UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 30, 1998
-------------------------------
Commission File Number: 000-17962
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Applebee's International, Inc.
------------------------------------------------
(Exact name of registrant as specified in its
charter)
Delaware 43-1461763
------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or No.)
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)
None
------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
This is an amendment to a Form 8-K of Applebee's International, Inc. (the
"Company") dated December 23, 1997 filed with the Securities and Exchange
Commission on January 12, 1998.
Item 2. Acquisition or Disposition of Assets
On December 23, 1997, the Company entered into an agreement with Apple South,
Inc. ("Apple South"), its largest franchisee, to acquire 31 Applebee's
restaurants plus one restaurant under construction in the Virginia markets of
Norfolk, Richmond, Roanoke and Charlottesville, referred to herein as the
"Virginia Acquisition." The Virginia Acquisition was completed on March 30,
1998, and was effective immediately after the close of business on March 29,
1998. The total purchase price was $94,749,000 and was paid in cash on March 30,
1998. The purchase price reflects $93,400,000 for the 32 restaurants referred to
above plus $1,349,000 for one additional restaurant that was opened by Apple
South prior to closing, as well as normal closing 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 1998 financial statements
subsequent to the date of acquisition.
Item 7. Financial Statements and Exhibits Attached
(a) Financial Statements of the Business Acquired
1. The statement of assets to be acquired and liabilities to be
assumed of the Virginia Restaurants of Apple South, Inc. as of
December 28, 1997 and the related statements of earnings and
cash flows for the year then ended, with the report of KPMG Peat
Marwick LLP.
(b) Pro Forma Financial Information
1. Pro forma combined balance sheet as of March 29, 1998.
2. Pro forma combined statements of earnings for the 13 weeks ended
March 29, 1998 and March 30, 1997, and for the fiscal year ended
December 28, 1997, prepared in accordance with Article 11 of
Regulation S-X.
(c) Exhibits
1. Asset Purchase Agreement dated December 23, 1997 by and among
Applebee's International, Inc. and Apple South, Inc.
(incorporated by reference to the Registrant's Current Report on
Form 8-K dated December 23, 1997).
2. Consent of KPMG Peat Marwick LLP.
2
<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.
APPLEBEE'S INTERNATIONAL, INC.
(Registrant)
Date: June 1, 1998 By: /s/ George D. Shadid
------------------------- ------------------------
George D. Shadid
Executive Vice President and
Chief Financial Officer
3
<PAGE>
Item 7 (a) 1.
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Financial Statements
December 28, 1997
With Independent Auditors' Report Thereon
<PAGE>
Independent Auditors' Report
The Board of Directors
Apple South, Inc.:
We have audited the accompanying statement of assets to be acquired and
liabilities to be assumed of the Virginia Restaurants of Apple South, Inc. (the
"Virginia Restaurants," as defined at note 1) as of December 28, 1997, and the
related statements of earnings and cash flows for the year then ended. These
financial statements are the responsibility of Apple South, Inc.'s management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets to be acquired and liabilities to be assumed
of the Virginia Restaurants of Apple South, Inc. as of December 28, 1997, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
March 6, 1998
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Statement of Assets to be Acquired
and Liabilities to be Assumed
December 28, 1997
(In thousands of dollars)
Assets
Current assets:
Cash $ 45
Inventories 520
Prepaid expenses and other 109
---------
Total current assets 674
Premises and equipment, net 34,832
Franchise costs, net 713
Other assets 151
--------
Total assets 36,370
Liabilities
Noncurrent liabilities - accrued rent 20
--------
Net assets $ 36,350
========
See accompanying notes to financial statements.
2
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Statement of Earnings
Year ended December 28, 1997
(In thousands of dollars)
Restaurant sales $ 61,283
Restaurant operating expenses:
Food and beverage 16,555
Payroll and benefits 17,095
Depreciation and amortization 2,175
Other restaurant operating expenses 12,522
General and administrative 1,654
--------
Total operating expenses 50,001
--------
Operating income 11,282
Other expense (1)
--------
Earnings before income taxes 11,281
Income taxes 4,041
--------
Net earnings $ 7,240
========
See accompanying notes to financial statements.
3
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Statement of Cash Flows
Year ended December 28, 1997
(In thousands of dollars)
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net earnings $ 7,240
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 2,175
Loss on disposal of premises and equipment 1
Deferred income taxes 925
Changes in operating assets and liabilities:
Inventories (54)
Prepaid expenses and other (67)
------
Net cash provided by operating activities 10,220
------
Cash flows from investing activities:
Capital expenditures (6,215)
Additions to franchise costs (75)
------
Net cash used in investing activities (6,290)
-------
Cash used in financing activities - net transfers to Apple South, Inc. (3,926)
------
Net increase in cash 4
Cash at December 29, 1996 41
------
Cash at December 28, 1997 $ 45
======
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Notes to Financial Statements
December 28, 1997
(1) Basis of Presentation
Apple South, Inc. ("Apple South") and Applebee's International, Inc.
("AII") entered into an asset purchase agreement (the "Agreement") dated
December 23, 1997 under which, on the contractually designated closing
date, AII will acquire 31 operating Applebee's Neighborhood Grill and Bar
restaurants and one restaurant under construction (the "Virginia
Restaurants") in the Charlottesville, Norfolk, Richmond, and Roanoke,
Virginia areas from Apple South for a purchase price of $93.4 million in
cash. AII will acquire, for additional consideration approximating
out-of-pocket costs, certain construction in progress on other sites at
the effective closing date. Included in the Agreement is the release by
Apple South of its rights to future development of Applebee's
Neighborhood Grill and Bar restaurants in the defined market area of the
Virginia Restaurants. The accompanying financial statements present the
assets to be acquired and liabilities to be assumed and the results of
operations and cash flows of the Virginia Restaurants, based upon the
structure of the transaction as described in the Agreement. The
transaction as set forth in the Agreement is hereinafter referred to as
the Acquisition.
The financial statements are not intended to be a complete presentation
of the financial position, results of operations, and cash flows as if
the Virginia Restaurants had operated as a stand-alone company.
Apple South provides various services to the Virginia Restaurants
including, but not limited to, facilities management, data processing,
accounting, recruiting, risk management, training, and marketing. Apple
South allocates these expenses on the basis of direct usage when
identifiable, with the remainder allocated equally among all of Apple
South's restaurants or allocated on the basis of each restaurant's
respective revenues. Corporate costs associated with maintenance of a
centralized administrative function for the benefit of all Apple South
divisions have not been allocated to the Virginia Restaurants. In the
opinion of the management of Apple South, the foregoing methods of
allocating costs are reasonable. The expenses allocated to the Virginia
Restaurants for these services are not necessarily indicative of the
expenses that would have been incurred if the Virginia Restaurants had
been a separate, independent entity and had otherwise managed these
functions. Subsequent to the acquisition, AII will manage these
functions.
The Virginia Restaurants' operations have been financed through their
operating cash flow, and investments by and advances from Apple South.
Interest expense has not been allocated to the Virginia Restaurants.
AII's capital structure is expected to be different from Apple South's
and, accordingly, any interest expense reflected in these financial
statements would not be indicative of the interest expense that would be
associated with the Virginia Restaurants as a part of AII.
The Virginia Restaurants participate in a centralized cash management
system wherein cash receipts are transferred to and cash disbursements
are funded by Apple South. Since cash and cash equivalents related to the
Virginia Restaurants will not be acquired by AII to the extent they are
not physically held in the restaurants as an opening cash fund, they are
excluded from the accompanying statement of assets to be acquired and
liabilities to be assumed. Similarly, credit card accounts receivable at
December 28, 1997 will not be acquired by AII and have been excluded from
the accompanying statement of assets to be acquired and liabilities to be
assumed.
5
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Notes to Financial Statements
(2) Summary of Significant Accounting Policies
Use of Estimates
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions related to the reported amount of assets and liabilities and
the disclosure of contingent assets and liabilities. Actual results may
ultimately differ from estimates.
Fiscal Year
The Virginia Restaurants' 1997 fiscal year contained 52 weeks and ended
on December 28, 1997, the Sunday closest to December 31.
Inventories
Inventories consist primarily of food, beverages, and supplies and are
stated at the lower of cost (using the first-in, first-out method) or
market.
Premises and Equipment
Premises and equipment are stated at cost, less any valuation adjustments
made for asset impairment under Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of ("SFAS No. 121"). Depreciation of
premises and equipment is calculated using the straight-line method over
the estimated useful lives of the related assets, which approximates 25
years for buildings and seven years for equipment. Leasehold improvements
are depreciated using the straight-line method over the shorter of the
lease term, including renewal periods, or the estimated useful life of
the asset.
Franchise Costs
The costs related to the acquisition of Applebee's franchises are
amortized over their estimated useful lives, principally 20 years, using
the straight-line method. Accumulated amortization of Applebee's
franchise costs for the Virginia Restaurants amounted to $202,000 at
December 28, 1997. The franchise agreements for the Applebee's
restaurants also require payment of royalty fees equal to 4% of sales and
advertising fees equal to 1-1/2% of sales. Such fees, which are expensed
as incurred, totaled $3,371,000 for the Virginia Restaurants in 1997.
Development Costs
Certain direct and indirect costs are capitalized in conjunction with
acquiring and developing new restaurant sites and amortized over the life
of the related building.
6
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Notes to Financial Statements
Long-Lived Asset Impairment
The long-lived assets of the Virginia Restaurants are reviewed
periodically for impairment, or whenever events or changes in
circumstances indicate that the carrying amount of a restaurant may not
be recoverable. An impaired restaurant is written-down to its estimated
fair market value based on the best information available. Fair market
value is generally estimated by discounting future cash flows.
Considerable judgment is necessary to estimate discounted cash flows.
Accordingly, actual results could vary significantly from such estimates.
In accordance with SFAS No. 121, depreciation was suspended on the
Virginia Restaurants on December 16, 1997, when management finalized the
decision to dispose of these assets.
Pre-Opening Costs
Pre-opening costs are incurred before a restaurant is opened and consist
primarily of wages and salaries, hourly employee recruiting, license
fees, meals, lodging, and travel plus the cost of hiring and training the
management teams. Pre-opening costs are expensed in the first full month
of a restaurant's operations.
Advertising
Advertising costs are generally expensed over the period covered by the
related promotions. Total advertising expense for the Virginia
Restaurants included in other operating expenses, exclusive of amounts
paid to the franchisor as part of the required advertising fees under the
franchise agreement, totaled $1,842,000 in 1997.
Stock-Based Compensation
The Virginia Restaurants measure stock-based employee compensation cost
in accordance with APB Opinion No. 25, Accounting for Stock Issued to
Employees, and its related interpretations. Accordingly, compensation
cost for Apple South stock option grants to Virginia Restaurant employees
is measured as the excess of the quoted market price of Apple South's
common stock at the grant date over the amount the employee must pay for
the stock. Apple South's policy is to grant stock options at fair market
value at the date of grant.
7
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Notes to Financial Statements
Income Taxes
The operations of the Virginia Restaurants are included in the
consolidated income tax returns of Apple South. Pursuant to the
Agreement, Apple South will retain all income tax liabilities and rights
to all tax refunds relating to operations prior to the effective closing
date of the Acquisition. Accordingly, the statement of net assets to be
acquired and liabilities to be assumed does not reflect income tax
receivables or payables, or deferred tax assets or liabilities. The
income tax provision included in the statement of earnings has been
determined as if the Virginia Restaurants were a separate taxpayer. As
Apple South manages its tax position on a consolidated basis, which takes
into account the results of all of its operations, the Virginia
Restaurants' effective tax rate could vary in the future from that
reported in the accompanying statement of earnings. The Virginia
Restaurant's future effective tax rate will largely depend on AII's
structure and tax strategies.
(3) Premises and Equipment
A summary of premises and equipment at December 28, 1997 follows (in
thousands of dollars):
Land $ 10,909
Buildings 20,540
Equipment 10,261
Leasehold improvements 1,223
Construction in progress 1,026
-------
Total premises and equipment 43,959
Less accumulated depreciation and amortization 9,127
-------
Premises and equipment, net $ 34,832
=======
Included in construction in progress at December 28, 1997 is
approximately $210,000 of unallocated market and site development costs
associated with development of the overall Virginia territory.
(4) Leases
The Virginia Restaurants have various leases for land and buildings. Land
and building lease terms range from 10 to 15 years, with renewal options
ranging from five to 20 years. Future minimum lease payments do not
include amounts payable by the Virginia Restaurants for maintenance
costs, real estate taxes, insurance, etc., or contingent rentals payable
based on a percentage of sales in excess of stipulated amounts.
8
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Notes to Financial Statements
Three of the Virginia Restaurants are leased as part of a $30,000,000
leveraged lease transaction entered into by Apple South in 1995. This
leveraged lease is structured as a series of individual leases. The
lessor has agreed to sell assets leased for the Virginia Restaurants in
connection with the sale of such restaurants.
Future minimum lease payments under noncancelable operating leases
related to the Virginia Restaurants at December 28, 1997 are as follows
(in thousands of dollars):
1998 $ 656
1999 666
2000 671
2001 671
2002 671
Later years 3,955
-----
Total minimum lease payments $ 7,290
=====
Total rental expense related to cancelable and noncancelable operating
leases of the Virginia Restaurants, including contingent rentals of
$7,000 was $781,000 in 1997.
(5) Income Taxes
The components of the provision for income taxes for the year ended
December 28, 1997 are as follows (in thousands of dollars):
Current Deferred Total
------- -------- -----
Federal $ 2,506 745 3,251
State 610 180 790
------- --- -------
Total $ 3,116 925 4,041
======= === =======
A reconciliation of the Federal statutory income tax rate to the
effective income tax rate applied to earnings before income taxes in the
accompanying statement of earnings for the year ended December 28, 1997
follows:
Tax at Federal statutory rate 35.0% Increase (decrease) in taxes due
to:
State income tax, net of Federal benefit 4.6
FICA tip and targeted jobs tax credits (4.5)
Other, net .7
-----
Effective tax rate 35.8%
=====
9
<PAGE>
(Continued)
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Notes to Financial Statements
(6) Employee Benefit Plans
The Virginia Restaurants participate in Apple South's noncontributory
Employee Stock Ownership Plan (the "Plan"), which covers substantially
all full-time employees. In accordance with the terms of the Plan, Apple
South may make contributions to the Plan in amounts as determined by the
Apple South Board of Directors. Participants become 20% vested in their
accounts after three years of service, escalating 20% each year
thereafter until they are fully vested. No contribution was made to the
Plan for any Apple South employees, including those in the Virginia
Restaurants, in 1997.
Additionally, Virginia Restaurant employees are eligible to participate
in the Apple South, Inc. Profit Sharing Plan and Trust established in
accordance with Section 401(k) of the Internal Revenue Code (the "401(k)
Plan"). The 401(k) Plan allows eligible participating employees to defer
receipt of a portion of their compensation and contribute such amount to
one or more investment funds. Employee contributions are matched by Apple
South dollar for dollar for the first 2% of the employee's income
deferred. Matching funds vest at the rate of 20% each year, beginning
after three years of service. Apple South contributions associated with
employees of the Virginia Restaurants totaled $55,000 in 1997.
(7) Employee Stock Option Plans
Key employees of the Virginia Restaurants were granted stock options
under Apple South's three long-term incentive plans - the 1988 Stock
Option Plan ("Stock Option Plan"), and the 1993 and 1995 Stock Option
Incentive Plans (the "Stock Incentive Plans"). Generally, options awarded
under these plans are granted at prices which equate to fair market value
on the date of the grant, are exercisable over three to ten years, and
expire ten years subsequent to award. Immediately following the sale of
the Virginia Restaurants to AII, all outstanding options awarded to these
key employees, approximately 74,000 options, will be canceled. Three
employees of the Virginia Restaurants will receive cash from Apple South
totaling $35,000 as compensation for this option cancellation associated
with the Acquisition.
Apple South adopted the disclosure provisions of Statement of Financial
Accounting Standards No. 123 ("SFAS No. 123"), Accounting for Stock-Based
Compensation, but continues to measure stock-based compensation cost in
accordance with Accounting Principles Board Opinion No. 25 and its
related interpretations. Had compensation cost for the Apple South stock
option plans been determined based upon the fair value methodology
prescribed in SFAS No. 123, the Virginia Restaurants' net earnings would
have been reduced by approximately $57,000 in 1997. The fair value of the
Apple South stock options granted to Virginia Restaurant employees during
1997 is estimated at $8.90 per option on the date of the grant. The fair
value of these options was determined using the Black-Scholes
option-pricing model based on the following assumptions: dividend yield
of 0.28%, volatility of 58%, risk-free interest rate of 5.8%, and an
expected life of 6.7 years.
10
<PAGE>
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
Notes to Financial Statements
The above pro forma effect on earnings is not necessarily representative
of the effects of any possible AII stock-based awards on future pro forma
net income because: (1) future grants of employee stock options by AII
management may not be comparable to awards made by Apple South to its
employees; (2) the assumptions used to compute the fair value of any
stock option awards will be specific to AII and therefore may not be
comparable to the Apple South assumptions used; and (3) it excludes the
pro forma compensation expense related to unvested stock options granted
before 1995.
(8) Contingencies
The Virginia Restaurants are involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material
adverse effect on the Virginia Restaurants' financial position or results
of operations.
11
<PAGE>
Item 7 (b)
APPLEBEE'S INTERNATIONAL, INC. AND
THE VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information combines the historical
financial information of Applebee's International, Inc. and subsidiaries (the
"Company") and the Virginia Restaurants of Apple South, Inc.
(the "Virginia Restaurants").
On December 23, 1997, the Company entered into an agreement with Apple South,
Inc. ("Apple South"), its largest franchisee, to acquire 31 Applebee's
restaurants plus one restaurant under construction in the Virginia markets of
Norfolk, Richmond, Roanoke and Charlottesville, referred to herein as the
"Virginia Acquisition." The Virginia Acquisition was completed on March 30,
1998, and was effective immediately after the close of business on March 29,
1998. The total purchase price was $94,749,000 and was paid in cash on March 30,
1998. The purchase price reflects $93,400,000 for the 32 restaurants referred to
above plus $1,349,000 for one additional restaurant that was opened by Apple
South prior to closing, as well as normal closing adjustments. The Virginia
Acquisition is being accounted for by the Company as a purchase.
The unaudited Pro Forma Combined Balance Sheet combines the March 29, 1998
historical consolidated balance sheet of the Company and the historical balance
sheet of the Virginia Restaurants. The balance sheets are combined on a pro
forma basis as if the Virginia Acquisition had been effective as of March 29,
1998, after giving effect to various accounting adjustments for purchase
accounting rules as well as the financing of the transaction.
The unaudited Pro Forma Combined Statements of Earnings present the combined
historical results of operations of the Company and the Virginia Restaurants for
the 13 weeks ended March 29, 1998 and March 30, 1997 and for the fiscal year
ended December 28, 1997, as if the final closing of the acquisition had been
effective on the first day of each respective period, after giving effect to
various accounting adjustments. Results of operations for the 13 weeks ended
March 30, 1997 and the fiscal year ended December 28, 1997 include the
operations of 28 restaurants that were open as of the beginning of the 1997
fiscal year. In addition, the fiscal year ended December 28, 1997 includes the
results of operations of three restaurants that were open for a portion of such
year (the openings occurred in April, June and December of 1997). Results of
operations for the 13 weeks ended March 29, 1998 include the operations of 31
restaurants that were open for the entire period, and two restaurants that were
opened in February 1998.
The historical annual statements of earnings for the Company and the Virginia
Restaurants were derived from the audited financial statements of the respective
companies. The historical statements of earnings for the 13 weeks ended March
29, 1998 and March 30, 1997 were derived from the Company's Quarterly Reports on
Form 10-Q and information provided to the Company by Apple South.
1
<PAGE>
The unaudited pro forma combined financial information has been prepared using
the assumptions set forth in the Notes to Pro Forma Financial Information and
should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto, which have been previously filed with the
Securities and Exchange Commission in the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1997 and the Quarterly Report on Form
10-Q for the period ended March 29, 1998 and with the financial statements of
the Virginia Restaurants and notes thereto filed herewith.
The unaudited pro forma combined financial information is intended for
informational purposes and is not necessarily indicative of the future financial
position or future results of operations of the Company after the Virginia
Acquisition or of the financial position or the results of operations of the
Company that would have actually occurred had the Virginia Acquisition been
consummated at the beginning of the periods presented.
2
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND
THE VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
PRO FORMA COMBINED BALANCE SHEET
As of March 29, 1998
(in thousands)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
----------------------------- -----------------------------
Virginia Pro Forma
Company Restaurants (a) Debit Credit Combined
-------------- -------------- -------------- -------------- -------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 14,818 $ 48 (c) $ 1,041 (b) $ 15,907
Short-term investments......................... 6,421 -- 6,421
Receivables.................................... 17,264 -- 17,264
Inventories.................................... 4,513 590 489 (c) $ 590 (g) 5,002
Prepaid and other current assets............... 1,949 190 60 (c) 190 (g) 2,009
-------------- -------------- ---------- ---------- -------------
Total current assets........................ 44,965 828 1,590 780 46,603
Property and equipment, net......................... 278,791 37,775 45,485 (c) 37,775 (g) 329,328
5,052 (d)
Goodwill, net....................................... 47,356 -- 55,772 (c) 103,128
Franchise interest and rights, net.................. 4,366 788 788 (f) 4,366
Other assets........................................ 5,134 103 4,000 (c) 91 (e) 9,043
103 (g)
-------------- -------------- ---------- ---------- -------------
$ 380,612 $ 39,494 $111,899 $39,537 $ 492,468
============== ============== ========== ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable............... $ 22,159 $ -- $20,357 (b) $1,250 (b) $ 3,052
Accounts payable............................... 16,163 -- 5,920 (b) 22,083
Accrued expenses and other current 32,071 19 700 (b) 105 (c) 31,476
liabilities......................................... 19 (g)
Accrued income taxes........................... 7,937 -- 7,937
-------------- -------------- ---------- ---------- -------------
Total current liabilities................... 78,330 19 21,076 7,275 64,548
-------------- -------------- ---------- ---------- -------------
Non-current liabilities:
Notes payable - less current portion........... 22,206 -- 17,143 (b) 138,750 (b) 148,865
5,052 (d)
Franchise deposits............................. 1,576 -- 1,576
Deferred income taxes.......................... 380 -- 380
-------------- -------------- ---------- ---------- -------------
Total non-current liabilities............... 24,162 -- 17,143 143,802 150,821
-------------- -------------- ---------- ---------- -------------
Total liabilities........................... 102,492 19 38,219 151,077 215,369
-------------- -------------- ---------- ---------- -------------
Stockholders' equity:
Preferred stock................................ -- -- --
Common stock................................... 318 -- 318
Additional paid-in capital..................... 156,808 -- 156,808
Retained earnings.............................. 146,624 39,475 930 (b) 145,603
91 (e)
788 (f)
38,687 (g)
Unrealized gain on short-term investments,
net of income taxes......................... 109 -- 109
-------------- -------------- ---------- ---------- -------------
303,859 39,475 40,496 -- 302,838
Treasury stock................................. (25,739) -- (25,739)
-------------- -------------- ---------- ---------- -------------
Total stockholders' equity.................. 278,120 39,475 40,496 -- 277,099
-------------- -------------- ---------- ---------- -------------
$ 380,612 $ 39,494 $78,715 $151,077 $ 492,468
============== ============== ========== ========== =============
</TABLE>
3
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND
THE VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
13 Weeks Ended March 29, 1998
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------------ ----------------------------
Virginia Pro Forma
Company Restaurants(a) Debit Credit Combined
-------------- --------------- ------------- -------------- --------------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Company restaurant sales.................... $ 129,758 $ 16,667 $ 146,425
Franchise income............................ 16,845 -- $ 727 (h) 16,118
-------------- --------------- ---------- ---------- --------------
Total operating revenues................. 146,603 16,667 727 162,543
-------------- --------------- ---------- ---------- --------------
Cost of Company restaurant sales:
Food and beverage........................... 35,368 4,550 39,918
Labor....................................... 42,323 4,894 47,217
Direct and occupancy........................ 33,219 3,626 712 (i) $ 365 (a) 36,430
95 (d)
667 (h)
Pre-opening expense......................... 481 -- 140 (a) 621
-------------- --------------- ---------- ---------- --------------
Total cost of Company restaurant sales... 111,391 13,070 852 1,127 124,186
-------------- --------------- ---------- ---------- --------------
General and administrative expenses.............. 14,454 450 225 (a) 15,129
Amortization of intangible assets................ 875 -- 697 (j) 1,572
Loss on disposition of restaurants and equipment. 458 -- 458
-------------- --------------- ---------- ---------- --------------
Operating earnings............................... 19,425 3,147 2,501 1,127 21,198
-------------- --------------- ---------- ---------- --------------
Other income (expense):
Investment income........................... 220 -- 220
Interest expense............................ (751) -- 2,319 (k) (3,165)
95 (d)
Other income (expense)...................... 167 (4) 163
-------------- --------------- ---------- ---------- --------------
Total other income (expense)............. (364) (4) 2,414 (2,782)
-------------- --------------- ---------- ---------- --------------
Earnings before income taxes..................... 19,061 3,143 4,915 1,127 18,416
Income taxes..................................... 7,091 1,126 1,496 (l) 6,721
-------------- --------------- ---------- ---------- --------------
Net earnings..................................... $ 11,970 $ 2,017 $ 4,915 $ 2,623 $ 11,695
============== =============== ========== ========== ==============
Basic net earnings per common share.............. $ 0.39 $ 0.38
============== ==============
Diluted net earnings per common share............ $ 0.39 $ 0.38
============== ==============
Basic weighted average shares outstanding........ 30,611 30,611
============== ==============
Diluted weighted average shares outstanding...... 30,734 30,734
============== ==============
</TABLE>
4
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND
THE VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
13 Weeks Ended March 30, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------------ ----------------------------
Virginia Pro Forma
Company Restaurants(a) Debit Credit Combined
-------------- --------------- ------------- -------------- -------------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C>
Company restaurant sales.................... $ 100,843 $ 14,761 $ 115,604
Franchise income............................ 15,409 -- $ 590 (h) 14,819
-------------- --------------- ---------- ---------- -------------
Total operating revenues................. 116,252 14,761 590 130,423
-------------- --------------- ---------- ---------- -------------
Cost of Company restaurant sales:
Food and beverage........................... 27,721 4,072 31,793
Labor....................................... 32,101 4,096 36,197
Direct and occupancy........................ 26,022 3,486 95 (i) $ 127(a) 28,792
94(d)
590(h)
Pre-opening expense......................... 510 -- 510
-------------- --------------- ---------- ---------- -------------
Total cost of Company restaurant sales... 86,354 11,654 95 811 97,292
-------------- --------------- ---------- ---------- -------------
General and administrative expenses.............. 12,446 399 127 (a) 12,972
Amortization of intangible assets................ 568 -- 697 (j) 1,265
Loss on disposition of restaurants and equipment. 233 -- 233
-------------- --------------- ---------- ---------- -------------
Operating earnings............................... 16,651 2,708 1,509 811 18,661
-------------- --------------- ---------- ---------- -------------
Other income (expense):
Investment income........................... 933 -- 933
Interest expense............................ (359) -- 2,445 (k) (2,898)
94 (d)
Other income (expense)...................... 148 (1) 147
-------------- --------------- ---------- ---------- -------------
Total other income (expense)............. 722 (1) 2,539 (1,818)
-------------- --------------- ---------- ---------- -------------
Earnings before income taxes..................... 17,373 2,707 4,048 811 16,843
Income taxes..................................... 6,497 970 1,279(l) 6,188
-------------- --------------- ---------- ---------- -------------
Net earnings..................................... $ 10,876 $ 1,737 $ 4,048 $ 2,090 $ 10,655
============== =============== ========== ========== =============
Basic net earnings per common share.............. $ 0.35 $ 0.34
============== =============
Diluted net earnings per common share............ $ 0.34 $ 0.34
============== =============
Basic weighted average shares outstanding........ 31,310 31,310
============== =============
Diluted weighted average shares outstanding...... 31,606 31,606
============== =============
</TABLE>
5
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND
THE VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
PRO FORMA COMBINED STATEMENT OF EARNINGS
Fiscal Year Ended December 28, 1997
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments
------------------------------ ----------------------------
Virginia Pro Forma
Company Restaurants(a) Debit Credit Combined
-------------- --------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Company restaurant sales.................... $ 452,173 $ 61,283 $ 513,456
Franchise income............................ 63,647 -- $ 2,541 (h) 61,106
-------------- --------------- ---------- ---------- -------------
Total operating revenues................. 515,820 61,283 2,541 574,562
-------------- --------------- ---------- ---------- -------------
Cost of Company restaurant sales:
Food and beverage........................... 124,469 16,555 141,024
Labor....................................... 145,165 17,095 162,260
Direct and occupancy........................ 114,196 14,697 398 (i) $ 686(a) 125,773
381(d)
2,451(h)
Pre-opening expense......................... 3,661 -- 159 (a) 3,820
-------------- --------------- ---------- ---------- -------------
Total cost of Company restaurant sales... 387,491 48,347 557 3,518 432,877
-------------- --------------- ---------- ---------- -------------
General and administrative expenses.............. 52,579 1,654 527 (a) 54,760
Amortization of intangible assets................ 3,258 -- 2,789 (j) 6,047
Loss on disposition of restaurants and equipment. 1,209 -- 1,209
-------------- --------------- ---------- ---------- -------------
Operating earnings............................... 71,283 11,282 6,414 3,518 79,669
-------------- --------------- ---------- ---------- -------------
Other income (expense):
Investment income........................... 1,834 -- 1,834
Interest expense............................ (1,705) -- 9,779 (k) (11,865)
381 (d)
Other income (expense)...................... 389 (1) 388
-------------- --------------- ---------- ---------- -------------
Total other income (expense)............. 518 (1) 10,160 (9,643)
-------------- --------------- ---------- ---------- -------------
Earnings before income taxes..................... 71,801 11,281 16,574 3,518 70,026
Income taxes..................................... 26,710 4,041 5,157(l) 25,594
-------------- --------------- ---------- ---------- -------------
Net earnings..................................... $ 45,091 $ 7,240 $ 16,574 $ 8,675 $ 44,432
============== =============== ========== ========== =============
Basic net earnings per common share.............. $ 1.44 $ 1.41
============== =============
Diluted net earnings per common share............ $ 1.43 $ 1.40
============== =============
Basic weighted average shares outstanding........ 31,401 31,401
============== =============
Diluted weighted average shares outstanding...... 31,640 31,640
============== =============
</TABLE>
6
<PAGE>
APPLEBEE'S INTERNATIONAL, INC. AND
VIRGINIA RESTAURANTS OF APPLE SOUTH, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION
(a) Certain amounts reported in the financial statements of the Virginia
Restaurants have been reclassified to conform to the Company's
financial statement classifications and presentations.
(b) On March 30, 1998, concurrently with the Virginia Acquisition, the
Company entered into a bank credit agreement that provides for
$225,000,000 in senior secured credit facilities, consisting of an
eight-year senior secured term loan of $125,000,000 and a five-year
secured working capital facility of $100,000,000. On March 30, 1998,
$125,000,000 was borrowed under the term loan facility and $15,000,000
was borrowed under the working capital facility. Total acquisition and
financing fees are estimated to be approximately $11,000,000. Of this
amount, $5,080,000 was paid directly from the proceeds of the
financing, and the remaining $5,920,000 is reflected in accounts
payable in the accompanying pro forma adjustments. The total proceeds
were utilized as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price paid to Apple South $ 94,749
Repayment of certain existing indebtedness 37,500
Prepayment penalty on a portion of the repaid debt 930
Payment of accrued interest 700
Payment of certain transaction fees and expenses related to the
financing and the Virginia Acquisition 5,080
Proceeds remaining to be utilized for working capital needs and
general corporate purposes 1,041
----------------
Total proceeds from financing $ 140,000
================
</TABLE>
(c) To allocate the purchase price paid to Apple South of $94,749,000 plus
estimated acquisition and financing fees of $11,000,000 to the fair
value of net assets acquired, based upon an independent appraisal. The
total of $105,749,000 is allocated in the pro forma financial
statements as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Property and equipment $ 45,485
Deferred financing costs 4,000
Inventories 489
Goodwill 55,772
Petty cash 48
Prepaid and other current assets 60
Accrued expenses (105)
----------------
$ 105,749
================
</TABLE>
(d) To record capitalized leases of $5,052,000 for three of the restaurants
acquired and to reclassify the rent payments to interest expense.
7
<PAGE>
(e) To write-off the unamortized balance of deferred financing costs
related to certain indebtedness repaid by the Company. In addition to
this amount, the $930,000 prepayment penalty included in (b) above will
be reflected as an extraordinary loss in the second quarter of 1998
and, accordingly, is not reflected as a pro forma adjustment in the
accompanying statements of earnings.
(f) To write-off the unamortized balance of $788,000 for franchise fees
paid by Apple South to the Company.
(g) In accordance with the acquisition agreement, certain assets and
liabilities of the Virginia Restaurants were not acquired or assumed as
part of the Virginia Acquisition. Accordingly, such net assets and the
related equity are eliminated from the pro forma combined balance
sheet.
(h) To eliminate franchise fees and royalties received by the Company from
Apple South for the Virginia Restaurants during the pro forma period.
(i) To reflect the Company's depreciation and amortization for the pro
forma period, net of any historical depreciation and amortization
recorded by Apple South for the Virginia Restaurants, related to the
portion of the purchase price allocated to property and equipment
acquired. On December 16, 1997, Apple South suspended depreciation and
amortization on its long-lived assets for the Applebee's division and,
accordingly, no historical depreciation was recorded in the first
quarter of 1998 for the Virginia Restaurants. For pro forma purposes,
buildings are depreciated over an estimated remaining useful life of 18
to 20 years, and furniture and equipment are depreciated over an
estimated remaining useful life of six years. Leasehold improvements
are amortized using the straight-line method over the lesser of
expected remaining lease terms or estimated useful lives of
improvements.
(j) To reflect the Company's pro forma amortization related to the portion
of the Virginia Acquisition purchase price allocated to goodwill.
Goodwill is amortized for pro forma purposes using the straight-line
method over a 20-year period.
(k) To reflect interest expense related to the financing of the acquisition
and repayment of certain existing indebtedness as discussed in note (b)
above. The senior term loan bears interest at either the bank's prime
rate plus 1.25% or LIBOR plus 2.25%, at the Company's option. The
working capital facility bears interest at either the bank's prime rate
plus 0.375% or LIBOR plus 1.375%, at the Company's option. A commitment
fee of 0.30% is payable on any unused portion of the working capital
facility. In connection with the senior term loan, the Company has
entered into interest rate swap agreements to manage its exposure to
interest rate fluctuations. The agreements are effective beginning May
1, 1998, and have maturity dates ranging from four to seven years for
an aggregate notional amount of $100,000,000 for three-month LIBOR
rates ranging from 5.91% to 6.05%. The following table presents the
components of the pro forma adjustment (in thousands):
8
<PAGE>
<TABLE>
<CAPTION>
13 Weeks Ended Fiscal Year Ended
----------------------------------------- --------------------
March 29, March 30, December 28,
1998 1997 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Interest on $125.0 million senior term loan at an
average interest rate of 8.2145% $ 2,596 $ 2,596 $ 10,382
Commitment fees on $100.0 million working capital
facility at 0.30% 76 76 304
Amortization of deferred financing costs 158 158 633
Reduction in interest expense due to repayment of
$20.0 million of existing indebtedness at 7.70% (385) (385) (1,540)
Reduction in interest expense for one-time
commitment fees on $225.0 million senior credit
facilities (126) - -
-------------------- -------------------- --------------------
Pro forma adjustment $ 2,319 $ 2,445 $ 9,779
==================== ==================== ====================
</TABLE>
(l) To adjust income tax expense for the effects of the above pro forma
adjustments at a statutory rate of 39.5%.
9
<PAGE>
Item 7 (c) 2.
CONSENT OF KPMG Peat Marwick LLP.
The Board of Directors
Apple South, Inc.:
We consent to the incorporation by reference in the registration statements
(Nos. 33-72282, 333-01969, 333-17823, and 333-17825) on Form S-8 and in the
registration statements (Nos. 33-59421 and 33-62419) on Form S-3 of Applebee's
International, Inc. of our report dated March 6, 1998 with respect to the
statement of assets to be acquired and liabilities to be assumed of the Virginia
Restaurants of Apple South, Inc. as of December 28, 1997, and the related
statements of earnings and cash flows for the year then ended, which report
appears in the Form 8-K/A of Applebee's International, Inc. dated March 30,
1998, and to be filed June 2, 1998.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
May 29, 1998
