<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) January 27, 1994
----------------
FOODMAKER, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 1-9390 95-2698708
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(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
9330 BALBOA AVENUE, SAN DIEGO, CA 92123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 571-2121
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Item 2. Acquisition or Disposition of Assets
On January 27, 1994, Foodmaker, Apollo Advisors, L.P. ("Apollo") and
Green Equity Investors, L.P., ("GEI") whose general partner is Leonard Green
& Partners, (collectively, the "Investors"), acquired Restaurant Enterprises
Group, Inc. ("REGI"), a company that owns, operates and franchises various
restaurant chains including El Torito, Carrows and Coco's.
Contemporaneously, REGI changed its name to Family Restaurants, Inc. ("FRI").
Concurrently, Foodmaker contributed its entire Chi-Chi's Mexican restaurant
chain to FRI in exchange for a 40% equity interest in FRI, valued at $62
million, a five-year warrant to acquire 111,111 additional shares at $240 per
share, which would increase its equity interest to 46%, and approximately
$173 million in cash ($208 million less the face amount of Chi-Chi's debt
assumed, aggregating approximately $35 million). Apollo and GEI,
respectively, contributed $62 million and $29 million in cash and hold 40%
and 18.4% equity positions in FRI. Management of FRI invested $2.5 million
in cash and notes and holds a 1.6% equity position. A portion of the net
cash received has been used by Foodmaker to repay all of the debt outstanding
under its then existing bank credit facility, which has been terminated. It
is expected that the balance of proceeds will be used to reduce other
existing debt, to the extent permitted by the Company's financing agreements,
and to provide funds for capital expenditures and general corporate purposes.
Item 7. Financial Statements and Exhibits
Item 7(a) Financial Statements of Businesses Acquired.
See the index to Financial Statements on page F-1 of this report.
Item 7(b) Pro Forma Financial Information.
See the index to Financial Statements on page F-1 of this report.
Item 7(c) Exhibits.
Number Description
2 Acquisition Agreement by and among The Restaurant Enterprises
Group, Inc., Apollo Advisors, L.P., on behalf of one or more
managed entities, Green Equity Investors, L.P., Foodmaker, Inc.
and Chi-Chi's, Inc. dated as of October 15, 1993, incorporated
by reference to the Company's Current Report on Form 8-K dated
January 27, 1994.
23 Consent of Deliotte & Touche
2
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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.
By: /S/ CHARLES W. DUDDLES
----------------------
Charles W. Duddles
Executive Vice President,
Chief Administrative Officer
and Chief Financial Officer
Date: April 12, 1994
3
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Family Restaurants, Inc.:
Independent Auditors' Report F-2
Consolidated Balance Sheets as of December 26, 1993
and December 28, 1992 F-3
Consolidated Statements of Operations for Each of the
Three Years in the Period Ended December 26, 1993 F-4
Consolidated Statements of Common Stockholders'
Deficit for Each of the Three Years in the Period
Ended December 26, 1993 F-5
Consolidated Statements of Cash Flows for Each of the
Three Years in the Period Ended December 26, 1993 F-6
Notes to Consolidated Financial Statements F-8
Foodmaker, Inc.:
Selected Unaudited Pro Forma Financial Data F-28
F-1
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<PAGE>
INDEPENDENT AUDITORS' REPORT
To Family Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Family
Restaurants, Inc. (formerly known as The Restaurant Enterprises Group, Inc.)
and its subsidiaries as of December 26, 1993 and December 28, 1992, and the
related consolidated statements of operations, common stockholders' deficit and
cash flows for each of the three years in the period ended December 26, 1993.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Family Restaurants, Inc.
and its subsidiaries at December 26, 1993 and December 28, 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended December 26, 1993 in conformity with generally accepted
accounting principles.
As discussed in Notes 2 and 4, the Company commenced a Chapter 11
bankruptcy case on November 23, 1993, which was confirmed by the United States
Bankruptcy Court for the District of Delaware on January 7, 1994. Accordingly,
the accompanying consolidated financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization and the Bankruptcy Code."
DELOITTE & TOUCHE
Costa Mesa, California
March 22, 1994
F-2
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<PAGE>
FAMILY RESTAURANTS, INC.
(FORMERLY KNOWN AS THE RESTAURANT ENTERPRISES GROUP, INC.)
CONSOLIDATED BALANCE SHEETS
(in thousands except share amounts)
<TABLE>
<CAPTION>
December 26, December 28,
1993 1992
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,310 $ 14,514
Restricted cash 1,867 1,867
Collateral deposit 38,688 22,202
Receivables 10,920 7,163
Inventories 10,849 16,058
Other current assets 5,475 3,144
-------- --------
Total current assets 77,109 64,948
Property and equipment, net 235,516 245,634
Goodwill, net 26,678 27,488
Property held for sale 7,122 26,052
Other assets 20,152 19,176
-------- --------
$366,577 $383,298
======== ========
LIABILITIES AND COMMON STOCKHOLDERS' DEFICIT
Current liabilities:
Note payable to Marriott $ 12,719 $ 12,992
Loan payable to Grace 2,900 0
Current portion of long-term debt, including
capitalized lease obligations 5,981 10,078
Accounts payable 38,363 42,288
Self-insurance reserves 36,778 42,013
Other accrued liabilities 65,442 63,294
Reserve for divestitures 8,607 2,180
Income taxes payable 1,528 1,795
-------- --------
Total current liabilities 172,318 174,640
Liabilities subject to settlement under reoganization
proceedings 320,194 277,010
Deferred income 3,124 3,296
Long-term debt, including capitalized lease
obligations, less current portion 78,658 84,133
12% redeemable cumulative exchangeable preferred
stock subject to settlement under reorganization
proceedings - non-voting, authorized 3,000,000
shares, issued and outstanding 1,544,237 shares
in 1993 and 1992 183,921 163,689
Common stockholders' deficit:
Class A common stock - authorized 280,000 shares,
par value $.01, 238,000 shares issued at
December 28, 1992 0 2
Class D common stock - authorized 1,040,000
shares, par value $.01, 468,341 shares issued
(210,006 shares in 1992) 4 2
Additional paid-in capital 23,481 23,303
Accumulated deficit (415,066) (342,720)
Less treasury stock, at cost (29,150 shares in
1993 and 1992) (57) (57)
-------- --------
$366,577 $383,298
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
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FAMILY RESTAURANTS, INC.
(FORMERLY KNOWN AS THE RESTAURANT ENTERPRISES GROUP, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share
and shares outstanding)
<TABLE>
<CAPTION>
For the Years Ended
------------------------------------------
December 26, December 28, December 30,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Sales $884,910 $ 930,069 $869,862
Product cost 259,512 276,020 250,623
Payroll and related costs 331,747 352,841 313,974
Occupancy and other operating expenses 227,227 257,844 242,083
General and administrative expenses 46,958 52,402 49,713
Interest expense, net 50,276 45,582 42,321
Loss (gain) on disposition of
properties, net 4,916 7,786 (1,097)
Provision for divestitures 10,400 27,871 0
Write-down of goodwill 0 107,175 0
Debt restructuring costs 4,239 1,072 0
-------- ---------- --------
Total costs and expenses 935,275 1,128,593 897,617
-------- --------- -------
Loss before reorganization items,
income tax provision and
cumulative effect of a change
in accounting principle (50,365) (198,524) (27,755)
Reorganization items 1,091 0 0
------ -------- --------
Loss before income tax provision
and cumulative effect of a change
in accounting principle (51,456) (198,524) (27,755)
Income tax provision 658 721 522
------- --------- --------
Loss before cumulative effect of
a change in accounting principle (52,114) (199,245) (28,277)
Cumulative effect on prior years
(to December 30, 1991) of
adopting SFAS 109 0 (667) 0
--------- --------- ---------
Net loss (52,114) (199,912) (28,277)
Preferred dividends (20,232) (17,737) (13,499)
-------- ---------- --------
Net loss attributable to
common shares $(72,346) $ (217,649) $(41,776)
======== ========== ========
Loss per common share:
Loss before cumulative effect of
a change in accounting principle $(161.66) $ (733.32) $(192.33)
Cumulative effect on prior years
(to December 30, 1991) of
adopting SFAS 109 0 (2.25) 0
--------- ----------- ---------
Net loss attributable to common shares $(161.66) $ (735.57) $(192.33)
======== ========== ========
Weighted average common shares outstanding 447,529 295,890 217,213
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
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<PAGE>
FAMILY RESTAURANTS, INC.
(FORMERLY KNOWN AS THE RESTAURANT ENTERPRISES GROUP, INC.)
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' DEFICIT
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 26, 1993
(in thousands)
<TABLE>
<CAPTION>
Class A Class D Additional Treasury
Common Common Paid-in Accumulated Stock,
Stock Stock Capital Deficit at Cost Total
-------- -------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 $ 2 $ 0 $ 2,582 $ (83,295) $ (32) $ (80,743)
Net loss 0 0 0 (28,277) 0 (28,277)
Stock dividends on preferred 0 0 0 (13,499) 0 (13,499)
stock
Cancellation of Junior
Subordinated Notes 0 0 19,882 0 0 19,882
Purchase of treasury stock 0 0 0 0 (25) (25)
-------- ------- -------- --------- ------- ---------
Balance at December 30, 1991 2 0 22,464 (125,071) (57) (102,662)
Net loss 0 0 0 (199,912) 0 (199,912)
Stock dividends on preferred
stock 0 0 0 (17,737) 0 (17,737)
Sale of treasury stock 0 0 1 0 3 4
Purchase of treasury stock 0 0 0 0 (3) (3)
Exercise of warrants 0 2 838 0 0 840
-------- ------- -------- --------- ------- ---------
Balance at December 28, 1992 2 2 23,303 (342,720) (57) (319,470)
Net loss 0 0 0 (52,114) 0 (52,114)
Stock dividends on preferred
stock 0 0 0 (20,232) 0 (20,232)
Conversion of Class A Common
Stock to Class D Common Stock (2) 2 0 0 0 0
Exercise of warrants 0 0 102 0 0 102
Exercise of stock options 0 0 76 0 0 76
-------- ------- -------- --------- ------- ---------
Balance at December 26, 1993 $ 0 $ 4 $ 23,481 $ (415,066) $ (57) $(391,638)
======== ======= ======== ========= ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
FAMILY RESTAURANTS, INC.
(FORMERLY KNOWN AS THE RESTAURANT ENTERPRISES GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------------
December 26, December 28, December 30,
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers $ 885,248 $ 931,236 $ 870,359
Cash received from franchisees and licensees 847 4,272 3,967
Cash paid to suppliers and employees (846,290) (874,644) (822,901)
Interest received 1,437 1,564 3,417
Interest paid (10,088) (29,619) (43,055)
Debt restructuring costs (2,900) (1,072) 0
Income taxes paid (925) (485) (449)
Charges to reserve for divestitures (886) 0 0
--------- ---------- ----------
Net cash provided by operating activities
before reorganization items 26,443 31,252 11,338
Reorganization items (1,091) 0 0
--------- ---------- ----------
Net cash provided by operating activities 25,352 31,252 11,338
--------- ---------- ----------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 18,135 11,548 1,673
Acquisition of Marriott family restaurants 0 (12,374) 0
Capital expenditures (20,064) (25,881) (16,730)
Capitalized conversion costs (5,052) (4,341) 0
Other (3,736) (3,424) (15)
--------- ---------- ----------
Net cash used in investing activities (10,717) (34,472) (15,072)
--------- ---------- ----------
Cash flows from financing activities:
Proceeds from sale of treasury bonds 3,412 0 0
Proceeds from loan payable to Grace 2,900 0 0
Reductions of long-term debt, including
capitalized lease obligations (9,843) (7,310) (8,326)
Decrease (increase) in restricted cash and
collateral deposit (16,486) 6,108 (1,927)
Royalty receivable sold to Grace 0 3,835 0
Proceeds from sale of treasury stock 0 4 0
Proceeds from exercise of warrants 102 840 0
Proceeds from exercise of stock options 76 0 0
Purchase of treasury stock 0 (3) (25)
--------- ---------- ----------
Net cash provided by (used in) financing
activities (19,839) 3,474 (10,278)
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (5,204) 254 (14,012)
Cash and cash equivalents at beginning of year 14,514 14,260 28,272
--------- ---------- ----------
Cash and cash equivalents at end of year $ 9,310 $ 14,514 $ 14,260
========= ========== ==========
</TABLE>
F-6
<PAGE>
<PAGE>
FAMILY RESTAURANTS, INC.
(FORMERLY KNOWN AS THE RESTAURANT ENTERPRISES GROUP, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
----------------------------------------
December 26, December 28, December 30,
1993 1992 1991
--------- ---------- ---------
<S> <C> <C> <C>
Reconciliation of Net Loss to Net Cash Provided by Operating Activities
Net loss $ (52,114) $ (199,912) $ (28,277)
--------- ---------- ---------
Adjustments to reconcile net loss to net cash
provided by operating activities net of effects
of Marriott acquisition in 1992:
Depreciation and amortization 34,755 52,373 49,297
Payment of accrued interest by issuance
of additional Junior Subordinated Notes 0 29 1,251
Loss (gain) on disposition of properties 4,916 7,786 (1,097)
Provision for divestitures 10,400 27,871 0
Write-down of goodwill 0 107,175 0
Cumulative effect on prior years of
adopting SFAS 109 0 667 0
(Increase) decrease in receivables (3,757) 554 247
Decrease in inventories 5,209 1,717 320
(Increase) decrease in other current assets (2,331) 459 (681)
Increase (decrease) in accounts payable (3,925) 8,706 (598)
Increase (decrease) in self-insurance reserves (5,235) 4,367 (3,124)
Increase (decrease) in other accrued liabilities 38,587 19,224 (6,073)
Charges to reserve for divestitures (886) 0 0
Increase (decrease) in income taxes payable (267) 236 73
--------- ---------- ---------
Total adjustments 77,466 231,164 39,615
--------- ---------- ---------
Net cash provided by operating activities $ 25,352 $ 31,252 $ 11,338
========= ========== =========
</TABLE>
Supplemental schedule of investing activities:
The components of acquisition of Marriott family restaurants in 1992 are as
follows:
<TABLE>
<S> <C>
Current assets $ (1,123)
Property and equipment (68,076)
Other assets (1,327)
Current liabilities 13,084
Long-term debt incurred 21,828
Issuance of preferred stock 23,240
---------
Cash portion of purchase price $ (12,374)
=========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Junior Subordinated Notes in the amount of $19,882,000 were cancelled effective
December 30, 1991 as a contribution to capital.
Common stockholders' deficit was increased by $20,232,000, $17,737,000 and
$13,499,000 in 1993, 1992 and 1991, respectively, for stock dividends on
preferred stock.
Disclosure of accounting policy:
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
See accompanying notes to consolidated financial statements.
F-7
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<PAGE>
FAMILY RESTAURANTS, INC.
(FORMERLY KNOWN AS THE RESTAURANT ENTERPRISES GROUP, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 26, 1993
NOTE 1 - ORGANIZATION:
Family Restaurants, Inc. (formerly known as The Restaurant Enterprises
Group, Inc.), incorporated in Delaware in 1986, is primarily engaged in the
operation of full-service restaurants throughout the United States through its
subsidiaries. As used in these consolidated financial statements, the term
"Company" refers to Family Restaurants, Inc. together with its subsidiaries.
The Company was formed in September 1986 by the then management of the
restaurant operations of W. R. Grace & Co.-Conn. ("Grace"), for the purpose of
acquiring (the "1986 Acquisition") substantially all of the full-service
restaurant operations of Grace. The 1986 Acquisition was completed on December
26, 1986. Prior to completion of the 1986 Acquisition, the Company had no
significant operations.
At December 26, 1993, the Company operated 472 continuing restaurants
located in sixteen states, with 73% of its restaurants located in California
and 11% of its restaurants located in Arizona and Texas (see Note 3).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of presentation
The consolidated financial statements have been prepared on a going
concern basis, which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business.
While the Chapter 11 cases were in process, the Company continued in possession
of its properties and operated and managed its business as a
debtor-in-possession pursuant to the Bankruptcy Code. The Company has applied
the provisions of the American Institute of Certified Public Accountants
Statement of Position 90-7, "Financial Reporting by Entities in Reorganization
Under the Bankruptcy Code" ("SOP 90-7"), in the December 26, 1993 and December
28, 1992 consolidated financial statements. The Company's 12 1/4% Senior
Subordinated Notes and 12 3/4% Subordinated Notes were in default in accordance
with the terms of the applicable debentures at December 26, 1993. In
accordance with SOP 90-7, those liabilities and obligations whose disposition
was dependent upon the outcome of the Chapter 11 cases have been segregated
and classified as "Liabilities subject to settlement under reorganization
proceedings" in the consolidated balance sheets at December 26, 1993 and
December 28, 1992. (See Note 9.) Likewise, the 12% redeemable cumulative
exchangeable preferred stock was also dependent upon the outcome of the Chapter
F-8
<PAGE>
<PAGE>
11 cases and has been classified as "12% redeemable cumulative exchangeable
preferred stock subject to settlement under reorganization proceedings" in the
consolidated balance sheets at December 26, 1993 and December 28, 1992. On
January 7, 1994, the Company's Prepackaged Plan was confirmed by the bankruptcy
court (see Note 4).
Fiscal year
Previously, the Company reported results of operations based on 52 or
53 week periods ending on the last Monday in December. In 1993, the fiscal
year end was changed to the last Sunday in December. The fiscal years ended
December 28, 1992 and December 30, 1991 included 52 weeks, and the fiscal year
ended December 26, 1993 included 52 weeks, less one day.
Principles of consolidation
The consolidated financial statements include the accounts of the
Company and all its subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Inventories
Inventories consist primarily of food and liquor and are stated at the
lower of cost or market. Costs are determined using the first- in, first-out
(FIFO) method.
Property and equipment
Property and equipment are stated at cost and are depreciated on a
straight-line basis over their estimated useful lives (buildings principally
over 25 to 35 years and furniture, fixtures and equipment over 3 to 10 years).
Leasehold improvements are amortized on a straight- line basis over the shorter
of their estimated useful lives or the terms of the related leases. Property
under capitalized leases is amortized over the terms of the leases using the
straight-line method.
Losses on disposition of properties are recognized when a commitment
to divest a restaurant property is made by the Company and include estimated
carrying costs through the expected date of disposal.
Property held for sale
Property held for sale is carried at estimated net realizable value.
Franchise and license fees
Initial franchise and license fees are recognized when all material
services have been performed and conditions have been satisfied. Initial fees
of $35,000 and $70,000 were earned in 1993 and 1992, respectively, and there
were no initial fees earned in 1991. Monthly fees are accrued as earned based
F-9
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<PAGE>
on the respective monthly sales. Such fees totalled $4,907,000 for 1993,
$4,815,000 for 1992, and $4,217,000 for 1991 and are included as an offset to
general and administrative expenses.
Goodwill
Goodwill is amortized using the straight-line method over 40 years.
Accumulated amortization of goodwill amounted to $5,703,000 at December 26,
1993 and $4,893,000 at December 28, 1992 after the impact of the write-down of
goodwill in the fourth quarter of 1992.
Income taxes
Beginning in 1992, the Company has accounted for income taxes using
the standards specified in Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (see Note 12). Prior to 1992, the Company
accounted for income taxes using APB No. 11.
Loss per common share
Loss per common share is computed based on the weighted average number
of shares outstanding giving effect to the preferred stock dividend requirement
of $20,232,000 for 1993, $17,737,000 for 1992 and $13,499,000 for 1991. The
impact of warrants and options has not been included since the impact would be
antidilutive.
Reclassifications
Certain amounts as previously reported have been reclassified to
conform to the 1993 presentation.
NOTE 3 - STRATEGIC DIVESTMENT PROGRAM:
In anticipation of a financial restructuring and in order to position
the Company for future growth, 109 non-strategic restaurants were designated
for divestment effective year-end 1992 (the "Strategic Divestment Program").
Two additional restaurants were identified for divestment in late 1993. The
restaurants include 12 family restaurants, 47 traditional dinnerhouses and 52
Mexican dinnerhouses. During 1992, these restaurants had sales of $159,385,000
and losses of $7,602,000, including direct general and administrative expenses
of $5,191,000. In conjunction with this divestment program, the Company
recorded a provision for divestitures of $27,871,000 during the fourth quarter
of 1992. This provision consisted of: (i) $2,180,000 for severance costs
associated with the restaurants to be divested and (ii) $25,691,000 for the
write-down to net realizable value of the property and equipment associated
with such restaurants. During 1993, these restaurants had sales of
$116,032,000 and losses of $8,690,000, including direct general and
administrative expenses in the amount of $4,049,000. The 1993 severance costs
of $886,000 were charged against the reserve for divestitures, reducing the
reserve balance to $1,294,000. At December 26, 1993 and December 28, 1992, the
net realizable value of the assets held for sale, consisting principally of
property and equipment, was $7,122,000 and $26,052,000, respectively.
F-10
<PAGE>
<PAGE>
As of December 26, 1993, 47 properties had been divested and 5 were under
contract to be divested, leaving 59 properties remaining to be divested.
The net realizable value of the restaurants to be divested was
determined on a restaurant-by-restaurant basis based on the advice of an
independent real estate broker and the experience of the Company's in-house
real estate department with the particular geographic locations involved.
During the fourth quarter of 1993, an additional write-down of $1,908,000 to
adjust property and equipment to net realizable value was recorded, as the
Company believes that further impairment has occurred. In addition, during the
fourth quarter of 1993 the reserve for severance costs was reduced by
$302,000, and, since the Company reached a measurement date on December 26,
1993, it recorded a provision for future estimated losses for the remaining
restaurants to be divested of $7,615,000, including direct general and
administrative expenses of $2,383,000. The restaurants remaining to be
divested as of December 26, 1993 include the following: (a) 52 restaurants
which are expected to be sold; (b) 7 restaurants which are expected to be
divested through lease termination payments estimated to be $2,943,000; and (c)
5 restaurants which are expected to be divested by allowing the lease terms to
expire. The Company anticipates that the sale of 52 restaurants will be
completed as follows: 5 during the first quarter of fiscal 1994, 2 during the
second quarter of fiscal 1994, 7 during the third quarter of fiscal 1994 and
the remainder during the fourth quarter of fiscal 1994, with four restaurants
trailing into 1995. Of the restaurants which will be eliminated through the
expiration of their lease terms, two will expire in fiscal 1994 and the
remaining three will expire in 1995 and 1996.
NOTE 4 - THE ACQUISITION:
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners, L.P.
("Apollo"), Green Equity Investors, L.P. ("GEI") and Foodmaker, Inc.
("Foodmaker") acquired approximately 98% of the outstanding common stock of the
Company (the "Acquisition"). The Acquisition involved the following components
and related transactions, all of which (unless otherwise noted) were consummated
on the Closing Date:
New Equity Investment. Apollo, GEI, Foodmaker and certain officers of
the Company made the $154.7 million New Equity Investment in the Company
pursuant to the Acquisition Agreement, dated as of October 15, 1993, among the
Company, Apollo, GEI, Foodmaker and Chi-Chi's (as amended, the "Acquisition
Agreement"). Apollo purchased 389,634 shares of the Company's common stock, par
value $.01 per share (the "New Common Stock") (constituting 40.0% of the New
Common Stock outstanding immediately following the Closing Date) for $62.3
million in cash and GEI purchased 179,831 shares of New Common Stock
(constituting 18.4% of the New Common Stock outstanding immediately following
the Closing Date) for $28.8 million in cash. Foodmaker acquired 389,634 shares
of New Common Stock (constituting 40.0% of the New Common Stock outstanding
F-11
<PAGE>
<PAGE>
immediately following the Closing Date, with a value of $62.3 million)
in the Chi-Chi's Merger. Certain officers of the Company purchased 15,625
shares of New Common Stock in the Employee Stock Purchase (as defined below).
The purchase price in the Employee Stock Purchase was $160 per share (the same
price per share as the New Equity Investment), and fifty percent thereof was
financed through interest- bearing recourse notes payable in the amount of
$1,250,000 to the Company.
Chi-Chi's Merger. The Company acquired Chi-Chi's, a wholly-owned
subsidiary of Foodmaker and the operator, directly or indirectly through its
subsidiaries, or franchisor of 235 full-service Mexican restaurants, the
largest chain of such restaurants in the United States based upon both number
of restaurants and annual revenues. The Chi-Chi's Merger occurred through a
merger of a newly-formed subsidiary of the Company with Chi-Chi's pursuant to
the Acquisition Agreement. Pursuant to the Acquisition Agreement, Foodmaker
received (a) $205.0 million in cash, less the principal amount of capital
leases and the face amount of certain indebtedness of Chi-Chi's (including
certain Chi-Chi's debentures which were defeased immediately following
consummation of the Chi-Chi's Merger) existing or assumed by the Company in
connection with the Chi-Chi's Merger, (b) 389,634 shares of New Common Stock
and (c) a warrant to purchase, at an aggregate exercise price of $26.7 million,
111,111 shares of New Common Stock (constituting 10% of the New Common Stock
outstanding assuming the full exercise thereof).
New Credit Facility. The Company, FRI-M Corporation (formerly known
as REG-M Corp.), a wholly-owned subsidiary of the Company (the "Borrower"), and
certain subsidiaries of the Borrower (the "Subsidiary Guarantors") entered into
the New Credit Facility on the Closing Date. The New Credit Facility is a
$150.0 million five-year fully revolving credit facility with a $100.0 million
sublimit for standby letters of credit and will be used for general corporate
purposes, including working capital and capital expenditures. The letter of
credit availability under the New Credit Facility replaced the Amended and
Restated Letter of Credit Procurement Facility (the "Old L/C Facility") with
Grace, which was terminated on the Closing Date. Borrowings under the New
Credit Facility will be made by the Borrower. Such borrowings are guaranteed
by the Company and the Subsidiary Guarantors and are secured by substantially
all of the assets of such subsidiaries and by a pledge of the stock of the
Borrower and the Subsidiary Guarantors.
Prepackaged Plan. The Company and REG-M Corp. commenced Chapter 11
cases on November 23, 1993 after receiving acceptances of their prepackaged
joint plan of reorganization (the "Plan") from 100% of the holders of the Old
Notes and Preferred Stock (each as defined) who voted on the Plan and from
holders of over 98% of the Old Common Stock (as defined) who voted on the Plan.
The Plan was confirmed by the United States Bankruptcy Court for the District
of Delaware on January 7, 1994. On the Closing Date, substantially all of the
Company's old debt and equity securities were cancelled and extinguished
F-12
<PAGE>
<PAGE>
through consummation of the Plan and holders thereof received cash
distributions (the "Cash Distributions") as follows. For each $1,000 principal
amount of 12 1/4% Senior Subordinated Notes due 1996 (the "Old Senior
Subordinated Notes"), holders received $939.26 in cash plus an additional cash
amount equal to interest accrued on $939.26 from May 19, 1993 to the Closing
Date at a rate equal to 10.05% per annum (the weighted average of the yields to
maturity of the Notes at the time they were issued) (the "Accrual Rate"). For
each $1,000 principal amount of 12 3/4% Subordinated Notes due 1998 (the "Old
Subordinated Notes" and, together with the Old Senior Subordinated Notes, the
"Old Notes"), holders received $646.18 in cash plus an additional cash amount
equal to interest accrued on $646.18 from May 19, 1993 to the Closing Date at
the Accrual Rate. For each share of 12% Cumulative Exchangeable Preferred
Stock (the "Preferred Stock"), holders received $17.88 in cash and for each
share of Class D Common Stock (the "Old Common Stock"), holders received $.50
in cash.
Management. The Acquisition included the replacement of all the
previous directors of the Company with new directors and the appointment of
Management, which includes a new chief executive officer and two other senior
executives from Foodmaker, each of whom is directly responsible for one of the
Company's operating divisions, and three other senior executives of the
Company.
Employee Stock Purchase and Management Incentive Plan. In connection
with the Acquisition, the Company adopted a new management incentive plan (the
"Management Incentive Plan") pursuant to which certain officers and employees of
the Company may be granted the right to purchase up to 40,500 shares of New
Common Stock (constituting up to 4.1% of the New Common Stock outstanding
immediately following such purchases) at $160 per share (the "Employee Stock
Purchase"), the same per share price paid by Apollo and GEI in the New Equity
Investment. The Employee Stock Purchase was consummated on the Closing Date
with respect to certain officers and is expected to be consummated shortly with
respect to the other participants. Approximately fifty percent of the purchase
price may be financed through interest-bearing recourse notes payable to the
Company. In the event that the officers and employees elect not to exercise all
or a portion of such purchase rights, Apollo, GEI and Foodmaker intend to
purchase all shares relating to such unexercised rights. In addition, under
the Management Incentive Plan, the Company currently expects to grant options to
purchase shares of New Common Stock up to approximately 1,000 officers and
employees of the Company, including individual restaurant general managers.
Investment Agreement. Grace, Western Family Restaurants, Inc.
("Grace/Western"), an affiliate of Grace which owned 74.6% of the Old Common
Stock, and the Company entered into an agreement as amended (the "Investment
Agreement"), with Apollo REG, Co., GEI REG, Co. and FMI REG, Co. and Foodmaker.
Under the Investment Agreement, among other things, the Company paid Grace
$15.0 million on the Closing Date in consideration of Grace's undertaking to
obtain written confirmation that although Grace will no longer hold an equity
interest in the Company, the Company will continue to receive royalties under
the Kasumi Licensing Agreement through February 4, 2010. Grace has also agreed
to indemnify the Company against certain tax liabilities and with respect to
F-13
<PAGE>
<PAGE>
certain previously divested leases.
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 26, 1993 presents pro forma operating
results for the Company as if the Acquisition and the divestment of
non-strategic restaurants pursuant to the Strategic Divestment Program had
occurred as of the beginning of fiscal year 1993. The following unaudited pro
forma condensed consolidated balance sheet presents the pro forma financial
condition of the Company as if the Acquisition had occurred as of December 26,
1993. Since the Acquisition was effectuated through a prepackaged plan of
reorganization under Chapter 11 of the United States Bankruptcy Code ("Chapter
11"), the provisions of SOP 90-7 have been applied in the pro forma condensed
consolidated balance sheet. The reorganization value of the Company, as
specified by SOP 90-7, is assumed to be the amount of the New Equity Investment
of $154.7 million. The valuation of Chi-Chi's was determined based on
arm's-length negotiations between the parties to the Acquisition Agreement.
The estimated fair values of the assets and liabilities of Chi-Chi's and the
Company have been reflected herein; the excess of the reorganization value over
the net identifiable assets and liabilities is reported as "reorganization
value in excess of amounts allocable to identifiable assets." The carrying
values of Chi-Chi's and the Company's net assets are assumed to equal their
fair values for purposes of these pro forma financial statements. These values
are subject to revision following the results of an appraisal which is
underway. However, Management does not believe that the results of that
appraisal will yield materially different values from the carrying values. The
unaudited pro forma condensed consolidated balance sheet and statement of
operations were prepared assuming the following events had occurred in
connection with the Acquisition:
(i) the consummation of the Chi-Chi's Merger, which is
accounted for under the purchase method of accounting;
(ii) the issuance of New Common Stock as part of the New
Equity Investment;
(iii) the completion of the sale of the Notes and the Cash
Distributions;
(iv) the consummation of certain transactions contemplated by
the Investment Agreement; and
(v) the consummation of the transactions contemplated by an
agreement with Marriott dated October 15, 1993.
Chi-Chi's operating results for the year ended October 3, 1993 and
Chi-Chi's financial position as of October 3, 1993 were provided by Chi-Chi's.
The pro forma unaudited adjustments represent the Company's preliminary
determination of the necessary adjustments and are based upon certain
assumptions the Company considers reasonable under the circumstances, including
F-14
<PAGE>
<PAGE>
certain assumptions based on information provided by Chi-Chi's. Final
amounts will differ from those set forth below. The unaudited pro forma
financial information presented herein does not purport to represent what the
Company's results of operations or financial position would have been had such
events occurred at the beginning of fiscal year 1993, or at the date indicated
or to project the Company's results of operations in any future period.
If the Acquisition had occurred as of the beginning of 1993, results
of operations would have been as follows for the year ended December 26, 1993
(in thousands except per share):
<TABLE>
<CAPTION>
Family
Restaurants, Chi-Chi's,
Inc. for the Inc. for the Pro Forma
year ended year ended -------------------------
Dec. 26, 1993 Oct. 3, 1993 Adjustments Combined
------------- ------------ ----------- --------
<S> <C> <C> <C> <C>
Sales $ 884,910 $ 404,486 $ (121,458) $ 1,167,938
--------- --------- ---------- -----------
Product cost 259,512 108,094 (39,696) 327,910
Payroll and related costs 331,747 136,015 (50,117) 417,645
Occupancy and other operating
expenses 227,227 124,632 (35,903) 315,956
General and administrative expenses 46,958 15,691 3,469 66,118
Interest expense, net 50,276 29,710 (24,639) 55,347
Other expenses 15,316 1,250 (10,400) 6,166
Debt restructuring costs 4,239 0 (4,239) 0
--------- --------- ---------- -----------
Total costs and expenses 935,275 415,392 (161,525) 1,189,142
--------- --------- ---------- -----------
Loss before reorganization items
and income tax provision (50,365) (10,906) 40,067 (21,204)
Reorganization items 1,091 0 (1,091) 0
--------- --------- ---------- -----------
Loss before income tax provision
(benefit) (51,456) (10,906) 41,158 (21,204)
Income tax provision (benefit) 658 (5,524) 8,297 3,431
--------- --------- ---------- -----------
Net loss (52,114) $ (5,382) $ 32,861 (24,635)
========= ==========
Preferred dividends (20,232) 0
--------- -----------
Net loss attributable to common
shares $ (72,346) $ (24,635)
========= ============
Net loss per common share $ (161.66) $ (25.27)
========= ============
Weighted average common shares
outstanding 447,529 974,725
========= ============
</TABLE>
F-15
<PAGE>
<PAGE>
These unaudited pro forma adjustments include the effect of (i) the
addition of the Chi-Chi's operating results for the year ended October 3, 1993,
(ii) the elimination of results of operations for the non-strategic restaurants
identified for divestment under the Strategic Divestment Program and other
divested restaurants, including sales of $121,458,000, product cost of
$39,696,000, payroll and related costs of $50,117,000, occupancy and other
operating expenses of $35,903,000 and general and administrative expenses of
$3,593,000, (iii) the incremental amortization of goodwill related to the
Chi-Chi's Merger and the application of SOP 90-7 of $7,464,000, (iv) the
expected general and administrative expenses savings of $4,060,000 as a result
of a restructure of operations, (v) the elimination of interest expense on the
Old Notes of $41,109,000 and on the Chi-Chi's debt of $29,024,000 and addition
of interest expense on the issuance of the Senior Notes and Discount Notes of
$45,494,000, (vi) elimination of debt restructuring costs of $4,239,000 and
reorganization items of $1,091,000, and (vii) the increase in income tax
expense of $8,297,000 resulting from the combined results of the Company and
Chi-Chi's.
If the Acquisition had occurred as of December 26, 1993, the Company's
Unaudited Pro Forma Condensed Consolidated Balance Sheet would appear as
follows (in thousands):
<TABLE>
<CAPTION>
Family
Restaurants, Chi-Chi's, Pro Forma
Inc. at Inc. at ---------------------------
Dec. 26, 1993 Oct. 3, 1993 Adjustments Combined
--------------- --------------- ------------- ------------
<S> <C> <C> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 9,310 $ 6,179 $ (3,559) $ 11,930
Collateral deposit 38,688 0 (38,688) 0
Other current assets 29,111 20,328 0 49,439
--------------- --------------- ------------- ------------
Total current assets 77,109 26,507 (42,247) 61,369
Property and equipment, net 235,516 170,939 0 406,455
Reorganization value in excess of
amounts allocable to identifiable
assets, net 0 0 226,128 226,128
Goodwill, net 26,678 91,863 (16,088) 102,453
Other assets 27,274 17,462 12,872 57,608
--------------- --------------- ------------- ------------
$ 366,577 $ 306,771 $ 180,665 $ 854,013
=============== =============== ============= ============
Liabilities and common stockholders'
equity (deficit):
Current liabilities:
Note payable to Marriott $ 12,719 $ 0 $ (12,719) $ 0
Loan payable to Grace 2,900 0 (2,900) 0
Current portion of long-term debt 5,981 5,924 (5,492) 6,413
Accounts payable 38,363 12,612 0 50,975
Self-insurance reserves 36,778 11,312 0 48,090
Other accrued liabilities 65,442 15,479 (1,512) 79,409
Other current liabilities 10,135 1,978 0 12,113
--------------- --------------- ------------- ------------
Total current liabilities 172,318 47,305 (22,623) 197,000
Liabilities subject to settlement
under reorganization proceedings 320,194 0 (320,194) 0
Other long-term liabilities 3,124 20,554 (13,390) 10,288
Long-term debt 78,658 45,347 368,014 492,019
Preferred stock subject to settlement
under reorganization proceedings 183,921 0 (183,921) 0
Common stockholders' equity (deficit) (391,638) 193,565 352,779 154,706
--------------- --------------- ------------- ------------
$ 366,577 $ 306,771 $ 180,665 $ 854,013
=============== =============== ============= ============
</TABLE>
F-16
<PAGE>
<PAGE>
These unaudited pro forma adjustments include the effect of (i) the
issuance of New Common Stock for $92,364,000 in cash and the issuance of
$62,342,000 of New Common Stock and $202,157,000 in cash for the equity in
Chi-Chi's, (ii) the sale of the Senior Notes and Discount Notes for
$409,046,000, (iii) payment of Cash Distributions related to the Old Notes,
Preferred Stock and Old Common Stock of $279,056,000, (iv) the payment of
underwriting discounts and commissions and other fees and expenses associated
with the reorganization of $33,500,000, (v) net repayment of the Marriott Note
of $11,039,000 and the loan payable to Grace of $2,905,000, (vi) the payment to
Grace of $15,000,000 of consideration for their efforts to obtain written
confirmation that the Kasumi Licensing Agreement will remain in effect, (vii)
transfer of cash collateral of $38,688,000 held by Grace to the Company, and
(viii) the recording of $226,128,000 in reorganization value in excess of
amounts allocated to identifiable assets in accordance with SOP 90-7.
NOTE 5 - RECEIVABLES:
A summary of receivables follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Trade, principally credit
cards $ 2,389 $2,704
License and franchise fees
and related receivables 4,174 79
Receivable from Marriott
Distribution Services 1,348 926
Insurance recovery receivables 893 848
Notes receivable 0 511
Other 2,116 2,095
------- ------
$10,920 $7,163
======= ======
</TABLE>
On November 4, 1992, the Company completed the sale of its Japanese
royalty receivable to Grace for approximately $3.8 million. The sale was
treated as a financing transaction for financial statement purposes. This
royalty was due for payment under its normal terms in April 1993.
NOTE 6 - MARRIOTT ACQUISITION:
In early 1992, the Company consummated an agreement with Marriott
Corporation and certain of its subsidiaries ("Marriott") and acquired 109
Marriott family restaurants with 1991 sales of approximately $108.5 million.
The purchase price was approximately $67.9 million (excluding the impact of
approximately $1.3 million for cash, inventory on hand, apportionments and
purchase price adjustments mutually agreed upon by the Company and Marriott and
approximately $3.0 million in acquisition costs) which was comprised of $9.9
million in cash, $34.8 million in the form of three promissory notes and $23.2
million in the form of the Company's 12% redeemable cumulative exchangeable
preferred stock. One of the promissory notes was a $13 million, 240-day note
F-17
<PAGE>
<PAGE>
(due on October 7, 1992) payable to Marriott bearing interest at the rate of
8% per annum for the first 120 days and at a rate of 10% per annum for the
subsequent 120-day term (the "Marriott Note") which had been secured by the
pledge to Marriott of all the outstanding capital stock of jojos California
Family Restaurants, Inc. (which currently operates 43 restaurants converted to
Coco's). The Marriott Note was paid at the closing of the Acquisition (see Note
4). The other promissory notes held by Marriott are secured as to the payment
of principal and interest by the grant to Marriott of deeds of trust on the fee
properties sold to the Company by Marriott and the additional grant to Marriott
of leasehold deeds of trust on certain leasehold interests assigned by Marriott
to the Company.
The 109 restaurants acquired from Marriott will continue to offer
family-dining menus, but the Company intends to convert 97 of them from their
existing family concepts to the Company's Coco's and Carrows family restaurant
concepts. The conversion program is scheduled to be completed in 1994.
Through December 26, 1993, 78 of the acquired restaurants had been converted
and reopened as Coco's or Carrows family restaurants.
If the acquisition of the Marriott family restaurants had occurred as
of the beginning of the periods presented, unaudited pro forma sales, loss
before cumulative effect of a change in accounting principle and loss per
common share before cumulative effect of a change in accounting principle would
have been as follows (in thousands except per share):
<TABLE>
<CAPTION>
For the Years Ended
--------------------------------------
December 28, December 30,
1992 1991
------------ ------------
<S> <C> <C>
Sales $ 939,461 $978,371
Loss before cumulative
effect of a change in
accounting principle $(215,926) $(31,043)
Loss per common share
before cumulative
effect of a change in
accounting principle $ (790.61) $(218.15)
</TABLE>
F-18
<PAGE>
<PAGE>
NOTE 7 - PROPERTY AND EQUIPMENT:
A summary of property and equipment follows:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(in thousands)
<S> <C> <C>
Land $ 36,836 $ 36,836
Buildings and improvements 252,503 252,996
Furniture, fixtures and
equipment 180,803 170,986
Projects under construction 3,976 2,958
--------- ---------
474,118 463,776
Accumulated depreciation
and amortization (238,602) (218,142)
--------- ---------
$ 235,516 $ 245,634
========= =========
</TABLE>
Property under capitalized leases in the amount of $85,363,000 at
December 26, 1993 and $88,961,000 at December 28, 1992 is included in buildings
and improvements. Accumulated amortization of property under capitalized
leases amounted to $41,714,000 at December 26, 1993 and $37,125,000 at December
28, 1992. Capitalized leases primarily relate to the buildings on certain
restaurant properties; the land portions of these leases are accounted for as
operating leases.
Depreciation and amortization relating to property and equipment was
$28,394,000 for 1993, $46,512,000 for 1992 and $43,214,000 for 1991, of which
$6,213,000, $6,447,000 and $6,175,000, respectively, was related to
amortization of property under capitalized leases. Depreciation and
amortization are included in occupancy and other operating expenses.
A majority of the capitalized and operating leases have original terms
of 25 years, and substantially all of these leases expire in the year 2004 or
later. Most leases have renewal options. The leases generally provide for
payment of minimum annual rent, real estate taxes, insurance and maintenance
and, in most cases, contingent rent, calculated as a percentage of sales, in
excess of minimum rent. The total amount of contingent rent under capitalized
leases for 1993, 1992 and 1991 was $5,315,000, $5,307,000 and $5,029,000,
respectively. Total rental expense for all operating leases comprised the
following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Minimum rent $26,315 $33,976 $30,903
Contingent rent 3,339 3,924 4,964
Less: Sublease rent (5,035) (4,656) (3,846)
------- ------- -------
$24,619 $33,244 $32,021
======= ======= =======
</TABLE>
F-19
<PAGE>
<PAGE>
At December 26, 1993, the present value of capitalized lease payments
and the future minimum lease payments on noncancellable operating leases were:
<TABLE>
<CAPTION>
Capitalized Operating
Due in Leases Leases
------ ----------- ---------
(in thousands)
<S> <C> <C>
1994 $ 11,461 $ 29,182
1995 11,246 28,635
1996 10,997 28,062
1997 10,643 26,804
1998 10,160 25,571
Later years 46,331 155,457
-------- --------
Total minimum lease payments 100,838 $293,711
========
Interest (42,534)
--------
Present value of minimum
lease payments $ 58,304
========
</TABLE>
The future lease payments summarized above include commitments for
leased properties included in the Company's divestiture program.
NOTE 8 - OTHER ASSETS:
A summary of other assets follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Liquor licenses $ 4,322 $ 4,578
Construction allowances 1,902 2,522
Franchise operating rights 1,241 2,281
Notes receivable 1,101 747
Conversion costs 7,131 4,130
Other 4,455 4,918
------- -------
$20,152 $19,176
======= =======
</TABLE>
Construction allowances represent advances made for restaurant
construction or remodeling which are recovered through reductions in contingent
rental payments. These amounts are expensed as such reductions are realized.
Franchise operating rights are stated at their fair market value as of
the date of the 1986 Acquisition based on royalty income streams and are
amortized over the terms of the franchise agreements.
Conversion costs (principally training costs and occupancy costs) have
been capitalized as part of the conversion of the acquired Marriott family
restaurants into the Company's Coco's and Carrows concepts. The Company is
generally amortizing these costs over a two-year period.
F-20
<PAGE>
<PAGE>
NOTE 9 - LONG-TERM DEBT, INCLUDING CAPITALIZED LEASE OBLIGATIONS:
Long-term debt, including capitalized lease obligations, is comprised
of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(in thousands)
<S> <C> <C>
12 1/4% Senior Subordinated Notes,
net of unamortized discount of
$3,072,000 ($1,452,000 in 1992) $191,928 $187,048
12 3/4% Subordinated Notes, net
of unamortized discount of
$1,084,000 ($1,230,000 in 1992) 78,916 78,770
Capitalized lease obligations 58,304 66,095
8% Promissory notes due 1995-1999 21,828 21,828
Mortgage notes, 12 1/4% - 12 1/2%,
due 1994-1998 2,307 4,115
Other 2,200 2,173
Debt issuance and other costs
(amortized over the lives of the
respective debt issues) (3,370 ) (4,339 )
-------- --------
352,113 355,690
Liabilities subject to settlement
under reorganization proceedings 267,474 261,479
Amounts due within one year 5,981 10,078
-------- --------
$ 78,658 $ 84,133
======== ========
</TABLE>
As part of the 1986 Acquisition, the Company issued the Old Notes.
The Old Indentures provided that upon an event of default as set forth therein,
the trustee or the holders of at least 25% in principal amount of each issue of
Old Notes may: (i) declare all unpaid principal (approximately $275 million at
December 26, 1993 and $268.5 million at December 28, 1992) and accrued interest
to be immediately due and payable; and (ii) to pursue any available remedy to
collect the payment of principal or interest.
The Company failed to pay $14.1 million of interest due December 15,
1992 on the Old Notes, $2.6 million of interest due March 15, 1993 on the Old
Subordinated Notes, the $14.5 million of interest due June 15, 1993 on the Old
Notes, $2.6 million of interest due September 15, 1993 on the Old Subordinated
Notes and $14.5 million of interest due December 15, 1993 on the Old Notes. In
addition, because the Company failed to meet a minimum net worth requirement
contained in the Old Indentures, it was required to offer to redeem, on June
25, 1993, 10% of the original outstanding amount of each issue of the Old Notes
at a redemption price equal to 100% of the principal amount plus accrued
interest. The Company did not make such an offer. As a result, all unpaid
principal on the Old Notes ($275 million at December 26, 1993 and $268.5
million at December 28, 1992) and accrued interest could have been declared
immediately due and payable.
Liabilities that were extinguished as part of the Plan are separately
classified in the consolidated balance sheets as liabilities subject
F-21
<PAGE>
<PAGE>
to settlement under reorganization proceedings and include the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(in thousands)
<S> <C> <C>
Old Senior Subordinated Notes $191,928 $187,048
Old Subordinated Notes 78,916 78,770
Accrued interest 52,720 15,531
Debt issuance and other costs (3,370) (4,339)
-------- --------
$320,194 $277,010
======== ========
</TABLE>
On the Closing Date, the Company entered into the New Credit Facility.
The New Credit Facility is a $150.0 million revolving credit facility with a
$100.0 million sublimit for standby letters of credit. Except for the issuance
of letters of credit, the Company did not have to borrow any funds under the New
Credit Facility in order to complete the Acquisition. The $150.0 million
facility, net of the face amount of standby letters of credit, is available for
general corporate purposes including the Company's working capital, debt service
and capital expenditure requirements. Standby letters of credit are issued
primarily to provide security for future amounts payable by the Company under
its workers' compensation insurance program ($42.6 million outstanding as of
March 15, 1994).
The 8% promissory notes are payable to Marriott with full principal
repayment due in equal quarterly installments in years four, five, six and
seven and interest (a) accruing and compounding quarterly in years one and two
(which accrued and compounded amount will be added to the principal amount of
the promissory note) and (b) payable on a quarterly basis in cash in years
three, four, five, six and seven with a first cash interest payment due on
April 30, 1994. These promissory notes have been secured as to the payment of
principal and interest when due by the grant to Marriott of deeds of trust on
the real property sold to the Company which was owned by Marriott in fee simple
title (having a book value of approximately $34.9 million at December 26, 1993)
and the additional grant to Marriott of leasehold deeds of trust on certain
leasehold interests assigned by Marriott to the Company.
The mortgage notes were issued to a group of institutional lenders and
are collateralized by mortgages covering 16 restaurants having a book value of
approximately $12.9 million at December 26, 1993.
Maturities of long-term debt, including capitalized lease obligations,
during the four years subsequent to December 25, 1994 are as follows:
$10,901,000 in 1995; $12,637,000 in 1996; $12,590,000 in 1997 and $13,305,000
in 1998.
NOTE 10 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The recorded amounts of the Company's cash and cash equivalents,
restricted cash, collateral deposit, self-insurance reserves, other accrued
liabilities, note payable to Marriott and loan payable to Grace at
F-22
<PAGE>
<PAGE>
December 26, 1993 and December 28, 1992 approximate fair value. The fair
value of the Company's long-term debt, excluding capitalized lease
obligations, is estimated as follows:
<TABLE>
<CAPTION>
1993 1992
----------------------- -----------------------
Recorded Fair Recorded Fair
Amount Value Amount Value
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Old Senior Subordinated Notes $191,928 $183,156 $187,048 $121,111
Old Subordinated Notes 78,916 51,694 78,770 21,400
8% Promissory notes 21,828 20,082 21,828 18,932
Mortgage notes 2,307 2,355 4,115 4,283
Other 2,200 1,748 2,173 1,736
</TABLE>
The fair values of the Company's Old Senior Subordinated Notes and Old
Subordinated Notes are based on the Cash Distribution paid on the Closing Date
pursuant to the Plan for 1993 and on an average market price of these
instruments as of the end of the year for 1992. The fair value of the 8%
promissory notes, mortgage notes and other debt was estimated using a discount
rate which the Company believes would be currently available to it for debt with
similar terms and average maturities.
NOTE 11 - OTHER ACCRUED LIABILITIES:
A summary of other accrued liabilities follows:
<TABLE>
<CAPTION>
1993 1992
------- -------
(in thousands)
<S> <C> <C>
Wages, salaries and bonuses $22,796 $23,478
Carrying costs of closed properties 13,863 9,813
Interest 4,273 2,368
Sales tax 6,409 7,003
Property taxes 2,794 4,044
Accrued rent 3,083 3,061
Utilities 2,988 2,672
Other 9,236 10,855
------- -------
$65,442 $63,294
======= =======
</TABLE>
NOTE 12 - INCOME TAXES:
The Company reported a loss before income tax provision in 1993, 1992
and 1991. Accordingly, the income tax provisions for each year primarily
reflect certain state, local and foreign taxes. On a tax return basis, the
federal regular operating loss carryforwards amounted to approximately $152.5
million ($88.6 million of alternative minimum tax operating loss carryforwards)
and expire in 2003 through 2008. The Company had approximately $2.4 million of
tax credit carryforwards (of which $0.7 million expire in 1995 through 1996 and
$1.7 million expire in 2003 and 2004).
At December 26, 1993, the Company and its subsidiaries had tax credit
carryforwards of approximately $4.9 million not utilized by Grace. In
F-23
<PAGE>
<PAGE>
accordance with the 1986 Acquisition, the Company must reimburse Grace
for 75% of the benefit of these tax credits if they are utilized in
future Company tax returns. Further, El Torito Restaurants, Inc. (a wholly
owned subsidiary of the Company) has approximately $12.5 million of tax
depreciation deductions not claimed in Grace tax returns as a result of a tax
sharing agreement. The Company will also reimburse Grace for 75% of any tax
savings generated by these deductions. In addition, operating loss and tax
credit carryforwards ($8.7 million and $1.6 million, respectively) generated
prior to the acquisition of certain restaurant companies by Grace were
available at December 26, 1993 to offset future taxable income or income taxes,
respectively, of those companies for various years through 1999. To the extent
such tax benefits are ultimately realized, goodwill will be reduced.
Upon consummation of the Acquisition, the Company's net operating loss
carryovers and other tax attributes were reduced significantly for federal
income tax purposes. In addition, because the consummation of the Acquisition
triggered an ownership change of the Company for federal income tax purposes,
the Company's post-Acquisition use of its remaining net operating loss
carryovers for regular and alternative minimum federal income tax purposes is
subject to an annual limitation in an amount equal to the product of (i) the
long-term tax-exempt rate prevailing on the Closing Date and (ii) the value of
the Company's stock, increased to reflect the cancellation of indebtedness
pursuant to the Prepackaged Plan (but without taking into account contributions
to capital pursuant to the Acquisition).
Beginning in fiscal 1992, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This
statement requires the recognition of deferred tax assets and liabilities for
the future consequences of events that have been recognized in the Company's
financial statements or tax returns. The measurement of the deferred items is
based on enacted tax laws. In the event the future consequences of differences
between financial reporting bases and the tax bases of the Company's assets and
liabilities result in a deferred tax asset, SFAS 109 requires an evaluation of
the probability of being able to realize the future benefits indicated by such
asset. A valuation allowance related to a deferred tax asset is recorded when
it is more likely than not that some portion or all of the deferred tax asset
will not be realized. As permitted under the new statement, financial
statements of prior years have not been restated. The cumulative effect on the
Company's deferred tax accounts at December 31, 1991 of adopting this new
statement was the recording of a net deferred tax asset of $53,346,000, a
reduction in property and equipment of $667,000, a valuation allowance of
$53,346,000 and a cumulative effect of $667,000.
A reconciliation of income tax expense to the amount of income tax
benefit that would result from applying the federal statutory rate (35% for
F-24
<PAGE>
<PAGE>
1993 and 34% for 1992 and 1991) to loss before income taxes is as
follows:
<TABLE>
<CAPTION>
Fiscal years ended
-------------------------------------------------
Dec. 26, Dec. 28, Dec. 30,
1993 1992 1991
---------- -------- --------
(in thousands)
<S> <C> <C> <C>
Provision for income taxes
at statutory rate $(18,010) $(67,498) $(9,437)
State taxes, net of Federal
income tax benefit (3,113) (4,589) 0
State minimum tax 187 256 112
Foreign taxes 471 465 410
Goodwill 1,923 38,112 1,352
Net operating loss not utilized 0 0 8,085
Addition to valuation allowance 17,545 33,975 0
Surtax exemption 514 0 0
Other 1,141 0 0
-------- -------- -------
$ 658 $ 721 $ 522
======== ======== =======
</TABLE>
At December 26, 1993 and December 28, 1992, the Company's deferred tax
asset was $122,461,000 and $96,024,000, respectively, and deferred tax
liability was $18,544,000 and $9,651,000, respectively. The major components
of the Company's net deferred taxes of $103,917,000 at December 26, 1993 and
$86,373,000 at December 28, 1992 are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
--------- --------
<S> <C> <C>
Depreciation $ (10,723) $ (7,403)
Net operating loss and
credit carryforwards 68,947 46,778
Capitalized leases 10,385 10,561
Divestment, carrying cost
and rent subsidy reserves 17,361 17,052
Self-insurance reserves 14,711 16,805
Other 3,236 2,580
--------- --------
103,917 86,373
Valuation allowance (103,917) (86,373)
--------- --------
$ 0 $ 0
========= ========
</TABLE>
The increase in the valuation allowance of $17,544,000 for 1993
resulted from the addition for current year temporary differences and net
operating loss of $18,436,000, less expired tax credits of $790,000 for which a
valuation allowance had previously been recorded and adjustments to reflect the
results of the IRS audit of $102,000.
F-25
<PAGE>
<PAGE>
NOTE 13 - BENEFIT PLANS:
The Company maintains certain incentive compensation and related plans
for executives and key operating personnel. Total expenses for these plans
were $9,479,000, $7,505,000 and $7,370,000 for 1993, 1992 and 1991,
respectively.
The Company had two Retirement Savings Plans, and substantially all of
the Company's salaried employees were eligible to participate in them.
Effective December 31, 1991, the Company suspended its match under one of the
plans and terminated the other plan. The Company's contributions and expenses
under these plans were $53,000, $65,000 and $1,362,000 in 1993, 1992 and 1991,
respectively. The Company has no defined benefit plans.
NOTE 14 - REDEEMABLE CUMULATIVE EXCHANGEABLE PREFERRED STOCK:
The 1,544,237 shares of Preferred Stock held by Grace and Marriott at
December 26, 1993 were non-voting, had a liquidation value of $100 per share
(plus accrued and unpaid dividends) and were exchangeable at the option of the
Company into 13 1/2% Junior Subordinated Exchange Debentures due June 15, 1999.
Dividends were cumulative and were payable semi-annually in cash or in
additional shares of Preferred Stock at the option of the Company. Of the
1,544,237 shares outstanding, 500,000 were issued to Grace at the time of the
1986 Acquisition, 250,000 shares were issued, effective July 1, 1989, in
consideration for the cancellation of $25 million of the Company's 13 1/8%
Junior Subordinated Notes held by Grace, 232,400 shares were issued to Marriott
in early 1992 in connection with the acquisition of 109 family restaurants and
561,837 shares have been issued as stock dividends. At December 26, 1993, the
Company had accrued additional stock dividends on preferred stock. At $100 per
share, the value of the dividends was $29,497,000. All the outstanding
preferred stock was cancelled in connection with the Plan.
NOTE 15 - COMMON STOCK:
In December 1992, Grace entered into a series of agreements pursuant
to which it (i) obtained the right to purchase a majority of the shares of the
Old Common Stock from management and former management stockholders and (ii)
amended the terms of the Old Shareholders' Agreement, thereby effectively
gaining control of the Company. Grace also entered into a consent agreement
with the Company pursuant to which, among other things, the Company agreed not
to issue any shares of its capital stock or options without the consent of
Grace. In June 1993, Grace/Western as assignee exercised such purchase rights
and became the majority stockholder of the Company. Grace purchased 99,984 and
7,510 additional shares of Old Common Stock on October 15, 1993 and January 5,
1994, respectively, increasing its total holdings to 350,533 shares (or 74.6%
of the outstanding Old Common Stock). On the Closing Date, Grace/Western
received a cash payment of $175,267 for such Old Common Stock in connection
with the Plan.
F-26
<PAGE>
<PAGE>
In connection with the Acquisition, the Company adopted a new management
incentive plan (the "Management Incentive Plan") , pursuant to which certain
officers and employees of the Company may be granted the right to purchase up
to 40,500 shares of New Common Stock (constituting up to 4.1% of the New Common
Stock outstanding immediately following such purchases) at $160 per share (the
"Employee Stock Purchase"), the same per share price paid by Apollo and GEI in
the New Equity Investment. The Employee Stock Purchase was consummated on the
Closing Date with respect to certain officers and will be consummated shortly
with respect to the other participants. Approximately fifty percent of the
purchase price may be financed through interest-bearing recourse notes payable
to the Company. In the event that the officers and employees elect not to
exercise all or a portion of such purchase rights, Apollo, GEI and Foodmaker
intend to purchase all shares relating to such unexercised rights. In
addition, under the management incentive plan, the Company currently expects to
grant options to purchase shares of New Common Stock to approximately 1,000
officers and employees of the Company, including individual restaurant general
managers.
NOTE 16 - CONTINGENCIES:
The Company is involved in various litigation matters incidental to
its business. The Company does not believe that any of the claims or actions
filed against it will have a material adverse effect upon the consolidated
financial position and results of operations of the Company.
F-27
<PAGE>
<PAGE>
FOODMAKER, INC.
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma statements of operations give
effect to the following transactions and events as if they had occurred as of
the beginning of the period presented: (i) the acquisition by the Company on
January 27, 1994 of a 40% equity interest in Family Restaurants, Inc. ("FRI"),
formerly Restaurant Enterprises Group, Inc., valued at $62 million; (ii) the
concurrent contribution by the Company of its entire Chi-Chi's Mexican
restaurant chain to FRI for the above equity interest and approximately $173
million in cash ($208 million less the face amount of Chi-Chi's debt assumed);
and (iii) the utilization of cash to repay all of the debt outstanding under
the Company's then existing bank credit facility, which has since been
terminated, with the balance of cash available for capital expenditures and
general corporate purposes. The selected unaudited pro forma balance sheet
contained herein gives effect to the foregoing transactions and events as if
they occurred on January 23, 1994.
The pro forma financial data presented herein do not purport to
represent what the Company's results of operations or financial position would
have been had such transactions in fact occurred at the beginning of the
periods or to project the Company's results of operations in any future
period. The Selected Unaudited Pro Forma Financial Data should be read in
conjunction with the Consolidated Financial Statements, including the notes
thereto, included in the Company's Annual Report on Form 10-K for the
fifty-three weeks ended October 3, 1993 and its Quarterly Report on Form 10-Q
for the sixteen weeks ended January 23, 1994.
F-28
<PAGE>
<PAGE>
FOODMAKER, INC.
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
53 Weeks Ended 16 Weeks Ended
October 3, 1993 January 23, 1994
------------------------------- ----------------------------
Pro Forma Pro Forma
Adjust- As Adjust- As
Actual ments(1) Adjusted Actual ments(1) Adjusted
-------- -------- -------- ------- -------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Restaurant sales. . . . . . . . $1,088,269 $(404,486) $683,783 $334,363 $(123,247) $211,116
Distribution sales. . . . . . . 108,546 87,512 196,058 34,876 28,163 63,039
Franchise rents
and royalties. . . . . . . . 35,232 (1,261) 33,971 10,998 (132) 10,866
Other . . . . . . . . . . . . . 8,657 (4,540) 4,117 1,337 (554) 783
--------- -------- -------- -------- -------- --------
1,240,704 (322,775) 917,929 381,574 (95,770) 285,804
--------- -------- -------- -------- -------- --------
Costs of revenues:
Company restaurant costs. . . . 952,374 (360,483) 591,891 297,425 (113,299) 184,126
Costs of distribution sales . . 104,817 87,335 192,152 33,283 28,048 61,331
Franchised restaurant costs . . 67,704 (594) 67,110 7,264 (159) 7,105
Selling, general and
administrative. . . . . . . . . 124,422 (31,237) 93,185 33,049 (9,106) 23,943
Equity in loss of FRI . . . . . . - 9,598 9,598 - 5,443 5,443
Interest expense. . . . . . . . . 57,586 (14,195) 43,391 18,408 (4,731) 13,677
--------- -------- -------- -------- -------- --------
1,306,903 (309,576) 997,327 389,429 (93,804) 295,625
--------- -------- -------- -------- -------- --------
Loss before income taxes and
cumulative effect of changes
in accounting principles. . . . (66,199) (13,199) (79,398) (7,855) (1,966) (9,821)
Income tax benefit. . . . . . . . (22,071) (6,020) (28,091) (3,456) (865) (4,321)
--------- -------- -------- -------- -------- --------
Loss before cumulative effect
of changes in accounting
principles. . . . . . . . . . . $ (44,128) $ (7,179) $(51,307) $ (4,399) $ (1,101) $ (5,500)
========= ======== ======== ======== ======== ========
Loss per share before
cumulative effect of changes
in accounting principles. . . . $ (1.15) $ (1.33) $ (.11) $ (.14)
Weighted average shares
outstanding (000's)(3). . . . . 38,486 38,486 38,398 38,398
<FN>
_____________
(1) The adjustments to the Unaudited Pro Forma Statement of Operations for the 53 weeks
ended October 3, 1993 and the 16 weeks ended January 23, 1994 (i) eliminate revenues,
costs of revenues and general and administrative expenses of Chi-Chi's; (ii) record
sales and cost of sales for the Company's distribution activity with Chi-Chi's,
previously eliminated in consolidation; (iii) record the Company's approximate 40%
equity in the pro forma net loss of FRI for the respective periods; (iv) reflect the
reduction of net interest expense through elimination of approximately $35 million in
debt assumed by FRI and utilization of cash proceeds from the sale of Chi-Chi's for
investments and for retirement of the bank credit facility; and (v) increase the income
tax benefit as a result of the increased pro forma pre-tax loss.
</TABLE>
F-29
<PAGE>
<PAGE>
FOODMAKER, INC.
UNAUDITED PRO FORMA BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
As of January 23, 1994
--------------------------------------------
Less Pro Forma As
Actual Chi-Chi's Adjustments Adjusted
-------- ---------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Current Assets:
Cash $ 12,163 $ (9,524) $ 92,587 $ 95,226
Receivables 28,189 (2,973) - 25,216
Inventories 42,685 (15,464) - 27,221
Prepaid expenses 9,075 (2,960) - 6,115
-------- -------- -------- --------
Total current assets 92,112 (30,921) 92,587 153,778
Trading area rights, lease acquisition costs,
other assets, all net of accumulated
amortization 183,971 (32,974) (3,360) 147,637
Investment in Chi-Chi's/FRI - 225,606 (166,890) 58,716
Property, net 544,491 (155,714) - 388,777
Cost of business in excess of net assets at
acquisition, net of accumulated amortization 93,711 (91,061) - 2,650
-------- -------- -------- --------
$914,285 $(85,064) $(77,663) $751,558
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 33,206 $ (432) $(20,000) $ 12,774
Accounts payable and other current liabilities 156,122 (41,986) (131) 114,005
-------- -------- -------- --------
Total current liabilities 189,328 (42,418) (20,131) 126,779
Deferred income taxes 17,189 (15,624) 646 2,211
Long-term debt, net of current maturities 540,889 (23,509) (59,000) 458,380
Other long-term liabilities 31,862 (3,513) - 28,349
Stockholders' equity:
Common stock 399 - - 399
Capital in excess of par value 280,622 - - 280,622
Retained earnings (131,541) - 822 (130,719)
Treasury stock (14,463) - - (14,463)
-------- -------- -------- --------
Total stockholders' equity 135,017 - 822 135,839
-------- -------- -------- --------
$914,285 $(85,064) $(77,663) $751,558
======== ======== ======== ========
<FN>
(1) The adjustments to the Unaudited Pro Forma Balance Sheet as of January 23, 1994 reflect
(i) elimination of Chi-Chi's assets and liabilities; (ii) write off of $4.2 million of
other assets relating to bank credit facility deferred finance charges; (iii) payment to
FRI for $.8 million in other assets; (iv) recording the Company's $62.3 million
investment in FRI, less $3.6 million unrecognized gain on sale of Chi-Chi's due to the
Company's approximate 40% interest in FRI; (v) utilization of net proceeds from the sale
of Chi-Chi's to retire $79 million in bank debt (of which $20 million was current) plus
accrued interest, with approximately $93 million increasing the Company's cash position;
and (vi) a net increase in stockholders' equity of $.8 million, reflecting recognition of
$5.6 million of the gain on sale of Chi-Chi's, offset by the write off of deferred
finance charges of $4.2 million, and a deferred tax provision adjustment relating to
these items of $.6 million.
</TABLE>
F-30
<PAGE>
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-50934 on Form S-1 of Foodmaker, Inc. and in Registration Statement Nos.
33-67450, 33-54602 and 33-51490 on Form S-8 of Foodmaker, Inc. of our report
on Family Restaurants, Inc. dated March 22, 1994, included in the Annual Report
on Form 10-K of Family Restaurants, Inc. (formerly known as The Restaurant
Enterprises Group, Inc.) for the year ended December 26, 1993.
DELOITTE & TOUCHE
Costa Mesa, California
April 12, 1994
