<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
March 6, 1996
(Date of Report)
Date of earliest event reported: February 21, 1996
DAKA International, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-17229 04-3024178
(Commission File Number) (I.R.S. Employer Identification No.)
One Corporate Place
55 Ferncroft Road
Danvers, Massachusetts 01923
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(508) 774-9115
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On February 21, 1996, pursuant to an Agreement and Plan of Merger dated as of
October 10, 1995 (the "Merger Agreement") by and among DAKA International, Inc.
(the "Registrant" or "DAKA"), CEI Acquisition Corp., a Minnesota corporation
and wholly-owned subsidiary of DAKA ("Sub"), and Champps Entertainment, Inc., a
Minnesota corporation ("Champps"), Sub was merged with and into Champps (the
"Merger") whereupon Champps became a wholly-owned subsidiary of DAKA.
Under the terms of the Merger Agreement, upon the consummation of the Merger
each outstanding share of Champps common stock, par value $.01 per share
("Champps Common Stock"), was converted into the right to receive forty-three
hundredths (0.43)(the "Exchange Ratio") of one share of DAKA's Common Stock par
value $.01 per share ("DAKA Common Stock") plus cash for any fractional
shares. Based on the Exchange Ratio, holders of Champps Common Stock will
receive an aggregate of 2,181,722 shares of DAKA Common Stock valued at
$49,361,460. The value of the shares of DAKA Common Stock issued was
determined by multiplying the 2,181,722 shares by $22.625, the closing price of
DAKA Common Stock as reported on the Nasdaq National Market System on February
20, 1996, which was the last trading day prior to February 21, 1996. In
addition, as a result of the Merger, DAKA is obligated to issue 86,215
additional shares of DAKA Common Stock upon exercise of outstanding Champps
stock options. The issuance of DAKA's Common Stock, in connection with the
Merger as herein described, was approved by the stockholders of DAKA at DAKA's
Annual Meeting of Stockholders held on February 21, 1996. The Merger was also
approved by the shareholders of Champps at a Special Meeting of the
Shareholders of Champps also held on February 21, 1996.
The Merger will be treated as a tax-free reorganization for federal income tax
purposes and as a pooling-of-interests for financial accounting purposes
whereby DAKA will restate previously issued consolidated financial statements
to include Champps.
Champps owns and operates six "Champps Americana" casual dining restaurants
located in Minnesota, Texas, New Jersey, Indiana and California, and has 12
licensed and franchised restaurants, including two in Minneapolis/St. Paul and
one in Cleveland which are currently owned and operated by DAKA through its
majority owned subsidiary Americana Dining Corporation.
Dean P. Vlahos, President and Founder of Champps, has been appointed to the
Board of Directors of DAKA in connection with the Merger. Subsequent to the
Merger, Mr. Vlahos, pursuant to a five year employment agreement, will assume
the responsibilities of Chairman of the Board, President and Chief Executive
Officer of the Champps subsidiary.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) Financial Statements of Business Acquired:
Report of Independent Public Accountants
Consolidated Financial Statements of Champps Entertainment, Inc. for the
years ended December 31, 1994, 1993 and 1992
Consolidated Financial Statements of Champps Entertainment, Inc. for the
fifty-two weeks ended December 30, 1995 (unaudited) and for the year
ended December 31, 1994
Audited consolidated financial statements for Champps
Entertainment, Inc. for the fifty-two weeks ended December 31, 1995
are not available. Pursuant to Rule 210.3-01(b) and (c) of
Regulation S-X, the Registrant is permitted to submit unaudited
consolidated financial statements of Champps Entertainment, Inc. as
of the most recently completed interim period in lieu of the
audited consolidated financial statements of Champps Entertainment,
Inc. for the fifty-two weeks ended December 31, 1995. The
Registrant has elected to submit unaudited consolidated financial
statements of Champps Entertainment, Inc. for the fifty-two weeks
ended December 31, 1995 in lieu of the unaudited consolidated
interim financial statements permitted by Rule 210.3-01 (b) and (c)
of Regulation S-X.
<PAGE> 3
(B) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Combined Balance Sheets as of July 1,
1995, July 2, 1994 and December 30, 1995.
Unaudited Pro Forma Condensed Combined Statements of Income for the
fiscal years ended July 1, 1995, July 2, 1994, June 26, 1993 and for the
six months ended December 30, 1995 and December 31, 1994.
(C) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
2 Agreement and Plan of Merger dated as of October 10, 1995
by and among DAKA International, Inc., CEI Acquisition
Corp. and Champps Entertainment, Inc. is incorporated
herein by reference from Appendix A of the Registration
Statement of DAKA on Form S-4 (File No. 33-65425).
Pursuant to Item 601(b)(2) of Regulation S-K, the
schedules to the Merger Agreement are omitted. A list of
such schedules appears in the table of contents to the
Merger Agreement. DAKA hereby undertakes to furnish
supplementally a copy of any omitted schedule to the
Commission upon request.
23.1 Consent of Arthur Andersen LLP
</TABLE>
<PAGE> 4
ITEM 7(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Champps Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Champps
Entertainment, Inc. (a Minnesota corporation) and Subsidiaries as of December
31, 1994 and 1993, the related consolidated statements of operations,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Champps Entertainment, Inc.
and Subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
January 27, 1995
<PAGE> 6
CHAMPPS ENTERTAINMENT, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 6,466,419 $ 2,149,040
Marketable securities (Note 2).................................. 170,000 --
Inventories..................................................... 112,150 58,238
Accounts receivable............................................. 166,062 25,239
Prepaid expenses and other current assets....................... 131,201 23,947
Preopening costs, net........................................... 262,156 --
Note receivable from shareholder, current....................... -- 25,500
----------- -----------
Total current assets.................................... 7,307,988 2,281,964
----------- -----------
Property, Equipment and Leasehold Improvements, net............... 2,923,438 894,675
Other Assets...................................................... 340,289 85,240
----------- -----------
$10,571,715 $ 3,261,879
=========== ===========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt (Note 3)................... $ 471,034 $ 1,294,730
Accounts payable................................................ 196,123 22,190
Accrued expenses--
Payroll and related benefits................................. 222,730 97,440
Other........................................................ 404,252 229,548
Deferred income taxes........................................... 31,646 --
Deferred franchise fee revenue.................................. 143,000 163,000
----------- -----------
Total current liabilities............................... 1,468,785 1,806,908
----------- -----------
Long-term debt (Note 3)........................................... 610,000 473,511
----------- -----------
Commitments and contingencies (Note 9)
Shareholders' Investment (Notes 1 and 5):
Common stock.................................................... 47,801 5,221
Additional paid-in capital...................................... 8,230,498 2,591,862
Unrealized loss on marketable securities, net of tax effect
(Note 2)..................................................... (18,300) --
Retained earnings............................................... 232,931 (1,615,623)
----------- -----------
Total shareholders' investment.......................... 8,492,930 981,460
----------- -----------
$10,571,715 $ 3,261,879
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 7
CHAMPPS ENTERTAINMENT, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
----------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Net sales by Company-owned restaurants............... $7,900,068 $6,199,050 $6,554,240
Royalty and franchise fee revenue.................... 637,940 361,522 263,458
Other revenues....................................... 81,695 35,528 73,579
-------- -------- --------
Total revenues............................... 8,619,703 6,596,100 6,891,277
-------- -------- --------
COST AND EXPENSES:
Cost of sales........................................ 2,274,742 1,752,863 1,855,564
Restaurant operating expenses........................ 4,099,440 3,119,650 3,252,780
Direct franchise expenses............................ 119,879 44,908 29,593
Depreciation and amortization........................ 394,524 223,769 268,182
General and administrative expenses.................. 1,232,766 596,254 471,952
Severance expense (Note 7)........................... 280,377 -- --
Loss on sale of restaurant (Note 6).................. -- -- 261,551
-------- -------- --------
Total cost and expenses...................... 8,401,728 5,737,444 6,139,622
-------- -------- --------
Income from operations................................. 217,975 858,656 751,655
Interest expense....................................... (122,304) (89,688) (178,856)
Interest income........................................ 201,260 14,288 26,667
-------- -------- --------
Income before provision for income taxes............... 296,931 783,256 599,466
Provision for income taxes............................. 64,000 -- --
-------- -------- --------
Net income............................................. $ 232,931 $ 783,256 $ 599,466
======== ======== ========
Net income per common share............................ $ .05 -- --
======== ======== ========
Weighted average shares outstanding.................... 4,807,559 -- --
======== ======== ========
UNAUDITED PRO FORMA INFORMATION (NOTE 10):
Income before provision for income taxes............... -- $ 783,256 $ 599,466
Provision for income taxes............................. -- 325,000 244,000
-------- -------- --------
Net income............................................. -- $ 458,256 $ 355,466
======== ======== ========
Net income per common share............................ -- $ .12 $ .09
======== ======== ========
Weighted average shares outstanding.................... -- 3,901,900 3,901,900
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 8
CHAMPPS ENTERTAINMENT, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
----------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................................. $ 232,931 $ 783,256 $ 599,466
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization........................................ 394,524 223,769 268,182
Noncash severance expense (Note 7)................................... 102,000
Deferred income tax benefit.......................................... (64,779) -- --
Loss on sale of property............................................. -- 3,514 261,551
Changes in other operating items:
Inventories........................................................ (53,912) 2,560 (2,517)
Accounts receivable................................................ (140,823) (9,412) (15,827)
Prepaid expenses and other......................................... (247,150) (8,557) 22,881
Preopening costs................................................... (344,187) -- --
Accounts payable................................................... 173,933 (48,108) 23,195
Accrued expenses................................................... 299,994 122,903 19,999
Deferred franchise fee revenue..................................... (20,000) 163,000 --
----------- ----------- -----------
Net cash provided by operating activities........................ 332,531 1,232,925 1,176,930
----------- ----------- -----------
INVESTING ACTIVITIES:
Purchases of property, equipment and leasehold improvements, net....... (2,324,784) (91,935) (69,364)
Purchase of marketable securities...................................... (200,000) -- --
Proceeds from sale of assets........................................... 758,981 38,000 (29,121)
----------- ----------- -----------
Net cash used for investing activities............................. (1,765,803) (53,935) (98,485)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from initial public offering of common stock.............. 7,196,839 -- --
Borrowings of long-term obligations.................................... -- 500,000 --
Payments on long-term obligations...................................... (1,446,188) (186,975) (478,139)
Cash proceeds from common stock issuances.............................. -- 1,575,000 --
Cash dividends paid.................................................... -- (1,221,000) --
Proceeds from sale of warrants......................................... -- 3,250 --
Redemption of common stock............................................. -- -- (200)
Advances to majority shareholder....................................... -- -- (437,349)
Loan to shareholder/officer............................................ -- (102,000) --
----------- ----------- -----------
Net cash provided by (used for) financing activities............... 5,750,651 568,275 (915,688)
----------- ----------- -----------
Net increase in cash and cash equivalents.............................. 4,317,379 1,747,265 162,757
Cash and cash equivalents, beginning of year........................... 2,149,040 401,775 239,018
----------- ----------- -----------
Cash and cash equivalents, end of year................................. $ 6,466,419 $ 2,149,040 $ 401,775
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.......................................................... $ 75,902 $ 89,688 $ 178,556
Income taxes paid...................................................... $ 223,075 $ -- $ --
Noncash transaction--
Issuance of common stock to purchase trade name...................... $ 100,000 $ -- $ --
Cancellation of a note receivable.................................... $ 102,000 $ -- $ --
Equipment acquired pursuant to capital lease arrangements............ $ 758,981 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 9
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
YEARS ENDED DECEMBER 31, 1992, 1993, 1994
<TABLE>
<CAPTION>
COMMON STOCK RETAINED UNREALIZED
------------------------------- ADDITIONAL EARNINGS LOSS ON
CMI/THE PAID-IN (ACCUMULATED MARKETABLE SHAREHOLDERS'
COMPANY CHAMPPS CFI TOTAL AMOUNT CAPITAL DEFICIT) SECURITIES INVESTMENT
--------- ---------- ------ --------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER
31, 1991........ 13,333 1,787,500 -- 1,800,833 $ 1,133 $ 390,600 $ (472,935) -- $ (81,202)
Redemption of
stock........... -- (536,250) -- (536,250) (300) 100 -- -- (200)
Dividends to
shareholder..... -- -- -- -- -- -- (83,330) -- (83,330)
Issuance of stock
purchase
warrant......... -- -- -- -- -- 1,000 -- -- 1,000
Net income........ -- -- -- -- -- -- 599,466 -- 599,466
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
BALANCE, DECEMBER
31, 1992........ 13,333 1,251,250 -- 1,264,583 833 391,700 43,201 -- 435,734
Initial
capitalization
of CFI.......... -- -- 1,000 1,000 10 149,990 -- -- 150,000
Cash dividends to
shareholders
(Note 8)........ -- -- -- -- -- -- (1,221,000) -- (1,221,000)
Noncash dividends
to shareholders
(Note 8)........ -- -- -- -- -- -- (1,221,080) -- (1,221,080)
Conversion to
equity of
amounts due to
shareholder..... -- -- -- -- -- 477,300 -- -- 477,300
Issuance of stock
purchase
warrant......... -- -- -- -- -- 2,250 -- -- 2,250
Exercise of stock
purchase
warrant......... 1,428 133,975 107 135,510 1,355 73,645 -- -- 75,000
Sale of common
stock........... 3,184 298,830 239 302,253 3,023 1,496,977 -- -- 1,500,000
Net income........ -- -- -- -- -- -- 783,256 -- 783,256
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
BALANCE, DECEMBER
31, 1993........ 17,945 1,684,055 1,346 1,703,346 5,221 2,591,862 (1,615,623) -- 981,460
Conversion to C
Corporation for
tax purposes
(Note 4)........ -- -- -- -- -- (1,615,623) 1,615,623 -- --
Effects of Merger
Agreement (Note
5).............. 3,363,355 (1,684,055) (1,346) 1,677,954 28,592 (28,592) -- -- --
Initial public
offering, net of
expenses (Note
5).............. 1,380,000 -- -- 1,380,000 13,800 7,183,039 -- -- 7,196,839
Issuance of common
stock (Note
9).............. 18,824 -- -- 18,824 188 99,812 -- -- 100,000
Unrealized loss on
marketable
securities (Note
2).............. -- -- -- -- -- -- -- $(18,300) (18,300)
Net income........ -- -- -- -- -- -- 232,931 -- 232,931
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
BALANCE, DECEMBER
31, 1994........ 4,780,124 -- -- 4,780,124 $47,801 $8,230,498 $ 232,931 $(18,300) $ 8,492,930
========= ========== ====== ========= ======= ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
Champps Entertainment, Inc. ("Champps") owns and operates a full-service,
casual theme restaurant and bar concept under the name Champps Americana. As of
December 31, 1994, Champps had two Champps-owned restaurants in operation in
Minnesota and Texas and 11 franchised restaurants.
On April 6, 1994, Champps completed an initial public offering of its
common stock. In order to facilitate this offering, the owners of the various
predecessor companies under common control and ownership agreed to exchange
their ownership interests for shares of Champps pursuant to the terms of an
Agreement and Plan of Merger (the "Champps Merger Agreement") dated February 14,
1994 (see Note 5). The predecessor companies consisted of the following:
- Champps Entertainment, Inc. ("former Champps"), a Minnesota corporation,
organized to obtain trade names and licensing rights as well as to
develop and franchise Champps restaurants.
- Champps of Minnetonka, Inc. ("CMI"), a Minnesota corporation, organized
to develop and operate a Champps Americana restaurant in Minnetonka,
Minnesota.
- Champps Franchising, Inc. ("CFI"), a Minnesota corporation, organized for
the specific purpose of establishing a franchise. The operations of CFI
include expenses incurred in connection with the development of new
franchises and the related franchise fee revenue.
As discussed in Note 5, former Champps and CFI merged into CMI. The
surviving corporation changed its name to Champps Entertainment, Inc. The
accompanying 1994 financial statements have been consolidated as discussed in
Note 2. The 1993 and 1992 financial statements have been presented on a combined
basis and contain the financial position and results of operations because the
predecessor companies were under common control.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the accounts of Champps and its two wholly owned subsidiaries, Champps
Entertainment of Texas, Inc. and Champps Entertainment of Edison, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS -- Cash and cash equivalents consist of cash and
highly liquid investments with original maturities of three months or less.
Champps has pledged cash equivalents valued at $750,000 as collateral for a
letter of credit issued by a bank in the amount of $300,000 (see Note 9).
MARKETABLE SECURITIES -- Champps adopted Financial Accounting Standard No.
115 "Accounting for Certain Investments in Debt and Equity Securities" (SFAS
115) as of January 1, 1994. At December 31, 1993, Champps had no investments in
marketable securities. Thus, there was no effect on the financial statements
upon adoption of SFAS 115 as of January 1, 1994. SFAS 115 requires the
classification of debt and marketable equity securities in one of three
categories: trading, available-for-sale, or held-to-maturity. Trading and
available-for-sale securities are recorded at fair value. Held-to-maturity
securities are recorded at amortized cost, adjusted for the amortization or
accretion of premiums or discounts. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding gains and
losses, net of related tax effect, on available-for-sale securities are reported
as a separate component of shareholders' investment until realized.
All marketable securities held by Champps at December 31, 1994, were
classified as current and available-for-sale. As of December 31, 1994, Champps
has recorded an unrealized loss as a result of a decrease in fair market value
below original cost, net of tax effect, of $18,300. This unrealized loss has
been
<PAGE> 11
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
reflected as a separate component of shareholders' investment in the
accompanying consolidated balance sheets. Marketable securities consist entirely
of auction rate preferred stock with an original cost of $200,000.
INVENTORIES--Inventories are stated at the lower of cost (first-in
first-out) or market and consist principally of food and beverages.
PREOPENING COSTS--Preopening costs include the direct and incremental costs
typically associated with the opening of a new restaurant which primarily
consists of costs incurred to recruit and develop new restaurant management
teams, travel and lodging for both the training and opening unit management
teams, and the food, beverage and supplies costs incurred to perform role-play,
testing of all equipment, concept systems and recipes. These costs are
capitalized and amortized over the first 12 months of the restaurant's
operations.
RESTAURANT OPERATIONS--Food and beverage revenues from Champps-owned
restaurants are recognized at the time of sale. Restaurant revenues are reported
net of applicable sales and excise taxes. Restaurant cost of sales consists of
food and beverage costs. Restaurant operating expenses include all on-site
labor, occupancy and direct overhead costs.
FRANCHISE OPERATIONS--Royalty fees received from franchisees are recognized
when earned and are based primarily on a contractual percentage of restaurant
revenue. Initial franchise fees are included in franchise revenue when the
franchised restaurant commences operations. Fees received pursuant to multiple
unit development agreements are nonrefundable and recognized as revenue when
received based on the fact that no additional services are required to be
performed by Champps in connection with the development agreement. Direct
franchise expenses include franchise development and support costs and on-site
restaurant management expenses as well as a fee paid to the former owner of the
"Champps" trade name (see Note 9).
<TABLE>
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS--Property, equipment and
leasehold improvements are recorded at cost less accumulated depreciation and
amortization as follows at December 31:
<CAPTION>
1994 1993
----------- ----------
<S> <C> <C>
Equipment and furniture............................ $ 1,315,252 $ 981,347
Leasehold improvements............................. 1,591,944 664,590
Equipment under capital leases..................... 758,981 --
Construction in progress........................... 295,855 --
----------- ----------
3,962,032 1,645,937
Accumulated depreciation and amortization.......... (1,038,594) (751,262)
----------- ----------
$ 2,923,438 $ 894,675
=========== ==========
</TABLE>
Champps uses the straight-line method of depreciation for financial
reporting purposes and accelerated methods for income tax reporting purposes.
Equipment and furniture are depreciated over their estimated useful lives, which
range from 5 to 10 years. Leasehold improvements are amortized over the life of
the lease term, generally 10 to 15 years.
INCOME TAXES--Effective January 1, 1994, Champps adopted FASB Statement No.
109, "Accounting for Income Taxes" (SFAS 109), which requires the asset and
liability approach for financial accounting and reporting for deferred income
taxes. The cumulative effect of adopting SFAS 109 was not material.
Prior to January 1, 1994, each of the affiliated legal entities described
in Note 1 had elected those provisions of the Internal Revenue Code and state
laws which provide for the income of the entities to be taxed at the shareholder
level. Accordingly, the consolidated statements of operations for the years
ended December 31, 1993 and 1992 do not include a provision for income taxes.
<PAGE> 12
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
NET INCOME PER COMMON SHARE--Net income per common share is computed by
dividing net income by the weighted average number of shares of common and
dilutive common equivalent shares assumed to be outstanding during the period.
Common equivalent shares consist of dilutive options and warrants to purchase
common stock.
RECLASSIFICATIONS--Certain reclassifications have been made to the 1993 and
1992 financial statements to conform with the 1994 presentation. These
reclassifications had no effect on stockholders' investment or net income as
previously presented.
3. DEBT
<TABLE>
Debt consisted of the following as of December 31:
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Notes payable to bank, interest at 8.5% minimum
monthly payments of $23,000 due April 30, 1995.... $ 354,522 $ 933,781
Capital lease obligations collateralized by
equipment, interest at 7.5%, maturing in October
1999.............................................. 726,512 --
Borrowings from a non-affiliate, paid in full in
December, 1994.................................... -- 500,000
Borrowings from a former shareholder, paid in full
in April, 1994.................................... -- 334,460
---------- ----------
Total..................................... 1,081,034 1,768,241
Less-current maturities of long-term debt........... 471,034 1,294,730
---------- ----------
Long-term debt............................ $ 610,000 $ 473,511
========== ==========
</TABLE>
Maturities of long-term debt as of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995..................................................... $ 471,034
1996..................................................... 125,671
1997..................................................... 138,427
1998..................................................... 150,021
1999..................................................... 195,881
----------
Total.......................................... $1,081,034
==========
</TABLE>
4. INCOME TAXES
The components of the provision for income taxes for the year ended
December 31, 1994 are as follows:
<TABLE>
<S> <C>
Current payable:
Federal................................................. $ 96,746
State................................................... 32,033
Deferred.................................................. (64,779)
--------
Total........................................... $ 64,000
========
</TABLE>
<PAGE> 13
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
<TABLE>
A reconciliation of the statutory federal income tax rate to Champps'
effective income tax rate for the year ended December 31, 1994 is as follows:
<S> <C>
Federal statutory income tax rate.................... 34.0%
State income taxes, net of federal benefits.......... 5.8
Effect of termination of S corporation election...... (8.0)
FICA tax credit...................................... (7.0)
Tax-exempt interest income........................... (4.7)
Other................................................ 1.5
----
Effective income tax rate............................ 21.6%
====
</TABLE>
<TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31, 1994 are as
follows:
<S> <C>
Deferred tax assets:
Property and equipment......................... $ 60,650
Deferred franchise revenue..................... 45,200
Other.......................................... 2,275
--------
$108,125
========
Deferred tax liabilities
Pre-opening costs.............................. $ 31,646
========
</TABLE>
The deferred tax asset is included as a component of other assets in the
accompanying consolidated balance sheets.
Management has determined, based on Champps' current taxable income and the
anticipation of sufficient future taxable income, that Champps will more likely
than not be able to realize the full value of the deferred tax asset. Thus, no
valuation allowance has been recorded as of December 31, 1994.
<TABLE>
Unaudited pro forma income taxes represent the estimated income taxes that
would have been reported had Champps been a C corporation for the years ended
December 31, 1993 and 1992. The following summarizes the unaudited pro forma
provision for income taxes:
<CAPTION>
1993 1992
--------- --------
<S> <C> <C>
Currently payable:
Federal.......................................... $ 354,077 $200,026
State............................................ 85,650 48,481
Deferred........................................... (114,727) (4,507)
--------- --------
Unaudited pro forma provision for income taxes..... $ 325,000 $244,000
========= ========
</TABLE>
The unaudited pro forma provision for income taxes on adjusted historical
income differs from the amounts computed by applying the applicable federal
statutory rates due to state income taxes. The components of the pro forma
deferred income taxes are principally depreciation and deferred franchise fees.
5. SHAREHOLDERS' INVESTMENT
REORGANIZATION--On February 14, 1994, former Champps, CMI and CFI were
consolidated into Champps of Minnetonka, Inc., and this corporation changed its
name to Champps Entertainment, Inc. Pursuant to the Champps Merger Agreement,
all outstanding shares of former Champps common stock were
<PAGE> 14
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
converted to CMI stock; all outstanding shares of CMI stock were converted on a
ratio of 87.08 to 1; and all outstanding shares of CFI common stock were
converted to CMI stock on a ratio of 100 to 1. Total outstanding shares
subsequent to this merger were 3,381,300. In addition, the Champps Merger
Agreement authorized 15,000,000 shares of common stock with a par value of $.01
and 1,000,000 shares of $.01 preferred stock. No shares of preferred stock have
been issued.
SALE OF COMMON STOCK--On December 31, 1993, Champps sold 302,253 shares of
common stock (600,000 shares after giving effect to the merger described above)
to a then unrelated investor for $1,500,000 pursuant to a stock purchase
agreement.
On March 29, 1994, the Securities and Exchange Commission declared
effective a Registration Statement relating to the initial public offering of
1,200,000 shares of Champps' common stock. Champps received net proceeds of
$6,650,000 on April 6, 1994 and $990,000 upon exercise of the underwriter's
overallotment option of 180,000 shares on April 25, 1994. The accompanying
consolidated financial statements reflect the effect of this offering net of
transaction-related expenses.
STOCK PURCHASE WARRANTS--On April 1, 1992, Champps sold a stock purchase
warrant to a consultant for $1,000. The warrant gave the holder the right to
purchase 5% of the capital stock of Champps for $75,000, fair market value at
the issuance date. On August 19, 1993, the warrant was exercised. Pursuant to
the merger described above, the certificates initially issued upon the exercise
of the warrant were canceled and new certificates which reflected the dilution
associated with the sale of the warrant and common stock described above were
issued. Total shares issued represented 135,510 shares as of December 31, 1993
and 269,000 as of December 31, 1994.
STOCK OPTION PLANS--Up to 260,000 shares of common stock may be issued for
stock options to employees and directors under Champps' 1994 Incentive Stock
Option and Outside Director Stock Option Plans. Such options may be granted from
time to time at the discretion of the Champps Board of directors at option
prices equal to the fair market value of the shares for incentive stock options.
The option price may be less than fair market value for nonstatutory stock
options granted. Options generally have a 10-year term and vest over various
periods.
During 1994, 198,000 options were granted at prices ranging from $5.25 to
$6.25 per share. No options were canceled or exercised during 1994.
6. SALE OF NEW BRIGHTON RESTAURANT
On February 12, 1992, former Champps entered into an agreement to sell its
interest in the New Brighton, Minnesota, restaurant. Former Champps repurchased
the minority shares held by the buyer group of the restaurant, gave its
ownership rights in principally all assets and was released of its obligations
to pay account payables, accrued expenses and long-term debt. Former Champps
recognized a loss of approximately $262,000 as a result of this transaction.
Approximately $240,000 in sales from this restaurant are included in "Net sales
by Champps-owned restaurants" in the accompanying consolidated statements of
operations for the year ended December 31, 1992.
7. SEVERANCE EXPENSE
In January, 1995, Champps reached a settlement agreement with its former
chief executive officer related to his November 1994 departure from Champps. The
settlement included the cancellation of a $102,000 note receivable and resulted
in a net charge to 1994 operations of $280,377.
<PAGE> 15
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
8. RELATED-PARTY TRANSACTIONS
<TABLE>
The following is a summary of transactions between Champps and related
parties in addition to those described elsewhere in the Notes to Consolidated
Financial Statements:
<CAPTION>
DISTRIBUTIONS
NONCASH -------------------------
DESCRIPTION OF TRANSACTION CONTRIBUTIONS CASH NONCASH
- ------------------------------------------------------ ------------- ---------- ----------
<S> <C> <C> <C>
CHAMPPS OF MINNETONKA, INC.
- - Dividend to shareholder in February 1993 in
satisfaction of note receivable from this
shareholder......................................... $ -- $ -- $ 736,620
- - Cash dividend to shareholder in March 1993, used by
shareholder to repurchase a 25% minority interest in
Champps............................................. -- 375,000 --
- - Assumption of note payable to a former
shareholder......................................... -- -- 334,460
- - Cash dividends to shareholders in December 1993 for
the payment of 1993 individual income taxes......... -- 498,000 --
- - Other cash dividends paid to shareholder for
personal purposes................................... -- 38,000 --
CHAMPPS FRANCHISING, INC.
- - Contribution of initial capital in February 1993.... 150,000 -- --
- - Dividend to shareholder in February 1993 to repay
financing of original stock purchase................ -- -- 150,000
- - Cash dividend to shareholder in December 1993 for
the payment of 1993 individual income taxes......... -- 80,000 --
CHAMPPS ENTERTAINMENT, INC.
- - Conversion of a personal note from Champps to
capital by majority shareholder in January 1993..... 477,300 -- --
- - Cash dividend to shareholder to make payments on
note to a former shareholder........................ -- 180,000 --
- - Cash dividend to shareholder in December 1993 for
the payment of 1993 individual income taxes......... -- 50,000 --
------ ------- -------
$ 627,300 $1,221,000 $1,221,080
====== ======= =======
</TABLE>
All related-party transactions which occurred during the year ended
December 31, 1994 have been disclosed elsewhere in the Notes to Consolidated
Financial Statements.
9. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS--Champps conducts its operations principally from leased
restaurant facilities, all of which have noncancelable operating leases with
various expiration dates through 2011. The restaurant leases generally include
land and building, require contingent rent above the minimum lease payment based
on a percentage of sales ranging from 3% to 5%, as well as various expenses
incidental to the use of the property. Most leases have renewal options.
In connection with certain lease agreements, Champps has entered into
separate agreements for the use of liquor licenses from the landlord. In
consideration for the licenses, Champps has issued promissory notes aggregating
$390,000. These promissory notes require monthly interest payments based on
interest rates of 7% and 12% annually. Champps may discharge the indebtedness at
any time by returning the license to the landlord and is obligated to return the
license at lease termination at which time the indebtedness would be
<PAGE> 16
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
canceled. Accordingly, this obligation has not been reflected in the
accompanying consolidated balance sheets. Interest payments have been included
in future minimum lease payments throughout the lease terms.
<TABLE>
The aggregate minimum annual lease payments under noncancelable leases,
including those for restaurants which are not yet open, at December 31, 1994
were as follows:
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1995......................................................... $ 166,723 $ 642,205
1996......................................................... 166,723 936,366
1997......................................................... 169,910 941,154
1998......................................................... 170,573 946,074
1999......................................................... 203,527 951,128
Thereafter................................................... -- 8,413,903
--------- -----------
Total minimum lease commitments.............................. $ 877,456 $12,830,830
===========
Less-amount representing interest............................ (150,944)
---------
Present value of obligations................................. 726,512
Less-current portion......................................... (116,512)
---------
Long-term obligations under capital leases................... $ 610,000
=========
</TABLE>
<TABLE>
Rent expense charged to operations on operating leases was as follows for
each of the three years ended December 31:
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Base rent............................................. $230,526 $145,336 $141,081
Contingent rent....................................... 59,010 28,855 22,623
Other charges......................................... 70,561 44,066 47,504
-------- -------- --------
Total............................................... $360,097 $218,197 $211,208
======== ======== ========
</TABLE>
PURCHASE OF TRADE NAME--On February 1, 1994, Champps purchased the
exclusive rights to use the "Champps" trade name from a third party by agreeing
to pay a fee of 1/4% of gross sales, excluding four pre-existing Champps
restaurants in Minnesota, up to a maximum of $250,000 per year, adjusted
annually for inflation, or a minimum of $40,000 per year. In addition, Champps
issued 18,824 shares of its common stock as additional consideration for the
trade name.
LETTER OF CREDIT AGREEMENTS--A standby letter of credit in the amount of
$300,000 has been issued by Champps' bank to secure Champps' obligations under a
capital lease for certain restaurant equipment. This letter of credit and the
related security agreement terminate in April 1996 upon the satisfaction of
certain financial covenants. As security for this standby letter of credit,
Champps has pledged certain cash equivalents held at the bank (see Note 2).
EMPLOYMENT AND CONSULTING AGREEMENTS--On January 1, 1994, Champps entered
into an employment agreement with its president that continues through December
31, 1998. The agreement requires a base salary of $236,000 per year and a
maximum annual bonus of up to $100,000. The agreement also requires Champps to
pay 50% of his salary and bonus to his estate if employment is terminated due to
death or one year's salary as severance in the event of a change in control of
Champps.
On January 1, 1994, Champps entered into two consulting agreements with a
shareholder. Champps agreed to pay the shareholder/consultant $50,000 at the
completion of an initial public offering in
<PAGE> 17
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994
consideration for his management consulting services directly associated with
the offering. Champps also agreed to pay the shareholder/consultant an amount no
less than $50,000 and no more than $150,000 in any year, equal to the sum of .5%
of new Company-owned restaurants' sales and .25% of new franchised restaurants'
sales. He is also to receive a one-time payment of $50,000 upon the opening of a
Champps-owned restaurant in early 1995. Champps paid the shareholder/consultant
$83,000 during the year ended December 31, 1994 pursuant to these agreements.
10. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma financial information is provided to show the
significant effects on the historical financial information had Champps operated
as a single consolidated C corporation throughout all periods presented. Net
income per common share is calculated using adjusted net income.
Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common and common equivalent shares which were issued or became
issuable during the 12 months immediately preceding the initial public offering
have been included in the calculation as if they were outstanding for all
periods prior to the initial public offering using the treasury stock method and
the initial public offering price.
<PAGE> 18
<TABLE>
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
DECEMBER 31 DECEMBER 31,
1995 1994
(UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 1,497,675 $ 6,466,419
Marketable securities............................................. 170,000
Inventories....................................................... 364,239 112,150
Accounts receivable............................................... 553,311 166,062
Pre opening costs, net............................................ 1,027,129 262,156
Prepaid expenses and other current assets......................... 705,906 131,201
------------ ------------
Total current assets...................................... 4,148,260 7,307,988
Property, equipment and leasehold improvements, net................. 12,909,758 2,923,438
Other assets, net................................................... 480,997 340,289
------------ ------------
$ 17,539,015 $ 10,571,715
============ ============
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of long-term debt.............................. $ 609,278 $ 471,034
Borrowings on line of credit...................................... 1,500,000 --
Accounts payable.................................................. 2,082,862 196,123
Accrued expenses --
Payroll and related benefits................................... 369,594 222,730
Other.......................................................... 538,917 404,252
Deferred income taxes............................................. 43,346 31,646
Deferred revenue.................................................. 50,000 143,000
------------ ------------
Total current liabilities................................. 5,193,997 1,468,785
Long-Term Debt...................................................... 3,332,329 610,000
Commitments and contingencies
Shareholders' Investment
Common stock...................................................... 49,537 47,801
Additional paid-in capital........................................ 8,704,082 8,230,498
Unrealized loss on marketable securities, net of tax effect....... -- (18,300)
Retained earnings................................................. 259,070 232,931
------------ ------------
Total shareholders' investment............................ 9,012,689 8,492,930
------------ ------------
$ 17,539,015 $ 10,571,715
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 19
CHAMPPS ENTERTAINMENT, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
FOR THE FIFTY- FOR THE YEAR
TWO WEEKS ENDED
ENDED DECEMBER 31,
DECEMBER 31, 1994
1995
(UNAUDITED)
--------------- -------------
<S> <C> <C>
REVENUES:
Net sales by Company-owned restaurants.................... $20,726,032 $ 7,900,068
Royalty and franchise fee revenue......................... 608,612 637,940
Other revenue............................................. 148,325 81,695
--------------- -------------
Total revenues......................................... 21,482,969 8,619,703
--------------- -------------
COST AND EXPENSES:
Cost of sales............................................. 5,971,175 2,274,742
Restaurant operating expenses............................. 11,492,122 4,099,440
Direct franchise expenses................................. 124,038 119,879
Depreciation and amortization............................. 1,744,345 394,524
General and administrative expenses....................... 2,062,468 1,513,143
--------------- -------------
Total cost and expenses................................ 21,394,648 8,401,728
--------------- -------------
Income from operations...................................... 88,321 217,975
Interest expense............................................ (186,404) (122,304)
Interest income............................................. 164,781 201,260
Other exepnse............................................... (28,259)
--------------- -------------
Income before provision for income taxes.................... 38,439 296,931
Provision for income taxes.................................. 12,300 64,000
--------------- -------------
Net income.................................................. $ 26,139 $ 232,931
============== =============
Net income per common share................................. $ 0.01 $ 0.05
============== =============
Weighted average shares outstanding......................... 4,989,612 4,807,559
============== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 20
<TABLE>
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
FOR THE FIFTY-TWO FOR THE YEAR ENDED
WEEKS ENDED DECEMBER 31, 1994
DECEMBER 31, 1995
(UNAUDITED)
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income......................................... $ 26,139 $ 232,931
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................... 1,744,845 394,524
Noncash severance expense........................ 102,000
Deferred income tax benefit...................... (64,779)
Loss on sale of investment....................... 28,259
Changes in other operating items:
Inventories and accounts receivable........... (639,338) (194,735)
Preopening costs.............................. (1,471,460) (344,187)
Prepaid expenses and other.................... (369,548) (247,150)
Accounts payable.............................. 1,886,739 173,933
Accrued expenses.............................. 281,529 299,994
Deferred franchise fee revenue................ (93,000) (20,000)
------------------- -------------------
Net cash provided by operating activities... 1,394,165 332,531
------------------- -------------------
INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold
improvements, net................................ (7,599,179) (2,324,784)
Sale (purchase) of marketable securities........... 171,741 (200,000)
Proceeds from sale of assets....................... 758,981
Increase in other assets........................... (203,292)
------------------- -------------------
Net cash used for investing activities...... (7,630,730) (1,765,803)
------------------- -------------------
FINANCING ACTIVITIES:
Borrowings of short term credit facilities, net.... 1,500,000
Payments on long-term debt......................... (502,342) (1,446,188)
Exercise of warrants and options................... 270,163
Net proceeds from initial public offering of common
stock............................................ 7,196,839
------------------- -------------------
Cash provided by financing activities............ 1,267,821 5,750,651
------------------- -------------------
Net increase (decrease) in cash and cash
equivalents...................................... (4,968,744) 4,317,379
------------------- -------------------
Cash and cash equivalents, beginning of period..... 6,466,419 2,149,040
------------------- -------------------
Cash and cash equivalents, end of period........... $ 1,497,675 $ 6,466,419
================== ===================
Noncash transactions:
Issuance of common stock to purchase trade
name........................................... $ 100,000
Cancellation of note receivable.................. $ 102,000
Tax benefit from exercise of warrants............ $ 205,167
Equipment acquired pursuant to capital lease
arrangements................................... $ 3,362,195 758,981
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 21
CHAMPPS ENTERTAINMENT, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FIFTY TWO WEEKS ENDED DECEMBER 31, 1995 (UNAUDITED) AND THE YEAR ENDED DECEMBER 31, 1994
<CAPTION>
COMMON STOCK RETAINED UNREALIZED
------------------------------- ADDITIONAL EARNINGS LOSS ON
CMI/THE PAID-IN (ACCUMULATED MARKETABLE SHAREHOLDERS'
COMPANY CHAMPPS CFI TOTAL AMOUNT CAPITAL DEFICIT) SECURITIES INVESTMENT
--------- ---------- ------ --------- ------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY
1, 1994........ 17,945 1,684,055 1,346 1,703,346 $ 5,221 $2,591,862 $(1,615,623) -- $ 981,460
Conversion to C
Corporation for
tax purposes ... -- -- -- -- -- (1,615,623) 1,615,623 -- --
Effects of Merger
Agreement ...... 3,363,355 (1,684,055) (1,346) 1,677,954 28,592 (28,592) -- -- --
Initial public
offering, net of
expenses ....... 1,380,000 -- -- 1,380,000 13,800 7,183,039 -- -- 7,196,839
Issuance of common
stock .......... 18,824 -- -- 18,824 188 99,812 -- -- 100,000
Unrealized loss on
marketable
securities ..... -- -- -- -- -- -- -- $(18,300) (18,300)
Net income........ -- -- -- -- -- -- 232,931 -- 232,931
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
BALANCE, DECEMBER
31, 1994........ 4,780,124 -- -- 4,780,124 $47,801 $8,230,498 $ 232,931 $(18,300) $8,492,930
Excercise of Stock
purchase
warrants ....... 171,250 171,250 1,712 458,608 460,320
Loss on sale of
marketable
securities...... 18,300 18,300
Exercise of
options......... 2,400 2,400 24 14,976 15,000
Net income........ 26,139 26,139
--------- ---------- ------ --------- ------- ---------- ----------- -------- ----------
Balance December
31, 1995........ 4,953,773 4,953,774 $49,537 $8,704,082 $ 259,070 -- $9,012,689
========= ========== ====== ========= ======= ========== =========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 22
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
UNAUDITED 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 included in Champps Annual Report on
Form 10-K for the year ended December 31, 1994.
MERGER -- On February 21, 1996, pursuant to an Agreement and Plan of Merger
dated as of October 10, 1995 (the "Merger Agreement") by and among DAKA
International, Inc. ("DAKA"), CEI Acquisition Corp., a Minnesota corporation and
wholly-owned subsidiary of DAKA ("Sub"), and Champps, Sub was merged with and
into Champps (the "Merger") whereupon Champps became a wholly-owned subsidiary
of DAKA. In connection with the Merger, DAKA will issue forty-three hundredths
(0.43) of one share of DAKA Common Stock for each share of Champps Common Stock
plus cash for any fractional shares. The issuance of DAKA's common stock in
connection with the Merger was approved by the stockholders of DAKA at DAKA's
Annual Meeting of Stockholders held on February 21, 1996. The Merger was also
approved by the shareholders of Champps at a Special Meeting of the Shareholders
of Champps held on February 21, 1996.
FISCAL PERIODS -- Effective January 1, 1995, Champps changed its fiscal
year from a calendar year end to a 52/53 week year. Accordingly, the four
quarters ended December 31, 1995 consisted of fifty-two weeks and 2 days and the
four quarters ended December 31, 1994 consisted of fifty-two weeks. All
future quarterly periods will consist of thirteen weeks. Champps believes that
the change in reporting periods does not have a material effect on the
comparability of the accompanying consolidated financial statements.
2. SHAREHOLDERS' INVESTMENT
On March 29, 1994, the Securities and Exchange Commission declared
effective a Registration Statement on Form SB-2 relating to the initial public
offering of 1,200,000 shares of Champps' common stock. Following the effective
date of the Registration Statement, Champps issued 1,200,000 shares at $6.25 per
share. Champps received net proceeds of $6,650,000 on April 6, 1994 and $990,000
upon exercise of the underwriter's over-allotment option on April 25, 1994. The
accompanying consolidated financial statements reflect the effect of this
offering net of transaction related expenses.
As of December 31, 1994, there were warrants outstanding to purchase
171,250 shares of Champps' common stock at $1.50 per share which were granted to
Champps former Chief Executive Officer in connection with his employment
agreement. On January 9, 1995, 68,500 shares were exercised and the remaining
102,750 shares were exercised on February 3, 1995. None of these shares are
currently held by the former officer. The exercise of these warrants resulted in
receipt by Champps of approximately $257,000. In connection with the
transaction, Champps recognized a noncash tax benefit of approximately $203,000.
<PAGE> 23
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
December 31, 1995
(UNAUDITED)
3. DEBT
In August 1995, Champps entered into a $1.5 million revolving line of
credit agreement with its bank. The purpose of the credit facility is to provide
working capital for new restaurant development. The line of credit expires on
August 10, 1996 and bears a variable interest rate equal to the bank's reference
rate plus 1% (9.50% on December 31, 1995). The line of credit is collateralized
by substantially all of Champps assets which are not encumbered by capital
lease obligations. As of December 31, 1995, borrowings under this line of
credit were $535,000.
In October 1995, Champps and DAKA entered into a loan agreement whereby
DAKA has committed to provide financing to Champps of up to an aggregate
principal amount of $3 million due on October 10, 2000. Interest is
payable quarterly and accrues at the fixed rate of 10% per annum. The loan is
secured by the Champps restaurant located in Irvine, California. At December
31, 1995, $710,000 was outstanding under this agreement.
4. COMMITMENTS AND CONTINGENCIES
In August 1995, Champps entered into an Interim Financing Agreement (the
"Agreement") with a third party lender. Under the terms of the Agreement,
Champps has the ability to borrow up to $925,000 to fund the cost of new
restaurant audio/visual and point of sale equipment during the new restaurant
construction period. As of December 31, 1995, borrowings under this facility
were approximately $325,000. Capital lease financing is in place such that all
outstanding balances will be converted to permanent lease financing within
thirty days of each new restaurant opening.
Champps is involved from time to time in legal proceedings incidental to
the normal course of business. Although the ultimate outcome of any of these
proceedings cannot be determined at any particular time, management believes
there are no current legal proceedings, the final disposition of which, would
have a material adverse effect on the financial position or results of
operations of Champps.
In August 1995, Champps entered into a multi-site sale leaseback financing
agreement with a third party finance company to provide sale leaseback financing
to Champps for up to 6 new restaurant sites in which the Company owns the real
estate. Such agreement expires on December 31, 1997. Such new site must be
approved by the third party prior to any funding under the agreement.
In December 1995, Champps obtained a commitment for a $40 million
development and sale-leaseback financing facility from AEI Fund Management, Inc.
("AEI"). Pursuant to the terms of the agreement, Champps will sell and lease
back from AEI Champps restaurants to be constructed, in which Champps 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 Champps. 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."
<PAGE> 24
ITEM 7(B) PRO FORMA FINANCIAL INFORMATION
<PAGE> 25
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On February 21, 1996 pursuant to the Merger Agreement by and among
DAKA, Sub and Champps, Sub was merged into Champps whereupon Champps became a
wholly-owned subidiary of DAKA. Under the terms of the Merger Agreement,
upon the consummation of the Merger each outstanding share of Champps common
stock, par value $.01 per share ("Champps Common Stock"), was converted into
the right to receive forty-three hundredths (0.43)of one share of DAKA's Common
Stock. On February 21, 1996, pursuant to the Merger Agreement by and among
DAKA, Sub and Champps, Sub was merged into Champps whereupon Champps became a
wholly-owned subidiary of DAKA. The Merger will be treated as a tax-free
reorganization for federal income tax purposes and as a pooling-of-interests
for financial accounting purposes whereby DAKA will restate previously issued
consolidated financial statements to include Champps.
On February 8, 1995, Daka, a wholly-owned subsidiary of DAKA, acquired an
80.01% general partnership interest in a newly-formed limited partnership, Daka
Restaurants, L.P. ("DRLP"), in exchange for cash of $10.1 million.
Simultaneously, DRLP acquired substantially all of the assets and foodservice
contracts comprising the education and corporate foodservice business (the
"Acquired Foodservice Business") of ServiceMaster Management Services L.P.
("SMMSLP") for a purchase price of approximately $21.1 million. The purchase
price was comprised of a cash payment of $10.1 million, the assumption of
approximately $806 thousand of liabilities, a deferred payment of $10.2 million
paid on June 13, 1995 and the issuance of a 19.99% limited partnership interest
in DRLP to SMMSLP. The purchase of the Acquired Foodservice Business was
accounted for using the purchase method of accounting.
The accompanying pro forma condensed combined financial statements include
the combined statements of income of DAKA and Champps for the fiscal years ended
July 1, 1995, July 2, 1994, June 26, 1993 and for the six months ended December
30, 1995 and December 31, 1994 and the combined balance sheets of DAKA and
Champps as of July 1, 1995, July 2, 1994 and December 30, 1995. In addition,
the accompanying pro forma condensed combined statement of income for the fiscal
year ended July 1, 1995 reflects the operating results of the Acquired
Foodservice Business, acquired as of the close of business on February 8, 1995,
as if it had been acquired on July 3, 1994, the beginning of the fiscal year.
The accompanying pro forma condensed combined balance sheet as of July 1,
1995 and July 2, 1994 were derived from the audited consolidated balance sheet
of DAKA as of July 1, 1995 and July 2, 1994 and from the unaudited consolidated
balance sheet of Champps as of July 2, 1995 and June 30, 1994.
The accompanying pro forma condensed combined balance sheets and statements
of income as of and for the six months ended December 30, 1995 and December 31,
1994 are derived from the unaudited consolidated financial statements of DAKA
for the aforementioned periods and from the unaudited consolidated financial
statements of Champps for the twenty-six weeks ended December 30, 1995 and for
the six months ended December 31, 1994. Such consolidated financial statements,
in the opinion of each of the respective company's management, include all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of such consolidated financial statements.
The accompanying pro forma condensed combined statements of income for the
years ended July 1, 1995, July 2, 1994 and June 26, 1993 were derived from (i)
the audited consolidated statements of income of DAKA for the years ended July
1, 1995, July 2, 1994 and June 26, 1993 and (ii) the unaudited statements of
income of Champps for the fifty-two weeks ended July 2, 1995 and for the four
quarters ended June 30, 1994 and June 30, 1993. Such consolidated unaudited
statements of income of Champps, in the opinion of Champps' management, contain
all adjustments, consisting of normal recurring adjustments, necessary for a
fair presentation of the financial position and results of operations for these
periods.
The audited consolidated statement of income of DAKA for the year ended
July 1, 1995 includes the operating results of the Acquired Foodservice Business
from February 9, 1995 through July 1, 1995. In addition to the amounts included
in DAKA's historical consolidated statement of income, the accompanying pro
forma condensed combined statement of income for the fiscal year ended July 1,
1995 also includes the operating results of the Acquired Foodservice Business
for the period from July 3, 1994 to December 21, 1994. For purposes of the
accompanying pro forma condensed combined statement of income for the fiscal
year
<PAGE> 26
ended July 1, 1995 the operating results for the period from December 22, 1994
through February 8, 1995, which are not included therein are not considered
significant.
The accompanying pro forma condensed combined financial statements do not
purport to be indicative of the results of operations or financial condition
that would have been achieved if DAKA and Champps had operated as a combined
company during the periods presented or if the acquisition of the Acquired
Foodservice Business had occurred at the beginning of the fiscal year. In
addition, the accompanying pro forma condensed combined financial statements do
not purport to be indicative of the results of operations or financial condition
which may be achieved in the future.
The accompanying pro forma condensed combined financial statements have
been prepared using the assumptions set forth in the accompanying Notes to Pro
Forma Condensed Combined Financial Statements and should be read in conjunction
with the audited consolidated financial statements and notes thereto of DAKA
incorporated herein by reference and the audited consolidated financial
statements of Champps.
<PAGE> 27
DAKA INTERNATIONAL, INC.
<TABLE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JULY 1, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
PRO FORMA PRO FORMA
DAKA CHAMPPS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................... $ 7,236 $ 3,081 $ 10,317
Accounts receivable, net.......................... 29,844 150 29,994
Inventories....................................... 9,295 153 9,448
Prepaid expenses and other current assets......... 1,530 1,136 2,666
-------- ------- ------- --------
Total current assets........................... 47,905 4,520 52,425
-------- ------- ------- --------
Property and equipment, net......................... 86,513 7,361 93,874
Other assets, net................................... 33,362 439 33,801
-------- ------- ------- --------
$167,780 $12,320 $180,100
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................. $ 19,492 $ 889 $ 20,381
Accrued expenses.................................. 17,364 819 $ 2,048 (3) 20,231
Current portion of long-term debt................. 613 238 851
Deferred income taxes............................. 236 236
-------- ------- ------- --------
Total current liabilities...................... 37,705 1,946 2,048 41,699
-------- ------- ------- --------
Long-term debt...................................... 68,497 1,275 69,772
Other long-term liabilities......................... 11,842 11,842
Stockholders' Equity:
Preferred Stock, $.01 par value................... 1 1
Common Stock, $.01 par value...................... 46 49 (26)(2) 69
Capital in excess of par value.................... 38,848 8,688 26 (2) 47,562
Unrealized loss on marketable securities.......... (8) (8)
Retained earnings................................. 10,841 370 (2,048)(3) 9,163
-------- ------- ------- --------
Total stockholders' equity..................... 49,736 9,099 (2,048) 56,787
-------- ------- ------- --------
$167,780 $12,320 $ 0 $180,100
======== ======= ======= ========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
<PAGE> 28
DAKA INTERNATIONAL, INC.
<TABLE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JULY 2, 1994
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
PRO FORMA PRO FORMA
DAKA CHAMPPS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................... $ 5,040 $8,043 $ 13,083
Accounts receivable, net.......................... 25,642 57 25,699
Inventories....................................... 7,730 50 7,780
Prepaid expenses and other current assets......... 1,743 111 1,854
-------- ------ ------- --------
Total current assets........................... 40,155 8,261 $ 0 48,416
-------- ------ ------- --------
Property and equipment, net......................... 63,763 1,267 65,030
Other assets, net................................... 14,937 131 15,068
-------- ------ ------- --------
118,855 9,659 0 128,514
======== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................. 16,988 224 17,212
Accrued expenses.................................. 16,501 380 2,048 (3) 18,929
Current portion of long-term debt................. 1,312 228 1,540
Deferred income taxes............................. 85 85
-------- ------ ------- --------
Total current liabilities...................... 34,886 832 2,048 37,766
-------- ------ ------- --------
Long-term debt...................................... 46,140 474 46,614
Other long-term liabilities......................... 5,049 5,049
Stockholders' Equity:
Preferred Stock, $.01 par value................... 1 1
Common Stock, $.01 par value...................... 38 19 26 (2) 83
Capital in excess of par value.................... 30,616 8,175 (26)(2) 38,765
Unrealized loss on marketable securities..........
Retained earnings ................................ 2,125 159 (2,048)(3) 236
-------- ------ ------- --------
Total stockholders' equity..................... 32,780 8,353 (2,048) 39,085
-------- ------ ------- --------
$118,855 $9,659 $ 0 $128,514
======== ====== ======= ========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
<PAGE> 29
DAKA INTERNATIONAL, INC.
<TABLE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 30, 1995
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
PRO FORMA PRO FORMA
DAKA CHAMPPS ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents......................... $ 9,083 $ 1,498 $ 10,581
Accounts receivable, net.......................... 45,244 553 45,797
Inventories....................................... 10,193 364 10,557
Prepaid expenses and other current assets......... 2,957 1,733 4,690
-------- ------- ------- --------
Other assets, net................................... 67,477 4,148 $ 0 71,625
-------- ------- ------- --------
Property and equipment, net......................... 101,055 12,910 113,965
Other assets, net................................... 32,174 481 32,655
-------- ------- ------- --------
$200,706 $17,539 0 $218,245
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable.................................. $ 21,172 $ 2,083 $ 23,255
Accrued expenses.................................. 16,201 959 2,048 (3) 19,206
Current portion of long-term debt................. 782 2,109 2,893
Deferred income taxes............................. 236 43 279
-------- ------- ------- --------
38,391 5,194 2,048 45,633
-------- ------- ------- --------
Long-term debt...................................... 85,047 3,332 88,379
Other long-term liabilities......................... 12,602 12,602
Stockholders' Equity:
Common Stock, $.01 par value...................... 73 50 (26)(2) 97
Capital in excess of par value.................... 47,701 8,704 26 (2) 56,431
Unrealized loss on marketable securities..........
Retained earnings ................................ 16,892 259 (2,048)(3) 15,103
-------- ------- ------- --------
Total stockholders' equity..................... 64,666 9,013 (2,048) 71,631
-------- ------- ------- --------
$200,706 $17,539 $ 0 $218,245
======== ======= ======= ========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
<PAGE> 30
DAKA INTERNATIONAL, INC.
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FISCAL YEAR ENDED JULY 1, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
ACQUIRED
FOODSERVICE PRO FORMA
DAKA CHAMPPS(1) SUBTOTAL BUSINESS(6) COMBINED(3)
-------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales................................. $309,542 $11,834 $321,376 $43,517 $364,893
Management fees and franchising
income............................. 11,063 636 11,699 11,699
-------- ------- -------- ------- --------
320,605 12,470 333,075 43,517 376,592
-------- ------- -------- ------- --------
COSTS AND EXPENSES:
Cost of sales and operating
expenses........................... 262,017 9,488 271,505 39,906 311,411
Selling, general and administrative
expenses........................... 29,742 2,104 31,846 1,952 33,798
Depreciation and amortization......... 10,820 818 11,638 643 12,281
Interest expense...................... 4,256 66 4,322 441 4,763
Interest income....................... (631) (239) (870) (870)
Other expense (income)................ (8) (8) 203 195
-------- ------- -------- ------- --------
306,196 12,237 318,433 43,145 361,578
-------- ------- -------- ------- --------
Income before income taxes.............. 14,409 233 14,642 372 15,014
Income taxes............................ 5,293 24 5,317 154 5,471
-------- ------- -------- ------- --------
Net income.............................. 9,116 209 9,325 218 9,543
Preferred stock dividend................ 400 400 400
-------- ------- -------- ------- --------
Net income available to common
stockholders.......................... $ 8,716 $ 209 $ 8,925 $ 218 $ 9,143
======== ======= ======== ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING(4):
Primary............................... 4,290 2,162 6,452 6,452
Fully diluted......................... 8,728 2,162 10,890 10,890
EARNINGS PER SHARE:
Primary............................... $ 2.03 $ .10 $ 1.38 $ 1.42
Fully diluted......................... $ 1.18 $ .10 $ .96 $ .98
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements
<PAGE> 31
DAKA INTERNATIONAL, INC.
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
FISCAL YEAR ENDED JULY 2, 1994(1) FISCAL YEAR ENDED JUNE 26, 1993(1)
---------------------------------- ----------------------------------
DAKA CHAMPPS COMBINED(3) DAKA CHAMPPS COMBINED(3)
-------- ------- ----------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales............................ $239,352 $6,295 $245,647 $174,015 $6,285 $180,300
Management fees and franchising
income......................... 10,443 554 10,997 8,648 253 8,901
-------- ------ -------- -------- ------ --------
249,795 6,849 256,644 182,663 6,538 189,201
-------- ------ -------- -------- ------ --------
COSTS AND EXPENSES:
Cost of sales and operating
expenses....................... 201,189 5,018 206,207 145,395 4,736 150,131
Selling, general and
administrative expenses........ 27,304 882 28,186 23,434 619 24,053
Depreciation and amortization.... 8,223 170 8,393 5,186 254 5,440
Interest expense................. 2,738 133 2,871 2,361 90 2,451
Interest income.................. (251) (80) (331) (428) (4) (432)
Other expense (income)........... 99 99 76 76
-------- ------ -------- -------- ------ --------
239,302 6,123 245,425 176,024 5,695 181,719
-------- ------ -------- -------- ------ --------
Income before income taxes......... 10,493 726 11,219 6,639 843 7,482
Income taxes....................... 3,591 298 (5) 3,889 1,992 345 (5) 2,337
-------- ------ -------- -------- ------ --------
Net income......................... 6,902 428 7,330 4,647 498 5,145
Preferred stock dividend........... 800 800
-------- ------ -------- -------- ------ --------
Net income available to common
stockholders..................... $ 6,102 $ 428 $ 6,530 $ 4,647 $ 498 $ 5,145
======== ====== ======== ======== ====== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING(4):
Primary.......................... 3,933 1,810 5,743 3,423 1,678 5,101
Fully diluted.................... 8,579 1,810 10,389 6,311 1,678 7,989
EARNINGS PER SHARE:
Primary.......................... $ 1.55 $ .24 $ 1.14 $ 1.36 $ .30 $ 1.01
Fully diluted.................... $ .96 $ .24 $ .84 $ .80 $ .30 $ .69
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
<PAGE> 32
DAKA INTERNATIONAL, INC.
<TABLE>
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
SIX MONTHS ENDED DECEMBER 30, 1995 AND DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 30, 1995(1) DECEMBER 31, 1994(1)
--------------------------------- ---------------------------------
DAKA CHAMPPS COMBINED(3) DAKA CHAMPPS COMBINED(3)
------- ------- ----------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Sales.............................. $178,888 $13,967 $192,855 $137,455 $4,927 $142,382
Management fees and franchising
income........................... 7,163 286 7,449 4,712 313 5,025
-------- ------- -------- -------- ------ --------
186,051 14,253 200,304 142,167 5,240 147,407
-------- ------- -------- -------- ------ --------
COSTS AND EXPENSES:
Cost of sales and operating
expenses......................... 149,748 11,932 161,680 115,117 3,958 119,075
Selling, general and administrative
expenses......................... 17,295 1,155 18,450 13,697 1,072 14,769
Depreciation and amortization...... 7,012 1,205 8,217 4,839 278 5,117
Interest expense................... 2,541 154 2,695 1,861 34 1,895
Interest income.................... (154) (58) (212) (104) (133) (237)
Other expense (income)............. (150) 28 (122) (104) (104)
-------- ------- -------- -------- ------ --------
176,292 14,416 190,708 135,306 5,209 140,515
-------- ------- -------- -------- ------ --------
Income (loss) before income
taxes (benefit).................... 9,759 (163) 9,596 6,861 31 6,892
Income taxes (benefit)............... 3,708 (54) 3,654 2,515 (42) 2,473
-------- ------- -------- -------- ------ --------
Net income (loss).................... 6,051 (109) 5,942 4,346 73 4,419
Preferred stock dividend............. 400 400
-------- ------- -------- -------- ------ --------
Net income (loss) available to
common stockholders................ $ 6,051 $ (109) $ 5,942 $ 3,946 $ 73 $ 4,019
======== ======= ======== ======== ====== ========
WEIGHTED AVERAGE SHARES
OUTSTANDING(4):
Primary............................ 6,632 2,146 8,778 4,020 2,108 6,128
Fully diluted...................... 8,816 2,146 10,962 8,627 2,108 10,735
EARNINGS (LOSS) PER SHARE:
Primary............................ $ .91 $ (.05) $ .68 $ .98 $ .03 $ .66
Fully diluted...................... $ .73 $ (.05) $ .57 $ .58 $ .03 $ .47
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
<PAGE> 33
DAKA INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. FISCAL PERIODS
DAKA's fiscal year ends on the Saturday closest to June 30. Prior to
January 1, 1995, Champps' year end was December 31. On January 1, 1995, Champps
changed its fiscal year to a 52/53 week year ending on the Sunday closest to
December 31. The accompanying pro forma condensed combined financial statements
have been prepared utilizing DAKA's fiscal calendar and are derived from the
historical consolidated financial statements of DAKA and Champps. The amounts
included in the pro forma condensed combined statements of income for Champps
for the years ended July 1, 1995, July 2, 1994 and June 26, 1993 were derived
from the unaudited consolidated statements of income for the fifty-two weeks
ended July 2, 1995 and for the four quarters ended June 30, 1994 and June 30,
1993, respectively.
2. STOCKHOLDERS' EQUITY
The pro forma adjustments to common stock and capital in excess of par
value as of July 1, 1995, June 30, 1994 and December 30, 1995 reflect the
issuance of 2,267,937 shares of DAKA common stock for all of the outstanding
shares of Champps common stock representing an exchange ratio of .43 DAKA shares
for each share of Champps common stock.
3. MERGER EXPENSES
Under the pooling-of-interests method of accounting, costs associated with
the merger of DAKA and Champps are treated as an expense of the combined
company. The accompanying pro forma condensed combined statements of income do
not reflect the expenses associated with the Merger, which are estimated to be
approximately $3,500 pre-tax and $2,048 after-tax, that will be recorded in the
first period that consolidated financial statements of the combined companies
are presented, since such expenses are non-recurring. The after-tax effect of
these expenses are, however, reflected in the accompanying pro forma condensed
combined balance sheets as of July 1, 1995, June 30, 1994 and December 30, 1995
as a liability and a reduction to retained earnings. Merger expenses consist
primarily of professional fees and proxy solicitation costs. The tax effect of
the Merger expenses was calculated using DAKA's effective state income tax rate
of 6.5% for the fiscal year ended July 1, 1995 and the statutory federal
income tax rate of 35%.
4. WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average number of outstanding shares of Champps Common Stock
represents the number of equivalent shares of DAKA Common Stock into which such
shares of Champps may be exchanged utilizing the maximum Exchange Ratio of .43,
applied to the historical weighted average number of shares of Champps Common
Stock outstanding.
5. INCOME TAXES
Prior to January 1, 1994, Champps and its Predecessors (the "Companies")
were S corporations. As S corporations, the Companies were generally not subject
to federal or state income taxes. Instead the stockholders were taxed on the
Companies' taxable income at the stockholders' individual federal and state
income tax rates. Accordingly, there was no provision for income taxes recorded
by the Companies. Effective January 1, 1994, the Companies elected to be taxed
as C corporations for federal income tax purposes and were subject to federal
and state income taxes subsequent to that date. Net income for 1992 and 1993
includes a pro forma provision for income taxes to reflect income taxes as if
the Companies had been taxed as C corporations in 1992 and 1993.
<PAGE> 34
DAKA INTERNATIONAL, INC.
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS--(CONTINUED)
6. ACQUIRED FOODSERVICE BUSINESS
The audited consolidated statement of income of DAKA for the year ended
July 1, 1995 includes the operating results of the Acquired Foodservice Business
from February 9, 1995, through July 1, 1995. In addition to the amounts included
in DAKA's historical consolidated statements of income, the accompanying pro
forma condensed combined statement of income for the fiscal year ended July 1,
1995 also includes the operating results of the Acquired Foodservice Business
for the period from July 1, 1994 to December 21, 1994, adjusted to reflect the
pro forma adjustments for interest expense, depreciation and amortization
associated with the new asset basis and SMMSLP's portion of the income of the
Acquired Foodservice Business. For purposes of the accompanying pro forma
condensed combined statement of income for the fiscal year ended July 1, 1995,
the operating results for the period from December 22, 1994 through February 8,
1995, which are not included therein, are not considered significant.
<PAGE> 35
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.
DAKA International, Inc.
Date: March 6, 1996 By: /s/Louie Psallidas
--------------------------
Louie Psallidas
Vice President, Finance
(Principal Financial and Principal
Accounting Officer)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in this DAKA International, Inc.
Form 8-K pertaining to DAKA International, Inc.'s merger with Champps
Entertainment, Inc.
Minneapolis, Minnesota,
March 6, 1996
