<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 June 30, 1998
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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
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Perkins Family Restaurants, L.P.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
Delaware 62-1283091
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<S> <C>
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
6075 Poplar Avenue, Suite 800, Memphis, Tennessee 38119-4709
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(901) 766-6400
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(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 OPERATIONS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
--------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Food sales $ 68,408 $ 61,651 $ 131,182 $ 118,669
Franchise revenues 5,310 4,937 10,320 9,400
-------- -------- --------- ---------
Total Revenues 73,718 66,588 141,502 128,069
-------- -------- --------- ---------
COSTS AND EXPENSES:
Cost of sales:
Food cost 19,220 17,550 37,356 33,934
Labor and benefits 23,793 21,117 45,421 40,445
Operating expenses 13,176 12,154 26,084 24,048
General and administrative 7,272 6,618 13,949 12,830
Depreciation and amortization 5,005 3,977 9,809 7,919
Interest, net 3,649 1,211 7,201 2,431
Loss on/Provision for disposition of assets, net -- -- 295 --
Asset writedown (SFAS No.121) -- -- 500 --
Tax related reorganization costs -- 650 -- 650
Other, net (344) (153) (573) (377)
-------- -------- --------- ---------
Total Costs and Expenses 71,771 63,124 140,042 121,880
-------- -------- --------- ---------
NET INCOME $ 1,947 $ 3,464 $ 1,460 $ 6,189
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
PERKINS FAMILY RESTAURANTS, L.P.
BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,454 $ 14,160
Receivables, less allowance for
doubtful accounts of $546 and $846 8,137 7,719
Inventories, at the lower of first-
in, first-out cost or market 4,647 4,232
Prepaid expenses and other current assets 2,102 1,823
-------- --------
Total current assets 17,340 27,934
-------- --------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 129,916 127,392
NOTES RECEIVABLE, less allowance for
doubtful accounts of $124 and $6 1,708 983
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of $29,097
and $27,591 55,943 58,015
-------- --------
$204,907 $214,324
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
PERKINS FAMILY RESTAURANTS, L.P.
BALANCE SHEETS
(In Thousands, Except Unit Amounts)
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(Unaudited) 1997
----------- ------------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 1,223 $ 1,301
Accounts payable 11,451 10,563
Accrued expenses 18,235 35,948
-------- --------
Total current liabilities 30,909 47,812
-------- --------
CAPITAL LEASE OBLIGATIONS, less
current maturities 6,389 6,999
LONG-TERM DEBT 137,500 130,000
OTHER LIABILITIES 3,880 4,312
PARTNERS' CAPITAL:
General partner 262 252
Limited partners (5,463,924 Units issued and outstanding) 25,967 24,949
-------- --------
Total partners' capital 26,229 25,201
-------- --------
$204,907 $214,324
======== ========
</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 Six Months Ended
June 30 June 30
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,947 $ 3,464 $ 1,460 $ 6,189
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,005 3,977 9,809 7,919
Loss on/Provision for disposition of assets, net -- -- 295 --
Asset writedown (SFAS No. 121) -- -- 500 --
Other non-cash income and expense items 296 340 562 688
Changes in other operating assets and liabilities (3,568) 2,849 (2,241) (3,002)
-------- -------- -------- --------
Total adjustments 1,733 7,166 8,925 5,605
-------- -------- -------- --------
Net cash provided by operating activities 3,680 10,630 10,385 11,794
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (7,817) (3,860) (11,806) (5,421)
Proceeds from sale of property and equipment -- -- 12 --
Payments on notes receivable 168 678 209 801
Investment in/Advances to joint venture -- -- (110) --
-------- -------- -------- --------
Net cash used in investing activities (7,649) (3,182) (11,695) (4,620)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 18,050 19,750 29,550 29,350
Payments on long-term debt (13,550) (23,750) (22,050) (31,150)
Principal payments under capital lease obligations (345) (524) (688) (988)
Deferred financing costs -- -- (536) --
Repurchase of limited partnership units (454) -- (16,241) --
Distributions to partners (431) (3,474) (431) (6,953)
-------- -------- -------- --------
Net cash provided by (used in) financing activities 3,270 (7,998) (10,396) (9,741)
-------- -------- -------- --------
Net decrease in cash and cash equivalents (699) (550) (11,706) (2,567)
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 3,153 720 14,160 2,737
-------- -------- -------- --------
Balance, end of period $ 2,454 $ 170 $ 2,454 $ 170
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
PERKINS FAMILY RESTAURANTS, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
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 1997 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.
Going Private Transaction
The Partnership is a limited partnership that currently is indirectly
wholly-owned (including its general partner's interest) by The Restaurant
Company ("TRC"). Until December 1997, the Partnership's Units were traded on the
New York Stock Exchange under the symbol "PFR." On December 17, 1997, the
Partnership, TRC and a subsidiary of TRC completed a series of transactions
pursuant to which the Partnership's operating subsidiary was eliminated through
a merger and the Partnership became an indirect wholly-owned subsidiary of TRC
and the approximately 5.44 million Units held by persons other than TRC and its
subsidiaries were converted into the right to receive $14.00 in cash per Unit
(the "Going Private Transaction"). There has not been, nor is there anticipated
to be, a change in the Partnership's management or business strategy as a result
of the Going Private Transaction.
The following unaudited pro forma results of operations for the second quarter
and six months ended June 30, 1997 give effect to the Going Private Transaction
as if it had occurred on January 1, 1997. This pro forma information does not
necessarily represent what the results would have been had the Going Private
Transaction occurred at the beginning of the period presented.
<TABLE>
<CAPTION>
(Unaudited)
----------------------------
Three Months Six Months
Ended Ended
June 30, 1997 June 30,1997
------------- --------------
<S> <C> <C>
Revenues $ 66,588 $ 128,069
Net Income (Loss) $ 225 $ (91)
</TABLE>
6
<PAGE> 7
Contingencies
The Partnership 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 Partnership's financial position or results of operations.
In the past, the Partnership 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 Partnership provides a limited guaranty of the funds borrowed. At
June 30, 1998, there were approximately $3,521,000 in borrowings outstanding
under these programs. The Partnership has guaranteed $1,174,000 of these
borrowings. No additional borrowings are available under these programs.
On February 26, 1998, the Partnership entered into a separate two year limited
guaranty of $1,200,000 in borrowings of a franchisee which were used to
construct a new franchise restaurant.
The Partnership's largest franchisee operates 40 restaurants, 37 of which are
leased from unaffiliated lessors, pursuant to a temporary license agreement
which expires September 30, 1998. In May 1998, the franchisee filed a petition
for reorganization under Chapter 11 of the United States Bankruptcy Code in the
United States bankruptcy Court for the Western District of New York. The
Partnership and the franchisee have entered into a Stipulation and Order
Authorizing Standstill and Extension Agreement which was approved by the
Bankruptcy Court on June 17, 1998 authorizing the continuing temporary operation
of the franchisee's restaurants. The franchisee has advised the Partnership that
it has entered into an agreement in principle with an operator of truck stops
and travel plazas for the acquisition of all of the franchisee's assets related
to its Perkins Family Restaurants. If approved by the Bankruptcy Court, the
acquiror will become a franchisee of the Partnership and provide funds for
remodeling existing restaurants. The Partnership also expects to receive
sufficient funds to cover its unreserved receivable from the franchisee. During
the past three years, the franchisee's average net royalty payments to the
Partnership were approximately $1.8 million and at June 30, 1998, the franchisee
was delinquent in its royalty obligations in the amount of approximately
$533,000 of which $300,000 had been reserved.
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 and six months ended June 30,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
(Increase) Decrease in:
Receivables $(1,598) $ 348 $ (678) $ (965)
Inventories (495) (239) (415) (1)
Prepaid expenses and
other current assets 140 241 (589) (665)
Other assets 366 (768) (80) (1,083)
Increase (Decrease) in:
Accounts payable (338) 482 889 (1,273)
Accrued expenses (1,290) 2,710 (936) 791
Other liabilities (353) 75 (432) 194
------- ------- ------- -------
$(3,568) $ 2,849 $(2,241) $(3,002)
======= ======= ======= =======
</TABLE>
The Partnership paid interest of $6,679,000 and $1,320,000 during the second
quarters of 1998 and 1997, respectively, and $6,889,000 and $2,531,000 for the
six months ended June 30, 1998 and 1997, respectively.
Asset Writedown (SFAS No. 121)
As required by Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Partnership evaluates the recoverability of assets
(including intangibles) based upon their related undiscounted estimated future
cash flows when events and circumstances indicate that assets might be impaired.
During the first quarter of 1998, as a result of this review, the Partnership
identified five restaurant properties which were not expected to generate
undiscounted future cash flows sufficient to cover the carrying value of the
underlying assets related to these properties. As required under SFAS No. 121,
the carrying amounts of the assets associated with these restaurant properties
were written down to their estimated fair market values. The resulting non-cash
charge reduced first quarter 1998 income by $500,000.
8
<PAGE> 9
Federal Income Taxation
The Partnership is a nontaxable partnership for state and Federal income tax
purposes. Under the Partnership's form of taxation, any distributions paid by
the Partnership are not taxable to its partners. Instead, the Partnership's
taxable income, which may vary substantially from income reported for financial
purposes, is included in the state and Federal income tax returns of its
partners. Accordingly, no provision for income taxes has been reflected in the
accompanying financial statements.
The Partnership will pay distributions to its partners from available cash flow
in amounts sufficient to satisfy any tax liabilities of the partners arising out
of the allocation of taxable income or gain from the Partnership.
New Accounting Pronouncements
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for fiscal years beginning after December 15, 1997
with restatement of all prior periods shown if not impracticable to do so. SFAS
No. 131 requires the disclosure of certain information about the operating
segments of the Partnership in the financial statements. The Partnership will
implement SFAS No. 131 during 1998; however, reporting of segment information in
interim financial statements is not required in the initial year of application.
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 Partnership is required to adopt in 1999, with earlier
application permitted. SOP 98-5 requires the costs of start-up activities to be
expensed as incurred. Upon adoption of SOP 98-5, the Partnership will be
required to record a cumulative effect of a change in accounting principle to
write off any unamortized preopening costs that exist on the balance sheet at
that date. As of June 30, 1998, the Partnership had unamortized preopening costs
of approximately $500,000.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SECOND QUARTER AND SIX MONTHS ENDED JUNE 30, 1998
RESULTS OF OPERATIONS
Overview:
The Partnership is a leading operator and franchisor of full-service mid-scale
restaurants located primarily in the Midwest, Pennsylvania, upstate New York,
and central Florida. As of June 30, 1998, the Partnership owned and operated 138
full-service restaurants and franchised 348 full-service restaurants. The
Partnership also manufactures and distributes bakery products which are sold to
Partnership-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 Partnership's revenues are derived primarily from the operation of
full-service restaurants, the sale of bakery products produced by its
manufacturing division, Foxtail Foods ("Foxtail"), and franchise fees. Foxtail
offers cookie dough, 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. Sales to Partnership-operated restaurants are eliminated
in the accompanying statements of operations. In the six months ended June 30,
1998, revenues from Partnership-operated restaurants, Foxtail and franchise fees
accounted for 84.4%, 8.3% and 7.3% of total revenues, respectively.
The Partnership has an on-going program of prototype development, testing and
remodeling to maintain operationally efficient, cost-effective and unique
facility design and decor. An accelerated program to remodel existing
Partnership-operated restaurants began in 1995 and continues today. The current
remodel package features a modern, distinctive interior and exterior layout that
enhances operating efficiencies and guest appeal. As of June 30, 1998,
approximately 89% of Partnership-operated restaurants had either been remodeled
or initially constructed since January 1, 1994.
The Partnership's revenues have increased steadily over the last five years.
System-wide sales (including franchised restaurants) have increased 21.0% from
$587,755,000 in 1993 to $710,962,000 in 1997. Revenues from Partnership-operated
restaurants have increased 22.9% from $183,416,000 to $225,486,000 and franchise
revenues have increased 24.4% from $15,544,000 to $19,333,000, over the same
period. Average revenue per Partnership-operated restaurant has increased 13.8%,
from $1,478,000 to $1,682,000 over the same period. Earnings before interest,
taxes, depreciation, amortization, provision for disposition of assets and
extraordinary items for the same periods were $31,695,000 and $36,291,000,
representing a 14.5% increase. Partnership-operated restaurants have achieved
comparable restaurant sales increases in each of the last twenty-seven quarters.
10
<PAGE> 11
A summary of the Partnership's results for the second quarter and six months
ended June 30, 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 Six Months Ended
June 30 June 30
------------------ -----------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Food sales 92.8% 92.6% 92.7% 92.7%
Franchise revenues 7.2 7.4 7.3 7.3
----- ----- ----- -----
Total Revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs and Expenses:
Cost of sales:
Food cost 26.1 26.4 26.4 26.5
Labor and benefits 32.3 31.7 32.1 31.6
Operating expenses 17.9 18.3 18.4 18.8
General and administrative 9.9 9.9 9.9 10.0
Depreciation and amortization 6.8 6.0 6.9 6.2
Interest, net 5.0 1.8 5.1 1.9
Loss on/Provision for disposition of assets, net -- -- 0.2 --
Asset writedown (SFAS No. 121) -- -- 0.4 --
Tax related reorganization costs -- 1.0 -- 0.5
Other, net (0.5) (0.3) (0.4) (0.3)
----- ----- ----- -----
Total Costs and Expenses 97.5 94.8 99.0 95.2
----- ----- ----- -----
Net Income 2.5% 5.2% 1.0% 4.8%
===== ===== ===== =====
</TABLE>
Net income for the second quarter of 1998 was $1,947,000 versus net income of
$3,464,000 for the same period in 1997. For the six months ended June 30, 1998,
net income was $1,460,000 compared to $6,189,000 in the prior year. Lower income
is primarily the result of the effects in 1998 of additional interest expense,
depreciation and amortization related to the Going Private Transaction.
11
<PAGE> 12
Revenues:
Total revenues for the second quarter and first six months of 1998 increased
approximately 10.7% and 10.5% over the same periods last year due primarily to
higher comparable restaurant sales and increased Foxtail sales. Same store
comparable sales increased approximately 9.0% and 9.1% over the second quarter
and first six months of 1997, respectively, due primarily to an increase in
comparable guest visits, selective menu price increases and guest trends toward
higher-priced entrees. The shift in customer preference to higher-priced entrees
can be attributed to the Partnership's development and promotion of
higher-priced menu items. Three Partnership-operated restaurants opened after
the second quarter of 1997 and the opening of two new Partnership-operated
restaurants in the current year contributed to the increase in restaurant food
sales during the quarter and six months ended June 30, 1998. These increases
were offset by the refranchising of one Partnership-operated restaurant during
1997. Management believes remodeling of Partnership-operated restaurants,
enhanced promotional events and implementation of new products resulted in the
increased customer counts.
Revenues from Foxtail increased approximately 15.8% and 15.6% over the six
months ended June 30, 1997, and constituted approximately 8.3% of the
Partnership's revenues year-to-date. The increase in sales is primarily due to
growth in the number of stores in the Perkins system.
Franchise revenues, which consist primarily of franchise royalties and sales
fees, increased 7.5% over the second quarter of 1997 and 9.7% over the first six
months of 1997. This increase is due primarily to the opening of 23 new
franchised restaurants and the sale of one Partnership-operated restaurant to a
franchisee since June 30, 1997. This increase is partially offset by the closing
of eight underperforming franchised restaurants during the same period.
Costs and Expenses:
Food cost:
In terms of total revenues, food cost for the three months and six months ended
June 30, 1998 decreased 0.3 percentage points and 0.1 percentage points,
respectively, over the same periods in 1997. Food costs decreased during the
current year primarily due to lower commodity costs on pork, red meat, eggs and
orange juice. These decreases in the second quarter were partially offset by
higher food costs in the first quarter which were due to costs associated with a
seafood promotion which had a lower than average margin. Menu price increases in
January 1998 and May 1998 contributed to the decrease in food cost percentage as
well.
Labor and benefits:
Labor and benefits expense, as a percentage of total revenues, increased 0.6 and
0.5 percentage points for the second quarter and six months ended June 30, 1998,
respectively. Hourly labor costs, primarily cook, server and host wages, have
increased over the prior year due to higher minimum wage rates and a competitive
labor market. A portion of the increased labor costs was offset by lower
workers' compensation costs.
12
<PAGE> 13
The wage rates of the Partnership's hourly employees are impacted by Federal and
state minimum wage laws. Legislation enacted during 1996 which raised the
Federal minimum wage rate in 1996 and 1997 has had an impact on the
Partnership's labor costs. These increases have resulted in the Federal minimum
wage rate increasing from $4.25 per hour to $4.75 on October 1, 1996 to $5.15
per hour as of September 1, 1997 to the present date. 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
Partnership has been able to offset increases in labor costs through selective
menu price increases and improvements in labor productivity. The Partnership
anticipates that it can offset the majority of the recent increases through
selective menu price increases. However, there is no assurance that future
increases can be mitigated through raising menu prices.
Operating expenses:
Operating expenses, expressed as a percentage of total revenues for the first
quarter of 1998 decreased 0.4 percentage points from the second quarter and six
months ended June 30, 1997. This decrease is primarily due to lower utilities
expense and lower franchise service fees during the second quarter and six
months ended June 30, 1998. Franchise service fees decreased due to the
termination of two service fee agreements during 1997. The decrease was
partially offset by higher franchise opening costs due to the opening of three
additional franchise restaurants during the second quarter of 1998 and 10
additional restaurants year-to-date compared to the same periods in 1997.
General and administrative:
General and administrative expenses increased 9.9% and 8.7% over the three and
six months ended June 30, 1997. This increase is primarily due to higher
restaurant development costs, field and office administration costs and human
resources costs. In addition, payroll expense for home office staff has
increased over the prior year. These were planned increases deemed necessary as
the Partnership continues to increase the number of franchise and
Partnership-operated restaurants.
Depreciation and amortization:
Depreciation and amortization for the three and six months ended June 30, 1998,
increased approximately 25.8% and 23.9% over the same period last year due
primarily to increases in fixed assets and intangibles resulting from
"push-down" accounting adjustments recorded in December 1997 in connection with
the Going Private Transaction. Additionally, the Partnership's continuing
refurbishment program to upgrade and maintain existing restaurants and the
addition of new Partnership-operated restaurants contributed to this increase.
Interest, net:
Interest expense for the three and six months ended June 30, 1998, increased
201.3% and 196.2%, respectively, over the same period last year due to debt
incurred in December 1997 which was used to consummate the Going Private
Transaction. Interest expense associated with capital lease obligations has
decreased.
Other:
Results of operations for the six months ended June 30, 1998, reflect a $500,000
non-cash charge against earnings related to the writedown of certain assets
impaired under SFAS No. 121 recorded during the first quarter. In addition, the
Partnership recorded a net loss of $295,000 related to the disposition of
assets; this amount includes a loss of approximately $740,000 on the disposal of
two properties during the first quarter and the recognition of a previously
deferred gain of approximately $445,000 under SFAS No. 66, "Accounting for Sales
of Real Estate," related to the sale of property in 1994.
13
<PAGE> 14
YEAR 2000
The year 2000 presents a critical business issue due to the possibility that
many computerized systems will not be able to process information including
dates beginning in the Year 2000. The Partnership has established a plan to
assess its readiness for the Year 2000. A review of computer systems and
software, including non-information technology systems, has been substantially
completed. No material costs associated with achieving Year 2000 compliance
internally are anticipated based on this review. The Partnership has initiated
communications with major suppliers and customers, including franchisees, to
determine the extent to which the Partnership may be vulnerable to such third
parties' failure to remediate their own issues related to the Year 2000. At the
present time, the Partnership has not received adequate information from these
outside third parties to appropriately evaluate their possible impact on
operations of the Partnership. As such, management cannot reasonably predict
what impact, if any, the year 2000 issue will have on the Partnership. At this
time, the Partnership has not begun developing a contingency plan; however,
management will complete an appropriate contingency plan in 1999.
CAPITAL RESOURCES AND LIQUIDITY
Principal uses of cash during the second quarter and first six months ended June
30, 1998, were the purchase of public Units, payment of Going Private
Transaction expenses and capital expenditures. Capital expenditures consisted
primarily of costs related to equipment purchases for new Partnership-operated
restaurants and remodels of existing restaurants. Three new restaurants were
opened in the first six months of 1998 and nine were under development. Remodels
and unit upgrades, new restaurant development and equipment upgrades at Foxtail
constituted more than 75% of the capital expenditures during the first six
months of 1998. The Partnership's primary sources of funding were cash provided
by operations, proceeds from the Unsecured Senior Notes issued in December 1997
(see below) and revolving credit borrowings.
The following table summarizes capital expenditures for each of the years in the
three-year period ended December 31, 1997 and the six months ended June 30, 1998
and 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31 JUNE 30
1997 1996 1995 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Maintenance $ 3,453 $ 2,987 $ 3,435 $ 1,546 $ 1,312
Renovation 2,790 4,064 8,431 2,491 1,748
New restaurant development 6,193 1,947 12,626 5,817 1,240
Manufacturing 714 651 859 609 171
Other 1,936 2,209 3,580 1,343 950
------- ------- ------- ------- -------
Total Capital Expenditures $15,086 $11,858 $28,931 $11,806 $ 5,421
======= ======= ======= ======= =======
</TABLE>
The Partnership's capital budget for 1998 is $21.4 million. The primary source
of funding for capital projects is expected to be cash provided by operations
and borrowings under the Partnership's revolving credit facility.
During 1998, the Partnership has opened two new full-service
Partnership-operated restaurants and a Perkins Cafe Bakery, which is an
embellishment of the core concept with significant enhancements to menu, decor,
service and exterior and interior building design. Certain amounts originally
budgeted for new store development have been reallocated to cover the cost of
prototype development for the Perkins Cafe Bakery, purchasing rather than
leasing restaurant sites, and upgrading restaurant smallwares in all
Partnership-operated restaurants. Based on this reallocation, the Partnership
anticipates opening five new Partnership-operated restaurants in 1998. Funds not
used to build new restaurants will be primarily applied to the acquisition of
restaurant sites to be developed in 1999, remodels of existing restaurants, and
restaurant maintenance.
The Partnership is considering increasing the capital budget for 1998 by as much
as $8 million to fund additional property acquisitions and a portion of
development costs for stores to be opened in 1999. If the decision is made to
spend this additional capital, the Partnership anticipates being able to
accelerate the opening of up to five Partnership-operated restaurants to be
completed in 1999.
On December 22, 1997, the Partnership issued $130,000,000 of 10.125% Unsecured
Senior Notes (the "Notes") due December 15, 2007. The proceeds were used to
repay outstanding senior notes and borrowings under the Partnership's revolving
line of credit, purchase Units from the public and pay expenses relative to the
Going Private Transaction.
14
<PAGE> 15
On December 22, 1997, the Partnership 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 matures on January 1, 2003,
at which time all amounts become payable. All amounts under the Credit Facility
bear interest at floating rates based on the agent's base rate or Eurodollar
rates as defined in the agreement. As of June 30, 1998, $7,500,000 in borrowings
and approximately $2,400,000 of letters of credit were outstanding under the
Credit Facility.
Prior to the fourth quarter of 1997, the Partnership had paid quarterly cash
distributions to Unitholders. Following the consummation of the Going Private
Transaction, the Partnership will pay distributions to its partners from
available cash flow in amounts sufficient to satisfy any tax liabilities of the
partners arising out of the allocation of taxable income or gain from the
Partnership. The Senior Note Indenture and the Credit Facility limit the
Partnership's ability to otherwise pay distributions to its partners.
The Partnership'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 (including the Notes), or to fund planned capital expenditures will
depend on its 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 Partnership's liquidity needs for the foreseeable future. The Partnership
may, however, need to refinance all or a portion of the principal of the Notes
on or prior to maturity. There can be no assurance that the Partnership will
generate sufficient cash flow from operations, or that future borrowings will be
available under the Credit Facility in an amount sufficient to enable the
Partnership to service its indebtedness, including the Notes, or to fund its
other liquidity needs. In addition, there can be no assurance that the
Partnership will be able to effect any such refinancing on commercially
reasonable terms or at all.
SEASONALITY
Perkins revenues are subject to seasonal fluctuations. Customer traffic, 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.
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 Partnership does not undertake to publicly update or
revise the forward-looking statements even if the experience or future changes
make it clear that the projected results expressed or implied therein will not
be realized.
15
<PAGE> 16
PART II - OTHER INFORMATION
Item 5. 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 17 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: August 14, 1998 BY: /s/ Steven R. McClellan
--------------------- -------------------------------
Steven R. McClellan
Executive Vice President,
Chief Financial Officer
BY: /s/ Michael P. Donahoe
------------------------------
Michael P. Donahoe
Vice President, Controller
Chief Accounting Officer
16
<PAGE> 17
Exhibit Index
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF JUNE 30, 1998 AND FROM THE STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,454
<SECURITIES> 0
<RECEIVABLES> 9,845
<ALLOWANCES> 670
<INVENTORY> 4,647
<CURRENT-ASSETS> 17,340
<PP&E> 240,940
<DEPRECIATION> 111,024
<TOTAL-ASSETS> 204,907
<CURRENT-LIABILITIES> 30,909
<BONDS> 143,889
0
0
<COMMON> 0
<OTHER-SE> 26,229
<TOTAL-LIABILITY-AND-EQUITY> 204,907
<SALES> 131,182
<TOTAL-REVENUES> 141,502
<CGS> 37,356
<TOTAL-COSTS> 108,861
<OTHER-EXPENSES> 31,181
<LOSS-PROVISION> 210
<INTEREST-EXPENSE> 7,201
<INCOME-PRETAX> 1,460
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,460
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
