-----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, BAwaCwGAU/Nx2teoaCCfEkzvPtcrQMx1XsnH16tfI5Zd8Ynd/U1aUC8AKwek+t/A MoWEotUlQZdATy+JAwsgqg== 0000849101-96-000003.txt : 19961115 0000849101-96-000003.hdr.sgml : 19961115 ACCESSION NUMBER: 0000849101-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960929 FILED AS OF DATE: 19961113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPLE SOUTH INC CENTRAL INDEX KEY: 0000849101 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 592778983 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19542 FILM NUMBER: 96661892 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 10-Q 1 QUARTERLY REPORT FOR APPLE SOUTH, INC. 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 September 29, 1996 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 0-19542 APPLE SOUTH, 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 November 11, 1996, there were 38,437,924 shares of common stock of the Registrant outstanding. APPLE SOUTH, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 29, 1996 INDEX Part I - Financial Information Page Item 1 - Consolidated Financial Statements: Consolidated Statements of Earnings.................................3 Consolidated Balance Sheets.........................................4 Consolidated Statement of Shareholders' Equity......................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..............................................10 Part II - Other Information Item 6 - Exhibits and Reports on Form 8-K..........................12 Signature ...................................................................13 Page 2 Part 1 - Financial Information Item 1 - Financial Statements APPLE SOUTH, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands, except per share data) (Unaudited)
Quarter Ended Nine Months Ended - ----------------------------------------------------------------------------------------- Sept. 29, Oct. 1, Sept. 29, Oct. 1, 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------- Restaurant sales: Applebee's $ 95,911 81,229 280,438 218,268 Don Pablo's 36,603 24,527 96,471 62,614 Harrigan's 5,269 5,599 16,545 16,983 Tomato Rumba's -- 5,601 3,526 14,088 Hardee's 2,013 2,036 6,094 6,234 - ----------------------------------------------------------------------------------------- Total restaurant sales 139,796 118,992 403,074 318,187 - ----------------------------------------------------------------------------------------- Restaurant operating expenses: Food and beverage 38,467 32,659 110,585 87,717 Payroll and benefits 42,713 34,668 119,663 93,535 Depreciation and amortization . 5,427 4,639 16,253 12,318 Other operating expenses 33,332 27,064 92,054 71,708 - ----------------------------------------------------------------------------------------- Total restaurant operating expenses 119,939 99,030 338,555 265,278 - ----------------------------------------------------------------------------------------- Income from restaurant operations 19,857 19,962 64,519 52,909 General and administrative expenses 6,748 6,057 19,925 16,150 Merger and asset revaluation charges 7,300 1,964 27,100 1,964 - ----------------------------------------------------------------------------------------- Operating income 5,809 11,941 17,494 34,795 - ----------------------------------------------------------------------------------------- Other income (expense): Interest expense (3,455) (1,571) (7,521) (4,284) Interest income -- 171 65 552 Other, net (491) (392) (1,511) (826) - ----------------------------------------------------------------------------------------- Total other income (expense) (3,946) (1,792) (8,967) (4,558) - ----------------------------------------------------------------------------------------- Earnings before income taxes 1,863 10,149 8,527 30,237 Income taxes 675 3,675 3,050 10,950 - ----------------------------------------------------------------------------------------- Net earnings $ 1,188 6,474 5,477 19,287 ========================================================================================= Earnings per common and common equivalent share $ 0.03 0.16 0.14 0.50 ========================================================================================= Weighted average common and common equivalent shares outstanding 39,147 40,079 39,625 38,301 =========================================================================================
See accompanying notes to consolidated financial statements. Page 3 APPLE SOUTH, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share data) (Unaudited)
- ---------------------------------------------------------------------------------------------- Sept. 29, Dec. 31, 1996 1995 - ---------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 2,154 4,806 Short-term investments 54 377 Accounts receivable 3,527 3,506 Inventories 5,993 5,416 Prepaid expenses and other 7,184 5,282 - -------------------------------------------------------------------------------------------- Total current assets 18,912 19,387 Premises and equipment, net 356,027 303,077 Franchise costs, net 5,493 4,920 Goodwill, net 36,856 38,375 Other assets 10,396 3,379 - -------------------------------------------------------------------------------------------- $ 427,684 369,138 ============================================================================================ Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 18,716 13,489 Accrued liabilities 27,310 20,282 Current installments of long-term debt 339 3,207 Income taxes -- 187 - -------------------------------------------------------------------------------------------- Total current liablilites 46,365 37,165 Long-term debt 188,354 118,726 Deferred income taxes 8,800 10,026 - -------------------------------------------------------------------------------------------- Total liabilities 243,519 165,917 - -------------------------------------------------------------------------------------------- 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; 39,116,432 issued in 1996 and 39,079,261 issued in 1995 391 391 Additional paid-in capital 135,330 142,355 Retained earnings 65,097 60,475 Treasury stock at cost; 829,116 shares in 1996 (16,653) -- - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- $ 427,684 369,138 ============================================================================================
See accompanying notes to consolidated financial statements. Page 4 APPLE SOUTH, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands, except per share amounts) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------- Additional Total Common Stock Paid-in Retained Treasury Shareholders' Shares Amount Capital Earnings Stock Equity - ---------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 39,079 $391 $ 142,355 $ 60,475 $ -- $ 203,221 Net earnings (loss) -- -- -- (5,487) -- (5,487) Purchase of common stock -- -- -- -- (8,215) (8,215) Common stock issued to ESPP 5 -- 100 -- -- 100 Common stock issued to ESOP -- -- (21) -- 271 250 Exercise of options -- -- (4,228) -- 4,698 470 Tax effect of exercise of options by employees -- -- 1,498 -- -- 1,498 Cash dividends ($0.006 per share) -- -- -- (235) -- (235) - --------------------------------------------------------------------------------------------------------------- Balance at March 31, 1996 39,084 391 139,704 54,753 (3,246) 191,602 - --------------------------------------------------------------------------------------------------------------- Net earnings -- -- -- 9,777 -- 9,777 Purchase of common stock -- -- -- -- (10,725) (10,725) Common stock issued to ESPP -- -- (2) -- 98 96 Exercise of options 32 -- (2,557) -- 3,667 1,110 Tax effect of exercise of options by employees -- -- 1,386 -- -- 1,386 Cash dividends ($0.008 per share) -- -- -- (313) -- (313) - --------------------------------------------------------------------------------------------------------------- Balance at June 30, 1996 39,116 391 138,531 64,217 (10,206) 192,933 - --------------------------------------------------------------------------------------------------------------- Net earnings -- -- -- 1,188 -- 1,188 Purchase of common stock -- -- -- -- (11,108) (11,108) Common stock issued to ESPP -- -- 6 -- 117 123 Exercise of options -- -- (4,168) -- 4,544 376 Tax effect of exercise of options by employees -- -- 961 -- -- 961 Cash dividends ($0.008 per share) -- -- -- (308) -- (308) - --------------------------------------------------------------------------------------------------------------- Balance at September 29, 1996 39,116 $391 $ 135,330 $ 65,097 ($16,653) $ 184,165 ===============================================================================================================
See accompanying notes to consolidated financial statements. Page 5 APPLE SOUTH, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months Ended - ----------------------------------------------------------------------------------------------------- Sept. 29, Oct. 1, 1996 1995 - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 5,477 19,287 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 19,032 13,441 Increase (decrease) in current assets and current liabilities 7,833 (2,655) Deferred income taxes (1,226) 2,315 Asset revaluation charges 23,762 -- - ----------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (88,823) (86,143) Proceeds from sale of premises and equipment 429 746 Short-term investments 323 2,445 Additions to franchise costs (823) (784) Additions to other assets (7,017) (818) Assets acquired for cash -- (52,059) - ----------------------------------------------------------------------------------------------------- Net cash used in investing activities (95,911) (136,613) - ----------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from (repayment of) revolving credit agreements (38,590) 43,500 Proceeds from issuance of long-term debt 125,000 -- Principal payments on long-term debt (19,650) (5,924) Proceeds from issuance of common stock 2,525 60,904 Dividends declared and paid (856) (451) Purchase of treasury stock (30,048) -- - ----------------------------------------------------------------------------------------------------- Net cash provided by financing activities 38,381 98,029 - ----------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS DURING THE PERIOD (2,652) (6,196) Cash and cash equivalents at the beginning of the period 4,806 20,587 - ----------------------------------------------------------------------------------------------------- Cash and cash equivalents at the end of the period $ 2,154 14,391 =====================================================================================================
See accompanying notes to consolidated financial statements. Page 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 29, 1996 (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 materi al 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, 1995, 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 nine-month period ended September 29, 1996 are not necessarily indicative of the results that may be expected for the year ending December 29, 1996. NOTE 2 - SHAREHOLDERS' EQUITY In February 1996, the Company announced that it would purchase up to one million shares of its common stock through open market transactions to satisfy obligations under stock option and employee stock ownership plans. This repurchase program was completed in July 1996. In September 1996, the Company announced a separate one million share repurchase program. As of September 29, 1996, the Company had purchased an aggregate 1,447,800 shares of its common stock under these programs at an average price of $ 20.64 per share. Cash dividends declared and paid in the quarter ended September 29, 1996 were $308,000, or $0.008 per share. On November 6, 1996, the Company declared a cash dividend of $0.008 per share, payable on November 29, 1996, to shareholders of record on November 15, 1996. NOTE 3 - LONG-TERM DEBT In June 1996, the Company issued $125 million of 9.75% registered senior notes due June 2006. A portion of the proceeds from this offering was used to pay down the Company's $185 million unsecured revolving bank credit facilities. In July 1996, the Company repaid the outstanding balance of $18 million on a term loan at par. On September 29, 1996, approximately $61 million was outstanding under the revolving bank credit facilities. Page 7 On September 30, 1996, the Company replaced a $20 million bank credit facility with a new $25 million revolving line of credit, effectively increasing the Company's unsecured revolving bank credit facilities to $190 million. NOTE 4 - INCOME TAXES The Company's effective tax rate for the first nine months of both 1996 and 1995 was approximately 36%. The Company's effective tax rate for the full year 1996 is expected to be 36%, which approximates the effective tax rate on 1995 earnings before merger and conversion costs associated with the merger with DF&R Restaurants, Inc. NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION For the nine months ended September 29, 1996 and October 1, 1995, the following supplements the consolidated statements of cash flows (amounts in thousands): 1996 1995 ------ ------ Interest paid $4,121 $3,401 Income taxes paid $1,541 $6,660 NOTE 6 - COMMITMENTS As of September 29, 1996, the Company had commitments aggregating approximately $23 million for the acquisition and construction of new restaurants. At September 29, 1996, the Company had fulfilled its obligation under development agreements with Applebee's International, Inc., the franchisor of Applebee's restaurants, to open Applebee's restaurants in 1996 and is obligated to open 47 additional Applebee's restaurants through 1997. NOTE 7 - ASSET REVALUATION In the first quarter of 1996, the Company closed 12 of its 18 Tomato Rumba's restaurants and all three of its Gianni's Little Italy Restaurants and accelerated efforts to sell its ten Hardee's restaurants. The Company's decision regarding the Tomato Rumba's and Hardee's divisions prompted an evaluation of the fair value of the assets in these divisions. Fair value of the assets in the Tomato Rumba's and Hardee's divisions was determined in accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," by comparing expected future cash flows to the carrying amount of these assets. The resulting impairment charge of $19.8 million consisted primarily of the asset impairment loss and included certain operating losses related to the Tomato Rumba's division. Page 8 On July 28, 1996, the Company closed the six remaining restaurants in its Tomato Rumba's division. As a result of these closings, the Company incurred an additional impairment charge of approximately $7.3 million in the third quarter. Page 9 Item 2. APPLE SOUTH, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 29, 1996 COMPARISON OF HISTORICAL RESULTS - FISCAL QUARTERS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995 Restaurant sales for the third quarter and the nine months ended September 29, 1996 increased 17% and 27% compared with the same periods in 1995. This increase in sales for 1996 is primarily due to sales from 31 Applebee's and 14 Don Pablo's opened in the first nine months of 1996 and ten Applebee's and one Don Pablo's opened in the last quarter of 1995. This sales increase was partially offset by the closure of twelve Tomato Rumba's restaurants in March 1996 and the closure of the six remaining locations in July 1996. Sales at existing restaurants which were operating at normal capacity (these restaurants collectively average annual sales of approximately $2.25 million at Applebee's and approximately $2.75 million at Don Pablo's) in 1995 were approximately 4% lower at Applebee's and 7% higher at Don Pablo's in the first nine months of 1996 as compared with the same period in 1995. Sales at those restaurants which were operating below capacity were approximately 3% lower at Applebee's and 14% higher at Don Pablo's for the first nine months of 1996. Management believes that the sales increase at its Don Pablo's restaurants is primarily the result of television advertising which was initiated during the first nine months of 1996. Sales, primarily at the Applebee's division, were negatively impacted by unseasonably severe weather in the first quarter, and by hurricanes and the Olympics in the third quarter. For the third quarter and the nine months ended September 29, 1996 restaurant operating expenses as a percent of sales increased 2.6% and 0.6% as compared with the same periods in 1995. The resulting decrease in restaurant operating margins is principally due to (i) higher payroll and benefits and training costs due to increased staffing levels in the Applebee's division, (ii) higher food and beverage costs due primarily to an increase in dairy prices, and (iii)lower average unit volumes in the Applebee's division, which reduced operating leverage on fixed costs. These margin declines were partially offset by an improvement in food and beverage costs in the Don Pablo's division, which was the result of a new distribution supply contract. General and administrative expenses as a percent of sales decreased by 0.3% in the third quarter and 0.2% in the first nine months of 1996 as compared with the same periods in 1995. This decrease is due to no executive bonuses being earned in the third quarter. On July 28, 1996, the Company closed the six remaining restaurants in its Tomato Rumba's division. As a result of these closings, the Company incurred an additional impairment charge of $7.3 million . Interest expense as a percent of sales increased in 1996 compared with 1995 due to higher average borrowings as a result of Company expansion and higher average borrowing rates as a result of the new permanent layer of capital added in the form of the registered senior notes. Other expenses increased in 1996 Page 10 compared with 1995 primarily due to the amortization of goodwill and other intangibles recorded as a part of the purchase price allocations for acquisitions made by the Company in 1995. The Company's effective tax rate for the full year 1996 is expected to be 36%, which approximates the effective tax rate on 1995 earnings before merger costs associated with DF&R. As a result of the factors discussed above, net earnings for the third quarter of 1996 decreased to 0.8% of sales compared with 5.4% for the same period in 1995. For the nine months ended September 29, 1996, net earnings were 1.4% compared with 6.1% for the same period in 1995. This decrease in net earnings for the first nine months of 1996 was primarily the result of the asset revaluation costs of $27.1 million ($17.3 million, after tax). Responding to lower average unit volumes, higher mangement turnover, and other factors precipitated by a cultural clash in a Midwest acquisition completed in 1995 in the Applebee's division, the Company increased staffing levels and added eleven experienced multi-unit managers to enhance operational leadership and to improve guest service in the Applebee's division during the third quarter of 1996. These actions resulted in increased payroll and benefits costs in the third quarter, which are expected to continue through 1996 and into 1997. Management anticipates that these higher costs will be offset with average unit volume increases. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents decreased approximately $2.7 million in the nine months ended September 29, 1996. Principal sources of funds in the first nine months of 1996 consisted of (i) cash flow from operations ($55 million) and (ii) the issuance of senior notes ($125 million). The primary uses of funds consisted of (i) repayment of revolving credit agreements ($39 million), (ii) costs associated with expansion, principally land, building and equipment associated with the construction of new Applebee's and Don Pablo's restaurants ($89 million), (iii) the purchase of 1,137,800 shares of treasury stock ($30 million), (iv) repayment of long-term debt, including a term loan ($20 million), and (v) additions to other assets ($7 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 is able to operate with negative working capital. The increases in inventory, premises and equipment, franchise costs, accounts payable and accrued liabilities are principally due to the 45 restaurants opened during the first nine months of 1996. The increase in prepaid expenses is due to $0.9 million in prepaid income tax and $1.0 million in real estate deposits. The increase in other assets is principally due to the increase in cash surrender value of an officer's life insurance policy (approximately $0.9 million), deferred loan costs related to the June senior note offering (approximately $3.1 million), and land held for corporate office development (approximately $2.9 million) purchased in the first nine months of 1996. Further increases in current assets and liabilities are expected as the Company continues its restaurant development program. In connection with obtaining the consent of Applebee's International, Inc., the franchisor of Applebee's restaurants (the "Franchisor"), for the June, 1995 transfer of the Marcus Applebee's restaurants and the exclusive development rights to territories in Wisconsin and the Chicago area, the Company agreed to establish new annual development schedules through the year 2000. At September 29, 1996, Apple South Page 11 was obligated to open 142 additional Applebee's restaurants by the end of the year 2000, including 47 required to be opened through 1997. In the first nine months of 1996, the Company expanded its unsecured revolving bank credit agreements from $120 million to $190 million with interest payable at a margin above LIBOR or at prime. Approximately $61 million was outstanding under these revolving bank credit agreements as of September 29, 1996. In June 1996, the Company issued $125 million of registered senior notes at an interest rate of 9.75%. Management believes that the proceeds from this debt offering, together with cash flow from operations and remaining borrowings available under existing credit agreements will provide funding sufficient to achieve the Company's expansion plans at least through 1997. FORWARD-LOOKING INFORMATION The Company does not expect a significant increase in payroll expenses, as a result of the recently-enacted minimum wage legislation, but is uncertain of the repercussion, if any, on other expenses as vendors are impacted by higher minimum wage standards. The information contained herein includes certain forward-looking information regarding restaurant openings, operating margins, capital requirements, cash flow from operations and assumptions regarding the availability of new credit facilities. This forward-looking information could be affected by changes in monetary and fiscal policies, laws and regulations, and social and economic conditions, such as inflation or a recession, increased competition in the restaurant industry, the current trend toward "dining out" and the amount, type and cost of financing available to the Company. PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. 27.1 Financial Data Schedule (b) Reports on Form 8-K. None. Page 12 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. APPLE SOUTH, INC. (REGISTRANT) Date: November 12, 1996 By: /s/ Erich J. Booth ----------------------- Erich J. Booth Chief Financial Officer (On behalf of the Registrant and as Chief Accounting Officer) Page 13 EX-27 2 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-29-1996 JAN-01-1996 SEP-29-1996 2,154 54 3,527 0 5,993 18,912 356,027 0 427,684 46,365 188,354 0 0 391 183,774 427,684 403,074 403,074 110,585 338,555 0 0 7,521 8,527 3,050 5,477 0 0 0 5,477 .14 0
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