<PAGE> 1
UNITED STATES CONFORMED COPY
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 31, 2000
------------------------------
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 333-57925
-----------
The Restaurant Company
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 62-1254388
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
6075 Poplar Avenue, Suite 800, Memphis, TN 38119
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(901) 766-6400
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by [X] 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 [ ]
1
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-------------------------
2000 1999
-------- --------
<S> <C> <C>
REVENUES:
Food sales $ 75,491 $ 68,364
Franchise and other revenue 5,414 5,125
-------- --------
Total Revenues 80,905 73,489
-------- --------
COSTS AND EXPENSES:
Cost of sales:
Food cost 21,206 19,339
Labor and benefits 26,793 24,573
Operating expenses 14,844 13,563
General and administrative 8,195 7,449
Depreciation and amortization 5,490 5,062
Interest, net 4,424 4,283
Other, net (349) (503)
-------- --------
Total Costs and Expenses 80,603 73,766
-------- --------
Income (Loss) from operations before income taxes and
cumulative effect of change in accounting principle 302 (277)
Benefit from (Provision for) income taxes (93) 106
-------- --------
Income (Loss) from operations before cumulative effect
of change in accounting principle 209 (171)
Cumulative effect of change in accounting
principle, net of income tax benefit of $188 -- (340)
-------- --------
NET INCOME (LOSS) $ 209 $ (511)
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
2
<PAGE> 3
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,020 $ 2,908
Receivables, less allowance for
doubtful accounts of $1,036 and $990 8,091 7,699
Inventories, at the lower of first-
in, first-out cost or market 5,118 5,513
Prepaid expenses and other current assets 1,912 1,193
Deferred income taxes 635 635
--------- ---------
Total current assets 18,776 17,948
--------- ---------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 137,616 135,659
INTANGIBLE ASSETS, net of accumulated
amortization of $33,075 and $32,456 36,382 34,175
NOTES RECEIVABLE 2,399 2,462
DEFERRED INCOME TAXES 2,170 2,170
OTHER ASSETS 9,394 8,150
--------- ---------
$ 206,737 $ 200,564
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
3
<PAGE> 4
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
March 31,
2000 December 31,
(Unaudited) 1999
----------- ------------
LIABILITIES AND STOCKHOLDER'S INVESTMENT
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 937 $ 942
Accounts payable 13,730 15,510
Accrued expenses 22,226 20,065
---------- ----------
Total current liabilities 36,893 36,517
---------- ----------
CAPITAL LEASE OBLIGATIONS, less
current maturities 3,811 4,064
LONG-TERM DEBT 164,800 160,416
DEFERRED INCOME TAXES AND OTHER 6,184 4,727
STOCKHOLDER'S INVESTMENT:
Common stock $.01 par value, 100,000 shares authorized,
10,820 issued and outstanding 1 1
Accumulated deficit (4,952) (5,161)
---------- ----------
Total stockholder's deficit (4,951) (5,160)
---------- ----------
$ 206,737 $ 200,564
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
balance sheets.
4
<PAGE> 5
THE RESTAURANT COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------
2000 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 209 $ (511)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,490 5,062
Change in accounting principle -- 340
Other non-cash income and expense items 111 179
Net changes in other operating assets and liabilities 315 (2,168)
---------- ----------
Total adjustments 5,916 3,413
---------- ----------
Net cash provided by operating activities 6,125 2,902
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (4,062) (3,238)
Cash paid for acquisition of franchised restaurants (5,902) --
Proceeds from sale of property and equipment 423 --
Payments on notes receivable 36 76
---------- ----------
Net cash used in investing activities (9,505) (3,162)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from long-term debt 3,750 1,000
Principal payments under capital lease obligations (258) (296)
Purchase of minority interest -- (12)
---------- ----------
Net cash provided by financing activities 3,492 692
---------- ----------
Net increase in cash and cash equivalents 112 432
---------- ----------
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 2,908 3,150
---------- ----------
Balance, end of period $ 3,020 $ 3,582
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 6
THE RESTAURANT COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Organization
The Restaurant Company (the "Company," "Perkins," or "TRC") is a wholly-owned
subsidiary of The Restaurant Holding Corporation ("RHC"). TRC conducts business
under the name "Perkins Restaurant and Bakery". TRC is also the sole
stockholder of TRC Realty LLC and Perkins Finance Corp. RHC is owned by Donald
N. Smith ("Mr. Smith"), TRC's Chairman and Chief Executive Officer, and
BancBoston Ventures, Inc. Mr. Smith is also the Chairman and Chief Executive
Officer of Friendly Ice Cream Corporation ("FICC"), which operates and
franchises approximately 600 restaurants, located primarily in the northeastern
United States. Mr. Smith owns 8.5% of the common stock of FICC.
Basis of Presentation
The accompanying unaudited consolidated financial statements of TRC have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for complete financial statements
in conformity with generally accepted accounting principles. The results for
the periods indicated are unaudited but reflect all adjustments (consisting
only of normal recurring adjustments) which management considers necessary for
a fair presentation of the operating results. Results of operations for the
interim periods are not necessarily indicative of a full year of operations.
The notes to the financial statements contained in the 1999 Annual Report on
Form 10-K should be read in conjunction with these statements.
Certain prior year amounts have been reclassified to conform to current year
presentation.
The Recapitalization
Prior to December 13, 1999, TRC was the sole stockholder of Perkins Restaurants
Inc. ("PRI") which was a limited partner and indirect owner of 100% of Perkins
Family Restaurants, L.P. ("PFR") and the parent of PFR's general partner,
Perkins Management Company, Inc. ("PMC"). On December 13, 1999, PMC was merged
into PRI. On December 15, 1999, PRI was merged into TRC. As a result of these
mergers, PFR, which had been an indirect wholly-owned subsidiary of TRC, became
a direct wholly-owned subsidiary of TRC, and TRC became the general partner of
PFR.
On December 22, 1999, through a series of transactions, TRC repurchased all of
its outstanding shares other than those owned by Mr. Smith. Mr. Smith
contributed all of his shares in TRC to RHC, and PFR was merged into TRC. As a
result, TRC became a 100% owned subsidiary of RHC. No change in the Company's
management or business strategy has occurred as a result of the
Recapitalization.
6
<PAGE> 7
Bankruptcy of a Significant Franchisee
A franchisee of the Company which operated 18 restaurants as of March 31, 2000,
filed a petition for reorganization under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Southern District
of Ohio on October 27, 1999. Management believes it is possible that the
majority of these restaurants will remain in the Perkins system through
acquisition of the franchisee's operations by a third party. During 1999, the
Company earned royalties from these restaurants totaling approximately
$865,000. As of March 31, 2000, the franchisee owed the Company $392,000 in
pre-petition royalty fees. Additionally, the franchisee owed the Company
$119,000 in post-petition royalties. Although the franchisee's obligations to
the Company are guaranteed by the principals of the franchisee, collection
under the guarantees is uncertain and, therefore, the pre-petition obligations
are fully reserved.
Contingencies
The Company is a party to various legal proceedings in the ordinary course of
business. Management does not believe it is likely that these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's financial position or results of operations.
In the past, the Company has sponsored financing programs offered by certain
lending institutions to assist its franchisees in procuring funds for the
construction of new franchised restaurants and to purchase and install in-store
bakeries. The Company provides a limited guaranty of funds borrowed. At March
31, 2000, there were $1,949,000 in borrowings outstanding under these programs,
approximately $800,000 of which are guaranteed by the Company. No additional
borrowings are available under these programs.
7
<PAGE> 8
Supplemental Cash Flow Information
The increase or decrease in cash and cash equivalents due to changes in
operating assets and liabilities for the three months ended March 31, consisted
of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
----------- ----------
<S> <C> <C>
(Increase) Decrease in:
Receivables $ (502) $ 95
Inventories 395 548
Prepaid expenses and
other current assets (718) (311)
Other assets (1,333) (675)
Increase (Decrease) in:
Accounts payable (1,779) (262)
Accrued expenses 2,161 (1,053)
Other liabilities 2,091 (510)
---------- ----------
$ 315 $ (2,168)
========== ==========
</TABLE>
Other supplemental cash flow information was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------------
2000 1999
----------- ----------
<S> <C> <C>
Cash paid for interest $ 256 $ 279
Income taxes paid 248 196
Income tax refunds received 1 65
</TABLE>
8
<PAGE> 9
Segment Reporting
The following presents revenues and other financial information by business
segment for the periods ended March 31 (in thousands):
<TABLE>
<CAPTION>
2000:
Restaurant Franchise Manufacturing Other Totals
---------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 68,689 $ 5,247 $ 6,802 $ 167 $ 80,905
Intersegment revenues -- -- 2,350 -- 2,350
Segment profit (loss) 6,875 4,598 1,393 (12,657) 209
</TABLE>
<TABLE>
<CAPTION>
1999:
Restaurant Franchise Manufacturing Other Totals
---------- --------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 62,324 $ 4,985 $ 5,877 $ 303 $ 73,489
Intersegment revenues -- -- 2,053 -- 2,053
Segment profit (loss) 6,236 4,273 1,003 (12,023) (511)
</TABLE>
A reconciliation of other segment loss is as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
General and administrative expenses $ 7,097 $ 6,655
Depreciation and amortization expenses 1,487 1,478
Interest expense 4,424 4,283
Change in accounting principle - 340
Income tax expense (benefit) 93 (106)
Other (444) (627)
-------------- --------------
$ 12,657 $ 12,023
============== ==============
</TABLE>
9
<PAGE> 10
Preopening Expenses
In April 1998, The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which the Company adopted in 1999. SOP 98-5 requires the costs of
start-up activities to be expensed as incurred. Prior to 1999, new store
preopening costs were deferred and amortized over twelve months starting when a
restaurant opened. Upon adoption of SOP 98-5, the Company recorded a cumulative
effect of a change in accounting principle of $340,000, net of income tax
benefit, to write off unamortized preopening costs that existed on the balance
sheet at December 31, 1998.
Deferred Compensation
Effective January 1, 1999, the Company established a Deferred Compensation Plan
under which officers and key employees of the Company may defer specified
percentages of their salaries, annual incentives and long-term compensation
payments. The Company also makes matching contributions of the lesser of 3% of
eligible compensation or $5,100 for 2000. Amounts deferred are excluded from the
participant's taxable income and are held in trust with a bank, where the funds
are invested at the direction of the participant. The total amounts held in
trust as of March 31, 2000 and December 31, 1999, were $3,679,000 and
$2,115,000, respectively, and are included in other assets and other liabilities
in the accompanying balance sheets of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE FIRST QUARTER ENDED MARCH 31, 2000
RESULTS OF OPERATIONS
Overview:
The Company is a leading operator and franchisor of mid-scale restaurants
located in 35 states and 4 Canadian provinces. As of March 31, 2000, the
Company owned and operated 147 restaurants and franchised 330 restaurants. The
Company also manufactures and distributes bakery products which are sold to
Company-operated restaurants, franchisees, third-party bakers and food
distributors. The business of Perkins was founded in 1958, and since then
Perkins has continued to adapt its menus, product offerings, building designs
and decor to meet changing consumer preferences. Perkins is a highly recognized
brand in the geographic areas it serves.
The Company's revenues are derived primarily from the operation of
Company-owned restaurants, the sale of bakery products produced by its
manufacturing division, Foxtail Foods ("Foxtail"), and franchise fees. In order
to ensure consistency and availability of Perkins' proprietary products to each
unit in the system, Foxtail offers cookie doughs, muffin batters, pancake
mixes, pies and other food products to Company-operated and franchised
restaurants through food service distributors. Additionally, it produces a
variety of non-proprietary products for sale in various retail markets. Sales
to Company-operated restaurants are eliminated in the accompanying statements
of operations. In the three months ended March 31, 2000, revenues from
Company-operated restaurants, Foxtail and franchise and other accounted for
84.9%, 8.4% and 6.7% of total revenues, respectively.
TRC leases an executive aircraft through TRC Realty LLC. The aircraft is
operated for the benefit of, and all operating costs are reimbursed by, TRC and
FICC. Revenue received from FICC is included in franchise and other revenues in
the accompanying statements of operations.
10
<PAGE> 11
A summary of the Company's results for the quarter ended March 31 is presented
in the following table. All revenues, costs and expenses are expressed as a
percentage of total revenues. Certain prior year amounts have been reclassified
to conform to current year presentation.
<TABLE>
<CAPTION>
Three Months Ended
March 31
-----------------------------
2000 1999
-----------------------------
<S> <C> <C>
Revenues:
Food sales 93.3% 93.0%
Franchise and other revenues 6.7 7.0
---------- ----------
Total Revenues 100.0 100.0
---------- ----------
Costs and Expenses:
Cost of sales:
Food cost 26.2 26.3
Labor and benefits 33.1 33.4
Operating expenses 18.3 18.5
General and administrative 10.1 10.1
Depreciation and amortization 6.8 6.9
Interest, net 5.5 5.8
Other, net (0.4) (0.7)
---------- ----------
Total Costs and Expenses 99.6 100.3
---------- ----------
Income (Loss) from operations before income taxes and
cumulative effect of change in accounting principle 0.4 (0.3)
Benefit from (Provision for) income taxes (0.1) 0.1
---------- ----------
Income (Loss) from operations before cumulative effect
of change in accounting principle 0.3 (0.2)
Cumulative effect of change in accounting
principle, net of income taxes -- (0.5)
---------- ----------
Net Income (Loss) 0.3% (0.7)%
========== ==========
</TABLE>
Net income for the first quarter of 2000 was $209,000 versus net loss of
$511,000 for the same period in 1999. Excluding the tax effected change in
accounting principle, net loss in 1999 was $171,000.
11
<PAGE> 12
Revenues:
Total revenues for the first quarter of 2000 increased 10.1% over the same
period last year due primarily to sales from stores which were not open during
the first quarter of 1999, higher comparable restaurant sales and increased
Foxtail sales.
Same store comparable sales increased approximately 5.0% due primarily to guest
trends toward higher-priced entrees and a 1.2% increase in comparable guest
visits. The shift in customer preference to higher-priced entrees can be
attributed to the Company's development and promotion of higher-priced menu
items. The current year also included an additional day in February. These
increases were partially offset by stores that have closed since January 1999.
Revenues from Foxtail increased approximately 15.7% over the three months ended
March 31, 1999, and constituted approximately 8.4% of the Company's revenues.
The increase is primarily due to significantly higher sales levels inside the
Perkins system as a result of bakery promotions in the current year and price
increases taken in mid and late 1999.
Franchise and other revenues increased 5.6% over the first quarter of 1999.
During the first quarter of 2000, four new franchised restaurants opened, three
franchised restaurants closed and four formerly franchised restaurants were
converted to Company-operated restaurants. In the first quarter of 1999, four
franchised restaurants were opened and 34 were closed. The franchised
restaurants which closed in 1999 included 31 Perk Development Corporation
restaurants which closed February 28, 1999, as a result of a bankruptcy
liquidation sale. Higher average sales in 21 new restaurants, an increase in
franchise comparable store sales and the impact of leap year led to the
increase in royalty revenue.
Costs and Expenses:
Food cost:
In terms of total revenues, food cost for the three months ended March 31,
2000, decreased 0.1 percentage point over the same period in 1999 due to
decreased food cost for Foxtail partially offset by an increase in restaurant
division food cost. For the restaurant division, increased pork costs and
greater consumer participation in system promotions with higher than average
food cost were offset by decreases in dairy pricing. Foxtail's food cost
decreased as a result of stable commodity costs and a significant increase in
sales of higher gross margin products.
Labor and benefits:
Labor and benefits expense, as a percentage of total revenues, decreased 0.3
percentage points for the three months ended March 31, 2000. A higher average
wage rate and typically lower productivity in new corporate restaurants were
offset by operational efficiencies at Foxtail and reduced restaurant division
incentive compensation expense.
The wage rates of the Company's hourly employees are impacted by Federal and
state minimum wage laws. Certain states do not allow tip credits for servers
which results in higher payroll costs as well as greater exposure to increases
in minimum wage rates. In the past, the Company has been able to offset
increases in labor costs through selective menu price increases and
improvements in labor productivity. However, there is no assurance that future
increases can be mitigated through raising menu prices.
12
<PAGE> 13
Operating expenses:
Operating expenses, expressed as a percentage of total revenues for the period
decreased 0.2 percentage points. This decrease is primarily due to the impact
of increased comparable sales on fixed expenses. This impact was partially
offset by preopening expenses associated with two corporate restaurant openings
in the first quarter of 2000 versus no openings in 1999.
General and administrative:
General and administrative expenses increased 10.0% as a result of increased
cost of administrative support and promotional expenses associated with
Foxtail's sales.
Depreciation and amortization:
Depreciation and amortization expense increased approximately 8.5% over the
same period last year due to the addition of new Company-operated restaurants
and the Company's continuing program to upgrade and maintain existing
restaurants.
Interest, net:
Interest expense increased 3.3% over the same period last year. The increase is
the result of increased average borrowings and higher variable interest rates
on the Company's revolving line of credit.
Other:
Results of operations for the three months ended March 31, 1999 reflect a
$340,000 cumulative effect of change in accounting principle charge against
earnings, net of income taxes, related to the adoption of SOP 98-5. Prior to
1999, the Company deferred new store preopening costs and amortized them over
the twelve months following the opening of the restaurant.
13
<PAGE> 14
CAPITAL RESOURCES AND LIQUIDITY
The principal use of cash during the quarter ended March 31, 2000, was capital
expenditures. Capital expenditures consisted primarily of the purchase of four
restaurants from franchisees, equipment purchases for new Company-operated
restaurants and costs related to remodels of existing restaurants. In addition
to the four restaurants that were acquired from franchisees, the Company opened
two new stores in the first quarter of 2000. The Company's primary sources of
funding were cash provided by operations and revolving credit borrowings.
The following table summarizes capital expenditures for the three months ended
March 31, 2000 and 1999, (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------------
2000 1999
---------- ----------
<S> <C> <C>
Maintenance $ 360 $ 387
New restaurants 7,279 1,085
Manufacturing 117 217
Remodeling and Reimaging 1,183 974
Other 1,025 575
---------- ----------
Total Capital Expenditures $ 9,964 $ 3,238
========== ==========
</TABLE>
The Company's capital budget for 2000 is $41.6 million which includes plans to
open six additional Company-operated restaurants by year end. The remaining
capital budget will be primarily applied to remodels of existing restaurants,
restaurant maintenance and improvements to the Company's infrastructure
equipment. The primary source of funding for these projects is expected to be
cash provided by operations and borrowings under the Company's line of credit.
Capital spending could vary significantly from planned amounts as certain of
these expenditures are discretionary in nature.
On December 22, 1997, the Company obtained a secured $50,000,000 revolving line
of credit facility (the "Credit Facility") with a sublimit for up to $5,000,000
of letters of credit. The Credit Facility was amended on March 31, 2000 to
modify covenant requirements to reflect the Recapitalization and extend the
maturity date to January 1, 2005. As a result of extending the maturity date
and covenant adjustments, borrowing rates were adjusted to current market
rates. All amounts under the facility will bear interest at floating rates
based on the agent's base rate or Eurodollar rates as defined in the agreement.
All indebtedness under the Credit Facility is secured by a first priority lien
on substantially all of the assets of the Company. As of March 31, 2000,
$12,500,000 in borrowings and approximately $1,253,000 of letters of credit
were outstanding under the facility.
14
<PAGE> 15
The Company's ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, its indebtedness,
or to fund planned capital expenditures will depend on the Company's future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. Based upon the current level of operations, management
believes that cash flow from operations and available cash, together with
available borrowings under the Credit Facility, will be adequate to meet the
Company's liquidity needs for the foreseeable future. The Company may, however,
need to refinance all or a portion of the principal of the TRC Notes and the
Notes on or prior to maturity. There can be no assurance that the Company will
generate sufficient cash flow from operations, or that future borrowings will
be available in an amount sufficient to enable the Company to service its
indebtedness or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all.
SEASONALITY
Company revenues are subject to seasonal fluctuations. Customer counts (and
consequently revenues) are highest in the summer months and lowest during the
winter months because of the high proportion of restaurants located in states
where inclement weather adversely affects guest visits.
15
<PAGE> 16
FORWARD-LOOKING STATEMENTS
This discussion contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: general economic
conditions, competitive factors, consumer taste and preferences and adverse
weather conditions. The Company does not undertake to publicly update or revise
the forward-looking statements even if experience or future changes make it
clear that the projected results expressed or implied therein will not be
realized.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company currently has market risk sensitive instruments related to interest
rates. The Company is not subject to significant exposure for changing interest
rates on its senior notes because the interest rates are fixed. The Company has
in place a $50,000,000 line of credit facility which matures on January 1, 2003.
All borrowings under the facility bear interest at floating rates based on the
agent's base rate or Eurodollar rates. The Company had $12,500,000 outstanding
under the line of credit facility at March 31, 2000. While changes in market
interest rates would affect the cost of funds borrowed in the future, the
Company believes that the effect, if any, of reasonably possible near-term
changes in interest rates on the Company's consolidated financial position,
results of operations or cash flows would not be material.
Commodity Price Risk
Many of the food products purchased by the Company are affected by commodity
pricing and are, therefore, subject to price volatility caused by weather,
production problems, delivery difficulties and other factors which are outside
the control of the Company. The Company's supplies and raw materials are
available from several sources and the Company is not dependent upon any single
source for these items. If any existing suppliers fail, or are unable to
deliver in quantities required by the Company, the Company believes that there
are sufficient other quality suppliers in the marketplace that its sources of
supply can be replaced as necessary. At times, the Company enters into purchase
contracts of one year or less or purchases bulk quantities for future use of
certain items in order to control commodity pricing risks. Certain significant
items that could be subject to price fluctuations are beef, pork, coffee, eggs,
wheat products and corn products. The Company believes it will be able to pass
through increased commodity costs by adjusting menu pricing in most cases.
Additionally, the Company's product offerings and marketing events are
relatively diverse. Therefore, the Company has the flexibility to adjust its
product mix to take advantage of or limit exposure to commodity cost
fluctuations. The Company believes that any changes in commodity pricing which
cannot be offset by changes in menu pricing, or other product delivery
strategies, would not be material.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Reference is made to the Index of Exhibits attached hereto as
page 18 and made a part hereof.
(b) Reports on Form 8-K - None
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.
THE RESTAURANT COMPANY
DATE: May 15, 2000 BY: /s/ Steven R. McClellan
------------------------------
Steven R. McClellan
Executive Vice President, Chief
Financial Officer and Director
BY: /s/ Louis C. Jehl
------------------------------
Louis C. Jehl
Vice President and Controller
17
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.71 Amendment to Revolving Credit agreement by and among
The Restaurant Company, Fleet National Bank and other lending
institutions, Fleet National Bank as agent and administrative
agent and Bank of America, N.A. as syndication agent.
27 Financial Data Schedule (for SEC use only)
</TABLE>
18
<PAGE> 1
EXHIBIT 10.71
AMENDMENT NO. 3 TO REVOLVING CREDIT AGREEMENT
Dated as of March 31, 2000
This Amendment No. 3 to Revolving Credit Agreement, dated as of March
31, 2000 (this "Amendment"), amends that certain Revolving Credit Agreement,
dated as of December 22, 1997, (as amended and in effect from time to time, the
"Credit Agreement"), by and among PERKINS FAMILY RESTAURANTS, L.P., a Delaware
limited partnership ("Perkins"), THE RESTAURANT COMPANY, a Delaware corporation
("TRC"), PERKINS RESTAURANTS, INC., a Minnesota corporation ("PRI"), and
PERKINS MANAGEMENT COMPANY, INC., a Delaware corporation ("PMC"), and PERKINS
FINANCE CORP., a Delaware corporation (together with TRC, PRI and PMC, the
"Original Guarantors"), FLEET NATIONAL BANK (f/k/a BankBoston, N.A.), a
national banking association and the other lending institutions listed on
Schedule 1 thereto (the "Banks"), FLEET NATIONAL BANK (f/k/a BankBoston, N.A.),
as agent and administrative agent for the Banks (the "Agent"), and BANK OF
AMERICA, N.A. (f/k/a Nationsbank, N.A.), as Syndication Agent (the "Syndication
Agent"). All capitalized terms used herein without definitions shall have the
meanings given such terms in the Credit Agreement.
WHEREAS, pursuant to the Joinder and Amendment No. 2, dated as of
December 20, 1999, by and among Perkins, the Original Guarantors, the Banks,
the Agent and the Syndication Agent, TRC joined the Credit Agreement and the
Loan Documents and agreed to become a Borrower under the Credit Agreement and
to comply with and be bound by all of the terms, conditions and covenants of
the Credit Agreement and Loan Documents applicable to it as a Borrower;
WHEREAS, as of the Merger Date, Perkins, PRI and PMC merged with and
into TRC such that TRC became the sole Borrower under the Credit Agreement (TRC
is hereinafter referred to as the "Borrower");
WHEREAS, pursuant to a Guaranty, dated as of December 20, 1999, by The
Restaurant Holding Corporation ("TRHC") in favor of the Agent and the Banks,
TRHC has guaranteed all of the Borrower's obligations to the Banks and the
Agent under or in respect of the Credit Agreement and the other Loan Documents
and became a Guarantor under the Credit Agreement; and
WHEREAS, the parties hereto wish to amend the Credit Agreement as
hereinafter set forth.
SS.1. AMENDMENTS TO CREDIT AGREEMENT.
SS.1.1. DEFINITIONS. Section 1.1 of the Credit Agreement is hereby
amended as follows:
(a) The definition of "Revolving Credit Loan Maturity Date" set
forth in ss.1.1 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"REVOLVING CREDIT LOAN MATURITY DATE. January 1, 2005."
<PAGE> 2
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(b) The definition of "Applicable Margin" set forth in ss.1.1
of the Credit Agreement is hereby amended by deleting the table set forth in
such definition and substituting in lieu thereof the following table:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
BASE RATE EURODOLLAR RATE LOANS
LEVEL LEVERAGE RATIO LOANS AND LETTERS OF CREDIT
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
I <2.75:1 0% 2.00%
-----------------------------------------------------------------------------------------
II >=2.75:1 and <3.50:1 0.50% 2.50%
-----------------------------------------------------------------------------------------
III >=3.50:1 1.00% 3.00%
-----------------------------------------------------------------------------------------
</TABLE>
(c) The definitions of "Improvement Capital Expenditures", "New
Site Capital Expenditures" and "Remodeling Capital Expenditures" set forth in
ss.1.1 of the Credit Agreement are hereby deleted in their entirety.
(d) The definition of "Consolidated Cash Flow" set forth in
ss.1.1 of the Credit Agreement is hereby amended by adding the following text
immediately before the period at the end of such definition: ", plus (j)
without duplication, to the extent deducted in the calculation of Consolidated
Net Income for such period, and only to the extent such interest is not paid or
payable in cash during such period, interest on the Discount Notes for such
period".
(e) The definition of "Consolidated EBITDA" set forth in ss.1.1
of the Credit Agreement is hereby amended by adding the following text
immediately before the period at the end of such definition: ", plus (h)
without duplication, to the extent deducted in the calculation of Consolidated
Net Income for such period, and only to the extent such interest is not paid or
payable in cash during such period, interest on the Discount Notes for such
period".
SS.1.2. PERMITTED ACQUISITIONS. The Credit Agreement is hereby
further amended by deleting each reference to "New Site Capital Expenditures"
set forth in ss.10.5(c)(vi)(A) and substituting in lieu thereof the text
"Capital Expenditures".
SS.1.3. LEVERAGE RATIO. The Credit Agreement is hereby further
amended by deleting the table set forth in ss.11.1 and substituting in lieu
thereof the following table:
<TABLE>
<CAPTION>
------------------------------------------------------------------
Period Ratio
------------------------------------------------------------------
<S> <C>
12/31/99 - 12/30/01 3.75:1
------------------------------------------------------------------
12/31/01 - 12/30/02 3.50:1
------------------------------------------------------------------
12/31/02 - 12/30/03 3.25:1
------------------------------------------------------------------
12/31/03 and at all times thereafter 3.00:1
------------------------------------------------------------------
</TABLE>
SS.1.4. INTEREST COVERAGE RATIO. The Credit Agreement is hereby
further amended by deleting the table set forth in ss.11.4 and substituting in
lieu thereof the following table:
<PAGE> 3
-3-
<TABLE>
<CAPTION>
------------------------------------------------------------------
Period Ratio
------------------------------------------------------------------
<S> <C>
12/31/99 - 12/30/02 3.00:1
------------------------------------------------------------------
12/31/02 - 12/30/03 3.25:1
------------------------------------------------------------------
12/31/03 and at all times thereafter 3.50:1
------------------------------------------------------------------
</TABLE>
SS.1.5. CAPITAL EXPENDITURES. The Credit Agreement is hereby
further amended by deleting ss.11.5 thereto and substituting in lieu thereof
the following new ss.11.5:
"11.5. CAPITAL EXPENDITURES. The Borrower will not make, and
will not permit any of its Subsidiaries to make, Capital Expenditures
during any fiscal year that exceed, in the aggregate, an amount equal
to Consolidated EBITDA for such fiscal year minus Consolidated Total
Interest Expense for such fiscal year."
SS.2. REPRESENTATIONS AND WARRANTIES. The Borrower and each of
the Guarantors jointly and severally represent and warrant to the Banks and the
Agent as follows:
(a) Representations and Warranties in Credit Agreement. The
representations and warranties of the Borrower and the Guarantors contained in
the Credit Agreement, each as amended by this Amendment, (i) were true and
correct in all material respects when made, and (ii) except to the extent such
representations and warranties by their terms are made solely as of a prior
date, continue to be true and correct in all material respects on the date
hereof.
(b) Authority, Etc. The execution and delivery by the Borrower
and the each of the Guarantors of this Amendment and the performance by the
Borrower and each of the Guarantors of all of their agreements and obligations
under this Amendment and the Credit Agreement as amended hereby (i) are within
the corporate authority of the Borrower and each of the Guarantors, (ii) have
been duly authorized by all necessary corporate proceedings by the Borrower and
each of the Guarantors, (iii) do not conflict with or result in any breach or
contravention of any provision of law, statute, rule or regulation to which the
Borrower or any of the Guarantors is subject or any judgment, order, writ,
injunction, license or permit applicable to the Borrower or any of the
Guarantors, and (iv) do not conflict with any provision of any corporate
charter or by-laws of, or any agreement or other instrument binding upon, the
Borrower or any Guarantor.
(c) Enforceability of Obligations. This Amendment, and the
Credit Agreement as amended hereby, constitute the legal, valid and binding
obligations of the Borrower and each of the Guarantors enforceable against each
such Person in accordance with their respective terms. Immediately prior to and
immediately after and after giving effect to this Amendment, no Default or
Event of Default exists under the Credit Agreement or any other Loan Document.
SS.3. AFFIRMATION OF BORROWER AND THE GUARANTORS.
(a) The Borrower hereby affirms its absolute and unconditional
promise to pay to each Bank and the Agent the Obligations due under the Notes,
the Credit Agreement as
<PAGE> 4
-4-
amended hereby, and the other Loan Documents, at the times and in the amounts
provided for therein. The Borrower confirms and agrees that (i) the Obligations
of the Borrower to the Banks and the Agent under the Credit Agreement as
amended hereby are secured by and entitled to the benefits of the Security
Documents and (ii) all references to the term "Credit Agreement" in the
Security Documents shall hereafter refer to the Credit Agreement as amended
hereby.
(b) Each of the Guarantors hereby acknowledges that it has read
and is aware of the provisions of this Amendment. Each of the Guarantors hereby
reaffirms its absolute and unconditional guaranty of the Borrower's payment and
performance of the Obligations to the Banks and the Agent under the Credit
Agreement, as amended hereby. Each of the Guarantors hereby confirms and agrees
that the Guaranty shall hereafter constitute a guaranty of the Obligations
under the Credit Agreement as amended hereby.
SS.4. CONDITIONS TO EFFECTIVENESS. This Amendment shall be
effective as of the date hereof upon the satisfaction of each of the following
conditions precedent:
(a) The Agent shall have received an original counterpart
signature to this Amendment, duly executed and delivered by the Borrower, the
Guarantors, the Banks and the Agent; and
(b) The Borrower shall have paid to the Agent, for the pro rata
accounts of the Banks, an amendment fee in an amount equal to twenty-five
hundredths of one percent (0.25%) on the Total Revolving Credit Commitment.
SS.5. MISCELLANEOUS PROVISIONS. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of
the parties hereto that the Credit Agreement, as amended hereby, shall continue
in full force and effect, and that this Amendment and the Credit Agreement
shall be read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT
UNDER SEAL AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
instrument. In making proof of this Amendment it shall not be necessary to
produce or account for more than one counterpart signed by each party hereto by
and against which enforcement hereof is sought.
(d) Headings or captions used in this Amendment are for
convenience of reference only and shall not define or limit the provisions
hereof.
(e) The Borrower hereby agrees to pay to the Agent, on demand
by the Agent, all reasonable out-of-pocket costs and expenses incurred or
sustained by the Agent in connection with the preparation of this Amendment
(including reasonable legal fees and expenses).
<PAGE> 5
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
an agreement under seal of the date first written above.
THE RESTAURANT COMPANY
By:
-----------------------------------
Name:
Title:
PERKINS FINANCE CORP., as Guarantor
By:
-----------------------------------
Name:
Title:
THE RESTAURANT HOLDING
CORPORATION, as Guarantor
By:
-----------------------------------
Name:
Title:
FLEET NATIONAL BANK (f/k/a BankBoston,
N.A.), individually and as Agent
By:
-----------------------------------
Name:
Title:
BANK OF AMERICA, N.A. (f/k/a
Nationsbank, N.A.), individually and as
Syndication Agent
By:
-----------------------------------
Name:
Title:
<PAGE> 6
-6-
FIRST AMERICAN NATIONAL BANK
By:
-----------------------------------
Name:
Title:
FLEET BUSINESS CREDIT CORPORATION
By:
-----------------------------------
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED BALANCE SHEET OF RESTAURANT COMPANY AS OF MARCH 31, 2000
AND FROM THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<PERIOD-START> JAN-01-2000
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,020
<SECURITIES> 0
<RECEIVABLES> 4,827
<ALLOWANCES> 1,254
<INVENTORY> 5,118
<CURRENT-ASSETS> 18,776
<PP&E> 269,935
<DEPRECIATION> 132,319
<TOTAL-ASSETS> 206,737
<CURRENT-LIABILITIES> 36,893
<BONDS> 168,611
0
0
<COMMON> 1
<OTHER-SE> (4,952)
<TOTAL-LIABILITY-AND-EQUITY> 206,737
<SALES> 75,491
<TOTAL-REVENUES> 80,905
<CGS> 21,206
<TOTAL-COSTS> 62,708
<OTHER-EXPENSES> 17,896
<LOSS-PROVISION> 109<F1>
<INTEREST-EXPENSE> 4,424
<INCOME-PRETAX> 301
<INCOME-TAX> 93
<INCOME-CONTINUING> 209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 209
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>The provision for doubtful accounts and notes is presented within operating
expenses in the accompanying consolidated financial statements and is included
in total costs above.
</FN>
</TABLE>
