-----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, C8EuW3354hQsisw+2s9Q0QzlD1F2fGFe79v51wn4FnitT+/JIlmxVuwLgTs7vdLC i24gG2poHWINTCVfkLCIEg== 0000899078-97-000027.txt : 19970225 0000899078-97-000027.hdr.sgml : 19970225 ACCESSION NUMBER: 0000899078-97-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961229 FILED AS OF DATE: 19970206 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPAGHETTI WAREHOUSE INC CENTRAL INDEX KEY: 0000775298 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 751393176 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10291 FILM NUMBER: 97519114 BUSINESS ADDRESS: STREET 1: 402 WEST I 30 CITY: GARLAND STATE: TX ZIP: 75043 BUSINESS PHONE: 2142266000 MAIL ADDRESS: STREET 1: 402 WEST I 30 CITY: GARLAND STATE: TX ZIP: 75043 FORMER COMPANY: FORMER CONFORMED NAME: OLD SPAGHETTI WAREHOUSE INC DATE OF NAME CHANGE: 19901113 10-Q 1 10-Q SPAGHETTI WAREHOUSE, INC. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended DECEMBER 29, 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: 1-10291 SPAGHETTI WAREHOUSE, INC. (Exact name of registrant as specified in its charter) TEXAS 75-1393176 (State or other jurisdiction of (IRS Employer Identification incorporation or organization) Number) 402 WEST I-30, GARLAND, TEXAS 75043 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 972/226-6000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of December 29, 1996: 5,681,490 SHARES OF COMMON STOCK, PAR VALUE $.01. PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES Consolidated Balance Sheets
ASSETS 6/30/96 12/29/96 (Unaudited) Current assets: Cash and cash equivalents.................................................... $ 8,065,364 $ 2,025,660 Accounts receivable.......................................................... 659,069 484,411 Inventories.................................................................. 686,995 641,320 Income taxes receivable...................................................... 399,764 303,339 Prepaid expenses............................................................. 341,711 198,143 -------------- --------------- Total current assets.................................................. 10,152,903 3,652,873 -------------- --------------- Property and equipment, net....................................................... 49,893,172 47,491,682 Assets scheduled for divestiture.................................................. 1,525,000 250,000 Trademark and franchise rights, net............................................... 3,113,472 3,033,563 Deferred income taxes............................................................. 5,735,128 4,708,051 Other assets...................................................................... 948,514 832,036 -------------- --------------- $ 71,368,189 $ 59,968,205 ============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt............................................ $ 6,878,358 $ 1,970,836 Accounts payable............................................................. 1,932,648 2,070,807 Accrued payroll and bonuses.................................................. 1,450,812 1,016,343 Other accrued liabilities.................................................... 1,487,488 1,382,017 Accrued restructuring charges................................................ 1,310,540 126,425 Deferred income taxes........................................................ 98,368 11,001 -------------- --------------- Total current liabilities............................................. 13,158,214 6,577,429 -------------- --------------- Long-term debt, less current portion.............................................. 12,883,642 8,390,644 Deferred compensation............................................................. 75,875 111,742 Commitments and contingencies..................................................... - - Stockholders' equity: Preferred stock of $1.00 par value; authorized 1,000,000 shares; no shares issued...................................................... - - Common stock of $.01 par value; authorized 20,000,000 shares; issued 6,475,375 shares at 6/30/96 and 6,526,973 shares at 12/29/96... 64,754 65,270 Additional paid-in capital........................................................ 36,012,761 36,244,056 Cumulative translation adjustment................................................. (550,642) (572,622) Retained earnings................................................................. 16,094,924 15,539,620 -------------- --------------- 51,621,797 51,276,324 Less cost of 842,252 shares at 6/30/96 and 845,483 shares at 12/29/96 of common stock held in treasury......................................... (6,371,339) (6,387,934) -------------- --------------- 45,250,458 44,888,390 ============== =============== $ 71,368,189 $ 59,968,205 ============== ===============
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
26-Week Period 26-Week Period 13-Week Period 13-Week Period Ended 12/31/95 Ended 12/29/96 Ended 12/31/95 Ended 12/29/96 Revenues: Restaurant sales..................................... $ 36,065,655 $ 31,921,962 $ 17,480,555 $ 15,343,895 Franchise............................................ 325,195 490,238 130,142 155,216 Other................................................ 266,224 286,852 127,395 143,413 --------------- ------------ --------------- ---------------- Total revenues.................................. 36,657,074 32,699,052 17,738,092 15,642,524 --------------- ------------ --------------- ---------------- Costs and expenses: Cost of sales........................................ 9,028,801 8,456,422 4,458,222 4,094,652 Operating expenses................................... 21,515,936 18,607,370 10,701,115 9,033,607 General and administrative........................... 3,053,075 2,656,557 1,568,297 1,275,820 Depreciation and amortization........................ 2,559,585 2,035,068 1,274,183 999,148 Reversal of restructuring charges.................... - (400,000) - (400,000) Impairment of long-lived assets.............. ... - 1,759,526 - - --------------- ------------ --------------- ---------------- Total costs and expenses..................... 36,157,397 33,114,943 18,001,817 15,003,227 --------------- ------------ --------------- ---------------- Income (loss) from operations........................... 499,677 (415,891) (263,725) 639,297 Net interest expense........................................ 514,698 419,404 264,380 182,640 --------------- ------------ --------------- ---------------- Income (loss) before income tax expense (benefit)...... (15,021) (835,295) (528,105) 456,657 Income tax expense (benefit)........................... (57,997) (279,991) (142,960) 181,690 --------------- ------------ --------------- ---------------- Net income (loss)....................................... $ 42,976 $ (555,304) $ (385,145) $ 274,967 ============================= =============== ================ Net income (loss) per common share: Primary........................................... $ .01 ($ .10) ($ .07) $ .05 ===== ===== ====== ===== Fully diluted..................................... $ .01 ($ .10) ($ .07) $ .05 ===== ===== ====== ===== Weighted average common and common share equivalents outstanding: Primary........................................... 5,689,296 5,640,641 5,597,590 5,764,543 Fully diluted..................................... 5,689,296 5,640,641 5,597,590 5,764,543
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
26-Week Periods Ended 12/31/95 12/29/96 Cash flows from operating activities: Net income (loss)....................................................... $ 42,976 $ (555,304) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization expense............................ 2,559,585 2,035,068 Reversal of restructuring charges................................ - (400,000) Impairment of long-lived assets.................................. - 1,759,526 Loss on disposal of property and equipment....................... 143,236 2,233 Deferred income taxes............................................ (48,744) 939,897 Other, net....................................................... 52,815 57,211 Changes in assets and liabilities: Accounts receivable.......................................... (236,150) 174,513 Inventories.................................................. (124,851) 45,675 Income taxes receivable...................................... (185,483) 106,895 Prepaid expenses............................................. (64,002) 143,568 Other assets................................................. (250,079) (84,356) Accounts payable............................................. 182,497 127,853 Accrued payroll and bonuses.................................. (587,654) (434,469) Other accrued liabilities.................................... 51,802 (105,471) Accrued restructuring charges................................ - (80,800) ------------- ------------- Net cash provided by operating activities................ 1,535,948 3,732,039 ------------- ------------- Cash flows from investing activities: Purchase of property and equipment...................................... (2,589,806) (1,223,076) Proceeds from sales of property and equipment........................... 159,369 660,539 Collection of notes receivable.......................................... 6,092 - ------------- ------------- Net cash used in investing activities.................... (2,424,345) (562,537) ------------- ------------- Cash flows from financing activities: Net borrowings from (payments on) long-term debt........................ 4,232,000 (9,400,520) Purchase of treasury shares............................................. (142,776) (16,595) Proceeds from employee stock plans...................................... 234,636 213,811 ------------- ------------- Net cash provided by (used in) financing activities...... 4,323,860 (9,203,304) ------------- ------------- Effects of exchange rate changes on cash and cash equivalents................ (2,242) (5,902) ------------- ------------- Net increase (decrease) in cash and cash equivalents......................... 3,433,221 (6,039,704) Cash and cash equivalents at beginning of period............................. 1,872,919 8,065,364 ------------- ------------- Cash and cash equivalents at end of period................................... $ 5,306,140 $ 2,025,660 ============= ============= Supplemental information: Interest paid........................................................... $ 550,766 $ 738,864 ============= ============= Income taxes paid (net of refunds collected)............................ $ 194,425 $ (1,316,126) ============= =============
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments necessary for a fair presentation of the consolidated financial position as of December 29, 1996 and the consolidated results of operations and cash flows for the 26-week and 13-week periods ended December 29, 1996 and December 31, 1995. The condensed consolidated statement of operations for the 26-week and 13-week period ended December 29, 1996 are not necessarily indicative of the results to be expected for the full fiscal year. 2. Accounting Policies During the interim periods the Company follows the accounting policies set forth in its consolidated financial statements in its Annual Report (Form 10-K) (File No.1-10291). Reference should be made to such financial statements for information on such accounting policies and further financial details. 3. New Financial Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued Statement No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, goodwill related to assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Company elected to adopt SFAS 121 in the first quarter of fiscal 1997. Adoption of SFAS 121 requires the Company to review its long-lived assets and certain identifiable intangibles to be held and used for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. As a result of applying provisions of SFAS 121, the Company groups and evaluates its assets for impairment at the individual restaurant level. The Company considers each restaurant's historical operating losses a primary indicator of potential impairment. The Company deems a restaurant's assets to be impaired if a forecast of undiscounted future cash flows directly related to the assets, including disposal value, if any, is less than their carrying amount. If a restaurant's assets are deemed to be impaired, the loss is measured as the amount by which the carrying amount of the assets exceeds their estimated fair market value based on quoted market prices for similar assets. The Company recorded a pre-tax non-cash charge of $1,759,526 during the first quarter of fiscal 1997 as a result of adopting SFAS 121. The charge relates to the write-down of the Company's Cappellini's restaurant in Addison, Texas to its estimated fair market value. 4. Restructuring Charges In the third quarter of fiscal 1996, the Company implemented a restructuring plan intended to strengthen its competitive position and improve cash flow and profitability. In conjunction with the plan, the Company closed seven under-performing restaurants in February 1996 and identified one additional restaurant to be sold as an operating unit. The Company recorded a pre-tax charge of $13.9 million in the third quarter of fiscal 1996 to cover costs related to the execution of this plan, including the write-down of property and equipment to its estimated net realizable value, severance packages, and various other store closing and corporate obligations. As a result of obtaining more favorable disposal terms on the seven restaurant properties closed in the restructuring plan, total costs relating to this plan will be less than the previously recorded charge. Therefore, the Company reversed $400,000 in pre-tax restructuring charges in the second quarter of fiscal 1997. 5. Subsequent Event Due to poor operating results, the Company closed its Cappellini's restaurant location in Addison, Texas on December 31, 1996. Prior to its closing, Cappellini's posted a pre-tax operating loss of $171,000 during the first six months of fiscal 1997. 6. Commitments & Contingencies As discussed in the Company's Form 10-K for the fiscal year ended June 30, 1996, Bright-Kaplan International Corporation ("BK"), submitted a claim against the Company to the American Arbitration Association ("AAA") in Dallas, Texas. BK is the owner of the previous Spaghetti Warehouse franchise restaurant located in Knoxville, Tennessee. BK claimed that the Company misrepresented and concealed numerous material facts in order to induce BK to enter into a franchise agreement, failed to provide a variety of services in support of BK's franchise, engaged in deceptive trade practices and violated Federal Trade Commission disclosure rules. BK was seeking damages in excess of $9.0 million. On January 8, 1997 the AAA informed the Company that it has no liability with regard to any claims made by BK. All AAA arbitration expenses were awarded in favor of the Company. The Company will seek the dismissal of a lawsuit previously filed by Elizabeth Bright and Thomas C. Bright, the principal shareholders of BK, in the circuit court of Hamilton County, Tennessee on August 11, 1995. The lawsuit contains essentially the same claims as were submitted to the AAA. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table presents expenses as a percentage of total revenues for certain selected financial data included in the Condensed Consolidated Statements of Operations.
26-Week 13-Week Periods Ended Periods Ended 12/31/95 12/29/96 12/31/95 12/29/96 Revenues .......................................... 100.0% 100.0% 100.0% 100.0% -------- -------- ------- ------- Costs and expenses: Cost of sales................................ 24.6 25.9 25.1 26.2 Operating expenses........................... 58.7 56.9 60.3 57.8 General and administrative expenses.......... 8.3 8.1 8.9 8.1 Depreciation and amortization................ 7.0 6.2 7.2 6.4 Reversal of restructuring charges............ 0.0 (1.2) 0.0 (2.6) Impairment of long-lived assets.............. 0.0 5.4 0.0 0.0 -------- -------- ------- ------- Total costs and expenses........... 98.6 101.3 101.5 95.9 -------- -------- ------- ------- Income (loss) from operations...................... 1.4 (1.3) (1.5) 4.1 Net interest expense............................... 1.4 1.3 1.5 1.2 -------- -------- ------- ------- Income (loss) before income taxes.................. 0.0 (2.6) (3.0) 2.9 Income tax expense (benefit)....................... (0.1) (0.9) (0.8) 1.1 -------- -------- ------- ------- Net income (loss).................................. 0.1% (1.7%) (2.2%) 1.8% ======== ======== ======= =======
Results of Operations Revenues Revenues decreased $2.1 million, or 11.8%, during the quarter ended December 29, 1996 in comparison to the same quarter in the preceding year. This decrease in revenues was due primarily to the closure of seven under-performing stores in February 1996 and the sale of the Company's Richmond, Virginia location to a franchisee in September 1996. Same-store sales (stores open the full quarter in both fiscal years) decreased 0.2% during the second quarter. Second quarter same-store sales were adversely impacted by New Year's Eve falling in the second quarter of fiscal 1996, but in the third quarter of the current fiscal year. The decrease in same-store sales was also the result of a 3.2% decrease in customer counts offset by a 3.1% check average increase. Revenues for the six months ended December 29, 1996 decreased $4.0 million, or 10.8%, compared to the same period last year. The decrease was due to the reduction in the number of restaurants in comparison to last year as mentioned above. Same-store sales for the first half of fiscal 1997 actually increased 0.4% compared to the same period last year. Additionally, franchise income increased $165,043 in comparison to fiscal 1996, due primarily to fees associated with the sale of the Company's Richmond, Virginia restaurant and an exclusive territory agreement to the Company's Virginia franchisee. The six-month increase in same-store sales was the result of a 3.2% increase in check average, partially offset by a 2.7% decrease in customer counts. Management attributes the increase in check averages to new menu items introduced over the past year, modest price increases and to increased check averages in the Company's repositioned "Spaghetti Warehouse Italian Grill" (Italian Grill) units. Sales for the 26-week period ended December 29, 1996 in the Company's seven Italian Grill units, during the periods operating under the Italian Grill format in the current year, increased 9.3% over comparable periods in the prior year. Same-store sales in the Company's traditional Spaghetti Warehouse concept declined 1.1% during the first six months of fiscal 1997. Costs and Expenses Cost of Sales Cost of sales as a percentage of total revenues were 26.2% for the current quarter as compared to 25.1% for the same quarter last year. For the first six months of fiscal 1997, cost of sales as a percentage of revenues were 25.9% as compared to 24.6% during the same period last year. The current year increases are due to higher food costs at the Company's Italian Grill and Cappellini's restaurants, and to higher commodity prices on certain meat, pasta and dairy products. Management anticipates that cost of sales as a percentage of revenues will continue to exceed prior year levels as additional Spaghetti Warehouse units are converted to the Italian Grill format. Operating Expenses Operating expenses as a percentage of total revenues were 57.8% for the current quarter as compared to 60.3% for the same quarter last year. Much of this decrease is due to the closure of the seven low-volume units in February 1996, most which incurred higher operating expenses as a percentage of revenues than the typical Company restaurant. In addition, decreased marketing expenditures, property taxes and occupancy costs contributed to the current year decline in operating expenses. For the first half of fiscal 1997, operating expenses as a percentage of revenues were 56.9% as compared to 58.7% in the same period last year. The six-month decline in operating expenses as a percentage of revenues was due primarily to the same factors as mentioned above. General and Administrative Expenses (G&A) G&A expenses as a percentage of total revenues were 8.1% for the current quarter as compared to 8.9% for the same quarter last year. In addition to the prior year non-cash write-off of certain capitalized costs to G&A, current year decreases in research and development costs and professional fees contributed to the decrease in G&A as a percentage of revenues. For the first half of fiscal 1997, G&A expenses were 8.1% of total revenues as compared to 8.3% for the first half of the prior year. This decrease is primarily attributable to a decrease in compensation costs, resulting from the elimination of several corporate positions, and to the non-cash write-offs in the prior year mentioned above. Depreciation and Amortization (D&A) D&A as a percentage of total revenues were 6.4% for the current quarter as compared to 7.2% for the same quarter last year. For the six months ended December 29, 1996, D&A as a percentage of revenues were 6.2% compared to the 7.0% for the same period last year. This reduction was the result of the elimination of depreciation expense on the seven low-volume units closed in February 1996. Reversal of Restructuring Charges As a result of obtaining more favorable disposal terms on the seven restaurant properties closed in the February 1996 restructuring plan, total costs relating to this plan will be less than the $13.9 million charge recorded in the third quarter of fiscal 1996. As a result, the Company reversed $400,000 in pre-tax restructuring charges in the second quarter of fiscal 1997. See Note 4 of Notes to Condensed Consolidated Financial Statements for further information. Impairment of Long-Lived Assets The Company adopted Financial Accounting Standards Board Statement No. 121 during the first quarter of fiscal 1997 resulting in a pre-tax, non-cash impairment charge of $1,759,526. This charge related to the write-down of the Company's Cappellini's restaurant in Addison, Texas to its estimated fair market value. See Note 3 of Notes to Condensed Consolidated Financial Statements for further information. Net Interest Expense The Company incurred net interest expense of $182,640 during the current quarter compared to $264,380 during the same quarter last year. For the six months ended December 29, 1996, net interest expense was $419,404 compared to $514,698 in the same period last year. These current year decreases are attributed to decreases in average debt outstanding under the Company's credit facilities in comparison to the same periods last year. Income Taxes The Company's effective tax rate increased from a 27.1% benefit in the second quarter of fiscal 1996 to a 39.8% provision in the current year. The prior year rate was below statutory rates due to various costs which were not includable in the calculation of taxable income for tax purposes. As a result, the actual pre-tax loss reported in the second quarter of the prior year was greater than the calculated taxable loss for that period. For the six months ended December 29, 1996, the Company realized an income tax benefit of 33.5%. This benefit was below statutory rates due to the same reason as mentioned above. A Canadian income tax benefit and pre-tax loss for the six-month period ended December 31, 1995 resulted in an income tax benefit in the prior year. Liquidity and Capital Resources Due to a reduction in accrued restructuring charges and to the timing of period-end payments of salaries and wages, the Company's working capital deficit decreased from $3.0 million at June 30, 1996 to $2.9 million on December 29, 1996. The Company is currently operating with a working capital deficit, which is common in the restaurant industry since restaurant companies do not normally require significant investment in either accounts receivable or inventory. Net cash provided by operating activities was $3.7 million for the first half of fiscal 1997 compared to $1.5 million during the first half of fiscal 1996. Long-term debt outstanding on December 29, 1996 consisted of amounts borrowed under the Company's existing bank credit facility, including a $9.4 million fixed rate term loan and $1.0 million borrowed against its floating rate revolving credit facility. Subject to meeting a certain funded debt to cash flow requirement prior to borrowing any additional funds, the Company had an additional $4.0 million available under this revolving credit facility on December 29, 1996. Capital expenditures were $1.2 million for the 26-week period ended December 29, 1996 as compared to $2.6 million for the same period last year. Fiscal 1997 expenditures consisted primarily of the conversion of four Company restaurants to the Italian Grill format and normal purchases of new and replacement restaurant equipment and decor. In fiscal 1994, the Company's Board of Directors authorized a program for the repurchase of up to 1,000,000 shares of the Company's common stock for investment purposes. Including the 3,231 shares repurchased during the first six months of fiscal 1997, the Company has repurchased 784,183 shares of common stock under this program since its inception. Further repurchases with respect to this program are dependent upon various business and financial considerations. The Company continued its Italian Grill re-positioning strategy in the second quarter of fiscal 1997, converting its Willowbrook (Houston), Texas and Elk Grove Village, Illinois locations. Additionally, the Company's Virginia franchisee converted the Richmond, Virginia location to the Grill format in the second quarter and opened a new franchise Italian Grill location in Glen Allen, Virginia in January 1997. This updated version of the existing Spaghetti Warehouse concept features new decor, an expanded menu and even greater customer value. The menu was broadened to include grilled entrees, sauteed pastas, new sandwiches, appetizers and pizza. Additionally, traditional menu items were improved, and portion sizes increased to enhance the price/value relationship offered to customers. In addition to the seven Company-owned Italian Grill units in operation at the end of the second quarter, current plans call for conversion of an additional three units to the Italian Grill format during the second half of fiscal 1997. The Company closed its Cappellini's location in Addison, Texas on December 31, 1996. The Company's non-cash pre-tax charge of $1.8 million in the first quarter related to write-down of the Cappellini's restaurant to its estimated fair market value. Prior to its closing, Cappellini's posted a pre-tax operating loss of $171,000 for the first six months of fiscal 1997. In addition to the conversion of three additional units to the Italian Grill format during the remainder of fiscal 1997, the Company plans to continue to make necessary replacements and upgrades to its existing restaurants and information systems. Total planned capital expenditures relating to all projects during the next 12 months are approximately $2.5 million. Cash flow from operations, current cash balances and funds available under the Company's revolving credit facility are expected to be sufficient to fund planned capital expenditures, payment of required debt maturities under the Company's bank credit facility and possible further repurchases of Company stock for the next 12 months. Forward-Looking Information Statements contained in this Form 10-Q for the quarter ended December 29, 1996 that are not historical facts, including but not limited to, statements found in this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations, are forward-looking statements and involve a number of risks and uncertainties. The actual results of the future events described in such forward-looking statements in this Form 10-Q could differ materially from those stated in such forward-looking statements. Among the factors that could cause actual results to differ materially are: adverse conditions in the restaurant industry and other competitive factors, governmental regulation, pending and possible future litigation, seasonality of business, loss of material suppliers or increases in the costs of raw materials used in the Company's food products, termination of key franchise and/or license agreements, as well as the risks and uncertainties discussed elsewhere in this form 10-Q. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As discussed in the Company's Form 10-K for the fiscal year ended June 30, 1996, Bright-Kaplan International Corporation ("BK"), submitted a claim against the Company to the American Arbitration Association ("AAA") in Dallas, Texas. BK is the owner of the previous Spaghetti Warehouse franchise restaurant located in Knoxville, Tennessee. BK claimed that the Company misrepresented and concealed numerous material facts in order to induce BK to enter into a franchise agreement, failed to provide a variety of services in support of BK's franchise, engaged in deceptive trade practices and violated Federal Trade Commission disclosure rules. BK was seeking damages in excess of $9.0 million. On January 8, 1997 the AAA informed the Company that it has no liability with regard to any claims made by BK. All AAA arbitration expenses were awarded in favor of the Company. The Company will seek the dismissal of a lawsuit previously filed by Elizabeth Bright and Thomas C. Bright, the principal shareholders of BK, in the circuit court of Hamilton County, Tennessee on August 11, 1995. The lawsuit contains essentially the same claims as were submitted to the AAA. ITEM 6. EXHIBITS Exhibit Number: Document Description 27.1 Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPAGHETTI WAREHOUSE, INC. Dated: February 5, 1997 By: /s/Phillip Ratner ---------------- ----------------- Phillip Ratner Chairman and Chief Executive Officer Dated: February 5, 1997 By: /s/ H. G. Carrington, Jr. ---------------- ------------------------- H.G. Carrington, Jr. Executive Vice President and Chief Financial Officer EXHIBIT INDEX SEQUENTIALLY EXHIBIT NUMBERED NUMBER DOCUMENT DESCRIPTION PAGE 27.1 Financial Data Schedule EXHIBIT 27.1 EX-27 2 FDS --
5 This schedule contains summary financial information extracted from the accompanying condensed consolidated financial statements and is qualified in its entirety by reference to such financial statements. 0000775298 Spaghetti Warehouse 10-Q 1 US Dollars 3-mos jun-29-1996 oct-01-1996 dec-29-1996 1 2,025,660 0 484,411 0 641,320 3,652,873 72,017,562 24,525,880 59,968,205 6,577,429 8,390,644 0 0 65,270 44,823,120 59,968,205 31,921,962 32,699,052 8,456,422 27,063,792 6,051,151 0 419,404 (835,295) (279,991) (555,304) 0 0 0 (555,304) ($.10) ($.10)
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