-----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, U4mRmWuEK2kjEu3Vd15WjzaJsGCMAxHDdZFev3foBeACbA8Szlbjg/PkmTbh/xvR znLcrMJOJdyNkVY0k0jdTA== 0000849101-01-500014.txt : 20010821 0000849101-01-500014.hdr.sgml : 20010821 ACCESSION NUMBER: 0000849101-01-500014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010701 FILED AS OF DATE: 20010820 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: 1934 Act SEC FILE NUMBER: 000-19542 FILM NUMBER: 1719339 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 q2-10q.txt QUARTERLY REPORT FOR PERIOD ENDED JULY 1, 2001 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 July 1, 2001 ---------------------------- 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 Identification No.) incorporation or organization) 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 August 17, 2001, there were 28,671,983 shares of common stock of the Registrant outstanding. AVADO BRANDS, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JULY 1, 2001 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.......17 Part II - Other Information Item 4 - Submission of Matters to a Vote of Security Holders..............18 Item 6 - Exhibits and Reports on Form 8-K.................................18 Signature.....................................................................19 Page 2 Avado Brands, Inc. Consolidated Statements of Earnings (Unaudited)
(In thousands, except per share data) Quarter Ended Six Months Ended - ---------------------------------------------------------------------------------------------- ------------------------------ July 1, July 2, July 1, July 2, 2001 2000 2001 2000 - ---------------------------------------------------------------------------------------------- ------------------------------ Restaurant sales: Canyon Cafe $ 8,015 9,731 16,883 20,023 Don Pablo's 73,484 77,098 147,155 152,683 Hops 48,081 46,772 100,215 92,954 McCormick & Schmick's 47,006 40,878 89,716 75,839 - ---------------------------------------------------------------------------------------------- ------------------------------ Total restaurant sales 176,586 174,479 353,969 341,499 - ---------------------------------------------------------------------------------------------- ------------------------------ Restaurant operating expenses: Food and beverage 50,136 49,734 100,244 97,603 Payroll and benefits 57,174 54,690 114,396 107,205 Depreciation and amortization 5,699 6,296 11,628 12,290 Other operating expenses 46,364 40,398 91,376 79,522 - ---------------------------------------------------------------------------------------------- ------------------------------ Total restaurant operating expenses 159,373 151,118 317,644 296,620 - ---------------------------------------------------------------------------------------------- ------------------------------ General and administrative expenses 7,970 7,835 16,712 18,338 Other special charges 850 4,049 1,250 4,049 - ---------------------------------------------------------------------------------------------- ------------------------------ Operating income 8,393 11,477 18,363 22,492 - ---------------------------------------------------------------------------------------------- ------------------------------ Other income (expense): Interest expense, net (10,347) (9,707) (19,378) (18,524) Distribution expense on preferred securities (1,202) (2,013) (2,446) (4,025) Gain (loss) on disposal of assets (388) (1,701) 361 (1,701) Other, net (3,730) (1,046) (5,719) (2,019) - ---------------------------------------------------------------------------------------------- ------------------------------ Total other income (expense) (15,667) (14,467) (27,182) (26,269) - --------------------------------------------------------------------------------------------- ------------------------------- Earnings (loss) before income taxes (7,274) (2,990) (8,819) (3,777) Income taxes (2,425) (1,325) (2,925) (1,575) - ---------------------------------------------------------------------------------------------- ------------------------------ Net earnings (loss) $ (4,849) (1,665) (5,894) (2,202) ============================================================================================== ============================== Basic earnings (loss) per common share $ (0.17) (0.07) (0.21) (0.09) ============================================================================================== ============================== Diluted earnings (loss) per common share $ (0.17) (0.07) (0.21) (0.09) ============================================================================================== ==============================
See accompanying notes to consolidated financial statements. Page 3 Avado Brands, Inc. Consolidated Balance Sheets (Unaudited)
(In thousands, except share data) - -------------------------------------------------------------------------------------------------------------------- July 1, Dec. 31, 2001 2000 - -------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 384 402 Accounts receivable 5,737 7,621 Inventories 7,263 9,418 Prepaid expenses and other 5,336 3,535 Assets held for sale 115,765 13,855 - -------------------------------------------------------------------------------------------------------------------- Total current assets 134,485 34,831 Premises and equipment, net 313,801 379,938 Goodwill, net 73,624 132,012 Deferred income tax benefit 18,900 18,900 Other assets 42,431 44,000 - -------------------------------------------------------------------------------------------------------------------- $ 583,241 609,681 ==================================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 10,513 31,568 Accrued liabilities 64,288 64,567 Current installments of long-term debt 95,850 15,034 Income taxes 27,046 30,164 - -------------------------------------------------------------------------------------------------------------------- Total current liabilities 197,697 141,333 Long-term debt 215,743 291,507 Other long-term liabilities 14,946 16,024 - -------------------------------------------------------------------------------------------------------------------- Total liabilities 428,386 448,864 - -------------------------------------------------------------------------------------------------------------------- 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 68,584 72,865 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; issued - 40,478,760 shares outstanding - 28,634,131 shares in 2001 and 28,206,673 in 2000 405 405 Additional paid-in capital 146,419 147,809 Retained earnings 94,677 100,571 Treasury stock at cost; 11,844,629 shares in 2001 and 12,272,087 in 2000 (155,230) (160,833) - -------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 86,271 87,952 - -------------------------------------------------------------------------------------------------------------------- $ 583,241 609,681 ====================================================================================================================
See accompanying notes to consolidated financial statements. Page 4 Avado Brands, Inc. Consolidated Statements of Shareholders' Equity and Comprehensive Income (Unaudited)
Additional Total Common Stock Paid-in Retained Treasury Shareholders' (In thousands) Shares Amount Capital Earnings Stock Equity - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 2000 40,479 $405 $147,809 $100,571 ($160,833) $87,952 - ------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) - - - (1,045) - (1,045) Conversion of convertible preferred securities - - 329 - 3,638 3,967 Common stock issued to benefit plans - - (1,422) - 1,483 61 - ------------------------------------------------------------------------------------------------------------------------------- Balance at April 1, 2001 40,479 405 146,716 99,526 (155,712) 90,935 - ------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) - - - (4,849) - (4,849) Conversion of convertible preferred securities - - 14 - 155 169 Common stock issued to benefit plans - - (311) - 327 16 - ------------------------------------------------------------------------------------------------------------------------------- Balance at July 1, 2001 40,479 $405 $146,419 $94,677 ($155,230) $86,271 ===============================================================================================================================
See accompanying notes to consolidated financial statements. Page 5 Avado Brands, Inc. Consolidated Statements of Cash Flows (Unaudited)
(In thousands) Six Months Ended - --------------------------------------------------------------------------------------------------------------------- July 1, July 2, 2001 2000 - --------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net earnings (loss) $ (5,894) (2,202) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 16,159 16,181 Loss (gain) on disposal of assets (361) 1,701 Mark-to-market adjustment on interest rate swap (86) - Other special charges 1,250 4,049 (Increase) decrease in assets: Accounts receivable (768) (2,515) Inventories (60) (724) Prepaid expenses and other (3,576) 316 Increase (decrease) in liabilities: Accounts payable (7,958) 769 Accrued liabilities 6,631 (7,322) Income taxes (3,118) 1,464 Other long-term liabilities (163) (31) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 2,056 11,686 - --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (12,358) (31,547) Proceeds from notes receivable and disposal of assets, net 7,206 3,238 Investments in and advances to unconsolidated affiliates - (531) Additions to noncurrent assets (1,902) (1,956) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (7,054) (30,796) - --------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from (repayment of) revolving credit agreements 4,993 8,244 Principal payments on long-term debt (13) (11) - --------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 4,980 8,233 - --------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (18) (10,877) Cash and cash equivalents at the beginning of the period 402 11,267 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period $ 384 390 =====================================================================================================================
See accompanying notes to consolidated financial statements. Page 6 AVADO BRANDS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS July 1, 2001 (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 December 31, 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 and six-month period ended July 1, 2001 are not necessarily indicative of the results that may be expected for the year ending December 30, 2001. NOTE 2 - LONG-TERM DEBT On April 2, 2001, the Company executed an amended and restated credit agreement which provided a revolving line of credit of $95.8 million and letters of credit of $10.9 million. The revolver included scheduled commitment reductions of $10.0 million on May 31, 2001, September 4, 2001 and December 31, 2001. The remaining commitment of $65.8 million was to mature on March 29, 2002. In connection with the pending sale of McCormick & Schmick's, during June the Company executed an addendum to the credit agreement which retroactively waived the May 31, 2001 commitment reduction. The addendum also accelerated the maturity of the revolving credit facility to August 21, 2001 at which point those obligations due under the facility shall be payable in full. At July 1, 2001 the facility was fully drawn. The credit agreement includes various provisions which, among other things, require the Company to (i) maintain defined net worth and coverage ratios, (ii) maintain defined leverage ratios and (iii) achieve a defined quarterly earnings before interest, taxes, depreciation and amortization ("EBITDA") amount. At July 1, 2001, the Company was not in compliance with the EBITDA requirement. The Company anticipates substantially completing the sale of 33 of its 34 McCormick & Schmick's restaurants during August 2001. Estimated proceeds of $119.3 million from the initial transaction will be used to repay the amount outstanding under revolving credit portion of the credit facility thereby terminating the lenders' obligation to make further revolving loans under the agreement. The lenders under the facility are expected to continue to provide approximately $10.9 million in letters of credit that secure the Company's self-insurance programs. Of the remaining sale proceeds of $23.5 million, $6.0 million will be used to partially cash collateralize the letters of credit, $6.3 million will be used to satisfy the Company's portion of outstanding obligations related to McCormick & Schmick's, $4.3 million will be used to pay fees and expenses associated with the transaction and the balance will be available for past due amounts. The remaining restaurant is located in an area where transfer of permits to the new owners is a more lengthy process and, as a result, the closing on that restaurant, with proceeds totaling $4.2 million, is expected in the fourth quarter of 2001. The Company anticipates using these proceeds to more fully cash collateralize its letters of credit. If the Company is unable to complete the closing of the McCormick & Schmick's transaction prior to the August 21, 2001 maturity of its credit facility, management believes it will be able to extend the agreement. Interest payments on senior and subordinated notes approximate $11.6 million semi-annually in each June and December. Under the terms of the related note indentures, the Company has an additional 30-day period from the scheduled interest payment dates before an event of default is incurred and the Company utilized these provisions with respect to its June 2001 interest payments. Accordingly, the interest payment related to the senior notes was made on June 26, 2001 and the interest payment related to the subordinated notes was made on July 16, 2001. As a result of the deferral of the June 2001 interest payment on the subordinated notes to the third quarter, total interest payment requirements for the second half of 2001, including estimated interest related to the revolving credit facility incurred prior to repayment, will be approximately $18.7 million. In addition, maintenance capital is expected to approximate $4 to $6 Page 7 million. Management believes that cash flow from operations and the sale of other assets should be sufficient to satisfy its interest obligations and projected capital expenditures remaining in 2001. Excluding the McCormick & Schmick's division, assets held for sale totaled $8.1 million at July 1, 2001. The following table presents semi-annual, pro forma earnings before interest, taxes, depreciation and amortization ("EBITDA"), assuming the sale of McCormick & Schmick's had been completed as of the beginning of the periods presented (amounts in thousands): Six Months Six Months Six Months Ended Ended Ended July 1, 2001 July 2, 2000 Dec. 31, 2000 ------------------------------------------------------------------------------ Consolidated EBITDA $ 32,213 39,505 15,554 McCormick & Schmick's EBITDA 11,636 8,868 11,540 ------------------------------------------------------------------------------ Pro forma EBITDA $ 20,577 30,637 4,014 ============================================================================== The Company is estimating EBITDA for the six months ended December 30, 2001 of approximately $13.5 million, which includes EBITDA of $3.0 million related to the pre-sale operations of McCormick & Schmick's. While management believes that cash flow from operations supplemented by proceeds from the sale of closed restaurant properties and other assets held for sale will be sufficient to enable the Company to meet its obligations, these proposed asset sales are not presently subject to binding agreements. There can be no assurance that the Company will be able to satisfy its interest obligations and capital expenditure requirements in 2001 without generating proceeds from sales of these assets or from raising additional debt or equity capital. NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION For the six months ended July 1, 2001 and July 2, 2000, the following supplements the consolidated statements of cash flows (amounts in thousands): 2000 2001 ----------- ----------- Interest paid (net of amounts capitalized) $ 11,501 17,702 Distributions paid on preferred securities $ - 4,025 Income taxes paid (refunded) $ 193 (3,039) NOTE 4 - ASSET REVALUATION AND OTHER SPECIAL CHARGES Other special charges of $1.3 million in 2001 include severance costs of approximately $0.7 million associated with the elimination of certain management positions in the first quarter of 2001 and $0.6 million related to an abandoned site. In 2000, asset revaluation and other special charges totaled $38.2 million. These charges, which were predominately noncash, primarily reflected the decision to close 13 underperforming restaurants and asset revaluation charges related predominately to the decrease in planned new restaurant development. At December 31, 2000, accruals related to these charges totaled $6.0 million. During the first six months of 2001, cash payments of approximately $2.6 million reduced the accruals to approximately $3.4 million. NOTE 5 - DISPOSAL OF ASSETS Loss on disposal of assets for the quarter ended July 1, 2001 reflects the net result of the sale of an office facility in Bedford, Texas and the sale of various other closed restaurant properties and miscellaneous assets. NOTE 6 - INCOME TAXES Income tax benefit represents the effective rate of benefit on loss before income taxes for the first six months of 2001. The tax rate is based on the expected rate for the full-fiscal 2001 year. NOTE 7 - CONTINGENCIES 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 Page 8 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 (Artel Foam Corporation Pension Trust, et al. v. Apple South, Inc., et al., Civil Action No. CV-97-6189) was dismissed. An amended complaint, styled John Bryant, et al. vs. Apple South, Inc., et al. consolidating previous actions was filed in January 1998. 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 again considered the motion to dismiss the case, and the defendants renewed their motion to dismiss in December 1999. In June 2000, the District Court dismissed with prejudice the remaining suit. The plaintiffs have appealed the court's final decision. Although the ultimate outcome of the suit cannot be determined at this time, the Company believes that the allegations therein are without merit and intends to continue vigorously defending itself. NOTE 8 - INTEREST RATE SWAP As of the beginning of the fourth quarter of 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities", and its amendments SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133" and SFAS No. 138, "Accounting for Derivative Instruments and Certain Hedging Activities", (collectively referred to as SFAS 133). SFAS 133 requires all derivative financial instruments to be recognized in the consolidated financial statements at fair value regardless of the purpose or intent for holding the instrument. The adoption of SFAS 133 was recorded as a cumulative effect of change in accounting principle and resulted in a cumulative effect charge of $10.0 million ($6.3 million net of tax benefit) which was recorded in the fourth quarter of 2000. At July 1, 2001, the settlement or fair market value of the interest rate swap was $8.8 million and is included in other long-term liabilities in the accompanying consolidated balance sheet. The mark-to-market adjustment of $0.1 million was recorded as a reduction of interest expense. NOTE 9 - 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. Such indebtedness is not guaranteed by the Company's non-wholly owned subsidiaries. These non-guarantor subsidiaries primarily include certain partnerships of which the Company is typically a 90% owner. At July 1, 2001 and December 31, 2000, these partnerships in the non-guarantor subsidiaries operated 60 and 61, respectively, of the Company's restaurants. Accordingly, condensed consolidated balance sheets as of July 1, 2001 and December 31, 2000, and condensed consolidated statements of earnings and cash flows for the six months ended July 1, 2001 and July 2, 2000 are provided for such guarantor and non-guarantor subsidiaries. Corporate costs associated with the maintenance of a centralized administrative function for the benefit of all Avado restaurants have not been allocated to the non-guarantor subsidiaries. In addition, interest expense has not been allocated to the 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 Six Months Ended July 1, 2001
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- Restaurant sales $ 274,968 79,001 - 353,969 Restaurant operating expenses 244,982 72,662 - 317,644 General and administrative expenses 13,158 3,554 - 16,712 Other special charges 1,250 - - 1,250 - -------------------------------------------------------------------------------------------------------------------- Operating income 15,578 2,785 - 18,363 - -------------------------------------------------------------------------------------------------------------------- Other income (expense) (26,746) (436) - (27,182) Earnings (loss) before income taxes (11,168) 2,349 - (8,819) Income taxes (3,700) 775 - (2,925) - -------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (7,468) 1,574 - (5,894) ====================================================================================================================
Page 9 Condensed Consolidated Statement of Earnings Six Months Ended July 2, 2000
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- Restaurant sales $ 270,021 71,478 - 341,499 Restaurant operating expenses 233,340 63,280 - 296,620 General and administrative expenses 15,186 3,152 - 18,338 Other special charges 4,049 - - 4,049 - -------------------------------------------------------------------------------------------------------------------- Operating income 17,446 5,046 - 22,492 - -------------------------------------------------------------------------------------------------------------------- Other income (expense) (25,552) (717) - (26,269) Earnings (loss) before income taxes (8,106) 4,329 - (3,777) Income taxes (3,375) 1,800 - (1,575) - -------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (4,731) 2,529 - (2,202) ====================================================================================================================
Condensed Consolidated Balance Sheet July 1, 2001
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- ASSETS Current assets $ 130,622 3,863 - 134,485 Premises and equipment, net 282,773 31,028 - 313,801 Goodwill, net 52,090 21,534 - 73,624 Deferred income tax benefit 18,900 - - 18,900 Other assets 37,083 5,348 - 42,431 Intercompany investments 48,099 - (48,099) - Intercompany advances 7,837 - (7,837) - - -------------------------------------------------------------------------------------------------------------------- $ 577,404 61,773 (55,936) 583,241 ==================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 192,940 4,757 - 197,697 Long-term liabilities 229,609 1,080 - 230,689 Intercompany payables - 7,837 (7,837) - Convertible preferred securities 68,584 - - 68,584 Shareholders' equity 86,271 48,099 (48,099) 86,271 - -------------------------------------------------------------------------------------------------------------------- $ 577,404 61,773 (55,936) 583,241 ====================================================================================================================
Condensed Consolidated Balance Sheet December 31, 2000
- -------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - -------------------------------------------------------------------------------------------------------------------- ASSETS Current assets $ 32,449 2,382 - 34,831 Premises and equipment, net 347,646 32,292 - 379,938 Goodwill, net 110,164 21,848 - 132,012 Deferred income tax benefit 18,900 - - 18,900 Other assets 38,419 5,581 - 44,000 Intercompany investments 46,525 - (46,525) - Intercompany advances 12,010 - (12,010) - - -------------------------------------------------------------------------------------------------------------------- $ 606,113 62,103 (58,535) 609,681 ==================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities $ 138,011 3,322 - 141,333 Long-term liabilities 307,285 246 - 307,531 Intercompany payables - 12,010 (12,010) - Convertible preferred securities 72,865 - - 72,865 Shareholders' equity 87,952 46,525 (46,525) 87,952 - -------------------------------------------------------------------------------------------------------------------- $ 606,113 62,103 (58,535) 609,681 ====================================================================================================================
Page 10 Condensed Consolidated Statement of Cash Flows Six Months Ended July 1, 2001
- ------------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ (2,876) 4,932 - 2,056 Cash flows from investing activities: Capital expenditures (11,597) (761) - (12,358) Proceeds from disposal of assets, net 7,206 - - 7,206 Other investing activities (1,902) - - (1,902) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (6,293) (761) - (7,054) - ------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from revolving credit agreeements 4,993 - - 4,993 Principal payments on long-term debt (13) - - (13) Proceeds from (payment of) intercompany advances 4,173 (4,173) - - - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 9,153 (4,173) - 4,890 - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (16) (2) - (18) Cash and equivalents at the beginning of the period 310 92 - 402 - ------------------------------------------------------------------------------------------------------------------------- Cash and equivalents at the end of the period $ 294 90 - 384 =========================================================================================================================
Condensed Consolidated Statement of Cash Flows Six Months Ended July 2, 2000
- ------------------------------------------------------------------------------------------------------------------------- Guarantor Non-Guarantor (In thousands) Subsidiaries Subsidiaries Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities $ 11,377 309 - 11,686 Cash flows from investing activities: Capital expenditures (30,333) (1,214) - (31,547) Proceeds from disposal of assets, net 3,238 - - 3,238 Other investing activities (1,779) (708) - (2,487) - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (28,874) (1,922) - (30,796) - ------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net proceeds from revolving credit agreements 8,244 - - 8,244 Principal payments on long-term debt (11) - - (11) Proceeds from (payment of) intercompany advances (1,620) 1,620 - - - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 6,613 1,620 - 8,233 - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (10,884) 7 - (10,877) Cash and equivalents at the beginning of the period 11,190 77 - 11,267 - ------------------------------------------------------------------------------------------------------------------------- Cash and equivalents at the end of the period $ 306 84 - 390 ==========================================================================================================================
Page 11 Item 2. AVADO BRANDS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the Second Quarter and Six Months Ended July 1, 2001 Restaurant Sales Consolidated restaurant sales for the second quarter and six months ended July 1, 2001 were $176.6 million and $354.0 million, respectively, compared to $174.5 million and $341.5 million for the same respective periods of 2000. Increased sales were primarily attributable to increased operating capacity from three new restaurants opened in 2001 and 19 restaurants opened in 2000. In addition, price increases of approximately 1% and 3% at Hops and McCormick & Schmick's, respectively, were implemented in the first quarter of 2001 and resulted in slight increases in sales. The increased sales from new restaurants and price increases were somewhat offset by the closing of 13 unprofitable restaurant locations, including four Don Pablo's, three Canyon Cafes and two Hops restaurants which were closed in January 2001 and four additional Don Pablo's locations which were closed in March 2001. Sales increases were further offset by a 2.9% decrease in consolidated same-store sales for the second quarter as compared to the second quarter of 2000 (same-store-sales comparisons include all restaurants open for 18 months as of the beginning of the quarter). The consolidated same-store-sales decrease for the second quarter included decreases of 12.8% at Canyon Cafe, 2.3% at Don Pablo's, 2.8% at Hops and 1.8% at McCormick & Schmick's. On a year-to-date basis, consolidated same-store sales decreased by approximately 1.5%. Sales in the first half of 2001 were negatively impacted by the effects of a slowing economy and management expects such sales impacts to continue through the third quarter and into the fourth quarter of 2001. During the first six months of 2001, the Company opened one new Hops and two new McCormick & Schmick's restaurants. The following table presents restaurants open at the end of the second quarters of 2001 and 2000: July 1, July 2, 2000 2001 ---------------------------------------------------------------------- Canyon Cafe 14 16 Don Pablo's 131 138 Hops 74 70 McCormick & Schmick's 34 30 ----------------------------------------------------------------------- Total 253 254 ======================================================================= 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 quarter and six-month periods ended July 1, 2001 and July 2, 2000:
- ------------------------------------------------------------------------------------------------------------------ Quarter Quarter Six Months Six Months Ended Ended Ended Ended July 1, 2001 July 2, 2000 July 1, 2001 July 2, 2000 - ------------------------------------------------------------------------------------------------------------------ Restaurant sales: Canyon Cafe 4.5% 5.6% 4.8% 5.9% Don Pablo's 41.6% 44.2% 41.6% 44.7% Hops 27.2% 26.8% 28.3% 27.2% McCormick & Schmick's 26.6% 23.4% 25.3% 22.2% - ------------------------------------------------------------------------------------------------------------------ Total restaurant sales 100.0% 100.0% 100.0% 100.0% - ------------------------------------------------------------------------------------------------------------------ Restaurant operating expenses: Food and beverage 28.4% 28.5% 28.3% 28.6% Payroll and benefits 32.4% 31.3% 32.3% 31.4% Depreciation and amortization 3.2% 3.6% 3.3% 3.6% Other operating expenses 26.3% 23.2% 25.8% 23.3% - ------------------------------------------------------------------------------------------------------------------ Total restaurant operating expenses 90.3% 86.6% 89.7% 86.9% - ------------------------------------------------------------------------------------------------------------------ Income from restaurant operations 9.7% 13.4% 10.3% 13.1% General and administrative expenses 4.5% 4.5% 4.7% 5.4% - ------------------------------------------------------------------------------------------------------------------ Operating income before special charges 5.2% 8.9% 5.5% 7.8% ==================================================================================================================
Restaurant operating expenses for the second quarter and six-month period ended July 1, 2001 were 90.3% and 89.7%, respectively, compared to 86.6% and 86.9% for the corresponding periods of 2000. The resulting decreases in restaurant operating margins for the quarter and six-month periods were predominately due to increases in other operating expenses generated by (i) an ongoing advertising strategy designed to build sales volumes over time at Don Pablo's which increased advertising expenditures to 5.5% of its sales in the first half of 2001 compared to 3.1% in the corresponding period of 2000, (ii) an increase in utility costs affecting substantially all of the Company's restaurants, (iii) an increase in rent expense at Hops resulting from a sale-leaseback transaction completed in the fourth quarter of 2000 that reduced debt and related interest expense as well as depreciation expense and (iv) an increase in training costs at Don Pablo's related to a focus on customer service initiatives and the timing of new-manager training. Increases in other operating expenses were somewhat offset by a decrease in preopening expenses resulting from three new restaurants opened in the first two quarters of 2001 compared to 11 restaurants opened in the corresponding period of 2000. Additional increases in restaurant operating expenses were generated by an increase in payroll and benefits due primarily to (i) efforts to improve customer service and management turnover rates including management base pay increases implemented in the fourth quarter of 2000 at McCormick & Schmick's, (ii) an increase in management positions at Hops coupled with the restructuring of management bonus programs and (iii) an increase in hourly labor as a percent of sales resulting from a decline in sales volumes at Don Pablo's and Hops. Further decreases in depreciation expense resulted from the June discontinuation of depreciation related to the McCormick & Schmick's assets which are classified as held for sale and the fourth quarter 2000 decision to close 13 underperforming restaurants which also caused the discontinuation of depreciation expense related to the corresponding fixed assets. Increased restaurant operating expenses were further offset by a decrease in food and beverage expenses. Continuing efforts to maximize purchasing synergies resulted in all four brands achieving a decrease in food and beverage expenses compared to the first half of the prior year. General and Administrative Expenses and Other Special Charges General and administrative expenses of 4.5% of sales for the quarter ended July 1, 2001 were comparable to the second quarter of 2000. For the six-month period ended July 1, 2001, general and administrative expenses decreased to 4.7% of sales from 5.4% in the first half of 2000. The decrease was primarily attributable to synergies gained from the consolidation of the Don Pablo's and Canyon Cafe headquarters into the Madison, Georgia corporate office facility in Page 13 the second quarter of 2000. In addition, in the first quarter of 2001 certain management positions were eliminated which further reduced general and administrative expenses. Other special charges of $1.3 million in 2001 include severance costs of approximately $0.7 million associated with the elimination of management positions and $0.6 million related to an abandoned site. Interest and Other Expenses Net interest expense for the second quarter and six-month period ended July 1, 2001 was $10.3 million and $19.4 million, respectively, compared to $9.7 million and $18.5 million for the corresponding periods of the prior year. Increased interest charges on extended payment terms related to accounts payable, additional amortization of deferred loan costs associated with revolving credit agreement amendments, and interest payments made under a fixed-to-floating interest rate swap agreement, which were somewhat offset by favorable mark-to-market adjustments, were substantially offset by a decrease in the average outstanding balance under the Company's revolving credit facility as compared to 2000. Distribution expense on preferred securities relates to the Company's $3.50 term convertible securities with a liquidation preference of $50 per security and convertible into 3.3801 shares of Avado Brands common stock for each security (the "Convertible Preferred Securities"). Expenses related to these securities decreased as a result of the conversion of 842,692 of the securities into 2,848,383 shares of common stock issued from treasury stock during 2000 coupled with 85,628 additional conversions in the first half of 2001. The Company has the right to defer quarterly distribution payments on the Convertible Preferred Securities for up to 20 consecutive quarters and has deferred its December 1, 2000, March 1, 2001 and June 1, 2001 payments until March 1, 2003 and expects to further defer these payments beyond March 1, 2003 as it continues its ongoing process of reducing leverage and increasing profitability. Loss on disposal of assets for the quarter ended July 1, 2001 reflects the net result of the sale of an office facility in Bedford, Texas and the sale of various other closed restaurant properties and miscellaneous assets. Other expenses relate primarily to amortization of goodwill and other miscellaneous non-operating and typically non-recurring income and expenses. These expenses increased in 2001 due primarily to the incurrence of various tax penalties. Income tax benefit represents the effective rate of benefit on loss before income taxes for the first six months of 2001. The tax rate is based on the expected rate for the full-fiscal 2001 year. Liquidity and Capital Resources The Company's growth and its preference to own the real estate on which its restaurants are situated have caused it to be a net user of cash, even after taking into account the significant amount of financing internally generated from operations. Since substantially all sales are made 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 current assets, accounts payable and accrued liabilities typically occur as a result of new restaurant openings and closings and the timing of settlement of liabilities. Decreases in current asset and liability accounts occurred in the second quarter of 2001 primarily as a result of the reclassification of the assets and liabilities of the McCormick & Schmick's brand to "Assets held for sale". Additional decreases in accounts payable during the first and second quarters occurred as a result of a planned reduction in the number of days payables were outstanding, in addition to a reduction in capital expenditures payable. Increases in accrued liabilities, which were more than offset by the reclassification of McCormick & Schmick's accrued liabilities, occurred primarily as a result of increases in sales, use, property and other taxes payable, interest accrued on the 11.75% Senior Subordinated Notes due 2009 that was paid in July 2001; and deferred payments related to the Convertible Preferred Securities. In the first half of 2001, the Company continued to focus on strategies initiated in 2000 to reduce leverage. New restaurant development plans in the near term have been dramatically reduced from historical levels; the leasing of new sites to reduce initial capital has taken preference over ownership; and an Page 14 aggressive program to realize cash from various operating and non-operating assets has been implemented. In the first half of 2001, these initiatives included the closure of 13 underperforming restaurants which generated operating losses of $3.2 million in 2000 and the exit from two international joint ventures. In addition, the Company completed the sale of non-core assets totaling $7.2 million and continued suspension of the quarterly dividend payment on the Convertible Preferred Securities. Additional financing sources in the first six months included net proceeds of $5.0 million from the revolving credit agreement and cash generated from operations of $2.1 million. The primary use of funds consisted of capital expenditures of $12.4 million (including a $3.0 million reduction in capital expenditures payable) for the opening of one Hops and two McCormick & Schmick's restaurants as well as maintenance capital for existing restaurants. The Company does not anticipate opening any additional restaurants in 2001. Maintenance capital for existing restaurants for the remainder of 2001 is expected to be approximately $4 to $6 million. The Company does not currently have any capital commitments for new restaurants extending beyond 2001 and will evaluate potential new restaurant openings in 2002 based on projected return on investment and capital availability. On April 2, 2001, the Company executed an amended and restated credit agreement which provided a revolving line of credit of $95.8 million and letters of credit of $10.9 million. The revolver included scheduled commitment reductions of $10.0 million on May 31, 2001, September 4, 2001 and December 31, 2001. The remaining commitment of $65.8 million was to mature on March 29, 2002. In connection with the pending sale of McCormick & Schmick's, during June the Company executed an addendum to the credit agreement which retroactively waived the May 31, 2001 commitment reduction. The addendum also accelerated the maturity of the revolving credit facility to August 21, 2001 at which point those obligations due under the facility shall be payable in full. At July 1, 2001 the facility was fully drawn. The credit agreement includes various provisions which, among other things, require the Company to (i) maintain defined net worth and coverage ratios, (ii) maintain defined leverage ratios and (iii) achieve a defined quarterly earnings before interest, taxes, depreciation and amortization ("EBITDA") amount. At July 1, 2001, the Company was not in compliance with the EBITDA requirement. The Company anticipates substantially completing the sale of 33 of its 34 McCormick & Schmick's restaurants during August 2001. Estimated proceeds of $119.3 million from the initial transaction will be used to repay the amount outstanding under revolving credit portion of the credit facility thereby terminating the lenders' obligation to make further revolving loans under the agreement. The lenders under the facility are expected to continue to provide approximately $10.9 million in letters of credit that secure the Company's self-insurance programs. Of the remaining sale proceeds of $23.5 million, $6.0 million will be used to partially cash collateralize the letters of credit, $6.3 million will be used to satisfy the Company's portion of outstanding obligations related to McCormick & Schmick's, $4.3 million will be used to pay fees and expenses associated with the transaction and the balance will be available for past due amounts. The remaining restaurant is located in an area where transfer of permits to the new owners is a more lengthy process and, as a result, the closing on that restaurant, with proceeds totaling $4.2 million, is expected in the fourth quarter of 2001. The Company anticipates using these proceeds to more fully cash collateralize its letters of credit. If the Company is unable to complete the closing of the McCormick & Schmick's transaction prior to the August 21, 2001 maturity of its credit facility, management believes it will be able to extend the agreement. Interest payments on senior and subordinated notes approximate $11.6 million semi-annually in each June and December. Under the terms of the related note indentures, the Company has an additional 30-day period from the scheduled interest payment dates before an event of default is incurred and the Company utilized these provisions with respect to its June 2001 interest payments. Accordingly, the interest payment related to the senior notes was made on June 26, 2001 and the interest payment related to the subordinated notes was made on July 16, 2001. As a result of the deferral of the June 2001 interest payment on the subordinated notes to the third quarter, total interest payment requirements for the second half of 2001, including estimated interest related to the revolving credit facility incurred prior to repayment, will be approximately $18.7 million. In addition, maintenance capital is expected to approximate $4 to $6 million. Management believes that cash flow from operations and the sale of other assets should be sufficient to satisfy its interest obligations and projected capital expenditures remaining in 2001. Excluding the McCormick & Schmick's division, assets held for sale totaled $8.1 million at July 1, 2001. The following table presents semi-annual, pro forma earnings before interest, taxes, depreciation and amortization ("EBITDA"), assuming the sale of McCormick Page 15 & Schmick's had been completed as of the beginning of the periods presented (amounts in thousands): Six Months Six Months Six Months Ended Ended Ended July 1, 2001 July 2, 2000 Dec. 31, 2000 ------------------------------------------------------------------------------ Consolidated EBITDA $ 32,213 39,505 15,554 McCormick & Schmick's EBITDA 11,636 8,868 11,540 ------------------------------------------------------------------------------ Pro forma EBITDA $ 20,577 30,637 4,014 ============================================================================== The Company is estimating EBITDA for the six months ended December 30, 2001 of approximately $13.5 million, which includes EBITDA of $3.0 million related to the pre-sale operations of McCormick & Schmick's. While management believes that cash flow from operations supplemented by proceeds from the sale of closed restaurant properties and other assets held for sale will be sufficient to enable the Company to meet its obligations, these proposed asset sales are not presently subject to binding agreements. There can be no assurance that the Company will be able to satisfy its interest obligations and capital expenditure requirements in 2001 without generating proceeds from sales of these assets or from raising additional debt or equity capital. At July 1, 2001, the Company held notes receivable from Tom E. DuPree, Jr., the Chairman of the Board and Chief Executive Officer, totaling $10.9 million, $3.0 million of which are secured by real estate owned by Mr. DuPree. The notes mature on June 30, 2002 and bear interest at 11.5%, payable at maturity. At July 1, 2001, the notes plus approximately $2.3 million in accrued interest were included in "Other assets" in the accompanying consolidated balance sheet. The Company, Mr. DuPree and the Board of Directors are currently investigating various payment, security and extension alternatives and, as such, the notes and related accrued interest continue to be classified as noncurrent assets at July 1, 2001. Effect of Inflation Management believes that inflation has not had a material effect on earnings during the past several years. Future 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 to offset increases in its operating costs. Various federal and state laws increasing minimum wage rates have been enacted over the past several years. Such legislation, however, has typically frozen the wages of tipped employees at $2.13 per hour if the difference is earned in tip income. Although the Company has experienced slight increases in hourly labor costs in recent years, the effect of increases in minimum wage have been significantly diluted due to the fact that the majority of the Company's hourly employees are tipped and the Company's non-tipped employees have historically earned wages greater than federal and state minimums. As such, the Company's increases in hourly labor costs have not been proportionate to increases in minimum wage rates. Forward-Looking Information Certain information contained in this quarterly report, particularly information regarding the 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. In addition, 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 Page 16 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 the Company's Form 10-Q for the fiscal quarter ended April 2, 2000, and the Company's other filings with the Securities and Exchange Commission. New Accounting Pronouncements In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", which is effective for all business combinations initiated after June 30, 2001. SFAS 141 requires companies to account for all business combinations using the purchase method of accounting, recognize intangible assets if certain criteria are met, as well as provide additional disclosures regarding business combinations and allocation of purchase price. The Company will adopt SFAS No. 141 as of July 1, 2001, and the impact of such adoption is not anticipated to have a material adverse impact on the Company's financial statements. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which requires nonamortization of goodwill and intangible assets that have indefinite useful lives and annual tests of impairments of those assets. The statement also provides specific guidance about how to determine and measure goodwill and intangible asset impairments, and requires additional disclosure of information about goodwill and other intangible assets. The provisions of the statement are required to be applied starting with fiscal years beginning after December 15, 2001 and applied to all goodwill and other intangible assets recognized in financial statements at that date. The Company will adopt SFAS 142 effective at the beginning of its fiscal 2002 year, and has not completed its evaluation of the impact, if any, that adoption of the statement will have on its consolidated financial position or results of operations. 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 U.S.-based rates and foreign-based rate obligations on the Company's revolving credit agreement and a fixed to floating interest rate swap agreement, respectively. Interest rate swap agreements have historically been utilized to manage overall borrowing costs and balance fixed and floating interest rate obligations. Currently the Company has only one such swap agreement in place. Under the agreement, which has a $115.0 million notional amount and terminates on March 1, 2008, the Company pays an average of certain foreign LIBOR-based variable rates (8.5% at July 1, 2001) and receives a fixed 7% rate tied to the Convertible Preferred Securities. The agreement has served to reduce the Company's exposure to U.S. interest rates and also contains an interest rate cap which further limits interest rate exposure. At the beginning of the fourth quarter of 2000, the Company adopted SFAS 133. Although the Company's swap agreement is an effective diversification of interest rate exposure, it does not qualify for fair value hedge accounting under SFAS 133. As such, the Company has recorded the swap agreement at fair value in the accompanying consolidated balance sheets and records fluctuations in the fair value on a mark-to-market basis as an adjustment to interest expense. At July 1, 2001, the settlement or fair market value of the agreement was $8.8 million. If interest rates related to the swap agreement increased by 100 basis points over the rates in effect at July 1, 2001, interest expense for the remainder of fiscal 2001 would not be materially impacted due to the interest rate cap protection which limits the rate paid by the Company to 8.5%. However, a decrease in rates could result in a significant fair value increase. Such a rate decrease followed by an increase in rates could result in significant volatility in the fair value of the contract and corresponding volatility in the Company's earnings per share. 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 17 Part II. Other Information - -------------------------- Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- The annual meeting of shareholders was held on May 2, 2001, at which the following proposals were voted upon by shareholders: (1) the election of eight members to the Board of Directors, (2) a proposal to approve an amendment to the Company's Articles of Incorporation to effect a one-for-four reverse split of the Company's common stock and (3) ratification of the selection of KPMG LLP as the Company's independent auditors. Each of the eight members of the Company's Board of Directors was elected to serve a term of one year and until his or her successor is elected, and has qualified by the following votes: Affirmative Negative ----------- --------- Tom E. DuPree, Jr. 21,935,663 5,070,624 Erich J. Booth 22,058,424 4,947,863 Margaret E. Waldrep 21,927,663 5,078,624 William P. McCormick* 26,674,212 332,075 Jerome A. Atkinson 26,673,979 332,308 William V. Lapham 26,672,069 334,218 Emilio Alvarez-Recio 26,666,369 339,918 Robert Sroka 26,672,279 334,008 * In conjunction with the with the sale of McCormick & Schmick's, William P. McCormick has resigned from the Board of Directors The remaining proposals voted on at the May 2, 2001 annual meeting of shareholders were approved as follows: Affirmative Negative Abstaining ----------- -------- ---------- Approval of reverse stock split 26,257,698 724,329 24,260 Appointment of KPMG LLP 26,919,960 74,092 12,235 Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibits. 11.1 Computation of earnings per common share 99.1 Safe Harbor Under the Private Securities Litigation Reform Act of 1995* * Incorporated by reference to the corresponding exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 2000. (b) Reports on Form 8-K. The Company filed a Current Report on Form 8-K, dated June 7, 2001, which disclosed, pursuant to Item 5, the Company's intent to sell its McCormick & Schmick's brand. The report also included pro forma financial statements pursuant to Item 7 of Form 8-K. Page 18 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: August 20, 2001 By:/s/Erich J. Booth ----------------------------- Erich J. Booth Chief Financial Officer and Corporate Treasurer Page 19 EX-11 3 exb11-q2.txt EARNINGS PER SHARE Exhibit 11.1 Computation of Earnings Per Common Share
(In thousands, except per share data) Quarter Ended Six Months Ended - ------------------------------------------------------------------------------------------------------------------------------ July 1, July 2, July 1, July 2, 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------------------------------ Average number of common shares used in basic calculation 28,625 25,332 28,455 25,329 Net additional shares issuable pursuant to employee stock option plans at period-end market price - - - - Shares issuable on assumed conversion of convertible preferred securities - * - * - * - * - ------------------------------------------------------------------------------------------------------------------------------ Average number of common shares used in diluted calculation 28,625 25,332 28,455 25,329 ============================================================================================================================== Net earnings $ (4,849) (1,665) (5,894) (2,202) Distribution savings on assumed conversion of convertible preferred securities, net of income taxes - * - * - * - * - ------------------------------------------------------------------------------------------------------------------------------ Net earnings for computation of diluted earnings per common share $ (4,849) (1,665) (5,894) (2,202) ============================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------ Basic earnings per common share $ (0.17) (0.07) (0.21) (0.09) ============================================================================================================================== - ------------------------------------------------------------------------------------------------------------------------------ Diluted earnings per common share $ (0.17)* (0.07)* (0.21)* (0.09)* ==============================================================================================================================
* Inclusion of the shares related to the convertible preferred securities results in an increase to earnings (loss) per share ("EPS") in 2001 and 2000. As those shares are antidilutive, they have been excluded from the computation of diluted EPS. -----END PRIVACY-ENHANCED MESSAGE-----