<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, 1998
--------------
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 OF INCORPORATION (I.R.S. EMPLOYER
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 [ ]
1
<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
March 31
--------------------
1998 1997
-------- --------
<S> <C> <C>
REVENUES:
Food sales $ 62,774 $ 57,018
Franchise revenues 5,010 4,463
-------- --------
Total Revenues 67,784 61,481
-------- --------
COSTS AND EXPENSES:
Cost of sales:
Food cost 18,136 16,384
Labor and benefits 21,628 19,328
Operating expenses 12,908 11,894
General and administrative 6,677 6,212
Depreciation and amortization 4,804 3,942
Interest, net 3,552 1,220
Loss on/Provision for disposition of assets, net 295 --
Asset writedown (SFAS No. 121) 500 --
Other, net (229) (224)
-------- --------
Total Costs and Expenses 68,271 58,756
-------- --------
NET INCOME (LOSS) $ (487) $ 2,725
======== ========
</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>
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,153 $ 14,160
Receivables, less allowance for
doubtful accounts of $614 and $846 6,666 7,719
Inventories, at the lower of first-
in, first-out cost or market 4,152 4,232
Prepaid expenses and other current assets 2,425 1,823
----------- ------------
Total current assets 16,396 27,934
----------- ------------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 125,972 127,392
NOTES RECEIVABLE, less allowance for
doubtful accounts of $6 and $6 1,486 983
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of $28,207
and $27,591 57,818 58,015
----------- ------------
$ 201,672 $ 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>
March 31,
1998 December 31,
(Unaudited) 1997
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 1,254 $ 1,301
Accounts payable 11,789 10,563
Accrued expenses 19,979 35,948
----------- ------------
Total current liabilities 33,022 47,812
----------- ------------
CAPITAL LEASE OBLIGATIONS, less
current maturities 6,703 6,999
LONG-TERM DEBT 133,000 130,000
OTHER LIABILITIES 4,233 4,312
PARTNERS' CAPITAL:
General partner 247 252
Limited partners (5,463,924 Units issued and outstanding) 24,467 24,949
----------- ------------
Total partners' capital 24,714 25,201
----------- ------------
$ 201,672 $ 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
March 31
----------------------------------
1998 1997
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (487) $ 2,725
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,804 3,942
Loss on/Provision for disposition of assets, net 295 -
Asset writedown (SFAS No. 121) 500 -
Other non cash income and expense items 266 348
Changes in other operating assets and liabilities 1,327 (5,851)
-------------- -------------
Total adjustments 7,192 (1,561)
-------------- -------------
Net cash provided by operating activities 6,705 1,164
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (3,989) (1,561)
Proceeds from sale of property and equipment 12 -
Payments on notes receivable 41 123
Investment in/Advances to joint venture (110) -
-------------- -------------
Net cash used in investing activities (4,046) (1,438)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 11,500 9,600
Payments on long-term debt (8,500) (7,400)
Principal payments under capital lease obligations (343) (464)
Repurchase of limited partnership units (15,787) -
Deferred financing costs (536) -
Distributions to partners - (3,479)
-------------- -------------
Net cash used in financing activities (13,666) (1,743)
-------------- -------------
Net decrease in cash and cash equivalents (11,007) (2,017)
-------------- -------------
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 14,160 2,737
-------------- -------------
Balance, end of period $ 3,153 $ 720
============== =============
</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." In September 1997, the
Partnership, TRC and a subsidiary of TRC entered into an Agreement and Plan of
Merger (as amended, the "Merger Agreement") pursuant to which the Partnership's
operating subsidiary was eliminated through a merger and a series of
transactions were consummated on December 22, 1997 whereby 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. Such transactions consummated
on December 22, 1997 are collectively referred to as the "Going Private
Transaction." No change in the Partnership's management or business strategy is
anticipated as a result of the consummation of the Going Private Transaction.
The following unaudited pro forma results of operations for the three months
ended March 31, 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)
1997
-----------
<S> <C>
Revenues $ 61,481
Net Loss $ (97)
</TABLE>
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
March 31, 1998, there were approximately $3,577,000 in borrowings outstanding
under these programs. The Partnership has guaranteed $1,185,000 of these
borrowings. No additional borrowings are available under these programs.
On February 26, 1998, the Partnership entered into a separate two year limited
guarantee of $1,200,000 in borrowings of a franchisee which were used to
construct a new franchise restaurant.
6
<PAGE> 7
The Partnership's largest franchisee operates 41 restaurants, 37 of which are
leased from unaffiliated lessors, pursuant to a temporary license agreement
expiring June 30, 1998. The temporary license agreement was entered into as a
result of negotiations following the franchisee's defaults in its payments and
certain other obligations under its prior agreements with the Partnership and in
order to give the franchisee an opportunity to seek permanent financing in an
amount sufficient to permit it to refinance its existing obligations to its
creditors, including the Partnership, and to remodel its 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. In
connection with the transaction, 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. The existing temporary license agreement is
expected to be further extended until the closing of the transaction, which is
expected to be within the next 90 days. During the past three years, the
franchisee's average net royalty payments to the Partnership were approximately
$1.8 million. At March 31, 1998, the franchisee was delinquent in its royalty
obligations in the amount of approximately $450,000, of which $300,000 had been
reserved.
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,
--------------------------------
1998 1997
-------------- ------------
<S> <C> <C>
(Increase) Decrease in:
Receivables $ 920 $ (1,313)
Inventories 80 238
Prepaid expenses and
other current assets (729) (906)
Other assets (446) (278)
Increase (Decrease) in:
Accounts payable 1,227 (1,754)
Accrued expenses 354 (1,926)
Other liabilities (79) 88
-------------- -------------
$ 1,327 $ (5,851)
============== =============
</TABLE>
The Partnership paid interest of $210,000 and $1,211,000 during the first
quarters of 1998 and 1997, respectively.
7
<PAGE> 8
Asset Writedown (SFAS No. 121)
As required by 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. 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.
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
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," was issued. SFAS No. 131 requires the disclosure of
certain information about operating segments in the financial statements. This
statement is effective for fiscal years beginning after December 15, 1997 with
restatement of all prior periods shown if not impracticable to do so. 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 March 31, 1998, the Partnership had unamortized preopening
costs of $315,000.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE FIRST QUARTER ENDED MARCH 31, 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 March 31, 1998, Perkins owned and operated 137
full-service restaurants and franchised 345 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 three months ended March
31, 1998, revenues from Partnership-operated restaurants, Foxtail and franchise
fees accounted for 85.1%, 7.5% and 7.4% 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 March 31, 1998,
approximately 87% of Partnership-operated restaurants had either been remodeled
or initially constructed since January 1, 1994.
During 1997, the Partnership entered into a joint venture with a Canadian casual
dining operator for the development of a minimum of three Jack Astor's Bar and
Grill(R) restaurants. Jack Astor's Bar and Grill is a casual theme dining
concept with a high-energy fun atmosphere offering chicken, pasta, hamburgers
and alcoholic beverages. The joint venture's first restaurant opened in
Greensboro, North Carolina on October 6, 1997.
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-six quarters.
9
<PAGE> 10
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
--------------------------
1998 1997
--------------------------
<S> <C> <C>
Revenues:
Food sales 92.6% 92.7%
Franchise revenues 7.4 7.3
------ ------
Total Revenues 100.0 100.0
------ ------
Costs and Expenses:
Cost of sales:
Food cost 26.8 26.7
Labor and benefits 31.9 31.4
Operating expenses 19.0 19.4
General and administrative 9.9 10.1
Depreciation and amortization 7.1 6.4
Interest, net 5.2 2.0
Loss on/Provision for disposition of assets, net 0.4 -
Asset writedown (SFAS No. 121) 0.7 -
Other, net (0.3) (0.4)
------ ------
Total Costs and Expenses 100.7 95.6
------ ------
Net Income (Loss) (0.7)% 4.4%
====== ======
</TABLE>
Net loss for the first quarter of 1998 was $487,000 versus net income of
$2,725,000 for the same period in 1997, primarily reflecting the effects in 1998
of additional interest expense, depreciation and amortization as a result of the
Going Private Transaction.
10
<PAGE> 11
Revenues:
Total revenues for the first quarter of 1998 increased approximately 10.3% over
the same period last year due primarily to higher comparable restaurant sales.
Same store comparable sales increased approximately 9.3% over the first quarter
of 1997 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 which were not open for the full first quarter
of 1997 also contributed to the increase in restaurant food sales during the
three months ended March 31, 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 15.4% over the three months ended
March 31, 1997, and constituted approximately 7.5% of the Partnership's
revenues. The increase in sales is primarily due to additional sales within the
Perkins system.
Franchise revenues, which consist primarily of franchise royalties and sales
fees, increased 12.3% over the first quarter of 1997. This increase is due
primarily to the opening of 21 new franchised restaurants and the sale of one
Partnership-operated restaurant to a franchisee since January 1, 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 ended March 31, 1998,
increased 0.1 percentage point over the same period in 1997. Food costs
increased during the current year due primarily to promotion of new seafood
entrees which have a greater food cost than typical menu items. This increase
was offset by decreased egg commodity costs.
Labor and benefits:
Labor and benefits expense, as a percentage of total revenues, increased 0.5
percentage points for the three months ended March 31, 1998. Hourly labor costs,
primarily cook and server 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 employee insurance rates and lower
workers' compensation claims.
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.
11
<PAGE> 12
Operating expenses:
Operating expenses, expressed as a percentage of total revenues for the first
quarter of 1998 decreased 0.4 percentage points from the three months ended
March 31, 1997. This decrease is primarily due to lower utilities expense due to
mild winter weather and lower franchise service fees during the first quarter of
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 eight more franchise restaurants opening during the first
quarter of 1998 compared to the first quarter of 1997.
General and administrative:
General and administrative expenses increased 7.5% over the three months ended
March 31, 1997. This increase is primarily due to higher restaurant development
costs, training costs and field and office administration costs. In addition,
payroll expense for home office staff has increased over the prior year.
Depreciation and amortization:
Depreciation and amortization for the three months ended March 31, 1998,
increased approximately 21.9% 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 months ended March 31, 1998, increased 191.1%
over the same period last year due primarily to increased debt in December 1997
which was used to purchase outstanding public Units and pay for Going Private
Transaction expenses. Interest expense associated with capital lease obligations
has decreased.
Other:
Results of operations for the three months ended March 31, 1998 reflect a
$500,000 non-cash charge against earnings related to the writedown of certain
assets impaired under SFAS No. 121. 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
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.
12
<PAGE> 13
CAPITAL RESOURCES AND LIQUIDITY
Principal uses of cash during the first quarter ended March 31, 1998, were the
purchase of public Units, payment of Going Private Transaction expenses and
capital expenditures. Capital expenditures consisted primarily of costs related
to remodels of existing restaurants and equipment purchases for new Partnership
operated restaurants. One new restaurant was opened in the first quarter of
1998. Remodels and unit upgrades, as well as new restaurants, constituted more
than 73.9% of the capital expenditures during the first quarter. The
Partnership's primary sources of funding were cash provided by operations and
revolving credit borrowings.
The following table summarizes capital expenditures for each of the years in the
three-year period ended December 31, 1997.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
-----------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Maintenance $ 3,453 $ 2,987 $ 3,435
Renovation 2,790 4,064 8,431
New restaurant development 6,193 1,947 12,626
Manufacturing 714 651 859
Other 1,936 2,209 3,580
-------- -------- --------
Total Capital Expenditures $ 15,086 $ 11,858 $ 28,931
======== ======== ========
</TABLE>
The Partnership's capital budget for 1998 is $21.4 million. The Partnership
plans to add seven new full-service Partnership-operated restaurants in 1998.
The remaining capital budget will be primarily applied to remodels of existing
restaurants and restaurant maintenance. The primary source of funding for these
projects is expected to be cash provided by operations. Capital spending could
vary significantly from planned amounts as certain of these expenditures are
discretionary in nature.
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.
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 March 31, 1998, $3,000,000 in
borrowings and approximately $2,400,000 of letters of credit were outstanding
under the Credit Facility.
13
<PAGE> 14
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 expects to pay distributions to its general partner
or limited partners attributable to the allocation of taxable income or gain
from the Partnership and general corporate purposes. The Senior Note Indenture
and the Credit Facility limit the Partnership's ability to 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.
14
<PAGE> 15
PART II - OTHER INFORMATION
Item 5. Other Information
TRC and Harrah's Entertainment, Inc. ("Harrah's") have entered into an agreement
providing for the redemption of Harrah's one third interest in TRC for $17
million in cash (the "Reorganization"). TRC sold approximately $18 million of
gross proceeds of Senior Discount Notes due 2008 to consummate the
Reorganization and pay related fees and expenses.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Reference is made to the Index of Exhibits attached hereto as
page 16 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 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
15
<PAGE> 16
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.1 Amendment No.1 to Revolving Credit Agreement, by and
among Perkins Family Restaurants, L.P., The
Restaurant Company, Perkins Restaurants Inc., Perkins
Finance Corp., BankBoston, N.A. and other financial
insitutions and BankBoston, N.A., as Agent and
Administrative Agent with NationsBank, N.A. as
Syndication Agent and BankBoston Securities, Inc. as
Arranger dated as of December 22, 1997.
27 Financial Data Schedule (for SEC use only).
</TABLE>
16
<PAGE> 1
Exhibit 10.1
AMENDMENT NO. 1
TO REVOLVING CREDIT AGREEMENT
This Amendment No. 1 (this "Amendment"), dated as of March 27, 1998, amends
that certain Revolving Credit Agreement (as amended, the "Credit Agreement"),
dated as of December 22, 1997, by and among Perkins Family Restaurants, L.P., a
Delaware limited partnership (the "Borrower"), The Restaurant Company, a
Delaware corporation ("TRC"), Perkins Restaurants, Inc., a Minnesota corporation
("PRI"), Perkins Management Company, Inc., a Delaware corporation ("PMC") and
Perkins Finance Corp., a Delaware corporation (together with TRC, PRI and PMC,
the "Guarantors"), BankBoston, N.A. ("BKB"), a national banking association, and
the other lending institutions listed on Schedule 1 thereto (the "Banks"), BKB,
as agent and administrative agent (the "Agent"), and NationsBank, N.A., as
Syndication Agent. Capitalized terms used and not defined in this Amendment
shall have the meanings ascribed thereto in the Credit Agreement.
WHEREAS, the Borrower and the Guarantors have requested that the Banks and
the Agent agree to amend certain of the terms of the Credit Agreement;
WHEREAS, the Banks and the Agent have agreed to amend certain of the terms
of the Credit Agreement upon the conditions set forth herein; and
NOW, THEREFORE, in consideration of the foregoing premises, the parties
hereby agree as follows:
SS.1. AMENDMENTS TO CREDIT AGREEMENT.
SS.1.1 APPLICABLE MARGIN. The definition of "Applicable Margin" set forth
in Section 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% 1.50%
---------------------------------------------------------------------------
II > 2.75:1 and <3.50:1 0.50% 2.00%
-
---------------------------------------------------------------------------
III > 3.50:1 1.00% 2.50%
-
===========================================================================
</TABLE>
SS.1.2 SECURITY OF BORROWER. Section 7.1 of the Credit Agreement is hereby
amended by deleting the proviso commencing in the seventh line thereof and
substituting in lieu thereof the following new text:
"provided that the Borrower shall not be required to grant a mortgage or
deed of trust with respect to any fee-owned or leased Real Estate located
in Florida, whether presently owned or leased or hereafter acquired or
leased."
<PAGE> 2
SS.1.3 ADDITIONAL MORTGAGED PROPERTY. Section 9.13 of the Credit Agreement
is hereby amended by deleting paragraph (c) thereto and substituting in lieu
thereof the following new paragraph (c):
(c) Notwithstanding the provisions of this Section 9.13, the parties
hereto agree that the Borrower shall not be required to deliver to the
Agent mortgages or deeds of trust with respect to any owned or leased Real
Estate located in Florida, whether presently owned or leased or hereafter
acquired or leased.
SS.1.4 RESTRICTIONS ON INDEBTEDNESS.
(a) Section 10.1(e) of the Credit Agreement is hereby amended by deleting
the amount "$10,000,000" set forth therein and substituting in lieu thereof the
amount "$15,000,000".
(b) Section 10.1(j) of the Credit Agreement is hereby amended by deleting
the amount "$10,000,000" set forth therein and substituting in lieu thereof the
amount "$15,000,000".
(c) Section 10.1(m) of the Credit Agreement is hereby amended by deleting
the amount "$10,000,000" set forth therein and substituting in lieu thereof the
amount "$15,000,000".
SS.1.5 DISTRIBUTIONS. The Credit Agreement is hereby amended by deleting
Section 10.4 thereto in its entirety and substituting in lieu thereof the
following new Section 10.4:
10.4 DISTRIBUTIONS. The Borrower will not, and will not permit any of
its Subsidiaries to, make any Distributions, other than:
(i) if no Default or Event of Default then exists, and none would
result from the making of any such Distributions, Subsidiaries of the
Borrower may make Distributions to the Borrower and pro rata to each
other holder of such Subsidiary's Equity Interests, if any;
(ii) the Borrower may make Distributions to each holder of its
Equity Interests in an aggregate amount in any one fiscal year not to
exceed an amount sufficient to pay such holder's estimated federal,
state and local income taxes on such holder's respective share of the
taxable income of the Borrower for such fiscal year and for any prior
fiscal year that is the subject of an adjustment as a result of an
audit by tax authorities;
(iii) if no Default or Event of Default then exists or would
result from the making of any such Distribution and if no "Default" or
"Event of Default" under, and as defined in, the Senior Indenture,
then exists or would result under the Senior Indebtedness from the
making of such Distribution, the Borrower may
<PAGE> 3
make Distributions in an aggregate amount for all such Distributions
made after the Closing Date not to exceed 50% of positive Consolidated
Net Income of the Borrower and its Subsidiaries after Tax
Distributions for the period (taken as one accounting period) from the
beginning of the first fiscal quarter of the Borrower commencing after
the Closing Date (the "Measurement Date") to the end of the Borrower's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Distribution; and
(iv) if no Default or Event of Default then exists or would
result from the making of any such Distribution, the Borrower may make
additional Distributions in an aggregate amount for all such
Distributions made after the Closing Date not to exceed $5,000,000.
The Borrower shall not permit any of its Subsidiaries to enter into or
become bound by any agreement or instrument which limits or restricts the
ability of such Subsidiary to make Distributions to the Borrower.
SS.1.6 MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS. Section 10.5(c) of
the Credit Agreement is hereby amended by deleting the amount "$10,000,000" set
forth therein and substituting in lieu thereof the amount "$15,000,000".
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, (a) were true and correct in all
material respects when made, and (b) 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
partnership or corporate authority of each of the Borrower and each of the
Guarantors, (ii) have been duly authorized by all necessary partnership or
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 the Partnership Documents or 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.
<PAGE> 4
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 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 Agent's receipt of an original counterpart signature to
this Amendment, duly executed and delivered by the Borrower, the Guarantors, the
Banks and the Agent.
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
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment under
seal as of the date first set forth above.
PERKINS FAMILY RESTAURANTS, L.P.
By: Perkins Management Company, Inc.,
its General Partner
By:
-----------------------------------
Name:
Title:
THE RESTAURANT COMPANY, as
Guarantor
By:
-----------------------------------
Name:
Title:
PERKINS RESTAURANTS, INC., as
Guarantor
By:
-----------------------------------
Name:
Title:
PERKINS MANAGEMENT COMPANY, INC.,
as Guarantor
By:
-----------------------------------
Name:
Title:
<PAGE> 6
PERKINS FINANCE CORP., as Guarantor
By:
-----------------------------------
Name:
Title:
BANKBOSTON, N.A., individually and as
Agent
By:
-----------------------------------
Name:
Title:
NATIONSBANK, N.A., individually and as
Syndication Agent
By:
-----------------------------------
Name:
Title:
BANK OF AMERICA, FSB
By:
-----------------------------------
Name:
Title:
FIRST AMERICAN NATIONAL BANK
By:
-----------------------------------
Name:
Title:
SANWA BUSINESS CREDIT
CORPORATION
By:
-----------------------------------
Name:
Title:
<PAGE> 7
BARNETT BANK, N.A.
By:
-----------------------------------
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
BALANCE SHEET AS OF MARCH 31, 1998 AND FROM THE STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,153
<SECURITIES> 0
<RECEIVABLES> 8,152
<ALLOWANCES> 620
<INVENTORY> 4,152
<CURRENT-ASSETS> 16,396
<PP&E> 232,731
<DEPRECIATION> 106,759
<TOTAL-ASSETS> 201,672
<CURRENT-LIABILITIES> 33,022
<BONDS> 139,703
0
0
<COMMON> 0
<OTHER-SE> 24,714
<TOTAL-LIABILITY-AND-EQUITY> 201,672
<SALES> 62,774
<TOTAL-REVENUES> 67,784
<CGS> 18,136
<TOTAL-COSTS> 52,672
<OTHER-EXPENSES> 15,599
<LOSS-PROVISION> 64
<INTEREST-EXPENSE> 3,552
<INCOME-PRETAX> (487)
<INCOME-TAX> 0
<INCOME-CONTINUING> (487)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (487)
<EPS-PRIMARY> .0
<EPS-DILUTED> .0
</TABLE>
