SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report February 19, 1997
(Date of earliest event reported)
APPLE SOUTH, INC.
(Exact Name of Registrant as Specified in Charter)
Georgia 0-19542 59-2778983
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
Hancock at Washington,
Madison, Georgia 30650
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 706-342-4552
N/A
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 5. Other Events
Proposed Acquisitions
The Registrant has entered into an agreement to acquire McCormick &
Schmick Holding Corp. ("McCormick & Schmick"), one of the nation's
largest upper-end casual seafood restaurant groups. As of February 7,
1997, McCormick & Schmick had 16 restaurants in Oregon, Washington,
California, Colorado and the District of Columbia. The Registrant will
pay $53 million for this acquisition, of which approximately $50
million will be paid in cash and the remainder will be paid in the
Registrant's Common Stock. The Registrant will assume approximately $15
million in debt in connection with the acquisition. The Registrant
expects to complete this acquisition in the first quarter of 1997.
The first McCormick & Schmick restaurant was acquired in 1972 by
co-founders William McCormick and Doug Schmick. Both founders continue
to manage the restaurant group and will remain as senior management
following the acquisition by the Registrant.
McCormick & Schmick restaurants offer fine, fresh seafood as well as
meat, poultry, salads and pasta. The restaurants serve both lunch and
dinner. Menus vary daily based on fresh product availability and price
and usually feature over 85 items. Sales of alcoholic beverages
accounted for approximately 30% of McCormick & Schmick's total sales
during the year ended January 4, 1997.
McCormick & Schmick restaurants range in size from 6,000 to 14,000
square feet with dining capacities for 130 to 290 customers. They are
operated under the names "McCormick & Schmick's," "McCormick,"
"McCormick's," "Jakes," "McCormick & Kuleto's" and "Harborside."
The Registrant also has entered into an agreement to acquire the Hops
Grill & Bar restaurant system ("Hops Grill & Bar") which, as of
February 7, 1997, operated 19 full-service, casual dining restaurants
featuring an on-premise microbrewery. The purchase price for Hops Grill
& Bar will be $31.5 million, which will be paid equally in cash and the
Registrant's Common Stock. In addition, the Registrant will assume
approximately $26.5 million of debt. The Registrant expects to complete
this acquisition in the first quarter of 1997.
The first Hops Grill & Bar restaurant was opened in Clearwater, Florida
in 1989. Each restaurant offers a diverse menu of popular foods freshly
prepared in a display kitchen, top choice steaks and prime rib, smoked
baby back ribs, fresh fish, chicken and pasta dishes, deluxe burgers
and sandwiches, hand-tossed salads with homemade dressings, appetizers,
soups and desserts.
As a complement to its menu, each Hops Grill and Bar restaurant offers
lager-style beers and ales that are brewed on-premises. The restaurants
utilize their original recipes to brew four distinctive lager-style
beers and ales: Clearwater Light, Lightning Bold Gold,
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Hammerhead Red and A-1 Ale. An observation microbrewery at each
restaurant allows customers to view the entire brewing process. Sales
of alcoholic beverages accounted for approximately 18% of the total
sales (with beer constituting 10% of total sales) during 1996.
Hops Grill & Bar restaurants range in size from approximately 5,000 to
7,300 square feet. The observation microbreweries in the restaurants
are an integral aspect of the design and occupy from 450 to 750 square
feet. The restaurant dining bar areas seat from 160 to 240 customers.
The cost of developing and opening a Hops Grill & Bar restaurant
averaged approximately $1.4 million in 1996, excluding land costs and
including approximately $160,000 in microbrewery equipment.
An operating partner program is a key element of the Hops Grill & Bar
development strategy. Under this program, each operating partner
acquires a 10% interest in the restaurants developed within a specified
geographic area. Each operating partner is an experienced operator who
can provide local market knowledge and management. Five of the Hops
Grill & Bar restaurants currently have an operating partner whose
interest will remain in place after the acquisition by the Registrant.
The Registrant expects that Hops Grill & Bar will continue this program
following the acquisition.
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<PAGE>
Unaudited Pro Forma Combined Financial Information
The following pro forma combined statement of earnings for the year
ended December 29, 1996 presents the results of the Registrant,
combined with those of McCormick & Schmick and Hops Grill & Bar, as if
such operations had been acquired at the beginning of 1996. The pro
forma combined balance sheet has been prepared by combining the
Registrant's balance sheet as of December 29, 1996 with the balance
sheets of McCormick & Schmick as of January 4, 1997, and Hops Grill &
Bar as of December 31, 1996. The pro forma information is based on the
historical financial statements of the Registrant and the historical
financial statements of the aforementioned companies adjusted to give
effect to the purchase method of accounting and conformity to the
Registrant's accounting policies.
The purchase price paid and the consequent pro forma interest expense,
amortization of goodwill and additional shares outstanding are based
upon management's current valuation of the respective acquisitions;
accordingly, the unaudited pro forma combined statement of earnings for
the year ended December 29, 1996 is not indicative of the combined
results of operations that would have resulted had the McCormick &
Schmick acquisition or the Hops Grill & Bar acquisition occurred on the
dates indicated nor are they necessarily indicative of the combined
operating results that may be obtained in the future.
For the purposes of the pro forma presentation, the cash portion of the
McCormick & Schmick and Hops Grill & Bar acquisitions are being
financed on an interim basis with borrowings under the Registrant's
revolving lines of credit, with interest at a rate equal to LIBOR plus
a margin that ranges between 60 to 125 basis points. The
Registrant intends to repay the amounts borrowed for such acquisitions
with the proceeds of an offering of non-registered convertible
preferred trust securities described in an announcement included in the
Registrant's Current Report on Form 8-K filed with the Commission on
February 11, 1997. The convertible preferred trust securities have not
been registered under the Securities Act of 1933 and may not be offered
or sold in the United States absent registration or an applicable
exemption from registration requirements. The unaudited pro forma
combined financial information presented herein assumes the completion
of that offering at the beginning of 1996, and proceeds from that
offering are assumed to be used to repay $96.5 million of indebtedness
under the revolving credit agreements as of the beginning of 1996.
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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 hereunto duly authorized.
APPLE SOUTH, INC.
Date: February 24, 1997 By: /s/ Erich J. Booth
Erich J. Booth
Chief Financial Officer
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<TABLE>
Apple South, Inc.
Unaudited Pro Forma Combined
Statement of Earnings
Year Ended December 29, 1996
(In thousands, except per share data)
<CAPTION>
McCormick & Pro Forma Pro Forma Hops Grill Pro Forma Pro Forma
Apple South Schmick Adjustments Combined & Bar Adjustments Combined
(1) (2) (3) (1)+(2)+(3)=(4) (5) (6) (4)+(5)+(6)=(7)
------- -------- -------- --------------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Restaurant sales $546,022 $65,680 - $611,702 $42,330 - $654,032
Restaurant operating expenses:
Food and beverage 150,090 19,309 - 169,399 13,835 - 183,234
Payroll and benefits 162,017 19,627 - 181,644 12,285 - 193,929
Depreciation and amortization 22,509 912 - 23,421 1,320 $214 (G) 24,955
Other operating expenses 125,781 15,607 - 141,388 9,606 - 150,994
- ---------------------------------------------------------------------------------------------------------------------------------
Total restaurant operating expenses 460,397 55,455 - 515,852 37,046 214 553,112
- ---------------------------------------------------------------------------------------------------------------------------------
Income from restaurant
operations 85,625 10,225 - 95,850 5,284 (214) 100,920
General and administrative
expenses 26,329 4,866 - 31,195 1,841 - 33,036
Asset revaluation charges 27,700 - - 27,700 - - 27,700
- ---------------------------------------------------------------------------------------------------------------------------------
Operating income 31,596 5,359 - 36,955 3,443 (214) 40,184
- ---------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (11,417) (1,888) ($3,337)(A) (15,844) (1,920) (1,055)(H) (18,249)
798 (B) 570 (I)
Dividends on convertible
preferred trust securities - - - - - - -
Interest income 69 95 - 164 - - 164
Other, net (2,024) (891) (1,518)(C) (3,542) (262) (795)(G) (4,599)
402 (C)
489 (D)
- ---------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) (13,372) (2,684) (3,166) (19,222) (2,182) (1,280) (22,684)
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings before elimination of
minority partners' interest 18,224 2,675 (3,166) 17,733 1,261 (1,494) 17,500
Elimination of minority
partners'interest - - - - 175 - 175
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 18,224 2,675 (3,166) 17,733 1,086 (1,494) 17,325
Income taxes 6,550 1,043 (702)(E) 6,891 - (378)(E) 6,926
413 (J)
- ---------------------------------------------------------------------------------------------------------------------------------
Net earnings $11,674 $1,632 ($2,464) 10,842 $1,086 ($1,529) $10,399
=================================================================================================================================
Primary earnings per share $0.30 $0.27 $0.26
=================================================================================================================================
Primary weighted average
number of shares 39,369 213 (F) 39,582 1,050 (K) 40,632
=================================================================================================================================
</TABLE>
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<TABLE>
Apple South, Inc.
Unaudited Pro Forma Combined
Statement of Earnings
Year Ended December 29, 1996
(In thousands, except per share data)
<CAPTION>
Adjustments
for convertible
preferred
Pro Forma trust Pro Forma
Combined securities Combined
(4)+(5)+(6)=(7) (8) (7)+(8)
--------------- ----------- ----------
<S> <C> <C> <C>
Restaurant sales $ 654,032 -- $ 654,032
Restaurant operating expenses:
Food and beverage 183,234 -- 183,234
Payroll and benefits 193,929 -- 193,929
Depreciation and amortization 24,955 -- 24,955
Other operating expenses 150,994 -- 150,994
- --------------------------------------------------------------------------------
Total restaurant operating expenses 553,112 -- 553,112
- --------------------------------------------------------------------------------
Income from restaurant
operations 100,920 -- 100,920
General and administrative
expenses 33,036 -- 33,036
Asset revaluation charges 27,700 -- 27,700
- --------------------------------------------------------------------------------
Operating income 40,184 -- 40,184
- --------------------------------------------------------------------------------
Other income (expense):
Interest expense (18,249) $6,465 (L) (11,784)
Dividends on convertible
preferred trust securities -- (6,500)(M) (6,500)
Interest income 164 -- 164
Other, net (4,599) -- (4,599)
- --------------------------------------------------------------------------------
Total other income (expense) (22,684) (35) (22,719)
- --------------------------------------------------------------------------------
Earnings before elimination of
minority partners' interest 17,500 (35) 17,465
Elimination of minority
partners' interest 175 -- 175
- --------------------------------------------------------------------------------
Earnings before income taxes 17,325 (35) 17,290
Income taxes 6,926 (13)(E) 6,913
- --------------------------------------------------------------------------------
Net earnings $ 10,399 $ (22) $ 10,377
================================================================================
Primary earnings per share $0.26 (N) $0.26
================================================================================
Primary weighted average
number of shares 40,632 (N)40,632
================================================================================
</TABLE>
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<TABLE>
Apple South, Inc.
Unaudited Pro Forma Combined Balance Sheet
Year Ended December 29, 1996
(In thousands, except share data)
<CAPTION>
McCormick & Pro Forma Pro Forma Hops Grill Pro Forma Pro Forma
Apple South Schmick Adjustments Combined & Bar Adjustments Combined
(1) (2) (3) (1)+(2)+(3)=(4) (5) (6) (4)+(5)+(6)=(7)
--------- ---------- ---------- --------------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $3,923 $1,847 - $5,770 $2,123 ($867)(G) $7,026
Short-term investments 52 - - 52 - - 52
Accounts receivable 4,568 1,315 - 5,883 114 - 5,997
Inventories 6,364 855 - 7,219 645 - 7,864
Prepaid expenses and other 9,780 484 - 10,264 526 - 10,790
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 24,687 4,501 - 29,188 3,408 (867) 31,729
Premises and equipment, net 80,523 10,794 - 391,317 26,729 1,500 (G) 419,546
Franchise costs, net 5,880 - - 5,880 - - 5,880
Goodwill, net 36,351 16,070 $44,640 (C) 97,061 - 31,784 (G) 128,845
Other assets 10,386 - - 10,386 1,351 11,737
- ---------------------------------------------------------------------------------------------------------------------------------
$457,827 $31,365 $44,640 $533,832 $31,488 $32,417 $597,737
=================================================================================================================================
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable $16,688 $2,834 - $19,522 $2,158 - $21,680
Accrued liabilities 22,887 4,689 - 27,576 2,542 ($867)(G) 29,251
Current installments
of long-term debt 286 2,823 ($2,823)(B) 286 3,121 (3,121)(I) 286
Income taxes 320 - - 320 - - 320
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 40,181 10,346 (2,823) 47,704 7,821 (3,988) 51,537
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt 215,891 12,591 49,800 (C) 281,105 23,362 15,750 (G) 323,338
2,823 (B) - 3,121 (I) -
Deferred income taxes 10,326 68 - 10,394 - - 10,394
Interest of minority partners - - - - 2,089 - 2,089
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 266,398 23,005 49,800 339,203 33,272 14,883 387,358
- ---------------------------------------------------------------------------------------------------------------------------------
Company-obligated mandatorily
redeemable preferred securities
of Apple South Financing I - - - - - - -
Shareholders' equity:
Preferred stock, $0.01 par value.
Authorized 10,000,000 shares;
none issued - 4,850 (4,850)(C) - - - -
Common stock, $0.01 par value.
Authorized 75,000,000 shares;
39,124,925 issued. 40,387,925
pro forma shares issued 391 - 2 (C) 393 - 10 (G) 403
Additional paid-in capital 132,976 - 3,198 (C) 136,174 (1,784) 15,740 (G) 151,914
1,784 (G)
Retained earnings 70,981 3,510 (3,510)(C) 70,981 - - 70,981
Treasury stock, at cost:
677,508 shares (12,919) - - (12,919) - - (12,919)
- ---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 191,429 8,360 (5,160) 194,629 (1,784) 17,534 210,379
- ---------------------------------------------------------------------------------------------------------------------------------
$457,827 $31,365 $44,640 $533,832 $31,488 $32,417 $597,737
=================================================================================================================================
</TABLE>
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<TABLE>
Apple South, Inc.
Unaudited Pro Forma Combined Balance Sheet
Year Ended December 29, 1996
(In thousands, except share data)
<CAPTION>
Adjustments
for Convertible
Preferred
Pro Forma Trust Pro Forma
Combined Securities Combined
(4)+(5)+(6)=(7) (8) (7)+(8)
--------------- ---------- --------
<S> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 7,026 - $ 7,026
Short-term investments 52 - 52
Accounts receivable 5,997 - 5,997
Inventories 7,864 - 7,864
Prepaid expenses and other 10,790 - 10,790
- --------------------------------------------------------------------------------
Total current assets 31,729 - 31,729
Premises and equipment, net 419,546 - 419,546
Franchise costs, net 5,880 - 5,880
Goodwill, net 128,845 - 128,845
Other assets 11,737 - 11,737
- --------------------------------------------------------------------------------
$ 597,737 - $ 597,737
================================================================================
Liabilities and Shareholders'
Equity
Current liabilities:
Accounts payable $ 21,680 - $ 21,680
Accrued liabilities 29,251 - 29,251
Current installments of
long-term debt 286 - 286
Income taxes 320 - 320
- --------------------------------------------------------------------------------
Total current liabilities 51,537 - 51,537
- --------------------------------------------------------------------------------
Long-term debt 323,338 ($ 96,500)(M) 226,838
- - -
Deferred income taxes 10,394 - 10,394
Interest of minority partners 2,089 - 2,089
- --------------------------------------------------------------------------------
Total liabilities 387,358 (96,500) 290,858
- --------------------------------------------------------------------------------
Company-obligated mandatorily
redeemable preferred securities
of Apple South Financing I - 100,000 (M) 100,000
Shareholders' equity:
Preferred stock, $0.01 par value
Authorized 10,000,000 shares:
none issued - - -
Common stock, $0.01 par value
Authorized 75,000,000 shares;
39,124,925 issued; 40,387,925
pro forma shares issued 403 - 403
Additional paid-in capital 151,914 (3,500)(M) 148,414
Retained earnings 70,981 - 70,981
Treasury stock, at cost:
677,508 shares (12,919) - (12,919)
- --------------------------------------------------------------------------------
Total shareholders' equity 210,379 (3,500) 206,879
- --------------------------------------------------------------------------------
$ 597,737 - $ 597,737
================================================================================
</TABLE>
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Apple South, Inc.
Notes to the Unaudited Pro Forma Combined Financial Information
The Company has entered into an agreement to acquire McCormick & Schmick
for $53 million, comprised of approximately $49.8 million in cash and $3.2
million in Apple South Common Stock. The Company will also assume approximately
$15 million in debt.
(A) The increase in Interest expense reflects the accrual of interest on an
additional approximate $49.8 million indebtedness assumed to be incurred in
connection with the McCormick & Schmick acquisition. Interest has been included
on the assumed debt at a rate of 6.7%, which approximates the Company's
borrowing rate under its revolving credit agreements during 1996.
(B) The decrease in Interest expense adjusts interest expense to an
estimated rate of 6.7% on amounts assumed by the Company, which were owed by
McCormick & Schmick during 1996. The estimated rate approximates the Company's
borrowing rate under its revolving credit agreements during 1996.
(C) The purchase price of the McCormick & Schmick acquisition has not been
allocated to the respective assets, as it is impractical to do so at this time;
however, the excess of cost over the fair value of tangible assets acquired and
liabilities assumed is expected to be approximately $60.7 million. This excess
will be allocated to goodwill to be amortized over 40 years. The pro forma
adjustment to Other, net reflects amortization of goodwill and the elimination
of goodwill amortization previously recorded by McCormick & Schmick. Goodwill
amortization previously recorded by McCormick & Schmick in 1996 was
approximately $402,000.
(D) The pro forma adjustment to Other, net eliminates management consulting
fees of approximately $382,000 and noncompete payments of approximately $107,000
made to McCormick & Schmick stockholders during 1996. In conjunction with Apple
South's purchase agreement, these prior agreements will be canceled.
(E) The pro forma adjustment of Income taxes reflects the income tax effect
of the pro forma adjustments, except for any nondeductible portion of the excess
of cost over the fair value of assets acquired and liabilities assumed
(approximately $71 million of the approximate $91 million in estimated
goodwill), assuming a 38% effective blended Federal and state rate.
(F) The increase in Weighted average common and common equivalent shares
outstanding reflects the approximate 213,000 shares of Apple South Common Stock
to be issued in the McCormick & Schmick acquisition.
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Apple South, Inc.
Notes to the Unaudited Pro Forma Combined Financial Information (Continued)
The Company has also entered into an agreement to acquire Hops Grill & Bar
for $31.5 million, comprised of $15.75 million in cash and $15.75 million in
Apple South Common Stock. The Company will also assume approximately $26.5
million in debt and will acquire approximately $1.26 million in cash.
(G) The purchase price of the Hops Grill & Bar acquisition has not been
allocated to the respective assets, as it is impractical to do so at this time;
however management estimates that approximately $1.5 million in additional value
will be allocated to certain equipment and the excess of cost over the resultant
fair value of tangible assets acquired and liabilities assumed is expected to be
approximately $31.8 million. This excess will be allocated to goodwill to be
amortized over 40 years. The pro forma adjustment to Other, net reflects
amortization of goodwill. The pro forma adjustment to Cash and cash equivalents
reflects cash that will be distributed in 1997 to shareholders of S corporations
comprising Hops Grill & Bar. The pro forma adjustment to Depreciation and
amortization reflects the preliminary allocation of purchase price and estimated
useful lives.
(H) The increase in Interest expense reflects the accrual of interest on an
additional approximate $15.8 million indebtedness assumed to be incurred in
connection with the Hops Grill & Bar acquisition. Interest has been included on
the assumed debt at a rate of 6.7%, which approximates the Company's borrowing
rate under its revolving credit agreements during 1996.
(I) The decrease in Interest expense adjusts interest expense to an
estimated rate of 6.7% on amounts assumed by the Company, which were borrowed by
Hops Grill & Bar during 1996. The estimated rate approximates the Company's
borrowing rate under its revolving credit agreements during 1996.
(J) Hops Grill & Bar is composed of a number of S corporations which were
not subject to corporate income taxes in 1996. The pro forma adjustment of
Income taxes reflects income taxes as if Hops Grill & Bar were subject to
corporate income taxes assuming a 38% blended Federal and state rate.
(K) The increase in Weighted average common and common equivalent shares
outstanding reflects the 1,050,000 shares of Apple South Common Stock to be
issued in the Hops Grill & Bar acquisition.
(L) The decrease in Interest expense reflects the assumed repayment of a
portion of amounts outstanding under the Company's revolving credit agreements
from the proceeds of an offering of non-registered convertible preferred trust
securities. After deducting expenses of the offering, net proceeds available to
the Company are expected to amount to approximately $96.5 million.
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Apple South, Inc.
Notes to the Unaudited Pro Forma Combined Financial Information (Continued)
(M) To record the issuance, use of proceeds and dividends on the
convertible preferred trust securities being issued.
(N) Fully diluted earnings per share and fully diluted weighted average
number of shares would have included approximately 6,000,000 shares of Apple
South Common Stock issuable upon conversion of the convertible preferred trust
securities and the elimination of dividends related to the convertible preferred
trust securities; however, the effect would be anti-dilutive and therefore is
not presented.
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