UNITED STATES
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 31, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number
1-13116
FRANCHISE FINANCE CORPORATION OF AMERICA
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 86-0736091
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(State of Incorporation) (I.R.S. Employer
Identification Number)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
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(Address of principal executive offices)
Registrants' telephone number including area code (602) 585-4500
-----------------------------
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
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Number of shares outstanding of each of the issuer's classes of common stock as
of November 10, 1994:
Common Stock, $0.01 par value 40,250,719
----------------------------- ----------------
Class Number of Shares
<TABLE>
PART 1 - FINANCIAL INFORMATION
Item l. Financial Statements.
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1995 AND DECEMBER 31, 1994
(Amounts in thousands except share data)
(Unaudited)
<CAPTION>
March 31, December 31,
1995 1994
-------- -----------
<S> <C> <C>
ASSETS
Investments:
Investments in Real Estate, at cost:
Land $268,180 $252,733
Buildings and Improvements 399,394 378,503
Equipment 48,796 49,890
--------- ---------
716,370 681,126
Less-Accumulated Depreciation 172,867 169,570
--------- ---------
Net Real Estate Investments 543,503 511,556
Mortgage Loans Receivable 70,132 65,980
--------- ---------
Total Investments 613,635 577,536
Cash and Cash Equivalents 8,237 12,095
Accounts and Unsecured Notes Receivable, net of allowances
of $1,500 in 1995 and 1994 7,996 7,230
Other Assets 14,759 15,367
--------- ---------
Total Assets $644,627 $612,228
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts Payable and Accrued Expenses $ 3,696 $ 3,980
Dividends Payable 18,113 18,113
Notes Payable to Bank 95,000 59,000
Mortgage Payable to Affiliate 8,500 8,500
Rent Deposits 6,210 6,180
Other Liabilities 3,407 2,348
--------- ---------
Total Liabilities 134,926 98,121
--------- ---------
Shareholders' Equity:
Common Stock, par value $.01 per share, authorized 200 million
shares, 40,250,719 shares issued and outstanding 403 403
Capital in excess of par value 546,626 546,626
Distributions in excess of net income (37,328) (32,922)
--------- ---------
Total Shareholders' Equity 509,701 514,107
--------- ---------
Total Liabilities and Shareholders' Equity $644,627 $612,228
========= =========
</TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Amounts in thousands except per share data)
(Unaudited)
1995 1994
------- -------
REVENUES:
Rental $ 20,730 $ 20,268
Mortgage Loan Interest 1,964 1,197
Investment Income and Other 537 1,468
Gain on Sale of Property 1,199 41
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24,430 22,974
-------- --------
EXPENSES:
Depreciation and Amortization 5,275 5,843
Operating, General and Administrative 3,195 3,580
Interest 2,013 64
Related Party Interest 240 238
-------- --------
10,723 9,725
-------- --------
Net Income $ 13,707 $ 13,249
======== ========
Net Income Per Share $ .34 $ .33
======== ========
<TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(Amounts in thousands)
(Unaudited)
<CAPTION>
Capital in Distributions
Common Excess of in Excess of
Stock Par Value Net Income Total
----- --------- ---------- -----
<S> <C> <C> <C> <C>
BALANCE, December 31, 1994 $403 $546,626 $(32,922) $514,107
Net income - - 13,707 13,707
Dividends declared - $.45 per share - - (18,113) (18,113)
---- -------- -------- --------
BALANCE, March 31, 1995 $403 $546,626 $(37,328) $509,701
==== ======== ======== ========
</TABLE>
<TABLE>
FRANCHISE FINANCE CORPORATION OF AMERICA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(Amounts in thousands)
(Unaudited)
<CAPTION>
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,707 $ 13,249
Adjustments to net income:
Depreciation and amortization 5,275 5,843
Gain on sale of property (1,199) (41)
Other 1,403 (1,368)
--------- ---------
Net cash provided by operating activities 19,186 17,683
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and investment in mortgage loans (42,793) (10)
Investment in note receivable (1,200) -
Proceeds from sale of property 2,460 1,561
Collection of mortgage principal and
receipt of mortgage payoffs 602 1,636
--------- ---------
Net cash provided by (used in) investing activities (40,931) 3,187
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends/distributions paid (18,113) (18,615)
Proceeds from bank borrowings 36,000 625
Principal payments on bank borrowings - (209)
Payment of REIT transaction costs - (1,364)
--------- ---------
Net cash provided by (used in) financing activities 17,887 (19,563)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (3,858) 1,307
CASH AND CASH EQUIVALENTS, beginning of period 12,095 51,848
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 8,237 $ 53,155
========= ========
</TABLE>
Part I -- Financial Information
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
Franchise Finance Corporation of America (FFCA) was organized in June 1993 to
facilitate the consolidation by merger, which was effected on June 1, 1994, of
Franchise Finance Corporation of America I and eleven public real estate limited
partnerships with and into FFCA. The merger was accounted for as a
reorganization of affiliated entities under common control in a manner similar
to a pooling of interests. Financial information for the first quarter of 1994
has been restated on a combined basis to provide comparative information. FFCA
invests in chain restaurant real estate as a self-administered real estate
investment trust (REIT). FFCA's common stock is listed and traded on the New
York Stock Exchange under the symbol FFA.
Liquidity and Capital Resources
At March 31, 1995, FFCA owned or financed 1,218 chain restaurant properties in
45 states. Rental and mortgage loan interest revenue generated by this portfolio
of properties has, and will continue to, comprise the majority of the cash
generated from operations. Cash generated by the portfolio is held in temporary
investment securities pending distribution to the shareholders in the form of
quarterly dividends. This cash also may be used on an interim basis to fund
portfolio acquisitions. FFCA's primary source of funding for acquisitions is a
$400 million acquisition loan facility. This revolving credit facility bears
annual interest at LIBOR plus 2.25% and expires in July 1996. During the quarter
ended March 31, 1995, FFCA acquired or financed 46 restaurant properties
totaling approximately $44 million, representing primarily sale/leaseback
transactions with major franchised restaurant operators. These acquisitions were
funded by cash generated from operations and a draw of $36 million on the
revolving credit facility. During the quarter, FFCA sold four properties and
related equipment, primarily through the lessees' exercise of their purchase
options on the properties. Proceeds from these sales also were used to partially
fund the new acquisitions.
At March 31, 1995, FFCA had cash and cash equivalents totaling $8.2 million and
$305 million available on its revolving credit facility. FFCA's anticipated
property acquisitions include commitments, totaling $152 million, made to large
restaurant operators to acquire or finance (subject to FFCA's customary
underwriting procedures) 160 restaurant properties over the next twelve months,
including Arby's, Fuddruckers, Applebee's and Wendy's. FFCA anticipates funding
these specific commitments, and other acquisitions of restaurant properties,
through amounts available under its revolving credit facility. As a result, debt
and related interest expense levels for the remaining quarters of 1995 are
expected to be higher than the first quarter 1995 amounts. FFCA declared a
dividend for the quarter ended March 31, 1995 of $0.45 per share, or $1.80 per
share on an annualized basis, to shareholders of record on May 10, 1995, payable
on May 19, 1995. Management of FFCA believes that cash generated from operations
will be sufficient to meet operating requirements and provide the level of
shareholder dividends required to maintain its status as a REIT. FFCA expects to
meet its long-term liquidity needs for the acquisition of properties through
long-term borrowings and the issuance of debt or additional equity securities of
FFCA.
Results of Operations
FFCA recorded net income per share, based on 40,250,719 shares of FFCA common
stock outstanding, of $0.34 for the quarter ended March 31, 1995 as compared to
net income per share of $0.33 for the quarter ended March 31, 1994. The increase
in net income between these two periods was driven by an increase in revenues.
Total revenues for the quarter rose six percent to $24.4 million from $23.0
million for the comparable quarter of the prior year. Portfolio acquisitions
were the primary source of the revenue increases, despite the sale of 44
properties in the past twelve months. Since the formation of the REIT on June 1,
1994, the implementation of an aggressive acquisition plan yielded $126 million
in portfolio additions through March 31, 1995. This quarter's portfolio
acquisitions, totaling approximately $44 million, are represented by $38 million
in property subject to operating leases and $6 million in mortgage loans and
unsecured notes. In addition to the base lease and loan amounts, both the leases
and mortgage loans generally provide for contingent revenues based on a
percentage of the gross sales of the related restaurants. Since these
acquisitions occurred mid- to late quarter, the weighted average balance of
acquisitions for the quarter amounted to approximately $10.8 million; therefore,
their impact on rental and mortgage interest revenue will not be fully reflected
until next quarter.
Total revenues were also positively impacted by a $415,000 increase in
percentage rentals to approximately $1.1 million for the first quarter of 1995
as compared to $681,000 for the first quarter of 1994. The restaurant leases
generally provide that lessees make lease payments equal to the greater of a
fixed base rate or a percentage of the gross sales of the restaurants. A portion
of the increase relates to lessees whose sales levels have, for the first time,
exceeded the threshold where percentage rent is due. In addition, a portion of
the increase in percentage rental revenue relates to increases in individual
restaurant-level sales volumes.
Rental revenues include both rental payments received from lessees and rent
guaranty insurance payments. Rental revenue collected under the rent guaranty
insurance policies for the first quarter of 1995 decreased to $1 million from
$1.7 million in the first quarter of 1994 due to expiring rent insurance
policies. Rent guaranty insurance policies covering FFCA's properties will
generally expire at various dates through 1999.
FFCA recorded gains totaling $1.2 million on the sale of four restaurant
properties during the quarter, as compared to a net gain of $41,000 on the sale
of three properties during the quarter ended March 31, 1994. Results of
operations in future quarters may be largely impacted by gains or losses on the
sale of properties, however, FFCA anticipates that the sale of properties, if
any, will occur primarily through the exercise of purchase options and does not
expect losses on such sales.
The remaining revenues in 1995 and 1994 are primarily attributable to interest
earned on temporary investments and fees charged to affiliates for
administrative services performed. The decrease in such revenues from 1994 was
due primarily to a decrease in services provided to FFCA's affiliates.
Expenses for the quarter totaled $10.7 million as compared to $9.7 million in
the first quarter of the prior year. Interest expense increased to $2 million
from $64,000 due to the debt incurred to acquire portfolio properties. This
increase was partly offset by decreases in operating, general and administrative
expenses totaling $385,000 and by a decrease in depreciation and amortization
expense of $568,000 related to the sale of properties mentioned above.
Subsequent to March 31, 1995, FFCA entered into an agreement with an affiliate
of Arby's, Inc. to finance 53 existing restaurant properties located in nine
states. This transaction, amounting to $37 million in participating mortgage
financing, closed on May 1, 1995. In addition, FFCA has entered into a
commitment to finance approximately $50 million for an additional 50 to-be-built
Arby's restaurants in the next twelve months.
Lessee Concentration
During the three months ended March 31, 1995 and 1994, one lessee, Foodmaker,
Inc. ("Foodmaker"), accounted for approximately 14% of total rental and mortgage
loan interest revenues of FFCA. The following table represents selected
financial data of Foodmaker, Inc. and Subsidiaries as reported by Foodmaker.
Foodmaker, Inc. and Subsidiaries
Selected Financial Data (unaudited)
(in thousands except per share data)
Unaudited Consolidated Balance Sheet Data:
January 22, 1995 October 2, 1994
---------------- ---------------
Current Assets $ 87,785 $107,486
Noncurrent Assets 570,139 632,799
Current Liabilities 144,589 147,530
Noncurrent Liabilities 485,553 492,704
Unaudited Consolidated Statements of Operations Data:
Sixteen Weeks Ended
-----------------------------------
January 22, 1995 January 23, 1994
---------------- ----------------
Gross Revenues $ 293,680 $ 381,574
Costs and Expenses (including taxes) 365,971 385,973
Net Loss $ (72,291) $ (4,399)
========= =========
Net loss per share - primary
and fully diluted $(1.87) $(.11)
====== =====
In January 1994, Foodmaker contributed its Chi-Chi's Mexican restaurant chain
(Chi-Chi's) to Family Restaurants, Inc. (FRI) in exchange for an approximate 39%
interest in FRI and other consideration including cash and debt assumption.
Therefore, the consolidated statements of operations data for the periods
reflected above include Chi Chi's results of operations for only the 16 weeks
ended January 23, 1994. Chi-Chi's restaurant sales were $123.3, its costs of
sales were $32.7 million, its restaurant operating costs were $80.7 million, and
its general and administrative expenses were $9.1 million in the first quarter
of 1994.
Sales by Foodmaker-operated Jack In The Box restaurants increased $16.5 million.
The sales improvement is primarily due to an increase in the average number of
Foodmaker-operated restaurants to 811 in 1995 from 727 in 1994, offset in part
by a decrease in per store average sales for comparable restaurants of
approximately 1.5%. Distribution sales of food and supplies reflect an increase
of approximately $20.4 million due to the recognition of $25.1 million in sales
to Chi-Chi's in 1995 (distribution sales to Chi-Chi's in 1994, while it was a
Foodmaker subsidiary, were eliminated in consolidation). Distribution sales to
franchisees and others decreased approximately $4.7 million principally due to a
decline in the number of franchisee-operated restaurants.
Foodmaker recorded a loss in 1995 relating to its equity in FRI of $57.2
million, most of which was the result of the complete write-down of its
investment in FRI due to the write-off by FRI of the goodwill attributable to
Chi-Chi's. FRI's management determined that it would be unlikely that the
company would recover the goodwill of its Chi-Chi's Mexican restaurants as a
result of negative publicity regarding the nutritional value of Mexican food.
Restaurant operating costs for Jack In The Box and costs of distribution sales
increased principally due to variable costs associated with increased sales.
These costs represent a higher percentage of sales in 1995 in comparison to the
similar period in 1994. Selling, general and administrative expenses for Jack In
The Box increased $13.1 million principally due to an $8 million settlement with
its stockholders.
Foodmaker indicates that it expects that sufficient cash flow will be generated
from operations so that, combined with other financing alternatives available to
it, Foodmaker will be able to meet all of its debt service requirement, as well
as its capital expenditures and working capital requirements, for the
foreseeable future.
* * * * * *
In the opinion of management, the FFCA financial information included in this
report reflects all adjustments necessary for fair presentation. All adjustments
are of a normal recurring nature.
Part II -- Other Information
Item 6. Exhibits and Reports on Form 8-K.
(a) For electronic filing purposes only, this report contains Exhibit 27,
Financial Data Schedule.
(b) During the quarter covered by this report, FFCA did not file any reports on
Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRANCHISE FINANCE CORPORATION OF AMERICA
Date: May 10, 1995 By John R. Barravecchia
--------------------------------------------
John R. Barravecchia, Chief Financial Officer
and Treasurer
Date: May 10, 1995 By Catherine F. Long
---------------------------------------------
Catherine F. Long, Vice President Finance
and Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH
31, 1995 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
THREE MONTHS ENDED MARCH 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 8,237
<SECURITIES> 0
<RECEIVABLES> 9,496
<ALLOWANCES> 1,500
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 716,370
<DEPRECIATION> 172,867
<TOTAL-ASSETS> 644,627
<CURRENT-LIABILITIES> 0
<BONDS> 103,500
<COMMON> 403
0
0
<OTHER-SE> 509,298
<TOTAL-LIABILITY-AND-EQUITY> 644,627
<SALES> 0
<TOTAL-REVENUES> 24,430
<CGS> 0
<TOTAL-COSTS> 8,470
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,253
<INCOME-PRETAX> 13,707
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,707
<EPS-PRIMARY> .34
<EPS-DILUTED> 0
</TABLE>
