UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-K/A
AMENDMENT NO. 1
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Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
ADVANTICA RESTAURANT GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3487402
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
203 EAST MAIN STREET
SPARTANBURG, SOUTH CAROLINA 39319-9966
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(Address of principal executive offices)
(864) 597-8000
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(Registrant's telephone number, including area code)
Explanatory Note: This Amendment No. 1 to the Annual Report on Form 10-K of the
above-referenced registrant is being filed pursuant to Rule 15d-21 of the
Commission solely to furnish the financial statements required by Form 11-K with
respect to the Advantica 401(k) Plan.
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report for 2001 on Form
10-K as set forth in the pages attached hereto:
Part II, Item 8. Financial Statements and Supplementary Data.
Part IV, Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Advantica Restaurant Group, Inc.
Dated: June 27, 2002 By: /s/Rhonda J. Parish
----------------------------------------
Rhonda J. Parish
Executive Vice President, General
Counsel and Secretary
Part II, Item 8. Financial Statements and Supplementary Data of the Annual
Report for 2001 on Form 10-K is hereby amended to include the following:
FINANCIAL STATEMENTS
OF
FORM 11-K
Filed pursuant to Rule 15d-21
promulgated under Section 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 2001
Full title of the plans and the address of the plans, if different from that of
the issuer named below:
1. ADVANTICA SALARIED 401(K) PLAN
2. ADVANTICA HOURLY/HCE 401(K)PLAN
Name of the issuer of the securities held pursuant to the plans and the address
of its principal executive offices:
ADVANTICA RESTAURANT GROUP, INC.
203 EAST MAIN STREET
SPARTANBURG, SOUTH CAROLINA 29319-9966
Part IV, Item 14(a)(1) of the Annual Report on Form 10-K for the period
ended December 27, 2001 is amended to insert the following financial statements
required by Form 11-K, copies of which are filed herewith:
1. Advantica Salaried 401(k) Plan Financial Statements at December 31,
2001 and 2000 and for Each of the Three Years in the Period Ended
December 31, 2001, and Independent Auditors' Report.
2. Advantica Hourly/HCE 401(k) Plan Financial Statements at December 31,
2001 and 2000 and for Each of the Three Years in the Period Ended
December 31, 2001, and Independent Auditors' Report.
Part IV, Item 14(a)(3) and the Exhibit Index of the Annual Report on Form
10-K for the period ended December 27, 2001 are amended to insert the following
exhibit required by Form 11-K in appropriate numerical order, a copy of which is
filed herewith.
Exhibit No. Description
----------- -----------
23.1 Consent of Deloitte & Touche LLP pursuant to Note to
Required Information of Form 11-K.
ADVANTICA SALARIED 401(K) PLAN
Financial Statements as of and for the
Years Ended December 31, 2001 and 2000,
for Each of the Three Years in the
Period Ended December 31, 2001, and
Independent Auditors' Report
ADVANTICA SALARIED 401(K) PLAN
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of
December 31, 2001 and 2000 2
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 2001, 2000 and 1999 3
Notes to Financial Statements 4-8
NOTE: Schedules required under the Employee Retirement Income Security Act
of 1974 are omitted because of the absence of conditions under which
such schedules are required.
INDEPENDENT AUDITORS' REPORT
To the Retirement Committee of
Advantica Salaried 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of Advantica Salaried 401(k) Plan (the "Plan") as of December 31, 2001 and 2000,
and the related statements of changes in net assets available for benefits for
each of the three years in the period ended December 31, 2001. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2001 and 2000, and the changes in net assets available for benefits for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
June 7, 2002
- 1 -
ADVANTICA SALARIED 401(K) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 AND 2000
2001 2000
ASSETS:
Investments - plan interest in Advantica
401(k) Plans Master Trust (Notes 1, 2, 3 and 4) $45,828,916 $47,944,296
----------- -----------
Receivables:
Employer's contribution 33,559 38,034
Participants' contributions 99,371 108,737
----------- -----------
Total receivables 132,930 146,771
----------- -----------
Total assets 45,961,846 48,091,067
LIABILITIES - Accrued expenses 34,941 6,606
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $45,926,905 $48,084,461
=========== ===========
See notes to financial statements.
- 2 -
ADVANTICA SALARIED 401(K) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
ADDITIONS:
Investment (loss) income - plan interest in
Advantica 401(k) Plans Master Trust
investment (loss) income (Notes 1, 2 and 3) $ (332,280) $ 1,721,327 $ 6,528,511
------------ ------------ -------------
Contributions:
Employer's 1,000,564 1,072,721 966,985
Participants' 2,816,386 2,943,449 2,919,194
------------ ------------ -------------
Total contributions 3,816,950 4,016,170 3,886,179
------------ ------------ -------------
Total additions, net 3,484,670 5,737,497 10,414,690
------------ ------------ -------------
DEDUCTIONS:
Benefits paid to participants 5,811,777 8,305,939 10,264,085
Administrative expenses 141,734 141,416 183,842
------------ ------------ -------------
Total deductions 5,953,511 8,447,355 10,447,927
------------ ------------ -------------
TRANSFERS FROM (TO) OTHER PLANS
(Note 1) 311,285 (205,675) (46,635,644)
------------ ------------ -------------
NET DECREASE (2,157,556) (2,915,533) (46,668,881)
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 48,084,461 50,999,994 97,668,875
------------ ------------ -------------
End of year $ 45,926,905 $ 48,084,461 $ 50,999,994
============ ============ ============
See notes to financial statements.
- 3 -
ADVANTICA SALARIED 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. DESCRIPTION OF THE PLAN
The following description of the Advantica Salaried 401(k) Plan (the
"Plan") is provided for general information purposes only. Participants
should refer to the plan document for more complete information.
GENERAL - The Plan, formerly the Advantica 401(k) Plan, is a qualified
deferred compensation plan, subject to the Employee Retirement Income
Security Act of 1974 ("ERISA"). Any non-highly compensated salaried
employee of Advantica Restaurant Group, Inc. ("Advantica"), Flagstar
Systems, Inc. ("Flagstar"), FRD Acquisition Co. ("FRD," a wholly owned
subsidiary of Advantica) (collectively, the "Company"), who has attained
age 21 and has completed 6 months of service with the Company is eligible
to participate in the Plan. The Plan's committee and plan administrator
control and manage the operation and administration of the Plan. American
Express Trust Company ("American Express") serves as the Plan's trustee.
Effective January 1, 1999, the Retirement Committee of Advantica approved
an amendment to the Advantica 401(k) Plan. The amendment provided that the
Advantica 401(k) Plan would consist of two separate plans under ERISA: the
Advantica Hourly/HCE 401(k) Plan and the Advantica Salaried 401(k) Plan.
The Advantica 401(k) Plan was restated and renamed the Advantica Salaried
401(k) Plan and assets in the amount of $46,635,644 for hourly and highly
compensated participants were transferred to the Advantica Hourly/HCE
401(k) Plan.
On an annual basis, assets of employees who have changed status, as
defined in the plan document, are transferred between the two plans.
During 2001 and 2000, net transfers between plans due to change in status
totaled $311,285 and $205,675, respectively.
On December 29, 1999, the Company completed the sale of the stock of El
Pollo Loco, Inc. ("EPL"), a wholly owned subsidiary. In conjunction with
the sale, EPL employees were no longer eligible to participate in the
Plan. The affected participants were given the option to receive their
account balances which approximated $1,701,000 at the sale date, in a
lump-sum when they separated from service with EPL.
On January 16, 2001, FRD elected not to make the scheduled interest
payment (and all subsequent interest payments to date) due on the $156.9
million aggregate principal amount of its 12.5% senior notes due to their
creditors in 2004. On February 14, 2001, to facilitate the divestiture of
its Coco's and Carrows brands and to preserve their going concern value,
FRD filed for protection under Chapter 11 of the United States Bankruptcy
Code. On March 8, 2002,the bankruptcy court approved a settlement
agreement. Management does not believe that the terms of the settlement
agreement will have any material impact on the Plan.
INTEREST IN MASTER TRUST - The Plan's investments are held in the
Advantica 401(k) Plans Master Trust (the "Master Trust") which was
established for the investment of assets of the Plan and the Advantica
Hourly/HCE 401(k) Plan.
- 4 -
CONTRIBUTIONS - Each year, participants may make pre-tax contributions of
up to 15% of eligible compensation. After-tax contributions of up to 10%
of each employee's eligible compensation may also be made; however, no
after-tax contribution may be made by an employee in any month in which
the employee made a pre-tax contribution. Participants may also contribute
amounts representing distributions from other qualified defined benefit or
defined contribution plans.
The Company at its discretion may contribute an amount equal to 25% of
each participating employee's after-tax contributions, up to 6% of such
employee's compensation. Each individual sponsoring employer may make
additional matching contributions in amounts which they determine. These
Company contributions are made to the Plan monthly and are invested to
mirror the employee's election.
In 2001, 2000 and 1999, the following employer contribution formulas were
used: 40% of employee pre-tax contributions, up to 6% of compensation for
Advantica, Flagstar, and FRD employees; and 100% of employee pre-tax
contributions, up to 3% of compensation for Denny's employees.
Contributions are subject to certain Internal Revenue Code ("IRC")
limitations.
PARTICIPANT ACCOUNTS - Individual accounts are maintained for each plan
participant. Each participant's account is credited with the participant's
contribution and allocations of the Company's contributions and earnings,
and is charged with allocations of plan losses and administrative expenses
and benefit payments, if applicable. Allocations are based on participant
earnings or account balances, as defined. The benefit to which a
participant is entitled is the benefit that can be provided from the
participant's vested account.
VESTING - All participants are immediately vested in their contributions
plus actual earnings thereon. Vesting in the Company's matching and
discretionary contribution portion of their accounts plus actual earnings
thereon is based on years of continuous service. For each employee, whose
initial date of employment is after December 31, 1998, the Company's
matching and discretionary contribution portion of his/her account plus
actual earnings thereon will be 100% vested after five years of continuous
service unless the following terms provide for more accelerated vesting.
For employees of FRD, a participant is 100% vested after five years of
continuous service. For employees of Advantica and Flagstar, participants
are immediately vested in their contributions and employer contributions
plus actual earnings thereon. For employees of Denny's who were initially
employed by Denny's subsequent to December 31, 1987 and prior to January
1, 1999, a participant is 100% vested after five years of continuous
service.
INVESTMENT OPTIONS - Participants can direct participant and employer
contributions in 1% increments in any of 11 investment options currently
offered by the Plan. Participants may change their investment options at
any time via telephone.
PARTICIPANT LOANS - Participants may borrow from their fund accounts up to
the lesser of 50% of the vested portion of their account balance, or the
amount of $50,000 less the highest outstanding loan balance during the
prior 12-month period. The minimum loan amount is $1,000, and each
participant may have only one loan outstanding at any time. The plan
document indicates that a reasonable borrowing rate will be assessed,
typically evidenced by the prime rate charged by the Plan's trustee. The
loans are secured by the balance in the participant's account. The
participant also bears any loan administration costs incurred. Loans are
repaid through payroll deductions in equal installments with the loan
terms ranging from 6 to 54 months. Loan repayments cannot exceed 30% of
the participant's salary. If an employee who has a loan outstanding
terminates employment, no benefits will be paid from the Plan to the
participant until the outstanding loan balance and accrued interest is
paid in full. Loans outstanding at December 31, 2001 have a range of
interest rates from 5% to 9.5%.
- 5 -
PAYMENT OF BENEFITS - On termination of service due to death, disability
or retirement, a participant may elect to receive either a lump-sum amount
equal to the value of the participant's vested interest in his or her
account, or annual installments over a 10-year period. For termination of
service due to other reasons, a participant may receive the value of the
vested interest in his or her account as a lump-sum distribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America.
USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of net assets available for benefits and changes
therein. Actual results could differ from those estimates. The Plan
utilizes various investment instruments. Investment securities, in
general, are exposed to various risks, such as interest rate, credit, and
overall market volatility. Due to the level of risk associated with
certain investment securities, it is reasonably possible that changes in
the values of investment securities will occur in the near term and that
such changes could materially affect the amounts reported in the financial
statements.
INVESTMENT VALUATION AND INCOME RECOGNITION - Except for the investment in
guaranteed investment contracts, which is valued at contract value, the
plan interest in Advantica 401(k) Plans Master Trust is presented at fair
value, which has been determined based on the fair value of the underlying
investments of the Master Trust.
Purchases and sales of securities are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date.
ADMINISTRATIVE EXPENSES - Administrative expenses of the Plan are paid by
the Plan.
PAYMENT OF BENEFITS - Benefit payments to participants are recorded upon
distribution.
3. MASTER TRUST
Certain of the Plan's investment assets are held in a trust account at
American Express and consists of an undivided interest in an investment
account of the Advantica 401(k) Plans Master Trust, a master trust
established by the Company and administered by American Express, the
Plan's trustee. Use of the Master Trust permits the commingling of trust
assets with the assets of the Advantica Hourly/HCE 40l(k) Plan for
investments and administrative purposes. Although assets of both plans are
commingled in the Master Trust, the trustee maintains supporting records
for the purpose of allocating the net gain or loss of the investment
account to the participating plans. The net investment income or loss of
the investment assets is allocated by the trustee to each participating
plan based on the relationship of the interest of each plan to the total
of the interests of the participating plans.
- 6 -
Investments of the Master Trust at December 31, 2001 and 2000 are
summarized as follows:
2001 2000
Cash $ 1,880 $ 68,817
------------ ------------
Collective trust funds, at estimated fair value:
American Express Trust International Equity Index Fund II 62,029 0
American Express Trust Small Cap Equity Index Fund II 152,491 0
American Express Trust Money Market Fund I 791,200 947,817
American Express Trust Income Fund I 12,894,363 11,382,704
American Express Emerging Growth Fund II 6,543,185 7,368,515
American Express Trust Equity Index Fund II 11,025,967 13,257,707
------------ ------------
Total 31,469,235 32,956,743
------------ ------------
Mutual funds, at quoted market price:
AXP Total Stock Market Index Fund 170,887 0
AXP New Dimensions Fund Y 1,471,871 1,639,604
Lazard Small Capital Fund 6,528,600 7,552,048
Neuberger & Berman Focus Trust Fund 1,489,739 1,678,985
Templeton Foreign Fund 6,394,753 6,961,377
------------ ------------
Total 16,055,850 17,832,014
------------ ------------
Guaranteed investment contracts, at estimated fair value 39,020,668 41,236,214
------------ ------------
Advantica Restaurant Group, Inc., common stock at quoted
market price 273,804 148,434
------------ ------------
Loans to participants, at estimated fair value 1,048,723 990,003
------------ ------------
Total investments $ 87,870,160 $ 93,232,225
============ ============
Plan's investment in the Master Trust $ 45,828,916 $ 47,944,296
============ ============
Plan's investment in Master Trust as a percentage
of total 52.16% 51.42%
====== ======
The net investment (loss) income for the Master Trust for the years ended
December 31, 2001, 2000 and 1999 is summarized below:
2001 2000 1999
Net (depreciation) appreciation in fair
value of investments:
Collective trust funds $ (2,768,223) $ (283,753) $ 6,289,696
Mutual funds (1,116,161) 13,378 3,037,798
Common stock (9,691) (126,444) (208,633)
------------ ------------ -------------
(3,894,075) (396,819) 9,118,861
Interest and dividend income 3,630,479 3,765,425 3,154,648
------------ ------------ -------------
Total investment(loss) income $ (263,596) $ 3,368,606 $ 12,273,509
============ ============ =============
- 7 -
4. RELATED PARTY TRANSACTIONS
Certain Master Trust investments are units of collective trust funds and
shares of mutual funds managed by American Express. American Express
serves as trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest transactions. Fees paid by the
Plan to American Express for the years ended December 31, 2001, 2000 and
1999 amounted to approximately $72,000, $54,000 and $80,000, respectively.
The Master Trust also invests in common stock of the Plan's sponsor. These
transactions also qualify as party-in-interest transactions.
5. TERMINATION
Although it has not expressed any intention to do so, the Company has the
right under the Plan to terminate the Plan subject to the provisions set
forth in ERISA. In the event that the Plan is terminated participants
would become 100% vested in their accounts.
6. FEDERAL INCOME TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated September 20, 1995, that the Plan and related trust were
designed in accordance with the applicable regulations of the Internal
Revenue Code. The Plan has been amended since receiving the determination
letter; however the Company and the plan administrator believe that the
Plan is currently designed and operated in compliance with the applicable
requirements of the Internal Revenue Code and the Plan related trust
continue to be tax-exempt. Therefore, no provision for income taxes has
been included in the Plan's financial statements.
******
- 8 -
ADVANTICA HOURLY/HCE 401(K) Plan
Financial Statements as of December 31, 2001
and 2000 and for Each of the Three Years
in the Period Ended December 31, 2001, and
Independent Auditors' Report
ADVANTICA HOURLY/HCE 401(K) PLAN
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS:
Statements of Net Assets Available for Benefits as of
December 31, 2001 and 2000 2
Statements of Changes in Net Assets Available for Benefits
for the Years Ended December 31, 2001, 2000 and 1999 3
Notes to Financial Statements 4-8
NOTE: Schedules required under the Employee Retirement Income Security Act
of 1974 are omitted because of the absence of conditions under which
such schedules are required.
INDEPENDENT AUDITORS' REPORT
To the Retirement Committee of
Advantica Hourly/HCE 401(k) Plan:
We have audited the accompanying statements of net assets available for benefits
of Advantica Hourly/HCE 401(k) Plan (the "Plan") as of December 31, 2001 and
2000, and the related statements of changes in net assets available for benefits
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan as of December 31,
2001 and 2000, and the changes in net assets available for benefits for each of
the three years in the period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Greenville, South Carolina
June 7, 2002
- 1 -
ADVANTICA HOURLY/HCE 401(K) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
DECEMBER 31, 2001 AND 2000
2001 2000
ASSETS:
Investments - plan interest in Advantica 401(k) Plans
Master Trust (Notes 1, 2, 3 and 4) $42,041,244 $45,287,930
----------- -----------
Receivables:
Employer's contribution 23,769 27,547
Participants' contributions 69,907 83,205
----------- -----------
Total receivables 93,676 110,752
----------- -----------
Total assets 42,134,920 45,398,682
----------- -----------
LIABILITIES:
Accrued expenses 34,022 6,505
Excess contributions refundable (Note 1) 196,167 0
----------- -----------
Total liabilities 230,189 6,505
----------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $41,904,731 $45,392,177
=========== ===========
See notes to financial statements.
- 2 -
ADVANTICA HOURLY/HCE 401(K) PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
ADDITIONS:
Investment income - plan interest in Advantica
401(k) Plans Master Trust investment income
(Notes 1, 2 and 3) $ 68,683 $ 1,647,279 $ 5,744,998
------------ ------------ ------------
Contributions:
Employer's 708,809 773,324 894,551
Participants' 2,112,013 2,438,461 2,760,970
------------ ------------ ------------
Total contributions 2,820,822 3,211,785 3,655,521
------------ ------------ ------------
Total additions 2,889,505 4,859,064 9,400,519
------------ ------------ ------------
DEDUCTIONS:
Benefits paid to participants 5,926,997 8,991,882 6,392,156
Administrative expenses 138,669 142,345 182,342
------------ ------------ ------------
Total deductions 6,065,666 9,134,227 6,574,498
------------ ------------ ------------
TRANSFER (TO) FROM ADVANTICA
SALARIED 401(K) PLAN (Note 1) (311,285) 205,675 46,635,644
------------ ------------ ------------
NET (DECREASE) INCREASE (3,487,446) (4,069,488) 49,461,665
NET ASSETS AVAILABLE FOR BENEFITS:
Beginning of year 45,392,177 49,461,665 0
------------ ------------ ------------
End of year $ 41,904,731 $ 45,392,177 $ 49,461,665
============ ============ ============
See notes to financial statements.
- 3 -
ADVANTICA HOURLY/HCE 401(K) PLAN
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
1. DESCRIPTION OF THE PLAN
The following description of the Advantica Hourly/HCE 401(k) Plan (the
"Plan") is provided for general information purposes only. Participants
should refer to the plan document for more complete information.
GENERAL - The Plan is a qualified deferred compensation plan, subject to
the Employee Retirement Income Security Act of 1974 ("ERISA"). Any hourly
employee or highly compensated employee of Advantica Restaurant Group,
Inc. ("Advantica"), Flagstar Systems, Inc. ("Flagstar") and FRD
Acquisition Co. ("FRD," a wholly owned subsidiary of Advantica)
(collectively, the "Company"), who has attained age 21 and has completed 6
months of service with the Company is eligible to participate in the Plan.
The Plan's committee and plan administrator control and manage the
operation and administration of the Plan. American Express Trust Company
("American Express") serves as the Plan's trustee.
Effective January 1, 1999, the Retirement Committee of Advantica approved
an amendment to the Advantica 401(k) Plan. The amendment provided that the
Advantica 401(k) Plan would consist of two separate plans under ERISA: the
Advantica Hourly/HCE 401(k) Plan and the Advantica Salaried 401(k) Plan.
The Advantica 401(k) Plan was restated and renamed the Advantica Salaried
401(k) Plan and $46,635,644 in assets for certain employees were
transferred to the Advantica Hourly/HCE 401(k) Plan.
On an annual basis, assets of employees who have changed status, as
defined in the plan document, are transferred between the two plans.
During 2001 and 2000, net transfers between plans due to change in status
totaled $311,285 and $205,675, respectively.
On December 29, 1999, the Company completed the sale of the stock of El
Pollo Loco, Inc. ("EPL"), a wholly owned subsidiary. In conjunction with
the sale, EPL employees were no longer eligible to participate in the
Plan. The affected participants were given the option to receive their
account balances, which approximated $1,701,000 at the sale date, in a
lump-sum when they separated from service with EPL.
On January 16, 2001, FRD elected not to make the scheduled interest
payment (and all subsequent interest payments to date) due on the $156.9
million aggregate principal amount of its 12.5% senior notes due to their
creditors in 2004. On February 14, 2001, to facilitate the divestiture of
its Coco's and Carrows brands and to preserve their going concern value,
FRD filed for protection under Chapter 11 of the United States Bankruptcy
Code. On March 8, 2002, the bankruptcy court approved a settlement
agreement. Management does not believe that the terms of the settlement
agreement will have any material impact on the Plan.
INTEREST IN MASTER TRUST - The Plan's investments are in the Advantica
401(k) Plans Master Trust ("Master Trust") which was established for the
investment of assets of the Plan and the Advantica Salaried 401(k) Plan.
- 4 -
CONTRIBUTIONS - Participants may make pre-tax contributions of up to 15%
of eligible compensation. Participants may also contribute amounts
representing distributions from other qualified defined benefit or defined
contribution plans. The Company, at its discretion, may contribute an
amount equal to 25% of each participating hourly employee's contributions
up to 6% of such employee's compensation. Each individual sponsoring
employer may make additional matching contributions in amounts which they
determine. These Company contributions are made to the Plan monthly and
are invested to mirror the hourly employee's election. In 2001, 2000 and
1999, the following employer contribution formulas were used: 40% of
employee pre-tax contributions, up to 6% of compensation for Advantica,
Flagstar, and FRD hourly employees; and 100% of employee pre-tax
contributions, up to 3% of compensation for Denny's employees. Highly
compensated employees are not eligible for the employer match.
Contributions are subject to certain Internal Revenue Code ("IRC")
limitations. Excess contributions to be returned to participants are shown
as a liability in the accompanying statements of net assets available for
benefits.
PARTICIPANTS ACCOUNTS - Individual accounts are maintained for each plan
participant. Each participant's account is credited with the participant's
contribution and allocations of the Company's contributions (for hourly
employees) and earnings, and is charged with allocations of plan losses,
administrative expenses and benefit payments, if applicable. Allocations
are based on earnings and participant account balances, as defined. The
benefit to which a participant is entitled is the benefit that can be
provided from the participant's vested account.
VESTING - All participants are immediately vested in their contributions
plus actual earnings thereon. Vesting in the Company's matching and
discretionary contribution portion of their accounts plus actual earnings
thereon is based on years of continuous service. For each hourly employee
whose initial date of employment is after December 31, 1998, the Company's
matching and discretionary contribution portion of their account plus
actual earnings thereon will be 100% vested after five years of continuous
service unless the following terms provide for more accelerated vesting.
For employees of FRD, a participant is 100% vested after five years of
continuous service. For employees of Advantica and Flagstar, participants
are immediately vested in their contributions and employer contributions,
plus actual earnings thereon. For employees of Denny's who were initially
employed by Denny's subsequent to December 31, 1987 and prior to January
1, 1999, a participant is 100% vested after five years of continuous
service.
INVESTMENT OPTIONS - Participants can direct participant and employer
contributions in 1% increments in any of 11 investment options currently
offered by the Plan. Participants may change their investment options at
any time via telephone.
PAYMENT OF BENEFITS - On termination of service due to death, disability
or retirement, a participant may elect to receive either a lump-sum amount
equal to the value of the participant's vested interest in his or her
account, or annual installments over a 10-year period. For termination of
service due to other reasons, a participant may receive the value of the
vested interest in his or her account as a lump-sum distribution.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING - The accompanying financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America.
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USE OF ESTIMATES - The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of net assets available for benefits and changes
therein. Actual results could differ from those estimates. The Plan
utilizes various investment instruments. Investment securities, in
general, are exposed to various risks, such as interest rate, credit, and
overall market volatility. Due to the level of risk associated with
certain investment securities, it is reasonably possible that changes in
the values of investment securities will occur in the near term and that
such changes could materially affect the amounts reported in the financial
statements.
INVESTMENT VALUATION AND INCOME RECOGNITION - Except for the investment in
guaranteed investment contracts which is valued at contract value, the
plan interest in Advantica 401(k) Plans Master Trust is presented at fair
value which has been determined based on the fair value of the underlying
investments of the Master Trust.
Purchases and sales of securities are recorded on a trade-date basis.
Dividends are recorded on the ex-dividend date.
ADMINISTRATIVE EXPENSES - Administrative expenses of the Plan are paid by
the Plan.
PAYMENT OF BENEFITS - Benefit payments to participants are recorded upon
distribution.
3. MASTER TRUST
Certain of the Plans' investment assets are held in a trust account at
American Express and consists of an undivided interest in an investment
account of the Advantica 401(k) Plans Master Trust, a master trust
established by the Company and administered by American Express, the
Plan's trustee. Use of the Master Trust permits the commingling of trust
assets with the assets of the Advantica Salaried 40l(k) Plan for
investments and administrative purposes. Although assets of both plans are
commingled in the Master Trust, the trustee maintains supporting records
for the purpose of allocating the net gain or loss of the investment
account to the participating plans. The net investment income or loss of
the investment assets is allocated by the trustee to each participating
plan based on the relationship of the interest of each plan to the total
of the interests of the participating plans.
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The investments of the Master Trust at December 31, 2001 and 2000, are
summarized as follows:
2001 2000
Cash $ 1,880 $ 68,817
------------ ------------
Collective trust funds, at estimated fair value:
American Express Trust International Equity Index Fund II 62,029 0
American Express Trust Small Cap Equity Index Fund II 152,491 0
American Express Trust Money Market Fund I 791,200 947,817
American Express Trust Income Fund I 12,894,363 11,382,704
American Express Emerging Growth Fund II 6,543,185 7,368,515
American Express Trust Equity Index Fund II 11,025,967 13,257,707
------------ ------------
Total 31,469,235 32,956,743
------------ ------------
Mutual funds, at quoted market price:
AXP Total Stock Market Index Fund 170,887 0
AXP New Dimensions Fund Y 1,471,871 1,639,604
Lazard Small Capital Fund 6,528,600 7,552,048
Neuberger & Berman Focus Trust Fund 1,489,739 1,678,985
Templeton Foreign Fund 6,394,753 6,961,377
------------ ------------
Total 16,055,850 17,832,014
------------ ------------
Guaranteed investment contracts, at estimated fair value 39,020,668 41,236,214
------------ ------------
Advantica Restaurant Group, Inc., common stock at quoted
market price 273,804 148,434
------------ ------------
Loans to participants, at estimated fair value 1,048,723 990,003
------------ ------------
Total investments $ 87,870,160 $ 93,232,225
============ ============
Plan's investment in the Master Trust $ 42,041,244 $ 45,287,930
============ ============
Plan's investment in Master Trust as a percentage
of total 47.84% 48.58%
====== ======
The net investment (loss) income for the Master Trust for the years ended
December 31, 2001, 2000 and 1999 is summarized below:
2001 2000 1999
Net (depreciation) appreciation in fair
value of investments:
Collective trust funds $ (2,768,223) $ (283,753) $ 6,289,696
Mutual funds (1,116,161) 13,378 3,037,798
Common stock (9,691) (126,444) (208,633)
------------ ------------ -------------
(3,894,075) (396,819) 9,118,861
Interest and dividend income 3,630,479 3,765,425 3,154,648
------------ ------------ -------------
Total investment(loss) income $ (263,596) $ 3,368,606 $ 12,273,509
============ ============ =============
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4. RELATED PARTY TRANSACTIONS
Certain Master Trust investments are units of collective trust funds and
shares of mutual funds managed by American Express. American Express
serves as trustee as defined by the Plan and, therefore, these
transactions qualify as party-in-interest transactions. Fees paid by the
Plan to American Express for the years ended December 31, 2001, 2000 and
1999 amounted to approximately $69,000, $53,000 and $78,000, respectively.
The Master Trust also invests in the common stock of the Plan's sponsor.
These transactions also qualify as party-in-interest transactions.
5. TERMINATION
Although it has not expressed any intention to do so, the Company has the
right under the Plan to terminate the Plan subject to the provisions set
forth in ERISA. In the event that the Plan is terminated, participants
would become 100% vested in their accounts.
6. FEDERAL INCOME TAX STATUS
The Plan has applied for, but not yet received a determination letter. The
Company believes that the Plan is currently designed and being operated in
compliance with the applicable requirements of the Internal Revenue Code
and that the Plan and related trust are tax-exempt. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
******
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