<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION l3 OR l5(d) OF THE SECURITIES
EXCHANGE ACT OF l934
For quarterly period ended______________ June 30, 1996____________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to________________________
Commission file number 1-8766
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VOLUNTEER CAPITAL CORPORATION
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(Exact name of registrant as specified in its charter)
TENNESSEE 62-0854056
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202
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(Address of principal executive offices)
(Zip Code)
(615) 269-1900
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(Registrant's telephone number, including area code)
______________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
----
Common Stock Outstanding - 5,315,550 shares at August 12, 1996.
Page 1 of 16 pages.
Exhibit Index on page 16.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
JUNE 30 December 31
1996 l995
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $1,639 $2,234
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . - 505
Accounts and notes receivable, including current portion of direct
financing leases . . . . . . . . . . . . . . . . . . . . . . . . . 307 313
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 889 848
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . 1,205 1,541
Prepaid expenses and other current assets . . . . . . . . . . . . . . 384 484
------- ------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . 4,424 5,925
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,129 1,091
PROPERTY AND EQUIPMENT, at cost, less allowances for
depreciation and amortization of $21,421 and $20,661 at June 30,
1996, and December 31, 1995, respectively . . . . . . . . . . . . . . 56,329 46,915
DEFERRED INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . 3,995 3,995
DEFERRED CHARGES, less amortization . . . . . . . . . . . . . . . . . . 2,436 2,214
------- -------
$68,313 $60,140
======= =======
</TABLE>
-2-
<PAGE> 3
<TABLE>
<CAPTION>
JUNE 30 December 31
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $4,056 $ 3,704
Accrued expenses and other current liabilities . . . . . . . . . . 4,284 4,151
Current portion of long-term debt and obligations
under capital leases . . . . . . . . . . . . . . . . . . . . . . 275 297
------- -------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . 8,615 8,152
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of portion classified as current . . . . . . . . . . . 25,072 18,512
DEFERRED COMPENSATION AND OTHER DEFERRED CREDITS . . . . . . . . . . 592 501
STOCKHOLDERS' EQUITY
Common Stock, par value $.05 per share: Authorized l0,000,000
shares; issued and outstanding 5,315,050 and 5,276,972 shares at
June 30, 1996, and December 31, 1995, respectively . . . . . . . 266 264
Preferred Stock, no par value: Authorized 1,000,000 shares; none
issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 29,425 29,199
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . 5,371 4,540
------- -------
35,062 34,003
Note receivable - Employee Stock Ownership Plan . . . . . . . . . . . (1,028) (1,028)
------- -------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 34,034 32,975
COMMITMENTS AND CONTINGENCIES
------- -------
$68,313 $60,140
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 4
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended Quarter Ended
---------------- -------------
JUNE 30 July 2 JUNE 30 July 2
1996 l995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . $45,056 $38,105 $23,369 $20,005
Costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . . 15,687 13,279 8,041 7,016
Restaurant labor and related costs . . . . . . 13,424 11,194 6,955 5,817
Depreciation and amortization of restaurant
property and equipment . . . . . . . . . . . 1,863 1,413 973 742
Royalties . . . . . . . . . . . . . . . . . . . 1,057 1,069 555 563
Other operating expenses . . . . . . . . . . . 7,000 5,528 3,612 2,927
------- ------- ------- -------
Total restaurant operating expenses . . . . . 39,031 32,483 20,136 17,065
------- ------- ------- -------
Income from restaurant operations . . . . . . . . 6,025 5,622 3,233 2,940
General and administrative expenses . . . . . . . 4,026 3,597 1,999 1,816
------- ------- ------- -------
Operating income . . . . . . . . . . . . . . . . 1,999 2,025 1,234 1,124
------- ------- ------- -------
Other income (expense):
Interest expense . . . . . . . . . . . . . . . (745) (742) (378) (358)
Interest income . . . . . . . . . . . . . . . . 26 376 9 170
Other, net . . . . . . . . . . . . . . . . . . (2) 87 (57) 58
------- ------- ------- -------
Total other income (expense) . . . . . . . . (721) (279) (426) (130)
------- ------- ------- -------
Income before income taxes . . . . . . . . . . . 1,278 1,746 808 994
Income tax provision . . . . . . . . . . . . . . 447 145 283 81
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . . . . . $ 831 $ 1,601 $ 525 $ 913
======= ======= ======= =======
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . . $ .15 $ .30 $ .10 $ .17
======= ======= ======= =======
Fully diluted . . . . . . . . . . . . . . . . . $ 15 $ .29 $ .10 $ .17
======= ======= ======= =======
Weighted average number of shares:
Primary . . . . . . . . . . . . . . . . . . . . 5,466 5,407 5,484 5,422
======= ======= ======= =======
Fully diluted . . . . . . . . . . . . . . . . . 5,466 5,447 5,484 5,454
======= ======= ======= =======
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
JUNE 30 July 2
1996 1995
-------- -------
<S> <C> <C>
Net cash provided by operating activities . . . . . . . . . . . . . . $3,249 $3,620
Net cash used by investing activities:
Proceeds from maturities and sales of investments . . . . . . . . . 505 1,000
Purchase of investments . . . . . . . . . . . . . . . . . . . . . . - (985)
Purchase of property and equipment . . . . . . . . . . . . . . . . (11,082) (8,644)
Other investing activities . . . . . . . . . . . . . . . . . . . . (7) (64)
------- ------
(10,584) (8,693)
Net cash provided (used) by financing activities:
Payments on debt and obligations under capital leases . . . . . . . . (246) (225)
Borrowings on line of credit . . . . . . . . . . . . . . . . . . . . 6,758 -
Other financing activities . . . . . . . . . . . . . . . . . . . . . 228 80
------- ------
6,740 (145)
Decrease in Cash and Cash Equivalents . . . . . . . . . . . . . . . . (595) (5,218)
Cash and cash equivalents at beginning of period . . . . . . . . . . 2,234 14,802
------- ------
Cash and Cash Equivalents at End of Period . . . . . . . . . . . . . $1,639 $9,584
====== ======
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 6
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed 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
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain reclassifications have been made in
the prior year's consolidated condensed financial statements to conform to the
1996 presentation. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended June 30,
1996, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 29, 1996. For further information, refer to
the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1995.
NOTE B - SALE OF WENDY'S OPERATIONS
In July 1996, the Company signed a letter of intent to sell
substantially all of its Wendy's franchised restaurant operations to Wendy's
International, Inc. (WI) for $28.3 million in cash plus the assumption of
capitalized lease obligations and long-term debt totalling approximately $2.5
million. Consummation of the transaction is subject to the negotiation and
execution of a definitive purchase agreement and the fulfillment of customary
closing conditions. Management estimates the transaction will generate net
proceeds of approximately $24 million, a pre-tax gain of approximately $8-$10
million, and will close on or before October 31, 1996.
Under terms of the letter of intent, WI will purchase 52 of the
Company's 58 Wendy's restaurants. The Company will close or sell the remaining
six restaurants. As of June 30, 1996, the property and equipment associated
with the 58 units held for disposal had a net carrying value (historical cost
less accumulated depreciation/amortization) of $19.0 million. Following the
divestiture of the Wendy's restaurant operations, the operating revenues of the
Company will be significantly reduced. The Wendy's division generated
restaurant operating income of $3.5 million on sales of $26.4 million during
the first six months of 1996 and operating income of $2.0 million on sales of
$13.9 million during the second quarter of 1996.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Volunteer Capital Corporation operated 58 franchised Wendy's Old
Fashioned Hamburgers restaurants and ten proprietary J. Alexander's
full-service, casual dining restaurants at June 30, 1996. In July 1996, the
Company entered into a letter of intent to sell substantially all of its
Wendy's restaurant operations as is more fully discussed under "Liquidity and
Capital Resources".
Income before income taxes decreased by $468,000 (26.8%) for the first
six months of 1996 and by $186,000 (18.7%) for the second quarter of 1996 as
compared to the same periods of the previous year. Restaurant operating income
in the J. Alexander's division increased by $853,000 and $389,000 for the six
months and quarter ended June 30, 1996, as compared to the 1995 periods, more
than offsetting decreases of $450,000 and $96,000 in the Wendy's division
during the same periods. The resulting increases in income from restaurant
operations were more than offset, however, by other items consisting primarily
of decreases in interest income and increases in general and administrative
expenses.
Net income decreased by $770,000 (48.1%) and $388,000 (42.5%) for the
first six months and second quarter of 1996, as compared to the same periods in
the previous year. Due to the Company's having recognized all of its deferred
tax assets in the fourth quarter of 1995, earnings for both of the 1996 periods
were taxed at an effective rate of 35%, as compared with effective rates of
8.3% and 8.1% in the 1995 periods.
WENDY'S RESTAURANT OPERATIONS
Results of the Wendy's restaurant operations before allocation of
other income, general and administrative expenses and net interest expense for
the six months and second quarters ended June 30, 1996, and July 2, 1995, were
as follows:
<TABLE>
<CAPTION>
Six Months Ended
JUNE 30, 1996 July 2,1995
--------------------------- -------------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $26,410 100.0% $26,719 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 9,141 34.6 9,325 34.9
Labor and related costs . . . . . . . . . . 7,736 29.3 7,660 28.7
Depreciation and amortization of restaurant
property and equipment . . . . . . . . . . 1,074 4.1 958 3.6
Royalties . . . . . . . . . . . . . . . . . 1,057 4.0 1,069 4.0
Other operating expenses . . . . . . . . . 3,880 14.7 3,735 14.0
------- ---- ------- -----
22,888 86.7 22,747 85.1
------- ---- ------- -----
Restaurant operating income . . . . . . . . . $ 3,522 13.3% $ 3,972 14.9%
======= ==== ======= =====
</TABLE>
-7-
<PAGE> 8
<TABLE>
<CAPTION>
Quarter Ended
JUNE 30, 1996 July 2, 1995
------------------------------ ----------------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
-------------- ----- -------------- -----
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $13,871 100.0% $14,063 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . . . . . 4,736 34.1 4,921 35.0
Labor and related costs . . . . . . . . . . . 4,032 29.1 4,021 28.6
Depreciation and amortization of restaurant
property and equipment . . . . . . . . . . . 559 4.0 500 3.6
Royalties . . . . . . . . . . . . . . . . . . 555 4.0 563 4.0
Other operating expenses . . . . . . . . . . 2,016 14.5 1,989 14.1
------- ----- ------- -----
11,898 85.8 11,994 85.3
------- ----- ------- -----
Restaurant operating income . . . . . . . . . $ 1,973 14.2% $ 2,069 14.7%
======= ===== ======= =====
</TABLE>
The Company operated 58 Wendy's restaurants at both June 30, 1996 and
July 2, 1995.
Total sales in the Wendy's division decreased 1.2% and 1.4% for the
first half and second quarter of 1996 as compared to the same periods in 1995.
Weighted average per unit sales of restaurants open for all of the first half
and second quarter of both 1996 and 1995 decreased 4.8% and 3.6%, respectively,
to $460,000 and $240,000 in the 1996 periods as compared to $483,000 and
$249,000 in the 1995 periods. The Company estimates that menu prices, after
considering promotional discounts, increased by approximately 6.5% and 4.0%
during the first six months and second quarter of 1996, as compared to the same
periods in 1995.
Management believes that continued competition in the quick-service
restaurant industry in general and intense retail price competition by other
major hamburger chains in particular have continued to be the most significant
factors adversely impacting weighted average sales per unit, continuing a trend
that began in mid-1994. The Wendy's division results are directly affected by
major competition among the big four hamburger chains (McDonald's, Burger King,
Wendy's and Hardee's).
The development of new Wendy's restaurants by other franchisees in
certain of the Company's market areas, and to a lesser degree the opening of
new restaurants by the Company near its existing restaurants, have also
negatively affected the Company's sales in certain locations. Sales declines
have been most pronounced in the Company's North and South Carolina markets,
which represent 42 of its 58 Wendy's units. A number of programs and products
have been targeted at these markets by the Company in an attempt to reverse the
declining sales trends. In addition, the Company has completed major
remodeling projects at a number of its restaurants and believes the remodeling
program is essential to maintaining a strong competitive position in these
markets. Management continues to believe that aggressive core product
discounting is counterproductive because of its negative impact on margins.
Although same store sales were down for the first half and second
quarter of 1996, as compared to the same periods in 1995, the trend improved
each period of the second quarter of 1996, and modest increases were realized
during the months of June and July, 1996. Management attributes the
improvement in same store sales to strong consumer acceptance of Wendy's
Chicken Nugget product and the favorable impact of increased menu prices.
-8-
<PAGE> 9
Cost of sales, which includes the cost of food and paper supplies,
decreased as a percentage of sales in the Wendy's division for the first half
and second quarter of 1996 as compared to the same periods in 1995, as the
impact of lower promotional discounting, combined with the favorable impact of
decreased costs of ground beef and lettuce more than offset the increased cost
of paper supplies.
Restaurant labor and related costs increased as a percentage of net
sales for the first half and second quarter of 1996 due to the effect of higher
wages and the decline in weighted average sales per unit.
Other operating expenses increased as a percentage of sales for the
first half and second quarter of 1996 as compared to the same periods in the
prior year, primarily because of increases in rent expense associated with new
units developed in 1995 and the impact of the decline in same store sales.
J. ALEXANDER'S RESTAURANT OPERATIONS
The Company operated ten J. Alexander's restaurants at June 30, 1996
compared with six at July 2, 1995. The Company's eleventh J. Alexander's
restaurant opened on July 22, 1996 in Plantation, Florida.
J. Alexanders sales and operating income, before allocation of other
income, general and administrative expenses and net interest expense, for the
six months and second quarters ended June 30, 1996, and July 2, 1995, were as
follows:
<TABLE>
<CAPTION>
Six Months Ended
JUNE 30, 1996 July 2,1995
-------------------------- --------------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
-------------- ------ -------------- ------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $18,646 100.0% $11,386 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 6,546 35.1 3,954 34.7
Labor and related costs . . . . . . . . . . 5,688 30.5 3,534 31.0
Depreciation and amortization of restaurant
property and equipment . . . . . . . . . 789 4.2 455 4.0
Other operating expenses . . . . . . . . . 3,120 16.7 1,793 5.7
------- ---- ------ ----
16,143 86.6 9,736 85.5
------- ---- ------ ----
Restaurant operating income . . . . . . . . . $ 2,503 13.4% $1,650 14.5%
======= ==== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
JUNE 30, 1996 July 2,1995
-------------------------- ---------------------------
AMOUNT % OF Amount % of
(IN THOUSANDS) SALES (in thousands) Sales
-------------- ------ --------------- -------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $9,498 100.0% $5,942 100.0%
Restaurant costs and expenses:
Cost of sales . . . . . . . . . . . . . . . 3,305 34.8 2,095 35.3
Labor and related costs . . . . . . . . . . 2,923 30.8 1,796 30.2
Depreciation and amortization of restaurant
property and equipment . . . . . . . . . 414 4.4 242 4.1
Other operating expenses . . . . . . . . . 1,596 16.8 938 15.8
------ ---- ----- ----
8,238 86.7 5,071 85.3
------ ---- ----- ----
Restaurant operating income . . . . . . . . $1,260 13.3% $ 871 14.7%
====== ==== ===== ====
</TABLE>
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<PAGE> 10
Net sales for the J. Alexander's division increased 64% and 60% in the
first half and second quarter of 1996 compared to the same periods of 1995, due
primarily to the opening of new restaurants. In addition, same store sales,
which include comparable sales for all restaurants open for more than 12
months, averaged $82,100 and $82,000 per week during the first six months and
second quarter of 1996, reflecting increases of 8.0% and 7.6% from the $76,000
and $76,200 per week during the same periods of the previous year. The Company
estimates that menu prices increased approximately 5.3% and 5.9% in the first
half and second quarter of 1996, as compared to the corresponding periods in
1995, and believes that the sales increases noted above reflect the continued
acceptance and recognition by consumers of the high level of food quality and
service which J. Alexander's provides its guests.
Cost of sales, combined with restaurant labor and related costs and
other operating expenses, decreased as a percentage of sales during the first
half and second quarter of 1996 as compared to the same periods of the prior
year for the Company's same store base of restaurants. Restaurant operating
margins for the six restaurants in the same store base improved to 16.9% in the
first half of 1996 from 14.8% in the 1995 period, and to 17.3% in the second
quarter of 1996 from 14.7% in the corresponding period of 1995. On a
consolidated basis, however, because of the slow building nature of sales for
the Company's new restaurants, restaurant operating income decreased, as
anticipated, to 13.4% for the six months ended June 30, 1996 as compared to
14.5% during the corresponding period of the previous year and to 13.3% for the
second quarter of 1996 as compared to 14.7% in the 1995 quarter.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which have been reclassified to
include all costs above the restaurant level for both operating divisions as
well as pre-opening amortization expense, totaled 8.9% and 8.6% of net sales
for the first half and second quarter of 1996, as compared to 9.4% and 9.1% of
net sales during the same periods of the prior year, primarily reflecting
efficiencies achieved at higher sales levels.
OTHER EXPENSE
Other expense increased during the first half and second quarter of
1996 as compared to the same periods of 1995, primarily due to decreased
interest income resulting from decreased investment balances as funds have been
utilized for new restaurant development. Other, net also decreased in both
periods due to the write off of certain fixed assets in connection with
remodeling projects in both divisions.
INCOME TAXES
Under the provisions of Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes," the Company has significant deferred tax
assets at June 30, 1996 relating primarily to approximately $9 million of net
operating loss carryforwards and $2 million of tax credit carryforwards
available to reduce future federal income taxes. Realization of the deferred
tax assets is dependent principally on future earnings. Prior to 1995, a
vaulation allowance reflecting the uncertainties associated with future
earnings was established. Since December 31, 1995, no such allowance has been
deemed necessary.
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<PAGE> 11
As a result of utilization of its net operating loss carryforwards,
the Company has not historically provided for or paid federal or state income
taxes that approximate statutory rates. Due to the Company's recognition of
all of its deferred tax assets in the fourth quarter of 1995, earnings for the
six months and quarter ended June 30, 1996 were taxed at an effective rate of
35% as compared with effective tax rates of 8.3% and 8.1% during the first six
months and second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities represents a primary source of
liquidity for the Company and is also expected to be a resource for meeting
future capital needs. The Company's cash flow from operations totaled
$3,249,000 during the first half of 1996, a decrease of $371,000 as compared to
the corresponding period in 1995.
The Company's primary investing activity has historically been capital
expenditures for the development and maintenance of its restaurants. Capital
expenditures totaled $11,440,000 during the first half of 1996.
In the Wendy's division, capital expenditures of $1,521,000 included
facilities upgrades and miscellaneous equipment replacements. Capital
expenditures for J. Alexander's restaurants were $9,740,000 and consisted
primarily of development costs for new restaurants in Cleveland, Ohio;
Plantation, Florida; Troy, Michigan; and Chattanooga and Memphis, Tennessee.
Management expects the primary needs for capital resources in the
future will be for the development of new J. Alexander's restaurants and for
the maintenance of existing restaurants. Management may also consider
acquisitions of additional restaurants similar to J. Alexander's. The
Company's planned capital expenditures for 1996 total approximately
$21,000,000.
The Company's eleventh J. Alexander's restaurant opened July 22, 1996
in Plantation, Florida and management anticipates opening additional units in
Troy, Michigan; Chattanooga, Tennessee; and Memphis, Tennessee during the
remainder of 1996. The Troy and Chattanooga units are scheduled to open during
the third quarter, while the Memphis restaurant is expected to open in the
fourth quarter. The initial cost of developing new J. Alexander's restaurants,
including the cost of land, has ranged from $2,300,000 to $3,900,000, excluding
pre-opening costs. While the cost of land has been a significant variable in
development cost, costs related to site preparation and buildings have also
varied considerably. Management is presently developing additional building
images for J. Alexander's and expects that the cost of additional new units,
including the cost of land, will be within the range of $3,000,000 to
$3,800,000. The initial capital investment required for opening a new J.
Alexander's restaurant is significantly lower, however, when property is leased
rather than purchased. Management estimates that pre-opening costs will be
approximately $250,000 for each restaurant.
The Company does not have significant capital needs for purposes other
than restaurant development. Maturities of long-term debt through 1997 are
relatively small because the Company has previously purchased in the market a
sufficient amount of its convertible subordinated debentures to meet sinking
fund requirements on that issue through that date. Even though working capital
showed a deficit of $4,191,000 at June 30, 1996, requirements for funding
accounts receivable and inventories are relatively small and the Company does
not have significant working capital needs. The Company obtained a $30,000,000
line of credit during the third quarter of 1995 and began using a portion of
this line to fund restaurant development during the first quarter of 1996. The
balance on the line at June 30, 1996 was $6,758,000.
-11-
<PAGE> 12
In July 1996, the Company signed a letter of intent to sell
substantially all of its Wendy's franchised restaurant operations to Wendy's
International, Inc. (WI) for $28.3 million in cash plus the assumption of
capitalized lease obligations and long-term debt totalling approximately $2.5
million. Consummation of the transaction is subject to the negotiation and
execution of a definitive purchase agreement and the fulfillment of customary
closing conditions and is expected to close on or before October 31, 1996.
Under terms of the letter of intent, WI will purchase 52 of the
Company's 58 Wendy's restaurants. The Company will close or sell the remaining
six restaurants. As of June 30, 1996, the property and equipment associated
with the 58 units held for disposal had a net carrying value (historical cost
less accumulated depreciation/amortization) of $19.0 million, which will result
in an estimated $8 - $10 million pre-tax gain on consummation of the sale.
Following the divestiture of the Wendy's restaurant operations, the operating
revenues of the Company will be significantly reduced. The Wendy's division
generated restaurant operating income of $3.5 million on sales of $26.4 million
during the first six months of 1996 and operating income of $2.0 million on
sales of $13.9 million during the second quarter of 1996.
The net proceeds from the sale of the Wendy's restaurant operations
are expected to total approximately $24 million. The Company expects to use a
portion of the net proceeds to pay all amounts outstanding under its bank line
of credit agreement ($7.7 million at August 12, 1996). The balance of the
proceeds will be available to fund continued development of its J. Alexander's
restaurants. In order to continue to borrow under the line of credit
agreement, it will be necessary for the Company to renegotiate certain
covenants made in the agreement. Management believes that it will be
successful in these negotiations and intends to maintain the current credit
line for use in funding a portion of the Company's development plan. Should
these negotiations not be successful, management believes that it will be able
to replace the credit line on terms satisfactory to the Company.
The Company believes that the net proceeds from the divestiture of its
Wendy's restaurant operations, together with cash flow from operations and
available borrowing capacity, will be sufficient to fund the development of its
J. Alexander's restaurants through the latter part of 1998.
-12-
<PAGE> 13
Volunteer Capital Corporation and Subsidiaries
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Six Months Ended Quarter Ended
------------------------ -----------------------
JUNE 30 July 2 JUNE 30 July 2
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings per common and dilutive common equivalent share
Net income . . . . . . . . . . . . . . . . . . . . . $ 831,000 $1,601,000 $ 525,000 $ 913,000
========== ========== ========== ==========
Adjustment of shares outstanding:
Actual weighted average shares
outstanding . . . . . . . . . . . . . . . . . . . 5,288,000 5,254,000 5,299,000 5,261,000
Net additional shares issuable, based
on the treasury stock method . . . . . . . . . . . 178,000 153,000 185,000 161,000
---------- ---------- ---------- ----------
Adjusted shares outstanding . . . . . . . . . . . . 5,466,000 5,407,000 5,484,000 5,422,000
========== ========== ========== ==========
Per share amount . . . . . . . . . . . . . . . . . . $ .15 $ .30 $ .10 $.17
========== ========== ========== ==========
Earnings per common share, assuming full dilution
Net income . . . . . . . . . . . . . . . . . . . . . $ 831,000 $1,601,000 $ 525,000 $ 913,000
========== ========== ========== ==========
Adjustment of shares outstanding:
Actual weighted average shares
outstanding . . . . . . . . . . . . . . . . . . . 5,288,000 5,254,000 5,299,000 5,261,000
Net additional shares issuable,
based on the treasury stock method . . . . . . . . 178,000 193,000 185,000 193,000
---------- ---------- ---------- ----------
Adjusted shares outstanding . . . . . . . . . . . . 5,466,000 5,447,000 5,484,000 5,454,000
========== ========== ========== ==========
Per share amount . . . . . . . . . . . . . . . . . . $ .15 $ .29 $ .10 $ .17
========== ========== ========== ==========
</TABLE>
Note: The computations of earnings per common and dilutive common equivalent
share and earnings per common share, assuming full dilution, are based on the
weighted average number of common shares outstanding each period after
considering the effect of stock options using the treasury stock method.
Shares issuable upon the conversion of convertible subordinated debentures have
not been included as the effect of their inclusion would be antidilutive.
-13-
<PAGE> 14
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (11) Computation of Earnings Per Share is filed
with Part I of this Form 10-Q.
Exhibit (27) Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed for the quarter ended June
30, 1996.
-14-
<PAGE> 15
SIGNATURES
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.
VOLUNTEER CAPITAL CORPORATION
/s/ Lonnie J. Stout II
-----------------------------------------------
Lonnie J. Stout II
Chairman, President and Chief Executive Officer
/s/ R. Gregory Lewis
-----------------------------------------------
R. Gregory Lewis
Vice-President and Chief Financial Officer
Date: August 14, 1996
-15-
<PAGE> 16
VOLUNTEER CAPITAL CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
(11) Computation of Earnings per Share 13
(27) Financial Data Schedule (For SEC Use Only)
</TABLE>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,639
<SECURITIES> 0
<RECEIVABLES> 307
<ALLOWANCES> 0
<INVENTORY> 889
<CURRENT-ASSETS> 4,424
<PP&E> 77,750
<DEPRECIATION> 21,421
<TOTAL-ASSETS> 68,313
<CURRENT-LIABILITIES> 8,615
<BONDS> 25,072
0
0
<COMMON> 266
<OTHER-SE> 33,768
<TOTAL-LIABILITY-AND-EQUITY> 68,313
<SALES> 45,056
<TOTAL-REVENUES> 45,056
<CGS> 15,687
<TOTAL-COSTS> 29,111
<OTHER-EXPENSES> 9,920
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 745
<INCOME-PRETAX> 1,278
<INCOME-TAX> 447
<INCOME-CONTINUING> 831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 831
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
