-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KcGX/U4eIo0JUy2qqmuItszf6lXwR97JnJ2aJvlZrcXNmGZj5mOHY3cf2xFMsf2x Xtn/GDumwikECTn0B7y9zw== 0001016843-99-000517.txt : 19990507 0001016843-99-000517.hdr.sgml : 19990507 ACCESSION NUMBER: 0001016843-99-000517 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990322 FILED AS OF DATE: 19990506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHECKERS DRIVE IN RESTAURANTS INC /DE CENTRAL INDEX KEY: 0000879554 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 581654960 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19649 FILM NUMBER: 99612886 BUSINESS ADDRESS: STREET 1: 14255 49TH STREET NORTH BLDG I CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7275192000 MAIL ADDRESS: STREET 1: 14255 49TH STREET NORTH BLDG I CITY: CLEARWATER STATE: FL ZIP: 33762 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 22, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to Commission file number 0-19649 CHECKERS DRIVE-IN RESTAURANTS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 58-1654960 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 14255 49TH STREET NORTH, BUILDING 1, SUITE 101 CLEARWATER, FL 33762 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (727) 519-2000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The Registrant had 73,408,047 shares of Common Stock, par value $.001 per share, outstanding as of April 20, 1999. TABLE OF CONTENTS PART I FINANCIAL INFORMATION PAGE ITEM 1 FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS MARCH 22, 1999 AND DECEMBER 28, 1998.............................3 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME QUARTERS ENDED MARCH 22, 1999 AND MARCH 23, 1998 .........5 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS QUARTERS ENDED MARCH 22, 1999 AND MARCH 23, 1998 ................6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS...............7 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................13 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........19 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS....................................................19 ITEM 2 CHANGES IN SECURITIES................................................21 ITEM 3 DEFAULTS UPON SENIOR SECURITIES......................................21 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .................21 ITEM 5 OTHER INFORMATION....................................................22 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.....................................22 2 PART I. FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS (UNAUDITED) MARCH 22, DECEMBER 28, 1999 1998 --------- ------------ CURRENT ASSETS: Cash and cash equivalents: Restricted $ 1,417 $ 1,738 Unrestricted 2,219 2,925 Accounts receivable 1,788 1,327 Notes receivable, net - current portion 94 224 Inventory 2,035 2,068 Property and equipment held for sale 2,756 2,755 Deferred loan costs - current portion 432 793 Prepaid expenses and other current assets 1,120 468 -------- -------- Total current assets 11,861 12,298 Property and equipment, net 77,162 78,390 Intangibles, net of accumulated amortization 9,916 10,123 Deferred loan costs - less current portion 428 378 Notes receivable, net-less current portion 235 252 Deposits and other non-current assets 569 658 -------- -------- $100,171 $102,099 ======== ======== SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 3 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED) MARCH 22, DECEMBER 28, 1999 1998 --------- ------------ CURRENT LIABILITIES: Current maturities of long-term debt and capital lease obligations $ 1,891 $ 1,381 Accounts payable 5,654 5,896 Accrued wages, salaries and benefits 2,688 2,360 Reserves for restaurant relocations and abandoned sites 1,207 1,635 Other accrued liabilities 7,177 7,133 Deferred income-current portion 207 203 --------- --------- Total current liabilities 18,824 18,608 Long-term debt, less current maturities 28,105 28,645 Obligations under capital leases, less current maturities 748 1,009 Deferred income, less current portion 752 848 Long-term reserves for restaurant relocations and abandoned sites 543 430 Minority interests in joint ventures 674 802 Other noncurrent liabilities 7,028 7,149 --------- --------- Total liabilities 56,674 57,491 STOCKHOLDERS' EQUITY: Preferred stock, $.001 par value, authorized 2,000,000 shares, no shares outstanding -- -- Common stock, $.001 par value, authorized 150,000,000 shares, issued and outstanding 73,408,047 at March 22, 1999 and at December 28, 1998 73 73 Additional paid-in capital 121,579 121,579 Retained deficit (77,755) (76,644) --------- --------- 43,897 45,008 Less treasury stock, at cost, 578,904 shares 400 400 --------- --------- Net stockholders' equity 43,497 44,608 --------- --------- $ 100,171 $ 102,099 ========= =========
See accompanying notes to condensed consolidated financial statements 4 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QUARTER ENDED MARCH 22, MARCH 23, 1999 1998 ------------- --------- REVENUES: Restaurant sales $ 30,140 $ 35,107 Franchise revenues and fees 1,560 1,844 Modular restaurant packages 13 52 -------- -------- Total revenues $ 31,713 $ 37,003 COSTS AND EXPENSES: Restaurant food and paper costs 9,089 11,389 Restaurant labor costs 10,057 10,691 Restaurant occupancy expense 2,408 2,637 Restaurant depreciation and amortization 1,643 1,874 Other restaurant operating expense 3,237 3,097 Advertising expense 1,912 1,876 Cost of modular restaurant package revenues 98 70 Other depreciation and amortization 454 515 General and administrative expenses 2,917 3,167 Losses on assets to be disposed of -- 63 -------- -------- Total costs and expenses 31,815 35,379 -------- -------- Operating (loss) income (102) 1,624 OTHER INCOME (EXPENSE): Interest income 58 79 Interest expense (850) (954) Interest - loan cost amortization (331) (415) -------- -------- (Loss) income before minority interests and income taxes (1,225) 334 Minority interests in operations of joint ventures (114) (60) -------- -------- (Loss) income before income taxes (1,111) 394 Income taxes -- -- -------- -------- Net (loss) income $ (1,111) $ 394 ======== ======== Comprehensive (loss) income $ (1,111) $ 394 ======== ======== Net loss per common share - (basic and diluted) $ (0.02) $ 0.01 ======== ======== Weighted average number of common shares - (basic and diluted) 73,408 73,313 ======== ========
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 5 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
QUARTER ENDED ----------------------- MARCH 22, MARCH 23, 1999 1998 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(1,111) $ 394 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization 2,098 2,389 Provision for losses on assets to be disposed of -- 63 Deferred loan cost amortization 331 412 Provision for bad debt 106 116 Loss on disposal of property & equipment (6) (3) Minority interests in (losses) earnings (114) (60) Changes in assets and liabilities: Increase in accounts receivable (561) (1,123) Decrease (increase) in notes receivable 141 (16) Decrease in inventory 33 108 Increase in prepaid expenses and other current assets (648) (335) Decrease in deposits and other 89 14 Decrease in accounts payable (242) (1,515) (Decrease) increase in accrued liabilities (44) 58 (Decrease) increase in deferred income (92) 279 ------- ------- Net cash (used in) provided by operating activities (20) 781 ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (701) (127) Proceeds from sale of assets 17 273 ------- ------- Net cash (used in) provided by investing activities (684) 146 ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (291) (961) Deferred loan costs incurred (17) -- Distributions to minority interests (15) (20) ------- ------- Net cash used in financing activities (323) (981) ------- ------- Net decrease in cash (1,027) (54) CASH AT BEGINNING OF PERIOD 4,663 3,921 ------- ------- CASH AT END OF PERIOD $ 3,636 $ 3,867 ======= ======= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION--- Interest paid $ 907 $ 946 ======= =======
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6 CHECKERS DRIVE-IN RESTAURANTS, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) BASIS OF PRESENTATION - The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments necessary to present fairly the information set forth therein have been included. The operating results for the quarter ended March 22, 1999, are not necessarily an indication of the results that may be expected for the fiscal year ending January 3, 2000. Except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 28, 1998. Therefore, it is suggested that the accompanying financial statements be read in conjunction with the Company's December 28, 1998 consolidated financial statements. (b) PURPOSE AND ORGANIZATION - The principal business of Checkers Drive-In Restaurants, Inc. (the "Company", "Checkers") is the operation and franchising of Checkers restaurants. At March 22, 1999, there were 465 Checkers restaurants operating in 22 different states, the District of Columbia, Puerto Rico and West Bank in the Middle East. Of those restaurants, 233 were Company-operated (including 12 joint venture restaurants) and 232 were operated by franchisees. The accounts of the joint ventures have been included with those of the Company in these condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in consolidation and minority interests have been established for the outside partners' interests. The Company reports on a fiscal year which will end on the Monday closest to December 31st. Each quarter consists of three 4-week periods, with the exception of the fourth quarter which consists of four 4-week periods. The Company's 1999 fiscal year will include a 53rd week, thereby increasing the fourth quarter to seventeen weeks. (c) REVENUE RECOGNITION - Franchise fees are generated from the sale of rights to develop, own and operate restaurants. Such fees are based on the number of potential restaurants in a specific area which the franchisee agrees to develop pursuant to the terms of the franchise agreement between the Company and the franchisee and are recognized as income on a pro rata basis when substantially all of the Company's obligations per location are satisfied, generally at the opening of the restaurant. Franchise fees are nonrefundable. The Company receives royalty fees from franchisees based on a percentage of each restaurant's gross revenues. Royalty fees are recognized as earned. (d) CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments purchased with an original maturity of less than three months to be cash equivalents. Restricted Cash consists of cash on deposit with various financial institutions as collateral to support the Company's obligations to certain states for potential workers' compensation claims. This cash is not available for the Company's use until such time that the respective states permit its release. (e) RECEIVABLES - Receivables consist primarily of franchise fees, royalties and notes due from franchisees and receivables from the sale of MRP's. Allowances for doubtful receivables were $2.2 million at March 22, 1999 and $2.3 million at December 28, 1998. (f) INVENTORY - Inventories are stated at the lower of cost (first-in, first-out (FIFO) method) or market. (g) DEFERRED LOAN COSTS - Deferred loan costs incurred in connection with the Company's November 22, 1996 restructure of its primary credit facility and the mortgages payable to FFCA Acquisition Corporation (see Note 3) are being amortized on the effective interest method. (h) IMPAIRMENT OF LONG LIVED ASSETS - The Company accounts for tangible property and intangibles under the Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121), which requires the write-down of certain intangibles and tangible property associated with under performing sites to the level supported by the forecasted discounted cash flow in cases where undiscounted cash flow projected does not exceed the book value of the related assets. (i) PROPERTY AND EQUIPMENT - Property and equipment (P & E) are stated at cost except for P & E that have been impaired, for which the carrying amount is reduced to estimated fair value. P & E under capital leases are stated at their fair value at the inception of the lease. Depreciation and amortization are computed on straight-line method over the estimated 7 useful lives of the assets. Property held for sale includes various excess restaurant facilities and land. The aggregate carrying value of property and equipment held for sale is periodically reviewed and adjusted downward to market value, when appropriate. (j) INTANGIBLES - Goodwill and other intangibles are being amortized over 20 years and 3 to 7 years, respectively, on a straight-line basis. (k) INCOME TAXES - The Company accounts for income taxes under the Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under the asset or liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date (see Note 5). (l) DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS - The balance sheets as of March 22, 1999 and December 28, 1998 reflect the fair value amounts which have been determined using available market information and appropriate valuation methodologies. However, considerable judgement is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts of cash and cash equivalents, receivables, accounts payable, and long-term debt are a reasonable estimate of their fair value. Interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities are used to estimate fair value for debt issues that are not quoted on an exchange. (m) EARNINGS PER SHARE - The Company calculates basic and diluted earnings (loss) per share in accordance with the Statement of Financial Accounting Standard No. 128, "Earnings per Share", which is effective for periods ending after December 15, 1997. (n) SEGMENT REPORTING - SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information" changes the way public companies report information about segments of their business in their annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. SFAS No. 131 is effective for fiscal years beginning after December 15, 1997. The Company operates primarily in the quick-service restaurant industry. The Company's Champion Modular Restaurants division does not have a material effect upon the Company's financial statements. (o) USE OF ESTIMATES - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. (p) RECLASSIFICATIONS - Certain amounts in the 1998 financial statements have been reclassified to conform to the 1999 presentation. NOTE 2: LIQUIDITY The Company has a working capital deficit of $7.0 million at March 22, 1999. It is anticipated that the Company will continue to have a working capital deficit since approximately 88% of the Company's assets are long-term (primarily property, equipment, and intangibles), and since all operating trade payables, accrued expenses, and property and equipment payables are current liabilities of the Company. At March 22, 1999, a significant portion ($17.4 million) of the Company's long-term debt relates to the Company's Restated Credit Agreement which originally was to mature on July 31, 1999. During March and April 1999, Santa Barbara Restaurant Group, Inc. ("SBRG"), a company which is an 8.2% owner of Rally's Hamburgers Inc., ("Rally's") acquired approximately $4.9 million of debt due to three members of the lender group. The terms associated with the SBRG debt are identical to terms that other participants of the lender group have pursuant to the Restated Credit Agreement. On March 24, 1999, SBRG and the other remaining members of the lender group agreed to an extension of the maturity date to April 30, 2000. As of March 22, 1999, Fidelity National Financial, Inc. owned 31.1% of the outstanding common stock of SBRG. See Note 6: "Merger" for discussion of the Merger with Rally's. Rally's has a working capital deficit of $5.9 million at March 22, 1999. It is anticipated that Rally's will continue to have a working capital deficit since approximately 89% of Rally's assets are long-term (primarily property, equipment, investment in affiliate and intangibles), and since all operating 8 trade payables, accrued expenses, and property and equipment payables are current liabilities of Rally's. At March 22, 1999, a significant portion ($53.5 million) of Rally's long-term liabilities relates to the Rally's Senior Notes to mature in June, 2000. Rally's is currently evaluating alternatives for refinancing or repaying the outstanding Senior Notes that mature in June 2000. These alternatives include a sale-leaseback transaction or additional mortgage financing. Other options include the sale of certain Rally-owned markets to current or new franchisees in transactions that would provide immediate funds to reduce debt and would also provide a continued source of income through future royalties. NOTE 3: LONG-TERM DEBT Long-term debt consists of the following:
MARCH 22, DECEMBER 28, 1999 1998 --------- ------------ Note payable under Restated Credit Agreement at 13% interest due each 28 day period, originally maturing July 31, 1999, subsequently extended to April 30, 2000 (see Note 2) $17,432 $17,432 Notes payable due at various dates secured by building and equipment with interest rates primarily ranging from 9.0% to 11.32%, payable monthly 1,068 1,214 Mortgages payable to FFCA Acquisition Corporation secured by 24 Company-owned restaurants, payable in aggregate monthly installments of $93,213, including interest at 9.5% 9,972 10,000 Other, at interest rates ranging from 7.0% to 10.0% 965 997 ------- ------- Total long-term debt and capital lease obligations 29,437 29,643 Less current installments 1,332 998 ------- ------- Long-term debt, less current maturities $28,105 $28,645 ======= =======
NOTE 4: INCOME TAXES The Company recorded an income tax benefit of $422,000 for the quarter ended March 22, 1999 and income tax expense of $150,000 for the quarter ended March 23, 1998, or 38.0% of the respective loss or income before income taxes. The Company then recorded a valuation allowance of $422,000 against deferred income tax assets for the quarter ended March 22, 1999 (reversed $150,000 in valuation allowances for the quarter ended March 23, 1998). The Company's total valuation allowances of approximately $32.8 million as of March 22, 1999 is maintained on deferred tax assets which the Company has not determined to be more likely than not realizable at this time. Subject to a review of the tax assets, these valuation allowances will be reversed during periods in the future in which the Company records pre-tax income, in amounts necessary to offset any then recorded income tax expenses attributable to such future periods. NOTE 5: RELATED PARTIES Effective November 30, 1997 the Company entered into a Management Services Agreement with Rally's whereby Checkers is providing accounting, technology, and other functional and management services to predominantly all of the operations of Rally's. The Management Services Agreement carries a term of seven years, terminable upon the mutual consent of the parties. The Company will receive fees from Rally's relative to the shared departmental costs times the respective store ratio. Checkers increased its corporate and regional staff in late 1997 and 1998 in order to meet the demands of the agreement, but management believes the income generated by this agreement has enabled Checkers to attract the management staff with expertise necessary to more successfully manage and operate both companies at significantly reduced costs to both entities. During the quarters ended March 22, 1999 and March 23, 1998, the Company charged Rally's $1.7 million and $913,000, respectively in accordance with the Management Service Agreement. Effective April 6, 1999, the Company began sharing the services of the Chief Financial Officer with Rally's. NOTE 6: MERGER On January 29, 1999, Checkers and Rally's announced the signing of a definitive merger agreement ("the Merger") pursuant to which Rally's will merge into Checkers in an all stock transaction. The Merger agreement provides that each outstanding share of the Rally's stock will be exchanged for 1.99 shares of Checkers stock. Immediately following the Merger and a one-for-twelve reverse split, there will be approximately 9,387,859 common shares outstanding. In addition, each of Rally's outstanding stock options (5.6 million as of March 22, 1999) will be exchanged for options at the exchange rate of 1 to 1.99 of Checkers. The approximate 19.1 million shares of Checkers common stock which Rally's owns will be retired as a result of the Merger. Checkers and Rally's have each received investment bankers' opinions as to the fairness of the exchange rate used in the Merger. The Merger transaction is subject to certain approvals, including but not limited to approval by the 9 shareholders of Checkers and Rally's and the holders of Rally's Senior Notes and is expected to close in the third quarter of fiscal year 1999. At March 22, 1999, Rally's owned 19,130,930 shares (26.06 percent) of the outstanding common stock of Checkers and public shareholders owned the remaining 54,277,177 shares of Checkers common stock. Checkers will issue 58,377,134 shares of its common stock to Rally's shareholders in exchange for all the outstanding common stock of Rally's (29,335,243 outstanding shares) at a 1 to 1.99 exchange ratio. After the transaction, Rally's shareholders will own 58,377,134 shares (51.8 percent of the outstanding common stock of the new Checkers) and the remaining 54,277,117 shares (48.2 percent of Checker common stock) will then be held by then current shareholders of Checkers. The Merger transaction will be accounted for under the purchase method of accounting and will be treated as a reverse acquisition as the stockholders of Rally's will receive the larger portion (51.8%) of the voting interests in the combined enterprise. Accordingly, Rally's is considered the acquirer for accounting purposes and therefore, Checkers' assets and liabilities will be recorded based upon their fair market value. The following unaudited pro forma condensed consolidated financial data sets forth certain pro forma financial information giving effect to the Merger. The pro forma financial information is based on, and should be read in conjunction with the historical consolidated financial statements of each of the companies and the notes related thereto. The pro forma condensed consolidating balance sheet gives effect to the issuance of 58,377,134 shares of the Checkers common stock in exchange for 29,335,243 shares of Rally's common stock, based upon the per share price of the Checkers common shares at $0.531 and a one-for-twelve reverse split, assuming the Merger had occurred March 22, 1999: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CHECKERS RALLY'S MARCH 22, MARCH 22, PRO FORMA 1999 1999 ADJUSTMENTS MERGED --------- --------- ----------- --------- ASSETS: Current assets $ 11,861 $ 13,323 $ - $ 25,184 Property and equipment, net 77,162 60,290 137,452 Investment in affiliate, including net goodwill - of $11,717, net of accumulated amortization - 22,567 A) (22,567) - Intangibles, net of accumulated amortization 9,916 23,402 G) 19,391 52,709 Other assets, net of accumulated amortization 1,232 2,620 3,852 --------- --------- -------- --------- $ 100,171 $ 122,202 $ (3,176) $ 219,197 ========= ========= ======== ========= LIABILITIES: Current liabilities 18,824 19,204 B) 1,500 39,528 Senior notes, net of discount, less current maturities - 53,543 53,543 Long-term debt and capital lease obligations, less - current maturities 28,853 12,588 41,441 Minority interests in joint ventures 674 - 674 Other long-term liabilities 8,323 3,951 12,274 --------- --------- -------- --------- Total liabilities 56,674 89,286 1,500 147,460 STOCKHOLDERS' EQUITY: Preferred stock - - - - Common stock 73 2,961 C) (3,025) 9 Additional paid-in capital 121,579 97,346 D) (81,914) 137,011 Retained deficit (77,755) (65,283) E) 77,755 (65,283) --------- --------- -------- --------- 43,897 35,024 (7,184) 71,737 Less treasury stock, at cost (400) (2,108) F) 2,508 - --------- --------- -------- --------- Net stockholders' equity 43,497 32,916 (4,676) 71,737 --------- --------- -------- --------- $ 100,171 $ 122,202 $ (3,176) $ 219,197 ========= ========= ======== =========
A) Pro forma adjustment to record the elimination of Rally's original investment of $10,850 in Checkers common stock and the reclassification to intangibles of $11,717 of goodwill associated with Rally's investment in Checkers. B) Pro forma adjustment to accrue estimated transaction costs related to the Merger. C) Pro forma adjustment to record the issuance of 58,377 shares of Checkers common stock in exchange for Rally's outstanding shares, $58; to eliminate the previous common stock account of Rally's, ($2,961); to eliminate the par value associated with Rally's investment in Checkers common stock, ($19); and to effect a one-for-twelve reverse split, ($103). D) Pro forma adjustments, in accordance with reverse acquisition accounting, to record the fair value of the outstanding 54,277 shares of common stock of Checkers valued at $0.531 per share, $28,767 which is net of related par value; eliminate the previous treasury stock of Rally's, ($2,108); eliminate the previous additional paid-in capital account of Checkers, 10 ($121,579); to reduce additional paid in capital for the par value of the 58,377 shares issued to Rally's shareholders, ($58); to eliminate the previous common stock account of Rally's, $2,961; to attribute a $10,000 estimated fair value to the outstanding Checkers stock options and warrants, and effect a one-for-twelve reverse split, $103. E) Pro forma adjustments to record the elimination of the retained deficit account of Checkers. F) Pro forma adjustment to eliminate the previous treasury stock of Checkers, $400; as well as the treasury stock of Rally's, $2,108 which is cancelled as a result of the Merger. G) Pro forma adjustment to record goodwill of $7,674 associated with the Merger and the reclassification of $11,717 of goodwill associated with Rally's original investment in Checkers (see A). NOTES: The final adjustments to value the outstanding Checkers options and warrants as well as final adjustments to the fair value of assets and liabilities as a result of the Merger will not be known until the merger is completed. The following unaudited pro forma condensed consolidating statement of operations sets forth certain pro forma financial information giving effect to the Merger, assuming the Merger had occurred December 29, 1998: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CHECKERS RALLY'S TWELVE WEEKS TWELVE WEEKS ENDED ENDED MARCH 22, MARCH 22, PRO FORMA 1999 1999 ADJUSTMENTS MERGED ------------ ------------ ----------- -------- TOTAL REVENUES $ 31,713 $ 30,119 $ 61,832 -------- -------- ------ -------- COSTS AND EXPENSES: Restaurant operating costs 26,434 24,206 50,640 Advertising expense 1,912 1,801 3,713 Other expenses 98 352 450 Other depreciation and amortization 454 570 H) 200 1,224 General and administrative expense 2,917 3,081 I) (88) 5,910 -------- -------- ------ -------- Total cost and expenses 31,815 30,010 112 61,937 -------- -------- ------ -------- Operating (loss) income (102) 109 (112) (105) Other income (expense): Interest income 58 188 246 Gains on bond repurchases - 256 256 Loss on investment in affiliate - (434) J) 434 - Interest expense (1,181) (1,685) (2,866) -------- -------- ------ -------- Loss before minority interest, income taxes (1,225) (1,566) 322 (2,469) Minority interests in (losses) earnings (114) - (114) -------- -------- ------ -------- Loss before income taxes (1,111) (1,566) 322 (2,355) Income taxes - 37 37 -------- -------- ------ -------- Net (loss) earnings $ (1,111) $ (1,603) $ 322 $ (2,392) ======== ======== ====== ======== Comprehensive (loss) earnings $ (1,111) $ (1,603) $ 322 $ (2,392) ======== ======== ====== ======== Net (loss) income per common share (basic and diluted) ($0.02) ($0.05) ($0.25) ======== ======== ======== Weighted average number of common shares (basic and diluted) 73,408 29,335 K) 9,388 ======== ======== ========
H) Pro forma adjustment to increase the amortization of goodwill associated with the Merger. I) Pro forma adjustment to eliminate excess public company expenses recorded on Rally's. J) Pro forma adjustment to eliminate loss from the Rally's equity investment in Checkers. K) The merged weighted average number of common shares outstanding consists of 112,654 shares immediately following the Merger, effected for the one-for-twelve reverse split. 11 The following unaudited pro forma condensed consolidating statement of operations sets forth certain pro forma financial information giving effect to the Merger, assuming the Merger had occurred December 29, 1997: (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CHECKERS RALLY'S FISCAL YEAR FISCAL YEAR ENDED ENDED DECEMBER 28, DECEMBER 28, PRO FORMA 1998 1998 ADJUSTMENTS MERGED --------- --------- ----------- --------- TOTAL REVENUES $ 145,708 $ 144,952 $ 290,660 --------- --------- ------- --------- COSTS AND EXPENSES: Restaurant operating costs 119,416 113,782 233,198 Advertising expense 6,921 9,853 16,774 Other expenses 516 647 1,163 Other depreciation and amortization 2,275 2,503 H) 842 5,620 General and administrative expense 13,309 13,404 I) (380) 26,333 SFAS 121 provisions 2,953 3,362 6,315 --------- --------- ------- --------- Total cost and expenses 145,390 143,551 462 289,403 --------- --------- ------- --------- Operating income (loss) 318 1,401 (462) 1,257 Other income (expense): Interest income 272 480 752 Loss on investment in affiliate - (2,019) J) 2,019 - Interest expense (6,007) (7,145) - (13,152) --------- --------- ------- --------- Loss before minority interest and income tax expense (benefit) (5,417) (7,283) 1,557 (11,143) Minority interests in operations of joint ventures (73) - (73) --------- --------- ------- --------- Loss before income tax expense (benefit) (5,344) (7,283) 1,557 (11,070) Income tax expense (benefit) - 252 252 --------- --------- ------- --------- Net (loss) earnings (5,344) (7,535) 1,557 (11,322) ========= ========= ======= ========= Comprehensive (loss) earnings $ (5,344) $ (7,535) $ 1,557 $ (11,322) ========= ========= ======= ========= Net loss per common share (basic and diluted) ($0.07) ($0.28) ($1.21) ========= ========= ========= Weighted average number of common shares (basic and diluted) 73,388 27,170 K) 9,388 ========= ========= =========
H) Pro forma adjustment to increase the amortization of goodwill associated with the Merger. I) Pro forma adjustment to eliminate excess public company expenses recorded on Rally's. J) Pro forma adjustment to eliminate loss from the Rally's equity investment in Checkers. K) The merged weighted average number of common shares outstanding consists of 112,654 shares immediately following the Merger, effected for the one-for-twelve reverse split. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Company commenced operations on August 1, 1987, to operate and franchise Checkers Double Drive-Thru restaurants. As of March 22, 1999, Checkers Drive-In Restaurants, Inc., ("Checkers", "the Company") had an ownership interest in 233 Company operated restaurants and additional 232 restaurants were operated by franchisees. The Company's ownership interest in the Company operated restaurants is in one of two forms: (i) the Company owns 100% of the restaurant (as of March 22, 1999, there were 221 such restaurants) and (ii) the Company owns a 10.55% to 65.83% interest in various partnerships which own the restaurants (a "Joint Venture Restaurant"). As of March 22, 1999, there were 12 such Joint Venture Restaurants whose operations are consolidated in the financial statements of the Company. On January 29, 1999, Rally's Hamburgers, Inc. ("Rally's") and Checkers announced the signing of a definitive merger agreement pursuant to which both companies would merge in an all stock transaction (the "Merger"). The Merger agreement provides that each outstanding share of Rally's stock will be exchanged for 1.99 shares of Checkers stock. The approximate 19.1 million shares of Checkers common stock which Rally's owns will be retired following the Merger. Checkers and Rally's have each received investment bankers' opinions as to the fairness of the exchange rate used in the Merger. The transaction is subject to certain approvals, including but not limited to approval by the shareholders of Checkers and Rally's and the holders of Rally's Senior Notes and is expected to close in the third quarter of fiscal year 1999. On November 30, 1997, a Management Services Agreement was established between the Company and Rally's pursuant to which the Company is providing accounting, information technology and other management services to Rally's. At approximately the same time, a new management team was put into place to provide the operational and functional expertise necessary to explore the opportunities and potential synergies available to both companies. The Rally's corporate office in Louisville, Kentucky was closed, as well as various regional offices of both companies. The Management Services Agreement also provided for the supervision of both Checkers and Rally's operations by a single Regional Vice President, within each region, which increased spans of control with fewer personnel. Checkers general and administrative expenses during the quarter were approximately $250,000 below the same quarter of the prior year. The number of markets that contain both Checkers and Rally's units is limited and no market in which either company utilizes broadcast media is shared. Therefore, the companies combined their advertising creative and media buying with one agency in August of 1998 which resulted in similar commercials running for both companies with reductions of agency fees and production costs. Comparable store sales at Checkers were 14.3% below the same quarter of the prior year. Severe winter weather in January and intense discounting by major competitors combined to reduce sales. In addition, the seasonal population increase that typically occurs in the core Florida markets was less significant this year. During the first quarter of fiscal 1999, the Company's broadcast media utilized the positioning statement "Fresh, because we just made it" to emphasize the commitment to serve fresh hot food to every customer. This message was primarily communicated to consumers via television advertising. Since the first quarter of fiscal 1998, the Company, along with its franchisees, experienced a net decrease of 18 operating restaurants. In the first quarter of fiscal 1999, the Company opened one restaurant, acquired three restaurants from franchisees and closed one restaurant and franchisees opened 3 restaurants and transferred three restaurants to the Company. The franchise group as a whole continues to experience higher average per store sales than Company stores. The Company receives revenues from restaurant sales, franchise fees, royalties and sales of fully-equipped manufactured MRP's. Cost of restaurant sales relates to food and paper costs. Other restaurant expenses include labor and all other restaurant costs for Company operated restaurants. Cost of MRP's relates to all restaurant equipment and building materials, labor and other direct and indirect costs of production. Other expenses, such as depreciation and amortization, and selling, general and administrative expenses, relate both to Company operated restaurant operations and MRP revenues as well as the Company's franchise sales and support functions. The Company's revenues and expenses are affected by the number and timing of additional restaurant openings and the sales volumes of both existing and new restaurants. MRP revenues are directly affected by the number of new franchise restaurant openings and the number of new MRP's produced or used MRP's refurbished for sale in connection with those openings. 13 RESULTS OF OPERATIONS The following table sets forth the percentage relationship to total revenues of the listed items included in the Company's Consolidated Statements of Operations. Certain items are shown as a percentage of restaurant sales and MRP revenue. The table also sets forth certain selected restaurant operating data.
QUARTER ENDED (UNAUDITED) ----------------------- MARCH 22, MARCH 23, 1999 1998 --------- --------- Revenues Restaurant sales 95.0% 94.9% Franchise revenues and fees 4.9% 5.0% Modular restaurant packages 0.1% 0.1% -------- ------- Total revenues 100.0% 100.0% COSTS AND EXPENSES Restaurant food and paper costs (1) 30.2% 32.4% Restaurant labor costs (1) 33.4% 30.5% Restaurant occupancy expense (1) 8.0% 7.5% Restaurant depreciation and amortization (1) 5.5% 5.3% Other restaurant operating expense (1) 10.7% 8.8% Advertising expense (1) 6.3% 5.3% Costs of modular restaurant package revenues (2) 753.9% 134.6% Other depreciation and amortization 1.4% 1.4% General and administrative expense 9.2% 8.6% Loss provisions 0.0% 0.2% -------- ------- Operating (loss) income (0.3)% 4.4% -------- ------- OTHER INCOME (EXPENSE) Interest income 0.2% 0.2% Interest expense (2.7)% (2.6)% Interest - loan cost amortization (1.0)% (1.1)% Minority interests in losses 0.4% 0.2% -------- ------- (Loss) income before income tax expense (3.5)% 1.1% Income tax expense 0.0% 0.0% -------- ------- Net (loss) income (3.5)% 1.1% ======== =======
(1) As a percent of restaurant sales. (2) As a percent of modular restaurant package revenues. 14 QUARTER ENDED (UNAUDITED) --------------------- MARCH 22, MARCH 23, 1999 1998 -------- -------- Operating data: System - wide restaurant sales (in 000's): Company - operated $30,140 $35,107 Franchised 38,755 47,715 ------- ------- Total $68,895 $82,822 ======= ======= Average annual sales per restaurant open for a full year (in 000's) (3): 1999 1998 -------- -------- Company - operated $ 583 $ 599 Franchised $ 766 $ 730 System - wide $ 670 $ 664 -------- -------- Number of restaurants (4) Company - operated 233 230 Franchised 232 253 -------- -------- Total 465 483 ======== ======== (3) Includes sales of restaurants open for entire previous 52 weeks. (4) Number of restaurants open at end of period. COMPARISON OF HISTORICAL RESULTS - QUARTER ENDED MARCH 22, 1999 AND QUARTER ENDED MARCH 23, 1998 REVENUES. Total revenues decreased 14.3% to $31.7 million for the quarter ended March 22, 1999, compared to $37.0 million for the quarter ended March 23, 1998. Company operated restaurant sales decreased $14.1% to $30.1 million for the quarter ended March 22, 1999, from $35.1 million for the quarter ended March 23, 1998. Restaurant sales for comparable Company-owned restaurants for the quarter ended March 22, 1999, decreased 14.3% compared to the quarter ended March 23, 1998. Comparable Company-owned restaurants are those continuously open during both reporting periods. These decreases in restaurant sales and comparable restaurants sales are primarily attributable to severe winter weather and intense discounting by competitors during the current quarter. Franchise revenues and fees decreased 15.4% to $1.6 million for the quarter ended March 22, 1999, from $1.8 million for the quarter ended March 23, 1998. This was a result of a net decrease of twenty-one franchised restaurants since March 23, 1998, and opening three franchise restaurants during the quarter ended March 22, 1999 versus one in the first quarter of fiscal 1998. The Company recognizes franchise fees as revenues when the Company has substantially completed its obligations under the franchise agreement, usually at the opening of the franchised restaurant. MRP package revenues decreased 75.0% to $13,000 for the quarter ended March 22, 1999, from $52,000 for the quarter ended March 23, 1998 due to decreased sales volume of MRP's to the Company's franchisees which is a result of franchisees sales of used MRP's and the Company's efforts to refurbish and sell its inventory of used MRP's from previously closed sites. These efforts have been successful, however, these sales have negatively impacted the new building revenues. COSTS AND EXPENSES. Restaurant food and paper costs totalled $9.1 million or 30.2% of restaurant sales for the quarter ended March 22, 1999, compared to $11.4 million or 32.4% of restaurant sales for the quarter ended March 23, 1998. The decrease in these costs as a percentage of restaurant sales was due to the introduction of the two-patty platform that utilizes a smaller hamburger patty for the value conscious customer. Restaurant labor costs, which includes restaurant employees' salaries, wages, benefits and related taxes, totalled $10.1 million or 33.4% of restaurant sales for the quarter ended March 22, 1999, compared to $10.7 million or 30.5% of restaurant sales for the quarter ended March 23, 1998. The increase in restaurant labor costs as a percentage of restaurant sales was due to the decrease in comparable store sales and the impact of operating at lower sales levels. Restaurant occupancy expense, which includes rent, property taxes, licenses and insurance, totalled $2.4 million or 8.0% of restaurant sales for the quarter ended March 22, 1999 compared to $2.6 million or 7.5% of restaurant sales for 15 the quarter ended March 23, 1998. This increase in restaurant occupancy costs as a percentage of restaurant sales was due primarily to the decrease in average restaurant sales relative to the fixed and semi-variable nature of these expenses. Restaurant depreciation and amortization decreased by $231,000 or 12.3% for the quarter ended March 22, 1999, as compared to the quarter ended March 23, 1998, due primarily to certain assets becoming fully depreciated, partially offset by a net increase of three Company operated restaurants from March 23, 1998 to March 22, 1999. Advertising expense remained consistent at $1.9 million or 6.3% of restaurant sales for the quarter ended March 22, 1999, and $1.9 million or 5.3% of restaurant sales for the quarter ended March 23, 1998. Other restaurant expenses includes all other restaurant level operating expenses other than food and paper costs, labor and benefits, rent and other occupancy costs which includes utilities, maintenance and other costs. These expenses totaled $3.2 million or 10.7% of restaurant sales for the quarter ended March 22, 1999, compared to $3.1 million or 8.8% of restaurant sales for the quarter ended March 23, 1998. The increase in the quarter ended March 22, 1999, as a percentage of restaurant sales was primarily related to the decrease in average restaurant sales relative to the fixed and semi-variable nature of these expenses. Costs of MRP revenues totalled $98,000 or 766.2% of MRP revenues for the quarter ended March 22, 1999, compared to $70,000 or 134.6% of such revenues for the quarter ended March 23, 1998. The increase in these expenses as a percentage of MRP revenues was attributable to the decline in MRP revenues relative to the fixed and semi-variable nature of these costs. General and administrative expenses were $2.9 million or 9.2% of total revenues, for the quarter ended March 22, 1999, compared to $3.2 million or 8.6% of total revenues for the quarter ended March 23, 1998. The decrease in these expenses of $251,000 was primarily due to the additional savings associated with the Management Services Agreement with Rally's which gained the most significant effect in the middle of the first quarter of 1998. INTEREST EXPENSE. Interest expense other than loan cost amortization decreased to $850,000 or 2.7% of total revenues for the quarter ended March 22, 1999 from $954,000 or 2.6% of total revenues for the quarter ended March 23, 1998. This decrease was due to a reduction in the weighted average balance of debt outstanding during the respective periods and the impact of a $10.0 million mortgage transaction in December 1998, the proceeds of which were primarily used to reduce debt bearing higher interest rates. Loan cost amortization decreased by $83,000 to $331,000 in 1999 from $415,000 for the quarter ended March 23, 1998 due to accelerated amortization of deferred loan costs associated with unscheduled principal reductions in 1998. INCOME TAX EXPENSE. Due to the loss for the quarter, the Company recorded an income tax benefit of $422,000 or 38.0% of the loss before income taxes which was completely offset by deferred income tax valuation allowances of $422,000 for the quarter ended March 22, 1999, as compared to an income tax benefit of $150,000 or 35.0% of earnings before income taxes offset by the reversal of deferred income tax valuation allowances of $2.0 million for the quarter ended March 23, 1998. The effective tax rates differ from the expected federal tax rate of 34.0% due to state income taxes and job tax credits. LIQUIDITY AND CAPITAL RESOURCES On November 14, 1996, the Company's debt under its loan agreement and credit line was acquired from its previous lenders by a group of entities and individuals, most of whom are engaged in the quick-service restaurant business. This investor group (the "CKE Group") was led by CKE Restaurants, Inc. ("CKE") the parent of Carl Karcher Enterprises, Inc., Hardee's Food System, Inc., Taco Bueno Restaurants, Inc., and Summit Family Restaurants, Inc. Also participating were most members of the former lender group, Fidelity National Financial, Inc. ("Fidelity") and KCC Delaware Company, a wholly-owned subsidiary of GIANT GROUP, LTD. ("GIANT"). CKE, GIANT and an affiliate of Fidelity (Santa Barbara Restaurant Group, Inc.) are the largest stockholders of Rally's Hamburgers, Inc. On November 22, 1996, the Company and the CKE Group executed an Amended and Restated Credit Agreement (the "Restated Credit Agreement") thereby completing a restructuring of the debt under the Loan Agreement. The Restated Credit Agreement consolidated all of the debt under the Loan Agreement and the Credit Line into a single obligation. At the time of the restructuring, the outstanding principal balance under the Loan Agreement and the Credit Line was $35.8 million. Pursuant to the terms of the Restated Credit Agreement, the term of the debt was extended by one (1) year until July 31, 1999, and the interest rate on the indebtedness was reduced to a fixed rate of 13%. In addition, all principal payments were deferred until May 19, 1997, and the CKE Group agreed to eliminate certain financial covenants, to relax others and to eliminate approximately $4.3 million in restructuring fees and charges. The Restated Credit Agreement also provided that certain members of the CKE Group agreed to provide to the Company a short term revolving line of credit of up to $2.5 million, also at a fixed interest rate of 13% (the "Secondary Credit Line"). In consideration for the restructuring, the Restated Credit Agreement required the Company to issue to the members of the CKE Group warrants to purchase an aggregate of 20 million shares of the 16 Company's common stock at an exercise price of $.75 per share, which was the approximate market price of the common stock prior to the announcement of the debt transfer. Since November 22, 1996, the Company has reduced the principal balance under the Restated Credit Agreement by $18.4 million and has repaid the Secondary Credit Line in full. A portion of the funds utilized to make these principal reduction payments were obtained by the Company from the sale of certain closed restaurant sites to third parties. Additionally, the Company utilized $10.5 million of the proceeds from the February 21, 1997, private placement and $8.0 million of the proceeds of a $10.0 million mortgage financing transaction completed on December 18, 1998 for these principal reductions, both of which are described later in this section. Pursuant to the Restated Credit Agreement, the prepayments of principal made in 1996 and early in 1997 relieved the Company of the requirement to make any of the regularly scheduled principal payments under the Restated Credit Agreement which would have otherwise become due in fiscal year 1998 through maturity. The Amended and Restated Credit Agreement provides however, that 50% of any future asset sales must be utilized to prepay principal. At March 22, 1999, a significant portion ($17.4 million) of the Company's long-term debt relates to the Company's Restated Credit Agreement which originally was to mature on July 31, 1999. During March and April 1999, Santa Barbara Restaurant Group, Inc. ("SBRG"), a company which is an 8.2% owner of Rally's, acquired approximately $4.9 million of debt due to three members of the lender group. The terms associated with the SBRG debt are identical to terms that other participants of the lender group have pursuant to the Restated Credit Agreement. On March 24, 1999, SBRG and the other remaining members of the lender group agreed to an extension of the maturity date to April 30, 2000. As of December 28, 1998, Fidelity National Financial, Inc. owned 31.1% of the outstanding common stock of SBRG. The Company's Restated Credit Agreement with the CKE Group contains restrictive covenants which include the consolidated EBITDA covenant as defined. As of March 22, 1999 and during a majority of 1998, the Company was in violation of the consolidated EBITDA covenant. The Company received a waiver for periods 11 through 13 of fiscal 1998, and for all periods remaining through the earlier of July 12, 1999 or the effective date of the Merger with Rally's. On February 21, 1997, the Company completed a private placement (the "Private Placement") of 8,981,453 shares of the Company's common stock, $.001 par value, and 87,719 shares of the Company's Series A preferred stock, $.001 par value (the "Preferred Stock"). CKE Restaurants, Inc. purchased 6,162,299 of the Company's common stock and 61,623 of the Preferred Stock and other qualified investors, including other members of the CKE Group of lenders under the Restated Credit Agreement and Raymond James and Associates, Inc., also participated in the Private Placement. The Company received approximately $19.5 million in net proceeds after $500,000 of issuance costs from the Private Placement. The Company used $8 million of the Private Placement proceeds to reduce the principal balance due under the Restated Credit Agreement; $2.5 million was utilized to repay the Secondary Credit Line; $2.3 million was utilized to pay outstanding balances to various key food and paper distributors; and the remaining amount was used primarily to pay down outstanding balances due certain other vendors. The reduction of the debt under the Restated Credit Agreement and the Secondary Credit Line, both of which carried a 13% interest rate reduced the Company's interest payments by more than $1.3 million on an annualized basis. Raymond James and Associates, Inc. received 209,524 shares of the common stock for services related to the Private Placement. Under the purchase price protection provisions of these 209,524 shares, Raymond James and Associates, Inc. was paid $170,000 as of December 28, 1998 and will be paid a remaining total of approximately $252,000 during 1999. On August 6, 1997, the 87,719 shares of preferred stock were converted into 8,771,900 shares of the Company's common stock valued at $10 million. In accordance with the agreement underlying the Private Placement (the "Private Placement Agreement"), the Company also issued 610,524 shares of common stock as a dividend pursuant to the liquidation preference provisions of the Private Placement Agreement, valued at $696,000 to the holders of the preferred stock issued in the Private Placement. On December 1, 1998, the Company entered into two lease agreements, which have been recorded as obligations under capital lease, with Granite Financial, Inc. (a wholly owned subsidiary of Fidelity), whereby the Company leased $659,000 of security equipment for its restaurants in the aggregate. The first lease agreement is payable monthly at approximately $13,000 including effective interest at 13.08%. The second lease is payable at approximately $9,000, including effective interest at 10.90%. Both of these leases have terms of three years. On December 18, 1998, the Company completed a $10.0 million mortgage financing transaction with FFCA Acquisition Corporation (FFCA) collaterized by 24 fee-owned properties. The terms of the transaction include a stated interest rate of 9.5% on the unpaid balance over a 20 year term. The net proceeds of the mortgage transaction were approximately $9.6 million of which $8.0 million was utilized to reduce the amount outstanding under the Restated Credit Agreement and approximately $612,000 was used to retire other debt associated with the collateral upon closing. Approximately $1.0 million was retained for operational initiatives of the Company, including but not limited to new menu boards. In 1999, the franchise community has indicated an intent to open 15 to 20 new units and the Company intends to close fewer restaurants focusing on improving restaurant margins. 17 The Company has a working capital deficit of $7.0 million at March 22, 1999. It is anticipated that the Company will continue to have a working capital deficit since approximately 88% of the Company's assets are long-term (primarily property, equipment, and intangibles), and since primarily all operating trade payables, accrued expenses, and property and equipment payables are current liabilities of the Company. On January 29, 1999, Checkers and Rally's announced the signing of a definitive merger agreement pursuant to which Rally's will merge into Checkers in a stock for stock transaction. The Merger agreement provides that each outstanding share of Rally's will be exchanged for 1.99 shares of Checkers common stock. Rally's currently owns approximately 26.06% of Checkers common stock and these shares will be retired following the Merger. Checkers plans to execute a one-for-twelve reverse stock split immediately following the Merger to reduce the number of shares then outstanding. The Merger transaction is subject to certain approvals, including but not limited to the approval by the shareholders of Checkers and Rally's and the holders of Rally's senior notes (see Note 6 to the condensed consolidated financial statements). The transaction is expected to close early in the third quarter of 1999. Although operating under the guidelines of the Management Services Agreement has enabled both companies to realize expense reductions and other synergies, management anticipates that the Merger will lead to further expense reductions when completed. Rally's has a working capital deficit of $5.9 million at March 22, 1999. It is anticipated that Rally's will continue to have a working capital deficit since approximately 89% of Rally's assets are long-term (primarily property, equipment, investment in affiliate and intangibles), and since all operating trade payables, accrued expenses, and property and equipment payables are current liabilities of Rally's. At March 22, 1999, a significant portion ($53.5 million) of Rally's long-term liabilities relates to the Rally's Senior Notes to mature in June, 2000. Rally's is currently evaluating alternatives for refinancing or repaying the outstanding Senior Notes that mature in June 2000. These alternatives include a sale-leaseback transaction or additional mortgage financing. Other options include the sale of certain Rally-owned markets to current or new franchisees in transactions that would provide immediate funds to reduce debt and would also provide a continued source of income through future royalties. Overall, the Company believes many of the fundamental steps have been taken to improve the Company's initiative toward profitability and that cash flows generated from operations, and asset sales should allow the Company to continue to meet its financial obligations and to pay operating expenses, but there can be no assurance that it will be able to do so. YEAR 2000 The Year 2000 problem arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of "19". The Company has completed an assessment of all known internal Information Technology (IT) systems to document its state of readiness. The Company utilizes accounting software packages such as Lawson (general ledger/accounts payable) and Cyborg (payroll) that require periodic upgrades to benefit from the latest modifications to the programs. Typically, all releases of such upgrades must be implemented, eliminating a company's ability to move directly to the most recent release. During 1998, the Company successfully implemented all required releases of both Lawson and Cyborg that preceded the Year 2000 compliant release. The consulting and training required for the next Lawson and Cyborg upgrades are underway with targeted implementation dates during the second and third quarter of 1999 at a cost to Checkers of approximately $50,000. The Company has assessed the computer systems utilized at the restaurant level and determined such systems to be Year 2000 compliant. Costs of replacing certain desktop computers and other required modifications at the corporate office are not expected to exceed $70,000. Rally's will incur a similar amount of expense related to these upgrades. Pursuant to the Management Services Agreement that exists between the Company and Rally's, the Company is also responsible for the testing for and implementation of Year 2000 computer systems for Rally's. In addition, as administrative functions of Rally's such as payroll and accounting are handled by Checkers employees, initiatives previously discussed will also impact the operations of Rally's. The Company's information technology department is also responsible for the store level computer systems utilized by Rally's. While the cash registers that are used by Rally's for each transaction are Year 2000 compliant, the back-office computer and related software is not. The back-office computer is utilized for capturing and controlling such items as payroll and food cost and is required to sustain communication of this and other data to the corporate office. New computer systems will be purchased by Rally's and the software currently utilized by the Checkers restaurants will be installed. Final testing of this software will be complete during the second quarter of 1999 and completion of the rollout is expected by August 31, 1999. The costs of compliance of shared systems is allocated between the two companies, whereas additional hardware costs at the restaurants are not shared. The Company is continuing to identify third parties that must be Year 2000 compliant to ensure the continued success of our operations. Letters were drafted to send to companies that provide financial services, utilities, inventory preparation and distribution and other key services. This communication was initiated during the first quarter of 1999. The Company has not been notified of any anticipated Year 2000 related failures by these third parties but it can not be assured that all such entities will be operable on January 1, 2000. 18 Although the Company's systems are not currently fully Year 2000 compliant, management feels that the Company's risk in this area is minimal. If the Company is unable to implement the upgrade to the payroll system, it would be able to utilize a third party to process payroll at a cost of approximately $125,000 per year. Contingency plans related to the accounting software package are still under development. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK None. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Except as described below, the Company is not a party to any material litigation and is not aware of any threatened material litigation: GREENFELDER ET AL. V. WHITE, JR., ET AL. On August 10, 1995, a state court Complaint was filed in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida, Civil Division, entitled GAIL P. GREENFELDER AND POWERS BURGERS, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No. 95-4644-CI-21 (hereinafter the "Power Burgers Litigation"). The original Complaint alleged, generally, that certain officers of the Company intentionally inflicted severe emotional distress upon Ms. Greenfelder, who is the sole stockholder, President and Director of Powers Burgers, Inc. (hereinafter "Powers Burgers") a Checkers franchisee. The original Complaint further alleged that Ms. Greenfelder and Powers Burgers were induced into entering into various agreements and personal guarantees with the Company based upon misrepresentations by the Company and its officers and that the Company violated provisions of Florida's Franchise Act and Florida's Deceptive and Unfair Trade Practices Act. The original Complaint alleged that the Company is liable for all damages caused to the Plaintiffs. The Plaintiffs seek damages in an unspecified amount in excess of $2,500,000 in connection with the claim of intentional infliction of emotional distress, $3,000,000 or the return of all monies invested by the Plaintiffs in Checkers' franchises in connection with the misrepresentation of claims, punitive damages, attorneys' fees and such other relief as the court may deem appropriate. The Court has granted, in whole or in part, three (3) Motions to Dismiss the Plaintiffs' Complaint, as amended, including an Order entered on February 14, 1997, which dismissed the Plaintiffs' claim of intentional infliction of emotional distress, with prejudice, but granted the Plaintiffs leave to file an amended pleading with respect to the remaining claims set forth in their Amended Complaint. A third Amended Complaint has been filed and an Answer, Affirmative Defenses, and a Counterclaim to recover unpaid royalties and advertising fund contributions has been filed by the Company. In response to the Court's dismissal of certain claims in the Power Burgers Litigation, on May 21, 1997, a companion action was filed in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida, Civil Division, entitled GAIL P. GREENFELDER, POWERS BURGERS OF AVON PARK, INC., AND POWER BURGERS OF SEBRING, INC. V. JAMES F. WHITE, JR., CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No. 97-3565-CI, asserting, in relevant part, the same causes of action as asserted in the Power Burgers Litigation. An Answer, Affirmative Defenses, and a Counterclaim to recover unpaid royalties and advertising fund contributions have been filed by the Company. On February 4, 1998, the Company terminated Power Burgers, Inc.'s, Power Burgers of Avon Park, Inc.'s and Power Burgers of Sebring, Inc.'s franchise agreements and thereafter filed two Complaints in the United States District Court for the Middle District of Florida, Tampa Division, styled CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWER BURGERS OF AVON PARK, INC., Case No. 98-409-CIV-T-17A and CHECKERS DRIVE-IN RESTAURANTS, INC. V. POWERS BURGERS, INC, Case No. 98-410-CIV-T-26E. The Complaint seeks, inter alia, a temporary and permanent injunction enjoining Power Burgers, Inc. and Power Burgers of Avon Park, Inc.'s continued use of Checkers' Marks and trade dress. A Motion to Stay the foregoing actions pending a resolution of the lawsuits pending in the Sixth Judicial Circuit in and for Pinellas County, Florida described above has been granted by the United States District Court. The Company believes the lawsuits initiated against the Company are without merit, and intends to continue to defend them vigorously. No estimate of any possible loss or range of loss resulting from the lawsuit can be made at this time. CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES, INC., ET AL. On August 10, 1995, a state court Counterclaim and Third Party Complaint was filed in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, Florida, Civil Division, entitled TAMPA CHECKMATE FOOD SERVICES, INC., CHECKMATE FOOD SERVICES, INC. AND ROBERT H. GAGNE V. CHECKERS DRIVE-IN RESTAURANTS, INC., HERBERT G. BROWN, JAMES E. MATTEI, JAMES F. WHITE, JR., JARED D. BROWN, ROBERT G. BROWN AND GEORGE W. COOK, Case No. 95-3869. In the original action filed by the Company in July 1995, against Mr. Gagne and Tampa Checkmate Food Services, Inc., (hereinafter "Tampa Checkmate") a company controlled by Mr. 19 Gagne, the Company is seeking to collect on a promissory note and foreclose on a mortgage securing the promissory note issued by Tampa Checkmate and Mr. Gagne, and obtain declaratory relief regarding the rights of the respective parties under Tampa Checkmate's franchise agreement with the Company. The Counterclaim and Third Party Complaint allege, generally, that Mr. Gagne, Tampa Checkmate and Checkmate Food Services, Inc. (hereinafter "Checkmate") were induced into entering into various franchise agreements with, and personal guarantees to, the Company based upon misrepresentations by the Company. The Counterclaim and Third Party Complaint seek damages in the amount of $3,000,000 or the return of all monies invested by Checkmate, Tampa Checkmate and Mr. Gagne in Checkers' franchises, punitive damages, attorneys' fees and such other relief as the court may deem appropriate. The Counterclaim was dismissed by the court on January 26, 1996, with the right to amend. On February 12, 1996, the Counterclaimants filed an Amended Counterclaim alleging violations of Florida's Franchise Act, Florida's Deceptive and Unfair Trade Practices Act, and breaches of implied duties of "good faith and fair dealings" in connection with a settlement agreement and franchise agreement between various of the parties. The Amended Counterclaim seeks a judgment for damages in an unspecified amount, punitive damages, attorneys' fees and such other relief as the court may deem appropriate. The Company filed an Answer to the Amended Counterclaim , but on October 21, 1998, the court dismissed the Amended Counterclaim based on Counterclaimants failure to comply with certain Court rules relating to the prosecution of the claims. The Court's dismissal is the subject of a pending Motion for Reconsideration. On or about July 15, 1997, Tampa Checkmate filed a Chapter 11 petition in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division entitled In re: Tampa Checkmate Food Services, Inc., and numbered as 97-11616-8G-1 on the docket of said Court. On July 25, 1997, Checkers filed an Adversary Complaint in the Tampa Checkmate bankruptcy proceedings entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. TAMPA CHECKMATE FOOD SERVICES, INC. and numbered as Case No. 97-738. Following a hearing on Checkers' motion for Preliminary Injunction on July 22, 1998, the Court entered an order enjoining Tampa Checkmate's continued use of Checkers' Marks and trade dress notwithstanding the termination of its Franchise Agreement on April 8, 1997. On December 15, 1998, the court granted the Company's Motion to Convert Tampa Checkmate's bankruptcy proceedings from a Chapter 11 proceeding to a Chapter 7 liquidation. Additionally, on February 1, 1999, the bankruptcy Court granted the Company's Motion to Lift the Automatic Stay imposed by 11 U.S.C Section 362 to allow the Company to proceed with the disposition of the property which is the subject of its mortgage. The adversary Complaint and Counterclaim in the bankruptcy proceedings remain pending. The Company believes that the lawsuit is without merit and intends to continue to defend it vigorously. No estimate of possible loss or range of loss resulting from the lawsuit can be made at this time. TEX-CHEX, INC. ET AL V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET. AL. On February 4, 1997, a Petition was filed against the Company and two former officers and directors of the Company in the District Court of Travis County, Texas 98th Judicial District, entitled TEX-CHEX, INC., BRIAN MOONEY, AND SILVIO PICCINI V. CHECKERS DRIVE-IN RESTAURANTS, INC., JAMES MATTEI, AND HERBERT G. BROWN and numbered as Case No. 97-01335 on the docket of said court. The original Petition generally alleged that Tex-Chex, Inc. and the individual Plaintiffs were induced into entering into two franchise agreements and related personal guarantees with the Company based on fraudulent misrepresentations and omissions made by the Company. On October 2, 1998, the Plaintiffs filed an Amended Petition realleging the fraudulent misrepresentations and omission claims set forth in the original Petition and asserting additional causes of action for violation of Texas' Deceptive Trade Practices Act and violation of Texas' Business Opportunity Act. The Company believes the causes of action asserted in the amended Petition against the Company and the individual defendants are without merit and intends to defend them vigorously. The matter is in the pre-trial stages and no estimate of any possible loss or range of loss resulting from the lawsuit can be made at this time. CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU, INC. ET. AL. On May 9, 1998, a Counterclaim was filed against the company and a former officer and director of the Company, Herbert T. Brown, in the United States District Court for the Middle District of Florida, Tampa Division, entitled CHECKERS DRIVE-IN RESTAURANTS, INC. V. INTERSTATE DOUBLE DRIVE-THRU, INC. AND JIMMIE V. GILES and numbered as Case No. 98-648-CIV-T-23B on the docket of said court. The original Complaint filed by the Company seeks a temporary and permanent injunction enjoining Interstate Double Drive-Thru, Inc. and Mr. Giles' continued use of Checkers' Marks and trade dress notwithstanding the termination of its Franchise Agreement and to collect unpaid royalty fees and advertising fund contributions. The Court granted the Company's motion for a preliminary injunction on July 16, 1998. The Counterclaim generally alleges that Interstate Double Drive-Thru, Inc. and Mr. Giles were induced into entering a franchise agreement and a personal guaranty, respectfully, with the Company based on misrepresentations and omissions made by the Company. The Counterclaim asserts claims for breach of contract, breach of the implied convenant of good faith and fair dealing, violation of Florida's Deceptive Trade Practices Act, violation of Florida's Franchise Act, violation of Mississippi's Franchise Act, fraudulent concealment, fraudulent inducement, negligent misrepresentation and rescission. The Company has filed a motion to dismiss seven of the nine causes of action set forth in the Counterclaim which remain pending. The Company believes the causes of action asserted in the Counterclaim against the Company and Mr. Brown are without merit and intends to defend them vigorously. The matter is in the pre-trial stages and no estimate of any possible loss or range of loss resulting from the lawsuit can be made at this time. FIRST ALBANY CORP., AS CUSTODIAN FOR THE BENEFIT OF NATHAN SUCKMAN V. CHECKERS DRIVE-IN RESTAURANTS, INC. ET AL. Case No. 16667. This putative class action was filed on September 29, 1998, in the Delaware Chancery Court in and for New Castle County, Delaware by First Albany Corp., as custodian for the benefit of Nathan Suckman, an alleged stockholder of 500 shares of the Company's common stock. The complaint names the Company and certain of its current and former officers 20 and directors as defendants including William P. Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee, Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also names Rally's Hamburgers, Inc. ("Rally's") and GIANT GROUP, LTD. ("GIANT") as defendants. The complaint arises out of the proposed merger announced on September 28, 1998 between the Company, Rally's and GIANT (the "Proposed Merger") and alleges generally, that certain of the defendants engaged in an unlawful scheme and plan to permit Rally's to acquire the public shares of the Company's stock in a "going-private" transaction for grossly inadequate consideration and in breach of the defendants' fiduciary duties. The plaintiff allegedly initiated the Complaint on behalf of all stockholders of the Company as of September 28, 1998, and seeks INTER ALIA, certain declaratory and injunctive relief against the consummation of the Proposed merger, or in the event the Proposed Merger is consummated, recision of the Proposed Merger and costs and disbursements incurred in connection with bringing the action, including attorney's fees, and such other relief as the Court may deem just and proper. In view of a decision by the Company, GIANT and Rally's not to implement the transaction that had been announced on September 28, 1998, plaintiffs have agreed to provide the Company and all other defendants with an open extension of time to respond to the compliant. Plaintiffs have indicated that they will likely file an amended complaint in the event of the consummation of a merger between the Company and Rally's. The Company believes the lawsuit is without merit and intends to defend it vigorously. No estimate of possible loss or range of loss resulting from the lawsuit can be made at this time. DAVID J. STEINBERG AND CHAILE B. STEINBERG, INDIVIDUALLY AND ON BEHALF OF THOSE SIMILARLY SITUATED V. CHECKERS DRIVE-IN RESTAURANTS, INC., ET AL. Case No. 16680. This putative class action was filed on October 2, 1998, in the Delaware Chancery Court in and for New Castle County, Delaware by David J. Steinberg and Chaile B. Steinberg, alleged stockholders of an unspecified number of shares of the Company's common stock. The complaint names the Company and certain of its current and former officers and directors as defendants including William P. Foley, II, James J. Gillespie, Harvey Fattig, Joseph N. Stein, Richard A. Peabody, James T. Holder, Terry N. Christensen, Frederick E. Fisher, Clarence V. McKee Burt Sugarman, C. Thomas Thompson and Peter C. O'Hara. The Complaint also names Rally's and GIANT as defendants. As with the FIRST ALBANY complaint described above, this complaint arises out of the proposed merger announced on September 28, 1998 between the Company, Rally's and GIANT (the "Proposed Merger") and alleges generally, that certain of the defendants engaged in an unlawful scheme and plan to permit Rally's to acquire the public shares of the Company's common stock in a "going-private" transaction for grossly inadequate consideration and in breach of the defendant's fiduciary duties. The plaintiffs allegedly initiated the Complaint on behalf of all stockholders of the Company as of September 28, 1998, and seeks INTER ALIA, certain declaratory and injunctive relief against the consummation of the Proposed merger, or in the event the Proposed Merger is consummated, recision of the Proposed Merger and costs and disbursements incurred in connection with bringing the action, including attorneys' fees, and such other relief as the Court may deem just and proper. For the reasons stated above in the description of the FIRST ALBANY action, plaintiffs have agreed to provide the Company and all other defendants with an open extension of time to respond to the complaint. Plaintiffs have indicated that they will likely file an amended complaint in the event of the consummation of a merger between the Company and Rally's. The Company believes the lawsuit is without merit and intends to defend it vigorously. No estimate of possible loss or range of loss resulting from the lawsuit can be made at this time. The Company is involved in various other claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position, results of operations or liquidity. ITEM 2. CHANGES IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 21 ITEM 5. OTHER INFORMATION NASDAQ MINIMUM REQUIREMENTS-SHARE PRICE UNDER $1.00 In September 1998, the Company received notice from NASDAQ that delisting could occur on December 18, 1998 if the Company's common stock failed to maintain a bid price greater than or equal to $1.00 for ten consecutive trading days during the next ninety days. The Company's common stock price did not meet that criteria and management requested and was granted an oral hearing to present a plan of action to NASDAQ to regain compliance with this standard. The plan of action included the Merger with Rally's Hamburgers, Inc. and a subsequent one-for-twelve reverse stock split. The Company has maintained its listing status beyond the February 17, 1999 hearing date and through the date of this report. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 10.18 Agreement and Plan of Merger, dated as of January 28, 1999, by and between the Company and Rally's Hamburgers, Inc. (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 28, 1998). 27 Financial Data Schedule (b) Reports on 8-K: The following reports on Form 8-K were filed during the quarter covered by this report: The Company filed a report on Form 8-K with the Securities and Exchange Commission dated January 29, 1999, reporting under Item 5, the signing of the Agreement and Plan of Merger, dated as of January 28, 1999, pursuant to which the Company will acquire all of Rally's Hamburgers, Inc., common stock in an all stock transaction. It was also reported that Checkers anticipates a one-for-twelve reverse stock split immediately following the merger. The Company filed a report on Form 8-K with the Securities and Exchange Commission dated April 6, 1999, reporting under Item 5, the appointment of Richard A. Peabody as Senior Vice President and Chief Financial Officer of Rally's Hamburgers, Inc. and the resignation of Joseph N. Stein as Executive Vice President and Chief Financial Officer of Rally's Hamburgers, Inc. and as Executive Vice President and Chief Administrative Officer of the Company. 22 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHECKERS DRIVE-IN RESTAURANTS, INC. (Registrant) Date: May 5, 1999 By: /s/ RICHARD A. PEABODY ----------------------- Richard A. Peabody Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 23 March 22, 1999 FORM 10-Q CHECKERS DRIVE-IN RESTAURANTS, INC. EXHIBIT INDEX EXHIBIT # EXHIBIT DESCRIPTION - --------- ------------------- 10.18 Agreement and Plan of Merger, dated as of January 28, 1999, by and between the Company and Rally's Hamburgers, Inc. (incorporated by reference to Exhibit 10.18 to the Annual Report on Form 10-K of the Company for the fiscal year ended December 28, 1998). 27 Financial Data Schedule (included in electronic filing only). EX-27 2
5 This schedule contains summary financial information extracted from the financial statements of Checkers Drive-In Restaurants, Inc., for the quarterly periods ended March 22, 1999 and March 23, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 3-MOS JAN-03-2000 DEC-28-1998 DEC-29-1998 DEC-30-1997 MAR-22-1999 MAR-23-1998 3,636 3,867 0 0 2,117 2,827 0 0 2,035 2,114 11,861 14,662 77,162 86,181 51,903 44,445 100,171 113,676 18,824 25,542 28,853 28,894 0 0 0 0 73 73 43,424 50,756 100,171 113,676 30,153 35,159 31,713 37,003 28,444 31,634 31,815 35,316 (172) (139) 0 63 1,181 1,369 (1,111) 394 0 0 (1,111) 394 0 0 0 0 0 0 (1,111) 394 (0.02) (0.01) (0.02) (0.01) Receivables consist of-- Accounts Receivable - net $ 1,788 $ 2,183 Notes Receivable - net 329 644 ----------------------------------------- Total $ 2,117 $ 2,827 =========================================
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