Exhibit 99.1
Investor Contact: Alex Lewis
877-784-7167
NEWS RELEASE
Media Contact: Debbie Atkins
864-597-8361
DENNY'S CORPORATION REPORTS FOURTH QUARTER AND FULL YEAR 2004 RESULTS
SPARTANBURG, S.C., February 17, 2005 - Denny's Corporation
(OTCBB: DNYY) today reported results for its fourth quarter and year ended
December 29, 2004.
Highlights:
o 2004 same-store sales increased 5.9% at company units and 6.0% at franchised
units.
o 2004 total operating revenue increased $19.1 million, or 2.0%, to $960.0
million.
o 2004 operating income increased $7.8 million, or 16.9%, to $53.9 million.
o Fourth quarter same-store sales increased 5.8% at company units and 5.9% at
franchised units.
o Fourth quarter operating income increased $1.6 million, or 17.4%, to $10.6
million.
o Denny's announces a $3.2 million cumulative restatement related to changes in
lease accounting.
Nelson J. Marchioli, President and Chief Executive Officer, said, "Our
solid results in the fourth quarter of 2004 capped a year of strong sales and
earnings momentum. Same-store sales for the year were Denny's best in over a
decade. In fact, we have now reported 17 consecutive months of positive same
store sales which demonstrates the appeal of our concept and the compelling
value proposition we offer our customers. Our continued focus on operational
excellence at the restaurant level and our proven national advertising campaign
should help us build upon this success in 2005."
Fourth Quarter Results
For the fourth quarter of 2004, Denny's reported total operating
revenue of $243.7 million compared with $251.7 in the prior year quarter. As
previously disclosed, the fourth quarter of 2003 included an additional week of
operations, or 14 weeks in total, compared with a standard 13 weeks in the
fourth quarter of 2004. The extra week in 2003 resulted in an estimated impact
of $22.4 million in additional operating revenue, consisting of $20.7 million in
company restaurant sales and $1.7 million in franchise and license revenue.
Company restaurant sales for the fourth quarter were $221.3 million
compared with $228.4 million in the prior year quarter. This sales comparison
was impacted by the additional week of operations in 2003 and an eight-unit
decline in company-owned restaurants which more than offset a 5.8% increase in
same-store sales. Franchise revenue was $22.5 million compared with $23.3 in the
prior year quarter. This revenue comparison was impacted by the additional week
in 2003 and a 27-unit decline in franchised restaurants which more than offset a
5.9% increase in franchise same-store sales.
Company restaurant operating margin for the fourth quarter increased
2.0 percentage points to 13.5% of company sales compared with 11.5% in 2003. A
key driver of this margin improvement was a 1.3 percentage point decrease in
payroll and benefit costs resulting, in particular, from lower benefits costs
following a medical plan redesign for 2004. Also contributing to the operating
margin improvement was a 0.7 percentage point decrease in product costs
attributable to effective menu mix management and selective price increases
taken to offset commodity cost pressures.
General and administrative expenses for the fourth quarter increased
$7.7 million due primarily to higher performance-based incentive compensation
expense (approximately $2.8 million) as well as the incurrence of stock-based
compensation expense (approximately $5.2 million) attributable to options and
restricted stock units granted under Denny's Corporation's Omnibus Incentive
Plans.
Operating income for the fourth quarter increased $1.6 million to $10.6
million, as improved operating margins more than offset the impact of the
additional week in 2003 and higher general and administrative expenses this
quarter.
Interest expense for the fourth quarter decreased $8.0 million to $12.9
million reflecting lower borrowing costs resulting from the financial
recapitalization completed during the third and fourth quarters of 2004.
Net loss for the fourth quarter of 2004 was $14.1 million, or $0.16 per
diluted common share, compared with the prior year's fourth quarter net loss of
$13.0 million, or $0.32 per diluted common share. Net loss for the fourth
quarter of 2004 included $12.2 million of expenses attributable to the financial
recapitalization, of which $0.2 million was included in general and
administrative expenses with the remaining $12.0 million included in other
nonoperating expenses.
Full Year Results
For the full year of 2004, Denny's reported total operating revenue of
$960.0 million, up $19.1 million from 2003. As noted above, 2003 included an
extra week of operations, or 53 weeks in total, representing approximately $22.4
million in additional operating revenue. Company restaurant sales for 2004
increased $19.4 million to $871.2 million as a 5.9% same-store sales increase
more than offset the impact of the additional week of operations in 2003 and an
eight-unit decline in company-owned restaurants. Franchise revenue for 2004
decreased $0.3 million to $88.8 million as the impact of the additional week in
2003 and a 27-unit decline in franchised restaurants more than offset a 6.0%
increase in franchise same-store sales.
Company restaurant operating margin for 2004 increased 2.1 percentage
points to 13.3% of company sales compared with 11.2% in 2003. Contributing to
the margin improvement was positive operating leverage resulting from same-store
sales growth. Another key driver of the margin improvement was a 1.8 percentage
point decrease in payroll and benefit costs resulting from lower medical benefit
costs throughout the year as well as lower restaurant labor costs predominantly
during the first half of the year.
General and administrative expenses for 2004 increased $15.7 million
due primarily to higher performance-based incentive compensation expense
(approximately $9.1 million), the incurrence of stock-based compensation expense
(approximately $6.5 million), as well as higher transactions costs attributable
to the financial recapitalization (approximately $2.4 million).
Operating income for 2004 increased $7.8 million to $53.9 million as a
result of higher sales and improved operating margins, partially offset by the
impact of the additional week in 2003 and higher general and administrative
expenses this year.
Net loss for 2004 was $37.6 million, or $0.58 per diluted common share,
compared with the prior year's net loss of $33.7 million, or $0.83 per diluted
common share. Net loss for 2004 included $25.8 million of expenses attributable
to the financial recapitalization, of which $4.1 million was included in general
and administrative expenses while the remaining $21.7 million was included in
other nonoperating expenses.
Recapitalization
During the fourth quarter, Denny's completed its financial
recapitalization through the sale of $175 million of 10% Senior Notes due 2012.
The net proceeds from the notes offering, along with borrowings under the new
credit facilities closed in the third quarter, were used to redeem or repurchase
the balance of Denny's prior 12.75% notes and 11.25% notes and pay associated
premiums, transaction expenses and accrued interest.
As of December 29, 2004, Denny's new $75 million revolver had no
outstanding advances, while letters of credit totaled $37.5 million, resulting
in a net availability of $37.5 million. As of today, these balances remain
unchanged.
Mr. Marchioli concluded, "Strengthening our balance sheet and
controlling costs as we steadily grow the top-line are critical to enhancing
shareholder value. With our recapitalization complete, additional focus will be
directed towards investing in and enhancing core operations in 2005. We are
confident that we can realize the full potential of our existing restaurant base
and grow our company in a effective and disciplined manner."
Restatement of Financial Statements
Similar to recent announcements by other restaurant and retail
companies, Denny's has reviewed its lease accounting treatment and relevant
accounting literature in consultation with KPMG LLP, its current independent
registered public accounting firm. As a result, the Company and its audit
committee determined that it was appropriate to restate previously issued
financial statements to correct its accounting treatment for leasehold
improvements, resulting in the acceleration of depreciation for certain
leasehold improvements. The restatement had no impact on the Company's
previously reported cash flows, revenues or same-store sales, or on the
Company's compliance with covenants under its current credit facilities or other
debt instruments.
The cumulative balance sheet effect of the restatement was an increase
in accumulated depreciation of $3.2 million as of December 31, 2003 relating to
fiscal years 1998 through 2003. Of this amount, $0.9 million was recorded as
additional depreciation and other amortization expense for the quarter and year
ended December 31, 2003. The Company also determined it was appropriate to
record additional adjustments related to fiscal years 1998 through 2003 which
previously were deemed immaterial. The cumulative balance sheet effects of these
adjustments as of December 31, 2003 consist of a decrease in goodwill of $0.2
million, an increase in other long-term assets of $0.9 million, an increase in
liability for insurance claims of $1.3 million, and an increase in other
noncurrent liabilities and deferred credits of $2.0 million. Of these amounts,
$1.3 million was recorded as additional payroll and benefits expense for the
quarter and year ended December 31, 2003.
The financial statements and schedules contained herein have been
restated to reflect these adjustments. The adjustments noted above are subject
to change as the Company's current and former independent registered public
accounting firms complete their review of these matters. Additional details
related to the restatement can be found in the Form 8-K filed today with the
Securities and Exchange Commission.
Business Outlook
Based on 2004 results and management's expectations at this time,
Denny's anticipates total operating revenue for 2005 of between $975 million and
$985 million based on same-store sales increases at both company and franchised
units of approximately 2 to 3 percent. With regard to new unit development,
Denny's expects to open 2 to 3 new company units while franchisees are expected
to open 15 to 20 new units. Denny's anticipates earnings before interest, taxes,
depreciation and amortization (EBITDA) for 2005 of between $110 million and $115
million. Included in anticipated EBITDA is approximately $10 million of
stock-based compensation expense along with other noncash and nonoperating
items. Denny's anticipates 2005 cash capital spending of between $55 million and
$65 million, including investments in a new point-of-sale system and new company
restaurant development.
Further Information
Denny's will host its quarterly conference call for investors and
analysts today, Thursday, February 17, 2005 at 5:00 p.m. EST. Interested parties
are invited to listen to a live broadcast of the conference call accessible
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.
The Board of Directors of Denny's has set Wednesday, May 25, 2005, as
the date for the 2005 Annual Meeting of Denny's Shareholders to be held in
Spartanburg, South Carolina.
Denny's is America's largest full-service family restaurant chain,
consisting of 552 company-owned units and 1,048 franchised and licensed units,
with operations 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 constitute forward looking
statements. These forward-looking statements involve 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. Words such as "expects",
"anticipates", "believes", "intends", "plans", and "hopes", variations of such
words and similar expressions are intended to identify such forward-looking
statements. Except as may be required by law, the Company expressly disclaims
any obligation to update these forward-looking statements to reflect events or
circumstances after the date of this release or to reflect the occurrence of
unanticipated events. Factors that could cause actual performance to differ
materially from the performance indicated by these forward-looking 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 31, 2003 (and in the
Company's subsequent quarterly reports on Form 10-Q).
DENNY'S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Restated
13 Weeks 14 Weeks
Ended Ended
12/29/04 12/31/03
-------------- --------------
(In thousands, except per share amounts)
Revenue:
Company restaurant sales $ 221,250 $ 228,379
Franchise and license revenue 22,475 23,275
-------------- --------------
Total operating revenue 243,725 251,654
-------------- --------------
Costs of company restaurant sales 191,438 202,129
Costs of franchise and license revenue 7,031 7,054
General and administrative expenses 20,786 13,039
Depreciation and amortization 14,604 16,988
Restructuring charges and exit costs (171) 1,479
Impairment charges 438 2,097
Gains on disposition of assets and other, net (1,041) (197)
-------------- --------------
Total operating costs and expenses 233,085 242,589
-------------- --------------
Operating income 10,640 9,065
-------------- --------------
Other expenses:
Interest expense, net 12,947 20,994
Other nonoperating expense, net 11,630 1,078
-------------- --------------
Total other expenses, net 24,577 22,072
-------------- --------------
Loss before income taxes (13,937) (13,007)
Provision for income taxes 193 (37)
-------------- --------------
Net loss $ (14,130) $ (12,970)
============== ==============
Basic and diluted net loss per share $ (0.16) $ (0.32)
============== ==============
Basic and diluted weighted average shares outstanding 89,896 40,746
============== ==============
DENNY'S CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
Restated
52 Weeks 53 Weeks
Ended Ended
12/29/04 12/31/03
--------------- ---------------
(In thousands, except per share amounts)
Revenue:
Company restaurant sales $ 871,248 $ 851,853
Franchise and license revenue 88,758 89,092
--------------- ---------------
Total operating revenue 960,006 940,945
--------------- ---------------
Costs of company restaurant sales 755,065 756,730
Costs of franchise and license revenue 28,196 27,125
General and administrative expenses 66,922 51,268
Depreciation and amortization 56,545 60,919
Restructuring charges and exit costs 495 613
Impairment charges 1,130 3,986
Gains on disposition of assets and other, net (2,271) (5,844)
--------------- ---------------
Total operating costs and expenses 906,082 894,797
--------------- ---------------
Operating income 53,924 46,148
--------------- ---------------
Other expenses:
Interest expense, net 69,428 78,190
Other nonoperating expense, net 21,265 901
--------------- ---------------
Total other expenses, net 90,693 79,091
--------------- ---------------
Loss before income taxes (36,769) (32,943)
Provision for income taxes 802 759
--------------- ---------------
Net loss $ (37,571) $ (33,702)
=============== ===============
Basic and diluted net loss per share $ (0.58) $ (0.83)
=============== ===============
Basic and diluted weighted average shares outstanding 64,708 40,687
=============== ===============
DENNY'S CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
Restated
12/29/04 12/31/03
----------------- ----------------
(In thousands)
ASSETS
Current Assets
Cash and cash equivalents $ 15,561 $ 7,363
Other 27,994 24,255
----------------- -----------------
43,555 31,618
----------------- -----------------
Property, net 286,120 293,776
Goodwill 50,186 50,186
Intangible assets, net 77,484 83,879
Other assets 43,867 37,727
----------------- -----------------
Total Assets $ 501,212 $ 497,186
================= =================
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Current maturities of notes and debentures $ 1,975 $ 51,714
Current maturities of capital lease obligations 3,396 3,462
Accounts payable and other accrued liabilities 130,873 136,911
----------------- -----------------
136,244 192,087
----------------- -----------------
Long-Term Liabilities
Notes and debentures, less current maturities 519,236 509,593
Capital lease obligations, less current maturities 28,149 28,728
Other 82,294 85,507
----------------- -----------------
629,679 623,828
----------------- -----------------
Total Liabilities 765,923 815,915
Total Shareholders' Deficit (264,711) (318,729)
----------------- -----------------
Total Liabilities and Shareholders' Deficit $ 501,212 $ 497,186
================= =================
Long-Term Debt Balances
12/29/04 12/31/03
----------------- -----------------
(In thousands)
Bank revolver $ -- $ 11,100
First lien term loans 225,000 40,000
Second lien term loans 120,000 --
Capital leases and other debt 32,756 34,019
10.00% senior notes due 2012 175,000 --
12.75% senior notes due 2007 -- 120,389
11.25% senior notes due 2008 -- 378,970
----------------- -----------------
552,756 584,478
Premium on 11.25% notes -- 9,019
----------------- -----------------
Total Debt $ 552,756 $ 593,497
================= =================
DENNY'S CORPORATION
Quarterly Operating Margins
(Unaudited)
Restated
13 Weeks 14 Weeks
Ended Ended
(In millions) 12/29/04 12/31/03
--------------------- --------------------
Total operating revenue (1) $ 243.7 100.0% $ 251.7 100.0%
Company restaurant operations: (2)
Company restaurant sales 221.3 100.0% 228.4 100.0%
Costs of company restaurant sales:
Product costs 57.4 26.0% 60.9 26.7%
Payroll and benefits 92.2 41.7% 98.2 43.0%
Occupancy 12.0 5.4% 12.7 5.6%
Other operating costs:
Utilities 9.8 4.4% 10.0 4.4%
Repairs and maintenance 5.0 2.3% 4.1 1.8%
Marketing 6.6 3.0% 7.4 3.2%
Other 8.4 3.8% 8.8 3.9%
--------------------- --------------------
Total costs of company restaurant sales 191.4 86.5% 202.1 88.5%
--------------------- --------------------
Company restaurant operating margin (3) $ 29.8 13.5% $ 26.2 11.5%
--------------------- --------------------
Franchise operations: (4)
Franchise and license revenue 22.5 100.0% 23.3 100.0%
Costs of franchise and license revenue 7.0 31.3% 7.1 30.3%
--------------------- --------------------
Franchise operating margin (3) $ 15.4 68.7% $ 16.2 69.7%
--------------------- --------------------
Total operating margin (1)(3) $ 45.3 18.6% $ 42.5 16.9%
Other operating expenses: (1)(3)
General and administrative expenses 20.8 8.5% 13.0 5.2%
Depreciation and amortization 14.6 6.0% 17.0 6.8%
Restructuring, exit costs and impairment 0.3 0.1% 3.6 1.4%
Gains on disposition of assets and other, net (1.0) (0.4%) (0.2) (0.1%)
--------------------- --------------------
Total other operating expenses $ 34.6 14.2% $ 33.4 13.3%
--------------------- --------------------
Operating income (1) $ 10.6 4.4% $ 9.1 3.6%
===================== ====================
(1) As a percentage of total operating revenue
(2) As a percentage of company restaurant sales
(3) 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. As such, operating margins
may be considered a non-GAAP financial measure. Operating margins should
be considered as a supplement to, not as a substitute for, operating
income, net income or other financial measures prepared in accordance
with accounting principles generally accepted in the United States of
America.
(4) As a percentage of franchise and license revenue
DENNY'S CORPORATION
EBITDA Reconciliation
(Unaudited)
Restated Restated
13 Weeks 14 Weeks 52 Weeks 53 Weeks
(In millions) Ended Ended Ended Ended
12/29/04 12/31/03 12/29/04 12/31/03
--------------- --------------- --------------- ---------------
Net loss $ (14.1) $ (13.0) $ (37.6) $ (33.7)
Provision for income taxes 0.2 (0.0) 0.8 0.8
Interest expense, net 12.9 21.0 69.4 78.2
Depreciation and amortization 14.6 17.0 56.6 60.9
--------------- --------------- --------------- ---------------
EBITDA (1) $ 13.6 $ 25.0 $ 89.2 $ 106.2
=============== =============== =============== ===============
(1) 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.
13 Weeks 14 Weeks 52 Weeks 53 Weeks
Ended Ended Ended Ended
(In millions) 12/29/04 12/31/03 12/29/04 12/31/03
--------------- --------------- --------------- ---------------
Other financial data: (2)
Restructuring charges and exit costs $ (0.2) $ 1.5 $ 0.5 $ 0.6
Impairment charges 0.4 2.1 1.1 4.0
Gains on disposition of assets and other, net (1.0) (0.2) (2.3) (5.8)
Other nonoperating expense (income), net (3) 11.6 1.1 21.3 0.9
General and administrative expenses:
Stock-based incentive compensation (4) 5.2 0.0 6.5 0.0
Transaction costs (5) 0.2 1.4 4.1 1.7
Other general and administrative expenses 15.4 11.6 56.3 49.6
--------------- --------------- --------------- ---------------
Total general and administrative expenses $ 20.8 $ 13.0 $ 66.9 $ 51.3
=============== =============== =============== ===============
(2) The line items in this section are components of both net income and
EBITDA as shown above.
(3) 2004 amounts include debt repurchase premiums and related costs
attributable to the financial recapitalization completed during the
third and fourth quarters.
(4) This compensation expense is attributable to options and restricted
stock units granted under the Denny's 2002 and 2004 Omnibus
Incentive Plan.
(5) These transactions costs are attributable to the financial
recapitalization completed in 2004.
DENNY'S CORPORATION
Statistical Data
(Unaudited)
13 Weeks 52 Weeks
Same-Store Sales Ended Ended
(increase/(decrease) vs. prior year) 12/29/04 12/29/04
--------------- ----------------
Company-Owned Same-Store Sales 5.8% 5.9%
Guest Check Average 6.0% 4.1%
Guest Counts (0.2%) 1.7%
Franchised Same-Store Sales 5.9% 6.0%
13 Weeks 14 Weeks 52 Weeks 53 Weeks
Average Unit Sales Ended Ended Ended Ended
($ in thousands) 12/29/04 12/31/03 12/29/04 12/31/03
--------------- ---------------- ---------------- -----------------
Company-Owned Units $ 404.2 $ 408.5 $ 1,578.3 $ 1,520.0
Franchised Units $ 337.3 $ 336.0 $ 1,326.6 $ 1,254.8
Franchised
Restaurant Units Company & Licensed Total
--------------- ---------------- ----------------
Ending Units 12/31/03 561 1,077 1,638
Units Opened 1 13 14
Units Acquired/Reacquired 1 (1) 0
Units Refranchised (1) 1 0
Units Closed (9) (40) (49)
--------------- ---------------- ----------------
Net Change (8) (27) (35)
--------------- ---------------- ----------------
Ending Units 12/29/04 553 1,050 1,603
=============== ================ ================