-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QVB8q2noj+ipdyYH2/1F8j7jkO1Xij4lGuACwOXlvgmsa9k8BwTATO6HSXFPPtCR Qgz1uF8IDK5EwAaPRiWMMA== 0000950144-96-005518.txt : 19960816 0000950144-96-005518.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950144-96-005518 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VOLUNTEER CAPITAL CORP / TN / CENTRAL INDEX KEY: 0000103884 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 620854056 STATE OF INCORPORATION: TN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08766 FILM NUMBER: 96613039 BUSINESS ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: P O BOX 24300 CITY: NASHVILLE STATE: TN ZIP: 37202 BUSINESS PHONE: 6152691900 MAIL ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: SUITE 260 CITY: NASHVILLE STATE: TN ZIP: 37202 FORMER COMPANY: FORMER CONFORMED NAME: WINNERS CORP DATE OF NAME CHANGE: 19890910 FORMER COMPANY: FORMER CONFORMED NAME: VOLUNTEER CAPITAL CORP DATE OF NAME CHANGE: 19820520 10-Q 1 VOLUNTEER CAPITAL CORPORATION FORM 10-Q 06-30-96 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION l3 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF l934 For quarterly period ended______________ June 30, 1996____________ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to________________________ Commission file number 1-8766 ------------------------------------------------------- VOLUNTEER CAPITAL CORPORATION --------------------------------------------------------------------- (Exact name of registrant as specified in its charter) TENNESSEE 62-0854056 ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202 ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (615) 269-1900 --------------------------------------------------------------------- (Registrant's telephone number, including area code) ______________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ ---- Common Stock Outstanding - 5,315,550 shares at August 12, 1996. Page 1 of 16 pages. Exhibit Index on page 16. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
JUNE 30 December 31 1996 l995 ---------- ------------ (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $1,639 $2,234 Short-term investments . . . . . . . . . . . . . . . . . . . . . . . - 505 Accounts and notes receivable, including current portion of direct financing leases . . . . . . . . . . . . . . . . . . . . . . . . . 307 313 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889 848 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 1,205 1,541 Prepaid expenses and other current assets . . . . . . . . . . . . . . 384 484 ------- ------ TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . 4,424 5,925 OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,129 1,091 PROPERTY AND EQUIPMENT, at cost, less allowances for depreciation and amortization of $21,421 and $20,661 at June 30, 1996, and December 31, 1995, respectively . . . . . . . . . . . . . . 56,329 46,915 DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 3,995 3,995 DEFERRED CHARGES, less amortization . . . . . . . . . . . . . . . . . . 2,436 2,214 ------- ------- $68,313 $60,140 ======= =======
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JUNE 30 December 31 1996 1995 ----------- ----------- (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $4,056 $ 3,704 Accrued expenses and other current liabilities . . . . . . . . . . 4,284 4,151 Current portion of long-term debt and obligations under capital leases . . . . . . . . . . . . . . . . . . . . . . 275 297 ------- ------- TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . 8,615 8,152 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, net of portion classified as current . . . . . . . . . . . 25,072 18,512 DEFERRED COMPENSATION AND OTHER DEFERRED CREDITS . . . . . . . . . . 592 501 STOCKHOLDERS' EQUITY Common Stock, par value $.05 per share: Authorized l0,000,000 shares; issued and outstanding 5,315,050 and 5,276,972 shares at June 30, 1996, and December 31, 1995, respectively . . . . . . . 266 264 Preferred Stock, no par value: Authorized 1,000,000 shares; none issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - - Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 29,425 29,199 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 5,371 4,540 ------- ------- 35,062 34,003 Note receivable - Employee Stock Ownership Plan . . . . . . . . . . . (1,028) (1,028) ------- ------- TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 34,034 32,975 COMMITMENTS AND CONTINGENCIES ------- ------- $68,313 $60,140 ======= =======
See notes to consolidated condensed financial statements. -3- 4 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six Months Ended Quarter Ended ---------------- ------------- JUNE 30 July 2 JUNE 30 July 2 1996 l995 1996 1995 ------- ------- ------- ------- Net sales . . . . . . . . . . . . . . . . . . . . $45,056 $38,105 $23,369 $20,005 Costs and expenses: Cost of sales . . . . . . . . . . . . . . . . . 15,687 13,279 8,041 7,016 Restaurant labor and related costs . . . . . . 13,424 11,194 6,955 5,817 Depreciation and amortization of restaurant property and equipment . . . . . . . . . . . 1,863 1,413 973 742 Royalties . . . . . . . . . . . . . . . . . . . 1,057 1,069 555 563 Other operating expenses . . . . . . . . . . . 7,000 5,528 3,612 2,927 ------- ------- ------- ------- Total restaurant operating expenses . . . . . 39,031 32,483 20,136 17,065 ------- ------- ------- ------- Income from restaurant operations . . . . . . . . 6,025 5,622 3,233 2,940 General and administrative expenses . . . . . . . 4,026 3,597 1,999 1,816 ------- ------- ------- ------- Operating income . . . . . . . . . . . . . . . . 1,999 2,025 1,234 1,124 ------- ------- ------- ------- Other income (expense): Interest expense . . . . . . . . . . . . . . . (745) (742) (378) (358) Interest income . . . . . . . . . . . . . . . . 26 376 9 170 Other, net . . . . . . . . . . . . . . . . . . (2) 87 (57) 58 ------- ------- ------- ------- Total other income (expense) . . . . . . . . (721) (279) (426) (130) ------- ------- ------- ------- Income before income taxes . . . . . . . . . . . 1,278 1,746 808 994 Income tax provision . . . . . . . . . . . . . . 447 145 283 81 ------- ------- ------- ------- Net income . . . . . . . . . . . . . . . . . . . $ 831 $ 1,601 $ 525 $ 913 ======= ======= ======= ======= Earnings per share: Primary . . . . . . . . . . . . . . . . . . . . $ .15 $ .30 $ .10 $ .17 ======= ======= ======= ======= Fully diluted . . . . . . . . . . . . . . . . . $ 15 $ .29 $ .10 $ .17 ======= ======= ======= ======= Weighted average number of shares: Primary . . . . . . . . . . . . . . . . . . . . 5,466 5,407 5,484 5,422 ======= ======= ======= ======= Fully diluted . . . . . . . . . . . . . . . . . 5,466 5,447 5,484 5,454 ======= ======= ======= =======
See notes to consolidated condensed financial statements. 4 5 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED IN THOUSANDS)
Six Months Ended ---------------------------- JUNE 30 July 2 1996 1995 -------- ------- Net cash provided by operating activities . . . . . . . . . . . . . . $3,249 $3,620 Net cash used by investing activities: Proceeds from maturities and sales of investments . . . . . . . . . 505 1,000 Purchase of investments . . . . . . . . . . . . . . . . . . . . . . - (985) Purchase of property and equipment . . . . . . . . . . . . . . . . (11,082) (8,644) Other investing activities . . . . . . . . . . . . . . . . . . . . (7) (64) ------- ------ (10,584) (8,693) Net cash provided (used) by financing activities: Payments on debt and obligations under capital leases . . . . . . . . (246) (225) Borrowings on line of credit . . . . . . . . . . . . . . . . . . . . 6,758 - Other financing activities . . . . . . . . . . . . . . . . . . . . . 228 80 ------- ------ 6,740 (145) Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . . . (595) (5,218) Cash and cash equivalents at beginning of period . . . . . . . . . . 2,234 14,802 ------- ------ Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . $1,639 $9,584 ====== ======
See notes to consolidated condensed financial statements. -5- 6 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made in the prior year's consolidated condensed financial statements to conform to the 1996 presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 1996, are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 1995. NOTE B - SALE OF WENDY'S OPERATIONS In July 1996, the Company signed a letter of intent to sell substantially all of its Wendy's franchised restaurant operations to Wendy's International, Inc. (WI) for $28.3 million in cash plus the assumption of capitalized lease obligations and long-term debt totalling approximately $2.5 million. Consummation of the transaction is subject to the negotiation and execution of a definitive purchase agreement and the fulfillment of customary closing conditions. Management estimates the transaction will generate net proceeds of approximately $24 million, a pre-tax gain of approximately $8-$10 million, and will close on or before October 31, 1996. Under terms of the letter of intent, WI will purchase 52 of the Company's 58 Wendy's restaurants. The Company will close or sell the remaining six restaurants. As of June 30, 1996, the property and equipment associated with the 58 units held for disposal had a net carrying value (historical cost less accumulated depreciation/amortization) of $19.0 million. Following the divestiture of the Wendy's restaurant operations, the operating revenues of the Company will be significantly reduced. The Wendy's division generated restaurant operating income of $3.5 million on sales of $26.4 million during the first six months of 1996 and operating income of $2.0 million on sales of $13.9 million during the second quarter of 1996. -6- 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS OVERVIEW Volunteer Capital Corporation operated 58 franchised Wendy's Old Fashioned Hamburgers restaurants and ten proprietary J. Alexander's full-service, casual dining restaurants at June 30, 1996. In July 1996, the Company entered into a letter of intent to sell substantially all of its Wendy's restaurant operations as is more fully discussed under "Liquidity and Capital Resources". Income before income taxes decreased by $468,000 (26.8%) for the first six months of 1996 and by $186,000 (18.7%) for the second quarter of 1996 as compared to the same periods of the previous year. Restaurant operating income in the J. Alexander's division increased by $853,000 and $389,000 for the six months and quarter ended June 30, 1996, as compared to the 1995 periods, more than offsetting decreases of $450,000 and $96,000 in the Wendy's division during the same periods. The resulting increases in income from restaurant operations were more than offset, however, by other items consisting primarily of decreases in interest income and increases in general and administrative expenses. Net income decreased by $770,000 (48.1%) and $388,000 (42.5%) for the first six months and second quarter of 1996, as compared to the same periods in the previous year. Due to the Company's having recognized all of its deferred tax assets in the fourth quarter of 1995, earnings for both of the 1996 periods were taxed at an effective rate of 35%, as compared with effective rates of 8.3% and 8.1% in the 1995 periods. WENDY'S RESTAURANT OPERATIONS Results of the Wendy's restaurant operations before allocation of other income, general and administrative expenses and net interest expense for the six months and second quarters ended June 30, 1996, and July 2, 1995, were as follows:
Six Months Ended JUNE 30, 1996 July 2,1995 --------------------------- ------------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales -------------- ----- -------------- ----- Net sales . . . . . . . . . . . . . . . . . . $26,410 100.0% $26,719 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . . . . 9,141 34.6 9,325 34.9 Labor and related costs . . . . . . . . . . 7,736 29.3 7,660 28.7 Depreciation and amortization of restaurant property and equipment . . . . . . . . . . 1,074 4.1 958 3.6 Royalties . . . . . . . . . . . . . . . . . 1,057 4.0 1,069 4.0 Other operating expenses . . . . . . . . . 3,880 14.7 3,735 14.0 ------- ---- ------- ----- 22,888 86.7 22,747 85.1 ------- ---- ------- ----- Restaurant operating income . . . . . . . . . $ 3,522 13.3% $ 3,972 14.9% ======= ==== ======= =====
-7- 8
Quarter Ended JUNE 30, 1996 July 2, 1995 ------------------------------ ---------------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales -------------- ----- -------------- ----- Net sales . . . . . . . . . . . . . . . . . . $13,871 100.0% $14,063 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . . . . . 4,736 34.1 4,921 35.0 Labor and related costs . . . . . . . . . . . 4,032 29.1 4,021 28.6 Depreciation and amortization of restaurant property and equipment . . . . . . . . . . . 559 4.0 500 3.6 Royalties . . . . . . . . . . . . . . . . . . 555 4.0 563 4.0 Other operating expenses . . . . . . . . . . 2,016 14.5 1,989 14.1 ------- ----- ------- ----- 11,898 85.8 11,994 85.3 ------- ----- ------- ----- Restaurant operating income . . . . . . . . . $ 1,973 14.2% $ 2,069 14.7% ======= ===== ======= =====
The Company operated 58 Wendy's restaurants at both June 30, 1996 and July 2, 1995. Total sales in the Wendy's division decreased 1.2% and 1.4% for the first half and second quarter of 1996 as compared to the same periods in 1995. Weighted average per unit sales of restaurants open for all of the first half and second quarter of both 1996 and 1995 decreased 4.8% and 3.6%, respectively, to $460,000 and $240,000 in the 1996 periods as compared to $483,000 and $249,000 in the 1995 periods. The Company estimates that menu prices, after considering promotional discounts, increased by approximately 6.5% and 4.0% during the first six months and second quarter of 1996, as compared to the same periods in 1995. Management believes that continued competition in the quick-service restaurant industry in general and intense retail price competition by other major hamburger chains in particular have continued to be the most significant factors adversely impacting weighted average sales per unit, continuing a trend that began in mid-1994. The Wendy's division results are directly affected by major competition among the big four hamburger chains (McDonald's, Burger King, Wendy's and Hardee's). The development of new Wendy's restaurants by other franchisees in certain of the Company's market areas, and to a lesser degree the opening of new restaurants by the Company near its existing restaurants, have also negatively affected the Company's sales in certain locations. Sales declines have been most pronounced in the Company's North and South Carolina markets, which represent 42 of its 58 Wendy's units. A number of programs and products have been targeted at these markets by the Company in an attempt to reverse the declining sales trends. In addition, the Company has completed major remodeling projects at a number of its restaurants and believes the remodeling program is essential to maintaining a strong competitive position in these markets. Management continues to believe that aggressive core product discounting is counterproductive because of its negative impact on margins. Although same store sales were down for the first half and second quarter of 1996, as compared to the same periods in 1995, the trend improved each period of the second quarter of 1996, and modest increases were realized during the months of June and July, 1996. Management attributes the improvement in same store sales to strong consumer acceptance of Wendy's Chicken Nugget product and the favorable impact of increased menu prices. -8- 9 Cost of sales, which includes the cost of food and paper supplies, decreased as a percentage of sales in the Wendy's division for the first half and second quarter of 1996 as compared to the same periods in 1995, as the impact of lower promotional discounting, combined with the favorable impact of decreased costs of ground beef and lettuce more than offset the increased cost of paper supplies. Restaurant labor and related costs increased as a percentage of net sales for the first half and second quarter of 1996 due to the effect of higher wages and the decline in weighted average sales per unit. Other operating expenses increased as a percentage of sales for the first half and second quarter of 1996 as compared to the same periods in the prior year, primarily because of increases in rent expense associated with new units developed in 1995 and the impact of the decline in same store sales. J. ALEXANDER'S RESTAURANT OPERATIONS The Company operated ten J. Alexander's restaurants at June 30, 1996 compared with six at July 2, 1995. The Company's eleventh J. Alexander's restaurant opened on July 22, 1996 in Plantation, Florida. J. Alexanders sales and operating income, before allocation of other income, general and administrative expenses and net interest expense, for the six months and second quarters ended June 30, 1996, and July 2, 1995, were as follows:
Six Months Ended JUNE 30, 1996 July 2,1995 -------------------------- -------------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales -------------- ------ -------------- ------ Net sales . . . . . . . . . . . . . . . . . . $18,646 100.0% $11,386 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . . . . 6,546 35.1 3,954 34.7 Labor and related costs . . . . . . . . . . 5,688 30.5 3,534 31.0 Depreciation and amortization of restaurant property and equipment . . . . . . . . . 789 4.2 455 4.0 Other operating expenses . . . . . . . . . 3,120 16.7 1,793 5.7 ------- ---- ------ ---- 16,143 86.6 9,736 85.5 ------- ---- ------ ---- Restaurant operating income . . . . . . . . . $ 2,503 13.4% $1,650 14.5% ======= ==== ====== ====
Quarter Ended JUNE 30, 1996 July 2,1995 -------------------------- --------------------------- AMOUNT % OF Amount % of (IN THOUSANDS) SALES (in thousands) Sales -------------- ------ --------------- ------- Net sales . . . . . . . . . . . . . . . . . . $9,498 100.0% $5,942 100.0% Restaurant costs and expenses: Cost of sales . . . . . . . . . . . . . . . 3,305 34.8 2,095 35.3 Labor and related costs . . . . . . . . . . 2,923 30.8 1,796 30.2 Depreciation and amortization of restaurant property and equipment . . . . . . . . . 414 4.4 242 4.1 Other operating expenses . . . . . . . . . 1,596 16.8 938 15.8 ------ ---- ----- ---- 8,238 86.7 5,071 85.3 ------ ---- ----- ---- Restaurant operating income . . . . . . . . $1,260 13.3% $ 871 14.7% ====== ==== ===== ====
-9- 10 Net sales for the J. Alexander's division increased 64% and 60% in the first half and second quarter of 1996 compared to the same periods of 1995, due primarily to the opening of new restaurants. In addition, same store sales, which include comparable sales for all restaurants open for more than 12 months, averaged $82,100 and $82,000 per week during the first six months and second quarter of 1996, reflecting increases of 8.0% and 7.6% from the $76,000 and $76,200 per week during the same periods of the previous year. The Company estimates that menu prices increased approximately 5.3% and 5.9% in the first half and second quarter of 1996, as compared to the corresponding periods in 1995, and believes that the sales increases noted above reflect the continued acceptance and recognition by consumers of the high level of food quality and service which J. Alexander's provides its guests. Cost of sales, combined with restaurant labor and related costs and other operating expenses, decreased as a percentage of sales during the first half and second quarter of 1996 as compared to the same periods of the prior year for the Company's same store base of restaurants. Restaurant operating margins for the six restaurants in the same store base improved to 16.9% in the first half of 1996 from 14.8% in the 1995 period, and to 17.3% in the second quarter of 1996 from 14.7% in the corresponding period of 1995. On a consolidated basis, however, because of the slow building nature of sales for the Company's new restaurants, restaurant operating income decreased, as anticipated, to 13.4% for the six months ended June 30, 1996 as compared to 14.5% during the corresponding period of the previous year and to 13.3% for the second quarter of 1996 as compared to 14.7% in the 1995 quarter. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, which have been reclassified to include all costs above the restaurant level for both operating divisions as well as pre-opening amortization expense, totaled 8.9% and 8.6% of net sales for the first half and second quarter of 1996, as compared to 9.4% and 9.1% of net sales during the same periods of the prior year, primarily reflecting efficiencies achieved at higher sales levels. OTHER EXPENSE Other expense increased during the first half and second quarter of 1996 as compared to the same periods of 1995, primarily due to decreased interest income resulting from decreased investment balances as funds have been utilized for new restaurant development. Other, net also decreased in both periods due to the write off of certain fixed assets in connection with remodeling projects in both divisions. INCOME TAXES Under the provisions of Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," the Company has significant deferred tax assets at June 30, 1996 relating primarily to approximately $9 million of net operating loss carryforwards and $2 million of tax credit carryforwards available to reduce future federal income taxes. Realization of the deferred tax assets is dependent principally on future earnings. Prior to 1995, a vaulation allowance reflecting the uncertainties associated with future earnings was established. Since December 31, 1995, no such allowance has been deemed necessary. -10- 11 As a result of utilization of its net operating loss carryforwards, the Company has not historically provided for or paid federal or state income taxes that approximate statutory rates. Due to the Company's recognition of all of its deferred tax assets in the fourth quarter of 1995, earnings for the six months and quarter ended June 30, 1996 were taxed at an effective rate of 35% as compared with effective tax rates of 8.3% and 8.1% during the first six months and second quarter of 1995. LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities represents a primary source of liquidity for the Company and is also expected to be a resource for meeting future capital needs. The Company's cash flow from operations totaled $3,249,000 during the first half of 1996, a decrease of $371,000 as compared to the corresponding period in 1995. The Company's primary investing activity has historically been capital expenditures for the development and maintenance of its restaurants. Capital expenditures totaled $11,440,000 during the first half of 1996. In the Wendy's division, capital expenditures of $1,521,000 included facilities upgrades and miscellaneous equipment replacements. Capital expenditures for J. Alexander's restaurants were $9,740,000 and consisted primarily of development costs for new restaurants in Cleveland, Ohio; Plantation, Florida; Troy, Michigan; and Chattanooga and Memphis, Tennessee. Management expects the primary needs for capital resources in the future will be for the development of new J. Alexander's restaurants and for the maintenance of existing restaurants. Management may also consider acquisitions of additional restaurants similar to J. Alexander's. The Company's planned capital expenditures for 1996 total approximately $21,000,000. The Company's eleventh J. Alexander's restaurant opened July 22, 1996 in Plantation, Florida and management anticipates opening additional units in Troy, Michigan; Chattanooga, Tennessee; and Memphis, Tennessee during the remainder of 1996. The Troy and Chattanooga units are scheduled to open during the third quarter, while the Memphis restaurant is expected to open in the fourth quarter. The initial cost of developing new J. Alexander's restaurants, including the cost of land, has ranged from $2,300,000 to $3,900,000, excluding pre-opening costs. While the cost of land has been a significant variable in development cost, costs related to site preparation and buildings have also varied considerably. Management is presently developing additional building images for J. Alexander's and expects that the cost of additional new units, including the cost of land, will be within the range of $3,000,000 to $3,800,000. The initial capital investment required for opening a new J. Alexander's restaurant is significantly lower, however, when property is leased rather than purchased. Management estimates that pre-opening costs will be approximately $250,000 for each restaurant. The Company does not have significant capital needs for purposes other than restaurant development. Maturities of long-term debt through 1997 are relatively small because the Company has previously purchased in the market a sufficient amount of its convertible subordinated debentures to meet sinking fund requirements on that issue through that date. Even though working capital showed a deficit of $4,191,000 at June 30, 1996, requirements for funding accounts receivable and inventories are relatively small and the Company does not have significant working capital needs. The Company obtained a $30,000,000 line of credit during the third quarter of 1995 and began using a portion of this line to fund restaurant development during the first quarter of 1996. The balance on the line at June 30, 1996 was $6,758,000. -11- 12 In July 1996, the Company signed a letter of intent to sell substantially all of its Wendy's franchised restaurant operations to Wendy's International, Inc. (WI) for $28.3 million in cash plus the assumption of capitalized lease obligations and long-term debt totalling approximately $2.5 million. Consummation of the transaction is subject to the negotiation and execution of a definitive purchase agreement and the fulfillment of customary closing conditions and is expected to close on or before October 31, 1996. Under terms of the letter of intent, WI will purchase 52 of the Company's 58 Wendy's restaurants. The Company will close or sell the remaining six restaurants. As of June 30, 1996, the property and equipment associated with the 58 units held for disposal had a net carrying value (historical cost less accumulated depreciation/amortization) of $19.0 million, which will result in an estimated $8 - $10 million pre-tax gain on consummation of the sale. Following the divestiture of the Wendy's restaurant operations, the operating revenues of the Company will be significantly reduced. The Wendy's division generated restaurant operating income of $3.5 million on sales of $26.4 million during the first six months of 1996 and operating income of $2.0 million on sales of $13.9 million during the second quarter of 1996. The net proceeds from the sale of the Wendy's restaurant operations are expected to total approximately $24 million. The Company expects to use a portion of the net proceeds to pay all amounts outstanding under its bank line of credit agreement ($7.7 million at August 12, 1996). The balance of the proceeds will be available to fund continued development of its J. Alexander's restaurants. In order to continue to borrow under the line of credit agreement, it will be necessary for the Company to renegotiate certain covenants made in the agreement. Management believes that it will be successful in these negotiations and intends to maintain the current credit line for use in funding a portion of the Company's development plan. Should these negotiations not be successful, management believes that it will be able to replace the credit line on terms satisfactory to the Company. The Company believes that the net proceeds from the divestiture of its Wendy's restaurant operations, together with cash flow from operations and available borrowing capacity, will be sufficient to fund the development of its J. Alexander's restaurants through the latter part of 1998. -12- 13 Volunteer Capital Corporation and Subsidiaries EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
Six Months Ended Quarter Ended ------------------------ ----------------------- JUNE 30 July 2 JUNE 30 July 2 1996 1995 1996 1995 ---------- ---------- ---------- ---------- Earnings per common and dilutive common equivalent share Net income . . . . . . . . . . . . . . . . . . . . . $ 831,000 $1,601,000 $ 525,000 $ 913,000 ========== ========== ========== ========== Adjustment of shares outstanding: Actual weighted average shares outstanding . . . . . . . . . . . . . . . . . . . 5,288,000 5,254,000 5,299,000 5,261,000 Net additional shares issuable, based on the treasury stock method . . . . . . . . . . . 178,000 153,000 185,000 161,000 ---------- ---------- ---------- ---------- Adjusted shares outstanding . . . . . . . . . . . . 5,466,000 5,407,000 5,484,000 5,422,000 ========== ========== ========== ========== Per share amount . . . . . . . . . . . . . . . . . . $ .15 $ .30 $ .10 $.17 ========== ========== ========== ========== Earnings per common share, assuming full dilution Net income . . . . . . . . . . . . . . . . . . . . . $ 831,000 $1,601,000 $ 525,000 $ 913,000 ========== ========== ========== ========== Adjustment of shares outstanding: Actual weighted average shares outstanding . . . . . . . . . . . . . . . . . . . 5,288,000 5,254,000 5,299,000 5,261,000 Net additional shares issuable, based on the treasury stock method . . . . . . . . 178,000 193,000 185,000 193,000 ---------- ---------- ---------- ---------- Adjusted shares outstanding . . . . . . . . . . . . 5,466,000 5,447,000 5,484,000 5,454,000 ========== ========== ========== ========== Per share amount . . . . . . . . . . . . . . . . . . $ .15 $ .29 $ .10 $ .17 ========== ========== ========== ==========
Note: The computations of earnings per common and dilutive common equivalent share and earnings per common share, assuming full dilution, are based on the weighted average number of common shares outstanding each period after considering the effect of stock options using the treasury stock method. Shares issuable upon the conversion of convertible subordinated debentures have not been included as the effect of their inclusion would be antidilutive. -13- 14 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit (11) Computation of Earnings Per Share is filed with Part I of this Form 10-Q. Exhibit (27) Financial Data Schedule (for SEC use only) (b) No reports on Form 8-K were filed for the quarter ended June 30, 1996. -14- 15 SIGNATURES Pursuant to the requirements 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. VOLUNTEER CAPITAL CORPORATION /s/ Lonnie J. Stout II ----------------------------------------------- Lonnie J. Stout II Chairman, President and Chief Executive Officer /s/ R. Gregory Lewis ----------------------------------------------- R. Gregory Lewis Vice-President and Chief Financial Officer Date: August 14, 1996 -15- 16 VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS
Exhibit No. Page No. - ----------- -------- (11) Computation of Earnings per Share 13 (27) Financial Data Schedule (For SEC Use Only)
-16- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-29-1996 JAN-01-1996 JUN-30-1996 1,639 0 307 0 889 4,424 77,750 21,421 68,313 8,615 25,072 0 0 266 33,768 68,313 45,056 45,056 15,687 29,111 9,920 0 745 1,278 447 831 0 0 0 831 .15 .15
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