UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
August 3, 1998
Date of Report (Date of earliest event reported)
APPLE SOUTH, INC.
(Exact name of registrant as specified in its charter)
`
Georgia Commission File No. 0-19542 59-2778983
- ------------------------ ------------------------------- -------------------
(State of Incorporation) (I.R.S. Employer
Identification No.)
Hancock at Washington
Madison, Georgia 30650
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (706) 342-4552
<PAGE>
ITEM 2. DISPOSITION OF ASSETS
As of August 3, 1998, the Registrant had sold 123 of its 279 franchised
Applebee's Neighborhood Grill & Bar ("Applebee's") restaurants through seven
separate asset purchase agreements. Total consideration from the sales, based on
arm's-length negotiations between the parties, was $252.9 million resulting in
an estimated gain before tax effect of $98.0 million ($60.8 million gain after
tax effect). At closing, the Registrant relinquished its rights to develop
Applebee's restaurants in the related markets. The following table summarizes
the completed sales transactions:
================ ================================== ============================
Closing Date Purchaser Restaurants
================ ================================== ============================
March 29, 1998 Applebee's International, Inc. 33 restaurants in Virginia
- ---------------- ---------------------------------- ----------------------------
June 15, 1998 TSSO, Inc. 1 restaurant in Illinois
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June 28, 1998 Quality Restaurant Concepts, LLC 26 restaurants in east
Tennessee and Mississippi
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June 28, 1998 Whit-Mart, Inc. 12 restaurants in South
Carolina
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August 3, 1998 Florida Apple, LLC 35 restaurants in Georgia
and Florida
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August 3, 1998 U.S. Restaurant Properties, Inc. 16 restaurants in Iowa and
and Darrel L. Rolph (two separate northwestern Illinois
agreements)
- ---------------- ---------------------------------- ----------------------------
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(b) Pro Forma Financial Statements.
Basis of Presentation
The accompanying pro forma consolidated statements of earnings for the year
ended December 28 1997, and the six months ended June 28, 1998 present the
results of Apple South, Inc. (the "Company"), excluding the operations of its
sold Applebee's restaurants, as if such operations had been disposed of at the
beginning of the respective periods. The pro forma consolidated balance sheet
has been prepared assuming the dispositions took place as of June 28, 1998.
The pro forma consolidated statements of earnings, balance sheet and notes
thereto should be read in conjunction with the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
28, 1997.
The pro forma information is not necessarily indicative of the consolidated
results of operations or the consolidated financial position that would have
resulted had the Applebee's restaurant dispositions occurred as described above,
nor is it necessarily indicative of the results of operations of future periods
or future consolidated financial position.
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<PAGE>
<TABLE>
Apple South, Inc.
Pro Forma Consolidated Statement of Earnings
(Unaudited)
(In thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
Year Ended Year Ended
December 28, Pro Forma December 28,
1997 Adjustments 1997
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<S> <C> <C> <C>
Restaurant sales:
Applebee's $ 454,127 (210,178)(B) 243,949
Don Pablo's 196,457 - 196,457
Hops 49,511 - 49,511
McCormick & Schmick's 67,373 - 67,373
Canyon Cafes 18,577 - 18,577
Harrigans 19,560 - 19,560
Other 2,715 - 2,715
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Total restaurant sales 808,320 (210,178) 598,142
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Restaurant operating expenses:
Food and beverage 225,302 (57,655)(B) 167,647
Payroll and benefits 249,356 (63,262)(B) 186,094
Depreciation and amortization 31,441 (8,472)(B) 22,969
Other operating expenses 187,781 (48,237)(B) 139,544
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Total restaurant operating expenses 693,880 (177,626) 516,254
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General and administrative expenses 39,617 (5,674)(B) 33,943
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Operating income 74,823 (26,878) 47,945
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Other income (expense):
Interest expense (20,575) 17,471 (C) (3,104)
Distributions on preferred securities (6,412) - (6,412)
Interest income 71 - 71
Other, primarily goodwill amortization (5,834) 10 (B) (5,824)
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Total other income (expense) (32,750) 17,481 (15,269)
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Earnings before income taxes 42,073 (9,397) 32,676
Income taxes 13,625 (3,050)(D) 10,575
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Net earnings $ 28,448 (6,347) 22,101
====================================================================================================================================
Basic earnings per common share $ 0.74 0.57
============================================================================================= ===========
Diluted earnings per common share $ 0.73 0.57
============================================================================================= ===========
Average number of common shares used in basic calculation 38,620 38,620
============================================================================================= ===========
Average number of common shares used in diluted calculation 44,927 44,927
============================================================================================= ===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
Page 3
<PAGE>
<TABLE>
Apple South, Inc.
Pro Forma Consolidated Statement of Earnings
(Unaudited)
(In thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
Six Months Six Months
Ended Ended
June 28, Pro Forma June 28,
1998 Adjustments 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Restaurant sales:
Applebee's $ 236,387 (99,433)(B) 136,954
Don Pablo's 125,679 - 125,679
Hops 48,887 - 48,887
McCormick & Schmick's 46,703 - 46,703
Canyon Cafes 23,863 - 23,863
- ------------------------------------------------------------------------------------------------------------------------------------
Total restaurant sales 481,519 (99,433) 382,086
- ------------------------------------------------------------------------------------------------------------------------------------
Restaurant operating expenses:
Food and beverage 134,697 (27,562)(B) 107,135
Payroll and benefits 155,975 (33,413)(B) 122,562
Depreciation and amortization 8,388 - 8,388
Other operating expenses 112,357 (23,399)(B) 88,958
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Total restaurant operating expenses 411,417 (84,374) 327,043
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General and administrative expenses 25,196 (3,331)(B) 21,865
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Operating income 44,906 (11,728) 33,178
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Other income (expense):
Interest expense (14,353) 7,017 (C) (7,336)
Distributions on preferred securities (4,025) - (4,025)
Gain on disposal of assets held for sale 46,697 - 46,697
Income from investments carried at equity 787 - 787
Other, primarily goodwill amortization (3,223) 16 (B) (3,207)
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Total other income (expense) 25,883 7,033 32,916
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Earnings before income taxes 70,789 (4,695) 66,094
Income taxes 25,925 (1,600)(D) 24,325
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Earnings before income taxes and cumulative
effect of change in accounting principle 44,864 (3,095) 41,769
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Cumulative effect of change in accounting
principle, net of tax benefit 1,461 - 1,461
====================================================================================================================================
Net earnings $ 43,403 (3,095) 40,308
====================================================================================================================================
Basic earnings per common share:
Basic earnings before cumulative effect of
change in accounting principle $ 1.18 1.09
Cumulative effect of change in accounting principle (0.04) (0.04)
- --------------------------------------------------------------------------------------------- -----------
Basic earnings per common share $ 1.14 1.05
============================================================================================= ===========
Diluted earnings per common share:
Diluted earnings before cumulative effect of
change in accounting principle $ 1.03 0.97
Cumulative effect of change in accounting principle (0.03) (0.03)
- --------------------------------------------------------------------------------------------- -----------
Diluted earnings per common share $ 1.00 0.93
============================================================================================= ===========
Average number of common shares used in basic calculation 38,167 38,167
============================================================================================= ===========
Average number of common shares used in diluted calculation 45,975 45,975
============================================================================================= ===========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
Page 4
<PAGE>
<TABLE>
Apple South, Inc
Pro Forma Consolidated Balance Sheet
(Unaudited)
(In thousands, except share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Historical Pro Forma
June 28, Pro Forma June 28,
1998 Adjustments 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 3,706 22,281 (A)
(75)(A) 25,912
Proceeds due from sale of assets 69,748 (69,748)(A) -
Short-term investments 27 - 27
Accounts receivable 14,684 - 14,684
Inventories 10,116 (737)(A) 9,379
Prepaid expenses and other 8,224 (72)(A) 8,152
Assets held for sale 252,020 (59,485)(A) 192,535
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Total current assets 358,525 (107,836) 250,689
Premises and equipment, net 314,033 - 314,033
Goodwill, net 139,069 - 139,069
Other assets 41,271 - 41,271
- ------------------------------------------------------------------------------------------------------------------------------------
$ 852,898 (107,836) 745,062
====================================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 30,343 - 30,343
Accrued liabilities 49,180 - 49,180
Current installments of long-term debt 19 - 19
Income taxes 16,043 7,600 (A) 23,643
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Total current liabilities 95,585 7,600 103,185
Long-term debt 385,450 (127,836)(A) 257,614
Deferred income taxes 16,700 - 16,700
Other long-term liabilities 6,782 - 6,782
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Total liabilities 504,517 (120,236) 384,281
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Company-obligated mandatorily redeemable preferred securities
of Apple South Financing I, a subsidiary holding solely
Apple South, Inc. 7% convertible subordinated debentures
due March 1, 2027 115,000 - 115,000
Equity forward contract pending settlement 3,400 - 3,400
Shareholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000 shares;
none issued - - -
Common stock, $0.01 par value. Authorized 75,000,000 shares;
40,478,760 issued in 1997 405 - 405
Additional paid-in capital 141,842 - 141,842
Retained earnings 140,462 12,400 (A) 152,862
Treasury stock at cost; 3,636,535 shares in 1998 (52,728) - (52,728)
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 229,981 12,400 242,381
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$ 852,898 (107,836) 745,062
====================================================================================================================================
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
Page 5
<PAGE>
Apple South, Inc.
Notes to Pro Forma
Consolidated Financial Statements
Note A
Pursuant to seven separate Asset Purchase Agreements (the "Agreements"),the
Company has sold 123 of its 279 franchised Applebee's Neighborhood Grill & Bar
restaurants as of August 3, 1998. Total consideration from the sales was $252.9
million resulting in an estimated gain before tax effect of $98.0 million ($60.8
million gain after tax effect). Four of the Agreements were closed prior to June
28, 1998 and were thus reflected in the Company's consolidated balance sheet for
the period ending June 28, 1998. As such, the pro forma adjustments in the
accompanying pro forma consolidated balance sheet reflect the pro forma effects
of the remaining three agreements which were closed subsequent to June 28, 1998.
Total consideration from these three transactions was $86.7 million resulting in
an estimated gain before tax effect of $20.0 million ($12.4 million gain after
tax effect).
The pro forma adjustment to long-term debt reflects the assumption that net
sales proceeds of $72.8 million from the transactions closed subsequent to June
28, 1998 would have been used to reduce revolving credit agreements, with the
remaining proceeds maintained as cash and cash equivalents to pay deal costs and
taxes. An additional pro forma adjustment was made to reflect the assumption
that a portion of the proceeds due from sale of assets of $69.7 million
(received from transactions closed prior to June 28, 1998 and reflected in the
"Historical June 28, 1998" balance sheet) would also have been used to reduce
long-term debt. After selling expenses and income taxes, the assumed debt
reduction was $55.0 million, with the remaining proceeds maintained as cash and
cash equivalents.
The pro forma adjustment to income tax liability reflects the tax liability
relating to the gain on sale using a 38.0% effective rate.
The remaining pro forma adjustments to cash and cash equivalents, inventories,
prepaid expenses and other, and assets held for sale reflect the sale of certain
assets and assumption of certain liabilities related to the three transactions
closed subsequent to June 28, 1998.
Note B
The pro forma adjustments to revenues and operating expenses eliminate the
activity of the 123 sold Applebee's restaurants including revenues and expenses
related to restaurants opened during the period (such openings would not have
occurred had the transactions actually been completed at the beginning of the
periods presented).
Note C
The pro forma adjustment to interest expense reflects the decrease resulting
from the assumed use of sales proceeds to reduce long-term debt related to
revolving credit agreements and the outstanding obligation under the 1996
Senior note offering by $200.6 million.
Note D
The pro forma adjustment to income taxes reflects the income tax effects of the
above adjustments assuming a 32.4% and 34.0% effective rate for 1997 and 1998,
respectively.
Page 6
<PAGE>
(c) Exhibits.
2.1 Asset purchase agreement dated April 23, 1998, by and among Apple
South, Inc. and Whit-Mart, Inc.*
2.2 Asset purchase agreement dated May 1, 1998, by and among Apple South,
Inc. and T.S.S.O., Inc., and Lois Sedowicz.*
2.3 Asset purchase agreement dated May 4, 1998, by and among Apple South,
Inc. and Florida Apple North, LLC., Florida Apple South, LLC., Florida Apple
West, LLC, and Wigel Partnership.*
2.4 Asset purchase agreement dated June 19, 1998, by and among Apple South,
Inc. and U.S. Restaurant Properties Operating LP.*
2.5 Asset purchase agreement dated June 19, 1998, by and among Apple South,
Inc. and Darrel L. Rolph.*
2.6 Asset purchase agreement dated December 23, 1997 by and among Apple
South, Inc. and Applebee's International, Inc.**
2.7 Asset purchase agreement dated March 16, 1998 by and among Apple South,
Inc. and Quality Restaurant Concepts, LLC.***
*Incorporated by reference to the corresponding exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 28, 1998.
**Incorporated by reference to Exhibit 2.1 to the Registrant's 8-K filed on
January 15, 1998.
***Incorporated by reference to Exhibit 2.9 to the registrants 10-K for the
year ended December 28, 1997.
Page 7
<PAGE>
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 hereunto duly authorized.
APPLE SOUTH, INC.
(Registrant)
Date: August 17, 1998 By: /s/ Erich J. Booth
---------------------------
Erich J. Booth
Chief Financial Officer
and Treasurer
/s/ Philip L. Ammons
---------------------------
Philip L. Ammons
Chief Accounting Officer
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