-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NPnyiIzbuCFwVIG8lW62Svlbf9iXAc2bEYLiDLfVnFUIGZeWQhaLly0ztCvpxW8c SoPviwPY4E8k4qzSwvbgpQ== 0000950149-96-000399.txt : 19960422 0000950149-96-000399.hdr.sgml : 19960422 ACCESSION NUMBER: 0000950149-96-000399 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960311 FILED AS OF DATE: 19960419 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SUMMIT FAMILY RESTAURANTS INC CENTRAL INDEX KEY: 0000053281 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 870264039 STATE OF INCORPORATION: DE FISCAL YEAR END: 0925 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-06054 FILM NUMBER: 96548611 BUSINESS ADDRESS: STREET 1: 440 LAWNDALE DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84115 BUSINESS PHONE: 8015327840 MAIL ADDRESS: STREET 1: 440 LAWNDALE DRIVE CITY: SALT LAKE CITY STATE: UT ZIP: 84115 FORMER COMPANY: FORMER CONFORMED NAME: JBS RESTAURANTS INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: JBS BIG BOY FAMILY RESTAURANTS INC DATE OF NAME CHANGE: 19810830 10-Q 1 QUARTERLY REPORT PERIOD ENDING MARCH 11, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: MARCH 11, 1996 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------- ------- Commission File Number: 0-6054 ------ SUMMIT FAMILY RESTAURANTS INC. ------------------------------ (Exact name of registrant as specified in its charter) DELAWARE 87-0264039 -------- ---------- (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 440 LAWNDALE DRIVE, SALT LAKE CITY, UT 84115 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (801) 463-5500 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. AS OF APRIL 17, 1996 THERE WERE 4,805,902 SHARES OF COMMON STOCK, $ .10 PAR VALUE, OUTSTANDING. Exhibit Index is on Page 16 of this report. This report contains 17 pages. Page 1 of 17 2 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES PART I: FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements include Summit Family Restaurants Inc. and its wholly owned subsidiaries (collectively, the "Company"). While the financial information in this report is unaudited, in the opinion of management, all adjustments (which included only normal recurring adjustments) necessary to present fairly the financial position and results of operations as of and for the periods indicated have been recorded. It is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto for the year ended September 25, 1995, included in the Company's annual report on form 10-K filed with the Securities and Exchange Commission on December 21, 1995. The results of operations for the twelve and twenty-four weeks ended March 11, 1996, are not necessarily indicative of the results to be expected for the full year. Page 2 of 17 3 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
MARCH 11, SEPTEMBER 25, ASSETS 1996 1995 ----------- ------------- (UNAUDITED) Current assets Cash and cash equivalents $ 1,875,000 $ 1,911,000 Receivables Short-term portion of notes receivable 190,000 190,000 Other receivables 584,000 1,898,000 Inventories 1,466,000 1,411,000 Deferred taxes, net -- 76,000 Prepaid expenses 189,000 199,000 ----------- ----------- Total current assets 4,304,000 5,685,000 ----------- ----------- Property, buildings and equipment, at cost, less accumulated depreciation and amortization 44,636,000 46,797,000 ----------- ----------- Real property and equipment under capitalized leases, at cost, less accumulated amortization 7,091,000 6,731,000 ----------- ----------- Other assets Notes receivable, net of current portion 2,241,000 2,696,000 Investment in HomeTown Buffet, Inc. - Note 4 1,430,000 6,999,000 Deposits and other - Note 5 1,641,000 827,000 ----------- ----------- Total other assets 5,312,000 10,522,000 ----------- ----------- Intangible assets, at cost, less accumulated amortization Lease acquisition costs 369,000 414,000 Other intangible assets 683,000 735,000 ----------- ----------- Total intangible assets 1,052,000 1,149,000 ----------- ----------- Total assets $62,395,000 $70,884,000 =========== ===========
Page 3 of 17 4 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED)
LIABILITIES AND MARCH 11, SEPTEMBER 25, STOCKHOLDERS' EQUITY 1996 1995 ----------- ------------- (UNAUDITED) Current liabilities Accounts payable - trade $ 5,358,000 $ 6,772,000 Accrued liabilities Payroll and related taxes 2,627,000 3,334,000 Sales and property taxes 1,673,000 2,071,000 Rent and other 2,836,000 2,045,000 Current maturities of long-term debt 871,000 2,928,000 ----------- ----------- Total current liabilities 13,365,000 17,150,000 ----------- ----------- Long-term debt, net of current maturities Capitalized real property leases 9,981,000 9,795,000 Notes payable 345,000 355,000 ----------- ----------- Total long-term debt 10,326,000 10,150,000 ----------- ----------- Deferred taxes, net 468,000 1,877,000 ----------- ----------- Deferred compensation 1,564,000 1,580,000 ----------- ----------- Commitments and contingencies Stockholders' equity Preferred stock, $1 par value; 1,000,000 shares authorized; 946,714 shares issued and outstanding 947,000 947,000 Junior common stock, $.01 par value; 500,000 shares authorized; none outstanding -- -- Common stock, $.10 par value; 10,000,000 shares authorized; 4,805,902 and 4,798,102 shares issued 481,000 480,000 Additional paid-in capital 26,426,000 26,389,000 Unrealized gain on investment in HomeTown Buffet, Inc., net of tax - Note 4 702,000 3,565,000 Retained earnings 8,116,000 8,746,000 ----------- ----------- Total stockholders' equity 36,672,000 40,127,000 ----------- ----------- Total liabilities and stockholders' equity $62,395,000 $70,884,000 =========== ===========
Page 4 of 17 5 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED ------------------------- ------------------------- MARCH 11, MARCH 13, MARCH 11, MARCH 13, 1996 1995 1996 1995 ------------------------- ------------------------- (UNAUDITED) (UNAUDITED) Total revenues $27,397,000 $27,061,000 $54,122,000 $54,324,000 Costs and expenses Food costs 8,782,000 8,957,000 17,469,000 17,924,000 Labor costs 9,287,000 9,360,000 18,758,000 19,157,000 Occupancy and other expenses 6,467,000 6,365,000 13,051,000 12,902,000 General and administrative expenses 3,169,000 1,855,000 4,974,000 3,688,000 Depreciation and amortization 1,589,000 1,436,000 3,201,000 2,830,000 ----------- ----------- ----------- ----------- Total costs and expenses 29,294,000 27,973,000 57,453,000 56,501,000 ----------- ----------- ----------- ----------- Loss from operations (1,897,000) (912,000) (3,331,000) (2,177,000) Interest and other income (expense) Interest expense (282,000) (381,000) (563,000) (723,000) Interest income 109,000 143,000 180,000 282,000 Gain on sale of HomeTown Buffet, Inc. stock -- -- 3,959,000 -- Gains on sales of restaurants to franchisees and other 12,000 11,000 23,000 11,000 ----------- ----------- ----------- ----------- Total interest and other income (expense) (161,000) (227,000) 3,599,000 (430,000) ----------- ----------- ----------- ----------- Income (loss) before income taxes (2,058,000) (1,139,000) 268,000 (2,607,000) Income tax expense (benefit) (200,000) (461,000) 900,000 (1,053,000) ----------- ----------- ----------- ----------- Net income (loss) $(1,858,000) $ (678,000) $ (632,000) $(1,554,000) =========== =========== =========== =========== Net income (loss) per common share $ (0.39) $ (0.14) $ (0.13) $ (0.32) =========== =========== =========== =========== Weighted average shares outstanding 4,805,788 4,792,003 4,802,002 4,790,381
Page 5 of 17 6 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
TWENTY-FOUR WEEKS ENDED ------------------------- MARCH 11, MARCH 13, 1996 1995 ----------- ----------- (UNAUDITED) Increase (Decrease) In Cash and Cash Equivalents Cash flows from operating activities Net income (loss) $ (632,000) $(1,554,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 3,201,000 2,830,000 Provision for losses 17,000 -- Gain on sale of HomeTown Buffet, Inc. stock (3,959,000) -- Loss on disposal of assets -- 129,000 Change in operating assets and liabilities Decrease in receivables 1,307,000 870,000 Increase in inventory (55,000) (321,000) (Increase) decrease in other assets (394,000) 51,000 Decrease in accounts payable (1,414,000) (2,554,000) Increase (decrease) in accrued liabilities (393,000) 531,000 Increase in net deferred taxes 577,000 265,000 ----------- ----------- Net cash provided (used) by operating activities (1,745,000) 247,000 ----------- ----------- Cash flows from investing activities Proceeds from sale of HomeTown Buffet, Inc. stock 4,756,000 -- Sale of short-term investments -- 1,960,000 Acquisition of property, buildings and equipment (587,000) (4,566,000) Proceeds from sale of assets -- 630,000 Payments received on notes receivable 59,000 61,000 ----------- ----------- Net cash provided (used) by investing activities 4,228,000 (1,915,000) Cash flows from financing activities Proceeds from issuance of common stock 39,000 -- Principal payments on long-term debt and capital leases (2,558,000) (909,000) ----------- ----------- Net cash used by financing activities (2,519,000) (909,000) ----------- ----------- Net decrease in cash and cash equivalents (36,000) (2,577,000) Cash and cash equivalents at beginning of period 1,911,000 5,303,000 ----------- ----------- Cash and cash equivalents at end of period $ 1,875,000 $ 2,726,000 =========== ===========
Page 6 of 17 7 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
TWENTY-FOUR WEEKS ENDED ---------------------------- MARCH 11, MARCH 13, 1996 1995 --------- --------- (UNAUDITED) Supplemental disclosures of cash flow information Cash paid for interest $283,000 $ 516,000 ======== ========= Cash paid for income taxes $268,000 $ -- ======== ========= Supplemental schedule of noncash investing and financing Debt incurred for acquisition of property, buildings and equipment $677,000 $ -- ======== ========= During fiscal 1996 and 1995, stores were sold to franchisees and notes receivable were recorded in exchange for equipment as follows: Notes receivable $ -- $ 377,000 Gain recognized -- 11,000 Gain deferred -- (234,000) Cash received -- 98,000 -------- --------- Net book value of equipment sold $ -- $ 230,000 ======== =========
Page 7 of 17 8 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. FISCAL PERIODS The Company utilizes a 52/53 week fiscal year which ends on the last Monday in September. The third quarter of each year contains 16 weeks while the other three quarters each contain 12 weeks. 2. PRESENTATION Certain prior year amounts in the unaudited consolidated financial statements have been reclassified to conform with the current year presentation. 3. NET INCOME (LOSS) PER COMMON SHARE Net income (loss) per common share is computed using the weighted average number of shares of stock and dilutive common stock equivalents outstanding during each period. 4. INVESTMENT IN HOMETOWN BUFFET, INC. On March 11, 1996, the estimated fair value of the Company's 130,000 shares of HomeTown Buffet, Inc. ("HTBB") common stock was $11.00 per share or $1.3 million. On September 25, 1995, the estimated fair value of the Company's 528,220 shares of HTBB common stock was $13.25 per share or $7.0 million. The unrealized gain (net of tax) of $0.7 million and $3.6 million at March 11, 1996 and September 25, 1995, respectively, is recorded as a separate component of stockholders' equity. 5. DEPOSITS AND OTHER Deposits and other assets at March 11, 1996, includes a $180,000 certificate of deposit and $700,000 held in an escrow account, both of which serve as partial security on $2.2 million of letters of credit. The letters of credit are also secured by seventeen JB's Restaurants owned by the Company and by the remaining 130,000 shares of HTBB common stock. At September 25, 1995, deposits and other assets includes a $180,000 certificate of deposit which served as partial security on $2.2 million of letters of credit. 6. INCOME TAXES Income tax expense for the twelve and twenty-four week periods ended March 11, 1996, includes adjustments of $418,000 and $721,000, respectively, to fully reserve net deferred tax assets that may not be realized in the future. Page 8 of 17 9 SUMMIT FAMILY RESTAURANTS INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES AND SELECTED OPERATING DATA. The following table sets forth, for the periods indicated, certain information regarding the Company's revenues and selected operating data.
TWENTY-FOUR TWELVE WEEKS ENDED WEEKS ENDED -------------------------- -------------------------- MARCH 11, MARCH 13, MARCH 11, MARCH 13, 1996 1995 1996 1995 -------------------------- -------------------------- Total revenues $27,397,000 $27,061,000 $54,122,000 $54,324,000 Percentage change from prior period 1.2% 5.4% (0.4)% 8.8% JB's Restaurants Company owned units at end of quarter 78 83 78 83 Franchised units at end of quarter 24 22 24 22 Company restaurants transferred to franchisees -- -- 1 4 Company restaurants converted to Galaxy Diners -- 1 -- 3 Company restaurants closed 1 -- 1 -- Average weekly sales per unit $ 17,425 $ 17,846 $ 17,167 $ 17,811 Percentage change from prior period (2.4)% (2.5)% (3.6)% 0.3% Same store sales percentage change from prior period (4.8)% (5.1)% (5.6)% (2.8)% Galaxy Diners (a) Company owned units at end of quarter 6 4 6 4 Restaurants opened -- 1 -- 3 Average weekly sales per unit $ 21,912 $ 30,193 $ 22,771 $ 32,663 HomeTown Buffets (a) Units operated as a franchisee at end of quarter 16 14 16 14 Average weekly sales per unit $ 48,246 $ 47,729 $ 46,796 $ 47,692 Percentage change from prior period 1.1% (6.5)% (1.9)% (5.4)%
(a) Same store percentage change and/or percentage change from prior period is not presented due to the relatively small number of restaurants open for the full period. The $336,000 or 1.2% increase in revenues for the twelve week period ended March 11, 1996, as compared with the comparable period of the prior fiscal year, is primarily the result of the opening of two new HomeTown Buffet restaurants ($1,347,000) and two Galaxy Diner conversions ($445,000) which more than offset the decline in revenues resulting from the decrease in the number of JB's Restaurants in operation ($608,000) and the 4.8% decline in JB's Restaurants same store sales (sales from JB's Restaurants open during both the fiscal 1996 and 1995 period). The 4.8% decrease in JB's Restaurants same store sales reflects a decrease of 10.1% in customer counts while the average customer purchase increased 5.3%. The 0.4% or $202,000 decrease in revenues for the twenty-four week period ended March 11, 1996, as compared with the comparable period of the prior fiscal year, is primarily the result of the 5.6% ($1,975,000) decline in JB's Page 9 of 17 10 Restaurants same store sales and the decrease in the number of JB's Restaurants in operation ($1,421,000) partially offset by the opening of two new HomeTown Buffet restaurants ($2,028,000) and two Galaxy Diner conversions ($1,166,000). The 5.6% decline in JB's same store sales reflects a decrease of 10.2% in customer counts while the average customer purchase increased 4.6%. COSTS AND EXPENSES; STATEMENT OF OPERATIONS DATA. The following table sets forth costs as a percentage of revenues for the periods indicated as well as statements of operations data:
TWELVE WEEKS ENDED TWENTY-FOUR WEEKS ENDED --------------------- ----------------------- MARCH 11, MARCH 13, MARCH 11, MARCH 13, 1996 1995 1996 1995 --------- --------- --------- --------- Total revenues 100.0% 100.0% 100.0% 100.0% ----- ----- ----- ----- Costs and expenses Food costs 32.0 33.1 32.3 33.0 Labor costs 33.9 34.6 34.7 35.2 Occupancy and other expenses 23.6 23.5 24.1 23.8 General and administrative expenses 11.6 6.9 9.2 6.8 Depreciation and amortization 5.8 5.3 5.9 5.2 ----- ----- ----- ----- Total costs and expenses 106.9 103.4 106.2 104.0 ----- ----- ----- ----- Loss from operations (6.9) (3.4) (6.2) (4.0) Interest and other income (expense) Interest expense (1.1) (1.4) (1.0) (1.3) Interest income 0.4 0.5 0.3 0.5 Gain on sale of HomeTown Buffet, Inc. stock -- -- 7.3 -- Gains on sales of restaurants to franchisees and other 0.1 0.1 0.1 -- ----- ----- ----- ----- Total interest and other income (expense) (0.6) (0.8) 6.7 (0.8) ----- ----- ----- ----- Income (loss) before income taxes (7.5) (4.2) 0.5 (4.8) Income taxes (benefit) (0.7) (1.7) 1.7 (1.9) ----- ----- ----- ----- Net income (loss) (6.8)% (2.5)% (1.2)% (2.9)% ===== ===== ===== ===== Effective income tax rate 9.7% 40.5% 335.8% 40.4% ===== ===== ===== =====
FOOD COSTS. The decrease in food costs as a percentage of total revenues for the twelve and twenty-four week periods ended March 11, 1996, as compared with the comparable periods of the prior fiscal year, was primarily the result of menu and operational improvements in all the Company's restaurant concepts. LABOR COSTS. The decrease in labor costs as a percentage of total revenues in the twelve and twenty-four week periods ended March 11, 1996, as compared with the comparable periods of the prior fiscal year, was primarily due to reduced worker's compensation costs ($269,000 for both the twelve and twenty-four week periods) and lower labor costs in the HomeTown Buffet restaurants resulting from improved employee scheduling in the current year. OCCUPANCY & OTHER EXPENSES. The increase in occupancy and other expenses as a percentage of total revenues for the twelve week period ended March 11, 1996, as compared with the comparable period of the prior fiscal year, was Page 10 of 17 11 primarily due to lower average restaurant sales and a $308,000 increase in the reserve for potentially uncollectable franchisee receivables partially offset by lower real estate tax costs ($180,000) and lower preopening costs ($88,000). The increase in occupancy and other expenses as a percentage of total revenues for the twenty-four week period ended March 11, 1996, as compared with the comparable period of the prior fiscal year, was primarily due to lower average restaurant sales and a $458,000 increase in the reserve for potentially uncollectable franchisee receivables partially offset by lower real estate taxes ($343,000) and lower preopening costs ($171,000). GENERAL AND ADMINISTRATIVE EXPENSES. The increase in general and administrative expenses as a percentage of total revenues for the twelve and twenty-four week periods ended March 11, 1996, as compared with the comparable periods of the prior fiscal year was primarily due to a $1.6 million charge in the second quarter for change of control and other severance costs partially offset by reduced salaries expense ($140,000 and $260,000 for the twelve and twenty-four week periods, respectively) and reduced travel and related expenses ($100,000 and $162,000 for the twelve and twenty-four week periods, respectively). DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization as a percentage of total revenues in the twelve and twenty-four week periods ended March 11, 1996, as compared with the comparable periods of the prior fiscal year primarily reflects depreciation associated with remodeled JB's Restaurants and Galaxy Diner conversions (0.2% points) and lower average restaurant sales. INTEREST EXPENSE. The decrease in interest expense as a percentage of total revenues for the twelve and twenty-four week periods ended March 11, 1996, as compared with the comparable periods of the prior fiscal year was due primarily to lower outstanding debt. INTEREST INCOME. The decrease in interest income as a percentage of total revenues for the twelve and twenty-four week periods ended March 11, 1996, as compared with the comparable periods of the prior fiscal year was primarily a result of lower cash and short term investment balances. GAIN ON SALE OF HOMETOWN BUFFET, INC. STOCK. To improve liquidity and to fund repayment of bank loans, the Company sold 398,220 shares of HomeTown Buffet, Inc. stock during the first quarter of fiscal 1996 in open market sales transactions at prevailing market prices. The average selling price was $11.94 per share. Such sales resulted in a pre-tax gain of $3,959,000. INCOME TAXES. The effective income tax rate of 9.7% of pre-tax income for the twelve week period ended March 11, 1996, was lower than the 40.5% rate for the comparable period of the prior fiscal year primarily due to a $418,000 adjustment to fully reserve deferred tax assets that may not be realized in the future. The effective income tax rate of 335.8% of pre-tax income for the twenty-four week period ended March 11, 1996, was higher than the 40.4% rate for the comparable period of the prior fiscal year primarily due to a $721,000 adjustment to fully reserve deferred tax assets that may not be realized in the future. LIQUIDITY AND CAPITAL RESOURCES During the twenty-four week period ended March 11, 1996, the Company's primary source of cash was the sale of HomeTown Buffet, Inc. ("HTBB") common stock. The Company requires cash principally for replacement of equipment and maintenance of leasehold improvements and expects to fund these requirements through cash on hand at the end of the quarter and cash flow from operations. Page 11 of 17 12 During the twenty-four week period ended March 11, 1996, cash and cash equivalents were provided by the following sources:
- -------------------------------------------------------------------------------- In Millions - -------------------------------------------------------------------------------- Net cash used by operations $(1.7) Proceeds from the sale of HTBB common stock 4.8 - -------------------------------------------------------------------------------- Total Provided $ 3.1 - --------------------------------------------------------------------------------
During the same period, cash and cash equivalents were applied for the following uses:
- -------------------------------------------------------------------------------- In Millions - -------------------------------------------------------------------------------- Capital expenditures $0.6 Principal payments on long-term debt and capital leases 2.5 - -------------------------------------------------------------------------------- Total used $3.1 - --------------------------------------------------------------------------------
The current ratio at the end of the second quarter of fiscal year 1996 was 0.3:1.0 compared to 0.3:1.0 at the end of fiscal 1995. Management does not consider the fact that the current ratio is less than one to be, itself, an indication of a liquidity problem as the restaurant business has practically no receivables and minimum inventories that typically turn faster than accounts payable to suppliers. As of September 25, 1995, the Company held 528,220 shares of HTBB common stock. During the first quarter of fiscal 1996, the Company sold 398,220 shares of HTBB common stock generating net proceeds of $4.8 million resulting in a pre-tax gain of $4.0 million. $2.1 million of these proceeds were used to repay the Company's bank loans in full, $700,000 remains in escrow as partial security against $2.0 million in letters of credit with the remaining $2.0 million retained by the Company. The letters of credit are secured by seventeen JB's Restaurants owned by the Company, by the remaining 130,000 shares of HTBB common stock and by the escrow account noted above. In addition, the Company has a $180,000 certificate of deposit securing $180,000 in letters of credit. In August 1994, the Company entered into a master lease agreement (the "Agreement") to finance equipment for new HomeTown Buffet restaurants. The Agreement, among other things, required the Company to maintain a minimum tangible net worth of at least $40 million. On January 5, 1996, the master lease agreement was amended to require a minimum tangible net worth of $33 million. In exchange for this reduced covenant, the Company has deposited $365,000 with the leasing company. This deposit is to be applied against payments due for the final year of the lease subject to earlier release if certain financial performance objectives are achieved. The Company is required to open a minimum of 17 HomeTown Buffet restaurants by June 30, 1996, in order to maintain its exclusive area development agreement with HomeTown Buffet, Inc. In addition, the Company is required to open an additional 5 HomeTown Buffet restaurants by December 31, 1996. The Company does not anticipate opening another HomeTown Buffet restaurant by June 30, 1996 and, therefore, the Company expects to forfeit its exclusive area rights. Page 12 of 17 13 The Company continues to routinely repair and maintain the Company's restaurants. The Company currently has no plans for capital spending beyond maintenance level capital additions. Pursuant to change of control agreements, the Company paid $1,236,000 to the President and four senior vice presidents upon their termination during the third quarter of fiscal 1996. The execution of the Agreement and Plan of Merger and Reorganization, as amended, requires the Company to place in escrow accounts an additional $450,000 under change of control agreements for three additional senior vice presidents. Payment of benefits is made upon involuntary termination of any or all of the three senior vice presidents between the signing of the Merger Agreement and one year after consummation of the merger or upon the voluntary termination of employment during the second 90 days following consummation of the merger. The Company has not yet funded these escrow accounts. SEASONALITY The Company's business is seasonal in nature with the spring and summer quarters being the highest volume periods. The Company's lowest volume periods typically occur during the fall and winter fiscal quarters. IMPACT OF INFLATION Many of the Company's employees are paid hourly rates related to the federal and state minimum wage laws. Accordingly, increases in the minimum wage could materially increase the Company's labor costs. Currently, there are no further scheduled increases in the federal minimum wage. In addition, the cost of food commodities utilized by the Company are subject to market supply and demand pressures. Shifts in these costs may have a significant impact on the Company's food costs. The Company anticipates that increases in these costs can be offset through pricing and other cost control efforts; however, there is no assurance that the Company would be able to pass such costs on to its guests or if it were able to do so, it could do so in a short period of time. Page 13 of 17 14 SUMMIT FAMILY RESTAURANTS INC. PART II: OTHER INFORMATION ITEM 5. OTHER INFORMATION Pursuant to an Agreement and Plan of Merger and Reorganization, as amended, (the "Merger Agreement") between the Company and CKE Restaurants, Inc., a Delaware corporation ("CKE"), the Company will merge with a wholly-owned subsidiary of CKE with the Company being the surviving entity. The consideration to be paid to the Company's shareholders for each share of common stock will consist of $2.63 in cash and .165 shares of CKE common stock, provided that the average CKE common stock price is between $15.00 per share and $17.00 per share at the closing. If the average CKE common stock price is higher than $17.00 or lower than $15.00 at the closing, the exchange ratio will be adjusted accordingly. If the average CKE common stock price is below $13.25, the exchange ratio may be adjusted at the option of CKE. If CKE elects to not adjust the exchange ratio, Summit has the right to terminate the agreement. The merger is conditioned upon the Company's shareholders approving the transaction and the usual and customary conditions to closing, including, without limitation, accuracy of the parties' representations and warranties, performance of the parties' covenants and obligations under the Merger Agreement and obtaining proper consents of third parties as necessary. As of April 12, 1996, Don M. McComas, President and Chief Executive Officer; George H. Gehling, Senior Vice President, Human Resources and Franchising; Gary A. Bales, Senior Vice President, Marketing and Development; and Daniel Yanez, Senior Vice President, Food Services, are no longer with the Company, and as of April 15, 1996, Ronald L. Sacks, Senior Vice President, Family Restaurant Operations is no longer with the Company. Effective April 12, 1996, Mr. McComas has resigned from the Board of Directors of the Company. Clark D. Jones, Chairman of the Board, has been named the interim President and Chief Executive Officer. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The following exhibits are attached to this report: Exhibit Description Number of Exhibit ------ ---------- 27.1 Financial Data Schedule. (b) The Company filed a report on Form 8-K with the Securities and Exchange Commission on April 5, 1996, to report that the Company and CKE Restaurants, Inc. ("CKE") entered into a Second Amendment to an Agreement and Plan of Merger and Reorganization dated November 30, 1995, as previously amended on January 24, 1996, (the "Agreement"). In addition, the Form 8-K reported the sale of the 946,714 outstanding preferred shares by ABS MB (JB) Limited Partnership ("ABS") to CKE on April 4, 1996, with the approval of the Company's Board of Directors, and the resignation of the two Company Board members elected by ABS, Frederick L. Bryant and William L. Paternotte. The Form 8-K included as exhibits, a News Release dated April 2, 1996, generally describing the Agreement and a News Release dated April 5, 1996, announcing the sale of the preferred shares and resignation of the Board members. There were no other items to be reported under Part II of this report. Page 14 of 17 15 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED HEREUNTO DULY AUTHORIZED. SUMMIT FAMILY RESTAURANTS INC. ------------------------------ (Registrant) Date April 17, 1996 By: /s/ David E. Pertl -------------- ------------------ David E. Pertl Senior Vice President and Chief Financial Officer (Principal Financial Officer) (A duly authorized officer) By: /s/ Theodore Abajian -------------------- Theodore Abajian Vice President and Controller (Principal Accounting Officer) Page 15 of 17 16 SUMMIT FAMILY RESTAURANTS INC. EXHIBIT INDEX
Exhibit Description Page - ------- ----------- ---- Number of Exhibit Number - ------ ---------- ------ 27.1 Financial Data Schedule 17
Page 16 of 17 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S BALANCE SHEET AND STATEMENTS OF OPERATIONS AS OF AND FOR THE TWENTY-FOUR WEEK PERIOD ENDED MARCH 11, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO. 6-MOS SEP-30-1996 SEP-26-1995 MAR-11-1996 1,875,000 0 0 0 1,466,000 4,304,000 100,808,000 49,081,000 62,395,000 13,365,000 10,326,000 0 947,000 481,000 35,244,000 62,395,000 54,122,000 54,122,000 17,469,000 17,469,000 35,010,000 0 563,000 268,000 900,000 268,000 0 0 0 (632,000) (0.13) (0.13)
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