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): October 29, 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 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit 99.1 -- Press release issued by Denny's Corporation on
October 29, 2003.
Item 12. Results of Operations and Financial Condition
On October 29, 2003, Denny's Corporation issued a press release announcing
financial results for the quarter ended September 24, 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: October 29, 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 THIRD QUARTER RESULTS
SPARTANBURG, S.C., October 29, 2003 -- Denny's Corporation (OTCBB:
DNYY) today reported results for its third quarter ended September 24, 2003.
Highlights included:
o Same-store sales for the third quarter declined 1.2% at company units
and 1.7% at franchised units.
o Denny's ended the quarter with 562 company units, down 15 from last
year, and 1,084 franchised and licensed units, down 25 from last year.
o Total operating revenue declined 3.4% to $238 million for the quarter.
o Operating income of $12.9 million declined $6.0 million for the
quarter, down from 7.6% of revenue last year to 5.4% this year.
o Net loss for the quarter was $6.3 million, or $0.15 per common share,
compared with last year's net income of $56.1 million, or $1.39 per
common share.
o Last year's net income included a $56.6 million gain on disposal of the
Company's FRD Acquisition Co. subsidiary.
o At quarter end, Denny's had $63.0 million drawn under its credit
facility and $38.2 million in letters of credit, leaving net
availability of $23.8 million.
o Subsequent to quarter end, Denny's amended and restated its credit
facility to include a new $40 million term loan, thus enhancing its
current liquidity position.
Commenting on Denny's results for the third quarter of 2003, Nelson J.
Marchioli, president and chief executive officer, said, "Our same-store sales
and customer traffic improved considerably during the third quarter as sales
recovered from down 4.9% in July to a positive 1.8% in September. We went back
on air in August with a $4.99 value breakfast message after operating without
media support in the month of July. This promotion capitalized on two core
strengths of the Denny's brand -- breakfast and value -- and helped us deliver
seven straight weeks of positive same-store sales to close the quarter. While
this media campaign focused on traditional breakfast items, much of the sales
improvement came during our lunch and dinner dayparts. I believe the attractive
price point, combined with an abundance of flavorful food, presents an excellent
value that has been well received by our customers.
"On the margin front, we continue to experience cost pressures which
have contributed to declining margins this year. Our operating margins have been
burdened by significantly higher commodity costs, especially pork and beef. In
addition, payroll and benefits costs remain higher year over year; however, we
were able to improve our labor efficiency as compared with the previous three
quarters. To help counteract these cost increases, we expect to raise menu
prices by approximately 2% in the fourth quarter.
"Though we are disappointed with our results earlier this year, we are
pleased with our recent sales improvement and are encouraged that these trends
have continued into the fourth quarter. While we have successfully raised our
average check by promoting higher priced menu items, ultimately we must continue
to drive guest traffic increases in order to reach our long-term profitability
goals," Marchioli concluded.
Third Quarter Results
Denny's reported total operating revenue of $238.4 million for the
third quarter, down $8.5 million from the prior year quarter. Company restaurant
sales declined $7.9 million to $215.6 million, due primarily to 15 fewer company
units. Franchise revenue decreased $0.5 million to $22.8 million, resulting from
25 fewer franchised and licensed restaurants.
During the third quarter, company restaurant operating margin decreased
by 3.1 percentage points to 11.4% of company sales compared with 14.5% of sales
last year. The largest contributor to the margin decline was a 2.6 percentage
point increase in product costs due primarily to higher commodity costs and menu
mix shifts. Payroll and benefits costs accounted for 0.7 percentage points of
the margin decline, as a result of our decision to increase the number of
managers in our restaurants as well as from higher wage rates, health insurance
and workers compensation costs.
Operating income for the quarter decreased $6.0 million to $12.9
million compared with $18.9 million last year, reflecting the lower revenue and
reduced operating margins. Operating income this quarter benefited from a $5.5
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 third quarter was impacted by a $1.2
million increase in general and administrative expenses.
For the third quarter, Denny's reported a net loss of $6.3 million, or
$0.15 per diluted common share, compared with last year's third quarter net
income of $56.1 million, or $1.39 per diluted common share. Last year's third
quarter included the divestiture of the Company's FRD Acquisition Co. subsidiary
which resulted in a gain on disposal of discontinued operations of $56.6
million.
Revolving Credit Facility
At the end of the third quarter, Denny's $125 million credit facility
had outstanding revolver advances of $63.0 million compared with $49.9 million
outstanding on June 25, 2003. Outstanding letters of credit were $38.2 million,
leaving a net availability of $23.8 million at the end of the third quarter.
On September 26, 2003, and subsequent to quarter end, Denny's amended
and restated its $125 million revolving credit facility to include a new $40
million term loan, thereby increasing the aggregate commitments to $165 million.
Denny's applied the $40 million term loan proceeds to pay down outstanding
revolving loans thus enhancing its current liquidity position. Effective
September 30, commitments under the revolving portion of the credit facility
were reduced to $123 million as scheduled in the credit agreement. As of today,
the credit facility consists of outstanding term loans of $40 million,
outstanding letters of credit of $38 million, and outstanding revolver advances
of $20 million, leaving a net availability of $65 million.
Further Information
Denny's will host its quarterly conference call for investors and
analysts today, Wednesday, October 29, 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 expects to report same-store sales for the four-week period
ending October 22, on Friday, October 31, 2003.
Denny's is America's largest full-service family restaurant chain,
operating directly and through franchisees and licensees 1,646 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) 9/24/03 9/25/02
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Revenue:
Company restaurant sales $ 215,573 $ 223,499
Franchise and license revenue 22,817 23,355
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Total operating revenue 238,390 246,854
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Costs of company restaurant sales 190,945 190,991
Costs of franchise and license revenue 6,801 7,349
General and administrative expenses 11,982 10,804
Depreciation and amortization 15,254 20,734
Restructuring charges and exit costs 70 --
Impairment charges 1,190 465
Gains on disposition of assets and other, net (778) (2,372)
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Total operating costs and expenses 225,464 227,971
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Operating income 12,926 18,883
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Other expenses:
Interest expense, net 18,990 18,980
Other nonoperating (income) expense, net (57) 28
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Total other expenses, net 18,933 19,008
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Loss before income taxes (6,007) (125)
Provision for income taxes 266 303
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Loss from continuing operations (6,273) (428)
Gain on disposal of discontinued operations -- 56,562
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Net income (loss) $ (6,273) $ 56,134
=============== ==============
Basic and diluted net income (loss) per share:
Loss on continuing operations $ (0.15) $ (0.01)
Gain on disposal of discontinued operations -- 1.40
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Net income (loss) $ (0.15) $ 1.39
=============== ==============
Basic and diluted weighted average shares outstanding 40,743 40,280
=============== ==============
DENNY'S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Three Three
Quarters Ended Quarters Ended
(In thousands, except per share amounts) 9/24/03 9/25/02
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Revenue:
Company restaurant sales $ 623,474 $ 653,185
Franchise and license revenue 65,817 68,470
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Total operating revenue 689,291 721,655
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Costs of company restaurant sales 554,601 553,079
Costs of franchise and license revenue 20,071 21,970
General and administrative expenses 38,229 39,015
Depreciation and amortization 43,931 62,292
Restructuring charges and exit costs (866) 3,079
Impairment charges 1,889 962
Gains on disposition of assets and other, net (5,647) (5,952)
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Total operating costs and expenses 652,208 674,445
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Operating income 37,083 47,210
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Other expenses:
Interest expense, net 57,196 57,187
Gains on exchanges of debt and other, net (177) (19,243)
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Total other expenses, net 57,019 37,944
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Income (loss) before income taxes (19,936) 9,266
Provision for (benefit from) income taxes 796 (1,834)
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Income (loss) from continuing operations (20,732) 11,100
Gain on disposal of discontinued operations -- 56,562
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Net income (loss) $ (20,732) $ 67,662
=============== ==============
Basic income (loss) per share:
Income (loss) from continuing operations $ (0.51) $ 0.28
Gain on disposal of discontinued operations -- 1.40
--------------- --------------
Net income (loss) $ (0.51) $ 1.68
=============== ==============
Diluted income (loss) per share:
Income (loss) from continuing operations $ (0.51) $ 0.27
Gain on disposal of discontinued operations -- 1.40
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Net income (loss) $ (0.51) $ 1.67
=============== ==============
Weighted average shares outstanding:
Basic 40,666 40,264
=============== ==============
Diluted 40,666 40,484
=============== ==============
DENNY'S CORPORATION
Condensed Consolidated Balance Sheet
(Unaudited)
(In thousands) 9/24/03 12/25/02
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ASSETS
Current Assets
Cash and cash equivalents $ 3,801 $ 5,717
Other 26,480 28,024
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30,281 33,741
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Property, net 302,002 324,725
Goodwill 50,404 50,073
Intangible assets, net 86,163 92,257
Other assets 44,042 50,695
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Total Assets $ 512,892 $ 551,491
================= =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Current maturities of notes and debentures $ 601 $ 554
Current maturities of capital lease obligations 3,417 3,886
Accounts payable and other accrued liabilities 117,652 148,363
----------------- -----------------
121,670 152,803
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Long-Term Liabilities
Notes and debentures, less current maturities 574,994 560,359
Capital lease obligations, less current maturities 29,638 31,177
Other 85,896 86,043
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690,528 677,579
----------------- -----------------
Total Liabilities 812,198 830,382
Total Shareholders' Deficit (299,306) (278,891)
----------------- -----------------
Total Liabilities and Shareholders' Deficit $ 512,892 $ 551,491
================= =================
DENNY'S CORPORATION
Quarterly Operating Margins
(Unaudited)
Quarter Ended
(In millions) 9/24/03 9/25/02
--------------------- ---------------------
Total operating revenue (1) $ 238.4 100.0% $ 246.9 100.0%
Company restaurant operations: (2)
Company restaurant sales 215.6 100.0% 223.5 100.0%
Costs of company restaurant sales:
Product costs 56.2 26.1% 52.6 23.5%
Payroll and benefits 91.1 42.3% 92.9 41.6%
Occupancy 12.3 5.7% 12.4 5.5%
Other operating costs:
Utilities 10.2 4.7% 9.8 4.4%
Repairs and maintenance 4.9 2.3% 5.2 2.3%
Marketing 7.8 3.6% 9.0 4.0%
Other 8.4 3.9% 9.1 4.1%
--------------------- ---------------------
Total costs of company restaurant sales 190.9 88.6% 191.0 85.5%
--------------------- ---------------------
Company restaurant operating margin $ 24.6 11.4% $ 32.5 14.5%
--------------------- ---------------------
Franchise operations: (3)
Franchise and license revenue 22.8 100.0% 23.3 100.0%
Costs of franchise and license revenue 6.8 29.8% 7.3 31.5%
--------------------- ---------------------
Franchise operating margin $ 16.0 70.2% $ 16.0 68.5%
--------------------- ---------------------
Total operating margin (1) $ 40.6 17.0% $ 48.5 19.7%
Other operating expenses: (1) (4)
General and administrative expenses 12.0 5.0% 10.8 4.4%
Depreciation and amortization 15.3 6.4% 20.7 8.4%
Restructuring, exit costs and impairment 1.3 0.5% 0.5 0.2%
Gains on disposition of assets and other, net (0.8) (0.3%) (2.4) (1.0%)
--------------------- ---------------------
Total other operating expenses $ 27.7 11.6% $ 29.6 12.0%
--------------------- ---------------------
Operating income (1) $ 12.9 5.4% $ 18.9 7.6%
(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 Three Quarters Three Quarters
Ended Ended Ended Ended
(in millions) 9/24/03 9/25/02 9/24/03 9/25/02
--------------- ---------------- ---------------- ----------------
Net income (loss) from continuing operations $ (6.3) $ (0.4) $ (20.7) $ 11.1
Provision for (benefit from) income taxes 0.3 0.3 0.8 (1.8)
Interest expense, net 19.0 19.0 57.2 57.2
Depreciation and amortization 15.3 20.7 43.9 62.3
--------------- ---------------- ---------------- ----------------
EBITDA (1) (2) $ 28.2 $ 39.6 $ 81.2 $ 128.7
=============== ================ ================ ================
(1) Following SEC guidance, we 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 $ 0.1 $ 0.0 $ (0.9) $ 3.1
Impairment charges 1.2 0.5 1.9 1.0
Gains on disposition of assets and other, net (0.8) (2.4) (5.6) (6.0)
Gains on exchanges of debt and other, net (4) (0.1) 0.0 (0.2) (19.2)
(3) The line items in this section are components of both net income and EBITDA as shown above.
(4) The third quarter year-to-date results in 2002 included a $19.2 million gain attributable to the senior note debt
exchange completed in April 2002.
DENNY'S CORPORATION
Statistical Data
(Unaudited)
Quarter Three Quarters
Same-Store Sales Ended Ended
(increase/(decrease) vs. prior year) 9/24/03 9/24/03
--------------- ----------------
Company-Owned Same-Store Sales (1.2%) (0.8%)
Guest Check Average 4.5% 3.6%
Guest Counts (5.4%) (4.2%)
Franchised Same-Store Sales (1.7%) (1.8%)
Quarter Quarter Three Quarters Three Quarters
Aggregate Unit Sales Ended Ended Ended Ended
($ in millions) 9/24/03 9/25/02 9/24/03 9/25/02
--------------- --------------- ---------------- ----------------
Sales at Company-Owned Units $ 215.6 $ 223.5 $ 623.5 $ 653.2
Sales at Franchised Units $ 353.5 $ 363.5 $ 1,017.2 $ 1,038.3
Quarter Quarter Three Quarters Three Quarters
Average Unit Sales Ended Ended Ended Ended
($ in thousands) 9/24/03 9/25/02 9/24/03 9/25/02
--------------- --------------- ---------------- ----------------
Company-Owned $ 384.5 $ 385.5 $ 1,111.5 $ 1,100.0
Franchised $ 315.8 $ 322.8 $ 908.9 $ 920.0
Restaurant Units Company Franchised Licensed Total
--------------- --------------- ---------------- ----------------
Ending Units 9/25/02 577 1,095 14 1,686
Units Opened/Acquired 1 23 1 25
Units Reacquired 1 (1) 0 0
Units Refranchised (1) 1 0 0
Units Closed (16) (49) 0 (65)
--------------- --------------- ---------------- ----------------
Net Change (15) (26) 1 (40)
Ending Units 9/24/03 562 1,069 15 1,646
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