-----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, RJ1Bc2o9i7M0puj4hVfiD4zK9YLVuAO/eLhqh2a3IzTrIBB1Vln4JK9roJjT7JqO 2m6Vfj7xEd5papQBcpGjkA== 0000849101-00-000004.txt : 20000518 0000849101-00-000004.hdr.sgml : 20000518 ACCESSION NUMBER: 0000849101-00-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000402 FILED AS OF DATE: 20000517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVADO BRANDS INC CENTRAL INDEX KEY: 0000849101 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592778983 STATE OF INCORPORATION: GA FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19542 FILM NUMBER: 638607 BUSINESS ADDRESS: STREET 1: HANCOCK AT WASHINGTON CITY: MADISON STATE: GA ZIP: 30650 BUSINESS PHONE: 7063424552 MAIL ADDRESS: STREET 1: HANCOCK AT WASHINGTON CITY: MADISON STATE: GA ZIP: 30650 FORMER COMPANY: FORMER CONFORMED NAME: APPLE SOUTH INC DATE OF NAME CHANGE: 19950111 10-Q 1 REGISTRANT'S QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 2, 2000 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: 0-19542 AVADO BRANDS, INC. (Exact name of registrant as specified in its charter) Georgia 59-2778983 - ----------------------------------------- -------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Hancock at Washington, Madison, GA 30650 - ----------------------------------------- -------------------------- (Address of principal executive offices) (Zip Code) 706-342-4552 ------------------------- 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. X Yes No As of May 16, 2000, there were 25,326,290 shares of common stock of the Registrant outstanding. AVADO BRANDS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED APRIL 2, 2000 INDEX Part I - Financial Information Page Item 1 - Consolidated Financial Statements: Consolidated Statements of Earnings..........................3 Consolidated Balance Sheets..................................4 Consolidated Statements of Shareholders' Equity and Comprehensive Income................................5 Consolidated Statements of Cash Flows........................6 Notes to Consolidated Financial Statements...................7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations..........12 Item 3 - Quantitative and Qualitative Disclosures About Market Risk............................................16 Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K............................17 Signature.....................................................................18 Page 2 Avado Brands, Inc. Consolidated Statements of Earnings (Unaudited) (In thousands, except per share data)
Quarter Ended - ------------------------------------------------------------------------------------------------------------- April 2, April 4, 2000 1999 - ------------------------------------------------------------------------------------------------------------- Restaurant sales: Canyon Cafe $ 10,292 11,899 Don Pablo's 75,585 74,372 Hops 46,182 32,532 McCormick & Schmick's 34,961 27,805 Applebee's - 17,467 - ------------------------------------------------------------------------------------------------------------- Total restaurant sales 167,020 164,075 - ------------------------------------------------------------------------------------------------------------- Restaurant operating expenses: Food and beverage 47,869 45,644 Payroll and benefits 52,515 51,187 Depreciation and amortization 5,994 4,892 Other operating expenses 39,124 36,702 - ------------------------------------------------------------------------------------------------------------- Total restaurant operating expenses 145,502 138,425 - ------------------------------------------------------------------------------------------------------------- General and administrative expenses 10,503 9,840 - ------------------------------------------------------------------------------------------------------------- Operating income 11,015 15,810 - ------------------------------------------------------------------------------------------------------------- Other income (expense): Interest expense, net (8,817) (4,941) Distributions on preferred securities (2,012) (2,012) Gain on disposal of assets - 1,350 Income (loss) from investments carried at equity 46 (133) Other, primarily goodwill amortization (1,019) (972) - ------------------------------------------------------------------------------------------------------------- Total other income (expense) (11,802) (6,708) - ------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes (787) 9,102 Income taxes (250) 3,150 - ------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (537) 5,952 ============================================================================================================= Basic earnings (loss) per common share $ (0.02) 0.19 ============================================================================================================= Diluted earnings (loss) per common share $ (0.02) 0.19 =============================================================================================================
See accompanying notes to consolidated financial statements. Page 3 Avado Brands, Inc. Consolidated Balance Sheets (Unaudited) (In thousands, except share data)
- ------------------------------------------------------------------------------------------------------------- April 2, Jan. 2, 2000 2000 - ------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 277 11,267 Accounts receivable 7,555 7,257 Inventories 8,986 9,097 Prepaid expenses and other 15,387 17,399 Assets held for sale 12,115 1,205 - ------------------------------------------------------------------------------------------------------------- Total current assets 44,320 46,225 Premises and equipment, net 426,267 424,968 Goodwill, net 134,403 135,176 Investments in and advances to unconsolidated affiliates 17,438 17,411 Other assets 29,831 32,816 - ------------------------------------------------------------------------------------------------------------- $ 652,259 656,596 ============================================================================================================= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 18,363 21,620 Accrued liabilities 34,896 34,727 Current installments of long-term debt 4,556 11 Income taxes 30,688 28,159 - ------------------------------------------------------------------------------------------------------------- Total current liabilities 88,503 84,517 Long-term debt 320,597 328,076 Deferred income taxes 8,943 8,943 Other long-term liabilities 7,270 7,436 - ------------------------------------------------------------------------------------------------------------- Total liabilities 425,313 428,972 - ------------------------------------------------------------------------------------------------------------- Company-obligated mandatorily redeemable preferred securities of Avado Financing I, a subsidiary holding solely Avado Brands, Inc. 7% convertible subordinated debentures due March 1, 2027 115,000 115,000 Shareholders' equity: Preferred stock, $0.01 par value. Authorized 10,000,000 shares; none issued - - Common stock, $0.01 par value. Authorized 75,000,000 shares; 40,478,760 issued in 1999 and 1998 405 405 Additional paid-in capital 144,825 144,872 Retained earnings 165,768 166,305 Accumulated other comprehensive income (441) (278) Treasury stock at cost; 15,152,470 shares in 2000 and 15,157,713 in 1999 (198,611) (198,680) - ------------------------------------------------------------------------------------------------------------- Total shareholders' equity 111,946 112,624 - ------------------------------------------------------------------------------------------------------------- $ 652,259 656,596 =============================================================================================================
See accompanying notes to consolidated financial statements. Page 4 Avado Brands, Inc. Consolidated Statements of Shareholders' Equity and Comprehensive Income (Unaudited) (In thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Additional Other Total Common Stock Paid-in Retained Comprehensive Treasury Shareholders' Shares Amount Capital Earnings Income Stock Equity - ------------------------------------------------------------------------------------------------------------------------------------ Balance at January 2, 2000 40,479 $405 $144,872 $166,305 ($278) ($198,680) $112,624 - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income: Net earnings - - - (537) - - (537) Foreign currency translation adjustment - - - - (163) - (163) - ------------------------------------------------------------------------------------------------------------------------------------ Total comprehensive income - - - (537) (163) - (700) - ------------------------------------------------------------------------------------------------------------------------------------ Common stock issued to benefit plans - - (47) - - 69 22 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at April 2, 2000 40,479 $405 $144,825 $165,768 ($441) ($198,611) $111,946 ====================================================================================================================================
See accompanying notes to consolidated financial statements. Page 5 Avado Brands, Inc. Consolidated Statements of Cash Flows (Unaudited) (In thousands)
Quarter Ended - ------------------------------------------------------------------------------------------------------------- April 2, April 4, 2000 1999 - ------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings (loss) $ (537) 5,952 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 7,929 6,749 Loss (gain) on disposal of assets - (1,350) Loss (income) from investments carried at equity (46) 133 (Increase) decrease in assets: Accounts receivable (298) 1,071 Inventories 111 (772) Prepaid expenses and other 67 (2,069) Increase (decrease) in liabilities: Accounts payable (3,257) 3,893 Accrued liabilities 191 (8,861) Income taxes 2,529 4,138 Other long-term liabilities (166) 332 - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 6,523 9,216 - ------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (16,797) (22,173) Proceeds from notes receivable and disposal of assets, net 3,238 45,643 Investments in and advances to unconsolidated affiliates (144) (1,463) Additions to noncurrent assets (876) (1,977) - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (14,579) 20,030 - ------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from (repayment of) revolving credit agreements (2,934) (3,009) Principal payments on long-term debt - (21) Dividends declared and paid - (378) Purchase of treasury stock - (32,435) Net collateral payments on equity forward contracts - 175 - ------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (2,934) (35,668) - ------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (10,990) (6,422) Cash and cash equivalents at the beginning of the period 11,267 7,216 - ------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period $ 277 794 =============================================================================================================
See accompanying notes to consolidated financial statements. Page 6 AVADO BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS April 2, 2000 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited consolidated 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 Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for annual financial statement reporting purposes. However, there has been no material change in the information disclosed in the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended January 2, 2000, except as disclosed herein. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. Operating results for the quarter ended April 2, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. NOTE 2 - LONG-TERM DEBT On April 3, 2000, the Company finalized an amendment to its $125.0 million revolving credit facility which, among other things, reduces the credit availability under the facility by $10.0 million on each October 1, 2000 and December 31, 2000. Additional quarterly commitment reductions of $7.5 million begin on April 4, 2001 and continue until the quarter ended March 31, 2002. The remaining commitment of $67.5 million matures on June 22, 2002. At April 2, 2000, the Company has classified as current debt that portion of the revolving credit facility, $4.5 million, which is required to be repaid during the next 12 months. NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION For the quarters ended April 2, 2000 and April 4, 1999, the following supplements the consolidated statements of cash flows (amounts in thousands): 2000 1999 ----------- ----------- Interest paid (net of amounts capitalized) $ 2,791 2,171 Distributions paid on preferred securities $ 2,012 2,012 Income taxes paid (refunded) $(2,779) (988) NOTE 4 - INCOME TAXES Income tax as a percent of earnings before income taxes was 31.8% in the first quarter of 2000 compared to an effective rate of 30.9% for the full 1999 year. The higher effective tax rate for fiscal 2000 is due to an expected increase in taxable income as compared to 1999 and a corresponding decrease in the impact of FICA tip credits. NOTE 5 - CONTINGENCIES In November and December 1999, seven lawsuits were filed against the Company alleging that a proposal made by a management group led by Tom E. DuPree, Jr. to acquire the Company was unfair and that the price being proposed as payment for Company common shares was inadequate. On April 24, 2000, the Company announced that the most appropriate strategy at the present time is to continue as a publicly traded company. In connection with this announcement, the Company has been informed by the plaintiff's attorneys that the suits will be dismissed. Page 7 In 1997, two lawsuits were filed by persons seeking to represent a class of shareholders of the Company who purchased shares of the Company's common stock between May 26, 1995 and September 24, 1996. Each plaintiff named the Company and certain of its officers and directors as defendants. The complaints alleged acts of fraudulent misrepresentation by the defendants which induced the plaintiffs to purchase the Company's common stock and alleged illegal insider trading by certain of the defendants, each of which allegedly resulted in losses to the plaintiffs and similarly situated shareholders of the Company. The complaints each sought damages and other relief. In 1998, one of these suits was dismissed. During 1999, the Company received a favorable ruling from the 11th Circuit Court of Appeals relating to the remaining suit. As a result of the ruling, the District Court will again consider the motion to dismiss the case, and the defendants renewed their motion to dismiss in December 1999. The Company is awaiting the court's ruling. Although the ultimate outcome of the remaining lawsuit cannot be determined at this time, the Company believes that the allegations therein are without merit and intends to vigorously defend itself. NOTE 6 - GUARANTOR SUBSIDIARIES The Company's senior notes and revolving credit facilities are fully and unconditionally guaranteed on a joint and several basis by substantially all of its wholly owned subsidiaries. The Company's indebtedness is not guaranteed by its non-wholly owned subsidiaries. These non-guarantor subsidiaries primarily include certain partnerships of which the Company is typically a 90% owner. At April 2, 2000 and January 2, 2000, these partnerships in the non-guarantor subsidiaries operated 53 and 51, respectively, of the Company's restaurants. Accordingly, condensed consolidated balance sheets as of April 2, 2000 and January 2, 2000, and condensed consolidated statements of earnings and cash flows for the quarters ended April 2, 2000 and April 4, 1999 are provided for such guarantor and non-guarantor subsidiaries. Separate financial statements and other disclosures concerning the guarantor and non-guarantor subsidiaries are not presented because management has determined that they are not material to investors. There are no contractual restrictions on the ability of the guarantor subsidiaries to make distributions to the Company. Condensed Consolidated Statement of Earnings Quarter Ended April 2, 2000 (In thousands)
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- Restaurant sales $ 132,111 34,909 - 167,020 Restaurant operating expenses 114,577 30,925 - 145,502 General and administrative expenses 8,511 1,992 - 10,503 - -------------------------------------------------------------------------------------------------------------------- Operating income 9,023 1,992 - 11,015 - -------------------------------------------------------------------------------------------------------------------- Other income (expense) (9,608) (2,194) - (11,802) Earnings (loss) before income taxes (585) (202) - (787) Income taxes (185) (65) - (250) - -------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (400) (137) - (537) ====================================================================================================================
Page 8 NOTE 6 - GUARANTOR SUBSIDIARIES (Continued) Condensed Consolidated Statement of Earnings Quarter Ended April 4, 1999 (In thousands)
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- Restaurant sales $ 140,188 23,887 - 164,075 Restaurant operating expenses 117,698 20,727 - 138,425 General and administrative expenses 8,624 1,216 - 9,840 - -------------------------------------------------------------------------------------------------------------------- Operating income 13,866 1,944 - 15,810 - -------------------------------------------------------------------------------------------------------------------- Other income (expense) (6,432) (276) - (6,708) Earnings before income taxes 7,434 1,668 - 9,102 Income taxes 2,575 575 - 3,150 - -------------------------------------------------------------------------------------------------------------------- Net earnings $ 4,859 1,093 - 5,952 ====================================================================================================================
Condensed Consolidated Balance Sheet April 2, 2000 (In thousands)
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- ASSETS Current assets $ 42,308 2,012 - 44,320 Premises and equipment, net 363,909 62,358 - 426,267 Goodwill, net 112,329 22,074 - 134,403 Investments carried at equity 17,438 - - 17,438 Other assets 29,562 269 - 29,831 Intercompany investments 48,403 - (48,403) - Intercompany advances 35,471 - (35,471) - - -------------------------------------------------------------------------------------------------------------------- $ 649,420 86,713 (83,874) 652,259 ==================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 85,948 2,555 - 88,503 Long-term liabilities 336,526 284 - 336,810 Intercompany payables - 35,471 (35,471) - Convertible preferred securities 115,000 - - 115,000 Shareholders' equity 111,946 48,403 (48,403) 111,946 - -------------------------------------------------------------------------------------------------------------------- $ 649,420 86,713 (83,874) 652,259 ====================================================================================================================
Page 9 NOTE 6 - GUARANTOR SUBSIDIARIES (Continued) Condensed Consolidated Balance Sheet January 2, 2000 (In thousands)
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- ASSETS Current assets $ 44,245 1,980 - 46,225 Premises and equipment, net 363,280 61,688 - 424,968 Goodwill, net 113,161 22,015 - 135,176 Investments carried at equity 17,411 - - 17,411 Other assets 32,534 282 - 32,816 Intercompany investments 47,784 - (47,784) - Intercompany advances 34,408 - (34,408) - - -------------------------------------------------------------------------------------------------------------------- $ 652,823 85,965 (82,192) 656,596 ==================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 81,024 3,493 - 84,517 Long-term liabilities 344,175 280 - 344,455 Intercompany payables - 34,408 (34,408) - Convertible preferred securities 115,000 - - 115,000 Shareholders' equity 112,624 47,784 (47,784) 112,624 - -------------------------------------------------------------------------------------------------------------------- $ 652,823 85,965 (82,192) 656,596 ====================================================================================================================
Condensed Consolidated Statement of Cash Flows Quarter Ended April 2, 2000 (In thousands)
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Elimin- Subsidiaries Subsidiaries ations Consolidated - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 5,663 860 - 6,523 Cash flows from investing activities: Capital expenditures (14,988) (1,809) - (16,797) Proceeds from disposal of assets, net 3,238 - - 3,238 Other investing activities (909) (111) - (1,020) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (12,659) (1,920) - (14,579) - -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from (repayment of) revolving credit agreements (2,934) - - (2,934) Proceeds from (payment of) interco. advances (1,063) 1,063 - - - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (3,997) 1,063 - (2,934) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (10,993) 3 - (10,990) Cash and cash equivalents at beginning of the period 11,190 77 - 11,267 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of the period $ 197 80 - 277 ====================================================================================================================
Page 10 NOTE 6 - GUARANTOR SUBSIDIARIES (Continued) Condensed Consolidated Statement of Cash Flows Quarter Ended April 4, 1999 (In thousands)
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Elimin- Subsidiaries Subsidiaries ations Consolidated - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 7,583 1,633 - 9,216 Cash flows from investing activities: Capital expenditures (15,808) (6,365) - (22,173) Proceeds from disposal of assets, net 45,643 - - 45,643 Other investing activities (3,440) - - (3,440) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 26,395 (6,365) - 20,030 - -------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from (repayment of) revolving credit agreements (3,009) - - (3,009) Purchase of treasury stock (32,435) - - (32,435) Proceeds from (payment of) interco. advances (4,738) 4,738 - - Other financing activities (224) - - (224) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (40,406) 4,738 - (35,668) - -------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (6,428) 6 - (6,422) Cash and cash equivalents at beginning of the period 7,162 54 - 7,216 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of the period $ 734 60 - 794 ====================================================================================================================
NOTE 7 - SUBSEQUENT EVENTS Subsequent to the end of the quarter ended April 2, 2000, the Company finalized the decision to consolidate the corporate offices of its Don Pablo's and Canyon Cafe brands into its corporate headquarters in Madison, Georgia. A charge of approximately $2-3 million representing severance and other related costs is expected to be included in second quarter results. The Company estimates that this consolidation and elimination of other overhead costs will generate general and administrative expense savings of approximately $6-7 million annually. In August 1999, the Company announced an initiative to evaluate strategic alternatives which could enhance and maximize shareholder value, including a proposal by a management group led by Tom E. DuPree, Jr. to acquire the Company. On April 24, 2000, the Company announced the completion of the evaluation of strategic alternatives and concluded that the most appropriate strategy at the present time is to continue as a publicly traded company. Page 11 Item 2. AVADO BRANDS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the First Quarter Ended April 2, 2000 Restaurant Sales Consolidated restaurant sales for the first quarter of fiscal 2000 increased to $167.0 million compared to $164.1 million for the same period of fiscal 1999. The increase reflects a 14% increase in sales from "core" brands which include Don Pablo's Mexican Kitchen restaurants, Hops Restaurant Bar & Brewery restaurants, McCormick & Schmick's seafood dinner houses and Canyon Cafe restaurants. Increased core brand revenues were substantially offset by the divested Applebee's brand which comprised 11% of total revenues in the first quarter of 1999 compared to no revenue in 2000. Increased core brand sales were attributable to increased operating capacity from three new restaurants opened in 2000 and 37 restaurants opened in 1999, somewhat offset by the closing of six core restaurants in 1999. In addition, same-store sales increased 1.5% compared to the first quarter of 1999 (same-store-sales comparisons include all restaurants open for 18 months as of the beginning of the quarter). Same-store-sales increases of 9.7% at Hops and 4.5% at McCormick & Schmick's were somewhat offset by decreases of 3.8% and 2.2% at Canyon Cafe and Don Pablo's, respectively. During the first quarter of 2000, the Company opened three core restaurants including two Hops and one McCormick & Schmick's restaurant. The following table presents core brand restaurants open as of the end of the first quarters of 2000 and 1999: April 2, April 4, 2000 1999 -------------------------------------------------------------------- Canyon Cafe 16 18 Don Pablo's 137 129 Hops 66 51 McCormick & Schmick's 27 22 -------------------------------------------------------------------- Total 246 220 ==================================================================== Page 12 Restaurant Operating Expenses The following table sets forth the percentages which certain items of income and expense bear to total restaurant sales for the quarters ended April 2, 2000 and April 4, 1999: -------------------------------------------------------------------------- Quarter Quarter Ended Ended April 2, 2000 April 4, 1999 -------------------------------------------------------------------------- Restaurant sales: Canyon Cafe 6.2% 7.3% Don Pablo's 45.3% 45.3% Hops 27.7% 19.8% McCormick & Schmick's 20.9% 16.9% Applebee's - 10.6% -------------------------------------------------------------------------- Total restaurant sales 100.0% 100.0% -------------------------------------------------------------------------- Restaurant operating expenses: Food and beverage 28.7% 27.8% Payroll and benefits 31.4% 31.2% Depreciation and amortization 3.6% 3.0% Other operating expenses 23.4% 22.4% -------------------------------------------------------------------------- Total restaurant operating expenses 87.1% 84.4% -------------------------------------------------------------------------- Income from restaurant operations 12.9% 15.6% General and administrative expenses 6.3% 6.0% -------------------------------------------------------------------------- Operating income 6.6% 9.6% ========================================================================== Restaurant operating expenses for the first quarter of 2000 were 87.1% of sales compared to 84.4% in the corresponding period of 1999. The increase was primarily attributable to (i) an increase in other restaurant operating expenses generated by increased advertising expense at Hops, Don Pablo's and Canyon Cafe, (ii) an increase in food and beverage costs due primarily to a focus on higher cost protein items at Don Pablo's, increased beef prices impacting primarily Don Pablo's and Hops and a bar mix shift away from beer to higher priced alcohol at Hops and (iii) increased depreciation and amortization due primarily to a decrease in the impact of Applebee's fixed assets which were not depreciated in 1999 due to their "held for sale" status and additional depreciation associated with the installation of new point-of-sale systems at Don Pablo's and McCormick & Schmick's which was completed in the fourth quarter of 1999. General and administrative expenses for the quarter ended April 2, 2000 increased to 6.3% from 6.0% in the corresponding period of 1999. The increase was primarily attributable to a decrease in leverage generated by the decline in sales from Applebee's which incurred lower general and administrative expenses in 1999 due to the pending divestiture. Subsequent to the end of the first quarter, the Company finalized the decision to consolidate the corporate offices of its Don Pablo's and Canyon Cafe brands into its corporate headquarters in Madison, Georgia. The Company estimates that this consolidation and elimination of other overhead costs will generate general and administrative expense savings of approximately $6-7 million annually. In connection with the consolidation of office facilities and the conclusion of the strategic alternatives evaluation which was announced on April 24, 2000, the Company anticipates incurring a special one-time charge of approximately $2-3 million in the second quarter of 2000. This charge will primarily reflect expenses related to employee severance agreements in addition to other costs related to the office consolidation and completion of the strategic alternatives evaluation. Interest and Other Expenses Interest expense for the quarter ended April 2, 2000 was $8.8 million compared to $4.9 million for the corresponding period of the prior year. The Page 13 increase from prior year was predominately attributable to interest expense associated with the Company's $100 million 11.75% senior subordinated notes issued in the second quarter of 1999. Income (loss) from investments carried at equity for the first quarter of 2000 primarily reflects income from the Company's 20% equity interest in Belgo Group PLC which was partially offset by the Company's portion of losses associated with two restaurants opened in 1999 under the Company's joint venture agreements with PizzaExpress PLC and Belgo Group PLC. Income tax as a percent of earnings before income taxes was 31.8% in the first quarter of 2000 compared to an effective rate of 30.9% for the full 1999 year. The higher effective tax rate for fiscal 2000 is due to an expected increase in taxable income as compared to 1999 and a corresponding decrease in the impact of FICA tip credits. Net loss for the quarter ended April 2, 2000 was $0.5 million compared to net earnings of $6.0 million for the corresponding quarter of 1999. The net earnings decrease was primarily attributable to a decrease in operating income margin, an increase in interest expense and a decrease in gain on disposal of assets as compared to 1999. Liquidity and Capital Resources The Company's historical and projected growth and its historical preference to own the real estate on which its restaurants are situated typically has caused it to be a net user of cash, even after a significant amount of expansion financing is internally generated from operations. Based on current and expected market conditions, the Company has committed to strategies to reduce its leverage over time. The extent of projected new restaurant development has been dramatically reduced in 2000 and 2001; the leasing of new sites to reduce initial capital will take preference over ownership; an aggressive program to realize cash from various non-operating assets has been implemented and other initiatives to reduce leverage are being evaluated, including the approval by the Board of Directors for a sale-leaseback transaction of up to $225 million. Since substantially all sales in the Company's restaurants are for cash and accounts payable are generally due in 15 to 45 days, the Company operates with negative working capital. Fluctuations in accounts receivable, inventories, prepaid expenses and other, accounts payable and accrued liabilities occur primarily as a result of new restaurant openings and the timing of settlement of the Company's liabilities. Further decreases in prepaid expenses and other occurred in the first quarter of 2000 due to the collection of notes receivable related to the Applebee's divestiture. Principal sources of funds in the first quarter of 2000 consisted of cash generated from operations of $6.5 million and proceeds from notes receivable of $3.2 million. The primary uses of funds consisted of capital expenditures of $16.8 million and repayment of revolving credit agreements of $2.9 million. Capital expenditures during the first quarter of 2000 provided for the opening of two Hops and one McCormick & Schmick's restaurant in addition to ongoing refurbishments of existing restaurants. Capital requirements for the construction of new restaurants are expected to approximate $28 million for the remainder of 2000 and $45 million in 2001. Management believes that cash flow from operations and liquidation of other assets will provide funding sufficient to satisfy expansion plans through fiscal 2001. On April 3, 2000, the Company finalized an amendment to its $125.0 million revolving credit facility which, among other things, reduces the credit availability under the facility by $10.0 million on each October 1, 2000 and December 31, 2000. Additional quarterly commitment reductions of $7.5 million begin on April 4, 2001 and continue until the quarter ended March 31, 2002. The remaining commitment of $67.5 million matures on June 22, 2002. At April 2, 2000, the Company has classified as current debt that portion of the revolving credit facility, $4.5 million, which is required to be repaid during the next 12 months. Management believes that cash flow from operations will be sufficient to meet its obligations under the revolving credit facility. Strategic Alternatives In August 1999, the Company announced an initiative to evaluate strategic alternatives which could enhance and maximize shareholder value, including a proposal by a management group led by Tom E. DuPree, Jr. to acquire the Company. Page 14 On April 24, 2000, the Company announced the completion of the evaluation of strategic alternatives and concluded that the most appropriate strategy at the present time is to continue as a publicly traded company. In connection with this announcement, the Company has been informed by the plaintiff's attorneys that seven lawsuits filed against the Company alleging the offer made by the management group to acquire the Company was inadequate, will be dismissed. Effect of Inflation Management believes that inflation has not had a material effect on earnings during the past several years. Inflationary increases in the cost of labor, food and other operating costs could adversely affect the Company's restaurant operating margins. In the past, however, the Company generally has been able to modify its operations, including raising prices, to offset increases in its operating costs. Forward-Looking Information Certain information contained in this Form 10-Q, particularly information regarding future economic performance and finances, restaurant development plans, capital requirements and objectives of management, is forward looking. In some cases, information regarding certain important factors that could cause actual results to differ materially from any such forward-looking statement appear together with such statement. Furthermore, the following factors, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the casual dining restaurant industry, which remains intense; changes in economic conditions such as inflation or a recession; consumer perceptions of food safety; weather conditions; changes in consumer tastes; labor and benefit costs; legal claims; the continued ability of the Company to obtain suitable locations and financing for new restaurant development; government monetary and fiscal policies; laws and regulations and governmental initiatives such as minimum wage rates and taxes. Other factors that may cause actual results to differ from the forward-looking statements contained in this release and that may affect the Company's prospects in general are described in Exhibit 99.1 to this Form 10-Q and the Company's other filings with the Securities and Exchange Commission. New Accounting Pronouncements June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." As amended by SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133", SFAS 133 will be effective for the Company's first quarter financial statements in fiscal 2001. The Company has not completed its evaluation of the impact, if any, that adoption of this statement will have on its consolidated financial position or results of operations. Page 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risk from changes in interest rates and changes in commodity prices. Exposure to interest rate risk relates primarily to variable rate U.S. LIBOR obligations on revolving credit and interest rate swap agreements. Interest rate swap agreements are utilized to manage overall borrowing costs and reduce exposure to adverse fluctuations in interest rates. Three interest rate swap agreements are currently in place under which the Company pays an average of certain foreign or U.S. LIBOR-based variable rates. These agreements also contain interest rate caps which further limit interest rate exposures. If interest rates related to the Company's U.S. LIBOR obligations increased by 100 basis points over the rates in effect at April 2, 2000, interest expense for the remainder of fiscal 2000, after considering the effects of interest rate swap agreements, would increase by approximately $1.6 million. If an additional 100 basis point interest rate increase occurred in the Company's foreign LIBOR-based obligations, interest expense in 2000 would increase by an additional $0.5 million. These amounts were determined by considering the impact of hypothetical interest rates on the Company's borrowing cost and interest rate swap agreements. In the event of a change of such magnitude, management would likely take actions to further mitigate interest rate exposures. The Company purchases certain commodities such as beef, chicken, flour and cooking oil. Purchases of these commodities are generally based on vendor agreements which often contain contractual features that limit the price paid by establishing price floors or caps. As commodity price aberrations are generally short term in nature and have not historically had a significant impact on operating performance, financial instruments are not used to hedge commodity price risk. Page 16 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 11.1 Computation of earnings per common share 27.1 Financial Data Schedule (EDGAR version only) 99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995 (b) Reports on Form 8-K. None Page 17 Signature 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. Avado Brands, Inc. (Registrant) Date: May 17, 2000 By: /s/ Erich J. Booth ------------------ Erich J. Booth Chief Financial Officer and Corporate Treasurer Page 18 EX-11.1 2 COMPUTATION OF EARNINGS PER SHARE Exhibit 11.1 Computation of Earnings Per Common Share (In thousands, except per share data)
Quarter Ended - ------------------------------------------------------------------------------------------------------------- April 2, April 4, 2000 1999 - ------------------------------------------------------------------------------------------------------------- Average number of common shares used in basic calculation 25,326 30,891 Net additional shares issuable pursuant to employee stock option plans at period-end market price - - Shares issuable on assumed conversion of convertible preferred securities - * 7,774 - ------------------------------------------------------------------------------------------------------------- Average number of common shares used in diluted calculation 25,326 38,665 ============================================================================================================= Net earnings $ (537) 5,952 Distribution savings on assumed conversion of convertible preferred securities, net of income taxes - * 1,328 - ------------------------------------------------------------------------------------------------------------- Net earnings for computation of diluted earnings per common share $ (537) 7,280 ============================================================================================================= - ------------------------------------------------------------------------------------------------------------- Basic earnings per common share $ (0.02) 0.19 ============================================================================================================= - ------------------------------------------------------------------------------------------------------------- Diluted earnings per common share $ (0.02)* 0.19 =============================================================================================================
* Diluted earnings (loss) per share ("EPS") for the first quarter of 2000 increases from $(0.02) to $0.02 when the Convertible Preferred Securities are included in the calculation. As those shares are antidilutive, they are excluded from the computation of diluted EPS. EX-27.1 3 FDS
5 (THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTERLY PERIOD ENDED APRIL 2, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS) 0000849101 Avado Brands, Inc. 1000 12-MOS Dec-31-2000 Jan-03-2000 Apr-02-2000 277 0 7,555 0 8,986 44,320 426,267 0 652,259 88,503 215,169 115,000 0 405 111,541 652,259 167,020 167,020 47,869 145,502 0 0 8,817 (787) (250) (537) 0 0 0 (537) (0.02) (0.02)
EX-99.1 4 SAFE HARBOR STATEMENT EXHIBIT 99.1 SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Private Securities Litigation Reform Act of 1995 (the "Act") provides a "safe harbor" for forward- looking statements to encourage companies to provide prospective information about their companies, so long as those statements are identified as forward looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. The Company desires to take advantage of the "safe harbor" provisions of the Act. Certain information, particularly information regarding future economic performance and finances, and plans and objectives of management, contained, or incorporated by reference, in this Form 10-Q is forward looking. In some cases, information regarding certain important factors that could cause actual results to differ materially from any such forward-looking statement appear together with such statement. Also, the following factors, in addition to other possible factors not listed, could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements: Competition. The casual dining restaurant industry is intensely competitive with respect to price, service, location, personnel, and type and quality of food. The Company competes with national, regional and local organizations primarily through the quality, variety and value perception of food products offered. The number and location of units, quality of service, attractiveness of facilities and effectiveness of advertising and marketing programs are also important factors. Economic, Market and Other Conditions. The casual dining restaurant industry is affected by changes in national, regional and local economic conditions, consumer preferences and spending patterns, demographic trends, consumer perceptions of food safety, weather, traffic patterns and the type, number and location of competing restaurants. Factors such as inflation, food costs, labor and benefit costs, legal claims, and the availability of management and hourly employees also affect restaurant operations and administrative expenses. The ability of the Company to finance new restaurant development, improvements and additions to existing restaurants and the acquisition of additional restaurant concepts is affected by economic conditions, including interest rates and other government policies impacting land and construction costs and the cost and availability of borrowed funds. Importance of Locations. The success of Company restaurants is dependent in substantial part on location. There can be no assurance that current locations will continue to be attractive, as demographic patterns change. It is possible the neighborhood or economic conditions where restaurants are located could decline in the future, thus resulting in potentially reduced sales in those locations. Government Regulation. The Company is subject to various federal, state and local laws affecting its business. The development and operation of restaurants depend to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other regulations. Restaurant operations are also subject to licensing and regulation by state and local departments relating to health, sanitation and safety standards, alcoholic beverage control laws, federal and state labor laws (including applicable minimum wage requirements, overtime, working and safety conditions, and citizenship requirements), state "dram-shop" statutes, and federal and state laws which prohibit discrimination and other laws regulating the design and operation of facilities, such as the Americans With Disabilities Act of 1990. Changes in these laws and regulations, particularly increases in applicable minimum wages, may adversely affect financial results. The Company cannot predict the effect on its operations of the future enactment of additional legislation . Growth Plans. The Company plans to increase the number of its restaurants open or under construction. There can be no assurance that the Company will be able to achieve growth objectives or that new restaurants opened or acquired will be profitable. The opening and success of restaurants depends on various factors, including the identification and availability of suitable and economically viable locations, sales levels at existing restaurants, the negotiation of acceptable lease or purchase terms for new locations, permitting and regulatory compliance, the ability to meet construction schedules, the ability of the Company to hire and train qualified management personnel, and general economic and business conditions. -----END PRIVACY-ENHANCED MESSAGE-----