SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended March 29, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 000-22006
DavCo Restaurants, Inc.
(Exact name of registrant as specified in its charter)
Delaware 52-1633813
(State or other jurisdiction of incorporation (I.R.S. Employer Incorporation
or organization) Identification Number)
1657 Crofton Boulevard, Crofton Maryland 21114
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (410) 721-3770
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 than 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
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of May 8, 1997.
Class: Common Stock, $.001 par value Number of Shares: 6,428,821
DAVCO RESTAURANTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the 13 weeks and
26 weeks ended March 29, 1997 and March 30, 1996.
Consolidated Balance Sheets as of
March 29, 1997 and September 28, 1996
Consolidated Statements of Cash Flows for the 26
weeks ended March 29, 1997 and March 30, 1996
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1 through 3 have been omitted since the items
are either inapplicable or the answer is negative
Item 4. Submission of Matters to a Vote of Security Holders
Item 5 has been omitted since the item is inapplicable.
Signatures
PART I.
ITEM 1.
DAVCO RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in 000's except per share data)
<TABLE>
<CAPTION>
For the 13 For the 26
weeks ended weeks ended
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Restaurants Sales $ 50,450 $ 45,629 $ 102,479 $ 94,210
------ ------ ------- ------
Costs and Expenses:
Cost of restaurants sales 31,436 28,961 63,509 58,617
Restaurant operating expenses 10,772 10,095 21,316 20,020
Franchise royalties 2,022 1,825 4,105 3,769
General and administrative 2,148 1,893 4,013 3,759
Depreciation and amortization 2,175 2,166 4,349 4,329
------ ------ ------ ------
48,553 44,940 97,292 90,494
------ ------ ------ ------
Operating Income 1,897 689 5,187 3,716
Interest Expense (1,285) (1,301) (2,514) (2,567)
Interest Income 7 6 16 13
Other income, net 223 168 476 444
------- ------- ------- -------
Income (Loss) before Provision for
Income Taxes 842 (438) 3,165 1,606
(Provision) Benefit for Income Taxes (419) 102 (1,379) (688)
------- ------- ------- ------
Net Income (Loss) $ 423 $ (336) $ 1,786 $ 918
======= ======== ======= ======
Earnings (Loss) per Common Share
- Assuming Full Dilution (Note 2) $ 0.06 $ (0.05) $ 0.26 $ 0.13
======= ======= ======= ======
Weighted Average Shares Outstanding
- Assuming Full Dilution (Note 2) 6,944 7,067 6,941 7,106
======= ======= ======= ======
</TABLE>
See notes to unaudited consolidated financial statements.
DAVCO RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
(in 000's except share data)
<TABLE>
<CAPTION>
March 29, September 28,
1997 1996
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $1,388 $1,948
Receivables 431 652
Refundable income taxes 12 12
Inventories 1,408 1,421
Prepaid expenses 1,061 1,377
Deferred tax asset 1,004 1,004
-------- --------
Total Current Assets 5,304 6,414
PROPERTY AND EQUIPMENT, net 53,758 49,521
LEASED PROPERTIES, net 36,126 37,918
OTHER ASSETS:
Franchise rights, net 3,396 3,551
Goodwill, net 18,384 18,730
Deferred tax asset 1,154 1,144
Other 218 280
-------- --------
Total Other Assets 23,152 23,705
Total Assets $118,340 $117,558
======== ========
CURRENT LIABILITIES:
Accounts payable 5,070 5,615
Accrued advertising and royalty fees 1,928 2,588
Accrued salaries and wages 2,443 2,732
Accrued expenses 7,835 7,997
Short-term borrowings 10,413 6,768
Current portion of long-term debt 2,089 3,055
Current portion of capital lease obligations 3,098 3,174
Income taxes payable 493 -
-------- --------
Total Current Liabilities 33,369 31,929
Long-term debt, less current portion 11,042 11,699
Capital lease obligations, less current portion 26,853 28,404
-------- --------
Total Liabilities 71,264 72,032
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock $.001 par value; 11,400,000 shares
authorized and 6,587,628 shares issued 7 7
Treasury Stock, at cost, 158,807 shares (1,320) (1,084)
Additional paid in-capital 31,101 31,101
Warrants outstanding 3,000 3,000
Retained earnings 14,288 12,502
-------- --------
Total Stockholders' Equity 47,076 45,526
-------- --------
Total Liabilities and Stockholders' Equity $118,340 $117,558
======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
DAVCO RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(in 000's)
<TABLE>
<CAPTION>
For the 26 weeks ended
March 29, 1997 March 30, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,786 $ 918
Adjustments to reconcile net income to net
cash flows provided by operating activities-
Depreciation and amortization 4,349 4,329
Deferred tax benefit (10) (424)
Net change in assets and liabilities (661) (702)
---------- -----------
Net Cash Flows Provided By Operating Activities 5,464 4,121
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other assets (13) (406)
Property and equipment acquired and constructed (6,170) (9,023)
--------- -----------
Net Cash Flows Used In Investing Activities (6,183) (9,429)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease obligations (1,627) (1,494)
Repayments of long-term debt, net (1,623) (2,395)
Purchase of treasury stock (236) -
Short-term borrowings, net 3,645 10,906
--------- -----------
Net Cash Flows Provided by Financing Activities 159 7,017
--------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (560) 1,709
CASH AND CASH EQUIVALENTS, beginning of period 1,948 331
--------- ----------
CASH AND CASH EQUIVALENTS, end of period 1,388 2,040
========= ===========
Supplemental Cash Flow Information:
Cash paid for interest $ 2,514 2,750
========= ===========
Cash paid for income taxes, net of refunds 876 158
========= ===========
</TABLE>
See notes to unaudited consolidated financial statements.
DAVCO RESTAURANTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 1997
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
DavCo Restaurants, Inc., a Delaware corporation (the "Company"),
operates 229 "Wendy's Old Fashioned Hamburgers" restaurants,
making it the world's largest franchisee of Wendy's International, Inc.
("Wendy's".) The Company maintains exclusive franchise territories
in metropolitan Baltimore, Washington, D.C., the eastern shore of
Maryland and portions of northern Virginia (the "Mid-Atlantic"),
where it operates 136 Wendy's restaurants. The Company also
operates 55 Wendy's restaurants in metropolitan St. Louis and central
Illinois (the "Midwest") through a wholly-owned subsidiary, MDF,
Inc. and 38 Wendy's restaurants in metropolitan Nashville, Tennessee
(the "South"). The Company does not maintain exclusive franchise
territories in the Midwest or the South.
In management's opinion, the accompanying interim consolidated
financial statements of the Company include all adjustments,
consisting only of normal, recurring adjustments necessary for a fair
presentation of the Company's financial position at March 29, 1997
and the results of its operations and its cash flows for the periods
ended March 29, 1997 and March 30, 1996. These statements are
presented in accordance with the rules and regulations of the
Securities and Exchange Commission. Certain information and
footnote disclosures normally included in the Company's annual
consolidated financial statements have been omitted from these
statements, as permitted under the applicable rules and regulations.
Readers of these statements should refer to the consolidated financial
statements and notes thereto as of September 28, 1996 and for the
year then ended. The results of operations presented in the
accompanying financial statements are not necessarily representative
of operations for an entire year.
Certain reclassifications have been made to the prior year's balances
in order to conform to current year presentation.
The Company maintains its accounts on a 52/53 week fiscal year.
Both the fiscal 1997 and 1996 periods contained 13 weeks and 26
weeks.
2. EARNINGS PER COMMON SHARE
Earnings per common share is computed based on the weighted
average number of common and common equivalent shares
outstanding during the periods. Common stock equivalents include
options and warrants to purchase common stock which are assumed
to be exercised using the treasury stock method. The weighted
average number of shares reflected includes treasury stock acquired
pursuant to the Stock Repurchase Program through the date of
acquisition.
In March 1997, the Financial Accounting Standard Board released
SFAS 128 "Earnings per Share". The new statement is effective
December 15, 1997 and early adoption is not pemitted. When adopted,
SFAS 128 will require the restatement of prior periods and disclosure
of basic and diluted earnings per share and related computations.
At the present time, management believes tahat the adoption of SFAS 128
will not materially affect the Company's consolidated financial statments.
3. COMMITMENTS AND CONTINGENCIES
Litigation
The Company is party to a number of legal proceedings which are
considered by management to be customary and incidental to its
business. In the opinion of management, after consulting with legal
counsel, the ultimate disposition of these lawsuits will not have a
material adverse effect on the Company's financial position or
results of operations.
Letters of Credit
As of March 29, 1997, the Company was contingently liable for
outstanding letters of credit relating to liability insurance, workers'
compensation collateral and Wendy's current royalty requirements,
aggregating approximately $4,670,000.
4. GOODWILL
The company's excess of cost over the fair value of net assets
acquired (or goodwill) is amortized on a straight-line basis over 30
years. The carrying amount of goodwill is reviewed if facts and
circumstances suggest that it may be impaired. If this review indicates
that goodwill will not be recoverable, as determined based on the
estimated undiscounted cash flows of the entity acquired over the
remaining amortization period, the carrying amount of the goodwill is
reduced by the estimated shortfall of cash flows.
5. TREASURY STOCK
On May 2, 1996, the Company announced that its Board of Directors
had authorized management to repurchase up to 1,000,000 shares of
its common stock on the open market and in privately negotiated
transactions during the following twenty four months. As of March
29, 1997, the Company had purchased 158,807 shares of its common
stock for $1,319,505. The Company is accounting for the treasury
stock at cost.
PART I.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Components of Revenues and Expenses
The Company's revenues consist of restaurant sales. Any additional
amounts of income are minor and are included in Other Income, Net.
Restaurant operating profit is computed by subtracting cost of
restaurant sales and restaurant operating expenses from restaurant
sales. Cost of restaurant sales consists of the Company's expenditures
for food, supplies (primarily paper goods) and direct labor.
Restaurant operating expenses include all other direct costs, including
occupancy costs, advertising expense, expenditures for repairs and
maintenance, area and regional management expenses, and workers'
compensation, casualty and general liability insurance costs. In
addition to franchise royalty payments, the Company is also required
to contribute 4.0% of its restaurant sales to advertising, which
consists of an amount (2.5% of sales) for the Wendy's National
Advertising Program, Inc. and the remainder for local advertising.
Franchise royalties, as required by the Company's franchise agreement
with Wendy's, have remained constant at 4.0% of restaurant sales
throughout the periods presented. General and administrative
expenses consist of corporate expenses, including executive and
administrative compensation, office expenses and professional fees.
Results of Operations
The following table presents certain items in the Company's
Consolidated Statements of Operations as a percentage of
restaurant sales for the interim periods indicated.
<TABLE>
<CAPTION>
For the 13 Weeks Ended For the 26 Weeks Ended
March 29, March 30, March 29, March 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Statements of Operations Data:
Restaurant Sales 100.0% 100.0% 100.0% 100.0%
Cost of Restaurant Sales 62.3 63.5 62.0 62.2
Restaurant Operating Expenses 21.4 22.1 20.8 21.3
------ ----- ----- -----
Restaurant Operating Profit 16.3 14.4 17.2 16.5
Franchise Royalties 4.0 4.0 4.0 4.0
General and Administrative 4.2 4.2 3.9 4.0
Depreciation and Amortization 4.3 4.7 4.2 4.6
------ ----- ----- -----
Operating Income 3.8% 1.5% 5.1% 3.9%
======= ====== ====== ======
</TABLE>
Revenues. Company restaurant sales increased 10.1% for the 13 weeks ended
March 29, 1997 compared to the 13 weeks ended March 30, 1996. Company
restaurant sales increased 8.8% for the 26 weeks ended March 29, 1997 compared
to the 26 weeks ended March 30, 1996. The overall increase is sales is related
to sales growth in the company's Mid-Atlantic and Southern divisions. These
increases more than offset the decrease in sales in the company's Mid-West
division. Same store sales for the 13 weeks ended March 29, 1997 compared to
the 13 weeks ended March 30, 1996 for the Mid-Atlantic division were a
positive 6.0%, for the Southern division a positive 10.3%, and for the Mid-West
division a negative 6.6%. Consolidated same store sales increased 4.6% for the
second quarter of fiscal 1997 compared to the second quarter of fiscal 1996.
Same store sales for the 26 weeks ended March 29, 1997 compared to the
respective period in fiscal year 1996 for the Mid-Atlantic division increased
3.0%, for the Southern division increased 9.4% and for the Mid-West division
decreased 4.9%. Consolidated same store sales for the 26 weeks ended
March 29, 1997 increased 2.7% over the 26 weeks ended March 30, 1996. The
positive change in same store sales for the Mid-Atlantic and Southern divisions
is related to the company's renewed focus on the Super Value menu and the
increased selection of permanent menu items such as the Spicy Chicken sandwich
and Crispy Chicken Nuggets since the prior year's periods. Same store sales
were also positively impacted for comparison purposes by the lower sales
reported for the fiscal 1996 periods due to the harsh winter. The decrease in
same store sales for the Mid-West division can be attributed to increased
competition and harsh winter weather. Company wide sales were positively
impacted by the 9 new stores opened since March 30, 1996. The company is
constantly working on improving sales by improving operations,
continuing to satisfy guests and new product innovations such as the new
"Fresh Stuff PITA" sandwiches. The Company anticipates positive results from
the roll-out of the "Fresh Stuffed PITA" sandwiches which should stimulate
sales.
The weighted average number of restaurants open for the 13 weeks ended
March 29, 1997 was 227.7 compared to 219.1 for the relative period in fiscal
year 1996. The weighted average number of restaurants open for the 26 weeks
ended March 29, 1997 was also 227.7 compared to 217.8 for the relative period
in fiscal year 1996. The reason for the increase over fiscal year 1996 is
primarily related to the increase in the number of units in the Mid-Atlantic
division. Average sales per company restaurant for the Mid-Atlantic division
increased 7.5% to $254,600 for the second quarter and increased 4.2% to
$514,300 for the 26 weeks ended March 29, 1997. Average sales per company
restaurant declined by 5.6% to $134,100 for the second quarter and declined
3.4% to $282,500 for the 26 weeks ended March 29, 1997 in the Mid-West
division. The Southern division realized increases in average sales per
restaurant of 10.2% to $231,100 for the second quarter and 8.0% to $467,200
for the 26 weeks end March 29, 1997. These changes in average sales per
company restaurant are directly related to the above mentioned reasons for
changes in sales and same store sales.
Average guest count per company restaurant was 66,500 and 137,900 for the
second quarter and 26 weeks ended March 29, 1997, respectively. Average
guest check was $3.33 for the second quarter and $3.26 for the 26 weeks ended
March 29, 1997. These figures are not comparable to the respective periods in
1996 due to changes in the product mix such as the addition of the $.99 Chicken
Nuggets, which is a value added menu item and an increase during the second
quarter of strategically selected menu items.
Costs and Expenses. Cost of restaurant sales declined as a percentage of sales
for 13 weeks and 26 weeks ended March 29, 1997 when compared to the respective
fiscal 1996 periods. Cost of restaurant sales for the second quarter of fiscal
1997 was 62.3% of sales compared to 63.5% of sales for the second quarter of
fiscal 1996. Cost of restaurant sales for the 26 week period in fiscal 1997
was 62.0% of sales compared to 62.2% of sales for the 1996 period. Cost of
restaurant sales is comprised of food and supplies and payroll and benefits
expense. Cost of food and supplies actually increased as a percentage of sales
for the 26 weeks in fiscal 1997 when compared to the fiscal 1996 period. This
slight increase, .2% of sales, was due to change in product mix such as the
Spicy Chicken sandwich and the Chicken Nuggets which produced slightly lower
margins (higher food cost). Realizing this increase in food and supplies during
the first quarter of fiscal 1997 management worked to reduce spoilage, obtain
more favorable food cost, and strategically increase certain menu prices. This
resulted in food and supplies decreasing as a percentage of sales during the
13 weeks ended March 29, 1997 to 33.4% from 33.8% for the fiscal 1996 period.
The decline of cost of restaurants sales as a percentage of sales was primarily
due to a reduction of payroll and benefit cost as a percentage of sales.
Payroll and benefits cost percentage improved due to the leveraging effect of
increased sales (Note: there is a certain level of this expense which is not
dependent on sales, such as a manager's salary) in the Mid-Atlantic and
Southern divisions and operating more efficiently. The Mid-Atlantic and
Southern division's improvement offset the negative impact of both the increase
of payroll and benefits in the Mid-West division as a percentage of sales and
the increase in the Federal Minimum wage.
Restaurant operating expenses decreased as a percentage of sales for both the
13 weeks and 26 weeks ended March 29, 1997 when compared to the respective
periods in fiscal year 1996. Restaurant operating expenses dropped from 22.1%
of sales for the second quarter of fiscal 1996 to 21.4% of sales for the second
quarter of fiscal 1997 and from 21.3% of sales to 20.8% of sales for the
respective 26 weeks periods in fiscal 1996 and 1997. The Mid-Atlantic and
Southern division's restaurant operating expenses decrease as a percent of
revenue more than offset the Mid-West division increase. The Mid-West division
increase as a percent of sales was caused by the leveraging effect of lower
sales. Both the Mid-Atlantic and the Southern division's decrease in restaurant
operating expenses as a percentage of sales was due to the saving of certain
expenses related to the severe weather experienced in the 1996 periods, such as
increased utilities and snow removal. The leveraging effect of higher sales
was also a factor.
Franchise royalties remained constant at 4% of sales and is expected to remain
4% of sales. General and Administrative cost increased $255,000 and $254,000
during the 13 weeks and 26 weeks ended March 29, 1997 respectively when
compared to the respective period in fiscal 1996. This increase was
attributable to incentive type expenses, such as bonuses, incurred due to the
improved Company's performance when compared to fiscal 1996.
Depreciation and amortization expense remained relatively constant in terms of
dollars for bothperiods presented. Depreciation and Amortization dropped as a
percentage of sales due to the leveraging effects of higher sales. The
additional depreciation and amortization related to new assets acquired since
March 30, 1996 was offset by the reduction related to asset write offs in the
fourth quarter of fiscal year 1996 of approximately $5.5 million resulting from
the implementation of SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of".
Non-Operating Charges. Interest expense and interest income remained
relatively constant for all periods presented.Other income increased slightly
for the 13 weeks and 26 weeks ended March 29, 1997 when compared to the
respective fiscal 1996 periods. The Company's effective tax rate for fiscal
1997 has increased due to the Illinois unitary tax, and other non-deductible
expenses.
Liquidity and Capital Resources
The Company has historically financed its business activities primarily from
cash generated from operations and from long-term debt and sale/leasebacks.
The Company has reviewed its policy of leasing all of its new restaurants and
has determined that it may be in the Company's best interest to own certain
properties. Accordingly, during the 26 weeks ended March 29, 1997, the Company
purchased the land and/or buildings for certain of its new restaurants. The
Company plans to continue this policy during the remainder of fiscal year 1997.
Cash flow provided by operating activities was $5.5 million for the 26 weeks
ended March 29, 1997. Net cash used in investing activities was $6.2 million
for the fiscal 1997 period, which consisted primarily of capital expenditures
and related land acquisitions for new Company restaurants opened during the
period, and for additional restaurants under construction. Financing
activities during the 26 weeks ended March 29, 1997 provided net cash of
$159,000, which reflected short-term borrowings offset by capital lease and
debt repayments. The net change in cash and cash equivalents during the
26 weeks ended March 29, 1997 was a decrease of $560,000.
The Company anticipates that its future capital requirements will be primarily
for the development of new restaurants, upgrading of existing restaurants and
possible acquisitions. Management signed a revolving line of credit facility
for $13 million on January 5, 1996. This agreement replaced the revolving line
of credit facility for $7.5 million and the real estate acquisition facility
for $2.5 million. On February 20, 1997 the Company signed an amendment to the
$5 million credit facility, originally signed in July 1997 only to be used to
fund tax indemnification obligations to certain executives and to repurchase
common stock, to also allow use for other working capital purposes. Management
anticipates that cash provided by operating activities, cash on hand, the
revolving line of credit facilities of $13 million and $5 million will enable
the Company to meet its cash requirements through the remainder of fiscal 1997,
although the Company may take advantage of opportunities to finance some
of its new restaurant development with more permanent debt or sale/leaseback
financing, if such financing is available at attractive rates and terms.
PART II.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following matters were submitted to a vote of securities holder at the
Annual Meeting of Shareholders held on January 29, 1997.
1. The election of the following nine directors to serve until the next Annual
Meeting of Shareholders:
Ronald D. Kirstien, Harvey Rothstein, Gino Marchetti, James D.
Farley, Harold O. Rosser, Bryon L. Knief, Barton J. Winokur,
Edward H. Chambers, and Charles Corpening.
2. The approval of 1997 Director Stock Option Plan;
3. The approval of 1997 Employee Stock Option Plan;
4. The election of Arthur Andersen, LLP, as the Company's auditor for ensuing
year.
The following are the voting tabulations for each matter submitted to a vote:
<TABLE>
<CAPTION> Total
Votes Cast Votes Cast Votes Eligible
Description of Matter For Against Withheld Abstain Nonvotes Votes
<C> <C> <C> <C> <C> <C> <C>
Election of Directors:
Ronald D. Kirstien 5,689,149 111,060 628,612 6,428,821
Harvey Rothstein 5,689,749 110,460 628,612 6,428,821
Gino Marchetti 5,688,149 112,060 628,612 6,428,821
James D. Farley 5,634,579 165,630 628,612 6,428,821
Harold O. Rosser 5,606,516 193,693 628,612 6,428,821
Byron L. Knief 5,689,849 110,360 628,612 6,428,821
Barton J. Winokur 5,606,516 193,693 628,612 6,428,821
Edward H. Chambers 5,688,849 111,360 628,612 6,428,821
Charles Corpening 5,634,979 165,230 628,612 6,428,821
Approval of 1997
Director Stock Option
Plan 5,679,230 27,080 90,000 3,899 628,612 6,428,821
Approval of 1997
Employee Stock
Option Plan 5,774,354 21,455 4,400 628,612 6,428,821
Election of Arthur
Andersen LLP 5,796,609 1,900 1,700 628,612 6,428,821
</TABLE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
10.53 Amendment to the $5 million Short-Term Loan Agreement
Between DavCo Restaurants, Inc. and First National Bank
of Maryland
27.1 Article 5 of Regulation S-X Financial Data
Schedule for first quarter Form 10-Q (for SEC use only)
(b) Reports on Form 8-K:
There was no Form 8-K filed during the second quarter ended March 29, 1997.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act or 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DAVCO RESTAURANTS, INC.
May 9, 1997 /S/ RONALD D. KIRSTIEN
----------------------
Ronald D. Kirstien
President and Director
May 9, 1997 /S/ CHARLES C. MCGUIRE, III
---------------------------
Charles C. McGuire, III
Vice President of Finance
FIRST AMENDMENT
TO
LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (this "Agreement") is
made as of the 20th day of February, 1997, by and among DAVCO
RESTAURANTS, INC., a corporation organized and existing under the
laws of the State of Delaware ("DavCo"), and its Subsidiaries
signing below, jointly and severally (each of DavCo and those
Subsidiaries, a "Borrower"; DavCo those Subsidiaries
collectively, the "Borrower"), jointly and severally, and THE
FIRST NATIONAL BANK OF MARYLAND, a national banking association
(the "Lender").
RECITALS
1. The Lender and the Borrower are parties to a Loan
Agreement dated July 5, 1996 (as amended, modified, restated,
substituted, extended and renewed at any time and from time to
time, the "Loan Agreement") under which the Lender has
established the "Second Revolving Credit Facility" described in
the Loan Agreement, which has a Second Revolving Credit
Termination Date of January 18, 1997.
2. The Borrower has requested that the Lender extend the
Second Revolving Credit Expiration Date and expand the permitted
uses of advances under the Second Revolving Credit Facility.
3. The Lender has agreed to do so subject to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE in consideration of the premises and of the
mutual covenants and conditions contained herein, the Borrower
and the Lender agree as follows:
AGREEMENTS
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, receipt of which is hereby
acknowledged, the Borrower and the Lender agree as follows:
1. The Borrower and the Lender agree that the Recitals
above are a part of this Agreement. Unless otherwise expressly
defined in this Agreement, terms defined in the Loan Agreement
shall have the same meaning under this Agreement.
2. The Borrower represents and warrants to the Lender as
follows:
(a) The Borrower is a corporation duly organized, and
validly existing and in good standing under the laws of the state
in which it was organized and is duly qualified to do business as
a foreign corporation in good standing in every other state
wherein the conduct of its business or the ownership of its
property requires such qualification;
(b) The Borrower has the power and authority to
execute and deliver this Agreement and perform its obligations
hereunder and has taken all necessary and appropriate corporate
action to authorize the execution, delivery and performance of
this Agreement;
The Loan Agreement, as amended by this Agreement,
and each of the other Loan Documents remains in full force and
effect, and each constitutes the valid and legally binding
obligation of the Borrower, enforceable in accordance with its
terms;
(d) All of the Borrower's representations and
warranties contained in the Loan Agreement and the other Loan
Documents are true and correct on and as of the date of the
Borrower's execution of this Agreement; and
(e) No Event of Default and no event which, with
notice, lapse of time or both would constitute an Event of
Default, has occurred and is continuing under the Loan Agreement
or the other Loan Documents which has not been waived in writing
by the Lender.
3. The Loan Agreement is hereby amended as follows:
(a) The definition of "Second Revolving Credit
Termination Date" in Section 1.1 of the Loan Agreement is hereby
amended in its entirety as follows:
"Second Revolving Credit Termination Date"
means the earliest of (a) October 31, 1997, (b) the
date on which the Second Revolving Credit Note matures
(by acceleration or otherwise), or the date on which
the Lender's obligation to make advances under the
Second Revolving Loan is terminated by the Lender
following an Event of Default.
(b) Section 2.1.2 of the Loan Agreement is hereby
amended in its entirety as follows:
Section 2.1.2 Use of Second Revolving Credit
Facility. The Second Revolving Credit Facility may be
used by the Borrower (a) to fund tax indemnification
obligations of the Borrower and refund timing
differences, (b) to repurchase its own common stock,
provided that advances for such repurchases
(collectively, "Stock Purchase Advances") shall be
limited to $2,500,000 in the aggregate, and for the
Borrower's other working capital purposes.
(c) Section 2.1.3 of the Loan Agreement is hereby
amended by changing the second sentence (containing only the
definition of "Interest Period") in its entirety as follows:
A Fixed Rate may be in effect for a period of 30, 60,
90, or 180 days (an "Interest Period")
4. The Borrower hereby issues, ratifies and confirms the
representations, warranties and covenants contained in the Loan
Agreement, as amended hereby. The Borrower agrees that this
Agreement is not intended to and shall not cause a novation with
respect to any or all of the Obligations.
5. The Borrower shall pay at the time this Agreement is
executed and delivered all fees, commissions, costs, charges,
taxes and other expenses incurred by the Lender and its counsel
in connection with this Agreement, including, but not limited to,
reasonable fees and expenses of the Lender's counsel and all
recording fees, taxes and charges.
6. This Agreement may executed in any number of duplicate
originals or counterparts, each of such duplicate originals or
counterparts shall be deemed to be an original and taken together
shall constitute but one and the same instrument. The parties
agree that their respective signatures may be delivered by
facsimile. Any party who chooses to deliver its signature by
facsimile agrees to provide a counterpart of this Agreement with
its inked signature promptly to each other party.
IN WITNESS WHEREOF, the parties hereto have signed and
sealed this Agreement on the day and year first above written.
WITNESS OR ATTEST: DAVCO RESTAURANTS, INC.
_________________________ By:/S/ Harvey Rothstein(Seal)
Harvey Rothstein
Executive Vice President
WITNESS OR ATTEST: SOUTHERN HOSPITALITY CORPORATION
_________________________ By:/S/ Harvey Rothstein(Seal)
Harvey Rothstein
Executive Vice President
WITNESS OR ATTEST: MDF, Inc
_________________________ By:/S/Harvey Rothstein(Seal)
Harvey Rothstein
Executive Vice President
WITNESS: THE FIRST NATIONAL BANK OF MARYLAND
_________________________ By:/S/ Christopher A. Padgett(Seal)
Christopher A. Padgett
Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF MARCH 29, 1997, AND THE STATEMENT OF OPERATONS FOR THE
26 WEEKS ENDED MARCH 29, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> MAR-29-1997
<CASH> 1388
<SECURITIES> 0
<RECEIVABLES> 443
<ALLOWANCES> 0
<INVENTORY> 1408
<CURRENT-ASSETS> 5304
<PP&E> 109974
<DEPRECIATION> 20090
<TOTAL-ASSETS> 118340
<CURRENT-LIABILITIES> 33369
<BONDS> 37895
0
0
<COMMON> 7
<OTHER-SE> 47069
<TOTAL-LIABILITY-AND-EQUITY> 118340
<SALES> 102479
<TOTAL-REVENUES> 102479
<CGS> 63509
<TOTAL-COSTS> 84825
<OTHER-EXPENSES> 12467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2514
<INCOME-PRETAX> 3165
<INCOME-TAX> 1379
<INCOME-CONTINUING> 1786
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1786
<EPS-PRIMARY> 0.26<F1>
<EPS-DILUTED> 0.26<F1>
<FN>
<F1>EARNINGS PER SHARE DATA IS IN ACTUAL DOLLARS. MULTIPLIER NOT APPLICABLE.
</FN>
</TABLE>
