<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE OF 1934
For the quarterly period ended June 13, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from..............to..............
Commission file number -
AFC ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 58-2016606
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Six Concourse Parkway, Suite 1700
Atlanta, Georgia 30328-5352
(Address of principal executive offices) (Zip Code)
(770) 391-9500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of July 28, 1999, there were 39,303,582 shares of the registrant's Common
Stock outstanding.
<PAGE>
AFC ENTERPRISES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations - For the Twelve and
Twenty-four Week Periods Ended June 13, 1999 and June 14, 1998 ............ 3
Condensed Consolidated Balance Sheets - June 13, 1999 and
December 27, 1998 ......................................................... 4
Condensed Consolidated Statements of Cash Flows - For the Twenty-four
Week Periods Ended June 13, 1999 and June 14, 1998 ........................ 5
Notes to Condensed Consolidated Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................ 11
PART 2 OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .......................................... 24
(a) Exhibits ......................................................... 24
(b) Current Reports on Form 8-K ...................................... 24
SIGNATURE ........................................................................... 24
</TABLE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
AFC Enterprises, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
6/13/99 6/14/98 6/13/99 6/14/98
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales.................................... $130,067 $110,631 $257,415 $207,658
Revenues from franchising........................... 18,042 14,584 34,439 28,435
Wholesale revenues.................................. 11,702 10,130 21,873 10,130
Manufacturing revenues.............................. 2,027 1,828 3,840 3,147
Other revenues...................................... 2,089 2,074 4,116 4,124
-------- -------- -------- --------
Total revenues.................................... 163,927 139,247 321,683 253,494
-------- -------- -------- --------
Costs and expenses:
Restaurant cost of sales............................ 40,075 35,859 78,532 66,800
Restaurant operating expenses....................... 65,503 55,159 131,531 102,786
Wholesale cost of sales............................. 5,845 5,057 10,907 5,057
SCC wholesale operating expenses ................... 2,818 2,216 5,527 2,216
Manufacturing cost of sales......................... 1,417 1,014 2,344 1,652
General and administrative.......................... 24,466 21,709 50,369 41,897
Depreciation and amortization....................... 9,222 10,779 20,870 19,438
-------- -------- -------- --------
Total costs and expenses.......................... 149,346 131,793 300,080 239,846
-------- -------- -------- --------
Income from operations................................ 14,581 7,454 21,603 13,648
Other expenses:
Interest, net........................................ 7,601 7,049 15,610 13,115
-------- -------- -------- --------
Net income before income taxes......................... 6,980 405 5,993 533
Income tax expense................................... 3,092 174 2,697 229
-------- -------- -------- --------
Net income............................................. $ 3,888 $ 231 $ 3,296 $ 304
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
AFC Enterprises, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
6/13/99 12/27/98
----------- --------
<S> <C> <C>
(Unaudited)
Assets:
Current assets:
Cash and cash equivalents....................................... $ 16,279 $ 17,066
Accounts and current notes receivable, net...................... 17,858 16,728
Income taxes, current........................................... 1,600 3,327
Inventories..................................................... 13,917 13,182
Deferred income taxes........................................... 3,542 4,577
Prepaid expenses and other...................................... 2,718 2,344
-------- --------
Total current assets..................................... 55,914 57,224
-------- --------
Long-term assets:
Notes receivable, net........................................... 3,651 4,066
Deferred income taxes........................................... 3,937 4,416
Property and equipment, net..................................... 261,683 263,141
Other assets.................................................... 19,471 19,498
Intangible assets, net.......................................... 212,305 208,120
-------- --------
Total long-term assets................................... 501,047 499,241
-------- --------
Total assets......................................... $556,961 $556,465
======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable................................................ $ 33,311 $ 40,579
Current portion of long-term debt and capital
lease obligations............................................ 14,667 14,406
Bank overdrafts................................................. 11,695 6,248
Income taxes payable............................................ 288 -
Short-term borrowings........................................... 13,000 7,000
Accrued expenses and other...................................... 23,931 23,047
-------- --------
Total current liabilities................................ 96,892 91,280
-------- --------
Long-term liabilities:
Long-term debt, net of current portion.......................... 83,165 87,744
Acquisition line of credit...................................... 68,000 68,000
10.25% Subordinated notes payable............................... 175,000 175,000
Capital lease obligations, net of current portion............... 6,086 8,561
Other liabilities............................................... 36,297 37,963
-------- --------
Total long-term liabilities..................................... 368,548 377,268
-------- --------
Total liabilities................................................ 465,440 468,548
-------- --------
Shareholders' equity:
Common stock.................................................... 393 392
Capital in excess of par value.................................. 152,139 151,632
Accumulated deficit............................................. (54,673) (57,969)
Notes receivable - officers..................................... (6,338) (6,138)
-------- --------
Total shareholders' equity...................................... 91,521 87,917
-------- --------
Total liabilities and shareholders' equity....................... $556,961 $556,465
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
AFC Enterprises, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
24 Weeks Ended
6/13/99 6/14/98
-------- --------
<S> <C> <C>
Cash flows provided by (used in) operating activities:
Net income........................................................................................ $ 3,296 $ 304
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................................................................... 20,870 19,438
Deferred compensation and other.................................................................. 499 1,222
Other............................................................................................ 268 (3,358)
(Increase) decrease in operating assets.......................................................... 632 (8,857)
Increase (decrease) in operating liabilities..................................................... (12,370) (1,170)
-------- --------
Total adjustments............................................................................. 9,899 7,275
-------- --------
Net cash provided by operating activities......................................................... 13,195 7,579
-------- --------
Cash flows provided by (used in) investing activities:
Proceeds from disposition of property and equipment............................................... 1,086 379
Investment in property and equipment.............................................................. (19,153) (8,013)
Investment in Pinetree goodwill................................................................... (99) (23,707)
Investment in Pinetree property and equipment..................................................... - (16,281)
Investment in SCC goodwill........................................................................ (858) (28,537)
Investment in SCC property and equipment.......................................................... - (15,639)
Notes receivable additions........................................................................ (74) (83)
Payments received on notes........................................................................ 1,441 1,240
-------- --------
Net cash used in investing activities............................................................. (17,657) (90,641)
-------- --------
Cash flows provided by (used in) financing activities:
Principal payments of long-term debt, net......................................................... (3,759) (2,555)
Net borrowings under Acquisition line of credit................................................... - 68,000
Proceeds from subordinated notes.................................................................. - -
Net borrowings under short-term revolver.......................................................... 6,000 -
Principal payments for capital lease obligations.................................................. (3,826) (3,349)
Increase (decrease) in bank overdrafts, net....................................................... 5,447 618
Notes receivable - officers payments.............................................................. - 1
Notes receivable - officers interest.............................................................. (153) (134)
Issuance of common stock.......................................................................... 8 1
Debt issuance costs............................................................................... (42) (84)
-------- --------
Net cash provided by financing activities......................................................... 3,675 62,498
-------- --------
Net decrease in cash and cash equivalents......................................................... (787) (20,564)
Cash and cash equivalents at beginning of the period.............................................. 17,066 32,964
-------- --------
Cash and cash equivalents at end of the period.................................................... $ 16,279 $ 12,400
======== ========
Supplemental Cash Flow Information:
Cash payments for income taxes.................................................................... $ (832) $ 2,127
Cash payments for interest........................................................................ 14,397 12,649
Noncash investing and financing activities:
Capital lease obligations incurred............................................................... 100 3,546
Issuance of common stock, options and warrants................................................... 814 25,497
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
AFC Enterprises, Inc.
Notes to Condensed Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of AFC
Enterprises, Inc., a Minnesota corporation, and its wholly-owned subsidiaries,
AFC Properties, Inc., a Georgia corporation, Seattle Coffee Company, a
Washington corporation, and Cinnabon International, Inc., a Delaware
corporation. All significant intercompany balances and transactions are
eliminated in consolidation. The consolidated entity is referred to herein as
"AFC" or "the Company".
Nature of Operations and Basis of Presentation
AFC is primarily a multi-concept quick-service restaurant company. The
Company operates and franchises quick-service restaurants under the primary
trade names of Popeyes Chicken & Biscuits ("Popeyes"), Churchs Chicken
("Churchs") and Chesapeake Bagel Bakery ("Chesapeake"). In 1998, the Company
added Seattle Coffee Company ("SCC"), which operates and franchises cafes under
the "Seattle's Best" and "Torrefazione Italia" brands (collectively "Seattle
Coffee") and operates a wholesale coffee business. Also in 1998, the Company
acquired Cinnabon International, Inc. ("CII"), an operator and franchisor of
retail cinnamon roll bakeries under the Cinnabon trade name ("Cinnabon"). The
Company also operates a manufacturing plant that produces proprietary gas fryers
and other custom-fabricated restaurant equipment for sale to distributors and
franchisees and used internally at Company-operated restaurants.
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnotes required by generally accepted
accounting principles for complete financial statements are not included herein.
The accompanying condensed consolidated financial statements have not been
audited by independent certified public accountants, but in the opinion of
management contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the Company's financial condition and
results of operations for the interim periods presented. Interim period
operating results are not necessarily indicative of the results expected for the
full fiscal year. Certain items in the financial statements of the previous
year have been reclassified in conformity with the 1999 presentation. These
reclassifications had no effect on reported results of operations.
Significant Accounting Policies
The accounting and reporting policies practiced by the Company are set
forth in Note 1 to the Company's consolidated financial statements for the
fiscal year ended December 27, 1998, which are contained in the Company's Form
10-K, filed with the Securities and Exchange Commission on March 29, 1999 and
are incorporated herein by reference.
6
<PAGE>
2. Segment and Geographic Information
The Company operates exclusively in the food service and beverage industry.
Substantially all revenues result from the sale of menu products at restaurants,
bakeries and cafes operated by the Company, franchise royalty and fee income
earned from franchised restaurant, bakery and cafe operations and wholesale
revenues from the sale of coffee products. The Company's reportable segments
are based on specific products and services within the food service and beverage
industry. The Company combined Popeyes' and Churchs' domestic operations to
form its chicken segment. The Company also aggregated the operations of
Chesapeake and CII to form its bakery cafe segment. The Company's coffee
segment consists of SCC's domestic operations, which includes wholesale
operations. The international segment is comprised of the Company's
international franchised operations, which mainly consists of Popeyes and
Churchs international franchised restaurants.
The "other" segment includes the Company's manufacturing division,
Ultrafryer. The "corporate" component of operating income includes revenues from
1) interest income from notes receivable and rental revenue from leasing and
sub-leasing agreements with franchisees and third parties, less 2) corporate
general and administrative expenses.
Operating income (loss) represents each segment's earnings before income
taxes, depreciation, amortization, non-cash items related to gains/losses on
asset dispositions and write-downs and compensation expense related to stock
option activity ("EBITDA" as defined by the Company).
<TABLE>
<CAPTION>
Revenues:
12 Weeks Ended 24 Weeks Ended
6/13/99 6/14/98 6/13/99 6/14/98
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Chicken................. $123,449 $116,419 $241,769 $224,226
Coffee.................. 17,077 15,816 32,345 15,816
Bakery cafe............. 16,571 958 34,672 1,891
International........... 2,960 2,176 5,388 4,347
Other................... 2,544 2,257 4,467 4,894
Inter-segment revenues.. (750) (446) (1,021) (1,747)
Corporate............... 2,076 2,067 4,063 4,067
-------- -------- -------- --------
Total Revenues....... $163,927 $139,247 $321,683 $253,494
======== ======== ======== ========
</TABLE>
Inter-segment revenues represent Ultrafryer sales to Company-operated
restaurants and SCC coffee sales to CII Company-operated bakeries. These
revenues are eliminated in consolidation.
7
<PAGE>
<TABLE>
<CAPTION>
Operating Income (Loss)(EBITDA):
12 Weeks Ended 24 Weeks Ended
6/13/99 6/14/98 6/13/99 6/14/98
------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Chicken..................... $24,621 $ 20,983 $ 46,977 $ 41,235
Coffee...................... 2,344 1,720 3,698 1,720
Bakery cafe................. 1,300 (327) 2,904 (707)
International............... 1,332 1,050 2,303 2,311
Other....................... 233 212 441 560
Corporate................... (5,551) (4,735) (12,932) (10,827)
------- -------- -------- --------
Total Operating
Income................. $24,279 $ 18,903 $ 43,391 $ 34,292
======= ======== ======== ========
Adjustments to reconcile to
income from operations:
Depreciation and
amortization.............. (9,222) (10,779) (20,870) (19,438)
Compensation expense
related to stock options.. (245) (403) (499) (1,222)
Gain/(loss) on fixed asset
write-offs................ (231) (267) (419) 16
------- -------- -------- --------
Income from operations... $14,581 $ 7,454 $ 21,603 $ 13,648
======= ======== ======== ========
</TABLE>
There have been no material changes to the Company's total assets by
reportable segment at June 13, 1999 from the amounts disclosed in the Company's
consolidated financial statements for the fiscal year ended December 27, 1998.
3. CII Acquisition
On October 15, 1998, the Company acquired CII, the operator and franchisor
of 363 retail cinnamon roll bakeries operating in 39 states, Canada and Mexico.
Two hundred and eleven of the retail cinnamon roll bakeries are Company-operated
and are located within the United States. In connection with the acquisition,
which was accounted for as a purchase, CII became a wholly-owned subsidiary of
AFC through the merger of AFC Franchise Acquisition Corp. into CII (the
"Acquisition").
The Company acquired CII for $64.0 million in cash. The Company obtained
$44.7 million of the cash consideration from its 1997 Credit Facility as amended
and restated. The remaining $19.3 million cash consideration was funded with the
proceeds from the sale of approximately 2.8 million shares of AFC common stock
to certain "qualified" investors who are existing AFC shareholders and option
holders.
The Company accounted for this acquisition as a purchase in accordance with
APB 16. The allocation of the purchase price resulted in the Company recording
goodwill in the amount of approximately $43.7 million, which is being amortized
on a straight-line basis over a forty-
8
<PAGE>
year period. The Company is in the process of analyzing the fair values of the
tangible and intangible assets acquired from CII. During the second quarter, The
Company recorded a $3.6 million write-down of certain fixed assets acquired from
CII. The write-down was accounted for as a purchase price adjustment, which
increased goodwill. The Company is continuing its review of asset values and
anticipates completing this process by the third quarter of 1999.
The Company developed an exit plan involving CII's corporate headquarters
in Seattle, Washington during the second quarter. The exit plan included
severance, relocation and integration costs. The Company recorded a liability of
$1.1 million and accounted for the liability as a purchase price adjustment,
which increased goodwill.
The Company booked $0.5 million in liabilities in the second quarter mainly
due to pre-acquisition pending litigation and classified the transaction as a
purchase price adjustment, thereby increasing goodwill by that amount.
Pro Forma Financial Information
The following unaudited pro forma results of operations for the twelve and
twenty-four weeks ended June 14, 1998 assumes the acquisition of CII occurred as
of the beginning of the period (in thousands).
12 Weeks 24 Weeks
Ended Ended
6/14/98 6/14/98
-------- --------
Total revenues.. $156,767 $289,073
======== ========
Net loss........ $ (1,905) $ (8,212)
======== ========
The twelve weeks ended June 14, 1998 include CII's operations for the
three-month period ended June 28, 1998. The twenty-four weeks ended June 14,
1998 include CII's operations for the six-month period ended June 28, 1998.
These pro forma results have been prepared for comparative purposes only
and include certain adjustments that result in (i) an increase in amortization
expense related to the recording of CII goodwill, (ii) an increase in interest
expense related to the Term Loan B debt used to partially fund the acquisition,
(iii) a decrease in interest expense related to CII debt that was paid off at
the time of the acquisition and (iv) a decrease in amortization expense related
to the write-off of CII's intangible assets at the time of the acquisition.
These results do not purport to be indicative of the results of operations which
actually would have resulted had the acquisition been in effect at the beginning
of the respective periods or of future results of operations of the consolidated
entities.
9
<PAGE>
4. Long-Term Bonus Plan
Effective January 1, 1999, the Company adopted a long-term bonus plan for
its current and future employees. The plan provides for the potential payout of
a bonus, in cash, AFC common stock or both, contingent upon one or both of the
following occurrences during a five year period beginning on January 1, 1999 and
ending on December 31, 2003:
a) On the assumption that AFC's common stock is publicly traded, AFC's
common stock reaches an average stock price of $31 per share for a
period of at least twenty consecutive trading days, and /or,
b) AFC's earnings per share is $2.25 for any fiscal year ending on or
before December 31, 2003.
The amount of the bonus ranges from 110% to 10% of the individual employee's
base salary at the time either benchmark is met. The percentage is based upon
the individual employee's employment date within the period the bonus plan is in
effect. At June 13, 1999, the Company did not have a liability recorded in its
consolidated financial statements for the bonus payout. The Company will record
a liability for the bonus payout when the amount is both probable and estimable.
5. Change in Accounting Estimate
During the second quarter, the Company assessed the estimated useful lives
of its buildings, equipment and leasehold improvements. The Company analyzed
historical data regarding restaurant operations, actual lives of restaurant
properties and property leasing arrangements related to Churchs and Popeyes.
Churchs began operating in 1952 while Popeyes initiated their operations in
1972. Based on this analysis, the Company revised its estimated useful lives for
certain fixed asset categories as follows:
1) Buildings useful life range changed from 7-20 years to 5-35 years.
2) Equipment useful life range changed from 3-8 years to 3-15 years.
3) Leasehold improvements the Company will continue to depreciate leasehold
improvements over the lesser of the lease term or the estimated useful
life of the asset, however, the lease term will include all lease option
periods under contract that management anticipates will be utilized.
Previously, the Company only considered the primary term of the lease in
assessing the life of a leasehold improvement.
This change in accounting estimate resulted in a $2.1 million decrease in
depreciation expense during the second quarter. Net of income taxes, net income
increased $1.2 million as a result of changing the estimated useful lives of
certain fixed asset categories in the second quarter.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities and Exchange Act of 1934, as amended. Such
forward-looking statements relate to the plans, objectives and expectations of
the Company for future operations. In light of the risks and uncertainties
inherent in any discussion of the Company's expected future performance or
operations, the inclusion of forward-looking statements in this report should
not be regarded as a representation by the Company or any other person that
these will be realized. Such performance could be materially affected by a
number of factors, including without limitation those factors set forth in the
"Item 1. Business" section in the Company's Annual Report on Form 10-K.
Results of Operations
The following table presents selected revenues and expenses as a percentage
of total revenues for the Company's Consolidated Statements of Operations for
the twelve-week and twenty-four week periods ended June 13, 1999 and June 14,
1998.
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
-------------------- -----------------------
June 13, June 14, June 13, June 14,
1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales................... 79.4% 79.5% 80.0% 81.9%
Franchise revenues................. 11.0 10.5 10.7 11.2
Wholesale revenues................. 7.1 7.3 6.8 4.0
Manufacturing revenues............. 1.2 1.3 1.2 1.3
Other revenues..................... 1.3 1.5 1.3 1.6
Total revenues................ 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Restaurant cost of sales (1)....... 30.8% 32.5% 30.5% 32.2%
Restaurant operating expenses (1).. 50.3 49.9 51.0 49.5
Wholesale cost of sales (2)........ 49.6 49.5 49.8 50.5
Wholesale operating costs (2)...... 23.9 21.8 25.1 21.8
Manufacturing cost of sales (3).... 70.0 55.6 63.2 53.1
General and administrative......... 14.9 15.6 15.7 16.5
Depreciation and amortization...... 5.6 7.8 6.5 7.7
Total costs and expenses...... 91.1 94.7 93.3 94.6
Income from operations............... 8.9 5.3 6.7 5.4
Interest expense, net................ 4.6 5.0 4.8 5.2
Net income before taxes.............. 4.3 0.3 1.9 0.2
Income tax expense................... (1.9) (0.1) (0.8) (0.1)
Net income........................... 2.4% 0.2% 1.1% 0.1%
</TABLE>
11
<PAGE>
(1) Expressed as a percentage of restaurant sales by Company-operated
restaurants.
(2) Expressed as a percentage of wholesale revenues.
(3) Expressed as a percentage of manufacturing revenues.
Selected Financial Data
The following table sets forth certain financial information and other
restaurant, bakery and cafe data relating to Company-operated and franchised
restaurants, bakeries and cafes (as reported to the Company by franchisees) for
the twelve week and twenty-four week periods ended June 13, 1999 and June 14,
1998:
<TABLE>
<CAPTION>
12 Weeks Ended 24 Weeks Ended
----------------------------------- -------------------------------
June 13, June 14, % change June 13, June 14, % change
1999 1998 98-99 1999 1998 98-99
--------- --------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C>
EBITDA, as defined (1).............. $ 24.3 $ 18.9 28.6% $ 43.4 $34.3 26.5%
EBITDA margin....................... 14.8% 13.6% 9.1% 13.5% 13.5% --
Capital Expenditures (2)............ $ 9.8 $ 6.3 55.8% $ 18.7 $12.0 55.7%
Restaurant, bakery and cafe data (unaudited):
Systemwide sales:
Popeyes........................... $241.3 $217.9 10.8% $478.1 $417.3 14.6%
Churchs........................... 188.9 175.8 7.5 367.8 343.7 7.0
Cinnabon (3)...................... 31.5 N/A N/A 64.0 N/A N/A
Seattle Coffee (4)................ 6.6 6.8 (4.4) 12.7 6.8 N/A
Chesapeake........................ 10.7 14.9 (28.1) 22.6 29.9 (24.6)
------ ------ ------- ------
Total........................ $479.0 $415.4 15.3% $945.2 $797.7 18.5%
====== ====== ====== ======
Systemwide unit openings:
Popeyes........................... 31 19 63.2% 56 109 (5) (48.6)%
Churchs........................... 37 21 76.2 62 40 55.0
Cinnabon.......................... 10 N/A N/A 15 N/A N/A
Seattle Coffee.................... 4 5 (20.0) 8 5 N/A
Chesapeake........................ - 1 (100.0) 1 7 (85.7)
--- --- --- ---
Total........................ 82 46 80.4% 142 161 (11.2)%
=== === ======= === === =====
Systemwide units open,
end of period:
Popeyes........................... 1,326 1,231 7.7%
Churchs........................... 1,448 1,377 5.2
Cinnabon.......................... 370 N/A N/A
Seattle Coffee.................... 79 73 8.2
Chesapeake........................ 91 133 (31.6)
----- -----
Total............................. 3,314 2,814 17.8%
===== =====
Systemwide percentage change in
comparable unit sales (3)
Popeyes domestic.................. 6.3% 4.8% 6.8% 4.1%
Churchs domestic.................. 1.5 4.3 1.7 4.3
Popeyes international............. (5.2) (13.4) (4.5) (12.7)
Churchs international............. 0.2 (6.1) (0.4) (4.3)
Seattle Coffee domestic (4)....... 3.6 - - -
</TABLE>
12
<PAGE>
(1) EBITDA is defined as income from operations plus depreciation and
amortization; adjusted for items related to gains/losses on asset
dispositions and writedowns and compensation expense related to stock
option activity (deferred compensation).
(2) Excludes fixed assets added in connection with the Seattle Coffee and
Pinetree acquisitions and capital expenditures made to convert the Pinetree
restaurants to Popeyes Company-operated restaurants.
(3) Prior period sales figures for Cinnabon are not comparable since this
acquisition occurred during 1998.
(4) Prior year-to-date sales figures for Seattle Coffee are not comparable
since this acquisition occurred during 1998.
(5) Includes the conversion of 66 Hardees restaurants to Popeyes Company-
operated restaurants.
For the Twelve Weeks Ended June 13, 1999 and June 14, 1998
Certain items relating to prior periods have been reclassified to conform with
current presentation.
Revenues
Restaurant Sales. Restaurant sales increased 17.7% or $19.5 million over
the prior year, primarily due to sales generated by Company-operated Cinnabon
bakery cafes acquired during late 1998 and overall comparable sales growth of
2.4% for the quarter versus the same period in prior year.
Chicken
Sales at Company-operated chicken restaurants grew 4.7% or $4.9 million
from the prior year. The sales increase was due to an increase in comparable
sales for Company-operated chicken restaurants open for at least one year of
2.5% for the second quarter of 1999.
Bakery Cafe
Sales at Company-operated bakery cafes rose $15.0 million from the prior
year. Sales increased due to the acquisition of the Cinnabon bakery cafes in
October 1998 as sales for the Cinnabon bakeries during the second quarter of
1999 were $15.0 million. Bakery sales at Company-operated Chesapeake locations
remained the same between the second quarters of 1999 and 1998.
Seattle Coffee
Company-operated cafe sales of $5.3 million in the second quarter of 1999
declined by $0.3 million versus the same period in prior year. Prior year's
second quarter included three additional weeks of sales compared to 1999 due to
the timing of the acquisition of Seattle Coffee Company and the related
transition process of consolidating their operations with AFC.
Franchise Revenues. Franchise revenues increased $3.4 million or 23.3%
from the prior year.
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<PAGE>
Chicken
Domestic revenues from franchising for chicken restaurants increased $2.1
million or 17.9% from the prior year. Franchise royalty revenues increased $1.6
million or 14.1%. The increase in franchise royalty revenue was partly
attributable to a 112 unit increase in the average number of chicken franchised
restaurants open during the second quarter of 1999 as compared to the second
quarter of 1998. The remaining increase was due to an increase in comparable
sales for domestic franchised restaurants of 5.0% for the second quarter of
1999. Franchise fee income for the second quarter of 1999 was up $0.5 million
over the prior year. The increase was due to domestic franchised restaurant
openings of 44 units during the second quarter of 1999 surpassing openings in
the second quarter of 1998 by nineteen.
Bakery Cafe
Revenues from franchising for bakery cafes during 1999 increased $0.6
million or 86.1% from the prior year, primarily due to the acquisition of the
Cinnabon bakeries in October 1998. Royalty revenues for Cinnabon bakeries were
$0.8 million during the second quarter of 1999. Royalty revenues for Chesapeake
bakeries were down $0.2 million for the twelve weeks ended June 13, 1999 versus
the twelve weeks ended June 14, 1998. The closing of 74 domestic franchised
Chesapeake bakeries in 1998 and 1999 resulted in the decrease in royalty
revenues in 1999 versus 1998. Franchise fee income for bakery cafes for the
second quarter of 1999 was down $0.1 million from the second quarter of 1998.
International
International franchise revenues grew $0.7 million or 24.6% from the prior
year. International franchise royalty revenue increased $0.3 million, despite
the fact that international comparable sales were down 2.2% for the second
quarter of 1999 compared to the second quarter of 1998. A 6.0% increase in the
average number of franchised international restaurants from the second quarter
of 1998 to the second quarter of 1999, led to the increase in international
franchise royalties for the quarter. International franchise fee revenue for the
second quarter of 1999 increased $0.4 million compared to the corresponding
period in 1998. The increase was due in part to (i) the number of international
franchised restaurant openings during the second quarter of 1999 exceeding the
openings in the prior year by five and (ii) the recognition of $0.3 million in
fee income on defaulted development contracts.
Wholesale Revenues. The Company's wholesale revenues consist of sales of
premium brand coffee from its Seattle Coffee roasting and distribution
operations to food service retailers, supermarkets and its own coffee cafes.
Wholesale revenues increased $1.6 million or 15.8% in the second quarter of 1999
versus the second quarter of 1998.
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<PAGE>
The increase was due to new wholesale customers and sales growth from existing
customers.
Operating Costs and Expenses
Restaurant Cost of Sales. Restaurant cost of sales for 1999 increased
11.7% or $4.2 million from the prior year. The increase was primarily
attributable to the increase in restaurant sales. Expressed as a percentage of
restaurant sales, cost of sales were 30.8% for the twelve weeks ended June 13,
1999, versus 32.5% for the twelve weeks ended June 14, 1998. The decrease in
this percentage is primarily due to selective menu price increases taken during
1998.
Restaurant Operating Expenses. Restaurant operating expenses for the
twelve weeks ended June 13, 1999 increased $10.3 million or 18.7% from the
corresponding period in 1998. The rise in restaurant sales during this time
period led to the increase in restaurant operating expenses. In addition, the
increase in the number of Company-operated restaurants also contributed to the
increase in expense. At the end of the second quarter of 1999, there were 942
Company-operated restaurants, bakeries and cafes open compared to 730 open at
the end of the second quarter of 1998.
Wholesale Cost of Sales. Wholesale cost of sales represent the cost of
coffee beans and the direct overhead used to roast and blend specialty coffee
blends within Seattle Coffee's operations. Wholesale cost of sales were $5.8
million in the second quarter of 1999, which was $0.8 million higher than the
comparable period in 1998. The increase was attributable to the growth in
wholesale revenues for the same periods.
Wholesale Operating Expense. Wholesale operating expenses represent the
overhead incurred in connection with the distribution of specialty coffee blends
within Seattle Coffee's operations. Wholesale operating costs were $2.8 million
during the second quarter of 1999, which exceeded the prior year quarter by $0.6
million. The increase in wholesale revenues during the second quarter of 1999
versus 1998 resulted in the increase in wholesale operating expenses for the
same periods.
General and Administrative Expenses. General and administrative expenses
increased $2.8 million or 12.9% during the second quarter of 1999 compared to
the same period of a year ago. The addition of Cinnabon's operations accounted
for $1.8 million of the second quarter 1999 increase in general and
administrative expenses. Additionally, operational growth in the Company's
chicken and international segments led to added administrative expenses in the
second quarter when compared to the second quarter of 1998.
Depreciation and Amortization. Depreciation and amortization for the
second quarter of 1999 decreased $1.6 million from the prior year. The decline
was mainly due to changes made to certain fixed asset useful lives in the second
quarter of 1999. The Company analyzed the useful lives of buildings, equipment
and leasehold improvements
15
<PAGE>
and primarily changed the estimated useful lives related to these asset types.
The Company increased and decreased the estimated useful lives of certain
assets. In some cases the lives were not adjusted based on the analysis
performed by the Company. The net impact of the change in lives resulted in a
$2.1 million adjustment to reduce depreciation expense in the second quarter of
1999. The $2.1 million decrease was offset by $0.5 million due to growth in the
Company's tangible and intangible asset base during the 1999 second quarter
versus the 1998 second quarter.
Income from Operations. Income from operations for the second quarter of
1999 increased $7.2 million or 97.3% from the second quarter of 1998. Income
from operations for the chicken segment increased $1.8 million or 11.1%.
Increases in restaurant sales at Company-operated and domestic franchised
chicken restaurants led to higher restaurant operating profits and royalty
income, respectively. Spurred by an increase in wholesale coffee sales, Seattle
Coffee posted a $0.7 million increase in income from operations for the second
quarter versus the same period in the prior year. The remaining increase in
income from operations stemmed from the Company's ability to control corporate
expenses and a $2.1 million adjustment to reduce depreciation expense during the
second quarter of 1999.
Net Interest Expense. Interest expense, net of capitalized interest, for
the twelve weeks ended June 13, 1999 was $7.6 million, compared to $7.0 million
for the twelve weeks ended June 14, 1998. The $0.6 million increase in interest
expense was due to higher levels of average debt outstanding primarily
attributable to borrowings made under the Company's revolving loan facility
during 1999 and borrowings made under the new Tranche B term loan.
For the Twenty-four Weeks Ended June 13, 1999 and June 14, 1998
Certain items relating to prior periods have been reclassified to conform with
current presentation.
Revenues
Restaurant Sales. Restaurant sales were up 23.9% or $49.7 million over the
prior year, primarily due to sales generated by Company-operated Cinnabon bakery
cafes acquired during 1998 and increased sales in the chicken segment.
Chicken
Sales at Company-operated chicken restaurants increased 6.9% or $13.9
million from the prior year. The increase was primarily attributable to sales
generated by Company-operated restaurants opened from June 15, 1998 to June 13,
1999. The average number of Company-operated chicken restaurants open during the
twenty-four weeks ended June 14, 1998 was 645, while the average number of
Company-
16
<PAGE>
operated chicken restaurants open during the twenty-four weeks ended
June 13, 1999 was 666. The remaining sales increase was due to an increase in
comparable sales for Company-operated chicken restaurants open for at least one
year of 2.4% for the twenty-four weeks ended June 13, 1999.
Bakery Cafe
Sales at Company-operated bakery cafes were up $31.6 million from the prior
year. Sales increased due to the acquisition of the Cinnabon bakery cafes in
October 1998. Sales for the Cinnabon bakeries year-to-date were $31.5 million.
Seattle Coffee
Seattle Coffee Company-operated cafes posted sales of $10.4 million for the
year-to-date period ended June 13, 1999, which exceeded prior year by $4.7
million. The increase in sales was attributable to the timing of the Seattle
Coffee acquisition. The Company acquired Seattle Coffee at the end of the first
quarter of 1998, therefore, prior year's sales do not represent a full twenty-
four week period.
Franchise Revenues. Franchise revenues increased $6.1 million or 21.5%
from the prior year.
Chicken
Domestic revenues from franchising for chicken restaurants increased $3.7
million or 16.4% from the prior year. Franchise royalty revenues increased $3.1
million or 14.4%. The increase in franchise royalty revenue was partly
attributable to a 107 unit increase in the average number of franchised chicken
restaurants open during the twenty-four week period ended June 13, 1999 as
compared to the comparable period in 1998. The remaining increase was
attributable to an increase in comparable sales for domestic franchised
restaurants of 5.5% for the first two quarters of 1999. Franchise fee income for
the twenty-four weeks ended June 13, 1999 was up $0.6 million over the prior
year. The increase was due to domestic franchised openings of 76 units during
this time frame in 1999 surpassing openings in the comparable period in 1998 by
twenty-one.
Bakery Cafe
Revenues from franchising for bakery cafes during 1998 increased $1.2
million or 85.0% from the prior year, primarily due to the acquisition of the
Cinnabon bakeries in October 1998. Royalty revenues for Cinnabon bakeries were
$1.7 million during the first two quarters of 1999. Royalty revenues for
Chesapeake bakeries were down $0.2 million for the twenty-four weeks ended June
13, 1999 versus the corresponding period in 1998. The decrease resulted from the
closing of 74 domestic franchised Chesapeake bakeries in 1998 and year-to-date
1999. Franchise fee income for bakery cafes for the twenty-four weeks ended June
13, 1999 dropped $0.3 million versus the same period in 1998. Chesapeake's
franchise fee income declined $0.3 million for the year at June 13, 1999 versus
the comparable period in 1998. In 1998, Chesapeake recognized $0.3 million in
17
<PAGE>
fee income on defaulted development agreements, which did not reoccur
during the twenty-four week period ended June 13, 1999.
International
International franchise revenues rose $0.9 million or 20.1% from the prior
year. International franchise royalty revenue increased $0.5 million, despite
the fact that international comparable sales decreased 2.1% for the first two
quarters of 1999 compared to the first two quarters of 1998. A 5.7% increase in
average open restaurants when comparing year-to-date 1999 to 1998 also
contributed to the growth in royalty revenue. International franchise fee income
for the twenty-four week period ended June 13, 1999 increased $0.4 million
versus prior year. The majority of the increase represents income generated from
defaulted development contracts.
Wholesale Revenues. Wholesale revenues of $21.9 million during the twenty-
four weeks ended June 13, 1999 surpassed prior year by $11.7 million. The
increase was attributable to the timing of the Seattle Coffee acquisition. The
Company acquired Seattle Coffee at the end of the first quarter of 1998,
therefore, prior year's wholesale revenues do not represent a full twenty-four
week period.
Operating Costs and Expenses
Restaurant Cost of Sales. Restaurant cost of sales for 1999 increased 17.5%
or $11.7 million from the prior year. The increase was primarily attributable to
the increase in restaurant sales. Expressed as a percentage of restaurant
sales, cost of sales were 30.5% for the twenty-four weeks ended June 13, 1999,
versus 32.2% for the twenty-four weeks ended June 14, 1998. The decrease in
this percentage is primarily due to selective menu price increases taken during
1998.
Restaurant Operating Expenses. Restaurant operating expenses for the year-
to-date period ended June 13, 1999 increased $28.7 million or 27.9% from the
corresponding period in 1998. The rise in restaurant sales during this time
period led to the increase in restaurant operating expenses. In addition, the
increase in the number of Company-operated restaurants also contributed to the
increase in expense. At the end of the second quarter of 1999, there were 942
Company-operated restaurants, bakeries and cafes open compared to 730 open at
the end of the second quarter of 1998.
Wholesale Cost of Sales. Wholesale cost of sales were $10.9 million in the
twenty-four week period ended June 13, 1999, which was $5.8 million higher than
the comparable period in 1998. The increase in cost of sales was attributable to
the timing of the Seattle Coffee acquisition. The Company acquired Seattle
Coffee at the end of the first quarter of 1998, therefore, prior year's cost of
sales do not represent a full twenty-four week period.
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<PAGE>
Wholesale Operating Expense. Wholesale operating costs were $5.5 million
for the year-to-date period ended June 13, 1999, which exceeded prior year by
$3.3 million. The increase in cost of sales was attributable to the timing of
the Seattle Coffee acquisition. The Company acquired Seattle Coffee at the end
of the first quarter of 1998, therefore, prior year's wholesale operating
expenses do not represent a full twenty-four week period.
General and Administrative Expenses. General and administrative expenses
increased $8.5 million or 20.3% during the twenty-four weeks ended June 13, 1999
compared to the same period of a year ago. The addition of Cinnabon's operations
accounted for $3.7 million of the increase in general and administrative
expenses. Approximately $1.4 million of the increase in general and
administrative expenses was attributable to the timing of the Seattle Coffee
acquisition. The Company acquired Seattle Coffee at the end of the first quarter
of 1998, therefore, prior year's expenses do not represent a full twenty-four
week period regarding Seattle Coffee operations. Additionally, operational
growth in the Company's chicken and international segments resulted in added
administrative expenses in the twenty-four weeks ended June 13, 1999 when
compared to the same period in 1998.
Depreciation and Amortization. In the twenty-four week period ended June
13, 1999, depreciation and amortization rose $1.5 million from the prior year.
Depreciation and amortization increased due to the Cinnabon acquisition and
overall growth in the Company's tangible and intangible asset base during the
year-to-date period ended June 13, 1999 versus the like period in 1998. The
increase was offset by a $2.1 million adjustment to decrease depreciation
expense during the second quarter of 1999 due to changes made to estimated
useful lives of certain fixed asset types.
Income from Operations. Income from operations for the year-to-date period
ended June 13, 1999 increased $8.0 million or 58.8% versus prior year. Income
from operations for the chicken segment increased $3.0 million or 9.4%.
Increases in restaurant sales at Company-operated and domestic franchised
chicken restaurants led to higher restaurant operating profits and royalty
income, respectively. Spurred by an increase in wholesale coffee sales, Seattle
Coffee posted a $0.9 million increase in income from operations for the twenty-
four weeks ended June 13, 1999 compared to the same period in the prior year.
Although the bakery cafe segment recorded an operating loss for the twenty-four
week period ended June 13, 1999, it was an improvement of $0.6 million compared
to prior year. The remaining increase in income from operations stemmed from
the Company's ability to control corporate expenses and a $2.1 million
adjustment to reduce depreciation expense during the second quarter of 1999.
Net Interest Expense. Interest expense, net of capitalized interest, for
the twenty-four weeks ended June 13, 1999 was $15.6 million, compared to $13.1
million for the twenty-four weeks ended June 14, 1998. The $2.5 million
increase in interest expense was due to higher levels of average debt
outstanding primarily attributable to borrowings made under the Company's
revolving loan facility during 1999 and borrowings made under the new Tranche B
term loan.
19
<PAGE>
Liquidity and Capital Resources
The Company has financed its business activities primarily with funds
generated from operating activities, proceeds from the sale of shares of common
stock, proceeds from long-term debt and a revolving line of credit and proceeds
from the sale of certain Company-operated restaurants.
Net cash provided by operating activities for the twenty-four weeks ended
June 13, 1999 and June 14, 1998 was $13.2 million and $7.6 million,
respectively. Available cash and cash equivalents, net of bank overdrafts, as of
June 13, 1999 was $4.6 million, compared to $2.1 million at June 14, 1998. The
Company's working capital deficit as of June 13, 1999 and June 14, 1998 was
approximately $41.0 million and $33.5 million, respectively.
For the twenty-four weeks ended June 13, 1999 the Company invested in
various capital projects totaling $18.7 million. During this period the Company
invested $10.8 million in new restaurant locations and $3.0 million in other
capital assets to update, replace and extend the lives of restaurant equipment
and facilities and complete other projects. The Company spent the remaining $4.9
million in capital expenditures on corporate and computer system related
initiatives. These capital projects were financed primarily through cash flows
provided from normal operating activities and internal funds.
Based upon the current level of operations and anticipated growth,
management of the Company believes that available cash flow, together with the
available borrowings under the 1997 Credit Facility and other sources of
liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled principal
and interest payments under the Senior Subordinated Notes and the 1997 Credit
Facility.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates on
debt and changes in commodity prices. In addition, a portion of the Company's
receivables are denominated in foreign currency, which exposes it to exchange
rate movements. Historically, the Company has not utilized hedging contracts to
manage its exposure to foreign currency rate fluctuations since the market risk
associated with international receivables was not determined to be significant.
However, during the first quarter of 1999 the Company entered into a foreign
currency hedging agreement with respect to the Korean Won.
The Company's net exposure to interest rate risk consists of its Senior
Subordinated Notes and borrowings under its 1997 Credit Facility. The Senior
Subordinated Notes bear interest at a fixed rate of 10.25%. The aggregate
balance outstanding under the Senior Subordinated Notes as of June 13, 1999 was
$175.0 million.
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<PAGE>
Should interest rates increase or decrease, the estimated fair value of these
notes would decrease or increase, respectively. As of June 13, 1999, the fair
value of the Senior Subordinated Notes exceeded the carrying amount by
approximately $7.0 million. The Company's 1997 Credit Facility has borrowings
made pursuant to it that bear interest rates that are benchmarked to U.S. and
European short-term interest rates. The balances outstanding under the 1997
Credit Facility as of June 13, 1999 totaled $171.8 million. The impact on the
Company's annual results of operations of a hypothetical one-point interest rate
change on the outstanding balances under the 1997 Credit Facility would be
approximately $1.7 million. This assumes no change in the volume or composition
of the debt at June 13, 1999.
The Company and its franchisees purchase certain commodities such as
chicken, potatoes, flour, cooking oil and coffee beans. These commodities are
generally purchased based upon market prices established with vendors. These
purchase arrangements may contain contractual features that limit the price paid
by establishing certain price floors or ceilings. The Company's and its
franchisees principal raw material is fresh chicken. The purchase of fresh
chicken accounts for half of the Company's restaurant cost of sales. In order
(i) to ensure favorable pricing for the Company's chicken purchases in the
future, (ii) to reduce volatility in chicken prices and (iii) to maintain an
adequate supply of fresh chicken, the Company has or will enter into two types
of chicken purchasing arrangements with its suppliers. The first of these
contracts is a grain-based "cost-plus" pricing arrangement that provides chicken
prices based upon the cost of feed grains, such as corn and soybean meal, plus
certain agreed upon non-feed and processing costs. The other contract contains
price provisions which limit the movement of prices up or down in any year and
is based on the industry benchmark price (referred to as "Georgia Dock"). Both
contracts have terms ranging from three to five years with provisions for
certain annual price adjustments as defined in the contracts.
SCC's principal raw material is green coffee beans. The supply and prices
of green coffee beans are volatile. Although most coffee beans trade in the
commodity market (the "C market"), coffee beans of the quality sought by Seattle
Coffee tends to trade on a negotiated basis at a premium above the C market
coffee pricing, depending upon the supply and demand at the time of purchase.
Availability and price can be affected by many factors in producing countries,
including weather and political and economic conditions. The Company typically
enters into supply contracts to purchase a pre-determined quantity of green
coffee beans at a fixed price per pound. These contracts usually cover periods
up to a year as negotiated with the individual supplier.
Year 2000
The Company relies to a large extent on computer technology to carry out
its day-to-day operations. The Company is currently working to resolve the
potential impact of
21
<PAGE>
the Year 2000 on the processing of date-sensitive information by the Company's
information technology ("IT") systems and non-IT systems that are reliant on
computer technology. The Year 2000 problem is the result of computer programs
being written using two digits (rather than four) to define the applicable year.
Any of the Company's programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This problem could
result in a system failure or miscalculations causing disruptions of operations,
including, but not limited to, a temporary inability to process transactions or
engage in normal business activities.
The Company has adopted a Year 2000 plan that includes five phases. These
phases are: 1) inventory 2) assess 3) remediate 4) test and 5) maintain.
Although the pace of the work varies among IT and non-IT systems and the phases
are often conducted in parallel, the inventory and assess phases have been
substantially completed as of June 13, 1999 and the remediation phase is in
progress. Under the Company's current plan, remediation and testing of IT
systems is scheduled to be completed by the end of its third quarter of 1999.
The Company anticipates the timely completion of this compliance assessment,
which should mitigate the Year 2000 issue.
To date, the Company has incurred approximately $0.5 million in Year 2000
costs. These costs are primarily related to fees paid to outside consultants to
develop a Year 2000 strategy, test core systems, develop a contingency planning
approach and assist with project administration. The Company estimates that the
total costs of addressing the Year 2000 issue will approximate $0.9 million,
including the amount that has already been expended. These costs will be funded
through operating cash flows.
Based upon its compliance assessment, the Company does not expect the Year
2000 problem, including the cost of making the Company's IT and non-IT systems
Year 2000 compliant, to have a material adverse impact on the Company's
financial position or results of operations in future periods. The cost and time
estimates for the Company's Year 2000 project are based on its best estimates.
There can be no assurance that these estimates will be achieved or that planned
results will be achieved. The inability of the Company to resolve all potential
Year 2000 problems in a timely manner could have a material adverse impact on
the Company.
During August 1994, an outsourcing agreement between the Company and IBM
Global Services ("IGS") was executed to, among other things, enhance and upgrade
the Company's corporate and restaurant hardware and software computer systems.
During the process of upgrading its systems, which is scheduled for completion
by the end of third quarter of 1999, the Company established procedures to
ensure that its new IT systems were Year 2000 compliant. The Company believes
that a significant portion of the potential Year 2000 issues will be resolved
with the completion of its IT system upgrades made in connection with the IGS
contract.
Under the Company's Franchise Awareness Program and Vendor/Supplier Letter
Program, the Company has and will initiate communications with its significant
suppliers
22
<PAGE>
and vendors and its franchisee community in an effort to determine the
extent to which the Company's business is vulnerable to the failure by these
third parties to remediate their Year 2000 problems. While the Company has not
been informed of any material risks associated with the Year 2000 problem with
respect to these entities, there can be no assurance that the IT and non-IT
systems of these third parties will be Year 2000 compliant on a timely basis.
The inability of these third parties to remediate their Year 2000 problems could
have a material adverse impact on the Company's financial position and results
of operations.
The Company has not yet ascertained what the impact would be on the
Company's financial position and results of operations in the event of failure
of the Company's or third parties' IT and non-IT systems due to the Year 2000
issue. The Company began developing a contingency plan in the fourth quarter of
1998 and will continue to develop such plan during the third quarter of 1999
designed to allow continued operations in the event that such failures should
occur.
Impact of Inflation
The Company believes that, over time, it has generally been able to pass
along inflationary increases in its costs through increased prices of its menu
items. Accordingly, the effects of inflation on the Company's net income
historically have not been, nor are such effects expected to be, materially
adverse. Due to competitive pressures, however, increases in prices of menu
items often lag inflationary increases in costs.
Seasonality
The Company has historically experienced the strongest operating results at
Popeyes, Churchs and Chesapeake restaurants and bakeries during the summer
months while operating results have been somewhat lower during the winter
season. Cinnabon and Seattle Coffee have traditionally experienced the
strongest operating results during the Christmas holiday shopping season between
Thanksgiving and Christmas. Certain holidays and inclement winter weather
reduce the volume of consumer traffic at quick-service restaurants and may
impair the ability of certain restaurants to conduct regular operations for
short periods of time.
23
<PAGE>
PART 2. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
The following exhibits are included herewith:
10.87 AFC Enterprises, Inc. 1999-2003 Long-Term Employee Success Plan,
effective January 1, 1999.
27.1 Financial Data Schedule
(b) Current Reports on Form 8-K
None.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AFC Enterprises, Inc.
Date: July 28, 1999 By: /s/ Gerald J. Wilkins
-----------------------------
Gerald J. Wilkins
Chief Financial Officer
(Principal Financial and
Accounting Officer)
24
<PAGE>
AFC ENTERPRISES, INC.
1999 - 2003
LONG-TERM EMPLOYEE SUCCESS PLAN (LTESP)
SECTION 1. OBJECTIVES AND OVERVIEW
1.1 Objectives. This Plan is designed to focus employee efforts on AFC's long-
----------
term strategic business objective to increase shareholder value by achieving
AFC's financial performance objectives over the next 5 years. AFC strives to
achieve this objective by attaining either (i) a Stock Price of not less than
$31 per share and/or (ii) Earnings Per Share of not less than $2.25, by the end
of AFC's fiscal year closest to December 31, 2003. Through the benefits provided
in this Plan, AFC intends to reward Eligible Employees for their contributions
in achieving these objectives.
1.2 Type of Plan. This Plan provides Eligible Employees with the opportunity to
------------
earn a bonus payable in cash and/or shares of AFC Stock based on AFC achieving
established targets for the Stock Price and/or Earnings Per Share during this
Plan's specified Performance Period. This incentive opportunity is in addition
to any individual or group incentive programs maintained by AFC or any other
Participating Company.
1.3 Overview. For Participating Employees (described in Section 2), the
--------
attainment of the specific performance measures (described in Section 4) by the
end of the Performance Period (as described in Section 3) will be used to
determine the amount of the Award (as calculated in Section 5).
1.4 Definitions. Unless otherwise specified herein, terms used with an initial
-----------
capital letter will have the meaning prescribed therefore in Section 10.
SECTION 2. ELIGIBILITY
2.1 Eligibility Requirements. Subject to the terms of this Section 2, Eligible
------------------------
Employees will be eligible to participate in, and thereby receive Awards under,
this Plan.
2.2 Eligibility for Award. Each Eligible Employee will be eligible for an
---------------------
Award and thereby will be a "Participating Employee" for the Performance Period,
if (i) such Eligible Employee's Latest Hire Date is no later than January 1,
2003, (ii) such Eligible Employee remains Actively Employed as an Eligible
Employee from his or her Latest Hire Date through the last day of the
Performance Period; and (iii) such Eligible Employee either (A) is an Employee
on the Payment Date, or (B) dies, becomes Disabled or Retires after the last day
of the Performance Period and on or before the Payment Date but while he or she
still is an Employee; provided, AFC reserves the right for the Administrator,
acting in its sole discretion, to designate an Employee as a "Participating
Employee", regardless of whether such Employee has met the requirements to be a
"Participating Employee" as described in clauses (i), (ii) and (iii) of this
section.
<PAGE>
2.3 Transfers.
---------
(a) Transfer between Participating Companies. An otherwise Eligible Employee
-----------------------------------------
who transfers with consent between Participating Companies will not be treated
as terminating employment as long as he or she continues employment with a
Participating Company without a break in service.
(b) Transfer to Non-exempt Restaurant Position. An otherwise Eligible
------------------------------------------
Employee who transfers to a position in a restaurant such that he or she becomes
classified as a non-exempt Employee by his or her Participating Company (and who
thus ceases to be an Eligible Employee) during a Performance Period will not be
eligible to receive any Award under this Plan for such period.
SECTION 3. PERFORMANCE PERIOD
The Performance Period is the period beginning on January 1, 1999 and ending on
the earliest of (i) December 31, 2003, (ii) if AFC Stock is Publicly Traded, the
date the Average Price Per Share equals $31, or (iii) the last day of any fiscal
year of AFC as of which the Earnings Per Share achieved by AFC for such fiscal
year is at least $2.25.
SECTION 4. PLAN AWARD CRITERIA, PERFORMANCE TARGETS, MEASURES and MATRICES
4.1 Award Criteria. Each Participating Employee's Award under this Plan will be
--------------
determined based on both (i) AFC achieving one or both of its Performance
Targets for the Performance Period (as described in subsection 4.2 hereof), and
(ii) such Participating Employee's Latest Hire Date (as described in subsection
4.3 hereof).
4.2 Established Performance Targets. If AFC Stock is Publicly Traded on the
-------------------------------
last day of the Performance Period, the Award will be payable if, for such
Performance Period, (i) the Average Price Per Share is no less than $31, or (ii)
Earnings Per Share for the fiscal year ending closest to the last day of the
Performance Period is no less than $2.25. If AFC Stock is not Publicly Traded on
the last day of the Performance Period, the Award will be payable only if such
Earnings Per Share for the fiscal year ending closest to such day are no less
than $2.25.
4.3 Latest Hire Date. A Participating Employee's Employment Percentage will be
----------------
determined under the Employment Percentage Matrix based on such Participating
Employee's Latest Date of Hire. A Participating Employee's Latest Hire Date
must be on or before January 1, 2003 for an Award to be payable to him or her.
4.4 Change in Performance Targets. AFC reserves the right for its Board, acting
-----------------------------
in its sole discretion, to adjust the established Performance Targets, if, in
the sole discretion of the Board, there has been one or more Transformational
Events.
<PAGE>
SECTION 5. CALCULATION OF AWARDS
5.1 Formula. The Award for each Participating Employee will be equal to the
-------
product of:
(i) Such Participating Employee's Eligible Earnings; and
(ii) Such Participating Employee's Employment Percentage.
5.2 Example of Calculation.
----------------------
Assume that a Participating Employee, whose Latest Hire Date was January 1,
1999, receives Eligible Earnings of $30,000. Also assume that AFC Stock is
Publicly Traded with an Average Price Per Share on December 31, 2003 of $31, and
that the Earnings Per Share is less than $2.25. The Employment Percentage for
this individual is 100% (determined from the Employment Percentage Matrix).
Therefore, the Award for this Employee is $30,000 ($30,000 x 100%).
SECTION 6. AWARD PAYOUT AND TIMING
6.1 Determination and Payment of Award. After the end of the Performance Period,
----------------------------------
the Administrator will calculate the amount (if any) of each Participating
Employee's Award. Such amount will be paid on or as soon as administratively
practicable after the Payment Date.
6.2 Form of Payment. As elected by each Participating Employee and subject
---------------
to AFC's ability to make payment in cash as determined by the Board in its sole
discretion, the payment to such Participating Employee will be made in either
one or a combination of (i) cash, (ii) if AFC Stock is Publicly Traded, whole
shares of AFC Stock, and (iii) deferred compensation (pursuant to the terms of
Section 6.3.) The number of shares of AFC Stock to be distributed will be
determined by dividing (x) the portion of the Award Amount to be paid in AFC
Stock by (y) the Stock Price. Any portion of an Award otherwise payable in AFC
Stock which is represented by a fractional share will be paid in cash.
6.3 Deferred Compensation. If a Participating Employee is eligible to defer
---------------------
compensation under the AFC Enterprises, Inc. Deferred Compensation Plan (or any
other nonqualified deferred compensation plan maintained by AFC or any other
Participating Company) in accordance with the eligibility requirements of such
plan, then if elected by such Participating Employee, such Participating
Employee may defer all or a part of his or her Award under such plan, provided
such Participating Employee makes his or her deferral election at least 1 year
before the Payment Date (or if different, by the deadline provided in such
deferred compensation plan). The amount, form and timing of paying such
deferred amount as deferred compensation thereafter shall be determined under,
and subject to, the terms of such nonqualified deferred compensation plan.
6.4 Recipient. The Award will be payable to the Participating Employee;
---------
provided, if the Participating Employee dies before the Payment Date, the amount
of such Participating
3
<PAGE>
Employee's Award will be paid to his or her estate. Notwithstanding the
foregoing, if the Administrator determines that a Participating Employee is
incompetent or Disabled, the Administrator may direct that the payment of the
Award be made to the guardian of such Participating Employee or to the person
having legal custody of such Participating Employee, without further liability
on the part of any Participating Company with respect to, or in the amount of,
such payment.
SECTION 7. PLAN ADMINISTRATION
7.1 Administrator. The Administrator will be responsible for the administration
-------------
of this Plan and for the interpretation of its provisions. The Administrator or
its designee will be responsible for the calculation of the Awards and
performance measures pertinent to this Plan and, if requested, will provide this
information to People Services and Development for the periodic communication of
interim results to Participating Employees. Final financial results will be
certified by AFC's independent auditors for the Performance Period.
7.2 Action by the Administrator. Action by the Administrator may be taken with
---------------------------
or without a meeting of its members; provided, action will be taken only upon
the vote or other affirmative expression of a majority of the committee members
qualified to vote with respect to such action. For purposes of administering
this Plan, the Administrator will choose a secretary who will keep minutes of
the committee's proceedings and all records and documents pertaining to the
administration of this Plan. The secretary may execute any certificate or any
other written direction on behalf of the Administrator.
7.3 Rights and Duties of the Administrator. The Administrator will administer
--------------------------------------
this Plan and will have all powers necessary to accomplish that purpose,
including (but not limited to) the following:
(a) to construe, interpret and administer this Plan;
(b) to make determinations required by this Plan, and to maintain records
regarding Participating Employees' benefits hereunder;
(c) to compute and certify to Participating Companies the amount and kinds
of benefits payable to Participating Employees, and to determine the time and
manner in which such benefits are to be paid;
(d) to authorize all disbursements by a Participating Company pursuant to
this Plan;
(e) to maintain all the necessary records of the administration of this
Plan;
(f) to make and publish such rules and procedures for the regulation of this
Plan as are not inconsistent with the terms hereof;
(g) to delegate to other individuals or entities from time to time the
performance of any of its duties or responsibilities hereunder; and
4
<PAGE>
(h) to hire agents, accountants, consultants and legal counsel to assist in
operating and administering this Plan.
The Administrator will have the exclusive right to construe and interpret this
Plan, to decide all questions of eligibility for benefits, and to determine the
amount of such benefits, and its decisions on such matters will be final and
conclusive on all parties.
7.4 Bond; Compensation. The Administrator will serve as such without bond and
------------------
without compensation for services hereunder. All expenses of the Administrator
will be paid by the Participating Companies.
SECTION 8. AMENDMENT & TERMINATION.
8.1 Amendments. The Board will have the right, in its sole discretion, to
----------
amend this Plan in whole or in part at any time and from time to time. In
addition, the Administrator will have the right, in its sole discretion, to
amend this Plan at any time and from time to time (including adding or removing
a Participating Company from this Plan) so long as such amendment is not of a
material nature.
8.2 Termination of this Plan. AFC reserves the right to discontinue and
------------------------
terminate this Plan at any time and for any reason. Any action to terminate
this Plan will be taken by the Board, and such termination will be binding on
all Participating Companies and Employees.
SECTION 9. MISCELLANEOUS PROVISIONS
9.1 Taxation. All cash Awards under this Plan are expressed as gross amounts
--------
and are subject to applicable United States federal, state and local tax
withholdings at the time of the payment of such Awards. All Awards received in
the form of AFC Stock shall be subject to applicable United States federal,
state and local tax withholdings at the time of payment of such shares of AFC
Stock. It shall be a condition to the receipt of such AFC Stock that the
Participating Employee or such other person make arrangements satisfactory to
AFC for payment of all taxes required to be withheld. At the sole discretion of
the Administrator, such arrangements may include relinquishment of a portion of
such benefit.
9.2 Exclusion from Benefit Calculations. None of the Awards payable under
-----------------------------------
this Plan will be included as 'compensation' for the purpose of any benefit
calculations under any AFC plan, policy or practice, including but not limited
to, (i) the AFC Enterprises, Inc. 401(k) Savings Plan, (ii) any other qualified
retirement plans sponsored by AFC or a Participating Company, or (iii) long or
short term incentive plans sponsored by AFC or a Participating Company.
Additionally, no personal allotments (such as United Way Contributions) will be
made from such Awards.
9.3 Governing Law. This Plan and all determinations made and actions taken
-------------
hereunder will be governed by the laws of the State of Georgia and will be
construed in accordance therewith.
9.4 No Right to Incentives or Continued Employment. Neither the establishment of
----------------------------------------------
this Plan nor the provision for or payment of any amounts under this Plan, nor
any other action by AFC
5
<PAGE>
related to this Plan, will be construed to confer upon any person any legal
right to participate in this Plan in future years or to be continued in the
employ of any Participating Company.
9.5 Construction. Unless the context clearly indicates otherwise, the masculine
------------
pronoun whenever used will include the feminine and neuter pronoun, the singular
will include the plural, and the plural will include the singular. Sections
headings are included for convenience of reference and are not intended to add
to or subtract from the terms of this Plan.
9.6 Confidentiality. This Plan and any and all documents associated with this
---------------
Plan are 'confidential and proprietary' documents of AFC and may not be
disclosed outside of AFC without the express written permission of the
Administrator.
9.7 Adjustment in Shares, etc. The Administrator may make or provide for such
-------------------------
adjustments in (i) the number of shares of AFC Stock granted hereunder, (ii) the
price per share applicable to such AFC Stock, (iii) the kind of shares covered
hereby, (iv) the Earnings Per Share, and (v) the Stock Price as the
Administrator, in its sole discretion, may in good faith determine to be
equitably required in order to prevent dilution or enlargement of the rights of
Participating Employees that otherwise would result from (x) any stock dividend,
stock split, combination or exchange of shares, recapitalization or other change
in the capital structure of AFC, (y) any merger, consolidation, spin-off, spin-
out, split-off, split-up, reorganization, partial or complete liquidation or
other distribution of assets (other than a normal cash dividend), issuance of
rights or warrants to purchase securities, or (z) any other corporate
transaction or event having an effect similar to any of the foregoing.
Moreover, in the event of any such transaction or event, the Administrator may
provide in substitution for any or all outstanding Awards under this Plan such
alternative consideration as it may in good faith determine to be equitable
under the circumstances and may require in connection therewith the surrender of
all Awards so replaced.
SECTION 10. DEFINITIONS
For purposes of this Plan, the following terms, when used in this Plan with an
initial capital letter, will have the following meanings:
"Actively Employed" means, for and during any specified period or for any
specified date the Employee is designated as a full-time employee by a
Participating Company and the Employee is entitled to payment by a Participating
Company (i) for the performance of duties, (ii) for periods of time for which no
duties are performed due to holiday or vacation, or (iii) for periods of time
for which no duties are performed due to a leave of absence granted in
accordance with the Family and Medical Leave Act of 1993.
"Administrator" means the committee appointed by the Board.
"AFC" means AFC Enterprises, Inc., a Georgia corporation or its successors.
"AFC Stock" means the common stock of AFC.
"Average Price Per Share" means the average value of one share of AFC Stock,
determined as the average of the closing prices of each share of AFC Stock for
the 20-
6
<PAGE>
consecutive trading day period ending on any specified date during the
Performance Period; provided, this definition will be operative only for such
trading day periods during which AFC Stock is Publicly Traded.
"Award" means an award granted in accordance with Section 5.
"Board" means the Board of Directors of AFC.
"Disabled" means that an Employee has terminated his or her employment with
a Participating Company as a result of an event which would satisfy the
requirements of a "Disability Distribution", within the meaning of the AFC
Enterprises, Inc. 401(k) Savings Plan, as in effect at the time of such
termination of employment.
"Earnings Per Share" means for any fiscal year the Normalized Net Profit of
AFC divided by the total number of shares of Common Stock of AFC outstanding
(excluding treasury shares) as of such date.
"Effective Date" means January 1, 1999.
"Eligible Earnings" means, for a Performance Period:
(a) Salaried Employees. For an Eligible Employee who is paid on the basis
------------------
of an annual salary, the amount of such individual's annualized base salary,
determined on the basis of such Eligible Employee's base salary level in effect
on the last day of the Performance Period. Notwithstanding the foregoing, if
such Eligible Employee's Latest Hire Date precedes the last day of the
Performance Period by less than 12 months, his or her Eligible Earnings, as
determined in the immediately preceding sentence, will be prorated by
multiplying such amount by a fraction, the numerator of which is the number of
full or partial calendar months from such Eligible Employee's Latest Hire Date
to the last day of the Performance Period, and the denominator of which is 12.
(b) Hourly Employees. For an Eligible Employee who is paid on the basis of
----------------
an hourly wage, the total amount of such individual's annualized hourly wage
rate, determined on the basis of such Eligible Employee's hourly wage rate in
effect on the last day of the Performance Period and assuming such Eligible
Employee works an average of 40 hours per week; provided, if such Eligible
Employee's Latest Hire Date precedes the last day of the Performance Period by
less than 12 months, his or her Eligible Earnings as otherwise determined
hereunder shall be prorated by multiplying the annualized amount by a fraction,
the numerator of which is the number of full or partial calendar months from
such Eligible Employee's Latest Hire Date to the last day of the Performance
Period, and the denominator of which is 12.
"Eligible Employee" means a regular full-time Employee, other than:
(i) an Employee who is classified by his or her Participating Company,
under its customary employment classification procedures, as a non-exempt
restaurant employee (or any similar classification);
7
<PAGE>
(ii) a "leased employee" within the meaning of Section 414(n)(2) of
the Internal Revenue Code of 1986, as amended; or
(iii) an individual whom a Participating Company classifies under its
customary employment classification procedures as a leased employee or an
independent contractor (whether or not the individual is actually an employee).
"Employee" means any person who is Actively Employed by a Participating
Company during the Performance Period.
"Employment Percentage Matrix" has the meaning as described in Section 4.3
and as set forth on Exhibit A.
"Employment Percentage" means the percentage derived from the Employment
Percentage Matrix by applying the terms of Section 4.3 and Exhibit A.
"Latest Hire Date" means, with respect to a Participating Employee, a date
during the Performance Period which is the latest of (i) such Participating
Employee's initial date of hire as an Eligible Employee by a Participating
Company, (ii) such Participating Employee's most recent rehire date as an
Eligible Employee by a Participating Company, (iii) the date on which a non-
Eligible Employee becomes an Eligible Employee, or (iv) January 1, 1998;
provided, a Participating Employee who transfers directly from the employment of
one Participating Company to the employment of another Participating Company (in
each case in the capacity of an Eligible Employee) will be treated as if he or
she was continuously employed by a Participating Company since such
Participating Employee's date of hire or rehire by the transferor company.
"Normalized Net Profit" means, for any specified period, the net profit of
AFC as determined by AFC's independent accountants computed without regard to
extraordinary and non-recurring items.
"Participating Companies" means AFC and any other AFC company or affiliate
designated as a Participating Company by the Administrator and specified on
Exhibit B.
"Participating Employee" means, with respect to the Award, an Eligible
Employee described in Section 2.2.
"Payment Date" means the last day of the third calendar month beginning on
or immediately after the last day of the Performance Period.
"Performance Period" has the meaning set forth in Section 3.
"Performance Targets" means, unless AFC has specified other performance
percentages or criteria pursuant to the terms of Section 4.4, the targeted
levels of Average Price Per Share and Earnings Per Share, that are set forth and
described in Section 4.2 and that must be achieved for Awards to become payable
hereunder.
8
<PAGE>
"Plan" means the AFC Long-Term Employee Success Plan as maintained by one or
more of the Participating Companies for the benefit of its Eligible Employees.
"Publicly Traded" means that the AFC Stock is listed on a national
securities exchange registered under Section 6 of the Securities Exchange Act of
1934 or is quoted on a system sponsored by a national securities association
registered under Section 15A(b) of the Securities Exchange Act.
"Retired" means that an Employee has terminated his or her employment with a
Participating Company as a result of an event which would satisfy the
requirements of a "Normal Retirement" or "Late Retirement", within the meaning
of the AFC Enterprises, Inc. 401(k) Savings Plan, as in effect at the time of
such termination of employment.
"Stock Price" means the mean of the per share fair market value of AFC Stock
on the last day of the Performance Period and each of the 4 immediately
preceding trading days. For this purpose, the per share fair market value of AFC
Stock on each of those 5 days will be equal to that day's per share closing
price on the exchange on which such stock is traded. If for any reason the per
share fair market value of AFC Stock cannot be ascertained or is unavailable for
a particular date, the fair market value of such stock for such day shall be
determined as of the nearest preceding date on which such fair market value can
be ascertained pursuant to the terms hereof.
"Transformational Event" means one or a series of related or unrelated
events, acquisitions, dispositions, mergers or other transactions or
occurrences, involving AFC and/or any of its affiliates, (i) that was
unanticipated or the magnitude of the effects of which were unanticipated as of
the Effective Date, (ii) that is identified by the Board, acting in its sole
discretion, as having, or possibly having, a material effect, whether positive
or adverse, on the consolidated financial performance of AFC and its affiliates,
and (iii) that, in the sole discretion of the Board, will distort the
effectiveness of the previously identified Performance Targets such that such
targets should be revised to achieve the purposes AFC intended in initially
designing this Plan. For example, if AFC and/or its affiliates, engages in one
or a series of significant acquisitions (or dispositions) that, in the sole
discretion of the Board, will or may cause the specified Performance Targets to
be satisfied (or missed), regardless of the performance of AFC's business as
constituted as of the Effective Date, the Board may, but is not required to,
modify the Performance Targets.
9
<PAGE>
EXHIBIT A
- ---------
EMPLOYMENT PERCENTAGE MATRIX
<TABLE>
<CAPTION>
Latest Hire Date Employment Percentage
- ---------------- ---------------------
<S> <C>
On or before 1/1/98 110%
1/2/98 - 1/1/99 100%
1/2/99 - 1/1/00 66.7%
1/2/00 - 1/1/01 33.3%
1/2/01 - 1/1/02 20.0%
1/2/02 - 1/1/03 10.0%
1/2/03 - 12/31/03 0%
</TABLE>
<PAGE>
EXHIBIT B
- ---------
PARTICIPATING COMPANIES
- -----------------------
Seattle Coffee Company
Seattle's Best Coffee, LLC
Torrefazione Italia, LLC
Cinnabon International, Inc.
Cinnabon, Inc.
Churchs Chicken
Popeyes Chicken & Biscuits
Chesapeake Bagel
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
STATEMENTS FOR THE TWENTY-FOUR WEEK PERIOD ENDED JUNE 13, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-26-1999
<PERIOD-START> DEC-28-1998
<PERIOD-END> JUN-13-1999
<CASH> 16,279
<SECURITIES> 0
<RECEIVABLES> 26,511
<ALLOWANCES> 5,002
<INVENTORY> 13,917
<CURRENT-ASSETS> 55,914
<PP&E> 390,395
<DEPRECIATION> 128,712
<TOTAL-ASSETS> 556,961
<CURRENT-LIABILITIES> 96,892
<BONDS> 332,251
0
0
<COMMON> 393
<OTHER-SE> 91,127
<TOTAL-LIABILITY-AND-EQUITY> 556,961
<SALES> 257,415
<TOTAL-REVENUES> 321,683
<CGS> 78,532
<TOTAL-COSTS> 300,080
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 302
<INTEREST-EXPENSE> 15,610
<INCOME-PRETAX> 5,993
<INCOME-TAX> 2,697
<INCOME-CONTINUING> 3,296
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,296
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
