Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 27, 2009
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OR
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£
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Commission File Number 333-131004
PERKINS & MARIE CALLENDER’S INC.
(Exact name of Registrant as specified in its charter) |
Delaware
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62-1254388
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(State or other jurisdiction of
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(I.R.S. Employer Identification No.)
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incorporation or organization)
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6075 Poplar Ave. Suite 800 Memphis, TN
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38119
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(Address of principal executive offices)
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(Zip Code)
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(901) 766-6400
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(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class
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Name of each exchange on which registered
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None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by checkmark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No R
Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes £ No R
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 R No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes £ No £
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. R
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer £
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Accelerated filer £
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Non-accelerated filer R
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Smaller reporting company £
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R
As of July 12, 2009, the last business day of our most recently ended second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $___based on the closing sale price as reported on the (applicable exchange). Not Applicable
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practical date.
Class: Common Stock, $.01 par value per share
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Outstanding as of June 4, 2010: 10,820 shares
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Documents incorporated by reference: None
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Explanatory Note
We are filing this Amendment No. 1 to our Annual Report on Form 10-K for the year ended December 27, 2009 (“Amendment”), originally filed with the Securities and Exchange Commission (the “SEC”) on March 29, 2010, to restate our Consolidated Balance Sheets as of December 27, 2009 and December 28, 2008, our Consolidated Statements of Operations and of Cash Flows for the year ended December 28, 2008, our Statement of Stockholder’s Deficit as of December 27, 2009, December 28, 2008 and December 30, 2007 and certain footnote disclosures thereto.
On September 21, 2005, P&MC Holding Corp., an affiliate of Castle Harlan Partners IV, L.P. (“CHP IV”) purchased all of the outstanding capital stock of The Restaurant Company (the “Acquisition”). This Amendment is necessary to correct an error associated with the accounting for the Acquisition as follows:
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In conjunction with the Acquisition, we recorded certain non-amortizing intangible assets in our allocation of the purchase price. However, at that time we failed to record the related deferred tax liabilities aggregating $40,506,000 for the differences between the income tax basis and the financial reporting basis of such assets and the associated corresponding increase in goodwill;
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·
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Such deferred tax liabilities in the Acquisition purchase price allocation should have then been increased by $4,951,000 during the year ended December 31, 2006 (with a corresponding charge to the provision for income taxes in that year) due to a change in our effective tax rates; and,
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During the year ended December 28, 2008, we had previously recorded an impairment to goodwill of $20,202,000. A significant portion of the additional goodwill associated with the Acquisition accounting error discussed above should have also been impaired at that time resulting in an additional $27,242,000 impairment charge during the year ended December 28, 2008.
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The correction of the error, as reflected in our 2007 opening deficit, increased deferred tax liabilities, goodwill and accumulated deficit by $45,456,000, $40,506,000 and $4,951,000, respectively. These corrections also resulted in an increase to our 2008 reported net loss by $27,242,000 due to increased goodwill impairment charges. This adjustment had no effect on liquidity or cash flow from operations.
This Amendment is solely limited to correcting the error described above. For a more detailed description of the restatement, see Note 19 to the accompanying Consolidated Financial Statements in this Amendment.
The following items have been amended as a result of the restatement:
Part II – Item 6 – Selected Financial Data
Part II – Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II – Item 8 – Financial Statements and Supplementary Data
Part II – Item 9A(T) – Controls and Procedures
Part IV – Item 15 – Exhibits and Financial Statement Schedules
Pursuant to the rules of the SEC, Item 15 of Part IV has also been amended to contain the currently dated certifications from the Company’s Principal Executive Officer and Principal Financial Officer as required by Section 302 and 906 of the Sarbanes Oxley Act of 2002. The certifications of the Company’s Principal Executive Officer and Principal Financial Officer are attached to this Amendment as Exhibits 31.1, 31.2, 32.1 and 32.2.
Any forward-looking statements contained in this Annual Report Amendment should be read in connection with Form 10-Q filed on June 7, 2010, for the fiscal quarter ended April 18, 2010, which may contain more current information.
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PART II
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5
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23
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62
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PART IV
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64
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66
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67
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Ex-31.1 Section 302 Certification
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Ex-31.2 Section 302 Certification
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Ex-32.1 Section 906 Certification
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Ex-32.2 Section 906 Certification
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PART II
PERKINS & MARIE CALLENDER’S INC.
SELECTED FINANCIAL AND OPERATING DATA
(In Thousands, Except Number of Restaurants)
The following selected historical financial data has been adjusted to reflect the restatement of the Company’s financial results to correct certain deferred tax and related goodwill accounts arising from the Acquisition. These adjustments are more fully described in the Explanatory Note on page 2 and in Note 19, “Restatement of Consolidated Financial Statements,” located in the Notes to Consolidated Financial Statements elsewhere in this Annual Report Amendment. The following financial and operating data should be read in conjunction with Management’s Discussion and Analysis of Financial Conditions and Results of Operations and the Consolidated Financial Statements and data included elsewhere in this Amendment.
As a result of the Company’s combination with Wilshire Restaurant Group (“WRG”) in 2006, the financial statements of the Company and WRG are presented on a consolidated basis as of September 21, 2005, the first date on which both companies were under common control, and include the combined results of operations of each company for all periods presented after such date. Prior to September 21, 2005, the Consolidated Financial Statements and data presented include WRG only.
2009
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2008
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2007
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2006
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2005
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Statement of Operations Data:
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Restated
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Restated
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Restated
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Restated
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Restated
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Revenues
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$ | 536,068 | 581,970 | 587,886 | 594,190 | 321,473 | ||||||||||||||
Net loss attributable to PMCI (c)
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(36,219 | ) | (80,195 | ) | (16,335 | ) | (14,323 | ) | (15,231 | ) | ||||||||||
Balance Sheet Data (at year end):
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Total assets (c)
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304,905 | 336,772 | 403,448 | 387,351 | 386,782 | |||||||||||||||
Long-term debt and capital lease
obligations (a)
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337,096 | 330,249 | 309,996 | 292,628 | 300,077 | |||||||||||||||
Statistical Data:
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Full-service restaurants in operation at end of year:
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Company-operated Perkins
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163 | 164 | 162 | 155 | 151 | |||||||||||||||
Franchised Perkins (b)
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314 | 317 | 323 | 322 | 331 | |||||||||||||||
Total Perkins
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477 | 481 | 485 | 477 | 482 | |||||||||||||||
Company-operated Marie Callender’s
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91 | 90 | 91 | 91 | 92 | |||||||||||||||
Company-operated East Side Mario’s
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1 | 1 | 1 | 1 | 1 | |||||||||||||||
Franchised Marie Callender’s
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39 | 42 | 44 | 46 | 47 | |||||||||||||||
Total Marie Callender’s
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131 | 133 | 136 | 138 | 140 | |||||||||||||||
Average annual sales per Company-operated Perkins restaurant
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$ | 1,715 | 1,840 | 1,890 | 1,944 | 1,866 | ||||||||||||||
Average annual royalties per franchised Perkins restaurant
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60 | 62 | 64 | 66 | 64 | |||||||||||||||
Average annual sales per Company-operated Marie Callender’s restaurant
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2,079 | 2,217 | 2,339 | 2,369 | 2,298 | |||||||||||||||
Average annual royalties per franchised Marie Callender’s restaurant
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86 | 98 | 102 | 105 | 107 |
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(a)
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Excluding current maturities of $503, $382, $9,464, $1,706 and $3,311, respectively.
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(b)
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Excludes one franchised Perkins Express.
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(c)
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The following tables present the impact of the restatement adjustments (see Note 19 – “Restatement of Consolidated Financial Statements”) on the net loss attributable to PMCI for fiscal 2006 and total assets at year end 2005, 2006 and 2007, previously reported on Annual Report on Form 10-K for such years.
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As Previously
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Reported
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Adjustments
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Restated
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Net loss attributable to PMCI
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2006
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(9,372 | ) | (4,951 | ) | (14,323 | ) | ||||||
Total assets
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2007
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362,942 | 40,506 | 403,448 | |||||||||
2006
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346,845 | 40,506 | 387,351 | |||||||||
2005
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346,276 | 40,506 | 386,782 |
General. The following discussion and analysis should be read in conjunction with and is qualified in its entirety by reference to the Consolidated Financial Statements and accompanying notes of the Company included elsewhere in this Amendment. Except for historical information, the discussions in this section contain forward-looking statements that involve risks and uncertainties, as indicated in “Information Concerning Forward-Looking Statements” below. Except as otherwise indicated references to “years” mean our fiscal year ended December 27, 2009, December 28, 2008 or December 30, 2007.
Restatement of Financial Statements. We restated our Consolidated Financial Statements as of December 27, 2009 and December 28, 2008, and for the year ended December 28, 2008. As described in Note 19 to the Consolidated Financial Statements, the restatement corrects an error identified in the deferred tax accounts stemming from differences between the income tax basis and the financial reporting basis of non-amortizing intangible assets acquired in the Acquisition and the related effect on recorded goodwill.
The correction of the above noted error reduced 2008 net earnings by $27,242,000 due to an increase in goodwill impairment charges. This adjustment had no effect on liquidity or cash flow from operations.
Information Concerning Forward-Looking Statements. This Amendment contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These statements, written, oral or otherwise made, may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “should” or “will,” or the negative thereof or other variations thereon or comparable terminology.
We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these statements. Factors affecting these statements include, among others, the following:
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general economic conditions, consumer preferences and demographic patterns, either nationally or in particular regions in which we operate;
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our substantial indebtedness;
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our liquidity and capital resources;
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competitive pressures and trends in the restaurant industry;
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prevailing prices and availability of food, labor, raw materials, supplies and energy;
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a failure to obtain timely deliveries from our suppliers or other supplier issues;
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our ability to successfully implement our business strategy;
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relationships with franchisees and the financial health of franchisees;
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legal proceedings and regulatory matters; and
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our development and expansion plans.
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Given these risks and uncertainties, you are cautioned not to place undue reliance on such statements. The forward-looking statements included in this Amendment are made only as of the date hereof. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any of such statements to reflect future events or developments.
Any forward-looking statements contained in this Annual Report Amendment should be read in connection with Form 10-Q filed on June 7, 2010, for the fiscal quarter ended April 18, 2010, which may contain more current information.
Our Company. The Company operates two restaurant concepts: (1) full-service family-dining restaurants located primarily in the Midwest, Florida and Pennsylvania under the name Perkins Restaurant and Bakery, and (2) mid-priced, casual-dining restaurants, specializing in the sale of pies and other bakery items, located primarily in the western United States under the name Marie Callender’s Restaurant and Bakery.
The Company also operates a bakery goods manufacturing segment under the name Foxtail, which manufactures pies, muffin batters, cookie doughs, pancake mixes, and other food products for sale to our Perkins and Marie Callender’s Company-operated and franchised restaurants and to food service distributors.
Key Factors Affecting our Business. The key factors that affect our operating results are general economic conditions, competition, our comparable restaurant sales, which are driven by our comparable customer counts and our guest check average, restaurant openings and closings, commodity prices, energy prices, our ability to manage operating expenses, such as food cost, labor and benefits, weather and governmental regulation. Comparable restaurant sales and comparable customer counts are measures of the percentage increase or decrease of the sales and customer counts, respectively, of restaurants open at least fifteen months prior to the start of the comparative year. We do not use new restaurants in our calculation of comparable restaurant sales until they are open for at least fifteen months in order to allow a new restaurant’s operations time to stabilize and provide more comparable results.
The results of the franchise operations are mainly impacted by the same factors as those impacting our restaurant segments, excluding the operating cost factors since franchise segment income is earned primarily through royalty income.
Like much of the restaurant industry, we view comparable restaurant sales as a key performance metric at the individual restaurant level, within regions and throughout our Company. With our information systems, we monitor comparable restaurant sales on a daily, weekly and monthly basis on a restaurant-by-restaurant basis. The primary drivers of comparable restaurant sales performance are changes in the average guest check and changes in the number of customers, or customer count. Average guest check is primarily affected by menu price changes and changes in the mix of items purchased by our customers. We also monitor entree count, which we believe is indicative of overall customer traffic patterns. To increase restaurant sales, we focus marketing and promotional efforts on increasing customer visits and sales of particular products. Restaurant sales performance is also affected by other factors, such as food quality, the level and consistency of service within our restaurants and franchised restaurants, the attractiveness and physical condition of our restaurants and franchised restaurants, as well as local, regional and national competitive and economic factors.
Marie Callender’s food cost percentage is traditionally higher than Perkins food cost percentage primarily as a result of a greater portion of sales that are derived from lunch, dinner and bakery items, which typically carry higher food costs than breakfast items.
The operating results of Foxtail are impacted mainly by the following factors: sales of our company and franchise restaurants, orders from our external customer base, general economic conditions, labor and employee benefit expenses, production efficiency, commodity prices, energy prices, Perkins and Marie Callender’s restaurant openings and closings, governmental regulation and food safety requirements.
Fiscal 2008 and 2009 have been challenging for the family and casual dining segments of the restaurant industry. Largely as a result of the ongoing economic downturn, we experienced a decrease in comparable annual sales for both Perkins and Marie Callender’s in 2008 and 2009. We believe continuing decreases in residential real estate values, especially in some of our larger markets, the high unemployment levels, the spread of the H1N1 influenza virus, the level of home foreclosures, the decrease in investment values and the consequent pressures on consumer sentiment and spending have reduced household discretionary spending, which has adversely affected our revenues. At the same time, our costs have increased, and consequently, we have experienced declining profits. If the current economic conditions persist or worsen, our revenues are likely to continue to suffer and our losses could increase.
In comparison to the year ended December 28, 2008, Perkins’ Company-operated restaurants comparable sales decreased by 6.6% and Marie Callender’s Company-operated restaurants comparable sales decreased by 6.4% during 2009. These declines resulted primarily from decreases in comparable guest counts at both concepts. Management believes the decline in comparable guest counts for both concepts is attributable primarily to adverse economic conditions that are impacting the restaurant industry, particularly in Florida for our Perkins restaurants and in California for our Marie Callender’s restaurants.
Operations, Financial Position and Liquidity. At December 27, 2009, we had a negative working capital balance of $17,643,000 and a total PMCI stockholder’s deficit of $178,417,000. We had $4,288,000 in unrestricted cash and cash equivalents and $4,605,000 of borrowing capacity under our Revolver.
Our principal sources of liquidity include unrestricted cash, available borrowings under our credit agreement and cash generated by operations. We also have from time to time received capital contributions from our parent company, including a $12,500,000 capital contribution received in 2008. We have also engaged in other capital transactions. Our principal uses of liquidity are costs and expenses associated with our restaurant and manufacturing operations, debt service payments and capital expenditures.
We have experienced declines in comparable restaurant sales and declining profits in our restaurants in both 2009 and 2008. The ongoing turmoil in the economy has adversely affected our guest counts and, in turn, our operating results and cash generated by operations. The Company expects to incur a net loss in 2010. In order to improve the cash flows in our business, we continue to roll out a new breakfast program at our Marie Callender’s restaurants, have improved systems to more effectively manage our food and labor costs, have upgraded our management staff and certain equipment in our Foxtail division to drive higher operating efficiencies and have reduced overall planned capital expenditures for 2010. We continually review general and administrative expenditures to identify and implement cost-saving measures. Management expects these initiatives together with the Company’s cash provided by operations and borrowing capacity under the Revolver to provide sufficient liquidity for at least the next twelve months. However, there can be no assurance as to whether these or other actions will enable us to generate sufficient cash flow to fund our operations and service our substantial debt.
Summary of Significant and Critical Accounting Policies. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a process for reviewing the application of our accounting policies and for evaluating the appropriateness of the estimates that are required to prepare the financial statements of our Company. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.
Revenue Recognition
Revenue at our restaurants is recognized when customers pay for products at the time of sale. This revenue reporting process is covered by our system of internal controls and generally does not require significant management judgments and estimates. However, estimates are inherent in the calculation of franchisee royalty revenue. We calculate an estimate of royalty income each period and adjust royalty income when actual amounts are reported by franchisees. A $1,000,000 change in estimated franchise sales would impact royalty revenue by $40,000 to $50,000. Historically, these adjustments have not been material.
Sales Taxes
Sales taxes collected from customers are excluded from revenues. The obligation is included in accrued expenses until the taxes are remitted to the appropriate taxing authorities.
Advertising
We recognize advertising expense in the operating expenses of the restaurant segment. Those advertising costs are expensed as incurred. Advertising expense was approximately $26,712,000, $24,016,000 and $21,130,000 for fiscal years 2009, 2008 and 2007, respectively.
Leases
Future commitments for operating leases are not reflected as a liability on our Consolidated Balance Sheets. The determination of whether a lease is accounted for as a capital lease or as an operating lease requires management to make estimates primarily about the fair value of the asset, its estimated economic useful life and the incremental borrowing rate.
Rent expense for the Company’s operating leases, many of which have escalating rent amounts due over the term of the lease, is recorded on a straight-line basis over the lease term. The lease term begins when the Company has the right to control the use of the leased property, which may occur before rent payments are due under the terms of the lease. The difference between rent expense and rent paid is recorded as deferred rent on our Consolidated Balance Sheets.
Preopening Costs
We expense the costs of start-up activities as incurred.
Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Perkins Marketing Fund and Gift Cards
The Company maintains a marketing fund (the “Marketing Fund”) to pool the resources of the Company and its franchisees for advertising purposes and to promote the Perkins brand in accordance with the system’s advertising policy and its franchise agreements. The Company has classified approximately $4,786,000 and $6,912,000 as of December 27, 2009 and December 28, 2008, respectively, as restricted cash on its Consolidated Balance Sheets related to the Marketing Fund. These amounts represent funds contributed by franchisees specifically for the purpose of advertising. The Company has also recorded liabilities of approximately $4,327,000 and $5,316,000 as of December 27, 2009 and December 28, 2008, respectively, which are included in franchise advertising contributions on the accompanying Consolidated Balance Sheets and represents franchisee contributions for advertising services not yet provided.
The Company issues gift cards and, prior to March 2005, also issued gift certificates (collectively, “gift cards”), both of which contain no expiration dates or inactivity fees. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company recognizes income from unredeemed gift cards (“gift card breakage”) when there is sufficient historical data to support an estimate, the likelihood of redemption is remote and there is no legal obligation to remit the unredeemed gift card balances to the state tax authorities under applicable escheat regulations. Gift card breakage is determined based on historical redemption patterns and included in other, net in the Consolidated Statements of Operations. Management concluded in the first quarter of 2009 that it had sufficient evidence to estimate the gift card breakage rate on Perkins gift cards and recorded $865,000 of gift card breakage. Management concluded in the second fiscal quarter of 2009 that it had sufficient evidence to estimate the gift card breakage rate on Marie Callender’s gift cards and recorded $1,576,000 of gift card breakage. These initial recognitions of breakage income in the first and second quarters of 2009 include amounts related to gift cards sold since the inception of our gift card programs in 2005. For the fiscal year ended December 27, 2009, we recorded $2,811,000 of breakage income of which we consider $2,195,000 to be a non-recurring cumulative adjustment. As of December 27, 2009 and December 28, 2008, the Company had approximately $3,324,000 and $3,228,000, respectively, of net gift card proceeds received from Perkins’ franchisees, which, although not legally restricted, is reflected as restricted cash and accrued expenses on its Consolidated Balance Sheets.
Concentration of Credit Risk
Financial instruments, which potentially expose us to concentrations of credit risk, consist principally of franchisee and Foxtail accounts receivable. We perform ongoing credit evaluations of our franchisees and Foxtail customers and generally require no collateral to secure accounts receivable. The credit review is based on both financial and non-financial factors. Based on this review, we maintain reserves for estimated losses for accounts receivable that are not likely to be collected. Although we maintain good relationships with our franchisees, if average sales or the financial health of significant franchises were to deteriorate, we might have to increase our reserves against collection of franchise receivables.
Additional financial instruments that potentially subject us to a concentration of credit risk are cash and cash equivalents. At times, cash balances may be in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses with respect to bank balances in excess of government provided insurance.
Long Lived Assets
Major renewals and betterments are capitalized; replacements and maintenance and repairs that do not extend the lives of the assets are charged to operations as incurred. Upon disposition, both the asset and the accumulated depreciation amounts are relieved, and the related gain or loss is credited or charged to the statement of operations. Depreciation and amortization is computed primarily using the straight-line method over the estimated useful lives unless the assets relate to leased property, in which case, the amortization period is the lesser of the useful lives or the lease terms. A summary of the useful lives is as follows:
Years
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Land improvements
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3 — 20 | |||
Buildings
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20 — 30 | |||
Leasehold improvements
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3 — 20 | |||
Equipment
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1 — 7 |
The depreciation of our capital assets over their estimated useful lives (or in the case of leasehold improvements, the lesser of their estimated useful lives or lease term) and the determination of any salvage values require management to make judgments about future events. Because we utilize many of our capital assets over relatively long periods, we periodically evaluate whether adjustments to our estimated lives or salvage values are necessary. The accuracy of these estimates affects the amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset. Historically, gains and losses on the disposition of assets have not been significant. However, such amounts may differ materially in the future based on restaurant performance, technological obsolescence, regulatory requirements and other factors beyond our control.
Due to the significant funds required for the construction or acquisition of new restaurants, we have risks that these assets will not provide an acceptable return on our investment and an impairment of these assets may occur. Our assets are typically grouped at the restaurant level for such purposes. The accounting test for whether an asset group held for use is impaired involves first comparing the carrying value of the asset group with its estimated future undiscounted cash flows. If these cash flows do not exceed the carrying value, the asset group must be adjusted to its current fair value. We perform this test on each of our long lived assets periodically as indicators arise to evaluate whether impairment exists. Factors influencing our judgment include the age of the assets, estimation of future cash flows from long lived assets, lease renewals and estimation of fair value. Asset fair value is generally determined using discounted cash flow models, including residual proceeds and other factors that may impact the ultimate return of our investment in the long lived assets.
Goodwill and Intangible Assets
As of December 27, 2009 and December 28, 2008, we had approximately $170,113,000 and $173,947,000, respectively, of goodwill and intangible assets on our Consolidated Balance Sheets primarily resulting from the Acquisition. We account for our goodwill and other intangible assets in accordance with ASC 350, “Intangibles-Goodwill and Other”, which provides guidance regarding the recognition and measurement of intangible assets, eliminates the amortization of certain intangibles and requires assessments for impairment of intangible assets that are not subject to amortization at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our annual evaluation, performed as of year-end or on an interim basis if circumstances warrant, requires the use of estimates about the future cash flows of each of our reporting units and non-amortizing intangibles to determine their estimated fair values. Fair values of the goodwill reporting units are calculated using discounted future cash flows and market-based comparative values. We estimate the fair values of our non-amortizing intangible assets, principally trade names, using a relief from royalty cash flow method. Changes in forecasted operations and changes in discount rates can materially affect these estimates. However, once an impairment of goodwill or intangible assets has been recorded, it cannot be reversed.
In 2009, the Company recorded a non-cash charge of $1,496,000 to dispose of a customer relationship intangible asset resulting from the termination of a customer contract at Foxtail. As of December 27, 2009, we conducted our annual impairment test of goodwill and non-amortizing intangible assets and determined that no additional impairment charge was required. Due to the decrease in the Company’s operating results during 2008 compared to 2007 and the decline in general economic conditions impacting the restaurant industry, management conducted an interim goodwill and non-amortizing intangible assets impairment evaluation during the quarter ended October 5, 2008. Because the carrying values of the reporting units in both the franchise and Foxtail reporting units exceeded their respective estimated fair values, the Company completed step two of the goodwill test and concluded that the goodwill of both reporting units was fully impaired as of October 5, 2008. Accordingly, the Company recorded a non-cash goodwill impairment charge of $47,444,000 in the quarter ended October 5, 2008, which represents the cumulative impairments of goodwill recorded by the Company. See Note 7 of the Notes to our Consolidated Financial Statements included in this Amendment.
Deferred Income Taxes and Income Tax Uncertainties
We record income tax liabilities utilizing known obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carry forwards. We record a valuation allowance to reduce deferred tax assets to the balance that is more likely than not to be realized. In evaluating the need for a valuation allowance, we must make judgments and estimates related to future taxable income and feasible tax planning strategies and consider existing facts and circumstances. When we determine that deferred tax assets could be realized in greater or lesser amounts than recorded, the assets’ recorded amount is adjusted and the income statement is either credited or charged, respectively, in the period during which the determination is made. We believe that the valuation allowance recorded at December 27, 2009 is adequate for the circumstances. However, subsequent changes in facts and circumstances that affect our judgments or estimates in determining the proper deferred tax assets or liabilities could materially affect the recorded balances.
The Company’s accounting for uncertainty in income taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Insurance Reserves
We are self-insured up to certain limits for costs associated with workers’ compensation claims, general liability claims, property claims and benefits paid under employee health care programs. At December 27, 2009 and December 28, 2008, we had total self-insurance accruals reflected in our Consolidated Balance Sheets of approximately $9,697,000 and $8,803,000, respectively. The measurement of these costs required the consideration of historical loss experience and judgments about the present and expected levels of cost per claim. We account for the workers’ compensation costs primarily through actuarial methods, which develop estimates of the discounted liability for claims incurred, including those claims incurred but not reported. These methods provide estimates of future ultimate claim costs based on claims incurred as of the balance sheet dates. We account for benefits paid under employee health care programs using historical claims information as the basis for estimating expenses incurred as of the balance sheet dates. We believe the use of these methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental accruals. However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of time until the ultimate cost is known. We believe that our recorded obligations for these expenses are consistently measured on an appropriate basis. Nevertheless, changes in health care costs, accident frequency and severity and other factors, including discount rates, can materially affect estimates for these liabilities.
Subsequent Events. On March 15, 2010, Pete M. Pascuzzi tendered his resignation as the Executive Vice President and Chief Operating Officer of Perkins & Marie Callender’s Inc., effective as of March 28, 2010. On March 31, 2010, we announced the appointment of Richard K. Arras as President of the Perkins division, effective as of April 19, 2010.
Results of Operations.
Financial Statement Presentation
The accompanying audited Consolidated Financial Statements include the financial results of the Company for fiscal years 2009, 2008 and 2007. Intercompany transactions have been eliminated in consolidation.
Our financial reporting is based on thirteen four-week periods ending on the last Sunday in December. Fifty-two weeks of operations are included in fiscal years 2009, 2008 and 2007.
Seasonality
Sales fluctuate seasonally, and the Company’s fiscal quarters do not all have the same time duration. Specifically, the first quarter has an extra four weeks compared to the other quarters of the fiscal year. Historically, our average weekly sales are highest in the fourth quarter (approximately October through December), resulting primarily from holiday pie sales at both Perkins and Marie Callender’s restaurants and Thanksgiving feast sales at Marie Callender’s restaurants. Therefore, the quarterly results are not necessarily indicative of results that may be achieved for the full fiscal year. Factors influencing relative sales variability, in addition to the holiday impact noted above, include, but are not limited to, the frequency and popularity of advertising and promotions, the relative sales levels of new and closed locations, other holidays and weather.
Overview
Our revenues are derived primarily from restaurant operations, franchise royalties and the sale of bakery products produced by Foxtail. Sales from Foxtail to Company-operated restaurants are eliminated in the accompanying Consolidated Statements of Operations. Segment revenues as a percentage of total revenues were as follows:
Percentage of Total Revenues
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Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
December 27, 2009
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December 28, 2008
|
December 30, 2007
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Restaurant operations
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87.7 | % | 86.5 | % | 86.9 | % | ||||||
Franchise operations
|
4.2 | % | 4.1 | % | 4.4 | % | ||||||
Foxtail
|
7.0 | % | 8.5 | % | 7.8 | % | ||||||
Other
|
1.1 | % | 0.9 | % | 0.9 | % | ||||||
Total revenues
|
100.0 | % | 100.0 | % | 100.0 | % |
The following table reflects certain data for the year ended December 27, 2009 compared to the preceding two fiscal years. This information is derived from the accompanying Consolidated Statements of Operations. Data from the Company’s segments – restaurant operations, franchise operations, Foxtail and other is included for comparison. The ratios presented reflect the underlying dollar values expressed as a percentage of the applicable revenue amount (food cost as a percentage of food sales; labor and benefits and operating expenses as a percentage of total revenues in the restaurant operations and franchise operations segments and as a percentage of food sales in the Foxtail segment). The food cost ratio in the consolidated results reflects the elimination of intersegment food cost of $21,052,000, $20,088,000 and $19,826,000 in 2009, 2008 and 2007, respectively.
Consolidated Results
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Restaurant Operations
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Franchise Operations
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2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
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Restated | Restated | |||||||||||||||||||||||||||||||||||
Food sales
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$ | 528,815 | 572,550 | 576,816 | 470,346 | 503,242 | 510,863 | - | - | - | ||||||||||||||||||||||||||
Franchise and other revenue
|
28,305 | 29,508 | 30,896 | - | - | - | 22,532 | 24,141 | 25,982 | |||||||||||||||||||||||||||
Intersegment revenue
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(21,052 | ) | (20,088 | ) | (19,826 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||
Total revenues
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536,068 | 581,970 | 587,886 | 470,346 | 503,242 | 510,863 | 22,532 | 24,141 | 25,982 | |||||||||||||||||||||||||||
Food cost
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26.0 | % | 29.2 | % | 28.5 | % | 25.4 | % | 26.9 | % | 27.1 | % | n/a | n/a | n/a | |||||||||||||||||||||
Labor and benefits
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33.1 | % | 32.4 | % | 32.2 | % | 36.1 | % | 35.5 | % | 35.3 | % | n/a | n/a | n/a | |||||||||||||||||||||
Operating expenses
|
27.2 | % | 26.2 | % | 25.4 | % | 29.3 | % | 28.3 | % | 27.6 | % | 8.3 | % | 8.3 | % | 8.5 | % | ||||||||||||||||||
Segment (loss) profit
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$ | (36,219 | ) | (80,195 | ) | (16,335 | ) | 24,551 | 26,806 | 32,459 | 20,665 | (21,396 | ) | 23,774 | ||||||||||||||||||||||
Foxtail (a)
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Other (b)
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2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||||||||||
Restated | ||||||||||||||||||||||||||||||||||||
Food sales
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$ | 58,469 | 69,308 | 65,953 | - | - | - | |||||||||||||||||||||||||||||
Franchise and other revenue
|
- | - | - | 5,773 | 5,367 | 4,914 | ||||||||||||||||||||||||||||||
Intersegment revenue
|
(21,052 | ) | (20,088 | ) | (19,826 | ) | - | - | - | |||||||||||||||||||||||||||
Total revenues
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37,417 | 49,220 | 46,127 | 5,773 | 5,367 | 4,914 | ||||||||||||||||||||||||||||||
Food cost
|
56.8 | % | 65.9 | % | 60.9 | % | n/a | n/a | n/a | |||||||||||||||||||||||||||
Labor and benefits
|
12.6 | % | 13.5 | % | 13.1 | % | n/a | n/a | n/a | |||||||||||||||||||||||||||
Operating expenses
|
10.5 | % | 11.0 | % | 9.7 | % | n/a | n/a | n/a | |||||||||||||||||||||||||||
Segment (loss) profit
|
$ | 4,162 | (6,743 | ) | 3,687 | (85,597 | ) | (78,862 | ) | (76,255 | ) |
(a)
|
The percentages for food cost, labor and benefits, and operating expenses, as presented above, represent manufacturing costs at Foxtail. Foxtail’s selling, general and administrative expenses are included in general and administrative expenses in the Consolidated Statements of Operations and in the Foxtail segment profit or loss presented above.
|
(b)
|
Licensing revenue of $5,505,000, $5,125,000 and $4,564,000 for fiscal 2009, 2008 and 2007, respectively, is included in the other segment revenues. The other segment loss includes corporate general and administrative expenses, interest expense and other non-operational expenses. For details of the other segment loss, see Note 16, “Segment Reporting” in the Notes to Consolidated Financial Statements.
|
Year Ended December 27, 2009 Compared to the Year Ended December 28, 2008
Segment Overview
Restaurant Operations Segment
The operating results of the restaurant segment were impacted mainly by the following factors: general economic conditions, competition, our comparable store sales, which are driven by our comparable customer counts and our guest check average, restaurant openings and closings, commodity prices, energy prices, our ability to manage operating expenses, such as food cost, labor and benefits, weather and governmental regulation.
Perkins comparable restaurant sales decreased by 6.6% and Marie Callender’s comparable restaurant sales decreased by 6.4% in 2009 as compared to 2008. The decrease in comparable sales resulted primarily from a decrease in comparable guest counts due to macro-economic conditions. Total restaurant segment revenues decreased approximately $32,896,000 in 2009, due primarily to the decrease in comparable restaurant sales. During 2009, the Company closed one Perkins restaurant and purchased one Marie Callender’s restaurant from a franchisee.
Restaurant segment profit decreased approximately $2,255,000 in 2009 compared to a year ago. The decrease was primarily due to the decrease in comparable sales, partially offset by lower food cost.
Franchise Operations Segment
The operating results of the franchise segment were mainly impacted by the same factors as those impacting the Company’s restaurant segment, excluding the operating cost factors since franchise segment income is earned primarily through royalty income.
Franchise revenues decreased approximately $1,609,000 in 2009 compared to a year ago. During 2009, royalty revenue decreased by $1,537,000 due principally to a decline in comparable customer counts resulting from macro-economic conditions and by $72,000 due to lower franchise fees and renewal fees resulting from a smaller number of new franchises and the non-renewal by some of our existing franchises.
Franchise segment profit increased by $42,061,000 in 2009 compared to 2008 due primarily to a non-cash goodwill impairment charge of $43,537,000 in 2008. Excluding the impairment charge, franchise segment profit decreased by $1,476,000 due primarily to the decrease in royalty revenue. See Note 7 of the Notes to our Consolidated Financial Statements included in this Amendment for a discussion of goodwill impairment charges.
During 2009, franchisees opened one Perkins restaurant, closed four Perkins restaurants, sold one Marie Callender’s restaurant to the Company and closed two Marie Callender’s restaurants.
Foxtail Segment
The operating results of Foxtail were impacted mainly by the following factors: orders from our external customer base, general economic conditions, labor and employee benefit expenses, production efficiency, commodity prices, energy prices, Perkins and Marie Callender’s restaurant openings and closings, governmental regulation and food safety requirements.
Foxtail’s revenues, net of intercompany sales, decreased approximately $11,803,000 compared to the prior year. The decrease was primarily due to a decrease in sales to external customers resulting primarily from macro-economic conditions. The segment profit of approximately $4,162,000 in 2009 represented an increase of approximately $10,905,000 as compared to the segment loss of $6,743,000 in the prior year. The increase was primarily due to lower commodity and marketing costs in fiscal 2009 and a non-cash goodwill impairment charge of $3,907,000 in the third quarter of 2008.
Revenues
Consolidated total revenues decreased approximately $45,902,000 in 2009 compared to 2008. The decrease was due primarily to a decrease of $32,896,000 in restaurant segment sales, a decrease of $1,609,000 in the franchise segment revenues and a decrease of $11,803,000 in the Foxtail segment sales. These decreases were partially offset by an increase in licensing and other revenues of $406,000 in the other segment. Total revenues of approximately $536,068,000 in 2009 were 7.9% lower than total revenues of approximately $581,970,000 in 2008.
Restaurant segment sales of $470,346,000 and $503,242,000 in 2009 and 2008, respectively, accounted for 87.7% and 86.5% of total revenues, respectively. Due to the decline in total revenues, total restaurant segment sales increased as a percentage of total revenues, despite an overall 6.5% decrease in comparable sales at Company-operated Perkins and Marie Callender’s restaurants.
Franchise segment revenues of $22,532,000 and $24,141,000 in 2009 and 2008, respectively, accounted for 4.2% and 4.1% of total revenues, respectively. During 2009, royalty revenue decreased $1,537,000 due principally to a decline in comparable customer counts and by $72,000 due to lower franchise fees and renewal fees.
Foxtail revenues of $37,417,000 and $49,220,000 in 2009 and 2008, respectively, accounted for 7.0% and 8.5% of total revenues, respectively. The decrease of $11,803,000 was primarily due to a decline in sales to external customers due to macro-economic conditions, with an approximate $2,114,000 decrease in sales to one particular customer.
Costs and Expenses
Food Cost
Consolidated food cost was 26.0% and 29.2% of food sales in 2009 and 2008, respectively. Restaurant segment food cost was 25.4% and 26.9% of food sales in 2009 and 2008, respectively, while food cost in the Foxtail segment was 56.8% and 65.9% of food sales in 2009 and 2008, respectively. The decrease in the restaurant segment is primarily due to lower commodity costs, particularly costs of red meat, produce, dairy products and eggs. The decrease of 9.1 percentage points in the Foxtail segment is primarily due to lower commodity costs, particularly fruit and eggs, increases in selling prices over all major product lines during the second half of 2008 and improved pie manufacturing efficiencies.
Labor and Benefits Expenses
Consolidated labor and benefits expenses were 33.1% and 32.4% of total revenues in 2009 and 2008, respectively. The labor and benefits ratio increased by 0.6% in the restaurant segment due to a greater impact from fixed store management costs and higher employee insurance costs, while the Foxtail segment labor and benefits expense decreased from 13.5% in 2008 to 12.6% in 2009. The decrease of 0.9 percentage points in the Foxtail segment is due primarily to a decrease in production labor, which was driven by an improvement in production efficiencies despite the lower production volumes.
Operating Expenses
Total operating expenses of $145,630,000 in 2009 decreased by $6,630,000 as compared to 2008. The most significant components of operating expenses were rent, utilities and advertising expenses. Total operating expenses, as a percentage of total sales, were 27.2% and 26.2% in 2009 and 2008, respectively. Approximately 94.5% and 93.7% of total operating expenses in 2009 and 2008, respectively, were incurred in the restaurant segment, and restaurant segment operating expenses, as a percentage of restaurant sales, were 29.3% and 28.3% in 2009 and 2008, respectively. The 1.0 percentage point increase in operating expenses as a percentage of revenues in the restaurant segment resulted primarily from the decline in revenues. Operating expenses in the Foxtail segment, as a percentage of segment food sales, decreased 0.5% or $1,509,000 due primarily to lower repairs and maintenance, energy, transportation and warehouse costs.
General and Administrative Expenses
The most significant components of general and administrative (“G&A”) expenses were corporate labor and benefits, occupancy costs and legal fees. Consolidated G&A expenses represented 8.6% and 8.2% of sales in 2009 and 2008, respectively. The percentage increase resulted from the decrease in total revenues, as overall G&A expenses declined by $1,676,000 due primarily to lower marketing program costs and allowances at Foxtail.
Depreciation and Amortization
Depreciation and amortization expense was $24,041,000 and $24,699,000 in 2009 and 2008, respectively.
Interest, net
Interest, net was $44,120,000 or 8.2% of revenues in 2009 compared to $36,689,000 or 6.3% of revenues in 2008. This increase was primarily due to an increase in the average effective interest rate to 11.6% from 10.1% and an approximate $14,100,000 increase in the average debt outstanding during 2009 as compared to 2008.
Asset Impairments and Closed Store Expenses
Asset impairments and closed store expenses consist primarily of the write-down to fair value for impaired stores and adjustments to the reserve for closed stores. During 2009 and 2008, we recorded expenses of $5,997,000 and $1,797,000, respectively, for asset impairment and store closures.
Goodwill Impairment
Due to the decrease in the Company’s operating results during 2008 compared to 2007 and the decline in general economic conditions impacting the restaurant industry, management conducted an interim goodwill impairment evaluation during the quarter ended October 5, 2008. Fair values of the reporting units were calculated using discounted future cash flows and market-based comparative values. Because the carrying values of the reporting units for both the franchise and Foxtail reporting units exceeded their respective estimated fair values, the Company completed step two of the goodwill test and concluded that the goodwill of those reporting units was impaired as of October 5, 2008. Accordingly, in the quarter ended October 5, 2008, the Company recorded a non-cash goodwill impairment charge of $47,444,000, of which $43,537,000 was charged to the franchise segment and $3,907,000 was charged to the Foxtail segment. No impairment charge was required for the goodwill associated with the restaurant reporting unit or the Company’s non-amortizing intangibles. In 2009, the Company recorded a non-cash charge of $1,496,000 to dispose of a customer relationship intangible asset resulting from the termination of a customer contract at Foxtail. As of December 27, 2009, we conducted our annual impairment test of goodwill and non-amortizing intangible assets and determined that no additional impairment charge was required.
Loss on Extinguishment of Debt
In connection with the September 2008 refinancing transaction (see “Capital Resources and Liquidity” below), we terminated our pre-existing credit agreement and consequently incurred a $2,952,000 loss due to the write-off of deferred financing costs related to that agreement.
Taxes
The effective federal and state income tax rates were (0.5)% and 2.2% in 2009 and 2008, respectively. Our rates differ from the statutory rate primarily due to a valuation allowance against deferred tax deductions, losses and credits. The effective income tax rate for 2009 primarily reflects state tax expense related to gross receipts taxes and the net benefit and interest on prior year, settled and expired uncertain tax positions.
Year Ended December 28, 2008 Compared to the Year Ended December 30, 2007
Segment Overview
Restaurant Operations Segment
Perkins comparable restaurant sales decreased by 2.8% and Marie Callender’s comparable restaurant sales decreased by 6.5% in 2008 as compared to 2007. The decrease in comparable sales resulted primarily from a decrease in comparable guest counts due to macro-economic conditions. Total restaurant segment revenues decreased approximately $7,621,000 in 2008, also due primarily to the decrease in comparable guest counts resulting from macro-economic conditions. During 2008, the Company opened two Perkins restaurants and closed one Marie Callender’s restaurant.
Restaurant segment income decreased approximately $5,653,000 in 2008 compared to a year ago. The decrease was primarily due to the decrease in comparable restaurant sales, which was partially offset by a decline in restaurant segment food cost.
Franchise Operations Segment
Franchise revenues decreased approximately $1,841,000 in 2008 compared to a year ago. During 2008, royalty revenue decreased by $1,468,000 due principally to a decline in comparable customer counts resulting from macro-economic conditions and by $373,000 due to lower franchise fees and renewal fees resulting from a smaller number of new franchises and the non-renewal of some of our existing franchises.
Franchise segment profit decreased by $45,170,000 in 2008 compared to 2007 due primarily to a non-cash goodwill impairment charge of $43,537,000. Excluding the impairment charge, franchise segment profit decreased by $1,633,000 due primarily to the decrease in royalty revenue. See Note 7 of the Notes to our Consolidated Financial Statements contained herein.
During 2008, franchisees opened two Perkins restaurants, closed eight Perkins restaurants, opened one Marie Callender’s restaurant and closed three Marie Callender’s restaurants.
Foxtail Segment
Foxtail’s revenues, net of intercompany sales, increased approximately $3,093,000 compared to the prior year. The increase was primarily due to increases in selling prices over all major product lines partially offset by decreases in sales volumes resulting primarily from macro-economic conditions. The segment loss of approximately $6,743,000 in 2008 represented a decline of approximately $10,430,000 as compared to the segment income of $3,687,000 in the prior year. The decline was primarily due to increased raw materials costs, primarily the result of increases in commodity prices, a non-cash goodwill impairment charge of $3,907,000 in the third quarter of 2008, a decrease in contribution margin attributable to an approximate 5.5% decrease in sales volume, in addition to increases of approximately $1,250,000 in outside services and $800,000 in marketing programs and allowances.
Revenues
Consolidated total revenues decreased approximately $5,916,000 in 2008 compared to 2007. The decrease was due primarily to a $7,621,000 decrease in sales in the restaurant segment and a decrease in revenues of $1,841,000 in the franchise segment, partially offset by increases in sales of $3,093,000 in the Foxtail segment and licensing and other revenues of $453,000 in the other segment. Total revenues of approximately $581,970,000 in 2008 were 1.0% lower than total revenues of approximately $587,886,000 in 2007.
Restaurant segment sales of $503,242,000 and $510,863,000 in 2008 and 2007, respectively, accounted for 86.5% and 86.9% of total revenues, respectively. Total restaurant segment sales decreased as a percentage of total revenues due an overall 4.4% decrease in comparable sales at Company-operated Perkins and Marie Callender’s restaurants and the increase in Foxtail segment sales.
Franchise segment revenues of $24,141,000 and $25,982,000 in 2008 and 2007, respectively, accounted for 4.1% and 4.4% of total revenues, respectively. During 2008, royalty revenue decreased $1,468,000 due principally to a decline in comparable customer counts and by $373,000 due to lower franchise fees and renewal fees.
Foxtail revenues of $49,220,000 and $46,127,000 in 2008 and 2007, respectively, accounted for 8.5% and 7.8% of total revenues, respectively. The increase of $3,093,000 was primarily due to increases in selling prices over all major product lines, partially offset by decreases in sales volume.
Costs and Expenses
Food Cost
Consolidated food cost was 29.2% and 28.5% of food sales in 2008 and 2007, respectively. Restaurant segment food cost was 26.9% and 27.1% of food sales in 2008 and 2007, respectively, while food cost in the Foxtail segment was 65.9% and 60.9% of food sales in 2008 and 2007, respectively. This increase of 5.0 percentage points in the Foxtail segment is primarily due to higher commodity costs, particularly dairy and flour prices.
Labor and Benefits Expenses
Consolidated labor and benefits expenses were 32.4% and 32.2% of total revenues in 2008 and 2007, respectively. The labor and benefits ratio increased by 0.2 percentage points in the restaurant segment, while the Foxtail segment labor and benefits expense increased from 13.1% in 2007 to 13.5% in 2008. The increase in labor and benefits as a percentage of revenues in the restaurant segment is primarily due to higher restaurant manager compensation. The increase of 0.4 percentage points in the Foxtail segment is due primarily to an increase in contract production labor as well as higher administrative and maintenance compensation.
Operating Expenses
Total operating expenses of $152,260,000 in 2008 increased by $2,823,000 as compared to 2007. The most significant components of operating expenses were rent, utilities, advertising, restaurant supplies, repair and maintenance and property taxes. Total operating expenses, as a percentage of total sales, were 26.2% and 25.4% in 2008 and 2007, respectively. Approximately 93.7% and 94.2% of total operating expenses in 2008 and 2007, respectively, were incurred in the restaurant segment, and restaurant segment operating expenses, as a percentage of restaurant sales, were 28.3% and 27.6% in 2008 and 2007, respectively. The increase of 0.7 percentage points in operating expenses as a percentage of revenues in the restaurant segment resulted primarily from the decline in revenues and increases in utilities costs and marketing expenses, which were partially offset by a decrease in pre-opening expenses for new stores. Operating expenses in the Foxtail segment, as a percentage of segment food sales, increased 1.3 percentage points or $1,232,000 due primarily to higher custodial services.
General and Administrative Expenses
The most significant components of general and administrative (“G&A”) expenses were corporate labor and benefits, occupancy costs and outside services. Consolidated G&A expenses represented 8.2% and 7.6% of sales in 2008 and 2007, respectively. The increase is primarily due to consulting costs of approximately $1,700,000 (or 0.3%) to design and implement improved operating and accounting systems at Foxtail and higher marketing costs at Foxtail.
Transaction Costs
The Company has classified certain expenses incurred in fiscal 2007 and 2006 as transaction costs on its Consolidated Statements of Operations. Transaction costs include expenses directly attributable to the Acquisition in September 2005 and the combination with WRG in 2006 and certain non-recurring expenses incurred as a result of the Acquisition and the combination. There were no transaction costs for 2008. Transaction costs were $1,013,000 for 2007. The direct expenses consisted of administrative, consultative and legal expenses.
Depreciation and Amortization
Depreciation and amortization expense was $24,699,000 and $24,822,000 in 2008 and 2007, respectively.
Interest, net
Interest, net was $36,689,000 or 6.3% of revenues in 2008 compared to $31,180,000 or 5.3% of revenues in 2007. This increase was primarily due to an increase in the average effective interest rate to 10.1% from 8.7% and an approximate $13,700,000 increase in the average debt outstanding during 2008 as compared to 2007.
Asset Impairments and Closed Store Expenses
Asset impairments and closed store expenses consist primarily of the write-down to fair value for impaired stores and adjustments to the reserve for closed stores. During 2008 and 2007, we recorded expenses of $1,797,000 and $2,463,000, respectively for asset impairment and store closures.
Goodwill Impairment
At December 30, 2007, the Company had $70,544,000 of goodwill, of which $23,100,000 was attributable to restaurant operations, $43,537,000 was attributable to franchise operations and $3,907,000 was attributable to the Foxtail segment. The goodwill originated from the acquisition of the Company in September 2005. Due to the decrease in the Company’s operating results during 2008 compared to 2007 and the decline in general economic conditions impacting the restaurant industry, management conducted an interim goodwill impairment evaluation during the quarter ended October 5, 2008. Fair values of the reporting units were calculated using discounted future cash flows and market-based comparative values. Because the carrying values of the reporting units for both the franchise and Foxtail reporting units exceeded their respective estimated fair values, the Company completed step two of the goodwill test and concluded that the goodwill of those reporting units was impaired as of October 5, 2008. Accordingly, in the quarter ended October 5, 2008, the Company recorded a non-cash goodwill impairment charge of $47,444,000, of which $43,537,000 was charged to the franchise segment and $3,907,000 was charged to the Foxtail segment. No impairment charge was required for the goodwill associated with the restaurant reporting unit or the Company’s non-amortizing intangibles. As of December 28, 2008, we conducted our annual impairment test of goodwill and non-amortizing intangible assets and determined that no additional impairment charge was required.
Loss on Extinguishment of Debt
In connection with the September 2008 refinancing transaction (see “Capital Resources and Liquidity” below), we terminated our pre-existing credit agreement and consequently incurred a $2,952,000 loss due to the write-off of deferred financing costs related to that agreement.
Taxes
The effective federal and state income tax rates were 2.2% and (10.5)% in 2008 and 2007, respectively. Our rates differ from the statutory rate primarily due to a valuation allowance against deferred tax deductions, losses and credits. The effective income tax rate for 2008 reflects the current and deferred tax benefits of losses and credits and the net benefit and interest on settled and expired uncertain tax positions. The write-down of goodwill was not a tax-deductible item and consequently reduced the Company’s effective income tax rate by (19.7)%.
CAPITAL RESOURCES AND LIQUIDITY
On September 24, 2008, we issued $132,000,000 of 14% senior secured notes (the "Secured Notes") and entered into a $26,000,000 revolving credit facility (the “Revolver”) in connection with the refinancing of our then existing $100,000,000 term loan and $40,000,000 revolver. In connection with this transaction, we recognized a loss of $2,952,000, representing the write-off of previously deferred financing costs related to the terminated credit agreements.
Secured Notes
The Secured Notes were issued at a discount of $7,537,200, which is being accreted using the interest method over the term of the Secured Notes. The Secured Notes mature on May 31, 2013, and interest is payable semi-annually on May 31 and November 30 of each year.
The Secured Notes are fully and unconditionally guaranteed (the "Secured Notes Guarantees") on a senior secured basis by the Company's parent, Perkins & Marie Callender's Holding Inc., and each of the Company's existing and future domestic wholly-owned subsidiaries (the “Secured Notes Guarantors”). The Secured Notes and the Secured Notes Guarantees are the Company’s and the Secured Notes Guarantors’ senior secured obligations and rank equal in right of payment to all of the Company’s and the Senior Notes Guarantors’ existing and future senior indebtedness. The Secured Notes and the Secured Notes Guarantees are secured by a lien on substantially all of the Company’s and the Secured Notes Guarantors’ existing and future assets, subject to certain exceptions. Pursuant to the terms of an intercreditor agreement, the foregoing liens are contractually subordinated to the liens that secure the Revolver.
Prior to May 31, 2011, the Company may redeem up to 35% of the aggregate principal amount of the Secured Notes with the net cash proceeds of certain equity offerings at a premium specified in the indenture pertaining to the Secured Notes (the “Secured Notes Indenture”). Prior to May 31, 2011, the Company also may redeem all or part of the Secured Notes at a “make whole” premium specified in the Secured Notes Indenture. On or after May 31, 2011, the Company may redeem the Secured Notes at a 7% premium that decreases to a 0% premium on May 31, 2012. If the Company experiences a change of control, the holders have the right to require the Company to repurchase its Secured Notes at 101% of the principal amount. If the Company sells assets and does not use the net proceeds for specified purposes, it may be required to use the net proceeds to offer to repurchase the Secured Notes at 100% of the Notes’ principal amount. Any redemption or repurchase also requires the payment of any accrued and unpaid interest through the redemption or repurchase date.
10% Senior Notes
In September 2005, the Company issued $190,000,000 of unsecured 10% Senior Notes (the “10% Senior Notes”). The 10% Senior Notes were issued at a discount of $2,570,700, which is being accreted using the interest method over the term of the 10% Senior Notes. The 10% Senior Notes mature on October 1, 2013, and interest is payable semi-annually on April 1 and October 1 of each year. All consolidated subsidiaries of the Company that are 100% owned provide joint and several, full and unconditional guarantee of the 10% Senior Notes. There are no significant restrictions on the Company’s ability to obtain funds from any of the guarantor subsidiaries in the form of a dividend or a loan. Additionally, there are no significant restrictions on a guarantor subsidiary’s ability to obtain funds from the Company or its direct or indirect subsidiaries.
The Company may redeem the 10% Senior Notes at a 5% premium that steps down to a 2.5% premium on October 1, 2010 and a 0% premium on October 1, 2011 (and thereafter). If the Company experiences a change of control, the holders have the right to require the Company to repurchase its 10% Senior Notes at 101% of the principal amount. If the Company sells assets and does not use the net proceeds for specified purposes, it may be required to use the net proceeds to offer to repurchase the 10% Senior Notes and certain other existing pari-passu indebtedness of the Company at 100% of the principal amount thereof. Any redemption or repurchase also requires the payment of any accrued and unpaid interest through the redemption or repurchase date.
With respect to the 10% Senior Notes, the Company has certain covenants that restrict our ability to pay dividends or distributions to our equity holders (“Restricted Payments”). If no default or event of default exists or occurs as a result of such Restricted Payments, we are generally allowed to make Restricted Payments subject to the following restrictions:
1.
|
The Company would, at the time of such Restricted Payments and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional indebtedness pursuant to the fixed charge coverage ratio tests as defined in the indenture.
|
2.
|
Such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company after September 21, 2005, is less than the sum, without duplication, of (i) 50% of the consolidated net income of the Company for the period from the beginning of the first full fiscal quarter commencing after the date of the indenture to the end of the Company’s most recent ended fiscal quarter for which internal financial statements are available at the time of the Restricted Payment; (ii) 100% of the aggregate net proceeds received by the Company since the date of the indenture as a contribution to its equity capital or from the sale of equity interests of the Company or from the conversion of interests or debt securities that have been converted to equity interests; and (iii) to the extent that any Restricted Investment, as defined, that was made after the date of the indenture is sold for cash, the lesser of (a) the cash return of capital or (b) the aggregate amount of such restricted investment that was treated as a Restricted Payment when made.
|
The Secured Notes Indenture and the indenture pertaining to the 10% Senior Notes (“the Senior Note Indenture”) contain various customary events of default, including, without limitation: (i) nonpayment of principal or interest; (ii) cross-defaults with certain other indebtedness; (iii) certain bankruptcy related events; (iv) invalidity of guarantees; (v) monetary judgment defaults; and (vi) certain change of control events. In addition, any impairment of the security interest in the Secured Notes collateral shall constitute an event of default under the Secured Notes Indenture.
Revolver
The Revolver, which matures on February 28, 2013, is guaranteed by Perkins & Marie Callender's Holding Inc. and certain of the Company's existing and future subsidiaries. The Revolver is secured by a first priority perfected security interest in all of the Company's property and assets, and the property and assets of each guarantor. Subject to the satisfaction of the conditions contained therein, up to $26,000,000 may be borrowed under the Revolver from time to time. The Revolver includes a sub-facility for letters of credit in an amount not to exceed $15,000,000.
Amounts outstanding under the Revolver bear interest, at the Company’s option, at a rate per annum equal to either: (i) the base rate, as defined in the Revolver, plus an applicable margin or (ii) a LIBOR-based equivalent, plus an applicable margin. For the foreseeable future, margins are expected to be 325 basis points for base rate loans and 425 basis points for LIBOR loans. As of December 27, 2009, the average interest rate on aggregate borrowings under the Revolver was 8.25%, and the Revolver permitted additional borrowings of approximately $4,605,000 (after giving effect to $11,171,000 in borrowings and $10,224,000 in letters of credit outstanding). The letters of credit are primarily utilized in conjunction with our workers’ compensation programs.
The Company is required to make mandatory prepayments under the Revolver with, subject to certain exceptions (as defined in the Revolver): (i) the net cash proceeds from certain asset sales or dispositions; (ii) the net cash proceeds of any debt issued by the Company or its subsidiaries; (iii) 50% of the net cash proceeds of any equity issuance by the Company, its parent or its subsidiaries; and (iv) the extraordinary receipts received by the Company or its subsidiaries, consisting of proceeds of judgments or settlements, certain indemnity payments and purchase price adjustments received in connection with any purchase agreement. Any of the foregoing mandatory prepayments will result in a corresponding permanent reduction in the maximum Revolver amount.
The Revolver contains various affirmative and negative covenants, including, but not limited to a financial covenant to maintain at least $30,000,000 of trailing 13-period EBITDA, as defined in the Revolver, and a covenant that limits the Company’s capital expenditures.
The average interest rate on aggregate borrowings of the Company’s long-term debt during fiscal 2009 was 11.6% compared to 10.1% during fiscal 2008.
Our debt agreements place restrictions on the Company’s ability and the ability of its subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay dividends or make other distributions on, redeem or repurchase capital stock or subordinated indebtedness; (iv) make certain investments or other restricted payments; (v) enter into transactions with affiliates; (vi) issue stock of subsidiaries; (vii) transfer, sell or consummate a merger or consolidation of all, or substantially all, of the Company's assets; (viii) change its line of business; (ix) incur dividend or other payment restrictions with regard to restricted subsidiaries; (x) create or incur liens on assets to secure debt; (xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii) make certain acquisitions; (xiv) make capital expenditures; or (xv) amend the terms of the Company's outstanding notes. As of December 27, 2009, we were in compliance with the financial covenants contained in our debt agreements.
Working Capital and Cash Flows
At December 27, 2009, we had a negative working capital balance of $17,643,000. Like many other restaurant companies, the Company is able to, and does more often than not, operate with negative working capital. We are able to operate with a substantial working capital deficit because (1) restaurant revenues are received primarily on a cash or near-cash basis with a low level of accounts receivable, (2) rapid turnover results in a limited investment in inventories and (3) accounts payable for food and beverages usually become due after the receipt of cash from the related sales.
We have experienced a decline in comparable restaurant sales and declining profits in our restaurants in both 2009 and 2008. The ongoing turmoil in the economy has adversely affected our guest counts and, in turn, our operating results and cash generated by operations. The Company expects to incur a net loss in 2010. In order to improve the cash flows in our business, we continue to roll out a new breakfast program at our Marie Callender’s restaurants, improved systems to more effectively manage our food and labor costs, upgraded our management staff and certain equipment in our Foxtail division to drive higher operating efficiencies, reduced overall planned capital expenditures for 2010, and we continually review general and administrative expenditures. Management expects these initiatives together with the Company’s cash provided by operations and borrowing capacity to provide sufficient liquidity through 2010. However, there can be no assurance as to whether these or other actions will enable us to generate sufficient cash flow to fund our operations and service our debt.
The following table sets forth summary cash flow data for the years ended December 27, 2009, December 28, 2008 and December 30, 2007 (in thousands):
|
Year Ended
|
Year Ended
|
Year Ended
|
|||||||||
December 27, 2009
|
December 28, 2008
|
December 30, 2007
|
||||||||||
Cash flows provided by (used in) operating activities
|
$ | 621 | (9,489 | ) | 15,479 | |||||||
Cash flows used in investing activities
|
(8,239 | ) | (17,649 | ) | (31,526 | ) | ||||||
Cash flows provided by financing activities
|
7,293 | 12,719 | 26,010 |
Operating activities
Cash provided by operating activities increased by $10,110,000 for 2009 compared to 2008. Cash used in operating activities increased by $24,968,000 for 2008 compared to 2007. The increase in cash provided in 2009 compared to 2008 was primarily due to lower accounts receivable and inventory, partially offset by lower accounts payable, all consistent with 2009’s lower sales volumes. The increase in cash used in 2008 compared to 2007 was primarily due to lower earnings, net of non-cash charges, and cash uses resulting from higher accounts receivable and lower accounts payable balances.
Investing activities
Cash flows used in investing activities were $8,239,000, $17,649,000 and $31,526,000 for 2009, 2008 and 2007, respectively. Substantially all cash flows used in investing activities were used for capital expenditures.
Capital expenditures consisted primarily of restaurant improvements, manufacturing plant improvements, restaurant remodels, and equipment packages for new restaurants. The following table summarizes capital expenditures for each of the past three years (in thousands):
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
|
December 27, 2009
|
December 28, 2008
|
December 30, 2007
|
|||||||||
New restaurants (including restaurants acquired from franchisees)
|
$ | 155 | 2,302 | 15,255 | ||||||||
Restaurant improvements
|
5,876 | 6,650 | 8,675 | |||||||||
Restaurant remodeling and reimaging
|
1,421 | 3,165 | 4,920 | |||||||||
Manufacturing plant improvements
|
727 | 4,710 | 1,476 | |||||||||
Other
|
554 | 1,509 | 1,221 | |||||||||
Total capital expenditures
|
$ | 8,733 | 18,336 | 31,547 |
Our capital expenditure forecast for 2010 is approximately $4,200,000 and does not include plans to open any new Company-operated Perkins or Marie Callender’s restaurants. The principal source of funding for 2010’s capital expenditures is expected to be cash provided by operations.
Financing activities
Cash flows provided by financing activities were $7,293,000, $12,719,000 and $26,010,000 for 2009, 2008 and 2007, respectively. The financing cash flows in 2009 primarily included net proceeds of $7,987,000 from the Revolver. In September 2008, we refinanced our pre-existing bank debt utilizing proceeds of $124,463,000 from the Secured Notes, $4,804,000 from the Revolver and a $12,500,000 capital contribution from our sole shareholder to repay $127,500,000 of outstanding debt under the terminated credit agreement. The remaining proceeds were used to pay fees and interest related to the pre-existing debt and debt financing costs. The decrease in net borrowings in 2008 results from the high cash balances in place at the beginning of 2008 and the decrease in 2008 capital expenditures. During 2007, the primary cash flows included $20,000,000 of net receipts from our then-existing credit agreement and $6,107,000 received from various landlords as reimbursements for building and leasehold improvements at new store locations.
Impact of Inflation. We do not believe that our operations are affected by inflation to a greater extent than other companies within the restaurant industry. Certain significant items that are historically subject to price fluctuations are beef, pork, poultry, dairy products, wheat products, corn products and coffee. In most cases, we historically have been able to pass through a substantial portion of the increased commodity costs by adjusting menu pricing.
Cash Contractual Obligations and Off-Balance Sheet Arrangements.
Cash Contractual Obligations
The following table represents our contractual commitments associated with our debt and other obligations as of December 27, 2009 (in thousands):
|
Fiscal
2010
|
Fiscal
2011
|
Fiscal
2012
|
Fiscal
2013
|
Fiscal
2014
|
Thereafter
|
Total
|
|||||||||||||||||||||
Contractual Obligations (1)
|
||||||||||||||||||||||||||||
10% Senior Notes
|
$ | — | — | — | 190,000 | — | — | 190,000 | ||||||||||||||||||||
Secured Notes
|
— | — | — | 132,000 | — | — | 132,000 | |||||||||||||||||||||
Revolver
|
— | — | — | 11,171 | — | — | 11,171 | |||||||||||||||||||||
Capital lease obligations
|
1,581 | 1,406 | 1,374 | 1,381 | 1,403 | 16,178 | 23,323 | |||||||||||||||||||||
Operating leases
|
36,631 | 34,266 | 32,578 | 29,919 | 27,308 | 229,667 | 390,369 | |||||||||||||||||||||
Interest on indebtedness (2)
|
38,148 | 38,148 | 38,148 | 23,601 | — | — | 138,045 | |||||||||||||||||||||
Purchase commitments (3)
|
47,546 | 1,581 | 730 | 449 | 449 | 898 | 51,653 | |||||||||||||||||||||
Management fee (4)
|
— | — | — | 22,524 | — | — | 22,524 | |||||||||||||||||||||
Total contractual obligations
|
$ | 123,906 | 75,401 | 72,830 | 411,045 | 29,160 | 246,743 | 959,085 |
____________
(1)
|
In addition to the contractual obligations disclosed in this table, we have unrecognized tax benefits with respect to which, based on uncertainties associated with the items, we are unable to make reasonably reliable estimates of the period of potential cash settlements, if any, with taxing authorities. (See Note 10 of the Notes to our Consolidated Financial Statements).
|
(2)
|
Represents interest expense using the interest rate of 10.0% on the $190,000,000 of 10% Senior Notes, 14.0% on the $132,000,000 of Secured Notes and 8.25% on the outstanding balance of $11,171,000 under the Revolver at December 27, 2009. Interest obligations exclude interest on capital lease obligations and fees on any letters of credit that may be issued under our new credit agreement.
|
(3)
|
Primarily represents commitments to purchase food products for the restaurant and manufacturing segments.
|
(4)
|
The Company is obligated for management fees due to Castle Harlan; however, as long as the Company’s current debt agreements are in place, the Company is limited as to the amount that can be paid each year. As of December 27, 2009, $10,383,000 of past due management fees were accrued in other liabilities and fees will continue to accrue quarterly at an annual rate of 3% of equity contributed by Castle Harlan and affiliates.
|
As of December 27, 2009, there were borrowings of $11,171,000 and approximately $10,224,000 of letters of credit outstanding under the Revolver. These letters of credit are primarily utilized in conjunction with our workers’ compensation program.
Additionally, the Company has arrangements with several different parties to whom territorial rights were granted in exchange for specified payments. The Company makes specified payments to those parties based on a percentage of gross sales from certain Perkins restaurants and for new Perkins restaurants opened within those geographic regions. During the year ended December 27, 2009, we paid an aggregate of approximately $2,592,000 under such arrangements. Three such agreements are currently in effect. Of these, one expires in the year 2075, one expires upon the death of the beneficiary, and the remaining agreement remains in effect as long as we operate Perkins restaurants in certain states.
Off-Balance Sheet Arrangements
As of December 27, 2009, the Company had no off-balance sheet arrangements.
RECENT ACCOUNTING PRONOUNCEMENTS
Information regarding new accounting pronouncements is included in Note 3 of the Notes to our Consolidated Financial Statements.
RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
Our management is responsible for the preparation, accuracy and integrity of the Consolidated Financial Statements.
These consolidated statements have been prepared in accordance with accounting principles generally accepted in the United States of America consistently applied, in all material respects, and reflect estimates and judgments by management where necessary.
Report of Independent Registered Public Accounting Firm
To the Board of Directors of Perkins & Marie Callender’s Inc.:
We have audited the accompanying consolidated balance sheets of Perkins & Marie Callender’s Inc. and subsidiaries (the “Company”) as of December 27, 2009 and December 28, 2008, and the related consolidated statements of operations, stockholder’s deficit, and cash flows for each of the three years in the period ended December 27, 2009. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Perkins & Marie Callender’s Inc. and subsidiaries as of December 27, 2009 and December 28, 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 3 to the consolidated financial statements, effective December 29, 2008, the Company changed its method of accounting for noncontrolling interests and retrospectively adjusted all years presented in the accompanying consolidated financial statements.
As discussed in Note 19 to the consolidated financial statements, the accompanying consolidated financial statements have been restated.
/s/ Deloitte & Touche LLP
Memphis, Tennessee
March 29, 2010 (June 7, 2010 as to the effects of the restatement discussed in Note 19 and as to subsequent events discussed in Note 20)
PERKINS & MARIE CALLENDER’S INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
December 27,
|
December 28,
|
December 30,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
REVENUES:
|
Restated | |||||||||||
Food sales
|
$ | 507,763 | 552,462 | 556,990 | ||||||||
Franchise and other revenue
|
28,305 | 29,508 | 30,896 | |||||||||
Total revenues
|
536,068 | 581,970 | 587,886 | |||||||||
COSTS AND EXPENSES:
|
||||||||||||
Cost of sales (excluding depreciation shown below):
|
||||||||||||
Food cost
|
131,765 | 161,103 | 158,708 | |||||||||
Labor and benefits
|
177,672 | 188,431 | 189,307 | |||||||||
Operating expenses
|
145,630 | 152,260 | 149,437 | |||||||||
General and administrative
|
46,153 | 47,829 | 44,874 | |||||||||
Transaction costs
|
- | - | 1,013 | |||||||||
Depreciation and amortization
|
24,041 | 24,699 | 24,822 | |||||||||
Interest, net
|
44,120 | 36,689 | 31,180 | |||||||||
Asset impairments and closed store expenses
|
5,997 | 1,797 | 2,463 | |||||||||
Goodwill impairment
|
- | 47,444 | - | |||||||||
Loss on extinguishments of debt
|
- | 2,952 | - | |||||||||
Other, net
|
(3,460 | ) | 446 | 228 | ||||||||
Total costs and expenses
|
571,918 | 663,650 | 602,032 | |||||||||
Loss before income taxes
|
(35,850 | ) | (81,680 | ) | (14,146 | ) | ||||||
Benefit from (provision for) income taxes
|
(171 | ) | 1,769 | (1,482 | ) | |||||||
Net loss
|
(36,021 | ) | (79,911 | ) | (15,628 | ) | ||||||
Less: net earnings attributable to
|
||||||||||||
non-controlling interests
|
198 | 284 | 707 | |||||||||
Net loss attributable to Perkins & Marie
|
||||||||||||
Callender's Inc.
|
$ | (36,219 | ) | (80,195 | ) | (16,335 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
PERKINS & MARIE CALLENDER’S INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except in par value)
December 27,
|
December 28,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
Restated | Restated | ||||||
CURRENT ASSETS:
|
||||||||
Cash and cash equivalents
|
$ | 4,288 | 4,613 | |||||
Restricted cash
|
8,110 | 10,140 | ||||||
Receivables, less allowances for doubtful accounts of $829
and $954 in 2009 and 2008, respectively
|
18,125 | 21,386 | ||||||
Inventories
|
11,062 | 12,300 | ||||||
Prepaid expenses and other current assets
|
1,864 | 2,996 | ||||||
Total current assets
|
43,449 | 51,435 | ||||||
PROPERTY AND EQUIPMENT, net of accumulated
depreciation and amortization of $156,898 and $150,056 in
2009 and 2008, respectively
|
75,219 | 93,500 | ||||||
INVESTMENT IN UNCONSOLIDATED PARTNERSHIP
|
50 | 48 | ||||||
GOODWILL
|
23,100 | 23,100 | ||||||
INTANGIBLE ASSETS, net of accumulated amortization of
$20,179 and $19,963 in 2009 and 2008, respectively
|
147,013 | 150,847 | ||||||
OTHER ASSETS
|
16,074 | 17,842 | ||||||
TOTAL ASSETS
|
$ | 304,905 | 336,772 | |||||
LIABILITIES AND DEFICIT
|
||||||||
CURRENT LIABILITIES:
|
||||||||
Accounts payable
|
14,657 | 18,295 | ||||||
Accrued expenses
|
41,605 | 47,040 | ||||||
Franchise advertising contributions
|
4,327 | 5,316 | ||||||
Current maturities of long-term debt and capital lease obligations
|
503 | 382 | ||||||
Total current liabilities
|
61,092 | 71,033 | ||||||
LONG-TERM DEBT, less current maturities
|
326,042 | 316,534 | ||||||
CAPITAL LEASE OBLIGATIONS, less current maturities
|
11,054 | 13,715 | ||||||
DEFERRED RENT
|
17,092 | 15,343 | ||||||
OTHER LIABILITIES
|
22,277 | 17,741 | ||||||
DEFERRED INCOME TAXES
|
45,457 | 45,457 | ||||||
DEFICIT:
|
||||||||
Common stock, $.01 par value; 100,000 shares authorized;
|
||||||||
10,820 issued and outstanding
|
1 | 1 | ||||||
Additional paid-in capital
|
150,870 | 149,851 | ||||||
Accumulated other comprehensive income (loss)
|
45 | (4 | ) | |||||
Accumulated deficit
|
(329,333 | ) | (293,114 | ) | ||||
Total PMCI stockholder's deficit
|
(178,417 | ) | (143,266 | ) | ||||
Noncontrolling interests
|
308 | 215 | ||||||
Total deficit
|
(178,109 | ) | (143,051 | ) | ||||
TOTAL LIABILITIES AND DEFICIT
|
$ | 304,905 | 336,772 |
The accompanying notes are an integral part of these consolidated financial statements.
PERKINS & MARIE CALLENDER’S INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
December 27,
|
December 28,
|
December 30,
|
||||||||||
2009
|
2008
|
2007
|
||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
Restated | |||||||||||
Net loss
|
$ | (36,021 | ) | (79,911 | ) | (15,628 | ) | |||||
Adjustments to reconcile net loss to net cash provided by (used in)
|
||||||||||||
operating activities:
|
||||||||||||
Depreciation and amortization
|
24,041 | 24,699 | 24,822 | |||||||||
Asset impairments
|
4,476 | 1,292 | 2,237 | |||||||||
Amortization of debt discount
|
1,540 | 647 | 324 | |||||||||
Other non-cash income and expense items
|
(2,475 | ) | (12 | ) | 333 | |||||||
Loss on disposition of assets
|
1,521 | 505 | 226 | |||||||||
Goodwill impairment
|
- | 47,444 | - | |||||||||
Loss on extinguishment of debt
|
- | 2,952 | - | |||||||||
Equity in net (income) loss of unconsolidated partnership
|
(2 | ) | 5 | 82 | ||||||||
Net changes in operating assets and liabilities
|
7,541 | (7,110 | ) | 3,083 | ||||||||
Total adjustments
|
36,642 | 70,422 | 31,107 | |||||||||
Net cash provided by (used in) operating activities
|
621 | (9,489 | ) | 15,479 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||
Purchases of property and equipment
|
(8,733 | ) | (18,336 | ) | (31,547 | ) | ||||||
Proceeds from sale of assets
|
494 | 687 | 21 | |||||||||
Net cash used in investing activities
|
(8,239 | ) | (17,649 | ) | (31,526 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||
Proceeds from revolving credit facilities
|
31,778 | 84,848 | 75,100 | |||||||||
Repayment of revolving credit facilities
|
(23,791 | ) | (101,664 | ) | (55,100 | ) | ||||||
Proceeds from Secured Notes, net of $7,537 discount
|
- | 124,463 | - | |||||||||
Repayment of Term Loan
|
- | (98,750 | ) | (750 | ) | |||||||
Repayment of capital lease obligations
|
(429 | ) | (413 | ) | (702 | ) | ||||||
Proceeds from (repayment of) other debt
|
(18 | ) | (18 | ) | 82 | |||||||
Debt financing costs
|
(142 | ) | (9,559 | ) | - | |||||||
Lessor financing of new restaurants
|
- | 2,286 | 6,107 | |||||||||
Distributions to non-controlling interest holders
|
(105 | ) | (402 | ) | (519 | ) | ||||||
Capital contributions
|
- | 12,500 | 1,792 | |||||||||
Repurchase of equity ownership units in P&MC's Holding LLC
|
- | (572 | ) | - | ||||||||
Net cash provided by financing activities
|
7,293 | 12,719 | 26,010 | |||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(325 | ) | (14,419 | ) | 9,963 | |||||||
CASH AND CASH EQUIVALENTS:
|
||||||||||||
Balance, beginning of period
|
4,613 | 19,032 | 9,069 | |||||||||
Balance, end of period
|
$ | 4,288 | 4,613 | 19,032 |
The accompanying notes are an integral part of these consolidated financial statements.
PERKINS & MARIE CALLENDER’S INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER’S DEFICIT
(In thousands)
Accumulated
|
||||||||||||||||||||||||||||
Additional
|
Other
|
Total PMCI
|
||||||||||||||||||||||||||
Common
|
Paid-in
|
Accumulated
|
Comprehensive
|
Stockholder's
|
Noncontrolling
|
Total
|
||||||||||||||||||||||
Stock
|
Capital
|
Deficit
|
Income (Loss)
|
Deficit
|
Interests
|
Deficit
|
||||||||||||||||||||||
Balance, January 1, 2007, as reported
|
$ | 1 | 136,131 | (191,816 | ) | 13 | (55,671 | ) | 75 | (55,596 | ) | |||||||||||||||||
Adjustments | - | - | (4,951 | ) | - | (4,951 | ) | - | (4,951 | ) | ||||||||||||||||||
Balance, January 1, 2007, restated
|
1 | 136,131 | (196,767 | ) | 13 | (60,622 | ) | 75 | (60,547 | ) | ||||||||||||||||||
Cumulative adjustment upon adoption of
FIN 48
|
- | - | 183 | - | 183 | - | 183 | |||||||||||||||||||||
Capital contribution
|
- | 1,792 | - | - | 1,792 | - | 1,792 | |||||||||||||||||||||
Distributions to non-controlling interest holders
|
- | - | - | - | - | (519 | ) | (519 | ) | |||||||||||||||||||
Consolidation of previously unconsolidated limited partnership
|
- | - | - | - | - | 70 | 70 | |||||||||||||||||||||
Net (loss) earnings
|
- | - | (16,335 | ) | - | (16,335 | ) | 707 | (15,628 | ) | ||||||||||||||||||
Currency translation adjustment
|
- | - | - | 73 | 73 | - | 73 | |||||||||||||||||||||
Total comprehensive loss
|
(15,555 | ) | ||||||||||||||||||||||||||
Balance, December 30, 2007, restated
|
1 | 137,923 | (212,919 | ) | 86 | (74,909 | ) | 333 | (74,576 | ) | ||||||||||||||||||
Capital contribution
|
- | 12,500 | - | - | 12,500 | - | 12,500 | |||||||||||||||||||||
Distribution of equity ownership units in P&MC's Holding LLC
|
- | (572 | ) | - | - | (572 | ) | - | (572 | ) | ||||||||||||||||||
Distributions to non-controlling interest holders
|
- | - | - | - | - | (402 | ) | (402 | ) | |||||||||||||||||||
Net (loss) earnings, restated
|
- | - | (80,195 | ) | - | (80,195 | ) | 284 | (79,911 | ) | ||||||||||||||||||
Currency translation adjustment
|
- | - | - | (90 | ) | (90 | ) | - | (90 | ) | ||||||||||||||||||
Total comprehensive loss
|
(80,001 | ) | ||||||||||||||||||||||||||
Balance, December 28, 2008, restated
|
1 | 149,851 | (293,114 | ) | (4 | ) | (143,266 | ) | 215 | (143,051 | ) | |||||||||||||||||
Lease termination by related party
(non-cash)
|
- | 1,019 | - | - | 1,019 | - | 1,019 | |||||||||||||||||||||
Distributions to non-controlling interest holders
|
- | - | - | - | - | (105 | ) | (105 | ) | |||||||||||||||||||
Net (loss) earnings
|
- | - | (36,219 | ) | - | (36,219 | ) | 198 | (36,021 | ) | ||||||||||||||||||
Currency translation adjustment
|
- | - | - | 49 | 49 | - | 49 | |||||||||||||||||||||
Total comprehensive loss
|
(35,972 | ) | ||||||||||||||||||||||||||
Balance, December 27, 2009, restated
|
$ | 1 | 150,870 | (329,333 | ) | 45 | (178,417 | ) | 308 | (178,109 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
PERKINS & MARIE CALLENDER’S INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION:
Organization
Perkins & Marie Callender’s Inc. (together with its consolidated subsidiaries collectively the “Company”, “PMCI”, “we” or “us”), is a wholly-owned subsidiary of:
·
|
Perkins & Marie Callender’s Holding Inc., which is a wholly-owned subsidiary of
|
·
|
P&MC’s Holding Corp, which is a wholly-owned subsidiary of
|
·
|
P&MC’s Real Estate Holding LLC, which is a wholly-owned subsidiary of
|
·
|
P&MC’s Holding LLC, which is principally owned by affiliates of Castle Harlan, Inc. (“Castle Harlan”).
|
The Company is the sole equity holder of Wilshire Restaurant Group, LLC (“WRG”), which owns 100% of the outstanding common stock of Marie Callender Pie Shops, Inc. (“MCPSI”). MCPSI owns and operates restaurants and has granted franchises under the names Marie Callender’s and Marie Callender’s Grill. MCPSI also owns 100% of the outstanding common stock of M.C. Wholesalers, Inc., which operates a commissary that produces bakery goods. MCPSI also owns 100% of the outstanding common stock of FIV Corp., which owns and operates one restaurant under the name East Side Mario’s.
The Company operates two restaurant concepts: (1) full-service family-dining restaurants located primarily in the Midwest, Florida and Pennsylvania under the name Perkins Restaurant and Bakery (“Perkins”) and (2) mid-priced casual-dining restaurants, specializing in the sale of pies and other bakery items, located primarily in the western United States under the name Marie Callender’s Restaurant and Bakery (“Marie Callender’s”).
Through our bakery goods manufacturing segment (“Foxtail”), we also offer pies, muffin batters, cookie doughs, pancake mixes, and other food products for sale to our Perkins and Marie Callender’s Company-operated and franchised restaurants and to unaffiliated customers, such as food service distributors.
Accounting Reporting Period
Our financial reporting is based on thirteen four-week periods ending on the last Sunday in December. The first quarter each year includes four four-week periods and, typically, the second, third and fourth quarters include three four-week periods. The first, second, third and fourth quarters of 2009 ended April 19, July 12, October 4 and December 27, respectively. The first, second, third and fourth quarters of 2008 ended April 20, July 13, October 5 and December 28, respectively. The first, second, third and fourth quarters of 2007 ended April 22, July 15, October 7 and December 30, respectively. All material intercompany transactions have been eliminated in consolidation.
(2) OPERATIONS, FINANCIAL POSITION AND LIQUIDITY:
At December 27, 2009, we had a negative working capital balance of $17,643,000 and a total PMCI stockholder’s deficit of $178,417,000. We also had $4,288,000 in unrestricted cash and cash equivalents and $4,605,000 of borrowing capacity under our revolving credit facility.
Our principal sources of liquidity include unrestricted cash, available borrowings under our revolving credit facility and cash generated by operations. We have also periodically received capital contributions from our parent company, including a $12,500,000 capital contribution received in 2008, and have engaged in capital markets transactions.
We have experienced declines in comparable restaurant sales and declining profits in our restaurants in both 2009 and 2008. The ongoing turmoil in the economy, the high unemployment levels, the continuing decreases in residential real estate values, especially in some of our larger markets, the level of home foreclosures, the decrease in investment values and the spread of the H1N1 influenza virus has adversely affected our guest counts and, in turn, our operating results and cash flows from operations. The Company expects to incur a net loss for the full year 2010. In order to improve the cash flows in our business, we have introduced a new breakfast program at our Marie Callender’s restaurants, improved systems to more effectively manage our food and labor costs, upgraded our management staff and certain equipment in our Foxtail division to drive higher operating efficiencies and reduced overall planned capital expenditures for 2010. We continually review general and administrative expenditures to identify and implement cost-saving measures. Management expects these initiatives together with the Company’s cash provided by operations and borrowing capacity under the Revolver will provide sufficient liquidity through 2010. However, there can be no assurance as to whether these or other actions will enable us to generate sufficient cash flow to fund our operations and service our debt.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In many cases, there are alternative policies or estimation techniques that could be used. We maintain a process for reviewing the application of our accounting policies and for evaluating the appropriateness of the estimates that are required to prepare the financial statements of our Company. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.
Revenue Recognition
Revenue at our restaurants is recognized when customers pay for products at the time of sale. This revenue reporting process is covered by our system of internal controls and generally does not require significant management judgments and estimates. However, estimates are inherent in the calculation of franchisee royalty revenue. We calculate an estimate of royalty income each period and adjust royalty income when actual amounts are reported by franchisees. A $1,000,000 change in estimated franchise sales would impact royalty revenue by $40,000 to $50,000. Historically, these adjustments have not been material.
Sales Taxes
Sales taxes collected from customers are excluded from revenues. The obligation is included in accrued expenses until the taxes are remitted to the appropriate taxing authorities.
Advertising
We recognize advertising expense in the operating expenses of the restaurant segment. Those advertising costs are expensed as incurred. Advertising expense was approximately $26,712,000, $24,016,000 and $21,130,000 for 2009, 2008 and 2007, respectively.
Leases
Future commitments for operating leases are not reflected as a liability on our Consolidated Balance Sheets. The determination of whether a lease is accounted for as a capital lease or as an operating lease requires management to make estimates primarily about the fair value of the asset, its estimated economic useful life and the incremental borrowing rate.
Rent expense for the Company’s operating leases, many of which have escalating rental amounts due over the term of the lease, is recorded on a straight-line basis over the lease term. The lease term begins when the Company has the right to control the use of the leased property, which may occur before rent payments are due under the terms of the lease. The difference between rent expense and rent paid is recorded as deferred rent on our Consolidated Balance Sheets.
Preopening Costs
We expense the costs of start-up activities as incurred.
Transaction Costs
The Company has classified certain expenses incurred in fiscal 2007 as transaction costs on the Consolidated Statements of Operations. Transaction costs include expenses directly attributable to the Company’s acquisition in September 2005 and the combination with WRG in May 2006 and certain non-recurring expenses incurred as a result of these transactions. Transaction costs were $1,013,000 in 2007. There were no transaction costs for 2009 or 2008.
Cash Equivalents
We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.
Perkins Marketing Fund and Gift Cards
The Company maintains a marketing fund (the “Marketing Fund”) to pool the resources of the Company and its franchisees for advertising purposes and to promote the Perkins brand in accordance with the system’s advertising policy and its franchise agreements. The Company has classified approximately $4,786,000 and $6,912,000 as of December 27, 2009 and December 28, 2008, respectively, as restricted cash on its Consolidated Balance Sheets related to the Marketing Fund. These amounts represent funds contributed by franchisees specifically for the purpose of advertising. The Company has also recorded liabilities of approximately $4,327,000 and $5,316,000 as of December 27, 2009 and December 28, 2008, respectively, which are included in franchise advertising contributions on the accompanying Consolidated Balance Sheets and represent franchisee contributions for advertising services not yet provided.
The Company issues gift cards and, prior to March 2005, also issued gift certificates (collectively, “gift cards”), both of which contain no expiration dates or inactivity fees. The Company recognizes revenue from gift cards when they are redeemed by the customer. The Company recognizes income from unredeemed gift cards (“gift card breakage”) when there is sufficient historical data to support an estimate, the likelihood of redemption is remote and there is no legal obligation to remit the unredeemed gift card balances to the state tax authorities under applicable escheat regulations. Gift card breakage is determined based on historical redemption patterns and included in other, net in the Consolidated Statements of Operations. Management concluded in the first quarter of 2009 that it had sufficient evidence to estimate the gift card breakage rate on Perkins gift cards and recorded $865,000 of gift card breakage. Management concluded in the second fiscal quarter of 2009 that it had sufficient evidence to estimate the gift card breakage rate on Marie Callender’s gift cards and recorded $1,576,000 of gift card breakage. These initial recognitions of breakage income in the first and second quarters of 2009 include amounts related to gift cards sold since the inception of our gift card programs in 2005. For the fiscal year ended December 27, 2009, we recorded $2,811,000 of breakage income of which we consider $2,195,000 to be a non-recurring cumulative adjustment. As of December 27, 2009 and December 28, 2008, the Company had approximately $3,324,000 and $3,228,000, respectively, of net gift card proceeds received from Perkins’ franchisees, which, although not legally restricted, is reflected as restricted cash and accrued expenses on its Consolidated Balance Sheets.
Concentration of Credit Risk
Financial instruments, which potentially expose us to concentrations of credit risk, consist principally of franchisee and Foxtail accounts receivable. We perform ongoing credit evaluations of our franchisees and Foxtail customers and generally require no collateral to secure accounts receivable. The credit review is based on both financial and non-financial factors. Based on this review, we maintain reserves for estimated losses for accounts receivable that are not likely to be collected. Although we maintain good relationships with our franchisees, if average sales or the financial health of significant franchises were to deteriorate, we might have to increase our reserves against collection of franchise receivables.
Additional financial instruments that potentially subject us to a concentration of credit risk are cash and cash equivalents. At times, cash balances may be in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not experienced any losses with respect to bank balances in excess of government provided insurance.
Long Lived Assets
Major renewals and betterments are capitalized; replacements and maintenance and repairs that do not extend the lives of the assets are charged to operations as incurred. Upon disposition, both the asset and the accumulated depreciation amounts are relieved, and the related gain or loss is credited or charged to the statement of operations. Depreciation and amortization is computed primarily using the straight-line method over the estimated useful lives unless the assets relate to leased property, in which case, the amortization period is the lesser of the useful lives or the lease terms. A summary of the useful lives is as follows:
Years
|
||||
Land improvements
|
3 — 20 | |||
Buildings
|
20 — 30 | |||
Leasehold improvements
|
3 — 20 | |||
Equipment
|
1 — 7 |
The depreciation of our capital assets over their estimated useful lives (or in the case of leasehold improvements, the lesser of their estimated useful lives or lease term) and the determination of any salvage values require management to make judgments about future events. Because we utilize many of our capital assets over relatively long periods, we periodically evaluate whether adjustments to our estimated lives or salvage values are necessary. The accuracy of these estimates affects the amount of depreciation expense recognized in a period and, ultimately, the gain or loss on the disposal of the asset. Historically, gains and losses on the disposition of assets have not been significant. However, such amounts may differ materially in the future based on restaurant performance, technological obsolescence, regulatory requirements and other factors beyond our control.
Due to the significant funds required for the construction or acquisition of new restaurants, we have risks that these assets will not provide an acceptable return on our investment and an impairment of these assets may occur. Our assets are typically grouped at the restaurant level for such purposes. The accounting test for whether an asset group held for use is impaired involves first comparing the carrying value of the asset group with its estimated future undiscounted cash flows. If these cash flows do not exceed the carrying value, the asset group must be adjusted to its current fair value. We perform this test on each of our long lived assets periodically as indicators arise to evaluate whether impairment exists. Factors influencing our judgment include the age of the assets, estimation of future cash flows from long lived assets, lease renewals and estimation of fair value. Asset fair value is generally determined using discounted cash flow models, including residual proceeds and other factors that may impact the ultimate return of our investment in the long lived assets.
Goodwill and Intangible Assets
As of December 27, 2009 and December 28, 2008, we had approximately $170,113,000 and $173,947,000, respectively, of goodwill and intangible assets on our Consolidated Balance Sheets. We assess our goodwill and non-amortizing intangible assets for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. Our annual evaluation, performed as of year-end, or on an interim basis when circumstances warrant, requires the use of estimates about the future cash flows associated with each of our reporting units and non-amortizing intangibles to determine their estimated fair values. Fair values of the goodwill reporting units are calculated using discounted future cash flows and market-based comparative values. We estimate the fair values of our non-amortizing intangible assets, principally trade names, using a relief from royalty cash flow method. Changes in forecasted operations and changes in discount rates can materially affect these estimates. However, once an impairment of goodwill or intangible assets has been recorded, it cannot be reversed.
In 2009, the Company recorded a non-cash charge of $1,496,000 to dispose of a customer relationship intangible asset resulting from the termination of a customer contract at Foxtail. As of December 27, 2009, we conducted our annual impairment test of goodwill and non-amortizing intangible assets and determined that no impairment charge was required. Due to the decrease in the Company’s operating results during 2008 compared to 2007 and the decline in general economic conditions impacting the restaurant industry, management conducted an interim goodwill and non-amortizing intangible asset impairment evaluation during the quarter ended October 5, 2008. Because the carrying values of the reporting units in both the franchise and Foxtail reporting units exceeded their respective estimated fair values, the Company completed step two of the goodwill test and concluded that the goodwill of both reporting units was fully impaired as of October 5, 2008. Accordingly, the Company recorded a non-cash goodwill impairment charge of $47,444,000 in the quarter ended October 5, 2008. This amount represents the cumulative impairment of goodwill recorded by the Company. See Note 7 of the Notes to our Consolidated Financial Statements included in this Amendment.
Deferred Income Taxes and Income Tax Uncertainties
We record income tax liabilities utilizing known obligations and estimates of potential obligations. A deferred tax asset or liability is recognized whenever there are future tax effects from existing temporary differences and operating loss and tax credit carry forwards. We record a valuation allowance to reduce deferred tax assets to the balance that is more likely than not to be realized. In evaluating the need for a valuation allowance, we must make judgments and estimates related to future taxable income and feasible tax planning strategies and consider existing facts and circumstances. When we determine that deferred tax assets could be realized in greater or lesser amounts than recorded, the assets’ recorded amount is adjusted and the income statement is either credited or charged, respectively, in the period during which the determination is made. We believe that the valuation allowance recorded at December 27, 2009 is adequate for the circumstances. However, subsequent changes in facts and circumstances that affect our judgments or estimates in determining the proper deferred tax assets or liabilities could materially affect the recorded balances.
The Company’s accounting for uncertainty in income taxes prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
Insurance Reserves
We are self-insured up to certain limits for costs associated with workers’ compensation claims, general liability claims, property claims and benefits paid under employee health care programs. At December 27, 2009 and December 28, 2008, we had total self-insurance accruals reflected in our Consolidated Balance Sheets of approximately $9,697,000 and $8,803,000, respectively. The measurement of these costs required the consideration of historical loss experience and judgments about the present and expected levels of cost per claim. We account for the workers’ compensation costs primarily through actuarial methods, which develop estimates of the discounted liability for claims incurred, including those claims incurred but not reported. These methods provide estimates of future ultimate claim costs based on claims incurred as of the balance sheet dates. We account for benefits paid under employee health care programs using historical claims information as the basis for estimating expenses incurred as of the balance sheet dates. We believe the use of these methods to account for these liabilities provides a consistent and effective way to measure these highly judgmental accruals. However, the use of any estimation technique in this area is inherently sensitive given the magnitude of claims involved and the length of time until the ultimate cost is known. We believe that our recorded obligations for these expenses are consistently measured on an appropriate basis. Nevertheless, changes in health care costs, accident frequency and severity and other factors, including discount rates, can materially affect estimates for these liabilities.
Recent Accounting Pronouncements
FASB Accounting Standards Codification
(Accounting Standards Update (“ASU”) 2009-01)
In June 2009, the Financial Accounting Standards Board (“FASB”) approved the FASB Accounting Standards Codification (the “Codification”) as the single source of authoritative nongovernmental generally accepted accounting principles (“GAAP”). All existing accounting standard documents, such as FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the Securities and Exchange Commission (“SEC”), have been superseded by the Codification. All other non-grandfathered, non-SEC accounting literature not included in the Codification has become nonauthoritative. The Codification did not change GAAP, but instead introduced a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for interim or annual periods ending after September 15, 2009, and impacts the Company’s financial statements as all future references to authoritative accounting literature will be referenced in accordance with the Codification. There have been no changes to the content of the Company’s financial statements or disclosures as a result of implementing the Codification during the year ended December 27, 2009.
The following are recent accounting standards adopted or issued that have had or could have an impact on our Company’s consolidated financial statements:
Subsequent Events
(Included in ASC 855 “Subsequent Events”)
In May 2009, the FASB issued ASC 855, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective prospectively for interim and annual periods ending after June 15, 2009.
In February 2010, the FASB issued ASU 2010-09, which amends ASC 855 to address certain implementation issues related to performing and disclosing subsequent events procedures. The Company included the requirements of this guidance in the preparation of the accompanying financial statements.
Determination of the Useful Life of Intangible Assets
(Included in ASC 350 “Intangibles — Goodwill and Other”)
In April 2008, the FASB issued new guidance under ASC 350, “Intangibles – Goodwill and Other,” which amends the factors that should be considered in developing renewal or extension assumptions used in determining the useful life of a recognized intangible asset. This guidance was effective for financial statements issued for fiscal years (and interim periods) beginning after December 15, 2008 (fiscal year 2009). The application of the requirements of this guidance did not have a material effect on the accompanying consolidated financial statements.
Business Combinations
(Included in ASC 805 “Business Combinations”)
In December 2007, the FASB issued new guidance under ASC 805, “Business Combinations,” which establishes principles and requirements for how an acquiring entity in a business combination recognizes and measures the assets acquired and liabilities assumed in the transaction; establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed; and requires the acquirer to disclose to investors and other users all of the information needed to evaluate and understand the nature and financial effect of the business combination. This guidance was effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008 (fiscal year 2009). The Company applied the requirements of this guidance in the preparation of the accompanying consolidated financial statements.
Fair Value Measurement
(Included in ASC 820 “Fair Value Measurements and Disclosures”)
In September 2006, the FASB issued guidance under ASC 820, “Fair Value Measurements and Disclosures,” which provides a single definition of fair value, together with a framework for measuring it, and requires additional disclosure about the use of fair value to measure assets and liabilities. It also emphasizes that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest level being quoted prices in active markets.
In February 2008, the FASB issued new guidance under ASC 820 which delayed the effective date for fair value measurement and disclosure for all nonrecurring fair value measurements of nonfinancial assets and liabilities until fiscal years beginning after November 15, 2008 (fiscal year 2009).
In October 2008, the FASB issued new guidance under ASC 820 which clarifies the application of fair value measurement and disclosure in cases where the market for the asset is not active. This guidance was effective upon issuance. The application of the requirements of this guidance did not have a material effect on the accompanying consolidated financial statements.
In April 2009, the FASB issued additional guidance under ASC 820 which provides guidance on estimating the fair value of an asset or liability (financial or nonfinancial) when the volume and level of activity for the asset or liability have significantly decreased, and on identifying transactions that are not orderly. The application of the requirements of this guidance did not have a material effect on the accompanying consolidated financial statements.
In August 2009, the FASB issued ASU 2009-05, “Measuring Liabilities at Fair Value,” which further amends ASC 820 by providing clarification for circumstances in which a quoted price in an active market for the identical liability is not available. The application of the requirements of this guidance did not have a material effect on the accompanying consolidated financial statements.
Noncontrolling Interests in Consolidated Financial Statements
(Included in ASC 810 “Consolidation”)
In December 2007, the FASB issued guidance under ASC 810, “Consolidation,” that clarifies that a noncontrolling (minority) interest in a subsidiary is an ownership interest in the entity that should be reported as equity in the consolidated financial statements. The guidance also requires consolidated net income to include the amounts attributable to both the parent and noncontrolling interest, with disclosure on the face of the consolidated statement of operations of the amounts attributable to the parent and to the noncontrolling interest. The Company has retrospectively applied the provisions of this guidance in the preparation of the accompanying consolidated statements.
The effects of the retrospective application of this guidance were as follows:
·
|
Noncontrolling interests of $215,000 as of December 28, 2008 were reclassified and are now included in total deficit in the accompanying Consolidated Balance Sheets.
|
·
|
Net earnings attributable to noncontrolling interests of $284,000 and $707,000 for the years ended December 28, 2008 and December 30, 2007, respectively, are presented separately after net loss in the accompanying consolidated statements of operations.
|
In January 2010, the FASB issued ASU 2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary,” which clarifies the scope of the guidance for the decrease in ownership of a subsidiary in ASC 810, “Consolidations,” and expands the disclosures required for the deconsolidation of a subsidiary or derecognition of a group of assets. This guidance was effective on January 1, 2009. The application of the requirements of this guidance had no effect on accompanying consolidated financial statements.
(4) SUPPLEMENTAL CASH FLOW INFORMATION:
The change in cash and cash equivalents due to changes in operating assets and liabilities for the past three years consisted of the following (in thousands):
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
|
December 27,
2009
|
December 28, 2008
|
December 30, 2007
|
|||||||||
(Increase) decrease in:
|
||||||||||||
Restricted cash
|
$ | 2,100 | ─ | ─ | ||||||||
Receivables
|
3,423 | (3,726 | ) | 1,470 | ||||||||
Inventories
|
1,238 | 939 | (2,218 | ) | ||||||||
Prepaid expenses and other current assets
|
1,133 | 2,736 | (904 | ) | ||||||||
Other assets
|
1,911 | 3,594 | (467 | ) | ||||||||
Increase (decrease) in:
|
||||||||||||
Accounts payable
|
(3,636 | ) | (7,327 | ) | 2,642 | |||||||
Accrued expenses
|
(4,579 | ) | (7,422 | ) | (2,516 | ) | ||||||
Other liabilities
|
5,951 | 4,096 | 5,076 | |||||||||
$ | 7,541 | (7,110 | ) | 3,083 |
Other supplemental cash flow information for the past three years consisted of the following (in thousands):
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
December 27,
|
December 28,
|
December 30,
|
||||||||||
|
2009
|
2008
|
2007
|
|||||||||
Cash paid for interest
|
$ | 43,531 | 30,279 | 29,186 | ||||||||
Income taxes paid
|
153 | 681 | 1,044 | |||||||||
Income tax refunds received
|
1,241 | 577 | 954 | |||||||||
(5) PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following (in thousands):
|
December 27, 2009
|
December 28, 2008
|
||||||
Owned:
|
||||||||
Land and land improvements
|
$ | 3,310 | 3,344 | |||||
Buildings
|
7,372 | 8,542 | ||||||
Leasehold improvements
|
89,534 | 90,668 | ||||||
Equipment
|
123,269 | 128,745 | ||||||
Construction in progress
|
1,147 | 1,690 | ||||||
224,632 | 232,989 | |||||||
Less — accumulated depreciation and amortization
|
(152,035 | ) | (144,985 | ) | ||||
72,597 | 88,004 | |||||||
Property under capital lease:
|
||||||||
Leasehold improvements
|
7,485 | 9,521 | ||||||
Less — accumulated amortization
|
(4,863 | ) | (5,071 | ) | ||||
2,622 | 4,450 | |||||||
Assets held for sale
|
- | 1,046 | ||||||
Property and equipment, net
|
$ | 75,219 | 93,500 |
Depreciation expense for property & equipment was approximately $21,703,000, $22,230,000 and $21,346,000 for the years ended December 27,2009, December 28, 2008 and December 30, 2007, respectively.
(6) LEASES:
The majority of our Perkins restaurant leases have an initial term of 20 years and the majority of our Marie Callender’s restaurant leases have an initial term of 15 years. Both Perkins and Marie Callender’s leases generally provide for two to four renewal periods of five years each. Contingent rents are generally amounts due as a result of sales in excess of amounts stipulated in certain restaurant leases and are included in rent expense as they are incurred. Landlord incentives are recorded when received as a deferred rent liability and amortized as a reduction of rent expense on a straight-line basis over the remaining term of the lease.
Future minimum payments related to non-cancelable leases that have initial or remaining lease terms in excess of one year as of December 27, 2009 were as follows (in thousands):
|
Lease Obligations
|
|||||||
|
Capital
|
Operating
|
||||||
2010
|
$ | 1,581 | 36,631 | |||||
2011
|
1,406 | 34,266 | ||||||
2012
|
1,374 | 32,578 | ||||||
2013
|
1,381 | 29,919 | ||||||
2014
|
1,403 | 27,308 | ||||||
Thereafter
|
16,178 | 229,667 | ||||||
Total minimum lease payments
|
23,323 | $ | 390,369 | |||||
Less:
|
||||||||
Amounts representing interest (at 3.3% to 18.2%)
|
(11,781 | ) | ||||||
Capital lease obligations
|
$ | 11,542 |
Future minimum gross rental receipts from subleases and other arrangements as of December 27, 2009, were as follows (in thousands):
|
Lessor
|
Sublessor
|
||||||
2010
|
$ | 152 | 694 | |||||
2011
|
115 | 564 | ||||||
2012
|
77 | 475 | ||||||
2013
|
77 | 362 | ||||||
2014
|
19 | 235 | ||||||
Thereafter
|
- | 827 | ||||||
Total expected minimum lease rental receipts
|
$ | 440 | 3,157 |
The net rental expense included in the accompanying Consolidated Statements of Operations for operating leases was as follows (in thousands):
|
Year Ended
December 27, 2009
|
Year Ended
December 28, 2008
|
Year Ended
December 30, 2007
|
|||||||||
Minimum rentals
|
$ | 38,694 | 38,365 | 41,269 | ||||||||
Contingent rentals
|
606 | 930 | 1,566 | |||||||||
Less — sublease rentals
|
(654 | ) | (616 | ) | (715 | ) | ||||||
$ | 38,646 | 38,679 | 42,120 |
Sublease rentals are included in “Other, net” in the accompanying Consolidated Statements of Operations.
(7) GOODWILL AND INTANGIBLE ASSETS:
Goodwill
Due to the decrease in the Company’s operating results during 2008 compared to 2007 and the decline in general economic conditions impacting the restaurant industry, management conducted an interim goodwill impairment evaluation during the quarter ended October 5, 2008. Fair values of the reporting units were calculated using discounted future cash flows and market-based comparative values. Because the carrying values of the reporting units for both the franchise and Foxtail reporting units exceeded their respective estimated fair values, the Company completed step two of the goodwill test and concluded that the goodwill of those reporting units was impaired as of October 5, 2008. Accordingly, in the quarter ended October 5, 2008, the Company recorded a non-cash goodwill impairment charge of $47,444,000, of which $43,537,000 was charged to the franchise segment and $3,907,000 was charged to the Foxtail segment. No impairment charge was required for the goodwill associated with the restaurant reporting unit or the Company’s non-amortizing intangibles. In 2009, the Company recorded a non-cash charge of $1,496,000 to dispose of a customer relationship intangible asset resulting from the termination of a customer contract at Foxtail. As of December 27, 2009, we conducted our annual impairment test of goodwill and non-amortizing intangible assets and determined that no additional impairment charge was required.
The following schedule presents the carrying amount of goodwill attributable to each reportable operating segment and changes therein (in thousands):
|
Restaurant
Operations
|
Franchise
Operations
|
Foxtail
|
Total
Company
|
||||||||||||
Restated | Restated | Restated | Restated | |||||||||||||
Balance as of December 30, 2007
|
$ | 23,100 | 43,537 | 3,907 | 70,544 | |||||||||||
Goodwill impairment charge
|
— | (43,537 | ) | (3,907 | ) | (47,444 | ) | |||||||||
Balance as of December 28, 2008
|
23,100 | — | — | 23,100 | ||||||||||||
Adjustments
|
— | — | — | — | ||||||||||||
Balance as of December 27, 2009
|
$ | 23,100 | ─ | ─ | 23,100 |
Intangible Assets
The components of our identifiable intangible assets are as follows (in thousands):
|
December 27, 2009
|
December 28, 2008
|
||||||
Amortizing intangible assets:
|
||||||||
Franchise agreements
|
$ | 35,000 | 35,000 | |||||
Customer relationships
|
10,000 | 13,300 | ||||||
Acquired franchise rights
|
10,758 | 11,076 | ||||||
Design prototype
|
834 | 834 | ||||||
Subtotal
|
56,592 | 60,210 | ||||||
Less — accumulated amortization
|
(20,179 | ) | (19,963 | ) | ||||
Net amortizing intangible assets
|
36,413 | 40,247 | ||||||
Non-amortizing intangible asset:
|
||||||||
Trade names
|
110,600 | 110,600 | ||||||
Total intangible assets
|
$ | 147,013 | 150,847 |
Amortization expense for intangible assets was approximately $2,338,000, $2,469,000 and $3,476,000 for fiscal years 2009, 2008 and 2007, respectively. Estimated amortization expense of such intangible assets for the five succeeding fiscal years is as follows (in thousands):
|
Estimated Amortization Expense
|
|||
2010
|
$ | 2,056 | ||
2011
|
2,016 | |||
2012
|
1,962 | |||
2013
|
1,849 | |||
2014
|
1,820 |
(8) ACCRUED EXPENSES:
Accrued expenses consisted of the following (in thousands):
|
December 27, 2009
|
December 28, 2008
|
||||||
Payroll and related benefits
|
$ | 15,423 | 15,017 | |||||
Property, real estate and sales taxes
|
4,267 | 4,118 | ||||||
Insurance
|
2,219 | 1,874 | ||||||
Gift cards and gift certificates
|
5,090 | 7,446 | ||||||
Advertising
|
792 | 978 | ||||||
Interest
|
6,065 | 9,634 | ||||||
Other
|
7,749 | 7,973 | ||||||
$ | 41,605 | 47,040 |
(9) LONG-TERM DEBT:
Long-term debt consisted of the following (in thousands):
|
December 27, 2009
|
December 28, 2008
|
||||||
10% Senior Notes, due October 1, 2013, net of discount of $1,219 and $1,548, respectively
|
$ | 188,781 | 188,452 | |||||
Secured Notes, due May 31, 2013, net of discount of $6,010 and $7,220, respectively
|
125,990 | 124,780 | ||||||
Revolver, due February 28, 2013
|
11,171 | 3,184 | ||||||
Promissory Note, due January 2011
|
100 | 100 | ||||||
Other
|
15 | 33 | ||||||
326,057 | 316,549 | |||||||
Less current maturities
|
(15 | ) | (15 | ) | ||||
$ | 326,042 | 316,534 |
Refinancing Transaction
On September 24, 2008, the Company issued $132,000,000 of 14% senior secured notes (the "Secured Notes") and entered into a $26,000,000 revolving credit facility (the “Revolver”) in connection with the refinancing of its then existing $100,000,000 term loan and $40,000,000 revolver. In connection with this transaction, we recognized a loss of $2,952,000, representing the write-off of previously deferred financing costs related to the terminated credit agreements.
Secured Notes
The Secured Notes were issued at a discount of $7,537,200, which is being accreted using the interest method over the term of the Secured Notes. The Secured Notes mature on May 31, 2013, and interest is payable semi-annually on May 31 and November 30 of each year.
The Secured Notes are fully and unconditionally guaranteed (the "Secured Notes Guarantees") on a senior secured basis by the Company's parent, Perkins & Marie Callender's Holding Inc., and each of the Company's existing and future domestic wholly-owned subsidiaries (the “Secured Notes Guarantors”). The Secured Notes and the Secured Notes Guarantees are the Company’s and the Secured Notes Guarantors’ senior secured obligations and rank equal in right of payment to all of the Company’s and the Senior Notes Guarantors’ existing and future senior indebtedness. The Secured Notes and the Secured Notes Guarantees are secured by a lien on substantially all of the Company’s and the Secured Notes Guarantors’ existing and future assets, subject to certain exceptions. Pursuant to the terms of an intercreditor agreement, the foregoing liens are contractually subordinated to the liens that secure the Revolver.
Prior to May 31, 2011, the Company may redeem up to 35% of the aggregate principal amount of the Secured Notes with the net cash proceeds of certain equity offerings at a premium specified in the indenture pertaining to the Secured Notes (the “Secured Notes Indenture”). Prior to May 31, 2011, the Company also may redeem all or part of the Secured Notes at a “make whole” premium specified in the Secured Notes Indenture. On or after May 31, 2011, the Company may redeem the Secured Notes at a 7% premium that decreases to a 0% premium on May 31, 2012. If the Company experiences a change of control, the holders have the right to require the Company to repurchase its Secured Notes at 101% of the principal amount. If the Company sells assets and does not use the net proceeds for specified purposes, it may be required to use the net proceeds to offer to repurchase the Secured Notes at 100% of the Notes’ principal amount. Any redemption or repurchase also requires the payment of any accrued and unpaid interest through the redemption or repurchase date.
10% Senior Notes
In September 2005, the Company issued $190,000,000 of unsecured 10% Senior Notes (the “10% Senior Notes”). The 10% Senior Notes were issued at a discount of $2,570,700, which is being accreted using the interest method over the term of the 10% Senior Notes. The 10% Senior Notes mature on October 1, 2013, and interest is payable semi-annually on April 1 and October 1 of each year. All consolidated subsidiaries of the Company that are 100% owned provide joint and several, full and unconditional guarantee of the 10% Senior Notes. There are no significant restrictions on the Company’s ability to obtain funds from any of the guarantor subsidiaries in the form of a dividend or a loan. Additionally, there are no significant restrictions on a guarantor subsidiary’s ability to obtain funds from the Company or its direct or indirect subsidiaries.
The Company may redeem the 10% Senior Notes at a 5% premium that steps down to a 2.5% premium on October 1, 2010 and a 0% premium on October 1, 2011 (and thereafter). If the Company experiences a change of control, the holders have the right to require the Company to repurchase its 10% Senior Notes at 101% of the principal amount. If the Company sells assets and does not use the net proceeds for specified purposes, it may be required to use the net proceeds to offer to repurchase the 10% Senior Notes and certain other existing pari-passu indebtedness of the Company at 100% of the principal amount thereof. Any redemption or repurchase also requires the payment of any accrued and unpaid interest through the redemption or repurchase date.
With respect to the 10% Senior Notes, the Company has certain covenants that restrict our ability to pay dividends or distributions to our equity holders (“Restricted Payments”). If no default or event of default exists or occurs as a result of such Restricted Payments, we are generally allowed to make Restricted Payments subject to the following restrictions:
1.
|
The Company would, at the time of such Restricted Payments and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional indebtedness pursuant to the fixed charge coverage ratio tests as defined in the indenture.
|
2.
|
Such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company after September 21, 2005, is less than the sum, without duplication, of (i) 50% of the consolidated net income of the Company for the period from the beginning of the first full fiscal quarter commencing after the date of the indenture to the end of the Company’s most recent ended fiscal quarter for which internal financial statements are available at the time of the Restricted Payment; (ii) 100% of the aggregate net proceeds received by the Company since the date of the indenture as a contribution to its equity capital or from the sale of equity interests of the Company or from the conversion of interests or debt securities that have been converted to equity interests; and (iii) to the extent that any Restricted Investment, as defined, that was made after the date of the indenture is sold for cash, the lesser of (a) the cash return of capital or (b) the aggregate amount of such restricted investment that was treated as a Restricted Payment when made.
|
The Secured Notes Indenture and the indenture pertaining to the 10% Senior Notes (“the Senior Note Indenture”) contain various customary events of default, including, without limitation: (i) nonpayment of principal or interest; (ii) cross-defaults with certain other indebtedness; (iii) certain bankruptcy related events; (iv) invalidity of guarantees; (v) monetary judgment defaults; and (vi) certain change of control events. In addition, any impairment of the security interest in the Secured Notes collateral shall constitute an event of default under the Secured Notes Indenture.
Revolver
The Revolver, which matures on February 28, 2013, is guaranteed by Perkins & Marie Callender's Holding Inc. and certain of the Company's existing and future subsidiaries. The Revolver is secured by a first priority perfected security interest in all of the Company's property and assets, and the property and assets of each guarantor. Subject to the satisfaction of the conditions contained therein, up to $26,000,000 may be borrowed under the Revolver from time to time. The Revolver includes a sub-facility for letters of credit in an amount not to exceed $15,000,000.
Amounts outstanding under the Revolver bear interest, at the Company’s option, at a rate per annum equal to either: (i) the base rate, as defined in the Revolver, plus an applicable margin or (ii) a LIBOR-based equivalent, plus an applicable margin. For the foreseeable future, margins are expected to be 325 basis points for base rate loans and 425 basis points for LIBOR loans. As of December 27, 2009, the average interest rate on aggregate borrowings under the Revolver was 8.25%, and the Revolver permitted additional borrowings of approximately $4,605,000 (after giving effect to $11,171,000 in borrowings and $10,224,000 in letters of credit outstanding). The letters of credit are primarily utilized in conjunction with our workers’ compensation programs.
The Company is required to make mandatory prepayments under the Revolver with, subject to certain exceptions (as defined in the Revolver): (i) the net cash proceeds from certain asset sales or dispositions; (ii) the net cash proceeds of any debt issued by the Company or its subsidiaries; (iii) 50% of the net cash proceeds of any equity issuance by the Company, its parent or its subsidiaries; and (iv) the extraordinary receipts received by the Company or its subsidiaries, consisting of proceeds of judgments or settlements, certain indemnity payments and purchase price adjustments received in connection with any purchase agreement. Any of the foregoing mandatory prepayments will result in a corresponding permanent reduction in the maximum Revolver amount.
The Revolver contains various affirmative and negative covenants, including, but not limited to a financial covenant to maintain at least $30,000,000 of trailing 13-period EBITDA, as defined in the Revolver, and a covenant that limits the Company’s capital expenditures.
The average interest rate on aggregate borrowings of the Company’s long-term debt during fiscal 2009 was 11.6% compared to 10.1% during fiscal 2008.
Our debt agreements place restrictions on the Company’s ability and the ability of its subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) repay certain indebtedness prior to stated maturities; (iii) pay dividends or make other distributions on, redeem or repurchase capital stock or subordinated indebtedness; (iv) make certain investments or other restricted payments; (v) enter into transactions with affiliates; (vi) issue stock of subsidiaries; (vii) transfer, sell or consummate a merger or consolidation of all, or substantially all, of the Company's assets; (viii) change its line of business; (ix) incur dividend or other payment restrictions with regard to restricted subsidiaries; (x) create or incur liens on assets to secure debt; (xi) dispose of assets; (xii) restrict distributions from subsidiaries; (xiii) make certain acquisitions; (xiv) make capital expenditures; or (xv) amend the terms of the Company's outstanding notes. As of December 27, 2009, we were in compliance with the financial covenants contained in our debt agreements.
Deferred Financing Costs, Fair Market Values and Maturities
In connection with the issuance of the 10% Senior Notes and the Secured Notes and the execution of the Revolver, the Company has capitalized certain financing costs in other assets in the Consolidated Balance Sheets. As of December 27, 2009, the deferred financing costs of $4,014,000, $6,105,000 and $829,000 for the 10% Senior Notes, the Secured Notes and the Revolver, respectively, are being amortized over their respective terms using the effective interest method.
Based on estimated bond ratings and estimated trading prices, the approximate fair market value of our 10.0% Senior Notes was $93,500,000 and $93,000,000 on December 27, 2009 and December 28, 2008, respectively, and the approximate fair market value of our Secured Notes was $126,300,000 and $124,000,000 on December 27, 2009 and December 28, 2008, respectively. Because our Revolver bears interest at current market rates, we believe that outstanding Revolver borrowings approximated fair market value at December 27, 2009.
Scheduled annual principal maturities of long-term debt for the five years subsequent to December 27, 2009 are as follows (in thousands):
|
Amount
|
|||
2010
|
$ | ─ | ||
2011
|
100 | |||
2012
|
─ | |||
2013
|
333,171 | |||
2014
|
─ | |||
Thereafter
|
─ | |||
$ | 333,271 |
No interest expense was capitalized in connection with our construction activities for the year ended December 27, 2009 and December 28, 2008. For the year ended December 30, 2007, $13,800 was capitalized in connection with our construction activities. Interest income was $75,000, $292,000 and $589,000 in fiscal years 2009, 2008 and 2007, respectively.
(10) INCOME TAXES:
The following is a summary of the components of the benefit from (provision for) income taxes (in thousands):
|
December 27, 2009
|
December 28, 2008
|
December 30, 2007
|
|||||||||
Current:
|
||||||||||||
Federal
|
$ | 47 | 1,929 | (1,274 | ) | |||||||
State and local
|
(218 | ) | 82 | 258 | ||||||||
Total current benefit (provision)
|
(171 | ) | 2,011 | (1,016 | ) | |||||||
Deferred:
|
||||||||||||
Federal
|
- | (242 | ) | (248 | ) | |||||||
State and local
|
- | - | (218 | ) | ||||||||
Total deferred provision
|
- | (242 | ) | (466 | ) | |||||||
Benefit from (provision for) income taxes
|
$ | (171 | ) | 1,769 | (1,482 | ) |
A reconciliation of the statutory Federal income tax rate to the Company’s effective income tax rate is as follows:
|
December 27, 2009
|
December 28, 2008
|
December 30, 2007
|
|||||||||
Restated | ||||||||||||
Federal statutory rate
|
34.0 | % | 34.0 | % | 34.0 | % | ||||||
Federal income tax credits and addbacks
|
5.4 | % | 2.5 | % | 1.2 | % | ||||||
State income taxes, net of Federal taxes
|
7.8 | % | 2.3 | % | (1.2 | )% | ||||||
Changes in uncertain tax positions
|
0.2 | % | 0.6 | % | (6.1 | )% | ||||||
Non-deductible goodwill impairment
|
- | (19.7 | )% | - | ||||||||
Non-deductible interest, expenses, other, net
|
(1.1 | )% | 0.2 | % | 0.9 | % | ||||||
Federal and state valuation allowances
|
(46.8 | )% | (17.7 | )% | (39.3 | )% | ||||||
Effective tax rate
|
(0.5 | )% | 2.2 | % | (10.5 | )% |
The following is a summary of the significant components of our deferred tax position (in thousands):
|
December 27, 2009
|
December 28, 2008
|
||||||
Restated
|
Restated
|
|||||||
Deferred tax assets:
|
||||||||
Net operating loss carryforwards
|
$ | 24,165 | 18,176 | |||||
Accrued expenses not currently deductible
|
17,149 | 15,371 | ||||||
Tax credit carryforwards
|
13,261 | 10,278 | ||||||
Property, equipment, and improvements — tax basis in excess of book basis
|
14,440 | 14,429 | ||||||
Capital leases
|
4,611 | 2,046 | ||||||
Total deferred tax assets
|
73,626 | 60,300 | ||||||
Less valuation allowance
|
(59,197 | ) | (43,498 | ) | ||||
14,429 | 16,802 | |||||||
Deferred tax liabilities:
|
||||||||
Investment in unconsolidated partnership
|
- | (18 | ) | |||||
Intangible assets — amortizing — book basis in excess of tax basis
|
(14,429 | ) | (16,784 | ) | ||||
Intangible assets — non-amortizing — book basis in excess of tax basis
|
(45,457 | ) | (45,457 | ) | ||||
(59,886 | ) | (62,259 | ) | |||||
Net deferred tax liabilities
|
$ | (45,457 | ) | (45,457 | ) |
The valuation allowance for deferred tax assets as of December 27, 2009, and December 28, 2008 was $59,197,000, and $43,498,000, respectively. The change in the valuation allowance of $15,699,000 relates primarily to the increase in deferred deductible differences related to fixed assets, intangibles, capital leases, accrued expenses, net operating losses and tax credit carryforwards net of uncertain tax positions. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the existing valuation allowance at December 27, 2009. In that regard, management also believes its deferred tax liabilities, other than those related to non-amortizing intangible assets, will reverse within the same period as its deferred tax assets, thereby only requiring a valuation allowance on the Company’s net deferred tax asset position except for deferred tax liabilities related to non-amortizing intangible assets.
The Company had Federal net operating loss carryforwards totaling approximately $53,218,000 and $40,572,000 at December 27, 2009, and December 28, 2008, respectively, which begin to expire in 2012. The Company had state net operating loss carryforwards totaling approximately $90,144,000 and $69,703,000 at December 27, 2009, and December 28, 2008, respectively, which begin to expire in 2010.
Additionally, the Company had tax credit carryforwards totaling approximately $13,261,000 and $10,278,000 at December 27, 2009, and December 28, 2008 respectively, which begin to expire in 2018.
As of December 27, 2009, December 28, 2008 and December 30, 2007 the Company had approximately $943,000, $1,097,000 and $4,092,000, respectively, of unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate except for approximately $160,000, $303,000 and $0 respectively, which is subject to tax indemnification from the predecessor owner. In addition, as of December 27, 2009, December 28, 2008 and December 30, 2007, the Company had $805,000, $652,000 and $3,010,000 respectively, of unrecognized tax benefits reducing Federal and state net operating loss carryforwards and Federal credit carryforwards that, if recognized, would be subject to a valuation allowance.
A reconciliation of the change in the gross unrecognized tax benefits from January 1, 2007 to December 27, 2009 is as follows (in thousands):
2009
|
2008
|
2007
|
||||||||||
Unrecognized tax benefit - beginning of fiscal year
|
$ | 1,359 | 5,724 | 5,126 | ||||||||
Additions for tax positions of prior years
|
112 | 97 | 1,480 | |||||||||
Reductions for tax positions of prior years
|
- | (2,341 | ) | (699) | ||||||||
Reductions due to settlements
|
(152 | ) | (1,080 | ) | - | |||||||
Reductions for lapse of statute of limitations
|
(166 | ) | (1,041 | ) | (183 | ) | ||||||
Unrecognized tax benefit - end of fiscal year
|
$ | 1,153 | 1,359 | 5,724 |
During the first and fourth quarters of 2008, the Company filed requests with the Internal Revenue Service to resolve $2,341,000 of uncertain tax positions with respect to Marie Callender’s historical taxable revenue and expense recognition; these requests were approved in 2009 and effectively settled these uncertain tax positions. Additionally, in May 2008, the Company paid approximately $395,000 to the Internal Revenue Service to settle certain other income tax positions taken on prior filings.
As of December 28, 2008, the Company believed that it was reasonably possible that a decrease between $76,000 and $667,000 in gross unrecognized tax benefits would have occurred due to Federal and state settlements and expiration of statutes during the year ended December 27, 2009. During 2009, such gross unrecognized tax benefits actually decreased by $152,000 due to Federal and state settlements and by $166,000 due to the expiration of statutes, resulting in a total decrease of $318,000 during 2009. The Company expects that the total amount of its gross unrecognized tax benefits will decrease between $32,000 and $432,000 within the next 12 months due to Federal and state settlements and expiration of statutes.
The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. The Company removed $11,000 of accrued interest during 2009 and, as of December 27, 2009, has recognized a liability for interest of $110,000. The Company paid $42,000 and removed $370,000 of accrued interest during 2008 and, as of December 28, 2008, had recognized a liability for interest of $121,000. The Company accrued $289,000 of interest during 2007 and, as of December 30, 2007, had recognized a liability for interest of $533,000. The Company has accrued no penalties.
The Company is open to Federal and state tax audits until the applicable statute of limitations expire. The Company is no longer subject to U.S. Federal tax examinations by tax authorities for tax years before 2006. For the majority of states where the Company has a significant presence, it is no longer subject to tax examination by tax authorities for tax years before 2005.
(11) RELATED PARTY TRANSACTIONS:
Management Agreement
We are party to a management agreement with Castle Harlan under which Castle Harlan provides business and organizational strategy, financial and investment management, advisory, merchant and investment banking services to our parent and us. As compensation for those services, we pay Castle Harlan an annual management fee equal to 3% of the aggregate equity contributions made by Castle Harlan Partners IV, L.P. (“CHP IV”) and Castle Harlan Partners III, L.P. and their affiliates (including their limited partners), payable quarterly in advance. If, at any time, CHP IV or CHP III or their affiliates (including their limited partners) make any additional equity contributions to any of our parent or us, we will pay Castle Harlan an annual management fee equal to 3% of each such equity contribution. We will also pay or reimburse Castle Harlan for all out-of-pocket fees and expenses incurred by Castle Harlan and any advisors, consultants, legal counsel and other professionals engaged by Castle Harlan to assist in the provision of services under the management agreement.
The management agreement is for an initial term expiring December 31, 2012 and is subject to renewal for consecutive one-year terms unless terminated by Castle Harlan or us upon 90 days notice prior to the expiration of the initial term or any annual renewal. We also indemnify Castle Harlan, its officers, directors and affiliates from any losses or claims suffered by them as a result of services they provide us. Payment of management fees is subject to restrictions contained in the Secured Notes Indenture, the 10% Senior Note Indenture and the Revolver. As of December 27, 2009 and December 28, 2008, other liabilities in our Consolidated Balance Sheets includes past due management fees of $10,383,000 and $6,614,000, respectively.
No payments were made to Castle Harlan for annual management fees for the year ended December 27, 2009. We paid $4,894,000 and $3,576,000 in annual management fees during the years ended December 28, 2008 and December 30, 2007, respectively.
During the quarter ended October 5, 2008, certain affiliates of Castle Harlan, Inc. made a $4,000,000 payment to the lenders under our pre-existing revolving credit facility in satisfaction of their guarantee under the March 2008 amendment to the term loan. This amount became a subordinated obligation of the Company and, immediately prior to the consummation of the refinancing, the affiliates of Castle Harlan relinquished and canceled the indebtedness in exchange for 39,996 Class A-1 units and 39,996 Class B units of P&MC’s Holding LLC. Also, during the quarter ended October 5, 2008, the Company received an additional equity contribution of $8,500,000 from our indirect parent, P&MC’s Holding Corp.
Real Estate Transaction
In September 2009, P&MC’s Real Estate Holding LLC, the indirect parent of the Company, purchased a building in California that was being leased by the Company for the operation of a Marie Callender’s restaurant and assumed the tenant’s obligations under the related ground lease. In connection with the purchase of the building, the Company’s existing building lease was terminated; the Company had a capital lease obligation of approximately $2,112,000 and a net leasehold asset of approximately $1,093,000 related to its lease. P&MC’s Real Estate Holding LLC has agreed to allow the Company to use the building and defer collection of building rent at this time. The Company will continue to operate the Marie Callender’s restaurant in the building and will pay the underlying ground lease. As a result of these transactions, the Company has eliminated its capital lease obligation and leasehold asset and, due to the related-party nature of the transaction, credited additional paid-in capital for $1,019,000. The Company has imputed annual rent of $240,000, based on the fair value of the building and local rental rates, and is accruing this amount in deferred rent on its Consolidated Balance Sheets.
(12) COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS:
The Company and its affiliates are parties to various legal proceedings in the ordinary course of business. We do not believe it is likely that these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial statements.
The majority of our franchise revenues are generated from franchisees owning individually less than five percent (5%) of total franchised restaurants, and, therefore, the loss of any one of these franchisees would not have a material impact on our results of operations.
As of December 27, 2009, three Perkins franchisees otherwise unaffiliated with the Company owned 88, or 28%, of the 314 franchised Perkins restaurants, consisting of 40, 27 and 21 restaurants, respectively. As of December 28, 2008, these same franchisees owned 41, 27 and 21 restaurants, respectively. The following table presents a summary of the royalty and license fees provided by these three franchisees:
# of
|
Year-to-Date
|
# of
|
Year-to-Date
|
|||||||||||
Restaurants
|
Ended
|
Restaurants
|
Ended
|
|||||||||||
(2009) |
December 27, 2009
|
(2008) |
December 28, 2008
|
|||||||||||
40 | $ | 1,861,000 | 41 | $ | 1,926,000 | |||||||||
27 | 1,420,000 | 27 | 1,452,000 | |||||||||||
21 | 1,427,000 | 21 | 1,500,000 |
As of December 27, 2009, three Marie Callender’s franchisees otherwise unaffiliated with the Company owned 12, or 31%, of the 39 franchised Marie Callender’s restaurants, consisting of four restaurants each. As of December 28, 2008, these same franchisees owned five, four and four restaurants, respectively. The following table presents a summary of the royalty and license fees provided by these three franchisees:
# of
|
Year-to-Date
|
# of
|
Year-to-Date
|
|||||||||||
Restaurants
|
Ended
|
Restaurants
|
Ended
|
|||||||||||
(2009) |
December 27, 2009
|
(2008) |
December 28, 2008
|
|||||||||||
4 | $ | 371,000 | 5 | $ | 542,000 | |||||||||
4 | 389,000 | 4 | 465,000 | |||||||||||
4 | 283,000 | 4 | 312,000 |
The Company has license agreements with certain parties to distribute and market Marie Callender’s branded products. The most prominent of these agreements are with ConAgra, Inc., which distributes frozen entrees and dinners to supermarkets and club stores throughout the United States, and American Pie, LLC, which distributes primarily frozen pies throughout most of the country. Both agreements are in effect in perpetuity. We have the right to terminate if specified sales levels are not achieved (both licensees have achieved the required sales levels), and each licensee has the right to terminate upon a 180 day notice. License income under these two agreements totaled $5,288,000, $4,865,000 and $4,336,000 in 2009, 2008 and 2007, respectively.
The Company has three arrangements with different parties to whom territorial rights were granted. The Company makes specified payments to those parties based on a percentage of gross sales from certain Perkins restaurants and for new Perkins restaurants opened within those geographic regions. During 2009, 2008 and 2007, we paid an aggregate of $2,592,000, $2,718,000 and $2,762,000, respectively, under such arrangements. Of these arrangements, one expires in the year 2075, one expires upon the death of the beneficiary and the remaining agreement remains in effect as long as we operate Perkins restaurants in certain states.
(13) LONG-TERM INCENTIVE PLANS:
In October 2006, we established a nonqualified defined contribution plan for executive officers and other key employees (the “Deferred Compensation Plan”). The Deferred Compensation Plan is voluntary and our executive officers and key employees may defer specified percentages of their eligible pay, defined as base pay plus the eligible portion of any incentive award. The first 3% of eligible pay contributed to the plan by the executive is eligible for a 100% company matching contribution up to $6,000, which vests over a three year period. The Company may elect to make additional contributions to an employee’s account. Amounts deferred are held in trust with a bank. The Company made matching contributions of $195,000, $210,000 and $275,000 to the Deferred Compensation Plan during 2009, 2008 and 2007, respectively.
Effective April 2004, The Perkins & Marie Callender’s Supplemental Executive Retirement Plan (“SERP I”) was established. The purpose of SERP I is to provide additional compensation for a select group of management and highly compensated employees who contribute materially to the growth of the Company. Contributions to SERP I are made at the discretion of the Company, and participants vest at a rate of 25% for one to three years of service, 50% for four to five years of service and 100% for five or more years of service. The Company did not make contributions to SERP I in 2009, 2008 or 2007.
Effective January 2005, The Perkins & Marie Callender’s Supplemental Executive Retirement Plan II (“SERP II”) was established. The purpose of SERP II is to provide additional compensation for a select group of key employees who contribute materially to the growth of the Company. Contributions to SERP II are made at the discretion of the Company, and participants generally vest in the contributions over a five-year period. The Company did not make contributions to SERP II in 2009, 2008 or 2007. The deferred compensation expenses related to SERP I and SERP II are recorded in general and administrative expenses in the accompanying Consolidated Statements of Operations.
(14) EMPLOYEE BENEFITS:
The Company maintains the Perkins & Marie Callender’s Retirement Savings Plan (the “Plan”) generally for employees who have satisfied the participation requirements are eligible for participation in the Plan provided they (i) have attained the age of 21 and (ii) have completed one year of service, as defined, during which they have been credited with a minimum of 1,000 hours of service.
Participants may elect to defer from 1% to 15% of their annual eligible compensation subject to Internal Revenue Code (“IRC”) regulated maximums. We may make a matching contribution equal to a percentage of the amount deferred by the participant or a specified dollar amount as determined each year by the Board of Directors. During 2009, 2008 and 2007, we elected to match contributions at a rate of 25% up to the first 6% deferred by each participant. Our matching contributions for 2009, 2008 and 2007 were $421,000, $432,000 and $434,000, respectively.
Participants are always 100% vested in their salary deferral accounts and qualified rollover accounts. Vesting in the employer matching account is based on qualifying years of service. A participant vests 60% in the employer matching account after three years, 80% after four years and 100% after five years.
(15) P&MC’s HOLDING LLC EQUITY PLAN:
Effective April 1, 2007, P&MC’s Holding LLC established a management equity incentive plan (the “Equity Plan”) for the benefit of key Company employees. The Equity Plan provides the following two types of equity ownership in P&MC’s Holding LLC: (i) Strip Subscription Units, which consist of Class A Units and Class C Units and (ii) Incentive Units, which consist of time vesting Class C Units.
Stock-based compensation expense related to the Equity Plan for 2009, 2008 and 2007 was not material.
If the employee is employed as of the date of the occurrence of certain change in control events, as defined in the Equity Plan, the employee’s outstanding but unvested Incentive Units vest simultaneously with the consummation of the change in control event. Upon termination of employment, unvested Incentive Units are forfeited and vested Incentive Units and Strip Subscription Units are subject to repurchase, at a price not to exceed fair value, pursuant to the terms of P&MC’s Holding LLC’s unitholders agreement.
(16) SEGMENT REPORTING:
We have three reportable segments: restaurant operations; franchise operations; and Foxtail. The restaurant operations include the operating results of Company-operated Perkins and Marie Callender’s restaurants. The franchise operations include revenues and expenses directly attributable to franchised Perkins and Marie Callender’s restaurants. Foxtail’s operations consist of three manufacturing plants: one in Corona, California and two in Cincinnati, Ohio.
Our restaurants operate principally in the U.S. within the family-dining and casual-dining industries, providing similar products to similar customers. Revenues from restaurant operations are derived principally from food and beverage sales to external customers. Revenues from franchise operations consist primarily of royalty income earned on the revenues generated at franchisees’ restaurants and initial franchise fees. Revenues from Foxtail are generated by the sale of food products to both Company-operated and franchised Perkins and Marie Callender’s restaurants as well as to unaffiliated customers. Foxtail’s sales to Company-operated restaurants are eliminated for reporting purposes. The revenues in the other segment are primarily licensing revenues.
The following presents revenues and other financial information by business segment (in thousands):
Year Ended
|
Year Ended
|
Year Ended
|
|||||||||||
December 27,
2009
|
December 28,
2008
|
December 30, 2007
|
|||||||||||
Revenues
|
Restated | ||||||||||||
Restaurant operations
|
$ | 470,346 | 503,242 | 510,863 | |||||||||
Franchise operations
|
22,532 | 24,141 | 25,982 | ||||||||||
Foxtail
|
58,469 | 69,308 | 65,953 | ||||||||||
Intersegment revenue
|
(21,052 | ) | (20,088 | ) | (19,826 | ) | |||||||
Other
|
5,773 | 5,367 | 4,914 | ||||||||||
Total
|
$ | 536,068 | 581,970 | 587,886 | |||||||||
Depreciation and amortization
|
|||||||||||||
Restaurant operations
|
18,546 | 19,563 | 18,913 | ||||||||||
Franchise operations
|
- | - | - | ||||||||||
Foxtail
|
2,103 | 1,792 | 1,576 | ||||||||||
Other
|
3,392 | 3,344 | 4,333 | ||||||||||
Total
|
$ | 24,041 | 24,699 | 24,822 | |||||||||
Segment net income (loss) attributable to PMCI
|
|||||||||||||
Restaurant operations
|
24,551 | 26,806 | 32,459 | ||||||||||
Franchise operations
|
20,665 | (21,396 | ) |
(a)
|
23,774 | ||||||||
Foxtail
|
4,162 | (6,743 | ) |
(a)
|
3,687 | ||||||||
Other
|
(85,597 | ) | (78,862 | ) | (76,255 | ) | |||||||
Total
|
$ | (36,219 | ) | (80,195 | ) |
(a)
|
(16,335 | ) |
(a) In 2008, the Company recorded a non-cash goodwill impairment charge of $47,444,000, of which $43,537,000 was charged to the franchise segment and $3,907,000 was charged to the Foxtail segment.
December 27,
2009
|
December 28, 2008
|
|||||||
Segment assets
|
Restated | Restated | ||||||
Restaurant operations
|
$ | 132,611 | 144,399 | |||||
Franchise operations
|
101,672 | 102,719 | ||||||
Foxtail
|
31,754 | 37,575 | ||||||
Other
|
38,868 | 52,079 | ||||||
Total
|
$ | 304,905 | 336,772 | |||||
Goodwill
|
||||||||
Restaurant operations
|
23,100 | 23,100 | ||||||
Franchise operations
|
- | - | ||||||
Foxtail
|
- | - | ||||||
Other
|
- | - | ||||||
Total
|
$ | 23,100 | 23,100 |
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
December 27, 2009
|
December 28, 2008
|
December 30, 2007
|
||||||||||
Capital Expenditures
|
||||||||||||
Restaurant operations
|
$ | 7,630 | 12,489 | 29,095 | ||||||||
Franchise operations
|
- | - | - | |||||||||
Foxtail
|
727 | 4,710 | 1,476 | |||||||||
Other
|
376 | 1,137 | 976 | |||||||||
Total
|
$ | 8,733 | 18,336 | 31,547 |
We evaluate the performance of our segments based primarily on operating profit before general and administrative expenses, interest expense and income taxes.
Assets included in the other operating segment primarily consist of cash, corporate accounts receivable and deferred income taxes.
The components of the other segment loss are as follows (in thousands):
Year Ended
|
Year Ended
|
Year Ended
|
||||||||||
December 27, 2009
|
December 28, 2008
|
December 30, 2007
|
||||||||||
General and administrative expenses
|
$ | 40,641 | 40,162 | 39,393 | ||||||||
Depreciation and amortization expenses
|
3,393 | 3,343 | 4,333 | |||||||||
Interest expense, net
|
44,120 | 36,689 | 31,180 | |||||||||
Loss on disposition of assets, net
|
1,521 | 505 | 226 | |||||||||
Asset impairments
|
4,476 | 1,292 | 2,237 | |||||||||
Loss on extinguishment of debt
|
- | 2,952 | - | |||||||||
Transaction costs
|
- | - | 1,013 | |||||||||
Provision for (benefit from) income taxes
|
171 | (1,769 | ) | 1,482 | ||||||||
Net earnings attributable to noncontrolling interests
|
198 | 284 | 707 | |||||||||
Licensing revenue
|
(5,505 | ) | (5,125 | ) | (4,564 | ) | ||||||
Other
|
(3,418 | ) | 529 | 248 | ||||||||
Total other segment loss
|
$ | 85,597 | 78,862 | 76,255 |
(17) CONDENSED CONSOLIDATED FINANCIAL INFORMATION:
The 10% Senior Notes and Secured Notes were issued subject to a joint and several, full and unconditional guarantee by all of the Company’s 100% owned domestic subsidiaries. There are no significant restrictions on the Company’s ability to obtain funds from any of the guarantor subsidiaries in the form of a dividend or loan. Additionally, there are no significant restrictions on the guarantor subsidiaries’ ability to obtain funds from the Company or its direct or indirect subsidiaries.
The following consolidating statements of operations, balance sheets and statements of cash flows are provided for the parent company and all subsidiaries. The information has been presented as if the parent company accounted for its ownership of the guarantor and non-guarantor subsidiaries using the equity method of accounting.
Consolidating statement of operations for the year ended December 27, 2009 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
REVENUES:
|
||||||||||||||||||||
Food sales
|
$ | 314,293 | 167,509 | 25,961 | - | 507,763 | ||||||||||||||
Franchise and other revenue
|
19,062 | 9,243 | - | - | 28,305 | |||||||||||||||
Total revenues
|
333,355 | 176,752 | 25,961 | - | 536,068 | |||||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||||||
Cost of sales (excluding depreciation shown below):
|
||||||||||||||||||||
Food cost
|
81,590 | 43,517 | 6,658 | - | 131,765 | |||||||||||||||
Labor and benefits
|
106,842 | 61,716 | 9,114 | - | 177,672 | |||||||||||||||
Operating expenses
|
85,118 | 51,002 | 9,510 | - | 145,630 | |||||||||||||||
General and administrative
|
39,018 | 7,135 | - | - | 46,153 | |||||||||||||||
Depreciation and amortization
|
17,408 | 6,014 | 619 | - | 24,041 | |||||||||||||||
Interest, net
|
43,395 | 725 | - | - | 44,120 | |||||||||||||||
Asset impairments and closed store expenses
|
3,233 | 2,677 | 87 | - | 5,997 | |||||||||||||||
Other, net
|
(1,638 | ) | (1,822 | ) | - | - | (3,460 | ) | ||||||||||||
Total costs and expenses
|
374,966 | 170,964 | 25,988 | - | 571,918 | |||||||||||||||
Loss before income taxes
|
(41,611 | ) | 5,788 | (27 | ) | - | (35,850 | ) | ||||||||||||
Provision for income taxes
|
(171 | ) | - | - | - | (171 | ) | |||||||||||||
Net (loss) income
|
(41,782 | ) | 5,788 | (27 | ) | - | (36,021 | ) | ||||||||||||
Less: net earnings attributable to noncontrolling interests
|
- | - | 198 | - | 198 | |||||||||||||||
Equity in (loss) earnings of subsidiaries
|
5,761 | - | - | (5,761 | ) | - | ||||||||||||||
Net (loss) income attributable to Perkins & Marie Callender's Inc.
|
$ | (36,021 | ) | 5,788 | (225 | ) | (5,761 | ) | (36,219 | ) |
Consolidating statement of operations for the year ended December 28, 2008 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
Restated | Restated | |||||||||||||||||||
REVENUES:
|
||||||||||||||||||||
Food sales
|
$ | 344,869 | 179,792 | 27,801 | - | 552,462 | ||||||||||||||
Franchise and other revenue
|
19,993 | 9,515 | - | - | 29,508 | |||||||||||||||
Total revenues
|
364,862 | 189,307 | 27,801 | - | 581,970 | |||||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||||||
Cost of sales (excluding depreciation shown below):
|
||||||||||||||||||||
Food cost
|
100,841 | 51,175 | 9,087 | - | 161,103 | |||||||||||||||
Labor and benefits
|
115,931 | 63,163 | 9,337 | - | 188,431 | |||||||||||||||
Operating expenses
|
90,388 | 53,683 | 8,189 | - | 152,260 | |||||||||||||||
General and administrative
|
42,590 | 5,239 | - | - | 47,829 | |||||||||||||||
Depreciation and amortization
|
17,794 | 6,183 | 722 | - | 24,699 | |||||||||||||||
Interest, net
|
35,604 | 1,085 | - | - | 36,689 | |||||||||||||||
Asset impairments and closed store expenses
|
221 | 1,523 | 53 | - | 1,797 | |||||||||||||||
Goodwill impairment
|
47,444 | - | - | - | 47,444 | |||||||||||||||
Loss on extinguishment of debt
|
2,952 | - | - | - | 2,952 | |||||||||||||||
Other, net
|
446 | - | - | - | 446 | |||||||||||||||
Total costs and expenses
|
454,211 | 182,051 | 27,388 | - | 663,650 | |||||||||||||||
Income (loss) before income taxes
|
(89,349 | ) | 7,256 | 413 | - | (81,680 | ) | |||||||||||||
Benefit from income taxes
|
1,769 | - | - | - | 1,769 | |||||||||||||||
Net (loss) income
|
(87,580 | ) | 7,256 | 413 | - | (79,911 | ) | |||||||||||||
Less: net earnings attributable to noncontrolling interests
|
- | - | 284 | - | 284 | |||||||||||||||
Equity in (loss) earnings of subsidiaries
|
7,669 | - | - | (7,669 | ) | - | ||||||||||||||
Net (loss) income attributable to Perkins & Marie Callender's Inc.
|
$ | (79,911 | ) | 7,256 | 129 | (7,669 | ) | (80,195 | ) |
Consolidating statement of operations for the year ended December 30, 2007 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
REVENUES:
|
||||||||||||||||||||
Food sales
|
$ | 336,820 | 189,614 | 30,556 | - | 556,990 | ||||||||||||||
Franchise and other revenue
|
21,323 | 9,573 | - | - | 30,896 | |||||||||||||||
Total revenues
|
358,143 | 199,187 | 30,556 | - | 587,886 | |||||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||||||
Cost of sales (excluding depreciation shown below):
|
||||||||||||||||||||
Food cost
|
94,986 | 55,260 | 8,462 | - | 158,708 | |||||||||||||||
Labor and benefits
|
114,846 | 64,562 | 9,899 | - | 189,307 | |||||||||||||||
Operating expenses
|
86,731 | 52,659 | 10,047 | - | 149,437 | |||||||||||||||
General and administrative
|
39,152 | 5,722 | - | - | 44,874 | |||||||||||||||
Transaction costs
|
772 | 241 | - | 1,013 | ||||||||||||||||
Depreciation and amortization
|
17,610 | 5,939 | 1,273 | - | 24,822 | |||||||||||||||
Interest, net
|
30,127 | 1,053 | - | - | 31,180 | |||||||||||||||
Asset impairments and closed store expenses
|
(178 | ) | 2,612 | 29 | - | 2,463 | ||||||||||||||
Other, net
|
(122 | ) | 350 | - | - | 228 | ||||||||||||||
Total costs and expenses
|
383,924 | 188,398 | 29,710 | - | 602,032 | |||||||||||||||
Income (loss) before income taxes
|
(25,781 | ) | 10,789 | 846 | - | (14,146 | ) | |||||||||||||
Provision for income taxes
|
(1,482 | ) | - | - | - | (1,482 | ) | |||||||||||||
Net (loss) income
|
(27,263 | ) | 10,789 | 846 | - | (15,628 | ) | |||||||||||||
Less: net earnings attributable to noncontrolling interests
|
- | - | 707 | - | 707 | |||||||||||||||
Equity in (loss) earnings of subsidiaries
|
11,635 | - | - | (11,635 | ) | - | ||||||||||||||
Net (loss) income attributable to Perkins & Marie Callender's Inc.
|
$ | (15,628 | ) | 10,789 | 139 | (11,635 | ) | (16,335 | ) |
Consolidating balance sheet as of December 27, 2009 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
ASSETS
|
Restated | Restated | ||||||||||||||||||
CURRENT ASSETS:
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 2,013 | 1,293 | 982 | - | 4,288 | ||||||||||||||
Restricted cash
|
8,110 | - | - | - | 8,110 | |||||||||||||||
Receivables, less allowances for
doubtful accounts
|
11,070 | 7,048 | 7 | - | 18,125 | |||||||||||||||
Inventories
|
8,038 | 2,793 | 231 | - | 11,062 | |||||||||||||||
Prepaid expenses and other current assets
|
1,613 | 248 | 3 | - | 1,864 | |||||||||||||||
Total current assets
|
30,844 | 11,382 | 1,223 | - | 43,449 | |||||||||||||||
PROPERTY AND EQUIPMENT, net
|
52,217 | 20,530 | 2,472 | - | 75,219 | |||||||||||||||
INVESTMENT IN
UNCONSOLIDATED PARTNERSHIP
|
- | 41 | 9 | - | 50 | |||||||||||||||
GOODWILL
|
23,100 | - | - | - | 23,100 | |||||||||||||||
INTANGIBLE ASSETS
|
146,889 | 124 | - | - | 147,013 | |||||||||||||||
INVESTMENTS IN SUBSIDIARIES
|
(78,981 | ) | - | - | 78,981 | - | ||||||||||||||
DUE FROM SUBSIDIARIES
|
81,493 | - | - | (81,493 | ) | - | ||||||||||||||
OTHER ASSETS
|
14,321 | 1,543 | 210 | - | 16,074 | |||||||||||||||
TOTAL ASSETS
|
$ | 269,883 | 33,620 | 3,914 | (2,512 | ) | 304,905 | |||||||||||||
LIABILITIES AND EQUITY (DEFICIT)
|
||||||||||||||||||||
CURRENT LIABILITIES:
|
||||||||||||||||||||
Accounts payable
|
$ | 7,946 | 6,074 | 637 | - | 14,657 | ||||||||||||||
Accrued expenses
|
30,628 | 9,635 | 1,342 | - | 41,605 | |||||||||||||||
Franchise advertising contributions
|
4,327 | - | - | - | 4,327 | |||||||||||||||
Current maturities of long-term debt and
capital lease obligations
|
186 | 317 | - | - | 503 | |||||||||||||||
Total current liabilities
|
43,087 | 16,026 | 1,979 | - | 61,092 | |||||||||||||||
LONG-TERM DEBT, less current
maturities
|
326,042 | - | - | - | 326,042 | |||||||||||||||
CAPITAL LEASE OBLIGATIONS, less
current maturities
|
8,085 | 2,969 | - | - | 11,054 | |||||||||||||||
DEFERRED RENT
|
12,263 | 4,765 | 64 | - | 17,092 | |||||||||||||||
OTHER LIABILITIES
|
13,366 | 8,911 | - | - | 22,277 | |||||||||||||||
DEFERRED INCOME TAXES
|
45,457 | - | - | - | 45,457 | |||||||||||||||
DUE TO PARENT
|
- | 80,421 | 1,072 | (81,493 | ) | - | ||||||||||||||
EQUITY (DEFICIT):
|
||||||||||||||||||||
Common stock
|
1 | - | - | - | 1 | |||||||||||||||
Preferred stock
|
- | 64,296 | - | (64,296 | ) | - | ||||||||||||||
Capital in excess of par
|
- | 9,338 | - | (9,338 | ) | - | ||||||||||||||
Additional paid-in capital
|
150,870 | - | - | - | 150,870 | |||||||||||||||
Treasury stock
|
- | (137 | ) | - | 137 | - | ||||||||||||||
Accumulated other comprehensive income
|
45 | - | - | - | 45 | |||||||||||||||
Accumulated (deficit) earnings
|
(329,333 | ) | (152,969 | ) | 491 | 152,478 | (329,333 | ) | ||||||||||||
Total PMCI stockholder's (deficit) investment
|
(178,417 | ) | (79,472 | ) | 491 | 78,981 | (178,417 | ) | ||||||||||||
Noncontrolling interests
|
- | - | 308 | - | 308 | |||||||||||||||
Total equity (deficit)
|
(178,417 | ) | (79,472 | ) | 799 | 78,981 | (178,109 | ) | ||||||||||||
TOTAL LIABILITIES AND EQUITY (DEFICIT)
|
$ | 269,883 | 33,620 | 3,914 | (2,512 | ) | 304,905 |
Consolidating balance sheet as of December 28, 2008 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
ASSETS
|
Restated | Restated | ||||||||||||||||||
CURRENT ASSETS:
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 2,155 | 1,662 | 796 | - | 4,613 | ||||||||||||||
Restricted cash
|
10,140 | - | - | - | 10,140 | |||||||||||||||
Receivables, less allowances for
doubtful accounts
|
14,392 | 6,955 | 39 | - | 21,386 | |||||||||||||||
Inventories
|
8,145 | 3,893 | 262 | - | 12,300 | |||||||||||||||
Prepaid expenses and other current assets
|
2,721 | 269 | 6 | - | 2,996 | |||||||||||||||
Total current assets
|
37,553 | 12,779 | 1,103 | - | 51,435 | |||||||||||||||
PROPERTY AND EQUIPMENT, net
|
65,020 | 26,357 | 2,123 | - | 93,500 | |||||||||||||||
INVESTMENT IN
UNCONSOLIDATED PARTNERSHIP
|
- | 39 | 9 | - | 48 | |||||||||||||||
GOODWILL
|
23,100 | - | - | - | 23,100 | |||||||||||||||
INTANGIBLE ASSETS
|
150,676 | 171 | - | - | 150,847 | |||||||||||||||
INVESTMENTS IN SUBSIDIARIES
|
(85,354 | ) | - | - | 85,354 | - | ||||||||||||||
DUE FROM SUBSIDIARIES
|
88,948 | - | - | (88,948 | ) | - | ||||||||||||||
OTHER ASSETS
|
16,195 | 1,437 | 210 | - | 17,842 | |||||||||||||||
TOTAL ASSETS
|
$ | 296,138 | 40,783 | 3,445 | (3,594 | ) | 336,772 | |||||||||||||
LIABILITIES AND EQUITY (DEFICIT)
|
||||||||||||||||||||
CURRENT LIABILITIES:
|
||||||||||||||||||||
Accounts payable
|
$ | 11,090 | 6,731 | 474 | - | 18,295 | ||||||||||||||
Accrued expenses
|
33,575 | 12,123 | 1,342 | - | 47,040 | |||||||||||||||
Franchise advertising contributions
|
5,316 | - | - | - | 5,316 | |||||||||||||||
Current maturities of long-term debt and
capital lease obligations
|
169 | 213 | - | - | 382 | |||||||||||||||
Total current liabilities
|
50,150 | 19,067 | 1,816 | - | 71,033 | |||||||||||||||
LONG-TERM DEBT, less current
maturities
|
316,516 | 18 | - | - | 316,534 | |||||||||||||||
CAPITAL LEASE OBLIGATIONS, less
current maturities
|
8,270 | 5,445 | - | - | 13,715 | |||||||||||||||
DEFERRED RENT
|
10,180 | 5,089 | 74 | - | 15,343 | |||||||||||||||
OTHER LIABILITIES
|
8,831 | 8,910 | - | - | 17,741 | |||||||||||||||
DEFERRED INCOME TAXES
|
45,457 | - | - | - | 45,457 | |||||||||||||||
DUE TO PARENT
|
- | 88,324 | 624 | (88,948 | ) | - | ||||||||||||||
EQUITY (DEFICIT):
|
||||||||||||||||||||
Common stock
|
1 | - | - | - | 1 | |||||||||||||||
Preferred stock
|
- | 63,277 | - | (63,277 | ) | - | ||||||||||||||
Capital in excess of par
|
- | 9,338 | - | (9,338 | ) | - | ||||||||||||||
Additional paid-in capital
|
149,851 | - | - | - | 149,851 | |||||||||||||||
Treasury stock
|
- | (137 | ) | - | 137 | - | ||||||||||||||
Accumulated other comprehensive income
|
(4 | ) | - | - | - | (4 | ) | |||||||||||||
Accumulated (deficit) earnings
|
(293,114 | ) | (158,548 | ) | 716 | 157,832 | (293,114 | ) | ||||||||||||
Total PMCI stockholder's (deficit) investment
|
(143,266 | ) | (86,070 | ) | 716 | 85,354 | (143,266 | ) | ||||||||||||
Noncontrolling interests
|
- | - | 215 | - | 215 | |||||||||||||||
Total equity (deficit)
|
(143,266 | ) | (86,070 | ) | 931 | 85,354 | (143,051 | ) | ||||||||||||
TOTAL LIABILITIES AND EQUITY (DEFICIT)
|
$ | 296,138 | 40,783 | 3,445 | (3,594 | ) | 336,772 |
Consolidating statement of cash flows for the year ended December 27, 2009 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||
Net (loss) income
|
$ | (36,021 | ) | 5,788 | (27 | ) | (5,761 | ) | (36,021 | ) | ||||||||||
Adjustments to reconcile net (loss) income to net cash
|
||||||||||||||||||||
provided by (used in) operating activities:
|
||||||||||||||||||||
Equity in (loss) earnings of subsidiaries
|
(5,761 | ) | - | - | 5,761 | - | ||||||||||||||
Depreciation and amortization
|
17,408 | 6,014 | 619 | - | 24,041 | |||||||||||||||
Asset impairments
|
2,519 | 1,870 | 87 | - | 4,476 | |||||||||||||||
Amortization of debt discount
|
1,540 | - | - | - | 1,540 | |||||||||||||||
Other non-cash income and expense items
|
(1,045 | ) | (1,430 | ) | - | - | (2,475 | ) | ||||||||||||
Loss on disposition of assets
|
714 | 807 | - | - | 1,521 | |||||||||||||||
Equity in net income of unconsolidated partnership
|
- | (2 | ) | - | - | (2 | ) | |||||||||||||
Net changes in operating assets and liabilities
|
9,430 | (2,108 | ) | 219 | - | 7,541 | ||||||||||||||
Total adjustments
|
24,805 | 5,151 | 925 | 5,761 | 36,642 | |||||||||||||||
Net cash (used in) provided by operating activities
|
(11,216 | ) | 10,939 | 898 | - | 621 | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
Purchases of property and equipment
|
(4,544 | ) | (3,134 | ) | (1,055 | ) | - | (8,733 | ) | |||||||||||
Proceeds from sale of assets
|
487 | 7 | - | - | 494 | |||||||||||||||
Net cash used in investing activities
|
(4,057 | ) | (3,127 | ) | (1,055 | ) | - | (8,239 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
Proceeds from revolving credit facilities
|
31,778 | - | - | - | 31,778 | |||||||||||||||
Repayment of revolving credit facilities
|
(23,791 | ) | - | - | - | (23,791 | ) | |||||||||||||
Repayment of capital lease obligations
|
(169 | ) | (260 | ) | - | - | (429 | ) | ||||||||||||
Repayment of other debt
|
- | (18 | ) | - | - | (18 | ) | |||||||||||||
Debt financing costs
|
(142 | ) | - | - | - | (142 | ) | |||||||||||||
Distributions to noncontrolling interest holders
|
- | - | (105 | ) | - | (105 | ) | |||||||||||||
Intercompany financing
|
7,455 | (7,903 | ) | 448 | - | - | ||||||||||||||
Net cash provided by (used in) financing activities
|
15,131 | (8,181 | ) | 343 | - | 7,293 | ||||||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(142 | ) | (369 | ) | 186 | - | (325 | ) | ||||||||||||
CASH AND CASH EQUIVALENTS:
|
||||||||||||||||||||
Balance, beginning of period
|
2,155 | 1,662 | 796 | - | 4,613 | |||||||||||||||
Balance, end of period
|
$ | 2,013 | 1,293 | 982 | - | 4,288 |
Consolidating statement of cash flows for the year ended December 28, 2008 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
Restated | Restated | |||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||
Net (loss) income
|
$ | (79,911 | ) | 7,256 | 413 | (7,669 | ) | (79,911 | ) | |||||||||||
Adjustments to reconcile net (loss) income to net cash
|
||||||||||||||||||||
provided by (used in) operating activities:
|
||||||||||||||||||||
Equity in (loss) earnings of subsidiaries
|
(7,669 | ) | - | - | 7,669 | - | ||||||||||||||
Depreciation and amortization
|
17,795 | 6,182 | 722 | - | 24,699 | |||||||||||||||
Asset impairments
|
662 | 577 | 53 | - | 1,292 | |||||||||||||||
Amortization of debt discount
|
647 | - | - | - | 647 | |||||||||||||||
Other non-cash income and expense items
|
(116 | ) | 104 | - | - | (12 | ) | |||||||||||||
(Gain) loss on disposition of assets
|
(441 | ) | 946 | - | - | 505 | ||||||||||||||
Goodwill impairment
|
47,444 | - | - | - | 47,444 | |||||||||||||||
Loss on extinguishment of debt
|
2,952 | - | - | - | 2,952 | |||||||||||||||
Equity in net loss of unconsolidated partnership
|
- | 5 | - | - | 5 | |||||||||||||||
Net changes in operating assets and liabilities
|
1,767 | (8,435 | ) | (442 | ) | - | (7,110 | ) | ||||||||||||
Total adjustments
|
63,041 | (621 | ) | 333 | 7,669 | 70,422 | ||||||||||||||
Net cash (used in) provided by operating activities
|
(16,870 | ) | 6,635 | 746 | - | (9,489 | ) | |||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
Purchases of property and equipment
|
(14,697 | ) | (3,341 | ) | (298 | ) | - | (18,336 | ) | |||||||||||
Proceeds from sale of assets
|
592 | 95 | - | - | 687 | |||||||||||||||
Net cash used in investing activities
|
(14,105 | ) | (3,246 | ) | (298 | ) | - | (17,649 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
Proceeds from revolving credit facilities
|
84,848 | - | - | - | 84,848 | |||||||||||||||
Repayment of revolving credit facilities
|
(101,664 | ) | - | - | - | (101,664 | ) | |||||||||||||
Proceeds from Secured Notes, net of $7,537 discount
|
124,463 | - | - | - | 124,463 | |||||||||||||||
Repayment of Term Loan
|
(98,750 | ) | - | - | - | (98,750 | ) | |||||||||||||
Repayment of capital lease obligations
|
(148 | ) | (265 | ) | - | - | (413 | ) | ||||||||||||
Repayment of other debt
|
- | (18 | ) | - | - | (18 | ) | |||||||||||||
Debt financing costs
|
(9,559 | ) | - | - | - | (9,559 | ) | |||||||||||||
Lessor financing of new restaurants
|
2,286 | - | - | - | 2,286 | |||||||||||||||
Distributions to noncontrolling interest holders
|
- | - | (402 | ) | - | (402 | ) | |||||||||||||
Intercompany financing
|
335 | (1,872 | ) | 1,537 | - | - | ||||||||||||||
Capital contributions
|
12,500 | - | - | - | 12,500 | |||||||||||||||
Repurchase of equity ownership units in P&MC's Holding LLC
|
(572 | ) | - | - | - | (572 | ) | |||||||||||||
Net cash provided by (used in) financing activities
|
13,739 | (2,155 | ) | 1,135 | - | 12,719 | ||||||||||||||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
|
(17,236 | ) | 1,234 | 1,583 | - | (14,419 | ) | |||||||||||||
CASH AND CASH EQUIVALENTS:
|
||||||||||||||||||||
Balance, beginning of period
|
19,391 | 428 | (787 | ) | - | 19,032 | ||||||||||||||
Balance, end of period
|
$ | 2,155 | 1,662 | 796 | - | 4,613 | ||||||||||||||
Consolidating statement of cash flows for the year ended December 30, 2007 (in thousands):
Guarantor
|
Non-
|
Consolidated
|
||||||||||||||||||
Issuer
|
WRG
|
Guarantors
|
Eliminations
|
PMCI
|
||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||||||||||||||
Net (loss) income
|
$ | (15,628 | ) | 10,789 | 846 | (11,635 | ) | (15,628 | ) | |||||||||||
Adjustments to reconcile net (loss) income to net cash
|
||||||||||||||||||||
provided by (used in) operating activities:
|
||||||||||||||||||||
Equity in (loss) earnings of subsidiaries
|
(11,635 | ) | - | - | 11,635 | - | ||||||||||||||
Depreciation and amortization
|
17,610 | 5,939 | 1,273 | - | 24,822 | |||||||||||||||
Asset impairments
|
427 | 1,781 | 29 | - | 2,237 | |||||||||||||||
Amortization of debt discount
|
324 | - | - | - | 324 | |||||||||||||||
Other non-cash income and expense items
|
265 | 68 | - | - | 333 | |||||||||||||||
(Gain) loss on disposition of assets
|
(605 | ) | 831 | - | - | 226 | ||||||||||||||
Equity in net loss of unconsolidated partnership
|
- | 82 | - | - | 82 | |||||||||||||||
Net changes in operating assets and liabilities
|
6,373 | (2,815 | ) | (475 | ) | - | 3,083 | |||||||||||||
Total adjustments
|
12,759 | 5,886 | 827 | 11,635 | 31,107 | |||||||||||||||
Net cash (used in) provided by operating activities
|
(2,869 | ) | 16,675 | 1,673 | - | 15,479 | ||||||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||||||||||||||
Purchases of property and equipment
|
(25,794 | ) | (5,095 | ) | (658 | ) | - | (31,547 | ) | |||||||||||
Proceeds from sale of assets
|
- | 21 | - | - | 21 | |||||||||||||||
Net cash used in investing activities
|
(25,794 | ) | (5,074 | ) | (658 | ) | - | (31,526 | ) | |||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||||||||||||||
Proceeds from revolving credit facilities
|
75,100 | - | - | - | 75,100 | |||||||||||||||
Repayment of revolving credit facilities
|
(55,100 | ) | - | - | - | (55,100 | ) | |||||||||||||
Repayment of Term Loan
|
(750 | ) | - | - | - | (750 | ) | |||||||||||||
Repayment of capital lease obligations
|
(177 | ) | (525 | ) | - | - | (702 | ) | ||||||||||||
Proceeds from (repayment of) other debt
|
100 | (18 | ) | - | - | 82 | ||||||||||||||
Lessor financing of new restaurants
|
6,107 | - | - | - | 6,107 | |||||||||||||||
Distributions to noncontrolling interest holders
|
- | - | (519 | ) | - | (519 | ) | |||||||||||||
Intercompany financing
|
17,649 | (17,788 | ) | 139 | - | - | ||||||||||||||
Capital contributions
|
1,792 | - | - | - | 1,792 | |||||||||||||||
Net cash provided by (used in) financing activities
|
44,721 | (18,331 | ) | (380 | ) | - | 26,010 | |||||||||||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
16,058 | (6,730 | ) | 635 | - | 9,963 | ||||||||||||||
CASH AND CASH EQUIVALENTS:
|
||||||||||||||||||||
Balance, beginning of period
|
3,333 | 7,158 | (1,422 | ) | - | 9,069 | ||||||||||||||
Balance, end of period
|
$ | 19,391 | 428 | (787 | ) | - | 19,032 |
(18) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
Our financial reporting is based on thirteen four-week periods ending on the last Sunday in December. The first quarter each year includes four four-week periods and the second, third and fourth quarters include three four-week periods.
2009 (in thousands)
|
Revenues
|
(a)
Gross profit
|
Net loss attributable to PMCI
|
|||||||||
1st Quarter
|
$ | 169,253 | 25,253 | (9,754 | ) | |||||||
2nd Quarter
|
121,876 | 18,599 | (5,880 | ) | ||||||||
3rd Quarter
|
115,470 | 14,755 | (11,248 | ) | ||||||||
4th Quarter
|
129,469 | 22,394 | (9,337 | ) | ||||||||
$ | 536,068 | 81,001 | (36,219 | ) |
2008 (in thousands)
|
Revenues
|
(a)
Gross profit
|
(b)
Net loss attributable to PMCI
|
|||||||||
1st Quarter
|
$ | 182,400 | 25,556 | (7,588 | ) | |||||||
2nd Quarter
|
130,966 | 16,440 | (8,065 | ) | ||||||||
3rd Quarter (Restated)
|
127,901 | 16,377 | (57,719 | ) | ||||||||
4th Quarter
|
140,703 | 21,803 | (6,823 | ) | ||||||||
$ | 581,970 | 80,176 | (80,195 | ) |
____________
(a)
|
Gross profit represents total revenues less food cost, labor and benefits and operating expenses.
|
(b) The net loss for the third quarter of 2008 includes a non-cash goodwill impairment charge of $47,444,000.
The following tables present the impact of the restatement adjustments (see Note 19 – “Restatement of Consolidated Financial Statements”) on the Consolidated Statements of Operations and Balance Sheets for the quarters of 2009 and 2008 previously reported on Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K for such quarters.
Consolidated Statements of Operations | ||||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
As Previously
|
||||||||||||
Reported
|
Adjustments
|
Restated
|
||||||||||
Quarter Ended October 5, 2008
|
||||||||||||
Goodwill impairment
|
$ | 20,202 | 27,242 | 47,444 | ||||||||
Net loss | (30,472 | ) | (27,242 | ) | (57,714 | ) | ||||||
Net loss attributable to PMCI
|
(30,477 | ) | (27,242 | ) | (57,719 | ) | ||||||
Consolidated Balance Sheets | ||||||||||||
(Unaudited) | ||||||||||||
(In thousands) | ||||||||||||
As Previously
|
||||||||||||
Reported
|
Adjustments
|
Restated
|
||||||||||
As of October 4, 2009
|
||||||||||||
Goodwill
|
$ | 9,836 | 13,264 | 23,100 | ||||||||
Total assets
|
299,893 | 13,264 | 313,157 | |||||||||
Deferred income taxes
|
- | 45,457 | 45,457 | |||||||||
Accumulated deficit
|
(287,803 | ) | (32,193 | ) | (319,996 | ) | ||||||
Total PMCI stockholder's deficit
|
(136,887 | ) | (32,193 | ) | (169,080 | ) | ||||||
As of July 12, 2009
|
||||||||||||
Goodwill
|
9,836 | 13,264 | 23,100 | |||||||||
Total assets
|
304,949 | 13,264 | 318,213 | |||||||||
Deferred income taxes
|
- | 45,457 | 45,457 | |||||||||
Accumulated deficit
|
(276,555 | ) | (32,193 | ) | (308,748 | ) | ||||||
Total PMCI stockholder's deficit
|
(126,683 | ) | (32,193 | ) | (158,876 | ) | ||||||
As of April 19, 2009
|
||||||||||||
Goodwill
|
9,836 | 13,264 | 23,100 | |||||||||
Total assets
|
310,733 | 13,264 | 323,997 | |||||||||
Deferred income taxes
|
- | 45,457 | 45,457 | |||||||||
Accumulated deficit
|
(270,675 | ) | (32,193 | ) | (302,868 | ) | ||||||
Total PMCI stockholder's deficit
|
(120,832 | ) | (32,193 | ) | (153,025 | ) |
(19) RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS:
On September 21, 2005, P&MC Holding Corp. purchased all of the outstanding capital stock of The Restaurant Company (the “Acquisition”). We are restating our Consolidated Financial Statements in order to correct an error associated with the accounting for the Acquisition as follows:
·
|
In conjunction with the Acquisition, we recorded certain non-amortizing intangible assets in our allocation of the purchase price. However, at that time we failed to record the related deferred tax liabilities aggregating $40,506,000 for the differences between the income tax basis and the financial reporting basis of such assets and the associated corresponding increase in goodwill;
|
·
|
Such deferred tax liabilities in the Acquisition purchase price allocation should have then been increased by $4,951,000 during the year ended December 31, 2006 (with a corresponding charge to the provision for income taxes in that year) due to a change in our effective tax rates; and,
|
·
|
During the year ended December 28, 2008, we had previously recorded an impairment to goodwill of $20,202,000. A significant portion of the additional goodwill associated with the Acquisition error discussed above should have also been impaired at that time resulting in an additional $27,242,000 impairment charge during the year ended December 28, 2008.
|
The correction of the error, as reflected in our 2007 opening deficit, increased deferred tax liabilities, goodwill and accumulated deficit by $45,456,000, $40,506,000 and $4,951,000, respectively. These corrections also resulted in an increase to our 2008 reported net loss by $27,242,000 due to increased goodwill impairment charges.
The following is a summary of effects of these changes on the Consolidated Financial Statements:
Consolidated Statements of Operations | ||||||||||||
(In thousands) | ||||||||||||
As Previously
|
||||||||||||
Reported
|
Adjustments
|
Restated
|
||||||||||
Year Ended December 28, 2008
|
||||||||||||
Goodwill impairment
|
$ | 20,202 | 27,242 | 47,444 | ||||||||
Total costs and expenses
|
636,408 | 27,242 | 663,650 | |||||||||
Loss before income taxes
|
(54,438 | ) | (27,242 | ) | (81,680 | ) | ||||||
Net loss
|
(52,669 | ) | (27,242 | ) | (79,911 | ) | ||||||
Net loss attributable to PMCI
|
(52,953 | ) | (27,242 | ) | (80,195 | ) | ||||||
Consolidated Balance Sheets | ||||||||||||
(In thousands) | ||||||||||||
As Previously
|
||||||||||||
Reported
|
Adjustments
|
Restated
|
||||||||||
As of December 27, 2009
|
||||||||||||
Goodwill
|
$ | 9,836 | 13,264 | 23,100 | ||||||||
Total assets
|
291,641 | 13,264 | 304,905 | |||||||||
Deferred income taxes
|
- | 45,457 | 45,457 | |||||||||
Accumulated deficit
|
(297,140 | ) | (32,193 | ) | (329,333 | ) | ||||||
Total PMCI stockholder's deficit
|
(146,224 | ) | (32,193 | ) | (178,417 | ) | ||||||
Total deficit
|
(145,916 | ) | (32,193 | ) | (178,109 | ) | ||||||
Total liabilities and deficit
|
291,641 | 13,264 | 304,905 | |||||||||
As of December 28, 2008
|
||||||||||||
Goodwill
|
9,836 | 13,264 | 23,100 | |||||||||
Total assets
|
323,508 | 13,264 | 336,772 | |||||||||
Deferred income taxes
|
- | 45,457 | 45,457 | |||||||||
Accumulated deficit
|
(260,921 | ) | (32,193 | ) | (293,114 | ) | ||||||
Total PMCI stockholder's deficit
|
(111,073 | ) | (32,193 | ) | (143,266 | ) | ||||||
Total deficit
|
(110,858 | ) | (32,193 | ) | (143,051 | ) | ||||||
Total liabilities and deficit
|
323,508 | 13,264 | 336,772 | |||||||||
Consolidated Statements of Cash Flows | ||||||||||||
(In thousands) | ||||||||||||
As Previously
|
||||||||||||
Reported
|
Adjustments
|
Restated
|
||||||||||
Year Ended December 28, 2008
|
||||||||||||
Net loss
|
$ | (52,669 | ) | (27,242 | ) | (79,911 | ) | |||||
Goodwill impairment
|
20,202 | 27,242 | 47,444 |
(20) SUBSEQUENT EVENTS:
On March 15, 2010, Pete M. Pascuzzi tendered his resignation as the Executive Vice President and Chief Operating Officer effective as of March 28, 2010. On March 31, 2010, the Company announced the appointment of Richard K. Arras as President of the Perkins division effective April 19, 2010.
Disclosure Controls and Procedures. As of December 27, 2009, an evaluation of the design and effectiveness of our disclosure controls and procedures was carried out under the supervision and with the participation of the Company’s management, including our Chief Executive Officer and Chief Financial Officer. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on the results of our evaluation, the determination was made that there were no control deficiencies that represented material weaknesses in our disclosure controls and procedures. The Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, concluded that our internal control over financial reporting and procedures were effective as of December 27, 2009.
In connection with the restatement of our financial results, which is more fully described in the “Explanatory Note” to this Amendment and in Note 19 to our Consolidated Financial Statements in Item 8, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we reevaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 27, 2009. Based upon that reevaluation and particularly in light of the restatement of our financial results, we identified a material weakness in our internal control over financial reporting with respect to the determination and periodic review of deferred income tax balances.
As a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of December 27, 2009.
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 27, 2009 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are being made only with proper authorizations; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
With the participation of the Chief Executive Officer and Chief Financial Officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 27, 2009, based on the framework and criteria established in Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission.
A material weakness is defined as a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 27, 2009, we did not maintain effective controls over the determination and review of differences between the income tax basis and financial reporting basis of certain assets and liabilities. This deficiency resulted in this Amendment to our Annual Report on Form 10-K for the year ended December 27, 2009 in order to restate the Consolidated Balance Sheets as of December 27, 2009 and December 28, 2008 and the Consolidated Statements of Operations and Cash Flows for the year ended December 28, 2008. Accordingly, management has determined that this control deficiency constitutes a material weakness.
In our Annual Report on Form 10-K for the year ended December 27, 2009, management concluded that our internal control over financial reporting was effective as of December 27, 2009. As a result of this material weakness, management has revised its earlier assessment and has now concluded that our internal control over financial reporting was not effective as of December 27, 2009.
We are in the process of designing and implementing improvements in our internal control over financial reporting to address the material weakness in accounting for income taxes. These improvements include, among other things, improved documentation and analysis regarding the determination and periodic review of deferred income tax amounts and enhancing the documentation around conclusions reached in the implementation of the applicable generally accepted accounting principles.
(a)
|
1. Financial Statements filed as part of this report are listed below:
|
Report of Independent Registered Public Accounting Firm.
Consolidated Statements of Operations for the years ended December 27, 2009, December 28, 2008 (Restated) and December 30, 2007.
Consolidated Balance Sheets at December 27, 2009 (Restated) and December 28, 2008 (Restated).
Consolidated Statements of Stockholder’s Deficit (Restated) for the years ended December 27, 2009, December 28, 2008 and December 30, 2007.
Consolidated Statements of Cash Flows for the years ended December 27, 2009, December 28, 2008 (Restated) and December 30, 2007.
Notes to Consolidated Financial Statements.
2. The following Financial Statement Schedule for the years ended December 27, 2009, December 28, 2008 and December 30, 2007 is included:
No. II. Valuation and Qualifying Accounts.
Schedules I, III, IV and V are not applicable and have therefore been omitted.
3. Exhibits:
Exhibit No.
|
|
2.1*
|
Stock Purchase Agreement, dated as of September 2, 2005, by and among The Restaurant Holding Corporation, The Individuals and Entities listed on Exhibit A attached thereto and TRC Holding Corp.
|
2.2*
|
First Amendment to Stock Purchase Agreement, dated as of September 21, 2005, by and among The Restaurant Corporation, TRC Holding Corp., BancBoston Ventures Inc. and Donald N. Smith
|
2.3*
|
Stock Purchase Agreement, dated as of May 3, 2006, by and among The Restaurant Company, TRC Holding LLC, Wilshire Restaurant Group, Inc. and the individuals and entities listed on Exhibit A attached thereto.
|
3.1*
|
Certificate of Amendment of Certificate of Incorporation of The Restaurant Company dated August 7, 2006.
|
3.2*
|
Certificate of Amendment of Certificate of Formation of TRC Realty LLC dated December 5, 2006.
|
4.1*
|
First Supplemental Indenture, dated as of April 28, 2006, by and among The Restaurant Company, the Guarantors and The Bank of New York, as trustee.
|
4.2*
|
Form of 10% Senior Notes due 2013 (included in Exhibit 4.1)
|
4.3*
|
Form of Guarantee (included in Exhibit 4.1)
|
10.1**
|
Purchase Agreement, dated September 24, 2008, by and among Perkins & Marie Callender’s Inc., the Guarantors named therein, and Jefferies & Company, Inc.
|
10.2**
|
Indenture, dated as of September 24, 2008, among Perkins & Marie Callender’s Inc., the Guarantors named therein, and The Bank of New York Mellon, as Trustee.
|
Exhibit No.
|
10.3**
|
Form of 14% Senior Secured Notes due 2013 (included in Exhibit 10.2).
|
10.4**
|
Form of Guarantee (included in Exhibit 10.2).
|
10.5**
|
Security Agreement, dated as of September 24, 2008, among the Grantors listed therein and those additional entities that become parties thereby, and The Bank of New York Mellon, as Trustee.
|
10.6**
|
Trademark Security Agreement, dated as of September 24, 2008, among the Grantors listed therein and those additional entities that become parties thereby, and The Bank of New York Mellon, as Trustee.
|
10.7**
|
Intercreditor Agreement, dated as of September 24, 2008, between Wells Fargo Foothill, LLC, as First Priority Agent, and The Bank of New York Mellon, as Second Priority Agent.
|
10.8**
|
Credit Agreement, dated September 24, 2008, among Perkins & Marie Callender’s Holding Inc., as Parent, Perkins & Marie Callender’s Inc., as Borrower, the lenders that are signatories thereto, and Wells Fargo Foothill, LLC, as the Arranger and Administrative Agent.
|
10.9**
|
Security Agreement, dated as of September 24, 2008, among Perkins & Marie Callender’s Holding Inc. and each of its subsidiaries signatory thereto, as grantors, and Wells Fargo Foothill, LLC.
|
10.10**
|
Trademark Security Agreement, dated as of September 24, 2008, among the grantors thereto and Wells Fargo Foothill, LLC.
|
10.11***+
|
Employment Agreement between Perkins & Marie Callender’s Inc. and Joseph F. Trungale, President and Chief Executive Officer
|
10.12****+
|
Employment Agreement between Perkins & Marie Callender’s Inc. and Fred T. Grant, Jr., Executive Vice President and Chief Financial Officer
|
10.13*****+
|
Employment Agreement between Perkins & Marie Callender’s Inc. and Pete M. Pascuzzi, Executive Vice President, Operations and President, Perkins Restaurants
|
21.1*
|
List of subsidiaries of Perkins & Marie Callender’s Inc.
|
31.1
|
Chief Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302
|
31.2
|
Chief Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 302.
|
32.1
|
Chief Executive Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.
|
32.2
|
Chief Financial Officer Certification Pursuant to Sarbanes-Oxley Act of 2002, Section 906.
|
____________
*
|
Previously filed as an exhibit to the Registrant’s Registration Statement on Form S-4 (File No. 333-131004), originally filed on January 12, 2006.
|
**
|
Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K/A, originally filed on October 3, 2008.
|
***
|
Previously filed as an exhibit to the Annual Report on Form 10-K (File No. 333-57925), originally filed on June 27, 2007.
|
****
|
Previously filed as an exhibit to the Registrant’s Current Report on Form 8-K, originally filed on March 18, 2008.
|
*****
|
Previously filed as an exhibit to the Annual Report on Form 10-K (File No. 333-57925), originally filed on March 30, 2009.
|
+
|
Management contract or compensatory plan or arrangement.
|
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 our behalf by the undersigned thereunto duly authorized, on this the 7th day of June 2010.
PERKINS & MARIE CALLENDER’S INC.
By: /s/ Joseph F. Trungale
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on this the 7th day of June 2010.
Signature
|
Title
|
/s/ Joseph F. Trungale
|
President and Chief Executive Officer
|
Joseph F. Trungale
|
(Principal Executive Officer)
|
/s/ Fred T. Grant, Jr.
|
Executive Vice President and Chief Financial Officer
|
Fred T. Grant, Jr.
|
(Principal Financial and Accounting Officer)
|
We have not sent, and do not intend to send, an annual report to security holders covering our last fiscal year, nor have we sent a proxy statement, form of proxy or other soliciting material to our security holders with respect to any annual meeting of security holders.
PERKINS & MARIE CALLENDER’S INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Column A
|
Column B
|
Column C
|
Column D
|
|
Column E
|
||||||||||||||||||||
|
|
|
Additions
|
|
|
|
|||||||||||||||||||
Description
|
Balance at
Beginning of
Period
|
Business
Combination
|
Charged
to Costs &
Expenses
|
Charged
to Other
Accounts
|
Deductions
from
Reserves
|
|
Balance
at Close
of Period
|
||||||||||||||||||
FISCAL YEAR ENDED DECEMBER 27, 2009
|
|||||||||||||||||||||||||
Allowance for Doubtful Accounts
|
$ | 954 | 0 | 290 | 0 | (415 | ) |
(a)
|
$ | 829 | |||||||||||||||
FISCAL YEAR ENDED DECEMBER 28, 2008
|
|||||||||||||||||||||||||
Allowance for Doubtful Accounts
|
1,542 | 0 | 79 | 0 | (667 | ) |
(a)
|
954 | |||||||||||||||||
FISCAL YEAR ENDED DECEMBER 30, 2007
|
|||||||||||||||||||||||||
Allowance for Doubtful Accounts
|
1,624 | 0 | 77 | 0 | (159 | ) |
(a)
|
1,542 |
____________
(a)
|
Represents uncollectible accounts written off, net of recoveries, and net costs associated with sublease receivables for which a reserve was established.
|
|
67