UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 31, 2003
Denny's Corporation
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(Exact name of registrant as specified in its charter)
Delaware 0-18051 13-3487402
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(State or other (Commission File IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
203 East Main Street, Spartanburg, SC 29319-9966
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (864) 597-8000
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(Former name or former address, if changed since last report)
Item 12. Results of Operations and Financial Condition
On July 31, 2003, Denny's Corporation issued a press release announcing
financial results for the quarter ended June 25, 2003. A copy of the press
release is attached hereto as Exhibit 99.1.
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 hereunto duly authorized.
Denny's Corporation
Date: August 5, 2003 /s/ Andrew F. Green
-------------------
Andrew F. Green
Senior Vice President
and Chief Financial Officer
Exhibit 99.1
NEWS RELEASE
Investor Contact: Ken Jones
864-597-8658
Media Contact: Debbie Atkins
864-597-8361
DENNY'S CORPORATION REPORTS SECOND QUARTER RESULTS
SPARTANBURG, S.C., July 31, 2003 -- Denny's Corporation (OTCBB: DNYY)
today reported results for its second quarter ended June 25, 2003. Highlights
included:
o Systemwide sales were $546 million for the quarter, a 3.0% decrease
from last year's second quarter, reflecting 51 fewer restaurants
systemwide.
o Systemwide same-store sales for the quarter declined 1.5% with company
units down 0.6% and franchised units down 2.1%.
o Denny's ended the quarter with 1,663 restaurants systemwide (563
company and 1,100 franchised and licensed units).
o Total operating revenue declined 4.3% to $230 million for the quarter.
o Operating income of $13.8 million declined $2.4 million for the
quarter, down from 6.7% of revenue to 6.0%.
o Net loss for the quarter was $5.4 million, or $0.13 per common share,
compared with last year's net income of $16.2 million, or $0.40 per
common share.
o Last year's net income included nonoperating income of $19.2 million
from a gain on exchange of debt.
o At quarter end, Denny's had $49.9 million drawn under its credit
facility and $38.3 million in letters of credit, leaving net
availability of $36.8 million.
Commenting on Denny's results for the second quarter of 2003, Nelson J.
Marchioli, president and chief executive officer, said, "Our operating
performance in the second quarter was disappointing, especially our decline in
guest counts. This quarter we focused our marketing message on driving guests
during our dinner and late night dayparts, as opposed to last spring and summer
when we focused on breakfast with a Grand Slam promotion. Though we were
successful in improving our dinner and late night sales, which resulted in an
increase in our guest check average, we lost more guests than anticipated
during the breakfast daypart. In response, this week we launched a new media
campaign which promotes a choice of three "Complete Breakfasts," each for $4.99.
This promotion builds on two core strengths of the Denny's brand -- breakfast
and good value.
"On the margin side of our business, we continue to experience cost
pressures which have contributed to declining margins. The cost increases
include higher meat prices, medical costs and natural gas prices. In addition,
higher costs related to increased restaurant staffing and improved food quality
are intentional investments in the long term success of Denny's. We are
committed to doing what is right for the Denny's brand and are optimistic that
these investments, which are beginning to contribute to improved consumer
perceptions, will ultimately translate into increased guest traffic,"
Marchioli concluded.
Second Quarter Results
Denny's reported total operating revenue of $230.1 million for the
second quarter, down $10.3 million from the prior year quarter. Company
restaurant sales declined $9.0 million to $208.5 million, due primarily to 25
fewer company units. Franchise revenue decreased $1.3 million to $21.6 million,
resulting from 26 fewer franchised and licensed restaurants.
During the second quarter, company restaurant operating margin
decreased by 5.8 percentage points to 11.2% of company sales compared with 17.0%
of sales last year. Payroll and benefits costs accounted for 3.7 percentage
points of the margin decline, resulting from increased restaurant staffing aimed
at improving customer satisfaction, higher wage rates and increased health
insurance costs. Product costs increased by 1.7 percentage points due to higher
commodity costs as well as menu mix shifts resulting from our promotion of
higher cost dinner items this quarter compared with a breakfast promotion in the
same period last year.
Operating income for the quarter decreased $2.4 million to $13.8
million compared with $16.2 million last year, reflecting the lower revenue and
reduced operating margins. Operating income this quarter benefited from a $6.4
million reduction in depreciation and amortization expense. In January 1998,
certain assets were revalued and assigned a five-year life as a result of the
predecessor company's reorganization. Those assets became fully amortized in
January 2003, resulting in lower depreciation and amortization expense in 2003.
In addition, operating income in the second quarter benefited from a $1.0
million reduction in general and administrative expenses as well as a $3.8
million reduction in restructuring and exits costs compared with last year.
For the second quarter, Denny's reported a net loss of $5.4 million,
or $0.13 per diluted common share, compared with last year's second quarter net
income of $16.2 million, or $0.40 per diluted common share. Last year's second
quarter results included nonoperating income of $19.2 from gains on exchanges of
debt.
Revolving Credit Facility
On June 25, 2003, our $125 million credit facility had outstanding
revolver advances of $49.9 million compared with $60.2 million outstanding on
March 26, 2003. Our outstanding letters of credit decreased to $38.3 million
compared with $48.4 million on March 26, 2003, leaving a net availability of
$36.8 million at the end of the second quarter. As of today, after making the
scheduled $21.3 million semiannual interest payment on our 11.25% senior notes
on July 15, revolver advances have increased to $61.0 million while letters of
credit are $38.5 million, leaving a net availability of $25.5 million.
Profitability was below our expectations for the first two quarters of
2003. Accordingly, we were required to obtain an amendment to the credit
facility to provide less restrictive financial covenants effective for the
quarter ended June 25, 2003 and for the remaining term of the facility. We were
in compliance with the terms of the credit facility, as amended, as of June 25,
2003.
Further Information
Denny's will host its quarterly conference call for investors and
analysts today, Thursday, July 31, 2003 at 1:00 p.m. EST. Interested parties are
invited to join a live, listen only broadcast of the conference call. The call
may be accessed through our website at www.dennys.com. On the front page of
the website, follow the link to "About Us;" then follow the link to "Investor
Info;" and then select the "Live Webcast" icon. A replay of the call may be
accessed at the same location later in the day and will remain available for at
least 30 days.
Denny's is America's largest full-service family restaurant chain,
operating directly and through franchisees 1,663 Denny's restaurants in the
United States, Canada, Costa Rica, Guam, Mexico, New Zealand and Puerto Rico.
For further information on Denny's, including news releases, links to SEC
filings and other financial information, please visit our website referenced
above.
Certain matters discussed in this release may constitute forward
looking statements involving risks, uncertainties, and other factors that may
cause the actual performance of Denny's Corporation, its subsidiaries and
underlying restaurants to be materially different from the performance indicated
or implied by such statements. Factors that could cause actual performance to
differ materially from the performance indicated by such statements include,
among others: the competitive pressures from within the restaurant industry;
the level of success of the Company's operating initiatives and advertising and
promotional efforts; adverse publicity; changes in business strategy or
development plans; terms and availability of capital; regional weather
conditions; overall changes in the general economy, particularly at the retail
level; political environment (including acts of war and terrorism); and other
factors from time to time set forth in the Company's SEC reports, including but
not limited to the discussion in Management's Discussion and Analysis and the
risks identified in Exhibit 99 contained in the Company's Annual Report on Form
10-K for the year ended December 25, 2002 (and in the Company's subsequent
quarterly reports on Form 10-Q).
DENNY'S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Quarter Ended Quarter Ended
(In thousands, except per share amounts) 6/25/03 6/26/02
--------------- ---------------
Revenue:
Company restaurant sales $ 208,457 $ 217,452
Franchise and license revenue 21,603 22,890
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Total operating revenue 230,060 240,342
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Costs of company restaurant sales 185,192 180,396
Costs of franchise and license revenue 6,778 7,376
General and administrative expenses 13,044 14,033
Depreciation and amortization 14,420 20,860
Restructuring charges and exit costs (982) 2,781
Impairment charges 410 497
Gains on disposition of assets and other, net (2,552) (1,764)
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Total operating costs and expenses 216,310 224,179
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Operating income 13,750 16,163
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Other expenses:
Interest expense, net 18,989 18,920
Gains on exchanges of debt and other, net (127) (19,271)
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Total other expenses (income), net 18,862 (351)
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Income (loss) before income taxes (5,112) 16,514
Provision for income taxes 265 302
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Net income (loss) $ (5,377) $ 16,212
=============== ===============
Basic and diluted net income (loss) per share $ (0.13) $ 0.40
=============== ===============
Weighted average shares outstanding:
Basic 40,743 40,276
=============== ===============
Diluted 40,743 40,478
=============== ===============
DENNY'S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Two Quarters Two Quarters
Ended Ended
(In thousands, except per share amounts) 6/25/03 6/26/02
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Revenue:
Company restaurant sales $ 407,901 $ 429,686
Franchise and license revenue 43,000 45,115
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Total operating revenue 450,901 474,801
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Costs of company restaurant sales 363,656 362,088
Costs of franchise and license revenue 13,270 14,621
General and administrative expenses 26,247 28,211
Depreciation and amortization 28,677 41,558
Restructuring charges and exit costs (936) 3,079
Impairment charges 699 497
Gains on disposition of assets and other, net (4,869) (3,580)
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Total operating costs and expenses 426,744 446,474
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Operating income 24,157 28,327
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Other expenses:
Interest expense, net 38,206 38,207
Gains on exchanges of debt and other, net (120) (19,271)
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Total other expenses, net 38,086 18,936
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Income (loss) before income taxes (13,929) 9,391
Provision for (benefit from) income taxes 530 (2,137)
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Net income (loss) $ (14,459) $ 11,528
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Basic and diluted income (loss) per share $ (0.36) $ 0.29
=============== ===============
Weighted average shares outstanding:
Basic 40,628 40,255
=============== ===============
Diluted 40,628 40,443
=============== ===============
DENNY'S CORPORATION
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands) 6/25/03 12/25/02
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ASSETS
Current Assets
Cash and cash equivalents $ 4,547 $ 5,717
Other 29,311 28,024
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33,858 33,741
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Property, net 307,479 324,725
Goodwill 50,404 50,073
Intangible assets, net 88,502 92,257
Other assets 45,022 50,695
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Total Assets $ 525,265 $ 551,491
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LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Current maturities of notes and debentures $ 583 $ 554
Current maturities of capital lease obligations 3,536 3,886
Accounts payable and other accrued liabilities 137,419 148,363
---------------- ----------------
141,538 152,803
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Long-Term Liabilities
Notes and debentures, less current maturities 562,468 560,359
Capital lease obligations, less current maturities 29,556 31,177
Other 84,736 86,043
---------------- ----------------
676,760 677,579
---------------- ----------------
Total Liabilities 818,298 830,382
Total Shareholders' Deficit (293,033) (278,891)
---------------- ----------------
Total Liabilities and Shareholders' Deficit $ 525,265 $ 551,491
================ ================
DENNY'S CORPORATION
Quarterly Operating Margins
(Unaudited)
Quarter Ended
(In millions) 6/25/03 6/26/02
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Total operating revenue (1) $ 230.1 100.0% $ 240.3 100.0%
Company restaurant operations: (2)
Company restaurant sales 208.5 100.0% 217.5 100.0%
Costs of company restaurant sales:
Product costs 53.0 25.4% 51.5 23.7%
Payroll and benefits 92.2 44.2% 88.1 40.5%
Occupancy 11.9 5.7% 12.2 5.6%
Other operating costs:
Utilities 9.1 4.3% 8.8 4.1%
Repairs and maintenance 4.3 2.1% 4.4 2.0%
Marketing 6.8 3.3% 8.4 3.9%
Other 7.9 3.8% 7.0 3.2%
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Total costs of company restaurant sales 185.2 88.8% 180.4 83.0%
--------------------- ---------------------
Company restaurant operating margin $ 23.3 11.2% $ 37.1 17.0%
--------------------- ---------------------
Franchise operations: (3)
Franchise and license revenue 21.6 100.0% 22.9 100.0%
Costs of franchise and license revenue 6.8 31.4% 7.4 32.2%
--------------------- ---------------------
Franchise operating margin $ 14.8 68.6% $ 15.5 67.8%
--------------------- ---------------------
Total operating margin (1) $ 38.1 16.6% $ 52.6 21.9%
Other operating expenses: (1) (4)
General and administrative expenses 13.0 5.7% 14.0 5.8%
Depreciation and amortization 14.4 6.3% 20.9 8.7%
Restructuring, exit costs and impairment (0.6) (0.2%) 3.3 1.4%
Gains on disposition of assets and other, net (2.6) (1.1%) (1.8) (0.7%)
--------------------- ---------------------
Total other operating expenses $ 24.3 10.6% $ 36.4 15.1%
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Operating income (1) $ 13.8 6.0% $ 16.2 6.7%
(1) As a percentage of total operating revenue
(2) As a percentage of company restaurant sales
(3) As a percentage of franchise and license revenue
(4) Other operating expenses such as general and administrative expenses and
depreciation and amortization relate to both company and franchise
operations and are not allocated to costs of company restaurant sales
and costs of franchise and license revenue.
DENNY'S CORPORATION
EBITDA Reconciliation
(Unaudited)
Quarter Quarter Two Quarters Two Quarters
Ended Ended Ended Ended
(in millions) 6/25/03 6/26/02 6/25/03 6/26/02
---------------- ---------------- ---------------- ----------------
Net income (loss) $ (5.4) $ 16.2 $ (14.5) $ 11.5
Provision for (benefit from) income taxes 0.3 0.3 0.5 (2.1)
Interest expense, net 19.0 18.9 38.2 38.2
Depreciation and amortization 14.4 20.9 28.7 41.6
---------------- ---------------- ---------------- ----------------
EBITDA (1) (2) $ 28.3 $ 56.3 $ 53.0 $ 89.2
================ ================ ================ ================
(1) Following recent SEC guidance, we have changed our definition of EBITDA
in the second quarter of 2003. Amounts previously reported for EBITDA
have been reclassified to conform to the current presentation.
(2) We believe that, in addition to other financial measures, EBITDA is an
appropriate indicator to assist in the evaluation of our operating
performance because it provides additional information with respect to
our ability to meet our future debt service, capital expenditures and
working capital needs. However, EBITDA should be considered as a
supplement to, not a substitute for, operating income, net income or
other financial performance measures prepared in accordance with
accounting principles generally accepted in the United States of
America.
Other financial data: (3)
Restructuring charges and exit costs $ (1.0) $ 2.8 $ (0.9) $ 3.1
Impairment charges 0.4 0.5 0.7 0.5
Gains on disposition of assets and other, net (2.6) (1.8) (4.9) (3.6)
Gains on exchanges of debt and other, net (4) (0.1) (19.3) (0.1) (19.3)
(3) The line items in this section are components of both net income and
EBITDA as shown above.
(4) The second quarter results in 2002 included a $19.2 million gain
attributable to the senior note debt exchange completed in April 2002.
DENNY'S CORPORATION
Statistical Data
(Unaudited)
Quarter Two Quarters
Same-Store Data Ended Ended
(increase/(decrease) vs. prior year) 6/25/03 6/25/03
--------------- ----------------
Company-Owned Same-Store Sales (0.6%) (0.5%)
Guest Check Average 3.9% 3.2%
Guest Counts (4.3%) (3.6%)
Franchised Same-Store Sales (2.1%) (1.8%)
Systemwide Same-Store Sales (1.5%) (1.3%)
Quarter Quarter Two Quarters Two Quarters
Systemwide Sales Ended Ended Ended Ended
($ in millions) 6/25/03 6/26/02 6/25/03 6/26/02
--------------- --------------- ---------------- ----------------
Systemwide Sales $ 545.7 $ 562.8 $ 1,071.7 $ 1,104.7
Quarter Quarter Two Quarters Two Quarters
Average Unit Sales Ended Ended Ended Ended
($ in thousands) 6/25/03 6/26/02 6/25/03 6/26/02
--------------- --------------- ---------------- ----------------
Company-owned $ 372.2 $ 368.9 $ 727.0 $ 717.2
Franchised $ 300.7 $ 305.5 $ 593.4 $ 597.2
Restaurant Units Company Franchised Licensed Total
--------------- --------------- ---------------- ----------------
Ending Units 6/26/02 588 1,112 14 1,714
Units Opened/Acquired 1 26 1 28
Units Reacquired 1 (1) 0 0
Units Refranchised (1) 1 0 0
Units Closed (26) (53) 0 (79)
--------------- --------------- ---------------- ----------------
Net Change (25) (27) 1 (51)
Ending Units 6/25/03 563 1,085 15 1,663
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