================================================================================
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
or
Transition Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the quarterly period ended October 2, 1994 Commission file number 0-7961
TPI ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-1899681
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
777 South Flagler Drive
Phillips Point East Tower, Suite 909 33401
West Palm Beach, Florida (Zip Code)
(Address of principal
executive office)
Registrant's telephone number, including area code: (407) 835-8888
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Par Value $.01 per Share
---------------------------------------------
(Title of Class)
Indicate by check mark 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
----- ------
The number of shares outstanding of the registrant's common stock
is 20,379,066 (as of November 8, 1994).
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<PAGE>
PART I - FINANCIAL INFORMATION
Companies for which information is furnished:
TPI Enterprises, Inc.
Telecom Plus Shared Tenants Services, Inc.
Maxcell Telecom Plus, Inc.
Maxcell Telecom Plus of Rhode Island, Inc. (2)
TPI Restaurants, Inc.
Shoney's Construction, Inc. (1)
Mid-South Restaurant Distributors, Inc. (1)
Danver's International, Inc. (1)
The Insurex Agency, Inc. (1)
Insurex Benefit Administrators, Inc. (1)
TPI Entertainment, Inc.
TPI West Palm, Inc. (1)
TPI Commissary, Inc. (1)
TPI Transportation, Inc. (1)
TPI Insurance Corporation
(1) Wholly-owned subsidiary of TPI Restaurants, Inc.
(2) Wholly-owned subsidiary of Maxcell Telecom Plus, Inc.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE><CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 2, December 26,
1994 1993
ASSETS (Dollars in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 19,551 $ 16,664
Accounts receivable-trade . . . . . . . . . . . . . . . . . . . . . . . 1,225 984
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,494 11,424
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . 6,757 6,734
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,003 5,514
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 43,030 41,320
---------- ----------
Property and equipment (at cost) . . . . . . . . . . . . . . . . . . . . 241,709 232,240
Less accumulated depreciation and amortization . . . . . . . . . . . . 68,383 57,802
Less allowance for unit closings . . . . . . . . . . . . . . . . . . . 16,631 18,695
---------- ----------
156,695 155,743
---------- ----------
Other assets:
Goodwill (net of accumulated amortization of $7,857
in 1994 and $6,873 in 1993) . . . . . . . . . . . . . . . . . . . . . . 37,970 38,954
Other intangible assets (net of accumulated
amortization of $4,714 in 1994 and $3,420 in 1993) . . . . . . . . . . 20,346 21,923
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 696 899
---------- ----------
59,012 61,776
---------- ----------
$ 258,737 $ 258,839
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . $ 1,721 $ 1,728
Accounts payable-trade . . . . . . . . . . . . . . . . . . . . . . . . 15,381 19,910
Accrued expenses and other current liabilities . . . . . . . . . . . . 35,100 29,829
Income taxes currently payable . . . . . . . . . . . . . . . . . . . . 344 649
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 52,546 52,116
---------- ----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,940 106,773
---------- ----------
Reserve for restructuring . . . . . . . . . . . . . . . . . . . . . . . . 14,096 20,230
---------- ----------
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 6,757 6,734
---------- ----------
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,272 2,427
---------- ----------
Commitments and contingencies
Shareholders' equity:
Preferred shares - no par value - authorized -
20,000,000 shares; none issued and outstanding . . . . . . . . . . . --- ---
Common shares - $.01 par value - authorized -
100,000,000 shares; issued - 33,218,933 shares in
1994 and 33,118,614 shares in 1993 . . . . . . . . . . . . . . . . . 332 331
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 226,046 225,417
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,307) (85,244)
----------- -----------
141,071 140,504
Less treasury stock, at cost, 12,846,094 common shares in 1994 and
1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,945 69,945
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . 71,126 70,559
---------- ----------
$ 258,737 $ 258,839
========== ==========
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE><CAPTION>
Twelve Weeks Ended Forty Weeks
Ended
Oct. 2, Oct. 3, Oct. 2 Oct. 3,
1994 1993 1994 1993
(In thousands,except per share data)
<S> <C> <C> <C> <C>
Restaurant revenues . . . . . . . . . . . . . . . . . . . $67,325 $70,326 $223,452 $225,309
------- ------- -------- --------
Costs and expenses:
Food, supplies and uniforms . . . . . . . . . . . . . . 24,308 24,526 79,178 78,832
Restaurant labor and benefits . . . . . . . . . . . . . 20,651 20,989 67,377 66,353
Restaurant depreciation and amortization . . . . . . . 3,098 3,248 10,710 10,205
Other restaurant operating expenses . . . . . . . . . . 12,701 12,208 40,560 38,463
General and administrative expenses . . . . . . . . . . 5,194 6,040 17,657 18,647
Other . . . . . . . . . . . . . . . . . . . . . . . . . 257 (98) 457 385
------- -------- -------- --------
66,209 66,913 215,939 212,885
------- ------- -------- --------
Operating income . . . . . . . . . . . . . . . . . . . . 1,116 3,413 7,513 12,424
------- ------- -------- --------
Other income and expenses:
Interest income . . . . . . . . . . . . . . . . . . . . 80 119 233 479
Interest expense . . . . . . . . . . . . . . . . . . . (2,442) (2,364) (7,809) (8,352)
-------- -------- --------- ---------
(2,362) (2,245) (7,576) (7,873)
-------- -------- --------- ---------
Income (loss) from continuing operations
before provision for income taxes . . . . . . . . . . . (1,246) 1,168 (63) 4,551
Provision for income taxes . . . . . . . . . . . . . . . --- 677 --- 1,959
------- ------- -------- --------
Income (loss) from continuing operations . . . . . . . . (1,246) 491 (63) 2,592
Gain on disposal of discontinued
operations, net of income taxes . . . . . . . . . . . . --- 85 --- 6,200
------- ------- -------- --------
Net income (loss) . . . . . . . . . . . . . . . . . . . . $(1,246) $ 576 $ (63) $ 8,792
======== ======= ========= ========
Earnings per share:
Primary:
Continuing operations . . . . . . . . . . . . . . . . . $ (0.06) $ 0.02 $ 0.00 $ 0.13
Discontinued operations . . . . . . . . . . . . . . . . --- 0.01 --- 0.31
------- ------- -------- --------
Net income (loss) per common share . . . . . . . . . $ (0.06) $ 0.03 $ 0.00 $ 0.44
======== ======= ======== ========
Weighted average number of common and
common equivalent shares outstanding . . . . . . . . . 20,377 20,771 20,425 20,100
======= ======= ======== ========
Fully diluted:
Continuing operations . . . . . . . . . . . . . . . . . $ (0.06) $ 0.02 $ 0.00 $ 0.16
Discontinued operations . . . . . . . . . . . . . . . . --- 0.01 --- 0.21
------- ------- -------- --------
Net income (loss) per common share . . . . . . . . . $ (0.06) $ 0.03 $ 0.00 $ 0.37
======== ======= ======== ========
Weighted average number of common and
common equivalent shares outstanding . . . . . . . . . 20,377 20,771 20,425 29,492
======= ======= ======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE><CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Forty Weeks Ended
Oct.2, Oct. 3,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (63) $ 8,792
--------- --------
Adjustments to reconcile net income to net cash
provided:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 14,159 14,246
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . --- 1,379
(Gain) loss on disposal of assets . . . . . . . . . . . . . . . . . (445) ---
Gain on disposal of discontinued operations . . . . . . . . . . . . --- (6,200)
Changes in assets and liabilities:
Accounts receivable-trade . . . . . . . . . . . . . . . . . . . . . (241) 29
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,070) 1,577
Other current assets . . . . . . . . . . . . . . . . . . . . . . . 1,906 (556)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (665) (994)
Accounts payable-trade . . . . . . . . . . . . . . . . . . . . . . (4,529) 378
Accrued expenses and other current liabilities . . . . . . . . . . 2,323 (2,186)
Income taxes currently payable . . . . . . . . . . . . . . . . . . (305) (1,955)
Reserve for restructuring . . . . . . . . . . . . . . . . . . . . . (3,186) (1,219)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (155) 192
---------- --------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . 7,792 4,691
--------- --------
Net cash provided by operating activities . . . . . . . . . . . . . 7,729 13,483
--------- --------
Cash flows from investing activities:
Acquisition of property and equipment . . . . . . . . . . . . . . . . . . (16,121) (29,046)
Acquisition of businesses . . . . . . . . . . . . . . . . . . . . . . . . --- (4,554)
Disposition of property and equipment . . . . . . . . . . . . . . . . . . 5,863 1,454
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 (418)
--------- --------
Net cash used in investing activities . . . . . . . . . . . . . . . . (10,139) (32,564)
---------- ---------
Cash flows from financing activities:
Common shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . 477 16,442
Proceeds of 5% Senior Subordinated Debentures . . . . . . . . . . . . . . --- 15,000
Net proceeds (payments) on Credit Facilities . . . . . . . . . . . . . . 6,200 (27,650)
Other long-term debt payments . . . . . . . . . . . . . . . . . . . . . . (1,380) (4,927)
---------- ---------
Net cash provided by (used in) financing activities . . . . . . . . . 5,297 (1,135)
--------- ---------
Net cash provided by (used in) continuing operations . . . . . . . . . . . 2,887 (20,216)
--------- ---------
Net cash provided by discontinued operations . . . . . . . . . . . . . . . --- 16,078
--------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 2,887 (4,138)
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . 16,664 21,020
--------- --------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . $ 19,551 $ 16,882
========= ========
Supplemental Disclosure of Cash Flow Information:
Non cash transactions:
Conversion of 8 1/4% Subordinated Debentures . . . . . . . . . . . . . . $ 165 $ ---
Capitalized lease obligations entered into . . . . . . . . . . . . . . . 505 3,029
Note receivable - Danvers . . . . . . . . . . . . . . . . . . . . . . . --- 200
Liabilities assumed in acquisitions of properties . . . . . . . . . . . --- 1,088
Common stock issued in acquisitions of properties . . . . . . . . . . . --- 895
Cash payments (refunds) during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,463 8,616
Interest capitalized . . . . . . . . . . . . . . . . . . . . . . . . . (77) (150)
Income taxes paid (refunded) . . . . . . . . . . . . . . . . . . . . . (2,195) 2,641
See notes to consolidated financial statements.
</TABLE>
5
<PAGE>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of October 2, 1994 and the consolidated
statements of operations and cash flows for the periods ended October 2, 1994
and October 3, 1993, have been prepared by the Company without audit. Certain
amounts appearing for the period ended October 3, 1993 have been reclassified to
conform to the presentation for the period ended October 2, 1994. In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the consolidated financial position at
October 2, 1994 and the consolidated results of operations and consolidated cash
flows for the periods ended October 2, 1994 and October 3, 1993, have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These financial statements should be read in
conjunction with the 1993 audited financial statements of the Company included
in its Annual Report on Form 10-K for the year ended December 26, 1993. The
results of operations for the twelve week and forty week periods ended October
2, 1994 are not necessarily indicative of the operating results for the full
year.
6
<PAGE>
NOTE 2 - NET INCOME (LOSS) PER COMMON SHARE
Primary earnings per share amounts are computed by dividing net income by
the weighted average number of common and common equivalent shares (dilutive
options and warrants) outstanding during the period. The Company's common
equivalent shares are excluded from the computation for the twelve week periods
ended October 2, 1994 and October 3, 1993 due to their antidilutive effect
during these periods.
Fully diluted earnings per share amounts are similarly computed, but also
include the effect, when dilutive, of the Company's 8 1/4% Convertible
Subordinated Debentures and 5% Convertible Senior Subordinated Debentures, after
the elimination of the related interest requirements, net of income taxes. The
Company's convertible debentures are excluded from the computation for the
twelve week and forty week periods ended October 2, 1994 due to their
antidilutive effect during these periods. The Company's common equivalent
shares are excluded from the computation for the twelve week period ended
October 2, 1994 due to their antidilutive effect during the period.
Earnings per share amounts are computed for the quarters ended October 2,
1994 and October 3, 1993 as follows:
Twelve Weeks Twelve Weeks
Ended Ended
October 2, 1994 October 3, 1993
---------------- ----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Income:
- -------
Income (loss) from continuing operations $(1,246) $(1,246) $ 491 $ 491
Interest (less tax) on convertible
debentures . . . . . . . . . . . . . . --- --- --- ---
------- ------ ------- -------
Adjusted income (loss) from continuing
operations . . . . . . . . . . . . . . (1,246) (1,246) 491 491
Discontinued operations . . . . . . . . . --- --- 85 85
------- ------ ------- -------
$(1,246) $(1,246) $ 576 $ 576
======== ======== ======= =======
Number of shares:
- -----------------
Weighted average shares outstanding . . . 20,377 20,377 20,771 20,771
Incremental shares for outstanding stock
options . . . . . . . . . . . . . . . . --- --- --- ---
Shares issued upon conversion of
debentures . . . . . . . . . . . . . . --- --- --- ---
------- ------ ------- -------
20,377 20,377 20,771 20,771
======= ====== ======= =======
7
<PAGE>
Earnings per share amounts are computed for the forty weeks ended October 2,
1994 and October 3, 1993 as follows:
Forty Weeks Ended Forty Weeks Ended
October 2, 1994 October 3, 1993
---------------- -----------------
Fully Fully
Primary Diluted Primary Diluted
------- ------- ------- -------
Income:
- -------
Income (loss) from continuing operations $ (63) $ (63) $ 2,592 $ 2,592
Interest (less tax) on convertible
debentures . . . . . . . . . . . . . --- --- --- 2,104
------- ------- ------- -------
Adjusted income (loss) from continuing
operations . . . . . . . . . . . . . (63) (63) 2,592 4,696
Discontinued operations . . . . . . . . --- --- 6,200 6,200
------- ------- ------- -------
$ (63) $ (63) $ 8,792 $10,896
======== ======== ======= =======
Number of shares:
- -----------------
Weighted average shares outstanding . . 20,425 20,425 19,431 19,431
Incremental shares for outstanding stock
options . . . . . . . . . . . . . . --- --- 669 736
Shares issued upon conversion of
debentures . . . . . . . . . . . . . --- --- --- 9,325
------- ------- ------- -------
20,425 20,425 20,100 29,492
======= ======= ======= =======
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Continuing operations primarily includes the results of TPI Restaurants, Inc.
("Restaurants"), whose revenues are derived from restaurant sales. The first
quarterly reporting period consists of 16 weeks and the remaining three quarters
are 12 weeks each. The restaurant business is seasonal in nature with the
second and third fiscal quarters (Spring and Summer) having higher weekly sales
volumes than the first and fourth quarters.
Results of Operations
Year to Date 1994 Compared to Year to Date 1993
Revenues
Revenues for 1994 decreased to $223,452,000, 0.8% less than the $225,309,000
earned last year. New restaurants accounted for $22,003,000 of 1994 revenues,
while comparable store sales declined $7,526,000, or 4.6%, in the Shoney's
concept and increased $2,159,000, or 6.4%, in the Captain D's concept. The
first twelve weeks of new restaurants' operations are excluded from the
comparable store sales computation. The Company's operating results include 182
Shoney's and 68 Captain D's units operating at October 2, 1994 compared to 198
Shoney's and 71 Captain D's operating at October 3, 1993.
Revenues for 1993 include $18,493,000 relating primarily to 31
underperforming units, which were either closed subsequent to the second quarter
of 1993 or were scheduled to be closed in accordance with the Company's
restructuring plan adopted in 1993. Revenues and expenses related to these units
have been excluded from the 1994 statement of operations. To date, 23 units
included in the restructuring plan have been closed and management is currently
reassessing the timing for closing the remaining eight units. Income before
taxes in 1993 includes losses of approximately $500,000 related to these units.
The Company has taken steps to address the decline in comparable store sales
and to improve the Shoney's concept. Training efforts have been significantly
increased in every region to improve customer service. The Company is testing a
new menu design and several new menu items in certain markets. The Company is
closely monitoring the impact of these new menu items and related advertising
before introducing these items system-wide. The Company completed a new
restaurant remodel prototype in one of its stores in early August. In addition,
two less expensive versions of this prototype were also completed in August with
positive initial results. The Company continues to monitor its return on
investment on these remodels as well as the remodeling program being undertaken
at Shoney's, Inc., before moving forward with construction of new Shoney's
restaurants and major remodels.
9
<PAGE>
Costs and Expenses
Cost of sales includes food, supplies and uniforms, restaurant labor and
benefits, restaurant depreciation and amortization, and other restaurant
operating expenses. A summary of cost of sales as a percentage of revenues for
1994 and 1993 is shown below.
==============================================================================
1994 1993
- ------------------------------------------------------------------------------
Food, supplies and uniforms 35.4% 35.0%
Restaurant labor and benefits 30.1% 29.4%
Restaurant depreciation and amortization 4.8% 4.5%
Other restaurant operating expenses 18.2% 17.1%
- ------------------------------------------------------------------------------
88.5% 86.0%
==============================================================================
The Company has experienced price increases in several high volume
commodities, including pork, vegetable shortening and shrimp during the 1994
year-to-date period. These increases were partially offset by decreases in
white fish prices, which has resulted in a decrease in food costs as a
percentage of revenues in the Company's Captain D's restaurants. In an effort
to improve customer service, staffing levels have been increased in the
Company's Shoney's restaurants, resulting in increased labor costs as a
percentage of sales. Restaurant labor and benefits was also impacted by an
increase in workers' compensation insurance expense of $916,000, or 0.4% as a
percentage of revenue. Other restaurant operating expenses includes an increase
in insurance expense of 0.4% as a percentage of revenues, or $830,000. As
discussed in its 1993 Annual Report on Form 10-K, the Company made a significant
fourth quarter adjustment to its workers' compensation and general liability
insurance reserves based on improved data available to the Company for assessing
its potential exposure. The Company continues to recognize workers'
compensation and general liability insurance expense at a higher rate than in
the prior year to better reflect the likely outcome of its liability. The
Company has undertaken a program to address the increase in insurance costs,
including, among other things, the installation of a risk management information
system, utilization of a new floor chemical to prevent slips and falls and use
of plastic instead of glass in the kitchen where possible. In addition, the
increase in other restaurant operating costs includes .4% relating to repairs
and maintenance. The Company is currently in the process of designing and
implementing programs, including the use of more national contracts for
services, to address these rising costs. Most restaurant operating expenses,
including depreciation and amortization, repairs and maintenance, utilities,
franchise fees, and property taxes, are relatively fixed, and accordingly, a
decrease in comparable store sales results in an unfavorable margin impact.
General and administrative expenses have decreased $990,000 resulting from
savings relating to the restructuring activities at the end of 1993, including
reductions in field management and corporate staff, termination of the Company's
pension plan and reductions in senior level compensation.
10
<PAGE>
Other costs and expenses have increased $72,000 primarily as a result of the
decline in profits from the Company's insurance operations.
Other Income and Expenses
Interest income decreased $246,000 due to the unusually high amount of cash
on hand in the prior year following the investment in the Company by the Airlie
Group L.P. and certain related parties on March 19, 1993. Interest expense
decreased by $543,000, with $399,000 relating to interest on capital leases
included in the restructuring reserve and an additional $251,000 due to the
termination of the Company's retirement plan at the end of 1993.
Third Quarter 1994 Compared to Third Quarter 1993
Revenues
Revenues for 1994 decreased to $67,325,000, 4.3% less than the $70,326,000
earned last year. New restaurants accounted for $3,758,000 of 1994 revenues,
while comparable store sales declined $1,984,000, or 3.8%, in the Shoney's
concept and increased $614,000, or 6.0%, in the Captain D's concept. Revenues
for 1993 include $5,389,000 relating primarily to 31 underperforming units,
which were either closed subsequent to the second quarter of 1993 or were
scheduled to be closed in accordance with the Company's restructuring plan.
Income before taxes in 1993 includes losses of approximately $264,000 relating
to these units.
Costs and Expenses
Cost of sales includes food, supplies and uniforms, restaurant labor and
benefits, restaurant depreciation and amortization, and other restaurant
operating expenses. A summary of cost of sales as a percentage of revenues for
1994 and 1993 is shown below.
==============================================================================
1994 1993
- ------------------------------------------------------------------------------
Food, supplies and uniforms 36.1% 34.9%
Restaurant labor and benefits 30.7% 29.8%
Restaurant depreciation and amortization 4.6% 4.6%
Other restaurant operating expenses 18.9% 17.4%
- ------------------------------------------------------------------------------
90.3% 86.7%
==============================================================================
During the third quarter of 1994, the Company experienced price increases in
several high volume commodities, including vegetable shortening and shrimp. In
addition, the Company's menu included certain value-priced promotions during the
11
<PAGE>
quarter resulting in a higher than average percentage food cost. Staffing levels
have been increased in the Shoney's stores in an effort to improve customer
service, resulting in an increase in store labor costs. Restaurant labor and
benefits also includes an increase in workers' compensation insurance expense of
$155,000, or 0.3% as a percentage of revenue. Most restaurant operating
expenses, including depreciation and amortization, repairs and maintenance,
utilities, franchise fees, and property taxes, are relatively fixed, and
accordingly, a decrease in same store sales results in an unfavorable margin
impact. In addition to the effect of the decline in comparable store sales, the
increase in other restaurant operating expenses reflects an increase in
insurance expense of 0.4% as a percentage of revenues, or $213,000, an increase
in repairs and maintenance of 0.5% as a percentage of revenues, or $252,000, and
an increase in advertising costs of 0.6% as a percentage of revenues, or
$290,000. See discussion of insurance reserves and repairs and maintenance in
the year to date discussion above. The increase in advertising is the result of
increased efforts to improve sales trends.
General and administrative expenses have decreased $846,000 due primarily to
the restructuring activities at the end of 1993 involving reductions in field
management and corporate staff, termination of the pension plan and reductions
in senior level compensation. Other costs and expenses, net, increased $355,000
primarily as a result of a $77,000 decline in profits of the Company's insurance
operations and a gain on the disposition of assets in the prior year of
$260,000.
Other Income and Expenses
Interest expense increased by $78,000 compared to the same quarter of the
prior year. An increase in the Company's weighted average debt outstanding was
somewhat offset by decreases of $141,000 relating to interest on capital leases
included in the restructuring reserve and $84,000 due to the termination of the
Company's retirement plan at the end of 1993.
Income taxes
The Company has no provision for income taxes in 1994 due to the utilization
of net operating loss and alternative minimum tax carryforwards.
Liquidity and Capital Resources
The Company has a working capital deficit of $9,516,000 at October 2, 1994
compared to a working capital deficit at December 26, 1993 of $10,796,000.
Approximately 92% of the Company's restaurant sales are for cash and the
remainder are for credit card receivables which are generally collected within 3
days. Because the Company's payables, including amounts for inventory and other
operating expenses, are paid over a longer period of time, it is not unusual for
the Company, like many others in the restaurant industry, to operate with a
working capital deficit. Furthermore, the Company uses available cash for
capital spending or repayment of advances under its revolving credit facility.
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Operating Activities
Net cash provided by operating activities decreased $5,754,000 to $7,729,000
in 1994 from $13,483,000 in 1993. The significant factors contributing to this
net decrease are an increase in inventories of $1,070,000, primarily fish, in
1994 compared to a decrease in inventories of $1,577,000 during the same period
of 1993 and a decrease of $4,529,000 in accounts payable in 1994, including
significant amounts relating to construction payables at the end of 1993,
compared to an increase of $378,000 in 1993. The decrease in the restructuring
reserve in 1994 includes non-recurring payments of $290,000 relating to the
termination of restaurant leases and $700,000 relating to the restructuring of
divisional and corporate overhead. These decreases in cash were partially offset
by the receipt of a federal income tax refund of $2,500,000 in 1994.
As of October 2, 1994, restructuring charges included in accrued expenses and
other current liabilities includes $2,900,000 relating to the consolidation of
the corporate offices and approximately $2,000,000 relating to the ongoing costs
of closed restaurants expected to be expended over the next year. Remaining
costs relating to the consolidation of the corporate offices include
approximately $630,000 for the termination of substantially all of the Memphis
corporate office clerical personnel.
Investing Activities
Net cash used in investing activities decreased $22,425,000 from 1993. The
decrease in cash used is primarily the result of the Company building fewer
restaurants in 1994 compared to 1993. The Company has spent $8,212,000 on new
and replacement stores in 1994, or $20,527,000 less than the $28,739,000 spent
on new and replacement stores and acquisitions in the same period of 1993. Five
new Shoney's, one replacement Shoney's and three new Captain D's were opened in
the first three quarters of 1994, while eighteen Shoney's, including six
acquired stores, and two Captain D's opened during the first three quarters of
1993. In addition, funds used for remodeling of existing stores has decreased
by $3,667,000 to $2,451,000. Cash provided by dispositions of property and
equipment increased from $1,454,000 in 1993 to $5,863,000 in 1994. Proceeds in
1994 include $3,497,000 from the disposal of six restaurants, $1,866,000 from
the sale of excess property and other property and equipment and $500,000 from a
sale-leaseback transaction.
Financing Activities
Financing activities provided $5,297,000 in 1994 compared to $1,135,000 used
in the prior year. The Company used proceeds of $6,200,000 under its credit
facilities and proceeds of $477,000 from the issuance of stock pursuant to
employee stock plans primarily to fund capital expenditures during 1994. On
March 19, 1993, The Airlie Group L.P. and certain related parties made an
investment in the Company which resulted in net proceeds of $29,099,000 from the
issuance of $15,000,000 of convertible debentures and $15,000,000 of common
stock and warrants. These proceeds were used to reduce borrowings under the
Company's credit facilities and pay other long-term debt.
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As of October 2, 1994, the Company had borrowings of $25,200,000 and standby
letters of credit of $10,951,000 outstanding on its $50,000,000 credit facility.
Under the terms of the credit facility, the Company is required to meet certain
financial ratios, which become more stringent as of the end of the fourth
quarter. The Company believes it can obtain waivers in the event of non-
compliance.
Capital Expenditures
The Company currently does not plan to open any additional new restaurants
during the remainder of 1994 and is in the process of finalizing its expansion
and remodel plans for 1995. The Company plans to complete the development and
installation of point-of-sale and back office computer systems at its Captain
D's restaurants for a total cost of approximately $1,500,000, with half of the
restaurants to be converted to the new systems by the end of 1994. The Company
believes it will be able to provide funds for capital expenditures through its
cash flow from operations and borrowings on the credit facility.
The Company has currently postponed further new construction and major
remodels of Shoney's restaurants, while monitoring and evaluating the operating
results of a new remodel prototype completed in early August 1994, two less
expensive versions of the remodel prototype completed in August and the
Shoney's, Inc. remodeling program as well as other current initiatives intended
to improve Shoney's sales. The Company believes that if the operating results of
the Shoney's concept improve there is potential to expand its Shoney's and
Captain D's restaurants within its existing markets as well as within the other
areas in which the Company has been granted exclusive rights by Shoney's, Inc.
In order to maintain the exclusive rights to certain reserved areas, the Company
has entered into various development agreements to open restaurants over defined
periods of time. The Company has satisfied its construction requirements
through the end of 1994. Subsequent to 1994, these agreements require the
construction of an additional 34 Shoney's prior to April 6, 2003, and 34 Captain
D's prior to July 31, 2011.
Management believes sufficient funds will be available from cash on hand,
cash flows from operations, borrowings under the credit facility and future
financing of properties to meet its debt service requirements, as well as its
working capital and capital expenditure requirements in the foreseeable future.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Maxcell Telecom Plus, Inc., et al., v. McCaw Cellular Communications, Inc.,
et al.
On November 1, 1993, the Company and its wholly-owned subsidiary, Maxcell
Telecom Plus, Inc.("Maxcell"), filed a complaint in the Circuit Court of the
Fifteenth Judicial Circuit in and for Palm Beach County, Florida. On August 23,
1994, the Company received a favorable ruling on the Defendants' Joint Motions
for Partial Reconsideration of the Order Denying Stay of Litigation in Maxcell's
case against McCaw Cellular Communications, Inc. ("McCaw") and former
shareholders of Charisma Communications Corporation ("Charisma"). McCaw and
Charisma had filed Motions to Stay the Florida litigation in favor of other
litigation pending between Charisma and McCaw in the U.S. District Court for the
District of Columbia. On June 29, 1994, that Motion was denied by the Florida
court. In July, McCaw and Charisma jointly filed motions to reconsider that
decision. The ruling on August 23, 1994 denied the July Motion in favor of
Maxcell. Maxcell's case is expected to proceed in Florida. The litigation is
still in its early stages and there can be no assurance as to what the ultimate
outcome will be.
The Company and its subsidiaries are defendants in various lawsuits arising
in the ordinary course of business. It is the opinion of the management of the
Company that the outcome of such litigation will not have a significant adverse
effect on the consolidated financial statements.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
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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.
TPI Enterprises, Inc.
(Registrant)
Date: November 15,1994 /s/ J. Gary Sharp
----------------------------
J. Gary Sharp
President & Chief
Executive Officer
Date: November 15,1994
/s/ Frederick W. Burford
----------------------------
Frederick W. Burford
Executive Vice President &
Chief Financial Officer
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