UNITED STATES
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 March 29, 2000 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 May 12, 2000, 40,078,543 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>
<CAPTION>
Quarter Quarter
Ended Ended
March 29, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
(In thousands, except per share amounts)
Revenue:
Company restaurant sales $ 360,280 $ 369,038
Franchise and licensing revenue 18,094 15,240
--------- ---------
Total operating revenue 378,374 384,278
--------- ---------
Cost of company restaurant sales:
Product costs 94,830 99,253
Payroll and benefits 146,183 148,653
Occupancy 22,152 21,267
Other operating expenses 50,061 51,479
--------- ---------
Total costs of company restaurant sales 313,226 320,652
Franchise restaurant costs 8,065 7,465
General and administrative expenses 23,956 25,632
Amortization of reorganization value in excess of amounts
allocable to identifiable assets 15,491 31,917
Depreciation and other amortization 34,015 32,597
Restructuring and impairment charges 7,248 --
Gains on refranchising and other, net (4,678) (3,174)
--------- ---------
Total operating costs and expenses 397,323 415,089
--------- ---------
Operating loss (18,949) (30,811)
--------- ---------
Other expenses:
Interest expense, net 27,823 26,402
Other nonoperating (income) expenses, net (739) 1,155
--------- ---------
Total other expenses, net 27,084 27,557
--------- ---------
Loss before taxes (46,033) (58,368)
Provision for (benefit from) income taxes 442 (340)
--------- ---------
Loss from continuing operations (46,475) (58,028)
Discontinued operations:
Loss from operations of discontinued operations, net of
applicable income tax benefit of: 1999 -- $0 -- (3,652)
--------- ---------
Net loss applicable to common shareholders $ (46,475) $ (61,680)
========= =========
</TABLE>
See accompanying notes
2
<PAGE>
Advantica Restaurant Group, Inc
Statements of Consolidated Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
March 29,2000 March 31, 1999
------------- --------------
<S> <C> <C>
(In thousands, except per share amounts)
Per share amounts applicable to common shareholders:
Basic earnings per share:
Loss from continuing operations $ (1.16) $ (1.45)
Loss from discontinued operations, net -- (0.09)
---------- ----------
Net loss $ (1.16) $ (1.54)
========== ==========
Average outstanding shares 40,063 40,020
========== ==========
Diluted earnings per share:
Loss from continuing operations $ (1.16) $ (1.45)
Loss from discontinued operations, net -- (0.09)
---------- ----------
Net loss $ (1.16) $ (1.54)
========== ==========
Average outstanding shares and equivalent common shares, 40,063 40,020
unless antidilutive ========== ==========
</TABLE>
See accompanying notes
3
<PAGE>
Advantica Restaurant Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 29, 2000 December 29, 1999
-------------- -----------------
<S> <C> <C>
(In thousands)
Assets
Current Assets:
Cash and cash equivalents $ 68,973 $ 174,226
Investments 2,705 17,084
Receivables, less allowance for doubtful accounts of:
2000 --$3,335; 1999 -- $3,601 22,035 21,711
Inventories 14,635 14,948
Other 12,840 12,647
Restricted investments securing in-substance defeased debt 158,710 158,710
----------- -----------
279,898 399,326
----------- -----------
Property 838,878 832,207
Less accumulated depreciation 235,263 209,602
----------- -----------
603,615 622,605
----------- -----------
Other Assets:
Reorganization value in excess of amounts allocable to
identifiable assets, net of accumulated amortization of:
2000 -- $253,842; 1999 -- $238,566 167,233 182,722
Goodwill, net of accumulated amortization of:
2000 -- $1,283; 1999 -- $1,075 19,655 16,758
Other intangible assets, net of accumulated amortization of:
2000 -- $15,819; 1999 -- $20,641 165,757 170,919
Deferred financing costs, net 17,861 19,946
Other 51,849 55,823
----------- -----------
Total Assets $ 1,305,868 $ 1,468,099
=========== ===========
Liabilities
Current Liabilities:
Current maturities of notes and debentures 107,504 $ 164,811
Current maturities of capital lease obligations 15,165 15,384
Current maturities of in-substance defeased debt 156,826 158,731
Accounts payable 70,004 93,368
Accrued salaries and vacations 40,254 40,524
Accrued insurance 22,949 23,412
Accrued taxes 17,082 19,307
Accrued interest 25,059 43,465
Other 69,494 74,408
----------- -----------
524,337 633,410
----------- -----------
Long-Term Liabilities:
Notes and debentures, less current maturities 751,975 753,047
Capital lease obligations, less current maturities 66,568 69,481
Deferred income taxes -- --
Liability for insurance claims 35,227 34,525
Other noncurrent liabilities and deferred credits 119,990 123,476
----------- -----------
973,760 980,529
----------- -----------
Total Liabilities 1,498,097 1,613,939
----------- -----------
Shareholders' Deficit (192,229) (145,840)
----------- -----------
Total Liabilities and Shareholders' Deficit $ 1,305,868 $ 1,468,099
=========== ===========
</TABLE>
See accompanying notes
4
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
March 29, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
(In thousands)
Cash Flows from Operating Activities:
Net (loss) income $(46,475) $(61,680)
Adjustments to reconcile net loss to cash flows from
operating activities:
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 15,491 31,917
Depreciation and other amortization 34,015 32,597
Restructuring and impairment charges 7,248 --
Amortization of deferred gains (3,364) (2,637)
Amortization of deferred financing costs 1,834 1,876
Deferred income tax benefit -- (750)
Gains on refranchising and other, net (4,678) (3,174)
Equity in (income) loss from discontinued operations, net -- 3,652
Amortization of debt premium (3,765) (3,662)
Other (173) (48)
Changes in Assets and Liabilities Net of Effects of
Acquisition and Dispositions:
Decrease (increase) in assets:
Receivables 1,990 (438)
Inventories 197 308
Other current assets (1,300) (534)
Other assets (676) (837)
Increase (decrease) in liabilities:
Accounts payable (1,098) (5,039)
Accrued salaries and vacations (270) (6,907)
Accrued taxes (2,246) (2,103)
Other accrued liabilities (26,215) (21,898)
Other noncurrent liabilities and deferred credits (1,058) 139
-------- --------
Net cash flows (used in) from operating activities (30,543) (39,218)
-------- --------
Cash Flows from Investing Activities:
Purchase of property (10,336) (11,309)
Acquisition of restaurant units (3,422) (10,853)
Proceeds from disposition of property 4,098 3,016
(Advances to) receipts from discontinued operations, net -- (1,339)
Purchase of investments -- (22,933)
Proceeds from sale and maturity of investments 14,379 26,628
-------- --------
Net cash flows (used in) provided by investing activities 4,719 (16,790)
-------- --------
</TABLE>
See accompanying notes
5
<PAGE>
Advantica Restaurant Group, Inc.
Statements of Consolidated Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
March 29, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
(In thousands)
Cash Flows from Financing Activities:
Net borrowings under credit agreements $ 5,000 $ 7,200
Long-term debt payments (64,527) (26,117)
Debt transaction costs (506) (350)
Bank overdrafts (19,396) 1,116
--------- ---------
Net cash flows used in financing activities (79,429) (18,151)
--------- ---------
Increase (decrease) in cash and cash equivalents (105,253) (74,159)
Cash and Cash Equivalents at:
Beginning of period 174,226 164,024
--------- ---------
End of period $ 68,973 $ 89,865
========= =========
</TABLE>
See accompanying notes
6
<PAGE>
ADVANTICA RESTAURANT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 29, 2000
(UNAUDITED)
Note 1. General
Advantica Restaurant Group, Inc. ("Advantica" or, together with its subsidiaries
including predecessors, the "Company"), through its wholly owned subsidiaries,
Denny's Holdings, Inc. and FRD Acquisition Co. ("FRD") (and their respective
subsidiaries), owns and operates the Denny's, Coco's and Carrows restaurant
brands. On December 29, 1999, the Company consummated the sale of its wholly
owned subsidiary, El Pollo Loco, Inc. ("EPL"). The Statements of Consolidated
Operations and Cash Flows presented herein have been reclassified for the
quarter ended March 31, 1999 to reflect EPL 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" ("APB 30").
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
29, 1999 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. 1999 Annual Report on Form 10-K. The results of
operations for the quarter ended March 29, 2000 are not necessarily indicative
of the results for the entire fiscal year ending December 27, 2000.
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Note 2. Debt
On or prior to July 12, 2000, the Company is required to repay or refinance the
$160 million mortgage notes secured by a pool of cross-collateralized mortgages
on the land, buildings, equipment and improvements of 239 Denny's restaurant
properties (the "Denny's Mortgage Notes"). During the first quarter of 2000, the
Company repurchased $60 million aggregate principal of the Denny's Mortgage
Notes. The Company intends, through a combination of cash and short-term
investments on hand and available debt capacity, to repay the remaining $100
million balance of the Denny's Mortgage Notes on or before the scheduled
maturity.
Advantica's $200 million senior secured revolving credit facility due 2003 (as
amended to date, the "Credit Facility"), was subject to early termination on
March 31, 2000 if (a) the Company had not refinanced the Denny's Mortgage Notes
on terms acceptable to the lenders and (b) either (1) the Company had not
deposited funds with The Chase Manhattan Bank ("Chase") equal to at least the
face amount of the Denny's Mortgage Notes outstanding on that date (which
deposit balance shall be maintained until the Denny's Mortgage Notes are
redeemed or repaid in full) or (2) the aggregate principal amount of outstanding
loans and letters of credit under the Credit Facility exceeded $150 million on
or before March 31, 2000. On March 31, 2000 (subsequent to the end of the
quarter), the Company deposited the required $100 million balance with Chase
through the use of a combination of cash and available debt capacity, and
thereby has maintained the Credit Facility in effect and available to the
Company.
7
<PAGE>
Note 3. Restructuring and Impairment
In late 1999, the Company's management and Board began an extensive review of
the Company's operations and structure. Based on its review, in February 2000
the Company announced that its strategic direction would focus primarily on its
Denny's brand. At that time, management began the implementation of a
restructuring plan focused primarily on (1) streamlining its overhead structure
by merging corporate administrative functions with the Denny's organization and
(2) becoming a more franchised-based operation by refranchising a significant
number of its Denny's units over the next several years.
The implementation of the restructuring plan during the first quarter of 2000
involved a reduction of personnel related to the corporate reorganization and
the identification of units for closure. Fifty employees in the Company's
corporate offices were terminated as a result of the plan. Additionally, an
impairment charge was recorded for certain acquired software costs and
capitalized construction costs which became obsolete as a result of the
cancellation of projects identified through the review.
Charges attributable to the restructuring plan for the quarter ended March 29,
2000 are comprised of the following:
Restructuring:
Severance and outplacement costs $ 3,713
Operating lease liabilities for closed stores 909
--------
4,622
--------
Impairment:
Acquired software costs 1,896
Capitalized construction costs 730
--------
2,626
--------
$ 7,248
========
Approximately $5.1 million of the restructuring and impairment charges represent
cash charges of which approximately $1.8 million was paid through March 29,
2000.
Note 4. Comprehensive Income (Loss)
The Company's comprehensive income (loss) for the periods indicated is as
follows:
Quarter Quarter
Ended Ended
March 29, 2000 March 31, 1999
-------------- --------------
(In thousands)
Net loss $(46,475) $(61,680)
Other comprehensive income:
Foreign currency translation adjustment 5 (9)
-------- --------
Comprehensive income (loss) $(46,470) $(61,689)
======== ========
8
<PAGE>
Note 5. Earnings Per Share Applicable to Common Shareholders
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Quarter Quarter
Ended Ended
March 29, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
(In thousands, except per share amounts)
Numerator:
Numerator for basic (loss) earnings per share --
(loss) income from continuing operations
available to common shareholders $ (46,475) $ (58,028)
Effect of dilutive securities --- ---
--------- ---------
Numerator for diluted (loss) earnings per share --
(loss) income from continuing operations
available to common shareholders $ (46,475) $ (58,028)
========= =========
Denominator:
Denominator for basic earnings per share --
weighted average shares 40,063 40,020
Dilutive potential common shares -- --
--------- ---------
Denominator for diluted (loss) earnings per
share 40,063 40,020
========= =========
Basic (loss) earnings per share from
continuing operations $ (1.16) $ (1.45)
========= =========
Diluted (loss) earnings per share from $ (1.16) $ (1.45)
continuing operations ========= =========
</TABLE>
The calculations of basic and diluted loss per share have been based on the
weighted average number of Advantica shares outstanding. Because of the loss
from continuing operations for the quarters ended March 29, 2000 and March 31,
1999, warrants and options of the Company have been omitted from the calculation
of weighted average dilutive shares.
Note 6. Segment Information
The Company operates three restaurant concepts -- Denny's, Coco's and Carrows --
and each concept is considered a reportable segment. The "Corporate and other"
segment consists primarily of corporate operations.
Advantica evaluates performance based on several factors, of which the primary
financial measure is business segment operating income before interest, taxes,
depreciation, amortization and charges for restructuring and impairment ("EBITDA
as defined"). EBITDA as defined is a key internal measure used to evaluate the
amount of cash flow available for debt repayment and funding of additional
investments. EBITDA as defined 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 as defined may not be comparable to
similarly titled measures reported by other companies.
9
<PAGE>
Quarter Quarter
Ended Ended
March 29, 2000 March 31,1999
-------------- -------------
(In millions)
REVENUE
Denny's $ 282.9 $ 288.5
Coco's 55.6 54.8
Carrows 39.1 40.2
Corporate and other 0.8 0.8
-------- --------
Total consolidated revenue $ 378.4 $ 384.3
======== ========
EBITDA AS DEFINED
Denny's $ 37.4 $ 35.6
Coco's 5.5 5.5
Carrows 3.4 2.5
Corporate and other (8.5) (9.9)
-------- --------
Total consolidated EBITDA as defined 37.8 33.7
Depreciation and amortization expense (49.5) (64.5)
Restructuring and impairment charges (7.2) --
Other expenses:
Interest expense, net (27.8) (26.4)
Other, net 0.7 (1.2)
-------- --------
Consolidated loss from continuing operations $ (46.0) $ (58.4)
before income taxes ======== ========
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 March 29, 2000 and the results of operations for the
quarter ended March 29, 2000 as compared to the quarter ended March 31, 1999.
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 and 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;
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 Management's Discussion and Analysis of Financial
Condition and Result of Operations contained in the Company's Annual Report on
Form 10-K for the year ended December 29, 1999 and in Exhibit 99.1 thereto.
10
<PAGE>
RESULTS OF OPERATIONS
Quarter Ended March 29, 2000 Compared to Quarter Ended March 31, 1999
- ---------------------------------------------------------------------
The Company's CONSOLIDATED REVENUE for the first quarter of 2000 decreased $5.9
million (1.5%) compared to the first quarter of 1999. Denny's, Coco's and
Carrows all experienced same-store sales increases for the quarter; however,
Company restaurant sales decreased $8.8 million primarily due to an 81-unit
decrease in Company-owned restaurants, consistent with the Company's strategy to
reduce its portfolio of Company-owned Denny's restaurants through refranchising.
Franchise and licensing revenue increased $2.9 million, primarily attributable
to a net 105-unit increase in franchised and licensed units.
CONSOLIDATED OPERATING EXPENSES decreased $17.8 million (4.3%) compared to the
prior year quarter. Excluding the impact of a $16.4 million decrease in
amortization of excess reorganization value, $7.2 million of restructuring and
impairment charges in the current year quarter and a $1.5 million increase in
refranchising gains, operating expenses decreased $7.1 million. The majority of
this decrease represents a reduction in the costs of Company restaurant sales
driven by the decrease in the number of Company-owned restaurants. As a
percentage of Company restaurant sales, lower food costs, primarily reflecting
the effect of a higher guest check average, were offset by slightly higher
payroll and occupancy costs. Increased franchise restaurant costs were driven by
the increase in the number of franchised units; nevertheless, franchise margins
increased due to strong revenue growth. General and administrative expenses
benefited from reduced corporate overhead costs. Additionally, depreciation and
other amortization increased from the net addition of assets throughout 1999
related to the Denny's Diner reimage program. The decrease in amortization of
excess reorganization value from the prior year quarter resulted from an
impairment charge to reorganization value recorded in the fourth quarter of
1999.
During the first quarter of 2000, the Company announced a restructuring plan as
a result of an extensive review of the Company's operations and structure
completed in early 2000. The plan's implementation during the first quarter
involved a reduction of personnel related to the corporate reorganization and
the identification of units for closure. Consequently, the Company recorded
approximately $3.7 million of severance and outplacement costs and $0.9 million
of operating lease liabilities for closed stores as a result of the plan.
Additionally, a $2.6 million impairment charge was recorded related to certain
acquired software and capitalized construction costs which became obsolete as a
result of the cancellation of projects identified as part of the plan.
The Company's consolidated EBITDA AS DEFINED increased $4.1 million (12.2%)
compared to the prior year quarter. This increase is a result of the factors
noted in the preceding paragraphs, excluding the restructuring and impairment
charges and the change in depreciation and amortization expense.
CONSOLIDATED OPERATING LOSS decreased $11.9 million compared to the 1999
comparable quarter as a result of the factors noted above.
CONSOLIDATED INTEREST EXPENSE, NET, totaled $27.8 million for the first quarter
of 2000, an increase of $1.4 million compared to the prior year quarter.
Excluding the effect of $1.9 million of interest expense allocated to
discontinued operations in the prior year quarter, interest expense, net,
decreased $0.5 million. This decrease in interest expense, net, resulted
primarily from reduced debt balances due to the repurchase in April 1999 of $20
million of Advantica's 11 1/4 % Senior Notes due 2008 and to the repurchase of
$60 million of Denny's Mortgage Notes in the first quarter of 2000, offset by a
decrease in interest income as a result of lower cash and investment balances.
The PROVISION FOR (BENEFIT FROM) INCOME TAXES from continuing operations for the
quarter ended March 29, 2000 has been computed based on management's estimate of
the annual effective income tax rate applied to loss before taxes. The
11
<PAGE>
Company recorded an income tax provision reflecting an approximate rate of 1.0%
for the quarter ended March 29, 2000 compared to an income tax benefit
reflecting an approximate rate of (0.6)% for the quarter ended March 31, 1999.
The Statements of Consolidated Operations and Cash Flows presented herein have
been reclassified for the quarter ended March 31, 1999 to reflect EPL as
DISCONTINUED OPERATIONS in accordance with APB 30. Revenue and operating loss of
the discontinued operations for the quarter ended March 31, 1999 were $32.4
million and $3.7 million, respectively.
NET LOSS was $46.5 million for first quarter of 2000 compared to a net loss of
$61.7 million for the first quarter of 1999, primarily as a result of the
factors discussed above.
Restaurant Operations:
- ----------------------
The table below summarizes restaurant unit activity for the quarter ended March
29, 2000.
<TABLE>
<CAPTION>
Ending Units Net Units Ending Ending
Units Opened/ Units Sold/ Units Units
12/29/99 Acquired Refranchised Closed 3/29/00 3/31/99
-------- -------- ------------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Denny's
Company-owned units 835 1 (10) (4) 822 894
Franchised units 930 11 10 (13) 938 840
Licensed units 19 -- -- (1) 18 18
------ ------ ------ ------ ------ ------
1,784 12 -- (18) 1,778 1,752
Coco's
Company-owned units 148 -- -- (2) 146 150
Franchised units 34 1 -- (1) 34 33
Licensed units 303 -- -- (1) 302 298
------ ------ ------ ------ ------ ------
485 1 -- (4) 482 481
Carrows
Company-owned units 117 -- -- -- 117 122
Franchised units 28 -- -- -- 28 26
------ ------ ------ ------ ------ ------
145 -- -- -- 145 148
------ ------ ------ ------ ------ ------
2,414 13 -- (22) 2,405 2,381
====== ====== ====== ====== ====== ======
</TABLE>
12
<PAGE>
Denny's
- -------
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------- %
March 29, 2000 March 31, 1999 Increase/(Decrease)
-------------- -------------- -------------------
<S> <C> <C> <C>
($ in millions, except average unit data)
U.S. systemwide sales $ 517.5 $ 491.2 5.4
========= =========
Net company sales $ 266.8 $ 275.3 (3.1)
Franchise and licensing revenue 16.1 13.2 22.0
--------- ---------
Total revenue 282.9 288.5 (1.9)
--------- ---------
Operating expenses:
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 10.6 20.2 (47.5)
Other 273.9 275.1 (0.4)
--------- ---------
Total operating expenses 284.5 295.3 (3.7)
--------- ---------
Operating loss $ (1.6) $ (6.8) (76.5)
========= =========
EBITDA as defined $ 37.4 $ 35.6 5.1
Average unit sales:
Company-owned 323,000 313,800 2.9
Franchise 276,500 264,200 4.7
Same-store sales increase (Company-owned) 2.0% 3.6%
</TABLE>
Denny's NET COMPANY SALES for the first quarter of 2000 decreased $8.5 million
(3.1%) compared to the first quarter of 1999. The decrease results primarily
from the impact of fewer Company-owned restaurants, which reflects the Company's
strategy to reduce its portfolio of Company-owned restaurants. This decrease was
offset by an increase in same-store sales which was driven primarily by a higher
guest check average. The average guest check increased as a result of menu mix
gains from the successful promotion of higher-priced menu items and from price
increases implemented in 1999. FRANCHISE AND LICENSING REVENUE increased $2.9
million (22.0%), primarily attributable to the increase of franchised units over
the prior year quarter.
Denny's OPERATING EXPENSES decreased $10.8 million (3.7%) compared to the prior
year quarter. Excluding the impact of a $9.6 million decrease in amortization of
excess reorganization value, $4.0 million of restructuring and impairment
charges in the current year quarter, and a $1.5 million increase in
refranchising gains, operating expenses decreased $3.7 million. This cost
decrease is primarily driven by the decrease in the number of Company-owned
restaurants. As a percentage of Company restaurant sales, lower food costs,
primarily reflecting the effect of a higher guest check average, partially
offset slightly higher payroll and occupancy costs. The decrease in operating
expenses was offset by increases in franchise restaurant costs and depreciation
and amortization expense. Increased franchise restaurant costs resulted from the
increase in the number of franchised units. Additionally, depreciation and other
amortization increased from the net addition of assets throughout 1999 related
to the Denny's Diner reimage program. The decrease in amortization of excess
reorganization value from the prior year quarter resulted from an impairment
charge to reorganization value recorded in the fourth quarter of 1999.
EBITDA AS DEFINED increased $1.8 million (5.1%) compared to the prior year
quarter as a result of the factors noted in the preceding paragraphs, excluding
the restructuring and impairment charges and the change in depreciation and
amortization expense.
Denny's OPERATING LOSS decreased $5.2 million compared to the prior year quarter
as a result of the factors noted above.
13
<PAGE>
Coco's
- ------
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------- %
March 29, 2000 March 31, 1999 Increase/(Decrease)
-------------- -------------- -------------------
<S> <C> <C> <C>
U.S. systemwide sales $ 65.8 $ 63.5 3.6
======== ========
Net company sales $ 54.2 $ 53.4 1.5
Franchise and licensing revenue 1.4 1.4 ---
-------- --------
Total revenue 55.6 54.8 1.5
-------- --------
Operating expenses:
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 2.5 5.3 (52.8)
Other 54.3 54.0 0.6
-------- --------
Total operating expenses 56.8 59.3 (4.2)
-------- --------
Operating loss $ (1.2) $ (4.5) (73.3)
======== ========
EBITDA as defined $ 5.5 $ 5.5 ---
Average unit sales:
Company-owned 374,100 358,000 4.5
Franchised 338,700 311,400 8.8
Same-store sales increase (decrease) (Company-owned) 3.3% (7.8)%
</TABLE>
Coco's NET COMPANY SALES for the first quarter of 2000 increased $0.8 million
(1.5%) compared to the prior year quarter. The increase is the result of a 3.3%
increase in same-store sales partially offset by a decrease in the number of
Company- owned units. FRANCHISE AND LICENSING REVENUE remained flat compared to
the prior year quarter.
Coco's OPERATING EXPENSES decreased $2.5 million (4.2%) compared to the prior
year quarter. Excluding the impact of a $2.8 million decrease in amortization of
excess reorganization value and a $0.6 million decrease in depreciation and
other amortization, operating expenses increased $0.9 million over the prior
year quarter. This increase primarily reflects an increase in occupancy and
general and administrative costs. The decrease in amortization of excess
reorganization value from the prior year quarter resulted from an impairment
charge to reorganization value recorded in the fourth quarter of 1999.
EBITDA AS DEFINED was unchanged from the prior year quarter as a result of the
factors noted in the preceding paragraphs, excluding the decrease in
depreciation and amortization expense.
Coco's OPERATING LOSS decreased $3.3 million compared to the prior year quarter
as a result of the factors noted above.
14
<PAGE>
Carrows
- -------
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------- %
March 29, 2000 March 31, 1999 Increase/(Decrease)
-------------- -------------- -------------------
<S> <C> <C> <C>
U.S. systemwide sales $ 45.9 $ 46.4 (1.1)
======== ========
Net company sales $ 38.5 $ 39.6 (2.8)
Franchise revenue 0.6 0.6 ---
-------- --------
Total revenue 39.1 40.2 (2.7)
-------- --------
Operating expenses:
Amortization of reorganization value in excess of
amounts allocable to identifiable assets 2.2 4.5 (51.1)
Other 38.5 41.1 (6.3)
-------- --------
Total operating expenses 40.7 45.6 (10.7)
-------- --------
Operating loss $ (1.6) $ (5.4) (70.4)
======== ========
EBITDA as defined $ 3.4 $ 2.5 36.0
Average unit sales:
Company-owned 327,300 327,200 ---
Franchise 263,300 263,400 ---
Same-store sales increase (decrease) (Company-owned) 0.2% (3.6)%
</TABLE>
Carrows' NET COMPANY SALES for the first quarter of 2000 decreased $1.1 million
(2.8%) compared to the prior year quarter. The decrease reflects the impact of
fewer Company-owned units over the prior year quarter, partially offset by a
0.2% increase in same-store sales over the prior year quarter. FRANCHISE REVENUE
remained flat over the prior year quarter.
Carrows' OPERATING EXPENSES decreased $4.9 million (10.7%) compared to the prior
year quarter. Excluding the impact of a $2.3 million decrease in amortization of
excess reorganization value and a $0.7 million decrease in depreciation and
other amortization, operating expenses decreased $1.9 million over the prior
year quarter. This decrease primarily reflects the impact of fewer Company-owned
units and effective cost management. The decrease in amortization of excess
reorganization value from the prior year quarter resulted from an impairment
charge to reorganization value recorded in the fourth quarter of 1999.
EBITDA AS DEFINED increased $0.9 million (36.0%) compared to the prior year
quarter as a result of the factors noted in the preceding paragraphs, excluding
the decrease in depreciation and amortization expense.
Carrows' OPERATING LOSS decreased $3.8 million compared to the prior year
quarter as a result of the factors noted above.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On or prior to July 12, 2000, the Company is required to repay or refinance the
$160 million Denny's Mortgage Notes. During the first quarter of 2000, the
Company repurchased $60 million aggregate principal of the Denny's Mortgage
Notes. The Company intends, through a combination of cash and short-term
investments on hand and available debt capacity, to repay the remaining $100
million balance of the Denny's Mortgage Notes on or before the scheduled
maturity.
Advantica's Credit Facility was subject to early termination on March 31, 2000
if (a) the Company had not refinanced the Denny's Mortgage Notes on terms
acceptable to the lenders and (b) either (1) the Company had not deposited funds
with Chase equal to at least the face amount of the Denny's Mortgage Notes
outstanding on that date (which deposit balance shall be maintained until the
Denny's Mortgage Notes are redeemed or repaid in full) or (2) the aggregate
principal amount of outstanding loans and letters of credit under the Credit
Facility exceeded $150 million on or before March 31, 2000. On March 31, 2000
(subsequent to the end of the quarter), the Company deposited the required $100
million balance with Chase through the use of a combination of cash and
available debt capacity, and thereby has maintained the Credit Facility in
effect and available to the Company. At March 29, 2000, Advantica had no
outstanding working capital advances against the Credit Facility; however,
letters of credit outstanding were $50.7 million.
On May 14, 1999, FRD and certain of its operating subsidiaries entered into a
new credit agreement (the "New FRD Credit Facility") to replace a prior facility
scheduled to mature in August 1999. The New FRD Credit Facility, which is
guaranteed by Advantica, consists of a $30 million term loan and a $40 million
revolving credit facility and matures in May 2003. Such facility is unavailable
to Advantica and its other subsidiaries. At March 29, 2000, FRD and its
subsidiaries had $30.0 million outstanding term loan borrowings, $5.0 million
working capital borrowings and letters of credit outstanding of $11.1 million.
As of March 29, 2000 and December 29, 1999, the Company had working capital
deficits of $244.4 million and $234.1 million, respectively. The increase in the
deficit is attributable primarily to the purchase of assets and restaurant units
during the first quarter of 2000. The Company is able to operate with a
substantial working capital deficit because: (1) restaurant operations are
conducted primarily on a cash (and cash equivalent) basis with a low level of
accounts receivable, (2) rapid turnover allows a limited investment in
inventories and (3) accounts payable for food, beverages, and supplies usually
become due after the receipt of cash from related sales.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's market risk exposure at March 29, 2000 is consistent with the
types of market risk and amount of exposure presented in its Annual Report on
Form 10-K for the year ended December 29, 1999.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. The following are included as exhibits to this report:
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.1 Addendum Agreement, dated April 7, 2000, between Advantica and James B.
Adamson.
10.2 Form of Agreement, dated February 9, 2000, providing certain retention
incentives and severance benefits for Company management.
27 Financial Data Schedule.
- ----------------------------
b. No reports on Form 8-K were filed during the first quarter ended
March 29, 2000.
17
<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: May 12, 2000 By: /s/ Rhonda J. Parish
------------------------------------
Rhonda J. Parish
Executive Vice President,
General Counsel and Secretary
Date: May 12, 2000 By: /s/ Ronald B. Hutchison
------------------------------------
Ronald B. Hutchison
Executive Vice President and
Chief Financial Officer
18
<PAGE>
ADDENDUM AGREEMENT
THIS AGREEMENT (the "Agreement"), made this 7th day of April,
2000, is entered into by and between Advantica Restaurant
Group, Inc. (the "Company") and Mr. James B. Adamson (the
"Executive").
WHEREAS the Company and the Executive are parties to a certain
Employment Agreement, as amended and restated on January 7,
1998 (the "Employment Agreement");
WHEREAS the parties desire to establish a two year term
of the Employment Agreement commencing January 1, 2000; and
WHEREAS in consideration of the obligations of the Executive
under the Employment Agreement, as amended hereby, the Company
wishes to provide the Executive additional incentive
compensation opportunities as an inducement for the Executive
to remain in the Company's employ for the two year term and to
forego other potential employment opportunities, which, if
accepted, would be likely to impede the Company's ability to
immediately undertake and timely complete the necessary
strategic business changes and initiatives;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are
hereby acknowledged by the parties hereto, the Company and the
Executive agree as follows:
1. EMPLOYMENT TERM. Section 1 of the Employment Agreement is
hereby amended to provide that the Employment Term (as defined in the Employment
Agreement) shall commence on January 1, 2000 and expire on the second
anniversary thereof (the "Second Anniversary").
<PAGE>
2. DUTIES. Section 2 of the Employment Agreement is hereby
amended to provide that during the Employment Term, the Executive shall, in
addition to the duties described therein, serve as the Chief Executive Officer
and President of Denny's, Inc.
3. CERTAIN TERMINATION WITHOUT CAUSE. The parties hereby
acknowledge and agree that for purposes of Section 5(c)(iii)(A) of the
Employment Agreement, neither (i) the implementation by the Company of the
strategic initiatives set forth in the report provided by McKinsey & Company,
dated January 26, 2000 and the Executive's performance of duties in accordance
therewith, nor (ii) the appointment by the Company of a non-executive Chairman
of the Board (which shall occur only if the Board and the Executive mutually
agree that such an appointment is necessary), shall constitute a breach by the
Company of a material provision of the Employment Agreement, or a change by the
Company of the Executive's title, duties or responsibilities as Chairman of the
Board and Chief Executive Officer of the Company without his consent.
4. OTHER PROVISIONS. Except as described in Sections 1, 2, and
3 of this Agreement, in all other respects, the terms and conditions of the
Employment Agreement shall remain in full force and effect.
5. GREENVILLE, SC RESIDENCE. The Company shall within 10
business days after the earliest to occur of (a) the Second Anniversary of this
Agreement, if the Executive is an employee of the Company on such date, (b) the
termination of the Executive's employment without Cause (as defined in the
Employment Agreement and as amended by Section 3 hereof), or (c) the Company's
relocation of its headquarters outside of Spartanburg, SC, purchase from
the Executive the residence located at 2110 Cleveland Street Extension,
Greenville, SC (the "Greenville Residence") for $1,500,000 cash, payable in a
lump sum. This sum represents the actual costs Adamson paid to purchase the
Greenville Residence (including purchase price for land and partially-completed
<PAGE>
residence building as well as completion of residence building). The Company
shall have no obligations under this Section 5 if none of the events set forth
in clauses (a), (b), and (c) occurs.
6. CHARLESTON, SC RESIDENCE.
6.1 APPRAISAL. The Company shall as soon as possible after
the date hereof retain, at its own expense, two independent real estate
appraisal firms reasonably acceptable to the Executive to appraise the value of
Executive's residence located at 71 E. Bay Street, Charleston, SC (the
"Charleston Residence"). Within 30 business days of completion of such
appraisals, the Company shall cause the Charleston Residence to be purchased
from the Executive for cash in the amount set forth immediately below.
6.2 PURCHASE PRICE. The purchase price shall be $1,300,000.
7. RELOCATION GENERALLY. If during the Employment Term, the
Company relocates its headquarters outside of Spartanburg, SC, the Company shall
pay for all reasonable expenses incurred by Executive for his personal move in
connection therewith under the terms of and in accordance with the then
applicable relocation policy of the Company. If the Executive's employment is
terminated by the Company without Cause (as defined above), the Company shall
pay to the Executive all reasonable expenses incurred by him in connection with
moving his personal belongings from the location of the Company's headquarters
and the Greenville Residence to such other location in the continental United
States as the Executive designates. The Company shall have no obligations under
this Section 7 if neither of the events set forth in this Section 7 occurs.
8. BONUS
8.1 SUCCESS BONUSES. (a) During the Employment Term, the
Company shall pay to the Executive periodic success bonuses (any such payment a
<PAGE>
"Success Bonus") upon the completion of certain strategic initiatives at the
times and in the manner set forth on Appendix A. The Company and the
Executive have mutually agreed upon the performance criteria, weighting,
value, metrics and target dates for the successful completion of the
strategic initiatives as set forth on Appendix A. Whether a strategic
initiative has been successfully completed will be determined by the Board.
It is agreed and understood that in no event shall the total amount of the
Success Bonuses available to be earned pursuant to this Section 8.1 be less
than $7,405,750. It is further agreed and understood that no Success Bonus
shall be due or owing for the successful completion of any of the referenced
strategic initiatives on or after the commencement of a financial
restructuring of the Company under Chapter Eleven of the United States
Bankruptcy Code or analogous law. The immediately preceding sentence shall
not apply in the event that the distribution received per share as a result
of or pursuant to the Chapter 11 or analogous proceeding by the holders of
shares of the Company's common stock equals or exceeds the average of the
closing bid and asked prices for such a share on the last trading day
immediately preceding the commencement of the proceeding. If a strategic
initiative is achieved during such a proceeding and, pursuant to the
immediately preceding sentence, a Success Bonus is payable to the Executive,
it shall be paid immediately upon consummation of such proceeding, plus
interest at a 7% rate from the date of achievement to the date of payment. It
is the parties' intention, to the extent possible, to resolve any disputes
regarding Appendix A without recourse to the judicial system. As a condition
precedent to the filing of any claim, the parties' attorneys, if any, must
confer at least twice, in person, in an effort to resolve any dispute. If
such efforts are not successful, the parties agree to submit the dispute to
non-binding mediation under the Mediation Procedures of the Association of
the Bar of the City of New York. The parties agree to share the costs of
mediation equally.
If mediation is not successful, the parties agree to arbitrate
any remaining matters before a three-member panel under the Rules of the
Association of the
<PAGE>
Bar of the City of New York. The fees and expenses, including actual attorneys'
fees, of the prevailing party shall be paid by the non-prevailing party.
(b) In addition, if the Executive is employed on the Second
Anniversary, the Executive and/or his Family (as defined in the Employment
Agreement) shall be entitled until the earlier of (x) the second anniversary of
the Second Anniversary or (y) the commencement of coverage of the Executive
and/or his Family by another group medical benefits plan providing substantially
comparable benefits to the Welfare Benefits (as defined in the Employment
Agreement) and which does not contain any pre-existing condition exclusions or
limitations, to receive and participate in the Welfare Benefits in addition to
any continuation coverage which the Executive and/or his Family is entitled to
elect under Section 4980B of the Code.
(c) If there is a "Termination Without Cause" (as defined in
the Employment Agreement) following the consummation of a Change of Control (as
defined in Appendix B of this Agreement) that occurs prior to the Second
Anniversary, the Executive shall immediately be paid an amount in cash from the
Company equal to $7,405,750 less the sum of (a) the amount of any Success Bonus
already paid; plus (b) an amount equal to the amount of any success bonus that
was not paid because of the failure of the Company to attain a strategic
initiative; provided, that the parties hereby acknowledge and agree that for
purposes of this Section 8.1(c), a "Termination Without Cause" shall occur if
the members of the Board immediately preceding consummation of the Change of
Control do not constitute a majority of the members immediately following the
Change of Control.
8.2 ADDITIONAL BONUS. (a) If at any time (i) prior to the
Second Anniversary, the average closing bid price for the shares of the
Company's common stock over any 30 consecutive day period, as reflected on the
NASDAQ, equals or exceeds $5.00 per share, or (ii) during the term of this
Agreement, the Company enters into a binding agreement to sell the Company to a
bona fide purchaser for an amount which equals or exceeds $5.00 per share, the
Company shall immediately pay to the Executive $1,000,000 in cash; provided,
however, that a payment shall be due pursuant to clause (ii) only upon
consummation of such sale; and
(b) if the average closing bid price for the shares of the
Company's common stock during the 30 day period immediately preceding the Second
Anniversary equals or exceeds $5.00 per share, the Company shall immediately pay
to the Executive $500,000 in cash.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year set forth above.
ADVANTICA RESTAURANT GROUP, INC.
By: /s/ Rhonda J. Parish
---------------------------------------
Title: Executive Vice President, General
Counsel and Secretary
/s/ James B. Adamson
-------------------------------------------
James B. Adamson
/s/ Donald R. Shepherd
-------------------------------------------
Donald R. Shepherd
Chairman, Compensation and Incentives
Committee
<PAGE>
February 9, 2000
PERSONAL AND CONFIDENTIAL
[Name and Address]
Dear ______________:
This letter agreement replaces in its entirety the letter agreement dated
December 3, 1997 (along with the Addendum thereto) between _______________ (the
"Executive") and Flagstar Corporation, a predecessor corporation to Advantica
Restaurant Group, Inc. (the "Company"), and is entered into as an inducement to
the Executive to continue in the employ of the Company.
1. Leadership Bonus. In addition to the other salary or bonus payments
and benefits to which the Executive is otherwise entitled in ____ capacity as
__________________, the Executive shall receive the payments set forth on
Schedule A (the "Leadership Bonus") provided the Executive continues to be
employed by the Company (or a subsidiary thereof) as of the accrual date
indicated on Schedule A. Each such payment shall be due and payable to the
Executive on or before fifteen (15) days following the corresponding accrual
date. Any unaccrued portion of such Leadership Bonus shall be forfeited upon
termination of the Executive's employment for Cause, as defined herein, or upon
the voluntary termination of employment by the Executive. If the Executive's
employment is terminated by the Company for any reason other than for Cause, the
Executive shall be entitled to receive any unaccrued portion of such Leadership
Bonus at the "minimum" level for each such unaccrued portion as set forth on
Schedule A at the time of payment of the Severance Payment set forth in Section
2 hereof. For purposes of this letter agreement, "Cause" shall mean (a) the
Executive's habitual neglect of his material duties, (b) an act or acts by the
Executive, or any omission by him, constituting a felony, for which the
Executive has entered a guilty plea or confession to, or of which the Executive
has been convicted, (c) the Executive's failure to follow any lawful directive
of the Board or Chief Executive Officer ("CEO") consistent with the Executive's
position and duties, (d) an act or acts of fraud or dishonesty by the Executive
which results or is intended to result in financial or economic harm to the
Company, or (e) breach of a material provision of this letter agreement by the
Executive; provided that the Company shall give the Executive (x) written notice
specifying the nature of the alleged Cause, and, with respect to Clauses (a),
(c) and (e), (y) a reasonable
<PAGE>
opportunity to appear before the Board or CEO to discuss the matter, and (z) a
reasonable opportunity to cure any such alleged Cause.
2. Severance Payment. In the event (A) the Company terminates the
Executive for any reason other than Cause, as defined in Section 1 above; or (B)
if the Executive elects to terminate his/her employment with the Company because
(i) the Company has taken an action which reduces the Executive's base salary or
which causes the Executive to no longer have the responsibilities referenced in
Section 1 of this letter agreement; or (ii) the Executive is required by the
Company to relocate a distance of more than 100 miles from the current company
headquarters in Spartanburg, SC, the Executive shall receive a single, lump sum
severance payment, within five (5) days of termination, in an amount equal to
the sum of (a) 200% of the Executive's then current base pay (in no event less
than $300,000); (b) 200% of the Executive's target bonus for the year in which
the termination occurs (provided that the amount of such target bonus shall not
be less than 65% of the Executive's then current base salary); (c) a lump sum
amount equal to the value of 200% of the annual car allowance to which the
Executive is entitled in the year in which termination occurs (provided that the
amount of such annual car allowance shall not be less than $13,200); (d) an
amount (grossed up at a total of 45% for federal, state and local income taxes)
equal to (i) the Company's then actual benefit credits for an eighteen (18)
month period and (ii) all vested retirement benefits under the non-qualified
pension plan ( the "Select Advantica Management Supplemental Plan"); and (e) an
amount equal to any accrued but unused vacation days (collectively the
"Severance Payment"). Such Severance Payment shall be made to Executive within
five (5) business days following any such termination. The Executive will also
be entitled to receive career placement advice and counseling at the Company's
expense for a period of eighteen (18) months. Further, should such an event of
termination of the Executive's employment occur, the Executive shall not be
required to seek other employment to mitigate damages, and any income earned by
the Executive from other employment or self-employment shall not be offset
against any obligations of the Company to the Executive under this letter
agreement.
3. Stock Options. The Executive shall immediately become one hundred
percent (100%) vested in, and eligible to exercise, all stock options that have
been granted to him/her by the Company in the event of (a) actual or
constructive termination of the Executive without Cause as described in Sections
1 and 2 above; (b) a dissolution or liquidation of the Company; (c) a sale of
all or substantially all of the Company's assets; (d) a merger or consolidation
involving the Company in which the Company is not the surviving corporation; (e)
a merger or consolidation involving the Company in which the Company is the
surviving corporation but the holders of shares of common stock receive
securities of another corporation and/or other property, including cash; or (f)
a tender offer for at least a majority of the outstanding common stock of the
Company. Further, the Executive shall have the right to exercise any or all such
vested options for the lesser of thirty-six (36) months or the remaining term of
such option grant.
<PAGE>
4. Subsidiary Guaranties. The Company's payment obligations herein
in respect of the Retention Bonus, the change of Control Benefit and the
Severance Payment shall be unconditionally guaranteed by the Company's
subsidiaries, Denny's Inc. and DFO, Inc., such subsidiaries being among
the principal operating subsidiaries receiving the benefits of the Executive's
continuing employment with the Company. Such subsidiary guaranties shall be
"guaranties of payment" and not "guaranties of collection."
Nothing herein shall be deemed to modify in any respect the right of
the Company to terminate the services of the Executive in accordance with the
terms of the Company policies now or hereafter in effect.
If you are in agreement with these terms, please sign one copy of this
letter and return it to Stephen Wood.
Sincerely,
James B. Adamson
Chairman, Chief Executive Officer
And President
cc: Rhonda J. Parish
Stephen W. Wood
Agreed and accepted:
_____________________________ _______________________, 2000
<PAGE>
By authority duly obtained as of the date first above written, the
undersigned, Denny's Inc. and DFO, Inc., indirect subsidiaries of the Company,
hereby jointly and severally guarantee the payment by the Company to the
Executive of the Retention Bonus, the change of Control Benefit, and the
Severance Payment as provided above. In providing such guaranty, each such
guarantor acknowledges that it is receiving and will receive substantial and
meaningful benefits and services from the Executive's continued employment with
the Company. Each such guaranty shall be a guaranty of payment and not of
collection.
Denny's, Inc. DFO, Inc.
By: ______________________________ By: ________________________________
<PAGE>
Schedule A
Recognizing the vital role you will play in the success of this enormous
strategic undertaking, we have implemented a new two-year Officer Leadership
Incentive Program that provides for generous cash awards with significant upside
potential.
Under this new program you will receive the following cash awards if you are
actively employed (or on an approved leave of absence) on the award dates set
forth below.
Award Date Minimum Award Amount
---------- --------------------
July 31, 2000 $ 40,000
January 31, 2001 $ 50,000
July 31, 2001 $ 60,000
January 31, 2002 $ 100,000
---------
Total $ 250,000
This is the minimum amount to be paid; there is also a large upside potential.
You will receive the greater of the dollar amounts listed above, or the cash
value of the number of shares of the company's common stock shown below.
Award Date Number of Shares of Company Stock
---------- ---------------------------------
July 31, 2000 20,000
January 31, 2001 25,000
July 31, 2001 30,000
January 31, 2002 50,000
Example: On July 31, 2000, the company's common stock closes at $1.75.
You will receive the greater of $40,000 or the value of 20,000
shares of common stock (20,000 x $1.75 = $35,000). This means
you will receive the minimum cash award of $40,000.
On January 31, 2001, the stock closes at $3.00. You
will receive the greater of $50,000 or the value of 25,000
shares of common stock (25,000 x $3.00 = $75,000). Since the
value of the stock is greater than the minimum award amount,
you will receive $75,000, the value of the stock, in cash.
The same calculation will occur on the final two
award dates. Each time we will determine the value of the
stock amounts listed above, and you will receive the greater
of the minimum award or the stock's then value. In either
event the award will be paid in cash. You will be responsible
for any taxes due on these awards, the awards are not eligible
for deferral into the 401(k) and ASSP, nor do they count under
the pension plan.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-2000
<PERIOD-START> DEC-30-1999
<PERIOD-END> MAR-29-2000
<CASH> 68,973
<SECURITIES> 2,705
<RECEIVABLES> 25,370
<ALLOWANCES> 3,335
<INVENTORY> 14,635
<CURRENT-ASSETS> 279,898
<PP&E> 838,878
<DEPRECIATION> 235,263
<TOTAL-ASSETS> 1,305,868
<CURRENT-LIABILITIES> 524,337
<BONDS> 818,543
0
0
<COMMON> 401
<OTHER-SE> (192,630)
<TOTAL-LIABILITY-AND-EQUITY> 1,305,868
<SALES> 0
<TOTAL-REVENUES> 378,374
<CGS> 0
<TOTAL-COSTS> 397,323
<OTHER-EXPENSES> (739)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,823
<INCOME-PRETAX> (46,033)
<INCOME-TAX> 442
<INCOME-CONTINUING> (46,475)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46,475)
<EPS-BASIC> (1.16)
<EPS-DILUTED> (1.16)
</TABLE>
