, full
service casual dining segment restaurant operators have
traditionally experienced relatively high employee turn over rates. Although we have not yet
experienced any significant problems in recruiting or retaining employees, our ability to recruit
and retain such individuals may result in higher employee turnover in our restaurants, which could
have a material adverse effect on our business, financial condition, results of operations and cash
flows.
12
We have been affected by increasing healthcare and workers compensation expenses affecting
business in most industries including ours. To manage premium increases we have elected to
self-insure workers compensation. Higher deductibles could result in greater exposure to our
operating results and liquidity. If we are exposed to material liabilities that are not insured it
could materially adversely affect our financial condition and results of operations.
We face risks associated with government regulations.
We are subject to extensive government regulation at the federal, state and local government
level. These include, but are not limited to, regulations relating to the preparation and sale of
food and beverages, zoning and building codes, land use and employee, public health, sanitation and
safety matters. We are required to obtain and maintain governmental licenses, permits and
approvals. Difficulty or failure in obtaining these approvals in the future could result in
delaying or canceling the opening of new restaurants or could materially adversely affect the
operation of existing restaurants. Local authorities may suspend or deny renewal of our
governmental licenses if they determine that our operations do not meet the standards for initial
grant or renewal. This risk would be even higher if there were a major change in the licensing
requirements affecting our types of restaurants.
Typically our restaurants licenses to sell alcoholic beverages must be renewed annually and
may be suspended or revoked at any time for cause. Alcoholic beverage control regulations relate to
various aspects of daily operations of our restaurants, including the minimum age of patrons and
employees, hours of operation, advertising, wholesale purchasing and inventory control, handling
and storage. In fiscal year 2010, approximately 25.2% of our restaurant revenues were attributable
to the sale of alcoholic beverages, and we believe that our ability to serve alcoholic beverages,
such as our signature margarita drinks, is an important factor in attracting customers. The failure
of any of our restaurants to timely obtain and maintain liquor or other licenses, permits or
approvals required to serve alcoholic beverages or food could delay or prevent the opening of, or
adversely impact the viability of, the restaurant and we could lose significant revenue. Our
restaurants are also subject in each state in which we operate to dram shop laws, which allow a
person to sue us if that person was injured by an intoxicated person who was wrongfully served
alcoholic beverages at one of our restaurants. A judgment against us under a dram shop law could
exceed our liability insurance coverage policy limits and could result in substantial liability for
us and have a material adverse effect on our profitability. Our inability to continue to obtain
such insurance coverage at reasonable costs also could have a material adverse effect on us.
The federal Americans with Disabilities Act and similar state laws prohibit discrimination
because of disability in public accommodations and employment. Mandated modifications to our
facilities (or related litigation) in the future to make different accommodations for persons with
disabilities could result in material unanticipated expenses.
Our distribution and manufacturing operations are subject to extensive regulation by the FDA,
USDA and other state and local authorities. Our processing facilities and products are subject to
periodic inspection by federal, state and local authorities. We cannot assure you, however, that we
are in full compliance with all currently applicable governmental laws, or that we will be able to
comply with any or all future laws and regulations. Failure by us to comply with applicable laws
and regulations could subject us to civil remedies, including fines, injunctions, recalls or
seizures, as well as potential criminal sanctions, which could have a material adverse effect on
our business, financial condition or results of operations.
We face risks associated with environmental laws.
We are subject to federal, state and local laws, regulations and ordinances that:
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govern activities or operations that may have adverse environmental effects, such
as discharges to air and water, as well as handling and disposal practices for solid and
hazardous wastes; and |
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impose liability for the costs of cleaning up, and damage resulting from, sites of
past spills, disposals or other releases of hazardous materials. |
In particular, under applicable environmental laws, we may be responsible for remediation of
environmental conditions and may be subject to associated liabilities, including liabilities
resulting from lawsuits brought by private litigants, relating to our restaurants and the land on
which our restaurants are located, regardless of whether we lease or own the restaurants or land in
question and regardless of whether such environmental conditions were created by us or by a prior
owner or tenant. If we are found liable for the
costs of remediation of contamination at any of our properties our operating expenses would
likely increase and our operating results would be materially adversely affected.
13
We depend on the services of key executives, whose loss could materially harm our business.
Some of our senior executives are important to our success because they have been instrumental
in setting our strategic direction, operating and marketing our business, identifying, recruiting
and training key personnel, identifying expansion opportunities and arranging necessary financing.
Losing the services of any of these individuals could materially adversely affect our business
until a suitable replacement could be found. We believe that they could not easily be replaced with
executives of equal experience and capabilities. We do not maintain key person life insurance
policies on any of our executives.
Compliance with regulation of corporate governance and public disclosure will result in additional
expenses.
Keeping abreast of, and in compliance with, laws, regulations and standards relating to
corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new SEC
regulations require a significant amount of management attention and external resources. We are
committed to observing high standards of corporate governance and public disclosure. Consequently,
we intend to invest all reasonably necessary resources to comply with evolving standards, and this
investment will result in increased general and administrative expenses and a diversion of
management time and attention from revenue generating activities to compliance activities.
The interests of the stockholders of the voting stock of our parent, RM Restaurant Holding Corp,
may conflict with the interests of the holders of our indebtedness.
By virtue of their stock ownership and the terms of various agreements between our parent and
its stockholders, the stockholders of our parent have significant influence over our management and
will be able to determine the outcome of all matters required to be submitted for approval,
including the election of our directors and the approval of mergers, consolidations and the sale of
all or substantially all of our assets. The interests of the stockholders of our parent may differ
from the interests of the holders of our indebtedness if, for example we encounter financial
difficulties or are unable to pay our debts as they mature. In addition, our parents stockholders
may have an interest in pursuing acquisitions, divestitures, financing, or other transactions that,
in their judgment, could enhance their equity investments, although such transactions might involve
risks to the holders of our indebtedness.
We have a material amount of goodwill and other indefinite lived intangible assets which, if
impaired, would result in a reduction in our net income.
Goodwill is the amount by which the cost of an acquisition accounted for using the purchase
method exceeds the fair value of the net assets we acquire. Current accounting standards require
that goodwill and other indefinite lived intangible assets be periodically evaluated for impairment
based on the fair value. The downturn in the economy has resulted in an unfavorable impact on
current operations and growth projections. As a result, impairment charges of goodwill and other
intangible assets of approximately $1.1 million and $16.3 million were recognized during fiscal
years 2010 and 2009, respectively. Any declines in our assessment of the fair value the Company
could result in a further write-down of our goodwill and other indefinite lived intangible assets
and a reduction in our net income.
We may make acquisitions or enter into similar transactions.
We may expand by pursuing acquisitions, business combinations and joint ventures. We may
encounter difficulties in integrating the expanded operations, entering into markets, or conducting
operations where we have no or limited prior experience. Furthermore, we may not realize the
benefits we anticipated when we entered into these transactions. In addition, the negotiation of
potential acquisitions, business combinations or joint ventures as well as the integration of an
acquired business could require us to incur significant costs and cause diversion of managements
time and resources.
Future changes in financial accounting standards may cause adverse unexpected operating results and
affect our reported results of operations.
A change in accounting standards can have a significant effect on our reported results and may
affect our reporting of transactions before the change is effective. New pronouncements and varying
interpretations of pronouncements have occurred and may occur in the future. Changes to existing
accounting rules or the questioning of current accounting practices may adversely affect our
reported financial results.
14
Risks Related to Our 14.0% Senior Secured Notes due January 1, 2013
Our substantial level of indebtedness could adversely affect our financial condition and prevent us
from fulfilling our obligations under the notes.
We have substantial indebtedness, including obligations under capital leases and unamortized
debt discount. As of December 26, 2010, we had approximately $162.0 million of total debt
outstanding, of which $131.0 million is secured. Subject to restrictions in the indenture and our
senior secured and unsecured credit facilities, we may incur additional indebtedness. Our high
level of indebtedness could have important consequences to you and significant effects on our
business, including the following:
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it may be more difficult for us to satisfy our financial obligations, including with respect to the notes; |
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our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate
purposes may be impaired; |
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we must use a substantial portion of our cash flow from operations to pay interest on the notes and our other indebtedness
as well as to fund excess cash flow offers on the notes, which will reduce the funds available to use for operations and
other purposes; |
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all of the indebtedness outstanding under our senior secured credit facility will have a prior ranking claim on
substantially all of our assets, and all of the indebtedness outstanding under our other secured debt (like equipment
financing) will have a prior ranking claim on the underlying assets; |
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our ability to fund a change of control offer may be limited; |
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our ability to borrow additional funds may be limited; |
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our high level of indebtedness could place us at a competitive disadvantage compared to those of our competitors that may
have proportionately less debt; |
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our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited; |
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we may be restricted from making strategic acquisitions or exploiting other business opportunities; and |
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our high level of indebtedness makes us more vulnerable to economic downturns and adverse developments in our business. |
We expect to use cash flow from operations to pay our expenses and scheduled interest and
principal payments due in the next 12 months under our outstanding indebtedness, including the
notes. Our ability to make these payments thus depends on our future performance, which is affected
by financial, business, economic and other factors, many of which we cannot control. The economic
downturn has negatively impacted our cash flow and has decelerated our growth plans. Our business
may not generate sufficient cash flow from operations in the future and our anticipated growth in
revenue and cash flow may not be realized, either or both of which could result in our being unable
to repay or pay interest on our indebtedness, including the notes, to pay interest on our
indebtedness, or to fund other liquidity needs. If we do not have enough money, we may be required
to refinance all or part of our then-existing debt (including the notes), sell assets or borrow
more money. We cannot make any assurances that we will be able to accomplish any of these
alternatives on terms acceptable to us, or at all. In addition, the terms of existing or future
debt agreements, including the indenture and our senior secured and unsecured credit facilities,
may restrict us from adopting any of these alternatives. The failure to generate sufficient cash
flow or to achieve any of these alternatives could significantly adversely affect the value of the
notes and our ability to pay the amounts due under the notes.
Despite our current indebtedness level, we and our subsidiaries may still be able to incur
substantially more debt, which could exacerbate the risks associated with our substantial leverage.
As of December 26, 2010, we had $15.0 million of revolving credit availability under our $15.0
million senior secured credit facility. We and our subsidiaries may also be able to incur
substantial additional indebtedness in the future. The terms of the indenture and the senior
secured and unsecured credit facilities do not fully prohibit us or our subsidiaries from doing so.
If we incur any additional indebtedness that ranks equally with the notes, the holders of that debt
will be entitled to share ratably with the holders of
the notes in any proceeds distributed in connection with any insolvency, liquidation,
reorganization, dissolution or other winding up of us, subject to any collateral securing the
notes. If new debt is added to our or our subsidiaries current debt levels, the related risks that
we now face could intensify.
15
We are a holding company and, therefore, our ability to make payments under the notes and service
our other debt depends on cash flow from our subsidiaries.
We are, and are required under the indenture governing our notes to remain, a holding company.
Our only material assets are our ownership interests in our subsidiaries. Consequently, we will
depend on distributions or other intercompany transfers of funds from our subsidiaries to make
payments under the notes and service our other debt. Distributions and intercompany transfers of
funds to us from our subsidiaries will depend on:
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their earnings; |
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covenants contained in agreements to which we or our subsidiaries are or may become
subject, including our senior secured and unsecured credit facilities and the
notes; |
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business and tax considerations; and |
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applicable law, including laws regarding the payment of dividends and distributions. |
We cannot assure you that the operating results of our subsidiaries at any given time will be
sufficient to make distributions or other payments to us or that any distributions and/or payments
will be adequate to pay any amounts due under the notes or our other indebtedness.
Our senior secured and unsecured credit facilities and the indenture for the notes impose
significant operating and financial restrictions, which may prevent us from pursuing certain
business opportunities and taking certain actions.
Our senior secured and unsecured credit facilities and the indenture for the notes impose, and
future debt agreements may impose, significant operating and financial restrictions on us. These
restrictions limit or prohibit, among other things, our ability to:
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incur additional indebtedness; |
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repay indebtedness (including the notes) prior to stated maturities; |
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pay dividends on, redeem or repurchase our stock or make other distributions; |
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make acquisitions or investments; |
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create or incur liens; |
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transfer or sell certain assets or merge or consolidate with or into other companies; |
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enter into certain transactions with affiliates; |
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sell stock in our subsidiaries; |
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restrict dividends, distributions or other payments from our subsidiaries; and |
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otherwise conduct necessary corporate activities. |
In addition, our senior secured and one of our unsecured credit facilities require us to
maintain compliance with specified financial covenants.
These covenants could adversely affect our ability to finance our future operations or capital
needs and pursue available business opportunities. A breach of any of these covenants could result
in a default in respect of the related indebtedness. If a default occurs, the relevant lenders
could elect to declare the indebtedness, together with accrued interest and other fees, to be
immediately due and
payable and proceed against any collateral securing that indebtedness. Acceleration of our
other indebtedness could result in a default under the terms of the indenture governing the notes.
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We may not be able to satisfy our obligations to holders of the notes upon a change of control or
in connection with an excess cash flow offer or asset sale offer.
Upon the occurrence of a change of control, as defined in the indenture, we will be required
to offer to purchase the notes at a price equal to 101% of the principal amount thereof, together
with any accrued and unpaid interest and liquidated damages, if any, to the date of purchase,
unless we have given a prior redemption notice. In addition, upon our accumulation of certain
levels of excess cash flow, we will be required to offer to purchase the notes at a price equal to
100% of the principal amount thereof, together with any accrued and unpaid interest and liquidated
damages, if any, to the date of purchase, unless we have given a prior redemption notice.
Furthermore, if we sell assets and we do not use the net proceeds for specified purposes, we will
be required to use such net proceeds to offer to repurchase the notes at 100% of the principal
amount thereof, plus accrued and unpaid interest up to the date of repurchase.
We cannot assure you that, if a change of control, excess cash flow or asset sale offer is
made, we will have available funds sufficient to pay the purchase price for any or all of the notes
that might be delivered by holders of the notes seeking to accept the offer or that we will be
permitted under the terms of our other indebtedness to make such offers and, accordingly, none of
the holders of the notes may receive the purchase price for their notes.
In addition, the events that constitute a change of control under the indenture may also be
events of default under our senior secured and unsecured credit facilities or other obligations we
incur in the future. These events may permit the lenders under our senior secured and unsecured
credit facilities to accelerate the debt outstanding thereunder and, if such debt is not paid, to
enforce security interests in our assets, thereby limiting our ability to raise cash to purchase
the notes, and reducing the practical benefit of the offer to purchase provisions to the holders of
the notes.
The notes will be structurally subordinated to indebtedness and other liabilities of any
non-guarantor subsidiaries.
The notes will be structurally subordinated to the indebtedness and other liabilities
(including trade payables) of any non-guarantor subsidiary, and holders of notes will not have any
claim as a creditor against any non-guarantor subsidiary. In addition, the indenture under which
the notes have been issued permits, subject to certain limitations, non-guarantor subsidiaries to
incur additional indebtedness and does not contain any limitations on the amount of liabilities
(such as trade payables) that may be incurred by them.
The proceeds from the sale of the collateral securing the notes may not be sufficient to pay all
amounts owed under the notes. The collateral securing the notes is subject to first priority liens,
and your right to receive payments on the notes will effectively be subordinated to payments under
the instruments governing our priority lien obligations, including our senior secured credit
facility, to the extent of the value of the assets securing that indebtedness.
The collateral securing the notes is subject to a first priority claim in favor of certain of
our other indebtedness, including our senior secured credit facility, which must be paid in full
before the collateral can be used to pay the notes. Indebtedness under our senior secured credit
facility and certain other senior secured indebtedness that we may incur in the future, referred to
in this report as priority lien debt, is and will be secured by a first priority lien on
substantially all of our tangible and intangible assets, with certain exceptions. In addition,
under the indenture certain other permitted prior liens may rank ahead of the second priority liens
securing the notes. In the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding, the assets that are pledged as collateral securing both the first priority
claims and/or the claims secured by other permitted prior liens and the notes must first be used to
pay the first priority claims and any claims secured by other permitted prior liens in full before
making any payments on the notes.
In addition, the notes are secured by our assets only to the extent those assets constitute
collateral under the security documents. Not all of our and our subsidiaries assets are
collateral. Subject to limited exceptions, the notes are not secured by, among other assets, any
of the following assets that we currently own or may acquire in the future:
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any agreement or contract the terms of which prohibit, or would be breached by, the grant of a security interest therein
to secure the notes, if (i) the prohibition is legally enforceable and (ii) after using commercially reasonable efforts,
we have been unable to amend the agreement or contract to remove the offending terms; |
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money and letters of credit rights that are not supporting obligations; |
17
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any deposit accounts that have been pledged to secure priority lien obligations, if, after using commercially reasonable
efforts, we have been unable to obtain perfected liens on those accounts; |
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any foreign intellectual property or automobiles, vehicles or the like in which a security interest cannot be perfected by
the filing of a Uniform Commercial Code financing statement; |
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any other assets in which a security interest cannot be perfected by the filing of a Uniform Commercial Code financing
statement, so long as the aggregate fair market value of those assets is not more than $1.0 million at any time; |
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|
any leased real property; |
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the voting stock of any foreign subsidiary in excess of 65% of the outstanding voting stock of that foreign subsidiary; and |
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|
while any priority lien obligations remain outstanding, any other assets that have not been pledged to secure priority
lien obligations, so long as the aggregate fair market value of those assets is not more than $500,000 at any time. |
Absent the Intercreditor Agreement between the trustee for the note holders under the
indenture and the administrative agent for the lenders under our senior secured credit facility,
the failure by the lenders under the senior secured credit facility to perfect their liens on the
collateral properly might have allowed the security interests that secure the notes to assert first
priority. The Intercreditor Agreement, however, bars the noteholders from asserting such priority.
In addition, to the extent that third parties, including lenders under any credit facility, hold
liens on the collateral, such third parties will have rights and remedies with respect to the
assets or property subject to such liens that, if exercised, could adversely affect the value of
the collateral.
No appraisal of the value of the collateral securing the notes has been made and the value of
the collateral in the event of liquidation will depend on market and economic conditions, the
availability of buyers and other factors. However, we believe that the book value of our tangible
assets will be less than our secured indebtedness on a pro forma basis and we cannot assure you
that liquidating the collateral securing the notes would be likely to produce proceeds in an amount
sufficient to pay all or any amounts due on the notes, after first satisfying our obligations in
full under our senior secured credit facility and any other obligations secured by a first priority
lien or other permitted prior lien on the collateral. Under the Bankruptcy Code, unless the value
of the collateral securing the notes is greater than the amount of the remaining obligations under
the notes, holders of notes will not be entitled to post petition interest in a bankruptcy
proceeding.
We have not analyzed the effect of such exceptions, limitations, imperfections and liens, and
the existence of any could adversely affect the value of the collateral securing the notes as well
as the ability of the collateral agent to realize or foreclose on such collateral.
For each of the reasons set forth above, there may not be sufficient collateral to pay all or
any of the amounts due on the notes. Any claim for the difference between the amount realized by
holders of the notes from the sale of the collateral securing the notes and the obligations under
the notes will be an unsecured claim and will rank equally in right of payment with all of our
other unsecured unsubordinated indebtedness and other obligations, including trade payables.
Holders of notes will not control decisions regarding collateral.
The holders of the priority lien debt control substantially all matters related to the shared
collateral securing the first priority claims and the notes. The holders of priority lien debt may
cause the collateral agent under the applicable security agreements to take action (or delay or
refuse to take action) to dispose of, foreclose on, or exercise other remedies with respect to the
shared collateral with which holders of the notes may disagree or that may be contrary to the
interests of holders of the notes.
18
The ability of the trustee to foreclose on the collateral may be limited.
The right of our secured creditors to foreclose on and sell collateral upon the occurrence of
an event of default also could be subject to certain limitations under applicable federal
bankruptcy laws if we become the subject of a case under the Bankruptcy Code. Various provisions of
the Bankruptcy Code could prevent the trustee from repossessing and disposing of the collateral
upon the occurrence of an event of default if a bankruptcy case is commenced by or against us
before the trustee repossesses and disposes of the collateral. Under the Bankruptcy Code, secured
creditors, such as the holders of the notes, may be prohibited from repossessing their collateral
from a debtor in a bankruptcy case, or from disposing of collateral repossessed from such debtor,
without prior bankruptcy
court approval. Furthermore, other provisions of the Bankruptcy Code permit a debtor to
continue to retain and to use the collateral (and the proceeds, products, rents or profits of such
collateral) so long as the secured creditor is afforded adequate protection of its interest in
the collateral. Although the precise meaning of the term adequate protection may vary according
to circumstances, it is intended in general to protect a secured creditor against any diminution in
the value of the creditors interest in its collateral. Accordingly, a bankruptcy court may find
that a secured creditor is adequately protected if, for example, the debtor makes certain cash
payments or grants the creditor additional or replacement liens as security for any diminution in
the value of the collateral occurring for any reason during the pendency of the bankruptcy case. In
view of the fact that the application of the doctrine of adequate protection will vary depending
on the circumstances of the particular case and the broad discretionary powers of a bankruptcy
court, it is impossible to predict how long payments under the notes could be delayed following
commencement of a bankruptcy case, whether or when the trustee could repossess or dispose of the
collateral, or whether or to what extent holders of the notes would be compensated for any delay in
payment or loss of value of the collateral through the requirement of adequate protection.
Furthermore, if the bankruptcy court determines the value of the collateral is not sufficient to
repay all amounts due on the notes, you would hold secured claims to the extent of the value of the
collateral to which a note holder is entitled, and would hold unsecured claims with respect to any
shortfall.
Moreover, secured creditors that hold a security interest in real property may be held liable
under environmental laws for the costs of remediating or preventing release or threatened releases
of hazardous substances at such real property. The trustee may therefore need to evaluate the
impact of such potential liabilities before determining to foreclose on collateral consisting of
real property. Consequently, the trustee may decline to foreclose on such collateral or exercise
remedies available if it does not receive indemnification to its satisfaction from the holders of
the notes.
In addition, the trustees ability to foreclose on the collateral on your behalf may be
subject to lack of perfection, the consent of third parties, prior liens (as discussed above) and
practical problems associated with the realization of the trustees security interest in the
collateral. We did not and will not obtain legal opinions on any of the real property included in
the collateral. Therefore, the enforceability of the provisions of the deeds of trust securing our
real property, including the remedial provisions, have not been and will not be passed on by local
counsel.
Moreover, the Bankruptcy Code contains provisions permitting both secured and unsecured claims
to be impaired, including materially re-written as to their terms and under certain circumstances,
extinguished, pursuant to a Chapter 11 plan of reorganization that has been approved by a
bankruptcy court. There are statutory requirements (including requirements intended to provide
specific
economic protections for holders of both secured and unsecured claims) that are to be satisfied
before a bankruptcy court is legally entitled to approve or confirm a Chapter 11 plan of
reorganization.
However, the bankruptcy court will determine, based on evidence at the confirmation hearing on
such plan, whether certain of those statutory requirements have been satisfied upon the basis of
the factual circumstances existing at the time of such confirmation hearing. The bankruptcy courts
factual findings on such matters generally are accorded deference by any appellate court and
generally are not to be reversed on appeal unless clearly erroneous. Also, there is another
doctrine generally applied by federal appellate courts, which generally is referred to as the
equitable mootness doctrine and generally requires dismissal of any appeal of a bankruptcy
courts order confirming a Chapter 11 plan if a stay pending appeal has not been granted and if the
plan has been so consummated (e.g., the transactions contemplated under the plan such as the
payment of certain claims and/or the issuance of new debt or equity instruments have taken place)
such that it would be unduly burdensome or unfair to third persons to unravel or unwind the plan.
Thus, a bankruptcy courts determination to confirm a Chapter 11 plan of reorganization is likely
to be based in part on the bankruptcy courts factual findings as to the future circumstances
existing at the time of confirmation (as well as on its legal conclusions), may be subject with
respect to those factual findings to a deferential review standard if appealed, and further may
evade appellate review altogether if the appellate court determines that the equitable mootness
doctrine is applicable to the circumstances surrounding such appeal and that, consequently, the
appeal of that plan should be dismissed as being equitably moot. Accordingly, there can be no
guarantee as to the manner in which the claims under the notes will be treated under any confirmed
Chapter 11 plan of reorganization for us or any of our subsidiaries.
19
Rights of the holders of the notes in the collateral may be adversely affected by the failure to
perfect security interests in certain collateral acquired in the future.
The collateral securing the notes includes certain assets that we may acquire in the future.
Applicable law requires that certain property and rights, including real property, acquired after
the grant of a general security interest can only be perfected at the time such property and rights
are acquired and identified. The collateral agent for the notes has no obligation to monitor the
acquisition of, or the perfection of any security interests in, additional property or rights that
constitute collateral. There can be no assurance that the trustee or the collateral agent will
monitor, or that we will inform the trustee or the collateral agent of, the future acquisition of
property and rights that constitute collateral, or that the necessary action will be taken to
properly or timely perfect the security interest in such after acquired collateral. Such failure
may result in the loss of the security interest in the collateral or the priority of the security
interest in favor of the notes against third parties.
Any future pledge of collateral might be avoidable in bankruptcy.
Any future pledge of collateral to secure the notes, including pursuant to security documents
delivered after the date of the indenture, might be avoidable by the pledgor (as debtor in
possession) or by its trustee in bankruptcy if certain events or circumstances exist or occur,
including, among others, if (1) the pledgor is insolvent at the time of the pledge, (2) the pledge
permits the holders of the notes to receive a greater recovery than if the pledge had not been
given, and (3) a bankruptcy proceeding in respect of the pledgor is commenced within 90 days
following the pledge, or, in certain circumstances, a longer period.
Federal and state fraudulent transfer or conveyance laws permit a court to void the notes, the
security interests or the guarantees, and, if that occurs, you may not receive any payments on the
notes.
The issuance of the notes, the grant of the security interests and the issuance of the
guarantees may be subject to review under federal and state fraudulent transfer and conveyance
statutes in a bankruptcy or reorganization case or lawsuit commenced by or on behalf of our or our
guarantors unpaid creditors. Under these laws, if a court were to find that, at the time we issued
the notes and our guarantors issued the guarantees or we or our guarantors granted the security
interests, we or our guarantors:
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incurred the indebtedness or granted the security interests with the intent of hindering, delaying or defrauding present or
future creditors; |
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received less than reasonably equivalent value or fair consideration for incurring the indebtedness or granting the
security interests; |
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were insolvent or rendered insolvent by reason of the incurrence of the indebtedness or the grant of the security interests; |
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were left with inadequate capital to carry on business; or |
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intended to incur, or did incur, or believed or reasonably should have believed that we or our restricted subsidiaries
would incur, debts beyond our or our restricted subsidiaries ability to repay as they matured or became due, |
then, such court might:
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subordinate the notes, the guarantees or the security interests to our or
our guarantors presently existing or future indebtedness or any liens
securing such indebtedness; |
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void the issuance of the notes, the guarantees or the security interests; or |
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take other actions detrimental to holders of the notes, including avoiding
any payment by us pursuant to the notes or by the guarantors pursuant to
the guarantees and requiring the return of any such payment to a fund for
the benefit of our or our guarantors unpaid creditors. |
In the event of a finding that a fraudulent conveyance occurred, a note holder may not receive
any repayment on the notes. Further, the avoidance of the notes could result in an event of default
with respect to our other debt that could result in acceleration of such debt.
Generally, an entity would be considered insolvent if, at the time it incurred indebtedness:
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the sum of its debts, including contingent liabilities, was greater than the fair salable value of all its assets; |
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the present fair salable value of its assets was less than the amount that would be required to pay its probable
liability on its existing debts and liabilities, including contingent liabilities, as they become absolute and
mature; or |
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it could not (or believed that it could not, or intended not to) pay its debts as they become due. |
20
Without limiting the generality of the preceding paragraphs, we cannot predict:
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what standard a court would apply in order to determine
whether we or our guarantors were insolvent as of the date
we or our guarantors issued the notes or the guarantees or
granted the security interests, as applicable, or that
regardless of the method of valuation, a court would
determine that we or our guarantors were insolvent on that
date; or |
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whether a court would not determine that the notes, the
guarantees or the security interests constituted fraudulent
transfers on another ground. |
Because the notes were issued with original issue discount, the interest payable in a bankruptcy
case could be reduced, including by deduction of amounts of unmatured interest at the time of
bankruptcy filing.
If a bankruptcy case is commenced by or against us under the Bankruptcy Code, the claim of a
holder of notes with respect to the principal amount thereof may be limited to an amount equal to
the sum of (i) the issue price of the notes and (ii) that portion of the original issue discount
which is not deemed to constitute unmatured interest for purposes of the Bankruptcy Code.
Accordingly, holders of the notes under such circumstances may, even if sufficient funds are
available, receive a lesser amount than they would be entitled to under the express terms of the
notes. In addition, there can be no assurance that a bankruptcy court would compute the accrual of
interest by the same method as that used for the calculation of original issue discount under U.S.
federal income tax law and, accordingly, a holder might be required to recognize gain or loss in
the event of a distribution related to such a bankruptcy case.
Because the notes were issued with original issue discount, U.S. holders of the notes generally
must include interest in income in advance of the receipt of cash attributable to such income.
The notes were issued with original issue discount for U.S. federal income tax purposes.
Holders of notes who are U.S. persons generally must include original issue discount in gross
income for U.S. federal income tax purposes on an annual basis under a
constant yield accrual method regardless of their regular method of tax accounting. These holders
must include original issue discount in income in advance of the receipt of cash attributable to
such income.
There is no established trading market for the notes, and an active trading market may not develop
for the notes. Therefore, a holder of the notes may not be able to sell the notes readily or at all
or at or above the price that such holder paid.
There is no established trading market for the notes. We do not intend to apply for the notes
to be listed on any securities exchange or to arrange for quotation on any automated dealer
quotation systems. A note holder may not be able to sell its notes at a particular time or at
favorable prices. As a result, we cannot provide any assurance as to the liquidity of any trading
market for the notes. As a result, a note holder may be required to bear the financial risk of its
investment in the notes indefinitely. If any of the notes are traded after they are initially
issued, they may trade at a discount from their initial offering price. If a trading market were to
develop, future trading prices of the notes may be volatile and will depend on many factors,
including:
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our operating performance and financial condition; |
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prevailing interest rates; |
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the interest of securities dealers in making a market for them; and |
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the market for similar securities. |
In addition, the market for non-investment grade debt historically has been subject to
disruptions that have caused substantial volatility in the prices of securities similar to the
notes. The market for the notes, if any, may be subject to similar disruptions that could adversely
affect their value and liquidity.
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ITEM 1B. |
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UNRESOLVED STAFF COMMENTS |
Not Applicable.
21
Our corporate headquarters are located in Cypress, California. We occupy this facility under a
lease that expires in 2012. As of December 26, 2010, we leased 180 restaurant facilities and owned
one. The majority of our leases are for 10, 15 or 20-year terms, include options to extend the
terms, include rent holidays, rent escalation clauses and/or contingent rent provisions and some of
our leases have tenant improvement allowances. Our restaurant leases have terms that expire between
fiscal years 2011 and 2028 (excluding renewal options not yet exercised) and have an average
remaining term of approximately 12 years, including options.
Restaurant Locations
As of December 26, 2010, we owned, licensed or franchised 212 restaurants in 15 states and two
foreign countries, of which 181 are Company operated and 31 operate under franchise or license
arrangements.
Our restaurant locations by concept and state as of December 26, 2010 were as follows:
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Concepts |
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|
State |
|
El Torito(1) |
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Chevys |
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Acapulco |
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Franchised |
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Other(2) |
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Total |
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California |
|
|
74 |
|
|
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46 |
|
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30 |
|
|
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1 |
|
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2 |
|
|
|
153 |
|
Missouri |
|
|
|
|
|
|
|
|
|
|
|
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|
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7 |
|
|
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4 |
|
|
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11 |
|
Illinois |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
|
|
1 |
|
|
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6 |
|
New Jersey |
|
|
|
|
|
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2 |
|
|
|
|
|
|
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3 |
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|
|
|
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5 |
|
Oregon |
|
|
1 |
|
|
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3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
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5 |
|
Florida |
|
|
1 |
|
|
|
2 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
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4 |
|
Maryland |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
4 |
|
New York |
|
|
1 |
|
|
|
2 |
|
|
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|
|
|
|
|
|
|
|
|
|
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3 |
|
Virginia |
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
4 |
|
Arizona |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Washington |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
3 |
|
Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Nevada |
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Minnesota |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
South Dakota |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Total domestic |
|
|
77 |
|
|
|
65 |
|
|
|
31 |
|
|
|
23 |
|
|
|
8 |
|
|
|
204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
6 |
|
Turkey |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total including International |
|
|
77 |
|
|
|
65 |
|
|
|
31 |
|
|
|
31 |
|
|
|
8 |
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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(1) |
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Includes El Torito Grill and Sinigual restaurants. |
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(2) |
|
Includes Las Brisas, Who Song&Larrys, El Paso Cantina and Casa Gallardo restaurants. |
We also lease an approximately 101,000 square foot dedicated manufacturing facility located in
Vernon, California, an approximately 67,000 square foot warehouse and distribution facility located
in Buena Park, California and an approximately 54,000 square foot warehouse and distribution
facility located in Union City, California, utilized by our subsidiary, Real Mex Foods.
Our owned and certain of our leased real property is pledged to secure indebtedness
outstanding under our senior credit facility and our senior secured notes.
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ITEM 3. |
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LEGAL PROCEEDINGS |
We are periodically a defendant in cases involving personal injury, employment-related claims,
third-party Americans with Disabilities Act accessibility claims and other matters that arise in
the normal course of business. While any pending or threatened litigation has an element of
uncertainty, we believe that the outcome of these lawsuits or claims, individually or combined,
will not materially adversely affect the consolidated financial position, results of operations or
cash flows of our Company.
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ITEM 4. |
|
(REMOVED AND RESERVED) |
Not applicable.
22
PART II
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ITEM 5. |
|
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
There is currently no established public trading market for our outstanding common stock.
Holders
The number of record holders of each of our classes of common stock as of February 20, 2011
was as follows:
Common Stock: 1
Dividends
No dividends were paid during fiscal years 2010, 2009 or 2008. We presently intend to retain
all earnings, if any, for use in our business operations and, accordingly, we currently do not
anticipate declaring any dividends in the foreseeable future. Our ability to pay dividends is
restricted by certain covenants contained in our secured and unsecured senior credit facilities, as
well as certain restrictions contained in our indenture relating to our senior secured notes.
Securities Authorized For Issuance under Equity Compensation Plans
For information on securities authorized for issuance under equity compensation plans, see
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
MattersEquity Compensation Plan Information.
Recent Sales of Unregistered Securities and Repurchases of Equity Securities
We did not sell any unregistered equity securities in fiscal year 2010 nor did we repurchase
any equity securities in the fourth quarter of 2010.
23
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ITEM 6. |
|
SELECTED FINANCIAL DATA |
The following table sets forth selected historical consolidated financial and other data of our
Company, with respect to the periods prior to (Predecessor) and following (Successor) the Share
Purchase. The selected historical consolidated financial data has been derived from our Companys
audited consolidated financial statements for the Successor six months ended December 26, 2010
(Successor 2010), the Predecessor six months ended June 27, 2010 (Predecessor 2010), the
Predecessor fiscal year 2009 (Predecessor 2009), the Predecessor period from November 14, 2008 to
December 28, 2008 (Predecessor 2008-2), the Predecessor period from December 31, 2007 to November
13, 2008 (Predecessor 2008-1), the Predecessor fiscal year 2007 (Predecessor 2007), the
Predecessor period from August 21, 2006 to December 31, 2006 (Predecessor 2006-2) and the
Predecessor period from December 26, 2005 to August 20, 2006 (Predecessor 2006-1) When combined,
fiscal year 2006 consists of 53 weeks and all other fiscal years presented consist of 52 weeks.
This data presented below should be read in conjunction with, and is qualified in its entirety by
reference to, Managements Discussion and Analysis of Financial Condition and Results of
Operations, and our consolidated financial statements and the notes thereto appearing elsewhere in
this report.
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|
|
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Successor |
|
|
Predecessor |
|
|
|
Six |
|
|
Six |
|
|
Fiscal |
|
|
November |
|
|
December |
|
|
Fiscal |
|
|
August |
|
|
December |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
Year |
|
|
14, 2008 to |
|
|
31, 2007 to |
|
|
Year |
|
|
21, 2006 to |
|
|
26, 2005 to |
|
|
|
December |
|
|
June |
|
|
Ended |
|
|
December |
|
|
November |
|
|
Ended |
|
|
December |
|
|
August |
|
|
|
26, 2010 |
|
|
27, 2010 |
|
|
2009 |
|
|
28, 2008 |
|
|
13, 2008 |
|
|
2007 |
|
|
31, 2006 |
|
|
20, 2006 |
|
|
|
(in thousands) |
|
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant revenues |
|
$ |
208,119 |
|
|
$ |
229,417 |
|
|
$ |
456,699 |
|
|
$ |
52,448 |
|
|
$ |
456,587 |
|
|
$ |
523,352 |
|
|
$ |
179,630 |
|
|
$ |
351,591 |
|
Manufacturing and distribution revenues |
|
|
18,336 |
|
|
|
18,875 |
|
|
|
40,368 |
|
|
|
4,480 |
|
|
|
36,363 |
|
|
|
37,249 |
|
|
|
10,795 |
|
|
|
17,713 |
|
Total revenues |
|
|
227,907 |
|
|
|
250,056 |
|
|
|
500,597 |
|
|
|
57,316 |
|
|
|
496,429 |
|
|
|
565,191 |
|
|
|
192,098 |
|
|
|
372,552 |
|
Cost of sales |
|
|
55,457 |
|
|
|
60,574 |
|
|
|
121,451 |
|
|
|
14,255 |
|
|
|
123,878 |
|
|
|
140,824 |
|
|
|
46,883 |
|
|
|
87,388 |
|
Labor |
|
|
83,406 |
|
|
|
88,612 |
|
|
|
185,455 |
|
|
|
21,210 |
|
|
|
178,962 |
|
|
|
199,843 |
|
|
|
67,729 |
|
|
|
125,748 |
|
Direct operating and occupancy expense |
|
|
67,732 |
|
|
|
68,196 |
|
|
|
136,395 |
|
|
|
14,886 |
|
|
|
133,351 |
|
|
|
148,307 |
|
|
|
51,127 |
|
|
|
94,422 |
|
Total operating costs |
|
|
206,595 |
|
|
|
217,382 |
|
|
|
443,301 |
|
|
|
50,351 |
|
|
|
436,191 |
|
|
|
488,974 |
|
|
|
165,739 |
|
|
|
307,558 |
|
General and administrative expenses |
|
|
11,746 |
|
|
|
11,078 |
|
|
|
25,323 |
|
|
|
3,234 |
|
|
|
26,493 |
|
|
|
31,901 |
|
|
|
11,414 |
|
|
|
18,893 |
|
Depreciation and amortization |
|
|
11,910 |
|
|
|
12,715 |
|
|
|
31,230 |
|
|
|
3,750 |
|
|
|
21,724 |
|
|
|
23,961 |
|
|
|
10,323 |
|
|
|
12,230 |
|
Impairment of goodwill and intangible assets |
|
|
1,100 |
|
|
|
|
|
|
|
16,294 |
|
|
|
|
|
|
|
163,196 |
|
|
|
10,000 |
|
|
|
|
|
|
|
|
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(10,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(4,451 |
) |
|
|
8,881 |
|
|
|
(9,384 |
) |
|
|
(19 |
) |
|
|
(158,668 |
) |
|
|
6,854 |
|
|
|
3,379 |
|
|
|
18,150 |
|
Interest expense |
|
|
13,536 |
|
|
|
15,306 |
|
|
|
45,870 |
|
|
|
4,108 |
|
|
|
16,407 |
|
|
|
19,326 |
|
|
|
10,481 |
|
|
|
16,005 |
|
(Loss) income before income tax provision |
|
|
(18,186 |
) |
|
|
(6,309 |
) |
|
|
(55,005 |
) |
|
|
(4,103 |
) |
|
|
(173,061 |
) |
|
|
(10,802 |
) |
|
|
(8,238 |
) |
|
|
2,787 |
|
Net (loss) income |
|
|
(17,783 |
) |
|
|
(6,268 |
) |
|
|
(49,598 |
) |
|
|
(4,103 |
) |
|
|
(173,113 |
) |
|
|
(23,546 |
) |
|
|
(5,047 |
) |
|
|
1,480 |
|
Redeemable preferred stock accretion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,126 |
) |
Net loss attributable to common
stockholders(1) |
|
$ |
(17,783 |
) |
|
$ |
(6,268 |
) |
|
$ |
(49,598 |
) |
|
$ |
(4,103 |
) |
|
$ |
(173,113 |
) |
|
$ |
(23,546 |
) |
|
$ |
(5,047 |
) |
|
$ |
(8,646 |
) |
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
|
3,359 |
|
|
|
|
|
|
|
3,317 |
|
|
|
2,099 |
|
|
|
|
|
|
|
2,323 |
|
|
|
2,710 |
|
|
|
|
|
Property and equipment, net |
|
|
72,730 |
|
|
|
|
|
|
|
84,524 |
|
|
|
110,505 |
|
|
|
|
|
|
|
96,179 |
|
|
|
90,802 |
|
|
|
|
|
Total assets |
|
|
281,445 |
|
|
|
|
|
|
|
252,361 |
|
|
|
298,328 |
|
|
|
|
|
|
|
434,455 |
|
|
|
447,135 |
|
|
|
|
|
Total debt(2) |
|
|
161,983 |
|
|
|
|
|
|
|
147,114 |
|
|
|
161,813 |
|
|
|
|
|
|
|
186,187 |
|
|
|
183,905 |
|
|
|
|
|
Total stockholders equity |
|
|
27,477 |
|
|
|
|
|
|
|
2,320 |
|
|
|
23,044 |
|
|
|
|
|
|
|
163,113 |
|
|
|
184,077 |
|
|
|
|
|
Other Financial Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
10,708 |
|
|
|
|
|
|
$ |
6,773 |
|
|
$ |
24,068 |
|
|
|
|
|
|
$ |
34,404 |
|
|
$ |
26,380 |
|
|
|
|
|
Ratio of earnings to fixed charges(3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net loss attributable to common stockholders includes the effect of the accretion of the
liquidation preference on the redeemable preferred stock which reduces net income or increases
net loss attributable to common stockholders for the relevant periods through August 20, 2006. |
|
(2) |
|
Total debt includes long-term debt, obligations under capital leases and unamortized debt
premium/discount. |
|
(3) |
|
For purposes of calculating the ratio of earnings to fixed charges, earnings consist of net
income before income taxes plus fixed charges. Fixed charges consist of interest expense on
all indebtedness, plus one-third of rental expense (the portion deemed representative of the
interest factor). For periods with a net loss before income taxes, this calculation is not
performed since the ratio is not meaningful. |
24
|
|
|
ITEM 7. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following Managements Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements as a result of certain factors, including those set
forth under the heading Forward-Looking Statements above and elsewhere in this report. Unless
otherwise provided below or the context otherwise requires, references to we, us, our and
Company refer to Real Mex Restaurants, Inc. and our consolidated subsidiaries. The following
discussion should be read in conjunction with our consolidated financial statements and related
notes thereto included elsewhere in this report.
Overview
We are one of the largest full service, casual dining Mexican restaurant chain operators in
the United States in terms of number of restaurants. As of December 26, 2010, we operated 181
restaurants, 151 of which are located in California, with additional restaurants in Arizona,
Florida, Illinois, Maryland, Missouri, Nevada, New Jersey, New York, Oregon, Virginia and
Washington. Our four major subsidiaries are El Torito Restaurants, Inc., Acapulco Restaurants,
Inc., Chevys Restaurants LLC, and a purchasing, distribution, and manufacturing subsidiary, Real
Mex Foods.
El Torito, El Torito Grill (including Sinigual), Acapulco and Chevys, our primary restaurant
concepts, each offer high quality Mexican food, a wide selection of alcoholic beverages and
excellent guest service. In addition to the El Torito, El Torito Grill, Acapulco and Chevys
concepts, we operate 8 additional restaurant locations, most of which are also full service Mexican
formats, under the following brands: Las Brisas; Casa Gallardo; El Paso Cantina; and Who·Song &
Larrys.
As a result of restrictions in our notes and the downturn in the economy, no new restaurants
were opened during fiscal years 2010 and 2009. During fiscal year 2008, we opened five
restaurants, including our first Sinigual restaurants in Brandon, Florida and New York, New York.
Sinigual is the name for El Torito Grill style restaurants outside southern California. The other
three restaurants opened in 2008 include one El Torito and two Chevys restaurants in California.
Our fiscal year consists of 52 or 53 weeks and ends on the last Sunday in December of each
year. Fiscal years 2008, 2009 and 2010 are comprised of 52 weeks. See additional breakdown of these
years into reported periods in Results of Operations below. When calculating same store sales, we
include a restaurant that has been open for more than 18 months and for the entirety of each
comparable period. As of December 26, 2010, we had 179 restaurants that met this criterion.
Our revenues are comprised of restaurant sales, manufacturing and distribution revenues and
franchise and other revenues. Restaurant revenues include sales of food and alcoholic and other
beverages. Manufacturing and distribution revenues consist of sales by Real Mex Foods to outside
customers of processed and packaged prepared foods and other merchandise items. Franchise and other
revenues primarily includes franchise and royalty fees from our franchisees of our Chevys concept.
Cost of sales is comprised primarily of food and alcoholic beverage expenses. The components
of cost of sales are variable and change with sales volume. In addition, the components of cost of
sales are subject to increase or decrease based on fluctuations in commodity costs and depend in
part on the success of controls we have in place to manage cost of sales in our restaurants. The
cost, availability and quality of the ingredients we use to prepare our food and beverages are
subject to a range of factors, including, but not limited to, seasonality, political conditions,
weather conditions, and ingredient shortages.
Labor cost includes direct hourly and management wages, operations management bonus, vacation
pay, payroll taxes, workers compensation insurance and health insurance.
Direct operating and occupancy expense includes operating supplies, repairs and maintenance,
advertising expenses, utilities, and other restaurant related operating expenses. This expense also
includes all occupancy costs such as fixed rent, percentage rent, common area maintenance charges,
real estate taxes and other related occupancy costs.
General and administrative expense includes all corporate and administrative functions that
support our operations. Expenses within this category include executive management, supervisory and
staff salaries, bonus and related employee benefits, travel and relocation costs, information
systems, training, corporate rent, professional fees and other consulting fees.
Depreciation and amortization principally includes depreciation of capital expenditures for
restaurants and also includes amortization of favorable lease asset and unfavorable lease
liability. Amortization of favorable lease asset and unfavorable lease liability represents the
amortization of the asset in excess of the approximate fair market value and the liability in
excess of the approximate fair market value of the leases assumed, which is revalued in purchase price
accounting. The amounts are being amortized over the remaining primary terms of the underlying
leases.
25
Goodwill and other indefinite lived intangible assets are deemed to have an indefinite life
and are subject to an annual impairment test. Other intangible assets are amortized over their
useful lives. Impairment of goodwill and intangible assets reflects the impairment losses related
to the difference between the fair value and recorded value as identified in our annual impairment
tests. The fair value of goodwill was determined using discounted cash flow projections based upon
management forecasts. For the valuation of other indefinite lived intangible assets, including
trademarks and franchise agreements, discounted future royalty methods are used. We recorded
impairment charges related to goodwill and other indefinite lived intangible assets of $1.1
million, $16.3 million and $163.2 million in fiscal years 2010, 2009 and 2008, respectively, as a
result of the impact of the downturn in the economy on current operations and growth projections.
Our annual operating results are impacted by restaurant closures to the extent we close
locations. Due to our long operating history, restaurant closures are generally the result of lease
expirations. Many of our leases are non-cancelable and have initial terms of 10 to 20 years with
one or more renewal terms of three or more years that we may exercise at our option. As of December
26, 2010, we owned one restaurant location and leased the remaining 180.
We perform ongoing analyses of restaurant cash flow and in the case of negative cash flow or
underperforming restaurants, we may negotiate early termination of leases, allow leases to expire
without renewal or sell restaurants. In addition, from time to time we may be forced to close a
successful restaurant if we are unable to renew the lease on satisfactory terms, or at all. From
the end of fiscal year 2008 to the end of fiscal year 2010, we closed 9 restaurants, 1 of which was
an early lease termination and 8 of which were natural lease ends for which we chose not to renew
or no renewal was available.
Results of Operations
Our operating results for the Successor six months ended December 26, 2010 (Successor 2010),
the Predecessor six months ended June 27, 2010 (Predecessor 2010), the Predecessor fiscal year
2009 (Predecessor 2009), the Predecessor period from November 14, 2008 to December 28, 2008
(Predecessor 2008-2) and the Predecessor period from December 31, 2007 to November 13, 2008
(Predecessor 2008-1) are expressed as a percentage of total revenues below. Because of purchase
accounting adjustments to the fair market value of long-term assets and long-term liabilities, and
because the number of days in each period presented vary, certain amounts may not be comparable
between each period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Six Months |
|
|
Six Months |
|
|
Fiscal |
|
|
November |
|
|
December |
|
|
|
Ended |
|
|
Ended |
|
|
Year |
|
|
14, 2008 to |
|
|
31, 2007 to |
|
|
|
December |
|
|
June |
|
|
Ended |
|
|
December |
|
|
November |
|
|
|
26, 2010 |
|
|
27, 2010 |
|
|
2009 |
|
|
28, 2008 |
|
|
13, 2008 |
|
Total revenues |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of sales |
|
|
24.3 |
|
|
|
24.2 |
|
|
|
24.3 |
|
|
|
24.9 |
|
|
|
25.0 |
|
Labor |
|
|
36.6 |
|
|
|
35.4 |
|
|
|
37.0 |
|
|
|
37.0 |
|
|
|
36.0 |
|
Direct operating and occupancy expense |
|
|
29.7 |
|
|
|
27.3 |
|
|
|
27.2 |
|
|
|
26.0 |
|
|
|
26.9 |
|
Total operating costs |
|
|
90.6 |
|
|
|
86.9 |
|
|
|
88.6 |
|
|
|
87.8 |
|
|
|
87.9 |
|
General and administrative expense |
|
|
5.2 |
|
|
|
4.4 |
|
|
|
5.1 |
|
|
|
5.6 |
|
|
|
5.3 |
|
Depreciation and amortization |
|
|
5.2 |
|
|
|
5.1 |
|
|
|
6.2 |
|
|
|
6.5 |
|
|
|
4.4 |
|
Impairment of goodwill and intangible assets |
|
|
0.5 |
|
|
|
|
|
|
|
3.3 |
|
|
|
|
|
|
|
32.9 |
|
Operating (loss) income |
|
|
(2.0 |
) |
|
|
3.6 |
|
|
|
(4.0 |
) |
|
|
|
|
|
|
(32.0 |
) |
Interest expense |
|
|
5.9 |
|
|
|
6.1 |
|
|
|
9.2 |
|
|
|
7.2 |
|
|
|
3.3 |
|
Loss before extraordinary item |
|
|
(8.0 |
) |
|
|
(2.5 |
) |
|
|
(13.2 |
) |
|
|
(7.2 |
) |
|
|
(34.9 |
) |
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
Loss before income tax provision |
|
|
(8.0 |
) |
|
|
(2.5 |
) |
|
|
(11.0 |
) |
|
|
(7.2 |
) |
|
|
(34.9 |
) |
Net loss |
|
|
(7.8 |
) |
|
|
(2.5 |
) |
|
|
(9.9 |
) |
|
|
(7.2 |
) |
|
|
(34.9 |
) |
26
Fiscal Year 2010 Compared to Fiscal Year 2009
Total Revenues. Total revenues were $227.9 million in the Successor 2010 and $250.1 million in
the Predecessor 2010 compared to $500.6 million in Predecessor 2009. The overall decrease of $22.6
million, or 4.5%, was due to a $19.2 million decrease in
restaurant revenues and a $3.1 million decrease in manufacturing and distribution revenues
combined with a $0.3 million decrease in franchise and other revenues. The $19.2 million decrease
in restaurant revenues was primarily due to comparable store sales declines of 2.3% versus fiscal
year 2009. This decline is primarily attributable to a 1.7% reduction in average check and a 0.5%
reduction in check count. The 1.7% decrease in average check was attributable to a $4.5 million
increase in customer discounts as well as a shift in product mix. The decrease in manufacturing and
distribution revenues was due to a decrease in sales to outside customers by Real Mex Foods,
primarily related to distribution customers.
Cost of Sales. Total cost of sales was $55.5 million in the Successor 2010 and $60.6 million
in the Predecessor 2010 compared to $121.5 million in Predecessor 2009. The overall decrease of
$5.4 million, or 4.5%, was primarily due to lower commodity costs, primarily oil, flour, tortillas
and sauces, combined with the comparable store sales decline noted above. As a percentage of total
revenues, cost of sales was 24.3% in Successor 2010 and 24.2% in Predecessor 2010 as compared to
24.3% in Predecessor 2009.
Labor. Labor costs were $83.4 million in the Successor 2010 and $88.6 million in the
Predecessor 2010 compared to $185.5 million in Predecessor 2009. The overall decrease of $13.4
million, or 7.2%, was primarily due to adjustments in staffing and wages as a result of the
decrease in restaurant revenue combined with lower health insurance expense. As a percentage of
total revenues, labor costs were 36.6% in Successor 2010 and 35.4% in Predecessor 2010 compared to
37.0% in Predecessor 2009. Payroll and benefits remain subject to inflation and government
regulation; especially wage rates that are currently at or near the minimum wage and expenses for
health insurance.
Direct Operating and Occupancy Expense. Direct operating and occupancy expense was $67.7
million in Successor 2010 and $68.2 million in Predecessor 2010 compared to $136.4 million in
Predecessor 2009. The overall decrease of $0.5 million, or 0.3%, was primarily due to lower
occupancy expense. As a percentage of total revenues, direct operating and occupancy expense was
29.7% in Successor 2010 and 27.3% in Predecessor 2010 compared to 27.2% in Predecessor 2009. The
increase as a percent of total revenues in Successor 2010 was primarily due to the comparable store
sales decline, since a significant portion of these costs are fixed in nature and do not vary
substantially with changes in sales volume.
General and Administrative Expense. General and administrative expense was $11.7 million in
Successor 2010 and $11.1 million in Predecessor 2010 compared to $25.3 million in Predecessor 2009.
The overall decrease of $2.5 million, or 9.9%, was primarily due to lower labor expense as a result
of reductions in headcount and wage rate reductions to minimize the impact of lower restaurant
revenues. As a percentage of total revenues, general and administrative expense was 5.2% in
Successor 2010 and 4.4% in Predecessor 2010 compared to 5.1% in Predecessor 2009.
Depreciation and Amortization. Depreciation and amortization expense was $11.9 million in
Successor 2010 and $12.7 million in Predecessor 2010 compared to $31.2 million in Predecessor 2009.
The overall decrease of $6.6 million, or 21.1%, was primarily due to assets which became fully
depreciated in fiscal 2010. As a percentage of total revenues, depreciation and amortization
decreased to 5.2% in Successor 2010 and 5.1% in Predecessor 2010 compared to 6.2% in Predecessor
2009.
Impairment of Goodwill and Other Intangible Assets. In Successor 2010 and Predecessor 2009,
$1.1 million and $16.3 million, respectively, was recorded to reflect the impairment losses related
to the difference between the fair value and recorded value for goodwill and other indefinite lived
intangible assets. The fair value of goodwill was determined based upon a combination of two
valuation techniques, including an income approach, which utilizes discounted future cash flow
projections based upon management forecasts, and a market approach, which is based upon pricing
multiples at which similar companies have been sold. For the valuation of other indefinite lived
intangible assets, including trademarks and franchise agreements, discounted future royalty methods
are used. No impairment was recorded in Predecessor 2010.
Interest Expense. Interest expense was $13.5 million in Successor 2010 and $15.3 million in
Predecessor 2010 compared to $45.9 million in Successor 2009. The overall decrease of $17.0
million, or 37.1%, was primarily due to a decrease in the amortization of debt discount of $18.4
million combined with a decrease in interest expense in the senior secured notes of $1.6 million
and a decrease in the amortization of deferred debt fees of $0.1 million, partially offset by an
increase in interest expense on the senior secured notes of $3.1 million. The decrease in the
amortization of the debt discount was due to both the refinancing of our debt during the third
quarter of 2009 and the revaluation of the notes in conjunction with the Share Purchase. As a
percentage of total revenues, interest expense decreased to 5.9% in Successor 2010 and 6.1% in
Predecessor 2010 compared to 9.2% in Predecessor 2009.
Gain on Extinguishment of Debt. As a result of the exchange by a lender under the senior
unsecured credit facility, as amended, of $15.0 million of unsecured debt for $4.6 million
aggregate principal amount of our notes issued in July 2009 (which were issued for $4.1 million),
we recorded $10.9 million as a gain on extinguishment of debt in Predecessor 2009. Please see Debt
and Other Obligations for details on the refinancing of our debt. No such extinguishment was
recorded in Successor or Predecessor 2010.
27
Income tax provision. We have recorded a full valuation allowance against our deferred tax
assets. During Successor 2010, we recorded an income tax benefit of $0.4 million as a result of
the impairment to our intangible assets, resulting in a reduction of our related deferred tax
liability. During Predecessor 2010, we recorded an income tax benefit of less than $0.1 million as
a result of refunds on income tax. During Predecessor 2009, we recorded an income tax benefit of
$5.4 million as a result of the impairment to our intangible assets, resulting in a reduction of
our related deferred tax liability.
Fiscal Year 2009 Compared to Fiscal Year 2008
Total Revenues. Total revenues were $500.6 million in Predecessor 2009 compared to $57.3
million in Predecessor 2008-2 and $496.4 million in Predecessor 2008-1. The overall decrease of
$53.1 million, or 9.6%, was due to a $52.3 million decrease in restaurant revenues, a $0.5 million
decrease in manufacturing and distribution revenues and a $0.4 million decrease in franchise and
other revenues. The $52.3 million decrease in restaurant revenues was primarily due to comparable
store sales declines of 10.4% versus fiscal year 2008. This decline is primarily attributable to a
reduction in guest count at our existing restaurants resulting from the slowing U.S. economy, which
has negatively impacted overall consumer traffic in the restaurant industry. The decrease in
manufacturing and distribution revenues was due to a decrease in sales to outside customers by Real
Mex Foods, including a decrease in distribution sales of $8.6 million, partially offset by an
increase in manufacturing sales of $8.1 million.
Cost of Sales. Total cost of sales was $121.5 million in Predecessor 2009 compared to $14.3
million in Predecessor 2008-2 and $123.9 million in Predecessor 2008-1. The overall decrease of
$16.7 million, or 12.1%, was primarily due to lower commodity costs, primarily cheese, dairy, beef
and poultry, combined with the comparable store sales decline noted above. As a percentage of total
revenues, cost of sales decreased to 24.3% from 24.9% in Predecessor 2008-2 and 25.0% in
Predecessor 2008-1.
Labor. Labor costs were $185.5 million in Predecessor 2009 compared to $21.2 million in
Predecessor 2008-2 and $179.0 million in Predecessor 2008-1. The overall decrease of $14.7 million,
or 7.4%, was primarily due to adjustments in staffing and wages as a result of the decrease in
restaurant revenue combined with lower casualty insurance expense and health insurance expense. As
a percentage of total revenues, labor costs were 37.0% in Predecessor 2009 as compared to 37.0% in
Predecessor 2008-2 and 36.0% in Predecessor 2008-1. Payroll and benefits remain subject to
inflation and government regulation; especially wage rates that are currently at or near the
minimum wage and expenses for health insurance.
Direct Operating and Occupancy Expense. Direct operating and occupancy expense was $136.4
million in Predecessor 2009 compared to $14.9 million in Predecessor 2008-2 and $133.4 million in
Predecessor 2008-1. The overall decrease of $11.8 million, or 8.0%, was primarily due to lower
utilities, maintenance and cleaning and advertising expense in Predecessor 2009 as a result of
managements focus on decreasing costs to minimize the impact of lower restaurant revenues. As a
percentage of total revenues, direct operating and occupancy expense was 27.2% in Predecessor 2009
as compared to 26.0% in Predecessor 2008-2 and 26.9% in Predecessor 2008-1. The increase as a
percent of total revenues in Predecessor 2009 was primarily due to the comparable store sales
decline, since a significant portion of these costs are fixed or take time to adjust for the
reduction in sales.
General and Administrative Expense. General and administrative expense was $25.3 million in
Predecessor 2009 compared to $3.2 million in Predecessor 2008-2 and $26.5 million in Predecessor
2008-1. The overall decrease of $4.4 million, or 14.8%, was primarily due to lower labor expense as
a result of reductions in headcount and wage rate reductions to minimize the impact of lower
restaurant revenues. As a percentage of total revenues, general and administrative expense was
5.1% in Predecessor 2009 as compared to 5.6% in Predecessor 2008-2 and 5.3% in Predecessor 2008-1.
Depreciation and Amortization. Depreciation and amortization expense was $31.2 million in
Predecessor 2009 compared to $3.8 million in Predecessor 2008-2 and $21.7 million in Predecessor
2008-1. The overall increase of $5.7 million, or 22.6%, was primarily due to depreciation of the
assets of new restaurants combined with the revaluation of tangible and intangible assets in
conjunction with the Exchange. As a percentage of total revenues, depreciation and amortization
was 6.2% in Predecessor 2009 as compared to 6.5% in Predecessor 2008-2 and 4.4% in Predecessor
2008-1.
Impairment of Goodwill and Other Intangible Assets. Goodwill and other intangible asset
impairment charges of $16.3 million were recorded in Predecessor 2009, compared to $163.2 million
recorded in Predecessor 2008-1, to reflect the impairment losses related to the difference between
the fair value and recorded value for goodwill and other indefinite lived intangible assets. The
fair value of goodwill was determined based upon a combination of two valuation techniques,
including an income approach, which utilizes discounted future cash flow projections based upon
management forecasts, and a market approach, which is based upon pricing multiples at which similar
companies have been sold. For the valuation of other indefinite lived intangible assets, including
trademarks and franchise agreements, discounted future royalty methods are used. No goodwill
or trademark impairment was recognized by the Company during Predecessor 2008-2.
28
Interest Expense. Interest expense was $45.9 million in Predecessor 2009 compared to $4.1
million in Predecessor 2008-2 and $16.4 million in Predecessor 2008-1. The overall increase of
$25.4 million, or 123.6%, was primarily due to the refinancing of our debt during the third quarter
of 2009, resulting in the write off of the remaining deferred debt fees and unamortized debt
discount on our senior secured notes due 2010, with total amortization of $22.9 million recorded as
interest expense in Predecessor 2009. The remaining increase of $2.5 million was primarily related
to the increase in principal and interest rate on the new issuance of our notes in July 2009. See
Debt and Other Obligations for details on the refinancing of our debt. As a percentage of total
revenues, interest expense was 9.2% in Predecessor 2009 as compared to 7.2% in Predecessor 2008-2
and 3.3% in Predecessor 2008-1.
Gain on Extinguishment of Debt. As a result of the exchange by a lender under our senior
unsecured credit facility, of $15.0 million of unsecured debt for $4.6 million aggregate principal
amount of our notes issued in July 2009 (which were issued for $4.1 million), we recorded $10.9
million as a gain on extinguishment of debt in Predecessor 2009. (See Debt and Other Obligations
for details on the refinancing of our debt).
Income tax provision. We have recorded a full valuation allowance against our deferred tax
assets. During Predecessor 2009, we recorded an income tax benefit of $5.4 million as a result of
the impairment to our intangible assets, resulting in a reduction of our related deferred tax
liability. As a result of our valuation allowance, no income tax benefit was recorded in
Predecessor 2008-2. The provision recorded of less than $0.1 million in Predecessor 2008-1
represents various state taxes incurred.
Liquidity and Capital Resources
Our principal liquidity requirements are to service our debt and meet our capital expenditure
and working capital needs. Our indebtedness at December 26, 2010, including obligations under
capital leases and unamortized debt discount, was $162.0 million, and we had $15.0 million of
revolving credit availability under our $15.0 million senior secured revolving credit facility. As
discussed below, in July 2009, we refinanced our notes, amended the credit agreement relating to
our senior secured revolving credit facilities and amended and restated the credit agreement
relating to our senior unsecured credit facility. Our ability to make principal and interest
payments and to fund planned capital expenditures will depend on our ability to generate cash in
the future, which, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based on our current level
of operations, we believe our cash flow from operations, available cash and available borrowings
under our senior secured revolving credit facility will be adequate to meet our liquidity needs for
the near future. We cannot assure you, however, that our business will generate sufficient cash
flow from operations or that future borrowings will be available to us under our senior secured
revolving credit facility in an amount sufficient to enable us to service our indebtedness or to
fund our other liquidity needs. If we consummate an acquisition, our debt service requirements
could increase. We may need to refinance all or a portion of our indebtedness on or before
maturity. We cannot assure you that we will be able to refinance any of our indebtedness on
commercially reasonable terms or at all.
Working Capital and Cash Flows
We presently have, in the past have had, and in the future are likely to have, negative
working capital balances. The working capital deficit principally is the result of accounts payable
and accrued liabilities being more than current asset levels. The largest components of our accrued
liabilities include reserves for our self-insured workers compensation and general liability
insurance, accrued payroll and related employee benefits costs and gift card liabilities. We do not
have significant receivables and we receive trade credit based upon negotiated terms in purchasing
food and supplies. Funds available from cash sales not needed immediately to pay for food and
supplies or to finance receivables or inventories typically have been used for capital expenditures
and/or debt service payments under our existing indebtedness.
Operating Activities. We had net cash provided by operating activities of $1.4 million in
Successor 2010 and $10.1 million in Predecessor 2010 compared to $16.9 million for Predecessor
2009, resulting in a net decrease overall of $5.4 million from Predecessor 2009 to the combined
results from Successor 2010 and Predecessor 2010. The decrease in cash provided by operating
activities was primarily attributable to the decrease in revenues combined with changes in working
capital.
Investing Activities. We had net cash used in investing activities of $5.6 million in
Successor 2010 and $5.1 million in Predecessor 2010 compared to $7.2 million for Predecessor 2009.
The overall increase in cash used in investing activities of $3.5 million was primarily the result
of an increase in additions to property and equipment of $3.9 million. The increase in additions
primarily resulted from an increase in maintenance capital expenditures from 2009 to a more normal
level in 2010, as a result of managements focus in 2009 on reducing capital expenditures in order
to minimize the impact of lower restaurant revenues and restrictions in our notes issued
during July 2009. While still within the restrictions in our notes, management determined the
increase was necessary in order to maintain restaurant facilities.
29
We expect to make capital expenditures totaling approximately $10.0 million in fiscal year
2011 comprised of approximately $0.8 million for information technology, approximately $0.5 million
for Real Mex Foods and approximately $8.7 million for restaurant maintenance and other capital
expenditures related to our restaurants, including refurbishments and relocations of approximately
$2.0 million. These and other similar costs may be higher in the future due to inflation and other
factors. We expect to fund the capital expenditures described above from cash flow from operations,
available cash, available borrowings under our senior credit facility and trade financing received
from trade suppliers. We do not plan to open any new restaurants during 2011 as a result of the
continued impact of the downturn in the economy which we do not expect to improve during 2011 and
restrictions in our notes issued during July 2009.
Financing Activities. We had net cash used in financing activities of $0.8 million for
Successor 2010 and net cash provided by financing activities of less than $0.1 million in
Predecessor 2010, compared to net cash used in financing activities of $8.5 million for Predecessor
2009. The overall decrease in cash used in financing activities of $7.7 million was primarily the
result of the net repayment of our senior secured revolving credit facility during the 2009 of
approximately $7.6 million, resulting in no outstanding borrowings on the facility at the end of
2009. There was also no outstanding balance at the end of 2010. Additionally, as a result of the
refinancing of our debt, we had a net cash outflow of approximately $0.7 million during Predecessor
2009. See Debt and Other Obligations below for further discussion of the refinancing
transactions.
Debt and Other Obligations
On July 7, 2009, we completed an offering of $130.0 million aggregate principal amount of
14.0% senior secured notes due January 1, 2013, which are guaranteed by RM Restaurant Holding Corp.
(Holdco), our parent company, and all of our existing and future domestic restricted
subsidiaries, or the guarantors. The notes were offered and sold in a private placement to
qualified institutional buyers pursuant to Rule 144A under the Securities Act, a limited number of
institutional accredited investors in the United States, and outside the United States in reliance
on Regulation S under the Securities Act. The notes were issued pursuant to an indenture, dated
July 7, 2009, by and among the Company, the guarantors and Wells Fargo Bank, National Association,
as trustee. The net proceeds from the issuance of the notes was used to refinance a portion of the
existing indebtedness, including repayment of our existing $105.0 million senior secured notes due
2010 and to pay fees and expenses in connection therewith. Deferred debt fees of $6.5 million were
recorded related to the issuance of the notes. The remaining deferred debt fees and unamortized
debt discount related to the $105.0 million senior secured notes due 2010 of $11.7 million were
recorded as interest expense on July 7, 2009.
Effective June 28, 2010, we entered into a supplemental indenture, which amended the indenture
to permit affiliates of Sun Capital to acquire a majority of the stock of Holdco without requiring
us to make a change of control offer to repurchase the notes that would otherwise have been
required under the original indenture, as described below.
Prior to July 1, 2011, we may redeem up to 35% of the original aggregate principal amount of
the notes at a redemption price equal to 114% of the principal amount thereof, plus accrued and
unpaid interest thereon, with the net proceeds of certain equity financings; provided that (i) at
least 65% of the aggregate principal amount of notes remains outstanding immediately after such
redemption and (ii) the redemption occurs within 90 days of the date of the closing of such sale of
our equity interests. Prior to July 1, 2011, we may also redeem some or all of the notes at a
make-whole premium. On or after July 1, 2011, we may redeem some or all of the notes at 100% of
the notes principal amount, plus accrued and unpaid interest up to the date of redemption.
Within 90 days of the end of each four fiscal quarter period ending on or near December 31,
beginning in 2009, we must, subject to certain exceptions, offer to repay the notes with 75% of the
Excess Cash Flow (as defined in the indenture) from the period, at 100% of the principal amount
plus any accrued and unpaid interest and liquidated damages. If the excess cash flow offer is
prohibited by the terms of the Second Amended and Restated Credit Agreement entered into in
connection with the senior secured revolving credit facilities, as described below, we will deposit
the amount that would have been used to fund the excess cash flow offer into an escrow account.
Funds from the escrow account will only be released to us to repay borrowings under the senior
secured revolving credit facilities or to make an excess cash flow offer. No Excess Cash Flow Offer
was required for 2010 or 2009.
If we undergo a change of control, we will be required to make an offer to each holder to
repurchase all or a portion of their notes at 101% of their principal amount, plus accrued and
unpaid interest up to the date of purchase. If we sell assets outside the ordinary course of
business and we do not use the net proceeds for specified purposes, we may be required to use such
net proceeds to repurchase the notes at 100% of their principal amount, together with accrued and
unpaid interest up to the date of repurchase.
30
The terms of the indenture generally limit our ability and the ability of our restricted
subsidiaries to, among other things: (i) make certain investments or other restricted payments;
(ii) incur additional debt and issue preferred stock; (iii) create or incur liens on assets to
secure debt; (iv) incur dividends and other payment restrictions with regard to restricted
subsidiaries; (v) transfer, sell or consummate a merger or consolidation of all, or substantially
all, of our assets; (vi) enter into transactions with affiliates; (vii) change our line of
business; (viii) repay certain indebtedness prior to stated maturities; (ix) pay dividends or make
other distributions on, redeem or repurchase, capital stock or subordinated indebtedness; (x)
engage in sale and leaseback transactions; or (xi) issue stock of subsidiaries.
The notes and the guarantees are secured by a second-priority security interest in
substantially all of our assets and the assets of the guarantors, including the pledge of 100% of
all outstanding equity interests of each of our domestic subsidiaries. On the closing date of the
issuance of the notes, the Company and the guarantors entered into a registration rights agreement,
pursuant to which we agreed to file with the SEC, and cause to become effective, a registration
statement with respect to a registered offer to exchange the notes for an issue of our senior
secured notes with terms identical to the notes in all material respects. The registration
statement was declared effective on October 8, 2009. A shelf registration statement covering
resales of the notes was declared effective by the SEC on December 1, 2009.
Senior Secured Revolving Credit Facilities. Our Second Amended and Restated Revolving Credit
Agreement with General Electric Capital Corporation, as amended, provides for a $15.0 million
revolving credit facility and $25.0 million letter of credit facility, maturing on July 1, 2012,
collectively, the senior secured revolving credit facilities. Under the senior secured revolving
credit facilities, the lenders agreed to make loans and issue letters of credit to and on behalf of
the Company and our subsidiaries. Interest on the outstanding borrowings under the senior secured
revolving credit facilities is based on either prime rate plus Applicable Margin or ninety-day
LIBOR plus Applicable Margin, as defined in and subject to certain restrictions in the 2009
amendment, which extended the due date and modified certain covenants, and fees on the letters of
credit issued thereunder accrue at a rate of 4.5% per annum. Deferred debt fees of $1.6 million
were recorded in 2009 related to the amendment.
On April 2, 2010, we amended the Second Amended and Restated Revolving Credit Agreement which
modified certain definitions in order to allow the transfer of shares in Holdco within current
stockholders of Holdco. No such amendment was required related to our senior secured notes due 2013
as a result of such transfer.
Obligations under the senior secured revolving credit facilities are guaranteed by all of
our subsidiaries, as well as by Holdco, which has made a first priority pledge of all of its equity
interests in the Company as security for the obligations. The senior secured revolving credit
facilities are secured by, among other things, first priority pledges of all of the equity
interests of our direct and indirect subsidiaries, and first priority security interests (subject
to customary exceptions) in substantially all of our current and future property and assets and our
direct and indirect subsidiaries, with certain limited exceptions. As of December 26, 2010, we had
$8.4 million available under the $25.0 million letter of credit facility and $15.0 million
available under the $15.0 million revolving credit facility that may also be utilized for the
letters of credit.
The Second Amended and Restated Revolving Credit Agreement, as amended, contains various
affirmative and negative covenants and restrictions, which among other things, require us to meet
certain financial tests (including certain leverage and cash flow ratios), and limits the Company
and our subsidiaries ability to incur or guarantee additional indebtedness, make certain capital
expenditures, pay dividends or make other equity distributions, purchase or redeem capital stock,
make certain investments, sell assets, engage in transactions with affiliates and effect a
consolidation or merger. The agreement contains a cross-default provision wherein if we are in
default on any other credit facilities, default on this facility is automatic. At December 26,
2010, we were in compliance with all specified financial and other covenants under the Second
Amended and Restated Credit Agreement, as amended.
Senior Unsecured Credit Facility. In connection with the offering of the notes, we entered
into a Second Amended and Restated Credit Agreement, by and among the Company, Holdco, the lenders
party thereto and Credit Suisse, Cayman Islands Branch, pursuant to which the principal balance of
the existing unsecured loan owing by the Company under the existing senior unsecured credit
facility, as amended, was reduced from $65.0 million to $25.0 million through (i) the assumption by
Holdco of $25.0 million of such unsecured debt and (ii) the exchange by a lender under the senior
unsecured credit facility, as amended, of $15.0 million of such unsecured debt for $4.6 million
aggregate principal amount of notes, subject to an original issue discount of 10%. As a result, we
recorded a gain on extinguishment of debt of $10.9 million. Deferred debt fees of $0.2 million were
recorded related to the Second Amended and Restated Credit Agreement. Interest accrues at an annual
rate of 16.5% and is payable quarterly; provided that (i) such interest is payable in kind for the
first four quarters following the closing date of the issuance of the notes and (ii) thereafter
will be payable in a combination of cash and in kind. The term of the senior unsecured credit
facility was extended to July 1, 2013 and certain covenants were modified. Certain lenders to the
senior unsecured credit facility are owners of Holdco, and as a result, the senior unsecured credit
facility is held by related parties to the Company.
31
The senior unsecured credit facility, as amended, contains various affirmative and negative
covenants which, among other things, require us to meet certain financial tests (including certain
leverage and interest coverage ratios) and limits the Company and our subsidiaries ability to
incur or guarantee additional indebtedness, grant certain liens, make certain restricted payments,
make capital expenditures, engage in transactions with affiliates, make certain investments, sell
our assets, make acquisitions, effect a consolidation or merger and amend or modify instruments
governing certain indebtedness (including relating to the notes and the senior secured revolving
credit facilities). At December 26, 2010, we were in compliance with all specified financial and
other covenants under the senior unsecured credit facility, as amended.
Mortgage. In 2005, concurrent with an acquisition, we assumed a $0.8 million mortgage secured
by the building and improvements of one of the restaurants acquired in the transaction. The
mortgage carries a fixed annual interest rate of 9.28% and requires equal monthly payments of
principal and interest through April 2015. As of December 26, 2010, the principal amount
outstanding on the mortgage was $0.4 million.
Capital Leases. In conjunction with our acquisition of El Torito, we assumed capital lease
obligations, collateralized with leasehold improvements, in an aggregate amount of $9.2 million. In
addition, we have entered into additional capital leases for equipment of $0.3 million during
fiscal year 2009. The remaining capital lease obligations have a weighted-average interest rate of
8.5%. As of December 26, 2010, the principal amount due relating to capital lease obligations was
$0.8 million. Principal and interest payments on the capital lease obligations are due monthly and
range from $2,500 to $4,400 per month. The capital lease obligations mature between 2011 and 2025.
The following table represents our contractual commitments as of December 26, 2010 associated
with obligations under debt agreements, other obligations discussed above and from our operating
leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
|
($ in thousands) |
|
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long Term Debt Obligations(1) |
|
$ |
224,346 |
|
|
$ |
18,707 |
|
|
$ |
205,485 |
|
|
$ |
154 |
|
|
$ |
|
|
Capital Lease Obligations |
|
|
783 |
|
|
|
269 |
|
|
|
284 |
|
|
|
69 |
|
|
|
161 |
|
Operating Lease Obligations(2) |
|
|
245,993 |
|
|
|
42,053 |
|
|
|
73,732 |
|
|
|
49,469 |
|
|
|
80,739 |
|
Purchase Obligations |
|
|
31,430 |
|
|
|
20,386 |
|
|
|
5,522 |
|
|
|
5,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
502,552 |
|
|
$ |
81,415 |
|
|
$ |
285,023 |
|
|
$ |
55,214 |
|
|
$ |
80,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes our notes, senior unsecured credit facility, senior secured revolving credit
facility, mortgage and an obligation to a vendor. It also includes scheduled interest payments
for our $130.0 million notes and our senior unsecured credit facility, for which interest
rates at December 26, 2010 were 14.0% and 16.5%, respectively. See Debt and Other
Obligations for a discussion of terms for each significant component of long term debt. |
|
(2) |
|
In addition to the base rent, many of our leases contain percentage rent clauses, which
obligate us to pay additional rents based on a percentage of sales, when sales levels exceed a
contractually defined base. We recorded such additional rent expenses of $684 in Successor
2010, $811 in Predecessor 2010, $1,538 in Predecessor 2009, $198 in Predecessor 2008-2 and
$1,926 in Predecessor 2008-1. Operating Lease Obligations do not reflect potential renewals or
replacements of expiring leases. |
Off-Balance Sheet Arrangements
None.
Inflation
The impact of inflation on labor, food and occupancy costs could, in the future, significantly
affect our operations. We pay many of our employees hourly rates related to the federal or
applicable state minimum wage. Our workers compensation and health insurance costs have been and
are subject to continued inflationary pressures. Costs for construction, taxes, repairs,
maintenance and insurance all impact our occupancy costs. Many of our leases require us to pay
taxes, maintenance, repairs, insurance and utilities, all of which may be subject to inflationary
increases.
Management continually seeks ways to mitigate the impact of inflation on our business. We
believe that our current practice of maintaining operating margins through a combination of
periodic menu price increases, cost controls, careful evaluation of property and equipment needs,
and efficient purchasing practices is our most effective tool for dealing with inflation.
32
Critical Accounting Policies
Our Companys accounting policies are fully described in Note 3 of the Consolidated Financial
Statements. As disclosed in Note 3, the discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires us to make estimates and judgments
that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates,
including those related to property and equipment, impairment of long-lived assets, valuation of
goodwill, self-insurance reserves, income taxes and revenue recognition. We base our estimates on
historical experience and on various other assumptions and factors that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from other sources.
Based on our ongoing review, we plan to adjust our judgments and estimates where facts and
circumstances dictate. Actual results could differ from our estimates.
We believe the following critical accounting policies are important to the portrayal of our
financial condition and results and require our managements most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of matters that are
inherently uncertain.
Property and Equipment
Property and equipment is recorded at cost and depreciated over its estimated useful life
using the straight-line method for financial reporting purposes. The lives for furniture, fixtures
and equipment range from three to 10 years. The life for buildings is the shorter of 20 years or
the term of the related operating lease. Costs of leasehold rights and improvements and assets held
under capital leases are amortized on the straight-line basis over the shorter of the estimated
useful lives of the assets or the non-cancelable term of their underlying leases. The costs of
repairs and maintenance are expensed when incurred, while expenditures for refurbishments and
improvements that extend the useful life of an asset are capitalized.
Long-Lived Asset Impairment
We assess the impairment of long-lived assets, including restaurant sites and other assets,
when events or changes in circumstances indicate that the carrying value of the assets or the asset
group may not be recoverable. The asset impairment review assesses the fair value of the assets
based on the future cash flows the assets are expected to generate. An impairment loss is
recognized when estimated undiscounted future cash flows expected to result from the use of the
asset plus net proceeds expected from the disposition of the asset (if any) are less than the
related assets carrying amount. Impairment losses are measured as the amount by which the carrying
amounts of the assets exceed their fair values. The net proceeds expected from the disposition of
the asset are determined by independent quotes or expected sales prices developed by internal
specialists. Estimates of future cash flows and expected sales prices are judgments based on our
experience and knowledge of local operations. These estimates can be significantly affected by
future changes in real estate market conditions, the economic environment, and capital spending
decisions and inflation.
For properties to be closed that are under long-term lease agreements, the present value of
any remaining liability under the lease, discounted using risk-free rates and net of expected
sublease rentals that could be reasonably obtained for the property, is recognized as a liability
and expensed. The value of any equipment and leasehold improvements related to a closed store is
reduced to reflect net recoverable values. Internal specialists estimate the subtenant income,
future cash flows and asset recovery values based on their historical experience and knowledge of
(1) the market in which the store to be closed is located, (2) the results of its previous efforts
to dispose of similar assets and (3) the current economic conditions. Specific real estate markets,
the economic environment and inflation affect the actual cost of disposition for these leases and
related assets.
During Successor 2010, Predecessor 2009 and Predecessor 2008-1, management determined that
certain identified property and equipment was impaired and recorded an impairment charge of $1.0
million, $4.7 million and $5.2 million, respectively, reducing the carrying value of such assets to
the estimated fair value. Management recorded no impairment for Predecessor 2010 or Predecessor
2008-2.
33
Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are tested annually for impairment, and are
tested for impairment more frequently if events and circumstances indicate that the asset might be
impaired. Management performs its annual impairment tests during the last quarter of the Companys
fiscal year. An impairment loss is recognized to the extent that the carrying amount exceeds an
assets fair value. Management considers the reporting unit level to be the Company level, as the
components (e.g., brands) within the Company
have similar economic characteristics, including production processes, types or classes of
customers and distribution methods. This determination is made at the reporting unit level and
consists of two steps. First, management determines the fair value of a reporting unit and compares
it to its carrying amount. The fair value is determined based upon a combination of two valuation
techniques, including an income approach, which utilizes discounted future cash flow projections
based upon management forecasts, and a market approach, which is based upon pricing multiples at
which similar companies have been sold. Second, if the carrying amount of a reporting unit exceeds
its fair value, an impairment loss is recognized for any excess of the carrying amount of the
reporting units goodwill over the implied fair value of the goodwill. The implied fair value of
goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a
purchase price allocation. The residual fair value after this allocation is the implied fair value
of the reporting unit goodwill. For the valuation of other indefinite lived intangible assets,
including trademarks and franchise agreements, discounted future royalty methods are used.
Factors that could change the result of our goodwill impairment test include, but are not
limited to, different assumptions used to forecast future revenues, expenses, capital expenditures
and working capital requirements used in our cash flow models. In addition, selection of a
risk-adjusted discount rate on the estimated undiscounted cash flows is susceptible to future
changes in market conditions, and when unfavorable, can adversely affect our original estimates of
fair values. A variance in the discount rate could have a significant impact on the valuation of
the goodwill for purposes of the impairment test. We cannot predict the occurrence of certain
future events that might adversely affect the reported value of goodwill. Such events include, but
are not limited to, strategic decisions made in response to the economic environment on our
customer base or a material negative change in relationships with our customers.
During the fourth quarter of 2010, management completed the annual impairment test and as a
result recorded $1.1 million in impairment of intangible assets, related to Chevys trademarks and
franchise assets. No goodwill impairment was identified.
During the third quarter of 2009, management recorded $2.7 million in goodwill impairment that
was related to the Agreement and Plan of Merger at the time of the Exchange. During the fourth
quarter of 2009, management forecasts were revised due to the continued impact of the downturn in
the economy on current operations and growth projections. As a result, we recorded impairment of
approximately $13.2 million related to trademarks and franchise agreements. We recorded total
non-cash charges of $16.3 million for the write-down of the goodwill and other intangible assets
during the fiscal year ended December 27, 2009, which also includes $0.4 million related to
favorable lease assets.
During the second quarter of 2008, management identified impairment of approximately $34.0
million, including $30.0 million related to goodwill and $4.0 million related to trademarks. As of
November 13, 2008, in conjunction with the Exchange, we completed a valuation and identified
additional impairment of approximately $129.2 million, including $87.6 million related to goodwill
and $41.6 million related to trademarks. We recorded total non-cash charges of $163.2 million for
the write-down of the goodwill and trademarks during the Predecessor Period December 31, 2007 to
November 13, 2008.
Self-Insurance
Our business is primarily self-insured for workers compensation and general liability costs.
Our recorded self-insurance liability is determined actuarially based on claims filed and an
estimate of claims incurred but not yet reported. Any actuarial projection of ultimate losses is
subject to a high degree of variability. Sources of this variability are numerous and include, but
are not limited to, future economic conditions, court decisions and legislative actions. Our
workers compensation future funding estimates anticipate no change in the benefit structure.
Statutory changes could have a significant impact on future claim costs.
Our workers compensation liabilities are from claims occurring in various states. Individual
state workers compensation regulations have received a tremendous amount of attention from state
politicians, insurers, employers and providers, as well as the public in general. Recent years have
seen an escalation in the number of legislative reforms, judicial rulings and social phenomena
affecting our business. The changes in a states political and economic environment increase the
variability in the unpaid claim liabilities.
Income Taxes
Our Company utilizes the liability method of accounting for income taxes, under which deferred
taxes are determined based on the difference between the financial statement and the tax basis of
assets and liabilities using enacted tax rates in effect in the years in which the differences are
expected to reverse. Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not to be realizable in future periods. We have significant
deferred tax assets, which are subject to periodic recoverability assessments. Net deferred tax
assets are reduced by a valuation allowance if, based on all the available evidence, it is more
likely than not that some or all of the deferred tax assets will not be realized. We recorded a
valuation allowance of $66.8 million and $50.9 million at December 26, 2010 and December 27, 2009,
respectively. The amount of deferred tax assets considered realizable was based upon our ability to
generate future taxable income, exclusive of reversing temporary differences and carry-forwards.
34
The Company is required to determine whether it is more likely than not that a tax position
will be sustained upon examination based on the technical merits of the position. A tax position
that meets the more likely than not recognition threshold is measured to determine the amount of
benefit to recognize in the financial statements. Management has concluded that there are no
significant uncertain tax positions requiring recognition in the financial statements.
Revenue Recognition
Revenues from the operation of Company-owned restaurants are recognized when sales occur. Fees
from franchised and licensed restaurants are included in revenue as earned. Royalty fees are based
on franchised restaurants revenues and we record these fees in the period the related franchised
restaurants revenues are earned. Real Mex Foods revenues from sales to outside customers are
recognized upon delivery, when title transfers to the customer, and are included in other revenues.
Sales tax collected from customers and remitted to governmental authorities is presented on a net
basis (excluded from revenue) in our financial statements.
Recently Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board (the FASB) issued guidance
requiring increased fair value disclosures. There are two components to the increased disclosure
requirements set forth in the update: (1) a description of, as well as the disclosure of, the
dollar amount of transfers in or out of level one or level two in the reconciliation for fair value
measurements using significant unobservable inputs (level three), a reporting entity should present
separately information about purchases, sales, issuances and settlements (that is, gross amounts
shall be disclosed as opposed to a single net figure). Increased disclosures regarding the
transfers in/out of level one and two are required for interim and annual periods beginning after
December 15, 2009. Increased disclosures regarding the level three fair value reconciliation are
required for fiscal years beginning after December 15, 2010. The adoption of this standard did not
have a material impact on the Companys consolidated financial statements.
In July 2010, the FASB issued guidance requiring a company to disclose information that
provides financial statement users more information about the credit quality of a creditors
financing receivables and the adequacy of its allowance for credit losses. Short-term accounts
receivable, receivables measured at fair value or lower of cost or fair value, and debt securities
are exempt. For public companies, the amendments that require disclosures as of the end of a
reporting period and the amendments that requires disclosures for activity that occurs during a
reporting period are effective for periods ending on or after December 15, 2010. The adoption of
this standard did not have a material impact on the Companys consolidated financial statements.
|
|
|
ITEM 7A. |
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
The inherent risk in market risk sensitive instruments and positions primarily relates to
potential losses arising from adverse changes in foreign exchange rates and interest rates.
We consider the U.S. dollar to be the functional currency for all of our entities. All of our
net sales are denominated in U.S. dollars. Therefore, foreign currency fluctuations did not
materially affect our financial results in any period presented.
We are also subject to market risk from exposure to changes in interest rates based on our
financing activities. This exposure relates to borrowings under our senior secured credit
facilities that are payable at floating rates of interest. As of February 20, 2011, we had
borrowings of $11.9 million outstanding under our senior secured revolving credit facilities. A
hypothetical 10% fluctuation in interest rates as of February 20, 2011 would have a net after tax
impact of less than $0.1 million on our earnings in 2010, in addition to its effect on cash flows.
Many of the food products purchased by us are affected by changes in weather, production,
availability, seasonality and other factors outside our control. In an effort to control some of
this risk, we have entered into certain fixed price purchase agreements with varying terms of
generally no more than a year in duration. In addition, we believe that almost all of our food and
supplies are available from several sources, which helps to control food commodity risks.
35
|
|
|
ITEM 8. |
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The audited consolidated financial statements are set forth below.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Real Mex Restaurants, Inc.
We have audited the accompanying consolidated balance sheets of Real Mex Restaurants, Inc. (a
Delaware corporation) and subsidiaries (the Company) as of December 26, 2010 (the Successor)
and December 27, 2009 (the Predecessor) and the related consolidated statements of operations,
stockholders equity, and cash flows for the six months ended December 26, 2010 (the Successor
period), subsequent to the equity transaction of RM Restaurant Holding Corp., the Companys parent,
that was reflected on the financial statements of the Company. We have also audited the
consolidated statements of operations, stockholders equity and cash flows for the six months ended
June 27, 2010, the year ended December 27, 2009, the period from November 14, 2008 to December 28,
2008 and the period from December 31, 2007 to November 13, 2008 (the Predecessor Periods). These
financial statements are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform an audit of its
internal control over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Real Mex Restaurants, Inc. and
subsidiaries as of December 26, 2010 and December 27, 2009, and the results of its operations and
its cash flows for the Successor and Predecessor Periods in conformity with accounting principles
generally accepted in the United States of America.
/s/ Grant Thornton LLP
Irvine, California
March 24, 2011
36
Real Mex Restaurants, Inc.
Consolidated Balance Sheets
(In Thousands, Except For Share Data)
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,359 |
|
|
$ |
3,317 |
|
Trade receivables, net |
|
|
8,295 |
|
|
|
9,491 |
|
Other receivables |
|
|
621 |
|
|
|
603 |
|
Inventories, net |
|
|
11,618 |
|
|
|
10,834 |
|
Prepaid expenses |
|
|
2,877 |
|
|
|
3,206 |
|
Other current assets |
|
|
248 |
|
|
|
359 |
|
Current portion of favorable lease asset, net |
|
|
3,357 |
|
|
|
5,418 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
30,375 |
|
|
|
33,228 |
|
Property and equipment, net |
|
|
72,730 |
|
|
|
84,524 |
|
Goodwill, net |
|
|
113,721 |
|
|
|
43,812 |
|
Trademarks and other intangible assets |
|
|
42,100 |
|
|
|
55,700 |
|
Deferred charges |
|
|
4,710 |
|
|
|
7,108 |
|
Favorable lease asset, less current portion, net |
|
|
11,655 |
|
|
|
19,599 |
|
Other assets |
|
|
6,154 |
|
|
|
8,390 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
281,445 |
|
|
$ |
252,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
18,745 |
|
|
$ |
16,785 |
|
Accrued self-insurance reserves |
|
|
13,212 |
|
|
|
14,790 |
|
Accrued compensation and benefits |
|
|
12,091 |
|
|
|
12,923 |
|
Accrued interest |
|
|
10,188 |
|
|
|
9,759 |
|
Other accrued liabilities |
|
|
10,146 |
|
|
|
11,966 |
|
Current portion of long-term debt |
|
|
507 |
|
|
|
657 |
|
Current portion of capital lease obligations |
|
|
269 |
|
|
|
402 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
65,158 |
|
|
|
67,282 |
|
Long-term debt, less current portion |
|
|
160,693 |
|
|
|
145,271 |
|
Capital lease obligations, less current portion |
|
|
514 |
|
|
|
784 |
|
Deferred tax liabilities |
|
|
19,522 |
|
|
|
26,059 |
|
Unfavorable lease liability, less current portion, net |
|
|
5,870 |
|
|
|
6,415 |
|
Other liabilities |
|
|
2,211 |
|
|
|
4,230 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
253,968 |
|
|
|
250,041 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 1,000 shares
authorized, issued and outstanding at December 26,
2010 and December 27, 2009 |
|
|
|
|
|
|
|
|
Additional paid-in capital |
|
|
45,260 |
|
|
|
56,021 |
|
Accumulated deficit |
|
|
(17,783 |
) |
|
|
(53,701 |
) |
|
|
|
|
|
|
|
Total stockholders equity |
|
|
27,477 |
|
|
|
2,320 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
281,445 |
|
|
$ |
252,361 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
37
Real Mex Restaurants, Inc.
Consolidated Statements of Operations
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Six Months |
|
|
Six Months |
|
|
Fiscal Year |
|
|
November |
|
|
December |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
14, 2008 to |
|
|
31, 2007 to |
|
|
|
December |
|
|
June |
|
|
December |
|
|
December |
|
|
November |
|
|
|
26, 2010 |
|
|
27, 2010 |
|
|
27, 2009 |
|
|
28, 2008 |
|
|
13, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restaurant revenues |
|
$ |
208,119 |
|
|
$ |
229,417 |
|
|
$ |
456,699 |
|
|
$ |
52,448 |
|
|
$ |
456,587 |
|
Manufacturing and distribution revenues |
|
|
18,336 |
|
|
|
18,875 |
|
|
|
40,368 |
|
|
|
4,480 |
|
|
|
36,363 |
|
Franchise and other revenues |
|
|
1,452 |
|
|
|
1,764 |
|
|
|
3,530 |
|
|
|
388 |
|
|
|
3,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
227,907 |
|
|
|
250,056 |
|
|
|
500,597 |
|
|
|
57,316 |
|
|
|
496,429 |
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
55,457 |
|
|
|
60,574 |
|
|
|
121,451 |
|
|
|
14,255 |
|
|
|
123,878 |
|
Labor |
|
|
83,406 |
|
|
|
88,612 |
|
|
|
185,455 |
|
|
|
21,210 |
|
|
|
178,962 |
|
Direct operating and occupancy expense |
|
|
67,732 |
|
|
|
68,196 |
|
|
|
136,395 |
|
|
|
14,886 |
|
|
|
133,351 |
|
General and administrative expense |
|
|
11,746 |
|
|
|
11,078 |
|
|
|
25,323 |
|
|
|
3,234 |
|
|
|
26,493 |
|
Depreciation and amortization |
|
|
11,910 |
|
|
|
12,715 |
|
|
|
31,230 |
|
|
|
3,750 |
|
|
|
21,724 |
|
Pre-opening costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,342 |
|
Impairment of goodwill and intangible assets |
|
|
1,100 |
|
|
|
|
|
|
|
16,294 |
|
|
|
|
|
|
|
163,196 |
|
Impairment of property and equipment |
|
|
1,007 |
|
|
|
|
|
|
|
4,708 |
|
|
|
|
|
|
|
5,151 |
|
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(10,875 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(4,451 |
) |
|
|
8,881 |
|
|
|
(9,384 |
) |
|
|
(19 |
) |
|
|
(158,668 |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(13,536 |
) |
|
|
(15,306 |
) |
|
|
(45,870 |
) |
|
|
(4,108 |
) |
|
|
(16,407 |
) |
Other (loss) income, net |
|
|
(199 |
) |
|
|
116 |
|
|
|
249 |
|
|
|
24 |
|
|
|
2,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net |
|
|
(13,735 |
) |
|
|
(15,190 |
) |
|
|
(45,621 |
) |
|
|
(4,084 |
) |
|
|
(14,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income tax provision |
|
|
(18,186 |
) |
|
|
(6,309 |
) |
|
|
(55,005 |
) |
|
|
(4,103 |
) |
|
|
(173,061 |
) |
Income tax (benefit) provision |
|
|
(403 |
) |
|
|
(41 |
) |
|
|
(5,407 |
) |
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,783 |
) |
|
$ |
(6,268 |
) |
|
$ |
(49,598 |
) |
|
$ |
(4,103 |
) |
|
$ |
(173,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
38
Real Mex Restaurants, Inc.
Consolidated Statements of Stockholders Equity
(In Thousands, Except For Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
Balance at December 30, 2007 |
|
|
1,000 |
|
|
|
|
|
|
|
201,706 |
|
|
|
(38,593 |
) |
|
|
163,113 |
|
Contribution from parent |
|
|
|
|
|
|
|
|
|
|
5,554 |
|
|
|
|
|
|
|
5,554 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
406 |
|
|
|
|
|
|
|
406 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(173,113 |
) |
|
|
(173,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 13, 2008 |
|
|
1,000 |
|
|
$ |
|
|
|
$ |
207,666 |
|
|
$ |
(211,706 |
) |
|
$ |
(4,040 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recapitalization of the Company, November 14, 2008 |
|
|
1,000 |
|
|
$ |
|
|
|
$ |
27,175 |
|
|
$ |
|
|
|
$ |
27,175 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
(28 |
) |
|
|
|
|
|
|
(28 |
) |
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,103 |
) |
|
|
(4,103 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2008 |
|
|
1,000 |
|
|
$ |
|
|
|
$ |
27,147 |
|
|
$ |
(4,103 |
) |
|
$ |
23,044 |
|
Contribution from parent |
|
|
|
|
|
|
|
|
|
|
28,614 |
|
|
|
|
|
|
|
28,614 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
260 |
|
|
|
|
|
|
|
260 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(49,598 |
) |
|
|
(49,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 27, 2009 |
|
|
1,000 |
|
|
$ |
|
|
|
$ |
56,021 |
|
|
$ |
(53,701 |
) |
|
$ |
2,320 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
49 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,268 |
) |
|
|
(6,268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 27, 2010 |
|
|
1,000 |
|
|
$ |
|
|
|
$ |
56,070 |
|
|
$ |
(59,969 |
) |
|
$ |
(3,899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Paid-in |
|
|
Accumulated |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Total |
|
Share Purchase of the Company, June 28, 2010 |
|
|
1,000 |
|
|
$ |
|
|
|
$ |
45,195 |
|
|
$ |
|
|
|
$ |
45,195 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
65 |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,783 |
) |
|
|
(17,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 26, 2010 |
|
|
1,000 |
|
|
$ |
|
|
|
$ |
45,260 |
|
|
$ |
(17,783 |
) |
|
$ |
27,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
39
Real Mex Restaurants, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
Six Months |
|
|
Six Months |
|
|
Fiscal Year |
|
|
November |
|
|
December |
|
|
|
Ended |
|
|
Ended |
|
|
Ended |
|
|
14, 2008 to |
|
|
31, 2007 to |
|
|
|
December |
|
|
June |
|
|
December |
|
|
December |
|
|
November |
|
|
|
26, 2010 |
|
|
27, 2010 |
|
|
27, 2009 |
|
|
28, 2008 |
|
|
13, 2008 |
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(17,783 |
) |
|
$ |
(6,268 |
) |
|
$ |
(49,598 |
) |
|
$ |
(4,103 |
) |
|
$ |
(173,113 |
) |
Adjustments to reconcile net loss to net cash provided by operating
activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
10,955 |
|
|
|
10,929 |
|
|
|
27,619 |
|
|
|
3,334 |
|
|
|
19,780 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Favorable lease asset and unfavorable lease liability, net |
|
|
955 |
|
|
|
1,786 |
|
|
|
3,611 |
|
|
|
416 |
|
|
|
1,944 |
|
Debt discount/(premium) |
|
|
65 |
|
|
|
1,857 |
|
|
|
20,273 |
|
|
|
1,535 |
|
|
|
(1,050 |
) |
Deferred financing costs |
|
|
1,246 |
|
|
|
1,244 |
|
|
|
2,626 |
|
|
|
169 |
|
|
|
1,571 |
|
Impairment of goodwill and intangible assets |
|
|
1,100 |
|
|
|
|
|
|
|
16,294 |
|
|
|
|
|
|
|
163,196 |
|
Impairment of property and equipment |
|
|
1,007 |
|
|
|
|
|
|
|
4,708 |
|
|
|
|
|
|
|
5,151 |
|
Loss (gain) on disposal of property and equipment |
|
|
42 |
|
|
|
13 |
|
|
|
196 |
|
|
|
|
|
|
|
(402 |
) |
Gain on lease termination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(600 |
) |
Gain on extinguishment of debt |
|
|
|
|
|
|
|
|
|
|
(10,875 |
) |
|
|
|
|
|
|
|
|
Stock-based compensation expense |
|
|
65 |
|
|
|
49 |
|
|
|
260 |
|
|
|
(28 |
) |
|
|
406 |
|
Non-cash consulting expense |
|
|
|
|
|
|
|
|
|
|
950 |
|
|
|
|
|
|
|
|
|
Deferred income taxes |
|
|
(490 |
) |
|
|
|
|
|
|
(5,423 |
) |
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables |
|
|
1,332 |
|
|
|
(154 |
) |
|
|
(119 |
) |
|
|
2,125 |
|
|
|
654 |
|
Inventories |
|
|
101 |
|
|
|
(885 |
) |
|
|
2,729 |
|
|
|
(625 |
) |
|
|
(889 |
) |
Prepaid expenses and other current assets |
|
|
6 |
|
|
|
434 |
|
|
|
5,536 |
|
|
|
(3,409 |
) |
|
|
4,638 |
|
Related party receivable/payable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66 |
) |
Deferred charges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35 |
|
Other assets |
|
|
102 |
|
|
|
66 |
|
|
|
(330 |
) |
|
|
6 |
|
|
|
66 |
|
Accounts payable and accrued liabilities |
|
|
2,701 |
|
|
|
205 |
|
|
|
(2,750 |
) |
|
|
7,342 |
|
|
|
(7,551 |
) |
Other liabilities |
|
|
(2 |
) |
|
|
814 |
|
|
|
1,211 |
|
|
|
424 |
|
|
|
3,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
1,402 |
|
|
|
10,090 |
|
|
|
16,918 |
|
|
|
7,186 |
|
|
|
17,729 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(5,630 |
) |
|
|
(5,078 |
) |
|
|
(6,773 |
) |
|
|
(736 |
) |
|
|
(23,332 |
) |
Exchange transaction costs |
|
|
|
|
|
|
|
|
|
|
(542 |
) |
|
|
(20 |
) |
|
|
(1,153 |
) |
Proceeds from lease termination |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600 |
|
Net proceeds from disposal of property and equipment |
|
|
1 |
|
|
|
2 |
|
|
|
66 |
|
|
|
|
|
|
|
302 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(5,629 |
) |
|
|
(5,076 |
) |
|
|
(7,249 |
) |
|
|
(756 |
) |
|
|
(23,583 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (payment) borrowing under revolving credit facility |
|
|
|
|
|
|
|
|
|
|
(7,600 |
) |
|
|
(5,900 |
) |
|
|
2,500 |
|
Borrowings under long-term debt agreements |
|
|
434 |
|
|
|
1,417 |
|
|
|
114,799 |
|
|
|
466 |
|
|
|
1,375 |
|
Payments on long-term debt agreements and capital lease obligations |
|
|
(1,178 |
) |
|
|
(1,312 |
) |
|
|
(107,269 |
) |
|
|
(314 |
) |
|
|
(1,449 |
) |
Payment of financing costs |
|
|
(31 |
) |
|
|
(75 |
) |
|
|
(8,460 |
) |
|
|
|
|
|
|
(500 |
) |
Capital contributions from Parent |
|
|
|
|
|
|
|
|
|
|
79 |
|
|
|
|
|
|
|
3,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities |
|
|
(775 |
) |
|
|
30 |
|
|
|
(8,451 |
) |
|
|
(5,748 |
) |
|
|
4,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(5,002 |
) |
|
|
5,044 |
|
|
|
1,218 |
|
|
|
682 |
|
|
|
(906 |
) |
Cash and cash equivalents at beginning of period |
|
|
8,361 |
|
|
|
3,317 |
|
|
|
2,099 |
|
|
|
1,417 |
|
|
|
2,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
3,359 |
|
|
$ |
8,361 |
|
|
$ |
3,317 |
|
|
$ |
2,099 |
|
|
$ |
1,417 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
9,811 |
|
|
$ |
9,564 |
|
|
$ |
15,683 |
|
|
$ |
873 |
|
|
$ |
16,910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
87 |
|
|
$ |
(41 |
) |
|
$ |
16 |
|
|
$ |
|
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-kind interest on senior unsecured credit facility added to principal |
|
$ |
2,413 |
|
|
$ |
2,212 |
|
|
$ |
974 |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
40
Real Mex Restaurants, Inc.
Notes to Consolidated Financial Statements
December 26, 2010
(In Thousands, Except For Share Data)
1. Description of Business
Real Mex Restaurants, Inc. (together with its subsidiaries, the Company), is a Delaware
corporation which is engaged in the business of owning and operating restaurants, primarily under
the names El Torito®, Acapulco Mexican Restaurant Y Cantina® and Chevys Fresh Mex®. At December 26,
2009, the Company, primarily through its major subsidiaries (El Torito Restaurants, Inc., Chevys
Restaurants LLC and Acapulco Restaurants, Inc.), owned and operated 181 restaurants, of which 152
were in California and the remainder in 12 other states. The Companys other major subsidiary, Real
Mex Foods, Inc. (RMF), provides internal production, purchasing and distribution services for the
restaurant operations and manufactures specialty products for sales to outside customers.
Basis of Presentation
Prior to June 28, 2010, the Company is referred to as the Predecessor and after June 27,
2010 is referred to as the Successor.
The Companys fiscal year consists of 52 or 53 weeks ending on the last Sunday in December
which in 2010 was December 26, 2010, in 2009 was December 27, 2009 and in 2008 was December 28,
2008. The accompanying consolidated balance sheets present the Companys financial position as of
December 26, 2010 and December 27, 2009. The accompanying consolidated statements of operations,
stockholders equity and cash flows present the 26 week Successor Period ended December 26, 2010,
the 26 week Predecessor Period ended June 27, 2010, the 52 week Predecessor Year ended December 27,
2009, the 6 week Predecessor Period from November 14, 2008 to December 28, 2008 and the 46 week
Predecessor Period from December 31, 2007 to November 13, 2008. See further description of the
successor and predecessor periods in Note 2.
Certain prior year amounts have been reclassified to conform to the current year presentation.
Liquidity
The Companys financial statements as of December 26, 2010 have been presented on the basis that it is a going
concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of
business. The Companys principal liquidity requirements are to service debt and meet capital expenditure and working
capital needs.
In addition, the Companys debt agreements require compliance with specified financial covenants. These covenants could
adversely affect the Companys ability to finance future operations or capital needs and pursue available business
opportunities. A breach of any of these covenants could result in a default in respect of the related indebtedness. If
a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and
other fees, to be immediately due and payable and proceed against any collateral securing that indebtedness.
Acceleration of other indebtedness could result in a default under the terms of the indenture governing the notes. In
such an event, the Company may be required to refinance all or part of the then-existing debt (including the notes),
sell assets or borrow more money. The Company may not be able to accomplish any of the alternatives on acceptable
terms, or at all. The failure to generate sufficient cash flow or to achieve any of these alternatives could
significantly adversely affect the Company.
The Companys ability to make principal and interest payments, fund planned capital expenditures and meet financial
covenants will depend on the ability to generate cash in the future, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors that are beyond the control of the Company.
Although the Company had negative working capital as of December 26, 2010 (as has been the case for all years being
reported on), based on the current level of operations and the Companys revised business plan, management believes the
cash flow generated from operations, available cash and available borrowings under the Senior Secured Revolving Credit
Facilities will be adequate to meet liquidity needs for the near future.
2. Acquisitions
Share Purchase Successor
Effective June 28, 2010, immediately after the Company entered into a supplemental indenture
(see Note 6), Sun Cantinas, LLC (Sun Cantinas), an affiliate of Sun Capital Partners (Sun
Capital), an equityholder of Holdco, acquired 43,338 shares of common stock (the Share Purchase)
of RM Restaurant Holding Corp. (Holdco) from Cocina Funding Corp., L.L.C. (Cocina), an existing
equityholder of Holdco managed by Farallon Capital Management, LLC (Farallon). As a result, Sun
Cantinas and SCSF Cantinas, LLC, another affiliate of Sun Capital, together own approximately 70%
of the outstanding common stock of Holdco, and together are entitled, under the cumulative voting
provisions of Holdcos Certificate of Incorporation, to elect at least five members of the
seven-member board of directors of Holdco and the Company, giving them the ability indirectly to
control the Company. Following the Share Purchase, Cocina holds approximately 13% of the
outstanding common stock of Holdco, and no longer has a representative on the board of directors of
Holdco or the Company.
The Share Purchase was accounted for by Holdco under the purchase method of accounting and
push-down accounting was applied to the Company. The Company completed a valuation to determine the
value of the assets acquired and the liabilities assumed based on their estimated fair market
values at the date of the Share Purchase. The Company attributes the goodwill associated with the
Share Purchase to the historical financial performance and the anticipated future performance
of the Companys operations. Since this was a non-cash transaction for the Company, it has been
excluded from the consolidated statement of cash flows.
41
The following table presents the allocation to the assets acquired and liabilities assumed
based on their estimated fair values as determined by the valuation of the Company (in thousands):
|
|
|
|
|
Cash and cash equivalents |
|
$ |
8,361 |
|
Trade and other accounts receivable |
|
|
10,248 |
|
Inventories |
|
|
11,719 |
|
Other current assets |
|
|
3,131 |
|
Property and equipment |
|
|
78,990 |
|
Other assets |
|
|
12,182 |
|
Trademarks and other intangibles |
|
|
43,200 |
|
Favorable and unfavorable lease asset/liability, net |
|
|
8,415 |
|
Goodwill |
|
|
113,989 |
|
|
|
|
|
Total assets acquired |
|
|
290,235 |
|
|
|
|
|
Accounts payable and accrued liabilities |
|
|
62,532 |
|
Long-term debt |
|
|
160,249 |
|
Deferred tax liability |
|
|
20,045 |
|
Other liabilities |
|
|
2,213 |
|
|
|
|
|
Total liabilities assumed |
|
|
245,039 |
|
|
|
|
|
Net assets |
|
$ |
45,196 |
|
|
|
|
|
As a result of the Share Purchase, fiscal year 2010 is presented as the Predecessor Period
from December 28, 2009 to June 27, 2010 and the Successor Period subsequent to June 27, 2010.
Exchange Agreement Predecessor
Effective November 13, 2008, Holdco, owned substantially by an affiliate of Sun Capital, and
each of Holdcos existing lenders executed an agreement to exchange Holdcos then outstanding
borrowings under its unsecured term loan facility for 94.5% of the common stock of Holdco (the
Exchange). Immediately prior to the Exchange, Holdco effected a 100:1 reverse stock split of its
common stock and after the Exchange the immediately post-split existing holders retained 5.5% of
the shares of Holdco common
stock. Immediately after the Exchange, no stockholder, together with its affiliates, owned more
than 50% of the capital stock of
Holdco. Affiliates of Sun Capital remained stockholders of Holdco.
3. Summary of Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts and results of
operations of the Company. All significant inter-company balances and transactions have been
eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates, and they may be adjusted as more information becomes available.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances in bank accounts and investments with a
maturity of three months or less at the time of purchase.
42
Receivables
Receivables consist primarily of amounts due from credit card companies, outside customers of
RMF and franchisees. Receivables from credit card companies are generally settled in the week
following the transaction date. Receivables from RMFs outside customers are generally collected
within 30 days of the date of the sale and receivables from franchisees are generally collected
within 21 days following the close of the royalty period. Receivables are stated net of an
allowance for doubtful accounts of $517 and $694 at December 26, 2010 and December 27, 2009,
respectively. Activity during fiscal year 2010 included a net decrease in the allowance of $177,
including an increase of $499 primarily related to a sub tenant, offset by the reversal of $154
related to franchisee receivables and write-offs of $522 primarily related to franchisee
receivables.
Inventories
Inventories, consisting primarily of food and beverages, are carried at the lower of cost
(first-in, first-out method) or market. Inventories are reviewed for spoilage and excess or
obsolete products and reserved accordingly.
Supplies and Expendable Equipment
The initial purchase of supplies and expendable equipment, when a restaurant is first opened,
such as china, glass and silverware, is capitalized and depreciated over a period of 5 years.
Replacements of supplies and expendable equipment are expensed.
Pre-Opening Costs
Pre-opening costs incurred with the start-up of a new restaurant, or the conversion of an
existing restaurant to a different concept, are expensed as incurred.
Property and Equipment
Property and equipment is recorded at cost and depreciated over its estimated useful life
using the straight-line method for financial reporting purposes. The lives for furniture, fixtures
and equipment range from three to 10 years. The life for buildings is the shorter of 20 years or
the term of the related operating lease. Costs of leasehold rights and improvements and assets held
under capital leases are amortized on the straight-line basis over the shorter of the estimated
useful lives of the assets or the non-cancelable term of their underlying leases. The costs of
repairs and maintenance are expensed when incurred, while expenditures for refurbishments and
improvements that extend the useful life of an asset are capitalized. Depreciation expense includes
the amortization of assets held under capital leases.
Impairment of Long-Lived Assets
Long-lived assets are tested annually for impairment, and are tested for impairment more
frequently if events and circumstances indicate that the assets might be impaired. During the
Successor Six Months ended December 26, 2010, the Predecessor Year ended December 27, 2009 and the
Predecessor Period from December 31, 2007 through November 13, 2008, management of the Company
determined that certain identified property and equipment was impaired and recorded an impairment
charge of $1,007, $4,708 and $5,151, respectively, reducing the carrying value of such assets to
the estimated fair value. Fair value was based on managements estimate of future cash flows to be
generated by the property and equipment determined to be impaired. During the Predecessor Six
Months ended June 27, 2010 and the Predecessor Period from November 14, 2008 through December 28,
2008, management recorded no impairment.
Impairment of Goodwill and Intangible Assets
Goodwill and indefinite-lived intangible assets are tested annually for impairment, and are
tested for impairment more frequently if events and circumstances indicate that the asset might be
impaired. Management performs its annual impairment test during the last quarter of the Companys
fiscal year. An impairment loss is recognized to the extent that the carrying amount exceeds an
assets fair value. Management considers the reporting unit level to be the Company level, as the
components (e.g., brands) within the Company have similar economic characteristics, including
production processes, types or classes of customers and distribution methods. This determination is
made at the reporting unit level and consists of two steps. First, management determines the fair
value of a reporting unit and compares it to its carrying amount. The fair value is determined
based upon a combination of two valuation techniques, including an income approach, which utilizes
discounted future cash flow projections based upon management forecasts, and a market approach,
which is based upon pricing multiples at which similar companies have been sold. Second, if the
carrying amount of a
reporting unit exceeds its fair value, an impairment loss is recognized for any excess of the
carrying amount of the reporting units goodwill over the implied fair value of the goodwill. The
implied fair value of goodwill is determined by allocating the fair value of the reporting unit in
a manner similar to a purchase price allocation. The residual fair value after this allocation is
the implied fair value of the reporting unit goodwill. For the valuation of other indefinite lived
intangible assets, including trademarks and franchise agreements, discounted future royalty methods
are used.
43
Factors that could change the result of our goodwill impairment test include, but are not
limited to, different assumptions used to forecast future revenues, expenses, capital expenditures
and working capital requirements used in our cash flow models. In addition, selection of a
risk-adjusted discount rate on the estimated undiscounted cash flows is susceptible to future
changes in market conditions, and when unfavorable, can adversely affect our original estimates of
fair values. A variance in the discount rate could have a significant impact on the valuation of
the goodwill for purposes of the impairment test. We cannot predict the occurrence of certain
future events that might adversely affect the reported value of goodwill. Such events include, but
are not limited to, strategic decisions made in response to the economic environment on our
customer base or a material negative change in relationships with our customers.
During the fourth quarter of 2010, the Company completed the annual impairment test and as a
result recorded $1,100 in impairment of intangible assets, related to Chevys trademarks and
franchise assets. No goodwill impairment was identified.
During the third quarter of 2009, the Company recorded $2,728 in goodwill impairment that was
related to a previous merger at the time of the Exchange. During the fourth quarter of 2009,
management forecasts were revised due to the continued impact of the downturn in the economy on
current operations and growth projections. As a result, the Company recorded impairment of
approximately $13,200 related to trademarks and franchise agreements. The Company recorded total
non-cash charges of $16,294 for the write-down of the goodwill and other intangible assets during
the fiscal year ended December 27, 2009, which also includes $366 related to favorable lease
assets.
During the second quarter of 2008, the Company recorded impairment of $34,000, including
$30,000 related to goodwill and $4,000 related to trademarks. As of November 13, 2008, in
conjunction with the Exchange, the Company completed a valuation and identified additional
impairment of approximately $129,196, including $87,596 related to goodwill and $41,600 related to
trademarks. The Company recorded total non-cash charges of $163,196 for the write-down of the
goodwill and trademarks during the Predecessor Period December 31, 2007 to November 13, 2008.
Intangible Assets
Intangible assets consist of the following indefinite-lived assets as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Trademarks |
|
$ |
37,000 |
|
|
$ |
46,800 |
|
Franchise agreements |
|
|
5,100 |
|
|
|
8,900 |
|
|
|
|
|
|
|
|
|
|
$ |
42,100 |
|
|
$ |
55,700 |
|
|
|
|
|
|
|
|
Deferred Charges
Deferred
charges at December 26, 2010 consists of deferred financing
costs of $3,827 related
to the sale of $130,000 aggregate principal amount of the senior secured notes due January 1, 2013,
$100 related to the $25,000 senior unsecured credit facility maturing on July 1, 2013 and $783
related to the senior secured revolving credit facilities. Capitalized deferred charges are
amortized over the lives of the respective long-term borrowings on a straight-line basis and are
included in interest expense in the accompanying consolidated statements of operations. Amounts
capitalized related to leases are amortized over the primary term of their respective leases and
are included in occupancy expense in the accompanying statements of operations. The following table
shows the estimated amortization expense for the years after December 26, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
Deferred financing costs |
|
$ |
2,475 |
|
|
$ |
2,215 |
|
|
$ |
20 |
|
44
Favorable Lease Asset and Unfavorable Lease Liability
Favorable lease asset represents the approximate fair market value arising from lease rates
that are below market rates as of June 27, 2010, the date of the Share Purchase. The amount is
being amortized over the remaining primary term of the underlying leases.
Unfavorable lease liability represents the approximate fair market value arising from lease
rates that are above market rates as of June 27, 2010, the date of the Share Purchase. The amount
is being amortized over the remaining primary term of the underlying leases. The current portion of
unfavorable lease liabilities is recorded in other accrued liabilities.
The following table shows the estimated amortization expense for the years after December 26,
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
|
|
Thereafter |
|
Favorable lease asset |
|
$ |
3,357 |
|
|
$ |
3,292 |
|
|
$ |
2,883 |
|
|
$ |
2,609 |
|
|
$ |
597 |
|
|
$ |
2,274 |
|
Unfavorable lease liability |
|
|
(1,447 |
) |
|
|
(1,402 |
) |
|
|
(1,170 |
) |
|
|
(803 |
) |
|
|
(511 |
) |
|
|
(1,984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amortization expense |
|
$ |
1,910 |
|
|
$ |
1,890 |
|
|
$ |
1,713 |
|
|
$ |
1,806 |
|
|
$ |
86 |
|
|
$ |
290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquor Licenses
Transferable liquor licenses, which have a market value, are carried at the lower of aggregate
acquisition cost or market and are not amortized. Liquor licenses are included in other assets.
Income Taxes
The Company utilizes the liability method of accounting for income taxes in which deferred
taxes are determined based on the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect in the years in which the differences are
expected to reverse. Recognition of deferred tax assets is limited to amounts considered by
management to be more likely than not of realization in future periods.
The Company is required to determine whether it is more likely than not that a tax position
will be sustained upon examination based on the technical merits of the position. A tax position
that meets the more likely than not recognition threshold is measured to determine the amount of
benefit to recognize in the financial statements. The Company has concluded that there are no
significant uncertain tax positions requiring recognition in the financial statements.
The Companys policy is to recognize interest and penalties expense, if any, related to
unrecognized tax benefits as a component of income tax expense. As of December 26, 2010, the
Company has not recorded any significant interest and penalty expense. The Companys determination
on its analysis of uncertain tax positions are related to tax years that remain subject to
examination by the relevant tax authorities. These include the 2007 through 2009 tax years for
federal purposes and the 2006 through 2009 tax years for California purposes.
Revenue Recognition
Revenues from the operation of Company-owned restaurants are recognized when sales occur. Fees
from franchised operations are included in revenue as earned. Royalty fees are based on franchised
restaurants revenues and we record these fees in the period the related franchised restaurants
revenues are earned. RMFs revenues from sales to outside customers are recognized upon delivery,
when title transfers to the customer, and are included in other revenues. Sales tax collected from
customers and remitted to governmental authorities is presented on a net basis (excluded from
revenue) in our financial statements.
Self Insurance
The Company is self-insured for most workers compensation and general liability losses
(collectively casualty losses). The Company maintains stop-loss coverage with third party
insurers to limit its total exposure. The recorded liability associated with these programs is
based on an estimate of the ultimate costs to be incurred to settle known claims and claims
incurred but not reported as of the balance sheet date. The estimated liability is not discounted
and is based on a number of assumptions and factors, including historical trends, actuarial
assumptions and economic conditions. If actual claims trends, including the severity or frequency
of claims, differ from estimates, the financial results could be significantly impacted.
45
Gift Certificates and Gift Cards
The Company records deferred revenue, included in accounts payable, for gift certificates and
gift cards outstanding until they are redeemed. Revenues from unredeemed gift cards are recognized
based on historical and expected redemption trends and are classified as revenues in our
consolidated statement of operations.
Segment Information
The Company operates 181 restaurants through its three restaurant operating subsidiaries,
providing similar products to similar customers. These restaurants possess similar economic
characteristics resulting in similar long-term expected financial characteristics. Operating
segments are components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Based upon its methods of internal reporting and management
structure, management believes that the Company meets the criteria for aggregating its 181
operating restaurants into a single reporting segment called restaurant operations. The Companys
RMF manufacturing operations are dissimilar from our restaurant operations, but do not meet the
required quantitative thresholds and therefore qualify for aggregation.
Promotion and Advertising Expense
The cost of promotion and advertising is expensed as incurred. The Company incurred $7,054,
$9,133, $14,325, $1,260 and $15,077 in promotion and advertising expense during the Successor Six
Months ended December 26, 2010, the Predecessor Six Months ended June 27, 2010, the Predecessor
Year ended December 27, 2009, the 6 week Predecessor Period from November 14, 2008 to December 28,
2008 and the 46 week Predecessor Period December 31, 2007 to November 13, 2008, respectively.
Operating Leases
Most of our restaurant and office facilities are under operating leases with expirations in
fiscal years 2011 through 2028. The minimum lease payments, including any predetermined fixed
escalations of the minimum rent, are recognized as rent expense on a straight-line basis over the
lease term. Most of the restaurant facilities have renewal clauses exercisable at the option of the
Company and include rent escalation clauses stipulating specific rent increases upon exercise, some
of which are based upon the Consumer Price Index. Certain of these leases require the payment of
contingent rentals based on a percentage of gross revenues. At December 26, 2010 and December 27,
2009, deferred rent equaled $775 and $2,092, respectively, which is included in other long-term
liabilities.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk
consist primarily of cash and cash equivalents. The Company places its cash and cash equivalents
with high quality financial institutions. At times, balances in the Companys cash accounts may
exceed the Federal Deposit Insurance Corporation (FDIC) limit. Most of the Companys restaurants
are located in California. Consequently, the Company may be susceptible to adverse trends and
economic conditions in California.
Fair Value of Financial Instruments
The Companys financial instruments are primarily comprised of cash and cash equivalents,
receivables, accounts payable, accrued liabilities and long-term debt. For cash and cash
equivalents, receivables, accounts payable and accrued liabilities, the carrying amount
approximates fair value because of the short maturity of these instruments. The estimated fair
value of the Senior Secured Notes due 2013 at December 26, 2010, based on quoted market prices was
$135,850. Management estimates that the carrying values of its other financial instruments
approximate their fair values since their realization or satisfaction is expected to occur in the
short term or have been renegotiated at a date close to year end.
Recently Adopted Accounting Standards
In January 2010, the Financial Accounting Standards Board (the FASB) issued guidance
requiring increased fair value disclosures. There are two components to the increased disclosure
requirements set forth in the update: (1) a description of, as well as the disclosure of, the
dollar amount of transfers in or out of level one or level two in the reconciliation for fair value
measurements using significant unobservable inputs (level three), a reporting entity should present
separately information about purchases, sales, issuances and settlements (that is, gross amounts
shall be disclosed as opposed to a single net figure). Increased disclosures regarding the
transfers in/out of level one and two are required for interim and annual periods beginning after
December 15, 2009. Increased disclosures regarding the level three fair value reconciliation are
required for fiscal years beginning after December 15, 2010. The adoption of this standard did not
have a material impact on the Companys consolidated financial statements.
46
In July 2010, the FASB issued guidance requiring a company to disclose information that
provides financial statement users more information about the credit quality of a creditors
financing receivables and the adequacy of its allowance for credit losses. Short-term accounts
receivable, receivables measured at fair value or lower of cost or fair value, and debt securities
are exempt. For public companies, the amendments that require disclosures as of the end of a
reporting period and the amendments that requires disclosures for activity that occurs during a
reporting period are effective for periods ending on or after December 15, 2010. The adoption of
this standard did not have a material impact on the Companys consolidated financial statements.
4. Property and Equipment
Property and equipment consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Land and land improvements |
|
$ |
1,525 |
|
|
$ |
1,530 |
|
Buildings and improvements |
|
|
718 |
|
|
|
379 |
|
Furniture, fixtures and equipment |
|
|
35,342 |
|
|
|
46,340 |
|
Leasehold improvements and leasehold rights |
|
|
53,790 |
|
|
|
78,727 |
|
|
|
|
|
|
|
|
Property and equipment, total |
|
|
91,375 |
|
|
|
126,975 |
|
Less accumulated depreciation and amortization |
|
|
(18,645 |
) |
|
|
(42,451 |
) |
|
|
|
|
|
|
|
Property and equipment, net |
|
$ |
72,730 |
|
|
$ |
84,524 |
|
|
|
|
|
|
|
|
5. Accounts Payable and Other Accrued Liabilities
Accounts payable consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Trade accounts payable |
|
$ |
16,079 |
|
|
$ |
14,241 |
|
Gift cards and gift certificates |
|
|
2,666 |
|
|
|
2,544 |
|
|
|
|
|
|
|
|
|
|
$ |
18,745 |
|
|
$ |
16,785 |
|
|
|
|
|
|
|
|
Other accrued liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Rent and occupancy expenses |
|
$ |
1,197 |
|
|
$ |
1,210 |
|
Sales taxes |
|
|
4,097 |
|
|
|
4,028 |
|
Other |
|
|
4,852 |
|
|
|
6,728 |
|
|
|
|
|
|
|
|
|
|
$ |
10,146 |
|
|
$ |
11,966 |
|
|
|
|
|
|
|
|
6. Long-Term Debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Senior Secured Notes due 2013 |
|
|
130,000 |
|
|
|
130,000 |
|
Senior Secured Notes unamortized debt discount |
|
|
(260 |
) |
|
|
(11,143 |
) |
Senior Secured Revolving Credit Facility |
|
|
|
|
|
|
|
|
Senior Unsecured Credit Facility Related Party |
|
|
30,599 |
|
|
|
25,974 |
|
Mortgage |
|
|
440 |
|
|
|
519 |
|
Other |
|
|
421 |
|
|
|
578 |
|
|
|
|
|
|
|
|
|
|
|
161,200 |
|
|
|
145,928 |
|
Less current portion |
|
|
(507 |
) |
|
|
(657 |
) |
|
|
|
|
|
|
|
|
|
$ |
160,693 |
|
|
$ |
145,271 |
|
|
|
|
|
|
|
|
47
Senior Secured Notes due 2013. On July 7, 2009 (the Closing Date), the Company completed an
offering of $130,000 aggregate principal amount of 14.0% Senior Secured Notes due January 1, 2013
(the Notes), which are guaranteed (the Guarantees) by Holdco and all of the Companys existing
and future domestic restricted subsidiaries (together with Holdco, the Guarantors). The Notes
were offered and sold in a private placement to qualified institutional buyers pursuant to Rule
144A under the Securities Act of 1933, as amended (the Securities Act), a limited number of
institutional accredited investors in the United States, and outside the United States in reliance
on Regulation S under the Securities Act. The Notes were issued pursuant to an indenture, dated
July 7, 2009 (the Indenture), by and among the Company, the Guarantors and Wells Fargo Bank,
National Association, as trustee. The net proceeds from the issuance of the Notes were used to
refinance a portion of the existing indebtedness, including repayment of the Companys $105,000
senior secured notes due 2010 and to pay fees and expenses in connection therewith. Deferred debt
fees of $6,596 were recorded related to the issuance of the Notes. The remaining deferred debt fees
and unamortized debt discount related to the $105,000 senior secured notes due 2010 of $11,717 were
recorded as interest expense on July 7, 2009.
Effective June 28, 2010, the Company entered into a Supplemental Indenture, which amended the
Indenture to permit affiliates of Sun Capital to acquire a majority of the stock of Holdco without
requiring the Company to make a change of control offer to repurchase the Notes that would
otherwise have been required under the Indenture.
Prior to July 1, 2011, the Company may redeem up to 35% of the original aggregate principal
amount of the Notes at a redemption price equal to 114% of the principal amount thereof, plus
accrued and unpaid interest thereon, with the net proceeds of certain equity financings; provided
that (i) at least 65% of the aggregate principal amount of Notes remains outstanding immediately
after such redemption and (ii) the redemption occurs within 90 days of the date of the closing of
such sale of our equity interests. Prior to July 1, 2011, the Company may also redeem some or all
of the Notes at a make-whole premium. On or after July 1, 2011, the Company may redeem some or
all of the Notes at 100% of the Notes principal amount, plus accrued and unpaid interest up to the
date of redemption.
Within 90 days of the end of each four fiscal quarter period ending on or near December 31,
beginning in 2009, the Company must, subject to certain exceptions, offer to repay the Notes with
75% of the Excess Cash Flow (as defined in the Indenture) from the period, at 100% of the principal
amount plus any accrued and unpaid interest and liquidated damages. If the excess cash flow offer
is prohibited by the terms of the Companys Second Amended and Restated Credit Facility, as
amended, governing the Companys New Senior Secured Revolving Credit Facilities, the Company will
deposit the amount that would have been used to fund the excess cash flow offer into an escrow
account. Funds from the escrow account will be released to the Company only to repay borrowings
under the New Senior Secured Revolving Credit Facilities or to make an excess cash flow offer. No
Excess Cash Flow Offer was required for 2010 or 2009.
If the Company undergoes a change of control, the Company will be required to make an offer to
each holder to repurchase all or a portion of their Notes at 101% of their principal amount, plus
accrued and unpaid interest up to the date of purchase. If the Company sells assets outside the
ordinary course of business and the Company does not use the net proceeds for specified purposes,
the Company may be required to use such net proceeds to repurchase the Notes at 100% of their
principal amount, together with accrued and unpaid interest up to the date of repurchase.
The terms of the Indenture generally limit the Companys ability and the ability of the
Companys restricted subsidiaries to, among other things: (i) make certain investments or other
restricted payments; (ii) incur additional debt and issue preferred stock; (iii) create or incur
liens on assets to secure debt; (iv) incur dividends and other payment restrictions with regard to
restricted subsidiaries; (v) transfer, sell or consummate a merger or consolidation of all, or
substantially all, of the Companys assets; (vi) enter into transactions with affiliates; (vii)
change the Companys line of business; (viii) repay certain indebtedness prior to stated
maturities; (ix) pay dividends or make other distributions on, redeem or repurchase, capital stock
or subordinated indebtedness; (x) engage in sale and leaseback transactions; or (xi) issue stock of
subsidiaries.
The Notes and the Guarantees are secured by a second-priority security interest in
substantially all of the assets of the Company and the Guarantors, including the pledge of 100% of
all outstanding equity interests of each of the Companys domestic subsidiaries. On the Closing
Date, the Company and the Guarantors entered into a registration rights agreement, pursuant to
which the Company and the Guarantors have agreed for the benefit of the holders of the Notes to
file with the SEC and cause to become effective a registration statement with respect to a
registered offer to exchange the Notes for an issue of the Companys senior secured notes with
terms identical to the Notes in all material respects. The registration statement was declared
effective on October 8, 2009. A shelf registration statement covering resales of the Notes was
declared effective by the SEC on December 1, 2009.
48
Senior Secured Revolving Credit Facilities. The Second Amended and Restated Revolving Credit
Agreement with General Electric Capital Corporation, as amended, provides for a $15.0 million
revolving credit facility and $25.0 million letter of credit
facility, maturing on July 1, 2012 (collectively, the Senior Secured Revolving Credit
Facilities). Under the Senior Secured Revolving Credit Facilities, the lenders agreed to make
loans and issue letters of credit to and on behalf of the Company and its subsidiaries. Interest on
the outstanding borrowings under the senior secured revolving credit facilities is based on either
prime rate plus Applicable Margin or ninety-day LIBOR plus Applicable Margin, as defined in and
subject to certain restrictions in the 2009 amendment, which extended the due date and modified
certain covenants and fees on the letters of credit issued thereunder accrue at a rate of 4.5% per
annum. Deferred debt fees of $1,562 were recorded in 2009 related to the amendment.
Obligations under the Senior Secured Revolving Credit Facilities are guaranteed by all of the
Companys subsidiaries as well as by Holdco, which wholly owns the Company and has made a first
priority pledge of all of its equity interests in the Company as security for the obligations. The
Senior Secured Revolving Credit Facilities are secured by, among other things, first priority
pledges of all of the equity interests of the Companys direct and indirect subsidiaries, and first
priority security interests (subject to customary exceptions) in substantially all of the current
and future property and assets of the Company and its direct and indirect subsidiaries, with
certain limited exceptions. As of December 26, 2010, the Company had $8,393 available under the
Senior Secured Letter of Credit Facility and $15,000 available under the Senior Secured Revolving
Credit Facility that may also be utilized for the letters of credit.
On April 2, 2010, the Company entered into an amendment to the Second Amended and Restated
Revolving Credit Agreement which modified certain definitions in order to allow the transfer of
shares in Holdco within current stockholders of Holdco. No such amendment was required related to
the Notes as a result of such transfer.
The Second Amended and Restated Revolving Credit Agreement, as amended, contains various
affirmative and negative covenants and restrictions, which among other things, require the Company
to meet certain financial tests (including certain leverage and cash flow ratios), and limits the
Company and its subsidiaries ability to incur or guarantee additional indebtedness, make certain
capital expenditures, pay dividends or make other equity distributions, purchase or redeem capital
stock, make certain investments, sell assets, engage in transactions with affiliates and effect a
consolidation or merger. The agreement contains a cross-default provision wherein if the Company is
in default on any other credit facilities, default on this facility is automatic. At December 26,
2010, the Company was in compliance with all specified financial and other covenants under the
Second Amended and Restated Revolving Credit Agreement, as amended.
Senior Unsecured Credit Facility. In connection with the offering of the Notes, the Company
entered into a Second Amended and Restated Credit Agreement, by and among the Company, Holdco, the
lenders party thereto and Credit Suisse, Cayman Islands Branch (the Senior Unsecured Credit
Facility), pursuant to which the principal balance of the existing unsecured loan owing by the
Company under the existing senior unsecured credit facility, as amended, was reduced from $65,000
to $25,000 through (i) the assumption by Holdco of $25,000 of such unsecured debt and (ii) the
exchange by a lender under the Senior Unsecured Credit Facility, as amended, of $15,000 of such
unsecured debt for $4,583 aggregate principal amount of Notes (which were issued for $4,125),
resulting in a gain on extinguishment of debt of $10,875. Deferred debt fees of $161 were recorded
related to the Second Amended and Restated Credit Agreement. Interest accrues at an annual rate of
16.5% and is payable quarterly, provided that (i) such interest is payable in kind for the first
four quarters following the Closing Date and (ii) thereafter will be payable in a combination of
cash and in kind. The term of the Companys credit facility was extended to July 1, 2013 and
certain covenants were modified. Certain lenders to the Senior Unsecured Credit Facility are owners
of Holdco, and as a result, the Senior Unsecured Credit Facility is held by related parties to the
Company.
The Senior Unsecured Credit Facility, as amended, contains various affirmative and negative
covenants which, among other things, require the Company to meet certain financial tests (including
certain leverage and interest coverage ratios) and limits the Companys and its subsidiaries
ability to incur or guarantee additional indebtedness, grant certain liens, make certain restricted
payments, make capital expenditures, engage in transactions with affiliates, make certain
investments, sell its assets, make acquisitions, effect a consolidation or merger and amend or
modify instruments governing certain indebtedness (including relating to the Companys Notes and
the Senior Secured Revolving Credit Facilities). At December 26, 2010, the Company was in
compliance with all specified financial and other covenants under the Senior Unsecured Credit
Facility, as amended.
Mortgage. In 2005, concurrent with an acquisition, we assumed a $816 mortgage secured by the
building and improvements of one of the restaurants acquired in the transaction. The mortgage
carries a fixed annual interest rate of 9.28% and requires equal monthly payments of principal and
interest through April 2015. As of December 26, 2010, the principal amount outstanding on the
mortgage was $440.
49
Interest rates for the Companys long-term debt are shown in the following table:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Senior Secured Notes due 2013 |
|
|
14.00 |
% |
|
|
14.00 |
% |
Senior Secured Revolving Credit Facilities |
|
|
9.25 |
% |
|
|
7.42 to 9.25 |
% |
Senior Unsecured Credit Facility Related Party |
|
|
16.50 |
% |
|
|
16.50 |
% |
Mortgage |
|
|
9.28 |
% |
|
|
9.28 |
% |
Other |
|
|
3.20 to 4.70 |
% |
|
|
3.20 to 4.70 |
% |
The maturity of long-term debt for the fiscal years succeeding December 26, 2010, is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unamortized |
|
|
|
|
|
|
|
|
|
|
Debt |
|
|
|
|
|
|
Principal |
|
|
Discount |
|
|
Total |
|
2011 |
|
$ |
507 |
|
|
$ |
(130 |
) |
|
$ |
377 |
|
2012 |
|
|
95 |
|
|
|
(130 |
) |
|
|
(35 |
) |
2013 |
|
|
160,704 |
|
|
|
|
|
|
|
160,704 |
|
2014 |
|
|
114 |
|
|
|
|
|
|
|
114 |
|
2015 |
|
|
40 |
|
|
|
|
|
|
|
40 |
|
Thereafter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
161,460 |
|
|
$ |
(260 |
) |
|
$ |
161,200 |
|
|
|
|
|
|
|
|
|
|
|
7. Capitalization
Common Stock
The Company is authorized to issue 1,000 shares of common stock. At December 26, 2010 and
December 27, 2009 there were 1,000 shares of common stock issued and outstanding.
Stock Option Plans
In December 2006, the Board of Directors of Holdco adopted a Non-Qualified Stock Option Plan
(the 2006 Plan). The 2006 Plan reserved 100,000 shares of Holdcos non-voting common stock for
issuance upon exercise of stock options granted under the 2006 Plan. Options vest 20% per year
according to the schedule specified in each option agreement. Accelerated vesting of all
outstanding options is triggered upon a change of control of Holdco, as defined in the 2006 Plan.
This was not triggered as a result of the Share Purchase. The options have a life of 10 years, and
can only be exercised upon the earliest of the following dates: (i) the 10 year anniversary of the
effective date; (ii) the date of a change in control, as defined in the 2006 Plan; or (iii) date of
employment termination, subject to certain exclusions.
When stock-based compensation is awarded, the Company measures the cost of employee services
received in exchange for an award of equity instruments based on the grant-date fair value of the
award. That cost is recognized in the consolidated statement of operations over the period during
which an employee is required to provide service in exchange for the award the requisite service
period. No compensation cost is recognized for equity instruments for which employees do not render
the requisite service. The grant-date fair value of employee stock options is estimated using the
Black-Scholes option pricing model. The Company utilizes comparable companies to estimate its price
volatility and the simplified method to calculate option expected time to exercise. No options were
granted during 2009 or 2010.
The following table summarizes the stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
Shares |
|
|
Exercise Price |
|
Outstanding at December 28, 2008 Predecessor |
|
|
330 |
|
|
$ |
8,150 |
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited/expired |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 27, 2009 Predecessor |
|
|
330 |
|
|
$ |
8,150 |
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited/expired |
|
|
(110 |
) |
|
|
8,150 |
|
|
|
|
|
|
|
|
Outstanding at June 27, 2010 Predecessor |
|
|
220 |
|
|
$ |
8,150 |
|
|
|
|
|
|
|
|
Granted |
|
|
|
|
|
|
|
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited/expired |
|
|
(26 |
) |
|
|
8,150 |
|
|
|
|
|
|
|
|
Outstanding at December 26, 2010 Successor |
|
|
194 |
|
|
$ |
8,150 |
|
|
|
|
|
|
|
|
Vested and expected to vest at December 26, 2010 |
|
|
193 |
|
|
$ |
8,150 |
|
Exercisable at December 26, 2010 |
|
|
152 |
|
|
$ |
8,150 |
|
50
The Company recorded $65, $49 and $260 of stock-based compensation for the Successor Six
Months ended December 26, 2010, the Predecessor Six Months ended June 27, 2010 and the Predecessor
Year ended December 27, 2009. The Company recorded a net stock-based compensation credit of $28
during the Successor Period November 14, 2008 through December 28, 2008. The credit resulted from
the reversal of compensation cost for unvested shares related to a termination of one of our
executives during that period. The Company recorded $406 of stock-based compensation expense for
the Predecessor Period from December 31, 2007 through November 13, 2008. Stock-based compensation
expense is included in general and administrative expense on the consolidated statements of
operations.
As
of December 26, 2010, $105 of total unrecognized compensation costs related to non-vested
stock-based awards is expected to be recognized through fiscal year 2012, and the weighted average
remaining vesting period of those awards is approximately one year. At December 26, 2010, the
aggregate intrinsic value of exercisable options was $0.
8. Income Taxes
Significant components of the income tax provision (benefit) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
June 27, |
|
|
December 27, |
|
|
December 28, |
|
|
November 13, |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
|
|
|
$ |
(60 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
28 |
|
State |
|
|
87 |
|
|
|
19 |
|
|
|
16 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
(41 |
) |
|
|
16 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
(402 |
) |
|
|
|
|
|
|
(4,612 |
) |
|
|
|
|
|
|
|
|
State |
|
|
(88 |
) |
|
|
|
|
|
|
(811 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(490 |
) |
|
|
|
|
|
|
(5,423 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense |
|
$ |
(403 |
) |
|
$ |
(41 |
) |
|
$ |
(5,407 |
) |
|
$ |
|
|
|
$ |
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes reflect the net tax effects of temporary differences between the
carrying value of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. Significant components of the Companys deferred tax assets and liabilities
are as follows:
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
|
2010 |
|
|
2009 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Federal net operating loss carry-forwards |
|
$ |
16,665 |
|
|
$ |
9,807 |
|
State net operating loss carry-forwards |
|
|
8,851 |
|
|
|
6,478 |
|
Goodwill and other intangibles |
|
|
16,081 |
|
|
|
20,262 |
|
Accrued expenses not currently deductible |
|
|
7,042 |
|
|
|
8,197 |
|
Tax credit carry-forwards |
|
|
7,519 |
|
|
|
900 |
|
Property and equipment basis difference |
|
|
11,678 |
|
|
|
9,227 |
|
Deferred rent |
|
|
321 |
|
|
|
867 |
|
Gift certificates and other deferred income |
|
|
1,105 |
|
|
|
1,055 |
|
Deferred compensation |
|
|
762 |
|
|
|
761 |
|
State taxes |
|
|
2,083 |
|
|
|
2,766 |
|
Other |
|
|
4,307 |
|
|
|
4,554 |
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
76,414 |
|
|
|
64,874 |
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Prepaid expenses |
|
|
(457 |
) |
|
|
(535 |
) |
Trademarks and other indefinite lived intangibles |
|
|
(19,522 |
) |
|
|
(26,059 |
) |
Lease amortization |
|
|
(6,222 |
) |
|
|
(10,370 |
) |
Unamortized landlord allowance |
|
|
(2,956 |
) |
|
|
(3,036 |
) |
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(29,157 |
) |
|
|
(40,000 |
) |
|
|
|
|
|
|
|
Valuation allowance |
|
|
(66,779 |
) |
|
|
(50,933 |
) |
|
|
|
|
|
|
|
Net deferred tax liability |
|
$ |
(19,522 |
) |
|
$ |
(26,059 |
) |
|
|
|
|
|
|
|
51
Immediately prior to the Share Purchase, deferred tax assets and liabilities were $68,675 and
$38,582, respectively, offset by a valuation allowance of $56,152.
The reconciliation of income tax at the U.S. federal statutory tax rates to income tax expense
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
December 27, |
|
|
December 28, |
|
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
Income tax at U.S. federal statutory tax rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
State income tax, net of federal benefit |
|
|
(0.1 |
) |
|
|
0.9 |
|
|
|
0.0 |
|
Valuation allowance |
|
|
(26.3 |
) |
|
|
(23.3 |
) |
|
|
(13.0 |
) |
Non-deductible transaction costs |
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and intangibles |
|
|
|
|
|
|
(1.7 |
) |
|
|
(92.1 |
) |
Purchase accounting adjustment |
|
|
|
|
|
|
|
|
|
|
71.2 |
|
Permanent true-ups |
|
|
(5.7 |
) |
|
|
|
|
|
|
|
|
Other |
|
|
(0.2 |
) |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
1.7 |
% |
|
|
9.8 |
% |
|
|
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets are reduced by a valuation allowance if, based on all the available
evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized. In assessing the adequacy of the valuation allowance, the Company considers various
factors including reversal of deferred tax liabilities, future taxable income, and potential tax
planning strategies. Accordingly, the Company has recorded a valuation allowance since the Company
currently believes the deferred tax assets will not be realized. For the years ended December 26,
2010 and December 27, 2009, the Company recorded a valuation allowance of $66,779 and $50,933,
respectively.
Any changes regarding the realization of the acquired deferred tax assets which occur within
the measurement period resulting from new information regarding facts and circumstances that
existed at the date of the Exchange, then, to the extent there is a reduction in the valuation
allowance, the benefit will reduce goodwill. All other reductions to the valuation allowance will
benefit tax expense.
The Company files U.S. and State consolidated tax returns with Holdco. The Company uses the
separate return method for allocating taxes to its separate financial statements. One exception to
the separate return method used in the current year was the reduction of tax attributes as a result
of the Exchange transaction that took place on November 13, 2008 at Holdco. Consolidated tax
attributes belonging to the Company have been reduced to reflect their utilization under Internal
Revenue Code (IRC) Section 108. Based upon the Companys preliminary analysis of IRC Section
108, the net operating losses were reduced to zero at December 28, 2008. Upon completion of the
final analysis during 2009, the Company concluded that at December 28, 2008, there were $23,578 of
federal net operating loss carry-forward and $68,862 of state net operating loss carry-forward,
respectively. As the Company had recorded a full valuation allowance on these items, this resulted
in no impact on the consolidated statement of operations in either period.
At December 26, 2010 and December 27, 2009, the Company had a federal net operating loss
carry-forward of $49,014 and $27,211 which will begin to expire in 2028 and a federal business tax
credit carry-forward of $7,448 and $4,133, respectively, which will begin to expire in 2013. In
addition, at December 26, 2010 and December 27, 2009, the Company had a state net operating loss
carry-forward of $100,130 and $79,019 which will begin to expire in 2012 and a state tax credit
carry-forward of $71 for both years, which will begin to expire in 2013. The utilization of the net
operating loss carry-forward is subject to limitations under the Internal Revenue Code Section 382
and similar state provisions.
52
9. Fair Value Measurement
Fair value is an exit price, representing the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants. As such,
fair value is a market-based measurement that should be determined based on assumptions that market
participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is
established as a basis for considering such assumptions and for inputs used in the valuation
methodologies in measuring fair value:
Level 1: Quoted prices are available in active markets for identical assets or liabilities.
Level 2: Inputs are other than quoted prices in active markets included in Level 1, which are
either directly or indirectly observable.
Level 3: Unobservable inputs that are supported by little or no market activity, therefore
requiring an entity to develop its own assumptions that market participants would use in pricing.
As of December 26, 2010, the Company had no assets or liabilities that were measured using
Level 1 or Level 2 inputs on a recurring or non-recurring basis. Using Level 3 inputs, as described
in Note 3, intangible assets and certain long-lived assets were written down to fair value as a
result of impairment charges of $1,100 and $1,007, respectively during the fourth quarter of
Successor 2010.
In conjunction with the Share Purchase, the Company completed a valuation and recorded
adjustments to fair value for the following assets and liabilities by level at June 28, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment |
|
$ |
|
|
|
$ |
78,990 |
|
|
$ |
|
|
Liquor licenses |
|
|
|
|
|
|
5,082 |
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
113,989 |
|
Trademarks and other intangible assets |
|
|
|
|
|
|
|
|
|
|
43,200 |
|
Favorable lease asset |
|
|
|
|
|
|
|
|
|
|
16,456 |
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Senior secured notes due 2013 |
|
|
129,675 |
|
|
|
|
|
|
|
|
|
Unfavorable lease liability |
|
|
|
|
|
|
|
|
|
|
8,041 |
|
10. Commitments and Contingencies
Leases
The Company leases restaurant and office facilities that have terms with expirations in 2011
through 2028. Most of the restaurant facilities have renewal clauses exercisable at the option of
the Company with rent escalation clauses stipulating specific rent increases, some of which are
based upon the Consumer Price Index. Certain of these leases require the payment of contingent
rentals based on a percentage of gross revenues, as defined. Additionally, the Company leases
several properties that are not being operated by the Company. Several of those properties are
subleased.
The Company leases certain leasehold improvements and equipment under agreements that are
classified as capital leases. The cost of assets under capital leases is included in the balance
sheets as property and equipment and was $927 and $1,464 at December 26, 2010 and December 27,
2009, respectively. Accumulated amortization of these assets was $162 and $354 at December 26, 2010
and December 27, 2009, respectively. Amortization of assets under capital leases is included in
depreciation expense. The Company recorded no new capital assets at December 26, 2010 and the
amount of capital assets placed in service was $261 at December 27, 2009, respectively.
53
The minimum annual lease commitment and subtenant income of the Company for the years
succeeding December 26, 2010 is approximately as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital |
|
|
Minimum |
|
|
|
|
|
|
Net |
|
|
|
Lease |
|
|
Lease |
|
|
Sublease |
|
|
Lease |
|
|
|
Obligations |
|
|
Commitments |
|
|
Income |
|
|
Commitments |
|
2011 |
|
$ |
332 |
|
|
$ |
42,053 |
|
|
$ |
(539 |
) |
|
$ |
41,846 |
|
2012 |
|
|
257 |
|
|
|
39,138 |
|
|
|
(459 |
) |
|
|
38,936 |
|
2013 |
|
|
92 |
|
|
|
34,594 |
|
|
|
(308 |
) |
|
|
34,378 |
|
2014 |
|
|
79 |
|
|
|
28,919 |
|
|
|
(300 |
) |
|
|
28,698 |
|
2015 |
|
|
26 |
|
|
|
20,549 |
|
|
|
(240 |
) |
|
|
20,335 |
|
Thereafter |
|
|
251 |
|
|
|
80,740 |
|
|
|
(79 |
) |
|
|
80,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
|
1,037 |
|
|
$ |
245,993 |
|
|
$ |
(1,925 |
) |
|
$ |
245,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Amount representing interest |
|
|
(254 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum capital lease payments |
|
|
783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Current maturities of capital lease obligations |
|
|
(269 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term capital lease obligations |
|
$ |
514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company is contingently liable for leases on sold or assigned premises for $1,527 as of
December 26, 2010.
Some of the leases provide for additional rentals based on a percentage of revenues. The
following table summarizes the rental expense, percentage rent expense above minimum rent and net
sublease income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Successor |
|
|
Predecessor |
|
|
|
December 26, |
|
|
June 27, |
|
|
December 27, |
|
|
December 28, |
|
|
November 13, |
|
|
|
2010 |
|
|
2010 |
|
|
2009 |
|
|
2008 |
|
|
2008 |
|
Rental expense |
|
$ |
23,446 |
|
|
$ |
23,407 |
|
|
$ |
47,946 |
|
|
$ |
4,997 |
|
|
$ |
41,935 |
|
Percentage rent
expense above
minimum rent
(included in rental
expense) |
|
|
684 |
|
|
|
811 |
|
|
|
1,538 |
|
|
|
198 |
|
|
|
1,926 |
|
Net sublease income |
|
|
78 |
|
|
|
183 |
|
|
|
428 |
|
|
|
45 |
|
|
|
344 |
|
Purchase Obligations
In December 2007, the Company entered into an agreement with a certain vendor to purchase a
minimum volume of product from December 1, 2007 through December 31, 2015, to be extended for any
shortfall in purchases until such volume is met. The contract is based upon expiration date or
volume, which ever occurs last. As of December 26, 2010, $3,141 had been purchased, representing
24% of the total contractual volume to be purchased throughout the life of the contract.
Litigation
The Company is periodically a defendant in cases involving personal injury, employment-related
claims, third-party Americans with Disabilities Act accessibility claims and other matters that
arise in the normal course of business. While any pending or threatened litigation has an element
of uncertainty, the Company believes that the outcome of these lawsuits or claims, individually or
combined, will not materially adversely affect the consolidated financial position, results of
operations or cash flows of the Company.
Self-Insurance
The Company is self-insured for most casualty losses up to certain stop-loss limits. The
Company has accounted for its liabilities for these casualty losses and claims, including both
reported and incurred but not reported claims, based on information provided by independent
actuaries. Management believes that it has recorded reserves for casualty losses at a level that
has substantially mitigated the potential negative impact of adverse developments and/or
volatility. Management believes that its calculation of casualty loss liabilities would not change
materially under different conditions and/or different methods. However, due to the inherent
volatility of actuarially determined casualty claims, it is reasonably possible that the Company
could experience changes in estimated casualty losses, which could be material to both quarterly
and annual net income. Amounts estimated to be ultimately payable with respect to existing claims
and an estimate for claims incurred but not reported under these programs have been accrued and are
included in the accompanying consolidated balance sheets. Estimated liabilities related to the
self-insured casualty losses were $13,212 and $14,790 as of December 26, 2010 and December 27,
2009, respectively.
The Company is also required to maintain collateral securing future payment under the
self-insured retention insurance programs. As of December 26, 2010 and December 27, 2009, this
collateral consisted of stand-by letters of credit of $13,047 and $13,902, respectively.
54
11. Related Party Transactions
As discussed in Note 6, as a result of the Exchange, the existing lenders to the Senior
Unsecured Credit Facility became owners of Holdco. As a result, the Senior Unsecured Credit
Facility is held by related parties to the Company. Subsequent to the Share Purchase, this
continues to be the case.
Certain funds managed by Farallon are indirect stockholders of Holdco. Certain funds managed
by Farallon hold an indirect interest in a shopping center from which the Company leases property
for the operation of an Acapulco restaurant. Total payments in connection with the lease in 2010
and 2009 were $329 and $190, of which approximately $82 and $44 is attributable to the indirect
interest of funds managed by Farallon in the shopping center. Additionally, on July 7, 2009,
certain funds managed by Farallon purchased $13,000 aggregate principal amounts of the Notes.
On February 27, 2009, the Company entered into a contract for consulting services with an
entity which has a material relationship with one of Holdcos stockholders. This consulting
contract had a monthly fee of $190 with an initial term from March 1, 2009 to March 31, 2009 and
three optional one month renewal terms through June 30, 2009, each of which was exercised. The
Company extended the contract for one additional month through July 31, 2009 at the same terms.
Fees of $950 were recorded in general and administrative expense during 2009 and reflected as
non-cash consulting expense on the consolidated statement of cash flows. The fees were paid in
shares of Holdco common stock, resulting in an increase in additional paid in capital for the
Company. The shares were issued on September 28, 2009.
The Company periodically makes payments to (subject to restricted payment covenants under the
indenture governing the Notes), from and on behalf of Holdco. No related party payables or
receivables were outstanding at December 26, 2010 or December 27, 2009.
12. Employee Benefit Plan
The Company is the sponsor of a defined contribution plan (401(k) plan) for qualified Company
employees, as defined. Participants may contribute from 1% to 50% of pre-tax compensation, subject
to certain limitations. The plan contains a provision that provides that the Company may make
discretionary contributions. The Company made no contributions for the Success Six Months ended
December 26, 2010 and the Predecessor Six Months ended June 27, 2010. The Company has recorded
contribution expense of $144, $26 and $207 during the Predecessor Year ended December 27, 2009, the
6 week Predecessor Period November 14, 2008 through December 28, 2008 and the 46 week Predecessor
Period from December 31, 2007 through November 13, 2008, respectively.
13. Condensed Consolidating Financial Statements
Pursuant to the notes accompanying Rule 3-10(f) of Regulation S-X, we have not provided the
condensed consolidated financial statements of our subsidiaries guaranteeing the Notes as (i) we
have no independent assets or operations, (ii) the guarantees are full and unconditional, joint and
several and (iii) we have no subsidiaries who are not subsidiary guarantors of our senior notes.
14. Quarterly Results of Operations
(Unaudited)
The following is a summary of the quarterly results of operations for the years ended December
26, 2010 and December 27, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Predecessor |
|
|
Successor |
|
|
Successor |
|
|
|
13 weeks ended |
|
|
13 weeks ended |
|
|
13 weeks ended |
|
|
13 weeks ended |
|
|
|
March 28, |
|
|
June 27, |
|
|
September 26, |
|
|
December 26, |
|
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
|
2010 |
|
Total revenues |
|
$ |
120,419 |
|
|
$ |
129,637 |
|
|
$ |
118,618 |
|
|
$ |
109,289 |
|
Operating income (loss) |
|
$ |
2,037 |
|
|
$ |
6,844 |
|
|
$ |
511 |
|
|
$ |
(4,962 |
) |
Net loss |
|
$ |
(5,499 |
) |
|
$ |
(769 |
) |
|
$ |
(6,300 |
) |
|
$ |
(11,483 |
)(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Predecessor |
|
|
Predecessor |
|
|
Predecessor |
|
|
Predecessor |
|
|
|
13 weeks ended |
|
|
13 weeks ended |
|
|
13 weeks ended |
|
|
13 weeks ended |
|
|
|
March 29, |
|
|
June 28, |
|
|
September 27, |
|
|
December 27, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
Total revenues |
|
$ |
128,493 |
|
|
$ |
135,924 |
|
|
$ |
124,211 |
|
|
$ |
111,969 |
|
Operating income (loss) |
|
$ |
208 |
|
|
$ |
4,643 |
|
|
$ |
(4,193 |
) |
|
$ |
(20,917 |
) |
Net loss |
|
$ |
(8,948 |
) |
|
$ |
(4,135 |
) |
|
$ |
(13,446 |
)(2) |
|
$ |
(23,069 |
)(3) |
|
|
|
(1) |
|
Includes impairment of other intangible assets of $1,100 |
|
(2) |
|
Includes impairment of goodwill and other intangible assets of $2,728. |
|
(3) |
|
Includes impairment of goodwill and other intangible assets of $13,566. |
55
|
|
|
ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
|
|
|
ITEM 9A. |
|
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As of the end of the period covered by this report, we conducted an evaluation, under the
supervision and with the participation of the principal executive officer and principal financial
officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act.) Based on this evaluation, our principal executive
officer and principal financial officer concluded that, as of the end of the record period covered
by this report, our disclosure controls and procedures are effective.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act). Under the
supervision and with the participation of our management, including our principal executive and
financial officer, we conducted an assessment of the effectiveness of our internal control over
financial reporting based on the framework established in Internal Control- Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, management determined that our internal control over financial reporting is effective
as of the end of our 2010 fiscal year.
This annual report does not include an attestation report of the Companys registered public
accounting firm regarding internal control over financial reporting. Managements report was not
subject to attestation by the Companys registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only managements report in this annual report.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting during our most recently
completed fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
|
ITEM 9B. |
|
OTHER INFORMATION |
None.
56
PART III
|
|
|
ITEM 10. |
|
DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Directors, Executive Officers and Key Employees
The following table sets forth certain information regarding the current Board of Directors,
executive officers and other key employees of our Company:
|
|
|
|
|
Name |
|
Age |
|
Position |
Richard E. Rivera |
|
64 |
|
President, Chief Executive Officer and Chairman |
Richard P. Dutkiewicz |
|
55 |
|
Executive Vice President and Chief Financial Officer |
Carlos Angulo |
|
49 |
|
President, Real Mex Foods, Inc. |
Roberto (Pepe) Lopez |
|
55 |
|
Executive Chef and Senior Vice President, Research and Development |
Raymond Garcia |
|
56 |
|
Senior Vice President of Operations |
Jeff Campbell |
|
66 |
|
Director*+ |
Anthony DiLucente |
|
52 |
|
Director*+ |
Craig S. Miller |
|
61 |
|
Director*+ |
Anthony Polazzi |
|
35 |
|
Director*+ |
R. Lynn Skillen |
|
55 |
|
Director*+ |
Clarence E. Terry |
|
64 |
|
Director*+ |
|
|
|
* |
|
Member of our audit committee. |
|
+ |
|
Member of our compensation committee. |
Richard E. Rivera has been our President, Chief Executive Officer and Chairman of the Board
since April 2009. Mr. Rivera will be retiring effective April 1, 2011. Mr. Rivera is an owner of
Rubicon Enterprises LLC, a Sarasota, FL-based restaurant management and investment company with
ownership in four T.G.I Fridays and six Marlows Taverns, for which he has served as President and
CEO since 2004. From 2002 to 2004, Mr. Rivera was Vice Chairman, President and Chief Operating
Officer responsible for the day-to-day operations at Darden Restaurants, Inc., the parent company
which operates casual dining concepts including Red Lobster, Olive Garden, Bahama Breeze and
Seasons 52. From 1997 to 2002, Mr. Rivera was President of the Red Lobster division at Darden
Restaurants, Inc. Prior to his employment with Darden Restaurants, Inc., Mr. Rivera served at
various times as an executive officer of the following restaurant concepts: Chart House
Enterprises, RARE Hospitality International (which operates Long Horn Steakhouse and The Capital
Grille among other restaurant concepts), Applebees, TGI Fridays, Del Taco, El Chico, and Steak &
Ale Restaurants of America. Mr. Rivera is also active on behalf of the restaurant industry having
served as Chairman of the National Restaurant Association in 2007-2008 and as a board member since
1993. Mr. Rivera has served as a director of Winn-Dixie Stores, Inc. since 2006. Mr. Rivera was
selected to serve as a member of our Board of Directors as a result of his role as our President
and Chief Executive Officer, for his ability to provide key information about the Company during
Board meetings.
Richard P. Dutkiewicz has been our Executive Vice President and Chief Financial Officer since
April 2010. From 2003 to 2010, Mr. Dutkiewicz, served as Chief Financial Officer of Einstein Noah
Restaurant Group (ENRG), the largest operator of bagel bakeries in the U.S. Prior to ENRG, Mr.
Dutkiewicz had been recruited to take over the CFO role with a troubled publicly traded electronics
manufacture, Vari-L Company, where he overhauled the finance department, including personnel and
systems, leading the way to a successful sale and transition to Sirenza Microdevices in 2003. In
the six years preceding Vari-L, Mr. Dutkiewicz was CFO for Coleman Natural Products, a leading
supplier of natural beef in the U.S.. Mr. Dutkiewicz is a graduate of Loyola University where he
earned a B.B.A. in Accounting and worked in public accounting as an audit manager with KPMG until
1984. He has more than 30 years of experience spanning both public and privately held
organizations for a variety of restaurant, technology, and manufacturing organizations.
Carlos Angulo has been the President of Real Mex Foods, Inc. since January 2005. Mr. Angulo
joined us in 2000 as Vice President of Real Mex Foods, Inc. Previously, Mr. Angulo worked for Smart
& Final for 18 years in a variety of positions from Store Manager to Vice President of Northern
California Distribution. Mr. Angulo received a Bachelor of Science degree from the University of
Southern California.
Roberto (Pepe) Lopez has been our Executive Chef since 1992. In addition, in 1994, Mr. Lopez
was promoted to Vice President, Research and Development and in 2004, he was promoted to Senior
Vice President, Research and Development. Previously, Mr. Lopez served as Director of Product
Development. His prior experience includes serving as Executive Chef at Canos and Las Brisas, and
as Manager at El Torito. Between 1988 and 1992, he was Director of Product Development for Visions
Restaurants, Inc.
57
Raymond Garcia has been our Senior Vice President of Operations since July 2010. Prior to that
time, Mr. Garcia served as the Senior Vice President of Operations for El Torito and Acapulco since
June 2005. Previously, Mr. Garcia served from 1991 in a variety of positions at Acapulco rising
from Assistant Manager to Vice President of Operations. Before joining Acapulco, Mr. Garcia held
positions of General Manager and Regional Manager at El Torito.
Jeff Campbell became a Director of the Company in July 2009. Mr. Campbell is currently the
Brinker Executive in Residence at San Diego States School of Hospitality and Tourism. He is also
Chairman of The Chairmens Roundtable, a San Diego based organization composed of former CEOs
and entrepreneurs. Mr. Campbell is the former CEO of Burger King and ex-Chairman of the Pillsbury
Restaurant Group. He also served as Senior Vice President for Brand Development for Pepsi-Cola as
well as CEO of the Johnny Rockets and Catalina Restaurant Groups. Mr. Campbell was selected to
serve as a member of our Board of Directors because of his extensive background in restaurant and
related industries, as noted above.
Anthony DiLucente was appointed as a Director of the Company in October 2010. Mr. DiLucente
has served as Group CFO of Sun Capital Partners, a private investment firm, since April 2010. Mr.
DiLucente was selected to serve as a member of our Board of Directors by Sun Capital Partners, in
accordance with Sun Capital Partners rights as a shareholder.
Craig S. Miller became a Director of the Company in July 2009. Mr. Miller is a principal in
Miller Partners Restaurant Solutions (MPRS). MPRS, thru an affiliate, owns and operates Millers
Field, a sports restaurant located in San Diego, California. Mr. Miller served as President, CEO
and Chairman of Ruths Hospitality Group from 2004 to 2008. He also served as President and CEO of
Furrs Hospitality from 2001 to 2002 and as President, Director and CEO of Uno Restaurants from
1983 to 2001. Mr. Miller serves as a director of the National Restaurant Association and served as
its Chairman from 2005 to 2006. Mr. Miller served as a director of Tim Hortons Inc. from 2007 to
2010. Mr. Miller was selected to serve as a member of our Board of Directors because of his
extensive background in the restaurant industry.
Anthony Polazzi was reappointed as a Director of the Company in October 2009. Mr. Polazzi
previously served as a Director of the Company from November 2008 until July 2009. Mr. Polazzi has
served as a principal of Sun Capital Partners, a private investment firm, since October 2003. Mr.
Polazzi was selected to serve as a member of our Board of Directors by Sun Capital Partners, in
accordance with Sun Capital Partners rights as a shareholder.
R. Lynn Skillen was appointed as a Director of the Company in June 2010. Mr. Skillen serves as
Managing Director of Sun Capital Partners, a private investment firm, and has 30 years experience
in finance and operations. Mr. Skillen was selected to serve as a member of our Board of Directors
by Sun Capital Partners, in accordance with Sun Capital Partners rights as a shareholder.
Clarence E. Terry was reappointed as a Director of the Company in April 2010. Mr. Terry
previously served as a Director of the Company from August 2006 until November 2008. Mr. Terry
serves as Senior Managing Director of Sun Capital Partners, a private investment firm, and he has
more than 30 years of operating experience. Mr. Terry was selected to serve as a member of our
Board of Directors by Sun Capital Partners, in accordance with Sun Capital Partners rights as a
shareholder.
Audit Committee Financial Expert
The non-employee directors currently act as the Companys Audit Committee. The Board of
Directors has determined Craig S. Miller qualifies as an Audit Committee Financial Expert as this
term has been defined under the rules and restrictions of the SEC and has designated him as such.
Code of Ethics
On February 7, 2007, the Company adopted a Code of Ethics that applies to our principal
executive officer, principal financial officer, principal accounting officer or controller, and all
persons performing similar functions.
58
|
|
|
ITEM 11. |
|
EXECUTIVE COMPENSATION |
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Philosophy and Overall Objectives
We believe that the compensation paid to our Chief Executive Officer, our Chief Financial
Officer and our three other most highly compensated executive officers, whom we collectively refer
to as our named executive officers (Named Executive Officers), should be closely aligned with our
performance as well as that of each Named Executive Officers individual performance on both a
short- and long-term basis, and that such compensation should be sufficient to attract and retain
highly qualified leaders who can create significant value for our organization. Our compensation
programs are designed to provide Named Executive Officers meaningful incentives for superior
performance. Performance is evaluated using both financial and non-financial objectives that we
believe contribute to our long-term success. Among these objectives are financial strength,
customer service, operational excellence, employee commitment and regulatory integrity.
How is Compensation Determined
Due to the unique nature of each Named Executive Officers duties, our criteria for assessing
executive performance and determining compensation in any year is inherently subjective and is not
based upon specific formulas or weighting of factors. We use companies in similar industries as
benchmarks when initially establishing Named Executive Officers compensation. We also review peer
company data when making annual base salary and incentive recommendations.
Discussion of Specific Compensation Elements
The following describes the components of our executive compensation program and the basis
upon which recommendations and determinations were made. Each compensation element is designed to
fit one or more components of the Companys compensation objectives, that when taken as a whole, is
competitive with the external market.
Base Salary
We determine base salaries for all of our Named Executive Officers by reviewing company and
individual performance, the value each Named Executive Officer brings to us and general labor
market conditions. While base salary provides a base level of compensation intended to be
competitive with the external market, the base salary for each Named Executive Officer is
determined on a subjective basis after consideration of these factors and is not based on target
percentiles or other formal criteria. The base salaries of Named Executive Officers are reviewed on
an annual basis, and any annual increase is the result of an evaluation of the Company and of the
individual Named Executive Officers performance for the period. An increase or decrease in base
pay may also result from a promotion or other significant change in a Named Executive Officers
responsibilities during the year.
Annual Bonus Plan
We maintain an annual bonus plan that provides for annual incentive awards to be made to our
senior management (including the Named Executive Officers) upon our Companys attainment of certain
financial targets. During fiscal 2009, awards were be based upon the attainment of pre-set annual
EBITDA and cash-flow targets (as defined in the annual bonus plan). During fiscal 2010, the plan
was amended to provide that awards would be based upon the attainment of pre-set annual
Consolidated Cash Flow and pre-set Free Cash Flow targets (as defined in the annual bonus plan), at
which point the EBITDA target was removed. The annual bonus plan is designed to reward our
executives for achievement of annual financial performance of the Company. The amount of the annual
award to each executive is based upon a percentage of the executives base salary. Awards are
normally paid in cash in a lump sum following the completion of our Companys audit for each plan
year. To be eligible for a full share of the bonus, executives must be employed on the first day of
the fiscal year, provided that under the plan we may adjust awards based on individual performance
factors or special circumstances affecting our Company.
Stock Option Plan
We have a Non-Qualified Stock Option Plan (the 2006 Plan) which was adopted by our Board of
Directors in December 2006. The Stock Option Plan is intended to offer long-term incentives and to
reward our executives for superior performance. We also regard the 2006 Plan as an important
retention tool. 1,000 shares of our parents non-voting common stock are reserved for issuance upon
exercise of stock options granted under the 2006 Plan. In January 2007, the Board of Directors
issued stock options to certain
members of management. These options vest 20% per year beginning August 16, 2007, with full
vesting on August 16, 2011. Accelerated vesting of all outstanding options is triggered upon a
change of control of the Company. The options have a life of 10 years, and can only be exercised
upon the earliest of the following dates: (i) the 10 year anniversary of the effective date; (ii)
the date of a change in control, as defined in the 2006 Plan; or (iii) date of employment
termination, subject to certain exclusions. Shares above have been adjusted for the 100:1 reverse
stock split effected in conjunction with the Exchange.
59
Employment Agreements
Richard E. Rivera
We entered into an executive employment agreement with Richard E. Rivera, our Chief Executive
Officer, President and Chairman, effective April 6, 2009. Under the terms of the employment
agreement, Mr. Rivera is entitled to a base salary of $500,000 per annum, or such greater amount as
the Board of Directors shall determine, and customary executive benefits. Contingent upon our
meeting certain financial goals set annually in accordance with our bonus plan, Mr. Rivera is
eligible to receive a bonus of up to 150% of his base salary.
Unless sooner terminated in accordance with its terms, the employment agreement with Mr.
Rivera expires on April 6, 2011, subject to automatic 1 year renewals unless either party provides
notice of its intent not to renew 90 days prior to the renewal date. Mr. Rivera provided such
notice during 2010 upon announcement of his retirement at the end of his current contract.
Richard P. Dutkiewicz
In connection with Mr. Dutkiewiczs employment as Executive Vice President and CFO, Mr.
Dutkiewicz signed an offer letter with the Company dated March 17, 2010. The offer letter provides
for an initial annual base salary of $325,000. Mr. Dutkiewicz participates in the Companys bonus
program that entitles him to an annual performance bonus up to 50% of his base salary. Mr.
Dutkiewicz received a signing bonus of $50,000 and received reimbursements for his relocation of
$75,000. In addition, Mr. Dutkiewicz will receive an option grant with a targeted payout of
$1,500,000. In the event Mr. Dutkiewicz is terminated without cause, he will be entitled to receive
twelve months of his base salary and payment of premiums for COBRA coverage for a twelve-month
period.
Steven Tanner
Mr. Steven Tanner served as our Chief Financial Officer until his departure from the Company
in February 2010. We entered into an executive employment agreement with Mr. Tanner effective
February 28, 2008. Under the employment agreement, Mr. Tanner was entitled to a base salary of
$296,587 per annum, or such greater amount as determined by the Board of Directors, and customary
executive benefits. Contingent upon our meeting certain financial goals set annually in accordance
with our bonus plan, Mr. Tanner was eligible to receive a bonus of up to 50% of his base salary. In
addition, the employment agreement imposed non-competition, non-solicitation and confidentiality
obligations on Mr. Tanner.
In connection with Mr. Tanners departure from the Company and in addition to the payments
provided by the employment agreement, the Company entered into a Separation Agreement and General
Release with Mr. Tanner dated December 17, 2009 with an employment termination date of February 12,
2010, pursuant to which the Company agreed (i) to pay Mr. Tanner his annual salary of $296,587 for
one year following his termination date in installments to be paid on the dates that he normally
received his salary and (ii) to pay the cost of Mr. Tanners health insurance premiums for one year
if he elects to continue his health insurance through COBRA.
Compensation Policies and Practices As They Relate to the Companys Risk Management
The Company believes that its compensation policies and practices for all employees, including
executive officers, do not create risks that are reasonably likely to have a material adverse
effect on the Company.
Compensation Committee Interlocks and Insider Participation
All compensation decisions are approved by the Compensation Committee, which is made up of the
non-employee directors on an ad hoc basis. None of the Companys executive officers currently
serve, or in the past have served, as a director or member of any compensation committee of another
entity that has one or more executive officers serving on the Companys Board of Directors.
60
Compensation Committee Report
The non-employee directors of the Board discussed the Compensation Discussion and Analysis
with management, and recommended its inclusion in the Companys Form 10-K. The non-employee
directors at the time the Companys 10-K for the fiscal year ended December 26, 2010 was filed
were:
Jeff Campbell
Anthony DiLucente
Craig S. Miller
Anthony Polazzi
R. Lynn Skillen
Clarence E. Terry
Summary Compensation Table
The following table sets forth certain information with respect to annual and long-term
compensation for services in all capacities for fiscal years 2010, 2009 and 2008 paid to our Named
Executive Officers:
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Change in |
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Pension Value |
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Non- |
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and |
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Equity |
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Nonqualified |
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Incentive |
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Deferred |
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All |
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Name and |
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|
|
|
|
|
|
|
|
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Stock |
|
|
Option |
|
|
Plan |
|
|
Compensation |
|
|
Other |
|
|
|
|
Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
Compensation(1) |
|
|
Earnings(2) |
|
|
Compensation(3) |
|
|
Total |
|
|
|
|
|
|
|
($) |
|
|
($) |
|
|
(#) |
|
|
(#) |
|
|
($) |
|
|
(#) |
|
|
($) |
|
|
($) |
|
Richard E. Rivera |
|
|
2010 |
|
|
|
458,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103,992 |
(4) |
|
|
562,165 |
|
CEO, President and Chairman (5) |
|
|
2009 |
|
|
|
349,039 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,242 |
(4) |
|
|
437,281 |
|
Richard P. Dutkiewicz CFO (6) |
|
|
2010 |
|
|
|
231,250 |
|
|
|
50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,723 |
(4) |
|
|
345,973 |
|
Steven Tanner |
|
|
2010 |
|
|
|
376,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,505 |
|
|
|
385,409 |
|
Former CFO (7) |
|
|
2009 |
|
|
|
307,995 |
|
|
|
103,649 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,479 |
|
|
|
440,122 |
|
|
|
|
2008 |
|
|
|
296,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,111 |
|
|
|
322,698 |
|
Carlos Angulo |
|
|
2010 |
|
|
|
271,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,739 |
|
|
|
289,439 |
|
President, Real Mex Foods, Inc. |
|
|
2009 |
|
|
|
284,450 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,013 |
|
|
|
302,463 |
|
|
|
|
2008 |
|
|
|
260,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,229 |
|
|
|
281,229 |
|
Roberto (Pepe) Lopez |
|
|
2010 |
|
|
|
208,083 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,400 |
|
|
|
214,483 |
|
Executive Chef and |
|
|
2009 |
|
|
|
211,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,376 |
|
|
|
217,920 |
|
Senior Vice President, R&D |
|
|
2008 |
|
|
|
210,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,540 |
|
|
|
220,870 |
|
Raymond Garcia |
|
|
2010 |
|
|
|
200,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,298 |
|
|
|
206,183 |
|
Senior Vice President, Operations |
|
|
2009 |
|
|
|
206,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,807 |
|
|
|
211,990 |
|
|
|
|
2008 |
|
|
|
205,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,284 |
|
|
|
210,284 |
|
|
|
|
(1) |
|
The Company does not have a Non-Equity Incentive Plan. |
|
(2) |
|
The Company does not have a pension plan and does not pay above market or preferential
earnings on deferred compensation plans. |
|
(3) |
|
All Other Compensation includes medical and dental reimbursements, automobile expenses,
employer matching contribution of a nonqualified deferred compensation plan, and relocation
reimbursements. |
|
(4) |
|
Amounts for Mr. Rivera and Mr. Dutkiewicz include reimbursements related to their relocation in accordance with their employment agreements. |
|
(5) |
|
Mr. Rivera joined the Company as an executive officer in April 2009. |
|
(6) |
|
Mr. Dutkiewicz joined the Company as an executive officer in April 2010. |
|
(7) |
|
Mr. Tanner departed from his position as an executive officer of the Company on February 12, 2010. |
Option Grants in Fiscal Year Ended December 26, 2010
None.
61
Outstanding Equity Awards at Year End
The following table provides information regarding outstanding stock options held by our Named
Executive Officers at December 26, 2010.
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Option/Warrant Awards |
|
|
Stock Awards |
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Equity |
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Incentive |
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Equity |
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|
Plan |
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|
Incentive |
|
|
Awards: |
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|
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|
Equity |
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|
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|
Plan |
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Market or |
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|
Incentive |
|
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|
|
|
|
|
|
|
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|
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|
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|
Awards: |
|
|
Payout |
|
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|
|
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|
|
Plan |
|
|
|
|
|
|
|
|
|
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Number of |
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Value of |
|
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|
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|
|
|
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|
Awards |
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|
|
|
|
|
|
|
Unearned |
|
|
Unearned |
|
|
|
Number of |
|
|
Number of |
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Market |
|
|
Shares |
|
|
Shares |
|
|
|
Securities |
|
|
Securities |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
Shares or |
|
|
Value of |
|
|
Units or |
|
|
Units or |
|
|
|
Underlying |
|
|
Underlying |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
Units of |
|
|
Shares or |
|
|
Other |
|
|
Other |
|
|
|
Unexercised |
|
|
Unexercised |
|
|
Unexercised |
|
|
Option |
|
|
Option |
|
|
Stock That |
|
|
Unit That |
|
|
Rights That |
|
|
Rights That |
|
|
|
Options (#) |
|
|
Options (#) |
|
|
Unearned |
|
|
Exercise |
|
|
Expiration |
|
|
Have Not |
|
|
Have Not |
|
|
Have Not |
|
|
Have Not |
|
Name |
|
Exercisable |
|
|
Unexercisable |
|
|
Options (#) |
|
|
Price |
|
|
Date |
|
|
Vested (#) |
|
|
Vested |
|
|
Vested (#) |
|
|
Vested |
|
Richard E. Rivera |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard P. Dutkiewicz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Tanner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlos Angulo |
|
|
88 |
|
|
|
22 |
|
|
|
|
|
|
$ |
8,150 |
|
|
|
8/16/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roberto (Pepe) Lopez |
|
|
16 |
|
|
|
4 |
|
|
|
|
|
|
$ |
8,150 |
|
|
|
8/16/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond Garcia |
|
|
22 |
|
|
|
6 |
|
|
|
|
|
|
$ |
8,150 |
|
|
|
8/16/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Exercised and Stock Vested
None of the Named Executive Officers exercised any stock options during the fiscal year ended
December 26, 2010.
Pension Benefits
None.
Nonqualified Deferred Compensation
The following table sets forth certain information with respect to our nonqualified deferred
compensation plan for fiscal year 2010 for our Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate |
|
|
Aggregate |
|
|
|
Executive |
|
|
Company |
|
|
Aggregate |
|
|
Withdrawals/ |
|
|
Balance at |
|
|
|
Contributions |
|
|
Contributions |
|
|
Earnings |
|
|
Distributions |
|
|
December 27, |
|
Name |
|
during 2010 |
|
|
during 2010 |
|
|
during 2010 |
|
|
during 2010 |
|
|
2010 |
|
Richard E. Rivera |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Richard P. Dutkiewicz |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Tanner |
|
|
|
|
|
|
|
|
|
|
1,294 |
|
|
|
39,591 |
|
|
|
|
|
Carlos Angulo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Roberto (Pepe) Lopez |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raymond Garcia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Payments Upon Termination or Change in Control
We have arrangements with certain of our Named Executive Officers that may provide them with
compensation following termination of employment. These arrangements are discussed above under
Employment Agreements.
Compensation of Directors
Two of our directors, Jeff Campbell and Craig S. Miller, are entitled to $16,000 per year,
payable in installments of $4,000 per quarter in arrears, plus an annual option grant valued at
$35,000 per year. None of our other directors are compensated for serving as a director of the
Company. All directors are entitled to reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of Directors or committees
thereof.
62
|
|
|
ITEM 12. |
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
Equity Compensation Plan Information
As of December 26, 2010, our parents common stock authorized for issuance under its
Non-Qualified Stock Option Plan included 1,000 shares of non-voting common stock, of which 194
options to purchase such shares are outstanding, with a weighted average exercise price of $8,150
per share.
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
Number of |
|
|
|
|
|
|
securities remaining |
|
|
|
securities to be |
|
|
|
|
|
|
available for future |
|
|
|
issued upon |
|
|
Weighted-average |
|
|
issuance under |
|
|
|
exercise of |
|
|
exercise price of |
|
|
equity compensation |
|
|
|
outstanding |
|
|
outstanding |
|
|
plans (excluding |
|
|
|
options, warrants |
|
|
options, warrants |
|
|
securities reflected |
|
|
|
and rights |
|
|
and rights |
|
|
in column (a)) |
|
Plan category |
|
(a) |
|
|
(b) |
|
|
(c) |
|
Equity compensation
plans approved by
security holders |
|
|
194 |
|
|
$ |
8,150 |
|
|
|
806 |
|
Equity compensation
plans not approved
by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
194 |
|
|
$ |
8,150 |
|
|
|
806 |
|
|
|
|
|
|
|
|
|
|
|
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial ownership of
outstanding common stock and preferred stock of Real Mex Restaurants, Inc. as of February 20, 2011:
|
|
|
Each person (or group of affiliated persons) who is known by us to beneficially own 5% or
more of Real Mex Restaurants, Inc.s common and preferred stock; |
|
|
|
|
Each of our Named Executive Officers; |
|
|
|
|
Each of our Directors; and |
|
|
|
|
All of our Directors and executive officers as a group. |
To our knowledge, each of the holders of shares listed below has sole voting and investment
power as to the shares owned unless otherwise noted. Beneficial ownership of the securities listed
in the table has been determined in accordance with the applicable rules and regulations
promulgated under the Exchange Act.
63
Number and Percent of Shares of
Stock of
Real Mex Restaurants, Inc.
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
Shares |
|
|
Percentage |
|
Greater than 5% Stockholder |
|
|
|
|
|
|
|
|
RM Restaurant Holding Corp.(1) |
|
|
1,000 |
|
|
|
100.00 |
|
Named Executive Officers and Directors |
|
|
|
|
|
|
|
|
Richard E. Rivera |
|
|
|
|
|
|
|
|
Richard P. Dutkiewicz |
|
|
|
|
|
|
|
|
Steven Tanner |
|
|
|
|
|
|
|
|
Carlos Angulo |
|
|
|
|
|
|
|
|
Roberto (Pepe) Lopez |
|
|
|
|
|
|
|
|
Raymond Garcia |
|
|
|
|
|
|
|
|
Jeff Campbell |
|
|
|
|
|
|
|
|
Anthony DiLucente |
|
|
|
|
|
|
|
|
Craig S. Miller |
|
|
|
|
|
|
|
|
Anthony Polazzi |
|
|
|
|
|
|
|
|
R. Lynn Skillen |
|
|
|
|
|
|
|
|
Clarence E. Terry |
|
|
|
|
|
|
|
|
All executive officers and directors as a group (12 persons) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
RM Restaurant Holding Corp. is located at 5660 Katella Avenue, Cypress, California 90630. |
64
|
|
|
ITEM 13. |
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE |
Certain funds managed by Farallon are indirect stockholders of Holdco. Certain funds managed
by Farallon hold an indirect interest in a shopping center from which the Company leases property
for the operation of an Acapulco restaurant. Total payments in connection with the lease in 2010
were $0.3 million, of which less than $0.1 million is attributable to the indirect interest of
funds managed by Farallon in the shopping center.
Director Independence
We are not listed on any national securities exchange and therefore are not subject to any
listing standards for director independence. The Company has determined that 2 of our 7 directors,
Jeff Campbell and Craig S. Miller, are independent under the existing standards of the New York
Stock Exchange and the SEC. Because our other non-employee directors are affiliated with
stockholders of our parent company, they are not considered independent.
65
|
|
|
ITEM 14. |
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Principal Accounting Fees and Services
The Board of Directors approved the engagement of Grant Thornton LLP (Grant) to continue as
our independent auditors to conduct the audit of our books and records for the fiscal year ending
December 26, 2010, including required quarterly reviews. The following table shows the aggregate
fees for professional services rendered during the last two fiscal years:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
|
Fiscal Year |
|
|
|
2010 |
|
|
2009 |
|
Audit Fees |
|
$ |
370,000 |
|
|
$ |
679,200 |
|
Audit Related Fees |
|
|
|
|
|
|
|
|
Tax Fees |
|
|
|
|
|
|
|
|
All Other Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees |
|
$ |
370,000 |
|
|
$ |
679,200 |
|
|
|
|
|
|
|
|
Audit Fees represent the aggregate fees billed or estimated to be billed to us for
professional services rendered for the audit of our annual financial statements, review of
financial statements included in our Form 10-Qs and services normally provided by our accountants
in connection with statutory and regulatory filings or engagements.
Audit-Related Fees represent the aggregate fees billed to us or estimated to be billed to us
for assurance and related services that were reasonably related to the performance of the audit or
review of our financial statements and are not reported under Audit Fees above.
Tax Fees represent the aggregate fees billed to us or estimated to be billed to us for
professional services rendered for tax compliance, tax advice and tax planning.
All Other Fees represent the aggregate fees billed to us or estimated to be billed to us for
products or services provided to us, other than the services reported in the above categories.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the
Independent Auditor
The Audit Committee is responsible for appointing, setting compensation for and overseeing the
work of the independent auditor. The Audit Committee has established a policy requiring
pre-approval of all audit and permissible non-audit services provided by the independent auditor.
The Audit Committee considers whether such services are consistent with the rules of the SEC on
auditor independence as well as whether the independent auditor is best positioned to provide the
most effective and efficient service, for reasons such as familiarity with our Companys business,
people, culture, accounting systems, risk profile and other factors and input from our management.
The Audit Committee may delegate to one or more of its members the pre-approval of audit and
permissible non-audit services provided that those members report any pre-approvals to the full
committee. Pursuant to this authority, the Audit Committee has previously delegated to its Chair
the authority to address any requests for pre-approval of services between Audit Committee meetings
provided that the amount of fees for any particular services requested does not exceed $10,000, and
required the Chair to report any pre-approval decisions to the Audit Committee at its next
scheduled meeting. The policy prohibits the Audit Committee from delegating to management the Audit
Committees responsibility to pre-approve permitted services of the independent auditor. During
fiscal year 2010 all of the services related to the audit or other fees described above were pre-
approved by the Audit Committee and none were provided pursuant to any waiver of the pre-approval
requirement.
66
PART IV
|
|
|
ITEM 15. |
|
EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
(a)(1) FINANCIAL STATEMENTS
The Consolidated Financial Statements are filed as part of this report under Item 8 Financial
Statements and Supplementary Data.
|
|
|
Consolidated Balance Sheets December 26, 2010 and December 27, 2009 |
|
|
|
|
Consolidated Statements of Operations Successor Six Months Ended December 26,
2010, Predecessor Six Months Ended June 27, 2010, Predecessor Fiscal Year Ended December
27, 2009, Predecessor Period November 14, 2008 to December 28, 2008 and Predecessor
Period December 31, 2007 to November 13, 2008 |
|
|
|
|
Consolidated Statements of Stockholders Equity Successor Six Months Ended
December 26, 2010, Predecessor Six Months Ended June 27, 2010, Predecessor Fiscal Year
Ended December 27, 2009, Predecessor Period November 14, 2008 to December 28, 2008 and
Predecessor Period December 31, 2007 to November 13, 2008 |
|
|
|
|
Consolidated Statements of Cash Flows Successor Six Months Ended December 26,
2010, Predecessor Six Months Ended June 27, 2010, Predecessor Fiscal Year Ended December
27, 2009, Predecessor Period November 14, 2008 to December 28, 2008 and Predecessor
Period December 31, 2007 to November 13, 2008 |
|
|
|
|
Notes to Consolidated Financial Statements December 26, 2010 and December 27,
2009 |
(2) FINANCIAL STATEMENT SCHEDULE
The financial statement schedules are not required under the related instructions, are
inapplicable or are included in our Notes to Consolidated Financial Statements, and therefore have
been omitted.
67
(3) EXHIBITS
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
|
3.1 |
|
|
Third Amended and Restated Certificate of Incorporation of Real Mex Restaurants, Inc., dated November
13, 2008 (Filed with the Securities and Exchange Commission as Exhibit 3.1 to the Companys Annual
Report on Form 10-K (File No. 333-116310) on March 30, 2009 and incorporated by reference herewith) |
|
3.2 |
|
|
Amended and Restated Bylaws of Real Mex Restaurants, Inc., dated November 13, 2008 (Filed with the
Securities and Exchange Commission as Exhibit 3.2 to the Companys Annual Report on Form 10-K (File
No. 333-116310) on March 30, 2009 and incorporated by reference herewith) |
|
3.3 |
|
|
Certificate of Incorporation of Acapulco Restaurants, Inc., dated May 21, 1985 (Filed with the
Securities and Exchange Commission as Exhibit 3.3 to the Companys Registration Statement on Form S-4
(File No. 333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.4 |
|
|
Bylaws of Acapulco Restaurants, Inc. (Filed with the Securities and Exchange Commission as Exhibit
3.4 to the Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9, 2004 and
incorporated by reference herewith) |
|
3.5 |
|
|
Certificate of Incorporation of El Torito Restaurants, Inc., dated November 24, 1986 (Filed with the
Securities and Exchange Commission as Exhibit 3.25 to the Companys Registration Statement on Form
S-4 (File No. 333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.6 |
|
|
Bylaws of El Torito Restaurants, Inc., dated December 19, 1986 (Filed with the Securities and
Exchange Commission as Exhibit 3.6 to the Companys Registration Statement on Form S-4 (File No.
333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.7 |
|
|
Certificate of Incorporation of El Torito Franchising Company, dated August 16, 1996 (Filed with the
Securities and Exchange Commission as Exhibit 3.7 to the Companys Registration Statement on Form S-4
(File No. 333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.8 |
|
|
Bylaws of El Torito Franchising Company (Filed with the Securities and Exchange Commission as Exhibit
3.8 to Amendment No. 1 to the Companys Registration Statement on Form S-4 (File No. 333-116310) on
August 11, 2004 and incorporated by reference herewith) |
|
3.9 |
|
|
Articles of Incorporation of Acapulco Restaurant of Ventura, Inc., filed May 8, 1986 (Filed with the
Securities and Exchange Commission as Exhibit 3.9 to the Companys Registration Statement on Form S-4
(File No. 333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.10 |
|
|
Bylaws of Acapulco Restaurant of Ventura, Inc. (Filed with the Securities and Exchange Commission as
Exhibit 3.10 to the Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9,
2004 and incorporated by reference herewith) |
|
3.11 |
|
|
Amendment to Bylaws of Acapulco Restaurant of Ventura, Inc., dated June 7, 2004 (Filed with the
Securities and Exchange Commission as Exhibit 3.1 to the Companys Annual Report on Form 10-Q (File
No. 333-116310) on August 12, 2009 and incorporated by reference herewith) |
|
3.12 |
|
|
Articles of Incorporation of Acapulco Restaurant of Westwood, Inc., filed April 25, 1994 (Filed with
the Securities and Exchange Commission as Exhibit 3.11 to the Companys Registration Statement on
Form S-4 (File No. 333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.13 |
|
|
Bylaws of Acapulco Restaurant of Westwood, Inc. (Filed with the Securities and Exchange Commission as
Exhibit 3.12 to the Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9,
2004 and incorporated by reference herewith) |
|
3.14 |
|
|
Amendment to Bylaws of Acapulco Restaurant of Westwood, Inc., dated June 7, 2004 (Filed with the
Securities and Exchange Commission as Exhibit 3.2 to the Companys Annual Report on Form 10-Q (File
No. 333-116310) on August 12, 2009 and incorporated by reference herewith) |
|
3.15 |
|
|
Articles of Incorporation of Acapulco Restaurant of Downey, Inc., dated November 11, 1988 (Filed with
the Securities and Exchange Commission as Exhibit 3.13 to the Companys Registration Statement on
Form S-4 (File No. 333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.16 |
|
|
Bylaws of Acapulco Restaurant of Downey, Inc., dated October 4, 1985 (Filed with the Securities and
Exchange Commission as Exhibit 3.14 to the Companys Registration Statement on Form S-4 (File No.
333-116310) on June 9, 2004 and incorporated by reference herewith) |
68
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
|
3.17 |
|
|
Amendment to Bylaws of Acapulco Restaurant of Downey, Inc., dated June 7, 2004 (Filed with the
Securities and Exchange Commission as Exhibit 3.3 to the Companys Annual Report on Form 10-Q (File
No. 333-116310) on August 12, 2009 and incorporated by reference herewith) |
|
3.18 |
|
|
Articles of Incorporation of Murray Pacific, dated January 12, 1981 (Filed with the Securities and
Exchange Commission as Exhibit 3.15 to the Companys Registration Statement on Form S-4 (File No.
333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.19 |
|
|
Bylaws of Murray Pacific, dated October 23, 1985 (Filed with the Securities and Exchange Commission
as Exhibit 3.16 to the Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9,
2004 and incorporated by reference herewith) |
|
3.20 |
|
|
Amendment to Bylaws of Murray Pacific, dated June 7, 2004 (Filed with the Securities and Exchange
Commission as Exhibit 3.4 to the Companys Annual Report on Form 10-Q (File No. 333-116310) on August
12, 2009 and incorporated by reference herewith) |
|
3.21 |
|
|
Articles of Incorporation of Acapulco Restaurant of Moreno Valley, Inc., dated July 23, 1999 (Filed
with the Securities and Exchange Commission as Exhibit 3.19 to the Companys Registration Statement
on Form S-4 (File No. 333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.22 |
|
|
Bylaws of Acapulco Restaurant of Moreno Valley, Inc. (Filed with the Securities and Exchange
Commission as Exhibit 3.20 to the Companys Registration Statement on Form S-4 (File No. 333-116310)
on June 9, 2004 and incorporated by reference herewith) |
|
3.23 |
|
|
Amendment to Bylaws of Acapulco Restaurant of Moreno Valley, Inc., dated June 7, 2004 (Filed with the
Securities and Exchange Commission as Exhibit 3.5 to the Companys Annual Report on Form 10-Q (File
No. 333-116310) on August 12, 2009 and incorporated by reference herewith) |
|
3.24 |
|
|
Articles of Incorporation of El Paso Cantina, Inc., June 21, 1989 (Filed with the Securities and
Exchange Commission as Exhibit 3.21 to the Companys Registration Statement on Form S-4 (File No.
333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.25 |
|
|
Bylaws of El Paso Cantina, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.22 to
the Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9, 2004 and
incorporated by reference herewith) |
|
3.26 |
|
|
Articles of Incorporation of Real Mex Foods, Inc., dated January 15, 2003 (Filed with the Securities
and Exchange Commission as Exhibit 3.23 to the Companys Registration Statement on Form S-4 (File No.
333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.27 |
|
|
Amendment to Articles of Incorporation of Real Mex Foods, Inc., dated June 7, 2004 (Filed with the
Securities and Exchange Commission as Exhibit 3.6 to the Companys Annual Report on Form 10-Q (File
No. 333-116310) on August 12, 2009 and incorporated by reference herewith) |
|
3.28 |
|
|
Bylaws of Real Mex Foods, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.24 to
the Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9, 2004 and
incorporated by reference herewith) |
|
3.29 |
|
|
Amendment to Bylaws of Real Mex Foods, Inc., dated June 7, 2004 (Filed with the Securities and
Exchange Commission as Exhibit 3.7 to the Companys Annual Report on Form 10-Q (File No. 333-116310)
on August 12, 2009 and incorporated by reference herewith) |
|
3.30 |
|
|
Articles of Incorporation of TARV, Inc., dated November 24, 1986 (Filed with the Securities and
Exchange Commission as Exhibit 3.8 to the Companys Report on Form 10-Q (File No. 333-116310) on
August 12, 2009, and incorporated by reference herewith) |
|
3.31 |
|
|
Bylaws of TARV, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.26 to the
Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9, 2004 and incorporated
by reference herewith) |
|
3.32 |
|
|
Amendment to Bylaws of TARV, Inc., dated June 7, 2004 (Filed with the Securities and Exchange
Commission as Exhibit 3.9 to the Companys Annual Report on Form 10-Q (File No. 333-116310) on August
12, 2009 and incorporated by reference herewith) |
|
3.33 |
|
|
Articles of Incorporation of ALA Design, Inc., dated December 22, 1976 (Filed with the Securities and
Exchange Commission as Exhibit 3.27 to the Companys Registration Statement on Form S-4 (File No.
333-116310) on June 9, 2004 and incorporated by reference herewith) |
69
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
|
3.34 |
|
|
Amendment to Articles of Incorporation of ALA Design, Inc., dated June 7, 2004 (Filed with the
Securities and Exchange Commission as Exhibit 3.10 to the Companys Annual Report on Form 10-Q (File
No. 333-116310) on August 12, 2009 and incorporated by reference herewith) |
|
3.35 |
|
|
Bylaws of ALA Design, Inc. (Filed with the Securities and Exchange Commission as Exhibit 3.28 to the
Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9, 2004 and incorporated
by reference herewith) |
|
3.36 |
|
|
Amendment to Bylaws of ALA Design, Inc., dated June 7, 2004 (Filed with the Securities and Exchange
Commission as Exhibit 3.11 to the Companys Annual Report on Form 10-Q (File No. 333-116310) on
August 12, 2009 and incorporated by reference herewith) |
|
3.37 |
|
|
Articles of Incorporation of Acapulco Mark Corp., dated October 3, 1996 (Filed with the Securities
and Exchange Commission as Exhibit 3.29 to the Companys Registration Statement on Form S-4 (File No.
333-116310) on June 9, 2004 and incorporated by reference herewith) |
|
3.38 |
|
|
Bylaws of Acapulco Mark Corp. (Filed with the Securities and Exchange Commission as Exhibit 3.30 to
the Companys Registration Statement on Form S-4 (File No. 333-116310) on June 9, 2004 and
incorporated by reference herewith) |
|
3.39 |
|
|
Certificate of Incorporation of CKR Acquisition Corp., dated October 4, 2004 (Filed with the
Securities and Exchange Commission as Exhibit 3.31 to the Companys Annual Report on Form 10-K (File
No. 333-116310) on March 24, 2005 and incorporated by reference herewith) |
|
3.40 |
|
|
Bylaws of CKR Acquisition Corp. (Filed with the Securities and Exchange Commission as Exhibit 3.32 to
the Companys Annual Report on Form 10-K (File No. 333-116310) on March 24, 2005 and incorporated by
reference herewith) |
|
3.41 |
|
|
Articles of Formation of Chevys Restaurants, LLC, dated November 10, 2004 (formerly known as Chevys
Acquisition Company LLC) (Filed with the Securities and Exchange Commission as Exhibit 3.33 to the
Companys Annual Report on Form 10-K (File No. 333-116310) on March 24, 2005 and incorporated by
reference herewith) |
|
3.42 |
|
|
Operating Agreement of Chevys Restaurants, LLC, dated November 15, 2004 (formerly known as Chevys
Acquisition Company LLC) (Filed with the Securities and Exchange Commission as Exhibit 3.34 to the
Companys Annual Report on Form 10-K (File No. 333-116310) on March 24, 2005 and incorporated by
reference herewith) |
|
3.43 |
|
|
Amended and Restated Certificate of Incorporation of RM Restaurant Holding Corp. dated November 13,
2008. (Filed with the Securities and Exchange Commission as Exhibit 3.43 to the Companys
Registration Statement on Form S-4 (File No. 333-161605) on August 28, 2008 and incorporated by
reference herewith) |
|
3.44 |
|
|
Amended and Restated Bylaws of RM Restaurant Holding Corp. dated November 13, 2008 (Filed with the
Securities and Exchange Commission as Exhibit 3.44 to the Companys Registration Statement on Form
S-4 (File No. 333-161605) on August 28, 2008 and incorporated by reference herewith) |
|
3.45 |
|
|
Amendment to Amended and Restated Bylaws of RM Restaurant Holding Corp., dated November 13, 2008
(Filed with the Securities and Exchange Commission as Exhibit 3.45 to the Companys Registration
Statement on Form S-4 (File No. 333-161605) on August 28, 2008 and incorporated by reference
herewith) |
|
4.1 |
|
|
Indenture, dated as of July 7, 2009, among Real Mex Restaurants, Inc., the guarantors named therein
and Wells Fargo Bank, National Association., as trustee. (Filed with the Securities and Exchange
Commission as Exhibit 4.2 to the Companys Report on Form 8-K (File No. 333-116310) on July 8, 2009
and incorporated by reference herewith) |
|
4.2 |
|
|
First Supplemental Indenture, dated as of June 28, 2010, among Real Mex Restaurants, Inc., the
guarantors named therein and Wells Fargo Bank, National Association., as trustee (Filed with the
Securities and Exchange Commission as Exhibit 4.1 to the Companys Report on Form 8-K (File No.
333-116310) on June 28, 2010 and incorporated by reference herewith) |
|
10.1 |
|
|
Executive Employment Agreement, dated February 28, 2008 by and between Real Mex Restaurants, Inc. and
Steven Tanner (Filed with the Securities and Exchange Commission as Exhibit 10.2 to the Companys
Report on Form 8-K (File No. 333-116310) on March 5, 2008 and incorporated by reference herewith) |
|
10.2 |
|
|
Agreement and Plan of Merger, dated August 17, 2006 among Real Mex Restaurants, Inc., RM Restaurant
Holding Corp. and RM Integrated, Inc (Filed with the Securities and Exchange Commission as Exhibit
10.1 to the Companys Report on Form 8-K (File No. 333-116310) on August 23, 2006 and incorporated by
reference herewith) |
70
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
|
10.3 |
|
|
Second Amended and Restated Credit Agreement, dated July 7, 2009, by and among Real Mex Restaurants,
Inc., RM Restaurant Holding Corp., the lenders party thereto and Credit Suisse, Cayman Islands
Branch, as administrative agent, sole bookrunner and sole lead arranger (Filed with the Securities
and Exchange Commission as Exhibit 4.2 to the Companys Report on Form 8-K (File No. 333-116310) on
July 8, 2009 and incorporated by reference herewith) |
|
10.4 |
|
|
Amended and Restated Credit Agreement, dated January 29, 2007 (Filed with the Securities and Exchange
Commission as Exhibit 10.2 to the Companys Report on Form 8-K (File No. 333-116310) on February 2,
2007 and incorporated by reference herewith) |
|
10.5 |
|
|
Amendment No. 1 to Second Amended and Restated Credit Agreement Credit Agreement, dated on or about
August 2007 (Filed with the Securities and Exchange Commission as Exhibit 10.1 to the Companys
Report on Form 10-Q (File No. 333-116310) on August 12, 2009 and incorporated by reference herewith) |
|
10.6 |
|
|
Amendment No. 2 to Second Amended and Restated Credit Agreement dated April 17, 2008. (Filed with the
Securities and Exchange Commission as Exhibit 10.1 to the Companys Report on Form 8-K dated April
23, 2008 and incorporated by reference herewith) |
|
10.7 |
|
|
Limited Waiver, Consent and Amendment No. 3 to Second Amended and Restated Credit Agreement dated
November 13, 2008 (Filed with the Securities and Exchange Commission as Exhibit 10.2 to the Companys
Report on Form 10-Q (File No. 333-116310) on November 13, 2008 and incorporated by reference
herewith) |
|
10.8 |
|
|
Amendment No. 4 to Second Amended and Restated Revolving Credit Agreement, dated July 7, 2009, by and
among Real Mex Restaurants, Inc., the borrowers party thereto, the lenders party thereto and General
Electric Capital Corporation, as agent and administrative agent (Filed with the Securities and
Exchange Commission as Exhibit 4.2 to the Companys Report on Form 8-K (File No. 333-116310) on July
8, 2009 and incorporated by reference herewith) |
|
10.9 |
|
|
Amendment No. 5 to Second Amended and Restated Revolving Credit Agreement, dated April 2, 2010, by and
among Real Mex Restaurants, Inc., the borrowers party thereto, the lenders party thereto and General
Electric Capital Corporation, as agent and administrative agent (Filed with the Securities and
Exchange Commission as Exhibit 10.1 to the Companys Report on Form 8-K (File No. 333-116310) on
April 8, 2010 and incorporated by reference herewith) |
|
10.10 |
|
|
Executive Employment Agreement, dated May 27, 2009, by and between Real Mex Restaurants, Inc. and
Richard E. Rivera (Filed with the Securities and Exchange Commission as Exhibit 10.1 to the Companys
Report on Form 8-K (File No. 333-116310) on June 2, 2009 and incorporated by reference herewith) |
|
10.11 |
|
|
Offer letter dated March 17, 2010 by and between Real Mex Restaurants, Inc. and Richard Dutkiewicz.
(Filed with the Securities and Exchange Commission as Exhibit 10.1 to the Companys Report on Form
8-K (File No. 333-116310) on March 23, 2010 and incorporated by reference herewith) |
|
10.12 |
|
|
Registration Rights Agreement, dated July 7, 2009, by and among Real Mex Restaurants, Inc., the
guarantors party thereto and Jefferies & Company, Inc. (Filed with the Securities and Exchange
Commission as Exhibit 4.2 to the Companys Report on Form 8-K (File No. 333-116310) on July 8, 2009
and incorporated by reference herewith) |
|
10.13 |
|
|
Security Agreement, dated July 7, 2009, by Real Mex Restaurants, Inc. and the other grantors party
thereto in favor of Wells Fargo Bank, National Association, as collateral agent (Filed with the
Securities and Exchange Commission as Exhibit 4.2 to the Companys Report on Form 8-K (File No.
333-116310) on July 8, 2009 and incorporated by reference herewith) |
|
10.14 |
|
|
Stock Pledge Agreement, dated July 7, 2009, by Real Mex Restaurants, Inc. and the other grantors
party thereto in favor of Wells Fargo Bank, National Association, as collateral agent(Filed with the
Securities and Exchange Commission as Exhibit 4.2 to the Companys Report on Form 8-K (File No.
333-116310) on July 8, 2009 and incorporated by reference herewith) |
|
10.15 |
|
|
Membership Interest Pledge Agreement, dated July 7, 2009, by CKR Acquisition Corp. in favor of Wells
Fargo Bank, National Association, as collateral agent (Filed with the Securities and Exchange
Commission as Exhibit 4.2 to the Companys Report on Form 8-K (File No. 333-116310) on July 8, 2009
and incorporated by reference herewith) |
|
10.16 |
|
|
Trademark Collateral Security and Pledge Agreement, dated July 7, 2009, Real Mex Restaurants, Inc.
and the other assignors party thereto in favor of Wells Fargo Bank, National Association, as
collateral agent (Filed with the Securities and Exchange Commission as Exhibit 4.2 to the Companys
Report on Form 8-K (File No. 333-116310) on July 8, 2009 and incorporated by reference herewith) |
71
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
|
10.17 |
|
|
Credit Agreement, dated July 7, 2009, by and among RM Restaurant Holding Corp., the lenders named
therein and Wilmington Trust FSB, as administrative agent (Filed with the Securities and Exchange
Commission as Exhibit 10.17) to the Companys Registration Statement on Form S-4 (File No. 333-161605
) on August 28, 2008 and incorporated by reference herewith) |
|
10.18 |
|
|
Consent and First Amendment to Credit Agreement, dated as of June 28, 2010, among RM Restaurant
Holding Corp., a Delaware corporation, the lenders party thereto and Wilmington Trust FSB, as
administrative agent for the lenders (Filed with the Securities and Exchange Commission as Exhibit
10.1 to the Companys Report on Form 8-K (File No. 333-116310) on June 28, 2010 and incorporated by
reference herewith) |
|
10.19 |
|
|
2006 Stock Option Plan of RM Restaurant Holding Corp. (Filed with the Securities and Exchange
Commission as Exhibit 10.18 to the Companys Registration Statement on Form S-4 (File No. 333-161605
) on August 28, 2008 and incorporated by reference herewith) |
|
12.1 |
|
|
Computation of Ratio of Earnings to Fixed Charges. (Filed herewith) |
|
14.1 |
|
|
Code of Ethics adopted by the Company on February 7, 2007 (Filed with the Securities and Exchange
Commission as Exhibit 14.1 to the Companys Annual Report on Form 10-K on March 20, 2007 and
incorporated by reference herewith) |
|
21.1 |
|
|
Subsidiaries of the Company and the Additional Registrants. (Filed herewith) |
|
31.1 |
|
|
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of
the Principal Executive Officer. (Filed herewith) |
|
31.2 |
|
|
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934 of
the Principal Financial Officer. (Filed herewith) |
|
32.1 |
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, of the Principal Executive Officer. (Filed herewith) |
|
32.2 |
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, of the Principal Financial Officer. (Filed herewith) |
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
REAL MEX RESTAURANTS, INC.
|
|
|
By: |
/s/ Richard E. Rivera
|
|
|
|
Richard E. Rivera |
|
Date: March 24, 2011 |
|
Chief Executive Officer |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Richard E. Rivera |
|
|
|
|
|
|
|
|
|
Richard E. Rivera
|
|
Chief Executive Officer and Chairman
(Principal Executive Officer)
|
|
March 24, 2011 |
|
|
|
|
|
/s/ Richard P. Dutkiewicz |
|
|
|
|
|
|
|
|
|
Richard P. Dutkiewicz
|
|
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
|
|
March 24, 2011 |
|
|
|
|
|
/s/ Jeff Campbell |
|
|
|
|
|
|
|
|
|
Jeff Campbell
|
|
Director
|
|
March 24, 2011 |
|
|
|
|
|
/s/ Anthony DiLucente |
|
|
|
|
|
|
|
|
|
Anthony DiLucente
|
|
Director
|
|
March 24, 2011 |
|
|
|
|
|
/s/ Craig S. Miller |
|
|
|
|
|
|
|
|
|
Craig S. Miller
|
|
Director
|
|
March 24, 2011 |
|
|
|
|
|
/s/ Anthony Polazzi |
|
|
|
|
|
|
|
|
|
Anthony Polazzi
|
|
Director
|
|
March 24, 2011 |
|
|
|
|
|
/s/ R. Lynn Skillen |
|
|
|
|
|
|
|
|
|
R. Lynn Skillen
|
|
Director
|
|
March 24, 2011 |
|
|
|
|
|
/s/ Clarence E. Terry |
|
|
|
|
|
|
|
|
|
Clarence E. Terry
|
|
Director
|
|
March 24, 2011 |
73
EXHIBIT INDEX
|
|
|
|
|
EXHIBIT |
|
|
NO. |
|
DESCRIPTION |
|
12.1 |
|
|
Computation of Ratio of Earnings to Fixed Charges. (Filed herewith) |
|
21.1 |
|
|
Subsidiaries of the Company and the Additional Registrants. (Filed herewith) |
|
31.1 |
|
|
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 of the Principal Executive Officer. (Filed
herewith) |
|
31.2 |
|
|
Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934 of the Principal Financial Officer. (Filed
herewith) |
|
32.1 |
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Executive
Officer. (Filed herewith) |
|
32.2 |
|
|
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, of the Principal Financial
Officer. (Filed herewith) |
74