<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report pursuant to Section 13 or 15 (d) of the Securities
- --- Exchange Act of 1934
or
Transition Report pursuant to Section 13 or 15 (d) of the Securities
- --- Exchange Act of 1934
For the quarterly period ended April 21, 1996 Commission file number 0-7961
TPI ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1899681
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
3950 RCA BOULEVARD
SUITE 5001
PALM BEACH GARDENS, FLORIDA 33410
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (407) 691-8800
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Shares, Par Value $.01 per Share
---------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of the registrant's common stock is
20,633,524 as of June 1, 1996.
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PART I - FINANCIAL INFORMATION
Companies for which information is furnished:
TPI Enterprises, Inc.
Telecom Plus Shared Tenant Services, Inc.
TPI Restaurants, Inc.
The Insurex Agency, Inc. (1)
Insurex Benefits Administrators, Inc. (1)
TPI Entertainment, Inc.
TPI-West Palm Inc. (1)
TPI Commissary, Inc. (1)
TPI Transportation, Inc. (1)
TPI Insurance Corporation
(1) Wholly-owned subsidiaries of TPI Restaurants, Inc.
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 21, December 31,
1996 1995
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 27,015 $ 8,744
Accounts receivable-trade (net of allowance for
doubtful accounts of $125 in 1996 and 1995)......... 942 1,248
Litigation settlement receivable..................... --- 30,000
Inventories.......................................... 10,762 13,020
Deferred tax benefit................................. 3,736 5,728
Other current assets................................. 1,633 3,237
-------- --------
Total current assets............................... 44,088 61,977
-------- --------
Property and equipment (at cost)...................... 238,056 236,969
Less accumulated depreciation and amortization....... 83,664 79,637
Less allowance for restructuring..................... 8,586 8,752
-------- --------
145,806 148,580
-------- --------
Other assets:
Goodwill (net of accumulated amortization of
$9,823 in 1996 and $9,431 in 1995).................. 36,003 36,396
Less valuation allowance............................. 833 17,000
-------- --------
35,170 19,396
Other intangible assets (net of accumulated
amortization of $7,088 in 1996 and $6,504 in 1995).. 17,626 18,298
Other................................................ 632 625
-------- --------
53,428 38,319
-------- --------
$243,322 $248,876
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................... $ 26,742 $ 24,231
Accounts payable-trade............................... 13,620 16,052
Accrued expenses and other current liabilities....... 30,577 30,604
Accrued costs of litigation settlement............... --- 13,537
Income taxes currently payable....................... 640 618
-------- --------
Total current liabilities.......................... 71,579 85,042
-------- --------
Long-term debt........................................ 81,484 81,628
-------- --------
Reserve for restructuring............................. 7,766 8,162
-------- --------
Deferred income taxes................................. 3,360 5,537
-------- --------
Other liabilities..................................... 1,579 1,641
-------- --------
</TABLE>
3
<PAGE> 4
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
April 21, December 31,
1996 1995
--------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
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; issued - 33,416,143 shares in 1996 and
33,402,553 shares in 1995............................ 334 334
Additional paid-in capital........................... 226,487 226,454
Deficit.............................................. (79,542) (90,157)
-------- --------
147,279 136,631
Less treasury stock, at cost, 12,795,230 and
12,805,266 common shares in 1996 and 1995.......... 69,725 69,765
-------- --------
Total shareholders' equity....................... 77,554 66,866
-------- --------
$243,322 $248,876
======== ========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Quarter Ended
-------------------------
April 21, April 16,
1996 1995
--------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Restaurant Revenues $ 84,934 $83,744
-------- -------
Costs and expenses:
Food, supplies and uniforms.................................................. 31,033 30,404
Restaurant labor and benefits................................................ 27,458 25,535
Restaurant depreciation and amortization..................................... 3,594 4,322
Other restaurant operating expenses.......................................... 16,409 15,121
General and administrative expenses.......................................... 6,968 6,450
Provision for asset valuation................................................ (16,167) ---
Other, net................................................................... 1,866 314
Restructuring charges, net................................................... (34) ---
-------- -------
71,127 82,146
-------- -------
Operating income (loss)....................................................... 13,807 1,598
-------- -------
Other income and expenses:
Interest income.............................................................. 305 130
Interest expense............................................................. (3,497) (3,233)
Other........................................................................ --- ---
-------- -------
(3,192) (3,103)
-------- -------
Income (loss) before provision for income taxes............................... 10,615 (1,505)
Provision for income taxes.................................................... --- ---
-------- -------
Net income (loss)............................................................. $ 10,615 $(1,505)
======== =======
Net income (loss) per share................................................... $ .51 $ (.07)
======== =======
Weighted average number of common and common equivalent shares outstanding.... 20,615 20,417
======== =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
----------------------
April 21, April 16,
1996 1995
--------- ---------
(Dollars in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 10,615 $(1,505)
-------- -------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization............................ 5,146 5,928
Deferred income taxes.................................... (185) ---
Reserve for restructuring................................ (34) ---
Provision for asset valuation............................ (16,167) ---
Changes in assets and liabilities:
Accounts receivable-trade............................... 306 (592)
Litigation settlement receivable........................ 30,000
Inventories............................................. 2,258 65
Other current assets.................................... 1,593 18
Other assets............................................ (118) (127)
Accounts payable-trade.................................. (2,432) 767
Accrued expenses and other current liabilities.......... (13,416) (851)
Income taxes currently payable.......................... 22 (134)
Reserve for restructuring............................... (510) (701)
Other liabilities....................................... (62) (63)
-------- -------
Total adjustments..................................... 6,401 4,310
-------- -------
Net cash provided by operating activities............... 17,016 2,805
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment.................... (1,360) (3,172)
Disposition of property and equipment.................... 509 398
Other.................................................... 5 (35)
-------- -------
Net cash used in investing activities................... (846) (2,809)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on Credit Facility............. 2,500 (5,400)
Other long-term debt payments............................ (432) (834)
Common shares issued..................................... 33 116
-------- -------
Net cash provided by (used in) financing activities..... 2,101 (6,118)
-------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... 18,271 (6,122)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............. 8,744 17,228
-------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD................... $ 27,015 $11,106
======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash payments (refunds) during the quarter for:
Interest................................................. $ 3,360 $ 3,587
Income taxes refunded.................................... --- ---
Income taxes paid........................................ 200 134
Non-cash transactions:
Capitalized lease obligation............................. 299 ---
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
TPI ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheets as of April 21, 1996 and the consolidated
statements of operations and cash flows for the periods ended April 21, 1996
and April 16, 1995 have been prepared by the Company without audit. In the
opinion of management all adjustments (which include only normal recurring
adjustments) necessary to present fairly the consolidated financial position at
April 21, 1996 and the consolidated results of operations and consolidated cash
flows for the periods ended April 21, 1996 and April 16, 1995 have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These financial statements should
be read in conjunction with the 1995 audited financial statements of the
Company included in its Annual Report on Form 10-K for the year ended December
31, 1995. The results of operations for the sixteen week period ended April 21,
1996 are not necessarily indicative of the operating results for the full year.
The Company adopted Statement of Financial Accounting Standard (SFAS) No.
121 "Accounting for Impairment of Long-Lived Assets and For Long-Lived Assets
to be Disposed Of" during the first quarter of 1996. The adoption of this
accounting standard had no material effect on the Company's results of
operations or consolidated financial position due to the valuation allowance
established to reduce the carrying value of the net assets of the Company to
the estimated fair value of the consideration to be received in connection with
the Shoney's, Inc. Sale Transaction. (See Note 3)
NOTE 2 - NET INCOME PER COMMON SHARE
Primary earnings per share amounts are computed by dividing net income by
the weighted average number of common and common equivalent shares (dilutive
options and warrants) outstanding during the period. Reported primary per
share amounts include common equivalents relating to dilutive stock options of
20,417 at April 16, 1995. There were no dilutive stock options at April 21,
1996.
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 ("Debentures") and 5% Convertible Senior Subordinated
Debentures ("Senior Debentures"), after the elimination of the related interest
requirements, net of income taxes. The Company's convertible debentures are
excluded from the April 21, 1996 and April 16, 1995 computation due to their
antidilutive effect during these periods.
NOTE 3 - 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. 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. ("Restaurants") and its wholly-owned subsidiaries, TPI
Entertainment, Inc. and TPI Insurance Corporation. Additionally, the Company
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, 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 retained
cash. The $14,850,000 is subject to reduction under certain other
circumstances. Under the Agreement, the amount of the $7,500,000 in retained
cash may not exceed an amount which equals 10% of the value of the shares of
Shoney's, Inc. common stock received by the Company. In the event that the
Company is unable to retain all $7,500,000 as a result of this limitation,
Shoney's, Inc. will issue additional shares of its common stock to the Company.
To satisfy the requirements for a tax-free reorganization under the Internal
Revenue Code of 1986, as amended (the "Code"), the
7
<PAGE> 8
portion of the $7,350,000 relating to wind-up expenses not accrued for federal
income tax purposes at the closing of the Shoney's, Inc. Sale Transaction, when
added to the $7,500,000 in retained cash not designated to pay certain
specified wind-up expenses, may not exceed an amount equal to 10% of the
Company's net asset value on the date of the closing of the Shoney's, Inc. Sale
Transaction. If such cash exceeds 10% of the Company's net asset value on such
date, the Company will not be able to retain such cash. In addition, an
aggregate of up to approximately $935,000 is required to be set aside by the
Company for the benefit of holders of stock options and warrants of the
Company if such stock options and warrants are exercised prior to the complete
liquidation of the Company, which will occur after the consummation of the
Shoney's, Inc. Sale Transaction.
At December 31, 1995, the Company 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. At the end
of the first quarter of 1996, the Company reduced this provision by $16,167,000
to reflect an increase in the Shoney's, Inc. stock price from March 15, 1996,
the date the Agreement was signed, to April 21, 1996, the end of the Company's
first quarter. The valuation allowance is reflected as a reduction in the
Company's recorded goodwill.
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. Management currently
anticipates that the closing of the transaction will not occur until late
July or August of 1996. Although the Agreement has not been amended for this
change, management believes, based on conversations with Shoney's, Inc., that
the Agreement will be amended to extend the termination date into August 1996
and that the transaction will still be consummated. As a condition to closing
of the Shoney's, Inc. Sale Transaction, the obligations of the Company under the
Debentures must be assumed by Shoney's, Inc. and the Company released from all
obligations thereunder. In addition, as a condition to closing, Shoney's, Inc.
is required to repay in full all amounts owed under the Senior Debentures and
the Company's credit facility (the "Credit Facility"). The Agreement is subject
to a number of other conditions. Those which are still pending include: (1)
the review by the Securities and Exchange Commission of the joint proxy
statement/prospectus filed by Shoney's, Inc. on May 21, 1996 and the
declaration of effectiveness of the related registration statement, (2) the
approval of the shareholders of both the Company and Shoney's, Inc., (3) the
reconfirmation of fairness opinions previously delivered and the receipt of
certain legal opinions and (4) the absence of a material adverse change to the
Company or Shoney's, Inc. Shoney's, Inc. received a commitment for its
additional financing necessary to consummate the Shoney's, Inc. Sale
Transaction in May 1996. 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 requires the Company after closing to wind-down its
operations and distribute the shares of Shoney's, Inc. common stock received in
the Shoney's, Inc. Sale Transaction and any remaining amount of the $7,500,000
retained cash, after paying or making provision for its liabilities, to the
Company's shareholders. Management anticipates that the majority of such
distributions to the Company's shareholders will be made during 1996.
NOTE 4 - RESTRUCTURING CHARGES
During the first quarter of 1996, the Company's reserve for restructuring
was reduced by approximately $396,000 for expenditures related to restaurants
closed in connection with the restructuring plan adopted by the Company as of
the end of the fourth quarter of 1993 and by approximately $148,000 for
expenditures related to the Company's restructuring of its divisional
management and consolidation of the Company's corporate offices. The Company
also reduced its allowance for restructuring by approximately $166,000 during
the first quarter of 1996 for the write off of assets. At April 21, 1996, the
Company's reserve for restructuring of $11,073,000 represents the amounts owed
for lease and other expenses. The Company has classified $3,307,000 of the
reserve for restructuring as a current liability at April 21, 1996. The
Company's allowance for restructuring is $8,586,000 at April 21, 1996 and
represents an amount recorded on its balance sheet for the write off of assets.
The reserve for restructuring and allowance for restructuring include
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.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Continuing operations primarily include the results of Restaurants, whose
revenues are derived from restaurant sales. The first quarterly reporting
period consists of 16 weeks ending April 21, 1996 and the second, third and
fourth quarters are 12 weeks each in 1996. The restaurant business is seasonal
in nature with the second and third fiscal quarters (Spring and Summer) having
higher weekly sales volume than the first and fourth quarters.
Results of Operations
Revenues
Revenues for the first quarter of 1996 increased to $84.9 million, up 1.4%
from the $83.7 million earned during the same period for the prior year. New
restaurants accounted for $.5 million of the increase in revenues for the
first quarter of 1996, while comparable store sales increased $.5 million, or
.71%, in the Shoney's concept and increased $.1 million, or .72%, in the
Captain D's concept. New restaurant operations are included in the comparable
store sales computation after they have been operational for sixteen periods.
The Company's operating results include 187 Shoney's and 66 Captain D's units
operating at the end of the first quarter of 1996 compared to 187 Shoney's and
68 Captain D's operating at the end of the same period for the prior year.
Cost 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
the first quarters of 1996 and 1995 is shown below.
<TABLE>
<CAPTION>
================================================================================
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Food, supplies and uniforms 36.5% 36.3%
Restaurant labor and benefits 32.3% 30.5%
Restaurant depreciation and amortization 4.2% 5.2%
Other restaurant operating expenses 19.3% 18.1%
- --------------------------------------------------------------------------------
92.3% 90.1%
================================================================================
</TABLE>
The Company's food costs as a percentage of revenues increased .2% due to
price increases in several high volume commodities, primarily pork and produce,
and the higher costs of various promotions which ran during the first quarter
of 1996. Restaurant labor and benefits increased as a percentage of sales due
to 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 the last half of 1995. Other restaurant
operating expenses increased as a percentage of revenues primarily due to
increases in utility costs and advertising. Utility costs are up due to the
severe weather conditions in several of the Company's markets during the first
quarter of 1996 compared to the same time period in 1995. The increase in
advertising costs is due to an increase in radio and television promotions for
the first quarter of 1996 compared to the first quarter of 1995. Advertising
costs for the year are expected to remain comparable to the prior year.
General and administrative expenses for the first quarter are up
approximately $518,000, or 10%, compared to the prior
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<PAGE> 10
year. This increase is largely attributable to higher divisional costs, which
resulted from the addition of a new divisional Vice President during the
second half of 1995, and inefficiencies related to turnover in personnel due
to the pending Shoney's, Inc. Sale Transaction. General and administrative
costs are also higher during the first quarter of 1996 because the Company was
in the process of transitioning its Memphis office to West Palm and was not
fully staffed during the same time period of 1995. Other costs are up from the
first quarter of 1995 as a result of approximately $1.3 million of costs and
expenses incurred in connection with the Shoney's Inc. Sale Transaction.
The provision for asset valuation was reduced at the end of the first
quarter by approximately $16.0 million to reflect the increase in the market
price of the Shoney's, Inc. common stock to better reflect the estimated fair
value of the consideration to be received by the Company in connection with the
Shoney's Inc. Sale Transaction. (See Note 3)
Other Income and Expenses
Other income and expenses for the first quarter of 1996 are comparable to
the first quarter of 1995. Interest income is up due to interest earned on the
Maxcell litigation settlement proceeds. The increase in interest income is
offset, however, by an increase in interest expense resulting from the
increased borrowings on the Credit Facility.
Liquidity and Capital Resources
The Company has a working capital deficit of $27.5 million at April 21,
1996 compared to a working capital deficit at December 31, 1995 of $23.1
million. The $4.4 million, or 19%, increase in the working capital deficit is
primarily due to additional borrowings of $2.5 million on the Credit Facility
and a decrease of $2.0 million in the Company's current deferred income taxes.
The Company's additional borrowings were required as a result of decreased
operating performance and cash outlays of approximately $.8 million related to
the approximately $1.3 million of costs and expenses incurred as a result of
the pending Shoney's, Inc. Sale Transaction.
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 near term
maturity of the Credit Facility, which has caused the indebtedness thereunder
to be classified as a current liability, the working capital deficit as of
April 21, 1996 is significantly higher than in prior years and, if the
Shoney's, Inc. Sale Transaction is not consummated, the Credit Facility would
need to be replaced with long-term financing. (See "Financing Activities"
below).
Operating Activities
Net cash provided by operating activities increased by $14.2 million.
This increase was largely attributable to the receipt during the first quarter
of the Maxcell litigation proceeds of $30.0 million less the payout of
approximately $13.7 million of costs associated with the settlement. Other
changes included a decrease in inventory of approximately $2.3 million offset
by a corresponding decrease in accounts payable.
Investing Activities
Net cash used in investing activities decreased $2.0 million. The
decrease in cash used is the result of a decrease in capital expenditures
during the first quarter of 1996 compared to the first quarter of 1995. During
the first quarter of 1995, the Company completed the construction of one new
Shoney's restaurant and performed remodels on four Shoney's and one Captain D's
restaurant for approximately $3.2 million. Capital expenditures for 1996
largely relate to maintenance for Shoney's and Captain D's restaurants and
miscellaneous equipment additions. The Company has not opened any new stores
in 1996 and has only spent approximately $100,000 for remodels. The Company
plans to hold capital expenditures to a minimum due to the pending
Shoney's, Inc. Sale Transaction.
10
<PAGE> 11
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, South Carolina and Tennessee).
To avoid termination of the reserved area agreement, the Company is required to
open 30 additional Captain D's by July 11, 2011. Due to the pending Shoney's,
Inc. Sale Transaction and the recent performance of 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. However, 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.
Financing Activities
Net cash provided by financing activities was $2.1 million for the first
quarter of 1996 compared to $6.1 million of net cash used in the first quarter
of 1995. During the first quarter of 1996, the Company borrowed an additional
$2.5 million on the Credit Facility. These borrowings were necessary due to
a reduction in cash provided by operations. Cash provided by operations was
down due to decreased operating performance and cash outlays of approximately
$.8 million related to the approximately $1.3 million of costs and expenses
incurred as a result of the pending Shoney's, Inc. Sale Transaction.
The Credit Facility was amended as of May 21, 1996. The amendment
extended the Credit Facility's expiration date from June 3, 1996 to the
earliest of August 30, 1996, the date on which the Shoney's, Inc. Sale
Transaction is consummated, or the date on which the Agreement is terminated.
The amendment also revised the interest coverage ratio and consolidated
tangible net worth covenants for the first quarter of 1996 and thereafter that
the Company would have been required to meet. At April 21, 1996, $23.9 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 $5.5 million.
In the event the Agreement is terminated, or on August 30, 1996 if the
Shoney's, Inc. Sale Transaction is not theretofore consummated, the Company's
Credit Facility will terminate and all amounts outstanding thereunder become
due unless the Company can renegotiate the Credit Facility. Management
believes that if it has sufficient time to negotiate with its banks, it will
likely be able to obtain an extension with respect to some or all of the
amounts due or obtain alternative sources of financing. However, there can be
no assurance that management will have sufficient time to negotiate or that a
renegotiation 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 view 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, Inc. Sale
Transaction. In the event the Shoney's, Inc. Sale Transaction is consummated,
the Company will liquidate and distribute its assets, consisting of shares of
Shoney's, Inc. common stock received in the Shoney's, Inc. Sale Transaction and
any remaining amount of the $7,500,000 in retained cash, after paying or
making adequate provision for its liabilities.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reading Company and James J. Cotter v. TPI Enterprises, Inc.
On March 7, 1995, a civil action captioned Reading Company and James J.
Cotter v. TPI Enterprises, Inc. 95 Civ. 1579 was filed in the United States
District Court for the Southern District of New York. The plaintiffs allege
inter alia breach of contract and seek damages of $1,250,000 plus interest,
punitive damages and attorney's fees in connection with the sale to a
subsidiary of American Multi-Cinema, Inc. of TPI Entertainment, Inc.'s interest
in Exhibition Enterprises Partnership in April 1991. The Company's attorneys
are unable at this time to state the likelihood of a favorable or unfavorable
outcome.
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 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.
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
some have filed 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.
12
<PAGE> 13
Other Proceedings
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 management that the
outcome of such litigation will not have a significant adverse effect on the
consolidated financial statements.
13
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (None)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
27 - Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K:
Registrant filed a current report on Form 8-K, dated March 19, 1996,
reporting Item 5 - Other Events.
14
<PAGE> 15
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TPI Enterprises, Inc.
(Registrant)
/s/ J. Gary Sharp
-----------------------------------------
Date: June 5, 1996 J. Gary Sharp
President & Chief Executive Officer
/s/ Frederick W. Burford
-----------------------------------------
Date: June 5, 1996 Frederick W. Burford
Executive Vice President, Chief Financial
Officer & Secretary
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF TPI ENTERPRISES, INC. FOR THE QUARTER ENDED APRIL 21,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> APR-21-1996
<EXCHANGE-RATE> 1
<CASH> 27,015
<SECURITIES> 0
<RECEIVABLES> 1,067
<ALLOWANCES> 125
<INVENTORY> 10,762
<CURRENT-ASSETS> 44,088
<PP&E> 229,470
<DEPRECIATION> 83,664
<TOTAL-ASSETS> 243,322
<CURRENT-LIABILITIES> 71,579
<BONDS> 81,484
0
0
<COMMON> 334
<OTHER-SE> 77,220
<TOTAL-LIABILITY-AND-EQUITY> 243,322
<SALES> 84,934
<TOTAL-REVENUES> 84,934
<CGS> 78,494
<TOTAL-COSTS> 71,127
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,497
<INCOME-PRETAX> 10,615
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,615
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
</TABLE>
