<PAGE> 1
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, 1996
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 1-9214
------
Perkins Family Restaurants, L.P.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 62-1283091
-------------------------------- ------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
6075 Poplar Avenue, Suite 800,
Memphis, Tennessee 38119-4709
-------------------------------------- ----------
(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 [ ]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PERKINS FAMILY RESTAURANTS, L.P.
STATEMENTS OF INCOME
(Unaudited)
(In Thousands, Except Per Unit Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1996 1995
---- ----
<S> <C> <C>
REVENUES:
Food sales $55,599 $52,959
Franchise revenues 4,374 3,954
------- -------
Total Revenues 59,973 56,913
------- -------
COSTS AND EXPENSES:
Cost of Sales:
Food cost 16,367 15,300
Labor and benefits 19,027 18,410
Operating expenses 11,818 11,191
General and administrative 5,612 5,504
Depreciation and amortization 3,826 3,354
Interest, net 1,288 1,093
Other, net (240) (139)
------- -------
Total Costs and Expenses 57,698 54,713
------- -------
NET INCOME $ 2,275 $ 2,200
======= =======
WEIGHTED AVERAGE UNITS OUTSTANDING 10,288 10,272
NET INCOME PER UNIT $ 0.22 $ 0.21
CASH DISTRIBUTION DECLARED PER UNIT $ 0.325 $ 0.325
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
PERKINS FAMILY RESTAURANTS, L.P.
BALANCE SHEETS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,502 $ 1,825
Receivables, less allowance for
doubtful accounts of $501 and $481 8,320 8,683
Inventories, at the lower of first-
in, first-out cost or market 3,527 4,318
Prepaid expenses and other current assets 2,229 1,505
-------- --------
Total current assets 15,578 16,331
-------- --------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 116,873 117,435
NOTES RECEIVABLE, less allowance for
doubtful accounts of $14 and $14 1,208 1,883
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of $26,136
and $25,849 25,833 26,180
-------- --------
$159,492 $161,829
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
PERKINS FAMILY RESTAURANTS, L.P
BALANCE SHEETS
(Unaudited)
(In Thousands, Except Unit Amounts)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
-------- -----------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,600 $ 3,575
Current maturities of capital lease obligations 1,858 1,984
Accounts payable 7,334 7,525
Accrued expenses 13,403 13,099
Distributions payable 3,478 3,475
------- -------
Total current liabilities 29,673 29,658
------- -------
CAPITAL LEASE OBLIGATIONS, less
current maturities 8,441 8,810
LONG-TERM DEBT, less current maturities 56,200 57,850
OTHER LIABILITIES 5,046 4,415
PARTNERS' CAPITAL:
General partner 602 611
Limited partners (10,491,160 and 10,481,370
Units issued and outstanding) 62,330 63,373
Deferred compensation related to restricted
units (2,800) (2,888)
-------- --------
Total partners' capital 60,132 61,096
-------- --------
$159,492 $161,829
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
4
<PAGE> 5
PERKINS FAMILY RESTAURANTS, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------------
1996 1995
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,275 $ 2,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,826 3,354
Other noncash income and expense items 485 434
Changes in other operating assets and
liabilities 792 (185)
------- -------
Total adjustments 5,103 3,603
------- -------
Net cash provided by operating activities 7,378 5,803
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (2,963) (6,622)
Other investing activities, net 858 152
------- -------
Net cash used in investing activities (2,105) (6,470)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 3,850 6,750
Payments on long-term debt (5,475) (3,450)
Principal payments under capital lease obligations (496) (481)
Distributions to partners (3,475) (3,440)
------- -------
Net cash used in financing activities (5,596) (621)
------- -------
Net decrease in cash and cash equivalents (323) (1,288)
------- -------
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 1,825 1,593
------- -------
Balance, end of period $ 1,502 $ 305
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS
Basis of Presentation
The accompanying unaudited financial statements of Perkins Family Restaurants,
L.P. (the "Partnership") 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 1995 Annual Report to Unitholders should be read in
conjunction with these statements.
Certain prior year amounts have been reclassified to conform to current year
presentation.
The Partnership is managed by Perkins Management Company, Inc. ("PMC"). PMC is
also the general partner of Perkins Restaurants Operating Company, L.P.
("PROC"), the entity through which the operations of the Partnership are
conducted. As general partner of the Partnership and PROC, PMC does not
receive any compensation other than amounts attributable to its 1% general
partner's interest in each of the Partnership and PROC. The Partnership
reimburses PMC for all of its direct and indirect costs (principally general
and administrative costs) allocable to the Partnership.
Net Income Per Unit
Net Income Per Unit is computed as follows (in thousands, except per unit
amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------------
1996 1995
---- ----
<S> <C> <C>
Net income as reported $ 2,275 $ 2,200
Less: 1% general partner's interest (23) (22)
-------- --------
Net income applicable to units $ 2,252 $ 2,178
======== ========
Weighted average units outstanding 10,288 10,272
Net income per unit $ 0.22 $ 0.21
</TABLE>
6
<PAGE> 7
Weighted Average Units Outstanding
Weighted average units outstanding are computed as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31
--------------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average units 10,284 10,265
Weighted average equivalent units 4 7
------ ------
Weighted average units outstanding 10,288 10,272
====== ======
</TABLE>
Contingencies
In March of 1995, two former employees filed a lawsuit in the U.S. District
Court for the District of North Dakota alleging sexual harassment and related
claims. The plaintiffs allege damages which, if proven, could have a material
adverse impact on the Partnership. The Partnership is vigorously defending
itself against all claims asserted by the plaintiffs. The Partnership is also
a party to various other legal proceedings in the ordinary course of business.
At this time, management does not believe it is likely that these proceedings,
either individually or in the aggregate, will have a materially adverse effect
on the Partnership's financial position or results of operations.
The Partnership has sponsored financing programs offered by certain lending
institutions to help its franchisees procure funds for the construction of new
franchised restaurants and to purchase and install the Perkins in-store bakery.
The Partnership provides a limited guaranty of the funds borrowed. At March
31, 1996, there were approximately $1,238,000 in borrowings outstanding under
these programs. The Partnership has guaranteed $1,050,000 of these borrowings
which represents its minimum commitments. The Partnership does not anticipate
its guaranties will exceed these minimums in the future.
The Partnership has entered into a separate agreement with one of the lending
institutions to assist a franchisee in obtaining lease financing to install
in-store bakeries in 28 existing restaurants operated by the franchisee.
Pursuant to the agreement, the Partnership will provide a declining limited
guaranty to the lender for payment of the franchisee's obligations between the
lender and the franchisee, not to exceed $1,350,000. The Partnership's current
maximum liability if the maximum lease commitment is funded would be $945,000.
At March 31, 1996, there were approximately $489,000 in borrowings outstanding
under the program, of which the Partnership has guaranteed approximately
$342,000.
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,
---------------------------
1996 1995
----- -----
<S> <C> <C>
(Increase) Decrease in:
Receivables $ 113 $ 443
Inventories 791 (156)
Prepaid expenses and
other current assets (998) (562)
Other assets 131 --
Increase (Decrease) in:
Accounts payable (191) (243)
Accrued expenses 303 555
Other liabilities 643 (222)
----- -----
$ 792 $(185)
===== =====
</TABLE>
The Partnership paid interest of $1,317,000 and $1,116,000 during the first
quarters of 1996 and 1995, respectively.
8
<PAGE> 9
Federal Income Taxation
In 1987, tax legislation was enacted which will have the effect of taxing
publicly traded limited partnerships, such as the Partnership, as corporations
for tax years beginning after 1997.
In 1993, the Partnership recognized the cumulative effect of adopting Statement
of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income
Taxes." SFAS 109 requires the Partnership to recognize deferred tax assets and
liabilities for the expected future tax consequences of existing temporary
differences between the carrying amounts and the tax bases of assets and
liabilities that are projected to reverse after January 1, 1998, the date after
which the Partnership will become a taxable entity.
As of March 31, 1996 and December 31, 1995, the Partnership had deferred tax
assets related to existing temporary differences that are projected to reverse
after January 1, 1998. However, management believes that a conclusion as to
the realizability of certain of those assets based upon current circumstances
is highly subjective, and has therefore established valuation allowances as
appropriate. Accordingly, no deferred provision for income taxes has been
reflected in the accompanying financial statements.
The components of the Partnership's net deferred tax assets were as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31,1996 DECEMBER 31,1995
------------- ---------------
<S> <C> <C>
Depreciation $(1,495) $(1,670)
Capitalized leases 1,243 1,240
Reserves 492 795
Other, net 160 210
------- -------
Total deferred tax assets 400 575
Valuation allowance (400) (575)
------- -------
Net deferred tax assets $ -- $ --
======= =======
</TABLE>
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE FIRST QUARTER ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
Overview:
A summary of the Partnership's results for the first quarter ended March 31 are
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
------------------
1996 1995
<S> <C> <C>
Revenues:
Food sales 92.7% 93.1%
Franchise revenues 7.3 6.9
----- -----
Total revenues 100.0 100.0
----- -----
Costs and expenses:
Cost of sales:
Food cost 27.3 26.9
Labor and benefits 31.7 32.3
Operating expenses 19.7 19.7
General and administrative 9.4 9.7
Depreciation and amortization 6.4 5.9
Interest, net 2.1 1.9
Other, net (0.4) (0.3)
----- -----
Total costs and expenses 96.2 96.1
----- -----
Net income 3.8% 3.9%
===== =====
</TABLE>
Net income for the first quarter of 1996 was $2,275,000 or $.22 per limited
partnership unit versus $2,200,000 or $.21 per unit for the same period in
1995.
10
<PAGE> 11
Revenues:
Total revenues for the first quarter of 1996 increased approximately 5.4% over
the same period last year due primarily to higher restaurant food sales.
The addition of seven new Partnership-operated restaurants since March 31, 1995
contributed $2,140,000 to the increases in restaurant food sales over the three
months ended March 31, 1995. These increases were partially offset by decreases
of approximately $1,100,000 attributable to seven restaurants which have been
closed or leased to franchisees since January 1, 1995. Same store comparable
sales increased approximately 1% over the first quarter of 1995 due primarily
to selective menu price increases and guest trends toward higher-priced
entrees, partially offset by a decline in comparable guest visits.
Approximately 32% of the increase in restaurant division sales and 26% of the
increase in total revenues is attributable to the additional day in 1996
related to leap year.
Revenues from Foxtail Foods ("Foxtail"), the Partnership's manufacturing
division, increased approximately 3.2% over the three months ended March 31,
1995 and constituted approximately 8% of the Partnership's revenues. Sales to
Partnership-operated restaurants are eliminated in the accompanying income
statements. The increase in Foxtail revenues can be primarily attributed to
increased production at the division's pie plant as well as the popularity of
in-store bakeries at franchised stores, to which Foxtail sells mixes, doughs,
and pies. Foxtail offers cookie doughs, muffin batters, pancake mixes, pies
and other food products to Partnership-operated and franchised restaurants
through food service distributors in order to ensure consistency and
availability of Perkins' proprietary products to each unit in the system.
Additionally, Foxtail manufactures certain proprietary and non-proprietary
products for sale to non-Perkins operations.
Franchise revenues, which consist primarily of franchise royalties and sales
fees, increased 10.6% over the first quarter of 1995. This increase is due
primarily to the opening of 27 new franchise restaurants and bakeries and the
sales of three Partnership-operated restaurants to franchisees since January 1,
1995. This increase is partially offset by the closing of five franchised
units during the same period.
Costs and expenses:
Food cost:
In terms of total revenues, food cost for the three months ended March 31, 1996
increased .4 percentage points over the same period in 1995. The increase in
food cost is primarily related to increased raw material costs at Foxtail.
Restaurant division food cost increased slightly due to strong guest acceptance
of the Steak and Eggs and Shrimp promotions during the first quarter. This
increase was partially offset by the decline in the costs of certain key
commodities and selective menu price increases.
The Partnership expects raw material cost pressures at Foxtail to continue for
the remainder of 1996 and also anticipates, specifically, that the current high
level of wheat prices will continue to put pressure on food cost margins in
both the Foxtail and restaurant divisions for the next two quarters.
Foxtail, functioning as a manufacturing operation, typically has higher food
cost as a percent of revenue than the Partnership's restaurants. Although the
restaurants provide the majority of the Partnership's revenue, as
11
<PAGE> 12
Foxtail becomes a more significant source of revenues to the Partnership,
management expects total food cost to increase as a percent of revenue.
Labor and benefits:
Labor and benefits expense, as a percentage of total revenues, decreased .6
percentage points for the three months ended March 31, 1996 due primarily to
improved labor productivity in the Partnership's restaurants. Labor and
benefits expense for Foxtail, in terms of total Foxtail revenues, improved
slightly from 1995 levels due to greater productivity and improved efficiencies
in its pie manufacturing facility. As a percent of revenue generated, Foxtail
labor and benefit charges are significantly lower than the Partnership's
restaurants. As Foxtail becomes a more significant component of the
Partnership's total operations, labor and benefits expense, expressed as a
percent of total revenues, should decrease.
The wage rates of the Partnership's hourly employees are impacted by Federal
and state minimum wage laws. The current proposals before Congress for raising
the Federal minimum wage would have a material impact on the Partnership's
labor costs. In the past, the Partnership has been able to offset increases in
labor costs through selective menu price increases and improvements in
productivity. However, there is no guarantee that future increases can be
mitigated through raising menu prices.
Operating expenses:
Operating expenses for the first quarter of 1996 remained constant with 1995
levels. Maintenance, outside services and utility costs increased in the
restaurant division due to the severe winter weather occurring in many of the
Partnership's major markets. However, these increases were offset by reduced
restaurant supply costs resulting from changes in certain purchasing programs
over the past two quarters.
General and administrative:
General and administrative expenses, in terms of total revenues, decreased .3
percentage points from the three months ended March 31, 1995. Increases in
incentive compensation costs were offset by decreases in costs due to the
reduction of new Partnership-operated restaurant development from 1995 levels.
Depreciation and amortization:
Depreciation and amortization for the three months ended March 31, 1996
increased approximately 14% over the same period last year due primarily to the
addition of new Partnership-operated restaurants as well as refurbishments made
to upgrade existing restaurants.
Interest:
Borrowings used for unit expansion and restaurant upgrades caused interest
expense for the first quarter of 1996 to exceed 1995 levels by approximately
18%. This increase in interest expense was partially offset by a decrease in
interest expense associated with capital lease obligations.
Other:
Other income net of related expenses increased approximately $100,000 in the
first quarter of 1996 compared to the same period last year due primarily to
rental income on three restaurant properties which were leased to franchisees
in late 1995 and early 1996. Depreciation expense associated with these three
properties totaling $76,000 is included in depreciation and amortization
expense.
12
<PAGE> 13
CAPITAL RESOURCES AND LIQUIDITY
Principal uses of cash during the first quarter ended March 31, 1996 were
distributions paid to Unitholders, capital expenditures, and a net reduction in
long-term debt. Capital expenditures consisted primarily of land, building and
equipment purchases for new Partnership-operated units and remodels to existing
restaurants. Remodels and unit upgrades constituted more than 75% of the
capital expenditures during the first quarter. The Partnership's primary source
of funding was cash provided by operations.
The Partnership maintains a $40,000,000 revolving line of credit facility and a
$10,000,000 term loan agreement with three banks. The revolving line of credit
contains a $6,000,000 sublimit for letters of credit and expires on June 30,
1997, at which time all amounts outstanding become payable. As of March 31,
1996, $17,000,000 in borrowings and approximately $2,466,000 in letters of
credit were outstanding under the line of credit facility. The borrowings
under the term loan agreement are due in quarterly installments through June
30, 1998. As of March 31, 1996, $7,000,000 was outstanding under this
agreement.
During the fourth quarter of 1995, the Partnership issued $20,000,000 of 7.19%
Unsecured Senior Notes due December 13, 2005 to an insurance company. The
proceeds were used to repay outstanding borrowings under the Partnership's
revolving line of credit. Principal payments on these notes begin December 13,
1997. The note agreement also provides for a $15,000,000 Private Shelf Note
Facility which expires December 13, 1997.
As is typical in the restaurant industry, the Partnership ordinarily operates
with a working capital deficit since the majority of its sales are for cash,
while credit is received from its suppliers. Therefore, operating with a
working capital deficit does not impair the Partnership's short-term liquidity.
At March 31, 1996, this deficit amounted to $14,095,000, which was primarily
the result of utilizing available cash for capital expenditures and
distributions to Unitholders.
13
<PAGE> 14
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 15 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.
PERKINS FAMILY RESTAURANTS, L.P.
BY: PERKINS MANAGEMENT COMPANY, INC.,
GENERAL PARTNER
DATE: May 13, 1996 BY: /s/ Michael P. Donahoe
------------ --------------------------
Michael P. Donahoe
Vice President, Controller
(Chief Accounting Officer)
14
<PAGE> 15
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule (for SEC use only).
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF MARCH 31, 1996 AND FROM THE STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,502
<SECURITIES> 0
<RECEIVABLES> 9,528
<ALLOWANCES> 515
<INVENTORY> 3,527
<CURRENT-ASSETS> 15,578
<PP&E> 219,807
<DEPRECIATION> 102,934
<TOTAL-ASSETS> 159,492
<CURRENT-LIABILITIES> 29,673
<BONDS> 64,641
0
0
<COMMON> 0
<OTHER-SE> 60,132
<TOTAL-LIABILITY-AND-EQUITY> 159,492
<SALES> 55,599
<TOTAL-REVENUES> 59,973
<CGS> 16,367
<TOTAL-COSTS> 47,212
<OTHER-EXPENSES> 10,486
<LOSS-PROVISION> 72<F1>
<INTEREST-EXPENSE> 1,288
<INCOME-PRETAX> 2,275
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,275
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
<FN>
<F1>THE PROVISION FOR DOUBTFUL ACCOUNTS AND NOTES IS PRESENTED WITHIN OPERATING
EXPENSES IN THE ACCOMPANYING FINANCIAL STATEMENTS AND IS INCLUDED IN TOTAL
COSTS ABOVE.
</FN>
</TABLE>
