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 September 30, 1995
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 0-17229
DAKA INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-3024178
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Corporate Place, 55 Ferncroft Road, Danvers, MA 01923
(Address of principal executive offices) (Zip Code)
(508) 774-9115
(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
October 24, 1995: 6,927,028.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
DAKA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, July 1,
1995 1995
<S> <S> <S>
ASSETS:
Current assets:
Cash and cash equivalents $ 10,976 $ 7,236
Accounts receivable, net 38,741 29,844
Inventories 10,742 9,295
Prepaid expenses and other current assets 1,710 1,530
-------- --------
Total current assets 62,169 47,905
-------- --------
Property and equipment, net 89,540 86,513
Investments in, and advances to, affiliates 527 511
Other assets, net 30,685 30,524
Deferred income taxes 2,327 2,327
-------- --------
$185,248 $167,780
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 23,543 $ 19,492
Accrued expenses 17,051 17,364
Current portion of long-term debt 793 613
Deferred income taxes 236 236
-------- --------
Total current liabilities 41,623 37,705
-------- --------
Long-term debt 73,923 68,497
Other long-term liabilities 9,606 8,830
Minority interests 3,039 3,012
Commitments and contingencies (Note 3)
Stockholders' equity:
Series A Preferred Stock, $.01 par value;
$100 liquidation preference; 1,000,000 shares
authorized ; 11,912 and 100,000 shares issued
and outstanding at September 30, 1995 and
July 1, 1995, respectively 1
Common Stock, $.01 par value; 20,000,000
shares authorized; 6,922,431 and 4,495,193
shares issued and outstanding at September 30,
1995 and July 1, 1995, respectively 70 46
Capital in excess of par value 44,002 38,848
Retained earnings 12,985 10,841
-------- --------
Total stockholders' equity 57,057 49,736
-------- --------
$185,248 $167,780
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30, 1995 and October 1, 1994
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Revenues:
Sales $ 84,218 $ 62,883
Management fees and franchising income 3,042 2,128
-------- --------
87,260 65,011
-------- --------
Costs and expenses:
Cost of sales and operating expenses 70,506 52,609
Selling, general and administrative expenses 8,534 6,928
Depreciation and amortization 3,499 2,285
Interest expense 1,297 782
Interest income (61) (71)
Minority interests 27 (3)
-------- --------
83,802 62,530
-------- --------
Income before income taxes 3,458 2,481
Income tax expense 1,314 899
-------- --------
Net income $ 2,144 $ 1,582
======== ========
Earnings per share:
Primary $ .36 $ .40
Fully diluted $ .27 $ .22
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended September 30, 1995 and October 1, 1994
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, October 1,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,144 $ 1,582
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 3,499 2,285
Minority interests 27 (3)
Change in assets and liabilities:
Accounts receivable (8,897) (1,511)
Inventories (1,447) (1,009)
Other assets (1,638) (754)
Accounts payable and accrued expenses 3,738 (1,815)
Other long-term liabilities 776 1,529
-------- --------
Net cash provided by (used in)
operating activities (1,798) 304
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (11,029) (7,995)
Proceeds from sale of property and equipment 43 147
Investments in and advances to affiliates (16) (47)
-------- --------
Net cash used in investing activities (11,002) (7,895)
-------- --------
Cash flows from financing activities:
Borrowings under line-of-credit 10,600 9,539
Repayment of long-term debt (228) (792)
Proceeds from sale-leaseback facility 5,850
Other 318 74
-------- --------
Net cash provided by financing activities 16,540 8,821
-------- --------
Net increase in cash and cash equivalents 3,740 1,230
Cash and cash equivalents, beginning of period 7,236 5,040
-------- --------
Cash and cash equivalents, end of period $ 10,976 $ 6,270
======== ========
Supplemental cash flow disclosures:
Cash paid for:
Interest $ 1,694 $ 1,409
Income taxes $ 1,920 $ 829
</TABLE>
During the period ended September 30, 1995 the Company acquired
equipment by entering into capital leases in the amount of $271.
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended September 30, 1995 and Year Ended July 1, 1995
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Capital
Preferred Stock Common Stock In Excess Total
Outstanding Par Outstanding Par of Par Retained Stockholders'
Shares Value Shares Value Value Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 2, 1994 100,000 $ 1 3,773,503 $38 $ 30,616 $ 2,125 $ 32,780
Employee stock options
exercised 37,360 1 339 340
Shares issued upon
conversion of certain
Convertible
Subordinated
Notes, net 684,330 7 7,893 7,900
Preferred Stock dividend (400) (400)
Net income 9,116 9,116
------- --- --------- --- -------- ------- -------
Balance, July 1, 1995 100,000 1 4,495,193 46 38,848 10,841 49,736
Employee stock options
exercised 49,885 318 318
Shares issued upon
conversion of certain
Convertible
Subordinated
Notes, net 419,832 4 4,855 4,859
Shares issued upon
conversion of certain
Preferred Stock (88,088) (1) 1,957,521 20 (19)
Net income 2,144 2,144
------- --- --------- --- ------- ------ -------
Balance,
September 30, 1995 11,912 6,922,431 $70 $ 44,002 $ 12,985 $ 57,057
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended September 30, 1995 and October 1, 1994
(Dollars in thousands, except per share data)
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements
include the accounts of DAKA International, Inc. and its
majority-controlled subsidiaries (the "Company"). Significant
intercompany balances and transactions have been eliminated in
consolidation.
Business
The Company's principal subsidiaries, Daka, Inc. ("Daka"),
Fuddruckers, Inc. ("Fuddruckers") and Americana Dining Corp.
("ADC"), operate in the contract foodservice and restaurant
industries. Daka provides restaurant style contract foodservice
management at a variety of schools and colleges as well as other
facilities. Fuddruckers owns, operates and franchises
Fuddruckers restaurants throughout the United States and in
Canada, Australia and the Middle East. ADC, a majority
controlled subsidiary acquired during fiscal 1994, owns and
operates two restaurants in the Minneapolis area under the name
"Champps Americana" pursuant to a license agreement from Champps
Entertainment, Inc., licensor and franchisor of Champps Americana
restaurants.
Unaudited Interim Consolidated Financial Statements
In the opinion of management, the accompanying consolidated
financial statements include all adjustments, consisting of
normal recurring adjustments, necessary for the fair
presentation of financial position and results of operations.
The accompanying consolidated financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual
Report on Form 10-K/A for the fiscal year ended July 1, 1995.
The consolidated results of operations for the three months
ended September 30, 1995 and October 1, 1994 are not necessarily
indicative of the results that could be expected for a full year.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to June
30. For purposes of these notes to the consolidated financial
statements, the three months ended September 30, 1995 and
October 1, 1994 are referred to as 1995 and 1994, respectively.
Classifications
Certain reclassifications have been made to the prior year's
consolidated financial statements in order to conform to the
1995 presentation. Such reclassifications had no effect on
previously reported results of operations.
<PAGE>
Earnings Per Share
Primary earnings per share are computed using the weighted
average number of common and common equivalent shares (dilutive
options and warrants) outstanding. In addition to the inclusion
of common and common equivalent shares, the calculation of fully
diluted earnings per share includes the shares issuable upon
conversion of the Preferred Stock which amounted to 264,700 and
2,222,222 shares in 1995 and 1994, respectively, and the shares
issuable upon conversion of the Convertible Subordinated Notes
("Notes") which amounted to 1,291,666 and 2,395,833 shares in
1995 and 1994, respectively. Fully diluted earnings per share
assume that the Preferred Stock and Notes were converted into
Common Stock as of the beginning of the fiscal year and reflect
the elimination of interest expense related to the Notes, net of
the related income tax effect, and dividends, to the extent
accrued, related to the Preferred Stock.
The weighted average number of shares used in the computation of
earnings per share for 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Primary 5,878,658 4,003,185
Fully Diluted 8,846,878 8,633,901
</TABLE>
2. Subsequent Events
In October 1995, Fuddruckers obtained a commitment for a $25,000
sale-leaseback financing facility from Franchise Finance
Corporation of America ("FFCA"). Pursuant to the terms of the
facility, Fuddruckers will sell and lease back from FFCA up to
20 Fuddruckers restaurants to be constructed, in which
Fuddruckers has an ownership interest in the real estate and
will pay a commitment fee of 1.5% of the sale price of each
property sold to FFCA. The sale price is limited to the lesser
of 80% of the fair market value of the property or $1,250. The
unused commitment, if any, expires on October 31, 1996. The
leases provide for a fixed minimum rent plus additional rent
based on a percentage of sales and provide for an initial lease
term of 20 years with two 5-year renewal options exercisable at
the option of Fuddruckers. The terms and conditions of the
sale-leaseback are such that they do not meet the criteria for
treatment as capital leases under Statement of Financial
Accounting Standards No. 13 - "Accounting for Leases."
On October 10, 1995, CEI Acquisition Corp., a newly formed,
wholly-owned subsidiary of the Company, and Champps
Entertainment, Inc. ("Champps") entered into an Agreement and
Plan of Merger whereby the Company would issue .40 (the
"Exchange Ratio") shares of common stock for each share of
Champps common stock outstanding or issuable upon exercise of
Champps stock options or warrants, subject to adjustment. The
Exchange Ratio will increase to .43 in the event that the
average closing price of the Company's common stock during the
20 trading days preceding the second trading day prior to the
closing date of the merger is less than $30 per share or
decrease to .37 in the event that the average closing price of
the Company's common stock during the 20 trading days preceding
the second trading day prior to the closing date of the merger
is greater than $35 per share. The consummation of the merger
is conditioned upon the merger qualifying for treatment as a
pooling of interests for accounting and financial reporting purposes.
The merger is subject to approval by the shareholders of both
the Company and Champps at shareholder meetings expected to be
held in February 1996. Dean Vlahos, President and founder of
Champps, will be the Chief Executive Officer of Champps
subsequent to the merger.
<PAGE>
3. Commitments and Contingencies
Litigation
In certain circumstances, where management and legal counsel
believe that a loss has been incurred, the Company has recorded
an estimate of such loss. The Company is also engaged in
various other legal actions arising in the ordinary course of
business which, in the judgment of management based upon
consultation with legal counsel, the Company has adequate legal
defenses or insurance coverage with respect to these actions or
believes that the ultimate outcome will not have a material
adverse affect on the Company's consolidated financial
statements.
Letters of Credit
As of September 30, 1995, the Company has approximately $7
million of outstanding letters of credit. The outstanding
letters of credit reduce the Company's borrowing capacity under
its line of credit agreement.
4. Debt
During 1995, $5,038 of Notes were converted into common stock by
the Holders of such Notes. In connection with the conversion, the
Company increased Stockholders' Equity by $4,859, net of related unamortized
deferred debt issue costs. As of September 30, 1995, $15,500 of
Notes remain outstanding. The conversion had no effect upon fully diluted
earnings per share since the shares issuable upon conversion of the Notes
were already included in the calculation of fully diluted earnings per share.
5. Preferred Stock
During 1995, in two separate transactions, Holders of the
Company's Series A Preferred Stock ("Preferred Stock") converted
88,088 shares of Preferred Stock into 1,957,521 shares of common
stock. The conversion had no effect upon fully diluted earnings
per share since the shares issuable upon conversion of the
Preferred Stock were already included in the calculation of
fully diluted earnings per share. As of September 30, 1995,
11,912 shares of Preferred Stock remain outstanding which may be
converted into 264,700 shares of common stock at any time at the
Holders option.
<PAGE>
6. Segment Information
The Company operates in the contract foodservice management and
restaurant industries. The table below presents selected
results of operations for the Company's businesses for the three
months ended September 30, 1995 and October 1, 1994.
<TABLE>
<CAPTION>
September 30, October 1,
1995 1994
<S> <C> <C>
Revenues:
Sales from profit and loss contracts $ 48,838 $ 34,763
Management fees 1,070 1,115
Restaurant sales - Fuddruckers 33,528 26,331
Franchising income 1,972 1,013
Restaurant sales - Champps 1,852 1,789
-------- --------
Total revenues $ 87,260 $ 65,011
======== ========
Foodservice:
Managed volume $ 70,209 $ 55,891
======== ========
Sales from profit and loss contracts $ 48,838 $ 34,763
Operating expenses:
Labor costs 16,634 11,720
Product costs 17,216 12,032
Other operating expenses 7,617 5,734
Depreciation and amortization 1,289 847
-------- --------
Income from profit and loss contracts 6,082 4,430
Management fees 1,070 1,115
-------- --------
Income from foodservice operations 7,152 5,545
-------- --------
Fuddruckers:
Sales from restaurant operations 33,528 26,331
Operating expenses:
Labor costs 9,264 7,458
Product costs 9,291 7,264
Other operating expenses 8,946 6,926
Depreciation and amortization 1,887 1,174
-------- --------
Income from restaurant operations 4,140 3,509
Franchising income 1,972 1,013
-------- --------
Income from restaurant and
franchising operations 6,112 4,522
-------- --------
Champps:
Sales from restaurant operations 1,852 1,789
Operating expenses:
Labor costs 649 615
Product costs 541 521
Other operating expenses 348 339
Depreciation and amortization 58 63
-------- --------
Income from restaurant operations 256 251
-------- --------
Income from operations before
selling, general and administrative
expenses 13,520 10,318
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, October 1,
1995 1994
<S> <C> <C>
Selling, general and
administrative expenses (1):
Foodservice 2,283 2,470
Fuddruckers 2,835 2,078
Corporate 3,452 2,455
Champps 229 126
-------- --------
Total 8,799 7,129
-------- --------
Operating income 4,721 3,189
Interest expense 1,297 782
Interest income (61) (71)
Minority interest 27 (3)
-------- --------
Income before income taxes 3,458 2,481
Income tax expense 1,314 899
-------- --------
Net income $ 2,144 $ 1,582
======== ========
</TABLE>
(1) Selling, general and administrative expenses include
depreciation expense of $265 and $201 in 1995 and 1994,
respectively.
<PAGE>
ITEM 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
Summary
Net income for the quarter ended September 30, 1995 increased
36% to $2.1 million on revenues of $87.3 million as compared to
net income of $1.6 million on revenues of $65.0 million for the
quarter ended October 1, 1994. Fully diluted earnings per share
increased 23% to $0.27 for the quarter compared to $0.22 for the
comparable quarter of last year.
Foodservice
The following table sets forth, for the periods presented,
certain financial information for the Company's foodservice
business. For further financial information relating to the
foodservice business see Note 6 of Notes to the Consolidated
Financial Statements.
<TABLE>
<CAPTION>- September 30, October 1,
1995 1994
<S> <C> <C>
Sales from profit and loss contracts 100.0% 100.0%
Operating expenses:
Labor costs (34.1) (33.7)
Product costs (35.2) (34.6)
Other operating expenses (15.6) (16.5)
Depreciation and amortization (2.6) (2.5)
-------- --------
Income from profit and loss contracts 12.5% 12.7%
======== ========
Total foodservice revenues $ 49,908 $ 35,878
======== ========
Managed volume:
Management fee contracts $ 21,371 $ 21,128
Profit and loss contracts 48,838 34,763
-------- --------
Total managed volume $ 70,209 $ 55,891
======== ========
Income from foodservice operations $ 7,152 $ 5,545
======== ========
Income from foodservice operations
as a percentage of managed volume:
Management fee contracts 5.0% 5.3%
Profit and loss contracts 12.5% 12.7%
Income from foodservice operations
as a percentage of total managed volume 10.2% 9.9%
Income from foodservice operations
as a percentage of foodservice revenues 14.3% 15.5%
</TABLE>
<PAGE>
Daka conducts its operations on the basis of two types of
foodservice contracts with its clients. The first type is a
management fee contract pursuant to which a client pays Daka a
negotiated fee for overseeing and administering its foodservice
operations and reimburses Daka for all costs incurred in
providing such service. Management fee contracts are prevalent
where companies subsidize food services as part of the benefits
provided to employees and in elementary and secondary schools.
The second type of contract is a profit and loss contract
whereby Daka assumes the risk of profit or loss from the
foodservice operations. While Daka manages the total sales
volume attributable to both contract types, generally accepted
accounting principles require that Daka recognize sales and
expenses from profit and loss contracts, but only the management
fee amount derived from management fee contracts. Consequently,
Daka does not recognize sales and expenses with respect to
management fee contracts. As a result, Daka's managed volume,
which represents both sales made pursuant to profit and loss
contracts and sales to guests of foodservice clients pursuant to
management fee contracts is considerably greater than the
revenues it recognizes.
Managed volume in the Company's foodservice business increased
$14.3 million or 26% to $70.2 million during the quarter ended
September 30, 1995 as compared to $55.9 million in the
comparable quarter of 1994. The increase in managed volume was
primarily due to $17.8 million of managed volume generated by
the educational and corporate foodservice contracts acquired
from ServiceMaster Management Services L.P. ("SMMSLP") on
February 8, 1995 by Daka Restaurants, L.P. ("DRLP"), an 80.01%
owned consolidated subsidiary of Daka, increased volume at
existing foodservice operations and new contracts added during
1995, offset by managed volume associated with certain lost or
terminated contracts.
During fiscal 1995, a number of marginally profitable or
unprofitable contracts expired and, accordingly, became subject
to a competitive bidding process. Throughout this process, Daka
rebid unprofitable or marginally profitable contracts on terms
that should provide it with an acceptable profit. Certain of
these contracts were retained, and, as anticipated, certain
other contracts were not retained. However, despite the loss of
these contracts, operating margins as well as income from
foodservice operations in Daka's base business, excluding the
educational and corporate foodservice contracts acquired in 1995
from SMMSLP, improved during the quarter ended September 30,
1995 compared to the same quarter last year.
Income from foodservice operations increased 29% to $7.2 million
during the quarter ended September 30, 1995 as compared to $5.5
million in the comparable quarter of 1994. Income from profit
and loss contracts as a percentage of sales from profit and loss
contracts decreased during the quarter ended September 30, 1995
as compared to the comparable quarter of 1994 due to the lower
operating margins associated with the educational foodservice
contracts acquired from SMMSLP in 1995. Operating margins in
the base foodservice business, excluding the educational and
corporate foodservice contracts acquired in 1995 from SMMSLP,
increased during the quarter ended September 30, 1995 compared
to the same quarter of last year while the acquired contracts
performed as expected. The lower operating margins associated
with the educational foodservice contracts acquired is typical
of the educational foodservice industry and consistent with the
operating margins in Daka's existing educational foodservice
business.
<PAGE>
Fuddruckers
The following table sets forth, for the periods presented,
certain financial information for Fuddruckers. For further
information relating to Fuddruckers see Note 6 of Notes to the
Consolidated Financial Statements.
<TABLE>
<CAPTION>
September 30, October 1,
1995 1994
<S> <C> <C>
Sales from Fuddruckers-owned restaurants: 100.0% 100.0%
Operating expenses:
Labor costs (27.7) (28.3)
Product costs (27.7) (27.6)
Other operating expenses (26.7) (26.3)
Depreciation and amortization (5.6) (4.5)
-------- --------
Income from restaurant operations 12.3% 13.3%
======== ========
Restaurant sales $ 33,528 $ 26,331
======== ========
Income from restaurant operations $ 4,140 $ 3,509
Franchising income 1,972 1,013
-------- --------
Income from restaurant and
franchising operations $ 6,112 $ 4,522
======== ========
Number of restaurants (end of period):
Fuddruckers-owned 102 77
Franchised 72 78
-------- --------
Total restaurants 174 155
======== ========
</TABLE>
Sales in Fuddruckers-owned restaurants increased $7.2 million or
27% during the quarter ended September 30, 1995 compared to the
quarter ended October 1, 1994. This increase is due to a
combination of $1.2 million of sales at 5 restaurants acquired
from franchisees during fiscal 1995 and $8.1 million of sales at
26 new restaurants opened in the past year, offset, in part, by
a $900 thousand decrease in sales resulting from the closing of
one restaurant in fiscal 1995 and the sale of three restaurants
to franchisees during the fourth quarter of fiscal 1995. In
addition, comparable restaurant sales decreased by 1.5% during
the quarter ended September 30, 1995 as compared to the first
quarter of last year.
Income from restaurant and franchise operations increased to
$6.1 million during the quarter ended September 30, 1995 as
compared to $4.5 million during the comparable quarter of last
year. The increase in income from restaurant operations was
primarily due to the increased number of restaurants in
operation during the quarter as compared to the first quarter of
last year. The increase in franchising income is primarily due
to a development fee received in connection with the sale of the
exclusive rights to build Fuddruckers restaurants in certain
countries located in northern Asia.
Operating margins remained relatively stable with the exception
of depreciation and amortization which, as a percentage of
sales, increased as a result of the amortization of preopening
costs associated with the opening of 26 new restaurants.
<PAGE>
Champps
The following table sets forth, for the periods presented,
certain financial information for the two Champps Americana
restaurants owned by ADC. For further information related to
ADC see Note 6 of Notes to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
September 30, October 1,
1995 1994
<S> <C> <C>
Sales from Champps restaurants 100.0% 100.0%
Operating expenses:
Labor costs (35.1) (34.4)
Product costs (29.2) (29.1)
Other operating expenses (18.8) (19.0)
Depreciation and amortization (3.1) (3.5)
-------- --------
Income from restaurant operations 13.8% 14.0%
======== ========
Restaurant sales $ 1,852 $ 1,789
======== ========
Income from restaurant operations $ 256 $ 251
======== ========
Number of restaurants 2 2
======== ========
</TABLE>
Comparable sales increased 3.5% during the quarter ended
September 30, 1995 compared to the first quarter of last year
while operating margins remained relatively consistent during
the quarter, resulting in a 2% increase in income from
restaurant operations.
ADC currently has two Champps Americana restaurants under
development in Ohio which are expected to open in the second and
third quarters of fiscal 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $1.7
million to $8.8 million for the quarter ended September 30, 1995
compared to $7.1 million in the quarter ended October 1, 1994.
Selling, general and administrative expenses as a percentage of
managed volume of $105.6 million and $84.0 million, which includes
foodservice managed volume as well as sales at Company-owned
restaurants, decreased to 8.3% during the quarter compared to
8.5% in the comparable quarter of last year. The decrease in
selling, general and administrative expenses as a percentage of
managed volume reflects the Company's ability to leverage its
corporate and field operations infrastructure as it continues to
add new restaurants and grow its foodservice business through
acquisitions of other contract foodservice management companies.
Interest Expense
Interest expense increased $500 thousand to $1.3 million during
the quarter ended September 30, 1995 compared to $800 thousand in
the first quarter of last year. The increase is a result of an
overall higher level of debt due to borrowings under the
Company's line of credit offset, in part, by a decrease in
interest expense as a result of the conversion of $13.2 million of the
Company's Convertible Subordinated Notes into common stock beginning in
the second quarter of fiscal 1995.
<PAGE>
Income Taxes
The Company's effective tax rate increased to 38% for the
quarter ended September 30, 1995 compared to 36.2% for the
comparable period of last year. The increase was primarily due
to higher pretax income and the elimination of the targeted jobs
tax credit in December 1994.
Earnings Per Share
Primary earnings per share decreased 10% while fully diluted
earnings per share increased 23% during the quarter as compared
to last year. The decrease in primary earnings per share was
primarily due to a 47% increase in the primary weighted average
number of shares outstanding offset, in part, by a 36% increase
in net income. The shares issued upon conversion of the
Company's Series A Preferred Stock into 1,957,521 shares of
common stock and the conversion of a portion of the Company's
Convertible Subordinated Notes into approximately 419,832 shares
of common stock, included in the calculation of the weighted
average number of primary shares outstanding from the conversion
date to the end of the quarter were the principal reasons for
the increase. The shares issued pursuant to the conversion of
the Preferred Stock and Convertible Subordinated Notes had no
effect on fully diluted earnings per share since such shares
were previously included in the calculation of fully diluted
earnings per share.
FINANCIAL CONDITION AND LIQUIDITY
Working capital amounted to $20.5 million at September 30, 1995,
an increase of $10.3 million compared to working capital of
$10.2 million at July 1, 1995. The increase in working capital
is principally due to the use of borrowings under the Company's
line-of-credit agreement, classified as long-term debt, to fund
operating activities as a result of the seasonal increase in
accounts receivable due to the commencement of foodservice
operations at schools and colleges served by the Company. At
September 30, 1995 the Company had approximately $11.4 million
of available borrowing capacity remaining on its line-of-credit.
Capital expenditures in the quarter ended September 30, 1995
aggregated approximately $11.0 million, and consisted of $7.9
million for new Fuddruckers restaurants and upgrades at existing
restaurants, $1.3 million for new Champps restaurants under
construction, $600 thousand for updating the Company's
information systems and $1.2 million for improvements at
facilities of foodservice clients. Capital expenditures were
funded through a combination of borrowings under the Company's
line-of-credit agreement and approximately $5.9 million of
proceeds from its sale-leaseback facility.
The Company plans to open 30 new Fuddruckers-owned restaurants,
continue to reorient facilities of foodservice clients to a more
retail restaurant environment and open two Champps Americana
restaurants during fiscal 1996. Management believes that cash
flow from operations, existing cash, available borrowings under
its line-of-credit as well as the new $25 million sale-lease
back facility obtained in October 1995 will provide sufficient
liquidity to pay all liabilities in the normal course of
business, fund capital expenditures and service debt
requirements for the foreseeable future.
<PAGE>
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
11 Computation Regarding Per Share Earnings
(b) Reports on Form 8-K
The Company filed Form 8-K on October 13, 1995 with respect
to the merger described in Note 2 to the Consolidated Financial
Statements.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DAKA INTERNATIONAL, INC.
(Registrant)
By: /s/Michael A. Woodhouse
-------------------------
Michael A. Woodhouse
Senior Vice President, Chief
Financial Officer and Treasurer
(Principal Financial and Principal
Accounting Officer)
November 8, 1995
Exhibit 11
DAKA INTERNATIONAL, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Three months ended September 30, 1995 and October 1, 1994
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Primary:
Net income $ 2,144 $ 1,582
======== ========
Weighted average number of common
shares outstanding 5,538 3,778
Additional shares assuming conversion
of stock options 341 225
-------- --------
Average common shares outstanding
and equivalents 5,879 4,003
======== ========
Primary earnings per share:
Net income $ 0.36 $ 0.40
======== ========
Fully Diluted:
Net income $ 2,144 $ 1,582
Interest expense on Convertible
notes, after tax effect 216 321
-------- --------
$ 2,360 $ 1,903
======== ========
Weighted average number of common
shares outstanding 5,538 3,778
Weighted average number of shares
related to notes converted,
prior to conversion 158
Weighted average number of shares
related to Preferred Stock
converted, prior to conversion 1,196
Additional shares issuable upon
conversion of Preferred Stock 265 2,222
Additional shares issuable upon
conversion of Notes 1,292 2,396
Additional shares assuming conversion
of stock options 398 238
-------- --------
8,847 8,634
======== ========
Fully diluted earnings per share:
Net income $ 0.27 $ 0.22
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000840826
<NAME> DAKA INTERNATIONAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> SEP-30-1995
<CASH> 10,976
<SECURITIES> 0
<RECEIVABLES> 39,905
<ALLOWANCES> 1,164
<INVENTORY> 10,742
<CURRENT-ASSETS> 62,169
<PP&E> 120,841
<DEPRECIATION> 31,301
<TOTAL-ASSETS> 185,248
<CURRENT-LIABILITIES> 41,623
<BONDS> 73,923
<COMMON> 70
0
0
<OTHER-SE> 56,987
<TOTAL-LIABILITY-AND-EQUITY> 185,248
<SALES> 84,218
<TOTAL-REVENUES> 87,260
<CGS> 70,506
<TOTAL-COSTS> 70,506
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,297
<INCOME-PRETAX> 3,458
<INCOME-TAX> 1,314
<INCOME-CONTINUING> 2,114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,114
<EPS-PRIMARY> .36
<EPS-DILUTED> .27
</TABLE>
