<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: JULY 3, 1995
------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------- --------
Commission File Number: 0-6054
SUMMIT FAMILY RESTAURANTS INC.
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0264039
-------- ----------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1010 WEST 2610 SOUTH,
SALT LAKE CITY, UT 84119
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(801) 974-4300
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. AS OF AUGUST 9, 1995 THERE WERE
4,798,102 SHARES OF COMMON STOCK, $ .10 PAR VALUE, OUTSTANDING.
<PAGE> 2
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. 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 the Company, all adjustments (consisting
only of normal recurring entries) necessary for the fair presentation of the
Company's results of operations, financial position and changes therein for the
periods presented have been included.
<PAGE> 3
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 3, SEPTEMBER 26,
1995 1994
----------- -------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets
Cash and cash equivalents $ 1,163,000 $ 5,303,000
Short-term investments 265,000 2,160,000
Receivables
Short-term portion of notes
receivable 190,000 173,000
Income Taxes 1,496,000 2,045,000
Other receivables 972,000 1,359,000
Inventories 1,706,000 1,386,000
Deferred taxes, net 76,000 78,000
Prepaid expenses 251,000 309,000
----------- -----------
Total current assets 6,119,000 12,813,000
----------- -----------
Property, buildings and equipment, at cost,
less accumulated depreciation and
amortization 46,910,000 45,672,000
----------- -----------
Real property and equipment under capitalized
leases, at cost, less
accumulated amortization 6,940,000 7,480,000
----------- -----------
Other assets
Notes receivable, net of current portion 2,611,000 2,580,000
Investment in HomeTown Buffet, Inc. 6,075,000 5,678,000
Deposits and other 1,179,000 986,000
----------- -----------
Total other assets 9,865,000 9,244,000
----------- -----------
Intangible assets, at cost, less
accumulated amortization
Lease acquisition costs 436,000 569,000
Other intangible assets 784,000 830,000
----------- -----------
Total intangible assets 1,220,000 1,399,000
----------- -----------
Total assets $71,054,000 $76,608,000
=========== ===========
</TABLE>
<PAGE> 4
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND JULY 3, SEPTEMBER 26,
STOCKHOLDERS' EQUITY 1995 1994
----------- -------------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Accounts payable - trade $ 5,576,000 $ 6,874,000
Accrued liabilities
Payroll and related taxes 3,278,000 2,764,000
Sales and property taxes 1,965,000 1,855,000
Rent and other 1,831,000 2,762,000
Current maturities of long-term debt 3,095,000 1,960,000
----------- -----------
Total current liabilities 15,745,000 16,215,000
----------- -----------
Long-term debt, net of current maturities
Capitalized real property leases 10,136,000 10,609,000
Notes payable 338,000 2,484,000
----------- -----------
Total long-term debt 10,474,000 13,093,000
----------- -----------
Deferred taxes, net 1,507,000 1,376,000
----------- -----------
Deferred compensation 1,575,000 1,588,000
----------- -----------
Commitments and contingencies
Stockholders' equity
Preferred stock, $1 par value;
1,000,000 shares authorized;
946,714 shares issued
and outstanding 947,000 947,000
Junior common stock, $.01 par value;
500,000 shares authorized; none outstanding
- -
Common stock, $.10 par value; 10,000,000 shares
authorized; 4,798,102 and 5,288,759 shares issued
480,000 529,000
Additional paid-in capital 26,388,000 29,581,000
Unrealized gain on investment in HomeTown Buffet,
Inc., net of tax - Note 5 3,011,000 2,773,000
Retained earnings 10,927,000 13,790,000
----------- -----------
41,753,000 47,620,000
Less: - 0 - and 500,000 common stock treasury shares, at cost - 3,284,000
----------- -----------
Total stockholders' equity 41,753,000 44,336,000
----------- -----------
Total liabilities and stockholders' equity $71,054,000 $76,608,000
=========== ===========
</TABLE>
<PAGE> 5
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED FORTY WEEKS ENDED
-------------------------------- -----------------------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1995 1994 1995 1994
-------------------------------- -----------------------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Total revenues $38,095,000 $36,948,000 $92,419,000 $86,857,000
Costs and expenses
Food costs 12,682,000 12,016,000 30,606,000 28,084,000
Labor costs 13,161,000 12,732,000 32,318,000 30,137,000
Occupancy and other expenses 8,615,000 8,448,000 21,517,000 19,896,000
General and administrative expenses 2,552,000 2,544,000 6,240,000 6,076,000
Depreciation and amortization 2,017,000 1,864,000 4,847,000 4,624,000
Charge for property dispositions - 1,982,000 - 1,982,000
----------- ----------- ----------- -----------
Total costs and expenses 39,027,000 39,586,000 95,528,000 90,799,000
----------- ----------- ----------- -----------
Loss from operations (932,000) (2,638,000) (3,109,000) (3,942,000)
Interest and other income (expense)
Interest expense (488,000) (548,000) (1,211,000) (1,572,000)
Interest income 95,000 233,000 377,000 563,000
Gain on sale of HomeTown Buffet, Inc. stock - 14,700,000 - 14,700,000
Gains on sales of restaurants to
franchisees and other 16,000 (7,000) 27,000 613,000
Loss on disposition of note receivable - (1,564,000) - (1,564,000)
----------- ----------- ----------- -----------
Total interest and other income (expense) (377,000) 12,814,000 (807,000) 12,740,000
----------- ----------- ----------- -----------
Income (loss) before income taxes and
extraordinary item (1,309,000) 10,176,000 (3,916,000) 8,798,000
Income taxes (benefit) - 4,061,000 (1,053,000) 3,510,000
----------- ----------- ----------- -----------
Income (loss) before extraordinary item (1,309,000) 6,115,000 (2,863,000) 5,288,000
----------- ----------- ----------- -----------
Extraordinary loss resulting from
extinguishment of debt (less tax benefit of
$233,000) - - 350,000 350,000
----------- ----------- ----------- -----------
Net income (loss) ($1,309,000) $ 5,765,000 ($2,863,000) $ 4,938,000
=========== =========== =========== ===========
Net income (loss) per common share:
Before extraordinary loss ($0.27) $1.05 ($0.60) $0.92
Extraordinary loss 0.00 (0.06) 0.00 (0.06)
----------- ----------- ----------- -----------
Net income (loss) per common share ($0.27) $0.99 ($0.60) $0.86
=========== =========== =========== ===========
Weighted average shares outstanding 4,797,502 5,843,070 4,793,290 5,736,609
</TABLE>
<PAGE> 6
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
------------------------------------
JULY 3, JULY 4,
1995 1994
------------------------------------
(UNAUDITED)
<S> <C> <C>
Increase (Decrease)
In Cash and Cash Equivalents
Cash flows from operating activities
Net income (loss) $(2,863,000) $ 4,938,000
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 4,847,000 4,624,000
Charge for property dispositions - 1,982,000
Provision for losses - 1,564,000
Loss on extinguishment of debt - 583,000
Gain on disposal of assets (51,000) (240,000)
Gain on sale of HomeTown Buffet, Inc. stock - (14,700,000)
Change in operating assets and liabilities
Decrease in receivables 935,000 216,000
Increase in inventory (320,000) (152,000)
Increase in other assets (135,000) (307,000)
Increase (decrease) in accounts payable (1,299,000) 529,000
Increase (decrease) in accrued liabilities 225,000 (585,000)
Increase in net deferred taxes 133,000 291,000
----------- -----------
Net cash provided (used) by operating activities 1,472,000 (1,257,000)
----------- -----------
Cash flows from investing activities
Proceeds from sale of short-term investments 1,960,000 -
Acquisition of short-term investments (65,000) -
Acquisition of property, buildings and equipment (8,071,000) (9,028,000)
Acquisition of intangible assets (30,000) (261,000)
Proceeds from sale of HomeTown Buffet, Inc. stock - 16,814,000
Proceeds from sale of assets 1,979,000 1,800,000
Payments received on notes receivable 99,000 53,000
Exercise of options in HomeTown Buffet, Inc. - (120,000)
----------- -----------
Net cash provided (used) by investing activities (4,128,000) 9,258,000
Cash flows from financing activities
Proceeds from issuance of preferred stock - 5,044,000
Proceeds from issuance of common stock - 153,000
Borrowings under line-of-credit agreement 815,000 -
Payments under line-of-credit agreement (815,000) (762,000)
----------- -----------
Net proceeds (payments) under line-of-credit agreement - (762,000)
Principal payments on long-term debt
and capital leases (1,484,000) (6,737,000)
----------- -----------
Net cash used by financing activities (1,484,000) (2,302,000)
----------- -----------
Net increase (decrease) in cash and
cash equivalents (4,140,000) 5,699,000
Cash and cash equivalents at beginning
of period 5,303,000 1,666,000
----------- -----------
Cash and cash equivalents at end of period $ 1,163,000 $ 7,365,000
=========== ===========
</TABLE>
<PAGE> 7
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
------------------------------------
JULY 3, JULY 4,
1995 1994
------------------------------------
(UNAUDITED)
<S> <C> <C>
Supplemental disclosures of cash flow
information
Cash paid for interest $ 1,068,000 $ 1,687,000
=========== ===========
Cash paid for income taxes 165,000 3,825,000
=========== ===========
During fiscal 1995 and 1994,
stores were sold to franchisees and
notes receivable were recorded in
exchange for equipment as follows:
Notes receivable $ 377,000 $ 628,000
Gain recognized (27,000) (630,000)
Gain deferred (218,000) -
Cash received 98,000 157,000
----------- -----------
Net book value of equipment sold $ 230,000 $ 155,000
=========== ===========
</TABLE>
<PAGE> 8
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. NAME CHANGE
Effective April 4, 1995, the Company changed its corporate name to Summit Family
Restaurants Inc. from JB's Restaurants, Inc. The name change was made to reflect
the Company's diverse family restaurant concepts.
2. FISCAL PERIODS
The Company utilizes a 52/53 week fiscal year which ends on the last Monday in
September. The third quarter of each year contains 16 weeks while the other
three quarters each contain 12 weeks.
3. PRESENTATION
Certain prior year amounts in the unaudited consolidated financial statements
have been reclassified to conform with the current year presentation.
4. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed using the weighted average number
of shares of stock and dilutive common stock equivalents outstanding during each
period.
5. INVESTMENT IN HOMETOWN BUFFET, INC.
In the first quarter of fiscal 1994, the Company elected early adoption of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS No. 115"). In accordance with SFAS No. 115,
the Company's investment in the common stock of HomeTown Buffet, Inc. meets the
definition of available-for-sale securities and, as such, is reported at fair
value. On July 3, 1995 and September 26, 1994 the estimated fair value of the
Company's 528,220 shares of HomeTown Buffet, Inc. common stock was $11.50 and
$10.75 per share, or $6.1 million and $5.7 million, respectively. The unrealized
gain (net of tax) of $3.0 million and $2.8 million at July 3, 1995 and September
26, 1994, respectively, is recorded as a separate component of stockholders'
equity.
<PAGE> 9
SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES AND SELECTED OPERATING DATA. The following table sets forth, for the
periods indicated, certain information regarding the Company's revenues and
selected operating data.
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED FORTY WEEKS ENDED
------------------------------ -------------------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1995 1994 1995 1994
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Total revenues $38,095,000 $36,948,000 $92,419,000 $86,857,000
Percentage change from prior period 3.1% (0.1)% 6.4% (1.2)%
JB's Restaurants
Company owned units at end of quarter 81 89 81 89
Franchised units at end of quarter 23 19 23 19
Company restaurants transferred to franchisees - - 4 3
Company restaurants converted to Galaxy Diners 2 1 5 1
Company restaurants closed - 1 - 4
Average weekly sales per unit $ 18,444 $18,761 $ 18,070 $ 18,152
Percentage change from prior period (1.7)% (0.8)% (0.5)% 1.3%
Same store sales percentage change
from prior period (3.8)% (6.0)% (3.2)% (3.3)%
Galaxy Diners
Company owned units at end of quarter 6 1 6 1
Restaurants opened 2 1 5 1
Average weekly sales per unit $ 31,317 $ 35,053 $ 31,912 $ 35,053
HomeTown Buffets
Units operated as a franchisee at end of quarter 15 13 15 13
Restaurants opened 1 2 1 7
Average weekly sales per unit $ 49,342 $ 52,728 $ 48,130 $ 51,792
Sbarros
Units operated as a franchisee at end of quarter - - - -
Restaurants closed - - - 10
</TABLE>
The increase in revenues for the sixteen and forty week periods ended July 3,
1995, as compared with the comparable periods of the prior fiscal year, is
primarily the result of an increase in the number of HomeTown Buffet restaurants
and Galaxy Diners which more than offset the decline in revenues resulting from
the decrease in the number of JB's Restaurants, the disposition of the Company's
Sbarro restaurants and the decline in JB's Restaurants same store sales. During
the sixteen week period ended July 3, 1995, the average sales per JB's
Restaurant decreased 1.7% reflecting a decrease in customer counts per unit of
2.3% and an increase in the average customer purchase of 0.6%. Same store sales
for JB's Restaurants (sales from JB's Restaurants open during both
<PAGE> 10
the fiscal 1995 and 1994 period) decreased 3.8% reflecting a decrease in
customer counts of 4.2% while the average customer purchase increased 0.4%.
During the forty week period ended July 3, 1995, the average sales per JB's
Restaurant decreased 0.5% reflecting an increase in the average customer
purchase of 0.8% and a decrease in customer counts per unit of 1.3%. Same store
sales for JB's Restaurants decreased 3.2% reflecting an increase in the average
customer purchase of 0.6% offset by a 3.8% decrease in customer counts per unit.
COSTS AND EXPENSES; STATEMENT OF OPERATIONS DATA. The following table sets forth
costs as a percentage of revenues for the periods indicated as well as statement
of operations data:
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED FORTY WEEKS ENDED
------------------------------ -------------------------------
JULY 3, JULY 4, JULY 3, JULY 4,
1995 1994 1995 1994
------------------------------ -------------------------------
<S> <C> <C> <C> <C>
Total revenues 100.0% 100.0% 100.0% 100.0%
----- ----- ----- -----
Costs and expenses
Food costs 33.3 32.5 33.1 32.3
Labor costs 34.5 34.5 35.0 34.7
Occupancy and other expenses 22.6 22.9 23.3 22.9
General and administrative expenses 6.7 6.9 6.8 7.0
Depreciation and amortization 5.3 5.0 5.2 5.3
Charge for property dispositions - 5.4 - 2.3
----- ----- ----- -----
Total costs and expenses 102.4 107.2 103.4 104.5
----- ----- ----- -----
Loss from operations (2.4) (7.2) (3.4) (4.5)
Interest and other income (expense)
Interest expense (1.3) (1.5) (1.3) (1.8)
Interest income 0.2 0.6 0.4 0.6
Gain on sale of HomeTown
Buffet, Inc. stock - 39.8 - 16.9
Gains on sales of restaurants to
franchisees and other 0.1 - 0.1 0.7
Loss on disposition of note receivable - (4.2) - (1.8)
----- ----- ----- -----
Total interest and other
income (expense) (1.0) 34.7 (0.8) 14.6
----- ----- ----- -----
Income (loss) before income taxes and
extraordinary items (3.4) 27.5 (4.2) 10.1
Income taxes (benefit) - 11.0 (1.1) 4.0
----- ----- ----- -----
Income (loss) before extraordinary items (3.4) 16.5 (3.1) 6.1
----- ----- ----- -----
Extraordinary loss resulting from
extinguishment of debt (less tax benefit
of $233,000) - 0.9 - 0.4
----- ----- ----- -----
Net income (loss) (3.4)% 15.6% (3.1)% 5.7%
===== ===== ===== =====
Effective income tax rate - 39.9% 26.9% 39.9%
===== ===== ===== =====
</TABLE>
FOOD COSTS. The increase in food costs as a percentage of total revenues for the
sixteen and forty week periods ended July 3, 1995, as compared with the
comparable periods of the prior fiscal year, is primarily the result of an
increase in the number of HomeTown Buffet restaurants which operate at a higher
food cost percentage than the Company's JB's Restaurants and higher produce
prices due to the inclement weather in California.
<PAGE> 11
LABOR COSTS. The increase in labor costs as a percentage of total revenues in
the forty week period ended July 3, 1995, is primarily due to costs incurred in
training and increased scheduling designed to improve customer service in the
JB's Restaurants along with a decline in same store sales.
OCCUPANCY & OTHER EXPENSES. The decrease in occupancy and other expenses as a
percentage of total revenues for the sixteen week period ended July 3, 1995, as
compared with the comparable period of the prior fiscal year, is primarily due
to a $236,000 gain on the sale of the Company's combined office/warehouse
property partially offset by increased amortization of preopening costs
($44,000) resulting from the additional HomeTown Buffet openings and Galaxy
Diner conversions, increased royalty fees ($34,000) associated with the
additional HomeTown Buffet restaurants in operation along with the decline in
JB's Restaurants same store sales. The increase in occupancy and other expenses
as a percentage of total revenues for the forty week period ended July 3, 1995,
is primarily due to increased amortization of preopening costs ($225,000)
resulting from the additional HomeTown Buffet openings and Galaxy Diner
conversions, increased royalty fees ($191,000) associated with the additional
HomeTown Buffet restaurants in operation along with the decline in JB's
Restaurants same store sales.
GENERAL & ADMINISTRATIVE EXPENSES. The decrease in general and administrative
expenses as a percentage of total revenues for the sixteen and forty week
periods ended July 3, 1995 as compared with the comparable periods of the prior
fiscal year is primarily due to reduced employee relocation costs.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization as
a percentage of total revenues in the sixteen week period ended July 3, 1995, as
compared with the comparable period of the prior fiscal year primarily reflects
depreciation associated with remodeled JB's Restaurants and Galaxy Diner
conversions partially offset by the increase in the number of HomeTown Buffet
restaurants which operate with lower depreciation and amortization as a percent
of revenues.
CHARGE FOR PROPERTY DISPOSITIONS. The charge for property dispositions for the
sixteen and forty week periods ended July 4, 1994, of $1,982,000 is primarily
related to the disposition of certain underperforming JB's Restaurants.
INTEREST EXPENSE. The decrease in interest expense as a percentage of total
revenues for the sixteen and forty week periods ended July 3, 1995, as compared
with the comparable periods of the prior fiscal year is due to lower outstanding
debt.
INTEREST INCOME. The decrease in interest income as a percentage of total
revenues for the sixteen and forty week periods ended July 3, 1995, as compared
with the comparable periods of the prior fiscal year is primarily a result of
lower cash and short term investment balances.
GAIN ON SALE OF HOMETOWN BUFFET, INC. STOCK. During the sixteen week period
ended July 4, 1994, the Company sold 1,056,780 shares of HomeTown Buffet, Inc.
stock resulting in a pre-tax gain of $14,700,000.
LOSS ON DISPOSITION OF NOTE RECEIVABLE. During the sixteen week period ended
July 4, 1994, the Company recorded a $1,564,000 loss resulting from the
disposition of a note receivable.
INCOME TAXES. The effective income tax rates of 0.0% and 26.9% of pre-tax income
in the sixteen and forty week periods ended July 3, 1995, respectively, are
significantly below the effective tax rates for the comparable periods of the
prior fiscal year primarily due to a $527,000 adjustment to the reserve against
net deferred tax assets that may not be realized in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of working capital has historically been cash flow
from operations and borrowings. During the forty week period ended July 3, 1995,
the Company obtained cash from other sources
<PAGE> 12
including the sale of short-term investments and the sale of assets. The Company
requires capital principally for the acquisition and construction of new
restaurants, remodeling and conversion of existing restaurants, and renewals of
equipment and leasehold improvements. During the remainder of fiscal year 1995,
the Company anticipates its capital requirements will be primarily for renewals
of equipment and leasehold improvements and expects to fund these capital
requirements through cash on hand at the end of the quarter and internally
generated funds.
During the forty week period ended July 3, 1995, cash and cash equivalents were
provided by the following sources:
<TABLE>
<CAPTION>
===================================================================================================
In Millions
===================================================================================================
<S> <C>
Net loss $(2.9)
Depreciation and amortization 4.9
Change in operating assets and liabilities and other (0.6)
Sale of short-term investments 2.0
Proceeds from the sale of assets 2.0
Payments received on notes receivable 0.1
===================================================================================================
Total Provided $ 5.5
===================================================================================================
</TABLE>
During the same period, cash and cash equivalents were applied for the following
uses:
<TABLE>
<CAPTION>
===================================================================================================
In Millions
===================================================================================================
<S> <C>
Capital expenditures for new stores $ 3.1
Other capital expenditures 5.0
Principal payments on long-term debt and capital leases 1.5
===================================================================================================
Total used $ 9.6
===================================================================================================
</TABLE>
During the forty week period ended July 3, 1995, cash used exceeded cash
provided by $4.1 million due primarily to capital expenditures associated with
the conversion of five underperforming JB's Restaurants to Galaxy Diners, the
remodeling of four JB's Restaurants and the construction of two HomeTown Buffet
restaurants.
The current ratio at the end of the third quarter of fiscal year 1995 was
0.4:1.0 compared to 0.8:1.0 at September 26, 1994. Management does not consider
the fact that the current ratio is less than one to be itself an indication of a
liquidity problem as the restaurant business has practically no receivables and
minimum inventories that typically turn faster than accounts payable to
suppliers.
As of July 3, 1995, the Company had $2.1 million in letters of credit and $2.4
million in bank loans which are secured by 528,220 shares of HomeTown Buffet,
Inc. common stock and by certain properties owned by the Company. On May 18,
1995, the Company terminated its $3.0 million line of credit in exchange for the
release of the lien on an office/warehouse property which the Company sold
generating net proceeds of approximately $1.5 million. The Company was not in
compliance with certain covenants in its lending agreements at the end of its
fiscal third quarter. The Company obtained a waiver from the bank with respect
to these covenants. The Company does not expect to be in compliance with certain
covenants in its lending agreements at the end of its fiscal fourth
<PAGE> 13
quarter, and is currently in discussions with the bank with respect to waiver or
revision of the covenants. In the event no agreement is reached with the bank,
the Company may sell certain assets in order to repay these loans.
The Company has a $2.5 million equipment lease commitment to finance new
HomeTown Buffet restaurant equipment which expires September 30, 1995. The
Company had utilized $1.0 million of the commitment as of July 3, 1995. The
remaining balance of the commitment is not available to the Company if it is in
technical noncompliance or does not expect to be in compliance with certain
covenants in its lending agreements.
The Company opened one new HomeTown Buffet restaurant during the third quarter
of fiscal year 1995 and an additional HomeTown Buffet restaurant opened in the
fiscal fourth quarter of 1995. This brings the Company's total number of
HomeTown Buffet restaurants in operation to 16. The Company's exclusive area
development agreement with HomeTown Buffet, Inc. has been amended to extend the
Company's requirement to open a minimum of 17 HomeTown Buffet restaurants to
June 30, 1996 from December 31, 1995.
During the forty week period ended July 3, 1995, the Company remodeled four of
its higher performing JB's Restaurants and does not anticipate remodeling any
other higher performing JB's Restaurants during the remainder of fiscal year
1995. The Company continues to routinely repair and maintain the Company's
restaurants. In addition, the Company has, in fiscal 1995, converted five of
its lower performing JB's Restaurants to Galaxy Diners bringing the number of
Galaxy Diners to six at the end of the fiscal third quarter. Future Galaxy Diner
conversions, JB's Restaurants remodels and new HomeTown Buffet restaurants will
be dependent upon the Company improving internal cash flow and/or finding
additional sources of capital. This capital could result from the sale of
assets. To the extent that these assets secure the bank loans, the Company
expects that it will repay these loans when the assets are sold. If the
Company's earnings do not improve or other sources of financing are not
obtained, the Company would have to reevaluate its capital spending plans.
On July 24, 1995, the Company announced the formation of a special committee of
outside independent directors to review strategic alternatives, including the
potential sale of assets. The investment banking firm of Piper Jaffray Inc. has
been retained to assist in this process.
SEASONALITY
The Company's business is seasonal in nature with the spring and summer quarters
being the highest volume periods. The Company's lowest volume periods typically
occur during the first and second fiscal quarters.
IMPACT OF INFLATION
Many of the Company's employees are paid hourly rates related to the federal and
state minimum wage laws. Accordingly, increases in the minimum wage could
materially increase the Company's labor costs. Currently, there are no further
scheduled increases in the federal minimum wage. In addition, the cost of food
commodities utilized by the Company are subject to market supply and demand
pressures as is evidenced by the recent increase in produce prices (lettuce in
particular) resulting from the unusual weather conditions in the western U.S.
growing regions. Shifts in these costs may have a significant impact on the
Company's food costs. The Company anticipates that increases in these costs can
be offset through pricing and other cost control efforts; however, there is no
assurance that the Company would be able to pass such costs on to its guests or,
if it were able to do so, could do so in a short period of time.
<PAGE> 14
SUMMIT FAMILY RESTAURANTS INC.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING
The plaintiff in the matter of Robbins v. HomeTown Buffet, Inc. et al,
has agreed to dismiss the action which had been filed in U.S. District
Court for the Southern District of California on October 27, 1994, and
alleged violations of federal securities laws. The action had named the
Company and two of its officers among the 21 defendants. No
consideration was paid by the Company or any other defendant in
connection with the dismissal. The dismissal is expected to be
finalized during August 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are attached to this report:
<TABLE>
<CAPTION>
Exhibit Description
Number of Exhibit
------- -----------
<S> <C>
27 (1) Financial Data Schedule.
</TABLE>
Other Items
There were no other items to be reported under Part II of this report.
<PAGE> 15
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 HEREUNTO DULY AUTHORIZED.
SUMMIT FAMILY RESTAURANTS INC.
(Registrant)
Date August 16, 1995 By: /s/ David E. Pertl
----------------- -------------------
David E. Pertl
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
(A duly authorized officer)
By: /s/ Theodore Abajian
---------------------
Theodore Abajian
Vice President and Controller
(Principal Accounting Officer)
<PAGE> 16
SUMMIT FAMILY RESTAURANTS
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description
Number of Exhibit
------- -----------
<S> <C>
27 (1) Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S BALANCE SHEET AND STATEMENTS OF OPERATIONS AS OF AND FOR THE FORTY
WEEK PERIOD ENDED JULY 3, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> SEP-25-1995
<PERIOD-START> SEP-27-1994
<PERIOD-END> JUL-03-1995
<CASH> 1,163,000
<SECURITIES> 265,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 1,706,000
<CURRENT-ASSETS> 6,119,000
<PP&E> 98,415,000
<DEPRECIATION> 44,565,000
<TOTAL-ASSETS> 71,054,000
<CURRENT-LIABILITIES> 15,745,000
<BONDS> 10,474,000
<COMMON> 480,000
0
947,000
<OTHER-SE> 40,326,000
<TOTAL-LIABILITY-AND-EQUITY> 71,054,000
<SALES> 92,419,000
<TOTAL-REVENUES> 92,419,000
<CGS> 30,606,000
<TOTAL-COSTS> 30,606,000
<OTHER-EXPENSES> 58,682,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,211,000
<INCOME-PRETAX> (3,916,000)
<INCOME-TAX> (1,053,000)
<INCOME-CONTINUING> (3,916,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,863,000)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
