UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended April 2, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from __________ to __________
Commission file number 0-22639
CHAMPPS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3370491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5619 DTC Parkway, Suite 1000, Englewood, Colorado 80111
(Address of principal executive offices) (Zip Code)
(303) 804-1333
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __
Number of shares of Common Stock, $.01 par value, outstanding at May 8, 2000:
11,659,416.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
CHAMPPS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<CAPTION>
April 2, June 27,
2000 1999
------------ ---------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 4,980 $ 7,240
Restricted cash, current 726 397
Accounts receivable, net 1,463 1,288
Inventories 1,381 1,205
Prepaid expenses and other current assets, net 1,194 1,637
Net assets held for sale 597 1,665
-------- --------
Total current assets $ 10,341 $ 13,432
Restricted cash, non-current 35 2,596
Property and equipment, net 40,627 36,096
Investment -- 2,748
Other assets, net 370 2,270
-------- --------
Total assets $ 51,373 $ 57,142
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 3,620 $ 5,264
Accrued expenses 7,716 8,679
Current portion of capital lease obligation 1,639 1,843
Current portion of note payable 125 167
-------- --------
Total current liabilities $ 13,100 $ 15,953
Capital lease obligation, net of current portion 2,873 4,064
Note payable, net of current portion -- 83
Other long-term liabilities 6,624 9,223
-------- --------
Total liabilities $ 22,597 $ 29,323
-------- --------
Commitments and contingencies (Note 4)
Stockholders' equity:
Common stock ($.01 par value per share; authorized 30,000 shares and 11,655
and 11,647 issued and outstanding at
January 2, 2000 and June 27, 1999, respectively) $ 117 $ 116
Additional paid-in capital 79,377 79,360
Accumulated deficit (50,718) (51,657)
-------- --------
--------
Total stockholders' equity $ 28,776 $ 27,819
-------- --------
Total liabilities and stockholders' equity $ 51,373 $ 57,142
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
CHAMPPS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Quarter and Nine Months Ended April 2, 2000 and March 28, 1999 (Dollars
in thousands, except per share data)
(Unaudited)
<CAPTION>
Quarters Ended Nine Months Ended
------------------------- -------------------------
March 28, March 28,
April 2, 1999 April 2, 1999
2000 (restated) 2000 (restated)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Revenues:
Sales $ 27,952 $ 22,472 $ 80,849 $ 64,451
Franchising and royalty, net 199 139 569 443
-------- ---------- -------- ----------
Total revenues $ 28,151 $ 22,611 $ 81,418 $ 64,894
-------- ---------- -------- ----------
Costs and expenses:
Restaurant operating expenses:
Product costs 7,843 6,496 23,042 18,662
Labor costs 8,963 7,666 26,261 21,535
Other operating expenses 4,079 3,896 12,991 11,031
Occupancy 2,840 1,900 7,294 5,430
Preopening -- 340 1,110 984
Depreciation and amortization 1,063 779 3,086 2,282
-------- ---------- -------- ----------
Total restaurant operating expenses 24,788 21,077 73,784 59,924
General and administrative expenses 1,566 3,085 4,971 7,264
Exit and other costs -- -- 460 --
-------- ---------- -------- ----------
Total costs and expenses 26,354 24,162 79,215 67,188
-------- ---------- -------- ----------
Income (loss) from operations 1,797 (1,551) 2,203 (2,294)
Other (income) expense, net 39 110 230 61
Loss on sale of marketable securities -- -- 1,034 --
-------- ---------- -------- ----------
Net income (loss) from continuing operations 1,758 (1,661) 939 (2,355)
Income (loss ) from discontinued operations -- (1,533) -- (9,555)
-------- ---------- -------- ----------
Net income (loss) $ 1,758 $ (3,194) $ 939 $(11,910)
======== ========== ======== ==========
Basic income (loss) per share:
Income (loss) from continuing operations $ 0.15 $ (0.14) $ 0.08 $ (0.20)
Loss from discontinued operations -- (0.14) -- (0.83)
-------- ---------- -------- ----------
Net income (loss) $ 0.15 $ (0.28) $ 0.08 $ (1.03)
======== ========== ======== ==========
Diluted income (loss) per share:
Income (loss) from continuing operations $ 0.15 $ (0.14) $ 0.08 $ (0.20)
Loss from discontinued operations -- (0.14) -- (0.83)
-------- ---------- -------- ----------
Net income (loss) $ 0.15 $ (0.28) $ 0.08 $ (1.03)
======== ========== ======== ==========
Basic weighted average shares outstanding 11,654 11,614 11,652 11,614
Diluted weighted average shares outstanding 11,749 11,614 11,712 11,614
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
CHAMPPS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended April 2, 2000 and March 28, 1999
(Dollars in thousands)
(Unaudited)
<CAPTION>
March 28,
April 2, 1999
2000 (restated)
--------- ----------
<S> <C> <C>
Cash flows from (used in) operating activities:
Net loss $ 939 $(11,910)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,344 2,464
Loss on sale of marketable securities 1,034 --
Exit and other costs 460 --
Non-cash compensation from discontinued operations -- 912
Changes in assets and liabilities:
Restricted cash balances 2,232 48
Changes in current assets and liabilities, net (2,975) (3,227)
Changes in other long-term assets and liabilities, net (399) (587)
-------- --------
Net cash used in operating activities 4,635 (12,300)
-------- --------
Cash flows from investing activities:
Proceeds from discontinued operations -- 33,853
Proceeds from sale of marketable securities 1,714 --
Purchase of property and equipment (11,491) (5,447)
Net proceeds from net assets held for sale 768 --
-------- --------
Net cash provided by (used in) investing activities (9,009) 28,406
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 18 98
Repayment of debt (1,520) (1,332)
Proceeds from sale leaseback facility 3,616 1,135
-------- --------
Net cash provided by financing activities 2,114 (99)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,260) 16,007
Cash and cash equivalents (overdrafts), beginning of period $ 7,240 $ (646)
-------- --------
Cash and cash equivalents, end of period $ 4,980 $ 15,361
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
<TABLE>
CHAMPPS ENTERTAINMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ended April 2, 2000
(Amounts in thousands)
(Unaudited)
<CAPTION>
Accumulated
Additional Other
Common Paid-in Comprehensive Accumulated
Shares Stock Capital Loss Deficit Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 27, 1999 11,647 $ 116 $ 79,360 $ -- $(51,657) $ 27,819
Common shares issued 6 1 13 -- -- 14
Other comprehensive loss
Unrealized loss on marketable
securities -- -- -- (891) -- (891)
Net (loss) -- -- -- -- (1,121) (1,121)
-------- -------- -------- -------- -------- --------
Balance, October 3, 1999 11,653 117 79,373 (891) (52,778) 25,821
Common shares issued -- -- -- -- -- --
Realization of loss on
marketable securities -- -- -- 891 -- 891
Net income -- -- -- -- 302 302
-------- -------- -------- -------- -------- --------
Balance, January 2, 2000 11,653 $ 117 $ 79,373 $ -- $(52,476) $ 27,014
Common shares issued 2 -- 4 -- -- 4
Net income -- -- -- -- 1,758 1,758
-------- -------- -------- -------- -------- --------
Balance, April 2, 2000 11,655 $ 117 $ 79,377 $ -- $(50,718) $ 28,776
======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
<PAGE>
CHAMPPS ENTERTAINMENT, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Quarter and Nine Months Ended April 2, 2000
and March 28, 1999 (Restated)
(Amounts in thousands, except share data)
(Unaudited)
1. Background, Basis of Presentation and Business Activities of the Company
Background
Champps Entertainment, Inc. (the "Company"), formerly known as Unique Casual
Restaurants, Inc., is a Delaware corporation formed on May 27, 1997 in
connection with a spin-off to holders of the common stock of DAKA International,
Inc. ("DAKA International"). At inception, and continuing through November 1998,
the Company's principal business activities were to own and operate the
restaurant operations previously operated by various subsidiaries and divisions
of DAKA International prior to the formation and the spin-off of the Company. At
April 2, 2000, the Company's principal business activity is to own, operate and
franchise Champps Americana casual dining restaurants within a single business
segment.
Basis of Presentation and Restatement of March 28, 1999 Condensed Consolidated
Financial Statements
On November 24, 1998, the Company completed the sale of all of the outstanding
common stock of Fuddruckers, Inc. ("Fuddruckers") to King Cannon, Inc. The
historical results of operations of Fuddruckers and its majority owned
subsidiary, Atlantic Restaurant Ventures, Inc. have been treated as discontinued
operations for all periods presented. Significant intercompany balances and
transactions have been eliminated in consolidation.
In the financial statements for March 28, 1999, income from discontinued
operations has been restated to reflect non-cash compensation expense of $912.
This expense was associated with an agreement entered into in the first quarter
of fiscal 1999 which extended the expiration date of the Company's Chief
Executive Officer's various below market stock option grants in connection with
the sale of Fuddruckers.
These consolidated financial statements do not include certain information and
footnotes required by generally accepted accounting principles for complete
financial statements. However, in the opinion of management, all adjustments
considered necessary for a fair presentation have been included and are of a
normal, recurring nature. Operating results for the thirteen weeks and nine
months ended April 2, 2000 are not necessarily indicative of the results that
may be expected for the fiscal year ending July 2, 2000.
These statements should be read in conjunction with the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended June 27, 1999. The accounting policies used in preparing
theses consolidated financial statements are consistent with those described in
the Company's Annual Report on Form 10-K.
2. Significant Accounting Policies
Earnings Per Share
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if outstanding options and warrants were exercised resulting in the
issuance of common stock. For purposes of the income per share calculations for
the nine months ended April 2, 2000, stock options have been included for the
diluted computation. Approximately 60,000 dilutive shares have been included in
the diluted income per share computation. For purposes of the income per share
calculations for the quarter ended April 2, 2000, stock options have been
included for the diluted computation. Approximately 95,000 dilutive shares have
been included in the diluted income per share computation. No adjustments were
made to net income in computing diluted income per share.
Comprehensive Income
Effective June 29, 1998, the Company adopted the provisions of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." With the second
quarter sale of the marketable securities held by the Company, the previously
recorded comprehensive loss in the Statement of Stockholders' Equity has been
eliminated, and a realized loss has been reported in the Statement of Operations
for the second quarter fiscal 2000.
<PAGE>
Investment
On December 7, 1999, the Company sold approximately 1,142 shares of Santa
Barbara Restaurant Group (SBRG) at the current market closing price for a total
of $1,714. Champps' interest in SBRG resulted when SBRG merged with LaSalsa
Holding Co. Champps previously had a minority interest in La Salsa Holding Co.
As a result of this sale, the Company realized a loss of $1,034. The Company
still retains ownership of two blocks of warrants. The two blocks consist of
approximately 71,000 shares exercisable at $7.00 per share and approximately
71,000 shares exercisable at $7.50 per share.
Reclassifications
Certain amounts in the fiscal 1999 condensed consolidated financial statements
have been reclassified to conform to the fiscal 2000 presentation.
3. Commitments and Contingencies
Fuddruckers Indemnity
In connection with the sale of Fuddruckers, the Company was required to
establish a $1,000 cash escrow to be held for payment of certain claims for
indemnification. Such escrow does not limit the Company's maximum exposure for
indemnification claims. However, the Company believes the risk of a claim for
indemnification exceeding the balance of the escrowed amount is remote. As of
April 2, 2000, a total of approximately $357 had been paid for agreed upon
indemnification claims presented to the Company by King Cannon for payment out
of this escrow fund. The undistributed amount is reported as part of the
restricted cash balance and classified as a current asset.
Restricted Cash
In connection with the sale of certain predecessor companies, the Company
deposited approximately $2,500 to escrow agents to be held pending resolution of
certain contingent obligations discussed further below. At April 2, 2000, $726
continues to be held in escrow and is reported as restricted cash. This amount
includes funds held in connection with the sale of Fuddruckers for payment of
certain claims for indemnification. The Company also has an additional $35 in
restricted cash serving as collateral for a letter of credit relative to the
construction of the restaurant located in the Village of Lombard, Illinois.
Litigation
The Company assumed certain contingent liabilities of DAKA International in
connection with the spin-off and assumed certain contingent liabilities of
Fuddruckers for periods prior to its sale to King Cannon. The Company is also a
party to various lawsuits arising in the ordinary course of its business. The
Company believes and based upon consultation with legal counsel, that the
ultimate collective outcome of these matters will not have a material adverse
effect on the Company's consolidated financial condition, results of operations
or cash flows.
In the third quarter of fiscal 2000, a Washington, D.C. superior court jury
awarded a former Daka, Inc. employee $187 in compensatory damages and $4,813 in
punitive damages based on the employee's claim of negligent supervision and
retaliation, due to alleged conduct that occurred in 1996 at a former Daka food
service location. While Daka is now a subsidiary of Compass Group, PLC., the
events at issue in the case took place while a predecessor company of Champps
owned Daka. On March 28, 2000, Daka filed post-trial motions, including motions
to reduce the damage awards, for judgement not withstanding the verdict, or in
the alternative, for a new trial. These motions are currently pending before the
court. The Company may be liable for the payment of any amounts ultimately due
by Daka upon final determination of the case. The Company is of the opinion that
the ultimate outcome of this matter will not have a material adverse effect on
the Company's financial position, results of operations or cash flows.
4. Exit and Other Costs
In the fourth quarter of fiscal 1999, the Company recorded $1,305 in exit and
other costs. In the first quarter of fiscal 2000, the Company recorded
additional exit and other costs of $460 related to severance and other expenses
associated with the consolidation, relocation of the headquarters to Denver,
Colorado and early termination of its headquarters' lease in Danvers,
Massachusetts. As of April 2, 2000, the Company had utilized $1,529 for employee
severance, relocation and lease related expenses. It is anticipated that most of
the associated reserves will be utilized by year-end.
5. Reserve Disclosure
The Company had previously recorded liabilities as of June 27, 1999 associated
with the activities of certain predecessor companies which were either spun-off
or sold to other entities. In addition, the Company had previously recorded exit
costs associated with the Company's relocation to Denver, Colorado. For the nine
months ending April 2, 2000, certain of these reserves were reallocated to more
accurately reflect transactions occurring during the period. The following
tables display the activity and balances relating to the reallocation of the
reserves:
<PAGE>
<TABLE>
<CAPTION>
Reserves
------------------------------------------------------------------
Lease Predecessor Assets held
Severance Termination Obligations for sale
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 27, 1999 $ 344 $ 1,047 $ 4,195 $ --
Additional Expense Recognition 460 -- -- --
Deductions (857) (658) (1,319) --
Revision to Estimate 289 (289) (300) 300
---------- ---------- ---------- ----------
Balance at January 2, 2000 $ 236 $ 100 $ 2,576 $ 300
</TABLE>
The reserve for assets held for sale is netted against the asset held for sale
value on the balance sheet. The severance, lease termination and predecessor
obligations reserves are incorporated into the balances for accrued expenses and
other long-term liabilities.
6. Statements of Cash Flows
General and administrative expenses include depreciation expense on corporate
assets of $258 and $182 in the nine months ended April 2, 2000 and March 28,
1999, respectively.
7. Stock Option Plan
During the nine months ended April 2, 2000, the company granted options to
employees to acquire approximately 964,000 shares of common stock at an exercise
price of $4.00 per share. As the grant price was in excess of the market price
at the time of the grant, the Company has not recorded any compensation expenses
related to these grants in the accompanying consolidated condensed financial
statements.
ITEM 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Forward-Looking Statements
The matters discussed in the following Management's Discussion and Analysis of
Results of Operations and Financial Condition of the Company and elsewhere in
this Quarterly Report on Form 10-Q, which are not historical information, are
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act. Words such as "believe", "anticipate",
"estimate", "project", "plan," "expect," and similar expressions are intended to
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
respective dates. Forward-looking statements involve risks and uncertainties,
many of which are beyond the Company's control. Should one or more of these
risks or uncertainties materialize, or should any of the underlying assumptions
prove incorrect, actual results of current and future operations may vary
materially from those anticipated, estimated or projected. In addition to the
factors set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended June 27, 1999, factors that may cause such a difference include,
among others, the following: competition among restaurant companies for
attractive sites and unforeseen events which increase the cost to develop and/or
delay the development and opening of new restaurants; the availability and terms
of financing for the Company and any changes to that financing; the Company's
ability to manage, within acceptable parameters, contingencies associated with
its former businesses including Fuddruckers and its former foodservice and Great
Bagel & Coffee businesses; the effectiveness of initiatives to lower selling,
general and administrative expenses and to improve operations within Champps,
and the Company's ability to open new restaurants consistent with its plans; the
Company's ability to resolve its current litigation actions favorably; the
issuance and renewal of licenses and permits for restaurant development and
operations, including the sale of alcoholic beverages.
RESULTS OF OPERATIONS
Overview
The Company reported net income of $1,758 for the quarter ended April 2, 2000,
compared with a restated net loss of $3,194, which included a net loss from
discontinued operations, in the comparable quarter last year. For the nine
months ended April 2, 2000, the Company reported net income from continuing
operations of $939, compared with a restated net loss of $11,910, which included
a net loss from discontinued operations, in the comparable period last year.
Included in the net loss for the nine months ended April 2, 2000, were $460 of
additional exit and other costs associated with the consolidation and relocation
of its corporate offices to Denver, Colorado and a loss of $1,034 associated
with the sale of marketable securities.
During fiscal 1999, the Company sold its Fuddruckers, Inc. subsidiary, and
accordingly, has restated its historical financial statements to reflect
Fuddruckers as discontinued operations. The Company reported a loss from
discontinued operations of $1,533 for the third quarter of fiscal 1999 and a
loss of $9,555 for the first nine months of fiscal 1999.
Fiscal year 2000 is a fifty-three week year. Accordingly, the nine months ended
April 2, 2000 contain 40 weeks of operating results compared to 39 weeks of
operating results for the first nine months of fiscal 1999.
Operations
The following table sets forth, for the periods presented, certain financial
information for the Company.
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
------------------------------ ------------------------------
March 28, March 28,
April 2, 1999 April 2, 1999
2000 (restated) 2000 (restated)
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Restaurant Sales $ 27,952 $ 22,472 $ 80,849 $ 64,451
======== ======== ========= =========
Sales from Champps restaurants 100.0% 100.0% 100.0% 100.0%
Product costs (28.1%) (28.9%) (28.5%) (29.0%)
Labor costs (32.0%) (34.1%) (32.5%) (33.4%)
Operating expenses (14.6%) (17.3%) (16.1%) (17.1%)
Occupancy (10.2%) (8.5%) (9.0%) (8.4%)
Preopening 0.0% (1.5%) (1.4%) (1.5%)
Depreciation and amortization (3.8%) (3.5%) (3.8%) (3.5%)
-------- -------- --------- ---------
Restaurant contribution 11.3% 6.2% 8.7% 7.1%
======== ======== ========= =========
Restaurant contribution $ 3,164 $ 1,395 $ 7,065 $ 4,527
Franchising and royalty income 199 139 569 443
-------- -------- --------- ---------
Restaurant, franchising and royalty contribution 3,363 1,534 7,634 4,970
General and administrative expenses 1,566 3,085 4,971 7,264
-------- -------- --------- ---------
Income (loss) from restaurant and franchising
operations $ 1,797 $ (1,551) $ 2,663 $ (2,294)
======== ======== ========= =========
Number of restaurants (end of period)
Company-owned 21 17
Franchised 14 12
-------- --------
Total restaurants 35 29
======== ========
</TABLE>
Sales in Company-owned restaurants increased $5,480, or 24.4%, to $27,952 for
the quarter ended April 2, 2000 compared with $22,472 for the quarter ended
March 28, 1999. This increase results from the opening of additional restaurants
between periods and an increase in same store sales of 6.2%.
Sales in Company-owned restaurants increased $16,398, or 25.4%, to $80,849 for
the nine months ended April 2, 2000 compared with $64,451 for the nine months
ended March 28, 1998. This increase results from the opening of additional
restaurants between periods, an increase in same store sales of 5.1%, and the
addition of one week in the first quarter of fiscal 2000.
Restaurant franchising and royalty contribution increased $60 and $126 for the
quarter and nine months ended April 2, 2000, respectively, as compared with the
comparable periods last year. Restaurant contribution as a percentage of sales
improved 5.1%, to 11.3% of sales, for the quarter as compared to a year ago.
This improvement was a result of operating efficiencies realized during the
quarter and in improved cost of sales and labor costs. Restaurant contribution
as a percentage of sales for the nine months ended April 2, 2000 increased 1.6%,
to 8.7% of sales, as compared to the comparable period a year ago.
<PAGE>
Income Taxes
As of April 2, 2000, the Company had net operating loss carryforwards of
approximately $54,600. The carryforwards expire at various dates through 2019.
These net operating loss carryforwards are not currently subject to Section 382
limitations.
Accounting Pronouncements Not Yet Adopted
In June 1999 the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company will adopt SFAS No. 133 during
fiscal year 2000. Management is currently reviewing the effect, if any, from
adoption of this statement to the Company's consolidated financial statements.
Year 2000 Compliance
The statements in the following section include "Year 2000 Readiness Disclosure"
within the meaning of the year 2000 Information and Readiness disclosure Act.
As is true with most companies, Champps faces a risk from the Year 2000 issue.
The Company intends for some of its disclosures and announcements concerning its
Year 2000 programs, including those in this report on Form 10-Q, to constitute
"Year 2000 Readiness Disclosures" as defined in the Year 2000 Information and
Readiness Disclosure Act. While not all Year 2000-date related disruption
scenarios have been experienced, and there is a possibility of disruptions in
the future, through the date of this report, the Company has experienced no
material Year 2000-date related disruptions or other significant problems. The
Company is continuing to evaluate and mitigate its exposure in areas where
appropriate. Based on currently available information, management continues to
believe that Year 2000-date related disruptions or other problems, if any, will
not have a significant adverse impact on its operational results or financial
condition.
Through April 2, 2000, the Company has spent approximately $640 on upgrading its
systems and hardware. With respect to Champps' payroll core system, the Company
has implemented year 2000 compliant payroll software and the associated
hardware. The system has been successfully tested and is currently operational.
With respect to Champps' point of sale systems, all stores have been upgraded to
the most current platform for both hardware and software. The system has been
successfully tested and is currently operational. With respect to the
consolidated accounting and financial reporting core systems, the Company has
upgraded both its network and accounting and financial reporting application.
The system has been successfully tested and is currently operational.
As of April 2, 2000, the Company is anticipating no further expenditures or
issues relative to the Year 2000 issue.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
The working capital needs of companies engaged in the restaurant industry are
generally low as sales are made for cash, and purchases of food and supplies,
and other operating expenses are generally paid within 30 to 60 days after
receipt of invoices. Funding for expansion during fiscal 2000 and fiscal 1999
were generally provided through available cash balances (including in 1999 a
portion of the proceeds from the sale of Fuddruckers) and proceeds from
sale-leaseback facilities. Capital expenditures were $11,491 and $5,447 for
continuing operations, respectively, for the nine months ended April 2, 2000 and
March 28, 1999, respectively.
As of April 2, 2000, the Company's unrestricted cash balance was $4,980 and the
restricted cash balance was $761. The Company anticipates that it will generate
positive cash flows from operations for the remainder of fiscal 2000; however,
there are also significant capital expenditures anticipated during the balance
of fiscal 2000. Capital expenditures for the balance of fiscal 2000 are
anticipated to be approximately $5,100, which will be incurred primarily for new
restaurants now under construction and for upgrades to existing restaurants.
For the nine months ended April 2, 2000, the Company had generated cash flows
from operating activities of $4,635. In addition, the Company generated net cash
from financing activities of $2,114 for the same period. This amount primarily
consists of funds received from a sale-leaseback transaction of $3,616, and the
repayment of debt of $1,520. The Company used $9,009 in investing activities for
the same period. This amount primarily consists of the purchase of property and
equipment of $11,491 for two Champps restaurants opened during the period and
for costs associated with two Champps restaurants currently under construction.
On April 21, 2000, the Company entered into a loan agreement with FINOVA Capital
Corporation ("FINOVA"), pursuant to which, the Company may borrow up to $14,500,
subject to certain conditions, to purchase and/or borrow against three Champps
restaurants. On April 25, 2000, the Company borrowed $5,000 pursuant to this
loan agreement, at a fixed interest rate of 10.23% per annum, secured by a first
mortgage and a security interest in the Champps restaurant located in Lombard,
Illinois. The loan matures on May 1, 2010 with monthly payments based on a
twenty year amortization schedule.
The Company has a commitment from CAPTEC Financial Group for $3,000 to
consummate a sale-leaseback of the Company's Las Colinas, Texas, Champps
restaurant. The Company expects to complete this financing in September 2000.
It is also anticipated that there will be cash payments for the balance of
fiscal 2000 associated with liabilities recorded in fiscal 1999 related to the
sale of predecessor companies. In addition, there will be expenditures for prior
year insurance claims, tax audits and legal settlements. These expenditures are
estimated to range between $500 and $750 during the balance of fiscal 2000.
Inflation and changing prices have had no measurable impact on net sales and
revenue or income from continuing operations during the last three fiscal years.
<PAGE>
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the security holders.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Not applicable
(b) Reports on Form 8-K
On April 3, 2000, the Company determined not to renew the engagement of
Deloitte & Touche LLP as independent accountants for the Company and the
Company engaged Arthur Andersen LLP as independent accountants to audit
and report uponthe Company's financial statements for the current fiscal
year ending July 2, 2000. The determination by management and the Audit
committee not to renew the engagement of Deloitte & Touche LLP was
approved by the Board of Directors.
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.
CHAMPPS ENTERTAINMENT, INC.
(Registrant)
By: /s/William H. Baumhauer
- ---------------------------
William H. Baumhauer
Chairman of the Board, President and
Chief Executive Officer
By: /s/Frederick J. Dreibholz
- ------------------------------
Frederick J. Dreibholz
Chief Financial Officer and Treasurer
(Principal Financial and
Accounting Officer)
May 9, 2000
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