TPI Enterprises
1995
Annual Report
TPI Enterprises, Inc.
J. Gary Sharp
President and Chief Executive Officer
To our Shareholders:
As previously announced, on March 15, 1996 TPI
Enterprises, Inc. (TPI) and Shoney's, Inc. (Shoney's)
signed a definitive agreement whereby Shoney's or one of
its subsidiaries, subject to certain terms and condi-
tions, will acquire substantially all of the assets of
TPI. The agreement contemplates that TPI will liquidate
following the closing of such transaction. TPI and
Shoney's are preparing a joint proxy statement/prospectus
which will describe the terms of the transaction and
contain other important information. The joint proxy
statement/prospectus will be mailed to TPI shareholders
in connection with a special meeting to consider the
proposed transaction with Shoney's.
In an effort to reduce expenses, TPI's Annual
Report on Form 10-K attached hereto is being distributed
to shareholders to serve as the annual report to share-
holders for the 1995 fiscal year.
J. Gary Sharp
President and
Chief Executive Officer
3950 RCA Blvd., Suite 5001
Palm Beach Gardens, FL 33410
(407) 691-8800 * FAX (407) 691-8816
AS AMENDED BY FORM 10K/A FILED WITH THE COMMISSION ON APRIL 29, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL 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 fiscal year ended December 31, 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 33401
(Address of principal executive offices) (Zip Code)
(407) 691-8800
(Registrant's telephone number, including area code)
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.
NO YES X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statement incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant is $44,190,996 (as of March 22, 1996).
The number of shares outstanding of the Registrant's common stock is
20,612,795 (as of March 22, 1996).
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PAGE
PART I
Item 1. BUSINESS.............................................................3
Item 2. PROPERTIES...........................................................9
Item 3. LEGAL PROCEEDINGS...................................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................12
EXECUTIVE OFFICERS OF THE REGISTRANT................................12
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS................................................13
Item 6. SELECTED FINANCIAL DATA.............................................14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................22
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................50
PART III
Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................50
Item 11.EXECUTIVE COMPENSATION..............................................52
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......63
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................69
PART IV
Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....70
SIGNATURES..................................................................73
FINANCIAL STATEMENT SCHEDULES..............................................S-1
FINANCIAL STATEMENTS OF SUBSIDIARY.........................................W-1
FINANCIAL STATEMENT SCHEDULES OF SUBSIDIARY...............................WS-1
EXHIBIT INDEX. ..........................................................
PART I
ITEM 1BUSINESS
GENERAL
TPI Enterprises, Inc. (the "Company") is a New Jersey corporation,
incorporated in 1970. Its principal executive offices are located at
3950 RCA Boulevard, Suite 5001, Palm Beach Gardens, Florida 33410, telephone
(407) 691-8800.
CONTINUING OPERATIONS
GENERAL
The Company, through its subsidiary, TPI Restaurants, Inc. ("Restaurants"),
is one of the largest restaurant franchisees in the United States. As of March
15, 1996, Restaurants owns and operates 256 restaurants, comprised of 188
Shoney's and 68 Captain D's restaurants in eleven states, primarily in the
southern United States. TPI Restaurants is the largest Shoney's and Captain
D's franchisee, operating more than four times as many Shoney's restaurants as
the next largest Shoney's franchisee and more than three times as many Captain
D's restaurants as the next largest Captain D's franchisee. The Company
operates its Shoney's and Captain D's restaurants under license agreements
with Shoney's, Inc., a public company. Approximately 82% and 18% of the
Company's revenues from continuing operations in 1995 were from its Shoney's
and Captain D's restaurants, respectively. "Shoney's" and "Captain D's" are
registered trademarks of Shoney's, Inc. References to the Company include the
operations of Restaurants.
SHONEY'S, INC. SALE TRANSACTION
On March 15, 1996, the Company entered into a Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code
and Agreement (the "Agreement") with Shoney's, Inc. and a wholly-owned
subsidiary of Shoney's, Inc. to sell substantially all of the Company's
assets to Shoney's, Inc. (the "Shoney's, Inc. Sale Transaction"). At the
closing of the Shoney's, Inc. Sale Transaction, under the terms of the
Agreement, Shoney's, Inc. will deliver to the Company (a) 5,577,102 shares
of Shoney's, Inc. common stock plus (b) shares of Shoney's, Inc. common
stock equal to $10,000,000 divided by the average closing market price of
Shoney's, Inc. common stock over the ten day trading period prior to closing,
subject to certain adjustments as provided in the Agreement. The Company
will deliver to Shoney's, Inc. all of the issued and outstanding shares of
capital stock of TPI Restaurants, Inc. and two other wholly-owned subsidiaries
of the Company, TPI Entertainment, Inc. and TPI Insurance Corporation which
constitutes substantially all of the assets of the Company.
Additionally, the Company will transfer certain liabilities, all intercompany
accounts and all cash and cash equivalents of the Company except for $14.85
million in cash, of which $7.35 million is designated to pay certain specified
wind-up expenses. If the specified windup expenses are less than the designated
$7.35 million, the Company is required to transfer the difference to Shoney's,
Inc.; if the expenses are greater, the excess will be paid from the remaining
$7.5 million of cash after which the balance will be distributed to share-
holders. In order to satisfy the requirements for a tax-free reorganization,
the amount permitted to be retained of the $7.5 million in cash may not exceed
10% of the value of the shares of Shoney's, Inc. common stock at the closing.
In the event that the Company is not able to retain the entire $7.5 million,
Shoney's, Inc. shall issue additional shares of its common stock to compensate
the Company for the entire amount of the cash foregone, valued at the average
closing market price for ten preceding trading days.
Pursuant to the Agreement, the Company has adopted a plan of liquidation
which contemplates that after closing, the Company will wind-down its
operations and, after paying or making provision for its liabilities,
distribute the Shoney's, Inc. common shares received and any remaining cash
amounts to the Company's shareholders. Subject to the terms and conditions of
the Agreement, management anticipates that the closing of the Shoney's, Inc.
Sale Transaction will occur by June 30, 1996 and that the majority of such
distributions to the Company's shareholders will be made during 1996, subject
to any necessary holdbacks for liabilities.
At December 31, 1995, the Company has recorded a provision of $17.0 million
to reduce the carrying value of the net assets to be exchanged to the
estimated fair value of the consideration to be received from Shoney's, Inc.
This allowance has been reflected as a reduction in the Company's recorded
goodwill in the accompanying financial statements.
The Agreement may be terminated by mutual consent of the Company and
Shoney's, Inc. or by either party under certain circumstances, including if
the closing does not occur prior to June 30, 1996. The Agreement is subject to
a number of other conditions including, among other things, (1) the
approval of the shareholders of both the
Company and Shoney's, Inc., (2) the expiration of waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act, (3) the receipt by Shoney's,
Inc. of a commitment for additional financing in the amount of $60,000,000 and
its funding in accordance with its terms, (4) the receipt of fairness and
legal opinions and (5) the absence of a material adverse change to the
Company. The Agreement provides for the payment by the Company of a break-up
fee in the case of certain third party acquisition events or proposals. The
Agreement incorporated by reference as an Exhibit to this Form 10-K and the
foregoing description is qualified in its entirety by reference thereto.
SHONEY'S
CONCEPT AND STRATEGY. Shoney's restaurants are full-service, family dining
restaurants that generally are open 18 hours each day, and serve breakfast,
lunch and dinner. Shoney's restaurant menu is diversified to appeal to a broad
spectrum of customer tastes. The menu includes traditional items such as
hamburgers, sandwiches, chicken, seafood, home style entrees, vegetables,
pasta, stir-fry dishes, steaks and desserts. Shoney's menu also offers its
signature features of the soup, salad and fruit bar and the
all-you-care-to-eat breakfast bar. Shoney's restaurants offer a high quality
dining experience at attractive prices.
MENU. In addition to its regular menu, Shoney's restaurants often feature
promotional menu items offering special entrees for a limited time. These
promotional menu items are used to promote new guest trials and generate
greater dining frequency from existing guests. Promotions also serve as a
vehicle to test new items that, if popular, may be added to the regular menu.
The Company, in conjunction with its franchisor, is continually modifying the
menu to adapt to new food trends, shifts in consumer demands (e.g., more
interest in health conscious dining) and to keep the menu appealing to our
guests.
Shoney's seeks to differentiate itself from competing restaurants by
offering excellent service, warm hospitality and attractive prices to afford a
high-quality overall dining experience. Shoney's restaurants place significant
emphasis on the quality of food ingredients, proper preparation methods and
attractive food presentation. Buildings are generally brick veneer or dryvit
exteriors and usually include exterior awnings along with halide lighting for
greater visibility at night.
HISTORY. Shoney's restaurants have been in operation in the southern United
States since 1952 and enjoy a high level of name recognition in that region.
Shoney's restaurants (including those operated by Shoney's, Inc. and other
franchisees) are now located in 34 states extending as far west as California.
As of February 18, 1996, there were 874 Shoney's in operation, 502 of which
are franchised.
The Company currently operates 188 Shoney's restaurants which is
approximately 37% of all franchised Shoney's restaurants and more than four
times as many as the next largest Shoney's, Inc. franchisee. The Company's
first Shoney's restaurant was opened in 1963. During 1995, the Company opened
one newly constructed Shoney's restaurant. Since December 31, 1995, no
additional restaurants have been constructed.
The Company has the exclusive right to develop Shoney's restaurants in more
than 80% of the geographic territory of Texas, including the San Antonio,
Corpus Christi, Austin, Amarillo, El Paso and Fort Worth metropolitan areas,
most of Dallas County and portions of Houston. The Company also has exclusive
rights to build Shoney's restaurants in the Orlando, Florida area and portions
of Broward and Palm Beach Counties in South Florida. In addition, the Company
has agreed to develop a territory in eastern Michigan jointly with Shoney's,
Inc. The Company also has exclusive rights to build Shoney's restaurants in
Maricopa County, Arizona. See "Reserved Area and License Agreements" for
additional discussions of the Company's reserved areas. CAPTAIN D'S
CONCEPT AND STRATEGY. Captain D's restaurants are quick-service seafood
restaurants and offer in-store or drivethrough service. They are generally
open every day from 11 a.m. until 11 p.m. serving lunch and dinner. The
typical Captain D's restaurant has 70 to 90 seats and employs 20 people,
including three management personnel. The Captain D's concept also provides a
take-out service including drive-through window service representing
approximately 44% of its 1995 sales at Captain D's.
MENU. Captain D's restaurant menu is designed to capitalize on the trend
toward increased per capita consumption of fish and seafood in the U.S. that
has developed in response to increased public awareness of the benefits of
fish and seafood in a well-balanced diet. To broaden the menu's appeal,
Captain D's restaurant menu also offers a variety of non-seafood items. The
menu includes fried, broiled and baked fish, a variety of chicken and shrimp
dishes, fried clams, stuffed crab, seafood and tossed salads, baked potatoes,
french fries, hush puppies, green beans, cole slaw, fried okra and a selection
of desserts. Captain D's is constantly striving to develop appealing new menu
items and improve the quality of existing items.
Through an aggressive purchasing operation conducted by the Company and its
franchisor, Captain D's has reduced its dependence on cod fish (for which
price and supply have been uncertain in recent years) by the introduction and
use of other high quality whitefish that have a more predictable supply and
price. The Company's commissary operation purchases bulk quantities of fish
and seafood for distribution to its stores.
The Company's operational strategy for Captain D's restaurants is to
increase comparable store sales through the continued introduction and
promotion of distinctive, high quality menu items, emphasis on fast and
reliable service, and maintaining a strong commitment to high food quality.
HISTORY. Captain D's restaurants have been in operation in the southeastern
United States since 1969. As of February 18, 1996, there were 605 Captain D's
restaurants in operation, 294 of which are franchised. TPI Restaurants
operates approximately 23% of the franchised Captain D's restaurants. The
Company opened its first Captain D's restaurant in 1973 and presently operates
68 Captain D's restaurants in Alabama, Arkansas, Georgia, Mississippi, North
Carolina, South Carolina and Tennessee. The Company opened one Captain D's
restaurant in 1995. This restaurant replaced a unit which was destroyed by
fire in 1995. Since December 31, 1995, the Company has closed one
underperforming restaurant.
EMPLOYEES
As of December 31, 1995, the Company had approximately 9,870 employees,
including approximately 9,600 restaurant employees, 90 headquarters personnel
and 180 commissary personnel.
Employment in Shoney's and Captain D's restaurants is seasonal and is highest
in the second and third quarters.
COMPETITION AND MARKETS
The restaurant business is highly competitive. Key competitive factors in
the industry are the quality, variety and value of the food products offered,
quality and speed of service, advertising, name identification, restaurant
location and attractiveness of facilities. There are a large number of
national and regional chain operators, fast food restaurants and other family
restaurants that compete directly and indirectly with the Company. Some of
these entities have significantly greater financial resources and higher sales
volume than does the Company. The restaurant business is often affected by
changes in consumer tastes and discretionary spending priorities, national,
regional or local economic conditions, demographic trends, consumer confidence
in the economy, weather conditions, traffic patterns, employee availability,
and the type, number and location of competing restaurants. Any change in
these factors could adversely affect the Company. In addition, factors such as
inflation and increased food, labor and other employee compensation costs
could also adversely affect the Company.
FINANCIAL CONTROLS
The Company maintains centralized accounting controls for all of its
restaurants through the use of computerized management information systems.
Weekly reports of individual restaurant sales, labor costs, food costs and
other expenses and daily reports of sales, all with comparisons to prior
periods, give the Company's management current operating results by restaurant
as well as on a company-wide basis.
A point of sale system has been installed in all of the 68 Captain D's
restaurants. This system enhances management's ability to evaluate sales,
costs, and menu preferences and to quickly make modifications where necessary
to achieve desired margins. The Company is currently testing a point of sale
system in nine of its Shoney's restaurants.
The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food and supplies.
Because funds available from cash sales are not needed immediately to pay for
food and supplies or to finance receivables or inventory, they may be used for
non-current capital expenditures. Therefore, the Company, like many other
companies in the restaurant industry, normally operates with a working capital
deficit.
ACQUISITION AND DISTRIBUTION OF FOOD AND SUPPLIES
To achieve consistent food quality and control costs, the Company centrally
purchases all major food and supply items used in its restaurants. These
items, which account for 98.7% of all food and supplies used, are delivered to
the Company's commissary centers in Memphis, Tennessee and Charlotte, North
Carolina, from which they are redistributed at least twice weekly to its
restaurants. The Memphis distribution center contains 80,000 square feet of
storage area, and the Charlotte distribution center contains 70,000 square
feet of storage area. Since 1990, the range of products provided from the
commissary has been significantly expanded from that provided in prior years.
The commissary centers are able to control costs by purchasing food and supply
items in bulk quantities in anticipation of future needs and price increases.
The Company's ability to maintain consistent quality throughout its chain
of restaurants depends in part upon the ability to acquire food products and
related items from reliable sources.
In situations when supplies may be expected to become unavailable or prices
are expected to rise significantly, the Company may enter into purchase
contracts or purchase quantities for future use. Adequate alternative sources
are believed to be available for those items not covered under contracts or
other agreements.
RESERVED AREA AND LICENSE AGREEMENTS
SHONEY'S. The Company operates its Shoney's restaurants under a series of
reserved area agreements, pursuant to which Shoney's, Inc. has granted the
Company the exclusive right to develop Shoney's restaurants within specified
geographic areas, and license agreements entered into between the Company and
Shoney's, Inc. The existing license agreements for Shoney's restaurants
generally provide for 20-year terms with 20-year renewal options subject to
the satisfaction of certain conditions. The current expiration dates of the
Shoney's restaurant license agreements, including renewals, range from 2016 to
2033. In 1995, the average royalty fee paid by the Company for its Shoney's
restaurants was 1.9% of gross sales compared to 3.5% which new franchisees are
currently being required to pay. Shoney's restaurants built by the Company
pursuant to its reserved area agreements will be subject to varying royalty
rates of up to 3.0% of sales.
The license agreements impose specifications as to the preparation of the
products as well as general procedures, such as advertising, maintenance of
records, protection of trademarks and provisions for inspection by the
franchisor. The license agreements also require the prior approval of
Shoney's, Inc. (not to be unreasonably withheld) in order for the Company to
close any of its Shoney's restaurants. Termination of the license agreements
may be effected for breach of conditions of the agreements, including sale of
adulterated products or failure to meet proper standards of quality and
sanitation. The Company has never been subjected to any involuntary
termination of its license agreements.
Several of the Company's reserved area agreements include expansion
schedules requiring the Company to develop a minimum number of stores over a
defined period of time. The reserved area agreement for 28 counties in Texas,
which covers Fort Worth and much of Dallas County, requires the development of
14 Shoney's restaurants over a nine year period ending in 1999. To date, the
Company has opened four restaurants in the reserved area. The Company's
development agreements for expansion of the Shoney's concept in certain parts
of Broward and Palm Beach Counties in south Florida, northwest Harris County,
Texas, Maricopa County, Arizona, and Michigan were extended during 1995
resulting in new store building requirements to begin in 1996. Due to the
pending Shoney's, Inc. Sale Transaction, the Company does not intend to build
any Shoney's or Captain D's in 1996. (See discussion at Liquidity and Capital
Resources). The current amended agreement requires the development of six
restaurants in the Florida area by 2004, six restaurants in the Harris County
area by 1999, three stores in the Arizona area by 1999, and eleven stores in
the Michigan area by 2001. During 1995, one store opened in the Florida area.
If the above schedules are not satisfied, Shoney's, Inc. has the right to
terminate the Company's exclusive rights in these areas. (See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations). The reserved area agreements permit the Company to open as many
Shoney's restaurants as it deems desirable within such reserved territories in
compliance with the terms of the reserved area agreement, in addition to those
required to be opened in accordance with the development schedule.
The Company is a party to other exclusive territory agreements in the areas
of its Shoney's operations, including agreements covering over 170 additional
counties in Texas; all of Arkansas; over 75 counties in North Carolina; over
30 counties in Mississippi; over 20 counties in Tennessee; and several
additional counties in Georgia, South Carolina, Florida and Alabama. With
respect to the reserved areas described in the preceding sentence, the Company
has no required development schedule and is entitled to open as many Shoney's
restaurants in such reserved areas as it deems desirable in compliance with
the terms of the reserved area agreements. Shoney's, Inc. may terminate any
reserved area agreement upon the default by Restaurants under the terms of any
license agreement for operation of a Shoney's restaurant within such reserved
area. In addition, the reserved area agreement covering the 28 counties in
Texas provides that Shoney's, Inc. may terminate such reserved area agreement
upon the expiration of more than 10% of the Company's license agreements for
Shoney's restaurants within such reserved area (without replacing those
restaurants within two years following such expiration). The Company has never
had a reserved area agreement involuntarily terminated by Shoney's, Inc.
CAPTAIN D'S.
The Company's Captain D's restaurants are operated under individual license
agreements with Shoney's, Inc. The Company has the right to develop Captain
D's in 124 counties in seven southeastern states (Alabama, Arkansas, Georgia,
Mississippi, North Carolina, South Carolina and Tennessee). The Company must
open an aggregate of 30 new Captain D's restaurants by July 11, 2011, at an
approximate rate of two restaurants per year. The reserved area agreement
permits the Company to open as many Captain D's restaurants as it deems
desirable within its reserved territories in addition to those required to be
opened in accordance with the development schedule. The reserved area
agreement provides that Shoney's, Inc. may terminate the reserved area
agreement (I) upon the default by Restaurants under the terms of any license
agreement for operation of a Captain D's restaurant or (ii) after July 11,
2011, upon the expiration of more than 10% of Restaurants' license agreements
for Captain D's restaurants (without replacing those restaurants within two
years following such expiration).
The Company's existing license agreements for Captain D's restaurants
generally provide for 20-year terms with two 20-year renewal options subject
to the satisfaction of certain conditions. The current expiration dates of the
license agreements, including renewals, assuming compliance with the expansion
schedule in the Captain D's reserved area agreement, range from 2035 to 2052.
In 1995, the average royalty paid to Shoney's, Inc. by the Company's Captain
D's restaurants was 1.5% of sales.
ADVERTISING AND PROMOTION
The license agreements for the Company's Shoney's and Captain D's
restaurants require that the Company pay fees equal to 0.35% and 0.65% of
sales, respectively, in addition to its franchise fees, which are put into
production funds and used by the franchisor to produce radio and television
commercials and printed advertising materials. Shoney's, Inc. uses such
commercials in its nationwide advertising and marketing program. The Company
is also required to spend for local marketing on its own behalf and through a
cooperative in which other franchisees and Shoney's, Inc. participate. The
aggregate amount spent by the Company in 1995 for such advertising, inclusive
of the fee paid to the franchisor described above to the production funds, was
approximately 3.6% of sales. As part of such local marketing, the Company
purchases television and radio spots to air commercials produced by the
franchisor. Through such advertising, management believes that Shoney's and
Captain D's have a high level of name recognition and positive customer
perceptions on key attributes of food quality, service and atmosphere. As part
of its marketing program, the Company offers several weekly promotions,
including free nights for children, a special senior citizens' menu and
"all-you-care-to-eat" seafood buffets at Shoney's restaurants. In addition,
the Company has increased its reliance on radio and television advertising and
reduced its reliance on coupon and billboard advertising.
REGULATION
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wages, overtime and other working
conditions. Significant numbers of the Company's food service personnel are
paid at rates related to the federal and state minimum wage, and accordingly,
increases in the minimum wage increase the Company's labor costs.
TPI Transportation, Inc., a wholly-owned subsidiary of Restaurants,
obtained a license from the Interstate Commerce Commission to conduct
interstate trucking and is subject to applicable federal regulations relating
to interstate trucking.
Each Company restaurant is subject to licensing and regulation by state and
local health, sanitation, safety, fire and other departments. Difficulties or
failures in obtaining or renewing any required licensing or approval could
affect the Company's restaurants.
The Company is also subject to various federal, state and local laws
regulating the discharge of materials into the environment. The cost of
developing restaurants has increased as a result of the Company's compliance
with such laws. Such costs relate primarily to the necessity of obtaining more
land, landscaping and below surface storm drainage and the cost of more
expensive equipment necessary to decrease the amount of effluent emitted into
the air and ground.
TPI Insurance Corporation, a wholly-owned subsidiary of the Company, was
incorporated in 1993 and is licensed as a pure captive insurance company in
the state of Hawaii and must comply with all rules and regulations set forth
by the state's insurance commission.
The Company believes it is in material compliance with the regulations to
which it is subject.
OTHER ACTIVITIES
Insurex Agency, Inc., a wholly-owned subsidiary of Restaurants ("Insurex"),
was organized as a Tennessee corporation in 1975 for the purpose of acting as
agent for property and casualty, workers' compensation, life and health and
other insurance policies for Restaurants, other corporations and the general
public. Approximately 98% of the insurance premiums written by Insurex are for
insured entities not affiliated with Restaurants.
Insurex Benefits Administrators, Inc., a wholly-owned subsidiary of
Restaurants ("IBA"), was organized as a Tennessee corporation in 1989 for the
purpose of operating as a third party administrator of medical and dental
claims for Restaurants and other corporations. Approximately 80% of IBA's
revenues are from other corporations.
TPI Transportation, Inc. and TPI Commissary, Inc. were a part of
Restaurants' operations during 1993 and became
wholly-owned subsidiaries of Restaurants during 1994.
TPI Insurance Corporation, a wholly-owned subsidiary of the Company, was
incorporated in 1993 and is licensed as a pure captive insurance company in
the state of Hawaii. Under the terms of its Certificate of Authority, it
provides workers' compensation insurance for the Company.
Maxcell Telecom Plus, Inc.'s, a wholly-owned subsidiary of the Company
("Maxcell"), original business plan was to create a cellular telephone network
that would operate throughout the southeastern United States. In 1986, Maxcell
disposed of substantially all of its remaining interests in the cellular
business. Since 1986, Maxcell has had no operations. Beginning in late 1988,
and extending to 1989, Maxcell invested approximately $150,000 to participate
in lotteries held by the Federal Communication Commission ("FCC") for rights
to develop cellular systems for approximately 300 markets. Maxcell continues
to have outstanding applications for markets which may be re-lotteried by the
FCC. Maxcell does not intend to apply for any new permits from the FCC or to
conduct any non-restaurant business. (See Item 3 "Legal Proceedings").
DISCONTINUED OPERATIONS
Discontinued operations for 1995 include a gain of $10.1 million, net of
income taxes of $6.4 million, related to the settlement of a lawsuit filed by
Maxcell. (See Item 3 Legal Proceedings and Note 11 to the Consolidated
Financial Statements).
On May 28, 1993 the Company, through its wholly owned subsidiary, TPI
Entertainment, Inc. ("Entertainment"), completed the sale of its 50% interest
in Exhibition Enterprises Partnership, a partnership with Cinema Enterprises,
Inc., a wholly-owned subsidiary of American MultiCinema, Inc. for $17,500,000.
As a result of this transaction, the Company recognized a gain of $5,272,000,
net of income taxes of $2,717,000 in the year ended December 26, 1993.
ITEM 2. PROPERTIES
GENERAL
The Company's headquarters are at 3950 RCA Boulevard, Suite 5001, Palm
Beach Gardens, Florida. This facility consists of 38,000 square feet under a
lease expiring in 2004 and provides for an annual base rental of $331,000. The
lease requires the Company to pay certain operating expenses and contains
escalation clauses relating to real estate taxes and the like.
The Company's prior executive offices were located at 777 South Flagler
Drive, West Palm Beach, Florida, where it occupied approximately 4,800 square
feet of space under a lease expiring in 1999 and providing for an annual base
rent of approximately $119,000.
Restaurants operates its commissary centers in leased facilities in
Memphis, Tennessee and Charlotte, North Carolina consisting of 80,000 and
70,000 square feet of storage area in each location, respectively.
Insurex and IBA offices are located at 1835 Union Avenue, Memphis,
Tennessee where they occupy approximately 12,000 square feet of space under a
lease expiring in 2006 and providing for an annual base rent of approximately
$131,000 in 1996 and $118,000 for 1997 - 2006.
RESTAURANTS
The following table sets forth certain information regarding Restaurants'
restaurant properties as of March 15, 1996:
Land and Land Land and
Building Leased, Building
Type of Owned Building Leased Total
Restaurant Owned
--------------- ----- --------- ---- ----------- --- ---------- ----- ---------
Shoney's........... 69 38 81 188
Captain D's........ 28 25 15 68
------- -------- ------- --------
97 63 96 256
------------------- -- ======= ------- ======== ------ ======= ------- ========
Most of the restaurant leases provide for 10 to 25 year initial terms, with
renewal options by Restaurants for additional periods ranging from 5 to 15
years. The leases generally have rents which are the greater of a fixed
minimum amount or a percentage of gross sales ranging from 1.0% to 6.5%. The
following table summarizes the expiration dates of the original or current
terms of all of Restaurants' leases and the number of related leases currently
having renewal options. A majority of the leased properties are leased from
others under non-cancelable agreements.
NUMBER WITH
NUMBER OF RENEWABLE
LEASE TERM LEASES OPTIONS
EXPIRES
----------------- ------------------------------------- --------- --- ---------
1996 ........................................ 4 3
1997-2000............................................. 67 51
2001-2005............................................. 51 42
2006-2010............................................. 56 55
2011-2014............................................. 5 2
---------
183 153
------------------------------------------------------ --------- ---- ---------
THE COMPANY'S EXPERIENCE HAS BEEN THAT WHERE LEASES DO NOT CONTAIN RENEWAL
OPTIONS AND RESTAURANTS DESIRES TO CONTINUE OPERATING AT THE SAME LOCATION,
NEGOTIATING A NEW LEASE AT COMPETITIVE TERMS HAS BEEN POSSIBLE. HOWEVER, PRIOR
TO NEGOTIATING A NEW LEASE (OR EXERCISING A RENEWAL OPTION), THE COMPANY
CAREFULLY REVIEWS THE SITE LOCATION TO DETERMINE IF IT CONTINUES TO BE
OPTIMAL. THE COMPANY HAS FROM TIME TO TIME FOUND ALTERNATIVE LOCATIONS IN THE
SAME AREA TO BE MORE DESIRABLE. THE AMOUNT OF RENT VARIES CONSIDERABLY FROM
LEASE TO LEASE. RESTAURANTS' PHILOSOPHY IS TO OWN ITS RESTAURANT SITES IN EACH
SITUATION WHERE POSSIBLE AND TO UTILIZE LEASE FINANCING, AS NECESSARY, TO
SUPPLEMENT OTHER FINANCING SOURCES.
ITEM 3. 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, filed a complaint against McCaw Cellular Communications, Inc.
("McCaw"), Charisma Communications Corp.
("Charisma") and various related parties, related to McCaw'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. The Company sought recision of the sales
contract and damages based upon the defendant's alleged fraudulent misrep-
resentation, breach of fiduciary duty, conspiracies and tortious inter-
ference with contracts. On November 2, 1995, the Company and Maxcell entered
into a settlement agreement with AT&T Wireless Services, Inc. (formerly
McCaw Cellular Communications, Inc.) relating to this lawsuit (the "Maxcell
Settlement"). The Maxcell Settlement, which was approved by the court in
December 1995, provides for a total payment to Maxcell of $30.0 million which
was received subsequent to year end. The financial statements include a gain
of $10.1 million, net of taxes, at December 31, 1995 after recording con-
tingency fees and expenses of approximately $13.5 million related to the
Maxcell Settlement. The expenses include $1.8 million payable under certain
agreements with two former employees.
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 $1.25 million plus interest,
punitive damages and attorney's fees in connection with the sale to a sub-
sidiary of American Multi-Cinema, Inc. of Entertainment's, interest in
Exhibition Enterprises Partnership (the "Partnership") in April 1991. The
Company's attorneys are unable at this time to state the likelihood
of an unfavorable outcome. Management does not believe that the ultimate
outcome will have a material adverse effect on the operating results or
financial position of the Company.
PORPOISE ASSET MANAGEMENT AND LAWRENCE CAPITAL MANAGEMENT, INC. V. J. GARY
SHARP, ET AL.; BROCK WEINER V. TPI ENTERPRISES, INC., ET AL. AND CRANDON
CAPITAL PARTNERS, ET AL. V. TPI ENTERPRISES, INC., ET AL.
During 1995, three shareholder suits were filed against the Company and
its Board of Directors. The plaintiffs allege, among other things, that the
Company's shareholders will receive inadequate consideration in the proposed
Shoney's, Inc. Sale Transaction, that the proposed transaction is the result
of unfair dealing and economic coercion and that the Directors have breached
their fiduciary duties to the Company's shareholders to maximize shareholder
value. The plaintiffs seek class action status and to enjoin the proposed
transaction and recover damages. The Company announced on March 18, 1996 that
it had signed a letter of understanding dated March 15, 1996 for the settlement
of these three lawsuits. This letter of understanding followed the execution
on March 15, 1996 of the Agreement. The settlement would entail the payment
of up to $250,000 in legal fees and expenses and the consolidation and
settlement of the three lawsuits and is subject to several conditions,
including confirmatory discovery, court approval of the settlement and the
closing of the Shoney's, Inc. Sale Transaction. The Company has recorded a
liability at December 31, 1995 for $250,000. This amount is to be paid to
counsel to the plaintiffs.
TPI RESTAURANTS, INC. V. MARLIN SERVICES, INC., MARLIN ELECTRIC, INC., D/B/A/
MARLIN SERVICES AND THE AETNA CASUALTY AND SURETY COMPANY AND MARLIN ELECTRIC,
INC. V. TPI RESTAURANTS, INC. AND RELATED MATTERS
On March 7, 1996, the Company filed a civil action in the Circuit Court
of Palm Beach County; captioned TPI Restaurants, Inc. v. Marlin Services, Inc.,
Marlin Electric, Inc., d/b/a/ Marlin Services, Inc. ("Marlin") and The Aetna
Casualty and Surety Company. The Company contends among other things that
Marlin breached the terms of a maintenance service agreement that Restaurants
had entered into with Marlin by failing to perform timely maintenance as
required by the agreement, overcharging for parts and materials, improperly
billing for labor and improperly charging for overhead. On March 7, 1996,
Marlin filed a separate action in the U.S. District Court of Virginia against
Restaurants alleging among other things that Restaurants breached its contract
with Marlin by failing to pay amounts owed under the contract. Marlin claims
damages in excess of $2.2 million through March, 1996. The Company's attorneys
are unable at this time to state the likelihood of a favorable or unfavorable
outcome in these actions.
Subsequent to the end of the year, the Company has been contacted by a
number of subcontractors employed by Marlin. These subcontractors have
indicated that they have not been paid, for certain services performed and
that they are entitled to mechanic's and/or materialman's liens on the
Company's restaurants. The Company is unable at the present time to determine
what liability, if any, exists to these and other subcontractors. Management
does not believe that the liability related to this suit or to subcontractors
will have a material adverse effect on the operating results or financial
position of the Company.
OTHER
The Company and its subsidiaries are defendants in various other lawsuits
arising in the ordinary course of business. While the result of any litigation
contains an element of uncertainty, it is the opinion of the management of the
Company that the outcome of such litigation will not have a material adverse
effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the
registrant during the fourth quarter of the fiscal year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in its entirety in the Proxy Statement.
The following sets forth certain information regarding the Company's
executive officers as of March 18, 1996:
NAME AGE POSITIONS HELD WITH THE COMPANY
-------------------------------- ----- -------------------------------
J. Gary Sharp 49 President and Chief Executive
Officer of TPI Enterprises;
President and Chief Operating
Officer of TPI Restaurants;
Director of TPI Enterprises
and TPI Restaurants
Frederick W. Burford 45 Executive Vice President, Chief
Financial Officer of TPI
Enterprises; Vice President,
Chief Financial Officer and
Treasurer of TPI Restaurants;
Director of TPI Enterprises
and TPI Restaurants
Haney A. Long, Jr. 50 Senior Vice President,
Procurement and Distribution
of TPI Restaurants;
Director of TPI Restaurants
--------------------------------- -- ----- --- -----------------------------
J. Gary Sharp was an employee of Shoney's, Inc. from 1969 through 1986
holding positions ranging from store manager to Group Vice President of all of
Shoney's, Inc.'s operations. Mr. Sharp left Shoney's, Inc. in 1986 to own
and operate franchises in Orlando, Florida and was President of Sharp
Concepts, Inc. from 1985 through September, 1989. Mr. Sharp has served as
President, Chief Operating Officer and a Director of TPI Restaurants since
1989 and as President and Chief Executive Officer of the Company since
January 1995. Mr. Sharp was elected a Director of TPI Enterprises in March,
1993.
Frederick W. Burford joined TPI Restaurants in November 1991, after 14
years in top management positions at the Promus Companies (formerly Holiday
Corporation). Mr. Burford was a Corporate Vice President and served in
capacities as both Treasurer and Controller at the Promus Companies. Mr.
Burford was elected Vice President, Chief Financial Officer, Treasurer and a
Director of TPI Restaurants in November 1991. Mr. Burford was named Executive
Vice President, Chief Financial Officer and a Director of the Company in
March 1993.
Haney A. Long, Jr., joined TPI Restaurants in November, 1989 as Senior
Vice President of Procurement and Distribution. Prior to joining the Company,
Mr. Long served as Senior Vice President of Procurement at Rich SeaPak
Corporation between 1979 and 1989. He also served as Executive Director of
Commissary Operations for Shoney's, Inc., between 1975 and 1977. He was
elected Director of TPI Restaurants in June 1993.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common shares are traded in the National Market System of the
over-the-counter market (NASDAQ symbol: TPIE). As of March 22, 1996, there
were approximately 1,995 shareholders of record of the Company's common
shares. The following table sets forth, for the periods indicated, the high
and low sales prices, as reported by the National Quotation Bureau,
Incorporated. Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The Company has never paid any dividends on its common stock, however in
connection with the proposed Shoney's, Inc. Sale Transaction, the Company
expects to make one or more liquidating distributions to its Shareholders in
the form of Shoney's, Inc. common stock and cash in connection with the
Shoney's, Inc. Sale Transaction. (See Note 2 to the Company's consolidated
financial statements). The Company's 8 1/4% Convertible Subordinated
Debentures, 5% Convertible Senior Subordinated Debentures and Second Amended
and Restated Credit Agreement (the "Credit Facility") all currently restrict
the payment of dividends while the debt remains outstanding. However, the
Shoney's, Inc. Sale Transaction contemplates that such restrictions would be
eliminated either by the retirement or assumption of the obligations by
Shoney's, Inc. at the consummation of the transaction and, therefore, the
Company would be able to pay dividends to its shareholders after such time.
1995 1994 1993
----------------------- -------------------- ---------------------
High Low High Low High Low
--------- -------- -------- -------- --------- --------
First
Quarter $6 1/4 $3 11/16 $10 3/8 $6 7/8 $10 7/8 $8 7/8
Second
Quarter 6 3/8 4 1/8 9 3/16 5 3/4 10 1/2 7 1/2
Third
Quarter 5 1/16 3 7/8 7 9/16 6 12 9 3/8
Fourth
Quarter 4 1/4 2 9/16 6 1/2 3 1/2 12 1/2 9 3/4
ITEM 6 SELECTED FINANCIAL DATA
In 1995, the Company recorded a gain of $10.1 million, net of taxes,
resulting from a litigation settlement (Note 11 to the Company's consolidated
financial statements) and recognized a $17.0 million provision for asset
valuation resulting from the Shoney's, Inc. Sale Transaction (Note 2 to the
Company's consolidated financial statements). The Company recognized a $5.3
million gain, net of tax, in 1993 following the sale of its remaining interest
in the Partnership and provided $35.0 million for restructuring charges.
During 1992, the Company recorded an extraordinary loss, net of tax, of $11.9
million in connection with an early extinguishment of debt. Discontinued
operations in 1991 include a gain of $17.5 million from the settlement of
litigation with Siemens Information Systems, Inc., and a gain of $7.9 million
related to the Partnership.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
FISCAL YEAR ENDED
--------------------------------------------------------------------
DECEMBER 31, DECEMBER DECEMBER DECEMBER DECEMBER 31,
1995 25, 26, 31, 1991
1994 1993 1992
------------ ----------- ---------- ----------- ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues . . . . $283,578 $287,384 $289,439 $277,390 $261,130
Income (loss)
from continuing
operations (11,309) (3,717) (36,488) 662 (12,053)
Income (loss)
before
extraordinary
item and
cumulative
effect of
accounting
changes...........(1,196) (3,717) (31,215) 662 10,667
Net income (loss).(1,196) (3,717) (31,215) (14,125) 10,667
Income (loss) per
share from
continuing
operations...... (.55) (.18) (1.81) .04 (.63)
Net income (loss)
per share......... (.06) (.18) (1.55) (.77) .55
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
----------------------------------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 25, 26, 31, 31,
1995 1994 1993 1992 1991
----------- ---------- ---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Working capital
(deficiency).. $(23,065) $(17,972) $(10,796) $ 2,734 $ 28,123
Total assets..... 248,876 254,496 258,839 255,607 282,794
Short-term
obligations.... 24,231 3,725 1,728 5,278 18,905
Long-term
obligations
including
minority
interest........ 81,628 107,721 106,773 110,937 107,710
Shareholders'
equity.......... 66,866 67,570 70,559 83,650 97,318
</TABLE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
REVENUES
Revenues for 1995 which include 53 weeks versus 52 weeks in 1994 decreased
1.3% or $3.8 million to $283.6 million. Excluding an increase in revenue of
$5.0 million attributable to the additional week in 1995, same store sales for
the Shoney's concept declined 3.9% or $9.1 million and same store sales for
the Captain D's concept increased 1.2% or $.6 million. Comparable store sales
exclude the first twelve weeks of a new restaurant's operations which accounts
for $.5 million of revenues in 1995. New stores accounted for $1.0 million of
1995 revenues. Revenues for 1994 include $1.8 million for units closed during
1994. Revenues of $3.0 million and expenses of $2.8 million related to units
provided for in the 1993 reserve for restructuring have been excluded from the
1995 statement of operations.
The Company is the largest franchisee of Shoney's, Inc. As a franchisee,
the Company is highly dependent upon the franchisor for marketing, training,
product development and restaurant procedures in order to be successful.
During 1995, the Shoney's concept, and therefore the Company's Shoney's
restaurants, have faced problems which led to declines in comparable stores
sales. Management believes that this decline in comparable store sales is the
result of numerous factors including a more competitive environment and a
decline in operational performance. In addition to these factors, comparable
store sales were also effected in the fourth quarter by negative publicity on
food handling procedures. Shoney's was included, along with restaurants of
several other national restaurant chains, in a national television "news
magazine" program on restaurant industry cleanliness and food handling
practices. Following the airing of this program, the Company's Shoney's
concept experienced declines in comparable store sales. The Company, in
connection with Shoney's, Inc., is in the process of rolling out various
programs to focus on the softness in comparable store sales. An example of one
program is Shoney's, Inc.'s new marketing strategy, which features Andy
Griffith serving as a celebrity spokesperson for Shoney's in a series of radio
and television commercials along with related point of sale marketing
materials. During the fourth quarter, the Company received the results of a
Food and Drug Administration (FDA) evaluation of sanitation and safety of
foods of the Shoney's concept. The evaluation included Shoney's, Inc.
restaurants as well as some of the Company's restaurants. The Shoney's system
received a marginal rating on the evaluation. As a result of this evaluation,
the Company has implemented a "Serve Safe" program which is addressing the
weaknesses noted in the evaluation. In fiscal 1996, the Company's comparable
store sales have increased .4% in the Shoney's concept and .4% in the Captain
D's concept through March 24, 1996.
Although the Company has experienced some recent improvements in same store
sales in the Shoney's concept, management has concluded that the overall
concept must be improved in order to overcome the financial deterioration from
the three-year decline in same store sales. Because the Company is a
franchisee, its ability to make changes in the concept is limited.
Accordingly, management believes that the Company's ability to reverse the
deterioration of operations in the Shoney's restaurants owned by the Company
is largely beyond its own control and is dependent on Shoney's, Inc.
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
1995 and 1994 is shown below:
1995 1994
------------ -----------
Food, supplies and uniforms..................... 36.6% 35.8%
Restaurant labor and benefits................... 30.3% 30.5%
Restaurant depreciation and amortization........ 4.3% 4.9%
Other restaurant operating expenses............. 19.3% 18.3%
------------ -----------
90.5% 89.5%
============ ===========
The Company's food costs suffered from price increases in several high
volume commodities during 1995, including seafood, poultry and pork. These
increases along with relatively fixed costs for supplies and uniforms resulted
in increased food costs as a percentage of revenues. The decrease in labor
costs during the current year at the Company's restaurants is due to a decline
in workers' compensation. This decline in workers' compensation expense is due
to a $3.5 million adjustment to workers' compensation in the fourth quarter of
1995 to decrease the Company's reserves to more accurately reflect its
liabilities. If such adjustment had not occurred, restaurant labor and
benefits costs would have been 31.5% of revenues or up 1% from 1994. This
increase is 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 improve customer service. Restaurant depreciation and amortization
decreased in relation to the prior year due to the Shoney's South assets
acquired by the Company in 1988 becoming fully depreciated in 1995. Other
restaurant operating expenses increased as a percentage of revenues primarily
due to increased repairs and maintenance expenses along with increased
advertising costs. The increase in repairs and maintenance expenses in 1995 is
primarily due to the increased aging of the buildings and equipment, as well
as costs related to the implementation of a preventive maintenance program and
start-up costs associated with a preventive maintenance contract. Subsequent
to year-end, disputes have arisen under this contract relating to billing
issues for the work performed.
The Company terminated the contract in March, 1996 and is in litigation with
the other party alleging breach of contract (See Item 3 and Note 11 to the
Company's consolidated financial statements). The increase in advertising
costs is primarily due to an increase in radio and television promotion
begun during 1995.
General and administrative costs for 1995 declined by 8% or approximately
$1.9 million from 1994. This decrease is the result of cost cutting efforts
and savings associated with the physical consolidation of the Company's
corporate headquarters.
The Company recorded a provision of $17.0 million for asset valuation in
connection with the Shoney's, Inc. Sale Transaction (See Item 1 and Note 2 to
the Company's consolidated financial statements).
During 1995, the Company recorded a decrease in its restructuring reserve
of approximately $5.9 million. This decrease princially resulted from the
Company's decision to leave three restaurants open that had been provided for
in the Company's restructuring reserve. (See "Restructuring Charges" below and
Note 3 to the Company's consolidated financial statements).
Operating income for 1995 declined 30.0% or $1.6 million excluding the
provision for asset valuation in 1995 and restructuring charges in 1995 and
1994. This decrease was primarily driven by a 1.0% increase in food costs and
a 3.8% increase in other restaurant operating expense, somewhat offset by
lower general and administrative costs.
OTHER INCOME AND EXPENSES
Interest income decreased ninety thousand dollars primarily due to a
reduction in the investment balance held during the current year. Interest
expense increased three hundred thousand dollars primarily due to a higher
weighted average interest rate during 1995 as compared to 1994. (See Item 3
and Note 11 to the Company's consolidated financial statements).
DISCONTINUED OPERATIONS
Discontinued operations for 1995 include a gain of $10.1 million, net of
income taxes of $6.4 million, in connection with the Maxcell Settlement. (See
Item 3 and Note 11 to the Company's consolidated financial statements).
1994 COMPARED TO 1993
REVENUES
Revenues for 1994 decreased .7% or $2.0 million to $287.4 million due
primarily to softness in same store sales at the Shoney's concept. New
restaurants accounted for $7.3 million of 1994 revenues, while comparable
store sales declined $9.3 million, or 4.3%, in the Shoney's concept and
increased $2.6 million or 6.0% in the Captain D's concept. The first twelve
weeks of a new restaurants' operations are excluded from the comparable store
sales computation. Revenues for 1993 include $19.9 million relating primarily
to 27 under-performing units, which were either closed subsequent to the
second quarter of 1993 or are scheduled to be closed in accordance with the
Company's restructuring plan adopted in 1993. Revenues and expenses related to
units provided for in the reserve for restructuring have been excluded from
the 1994 statement of operations.
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.................. 35.8% 35.2%
Restaurant labor and benefits................ 30.5% 31.2%
Restaurant depreciation and amortization..... 4.9% 4.7%
Other restaurant operating expenses.......... 18.3% 17.7%
------------ -------------
89.5% 88.8%
============ =============
The Company's food costs suffered from price increases in several high
volume commodities during 1994, including shrimp and cooking oil. These
increases along with relatively fixed costs for supplies and uniforms resulted
in increased food costs as a percentage of revenues. The decrease in labor
costs during the current year at the restaurants was due to a decline in
workers' compensation. This decline in workers' compensation expense was
primarily due to a $4.5 million adjustment to workers' compensation in the
fourth quarter of 1993 to increase the Company's reserves to more accurately
reflect the likely outcome of its liabilities. Restaurant depreciation and
amortization increased in relation to the prior year due to the full year
depreciation expense related to the 18 newly constructed units during 1993.
Other restaurant operating expenses increased as a percentage of revenues
primarily due to increased repairs and maintenance expenses along with
increased advertising costs. The increase in repairs and maintenance expenses
in 1994 was primarily due to the increased aging of the buildings, cleaning
and repair costs of the carpets installed in various store locations during
1993, and increased restocking of smallwares. The increase in advertising
costs was primarily due to promotional outdoor advertising begun during 1994.
General and administrative expenses for 1994 decreased $4.7 million in
relation to 1993 due to decreased workers' compensation and general liability
expense for the Company and decreased salary expense associated with a
reduction in corporate staff along with a decrease in executive compensation.
The decrease in workers' compensation and general liability expense is
primarily due to an increase in the reserves at the end of 1993 to better
reflect the likely outcome of its liabilities.
Operating income for 1994 rose 84.8% or $2.4 million, excluding the
restructuring charges in 1994 and 1993. This increase was primarily driven by
a 16.5% decrease in general and administrative expenses, which was somewhat
offset by slightly higher food costs and other restaurant perating expenses.
OTHER INCOME AND EXPENSES
Interest income decreased $.26 million primarily due to a reduction in the
investment balance held during the current year. Interest expense declined $.3
million primarily due to a lower weighted average interest rate during 1994 as
compared to 1993.
RESTRUCTURING CHARGES
The Company adopted a restructuring plan as of 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 their current lease terms,
and restructuring divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company recorded $19.8 million of restructuring charges
consisting primarily of the write-off of assets and the accrual of lease and
other expenses, net of projected sales proceeds and sublease income. As of
December 31, 1995, the Company has closed 22 restaurants with plans to close
one more restaurant, and has determined that eight restaurants should stay
open. Management is still evaluating the timing of the closing of the
remaining restaurant. During 1995, the Company reduced its restructuring
reserve by $5.1 million due to a change in estimate as a result of
management's decision to leave three 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 and had lower than expected costs at other
locations. The restructuring reserve was also reduced by $2.2 million during
1995 for expenditures and asset write-offs related to the other 23 units.
With respect to the 19 restaurants projected to be closed no later than the
expiration of their current lease terms, the Company determined that the
recoverability of the assets has been permanently impaired, and accordingly,
provided $4.5 million primarily for the write-down of assets at the end of
1993. The Company has closed three of these units prior to or upon the
expiration of their current lease terms. The Company's restructure plan also
called for two additional units to be closed by December 31, 1995. Due to the
proposed Shoney's, Inc. Sale Transaction, management is still evaluating the
timing of closing of these two restaurants (See Note 2 to the Company's
consolidated financial statements). The reserve for restructuring was
increased by $.1 million during 1995 for the write-down of assets and
increased by $.7 million for a change in estimate.
With respect to the Company's restructuring of its divisional management
and consolidation of the Company's corporate offices, the Company paid out
approximately $2.3 million related to the restructuring reserve of which $1.0
million was for severance.
In addition to these reserves, the Company also has a reserve related to
units that were closed prior to 1993 and for the sale of vacant properties.
During 1995, the restructuring reserve was reduced by approximately $1.1
million resulting from expenditures and asset write-downs and by $.8 million
for changes in original estimates for the costs of disposal.
At December 31, 1995, the Company's reserve for restructuring of $11.6
million represents the amounts owed for lease and other expenses. The Company
has classified $3.5 million of the restructure as a current liability at
December 31, 1995. The Company also has an allowance for restructuring of $8.8
million recorded on its balance sheet for the write off of assets. The reserve
for restructuring includes management's best estimates of the remaining
liabilities associated with its restructuring and the net realizable value of
property. Due to uncertainties inherent in the estimation process, it is at
least reasonably possible that the Company's estimates of these amounts will
change in the near term. Revenues of $3.0 million and expenses of $2.8 million
related to units provided for in the restructuring reserve have been excluded
from the 1995 statement of operations.
LIQUIDITY AND CAPITAL RESOURCES
Working capital declined from a deficit of $18.0 million in 1994 to a
deficit of $23.1 million in 1995 due primarily to the classification of the
Credit Facility as a current liability in 1995. The Credit Facility matures
June 3, 1996, unless extended by the banks. This reduction was somewhat offset
by an increase in current assets as a result of the Company recording a
receivable for $30.0 million for the Maxcell Settlement at December 31, 1995.
The Company also recorded a current liability of approximately $13.5 million
for the expenses associated with the Maxcell Settlement.
Approximately 88% of the Company's restaurant sales are for cash and the
remainder are for credit card receivables which are generally collected within
3 days. Since the Company's payables 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. However, as a result of the
maturity of the Credit Facility, the working capital deficit as of December
31, 1995 was significantly higher than in prior years and if the Shoney's,
Inc. Sale Transaction is not consummated, the facility should be replaced with
long-term financing.
Net cash provided by operating activities decreased from $12.7 million in
1994 to $.1 million in 1995 due in part to a decrease in cash provided from
operations. Other factors contributing to this decline are increases in
accounts receivable and inventories balances and reductions in various
accruals and amounts owed under the Company's restructuring plan. In addition
to these factors, net cash provided in 1994 included a $2.5 million receipt of
a federal income tax refund.
Net cash used in investing activities decreased $10.1 million from 1994.
The decrease in cash used is primarily the result of the Company building
fewer restaurants in 1995. The Company made $6.8 million in capital
expenditures in 1995 compared to $19.4 million in 1994. Of the $6.8 million in
capital expenditures in 1995, $.8 million was for the acquisition of a site
and the completion of a Shoney's unit that was started in 1994, $.4 million
for rebuilding a Captain D's unit that was destroyed by fire, $.7 million for
the remodeling of four Shoney's restaurants and one Captain D's restaurant,
$2.2 million for maintenance type capital expenditures and $.8 million
relating to the new point of sale system. The remaining $1.9 million relates
primarily to the relocation of the Company's headquarters to Florida during
1995 and the purchase of commissary equipment. Proceeds in 1995 include $1.1
million from the disposal of various restaurant properties and equipment and
from the sale of excess property.
The Company has various reserved areas with minimum development
requirements for its Shoney's concept. Aggregate commitments beyond 1995
require 35 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 also has the right to develop
Captain D's restaurants in 124 counties in seven Southeastern states (Alabama,
Arkansas, Georgia, Mississippi, North 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. Due to the pending Shoney's, Inc.
Sale Transaction and the recent performance at Shoney's restaurants, the
Company does not intend to build any Shoney's or Captain D's restaurants in
1996. In the event that the Shoney's, Inc. Sale Transaction does not occur,
the Company will evaluate the requirements under these agreements and its
available capital resources and work with Shoney's, Inc. to revise or extend
them as needed. There can be no assurance that if the Shoney's, Inc. Sale
Transaction does not occur, the Company will be able to revise or extend these
reserved area agreements but management believes that an acceptable agreement
could be reached with Shoney's, Inc. If an acceptable agreement can not be
reached, Shoney's, Inc. could terminate these agreements.
Net cash used in financing activities was $4.1 million in 1995 compared to
$2.3 million provided in the prior year. The Company had a net reduction of
$1.0 million on its Credit Facility and proceeds of $.3 million from the
issuance of stock pursuant to employee stock plans. Other long-term debt
payments of $3.4 million during 1995 related to payments on capital lease
obligations and other long-term debt. In 1993, The Airlie Group L.P. and
certain related parties made an investment in the Company which resulted in
net proceeds of $29.1 million from the issuance of $15.0 million of convertible
debentures and $15.0 million of common stock warrants.
These proceeds were used to reduce borrowings under the Credit Facility and
pay other long-term debt.)
The Credit Facility with a syndicate of banks was amended and restated as
of January 31, 1995. The Credit Facility, as amended, restricts total
borrowings available under the Credit Facility to $40.0 million and revises
certain financial covenant ratios and requires the collateralization of
additional properties. On February 29, 1996 in anticipation of the proposed
Shoney's, Inc. Sale Transaction, the Credit Facility was amended to revise
certain financial covenant ratios to allow for a provision of up to $25
million to be taken by the Company as an asset valuation (See Note 2) to the
consolidated financial statements.
Borrowings under the Credit Facility are secured by all shares of the
capital stock of Restaurants, whenever issued, intercompany debt of
Restaurants owed to the Company and ground lease mortgages with respect to
certain premises in which the land is currently leased but the building
located thereon is owned by Restaurants. In addition, the banks have exercised
their right to obtain, as security, assignments of other leases and/or
mortgages on real property currently owned or subsequently acquired. However,
the Company has rights to finance certain of these properties and obtain a
release of the collateral under certain conditions. The Company has also
agreed to reduce the outstanding Credit Facility whereby any amounts received
by Restaurants in excess of $5.0 million from any asset sales, mortgage
financing or sale/leasebacks will be applied 50% for general corporate
purposes and 50% to the paydown of the revolving credit facility and
commitment. The appropriate release of collateral will be made at the time of
paydown. Restaurants may repay intercompany borrowings but may not transfer
amounts to the Company except for the payment of a management fee not to
exceed $2.5 million in each fiscal year and a dividend in an amount sufficient
to pay interest on the Company's 5% Convertible Senior Subordinated Debentures
and 8 1/4% Convertible Subordinated Debentures, in each case provided that no
defaults under the Credit Facility exist either immediately before or after the
transfer. Restaurants must also maintain certain financial ratios, including
interest coverage ratios, senior debt service coverage ratios, and a minimum
consolidated tangible net worth. Although the Company is currently in
compliance with these financial ratios, the Company may not be in compliance
with certain financial ratio requirements contained in the Credit Facility as
of the end of the first quarter of 1996. At December 31, 1995, $21.4 million
was outstanding on the Credit Facility and letters of credit in the amount of
$10.6 million were outstanding, resulting in a remaining balance available to
borrow of $8.0 million under the Credit Facility. As of March 25, 1996, $5.3
million is available for borrowings under the Credit Facility.
As discussed in Note 2 to the Company's consolidated financial statements,
the Company is seeking to complete the Shoney's, Inc. Sale Transaction no
later than June 30, 1996. Under the terms of the Agreement, Shoney's, Inc.
will assume or retire certain obligations of the Company including the Credit
Facility, which matures June 3, 1996. The Company is discussing with its bank
group the possibility of extending the Credit Facility until the closing date
with Shoney's, Inc. The Company is also in discussions with respect to
obtaining certain waivers of financial covenants which may be required for the
first quarter of 1996. Additionally, the Company is discussing amendments or
waivers to the financial covenants that may be necessary prior to closing.
Management is of the opinion that the Company will be able to obtain such
agreements. However, there can be no assurance that such agreements can be
reached with respect to either extending the facility or amending or obtaining
waivers to the financial covenants.
The Company has outstanding $15.0 million of 5% Convertible Senior
Subordinated Debentures, due 2003, convertible into common stock at $11 per
share (the "Senior Debentures"). The Senior Debenture holders may require the
Company to repurchase the Senior Debentures, in whole or in part, in certain
circumstances involving a change in control of the Company. Restaurants has
guaranteed the repayment of the Senior Debentures on a subordinated basis. As
a condition to the closing of the Shoney's, Inc. Sale Transaction, the
liabiblities associated with or arising out of the Senior Debentures shall
have been satisfied in connection with the closing.
In addition, the Company has outstanding $51.6 million of 8 1/4%
Convertible Subordinated Debentures (the "Debentures"). The Debentures are
convertible at the option of the holder into common shares of the Company at
any time prior to maturity, unless previously redeemed or repurchased, at a
conversion price of $6.50 per share, subject to adjustment in certain events.
The Debentures mature on July 15, 2002 and are redeemable, in whole or in
part, at the option of the Company at any time on or after July 15, 1995,
initially at 105.775% of their principal amount and declining to 100% of
their principal amount on July 15, 2002, together with accrued and unpaid
interest. The Debenture holders may also require the Company to repurchase the
Debentures, in whole or in part, in certain circumstances involving a change
in control of the Company as defined in the indenture covering the Debentures
(the "Indenture"). However, a change in control, as defined in the Indenture,
will create an event of default under the Credit Facility and, as a result, any
repurchase would, absent a waiver, be blocked by the subordination provisions
of the Indenture until the Credit Facility (and any other senior indebtedness
of the Company and senior indebtedness of Restaurants with respect to which
there is a payment default) has been repaid in full. The Debentures are
unconditionally guaranteed (the "Guarantee") on a subordinated basis by
Restaurants. The Debentures and the Guarantee are subordinated to all existing
and future senior indebtedness, as defined in the Indenture, of the Company.
The Indenture does not prohibit or limit the ability of the Company or any of
its subsidiaries to incur additional indebtedness, including that which will
rank senior to the Debentures. As a condition to closing of the Shoney's, Inc.
Sale Transaction, the obligations of the Company under the Debentures must
have been assumed by Shoney's and the Company released from all obligations
thereunder.
In the event the Shoney's, Inc. Sale Transaction does not close (See
conditions to closing of the Shoney's, Inc. Sale Transaction in Item I -
Business), management is of the opinion that the Company can renegotiate its
Credit Facility or obtain alternative sources of financing. However, there can
be no assurance that this can be accomplished or that the terms of the
extended Credit Facility or alternative sources will be as favorable as those
currently in place. In addition, management's opinion is a forward-looking
statement; a number of factors could cause management's opinion to be
incorrect including a return to a declining trend in same store sales,
increased cost pressures, changes in external or internal conditions which
make finding timely sources of cost effective capital impossible, and
termination of the Shoney's transaction after further delays in closing. The
amount outstanding on the Credit Facility at December 31, 1995 is $21.4
million with an additional $10.6 million outstanding on letters of credit. In
the event the Shoney's, Inc. Sale Transaction is consummated, the Company will
liquidate and distribute its assets, after making adequate provision for
liabilities. (See Item 1 "Business".)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS'
REPORT
To the Board of Directors and Shareholders
of TPI Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of TPI
Enterprises, Inc., and its subsidiaries as of December 31, 1995 and December
25, 1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
December 31, 1995. Our audits also included the financial statement schedules
listed in the Index at Item 14(a)(2). These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TPI Enterprises, Inc. and its
subsidiaries as of December 31, 1995 and December 25, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 31,1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
March 28, 1996
Memphis, Tennessee
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, DECEMBER 25,
1995 1994
------------ -----------
(Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents........................ $ 8,744 $ 17,228
Accounts receivable - trade (net of allowance
for doubtful accounts of
$125 in 1995 and $59 in 1994).................... 1,248 806
Litigation settlement receivable................. 30,000 ---
Inventories...................................... 13,020 11,969
Deferred tax benefit............................. 5,728 5,666
Other current assets............................. 3,237 3,256
---------- ----------
TOTAL CURRENT ASSETS........................... 61,977 38,925
---------- ----------
PROPERTY AND EQUIPMENT (at cost).................... 236,969
240,394
Less accumulated depreciation and amortization... 79,637 70,401
Less allowance for restructuring................. 8,752 12,430
---------- ----------
148,580 157,563
---------- ----------
OTHER ASSETS:
Goodwill (net of accumulated amortization of
$9,431 in 1995 and $8,152 in 1994)............... 36,396 37,675
Less valuation allowance......................... 17,000 ---
---------- ----------
19,396 37,675
Other intangible assets (net of accumulated
amortization of $6,504 in 1995, and $5,157
in 1994)......................................... 18,298 19,726
Other............................................ 625 607
---------- ----------
38,319 58,008
---------- ----------
$ 248,876 $ 254,496
========== ==========
See notes to consolidated financial statements
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, DECEMBER 25,
1995 1994
------------ -----------
(Dollars in thousands)
CURRENT LIABILITIES:
Current portion of long-term debt............... $24,231 $ 3,725
Accounts payable - trade........................ 16,052 15,565
Accrued costs of litigation settlement.......... 13,537 ---
Accrued expenses and other current liabilities.. 30,604 36,889
Income taxes currently payable.................. 618 718
--------- ---------
TOTAL CURRENT LIABILITIES.................... 85,042 56,897
--------- ---------
LONG-TERM DEBT..................................... 81,628 107,721
RESERVE FOR RESTRUCTURING.......................... 8,162 14,735
--------- ---------
DEFERRED INCOME TAXES.............................. 5,537 5,663
--------- ---------
OTHER LIABILITIES.................................. 1,641 1,910
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred shares, no par value; 20,000,000
shares authorized; none
issued and outstanding.......................... --- ---
Common shares, $.01 par value; 100,000,000
shares authorized;
33,402,553 and 33,241,118 issued in 1995 and
1994............................................ 334 332
Additional paid-in capital...................... 226,454 226,144
Deficit......................................... (90,157) (88,961)
--------- ---------
136,631 137,515
Less treasury stock, at cost, 12,805,266 and
12,846,094 common
shares in 1995 and 1994....................... 69,765 69,945
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 66,866 67,570
--------- ---------
$248,876 $ 254,496
========= =========
See notes to consolidated financial statements
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
RESTAURANT REVENUES.......................$ 283,578 $287,384 $289,439
--------- -------- --------
COSTS AND EXPENSES:
FOOD, SUPPLIES AND UNIFORMS............ 103,874 102,831 101,980
RESTAURANT LABOR AND BENEFITS.......... 85,889 87,644 90,263
RESTAURANT DEPRECIATION AND
AMORTIZATION........................... 12,252 14,138 13,632
OTHER RESTAURANT OPERATING EXPENSES.... 54,705 52,727 51,291
GENERAL AND ADMINISTRATIVE EXPENSES.... 21,993 23,906 28,641
Provision for asset valuation.......... 17,000 --- ---
RESTRUCTURING CHARGES, NET............. (5,929) (986) 35,082
OTHER, NET............................. 1,167 940 819
--------- -------- --------
290,951 281,200 321,708
--------- -------- --------
OPERATING INCOME (LOSS)................... (7,373) 6,184 (32,269)
--------- -------- --------
Other income and expenses:
Interest income........................ 243 337 593
Interest expense....................... (10,529) (10,238) (10,539)
Other.................................. --- --- (109)
--------- -------- --------
(10,286) (9,901) (10,055)
--------- -------- --------
Loss from continuing operations before
income taxes.............................. (17,659) (3,717) (42,324)
Income tax expense (benefit).............. (6,350) --- (5,836)
--------- -------- --------
Loss from continuing operations........... (11,309) (3,717) (36,488)
Discontinued operations:
Litigation settlement income, net...... 10,113 --- ---
Gain on disposal of discontinued
operations, net........................ --- --- 5,273
--------- -------- --------
10,113 --- 5,273
--------- -------- --------
Net loss $(1,196) $(3,717) $(31,215)
========= ======== ========
Primary income (loss) per common share:
Continuing operations.................. $(.55) $ (.18) $ (1.81)
Discontinued operations................ .49 --- .26
--------- -------- --------
Net loss per common share.......... $(.06) $(.18) $ (1.55)
========= ======== ========
Weighted average number of common and
common equivalent shares outstanding... 20,526 20,415 20,127
========= ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This page left interntionally blank.
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss from continuing operations $(11,309) $(3,717) $(36,488)
----------- ------------ ------------
Adjustments to reconcile net loss
from contiuing operations to net
cash provided by operatin
activities:
Depreciation and amortization... 17,280 19,216 18,046
Deferred income taxes........... (188) (3) (2,501)
Reserve for restructuring....... (5,929) (667) 35,100
Provision for asset valuation... 17,000 --- ---
Changes in assets and liabilities:
Accounts receivable - trade... (442) 178 79
Inventories................... (1,051) (545) 3,488
Other current assets......... (20) 2,258 (777)
Other assets.................. (660) 752 (1,415)
Accounts payable - trade... 486 (4,345) 4,688
Accrued expenses and other
current liabilities....... (3,687) 3,365 7,424
Reserve for restructuring..... (4,625) (3,370) (4,703)
Income taxes currently payable (6,450) 69 (4,188)
Other liabilities............. (269) (517) (1,878)
----------- ------------ ------------
Total adjustments............ 11,445 16,391 53,363
----------- ------------ ------------
Net cash provided by continuing
operations...................... 136 12,674 16,875
----------- ------------ ------------
DISCONTINUED OPERATIONS
Gain on disposal discoutinues
operations...................... 10,113 --- 5,273
Accounts receivable litigation
settlement...................... (30,000) --- ---
Accrued costs litigations
settlement...................... 13,537 --- ---
Assets held for sale............ --- --- 7,493
Income taxes.................... 6,350 --- 2,717
----------- ------------ ------------
Net cash provided by discontinued
operations.......................... 0 --- 15,483
----------- ------------ ------------
Net cash provided by operating
activities.......................... 136 12,674 32,358
----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property and
equipment (6,795) (19,402) (43,867)
Acquisition of businesses, net of
cash received....................... --- --- (4,660)
Disposition of property and
equipment........................... 2,219 5,054 5,230
Other.............................. 39 (16) 115
----------- ------------ ------------
Net cash used in investing
activities...................... $(4,537) $(14,364) $(43,182)
----------- ------------ ------------
</TABLE>
See notes to consolidated financial statements
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
----------- ------------ -----------
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on Credit
Facility............................. $ (1,000) $ 3,400 $ (18,550)
Common shares issued................. 312 576 17,204
Proceeds from 5% Convertible Senior
Subordinated Debentures.............. --- --- 15,000
Other long - term debt payments ..... (3,395) (1,722) (7,186)
--------- -------- --------
Net cash provided by (used in)
financing activities................. (4,083) 2,254 6,468
--------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... (8,484) 564 (4,356)
Cash and cash equivalents, beginning
of year 17,228 16,664 21,020
--------- -------- --------
Cash and cash equivalents, end of
year $8,744 $17,228 $16,664
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Non-cash transactions:
Capitalized lease obligations
entered into........................... --- $1,430 $3,241
Conversion of 8 1/4% Subordinated
Debentures............................. --- 162 ---
Liabilities assumed in acquisitions
of properties.......................... --- --- 1,819
Common stock issued in acquisitions
of properties.......................... --- --- 895
Cash payments (refunds) during the year for:
Interest............................. $ 9,183 $ 9,226 $ 10,100
Interest capitalized................. --- 77 202
Income taxes, net.................... 158 (2,164) 2,810
See notes to consolidated financial statements
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
COMMON SHARES ISSUED ADDITIONAL
NUMBER OF PAID-IN TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992.................. 31,017,689 $310 $207,314 $(54,029) $(69,945) $83,650
Investment in Company
by The Airlie Group
L.P.................. 1,503,220 15 14,030 ---- ---- 14,045
Issue of shares in
connection with
acquisition.......... 94,300 1 894 ---- ---- 895
Issue of shares
pursuant to employee
stock plans.......... 499,559 5 3,154 ---- ---- 3,159
Conversion of
subordinated
debentures............. 3,846 ---- 25 ---- ---- 25
Net loss................ ---- ---- ---- (31,215) ---- (31,215)
--------- ------ ---------- --------- ---------- ----------
Balance December 26,
1993....................33,118,614 331 225,417 (85,244) (69,945) 70,559
Issue of shares
pursuant to
employee stock plans.. 97,582 1 575 ---- ---- 576
Conversion of
subordinated
debentures............. 24,922 ---- 152 ---- ---- 152
Net loss................ ---- ---- ---- (3,717) ---- (3,717)
--------- ------ ---------- --------- ---------- ----------
Balance, December 25,
1994....................33,241,118 332 226,144 (88,961) (69,945) 67,570
Issue of shares
pursuant to
employee stock plans... 160,235 2 304 --- 180 486
Other................... 1,200 --- 6 --- --- 6
Net loss................ --- --- --- (1,196) --- (1,196)
--------- ------ ---------- --------- ---------- ----------
Balance, December 31,
1995....................33,402,553 $334 $226,454 $(90,157) $(69,765) $66,866
========= ====== ========== ========= ========== ==========
</TABLE>
See notes to consolidated financial statements
TPI ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TPI
Enterprises, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation. The Company, through TPI Restaurants, Inc. ("Restaurants"), its
wholly-owned subsidiary, is one of the largest restaurant franchisees in the
United States. Restaurants owns and operates 256 restaurants, including 188
Shoney's and 68 Captain D's in eleven states, primarily in the southern United
States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks, certificates of
deposit and short-term marketable securities with maturities of 90 days or
less when purchased, as cash and cash equivalents.
Restaurants utilizes a cash management system under which cash overdrafts
exist in the book balances of its primary disbursing accounts. These
overdrafts represent the uncleared checks in the disbursing accounts. The cash
amounts presented in the consolidated financial statements represent balances
on deposit at other locations prior to their transfer to the primary
disbursing accounts. Uncleared checks of $6,752,000 and $7,229,000 are
included in accounts payable at December 31, 1995 and December 25, 1994,
respectively.
INVENTORIES
Inventories, consisting of food items, beverages and supplies, are stated
at the lower of weighted average cost (which approximates first-in, first-out)
or market.
PRE-OPENING COSTS
Direct costs incidental to the opening of new restaurants are capitalized
and amortized over the restaurants' first year of operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property and equipment is provided on the
straight-line method over the estimated useful lives of the assets or, in the
case of leasehold improvements and certain property under capital leases, over
the lesser of the useful life or the lease term.
Goodwill related to the acquisition of Restaurants is amortized on a
straight-line basis over a thirty-six year period. The costs of franchise
license agreements which govern the individual Shoney's and Captain D's
restaurants and reserved area agreements are amortized on a straight-line
basis over the lives of the related franchise license agreements, up to 40
years. The Company has historically evaluated goodwill impairment based upon
future undiscounted cash flows. The Company recorded a valuation allowance
based upon the difference in the carrying value of the net assets and the
estimated fair value of consideration to be received from Shoney's, Inc. at
December 31, 1995. (See Note 2).
INCOME TAXES
The Company accounts for income taxes under Financial Accounting Standard
No. 109, "Accounting for Income Taxes", which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and liabilities.
INCOME (LOSS) PER SHARE
Primary earnings per share amounts are computed by dividing net income
(loss) by the weighted average number of common and common equivalent shares
outstanding during the period. Reported primary per share amounts include
common equivalents relating to dilutive stock options of -0-, 80,000 and
514,000 shares in 1995, 1994 and 1993, respectively.
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 issued in July 1992 and August 1992 and 5% Convertible
Senior Subordinated Debentures issued March 1993, after the elimination of the
related interest requirements, net of income taxes. The Company's convertible
debentures are excluded from the fiscal 1995, 1994 and 1993 computation due to
their antidilutive effect during that period. The inclusion of the Company's
dilutive outstanding options in the calculation, determined based on market
values at the end of each period, as applicable, is either antidilutive or
does not result in a material dilution of earnings per share for 1995, 1994
and 1993.
OTHER
A new accounting pronouncement on impairment of long-lived assets was
issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. The Company does not believe the adoption of this
accounting standard will have a material adverse effect on its result of
operations or consolidated financial position. Statement of Financial
Accounting Standard No. 123 "Accounting for Stock Based Compensation" was
issued in October 1995 and is effective for fiscal years beginning after
December 15, 1995. At this time, the Company does not plan to adopt the new
method of accounting, but will instead continue to apply the accounting
provision of Accounting Principles Board Opinion, No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for its employee stock options. The Company will, however, comply with the
disclosure requirements of the new standard with the annual financial
statements for the year ended December 29, 1996.
NOTE 2 - SHONEY'S, INC. TRANSACTION
On March 15, 1996, the Company entered into a Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement (the "Agreement") with Shoney's, Inc. to sell substantially all of
the Company's assets to Shoney's, Inc. (the "Shoney's, Inc. Sale
Transaction"). At the closing of the Shoney's, Inc. Sale Transaction, under
the terms of the Agreement, Shoney's, Inc. will deliver to the Company (a)
5,577,102 shares of Shoney's, Inc. common stock plus (b) shares of Shoney's,
Inc. common stock equal to $10,000,000 divided by the average closing market
price of Shoney's, Inc. common stock over the ten day trading period prior to
closing, subject to certain adjustments as provided in the Agreement. The
Company will deliver to Shoney's, Inc. all of the issued and outstanding
shares of capital stock of Restaurants and its wholly-owned subsidiaries, TPI
Entertainment, Inc. and TPI Insurance Corporation. Additionally, the Company
will transfer certain liabilities (See Note 6), all intercompany accounts and
all cash and cash equivalents of the Company except for $14,850,000 in cash,
of which $7,350,000 is designated to pay certain specified wind-up expenses.
If the specified wind-up expenses are less than the designated $7,350,000, the
Company is required to transfer the difference to Shoney's, Inc.; if the
expenses are greater, the excess will be paid from the remaining $7,500,000 of
cash. As a condition to closing of the Shoney's, Inc. Sale Transaction, the
obligations of the Company under the Debenture, Senior Debentures and Credit
Facility must have been assumed by Shoney's, Inc. and the Company released
from all obligations thereunder.
The Agreement requires the Company after closing to wind-down its
operations and distribute the Shoney's, Inc. common shares received and any
remaining amounts to the Company's shareholders. Management anticipates that
the closing of the Shoney's, Inc. Sale Transaction will occur by June 30, 1996
and that the majority of such distributions to the Company's shareholders will
be made during 1996.
At December 31, 1995, the Company has recorded a provision of $17,000,000
to reduce the carrying value of the net assets to be exchanged to the
estimated fair value of the consideration to be received from Shoney's, Inc.
This allowance has been reflected as a reduction in the Company's recorded
goodwill in the accompanying financial statements.
The Agreement may be terminated by mutual consent of the Company and
Shoney's, Inc. or by either party under certain circumstances, including if
the closing does not occur prior to June 30, 1996. The Agreement is subject to
a number of other conditions including, among other things, (1) the
approval of the shareholders of both the
Company and Shoney's, Inc., (2) the expiration of waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act, (3) the receipt by Shoney's,
Inc. of a commitment for additional financing in the amount of $60,000,000 and
its funding in accordance with its terms, (4) the receipt of fairness and
legal opinions and (5) the absence of a material adverse change to the
Company. The Agreement provides for the payment by the Company of a break-up
fee in the case of certain third party acquisition events or proposals.
NOTE 3 - RESTRUCTURING CHARGES
The Company adopted a restructuring plan as of 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 their current lease terms,
and restructuring divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company recorded $19,800,000 of restructuring charges
consisting primarily of the write-off of assets and the accrual of lease and
other expenses, net of projected sales proceeds and sublease income. As of
December 31, 1995, the Company has closed 22 restaurants with plans to close
one more restaurant, and has determined that eight restaurants should stay
open. Management is still evaluating the timing of the closing of the
remaining restaurant. During 1995, the Company reduced its restructuring
reserve by $5,136,000 due to a change in estimate as a result of management's
decision to leave three 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 and had lower than expected costs at other
locations. The restructuring reserve was also reduced by $2,157,000 during
1995 for expenditures and asset write-offs related to the other 23 units.
With respect to the 19 restaurants projected to be closed no later than the
expiration of their current lease terms, the Company determined that the
recoverability of the assets has been permanently impaired, and accordingly,
provided $4,500,000 primarily for the write-down of assets at the end of 1993.
The Company has closed three of these units prior to or upon the expiration of
their current lease terms. The Company's restructure plan also called for two
additional units to be closed by December 31, 1995. Due to the proposed
Shoney's, Inc. Sale Transaction, management is still evaluating the timing of
closing of these two restaurants. The reserve for restructuring was reduced by
$669,000 during 1995 for the write-down of assets and increased by $22,000 for
a change in estimate.
With respect to the Company's restructuring of its divisional management
and consolidation of the Company's corporate offices, the Company paid out
approximately $2,300,000 related to the restructuring reserve of which
$1,000,000 was for severance.
In addition to these reserves, the Company also has a reserve related to
units that were closed prior to 1993 and for the sale of vacant properties.
During 1995, the restructuring reserve was reduced by approximately $1,041,000
resulting from expenditures and asset write-downs and by $815,000 for changes
in original estimates for the costs of disposal.
At December 31, 1995, the Company's reserve for restructuring of
$11,617,000 represents the amounts owed for lease and other expenses. The
Company has classified $3,455,000 of the restructure as a current liability at
December 31, 1995. The Company also has an allowance for restructuring of
$8,752,000 recorded on its balance sheet for the write off of assets. The
reserve for restructuring includes management's best estimates of the
remaining liabilities associated with its restructuring and the net realizable
value of property.
Due to uncertainties inherent in the estimation process, it is at least
reasonably possible that the Company's estimates of these amounts will change
in the near term. Revenues of $3,000,000 and expenses of $2,800,000 related
to units provided for in the restructuring reserve have been excluded from
the 1995 statement of operations.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1995 1994
---------- -----------
(Dollars in thousands)
Owned:
Land............................................... $ 35,201 $ 35,602
Buildings.......................................... 52,699 52,616
Leasehold improvements and buildings on leased land 50,759 51,344
Equipment and furnishings.......................... 74,640 75,003
---------- -----------
213,299 214,565
---------- -----------
Leased:
Buildings.......................................... 23,074 23,905
Equipment.......................................... 596 1,924
---------- -----------
23,670 25,829
---------- -----------
Property and equipment (at cost) ..................... 236,969 240,394
---------- -----------
Less accumulated depreciation and amortization........ 79,637 70,401
---------- -----------
Less allowance for restructuring...................... 8,752 12,430
---------- -----------
Total property and equipment....................... $148,580 $ 157,563
========== ===========
Property and equipment with a net book value of approximately $21,565,000
and $22,233,000 were pledged as collateral for the Company's debt facilities
as of December 31, 1995 and December 25, 1994, respectively.
Depreciation and amortization are calculated using the straight-line method
and are based on the estimated useful lives of the assets as follows:
buildings, 30 years; equipment and furnishings, 3-15 years; and leasehold
improvements, primarily representing buildings constructed on leased property,
the lesser of the term of the lease or 30 years. Depreciation and amortization
of property and equipment, exclusive of depreciation and amortization included
in the restructuring reserve, totaled approximately $13,948,000, $14,985,000,
and $14,104,000 during 1995, 1994 and 1993, respectively. In 1995, 1994, and
1993, approximately $1,422,000, $1,643,000, and $1,716,00, respectively,
related to capitalized leases. Property and equipment includes capitalized
interest on construction of $425,000, $425,000, and $374,000 at December 31,
1995, December 25, 1994, and December 26, 1993, respectively.
NOTE 5 - OTHER INTANGIBLE ASSETS
Other intangible assets consists of the following:
1995 1994
---------- -----------
(Dollars in thousands)
Franchise and reserved area rights................. $17,710 $ 17,704
Deferred debt costs................................ 6,724 6,175
Unamortized pre-opening expense.................... 310 946
Other deferred charges............................. 58 58
---------- -----------
24,802 24,883
Less accumulated amortization...................... 6,504 5,157
---------- -----------
$18,298 $ 19,726
========== ===========
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
1995 1994
---------- -----------
(Dollars in thousands)
8 1/4% Convertible Subordinated Debentures, due
2002............................................... $ 51,563 $ 51,563
5% Convertible Senior Subordinated Debentures, due
2003............................................... 15,000 15,000
Credit Facility.................................... 21,400 22,400
Notes payable, interest rates of 7.75% to 10%,
due through 2007................................... 2,608 4,863
Obligations under capital leases................... 15,288 17,620
---------- -----------
105,859 111,446
Less amounts due within one year................ 24,231 3,725
---------- -----------
$ 81,628 $107,721
========== ===========
Scheduled annual principal maturities of long-term debt, excluding
obligations under capital leases, for the five years subsequent to December
31, 1995, are as follows: $23,004,000 in 1996; $42,000 in 1997; $47,000 in
1998, $52,000 in 1999; $58,000 in 2000, and $67,369,000 thereafter.
Interest expense from continuing operations for 1995, 1994, and 1993
includes interest on obligations under capital leases of $1,776,000,
$1,952,000 and $2,334,000, respectively.
DEBENTURES
On March 19, 1993, The Airlie Group, L.P., and certain related parties
(collectively the "Airlie Group") made an investment in the Company of
$30,000,000, including $15,000,000 of 5% Convertible Senior Subordinated
Debentures due 2003, (the "Senior Debentures"), due 2003, the issuance of
1,500,000 shares of the Company's common stock at $10 per share and the
issuance of warrants to purchase an additional 1,000,000 shares of common
stock at $11 per share. The Senior Debentures are senior to the 8 1/4%
Convertible Subordinated Debentures (the "Debentures"). The Senior Debentures
are convertible at the option of the holder into common shares of the Company
at any time prior to maturity at $11 per share, subject to adjustment in
certain events. The Senior Debentures mature on April 15, 2003 and are
redeemable, in whole or in part, at the option of the Company at any time
on or after April 15, 1996, initially at 103.5% of their principal amount
and declining to 100% of their principal amount on April 15, 2003. The
Debenture holders may require the Company to repurchase the Senior Debentures,
in whole or in part, in certain circumstances involving a change in control of
the Company as defined in the Debenture Purchase Agreement (the "Debenture
Agreement"). However, a change in control, as defined in the Debenture
Agreement prior to the closing of the Shoney's, Inc. Sale Transaction, will
create an event of default under the Company's Second Amended and Restated
Credit Facility (the "Credit Facility") and, as a result, any repurchase
would, absent a waiver, be blocked by the subordination provisions of the
Agreement until the Credit Facility (and any other senior indebtedness of the
Company and senior indebtedness of Restaurants with respect to which there is
a payment default) has been repaid in full. The Senior Debentures are
unconditionally guaranteed on a subordinated basis by Restaurants. They are
subordinated to all existing and future senior indebtedness of the Company and
Restaurants, excluding the Debentures. As a condition to closing of the
Shoney's, Inc. Sale Transaction, the liabilities associated with or arising
out of the Senior Debentures must be satisfied.
The 8 1/4% Convertible Subordinated Debentures (the "Debentures"), which
provided proceeds to the Company of $47,948,000, net of $3,802,000 in deferred
debt costs, are convertible at the option of the holder into common shares of
the Company at any time prior to maturity at a conversion price of $6.50 per
share subject to adjustment in certain events. The Debentures mature on July
15, 2002, and are redeemable at the option of the Company at any time on or
after July 15, 1995, at a premium which declines as the Debentures approach
maturity. The Debenture holders may also require the Company to repurchase the
Debentures, in whole or in part, in certain circumstances involving a change
in control of the Company as defined in the indenture covering the Debentures
(the "Indenture"). However, a change in control, as defined in the Indenture,
will create an event of default under the Credit Facility and, as a result,
any repurchase would, absent a waiver, be blocked by the subordination
provisions of the Indenture until the Credit Facility (and any other senior
indebtedness of the Company and senior indebtedness of Restaurants with
respect to which there is a payment default) has been repaid in full. The
Debentures are unconditionally guaranteed on a subordinated basis by
Restaurants. They are subordinated to all existing and future senior
indebtedness of the Company and Restaurants. As a condition to closing of the
Shoney's, Inc. Sale Transaction, the obligations of the Company under the
Debentures must be satisfied.
CREDIT FACILITY
The Company's Credit Facility with a syndicate of banks was amended and
restated as of January 31, 1995. The Credit Facility, as amended, restricts
total borrowings available under the Credit Facility to $40,000,000 and
revises certain financial covenant ratios and requires the collateralization
of additional properties. On February 29, 1996 in connection with the proposed
Shoney's, Inc. Sales Transaction the Credit Facility was amended to revise
certain financial covenant ratios to allow for a charge of up to $25,000,000
to be taken by the Company to write-down the carrying value of assets (See
Note 2). As discussed in Note 2, the Company is seeking to complete the
Shoney's, Inc. Sale Transaction no later than June 30, 1996. Under the terms
of the Agreement, Shoney's, Inc. will assume or retire certain obligations of
the Company including the Credit Facility, which matures June 3, 1996. The
Company is discussing with its bank group the possibility of extending the
Credit Facility to the closing date with Shoney's, Inc. Additionally, the
Company is discussing amendments or waivers to the financial covenants that
may be necessary prior to closing. Management is of the opinion that the
Company will be able to obtain such agreements. However, there can be no
assurance that such an agreement can be reached with respect to either
extending the facility or amending the financial covenants. The Company has
included the Credit Facility as a current liability in its financial
statements at December 31, 1995.
Borrowings under the Credit Facility, at the Company's option, bear
interest at either a defined base rate or a rate based on the London Interbank
Offered Rate. The weighted average interest rate on the amount outstanding was
8.5% and 8.2% for 1995 and 1994, respectively. The Company paid certain fees
and expenses to the Banks in connection with the original commitment letter
which, along with other costs associated with the Original Credit Facilities,
totaled approximately $2,000,000 and also agreed to indemnify the Banks
against certain liabilities. The Company also paid an amendment fee of $80,000
and costs of $470,000 for its Second Amended and Restated Credit Agreement
dated January 31, 1995. The Company also pays a fee based on the Eurodollar
rate, 2.5% at December 31, 1995, in connection with letters of credit issued
and a commitment fee equal to 0.50% per annum on the average daily unused
amount of the Credit Facility. The terms of the Credit Facility, increased the
fee paid on borrowings and letters of credit by .50% effective January 31,
1995.
Borrowings under the Credit Facility are secured by all shares of the
capital stock of Restaurants, whenever issued, intercompany debt of
Restaurants owed to the Company and ground lease mortgages with respect to
certain premises in which the land is currently leased but the building
located thereon is owned by Restaurants. In addition, the Banks have exercised
their right to obtain, as security, assignments of other leases and/or
mortgages on real property currently owned or subsequently acquired. However,
the Company has rights to finance certain of these properties and obtain a
release of the collateral under certain conditions. The Credit Facility limits
the amount of additional indebtedness which the Company and its subsidiaries
may incur and the aggregate annual amount to be spent on capital expenditures.
In addition, the Credit Facility limits, among other things, the ability of
the Company and its subsidiaries to pay dividends, create liens, sell assets,
engage in mergers or acquisitions and make investments in subsidiaries.
Restaurants may not transfer amounts to the Company except for the payment of
a management fee not to exceed $2,500,000 in each fiscal year and a dividend
in an amount sufficient to pay interest on the Senior Debentures and the
Debentures, in each case provided that no defaults under the Credit Facility
exist either immediately before or after the transfer. Restaurants must also
maintain certain financial ratios.
At December 31, 1995, $21,400,000 was drawn on the Credit Facility and
letters of credit in the amount of $10,592,790 were outstanding, resulting in
a remaining available balance of $8,007,210 under the revised Agreement.
NOTES PAYABLE
Notes payable as of December 31, 1995 consist of obligations secured by
buildings, land, equipment, and cash value life insurance policies with a net
book value of $7,712,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's Debentures, based on the quoted
market price, is $48,000,000 and $39,200,000 for December 31, 1995 and
December 25, 1994, respectively. The estimated fair value of the Company's
Senior Debentures at December 31, 1995 is $11,400,000 and $11,570,000 for
December 31, 1995 and December 25, 1994 based on the estimated borrowing rates
available to the Company. The Credit Facility reprices frequently at market
rates; therefore, the carrying amount of this facility is considered by
management to be a reasonable estimate of its fair value at December 31, 1995
and December 25, 1994. The estimated fair value of the Company's notes payable
approximates the principal amount of such notes outstanding at December 31,
1995 and December 25, 1994, which is based upon the estimated borrowing rates
available to the Company.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and December 25,
1994. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
1995 1994
--------- ---------
(Dollars in thousands)
Insurance................................................ $14,117 $17,368
Reserve for restructuring................................ 3,455 5,700
Taxes other than income taxes............................ 4,590 4,451
Interest................................................. 2,331 2,407
Payroll and compensation................................. 1,992 2,878
Other.................................................... 4,119 4,085
--------- ---------
$30,604 $36,889
========= =========
The Company is primarily self insured for general liability and workers'
compensation risks supplemented by stop loss type insurance policies. The self
insurance liabilities, related to continuing operations, included in accrued
insurance at December 31, 1995 and December 25, 1994 were approximately
$13,560,000 and $17,022,000, respectively.
During the fourth quarter of 1995, management received the 1995 actuarial
study relating to its self insurance programs for workers' compensation and
general liability. The study indicated a continued improvement in the
Company's claims development which resulted in the reduction of projected
ultimate losses. Accordingly, the Company reduced its accrual for workers'
compensation by $3,500,000 and its accrual for general liability by
$1,500,000.
The Company's accrual for self-insurance includes management's best
estimates of the liabilities associated with its self-insurance programs. Due
to uncertainties inherent in the estimation process it is at least reasonably
possible that the Company's estimates of these amounts will change in the near
term.
NOTE 8 - INCOME TAXES
The provision (benefit) for income taxes on continuing operations is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................... $(5,445) $ 3 $(3,335)
State and local........................... (905) --- ---
-------- --------- --------
(6,350) 3 (3,335)
======== ========= ========
Deferred:
Federal................................... --- (3) (1,611)
State and local........................... --- --- (890)
-------- --------- --------
--- (3) (2,501)
-------- --------- --------
$(6,350) $ --- $(5,836)
======== ========= ========
</TABLE>
The provision (benefit) for income taxes on continuing operations is
different from the amount that would be computed by multiplying the income
(loss) from continuing operations before provision (benefit) for income taxes
by the statutory U.S. federal income tax rates for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Provision (benefit) at statutory rate............ $(6,181) $(1,264) $(14,390)
State and local income taxes, net of federal
income tax benefit............................... --- --- (587)
Goodwill and other nondeductible items........... 6,442 476 435
Tax refund claims................................ --- --- (619)
Targeted jobs tax credit......................... (134) (318) (105)
Tip credits...................................... (351) (388) ---
Valuation allowance.............................. (5,679) 1,454 9,502
Other............................................ 447 40 (72)
-------- ------- ---------
Income tax provision (benefit) on continuing $
operations....................................... $(6,350) $ --- $ (5,836)
======== ======= =========
</TABLE>
NOTE 8 - INCOME TAXES (CONTINUED)
The tax effects of principal temporary differences in 1995 are shown in the
following table:
<TABLE>
<CAPTION>
Assets Liabilities Total
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Additional inventory costs for tax
purposes.................................. $ 275 $ --- $ 275
Net operating loss and contributions
carry forward............................. 663 --- 663
Reserves and accrued expenses............. 5,737 --- 5,737
Unamortized pre-opening expenses.......... 16 --- 16
Other..................................... 682 (282) 400
Valuation allowance....................... (1,363) --- (1,363)
---------- ---------- ----------
Current................................ 6,010 (282) 5,728
---------- ---------- ----------
Unamortized intangible assets............. --- (1,230) (1,230)
Excess tax over book depreciation and
sale leasebacks........................... --- (14,550) (14,550)
Deferred compensation..................... 561 --- 561
Reserves and accrued expenses............. 4,973 --- 4,973
AMT, net operating loss and targeted jobs
tax credit carry forward.................. 11,799 --- 11,799
Other..................................... 433 (4,239) (3,806)
Valuation allowance....................... (3,284) --- (3,284)
---------- ---------- ----------
Total Noncurrent....................... 14,482 (20,019) (5,537)
---------- ---------- ----------
Total............................... $20,492 $(20,301) $ 191
========== ========== ==========
</TABLE>
Other current assets include income tax refund receivable of $600,000 in
1995.
The valuation allowance at December 31, 1995 of $4,647,000 resulted from an
increase in net operating loss carryforwards in excess of deferred liabilities.
NOTE 8 - INCOME TAXES (CONTINUED)
The tax effects of principal temporary differences in 1994 are shown in the
following table:
<TABLE>
<CAPTION>
Assets Liabilities Total
---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Additional inventory costs for tax
purposes................................. $ 162 $ --- $ 162
Net operating loss and contributions
carry forward............................ 783 --- 783
Reserves and accrued expenses............ 7,563 --- 7,563
Unamortized pre-opening expenses......... --- (18) (18)
Other.................................... 496 (287) 209
Valuation allowance...................... (3,033) --- ( 3,033)
--------- ---------- ----------
Current............................... 5,971 (305) 5,666
--------- ---------- ----------
Unamortized intangible assets............ --- (1,138) (1,138)
Net operating loss....................... 7,827 --- 7,827
Excess tax over book depreciation and
sale leasebacks.......................... --- (14,250) (14,250)
Deferred compensation.................... 564 --- 564
Reserves and accrued expenses............ 8,616 --- 8,616
AMT, net operating loss and targeted
jobs tax credit carry forward........... 5,673 --- 5,673
Other.................................... 434 (1,757) (1,323)
Valuation allowance...................... (7,785) (3,847) (11,632)
--------- ---------- ----------
Total Noncurrent...................... 15,329 (20,992) (5,663)
--------- ---------- ----------
Total.............................. $ 21,300 $ (21,297) $ 3
========= ========== ==========
</TABLE>
Other current assets include an income tax refund receivable of $132,000 in
1994. The valuation allowance at December 25, 1994 of $10,818,000 resulted
from an increase in net operating losses in excess of deferred liabilities.
NOTE 8 - INCOME TAXES (CONTINUED)
The tax effects of principal temporary differences in 1993 are shown in the
following table:
<TABLE>
<CAPTION>
Assets Liabilities Total
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Additional inventory costs for tax
purposes................................. $ 209 $ --- $ 209
Net operating loss and contributions
carryforwards............................ 4,425 --- 4,425
Reserves and accrued expenses............ 6,026 --- 6,026
Unamortized preopening expenses ......... --- (275) (275)
Other.................................... --- (289) (289)
Valuation allowance...................... (3,362) --- (3,362)
--------- ---------- ---------
Total current......................... 7,298 (564) 6,734
--------- ---------- ---------
Unamortized intangible assets............ --- (1,237) (1,237)
Net operating loss....................... 3,625 --- 3,625
Investment related basis differences..... --- (3,847) (3,847)
Excess tax over book depreciation and
sale-leasebacks.......................... --- (10,450) (10,450)
Deferred compensation and pension expense 848 --- 848
Reserves and accrued expenses............ 5,402 --- 5,402
AMT and targeted jobs tax credit carry
forward.................................. 4,595 --- 4,595
Other.................................... 470 --- 470
Valuation allowance...................... (6,140)
(6,140) ---
--------- ---------- ---------
Total Noncurrent...................... 8,800 (15,534) (6,734)
--------- ---------- ---------
Total.............................. $ 16,098 $(16,098) $ ---
========= ========== =========
</TABLE>
The Company increased its deferred tax asset and liability in 1993 as a
result of legislation enacted during 1993 increasing the corporate tax rate
from 34% to 35% commencing in 1993. The valuation allowance at December 26,
1993 of $9,502,000 resulted from a change in circumstances during 1993
surrounding the likelihood of the realization of the deferred tax assets in
future years.
NOTE 8 - INCOME TAXES (CONTINUED)
The Company has tax carryforwards at December 31, 1995 expiring as follows:
<TABLE>
<CAPTION>
Net Targeted
Operating Jobs Tax Tip
EXPIRATION Contributions Loss Credit Credit
------------ ----------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1996.................... $ --- $ --- $ --- $ ---
1997.................... 415 --- --- ---
1998.................... 703 --- --- ---
1999.................... 779 --- ---
2003.................... --- --- 330 ---
2004.................... --- --- 403 ---
2005.................... --- --- 304 ---
2006.................... --- --- 501 ---
2007.................... --- 2,818 714 ---
2008.................... 12,131 159 ---
---
2009.................... 363 489 589
2010.................... --- --- 206 541
--------- ---------- ---------- ---------
Total................... $ 1,894 $ 15,312 $ 3,106 $ 1,130
========= ========== ========== =========
</TABLE>
The use of these carryforwards is limited to future taxable income.
Alternative minimum tax credits total $2,394,000 and may be carried forward
indefinitely.
NOTE 8 - INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes during 1995 and 1993 consists of
the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995
FEDERAL STATE & TOTAL
LOCAL
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations.................. $(5,445) $ (905) $ (6,350)
Discontinued operations:
Gain on disposal.................... 5,445 905 6,350
--------- ---------- ---------
Net benefit......................... $ $ $
--- --- ---
========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 26, 1993
FEDERAL STATE & TOTAL
LOCAL
--------- --------- ---------
(DOLLARS IN THOUSANDS)
--------- ---------
<S> <C> <C> <C>
Continuing operations.................. $(4,946) $ (890) $ (5,836)
Discontinued operations:
Gain on disposal.................... 2,717 --- 2,717
--------- --------- ---------
Net benefit......................... $(2,229) $ (890) $ (3,119)
========= ========= =========
</TABLE>
NOTE 9 - LEASE COMMITMENTS
The Company leases certain of its restaurant locations under long-term
lease arrangements. Lease terms generally range from 10 to 25 years and
normally contain renewal options ranging from 5 to 15 years, but do not
contain purchase options. The Company is generally obligated for the cost of
property taxes and insurance.
Some of these leases contain contingent rental clauses based on a percentage
of revenue. The building portions of such leases are capitalized and the land
portions are accounted for as operating leases. Contingent rentals on capital
leases were $310,000, $389,000, and $526,000 during 1995, 1994 and 1993,
respectively.
Rent expense under operating leases included in continuing operations is as
follows:
1995 1994 1993
----------- ----------- ------------
(Dollars in thousands)
Land and buildings:
Minimum...................... $ 5,441 $ 4,918 $ 5,184
Contingent................... 665 686 714
--------- ---------- ----------
6,106 5,604 5,898
Equipment leases................ 2,417 2,386 2,124
--------- ---------- ----------
$ 8,523 $ 7,990 $ 8,022
========= ========== ==========
NOTE 9 - LEASE COMMITMENTS (CONTINUED)
A summary of future minimum lease payments under capital leases,
non-cancelable operating leases, and leases reserved for in the allowance for
restructuring recorded in the fourth quarter of 1993 with remaining terms in
excess of one year at December 31, 1995 follows:
CAPITAL OPERATING RESERVED
LEASES LEASES LEASES
--------- ----------- ---------
(DOLLARS IN THOUSANDS)
1996............................ $2,881 $7,760 $1,090
1997............................ 2,738 7,546 1,084
1998............................ 2,574 6,989 941
1999............................ 2,348 5,963 931
2000............................ 2,135 4,679 859
Thereafter...................... 14,537 27 4,109
-------- --------- -------
27,213 32,964 9,014
Less interest................... 11,615 --- ---
-------- --------- -------
$15,598 $ 32,964 $ 9,014
======== ========= =======
Future minimum lease payments on operating leases in continuing operations
have been reduced for sublease rental income of approximately $389,000 to be
received in the future under non-cancelable subleases.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Several of the Company's reserved area agreements include expansion
schedules requiring the Company to develop a minimum number of Shoney's
restaurants in the reserved areas over a defined period of time. Pursuant to
these agreements, the Company is required to open a minimum of 36 Shoney's
restaurants through October 6, 2004. In 1991, the Company entered into an
agreement with Shoney's, Inc. to develop 38 new Captain D's restaurants over
20 years, at the approximate rate of two per year. The Company has constructed
eight restaurants with respect to this agreement. Due to the pending Shoney's,
Inc. Sale Transaction, the Company is not pursuing the building of such units
in 1996. Management is of the opinion that if the transaction is not
completed, the Company will be able to modify the agreement with no material
adverse effect on the operating result or financial position of the Company.
NOTE 11 - LITIGATION
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,
filed a complaint against McCaw Cellular Communications, Inc. ("McCaw"),
Charisma Communications Corp. ("Charisma") and various related parties,
related to McCaw'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. The
Company sought recision of the sales contract and damages based upon the
defendant's alleged fraudulent misrepresentation, breach of fiduciary duty,
conspiracies and tortious interference with contracts. On November 2, 1995,
the Company and Maxcell entered into a settlement agreement with AT&T Wireless
Services, Inc. (formerly McCaw Cellular Communications, Inc.) relating to this
lawsuit (the "Maxcell Settlement"). The Maxcell Settlement, which was approved
by the court in December 1995, provides for a total payment to Maxcell of
$30.0 million which was received subsequent to year end. The financial
statements include a gain of $10.1 million net of income taxes at December 31,
1995 after recording contingency fees and expenses of approximately $13.5
million related to the Maxcell Settlement. The expenses include $1.8 million
payable under certain agreements with two former employees.
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 $1.25 million plus interest,
punitive damages and attorney's fees in connection with the sale to a
subsidiary of American Multi-Cinema, Inc. of Entertainment's, interest in
Exhibition Enterprises Partnership (the "Partnership") in April 1991. The
Company's attorneys are unable at this time to state the likelihood of an
unfavorable outcome. Management does not believe that the ultimate outcome
will have a material adverse effect on the operating results or financial
position of the Company.
PORPOISE ASSET MANAGEMENT AND LAWRENCE CAPITAL MANAGEMENT, INC. V. J. GARY
SHARP, ET AL.; BROCK WEINER V. TPI ENTERPRISES, INC., ET AL. AND CRANDON
CAPITAL PARTNERS, ET AL. V. TPI ENTERPRISES, INC., ET AL.
During 1995, three shareholder suits were filed against the Company and its
Board of Directors. The plaintiffs allege, among other things, that the
Company's shareholders will receive inadequate consideration in the proposed
Shoney's, Inc. Sale Transaction, that the proposed transaction is the result
of unfair dealing and economic coercion and that the Directors have breached
their fiduciary duties to the Company's shareholders to maximize shareholder
value. The plaintiffs seek class action status and to enjoin the proposed
transaction and recover damages. The Company announced on March 18, 1996 that
it had signed a letter of understanding dated March 15, 1996 for the
settlement of these three lawsuits. This letter of understanding followed the
execution on March 15, 1996 of the Agreement. The settlement would entail the
consolidation and settlement of the three lawsuits and is subject to several
conditions, including confirmatory discovery, court approval of the settlement
and the closing of the Shoney's, Inc. Sale Transaction. The Company has
recorded a liability at December 31, 1995 for $250,000 as agreed to in the
settlement.
TPI RESTAURANTS, INC. V. MARLIN SERVICES, INC., MARLIN ELECTRIC, INC., D/B/A/
MARLIN SERVICES AND THE AETNA CASUALTY AND SURETY COMPANY AND MARLIN ELECTRIC,
INC. V. TPI RESTAURANTS, INC. AND RELATED MATTERS
On March 7, 1996, the Company filed a civil action; captioned TPI
Restaurants, Inc. v. Marlin Services, Inc., Marlin Electric, Inc., d/b/a/
Marlin Services, Inc. ("Marlin") and The Aetna Casualty and Surety Company.
The Company contends among other things that Marlin breached the terms of a
maintenance service agreement that Restaurants had entered into with Marlin by
failing to perform timely maintenance as required by the agreement,
overcharging for parts and materials, improperly billing for labor, improperly
charging for overhead, etc. On March 7, 1996, Marlin filed a separate action
in the U.S. District Court of Virginia against Restaurants alleging among
other things that Restaurants breached its contract with Marlin by failing to
pay amounts owed under the contract. Marlin claims damages in excess of
$2,200,000 through March, 1996. The Company's attorneys are unable at this
time to state the likelihood of a favorable or unfavorable outcome in these
actions.
Subsequent to the end of the year, the Company has been contacted by a
number of subcontractors employed by Marlin. These subcontractors have
indicated that they have not been paid, for certain services performed and
that they are entitled to mechanic's and/or materialman's liens on the
Company's restaurants. The Company is unable at the present time to
determine what liability, if any, exists to these and other subcontractors.
Management does not believe that the ultimate outcome will be a material
adverse effect on the operating results or financial position of the Company.
OTHER
The Company and its subsidiaries are defendants in various other lawsuits
arising in the ordinary course of business. While the result of any litigation
contains an element of uncertainty, it is the opinion of the management of the
Company that the outcome of such litigation will not have a material adverse
effect on the operating results or financial position of the Company.
NOTE 12 - SHAREHOLDER'S EQUITY
STOCK OPTION PLANS
Officers and other key employees have been granted options to purchase
common shares under nonqualified stock option plans adopted in 1982, 1983,
1984 and 1992. In addition, 165,000 shares of the Company's common stock are
reserved under the 1992 stock option plan for non-employee directors. At
December 31, 1995, an aggregate of 3,127,360 common shares were reserved under
these plans. The number of shares available for future grants was 850,000 at
December 31, 1995. Options are generally granted at the market price on the
date of grant and generally become exercisable in 20% increments over a
five-year period and expire ten years from the date of grant. At December 31,
1995, options were exercisable to purchase 1,555,710 shares at prices ranging
from $5.00 to $10.88.
The Company's stock option transactions are summarized as follows:
NUMBER OF EXERCISE
OPTIONS PRICE
PER OPTION
---------- ------------
Outstanding at December 31, 1992............... 2,542,750 $5.00 - $8.38
Granted..................................... 57,500 $9.38 - $10.88
Exercised................................... (426,140) $5.00 - $8.38
Canceled or lapsed.......................... (29,850) $6.25 - $8.38
----------
Outstanding at December 26, 1993............... 2,144,260 $5.00 - $10.88
Granted..................................... 117,500 $9.18 - $9.75
Exercised................................... (6,650) $6.25 - $7.00
Canceled or lapsed.......................... (17,750) $6.25 - $8.38
----------
Outstanding at December 25, 1994............... 2,237,360 $5.00 - $10.88
Granted..................................... 52,500 -----
Exercised................................... ----- -----
Canceled or lapsed.......................... (215,550) $5.75 - $8.38
----------
Outstanding at December 31, 1995............... 2,074,310 $5.00 - $10.88
==========
The Company has warrants outstanding at December 31, 1995 to purchase
1,000,000 shares of the Company's common stock at $11.00 per share.
NOTE 12 - SHAREHOLDER'S EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
On August 16, 1989, the Company adopted the 1989 Employee Stock Purchase
Plan (the "Employee Plan") pursuant to which up to 500,000 shares of the
Company's common stock may be purchased at 85% of the fair market value of the
shares of the Company's common stock on the first or last business day of each
of thirteen purchase periods. The Employee Plan was terminated on April 16,
1995. On December 16, 1994, the Company and certain subsidiaries adopted the
1995 Employee Stock Purchase Plan (the "1995 Employee Plan") pursuant to which
1,000,000 shares of the Company's common stock may be purchased at 85% of the
fair market value of the Company's common stock on the first or last business
day of each of thirteen purchase periods. The 1995 Employee Plan is open to
all active adult employees of the Company and Restaurants who have been
employed for at least six months, customarily work more than 20 hours per week
and more than five months per year, and are not directors or 5% shareholders
of the Company or any subsidiary, as defined in the Employee Plan. Employees
can designate up to 10% of their compensation for the purchase of shares,
which is consistent with the prior plan. During 1995, 1994, and 1993, 82,239,
90,932, and 73,419 shares, respectively, were issued under the Employee Plan
at prices ranging from $2.92 to $4.57 per share in 1995, $3.77 to $8.29 per
share in 1994 and $6.91 to $9.14 per share in 1993. Aggregate purchases were
approximately $305,000, $532,000, and $582,000, in 1995, 1994 and 1993,
respectively.
NOTE 13 - EMPLOYMENT AGREEMENTS, DEFERRED COMPENSATION AND RETIREMENT PLAN
EMPLOYMENT AGREEMENTS
The Company has agreements with two executive officers which expire in 1996
and 1999. The aggregate minimum commitment for future salaries under these
agreements is approximately $1,314,000. The Company is also required to pay
incentive bonuses equal to an aggregate of 4.2% of the annual increase in
operating income over the prior year and $44,000 for each percentage point
increase, or portion thereof, in the Company's same store sales. Additionally,
two key employees of Restaurants are covered by agreements, one of which
expires in 1997 and one contains a self-renewing term of three years. The
aggregate minimum commitment for future salaries under Restaurants' agreements
is $865,000. Additional bonuses are at the discretion of the Board of
Directors. All of the above agreements provide severance benefits in the event
of a change of control or an involuntary termination of the officer or key
employee. The maximum contingent liability related to these severance benefits
at December 31, 1995 is $2,200,000.
At December 31, 1995, the Company also has various employment agreements
with another executive which stipulates that the Company will pay the
executive upon a favorable outcome of the courts, 1% of the gross proceeds
relating to the McCaw lawsuit. The Company has recorded a provision of
$300,000 for the settlement of this obligation. (See Note 11). The payment of
this amount releases the Company from further obligations under the
executive's employment contracts except for his 1984 Termination Agreement
which stipulates that he is to receive three (3) years' salary at his present
rate in the event of a change in control of the Company. The aggregate maximum
commitment for future salaries under this agreement is $675,000. Subsequent to
the end of the year, the executive resigned and the Company entered into a
settlement agreement with him for $250,000. Under the terms of the Agreement,
the payment of this amount releases the Company from any obligations under his
1984 agreement.
In addition, the 1994 results of operations include a provision of
$1,600,000 resulting from the retirement of the Company's then Chairman of the
Board, effective January 31, 1995. The provision includes all amounts due
under his current employment contracts. The agreement also stipulates that the
Company will pay the former Chairman of the Board, upon a favorable outcome of
the courts, 5% of the gross proceeds relating to the McCaw lawsuit. (See Note
11). The Company has provided $1,500,000 in 1995 to pay this obligation.
The Company is also committed to certain individuals to pay them one year's
salary in the event that they are terminated without cause within two years of
their move to Florida in connection with the Company's relocation of its
corporate offices during 1995. The aggregate maximum commitment for future
salaries under this agreement is approximately $1,000,000.
DEFERRED COMPENSATION AGREEMENTS
Deferred compensation of $1,596,000 and $1,619,000 included in other
liabilities at December 31, 1995 and December 25, 1994, respectively, relates
to agreements with two former officers of Restaurants. Due to interest rate
fluctuations occurring at the measurement date, the Company recorded a
$179,000 charge to operations and a $562,000 increase in operations during the
fourth quarter of 1995 and 1994, respectively.
401 (K) RETIREMENT PLAN
The Company has established the TPI Enterprises, Inc. (401 (k) Retirement
Savings Plan (the "Plan") effective January 1, 1995. The Plan is a deferred
contribution plan which is administered by NationsBank and participates in the
NationsBank Defined contribution Master Plan. Employees become eligible to
participate after 1,000 hours of service. The Company is required to match
employee contributions at 25%, up to a maximum of 6% of a participant's
eligible salary. The Company's contribution to the Plan is in the form of
shares of the Company's common stock. The Company made contributions to the
Plan aggregating $181,000 during 1995.
RETIREMENT PLAN
In December 1993, the Board of Directors authorized the termination of the
Company's non-qualified retirement plan for certain senior executives. Prior
to December 31, 1992, the plan had four participants selected by the Board of
Directors to participate in the plan. Three participants became eligible
during 1992 to begin receiving retirement benefits under the early retirement
provisions of the plan. In February 1993, one of these participants informed
the Company of his intentions to retire prior to the end of 1993. The Company
paid a lump sum benefit payment to this officer of $1,850,000 during March
1993. Operations was charged $1,148,000 for the year ended December 31, 1992
in connection with this curtailment. Upon termination of the plan, the Company
made total lump sum benefit payments of $4,225,000 to the three remaining
participants in the plan. These payments were determined through negotiations
with the participants and were less than the aggregate actuarial present value
of the retirement benefits otherwise payable under the plan. This termination
resulted in a charge to operations of $1,220,000 during the year ended
December 26, 1993.
Net periodic pension cost for the fiscal year ended December 26, 1993
consists of the following:
1993
------------
(Dollars in
thousands)
Service cost - benefits earned during the period...... $ 254
Interest cost on projected benefit obligations........ 335
Amortization of unrecognized prior service costs...... 195
Effect of curtailment and settlements................. 1,220
--------
Net periodic pension costs............................ $ 2,004
========
Assumed rates of increase in compensation levels...... 6.0%
========
Assumed discount rate................................. 6.0%
========
NOTE 14 - DISCONTINUED OPERATIONS
Discontinued operations for 1995 include a gain of $10,113,000, net of
income taxes of $6,350,000 relating to the Maxcell Settlement. (See Note 11).
On May 28, 1993 the Company, through its wholly owned subsidiary,
Entertainment, completed the sale of its 50% interest in the Partnership, a
partnership with Cinema Enterprises, Inc., a wholly-owned subsidiary of AMC
for $17,500,000. As a result of this transaction, the Company recognized a
gain of $5,272,000, net of income taxes of $2,717,000 in the year ended
December 26, 1993.
NOTE 15 - RELATED PARTY TRANSACTIONS
On July 21, 1993, the Company, through a wholly-owned subsidiary, acquired
the stock of a company which operated three Shoney's restaurants, including
one owned and two leased locations.
Included in the acquisition were the exclusive rights to operate Shoney's
restaurants in the surrounding northern Palm Beach County, Florida area. The
purchase price of $3,860,000 included the issuance of 94,300 shares of the
Company's common stock at $9.49 per share, the weighted average price for the
prior twenty days. In conjunction with this transaction, the Company purchased
the land and building at one of the leased restaurant locations for $1,240,000.
The President and Chief Executive Officer of the Company was a 20% shareholder
of the acquired company and had a 50% interest in the land and building the
Company purchased. The Company engaged the services of an independent appraisal
company to review the fairness of the transaction.
On January 19, 1993, Restaurants purchased an airplane from a corporation
owned by the President and Chief Executive Officer of the Company for $650,000.
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Restaurants' fiscal year is comprised of fifty-two or fifty-three weeks
divided into four quarters of sixteen, twelve, twelve, twelve or thirteen
weeks, respectively. 1995 was a fifty-three week year and 1994 had fifty-two
weeks. During the third quarter of 1995, the Company reduced by $3,049,000 its
restructure reserve (Note 3). In the fourth quarter, the Company recorded a
$17,000,000 allowance for asset valuation (Note 2), $10,113,000 gain, net of
income taxes, from a litigation settlement (Note 11), $5,000,000 reduction of
insurance reserves (Note 7) and a $2,880,000 reduction of restructure reserves
(Note 3). During the fourth quarter of 1994, the Company recorded $1,600,000
related to the retirement of the Company's Chairman (Note 13), $600,000 for
adjustment to the Company's deferred compensation obligation (Note 13), and a
$1,000,000 reduction to the Company's restructure reserve (Note 3).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- --------- --------
(Dollars in thousands, except per share data)
QUARTER ENDED - 1995
------------------
<S> <C> <C> <C> <C>
Net sales................ $ 83,744 $ 67,241 $ 65,492 $ 67,101
Gross profit............. 8,362 7,040 3,884 7,572
Net income (loss) from
continuing operations.... (1,505) (759) (947) (8,098)
Net income (loss)........ (1,505) (759) (947) 2,015
Primary earnings per
share:
Continuing operations. (0.07) (0.04) (0.05) (.39)
Net income (loss)..... (0.07) (0.04) (0.05) .10
QUARTER ENDED - 1994
------------------
Net sales, restated...... 88,423 69,529 68,086 61,346
Gross profit............. 10,714 8,474 6,589 4,267
Net income (loss) from
continuing operations.... 847 336 (1,246) (3,654)
Net income (loss)........ 847 336 (1,246) (3,654)
Primary earnings per
share:
Continuing operations. 0.04 0.02 (0.06) (0.18)
Net income (loss)..... 0.04 0.02 (0.06) (0.18)
</TABLE>
Gross profit equals revenues less food, supplies and uniforms, restaurant
labor and benefits, restaurant depreciation and amortization and other
restaurant operating expenses. Net income (loss) per share is computed
separately for each period and, therefore, the sum of such quarterly per share
amounts may differ from the total for the year. The effect of convertible
debentures and stock options on the fully-diluted earnings per share
computation for all 1995 and 1994 were either antidilutive or did not result
in a material dilution of earnings per share and, therefore, primary and
fully-diluted earnings per share are equivalent.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, accountants during
1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The name, age, principal occupation for the last five years, selected
biographical information, and period of previous service as a director of the
Company with respect to each such nominee for director is set forth below.
The principal occupations listed refer to positions with the Company unless
otherwise indicated.
NAME AGE POSITIONS AND OFFICES DIRECTOR
PRESENTLY HELD WITH SINCE
THE COMPANY
J. Gary Sharp(1) 49 President, Chief Executive 1992
Officer and Director
Frederick W. Burford(1) 45 Executive Vice President, 1993
Chief Financial Officer,
Secretary and Director
Paul James Siu(1) 61 Director 1986
Edwin B. Spievack(1) 63 Director 1986
Osvaldo Cisneros(1) 55 Director 1992
Thomas M. Taylor(1) 53 Director 1993
John L. Marion, Jr.(1) 34 Director 1993
Douglas K. Bratton(1) 37 Director 1993
Lawrence F. Levy(1) 52 Director 1993
---------------
1 Pursuant to an agreement dated March 19, 1993, by and among the Company,
The Airlie Group L.P., The Bass Management Trust, Sid R. Bass Management
Trust, Lee M. Bass and TPI Investors, L.P., (collectively, the
"Purchasers") the Company agreed (i) to increase the size of the Board
and appoint Thomas M. Taylor, John L. Marion, Jr. and Douglas K. Bratton
as Directors and (ii) to seek the resignation or removal of such other
then existing directors so that the Company's Board would consist of (a)
Messrs. Taylor, Marion and Bratton, (b) Messrs. Cohen, Sharp, Burford and
Cisneros (collectively, the "Current Enterprises Directors"), (c) two of
the independent directors then serving on the Board as chosen by mutual
agreement of the Current Enterprises Directors and the Purchasers
(Messrs. Siu and Spievack), and (d) a new independent Director as
recommended by the Purchasers, and mutually agreed to by the Current
Enterprises Directors and the Purchasers (Mr. Levy). Mr. Cohen resigned
from his position of Chairman of the Board and Director of the Company
effective January 31, 1995.
J. Gary Sharp joined the Company in September 1989 when he was elected
President and Chief Operating Officer of Restaurants. In March 1993, Mr. Sharp
was elected President and Chief Executive Officer of the Company.
Frederick W. Burford joined the Company in November 1991 when he was
appointed Vice President, Chief Financial Officer and Treasurer of Restaurants.
In March 1993, Mr. Burford was elected Executive Vice President and
Chief Financial Officer of the Company. In March 1995, Mr. Burford was
appointed Secretary of both the Company and Restaurants. From March 1990
through January 1991 Mr. Burford was Vice President and Controller of The
Promus Companies, Incorporated ("Promus") and, from February 1991 through
October 1991, he was Vice President, Treasurer and Controller of Promus.
Paul James Siu, who was elected a director of the Company in September
1986, currently serves as principal of Paul Siu & Company, a business
consulting concern.
Edwin B. Spievack, who was elected a director of the Company in September
1986, served from 1982 through April 1995 as President of the North American
Telecommunications Association, an industry trade association. Since
January 8, 1996, Mr. Spievack has served as Vice President of Business
Development of Source Inc. Mr. Spievack also serves as President of EBSco,
Limited, a business consulting concern, and retains his active status as an
attorney. Mr. Spievack is also a director of Communications World Inter-
national, Inc.
Osvaldo Cisneros, who was elected a director of the Company in 1992, has
been President of Ocaat, CA, a holding company that operates numerous Pepsi-
Cola plants in Venezuela, since 1984; President of Telefonia Celular, a
cellular telephone company, since 1991; President of Produvisa, a glass
company, since 1987; President of Refractarios del Caroni, a brick company,
since 1980; and President of Central Portuguesa, a sugar mill, since 1985.
Thomas M. Taylor, who was elected director of the Company on March 19,
1993, has been President of Thomas M. Taylor & Co., an investment entity,
since May 1985; and President of TMT-FW, Inc., a corporation that serves as
one of two general partners of the general partner of The Airlie Group L.P. a
diversified investment firm, since October 1989. Mr. Taylor is also Chairman
of the Board of Directors of La Quinta Inns, Inc. and a director of John Wiley
& Sons, Inc.
John L. Marion, Jr., who was elected director of the Company on March 19,
1993, has served as an investment advisor for TMT-FW, Inc. and The Airlie
Group L.P. since 1990.
Douglas K. Bratton, who was elected director of the Company on March 19,
1993, has served as an investment advisor for TMT-FW, Inc. and a partner of
The Airlie Group L.P. since 1989.
Lawrence F. Levy, who was elected director of the Company on April 14,
1993, is the Chairman of the Boards of The Levy Organization and Levy
Restaurants. Levy Restaurants is a food service company that operates
restaurants and concession facilities and The Levy Organization is involved in
a variety of businesses including, but not limited to, the ownership,
management, leasing and development of commercial real estate. Mr. Levy is
also a director of Chicago Title and Trust Company.
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission initial reports
of ownership and reports of changes in ownership of shares of the Company's
Common Stock and other equity securities of the Company. Executive officers,
directors and beneficial owners of greater than 10% of the Company's Common
Stock are required by Commission regulation to furnish Enterprises with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to Enterprises and written representations from certain
reporting persons that no other reports on forms were required for such
persons, during the fiscal year ended December 31, 1995 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
EXECUTIVE OFFICERS
Information required regarding executive officers is included in the
Form 10-K Part I Item 4 entitled Executive Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Non-employee directors who beneficially own 5% or more of the shares of
the Company's Common Stock are compensated for their services as directors of
the Company at a rate of $10,000 per annum, and non-employee directors who
beneficially own less than 5% of the shares of the Company's Common Stock are
compensated at a rate of $25,000 per annum. Pursuant to this arrangement
during the fiscal year ended December 31, 1995, Messrs. Cisneros, Taylor,
Marion and Bratton were compensated for their services as directors of the
Company at the rate of $10,000 per annum and Messrs. Siu, Spievack and Levy
received $25,000 per annum for their services as directors of the Company.
Pursuant to agreements between The Airlie Group L.P. and each of Messrs.
Taylor, Marion and Bratton, each of such directors pays the fees he receives
for his services as a director of the Company over to The Airlie Group L.P.
Under the terms of the Company's 1992 Non-Employee Stock Option
Directors Plan (the "Non-Employee Directors Plan"), each non-employee director
is granted an option to purchase 2,500 shares of the Company's Common Stock on
the first business day of each February and August, provided the director is
serving on the Company's Board on the date of the grant. Grants under the
Non-Employee Directors Plan generally vest in 20% increments each year following
the date of grant. Grants made to non-employee directors on the date the
plan was adopted, vested as to each such director as if the grant had been
made when he was elected to the Company's Board. Pursuant to the Non-Employee
Directors Plan, Messrs. Cisneros, Siu, Spievack, Taylor, Marion, Bratton and
Levy were each granted an option to purchase 2,500 shares of the Company's
Common Stock on February 1, 1995 and on August 1, 1995. Each new non-employee
director is granted an option to purchase 10,000 shares of the Company's
Common Stock at the time such director is elected to the Board.
Messrs. Spievack, Cisneros and Siu are members of the Special Committee
which was established on September 12, 1995 by the Company's Board to determine
the advisability of a possible transaction with Shoney's, Inc. Members
of the Special Committee each receive a fee of $2,000, plus out-of-pocket
expenses for each in-person meeting of the Special Committee attended by such
member and for each day from and after September 12, 1995 (other than a day
during which an in-person meeting of the Special Committee occurs) during
which such member devotes a substantial portion of the day to Special
Committee affairs. Mr. Spievack received $57,180, Mr. Cisneros received $0
and Mr. Siu received $36,000 as compensation for their services rendered in
1995 with respect to the Special Committee.
No other director receives compensation for his services as such.
EXECUTIVE COMPENSATION
The Summary Compensation Table set forth below shows the compensation
for the past three years of each of the Company's most highly compensated
executive officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Other
Annual
Name and Principal Compensa- Awards Other Compen
Position Year Salary ($) Bonus ($) tion ($) Options (#) sation ($)
------------------ ---- ---------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Gary Sharp 1995 319,065 0 0 0
President and 1994 303,594 0 100,000 (1) 0
Chief 1993 289,402 0 0 33,357(2)
Executive Officer
Frederick E. Burford 1995 234,084 30,000 30,000 (1) 24,171(3)
Executive Vice 1994 197,953 30,000 50,774 0 55,206(4)
President, Chief 1993 182,438 36,255(5) 0 0
Financial Officer
and Secretary
Robert Kennedy 1995 227,326 0 0 300,000(6)
Executive Vice 1994 226,939 0 0 0
President 1993 313,600 0 0 700,000(8)
and Secretary(7)
Haney A. Long, Jr. 1995 253,211 124,284 0 6,405(9)
Vice President of 1994 217,440 142,977 84,684 0 105,388(10)
Procurement and 1993 202,325 143,954 0 0
Distribution
<FN>
(1) Options with respect to the 100,000 and 30,000 shares of the
Company's Common Stock for Mr. Sharp and Mr. Burford,
respectively, become exercisable in 10% increments tied to
increases in the trading prices of the Company's Common
Stock. The options do not begin to vest until the market
price of the Company's Common Stock exceeds $18 per share
for 20 consecutive trading days, at which time 10% will
vest. The options then vest in 10% increments each time
the stock price increases by $1 and retains such increase
for 20 consecutive trading days.
(2) Represents $33,357 in moving expenses paid to Mr. Sharp in
1993.
(3) Represents $24,171 in moving expenses paid to Mr. Burford
in 1995.
(4) Represents $55,206 in moving expenses paid to Mr. Burford
in 1994.
(5) Includes a $30,000 bonus and reflects the fair market value
of 500 shares of the Company's Common Stock awarded to Mr.
Burford at the time of the award.
(6) Represents $300,000 paid to Mr. Kennedy in March 1996,
pursuant to the terms of an agreement relating to the
Maxcell Lawsuit. See "- Employment Contracts, Termination
of Employment and Change in Control Arrangements."
(7) Mr. Kennedy retired as Executive Vice President and Secretary
of Enterprises effective March 17, 1996.
(8) Represents a lump sum payment of $700,000 made to Mr.
Kennedy upon termination of the Company's retirement plan in
connection with an employment agreement with Mr. Kennedy,
which provided for a reduction in compensation for future
services, and in satisfaction of the Company's obligations
under the retirement plan.
(9) Represents $6,405 in moving expenses paid to Mr. Long in
1995.
(10) Represents $105,388 in moving expenses paid to Mr. Long
in 1994.
</TABLE>
EMPLOYEE OPTION/SAR GRANTS
The Company has in effect stock option plans pursuant to which options
to purchase shares of the Company's Common Stock and stock appreciation rights
("SARs") (rights, granted in tandem with an option to receive cash payments
equal to any appreciation in value of the shares subject to option from the
date of the option grant to the date of exercise in lieu of exercise of the
option) are granted to officers and other key employees of the Company and its
subsidiaries.
The following table shows stock options granted to the Named Executive
Officers in 1995. Of the stock options shown in the Summary Compensation Table
above, none of the options were options with tandem SARs. No free-standing
SARs have been granted under the Company's stock option plans.
<TABLE>
<CAPTION>
Individual Grants
-- ------------------------------------------------------
Potential
Number of Percent of Realizable
Securities Total Exercise Value of Asumed
Underlying Options/SAR's of Base Annual Rtes of
Option/SAR's granted to Price Expiration Stock Price
Name granted Employees in ($/SH) Date Appreciation for
Fiscal Year Option Term
-- ------------ -------------- -------- ---------- -------------------
5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
J. Gary Sharp 0 -- -- -- ---
---
Frederick W. 30,000(1) 100% $3.875 12/31/98 0 0
Burford
Robert A. 0 -- -- -- ---
Kennedy ---
Haney A. Long, Jr 0 -- -- -- ---
---
---
-------------
<FN>
(1) The options do not become exercisable until the market price of the
Company's Common Stock exceeds $18 per share for twenty consecutive
trading days, at which time 10% will become exercisable. The options then
become exercisable in 10% increments each time the stock price increases
by $1 and retains such increase for 20 consecutive trading days.
</TABLE>
EMPLOYEE OPTION/SAR EXERCISES OF THE COMPANY'S COMMON STOCK AND
YEAR-END VALUE TABLE
The following table shows employee stock option exercises for the shares
of the Company's Common Stock by Named Executive Officers during 1995. The
table shows the number of shares covered by both exercisable and non-exercisable
employee stock options as of December 31, 1995, and the values for "in-the-
money" options, which represent the positive spread between the exercise
price of any outstanding stock option and the price of the Company's Common
Stock as of December 31, 1995.
AGGREGATED EMPLOYEE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Value Options/SAR's at Options/SAR's at
on Realized Fiscal Year Fiscal Year End
Name Exercise ($) End (#) ($)
---- -------- ----- Exercisable/ Exercisable/
Unexercisable Unexercisable
--------------- ---------------
<S> <C> <C> <C> <C>
J. Gary Sharp 0 0 142,900/150,000 0/0
Frederick W. 0 0 132,000/58,000 0/0
Burford
Robert A. Kennedy 0 0 55,000/0 0/0
Haney A. Long, Jr. 0 0 87,160/20,000 0/0
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
J. Gary Sharp is employed by the Company under an employment agreement
dated as of January 13, 1994 which expires January 13, 1999 at a current
minimum base salary of $335,018 per annum. Pursuant to the terms of the
employment agreement, Mr. Sharp is entitled to an annual salary increase of no
less than 5% of the immediately preceding year's base salary. Pursuant to the
terms of the employment agreement, Mr. Sharp is entitled to receive an annual
bonus in an amount equal to 2.7% of the increase in the Company's operating
profits (as defined in the agreement) for the calendar year, plus an
additional $28,000 for each percentage point increase (or portion thereof)
in the Company's same store nominal sales. As a result of the Company's
financial performance in 1995, Mr. Sharp received no annual bonus for 1995.
In addition, Mr. Sharp's employment agreement provides for a discretionary
annual grant of up to 50,000 stock options with a ten-year term that vest pro
rata over the five years following the grant with an exercise price equal to
the market price of the Company's Common Stock on the date of grant. Any such
grant will be based on a review of the Company's financial performance during
such year. Mr. Sharp did not receive a stock option grant at the end of 1995.
The employment agreement provides that in the event that Mr. Sharp's
employment with the Company is terminated without cause or Mr. Sharp
terminates his employment after a material breach of the employment agreement
by the Company that is not remedied, the Company will pay Mr. Sharp his full
base salary at the rate then in effect until January 13, 1999.
Frederick W. Burford is employed by the Company under an employment
agreement dated as of January 1, 1995 which expires on December 31, 1996 at a
current minimum base salary of $245,788 per annum. Pursuant to the terms of
the employment agreement, Mr. Burford is entitled to a 5% increase in annual
base salary for each year during the term of the agreement. Pursuant to the
employment agreement, Mr. Burford is also entitled to receive an annual bonus
of the amount equal to 1.5% of the increase in the Company's operating profits
(as defined in the agreement) for the calendar year plus an additional $16,000
for each percentage point increase in the Company's same store nominal sales.
As a result of the Company's performance in 1995, Mr. Burford received no
annual bonus for 1995 pursuant to the formula described above.
Pursuant to the employment agreement, Mr. Burford was granted 30,000 stock
options expiring December 31, 1998 with an exercise price of $3.875, the
closing market price of the Company's Common Stock on December 30, 1994, the
business day preceding the date of his employment agreement. The options do
not begin to vest until the market price of the Company's Common Stock
exceeds $18 per share for 20 consecutive trading days, at which time 10%
will vest. The options then vest in 10% increments each time the stock price
increases by $1, and retains such increase for 20 consecutive trading days.
In addition, Mr. Burford's employment agreement provides for a
discretionary annual grant of up to 50,000 stock options with a ten-year term
that vest pro rata over the five years following the grant with an exercise
price equal to the market price of the Company's Common Stock on the date of
grant. Any such grant will be based on a review of the Company's financial
performance during such year. Mr. Burford did not receive a stock option grant
at the end of 1995.
In the event that the employment agreement is terminated by the Company
without cause or by Mr. Burford for good reason (as defined in the agreement)
he shall be paid, as severance, one year's salary based on the compensation in
effect on the date of termination and his bonus accrued through the date of
termination.
Pursuant to the relocation policy adopted by the Company in connection
with the Company's relocation of its offices to Florida, Mr. Burford will also
receive one year's compensation if his employment is terminated without cause
if termination occurs within two years following relocation.
Mr. Kennedy's employment agreement with the Company expired on January 1,
1995. On February 20, 1995, Mr. Robert A. Kennedy entered into an agreement
with the Company clarifying and replacing a certain provision of his
employment agreement which survived the expiration of such employment
agreement. Pursuant to the terms of the new agreement, the Company and Maxcell
Telecom Plus, Inc. ("Maxcell") agreed to pay to Mr. Kennedy 1% of the gross
proceeds received by Maxcell or the Company in settlement of the action
brought by Maxcell against McCaw Cellular Communications, Inc., Charisma
Communications Corp. and various related parties (the "Maxcell Lawsuit") or
0.5% of the gross proceeds received upon a final, non-appealable judgment in
the Maxcell Lawsuit. Pursuant to the terms of this agreement, Mr. Kennedy was
paid $300,000 in March 1996 in connection with the settlement of the Maxcell
Lawsuit (the "Maxcell Settlement").
Pursuant to a Letter Agreement dated March 19, 1996 between Mr. Kennedy
and the Company (the "Letter Agreement"), Mr. Kennedy resigned from his
positions of Executive Vice President and Secretary of the Company effective
March 17, 1996. In connection therewith, Mr. Kennedy received a lump-sum
payment of $250,000 which was deemed to satisfy all payment obligations the
Company may have had to Mr. Kennedy under all agreements between Mr. Kennedy
and the Company. The Letter Agreement also provided for general releases by
the Company and Mr. Kennedy.
Mr. Haney A. Long's employment agreement with the Company expired
on January 1, 1996. His current base salary is $265,872 per annum. Pursuant
to the terms of the employment agreement, Mr. Long was entitled to receive
(i) a bonus payable at the end of the first quarter of each year in an amount
equal to 12.5% of his base salary, (ii) a bonus payable at the end of the
second quarter of each year in an amount equal to 12.5% of his base salary,
and (iii) a bonus payable at the end of the year in an amount no less than
25% of the gross salary and bonus earned by Mr. Long during the year.
Mr. Long received bonus payments of an aggregate of $124,284 during the
fiscal year ended December 31, 1995. Pursuant to the relocation policy
adopted by the Company in connection with the Company's relocation of its
offices to Florida, Mr. Long will also receive one year's compensation if
his employment is terminated without cause if termination occurs within two
years following relocation.
The Company's 1983 Stock Option Plan (the "1983 Plan"), 1984 Stock Option
Plan (the "1984 Plan"), 1992 Stock Option and Incentive Plan and Non-Employee
Directors Plan (each, an "Option Plan," and, collectively, (the "Option
Plans") contain certain change in control provisions. The Option Plans, except
for the Non-Employee Directors Plan, provide that the stock option agreement
may provide that if the holder of an option under such Option Plan is an
employee of a subsidiary of the Company and such subsidiary ceases to be a
subsidiary of the Company, such option shall be treated as if the employment
of the holder was terminated otherwise than by reason of death, voluntarily
or for cause, as provided in such Option Plan. Under the 1984 Plan, the
Stock Option Committee may provide that an option may become exercisable
immediately upon a change in control of the Company. The Non-Employee Directors
Plan also provides for acceleration of the exercisability of options in the
event of a change in control of the Company. Under the 1983 Plan and the 1984
Plan, a change in control shall be deemed to occur if any person is or
becomes the beneficial owner, directly or indirectly, of at least 35% of
the Company's outstanding voting securities, or in the event of a change
in the majority composition of the Company's Board. Under the Non-Employee
Directors Plan, a change in control shall be deemed to occur if any person
is or becomes the beneficial owner, directly or indirectly, of at least 50%
of the Company's outstanding voting securities, or in the event of a change
in the majority composition of the Board. The 1983 Plan and the 1984 Plan,
but not the options previously granted under such Option Plans, terminated
on May 9, 1994 and December 8, 1993, respectively, in accordance with their
terms.
COMPENSATION COMMITTEE REPORT
The undersigned members of the Compensation Committee, all of whom are
independent, non-employee members of the Company's Board, present to the
shareholders of the Company this report concerning the compensation of the
Company's executive officers. The role of the Compensation Committee in this
matter is to establish or approve both the broad principles underlying the
compensation program for executive officers and the specific application of
these principles to each executive officer's compensation package.
Compensation Philosophy.
The Compensation Committee believes that the Company's Board can
best meet its primary responsibility to shareholders of the Company -- to
enhance short-term and long-term profitability of the Company -- by attracting,
retaining and motivating management of the highest quality. A competitive and
fair compensation program that provides appropriate incentive to management is
essential to the attainment of this goal.
The Company's compensation program has three principal components: annual
base salary and fringe benefit plans, short-term incentives consisting of
annual bonuses and long-term incentives consisting of grants of stock options
under the Company's 1992 Stock Option and Incentive Plan (the "1992 Plan").
The annual bonuses are generally linked to the Company's performance based on
formulae which the Compensation Committee believes align the interests of the
executive officers with those of shareholders. Option grants are based to some
extent on historical performance but primarily on the Stock Option Committee's
subjective assessment of the executive officer's (and other employees') likely
ability to contribute to the growth of the Company over the term of the option
(after taking into consideration the executive officer's existing employee
stock options).
The members of the Compensation Committee also constitute the members of the
Stock Option Committee. In view of the Company's financial performance in
1995, no options were granted in 1995 under the 1992 Plan, except for 30,000
options granted to Mr. Burford pursuant to his employment agreement, which
options do not begin to vest until the market price of the Company's Common
Stock exceeds $18 per share for 20 consecutive trading days. The Company
has historically placed particular emphasis on its annual bonuses and its
option plans, in the belief that meaningful participation in the Company's
success is an effective and fair means of retaining and motivating its
executive officers.
COMPENSATION PROGRAM COMPONENTS
Salary. As noted above, annual base salary is one component of the Company's
compensation program. In formulating base salaries, the Company balances its
need to attract top quality executive officers with its desire to provide
these officers with sufficient incentive to perform in a way that enhances
corporate performance. The result is that the base salary for each executive
officer is designed to represent only a part of that officer's compensation
package. However, as a result of the 1995 performance of the Company, base
salary represented all of the compensation for the executive officers (other
than fixed bonuses not based on performance). For certain executive officers,
the base salary is set forth in an employment agreement for such officer which
generally provides for annual increases at a specified rate during the term of
the agreement. Other executive officers receive salaries not set forth in a
contract. The percentage of total compensation for executive officers
represented by base salary varies from year to year because the
incentive-based component of executive compensation varies from year to year.
Executive officers are also permitted to participate in other designated
fringe benefit plans.
In early 1995, the Company completed the consolidation of the offices in
Palm Beach Gardens, Florida. In connection with this move, the Company adopted
a new policy and certain base salary increases of up to 16% were given to
certain officers who relocated from Memphis, Tennessee to Palm Beach Gardens,
Florida.
Short-term incentives. Annual bonuses represent a second component of each
executive officer's total compensation. Certain of the executive officers
receive annual bonuses equal to a percentage of the increase in the Company's
profits attributable to operations for the year over profits for the prior
year generally pursuant to formulae set forth in their employment agreements
with the Company. In the case of such formula bonuses, the annual bonus
component of total compensation is directly dependent upon certain measures
(as described below) of the Company's performance that were determined at the
time the contracts were negotiated with the executive officers. Other
executive officers have, in past years, received annual bonuses at the
discretion of the Compensation Committee based on the Compensation Committee's
annual assessment of the executive's contribution to the success of the
Company for the year. In both cases, the annual bonus component of the
executive's total compensation package reflects the Company's philosophy of
providing its executive officers with proper incentives tied to corporate
performance. As a result of the Company's financial results in 1995, executive
officers did not receive annual bonuses for such year pursuant to formulae in
their employment agreements or at the discretion of the Compensation
Committee. Mr. Long's employment agreement which expired January 1, 1996
provided for fixed annual bonuses as a percentage of base salary. Mr. Long
received bonus payments for fiscal 1995 of $124,284. Mr. Burford received a
payment of $30,000 in 1995 pursuant to the terms of his previous employment
agreement with the Company dated October 1, 1991 which expired October 1,
1994.
Long-term incentives. The long-term incentive component of executive
compensation is equity-based and consists of the award of stock options to the
executive officers (as well as other employees of the Company), which grants
are made by and at the discretion of the Stock Option Committee of the
Company. The stock options are granted with an exercise price equal to not
less than the market value of shares of the Company's Common Stock on the date
of grant. The Compensation Committee believes the stock options (together with
any options previously granted) primarily represent compensation that will be
earned by the executive officer for his service over a period of up to ten
years (the period during which such options may be exercised). As a result
of the Company's financial performance in 1995, the only stock options
granted in 1995 were those granted to Mr. Burford pursuant to the terms of
his employment agreement which do not begin to vest until the market price
of the Company's Common Stock exceeds $18 per share for 20 consecutive trading
days. See "Employment Contracts, Termination of Employment and Change in
Control Arrangements."
1995 Compensation of Enterprises Chief Executive Officer. J. Gary
Sharp has served as the Company's Chief Executive Officer since March 19,
1993. The Company entered into an employment agreement with Mr. Sharp
dated January 13, 1994 which provides for his employment as Chief Executive
Officer of the Company through January 13, 1999. Mr. Sharp's base salary
for 1995 was $319,065 or 5% over his 1994 base salary. Mr. Sharp received
this salary increase pursuant to the terms of such employment agreement which
provides that Mr. Sharp's base salary shall increase by not less than 5% for
each succeeding year during his term of employment.
Pursuant to his employment contract, Mr. Sharp is entitled to receive an
annual bonus equal to 2.7% of the increase in the Company's operating profits
for the calendar year just ended over the Company's operating profits for the
prior year and a bonus of $28,000 for each percentage point increase (or
portion thereof) in the Company's same store nominal sales. It is the
Compensation Committee's judgment that these two different objective
performance criteria (together with the options described below) provide an
incentive for contribution to long-term growth. As a result of the financial
performance of the Company in 1995, Mr. Sharp received no bonus for such year.
Mr. Sharp's employment agreement provides for a discretionary
annual grant of up to 50,000 stock options with a ten-year term that vest
pro rata over the five years following the grant with an exercise price equal
to the market price of the Company's Common Stock on the date of grant. Any
such grant will be based on a review of the Company's financial performance
during such year. Mr. Sharp did not receive an option grant at the end of
1995 because of the Company's performance in 1995.
Internal Revenue Code. On August 10, 1993, the Omnibus Budget Reconciliation
Act of 1993 was signed into law (the "Revenue Act"). The Revenue Act limits
the deductibility of certain compensation in excess of $1 million per year
paid by a publicly traded corporation to an employee of such corporation for
years following 1993. Under the Revenue Act, compensation which is payable
under a written contract that was in effect on February 17, 1993, or which
qualifies as "performance-based" compensation is exempt from the $1 million
deductibility limitation. The Compensation Committee is aware of the
applicable provisions of the Revenue Act and does not expect that any
compensation for fiscal 1995 would fail to be deductible under the Revenue Act.
Osvaldo Cisneros
Edwin B. Spievack
Thomas M. Taylor
Compensation Committee Members
PERFORMANCE OF THE COMPANY'S COMMON STOCK
Set forth below is a line graph comparing the total cumulative return of
the Company's Common Stock to the Standard & Poor's 500 Stock Index (the "S&P
500 Index")and a Peer Group.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
AMONG TPI ENTERPRISES, INC., THE S & P 500 INDEX
AND A PEER GROUP(2)
Cumulative Total Return
12/90 12/91 12/92 12/93 12/94 12/95
TPI Enterprises, Inc. 100 115 166 193 76 61
PEER GROUP 100 171 205 187 137 118
S & P 500 100 130 140 155 157 215
1 100 invested on 12/31/90 in stock or index including reinvestment of
dividends. Fiscal year ended December 31.
2 The Peer Group is comprised of Bob Evans Farms, Cracker Barrel Old
Country Store, Flagster Companies, Inc. IHOP Corp., Perkins Family
Restaurants, Shoney's, Inc. and Vcorp Restaurants, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
THE COMPANY'S PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 22, 1996, the number and
percentage of shares held by all persons who, to the knowledge of the Company,
are the beneficial owners of more than 5% of the outstanding shares of the
Company's Common Stock.
NAME AND ADDRESS OF AMOUNT AND NATURE OF APPROXIMATE
BENEFICIAL OWNER OR BENEFICIAL PERCENTAGE OF
IDENTITY OF GROUP OWNERSHIP CLASS
The Airlie Group L.P.,
The Bass Management Trust,
Sid R. Bass Management Trust,
Lee M. Bass,
TPI Investors, L.P., and
certain related parties
c/o W. Robert Cotham
201 Main Street, Suite 2600
Fort Worth, Texas 76102 5,381,911 (1) 22.3%
EBD L.P.
TMT-FW, Inc.
201 Main Street
Fort Worth, Texas 76102
Dort A. Cameron, III
115 East Putnam Avenue
Greenwich, Connecticut 06830 2,602,523 (2) 12.0%
Thomas M. Taylor
201 Main Street
Fort Worth, Texas 76102 2,611,523 (3) 12.1%
Osvaldo Cisneros
Aptd. 70519 Los Ruices
Caracus, Venezuela 2,501,000 (4) 12.1%
Balanchine Corporation
P.O. Box 7788
Nassau, Bahamas 1,500,000 (5) 7.3%
Liberty Investment Management
2502 Rocky Point Drive, Suite 500
Tampa, Florida 33607 1,288,800 (6) 6.3%
College Retirement Equities
Fund
730 Third Avenue
New York, New York 10017 1,107,000 (7) 5.4%
Merrill Lynch & Co., Inc.
Merrill Lynch Group. Inc.
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Princeton Services, Inc.
Fund Asset Management, L.P.
Merrill Lynch Special Value
Fund, Inc.
800 Scudders Mills Road
Plainsboro, New Jersey 08536 1,496,660 (8) 7.3%
-------------------------
(1) Includes 1,899,120 shares of the Company's Common Stock owned by such
reporting persons, 1,092,155 shares of the Company's Common Stock
obtainable upon conversion of the Company's 8 1/4% Convertible
Subordinated Debentures due 2002 (the "8 1/4% Debentures"), 1,363,636
shares of the Company's Common Stock obtainable upon conversion of the
Company's 5% Convertible Senior Subordinated Debentures due 2003 (the "5%
Debentures") and 1,000,000 shares of the Company's Common Stock obtainable
upon exercise of warrants held by such reporting persons. Also includes
an aggregate 27,000 shares of the Company's Common Stock issuable upon
exercise of presently exercisable options held by Messrs. Taylor, Bratton
and Marion.
(2) EBD L.P. is the general partner of The Airlie Group L.P. TMT-FW,
Inc. and Dort A. Cameron, III are the general partners of EBD L.P.
Includes 1,589,703 shares of the Company's Common Stock held by The
Airlie Group L.P., 546,154 shares of the Company's Common Stock obtainable
upon conversion of the 8 1/4% Debentures held by The Airlie Group
L.P., and 466,666 shares of the Company's Common Stock obtainable upon
exercise of warrants held by The Airlie Group L.P. EBD L.P., TMT-FW, Inc.
and Dort A. Cameron, III share voting and dispositive power over the
foregoing shares.
(3) Includes 1,589,703 shares of the Company's Common Stock held by The Airlie
Group L.P., 546,154 shares of the Company's Common Stock obtainable upon
conversion of the 8 1/4% Debentures held by The Airlie Group L.P., and
466,666 shares of the Company's Common Stock obtainable upon exercise of
warrants held by The Airlie Group L.P. Mr. Taylor shares voting and
dispositive power over the foregoing shares through TMT-FW, Inc.
Also includes 9,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options.
(4) Includes 1,500,000 shares of the Company's Common Stock owned by
Balanchine Corporation over which Mr. Cisneros has the right to provide
instructions as to voting, disposition and receipt of dividends and thus
may be deemed to have shared voting and shared dispositive power over such
shares of the Company's Common Stock. Also includes 990,000 shares of the
Company's Common Stock beneficially owned by Inversiones Macuto, S.A.
("Macuto"), a Panama corporation of which Mr. Cisneros is the sole stock-
holder, and thus he may be deemed to beneficially own any shares of the
Company's Common Stock beneficially owned by Macuto. Mr. Cisneros may be
deemed to have shared voting power and shared dispositive power over all
of such shares of the Company's Common Stock. Also includes 9,000 shares
of the Company's Common Stock issuable upon the exercise of presently
exercisable options and 2,000 shares of Common Stock issuable upon the
exercise of options which become exercisable within 60 days.
(5) Balanchine Corporation ("Balanchine") is an entity formed by Coutts
& Co. ("Coutts"), a Bahamian bank (formerly NatWest International Trust
Corporation). Mr. Cisneros has the right to provide instructions to
Coutts as to matters relating to voting, disposition and receipt of
dividends with respect to the 1,500,000 shares of the Company's Common
Stock owned by Balanchine. Balanchine may be deemed to have shared
voting and shared dispositive power over such 1,500,000 shares of the
Company's Common Stock with Mr. Cisneros.
(6) Based upon the Schedule 13G filed by Liberty Investment Management with
the Commission on February 16, 1996.
(7) Based upon Amendment No. 3 to the Schedule 13G filed by College
Retirement Equities Fund with the Commission on February 1, 1996.
(8) Based upon Amendment No. 1 to the Schedule 13G filed by Merrill
Lynch & Co., Inc., Merrill Lynch Group, Inc., Princeton Services, Inc.,
Fund Asset Management, L.P. and Merrill Lynch Special Value Fund, Inc.
with the Commission on February 8, 1996.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 22, 1996, the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by directors, nominees, each of the Named Executive Officers, and
directors and executive officers as a group. The number of shares of the
Company's Common Stock owned are those "beneficially owned," as determined
under Rule 13d-3 promulgated by the Commission under the Exchange Act, and the
information set forth herein is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which a person, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has sole or
shared voting power or investment power, and also any shares that the person
has the right to acquire within 60 days of March 22, 1996 through the exercise
of any option, warrant or right, through conversion of any security, or
pursuant to the automatic termination or power of revocation of a trust,
discretionary account or similar arrangement.
SHARES OF ENTERPRISES COMMON STOCK
BENEFICIALLY OWNED AND APPROXIMATE
NAME PERCENTAGE OF CLASS AS OF MARCH 22, 1996
J. Gary Shar 188,855 (1) *
Frederick W. Burford 139,442 (2) *
Paul J. Siu 14,800 (3) *
Edwin B. Spievack 15,500 (4) *
Osvaldo Cisneros 2,501,000 (5) 12.1%
Thomas M. Taylor 2,611,523 (6) 12.1%
John L. Marion, Jr. 16,500 (7) *
Douglas K. Bratton 149,785 (8) *
Lawrence F. Levy 9,000 (9)
Robert A. Kennedy 88,514 (10) *
Haney A. Long, Jr. 93,423 (11) *
--------------------
* Less than one (1%) percent.
All executive officers and directors as a group (ten persons) 5,739,828 25.6%
(1) Represents (i) 45,955 shares of the Company's Common Stock owned by Mr.
Sharp and (ii) 142,900 shares of the Company's Common Stock issuable
upon the exercise of presently exercisable options.
(2) Represents (i) 2,827 shares of the Company's Common Stock owned by Mr.
Burford, (ii) 132,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options and (iii) 4,615 shares of
the Company's Common Stock issuable upon conversion of 8 1/4%
Debentures.
(3) Represents (i) 1,800 shares of the Company's Common Stock owned by Mr.
Siu, and (ii) 13,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options.
(4) Represents (i) 2,500 shares of the Company's Common Stock owned by Mr.
Spievack, and (ii) 13,000 shares of the Company's Common Stock issuable
upon the exercise of presently exercisable options.
(5) Includes 1,500,000 shares of the Company's Common Stock owned by
Balanchine over which Mr. Cisneros has the right to provide instructions
as to voting, disposition and receipt of dividends and thus may be
deemed to have shared voting and shared dispositive power over such
shares of the Company's Common Stock. Also includes 990,000 shares of
the Company's Common Stock beneficially owned by Macuto of which Mr.
Cisneros is the sole stockholder, and thus he may be deemed to
beneficially own any shares of the Company's Common Stock beneficially
owned by Macuto. Mr. Cisneros may be deemed to have sole voting power
over and sole dispositive power over all such shares of the Company's
Common Stock. Also includes 9,000 shares of the Company's Common Stock
issuable upon the exercise of presently exercisable the Company's
options, and 2,000 shares of the Company's Common Stock issuable upon
the exercise of the Company's options which become exercisable within
60 days.
(6) Includes 1,589,703 shares of the Company's Common Stock held by The
Airlie Group L.P., over which Mr. Taylor shares dispositive power
through TMT-FW, Inc., an additional 546,154 shares of the Company's
Common Stock obtainable upon conversion of 8 1/4% Debentures held by
The Airlie Group L.P., and an additional 466,666 shares of the Company's
Common Stock obtainable upon exercise of warrants held by The Airlie
Group L.P. Also includes 9,000 shares of the Company's Common Stock
issuable upon the exercise of presently exercisable options.
(7) Includes 7,500 shares of the Company's Common Stock and 7,000 shares of
the Company's Common Stock issuable upon the exercise of presently
exercisable options and 2,000 shares of the Company's Common Stock
issuable upon the exercise of options which become exercisable within 60
days of March 22, 1996.
(8) Includes 7,834 shares of the Company's Common Stock, 91,618 shares of
the Company's Common Stock obtainable upon conversion of 5% Debentures
and 35,833 shares of the Company's Common Stock obtainable upon exercise
of warrants, all held by TPI Investors, L.P., over which Mr. Bratton has
sole voting and dispositive power. Also includes 5,500 shares of the
Company's Common Stock owned by Mr. Bratton and his spouse, as joint
tenants, and 7,000 shares of the Company's Common Stock issuable
upon the exercise of presently exercisable options and 2,000 shares of
the Company's Common Stock issuable upon the exercise of options which
become exercisable within 60 days of March 22, 1996. Does not include
500 shares of the Company's Common Stock held in a trust for the benefit
of Mr. Bratton's minor son.
(9) Includes 7,000 shares of the Company's Common Stock issuable upon the
exercise of presently exercisable options granted under the Non-Employee
Directors Plan and 2,000 shares of the Company's Common Stock issuable
upon the exercise of options which become exercisable within 60 days of
March 22, 1996.
(10) Represents (i) 31,207 shares of the Company's Common Stock owned by Mr.
Kennedy, (ii) 55,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options and (iii) 2,307 shares of
the Company's Common Stock issuable upon conversion of 8 1/4%
Debentures.
(11) Represents (i) 1,600 shares of the Company's Common Stock owned by Mr.
Long, (ii) 48 shares of the Company's Common Stock owned indirectly by
Mr. Long pursuant to the 1989 Employee Stock Purchase Plan, (iii) 87,160
shares of the Company's Common Stock issuable upon the exercise of
presently exercisable options and (iv) 4,615 shares of the Company's
Common Stock issuable upon conversion of 8 1/4% Debentures.
(12) All officers and directors as a group are ten in number and beneficially
own 5,739,828 shares of the Company's Common Stock (25.6%) as of March
22, 1996. Does not include shares of the Company's Common Stock
beneficially owned by Robert A. Kennedy who resigned from his position
with the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Stephen R. Cohen was employed by the Company as Chairman of
the Board of Directors of the Company under an employment agreement dated as
of January 13, 1987. Mr. Cohen retired from this position effective
January 31, 1995 pursuant to the Termination Agreement, Receipt
and Release dated January 26, 1995 (the "Termination Agreement").
Under the terms of the Termination Agreement the Company paid Mr. Cohen
a lump sum of $1,150,000 in full satisfaction of all amounts owed to him under
his employment agreement and other agreements entered into between Mr. Cohen
and the Company. Pursuant to the Termination Agreement, Mr. Cohen waived any
right to receive a bonus during 1994 and 1995 and any right to receive pay for
accrued and unpaid vacation. In addition, the Company and Maxcell agreed to
pay Mr. Cohen 5% of the gross proceeds received by Maxcell or the Company upon
settlement of the Maxcell Lawsuit or 3% of the gross proceeds upon a final,
non-appealable judgment in the Maxcell Lawsuit. Mr. Cohen was paid $1,500,000
in March 1996 in connection with the Maxcell Settlement. Mr. Cohen also
continues to be provided with medical benefits, a secretary, a car and a
driver for certain periods as set forth in the Termination Agreement.
In connection with the Company's relocation of its headquarters, Mr.
Frederick Burford received an equity advance from the Company of $100,000 in
January 1995 regarding the sale of his home in Tennessee, which advance was
repaid in full without interest on June 13, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) FINANCIAL STATEMENTS/SCHEDULES PAGE
1. THE FOLLOWING FINANCIAL STATEMENTS OF THE COMPANY HAVE
BEEN FILED UNDER ITEM 8 HERETO:
Independent Auditor's Report 22
Consolidated Balance Sheets as of December 31, 1995 23
and December 25, 1994
Consolidated Statements of Operations for each of the 25
Three Fiscal Years in the Period Ended December 31, 1995
Consolidated Statements of Cash Flows for each of the
Three Fiscal Years in the Period Ended December 31, 1995 27
Consolidated Statements of Shareholders' Equity for
each of the Three Fiscal Years in the Period Ended
December 31, 1995 29
Notes to Consolidated Financial Statements 30
2. THE FOLLOWING FINANCIAL STATEMENT SCHEDULES FOR THE
THREE YEARS ENDED DECEMBER 31, 1995 ARE FILED HEREWITH
AT THE PAGE INDICATED:
Schedule I - Condensed Financial Information of the S-1
Registrant
Scheduled II - Reserves S-7
The following financial statements and schedules of
the Company's wholly-owned subsidiary, TPI Restaurants,
Inc. are filed herewith at the page indicated:
Independent Auditors' Report W-1
Consolidated Balance Sheets as of December 31, 1995 W-2
and December 25, 1994
Consolidated Statements of Operations for each of the
Three Fiscal Years in the Period Ended December 31, 1995 W-4
Consolidated Statements of Cash Flows for each of the
Three Fiscal Years in the Period Ended December 31, 1995 W-5
Consolidated Statements of Stockholder's Equity for W-7
each of the Three Fiscal
Years in the Period Ended December 31, 1995
Notes to Consolidated Financial Statements W-8
Schedule II - Reserves WS-1
All other schedules have been omitted because they are inapplicable or
the information required is shown in the consolidated financial statements or
the notes thereto.
(B)EXHIBITS
A list of exhibits required to be filed as part of this report on Form
10-K is set forth in the "Exhibit Index," which immediately precedes
such exhibits, and is incorporated herein by reference.
(C)REPORTS ON FORM 8-K
The Company filed a Form 8-K on October 12, 1995, November 1, 1995 and
December 5, 1995.
(D)EXHIBITS
All exhibits required by item 601 are listed on the accompanying
"Exhibit Index" described in (b) above.
(E)FINANCIAL STATEMENTS OF SUBSIDIARY
The financial statements of the Company's wholly-owned subsidiary, TPI
Restaurants, Inc., are filed under (a) 2 above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 1996
/s/J. Gary Sharp
--------------------
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ J. GARY SHARP President and Chief Executive March 29, 1996
J. Gary Sharp Officer, Director
/s/ FREDERICK W. BURFORD Executive Vice President, Chief March 29, 1996
Frederick W. Burford Financial Officer, and
Director (Principal Financial and
Accounting Officer)
/s/ DOUGLAS K. BRATTON
Douglas K. Bratton Director March 29, 1996
/s/ OSWALDO CISNEROS
Oswaldo Cisneros Director March 29, 1996
/s/ LAWRENCE F. LEVY
Lawrence F. Levy Director March 29, 1996
/s/ JOHN L. MARION, JR.
John L. Marion, Jr. Director March 29, 1996
/s/ PAUL JAMES SIU
Paul James Siu Director March 29, 1996
/s/ EDWIN B. SPIEVACK
Edwin B.Spievack Director March 29, 1996
/s/ THOMAS M. TAYLOR
Thomas M. Taylor Director March 29, 1996
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
DECEMBER 31, DECEMBER 25,
1995 1994
--------------------------------------------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ $ 11,976
78
Deferred tax benefit.............................. 5,397 5,666
Income tax refund................................. 545 779
Other current assets.............................. 10 45
--------- ---------
TOTAL CURRENT ASSETS............................ 6,030 18,466
--------- ---------
PROPERTY AND EQUIPMENT, NET.......................... 115 245
--------- ---------
OTHER ASSETS:
Investment in an advances to subsidiaries, net.... 148,669 139,924
Other............................................. 3 3
--------- ---------
148,672 139,927
--------- ---------
$154,817 $158,638
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade.......................... $ $
36 77
Accrued expenses and other current liabilities.... 905 2,652
Income taxes currently payable.................... 421 718
--------- ---------
TOTAL CURRENT LIABILITIES....................... 1,362 3,447
--------- ---------
DUE TO SUBSIDIARY.................................... 14,443 15,104
--------- ---------
LONG TERM DEBT....................................... 66,563 66,563
--------- ---------
DEFERRED INCOME TAXES................................ 5,537 5,663
--------- ---------
OTHER LIABILITIES.................................... 46 291
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred shares no par value; 20,000,000 shares
authorized; --- ---
none issued and outstanding.....................
Common shares, $.01 par value; 100,000,000 shares
authorized, 334 332
33,402,553 and 33,241,118 issued................
Additional paid-in capital........................ 226,454 226,144
Deficit........................................... (90,157) (88,961)
--------- ---------
136,631 137,515
Less treasury stock, at cost:
12,805,260 and 12,846,094 common shares
in 1995 and 1994 ............................. (69,765) 69,945
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................. 66,866 67,570
--------- ---------
$154,817 $158,638
----------------------------------------------------- ========= =========
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
-------------------------------------- ------------ -- ------------ -- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Revenue:
Management fee income............... $2,500 $2,500 $2,455
Interest income..................... 96 267 428
Equity in subsidiary earnings....... 405 --- 30
--------- -------- ---------
3,001 2,767 2,913
--------- -------- ---------
Expenses:
Equity in subsidiary losses......... 19,975 2,838 39,348
General and administrative.......... 873 3,589 4,803
Depreciation and amortization....... 54 57 235
Corporate restructuring............. (242) --- 511
Interest expense.................... --- --- 340
--------- -------- ---------
20,660 6,484 45,237
--------- -------- ---------
Loss from continuing operations before (17,659) (3,717) (42,324)
income taxes...........................
Income tax benefit..................... 6,350 --- 5,836
--------- -------- ---------
Loss from continuing operations........ (11,309) (3,717) (36,488)
--------- -------- ---------
Discontinued operations:
Gain on disposal, net 10,113 --- 5,273
--------- -------- ---------
Net loss $(1,196) ($3,717) ($31,215)
--------------------------------------- ========= ------ ======== ----- =========
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
---------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------------------------------- ------------ -- ------------ --- ------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $(1,196) $(3,717) $(31,215)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 55 57 285
Equity in subsidiaries
(earnings) losses............. 19,571 2,838 39,318
Equity in subsidiary earnings
from discontinued operations... (16,463) --- (7,990)
Deferred income taxes............ 143 (3) (2,444)
Changes in assets and
liabilities, net of effects
of discontinued operations:
Income tax refund............. 234 2,392 (3,171)
Other current assets.......... 35 19 1,655
Intangible pension asset...... --- --- 330
Other......................... --- 5 15
Accounts payable - trade...... (41) 37 (50)
Accrued expenses and other
current liabilities........ (1,570) 341 (474)
Income taxes currently payable (297) 69 (1,016)
Other liabilities............. (245) (476) (1,996)
--------- --------- ---------
Total adjustments........... 1,422 5,279 24,412
--------- --------- ---------
Net cash provided by (used
in) operating activities... $ 226 $ 1,562 $ (6,803)
--------------------------------------- --------- ------ --------- ----- ---------
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------------------------------ ------------- -- ------------ -- -------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in and advances to $ $ $(32,926)
subsidiaries,net...................... (11,851) 72
Acquisition of property and --- (11) ---
equipment.............................
Dividends received from subsidiary. --- --- 5,254
Disposition of property and 76 --- ---
equipment.............................
--------- --------- ---------
Net cash provided by (used in) (11,775) 61 (27,672)
investing activities..................
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of advances from (661) (850) ---
subsidiaries..........................
Common shares issued............... 312 566 17,204
Proceeds from 5% Convertible
Senior --- --- 15,000
Subordinated Debentures..........
--------- --------- ---------
Net cash provided by (used in) (349) (284) 32,204
financing activities..................
--------- --------- ---------
Increase (decrease) in cash and cash (11,898) 1,339 (2,271)
equivalents...........................
Cash and cash equivalents, beginning 11,976 10,637 12,908
of period.............................
--------- --------- ---------
Cash and cash equivalents, end of $ $ 11,976 $ 10,637
period................................ 78
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Non-cash transactions:
Conversion of 8 1/4 % Subordinated
Debentures..................... --- $
165 ---
Cash payments (refunds) during the year for:
Income taxes..................... $ $(2,164)
158 $2,810
Conversion of subsidiary
receivable to 5,000 --- ---
investment....................
-------------------------------------- --------- ------ --------- ----- ---------
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
COMMON SHARES ISSUED
ADDITIONAL
NUMBER OF PAID-IN TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
---------- -- -------- -- ---------- -- --------- -- --------- -- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,017,689 $310 $207,314 $(54,029) $(69,945) $83,650
31,1992................
Investment in Company
by the 1,503,220 15 14,030 --- --- 14,045
Airlie Group, L.P......
Issue of shares in
connection 94,300 1 894 --- --- 895
with acquisition.......
Issue of shares in
pursuant to 499,559 5 3,154 --- --- 3,159
employee stock plans...
Conversion of
subordinated 3,846 --- 25 --- --- 25
debentures.............
Net loss............... --- --- --- (31,215) --- (31,215)
---------- -------- ---------- --------- --------- -----------
Balance, December 33,118,614 331 225,417 (85,244) (69,945) 70,559
26,1993................
Issue of shares in
pursuant to 97,582 1 575 --- --- 576
employee stock plans...
Conversion of
subordinated 24,922 --- 152 --- --- 152
debentures.............
Net loss............... --- (3,717) --- (3,717)
--- ---
---------- -------- ---------- --------- --------- -----------
Balance, December 33,241,118 332 226,144 (88,961) (69,945) 67,570
24,1994................
Issue of shares in
pursuant to 160,235 2 304 --- 180 486
employee stock plans...
Other ................. 1,200 --- 6 --- --- 6
Net income............. --- --- --- (1,196) --- (1,196)
---------- -------- ---------- --------- --------- -----------
Balance, December 33,402,553 $334 $226,454 $(90,157) $(69,765) $66,866
31,1995................
----------------------- ========== -- ======== -- ========== -- ========= -- ========= -- ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
SCHEDULE I
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE 1 - ACCOUNTING POLICIES
The investments in the Company's subsidiaries are carried at the Company's
equity in the subsidiary which represents amounts invested less the Company's
equity in the earnings and losses to date. Significant intercompany balances
and activities have not been eliminated in this unconsolidated financial
information.
Certain information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. Accordingly, these financial
statements should be read in conjunction with the Company's consolidated
financial statements.
NOTE 2 - CASH DIVIDEND PAID BY SUBSIDIARY
Subsequent to the sale of its interest in the Partnership, The Company's
wholly-owned subsidiary, TPI Entertainment, Inc., paid a dividend of
$5,254,000 to the Company.
SCHEDULE II
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
RESERVES
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE AT ADDITIONS CHARGED DEDUCTIONS BALANCE
BEGINNING CHARGED TO TO FROM AT
OF OPERATIONS OTHER RESERVES END OF
PERIOD ACCOUNTS PERIOD
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Year ended December 31, $ 59 $ 66 $ --- $ --- $ 125
1995:
Year Ended December 25, $ --- $ 59 $ --- $ --- $ 59
1994:
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
ALLOWANCE FOR
RESTRUCTURING RESERVE:
Year ended December 31, $12,430 $ --- $ --- $ 3,678(1) $ 8,752
1995:
Year Ended December 25, $18,695 $ --- $ --- $ 6,265 (1) $ 12,430
1994
Year Ended December 26, $ 3,773 $ 17,286 $ --- $ 2,364 $ 18,695
1993:
ALLOWANCE FOR ASSET VALUATION:
Year ended December 31, $ --- $ --- $ 17,000 $ --- $ 17,000
1995:
Year Ended December 25, $ --- $ --- $ --- $ --- $ ---
1994
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
<FN>
(1) Represents deductions for the write-off of assets and changes in
assumptions in connection with the Company's restructure plan. See Note 3.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of TPI Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of TPI
Restaurants, Inc., (a wholly-owned subsidiary of TPI Enterprises, Inc.) and
its subsidiaries as of December 31, 1995 and December 25, 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three fiscal years in the period ended December 31,
1995. Our audits also included the financial statement schedules listed in the
Index at Item 14 (a)(2). These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of TPI Restaurants, Inc. and its
subsidiaries as of December 31, 1995 and December 25, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
March 28, 1996
Memphis, Tennessee
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, DECEMBER 25,
1995 1994
----------- -----------
(Dollars in thousands)
CURRENT ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS.................... $8,285 $4,832
ACCOUNTS RECEIVABLE - TRADE (NET OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $125 IN 1995 AND $59 IN 1994)........... 1,248 805
INVENTORIES.................................. 13,020 11,969
DEFERRED TAX BENEFIT......................... 3,190 3,611
OTHER CURRENT ASSETS......................... 1,166 1,566
-------- --------
TOTAL CURRENT ASSETS........................ 26,909 22,783
-------- --------
PROPERTY AND EQUIPMENT (AT COST)............... 236,756 239,991
LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION................................. 79,538 70,243
LESS ALLOWANCE FOR RESTRUCTURING............. 8,752 12,430
-------- --------
148,466 157,318
-------- --------
OTHER ASSETS:
GOODWILL (NET OF ACCUMULATED AMORTIZATION OF
$9,431 IN 1995 AND $8,152 IN 1994).......... 36,396 37,675
LESS VALUATION ALLOWANCE.................... 17,000 ---
-------- --------
19,396 37,675
OTHER INTANGIBLE ASSETS (NET OF ACCUMULATED
AMORTIZATION OF $6,479 IN 1995 AND $5,144
IN 1994)................................... 18,265 19,681
OTHER........................................ 627 609
-------- -------
38,288 57,965
-------- --------
$213,663 $238,066
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
(DOLLARS IN THOUSANDS)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT......... $24,231 $ 3,725
ACCOUNTS PAYABLE - TRADE.................. 15,881 15,488
ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES.............................. 27,506 31,656
-------- ---------
TOTAL CURRENT LIABILITIES................ 67,618 50,869
-------- ---------
LONG-TERM DEBT.............................. 81,628 107,721
-------- ---------
RESERVE FOR RESTRUCTURING................... 8,162 14,735
-------- ---------
DEFERRED INCOME TAXES....................... 3,190 3,611
--------- ---------
PAYABLE TO PARENT........................... 21,662 14,872
--------- ---------
OTHER LIABILITIES........................... 1,596 1,619
--------- ---------
STOCKHOLDER'S EQUITY:
SERIES A PREFERRED STOCK ($40,000
AGGREGATE LIQUIDATION
PREFERENCE) $.01 PAR VALUE; 10,000
SHARES AUTHORIZED; 10,000 --- ---
ISSUED AND OUTSTANDING...................
COMMON SHARES, $.01 PAR VALUE; 1,000
SHARES AUTHORIZED; --- ---
1,000 ISSUED AND OUTSTANDING..............
ADDITIONAL PAID-IN CAPITAL................ 120,216 115,216
DEFICIT................................... (90,409) (70,577)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY............... 29,807 44,639
--------- ---------
$213,663 $238,066
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
RESTAURANT REVENUES......................$ 283,578 $ 287,384 $ 289,439
--------- --------- ---------
COSTS AND EXPENSES:
FOOD, SUPPLIES AND UNIFORMS............ 103,874 102,831 101,980
RESTAURANT LABOR AND BENEFITS.......... 86,264 87,467 88,693
RESTAURANT DEPRECIATION AND 12,252 14,138
AMORTIZATION........................... 13,632
OTHER RESTAURANT OPERATING EXPENSES.... 54,705 52,727 51,291
GENERAL AND ADMINISTRATIVE EXPENSES.... 20,944 20,256 23,504
PROVISION FOR ASSET VALUATION.......... 17,000 --- ---
RESTRUCTURING CHARGES.................. (5,761) (986) 34,571
OTHER, NET............................. 3,666 3,440 3,275
--------- --------- ---------
292,944 279,873 316,946
--------- --------- ---------
OPERATING INCOME (LOSS).................. (9,366) 7,511 (27,507)
--------- --------- ---------
OTHER INCOME AND EXPENSES:
INTEREST INCOME........................ 141 66 122
INTEREST EXPENSE....................... (10,607) (10,325) (10,203)
OTHER.................................. --- --- (109)
--------- --------- ---------
(10,466) (10,259) (10,190)
--------- --------- ---------
Loss before income taxes................. (19,832) (2,748) (37,697)
Income tax expense....................... --- --- 85
-------- -------- ---------
Net loss................................. $(19,832) $ (2,748) $ (37,782)
========= ========= ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS............................... $(19,832) $(2,748) $ (37,782)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION....... 17,214 19,158 17,810
PROVISION FOR ASSET VALUATION....... 17,000 --- ---
RESERVES FOR RESTRUCTURING.......... (5,761) (667) 34,571
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE TRADE......... (444) 134 494
INVENTORIES....................... (1,051) (545) 3,488
OTHER CURRENT ASSETS.............. 361 654 329
OTHER ASSETS...................... (659) 754 (1,415)
ACCOUNTS PAYABLE TRADE............ 393 (4,382) 4,854
ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES............... (1,989) 3,725
Reserves for restructuring........ (4,537) (3,172) (4,136)
OTHER LIABILITIES................. (23) (763) 840
----------- ------------ -----------
TOTAL ADJUSTMENTS 20,504 14,896 61,746
----------- ------------ -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.......................... 672 12,148 23,964
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF PROPERTY AND
EQUIPMENT........................... (6,795) (19,391) (43,867)
ACQUISITION OF BUSINESS, NET OF
CASH RECEIVED....................... ---- ---- (4,660)
DISPOSITION OF PROPERTY AND
EQUIPMENT........................... 2,143 5,054 5,230
OTHER............................... 38 (27) (199)
----------- ------------ -----------
NET CASH USED IN INVESTING
ACTIVITIES.......................... $ (4,614) $(14,364) $ (43,496)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES::
NET BORROWINGS FROM (PAYMENTS ON)
CREDIT FACILITIES..................... $(1,000) $ 3,400 $(18,550)
CONTRIBUTION FROM PARENT.............. 5,000 --- 17,065
BORROWINGS FROM (PAYMENTS TO) PARENT.. 6,790 (305) 15,177
PROCEEDS FROM 5% SENIOR DEBENTURES.... --- --- 15,000
OTHER LONG TERM DEBT PAYMENTS......... (3,395) (1,722) (7,209)
-------- --------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................ 7,395 1,373 21,483
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... 3,453 (843) 1,951
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................. 4,832 5,675 3,724
-------- --------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 8,285 $ 4,832 $ 5,675
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
NON-CASH TRANSACTIONS:
CONVERSION OF PARENT DEBT TO EQUITY........ $ 5,000 --- ---
CAPITALIZED LEASE OBLIGATIONS ENTERED INTO. --- $ 1,430 $ 3,241
CONVERSION OF 8 1/4% SUBORDINATED
DEBENTURES................................. --- 162 ---
LIABILITIES ASSUMED IN ACQUISITIONS OF
PROPERTIES ................................ --- --- 1819
COMMON STOCK ISSUED IN ACQUISITIONS OF
PROPERTIES............................ --- --- 895
CASH PAYMENTS DURING THE PERIOD FOR:
INTEREST................................. $ 9,183 $9,301 $
9,764
INTEREST CAPITALIZED..................... --- 77 202
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL DEFICIT TOTAL
-------------------------------- -----------------------
BALANCE, DECEMBER 27, 1992 $ --- $ --- $97,079 $(30,047) $67,032
STOCKHOLDER CONTRIBUTION.. --- --- 17,985 --- 17,985
NET LOSS..................
--- --- --- (37,782) (37,782)
------- ------- -------- -------- -------
BALANCE, DECEMBER 26, 1993 --- 115,064 (67,829) 47,235
---
STOCKHOLDER CONTRIBUTION.. --- --- 152 --- 152
NET LOSS..................
--- --- --- (2,748) (2,748)
------- ------- -------- -------- -------
BALANCE, DECEMBER 25, 1994 --- --- 115,216 (70,577) 44,639
STOCKHOLDER CONTRIBUTION.. --- --- 5,000 --- 5,000
NET LOSS.................. --- --- --- (19,832) (19,832)
------- ------- -------- -------- -------
BALANCE, DECEMBER 31,1995. $ --- $ --- $120,216 $(90,409) $29,807
======= ======= ======== ======== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TPI
Restaurants, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation. The Company is one of the largest restaurant franchisees in the
United States.
The Company owns and operates 256 restaurants, including 188 Shoney's and 68
Captain D's in eleven states, primarily in the southern United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks, certificates of
deposit and short-term marketable securities with maturities of 90 days or
less when purchased, as cash and cash equivalents.
The Company utilizes a cash management system under which cash overdrafts
exist in the book balances of its primary disbursing accounts. These
overdrafts represent the uncleared checks in the disbursing accounts. The cash
amounts presented in the consolidated financial statements represent balances
on deposit at other locations prior to their transfer to the primary
disbursing accounts. Uncleared checks of $6,752,171 and $7,229,000 are
included in accounts payable at December 31, 1995 and December 25, 1994,
respectively.
INVENTORIES
Inventories, consisting of food items, beverages and supplies, are stated
at the lower of weighted average cost (which approximates first-in, first-out)
or market.
PRE-OPENING COSTS
Direct costs incidental to the opening of new restaurants are capitalized
and amortized over the restaurants' first year of operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property and equipment is provided on the
straight-line method over the estimated useful lives of the assets or, in the
case of leasehold improvements and certain property under capital leases, over
the lesser of the useful life or the lease term.
Goodwill related to the acquisition of the Company is amortized on a
straight-line basis over a thirty-six year period. The costs of franchise
license agreements which govern the individual Shoney's and Captain D's
restaurants and reserved area agreements are amortized on a straight-line
basis over the lives of the related franchise license agreements, up to 40
years. The Company has historically evaluated goodwill impairment based upon
future undiscounted cash flows. The Company recorded a valuation allowance
based upon the difference in the carrying value of the net assets and the
estimated fair value of the consideration to be received from Shoney's, Inc.
at December 31, 1995 (See Note 2).
INCOME TAXES
The Company's income taxes are computed in accordance with a tax sharing
and payment agreement with its parent company. Effective December 30, 1991,
the Company adopted Financial Accounting Standard No. 109, "Accounting for
Income Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax basis of assets and liabiltiies that will result in taxable
or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expended to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
WORKING CAPITAL DEFICIENCY
The Company had a working capital deficiency of $40,709,000 and
$28,086,000 at December 31, 1995 and December 25, 1994, respectively.
The Company does not have significant receivables or inventory and
receives trade credit based upon negotiated terms in purchasing food
and supplies. Because funds available from cash sales are not needed
immediately to pay for food and supplies or to finance receivables or
inventory, they may be used for non-current capital.
OTHER
A new accounting pronouncement on impairment of long-lived assets was
issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. The Company does not believe the adoption of this
accounting standard will have a material adverse effect on its result of
operations or consolidated financial position.
NOTE 2 - SHONEY'S, INC. TRANSACTION
On March 15, 1996, Enterprises entered into a Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement (the "Agreement") with Shoney's, Inc. to sell substantially all of
Enterprises' assets to Shoney's, Inc. (the "Shoney's, Inc. Sale Transaction").
At the closing of the Shoney's, Inc. Sale Transaction, under the terms of the
Agreement, Shoney's, Inc. will deliver to Enterprises (a) 5,577,102 shares of
Shoney's, Inc. common stock plus (b) shares of Shoney's, Inc. common stock
equal to $10,000,000 divided by the average closing market price of Shoney's,
Inc. common stock over a ten day trading period prior to the closing, subject
to certain adjustments as provided in the Agreement. Enterprises will deliver
to Shoney's, Inc. all of the issued and outstanding shares of capital stock of
the Company and its wholly-owned subsidiaries, TPI Entertainment, Inc. and TPI
Insurance Corporation. Additionally, Enterprises will transfer certain
liabilities, all intercompany accounts and all cash and cash equivalents of
the Company except for $14,850,000 in cash, of which $7,350,000 is designated
to pay certain specified wind-up expenses. If the specified wind-up expenses
are less than the designated $7,350,000, Enterprises is required to transfer
the difference to Shoney's, Inc.; if the expenses are greater, the excess will
be paid from the remaining $7,500,000 of cash after which the balance will be
distributed to shareholders. As a condition to closing of the Shoney's, Inc.
Sale Transaction, the obligations of the Company under the Debentures, Senior
Debentures and Credit Facility must have been assumed by Shoney's, Inc. and
the Company released from all obligations thereunder.
The Agreement requires Enterprises after closing to wind-down its
operations and distribute the Shoney's, Inc. common shares received and any
remaining cash amounts to Enterprises' shareholders. Management anticipates
that the closing of the Shoney's, Inc. Sale Transaction will occur by June 30,
1996 and that the majority of such distributions to Enterprises' shareholders
will be made during 1996.
At December 31, 1995, Enterprises has recorded a provision of $17,000,000
to reduce the carrying value of the net assets to be exchanged to the
estimated fair value of the consideration to be received from Shoney's, Inc.
This allowance has been reflected as a reduction in the Company's recorded
goodwill in the accompanying financial statements.
The Agreement may be terminated by mutual consent of Enterprises and
Shoney's, Inc. or by either party under certain circumstances, including if
the closing does not occur prior to June 30, 1996. The Agreement is subject to
a number of other conditions including, among other things, (1) the approval
of the shareholders of both Enterprises and Shoney's, Inc., (2) the expiration
of waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act, (3)
the receipt by Shoney's, Inc. of a commitment for additional financing in the
amount of $60,000,000 and its funding in accordance with its terms, (4) the
receipt of fairness and legal opinions and (5) the absence of a material
adverse change to Enterprises. The Agreement provides for the payment by
Enterprises of a break-up fee in the case of certain third party acquisition
events or proposals.
NOTE 3 - RESTRUCTURING CHARGES
The Company adopted a restructuring plan as of 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 their current lease terms,
and restructuring divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company recorded $19,800,000 of restructuring charges
consisting primarily of the write-off of assets and the accrual of lease and
other expenses, net of projected sales proceeds and sublease income. As of
December 31, 1995, the Company has closed 22 restaurants with plans to close
one more restaurant, and has determined that eight restaurants should stay
open. Management is still evaluating the timing of the closing of the
remaining restaurant. During 1995, the Company reduced its restructuring
reserve by $5,136,000 due to a change in estimate as a result of management's
decision to leave three 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 and had lower than expected costs at other
locations. The restructuring reserve was also reduced by $2,157,000 during
1995 for expenditures and asset write-offs related to the other 23 units.
With respect to the 19 restaurants projected to be closed no later than the
expiration of their current lease terms, the Company determined that the
recoverability of the assets has been permanently impaired, and accordingly,
provided $4,500,000 primarily for the write-down of assets at the end of 1993.
The Company has closed three of these units prior to or upon the expiration
of their current lease terms. The Company's restructure plan also called for
two additional units to be closed by December 31, 1995. Due to the proposed
Shoney's, Inc. Sale Transaction, management is still evaluating the
timing of closing of these two restaurants
(See Note 2 to the Company's consolidated financial statements). The reserve
for restructuring was reduced by $669,000 during 1995 for the write-down of
assets and increased by $22,000 for a net change in estimate.
With respect to the Company's restructuring of its divisional management
and consolidation of the Company's corporate offices, the Company provided an
additional $168,000 during 1995 and paid out approximately $2,280,000 related
to the restructuring reserve of which $1,000,000 was for severance.
In addition to these reserves, the Company also has a reserve related to
units that were closed prior to 1993 and for the sale of vacant properties.
During 1995, the restructuring reserve was reduced by approximately $1,041,000
resulting from expenditures and asset write-downs and by $815,000 for changes
in original estimates for the costs of disposal.
At December 31, 1995, the Company's reserve for restructuring of
$11,350,000 represents the amounts owed for lease and other expenses. The
Company has classified $3,188,000 of the restructure as a current liability at
December 31, 1995. The Company also has an allowance for restructuring of
$8,752,000 recorded on its balance sheet for the write off of assets. The
reserve for restructuring includes management's best estimates of the
remaining liabilities associated with its restructuring and the net realizable
value of property. Due to uncertainties inherent in the estimation process, it
is at least reasonably possible that the Company's estimates of these amounts
will change in the near term.
Revenues of $3,000,000 and expenses of $2,800,000 related to units provided
for in the restructuring reserve have been excluded from the 1995 statement of
operations.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1995 1994
-------- ---------
(Dollars in thousands)
Owned:
Land............................................... $ 35,201 $ 35,602
Buildings.......................................... 52,699 52,616
Leasehold improvements and buildings on leased land 50,759 51,259
Equipment and furnishings.......................... 74,427 74,685
-------- ---------
213,086 214,162
-------- ---------
Leased:
Buildings.......................................... 23,074 23,905
Equipment.......................................... 596 1,924
-------- ---------
23,670 25,829
Property and equipment (at cost) ..................... 236,756 239,991
-------- ---------
Less accumulated depreciation and amortization........ 79,538 70,243
-------- ---------
Less allowance for unit closings...................... 8,752 12,430
-------- ---------
Total property and equipment....................... $148,466 $157,318
======== =========
Property and equipment with a net book value of approximately $21,565,000
and $22,233,000 were pledged as collateral for the Company's debt facilities
as of December 31, 1995 and December 25, 1994, respectively.
Depreciation and amortization are calculated using the straight-line method
and are based on the estimated useful lives of the assets as follows:
buildings, 30 years; equipment and furnishings, 3-15 years; and leasehold
improvements, primarily representing buildings constructed on leased property,
the lesser of the term of the lease or 30 years. Depreciation and amortization
of property and equipment, exclusive of depreciation and amortization included
in the restructuring reserve, totaled approximately $13,893,000, $14,928,000,
and $14,048,000 during 1995, 1994 and 1993, respectively. In 1995, 1994, and
1993, approximately $1,422,000, $1,643,000, and $1,649,000, respectively,
related to capitalized leases. Property and equipment includes capitalized
interest on construction of $425,000, $425,000, and $374,000 at December 31,
1995, December 25, 1994 and December 26, 1993, respectively.
NOTE 5 - OTHER INTANGIBLE ASSETS
Other intangible assets consists of the following: 1995 1994
-------- --------
(Dollars in thousands)
Franchise and reserved area rights.................... $17,710 $17,704
Deferred debt costs................................... 6,724 6,175
Unamortized pre-opening expense....................... 310 946
-------- --------
24,744 24,825
Less accumulated amortization......................... 6,479 5,144
-------- --------
$18,265 $19,681
======== ========
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following: 1995 1994
-------- --------
(Dollars thousands)
8 1/4% Convertible Subordinated Debentures, due 2002.. $ 51,563 $ 51,563
5% Senior Convertible Subordinated Debentures, due
2003.................................................. 15,000 15,000
Credit Facility....................................... 21,400 22,400
Notes payable, interest rates of 7.75% to 10%, due
through 2007.......................................... 2,608 4,863
Obligations under capital leases...................... 15,288 17,620
-------- --------
105,859 111,446
Less amounts due within one year...................... 24,231 3,725
-------- --------
$ 81,628 $107,721
======== ========
Scheduled annual principal maturities of long-term debt, excluding capital
leases, for the five years subsequent to December 31, 1995 are as follows:
$23,004,000 in 1996; $42,000 in 1997; $47,000 in 1998, $52,000 in 1999,
$58,000 in 2000, and $67,369,000 thereafter.
Interest expense for 1995, 1994, and 1993 includes interest on obligations
under capital leases of $1,776,000, $1,952,000 and $2,334,000 respectively.
DEBENTURES
On March 19, 1993, the Airlie Group, L.P. and certain related parties (the
"Airlie Group") made an investment in TPI Enterprises, Inc. (Enterprises) of
$30,000,000 including $15,000,000 of 5% Convertible Senior Subordinated
Debentures (the "Senior Debentures"), due 2003, the issuance of 1,500,000
shares of Enterprises' common stock at $10 per share and the issuance of
warrants to purchase an additional 1,000,000 shares of common stock at $11 per
share. The Senior Debentures are senior to the 8 1/4% Convertible Subordinated
Debentures (described below). The Senior Debentures are convertible at the
option of the holder into common shares of Enterprises at any time prior to
maturity at $11 per share, subject to adjustment in certain events. The Senior
Debentures mature on April 15, 2003 and are redeemable, in whole or in part,
at the option of Enterprises at any time on or after April 15, 1996, initially
at 103.5% of their principal amount and declining to 100% of their principal
amount on April 15, 2003. The Senior Debenture holders may require Enterprises
to repurchase the Senior Debentures, in whole or in part, in certain
circumstances involving a change in control of Enterprises as defined in the
Debenture Purchase Agreement (the "Agreement"). However, a change in control,
as defined in the Agreement, will create an event of default under the Credit
Facility (described below) and, as a result, any repurchase would, absent a
waiver, be blocked by the subordination provision of the Agreement until the
Credit Facility (and any other senior indebtedness of Enterprises and senior
indebtedness of the Company with respect to which there is a payment default)
have been repaid in full. The Senior Debentures are unconditionally guaranteed
on a subordinated basis by the Company. They are subordinated to all existing
and future senior indebtedness of Enterprises and the Company. As a condition
to closing of the Shoney's, Inc. Sale Transaction, the liabilities associated
with or arising out of the Senior Debentures must be satisfied.
The 8 1/4% Convertible Subordinated Debentures (the "Debentures"), which
provided proceeds to Enterprises of $47,948,000, net of $3,802,000 in deferred
debt costs, are convertible at the option of the holder into common shares of
Enterprises at any time prior to maturity at a conversion price of $6.50 per
share subject to adjustment in certain events. The Debentures mature on July
15, 2002, and are redeemable at the option of Enterprises at any time on or
after July 15, 1995, at a premium which declines as the Debentures approach
maturity. The Debenture holders may also require Enterprises to repurchase the
Debentures, in whole or in part, in certain circumstances involving a change
in control of Enterprises as defined in the indenture covering the Debentures
(the "Indenture"). However, a change in control, as defined in the Indenture,
will create an event of default under the Credit Facility and, as a result,
any DEBENTURES (CONTINUED)
repurchase would, absent a waiver, be blocked by the subordination provisions
of the Indenture until the Credit Facility (and any other senior indebtedness
of Enterprises and senior indebtedness of the Company with respect to which
there is a payment default) have been repaid in full. The Debentures are
unconditionally guaranteed on a subordinated basis by the Company. They are
subordinated to all existing and future senior indebtedness of the Company and
Enterprises. As a condition to closing of the Shoney's, Inc. Sale Transaction,
the obligations of the Company and Enterprises under the Debentures must be
satisfied.
CREDIT FACILITY
The Company's Credit Facility with a syndicate of banks was amended and
restated as of January 31, 1995. The Credit Facility, as amended, restricts
total borrowings available under the Credit Facility to $40,000,000 and
revises certain financial covenant ratios and requires the collateralization
of additional properties. On February 29, 1996 in connection with the proposed
Shoney's, Inc. Sale Transaction the Credit Facility was amended to revise
certain financial covenant ratios to allow for a provision of up to
$25,000,000 to be taken by the Company as an asset valuation (See Note 2). As
discussed in Note 2, Enterprises is seeking to complete the Shoney's, Inc.
Sale Transaction no later than June 30, 1996. Under the terms of the
Agreement, Shoney's, Inc. will assume or retire certain obligations of
Emterprises including the Credit Facility, which matures June 3, 1996.
Enterprises is discussing with its bank group the possibility of extending the
Credit Facility until the closing date with Shoney's, Inc. Enterprises is also
in discussions with respect to obtaining certain waivers of financial covenants
which may be required for the first quarter of 1996 to ensure adequate
liquidity until this transaction is closed. Additionally, Enterprises is
discussing amendments or waivers to the financial covenants that may be
necessary prior to closing. Management is of the opinion that Enterprises will
be able to obtain such an agreement. However, there can be no assurance that
such an agreement can be reached with respect to either extending the facility
or amending or obtaining waivers to the financial covenants.
Borrowings under the Credit Facility, at the Company's option, bear
interest at either a defined base rate or a rate based on the London Interbank
Offered Rate. The weighted average interest rate on the amount outstanding was
8.5% and 8.2% for 1995 and 1994, respectively. The Company paid certain fees
and expenses to the Banks in connection with the original commitment letter,
which along with other costs associated with the Original Credit Facilities,
totaled approximately $2,000,000 and also agreed to indemnify the Banks
against certain liabilities. The Company also paid an amendment fee of $80,000
and costs of $470,000 for its Second Amended and Restated Credit Agreement
dated January 31, 1995. The Company also pays a fee based on the Eurodollar
rate, 2.5% at December 31, 1995, in connection with letters of credit issued
and a commitment fee equal to 0.50% per annum on the average daily unused
amount of the Credit Facility. The terms of the Credit Facility increased the
fee paid on borrowings and letters of credit by .50% effective January 31,
1995.
Borrowings under the Credit Facility are secured by all shares of the
capital stock of the Company, whenever issued, intercompany debt of the
Company owed to Enterprises and ground lease mortgages with respect to certain
premises in which the land is currently leased but the building located
thereon is owned by the Company. In addition, the Banks have the right to
obtain, as security, assignments of other leases and/or mortgages on real
property currently owned or subsequently acquired. However, the Company has
rights to finance certain of these properties and obtain a release of the
collateral under certain conditions. The Credit Facility limits the amount of
additional indebtedness which Enterprises, the Company and its subsidiaries
may incur and the aggregate annual amount to be spent on capital expenditures.
In addition, the Credit Facility limits, among other things, the ability of
Enterprises, the Company and its subsidiaries to pay dividends, create liens,
sell assets, engage in mergers or acquisitions and make investments in
subsidiaries. The Company may not transfer amounts to Enterprises except for
the payment of a management fee not to exceed $2,500,000 in each fiscal year
and a dividend in an amount sufficient to pay interest on the Senior
Debentures and the Debentures, in each case provided that no defaults under
the Credit Facility exist either immediately before or after the transfer. The
Company must also maintain certain financial ratios and defined levels of net
worth.
At December 31, 1995, $21,400,000 was drawn on the Credit Facility and
letters of credit in the amount of $10,592,790 were outstanding, resulting in
a remaining available balance of $8,007,210.
NOTES PAYABLE
Notes payable as of December 31, 1995 consists of obligations secured by
buildings, land, equipment, and cash value life insurance policies with a net
book value of $7,712,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Debentures, based on the quoted market
price, is $48,000,000 and $39,200,000 at December 31, 1995 and December 25,
1994, respectively. The estimated fair value of the Senior Debentures at
December 31, 1995 is $11,400,000 and $11,570,000 for December 31, 1995 and
December 25, 1994, respectively, based on the estimated borrowing rates
available to the Company. The Credit Facility reprices frequently at market
rates; therefore, the carrying amount of the Credit Facility is a reasonable
estimate of its fair value at December 31, 1995 and December 25, 1994. The
estimated fair value of the Company's notes payable approximates the principal
amount of such notes outstanding at December 31, 1995 and December 25, 1994,
which is based upon the estimated borrowing rates available to the Company.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and December 25,
1994. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
1995 1994
--------- --------
(Dollars in thousands)
Insurance........................................$ 12,373 $
14,578
Reserve for restructuring........................ 3,188 5,177
Taxes other than income taxes.................... 4,600 4,463
Interest......................................... 2,331 2,407
Payroll.......................................... 1,748 1,524
Other............................................ 3,266 3,507
--------- --------
$ 27,506 $ 31,656
========= ========
The Company is primarily self insured for general liability and workers'
compensation risks supplemented by stop loss type insurance policies. The
self-insurance liabilities included in accrued insurance at December 31, 1995
and December 25, 1994 were approximately $11,816,000 and $14,232,000,
respectively.
During the fourth quarter of 1995, management received the 1995 actuarial
study relating to its self insurance programs for workers' compensation and
general liability. The study indicated a continued improvement in the
Company's claims development which resulted in the reduction of projected
ultimate losses. Accordingly, the Company reduced its accrual for workers'
compensation by $3.5 million and its accrual for general liability by $1.5
million.
NOTE 8 - INCOME TAXES
The provision (benefit) for income taxes on income before extraordinary
item and cumulative effect of accounting changes is as follows for 1993:
1993
-------------------
(DOLLARS IN THOUSANDS)
Current:
Federal.................................. $ ---
State and local..........................
---
-------
---
-------
Deferred:
Federal.................................. ---
State and local.......................... 85
-------
85
-------
$ 85
=======
The provision (benefit) for income taxes is different from the amount that
would be computed by multiplying the income (loss) before provision (benefit)
for income taxes by the statutory U.S. federal income tax rates for the
following reasons:
1995 1994 1993
-------- ------- --------
(Dollars in thousands)
Provision (benefit) at statutory rate.......... $(6,790) $(935) $(12,845)
State and local income taxes, net of federal
income tax benefit............................. --- --- ---
Goodwill and other nondeductible items......... 6,441 475 476
Targeted jobs tax credit....................... (134) (318) (105)
Tip credits.................................... (352) (388) ---
Valuation allowance............................ 748 1,284 12,474
Other.......................................... 87 (118)
85
-------- ------- --------
Total provision for income taxes on continuing $ --- $ $
operations..................................... --- 85
======== ======= ========
The tax effects of principal temporary differences in 1995 are shown in
the following table:
Assets Liabilities Total
-------- --------- ---------
(Dollars in thousands)
Additional inventory costs for tax
purposes............................... $ 275 $ --- $ 275
Net operating loss and contributions
carryforward........................... 965 --- 965
Reserves and accrued expenses.......... 5,702 --- 5,702
Other.................................. --- (1) (1)
Valuation allowance.................... (3,751) --- (3,751)
-------- --------- ---------
Current............................. 3,191 (1) 3,190
-------- --------- ---------
Unamortized intangible assets.......... --- (1,258) (1,258)
Excess tax over book depreciation and
sale-leasebacks..................... --- (14,523) (14,523)
Deferred compensation.................. 561 --- 561
Reserves and accrued expenses.......... 5,263 --- 5,263
AMT, net operating loss and targeted
jobs tax credit carryforward........ 21,571 --- 21,571
Valuation allowance.................... (14,804) --- (14,804)
-------- --------- ---------
Noncurrent.......................... 12,591 (15,781) (3,190)
-------- --------- ---------
Total............................. $15,782 $(15,782) $---
======== ========= =========
The tax effects of principal temporary differences in 1994 are shown in the
following table:
Assets Liabilities Total
--------- --------- -------
(Dollars in thousands)
Additional inventory costs for tax purposes. $ 162 $ $ 162
---
Net operating loss and contributions 870 --- 870
carryforward................................
Reserves and accrued expenses............... 6,610 --- 6,610
Other....................................... ---
(37) (37)
Valuation allowance.........................
(3,994) --- (3,994)
--------- --------- --------
Current.................................. 3,648 3,611
(37)
--------- --------- --------
Unamortized intangible assets............... --- (1,204) (1,204)
Excess tax over book depreciation and
sale-leasebacks.......................... --- (11,738)
(11,738)
Deferred compensation....................... 559 --- 559
Reserves and accrued expenses............... 6,104 --- 6,104
Other....................................... --- (1,690) (1,690)
AMT, net operating loss and targeted jobs
tax 19,174 --- 19,174
credit carryforward......................
Valuation allowance.........................
(14,816) --- (14,816)
--------- --------- --------
Noncurrent............................... 11,021
(14,632) (3,611)
--------- --------- --------
Total.................................. $ 14,669 $ $
(14,669) ---
========= ========= ========
The tax effects of principal temporary differences in 1993 are shown in the
following table:
Assets Liabilities Total
--------- --------- -------
(Dollars in thousands)
Additional inventory costs for tax purposes. $ 209 $ $ 209
---
Net operating loss and contributions 4,237 --- 4,237
carryforward
Reserves and accrued expenses............... 5,792 --- 5,792
Other ...................................... (20) (20)
---
Valuation allowance......................... ---
(8,872) (8,872)
--------- --------- --------
Current.................................. 1,366 (20) 1,346
--------- --------- --------
Unamortized intangible assets............... --- (1,319) (1,319)
Excess tax over book depreciation and
sale-leasebacks.......................... --- (12,061)
(12,061)
Deferred compensation....................... 833 --- 833
Reserves and accrued expenses............... 7,322 --- 7,322
Other....................................... --- (272) (272)
AMT, net operating loss and targeted jobs
tax 12,202 --- 12,202
credit carryforward......................
Valuation allowance.........................
(8,051) --- (8,051)
--------- --------- --------
Noncurrent............................... 12,306 (13,652)
(1,346)
--------- --------- --------
Total.................................. $ 13,672 $(13,672) $
---
========= ========= ========
The Company increased its deferred tax asset and liability in 1993 as a
result of legislation enacted during 1993 increasing the corporate tax rate
from 34% to 35% commencing in 1993. The net change in the valuation for
deferred tax assets was an increase of $12,357,000.
The Company's share of Enterprises' consolidated tax carryforwards at
December 31, 1995 expire as follows:
</TABLE>
<TABLE>
<CAPTION>
Net Targeted
Operating Jobs Tax
EXPIRATION Contributions Loss Credit Tip Credit
----------- --- --------- -- -------- --- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1996.................................. $ 400 $ --- $ --- $ ---
1997.................................. 259 --- --- ---
1998.................................. 601 --- --- ---
2003.................................. 681 --- 330 ---
2004.................................. 272 --- 403 ---
2005.................................. --- --- 304 ---
2006.................................. --- --- 501 ---
2007.................................. --- --- 714 ---
2008.................................. --- 9,071 159 ---
2009.................................. --- 1,392 489 589
2010.................................. --- --- 206 541
------- -------- -------- ------
$ 2,213 $ 10,463 $ 3,106 $1,130
======= ======== ======== ======
</TABLE>
The use of these carryforwards is limited to future taxable income.
Alternative minimum tax credits total $873,000 and may be carried forward
indefinitely.
The Company entered into a tax sharing and payment agreement with
Enterprises (the "Agreement"), effective as of April 17, 1988, and applicable
to the consolidated federal income tax returns filed by Enterprises for its
taxable year beginning January 1, 1988. This Agreement provides that the
Company, acting for itself and its subsidiaries, shall be allocated and shall
reimburse Enterprises for their share of the consolidated federal income tax
liability of the Enterprises consolidated group, and such share shall be
determined by comparing the separate taxable incomes (as defined for
consolidated federal income tax reporting purposes) of the Company and its
subsidiaries to the sum of the separate taxable incomes of members of the
Enterprises consolidated group. Enterprises will have the right to assess the
Company on a quarterly basis for its share of the estimated consolidated
federal income tax liability.
Through December 31, 1995, deferred income taxes have not been provided with
respect to timing differences which gave rise to approximately $10,000,000 of
net operating losses, for tax purposes. The losses were utilized by Enterprises
in the computation of its consolidated federal income tax liability in
accordance with the Agreement. However, Enterprises has agreed to credit
the Company with tax benefits related to such net operating losses to
offset future federal income taxes otherwise payable by the Company under the
Agreement.
NOTE 9 - LEASE COMMITMENTS
The Company leases certain of its restaurant locations under long-term
lease arrangements. Lease terms generally range from 10 to 25 years and
normally contain renewal options ranging from 5 to 15 years, but do not
contain purchase options. The Company is generally obligated for the cost of
property taxes and insurance. Some of these leases contain contingent rental
clauses based on a percentage of revenue. The building portions of such leases
are capitalized and the land portions are accounted for as operating leases.
Contingent rentals on capital leases were $310,000, $389,000, and $526,000
during 1995, 1994, and 1993, respectively.
Rent expense under operating leases included in continuing operations is as
follows:
1995 1994 1993
--------- -------- ---------
(Dollars in thousands)
Land and buildings:
Minimum.................... $ 5,432 $ 4,777 $ 5,018
Contingent................. 665 686 714
--------- -------- ---------
6,097 5,463 5,732
Equipment leases.............. 2,370 2,338 2,060
--------- -------- ---------
$ 8,467 $ 7,801 $ 7,792
========= ======== =========
A summary of future minimum lease payments under capital leases,
non-cancelable operating leases, and leases reserved for in the provision for
closed units recorded in the fourth quarter of 1993 with remaining terms in
excess of one year at December 31, 1995 is as follows:
CAPITAL OPERATING RESERVED
LEASES LEASES LEASES
--------- ---------- ---------
(Dollars in thousands)
---------- ---------
1996........................... $ 2,881 $ 7,541 $ 1,090
1997........................... 2,736 7,335 1,084
1998........................... 2,574 6,774 941
1999........................... 2,348 5,815 931
2000........................... 2,135 4,679 859
Thereafter..................... 14,537 27 4,109
--------- ---------- ---------
27,213 32,171 9,014
Less interest.................. 11,615 --- ---
--------- ---------- ---------
$ 15,598 $ 32,171 $9,014
========= ========== =========
Future minimum lease payments on operating leases have been reduced for
sublease rental income of approximately $105,000 to be received in the future
under non-cancelable subleases.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Several of the Company's reserved area agreements include expansion
schedules requiring the Company to develop a minimum number of Shoney's
restaurants in the reserved areas over a defined period of time. Pursuant to
these agreements, the Company is required to open a minimum of 36 Shoney's
restaurants through October 6, 2004. In 1991, the Company entered into an
agreement with Shoney's, Inc. to develop 38 new Captain D's restaurants over
20 years, at the approximate rate of two per year. The Company has constructed
eight restaurants with respect to this agreement. Due to the pending Shoney's,
Inc. Sale Transaction, the Company is not pursuing the building of such units
in 1996. Management is of the opinion that if the transaction is not
completed, the Company will be able to modify the agreements with no material
adverse effect on the operating results or financial position of the Company.
NOTE 11 - LITIGATION
TPI RESTAURANTS, INC. V. MARLIN SERVICES, INC., MARLIN ELECTRIC, INC., D/B/A/
MARLIN SERVICES AND THE AETNA CASUALTY AND SURETY COMPANY AND MARLIN ELECTRIC,
INC. V. TPI RESTAURANTS, INC. AND RELATED MATTERS
On March 7, 1996, the Company filed a civil action; captioned TPI
Restaurants, Inc. v. Marlin Services, Inc. d/b/a/ Marlin Services, Inc.
("Marlin") and The Aetna Casualty and Surety Company. The Company
contends among other things that Marlin breached the terms of a maintenance
service agreement that Restaurants had entered into with Marlin by failing
to perform timely maintenance as required by the agreement, overcharging
for parts and materials, improperly billing for labor, improperly charging
for overhead, etc. On March 7, 1996, Marlin filed a separate action in the
U.S. District Court of Virginia against Restaurants alleging among other
things that Restaurants breached its contract with Marlin by failing to pay
amounts owed under the contract. Marlin claims damages in excess of $2,200,000
as of March, 1996. The Company's attorneys are unable at this time to state
the likelihood of a favorable or unfavorable outcome in these actions.
Subsequent to the end of the year, the Company has been contacted by a
number of subcontractors employed by Marlin. These subcontractors have
indicated that they have not been paid, for certain services performed and
that they are entitled to mechanic's and/or materialman's liens on the
Company's restaurants. The Company is unable at the present time to determine
what liability, if any, exists to these and other subcontractors. Management
does not believe that the ultimate outcome will be a material adverse effect
on the operating results or financial position of the Company.
OTHER
The Company and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. While the result of any litigation
contains an element of uncertainty, it is the opinion of the management of the
Company that the outcome of such litigation will not have a material adverse
effect on the consolidated financial statements.
NOTE 12 - STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 10,000 shares of
Series A Preferred Stock, par value $.01, which are issued and outstanding and
1,000 shares, par value $.01, of common stock which are issued and
outstanding.
Dividends are payable on the Series A Preferred Stock at the annual rate
of $400 per share. The dividends begin to accrue and are cumulative from the
date of issue and are payable when and if declared by the Board of Directors.
As of December 31, 1995, there had been no dividends declared and the
aggregate cumulative dividends were approximately $29,008,218. Cumulative
dividends in arrears also have a liquidation preference and must be satisfied
upon the redemption of the preferred stock by the Company.
The payment of dividends on the Company's stock is limited as described in
Note 6.
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES
On October 5, 1988, the Company and Enterprises entered into a management
services agreement, pursuant to which Enterprises agreed to provide certain
management services to the Company on an ongoing basis. These services include
financial and tax advice and assistance, auditing and accounting advice and
services, advice relating to personnel, including benefit plans, and
assistance with the administration and operation of the Company in general.
The management services agreement originally provided that the Company pay an
annual fee of $1,000,000 to Enterprises as compensation for rendering
management services. As of August 1, 1992, this fee was increased to
$2,500,000. Enterprises will also be reimbursed for its out-of-pocket expenses
incurred in connection with rendering the management services. The management
services agreement is effective until December 31, 1998, at which time it may
be renewed for succeeding one-year terms by mutual agreement of the parties.
During the years ended December 31, 1995, December 25, 1994, and December 26,
1993, the Company accrued and expensed $2,500,000, $2,500,000, and $2,487,000,
respectively, pursuant to this agreement. This agreement will be terminated in
the event that the Shoney's, Inc. Sale Transaction occurs.
On July 21, 1993, Enterprises acquired, for a purchase price of
$3,860,000, the stock of a company which operated three Shoney's restaurants,
including one owned and two leased locations. Included in the acquisition were
the exclusive rights to operate Shoney's restaurants in the surrounding
northern Palm Beach County, Florida area. Enterprises subsequently contributed
all assets and related liabilities acquired in the transaction to the Company.
In conjunction with this transaction, the Company purchased the land and
building at one of the leased restaurant locations for $1,240,000. The
President and Chief Executive Officer of the Company was a 20% shareholder of
the acquired company and had a 50% interest in the land and building the
Company purchased. The Company engaged the service of an independent appraisal
company to review the fairness of the transaction.
On January 19, 1993, the Company purchased an airplane from a corporation
owned by the President and Chief Executive Officer of the Company for $650,000.
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
During the third quarter of 1995, the Company reduced by $3,500,000 its
restructure reserve (Note 3). In the fourth quarter, the Company reduced the
restructure reserve by an additional $2,261,000, reduced its insurance
reserves by $5,000,000 and recorded a $17,000,000 provision for asset
valuation (Note 2). During the fourth quarter of 1994, the Company recorded
$600,000 for adjustments to the Company's deferred compensation obligation
(Note 13) and a $1,000,000 reduction to the Company's restructure reserve
(Note 3).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------
(Dollars in thousands)
QUARTER ENDED - 1995
<S> <C> <C> <C> <C>
Net sales $83,744 $67,241 $65,492 $67,101
Gross profit 8,362 7,040 3,884 7,197
Net (loss) (2,228) (1,190) (3,645) (12,769)
QUARTER ENDED - 1994
Net sales, restated 88,423 69,529 68,086 61,346
Gross profit 10,729 8,486 6,602 4,404
Net income (loss) 608 140 (1,416) (2,080)
</TABLE>
Gross profit equals revenues less food, supplies and uniforms, restaurant
labor and benefits, restaurant depreciation and amortization and other
restaurant operating expense.
SCHEDULE II
<TABLE>
<CAPTION>
TPI RESTAURANTS, INC. AND SUBSIDIARIES
RESERVES
(Dollars in thousands)
ADDITIONS
BALANCE AT ADDITIONS CHARGED DEDUCTIONS BALANCE
BEGINNING CHARGED TO TO FROM AT
OF OPERATIONS OTHER RESERVES END OF
PERIOD ACCOUNTS PERIOD
----------- ----------- ---------- ----------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C> <C>
Year ended December 31, $ 59 $ 66 $ --- $ --- $ 125
1995:
Year Ended December 25, $ --- $ 59 $ --- $ --- $ 59
1994:
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
ALLOWANCE FOR RESTRUCTURING RESERVES:
Year ended December 31, $ 12,430 $ --- $ --- $ 3,678(1) $ 8,752
1995:
Year Ended December 25, $ 18,695 $ --- $ --- $ 6,265 (1) $ 12,430
1994
Year Ended December 26, $ 3,773 $ 17,286 $ --- $ 2,364 $ 18,695
1993:
ALLOWANCE FOR ASSET VALUATION:
Year ended December 31, $ --- $ --- $ 17,000 $ --- $ 17,000
1995:
Year Ended December 25, $ --- $ --- $ --- $ --- $ ---
1994
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
<FN>
(1) Represents deductions for the write-off of assets and changes in assumptions in
connection with the Company's restructure plan. See Note 3.
</TABLE>
EXHIBIT DESCRIPTION
NO.
3.1 Restated Certificate of Incorporation and Certificate of Amendment
dated March 25, 1987 (1); Certificate
of Amendment dated November 10, 1988 (1)
3.2 By-laws as amended through December 18, 1987 (4), Amendment thereto
dated November 9, 1988 (9), Amendment thereto dated May 15, 1989
(10), Amendment thereto dated April 27, 1990(5), Amendment thereto
dated March 9, 1992 (4), and Amendment thereto dated March 19, 1993
(3)
10.1 Plan of Tax-Free Reorganization under Section 368(a)(1)(C) of the
Internal Revenue Code and Agreement dated as of March 15, 1996
among Shoney's, Inc., TPI Restaurants Acquisition Corporation and
Registrant (17)
10.1 Lease between Registrant and 53rd at Third Venture, dated December
6, 1985, as amended, covering premises situated at 885 Third
Avenue, New York, New York (4)
10.2 Sublease dated August 14, 1992 between Registrant and Systemhouse,
Inc. for the premises at 53rd at
3rd, 885 Third Avenue, New York, New York (3)
10.3 Lease dated June 26, 1992 between Registrant and Murray H. Goodman,
for premises at Phillips Point,
West Palm Beach, Florida (3)
10.4 Medical Expense Reimbursement Plan (14)
10.5 1982 Stock Option Plan (5), and Amendment thereto dated April 15,
1991 (4)
10.6 1983 Stock Option Plan (5), Amendment thereto dated August 8, 1990
(5)
and Amendment thereto dated
March 9, 1992 (4)
10.7 1984 Stock Option Plan, Amendment thereto dated November 15, 1989
(5), and Amendment thereto dated February 5, 1992 (4)
10.8 1989 Employee Stock Purchase Plan (11); and Amendment thereto dated
December 16, 1994 (1)
10.9 1989 Employee Stock Purchase Plan Trust Agreement (10)
10.10 1992 Stock Option and Incentive Plan (3)
10.11 Non-Employee Directors Stock Option Plan (3), Amendment thereto dated
March 19, 1993 (2), and Amendment thereto dated December 16, 1994 (1)
10.12 TPI Enterprises, Inc. 1995 Employee Stock Purchase Plan (1)
10.13 Amended and Restated TPI Enterprises, Inc. Employee Stock Purchase
Plan Trust Agreement (1)
10.14 NationsBank Defined Contribution Master Plan and Trust Agreement (1)
10.15 Form of letter agreement, dated January, 1984 between Registrant and
Robert A. Kennedy setting forth, among other matters, certain rights
upon termination of employment (5)
10.16 Termination Agreement dated November 19, 1992 between Registrant and
Robert A. Kennedy (1), Amendment to Termination Agreement dated
December 31, 1993 (2); Agreement dated February 20, 1995 (1); and
letter agreement dated March 19, 1996
10.17 Termination Agreement, Receipt and Release dated as of January 31,
1995 between Registrant, Maxcell
Telecom Plus, Inc., and Stephen R. Cohen (16)
10.18 Employment Agreement dated as of January 13, 1994, between
Registrant and J. Gary Sharp (2)
10.19 Employment Agreement dated as of January 1, 1995, between Registrant,
Restaurants and Frederick W. Burford (1)
10.20 Employment Agreement dated as of January 1, 1993 between Restaurants
and Haney A. Long, Jr. (1)
10.21 Stipulation and Agreement of Compromise and Settlement, dated January
6, 1988, among Robert M.
Gintel, Ralph I. Reis, Daniel Schoonover, Stephen R. Cohen, Thomas J.
Burger, Joseph P. Gowan, Ira M. Lieberman, Robert A. Kennedy, and
Registrant (3)
10.22 Management Services Agreement dated as of October 5, 1988, between
Registrant and Restaurants (12)
10.23 Tax Sharing and paying Agreement effective as of April 22, 1988
between Registrant and Restaurants (12)
10.24 Form of Shoney's Franchise Agreement (5)
10.25 Form of Agreement amending Franchise Agreements with Shoney's, Inc.
(13)
10.26 Form of Captain D's Franchise Agreements (5)
10.27 Second Amended and Restated Credit Agreement dated January 31, 1995
by and among TPI Restaurants, Inc., the banks party thereto, The
Bank of New York as Administrative Agent and NationsBank of North
Carolina, N.A., as Collateral Agent (the "Collateral Agent")(16);
and Amendment No. 1 to the Second amended and Restated Credit
Agreement dated as of February 29, 1996
10.28 Amended and Restated Enterprises Guaranty, dated as of June 3, 1993
made by Registrant and Restaurants to NationsBank of North Carolina,
N.A. as Collateral Agent (2) and Amendment No. 1, dated as of
February 18, 1994, and Amendment No. 2 dated as of January 31,
1995 (16)
10.29 Debenture Purchase Agreement, dated as of March 19, 1993 among
Registrant and the Purchasers named therein, relating to the
$15,000,000 5% Convertible Senior Subordinated Debentures, due
April 15, 2003 (3)
10.30 Warrant Purchase Agreement, dated as of March 19, 1993 among
Registrant and the Purchasers named therein, relating to Warrants
to Purchase 1,000,000 Shares of Common Stock (3)
10.31 Stock Purchase Agreement, dated as of March 19, 1993 among
Registrant and the Purchasers named therein, relating to the
purchase of 1,500,000 Shares of Common Stock (3)
10.32 Side Agreement, dated as of March 19, 1993 among Registrant and the
Purchasers named therein (3)
10.33 Amended and Restated Registration Rights Agreement dated as of July
21, 1993 by and among the Company and the shareholders who are
signatories thereto (7)
10.34 Management Consulting Agreement, dated as of June 03, 1989, between
Registrant and FirstMark (6)
10.35 Reserved Area Agreement dated May 1, 1989 between Shoney's, Inc.
and Restaurants (1); as amended by Addendum to Reserved Area
Agreement dated May 8, 1989 (1); as amended by Amended and Restated
Addendum to Reserved Area Agreement entered into January 1, 1990
(1); as amended by Second Amended and Restated Addendum to Reserved
Area Agreement entered into April 1991 (1)
10.36 Reserved Area Agreement dated August 2, 1988 between Shoney's, Inc.,
Registrant and Shoney's South, Inc. (predecessor to Restaurants)(1);
letter dated March 5, 1993 from Shoney's, Inc. to Restaurants (1);
as amended by letter agreement dated July 30, 1993 (1)
10.37 Shoney's Market Development Agreement dated December 1, 1992 between
Shoney's, Inc. and Restaurants (regarding area in Michigan)(1); as
amended by Addendum to Market Development Agreement entered into
January 26, 1995 (1); as amended by Second Addendum to Market
Development Agreement entered into February 27, 1995 (1)
10.38 Shoney's Market Development Agreement dated August 17, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Arizona)(1); as
amended by Addendum to Market Development Agreement entered into
January 26, 1993 (1); as amended by Second Addendum to Market
Development Agreement dated February 27, 1995 (1)
10.39 Shoney's Market Development Agreement dated July 18, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Florida) (1); as
amended by Addendum to Market Development Agreement entered into
January 26, 1993 (1); as amended by Second Addendum to Market
Development Agreement entered into February 27, 1995 (1)
10.40 Shoney's Market Development Agreement dated October 11, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Texas) (1)
10.41 Shoney's Market Development Agreement dated April 1, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Texas) (1); as
amended by Addendum to Market Development Agreement entered into
November 30, 1993 (1); as amended by Second Addendum to Market
Development Agreement entered into January 26, 1995 (1); as amended
by Third Addendum to Market Development Agreement entered into
February 27, 1995 (1)
10.42 Franchiser Estoppel Letter dated January 31, 1995 (1)
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (for SEC use only)
----------
(1) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 25, 1994 as amended by Form 10-K/A No.1 and
incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 26, 1993, and incorporated herein by
reference.
(3) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated herein by
reference.
(4) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated herein by
reference.
(5) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, and incorporated herein by
reference.
(6) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989, and incorporated herein by
reference.
(7) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q,
dated July 11, 1993.
(8) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
May 8, 1991, and incorporated herein by reference.
(9) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
March 4, 1991, and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Registration Statement on
Form S-8 (No. 33-30551), dated August 16, 1989, and incorporated
herein by reference.
(11) Filed as an exhibit to Amendment No. 4 to Restaurant's Registration
Statement on Form S-2 (No.33-24166), dated November 9, 1988, and
incorporated herein by reference.
(12) Filed as an exhibit to Restaurant's Registration Statement on Form
S-2 (No.33-24166), dated October 13, 1988, and incorporated herein
by reference.
(13) Filed as an exhibit to Restaurant's Registration Statement on
Form S-2 (No. 33-24166), dated September 2, 1988, and
incorporated herein by reference.
(14) Filed as an exhibit to Restaurant's Registration Statement on
Form S-1 (No. 2-72119), dated May 5, 1981, and incorporated
herein by reference.
(15) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
July 29, 1992, and incorporated herein by reference.
(16) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
February 7, 1995, and incorporated herein by reference.
(17) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
March 19, 1996, and incorporated herein by reference.
BOARD OF DIRECTORS CORPORATE EXECUTIVE OFFICERS
Douglas K. Bratton J. Gary Sharp
Partner, The Airlie Group L.P. President and Chief Executive Officer
Frederick W. Burford Frederick W. Burford
Executive Vice President, Executive Vice President,
Chief Financial Officer Chief Financial Officer
and Secretary and Secretary
TPI Enterprises, Inc.
Osvaldo Cisneros TPI RESTAURANTS, INC. OFFICERS
President, Ocaat, CA
Haney A. Long, Jr.
Lawrence F. Levy Vice President of Procurement and
Chairman, The Levy Organization Distribution
James Arnett
John L. Marion, Jr. Vice President, Shoney's Restaurant
The Airlie Group L.P. Division
Gary W. Borth
J. Gary Sharp Vice President of Operations, Captain
President and Chief Executive D's Division
Officer,
TPI Enterprises, Inc.
Paul James Siu
Paul Siu & Company
Edwin B. Spievack
Vice President, Source Inc.
Thomas M. Taylor
President, Thomas M. Taylor & Company
FORM 10-K AUDITORS
A copy of the Annual Report on Deloitte & Touche LLP, 600
Form 10-K to the Securities and Morgan Keegan Tower, 50
Exchange Commission is avail- North Front Street, Memphis,
able upon written request to TN 38103.
the Secretary, TPI Enterprises,
Inc., 3950 RCA Boulevard, Suite
5001, Palm Beach Gardens, FL TRANSFER AGENT
33410.
American Stock Transfer Com-
pany, 99 Wall Street, New
ANNUAL MEETING DATE York, NY 10005.
TPI Enterprises, Inc., will
hold its 1996 Annual Meeting of FOR ADDITIONAL INFORMATION
Shareholders on Friday, June CONTACT:
14, at 9:00 a.m. EST at the
Marriott Hotel in Palm Beach Frederick W. Burford, 3950
Gardens, Florida. RCA Boulevard, Suite 5001,
Palm Beach Gardens, FL
33410, 407/691-8800
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher &
Flom, 1440 New York Avenue,NW,
Washington, DC 20005.
TPI Enterprises,Inc. * 3950 RCA Boulevard * Suite 5001 * Palm Beach Gardens
* FL 33410
