UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number
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PERFORMANCE INDUSTRIES, INC., AND SUBSIDIARIES
(Exact name of registrant as specified in its charter)
Ohio 34-1334199
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2425 E. Camelback Road, Suite 620
Phoenix, Arizona 85016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (602) 912-0100
Indicate by checkmark whether the registrant: (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15d of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
--- ---
Number of shares outstanding of each of the issuer's classes of common stock as
of May 6, 1996, 9,958,115 shares.
1
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
INDEX
Page
PART I. FINANCIAL INFORMATION (Unaudited):
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995............................3
Consolidated Statements of Operations (Unaudited) -
Three Month Period Ended March 31, 1996 and 1995 ...........4
Consolidated Statements of Operations (Unaudited) -
Three Month Period Ended March 31, 1996 and 1995............5
Consolidated Statements of Cash Flow (Unaudited) -
Three Month Period Ended March 31, 1996 and 1995........... 6
Notes to Consolidated Financial Statements (Unaudited).............. 7 - 8
Management's Discussion and Analysis of Financial................... 9 - 12
Condition and Results of Operations
PART II. OTHER INFORMATION:
Item I. Legal Proceedings...........................................13
Item 2. Changes in Securities.......................................13
Item 3. Defaults upon Senior Securities.............................13
Item 4. Submission of Matters to a Vote of Security Holders.........13
Item 5. Other Information....13
Item 6. Exhibits and Reports on Form 8-K............................13
Signatures..........................................................14
2
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, 1996 AND DECEMBER 31, 1995
ASSETS
Mar. 31, 1996 Dec. 31, 1995
------------- -------------
Current Assets:
Cash and cash equivalents $ 20 $ 411
Restricted cash 770 1,267
Securities available for sale 1,461 1,783
Accounts and other receivables, less
allowance for doubtful accounts 402 416
Current portion of receivables from
sale of businesses, net of allowance 480 480
Factored accounts receivable, net of
allowance for doubtful accounts 2,089 1,868
Inventories 277 293
Prepaid expenses and other current assets 584 322
Other assets held for sale 212 212
Deferred income taxes 81 0
----- -----
Total current assets 6,376 7,052
Receivables from sale of businesses,
less current portion, net of allowance 533 520
Investment in real estate 11,134 11,073
Deferred income taxes 1,734 1,734
Property and equipment, net 3,684 3,578
Other assets 922 921
------ ------
TOTAL ASSETS $24,383 $24,878
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt and
capital lease obligations $ 489 $ 594
Accounts payable 968 1,260
Accrued employment costs 409 288
Accrued product liability costs 341 350
Accrued expenses and other current liabilities 645 1,016
Factored receivables reserve 466 390
Liabilities subject to compromise 764 754
----- -----
Total current liabilities 4,082 4,652
Long-term debt and capital obligations,
less current portion 7,174 6,751
Minority interest 411 414
Shareholder's Equity:
Preferred stock, par value $1.00 per share;
authorized 100,000 shares; none issued -- --
Common stock, no par value; authorized 20,000,000
shares; issued 12,629,326 shares 31,202 31,202
Accumulated deficit (16,510) (16,416)
Unrealized appreciation on securities
available for sale, net of income taxes 975 1,226
------ -----
15,667 16,012
Treasury stock at cost (2,671,211 shares) ( 2,951) ( 2,951)
------ ------
Total shareholders' equity 12,716 13,061
------ ------
Total liabilities and shareholders' 24,383 24,878
====== ======
The accompanying notes are an
integral part of these consolidated financial statements.
3
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(Unaudited)
Three Months Ended March 31
---------------------------
1996 1995
---- ----
Revenues from continuing operations $ 5,226 $ 4,617
Cost of revenues (4,709) (3,999)
Selling, general, and administrative expenses (737) (853)
Interest expense (181) (86)
Other income, net 297 333
------- ------
Gain (Loss) from continuing operations
before income taxes (104) 12
Income tax benefit 7 (2)
Gain (Loss) from continuing operations
before minority interest (97) 10
Minority interest in (gain)/loss from
subsidiary 3 (19)
------- ------
Net loss $ (94) $ (9)
========= =========
Net income (loss) per common share (.01) (.00)
========= =========
Average number of shares outstanding 9,958,115 9,958,115
========= =========
The accompanying notes are an integral part of these financial
statements.
4
PERFORMANCE INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(DOLLARS IN THOUSANDS)
FOR THE THREE MONTH PERIOD ENDING MARCH 31, 1996 AND 1995
(Unaudited)
Three Months Ended March 31
---------------------------
1996 1995
---- ----
Cash Provided By (Used In) Operating Activities:
Net cash provided by (used in) operating activities (620) (509)
Cash Flows from Investing Activities:
Decrease (increase) in receivables from sale
of businesses, net ( 13) 13
(Increase) decrease in investment of factored
receivables, net (145) 1,738
Additions to property and equipment (253) (797)
Increase in real estate under development (175) (390)
----- -----
Net cash provided by (used in) investing (586) 564
activities
Cash Flows from Financing Activities:
Repayment of debt (296) (24)
Proceeds from borrowings 614 162
(Increase) decrease in treasury stock -- 47
----- -----
Net cash provided by (used in) financing 318 185
activities
Net increase (decrease) in cash and cash equivalents (888) 240
Cash and cash equivalents at beginning of period 1,678 1,142
----- -----
Cash and cash equivalents, end of period $ 790 $1,382
====== ======
See accompanying notes to consolidated financial statements.
5
PERFORMANCE INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation:
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto contained herein.
(2) Securities Available for Sale:
The market value of securities available for sale decreased by $322,000 from
December 31, 1995 to March 31, 1996. The net of this market decrease, after
taxes, was recorded in the equity section of the balance sheet of the Company
under unrealized appreciation on securities available for sale.
(3) Inventories:
The components of inventories were as follows (in thousands):
March 31, 1996 December 31, 1995
-------------- -----------------
Restaurant Inventory 277 293
(4) Prepaid Expenses and Other Current Assets:
Prepaid expenses increased $262,000 from year end representing the effect of the
timing of certain prepaid expenses and certain other expenses related to the
opening of a new restaurant in June.
(5) Minority Interest:
The Company, through its development subsidiary, owns a 71.6% interest in a
limited liability company. The minority interest represents the other 28.4%
ownership in this company.
(6) Contingencies:
a. Manufacturing Facility in California
In the second quarter 1995, the Company was served with a Summons and Complaint
seeking the cost of remediation of its former Cragar Wheel Manufacturing
facility in Compton, California. The action was filed by the owner of property
in the U.S. District Court for the Central District of California. The Company
timely filed an answer to the complaint.
A predecessor-in-interest to the Company was also named as a defendant in the
matter. In the fourth quarter of 1995, the plaintiff and this defendant agreed
to conduct a further investigation of the site to determine the extent of the
contamination. All parties agreed to an informal stay of discovery and
proceedings until this joint investigation is completed.
The Company believes the contamination existed prior to its assumption of the
lease for the site. The Company further believes that the co-defendant will
ultimately be liable for the majority of remediation costs.
Two of the Company's insurance carriers have agreed to defend the Company in the
litigation subject to a reservation of rights. They will pay the attorney fees
and investigation expenses through trial without admitting any liability under
their policies for the cost of any remediation.
6
b. Dissenting Shareholders
In February 1996, the Supreme Court of the United States denied the defendant's
Writ of Certiorari seeking a review of the State Court's finding of personal
jurisdiction. The matter will be remanded to the Superior Court, State of
Arizona for determination of the fair market value of the dissenter's stock
under Ohio Statutes.
7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PERFORMANCE INDUSTRIES, INC. - CONSOLIDATED
Results of Operations - Consolidated
The Company's results of operations for the three months ended March 31, 1996
were a loss of $94,000 compared to a loss of $9,000 for the same period in 1995.
Gross revenues increased 13% while cost of sales increased 18%. Selling,
general, and administrative expenses decreased 14% from $853,000 to $737,000.
Interest expense totalled $181,000 for the period ended March 31, 1996 compared
to $86,000 in 1995. The increase is attributable to borrowing of funds to
complete the construction of the Camelback Plaza development and interest on the
Company's factoring subsidiary line of credit, which was obtained in July of
1995.
PERFORMANCE RESTAURANT GROUP, INC.
Revenues
Total revenues for the quarter ended March 31, 1996, increased 16.9% to
$5,044,000 compared to $4,313,000 for the same period in 1995. The increase in
revenue is a result of the acquisition of a new restaurant operating under the
trade name Buster's Restaurant Bar & Grill.
Cost and Expenses
As a percentage of sales, cost of food and beverage increased to 27.9% for the
quarter ended March 31, 1996, from 26.5% for the same period of 1995. The
percentage increase is attributed to menu items offered at Buster's Restaurant
Bar & Grill. The restaurant sells primarily certified Black Angus beef and fresh
seafood of the highest quality available.
The menu yields a higher food cost percentage than a Bobby McGee's.
Restaurant operating expenses as a percentage of sales decreased by .7% to 65.3%
for the quarter ended March 31, 1996, from 66.0% for the same period of 1995.
The percentage decrease is the result of higher sales volumes.
Net Income
The restaurant division recorded a net loss of $11,000 for the quarter ended
March 31, 1996, as compared to net income of $10,000 for the same period last
year. The loss is attributable to an increase in depreciation expense. Same
store depreciation increased $29,000 to $117,000 for the quarter ended March 31,
1996, from $88,000 for the same period last year. The increase is due to the
extensive remodeling of the restaurants, which was completed in April of 1995.
Earnings Outlook
The Company is opening a Bobby McGee's in Las Vegas, Nevada, in June of 1996.
Expansion plans also include opening another restaurant later in the year. The
Company feels it can support the two additional restaurants without increasing
administrative expenditures. The increased sales volume from the additional
restaurants will help absorb fixed cost and return the Company to long term
profitability.
8
Performance Restaurant Group, Inc.
(Dollars in $1,000)
First Quarter
-----------------------------------------
( ) Unfavorable variance
1996 1995 1996 vs 1995
---- ---- ------------
Revenues $5,044 $4,313 $731
Cost and Expenses:
Cost of Sales 1,406 1,142 (264)
Restaurant Expenses 3,293 2,848 (445)
Administrative Expenses 356 313 ( 43)
--------- ------ -----
Total Cost and Expenses 5,055 4,303 (752)
--------- ------ -----
Earnings before Income Taxes ( 11) 10 ( 21)
Provision for Income Taxes 0 0 0
---------- ------ -----
Net Income $( 11) $ 10 $( 21)
======== ====== =====
Percentage of Total Revenues
First Quarter
-----------------------------------------
( ) Unfavorable variance
1996 1995 1996 vs 1995
---- ---- ------------
Revenues 100.0% 100.0% 16.9%
Cost and Expenses:
Cost of Sales 27.9% 26.5% 1.4%
Restaurant Expenses 65.3% 66.0% - 0.7%
Administrative Expenses 7.1% 7.3% - 0.2%
----------- ---------- ----------
Total Cost and Expenses 100.2% 99.8% 0.4%
----------- ---------- ----------
Earnings before Income Taxes - 0.2% 0.2% - 0.4%
Provision for Income Taxes 0.0% 0.0% 0.0%
----------- ---------- ----------
Net Income - 0.2% 0.2% - 0.4%
========= ======== =========
PERFORMANCE FUNDING
Results of Operations:
Gross revenues and net income for the three month period ended March 31, 1996
were $168,000 and $76,000 respectively. This compares to revenues and net income
of $297,000 and $251,00 for the three month period ended March 31, 1995. The
percentage decrease was 43% and 70% respectively.
Gross revenues were down from the same period in 1995 due to a general reduction
in the rate of fee charges to remain competitive in the market and the loss of a
major account in 1995. Net income declined as a result of lower revenues and
$48,000 of interest and finance charges related to the subsidiary's financing
arrangement obtained in July 1995.
Net borrowing increased by about $600,000 during the first quarter of 1996.
INVESTMENTS IN REAL ESTATE
The Company is continuing its marketing efforts to sell its investments in real
estate. The potential buyer of the Mexicali-
9
Mexico property has completed its due diligence but has asked for a thirty day
extension on the purchase contract. As was reported in the Company's 1996 Form
10-K, on April 1, 1996 it signed a six month exclusive agreement with Cushman &
Wakefield to market the Camelback Plaza Development project of which the Company
has a 71.6% ownership through a subsidiary.
LIQUIDITY AND CAPITAL RESOURCES
A $590,000 reduction in current liabilities resulted in the Company using
$640,000 for operating activities during the three months ended March 31, 1996.
The Company also invested $600,000 in its three operating business segments
during this period. The net cash used after repayment of debt was approximately
$1,500,000. All was provided by existing cash, available and generated, except
for approximately $600,000, which was provided from borrowings.
On April 1, 1996, the Company obtained a $1,000,000 line of credit with a term
of six months and a six month option. This loan, through its Performance Funding
subsidiary, is secured by the Company's 103,087 shares of Western Pacific
Airlines common stock. The stock at March 31, 1996 had a market value of
approximately $1,500,000. This stock is restricted and cannot be sold on the
open market until July 29, 1996 and will then be subject to 144 Rules.
The Company intends to use a portion of the proceeds of this loan to fund the
completion of its new Bobby McGee's Restaurant opening in Las Vegas in June of
1996.
The Company continues to market for sale its investments in real estate. Without
the sale of one or both, the Company's growth is going to be dependant upon
internal funding or, as an alternative, obtaining additional financing.
Management believes it has funds available to finance its continuing operations
but there can be no assurances.
10
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
An action was filed by the minority members of Camelback Plaza Development, L.C.
to appoint a receiver to manage the L.C. and Camelback Plaza. The matter is
pending in the Superior Court for the County of Maricopa, State of Arizona. The
Company's subsidiary, Performance Camelback Development Corp., managing member
of the L.C., was served with the action on May 3, 1996. While the Company has
yet to fully investigate the claim, management believes, after a review of the
allegations, that the action is without merit. Management also believes, but
there can be no assurance, that the action will be dismissed by the court and no
receiver shall be appointed.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
None
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PERFORMANCE INDUSTRIES, INC. and SUBSIDIARIES
Date: May 15, 1996 /s/ Joe Hrudka
-----------------------------
Joe Hrudka
Chairman of the Board
(Principal Executive Officer)
/s/ James W. Brown
------------------------------
James W. Brown
Chief Financial Officer
(Principal Accounting Officer)
12