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 February 16, 2003
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
---------
QUALITY DINING, INC.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1804902
------------------------------ ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4220 Edison Lakes Parkway, Mishawaka, Indiana 46545
-----------------------------------------------------
(Address of principal executive offices and zip code)
(574) 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 ________
Indicate by check mark whether the Registrant is an accelerated
filer (as defined in Rule 12b-2) of the Act).
Yes____ No__x__
The number of shares of the registrant's common stock outstanding
as of March 20, 2003 was 11,609,099.
QUALITY DINING, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED FEBRUARY 16, 2003
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 15
Item 3. Quantitative and Qualitative Disclosures About Market
Risk 23
Item 4. Controls and Procedures 23
Part II - Other Information
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Part I. FINANCIAL INFORMATION
Item 1. - CONSOLIDATED FINANCIAL STATEMENTS
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Sixteen Weeks Ended
February 16, February 17,
2003 2002
--------- --------
Revenues:
Burger King $ 33,237 $ 35,544
Chili's Grill & Bar 23,517 22,554
Grady's American Grill 8,314 17,187
Italian Dining Division 5,644 5,219
-------- --------
Total revenues 70,712 80,504
-------- --------
Operating expenses:
Restaurant operating expenses:
Food and beverage 19,481 22,982
Payroll and benefits 21,406 24,661
Depreciation and amortization 3,267 3,232
Other operating expenses 19,016 20,151
-------- --------
Total restaurant operating expenses 63,170 71,026
-------- --------
Income from restaurant operations 7,542 9,478
-------- --------
General and administrative expense 4,905 5,558
Facility closing costs 5 -
Amortization of trademarks 116 130
-------- --------
Operating income 2,516 3,790
-------- --------
Other income (expense):
Interest expense (2,425) (2,770)
Loss on sale of property and equipment (11) (75)
Interest income 2 3
Other income (expense), net 451 425
-------- --------
Total other expense, net (1,983) (2,417)
-------- --------
Income before income taxes 533 1,373
Income tax provision 354 432
-------- --------
Net income $ 179 $ 941
======== ========
Basic net income per share $ 0.02 $ 0.08
======== ========
Diluted net income per share $ 0.02 $ 0.08
======== ========
Weighted average shares outstanding:
Basic 11,311 11,206
======== ========
Diluted 11,358 11,298
======== ========
See Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
February 16, October 27,
2003 2002
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,225 $ 1,021
Accounts receivable 1,653 1,615
Inventories 1,902 1,843
Deferred income taxes 2,383 2,356
Other current assets 2,382 2,222
------- -------
Total current assets 9,545 9,057
------- -------
Property and equipment, net 110,047 111,259
------- -------
Other assets:
Deferred income taxes 7,617 7,644
Trademarks, net 5,201 5,317
Franchise fees and development fees, net 9,201 9,379
Goodwill 7,960 7,960
Liquor licenses, net 2,678 2,653
Other 3,648 3,672
------- -------
Total other assets 36,305 36,625
------- -------
Total assets $155,897 $156,941
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases
and long-term debt $ 2,049 $ 1,978
Accounts payable 9,566 9,884
Accrued liabilities 20,681 20,295
------- -------
Total current liabilities 32,296 32,157
Long-term debt 94,086 95,305
Capitalized leases principally to related
parties, less current portion 3,549 3,726
------- -------
Total liabilities 129,931 131,188
------- -------
Stockholders' equity:
Preferred stock, without par value:
5,000,000 shares authorized; none issued - -
Common stock, without par value: 50,000,000
shares authorized; 12,969,672 and 12,969,672
shares issued, respectively 28 28
Additional paid-in capital 237,434 237,434
Accumulated deficit (207,207) (207,386)
Unearned compensation (666) (700)
------- -------
29,589 29,376
Treasury stock, at cost, 1,360,573
and 1,360,573 shares, respectively (3,623) (3,623)
------- -------
Total stockholders' equity 25,966 25,753
------- -------
Total liabilities and stockholders' equity $155,897 $156,941
======= =======
See Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Sixteen Weeks Ended
February 16, February 17,
2003 2004
---------- ----------
Cash flows from operating activities:
Net income $ 179 $ 941
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of
property and equipment 3,173 3,113
Amortization of other assets 494 509
Loss on sale of property and equipment 11 75
Amortization of unearned compensation 34 33
Changes in current assets and current liabilities:
Net increase in current assets (257) (924)
Net increase in current liabilities 68 2,119
------- -------
Net cash provided by operating activities 3,702 5,866
------- -------
Cash flows from investing activities:
Purchase of property and equipment (1,972) (1,597)
Purchase of other assets (201) (834)
Other - (108)
------- -------
Net cash used for investing activities (2,173) (2,539)
------- -------
Cash flows from financing activities:
Borrowings of long-term debt 14,050 33,959
Repayment of long-term debt (15,220) (37,417)
Payment for stock subject to redemption - (264)
Repayment of capitalized lease obligations (155) (145)
------- -------
Net cash used by financing activities (1,325) (3,867)
------- -------
Net increase in cash and cash equivalents 204 (540)
Cash and cash equivalents, beginning of period 1,021 2,070
------- -------
Cash and cash equivalents, end of period $ 1,225 $ 1,530
======= =======
See Notes to Consolidated Financial Statements.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
Note 1: Description 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(R) ("Chili's") as a franchisee of Burger King
Corporation and Brinker International, Inc. ("Brinker(R)"),
respectively. The Company operates its Italian Dining
restaurants under the tradenames of Spageddies Italian Kitchen(R)
("Spageddies"(R)) and Papa Vino's(TM) Italian Kitchen ("Papa Vino's").
As of February 16, 2003, the Company operated 175 restaurants,
including 116 Burger King restaurants, 34 Chili's, 16 Grady's
American Grill restaurants, three Spageddies and six Papa Vino's.
Note 2: Summary of Significant Accounting Policies.
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 accounting
principles generally accepted in the United States of America 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
generally accepted accounting principles 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 16-week period ended February 16, 2003
are not necessarily indicative of the results that may be
expected for the 52-week year ending October 26, 2003.
These financial statements should be read in conjunction with the
Company's audited financial statements for the fiscal year ended
October 27, 2002 included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission.
Intangible Assets
Franchise Fees and Development Fees - The Company's Burger King
and Chili's franchise agreements require the payment of a
franchise fee for each restaurant opened. Franchise fees are
deferred and amortized on the straight-line method over the lives
of the respective franchise agreements. Development fees paid to
Brinker are deferred and expensed in the period the related
restaurants are opened. Franchise fees are being amortized on a
straight-line basis, generally over 20 years.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
Trademarks - The Company owns the trademarks for its Grady's
American Grill, Spageddies Italian Kitchen and Papa Vino's
Italian Kitchen. The trademarks are amortized on the straight-
line method over the estimated lives of the trademarks,
principally 15 years.
Below are the gross carrying amount and accumulated amortization
of the trademarks, franchise fees and development fees as of
February 16, 2003.
Amortized Intangible Assets
- ---------------------------
As of February 16, 2003
--------------------------
Gross Carrying Accumulated
Amount Amortization
($000s) ($000s)
Amortized intangible assets: ------- -------
Trademarks $ 6,674 $ (1,473)
Franchise fees and development fees 14,668 (5,467)
------- -------
Total $ 21,342 $ (6,940)
======= =======
The Company's intangible asset amortization expense for the
sixteen weeks ended February 16, 2003 was $343,000. The
estimated intangible amortization expense for each of the next
five years is $1,115,000.
Goodwill
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. The Company has two operating segments with goodwill
- - Chili's Grill & Bar and Burger King. The Company had a total
of $7,960,000 in goodwill as of February 16, 2003. The Chili's
Grill and Bar operating segment had $6,902,000 of goodwill and
the Burger King operating segment had $1,058,000 of goodwill.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
Stock Options
The Company accounts for all of its stock-based compensation
awards in accordance with APB Opinion No. 25 which requires
compensation cost to be recognized based on the excess, if any,
between the quoted market price of the stock at the date of grant
and the amount an employee must pay to acquire the stock. Under
this method, no compensation cost has been recognized for stock
option awards.
Had compensation cost for the Company's stock-based compensation
plans been determined based on the fair value method as
prescribed by SFAS 123, the Company's net earnings and net
earnings per share would have been the pro forma amounts
indicated below:
February 16, February 17,
2003 2002
------------ ------------
Net income, as reported $ 179,000 $ 941,000
Deduct: Total stock option based employee
compensation expense determined by using
the Black-Scholes option pricing model,
net of related tax effects (11,000) (15,000)
------------ ------------
Net income, pro forma $ 168,000 $ 926,000
------------ ------------
Basic net income per common share,
as reported $ 0.02 $ 0.08
============ ============
Basic net income per common share,
pro forma $ 0.01 $ 0.08
============ ============
New Pronouncements
Consolidation of Variable Interest Entities: In January 2003, the
FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities. The objective of this interpretation
is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities,
noncontrolling interests, and results of operations of a VIE need
to be included in a company's consolidated financial statements.
A company that holds variable interests in an entity will need to
consolidate the entity if the company's interest in the VIE is
such that the company will absorb a majority of the VIE's
expected losses and/or receive a majority of the entity's
expected residual returns, if they occur. FIN 46 also requires
additional disclosures by primary beneficiaries and other
significant variable interest holders. The effective date for
FIN 46 is not until interim periods after June 15, 2003 for
variable interest entities in which the Company holds a variable
interest it acquired before February 1, 2003. The Company is
currently assessing the impact, if any, the interpretation will
have on the Company's financial statements.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
Note 3: Acquisitions and Dispositions.
During fiscal 2002, the Company sold 15 of its Grady's American
Grill restaurants for net proceeds of $15,512,000. The Company
recorded a $1,360,000 gain related to these sales.
Note 4: Commitments.
As of February 16, 2003, the Company had commitments aggregating
approximately $2,608,000 for restaurant construction and the
purchase of new equipment.
Note 5: Debt Instruments.
As of February 16, 2003, the Company had a financing package
totaling $109,066,000, consisting of a $60,000,000 revolving
credit agreement and a $49,066,000 mortgage facility (the
"Mortgage Facility"), as described below.
The Mortgage Facility currently includes 34 separate mortgage
notes, with terms of either 15 or 20 years. The notes have fixed
rates of interest of either 9.79% or 9.94%. The notes require
equal monthly interest and principal payments. The mortgage notes
are collateralized by a first mortgage/deed of trust and security
agreement on the real estate, improvements and equipment on 19 of
the Company's Chili's restaurants (nine of which the Company
mortgaged its leasehold interest) and 15 of the Company's Burger
King restaurants (three of which the Company mortgaged its
leasehold interest). The mortgage notes contain, among other
provisions, certain restrictive covenants including maintenance
of a consolidated fixed charge coverage ratio for the financed
properties.
On June 10, 2002, the Company refinanced its prior $76,000,000
credit facility with a $60,000,000 revolving credit agreement
with JP Morgan Chase Bank, as agent, and four other banks (the
"Bank Facility"). The weighted average borrowing rate under the
Bank Facility on February 16, 2003 was 4.55%. The Company had
$7,902,000 available under the Bank Facility as of February 16,
2003. The Bank Facility is collateralized by the stock of certain
subsidiaries of the Company, certain interests in the Company's
franchise agreements with Brinker and Burger King Corporation and
substantially all of the Company's real and personal property not
pledged in the Mortgage Facility.
The Bank Facility contains 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, cross-default
provisions with other material agreements, 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
February 16, 2003
(Unaudited)
The Bank Facility provides for borrowings at the adjusted LIBOR
rate plus a contractual spread which is as follows:
RATIO OF FUNDED DEBT
TO CASH FLOW LIBOR MARGIN
- -------------------- ---------------
Greater than or equal to 3.50 3.00%
Less than 3.5x but greater than or equal to 3.0x 2.75%
Less than 3.0x but greater than or equal to 2.5x 2.25%
Less than 2.5x 1.75%
The Bank Facility also contains covenants requiring maintenance
of funded debt to cash flow and fixed charge coverage ratios
which are as follows:
MAXIMUM FUNDED DEBT
TO CASH FLOW RATIO COVENANT
- ------------------- ---------
Fiscal 2003
Q1 through Q3 4.00
Q4 3.75
Fiscal 2004
Q1 through Q3 3.75
Q4 3.50
Fiscal 2005
Q1 through Q2 3.50
Thereafter 3.00
FIXED CHARGE COVERAGE RATIO 1.50
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
Note 6: Earnings Per Share.
The Company had outstanding at February 16, 2003 common shares
totaling 11,609,099. 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.
Quarter ended
February 16, February 17,
Basic earnings per share: 2003 2002
--------- ---------
Income available to common
Shareholders (numerator) $ 179,000 $ 941,000
========== ==========
Weighted average common shares
Outstanding (denominator) 11,311,000 11,206,000
========== ==========
Basic earnings per share $ 0.02 $ 0.08
========== ==========
Quarter ended
February 16, February 17,
2003 2002
---------- ----------
Diluted earnings per share:
Income available to common
Shareholders (numerator) $ 179,000 $ 941,000
========== ==========
Weighted average common shares
Outstanding 11,311,000 11,206,000
Effect of dilutive securities:
Restricted stock and
Options on common stock 47,000 92,000
Total common shares and dilutive ---------- ----------
securities(denominator) 11,358,000 11,298,000
========== ==========
Diluted earnings per share $ 0.02 $ 0.08
========== ==========
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
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 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 has 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
------- ------- ----- -----
First quarter fiscal 2003
- --------------------------
Revenues $ 37,475 $ 33,237 $ - $ 70,712
Income from restaurant
operations 4,547 2,968 27 7,542
Operating income 2,771 70 (325) $ 2,516
Interest expense (2,425)
Other income 442
Income before income ---------
Taxes $ 533
=========
Depreciation and
amortization 1,735 1,551 381 3,667
First quarter fiscal 2002
- --------------------------
Revenues $ 44,960 $ 35,544 $ - $ 80,504
Income from restaurant
operations 5,288 4,117 73 9,478
Operating income 3,039 1,005 (254) $ 3,790
Interest expense (2,770)
Other income 353
Income before income ---------
Taxes $ 1,373
=========
Depreciation and
amortization 1,922 1,338 362 3,622
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
Note 8: Contingencies.
At February 16, 2003, the Company was a party to one remaining
legal proceeding relating to the Company's previously owned bagel-
related businesses.
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.
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 sought 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 was pending in the United States
District Court for the Southern District of Texas Houston
Division as Case No. H-98-4015. Reilly 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") 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. Reilly, BFBC
and the Intervenors are collectively referred to herein as the
"Franchisee Parties". Those Third Party Defendants who are
individuals were present or former officers and directors of the
Company and the Company had advanced defense costs on their
behalf until they were dismissed by the Court.
On December 31, 2002, the District Court dismissed certain claims
asserted by Reilly and the Intervenors and declined to dismiss
certain other claims.
QUALITY DINING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 16, 2003
(Unaudited)
The District Court also declined to enforce MKR's Subordination
Agreement. The District Court also determined that BFBC, Reilly
and the Principal Guarantors are obligated for the Loan.
Subsequent to the end of the first quarter, the Company entered
into a settlement agreement with the Franchisee Parties that
provided for a cash payment by the Franchisee Parties to the
Company in the amount of $3,750,000 and the dismissal of all
remaining claims in the lawsuit. The Company anticipates that
the settlement will contribute approximately $3,250,000 of pre-
tax net income in the second quarter of fiscal 2003.
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.
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 consists
of 52 weeks and ends October 26, 2003. 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.
Sixteen weeks Ended
February 16, February 17,
2003 2002
------ ------
Total revenues 100.0% 100.0%
Operating expenses:
Restaurant operating expenses
Food and beverage 27.5 28.5
Payroll and benefits 30.3 30.6
Depreciation and amortization 4.6 4.0
Other operating expenses 26.9 25.0
------ ------
Total restaurant operating expenses 89.3 88.1
------ ------
Income from restaurant operations 10.7 11.9
General and administrative expenses 6.9 6.9
Amortization of intangibles 0.2 0.2
------ ------
Operating income 3.6 4.8
------ ------
Other income (expense):
Interest expense (3.4) (3.4)
Interest income - -
Other income, net 0.5 0.4
------ ------
Total other expense, net (2.9) (3.0)
------ ------
Income before income taxes 0.7 1.8
Income tax provision 0.5 0.5
------ ------
Net income 0.2% 1.3%
====== ======
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Restaurant sales in the first quarter of fiscal 2003 were
$70,712,000, a decrease of $9,792,000, compared to restaurant
sales of $80,504,000 in the first quarter of fiscal 2002. The
following factors influenced first quarter revenues:
The Company's Burger King restaurant sales decreased $2,307,000
to $33,237,000 in the first quarter of fiscal 2003 when compared
to restaurant sales of $35,544,000 in the same period of fiscal
2002. The Company had increased revenue of $423,000 due to
additional sales weeks from one restaurant opened in fiscal 2003
and two restaurants opened in fiscal 2002. The Company's Burger
King restaurants had average weekly sales of $18,030 in the first
quarter of fiscal 2003 versus $19,174 in the same period in
fiscal 2002. Sales at restaurants owned for more than one year
decreased 6.2% in the first quarter of fiscal 2003 when compared
to the same period in fiscal 2002. The Company believes that the
decrease in comparable store sales was mainly due to fierce price
competition in the quick service hamburger segment. The Company
also experienced harsher winter weather during fiscal 2003 when
compared to fiscal 2002.
The Company's Chili's Grill & Bar restaurant sales increased
$963,000 to $23,517,000 in the first quarter of fiscal 2003
compared to restaurant sales of $22,554,000 in the same period in
fiscal 2002. The Company had increased revenue of $692,000 due to
additional sales weeks from one restaurant opened during fiscal
2002. Average weekly sales were $43,229 in the first quarter of
fiscal 2003 versus $42,716 in the same period in fiscal 2002.
Sales at restaurants open for more than one year increased 1.9%
in the first quarter of fiscal 2003 when compared to the same
period in fiscal 2002. Restaurant sales were hindered by harsher
winter weather during fiscal 2003 when compared to fiscal 2002.
Sales in the Company's Grady's American Grill restaurant division
decreased $8,873,000 to $8,314,000 in the first quarter of fiscal
2003 compared to sales of $17,187,000 in the same period in
fiscal 2002. The Company closed or sold 18 units during fiscal
2002. The absence of these units contributed approximately
$6,416,000 to the sales decrease during the first quarter of
fiscal 2003. The Company's Grady's American Grill restaurants
had average weekly sales of $32,476 in the first quarter of
fiscal 2003 versus $32,515 in the same period in fiscal 2002.
Sales at restaurants open for more than one year decreased 19.4%
in the first quarter of fiscal 2003 when compared to the same
period in fiscal 2002. The Company continues to experience a
significant decrease in sales and cash flow in its Grady's
American Grill division. The Company continues to pursue various
management actions in response to this trend, including
evaluating strategic business alternatives for the division both
as a whole and at each of its restaurant locations.
The Company's Italian Dining Division restaurant sales increased
$425,000 to $5,644,000 in the first quarter of fiscal 2003 when
compared to restaurant sales of $5,219,000 in the same period in
fiscal 2002. The Company had increased revenue of $733,000 due to
additional sales weeks from one restaurant opened during fiscal
2002. Average weekly sales were $39,198 in the first quarter of
fiscal 2003 versus $40,778 in fiscal 2002. Sales at restaurants
open for more than one year decreased 5.9% in the first quarter
of fiscal 2003 when compared to the same period in fiscal 2002.
The Company believes that the decrease in comparable store sales
was mainly due to harsher winter weather in fiscal 2003 compared
to fiscal 2002.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Total restaurant operating expenses were 89.3% of revenues in the
first quarter of fiscal 2003 versus 88.1% in the first quarter of
fiscal 2002. The following factors influenced the operating
margins:
Food and beverage costs were $19,481,000, or 27.5% of total
revenues, in the first quarter of fiscal 2003, compared to
$22,982,000, or 28.5% of total revenues, in the same period in
fiscal 2002. Food and beverage costs as a percentage of sales
decreased in the quick service segment mainly due to improved
margins in the Company's Grand Rapids, Michigan Burger King
market. The Company acquired these restaurants on October 15,
2001, and since the acquisition has made progress in reducing
food costs as a percentage of sales. The full service segment's
food and beverage costs, as a percentage of sales, were lower in
the first quarter of fiscal 2003 versus the same period in fiscal
2002. The decrease was mainly due to the reduced number of
Grady's American Grill restaurants, which historically have had
higher food and beverage costs, as a percentage of total
restaurant sales, than the Company's other full service concepts.
Payroll and benefits were $21,406,000 in the first quarter of
fiscal 2003, compared to $24,661,000 in the same period in fiscal
2002. As a percentage of total revenues, payroll and benefits
decreased to 30.3% in the first quarter of fiscal 2003 from 30.6%
in the same period of fiscal 2002. Payroll and benefits, as a
percentage of sales, improved in both the quick service and the
full service segments. The quick service segment improved mainly
due to reduced payroll costs in the Company's Grand Rapids,
Michigan Burger King market. The Company acquired these
restaurants on October 15, 2001, and since the acquisition has
made progress in reducing payroll costs as a percentage of sales.
The decrease in the full service segment was mainly due to the
reduced number of Grady's American Grill restaurants, which
historically have had higher payroll and benefit costs, as a
percentage of total restaurant sales, than the Company's other
full service concepts.
Depreciation and amortization expense was $3,267,000 in the first
quarter of fiscal 2003 compared to $3,232,000 in the first
quarter of fiscal 2002. As a percentage of total restaurant
sales, depreciation and amortization increased to 4.6% for the
first quarter of fiscal 2003 compared to 4.0% in the same period
in fiscal 2002. The increase, as a percentage of revenues, was
mainly due to the decrease in average weekly sales at the
Company's Burger King, Italian Dining and Grady's American Grill
restaurants.
Other restaurant operating expenses include rent and utilities,
royalties, promotional expense, repairs and maintenance, property
taxes and insurance. Other restaurant operating expenses were
$19,016,000 in the first quarter of fiscal 2003 compared to
$20,151,000 in the same period of fiscal 2002. As a percentage
of total revenues, other restaurant operating expenses were 26.9%
in the first quarter of fiscal 2003 compared to 25.0% in the same
period of fiscal 2002. The Company's other operating expenses,
as a percentage of sales, increased in the Company's quick
service segment mainly due to a $632,000 increase in promotional
expenses and a decrease in average weekly sales. The Company's
other operating expenses, as a percentage of sales, increased in
the Company's full service segment mainly due to lower average
weekly sales at the Company's Italian Dining and Grady's American
Grill restaurants.
Income from restaurant operations decreased $1,936,000 to
$7,542,000, or 10.7% of revenues, in the first quarter of fiscal
2003 compared to $9,478,0000, or 11.9% of revenues, in the
comparable period of fiscal 2002. Income from restaurant
operations in the Company's quick service segment decreased by
$1,149,000 mainly due to an increase in promotional expenditures
and the decrease in average weekly sales in the Company's quick
service restaurants. Income from restaurant operations in the
full service segment decreased by $741,000 mainly due to
decreased revenues at the Company's Grady's American Grill
restaurants.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
General and administrative expenses decreased $653,000 to
$4,905,000, or 6.9% of revenues, in the first quarter of fiscal
2003 compared to $5,558,0000, or 6.9% of revenues, in the
comparable period of fiscal 2002. The Company was significantly
below its fiscal 2003 profitability targets at the end of the
first quarter of fiscal 2003 and therefore recorded $526,000 less
in bonus expense in the first quarter of fiscal 2003 when
compared to the same period in fiscal 2002.
Amortization of intangibles, as a percentage of revenues, was
consistent at 0.2% for the first quarter of fiscal 2003 when
compared to the same period in fiscal 2002.
Total other expenses were $1,983,000 for the first quarter of
fiscal 2003 versus $2,417,000 during the comparable period in
fiscal 2002. The decrease was mainly due to a $345,000 decrease
in interest expense. The decrease in interest expense was due to
lower debt levels and a decrease in interest rates.
Income tax expense of $354,000 was recorded in the first quarter
of fiscal 2003 compared to $432,000 in the same period of fiscal
2002. The provision for income taxes in the first quarter of
fiscal 2003 and the first quarter of fiscal 2002 consisted of the
Company's estimated state tax expense. The Company expects to
utilize net operating loss carryforwards to offset current year
federal taxable income.
At the end of the first quarter of fiscal 2003 the Company had a
valuation reserve against its deferred tax asset resulting in a
net deferred tax asset of $10.0 million. The Company's
assessment of its ability to realize the net deferred tax asset
was based on the weight of both positive and negative evidence,
including the taxable income of its current operations. Based on
this assessment, the Company believes it is more likely than not
that the net deferred tax asset of $10,000,000 will be realized.
Such evidence is reviewed periodically and could result in the
recognition of additional tax benefit or expense related to its
net deferred tax asset position in the future.
For the first quarter of fiscal 2003, the Company reported net
income of $179,000 compared to net income of $941,000 for the
first quarter of fiscal 2002.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital principally for building or
acquiring new restaurants, replacing equipment and remodeling
existing restaurants. The Company's restaurants generate cash
immediately through sales. As is customary in the restaurant
industry, the Company does not have significant assets in the
form of trade receivables or inventory, and customary payment
terms generally result in several weeks of trade credit from its
vendors. Therefore, the Company's current liabilities have
historically exceeded its current assets.
During the first sixteen weeks of 2003, net cash provided by
operating activities was $3,702,000 compared to $5,866,000 in
fiscal 2002. The decrease in fiscal 2003 compared to fiscal 2002
was mainly due to the decreased profitability of the Company and
a reduction in cash generated through changes in current assets
and current liabilities.
During the first sixteen weeks of fiscal 2003, the Company had
$1,972,000 in capital expenditures in connection with the opening
of new restaurants and the refurbishing of existing restaurants.
During the first sixteen weeks of fiscal 2003 the Company opened
one quick service restaurant. The Company also replaced one
quick service restaurant building with a new building at the same
location.
The Company had a net repayment of $688,000 under its revolving
credit agreement during the first sixteen weeks of fiscal 2003.
As of February 16, 2003, the Company's revolving credit agreement
had an additional $7,902,000 available for future borrowings. The
Company's average borrowing rate on February 16, 2003 was 4.55%.
The revolving credit agreement is subject to certain restrictive
covenants that require the Company, among other things, to
achieve agreed upon levels of cash flow. Under the revolving
credit agreement the Company's funded debt to consolidated cash
flow ratio could not exceed 4.00 and its fixed charge coverage
ratio could not be less than 1.50 on February 16, 2003. The
Company was in compliance with these requirements with a funded
debt to consolidated cash flow ratio of 3.89 and a fixed charge
coverage ratio of 1.71.
The Company's primary cash requirements in fiscal 2003 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. During fiscal 2003, the Company anticipates opening
one or two new quick service restaurants and two or three full
service restaurants. The Company also plans to replace two
existing quick service buildings with new buildings at the same
locations. 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. While the Company's capital expenditures for
fiscal 2003 are expected to range from $10,000,000 to
$12,000,000, if the Company has alternative uses or needs for its
cash, the Company believes it could reduce such planned
expenditures without affecting its business plan. The Company
has debt service requirements of approximately $1,474,000 in
fiscal 2003, consisting primarily of the principal payments
required under the mortgage facility.
The Company anticipates that its cash flow from operations,
together with the $7,902,000 available under its revolving credit
agreement as of February 16, 2003, will provide sufficient funds
for its operating, capital expenditure, debt service and other
requirements through the end of fiscal 2003.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
As of February 16, 2003, the Company had a financing package
totaling $109,066,000, consisting of a $60,000,000 revolving
credit agreement (the "Bank Facility") and a $49,066,000 mortgage
facility (the "Mortgage Facility"), as described below.
The Mortgage Facility currently includes 34 separate mortgage
notes, with initial terms of either 15 or 20 years. The notes
have fixed rates of interest of either 9.79% or 9.94%. The notes
require equal monthly interest and principal payments. The
mortgage notes are collateralized by a first mortgage/deed of
trust and security agreement on the real estate, improvements and
equipment on 19 of the Company's Chili's restaurants (nine of
which the Company mortgaged its leasehold interest) and 15 of the
Company's Burger King restaurants (three of which the Company
mortgaged its leasehold interest). The mortgage notes contain,
among other provisions, certain restrictive covenants including
maintenance of a consolidated fixed charge coverage ratio for the
financed properties.
The Bank Facility is collateralized by the stock of certain
subsidiaries of the Company, 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 Facility.
The Bank Facility contains 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, cross-default
provisions with other material agreements, 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 Bank Facility provides for borrowings at the adjusted LIBOR
rate plus a contractual spread which is as follows:
RATIO OF FUNDED DEBT
TO CASH FLOW LIBOR MARGIN
- ------------------------------------------------ ------------
Greater than or equal to 3.50 3.00%
Less than 3.5x but greater than or equal to 3.0x 2.75%
Less than 3.0x but greater than or equal to 2.5x 2.25%
Less than 2.5x 1.75%
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
The Bank Facility also contains covenants requiring maintenance
of funded debt to cash flow and fixed charge coverage ratios as
follows:
MAXIMUM FUNDED DEBT
TO CASH FLOW RATIO COVENANT
- ------------------ --------
Fiscal 2003
Q1 through Q3 4.00
Q4 3.75
Fiscal 2004
Q1 through Q3 3.75
Q4 3.50
Fiscal 2005
Q1 through Q2 3.50
Thereafter 3.00
FIXED CHARGE COVERAGE RATIO 1.50
The Company's funded debt to consolidated cash flow ratio is
required to be 3.75 by the end of fiscal 2003. The Company's
funded debt to consolidated cash flow ratio on February 16, 2003
was 3.89. The Company expects it will generate sufficient cash
flow to reach the required ratio of 3.75, particularly in light
of the $3,750,000 settlement payment received in the second
quarter of fiscal 2003 (see Note 8). Should the Company not be
able to generate sufficient cash flow to meet this covenant, the
Company believes it could reduce its capital spending. Its
principal opportunities to reduce capital spending would be to
scale back its new unit development and/or its planned remodel
budget. The Company could also increase consolidated cash flow
through reductions in general and administrative expenses. If
the Company were not successful in meeting the required funded
debt to consolidated cash flow ratio it would experience an event
of default. The Company would then need to seek waivers from its
lenders or amendments to the covenants.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Critical Accounting Policies
Management's Discussion and Analysis of Financial Condition and
Results of Operations are based upon the consolidated financial
statements, which were prepared in accordance with accounting
principles generally accepted in the United States of America.
These principles require management to make estimates and
assumptions that affect the reported amounts in the consolidated
financial statements and notes thereto. Actual results may differ
from these estimates, and such differences may be material to the
consolidated financial statements. Management believes that the
following significant accounting policies involve a higher degree
of judgment or complexity.
Property and equipment
Property and equipment are depreciated on a straight-line basis
over the estimated useful lives of the assets. The useful lives
of the assets are based upon management's expectations for the
period of time that the asset will be used for the generation of
revenue. Management periodically reviews the assets for changes
in circumstances that may impact their useful lives.
Impairment of long-lived assets
Management periodically reviews property and equipment for
impairment using historical cash flows as well as current
estimates of future cash flows. This assessment process requires
the use of estimates and assumptions that are subject to a high
degree of judgment. In addition, management periodically assesses
the recoverability of goodwill and other intangible assets which
requires assumptions regarding the future cash flows and other
factors to determine the fair value of the assets. If these
assumptions change in the future, management may be required to
record impairment charges for these assets.
Income taxes
The Company has recorded a valuation allowance to reduce its
deferred tax assets since it is more likely than not that some
portion of the deferred assets will not be realized. Management
has considered all available evidence, both positive and
negative, including its historical operating results, estimates
of future taxable income and ongoing feasible tax strategies in
assessing the need for the valuation allowance; if these
estimates and assumptions change in the future, the Company may
be required to adjust its valuation allowance. This could result
in a charge to, or an increase in, income in the period such
determination is made.
Other estimates
Management is required to make judgments and or estimates in the
determination of several of the accruals that are reflected in
the consolidated financial statements. Management believes that
the following accruals are subject to a higher degree of
judgment.
Item 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (continued)
Management uses estimates in the determination of the required
accruals for general liability, workers' compensation and health
insurance. These estimates are based upon a detailed examination
of historical and industry claims experience. The claim
experience may change in the future and may require management to
revise these accruals.
The Company is periodically involved in various legal actions
arising in the normal course of business. Management is required
to assess the probability of any adverse judgments as well as the
potential ranges of any losses. Management determines the
required accruals after a careful review of the facts of each
legal action. The accruals may change in the future due to new
developments in these matters.
Management continually reassesses its assumptions and judgments
and makes adjustments when significant facts and circumstances
dictate. Historically, actual results have not been materially
different than the estimates that are described above.
This report contains and incorporates forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995, including statements about the Company's development
plans and trends in the Company's operations and financial
results. Forward-looking statements can be identified by the use
of words such as "anticipates," "believes," "plans," "estimates,"
"expects," "intends," "may," and other similar expressions.
Forward-looking statements are made based upon management's
current expectations and beliefs concerning future developments
and their potential effects on the Company. There can be no
assurance that the Company will actually achieve the plans,
intentions and expectations discussed in these forward-looking
statements. Actual results may differ materially. Among the
risks and uncertainties 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; changes in governmental
regulations, including increases in the minimum wage; the results
of pending litigation; and weather and other acts of God. The
Company undertakes no obligation to update or revise any forward-
looking information, whether as a result of new information,
future developments or otherwise.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.
The Company is exposed to interest rate risk in connection with
its $60.0 million revolving credit facility which provides for
interest payable at the LIBOR rate plus a contractual spread.
The Company's variable rate borrowings under this revolving
credit facility totaled $50.3 million at February 16, 2003. The
impact on the Company's annual results of operations of a one-
point interest rate change would be approximately $503,000.
ITEM 4. CONTROLS AND PROCEDURES.
The Company maintains a set of disclosure controls and procedures
that are designed to ensure that information required to be
disclosed by the Company in the reports filed by the Company
under the Securities Exchange Act of 1934, as amended ("Exchange
Act") is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms. Within the
90 days prior to the filing date of this report, The Company
carried out an evaluation, under the supervision and with the
participation of the Company's management, including the
Company's President and Chief Executive Officer and the Company's
Executive Vice President (Principal Financial Officer), of the
effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 of the
Exchange Act. Based on that evaluation, the Company's President
and Chief Executive Officer and the Company's Executive Vice
President concluded that the Company's disclosure controls and
procedures are effective.
There have been no significant changes in the Company's internal
controls or other factors that could significantly affect those
controls subsequent to the date of their evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.
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
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
On March 11, 2003, the Company held its annual meeting of
shareholders. At the meeting, the shareholders elected the
following directors by the vote indicated to serve until the year
2006 annual meeting of shareholders.
For Withheld
---------- --------
Daniel B. Fitzpatrick 10,047,194 175,700
Philip J. Faccenda 10,069,143 153,751
In addition, the following directors continue in office until the
annual meeting of shareholders in the year indicated:
Term Expires
James K. Fitzpatrick 2004
Ezra H. Friedlander 2004
Steven M. Lewis 2004
Bruce M. Jacobson 2005
Christopher J. Murphy III 2005
The appointment of PricewaterhouseCoopers LLP as auditors for the
Company for 2003 was ratified:
For 10,102,884; Against 75,010; Abstentions 45,000
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)
Date: March 31, 2003 By: /s/John C. Firth
---------------------
Executive Vice President
General Counsel and Secretary
(Principal Financial Officer)
CERTIFICATIONS
I, Daniel B. Fitzpatrick, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Quality
Dining, Inc.;
2.Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3.Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4.The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules l3a-14 and 15d-14)
for the registrant and have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b.Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c.Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
1.The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a.All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b.Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
1.The registrant's other certifying officer and I have indicated
in this quarterly report whether there were significant changes
in internal controls or in the other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ Daniel B. Fitzpatrick
--------------------------
Daniel B. Fitzpatrick
President and Chief Executive
Officer
I, John C. Firth, certify that:
1.I have reviewed this quarterly report on Form 10-K of Quality
Dining, Inc.;
2.Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of
the circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3.Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for,
the periods presented in this quarterly report;
4.The registrant's other certifying officer and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules l3a-14 and 15d-14)
for the registrant and have:
a.Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b.Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c.Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
1.The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have identified
for the registrant's auditors any material weaknesses
in internal controls; and
b. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
2.The registrant's other certifying officer and I have indicated
in this quarterly report whether there were significant changes
in internal controls or in the other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 31, 2003
/s/ John C. Firth
---------------------
John C. Firth
Executive Vice President and
General Counsel
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- ---------------------------------
10-N First Amendment To Lease Agreement entered
into as of the 14th day of February, 2003 by and between
Bendan Properties, LLC, an Indiana limited liability
Company (the "Lessor"), successor to Burger King
Corporation, a Florida corporation, and Bravokilo, Inc.,
an Indiana Corporation
99.1 Certification of Daniel B. Fitzpatrick pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of John C. Firth pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
EXHIBIT 10-N
FIRST AMENDMENT TO LEASE AGREEMENT
THIS FIRST AMENDMENT (this "Amendment") is entered into as of the
14th day of February, 2003 by and between Bendan Properties, LLC,
an Indiana limited liability company (the "Lessor"), successor to
Burger King Corporation, a Florida corporation, and Bravokilo,
Inc., an Indiana corporation (the "Lessee"), successor to
Benjamin Schulman, Ezra Friedlander and Daniel B. Fitzpatrick.
Statement of Facts
WHEREAS, the predecessors in interest of Lessor and Lessee
entered into a Lease Agreement dated November 7, 1983 (the
"Lease");
WHEREAS Lessor and Lessee reached an agreement to extend the
terms of the Lease for five (5) years with two (2) five (5) year
options;
WHEREAS, the parties hereto desire to memorialize their
agreements in this Amendment as set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
1.The Lease is hereby incorporated herein by reference.
2.The term of the Lease is hereby extended commencing on
February 15, 2003 and expiring on February 14, 2008 upon all of
the same terms and conditions as set forth in the Lease except as
modified hereby.
3.The guaranteed minimum rental, as set forth in Article 3.1 of
the Lease, shall hereafter be $103,121.00, payable in equal
monthly installments of $8,593.42.
4.Section 3.2 (a), Percentage Rental, is hereby modified by
deleting "seven (7%)" in the second line thereof and replacing it
with "eight percent (8%)".
5.Provided Lessee is not in default, Lessor does hereby grant to
Lessee the right, privilege and option to extend this lease for
two (2) successive periods of five (5) years each (the "Extended
terms"), upon the same terms and conditions as herein contained.
Lessee, if it elects to exercise any option, shall do so by
giving Lessor written notice at least one hundred eighty (180)
days prior to the expiration of the then current term. From and
after the date of any extension or renewal of this Lease,
references herein to the word "term" include the period by which
the term will have been extended.
6.If any provision of this Amendment is found by a court of
competent jurisdiction to be illegal, invalid, or unenforceable,
the remainder of this Amendment will not be affected, and in lieu
of each provision that is found to be illegal, invalid, or
unenforceable, a provision which is legal, valid and enforceable
will be added as a part of this Amendment that is as similar to
the illegal, invalid, or unenforceable provision as may be
possible.
7.Terms not defined herein have the same meaning as in the Lease.
8.Except as expressly modified herein, the Lease is hereby
ratified and confirmed by the parties and remains in full force
and effect. In the event of a conflict between the terms of the
Lease and the terms of this Amendment, the terms of this
Amendment shall control.
WITNESS OUR HANDS AND SEALS on the date and year first above
written.
LESSOR: LESSEE:
BENDAN PROPERTIES, LLC, BRAVOKILO, INC.,
an Indiana limited liability company an Indiana corporation
/s/ Daniel B. Fitzpatrick /s/ John C. Firth
- ------------------------- ---------------------------
By: Daniel B. Fitzpatrick By:John C. Firth
Its: Manager Its:Executive Vice President
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Quality Dining, Inc.
(the "Company") on Form 10-Q for the period ending February 16,
2003 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, Daniel B. Fitzpatrick, Chairman of
the Board, President and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to
906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ Daniel B. Fitzpatrick
- -----------------------------------
Daniel B. Fitzpatrick
Chairman of the Board, President and
Chief Executive Officer
March 28, 2003
A signed original of this written statement required by Section
906 has been provided to Quality Dining, Inc. and will be
retained by Quality Dining, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Quality Dining, Inc.
(the "Company") on Form 10-Q for the period ending February 16,
2003 as filed with the Securities and Exchange Commission on the
date hereof (the "Report"), I, John C. Firth, Executive Vice
President and General Counsel (Principal Financial Officer) of
the Company, certify, pursuant to 18 U.S.C. 1350, as adopted
pursuant to 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ John C. Firth
- ------------------
John C. Firth,
Executive Vice President and
General Counsel (Principal Financial Officer)
March 28, 2003
A signed original of this written statement required by Section
906 has been provided to Quality Dining, Inc. and will be
retained by Quality Dining, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.