<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 March 29, 1998 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 (I.R.S. Employer Identification No.)
incorporation or organization)
18831 Von Karman Avenue, Irvine, California 92612
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 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 May 8, 1998 is 988,285.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share amounts)
<TABLE>
<CAPTION>
March 29, December 28,
1998 1997
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,861 $ 32,518
Receivables 4,145 3,944
Inventories 4,308 4,569
Other current assets 3,551 4,086
--------- ---------
Total current assets 45,865 45,117
Property and equipment, net 181,262 183,601
Reorganization value in excess of amount allocable to identifiable assets, net 36,179 36,529
Other assets 24,260 24,521
--------- ---------
$ 287,566 $ 289,768
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt, including capitalized lease obligations $ 2,609 $ 2,694
Accounts payable 15,633 13,959
Self-insurance reserves 30,560 32,515
Other accrued liabilities 52,323 58,573
Income taxes payable 3,789 3,788
--------- ---------
Total current liabilities 104,914 111,529
Other long-term liabilities 4,460 4,478
Long-term debt, including capitalized lease obligations, less current portion 212,596 199,955
Stockholders' deficit:
Common stock - authorized 1,500,000 shares, par value $.01 per share,
997,277 shares issued 10 10
Additional paid-in capital 157,317 157,317
Accumulated deficit (190,348) (182,138)
Less treasury stock, at cost (8,992 shares) (1,383) (1,383)
--------- ---------
Total stockholders' deficit (34,404) (26,194)
--------- ---------
$ 287,566 $ 289,768
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
--------------------------
March 29, March 30,
1998 1997
--------- ---------
<S> <C> <C>
Sales $ 113,306 $ 114,978
--------- ---------
Product costs 30,763 30,365
Payroll and related costs 40,206 40,867
Occupancy and other operating expenses 30,848 32,750
Depreciation and amortization 5,339 5,570
General and administrative expenses 7,118 7,478
Opening costs 620 0
Loss on disposition of properties, net 668 1,467
--------- ---------
Total costs and expenses 115,562 118,497
--------- ---------
Operating loss (2,256) (3,519)
Interest expense, net 5,827 4,406
--------- ---------
Loss before income tax provision (8,083) (7,925)
Income tax provision 127 176
--------- ---------
Net loss $ (8,210) $ (8,101)
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
-------------------------
March 29, March 30,
1998 1997
--------- ---------
<S> <C> <C>
Increase in Cash and Cash Equivalents
Cash flows from operating activities:
Cash received from customers, franchisees and licensees $ 113,690 $ 115,019
Cash paid to suppliers and employees (112,043) (115,076)
Interest paid, net (6,967) (6,336)
Income taxes paid (126) (159)
--------- ---------
Net cash used in operating activities (5,446) (6,552)
--------- ---------
Cash flows from investing activities:
Proceeds from disposal of property and equipment 44 15
Capital expenditures (3,398) (1,843)
Mandatory lease buyback, net 0 (2,818)
Lease termination payments (211) (2,151)
Opening costs (276) 0
Other 74 (1,034)
--------- ---------
Net cash used in investing activities (3,767) (7,831)
--------- ---------
Cash flows from financing activities:
Reductions of long-term debt, including capitalized lease obligations (972) (892)
Net proceeds from issuance of notes 11,620 0
Payment of debt issuance costs (92) (1,305)
--------- ---------
Net cash provided by (used in) financing activities 10,556 (2,197)
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,343 (16,580)
Cash and cash equivalents at beginning of period 32,518 33,820
--------- ---------
Cash and cash equivalents at end of period $ 33,861 $ 17,240
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
($ in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Quarters Ended
------------------------
March 29, March 30,
1998 1997
--------- ---------
<S> <C> <C>
Reconciliation of net loss to net cash used in operating activities:
Net loss $(8,210) $(8,101)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 5,339 5,570
Amortization of debt issuance costs 297 251
Openings costs 620 0
Loss on disposition of properties 668 1,467
Accretion of interest 1,908 294
Decrease in receivables, inventories and other current assets 251 1,053
Decrease in accounts payable, self-insurance reserves, other
accrued liabilities and income taxes payable (6,319) (7,086)
------- -------
Net cash used in operating activities $(5,446) $(6,552)
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements
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FAMILY RESTAURANTS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. COMPANY. Family Restaurants, Inc. (together with its subsidiaries,
the "Company") was incorporated in Delaware in 1986 and is primarily engaged in
the operation of full-service restaurants through its subsidiaries. At March 29,
1998, the Company operated 273 restaurants in 30 states, with approximately 65%
of its restaurants located in California, Ohio, Pennsylvania, Michigan, Illinois
and Indiana. Additionally, as of March 29, 1998, the Company was the franchisor
and licensor of two restaurants in the United States and 24 restaurants outside
the United States.
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 28, 1997 included in the
Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1997
(the "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 for
the quarter ended March 29, 1998 are not necessarily indicative of those for the
full year.
3. LONG-TERM DEBT. On August 12, 1997, FRI-MRD Corporation (a
wholly-owned subsidiary of the Company) ("FRI-MRD") issued new senior discount
notes (the "Senior Discount Notes") in the face amount of $61 million at a price
of approximately 75% of par. The Senior Discount Notes are due on January 24,
2002 and accrete at a rate of 15% per annum until July 31, 1999, and thereafter,
interest will be payable in cash semi-annually at the rate of 15% per annum. The
$61 million of Senior Discount Notes were issued to an existing holder of the
Company's 9-3/4% Senior Notes due 2002 (the "Senior Notes") in exchange for
$15.6 million of Senior Notes plus approximately $34 million of cash, and are
part of an agreement pursuant to which FRI-MRD had the ability to issue up to a
maximum of $75 million of Senior Discount Notes. The gain of $3,548,000 realized
on the exchange of Senior Notes has been deferred and classified as an element
of long-term debt in accordance with the guidelines of Emerging Issues Task
Force Issue No. 96-19 because the present value of the cash flows of the Senior
Discount Notes was not at least 10% different from the present value of the cash
flows of the Senior Notes exchanged. The deferred gain is being amortized as a
reduction of interest expense over the life of the Senior Discount Notes. On
January 14 and 15, 1998, FRI-MRD issued the remaining $14 million in face amount
of the Senior Discount Notes available under such agreement to the same
purchaser at a price of 83% of par. FRI-MRD received approximately $11.6
million in cash as a result of this subsequent sale. Proceeds from the sales of
the Senior Discount Notes have been and will continue to be used to fund the
Company's capital expenditure programs and for general corporate purposes.
4. OPENING COSTS. Opening costs are incurred in connection with the
opening or remodeling of a restaurant and are principally related to stocking
the restaurant and training its staff. Through the year ended December 28, 1997,
the Company's policy had been to capitalize such opening costs and amortize them
over one year. In the second quarter of 1998, the American
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Institute of Certified Public Accountants is expected to issue a Statement of
Position ("SOP"), "Reporting on the Costs of Start-Up Activities," which
specifies that all costs of start-up activities, including restaurant opening
costs, should be expensed as incurred. Although this SOP is to be effective for
fiscal years beginning after December 15, 1998, early adoption is allowed, and
the Company has elected to adopt the provisions of the proposed SOP in the
quarter ended March 29, 1998.
Accordingly, $344,000 of unamortized opening costs at December 28, 1997
(classified as other current assets) has been expensed in the accompanying
condensed consolidated statement of operations for the quarter ended March 29,
1998, along with $276,000 of opening costs incurred during the quarter. No
opening costs were incurred in the quarter ended March 30, 1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Certain information and statements included in this Management's
Discussion and Analysis of Financial Condition and Results of Operations,
including, without limitation, statements containing the words "believes,"
"anticipates," "expects" and words of similar import, constitute "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995 and involve known and unknown risks and uncertainties that
could result in actual results of the Company or the restaurant industry
differing materially from expected results expressed or implied by such
forward-looking statements. Although it is not possible to itemize all of the
factors and specific events that could affect the outlook of a restaurant
company operating in a competitive environment, factors that could significantly
impact expected results include (i) the development of successful marketing
strategies for Chi-Chi's and El Torito, (ii) the effect of national and regional
economic conditions, (iii) the availability of adequate working capital, (iv)
competitive products and pricing, (v) changes in legislation, (vi) demographic
changes, (vii) the ability to attract and retain qualified personnel, (viii)
changes in business strategy or development plans, (ix) business disruptions,
(x) changes in consumer preferences, tastes and eating habits and (xi) increases
in food and labor costs. The Company disclaims any obligation to update any such
factors or to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
The following should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
presented in the Form 10-K.
As used herein, "comparable restaurants" means restaurants operated by
the Company on January 1, 1997 and that continued in operation through the end
of the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
A. LIQUIDITY
The Company has been relying and will continue to rely primarily on
internally generated funds, supplemented if necessary by working capital
advances available under the Foothill Credit Facility (as defined below), for
its liquidity. In addition, FRI-MRD raised approximately $45.6
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<PAGE> 8
million in cash from the issuance of the Senior Discount Notes to supplement its
liquidity needs. The Company's viability has been and will continue to be
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, and to comply with the terms of its financing
agreements.
Operating Cash Flow. For the first quarter of 1998, the Company reported
EBITDA (defined as earnings (loss) before opening costs, gain (loss) on
disposition of properties, provision for divestitures and write-down of
long-lived assets, restructuring costs, interest, taxes, depreciation and
amortization) of $4.4 million, compared to $3.5 million for the same period in
1997. The $0.9 million improvement was due to the continuing impact of El Torito
and Chi-Chi's cost reduction and reengineering strategies, which have improved
operating margins, and positive comparable store sales at Chi-Chi's. This
improved EBITDA is the continuation of the trend that began in 1996 when new
management was installed at both El Torito and Chi-Chi's. Since 1995, the
divisional EBITDA of the Company's ongoing operations is set forth in the
following table.
<TABLE>
<CAPTION>
Divisional EBITDA
-----------------------
Fiscal Year Ended El Torito Chi-Chi's
--------- ---------
($ in thousands)
<S> <C> <C>
December 31, 1995 (a) $13,508 $(10,455)
December 29, 1996 11,956 (4,278)
December 28, 1997 17,627 36
</TABLE>
(a) Includes 53 weeks of operations and, in accordance with Company
policy at that time, excludes certain unallocated corporate
overhead.
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.
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 $59.0 million on March 29, 1998.
Credit Facility. The Company has a $35 million credit facility with
Foothill Capital Corporation (the "Foothill Credit Facility") to provide for the
ongoing working capital needs of the Company. The Foothill Credit Facility
provides for up to $15 million in revolving cash borrowings and up to $35
million in letters of credit (less the outstanding amount of revolving cash
borrowings). The Foothill Credit Facility is secured by substantially all of the
real and personal property of the Company, contains customary restrictive
covenants, including the maintenance of certain financial
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<PAGE> 9
ratios, and expires on January 10, 2002. The Company is in compliance with all
financial ratios for the quarter ended March 29, 1998. Letters of credit are
issued under the Foothill Credit Facility primarily to provide security for
future amounts payable under the Company's workers' compensation insurance
program ($15.9 million of such letters of credit were outstanding as of May 8,
1998). No revolving cash borrowings were outstanding as of May 8, 1998.
Other. On August 12, 1997, FRI-MRD issued the Senior Discount Notes in
the face amount of $61 million to an existing holder of the Company's Senior
Notes in exchange for $15.6 million of Senior Notes plus approximately $34
million of cash. On January 14 and 15, 1998, FRI-MRD issued the remaining $14
million in face amount of the Senior Discount Notes to the same purchaser for
approximately $11.6 million in cash. Proceeds from the sales of the Senior
Discount Notes have been and will continue to be used to fund the Company's
capital expenditure programs and for general corporate purposes. The Company is
currently considering additional sources of cash, such as the sale of non-core
assets.
The Company continues to be highly leveraged and has significant debt
service requirements. Although management believes that its current sources of
cash should be sufficient to meet its operating and debt service requirements
for the foreseeable future, there can be no assurance that the Company will be
able to repay or refinance its Senior Notes and its 10-7/8% Senior Subordinated
Discount Notes due 2004, or that FRI-MRD will be able to repay or refinance the
Senior Discount Notes, at their respective maturities.
B. CAPITAL EXPENDITURES
Net cash used in investing activities was $3.8 million for the first
quarter of 1998, including $3.4 million for capital expenditures, as compared to
net cash used in investing activities of $7.8 million for the same period in
1997.
Capital expenditures of approximately $30 million are planned for fiscal
1998, including approximately $6 million devoted to normal improvements of the
Company's restaurants. The Company is continuing its remodeling of both El
Torito and Chi-Chi's restaurants and anticipates spending approximately $13
million to $14 million for this purpose in fiscal 1998. In fiscal 1998, the
Company also anticipates opening up to seven new El Torito restaurants,
including its newly developed quick-service casual-style restaurant, "El Torito
Express Grill." The Company also plans to upgrade El Torito's in-store POS
technology during fiscal 1998.
By May 8, 1998, the Company had completed the remodeling of eight
additional El Torito restaurants, primarily in the Los Angeles/Orange County
market, and six additional Chi-Chi's restaurants in various markets. The Company
has announced plans for an aggressive remodel program for the Chi-Chi's chain
over the next three years. This program could cost up to $50 million.
Included in 1998 capital spending are continuing expenditures to replace
the Company's mainframe computer software applications with new software to be
run in a client/server environment. The new software includes work flow
capabilities allowing for improved processes and wider access to data. In
addition, acquisition of the new software will insure that the Company's
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computer systems are year 2000 compliant. The Company expects to spend
approximately $1.6 million on the new software and related hardware and
installation costs in 1998. The project is expected to be completed before
year-end 1998. The Company is requesting year 2000 compliance reports from
significant vendors and service providers. If the computer systems of a
significant vendor or service provider were not year 2000 compliant, it could
have a material adverse effect on the Company.
RESULTS OF OPERATIONS.
The Company's total sales of $113,306,000 for the first quarter of 1998
decreased by $1,672,000 or 1.5% as compared to the same period in 1997. As shown
below, this decrease was due to restaurants divested or closed in 1997 and 1998,
partially offset by increased sales of comparable restaurants.
<TABLE>
<CAPTION>
First Quarter
Sales Decrease
--------------
($ in thousands)
<S> <C>
Decrease in Sales of Restaurants Divested or Closed $(1,757)
Increase in Sales of Comparable Restaurants 85
-------
Total $(1,672)
=======
</TABLE>
Sales for comparable restaurants of $111,631,000 for the first quarter
of 1998 increased by $85,000 or 0.1% as compared to the same period in 1997. As
shown below, this increase was due to increased sales for comparable Chi-Chi's
restaurants which, while continuing to reflect a competitive operating
environment for restaurants, more than offset decreased sales for comparable El
Torito restaurants.
<TABLE>
<CAPTION>
First Quarter
Sales Increase
-------------------
Amount Percent
------ -------
($ in thousands)
<S> <C> <C>
Comparable Chi-Chi's $ 701 1.2%
Comparable El Torito (616) (1.2)
-------
Total $ 85 0.1%
-====== ====
</TABLE>
El Torito comparable sales in the first quarter were down 1.2% as
compared to the same period in 1997. Sales were impacted by severe weather
during six weeks of the quarter. Especially hard-hit was the St. Louis market
and southern Orange County, California, where sales declines accounted for over
75% of the unfavorable sales variance in the first quarter. The "Getaway to
Mexico at El Torito" advertising campaign continued with a focus on the Yucatan
region in the first quarter via promotional television and radio advertising. A
shift to lower media weights and reduced spending levels for advertising in the
first quarter of 1998, along with the non-comparable calendar
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alignment of marketing events in 1998 versus 1997, may have also adversely
affected the first quarter comparable sales results.
Comparable Chi-Chi's sales in the first quarter of 1998 were up 1.2% as
compared to the same period in 1997. This was the first quarter of positive
comparable sales since Chi-Chi's was merged into the Company in January 1994 and
continues the improving comparable sales trends reported each quarter during
fiscal 1997. Sales were buoyed by print advertising distributed in January 1998
and an accompanying system-wide employee incentive contest which were formulated
to stimulate trial of the new Chi-Chi's menu introduced in December 1997. The
new menu expanded the product offerings to appeal to a greater segment of the
population by adding grilled meats and barbeque items, related to Mexican
cuisine, but not considered traditional Mexican dishes, as well as new Mexican
combination entrees. Additionally, the first Chi-Chi's television and radio
campaign of 1998 began in the second week of March featuring the Outrageous
Burrito and other Mexican grill items.
Product cost of $30,763,000 for the first quarter of 1998 increased by
$398,000 or 1.3% as compared to the same period in 1997. The increase is
primarily due to the impact of (i) higher commodity prices, especially related
to produce and cheese, and (ii) higher food costs at Chi-Chi's associated with
new menu items, which more than offset the impact of the eight restaurants sold
or closed since the beginning of 1997 and the effects of the El Torito and
Chi-Chi's cost reduction strategies. As a percentage of sales, product cost
increased to 27.2% in the first quarter of 1998 as compared to 26.4% in the same
period of 1997.
Payroll and related costs of $40,206,000 for the first quarter of 1998
decreased by $661,000 or 1.6% as compared to the same period in 1997. The
decrease is due to the impact of the eight restaurants sold or closed since the
beginning of 1997. As a percentage of sales, payroll and related costs of 35.5%
in the first quarter of 1998 remained the same as compared to the same period in
1997. Savings realized from the El Torito and Chi-Chi's cost reduction
strategies which have focused on improving labor scheduling and efficiencies
were offset by the impact of the minimum wage increases nationally on September
1, 1997 and on March 1, 1997 and March 1, 1998 in California.
The Company is subject to Federal and state laws governing matters such
as minimum wages, overtime and other working conditions. Approximately half of
the Company's employees are paid at rates related to the minimum wage.
Therefore, increases in the minimum wage or decreases in the allowable tip
credit (tip credits reduce the minimum wage that must be paid to tipped
employees in certain states) increase the Company's labor costs. This is
especially true in California, where there is no tip credit. Effective October
1, 1996, the Federal minimum wage was increased from $4.25 to $4.75, and
effective September 1, 1997, it was further increased to $5.15. However, a
provision of the new measure effectively freezes the minimum wage for tipped
employees at current levels by increasing the allowable tip credit in those
states which allow for a tip credit. Furthermore, California voters approved a
proposition on November 5, 1996 that increased the state's minimum wage to $5.00
on March 1, 1997 and further increased the state's minimum wage to $5.75 on
March 1, 1998. In response to the minimum wage increases on October 1, 1996,
March 1, 1997 and March 1, 1998, the Company raised menu prices at its El Torito
restaurants in an effort to recover the higher payroll costs. Chi-Chi's also
raised menu prices in October and December 1997 as a result of the cumulative
impact of these minimum wage increases. At the request of President Clinton, the
Congress is
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<PAGE> 12
considering further increases in the Federal minimum wage over the next two
years. In addition, the California legislature is considering another minimum
wage increase which would be effective in 1999.
Occupancy and other operating expenses of $30,848,000 for the first
quarter of 1998 decreased by $1,902,000 or 5.8% as compared to the same period
in 1997. The decrease for the first quarter is due, in part, to the impact of
the eight restaurants sold or closed since the beginning of 1997. As a
percentage of sales, occupancy and other operating expenses decreased to 27.2%
in the first quarter of 1998 as compared to 28.5% in the same period in 1997.
This decrease primarily reflects (i) the impact of El Torito and Chi-Chi's cost
reduction strategies and (ii) a decrease in media expense in both El Torito and
Chi-Chi's in the first quarter of 1998 as compared to the same period of 1997.
Depreciation and amortization of $5,339,000 for the first quarter of
1998 decreased by $231,000 or 4.2% as compared to the same period in 1997 due to
the impact of (i) the eight restaurants sold or closed since the beginning of
1997 and (ii) the write-down of certain long-lived assets in the second quarter
of 1997.
General and administrative expenses of $7,118,000 for the first quarter
of 1998 decreased by $360,000 or 4.8% as compared to the same period of 1997. As
a percentage of sales, general and administrative expenses decreased to 6.3% in
the first quarter of 1998 as compared to 6.5% in the same period of 1997
primarily reflecting (i) higher royalty and license payments, which are recorded
as an offset to general and administrative expenses, and (ii) lower
litigation-related expenses. Management continues to closely evaluate the
Company's general and administrative cost structure for savings opportunities.
The Company reported a loss on disposition of properties of $0.7 million
in the first quarter of 1998 as compared to a loss of $1.5 million for the first
quarter in 1997. These amounts reflect losses associated with restaurant
divestments and closures in such periods.
Interest expense, net for the first quarter of 1998 of $5,827,000
increased by $1,421,000 or 32.3% as compared to the same period in 1997. The
first quarter increase was primarily the result of the issuance of the Senior
Discount Notes in August 1997 and January 1998 and the accretion of interest
thereon, partially offset by the elimination of cash interest expense associated
with the $15.6 million of Senior Notes received as part of the exchange on
August 12, 1997.
SELECTED DIVISION OPERATING DATA.
The Company primarily operates full-service Mexican restaurants in two
divisions under the El Torito, Chi-Chi's, Casa Gallardo and other names. At
March 29, 1998 the Company's El Torito restaurant division operated 94
full-service restaurants and the Company's Chi-Chi's restaurant division
operated 179 full-service restaurants.
The following table sets forth certain information regarding the
Company, its El Torito and Chi-Chi's restaurant divisions, and the various
operations divested in 1996.
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<TABLE>
<CAPTION>
For the Quarter Ended
---------------------------------------------
March 29, March 30, March 31,
1998 1997 1996
---------- ---------- ----------
($ in thousands, except average check amount)
<S> <C> <C> <C>
El Torito Restaurant Division
Restaurants Open at End of Period:
Owned/operated 94 97 98
Franchised and Licensed 10 7 5
Sales $ 51,809 $ 53,600 $ 54,434
Restaurant Level Cashflow 7,087 7,234 5,848
Divisional EBITDA (a) 4,313 4,249 2,874
Percentage decrease in comparable restaurant sales (1.2)% (1.5)% (3.1)%
Average check $ 9.92 $ 9.55 $ 9.43
Chi-Chi's Restaurant Division
Restaurants Open at End of Period:
Owned/operated 179 182 199
Franchised and Licensed 16 18 21
Sales $ 61,497 $ 61,378 $ 74,753
Restaurant Level Cashflow 4,128 3,478 (607)
Divisional EBITDA (a) 102 (690) (4,512)
Percentage increase (decrease) in comparable restaurant sales 1.2% (12.7)% (10.9)%
Average check $ 7.84 $ 7.52 $ 7.44
Ongoing Operations
Restaurants Open at End of Period:
Owned/operated 273 279 297
Franchised and Licensed 26 25 26
Sales $ 113,306 $ 114,978 $ 129,187
Divisional EBITDA (a) 4,415 3,559 (1,638)
Divested Operations (b)
Restaurants Open at End of Period:
Owned/operated 0 0 367
Franchised and Licensed 0 0 261
Sales $ 0 $ 0 $ 129,865
Divisional EBITDA (a) 0 0 11,948
Total Company
Restaurants Open at End of Period:
Owned/operated 273 279 664
Franchised and Licensed 26 25 287
Sales $ 113,306 $ 114,978 $ 259,052
EBITDA (c) 4,371 3,518 10,431
</TABLE>
(a) Divisional EBITDA with respect to any operating division is defined as
earnings (loss) before opening costs, gain (loss) on disposition of
properties, interest, taxes, depreciation and amortization.
(b) Divested Operations in 1996 includes the results of the Family
Restaurant Division until it was divested on May 23, 1996 and the
traditional dinnerhouse restaurants that were divested by year-end 1996.
(c) EBITDA is defined as earnings (loss) before opening costs, gain (loss)
on disposition of properties, provision for divestitures and write-down
of long-lived assets, restructuring costs, interest, taxes, depreciation
and amortization. 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.
- 13 -
<PAGE> 14
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 or results of operations of the Company.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2 (a) Stock Purchase Agreement dated as of March 1, 1996
by and among Family Restaurants, Inc., Flagstar
Companies, Inc., Flagstar Corporation and FRD
Acquisition Co. (Filed as Exhibit 2.1 to the Company's
Form 10-Q filed with the SEC on May 15, 1996.)
3 (a) Fourth Restated Certificate of Incorporation of
the Company. (Filed as Exhibit 4.1 to the Company's
Form S-8 filed with the SEC on March 23, 1994.)
3 (b) Bylaws of the Company. (Filed as Exhibit 4.2 to the
Company's Form S-8 filed with the SEC on March 23,
1994.)
4 (a) Indenture Dated as of January 27, 1994
Re: $300,000,000 9-3/4% Senior Notes Due 2002.
(Filed as Exhibit 4(a) to the Company's Form 10-K
filed with the SEC on March 28, 1994.)
- 14 -
<PAGE> 15
4 (b) Indenture Dated as of January 27, 1994
Re: $150,000,000 10-7/8% Senior Subordinated Discount
Notes Due 2004. (Filed as Exhibit 4(b) to the
Company's Form 10-K filed with the SEC on March 28,
1994.)
4 (c) First Supplemental Indenture, dated as of July 3,
1996, between the Registrant and IBJ Schroder Bank &
Trust Company, a New York Banking corporation, as
Trustee. (Filed as Exhibit 10.1 to the Company's Form
8-K filed with the SEC on July 9, 1996.)
4 (d) First Supplemental Indenture, dated as of July 3,
1996, between the Registrant and Fleet National Bank,
as successor by merger to Fleet National Bank of
Massachusetts, formerly known as Shawmut Bank, N.A.,
as Trustee. (Filed as Exhibit 10.2 to the Company's
Form 8-K filed with the SEC on July 9, 1996.)
4 (e) Note Agreement Dated as of August 12, 1997
Re: Up to $75,000,000 FRI-MRD Corporation Senior
Discount Notes Due January 24, 2002. (Filed as
Exhibit 4(e) to the Company's Form 10-Q filed with the
SEC on November 12, 1997.)
4 (f) Joinder Agreement Dated as of January 14, 1998 Re:
FRI-MRD Corporation Senior Discount Notes due January
24, 2002. (Filed as Exhibit 4(f) to the Company's Form
10-K filed with the SEC on Mach 30, 1998.)
* 27 Financial Data Schedule.
(b) Reports on Form 8-K.
None.
- ----------
* Filed herewith.
- 15 -
<PAGE> 16
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.
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 8, 1998
- 16 -
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENT AS OF THE QUARTER ENDED MARCH 29,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10Q FOR THE
QUARTER ENDED MARCH 29, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> MAR-29-1998
<CASH> 33,861
<SECURITIES> 0
<RECEIVABLES> 4,145
<ALLOWANCES> 0
<INVENTORY> 4,308
<CURRENT-ASSETS> 45,865
<PP&E> 258,110
<DEPRECIATION> 76,848
<TOTAL-ASSETS> 287,566
<CURRENT-LIABILITIES> 104,914
<BONDS> 212,596
0
0
<COMMON> 10
<OTHER-SE> (34,414)
<TOTAL-LIABILITY-AND-EQUITY> 287,566
<SALES> 113,306
<TOTAL-REVENUES> 113,306
<CGS> 30,763
<TOTAL-COSTS> 115,562
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,827
<INCOME-PRETAX> (8,083)
<INCOME-TAX> 127
<INCOME-CONTINUING> (8,210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,210)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
