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 26, 1995
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: 000-17962
Applebee's International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 43-1461763
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4551 W. 107th Street, Suite 100, Overland Park, Kansas 66207
(Address of principal executive offices and zip code)
(913) 967-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's common stock outstanding as of April
24, 1995 was 28,177,121.
1
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APPLEBEE'S INTERNATIONAL, INC.
FORM 10-Q
FISCAL QUARTER ENDED MARCH 26, 1995
INDEX
<TABLE>
<CAPTION>
Page
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Consolidated Financial Statements:
Consolidated Balance Sheets as of March 26, 1995
and December 25, 1994................................................................ 3
Consolidated Statements of Earnings for the 13 Weeks
Ended March 26, 1995 and March 27, 1994.............................................. 4
Consolidated Statement of Stockholders' Equity for the
13 Weeks Ended March 26, 1995........................................................ 5
Consolidated Statements of Cash Flows for the 13 Weeks
Ended March 26, 1995 and March 27, 1994.............................................. 6
Notes to Consolidated Financial Statements.............................................. 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................ 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................ 18
Signatures ................................................................................................. 19
Exhibit Index............................................................................................... 20
</TABLE>
2
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APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
March 26, December 25,
1995 1994
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 12,922 $ 9,634
Short-term investments, at market value (amortized cost of $8,942 in 1995
and $9,046 in 1994)...................................................... 8,990 8,893
Receivables (less allowance for bad debts of $801 in 1995 and $740 in 1994). 7,096 7,396
Inventories................................................................. 6,348 5,159
Prepaid and other current assets............................................ 2,055 2,694
Total current assets..................................................... 37,411 33,776
Property and equipment, net.................................................... 120,168 114,729
Goodwill, net.................................................................. 20,811 21,113
Franchise interest and rights, net............................................. 6,237 6,401
Other assets................................................................... 3,370 3,802
$ 187,997 $ 179,821
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable............................................ $ 3,208 $ 3,505
Current portion of obligations under noncompetition and consulting agreement 220 220
Accounts payable............................................................ 12,539 10,750
Accrued expenses and other current liabilities.............................. 15,053 16,713
Accrued dividends........................................................... -- 1,269
Accrued income taxes........................................................ 4,163 1,169
Total current liabilities................................................ 35,183 33,626
Non-current liabilities:
Notes payable - less current portion........................................ 34,303 34,312
Franchise deposits.......................................................... 1,417 1,355
Obligations under noncompetition and consulting agreement - less current portion 440 660
Deferred income taxes....................................................... 62 522
Total non-current liabilities............................................ 36,222 36,849
Total liabilities........................................................ 71,405 70,475
Minority interest in joint venture............................................. 604 558
Commitments and contingencies (Notes 3 and 4)
Stockholders' equity:
Preferred stock - par value $0.01 per share: authorized - 1,000,000 shares;
no shares issued......................................................... -- --
Common stock - par value $0.01 per share: authorized - 125,000,000 shares;
issued - 28,435,693 shares in 1995 and 28,295,479 shares in 1994......... 284 283
Additional paid-in capital.................................................. 81,571 78,675
Retained earnings........................................................... 34,952 30,775
Unrealized gain (loss) on short-term investments, net of income taxes....... 30 (96)
116,837 109,637
Treasury stock - 281,772 shares in 1995 and 1994, at cost................... (849) (849)
Total stockholders' equity............................................... 115,988 108,788
$ 187,997 $ 179,821
See notes to consolidated financial statements.
</TABLE>
3
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APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
13 Weeks Ended
March 26, March 27,
1995 1994
<S> <C> <C>
Revenues:
Company restaurant sales................................ $66,021 $49,847
Franchise income........................................ 9,418 6,658
Total operating revenues............................. 75,439 56,505
Cost of Company restaurant sales:
Food and beverage....................................... 18,908 14,821
Labor................................................... 21,068 16,237
Direct and occupancy.................................... 15,378 12,319
Pre-opening expense..................................... 633 136
Total cost of Company restaurant sales............... 55,987 43,513
General and administrative expenses........................ 8,909 6,874
Merger costs............................................... 1,770 --
Amortization of intangible assets.......................... 515 547
Loss on disposition of equipment........................... 26 50
Operating earnings......................................... 8,232 5,521
Other income (expense):
Investment income....................................... 237 306
Interest expense........................................ (614) (299)
Other income............................................ 82 60
Total other income (expense)......................... (295) 67
Earnings before income taxes............................... 7,937 5,588
Income taxes............................................... 3,611 1,904
Net earnings............................................... 4,326 3,684
Pro forma provision for income taxes....................... 73 283
Pro forma net earnings..................................... $ 4,253 $ 3,401
Pro forma net earnings per common share.................... $ 0.15 $ 0.12
Weighted average shares outstanding........................ 28,078 27,910
See notes to consolidated financial statements.
</TABLE>
4
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APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Unrealized
Gain
Additional (Loss) on Total
Common Stock Paid-In Retained Short-Term Treasury Stockholders'
Shares Amount Capital Earnings Investments Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 25, 1994........ 28,295,479 $ 283 $ 78,675 $ 30,775 $ (96) $ (849) $108,788
Pro forma provision for
income taxes................. -- -- -- 73 -- -- 73
Reclassification of net income
of IRC partnerships.......... -- -- 149 (149) -- -- --
Stock options exercised:
Company...................... 140,214 1 1,085 -- -- -- 1,086
IRC.......................... -- -- 1,333 -- -- -- 1,333
Income tax benefit upon exercise
of stock options............. -- -- 329 -- -- -- 329
Unrealized gain on short-term
investments, net of income
taxes........................ -- -- -- -- 126 -- 126
Pro forma net earnings......... -- -- -- 4,253 -- -- 4,253
Balance, March 26, 1995........... 28,435,693 $ 284 $ 81,571 $ 34,952 $ 30 $ (849) $115,988
See notes to consolidated financial statements.
</TABLE>
5
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APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
March 26, March 27,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Pro forma net earnings................................... $ 4,253 $ 3,401
Adjustments to reconcile pro forma net earnings to net
cash provided by operating activities:
Depreciation and amortization......................... 2,580 1,896
Amortization of intangible assets..................... 515 547
(Gain) loss on sale of investments.................... 4 (101)
Deferred income tax benefit........................... (573) (182)
Loss on disposition of equipment...................... 26 50
Pro forma provision for income taxes.................. 73 283
Changes in assets and liabilities:
Receivables........................................... 300 17
Inventories........................................... (1,189) (1,075)
Prepaid and other current assets...................... 669 (63)
Accounts payable...................................... 1,789 1,617
Accrued expenses and other current liabilities........ (1,660) (609)
Accrued income taxes.................................. 2,994 (190)
Franchise deposits.................................... 62 (8)
Other................................................. 385 (251)
NET CASH PROVIDED BY
OPERATING ACTIVITIES............................... 10,228 5,332
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities and sales of short-term investments........... 100 1,761
Purchases of property and equipment...................... (8,039) (8,030)
NET CASH USED BY INVESTING ACTIVITIES................. (7,939) (6,269)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid........................................... (1,269) (879)
Cash distributions....................................... -- (684)
Issuance of common stock upon exercise of stock options.. 2,419 118
Income tax benefit upon exercise of stock options........ 329 116
Proceeds from issuance of notes payable.................. 2,816 320
Payments on notes payable................................ (3,122) (1,874)
Payments under noncompetition and consulting agreement... (220) (244)
Minority interest in net earnings of joint venture....... 46 12
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES............................... 999 (3,115)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS......................................... 3,288 (4,052)
CASH AND CASH EQUIVALENTS, beginning of period.............. 9,634 8,054
CASH AND CASH EQUIVALENTS, end of period.................... $ 12,922 $ 4,002
See notes to consolidated financial statements.
</TABLE>
6
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APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
March 26, March 27,
1995 1994
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the 13 week period for:
Income taxes.......................................... $ 885 $ 2,295
Interest.............................................. $ 563 $ 470
</TABLE>
DISCLOSURE OF ACCOUNTING POLICY:
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments purchased with a maturity of three months or less
to be cash equivalents.
See notes to consolidated financial statements.
7
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements of Applebee's International, Inc. and
subsidiaries (the "Company") included in this Form 10-Q have been prepared
without audit (except that the balance sheet information as of December 25, 1994
has been derived from consolidated financial statements which were audited) in
accordance with the rules and regulations of the Securities and Exchange
Commission. Although certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, the Company believes that
the disclosures are adequate to make the information presented not misleading.
The accompanying consolidated financial statements should be read in conjunction
with the audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 25,
1994.
The Company believes that all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of the interim
periods presented have been made. The results of operations for the interim
periods presented are not necessarily indicative of the results to be expected
for the full year.
Beginning in fiscal 1995, the cost of meals provided to employees and other
complimentary meals have been classified as labor costs and direct and occupancy
costs, respectively. Previously, the retail price of such meals was reflected in
Company restaurant sales with corresponding amounts reflected as labor costs or
direct and occupancy costs. The consolidated financial statements for the 13
weeks ended March 27, 1994 have been reclassified to conform to the presentation
for the 13 weeks ended March 26, 1995, the effects of which were not material.
2. Acquisitions
IRC Merger: On March 23, 1995, the Company acquired Innovative Restaurant
Concepts, Inc. and its affiliates ("IRC"), referred to herein as the "IRC
Merger". As a result of the IRC Merger, IRC became a wholly-owned subsidiary of
the Company. A total of approximately 2,630,000 shares of the Company's
newly-issued common stock were issued to the shareholders and limited partners
of IRC, including IRC shares issued in 1995 upon the exercise of IRC stock
options prior to the IRC Merger. IRC employees exchanged pre-existing stock
options for options to purchase approximately 147,000 shares of the Company's
common stock. Of such shares and options, 7.5% were placed in escrow to address
potential adjustments during the escrow period that will end December 23, 1995.
In addition, AII assumed approximately $13,700,000 of IRC indebtedness, of which
$1,270,000 was repaid at closing. At the time of the IRC Merger, IRC operated 17
restaurants, 13 of which are Rio Bravo Cantinas, a Mexican restaurant concept,
and four other specialty restaurants.
The IRC Merger was accounted for as a pooling of interests and accordingly, the
accompanying consolidated financial statements have been restated to include the
accounts and operations of the merged entities for all periods presented. All
share amounts have been restated to reflect the total number of shares issued to
IRC for all periods presented. Separate results of the two entities were as
follows (amounts in thousands):
8
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<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company IRC Adjustments Combined
<S> <C> <C> <C> <C>
13 Weeks Ended
March 26, 1995
Net sales.......... $ 52,199 $ 13,822 $ -- $ 66,021
Net earnings....... $ 5,519 $ 577 $ (1,843) $ 4,253
13 Weeks Ended
March 27, 1994
Net sales.......... $ 37,640 $ 12,207 $ -- $ 49,847
Net earnings....... $ 2,916 $ 580 $ (95) $ 3,401
</TABLE>
Adjustments have been made to eliminate the impact of intercompany balances and
to record provisions for pro forma income taxes for certain affiliates of IRC.
Merger costs of $1,770,000 relating to the IRC merger have been expensed in the
first quarter of 1995. Merger costs include investment banking fees, legal and
accounting fees, and other merger related expenses. The impact of these costs on
pro forma net earnings per common share was approximately $0.06 in the first
quarter of 1995.
Other restaurant acquisitions: On April 3, 1995, the Company acquired the
operations of five franchise restaurants and the related furniture and fixtures,
certain land and leasehold improvements. The total purchase price was
approximately $9,500,000, of which $9,250,000 was paid in cash at the time of
closing and the remaining $250,000 was placed in escrow to address potential
adjustments. The acquisition will be accounted for as a purchase, and
accordingly, the purchase price will be allocated to the fair value of net
assets acquired and the results of operations of such restaurants will be
reflected in the 1995 financial statements subsequent to the date of
acquisition.
3. Commitments and Contingencies
Litigation: The Company is involved in various legal actions arising in the
normal course of business. After taking into consideration legal counsel's
evaluation of such actions, management is of the opinion that the outcome of
these actions will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Franchise financing: The Company entered into an agreement in 1992 with a
financing source to provide up to $75,000,000 of financing to Company
franchisees to fund development of new franchise restaurants. Up to $25,000,000
of the $75,000,000 available under the agreement can be used by franchisees for
short-term construction financing. The Company has provided a limited guaranty
of loans made under the agreement. The Company's recourse obligation of the
construction financing portion of the facility is capped at $2,500,000. When the
short-term construction loans are converted to long-term loans, the Company's
maximum recourse obligation reduces from 10% to 6.7% of the $75,000,000
facility. The Company's recourse obligations reduce beginning in the second year
of each long-term loan and thereafter decrease ratably to zero after the seventh
year of each loan. At March 26, 1995, approximately $41,433,000 had been funded
through this financing source and various loans were in process. The Company has
not been apprised of any defaults by franchisees. This agreement expired on
December 31, 1994 and was not renewed, although some loan commitments as of the
termination date may thereafter be funded.
9
<PAGE>
Severance agreements: The Company has severance and employment agreements with
certain officers providing for severance payments to be made in the event the
employee resigns or is terminated related to a change in control (as defined in
the agreements). If the severance payments had been due as of March 26, 1995,
the Company would have been required to make payments aggregating approximately
$4,800,000. In addition, the Company has severance and employment agreements
with certain officers which contain severance provisions not related to a change
in control, and such provisions would have required aggregate payments of
approximately $3,100,000 if such officers had been terminated as of March 26,
1995.
4. Financing
In February 1995, the Company obtained a $20,000,000 unsecured bank revolving
credit facility which expires on December 31, 1997. The revolving credit
facility bears interest at LIBOR plus 0.60% or the prime rate, at the Company's
option, and requires the Company to pay a commitment fee of 0.15% on any unused
portion of the facility. As of March 26, 1995, no amounts were outstanding under
the facility. The debt agreement contains various covenants and restrictions
which, among other things, require the maintenance of a stipulated fixed charge
coverage ratio and minimum consolidated net worth, as defined, and also limit
additional indebtedness in excess of specified amounts. The debt agreement also
restricts the amount of retained earnings available for the payment of cash
dividends. The Company is currently in compliance with such covenants.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company's fiscal quarters ended March 26, 1995 and March 27, 1994 each
contained 13 weeks, and are referred to hereafter as the "1995 quarter" and the
"1994 quarter", respectively.
On March 23, 1995, the Company acquired Innovative Restaurant Concepts, Inc. and
its affiliates ("IRC"), referred to herein as the "IRC Merger". As a result of
the IRC Merger, IRC became a wholly-owned subsidiary of the Company. The IRC
Merger was accounted for as a pooling of interests and accordingly, the
accompanying consolidated financial statements have been restated to include the
accounts and operations of the merged entities for all periods presented.
The following table sets forth, for the periods indicated, information derived
from the Company's consolidated statements of earnings expressed as a percentage
of total operating revenues, except where otherwise noted.
<TABLE>
<CAPTION>
13 Weeks Ended
March 26, March 27,
1995 1994
<S> <C> <C>
Revenues:
Company restaurant sales.................................... 87.5% 88.2%
Franchise income............................................ 12.5 11.8
Total operating revenues................................. 100.0% 100.0%
Cost of sales (as a percentage of Company restaurant sales):
Food and beverage........................................... 28.6% 29.7%
Labor....................................................... 31.9 32.6
Direct and occupancy........................................ 23.3 24.7
Pre-opening expense......................................... 1.0 0.3
Total cost of sales...................................... 84.8% 87.3%
General and administrative expenses............................ 11.8% 12.2%
Merger costs................................................... 2.3 --
Amortization of intangible assets.............................. 0.7 1.0
Loss on disposition of equipment............................... -- 0.1
Operating earnings............................................. 10.9 9.8
Other income (expense):
Investment income........................................... 0.3 0.5
Interest expense............................................ (0.8) (0.5)
Other income................................................ 0.1 0.1
Total other income (expense)............................. (0.4) 0.1
Earnings before income taxes................................... 10.5 9.9
Income taxes (including pro forma provision for income taxes).. 4.9 3.9
Pro forma net earnings......................................... 5.6% 6.0%
</TABLE>
11
<PAGE>
The following table sets forth certain unaudited financial information and other
restaurant data relating to Company and franchise restaurants, as reported to
the Company by franchisees.
<TABLE>
<CAPTION>
13 Weeks Ended(1)
March 26, March 27,
1995 1994
<S> <C> <C>
Number of restaurant openings:
Applebee's:
Company owned or operated................... 8 2
Franchise................................... 22 15
Total system................................ 30 17
Rio Bravo Cantinas............................. 1 --
Number of restaurants at the end of period:
Applebee's:
Company owned............................... 103 74
Company owned or operated(2) ............... 105 77
Franchise................................... 430 301
Total system................................ 535 378
Rio Bravo Cantinas............................. 13 9
Specialty restaurants(3)....................... 4 6
Total number of restaurants at the end of period:
Company owned or operated(2)................... 122 92
Franchise...................................... 430 301
Total system................................... 552 393
Weighted average weekly sales per restaurant:
Applebee's:
Company owned(4)............................ $40,559 $40,485
Company owned or operated(2)(4)............. $40,290 $39,745
Franchise................................... $41,639 $40,967
Total system................................ $41,376 $40,717
Rio Bravo Cantinas............................. $63,326 $68,358
Comparable restaurant sales - increase (decrease) vs.
prior year:(5)
Applebee's:
Company owned............................... 3.6% 5.7%
Company owned or operated(2)................ 3.7% 5.1%
Franchise................................... 2.2% 4.1%
Total system................................ 2.6% 4.3%
Rio Bravo Cantinas............................. 1.1% 14.8%
<FN>
- --------
(1) Sales data is composed of franchise restaurant sales, as reported by
franchisees to the Company, and Company restaurant sales.
(2) Company owned or operated data includes certain Dallas restaurants
operated by the Company under a management agreement since July 1990.
(3) Specialty restaurants in the 1994 quarter include two restaurants
which were subsequently converted to Rio Bravo Cantinas.
(4) Weighted average weekly sales data for the 1994 quarter has been
adjusted to conform to the 1995 presentation which reflects company
restaurant sales net of employee meals and other complimentary meals.
(5) When computing "comparable restaurant sales", restaurants open for at
least 18 months are compared from period to period.
</FN>
</TABLE>
12
<PAGE>
Company Restaurant Sales. Company restaurant sales increased $16,174,000 (32%)
from $49,847,000 in the 1994 quarter to $66,021,000 in the 1995 quarter. The
increase resulted primarily from Company restaurant openings and increases in
comparable restaurant sales. Sales for the Rio Bravo Cantinas were $7,975,000
and $10,385,000 in the 1994 quarter and the 1995 quarter, respectively, and
sales for the other specialty restaurants were $4,232,000 and $3,437,000 in the
1994 quarter and the 1995 quarter, respectively. Sales data for the 1994 quarter
has been adjusted to conform to the 1995 presentation which reflects company
restaurant sales net of employee meals and other complimentary meals.
Comparable restaurant sales at Company owned Applebee's restaurants increased by
3.6% in the 1995 quarter. When computing "comparable restaurant sales,"
restaurants open for at least 18 months are compared from period to period. The
increase in comparable restaurant sales was due in part to a menu price increase
implemented in mid-July 1994 in selected markets for certain menu items.
Weighted average weekly sales at Company owned Applebee's restaurants increased
slightly from $40,485 in the 1994 quarter to $40,559 in the 1995 quarter.
Overall weighted average weekly sales continue to be adversely affected by the
southern California and Dallas, Texas territories where the weighted average
weekly sales of Company owned Applebee's restaurants were approximately $26,000
and $31,000, respectively, in the 1995 quarter. However, when entering highly
competitive new markets, or territories where the Company has not yet
established a market presence, early sales levels are expected to be lower than
sales volumes in markets where the Company has a concentration of restaurants or
has established customer awareness. Excluding the California and Dallas markets,
weighted average weekly sales at Company owned Applebee's restaurants increased
5.0% from $42,017 in the 1994 quarter to $44,101 in the 1995 quarter.
While the Company expects sales to be lower in new markets, sales volumes in the
California and Dallas markets continue to be lower than the Company's original
expectations. Profitability in the California and Dallas markets continues to be
adversely affected by the lower sales volumes, expected operating inefficiencies
at recently opened restaurants and lower than average margins. However,
operating margins in the Dallas market have been improving. The operations of
the Company owned restaurants in these markets increased overall cost of sales
excluding pre-opening expense (as a percentage of Company restaurant sales) by
approximately 2.0% in both the 1995 quarter and the 1994 quarter. The Company
believes that the opening of additional restaurants in these territories will
result in increased market penetration, advertising effectiveness and customer
awareness, thereby ultimately increasing restaurant sales levels and related
margins. As of March 26, 1995, the Company had nine restaurants open in southern
California, of which six opened in 1994 and one opened in the 1995 quarter. In
addition, the Company owned 15 restaurants in the Dallas area, of which seven
were opened or acquired in 1994. The Company currently plans to open three
additional restaurants in southern California and three additional restaurants
in the Dallas area during the remainder of 1995.
Weighted average weekly sales for the Rio Bravo Cantina restaurants declined
from $68,358 in the 1994 quarter to $63,326 in the 1995 quarter. The decrease is
due primarily to the lower sales volumes of three of the four new restaurants
open in the 1995 quarter that were not open in the first quarter of 1994. Two of
the restaurants were opened in a market where there was already an existing Rio
Bravo Cantina restaurant and one of the other new restaurants is open only for
dinner. Weighted average weekly sales for the Rio Bravo Cantina restaurants open
during both the 1995 and 1994 quarters increased slightly and comparable
restaurant sales increased by 1.1% in the 1995 quarter.
13
<PAGE>
Franchise Income. Franchise income increased $2,760,000 (41%), from $6,658,000
in the 1994 quarter to $9,418,000 in the 1995 quarter, due primarily to the
increased number of franchise restaurants operating during the 1995 quarter as
compared to the 1994 quarter. Franchise restaurant weighted average weekly sales
and comparable restaurant sales increased 1.6% and 2.2%, respectively, in the
1995 quarter.
Cost of Company Restaurant Sales. Food and beverage costs decreased from 29.7%
in the 1994 quarter to 28.6% in the 1995 quarter as a result of the menu price
increase implemented in mid-July 1994 at Applebee's restaurants and operational
efficiencies. Beverage sales, as a percentage of Company restaurant sales,
declined to 19.5% in the 1995 quarter from 21.7% in the 1994 quarter which had a
negative impact on overall food and beverage costs. Management believes that the
reduction in beverage sales is due in part to the continuation of the overall
trend toward increased awareness of responsible alcohol consumption. In an
effort to increase overall beverage sales, the Company is continuing to
introduce and emphasize sales of both alcoholic and non-alcoholic specialty
drinks. The Company expects food costs to temporarily increase beginning in the
second quarter of 1995 as a result of the recent flooding in California which
has caused shortages of certain produce items and a significant increase in
related costs. The Company does not currently anticipate increasing its menu
prices to offset the potential effects of such increased costs.
Labor costs decreased from 32.6% in the 1994 quarter to 31.9% in the 1995
quarter. Labor costs were positively impacted by an overall reduction in
workers' compensation costs due to favorable historical claims experience and
improved hourly labor efficiency. Overall labor costs continue to be adversely
affected by the lower sales volumes in the southern California and Dallas
markets.
Direct and occupancy costs decreased from 24.7% in the 1994 quarter to 23.3% in
the 1995 quarter. The decrease was due primarily to lower levels of advertising
expenditures during the 1995 quarter. However, the southern California and
Dallas markets continue to have a negative impact on overall direct and
occupancy costs due to the absorption of such expenses, which are primarily
fixed in nature, over a lower sales base in those markets.
General and Administrative Expenses. General and administrative expenses
decreased in the 1995 quarter to 11.8% from 12.2% in the 1994 quarter, due
primarily to the absorption of general and administrative expenses over a larger
revenue base. General and administrative expenses increased by $2,035,000 during
the 1995 quarter compared to the 1994 quarter due primarily to higher personnel
costs, incentive compensation expense and related fringe benefit costs, which
include additional personnel associated with the Company's development efforts
and system-wide expansion. A portion of the increase was due to an increase in
the Company's training costs relating to new Company and franchise restaurant
openings and the training of restaurant managers.
The Company continues to realize operating losses for the Dallas restaurants it
operates under an agreement with a former franchisee (two in the 1995 quarter
and three in the 1994 quarter). Losses of $28,000 and $162,000 during the 1995
quarter and the 1994 quarter, respectively, are included in general and
administrative expenses in the accompanying consolidated statements of earnings.
The Company closed one of the three Dallas restaurants during the second quarter
of 1994 and recognized a loss of $223,000, due primarily to the termination of
the related lease agreement. The operating results of this restaurant had
continued to deteriorate, and by closing this restaurant and incurring the
one-time costs of disposition, the Company avoided potentially significant
losses in the future. Continued losses may lead the Company to reevaluate its
future strategies for these restaurants.
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The Company is using assets owned by its former Dallas franchisee in the
operation of the restaurants under a purchase rights agreement which required
the Company to make certain payments to the franchisee's lender. In 1991, a
dispute arose between the lender and the Company over the amount of the payments
due the lender. Based upon a then current independent appraisal, the Company
offered to settle the dispute and purchase the assets for $1,000,000 in 1991.
The lender rejected the Company's offer and claimed that the Company had
guaranteed the entire $2,400,000 debt of the franchisee. In November 1992, the
lender was declared insolvent by the FDIC and has since been liquidated. The
Company has been contacted by the FDIC, and in 1993, the Company offered to
settle the issue and purchase the assets for the three restaurants then being
operated for $182,000. The Company does not anticipate that the resolution of
this issue will have a material adverse impact on its financial position or
results of operations. However, in the event that the Company were to pay an
amount determined to be in excess of the fair market value of the assets, the
Company may be required to recognize a loss at the time of such payment.
The Company's franchisee in Houston, Texas, whose financial difficulties have
been previously disclosed, filed for bankruptcy protection in late April 1995 as
a result of ongoing disputes with the landlord for three of the four restaurants
it operates. In October 1993, the Company provided certain financial assistance
to the franchisee in the form of a loan and a renegotiated royalty payment
obligation. The Company has been monitoring the franchisee's performance and has
established adequate reserves relating to any receivables from this franchisee
and does not anticipate that the franchisee's financial difficulties will have a
material adverse impact on the Company's financial position or results of
operations.
Merger Costs. The Company incurred merger costs of $1,770,000 in the 1995
quarter relating to the IRC Merger. The impact of these costs on pro forma net
earnings per common share was approximately $0.06 in the 1995 quarter.
Investment Income. Investment income decreased in the 1995 quarter compared to
the 1994 quarter primarily as a result of decreases in cash and cash equivalents
and short-term investments resulting from the Company's utilization of such
funds for capital expenditures. This decrease was partially offset by a gain of
$101,000 on the sale of investments in the 1994 quarter.
Interest Expense. Interest expense increased in the 1995 quarter compared to the
1994 quarter primarily as a result of interest related to the $20,000,000 senior
unsecured notes issued in the second quarter of 1994.
Income Taxes. The effective income tax rate, as a percentage of earnings before
income taxes, was 46.4% in the 1995 quarter compared to 39.1% in the 1994
quarter. Such rates reflect the pro forma provision for income taxes at
statutory rates for Pub Ventures of New England, Inc. ("PVNE") in the 1994
quarter and for certain affiliates of IRC in both the 1995 and 1994 quarters.
The Company acquired PVNE in October 1994 in a transaction accounted for as a
pooling of interests. PVNE was not liable for federal taxes during the first
quarter of 1994 since it operated as an S Corporation, and the combined earnings
of IRC included earnings of limited partnerships which were not taxable entities
for federal and state income tax purposes. The increase in the Company's overall
effective tax rate is due to the non-deductibility of the merger costs incurred
relating to IRC. Excluding such merger costs, the effective income tax rate was
38.0% in the 1995 quarter. The decrease in the Company's overall effective tax
rate excluding merger costs was due primarily to increased tax credits in the
1995 quarter for the FICA tax paid by the Company on employee tip income.
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Liquidity and Capital Resources
As of March 26, 1995, the Company held liquid assets totaling $21,912,000,
consisting of cash and cash equivalents ($12,922,000) and short-term investments
($8,990,000). During the 1995 quarter, inventories have increased by $1,189,000
from the balance at the end of fiscal 1994 primarily as a result of the
Company's continued purchase of Riblets to meet future usage requirements.
Capital expenditures were $48,734,000 in 1994 (which includes the acquisition of
two franchise restaurants). The Company currently expects to open at least 25
new Applebee's restaurants and four to five Rio Bravo Cantina restaurants in
1995. The Company presently anticipates capital expenditures, excluding
acquisitions, of between $50,000,000 and $53,000,000 in fiscal 1995 (including
between $10,000,000 and $12,000,000 related to IRC) primarily for the
development of new restaurants, normal restaurant renovations and capital
replacements, and enhancements to information systems for the Company's
restaurants and corporate office. In addition, in April 1995, the Company
acquired the operations and assets of five Applebee's franchise restaurants
located in the Philadelphia metropolitan area for a total cash purchase price of
$9,500,000. Including the Philadelphia acquisition, capital expenditures in
fiscal 1995 are expected to be between approximately $60,000,000 and
$63,000,000. If the Company opens more restaurants than it currently anticipates
or acquires additional restaurants in 1995, its capital requirements will
increase accordingly.
The Company's need for capital resources both historically and for the
foreseeable future has resulted from and is expected to relate primarily to the
construction and acquisition of restaurants. Such capital has been provided by
debt financing, public stock offerings and ongoing Company operations, including
cash generated from Company and franchise operations, credit from trade
suppliers and landlord contributions to leasehold improvements. The Company has
also used its common stock as consideration in the acquisition of restaurants.
In June 1994, the Company completed a $20,000,000 senior unsecured private debt
placement with institutional lenders unaffiliated with the Company. In addition,
in February 1995, the Company obtained additional long-term debt financing in
the form of a $20,000,000 unsecured bank revolving credit facility which expires
on December 31, 1997. As of March 26, 1995, no amounts were outstanding under
the facility. The debt agreements contain various covenants and restrictions
which, among other things, require the maintenance of a stipulated fixed charge
coverage ratio and minimum consolidated net worth, as defined, and also limit
additional indebtedness in excess of specified amounts. The debt agreements also
restrict the amount of retained earnings available for the payment of cash
dividends. The Company is currently in compliance with the covenants of its debt
agreements. The Company believes that its available debt financing, liquid
assets and cash generated from operations will provide sufficient funds for its
capital requirements in the foreseeable future.
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Inflation
The primary inflationary factors affecting the Company are food, beverage and
labor costs. The impact of inflation on the cost of food, labor, real estate,
and construction can significantly affect the Company's operations. A majority
of the Company's employees are paid hourly rates related to federal and state
minimum wage laws and various laws that allow for credits to that wage. In
addition, anticipated federal legislation regarding mandated health care
benefits could have a significant impact on the Company's labor costs. Although
the Company has been able to and will continue to attempt to pass along
increases in costs through food and beverage price increases, there can be no
assurance that all such increases can be reflected in its prices or that
increased prices will be absorbed by customers without diminishing, to some
degree, customer spending at its restaurants. In addition, most of the Company's
leases require the Company to pay taxes, maintenance, repairs, and utility
costs, and these costs are subject to inflationary increases. The Company
believes that it can continue to maintain operating margins through periodic
menu price increases (to the extent permitted by competition), economies of
scale in purchasing and distribution, increased efficiencies at existing
restaurants, stringent cost controls and careful management of invested capital.
The Company expects food costs to temporarily increase beginning in the second
quarter of 1995 as a result of the recent flooding in California which has
caused shortages of certain produce items and a significant increase in related
costs. The Company does not currently anticipate increasing its menu prices to
offset the potential effects of such increased costs.
The franchise royalty component of the Company's franchise income is based on a
fixed percentage of franchise revenue. Accordingly, inflationary factors which
affect the cost of sales at franchise restaurants should not have a material
adverse effect upon the Company's franchise income.
17
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits listed on the accompanying Exhibit Index are
filed as part of this report.
(b) The Company filed a report on Form 8-K on December 30, 1994,
announcing the declaration of a dividend on its common stock
to stockholders of record as of December 20, 1994, payable on
January 27, 1995.
The Company filed a report on Form 8-K on March 1, 1995 which
included pro forma financial information previously included
in a Registration Statement on Form S-4 filed with the
Securities and Exchange Commission dated February 17, 1995.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
APPLEBEE'S INTERNATIONAL, INC.
(Registrant)
Date: May 1, 1995 By: /s/ Abe J. Gustin, Jr.
Abe J. Gustin, Jr.
Chairman, President and
Chief Executive Officer
Date: May 1, 1995 By: /s/ George D. Shadid
George D. Shadid
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Date: May 1, 1995 By: /s/ David R. Smith
David R. Smith
Vice President and Controller
(principal accounting officer)
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APPLEBEE'S INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
9.1 Amendment to Stockholder's Voting Agreement dated March 17, 1995.
10.1 Amendment No. 1 to Employment Agreement with Abe J. Gustin, Jr.,
dated March 1, 1995.
10.2 Amendment No. 2 to Employment Agreement with Ronald B. Reck, dated
March 1, 1995.
10.3 Employment Agreement, dated March 1, 1995, with George D. Shadid.
27 Financial Data Schedule.
20
SECOND ACKNOWLEDGEMENT AND AMENDMENT
TO STOCKHOLDER'S VOTING AGREEMENT
THIS ACKNOWLEDGEMENT AND AMENDMENT TO STOCKHOLDER'S VOTING AGREEMENT,
dated as of this 17th day of March, 1995 (the "Acknowledgement And Amendment"),
is entered into by and among Abe J. Gustin, Jr. ("Gustin"), Johyne H. Reck ("J.
Reck") (said Gustin and J. Reck being hereafter referred to collectively as
"Stockholders") and Ronald B. Reck ("R. Reck").
WHEREAS, John Hamra ("Hamra") and Stockholders entered into a certain
Stockholder's Voting Agreement as of July 15, 1989, as the same was amended by
agreement dated February 11, 1992 (said July 15, 1989 agreement and February 11,
1992 amendment being hereafter referred to collectively as "Voting Agreement"),
and
WHEREAS, in 1992 Hamra sold in a public market transaction all of the
remaining shares of stock of Applebee's International, Inc. ("AII") owned by him
that were covered by the Agreement and resigned his position as a member of the
Board of directors of AII, and
WHEREAS, the Stockholders have remained members of the board of
directors of AII, and
WHEREAS, the Stockholders desire to supplement and amend the Voting
Agreement, and
WHEREAS, by their actions, the Stockholders have consented to the
increase of the total number of members of the board of directors to ten (10)
and the total number of independent directors to three (3), and
WHEREAS, R. Reck previously acquired certain voting securities of AII
from J. Reck (the "Acquired Securities"), and
WHEREAS, R. Reck and AII executed a certain agreement, dated as of April
29, 1991, pursuant to which R. Reck expressly acknowledged that the Acquired
Securities are subject to the Voting Agreement, and
WHEREAS, Section 3 of the Stockholders' Voting Agreement provides that
the Voting Agreement shall be binding upon the Stockholders and certain
transferees of the Stockholders.
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NOW, THEREFORE, that parties hereto hereby agree as follows:
1. The Stockholders hereby amend the reference to "six" members of the
board of directors contained in Section 1 of the Voting Agreement to read "ten."
2. R. Reck hereby confirms his obligation to vote or cause to be voted
all shares of Acquired Securities now or hereafter owned by him pursuant to the
provisions of the Voting Agreement.
3. The undersigned hereby understand and expressly agree that execution
of this or any similar document by R. Reck or any other transferee of the
securities covered by the Voting Agreement is not a prerequisite to the binding
effect or enforceability of the Voting Agreement upon R. Reck or such
transferee.
IN WITNESS WHEREOF, the parties hereto have signed this Acknowledgement
And Amendment as of the day and year first above written.
/s/ Abe J. Gustin, Jr.
Abe J. Gustin, Jr.
/s/ Johyne H. Reck
Johyne H. Reck
/s/ Ronald B. Reck
Ronald B. Reck
2
AMENDMENT NO. 1
EMPLOYMENT AGREEMENT
APPLEBEE'S INTERNATIONAL, INC.
ABE J. GUSTIN, JR.
THIS AGREEMENT, made and entered effective this 1st day of March, 1995,
by and between Abe J. Gustin, Jr. ("Employee") and Applebee's International,
Inc. ("Company");
W I T N E S S E T H:
Whereas, Company and Employee entered an Employment Agreement dated
March 1, 1992, which provided for an initial term through March 1, 1995, and
Whereas, the parties desire to extend the term of said Employment
Agreement,
NOW THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, the parties hereto agree as follows:
1. The term of the Employment Agreement is hereby extended to and
including June 1, 1995, upon the same terms and conditions set forth in said
Employment Agreement, except for the salary therein described which has been
previously adjusted annually and the cancellation of the car allowance referred
to in paragraph 6b thereof which has been previously discontinued by agreement.
2. In all other respect, said Employment Agreement shall remain in full
force and effect, without modification or change by this amendment.
IN WITNESS WHEREOF, the parties hereto have cause this instrument to be
executed the day and year first above written.
APPLEBEE'S INTERNATIONAL, INC.
By: /s/ Lloyd L. Hill
Lloyd L. Hill, President
/s/ Abe J. Gustin, Jr.
Abe J. Gustin, Jr.
AMENDMENT NO. 2
EMPLOYMENT AGREEMENT
APPLEBEE'S INTERNATIONAL, INC.
RONALD B. RECK
THIS AGREEMENT, made and entered effective this 1st day of March, 1995,
by and between Ronald B. Reck ("Employee") and Applebee's International, Inc.
("Company");
W I T N E S S E T H:
Whereas, Company and Employee entered an Employment Agreement dated
March 1, 1992, which was subsequently amended as of February 28, 1994, and which
provided for a term through March 1, 1995, and
Whereas, the parties desire to extend the term of said Employment
Agreement,
NOW THEREFORE, for and in consideration of the mutual covenants and
promises herein contained, the parties hereto agree as follows:
1. The term of the Employment Agreement is hereby extended to and
including June 1, 1995, upon the same terms and conditions set forth in said
Employment Agreement, as previously amended except for the salary therein
described which has been previously adjusted annually.
2. In all other respect, said Employment Agreement as amended shall
remain in full force and effect, without modification or change by this
amendment.
IN WITNESS WHEREOF, the parties hereto have cause this instrument to be
executed the day and year first above written.
APPLEBEE'S INTERNATIONAL, INC.
By: /s/ Lloyd L. Hill
Lloyd L. Hill, President
/s/ Ronald B. Reck
Ronald B. Reck
GEORGE D. SHADID
EMPLOYMENT AGREEMENT
This Employment Agreement is made as of March 1, 1995, by and between
APPLEBEE'S INTERNATIONAL, INC. a Delaware corporation (the "Company") and GEORGE
D. SHADID (the "Executive").
WHEREAS, the Company believes it to be in its best interest to provide
for continuity of management and to provide protection for its valuable trade
secrets and confidential information; and
WHEREAS, the Company desires to employ the Executive and the Executive
is willing to render his services to the Company on the terms and conditions
with respect to such employment hereinafter set forth.
NOW, THEREFORE, in consideration of premises and the mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the
Executive hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth.
2. Exclusive Services. The Executive shall devote all necessary working
time, ability and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services to any business, corporation, or organization whether for compensation
or otherwise, without the prior knowledge of the Board of Directors of the
Company (hereinafter referred to as the "Board").
3. Duties. The Executive is hereby employed as Executive Vice President
and Chief Financial Officer of the Company and shall render his services at the
principal business offices of the Company, as such may be located from time to
time, unless otherwise agreed between the Board and the Executive. The Executive
shall have such authority and shall perform such duties as are specified by the
bylaws of the Company for the office of Vice President; subject, however, to
such limitations, instructions, directions, and control as the Board may specify
from time to time in its sole discretion.
4. Term. This Agreement shall have an initial term through December 29,
1996, and shall renew for successive one year terms thereafter unless either
party gives notice of nonrenewal at least 60 days prior to the end of the
initial term or of any renewal term; provided, however, that this Agreement is
always subject to termination as provided in Paragraph 13, below.
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5. Compensation. As compensation for his services rendered under this
Agreement, the Executive shall be entitled to receive the initial compensation
set forth on the attached Executive Individual Salary and Incentive Plan
Schedule. The Base Salary component of the compensation shall not be reduced by
the Company during the term hereof except in accordance with a general Base
Salary reduction implemented across all executive level positions.
a. Base Salary. Base salary shall be paid in equal bi-weekly
installments during the term of this Agreement, prorated for any partial
employment month. Such salary ("Base Salary") may be increased (but not
decreased except as provided above) by the Board in its sole discretion.
b. Additional Compensation. The Executive shall be paid such
additional compensation and bonuses, as may be determined and authorized
in the sole discretion of the Board.
6. Benefits. In addition to the compensation to be paid to the Executive
pursuant to Paragraph 5 hereof, the Executive shall further be entitled to
receive the following:
a. Participation in Employee Plans. The Executive shall be entitled
to participate in any health, disability, group term life insurance
plan, any pension, retirement or profit sharing plan, executive bonus
plan or any other fringe benefits which may be extended generally from
time to time to Executive Vice President level and employees of the
Company.
b. Disability Salary Continuation. If the Executive becomes
disabled during the term of this Agreement, the Company shall continue
to pay the Executive his Base Salary during the first ninety (90) day
period of such disability and shall continue to pay the Executive, but
at the rate of fifty percent (50%) of his Base Salary, for second ninety
(90) day period of such disability. "Disability" as used herein shall
mean any physical, emotional or mental, injury, illness or incapacity,
other than death, which renders the Executive unable to perform the
duties required of him under this Agreement, as certified by a physician
employed by the Company for that purpose. The existence of any
disability shall be determined to exist in the sole discretion of the
Board which shall not be unreasonably exercised. All payments under this
Paragraph shall cease upon the expiration or other termination of this
Agreement or of the Executive's employment.
c. Vacation. The Executive shall be entitled to four weeks vacation
with full salary and benefits each year, measured from the anniversary
of his original employment with the Company. No cash or other payment
will be due, however, for unused vacation and vacation may not be
carried over from each such year to the next.
7. Reimbursement of Expenses. Subject to such rules and procedures as
from time to time are specified by the Company, the Company shall reimburse the
Executive on a monthly basis for reasonable business expenses necessarily
incurred in the performance of his duties under this Agreement.
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8. Confidentiality/Trade Secrets. The Executive acknowledges that his
position with the Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the trade
secrets and confidential and proprietary business information of the Company.
Both during the term of this Agreement and thereafter, the Executive covenants
and agrees as follows:
a. he shall use his best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company including but not limited to the identity of
its customers and suppliers, its arrangements with customers and
suppliers, and its technical and financial data, records, compilations
of information, processes, recipes and specifications relating to its
customers, suppliers, products and services;
b. he shall not disclose any of such trade secrets and confidential
and proprietary information, except as may be required in the course of
his employment with the Company or by law; and
c. he shall not use, directly or indirectly, for his own benefit or
for the benefit of another, any of such trade secrets and confidential
and proprietary information.
All files, records, documents, drawings, specifications, memoranda,
notes, or other documents relating to the business of the Company, whether
prepared by the Executive or otherwise coming into his possession, shall be the
exclusive property of the Company and shall be delivered to the Company and not
retained by the Executive upon termination of his employment for any reason
whatsoever or any other time upon request of the Board.
9. Discoveries. The Executive covenants and agrees that he will fully
inform the Company of and disclose to the Company all inventions, designs,
improvements, discoveries and processes ("Discoveries") which he has now or may
hereafter have during his employment with the Company and which pertain or
relate to the business of the Company or to any experimental work, products,
services or processes of the Company in progress or planned for the future,
whether conceived by the Executive alone or with others, and whether or not
conceived during regular working hours or in conjunction with the use of any
Company assets. All such Discoveries shall be the exclusive property of the
Company whether or not patent or trademark applications are filed thereon. The
Executive shall assist the Company, at any time during or after his employment,
in obtaining patents on all such Discoveries deemed patentable by the Company
and shall execute all documents and do all things necessary to obtain letters
patent, vest the Company with full and exclusive title thereto, and protect the
same against infringement by others. If such assistance takes place after his
employment is terminated the Executive shall be paid by the Company at a
reasonable rate for any time actually spent in rendering such assistance at the
request of the Company.
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10. Noncompetition. Taking into consideration the nature, scope and
volume of the Company's operations, the Executive agrees that during the period
of his employment and, if he elects to receive a Severance Payment pursuant to
Section 13(b) or 13(f) then also for the Severance Payment Period, he will not,
within the United States or any other country in which the Company, directly or
indirectly, owns, operates or franchises restaurants, directly or indirectly,
own, manage, operate, control, or be employed by, participate in, or be
connected in any matter with the ownership (other than ownership of securities
of publicly held corporations of which Executive owns less than 2% of any class
of outstanding securities), management, operation, or control of any business
engaged in the casual dining restaurant industry, or in any other segment of the
restaurant industry in which the Company may become involved after the date
hereof and prior to the date of any termination of employment. For purposes of
this Agreement "casual dining restaurant industry" consists of "sit down"
restaurants serving alcoholic beverages, with a per guest average guest check of
under $15.00 (adjusted upward each year to recognize Company menu price
increases).
11. Nonsolicitation. The Executive agrees that during the period of his
employment and the Severance Payment Period he will not, either directly or
indirectly, for himself or for any third party, solicit, induce, recruit, or
cause another person in the employ of the Company to terminate his/her
employment for the purpose of joining, associating or becoming employed with any
business or activity which is engaged in the casual dining restaurant industry
or any other segment of the restaurant industry in which the Company may become
involved after the date hereof and prior to the date of any termination of
employment. The Company and the Executive specifically acknowledge and agree
that the foregoing covenants of the Executive in Sections 10 and 11 are
reasonable in content and scope and are given by the Executive for adequate
consideration.
12. Remedies for Breach of Covenants of the Executive. The covenants set
forth in Paragraphs 8 and 9 of this Agreement shall continue to be binding upon
the Executive, notwithstanding the termination of his employment with the
Company for any reason whatsoever. Such covenants shall be deemed and construed
as separate agreements independent of any other provisions of this Agreement and
any other agreement between the Company and the Executive. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any or all of such covenants. It is expressly
agreed that the remedy at law for the breach of any such covenant is inadequate
and injunctive relief shall be available to prevent the breach or any threatened
breach thereof.
13. Termination.
a. The Company may terminate this Agreement and the Executive's
employment hereunder at any time, with or without Cause, upon written
notice to the Executive. Any notice of termination by the Company shall
be sent to each member of the Board within 24 hours after having been
delivered to the Executive. The Executive may either resign upon 30 days
written notice to the Company or may terminate this Agreement and his
employment hereunder with Good Reason at any time.
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<PAGE>
b. In the event of termination by the Company without Cause, the
effective date thereof shall be stated in a written notice to the
Executive, which shall not be earlier than 30 days from the date such
notice is delivered to the Executive. In the event the Company effects a
termination without Cause, the Executive shall be entitled to receive
(i) any bonus amounts as may be payable and accrued but held back
pursuant to the terms of any written plans in which the Executive was a
participant prior to the effective date of the termination, (ii) all
accrued but unpaid salary, and (iii) a Severance Payment for 26
consecutive months beginning with the month in which the termination
occurs.
c. Upon the effective date of any termination by the Company for
Cause, or upon the resignation of the Executive, the Executive shall
only be entitled to receive his salary through such date and any bonus
amounts as may be payable pursuant to the terms of any written plans in
which the Executive was a participant immediately prior to the effective
date of the termination. The Executive shall also be entitled to
exercise his rights under COBRA.
d. The following shall constitute "Cause":
(i) The Executive is convicted of a criminal offense constituting a
felony or involving dishonesty, deceit or moral turpitude; or
(ii) The Executive breaches any material provision of this
Agreement or habitually neglects to perform his duties, and such breach
or neglect is not corrected within 10 days after receipt of written
notice from the Company; or
(iii) The Executive dies or becomes permanently disabled from
continuing to provide the level of service required under this
Agreement.
e. The provisions of Paragraphs 8, 9, 10, 11, 12, 15, 16, 17 and 18
shall survive any termination for Cause.
f. The Executive shall have Good Reason to effect a termination in
the event the Company (i) breaches its obligations to pay any salary,
benefit or bonus due hereunder, (ii) requires the Executive to relocate
more than 50 miles from the greater Kansas City area, (iii)
substantially diminishes the responsibilities of the Executive, or (iv)
substantially increases the Executive's required travel schedule. Upon
any such termination, the Executive shall be entitled to receive a lump
sum payment equal to a Severance Payment multiplied by 26, and the
provisions of Paragraphs 8, 9, 10, 11, 12, 14, 15, 16, 17 and 18 shall
survive the termination. If the Executive waives his right to receive
such lump sum payment, only the provisions of Paragraphs 8, 9, 12, 15,
16, 17 and 18 shall survive the termination. The Executive shall also be
entitled to exercise his rights under COBRA. No termination may be
effected by the Executive for Good Reason unless he shall have delivered
written notice to the Company of the breach and the Company shall not
have cured such breach within 10 days thereafter.
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g. A "Severance Payment" is an amount equal to (i) the Executive's
base salary at the last effective annual rate divided by 12, plus (ii)
the greater of (1) all bonus amounts paid or accrued to the Executive
for the prior fiscal year or (2) the average of the quarterly bonus
amounts paid or accrued (including amounts held-back for later payment)
to the Executive in the fiscal year in which the termination occurred,
annualized and divided by 12.
h. A "Severance Payment Period" is any month in which the Executive
receives a Severance Payment or in the event of a termination under
Paragraph 13(f), the Severance Payment Period is 26 months.
14. Termination After Change in Control.
a. In the event of any one or more than one of a Change in Control
event, as defined below, any termination of Executive's employment with
the Company within the 12 month period following any such Change in
Control, whether by Executive or by the Company and whether with or
without Cause or Good Reason, shall result in the following:
(1) The provisions of Paragraph 10 and 11 shall not apply and shall
be void;
(2) On the tenth business day following the effective date of such
termination, the Executive shall receive (i) a lump sum payment equal to
his (a) his then current annual salary, plus (b) the gross bonus earned
by the Executive, before hold backs, through the end of the prior fiscal
quarter of the year in which the termination becomes effective, divided
by the number of months from the beginning of the year through the end
of such prior fiscal quarter and then multiplied by 26, and (ii) a lump
sum payment equal to all bonus amounts calculated under the Executive
Bonus Plan for each prior fiscal quarter in the fiscal year in which the
termination becomes effective, including the fiscal quarter in which the
termination becomes effective (so long as the termination becomes
effective after the ninth week of such fiscal quarter);
(3) The Executive, at the Company's cost, shall be entitled to
continuation of coverage for 26 months (beginning with the month
subsequent to the effective date of the termination) under all Company
paid or partially paid health, disability, or group life insurance plans
or any retirement, pension, or profit sharing plans, in each case at
such level as had been available to the Executive immediately prior to
the Change in Control; and
(4) At the election of the Executive, any unvested portion of all
stock options held by the Executive as of the day immediately preceding
the effective date of such termination under this Section 14 shall
immediately vest and become exercisable and, for purposes of such
options, such termination shall be deemed to be a termination by the
Company not for cause.
6
<PAGE>
b. Definitions Related to Change in Control.
(1) "Change in Control" means any one of the following: (i)
Continuing Directors no longer constitute at least 2/3 of the Board of
Directors; (ii) any person or group of persons (as defined in Rule 13d-5
under the Securities Exchange Act of 1934 (the "Exchange Act")),
together with its affiliates, become the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or
more of the Company's then outstanding Common Stock or 30% or more of
the combined voting power of the Company's then outstanding securities
(calculated in accordance with Section 13(d)(3) or 14(d) of the Exchange
Act) entitled generally to vote for the election of the Company's
Directors; (iii) the approval by the Company's stockholders of the
merger or consolidation of the Company with any other corporation, the
sale of substantially all of the assets of the Company or the
liquidation or dissolution of the Company, unless, in the case of a
merger or consolidation, the then Continuing Directors in office
immediately prior to such merger or consolidation will constitute at
least 2/3 of the Board of Directors of the surviving corporation of such
merger or consolidation and any parent (as such term is defined in Rule
12b-2 under the Exchange Act) of such corporation; or (iv) at least 2/3
of the then Continuing Directors in office immediately prior to any
other action proposed to be taken by the Company's stockholders or by
the Company's Board of Directors determine that such proposed action, if
taken, would constitute a Change in Control of the Company and such
action is taken.
(2) "Continuing Director" means any individual who either (i) was a
member of the Company's Board of Directors on the date hereof, or (ii)
was designated (before initial election as a Director) as a Continuing
Director by a majority of the then Continuing Directors.
15. Arbitration of Disputes.
a. Any dispute or claim arising out of or relating to this
Agreement or any termination of the Executive's employment shall be
settled by final and binding arbitration in the greater Kansas City
metropolitan area in accordance with the Commercial Arbitration rules of
the American Arbitration Association, and judgment upon the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
b. In the event that the Company does not submit to arbitration
hereunder or submits to arbitration but seeks to nullify or reverse the
effect of such arbitration by alleging that arbitration is unenforceable
against it, the Company shall pay all costs (including expenses and
attorneys' fees) incurred by the Executive as a result of such action by
the Company and if the Company is successful in such attempt, it shall
bear all legal costs incurred by the Executive in any resulting
litigation relating to this Agreement or any termination of the
Executive's employment.
7
<PAGE>
c. Except as contemplated in subparagraph b., above, the Company
shall reimburse the Executive for any attorneys' fees and expenses
incurred by the Executive related to any arbitration hereunder, and
including any actions taken by either party to appeal or enforce the
judgment rendered therein, regardless of the outcome of such
arbitration, up to a maximum amount of $25,000.00. Such reimbursement
shall be made by direct payment to the Executive upon delivery to the
Company of valid invoices and/or receipts relating to such attorneys'
fees and expenses. The Company shall not be entitled to use any lawyer
who is a Company employee to represent it in any dispute or arbitration
related hereto.
d. Except as contemplated in subparagraph b., the fees and expenses
of the arbitration panel shall be borne by the Company.
e. In the event the Executive does not submit to arbitration
hereunder or submits to arbitration but later seeks to nullify or
reverse the effect of such arbitration by alleging that arbitration is
unenforceable against him, then the Company shall be relieved of all
payment obligations under subparagraph c., above.
16. Mitigation. The Executive shall have no duty to attempt to mitigate
the level of benefits payable by the Company to him hereunder and the Company
shall not be entitled to set off against the amounts payable hereunder any
amounts received by the Executive from any other source, including any
subsequent employer.
17. Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
a. If to the Company:
Applebee's International, Inc.
4551 West 107th
Suite 100
Overland Park, Kansas 66207
Attn: General Counsel
b. If to the Executive:
George D. Shadid
801 W. 58th Terrace
Kansas City, MO 64113
Either party may change its address for notice by giving notice in accordance
with the terms of this Paragraph 14.
8
<PAGE>
18. General Provisions.
a. Law Governing. This Agreement shall be governed by and construed
in accordance with the laws of the State of Kansas.
b. Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar
in terms to such illegal, invalid, or unenforceable provision as may be
possible and still be legal, valid or enforceable.
c. Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. The parties recognize, however, that the Indemnification
Agreement between the Company and the Executive dated September 15,
1992, and any Stock Option Agreements, to the extent not lapsed or fully
exercised, continue to be in effect. No terms, conditions, warranties,
other than those contained herein, and no amendments or modifications
hereto shall be binding unless made in writing and signed by the parties
hereto.
d. Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and assigns. This Agreement may not
be assigned by the Executive.
e. Waiver. The waiver by either party hereto of a breach of any
term or provision of this Agreement shall not operate or be construed as
a waiver of a subsequent breach of the same provision by any party or of
the breach of any other term or provision of this Agreement.
f. Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
work, clause, paragraph, or provision of this Agreement.
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
9
<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written above.
EXECUTIVE: APPLEBEE'S INTERNATIONAL, INC.
/s/ George D. Shadid By: /s/ Abe J. Gustin, Jr.
George D. Shadid Title: Chief Executive Officer
THIS AGREEMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 26, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-25-1994 DEC-25-1994
<PERIOD-START> DEC-26-1994 DEC-27-1993 DEC-27-1993
<PERIOD-END> MAR-26-1995 MAR-27-1994 DEC-25-1994
<CASH> 12,922 4,002 9,634
<SECURITIES> 8,990 9,119 8,893
<RECEIVABLES> 7,897 6,087 8,136
<ALLOWANCES> 801 409 740
<INVENTORY> 6,348 3,955 5,159
<CURRENT-ASSETS> 37,411 24,387 33,776
<PP&E> 149,959 104,987 142,071
<DEPRECIATION> 29,791 21,643 27,342
<TOTAL-ASSETS> 187,997 139,248 179,821
<CURRENT-LIABILITIES> 35,183 26,921 33,626
<BONDS> 34,303 14,625 34,312
<COMMON> 284 282 283
0 0 0
0 0 0
<OTHER-SE> 115,704 94,517 108,505
<TOTAL-LIABILITY-AND-EQUITY> 187,997 139,248 179,821
<SALES> 66,021 49,847 231,160
<TOTAL-REVENUES> 75,439 56,505 262,579
<CGS> 55,987 43,513 200,208
<TOTAL-COSTS> 64,835 50,300 229,036
<OTHER-EXPENSES> 2,311 597 3,814
<LOSS-PROVISION> 61 87 418
<INTEREST-EXPENSE> 614 299 2,029
<INCOME-PRETAX> 7,937 5,588 28,600
<INCOME-TAX> 3,684 2,187 10,777
<INCOME-CONTINUING> 4,253 3,401 17,823
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 4,253 3,401 17,823
<EPS-PRIMARY> .15 .12 .64
<EPS-DILUTED> .15 .12 .64
</TABLE>
