<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-3930
FRIENDLY ICE CREAM CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 5812 04-2053130
(State of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code Number) Identification No.)
1855 BOSTON ROAD
WILBRAHAM, MASSACHUSETTS 01095
(413) 543-2400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at October 25, 1999
Common Stock, $.01 par value 7,495,122 shares
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 26, December 27,
1999 1998
---- ----
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,674 $ 11,091
Restricted cash 2,291 2,211
Accounts receivable 4,907 5,566
Inventories 17,189 15,560
Deferred income taxes 7,061 7,061
Prepaid expenses and other current assets 4,698 6,578
--------- ---------
TOTAL CURRENT ASSETS 53,820 48,067
PROPERTY AND EQUIPMENT, net 301,663 300,159
INTANGIBLES AND DEFERRED COSTS, net 24,224 25,178
OTHER ASSETS 1,424 1,144
--------- ---------
TOTAL ASSETS $ 381,131 $ 374,548
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 8,212 $ 4,023
Current maturities of capital lease and finance obligations 1,808 1,677
Accounts payable 36,449 26,460
Accrued salaries and benefits 14,863 14,206
Accrued interest payable 7,959 2,593
Insurance reserves 8,948 9,116
Other accrued expenses 13,366 20,649
--------- ---------
TOTAL CURRENT LIABILITIES 91,605 78,724
--------- ---------
DEFERRED INCOME TAXES 37,154 37,188
CAPITAL LEASE AND FINANCE OBLIGATIONS, less current maturities 8,330 9,745
LONG-TERM DEBT, less current maturities 304,194 311,061
OTHER LONG-TERM LIABILITIES 28,021 28,431
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 75 75
Preferred stock -- --
Additional paid-in capital 138,414 137,896
Accumulated deficit (226,727) (228,639)
Accumulated other comprehensive income 65 67
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (88,173) (90,601)
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 381,131 $ 374,548
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
1
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $ 198,121 $ 187,456 $ 528,470 $ 517,876
COSTS AND EXPENSES:
Cost of sales 56,439 56,500 150,892 155,506
Labor and benefits 62,364 56,066 171,687 159,953
Operating expenses 44,837 42,006 120,719 115,993
General and administrative expenses 11,192 10,249 33,521 32,299
Stock compensation expense 181 183 518 537
Write-downs of property and equipment 140 485 1,529 653
Depreciation and amortization 8,914 8,536 25,709 24,621
Gain on sales of restaurant operations and properties (1,594) -- (2,507) --
--------- --------- --------- ---------
OPERATING INCOME 15,648 13,431 26,402 28,314
Interest expense, net 8,242 7,997 24,879 23,866
Equity in net loss of (recovery of write-down of) joint venture -- 266 (896) 936
--------- --------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES
AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
7,406 5,168 2,419 3,512
Provision for income taxes (2,233) (1,964) (188) (1,335)
--------- --------- --------- ---------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 5,173 3,204 2,231 2,177
Cumulative effect of change in accounting principle, net of income
tax benefit of $222 -- -- (319) --
--------- --------- --------- ---------
NET INCOME $ 5,173 $ 3,204 $ 1,912 $ 2,177
========= ========= ========= =========
BASIC NET INCOME PER SHARE:
Income before cumulative effect of change in accounting
principle $ 0.69 $ 0.43 $ 0.30 $ 0.29
Cumulative effect of change in accounting principle, net of
income tax benefit -- -- (0.04) --
--------- --------- --------- ---------
Net income $ 0.69 $ 0.43 $ 0.26 $ 0.29
========= ========= ========= =========
DILUTED NET INCOME PER SHARE:
Income before cumulative effect of change in accounting
principle $ 0.69 $ 0.43 $ 0.29 $ 0.29
Cumulative effect of change in accounting principle, net of
income tax benefit -- -- (0.04) --
--------- --------- --------- ---------
Net income $ 0.69 $ 0.43 $ 0.25 $ 0.29
========= ========= ========= =========
WEIGHTED AVERAGE SHARES:
Basic 7,495 7,455 7,490 7,449
========= ========= ========= =========
Diluted 7,524 7,455 7,504 7,449
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
-------------------------
September 26, September 27,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,912 $ 2,177
Adjustments to reconcile net income to net cash provided by operating activities:
Cumulative effect of change in accounting principle 319 --
Stock compensation expense 518 537
Depreciation and amortization 25,709 24,621
Write-downs of property and equipment 1,529 653
Deferred income tax expense 188 282
(Gain) loss on disposal of property and equipment (1,855) 1,308
(Non-cash recovery of write-down of) equity in net loss of joint venture (69) 936
Changes in operating assets and liabilities:
Accounts receivable 728 1,777
Inventories (1,629) (3,418)
Other assets (915) 943
Accounts payable 9,989 3,332
Accrued expenses and other long-term liabilities (1,838) (3,372)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 34,586 29,776
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (36,828) (41,202)
Proceeds from sales of property and equipment 11,639 1,448
Proceeds from sale of joint venture 1,150 --
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (24,039) (39,754)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 72,000 46,258
Repayments of debt (74,678) (38,124)
Repayments of capital lease and finance obligations (1,284) (1,259)
-------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,962) 6,875
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (2) 19
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,583 (3,084)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,091 15,132
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,674 $ 12,048
======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during the period for:
Interest $ 18,671 $ 18,507
Income taxes 9 455
Capital lease obligations incurred -- 608
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME $ 5,173 $ 3,204 $ 1,912 $ 2,177
OTHER COMPREHENSIVE INCOME (LOSS), NET OF
TAX:
Currency translation effects -- 9 (2) 19
------- ------- ------- -------
OTHER COMPREHENSIVE INCOME (LOSS) -- 9 (2) 19
------- ------- ------- -------
COMPREHENSIVE INCOME $ 5,173 $ 3,213 $ 1,910 $ 2,196
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
INTERIM FINANCIAL INFORMATION -
The accompanying condensed consolidated financial statements as of
September 26, 1999 and for the third quarter and nine months ended September 26,
1999 and September 27, 1998 are unaudited, but, in the opinion of management,
include all adjustments which are necessary for a fair presentation of the
consolidated financial position, results of operations, cash flows and
comprehensive income of Friendly Ice Cream Corporation ("FICC") and subsidiaries
(unless the context indicates otherwise, collectively the "Company"). Such
adjustments consist solely of normal recurring accruals. Operating results for
the three and nine month periods ended September 26, 1999 and September 27, 1998
are not necessarily indicative of the results that may be expected for the
entire year due, in part, to the seasonality of the Company's business.
Historically, higher revenues and operating income have been experienced during
the second and third fiscal quarters. The Company's Consolidated Financial
Statements, including the notes thereto, which are contained in the 1998 Annual
Report on Form 10-K should be read in conjunction with these Condensed
Consolidated Financial Statements.
INVENTORIES -
Inventories are stated at the lower of first-in, first-out cost or
market. Inventories as of September 26, 1999 and December 27, 1998 were as
follows (in thousands):
<TABLE>
<CAPTION>
September 26, December 27,
1999 1998
---- ----
<S> <C> <C>
Raw materials $ 1,661 $ 1,983
Goods in process 301 145
Finished goods 15,227 13,432
------- -------
Total $17,189 $15,560
======= =======
</TABLE>
2. EARNINGS PER SHARE
Basic net income per share is calculated by dividing income available
to common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted net income per share is calculated by
dividing income available to common stockholders by the weighted average number
of shares of common stock and common stock equivalents outstanding during the
period. Common stock equivalents are dilutive stock options and warrants that
are assumed exercised for calculation purposes.
Presented below is the reconciliation between basic and diluted
weighted average shares (in thousands):
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic weighted average number
of shares outstanding during
the period 7,495 7,455 7,490 7,449
Adjustments:
Assumed exercise of stock
options 29 - 14 -
----- ----- ----- -----
Diluted weighted average number
of shares during the period 7,524 7,455 7,504 7,449
===== ===== ===== =====
</TABLE>
5
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
3. RESTAURANT PREOPENING COSTS
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 requires entities to expense as incurred all start-up and
preopening costs that are not otherwise capitalizable as long-lived assets and
is effective for fiscal years beginning after December 15, 1998. In accordance
with this statement, on December 28, 1998, the Company expensed previously
deferred restaurant preopening costs of approximately $541,000. This transaction
has been reflected as a cumulative effect of a change in accounting principle of
$319,000, net of the income tax benefit of $222,000, in the accompanying
condensed consolidated financial statements for the nine months ended September
26, 1999.
4. COMPREHENSIVE INCOME
The following represents accumulated other comprehensive income (in
thousands):
<TABLE>
<CAPTION>
September 26, December 27, September 27,
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Currency translation effects $65 $67 $77
=== === ===
</TABLE>
5. SEGMENT REPORTING
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information," during 1998. SFAS No. 131 established standards for reporting
information about operating segments in annual and interim financial reports. It
also established standards for related disclosures about products and services
and geographic areas. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly by
the chief operating decision-maker, or decision-making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-maker is the Chairman and Chief Executive Officer of the Company. The
Company's operating segments include restaurant, foodservice (retail and
institutional), franchise and international operations. The revenues from these
segments include both sales to unaffiliated customers and intersegment sales,
which generally are accounted for on a basis consistent with sales to
unaffiliated customers. Intersegment sales and other intersegment transactions
have been eliminated in the accompanying condensed consolidated financial
statements. The Company does not allocate general and administrative expenses
associated with its headquarters operations to any business segment. These costs
include general and administrative expenses of the following functions: legal,
accounting, personnel not directly related to a segment, information systems and
other headquarters activities.
The accounting policies of the operating segments are the same as those
described in the summary of significant accounting policies in the Company's
Form 10-K for the year ended December 27, 1998, except that the financial
results for the foodservice operating segment, prior to intersegment
eliminations, have been prepared using a management approach which is consistent
with the basis and manner in which the Company's management internally reviews
financial information for the purpose of assisting in making internal operating
decisions. The Company evaluates performance based on stand-alone operating
segment income (loss) before income taxes and generally accounts for
intersegment sales and transfers as if the sales or transfers were to third
parties, that is, at current market prices.
6
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. SEGMENT REPORTING (CONTINUED)
EBITDA represents net income before (i) cumulative effect of change in
accounting principle, net of income taxes, (ii) provision for income taxes,
(iii) equity in net loss of (recovery of write-down of) joint venture, (iv)
interest expense, net, (v) depreciation and amortization and (vi) non-cash
write-downs and all other non-cash items, plus cash distributions from
unconsolidated subsidiaries.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------- -----------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Revenues:
Restaurant $ 173,143 $ 162,988 $ 464,257 $ 455,168
Foodservice (retail and institutional) 76,007 72,495 199,774 196,425
Franchise 1,332 982 3,798 2,664
International -- 19 23 283
--------- --------- --------- ---------
Total $ 250,482 $ 236,484 $ 667,852 $ 654,540
========= ========= ========= =========
Intersegment revenues:
Restaurant $ -- $ -- $ -- $ --
Foodservice (retail and institutional) (52,361) (49,028) (139,382) (136,664)
Franchise -- -- -- --
International -- -- -- --
--------- --------- --------- ---------
Total $ (52,361) $ (49,028) $(139,382) $(136,664)
========= ========= ========= =========
External revenues:
Restaurant $ 173,143 $ 162,988 $ 464,257 $ 455,168
Foodservice (retail and institutional) 23,646 23,467 60,392 59,761
Franchise 1,332 982 3,798 2,665
International -- 19 23 282
--------- --------- --------- ---------
Total $ 198,121 $ 187,456 $ 528,470 $ 517,876
========= ========= ========= =========
</TABLE>
7
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
5. SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
EBITDA:
Restaurant $ 21,327 $ 22,403 $ 49,272 $ 56,665
Foodservice (retail and institutional) 9,832 5,665 22,200 15,108
Franchise 750 396 2,016 1,124
International (27) (250) (81) (632)
Corporate (6,999) (5,579) (19,249) (18,140)
--------- --------- --------- ---------
Total $ 24,883 $ 22,635 $ 54,158 $ 54,125
========= ========= ========= =========
Interest expense, net $ 8,242 $ 7,997 $ 24,879 $ 23,866
========= ========= ========= =========
Equity in net loss of (recovery of write-down
of) joint venture $ -- $ 266 $ (896) $ 936
========= ========= ========= =========
Income (loss) before provision for income
taxes and cumulative effect of change in
accounting principle:
Restaurant $ 14,543 $ 15,061 $ 29,217 $ 36,348
Foodservice (retail and institutional) 8,992 4,916 18,761 12,861
Franchise 612 249 1,549 685
International (27) (530) 815 (1,602)
Corporate (16,714) (14,528) (47,923) (44,780)
--------- --------- --------- ---------
Total $ 7,406 $ 5,168 $ 2,419 $ 3,512
========= ========= ========= =========
Depreciation and amortization:
Restaurant $ 6,644 $ 6,857 $ 19,326 $ 19,664
Foodservice (retail and institutional) 840 749 2,639 2,247
Franchise 138 147 467 439
International -- 14 -- 34
Corporate 1,292 769 3,277 2,237
--------- --------- --------- ---------
Total $ 8,914 $ 8,536 $ 25,709 $ 24,621
========= ========= ========= =========
Identifiable assets:
Restaurant $ 273,037 $ 270,596
Foodservice (retail and institutional) 43,815 44,418
Franchise 4,053 8,242
International 28 4,759
Corporate 60,198 54,314
--------- ---------
Total $ 381,131 $ 382,329
========= =========
Capital expenditures, including capitalized leases:
Restaurant $ 9,103 $ 6,858 $ 31,101 $ 35,939
Foodservice (retail and institutional) 942 263 3,856 4,540
International -- -- -- --
Corporate 467 145 1,871 1,331
--------- --------- --------- ---------
Total $ 10,512 $ 7,266 $ 36,828 $ 41,810
========= ========= ========= =========
</TABLE>
8
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
6. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND FOR HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 establishes accounting and reporting standards requiring that each
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the statement of operations, and requires that a company formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting. SFAS No. 133 cannot be applied retroactively. SFAS No. 133
would have been effective for fiscal years beginning after June 15, 1999. In
June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133." Under the provisions of SFAS No. 137, SFAS No. 133 shall be effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
Management has not yet quantified the impact of adopting SFAS No. 133 on the
Company's financial statements and has not determined the timing or method of
the Company's adoption of SFAS No. 133. However, SFAS No. 133 could increase
volatility in earnings and other comprehensive income.
7. CLOSING OF INTERNATIONAL OPERATIONS
Effective October 15, 1998, Friendly's International, Inc. ("FII"), a
subsidiary of FICC, entered into an agreement that provided for the sale of the
Company's 50% equity interest in its China joint venture to the joint venture
partner and the settlement of FICC's advances to the joint venture for an
aggregate of approximately $2.3 million in notes and $335,000 of equipment. On
February 25, 1999, FII received an initial payment of approximately $1.1 million
and arranged for the shipment of the equipment to the United States. At that
time, the Company believed that collection of any additional funds after
February 25, 1999 from the joint venture partner under the terms of the
settlement agreement was not probable due to the financial condition of the
joint venture partner and restrictions on the transfer of funds from China.
Accordingly, the Company recorded a write-down of approximately $3.5 million as
of December 27, 1998 to reduce the Company's remaining investment in and
advances to the joint venture to the $1.1 million which was received on February
25, 1999. On March 17, 1999, the Company received an additional $250,000 from
the joint venture partner. Those additional proceeds were reflected as income in
the first quarter ended March 28, 1999. During June 1999, the Company was
notified by its joint venture partner that it would remit approximately $577,000
in cash and $69,000 of equipment to the Company. The Company recorded such
amounts as income during the second quarter ended June 27, 1999. The Company
received the cash on July 22, 1999 and anticipates receiving the equipment by
the end of the current fiscal year. The Company does not anticipate any
additional payments from the joint venture partner in the future. If any of the
$0.3 million still due under the terms of the sale agreement is received by the
Company, such amount will be recorded as income by the Company at such time.
8. SALE OF RESTAURANT PROPERTIES TO FRANCHISEE
On September 24, 1999, the Company sold the land and buildings
associated with 13 previously franchised restaurants to the Company's largest
franchisee located in the Baltimore/Washington D.C. area for $6.8 million.
This transaction, an integral component of Friendly Ice Cream Corporation's
franchising strategy, resulted in a gain on sale of restaurant operations and
properties of $1.6 million for the three months ended September 26, 1999. The
sale of the land and buildings favorably impacted the provision for income
taxes as it triggered built-in gains which allowed for a reduction in the
valuation allowance on certain net operating loss carryforwards.
9
<PAGE>
FRIENDLY ICE CREAM CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
9. RELOCATION OF MANUFACTURING AND DISTRIBUTION FACILITY
On December 1, 1998, the Company announced a plan to relocate its
manufacturing and distribution operations from Troy, Ohio to Wilbraham,
Massachusetts and York, Pennsylvania. The following table illustrates the
remaining accrued costs and expenses associated with the closedown of the Troy,
Ohio facility:
<TABLE>
<CAPTION>
Accrued as of Accrued as of
December 27, 1998 Costs Paid September 26, 1999
----------------- ---------- ------------------
<S> <C> <C> <C>
Severance pay $ 536,000 $ 526,500 $ 9,500
Utility costs 140,000 166,000 (26,000)
Real estate taxes 87,000 -- 87,000
Outside storage 80,000 22,000 58,000
Outplacement services 50,000 50,000 --
Additional exit costs (plant maintenance, security and travel) 52,000 165,000 (113,000)
--------- --------- ---------
Total $ 945,000 $ 929,500 $ 15,500
========= ========= =========
</TABLE>
The Company successfully closed its Troy, Ohio manufacturing and
distribution facility in May 1999 and relocated the operations to Wilbraham,
Massachusetts and York, Pennsylvania.
In addition, the Company recorded a non-cash write-down during June
1999 of $800,000 related to the Troy, Ohio facility to reflect the revised
estimated net realizable value in conjunction with the anticipated sale of this
facility. This amount is included in write-downs of property and equipment in
the accompanying condensed consolidated statements of operations for the nine
months ended September 26, 1999.
10. SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
FICC's obligation related to the $200 million Senior Notes is
guaranteed fully and unconditionally by one of FICC's wholly-owned
subsidiaries. There are no restrictions on FICC's ability to obtain dividends or
other distributions of funds from this subsidiary, except those imposed by
applicable law. The following supplemental financial information sets forth, on
a condensed consolidating basis, balance sheets, statements of operations and
statements of cash flows for Friendly Ice Cream Corporation (the "Parent
Company"), Friendly's Restaurants Franchise, Inc. (the "Guarantor Subsidiary")
and Friendly's International, Inc., Friendly Holding (UK) Limited, Friendly Ice
Cream (UK) Limited and Restaurant Insurance Corporation (collectively, the
"Non-guarantor Subsidiaries"). Separate complete financial statements and other
disclosures of the Guarantor Subsidiary as of September 26, 1999 and September
27, 1998, and for the periods ended September 26, 1999 and September 27, 1998,
are not presented because management has determined that such information is not
material to investors.
Investments in subsidiaries are accounted for by the Parent Company on
the equity method for purposes of the supplemental consolidating presentation.
Earnings of the subsidiaries are, therefore, reflected in the Parent Company's
investment accounts and earnings. The principal elimination entries eliminate
the Parent Company's investments in subsidiaries and intercompany balances and
transactions.
10
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 26, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 15,464 $ 21 $ 2,189 $ -- 17,674
Restricted cash -- -- 2,291 -- 2,291
Accounts receivable 4,679 228 -- -- 4,907
Inventories 17,189 -- -- -- 17,189
Deferred income taxes 6,783 -- 278 -- 7,061
Prepaid expenses and other current
assets 9,196 3,569 4,704 (12,771) 4,698
--------- --------- --------- --------- ---------
Total current assets 53,311 3,818 9,462 (12,771) 53,820
Deferred income taxes -- 503 1,024 (1,527) --
Property and equipment, net 301,663 -- -- -- 301,663
Intangibles and deferred costs, net 24,224 -- -- -- 24,224
Investments in subsidiaries 1,908 -- -- (1,908) --
Other assets 510 -- 5,729 (4,815) 1,424
--------- --------- --------- --------- ---------
Total assets $ 381,616 $ 4,321 $ 16,215 $ (21,021) $ 381,131
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term
obligations $ 14,520 $ -- $ -- $ (4,500) $ 10,020
Accounts payable 36,449 -- -- -- 36,449
Accrued expenses 44,576 563 8,268 (8,271) 45,136
--------- --------- --------- --------- ---------
Total current liabilities 95,545 563 8,268 (12,771) 91,605
Deferred income taxes 38,681 -- -- (1,527) 37,154
Long-term obligations, less current
maturities 317,339 -- -- (4,815) 312,524
Other long-term liabilities 18,224 2,221 7,576 -- 28,021
Stockholders' equity (deficit) (88,173) 1,537 371 (1,908) (88,173)
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) $ 381,616 $ 4,321 $ 16,215 $ (21,021) $ 381,131
========= ========= ========= ========= =========
</TABLE>
11
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 26, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 197,397 $ 723 $ 1 $ -- $ 198,121
Costs and expenses:
Cost of sales 56,438 -- 1 -- 56,439
Labor and benefits 62,364 -- -- -- 62,364
Operating expenses and write-downs of
property and equipment 45,030 -- (53) -- 44,977
General and administrative expenses 10,775 423 (6) -- 11,192
Stock compensation expense 181 -- -- -- 181
Depreciation and amortization 8,914 -- -- -- 8,914
Gain on sales of restaurant operations and
properties (1,594) -- -- -- (1,594)
Interest expense (income) 8,427 -- (185) -- 8,242
--------- --------- --------- --------- ---------
Income before provision for income taxes
and equity in net income of consolidated
subsidiaries 6,862 300 244 -- 7,406
Provision for income taxes (2,026) (124) (83) -- (2,233)
--------- --------- --------- --------- ---------
Income before equity in net income of
consolidated subsidiaries 4,836 176 161 -- 5,173
Equity in net income of consolidated
subsidiaries 337 -- -- (337) --
--------- --------- --------- --------- ---------
Net income $ 5,173 $ 176 $ 161 $ (337) $ 5,173
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 526,463 $ 1,983 $ 24 $ -- $ 528,470
Costs and expenses:
Cost of sales 150,874 -- 18 -- 150,892
Labor and benefits 171,687 -- -- -- 171,687
Operating expenses and write-downs of
property and equipment 122,403 -- (155) -- 122,248
General and administrative expenses 32,309 1,279 (67) -- 33,521
Stock compensation expense 518 -- -- -- 518
Depreciation and amortization 25,709 -- -- -- 25,709
Gain on sales of restaurant operations
and properties (2,507) -- -- -- (2,507)
Interest expense (income) 25,427 -- (548) -- 24,879
Recovery of write-down of joint venture (896) -- -- -- (896)
--------- --------- --------- --------- ---------
Income before benefit from (provision for) income
taxes, cumulative effect of
change in accounting principle and equity
in net income of consolidated
subsidiaries 939 704 776 -- 2,419
Benefit from (provision for) income taxes 346 (289) (245) -- (188)
--------- --------- --------- --------- ---------
Income before cumulative effect of change
in accounting principle and equity in net
income of consolidated subsidiaries 1,285 415 531 -- 2,231
Cumulative effect of change in accounting
principle (319) -- -- -- (319)
--------- --------- --------- --------- ---------
Income before equity in net income of
consolidated subsidiaries 966 415 531 -- 1,912
Equity in net income of consolidated
subsidiaries 946 -- -- (946) --
--------- --------- --------- --------- ---------
Net income $ 1,912 $ 415 $ 531 $ (946) $ 1,912
========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1999
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities $ 34,285 $ (32) $ 333 $ -- $ 34,586
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (36,828) -- -- -- (36,828)
Proceeds from sales of property and
equipment 11,639 -- -- -- 11,639
Proceeds from sale of joint venture 1,150 -- -- -- 1,150
-------- -------- -------- -------- --------
Net cash used in investing activities (24,039) -- -- -- (24,039)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Proceeds from borrowings 72,000 -- -- -- 72,000
Repayments of obligations (75,962) -- -- -- (75,962)
-------- -------- -------- -------- --------
Net cash used in financing activities (3,962) -- -- -- (3,962)
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash -- -- (2) -- (2)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents 6,284 (32) 331 -- 6,583
Cash and cash equivalents, beginning of
period 9,180 53 1,858 -- 11,091
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period $ 15,464 $ 21 $ 2,189 $ -- $ 17,674
======== ======== ======== ======== ========
Supplemental disclosures:
Cash paid (received) for:
Interest $ 19,034 $ -- $ (363) $ -- $ 18,671
Income taxes 12 212 (215) -- 9
</TABLE>
14
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 27, 1998
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
Assets
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 9,180 $ 53 $ 1,858 $ -- $ 11,091
Restricted cash -- -- 2,211 -- 2,211
Accounts receivable 5,370 175 21 -- 5,566
Inventories 15,445 -- 115 -- 15,560
Deferred income taxes 6,783 -- 278 -- 7,061
Prepaid expenses and other current
assets 8,657 2,434 7,461 (11,974) 6,578
--------- --------- --------- --------- ---------
Total current assets 45,435 2,662 11,944 (11,974) 48,067
Deferred income taxes -- 503 1,024 (1,527) --
Property and equipment, net 300,159 -- -- -- 300,159
Intangibles and deferred costs, net 25,178 -- -- -- 25,178
Investments in subsidiaries 965 -- -- (965) --
Other assets 222 -- 5,736 (4,814) 1,144
--------- --------- --------- --------- ---------
Total assets $ 371,959 $ 3,165 $ 18,704 $ (19,280) $ 374,548
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current maturities of long-term
obligations $ 10,200 $ -- $ -- $ (4,500) $ 5,700
Accounts payable 26,460 -- -- -- 26,460
Accrued expenses 42,035 574 11,429 (7,474) 46,564
--------- --------- --------- --------- ---------
Total current liabilities 78,695 574 11,429 (11,974) 78,724
Deferred income taxes 38,715 -- -- (1,527) 37,188
Long-term obligations, less current
maturities 325,620 -- -- (4,814) 320,806
Other long-term liabilities 19,530 1,469 7,432 -- 28,431
Stockholders' equity (deficit) (90,601) 1,122 (157) (965) (90,601)
--------- --------- --------- --------- ---------
Total liabilities and stockholders' equity
(deficit) $ 371,959 $ 3,165 $ 18,704 $ (19,280) $ 374,548
========= ========= ========= ========= =========
</TABLE>
15
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 186,957 $ 481 $ 18 $ -- $ 187,456
Costs and expenses:
Cost of sales 56,463 -- 37 -- 56,500
Labor and benefits 56,066 -- -- -- 56,066
Operating expenses and write-downs of
property and equipment 42,475 -- 16 -- 42,491
General and administrative expenses 9,850 313 86 -- 10,249
Stock compensation expense 183 -- -- -- 183
Depreciation and amortization 8,522 -- 14 -- 8,536
Interest expense (income) 8,235 -- (238) -- 7,997
Equity in net loss of joint venture -- -- 266 -- 266
--------- --------- --------- --------- ---------
Income (loss) before (provision for)
benefit from income taxes and equity in
net loss of consolidated subsidiaries 5,163 168 (163) -- 5,168
(Provision for) benefit from income taxes (1,920) (71) 27 -- (1,964)
--------- --------- --------- --------- ---------
Income (loss) before equity in net loss
of consolidated subsidiaries 3,243 97 (136) -- 3,204
Equity in net loss of consolidated
subsidiaries (39) -- -- 39 --
--------- --------- --------- --------- ---------
Net income (loss) $ 3,204 $ 97 $ (136) $ 39 $ 3,204
========= ========= ========= ========= =========
</TABLE>
16
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 516,447 $ 1,147 $ 282 $ -- $ 517,876
Costs and expenses:
Cost of sales 155,230 -- 276 -- 155,506
Labor and benefits 159,953 -- -- -- 159,953
Operating expenses and write-downs of
property and equipment 116,659 -- (13) -- 116,646
General and administrative expenses 31,116 917 266 -- 32,299
Stock compensation expense 537 -- -- -- 537
Depreciation and amortization 24,587 -- 34 -- 24,621
Interest expense (income) 24,572 -- (706) -- 23,866
Equity in net loss of joint venture -- -- 936 -- 936
--------- --------- --------- --------- ---------
Income (loss) before (provision for)
benefit from income taxes and equity in
net loss of consolidated subsidiaries 3,793 230 (511) -- 3,512
(Provision for) benefit from
income taxes (1,368) (94) 127 -- (1,335)
--------- --------- --------- --------- ---------
Income (loss) before equity in net loss
of consolidated subsidiaries 2,425 136 (384) -- 2,177
Equity in net loss of consolidated
subsidiaries (248) -- -- 248 --
--------- --------- --------- --------- ---------
Net income (loss) $ 2,177 $ 136 $ (384) $ 248 $ 2,177
========= ========= ========= ========= =========
</TABLE>
17
<PAGE>
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Parent Guarantor Non-guarantor
Company Subsidiary Subsidiaries Eliminations Consolidated
------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ 29,599 $ (65) $ 174 $ 68 $ 29,776
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (41,202) -- -- -- (41,202)
Proceeds from sales of property and
equipment 1,448 -- -- -- 1,448
-------- -------- -------- -------- --------
Net cash used in investing activities (39,754) -- -- -- (39,754)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Dividend received (paid) 400 -- (400) -- --
Proceeds from borrowings 46,258 -- -- -- 46,258
Repayments of obligations (39,383) -- -- -- (39,383)
-------- -------- -------- -------- --------
Net cash provided by (used in) financing
activities 7,275 -- (400) -- 6,875
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash -- -- 19 -- 19
-------- -------- -------- -------- --------
Net (decrease) increase in cash and cash
equivalents (2,880) (65) (207) 68 (3,084)
Cash and cash equivalents, beginning of
period 12,239 204 2,757 (68) 15,132
-------- -------- -------- -------- --------
Cash and cash equivalents, end of period $ 9,359 $ 139 $ 2,550 $ -- $ 12,048
======== ======== ======== ======== ========
Supplemental disclosures:
Cash paid (received) for:
Interest $ 19,270 $ -- $ (763) $ -- $ 18,507
Income taxes (789) 810 434 -- 455
Capital lease obligations incurred 608 -- -- -- 608
</TABLE>
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO
INCLUDED ELSEWHERE HEREIN.
SAFE HARBOR STATEMENT
Statements contained herein that are not historical facts, constitute
"forward looking statements" as that term is defined in the Private Securities
Litigation Reform Act of 1995. All forward looking statements are subject to
risks and uncertainties which could cause results to differ materially from
those anticipated. These factors include the Company's highly competitive
business environment, exposure to commodity prices, risks associated with the
foodservice industry, the ability to retain and attract new employees,
government regulations, the Company's high geographic concentration in the
Northeast and its attendant weather patterns, conditions needed to meet
reimaging and new opening and franchising targets and costs associated with
improved service and other initiatives.
OVERVIEW
As of September 26, 1999, the Company owns and operates 628
restaurants, franchises 56 restaurants and 10 cafes and distributes a full line
of frozen dessert products. These products are distributed to Friendly's
restaurants and through more than 5,000 supermarkets and other retail locations
in 16 states. The restaurants offer a wide variety of reasonably priced
breakfast, lunch and dinner menu items as well as the frozen dessert products.
19
<PAGE>
RESULTS OF OPERATIONS
The operating results of the Company expressed as a percentage of total
revenues are set forth below:
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- -------------------------
September 26, September 27, September 26, September 27,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Restaurant 87.4% 87.0% 87.8% 87.9%
Foodservice (retail and institutional) 11.9 12.5 11.4 11.5
Franchise 0.7 0.5 0.8 0.5
International 0.0 0.0 0.0 0.1
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and expenses:
Cost of sales 28.5 30.1 28.6 30.0
Labor and benefits 31.5 29.9 32.5 30.9
Operating expenses 22.6 22.4 22.8 22.4
General and administrative expenses 5.6 5.5 6.3 6.2
Stock compensation expense 0.1 0.1 0.1 0.1
Write-downs of property and equipment 0.1 0.3 0.3 0.1
Depreciation and amortization 4.5 4.6 4.9 4.8
Gain on sales of restaurant operations and properties (0.8) -- (0.5) --
----- ----- ----- -----
Operating income 7.9 7.1 5.0 5.5
Interest expense, net 4.2 4.3 4.7 4.6
Equity in net loss of (recovery of write-down of) joint
venture -- 0.1 (0.2) 0.2
----- ----- ----- -----
Income before provision for income taxes and cumulative
effect of change in accounting principle 3.7 2.7 0.5 0.7
Provision for income taxes (1.1) (1.0) -- (0.3)
----- ----- ----- -----
Income before cumulative effect of change in accounting
principle 2.6 1.7 0.5 0.4
----- ----- ----- -----
Cumulative effect of change in accounting principle, net
of income tax benefit -- -- (0.1) --
----- ----- ----- -----
Net income 2.6% 1.7% 0.4% 0.4%
===== ===== ===== =====
</TABLE>
20
<PAGE>
REVENUES:
Total revenues increased $10.6 million, or 5.7%, to $198.1 million for
the third quarter ended September 26, 1999 from $187.5 million for the same
quarter in 1998. Restaurant revenues increased $10.1 million, or 6.2%, to
$173.1 million for the third quarter of 1999 from $163.0 million for the same
quarter in 1998. Comparable restaurant revenues increased 6.5%. The increase
in restaurant revenues was impacted by the increased sales performance of the
Company's 274 reimaged restaurants of $5.3 million. In addition, sales at new
restaurants increased by $5.2 million, primarily due to the opening of 14 new
Company owned restaurants since the end of the third quarter ended September
27, 1998. Sales at restaurants which have not been reimaged increased $4.0
million for the third quarter ended September 26, 1999 when compared to the
same period ended September 27, 1998. Offsetting these increases was a
decrease in sales of $2.7 million primarily as a result of the closing of 27
under-performing restaurants since the end of the third quarter ended
September 27, 1998. Sales for the three months ended September 26, 1999 were
also negatively impacted by $1.6 million as a result of the sale of five
restaurants to franchisees since the end of the third quarter ended September
27, 1998. Foodservice (retail and institutional) and other revenues increased
by $0.2 million, or 0.8%, to $23.7 million for the third quarter of 1999 from
$23.5 million for the same quarter in 1998. The increase was primarily due to
the increase in the number of franchised locations. The Company's foodservice
division sells a variety of products to the Company's franchisees. Franchise
revenues increased $0.3 million, or 30%, to $1.3 million for the three months
ended September 26, 1999 from $1.0 million for the three months ended
September 27, 1998. The increase is primarily due to the fact that there were
66 franchise units open at the end of the third quarter ended September 26,
1999 compared to 47 franchise units open at the end of the third quarter
ended September 27, 1998.
Total revenues increased $10.6 million, or 2.0%, to $528.5 million for
the nine months ended September 26, 1999 from $517.9 million for the same
period in 1998. Restaurant revenues increased $9.1 million, or 2.0%, to
$464.3 million for the nine months ended September 26, 1999 from $455.2
million for the same period in 1998. Comparable restaurant revenues increased
2.2%. Sales at new restaurants increased by $10.4 million primarily due to
the opening of 14 new Company owned restaurants since the end of the third
quarter ended September 27, 1998. Sales were favorably impacted by $9.6
million due to the increased sales performance of the Company's 274 reimaged
restaurants. Offsetting these increases was the decrease in sales of $7.2
million primarily as the result of the closing of 27 under-performing
restaurants since the end of the third quarter ended September 27, 1998.
Sales for the nine months ended September 26, 1999 were also negatively
impacted by $3.6 million as a result of the sale of five restaurants to
franchisees since the end of the third quarter ended September 27, 1998.
Foodservice (retail and institutional) and other revenues increased by $0.6
million, or 1.0%, to $60.4 million for the nine months ended September 26,
1999 from $59.8 million for the nine months ended September 27, 1998. The
increase was primarily due to an increase in the number of franchised
locations. The Company's foodservice division sells a variety of products to
the Company's franchisees. Franchise revenues were $3.8 million for the nine
months ended September 26, 1999 compared to $2.7 million for the nine months
ended September 27, 1998. The increase is primarily a result of the fact that
there were 66 franchise units open at the end of the third quarter ended
September 26, 1999 compared to 47 franchise units open at the end of the
third quarter ended September 27, 1998.
COST OF SALES:
Cost of sales decreased $0.1 million, or 0.2%, to $56.4 million for the
third quarter ended September 26, 1999 from $56.5 million for the same quarter
in 1998. Cost of sales as a percentage of total revenues decreased to 28.5% for
the third quarter of 1999 from 30.1% for the same quarter in 1998. The lower
food cost as a percentage of total revenues was primarily due to the decrease in
cream costs compared to the prior year. The Company experienced a 36.7% decrease
in the cost of cream, the principal ingredient in ice cream, for the third
quarter ended September 26, 1999 when compared to the same period ended
September 27, 1998.
Cost of sales decreased $4.6 million, or 3.0%, to $150.9 million for the
nine months ended September 26, 1999 from $155.5 million for the same period in
1998. Cost of sales as a percentage of total revenues decreased to 28.6% for the
nine months in 1999 from 30.0% for the same period in 1998. The Company
experienced an 18.6% decrease in the cost of cream, the principal ingredient in
ice cream, for the nine months ended September 26, 1999 when compared to the
same period ended September 27, 1998.
LABOR AND BENEFITS:
Labor and benefits increased $6.3 million, or 11.2%, to $62.4 million for
the third quarter ended September 26, 1999 from $56.1 million for the same
quarter in 1998. Labor and benefits as a percentage of total revenues increased
to 31.5% for the third quarter of 1999 from 29.9% for the same period in 1998.
The higher labor cost as a percentage of total revenues is primarily the result
of the Company's emphasis on improving guest service by increasing staffing
levels at the restaurants, particularly at the restaurant carry out windows, as
well as increases in the 1999 average hourly wage rate.
Labor and benefits increased $11.7 million, or 7.3%, to $171.7 million for
the nine months ended September 26, 1999 from $160.0 million for the same period
in 1998. Labor and benefits as a percentage of total revenues increased to 32.5%
for the nine months of 1999 from 30.9% for the same period in 1998. The higher
labor cost as a percentage of total revenues is primarily the result of the
Company's emphasis on improving guest service by increasing staffing levels at
the restaurants, the impact of low unemployment rates and training related to
the Company's soft serve ice cream rollout. In addition, the 1999 average hourly
rate increased compared to 1998 due to increased staffing at the carryout
windows as part of the soft serve product introduction.
21
<PAGE>
OPERATING EXPENSES:
Operating expenses increased $2.8 million, or 6.7%, to $44.8 million for
the third quarter ended September 26, 1999 from $42.0 million for the same
quarter in 1998. This increase was primarily due to an increase in advertising
and promotion expenses associated with the Company's new soft serve product and
increased maintenance expenses associated with improving restaurant standards.
Operating expenses as a percentage of total revenues were 22.6% and 22.4% for
the third quarters ended September 26, 1999 and September 27, 1998,
respectively.
Operating expenses increased $4.7 million, or 4.1%, to $120.7 million for
the nine months ended September 26, 1999 from $116.0 million for the same period
in 1998. This increase was primarily due to an increase in advertising and
promotion expenses associated with the rollout of the Company's new soft serve
product and increased maintenance expenses associated with improving restaurant
standards. Operating expenses as a percentage of total revenues were 22.8% and
22.4% for the nine months ended September 26, 1999 and September 27, 1998,
respectively.
GENERAL AND ADMINISTRATIVE EXPENSES:
General and administrative expenses were $11.2 million and $10.2 million
for the third quarters ended September 26, 1999 and September 27, 1998,
respectively. General and administrative expenses as a percentage of total
revenues increased to 5.6% in the third quarter of 1999 from 5.5% for the same
period in 1998. The increase in general and administrative expenses is primarily
attributable to the timing of the reduction of the bonus provision for the third
quarter ended September 26, 1999 when compared to the third quarter ended
September 27, 1998. In addition, the increase in general and administrative
expenses was also impacted by costs associated with new restaurant programs
instituted to improve guest service at the restaurants.
General and administrative expenses were $33.5 million and $32.3 million
for the nine months ended September 26, 1999 and September 27, 1998,
respectively. General and administrative expenses as a percentage of total
revenues increased to 6.3% in the nine months ended September 26, 1999 from 6.2%
for the same period in 1998. The increase in general and administrative expenses
is primarily attributable to the costs associated with new restaurant programs
instituted to improve guest service at the restaurants.
EBITDA:
As a result of the above, EBITDA (EBITDA represents net income before (i)
cumulative effect of change in accounting principle, net of income taxes, (ii)
provision for income taxes, (iii) equity in net loss of (recovery of write-down
of) joint venture, (iv) interest expense, net, (v) depreciation and amortization
and (vi) non-cash write-downs and all other non-cash items plus cash
distributions from unconsolidated subsidiaries) increased $2.3 million, or
10.2%, to $24.9 million for the third quarter ended September 26, 1999 from
$22.6 million for the same quarter in 1998. EBITDA as a percentage of total
revenues was 12.6% and 12.1% for the third quarters of 1999 and 1998,
respectively.
EBITDA increased $0.1 million, or 0.02%, to $54.2 million for the nine
months ended September 26, 1999 from $54.1 million for the same period in 1998.
EBITDA as a percentage of total revenues was 10.3% and 10.4% for the nine months
ended September 26, 1999 and September 27, 1998, respectively.
STOCK COMPENSATION EXPENSE:
Stock compensation expense represents stock compensation arising out of
the vesting of certain shares of restricted stock previously issued to
management. Stock compensation expense was $0.2 million for the third quarters
ended September 26, 1999 and September 27, 1998. Stock compensation expense was
$0.5 million for the nine months ended September 26, 1999 and September 27,
1998.
NON-CASH WRITE-DOWNS OF PROPERTY AND EQUIPMENT:
Non-cash write-downs of property and equipment were $0.1 million and $0.5
million for the third quarters ended September 26, 1999 and September 27, 1998,
respectively. Non-cash write-downs of property and equipment were $1.5 million
and $0.7 million for the nine months ended September 26, 1999 and September 27,
1998, respectively. The increase in non-cash write-downs is primarily the
result of the non-cash write-down of $0.8 million which the Company recorded
in June 1999 for the Troy, Ohio manufacturing facility to estimated net
realizable value in conjunction with the anticipated sale of this property.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization increased $0.4 million, or 4.7%, to $8.9
million for the third quarter ended September 26, 1999 from $8.5 million for the
same quarter in 1998. The increase was primarily due to the Company's restaurant
reimaging projects and the opening of new restaurants. Depreciation and
amortization as a percentage of total revenues decreased to 4.5% for the third
quarter of 1999 from 4.6% for the same quarter in 1998.
22
<PAGE>
Depreciation and amortization increased $1.1 million, or 4.5%, to $25.7
million for the nine months ended September 26, 1999 from $24.6 million for the
same period in 1998. Depreciation and amortization as a percentage of total
revenues increased to 4.9% for the nine months ended September 26, 1999 from
4.8% for the same period in 1998. The increase was primarily due to the
Company's restaurant reimaging projects and the opening of new restaurants.
GAIN ON SALES OF RESTAURANT OPERATIONS AND PROPERTIES:
During the third quarter ended September 26, 1999, the Company sold the
land and buildings associated with 13 previously franchised restaurants to the
Company's largest franchisee, located in the Baltimore/Washington D.C. area, for
$6.8 million. This transaction, an integral part of the Company's franchising
strategy, resulted in a gain on sale of restaurant operations and properties of
$1.6 million. The gain on sales of restaurant operations and properties for the
nine months ended September 26, 1999 represented the income related to the sale
of the land and buildings to the Company's largest franchisee and the equipment
and operating rights for three existing restaurants to three new franchisees.
INTEREST EXPENSE, NET:
Interest expense, net of capitalized interest and interest income,
increased by $0.2 million, or 2.5%, to $8.2 million for the third quarter ended
September 26, 1999 from $8.0 million for the same quarter in 1998. The increase
in interest expense, net was primarily due to the increase in the average
outstanding balance on the revolving credit facility during the third quarter
ended September 26, 1999 compared to the third quarter ended September 27, 1998,
along with the increase in interest rates associated with the credit agreement
that was amended effective December 27, 1998.
Interest expense, net of capitalized interest and interest income,
increased by $1.0 million, or 4.2%, to $24.9 million for the nine months ended
September 26, 1999 from $23.9 million for the same period in 1998. The increase
in interest expense, net was primarily due to the increase in the average
outstanding balance on the revolving credit facility during the nine months
ended September 26, 1999 compared to the nine months ended September 27, 1998,
along with the increase in the interest rates associated with the credit
agreement that was amended effective December 27, 1998.
EQUITY IN NET LOSS OF (RECOVERY OF WRITE-DOWN OF) JOINT VENTURE:
During the fourth quarter ended December 27, 1998, the Company sold its
50% interest in its China joint venture and recorded a write-down of $3.5
million to eliminate the Company's remaining investment in and advances to
the joint venture. On March 17, 1999 the Company received an additional
$250,000 from the joint venture partner. These additional proceeds were
reflected as income in the first quarter ended March 28, 1999. During June
1999, the Company was notified by its joint venture partner that it would
remit approximately $577,000 in cash and $69,000 of equipment to the Company.
The Company recorded such amount as income during the second quarter ended
June 27, 1999. The Company received the cash on July 22, 1999 and anticipates
receiving the equipment by the end of the current fiscal year. The Company
does not anticipate any additional payments from the joint venture partner in
the future. If any of the $0.3 million still due under the terms of the sale
is received by the Company, such amount will be recorded as income by the
Company at such time.
PROVISION FOR INCOME TAXES:
The provision for income taxes was $2.2 million, or 30.1%, and $2.0
million, or 38.0%, for the third quarters ended September 26, 1999 and September
27, 1998, respectively. The provision for income taxes was $0.2 million, or
7.8%, and $1.3 million, or 38.0%, for the nine months ended September 26, 1999
and September 27, 1998, respectively. The Company records income taxes based on
the effective rate expected for the year with any changes in valuation allowance
reflected in the period of change. The sale of the land and buildings associated
with 13 previously franchised restaurants to the Company's largest franchisee
during the third quarter ended September 26, 1999 favorably impacted the
provision for income taxes as it triggered built-in gains which allowed for a
reduction of the valuation allowance on certain net operating loss
carryforwards.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE, NET:
In accordance with Statement of Position 98-5, the Company recognized $0.3
million of expense, net of income tax benefit, in the nine months ended
September 26, 1999 related to previously deferred restaurant preopening costs.
NET INCOME:
Net income was $5.2 million and $3.2 million for the third quarters ended
September 26, 1999 and September 27, 1998, respectively. Net income was $1.9
million and $2.2 million for the nine months ended September 26, 1999 and
September 27, 1998, respectively.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources are
cash generated from operations and borrowings under its revolving credit
facility. Net cash provided by operating activities was $34.6 million for the
nine months ended September 26, 1999 compared to $29.8 million for the same
period of 1998. During the nine months ended September 26, 1999, accounts
receivable decreased approximately $0.7 million primarily due to the timing
of payments associated with foodservice promotional activity. Inventories
increased $1.6 million as a result of increased restaurant promotional
activity, including prepack and soft serve ice cream products, and
anticipated increased retail sales. Other assets increased $0.9 million
primarily due to $0.4 million of new uniforms associated with the rollout of
our new soft serve product along with new uniforms for our reimaged
locations, $2.1 million of prepaid rental payments, $0.7 million of costs
associated with entering into lease agreements for two of the Company's new
restaurant locations, offset by $2.4 million of insurance premium receivable
payments associated with the Company's captive insurance company. Accounts
payable increased approximately $10.0 million for the nine months ended
September 26, 1999 primarily related to the timing of payments. Accrued
expenses and other long-term liabilities decreased $1.8 million from December
27, 1998 to September 26, 1999 primarily due to payments made on accruals for
restaurant construction and maintenance, relocation, an amendment fee
associated with the Company's credit facility, point of sale equipment and
costs associated with the closing of the Troy, Ohio manufacturing facility.
The decrease was also impacted by the recognition of premium income which had
been deferred as of December 27, 1998. The increase in accrued interest
payable was due to one month of accrued interest at December 27, 1998
compared to approximately four months of accrued interest at September 26,
1999. This increase was primarily based on the timing of required payments on
the Senior Notes. Available borrowings under the revolving credit facility
were $30.0 million as of September 26, 1999.
Additional sources of liquidity consist of capital and operating leases
for financing leased restaurant locations (in malls and shopping centers and
land or building leases), restaurant equipment, manufacturing equipment,
distribution vehicles and computer equipment. Additionally, sales of
under-performing existing restaurant properties and other assets (to the extent
the Company's debt instruments, if any, permit) are sources of cash. The amounts
of debt financing that the Company will be able to incur under capital leases
and for property and casualty insurance financing and the amount of asset sales
by the Company are limited by the terms of its credit facility and Senior Notes.
Net cash used in investing activities was $24.0 million in the nine
months ended September 26, 1999 and $39.8 million in the same period of 1998.
Capital expenditures for restaurant operations were approximately $9.1 million
and $6.9 million for the three months ended September 26, 1999 and September 27,
1998, respectively. Capital expenditures for restaurant operations were
approximately $31.1 million and $35.9 million for the nine months ended
September 26, 1999 and September 27, 1998, respectively. The decrease in capital
expenditures was primarily due to the reimaging of 92 restaurants and increasing
the seating capacity in two restaurants during the nine months ended September
26, 1999 compared to 141 reimaged restaurants for the nine months ended
September 27, 1998. Proceeds from the sales of property and equipment were $11.6
million and $1.4 million in the nine months ended September 26, 1999 and
September 27, 1998, respectively.
Net cash used in financing activities was $4.0 million in the nine
months ended September 26, 1999. Net cash provided by financing activities was
$6.9 million for the nine months ended September 27, 1998.
The Company had a working capital deficit of $37.8 million as of
September 26, 1999. The Company is able to operate with a substantial working
capital deficit because: (i) restaurant operations are conducted primarily on a
cash (and cash equivalent) basis with a low level of accounts receivable; (ii)
rapid turnover allows a limited investment in inventories and (iii) cash from
sales is usually received before related expenses for food, supplies and payroll
are paid.
The Company's credit facility imposes significant operating and
financial restrictions on the Company's ability to, among other things, incur
indebtedness, create liens, sell assets, engage in mergers or consolidations,
pay dividends and engage in certain transactions with affiliates. The credit
facility limits the amount which the Company may spend on capital
expenditures and requires the Company to comply with certain financial
covenants. The Company's credit facility also restricts the use of proceeds
from asset sales. Proceeds, as defined in the credit agreement, in excess of
stated maximum allowable amounts must be used to permanently reduce
outstanding obligations under the credit facility. As of September 26, 1999,
the Company reached the maximum allowable amount of proceeds and was required
to make a mandatory prepayment of $349,000. Additionally, all future net
proceeds received from asset sales for the period September 27, 1999 through
January 2, 2000 must be used to further reduce outstanding obligations under
the credit facility. During fiscal 2000, the Company may retain up to a
maximum of $3.0 million of net proceeds from asset sales to be invested into
additional capital expenditures. Prepayments will be applied first to the
Term Loans in inverse order of maturity and secondly, to permanently reduce
the revolving credit commitment.
24
<PAGE>
The Company anticipates requiring capital in the future principally to
maintain existing restaurant and plant facilities, to continue to renovate and
reimage existing restaurants, to convert restaurants and to construct new
restaurants. Capital expenditures for 1999 are anticipated to be $43.0 million
in the aggregate, of which $35.0 million will be spent on restaurant operations.
The Company's actual 1999 capital expenditures may vary from these estimated
amounts.
IMPACT OF YEAR 2000
The Year 2000 Issue is the result of computer programs historically
being written using two digits rather than four to define the applicable year.
Any of the Company's computer programs that have time-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal day-to-day operations.
The Company continues to execute its comprehensive plan to address the
Year 2000 Issue. The plan addresses three main phases: (a) information systems;
(b) embedded chips; and (c) supply chain readiness (including customers as well
as inventory and non-inventory suppliers). To oversee the process, the Company
has established a Steering Committee comprised of executives and chaired by the
Company's Senior Executive Vice President, Chief Financial Officer and
Treasurer. The Committee reports regularly to the Board of Directors and the
Audit Committee. The Company retained the services of a third party consultant
with Year 2000 expertise to evaluate the Company's Year 2000 plan and make
recommendations. As of September 26, 1999, the Company is vigorously remediating
software and hardware deficiencies caused by the Year 2000 Issue and is at
various stages of completion. Remediation of the Company's major business
systems is complete, including financial reporting, asset management, accounts
payable, payroll and human resources and manufacturing, purchasing and
distribution systems. As of September 26, 1999, the Company has successfully
completed an integrated Year 2000 test of its critical financial and operating
systems. This test also included the rollover of the Company's network and
operating system infrastructure. The systems tested included: financial
reporting, asset management, accounts payable, payroll and human resources and
manufacturing, purchasing and distribution systems. As of September 26, 1999,
the Company continues to remediate and test the remaining systems. Software
vendors of the Company's critical systems, from time to time, have provided
updates to their software that may further insulate the Company from Year 2000
issues. The Company evaluates all software enhancements to ensure that no
adverse activity may affect the day to day operation of the Company. The Company
anticipates that its remaining targets are attainable in 1999. The Company
continues to believe that with modifications to existing software and
conversions to new software, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if such modifications or
conversions are not made, or are not completed timely on the remaining business
systems, the Year 2000 Issue should not have a material impact on the operations
of the Company. Based on the work completed to date, the Company continues to
anticipate that remediation will be substantially completed prior to December
1999.
Certification of restaurant systems was completed by the end of the
second quarter ended June 27, 1999. Retrofitting of restaurant technology
hardware was also completed by the end of the second quarter. Revised
point-of-sale software is currently installed at all restaurants and the Company
continues to monitor its operation during the normal course of business
operations. Other key restaurant software has also been certified. However,
further testing of all applications will continue throughout the year.
Embedded chip technology poses the most difficult challenge. The
Company's focus has been directed at the manufacturing and distribution
operations. As of September 26, 1999, all critical manufacturing functions have
been evaluated and questionable equipment hardware is continually remediated in
order to be compliant. The issues that currently remain open are non-critical in
nature and should not impair the Company's ability to conduct its business. The
Company continues to monitor its communications environment both internally and
externally and will react as developments occur.
The Company continues to take vigorous steps to monitor Year 2000
supply chain readiness by evaluating written assurances and on-site visits with
over 325 business-critical suppliers. As of September 26, 1999, the Company
continues to follow up with a very small number of vendors where Year 2000
compliance may be questionable. The Company also continues to identify alternate
sources wherever appropriate.
25
<PAGE>
If any of the Company's suppliers or customers do not, or if the
Company itself does not, successfully deal with the Year 2000 Issue, the Company
could experience delays in receiving or sending goods that would increase its
costs and that could cause the Company to lose business and even customers and
could subject the Company to claims for damages. Problems with the Year 2000
Issue could also result in delays in the Company invoicing its customers or in
the Company receiving payments from them that would affect the Company's
liquidity. Problems with the Year 2000 Issue could affect the activities of the
Company's customers to the point that their demand for the Company's products is
reduced. The severity of these possible problems would depend on the nature of
the problem and how quickly it could be corrected or an alternative implemented,
which is unknown at this time. In the extreme, such problems could bring the
Company to a standstill. Although the Company has not developed a formal
contingency plan to deal with business interruptions, management believes that
it does have policies and procedures in place to handle any short-term
disruptions to its business. The Company is currently developing a formal
contingency plan to address issues which are outside of its control to ensure
any disruptions to the business do not negatively impact the Company.
The Company continues to evaluate the business environment and
appropriate Year 2000 developments and is beginning the process to refine and
consolidate operational procedures and resources in order to conduct its normal
day-to-day business operations. As previously noted, some risks of the Year 2000
Issue are beyond the control of the Company, its suppliers and customers. For
example, no preparations or contingency plan will protect the Company from a
down-turn in economic activity caused by the possible ripple effect throughout
the entire economy that could be caused by problems of others with the Year 2000
Issue.
The Company's total Year 2000 project cost includes the estimated costs
and time associated with the impact of third party Year 2000 Issues based on
presently available information. However, there can be no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems. The
Company will utilize both internal and external resources to reprogram, or
replace, and test the software for the system improvement and Year 2000
modifications. The total cost of the system improvement and the Year 2000
project is being funded through operating cash flows.
Of the total estimated project cost of $7.0 million, approximately $5.7
million is attributable to the purchase of new software and hardware, which will
be capitalized. The remaining $1.3 million, which will be expensed as incurred,
is not expected to have a material effect on the results of operations. To date,
the Company has incurred approximately $6.2 million ($1.1 million expensed and
$5.1 million capitalized for new systems) related to system improvements and the
Year 2000 project.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved, and actual results could differ materially
from those anticipated. Specific factors that might cause such material
differences include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties.
SEASONALITY
Due to the seasonality of frozen dessert consumption, and the effect
from time to time of weather on patronage in its restaurants, the Company's
revenues and EBITDA are typically higher in its second and third quarters.
GEOGRAPHIC CONCENTRATION
Approximately 88% of the Company-owned restaurants are located, and
substantially all of its retail sales are generated, in the Northeast. As a
result, a severe or prolonged economic recession or changes in demographic mix,
employment levels, population density, weather, real estate market conditions or
other factors specific to this geographic region may adversely affect the
Company more than certain of its competitors which are more geographically
diverse.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's market risk exposure
since the filing of the Annual Report on Form 10-K.
26
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No report on Form 8-K was filed during the three months and nine months
ended September 26, 1999.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FRIENDLY ICE CREAM CORPORATION
By: /s/ Paul J. Mcdonald
---------------------------------------
Name: Paul J. McDonald
Title: Senior Executive Vice President,
Chief Financial Officer, Treasurer and
Assistant Clerk
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Statements of Operations and Consolidated Balance Sheets and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> DEC-28-1998
<PERIOD-END> SEP-26-1999
<CASH> 19,965
<SECURITIES> 0
<RECEIVABLES> 5,031
<ALLOWANCES> 124
<INVENTORY> 17,189
<CURRENT-ASSETS> 53,820
<PP&E> 571,302
<DEPRECIATION> 269,639
<TOTAL-ASSETS> 381,131
<CURRENT-LIABILITIES> 91,605
<BONDS> 304,194
0
0
<COMMON> 75
<OTHER-SE> (88,248)
<TOTAL-LIABILITY-AND-EQUITY> 381,131
<SALES> 524,671
<TOTAL-REVENUES> 528,470
<CGS> 150,892
<TOTAL-COSTS> 443,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,879
<INCOME-PRETAX> 2,419
<INCOME-TAX> (188)
<INCOME-CONTINUING> 2,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (319)
<NET-INCOME> 1,912
<EPS-BASIC> 0.26
<EPS-DILUTED> 0.25
</TABLE>
