UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| [x] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended July 14, 2002 | ||
| 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 000-32369
AFC ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
|
Minnesota (State or other jurisdiction of incorporation or organization) |
58-2016606 (IRS Employer Identification No.) |
|
|
Six Concourse Parkway, Suite 1700 Atlanta, Georgia (Address of principal executive offices) |
30328-5352 (Zip Code) |
(770) 391-9500
(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 ü No
As of August 2, 2002, there were 31,044,955 shares of the registrant’s common stock, par value $.01 per share, outstanding.
AFC ENTERPRISES, INC.
INDEX
| PART 1 FINANCIAL INFORMATION | Page | |||||
| Item 1. | Financial Statements (Unaudited) | |||||
Condensed Consolidated Statements of Operations – For the
Twelve and Twenty-eight Week Periods Ended July 15, 2001
and July 14, 2002 |
3 | |||||
Condensed Consolidated Balance Sheets – December 30, 2001 and
July 14, 2002 |
4 | |||||
Condensed Consolidated Statements of Cash Flows – For the
Twenty-eight Week Periods Ended July 15, 2001 and
July 14, 2002 |
5 | |||||
Notes to Condensed Consolidated Financial Statements |
6 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 15 | ||||
PART 2 OTHER INFORMATION |
||||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 40 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 41 | ||||
(a) Exhibits |
41 | |||||
(b) Current Reports on Form 8-K |
42 | |||||
SIGNATURE |
43 | |||||
PART 1 — FINANCIAL INFORMATION
Item 1. Financial Statements
AFC Enterprises, Inc. and subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands, except per share data)
| 12 Weeks Ended | 28 Weeks Ended | ||||||||||||||||||
| 7/15/01 | 7/14/02 | 7/15/01 | 7/14/02 | ||||||||||||||||
Revenues: |
|||||||||||||||||||
Restaurant sales |
$ | 119,367 | $ | 99,129 | $ | 278,893 | $ | 236,282 | |||||||||||
Franchise revenues |
24,841 | 30,967 | 53,452 | 63,291 | |||||||||||||||
Wholesale revenues |
14,514 | 15,601 | 33,219 | 35,279 | |||||||||||||||
Other revenues |
3,176 | 4,351 | 7,501 | 10,087 | |||||||||||||||
Total revenues |
161,898 | 150,048 | 373,065 | 344,939 | |||||||||||||||
Costs and expenses: |
|||||||||||||||||||
Restaurant cost of sales |
35,374 | 27,993 | 81,645 | 66,399 | |||||||||||||||
Restaurant operating expenses |
61,263 | 52,377 | 142,804 | 123,904 | |||||||||||||||
Wholesale cost of sales |
7,209 | 7,648 | 16,376 | 17,791 | |||||||||||||||
Wholesale operating expenses |
3,979 | 3,833 | 9,059 | 8,872 | |||||||||||||||
General and administrative |
23,957 | 25,191 | 57,961 | 58,341 | |||||||||||||||
Depreciation |
7,463 | 7,212 | 17,395 | 16,907 | |||||||||||||||
Amortization |
2,166 | 121 | 5,044 | 142 | |||||||||||||||
Charges for other restaurant closings, excluding Pine Tree |
71 | 239 | 394 | 315 | |||||||||||||||
Charges for Pine Tree restaurant closings |
678 | — | 678 | — | |||||||||||||||
Charges for asset write-offs from re-imaging |
961 | 492 | 1,397 | 492 | |||||||||||||||
Charges for other asset write-offs |
253 | 257 | 901 | 257 | |||||||||||||||
Net gain on sale of assets |
(1,978 | ) | (232 | ) | (3,180 | ) | (232 | ) | |||||||||||
Total costs and expenses |
141,396 | 125,131 | 330,474 | 293,188 | |||||||||||||||
Income
from continuing operations |
20,502 | 24,917 | 42,591 | 51,751 | |||||||||||||||
Other expenses: |
|||||||||||||||||||
Interest, net |
5,498 | 3,916 | 14,240 | 9,592 | |||||||||||||||
Net income from continuing
operations before income taxes |
15,004 | 21,001 | 28,351 | 42,159 | |||||||||||||||
Income tax expense |
6,001 | 8,077 | 11,340 | 16,265 | |||||||||||||||
Net income from continuing operations
before the extraordinary loss on early
extinguishment of debt and loss from a
change in accounting principle |
9,003 | 12,924 | 17,011 | 25,894 | |||||||||||||||
Extraordinary loss on early extinguishment
of debt, net of income taxes |
(307 | ) | (5,897 | ) | (307 | ) | (5,897 | ) | |||||||||||
Loss from the cumulative effect of a change
in accounting principle |
— | — | — | (17,387 | ) | ||||||||||||||
Net
income |
$ | 8,696 | $ | 7,027 | $ | 16,704 | $ | 2,610 | |||||||||||
Basic earnings per common share: |
|||||||||||||||||||
Net income attributable to common
stock from continuing operations |
$ | 0.30 | $ | 0.42 | $ | 0.59 | $ | 0.84 | |||||||||||
Net extraordinary loss on early extinguishment
of debt |
(0.01 | ) | (0.19 | ) | (0.01 | ) | (0.19 | ) | |||||||||||
Loss from the cumulative effect of a change
in accounting principle |
— | — | — | (0.57 | ) | ||||||||||||||
Net income |
$ | 0.29 | $ | 0.23 | $ | 0.58 | $ | 0.08 | |||||||||||
Diluted earnings per common share: |
|||||||||||||||||||
Net income attributable to common
stock from continuing operations |
$ | 0.28 | $ | 0.40 | $ | 0.55 | $ | 0.80 | |||||||||||
Net extraordinary loss on early extinguishment
of debt |
(0.01 | ) | (0.18 | ) | (0.01 | ) | (0.18 | ) | |||||||||||
Loss from the cumulative effect of a change
in accounting principle |
— | — | — | (0.54 | ) | ||||||||||||||
Net income |
$ | 0.27 | $ | 0.22 | $ | 0.54 | $ | 0.08 | |||||||||||
See accompanying notes to condensed consolidated financial statements.
3
AFC Enterprises, Inc. and subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
| 12/30/01 | 7/14/02 | ||||||||||
| (unaudited) | |||||||||||
Assets: |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 12,826 | $ | 33,030 | |||||||
Accounts and current notes receivable, net of allowance
for doubtful accounts of $1,608 in 2001 and $1,879 in 2002 |
24,611 | 25,788 | |||||||||
Prepaid income taxes |
1,610 | — | |||||||||
Inventories |
16,080 | 16,495 | |||||||||
Deferred income taxes |
880 | 1,823 | |||||||||
Prepaid expenses and other |
3,202 | 4,065 | |||||||||
Total current assets |
59,209 | 81,201 | |||||||||
Long-term assets: |
|||||||||||
Notes receivable, net of allowance for doubtful
accounts of $227 in 2001 and 2002 |
10,034 | 9,368 | |||||||||
Deferred income taxes |
2,353 | — | |||||||||
Property and equipment, net of accumulated depreciation and
amortization of $155,480 in 2001 and $156,270 in 2002 |
255,123 | 244,657 | |||||||||
Assets under contractual agreement, net |
7,230 | 7,086 | |||||||||
Other assets |
14,013 | 15,706 | |||||||||
Trademarks, net of accumulated amortization
of $51,093 in 2001 and 2002 |
69,707 | 69,707 | |||||||||
Goodwill, net of accumulated amortization
of $11,846 in 2001 and $10,037 in 2002 |
101,791 | 84,404 | |||||||||
Other intangible assets, net of accumulated amortization
of $1,970 in 2001 and $2,062 in 2002 |
3,754 | 4,529 | |||||||||
Total long-term assets |
464,005 | 435,457 | |||||||||
Total assets |
$ | 523,214 | $ | 516,658 | |||||||
Liabilities and Shareholders’ Equity: |
|||||||||||
Current liabilities: |
|||||||||||
Accounts payable |
$ | 28,738 | $ | 18,275 | |||||||
Bank overdrafts |
11,656 | 9,566 | |||||||||
Current portion of long-term debt and capital
lease obligations |
21,834 | 8,859 | |||||||||
Short-term borrowings |
1,746 | — | |||||||||
Current portion of acquisition line of credit |
10,000 | — | |||||||||
Income taxes payable |
2,564 | 875 | |||||||||
Accrued expenses and other |
19,081 | 17,252 | |||||||||
Total current liabilities |
95,619 | 54,827 | |||||||||
Long-term liabilities: |
|||||||||||
Long-term debt, net of current portion |
174,113 | 191,335 | |||||||||
Capital lease obligations, net of current portion |
1,686 | 1,667 | |||||||||
Deferred income taxes |
— | 2,902 | |||||||||
Other liabilities |
28,075 | 29,733 | |||||||||
Total long-term liabilities |
203,874 | 225,637 | |||||||||
Total liabilities |
299,493 | 280,464 | |||||||||
Shareholders’ equity: |
|||||||||||
Common stock |
304 | 310 | |||||||||
Capital in excess of par value |
212,587 | 220,721 | |||||||||
Notes receivable — officers, including accrued interest |
(7,631 | ) | (5,908 | ) | |||||||
Accumulated retained earnings |
18,461 | 21,071 | |||||||||
Total shareholders’ equity |
223,721 | 236,194 | |||||||||
Total liabilities and shareholders’ equity |
$ | 523,214 | $ | 516,658 | |||||||
See accompanying notes to condensed consolidated financial statements.
4
AFC Enterprises, Inc. and subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| 28 Weeks Ended | ||||||||||||||||
| 7/15/01 | 7/14/02 | |||||||||||||||
Cash flows provided by (used in) operating activities: |
||||||||||||||||
Net income |
$ | 16,704 | $ | 2,610 | ||||||||||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||||||||||
Cumulative effect of change in accounting principle |
— | 17,387 | ||||||||||||||
Depreciation and amortization |
22,439 | 17,049 | ||||||||||||||
Extraordinary loss on early extinguishment of debt |
512 | 9,601 | ||||||||||||||
Notes receivable — officers accrued interest |
(225 | ) | (159 | ) | ||||||||||||
Compensation expense from stock options |
180 | 238 | ||||||||||||||
Deferred tax expense |
1,088 | 4,311 | ||||||||||||||
Other
|
1,138 | 2,191 | ||||||||||||||
Increase in operating assets |
(8,113 | ) | (6,822 | ) | ||||||||||||
(Decrease) in operating liabilities |
(3,193 | ) | (3,312 | ) | ||||||||||||
Total adjustments |
13,826 | 40,484 | ||||||||||||||
Net cash provided by operating activities |
30,530 | 43,094 | ||||||||||||||
Cash flows provided by (used in) investing activities: |
||||||||||||||||
Proceeds from disposition of property and equipment |
11,788 | 15,890 | ||||||||||||||
Investment in property and equipment |
(29,723 | ) | (23,758 | ) | ||||||||||||
Proceeds from sales of turnkey developments |
1,229 | 2,151 | ||||||||||||||
Investments in turnkey developments |
(1,954 | ) | (2,113 | ) | ||||||||||||
Notes receivable additions |
(127 | ) | (75 | ) | ||||||||||||
Payments received on notes |
352 | 519 | ||||||||||||||
Net cash used in investing activities |
(18,435 | ) | (7,386 | ) | ||||||||||||
Cash flows provided by (used in) financing activities: |
||||||||||||||||
Principal payments of long-term debt |
(25,237 | ) | (68,751 | ) | ||||||||||||
Proceeds from long-term debt |
— | 200,000 | ||||||||||||||
(Repayments) under acquisition line of credit |
(35,000 | ) | (10,000 | ) | ||||||||||||
Net borrowings (repayments) under revolving line of credit |
5,000 | (1,746 | ) | |||||||||||||
Decrease in bank overdrafts, net |
(5,710 | ) | (2,090< | |||||||||||||