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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 1996
Commission File Number 1-13226
DENAMERICA CORP.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1861457
- ------------------------------------------------ -------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7373 N. SCOTTSDALE ROAD
SUITE D-120, SCOTTSDALE AZ 85253 85253
- ------------------------------------------------ -------------------------
(address of principal executive offices) (zip code)
(602) 483-7055
----------------------------------------------------
(registrant's telephone number, including area code)
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 / /
The number of shares of the issuer's class of common stock as of the latest
practicable date, is as follows: 13,399,277 shares of Common Stock, $.10 par
value, as of November 15, 1996.
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DENAMERICA CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 1996
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
December 27, 1995 and October 2, 1996................................................... 3
Condensed Consolidated Statements of Operations -
13-Week Periods ended September 27, 1995 and
October 2, 1996 and 39- and 40-Week Periods ended
September 27, 1995 and October 2, 1996.................................................. 5
Condensed Consolidated Statements of Cash Flows -
13-Week Periods ended September 27, 1995 and
October 2, 1996 and 39- and 40-Week Periods ended
September 27, 1995 and October 2, 1996.................................................. 6
Notes to Condensed Consolidated Financial Statements........................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................... 13
PART II. OTHER INFORMATION........................................................................... 21
SIGNATURES................................................................................... 22
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
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DECEMBER 27, OCTOBER 2,
ASSETS 1995 1996
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Current assets:
Receivables................................................. $ 989 $ 2,785
Inventories................................................. 1,200 3,697
Deferred income taxes....................................... 249 376
Other current assets........................................ 215 1,380
--------- --------
Total current assets..................................... 2,653 8,238
--------- --------
Property and equipment, net................................... 33,817 71,098
Intangibles, net.............................................. 11,925 76,815
Deferred financing costs...................................... 653 2,942
Note receivable from Mid-American (Note 4).................... -- 4,546
Other assets.................................................. 4,737 4,311
--------- --------
$ 53,785 $167,950
========= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED (UNAUDITED)
(IN THOUSANDS)
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<CAPTION>
DECEMBER 27, OCTOBER 2,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1996
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Current liabilities:
Accounts payable............................................ $ 3,775 $ 11,430
Accrued compensation and related costs...................... 2,113 6,556
Store closing reserve....................................... -- 5,347
Accrued taxes............................................... 935 5,025
Accrued insurance reserves.................................. 240 5,389
Other current liabilities................................... 2,709 4,847
Current portion of long-term debt and
obligations under capital leases.......................... 2,287 5,679
-------- ----------
Total current liabilities................................. 12,059 44,273
Long-term debt, less current portion.......................... 10,371 42,517
Subordinated notes (face value $33,250)
(Notes 1, 3, and 6)......................................... -- 29,113
Obligations under capital leases, less
current obligations......................................... 19,881 24,281
Other......................................................... 1,508 4,952
-------- ----------
Total liabilities......................................... 43,819 145,136
-------- ----------
Minority interest in joint ventures........................... 1,901 1,608
-------- ----------
5% redeemable convertible preferred stock (Note 1)............ 7,501 --
-------- ----------
Shareholders' equity (Notes 1, 3, 5, and 6):
Common stock................................................ 7 1,340
Additional paid-in capital.................................. 3,156 34,597
Accumulated deficit......................................... (2,599) (14,731)
-------- ----------
Total shareholders' equity................................ 564 21,206
-------- ----------
$ 53,785 $ 167,950
======== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
---------------------------- --------------------------
9/27/95 10/2/96 9/27/95 10/2/96
---------- ---------- ---------- ----------
(13 WEEKS) (13 WEEKS) (39 WEEKS) (40 WEEKS)
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Restaurant sales............................. $20,707 $84,599 $53,844 $163,772
Restaurant operating expenses:
Food and beverage cost..................... 5,624 23,001 14,451 44,972
Payroll and payroll related costs.......... 6,565 28,069 17,591 55,485
Depreciation and amortization.............. 796 2,379 1,979 5,215
Other operating expenses................... 5,144 22,030 13,796 42,104
------- ------- ------- --------
Total operating expenses................. 18,129 75,479 47,817 147,776
Restaurant operating income.................. 2,578 9,120 6,027 15,996
Administrative expenses...................... 825 3,223 2,428 6,404
------- ------- ------- --------
Operating income............................. 1,753 5,897 3,599 9,592
Interest expense, net........................ 629 2,930 1,649 6,581
------- ------- ------- --------
Income before minority interest in joint
venture, income taxes, and extraordinary
item....................................... 1,124 2,967 1,950 3,011
Minority interest in joint venture........... 56 (7) 176 4
------- ------- ------- --------
Income before income taxes and
extraordinary item......................... 1,068 2,974 1,774 3,007
Income tax expense........................... 328 1,192 607 1,205
------- ------- ------- --------
Income before extraordinary item............. 740 1,782 1,167 1,802
Extraordinary item - loss on
extinguishment of debt..................... -- -- -- 497
------- ------- ------- --------
Net income .................................. 740 1,782 1,167 1,305
Preferred stock dividend and accretion
(Note 1)................................... 152 -- 438 149
------- ------- ------- --------
Net income applicable to common
shareholders............................... $ 588 $ 1,782 $ 729 $ 1,156
======= ======= ======= ========
Net income per share......................... $ 0.08 $ 0.13 $ 0.11 $ 0.10
======= ======= ======= ========
Weighted average shares outstanding.......... 6,937 13,399 6,937 11,131
======= ======= ======= ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
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PERIOD ENDED PERIOD ENDED
--------------------------- -------------------------
SEPTEMBER 27, OCTOBER 2, SEPTEMBER 27, OCTOBER 2,
1995 1996 1995 1996
------------ ---------- ------------- ----------
(13 WEEKS) (13 WEEKS) (39 WEEKS) (40 WEEKS)
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Cash flows from operating activities:
Net income ..................................... $ 740 $1,782 $ 1,167 $ 1,305
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization............... 796 2,379 1,979 5,215
Amortization of deferred financing costs.... 25 83 97 211
Minority interest in joint venture.......... 54 (8) 176 9
Deferred income taxes....................... 320 549 588 547
Deferred rent............................... 46 57 101 189
Extraordinary item - loss on
extinguishment of debt....................
Other....................................... 69 237 69 734
Changes in operating assets and liabilities:
Receivables............................... 144 752 (11) (647)
Inventories............................... (250) (54) (377) (602)
Prepaid expenses and other assets......... (917) 188 (803) (821)
Accounts payable and accrued liabilities.. 744 (1,432) 1,153 (2,444)
------- ------- -------- --------
Net cash provided by (used in)
operating activities.................... 1,771 4,533 4,139 3,696
------- ------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment............. (2,816) (3,498) (8,921) (7,410)
Purchase of intangibles........................ (139) (751) (850) (1,285)
Payment for Merger and BEP Acquisition,
net of cash acquired (Notes 1 and 3)......... -- -- -- (231)
------- ------- -------- --------
Net cash used in investing activities...... (2,955) (4,249) (9,771) (8,926)
------- ------- -------- --------
Cash flows from financing activities:
Proceeds from sale of assets ................... -- 2,422 -- 2,422
Borrowings...................................... 674 -- 3,932 13,361
Principal reductions on long-term obligations... (310) (2,485) (866) (10,160)
Proceeds from expansion loan.................... 972 -- 2,709 --
Dividends on preferred stock.................... -- -- -- (124)
Distributions to joint venturer and other....... (152) (221) (301) (269)
------- ------- -------- --------
Net cash provided by financing activities.. 1,184 (284) 5,474 5,230
------- ------- -------- --------
Net change in cash and cash equivalents.... -- -- (158) --
Cash and cash equivalents at beginning of period -- -- 158 --
------- ------- -------- --------
Cash and cash equivalents at end of period........ $ -- $ -- $ -- $ --
======= ======= ======== ========
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest...................................... $ 769 $ 3,103 $ 1,620 $ 6,136
======= ------- ======== ========
Income taxes.................................. $ -- $ 29 $ 100 $ 76
======= ======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
6
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DENAMERICA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(1) BASIS OF PRESENTATION
General
The accompanying unaudited condensed consolidated financial statements of
DenAmerica Corp. (the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. These statements should be read in
conjunction with the consolidated financial statements and notes thereto and
management's discussion and analysis of financial condition and results of
operations included in the Company's Transition Report on Form 10-K for the
fiscal year ended December 27, 1995, as well as the Company's Current Report on
Form 8-K filed on July 18, 1996, as amended by Form 8-K/A filed on September 16,
1996, Form 8-K/A filed on November 1, 1996, and Form 8-K/A filed on November 6,
1996.
The three-month and nine-month periods ended October 2, 1996, are 13- and
40-week periods respectively, compared with 13- and 39-week periods in the prior
year. As explained below and in Note 3, during 1996 the Company completed the
merger with Denwest Restaurant Corp. (the "Merger") and acquired Black-Eyed Pea
U.S.A., Inc. (the "BEP Acquisition"). As a result of these transactions, the
financial statements presented as of October 2, 1996 and for the three- and
nine-month periods then ended are not comparable with the financial statements
of prior periods.
As a result of the Merger, the BEP Acquisition, and the sale of 23 restaurants
as described in Note 4, the Company currently operates 314 restaurants in 32
states.
The Merger
On March 29, 1996, Denwest Restaurant Corp. ("DRC") merged with and into the
Company, with the Company being the surviving corporation (the "Merger"). Upon
consummation of the Merger, the Company changed its name from American Family
Restaurants, Inc. ("AFR") to DenAmerica Corp. In connection with the Merger, the
Company issued to the former shareholders of DRC an aggregate of 6,937,500
shares of the Company's Common Stock, an aggregate of $24,250 principal amount
of the Company's 13% Series A and Series B Subordinated Notes due 2003 (the
"Series A Notes" and "Series B Notes" or "Notes") and warrants to purchase an
aggregate of 666,000 shares of the Company's Common Stock at an exercise price
of $0.01 per share. Upon completion of the Merger, the four former shareholders
of DRC held securities having an aggregate of approximately 53.0% of the
outstanding voting power of the Company.
7
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Acquisition of Black-eyed Pea U.S.A., Inc.
On July 3, 1996, the Company acquired all of the issued and outstanding common
stock of Black-eyed Pea U.S.A., Inc. ("BEP") from BEP Holdings, Inc. ("BEP
Holdings") pursuant to a Stock Purchase Agreement (the "BEP Acquisition"). In
accordance with the terms and conditions of the Stock Purchase Agreement, the
effective accounting date of the BEP Acquisition was June 24, 1996. The purchase
price for the stock of BEP consisted of (i) cash of $50.0 million, and (ii) a
promissory note in the principal amount of $15.0 million.
BEP operates 99 casual dining restaurants in 14 states under the "Black-Eyed
Pea" concept and franchises the right to operate an additional 29 Black-eyed Pea
restaurants to third parties. The Company currently intends to continue to
operate most of these restaurants as Black-eyed Pea restaurants.
Reverse Purchase Method of Accounting
As described above, the former shareholders of DRC owned an aggregate of
approximately 53.0% of the outstanding voting power of the Company immediately
following the Merger. Accordingly, the Merger has been accounted for as a
reverse purchase under generally accepted accounting principles as a result of
which DRC is considered to be the acquiring entity and AFR the acquired entity
for accounting purposes, even though the Company is the surviving legal entity.
In addition, for accounting purposes the Merger was deemed to have occurred on
March 27, 1996, the last day of DRC's first quarter for fiscal 1996. As a
result, (i) the historical financial statements of AFR for periods prior to the
date of the Merger are no longer the historical financial statements of the
Company and therefore are no longer presented; (ii) the historical financial
statements of the Company for periods prior to the date of the Merger are those
of DRC; (iii) all references to the financial statements of the "Company" apply
to the historical financial statements of DRC prior to and subsequent to the
Merger; and (iv) any references to "AFR" apply solely to American Family
Restaurants, Inc. and its financial statements prior to the Merger.
In accordance with the accounting rules for a purchase and a reverse
acquisition, the consolidated financial statements presented herein are as
follows:
(i) Consolidated Balance Sheets of the Company at October 2, 1996
(which reflects the Merger and the BEP Acquisition) and
December 27, 1995 (which does not include the balance sheet of
AFR or BEP at such date);
(ii) Consolidated Statements of Operations of the Company for the
periods ended October 2, 1996 (which include the results of
operations of AFR since the accounting date of the Merger of
March 27, 1996, and the results of BEP since the accounting
date of the BEP Acquisition of June 24, 1996) and September
27, 1995 (which do not include the results of operations of
AFR or BEP); and
(iii) Consolidated Statements of Cash Flows of the Company for the
periods ended October 2, 1996 (which include the results of
operations of AFR since the accounting date of the Merger of
March 27, 1996 and the results of BEP since the accounting
date of the BEP Acquisition of June 24, 1996) and September
27, 1995 (which do not include the results of operations of
AFR or BEP). For purposes of the Consolidated Statement of
Cash Flows, the Merger and the BEP Acquisition were
substantially reported as noncash
8
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transactions, as they were completed primarily by using
third-party financing and the Company's Common Stock and
Notes.
See Note 3 for certain summary pro forma financial information for the Company.
(2) EARNINGS PER SHARE
Earnings per share for the periods ended September 27, 1995 has been computed
based upon weighted average shares of the Company's Common Stock received in
connection with the Merger by the former shareholders of DRC after deducting
preferred stock dividends and accretion on preferred stock of DRC outstanding
prior to the Merger. Earnings per share for the 40-week period ended October 2,
1996 has been computed based upon the weighted average of (i) for the 13 weeks
from December 28, 1995 to March 27, 1996, the shares of the Company's Common
Stock received in connection with the Merger by the former shareholders of DRC,
after deducting preferred stock dividends and accretion on preferred stock of
DRC outstanding prior to the Merger, and (ii) for the 27 weeks from March 28,
1996 to October 2, 1996, the total outstanding shares of the Company's Common
Stock.
(3) THE MERGER AND BEP ACQUISITION
The Merger
As described in Note 1 herein, the Merger has been accounted for as a reverse
acquisition in which DRC acquired control of AFR for accounting purposes.
The total purchase price of the Merger was $31.4 million, which represents the
number of shares of AFR Common Stock outstanding immediately prior to the Merger
valued at the market price of such shares as of the date of the signing of the
merger agreement plus merger-related expenses. This amount was allocated to the
assets of AFR acquired and liabilities of AFR assumed, based upon their
estimated fair value as of March 27, 1996. At March 27, 1996, assets acquired
and liabilities assumed were deemed to have fair values substantially equal to
their historic book values, except for property and equipment, certain
intangible assets, and certain liabilities related to the costs associated with
closing certain restaurants. These amounts have been recorded based upon
estimates available at this time. The Company will finalize these estimates
during the remainder of fiscal 1996, although it currently does not believe that
such amounts will materially change.
Because the Merger was completed primarily with the issuance of newly issued
shares of Common Stock and Notes, the Company's Consolidated Balance Sheet
following the Merger reflects the reverse acquisition of AFR. However, such
noncash activity is excluded from the accompanying Consolidated Statement of
Cash Flows for the period prior to the Merger. The following summarizes the
noncash activity associated with the Merger.
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Working capital deficit, including outstanding
checks in excess of cash balances of $(2,643) $(20,208)
Property and equipment 14,450
Intangible assets 64,162
Long-term obligations (49,222)
</TABLE>
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BEP Acquisition
The BEP Acquisition has been accounted for using the purchase method of
accounting with an effective accounting date of June 24, 1996. The total
purchase price was $65.0 million. The purchase price consisted of (i) cash of
approximately $50.0 million and (ii) a promissory note in the principal amount
of $15.0 million issued to BEP Holdings, Inc. (the "BEP Purchase Note"). At June
24, 1996, assets acquired and liabilities assumed were deemed to have fair
values substantially equal to their historic book values, except for property
and equipment, intangible assets, deferred and current tax accounts and certain
liabilities associated with closing certain restaurants. These amounts have been
recorded in the accounts of the Company based upon estimates available at this
time. The Company anticipates that it will finalize most of these estimates by
the end of fiscal 1996, although it currently does not believe that such amounts
will materially change. The following summarizes the noncash activity associated
with the acquisition.
<TABLE>
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Working capital deficit,
including cash balances of $4,341 $(2,880)
Property and equipment 19,865
Liabilities (1,985)
BEP Purchase Note issued (15,000)
</TABLE>
The Company obtained the funds for the cash portion of the purchase price by
entering into sale and lease transactions with (i) FFCA Acquisition Corporation
("FFCA"), an independent entity, and (ii) LH Leasing Company, Inc. ("LH
Leasing"), a corporation owned by Jack M. Lloyd, the Chairman of the Board,
President, and Chief Executive Officer of the Company, and William J. Howard,
Executive Vice President, Secretary, and a director of the Company. Messrs.
Lloyd and Howard formed LH Leasing as an accommodation to the Company to enable
it to consummate the BEP Acquisition. Messrs. Lloyd and Howard received no
compensation for the transaction involving LH Leasing.
In conjunction with the BEP Acquisition, the Company repaid all of the $6.0
million outstanding principal amount of Series A Notes (face amount $6.0
million) and related accrued interest for cash of $5.2 million and the issuance
of 250,000 shares of the Company's Common Stock. In addition, warrants to
purchase 188,047 shares of the Company's Common Stock that were issued in
connection with the Series A Notes were automatically cancelled upon repayment
of the Series A Notes. No gain or loss was recorded.
Pro Forma Results of Operations
The following represents the summary pro forma results of operations as if the
Merger and the BEP Acquisition had occurred at the beginning of fiscal 1995. The
historical accounts of BEP include (i) store closing costs of $10.2 million
during each of the periods ended December 27, 1995 and October 2, 1996, and (ii)
losses on the disposition of assets of $717 and $229 for the periods ended
December 27, 1995 and October 2, 1996, respectively. These amounts are included
in the pro forma results of operations shown below. The pro forma results are
not necessarily indicative of the results that will occur in the future.
<TABLE>
<CAPTION>
PERIOD ENDED
--------------------------------
DECEMBER 27, OCTOBER 2,
1995 1996
------------- ----------
(52 WEEKS) (40 WEEKS)
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Restaurant sales $327,035 $267,761
Income (loss) before extraordinary item (1,634) 69
Net income (loss) (1,634) (428)
Earnings (loss) per share $ (.13) $ (.04)
</TABLE>
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(4) DISPOSITION OF 23 RESTAURANTS TO MID-AMERICAN RESTAURANTS, INC.
Effective July 3, 1996, the Company sold the assets related to 23 restaurants
operated under the "Ike's" and "Jerry's" trade names to Mid-American
Restaurants, Inc. ("Mid-American"), a corporation wholly owned by Haig V.
Antranikian, a former officer and director of the Company. As payment for the
restaurants, Mid-American issued to the Company a promissory note in the
principal amount of $4.6 million (the "Mid-American Note"). The Mid-American
Note is secured by the assets sold, requires monthly payments of $65,000 to
$85,000, and bears interest at the rate of 10% per annum through June 30, 2001,
11% per annum through June 30, 2002, and 12% per annum through June 30, 2003.
All unpaid principal and interest on the Mid-American Note will be due and
payable on June 30, 2003. The fair value of the assets sold to Mid-American,
recorded at the date of the Merger, were adjusted to reflect the sale proceeds
and no gain or loss was recorded.
(5) SHAREHOLDERS' EQUITY
The Company has authorized 20,000,000 shares of Common Stock, par value of $.10
per share. As of October 2, 1996, there were 13,399,277 shares issued and
outstanding.
In connection with the Merger, the Company granted options to purchase 60,000
shares of Common Stock at an exercise price of $3.00 per share, which was less
than the fair market value of the Common Stock on the date of grant, and options
to purchase 240,000 shares of Common Stock at an exercise price of $4.00 per
share, which was the fair market value of the Common Stock on the date of grant.
On April 29, 1996, the Company granted options to acquire an aggregate of
264,800 shares of Common Stock at an exercise price of $4.00 per share, which
was the fair market value of the Common Stock on the date of grant.
In connection with the closing of the Company's credit facility in March 1996
and amendments to the credit facility in July 1996, the Company issued to Banque
Paribas six-year warrants to acquire an aggregate of 738,028 shares of Common
Stock. See Note 6.
From July 16, 1996 through October 4, 1996, the Company granted options to
acquire an aggregate of 180,000 shares of Common Stock. Of these options,
options to acquire 10,000 shares of Common Stock were granted at an exercise
price of $2.00 per share, which was less than the fair market value of the
Common Stock on the date of grant. Of the remaining options, options to acquire
an aggregate of 60,000 shares of Common Stock were granted at an exercise price
of $4.00 per share, options to acquire an aggregate of 105,000 shares of Common
Stock were granted at an exercise price of $4.94 per share, and options to
acquire 5,000 shares of Common Stock were granted at an exercise price of $5.00
per share, which was the fair market value of the Common Stock on the respective
grant dates.
(6) DEBT
During 1996, the Company entered into the following new financial arrangements:
(a) Credit Facility
In connection with the Merger and the BEP Acquisition, the Company entered into
a $65.0 million credit facility with Banque Paribas, as agent, and the Company's
other senior lenders (the "Credit Facility"). The Credit Facility consists of
(i) a Term Loan (the "Term Loan"), (ii) Revolving Loans (the
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"Revolver"), and (iii) a Delayed Draw Term Loan (the "Delayed Term Loan"). The
Term Loan, the Revolver, and the Delayed Term Loan will mature and become
payable December 31, 2001. At the Company's option, interest on all amounts
borrowed under the Credit Facility will accrue at the rate of either prime plus
1.5% or a "Eurodollar Rate," calculated based upon LIBOR plus 3.5%. Amounts
borrowed under the Credit Facility are secured by substantially all of the
tangible and intangible assets of the Company, including all of the stock of BEP
and certain of BEP's subsidiaries. The Company will be required to make
mandatory prepayments of amounts borrowed under the Credit Facility in the event
of certain asset sales, equity issuances, excess cash flows, and under certain
other circumstances.
The Credit Facility contains certain provisions that, among other things, will
limit the ability of the Company and its subsidiaries, without the consent of
Banque Paribas, to incur additional indebtedness, pay certain dividends or make
certain distributions on their respective capital stock, repurchase shares of
their respective capital stock, enter into additional restaurant leases, make
acquisitions or sell assets, or exceed specified levels of capital expenditures.
In connection with the Merger, the Company borrowed $35.0 million under the Term
Loan, which was used to refinance certain indebtedness of AFR and DRC existing
prior to the Merger and to pay certain transaction expenses incurred in
connection with the Merger and the Credit Facility. The Company is required to
repay the Term Loan in quarterly payments of principal and interest.
The Credit Facility includes a $15.0 million Revolver that the Company may
utilize to finance working capital needs, to repay the Term Loan, to make
capital expenditures, and to support letters of credit. As of October 2, 1996,
the Company had approximately $2.7 million available for borrowings under the
Revolver.
Provided that certain conditions are met, the Company will be permitted to make
draws of all or a part of the $15.0 million available under the Delayed Term
Loan to finance acquisitions of additional restaurants beginning on June 30,
1996 and ending on December 31, 1997, and will be permitted to make draws under
the Delayed Term Loan to repay the BEP Purchase Note and Series B Notes
beginning December 31, 1996 and ending on December 31, 1997.
The Company paid fees for loan origination and amendment, investment banking
services, legal services, prepayment of existing debt, and other fees of
approximately $4.7 million in connection with the negotiation and execution of
the Credit Facility at the time of the Merger and the negotiation and execution
of amendments to the Credit Facility at the time of the BEP Acquisition. During
the term of the Credit Facility, the Company will be required to pay an annual
fee of $75,000 to Banque Paribas as agent of the lenders that participate with
it in the facility and a fee of 0.5% of the unused portion of amounts available
for borrowing under the Credit Facility. In addition, the Company issued to
Banque Paribas six-year warrants to acquire an aggregate of 738,028 shares of
the Company's Common Stock. The exercise price for 150,000 shares of Common
Stock issuable upon exercise of the warrants is $4.30 per share, the exercise
price for 438,028 shares of Common Stock issuable upon exercise of the warrants
is $4.3065 per share, and the exercise price for the remaining 150,000 shares
issuable upon exercise of the warrants is $6.45 per share.
(b) BEP Purchase Note
The BEP Purchase Note is an unsecured obligation of the Company and is
subordinate to all of the Company's senior indebtedness, as defined in the BEP
Purchase Note, including the Company's
12
<PAGE> 13
borrowings under the Credit Facility. The BEP Purchase Note bears interest at
12% per annum, subject to adjustment if the note is not repaid by March 31,
1997. Interest on the BEP Purchase Note through March 31, 1997, will accrue to
principal on the BEP Purchase Note. The Company will then pay all accrued
interest on the BEP Purchase Note on each June 30, September 30, December 31,
and March 31, beginning on June 30, 1997. The BEP Purchase Note will mature on
March 31, 2002. Provided that certain conditions are met, the Company will be
permitted to make draws of all or a part of the $15.0 million available under
the Delayed Term Loan to repay the BEP Purchase Note beginning on January 1,
1997 and ending on December 31, 1997.
The BEP Purchase Note contains certain provisions with respect to
representations, warranties, covenants, reporting requirements and events of
default. The BEP Purchase Note also contains certain provisions that, among
other things, limit the ability of the Company and its subsidiaries to incur
additional indebtedness, pay certain dividends or make certain distributions on
their respective capital stock, repurchase shares of their respective capital
stock, make or hold certain investments, or make asset acquisitions or sales.
In conjunction with the BEP Purchase Note, the Company issued BEP Holdings a
Common Stock Purchase Warrant dated as of July 3, 1996 (the "BEP Purchase
Warrant") which will entitle BEP Holdings to purchase that number of shares of
the Company's Common Stock equal to (i) the total amount of principal and
interest outstanding under the BEP Purchase Note on April 1, 1997, divided by
$1.0 million, times (ii) one half of one percent, times (iii) the number of
shares of Common Stock outstanding on March 31, 1997, on a fully diluted basis
(excluding shares issuable upon exercise of the BEP Purchase Warrant and
employee stock options). The exercise price per share of Common Stock underlying
the BEP Purchase Warrant will be 80% of the lesser of (a) the fair market value
of the Common Stock on July 3, 1996, or (b) the fair market value of the Common
Stock on the date that is five business days following the publication of the
Company's earnings release for the period ending March 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
BASIS OF PRESENTATION
As described in Note 1 to the condensed consolidated financial
statements, the Merger has been accounted for as a reverse purchase under
generally accepted accounting principles, pursuant to which DRC is considered to
be the acquiring entity and AFR the acquired entity for accounting purposes,
even though the Company is the surviving legal entity. The following discussion
and analysis should be read in conjunction with the condensed consolidated
financial statements and notes thereto included herein.
GENERAL
The Company currently operates 182 Denny's restaurants in 28 states.
The Company's Denny's restaurants that were open for a 12-month period had
average restaurant sales of $958,000 in fiscal 1995 as compared with $895,000 in
fiscal 1994. Denny's restaurants that were developed by the Company had average
sales of approximately $1.3 million in fiscal 1995. In January 1996, the Company
and Denny's, Inc. adopted the "Breakaway Breakfast" value price strategy, which
offered five breakfast items for $1.99 or less. The promotional advertising
associated with the Breakaway Breakfast was directed primarily in "A" media
markets, while the majority of the Company's Denny's restaurants are located
13
<PAGE> 14
in non-A markets. As a result, the Company's operating results under this value
pricing strategy reflected lower guest check averages without a corresponding
increase in guest counts. Comparable restaurant sales declined 2.2% through
October 2, 1996 and margins were adversely impacted, primarily as a result of
increased labor costs. In July 1996 and September 1996, the Company and Denny's,
Inc., respectively, withdrew from the Breakaway Breakfast promotional specials
and increased the price of the Grand Slam breakfast special to $2.99 during
certain periods of the day. As a result, the average guest check increased from
$4.80 during the 27-week period ended July 3, 1996 to $5.04 for the period from
July 4, 1996 through October 2, 1996. However, guest counts for the period from
July 4, 1996 through October 2, 1996 have decreased approximately 10% as
compared with the comparable period in the prior year. The Company believes that
the increase in the pricing tiers within the value pricing strategy will result
in improved long-term operating results.
The Company's Denny's restaurants that were formerly operated by AFR
have produced operating results that, as a percentage of restaurant sales, are
approximately 4.0% lower than the Company's other Denny's restaurants. This
difference in operating results is attributable primarily to higher food and
beverage costs and payroll and payroll related costs at these restaurants. In
addition, these restaurants typically are located in smaller markets that were
adversely affected by the Breakaway Breakfast value pricing strategy described
above.
The Company currently operates a total of 33 non-Denny's,
non-Black-eyed Pea restaurants. For the 40-week period ended October 2, 1996,
these restaurants generated sales of $12.0 million and a restaurant operating
loss of approximately $250,000. The Company intends to convert to the Denny's
concept or to sell or close these restaurants during 1997. As of November 15,
1996, the Company had 11 non-Denny's, non-Black-eyed Pea restaurants in various
stages of conversion to the Denny's concept.
The Company currently operates 99 Black-eyed Pea restaurants in 14
states and franchises 29 Black-eyed Pea restaurants in 6 states. The Company
operates 65 Black-eyed Pea restaurants in Texas and Oklahoma, which the Company
considers to be its core market for Black-eyed Pea restaurants. The average
sales for all Black-eyed Pea restaurants was $1.5 million and $1.4 million in
BEP's fiscal 1995 and 1996, respectively, as compared with average sales at
restaurants in the core market of $1.64 million and $1.59 million during the
same periods. Alcohol and carry-out sales account for approximately 2.5% and
10.5% respectively, of total sales at the Company's Black-eyed Pea restaurants.
The previous management of BEP expanded the Black-eyed Pea restaurant
concept through 1994, primarily in the non-core market areas of Indianapolis,
Indiana, St. Louis, Missouri, and Virginia. Prior to the BEP Acquisition, BEP
closed all four Indianapolis restaurants and two restaurants located in Virginia
that were considered to be under-performing markets. During 1995, BEP converted
60 Black-eyed Pea restaurants to the "Market Grill" concept, which features an
increased number of menu selections and an enhanced seating and decor package.
The average costs for these enhancements was approximately $250,000 per
location.
The Company currently intends to develop additional restaurants in its
core markets in order to take advantage of efficient advertising, utilization of
an existing management structure, and reduced distribution costs of food and
beverages. In addition, the Company intends to sell or close under-performing
restaurants.
Since 1993, the Company has been able to increase its operating income
by developing new restaurants and acquiring additional restaurants, which has
provided increased revenue without a proportionate increase in administrative
expenses. As a result, administrative expenses have decreased from 6.3% of
restaurant sales in fiscal 1993 to 4.5% of restaurant sales in fiscal 1995. In
addition, administrative expenses decreased from 4.5% of restaurant sales in the
39-week period ended September 27, 1995 to 3.9% of restaurant sales in the
40-week period ended October 2, 1996. The Company anticipates that
administrative expenses will continue to represent a decreasing percentage of
revenue as it continues to assimilate operations following the Merger and the
BEP Acquisition.
14
<PAGE> 15
COMPARISON OF RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
in the condensed consolidated statements of operations as a percentage of total
restaurant sales.
<TABLE>
<CAPTION>
PERIOD ENDED PERIOD ENDED
-------------------------- -------------------------
SEPT. 27, OCT. 2, SEPT. 27, OCT. 2,
1995 1996 1995 1996
---------- ---------- ---------- ----------
(13 WEEKS) (13 WEEKS) (39 WEEKS) (40 WEEKS)
<S> <C> <C> <C> <C>
Total revenue........................................ 100.00% 100.00% 100.00% 100.00%
Restaurant operating expenses:
Food and beverage cost............................ 27.16% 27.19% 26.84% 27.46%
Payroll and payroll related costs................. 31.70% 33.18% 32.67% 33.88%
Depreciation and amortization..................... 3.84% 2.81% 3.68% 3.18%
Other operating expenses.......................... 24.84% 26.04% 25.62% 25.71%
------- ------- ------- -------
Total operating expenses........................ 87.55% 89.22% 88.81% 90.23%
Restaurant operating income.......................... 12.45% 10.78% 11.19% 9.77%
Administrative expenses.............................. 3.98% 3.81% 4.51% 3.91%
------- ------- ------- -------
Operating income..................................... 8.47% 6.97% 6.68% 5.86%
Interest expense, net................................ 3.04% 3.46% 3.06% 4.02%
------- ------- ------- -------
Income before minority interest in joint
ventures, income taxes, and extraordinary item ... 5.43% 3.51% 3.62% 1.84%
Minority interest ................................... 0.27% -0.01% 0.33% 0.00%
------- ------- ------- -------
Income before income taxes and
extraordinary item................................. 5.16% 3.52% 3.29% 1.84%
Income tax expense .................................. 1.58% 1.41% 1.13% 0.74%
------- ------- ------- -------
Income before extraordinary item..................... 3.57% 2.11% 2.17% 1.10%
Extraordinary item - loss on
extinguishment of debt............................. 0.00% 0.00% 0.00% 0.30%
------- ------- ------- -------
Net income........................................... 3.57% 2.11% 2.17% 0.80%
======= ======= ======= =======
</TABLE>
13-WEEK PERIOD ENDED OCTOBER 2, 1996 COMPARED WITH THE 13-WEEK PERIOD ENDED
SEPTEMBER 27, 1995
Restaurant Sales. Restaurant sales increased $63.9 million, to $84.6
million for the period ended October 2, 1996 as compared with restaurant sales
of $20.7 million for the period ended September 27, 1995. This increase was
primarily attributable to the BEP Acquisition, the Merger, and new restaurants
opened.
Food and Beverage Cost. Cost of food and beverage remained
approximately constant at 27.2% of restaurant sales for the periods ended
September 27, 1995 and October 2, 1996. Cost of food and beverage at the
Company's non-Denny's restaurants were 31.6% of sales at those restaurants for
the period ended October 2, 1996.
Payroll and Payroll Related Costs. Payroll and payroll related costs
were 33.2% of restaurant sales for the period ended October 2, 1996 as compared
with 31.7% of restaurant sales for the period ended September 27, 1995. This
increase was primarily attributable to staffing inefficiencies created by
15
<PAGE> 16
the promotional programs implemented in the first quarter of 1996 and higher
payroll costs associated with the Company's non-Denny's restaurants, which were
38.5% of sales at those restaurants for the period.
Depreciation and Amortization. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets, pre-opening
costs and other items decreased to 2.8% of restaurant sales for the period ended
October 2, 1996 as compared with 3.8% of restaurant sales for the period ended
September 27, 1995. This decrease was primarily attributable to increased sales
levels in 1996.
Other Restaurant Operating Costs. Other restaurant operating costs were
26.0% of restaurant sales for the period ended October 2, 1996 as compared with
24.8% of restaurant sales for the period ended September 27, 1995. This increase
was primarily attributable to higher restaurant operating costs associated with
the restaurants previously operated by AFR and with repair and maintenance
costs.
Restaurant Operating Income. Restaurant operating income increased $6.5
million to $9.1 million for the period ended October 2, 1996 as compared with
$2.6 million for the period ended September 27, 1995. This increase was
primarily the result of the factors described above.
Administrative Expenses. Administrative expenses decreased to 3.8% of
restaurant sales for the period ended October 2, 1996 as compared with 4.0% of
restaurant sales for the period ended September 27, 1995. This decrease was
primarily the result of the elimination of administrative staffing levels as a
result of the Merger and an increase in revenue without a proportional increase
in administrative costs.
Interest Expense. Interest expense was $2.9 million, or 3.5% of
restaurant sales, for the period ended October 2, 1996 as compared with
$629,000, or 3.0% of restaurant sales, for the period ended September 27, 1995.
The increase is the result of increased debt levels, including interest expense
on capitalized lease obligations associated with new store development.
Income Tax Expense. The Company recorded an income tax expense of
approximately $1.2 million, an effective rate of 40.1%, for the period ended
October 2, 1996 as compared with income tax expense of approximately $328,000,
an effective rate of 30.7%, for the period ended September 27, 1995.
Net Income. The Company recorded net income of approximately $1.8
million for the period ended October 2, 1996 as compared with net income of
$740,000 for the period ended September 27, 1995, as a result of the factors
described above.
40-WEEK PERIOD ENDED OCTOBER 2, 1996 COMPARED WITH THE 39-WEEK PERIOD ENDED
SEPTEMBER 27, 1995
Restaurant Sales. Restaurant sales increased $109.9 million to $163.8
million for the period ended October 2, 1996 as compared with restaurant sales
of $53.8 million for the period ended September 27, 1995. This increase was
primarily attributable to the Merger, the BEP Acquisition, and new restaurants
opened during fiscal 1995 and 1996.
Food and Beverage Costs. Cost of food and beverage increased to 27.5%
of restaurant sales for the period ended October 2, 1996 as compared with 26.8%
of restaurant sales for the period ended September 27, 1995, primarily as the
result of several promotional programs implemented in January
16
<PAGE> 17
1996 and the higher food costs associated with the Company's non-Denny's
restaurants, which were 30.8% of restaurant sales at such restaurants for the
period.
Payroll and Payroll Related Costs. Payroll and payroll related costs
were 33.9% of restaurant sales for the period ended October 2, 1996 as compared
with 32.7% of restaurant sales for the period ended September 27, 1995. This
increase was primarily attributable to staffing inefficiencies created by the
promotional programs implemented in the first quarter of 1996 and higher payroll
costs associated with the Company's non-Denny's restaurants, which were 39.1% of
restaurant sales at such restaurants for the period.
Depreciation and Amortization. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets, pre-opening
costs, and other items were 3.2% of restaurant sales for the period ended
October 2, 1996 as compared with 3.7% of restaurant sales for the period ended
September 27, 1995.
Other Restaurant Operating Costs. Other restaurant operating costs were
25.7% of restaurant sales for the period ended October 2, 1996 as compared with
25.6% of restaurant sales for the period ended September 27, 1995. This increase
was primarily attributable to higher restaurant operating costs associated with
new non-Denny's restaurants and with repair and maintenance costs.
Restaurant Operating Income. Restaurant operating income increased
$10.0 million to $16.0 million for the period ended October 2, 1996 as compared
with $6.0 million for the period ended September 27, 1995. This increase was
principally the result of the factors described above.
Administrative Expenses. Administrative expenses decreased to 3.9% of
restaurant sales for the period ended October 2, 1996 as compared with 4.5% of
restaurant sales for the period ended September 27, 1995. This decrease was
primarily the result of reduced administrative staffing levels as a result of
the Merger and an increase in revenue without a proportional increase in
administrative costs.
Interest Expense. Interest expense was $6.6 million, or 4.0% of
restaurant sales, for the period ended October 2, 1996 as compared with $1.6
million, or 3.1% of restaurant sales, for the period ended September 27, 1995.
The increase is the result of increased debt levels, including interest expense
on capitalized lease obligations associated with new store development.
Income Tax Expense. The Company recorded income tax expense of
approximately $1.2 million, an effective rate of 40.1%, for the period ended
October 2, 1996 as compared with income tax expense of approximately $607,000,
an effective rate of 34.2%, for the period ended September 27, 1995.
Extraordinary Item - Loss on Extinguishment of Debt. In connection with
the Merger, the Company repaid approximately $11.0 million of indebtedness,
which resulted in an extraordinary loss on extinguishment of such debt of
$497,000, net of an income tax benefit of $332,000.
Net Income. The Company recorded net income of approximately $1.3
million for the period ended October 2, 1996 as compared with net income of $1.2
million for the period ended September 27, 1995, as a result of the factors
described above.
17
<PAGE> 18
LIQUIDITY AND CAPITAL RESOURCES
The Company, and the restaurant industry generally, operates
principally on a cash basis with a relatively small amount of receivables.
Therefore, like many other companies in the restaurant industry, the Company
operates with a working capital deficit. The Company's working capital deficit
was $9.4 million at December 27, 1995, and $36.0 million at October 2, 1996. Of
the working capital deficit at October 2, 1996, approximately $6.1 million was
attributable to employee severance costs and restaurant closing costs as a
result of the Merger. In addition, the Company's working capital has been
affected by expenditures of approximately $4.0 million to settle past-due
accounts of AFR existing on the date of the Merger. The Company believes that
its working capital deficit other than the Merger-related amounts described
above is consistent with the working capital position of restaurant operators of
similar size. The Company anticipates that it will continue to operate with a
working capital deficit, but that the deficit will be reduced from current
levels as the costs incurred as a result of the Merger are paid.
The Company historically has satisfied its capital requirements through
credit facilities and the sale and leaseback of developed and acquired
restaurants or restaurants converted to the Denny's concept. The Company
requires capital principally for the development of new restaurants and to fund
the acquisition and conversion of existing restaurants. Expenditures for
property and equipment and intangibles totaled approximately $6.5 million and
$10.9 million for the 13- and 40-week periods ended October 2, 1996,
respectively. As described below, the Company currently has commitments for
approximately $20.0 million of sale-leaseback financing through 1997.
On March 29, 1996, the Company completed the Merger by issuing to the
former shareholders of DRC an aggregate of 6,937,500 shares of Common Stock,
$6.0 million of Series A Notes, $18.25 million of Series B Notes, and Series A
Warrants and Series B Warrants to acquire an aggregate of 660,000 shares of
Common Stock. Although no cash was required for this acquisition of restaurant
properties, the Company entered into a new credit facility to fund acquisition
costs and the significant past-due payables of AFR existing at the time of the
Merger. See Note 6 to the condensed consolidated financial statements. As
described below, the Company repaid the Series A Notes in connection with the
BEP Acquisition.
On July 3, 1996, the Company completed the BEP Acquisition. The
purchase price for BEP consisted of (i) cash of approximately $50.0 million, and
(ii) the BEP Purchase Note in the principal amount of $15.0 million. On July 3,
1996, the accounts of BEP included cash of approximately $4.2 million. The
Company obtained the funds for the cash portion of the purchase price by
entering into sale and lease transactions. Also in connection with the BEP
Acquisition, on July 3, 1996, the Company repaid all of the $6.0 million
principal amount outstanding on its Series A Notes plus accrued and unpaid
interest on the Series A Notes as of July 3, 1996. The Company repaid the Series
A Notes by utilizing the cash acquired in connection with the BEP Acquisition,
borrowings under the Credit Facility described in Note 6 to the condensed
consolidated financial statements, and by issuing 250,000 shares of Common Stock
to the holder of the Series A Notes.
The Company believes that its future capital requirements will be
primarily for the development of new restaurants, for continued acquisitions,
and for conversion of restaurants to the Denny's or other restaurant concepts.
18
<PAGE> 19
The Company estimates that its costs to develop and open new Denny's
restaurants, excluding real estate and building costs, will be approximately
$350,000 to $390,000 per restaurant, and that its costs associated with the
conversion of a non-Denny's restaurant to the Denny's concept will be
approximately $160,000 to $450,000 per restaurant. The lessors of 12 of the
Company's Kettle restaurants have agreed to fund up to $250,000 of the costs of
converting each of those restaurants.
An affiliate of CNL Group, Inc. ("CNL") has agreed, subject to various
conditions, including that there be no material adverse change in the financial
condition of the Company, to make available to the Company up to $20.0 million
in each of 1996 and 1997 in order to finance development of new restaurants and
the conversion of non-Denny's restaurants to the Denny's concept. Each financing
will take the form of a "sale-leaseback," in which CNL would purchase a
particular restaurant property and lease it back to the Company for up to 30
years. During that period, the initial annual rent will be 10.625% of the
purchase price, subject to a 10% increase every five years (e.g., from 10.625%
to 11.6875% at the end of the first five-year period). The leases also will
provide for additional rent based on increases in gross sales at the respective
restaurants. The Company will have a right of first refusal on the sale of each
property by CNL, and will have the right to purchase each property during the
eighth year of the lease.
The Company plans to further increase its working capital as necessary
through equity or debt financings in the public or private securities markets,
additional sale-leaseback transactions, the disposition of underperforming
restaurants, and additional credit facilities. The Company currently anticipates
that it will utilize the Delayed Term Loan available under the Credit Facility
to repay the BEP Purchase Note prior to the date on which the warrants issued in
connection with the BEP Purchase Note become exercisable. The Company also
intends to use its best efforts to redeem all of the Series B Notes prior to the
date on which the Series B Warrants become exercisable. The Company currently
anticipates that it will be required to obtain the funds needed to repay the
Series B Notes through the sale of equity securities or by increasing its debt
financing. There can be no assurance that financing for any of these purposes
will be available or will be available on satisfactory terms.
SEASONALITY
The Company's operating results fluctuate from quarter to quarter as a
result of the seasonal nature of the restaurant industry, the temporary closing
of existing restaurants for conversion, and other factors. The Company's
restaurant sales are generally greater in the second and third fiscal quarters
(April through September) than in the first and fourth fiscal quarters (October
through March). Occupancy and other operating costs, which remain relatively
constant, have a disproportionately negative effect on operating results during
quarters with lower restaurant sales. The Company's working capital requirements
also fluctuate seasonally, with its greatest needs occurring during its first
and fourth quarters.
19
<PAGE> 20
INFLATION
The Company does not believe that inflation has had a material effect
on operating results in past years. Although increases in labor, food or other
operating costs could adversely affect the Company's operations, the Company
generally has been able to modify its operating procedures or to increase prices
to offset increases in its operating costs.
NEW ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of," in fiscal 1995.
The Company has determined that it will not change to the fair value
method under Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," but will continue to use Accounting Principles
Board Opinion No. 25 for measurement and recognition of employee stock based
transactions.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
11.1 Statement regarding computation of per share income
21.2 List of Subsidiaries of DenAmerica Corp.(1)
23.2 Consent of KPMG Peat Marwick LLP(2)
27.1 Financial Data Schedule
- -------------------
(1) Incorporated by reference to the Exhibits to the Registrant's Current
Report on Form 8-K as filed on July 18, 1996.
(2) Incorporated by reference to the Exhibits to the Registrant's Form
8-K/A Amendment No. 2 to Current Report on Form 8-K as filed on
November 1, 1996.
(B) REPORT ON FORM 8-K.
On July 18, 1996, the Registrant filed a Current Report on Form 8-K,
dated July 3, 1996, reporting (i) the acquisition of all of the issued and
outstanding common stock of Black-eyed Pea U.S.A., Inc., and other transactions
related to that acquisition, and (ii) the sale of the assets related to 23
restaurants to Mid-American Restaurants, Inc. That Current Report on Form 8-K
was amended by Form 8-K/A filed on September 16, 1996; Form 8-K/A filed on
November 1, 1996; and Form 8-K/A filed on November 6, 1996.
21
<PAGE> 22
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.
DENAMERICA CORP.
Dated: November 15, 1996 By: /s/ Todd S. Brown
--------------------------------
Todd S. Brown
Vice President, Chief Financial
Officer, and Treasurer
(Duly authorized officer of the
registrant, principal financial
and accounting officer)
22
<PAGE> 1
EXHIBIT 11.1
DENAMERICA CORP. AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE INCOME (LOSS)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD ENDED
--------------------------------
SEPTEMBER 27, OCTOBER 2,
DESCRIPTION 1995 1996
------------- ----------
(39 weeks) (40 weeks)
<S> <C> <C>
Income before extraordinary item............................. $ 1,167 $ 1,802
Extraordinary item - loss on extinguishment of debt.......... -- (497)
----------- -----------
Net income .................................................. 1,167 1,305
Less: Preferred stock dividend and accretion................ (438) (149)
----------- -----------
Net income applicable to common shareholders................. $ 729 $ 1,156
Income before extraordinary item per
common and common equivalent share......................... $ .11 $ .15
Extraordinary item - loss on extinguishment
of debt per common and common equivalent share ............ -- (.05)
----------- -----------
Net income per common and common
equivalent share .......................................... $ .11 $ .10
=========== ===========
Weighted average common and common equivalent
shares outstanding ....................................... 6,937,500 11,131,000
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Exhibit contains summary financial information extracted from the
Registrant's unaudited consolidated financial statements for the period ended
October 2, 1996 and is qualified in its entirety by reference to such financial
statements. This Exhibit shall not be deemed filed for purposes of Section 11
of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of
1934, or otherwise subject to the liability of such Sections, nor shall it be
deemed a part of any other filing which incorporates this report by reference,
unless such other filing expressly incorporates this Exhibit by reference.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-01-1997
<PERIOD-START> DEC-28-1995
<PERIOD-END> OCT-02-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,785
<ALLOWANCES> 0
<INVENTORY> 3,697
<CURRENT-ASSETS> 8,238
<PP&E> 79,241
<DEPRECIATION> 8,143
<TOTAL-ASSETS> 167,950
<CURRENT-LIABILITIES> 44,273
<BONDS> 95,911
0
0
<COMMON> 1,340
<OTHER-SE> 19,866
<TOTAL-LIABILITY-AND-EQUITY> 167,950
<SALES> 163,772
<TOTAL-REVENUES> 163,772
<CGS> 44,972
<TOTAL-COSTS> 44,972
<OTHER-EXPENSES> 109,208
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,581
<INCOME-PRETAX> 3,007
<INCOME-TAX> 1,205
<INCOME-CONTINUING> 1,802
<DISCONTINUED> 0
<EXTRAORDINARY> (497)
<CHANGES> 0
<NET-INCOME> 1,156
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
