-----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, MEo2NFzPapgeAe85mqJGPLcjybJpizbtlfO2lFdA7tUH9bgExR3ydIMcqWKESMSC Dy+GdREKoU0GE+c1Z+aoLA== 0000840826-96-000005.txt : 19960221 0000840826-96-000005.hdr.sgml : 19960221 ACCESSION NUMBER: 0000840826-96-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DAKA INTERNATIONAL INC CENTRAL INDEX KEY: 0000840826 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 043024178 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17229 FILM NUMBER: 96523129 BUSINESS ADDRESS: STREET 1: ONE CORPORATE PL STREET 2: 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 BUSINESS PHONE: 5087749115 MAIL ADDRESS: STREET 1: ONE CORPORATE PLACE 55 FERNCROFT RD CITY: DANVERS STATE: MA ZIP: 01923 10-Q 1 QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarter ended December 30, 1995 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 0-17229 DAKA INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 04-3024178 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Corporate Place, 55 Ferncroft Road, Danvers, MA 01923 (Address of principal executive offices) (Zip Code) (508) 774-9115 (Registrant's telephone number, including area code) 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 Number of shares of Common Stock, $.01 par value, outstanding at February 14, 1996: 7,233,066 PART I - FINANCIAL INFORMATION DAKA INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share data)
December 30, July 1, 1995 1995 (Unaudited) ASSETS: Current assets: Cash and cash equivalents $ 9,083 $ 7,236 Accounts receivable, net 45,244 29,844 Inventories 10,193 9,295 Prepaid expenses and other current assets 2,957 1,530 --------- --------- Total current assets 67,477 47,905 --------- --------- Property and equipment, net 101,055 86,513 Investments in, and advances to, affiliates 609 511 Other assets, net 29,238 30,524 Deferred income taxes 2,327 2,327 --------- --------- $ 200,706 $ 167,780 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 21,172 $ 19,492 Accrued expenses 16,201 17,364 Current portion of long-term debt 782 613 Deferred income taxes 236 236 --------- --------- Total current liabilities 38,391 37,705 --------- --------- Long-term debt 85,047 68,497 Other long-term liabilities 9,741 8,830 Minority interests 2,861 3,012 Commitments and contingencies (Note 3) Stockholders' equity: Series A Preferred Stock, $.01 par value, $100 liquidation preference; 1,000,000 shares authorized; 11,912 and 100,000 shares issued and outstanding at December 30, 1995 and July 1, 1995, respectively - 1 Common Stock, $.01 par value; 20,000,000 shares authorized; 7,225,642 and 4,495,193 shares issued and outstanding at December 30, 1995 and July 1, 1995, respectively 73 46 Capital in excess of par value 47,701 38,848 Retained earnings 16,892 10,841 --------- --------- Total stockholders' equity 64,666 49,736 --------- --------- $ 200,706 $ 167,780 ========= =========
See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)
Quarters Ended Six Months Ended December December December December 30, 1995 31, 1994 30, 1995 31, 1994 Revenues: Sales $ 94,670 $ 74,572 $178,888 $137,455 Management fees and franchising income 4,121 2,584 7,163 4,712 -------- -------- -------- -------- 98,791 77,156 186,051 142,167 -------- -------- -------- -------- Costs and expenses: Cost of sales and operating expenses 79,242 62,508 149,748 115,117 Selling, general and administrative expenses 8,761 6,769 17,295 13,697 Depreciation and amortization 3,513 2,554 7,012 4,839 Interest expense 1,244 1,079 2,541 1,861 Interest income (93) (33) (154) (104) Minority interests (177) (101) (150) (104) -------- -------- -------- -------- 92,490 72,776 176,292 135,306 -------- -------- -------- -------- Income before income taxes 6,301 4,380 9,759 6,861 Income tax expense 2,394 1,616 3,708 2,515 -------- -------- -------- -------- Net income 3,907 2,764 6,051 4,346 Preferred Stock dividend - 400 - 400 -------- -------- -------- -------- Net income available for Common Stockholders $ 3,907 $ 2,364 $ 6,051 $ 3,946 ======== ======== ======== ======== Earnings per share: Primary $ .53 $ .58 $ .91 $ .98 Fully diluted $ .46 $ .36 $ .73 $ .58
See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Six months ended December 30, 1995 and December 31, 1994 (In thousands) (Unaudited)
December December 30, 1995 31, 1994 Cash flows from operating activities: Net income $ 6,051 $ 4,346 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 7,012 4,839 Loss on the sale of property and equipment 793 Minority interests (150) (104) Change in assets and liabilities: Accounts receivable (15,400) (2,388) Inventories (898) (711) Other assets (2,563) (2,553) Accounts payable and accrued expenses 517 (290) Other long-term liabilities 911 3,856 -------- -------- Net cash (used in) provided by operating activities (3,727) 6,995 -------- -------- Cash flows from investing activities: Purchase of property and equipment (28,235) (16,406) Proceeds from sale of property and equipment 90 212 Investments in, and advances to, affiliates (98) (93) Cash paid for acquisitions, net of cash acquired of $- and $12 - (563) -------- -------- Net cash used in investing activities: (28,243) (16,850) -------- -------- Cash flows from financing activities: Proceeds from line-of-credit 25,200 12,239 Payment of Preferred Stock dividend - (400) Repayment of long-term debt (314) (1,038) Proceeds from sale-leaseback 8,250 - Other 681 110 -------- -------- Net cash provided by financing activities 33,817 10,911 -------- -------- Net increase in cash and cash equivalents 1,847 1,056 Cash and cash equivalents, beginning of period 7,236 5,040 -------- -------- Cash and cash equivalents, end of period $ 9,083 $ 6,096 ======== ======== Supplemental cash flow disclosures: Interest paid $ 2,447 $ 1,837 Income taxes paid 4,271 3,638
During the periods ended December 30, 1995 and December 31, 1994 the Company acquired certain equipment by entering into capital leases aggregating $326 and $107, respectively. See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Six months ended December 30, 1995 and Years ended July 1, 1995 and July 2, 1994 (In thousands, except share data) (Unaudited)
Capital Preferred Stock Common Stock In Excess Total Outstanding Par Outstanding Par of Par Retained Stockholders' Shares Value Shares Value Value Earnings Equity Balance, July 2, 1994 100,000 $ 1 3,773,503 $38 $30,616 $ 2,125 $32,780 Employee stock options exercised 37,360 1 339 340 Shares issued upon conversion of certain Convertible Subordinated Notes, net 684,330 7 7,893 7,900 Preferred Stock dividend (400) (400) Net income 9,116 9,116 ------- --- --------- --- ------- ------- ------- Balance, July 1, 1995 100,000 $ 1 4,495,193 $46 $38,848 $10,841 $49,736 Employee stock options exercised 65,180 682 682 Shares issued upon conversion of certain Convertible Subordinated Notes, net 707,748 7 8,190 8,197 Shares issued upon conversion of certain Preferred Stock (88,088) (1) 1,957,521 20 (19) Net income 6,051 6,051 ------- --- --------- --- ------- ------- ------- Balance, December 30, 1995 11,912 - 7,225,642 $73 $47,701 $16,892 $64,666 ======= === ========= === ======= ======= =======
See notes to consolidated financial statements. DAKA INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Six months ended December 30, 1995 and December 31, 1994 (Dollars in thousands, except per share data) (Unaudited) 1. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited consolidated financial statements include the accounts of DAKA International, Inc. and its majority-controlled subsidiaries ("DAKA" or the "Company"). Significant intercompany balances and transactions have been eliminated in consolidation. Business The Company's principal subsidiaries, Daka, Inc. ("Daka"), Fuddruckers, Inc. ("Fuddruckers") and Americana Dining Corp. ("ADC"), operate in the contract foodservice and restaurant industries. Daka provides restaurant style contract foodservice management at a variety of schools and colleges as well as other facilities. Fuddruckers owns, operates and franchises Fuddruckers restaurants throughout the United States and in Canada, Australia and the Middle East. ADC, a majority controlled subsidiary, owns and operates two restaurants in the Minneapolis area under the name "Champps Americana" pursuant to a license agreement from Champps Entertainment, Inc. ("CEI"), licensor and franchisor of Champps Americana restaurants. Unaudited Interim Financial Statements In the opinion of management, the accompanying consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of financial position and results of operations. The accompanying consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's Annual Report on Form 10-K/A for the fiscal year ended July 1, 1995. The consolidated results of operations for the quarter and six months ended December 30, 1995 and December 31, 1994 are not necessarily indicative of results that could be expected for a full year. Fiscal Year The Company's fiscal year ends on the Saturday closest to June 30th. For purposes of these notes to the consolidated financial statements the three and six months ended December 30, 1995 and December 31, 1994 are referred to as 1995 and 1994, respectively. Earnings Per Share Primary earnings per share are computed using the weighted average number of common and common equivalent shares (dilutive options and warrants) outstanding. In addition to the inclusion of common and common equivalent shares, the calculation of fully diluted earnings per share includes the shares issuable upon conversion of the Preferred Stock which amounted to 264,700 and 2,222,222 shares in 1995 and 1994, respectively, and the shares issuable upon conversion of the Convertible Subordinated Notes ("Notes") which amounted to 1,003,750 and 2,094,418 shares in 1995 and 1994, respectively. Fully diluted earnings per share assumes that the Preferred Stock and Notes were converted into Common Stock as of the beginning of the fiscal year and reflect the elimination of interest expense related to the Notes, net of the related income tax effect, and the elimination of dividends related to the Preferred Stock. The weighted average number of shares used in the computation of earnings per share for 1995 and 1994 are as follows:
Quarters Ended Six Months Ended December 30, December 31, December 30, December 31, 1995 1994 1995 1994 Primary 7,412,136 4,044,380 6,631,627 4,020,148 Fully diluted 8,858,202 8,632,764 8,815,927 8,627,398
2. Pending Merger On October 10, 1995, CEI Acquisition Corp., a newly formed, wholly-owned subsidiary of the Company, and Champps Entertainment, Inc. ("Champps") entered into an Agreement and Plan of Merger (the "Merger Agreement") whereby the Company would issue .40 (the "Exchange Ratio") shares of common stock for each share of Champps common stock outstanding or issuable upon exercise of Champps stock options or warrants, subject to adjustment as defined in the Merger Agreement (the "Merger"). The Exchange Ratio will increase to .43 in the event that the average closing price of the Company's common stock during the 20 trading days preceding the second trading day prior to the closing date of the Merger is less than $30 per share or decrease to .37 in the event that the average closing price of the Company's common stock during the 20 trading days preceding the second trading day prior to the closing date of the Merger is greater than $35 per share. Consummation of the Merger is conditioned upon the transaction qualifying for treatment as a pooling of interests for accounting and financial reporting purposes. Upon consummation of the Merger, under the pooling of interests method of accounting, the Company will restate its historical consolidated financial statements to reflect the inclusion of Champps' assets, liabilities, shareholders' investment and operating results to reflect the Merger as if the Company and Champps had been combined for all periods presented. In addition, transaction costs associated with the Merger will be charged to expense in the period that the Merger is consummated. The Merger is subject to approval by the shareholders of both the Company and Champps at shareholder meetings to be held on February 21, 1996. The current President of Champps has entered into a five year employment agreement with the Company whereby, subsequent to the Merger, he will serve as Chairman and Chief Executive Officer of Champps . 3. Commitments and Contingencies Litigation In certain circumstances, where management and legal counsel believe that a loss has been incurred, the Company has recorded an estimate of such loss. The Company is also engaged in various other legal actions arising in the ordinary course of business which, in the judgment of management, based upon consultation with legal counsel, the Company has adequate legal defenses or insurance coverage with respect to these actions or believes that the ultimate outcome will not have a material adverse affect on the Company's consolidated financial statements. Letters of Credit At December 30, 1995, the Company had approximately $8 million of outstanding letters of credit. In February 1996, approximately $4.1 million of outstanding letters of credit were released, resulting in an increase in the Company's borrowing capacity under its line-of-credit agreement. Leases In December 1995, CEI obtained a commitment for a $40,000 development and sale-leaseback financing facility from AEI Fund Management, Inc. ("AEI"). Pursuant to the terms of the agreement, CEI will sell and lease back from AEI Champps restaurants to be constructed, in which CEI has an ownership interest in the real estate and will pay a commitment fee of 1% of the sale price of each property sold to AEI. The purchase price shall be equal to the total project cost of the property, as defined in the agreement, not to exceed its appraised value (the "Purchase Price"). The unused commitment, if any, expires on December 6, 1997. The leases, to be guaranteed by DAKA, provide for a fixed minimum rent based on a percentage of the respective property's Purchase Price, subject to subsequent CPI-based increases. The leases also provide for an initial term of 20 years with two 5-year renewal options exercisable at the option of CEI. The terms and conditions of the sale-leaseback are such that they do not meet the criteria for treatment as capital leases under Statement of Financial Accounting Standards (SFAS) No. 13 "Accounting for Leases." AEI's commitment is contingent upon consummation of the Merger discussed in Note 2. In December 1995, the Company obtained a $3,500 capital lease facility from Chase Equipment Leasing, Inc. ("Chase"). The lease provides for fifty-one consecutive monthly rental payments, based on the total of all progress payments made by Chase, commencing on or before July 1, 1996. Interest accrues at the LIBOR rate plus 1%. In October 1995, Fuddruckers obtained a commitment for a $25,000 sale-leaseback financing facility from Franchise Finance Corporation of America ("FFCA"). Pursuant to the terms of the facility, Fuddruckers will sell and lease back from FFCA up to 20 Fuddruckers restaurants to be constructed, in which Fuddruckers has an ownership interest in the real estate and will pay a commitment fee of 1.5% of the sale price of each property sold to FFCA. The sale price is limited to the lesser of 80% of the fair market value of the property or $1,250. The unused commitment, if any, expires on October 31, 1996. The leases provide for a fixed minimum rent plus additional rent based on a percentage of sales and provide for an initial lease term of 20 years with two 5-year renewal options exercisable at the option of Fuddruckers. The terms and conditions of the sale-leaseback are such that they do not meet the criteria for treatment as capital leases under SFAS No. 13. 4. Debt In December 1995, the Company amended its revolving line-of-credit agreement, increasing the Company's borrowing capacity from $75,000 to $100,000, extending the maturity date to November 30, 1998 and amending certain loan covenants. At December 30, 1995, borrowings under the line-of-credit aggregated $71,200. During the quarter and six months ended December 30, 1995, $3,455 and $8,439, respectively, of Notes were converted into common stock. In connection with the conversion, the Company increased Stockholders' Equity by $3,338 and $8,197, respectively, for the quarter and six months ended December 30, 1995. As of December 30, 1995, $12,045 of Notes remained outstanding. The conversion had no effect upon fully diluted earnings per share since the shares issuable upon conversion of the Notes were included in the calculation of fully diluted earnings per share. 5. Preferred Stock During 1995, in two separate transactions, Holders of the Company's Series A Preferred Stock ("Preferred Stock") converted 88,088 shares of Preferred Stock into 1,957,521 shares of common stock. The conversion had no effect upon fully diluted earnings per share since the shares issuable upon conversion of the Preferred Stock were already included in the calculation of fully diluted earnings per share. As of December 30, 1995, 11,912 shares of Preferred Stock remain outstanding which may be converted into 264,700 shares common stock at any time at the Holders option. 6. Subsequent Event In January 1996, DAKA acquired for approximately $5 million, a 16.7% equity interest in the form of convertible redeemable preferred stock (the "Preferred Stock") in La Salsa Holding Co. ("La Salsa"), a franchisor and operator of La Salsa Mexican restaurants. Each share of Preferred Stock may be converted into La Salsa's Class D Common Stock at $1.50 per share and is redeemable at face value in installments beginning on March 3, 2000. In addition, DAKA received warrants to acquire, within 18 months, shares of convertible redeemable preferred stock representing an additional 13.3% equity interest for approximately $7.1 million. La Salsa currently has 30 franchised and 27 owned stores in California and throughout the southwestern part of the United States. The transaction is currently treated as an investment using the cost method of accounting. 7. Segment Information The Company operates in the contract foodservice management and restaurant industries. The table below presents selected results of operations for the Company's foodservice management, Fuddruckers and Champps businesses for the quarters and six months ended December 30, 1995 and December 31, 1994.
Quarters Ended Six Months Ended December December December December 30, 1995 31, 1994 30, 1995 31, 1994 Revenues: Sales from profit and loss contracts $ 61,266 $ 47,094 $110,104 $ 81,857 Management fees 1,512 1,483 2,582 2,598 Restaurant sales - Fuddruckers 31,202 25,594 64,730 51,925 Restaurant sales - Champps 2,202 1,884 4,054 3,673 Franchising income 2,609 1,101 4,581 2,114 -------- -------- -------- -------- Total revenues $ 98,791 $ 77,156 $186,051 $142,167 ======== ======== ======== ======== Foodservice: Sales from profit and loss contracts $ 61,266 $ 47,094 $110,104 $ 81,857 Operating expenses: Labor costs 19,619 15,640 36,253 27,360 Product costs 22,795 16,631 40,011 28,663 Other operating expenses 8,416 7,207 16,033 12,941 Depreciation and amortization 1,384 1,006 2,673 1,853 -------- -------- -------- -------- Income from profit and loss contracts 9,052 6,610 15,134 11,040 Management fees 1,512 1,483 2,582 2,598 -------- -------- -------- -------- Income from foodservice operations 10,564 8,093 17,716 13,638 -------- -------- -------- -------- Fuddruckers: Sales from restaurant operations 31,202 25,594 64,730 51,925 Operating expenses: Labor costs 8,976 7,623 18,240 15,081 Product costs 8,837 7,038 18,128 14,302 Other operating expenses 8,790 6,844 17,736 13,770 Depreciation and amortization 1,762 1,270 3,649 2,444 -------- -------- -------- -------- Income from restaurant operations 2,837 2,819 6,977 6,328 Franchising income 2,609 1,101 4,581 2,114 -------- -------- -------- -------- Income from restaurant and franchising operations 5,446 3,920 11,558 8,442 -------- -------- -------- --------
Quarters Ended Six Months Ended December December December December 30, 1995 31, 1994 30, 1995 31, 1994 Champps Americana: Sales from restaurant operations 2,202 1,884 4,054 3,673 Operating expenses: Labor costs 748 624 1,397 1,239 Product costs 645 548 1,186 1,069 Other operating expenses 416 353 764 692 Depreciation and amortization 80 65 138 128 -------- -------- -------- -------- Operating contribution 313 294 569 545 -------- -------- -------- -------- Income from operations before selling, general and administrative expenses 6,323 12,307 29,843 22,625 -------- -------- -------- -------- Selling, general and administrative expenses: Foodservice segment 2,027 1,726 4,310 4,196 Restaurant segment 3,280 1,964 6,115 4,042 Corporate (1) 3,519 3,144 6,971 5,599 Champps Americana 222 148 451 274 -------- -------- -------- -------- Total 9,048 6,982 17,847 14,111 -------- -------- -------- -------- Operating income 7,275 5,325 11,996 8,514 Interest expense 1,244 1,079 2,541 1,861 Interest income (93) (33) (154) (104) Minority interests (177) (101) (150) (104) Income before income taxes 6,301 4,380 9,759 6,861 Income taxes 2,394 1,616 3,708 2,515 -------- -------- -------- -------- Net income $ 3,907 $ 2,764 $ 6,051 $ 4,346 ======== ======== ======== ========
(1) Includes depreciation expense of $287, $213, $552 and $414 for the quarters and six months ended December 30, 1995 and December 31, 1994, respectively. ITEM 2. Management's Discussion and Analysis of Results of Operations and Financial Condition RESULTS OF OPERATIONS Summary Net income for the quarter ended December 30, 1995 increased 41% to $3.9 million on revenues of $98.8 million as compared to net income of $2.8 million on revenues of $77.2 million for the quarter ended December 31, 1994. Fully diluted earnings per share increased 28% to $0.46 for the quarter compared to $0.36 for the comparable quarter of last year. Net income for the six months ended December 30, 1995 increased 39% to $6.1 million on revenues of $186.1 million as compared to net income of $4.3 million on revenues of $142.2 million for the six months ended December 31, 1994. Fully diluted earnings per share increased 26% to $0.73 during the six months ended December 30, 1995 compared to $0.58 for the comparable period of last year. Foodservice The following table sets forth, for the periods presented, certain financial information for the Company's foodservice business. For further information relating to the foodservice business, see Note 7 of Notes to Consolidated Financial Statements.
Quarters Ended Six Months Ended December December December December 30, 1995 31, 1994 30, 1995 31, 1994 Sales from profit and loss contracts 100.0% 100.0% 100.0% 100.0% Operating expenses: Labor costs (32.0) (33.2) (32.9) (33.4) Product costs (37.2) (35.3) (36.4) (35.0) Other operating expenses (13.7) (15.3) (14.6) (15.8) Depreciation and amortization (2.3) (2.2) (2.4) (2.3) -------- -------- -------- -------- Income from profit and loss contracts 14.8% 14.0% 13.7% 13.5% ======== ======== ======== ======== Total foodservice revenues $ 62,778 $ 48,577 $112.686 $ 84,455 ======== ======== ======== ======== Managed volume: Management fee contracts $ 30,760 $ 28,996 $ 52,131 $ 50,124 Profit and loss contracts 61,266 47,094 110,104 81,857 -------- -------- -------- -------- Total managed volume $ 92,026 $ 76,090 $162,235 $131,981 ======== ======== ======== ======== Income from foodservice operations $ 10,564 $ 8,093 $ 17,716 $ 13,638 ======== ======== ======== ======== Income from foodservice operations as a percentage of managed volume: Management fee contracts 4.9% 5.1% 5.0% 5.2% Profit and loss contracts 14.8% 14.0% 13.7% 13.5% Income from foodservice operations as a percentage of total managed volume 11.5% 10.6% 10.9% 10.3% Income from foodservice operations as a percentage of foodservice revenues 16.8% 16.7% 15.7% 16.1%
Daka conducts its operations on the basis of two types of foodservice contracts with its clients. The first type is a management fee contract pursuant to which a client pays Daka a negotiated fee for overseeing and administering its foodservice operations and reimburses Daka for all costs incurred in providing such service. Management fee contracts are prevalent where companies subsidize food services as part of the benefits provided to employees and in elementary and secondary schools. The second type of contract is a profit and loss contract whereby Daka assumes the risk of profit or loss from the foodservice operations. While Daka manages the total sales volume attributable to both contract types, generally accepted accounting principles require that Daka recognize sales and expenses from profit and loss contracts, but only the management fee amount derived from management fee contracts. Consequently, Daka does not recognize sales and expenses with respect to management fee contracts. As a result, Daka's managed volume, which represents both sales made pursuant to profit and loss contracts and sales to guests of foodservice clients pursuant to management fee contracts, is considerably greater than the revenues it recognizes. Managed volume in the Company's foodservice business increased $15.9 million or 21% to $92.0 million during the quarter ended December 30, 1995 as compared to $76.1 million in the comparable quarter of 1994. During the six months ended December 30, 1995, managed volume increased $30.3 million or 23% to $162.2 million compared to $132.0 million in 1994. The increase in managed volume was primarily due to $21.7 million and $39.4 million in the quarter and six month period, respectively, of managed volume generated by the educational and corporate foodservice contracts acquired from ServiceMaster Management Services L.P. ("SMMSLP") on February 8, 1995 by Daka Restaurants, L.P. ("DRLP"), an 80.01% owned consolidated subsidiary of Daka, increased comparable sales of 2.6% and 2.5% in the quarter and six month periods, respectively, and new contracts added during 1995, offset by managed volume associated with certain lost or terminated contracts. During fiscal 1995, a number of marginally profitable or unprofitable contracts expired and, accordingly, became subject to a competitive bidding process. Throughout this process, Daka rebid unprofitable or marginally profitable contracts on terms that should provide it with an acceptable profit. Certain of these contracts were retained, and, as anticipated, certain other contracts were not retained. Despite the loss of these contracts, operating margins as well as income from foodservice operations in Daka's base business, excluding the educational and corporate foodservice contracts acquired in 1995 from SMMSLP, improved during the quarter and six month periods ended December 30, 1995 compared to the same periods last year. Income from foodservice operations increased 31% to $10.6 million during the quarter ended December 30, 1995 as compared to $8.1 million in the comparable quarter of 1994. Income from profit and loss contracts as a percentage of sales from profit and loss contracts increased during the quarter and six months ended December 30, 1995 as compared to the comparable quarter of 1994 despite the lower operating margins associated with the educational foodservice contracts acquired from SMMSLP in 1995. The lower operating margins associated with the educational foodservice contracts acquired is typical of the educational foodservice industry and consistent with the operating margins in Daka's existing educational foodservice business. Fuddruckers The following table sets forth, for the periods presented, certain financial information for Fuddruckers. For further information regarding Fuddruckers, see Note 7 of Notes to Consolidated Financial Statements.
Quarters Ended Six Months Ended December December December December 30, 1995 31, 1994 30, 1995 31, 1994 Sales from Fuddruckers-owned restaurants: 100.0% 100.0% 100.0% 100.0% Operating expenses: Labor costs (28.8) (29.8) (28.2) (29.1) Product costs (28.3) (27.5) (28.0) (27.5) Other operating expenses (28.2) (26.7) (27.4) (26.5) Depreciation and amortization (5.6) (5.0) (5.6) (4.7) -------- -------- -------- -------- Income from restaurant operations 9.1% 11.0% 10.8% 12.2% ======== ======== ======== ======== Restaurant sales $ 31,202 $ 25,594 $ 64,730 $ 51,925 ======== ======== ======== ======== Income from restaurant operations $ 2,837 $ 2,819 $ 6,977 $ 6,328 Franchising income 2,609 1,101 4,581 2,114 -------- -------- -------- -------- Income from restaurant and franchising operations $ 5,446 $ 3,920 $ 11,558 $ 8,442 ======== ======== ======== ======== Number of restaurants (end of period): Fuddruckers-owned 103 79 Franchised 76 76 -------- -------- Total restaurants 179 155 ======== ========
Sales in Fuddruckers-owned restaurants increased $5.6 million or 21.9% during the quarter ended December 30, 1995 compared to the quarter ended December 31, 1994. This increase results from $1.1 million of sales at 5 restaurants acquired from franchisees during fiscal 1995, $7.1 million of sales at 30 new restaurants opened after the first quarter of last year offset, in part, by a $0.9 million decrease in sales resulting from the closing of two restaurants and the sale of three restaurants to franchisees. In addition, comparable sales decreased by 2.3% in the second quarter ended December 30, 1995 compared to the second quarter of last year principally due to inclement weather in many of Fuddruckers' major markets during December. Sales in Fuddruckers-owned restaurants increased $12.8 million or 24.7% during the six months ended December 30, 1995 compared to the comparable period last year. This increase results from $2.3 million of sales at 5 restaurants acquired from franchisees during fiscal 1995, $14.7 million of sales at 30 new restaurants, offset, in part, by a $1.8 million decrease in sales resulting from the closing of two restaurants and the sale of three restaurants to franchisees. Additionally, comparable restaurant sales for the six months ended December 30, 1995 decreased by 1.9% compared to last year. Income from restaurant and franchise operations increased to $5.4 million and $11.6 million for the quarter and six months ended December 30, 1995 as compared to $3.9 million and $8.4 million during the comparable quarter and six month period of last year. Income from restaurant operations as a percentage of sales from Fuddruckers-owned restaurants decreased during the quarter and six month periods ended December 30, 1995 due to the effect of lower comparable sales and increased discounting related to the "Kids Eat Free" program available for the first time on Sundays in the second quarter in many of Fuddruckers' markets. The decrease in comparable restaurant sales and operating margins during the quarter and six months ended December 30, 1995 was offset by income from new restaurants and increased franchising income principally due to increased franchising in international markets. Champps Americana The following table sets forth certain financial information for the three Champps Americana restaurants owned by ADC, one of which opened in December 1995. For further information related to ADC see Note 7 of Notes to the Consolidated Financial Statements.
Quarters Ended Six Months Ended December December December December 30, 1995 31, 1994 30, 1995 31, 1994 Sales from Champps restaurants 100.0% 100.0% 100.0% 100.0% Operating expenses: Labor costs (34.0) (33.1) (34.5) (33.7) Product costs (29.3) (29.1) (29.3) (29.1) Other operating expenses (18.9) (18.7) (18.8) (18.9) Depreciation and amortization (3.6) (3.5) (3.4) (3.5) -------- -------- -------- -------- Income from restaurant operations 14.2% 15.6% 14.0% 14.8% ======== ======== ======== ======== Restaurant sales $ 2,202 $ 1,884 $ 4,054 $ 3,673 ======== ======== ======== ======== Income from restaurant operations $ 313 $ 294 $ 569 $ 545 ======== ======== ======== ======== Number of restaurants 3 2 ======== ========
Sales increased in both the quarter and the six months ended December 30, 1995 as a result of $245 of sales from one new restaurant opened in Ohio in December and increased comparable sales of 3.9% and 3.7%, in the quarter and six month periods, respectively. Higher operating expenses reflect higher initial costs at the newly opened restaurant. Selling, General and Administrative Expenses Selling, general and administrative expenses increased $2.1 million to $9.0 million for the quarter ended December 30, 1995. Selling, general and administrative expenses increased $3.7 million to $17.8 million for the six months ended December 30, 1995 compared to $14.1 million in the comparable period of last year. The increase primarily relates to closing costs incurred with two Fuddruckers restaurants, upgrading of management information systems and hiring additional personnel to support the overall growth in revenues. Selling, general and administrative expenses as a percentage of managed volume, which includes managed volume in the foodservice business as well as sales at Company-owned Fuddruckers and Champps restaurants, increased to 7.2% and 7.7% during the three and six months ended December 30, 1995 as compared to 6.7% and 7.5% in the comparable periods of last year. Interest Expense Interest expense increased $0.2 million to $1.2 million during the quarter and increased $0.7 million to $2.5 million during the six months ended December 30, 1995 compared to comparable periods of last year. The increase is a result of an overall higher level of borrowings under the Company's line-of-credit which were used to fund capital expenditures in both the foodservice and Fuddruckers businesses, offset, in part, by a decrease in interest expense as a result of the conversion of $16.7 million of the Convertible Subordinated Notes since December 1994. Income Taxes The Company's effective tax rate increased to 38% for the quarter and six months ended December 30, 1995 as compared to 37% for the comparable periods of last year. The increase was primarily due to higher pretax income and the elimination of the targeted job tax credit in December 1994. Earnings Per Share Primary earnings per share decreased 8.6% and 7.1% for the quarter and six months ended December 30, 1995 while fully diluted earnings per share increased 27.8% and 25.9% for the quarter and six months ended December 31, 1995 as compared to last year. The decrease in primary earnings per share was primarily due to 83% and 65% increases in the primary weighted average number of shares outstanding at the end of the quarter and six months ended December 30, 1995, respectively, and the effect of the Preferred Stock dividend paid in 1994, offset, in part, by a 41% increase in net income. The 1,957,521 shares of common stock issued upon conversion of the Company's Series A Preferred Stock and the conversion of a portion of the Company's Convertible Subordinated Notes into shares of common stock were the principal reasons for the increase in primary weighted average shares. The shares issued pursuant to the conversion of the Preferred Stock and Convertible Subordinated Notes had no effect on fully diluted earnings per share since such shares were previously included in the calculation of fully diluted earnings per share. FINANCIAL CONDITION AND LIQUIDITY Working capital amounted to $29.1 million at December 30, 1995, an increase of $18.9 million compared to working capital of $10.2 million at July 1, 1995. The increase in working capital is principally due to the use of borrowings under the Company's line-of-credit agreement, classified as long-term debt, to fund operating activities as a result of the seasonal increase in accounts receivable due to the commencement of foodservice operations at schools and colleges served by the Company. At December 30, 1995 the Company had approximately $20.8 million of available borrowing capacity remaining on its line-of-credit. Capital expenditures in the six months ended December 30, 1995 aggregated approximately $28.4 million, and consisted of $19.3 million for new Fuddruckers restaurants and upgrades at existing restaurants, $3.5 million for new Champps restaurants under construction, $1.2 million for updating the Company's information systems and $4.4 million for improvements at facilities of foodservice clients. Capital expenditures were funded through a combination of borrowings under the Company's line-of-credit agreement and approximately $8.2 million of proceeds from its sale-leaseback facility. The Company plans to open additional new Fuddruckers-owned restaurants, continue to reorient facilities of foodservice clients to a more retail restaurant environment and open one additional Champps Americana restaurant during fiscal 1996. Management believes that cash flow from operations, existing cash, available borrowings under its line-of-credit as well as its sale-lease back facilities will provide sufficient liquidity to pay all liabilities in the normal course of business, fund capital expenditures and service debt requirements for the foreseeable future. PART II - OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K (a) Exhibits 11 Computation Regarding Per Share Earnings (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended December 30, 1995. 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. DAKA INTERNATIONAL, INC. (Registrant) By: /s/Louie Psallidas ---------------------------- Louie Psallidas Vice President, Finance (Principal Financial and Principal Accounting Officer) Date: February 16, 1996 EX-11 2 PER SHARE EARNINGS COMPUTATION Exhibit 11 DAKA INTERNATIONAL, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS QUARTERS AND SIX MONTHS ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994 Quarters ended Nine Months ended December 30, 1995 December 31, 1994 December 30, 1995 December 31, 1994 Primary: Net income $ 3,907 $ 2,764 $ 6,051 $ 4,346 Net income available to common stockholders 3,907 2,364 6,051 3,946 Weighted average number of common shares outstanding 7,042 3,817 6,284 3,798 Additional shares assuming conversion of stock options 370 227 348 222 Average common shares outstanding and equivalents 7,412 4,044 6,632 4,020 Primary earnings per share: Net income $ 0.53 $ 0.58 $ 0.91 $ 0.98 Fully Diluted: Net income available to common stockholders 3,907 2,364 6,051 3,946 Dividend on Preferred Stock 400 400 Interest expense on Convertible Notes, after tax effect 143 317 359 637 $ 4,050 $ 3,081 $ 6,410 $ 4,983 Weighted average number of common shares outstanding 7,042 3,817 6,284 3,798 Weighted average number of shares related to notes converted, prior to conversion 177 272 316 286 Weighted average number of shares related to Preferred Stock, prior to conversion 599 Additional shares issuable upon conversion of Preferred Stock 265 2,222 265 2,222 Additional shares issuable upon conversion of Notes 1,004 2,094 1,004 2,094 Additional shares issuable upon conversion of stock options 370 228 348 227 8,858 8,633 8,816 8,627 Fully diluted earnings per share: Net income $ 0.46 $ 0.36 $ 0.73 $ 0.58 EX-27 3
5 0000840826 DAKA INTERNATIONAL, INC. 1000 6-MOS JUN-29-1996 DEC-30-1995 9,083 0 46,242 998 10,193 67,477 133,527 32,472 200,706 38,391 85,047 0 0 73 64,593 200,706 178,888 186,051 149,748 149,748 0 0 2,541 9,759 3,708 6,051 0 0 0 6,051 .91 .73
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