<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly report pursuant to section 13 or 15(d) of the Securities
----- Exchange Act of 1934
For the quarterly period ended June 25, 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 33-14051
--------
Family Restaurants, Inc.
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0197361
-------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18831 Von Karman Avenue, Irvine, California 92715
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 757-7900
--------------------------
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
Number of shares of outstanding common stock as of August 8, 1995 is 988,457.
- 1 -
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except per share)
<TABLE>
<CAPTION>
June 25, December 25,
1995 1994
-------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,407 $ 8,239
Restricted cash 0 1,850
Receivables 12,298 11,831
Inventories 11,402 12,916
Other current assets 6,172 8,179
--------- ---------
Total current assets 37,279 43,015
Property and equipment, net 450,126 445,354
Reorganization value in excess of amounts
allocable to identifiable assets, net 194,093 197,581
Other assets 44,657 48,648
--------- ---------
$ 726,155 $ 734,598
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Loans payable to banks $ 85,300 $ 0
Current portion of long-term debt, including
capitalized lease obligations 7,243 6,754
Accounts payable 38,729 41,999
Self-insurance reserves 51,841 50,692
Other accrued liabilities 96,798 96,426
Income taxes payable 2,745 2,625
--------- ---------
Total current liabilities 282,656 198,496
Other long-term liabilities 6,901 6,866
Long-term debt, including capitalized lease
obligations, less current portion 480,347 536,495
Stockholders' deficit:
Common stock - authorized 1,500,000 shares, par
value $.01 per share, 997,277 shares issued 10 10
Additional paid-in capital 159,554 159,554
Notes receivable from stockholders (2,232) (2,947)
Accumulated deficit (199,780) (163,876)
Less treasury stock, at cost (8,380 shares) (1,301) 0
--------- ---------
Total stockholders' deficit (43,749) (7,259)
--------- ---------
$ 726,155 $ 734,598
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
- 2 -
<PAGE> 3
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
----------------------
June 25, June 26,
1995 1994
-------- --------
<S> <C> <C>
Sales $289,570 $299,054
-------- --------
Product cost 83,612 83,682
Payroll and related costs 106,164 106,462
Occupancy and other operating expenses 71,275 66,345
Depreciation and amortization 15,105 12,833
General and administrative expenses 14,981 14,272
Loss (gain) on disposition of properties, net 1,174 (66)
-------- --------
Total costs and expenses 292,311 283,528
-------- --------
Operating income (loss) (2,741) 15,526
Interest expense, net 15,237 13,681
-------- --------
Income (loss) before income tax provision (17,978) 1,845
Income tax provision 487 858
-------- --------
Net income (loss) attributable to common shares $(18,465) $ 987
======== ========
Net income (loss) per common share $ (18.60) $ 1.00
======== ========
Weighted average common shares outstanding 992,649 984,373
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements
- 3 -
<PAGE> 4
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except per share)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
------------------------- -----------
Six Months Five Months One Month
Ended Ended Ended
June 25, June 26, January 26,
1995 1994 1994
---------- ----------- -----------
<S> <C> <C> <C>
Sales $570,703 $488,634 $ 64,741
-------- -------- --------
Product cost 163,022 136,668 19,184
Payroll and related costs 211,939 174,847 24,780
Occupancy and other operating expenses 139,783 109,851 13,712
Depreciation and amortization 28,945 21,256 2,800
General and administrative expenses 30,399 23,317 4,071
Loss (gain) on disposition of properties, net 1,395 (66) (12)
-------- -------- --------
Total costs and expenses 575,483 465,873 64,535
-------- -------- --------
Operating income (loss) (4,780) 22,761 206
Interest expense, net 30,150 23,559 4,097
-------- -------- --------
Loss before reorganization items, income
tax provision and extraordinary item (34,930) (798) (3,891)
-------- -------- --------
Reorganization items:
Professional fees 0 0 (4,250)
Payment to Grace 0 0 (15,000)
Other 0 0 (3,029)
Fresh start adjustment 0 0 501,706
-------- -------- --------
Total reorganization items 0 0 479,427
-------- -------- --------
Income (loss) before income tax provision
and extraordinary item (34,930) (798) 475,536
Income tax provision 974 1,452 55
-------- -------- --------
Income (loss) before extraordinary item (35,904) (2,250) 475,481
Extraordinary gain on extinguishment of debt 0 0 72,561
-------- -------- --------
Net income (loss) (35,904) (2,250) 548,042
Preferred dividends 0 0 (1,698)
-------- -------- --------
Net income (loss) attributable to common
shares $(35,904) $ (2,250) $546,344
======== ======== ========
Net loss per common share $ (36.09) $ (2.29)
======== ========
Weighted average common shares outstanding 994,964 980,539
</TABLE> ======== ========
Net loss per common share for the Predecessor Company is not meaningful due to
debt discharge, the issuance of new common stock and fresh start reporting.
See accompanying notes to condensed consolidated financial statements
- 4 -
<PAGE> 5
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
------------------------ -----------
Six Months Five Months One Month
Ended Ended Ended
June 25, June 26, January 26,
1995 1994 1994
---------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers, franchisees
and licensees $ 573,766 $ 494,057 $ 65,341
Cash paid to suppliers and employees (550,079) (469,856) (59,729)
Interest paid, net (21,691) (4,102) (741)
Income taxes received (paid) (854) (1,047) 157
Charges to reserve for divestitures 0 (5,104) (1,001)
--------- --------- ---------
Net cash provided by operating activities
before reorganization items 1,142 13,948 4,027
--------- --------- ---------
Reorganization items:
Professional fees 0 0 (4,250)
Payment to Grace 0 0 (15,000)
Other 0 0 (3,029)
--------- --------- ---------
Total reorganization items 0 0 (22,279)
--------- --------- ---------
Net cash provided by (used in) operating
activities 1,142 13,948 (18,252)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 1,905 1,352 1,588
Acquisition of Chi-Chi's 0 0 (194,889)
Capital expenditures (26,968) (19,806) (779)
Capitalized opening costs (1,280) (853) (21)
Other 461 (418) 1,491
--------- --------- ---------
Net cash used in investing activities (25,882) (19,725) (192,610)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of Notes 0 0 409,046
Proceeds from working capital borrowings, net 25,700 0 0
Payment of notes payable to Marriott, net 0 0 (10,969)
Payment of loan payable to Grace 0 0 (2,900)
Payment of debt issuance costs 0 0 (22,973)
Reductions of long-term debt, including
capitalized lease obligations (3,056) (2,340) (447)
Cash settlement of liabilities subject to
settlement under reorganization proceedings 0 0 (279,055)
Decrease in restricted cash and collateral
deposit 1,850 17 38,688
Proceeds from issuance of common stock, net 0 1,888 92,364
Purchase of treasury stock (1,301) 0 0
Payments of notes receivable from stockholders 715 0 0
--------- --------- ---------
Net cash provided by (used in) financing
activities 23,908 (435) 223,754
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents (832) (6,212) 12,892
Cash and cash equivalents at beginning of period 8,239 22,202 9,310
--------- --------- ---------
Cash and cash equivalents at end of period $ 7,407 $ 15,990 $ 22,202
========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
- 5 -
<PAGE> 6
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Predecessor
Successor Company Company
------------------------ -----------
Six Months Five Months One Month
Ended Ended Ended
June 25, June 26, January 26,
1995 1994 1994
---------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net income (loss) to net
cash provided by (used in) operating activities
net of effects of Chi-Chi's acquisition:
Net income (loss) $(35,904) $(2,250) $ 548,042
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 28,945 21,256 2,800
Amortization of debt issuance costs 1,644 1,284 215
Loss (gain) on disposition of properties 1,395 (66) (12)
Fresh start adjustment 0 0 (501,706)
Extraordinary gain on extinguishment of debt 0 0 (72,561)
Accretion of interest on Discount Notes 6,548 5,152 0
Accrued interest on liabilities settled
under bankruptcy proceedings 0 0 3,113
Decrease in receivables, inventories
and other current assets 1,253 3,235 806
Increase (decrease) in accounts payable,
self-insurance reserves, other accrued
liabilities and income tax payable (2,739) (9,559) 2,052
Charges to the reserve for divestitures 0 (5,104) (1,001)
-------- ------- --------
Net cash provided by (used in) operating
activities $ 1,142 $13,948 $(18,252)
======== ======= ========
Supplemental schedule of 1994 investing activities:
The components of acquisition of Chi-Chi's
are as follows:
Current assets $ (8,316)
Property and equipment (155,293)
Goodwill (146,329)
Other assets (14,121)
Current liabilities 56,843
Other long-term liabilities 5,292
Long-term debt assumed 4,694
Issuance of common stock 62,341
---------
$(194,889)
=========
</TABLE>
See accompanying notes to condensed
consolidated financial statements
- 6 -
<PAGE> 7
FAMILY RESTAURANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. COMPANY. Family Restaurants, Inc. (formerly The Restaurant
Enterprises Group, Inc.) was incorporated in Delaware in 1986 and is primarily
engaged in the operation of full-service restaurants throughout the United
States through its subsidiaries (Family Restaurants, Inc. together with its
subsidiaries shall hereinafter be referred to as the "Company"). At June 25,
1995, the Company operated 687 restaurants in 33 states, with approximately 53%
of its restaurants located in California. The Company is the licensor of 237
full-service restaurants in Japan and South Korea, the franchisor of five
family restaurants and four Mexican restaurants in the United States and the
franchisor of 19 Mexican restaurants outside the United States.
Reference to the "Predecessor Company" refers to The Restaurant
Enterprises Group, Inc. and its consolidated subsidiaries (not including
Chi- Chi's) with respect to information relating to periods prior to January
27, 1994 included herein, and reference to the "Successor Company" refers to
Family Restaurants, Inc. and its consolidated subsidiaries, giving effect to
the Acquisition (as defined below) and related transactions as described below,
with respect to information about events occurring upon completion of or after
the Acquisition.
2. FINANCIAL STATEMENTS. The Condensed Consolidated Financial
Statements in this Form 10-Q have been prepared in accordance with Securities
and Exchange Commission Regulation S-X. Reference is made to the Notes to the
Consolidated Financial Statements for the Year Ended December 25, 1994 included
in the Company's Annual Report on Form 10-K for information with respect to the
Company's significant accounting and financial reporting policies as well as
other pertinent information. The Company believes that all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of the interim periods presented have been made.
The results of operations of the Successor Company for the quarter and six
months ended June 25, 1995 are not necessarily indicative of those for the full
year.
The Predecessor Company commenced a prepackaged Chapter 11
reorganization on November 23, 1993, which was confirmed by the United States
Bankruptcy Court for the District of Delaware on January 7, 1994. The
Predecessor Company 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," in the consolidated
financial statements for the one month ended January 26, 1994.
- 7 -
<PAGE> 8
The accumulated deficit of the Predecessor Company was eliminated as
required by fresh start reporting; additionally, the statement of operations
for the one month ended January 26, 1994 reflects the effects of the
extinguishment of debt resulting from confirmation of the plan of
reorganization and the effects of the adjustments to restate assets and
liabilities to reflect the reorganization value of the Successor Company. As
such, the condensed consolidated balance sheets of the Company as of June 25,
1995 and December 25, 1994 and the accompanying condensed consolidated
statements of operations for the quarter and six months ended June 25, 1995
and the five months ended June 26, 1994 represent that of the Successor Company
which, in effect, is a new entity with assets, liabilities and a capital
structure having carrying values not comparable with prior periods. The
condensed consolidated statement of operations for the one month ended January
26, 1994 represents that of the Predecessor Company.
On January 27, 1994 (the "Closing Date"), Apollo FRI Partners, L.P.,
Green Equity Investors, L.P. and Foodmaker, Inc. ("Foodmaker") acquired
approximately 98% of the outstanding common stock of the Company (the
"Acquisition"). The Acquisition involved several components, including the
merger of Chi-Chi's with a subsidiary of the Company (the "Chi-Chi's Merger"),
and related transactions.
3. LOSS PER COMMON SHARE. Loss per common share for the Successor
Company is computed based on the weighted average number of shares actually
outstanding. The impact of the "Foodmaker Warrant," which allows Foodmaker to
acquire an additional 111,111 shares of common stock of the Company, and
options has not been included since the impact would be antidilutive.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
presented in the Company's Annual Report on Form 10-K.
As used herein, "comparable restaurants" means restaurants operated
by the Company on January 1, 1994, which continued in operation through the
end of the second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES.
A. LIQUIDITY
The Company primarily relies on internally generated funds,
supplemented by working capital advances under its revolving credit facility
(the "Credit Facility"), for its liquidity.
Operating Cash Flow. During the first six months of 1995, the Company
reported EBITDA (defined as earnings (loss) before gain (loss) on disposition
of properties, interest, taxes, depreciation
- 8 -
<PAGE> 9
and amortization) of $25.6 million. If Chi-Chi's had been included for the one
month ended January 26, 1994, pro forma combined EBITDA for the first six
months of 1994 would have been reported as $48.5 million. The Company has
included information concerning EBITDA herein because it understands that such
information is used by certain investors as one measure of an issuer's
historical ability to service debt. EBITDA should not be considered as an
alternative to, or more meaningful than, operating income (loss) as an
indicator of operating performance or to cash flows from operating activities
as a measure of liquidity. The Company continues to suffer from declining
sales in the Mexican Restaurant Division (as defined below). On July 28, 1995,
the Company retained the firm of Jay Alix & Associates to implement such steps
as may be necessary in order to improve the Company's performance, focusing
specifically on the Mexican Restaurant Division, particularly its Chi-Chi's
restaurants. Alternatives currently under consideration include divesting
certain unprofitable operations or divisions. There can be no assurance,
however, that any such alternatives will be successfully implemented or that
the Company's cash flow will not continue to decline.
Working Capital Deficiency. The Company operates with a substantial
working capital deficiency because (i) restaurant operations are conducted
primarily on a cash (and cash equivalent) basis with a low level of accounts
receivable, (ii) rapid turnover allows a limited investment in inventories and
(iii) cash from sales is usually received before related accounts payable for
food, beverages and supplies become due. The Company had a working capital
deficiency of $160.1 million on June 25, 1995 (excluding the impact of $85.3
million in loans payable to banks classified as a current liability as
discussed below).
Credit Facility. On the Closing Date, the Company, FRI-M Corporation,
a wholly-owned subsidiary of the Company, and certain subsidiaries of FRI-M
Corporation entered into the Credit Facility. The outstanding balance of $85.3
million at June 25, 1995 is not due for payment until January 27, 1999. The
Credit Facility contains various covenants including the maintenance of
certain financial ratios. The Company failed to meet all such required ratios
in the second quarter of 1995. As part of the Fourth Amendment to the Credit
Facility, dated as of August 1, 1995 (the "Amendment"), the banks waived
such noncompliance for the second and third quarters of 1995 and for the period
ending on October 31, 1995. In accordance with generally accepted accounting
principles and since the waivers only extend to October 31, 1995 at this time,
the Company has classified the outstanding balance of $85.3 million at June 25,
1995 as a current liability in the accompanying condensed consolidated balance
sheet.
In accordance with the terms of the Amendment, the Company received a
loan on August 1, 1995 in an amount sufficient to fund the $14.6 million
interest payment on the 9-3/4% Senior Notes due 2002. Subsequent to August 1,
1995,
- 9 -
<PAGE> 10
the total commitment under the Credit Facility was reduced to the
outstanding balance on the $14.6 million loan plus $125.1 million through
August 3, 1995, $126.6 million from August 4, 1995 through August 25, 1995 and
$125.1 million from August 26, 1995 through October 31, 1995.
The banks have no obligation to make additional funds available under
the Credit Facility after October 31, 1995, and, thereafter, the Company's
liquidity will depend upon (i) cash flow from operations and (ii) the ability
of the Company to obtain financing under the Credit Facility or otherwise. In
addition, the Amendment requires that the Company meet certain minimum cash
flow requirements through October 31, 1995. There can be no assurances that
the Company will meet such requirements (or the other requirements in the
Credit Facility) or that if the Company does not maintain such requirements,
that further waivers or amendments will be obtained.
Pursuant to the Amendment, the net cash proceeds from any future
dispositions of assets with net cash proceed greater than $500,000 will be
applied to first reduce the $14.6 million loan and thereafter to permanently
reduce the Credit Facility commitment. Subsequent to August 1, 1995, the
Company completed two sale/leaseback transactions, the net proceeds of which
were used to reduce the $14.6 million loan to $7.2 million. The Company is
currently exploring several additional sale/leaseback transactions and other
asset sales and financings in an effort to further pay down its outstanding
borrowings and permanently reduce the commitment under the Credit Facility.
However, there can be no assurances that any such transactions will be
consummated.
Borrowings in the amount of $86.8 million (including $7.2 million
outstanding on the $14.6 million loan) were outstanding under the Credit
Facility as of August 8, 1995. Standby letters of credit are issued primarily
to provide security for future amounts payable by the Company under its
workers' compensation insurance program ($38.5 million of such letters of
credit were outstanding as of August 8, 1995).
B. CAPITAL EXPENDITURES
As noted in the Condensed Consolidated Statements of Cash Flows, net
cash used in investing activities was $25.9 million for the first six months of
1995 versus $192.6 million for the one month ended January 26, 1994 and $19.7
million for the five months ended June 26, 1994. Included in investing
activities for 1994 is the acquisition of Chi-Chi's which represented $194.9
million and the partial conversion of certain Bob's Big Boy restaurants to the
Company's concepts which represented $2.6 million.
The Company embarked in 1994 on a comprehensive capital investment
program. The Company expected to spend an aggregate of
- 10 -
<PAGE> 11
approximately $100 million to $130 million of discretionary funds under such
capital investment program, in addition to the annual capital expenditures of
approximately $16 million to $19 million devoted to normal maintenance of the
Company's restaurants. Subsequent to the Acquisition, the Company has
remodeled 106 family restaurants and 78 Mexican restaurants at an aggregate
cost of approximately $33.4 million. Due to the deterioration in operating
cash flow as described above, the Company has suspended its remodel program for
all restaurants indefinitely. In addition, expansion of the Family Restaurant
Division (as defined below) has been limited to 10 new restaurants for which
agreements have already been completed. As reported last quarter, the Company
has no current plans to open new Mexican restaurants. All other capital
projects are being tightly controlled until an improvement in operating cash
flow is realized. The Amendment prohibits the Company from spending more than
$7.0 million on capital expenditures from July 1, 1995 to October 31, 1995.
RESULTS OF OPERATIONS.
Second Quarter of 1995 as compared to Second Quarter 1994
The Company's total sales for the second quarter of 1995 decreased
3.2% ($9,484,000) as compared to total sales for the same period in 1994. The
sales decrease was due to decreases in sales of comparable restaurants and
restaurants divested or closed. These decreases were offset, in part, by sales
increases for 30 restaurants previously identified for divestment which are
included in the Company's operating results for 1995 but were not included in
the Company's operating results in 1994, the impact of additional sales of
certain Bob's Big Boy restaurants converted to Coco's and Carrows during 1994
and the additional sales of new restaurants opened during 1994 and 1995. The
breakdown of the decrease in sales for the second quarter of 1995 is set forth
below:
<TABLE>
<CAPTION>
Second Quarter
1995 Sales
Decrease
--------------
($ in thousands)
<S> <C>
Sales of Restaurants Previously
Identified for Divestment $ 11,780
Increase in Sales of New Restaurants (1) 3,420
Increase in Sales of Bob's Big Boy
Restaurants (2) 1,608
Decrease in Sales of Restaurants Sold
or Closed (11,896)
Decrease in Sales of Comparable
Restaurants (14,396)
--------
Total $ (9,484)
========
</TABLE>
---------
(1) Reflects the Company's opening of nine new restaurants in 1994 and
three new restaurants in 1995.
- 11 -
<PAGE> 12
(2) Reflects increased sales for the Bob's Big Boy restaurants converted
to Coco's or Carrows in 1994.
Comparable restaurants as utilized in this calculation exclude
restaurants previously identified for divestment. Sales for comparable
restaurants decreased 5.2% ($14,396,000) for the second quarter of 1995 as
compared to the same period in 1994. This comparable sales decrease reflects
decreases in both the Family Restaurant Division and Mexican Restaurant
Division, although the Family Restaurant Division reported improving comparable
sales each month during the second quarter. The comparable sales decrease is
due to an increasingly competitive operating environment for restaurants and in
the case of the Family Restaurant Division, new California smoking legislation
effective on January 1, 1995. The comparable sales decrease in the Mexican
Restaurant Division continues to be primarily due to the poor performance of
the Company's Chi-Chi's restaurants, which continue to suffer from declining
sales. On July 28, 1995, the Company retained the firm of Jay Alix &
Associates to implement such steps as may be necessary in order to improve the
Company's performance, focusing specifically on the Mexican Restaurant
Division, particularly its Chi-Chi's restaurants.
Product cost decreased by $70,000 in the second quarter of 1995 as
compared to the same period in 1994. As a percentage of sales, product cost
increased from 28.0% in the second quarter of 1994 to 28.9% in 1995 due
primarily to higher food cost, especially in the area of produce costs.
Payroll and related costs decreased by $298,000 or 0.3% in the second
quarter of 1995 as compared to the same period in 1994. As a percentage of
sales, payroll and related costs increased from 35.6% in the second quarter of
1994 to 36.7% in 1995 due to the inclusion of 30 restaurants previously
identified for divestment which generally have weaker margins as a result of
lower sales volumes and the impact of declining comparable restaurant sales
which puts pressure on operating margins. Increases in the minimum wage or
decreases in the allowable tip credit (which reduces the minimum wage that must
be paid to tipped employees) increase the Company's payroll cost. The
Company's response to, and the impact of, any future legislation covering
minimum wages would depend on the specific terms of any such legislation.
Occupancy and other operating expenses increased by $4,930,000 or 7.4%
in the second quarter of 1995 as compared to the same period in 1994. This
increase reflects the costs related to 30 restaurants previously identified for
divestment which were not included in the Company's operating results for 1994
and increased media spending. As a percentage of sales, occupancy and other
operating expenses increased from 22.2% in the second quarter of 1994 to 24.6%
in 1995 due to the factors discussed with respect to payroll and related costs
and the impact of increased media spending.
General and administrative expenses increased by $709,000 or 5.0% in
the second quarter of 1995 as compared to the same period in 1994. This
increase was primarily due to a reduction in foreign license fee income (which
is reported as an offset to general and administrative expenses), increased
training costs due to restaurant manager turnover in the Mexican Restaurant
Division and severance costs related to continuing staff reductions. As a
percentage of sales, general and administrative expenses increased from 4.8% in
the second quarter of 1994 to 5.2% in 1995.
- 12 -
<PAGE> 13
Depreciation and amortization expenses increased by $2,272,000 or
17.7% in the second quarter of 1995 as compared to the same period in 1994.
This increase reflects the additional depreciation related to capital
expenditures made from the second quarter of 1994 through the second quarter of
1995 offset, in part, by a decrease in goodwill amortization due to the
write-off of Chi-Chi's goodwill as described in the December 25, 1994 Form
10-K.
The Company reported a loss on disposition of properties of $1,174,000
in the second quarter of 1995 as compared to a small gain of $66,000 in the
same period in 1994. The loss in 1995 is primarily due to the write-off of
costs associated with cancelled capital projects, both remodels and new
restaurant expansion.
Interest expense, net increased by $1,556,000 or 11.4% in the second
quarter of 1995 as compared to the same period in 1994. This increase resulted
from interest on working capital borrowings on the revolving line of credit
which were outstanding throughout the quarter as compared to no working capital
borrowing during the second quarter of 1994. The interest on working capital
borrowings was partially offset by the impact of other debt reductions.
First Six Months of 1995 as compared to First Six Months of 1994
As a result of the impact of the Acquisition on the Company's capital
structure, the Company's adoption of fresh start reporting and the acquisition
of Chi-Chi's, the results of operations for the first six months of 1995 are
not comparable to those for the first six months of 1994 which includes five
months of the Successor Company's operations and one month of the Predecessor
Company's operations. For certain key operating elements of the statement of
operations, however, the following analysis of a comparison of the Successor
Company's operations for the first six months of 1995 to the operations (five
months of the Successor Company plus one month of the Predecessor Company) for
the first six moths of 1994 is provided. Because of the lack of comparability
of results for this time period, depreciation and amortization and interest
expense, net are not discussed.
The Company's total sales for the six month period increased 3.1%
($17,328,000) as compared to total sales for the same period in 1994. This
increase was due to sales from Chi-Chi's restaurants for January 1995 for which
there were no comparable sales in 1994 due to the timing of the Chi-Chi's
Merger on January 27, 1994, the impact of the Bob's Big Boy restaurant
conversions, the additional sales of the new restaurants opened during 1994 and
1995 and sales for 30 restaurants previously identified for divestment which
are included in the Company's operating results for 1995 but were not included
in the Company's operating results in 1994. These sales increases were offset,
in part, by decreases related to restaurants divested or closed and a decrease
in sales of comparable restaurants for the six month period. The breakdown of
the increase in sales for the first six months of 1995 is set forth below:
- 13 -
<PAGE> 14
<TABLE>
<CAPTION>
First Six Months
1995 Sales
Increase
----------------
($ in thousands)
<S> <C>
Chi-Chi's Sales for January 1995 $ 28,891
Sales of Restaurants Previously
Identified for Divestment 22,641
Increase in Sales of New Restaurants (1) 6,457
Increase in Sales of Bob's Big Boy
Restaurants (2) 3,560
Decrease in Sales of Restaurants Sold
or Closed (18,842)
Decrease in Sales of Comparable
Restaurants (25,379)
--------
Total $ 17,328
========
</TABLE>
----------
(1) Reflects the Company's opening of nine new restaurants in 1994 and
three new restaurants in 1995. Sales of new Chi-Chi's restaurants are
only included for February through June 1995.
(2) Reflects increased sales for the Bob's Big Boy restaurants converted
to Coco's or Carrows in 1994.
Comparable restaurants as utilized in this calculation exclude
restaurants previously identified for divestment and Chi-Chi's operations for
January 1995. Sales for comparable restaurants decreased 5.0% ($25,379,000)
for the first six months of 1995 as compared to 1994. This comparable sales
decrease reflects decreases in both the Family Restaurant Division and Mexican
Restaurant Division. The comparable sales decrease is due to an increasingly
competitive operating environment for restaurants, particularly effective
promotional activities during the first quarter of the prior year, and in the
case of the Family Restaurant Division, new California smoking legislation
effective on January 1, 1995. The comparable sales decrease in the Mexican
Restaurant Division was primarily due to Chi-Chi's.
Product cost increased by $7,170,000 or 4.6% in the first six months
of 1995 as compared to the same period in 1994. This increase reflects
Chi-Chi's product cost for January 1995 for which there was no comparable cost
in 1994 due to the timing of the Chi-Chi's Merger on January 27, 1994. As a
percentage of sales, product cost increased from 28.2% in the first six months
of 1994 to 28.6% in 1995.
Payroll and related costs increased by $12,312,000 or 6.2% in the
first six months of 1995 as compared to the same period in 1994. This increase
reflects the impact of Chi-Chi's January 1995 costs as discussed previously and
costs related to 30 restaurants previously identified for divestment which were
not included in the Company's results for 1994 but are included in the
Company's operating results in 1995. As a percentage of sales, payroll and
related costs increased from 36.1% in the first six months of 1994 to 37.1% in
1995 due to the inclusion of the 30 restaurants
- 14 -
<PAGE> 15
previously identified for divestment which generally have poorer margins as a
result of lower sales volumes and the impact of declining comparable restaurant
sales which puts pressure on operating margins.
Occupancy and other expenses increased by $16,220,000 or 13.1% in the
first six months of 1995 as compared to the same period in 1994. This increase
reflects the impact of the same factors affecting payroll and related costs
discussed above and increased media spending. As a percentage of sales,
occupancy and other operating expenses increased from 22.3% in the first six
months of 1994 to 24.5% in 1995 due to the factor discussed with respect to
payroll and related costs and the impact of increased media spending.
General and administrative expenses increased by $3,011,000 or 11.0%
in the first six months of 1995 as compared to the same period in 1994,
primarily due to the inclusion of Chi-Chi's general and administrative expenses
for January 1995, which were not included for the same period in 1994,
severance and related costs resulting from corporate staff reductions, a
reduction in foreign license fee income and increased training costs in the
Mexican Restaurant Division. As a percentage of sales, general and
administrative expenses increased from 4.9% in the first six months of 1994 to
5.3% in 1995.
SELECTED DIVISION OPERATING DATA.
The Company operates restaurant chains serving two principal market
segments: full-service family restaurants (the "Family Restaurant Division")
and full-service Mexican restaurants (the "Mexican Restaurant Division"). At
June 25, 1995, the Company's Family Restaurant Division included 347
moderately-priced family-oriented restaurants operated primarily under the
Carrows and Coco's names, and the Company's Mexican Restaurant Division
operated 315 full-service restaurants primarily under the El Torito, Chi-Chi's
and Casa Gallardo names. The Company also operated 25 additional restaurants
under other formats.
The following table sets forth certain information regarding the
Company, the Family Restaurant Division and the Mexican Restaurant Division.
The table includes information with respect to total operations of the Company,
the Family Restaurant Division and the Mexican Restaurant Division (1994
information excludes restaurants previously identified for divestment).
Chi-Chi's data has been included in the Mexican Restaurant Division on a pro
forma basis as if the Acquisition had occurred as of the beginning of fiscal
1994.
- 15 -
<PAGE> 16
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
-------------------- -----------------------
June 25, June 26, June 25, June 26,
1995 1994 1995 1994
-------- -------- -------- --------
($ in thousands, except average check)
<S> <C> <C> <C> <C>
Family Restaurant Division
--------------------------
Restaurants Open at End of Period:
Owned/operated 347 345 347 345
Franchised and Licensed 238 216 238 216
Sales $126,034 $127,560 $243,630 $248,525
Divisional EBITDA (a) 14,740 15,013 25,682 25,959
Percentage increase (decrease)
in comparable restaurant sales (2.8)% 0.1% (3.7)% 0.8 %
Average check $ 6.48 $ 6.15 $ 6.37 $ 6.00
Mexican Restaurant Division
---------------------------
Restaurants Open at End of Period:
Owned/operated 315 309 315 309
Franchised and Licensed 27 27 27 27
Sales $148,856 $164,210 $298,536 $319,974
Divisional EBITDA (a) (988) 14,142 1,144 23,815
Percentage increase (decrease)
in comparable restaurant sales (9.1)% (2.2)% (7.6)% (2.4)%
Average check $ 8.34 $ 8.05 $ 8.32 $ 8.00
Total Company
-------------
Restaurants Open at End of Period:
Owned/operated 687 666 687 666
Franchised and Licensed 265 243 265 243
Sales $289,570 $299,005 $570,703 $583,766
EBITDA (b) 13,538 28,190 25,560 48,501
Percentage increase (decrease)
in comparable restaurant sales (5.9)% (1.3)% (5.5)% (1.2)%
</TABLE>
(a) Divisional EBITDA with respect to any operating division is defined as
earnings (loss) before gain (loss) on disposition of propeties,
unallocated corporation overhead, interest, taxes, depreciation and
amortization.
(b) EBITDA is defined as earnings (loss) before gain (loss) on disposition of
properties, interest, taxes, depreciation and amortization. The Company
has included information concerning EBITA herein because it understands
that such information is used by certain investors as one measure of an
issurer's historical ability to service debt. EBITDA should not be
considered as an alternative to, or more meaningful than, operating income
(loss) as an indicator of operating performance or to cash flows from
operating activities as a measure of liquidity.
- 16 -
<PAGE> 17
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is involved in various litigation matters incidental to
its business. The Company does not believe that any of the existing claims or
actions will have a material adverse effect upon the consolidated financial
position and results of operations of the Company.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
On July 26, 1995, Martin M. Casey resigned as Executive Vice President
and Chief Financial Officer of the Company to pursue other interests.
Effective July 31, 1995 Lawrence J. Ramaekers of the firm Jay Alix & Associates
was elected interim Chief Executive Officer and Robert T. Trebing, Jr. was
elected Chief Financial Officer.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
- 17 -
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Family Restaurants, Inc.
(Registrant)
By: /S/ Robert T. Trebing, Jr.
-----------------------------
Robert T. Trebing, Jr.
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: August 9, 1995
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTHS ENDED
JUNE 25, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 25, 1995.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> DEC-26-1995
<PERIOD-END> JUN-25-1995
<CASH> 7,407
<SECURITIES> 0
<RECEIVABLES> 12,298
<ALLOWANCES> 0
<INVENTORY> 11,402
<CURRENT-ASSETS> 37,279
<PP&E> 505,170
<DEPRECIATION> 55,044
<TOTAL-ASSETS> 726,155
<CURRENT-LIABILITIES> 282,656
<BONDS> 431,183
<COMMON> 10
0
0
<OTHER-SE> (43,759)
<TOTAL-LIABILITY-AND-EQUITY> 726,155
<SALES> 570,703
<TOTAL-REVENUES> 570,703
<CGS> 163,022
<TOTAL-COSTS> 543,689
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,150
<INCOME-PRETAX> (34,930)
<INCOME-TAX> 974
<INCOME-CONTINUING> (35,904)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,904)
<EPS-PRIMARY> (36.09)
<EPS-DILUTED> (36.09)
</TABLE>
