<PAGE> 1
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 1, 1995 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.)
3950 RCA BOULEVARD
SUITE 5001
PALM BEACH GARDENS, FLORIDA 33410
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (407) 691-8800
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
20,495,948 as of November 7, 1995.
<PAGE> 2
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.
TPI Restaurants, Inc.
The Insurex Agency, Inc. (1)
Insurex Benefit Administrators, Inc. (1)
TPI Entertainment, Inc.
TPI West Palm, Inc.
TPI Commissary, Inc. (1)
TPI Transportation, Inc. (1)
TPI Insurance Corporation
(1) Wholly-owned subsidiaries of TPI Restaurants, Inc.
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 25,
1995 1994
---------------------------
ASSETS (DOLLARS IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 6,146 $ 17,228
Accounts receivable-trade . . . . . . . . . . . . . . . . . . . . . . 1,202 806
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,658 11,969
Deferred tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . 5,566 5,666
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 3,830 3,256
-------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . 29,402 38,925
-------- ---------
Property and equipment (at cost) . . . . . . . . . . . . . . . . . . . . . . . 239,261 240,394
Accumulated depreciation and amortization . . . . . . . . . . . . . . (78,943) (70,401)
Allowance for unit closings . . . . . . . . . . . . . . . . . . . . . . . . (10,066) ( 12,430)
-------- ---------
150,252 157,563
-------- ---------
Other assets:
Goodwill (net of accumulated amortization of $9,136 in 1995 and $8,152
in 1994) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,691 37,675
Other intangible assets (net of accumulated amortization of $5,993 in
1995 and $5,157 in 1994) . . . . . . . . . . . . . . . . . . . . . . . 18,800 19,726
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 593 607
-------- ---------
56,084 58,008
-------- ---------
$235,738 $ 254,496
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . $ 17,103 $ 3,725
Accounts payable-trade . . . . . . . . . . . . . . . . . . . . . . . . 14,740 15,565
Accrued expenses and other current liabilities . . . . . . . . . . . . 37,749 36,889
Income taxes currently payable . . . . . . . . . . . . . . . . . . . . 645 718
-------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . 70,237 56,897
-------- ---------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,365 107,721
-------- ---------
Reserve for restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,330 14,735
-------- ---------
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,563 5,663
-------- ---------
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,508 1,910
-------- ---------
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 - 33,305,075 shares in 1995 and 33,241,118 in 1994 . . 333 332
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 226,393 226,144
Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (92,172) (88,961)
-------- ---------
134,554 137,515
Less treasury stock, at cost, 12,820,486 common shares in 1995 and
12,846,094 in 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 69,819 69,945
-------- ---------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 64,735 67,570
-------- ---------
$235,738 $ 254,496
======== =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED FORTY WEEKS ENDED
------------------------------------------------------
OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2,
1995 1994 1995 1994
------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Restaurant revenues . . . . . . . . . . . . . . . $ 65,492 $ 68,086 $216,477 $226,038
--------- --------- -------- --------
Costs and expenses:
Food, supplies and uniforms . . . . . . 23,933 24,588 78,656 80,120
Restaurant labor and benefits . . . . . 21,256 20,909 67,589 68,231
Restaurant depreciation and amortization 2,553 3,130 9,472 10,816
Other restaurant operating expenses . . 13,866 12,870 41,474 41,096
General and administrative expenses . . 5,516 5,216 17,193 17,734
Restructuring. . . . . . . . . . . . . . (3,049) 1 (3,049) 71
--------- --------- -------- --------
64,078 66,971 211,911 218,524
--------- --------- -------- --------
Operating income . . . . . . . . . . . . . . . . 1,414 1,115 4,566 7,514
--------- --------- -------- --------
Other income and expenses:
Interest income . . . . . . . . . . . . (38) (80) (212) (233)
Interest expense . . . . . . . . . . . . 2,399 2,441 7,989 7,810
--------- --------- -------- --------
2,361 2,361 7,777 7,577
--------- --------- -------- --------
Income (loss) from continuing operations before
provision for income taxes . . . . . . . (947) (1,246) (3,211) (63)
Provision for income taxes . . . . . . . . . . . ---- ---- ---- ----
--------- --------- -------- --------
Net loss . . . . . . . . . . . . . . . . . . . . $ (947) $ (1,246) $ (3,211) $ (63)
========= ========= ======= =======
Net loss per common share . . . . . . . . . . . . $ (.05) $ (.06) $ (.16) $ .00
========= ========= ======== =======
Weighted average number of common and
common equivalent shares outstanding . . 20,467 20,377 20,436 20,425
========= ========= ======== =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
--------------------------
OCTOBER 1, OCTOBER 2,
1995 1994
--------------------------
(Dollars in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(3,211) $ (63)
------- -------
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 13,392 14,159
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . ---- ----
Gain on disposal of property and equipment (314) (445)
Changes in assets and liabilities:
Accounts receivable-trade . . . . . . . . . . . . . . . . . . . . . . . . (396) (241)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (689) (1,070)
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (612) 1,906
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (620) (665)
Accounts payable-trade . . . . . . . . . . . . . . . . . . . . . . . . . . (825) (4,529)
Accrued expenses and other current liabilities . . . . . . . . . . . . . . 2,854 2,323
Income taxes currently payable . . . . . . . . . . . . . . . . . . . . . . (73) (305)
Reserve for restructuring . . . . . . . . . . . . . . . . . . . . . . . . (6,779) (3,186)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (401) (155)
------- -------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,537 7,792
------- -------
Net cash provided by operating activities . . . . . . . . . . . . . . . . . 2,326 7,729
------- -------
Cash flows from investing activities:
Acquisition of property and equipment . . . . . . . . . . . . . . . . . . . . . . (5,729) (16,121)
Disposition of property and equipment . . . . . . . . . . . . . . . . . . . . . . 2,222 5,863
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---- 119
------- -------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (3,507) (10,139)
------- -------
Cash flows from financing activities:
Net proceeds (payments) on Credit Facilities . . . . . . . . . . . . . . . . . . (8,600) 6,200
Other long-term debt payments . . . . . . . . . . . . . . . . . . . . . . . . . . (1,551) (1,380)
Common shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250 477
------- -------
Net cash provided by (used in) financing activities . . . . . . . . . . . . . (9,901) 5,297
------- -------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . (11,082) 2,887
------- -------
Cash and cash equivalents, beginning of period . . . . . . . . . . . . . . . . . . 17,228 16,664
------- -------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . . . . . . . $ 6,146 $19,551
======= =======
Supplemental Disclosure of Cash Flow Information:
Non cash transactions:
Capitalized lease obligations entered into . . . . . . . . . . . . . . . . . . $ 365 $ 505
Conversion of 8 1/4 Subordinated Debentures . . . . . . . . . . . . . . . . . ---- 165
Cash payments (refunds) during the quarter for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,818 $ 7,463
Interest capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ---- (77)
Income taxes refunded . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80) (2,195)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172 ----
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
TPI ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets as of October 1, 1995 and the consolidated
statements of operations and cash flows for the periods ended October 1, 1995
and October 2, 1994, have been prepared by the Company without audit. Certain
amounts appearing for the period ended October 2, 1994 have been reclassified
to conform to the presentation for the period ended October 1, 1995. In the
opinion of management, all adjustments necessary to present fairly the
consolidated financial position at October 1, 1995 and the consolidated results
of operations and consolidated cash flows for the periods ended October 1, 1995
and October 2, 1994, 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 1994 audited financial statements of the Company included
in its Annual Report on Form 10-K for the year ended December 25, 1994. The
results of operations for the twelve and forty week periods ended October 1,
1995 and October 2, 1994 are not necessarily indicative of the operating
results for the full year.
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. There were no dilutive
stock options for the twelve and forty weeks ended October 1, 1995 and October
2, 1994.
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 options, warrants and convertible debentures are excluded
from the October 1, 1995 and October 2, 1995 computation due to their
antidilutive effect during these periods.
NOTE 3 - RESTRUCTURE RESERVE
The Company adopted a restructuring plan at the end of the fourth quarter of
1993 which included closing or relocating 31 of its restaurants by the end of
1994, not exercising options to renew leases with respect to an additional 19
of its restaurants upon expiration of the current lease terms, and the
restructuring of divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company has closed 22 restaurants, plans to close two more
restaurants and has determined that 7 restaurants should stay open.
Management is still evaluating the timing of the closing of the two remaining
restaurants.
During the third quarter of 1995, the Company recorded $3.5 million of income
as a change in estimate as a result of management's decision to leave two
restaurants open and due to management being able to buyout of certain leases
at more favorable terms than originally estimated. The Company was also able to
dispose of some locations for amounts in excess of the original estimates. In
addition the restructure was charged $.7 million for expenditures and asset
write-offs related to the other 24 units and for the units closed prior to 1993
and $1.4 million year-to-date. With respect to the 19 restaurants projected to
be closed no later than the expiration of their current lease terms, the
Company has recorded charges of $92,000 year to date.
6
<PAGE> 7
With respect to the Company's restructuring of its divisional management and
consolidation of its corporate offices, the Company provided an additional $.4
million during the quarter and paid out approximately $.5 million and $ 2
million related to the restructure of which $.3 million and $.9 million was for
severance, for the quarter and year-to-date, respectively. The Company expects
to pay the majority of the remaining relocation obligations during 1995 as the
consolidation of the corporate offices is completed.
NOTE 4 - PROPOSED MERGER
On September 3, 1995, the Company entered into a letter of intent
(subsequently amended by letter dated October 30, 1995 to extend the term until
November 30, 1995) regarding a proposed merger of the Company with and into a
subsidiary of Shoney's, Inc. Under the proposed merger, TPI shareholders would
receive .28 shares of Shoney's stock for each outstanding share of TPI and one
warrant for every 3.125 outstanding shares of TPI. The warrants would have a
term of five years and be exercisable at a price of $21.50 per share. Under
the letter of intent, the TPI shareholders would receive contingent shares
which are intended to distribute shares of Shoney's, Inc. common stock in
equivalent value to the net proceeds of the Maxcell lawsuit to the TPI
shareholders when such proceeds are received by Maxcell. Following the
execution of the letter of intent and its amendment, a settlement of the
Maxcell lawsuit was entered into by the Company. (See Note 5)
NOTE 5 - SUBSEQUENT EVENT
On November 2, 1995, the Company announced that its subsidiary Maxcell Telcom
Plus, Inc. has entered into a settlement agreement with AT&T Wireless Services,
Inc. (formerly McCaw Cellular Communications, Inc.) relating to the lawsuit
pending in state Circuit Court in West Palm Beach, Florida. The settlement
provides for a total payment to Maxcell of $30 million. The settlement is
subject to payment of contingent fees and expenses aggregating approximately
$13.5 million and approval of the Florida Court, as well as the approval of the
U.S. District Court for the District of Columbia of the simultaneous settlement
entered into between AT&T and a class of former Charisma shareholders of the
pending class action between them in the District of Columbia. In the event
that the settlement agreement is approved, the Company estimates that it will
record approximately $16.5 million of income as a result of this settlement.
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, the second and third quarters
are 12 weeks each and the fourth quarter will consist of 13 weeks in 1995. 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
Revenues
Restaurant revenues were $65.5 million and $216.5 million for the twelve and
forty week periods ended October 1, 1995, respectively. This represents a 3.8%
and 4.2% decrease in revenues, respectively, versus the same periods for 1994.
This decrease was driven primarily by the decline in the Company's Shoney's
7
<PAGE> 8
concept sales which were down 4.5% and 5.2% versus last year, while the Captain
D's concept sales showed a slight decline of .2% for the quarter but an
increase of .8% year-to-date.
Comparable store sales suffered a decline of 4.1% to $64.8 million for the
quarter and 4.2% to $211.1 million for the forty weeks. This decline was led
by decreased comparable store sales at the Shoney's concept of 4.9% and 5.1%
for the quarter and year-to-date, respectively, which was only partially
offset by the .11% and .50% increases in quarter and year-to-date comparable
store sales at Captain D's.
New restaurant operations are included in the comparable store sales
computation after they have been operational for sixteen periods. New
restaurant sales were $.4 million for the quarter and $.7 million
year-to-date. The Company's operating results include 188 Shoney's and 69
Captain D's units operating at the end of the first forty weeks of 1995
compared to 182 Shoney's and 68 Captain D's operating at the end of the same
period in 1994.
The Company experienced softness in revenues at its Shoney's concept for both
the quarter and year-to-date periods in part due to the increased value
offerings from competitors and the opening of new competitive concepts in some
market areas. Additionally, the Company believes that the negative publicity
on food handling procedures in the chain restaurant industry had an impact on
third quarter sales. Management is focused on addressing the softness in
revenues and is in the process of rolling out promotions in conjunction with
Shoney's Inc. that will focus on value items which will attract new customers
and increase existing customer frequency.
Costs and Expenses
Cost of sales include 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
1995 and 1994 is shown below:
<TABLE>
<CAPTION>
=========================================================================================================================
Twelve Weeks Ended Forty Weeks Ended
- -------------------------------------------------------------------------------------------------------------------------
Oct. 1, 1995 Oct. 2, 1994 Oct. 1, 1995 Oct. 2, 1994
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Food, supplies and uniforms . . . . . . . . . . . . . 36.5% 36.1% 36.3% 35.5%
Restaurant labor and benefits . . . . . . . . . . . . 32.5% 30.7% 31.2% 30.2%
Restaurant depreciation and amortization . . . . . . 3.9% 4.6% 4.4% 4.8%
Other restaurant operating expenses . . . . . . . . . 21.2% 18.9% 19.2% 18.2%
General and administrative . . . . . . . . . . . . . 8.4% 7.7% 7.9% 7.8%
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
</TABLE>
The Company's food costs as a percentage of revenues increased .4% for the
quarter and .8% year-to-date primarily due to price increases in several high
volume commodities (primarily seafood products and pork) and the inability of
the restaurants to vary their sales mix to higher margin items when price
increases occur. Additionally, the margin has been negatively impacted due to
the fixed nature of distribution costs at the Company's commissaries in a
declining sales environment.
8
<PAGE> 9
Restaurant labor and benefits increased as a percent of sales both for the
quarter and year-to-date as a result of lower sales volumes pushing up the
average labor costs for restaurant staff as well as additional labor being
added at the restaurant level to offer better customer service. These
increased labor and benefits costs were somewhat offset by a reduction in
workers' compensation expense as a result of the effectiveness of safety
programs that have been put into place since the later part of 1994.
The restaurant depreciation and amortization margin decrease is due to the
complete amortization by the end of the first quarter of 1995 of the Company's
asset revaluation incurred in connection with its acquisition of Shoney's South
in 1988.
Other restaurant operating expenses are up 2.3% for the quarter and 1% year
to date. These expenses which include repairs and maintenance, utilities,
franchise fees, and property taxes, are relatively fixed, and accordingly, a
decrease in same store sales will result in an unfavorable margin impact. The
increase of 2.3% for the quarter is because of an increase in repairs and
maintenance expense. Repairs and maintenance expense is up for the quarter due
to the Company entering into a preventive maintenance contract for its stores.
Under the contract, the Company will pay higher costs at the beginning of the
agreement to get its equipment in good working order and then the contractor
will become increasingly more responsible for repairs. The Company therefore
expects these costs to remain high during the fourth quarter with decreased
costs in the first and second quarter of 1996.
General and administrative expenses are up for the quarter but have decreased
year to date. These costs have decreased because of the Company's cost cutting
efforts and savings associated with the physical consolidation of its corporate
headquarters. The increase in general administrative expense of .7% as a
percent of sales for the quarter is because of costs incurred in connection
with the proposed merger and its defense against two shareholder class action
suits filed as a result of the proposed merger.
Other Income and Expense
Interest expense is comparable for the quarter but up slightly year-to-date.
This increase is due to slightly higher interest rates and increased
amortization of deferred debt costs as a result of securing our revolving
credit facility earlier in the year.
Restructuring Charges
The Company adopted a restructuring plan at the end of the fourth quarter of
1993 which included closing or relocating 31 of its restaurants by the end of
1994, not exercising options to renew leases with respect to an additional 19
of its restaurants upon expiration of the current lease terms, and the
restructuring of divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company has closed 22 restaurants, plans to close two more
restaurants and has determined that 7 restaurants should stay open.
Management is still evaluating the timing of the closing of the two remaining
restaurants.
During the third quarter of 1995, the Company recorded $3.5 million of income
as a change in estimate as a result of management's decision to leave two
restaurants open and due to management's ability to buyout of certain leases at
more favorable terms than originally estimated. The Company was also able to
dispose of some locations for amounts in excess of the original estimates. In
addition the restructure was charged $.7 million for expenditures and asset
write-offs related to the other 24 units and for the units closed prior to 1993
and $1.4 million year-to-date. With respect to the 19 restaurants projected to
be closed no later than the expiration of their current lease terms, the
Company has recorded charges of $92,000 year to date.
9
<PAGE> 10
With respect to the Company's restructuring of its divisional management and
consolidation of its corporate offices, the Company provided an additional $.4
million during the quarter and paid out approximately $.5 million and $ 2
million related to the restructure of which $.3 million and $.9 million was for
severance, for the quarter and year-to-date, respectively. The Company expects
to pay the majority of the remaining relocation obligations during 1995 as the
consolidation of the corporate offices is completed.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a working capital deficiency of $40.1 million at October 1,
1995 compared to a working capital deficiency at December 25, 1994 of $18.0
million. The $22 million increase in the working capital deficit is primarily
due to the classification of the Company's credit facility as a current
liability in the current year and the cash pay-down of long-term debt.
Approximately 88% of the Company's restaurant sales are for cash and the
remainder are for credit card receivables which are generally collected within
five days. Because the Company's payables, including amounts for inventory and
other operating expenses, are paid over a long 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.
Operating Activities
Net cash provided by continuing operations decreased from $7.7 million to
$2.3 million primarily because of a decrease in overall sales for the forty
week period of 1995 compared to 1994 and a decrease in depreciation and
amortization which is down from the prior year.
Investing Activities
Net cash used in investing activities decreased from $10.1 million to $3.5
million due to the lower level of capital expenditures during 1995. The
Company has opened 1 Shoney's and 1 Captain D's in the current year compared to
5 Shoney's restaurants and 3 Captain D's in the prior year.
Financing Activities
Net cash used in financing activities increased by $15.2 million due to the
$8.6 million pay-down of the Company's revolving credit facility in 1995 versus
borrowings of $6.2 million under the revolving credit facility in 1994. As of
October 1, 1995, the Company had borrowings of $13.2 million and standby
letters of credit of $10.6 million outstanding on its $40.0 million credit
facility. The credit facility matures in June, 1996.
Reserved Area and License Agreements
The Company has various reserved areas with minimum development requirements
with respect to Shoney's restaurants. Aggregate commitments beyond 1994
require 36 restaurants to be constructed in the Company's reserved areas in
Phoenix, West Palm Beach, Michigan, Houston, and certain other counties in
Texas prior to October 6, 2004. The Company delayed any further building of
Shoney's restaurants during 1995 as Shoney's Inc. continues its evaluation of
the Shoney's concept and how best to serve its target market.
10
<PAGE> 11
The Company has the right to develop Captain D's restaurants in 124 counties
in seven Southeastern states (Alabama, Alaska, Georgia, Mississippi, North
Carolina, South Carolina and Tennessee). To avoid termination of the reserved
area agreement, the Company is required to open 30 additional Captain D's by
July 11, 2011. The Company does not intend to build any Captain D's
restaurants during the remainder of 1995.
The Company believes that there are several alternatives available when the
current Credit Facility matures, including a new Credit Facility,
sales/leaseback financing or mortgage financing. These alternatives, in
addition to cash on hand and cash flow from operations, will provide sufficient
funds to meet its debt service requirements, as well as it capital expenditure
and working capital requirements in the foreseeable future. There can be no
assurance that any such alternatives will be available when the current credit
facility matures in June, 1996.
Additionally, the Company should receive approximately $17.5 million of cash
proceeds in connection with its settlement of the Maxcell lawsuit. Under the
terms of the settlement agreement, the proceeds shall be placed into an
interest bearing escrow account no later than January 2, 1996. However, the
Company will not receive the funds until all parties have approved the
settlement and the courts have issued their final orders.(See Note 5) The
Company has not determined how these proceeds will be used. The Company is
restricted under its Credit Facility and its Subordinated Debentures from
paying dividends.
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. The
complaint against McCaw Cellular Communications, Inc. ("McCaw"), Charisma
Communications Corp. ("Charisma") and various related parties relates to
McCaw's and Charisma's failure to disclose the existence of a side agreement
between McCaw and Charisma to share in the net profits from the resale of
certain cellular properties which were sold by the Company to McCaw. On
November 2, 1995, the Company announced that its subsidiary Maxcell Telecom
Plus, Inc. has entered into a settlement agreement with AT&T Wireless Services,
Inc. (formerly McCaw Cellular Communications, Inc.) relating to the lawsuit
pending in state Circuit Court in West Palm Beach Florida. The settlement
provides for a total payment to Maxcell of $30 million. The settlement is
subject to payment of contingent fees and expenses and approval of the Florida
Court, as well as the approval of the U.S. District Court for the District of
Columbia of the simultaneous settlement entered into between AT&T and a class
of former Charisma shareholders of the pending class action between them in the
District of Columbia.
Reading Company and James J. Cotter v. TPI Enterprises, Inc.
On March 7, 1995, a civil action captioned Reading Company and James J.
Cotter v. TPI Enterprises, Inc. 95 Civ. 1579 was filed in the United States
District Court for the Southern District of New York. The plaintiffs allege
inter alia breach of contract and seek damages of $1,250,000 plus interest,
punitive damages and attorney's fees in connection with the sale to a
subsidiary of American Multi-Cinema, Inc. of TPI Entertainment, Inc.'s interest
in Exhibition Enterprises Partnership in April 1991. The Company's attorneys
are unable at this time to state the likelihood of an unfavorable outcome.
11
<PAGE> 12
Porpoise Asset Management and Lawrence Capital Management, Inc. v. J. Gary
Sharp, et al.
On September 7, 1995, a civil action captioned Porpoise Asset Management and
Lawrence Capital Management, Inc. v. J. Gary Sharp, et al, was filed in the
Superior Court of New Jersey, Mercer County, Chancery Division. The plaintiffs
allege, among other things, that the TPI shareholders will receive inadequate
consideration in the proposed merger, that the proposed transaction is the
result of unfair dealing and economic coercion and that the directors have
breached their fiduciary duties to the TPI shareholders to maximize shareholder
value. The plaintiffs seek class action status and to enjoin the proposed
transaction and recover damages. The Company's attorneys are unable at this
time to state the likelihood of an unfavorable outcome.
Brock Weiner v. TPI Enterprises, Inc, et al.
On October 16, 1995, a civil action captioned Brock Weiner v. TPI
Enterprises, Inc., et al. was filed in Circuit Court in the Fifteenth Judicial
Circuit in and for Palm Beach County, Florida. The plaintiff alleges, among
other things, that the defendants have breached their fiduciary duties, failed
to properly ensure maximization of shareholder value and failed to seek a
purchaser of TPI at the highest possible price. The plaintiff seeks to enjoin
the proposed transaction and recover damages. The Company's attorneys are
unable at this time to state the likelihood of an unfavorable outcome.
Other Proceedings
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.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
10.1 - Settlement Agreement
27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
8-K dated September 4, October 12, November 1, and November 2 of 1995
reporting Other Events.
12
<PAGE> 13
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: October 1, 1995 /s/ J. Gary Sharp
-------------------------------------------
J. Gary Sharp
President & Chief Executive Officer
Date: October 1, 1995 /s/ Frederick W. Burford
-------------------------------------------
Frederick W. Burford
Executive Vice President &
Chief Financial Officer
13
<PAGE> 1
Exhibit 10.1
SETTLEMENT AGREEMENT
THIS AGREEMENT is entered this 1st day of November, 1995, by and
between Maxcell Telecom Plus, Inc. ("Maxcell"), McCaw Cellular
Communications, Inc., and McCaw Communications of the Mid-South, Inc.
(collectively "McCaw"); Donald R. DePriest, individually and as Co-Trustee of
the Charisma Communications Corp. Liquidating Trust, Charisma Communications
Corp., Charles B. Cooper, Jack C. Demetree, Jr., Jack C. Demetree, Sr., William
Bruder, Charles D. Towers, Jr., Charles Young, Wesley C. Paxson, David M.
Foster, William W. Gay, Mark C. Demetree, William C. Demetree, James R. Horace,
Sr., the Charisma Liquidating Trust (collectively the "Charisma Parties"),
William Blake and Clark Bullock, as class representatives in the District of
Columbia litigation referred to below, the Plaintiff Class in the District of
Columbia litigation ("the Plaintiff Class") and Richard Seney, third-party
defendant in the District of Columbia litigation, TPI Enterprises, Inc., and
Stephen R. Cohen.
W I T N E S S E T H :
WHEREAS, certain of the above-referenced parties are engaged in
litigation in the Circuit Court of the Fifteenth Judicial Circuit in and for
Palm Beach County, Florida, Case No. CL 93-9130 AJ (hereinafter the "Palm Beach
Litigation"); and
WHEREAS, certain of the above referenced parties are engaged in
litigation in the United States District Court, District of Columbia, Civil
Action No. 90-112 HHG (hereinafter the "District of Columbia Litigation"); and
WHEREAS, the parties in the Palm Beach Litigation and District of
Columbia Litigation desire to settle all claims asserted or which could have
been asserted in said actions pursuant to the terms of this Settlement
Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the terms and conditions set forth
hereafter, the parties agree as follows:
1. McCaw shall pay (a) $90 million to the Plaintiff Class in the
District of Columbia Litigation and (b) $30 million to Maxcell, in accordance
with the provisions hereof, within five (5) business days after the later of
the dates on which a Final Order approving this Agreement, not subject to
further judicial review, is entered in (i) the District of Columbia Litigation
and (ii) the Palm Beach Litigation, (hereinafter "the Settlement Proceeds").
This Settlement Agreement is subject to the approval of the courts in the
District of Columbia Litigation and the Palm Beach Litigation as provided
herein.
2. The parties agree immediately jointly to seek a stay of the
pending Palm Beach Litigation pending approval of the terms of this Settlement
Agreement by the United States District Court for the District of Columbia.
3. The Plaintiff in the Palm Beach Litigation and the Defendants
in said litigation agree jointly to file a motion in said litigation within ten
(10) days of the date of this Settlement Agreement, to have the terms of this
Settlement Agreement approved by said Court and which requests the Court to
order the parties to comply with the Settlement Agreement.
4. The Plaintiffs in the District of Columbia Litigation and the
Defendants in said litigation agree jointly to file a motion in said litigation
within ten (10) days of the date of this Settlement Agreement to have the terms
of this Settlement Agreement approved by said Court.
2
<PAGE> 3
5. No later than five (5) business days after the entry of an
order by the U.S. District Court for the District of Columbia approving this
Agreement, McCaw shall pay (i) $90 million into one escrow (the "Charisma
Escrow") and (ii) $30 million into a second escrow (the "Maxcell Escrow")
pursuant to escrow agreements, to be agreed among the respective parties and
their counsel, with fees to be paid from interest. The amounts in the two
Escrows, together with interest thereon, shall be held in escrow until the
entry of Final Orders, not subject to further judicial review ("Final Orders"),
approving or disapproving this Agreement in the District of Columbia Litigation
and the Palm Beach Litigation.
(a) If the Final Orders in both Litigations approve this
Agreement,
(i) The entire Charisma Escrow shall be disbursed
to the registry of the United States District
Court for the District of Columbia, and
(ii) The entire Maxcell Escrow shall be disbursed
to Maxcell pursuant to escrow instructions.
(b) If the Final Order in either Litigation disapproves
this Agreement, and the Escrow Funds have not been released pursuant to any
other provision of this Agreement, the entire Charisma and Maxcell Escrows
shall be disbursed to McCaw, and the parties may proceed in their litigation.
6. If the Maxcell Escrow has not been established pursuant to
paragraph 5 on or before January 2, 1996, McCaw shall immediately pay $30
million into the Maxcell Escrow. Upon approval by the courts as described in
paragraph 5, or upon other written
3
<PAGE> 4
agreement between Maxcell and McCaw, or as otherwise provided herein, the full
amount in the Maxcell Escrow, including interest, shall be paid to Maxcell.
7. Upon payment and receipt of the Settlement Proceeds, the
parties in the Palm Beach litigation, the parties and class in the District of
Columbia Litigation, Stephen Cohen and TPI Enterprises, Inc. agree that they
release one another and their parents, subsidiaries, affiliates, successors,
assigns, directors, shareholders, officers, employees, attorneys, agents, class
members and representatives, past and present, from any and all claims, present
or future, known or unknown, which were brought or could have been brought in
the District of Columbia Litigation, Palm Beach County Litigation, or which
arise out of or relate to any of the allegations or subject matter of said
actions or which were alleged or could have been alleged in the proposed
counterclaim and third party claims which the Charisma Parties sought leave to
pursue in the Palm Beach Litigation. The Plaintiff Class shall provide McCaw
with a Satisfaction of Judgment and McCaw shall provide Donald DePriest with a
Satisfaction of Judgment upon payment and receipt of the settlement proceeds.
8. Upon receipt by the parties of payment of the Settlement
Proceeds, the parties shall execute and file with the respective Courts a
Stipulation of Dismissal with Prejudice of all claims asserted in said actions
with the express provision that the courts retain jurisdiction to enforce the
terms of this Settlement Agreement.
9. In the event Maxcell does not receive payment for any reason
within two years of the date of this Agreement, Maxcell shall have the right at
any time thereafter, prior to payment and receipt of the Settlement Proceeds
with interest, to rescind this Agreement and proceed with the Palm Beach
Litigation. Prior to electing its right to rescind, Maxcell must
4
<PAGE> 5
give counsel for McCaw and counsel for the Charisma Parties ten days written
notice of its intent to rescind. If McCaw tenders full payment of the
Settlement Proceeds plus the accrued interest to Maxcell within the ten day
grace period, by release of the Maxcell Escrow or otherwise, the Parties agree
to jointly dismiss the Palm Beach Litigation with prejudice with the court
retaining jurisdiction solely to enforce the terms of this Settlement
Agreement. If McCaw does not make payment in full under this Settlement
Agreement within ten (10) days of receipt of notice, then this Settlement
Agreement shall become null and void on the tenth day after notice is received
by McCaw and Maxcell shall be permitted to proceed with the Palm Beach
Litigation.
10. Maxcell's parent company, TPI Enterprises, Inc., may issue a
press release in the form attached hereto as Exhibit "A". Counsel for the
Plaintiff Class may issue a press release in the form attached hereto as
Exhibit "B". Responses to inquiries about the settlement will be confined to
the information contained in the press releases. Other than disclosures
required by law, discussions between the Plaintiff Class and its counsel,
intracompany and intrafirm communications, and those described above, neither
the parties nor their counsel shall make any public statements regarding the
terms of this Settlement Agreement.
11. McCaw's payment of $90,000,000.00 to the Plaintiff Class,
including DePriest reflects the agreement between and among McCaw, the
Plaintiff Class, and DePriest, that: (a) Plaintiff Class agreed to settle
their judgment against McCaw for $100,000,000.00, and (b) McCaw agreed to
settle its counterclaim judgment against Mr. DePriest for $10,000,000.00. Mr.
DePriest and the Plaintiff Class agree that in no event shall McCaw be
5
<PAGE> 6
required to pay a total amount of more than $90,000,000.00 to the Plaintiff
Class, including DePriest and nothing herein shall alter in any way McCaw's
right to receive full releases from each of them, or any other rights or
obligations of the parties hereunder.
12. Plaintiff Class and Mr. DePriest separately agreed to an
indemnity agreement which indemnifies Mr. DePriest for the full amount of the
counterclaim settlement.
13. This Settlement Agreement is being entered following mediation
by the parties of their respective claims. The undersigned representatives of
the parties hereby represent that they have the authority to enter into this
Settlement Agreement.
14. This Agreement shall be binding upon all parties hereto and
their successors and assigns.
15. All parties shall bear their own costs, fees, and expenses
incurred in connection with this Settlement Agreement, Palm Beach Litigation,
and the District of Columbia Litigation, without prejudice plaintiffs' and
class counsels' right to request the payment of attorneys fees and expenses as
appropriate for the Charisma Settlement Proceeds.
6
<PAGE> 7
DATED this 1st day of November, 1995.
MAXCELL TELECOM PLUS, INC.
By: /s/ Stephen Cohen
----------------------------------------
Stephen Cohen, Chairman
and
By: /s/ Robert Kennedy
----------------------------------------
Robert Kennedy, Executive
Vice President
McCAW CELLULAR COMMUNICATIONS, INC.
By: /s/ Scott Anderson
----------------------------------------
Scott Anderson, Senior Vice President
McCAW COMMUNICATIONS OF THE
MID-SOUTH, INC.
By: /s/ Scott Anderson
----------------------------------------
Scott Anderson, Senior Vice President
/s/ Donald R. Depriest
--------------------------------------------
DONALD R. DEPRIEST
/s/ Stephen Cohen
--------------------------------------------
STEPHEN COHEN
7
<PAGE> 8
/s/ Jonathan D. Schiller
--------------------------------------------
JONATHAN D. SCHILLER, Esq.
Kaye, Scholer, Fierman, Hays & Handler
As counsel for the Plaintiff class in
the Washington, D.C. Litigation and
Richard Seney, and as attorney for
the Charisma Parties in the
Palm Beach Litigation
/s/ William H. Pruitt
--------------------------------------------
WILLIAM H. PRUITT, Esq.
Pruitt & Pruitt
Attorney for the Charisma Parties in
the Palm Beach Litigation and
Donald R. DePriest
/s/ Mark F. Bideau
--------------------------------------------
MARK F. BIDEAU, Esq.
Greenberg, Traurig, Hoffman, Lipoff,
Rosen & Quentel, P.A.
Attorney for McCaw Cellular Communications,
Inc. and McCaw Communications of the
Mid-South, Inc.
/s/ E. Glen Johnson
--------------------------------------------
E. GLEN JOHNSON, Esq.
Kelly, Hart & Hallman, P.C.
Attorney for Maxcell Telecom Plus, Inc.
/s/ Michael T. Kranz
--------------------------------------------
MICHAEL T. KRANZ, ESQ.
Jones, Foster, Johnston & Stubbs, P.A.
Attorney for Maxcell Telecom Plus, Inc.
8
<PAGE> 9
/s/ Mary Boies
--------------------------------------------
MARY BOIES, Esq.
Boies & McGinnis
Attorney for Donald DePriest
/s/ P.J. Mode
--------------------------------------------
P.J. MODE, Esq.
Wilmer, Cutler & Pickering
Attorney for McCaw Cellular Communications,
Inc. and McCaw Communications of the
Mid-South, Inc.
TPI ENTERPRISES, INC.
By: /s/ J. Gary Sharp
----------------------------------------
J. Gary Sharp, President
and
By: /s/ Thomas M. Taylor
----------------------------------------
Thomas M. Taylor, Director
This Agreement was entered into pursuant to a mediation held before
Michael Nachwalter and reflects the terms of the Settlement Agreement.
/s/ Michael Nachwalter
------------------------------------------
Michael Nachwalter, Mediator
9
<PAGE> 10
FOR IMMEDIATE RELEASE EXHIBIT A
Date: November __, 1995
Contact: Frederick W. Burford
TPI ENTERPRISES ANNOUNCES SETTLEMENT
OF MAXCELL LAWSUIT WITH McCAW
PALM BEACH GARDENS, FL-TPI Enterprises, Inc., (NASDAQ/NMS-TPIE) announced today
that its subsidiary Maxcell Telecom Plus, Inc. has entered into a settlement
agreement with AT&T Wireless Services, Inc. (formerly McCaw Cellular
Communications, Inc.) relating to the lawsuit pending the state Circuit Court
in West Palm Beach, Florida. The settlement provides for a total payment to
Maxcell of $30 million. The settlement is subject to payment of contingent
fees and expenses and to approval of the Florida Court, as well as the approval
of the U.S. District Court for the District of Columbia of the simultaneous
settlement entered into between AT&T and a class of former Charisma
shareholders of the pending class action between them in D.C. The proposed
settlement agreement provides for the release of all claims pending among the
parties in the Florida and D.C. courts.
<PAGE> 11
EXHIBIT B
PRESS RELEASE
AT&T Wireless Services, Inc. (formerly McCaw Cellular Communications,
Inc.) has agreed to pay the former shareholders of Charisma Communications
Corp. $90 million in settlement of claims arising out of the sale of Charisma
cellular properties to McCaw Cellular Communications, Inc. in 1986. A trial
was held on these claims in U.S. District Court for the District of Columbia in
early 1995. In addition a settlement was reached between Charisma and Maxcell
Telecom Plus, Inc., a subsidiary of TPI Enterprises providing for the release of
all claims pending among the parties in their litigation in the Circuit Court
in Florida.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF TPI ENTERPRISES, INC. FOR THE NINE MONTHS ENDED OCTOBER 1, 1995,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1994
<PERIOD-END> OCT-01-1995
<CASH> 6,146
<SECURITIES> 0
<RECEIVABLES> 1,202
<ALLOWANCES> 0
<INVENTORY> 12,658
<CURRENT-ASSETS> 29,402
<PP&E> 229,195
<DEPRECIATION> 78,943
<TOTAL-ASSETS> 235,738
<CURRENT-LIABILITIES> 70,237
<BONDS> 83,365
<COMMON> 333
0
0
<OTHER-SE> 64,402
<TOTAL-LIABILITY-AND-EQUITY> 235,738
<SALES> 65,492
<TOTAL-REVENUES> 65,492
<CGS> 61,608
<TOTAL-COSTS> 64,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (947)
<INCOME-TAX> 0
<INCOME-CONTINUING> (947)
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<NET-INCOME> (947)
<EPS-PRIMARY> (.05)
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