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 August 5, 2001
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the transition period from ______________ to ____________________
Commission file number 0-23420
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QUALITY DINING, INC.
(Exact name of registrant as specified in its charter)
Indiana 35-1804902
-------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4220 Edison Lakes Parkway, Mishawaka, Indiana 46545
----------------------------------------------------
(Address of principal executive offices and zip code)
(219) 271-4600
----------------
(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 registrant's common stock outstanding
as of September 17, 2001 was 11,590,151.
QUALITY DINING, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AUGUST 5, 2001
INDEX
Page
PART I. - Financial Information
Item 1. Consolidated Financial Statements:
Consolidated Statements of Operations....................3
Consolidated Balance Sheets..............................4
Consolidated Statements of Cash Flows....................5
Notes to Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........16
Part II - Other Information
Item 1. Legal Proceedings.......................................22
Item 2. Changes in Securities...................................22
Item 3. Defaults upon Senior Securities.........................22
Item 4. Submission of Matters to a Vote of Security Holders.....22
Item 5. Other Information.......................................22
Item 6. Exhibits and Reports on Form 8-K........................22
Signatures........................................................22
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Twelve Weeks Ended Forty Weeks Ended
August 5, August 6, August5, August 6,
2001 2000 2001 2000
Revenues: -------- -------- -------- --------
Burger King $ 19,098 $ 20,221 $ 59,057 $ 63,269
Chili's Grill & Bar 15,995 14,134 52,475 45,905
Grady's American Grill 13,182 15,363 47,970 53,977
Italian Dining Division 3,860 3,868 13,118 12,792
------- ------- ------- -------
Total revenues 52,135 53,58 172,620 175,943
------- ------- ------- -------
Operating expenses:
Restaurant operating expenses:
Food and beverage 14,707 15,094 48,734 49,845
Payroll and benefits 15,249 15,678 50,474 51,469
Depreciation and
amortization 2,699 2,626 8,901 8,638
Other operating expenses 13,332 13,186 42,833 42,107
------- ------- ------- -------
Total restaurant operating
expenses 45,987 46,584 150,942 152,059
------- ------- ------- -------
Income from restaurant
operations 6,148 7,002 21,678 23,884
General and administrative 3,199 4,351 11,449 13,544
Amortization of intangibles 211 201 681 688
Impairment of assets and
facility closing costs - - 216 -
------- ------- ------- -------
Operating income 2,738 2,450 9,332 9,652
------- ------- ------- -------
Other income (expense):
Interest expense (2,286) (2,581) (8,150) (8,625)
Loss on sale of property
and equipment (64) (722) (60) (873)
Interest income 4 3 17 25
Other income (expense), net 68 239 743 679
------- ------- ------- -------
Total other expense, net (2,278) (3,061) (7,450) (8,794)
------- ------- ------- -------
Income (loss) before income
taxes 460 (611) 1,882 858
Income tax provision 247 122 1,104 898
------- ------- ------- -------
Net income (loss) $ 213 $ (733) $ 778 $ (40)
======= ======= ======= =======
Basic net income (loss)
per share $ 0.02 $ (0.06) $ 0.07 $ (0.01)
======= ======= ======= =======
Diluted net income (loss)
per share $ 0.02 $ (0.06) $ 0.07 $ ( 0.01)
======= ======= ======= =======
Weighted average shares
outstanding:
Basic 11,590 12,265 11,654 12,361
======= ======= ======= =======
Diluted 11,610 12,265 11,671 12,361
======= ======= ======= =======
See Accompanying Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
August 5, October 29,
2001 2000
-------- --------
Assets
-------
Current assets:
Cash and cash equivalents $ 2,046 $ 2,912
Accounts receivable 1,653 2,216
Inventories 1,774 2,242
Deferred income taxes 1,579 2,729
Other current assets 2,323 1,651
------- -------
Total current assets 9,375 11,750
------- -------
Property and equipment, net 124,911 126,223
------- -------
Other assets:
Deferred income taxes 8,421 7,271
Trademarks, net 11,401 11,657
Franchise fees and development fees, net 9,011 9,204
Goodwill, net 7,097 7,513
Liquor licenses, net 2,792 2,595
Other 2,605 2,648
------- -------
Total other assets 41,327 40,888
------- -------
Total assets $ 175,613 $ 178,861
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of capitalized leases
and long-term debt $ 1,784 $ 1,660
Accounts payable 13,784 11,441
Accrued liabilities 17,157 20,961
------- -------
Total current liabilities 32,725 34,062
Long-term debt 101,619 102,115
Capitalized leases principally to related
parties, less current portion 4,332 4,700
------- -------
Total liabilities 138,676 140,877
------- -------
Common stock subject to redemption 264 -
------- -------
Stockholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued - -
Common stock, without par value: 50,000,000
shares authorized; 12,949,151 and 12,855,594
shares issued, respectively 28 28
Additional paid-in capital 237,032 237,031
Accumulated deficit (196,162) (196,940)
Unearned compensation (602) (437)
40,296 39,682
Treasury stock, at cost, 1,359,000 ------- -------
and 624,500 shares, respectively (3,623) (1,698)
------- -------
Total stockholders' equity 36,673 37,984
------- -------
Total liabilities and stockholders' equity $ 175,613 $ 178,861
======= =======
See Accompanying Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Forty Weeks Ended
August 5, August 6,
2001 2000
-------- --------
Cash flows from operating activities:
Net income (loss) $ 778 $ (40)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization of
property and equipment 8,923 8,853
Amortization of other assets 1,442 1,442
Loss on sale of property and equipment 60 873
Amortization of unearned compensation 81 129
Changes in current assets and current liabilities:
Net (increase) decrease in current assets 359 (986)
Net increase (decrease)in current liabilities (1,442) 3,386
------- -------
Net cash provided by operating activities 10,201 13,657
------- -------
Cash flows from investing activities:
Proceeds from sales of property and equipment 144 1,094
Purchase of property and equipment (7,815) (9,143)
Purchase of other assets (731) (1,376)
------- -------
Net cash used in investing activities (8,402) (9,425)
------- -------
Cash flows from financing activities:
Borrowings of long-term debt 45,250 38,677
Repayment of long-term debt (45,622) (41,297)
Purchase of treasury stock (1,925) (1,448)
Repayment of capitalized lease obligations (368) (359)
------- -------
Net cash used by financing activities (2,665) (4,427)
------- -------
Net decrease in cash and cash equivalents (866) (195)
Cash and cash equivalents, beginning of period 2,912 1,019
------- -------
Cash and cash equivalents, end of period $ 2,046 $ 824
======= =======
See Accompanying Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
August 5, 2001
(Unaudited)
Note 1: Description of Business.
Nature of Business Quality Dining, Inc. (the "Company") operates
four distinct restaurant concepts. It owns the Grady's American
Grill(R) and two Italian Dining concepts and operates Burger King(R)
restaurants and Chili's Grill & Bar(TM)("Chili's"(R)) as a franchisee
of Burger King Corporation and Brinker International, Inc.
("Brinker"), respectively. The Company operates its Italian
Dining restaurants under the tradenames of Papa Vino's(R) Italian
Kitchen ("Papa Vino's"(R)) and Spageddies Italian Kitchen(R)
("Spageddies"(R)). As of August 5, 2001, the Company operated 147
restaurants, including 73 Burger King restaurants, 32 Chili's, 34
Grady's, three Spageddies and five Papa Vino's.
Note 2: Basis of Presentation.
The accompanying consolidated financial statements include the
accounts of Quality Dining, Inc. and its wholly owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X promulgated by the Securities and Exchange
Commission. Accordingly, they do not include all of the
information and footnotes required by accounting principles
generally accepted in the United States of America for annual
financial statement reporting purposes. In the opinion of
management, all adjustments, consisting only of normal recurring
accruals, considered necessary for a fair presentation have been
included. Operating results for the forty week period ended
August 5, 2001 are not necessarily indicative of the results that
may be expected for the 52-week year ending October 28, 2001.
These financial statements should be read in conjunction with the
Company's audited financial statements for the fiscal year ended
October 29, 2000 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
Note 3: Disposition of Bagel-Related Businesses
On October 20, 1997, the Company sold its bagel-related
businesses to Mr. Nordahl L. Brue, Mr. Michael J. Dressell and an
entity controlled by them and their affiliates. The Company's
board of directors determined to sell the bagel-related
businesses after a careful evaluation of the future prospects for
the bagel business, the competitive environment that then existed
in the bagel segment, and the historical performance of the
Company's bagel-related businesses. The sale included the stock
of Bruegger's Corporation and the stock of all of the other bagel-
related businesses. The total proceeds from the sale were
$45,164,000. The consideration included the issuance by
Bruegger's Corporation of a junior subordinated note in the
amount of $10,000,000 (the "Subordinated Note"), the transfer of
4,310,740 shares of the Company's common stock valued at
$21,823,000, owned by Messrs. Brue and Dressell, which were
retired, a receivable for purchase price adjustment of $500,000,
and $16,841,000 in cash.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
The Subordinated Note has an annual interest rate of 12%, matures
in October 2004 and is guaranteed by certain affiliates of
Bruegger's Corporation ("Affiliate Guarantors"). The Company has
never recognized any interest income from this note. Bruegger's
Corporation failed to make the interest payment on the
Subordinated Note that was due to the Company on December 1, 2000
and the Company has been advised that the Affiliate Guarantors
failed to make an interest payment that was due to their senior
secured lender on January 2, 2001. The Affiliate Guarantors own
and operate Bruegger's Bagel Bakeries as franchisees of
Bruegger's Franchise Corporation, a subsidiary of Bruegger's
Corporation. The Company believes that the Bruegger's Bagel
Bakeries operated by the Affiliate Guarantors constitute a
majority of the Bruegger's Bagel Bakery System and therefore
account for a majority of Bruegger's Franchise Corporation's
revenues. The Company has been advised that Bruegger's Franchise
Corporation has subordinated its right to receive royalty
payments from the Affiliate Guarantors to the Affiliate
Guarantors' senior secured lender. Consequently, there can be no
assurance when, if ever, the Company might receive any principal
or interest payments in respect of the Subordinated Note. In
view of these and other circumstances, as of the fourth quarter
of fiscal 2000, the Company recorded a $10.0 million non-cash
charge to fully reserve for the Subordinated Note. On February
28, 2001, the Company agreed to restructure the Subordinated Note
as part of the resolution of the disputes the Company had with
Bruegger's Corporation. See Note 8.
Note 4: Commitments.
As of August 5, 2001, the Company had commitments aggregating
approximately $1,715,000 for restaurant construction and the
purchase of new equipment.
Note 5: Long-Term Debt.
On August 3, 1999 the Company completed the refinancing of its
existing debt with a financing package totaling $125,066,000,
consisting of a $76,000,000 revolving credit agreement and a
$49,066,000 mortgage facility, as described below. The revolving
credit agreement was executed with Chase Bank of Texas, as agent
for a group of six banks, providing for borrowings of up to
$76,000,000 with interest payable at the adjusted LIBOR rate plus
a contractual spread. The Company had $19,015,000 available under
its revolving credit agreement as of August 5, 2001. The
revolving credit agreement is collateralized by the stock of
certain subsidiaries of the Company, the Subordinated Note,
certain interests in the Company's franchise agreements with
Brinker and Burger King Corporation and substantially all of the
Company's personal property not pledged in the mortgage
financing. The revolving credit agreement will mature on October
31, 2002, at which time all amounts outstanding thereunder are
due.
The revolving credit agreement contains, among other provisions,
certain restrictive covenants including maintenance of certain
prescribed debt and fixed charge coverage ratios, limitations on
the incurrence of additional indebtedness, limitations on
consolidated capital expenditures, restrictions on the payment of
dividends (other than stock dividends) and limitations on the
purchase or redemption of shares of the Company's capital stock.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
The $49,066,000 mortgage facility has 34 separate mortgage notes.
The original term of each mortgage note is either 15 or 20 years.
The notes have fixed rates of interest of either 9.79% or 9.94%.
The notes require equal monthly payments of interest and
principal. The Company used the proceeds of the mortgage facility
to repay indebtedness under its existing revolving credit
agreement. The mortgage notes are collateralized by a first
mortgage and security agreement on the real estate, improvements
and equipment on 19 of the Company's Chili's restaurants and 15
of the Company's Burger King restaurants. The mortgage notes
contain, among other provisions, certain restrictive covenants
including maintenance of a consolidated fixed charge coverage
ratio for the financed properties.
Note 6: Earnings Per Share
During the first forty weeks of fiscal 2001 the Company acquired
734,500 shares of common stock for $1,925,000. During the first
forty weeks of fiscal 2001 the Company issued 93,557 shares of
restricted stock pursuant to its Long Term Compensation Plans.
The Company had outstanding at August 5, 2001 common shares
totaling 11,590,151. The Company has also granted options to
purchase common shares to its employees and outside directors.
These options have a dilutive effect on the calculation of
earnings per share. The following is a reconciliation of the
numerators and denominators of the basic and diluted earnings per
share computation as required by SFAS 128.
Twelve weeks ended Forty weeks ended
August 5, August 6, August 5, August 6,
2001 2000 2001 2000
-------- --------- -------- --------
(In thousands, except per share amounts)
Basic net loss per share:
Net income (loss) available to
common shareholders (numerator) $ 213 $ (733) $ 778 $ (40)
Weighted average common shares ======= ======= ======= =======
outstanding (denominator) 11,590 12,265 11,654 12,361
======= ======= ======= =======
Basic net income (loss) per share $ 0.02 $ (0.06) $ 0.07 $ (0.01)
======= ======= ======= =======
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
Twelve weeks ended Forty weeks ended
August 5, August 6, August 5, August 6,
2001 2000 2001 2000
-------- -------- -------- --------
(In thousands, except per share amounts)
Diluted net loss per share:
Net income (loss) available to
common shareholders (numerator) $ 213 $ (733) $ 778 $ (40)
Weighted average common shares ======= ======= ======= =======
outstanding 11,590 12,265 11,654 12,361
Effect of dilutive securities:
Options on common stock 20 - 17 -
Total common shares and dilutive ------- ------- ------- -------
securities(denominator) 11,610 12,265 11,671 12,361
======= ======= ======= =======
Diluted net income (loss) per share $ 0.02 $ (0.06) $ 0.07 $ (0.01)
======= ======= ======= =======
Note 7 Segment Reporting:
The Company operates four distinct restaurant concepts in the
food-service industry. It owns the Grady's American Grill and
two Italian Dining concepts and operates Burger King restaurants
and Chili's Grill & Bar restaurants as a franchisee of Burger
King Corporation and Brinker International, Inc., respectively.
The Company has identified each restaurant concept as an
operating segment based on management structure and internal
reporting. For purposes of applying SFAS 131, the Company
considers the Grady's American Grill, the two Italian concepts
and Chili's Grill & Bar to be similar and have aggregated them
into a single reportable operating segment (Full Service). The
Company considers the Burger King restaurants as a separate
reportable segment (Quick Service). Summarized financial
information concerning the Company's reportable segments is shown
in the following table. The "other" column includes corporate
related items and income and expense not allocated to reportable
segments.
Full Quick
(Dollars in thousands) Service Service Other Total
------- ------- ------- -------
Third quarter fiscal 2001
-------------------------
Revenues $ 33,037 $ 19,098 $ - $ 52,135
Income from restaurant
operations 3,034 3,083 31 6,148
Operating income 1,415 1,682 (359) $ 2,738
Interest expense (2,286)
Other income (expense), net 8
-------
Income before income taxes $ 460
=======
Depreciation and
amortization 2,086 748 303 $ 3,137
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
Full Quick
(Dollars in thousands) Service Service Other Total
------- ------- ------- -------
Third quarter fiscal 2000
-------------------------
Revenues $ 33,365 $ 20,221 $ - $ 53,586
Income from restaurant
operations 3,556 3,416 30 7,002
Operating income 1,430 1,422 (402) $ 2,450
Interest expense (2,581)
Other income (expense), net (480)
-------
Loss before income taxes $ (611)
=======
Depreciation and
amortization 2,027 727 381 $ 3,135
First forty weeks of fiscal 2001
--------------------------------
Revenues $ 113,563 $ 59,057 $ - $ 172,620
Income from restaurant
operations 12,867 8,703 108 21,678
Operating income 7,077 3,657 (1,402) $ 9,332
Interest expense (8,150)
Other income (expense), net 700
-------
Income before income taxes $ 1,882
=======
Depreciation and
amortization 6,895 2,433 1,037 $ 10,365
First forty weeks of fiscal 2000
--------------------------------
Revenues $ 112,674 $ 63,269 $ - $ 175,943
Income from restaurant
operations 12,926 10,857 101 23,884
Operating income 6,340 4,674 (1,362) $ 9,652
Interest expense (8,625)
Other income (expense), net (169)
-------
Income before income taxes $ 858
=======
Depreciation and
amortization 6,725 2,358 1,212 $ 10,295
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
Note 8: Contingencies
The Company and certain of its officers and directors are parties
to various legal proceedings relating to the Company's purchase,
operation and financing of the Company's bagel-related
businesses.
D & K Foods, Inc., Pacific Capital Ventures, Inc., and PLB
Enterprises, Inc., franchisees of Bruegger's Franchise
Corporation, and Ken Wagnon, Dan Carney, Jay Wagnon and Patrick
Beatty, principals of the foregoing franchisees, commenced an
action on July 16, 1997 in the United States District Court for
the District of Maryland, against Bruegger's Corporation,
Bruegger's Franchise Corporation, Quality Dining, Inc., Daniel B.
Fitzpatrick, Michael J. Dressell and Nordahl L. Brue, alleging
that the plaintiffs purchased their franchises based upon
financial representations that did not materialize, that they
purchased preferred stock in Bruegger's Corporation based upon
false representations, that Bruegger's Corporation falsely
represented its intentions with respect to purchasing bakeries
from the plaintiffs or providing financing to the plaintiffs, and
that the defendants violated implied covenants of good faith and
fair dealing. On February 28, 2001, the parties reached a
settlement of this matter pursuant to which the Company agreed to
make an initial payment of $125,000 and an additional payment of
$175,000 on December 31, 2001. As part of the settlement, the
Company also agreed to purchase 96,064 shares of its common stock
presently owned by the plaintiffs, on December 31, 2001, for an
amount equal to the greater of $2.75 per share or the midpoint
between $2.59 and the market price of the Company's stock at the
time of closing. As part of the settlement, the plaintiffs
agreed to vote their stock in the Company in accordance with the
recommendation of the Company's Board of Directors and Bruegger's
Corporation has purchased certain equipment from the plaintiffs
for $25,000. The Company had previously accrued for the full
amount of the settlement, including the expense portion of the
share repurchase. The Company has reclassified $264,000 from
stockholders' equity to common stock subject to redemption on its
consolidated balance sheet related to its agreement to purchase
96,064 shares from the plaintiff on December 31, 2001.
On or about April 15, 1997, Texas Commerce Bank National
Association ("Texas Commerce") made a loan of $4,200,000 (the
"Loan") to BFBC Ltd., a Florida limited partnership ("BFBC"). At
the time of the Loan, BFBC was a franchisee under franchise
agreements with Bruegger's Franchise Corporation (the
"Franchisor"). The Company at that time was an affiliate of the
Franchisor. In connection with the Loan and as an accommodation
of BFBC, the Company executed to Texas Commerce a "Guaranty". By
the terms of the Guaranty the Company agreed that upon maturity
of the Loan by default or otherwise that it would either (1) pay
the Loan obligations or (2) buy the Loan and all of the related
loan documents (the "Loan Documents") from Texas Commerce or its
successors. In addition several principals of BFBC (the
"Principal Guarantors") guaranteed repayment of the Loan by each
executing a "Principal Guaranty". On November 10, 1998, Texas
Commerce (1) declared that the Loan was in default, (2) notified
BFBC, the Principal Guarantors and the Company that all of the
Loan obligations were due and payable, and (3) demanded payment.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
The Company elected to satisfy its obligations under the Guaranty
by purchasing the Loan from Texas Commerce. On November 24,
1998, the Company bought the Loan for $4,294,000. Thereafter,
the Company sold the Loan to its Texas affiliate Grady's American
Grill, L.P. ("Grady's"). On November 30, 1998 Grady's commenced
an action seeking to recover the amount of the Loan from one of
the Principal Guarantors, Michael K. Reilly ("Reilly"). As part
of this action Grady's also seeks to enforce a Subordination
Agreement that was one of the Loan Documents against MKR
Investments, L.P., a partnership ("MKR"). Reilly
is the general partner of MKR. This action is pending in the
United States District Court for the Southern District of Texas
Houston Division as Case No. H-98-4015. Reilly has denied
liability and filed counterclaims against Grady's alleging that
Grady's engaged in unfair trade practices, violated Florida's
"Rico" statute, engaged in a civil conspiracy and violated state
and federal securities laws in connection with the Principal
Guaranty (the "Counterclaims"). Reilly also filed a third party
complaint ("Third Party Complaint") against Quality Dining, Inc.,
Grady's American Grill Restaurant Corporation, David M. Findlay,
Daniel B. Fitzpatrick, Bruegger's Corporation, Bruegger's
Franchise Corporation, Champlain Management Services, Inc.,
Nordahl L. Brue, Michael J. Dressell and Ed Davis ("Third Party
Defendants") alleging that Reilly invested in BFBC based upon
false representations, that the Third Party Defendants violated
state franchise statutes, committed unfair trade practices,
violated covenants of good faith and fair dealing, violated the
state "Rico" statute and violated state and federal securities
laws in connection with the Principal Guaranty.
In addition, BFBC and certain of its affiliates, including the
Principal Guarantors ("Intervenors") have intervened and asserted
claims against Grady's and the Third Party Defendants that are
similar to those asserted in the Counterclaims and the Third
Party Complaint. Based upon the currently available information,
the Company does not believe that this matter will have a
materially adverse effect on the Company's financial position or
results of operations. However, there can be no assurance that
the Company will be able to realize sufficient value from Reilly
to satisfy the amount of the Loan or that the Company will not
incur any liability as a result of the Counterclaims or Third
Party Complaint filed by Reilly and the Intervenors.
In each of the above cases, one or more present or former
officers and directors of the Company were named as party
defendants and the Company has and/or is advancing defense costs
on their behalf.
Pursuant to the Share Exchange Agreement by and among Quality
Dining, Inc., Bruegger's Corporation, Nordahl L. Brue and Michael
J. Dressell ("Share Exchange Agreement"), the Agreement and Plan
of Merger by and among Quality Dining, Inc., Bagel Disposition
Corporation and Lethe, LLC, and certain other related agreements
entered into as part of the disposition of the Company's bagel-
related businesses, the Company was responsible for 50% of the
first $14 million of franchise-related litigation expenses,
inclusive of attorney's fees, costs, expenses, settlements and
judgments (collectively "Franchise Damages"). Bruegger's
Corporation and certain of its affiliates are obligated to
indemnify the Company from all other Franchise Damages. The
Company was originally obligated to pay the first $3 million of
its share of Franchise Damages in cash. The Company has
satisfied this obligation. The remaining $4 million of the
Company's share of Franchise Damages was originally payable by
crediting amounts owed to the Company pursuant to the
Subordinated Note issued to the Company by Bruegger's
Corporation. However, as a result of the Bruegger's
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
Resolution (described below), the remainder of the Company's
share of Franchise Damages is payable in cash.
On or about September 10, 1999, Bruegger's Corporation, Lethe
LLC, Nordahl L. Brue, and Michael J. Dressel commenced an action
against the Company in the United States District Court for the
District of Vermont alleging that the Company breached various
provisions of the Share Exchange Agreement which arise out of the
ongoing dispute concerning the net working capital adjustment
contemplated by the Share Exchange Agreement. On February 1,
2000, the Company filed counter-claims against Bruegger's
Corporation for the working capital adjustment to which it
believes it is entitled. Additionally, on or about September 13,
1999, Messrs. Brue and Dressell asserted a claim for breach of
representations and warranties under the Share Exchange
Agreement.
On February 28, 2001, the Company and Bruegger's Corporation
reached a settlement (the "Bruegger's Resolution") of their
various disputes that includes, among other things, the following
provisions: (a) the principal amount of the Subordinated Note
was restated to $10.7 million; (b) the Company and Bruegger's
Corporation each released their claim against the other to
receive a net working capital adjustment; (c) the Subordinated
Note was modified to, among other things, provide for an
extension of the period through which interest is to be accrued
and added to the principal amount of the Subordinated Note from
October, 2000 through January, 2002. From January, 2002 through
June, 2002, one-half of the interest is to be accrued and added
to the principal amount of the Subordinated Note and one-half of
the interest is to be paid in cash. Commencing in January, 2003,
interest is to be paid in cash through the maturity of the
Subordinated Note in October 2004; (d) the Company and Bruegger's
Corporation are each responsible for 50% of the Franchise Damages
with respect to the claims asserted by BFBC Ltd., et al.
Bruegger's Corporation is entitled to 25% of any net recovery
made by the Company on the BFBC, Ltd., Loan; provided, however,
that any such entitlement is required to be applied to the
outstanding balance of the Subordinated Note; (e) Bruegger's
Corporation and its affiliates released their claims for breach
of representations and warranties under the Share Exchange
Agreement; and (f) Bruegger's Corporation is entitled to a credit
of two dollars against the Subordinated Note for every one dollar
that Bruegger's Corporation prepays against the Subordinated Note
prior to October, 2003 up to a maximum credit of $4 million.
There can be no assurance when, if ever, the Company might
receive any principal or interest payments in respect of the
Subordinated Note.
The Company is involved in various other legal proceedings
incidental to the conduct of its business, including employment
discrimination claims. Based upon currently available
information, the Company does not expect that any such
proceedings will have a material adverse effect on the Company's
financial position or results of operations but there can be no
assurance thereof.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
Note 9: Burger King Franchisee Commitment and Early Renewal
Program
On January 27, 2000 the Company executed a "Franchisee
Commitment" in which it agreed to undertake certain
"Transformational Initiatives" including capital improvements and
other routine maintenance in all of its Burger King restaurants.
The capital improvements include the installation of signage
bearing the new Burger King logo and the installation of a new
drive-through ordering system. The initial deadline for
completing these capital improvements - December 31, 2001 - has
been extended to December 31, 2002, although the Company expects
to meet the initial deadline. In addition, the Company agreed to
perform, as necessary, certain routine maintenance such as
exterior painting, sealing and striping of parking lots and
upgraded landscaping. The Company completed this maintenance
prior to September 30, 2000, as required. In consideration for
executing the Franchisee Commitment, the Company received
"Transformational Payments" totaling approximately $3.9 million
during fiscal 2000. In addition, the Company expects to receive a
supplemental Transformational Payment of approximately $300,000
prior to December 31, 2001. The portion of the Transformational
Payments that corresponds to the amount required for the capital
improvements will be recognized as income over the useful life of
the capital improvements. The portion of the Transformational
Payments that corresponds to the required routine maintenance was
recognized as a reduction in maintenance expense over the period
during which maintenance was performed. The remaining balance of
the Transformational Payments is being recognized as other income
ratably through December 31, 2001, the term of the initial
Franchisee Commitment.
During fiscal 2000, Burger King Corporation increased its royalty
and franchise fees for most new restaurants. The franchise fee
for new restaurants increased from $40,000 to $50,000 for a 20
year agreement and the royalty rate increased from 3.5% of sales
to 4.5% of sales, after a transitional period. For franchise
agreements entered into during the transitional period, the
royalty rate will be 4% of sales for the first 10 years and 4.5%
of sales for the balance of the term.
For new restaurants, the transitional period will be from July 1,
2000 to June 30, 2003. As of July 1, 2003, the royalty rate will
become 4.5% of sales for the full term of new restaurant
franchise agreements. For renewals of existing franchise
agreements, the transitional period will be from July 1, 2000
through June 30, 2001. As of July 1, 2001, existing restaurants
that renew their franchise agreements will pay a royalty of 4.5%
of sales for the full term of the renewed agreement. The
advertising contribution will remain 4% of sales. Royalties
payable under existing franchise agreements are not affected by
these changes until the time of renewal, at which time the then
prevailing rate structure will apply.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
August 5, 2001
(Unaudited)
Burger King Corporation offered a voluntary program to incent
franchisees to renew their franchise agreements prior to the
scheduled expiration date ("2000 Early Renewal Program").
Franchisees that elected to participate in the 2000 Early Renewal
Program are required to make capital investments in their
restaurants by, among other things, bringing them up to Burger
King Corporation's current image, and to extend occupancy leases.
Franchise agreements entered into under the 2000 Early Renewal
Program have special provisions regarding the royalty payable
during the term, including a reduction in the royalty to 2.75%
over five years beginning April, 2002 and concluding in April,
2007.
The Company included 36 restaurants in the 2000 Early Renewal
Program. The Company paid franchise fees of $877,000 in the
third quarter of fiscal 2000 to extend the franchise agreements
of the selected restaurants for sixteen to twenty years. The
Company expects to invest approximately $7,000,000 to $8,000,000
to remodel the selected restaurants to bring them up to Burger
King Corporation's current image of which approximately
$1,600,000 has been expended through the end of the third quarter
of fiscal 2001. The initial deadline for completing the required
improvements - December 31, 2001 - has been extended to June 30,
2002.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has a 52/53-week fiscal year ending on the last
Sunday in October of each year. The current fiscal year is 52
weeks long and ends October 28, 2001. The first quarter of the
Company's fiscal year consists of 16 weeks with all subsequent
quarters being 12 weeks in duration.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentages which certain items of revenue and expense bear to
total revenues.
Twelve Weeks Ended Forty Weeks Ended
August 5, August 6, August 5, August 6,
2001 2000 2001 2000
------- -------- -------- -------
Total revenues 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Restaurant operating expenses
Food and beverage 28.2 28.2 28.2 28.3
Payroll and benefits 29.2 29.3 29.2 29.3
Depreciation and amortization 5.2 4.9 5.2 4.9
Other operating expenses 25.6 24.6 24.8 23.9
----- ----- ----- -----
Total restaurant operating expenses 88.2 87.0 87.4 86.4
Income from operations 11.8 13.0 12.6 13.6
General and administrative 6.1 8.1 6.6 7.7
Amortization of intangibles 0.4 0.4 0.4 0.4
Facility closing costs - - 0.1 -
----- ----- ----- -----
Operating income 5.3 4.5 5.5 5.5
----- ----- ----- -----
Other income (expense):
Interest expense (4.4) (4.8) (4.7) (4.9)
Loss on sale of property and equipment (0.1) (1.3) - (0.5)
Other income (expense), net 0.1 0.4 0.3 .3
----- ----- ----- -----
Total other expense, net (4.4) (5.7) (4.4) (5.1)
----- ----- ----- -----
Income (loss) before income taxes 0.9 (1.2) 1.1 0.4
Income tax provision 0.5 0.2 0.6 0.5
----- ----- ----- -----
Net income (loss) 0.4% (1.4)% 0.5% (0.1)%
===== ===== ===== =====
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Restaurant sales for the Company were $52,135,000 for the third
quarter of fiscal 2001 versus $53,586,000 for the comparable
period in fiscal 2000, a decrease of $1,451,000. Restaurant sales
for the first forty weeks of fiscal 2001 were $172,620,000 versus
$175,943,000 for the comparable period in fiscal 2000, a decrease
of $3,323,000.
The Company's Burger King restaurant sales decreased $1,123,000
to $19,098,000 in the third quarter of fiscal 2001 when compared
to restaurant sales of $20,221,000 in the same period of fiscal
2000. The Company had increased revenue of $219,000 due to
additional sales weeks from two new restaurants which were opened
during fiscal 2001. The Company's Burger King restaurants had
average weekly sales of $22,094 in the third quarter of fiscal
2001 versus $24,073 in the same period in fiscal 2000. Sales
decreased $4,212,000 to $59,057,000 for the first forty weeks of
fiscal 2001 compared to $63,269,000 for the comparable period in
fiscal 2000. The Company had increased revenue of $467,000 due to
additional sales weeks from two new restaurants which were opened
during fiscal 2001 and two restaurants which were opened in
fiscal 2000. Average weekly sales were $20,698 in the first forty
weeks of fiscal 2001 versus $22,468 in the same period in fiscal
2000. The Company believes that the reduction in sales was due to
less successful promotional programs in fiscal 2001 versus fiscal
2000.
The Company's Chili's Grill & Bar restaurant sales increased
$1,861,000 to $15,995,000 in the third quarter of fiscal 2001
compared to $14,134,000 in the same period in fiscal 2000. The
Company had increased revenue of $1,234,000 due to additional
sales weeks from two new restaurants which were opened during
fiscal 2000 and one restaurant opened in fiscal 2001. The average
weekly sales increased to $42,767 in the third quarter of fiscal
2001 versus $40,614 in the same period of fiscal 2000. Sales for
the first forty weeks of fiscal 2001 increased $6,570,000 to
$52,475,000 compared to $45,905,000 for the same period in fiscal
2000. The Company had increased revenue of $4,704,000 due to
additional sales weeks from three new restaurants which were
opened during fiscal 2000 and one restaurant opened in fiscal
2001. The average weekly sales were $42,250 in the first forty
weeks of fiscal 2001 versus $40,268 in the same period in fiscal
2000.
Sales in the Company's Grady's American Grill restaurant division
were $13,182,000 in the third quarter of fiscal 2001 compared to
sales of $15,363,000 in the same period in fiscal 2000, a
decrease of $2,181,000. The Company closed one unit in fiscal
2000 and one unit during the first quarter of fiscal 2001. The
absence of these units accounted for approximately $452,000 to
the sales decrease during the third quarter of fiscal 2001. The
Company's Grady's American Grill restaurants had average weekly
sales of $32,309 in the third quarter of fiscal 2001 versus
$35,811 in the same period in fiscal 2000. Sales for the first
forty weeks of fiscal 2001 decreased $6,007,000 to $47,970,000
compared to $53,977,000 for the same period in fiscal 2000. The
absence of the restaurants which were closed contributed
approximately $1,569,000 to the sales decrease. Average weekly
sales were $34,964 in the first forty weeks of fiscal 2001 versus
$37,484 in the same period in fiscal 2000. The Company has
implemented expanded marketing, operational and menu initiatives
intended to stimulate sales at its Grady's American Grill
restaurants. Due to the competitive nature of the restaurant
industry, these initiatives have not achieved the intended
results to date and there can be no assurances that these
initiatives will achieve the intended results.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Company's Italian Dining Division restaurant sales decreased
$8,000 to $3,860,000 in the third quarter of fiscal 2001 compared
to $3,868,000 in the same period in fiscal 2000. The average
weekly sales were $40,205 in the third quarter of fiscal 2001
versus $40,292 in the same period of fiscal 2000. Sales for the
first forty weeks of fiscal 2001 increased $326,000 to
$13,118,000 compared to $12,792,000 for the same period in fiscal
2000. The average weekly sales were $40,994 in the first forty
weeks of fiscal 2001 versus $39,976 in the same period in fiscal
2000.
Total restaurant operating expenses, as a percentage of
restaurant sales, increased to 88.2% for the third quarter of
fiscal 2001 versus 87.0% in the third quarter of fiscal 2000 and
were 87.4% in the first forty weeks of fiscal 2001 versus 86.4%
in the same period of fiscal 2000. The following factors
influenced the operating margins.
Food and beverage costs were consistent at 28.2% of total
revenues in the third quarter of fiscal 2001 when compared to the
same period in fiscal 2000 and were relatively consistent at
28.2% in the first forty weeks of fiscal 2001 compared to 28.3%
in the same period of fiscal 2000. Food and beverage costs were
stable, as a percentage of total revenues, in both the Company's
Full Service segment and Quick Service segment during the third
quarter and the first forty weeks of fiscal 2001 compared to the
same periods in fiscal 2000. The Company has been able to offset
increased food and beverage costs with modest menu price
increases.
Payroll and benefit costs were 29.2% of total revenues in the
third quarter of fiscal 2001 when compared to 29.3% of total
revenues in the same period of fiscal 2000. Payroll and benefits
were 29.2% of total revenues in the first forty weeks of fiscal
2001 compared to 29.3% in the same period of fiscal 2000. Payroll
and benefit costs, as a percentage of total revenues, remained
consistent in the Company's Full Service segment and decreased
slightly in the Company's Quick Service segment during the third
quarter of fiscal 2001. Payroll and benefit costs, as a
percentage of total revenues, decreased in the Company's Full
Service segment for the first forty weeks of fiscal 2001 compared
to the same period in fiscal 2000. The improvement was due to
increased revenues and the reinforcement of labor scheduling
standards. Payroll and benefit costs, as a percentage of total
revenues, increased in the Company's Quick Service segment for
the first forty weeks of fiscal 2001 mainly due to a decrease in
average weekly sales.
Depreciation and amortization, as a percentage of total revenues,
increased to 5.2% for the third quarter of fiscal 2001 compared
to 4.9% in the same period in fiscal 2000 and to 5.2% in the
first forty weeks of fiscal 2001 compared to 4.9% in the same
period of fiscal 2000. The increase, as a percentage of total
revenues, is mainly due to the decrease in total revenues in the
third quarter and the first forty weeks of fiscal 2001 when
compared to fiscal 2000.
Other restaurant operating expenses include rent and utilities,
royalties, promotional expense, repairs and maintenance, property
taxes and insurance. Other restaurant operating expenses as a
percentage of total revenues were 25.6% in the third quarter of
fiscal 2001 compared to 24.6% in the same period of fiscal 2000
and 24.8% in the first forty weeks of fiscal 2001 compared to
23.9% in the same period of fiscal 2000. The increases, as a
percentage of total revenues, are mainly due to lower sales in
the Company's Quick Service segment and higher utility expense in
both the Quick Service and Full Service segments. The Company
had increased utility expense of $164,000 in the third quarter
and $724,000 in the first forty weeks of fiscal 2001 when
compared to the same periods in fiscal 2000.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Income from restaurant operations decreased $854,000 to
$6,148,000, or 11.8% of revenues, in the third quarter of fiscal
2001 compared to $7,002,000, or 13.0% of revenues, in the
comparable period of fiscal 2000. Income from restaurant
operations in the Company's Quick Service segment decreased
$333,000 while income from the Company's Full Service segment
decreased $522,000. The decrease in the Quick Service segment was
mainly due to decreased sales and increased utility costs. The
decrease in the Full Service segment was also mainly due to
decreased sales and higher utility costs. Income from restaurant
operations decreased $2,206,000 to $21,678,000, or 12.6% of
revenues, in the first forty weeks of fiscal 2001 compared to
$23,884,0000, or 13.6% of revenues, in the comparable period of
fiscal 2000. Income from restaurant operations in the Company's
Quick Service segment accounted for $2,154,000 of the decrease
while the Company's Full Service segment contributed $59,000. The
decrease in the Quick Service segment was mainly due to decreased
sales and increased utility costs. The decrease in the Full
Service segment was mainly due to a decrease in sales at the
Company's Grady's restaurants and higher utility costs at each
full service concept.
General and administrative expenses were $3,199,000 in the third
quarter of fiscal 2001 compared to $4,351,000 in the third
quarter of fiscal 2000 and $11,449,000 in the first forty weeks
of fiscal 2001 compared to $13,544,000 in the same period of
fiscal 2000. As a percentage of total restaurant sales, general
and administrative expenses were 6.1% in the third quarter of
fiscal 2001 versus 8.1% in the third quarter of fiscal 2000 and
decreased to 6.6% in the first forty weeks of fiscal 2001
compared to 7.7% in the same period of fiscal 2000. In the third
quarter of fiscal 2000 the Company recorded approximately
$842,000 in expenses related to the Company's proxy contest with
NBO, LLC., and in the first forty weeks of fiscal 2000 the
Company recorded approximately $1,447,000 in expenses related to
the proxy contest with NBO, LLC. The Company did not incur
similar expenses during fiscal 2001.
The Company recorded expenses of $216,000 for facility closing
costs in the first forty weeks of fiscal 2001 versus none in the
same period of fiscal 2000. During the first quarter of fiscal
2001 the Company closed one Grady's American Grill restaurant
because the unit was not meeting the Company's performance
targets.
Amortization of intangibles, as a percentage of total revenues,
remained consistent at 0.4% for the third quarter of fiscal 2001
compared to 0.4% in the same period in fiscal 2000 and at 0.4% in
the first forty weeks of fiscal 2001 compared to 0.4% the same
period of fiscal 2000.
Total other expenses, as a percentage of revenues, decreased to
4.4% for the third quarter of fiscal 2001 from 5.7% during the
comparable period in fiscal 2000 and decreased to 4.4% in the
first forty weeks of fiscal 2001 compared to 5.1% for the same
period of fiscal 2000. In the third quarter of fiscal 2001 the
Company had a $64,000 loss on the sale of property and equipment
compared to a $722,000 loss in fiscal 2000. The Company
experienced lower interest expense due to lower interest rates
for the third quarter and the first forty weeks of fiscal 2001
when compared to the same period in fiscal 2000.
The provision for income taxes includes federal and state income
taxes using the Company's estimated effective income tax rate for
the respective fiscal year. The Company had a tax expense of
$247,000 in the third quarter of fiscal 2001 compared to expense
of $122,000 for the same period of fiscal 2000 and tax expense of
$1,104,000 in the first forty weeks of fiscal 2001 compared to
tax expense of $898,000 in the same period of fiscal 2000.
For the third quarter of fiscal 2001, the Company reported net
income of $213,000 compared to net loss of $733,000 for the same
period of fiscal 2000 and net income of $778,000 in the first
forty weeks of fiscal 2001 compared to a net loss of $40,000 in
the same period of fiscal 2000.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $2,046,000 at August
5, 2001, a decrease of $866,000 from the $2,912,000 at October
29, 2000. Principal uses of funds consisted of: (i) expenditures
for property and equipment ($7,815,000) (ii) net repayment of
long-term debt and capitalized lease obligations ($740,000) and
(iii) purchase of 734,500 shares of the Company's stock
($1,925,000). Principal sources of funds consisted of those
provided by operations ($10,201,000).
The Company's primary cash requirements in fiscal 2001 will be
capital expenditures in connection with the opening of new
restaurants, remodeling of existing restaurants, maintenance
expenditures and the reduction of debt under the Company's debt
agreements. The Company's capital expenditures for fiscal 2001
are expected to range from $10,000,000 to $13,000,000. The
Company expects to incur the majority of the Burger King Early
Renewal Program expenses in fiscal 2002 - See Note 9. During
fiscal 2001, the Company anticipates opening three Burger King
restaurants and two full service restaurants. As of August 5,
2001 the Company has opened two Burger King restaurants and one
full service restaurant. The actual amount of the Company's cash
requirements for capital expenditures depends in part on the
number of new restaurants opened, whether the Company owns or
leases new units and the actual expense related to remodeling and
maintenance of existing units and the requirements and timing of
the Burger King Early Renewal Program.
On August 3, 1999 the Company completed the refinancing of its
existing debt with a financing package totaling $125,066,000,
consisting of a $76,000,000 revolving credit agreement and a
$49,066,000 mortgage facility, as described below. The revolving
credit agreement was executed with Chase Bank of Texas, as agent
for a group of six banks, providing for borrowings of up to
$76,000,000 with interest payable at the adjusted LIBOR rate plus
a contractual spread. The Company had $19,015,000 available under
its revolving credit agreement as of August 5, 2001. The
revolving credit agreement is collateralized by the stock of
certain subsidiaries of the Company, the junior subordinated note
issued by Bruegger's Corporation, certain interests in the
Company's franchise agreements with Brinker and Burger King
Corporation and substantially all of the Company's personal
property not pledged in the mortgage financing. The revolving
credit agreement will mature on October 31, 2002, at which time
all amounts outstanding thereunder are due.
The revolving credit agreement contains, among other provisions,
certain restrictive covenants including maintenance of certain
prescribed debt and fixed charge coverage ratios, limitations on
the incurrence of additional indebtedness, limitations on
consolidated capital expenditures, restrictions on the payment of
dividends (other than stock dividends) and limitations on the
purchase or redemption of shares of the Company's capital stock.
The $49,066,000 mortgage facility has 34 separate mortgage notes.
The term of each mortgage note is either 15 or 20 years. The
notes have fixed rates of interest of either 9.79% or 9.94%. The
notes require equal monthly payments of interest and principal.
The Company used the proceeds of the mortgage facility to repay
indebtedness under its existing revolving credit agreement.
The mortgage notes are collateralized by a first mortgage and
security agreement on the real estate, improvements and equipment
on 19 of the Company's Chili's restaurants and 15 of the
Company's Burger King restaurants. The mortgage notes contain,
among other provisions, certain restrictive covenants including
maintenance of a consolidated fixed charge coverage ratio for the
financed properties.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Company anticipates that its cash flows from operations,
together with amounts available under its revolving credit
agreement, will be sufficient to fund its planned internal
expansion and other internal operating cash requirements through
the end of fiscal 2000.
Recently Issued Accounting Standards
Statements of Financial Accounting Standards (SFAS) No. 141
"Business Combinations" and No. 142 "Goodwill and Other
Intangible Assets" were approved by the Financial Accounting
Standards Board effective June 30, 2001. SFAS No.141 eliminates
the pooling-of-interests method for business combinations and
requires use of the purchase method. SFAS No. 142 changes the
accounting for goodwill from an amortization approach to a non-
amortization (impairment) approach. Under the new rules, goodwill
will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other
definite lived intangible assets will continue to be amortized over
their useful lives. The Company will apply the new rules on
accounting for goodwill and other intangible assets beginning
in the first quarter of fiscal 2002. The Company is currently
studying the impact of the Statements on its financial position,
results of `operations and cash flows.
This report contains certain forward-looking statements,
including statements about the Company's development plans, that
involve a number of risks and uncertainties. Among the factors
that could cause actual results to differ materially are the
following: the availability and cost of suitable locations for
new restaurants; the availability and cost of capital to the
Company; the ability of the Company to develop and operate its
restaurants; the hiring, training and retention of skilled
corporate and restaurant management and other restaurant
personnel; the integration and assimilation of acquired concepts;
the overall success of the Company's franchisors; the ability to
obtain the necessary government approvals and third-party
consents; and changes in governmental regulations, including
increases in the minimum wage.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Note 8 to the unaudited consolidated financial statements of the
Company included in Part I of this report is incorporated herein
by reference.
Item 2. Changes in Securities
None
Items 3. Defaults upon Senior Securities
None
Item 4 Submission of Matters to Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
A list of exhibits required to be filed as part of this
report is set forth in the Index to Exhibits, which
immediately precedes such exhibits, and is incorporated
herein by reference.
(b) Reports on Form 8-K
None
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.
Quality Dining, Inc.
(Registrant)
______________________
By: /s/Jeanne M. Yoder
Vice President & Controller
(Principal accounting officer)
Date: September 18, 2001