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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 2, 1997
Commission File Number 1-13226
DENAMERICA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1861457
- ----------------------------------------- ---------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7373 N. SCOTTSDALE ROAD
SUITE D-120, SCOTTSDALE AZ 85253 85253
- ----------------------------------------- ---------------------------
(address of principal executive offices) (zip code)
(602) 483-7055
(registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /
The number of shares of the issuer's class of common stock as of the latest
practicable date, is as follows: 13,437,777 shares of Common Stock, $.10 par
value, as of May 13, 1997.
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DENAMERICA CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 1997
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
January 1, 1997 and April 2, 1997 ...................................................... 3
Condensed Consolidated Statements of Operations -
13-Week Periods ended April 2, 1997 and March 27, 1996 ................................. 5
Condensed Consolidated Statements of Cash Flows -
13-Week Periods ended April 2, 1997 and March 27, 1996 ................................. 6
Notes to Condensed Consolidated Financial Statements........................................ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................................................... 13
PART II OTHER INFORMATION .......................................................................... 21
SIGNATURES.................................................................................. 22
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
JANUARY 1, APRIL 2,
ASSETS 1997 1997
------ -------------- -------
Current assets:
Cash and cash equivalents .................... $ 2,609 $ 1,290
Receivables .................................. 4,102 4,067
Inventories .................................. 3,520 3,726
Deferred income taxes ........................ 2,955 3,344
Other current assets ......................... 1,196 1,109
-------- --------
Total current assets ...................... 14,382 13,536
-------- --------
Property and equipment, net .................... 73,724 68,901
Intangibles, net ............................... 71,924 72,270
Deferred financing costs net ................... 3,801 3,676
Deferred income taxes .......................... 7,174 7,174
Other assets ................................... 8,184 8,198
-------- --------
$179,189 $173,755
======== ========
See accompanying notes to condensed consolidated financial statements.
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DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED (UNAUDITED)
(IN THOUSANDS)
JANUARY 1, APRIL 2,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
---------- -----------
Current liabilities:
Accounts payable ..................... $18, 202 $ 16,530
Accrued compensation and related costs 8,487 8,570
Accrued taxes ........................ 4,636 3,239
Other current liabilities ............ 8,424 5,119
Current portion of long-term debt and
obligations under capital leases ... 7,662 7,662
--------- ---------
Total current liabilities .......... 47,411 41,120
Long-term debt, less current portion ... 94,132 95,708
Deferred rent and other ................ 14,732 14,662
--------- ---------
Total liabilities .................. 156,275 151,490
--------- ---------
Minority interest in joint ventures .... 786 677
--------- ---------
Shareholders' equity:
Common stock ......................... 1,340 1,340
Additional paid-in capital ........... 35,706 35,755
Accumulated deficit .................. (14,918) (15,507)
--------- ---------
Total shareholders' equity ......... 22,128 21,588
--------- ---------
$ 179,189 $ 173,755
========= =========
See accompanying notes to condensed consolidated financial statements.
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DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD ENDED
-----------------------
3/27/96 4/2/97
---------- ----------
(13 WEEKS) (13 WEEKS)
Restaurant sales ......................... $ 20,161 $ 76,114
-------- --------
Restaurant operating expenses:
Cost of food and beverage .............. 5,632 20,613
Payroll and payroll related costs ...... 7,260 26,101
Amortization depreciation .............. 916 2,266
Other restaurant operating expenses .... 5,484 21,277
-------- --------
Total restaurant operating expenses .. 19,292 70,257
-------- --------
Restaurant operating income .............. 869 5,857
Administrative expenses .................. 1,047 3,744
-------- --------
Operating income (loss) .................. (178) 2,113
Interest expense, net .................... 860 3,203
-------- --------
Loss before minority interest in joint
venture, income taxes, and extraordinary
item ................................... (1,038) (1,090)
Minority interest in joint venture ....... (2) (109)
-------- --------
Loss before income taxes and
extraordinary item ..................... (1,036) (981)
Income tax benefit ....................... (359) (392)
-------- --------
Loss before extraordinary item ........... (677) (589)
Extraordinary item - loss on
extinguishment of debt ................. (497) --
-------- --------
Net loss ................................. (1,174) (589)
Preferred stock dividend and accretion ... (149) --
-------- --------
Net loss applicable to common shareholders $ (1,323) $ (589)
======== ========
Net loss per common share
before extraordinary item .............. $ (.10) $ (.04)
======== ========
Net loss per common share ................ $ (.19) $ (.04)
======== ========
Weighted average shares outstanding ...... 6,938 13,424
======== ========
See accompanying notes to condensed consolidated financial statements.
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DENAMERICA CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
PERIOD ENDED
------------------------------
MARCH 27, APRIL 2,
1996 1997
-------------- -----------
(13 WEEKS) (13 WEEKS)
Cash flows from operating activities:
Net loss ....................................... $(1,174) ($ 589)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization .............. 916 2,266
Amortization of deferred financing costs ... 45 125
Minority interest in joint venture ......... 2 (109)
Deferred income taxes ...................... (368) (392)
Deferred rent .............................. 81 76
Extraordinary item - loss on
extinguishment of debt ................... 497 --
Other ...................................... (25) 129
Changes in operating assets and liabilities:
Receivables .............................. (217) 35
Inventories .............................. (58) (206)
Prepaid expenses and other assets ........ (542) 87
Accounts payable and accrued liabilities . 449 (6,012)
------- -------
Net cash provided by (used in)
operating activities ................... (344) (4,590)
------- -------
Cash flows from investing activities:
Purchase of property and equipment ............ (1,425) (1,478)
Purchase of intangibles ....................... (413) (1,185)
Proceeds from the sale of assets .............. -- 4,850
------- -------
Net cash (used in) provided by investing
activities ................................ (1,838) 2,187
------- -------
Cash flows from financing activities:
Borrowings, net ................................ 3,650 2,858
Principal reductions on long-term obligations .. (1,344) (1,823)
Issuance of Common Stock and other, net ........ (124) 49
------- -------
Net cash provided by financing activities . 2,182 1,084
------- -------
Net change in cash and cash equivalents ... -- (1,319)
Cash and cash equivalents at beginning of period . -- 2,609
------- -------
Cash and cash equivalents at end of period ....... $ -- $ 1,290
======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest ..................................... $ 950 $ 3,154
======= -------
Income taxes ................................. $ 45 $ --
======= =======
See accompanying notes to condensed consolidated financial statements.
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DENAMERICA CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
(1) BASIS OF PRESENTATION
General
The accompanying unaudited condensed consolidated financial statements of
DenAmerica Corp. and Subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the Company's management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. These statements should be read in
conjunction with the consolidated financial statements and notes thereto and
management's discussion and analysis of financial condition and results of
operations included in the Company's Annual Report on Form 10-K for the fiscal
year ended January 2, 1997. The Company currently operates 297 restaurants in 31
states.
The three-month period ended April 2, 1997, as explained below, is not
comparable to the prior period.
Mergers
On March 29, 1996, Denwest Restaurant Corp. ("DRC") merged with and into the
Company, with the Company being the surviving corporation (the "Merger"). Upon
consummation of the Merger, the Company changed its name from American Family
Restaurants, Inc. ("AFR") to DenAmerica Corp. The Merger has been accounted for
as a reverse purchase under generally accepted accounting principles as a result
of which DRC is considered to be the acquiring entity and AFR the acquired
entity for accounting purposes.
On July 3, 1996, the Company acquired all of the issued and outstanding common
stock of Black-eyed Pea U.S.A., Inc. ("BEP") from BEP Holdings, Inc. ("BEP
Holdings") pursuant to a Stock Purchase Agreement (the "BEP Acquisition"). In
accordance with the terms and conditions of the Stock Purchase Agreement, the
effective accounting date of the BEP Acquisition was June 24, 1996.
BEP operates 93 casual dining restaurants in 13 states under the "Black-Eyed
Pea" concept and franchises the right to operate an additional 29 Black-eyed Pea
restaurants to third parties. The Company currently intends to continue to
operate most of these restaurants as Black-eyed Pea restaurants.
In accordance with the accounting rules for a purchase and a reverse
acquisition, the consolidated financial statements presented herein are as
follows:
(i) Consolidated Statements of Operations of the Company for the
periods ended April 2, 1997 (which include the results of
operations of the Company following the Merger and the BEP
Acquisition) and March 27, 1996 (which do not include the
results of operations of AFR or BEP); and
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(ii) Consolidated Statements of Cash Flows of the Company for the
periods ended April 2, 1997 (which include the results of
operations of the Company following the Merger and the BEP
acquisition) and March 27, 1996 (which do not include the
results of operations of AFR or BEP).
(2) EARNINGS PER SHARE
Earnings per share for the period ended March 27, 1996 has been computed based
upon weighted average shares of the Company's Common Stock received in
connection with the Merger by the former shareholders of DRC after deducting
preferred stock dividends and accretion on preferred stock of DRC outstanding
prior to the Merger. Earnings per share for the period ended April 2, 1997 has
been computed based upon the weighted average of the common shares outstanding
as of April 2, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
BASIS OF PRESENTATION
Upon consummation of the Merger with AFR, the former shareholders of
DRC owned an aggregate of approximately 53.0% of the outstanding voting power of
the Company immediately following the Merger. Accordingly, the Merger has been
accounted for as a reverse purchase under generally accepted accounting
principles, pursuant to which DRC is considered to be the acquiring entity and
AFR the acquired entity for accounting purposes, even though the Company is the
surviving legal entity. In addition, as permitted under generally accepted
accounting principles, for accounting purposes the Merger was deemed to have
occurred on March 27, 1996, the last day of DRC's first quarter for fiscal 1996.
As a result, (i) the historical financial statements of AFR for periods prior to
the date of the Merger are no longer the historical financial statements of the
Company and therefore are no longer presented; (ii) the historical financial
statements of the Company for periods prior to the Merger are those of DRC;
(iii) all references to the financial statements of the "Company" apply to the
historical financial statements of DRC prior to and subsequent to the Merger;
and (iv) any references to "AFR" apply solely to American Family Restaurants,
Inc. and its financial statements prior to the Merger. On July 3, 1996, the
Company acquired all of the issued and outstanding common stock of BEP. The
effective accounting date of the BEP Acquisition was June 24, 1996.
The results of operations for the first quarter of 1997 are materially
impacted by the Merger and the BEP Acquisition. During the first quarter of
1997, revenue and related expenses increased significantly over prior years
primarily as a result of these acquisitions. As a result, the first quarter of
fiscal 1997 operating results are not comparable to those comparable prior
period.
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GENERAL
As set forth below, the Company's restaurant operating income and
operating income increased by $5.0 million and $2.3 million, respectively. The
increase in restaurant operating income is attributable to the increased number
of restaurants owned, while the increase in operating income is primarily a
result of the increase in restaurant operating income without a proportionate
increase in administrative expenses. The Company's strategy is to pursue
acquisitions that can be incrementally profitable as a result of consolidation
of administrative functions.
The development of new restaurants also increases restaurant operating
income without a significant increase in administrative expenses. As noted
below, operating margins for the Company's non-Denny's, non-Black-eyed Pea
restaurants ("non-branded restaurant") are significantly lower than the margins
arising from the Company's Denny's and Black-eyed Pea restaurants. The Company
therefore intends to convert certain of its remaining non-branded restaurants to
the Denny's concept and to sell the remainder of its non-branded restaurants as
soon as practicable.
As of April 2, 1997, the Company operated 188 Denny's restaurants in 31
states. In January, 1996, the Company and Denny's, Inc. adopted the "Breakaway
Breakfast" value price strategy, which offered five breakfast items for $1.99 or
less. In September 2, 1996, the Company withdrew from the Breakaway Breakfast
promotional special and increased the price of the Grand Slam breakfast to
$2.99, during certain day parts. The withdrawal from the Breakaway Breakfast
special has resulted in the decline of comparable Denny's restaurant sales of
3.9% during the thirteen week period end April 2, 1997 as compared to the same
thirteen week period end in 1996. Margins were positively impacted, however,
primarily as a result of decreased food and labor costs expressed as a
percentage of sales. The average guest check increased from $4.60 during the
thirteen week period ended March 29, 1996 to $5.17 for the thirteen week period
ended April 2, 1997. However, guest counts for the period from January 2, 1997
through April 2, 1997 decreased approximately 15% as compared with the
comparable period in the prior year. The Company believes that the increase in
the pricing tiers within the value pricing strategy will result in improved
long-term operating results.
The Company currently operates 93 Black-eyed Pea restaurants in 13
states and franchises 29 Black-eyed pea restaurants in 6 states. The Company
operates 64 Black-eyed Pea restaurants in Texas and Oklahoma, which the Company
considers to be its core market for Black-eyed Pea restaurants. For the thirteen
week period ended April 2, 1997, comparable same-store sales decreased 3.2% for
all of the Company's Black-eyed Pea restaurants, while comparable same store
sales decreased by 1.0% for Black-eyed Pea restaurants in the core market. The
guest check average at the Company's Black-eyed Pea restaurants is $8.10. For
the period, alcohol and carry-out sales account for approximately 2.3% and 10.1%
respectively, of total sales at the Company's Black-eyed Pea restaurants.
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COMPARISON OF RESULTS OF OPERATIONS
The following table presents, for the periods indicated, certain items
in the condensed consolidated statements of operations as a percentage of total
restaurant sales.
Thirteen Week Period Ended
--------------------------
March 27, April 2,
1996 1997
---------- -----------
Restaurant sales:
Denny's restaurants 90.0% 52.5%
Black-eyed Pea restaurants -- 43.2
Non-branded restaurants 10.0 4.3
----- -----
Total restaurant sales 100.0 100.0
----- -----
Restaurant operating expenses:
Cost of food and beverages 27.9 27.1
Payroll and payroll related costs 36.0 34.3
Amortization and depreciation 4.5 3.0
Other restaurant operating cost 27.2 27.9
----- -----
Total restaurant operating expenses 95.7 92.3
----- -----
Restaurant operating income 4.3 7.7
Administrative expenses 5.2 4.9
----- -----
Operating income (loss) (.9) 2.8
Interest expense (4.2) (4.2)
----- -----
Loss before minority interest in joint ventures,
income taxes, and extraordinary item (5.1) (1.4)
Minority interest in joint ventures -- .1
----- -----
Loss before income taxes and
extraordinary item (5.1) (1.3)
Income tax benefit (1.8) (.5)
----- -----
Loss before extraordinary item (6.9) (.8)
Extraordinary item - loss on extinguishment of
debt (2.5) --
----- -----
Net loss (9.4)% (.8)%
===== =====
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THIRTEEN-WEEK ENDED APRIL 2, 1996 COMPARED WITH THIRTEEN-WEEK ENDED
MARCH 27, 1996
Restaurant sales. Restaurant sales increased $56.0 million, or 278%, to
$76.1 million for the thirteen week period ended April 2, 1997 as compared with
restaurant sales of $20.1 million for the thirteen week period ended March 27,
1996. This increase was primarily attributable to restaurant sales associated
with restaurants acquired as a result of the Merger and the BEP acquisition
during 1996.
Cost of Food and Beverage. Cost of food and beverage decreased to 27.1%
of restaurant sales for the thirteen week period ended April 2, 1997 as compared
with 27.9% of restaurant sales for the thirteen week period ended March 27,
1996, primarily as the result of discontinuing several Denny's promotional
programs implemented in January 1996 and the conversion or sale of the Company's
non-branded restaurants.
Payroll and Payroll Costs. Payroll and payroll related costs were 34.3%
of restaurant sales for the thirteen week period ended April 2, 1997 as compared
with 36.0% of restaurant sales for the thirteen week period ended March 27,
1996. This decrease was primarily attributable to staffing efficiencies created
by discontinuing the promotional programs implemented in the first quarter of
1996 and the conversion or sale of the Company's non-branded restaurants.
Depreciation and Amortization. Depreciation and amortization of
restaurant equipment, leasehold improvements, intangible assets, pre-opening
costs and other items decreased to 3.0% of restaurant sales for the thirteen
week period ended April 2, 1997 as compared with 4.5% of restaurant sales for
the thirteen week period ended March 27, 1996. The increase of $1.4 million was
primarily attributable to the amortization of intangible assets associated with
the 1996 acquisitions.
Other Restaurant Operating Costs. Other restaurant operating costs were
27.9% of restaurant sales for the thirteen week period ended April 2, 1997 as
compared with 27.2% of restaurant sales for the thirteen week period ended March
27, 1996. This increase was primarily attributable to increased restaurant
operating costs associated with restaurants acquired as a result of the Merger
and the BEP acquisition during 1996.
Restaurant Operating Income. Restaurant operating income increased $5.0
million to $5.9 million for the thirteen week period ended April 2, 1997. as
compared with $.9 million for the thirteen week period ended March 27, 1996.
This increase was principally the result of factors described above.
Administrative Expenses. Administrative expenses decreased to 4.9% of
restaurant sales for the thirteen week period ended April 2, 1997 as compared
with 5.2% of restaurant sales for the thirteen week period ended March 27, 1996.
This decrease was primarily the result of increased sales volumes without
proportionate cost increases.
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Interest Expense. Interest expense was $3.2 million, or 4.2% of
restaurant sales, for the thirteen week period ended April 2, 1997 as compared
with $860,000, or 4.3% of restaurant sales, for the thirteen week period ended
March 27, 1996. The increase is the result of increased debt levels, associated
with the increased level of long-term debt associated with the 1996
acquisitions.
Income Tax Benefit. The Company recorded an income tax benefit of
approximately $400,000, an effective rate of 40%, for the thirteen week period
ended April 2, 1997 as compared with income tax benefit of approximately
$359,000, or an effective rate of 35%, for the thirteen week period ended March
27, 1996.
Net Loss. The Company recorded a net loss of approximately $600,000 for
the thirteen week period ended April 2, 1997 as compared with net loss of $1.3
million after the extra ordinary item for the thirteen week period ended March
27, 1996, as a result of the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company, and the restaurant industry generally, operates
principally on a cash basis with a relatively small amount of receivables.
Therefore, like many other companies in the restaurant industry, the Company
operates with a working capital deficit. The Company's working capital deficit
was $27.6 million at April 2, 1997, and $ 33.0 million at January 1, 1997. The
Company believes that its working capital deficit is consistent with the working
capital position of restaurant operators of similar size. The Company
anticipates that it will continue to operate with a working capital deficit.
The Company historically has satisfied its capital requirements through
credit facilities and the sale and leaseback of developed and acquired
restaurants or restaurants converted to the Denny's concept. The Company
requires capital principally for the development of new restaurants and to fund
the acquisition and conversion of existing restaurants. Expenditures for
property and equipment and intangibles totaled approximately $2.7 million for
the thirteen-week periods ended April 2, 1997. As described below, the Company
currently has commitments for approximately $20.0 million of sale-leaseback
financing through 1997, which the Company believes will be adequate to meet its
financing needs during that period.
The Company believes that its future capital requirements will be
primarily for the development of new restaurants, for continued acquisitions,
and for conversion of restaurants to the Denny's or other restaurant concepts.
The Company estimates that its costs to develop and open new Denny's and
Black-eyed Pea restaurants, excluding real estate and building costs, will be
approximately $350,000 to $450,000 per restaurant, and that its costs associated
with the conversion of a non-branded restaurant to the Denny's concept will be
approximately $160,000 to $450,000 per restaurant.
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An affiliate of CNL Group, Inc. ("CNL") has agreed, subject to various
conditions, including that there be no material adverse change in the financial
condition of the Company, to make available to the Company up to $20.0 million
in 1997 in order to finance development of new restaurants and the conversion of
non-Denny's restaurants to the Denny's concept. Each financing will take the
form of a "sale-leaseback," in which CNL would purchase a particular restaurant
property and lease it back to the Company for up to 30 years. During that
period, the initial annual rent will be 10.625% of the purchase price, subject
to a 10% increase every five years (e.g., from 10.625% to 11.6875% at the end of
the first five-year period). The leases also will provide for additional rent
based on increases in gross sales at the respective restaurants. The Company
will have a right of first refusal on the sale of each property by CNL, and will
have the right to purchase each property during the eighth year of the lease.
Net cash used in operating activities increased from $400,000 million
in the first quarter of 1996 to $4.6 million in the first quarter of 1997. This
increase is attributable to a reduction of accounts payables, the payment of
property taxes, and costs associated with the closing and conversion of certain
restaurants.
Net cash (used in) provided by investing activities increased from
($1.8 million) in the first quarter of 1996 to $2.2 million in the first quarter
of 1997. This change is primarily attributable to the disposal of approximately
$4.9 million of various assets acquired in the BEP Acquisition, which were sold
at their carrying value.
Net cash provided by financing activities decreased from $2.2 million
in the first quarter of 1996 to $1.1 million in the first quarter of 1997. Cash
provided by financing activities arose primarily from the proceeds of borrowing
activities, net of the principal reductions in long-term debt.
On July 3, 1996, the Company completed the BEP Acquisition. The
purchase price for BEP consisted of (i) cash of approximately $50.0 million
provided from sale/leaseback financing, and (ii) a promissory note (the "BEP
Purchase Note") in the principal amount of $15.0 million. The Company has
outstanding $18.5 million principal amount of Series B Notes bear interest at
the rate of 13% per annum, payable semi-annually every March 29 and September 29
until March 29, 2003, at which time all principal and any unpaid and accrued
interest will be due. The payment of the principal of and interest on an all
premiums, fees, costs, expenses, and liabilities arising under and in connection
with Series B Notes is subordinated and subject in right of payment to the prior
payment in full of all senior indebtedness of the Company, including the
Company's $65.0 million credit facility and the BEP Purchase Note. Subject to
certain limitations, the Company, at its option, may redeem the BEP Purchase
Note in whole or in part at any time prior to maturity. As of April 2, 1997,
because certain financial covenants have not been met, borrowings under the
Delayed Term Loan portion of its Credit Facility are not available to the
Company. Upon the occurrence of certain equity issuance's, the Company will be
required to offer to redeem the maximum principal amount of BEP Purchase Note
that may be redeemed with a specified portion of the proceeds of such equity
issuance, at the then-current redemption price plus accrued and unpaid interest
to the redemption date.
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The Company's Credit Facility contains certain provisions and
restrictive convenants that, among other things require the maintenance of cash
flow and interest coverage ratios. In addition, the provisions limit the ability
of the Company and its subsidiaries, without the consent of Banque Paribas, to
incur additional indebtedness, pay certain dividends or make certain
distributions on their respective capital stock, repurchase shares of their
respective capital stock, enter into additional restaurant leases, make
acquisitions or sell assets, or exceed specified levels of capital expenditures.
At April 2, 1997, the Company was not in compliance with certain financial
convenants for which waivers have been obtained.
The Company plans to pursue increasing its working capital as necessary
through equity or debt financings in the public or private securities markets,
additional sale-leaseback transactions, the disposition of underperforming
restaurants, and additional credit facilities. The Company also intends to use
its best efforts to redeem the BEP Purchase Note prior to September 30, 1997, on
which the BEP Warrants become exercisable. The Company currently anticipates
that it will be required to obtain the funds needed to repay the BEP Purchase
Note through the sale of equity securities or by increasing its debt financing.
There can be no assurance that financing for any of these purposes will be
available or will be available on satisfactory terms.
SEASONALITY
The Company's operating results fluctuate from quarter to quarter as a
result of the seasonal nature of the restaurant industry, the temporary closing
of existing restaurants for conversion, and other factors. The Company's
restaurant sales are generally greater in the second and third fiscal quarters
(April through September) than in the first and fourth fiscal quarters (October
through March). Occupancy and other operating costs, which remain relatively
constant, have a disproportionately negative effect on operating results during
quarters with lower restaurant sales. The Company's working capital requirements
also fluctuate seasonally, with its greatest needs occurring during its first
and fourth quarters.
INFLATION
The Company does not believe that inflation has had a material effect
on operating results in past years. Although increases in labor, food or other
operating costs could adversely affect the Company's operations, the Company
generally has been able to modify its operating procedures or to increase prices
to offset increases in its operating costs.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share", effective for both interim and annual periods ending after December
15, 1997. This statement specifies the computation, presentation and disclosure
of earnings per share for entities with publicly held common stock or potential
common stock. The Company will provide the required disclosures in their
year-end report. The effect on the Company's earning per share disclosure is not
material for the periods presented.
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FORWARD LOOKING STATEMENTS
This Report on Form 10-Q contains forward-looking statements, including
statements regarding the Company's business strategies, the Company's business,
and the industry in which the Company operates. These forward-looking statements
are based primarily on the Company's expectations and are subject to a number of
risks and uncertainties, some of which are beyond the Company's control. Actual
results could differ materially from the forward-looking statements as a result
of numerous factors, including those set forth in Exhibit 99 to this report on
Form 10-Q, which is incorporated herein by reference.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
11.1 Statement regarding computation of per share income
27.1 Summary Financial Information
99 Special Considerations
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DENAMERICA CORP.
Dated: May 15, 1997 By: /s/ Todd S. Brown
---------------------------
Todd S. Brown
Vice President, Chief Financial Officer, and
Treasurer
(Duly authorized officer of the
registrant, principal financial
and accounting officer)
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