<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended August 7, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period to
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Commission file number 0-4377
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SHONEY'S, INC.
(Exact name of registrant as specified in its charter)
Tennessee 62-0799798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1727 Elm Hill Pike, Nashville, TN 37210
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (615) 391-5201
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
As of September 16, 1994, there were 41,178,610 shares of
Shoney's, Inc. $1 par value common stock outstanding.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
August 7, October 31,
1994 1993
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,947,453 $ 7,841,426
Notes and accounts receivable, less allowance for doubtful
accounts of $3,182,000 in 1994 and $2,061,000 in 1993 24,712,313 24,857,375
Inventories 43,518,519 52,795,971
Deferred income taxes and other current assets 26,439,134 21,633,965
------------- ------------
Total current assets 100,617,419 107,128,737
Property, plant and equipment, at cost 737,000,058 684,218,089
Less accumulated depreciation and amortization (304,749,567) (280,421,156)
------------- ------------
Net property, plant and equipment 432,250,491 403,796,933
Other assets:
Deferred charges and other intangible assets 7,113,835 7,950,725
Other assets 5,441,179 9,215,940
------------- -------------
Total other assets 12,555,014 17,166,665
------------- -------------
$ 545,422,924 $ 528,092,335
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 35,392,663 $ 36,636,478
Federal and state income taxes 3,974,819 2,303,533
Other accrued liabilities 61,299,301 68,979,196
Reserve for litigation settlement 24,261,774 25,713,422
Debt and capital lease obligations due within one year 114,670,172 111,401,224
------------ ------------
Total current liabilities 239,598,729 245,033,853
Senior debt-recapitalization 60,000,000
Other long-term senior debt and capital lease obligations 289,755,875 111,251,814
Subordinated debentures 144,187,529
Zero coupon subordinated convertible debentures 79,268,243 74,614,987
Reserve for litigation settlement 68,838,339 86,413,339
Deferred credits:
Income taxes 11,705,958 9,424,823
Income and other liabilities 7,720,454 7,153,808
Shareholders' equity (deficit):
Common stock, $1 par value: authorized 100,000,000 shares;
issued 41,155,722 in 1994 and 40,724,536 in 1993 41,155,722 40,724,536
Additional paid-in capital 57,110,656 50,771,605
Retained earnings (deficit) (249,731,052) (301,483,959)
------------ ------------
Total shareholders' equity (deficit) (151,464,674) (209,987,818)
------------ ------------
$ 545,422,924 $ 528,092,335
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Forty Weeks Ended
August 7, August 1,
1994 1993
------------ ------------
<S> <C> <C>
Revenues
Net sales $ 867,548,813 $ 830,082,695
Franchise fees 22,248,177 21,718,909
Other income 8,835,821 2,754,582
----------- -----------
Total revenues 898,632,811 854,556,186
Costs and expenses
Cost of sales 740,493,410 704,998,373
General and administrative expenses 47,786,703 45,329,963
Interest expense 33,038,369 33,577,692
----------- -----------
Total costs and expenses 821,318,482 783,906,028
----------- -----------
Income before income taxes, extraordinary charge and
cumulative effect of change in accounting principle 77,314,329 70,650,158
Provision for income taxes 28,992,000 26,848,000
----------- -----------
Income before extraordinary charge and cumulative
effect of change in accounting principle 48,322,329 43,802,158
Extraordinary charge on early extinguishment of
debt, net of income taxes of $623,000 (1,037,808)
Cumulative effect of change in accounting for
income taxes 4,468,386
---------- ----------
Net income $ 51,752,907 $ 43,802,158
========== ==========
Earnings per common share
Primary:
Income before extraordinary charge and cumulative
effect of change in accounting principle $ 1.17 $ 1.09
Extraordinary charge on early extinguishment of debt (0.03)
Cumulative effect of change in accounting for income taxes 0.11
---- ----
Net income $ 1.25 $ 1.09
==== ====
Fully diluted:
Income before extraordinary charge and cumulative
effect of change in accounting principle $ 1.10 $ 1.02
Extraordinary charge on early extinguishment of debt (0.02)
Cumulative effect of change in accounting for income taxes 0.10
---- ----
Net income $ 1.18 $ 1.02
==== ====
Weighted average shares outstanding
Primary 41,313,285 40,322,751
Fully diluted 46,536,916 45,567,871
Common shares outstanding 41,155,722 40,567,309
Dividends per share NONE NONE
</TABLE>
See notes to consolidated condensed financial statements.
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SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
Twelve Weeks Ended
August 7, August 1,
1994 1993
------------ ------------
<S> <C> <C>
Revenues
Net sales $ 272,347,269 $ 265,632,557
Franchise fees 6,915,533 7,124,372
Other income 2,610,137 1,376,291
----------- -----------
Total revenues 281,872,939 274,133,220
Costs and expenses
Cost of sales 231,134,562 224,077,446
General and administrative expenses 13,651,040 13,276,855
Interest expense 9,482,727 10,054,084
----------- -----------
Total costs and expenses 254,268,329 247,408,385
----------- -----------
Income before income taxes and
extraordinary charge 27,604,610 26,724,835
Provision for income taxes 10,351,000 10,156,000
----------- -----------
Income before extraordinary charge 17,253,610 16,568,835
Extraordinary charge on early
extinguishment of debt, net of
income taxes of $623,000 (1,037,808)
---------- ----------
Net income $ 16,215,802 $ 16,568,835
========== ==========
Earnings per common share
Primary:
Income before extraordinary charge $ 0.42 $ 0.41
Extraordinary charge on early
extinguishment of debt (0.03)
----- ----
Net income $ 0.39 $ 0.41
===== ====
Fully diluted:
Income before extraordinary charge $ 0.39 $ 0.38
Extraordinary charge on early
extinguishment of debt (0.02)
----- ----
Net income $ 0.37 $ 0.38
===== ====
Weighted average shares outstanding
Primary 41,303,046 40,571,475
Fully diluted 46,509,110 45,802,999
Common shares outstanding 41,155,722 40,567,309
Dividends per share NONE
NONE
</TABLE>
See notes to consolidated condensed financial statements.
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SHONEY'S, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Forty Weeks Ended
August 7, August 1,
1994 1993
-------------- -------------
<S> <C> <C>
Operating activities
Net income $ 51,752,907 $ 43,802,158
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 34,261,144 31,447,073
Amortization of deferred charges
and other noncash charges 7,648,220 6,459,437
Gain on marketable securities
and sale of other assets (3,177,926)
Cumulative effect of change in
accounting for income taxes (4,468,386)
Change in deferred income taxes 5,798,000 3,275,000
Changes in operating assets
and liabilities 11,717,435 (6,251,877)
----------- -----------
Net cash provided by operating activities 103,531,394 78,731,791
Investing activities
Cash required for property, plant and equipment (68,516,703) (56,325,258)
Proceeds from disposal of
property, plant and equipment 4,419,616 2,211,662
Cash derived from other assets 162,824 4,077,081
----------- -----------
Net cash used by investing activities (63,934,263) (50,036,515)
Financing activities
Payments on long-term debt and
capital lease obligations (213,298,590) (46,976,969)
Proceeds from long-term debt 195,681,800 35,000,000
Net payments on short-term borrowings (6,292,000) (4,574,000)
Payments on litigation settlement (19,026,648) (19,092,973)
Cash required for debt issue costs (1,707,101) (3,151,203)
Proceeds from exercise of employee stock options 3,151,435 12,664,514
----------- -----------
Net cash used by financing activities (41,491,104) (26,130,631)
----------- -----------
Change in cash $ (1,893,973) $ 2,564,645
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE>
SHONEY'S, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
August 7, 1994
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the
instructions to Form 10-Q. As a result, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements.
The Company, in management's opinion, has included all adjustments
(consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations. Certain
reclassifications have been made in the consolidated condensed
financial statements to conform to the 1994 presentation.
Operating results for the twelve and forty week periods ended
August 7, 1994 are not necessarily indicative of the results that
may be expected for all or any balance of the fiscal year ending
October 30, 1994.
NOTE 2 - CHANGES IN ACCOUNTING POLICIES
Effective November 1, 1993, the Company adopted FASB Statement No.
109, "Accounting for Income Taxes" through a cumulative effect
adjustment that resulted in an increase to net income of
approximately $4.5 million or $.10 per share. Statement No. 109
changes the Company's method of accounting for income taxes from
the deferred method to the liability method. The liability method
requires the recognition of deferred income tax liabilities and
assets for the expected future tax consequences of temporary
differences between the tax bases and financial reporting bases of
assets and liabilities (See Note 4).
Effective November 1, 1993, the Company also adopted FASB Statement
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". This Statement requires that debt and equity
securities be carried at fair value unless the Company has the
positive intent and ability to hold debt securities to maturity.
Debt and equity securities must be classified into one of three
categories: 1) held-to maturity, 2) available-for-sale or 3) trading
securities. Each category has different accounting treatment for
the change in fair values. There was no cumulative effect from the
adoption of Statement No. 115 since, at the time of adoption, the
Company held no investments in debt or equity securities.
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NOTE 3 - EARNINGS PER SHARE
Earnings per share have been computed using the weighted average
number of shares of common stock and common stock equivalents
outstanding during each period presented. Common stock equivalents
include all dilutive outstanding stock options. Fully diluted
earnings per share also includes the assumed conversion of the zero
coupon subordinated convertible debentures. In calculating
earnings per share for 1993, the 2,694,444 shares held in escrow at
October 25, 1992 were considered to be retired effective with the
provisional court approval of a consent decree settling certain
litigation on November 3, 1992 (See Note 7).
NOTE 4 - INCOME TAXES
Income taxes for the twelve and forty week periods ended August 7,
1994 and August 1, 1993 were provided based on the Company's
estimate of its effective tax rates (37.5% and 38.0%,
respectively,) for the entire respective fiscal years. The
Company's estimate of its effective tax rate for the 1994 fiscal
year decreased from 1993 due primarily to the reinstatement of the
Targeted Jobs Tax Credit in August 1993 and the effects of the new
tax credit on FICA tips. The statutory federal income tax rate was
35% and 34.8% for the twelve and forty week periods ended August 7,
1994 and August 1, 1993, respectively.
Effective November 1, 1993, the Company changed its method of
accounting for income taxes from the deferred method to the
liability method as required by FASB Statement No. 109, "Accounting
for Income Taxes" (See Note 2). As permitted under the new rules,
prior years' financial statements have not been restated. The
cumulative effect of adoption of the Statement increased deferred
tax assets and net income by $4.5 million or $.10 per common share.
This amount was reflected in the first quarter of fiscal 1994 as
the effect of a change in accounting for income taxes.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. Significant components of the Company's deferred tax
assets and liabilities as of November 1, 1993 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Reserve for lawsuit settlement $ 40,338,486
Reserves for self insurance 7,325,098
Other - net 4,949,912
----------
Deferred tax assets - net 52,613,496
----------
Deferred tax liabilities:
Tax over book depreciation 18,341,848
Capital contribution 22,501,840
Other - net 149,268
----------
Deferred tax liability 40,992,956
----------
Net deferred tax asset $ 11,620,540
==========
</TABLE>
No valuation allowance is considered necessary, as management
believes that the deferred tax assets will ultimately be realized.
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<PAGE>
NOTE 5 - SENIOR DEBT
Debt and capital lease obligations due within one year includes
$110 million of senior debt-recapitalization which is due in two
installments ($50 million in October 1994 and $60 million in April
1995) and is collateralized by certain land and buildings. As of
August 7, 1994, this indebtedness had a fixed rate of interest
(9.78%) to maturity in April 1995. The Company has interest rate
swap agreements, which expire at varying dates to April 1995, which
effectively convert the interest rate on this indebtedness to 6.0%.
In July 1993, the Company entered into a $125 million reducing
revolving credit facility with a syndicate of financial
institutions. All material assets of the Company not otherwise
pledged (including all common shares of a wholly-owned real estate
company which owns 107 of the Company's restaurant properties) have
been pledged as collateral for the facility. The facility had a
four year, three month term expiring October 22, 1997, with
reductions in the aggregate credit facility beginning in 1995.
The interest rate for this facility was based on the London
Interbank Offered Rate ("LIBOR") plus 2%
During the third quarter, the Company and the financial
institutions amended this credit facility to allow the Company to
redeem its 12% subordinated debentures issued in the Company's 1988
recapitalization. The credit facility was increased to a maximum
of $270 million, the interest rate will remain at LIBOR plus 2% and
the maturity was extended to October 1999. The Company redeemed
the $145.7 million of 12% subordinated debentures at par on July 2,
1994. At August 7, 1994, the interest rate on this facility was
6.6% and the Company had borrowed $195 million under the facility.
The Company's senior debt requires satisfaction of certain
financial ratios and tests; imposes limitations on capital
expenditures; limits the ability to incur additional debt,
leasehold obligations and contingent liabilities; prohibits
dividends and distributions on common stock; prohibits mergers,
consolidations or similar transactions; and includes other
affirmative and negative covenants.
NOTE 6 - RESERVE FOR LITIGATION SETTLEMENT
On January 25, 1993, the Company received final court approval of
a settlement of a three and one-half year old class action race
discrimination lawsuit against the Company and its former senior
chairman. Under the terms of the settlement, the Company has
agreed to pay $105 million in claims. In addition, the Company
agreed to pay $25.5 million in plaintiffs' attorneys fees and an
estimated $4 million in applicable payroll taxes and
administrative costs. Under the terms of the consent decree,
payments are made quarterly and substantially all payments will be
completed by March 1, 1998.
Subsequent to the end of the third quarter, the Company received a
favorable private letter ruling indicating that payments to
claimants under this settlement are not subject to federal payroll
-8-
<PAGE>
taxes. Accordingly, accrued federal payroll taxes of approximately
$1.7 million included in the reserve will be reversed during the
fourth quarter of 1994.
NOTE 7 - SHAREHOLDERS' EQUITY (DEFICIT)
On February 26, 1993, the Company received a capital contribution
of 2,694,444 shares of the Company's common stock. The Company had
recorded the net effect of the shares, which were held in escrow
pending final court approval of the litigation settlement (see Note
6), at October 25, 1992 in shareholders' equity. The Company
recorded the effect (net of estimated income taxes) of the
contribution and subsequent retirement of these shares in
shareholders' equity during the first quarter of 1993.
NOTE 8 - LEGAL PROCEEDINGS
The Company is a party to legal proceedings incidental to its
business. In the opinion of management, the ultimate liability
with respect to these actions will not materially affect the
operating results or the financial position of the Company.
NOTE 9 - SALE OF MOTEL JOINT VENTURES
Effective February 16, 1994, the Company sold its minority
ownership interests in four Shoney's Inns to ShoLodge, Inc.
("ShoLodge") in exchange for 90,909 common shares of ShoLodge. The
shares received were recorded at their fair value on the date of
the transaction of approximately $2.4 million resulting in a gain
of $1.7 million in the quarter ended February 20, 1994. The
ShoLodge common shares were classified as trading securities
under FASB Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (See Note 2). The change in fair
value of the ShoLodge common shares subsequent to the transaction
is reflected in the results of operations.
The Company also owns certain warrants to acquire ShoLodge common
stock which were obtained in the 1992 sale of the Company's lodging
division to ShoLodge. In connection with the sale of the Company's
minority motel interests described in the preceding paragraph, the
Company received future registration rights with respect to the
shares that may be acquired upon exercise of the warrants. Under
the provisions of FASB Statement No. 115, certain of these warrants
were classified as trading securities during the first and second
quarters and adjusted to their fair value. The resulting gains of
approximately $1 million in the first quarter and $580,000 in the
second quarter were reflected in results of operations.
Once classified as a trading security, the warrants are carried at
fair value with increases and decreases in fair value reflected in
results of operations. The value of the ShoLodge warrants and
ShoLodge common stock held by the Company declined by approximately
$448,000 in the second quarter and increased by $250,000 in the
third quarter. The market value of the ShoLodge common stock and
the ShoLodge warrants classified as trading securities was $2.3
million at August 7, 1994.
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<PAGE>
NOTE 10 - EXTRAORDINARY CHARGE ON EARLY EXTINGUISHMENT OF DEBT
On July 2, 1994, the Company redeemed, at par, the $145.7 million
of 12% subordinated debentures due in the year 2000 that were
issued as part of the Company's 1988 recapitalization. Debt issue
costs associated with these debentures were included in other
assets and were being amortized using the effective interest method
over the life of the debentures. As a result of the redemption,
the unamortized portion of original issue discount and debt issue
costs of $1,660,808 were charged to expense during the third
quarter. This charge is reflected in the Statement of Operations
as an extraordinary charge of $1,037,808, net of income tax
benefits of $623,000.
NOTE 10 - RESTATEMENT - CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The Company's first quarter net income has been restated to reflect
a correction of the cumulative effect of adopting FASB Statement
No. 109, "Accounting for Income Taxes." In the first quarter the
Company had estimated the cumulative effect of adopting Statement
No. 109 to be an increase to income of $5.4 million or $.12 per
share (fully diluted), resulting in originally reported net income
for the quarter of $19.6 million or $.45 per share (fully diluted).
During the fourth quarter, the Company reassessed the cumulative
effect and found that it had been overstated by approximately $.9
million or $.02 per share (fully diluted). Accordingly, the first
quarter results have been restated to reflect the revised
cumulative effect from the change in accounting for income taxes of
$4.5 million or $.10 per share (fully diluted), resulting in net
income for the first quarter, as restated, of $18.7 million or $.43
per share (fully diluted).
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information
which management believes is relevant to an assessment and
understanding of the Company's consolidated results of operations
and financial condition. The discussion should be read in
conjunction with the consolidated condensed financial statements
and notes thereto. The third quarter and first three quarters of
both fiscal 1994 and 1993 covered periods of twelve and forty
weeks, respectively.
REVENUES
Revenues increased $7.7 million or 3% to $281.9 million during
the third quarter of fiscal 1994 as compared with the third quarter
of fiscal 1993. For the first three quarters of fiscal 1994,
revenues increased $44.1 million to $898.6 million, 5% higher than
the same period of fiscal 1993. An analysis of the increase in
revenues is shown below.
<TABLE>
<CAPTION>
12 Weeks Ended 40 Weeks Ended
August 7, 1994 August 7, 1994
Millions % Millions %
-------- -- -------- --
<S> <C> <C> <C> <C>
Restaurant revenue $ 7.4 96 $ 31.0 70
Manufacturing, distribution
and other sales (.7) (9) 6.5 15
Franchise fees (.2) (3) .5 1
Other income 1.2 16 6.1 14
----- --- ----- ---
$ 7.7 100 $ 44.1 100
===== === ===== ===
</TABLE>
The Company opened 18 restaurants during the first three
quarters of 1994, including eleven Shoney's, two Lee's, three
Pargo's and one each for Captain D's and BarbWire's. During the
first quarter, the Company sold ten Captain D's units to a
franchisee and has closed five other units through the first three
quarters. Franchisees opened 52 units during the first three
quarters of fiscal 1994 (including the ten Captain D's purchased
from the Company) and closed 53 units. Comparable store sales of
Company-owned restaurants decreased .8% for the third quarter,
which included a 1.7% menu price increase. For the first three
quarters of fiscal 1994, comparable store sales of Company-owned
restaurants increased .9%, which included a 1.8% menu price
increase.
Other income increased $6.1 million in the first three
quarters of fiscal 1994 as compared with the first three quarters
of fiscal 1993 as the result of several factors. During the first
quarter of 1994, the Company sold its minority ownership interests
in four Shoney's Inns to ShoLodge, Inc. ("ShoLodge"), the majority
owner. The sale resulted in a $1.7 million gain, which is included
in other income. In conjunction with the sale, the Company also
received future registration rights for shares of ShoLodge stock
that may be acquired upon the exercise
-11-
<PAGE>
of certain warrants that it owns. Under the provisions of FASB
Statement No. 115, certain of these warrants were classified as
trading securities and adjusted to fair value resulting in gains
of approximately $1 million in the first quarter of 1994 and $580,000
in the second quarter, which were included in other income.
(See Note 9--Sale of Motel Joint Ventures). As required by FASB
Statement No. 115, these warrants are adjusted to their fair value
each quarter. During the second and third quarters of 1994, the
Company recorded a decline in value of $448,000 and an increase in
value of $250,000, respectively, for the warrants and other ShoLodge
common stock held by the Company. In addition, during the first
quarter of 1994, the Company received $.9 million from the settlement
of certain class action securities litigation and during the third
quarter recorded gains of approximately $1.6 million on certain real
estate transactions.
Manufacturing and commissary sales increased .3% and 4.2%,
respectively, for the third quarter and first three quarters of
fiscal 1994, when compared with the corresponding periods of 1993.
When compared to restaurant sales, these sales have a higher
percentage of food costs while operating expenses are lower. There
is no restaurant labor associated with these sales.
COSTS AND EXPENSES
Cost of sales for the third quarter of fiscal 1994 increased
$7.1 million over the same quarter in fiscal 1993 and equalled
82.0% and 81.7% of revenues in the third quarters of 1994 and 1993,
respectively. Food and supplies decreased as a percentage of
revenues principally due to the increase in other income. During
the third quarter, operating expenses increased as a percentage of
revenues from 19.2% in the third quarter of 1993 to 19.4% in the
same period this year. This increase was primarily due to the
decline in comparable store sales and the slower growth of
manufacturing and commissary sales in 1994 compared to 1993.
Restaurant labor increased to 21.1% of revenues in the third
quarter compared to 20.8% in 1993. The increase primarily was due
to the decline in comparable store sales.
Cost of sales as a percentage of revenues for the first three
quarters of fiscal 1994 decreased to 82.4% from 82.5% in 1993.
Food and supplies as a percentage of revenues increased principally
due to higher restaurant food costs during the first half of 1994.
This increase in costs resulted from the introduction of a new menu
in the Shoney's division early in the first quarter and an
increased cost of whitefish and other food products in the Captain
D's division. For the first three quarters of 1994, operating
expenses as a percentage of revenues decreased primarily due to the
settlement of a lawsuit against a former insurance carrier for the
Company, which reduced insurance expense.
General and administrative expenses for the third quarter and
first three quarters were unchanged as a percentage of revenues at
4.8% and 5.3 %, respectively, primarily due to the increase in
other income.
Interest expense declined in the third quarter of 1994 when
compared to the prior year principally due to the Company's July 2,
1994 refinancing of $145.7 million of subordinated
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<PAGE>
debentures issued during the Company's recapitalization in 1988.
This refinancing resulted in an extraordinary charge of
approximately $1 million (net of income tax benefits of $.6 million)
for unamortized original issue discount and unamortized debt issue
costs. At current interest rates, the Company expects this
refinancing to reduce the annual effective interest rate on this
indebtedness by 5%. Interest expense was relatively unchanged for
the first three quarters of 1994 since there had been no material
changes in the Company's debt structure or interest rates prior to
the July 2, 1994 refinancing.
The effective income tax rates for both the third quarter and
first three quarters of 1994 and 1993 were 37.5% and 38.0%,
respectively. The decrease in the effective tax rate for fiscal
1994 is primarily due to the reinstatement of the Targeted Jobs Tax
Credit in August 1993 and the effects of the new tax credit on FICA
tips. Effective November 1, 1993, the Company changed its method
of accounting for income taxes from the deferred method to the
liability method required by FASB Statement No. 109, "Accounting
for Income Taxes" (See Note 2--Changes in Accounting Policies). As
permitted under the new rules, prior years' financial statements
have not been restated. The cumulative effect of adoption of the
new Statement during the first quarter was to increase deferred tax
assets and net income by $4.5 million or $.10 per common share.
The Company's reserve for litigation settlement (See Note 6 --
Reserve For Litigation Settlement) includes an accrual for estimated
payroll taxes on the payments to be made to claimants under the
terms of the Consent Decree which settled a class action race
discrimination lawsuit. Subsequent to the end of the third quarter,
the Company received a favorable private letter ruling indicating
that such payments to the claimants are not subject to federal
payroll taxes. Accordingly, accrued federal payroll taxes of
approximately $1.7 million included in the reserve for litigation
settlement will be reversed during the fourth quarter of 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations increased $24.8 million to
$103.5 million for the first three quarters of 1994 compared to
$78.7 million for the first three quarters of 1993. This improved
cash flow was primarily due to a reduction in cash required for
operating assets and liabilities, principally a reduction in
inventory during 1994 compared with an increase in inventory in
1993. Cash used by investing activities during the first three
quarters of 1994 increased by approximately $13.9 million when
compared to the same period in 1993 as the Company continued to
construct new units and expanded its store remodeling program in
1994. In addition, the Company used $3.4 million of restricted
cash in 1993 to purchase certain restaurants which reduced cash
used by investing activities in the first half of 1993 when
compared to the first half of 1994.
Cash used by financing activities increased approximately
$15.4 million in the first three quarters of fiscal 1994 as
compared to 1993. Significant financing activities in the first
three quarters of 1994 included a $50 million increase in borrowing
under the Company's reducing revolving credit facility used to fund
a $50 million payment on senior debt and an increase in
-13-
<PAGE>
borrowing of approximately $145.7 million during the third quarter
of 1994 to redeem the 12% subordinated debentures issued in the
Company's 1988 recapitalization. In the first three quarters of
1993, long-term borrowings totaling $35 million were used to
partially fund long- term debt payments of $47 million. Additional
1994 financing activities included the repayment of short-term
borrowings of $6.5 million. Cash provided from the exercise of
employee stock options decreased $9.5 million in the first three
quarters of 1994 as compared to the first three quarters of 1993,
principally due to the exercise during the first three quarters of
1993 of a significant number of options granted during the Company's
1988 recapitalization. These options had an expiration date of July
1993.
At August 7, 1994, the Company had cash and cash equivalents
of approximately $5.9 million. The Company has unsecured lines of
credit totalling $30 million under which the Company had borrowings
of $1.7 million outstanding at August 7, 1994. Additionally, the
Company has a $270 million reducing revolving credit facility under
which it had borrowed $195 million at August 7, 1994.
Capital expenditures for fiscal 1994 are expected to be
approximately $114 million. The Company expects to meet its needs
for debt service, capital expenditures (excluding those for land
and buildings which are expected to be met through mortgage
financing arrangements), the payments required by the settlement of
the class action litigation and general corporate purposes through
cash generated by the Company's operations and from the Company's
reducing revolving credit facility (See Note 5--Senior Debt).
PART II- OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES.
On May 25, 1994, the Company and Harris Trust and Savings Bank
amended and restated the rights agreement, originally entered into
March 7, 1988, as subsequently amended, relating to certain common
stock purchase rights (the "Rights") issued by the Company. The terms
of the Rights, as previously amended and as amended and restated on
May 25, 1994, were summarized in the Company's Current Report on Form
8-K filed with the Commission on June 9, 1994. For a complete
description of the changes to the Rights, reference is made to the
Company's Current Report on Form 8-K filed with the Commission on
June 9, 1994, which is incorporated herein by this reference.
-14-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) In accordance with the provisions of Item 601 of
Regulation S-K, the following have been furnished as Exhibits to
this Quarterly Report on Form 10-Q:
Exhibit No. Description
----------- -----------
11 Statement regarding computation of earnings
per share.
27 Financial Data Schedule
(b) On June 9, 1994, the Company filed a Current Report
on Form 8-K reporting that on May 25, 1994, the Company and Harris
Trust and Savings Bank had amended and restated the rights agreement,
originally entered into March 7, 1988, as subsequently amended,
relating to certain common stock purchase rights issued by the
Company. See Part II, Item 2 of this Quarterly Report on Form 10-Q.
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 both on
behalf of the registrant and in his capacity as principal financial
officer of the registrant.
January 30, 1995 SHONEY'S, INC.
By:/s/ W. Craig Barber
---------------------------
W. Craig Barber
Senior Executive Vice President
and Chief Financial Officer
(Principal Financial and
Chief Accounting Officer)
-15-
<PAGE>
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE - EXHIBIT 11
<TABLE>
<CAPTION>
Forty Weeks Ended
August 7, 1994 August 1, 1993
-------------- --------------
<S> <C> <C>
Primary:
Average shares outstanding 41,004,466 39,655,580
Net effect of dilutive stock options --based on
the treasury stock method using average market price 308,819 667,171
---------- ----------
Totals 41,313,285 40,322,751
========== ==========
Income before extraordinary charge and cumulative
effect of change in accounting principle $ 48,322,329 $ 43,802,158
Extraordinary charge on early extinguishment of debt (1,037,808)
Cumulative effect of change in accounting for
income taxes 4,468,386
---------- ----------
Net income $ 51,752,907 $ 43,802,158
========== ==========
Earnings per share:
Income before extraordinary charge and cumulative
effect of change in accounting principle $ 1.17 $ 1.09
Extraordinary charge on early extinguishment of debt (.03)
Cumulative effect of change in accounting for
income taxes .11
---- ----
Net income $ 1.25 $ 1.09
==== ====
Fully diluted:
Average shares outstanding 41,004,466 39,655,580
Net effect of dilutive stock options --based on
the treasury stock method using the quarter-end
market price, if higher than average market price 316,861 687,626
Assumed conversion of 8.5% zero coupon
convertible debentures 5,215,589 5,224,665
---------- ----------
Totals 46,536,916 45,567,871
========== ==========
Income before extraordinary charge and cumulative
effect of change in accounting principle $ 48,322,329 $ 43,802,158
Add 8.5% zero coupon convertible debentures interest,
net of income taxes 3,077,918 2,811,358
---------- ---------
Total before extraordinary charge and cumulative
effect of change in accounting principle 51,400,247 46,613,516
Extraordinary charge on early extinguishment of debt (1,037,808)
Cumulative effect of change in accounting
for income taxes 4,468,386
---------- ----------
Net income $ 54,830,825 $ 46,613,516
========== ==========
Earnings per share:
Income before extraordinary charge and cumulative
effect of change in accounting principle $ 1.10 $ 1.02
Extraordinary charge on early extinguishment of debt (.02)
Cumulative effect of change in accounting
for income taxes .10
---- ----
Net income $ 1.18 $ 1.02
==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Twelve Weeks Ended
August 7, 1994 August 1, 1993
-------------- --------------
<S> <C> <C>
Primary:
Average shares outstanding 41,146,151 40,194,254
Net effect of dilutive stock options --based on
the treasury stock method using average market price 156,895 377,221
---------- ----------
Totals 41,303,046 40,571,475
========== ==========
Income before extraordinary charge $ 17,253,610 $ 16,568,835
Extraordinary charge on early extinguishment of debt (1,037,808)
---------- ----------
Net income $ 16,215,802 $ 16,568,835
========== ==========
Earnings per share:
Income before extraordinary charge $ .42 $ .41
Extraordinary charge on early extinguishment of debt (.03)
---- ----
Net income $ .39 $ .41
=== ====
Fully diluted:
Average shares outstanding 41,146,151 40,194,254
Net effect of dilutive stock options --based on
the treasury stock method using the quarter-end
market price, if higher than average market price 157,327 384,349
Assumed conversion of 8.5% zero coupon
convertible debentures 5,205,632 5,224,396
---------- ----------
Totals 46,509,110 45,802,999
========== ==========
Income before extraordinary charge $ 17,253,610 $ 16,568,835
Add 8.5% zero coupon convertible debentures interest,
net of income taxes 941,409 861,684
---------- ---------
Total before extraordinary charge on early
extinguishment of debt 18,195,019 17,430,519
Extraordinary charge on early extinguishment of debt (1,037,808)
---------- ----------
Net income $ 17,157,211 $ 17,430,519
========== ==========
Earnings per share:
Income before extraordinary charge $ .39 $ .38
Extraordinary charge on early extinguishment of debt (.02)
---- ----
Net income $ .37 $ .38
=== ===
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL
STATEMENTS OF SHONEY'S, INC.
FOR THE PERIOD ENDED AUGUST
7, 1994 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> OCT-30-1994
<PERIOD-END> AUG-07-1994
<CASH> 5,947,453
<SECURITIES> 0
<RECEIVABLES> 27,894,308
<ALLOWANCES> 3,181,995
<INVENTORY> 43,518,519
<CURRENT-ASSETS> 100,617,419
<PP&E> 737,000,058
<DEPRECIATION> 304,749,567
<TOTAL-ASSETS> 545,422,924
<CURRENT-LIABILITIES> 239,598,729
<BONDS> 0
<COMMON> 41,155,722
0
0
<OTHER-SE> (192,620,396)
<TOTAL-LIABILITY-AND-EQUITY> 545,422,924
<SALES> 867,548,813
<TOTAL-REVENUES> 898,632,811
<CGS> 740,493,410
<TOTAL-COSTS> 740,493,410
<OTHER-EXPENSES> 47,786,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,038,369
<INCOME-PRETAX> 77,314,329
<INCOME-TAX> 28,992,000
<INCOME-CONTINUING> 48,322,329
<DISCONTINUED> 0
<EXTRAORDINARY> (1,037,808)
<CHANGES> 4,468,386
<NET-INCOME> 52,694,963
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.18
</TABLE>
