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 quarter ended December 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
February 14, 1996: 7,233,066
<PAGE>
PART I - FINANCIAL INFORMATION
DAKA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
December 30, July 1,
1995 1995
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 9,083 $ 7,236
Accounts receivable, net 45,244 29,844
Inventories 10,193 9,295
Prepaid expenses and other current assets 2,957 1,530
--------- ---------
Total current assets 67,477 47,905
--------- ---------
Property and equipment, net 101,055 86,513
Investments in, and advances to, affiliates 609 511
Other assets, net 29,238 30,524
Deferred income taxes 2,327 2,327
--------- ---------
$ 200,706 $ 167,780
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 21,172 $ 19,492
Accrued expenses 16,201 17,364
Current portion of long-term debt 782 613
Deferred income taxes 236 236
--------- ---------
Total current liabilities 38,391 37,705
--------- ---------
Long-term debt 85,047 68,497
Other long-term liabilities 9,741 8,830
Minority interests 2,861 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
December 30, 1995 and July 1, 1995,
respectively - 1
Common Stock, $.01 par value; 20,000,000
shares authorized; 7,225,642 and 4,495,193
shares issued and outstanding at
December 30, 1995 and July 1, 1995,
respectively 73 46
Capital in excess of par value 47,701 38,848
Retained earnings 16,892 10,841
--------- ---------
Total stockholders' equity 64,666 49,736
--------- ---------
$ 200,706 $ 167,780
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
December December December December
30, 1995 31, 1994 30, 1995 31, 1994
<S> <C> <C> <C> <C>
Revenues:
Sales $ 94,670 $ 74,572 $178,888 $137,455
Management fees and
franchising income 4,121 2,584 7,163 4,712
-------- -------- -------- --------
98,791 77,156 186,051 142,167
-------- -------- -------- --------
Costs and expenses:
Cost of sales and operating
expenses 79,242 62,508 149,748 115,117
Selling, general and
administrative expenses 8,761 6,769 17,295 13,697
Depreciation and amortization 3,513 2,554 7,012 4,839
Interest expense 1,244 1,079 2,541 1,861
Interest income (93) (33) (154) (104)
Minority interests (177) (101) (150) (104)
-------- -------- -------- --------
92,490 72,776 176,292 135,306
-------- -------- -------- --------
Income before income taxes 6,301 4,380 9,759 6,861
Income tax expense 2,394 1,616 3,708 2,515
-------- -------- -------- --------
Net income 3,907 2,764 6,051 4,346
Preferred Stock dividend - 400 - 400
-------- -------- -------- --------
Net income available for
Common Stockholders $ 3,907 $ 2,364 $ 6,051 $ 3,946
======== ======== ======== ========
Earnings per share:
Primary $ .53 $ .58 $ .91 $ .98
Fully diluted $ .46 $ .36 $ .73 $ .58
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended December 30, 1995 and December 31, 1994
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December December
30, 1995 31, 1994
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,051 $ 4,346
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,012 4,839
Loss on the sale of property and equipment 793
Minority interests (150) (104)
Change in assets and liabilities:
Accounts receivable (15,400) (2,388)
Inventories (898) (711)
Other assets (2,563) (2,553)
Accounts payable and accrued expenses 517 (290)
Other long-term liabilities 911 3,856
-------- --------
Net cash (used in) provided by
operating activities (3,727) 6,995
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (28,235) (16,406)
Proceeds from sale of property and equipment 90 212
Investments in, and advances to, affiliates (98) (93)
Cash paid for acquisitions, net of cash
acquired of $- and $12 - (563)
-------- --------
Net cash used in investing activities: (28,243) (16,850)
-------- --------
Cash flows from financing activities:
Proceeds from line-of-credit 25,200 12,239
Payment of Preferred Stock dividend - (400)
Repayment of long-term debt (314) (1,038)
Proceeds from sale-leaseback 8,250 -
Other 681 110
-------- --------
Net cash provided by financing activities 33,817 10,911
-------- --------
Net increase in cash and cash equivalents 1,847 1,056
Cash and cash equivalents, beginning of period 7,236 5,040
-------- --------
Cash and cash equivalents, end of period $ 9,083 $ 6,096
======== ========
Supplemental cash flow disclosures:
Interest paid $ 2,447 $ 1,837
Income taxes paid 4,271 3,638
</TABLE>
During the periods ended December 30, 1995 and December 31, 1994
the Company acquired certain equipment by entering into capital
leases aggregating $326 and $107, respectively.
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six months ended December 30, 1995 and Years ended
July 1, 1995 and July 2, 1994
(In thousands, except share data)
(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 65,180 682 682
Shares issued upon
conversion of
certain Convertible
Subordinated
Notes, net 707,748 7 8,190 8,197
Shares issued upon
conversion of
certain Preferred
Stock (88,088) (1) 1,957,521 20 (19)
Net income 6,051 6,051
------- --- --------- --- ------- ------- -------
Balance,
December 30,
1995 11,912 - 7,225,642 $73 $47,701 $16,892 $64,666
======= === ========= === ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE>
DAKA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Six months ended December 30, 1995 and December 31, 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 ("DAKA" or 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, owns and operates two restaurants in the
Minneapolis area under the name "Champps Americana" pursuant to
a license agreement from Champps Entertainment, Inc. ("CEI"),
licensor and franchisor of Champps Americana restaurants.
Unaudited Interim 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 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 quarter and six months ended
December 30, 1995 and December 31, 1994 are not necessarily
indicative of results that could be expected for a full year.
Fiscal Year
The Company's fiscal year ends on the Saturday closest to June
30th. For purposes of these notes to the consolidated financial
statements the three and six months ended December 30, 1995 and
December 31, 1994 are referred to as 1995 and 1994,
respectively.
<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 1,003,750 and 2,094,418 shares in
1995 and 1994, respectively. Fully diluted earnings per share
assumes 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 the elimination of dividends
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>
Quarters Ended Six Months Ended
December 30, December 31, December 30, December 31,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Primary 7,412,136 4,044,380 6,631,627 4,020,148
Fully diluted 8,858,202 8,632,764 8,815,927 8,627,398
</TABLE>
2. Pending Merger
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 (the "Merger Agreement") 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 as defined in the Merger Agreement (the "Merger").
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. Consummation of the Merger is
conditioned upon the transaction qualifying for treatment as a
pooling of interests for accounting and financial reporting
purposes. Upon consummation of the Merger, under the pooling of
interests method of accounting, the Company will restate its
historical consolidated financial statements to reflect the
inclusion of Champps' assets, liabilities, shareholders'
investment and operating results to reflect the Merger as if the Company
and Champps had been combined for all periods presented. In addition,
transaction costs associated with the Merger will
be charged to expense in the period that the Merger is
consummated.
The Merger is subject to approval by the shareholders of both
the Company and Champps at shareholder meetings to be held on
February 21, 1996. The current President of Champps has entered
into a five year employment agreement with the Company whereby,
subsequent to the Merger, he will serve as Chairman and Chief
Executive Officer of Champps .
<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
At December 30, 1995, the Company had approximately $8 million
of outstanding letters of credit. In February 1996,
approximately $4.1 million of outstanding letters of credit were
released, resulting in an increase in the Company's borrowing capacity
under its line-of-credit agreement.
Leases
In December 1995, CEI obtained a commitment for a $40,000
development and sale-leaseback financing facility from AEI Fund
Management, Inc. ("AEI"). Pursuant to the terms of the
agreement, CEI will sell and lease back from AEI Champps
restaurants to be constructed, in which CEI has an ownership
interest in the real estate and will pay a commitment fee of 1%
of the sale price of each property sold to AEI. The purchase
price shall be equal to the total project cost of the property,
as defined in the agreement, not to exceed its appraised value
(the "Purchase Price"). The unused commitment, if any, expires
on December 6, 1997. The leases, to be guaranteed by DAKA,
provide for a fixed minimum rent based on a percentage of the respective
property's Purchase Price, subject to subsequent CPI-based increases.
The leases also provide for an initial term of 20 years with two 5-year
renewal options exercisable at the option of CEI. 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 (SFAS) No. 13 "Accounting for
Leases." AEI's commitment is contingent upon consummation of
the Merger discussed in Note 2.
In December 1995, the Company obtained a $3,500 capital lease
facility from Chase Equipment Leasing, Inc. ("Chase"). The lease
provides for fifty-one consecutive monthly rental payments,
based on the total of all progress payments made by Chase,
commencing on or before July 1, 1996. Interest accrues at the
LIBOR rate plus 1%.
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 SFAS No. 13.
<PAGE>
4. Debt
In December 1995, the Company amended its revolving
line-of-credit agreement, increasing the Company's borrowing
capacity from $75,000 to $100,000, extending the maturity date
to November 30, 1998 and amending certain loan covenants. At
December 30, 1995, borrowings under the line-of-credit
aggregated $71,200.
During the quarter and six months ended December 30, 1995,
$3,455 and $8,439, respectively, of Notes were converted into
common stock. In connection with the conversion, the Company
increased Stockholders' Equity by $3,338 and $8,197,
respectively, for the quarter and six months ended December 30,
1995. As of December 30, 1995, $12,045 of Notes remained
outstanding. The conversion had no effect upon fully diluted
earnings per share since the shares issuable upon conversion of
the Notes were 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 December 30, 1995,
11,912 shares of Preferred Stock remain outstanding which may be
converted into 264,700 shares common stock at any time at the
Holders option.
6. Subsequent Event
In January 1996, DAKA acquired for approximately $5 million, a
16.7% equity interest in the form of convertible redeemable
preferred stock (the "Preferred Stock") in La Salsa Holding Co.
("La Salsa"), a franchisor and operator of La Salsa Mexican
restaurants. Each share of Preferred Stock may be converted
into La Salsa's Class D Common Stock at $1.50 per share and is
redeemable at face value in installments beginning on March 3,
2000. In addition, DAKA received warrants to acquire, within 18
months, shares of convertible redeemable preferred stock
representing an additional 13.3% equity interest for
approximately $7.1 million. La Salsa currently has 30
franchised and 27 owned stores in California and throughout the
southwestern part of the United States. The transaction is
currently treated as an investment using the cost method of
accounting.
<PAGE>
7. 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 foodservice management,
Fuddruckers and Champps businesses for the quarters and six
months ended December 30, 1995 and December 31, 1994.
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
December December December December
30, 1995 31, 1994 30, 1995 31, 1994
<S> <C> <C> <C> <C>
Revenues:
Sales from profit and
loss contracts $ 61,266 $ 47,094 $110,104 $ 81,857
Management fees 1,512 1,483 2,582 2,598
Restaurant sales - Fuddruckers 31,202 25,594 64,730 51,925
Restaurant sales - Champps 2,202 1,884 4,054 3,673
Franchising income 2,609 1,101 4,581 2,114
-------- -------- -------- --------
Total revenues $ 98,791 $ 77,156 $186,051 $142,167
======== ======== ======== ========
Foodservice:
Sales from profit and
loss contracts $ 61,266 $ 47,094 $110,104 $ 81,857
Operating expenses:
Labor costs 19,619 15,640 36,253 27,360
Product costs 22,795 16,631 40,011 28,663
Other operating expenses 8,416 7,207 16,033 12,941
Depreciation and amortization 1,384 1,006 2,673 1,853
-------- -------- -------- --------
Income from profit and
loss contracts 9,052 6,610 15,134 11,040
Management fees 1,512 1,483 2,582 2,598
-------- -------- -------- --------
Income from foodservice
operations 10,564 8,093 17,716 13,638
-------- -------- -------- --------
Fuddruckers:
Sales from restaurant
operations 31,202 25,594 64,730 51,925
Operating expenses:
Labor costs 8,976 7,623 18,240 15,081
Product costs 8,837 7,038 18,128 14,302
Other operating expenses 8,790 6,844 17,736 13,770
Depreciation and amortization 1,762 1,270 3,649 2,444
-------- -------- -------- --------
Income from restaurant
operations 2,837 2,819 6,977 6,328
Franchising income 2,609 1,101 4,581 2,114
-------- -------- -------- --------
Income from restaurant
and franchising operations 5,446 3,920 11,558 8,442
-------- -------- -------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
December December December December
30, 1995 31, 1994 30, 1995 31, 1994
<S> <C> <C> <C> <C>
Champps Americana:
Sales from restaurant
operations 2,202 1,884 4,054 3,673
Operating expenses:
Labor costs 748 624 1,397 1,239
Product costs 645 548 1,186 1,069
Other operating expenses 416 353 764 692
Depreciation and amortization 80 65 138 128
-------- -------- -------- --------
Operating contribution 313 294 569 545
-------- -------- -------- --------
Income from operations before
selling, general and
administrative expenses 6,323 12,307 29,843 22,625
-------- -------- -------- --------
Selling, general and
administrative expenses:
Foodservice segment 2,027 1,726 4,310 4,196
Restaurant segment 3,280 1,964 6,115 4,042
Corporate (1) 3,519 3,144 6,971 5,599
Champps Americana 222 148 451 274
-------- -------- -------- --------
Total 9,048 6,982 17,847 14,111
-------- -------- -------- --------
Operating income 7,275 5,325 11,996 8,514
Interest expense 1,244 1,079 2,541 1,861
Interest income (93) (33) (154) (104)
Minority interests (177) (101) (150) (104)
Income before income taxes 6,301 4,380 9,759 6,861
Income taxes 2,394 1,616 3,708 2,515
-------- -------- -------- --------
Net income $ 3,907 $ 2,764 $ 6,051 $ 4,346
======== ======== ======== ========
</TABLE>
(1) Includes depreciation expense of $287, $213, $552 and $414
for the quarters and six months ended December 30, 1995 and
December 31, 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 December 30, 1995 increased 41%
to $3.9 million on revenues of $98.8 million as compared to net
income of $2.8 million on revenues of $77.2 million for the
quarter ended December 31, 1994. Fully diluted earnings per
share increased 28% to $0.46 for the quarter compared to $0.36
for the comparable quarter of last year.
Net income for the six months ended December 30, 1995 increased
39% to $6.1 million on revenues of $186.1 million as compared to
net income of $4.3 million on revenues of $142.2 million for the
six months ended December 31, 1994. Fully diluted earnings per
share increased 26% to $0.73 during the six months ended
December 30, 1995 compared to $0.58 for the comparable period of
last year.
Foodservice
The following table sets forth, for the periods presented,
certain financial information for the Company's foodservice
business. For further information relating to the foodservice
business, see Note 7 of Notes to Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
December December December December
30, 1995 31, 1994 30, 1995 31, 1994
<S> <C> <C> <C> <C>
Sales from profit and
loss contracts 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs (32.0) (33.2) (32.9) (33.4)
Product costs (37.2) (35.3) (36.4) (35.0)
Other operating expenses (13.7) (15.3) (14.6) (15.8)
Depreciation and amortization (2.3) (2.2) (2.4) (2.3)
-------- -------- -------- --------
Income from profit and
loss contracts 14.8% 14.0% 13.7% 13.5%
======== ======== ======== ========
Total foodservice revenues $ 62,778 $ 48,577 $112.686 $ 84,455
======== ======== ======== ========
Managed volume:
Management fee contracts $ 30,760 $ 28,996 $ 52,131 $ 50,124
Profit and loss contracts 61,266 47,094 110,104 81,857
-------- -------- -------- --------
Total managed volume $ 92,026 $ 76,090 $162,235 $131,981
======== ======== ======== ========
Income from foodservice operations $ 10,564 $ 8,093 $ 17,716 $ 13,638
======== ======== ======== ========
Income from foodservice operations
as a percentage of managed volume:
Management fee contracts 4.9% 5.1% 5.0% 5.2%
Profit and loss contracts 14.8% 14.0% 13.7% 13.5%
Income from foodservice operations
as a percentage of
total managed volume 11.5% 10.6% 10.9% 10.3%
Income from foodservice operations
as a percentage of
foodservice revenues 16.8% 16.7% 15.7% 16.1%
</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
$15.9 million or 21% to $92.0 million during the quarter ended
December 30, 1995 as compared to $76.1 million in the comparable
quarter of 1994. During the six months ended December 30, 1995,
managed volume increased $30.3 million or 23% to $162.2 million
compared to $132.0 million in 1994. The increase in managed
volume was primarily due to $21.7 million and $39.4 million in
the quarter and six month period, respectively, 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 comparable sales of 2.6% and 2.5% in the quarter and
six month periods, respectively, 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. 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 and six month periods ended
December 30, 1995 compared to the same periods last year.
Income from foodservice operations increased 31% to $10.6
million during the quarter ended December 30, 1995 as compared
to $8.1 million in the comparable quarter of 1994. Income from
profit and loss contracts as a percentage of sales from profit
and loss contracts increased during the quarter and six months
ended December 30, 1995 as compared to the comparable quarter of
1994 despite the lower operating margins associated with the
educational foodservice contracts acquired from SMMSLP in 1995.
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 regarding Fuddruckers, see Note 7 of Notes to
Consolidated Financial Statements.
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
December December December December
30, 1995 31, 1994 30, 1995 31, 1994
<S> <C> <C> <C> <C>
Sales from Fuddruckers-owned
restaurants: 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs (28.8) (29.8) (28.2) (29.1)
Product costs (28.3) (27.5) (28.0) (27.5)
Other operating expenses (28.2) (26.7) (27.4) (26.5)
Depreciation and amortization (5.6) (5.0) (5.6) (4.7)
-------- -------- -------- --------
Income from restaurant operations 9.1% 11.0% 10.8% 12.2%
======== ======== ======== ========
Restaurant sales $ 31,202 $ 25,594 $ 64,730 $ 51,925
======== ======== ======== ========
Income from restaurant
operations $ 2,837 $ 2,819 $ 6,977 $ 6,328
Franchising income 2,609 1,101 4,581 2,114
-------- -------- -------- --------
Income from restaurant and
franchising operations $ 5,446 $ 3,920 $ 11,558 $ 8,442
======== ======== ======== ========
Number of restaurants (end of period):
Fuddruckers-owned 103 79
Franchised 76 76
-------- --------
Total restaurants 179 155
======== ========
</TABLE>
Sales in Fuddruckers-owned restaurants increased $5.6 million or
21.9% during the quarter ended December 30, 1995 compared to the
quarter ended December 31, 1994. This increase results from
$1.1 million of sales at 5 restaurants acquired from franchisees
during fiscal 1995, $7.1 million of sales at 30 new restaurants
opened after the first quarter of last year offset, in part, by
a $0.9 million decrease in sales resulting from the closing of
two restaurants and the sale of three restaurants to
franchisees. In addition, comparable sales decreased by 2.3% in
the second quarter ended December 30, 1995 compared to the
second quarter of last year principally due to inclement weather
in many of Fuddruckers' major markets during December.
Sales in Fuddruckers-owned restaurants increased $12.8 million
or 24.7% during the six months ended December 30, 1995 compared
to the comparable period last year. This increase results from
$2.3 million of sales at 5 restaurants acquired from franchisees
during fiscal 1995, $14.7 million of sales at 30 new
restaurants, offset, in part, by a $1.8 million decrease in
sales resulting from the closing of two restaurants and the sale
of three restaurants to franchisees. Additionally, comparable
restaurant sales for the six months ended December 30, 1995
decreased by 1.9% compared to last year.
Income from restaurant and franchise operations increased to
$5.4 million and $11.6 million for the quarter and six months
ended December 30, 1995 as compared to $3.9 million and $8.4
million during the comparable quarter and six month period of
last year. Income from restaurant operations as a percentage of
sales from Fuddruckers-owned restaurants decreased during the
quarter and six month periods ended December 30, 1995 due to the
effect of lower comparable sales and increased discounting
related to the "Kids Eat Free" program available for the first
time on Sundays in the second quarter in many of Fuddruckers'
markets. The decrease in comparable restaurant sales and
operating margins during the quarter and six months ended
December 30, 1995 was offset by income from new restaurants and
increased franchising income principally due to increased
franchising in international markets.
<PAGE>
Champps Americana
The following table sets forth certain financial information for
the three Champps Americana restaurants owned by ADC, one of
which opened in December 1995. For further information related
to ADC see Note 7 of Notes to the Consolidated Financial
Statements.
<TABLE>
<CAPTION>
Quarters Ended Six Months Ended
December December December December
30, 1995 31, 1994 30, 1995 31, 1994
<S> <C> <C> <C> <C>
Sales from Champps restaurants 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Labor costs (34.0) (33.1) (34.5) (33.7)
Product costs (29.3) (29.1) (29.3) (29.1)
Other operating expenses (18.9) (18.7) (18.8) (18.9)
Depreciation and amortization (3.6) (3.5) (3.4) (3.5)
-------- -------- -------- --------
Income from restaurant
operations 14.2% 15.6% 14.0% 14.8%
======== ======== ======== ========
Restaurant sales $ 2,202 $ 1,884 $ 4,054 $ 3,673
======== ======== ======== ========
Income from restaurant
operations $ 313 $ 294 $ 569 $ 545
======== ======== ======== ========
Number of restaurants 3 2
======== ========
</TABLE>
Sales increased in both the quarter and the six months ended
December 30, 1995 as a result of $245 of sales from one new
restaurant opened in Ohio in December and increased comparable
sales of 3.9% and 3.7%, in the quarter and six month periods,
respectively. Higher operating expenses reflect higher initial
costs at the newly opened restaurant.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased $2.1
million to $9.0 million for the quarter ended December 30, 1995.
Selling, general and administrative expenses increased $3.7
million to $17.8 million for the six months ended December 30,
1995 compared to $14.1 million in the comparable period of last
year. The increase primarily relates to closing costs incurred
with two Fuddruckers restaurants, upgrading of management
information systems and hiring additional personnel to support
the overall growth in revenues. Selling, general and
administrative expenses as a percentage of managed volume, which
includes managed volume in the foodservice business as well as
sales at Company-owned Fuddruckers and Champps restaurants,
increased to 7.2% and 7.7% during the three and six months ended
December 30, 1995 as compared to 6.7% and 7.5% in the comparable
periods of last year.
Interest Expense
Interest expense increased $0.2 million to $1.2 million during
the quarter and increased $0.7 million to $2.5 million during the
six months ended December 30, 1995 compared to comparable
periods of last year. The increase is a result of an overall
higher level of borrowings under the Company's line-of-credit
which were used to fund capital expenditures in both the
foodservice and Fuddruckers businesses, offset, in part, by a
decrease in interest expense as a result of the conversion of
$16.7 million of the Convertible Subordinated Notes since
December 1994.
<PAGE>
Income Taxes
The Company's effective tax rate increased to 38% for the
quarter and six months ended December 30, 1995 as compared to
37% for the comparable periods of last year. The increase was
primarily due to higher pretax income and the elimination of the
targeted job tax credit in December 1994.
Earnings Per Share
Primary earnings per share decreased 8.6% and 7.1% for the
quarter and six months ended December 30, 1995 while fully
diluted earnings per share increased 27.8% and 25.9% for the
quarter and six months ended December 31, 1995 as compared to
last year. The decrease in primary earnings per share was
primarily due to 83% and 65% increases in the primary weighted
average number of shares outstanding at the end of the quarter
and six months ended December 30, 1995, respectively, and the
effect of the Preferred Stock dividend paid in 1994, offset, in
part, by a 41% increase in net income. The 1,957,521 shares of
common stock issued upon conversion of the Company's Series A
Preferred Stock and the conversion of a portion of the Company's
Convertible Subordinated Notes into shares of common stock were
the principal reasons for the increase in primary weighted
average shares. 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 $29.1 million at December 30, 1995,
an increase of $18.9 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
December 30, 1995 the Company had approximately $20.8 million of
available borrowing capacity remaining on its line-of-credit.
Capital expenditures in the six months ended December 30, 1995
aggregated approximately $28.4 million, and consisted of $19.3
million for new Fuddruckers restaurants and upgrades at existing
restaurants, $3.5 million for new Champps restaurants under
construction, $1.2 million for updating the Company's
information systems and $4.4 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 $8.2 million of
proceeds from its sale-leaseback facility.
The Company plans to open additional new Fuddruckers-owned
restaurants, continue to reorient facilities of foodservice
clients to a more retail restaurant environment and open one
additional Champps Americana restaurant during fiscal 1996.
Management believes that cash flow from operations, existing
cash, available borrowings under its line-of-credit as well as
its sale-lease back facilities 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
There were no reports on Form 8-K filed during the quarter
ended December 30, 1995.
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/Louie Psallidas
----------------------------
Louie Psallidas
Vice President, Finance
(Principal Financial and Principal
Accounting Officer)
Date: February 16, 1996
Exhibit 11
DAKA INTERNATIONAL, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
QUARTERS AND SIX MONTHS ENDED DECEMBER 30, 1995 AND DECEMBER 31,
1994
Quarters ended Nine Months ended
December 30, 1995 December 31, 1994 December 30, 1995
December 31, 1994
Primary:
Net income $ 3,907 $ 2,764 $ 6,051 $ 4,346
Net income available to common stockholders 3,907
2,364 6,051 3,946
Weighted average number of common shares outstanding 7,042
3,817 6,284 3,798
Additional shares assuming conversion of stock options
370 227 348 222
Average common shares outstanding and equivalents 7,412
4,044 6,632 4,020
Primary earnings per share:
Net income $ 0.53 $ 0.58 $ 0.91 $
0.98
Fully Diluted:
Net income available to common stockholders 3,907 2,364
6,051 3,946
Dividend on Preferred Stock 400 400
Interest expense on Convertible Notes, after tax effect
143 317 359 637
$ 4,050 $ 3,081 $ 6,410 $ 4,983
Weighted average number of common shares outstanding 7,042
3,817 6,284 3,798
Weighted average number of shares related to notes converted,
prior to conversion 177 272 316 286
Weighted average number of shares related to Preferred Stock,
prior to conversion 599
Additional shares issuable upon conversion of Preferred Stock
265 2,222 265 2,222
Additional shares issuable upon conversion of Notes 1,004
2,094 1,004 2,094
Additional shares issuable upon conversion of stock options
370 228 348 227
8,858 8,633 8,816 8,627
Fully diluted earnings per share:
Net income $ 0.46 $ 0.36 $ 0.73 $
0.58
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000840826
<NAME> DAKA INTERNATIONAL, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-29-1996
<PERIOD-END> DEC-30-1995
<CASH> 9,083
<SECURITIES> 0
<RECEIVABLES> 46,242
<ALLOWANCES> 998
<INVENTORY> 10,193
<CURRENT-ASSETS> 67,477
<PP&E> 133,527
<DEPRECIATION> 32,472
<TOTAL-ASSETS> 200,706
<CURRENT-LIABILITIES> 38,391
<BONDS> 85,047
0
0
<COMMON> 73
<OTHER-SE> 64,593
<TOTAL-LIABILITY-AND-EQUITY> 200,706
<SALES> 178,888
<TOTAL-REVENUES> 186,051
<CGS> 149,748
<TOTAL-COSTS> 149,748
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,541
<INCOME-PRETAX> 9,759
<INCOME-TAX> 3,708
<INCOME-CONTINUING> 6,051
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,051
<EPS-PRIMARY> .91
<EPS-DILUTED> .73
</TABLE>
