Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Check One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For The Fiscal Year Ended July 2, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___ to ___
Commission File Number: 0-22639
CHAMPPS ENTERTAINMENT, INC.
(Formerly known as Unique Casual Restaurants, Inc.)
(Exact name of registrant as specified in its charter)
Delaware 04-3370491
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5619 DTC Parkway, Suite 1000, Englewood, CO 80111
(Address of principal executive offices) (Zip Code)
303-804-1333
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: N/A
Securities registered pursuant to Section 12 (g) of the Act: Common Stock
Title of Class
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 and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405
of Resolution S-K is not contained herein, and will not be contained to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K: [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of the Common Stock of the registrant as
quoted on the National Association of Securities Dealers Automated Quotation
System on September 28, 2000 was $46,216,648 (for purposes of calculating this
amount only, directors, officers and beneficial owners of 10% or more of the
Common Stock of the registrant may be deemed affiliates).
Number of shares of Common Stock, $.01 par value, outstanding at September 28,
2000: 11,683,482
DOCUMENTS INCORPORATED BY REFERENCE
The sections of the Company's definitive Proxy Statement, listed below, which
have been or will be filed by the Company with the Securities and Exchange
Commission, are incorporated in this Annual Report by reference and shall be
deemed to be a part hereof:
The Company's definitive Proxy Statement mailed in connection with its
Annual Meeting of Stockholders to be held on or about December 13, 2000
pursuant to regulation 14A, which involves the election of directors.
Cross Reference Sheet between Items of
Registrant's Proxy Statement and Form 10-K
Item No. Item in Form 10-K Item in Proxy Statement
- -------- ------------------------------------------------
PART III
10 Directors and Executive Election of Directors and Directors of
Officers of the Registrant Committees in the Company's Proxy
Statement relating to its Annual
Meeting of Stockholders to be held on
or about December 13, 2000.
11 Executive Compensation Executive
Compensation in the Company's
ProxyStatement relating to its Annual
Meeting of Stockholders to be held on
or about December 13, 2000.
12 Security Ownership of Certain Principal Stockholders in the Company's
Beneficial Owners and Proxy Statement relating to its Annual
Management Meeting of Stockholders to be held on
or about December 13, 2000.
13 Certain Relationships and
Related Transactions
Copies of all documents incorporated by reference other than exhibits to such
documents will be provided without charge to each person who receives a copy of
this Annual Report upon written request addressed to Stockholder Relations,
Champps Entertainment, Inc., 5619 DTC Parkway, Suite 1000, Englewood, Colorado
80111.
FORM 10-K INDEX
PART I
Item 1 Business 1
Item 2 Properties 10
Item 3 Legal Proceedings 10
Item 4 Submission of Matters to a Vote of Security Holders 10
PART II
Item 5 Market for the Registrant's Common Stock and Related
Stockholder Matters 11
Item 6 Selected Financial Data 12
Item 7 Management's Discussion and Analysis of Results of
Operations and Financial Condition 14
Item 7a Quantitative and Qualitative Disclosure About Market Risk 19
Item 8 Financial Statements and Supplementary Data 19
Item 9 Changes in and Disagreements with Accountants on
Accounting Financial Disclosure 19
PART III
Item 10 Directors and Executive Officers of the Registrant 20
Item 11 Executive Compensation 22
Item 12 Security Ownership of Certain Beneficial Owners and
Management 22
Item 13 Certain Relationships and Related Transactions 22
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 22
From time to time, the Company may make certain statements that
contain "forward-looking" information (as defined in the Private
Securities Litigation Reform Act of 1995). Words such as "believe,"
"anticipate," "estimate," "project," and similar expressions are
intended to identify such forward-looking statements. Forward-looking
statements may be made by management orally or in writing, including,
but not limited to, in press releases, as part of Management's
Discussion and Analysis of Financial Condition and Results of
Operations as contained in this report and as part of other sections
of this Report or other filings. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only
as of their respective dates, and are subject to certain risks,
uncertainties and assumptions including those set forth in the
Management's Discussion and Analysis of Financial Condition and
Results of Operations under the heading "Forward-Looking Statements".
Should one or more of these risks or uncertainties materialize, or
should any of the underlying assumptions prove incorrect, actual
results of current and future operations may vary materially from
those anticipated, estimated or projected.
PART I
Item 1. Business.
Champps Entertainment, Inc. (formerly known as Unique Casual Restaurants, Inc.)
(the "Company") is a Delaware corporation formed on May 27, 1997. The Company's
principal executive offices are located at 5619 DTC Parkway, Suite 1000,
Englewood, Colorado 80111, and its telephone number is (303) 804-1333.
Disposition and Certain Other Transactions
At the time of its formation, the Company was a wholly owned subsidiary of DAKA
International, Inc. (DAKA International). The Company's business consisted of
owning, operating and franchising casual dining restaurants through various
subsidiaries under the Champps Americana, Fuddruckers World's Greatest
Hamburgers ("Fuddruckers") and the Great Bagel & Coffee Company brands.
Additionally, the Company also owned a 17% passive investment in La Salsa Fresh
Mexican Grill ("La Salsa") and a 50% interest in Restaurant Consulting Services,
Inc. ("RCS"). Since the time of its formation, the Company has entered into
numerous transactions which have altered the business the Company owns, operates
and franchises, as described below.
Spin-off Transaction
Pursuant to certain transactions, on July 17, 1997, DAKA International and Daka,
Inc., its wholly-owned subsidiary, merged with Compass Interim, Inc., a Delaware
corporation, a wholly-owned subsidiary of Compass Holdings, Inc., a Delaware
corporation, a wholly-owned subsidiary of Compass Group PLC incorporated in
England and Wales (collectively "Compass") (the "Merger"). Prior to the Merger,
DAKA International, certain of its subsidiaries, the Company and Compass made
various contributions of assets and equity interests to each other in the form
of dividends and capital contributions in order to divest DAKA International of
its restaurant businesses which were contributed to the Company. Following the
Merger, DAKA International distributed to each common stockholder of record of
DAKA International, one share of common stock of the Company for each share of
DAKA International owned by such stockholder (the "Distribution"). As a result
of the Distribution, the Company ceased to be a subsidiary of DAKA International
and began operating as an independent, publicly held company on July 17, 1997
(the "Spin-off").
As part of the Merger and the Spin-off transaction, the Company agreed it would
not compete with Compass or Daka for five years following the Spin-off. In
addition, the Company agreed to indemnify, defend and hold harmless Compass,
from and against, and pay or reimburse Compass for certain indemnifiable losses
incurred relating to or arising from the liabilities that Compass did not agree
to assume, including but not limited to certain tax liabilities. The scope and
amount of such liabilities are subject to a high degree of uncertainty and risk.
Although the Company has estimated the amount of liabilities due, there can be
no assurance that such amounts to be ultimately paid will not differ from the
Company's estimate and such difference could be material.
Great Bagel & Coffee
The Company ceased all operations of the Great Bagel & Coffee business on June
28, 1998.
Sale of Fuddruckers
On November 24, 1998, the Company sold all of the outstanding common stock of
Fuddruckers, Inc. to King Cannon, Inc. ("King Cannon") for $43.0 million in cash
(the "Fuddruckers Sale").
The Agreement contains various standard representations and warranties by the
Company which survive the closing and will expire on December 31, 2000 (the
"Survival Period"), except that representations and warranties made by the
Company (i) relating to environmental matters survive until December 31, 2003,
(ii) relating to employee matters and income taxes survive the closing date
until expiration of applicable statutes of limitations and (iii) relating to
organization, corporate power, authorization, non-contravention and
capitalization shall survive the closing indefinitely. In addition, any
covenants or agreements of the Company under the Agreement, and any and all
indemnification obligations relating thereto shall survive the closing
indefinitely, unless earlier expiring in accordance with their respective terms.
The Company and Champps Operating Corporation, Inc. ("COC") are obligated to
jointly and severally indemnify King Cannon, Fuddruckers and their respective
affiliates from and against any losses, assessments, liabilities, claims,
obligations, damages, costs or expense which arise out of or relate to (i) any
misrepresentations in or breach of any of the representations, warranties,
undertakings, covenants or agreements of the Company, Fuddruckers, related
entities and affiliates contained in the Agreement; (ii) any environmental
matters related to Fuddruckers and its affiliates; (iii) any retained or
undisclosed liabilities; or (iv) the Company's obligations with respect to lease
termination amounts and rent adjustment amounts. However, the Company obtained
each required consent and required estoppel from landlords prior to the closing
of the sale and, as a result, the Company believes the risk for a material claim
for indemnification related to each of the lease termination amounts and rent
adjustment amounts provisions is remote. The maximum aggregate liability of the
Company on account of any breach of any representation or warranty is limited to
the amount of the final purchase price. There is no cap or limit on the
liability of the Company to King Cannon on account of any breach by the Company
of any of its covenants or agreements under the Agreement or on account of
indemnification obligations covering matters other than breaches of
representations and warranties, provided that, if King Cannon is entitled to
recover any losses in excess of the final purchase price, the Company may either
(i) require King Cannon to, in effect, rescind the transaction, subject to
certain adjustments, or (ii) pay to King Cannon all of the losses with respect
to which King Cannon is entitled to indemnification.
The $1.0 million indemnification escrow established at the time of the
Distribution does not limit the Company's maximum exposure for indemnification
claims, however, the Company believes the risk of such claims exceeding the
escrow amount is remote. As of July 2, 2000, approximately $636,000 was paid to
King Cannon or others from the escrow fund for indemnification and other
predecessor obligations relative to the Fuddruckers operation. In addition, for
a period of ten years following the closing date of the Fuddruckers Sale, the
Company and Champps agree not to compete directly with Fuddruckers.
La Salsa Merger
On July 15, 1999, La Salsa was purchased by Santa Barbara Restaurant Group
("SBRG") and the Company exchanged its convertible preferred shares of La Salsa
for common shares of SBRG. On December 7, 1999, the Company sold all its common
shares of SBRG, recognizing a loss on the sale of marketable securities of
$1,034,000. The Company has retained 141,944 warrants for SBRG stock that it
estimates to be of no value.
RCS Disposition
On May 24, 1999, the Company sold its 50% interest in RCS to RCS, receiving in
consideration certain assets of RCS, including a note payable in the amount of
$750,000, which was subsequently paid in full on August 25, 1999.
Purchase of Franchised Restaurants
On June 29, 2000, the Company acquired two Champps Americana restaurants from
existing franchisees.
In the first acquisition, pursuant to an Asset Purchase Agreement dated as of
April 6, 2000 a wholly owned subsidiary of Champps acquired from Prairie
Restaurant Group, Inc., a Minnesota corporation ("Prairie"), all of the assets
of Prairie, located in Eden Prairie, Minnesota, for approximately $5,675,000 in
cash. The acquisition was financed in part with the proceeds from a loan of
$4,750,000 provided by FINOVA Capital Corporation.
In the second acquisition, pursuant to an Asset Purchase Agreement dated as of
April 6, 2000 a wholly owned subsidiary of Champps acquired from Bregean
Investment Group, Inc., a Minnesota corporation ("Bregean"), all of the assets
of Bregean, located in Minnetonka, Minnesota, for approximately $5,675,000 in
cash. The acquisition was financed in part with the proceeds from a loan of
$4,750,000 provided by FINOVA Capital Corporation.
Prior to acquisition, both the Prairie and the Bregean restaurants were owned or
controlled by Dean Vlahos, a former executive and director of the Company.
In connection with the two acquired restaurants, the Company recorded $3,825,000
of goodwill. The Company intends to amortize this goodwill over a twenty year
period.
The Minnetonka, Minnesota Champps restaurant was sold to Dean Vlahos by the
Company on February 2, 1998 for $2,900,000, representing the fair market value
of the restaurant established by an independent appraisal. The purchase price
was in the form of a cash payment by Mr. Vlahos of $1,500,000 and the
cancellation of Mr. Vlahos' employment contract. The Company recognized a net
gain in fiscal 1998 of approximately $700,000 on this transaction.
The Company at July 2, 2000
As a result of these transactions, at June 27, 1999, the Company operates in a
single business segment which owns, operates and franchises Champps Americana
casual dining restaurants. At July 2, 2000, the Company's principal subsidiary
was Champps Operating Corporation, Inc., a Minnesota corporation. Champps
Operating Corporation, Inc. in turn, owns four subsidiaries, each of which is
engaged in owning and operating Champps Americana restaurants. See Exhibit 21.1
for a complete list of the Company's subsidiaries.
Although formed on May 27, 1997, for purposes of this Form 10-K and financial
reporting purposes, the Company has been treated as if it was a stand-alone
entity for all periods presented after giving effect to sale of the Fuddruckers'
business segment. For periods prior to July 17, 1997 the accompanying financial
statements include allocations and estimates of certain expenses, including
corporate accounting, tax, cash management, information technology, legal, risk
management, purchasing and human resources, historically provided to the Company
by DAKA International.
Champps Americana Concept
Operations
The Champps Americana ("Champps") concept is based upon providing the best
possible food, value and service to its customers. Although food and service are
the most important parts of the Champps Americana concept, an atmosphere that is
entertaining and energetic, yet comfortable, is also critical. The food
offerings at Champps' restaurants combine a wide selection of appetizers, soups,
salads, innovative sandwiches, pizza, burgers, and entrees including chicken,
beef, fish, pasta and desserts. Selections reflect a variety of ethnic and
regional cuisines and traditional favorites. Because Champps' menu is not tied
to any particular type of food, Champps can introduce and eliminate items based
on current consumer trends without altering its theme. Portion sizes are
generous and each dish is attractively presented. Champps believes that these
qualities give customers a sense of value. Entree prices currently range from
$4.95 to $18.95. Champps emphasizes freshness and quality in its food
preparation. Fresh sauces, dressings, batters and mixes are prepared daily on
the premises, generally from original ingredients using fresh produce. Champps
invests substantial time in training and testing kitchen employees to maintain
consistent food preparation. Strict food standards at Champps-owned restaurants
have also been established to maintain quality.
The Champps customer's experience is enhanced by the attitude and attention of
restaurant personnel. Accordingly, the Champps concept emphasizes prompt
greeting of arrivals, frequent visits to customer tables to monitor customer
satisfaction and service and friendly treatment of its customers. Service is
based upon a team concept so that customers are made to feel that any employee
can help them and they are never left unattended. Success of the Champps
restaurants depends upon employee adherence to these standards. To maintain
these standards, Champps seeks to hire and train personnel who will work in
accordance with Champps' philosophy and frequently rewards individual and
restaurant achievement through several recognition programs intended to build
and maintain employee morale. All of the service personnel at each Champps
restaurant meet with the managers at two daily pre-shift motivational meetings.
Restaurant promotions, specials and quality control are all discussed and
explained during these meetings.
Champps-owned, franchised and licensed restaurants are designed and decorated in
a casual theme, although they differ somewhat from each other. Champps
restaurants generally range in size from approximately 7,000 to 12,000 square
feet. Champps' standard restaurant features a bar, open kitchen and dining on
multiple levels. Customers can also dine at the bar or outside on the patio,
where available. The spacious design facilitates efficient service, encourages
customer participation in entertainment and promotional events and allows
customers to view the kitchen, dining area, and bar. Strategically placed
television monitors stimulate customer perception of activity and contribute to
the total entertainment experience and excitement of the restaurant.
An important part of the Champps dining experience is the entertainment. Patrons
may watch one of several sporting events being broadcast, or listen to a variety
of music played by the disc jockey, music which is changed for the time of day
and season of the year. The exposed kitchen offers customers the opportunity to
observe the cooks, and, in certain locations, a discreetly located game room is
provided for arcade games. The entertainment aspects of the Champps restaurants
are designed to encourage repeat visits, increase the length of a customer's
stay and attract customers outside of normal peak hours. In addition, a variety
of creative promotions and activities are conducted such as "Family Bingo,"
"Spring Time Big Bike Give-Away" and Karaoke. These promotions and activities
allow for customer participation and are continually changing. Change of the
ambiance is also experienced in each restaurant when the restaurants are
decorated for the holidays. The different looks and activities of the restaurant
provide customers a different feel each time they visit, thus encouraging repeat
business. Champps sells merchandise such as T-shirts, hats and sweatshirts
bearing the Champps Americana name. Although not currently a significant source
of revenue, the sale of its merchandise is believed to be an effective means of
promoting the Champps name.
Champps restaurants are generally open from 11:00 a.m. to 1:00 a.m. seven days a
week serving lunch, dinner and late night appetizers. Closing times of Champps
restaurants will vary based upon state laws concerning operating hours. Sunday
brunch is served beginning at 10:00 a.m. Each Champps restaurant maintains
standardized food preparation and service manuals which are designed to enhance
consistency of operations among the restaurants. Champps attempts to have each
Champps-owned and franchised restaurant operate under uniform standards and
specifications which are formulated at its headquarters in Englewood, Colorado.
Management
The management staff of a Champps restaurant is divided into three areas, the
General Manager, Front-of-House Managers and Back-of-House Managers. The General
Manager has responsibility for the entire restaurant. Front-of-House management
generally consists of an associate manager, two floor managers and a bar
manager. Back-of-House management generally consists of a kitchen manager, two
to three assistant kitchen managers and a daily specials chef. All General
Managers report directly to the Directors of Operations. Managers are
compensated based on salary plus a monthly bonus. The bonus is determined by
means of monthly restaurant sales and profit goals.
Marketing
Champps restaurants have historically expended minimal amounts on traditional
media advertising and marketing, but have relied on in-restaurant marketing and
promotions.
Site Selection
Champps uses its own personnel and consultants to analyze markets and sites for
new restaurants, obtain the required zoning and other permits, negotiate the
leasing or real estate purchase and oversee all aspects of the construction
process. Champps believes that location is a key factor in a restaurant's
ability to operate a profitable lunch and dinner business, and considers several
demographic factors in selecting sites, including the average income of the
neighboring residential population, the proximity of retail, office and
entertainment facilities, traffic patterns and the visibility of the site.
The cost to construct a typical Champps restaurant, where Champps purchases real
estate, depending upon its location, is approximately $4.4 to $5.9 million,
which includes approximately $1.0 million for furniture, fixtures and equipment,
$1.5 to $2.5 million for building and improvements, $1.5 to $2.0 million for
land and site work, and $0.4 million related to pre-opening costs of the
restaurant.
The typical cost to construct a new Champps restaurant where Champps enters into
a leasing arrangement is approximately $2.9 to $3.4 million which is comprised
of approximately $1.0 million for furniture, fixtures and equipment, $1.5 to
$2.0 million for leasehold improvements, and $0.4 million related to pre-opening
costs of the restaurant.
Future development of Champps restaurants will be accomplished primarily through
the development of Champps-owned restaurants. The development of additional
restaurants is contingent upon locating satisfactory sites, financing,
negotiating satisfactory leases or, alternatively, leasing and converting
existing restaurant sites into Champps restaurants. It is also dependent upon
securing appropriate governmental permits and obtaining liquor licenses. During
fiscal 2000, four new Champps Company-owned restaurants were opened and two
restaurants were acquired from a franchisee. During fiscal 1999, two new Champps
Company-owned restaurants were opened. At July 2, 2000, the Company was in
negotiations on several additional sites. Subsequent to year-end, the Company
opened its Las Colinas, Texas restaurant on July 24, 2000. The Company expects
to open three to four additional stores in fiscal 2001 and six to eight
additional stores in fiscal 2002. Development of Champps-owned restaurants will
be concentrated in existing markets with population density levels sufficient to
support the restaurants and new markets with consistent demographics to the
Company's most successful, existing restaurants.
Franchising and Licensing
Champps has offered franchises in markets where it deems expansion to be
advantageous to the development of the Champps concept and a system of
restaurants. Pursuant to franchise agreements, franchisees are granted an
exclusive territorial license to operate a single restaurant within a specified
area. As of July 2, 2000, there are thirteen franchised restaurants, of which,
two franchisees are operating multiple restaurants.
The franchisee agreement requires a franchisee to pay an initial fee of $75,000
per restaurant (part of which may be associated with a development fee), a
continuing royalty fee of 3 1/4% of gross sales, and may provide for a regional
and/or national advertising fee of 1/2% of gross sales at such time as Champps
establishes a regional/national advertising program. Among the services and
materials that Champps may provide to franchisees are site selection assistance,
assistance in design development, an operating manual that includes quality
control and service procedures, training, on-site pre-opening supervision and
consultation relating to the operation of the franchised restaurants. Champps
has granted both single and multi-restaurant development rights depending upon
market factors and franchisee capabilities. With respect to multi-restaurant
agreements, the franchisee's continuing right to obtain franchises is contingent
upon the franchisee's continuing compliance with the restaurant development
schedule.
All franchisees are required to operate their restaurants in accordance with
Champps' standards and specifications, including controls over menu selection,
food quality and preparation. Champps approves all restaurant site selections
and applies the same criteria used for its own restaurant sites. Champps
requires all new franchisees to provide at least annual financial statements
reviewed by an independent certified public accountant. Periodic on-site
inspections are conducted to assure compliance with Champps standards and to
assist franchisees with operational issues. Franchisees bear all direct costs
involved in the development, construction and operation of their restaurants.
Champps Restaurant Locations
The following table sets forth the locations of restaurants operated by Champps
and its franchisees as of September 28, 2000:
Company Owned Restaurant Locations Franchised Restaurant Locations
Domestic - Total 25 Domestic - Total 13
CALIFORNIA MINNESOTA
Irvine Burnsville
COLORADO Duluth
Denver Maple Grove
FLORIDA Maplewood
Ft. Lauderdale Minnetonka
GEORGIA New Brighton
Alpharetta St. Paul
ILLINOIS Woodbury
Lombard NEBRASKA
Schaumburg Omaha
INDIANA NORTH CAROLINA
Indianapolis Charlotte
MICHIGAN SOUTH DAKOTA
Livonia Sioux Falls
Troy WISCONSIN
West Bloomfield Milwaukee (2)
MINNESOTA
Eden Prairie
Minnetonka
Richfield
NEW JERSEY
Edison
Marlton
OHIO
Columbus (3)
Dayton
Lyndhurst
TEXAS
Addison
Houston
Las Colinas
San Antonio
VIRGINIA
Reston
Purchasing
On November 15, 1997, the Company entered into a five-year distribution
agreement with Sysco Corporation ("Sysco") pursuant to which Sysco is entitled
to distribute not less than 80% of food and food-related purchases of Champps.
The agreement with Sysco is cancelable by either party upon 60 days notice.
Champps franchisees also have the option of purchasing from Sysco.
Accounting and Management Information Systems
Since its inception with the Spin-off, the Company has provided each of its
operating segments with centralized financial and management controls through
the use of an automated data processing system and prescribed reporting
procedures. The Company continues to upgrade its computer hardware and financial
software. Restaurants forward weekly sales reports, vendor invoices, payroll
information and other operating information to the Company's corporate
headquarters. The Company utilizes this data to centrally monitor sales,
product, labor and other costs and to prepare periodic financial and management
reports. The Company believes that its centralized accounting, payroll, cash
management and information systems permit the Company to control and manage its
operations efficiently.
Effective July 1, 1997, the Company entered into a sale and services agreement
with RCS whereby the Company sold to RCS for an aggregate purchase price of $2.3
million certain data processing equipment. The purchase price was evidenced
through a promissory note due June 30, 2002 which accrued interest at 6% per
annum. The promissory note was contributed to the Company as part of the
Additional Capital Contribution described under the caption "Spin-off". The
Company also received DAKA International's 50% interest in RCS at the
Transaction Date. In connection with this sale, the Company entered into a
management agreement with RCS whereby the Company agreed to provide certain
managerial services to RCS. In addition, the Company entered into a two year
service agreement with RCS for data processing and consulting services for an
annual fee of $1.8 million. This agreement was terminated, and a new three year
agreement between the Company and RCS was entered into as part of the Company's
sale of its ownership interest in RCS. See "Acquisition and Disposition
Transactions". See "Management's Discussion and Analysis of Results of
Operations and Financial Condition" for a discussion of the Company's Y2K
compliance initiatives. The Company consolidated RCS operations for fiscal 1999
and 1998, while the Company maintained 50% ownership of RCS and held the RCS
note.
Competition
The restaurant industry is highly competitive. Champps competes with other
national and international restaurant chains as well as local and regional
operations. Competition within the industry is based principally on the quality,
variety and price of food products served. Site location, quality of service and
attractiveness of facilities are also important factors for a successful
restaurant. The restaurant industry is affected by general economic conditions,
changing tastes, population, traffic patterns and spending habits of guests.
Champps believes that their competitive position is enhanced by providing guests
with a diverse selection of menu items served in bountiful portions at moderate
prices in an upscale and entertaining atmosphere.
The Company also believes factors such as service, cleanliness and atmosphere
are as important in a guest's dining decision as menu and food quality. In
response to this trend, the Company has provided training, education and
motivational programs for its associates to focus on providing quality service
and to sustain a sensitivity to guest needs. The Company believes that by
operating in a professional manner where each of its associates places the guest
first, Champps can win guest loyalty.
Government Regulation
The Company is subject to various federal, state and local laws affecting its
business. Its operations are subject to various health, sanitation and safety
standards, federal and state labor laws, zoning restrictions and state and local
licensing. Federal and state environmental regulations have not had a material
effect on the Company's operations to date. Champps is also subject to federal
and state laws regulating franchise operations and sales. Such laws impose
registration and disclosure requirements on franchisors in the offer and sale of
franchises, or impose substantive standards on the relationship between
franchisor and franchisee.
Champps restaurants are subject to state and local licensing and regulation with
respect to selling and serving alcoholic beverages. The sale of alcoholic
beverages accounted for approximately 33% of Champps' total restaurant sales
during fiscal year 2000 and 1999. The failure to receive or retain, or a delay
in obtaining, a liquor license in a particular location could adversely affect
Champps' or a franchisee's operation in that location. Typically, licenses must
be renewed annually and may be revoked or suspended for cause.
Champps restaurants are subject to "dram shop" statutes in certain states. These
statutes generally give a person injured by an intoxicated person the right to
recover damages from the establishment that has wrongfully served alcoholic
beverages to the intoxicated person. Champps carries liquor liability coverage
in the amount of $1.0 million per occurrence subject to a policy aggregate of
$25.0 million. However, a judgment against Champps under a "dram shop" statute
in excess of Champps' liability coverage, or any inability to continue to obtain
such insurance coverage at reasonable costs, could have a material adverse
effect on the Company.
Research and Development
The Company is engaged in research activities relating to the development or
improvement of new and existing products or services. Champps, together with its
franchisees, utilize test kitchen facilities to develop recipes, test food
products and equipment and set nutritional and quality standards. Champps, and
their franchisees test additional menu items in various markets on an on-going
basis. These tests are coordinated through the corporate headquarters.
Furthermore, the Company employs a professional support staff to establish,
maintain and enforce high standards of sanitation and safety in all phases of
food preparation and service. The cost of research and development currently is
not material to the Company's cost of operations.
Service Marks
The Company, through its operating subsidiaries, has registered a number of
trademarks and service marks, in connection with providing bar and restaurant
services, with the United States Patent and Trademark Office and with certain
states, including the trade names: "Champ's," "Champps," "Champps American
Sports Cafe," and "Champps Entertainment," (collectively, the "Marks").
Pursuant to a Master Agreement dated February 1, 1994, whereby Champps acquired
certain "Champ's" and "Champps" service marks, trademarks and trade names from
Champs Restaurants, Inc. ("CRI"), Champps agreed to pay CRI an annual fee equal
to the lesser of approximately $260,000 or one-quarter percent (0.25%) of the
gross sales of Champps restaurants, but in no event less than $40,000. The
maximum fee payable by Champps is increased annually by the lesser of the
increase in the Consumer Price Index or 4%. Champps is currently arbitrating the
validity and term of the Master Agreement.
All of the service marks, trade names and trademarks are of significant
importance to the businesses of Champps. Champps has also registered various
service marks in several foreign countries. The Company and its subsidiaries
intend to protect their service marks through registration with appropriate
governmental authorities.
Seasonality
Champps sales are historically higher in the fall, winter and spring months, due
primarily to dining habits of its guests, the interest in athletic events at
these times of year which are featured on video walls in the Company's
restaurants and eating out trends of the general public.
Corporate Offices and Employees
Champps Entertainment, Inc. is incorporated under the laws of the State of
Delaware. As of July 2, 2000, the Company employs at its corporate headquarters
approximately 28 employees on a full-time basis, four of which are executive
officers.
Champps Operating Corporation, Inc. is incorporated under the laws of the State
of Minnesota and employs approximately 3,800 employees on a full-time and
part-time basis. Substantially all restaurant employees, other than restaurant
management, are compensated on an hourly basis.
None of the Company's or its subsidiaries' employees are covered by collective
bargaining agreements. The Company considers its relations with its employees to
be good.
The Company maintains its present principal executive offices at 5619 DTC
Parkway, Suite 1000, Englewood, Colorado 80111. The telephone number for the
Company is (303) 804-1333.
Item 2. Properties.
As of July 2, 2000, the Company leased approximately 7,500 square feet of office
space at its corporate headquarters in Englewood, Colorado, at an average annual
rent of $165,000, through January 2005. The Company has terminated both of its
former leases in Danvers, Massachusetts and Wayzata, Minnesota.
Item 3. Legal Proceedings.
The Company assumed certain contingent liabilities of DAKA International in
connection with the Spin-off and agreed to assume certain contingent liabilities
of Fuddruckers for periods prior to its sale to King Cannon , see "Disposition
Transactions" in this Form 10-K. Further, the Company is also engaged in various
other actions arising in the ordinary course of business. The Company believes,
based upon consultation with legal counsel, that the ultimate collective outcome
of these other matters will not have a material adverse effect on the Company's
consolidated financial condition, results of operations or cash flows. See Item
1, "Business - Disposition and Certain Other Transactions - Spin-off Transaction
and Sale of Fuddruckers".
In the third quarter of fiscal 2000, a Washington, D.C. superior court jury
awarded a former Daka, Inc. employee $187,000 in compensatory damages and $4.8
million in punitive damages based on the employee's claim of negligent
supervision and retaliation, due to alleged conduct that occurred in 1996 at a
former Daka food service location. While Daka is now a subsidiary of Compass
Group, PLC., the events at issue in the case took place while a predecessor
company of Champps owned Daka. On March 28, 2000, Daka filed post-trial motions,
including motions to reduce the damage awards, for judgment not withstanding the
verdict, or in the alternative, for a new trial. These motions were subsequently
denied by the court. On September 20, 2000, Daka filed a Notice of Appeal with
the Court of Appeals for the District of Columbia. The Company may be liable for
the payment of any amounts ultimately due by Daka upon final determination of
the appeal. The Company is of the opinion that the ultimate outcome of this
matter will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted by the Company to a vote of Stockholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
the fiscal year for which this report is filed.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
The Company's common stock originally was listed on the NASDAQ National Market
("Nasdaq") under the symbol "UNIQ" from July 17, 1997, the date on which the
Company became a publicly traded company as a result of its spin-off from DAKA,
through July 28, 1999. On July 28, 1999, the Company changed its name from
Unique Casual Restaurants, Inc. to Champps Entertainment, Inc. and changed its
symbol on Nasdaq to "CMPP." The table below sets forth, since such date and for
the calendar periods indicated, the high and low intra-day sales price per share
with respect to fiscal 1999 and closing price with respect to fiscal 2000 of the
Common Stock as reported on the Nasdaq. The Company has no history of market
price for its common stock prior to such date, and data with respect to the
common stock of DAKA, as predecessor of the Company, which was listed on Nasdaq
before July 17, 1997, would not be meaningful.
High Low
Fiscal 1999
First Fiscal Quarter 7.38 4.88
Second Fiscal Quarter 6.94 4.56
Third Fiscal Quarter 6.38 4.56
Fourth Fiscal Quarter 5.25 3.56
Fiscal 2000
First Fiscal Quarter 3.38 2.13
Second Fiscal Quarter 3.50 1.94
Third Fiscal Quarter 4.50 2.94
Fourth Fiscal Quarter 5.50 3.81
On September 28, 2000, there were 2,591 holders of record of the Company's
Common Stock.
The Company has never paid cash dividends on shares of its Common Stock and does
not expect to pay dividends in the foreseeable future. The Company presently has
no plans to buy back shares of the Company Common Stock in the open market.
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
The following table presents selected consolidated data from continuing
operations and balance sheet data of the Company. Data for periods prior to 1999
have been restated to account for the Company's Fuddruckers segment as a
discontinued operation. The balance sheet data as of July 2, 2000, June 27,
1999, June 28, 1998, June 29, 1997 and June 29, 1996 and the statements of
operations data for each of the five fiscal years in the period ended July 2,
2000 presented below are derived from the Company's audited consolidated
financial statements.
For purposes of this Form 10-K and financial reporting purposes, the Company has
been treated as if it was a stand-alone entity for all periods presented. The
Company's results from continuing and discontinued operations, as presented in
the table below for periods prior to July 17, 1997, include allocations and
estimates of certain expenses, including corporate accounting, tax, cash
management, information technology, legal, risk management, purchasing and human
resources, historically provided to the Company by DAKA International.
The selected consolidated financial data should be read in conjunction with the
consolidated financial statements and related notes thereto of the Company and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere in this Annual Report on Form 10-K.
As of and for the Fiscal Years Ended
------------------------------------
July 2, June 27, June 28, June 29, June 29,
2000 1999 1998 1997 1996
------- -------- -------- -------- --------
Statements of Operations Data:
Total Revenues 109,114 87,950 77,700 64,239 45,589
Income (loss) from continuing operations before cumulative
effect of change in accounting for preopening cost 2,350 (14,079) (5,999) (27,389)
Net Income (loss) 2,273 (23,922) (27,735) (39,043) (5,670)
Basic Income (loss) per share from continuing operations 0.20 (1.21) (0.52)
Proforma basic (loss) per share from continuing operations (2.40) (1.11)
Diluted Income (loss) per share from continuing operations 0.19 (1.21) (0.52)
Proforma diluted (loss) per share from continuing operations (2.40) (1.11)
Basic weighted average shares (in thousands):
Historical 11,654 11,622 11,489
Proforma 11,426 11,426
Diluted weighted average shares (in thousands):
Historical 11,742 11,622 11,489
Proforma 11,426 11,426
Balance Sheet Data:
Total assets 67,093 57,142 86,660 110,267 125,239
Long-term debt related to continuing operations,
including current portion 19,324 6,157 6,945 4,256 4,460
Total equity 30,122 27,819 50,398 79,053 108,894
Discontinued operations:
Minority interest and obligations under put agreement
related to the discontinued operations - - 5,400 1,100 1,168
Net long-term assets - - 44,335 65,307 83,591
Net current liabilities - - (4,202) (6,492) (132)
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
General
The following Management's Discussion and Analysis of Results of Operations and
Financial Condition is based upon the historical consolidated financial
statements of the Company, which present the Company's results from continuing
operations, financial position and cash flow. Prior to July 17, 1997, the
Company historically operated as part of DAKA International. The historical
consolidated financial statements for fiscal 1997 include the assets,
liabilities, income and expenses that were directly related to the restaurant
business as operated within DAKA International prior to the Spin-off. The
Company's financial statements for fiscal 1997 include all of the related costs
of doing business, including charges for the use of facilities and for employee
benefits, and includes an allocation of certain general corporate expenses,
including costs for corporate logistics, information technologies, finance,
legal and corporate executives. These allocations of general corporate expenses
were based on a number of factors including, for example, personnel, labor costs
and sales volumes. Management believes these allocations as well as the
assumptions underlying the preparation of the Company's separate consolidated
financial statements to be reasonable.
As a result of the Spin-off, certain other non-restaurant operating assets and
liabilities of DAKA International were contributed to the Company as described
in Note 2 to Financial Statements. Those assets and liabilities consisting of
notes receivable, property, accounts payable, accrued expenses, and contingent
liabilities have been recorded within their respective captions during fiscal
1998 and resulted in a decrease to stockholders' equity of $1.5 million.
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
the following Management's Discussion and Analysis of Results of Operations and
Financial Condition of the Company and elsewhere in this Annual Report on Form
10-K are forward-looking statements within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. Words such as "believe,"
"anticipate," "estimate," "project," and similar expressions are intended to
identify such forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of their
respective dates. Forward-looking statements involve risks and uncertainties,
many of which may be beyond the Company's control. Should one or more of these
risks or uncertainties materialize, or should any of the underlying assumptions
prove incorrect, actual results of current and future operations may vary
materially from those anticipated, estimated or projected. Factors that may
cause such a difference include, among others, the following: the ability of the
Company to successfully implement strategies to improve overall profitability;
the impact of increasing competition in the casual and upscale casual dining
segments of the restaurant industry; changes in general economic conditions
which impact consumer spending for restaurant occasions; adverse weather
conditions; competition among restaurant companies for attractive sites and
unforeseen events which increase the cost to develop and/or delay the
development and opening of new restaurants; increases in the costs of product,
labor, and other resources necessary to operate the restaurants; unforeseen
difficulties in integrating acquired businesses; the availability and terms of
financing for the Company and any changes to that financing; the revaluation of
any of the Company's assets (and related expenses); the ultimate outcome of
certain contingent obligations related to the Company's former Fuddruckers
segment and its other predecessor businesses; the issuance and renewal of
licenses and permits for restaurant development and operations, including the
sale of alcoholic beverages; and the amount of, and any changes to, tax rates.
RESULTS OF OPERATIONS
Overview
The Company reported a net income of $2.3 million for the fiscal year ended July
2, 2000, compared to a net loss of $23.9 million last year. Included in the net
income for fiscal 2000 were charges associated with exit and other charges ($0.5
million); loss on the sale of marketable securities ($1.0 million); and, loss
associated with discounting a mortgage receivable ($0.1 million). Exclusive of
these charges, the Company would have reported a profit from continuing
operations of $3.9 million for fiscal 2000. While the Company believes its
strategies will continue to produce overall profitability, there can be no
assurance that such strategies will continue to be successful. Accordingly, the
Company may again incur operating losses. To sustain profitability, the Company
must, among other things, manage, within acceptable parameters, contingencies
associated with its former businesses including Fuddruckers, its former food
service and Great Bagel and Coffee businesses, continue to reduce selling,
general and administrative expenses as a percentage of sales from historical
levels while continuing to increase net revenues from its restaurants and
successfully executing its growth strategy for the Champps Americana concept.
In Item 1, see "Background" for a discussion of events in fiscal 1999 and 2000
that, in part, will shape the future direction of the Company.
The Company's Champps Americana restaurant chain is in the expansion phase. The
timing of revenues and expenses associated with the opening of new restaurants
are expected to result in fluctuations in the Company's quarterly and annual
results. In addition, the Company's results, and the results of the restaurant
industry as a whole, may be adversely affected by changes in consumer tastes,
discretionary spending priorities, national, regional or local economic
conditions, demographic trends, consumer confidence in the economy, traffic
patterns, weather conditions, employee availability and the type, number and
location of competing restaurants. Changes in any of these factors could
adversely affect the Company.
Among other factors, the success of the Company's business and its operating
results are dependent upon its ability to anticipate and react to changes in
food and liquor costs and, particularly for Champps Americana restaurants, the
mix between food and liquor revenues. Various factors beyond the Company's
control, such as adverse weather changes, may affect food costs and increases in
federal, state and local taxes may affect liquor costs. While in the past, the
Company has been able to manage its exposure to the risk of increasing food and
liquor costs through certain purchasing practices, menu changes and price
adjustments, there can be no assurance that the Company will be able to do so in
the future or that changes in its sales mix or its overall buying power will not
adversely affect the Company's results of operations.
Notwithstanding these risks, the Company believes that its near-term strategies,
including, but not limited to, continued expansion of Champps, improving
operational excellence, and anticipated continued lower general and
administrative expenses from historical levels resulting from actions taken
since June 29, 1997 and the effects of the Spin-off, the Fuddruckers Sale, the
consolidation of corporate headquarters and the sale of non-essential assets and
businesses, and other related transactions, should provide the opportunity for
increased profitability.
Champps
The following table sets forth certain financial information for Champps.
(in thousands)
2000 1999 1998
--------- --------- ---------
Restaurant sales $108,312 $87,392 $73,387
========= ========= =========
Sales from Champps restaurants 100.0% 100.0% 100.0%
Operating Expenses:
Labor costs (32.5) (32.9) (33.0)
Product costs (28.5) (28.8) (29.0)
Other restaurant operating expenses (25.9) (28.1) (27.8)
Depreciation and amortization (3.8) (3.9) (3.9)
--------- --------- ---------
Restaurant unit contribution 9.3% 6.3% 6.3%
========= ========= =========
Restaurant unit contribution $10,125 $ 5,539 $ 4,622
Gain on sale of franchise - 677
Franchising and royalty income 802 558 644
--------- --------- ---------
Restaurant unit, franchising and royalty
contribution $10,927 $ 6,097 $ 5,943
========= ========= =========
Comparison of Fiscal Years Ended July 2, 2000 and June 27, 1999
Sales in Company-owned restaurants increased approximately $20.9 million, or
23.9%, to $108.3 million for fiscal 2000 compared with $87.4 million for fiscal
1999. The increase reflects both an increase in the number of Company-owned
restaurants open between years, and an increase in same store sales. The Company
opened four new restaurants in fiscal 2000. The Company also acquired two
franchised restaurants at June 29, 2000. Same store sales increased
approximately 4.7% in fiscal 2000.
Restaurant unit contribution of $10.1 million for fiscal 2000 was up 82.8% from
$5.5 million in fiscal 1999. The restaurant unit contribution margin increased
to 9.3% for fiscal 2000 from 6.3% in fiscal 1999. Improvements were made in all
expense categories.
Other restaurant operating expenses include controllable restaurant operating
expenses, occupancy costs and pre-opening expenses. Other restaurant operating
expenses expressed as a percentage of sales were 25.9% for fiscal 2000 compared
with 28.1% for fiscal 1999. This decrease reflects lower controllable restaurant
operating expenses between periods, offset, in part, by higher pre-opening
expenses.
Preopening expenses were approximately $1.5 million in fiscal 2000 compared with
$1.2 million in fiscal 1999. This increase relates primarily to the number of
units opened, the timing of construction, and construction in progress between
years. Preopening expenses have historically been approximately $0.4 million per
location.
Comparison of Fiscal Years Ended June 27, 1999 and June 28, 1998
Sales in Company-owned restaurants increased approximately $14.0 million, or
19.1%, to $87.4 million for fiscal 1999 compared with $73.4 million for fiscal
1998. The increase reflects both an increase in the number of Company-owned
restaurants open between years, and an increase in same store sales. The Company
opened two new restaurants in fiscal 1999. Same store sales increased
approximately 2.0% in fiscal 1999.
Restaurant unit contribution of $5.5 million for fiscal 1999 was up 19.9% from
$4.6 million in fiscal 1998. Included in depreciation was $0.4 million related
to the accelerated depreciation of existing point of sale systems. These systems
were replaced by new equipment in the first and second quarters of fiscal 2000,
to enable the implementation of more efficient software at both the operating
level and for corporate financial reporting. Other restaurant operating expenses
include controllable restaurant operating expenses, and also include occupancy
and pre-opening expenses. Other restaurant operating expenses expressed as a
percentage of sales were 28.1% for fiscal 1999 compared with 27.8% for fiscal
1998. This increase reflects both higher occupancy costs and controllable
restaurant operating expenses between periods, offset, in part, by lower
pre-opening expenses. Occupancy costs expressed as a percentage of sales have
increased from 8.5% to 9.2% in fiscal 1998 and 1999, respectively, as a result
of restaurants opened over the last two years. Such restaurants were generally
constructed under a sale-leaseback facility where substantially all of the costs
of construction were financed by the landlord. This facility allowed the Company
to conserve cash but resulted in higher rents in these units when compared with
restaurants built in earlier years.
Pre-opening expenses were approximately $1.2 million in fiscal 1999, compared
with $1.9 million in fiscal 1998. This decrease relates primarily to the number
of units opened, the timing of construction, and construction in progress
between years. Pre-opening expenses have historically been approximately $0.4
million per location.
General and Administrative Expenses
Comparison of Fiscal Year Ended July 2, 2000 and June 27, 1999
General and administrative expenses from continuing operations were
approximately $6.4 million for fiscal 2000 compared with approximately $19.0
million in fiscal 1999. In fiscal 2000, there were no unusual expenses impacting
general and administrative expenses.
In fiscal 1999, general and administrative expenses include losses of $2.7
million of the sale of non-essential assets, $2.7 million in charges related to
predecessor businesses and $2.3 million of the total $2.7 million in losses on
business and lease contracts. Exclusive of these costs, general and
administrative expenses for 1999 would have been $11.3 million. General and
administrative expenses, excluding unusual items have decreased from $11.3
million in fiscal 1999 to $6.4 million for fiscal 2000. The decrease is
primarily the result of consolidation of the Company's former offices in
Massachusetts and Minnesota into one office based in Englewood, Colorado.
Comparison of Fiscal Year Ended June 27, 1999 and June 28, 1998
General and administrative expenses from continuing operations were
approximately $19.0 million for fiscal 1999, compared with approximately $10.8
million in fiscal 1998. In fiscal 1999, general and administrative expenses
include a loss of $2.7 million of the sale of non-essential assets and $2.7
million in charges related to predecessor businesses, and $2.3 million in
diminution of business contracts and asset lives. Exclusive of these costs,
general and administrative expenses for 1999 would have been $11.3 million.
Income Taxes
Prior to July 17, 1997, the operations of the Company were generally included in
the consolidated U.S. federal income tax return and certain combined and
separate state and local tax returns of DAKA International. A benefit in lieu of
taxes for 1997 has been presented as if the Company was a separate taxpayer. For
fiscal year 2000, the Company utilized its net operating loss carryforwards to
offset income of $2.3 million. No benefit for net operating losses were
recognized in fiscal 1999. As of July 2, 2000, the Company had net operating
loss carryforwards of approximately $46.0 million. The carryforwards expire at
various dates through fiscal 2019. The carryforwards are not currently subject
to Section 382 limitations.
Year 2000 Compliance
The statements in the following section include "Year 2000 Readiness Disclosure"
within the meaning of the year 2000 Information and Readiness Disclosure Act.
The Company has experienced no material Year 2000-date related disruptions or
other significant problems.
Through July 2, 2000, the Company has spent approximately $640,000 on upgrading
its systems and hardware to evaluate and mitigate its exposure in areas where
appropriate including, payroll, point of sale, accounting and financial
reporting core systems. Based on currently available information, management
continues to believe that Year 2000-date related disruptions or other problems,
if any, will not have a significant adverse impact on its operational results or
financial condition. As of July 2, 2000, the Company is anticipating no further
expenditures or issues relative to the Year 2000 issue.
FINANCIAL CONDITION AND LIQUIDITY
The working capital needs of companies engaged in the restaurant industry are
generally low as sales are made for cash, and purchases of food and supplies,
and other operating expenses are generally paid in 30 to 60 days after receipt
of invoices and labor costs are paid bi-weekly. Capital expenditures for
expansion during fiscal 2000, 1999 and 1998 were generally provided through cash
balances (including in fiscal 1999 a portion of the proceeds from the
Fuddruckers Sale) and proceeds from sale-leaseback and mortgage facilities.
Capital expenditures were $13.9 million, $10.4 million and $5.4 million for
continuing operations, respectively, for fiscal 2000, 1999 and 1998.
During 2000, the Company acquired two restaurants from existing franchisees. The
restaurants, located in Eden Prairie, Minnesota and Minnetonka, Minnesota, were
acquired for approximately $11.4 million. The assets acquired were valued at
approximately $7.5 million for building and equipment and an additional $60,000
for smallwares inventory. The resulting goodwill of approximately $3.8 million
will be amortized over a twenty-year period. The Company obtained mortgage
financing for these properties totaling $9.5 million.
At the end of fiscal 2000, the Company's unrestricted cash was $4.4 million and
restricted cash was $0.4 million. The Company anticipates that it will continue
to generate positive cash flow in the fiscal year 2001; however, there are also
significant cash expenditures anticipated during the forthcoming year.
During fiscal 2001, the Company anticipates receipt of $0.5 million from the
sale of a former Fuddruckers property currently listed on the balance sheet as
"Asset held for sale." The Company currently has a $3.0 million commitment for
the sale leaseback of its Las Colinas, Texas restaurant which was opened July
24, 2000. The Company also has a tenant improvement allowance of $0.5 million
which it intends to receive in the second quarter of fiscal 2001 associated with
the completion of its West Bloomfield, Michigan restaurant.
Anticipated in fiscal 2001 are capital expenditures of approximately $14.0
million, primarily for new restaurants and standard remodeling and upgrades in
existing restaurants. These expenditures will be funded through cash flow from
existing operations, and through tenant improvement allowances associated with
new restaurants.
It is also anticipated that there will be substantial cash payments in fiscal
2001 associated with liabilities previously recorded in fiscal 1998 and 1999
related to the Spin-off Transaction and Fuddruckers Sale transactions and the
consolidation and relocation of the headquarters to Englewood, Colorado.
Included in these cash payments, the Company anticipates that there will be
payments for prior year insurance claims, tax audits and legal settlements.
These latter expenditures are estimated to range between $1.5 million to $2.5
million for fiscal 2001.
The impact of inflation and changing prices has had no measurable impact on net
sales and revenue or income from continuing operations during the last three
fiscal years.
Item 7A. Quantitative and Qualitative Market Risk Disclosures
The market risk exposure inherent in the Company's financial instruments and
consolidated financial position represents the potential losses arising from
adverse changes in interest rates. The Company is exposed to such interest rate
risk primarily in its significant investment in cash and cash equivalents and
the use of fixed and variable rate debt to fund its acquisitions of property and
equipment in past years and the implicit investment rate in the Company's
sale-leaseback arrangements.
Market risk for cash and cash equivalents and fixed rate borrowings is estimated
as the potential change in the fair value of the assets or obligations resulting
from a hypothetical ten percent adverse change in interest rates, which would
not have been significant to the Company's financial position or results of
operations during 2000. The effect of a similar hypothetical change in interest
rates on the Company's variable rate debt and the investment rates implicit in
the Company's sale-leaseback arrangements also would have been insignificant due
to the immaterial amounts of borrowings outstanding under the Company's credit
arrangements. For additional information about the Company's financial
instruments and these financing arrangements, see "Notes to Consolidated
Financial Statements".
Item 8. Financial Statements and Supplementary Data.
The information required under this Item 8 is set forth on pages F-1 through
F-25 of this Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Change in Accountants
On April 3, 2000, the Company determined not to renew the engagement of Deloitte
& Touche LLP as independent accountants for the Company and the Company engaged
Arthur Andersen, L.L.P. as independent accountants to audit and report upon the
Company's financial statements for the current fiscal year ending July 2, 2000.
The determination by management and the Audit Committee not to renew the
engagement of Deloitte & Touche LLP was approved by the Board of Directors.
At the end of fiscal 1998 and in October 1999 Deloitte & Touche LLP verbally
reported to the Audit Committee and senior management that the Company needed to
improve certain aspects of its internal control structure and accounting
operations to ensure the filing of its financial statements on a reliable and
timely basis. Under standards established by the American Institute of Certified
Public Accountants these matters were considered by Deloitte & Touche LLP to be
reportable conditions and material weaknesses when viewed in the aggregate. The
Company has taken action on the recommendations received from Deloitte & Touche
LLP.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors of the Registrant
Incumbent Directors
The following table sets forth certain information regarding current members of
the Board of Directors:
Principal Director Expiration
Name Age Occupation Since of Term Class
- --------------------------- ------ ------------------------------------ ---------- --------- ---------
William H. Baumhauer 52 Chairman, President and Chief June 1999 2001 II
Executive Officer of the Company
Timothy R. Barakett 35 Chairman of Atticus Capital, L.L.C. March 1999 2000 I
James Goodwin 44 Independent Consultant March 1999 2000 I
Nathaniel P.J.V. Rothschild 29 President of Atticus August 1999 2001 II
Capital, L.L.C.
Alan D. Schwartz 50 Senior Managing Director of May 1997 2000 III
Corporate Finance for Bear,
Stearns & Co., Inc.
The name, age and principal occupation during the past five years and other
information concerning each director are set forth below:
William H. Baumhauer has served as a Director and Chairman of the Board of
Directors since August 23, 1999, and as President and Chief Executive Officer
since June 24, 1999. Mr. Baumhauer also held these positions with the Company or
its predecessors from September 1988 until July 24, 1998, when he left the
Company to serve as President and Chief Operating Officer of Planet Hollywood
International, Inc., a position he held until his return to the Company on June
24, 1999. Subsequent to his return to the Company, on October 12, 1999, Planet
Hollywood filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Timothy R. Barakett, 35, has been the Chairman of Atticus Capital, L.L.C., a
private investment management company and an affiliate of Atticus Partners,
since October 1995. From June 1993 until March 1995, Mr. Barakett was a Managing
Director at Junction Advisors, Inc. a private investment management company. Mr.
Barakett also serves as a director of RIT Capital Partners plc., and Groupe
Andre, SA.
James Goodwin, 44, has been a private investor since 1998. From 1990 until
February 1998, Mr. Goodwin was a Managing Director at Gleacher Natwest, Inc., an
investment banking company. Mr. Goodwin also serves as a Director for Kiewet
Materials Company located in Omaha, Nebraska.
Nathaniel P.V.J. Rothschild, 29, has been President of Atticus Capital, L.L.C.
since January 2000, and member of Atticus Capital, L.L.C., a private investment
management company and an affiliate of Atticus Partners, since March 1996. From
March 1995 to March 1996 was a Financial Analyst at Gleacher Natwest, Inc., an
investment banking company. Mr. Rothschild is the Chairman and Director of
Groupe Andre, SA.
Alan D. Schwartz, 50, has served as a Director of the Company or its
predecessors since September 1988 and served as a Director of Fuddruckers, Inc.
from September 1984 until its merger with DAKA in 1988. Mr. Schwartz is Senior
Managing Director-Corporate Finance of Bear, Stearns & Co., Inc., and a Director
of its parent The Bear Stearns Companies, Inc. He has been associated with such
investment banking firms for more than five years. Mr. Schwartz is also a
Director of Young & Rubicam, Inc., Atwood Richards, Inc., St. Vincent's
Services, the American Foundation for AIDS Research, the New York Blood Center
and NYU Medical Center and a member of the Board of Visitors of the Fuqua School
of Business at Duke University.
Meetings and Committees
The Board of Directors of the Company has a Compensation Committee, a Nominating
Committee and an Audit Committee. During the fiscal year 2000, the Board of
Directors held seven meetings and the Audit Committee held four meetings. The
Nominating Committee and the Compensation Committee did not meet separately, as
their duties were performed at meetings of the full Board of Directors. Each
director attended 75% or more of the aggregate of (a) the total number of
meetings of the board of Directors during fiscal year 2000, and (b) the total
number of meetings held by all committees of the Board of Directors on which
such director served during fiscal year 2000. The Audit Committee has the
responsibility of selecting the Company's independent auditors and communicating
with the Company's independent auditors on matters of auditing and accounting.
The Audit Committee is currently composed of Mr. Barakett, Mr. Goodwin and Mr.
Rothschild.
The Compensation Committee has the responsibility of reviewing on an annual
basis all officer and employee compensation. The Compensation Committee is
currently composed of Mr. Barakett, Mr. Goodwin, Mr. Rothschild and Mr.
Schwartz.
Executive Officers of the Registrant
Certain information is set forth below concerning the executive officers of the
Company, each of whom has been elected to serve until the regular meeting of the
Board of Directors and until his successor is duly elected and qualified. The
executive officers of the Company are as follows:
Name Age Position
William H. Baumhauer 52 Director, Chairman of the Board of Directors,
President and Chief Executive Officer
Donna L. Depoian 40 Vice President, General Counsel and Secretary
Frederick J. Dreibholz 45 Vice President, Chief Financial Officer,
and Treasurer
William H. Baumhauer has served as a Director and Chairman of the Board of
Directors since August 23, 1999, and as President and Chief Executive Officer
since June 24, 1999. Mr. Baumhauer also held these positions with the Company or
its predecessors from September 1988 until July 24, 1998, when he left the
Company to serve as President and Chief Operating Officer of Planet Hollywood
International, Inc., a position he held until his return to the Company on June
24, 1999. Subsequent to his return to the Company, on October 12, 1999, Planet
Hollywood filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Donna L. Depoian has served as Vice President, General Counsel and Secretary of
the Company since May 1998. She served as Acting General Counsel and Assistant
Secretary from February 1998 to May 1998 and as Corporate Counsel and Assistant
Secretary since July 1997. Ms. Depoian also served as Corporate Counsel and
Assistant Secretary for DAKA International, Inc. since April 1994. From May 1989
to April 1994, she practiced as an attorney for Bass & Doherty, P.C., a Boston
law firm concentrating in business and commercial real estate. From February
1988 to April 1989 she practiced as an attorney for Rossman, Rossman and
Eschelbacher, a Boston based law firm.
Frederick J. Dreibholz has served as Vice President, Chief Financial Officer and
Treasurer since October 1999. From April 1997 to November 1998, he served as
Chief Financial Officer of Unique Casual Restaurants, Inc. and Sforza
Enterprises, Inc. From November 1987 to April 1997, he served as Chief Financial
Officer of Flik International Corp. From June 1977 to April 1987, he held
various management and finance positions with Sky Chefs. From November 1998 to
October 1999, Mr. Dreibholz acted as a consultant to numerous restaurant and
food service clients in South Florida and New York City.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the
section captioned "Executive Compensation" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated by reference to the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.
Item 13. Certain Relationships And Related Transactions.
The information required by this Item is incorporated by reference from the
sections captioned "Certain Relationship and Related Transactions" contained in
the Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following are being filed as part of this Annual Report on Form 10-K.
A. Financial Statements:
Reports of Independent Auditors
Consolidated Balance Sheets - July 2, 2000 and June 27, 1999
Consolidated Statements of Operations - Fiscal years ended July 2, 2000,
June 27, 1999, and June 28, 1998
Consolidated Statements of Cash Flows - Fiscal years ended July 2, 2000,
June 27, 1999 and June 28, 1998
Consolidated Statements of Changes in Stockholders' Equity - Fiscal
years ended July 2, 2000, June 27, 1999 and June 28, 1998
Notes to Consolidated Financial Statements
B. Financial Statement Schedules:
There are no Financial Statement Schedules required to be filed.
Information required by Article 12 of Regulation S-X with respect to
Valuation and Qualifying Accounts has been included in the Notes to the
Consolidated Financial Statements.
C. Exhibits:
*2.1 Agreement and Plan of Merger, dated as of May 27, 1997, by and among
Compass Interim, Inc. ("Compass Interim"), Compass Holdings, Inc.
("Purchaser"), Compass Group PLC ("Parent") and DAKA International, Inc.
("DAKA International").
*2.2 Reorganization Agreement dated as of May 27, 1997, by and among DAKA
International, Daka, Inc. ("Daka"), the Company, Parent and Compass
Holdings, together with certain exhibits thereto.
*2.3 Agreement and Plan of Merger among Champps Entertainment, Inc.
("Champps"), DAKA and CEI Acquisition Corp., dated as of October 10,
1995, incorporated herein by reference to DAKA's Registration Statement
on Form S-4 (File No. 33-65425) ("1996 DAKA Form S-4").
**2.4 Series D Convertible Preferred Stock and Warrant Purchase Agreement,
dated as of January 12, 1996, by and among La Salsa Holding Co. and
Casual Dining Ventures, Inc. Pursuant to Item 601(b)(2) of Regulation
S-K, the Schedules to the Series D Convertible Preferred Stock and
Warrant Purchase Agreement are omitted. The Company hereby undertakes to
furnish supplementally a copy of any omitted Schedule to the Commission
upon request.
**2.5 Stock Purchase Agreement, dated as of March 18, 1996, by and among
Casual Dining Ventures, Inc., DAKA, Champps Development Group, Inc.,
Steven J. Wagenheim, Arthur E. Pew, III, PDS Financial Corporation,
Douglas B. Tenpas and certain other stockholders of Americana Dining
Corp. Pursuant to Item 601(b)(2) of Regulation S-K, the Schedules to the
Stock Purchase Agreement are omitted. The Company hereby undertakes to
furnish supplementally a copy of any omitted Schedule to the Commission
upon request.
**2.6 Asset Purchase Agreement, dated March 18, 1996, between Americana Dining
Corp., as Seller, and New Brighton Ventures, Inc., as Buyer. Pursuant to
Item 601(b)(2) of Regulation S-K, the Schedules to the Asset Purchase
Agreement are omitted. The Company hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the Commission upon
request.
**2.7 Stock Purchase Agreement, dated as of March 29, 1996, by and among DAKA,
The Great Bagel & Coffee Franchising Corp., GBC Credit Company, Gemini
Production Facility, Inc., The Great Bagel & Coffee Company, Mark C.
Gordon, Brian H. Loeb, Jason R. Olivier, Michael F. Zerbib, Nicholas D.
Zerbib, and Thierry E. Zerbib. Pursuant to Item 601(b)(2) of Regulation
S-K, the Schedules to the Stock Purchase Agreement are omitted. The
Company hereby undertakes to furnish supplementally a copy of any
omitted Schedule to the Commission upon request.
**2.8 Stock Purchase Agreement, dated as of March 31, 1996, by and among
Casual Dining Ventures, Inc., DAKA and Edgebrook, Inc. Pursuant to Item
601(b)(2) of Regulation S-K, the Schedules to the Stock Purchase
Agreement are omitted. The Company hereby undertakes to furnish
supplementally a copy of any omitted Schedule to the Commission upon
request.
*3.1 Certificate of Incorporation of the Company.
*3.2 By-laws of the Company
*3.3 Form of Amended and Restated Certificate of Incorporation of the
Company.
*3.4 Form of Amended and Restated By-laws of the Company.
3.5 Certificate of Designations, Preferences and Rights of a Series of
Preferred Stock of the Company, dated January 30, 1998, incorporated
herein by reference to the Company's Current Report on Form 8-K filed
February 2, 1998.
4.2 Amended and Restated Shareholder Rights Agreement, dated as of January
30, 1998, between the Company and American Stock Transfer and Trust
Company, as Rights Agent, incorporated herein by reference to the
Company's Current Report on Form 8-K filed February 2, 1998.
*4.1 Specimen Stock Certificate for shares of the UCRI Common Stock.
*10.1 Tax Allocation Agreement dated as of May 27, 1997, by and among DAKA,
the Company, and Parent.
*10.2 Post-Closing Covenants Agreement, dated as of May 27, 1997, by and among
DAKA, Daka, Inc., the Company, Champps, Fuddruckers, Inc., Purchaser and
Parent.
*10.3 Stock Purchase Agreement, dated as of May 26,1997, between DAKA, Parent,
Purchaser, First Chicago Equity Corporation, Cross Creek Partners I and
the other holders of Series A Preferred Stock of DAKA.
*10.4 Form of the Company's 1997 Stock Option and Incentive Plan.
*10.5 Form of the Company's 1997 Stock Purchase Plan.
*10.6 Form of Indemnification Agreement, by and between the Company and
directors and officers of DAKA.
**10.7 Third Amended and Restated Registration Rights Agreement, dated as of
January 12, 1996, by and among La Salsa Holding Co., FMA High Yield
Income L.P., WSIS Flexible Income Partners L.P., WSIS High Income L.P.,
Howdy S. Kabrins, La Salsa, Inc., Crown Associates III, L.P.,
Crown-Glynn Associates, L.P., Nueberger & Berman as Trustee for the
Crown Trust, Theodore H. Ashford, Noro-Moseley Partners II, L.P.,
Seidler Salsa, L.P., Bankers Trust Company as Master Trustee for Hughes
Aircraft Retirement Plans, Charles A. Lynch, Sienna Limited Partnership
I, Sienna Limited Partnership II, Sienna Holdings, Inc., as Nominee,
InterWest Partners IV, Donald Benjamin, Vicki Tanner, Ronald D.
Weinstock, Inc., Frank Holdraker, and Casual Dining Ventures, Inc.
**10.8 Fourth Amended and Restated Restricted Stock Agreement, dated as of
January 12, 1996, by and among La Salsa Holding Co., Howdy S. Kabrins,
La Salsa, Inc., InterWest Partners IV, Sienna Holding, Inc., Sienna
Limited Partnership I, Charles A. Lynch, Theodore H. Ashford, Crown
Associates III, L.P., Crown-Glynn Associates, L.P., Nueberger & Berman
as Trustee for The Crown Trust, Noro-Moseley Partners II, L.P., Seidler
Salsa, L.P., Bankers Trust Company, as Master Trustee, for Hughes
Aircraft Retirement Plans, FMA High Yield Income L.P., WSIS Flexible
Income Partners L.P., WSIS High Yield Income L.P., Sienna Limited
Partnership II, Donald Benjamin, Vicki Tanner, Ronald D. Weinstock,
Inc., Frank Holdraker, and Casual Dining Ventures, Inc.
**10.9 La Salsa Holding Co. Warrant to Purchase Shares of Series D Convertible
Preferred Stock, dated as of January 12, 1996, issued to Casual Dining
Ventures, Inc. by La Salsa Holding Co.
**10.10 Severance, Non-Competition and Confidentiality Agreement, dated as of
March 18, 1996, between Steven J. Wagenheim and Americana Dining Corp.
**10.11 La Salsa License Agreement, dated as of February 14, 1996, by and
between La Salsa Franchise, Inc. and La Salsa Holding Co.
10.12 Separation Agreement, dated as of February 2, 1998, by and among Dean P.
Vlahos, the Company and Champps.
10.13 Asset Purchase Agreement, dated as of February 2, 1998, by and between
Dean P. Vlahos and Champps.
10.14 Champps Restaurant Development Agreement, dated as of February 2, 1998,
by and between Dean P. Vlahos and Champps.
10.15 Stock Purchase Agreement, dated as of July 31, 1998, by and between King
Cannon, Inc. and Unique Casual Restaurants, Inc.
10.16 Employment Agreement, dated as of June 24, 1999, by and between Unique
Casual Restaurants, Inc. and William H. Baumhauer.
10.17 Termination Agreement and General Release, dated July 21, 1999, by and
between Champps Entertainment, Inc., Champps Operating Corporation and
Donald C. Moore.
10.18 Non-negotiable Promissory Note, dated August 2, 1999, payable by Donald
C. Moore to Champps Entertainment, Inc.
10.19 Asset Purchase Agreement, dated April 6, 2000, made by and between
Prairie Restaurant Group, Inc. and Champps Operating Corporation.
10.20 Asset Purchase Agreement, dated April 6, 2000, made by and between Dean
P. Vlahos and the Breagan Investment Group, Inc. and Champps Operating
Corporation.
21.1 Subsidiaries of the Company.
23.1 Consent of Arthur Andersen, LLC
23.2 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney.
* Incorporated herein by reference to the Company's Registration Statement
on Form 10 filed June 3, 1997, as amended.
** Incorporated herein by reference to the Annual Report on Form 10-K of
DAKA International for the year ended June 29, 1996.
D. Reports on Form 8-K
Not applicable.
SIGNATURES
Pursuantto the requirements of Section 13 or 15(d) 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.
CHAMPPS ENTERTAINMENT, INC.
(Registrant)
By: /s/William H. Baumhauer
William H. Baumhauer
Chairman of the Board, President and
Chief Executive Officer
Date: September 28, 2000
By: /s/Frederick J. Dreibholz
Frederick J. Dreibholz
Vice President, Chief Financial Officer
and Treasurer
Date: September 28, 2000
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, and
in the capacities and on the date indicated.
Signature Title
William H. Baumhauer Chairman of the Board
Timothy Barakett* Director
James Goodwin* Director
Nathaniel Rothschild* Director
Alan D. Schwartz* Director
*By: /s/Frederick J. Dreibholz Date: September 28, 2000
Frederick J. Dreibholz
Vice President, Chief Financial Officer and Treasure
Report of Independent Public Accountants
To: Champps Entertainment, Inc.
We have audited the accompanying consolidated balance sheet of Champps
Entertainment, Inc. and subsidiaries as of July 2, 2000 and the related
consolidated statement of operations, cash flows and changes in shareholders'
equity for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly the consolidated financial position of Champps Entertainment, Inc. and
subsidiaries as of July 2, 2000 and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.
Arthur Andersen LLP
Denver, Colorado,
September 5, 2000.
(except Note 13 as to which
the date is September 20, 2000)
INDEPENDENT AUDITORS' REPORT
Champps Entertainment, Inc.:
We have audited the accompanying consolidated balance sheet of Champps
Entertainment, Inc. and subsidiaries (formerly Unique Casual Restaurants, Inc.)
as of June 27, 1999 and the related consolidated statements of operations, cash
flows and changes in stockholders' equity for each of the two years in the
period ended June 27, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies as of June 27, 1999
and the results of their operations and their cash flows for each of the two
years in the period ended June 27, 1999, in conformity with generally accepted
accounting principles.
Deloitte & Touche LLP
Boston, Massachusetts
October 1, 1999
Champps Entertainment, Inc.
Consolidated Balance Sheets
As of July 2, 2000 and June 27, 1999
(In thousands)
2000 1999
----- -----
ASSETS
Current assets:
Cash and cash equivalents $ 4,373 $ 7,240
Restricted cash, current 437 397
Accounts receivable, net 1,512 1,288
Inventories 2,022 1,205
Prepaid expenses and other current assets, net 1,320 1,637
Net assets held for sale 452 1,665
-------- --------
Total current assets 10,116 13,432
Restricted cash, non-current - 2,596
Property and equipment, net 52,555 36,096
Investment - 2,748
Goodwill 3,825 -
Other assets, net 597 2,270
-------- --------
Total assets $ 67,093 $ 57,142
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,507 $ 5,264
Accrued expenses 7,520 8,679
Current portion of capital lease obligations 1,873 1,843
Current portion of notes payable 657 167
-------- --------
Total current liabilities 14,557 15,953
Capital lease obligations, net of current portion 2,191 4,064
Notes payable, net of current portion 14,603 83
Other long-term liabilities 5,620 9,223
-------- --------
Total liabilities 36,971 29,323
-------- --------
Commitments and contingencies (Note 12 and 13)
Shareholders' equity:
Common stock ($.01 par value per share; authorized 30,000 shares and 11,659
and 11,647 issued and outstanding at July 2,
2000 and June 27, 1999, respectively) 117 116
Additional paid-in capital 79,389 79,360
Accumulated deficit (49,384) (51,657)
-------- --------
Total shareholders' equity 30,122 27,819
-------- --------
Total liabilities and shareholders' equity $ 67,093 $ 57,142
======== ========
The accompanying notes are an integral part of these balance sheets.
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years Ended
July 2, 2000, June 27, 1999 and June 28,1998
(In thousands, except per share data)
2000 1999 1998
-------- -------- ---------
Revenues:
Sales $ 108,312 $ 87,392 $ 76,711
Franchising and royalty, net 802 558 989
--------- --------- ---------
Total revenues 109,114 87,950 77,700
--------- --------- ---------
Costs and expenses:
Cost of sales and operating expenses 94,115 78,412 69,310
General and administrative expenses 6,804 18,998 10,804
Depreciation and amortization 4,072 3,441 3,080
Impairment, exit and other charges 460 1,305 1,436
Gain on sale of restaurant to related party - - (677)
Other expenses (income), net 279 (127) (254)
Loss of sale of marketable securities 1,034 - -
--------- --------- ---------
Total costs and expenses 106,764 102,029 83,699
--------- --------- ---------
Income (loss) from continuing operations before
cumulative effect of change in accounting for
preopening costs 2,350 (14,079) (5,999)
--------- --------- ---------
Loss from discontinued operations:
Income (loss) from discontinued operations - 910 (20,749)
Loss on disposal of discontinued operations - (10,753) -
--------- --------- ---------
Loss from discontinued operations - (9,843) (20,749)
--------- --------- ---------
Income (loss) before cumulative effect of change
in accounting for preopening costs 2,350 (23,922) (26,748)
Cumulative effect of change in accounting for
preopening costs - - (987)
--------- --------- ---------
Net income (loss) before provision for income
taxes 2,350 (23,922) (27,735)
Provision for income taxes 77 - -
--------- --------- ---------
Net income (loss) $ 2,273 $ (23,922) $ (27,735)
========= ========= =========
Basic income (loss) per share:
Income (loss) before discontinued operations
and cumulative effect of accounting change $ 0.20 $ (1.21) $ (0.52)
Loss from discontinued operations - (0.85) (1.81)
Cumulative effect of accounting change - - (0.08)
--------- --------- ---------
Net income (loss) $ 0.20 $ (2.06) $ (2.41)
========= ========= =========
Diluted income (loss) per share:
Income (loss) before discontinued operations
and cumulative effect of accounting change $ 0.19 $ (1.21) $ (0.52)
Loss from discontinued operations - (0.85) (1.81)
Cumulative effect of accounting change - - (0.08)
--------- --------- ---------
Net income (loss) $ 0.19 $ (2.06) $ (2.41)
========= ========= =========
Basic weighted average shares outstanding 11,654 11,622 11,489
========= ========= =========
Diluted weighted average shares outstanding 11,742 11,622 11,489
========= ========= =========
The accompanying notes are an integral part of these financial statements.
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Fiscal Years Ended July 2, 2000, June 27, 1999 and
June 28,1998 (In thousands)
Additional
Common Paid-in Accumulated Group
Shares Stock Capital Deficit Equity Total
------ ----- ------- ------- ------ -----
Balance, June 29, 1997 1 $ - $ - $ - $ 79,053 $ 79,053
Net liabilities contributed by -
former Parent - - - - (1,528) (1,528)
Common stock issued in -
connection with distribution -
by former Parent 11,425 114 77,411 - (77,525) -
Common shares issued 167 2 606 - - 608
Net loss - - - (27,735) - (27,735)
-------------------------------------------------------------------------------
Balance, June 28, 1998 11,593 116 78,017 (27,735) - 50,398
Common shares issued 54 - 100 - - 100
Non-cash compensation - - 1,243 - - 1,243
Net loss - - - (23,922) - (23,922)
-------------------------------------------------------------------------------
Balance, June 27, 1999 11,647 116 79,360 (51,657) - 27,819
Common shares issued 12 1 29 - - 30
Net income - - - 2,273 - 2,273
-------------------------------------------------------------------------------
Balance, July 2, 2000 11,659 $ 117 $ 79,389 $(49,384) $ - $ 30,122
===============================================================================
The accompanying notes are an integral part of these financial statements.
CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years Ended
July 2, 2000, June 27, 1999 and June 28,1998
(In thousands)
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 2,273 $ (23,922) $ (27,735)
Cumulative effect of change in accounting for preopening costs - - 987
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 4,448 4,145 10,227
Non-cash compensation from continuing operations 500 331 265
Non-cash compensation from discontinuing operations - 912 -
Gain on sale of property and equipment - - (56)
Gain on sale of restaurant to related party - - (677)
Loss on write-off of notes receivable 146 - -
Impairment, exit costs and other charges 460 1,305 24,625
Loss on investment - 2,252 -
Loss on sale of La Salsa Investment 1,034 - -
Changes in assets and liabilities, net of dispositions:
Restricted cash 2,556 (391) 2,398
Changes in current assets and liabilities, net (1,968) (205) (10,980)
Changes in other long-term assets and liabilities, net (1,639) 1,470 2,473
-------- -------- --------
Net cash provided by (used in) operating activities 7,810 (14,103) 1,527
-------- -------- --------
Cash flows from investing activities:
Net proceeds from sale of discontinued operations - 33,068 -
Proceeds from sale of La Salsa Investment 1,714 - -
Purchase of property and equipment (13,929) (10,391) (7,318)
Purchase of restaurants from franchisees (11,350) - -
Proceeds from sale of restaurant to related party - - 1,515
Net proceeds from net assets held for sale 768 - -
-------- -------- --------
Net cash (used in) provided by investing activities (22,797) 22,677 (5,803)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock 30 100 343
Repayment of debt (2,410) (1,811) (1,865)
Proceeds from equipment financing - 1,023 3,642
Proceeds from mortgage financing 14,500 - -
-------- -------- --------
Net cash provided by (used in) financing activities 12,120 (688) 3,458
-------- -------- --------
Net (decrease) increase in cash and cash equivalents (2,867) 7,886 (818)
Cash and cash equivalents (overdrafts), beginning of period 7,240 (646) 172
-------- -------- --------
Cash and cash equivalents (overdrafts), end of period $ 4,373 $ 7,240 $ (646)
======== ======== ========
The accompanying notes are an integral part of the financial statements.
CHAMPPS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fiscal Years Ended
July 2, 2000, June 27, 1999 and June 28, 1998
(Dollars in thousands, except per share amounts)
1. Background and Basis of Presentation
Background
Champps Entertainment, Inc. (the "Company"), formerly known as Unique Casual
Restaurants, Inc., is a Delaware corporation formed on May 27, 1997 in
connection with the spin-off to holders of the common stock of DAKA
International, Inc. ("DAKA International") pursuant to the transactions
described below in Note 2 (the "Spin-off" or "Spin-off Transaction"). At
inception, and continuing through November 1998, the Company's principal
business activities were to own and operate the restaurant operations previously
operated by various subsidiaries and divisions of DAKA International prior to
the formation and the Spin-off of the Company. At July 2, 2000, the Company's
principal business activity is to own, operate and franchise Champps Americana
casual dining restaurants. The Company's Champps operations serve customers in
upscale restaurant settings throughout the United States.
Basis of Presentation
The accompanying consolidated financial statements include, for various periods
of time, the accounts of the Company, Champps Operating Corporation, Inc., the
Great Bagel & Coffee Company ("Great Bagel & Coffee"), Casual Dining Ventures,
Inc. ("CDVI") and Restaurant Consulting Services, Inc. ("RCS"). Great Bagel &
Coffee ceased operations on June 28, 1998. The Company sold its interest in RCS
on May 24, 1999. On November 24, 1998, the Company completed the sale of all of
the outstanding common stock of Fuddruckers, Inc. ("Fuddruckers") to King
Cannon, Inc. as discussed more fully in Note 4. The historical results of
operations of Fuddruckers, Inc. and its majority owned subsidiary, Atlantic
Restaurant Ventures, Inc. ("ARVI") have been treated as discontinued operations
for all periods. The historical DAKA International basis in the assets and
liabilities of the spun-off operations transferred to the Company in connection
with the transactions described in Note 2 have been recorded as the Company's
initial cost basis. Significant intercompany balances and transactions have been
eliminated in consolidation.
2. Formation of the Company
On May 27, 1997, DAKA International and its wholly-owned subsidiary, Daka, Inc.,
a Massachusetts corporation ("Daka"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Compass Interim, Inc., a Delaware
corporation, a wholly-owned subsidiary of Compass Holdings, Inc., a Delaware
corporation, a wholly-owned subsidiary of Compass Group PLC (collectively
"Compass"), pursuant to which Compass agreed to commence a tender offer (the
"Offer") for all of the outstanding shares of DAKA International common stock
(the "Merger"). The Offer was consummated on July 17, 1997 (the "Spin-off
Transaction Date"). Immediately prior to the consummation of the Offer, pursuant
to a plan of contribution and distribution as described in the Reorganization
Agreement (the "Reorganization Agreement"), dated as of May 27, 1997, by and
among DAKA International, Daka, the Company and Compass, DAKA International and
certain of its subsidiaries made various contributions of assets and equity
interests to each other in the form of dividends and capital contributions in
order to divest DAKA International of its restaurant businesses which were
contributed to the Company.
During 1998, certain remaining non-restaurant operating assets and liabilities
of DAKA International were also contributed to the Company (the "Additional
Capital Contribution") consisting of notes receivable, property and equipment,
and accounts payable, accrued expenses and certain contingent liabilities. These
assets and liabilities resulted in a net decrease to group equity of
approximately $1,500 and have been recorded within their respective captions
during fiscal 1998.
Following the consummation of the Offer, Compass merged with