SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended July 1, 1998 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___________
to __________
Commission file number 0-18051
ADVANTICA RESTAURANT GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3487402
- ---------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
203 East Main Street
Spartanburg, South Carolina 29319-9966
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(864) 597-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
As of August 14, 1998, 40,009,889 shares of the registrant's Common Stock, par
value $.01 per share, were outstanding.
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Advantica Restaurant Group, Inc
Statements of Consolidated Operations
(Unaudited)
<TABLE>
Successor Company Predecessor Company
Quarter Ended Quarter Ended
July 1, 1998 July 2, 1997
-------------- ------------
(In thousands, except per share amounts)
<S> <C> <C>
Net company sales $ 423,287 $ 431,665
Franchise and licensing revenue 22,330 20,570
------------- ------------
Operating revenue 445,617 452,235
------------- ------------
Operating expenses:
Product costs 115,142 120,318
Payroll and benefits 169,713 172,107
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 38,030 --
Depreciation and amortization of property 36,886 19,104
Amortization of other intangibles 3,286 2,039
Utilities expense 17,436 17,833
Other 85,664 86,253
------------- ------------
466,157 417,654
------------- ------------
Operating (loss) income (20,540) 34,581
Other charges (credits):
Interest and debt expense, net 30,956 47,854
Other, net 161 (319)
-------------- -------------
Loss before reorganization items and taxes (51,657) (12,954)
Reorganization items -- 7,929
-------------- -------------
Loss before taxes (51,657) (20,883)
Provision for income taxes 381 538
-------------- -------------
Loss from continuing operations (52,038) (21,421)
Discontinued operations:
Loss from operations of discontinued operations, net of
applicable income tax benefit of : 1998 -- $0; 1997 --
$160 (1,252) (10,850)
-------------- -------------
Net loss (53,290) (32,271)
Dividends on preferred stock -- (3,544)
--------------- -------------
Net loss applicable to common shareholders $ (53,290) $ (35,815)
============== =============
Basic and diluted per share amounts applicable to common shareholders:
Loss from continuing operations $ (1.30) $ (0.58)
Loss from discontinued operations (0.03) (0.26)
-------------- -------------
Net loss $ (1.33) $ (0.84)
=============== -------------
Average outstanding and equivalent common shares 40,005 42,434
=============== ==============
</TABLE>
2
<PAGE>
Advantica Restaurant Group, Inc
Statements of Consolidated Operations
(Unaudited)
<TABLE>
Successor Company Predecessor Company
----------------------------------------
Twenty-Five Weeks One Week Ended Two Quarters Ended
Ended July 1, 1998 January 7, 1998 July 2, 1997
-------------------- ----------------- -------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net company sales $ 795,034 $ 31,986 $ 886,833
Franchise and licensing revenue 41,123 1,602 39,465
--------------- -------------- -------------
Operating revenue 836,157 33,588 926,298
--------------- -------------- -------------
Operating expenses:
Product costs 216,263 8,638 247,436
Payroll and benefits 323,454 13,803 360,352
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 72,302 -- --
Depreciation and amortization of property 58,508 1,660 39,470
Amortization of other intangibles 6,061 24 4,198
Utilities expense 34,158 1,039 36,527
Other 160,515 (236) 183,864
--------------- -------------- -------------
871,261 24,928 871,847
--------------- -------------- -------------
Operating (loss) income (35,104) 8,660 54,451
Other charges (credits):
Interest and debt expense, net (contractual interest, net,
for the one week ended January 7, 1998 is $4,795) 57,624 2,669 96,271
Other, net 1,135 (313) (88)
--------------- -------------- -------------
(Loss) income before reorganization items and taxes (93,863) 6,304 (41,732)
Reorganization items -- (714,207) 11,936
---------------- -------------- -------------
(Loss) income before taxes (93,863) 720,511 (53,668)
Provision for (benefit from) income taxes 1,000 (13,829) 1,354
---------------- -------------- -------------
(Loss) income from continuing operations (94,863) 734,340 (55,022)
Discontinued operations:
Reorganization items of discontinued operations, net
of income tax provision of $7,509 -- 48,887 --
Loss from operations of discontinued operations, net
of applicable income tax benefit of : 1998 -- $0; (1,507) (1,154) (28,976)
1997 -- $ 352
---------------- -------------- --------------
(Loss) income before extraordinary item (96,370) 782,073 (83,998)
Extraordinary item -- (612,845) --
----------------- -------------- -------------
Net (loss) income (96,370) 1,394,918 (83,998)
Dividends on preferred stock -- (273) (7,088)
----------------- -------------- -------------
Net (loss) income applicable to common shareholders $ (96,370) $ 1,394,645 $ (91,086)
================= ============== =============
Per share amounts applicable to common shareholders: Basic
(loss) income per share:
(Loss) income from continuing operations $ (2.37) $ 17.30 $ (1.46)
(Loss) income from discontinued operations (0.04) 1.13 (0.69)
Extraordinary item -- 14.44 --
----------------- --------------- -------------
Net (loss) income $ ( 2.41) $ 32.87 $ (2.15)
================= =============== =============
Average outstanding and equivalent common shares 40,002 42,434 42,434
================= ================ =============
Diluted (loss) income per share:
(Loss) income from continuing operations $ (2.37) $ 13.32 $ (1.46)
(Loss) income from discontinued operations (0.04) 0.87 (0.69)
Extraordinary item -- 11.11 --
----------------- ----------------- --------------
Net (loss) income $ ( 2.41) $ 25.30 $ (2.15)
================= ================= ==============
Average outstanding and equivalent common shares 40,002 55,132 42,434
================= ================= ==============
</TABLE>
See accompanying notes
3
<PAGE>
Advantica Restaurant Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
Successor Company Predecessor Company
July 1, 1998 December 31, 1997
------------- -----------------
(In thousands)
Assets
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 302,088 $ 54,079
Receivables, less allowance for doubtful accounts of:
1998 -- $4,435; 1997 -- $4,177 13,498 12,816
Inventories 17,560 18,161
Net assets held for sale -- 350,712
Other 18,316 44,568
Restricted investments securing in-substance defeased debt 19,670 --
------------- ------------
371,132 480,336
------------- ------------
Property and equipment 774,552 1,144,617
Less accumulated depreciation 59,553 518,780
------------- ------------
714,999 625,837
------------- ------------
Other Assets:
Reorganization value in excess of amounts allocable to
identifiable assets, net of accumulated amortization of :
1998 -- $72,302 646,530 --
Goodwill, net of accumulated amortization of: 1997--$8,061 -- 207,918
Other intangible assets, net of accumulated amortization of:
1998 -- $6,085; 1997 -- $1,376 225,083 14,897
Deferred financing costs, net 29,682 56,716
Other 29,878 25,365
Restricted investments securing in-substance defeased debt 167,858 --
------------- -----------
1,099,031 304,896
------------- -----------
Total Assets $ 2,185,162 $ 1,411,069
============= ===========
</TABLE>
See accompanying notes
4
<PAGE>
Advantica Restaurant Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
Successor Company Predecessor Company
July 1, 1998 December 31, 1997
-------------- ------------------
(In thousands)
Liabilities
Current Liabilities:
<S> <C> <C>
Current maturities of notes and debentures $ 28,160 $ 37,572
Current maturities of capital lease obligations 18,681 19,398
Current maturities of in-substance defeased debt 12,165 --
Accounts payable 81,287 103,262
Accrued salaries and vacations 48,523 55,367
Accrued insurance 35,951 34,277
Accrued taxes 34,307 25,078
Accrued interest 49,248 15,473
Other 107,070 69,405
------------- -------------
415,392 359,832
------------- -------------
Long-Term Liabilities:
Notes and debentures, less current maturities 968,522 510,533
Capital lease obligations, less current maturities 75,567 83,642
In-substance defeased debt, less current maturities 176,639 --
Deferred income taxes 4,818 10,015
Liability for self-insured claims 53,078 52,764
Other noncurrent liabilities and deferred credits 170,100 144,333
------------- -------------
1,448,724 801,287
------------- -------------
Total liabilities not subject to compromise 1,864,116 1,161,119
Liabilities subject to compromise -- 1,612,400
------------- -------------
Total liabilities 1,864,116 2,773,519
------------- -------------
Shareholders' Equity (Deficit) 321,046 (1,362,450)
------------- -------------
Total Liabilities and Shareholders' Equity (Deficit) $ 2,185,162 $ 1,411,069
============= =============
</TABLE>
See accompanying notes
5
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
Successor Company Predecessor Company
----------------------------------------
Twenty-Five Weeks One Week Two Quarters
Ended Ended Ended
July 1, 1998 January 7, 1998 July 2, 1997
-------------- ----------------- ------------
(In thousands)
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net (loss) income $ (96,370) $ 1,394,918 $ (83,998)
Adjustments to reconcile net loss to cash flows from
operating activities:
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 72,302 -- --
Depreciation and amortization of property 58,508 1,683 39,470
Amortization of other intangible assets 6,061 1 4,198
Amortization of deferred financing costs 3,003 111 3,575
Amortization of deferred gains (5,470) (218) (5,442)
Deferred income tax provision (benefit) -- (13,856) 1,147
Loss (gain) on disposition of assets (838) (7,653) (641)
Extraordinary gain -- (612,845) --
Noncash reorganization items -- (714,550) --
Equity in (income) loss from discontinued operation, net 1,507 (47,733) 28,976
Amortization of debt premium (5,046) (333) --
Other 143 -- (864)
Decrease (increase) in assets:
Receivables (5,862) (2,054) (3,407)
Inventories 153 237 3,164
Other current assets (4,980) 2,457 12,095
Assets held for sale (2,835) 1,488 --
Other assets 22,114 (1,049) (6,185)
Increase (decrease) in liabilities:
Accounts payable (12,648) (5,534) (22,161)
Accrued payroll and related (15,601) 6,199 637
Accrued taxes (15,280) (894) 181
Other accrued liabilities (3,352) 9,562 36,861
Other noncurrent liabilities and deferred credits 12,137 (1,302) 5,009
---------------- ------------- ---------------
Net cash flows from operating activities 7,646 8,635 12,615
---------------- ------------- ---------------
Cash Flows from Investing Activities:
Purchase of property (17,265) (1) (16,624)
Proceeds from disposition of property 191 7,255 7,780
(Advances to) receipts from discontinued operations 1,504 647 (29,794)
Proceeds from sale of discontinued operations, net 460,424 -- --
Purchase of investments securing in-substance defeased
debt (201,713) -- --
Proceeds from maturity of investments securing
in-substance defeased debt 14,213 -- --
Other, net (1,611) -- (127)
---------------- -------------- ---------------
Net cash flows provided by (used in) investing activities 255,743 7,901 (38,765)
---------------- --------------- ----------------
</TABLE>
See accompanying notes
6
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
Successor Company Predecessor Company
------------------------------------------
Twenty Five Weeks One Week Two Quarters
Ended Ended Ended
July 1, 1998 January 7, 1998 July 2, 1997
-------------- --------------- ------------
(In thousands)
Cash Flows from Financing Activities:
<S> <C> <C> <C>
Long-term debt payments $ (20,054) $ (6,891) $ (7,353)
Deferred financing costs -- (4,971) (1,533)
----------------- --------------- -------------
Net cash flows used in financing activities (20,054) (11,862) (8,886)
----------------- --------------- -------------
Increase (decrease) in cash and cash equivalents 243,335 4,674 (35,036)
Cash and Cash Equivalents at:
Beginning of period 58,753 54,079 92,369
----------------- --------------- -------------
End of period $ 302,088 $ 58,753 $ 57,333
================= =============== =============
</TABLE>
See accompanying notes
7
<PAGE>
ADVANTICA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 1998
(UNAUDITED)
Note 1. General
Advantica Restaurant Group, Inc. (formerly Flagstar Companies, Inc.)
("Advantica" or, together with its subsidiaries including precedessors, the
"Company"), through its wholly-owned subsidiaries, Denny's Holdings, Inc.,
Spartan Holdings, Inc. and FRD Acquisition Co. (and their respective
subsidiaries), owns and operates the Denny's, Coco's, Carrows and El Pollo Loco
restaurant brands. On April 1, 1998 the Company consummated the sale of Flagstar
Enterprises, Inc. ("FEI"), the wholly-owned subsidiary which operated the
Company's Hardee's restaurants under licenses from Hardee's Food Systems ("HFS")
(See Note 5). In addition, on June 10, 1998, the Company consummated the sale of
Quincy's Restaurants, Inc. ("Quincy's"), the wholly-owned subsidiary which
operated the Company's Quincy's Family Steakhouse restaurants (See Note 5).
The consolidated financial statements of Advantica and its subsidiaries included
herein are unaudited and include all adjustments management believes are
necessary for a fair presentation of the results of operations for such interim
periods. All such adjustments are of a normal and recurring nature. The interim
consolidated financial statements should be read in conjunction with the
Consolidated Financial Statements and notes thereto for the year ended December
31, 1997 and the related Management's Discussion and Analysis of Financial
Condition and Results of Operations, both of which are contained in the
Advantica Restaurant Group, Inc. 1997 Annual Report on Form 10-K (the "Advantica
10-K"). The results of operations for the 25 weeks ended July 1, 1998 and the
one week ended January 7, 1998 are not necessarily indicative of the results for
the entire fiscal year ending December 30, 1998.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Note 2. Reorganization
On January 7, 1998 (the "Effective Date"), Flagstar Companies, Inc. ("FCI") and
Flagstar Corporation ("Flagstar," and collectively with FCI, the "Debtors")
emerged from proceedings under Chapter 11 of Title 11 of the United States Code
(the "Bankruptcy Code") pursuant to FCI and Flagstar's Amended Joint Plan of
Reorganization dated as of November 7, 1997 (the "Plan"). On the Effective Date,
Flagstar, a wholly-owned subsidiary of FCI, merged with and into FCI, the
surviving corporation, and FCI changed its name to Advantica Restaurant Group,
Inc. The bankruptcy proceedings began when FCI, Flagstar and Flagstar Holdings,
Inc. ("Holdings") filed voluntary petitions for relief under the Bankruptcy Code
in the Bankruptcy Court for the District of South Carolina. Holdings filed its
petition on June 27, 1997, and Flagstar and FCI both filed their petitions on
July 11, 1997 (the "Petition Date"). FCI's operating subsidiaries, Denny's
Holdings, Inc., Spartan Holdings, Inc. and FRD Acquisition Co. (and their
respective subsidiaries) did not file bankruptcy petitions and were not parties
to the above mentioned Chapter 11 proceedings.
Material features of the Plan as it became effective as of January 7, 1998, are
as follows:
(a) On the Effective Date, Flagstar merged with and into FCI, the
surviving corporation, and FCI changed its name to Advantica Restaurant
Group, Inc.;
(b) The following securities of FCI and Flagstar were canceled,
extinguished and retired as of the Effective Date: (i) Flagstar's 10 7/8%
Senior Notes due 2002 (the "10 7/8% Senior Notes") and 10 3/4% Senior
Notes due 2001 (the "10 3/4% Senior Notes" and, collectively with the 10
7/8% Senior Notes due 2002, the "Old Senior Notes"), (ii) Flagstar's
11.25% Senior Subordinated Debentures due 2004 (the "11.25% Debentures")
and 11 3/8% Senior Subordinated Debentures due 2003 (the "11 3/8%
Debentures" and, collectively with the 11.25% Senior Subordinated
Debentures due 2004, the "Senior Subordinated Debentures"), (iii)
Flagstar's 10% Convertible Junior Subordinated Debentures due 2014 (the
"10% Convertible Debentures"), (iv) FCI's $2.25 Series A Cumulative
Convertible Exchangeable Preferred Stock (the "Old Preferred Stock") and
(v) FCI's $.50 par value common stock (the "Old Common Stock");
8
<PAGE>
(c) Advantica had 100 million authorized shares of Common Stock (of which
40 million were issued and outstanding on the Effective Date) and 25
million authorized shares of preferred stock (none of which are currently
outstanding). Pursuant to the Plan, 10% of the number of shares of Common
Stock issued and outstanding on the Effective Date, on a fully diluted
basis, is reserved for issuance under a new management stock option
program. Additionally, 4 million shares of Common Stock are reserved for
issuance upon the exercise of new warrants expiring January 7, 2005 that
were issued and outstanding on the Effective Date and entitle the holders
thereof to purchase in the aggregate 4 million shares of Common Stock at
an exercise price of $14.60 per share (the "Warrants");
(d) Each holder of the Old Senior Notes received such holder's pro rata
portion of 100% of Advantica's 11 1/4% Senior Notes due 2008 (the "New
Senior Notes") in exchange for 100% of the principal amount of such
holders' Old Senior Notes and accrued interest through the Effective Date;
(e) Each holder of the Senior Subordinated Debentures received each
holder's pro rata portion of shares of Common Stock equivalent to 95.5% of
the Common Stock issued on the Effective Date;
(f) Each holder of the 10% Convertible Debentures received such holder's
pro rata portion of (i) shares of Common Stock equivalent to 4.5% of the
Common Stock issued on the Effective Date and (ii) 100% of the Warrants
issued on the Effective Date; and
(g) Advantica refinanced its prior credit facilities by entering the
Credit Facility (as defined below).
On the Effective Date, the automatic stay imposed by the Bankruptcy Code was
terminated.
In connection with the reorganization, the Company realized a gain from the
extinguishment of certain indebtedness (See Note 4). This gain will not be
taxable since the gain results from a reorganization under the Bankruptcy Code.
However, the Company will be required, as of the beginning of its 1999 taxable
year, to reduce certain tax attributes related to Advantica, exclusive of its
operating subsidiaries, including (i) net operating loss carry forwards
("NOLS"), (ii) certain tax credits and (iii) tax bases in assets in an amount
equal to such gain on extinguishment.
The reorganization of the Company on January 7, 1998 constituted an ownership
change under Section 382 of the Internal Revenue Code and therefore the use of
any of the Company's NOLS and tax credits generated prior to the ownership
change, that are not reduced pursuant to the provisions discussed above, will be
subject to an overall annual limitation of approximately $21 million for NOLS or
$7 million for tax credits.
The Company's financial statements as of December 31, 1997 have been presented
in conformity with the American Institute of Certified Public Accountants' (the
"AICPA") Statement of Position 90-7, "Financial Reporting By Entities In
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). Accordingly, all
prepetition liabilities of the Debtors that are subject to compromise under the
Plan (as defined in Note 7) are segregated in the Company's Consolidated Balance
Sheet as liabilities subject to compromise. These liabilities are recorded at
the amounts allowed as claims by the Bankruptcy Court in accordance with the
Plan. In addition, SOP 90-7 requires the Company to report interest expense
during the bankruptcy proceeding only to the extent that it will be paid during
the proceedings or that it is probable to be an allowed priority, secured or
unsecured claim. Accordingly, and in view of the terms of the Plan, as of July
11, 1997, the Company ceased recording interest on its 11.25% Debentures, 11
3/8% Debentures and 10% Convertible Debentures. The contractual interest
expense for the week ended January 7, 1998 is disclosed in the accompanying
Statements of Consolidated Operations.
Note 3. Fresh Start Reporting
As of the Effective Date, Advantica adopted fresh start reporting pursuant to
the guidance provided by SOP 90-7. Fresh start reporting assumes that a new
reporting entity has been created and requires the adjustment of assets and
liabilities to their fair
9
<PAGE>
values as of the Effective Date in conformity with the procedures specified by
Accounting Principles Board Opinion No. 16, "Business Combinations" ("APB 16").
In conjunction with the revaluation of assets and liabilities, a reorganization
value for the entity is determined which generally approximates the fair value
of the entity before considering debt and approximates the amount a buyer would
pay for the assets of the entity after reorganization. Under fresh start
reporting, the reorganization value of the entity is allocated to the entity's
assets. If any portion of the reorganization value cannot be attributed to
specific tangible or identified intangible assets of the emerging entity, such
amount is reported as "reorganization value in excess of amount allocable to
identifiable assets." Advantica is amortizing such amount over a five-year
period. All financial statements for any period subsequent to the Effective Date
are referred to as "Successor Company," as they reflect the periods subsequent
to the implementation of fresh start reporting and are not comparable to the
financial statements for periods prior to the Effective Date.
The Company has estimated a range of reorganization value between approximately
$1,631 million and $1,776 million. Such reorganization value is based upon a
review of the operating performance of 17 companies in the restaurant industry
that offer products and services that are comparable to or competitive with the
Company's various operating concepts. The following multiples were established
for these companies: (i) enterprise value (defined as market value of
outstanding equity, plus debt, minus cash and cash equivalents)/revenues for the
four most recent fiscal quarters; (ii) enterprise value/earnings before
interest, taxes, depreciation, and amortization for the four most recent fiscal
quarters; and (iii) enterprise value/earnings before interest and taxes for the
four most recent fiscal quarters. The Company did not independently verify the
information for the comparative companies considered in its valuations, which
information was obtained from publicly available reports. The foregoing
multiples were then applied to the Company's financial forecast for each of its
six restaurant chains or concepts. Valuations achieved in selected merger and
acquisition transactions involving comparable businesses were used as further
validation of the valuation range. The valuation also takes into account the
following factors, not listed in order of importance:
(A) The Company's emergence from Chapter 11 proceedings, pursuant to
the Plan as described herein, during the first quarter of 1998.
(B) The assumed continuity of the present senior management team.
(C) The tax position of Advantica.
(D) The general financial and market conditions as of the date of
consummation of the Plan.
The total reorganization value of $1,729 million, the midpoint of the range of
$1,631 million and the $1,776 million adjusted to reflect an enterprise value of
FEI based on the terms of the stock purchase agreement related to the
disposition thereof, includes a value attributed to shareholders' equity of $417
million and long-term indebtedness contemplated by the Plan of $1,312 million.
The results of operations in the accompanying Statement of Operations for the
week ended January 7, 1998 reflect the results of operations prior to
Advantica's emergence from bankruptcy and the effects of fresh start reporting
adjustments. In this regard, the Statement of Operations reflects an
extraordinary gain on the discharge of certain debt as well as reorganization
items consisting primarily of gains and losses related to the adjustments of
assets and liabilities to fair value.
During the second quarter of 1998 the Company substantially completed valuation
studies performed in connection with the revaluation of its assets and
liabilities in accordance with fresh start reporting. Depreciation expense for
the quarter ended July 1, 1998 includes an estimated $6.3 million representing
the difference between the actual impact of the revaluation on depreciation for
the 12 weeks ended April 1, 1998 and the estimated impact previously reported.
10
<PAGE>
The effect of the Plan and the adoption of fresh start reporting on the
Company's January 7, 1998 balance sheet are as follows:
<TABLE>
Predecessor Adjustments Adjustments Successor
Company for for Fresh Company
(In thousands) January 7, 1998 Reorganization Start Reporting January 7, 1998
--------------- -------------- --------------- ---------------
(a) (b)
Assets
Current Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 58,753 $ 58,753
Receivables, net 15,247 $ (689) 14,558
Inventories 20,424 (425) 19,999
Net assets held for sale 288,039 110,027 398,066
Other 43,670 (496) 43,174
Property and equipment, net 719,152 64,501 783,653
Other Assets:
Goodwill, net 207,820 (207,820) --
Other intangible assets, net 12,954 216,995 229,949
Deferred financing costs, net 58,590 $ (25,218) (61) 33,311
Other 22,416 (6,684) 15,732
Reorganization value in excess of amounts
allocable to identifiable assets -- 761,736 761,736
----------- ----------- ----------- ----------
$ 1,447,065 $ (25,218) $ 937,084 $ 2,358,931
=========== =========== =========== ===========
Liabilities and Shareholders' Equity
Liabilities
Current Liabilities:
Current maturities of notes and debentures $ 30,913 $ 30,913
Current maturities of capital lease obligations 17,863 17,863
Accounts payable 106,678 106,678
Accrued salaries and vacations 62,648 $ 4,355 67,003
Accrued insurance 36,104 292 36,396
Accrued taxes 40,142 2,662 42,804
Accrued interest and dividends 16,652 16,652
Other 95,152 8,008 103,160
Long-Term Liabilities:
Notes and debentures, less current maturities 510,523 $ 592,005 72,388 1,174,916
Capital lease obligations, less current maturities 87,667 216 87,883
Deferred income taxes 5,097 5,097
Liability for self-insured claims 55,444 4,700 60,144
Other noncurrent liabilities and deferred credits 134,187 57,908 192,095
Liabilities subject to compromise 1,613,532 (1,613,532) --
Shareholders' Equity (1,365,537) 996,309 786,555 417,327
----------- ------------ ------------ ----------
$ 1,447,065 $ (25,218) $ 937,084 $ 2,358,931
============ ============ ============ ===========
</TABLE>
(a) To record the transactions relative to the consummation of the Plan as
described in Note 2.
(b) To record (i) the increase in the value of net assets held for sale to
their fair value based on the terms of the stock purchase agreement, (ii)
the adjustment of property, net to estimated fair value, (iii) the
write-off of unamortized goodwill and establishment of estimated fair
value of other intangible assets (primarily franchise rights and
tradenames), (iv) the establishment of reorganization value in excess of
amounts allocable to identifiable assets, (v) the increase in value of
debt to reflect estimated fair value, (vi) the recognition of liabilities
associated with severance and other exit costs, and the adjustments to
self-insured claims and contingent liabilities reflecting a change in
methodology, and (vii) the adjustment
11
<PAGE>
to reflect the new value of common shareholders' equity based on
reorganization value, which was determined by estimating the fair value
of the Company.
Note 4. Extraordinary Gain
The implementation of the Plan resulted in the exchange of the Senior
Subordinated Debentures and the 10% Convertible Debentures for 40 million shares
of Common Stock and Warrants to purchase 4 million shares of Common Stock. The
difference between the carrying value of such debt (including principal, accrued
interest and deferred financing costs of $946.7 million, $74.9 million and $25.6
million, respectively) and the fair value of the Common Stock and Warrants
resulted in a gain on debt extinguishment of $612.8 million which was recorded
as an extraordinary item.
Note 5. Dispositions of Flagstar Enterprises, Inc. and Quincy's
Restaurants, Inc.
On April 1, 1998 (the "Disposition Date"), the Company completed the sale to CKE
Restaurants, Inc. ("CKE") of all of the capital stock of FEI, which operated the
Company's Hardee's restaurants under licenses from HFS, a wholly-owned
subsidiary of CKE, for $427 million (subject to adjustment) , which includes the
assumption by CKE of $46 million of capital leases. Approximately $173.1 million
of the proceeds (together with $28.6 million already on deposit with respect to
certain Mortgage Financings as defined below) was applied to in-substance
defease the 10.25% Guaranteed Secured Bonds due 2000 (the "Mortgage Financings")
of Spardee's Realty, Inc., a wholly-owned subsidiary of FEI, and Quincy's
Realty, Inc., a wholly-owned subsidiary of Quincy's with a book value of $198.9
million plus accrued interest of $6.9 million at April 1, 1998. Such Mortgage
Financings were collateralized by certain assets of Spardee's Realty, Inc. and
Quincy's Realty, Inc. The Company replaced such collateral through the purchase
of a portfolio of United States Government and AAA rated investment securities
which were deposited with the collateral agent with respect to such Mortgage
Financings to satisfy principal and interest payments under such Mortgage
Financings through the stated maturity date in the year 2000. Such investments
are reflected in the Consolidated Balance Sheet under the caption "Restricted
investments securing in-substance defeased debt." The Mortgage Financings are
reflected in the Consolidated Balance Sheet under the caption "In-substance
defeased debt."
As a result of the adoption of fresh start reporting, as of the Effective Date
the net assets of FEI were adjusted to fair value less estimated costs of
disposal based on the terms of the stock purchase agreement. The net gain
resulting from this adjustment is reflected as "Reorganization items of
discontinued operation" in the Statements of Consolidated Operations. As a
result of this adjustment, no gain or loss on disposition is reflected in the
twelve weeks ended April 1, 1998. Additionally, the operating results of FEI
subsequent to January 7, 1998 and through the Disposition Date were reflected as
an adjustment to "Net assets held for sale" prior to the disposition. The
adjustment to "Net assets held for sale" as a result of the net loss of FEI for
the twelve weeks ended April 1, 1998 was ($2.0) million. Revenue and operating
income of FEI for the twelve weeks ended April 1, 1998 were $116.2 million and
$5.7 million, respectively.
On June 10, 1998, the Company completed the sale of all of the capital stock of
Quincy's, the wholly-owned subsidiary which operated the Company's Quincy's
Family Steakhouse Division, to Buckley Acquisition Corporation ("BAC") for $84.7
million (subject to adjustment), which includes the assumption by BAC of $4.2
million of capital leases. The resulting gain of approximately $11.9 million
from such disposition is reflected as an adjustment to reorganization value in
excess of amounts allocable to identifiable assets.
The Statements of Consolidated Operations and Cash Flows presented herein have
been reclassified for the 1997 period, the one week ended January 7, 1998 and
the twelve weeks ended April 1, 1998 to reflect FEI and Quincy's as discontinued
operations in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Revenue and operating income of the discontinued
operations for the 25 weeks ended July 1, 1998, the one week ended January 7,
1998 and the two quarters ended July 2, 1997 were $194.9 million and $5.7
million, $12.7 million and $0.1 million, and $408.9 million and $14.7 million,
respectively. Revenue and operating (loss) income of the discontinued operations
for the quarters ended July 1, 1998 and July 2, 1997 were $32.5 million and
$(0.9) million and $207.2 million and $11.6 million, respectively.
12
<PAGE>
The Company has allocated to the discontinued operations a pro-rata portion of
interest and debt expense based on a ratio of the net assets of the discontinued
operations to the Company's consolidated net assets as of the 1989 acquisition
date of Flagstar by FCI for periods prior to January 7, 1998 and based on a
ratio of the net assets of the discontinued operations to the Company's net
assets after the adoption of fresh start reporting for periods subsequent to
January 7, 1998. Such allocated interest expense (which is in addition to other
interest expense incurred by FEI and Quincy's) included in discontinued
operations for the 25 weeks ended July 1, 1998, the week ended January 7, 1998
and the two quarters ended July 1, 1997 was $3.1 million, $0.4 million and $27.3
million, respectively. Such allocated interest expense for the quarter ended
July 2, 1997 was $13.7 million. There was no allocated interest expense for the
quarter ended July 1, 1998 due to the FEI disposition on April 1, 1998 and the
fact that no interest and debt expense was allocated to Quincy's subsequent to
January 7, 1998 based on the above methodology.
The Consolidated Balance Sheet at December 31, 1997 presented herein has been
reclassified to include the net assets of Quincy's in Net Assets Held for Sale.
Note 6. Reorganization Items
Reorganization items included in the accompanying Statements of Consolidated
Operations for the week ended January 7, 1998 consist of the following items:
<TABLE>
Week Ended
January 7, 1998
---------------
(In thousands)
<S> <C>
Net gain related to adjustments of assets and liabilities
to fair value $ (734,216)
Professional fees and other 8,809
Severance and other exit costs 11,200
----------------
$ (714,207)
</TABLE>
Note 7. Liabilities Subject To Compromise
Liabilities subject to compromise are obligations which were outstanding on the
Petition Date and were subject to compromise under the terms of the Plan.
<TABLE>
December 31, 1997
------------------
(In thousands)
<S> <C>
10 3/4% Senior Notes due September 15, 2001, interest payable semi-annually $ 270,000
10 7/8% Senior Notes due December 1, 2002, interest payable semi-annually 280,025
11.25% Senior Subordinated Debentures due November 1, 2004, interest payable semi-annually 722,411
11 3/8% Senor Subordinated Debentures due September 15, 2003, interest payable semi-annually 125,000
10% Convertible Junior Subordinated Debentures due 2014, interest payable semi-annually;
convertible into Company Old Common Stock any time prior to maturity at $24.00 per share 99,259
Accrued interest 115,705
-------------
Total liabilities subject to compromise $ 1,612,400
=============
</TABLE>
Note 8. The Advantica Credit Facility
On the Effective Date the Company entered into a credit agreement with The Chase
Manhattan Bank ("Chase") and other lenders named therein providing the Company
(excluding FRD Acquisition Co.) with a $200 million senior secured revolving
credit facility (the "Credit Facility"). In connection with the closing of the
sales of FEI and Quincy's, the Credit Facility was amended to accommodate the
sale transactions and in-substance defeasance consummated in conjunction with
the sale of FEI. In addition, the Credit Facility was amended to provide the
Company flexibility to reinvest the residual sales proceeds through additional
capital expenditures and/or strategic acquisitions, as well as to modify certain
other covenants and financial tests affected by the sales transactions. The
commitments under the Credit Facility were not reduced as a result of the sales.
13
<PAGE>
Note 9. Earnings Per Share Applicable to Common Shareholders
The following table sets forth the computation of basic and diluted income per
share for the week ended January 7, 1998. For all other periods the effect of
dilutive securities would decrease the loss per share and therefore basic per
share amounts are not adjusted for dilutive securities.
<TABLE>
For the Week ended January 7, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Income before discontinued operations and extraordinary item $ 734,340
Less: Preferred stock dividends ( 273)
------------
BASIC EPS
Income available to common shareholders 734,067 42,434 $ 17.30
============
EFFECT OF DILUTIVE SECURITIES
$2.25 Series A Cumulative Convertible Exchangeable Preferred Stock 273 8,562
10 % Convertible Subordinated Debentures -- 4,136
------------- ---------
DILUTED EPS
Income available to common shareholders plus assumed conversions $ 734,340 55,132 $ 13.32
============== ========= ============
</TABLE>
Options and warrants to purchase shares of Old Common Stock were outstanding
during the week ended January 7, 1998 but were not included in the computation
of diluted earnings per share because the related exercise prices were greater
than the average market price of the common shares. The Predecessor Company
options and warrants were effectively terminated as a result of the
reorganization of the Company. See Note 2.
Note 10. New Accounting Standards
In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"),
which provides guidance on accounting for the costs of computer software
developed or obtained for internal use. SOP 98-1 requires capitalization of
external and internal direct costs of developing or obtaining internal-use
software as a long-lived asset and also requires training costs included in the
purchase price of computer software and costs associated with research and
development to be expensed as incurred. In April 1998, the AICPA issued
Statement of Position 98-5, " Reporting on the Costs of Start-Up Activities"
("SOP 98-5"), which provides additional guidance on the financial reporting of
start-up costs, requiring costs of start-up activities to be expensed as
incurred.
In accordance with the adoption of fresh start reporting upon emergence from
bankruptcy (see Note 3), the Company adopted both statements of position as of
January 7, 1998. The adoption of SOP 98-1 at January 7, 1998 resulted in the
write-off of previously capitalized direct costs of obtaining computer software
associated with research and development totaling $3.4 million. Subsequent to
the Effective Date, similar costs are being expensed as incurred. The adoption
of SOP 98-5 at January 7, 1998 resulted in the write-off of previously
capitalized pre-opening costs totaling $0.6 million. Subsequent to the Effective
Date, pre-opening costs are being expensed as incurred.
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting of Comprehensive Income"
("SFAS 130"), which establishes standards for reporting and display of
comprehensive income and its components in the financial statements.
Comprehensive income is comprised of net income and other comprehensive income
items, such as revenues, expenses, gains and losses that under generally
accepted accounting principles
14
<PAGE>
are excluded from net income and reflected as a component of equity. For the 25
weeks ended July 1, 1998, the one week ended January 7, 1998 and the two
quarters ended July 2, 1997, there were no differences between net income and
comprehensive income.
Note 11. Change in Fiscal Year
Effective January 1, 1997, the Company changed its fiscal year end from December
31 to the last Wednesday of the calendar year. Concurrent with this change, the
Company changed to a four-four-five week quarterly closing calendar which is the
restaurant industry standard, and generally results in four 13-week quarters
during the year with each quarter ending on a Wednesday. As a result of the
timing of this change, the first two quarters of 1997 include more than 26 weeks
of operations. Carrows and Coco's include an additional six days; Denny's
includes an additional five days; and El Pollo Loco includes an additional week.
The 1998 comparable period consisted of 26
weeks.
Note 12. Subsequent Event
On July 31, 1998 the Company extended to the holders of the New Senior Notes an
offer to purchase, on a pro rata basis, up to $100.0 million of the outstanding
New Senior Notes at a price of 100% of the principal amount thereof plus accrued
and unpaid interest (the "Net Proceeds Offer"). Such offer is extended pursuant
to the terms of the indenture governing the New Senior Notes (the "Indenture")
which requires the Company to apply the Net Proceeds (as defined therein) from
the sale of the Hardee's and Quincy's Business Segments (as defined in the
Indenture) within 366 days of such sales to (i) an investment in another asset
or business in the same line or similar line of business, (ii) a net proceeds
offer, as defined in the indenture, or (iii) the prepayment or repurchase of
Senior Indebtedness (as defined), or any combination thereof as the Company may
choose. The Net Proceeds Offer expires on August 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to highlight significant changes in
financial position as of July 1, 1998 and the results of operations for the
quarter ended July 1, 1998, and the 25 weeks ended July 1, 1998 and one week
ended January 7, 1998, as compared to the quarter and two quarters ended July 2,
1997. For purposes of providing a meaningful comparison of the Company's
quarterly operating performance, the following discussion and presentation of
the results of operations for the 25 weeks ended July 1, 1998 and the one week
ended January 7, 1998 will be combined and referred to as the two quarters ended
July 1, 1998. Where appropriate, the impact of the adoption of fresh start
reporting on the results of operations during this period will be separately
disclosed.
The forward-looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, which reflect management's
best judgment based on factors currently known, involve risks, uncertainties,
and other factors which may cause the actual performance of Advantica Restaurant
Group, Inc., its subsidiaries, and underlying concepts to be materially
different from the performance indicated or implied by such statements. Such
factors include, among others: competitive pressures from within the restaurant
industry; the level of success of the Company's operating initiatives and
advertising and promotional efforts, including the initiatives and efforts
specifically mentioned herein; the ability of the Company to mitigate the impact
of the Year 2000 issue successfully; adverse publicity; changes in business
strategy or development plans; terms and availability of capital; regional
weather conditions; overall changes in the general economy, particularly at the
retail level; and other factors included in the discussion below, or in the
Management's Discussion and Analysis and in Exhibit 99 to the Company's Annual
Report on Form 10-K for the period ended December 31, 1997.
Results of Operations
Quarter Ended July 1, 1998 Compared to Quarter Ended July 2, 1997
The Company's CONSOLIDATED REVENUE for the second quarter of 1998 decreased by
$6.6 million (1.5%) as compared with the 1997 comparable quarter. This decrease
is principally because of a 40-unit decrease in Company-owned units (excluding
the impact of the FEI and Quincy's dispositions) resulting primarily from
refranchising activity, whereby the Company has sold
15
<PAGE>
company units to franchisees as part of its strategy to optimize its portfolio
of Company-owned and franchised restaurants. The decrease in Company sales is
partially offset by a $1.8 million (8.6%) increase in franchise and licensing
revenue related to a 98-unit increase in franchised and licensed units
attributable both to refranchising activity and new unit development especially
in the Denny's and EPL franchise systems.
CONSOLIDATED OPERATING EXPENSES for the second quarter of 1998 increased by
$48.5 million compared to the 1997 quarter. The comparability of 1998 and 1997
operating results is significantly affected by the impact of the adoption of
fresh start reporting as of January 7, 1998. Specifically, the amortization of
reorganization value in excess of amounts allocable to identifiable assets,
which is over a five-year period, totaled $38.0 million for the quarter ended
July 1, 1998. In addition, the adjustment of property and equipment and other
intangible assets to fair value as a result of the adoption of fresh start
reporting resulted in an estimated net increase in amortization and depreciation
of approximately $17.4 million. This includes an estimated $6.3 million of
depreciation representing an adjustment for the actual impact of the revaluation
on depreciation for the 12 weeks ended April 1, 1998 compared to the estimated
impact previously reported, based on the substantial completion in the second
quarter of valuation studies performed in connection with the revaluation of the
Company's assets and liabilities in accordance with fresh start reporting.
Excluding the effect of the estimated impact of fresh start reporting, operating
expenses decreased $6.9 million (1.7%), primarily reflecting the 40-unit
decrease in Company-owned restaurants as well as the Company's continued focus
on management of food costs and labor costs in the restaurants.
Excluding the impact of the adoption of fresh start reporting as discussed
above, CONSOLIDATED OPERATING INCOME for the second quarter of 1998 increased by
$0.3 million compared to the 1997 comparable quarter as a result of the factors
noted above.
CONSOLIDATED INTEREST AND DEBT EXPENSE, NET totaled $31.0 million during the
second quarter of 1998 as compared with $47.9 million during the comparable 1997
period. The decrease is primarily due to the significant reduction of debt
resulting from the implementation of the Plan which became effective January 7,
1998 and the lower effective yield on Company debt resulting from the
revaluation of such debt to fair value in accordance with fresh start reporting,
somewhat offset by the allocation of $13.7 million of interest expense to
discontinued operations during the prior year quarter in comparison to none in
the current year quarter.
The PROVISION FOR (BENEFIT FROM) income taxes from continuing operations for the
quarter has been computed based on management's estimate of the annual effective
income tax rate applied to loss before taxes. The Company recorded an income tax
provision reflecting an effective income tax rate of approximately 0.7% for the
quarter ended July 1, 1998 compared to a provision for the quarter ended July 2,
1997 reflecting an approximate rate of 2.6%.
The Statements of Consolidated Operations and Cash Flows presented herein have
been restated for the 1997 period to reflect FEI and Quincy's as DISCONTINUED
OPERATIONS in accordance with Accounting Principles Board Opinion No. 30,
"Reporting the Results of Operations -- Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." Revenue of the discontinued operations for the quarter
ended July 1, 1998 and the quarter ended July 2, 1997 was $32.5 million and
$207.2 million, respectively.
NET LOSS was $53.3 million in the second quarter of 1998 as compared to a net
loss of $32.3 million for the prior year quarter primarily as a result of the
factors noted above.
EBITDA, as set forth below, is defined by the Company as operating income before
depreciation, amortization and charges for restructuring and impairment and is a
key internal measure used to evaluate the amount of cash flow available for debt
repayment and funding of additional investments. EBITDA is not a measure defined
by generally accepted accounting principles and should not be considered as an
alternative to net income or cash flow data prepared in accordance with
generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. The Company's measure of EBITDA may not be
comparable to similarly titled measures reported by other companies.
16
<PAGE>
Quarter Ended
July 1, 1998 July 1, 1997 (a)
-------------- -----------------
(In millions)
Denny's $ 41.2 $ 41.0
Coco's 10.2 9.6
Carrows 6.4 6.4
El Pollo Loco 6.5 5.3
Corporate and other (6.6) (6.6)
-------------- ------------------
$ 57.7 $ 55.7
============== ===================
(a) Excludes the EBITDA of Hardee's and Quincy's of $18.5 million and $5.5
million, respectively, for comparability purposes.
Restaurant Operations:
The table below summarizes restaurant unit activity for the quarter ended
July 1, 1998.
<TABLE>
Ending Units
Units Units Sold/ Units Ending Units Ending Units
4/1/98 Opened Closed Refranchised 7/1/98 7/2/97
------ ------ ------ ------------ ------------ ------------
Denny's
<S> <C> <C> <C> <C> <C> <C>
Company-owned units 877 -- (2) (1) 874 891
Franchised units(a) 763 22 (6) 1 780 720
Licensed units (a) 18 -- -- -- 18 22
------- ------ ------ ------ ------ -------
1,658 22 (8) -- 1,672 1,633
Coco's
Company-owned units 176 -- (1) -- 175 185
Franchised units 18 -- (1) -- 17 7
Licensed units 295 4 (3) -- 296 286
------- ----- ------ ----- ----- -------
489 4 (5) -- 488 478
Carrows
Company-owned units 139 -- (1) (1) 137 156
Franchised units 16 1 -- 1 18 1
------ ------ ----- ------ ------ -------
155 1 (1) -- 155 157
El Pollo Loco
Company-owned units 99 2 -- (1) 100 94
Franchised units 148 6 (1) 1 154 143
Licensed units 4 -- -- -- 4 10
------ ------ ----- ----- ------ -------
251 8 (1) -- 258 247
Quincy's 128 -- (128)(b) -- -- (b) 198
------ ------ ----- ----- ------ -------
2,681 35 (143) -- 2,573 2,713
====== ====== ===== ===== ======= =======
</TABLE>
(a) Certain units have been reclassified to conform to the 1998 presentation.
(b) Reflects the consummation of the sale of Quincy's stock to BAC on June
10, 1998.
17
<PAGE>
Denny's
<TABLE>
Quarter Ended %
July 1, 1998 July 2, 1997 Increase/(Decrease)
------------ ------------ -------------------
($ in millions, except average unit and comparable store data)
<S> <C> <C> <C>
U.S. system wide sales $ 487.5 $ 465.4 4.7
=========== ===========
Net company sales $ 281.0 $ 281.2 0.0
Franchise and licensing revenue 17.2 15.2 13.2
----------- -----------
Total revenue 298.2 296.4 0.6
----------- -----------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 19.8 -- NM
Other 283.5 266.3 6.5
------------ -----------
Total operating expenses 303.3 266.3 13.9
------------ -----------
Operating (loss) income $ (5.1) $ 30.1 NM
============ ===========
Average unit sales
Company-owned $ 320,800 $ 315,700 1.6
Franchise $ 274,300 $ 266,200 3.0
Comparable store data (Company-owned)
Comparable store sales increase (decrease) 0.9% (5.5%)
Average guest check $ 5.84 $ 5.55 5.2
NM = Not Meaningful
</TABLE>
Denny's NET COMPANY SALES during the 1998 quarter were essentially flat relative
to the prior year's comparable quarter. This primarily reflects a $3.2 million
revenue decline associated with 17 fewer Company-owned units offset by a $2.5
million increase related to higher comparable store sales which reflects the
benefit of successful promotions such as "All Star Slams" and "Major League
Burgers". The decrease in Company-owned units is consistent with the Company's
strategy of focusing on growth through franchising and the sale of Company-owned
units to franchisees to stimulate such growth, along with selected closures
where continued Company operation is considered uneconomical. The improvement in
comparable store sales reflects a higher average guest check partially
offset by lower guest counts. The average guest check increase resulted from
menu price increases initiated to keep pace with minimum wage and other cost
increases. FRANCHISE AND LICENSING REVENUE increased by $2.0 million (13.2%),
reflecting 60 additional franchised units at the 1998 quarter end compared to
the 1997 quarter end, a direct result of 1997 franchising efforts which resulted
in the opening of 77 Denny's franchise units, a record number for the Company.
Denny's OPERATING EXPENSES increased by $37.0 million compared to the prior year
quarter. The comparability of 1998 and 1997 operating results is significantly
affected by the impact of the adoption of fresh start reporting as of January 7,
1998. Specifically, the amortization of reorganization value in excess of
amounts allocable to identifiable assets, which is over a five-year period,
totaled $19.8 million for the current year period. In addition, the adjustment
of property and equipment and other intangible assets to fair value resulted in
an estimated increase in amortization and depreciation of approximately $13.3
million. Excluding the effect of fresh start reporting, operating expenses
increased by $3.9 million (1.5%) in comparison to the 1997 quarter, reflecting
an increase in advertising spending and labor costs.
Excluding the impact of fresh start reporting, Denny's OPERATING INCOME for the
1998 quarter decreased by $2.1 million compared to the prior year quarter as a
result of the factors noted above.
18
<PAGE>
Coco's
<TABLE>
Quarter Ended %
July 1, 1998 July 2, 1997 Increase/(Decrease)
--------------------------------- ------------------
($ in millions, except average unit and comparable store data)
<S> <C> <C> <C>
U.S. system wide sales $ 70.6 $ 70.3 0.4
=========== =============
Net company sales $ 64.9 $ 67.6 (4.0)
Franchise and licensing revenue 0.8 1.4 (42.9)
----------- -------------
Total revenue 65.7 69.0 (4.8)
----------- -------------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 5.6 -- NM
Other 61.4 63.6 (3.5)
------------- --------------
Total operating expenses 67.0 63.6 5.3
------------- --------------
Operating (loss) income $ (1.3) $ 5.4 NM
============ ==============
Average unit sales
Company-owned $ 370,100 $ 367,400 0.7
Franchised $ 336,800 $ 434,000 (22.4)
Comparable store data (Company-owned)
Comparable store sales decrease (0.8%) (1.5%)
Average guest check $ 7.15 $ 6.73 6.2
NM = Not Meaningful
</TABLE>
Coco's NET COMPANY SALES for the second quarter ended July 1, 1998 decreased
$2.7 million (4.0%) as compared to the prior year comparable quarter. This
decrease reflects a 10-unit decrease in the number of Company-owned restaurants
and a slight decrease in comparable store sales. The decrease in comparable
store sales is largely due to a decrease in customer traffic partially offset by
an increase in average guest check. The increase in average guest check resulted
from menu price increases instituted in August 1997 and February 1998 in
response to minimum wage increases. FRANCHISE AND FOREIGN LICENSING REVENUE
decreased $0.6 million (42.9%) for the second quarter of 1998 as compared to the
second quarter of 1997, reflecting a stronger dollar versus the yen. This
decline was partially offset by the addition of 10 domestic franchised units and
a net increase of 10 foreign licensed units over the prior year quarter. The
increase in the number of franchised units also explains the large variance in
franchise average unit sales as the calculation for the prior year reflected
only a small number of franchised units (seven units).
Coco's OPERATING EXPENSES for the second quarter of 1998 increased $3.4 million
compared to the prior year quarter. The comparability of 1998 to 1997 operating
results is significantly affected by the impact of the adoption of fresh start
reporting as of January 7, 1998. Specifically, the amortization of
reorganization value in excess of amounts allocable to identifiable assets,
which is over a five-year period, totaled $5.6 million for the quarter ended
July 1, 1998. In addition, the adjustment of property and equipment and other
intangible assets to fair value resulted in an increase in amortization and
depreciation of $1.9 million. Excluding the effect of the impact of fresh start
reporting, operating expenses decreased $4.1 million (6.4%), reflecting the
effect of the 10-unit decrease in Company-owned restaurants and the impact of
cost reduction programs implemented to increase operating margins.
Excluding the impact of the adoption of fresh start reporting, OPERATING INCOME
for the second quarter of 1998 increased $0.8 million from the prior year
comparable quarter as a result of the factors noted above.
19
<PAGE>
Carrows
<TABLE>
<S> <C>
Quarter Ended %
July 1, 1998 July 2, 1997 Increase/(Decrease)
------------------------------ ------------------
($ in millions, except average unit and comparable store data)
U.S. system wide sales $ 52.7 $ 53.9 (2.2)
=========== ============
Net company sales $ 47.8 $ 53.3 (10.3)
Franchise and licensing revenue 0.3 0.1 NM
----------- ------------
Total revenue 48.1 53.4 (9.9)
----------- ------------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 4.4 -- NM
Other 46.2 50.3 (8.2)
------------ ------------
Total operating expenses 50.6 50.3 0.6
------------ ------------
Operating (loss) income $ (2.5) $ 3.1 NM
============ =============
Average unit sales
Company-owned $ 343,600 $ 339,600 1.2
Franchise $ 292,200 NM
Comparable store data (Company-owned)
Comparable store sales increase (decrease) (1.3%) (3.2%)
Average guest check $ 6.91 $ 6.50 6.3
NM = Not Meaningful
</TABLE>
Carrows' NET COMPANY SALES for the second quarter ended July 1, 1998 decreased
$5.5 million (10.3%) as compared to the prior year comparable quarter. This
decrease reflects a 19-unit decrease in the number of Company-owned restaurants,
13 of which were converted to franchise units, and a decrease in comparable
store sales. The decrease in comparable store sales is largely due to a decrease
in customer traffic offset by an increase in average guest check. The increase
in average guest check resulted from menu price increases instituted in July
1997 and February 1998 in response to minimum wage increases. FRANCHISE REVENUE
increased $0.2 million for the second quarter of 1998 as compared to the second
quarter of 1997, reflecting the addition of 17 franchised units over the prior
year quarter.
Carrows' OPERATING EXPENSES for the second quarter of 1998 increased $0.3
million compared to the prior year quarter. The comparability of 1998 to 1997
operating results is significantly affected by the impact of the adoption of
fresh start reporting as of January 7, 1998. Specifically, the amortization of
reorganization value in excess of amounts allocable to identifiable assets,
which is over a five-year period, totaled $4.4 million for the quarter ended
July 1, 1998. In addition, the adjustment of property and equipment and other
intangible assets to fair value resulted in an increase in amortization and
depreciation of $1.4 million. Excluding the effect of the impact of fresh start
reporting, operating expenses decreased $5.5 million (10.9%), reflecting the
effect of the 19-unit decrease in Company-owned restaurants and the impact of
cost reduction programs implemented to increase operating margins.
Excluding the impact of the adoption of fresh start reporting, OPERATING INCOME
for the second quarter of 1998 increased $0.2 million as compared to the prior
year comparable quarter as a result of the factors noted above.
20
<PAGE>
El Pollo Loco
<TABLE>
Quarter Ended %
July 1, 1998 July 2, 1997 Increase/(Decrease)
----------------------------------- -------------------
($ in millions, except average unit and comparable store data)
<S> <C> <C> <C>
U.S. system wide sales $ 61.7 $ 60.7 1.6
============= =============
Net company sales $ 29.5 $ 29.5 0.0
Franchise and licensing revenue 4.0 3.9 2.6
--------------- ------------
Total revenue 33.5 33.4 0.3
-------------- ------------
Operating expenses:
Amortization of reorganization value in excess of amounts NM
allocable to identifiable assets 2.6 --
Other 29.0 29.3 (1.0)
-------------- ------------
Total operating expenses 31.6 29.3 7.9
-------------- ------------
Operating income $ 1 .9 $ 4.1 (53.7)
============== ============
Average unit sales
Company-owned $ 296,700 $ 311,200 (4.7)
Franchise $ 213,700 $ 222,300 (3.9)
Comparable store data (Company-owned)
Comparable store sales increase (decrease) (3.2%) 1.9%
Average guest check $ 6.93 $ 6.80 1.9
NM = Not Meaningful
</TABLE>
El Pollo Loco's NET COMPANY SALES were flat during the 1998 quarter as compared
with the prior year quarter. Revenue included an increase resulting from six
additional company-owned units compared to last year offset by lower comparable
store sales. The decline in comparable store sales reflects lower guest counts,
which were offset by an increase in average guest check resulting from increased
menu pricing implemented in response to minimum wage increases. FRANCHISE AND
LICENSING REVENUE increased by $0.1 million (2.6%) to $4.0 million, reflecting
11 additional franchised units in the 1998 quarter compared to the 1997 quarter
end. El Pollo Loco added six franchise units during the second quarter
consistent with the Company's strategy to grow through franchising.
El Pollo Loco's OPERATING EXPENSES increased by $2.3 million compared to the
1997 quarter. The comparability of 1998 to 1997 operating results is
significantly affected by the impact of the adoption of fresh start reporting as
of January 7, 1998. Specifically, the amortization of reorganization value in
excess of amounts allocable to identifiable assets, which is over a five-year
period, totaled $2.6 million for the 1998 quarter. In addition, the adjustment
of property and equipment and other intangible assets to fair value resulted in
an estimated increase in amortization and depreciation of approximately $0.7
million. Excluding the impact of fresh start accounting, operating expenses
decreased approximately $1.0 million (3.4%) compared to the 1997 quarter. Such
decrease reflects the implementation of cost management programs to improve
operating margins resulting in lower food costs as a percent of sales and flat
labor costs compared to the prior year due to labor efficiencies, in spite of
minimum wage increases. Additionally, a $0.7 million nonrecurring insurance
recovery was recorded in the current year quarter as a reduction to operating
expenses.
Excluding the impact of the adoption of fresh start reporting, El Pollo Loco's
OPERATING INCOME for the 1998 quarter increased by $1.1 million compared to the
prior year quarter as a result of the factors noted above.
21
<PAGE>
Results of Operations
Two Quarters Ended July 1, 1998 Compared to Two Quarters Ended July 2, 1997
The Company's CONSOLIDATED REVENUE for the two quarters ended July 1, 1998
decreased by $56.6 million (6.1%) as compared with the 1997 comparable period.
The revenue decrease is partially attributable to an estimated $32.6 million
impact due to fewer reporting days in the 1998 period versus the 1997 comparable
period because of the change in the Company's fiscal year end in 1997. Excluding
the impact of fewer days in the 1998 reporting period, revenue for the 1998
quarter decreased $24.0 million compared to the prior year quarter. This
decrease is principally because of a 40-unit decrease in Company-owned units
(excluding the impact of the FEI and Quincy's dispositions) resulting primarily
from refranchising activity, whereby the Company has sold company units to
franchisees as part of its strategy to optimize its portfolio of Company-owned
and franchised restaurants. Additionally, the Company's concepts experienced
declines in comparable store sales. The decrease in Company sales is partially
offset by a $3.3 million (8.3%) increase in franchise and licensing revenue
attributed to a 98-unit increase in franchised and licensed units reflecting the
company's strategy to grow through franchising. The 98-unit increase includes 60
additional franchised units in Denny's, 10 in Coco's, 17 in Carrows and 11 in El
Pollo Loco.
CONSOLIDATED OPERATING EXPENSES for the first two quarters of 1998 increased by
$24.3 million compared to the 1997 period. The comparability of 1998 and 1997
operating results is significantly affected by the impact of the adoption of
fresh start reporting as of January 7, 1998. Specifically, the amortization of
reorganization value in excess of amounts allocable to identifiable assets,
which is over a five-year period, totaled $72.3 million for the 25 weeks ended
July 1, 1998. In addition, the adjustment of property and equipment and other
intangible assets to fair value as a result of the adoption of fresh start
reporting resulted in an estimated increase in amortization and depreciation of
approximately $21.5 million. Excluding the effect of the estimated impact of
fresh start reporting, operating expenses decreased $69.5 million (8.0%),
primarily reflecting the effect of fewer reporting days than in the prior year
comparable quarter, an increase of $7.5 million in gains on sales of units which
are reflected as a credit to operating expenses, food cost controls and the
40-unit decrease in Company-owned restaurants.
Excluding the impact of the adoption of fresh start reporting as discussed
above, CONSOLIDATED OPERATING INCOME for the two quarters ended July 1, 1998
increased by $12.9 million compared to the 1997 comparable period as a result of
the factors noted above.
CONSOLIDATED INTEREST AND DEBT EXPENSE, NET totaled $60.3 million during the two
quarters ended July 1, 1998 as compared with $96.3 million during the comparable
1997 period. The decrease is primarily due to the significant reduction of debt
resulting from the implementation of the Plan which became effective January 7,
1998 and the lower effective yield on Company debt resulting from the
revaluation of such debt to fair value in accordance with fresh start reporting,
largely offset by the effect of the allocation of $27.3 million of interest
expense to discontinued operations in the prior year period in comparison to
$3.5 million in the current year period.
REORGANIZATION ITEMS include professional fees and other expenditures incurred
by the Company in conjunction with the reorganization as well as the impact of
adjusting assets and liabilities to fair value in accordance with SOP 90-7 as
discussed in Note 3 to the consolidated financial statements included herein.
The PROVISION FOR (BENEFIT FROM) income taxes from continuing operations for the
25 week period has been computed based on management's estimate of the annual
effective income tax rate applied to loss before taxes. The Company recorded an
income tax provision reflecting an effective income tax rate of approximately
1.0% for the 25 weeks ended July 1, 1998 compared to a provision for the 1997
26-week period reflecting an approximate rate of 2.5%. The benefit from income
taxes from continuing operations for the one-week period ended January 7, 1998
of approximately $13.8 million includes adjustments of approximately $12.5
million of various tax accruals. The remaining benefit of approximately $1.3
million relates to the tax effect of the revaluation of certain Company assets
and liabilities in accordance with fresh start accounting.
The EXTRAORDINARY GAIN is due to the implementation of the Plan which resulted
in the exchange of the Senior Subordinated Debentures and the 10% Convertible
Debentures for 40 million shares of Common Stock and Warrants to purchase 4
million shares of Common Stock. The difference between the carrying value of
such debt (including principal, accrued interest and
22
<PAGE>
deferred financing costs) and the fair value of the Common Stock and Warrants
resulted in a gain on debt extinguishment of $612.8 million which was recorded
as an extraordinary item.
The Statements of Consolidated Operations and Cash Flows presented herein have
been reclassified for the 1997 period to reflect FEI and Quincy's as
DISCONTINUED OPERATIONS in accordance with Accounting Principles Board Opinion
No. 30, "Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." Revenue and operating income of the
discontinued operations for the 25 weeks ended July 1, 1998, the one week ended
January 7, 1998 and the two quarters ended July 2, 1997 were $194.9 million and
$5.7 million, $12.7 million and $0.1 million, and $408.9 million and $14.7
million, respectively. The operating results of FEI subsequent to January 7,
1998 and through the disposition date were reflected as an adjustment to "Net
assets held for sale" prior to the disposition. The adjustment to "Net assets
held for sale" as a result of the net loss of FEI for the twelve weeks ended
April 1, 1998 was ($2.0) million. Revenue and operating income of FEI for the
twelve weeks ended April 1, 1998 were $116.2 million and $5.7 million,
respectively.
Net income was $1,299 million for the two quarters ended July 1, 1998 as
compared to a net loss of ($84.0) million for the prior year comparable period
primarily as a result of the adoption of fresh start reporting and the
extraordinary gain discussed above.
EBITDA, as set forth below, is defined by the Company as operating income before
depreciation, amortization and charges for restructuring and impairment and is a
key internal measure used to evaluate the amount of cash flow available for debt
repayment and funding of additional investments. EBITDA is not a measure defined
by generally accepted accounting principles and should not be considered as an
alternative to net income or cash flow data prepared in accordance with
generally accepted accounting principles, or as a measure of a company's
profitability or liquidity. The Company's measure of EBITDA may not be
comparable to similarly titled measures reported by other companies.
<TABLE>
Two Quarters Ended
(In millions) July 1, 1998 July 2, 1997 (a)
------------- -----------------
<S> <C> <C>
Denny's $ 85.4 $ 77.1
Coco's 18.4 18.0
Carrows 10.8 12.7
El Pollo Loco 11.5 9.7
Corporate and other (14.0) (19.3)
------------ --------------
$ 112.1 $ 98.2
============ ==============
</TABLE>
(a) Excludes the EBITDA of Hardee's and Quincy's of $30.5 million and $8.8
million, respectively, for comparability purposes.
23
<PAGE>
Restaurant Operations:
Denny's
<TABLE>
Two Quarters Ended
%
July 1, 1998 July 2, 1997 Increase/(Decrease)
------------ ------------ -------------------
($ in millions, except average unit and comparable store data)
<S> <C> <C> <C>
U.S. system wide sales $ 940.5 $ 951.2 (1.1)
========= =====
Net company sales $ 546.7 $ 581.4 (6.0)
Franchise and licensing revenue 32.7 30.1 8.6
--------- -----
Total revenue 579.4 611.5 (5.2)
--------- -----
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 38.0 -- NM
Other 536.9 557.4 (3.7)
--------- -----
Total operating expenses 574.9 557.4 3.1
--------- -----
Operating income $ 4.5 $ 54.1 (91.7)
========= =====
Average unit sales
Company-owned $ 623,700 $ 652,000 (4.3)
Franchise $ 527,800 $ 542,500 (2.7)
Comparable store data (Company-owned)
Comparable store sales increase (decrease) (1.0%) (3.9%)
Average guest check $ 5.79 $ 5.48 5.7
NM = Not Meaningful
</TABLE>
Denny's NET COMPANY SALES decreased by $34.7 million (6.0%) during the two
quarters ended July 1, 1998 as compared with the prior year comparable period.
The decrease primarily reflects a $21.7 million impact resulting from five fewer
reporting days in the first quarter of 1998 in comparison to the prior year
period, a $6.7 million impact associated with 17 fewer Company-owned units and a
$5.2 million impact related to the decrease in comparable store sales. The
decrease in Company-owned units is consistent with the Company's strategy of
focusing on growth through franchising and the sale of Company-owned units to
franchisees to stimulate such growth, along with selected closures where
continued Company operation is considered uneconomical. The decline in the
comparable store sales was driven by lower guest counts, partially offset by an
increase in the average guest check. The average guest check increase resulted
from menu price increases initiated to keep pace with minimum wage and other
cost increases and from successful promotions of higher-priced menu items.
FRANCHISE AND LICENSING REVENUE increased by $2.6 million (8.6%), reflecting 60
additional franchised units at the 1998 period end compared to the 1997 period
end, a direct result of 1997 franchising efforts which resulted in the opening
of 77 Denny's franchise units, a record number for the Company.
Denny's OPERATING EXPENSES increased by $17.5 million compared to the prior year
period. The comparability of 1998 and 1997 operating results is significantly
affected by the impact of the adoption of fresh start reporting as of January 7,
1998. Specifically, the amortization of reorganization value in excess of
amounts allocable to identifiable assets, which is over a five-year period,
totaled $38.0 million for the 25 weeks ended July 1, 1998. In addition, the
adjustment of property and equipment and other intangible assets to fair value
resulted in an estimated increase in amortization and depreciation of
approximately $17.4 million. Excluding the effect of fresh start reporting,
operating expenses decreased $37.9 million (6.8%), reflecting the effect of five
fewer reporting days, 17 fewer Company-owned units, increased advertising
spending and an increase of $7.3 million in gains on sales of units in
comparison to the 1997 period. Additionally, Denny's operating expenses for the
period have been reduced by $3.0 million to reflect a nonrecurring real estate
transaction, whereby Denny's has agreed to the inclusion of a Company-owned unit
in a redevelopment project.
Excluding the impact of fresh start reporting, Denny's OPERATING INCOME for the
two quarters ended July 1, 1998 increased by
24
<PAGE>
$5.8 million over the prior year comparable period as a result of the factors
noted above.
Coco's
<TABLE>
Two Quarters Ended %
July 1, 1998 July 2, 1997 Increase/(Decrease)
------------ ------------ ------------------
($ in millions, except average unit and comparable store data)
<S> <C> <C> <C>
U.S. system wide sales $ 140.5 $ 143.3 (2.0
========= ==========
Net company sales $ 129.2 $ 138.5 (6.7)
Franchise and licensing revenue 1.8 2.0 (10.0)
--------- -----------
Total revenue 131.0 140.5 (6.8)
--------- -----------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 10.8 -- NM
Other 122.4 130.8 (6.4)
--------- -----------
Total operating expenses 133.2 130.8 1.8
--------- -----------
Operating (loss) income $ (2.2) $ 9.7 NM
========= ===========
Average unit sales
Company-owned $ 735,000 $ 753,000 (2.4)
Franchised $ 663,900 $ 874,900 (24.1)
Comparable store data (Company-owned)
Comparable store sales decrease (0.4%) (1.1%)
Average guest check $ 7.07 $ 6.66 6.2
NM = Not Meaningful
</TABLE>
Coco's NET COMPANY SALES for the two quarters ended July 1, 1998 decreased $9.3
million (6.7%) as compared to the prior year comparable period. The decrease
includes a $4.8 million impact due to six fewer reporting days compared to the
prior year comparable period. The remaining decrease reflects a 10-unit decrease
in the number of Company-owned restaurants and a slight decrease in comparable
store sales. The decrease in comparable store sales is due to a decrease in
customer traffic offset by an increase in average guest check. The increase in
average guest check resulted from menu price increases instituted in August 1997
and February 1998 in response to minimum wage increases. FRANCHISE AND FOREIGN
LICENSING REVENUE decreased $0.2 million (10.0%) for the two quarters ended July
1, 1998 as compared to the prior year comparable period, resulting primarily
from a stronger dollar versus the yen. This decline was partially offset by the
addition of 10 domestic franchised units and a net increase of 10 foreign
licensed units over the prior year. The increase in the number of franchised
units also explains the large variance in franchise average unit sales as the
calculation for the prior year reflected only a small number of franchised units
(seven units).
Coco's OPERATING EXPENSES for the two quarters ended July 1, 1998 increased $2.4
million as compared to the prior year comparable period. The comparability of
1998 to 1997 operating results is significantly affected by the impact of the
adoption of fresh start reporting as of January 7, 1998. Specifically, the
amortization of reorganization value in excess of amounts allocable to
identifiable assets, which is over a five-year period, totaled $10.8 million for
the two quarters ended July 1, 1998. In addition, the adjustment of property and
equipment and other intangible assets to fair value resulted in an increase in
amortization and depreciation of $1.6 million. Excluding the effect of the
impact of fresh start reporting, operating expenses decreased $10.0 million
(7.6%), reflecting the effect of six fewer reporting days than in the prior year
comparable period, the 10-unit decrease in Company-owned restaurants and
management's continued focus on cost controls.
Excluding the impact of the adoption of fresh start reporting, OPERATING INCOME
for the two quarters ended July 1, 1998 increased $0.5 million from the prior
year comparable period as a result of the factors noted above.
25
<PAGE>
Carrows
<TABLE>
Two Quarters Ended %
July 1, 1998 July 2, 1997 Increase/(Decrease)
------------ ------------ -------------------
($ in millions, except average unit and comparable store data)
<S> <C> <C> <C>
U.S. system wide sales $ 102.9 $ 109.7 (6.2)
========= ===========
Net company sales $ 93.8 $ 108.8 (13.8)
Franchise and licensing revenue 0.5 0.1 NM
--------- -----------
Total revenue 94.3 108.9 (13.4)
--------- -----------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 8.5 -- NM
Other 91.0 103.0 (11.7)
--------- -----------
Total operating expenses 99.5 103.0 (3.4)
--------- -----------
Operating (loss) income $ (5.2) $ 5.9 NM
========= ===========
Average unit sales
Company-owned $ 671,500 $ 688,900 (2.5)
Franchise $ 577,000 NM
Comparable store data (Company-owned)
Comparable store sales increase (decrease) (1.3%) (2.0%)
Average guest check $ 6.85 $ 6.44 6.4
NM = Not Meaningful
</TABLE>
Carrows' NET COMPANY SALES decreased $15.0 million (13.8%) for the two quarters
ended July 1, 1998 as compared to the prior year comparable period. The decrease
reflects a $3.8 million impact due to six fewer reporting days compared to the
prior year. The remaining decrease reflects a 19-unit decrease in the number of
Company-owned restaurants, 13 of which were converted to franchise units, and a
decrease in comparable store sales. The decrease in comparable store sales is
largely due to a decrease in customer traffic offset by an increase in average
guest check. The increase in average guest check resulted from menu price
increases instituted in July 1997 and February 1998 in response to minimum wage
increases. FRANCHISE REVENUE increased $0.4 million for the two quarters ended
July 1, 1998 as compared to the prior year comparable period. This increase
resulted from the addition of 17 franchised units over the prior year quarter.
Carrows' OPERATING EXPENSES for the two quarters ended July 1, 1998 decreased
$3.5 million compared to the prior year comparable period. The comparability of
1998 to 1997 operating results is significantly affected by the impact of the
adoption of fresh start reporting as of January 7, 1998. Specifically, the
amortization of reorganization value in excess of amounts allocable to
identifiable assets, which is over a five-year period, totaled $8.5 million for
the two quarters ended July 1, 1998. In addition, the adjustment of property and
equipment and other intangible assets to fair value resulted in an increase in
amortization and depreciation of $1.1 million. Excluding the effect of the
impact of fresh start reporting, operating expenses decreased $13.1 million
(12.7%), reflecting the effect of six fewer reporting days than in the prior
year comparable period, the 19-unit decrease in Company-owned restaurants and
management's continued focus on cost controls.
Excluding the impact of the adoption of fresh start reporting, OPERATING INCOME
for the two quarters ended July 1, 1998 decreased $1.5 million from the prior
year comparable quarter as a result of the factors noted above.
26
<PAGE>
El Pollo Loco
<TABLE>
Two Quarters Ended %
July 1, 1998 July 2, 1997 Increase/(Decrease)
---------------- ------------- -------------------
($ in millions, except average unit and comparable store data)
<S> <C> <C> <C>
U.S. system wide sales $ 118.4 $ 116.9 1.3
========== =========
Net company sales $ 57.1 $ 58.1 (1.7)
Franchise and licensing revenue 7.8 7.3 6.9
---------- ---------
Total revenue 64.9 65.4 (0.8)
---------- ---------
Operating expenses:
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 5.4 -- NM
Other 57.1 58.4 (2.2)
--------- ---------
Total operating expenses 62.5 58.4 7.0
--------- ---------
Operating income $ 2.4 $ 7.0 (65.7)
========= =========
Average unit sales
Company-owned $ 577,900 $ 611,800 (5.5)
Franchise $ 416,400 $ 443,000 (6.0)
Comparable store data (Company-owned)
Comparable store sales increase (decrease) (2.4%) (0.9%)
Average guest check $ 6.88 $ 6.69 2.8
NM = Not Meaningful
</TABLE>
El Pollo Loco's NET COMPANY SALES decreased $1.0 million (1.7%) during the two
quarters ended July 1, 1998 compared with the prior year comparable period. The
decrease includes a $2.3 million impact due to seven fewer reporting days in the
current period compared to last year . In addition, the decrease is attributable
to a decline in comparable store sales which reflects lower guest counts,
partially offset by an increase in the average guest check resulting from
increased menu pricing implemented in response to minimum wage increases. These
impacts were partially offset by added revenue attributed to the six-unit
increase in the number of Company-owned restaurants. FRANCHISE AND LICENSING
REVENUE increased by $0.5 million (6.9%) to $7.8 million, reflecting 11
additional franchised units in 1998 compared to 1997.
El Pollo Loco's OPERATING EXPENSES increased by $4.1 million compared to 1997.
The comparability of 1998 to 1997 operating results is significantly affected by
the impact of the adoption of fresh start reporting as of January 7, 1998.
Specifically, the amortization of reorganization value in excess of amounts
allocable to identifiable assets, which is over a five-year period, totaled $5.4
million for the 25 weeks ended July 1, 1998. In addition, the adjustment of
property and equipment and other intangible assets to fair value resulted in an
estimated increase in amortization and depreciation of approximately $1.3
million. Excluding the impact of fresh start accounting, operating expenses
decreased $2.6 million (4.5%) compared to 1997, reflecting fewer reporting days
in the current period and aggressive food cost controls. This decrease also
reflects a $0.7 million nonrecurring insurance recovery recorded in the current
year period as a reduction to operating expenses.
Excluding the impact of the adoption of fresh start reporting, El Pollo Loco's
OPERATING INCOME for the two quarters ended July 1, 1998 increased by $2.1
million compared to the prior year period as a result of the factors noted
above.
Liquidity and Capital Resources
On the Effective Date the Company entered into a credit agreement with The Chase
Manhattan Bank ("Chase") and other lenders named therein providing the Company
(excluding FRD Acquisition Co.) with a $200 million senior secured revolving
credit facility (the "Credit Facility"). In connection with the closing of the
sales of FEI and Quincy's, the Credit Facility was amended to accommodate the
sale transactions and in-substance defeasance associated with the FEI
disposition. In addition, the Credit Facility was amended to provide the Company
flexibility to reinvest the residual sales proceeds through additional capital
expenditures
27
<PAGE>
and/or strategic acquisitions, as well as to modify certain other covenants and
financial tests affected by the sale transactions. The commitments under the
Credit Facility were not reduced as a result of the FEI and Quincy's sales. At
July 1, 1998, Advantica had no outstanding working capital advances against the
Credit Facility; however, letters of credit outstanding were $57.5 million.
As of July 1, 1998 and December 31, 1997, the Company had working capital
deficits, exclusive of net assets held for sale, of $44.3 million and $230.2
million, respectively. The decrease in the deficit is attributable primarily to
an increase in cash and cash equivalents from the sales of FEI and Quincy's. As
discussed in further detail in Note 5 to the consolidated financial statements
included herein, on April 1, 1998 the Company sold FEI, receiving cash proceeds
of $380.8 million. Approximately $173.1 million of the proceeds (together with
$28.6 million already on deposit with respect to the Mortgage Financings) was
used to effect an in-substance defeasance of the Mortgage Financings. Together
with capital lease obligations assumed by the buyer, this resulted in a reduced
debt load for the Company. The remaining proceeds from the sale after
transaction expenses will increase the Company's short-term liquidity and be
available for capital expenditures, repurchase of public debt or acquisitions,
as appropriate. On June 10, 1998 the Company sold Quincy's, receiving cash
proceeds of approximately $80.5 million. The Company is able to operate with a
substantial working capital deficiency 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) accounts payable for food, beverages, and supplies usually
become due after the receipt of cash from related sales.
28
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The information required by this item is furnished by incorporation by reference
to the information regarding the material features of the Plan contained in Note
2 -- Reorganization, of the Notes to Consolidated Financial Statements in Item 1
of Part I of this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of Advantica was held on Thursday, June 18,
1998 at which meeting the following matters were voted on by the stockholders of
Advantica:
(i) Election of Directors
---------------------
Votes Against
Name Votes For or Withheld
---- --------- -----------
James B. Adamson 30,365,218 99,774
Robert H. Allen 30,357,397 107,595
Ronald E. Blaylock 30,359,221 105,771
Vera King Farris 30,357,681 107,311
James J. Gaffney 30,358,994 105,998
Irwin N. Gold 30,359,445 105,547
Robert E. Marks 30,359,445 105,547
Charles F. Moran 30,362,354 102,638
Elizabeth A. Sanders 30,357,953 107,039
Donald R. Shepherd 30,357,236 107,756
(ii) Ratification of the Selection of Auditors
-----------------------------------------
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
30,398,890 31,384 34,718
(iii) Approval of 1998 Incentive Compensation for the Company's employees
-------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Votes For Votes Against Votes Abstaining Broker Non-Votes
--------- ------------- ---------------- ----------------
25,816,902 1,521,520 63,599 3,062,971
(iv) Approval of 1998 Advantica Restaurant Group Officer Stock Option Plan
---------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C>
Votes For Votes Against Votes Abstaining Broker Non-Votes
--------- ------------- ---------------- ----------------
17,803,313 2,398,471 65,187 10,198,021
</TABLE>
(v) Approval of 1998 Advantica Restaurant Group Officer Director Stock
------------------------------------------------------------------
Option Plan
------ ----
29
<PAGE>
<TABLE>
<S> <C> <C> <C>
Votes For Votes Against Votes Abstaining Broker Non-Votes
--------- ------------- ---------------- ----------------
17,038,135 3,151,921 75,915 10,199,021
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following are included as exhibits to this report:
EXHIBIT
NO. DESCRIPTION
10.1 Amendment No. 2 and Waiver, dated as of May 21, 1998, relating to the
Credit Agreement, dated as of January 7, 1998, among certain Advantica
subsidiaries, as borrowers, Advantica, as a guarantor, the lenders
named therein, and The Chase Manhattan Bank, as administrative agent.
*10.2 Stock Purchase Agreement by and among Buckley Acquisition Corporation,
Spartan Holdings, Inc. and Advantica Restaurant Group, Inc., dated as
of May 13, 1998 (incorporated by reference to Exhibit 99.1 to
Advantica's Form 8-K filed June 25, 1998).
27 Financial Data Schedule
- -----------------------------------
* Certain of the exhibits to this Quarterly Report on Form 10-Q,
indicated by an asterisk, are hereby incorporated by reference to other
documents on file with the Commission with which they are physically
filed, to be a part hereof as of their respective dates.
b. On April 16, 1998, the Company filed a report on Form 8-K reporting
under Item 2. providing certain information under Item 2 (Acquisition
or Disposition of Assets) and Item 7 (Financial Statements and
Exhibits) thereof regarding the consummation of the sale of the capital
stock of FEI to CKE on April 1, 1998. Additionally, on June 25, 1998,
the Company filed a report on Form 8-K reporting certain information
under Item 2 (Acquisition or Disposition of Assets) and Item 7
(Financial Statements and Exhibits) thereof regarding the consummation
of the sale of the capital stock of Quincy's to BAC on June 10, 1998.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANTICA RESTAURANT GROUP, INC.
Date: August 17, 1998 By:__________________________
Rhonda J. Parish
Executive Vice President,
General Counsel and Secretary
Date: August 17, 1998 By:__________________________
Ronald B. Hutchison
Executive Vice President and
Chief Financial Officer
31
1
AMENDMENT NO. 2, dated as of May 21, 1998 (this
"AMENDMENT"), to the Credit Agreement dated as of January 7,
1998, as amended by Amendment No. 1 and Waiver dated as of
March 16, 1998 (the "CREDIT AGREEMENT"), among DENNY'S, INC.,
a California corporation, EL POLLO LOCO, INC., a Delaware
corporation, FLAGSTAR ENTERPRISES, INC., an Alabama
corporation, FLAGSTAR SYSTEMS, INC., a Delaware corporation,
QUINCY'S RESTAURANTS, INC., an Alabama corporation (each of
the foregoing, except for FLAGSTAR ENTERPRISES, INC.,
individually, a "BORROWER" and, collectively, the
"BORROWERS"), ADVANTICA RESTAURANT GROUP, INC., a Delaware
corporation ("PARENT"), the Lenders (as defined in Article I
of the Credit Agreement) and THE CHASE MANHATTAN BANK, a New
York banking corporation, as swingline lender (in such
capacity, the "SWINGLINE LENDER"), as issuing bank, as
administrative agent (in such capacity, the "ADMINISTRATIVE
AGENT") and as collateral agent (in such capacity, the
"COLLATERAL AGENT") for the Lenders.
A. The Lenders have extended credit to the Borrowers, and have
agreed to extend credit to the Borrowers, in each case pursuant to the terms and
subject to the conditions set forth in the Credit Agreement.
B. Parent and the Borrowers have requested that the Required Lenders
agree to amend certain provisions of the Credit Agreement as provided herein.
C. The Required Lenders are willing to agree to such amendments, on
the terms and subject to the conditions set forth herein.
D. Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and receipt
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendment. (a) Section 1.01 of the Credit Agreement is
----------
hereby amended as follows:
(i) by inserting the following definition in the appropriate
alphabetical order:
"'QUINCY'S SALE' shall have the meaning assigned to such term in
Section 6.05(i)."
(ii) by substituting for the proviso at the end of the definition of
the term "Consolidated EBITDA" before the period the following proviso:
"; provided, however, that (a) Consolidated EBITDA for each period
that includes the date of occurrence of the Enterprises Sale that
occurred on
<PAGE>
2
April 1, 1998, will, solely for purposes of determining compliance
with Sections 6.11, 6.12, 6.13 and 6.14, be determined on a pro
forma basis, as if Enterprises had been sold on the first day of
such period, (b) upon and after the occurrence of a Quincy's Sale,
Consolidated EBITDA for each period that includes the date of
occurrence of such Quincy's Sale will, solely for purposes of
determining compliance with Sections 6.11, 6.12, 6.13 and 6.14, be
determined on a pro forma basis, as if Quincy's had been sold on the
first day of such period, and (c) after the occurrence of any
acquisition of any person by Parent, any Borrower or any Specified
Subsidiary, Consolidated EBITDA for each period that includes the
date of occurrence of such acquisition will, solely for purposes of
determining compliance with Sections 6.11 and 6.12, be determined on
a pro forma basis, based on the actual historical results of
operations of such person, as if such acquisition had occurred on
the first day of such period";
(iii) by substituting for the last sentence of the definition of the
term "Consolidated Interest Expense" the following sentence:
"Notwithstanding the foregoing, (a) Consolidated Interest Expense
(i) for each period that includes the date of occurrence of the
Enterprises Sale that occurred on April 1, 1998, will, for all
purposes in this Agreement, be determined on a pro forma basis, as
if Enterprises had been sold and the SRT Defeasance had been
effected on the first day of such period and (ii) for each period
will, for all purposes in this Agreement, be determined without
regard to (A) interest expense in respect of the Spardee's Mortgage
Notes, the Quincy's Mortgage Notes and the SRT Bonds and (B)
interest income in respect of the Defeasance Eligible Investments
(as defined in the Real Estate Financing Documents), and (b) upon
and after the occurrence of a Quincy's Sale, Consolidated Interest
Expense for each period that includes the date of such Quincy's Sale
will, for all purposes in this Agreement, be determined on a pro
forma basis, as if Quincy's had been sold on the first day of such
period.";
(iv) by substituting for the last sentence of the definition of the
term "Consolidated Lease Expense" the following sentence:
"Notwithstanding the foregoing, (a) Consolidated Lease Expense for
each period that includes the date of occurrence of the Enterprises
Sale that occurred on April 1, 1998, will, for all purposes of this
Agreement, be determined on a pro forma basis, as if Enterprises had
been sold on the first day of such period, and (b) upon and after
the occurrence of a Quincy's Sale, Consolidated Lease Expense for
each period that includes the date of occurrence of such Quincy's
Sale will, for all purposes of this Agreement, be determined on a
pro forma basis, as if Quincy's had been sold on the first day of
such period.";
<PAGE>
3
(v) by substituting for the text beginning with the phrase ", MINUS"
and ending immediately before the period in the definition of the term
"Consolidated Total Debt" the following text:
", MINUS, for purposes of determining the Consolidated Total Debt
Ratio and Section 6.11, the lesser of (x) $170,000,000 PLUS, at any
time after a Quincy's Sale has occurred, $75,000,000, (y) the Net
Cash Proceeds of the Enterprises Sale that occurred on April 1, 1998
and such Quincy's Sale that have not previously been applied to
incur Consolidated Capital Expenditures (or investments in lieu
thereof permitted under Section 6.04(k)), pay Indebtedness, effect
the SRT Defeasance or make investments or for any other purpose and
(z) the aggregate amount of all cash and cash equivalents of Parent,
the Borrowers and the Specified Subsidiaries (excluding the
Defeasance Eligible Investments (as defined in the Real Estate
Financing Documents) acquired in connection with the SRT Defeasance)
that would be set forth on a consolidated balance sheet of Parent,
the Borrowers and the Specified Subsidiaries prepared as of such
date in accordance with GAAP";
(b) Section 6.05 of the Credit Agreement is hereby amended as
follows:
(i) by deleting the word "and" set forth at the end of Section
6.05(g); and
(ii) by inserting the following new Sections:
"(i) Spartan may sell all the capital stock of Quincy's (the
"QUINCY'S SALE") and, in connection therewith, Parent may assign,
license, sublicense, convey and deliver (the "INTELLECTUAL PROPERTY
SALE") the intellectual property specified in the Stock Purchase
Agreement among Buckley Acquisition Corporation, Spartan and Parent
dated as of May 13, 1998 (the "QUINCY'S STOCK PURCHASE AGREEMENT"),
provided that (i) at the time of the Quincy's Sale and the
Intellectual Property Sale and immediately after giving effect
thereto no Event of Default or Default shall have occurred and be
continuing, (ii) the Quincy's Sale and the Intellectual Property
Sale are consummated in accordance with the terms of the Quincy's
Stock Purchase Agreement (without giving effect to any amendments,
waivers, supplements or other modifications thereto that are adverse
to the Lenders) and applicable law and regulations and otherwise on
terms reasonably satisfactory to the Administrative Agent, and (iii)
Spartan and Parent shall have received gross cash proceeds in the
aggregate of not less than $81,495,724 (subject to adjustment as
provided in the Quincy's Stock Purchase Agreement) from the Quincy's
Sale and the Intellectual Property Sale; and
(j) any of Parent, any Borrower or any Specified Subsidiary may
effect any transaction permitted by Section 6.04(k);"
<PAGE>
4
(c) Section 6.10 of the Credit Agreement is hereby amended by
substituting for the final proviso thereof the following proviso:
", PROVIDED FURTHER, that, in addition to the Consolidated Capital
Expenditures (or investments in lieu thereof permitted under Section
6.04(k)) permitted to be incurred pursuant to the foregoing
provisions of this Section, Parent, the Borrowers and the Specified
Subsidiaries may from time to time incur Consolidated Capital
Expenditures (or investments in lieu thereof permitted under Section
6.04(k)) in an aggregate amount during the term of this Agreement
not to exceed the lesser of (a) $170,000,000 PLUS, at any time after
a Quincy's Sale has occurred, $75,000,000 and (b) the Net Cash
Proceeds of the Enterprises Sale that occurred on April 1, 1998, and
such Quincy's Sale that have not previously been applied to incur
Consolidated Capital Expenditures (or investments in lieu thereof
permitted under Section 6.04(k)), pay Indebtedness, effect the SRT
Defeasance or make investments or for any other purpose";
SECTION 2. Representations and Warranties. Parent and the Borrowers
-------------------------------
represent and warrant to the Administrative Agent and to each of the Lenders
that:
(a) This Amendment has been duly authorized, executed and delivered
by Parent and each of the Borrowers and constitutes their legal, valid and
binding obligations, enforceable in accordance with its terms except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors'
rights generally and by general principles of equity (regardless of
whether such enforceability is considered in a proceeding at law or in
equity).
(b) Before and after giving effect to this Amendment, the
representations and warranties set forth in Article III of the Credit
Agreement are true and correct in all material respects with the same
effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
(c) The execution, delivery and performance by Parent and each
necessary Loan Party of the Quincy's Stock Purchase Agreement, and the
completion of the Quincy's Sale and the Intellectual Property Sale (a)
have been duly authorized by all requisite corporate and, if required,
stockholder action and (b) will not (i) violate (A) any provision of law,
statute, rule or regulation, or of the certificate or articles of
incorporation or other constitutive documents or by-laws of Parent, any
Borrower or any Subsidiary, (B) any order of any Governmental Authority or
(C) any provision of any indenture, agreement or other instrument to which
Parent, any Borrower or any Subsidiary is a party or by which any of them
or any of their property is or may be bound or (ii) be in conflict with,
result in a breach of or constitute (alone or with notice or lapse of time
or both) a default under, or give rise to any right to accelerate or to
require the prepayment, repurchase or redemption of any obligation under
any such indenture, agreement or other instrument.
<PAGE>
5
(d) Before and after giving effect to this Amendment, no Event of
Default or Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Amendment shall become
----------------------------
effective as of the date first above written when the Administrative Agent shall
have received counterparts of this Amendment that, when taken together, bear the
signatures of Parent, each of the Borrowers and the Required Lenders.
SECTION 4. Credit Agreement. Except as specifically amended hereby,
-----------------
the Credit Agreement shall continue in full force and effect in accordance with
the provisions thereof as in existence on the date hereof. After the date
hereof, any reference to the Credit Agreement shall mean the Credit Agreement as
amended hereby.
SECTION 5. Loan Document. This Amendment shall be a Loan
-------------
Document for all purposes.
SECTION 6. APPLICABLE LAW. THIS AMENDMENT SHALL BE
---------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK.
SECTION 7. Counterparts. This Amendment may be executed in two or
------------
more counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one agreement. Delivery of an executed
counterpart of a signature page of this Amendment by telecopy shall be effective
as delivery of a manually executed counterpart of this Amendment.
SECTION 8. Expenses. Parent and the Borrowers agree to reimburse the
---------
Administrative Agent for its out-of-pocket expenses in connection with this
Amendment, including the reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their respective authorized officers as of the day and year
first written above.
ADVANTICA RESTAURANT GROUP, INC.,
by
------------------------------------
Name:
Title:
<PAGE>
6
DENNY'S, INC.,
by
-------------------------------------
Name:
Title:
EL POLLO LOCO, INC.,
by
--------------------------------------
Name:
Title:
QUINCY'S RESTAURANTS, INC.,
by
--------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
individually and as Administrative Agent,
Collateral Agent, Swingline Lender and Issuing Bank,
by
--------------------------------------
Name:
Title:
<PAGE>
7
SIGNATURE PAGE TO
AMENDMENT NO. 2,
DATED AS OF
May 21, 1998
To approve the Amendment:
Name of Institution ----------------------------------------------------------
by
------------------------------------------------------
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FLAGSTAR COMPANIES, INC. AS CONTAINED IN ITS FORM 10-Q
FOR THE 25 WEEKS ENDED JULY 1, 1998 AND IS QUALIFIED IN ITS ENTIRETY TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-30-1998
<PERIOD-START> JAN-8-1998
<PERIOD-END> JUL-1-1998
<CASH> 302,088
<SECURITIES> 0
<RECEIVABLES> 17,933
<ALLOWANCES> 4,435
<INVENTORY> 17,560
<CURRENT-ASSETS> 371,132
<PP&E> 774,552
<DEPRECIATION> 59,553
<TOTAL-ASSETS> 2,185,162
<CURRENT-LIABILITIES> 415,392
<BONDS> 1,145,161
0
0
<COMMON> 400
<OTHER-SE> 320,646
<TOTAL-LIABILITY-AND-EQUITY> 2,185,162
<SALES> 0
<TOTAL-REVENUES> 836,157
<CGS> 0
<TOTAL-COSTS> 871,261
<OTHER-EXPENSES> 1,135
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,624
<INCOME-PRETAX> (93,863)
<INCOME-TAX> 1000
<INCOME-CONTINUING> (94,863)
<DISCONTINUED> (1,507)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (96,370)
<EPS-PRIMARY> 2.41
<EPS-DILUTED> 2.41
</TABLE>
