<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, 1999
----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 1-9214
------
Perkins Family Restaurants, L.P.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 62-1283091
- ----------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. employer identification no.)
</TABLE>
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 , 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 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PERKINS FAMILY RESTAURANTS, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES:
Food sales $ 68,364 $ 62,774
Franchise revenues 5,002 5,010
-------- --------
Total Revenues 73,366 67,784
-------- --------
COSTS AND EXPENSES:
Cost of Sales:
Food cost 19,339 18,136
Labor and benefits 24,251 21,628
Operating expenses 13,759 12,908
General and administrative 7,395 6,677
Depreciation and amortization 5,127 4,804
Interest, net 3,609 3,552
Provision for disposition of assets -- 400
Asset writedown (SFAS No. 121) -- 500
Other, net (503) (334)
-------- --------
Total Costs and Expenses 72,977 68,271
-------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 389 (487)
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE (528) --
-------- --------
NET LOSS $ (139) $ (487)
======== ========
</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,
1999 December 31,
(Unaudited) 1998
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,416 $ 2,257
Receivables, less allowance for
doubtful accounts of $644 and $495 6,892 7,150
Inventories, at the lower of first-
in, first-out cost or market 4,827 5,375
Prepaid expenses and other current assets 1,779 1,989
-------- --------
Total current assets 15,914 16,771
-------- --------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation and amortization 130,083 131,271
NOTES RECEIVABLE, less allowance for
doubtful accounts of $163 and $161 719 748
INTANGIBLE AND OTHER ASSETS, net of
accumulated amortization of $31,087
and $30,415 54,020 53,760
-------- --------
$200,736 $202,550
======== ========
</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,
1999 December 31,
(Unaudited) 1998
--------- ------------
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities of capital lease obligations $ 1,201 $ 1,229
Accounts payable 11,195 11,469
Accrued expenses 20,641 22,254
-------- --------
Total current liabilities 33,037 34,952
-------- --------
CAPITAL LEASE OBLIGATIONS, less
current maturities 4,912 5,767
LONG-TERM DEBT, less current maturities 135,000 134,000
OTHER LIABILITIES 4,446 3,114
PARTNERS' CAPITAL:
General partner 233 247
Limited partners (5,463,924 Units
issued and outstanding) 23,108 24,470
-------- --------
Total partners' capital 23,341 24,717
-------- --------
$200,736 $202,550
======== ========
</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
-------------------------
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (139) $ (487)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 5,127 4,804
Change in accounting principle 528 --
Loss on/Provision for disposition of assets, net -- 400
Asset writedown (SFAS No. 121) -- 500
Other non cash income and expense items 181 266
Changes in other operating assets and liabilities (1,830) 1,222
-------- --------
Total adjustments 4,006 7,192
-------- --------
Net cash provided by operating activities 3,867 6,705
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for property and equipment (3,238) (3,989)
Proceeds from sale of property and equipment -- 12
Payments on notes receivable 76 41
Investment in/Advances to joint venture -- (110)
-------- --------
Net cash used in investing activities (3,162) (4,046)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 10,750 11,500
Payments on long-term debt (9,750) (8,500)
Principal payments under capital lease obligations (296) (343)
Repurchase of limited partnership units (12) (15,787)
Deferred financing costs -- (536)
Distributions to partners (1,238) --
-------- --------
Net cash used in financing activities (546) (13,666)
-------- --------
Net increase (decrease) in cash and cash equivalents 159 (11,007)
-------- --------
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 2,257 14,160
-------- --------
Balance, end of period $ 2,416 $ 3,153
======== ========
</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 "Company") 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 1998
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 Company 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 Company's Units were traded on the New York Stock
Exchange under the symbol "PFR." On December 17, 1997, the Company, TRC and a
subsidiary of TRC completed a series of transactions pursuant to which the
Company's operating subsidiary was eliminated through a merger, the Company
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").
Loss of a Significant Franchisee
On February 4, 1999, Denny's (a subsidiary of Advantica Restaurant Group) was
the prevailing bidder in the court-supervised auction sale of 30 restaurants of
Perk Development Corporation ("Perk"), the Company's upstate New York
franchisee. These restaurants ceased operating as Perkins Family Restaurants on
February 28, 1999. The Company received approximately $1,783,000 in royalties
from Perk during 1998. Management expects to replace this revenue stream in
future years through the recruiting of new franchisees.
6
<PAGE> 7
Contingencies
The Company is a party to various legal proceedings in the ordinary course of
business. Management does not believe it is likely that these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's financial position or results of operations.
In the past, the Company has sponsored financing programs offered by certain
lending institutions to assist its franchisees in procuring funds for the
construction of new franchised restaurants and to purchase and install in-store
bakeries. The Company provides a limited guaranty of the funds borrowed. At
March 31, 1999, there were approximately $2,920,000 in borrowings outstanding
under these programs. The Company has guaranteed $847,000 of these borrowings.
No additional borrowings are available under these programs. Additionally, the
Company has entered into a separate two year limited guaranty which expires on
February 26, 2000 of $1,200,000 in borrowings of a franchisee which were used
to construct a new franchise restaurant. As of March 31, 1999, the outstanding
balance on the loan was $1,200,000.
Additionally, as of March 31, 1999, the Company had guaranteed $207,000 of
borrowings for Perk which had been used to install in-store bakeries. This
liability was fully reserved in December 1998.
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,
-------------------------
1999 1998
-------- --------
<S> <C> <C>
(Increase) Decrease in:
Receivables $ 80 $ 920
Inventories 548 80
Prepaid expenses and
other current assets (318) (729)
Other assets 129 (446)
Increase (Decrease) in:
Accounts payable (276) 1,227
Accrued expenses (1,613) 249
Other liabilities (380) (79)
-------- --------
$ (1,830) $ 1,222
======== ========
</TABLE>
The Company paid interest of $279,000 and $210,000 during the first quarters of
1999 and 1998, respectively.
7
<PAGE> 8
Federal Income Taxation
The Company is a nontaxable partnership for state and Federal income tax
purposes. Under the Company's form of taxation, the distributions paid by the
Company are not taxable to its partners. Instead, the Company'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.
Since the Going Private Transaction, the Company pays distributions to its
partners from available cash flow in amounts sufficient to satisfy estimated
tax liabilities of the partners arising out of the allocation of taxable income
or gain from the Company. The Company paid $1,238,000 to its partners in the
first quarter of 1999 to satisfy 1998 taxable income allocations.
Preopening Expenses
In April 1998, The American Institute of Certified Public Accountants issued
Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities," which the Company adopted in 1999. SOP 98-5 requires the costs of
start-up activities to be expensed as incurred. Upon adoption of SOP 98-5, the
Company recorded a cumulative effect of a change in accounting principle of
$528,000 to expense unamortized preopening costs. Prior to 1999, the Company
capitalized new store opening costs and expensed these costs over the 12 months
following the opening of the restaurant.
8
<PAGE> 9
Segment Reporting
The following presents revenues and other financial information by business
segment for the periods ended March 31 (in thousands):
<TABLE>
<CAPTION>
1999:
Restaurants Franchise Manufacturing Other Totals
----------- --------- -------------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues from
external customers $ 62,324 $ 4,985 $ 5,877 $ 180 $ 73,366
Intersegment revenues -- -- 2,053 -- 2,053
Segment profit (loss) 6,236 4,273 1,003 (11,651) (139)
1998:
Restaurants Franchise Manufacturing Other Totals
----------- --------- -------------- -------- --------
Revenues from
external customers $ 57,369 $ 4,994 $ 5,102 $ 319 $ 67,784
Intersegment revenues -- -- 1,846 -- 1,846
Segment profit (loss) 5,570 4,311 1,051 (11,419) (487)
</TABLE>
A reconciliation of other segment loss is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- ---------
<S> <C> <C>
General and administrative expenses $ 6,601 $ 5,860
Depreciation and amortization expenses 1,543 1,610
Interest expense 3,609 3,552
Change in accounting principle 528 -
Provision for disposition of assets - 400
Asset write-down (SFAS No. 121) - 500
Other (630) (503)
======== ========
$ 11,651 $ 11,419
======== ========
</TABLE>
9
<PAGE> 10
Deferred Compensation
Effective January 1, 1999, the Company established a Deferred Compensation Plan
under which officers and key employees of the Company may defer specified
percentages of their salaries, annual incentives and long-term compensation
payments. The Company also makes matching contributions of the lesser of 3% of
eligible compensation or $4,800. Amounts deferred are excluded from the
participant's taxable income and are held in trust with a bank, where the funds
are invested at the direction of the participant. The total amount held in
trust as of March 31, 1999 was $1,138,000 and is included in other assets and
other liabilities in the accompanying balance sheets of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE FIRST QUARTER ENDED MARCH 31, 1999
RESULTS OF OPERATIONS
Overview:
The Company is a leading operator and franchisor of full-service mid-scale
restaurants located in 35 states and 5 Canadian provinces. As of March 31,
1999, Perkins owned and operated 140 full-service restaurants and franchised
326 full-service restaurants. The Company also manufactures and distributes
bakery products which are sold to Company-operated restaurants, franchisees,
third-party bakers and food distributors. The business of Perkins was founded
in 1958, and since then Perkins has continued to adapt its menus, product
offerings, building designs and decor to meet changing consumer preferences.
Perkins is a highly recognized brand in the geographic areas it serves.
The Company's revenues are derived primarily from the operation of 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
Company-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 Company-operated restaurants are eliminated in the accompanying
statements of operations. In the three months ended March 31, 1999, revenues
from Company-operated restaurants, Foxtail and franchise fees accounted for
85.2%, 8.0% and 6.8% of total revenues, respectively.
10
<PAGE> 11
A summary of the Company'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
-----------------------
1999 1998
----- -----
<S> <C> <C>
REVENUES:
Food sales 93.2 % 92.6 %
Franchise revenues 6.8 7.4
----- -----
Total Revenues 100.0 100.0
----- -----
COSTS AND EXPENSES:
Cost of sales:
Food cost 26.4 26.8
Labor and benefits 33.1 31.9
Operating expenses 18.8 19.0
General and administrative 10.1 9.9
Depreciation and amortization 7.0 7.1
Interest, net 4.9 5.2
Provision for disposition of assets -- 0.6
Asset writedown (SFAS No. 121) -- 0.7
Other, net (0.8) (0.5)
----- -----
Total Costs and Expenses 99.5 100.7
----- -----
INCOME (LOSS) BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 0.5 (0.7)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 0.7 --
----- -----
NET LOSS (0.2) % (0.7) %
===== =====
</TABLE>
Net loss for the first quarter of 1999 was $139,000 versus net loss of $487,000
for the same period in 1998. Excluding the cumulative effect of a change in
accounting principle in 1999, net income was $389,000. Excluding a $400,000
provision for asset disposition and an asset write-down related to SFAS No. 121
of $500,000, net income for first quarter of 1998 would have been $413,000.
11
<PAGE> 12
Revenues:
Total revenues for the first quarter of 1999 increased 8.2% over the same
period last year due primarily to higher comparable restaurant sales, sales
from seven stores which were not open for the full first quarter of 1998 and
increased Foxtail sales.
Same store comparable sales increased approximately 4.8% due primarily to
selective menu price increases in 1998 and guest trends toward higher-priced
entrees partially offset by a 1.6% decrease in comparable guest visits. The
shift in customer preference to higher-priced entrees can be attributed to the
Company's development and promotion of higher-priced menu items. These
increases were partially offset by the closing of two Company-operated
restaurants during 1998. Favorable weather in 1998 led to increased comparable
guest visits of 5.8% over the corresponding period in 1997 and contributed to
the decrease in comparable guest visits in the current year.
Revenues from Foxtail increased approximately 15.2% over the three months ended
March 31, 1998, and constituted approximately 8.0% of the Company's revenues.
The increase in sales is primarily due to additional sales to customers outside
the Perkins system. The company has focused on developing sales outside the
Perkins system in order to maximize plant utilization.
Franchise revenues, which consist primarily of franchise royalties and sales
fees, decreased 0.2% versus the first quarter of 1998. Four franchised
restaurants opened in 1999 compared to ten openings in 1998 which resulted in
decreased franchise sales fees. Franchise royalty income increased in 1999 due
to the opening of forty new franchised restaurants since January 1, 1998 offset
by the closing of 16 restaurants in 1998 and 34 restaurants in 1999 including
31 Perk restaurants which closed February 28, 1999.
Costs and Expenses:
Food cost:
In terms of total revenues, food costs for the three months ended March 31,
1999, decreased 0.4 percentage points over the same period in 1998. Food costs
decreased during the current year due primarily to selective menu price
increases and decreased commodity costs on pork and poultry. The decrease in
restaurant food cost percentage was partially offset by higher ingredient costs
percentages at Foxtail.
Labor and benefits:
Labor and benefits expense, as a percentage of total revenues, increased 1.2
percentage points for the three months ended March 31, 1999. Expected increases
in employee benefit costs were the primary components of the increase.
The wage rates of the Company's hourly employees are impacted by Federal and
state minimum wage laws. Certain states do not allow tip credits for servers
which results in higher payroll costs as well as greater exposure to increases
in minimum wage rates. In the past, the Company has been able to offset
increases in labor costs through selective menu price increases and
improvements in labor productivity. The Company anticipates that it can offset
future increases in the Federal minimum wage rate through selective menu price
increases. However, there is no assurance that future increases can be
mitigated through raising menu prices.
12
<PAGE> 13
Operating expenses:
Operating expenses, expressed as a percentage of total revenues for the period
decreased 0.2 percentage points. This decrease is primarily due to the
elimination of certain outside service expenses, reduced preopening
amortization costs, the impact of increased comparable sales and lower
franchise opening costs due to a decrease in new franchise store openings.
These increases were partially offset by increased Foxtail distribution costs.
General and administrative:
General and administrative expenses increased 0.2 percentage points. This
increase is primarily due to higher incentive compensation costs and
administrative support related to both the growth at Foxtail and anticipated
growth in the number of Company-operated and franchised restaurants expected to
open in 1999.
Depreciation and amortization:
Depreciation and amortization expense increased approximately 6.7% over the
same period last year due primarily to the addition of new Company-operated
restaurants and the Company's continuing refurbishment program to upgrade and
maintain existing restaurants.
Interest, net:
Interest expense increased 1.6% over the same period last year due to
additional borrowings in 1999. Average borrowings during the first quarter of
1998 were below typical levels due to the delay in Unitholders redeeming their
Units as a result of the Going Private Transaction on December 22, 1997.
Other:
Results of operations for the three months ended March 31, 1999 reflect a
$528,000 cumulative effect of change in accounting principle charge against
earnings related to the adoption of SOP 98-5 "Reporting on the Costs of
Start-Up Activities," which requires the costs of start-up activities to be
expensed as incurred. Prior to 1999, the Company deferred new store preopening
costs and amortized them over the twelve months following the opening of the
restaurant.
Results of operations for the three months ended March 31, 1998 reflect a
$500,000 non-cash charge against earnings related to the write-down of certain
assets impaired under SFAS No. 121. In addition, the Company recorded a net
loss in the prior year of $400,000 related to the disposition of assets; this
amount included a loss of approximately $845,000 on the disposal of two
properties 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.
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. In recent years, the Company has upgraded
computer hardware and software in the normal course of business to Year 2000
compliant technology. The Company 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 nature of the Company's business is such that the ability of outside
vendors to supply the Company's restaurants with food and related products and
preparedness of the Company's franchisees to appropriately assess
13
<PAGE> 14
and address Year 2000 business risks represent the primary risks to the Company
from third parties. In response to these risks, questionnaires have been sent
to all of the Company's primary vendors to obtain reasonable assurances that
adequate plans are being developed to address the Year 2000 issue. The returned
questionnaires are being assessed by the Company, and are being categorized
based upon readiness for the Year 2000 issues and prioritized in order of
significance to the business of the Company. In the case of outside vendors
which provide inadequate assurance of their readiness to handle Year 2000
issues, appropriate contingency plans will be developed. The Company's
franchisees have been provided with information regarding the potential
business risks associated with the Year 2000 issue. The Year 2000 readiness of
significant franchisees is being assessed and action plans will be created to
address the identified risks.
Unless public suppliers of water, electricity and natural gas are disrupted for
a substantial period of time (in which case the Company's business may be
materially adversely affected), based on information currently available,
management believes the most reasonably likely worst case scenario related to
Year 2000 compliance would not have a material impact on its financial position
or results of operations. However, unanticipated failures by critical vendors
or franchisees, as well as unidentified internal failures, could result in a
material adverse effect on the Company's operations. As a result, management
cannot reasonably predict what impact, if any, Year 2000 issues will have on
the Company.
CAPITAL RESOURCES AND LIQUIDITY
Principal uses of cash during the first quarter ended March 31, 1999, were
capital expenditures, payment of 1998 incentive compensation awards, and
distributions to partners to pay 1998 taxable income allocations. Capital
expenditures consisted primarily of equipment purchases for new
Company-operated restaurants and costs related to remodels of existing
restaurants. Although no new restaurants were opened in the first quarter of
1999, four sites were under development. The Company's primary sources of
funding were revolving credit borrowings and cash provided by operations.
The following table summarizes capital expenditures for each of the years in
the three-year period ended December 31, 1998 and the three months ended March
31, 1999 and 1998 respectively:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31 March 31
----------------------------- ------------------
1998 1997 1996 1999 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Maintenance $ 4,141 $ 3,453 $ 2,987 $ 387 $ 387
New sites 12,845 6,193 1,947 1,085 1,646
Manufacturing 1,152 714 651 217 443
Remodeling and Reimaging 4,144 2,790 4,064 974 858
Other 2,864 1,936 2,209 575 655
------- ------- ------- ------- -------
Total Capital Expenditures $25,146 $15,086 $11,858 $ 3,238 $ 3,989
======= ======= ======= ======= =======
</TABLE>
The Company's capital budget for 1999 is $28.0 million. The Company plans to
add six to eight new full-service Company-operated restaurants in 1999. The
remaining capital budget will be primarily applied to remodels of existing
restaurants, restaurant maintenance and improvements to the Company's
infrastructure equipment. The
14
<PAGE> 15
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 Company 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 Company's revolving
line of credit, purchase Units from the public and pay expenses relative to the
Going Private Transaction.
On December 22, 1997, the Company obtained a secured $50,000,000 revolving line
of credit facility (the "Credit Facility") with a sublimit for up to $5,000,000
of letters of credit. The Credit Facility 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. All indebtedness under the Credit Facility is
secured by a first priority lien on substantially all of the assets of the
Company. As of March 31, 1999, $5,000,000 in borrowings and approximately
$1,600,000 of letters of credit were outstanding under the facility.
Prior to the consummation of the Going Private Transaction the Company had paid
regular quarterly cash distributions. The Company expects to pay distributions
to its general partner and limited partners sufficient to satisfy estimated tax
liabilities arising out of the allocation of taxable income or gain from the
Company. The Senior Note Indenture and the Credit Facility otherwise limit the
Company's ability to pay distributions to its partners.
The Company's ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance, its indebtedness
(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 Company's liquidity needs for the foreseeable future. The Company 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 Company 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
Company to service its indebtedness, including the Notes, or to fund its other
liquidity needs. In addition, there can be no assurance that the Company will
be able to effect any such refinancing on commercially reasonable terms or at
all.
SEASONALITY
Company revenues are subject to seasonal fluctuations. Customer 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.
15
<PAGE> 16
Forward-Looking Statements
This discussion contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements are based on current expectations that are subject to known and
unknown risks, uncertainties and other factors that could cause actual results
to differ materially from those contemplated by the forward-looking statements.
Such factors include, but are not limited to, the following: general economic
conditions, competitive factors, consumer taste and preferences and adverse
weather conditions. The Company does not undertake to publicly update or revise
the forward-looking statements even if experience or future changes make it
clear that the projected results expressed or implied therein will not be
realized.
ITEM 2A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk.
The Company currently has market risk sensitive instruments related to interest
rates. The Company is not subject to significant exposure for changing interest
rates on its $130,000,000 Unsecured Senior Notes because the interest rate is
fixed at 10.125%. The Company has in place a $50,000,000 line of credit
facility which matures on January 1, 2003. All borrowings under the facility
bear interest at floating rates based on the agent's base rate or Eurodollar
rates. The Company had $5,000,000 outstanding under the line of credit facility
at March 31, 1999. While changes in market interest rates would affect the cost
of funds borrowed in the future, the Company believes that the effect, if any,
of reasonably possible near-term changes in interest rates on the Company's
consolidated financial position, results of operations or cash flows would not
be material.
Commodity Price Risk.
Many of the food products purchased by the Company are affected by commodity
pricing and are, therefore, subject to price volatility caused by weather,
production problems, delivery difficulties and other factors which are outside
the control of the Company. The Company's supplies and raw materials are
available from several sources and the Company is not dependent upon any single
source for these items. If any existing suppliers fail, or are unable to
deliver in quantities required by the Company, the Company believes that there
are sufficient other quality suppliers in the marketplace that its sources of
supply can be replaced as necessary. At times, the Company enters into purchase
contracts of one year or less or purchases bulk quantities for future use of
certain items in order to control commodity pricing risks. Certain significant
items that could be subject to price fluctuations are beef, pork, coffee, eggs,
wheat products and corn products. The Company believes it will be able to pass
through increased commodity costs by adjusting menu pricing in most cases.
Additionally, the Company's product offerings and marketing events are
relatively diverse. Therefore the company has the flexibility to adjust its
product mix to take advantage of or limit exposure to commodity cost
fluctuations. The Company believes that any changes in commodity pricing which
cannot be offset by changes in menu pricing, or other product delivery
strategies, would not be material.
16
<PAGE> 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Reference is made to the Index of Exhibits attached hereto as
page 18 and made a part hereof.
(b) Reports on Form 8-K - None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERKINS FAMILY RESTAURANTS, L.P.
BY: PERKINS MANAGEMENT COMPANY, INC.,
GENERAL PARTNER
DATE: May 14, 1999 BY: /s/ Steven R. McClellan
------------ ----------------------------------
Steven R. McClellan
Executive Vice President and
Chief Financial Officer
BY: /s/ Louis C. Jehl
---------------------------------
Louis C. Jehl
Vice President, Controller
17
<PAGE> 18
Exhibit Index
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE UNAUDITED
BALANCE SHEET AS OF MARCH 31, 1999 AND FROM THE STATEMENT OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,416
<SECURITIES> 0
<RECEIVABLES> 7,611
<ALLOWANCES> 807
<INVENTORY> 4,827
<CURRENT-ASSETS> 15,914
<PP&E> 249,097
<DEPRECIATION> 119,014
<TOTAL-ASSETS> 200,736
<CURRENT-LIABILITIES> 33,037
<BONDS> 139,912
0
0
<COMMON> 0
<OTHER-SE> 23,341
<TOTAL-LIABILITY-AND-EQUITY> 200,736
<SALES> 68,364
<TOTAL-REVENUES> 73,366
<CGS> 19,339
<TOTAL-COSTS> 57,349
<OTHER-EXPENSES> 15,628
<LOSS-PROVISION> 179<F1>
<INTEREST-EXPENSE> 3,609
<INCOME-PRETAX> 389
<INCOME-TAX> 0
<INCOME-CONTINUING> 389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (528)
<NET-INCOME> (139)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<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>
