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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.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 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
The information required by Part III of this Form 10-K is incorporated
by reference from the Company's Proxy Statement if the Proxy Statement is filed
with the Commission by April 29, 1996 or such information shall be contained in
an amendment to this Form 10-K to be filed with the Commission no later than
April 29, 1996.
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TABLE OF CONTENTS
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PAGE
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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 ............................................................................. 50
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..................................... 50
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................................................... 50
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ................................... 51
SIGNATURES ......................................................................................................... 53
FINANCIAL STATEMENT SCHEDULES ....................................................................................... S-1
FINANCIAL STATEMENTS OF SUBSIDIARY ................................................................................. W-1
FINANCIAL STATEMENT SCHEDULES OF SUBSIDIARY ....................................................................... WS-1
EXHIBIT INDEX. .........................................................................................................
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PART I
ITEM 1. BUSINESS
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 wind-up 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 shareholders. 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.
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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.
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CAPTAIN D'S
CONCEPT AND STRATEGY. Captain D's restaurants are quick-service
seafood restaurants and offer in-store or drive-through 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 maintianing 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
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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
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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.
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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).
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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:
<TABLE>
<CAPTION>
Land and Land Leased, Land and
Building Building Building
Type of Restaurant Owned Owned Leased Total
------------------------ -------- ------------ -------- -----
<S> <C> <C> <C> <C>
Shoney's ............. 69 38 81 188
Captain D's ........... 28 25 15 68
-- -- -- ---
97 63 96 256
== == == ===
</TABLE>
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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.
<TABLE>
<CAPTION>
NUMBER WITH
NUMBER OF RENEWABLE
LEASE TERM EXPIRES LEASES OPTIONS
------------------ --------- -----------
<S> <C> <C>
1996 ............................................................... 4 3
1997-2000 ............................................................... 67 51
2001-2005 ............................................................... 51 42
2006-2010 ............................................................... 56 55
2011-2014 ............................................................... 5 2
--- ---
183 153
</TABLE>
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 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 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.
10
<PAGE> 11
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.
11
<PAGE> 12
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:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD WITH THE COMPANY
- ------------------------------------- ----- ---------------------------------------------
<S> <C> <C>
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
</TABLE>
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.
12
<PAGE> 13
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.
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- --------------------- -----------------------
High Low High Low High Low
-------- -------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
First
Quarter $6 1/4 $3 11/16 $10 3/8 $6 7/8 $10 7/8 $8 1/8
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
</TABLE>
13
<PAGE> 14
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 25, DECEMBER 26, DECEMBER 31, DECEMBER 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
(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 31, DECEMBER 25, DECEMBER 26, DECEMBER 31, DECEMBER 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>
14
<PAGE> 15
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, Inc. 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.
15
<PAGE> 16
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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
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%
==== ====
</TABLE>
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.
16
<PAGE> 17
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.
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
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%
==== ====
</TABLE>
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.
17
<PAGE> 18
COSTS AND EXPENSES (CONTINUED)
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 operating 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.
18
<PAGE> 19
RESTRUCTURING CHARGES (CONTINUED)
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
19
<PAGE> 20
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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
20
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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".)
21
<PAGE> 22
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
22
<PAGE> 23
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
(Dollars in thousands)
<S> <C> <C>
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 36,396 37,675
and $8,152 in 1994) ..........................................
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
======== ========
</TABLE>
See notes to consolidated financial statements
23
<PAGE> 24
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
(Dollars in thousands)
<S> <C> <C>
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
======== ========
</TABLE>
See notes to consolidated financial statements
24
<PAGE> 25
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
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)
========= ========= =========
</TABLE>
See notes to consolidated financial statements
25
<PAGE> 26
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ ------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
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
====== ====== =======
</TABLE>
See notes to consolidated financial statements
26
<PAGE> 27
TPI ENTERPRISES, 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 from continuing operations......................... $(11,309) $ (3,717) $(36,488)
-------- -------- --------
Adjustments to reconcile net loss from continuing operations
to net cash provided by operating 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 discontinued 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
27
<PAGE> 28
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
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
</TABLE>
See notes to consolidated financial statements
28
<PAGE> 29
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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
29
<PAGE> 30
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).
30
<PAGE> 31
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.
31
<PAGE> 32
NOTE 2 - SHONEY'S, INC. TRANSACTION (CONTINUED)
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 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
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
32
<PAGE> 33
NOTE 3 - RESTRUCTURING CHARGES (CONTINUED)
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:
<TABLE>
<CAPTION>
1995 1994
-------- ---------
(Dollars in thousands)
<S> <C> <C>
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
======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1994
------- -------
(Dollars in thousands)
<S> <C> <C>
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
======= =======
</TABLE>
33
<PAGE> 34
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(Dollars in thousands)
<S> <C> <C>
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
======== ========
</TABLE>
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
34
<PAGE> 35
DEBENTURES (CONTINUED)
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.
35
<PAGE> 36
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
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
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.
36
<PAGE> 37
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>
37
<PAGE> 38
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.
38
<PAGE> 39
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.
39
<PAGE> 40
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.
40
<PAGE> 41
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.
41
<PAGE> 42
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 & LOCAL TOTAL
------- ------------- ---------
(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 & LOCAL TOTAL
-------- ------------- --------
(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:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
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
====== ====== ======
</TABLE>
42
<PAGE> 43
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:
<TABLE>
<CAPTION>
CAPITAL OPERATING RESERVED
LEASES LEASES LEASES
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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
======= ======= ======
</TABLE>
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.
43
<PAGE> 44
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.
44
<PAGE> 45
NOTE 11 - LITIGATION (CONTINUED)
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:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
OPTIONS PER OPTION
--------- ---------------
<S> <C> <C>
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
=========
</TABLE>
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.
45
<PAGE> 46
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 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 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.
46
<PAGE> 47
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 int he 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:
<TABLE>
<CAPTION>
1993
-----------
(Dollars in
thousands)
<S> <C>
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%
======
</TABLE>
47
<PAGE> 48
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 thePartnership, 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.
48
<PAGE> 49
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)
<S> <C> <C> <C> <C>
QUARTER ENDED - 1995
--------------------
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.
49
<PAGE> 50
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
ITEMS 10, 11, 12, AND 13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information required by these items is omitted because the Company
will file a definitive proxy statement pursuant to Regulation 14A, which
information is herein incorporated by reference as if set out in full. If the
Company's definitive proxy statement is not filed with the Commission by April
29, 1996, such information shall be contained in an amendment to this Form 10-K
to be filed with the Commission no later than April 29, 1996.
50
<PAGE> 51
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(A) FINANCIAL STATEMENTS/SCHEDULES PAGE
----
<S> <C>
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 and December 25, 1994 23
Consolidated Statements of Operations for each of the Three Fiscal Years
in the Period Ended December 31, 1995 25
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 Registrant S-1
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 and December 25, 1994 W-2
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 each of the Three Fiscal
Years in the Period Ended December 31, 1995 W-7
Notes to Consolidated Financial Statements W-8
Schedule II - Reserves WS-1
</TABLE>
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.
51
<PAGE> 52
PART IV (CONTINUED)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)
(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.
52
<PAGE> 53
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
------------------------------------------
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.
<TABLE>
<S> <C> <C>
/s/ J. GARY SHARP
- ----------------------------
J. Gary Sharp President and Chief Executive Officer, Director March 29, 1996
/s/ FREDERICK W. BURFORD Executive Vice President, Chief Financial Officer, and
- ------------------------ Director (Principal Financial and Accounting Officer) March 29, 1996
Frederick W. Burford
/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
</TABLE>
53
<PAGE> 54
SCHEDULE I
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
----------- -----------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 78 $ 11,976
Deferred tax benefit............................ 5,397 5,666
Income tax refund .............................. 545 779
Other current assets ........................... 10 45
-------- --------
TOTAL CURRENT ASSETS.......................... 6,036 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,
33,402,553 and 33,241,118 issued.............. 334 332
Additional paid-in capital...................... 226,454 226,144
Deficit......................................... (90,157) (88,961)
-------- --------
136,631 137,515
Less treasury stock, at cost:
12,805,260 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
S-1
<PAGE> 55
SCHEDULE I
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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 income taxes........................ (17,659) (3,717) (42,324)
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
S-2
<PAGE> 56
SCHEDULE I
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED 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......................... $(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
S-3
<PAGE> 57
SCHEDULE I
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
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
subsidiaries,net............................ $(11,851) $ 72 $(32,926)
Acquisition of property and equipment......... --- (11)
Dividends received from subsidiary............ --- --- 5,254
Disposition of property and equipment......... 76 --- ---
------- ------- --------
Net cash provided by (used in) investing
activities.................................... (11,775) 61 (27,672)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of advances from subsidiaries......... (661) (850) ---
Common shares issued.......................... 312 566 17,204
Proceeds from 5% Convertible Senior
Subordinated Debentures..................... --- --- 15,000
------- ------- --------
Net cash provided by (used in) financing
activities................................... (349) (284) 32,204
------- ------- --------
Increase (decrease) in cash and cash
equivalents................................... (11,898) 1,339 (2,271)
Cash and cash equivalents, beginning of
period........................................ 11,976 10,637 12,908
------- ------- --------
Cash and cash equivalents, end of period........ $ 78 $11,976 $ 10,637
======= ======= ========
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............................... $ 158 (2,164) $ 2,810
Conversion of subsidiary receivable to
investment............................... 5,000 --- ---
</TABLE>
See notes to condensed financial statements
S-4
<PAGE> 58
SCHEDULE I
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
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 Dompany 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 in 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 in 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 24, 1994............ 33,241,118 332 226,144 (88,961) (69,945) 67,570
Issue of shares in pursuant to
employee stock plans................ 160,235 2 304 --- 180 486
Other................................. 1,200 --- 6 --- --- 6
Net income............................ --- --- --- (1,196) --- (1,196)
---------- ---- -------- -------- -------- -------
Balance December 31, 1995............. 33,402,553 $334 $226,454 $(90,157) $(69,765) $66,866
========== ==== ======== ======== ======== =======
</TABLE>
See notes to condensed financial statements
S-5
<PAGE> 59
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.
S-6
<PAGE> 60
SCHEDULE II
TPI ENTERPRISES, INC. AND SUBSIDIARIES
RESERVES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO FROM END OF
PERIOD OPERATIONS OTHER ACCOUNTS RESERVES PERIOD
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1995: $ 59 $ 66 $ --- $ --- $ 125
Year Ended December 25, 1994: $ --- $ 59 $ --- $ --- $ 59
Year Ended December 26, 1993: $ --- $ --- $ --- $ --- $ ---
ALLOWANCE FOR RESTRUCTURING RESERVE:
Ydear ended December 31, 1995: $12,430 $ --- $ --- $ 3,678 (1) $ 8,752
Year Ended December 25, 1994 $18,695 $ --- $ --- $ 6,265 (1) $12,430
Year Ended December 26, 1993: $ 3,773 $17,286 $ --- $ 2,364 $18,695
ALLOWANCE FOR ASSET VALUATION:
Year ended December 31, 1995: $ --- $ --- $17,000 $ --- $17,000
Year Ended December 25, 1994 $ --- $ --- $ --- $ --- $ ---
Year Ended December 26, 1993: $ --- $ --- $ --- $ --- $ ---
</TABLE>
(1) Represents deductions for the write-off of assets and changes in
assumptions in connection with the Company's restructure plan. See Note 3.
S-7
<PAGE> 61
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
W-1
<PAGE> 62
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
(Dollars in thousands)
<S> <C> <C>
CURRENT ASSETS:
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
W-2
<PAGE> 63
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
(Dollars in thousands)
<S> <C> <C>
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 outstanading.......... --- ---
Additional paid-in capital........................... 120,216 115,216
Deficit.............................................. (90,409) (70,577)
-------- ---------
TOTAL STOCKHOLDER'S EQUITY......................... 29,807 44,639
-------- ---------
$213,663 $ 238,066
======== =========
</TABLE>
See notes to consolidated financial statements
W-3
<PAGE> 64
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Restaurant revenues.......................... $283,578 $287,384 $289,439
-------- -------- --------
Costs and expenses:
Food, supplies and uniforms................ 103,874 102,831 101,980
Restaurant labor and benefit............... 86,264 87,467 88,693
Restaurant depreciation and amortization... 12,252 14,138 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)
======== ======== ========
</TABLE>
See notes to consolidated financial statements
W-4
<PAGE> 65
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 4,911
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)
-------- -------- --------
</TABLE>
W-5
<PAGE> 66
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
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
</TABLE>
See notes to consolidated financial statements
W-6
<PAGE> 67
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL DEFICIT TOTAL
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======== ========= =======
</TABLE>
See notes to consolidated financial statements
W-7
<PAGE> 68
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).
W-8
<PAGE> 69
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.
W-9
<PAGE> 70
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.
W-10
<PAGE> 71
NOTE 3 - RESTRUCTURING CHARGES (CONTINUED)
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:
<TABLE>
<CAPTION>
1995 1994
-------- --------
(Dollars in thousands)
<S> <C> <C>
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
======== ========
</TABLE>
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.
W-11
<PAGE> 72
NOTE 4 - PROPERTY AND EQUIPMENT (CONTINUED)
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:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
(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
======= =======
</TABLE>
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1995 1994
--------- --------
(Dollars in thousands)
<S> <C> <C>
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
========= ========
</TABLE>
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.
W-12
<PAGE> 73
NOTE 6 - LONG-TERM DEBT (CONTINUED)
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
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 Enterprises 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 new until this transaction is closed. Additionally,
Enterprises is discussing amendments or waivers to the financial covenants
that may be necessary
W-13
<PAGE> 74
CREDIT FACILITY (CONTINUED)
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.
W-14
<PAGE> 75
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
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
======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1993
----------
(DOLLARS IN THOUSANDS)
<S> <C>
Current:
Federal.................... $ ---
State and local............ ---
----------
Deferred:
Federal.................... ---
State and local............ 85
----------
85
----------
$ 85
==========
</TABLE>
W-15
<PAGE> 76
NOTE 8 - INCOME TAXES (CONTINUED)
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:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Provision (benefit) at statutory rate................... $(6,790) $(936) $(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
======= ===== =======
</TABLE>
The tax effects of principal temporary differences in 1995 are shown in the
following table:
ASSETS LIABILITIES TOTAL
-------- ------------- -------
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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) $ ---
</TABLE> ======== ======== =======
W-16
<PAGE> 77
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 carryforward.......... 870 --- 870
Reserves and accrued expenses.............................. 6,610 --- 6,610
Other...................................................... --- (37) (37)
Valuation allowance........................................ (3,994) --- (3,994)
------- -------- -------
Current................................................ 3,648 (37) 3,611
------- -------- -------
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
credit carryforward...................................... 19,174 --- 19,174
Valuation allowance........................................ (14,816) --- (14,816)
------- -------- -------
Noncurrent............................................. 11,021 (14,632) (3,611)
------- -------- -------
Total................................................ $ 14,669 $(14,669) $ ---
======== ======== =======
</TABLE>
W-17
<PAGE> 78
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 carryforward............. 4,237 --- 4,237
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
credit carryforward......................................... 12,202 --- 12,202
Valuation allowance........................................... (8,051) --- (8,051)
------- -------- --------
Noncurrent................................................ 12,306 (13,652) (1,346)
------- -------- --------
Total................................................... $13,672 ($13,672) $ ---
======= ======== ========
</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 net change in the valuation for deferred tax
assets was an increase of $12,357,000.
W-18
<PAGE> 79
NOTE 8 - INCOME TAXES (CONTINUED)
The Company's share of Enterprises' consolidated tax carryforwards at
December 31, 1995 expire as follows:
<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.
W-19
<PAGE> 80
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)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
====== ====== =======
</TABLE>
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:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases Leases
------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C>
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
======= ======= ======
</TABLE>
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.
W-20
<PAGE> 81
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., MARLAIN 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 operating results or financial position of the Company.
NOTE 12 - STOCKHOLDER'S 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.
W-21
<PAGE> 82
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.
W-22
<PAGE> 83
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).
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(Dollars in thousands)
<TABLE>
<CAPTION>
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.
W-23
<PAGE> 84
SCHEDULE II
TPI RESTAURANTS, INC. AND SUBSIDIARIES
RESERVES
(Dollars in thousands)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT ADDITIONS CHARGED TO BALANCE AT
BEGINNING OF CHARGED TO OTHER DEDUCTIONS END OF
PERIOD OPERATIONS ACCOUNTS FROM RESERVES PERIOD
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995: $ 59 $ 66 $ --- $ --- $ 125
Year Ended December 25, 1994: $ --- $ 59 $ --- $ --- $ 59
Year Ended December 26, 1993: $ --- $ --- $ --- $ --- $ ---
ALLOWANCE FOR RESTRUCTURING RESERVES:
Year ended December 31, 1995: $12,430 $ --- $ --- $ 3,678(1) $ 8,752
Year Ended December 25, 1994 $18,695 $ --- $ --- $ 6,265(1) $12,430
Year Ended December 26, 1993: $ 3,773 $17,286 $ --- $ 2,364 $18,695
ALLOWANCE FOR ASSET VALUATION:
Year ended December 31, 1995: $ --- $ --- $17,000 $ --- $17,000
Year Ended December 25, 1994 $ --- $ --- $ --- $ --- $ ---
Year Ended December 26, 1993: $ --- $ --- $ --- $ --- $ ---
</TABLE>
(1) Represents deductions for the write-off of assets and changes in
assumptions in connection with the Company's restructure plan. See Note 3.
WS-1
<PAGE> 85
Exhibit
Number Description
Page
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 off 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 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)
<PAGE> 86
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)
<PAGE> 87
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
<PAGE> 88
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 30, 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
<PAGE> 89
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 Earning Per Share
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (for SEC use only)
<PAGE> 90
(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.
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.
<PAGE> 91
(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 the Registrant's Current Report on Form
8-K, dated March 19, 1996, and incorporated herein by reference.
<PAGE> 1
EXHIBIT 10.27
AMENDMENT NO. 1 TO THE CREDIT AGREEMENT
AMENDMENT NO. 1 (this "Amendment"), dated as of February 29, 1996, to the
SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of January 31, 1995, by
and among TPI RESTAURANTS, INC., a Tennessee corporation (the "Company"), the
banks party thereto (each a "Bank" and, collectively, the "Banks"), THE BANK OF
NEW YORK, as administrative agent for the Banks (in such capacity, the
"Administrative Agent") and NATIONSBANK, N.A. (CAROLINAS), as Collateral Agent
for the Banks (in such capacity, the "Collateral Agent") (the "Credit
Agreement").
RECITALS
A. Capitalized terms used herein which are not defined herein and
which are defined in the Credit Agreement shall have the same meanings as
therein defined.
B. The Company has requested that the Agents and Required Banks amend
paragraph 7.11 of the Credit Agreement to the extent set forth herein.
In consideration of the foregoing and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
Paragraph 7.11 of the Credit Agreement is amended to add the following before
the period at the end thereof:
"provided, however, that for the purpose
of calculating the Interest Coverage
Ratio for any preceding period of four
fiscal quarters which includes the fiscal
quarter ending December 31, 1995, the
Company may exclude the effects of the
one-time charge taken with respect to
such quarter in an amount not to exceed
$25,000,000 arising out of a reduction in
the amount of its goodwill, provided,
further, however, that commencing on the
30th day after the expiration,
termination or abandonment of the Plan of
Tax-Free Reorganization Under Section
368(1)(C) of the Internal Revenue Code
and Agreement, by and among Shoney's
Inc., a Tennessee corporation, TPI
Restaurants Acquisition Corporation, a
Tennessee corporation and Enterprises
<PAGE> 2
(the "Plan"), a draft of which was
conditionally approved by the
Company's Board of Directors on February
20, 1996, the Company shall be required
to include the effects of such charge in
calculating the Interest Coverage Ratio
for any preceding period of four fiscal
quarters which includes the fiscal
quarter ending December 31, 1995, and if
all or any part of such charge is
reversed, the amount reversed may not be
included in any calculation of EBIT or
Consolidated Tangible Net Worth."
2. This Amendment shall not be deemed effective until such time as all
of the following conditions precedent shall have been satisfied:
(a) The Agents shall have received a copy of this Amendment duly
executed by the Company, Enterprises, TPI Commissary, TPI Transportation, and
the Required Banks.
(b) The Agents shall have received a certificate, dated the date
hereof, of an officer of the Company (i) attaching a true and complete copy of
the resolutions of the Executive Committee of the Board of Directors and of all
documents evidencing other necessary corporate action (in form and substance
satisfactory to the Administrative Agent) taken by the Company to authorize this
Amendment (ii) certifying that its certificate of incorporation and by-laws have
not been amended since January 31, 1995, or, if so, setting forth the same and
(ii) setting forth the incumbency of its officer or officers who may sign this
Amendment, including therein a signature specimen of such officer or officers.
3. Within 30 days after the execution and delivery of the Plan, the
Company agrees to deliver to the Administrative Agent a sufficient number of
true and complete copies thereof for distribution to each Bank.
4. The Company, and by their consents hereto, each of Enterprises, TPI
Commissary and TPI Transportation, each hereby (a) reaffirms and admits the
validity and enforceability of the Loan Documents to which it is a party and all
of its obligations thereunder, (b) agrees and admits that it has no defenses to
or offsets against any of its obligations to either Agent or any Bank thereunder
and (c) represents and warrants that there exists, and after giving effect to
this Amendment and the execution and delivery by the parties to the Plan there
will exist no Default or Event of Default.
- 2 -
<PAGE> 3
5. This Amendment may be executed in any number of counterparts, each
of which shall be an original and all of which shall constitute one amendment.
It shall not be necessary in making proof of this Amendment to produce or
account for more than one counterpart signed by the party to be charged.
6. This Amendment is being delivered in and is intended to be
performed in the State of New York and shall be governed by, and construed and
interpreted in accordance with, the internal laws of the State of New York,
without regard to principles of conflict of laws (other than Section 5-1401 of
the New York General Obligations Law).
7. Except as amended hereby, the Credit Agreement shall in all other
respects remain in full force and effect and this Amendment shall not be
construed as an amendment of, or a consent to the departure from, any other
provision of the Credit Agreement or a waiver of any Default or Event of
Default.
- 3 -
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
TPI RESTAURANTS, INC.
By:
-------------------------
Name: Frederick W. Burford,
Title: Vice President and
Chief Financial Officer
THE BANK OF NEW YORK,
Individually and as
Administrative Agent
By:
-------------------------
Name:
-----------------------
Title:
-----------------------
NATIONSBANK, N.A. (CAROLINAS),
Individually and as
Collateral Agent
By:
-------------------------
Name:
-----------------------
Title:
-----------------------
FIRST TENNESSEE BANK NATIONAL ASSOCIATION
By:
-------------------------
Name:
-----------------------
Title:
-----------------------
FIRST AMERICAN NATIONAL BANK
By:
-------------------------
Name:
-----------------------
Title:
-----------------------
- 4-
<PAGE> 5
CONSENTED TO:
TPI ENTERPRISES, INC.
By:
------------------------
Name: Frederick W. Burford,
Title: Vice President and
Chief Financial Officer
TPI COMMISSARY, INC.
By:
-------------------------
Name: Frederick W. Burford,
Title: Vice President and
Chief Financial Officer
TPI TRANSPORTATION, INC.
By:
------------------------
Name: Frederick W. Burford,
Title: Vice President and
Chief Financial Officer
- 5 -
<PAGE> 1
EXHIBIT 11
TPI ENTERPRISES, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------
December 31, December 25, December 26,
1995 1994 1993
--------------------------------------------
<S> <C> <C> <C>
Primary Earnings Per Share
- --------------------------------
Computation for Statement of
Operations
Reconciliation of net income
(loss) per statement of
operations to the amount used
in primary earnings per share
computations:
Income (loss) from continuing
operations......................... $(11,309) $(3,717) $(36,488)
Discontinued operations ............. 10,113 --- 5,273
-------- ------- --------
Net income (loss), as adjusted (a)... $ (1,196) $(3,717) $(31,215)
======== ======= ========
Reconciliation of weighted
average number of shares
outstanding to amount used in
primary earnings per share
computation:
Weighted average number of common
shares outstanding................. 20,526 20,335 19,613
Additional shares assuming
conversion of stock
options............................ --- 80 514
------- ------- -------
Weighted average number of shares
outstanding, as adjusted (a)....... 20,526 20,415 20,127
======= ======= ========
Primary earnings per share(s):
Income (loss) from continuing
operations......................... $ (.55) $ (.18) $ (1.81)
Discontinued operations............ .49 --- .26
------- ------- -------
Net income (loss).................... $ (.06) $ (.18) $ (1.55)
======= ======= ========
</TABLE>
<PAGE> 2
EXHIBIT 11
TPI ENTERPRISES, INC.
COMPUTATION OF EARNINGS PER SHARE
(Continued)
<TABLE>
Fiscal Year Ended
-----------------------------------------
December 31, December 25, December,
1995 1994 1993
-----------------------------------------
<S> <C> <C> <C>
Additional Fully Diluted Computation
- ------------------------------------
Additional adjustments to net
income (loss) as adjusted for fully
diluted computations:
Income (loss) from continuing
operations, as adjusted............. $(11,309) $(3,717) $(36,488)
Add net interest expense related to
convertible debentures.............. 4,336 4,254 3,680
-------- ------- --------
Income (loss) from continuing
operations, as adjusted:............ (6,973) 637 (32,808)
Discontinued operations............... 10,113 --- 5,273
-------- ------- --------
Net income (loss), as adjusted........ $ 3,140 $ 537 $(27,535)
======== ======= ========
Additional adjustment to weighted
average number of shares
outstanding:
Weighted average number of shares
outstanding........................ 20,526 20,335 19,613
Additional shares assuming
conversion of
stock options...................... --- 80 566
Convertible subordinated
debentures........................ 7,933 7,933 7,962
-------- ------- --------
Weighted average number of shares
outstanding, as adjusted........... 28,459 28,348 28,141
======== ======= ========
Fully diluted earnings per share:
Income (loss) from continuing
operations $ (.25) $ .02 $ (1.17)
Discontinued operations .36 --- .19
-------- ------- --------
Net income (loss) per share $ .11 $ .02 $ (.98)
</TABLE> ======== ======= ========
(a)These figures agree with the related amounts in the statements of operations.
(b)Adjustments to income (loss) from continuing operations have been shown net
of the tax effect (which were calculated at the Company's effective tax rate)
of the gross amount of the adjustments.
(c)This calculation is submitted in accordance with Regulation S-K Item 601
(b)(11) although it is contrary to paragraph 40 of APB Opinion No.15 because it
produces an anti-dilutive result.
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
---------------------------
Telecom Plus Shared Tenants Services, Inc.
Maxcell Telecom Plus, Inc.
TPI Restaurants, Inc.
The Insurex Agency, Inc.(1)
Insurex Benefit Administrators, Inc.(1)
TPI Entertainment, Inc.
TPI West Palm, Inc.
TPI Transportation, Inc.(1)
TPI Insurance Corporation
TPI Commissary, Inc.(1)
- ----------
(1) Wholly-owned subsidiary of TPI Restaurants, Inc.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
2-80333, 2-95605, 33-30551, 33-36428, and 33-42572 on Form S-8, Amendment No. 1
to Registration Statement No. 33-60034 on Form S-3 and Amendment No. 1 to
Registration Statement No. 33-48053 on Form S-2 of TPI Enterprises, Inc. of our
report dated March 28, 1996, appearing in this Annual Report on Form 10-K of
TPI Enterprises, Inc. for the fiscal year ended December 31, 1995.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
April 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1994
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 8,744
<SECURITIES> 0
<RECEIVABLES> 30,001,373
<ALLOWANCES> 125
<INVENTORY> 13,020
<CURRENT-ASSETS> 62,412
<PP&E> 228,217
<DEPRECIATION> 79,637
<TOTAL-ASSETS> 248,876
<CURRENT-LIABILITIES> 85,042
<BONDS> 81,628
0
0
<COMMON> 334
<OTHER-SE> 66,532
<TOTAL-LIABILITY-AND-EQUITY> 248,876
<SALES> 283,578
<TOTAL-REVENUES> 283,578
<CGS> 256,720
<TOTAL-COSTS> 290,951
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,529
<INCOME-PRETAX> (17,659)
<INCOME-TAX> (6,350)
<INCOME-CONTINUING> (11,309)
<DISCONTINUED> 10,113
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,196)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
