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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 25, 1995
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-6054
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SUMMIT FAMILY RESTAURANTS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 87-0264039
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
440 LAWNDALE DRIVE, SALT LAKE CITY, UTAH 84115
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (801) 463-5500
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.10 PER SHARE
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(Title of class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the last price at which the stock was
traded on December 15, 1995, was $5.563. As of December 19, 1995, there were
4,801,102 shares of Common Stock, $0.10 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Exhibit Index is on pages 32 through 35 of
this report. This report contains 60 pages.
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PART I
ITEM 1. BUSINESS
DESCRIPTION AND GENERAL DEVELOPMENT
Summit Family Restaurants Inc. (the "Company") is a Delaware corporation
organized in l985 as the successor to a California corporation which was
organized in l963. Effective April 4, 1995, the Company changed its corporate
name to Summit Family Restaurants Inc. from JB's Restaurants, Inc. The name
change was made to reflect the Company's diverse family restaurant concepts.
On November 30, 1995, an Agreement and Plan of Merger and Reorganization (the
"Merger Agreement") was executed between the Company and CKE Restaurants, Inc.,
a Delaware corporation ("CKE"), pursuant to which a wholly-owned subsidiary of
CKE will merge with the Company, and CKE's wholly-owned subsidiary will be the
surviving entity. Consideration for the merger to be paid to the Company's
shareholders for each share of common stock and for each share of preferred
stock will consist of $3.00 in cash and .20513 shares of CKE common stock,
provided that the average CKE common stock price is between $12.25 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 $12.25 at the closing, the exchange ratio may be
adjusted accordingly. The transaction 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.
Certain conditions under the Merger Agreement have not been met and CKE and the
Company are holding discussions with regard to the alternatives available.
As of September 25, 1995, the Company operated 80 JB's Restaurants: forty in
Arizona, seven in Idaho, five in Montana, eight in New Mexico, fifteen in Utah,
one in Washington and four in Wyoming, and franchised twenty-four JB's
Restaurants: five in Arizona, three in Idaho, two in Montana, one in New Mexico,
two in South Dakota, five in Utah, two in Washington and four in Wyoming. The
Company also operated six Galaxy Diners: one in Arizona, one in Idaho and four
in Utah, and sixteen franchised HomeTown Buffet restaurants: eight in Arizona,
two in Colorado, two in New Mexico, three in Utah and one in Wyoming.
A summary of the number of Company operated restaurants in operation in each of
the last three fiscal years follows:
NUMBER NUMBER OF NUMBER OF
OF JB'S NET JB'S COMPANY
NUMBER OF RESTAURANTS RESTAURANTS OPERATED
RESTAURANTS CONVERTED TRANSFERRED RESTAURANTS
FISCAL NUMBER OF RESTAURANTS SOLD TO GALAXY TO AT END OF
YEAR OPENED OR ACQUIRED OR CLOSED DINERS FRANCHISEES FISCAL YEAR
- ------ --------------------------------- ----------- ----------- ------------ -----------
GALAXY
JB'S DINER SBARRO HOMETOWN
---- ------ ------ --------
1993 - - 1 2 8(1) - 7 113
1994 - 1 - 8 14(2) 1 3 104
1995 - 5 - 2 1 5 3 102
(1) - Included 3 Sbarro restaurants and 5 JB's Restaurants
(2) - Included 10 Sbarro restaurants and 4 JB's Restaurants
In November 1991, the Company invested $3.8 million with Americana Entertainment
Group, Inc., the predecessor of HomeTown Buffet, Inc. for capital stock and
options. In July 1993, the Company sold shares of preferred stock in HomeTown
Buffet, Inc. ("HTBB") for $2.5 million. In the fourth quarter of fiscal 1993,
HTBB concluded an initial public offering ("IPO") of its common stock. In the
third quarter of fiscal 1994, the Company sold shares of HTBB common stock for
$16.8 million resulting in a pre-tax gain of $14.7
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million. On September 25, 1995, the estimated fair value of the Company's
ownership of HTBB common stock was $13.25 per share or $7.0 million. Since
September 25, 1995, the Company has sold shares of HTBB common stock for $4.8
million resulting in a pre-tax gain of $4.0 million. As of December 15, 1995,
the Company owns 130,000 shares of HTBB common stock.
JB'S RESTAURANTS
MENU AND FORMAT. JB's Restaurants are family style restaurants offering a
variety of breakfast, lunch and dinner selections at moderate prices. The
breakfast menu, in the majority of JB's Restaurants, features an
"All-You-Can-Eat" breakfast buffet, four new "Fast Break Breakfasts" currently
priced at $1.98 to $2.29 along with skillets and other traditional breakfast
fare. The lunch and dinner menu consists of a variety of sandwiches including
JB's popular new hoagie sandwiches as well as steak, chicken, pasta and seafood
entrees and features a soup and salad bar add-on for a modest upcharge. The
restaurants' soup and salad bar features homestyle soups, salads, fresh fruits
and vegetables. The restaurants also feature the JB's Bakery with a full line of
freshly baked products including cookies, muffins, pecan sticky buns and gourmet
double-crust and cream-filled pies.
The Company's JB's Restaurants range in size from 3,600 square feet to 7,600
square feet with an average of 4,875 square feet. Seating capacity for the
Company's JB's Restaurants ranges from approximately 95 to 240. The JB's
Restaurants decor is designed to provide an appealing and relaxed atmosphere.
The Company's JB's Restaurants are typically open l8 hours a day, seven days a
week. With the exception of the breakfast buffet and the soup and salad bar, all
entrees are cooked to order and served by waiters and waitresses with an average
check of approximately $5.00.
The Company seeks to locate its JB's Restaurants in commercial districts
adjacent to middle and upper income residential areas. The restaurant buildings
are typically free standing and located on the corner of main arteries.
REMODELING PROGRAM. Remodeling is an integral part of the Company's strategic
plan. The JB's Restaurants typically have been remodeled every five to seven
years with 16 of the current 104 JB's Restaurants having been remodeled to the
current remodeling scheme. The Company's present remodeling program is designed
to improve the image of the Company's existing JB's Restaurants to a much warmer
and more charming look featuring new custom designed carpets and specialty
fabrics for the upholstery, both with a variety of pleasing patterns and colors,
and extensive decorative artifacts and wall hangings, giving the restaurant a
more appealing "country charm" look.
OPERATIONS. The Company's JB's Restaurant concept is organized into two
divisions, each supervised by a Division Vice President who reports to the
Senior Vice President, Family Restaurant Operations, who reports to the
Company's President. Within each division are five or six District Managers who
are each responsible for the operations of approximately six to nine
restaurants.
Each JB's Restaurant has a general manager who directs the restaurant's daily
operations and two assistant managers. To become a general manager, an employee
generally must complete the Company's management training program and, unless
previously experienced as a full service restaurant general manager, serve as an
assistant manager for approximately one year. General managers are responsible
for hiring, providing ongoing staff training, and for the overall operation of
the restaurant. General and assistant managers participate in a performance
based incentive program in addition to a competitive base salary.
ADVERTISING AND PROMOTIONS. As part of the Company's strategy to focus on
improving its core markets and increasing revenues from existing stores, the
Company executes a marketing program focusing on television and newspaper
advertising. Advertising spending was approximately 4.0% of JB's Restaurant
revenues in fiscal 1995 and the Company expects to continue this level of
advertising spending in the future.
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FRANCHISING. The Company is presently concentrating on franchise development of
new JB's Restaurants in small towns in states where JB's Restaurants already
operate and in states contiguous to current markets. In addition, the Company
continues to franchise current Company operated JB's Restaurants in small
isolated cities and other strategically advantageous situations.
The Company's franchise agreement presently requires the payment of an initial
franchise fee of $35,000 per restaurant and requires the payment of continuing
royalty fees of 4% of gross revenues. Under the Company's "Employee Ownership
Program", which is designed to offer management employees the opportunity to
become franchisees, individuals receive a credit against the initial franchise
fee for one franchised restaurant based on the number of years of service with
the Company. A credit of $12,500 is given for 10-14 years of service, $18,750
for 15-19 years of service and $25,000 for over 20 years of service.
The Company has the right to audit and receive annual financial statements from
franchisees. Franchise agreements generally have an initial term of 20 years
with no renewal options. The Company also retains the right to terminate a
franchise agreement for a variety of reasons, including insolvency or
bankruptcy, failure to operate the restaurant according to standards or failure
to pay fees.
During the six fiscal years ended September 25, 1995, the Company transferred a
total of fifteen operating JB's Restaurants to franchisees. At the end of fiscal
1995, the Company had twenty-four franchised restaurants: five in Arizona, three
in Idaho, two in Montana, one in New Mexico, two in South Dakota, five in Utah,
two in Washington and four in Wyoming. Since September 25, 1995, the Company has
transferred one additional operating JB's Restaurant located in Wyoming to a
franchisee.
GALAXY DINERS
GENERAL. In fiscal year 1994, the Company developed the Galaxy Diner concept
intended to be used initially as a conversion vehicle for underperforming JB's
Restaurants. Longer-term, subject to available financing, the Company expects to
open new Company operated Galaxy Diners as well as potentially franchise the
concept. The Company converted its first underperforming JB's Restaurant to a
Galaxy Diner in June, 1994 and five additional conversions were completed in
fiscal year 1995.
MENU AND FORMAT. The Galaxy Diner is designed to bring back memories of '57
Chevy's, Elvis, the Jitterbug and great home-cooked food. The Galaxy Diner
offers a high energy, fun atmosphere, and offers outstanding food.
The interior of each Galaxy Diner features two distinct dining areas - one
centered around a full 1950's soda fountain with black, white and red tile,
stainless steel, faux marble and mirrors, while the other dining area is more
family oriented and casual, with star-patterned carpeting and mahogany colored
tables and chairs. Other decor features include nostalgic signs, black and white
photographs of 1950's film and music celebrities, and an entire wall dedicated
to photos and memorabilia depicting local hometown sports and celebrity
personalities of the era. In the front lobby a Wurlitzer juke box plays all the
favorite golden oldies while neon blue stars on the ceiling welcome guests to
this "blast from the past".
Even the employee uniforms reflect the 50's period with red and white bowling
shirts on the servers, poodle skirts on the hostesses, and checkered pants and
paper hats on the soda jerks. Many of the popular uniform pieces, along with
other trendy signature apparel is on display and available for sale at the
Galaxy Diner.
The award winning menu covers all dayparts - breakfast, lunch and dinner, plus
special menus have been devised for the soda fountain and a full kids menu on a
separate activity sheet. Included in the eight page main menu are entrees such
as "Monster Mash" Hash, "Blueberry Hill" Flapjacks, the "best burgers in the
Galaxy", "Ty Cobb" Salad, "Route 66" Pileup appetizer, "Bring My Baby Back"
Ribs, and selections from the "Mama's and the Pastas". The soda fountain brings
back many of the traditional favorites, including flavored cokes, malts and
shakes, and ice cream sodas. One of the house fountain specialties is the
Hollywood Boulevard Brownie Sundae built with fudge brownies cut in the shape of
stars.
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The Galaxy Diners have an average check of approximately $6.00.
OPERATIONS. The Galaxy Diners are supervised by a District Manager, who reports
to the Senior Vice President, Family Restaurant Operations, who reports to the
Company's President. Each Galaxy Diner has a general manager who directs the
restaurant's daily operations and three managers or assistant managers. Managers
are required to attend formal training sessions in management and operations of
the restaurant. In addition, each restaurant manager is required to comply with
an extensive operations manual to assure uniformity of operations and consistent
high quality products. The Company has a performance based incentive program
covering all its restaurant managers in addition to a competitive base salary.
HOMETOWN BUFFET RESTAURANTS
GENERAL. The Company has a franchise and exclusive area development agreement
with HomeTown Buffet, Inc., under which, as amended, the Company has the
exclusive rights to develop and operate HomeTown Buffet restaurants, as a
franchisee, in Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah and
Wyoming. Under the terms of the agreement, the Company is required to open a
minimum of 17 HomeTown Buffet restaurants in these states prior to June 30,
1996. As of December 15, 1995, the Company operated 16 HomeTown Buffet
restaurants.
Under the terms of the development agreement, the Company pays an initial fee of
$25,000 for each location. After the third location opened, the Company paid a
development fee of $100,000 and an additional $50,000 was paid at the time the
eleventh location was opened. The development fee is being applied against the
$25,000 initial fee in increments of $10,000 per location for each of the next
15 locations. In addition, the Company had two one year options to extend the
exclusive area development agreement which requires the Company to open 5
additional locations in each option period. The Company has exercised the first
option. A $50,000 fee is due upon the execution of the franchise agreement for
the 18th location which will be applied against the $25,000 initial fee in
increments of $10,000 per location for each of the next 5 locations. The second
option expires December 31, 1997.
For each location, the Company enters into a franchise agreement which requires
among other items, the payment of a continuing royalty fee. The royalty fee is
based on the aggregate gross sales of all the Company's HomeTown Buffet
restaurants at the following rates:
ANNUAL GROSS SALES RATE
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$0 to $1,000,000 4%
$1,000,001 to $2,000,000 3%
$2,000,001 and over 2%
CONCEPT AND MENU. HomeTown Buffet restaurants are located both in shopping
"strip centers" and as free standing restaurants. The restaurants occupy between
8,000 - 13,000 square feet, seat 265 - 460 people and employ 75 - 100 people.
HomeTown Buffet restaurants are generally open seven days per week, 12 hours per
day serving lunch, dinner and dessert items with a special brunch offering on
Sundays.
HomeTown Buffet restaurants feature a "scatter bar" buffet system with eight
separate food islands in an "all-you-can-eat" format, offering a wide variety of
fresh "made in the kitchen" menu items including soups, salads, hot entrees,
vegetables, non-alcoholic beverages, and a dessert bar. It also features a
display bakery where customers can see the desserts and baked goods prepared
fresh throughout the day. Customers pay upon entry to the restaurant and select
the items and portions of their choice. This system allows customers to serve
themselves from the food island of their choice without standing in long lines.
The concept has an average check of approximately $5.50.
OPERATIONS. The franchised HomeTown Buffet restaurants are operated through a
100% wholly-owned subsidiary of the Company, HTB Restaurants, Inc., and are
operated and supervised separately from the JB's Restaurant and Galaxy Diner
operations. The HomeTown Buffet restaurants are supervised directly by two
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district managers who report to the Senior Vice President, HomeTown Buffet
Operations, who reports to the Company's President.
Each HomeTown Buffet restaurant has a general manager and at least three
co-managers or assistant managers. Managers are required to attend formal
training sessions in management and operations of the restaurant. In addition,
each restaurant manager is required to comply with an extensive operations
manual to assure uniformity of operations and consistent high quality of
products. The Company has a performance based incentive program covering its
general and assistant managers in addition to a competitive base salary.
PURCHASING
Purchasing for all of the Company's restaurants is supervised by the Senior Vice
President, Food Services. Two national food service distributors distribute
substantially all non-perishable items to the restaurants twice per week.
Perishable items are generally purchased locally. The Company believes that
there are other distributors who are able to service the Company's needs and
that alternative sources of supply are generally available for all items
regularly used in the restaurants.
INFORMATION AND REPORTING SYSTEMS
Through the use of management information systems including a computerized point
of sale system in each unit, the Company maintains centralized financial and
accounting controls for all of its restaurants. Weekly reports of individual
restaurant sales, labor costs, food costs and other expenses together with
comparisons to preceding weeks, give management current indications of its
operations on a per-unit basis as well as on a Company-wide basis.
LICENSES, TRADEMARKS AND SERVICE MARKS
Under franchise agreements with HomeTown Buffet, Inc., the Company has exclusive
rights to operate and develop HomeTown Buffet restaurants in Arizona, Colorado,
Idaho, Montana, Nevada, New Mexico, Utah and Wyoming. The term of the franchise
right, including the use of trademarks and service marks, for each restaurant is
the shorter of 20 years or the lease term with a right to renew for additional
10-year periods. The Company's franchise rights are subject to termination if
the Company fails to comply with the provisions of the franchise agreements,
including the payment of franchise fees.
The Company believes that its rights in its trademarks and service marks are
important to its marketing efforts and a valuable part of its business. The
Company owns a number of trademarks and service marks that have been registered,
or for which applications are pending, with the United States Patent and
Trademark Office including, but not limited to, JB's(R), JB's Restaurants(R),
JB's Bakery(R), JB's is family(R), fast break breakfast,SM fast break,SM and
Galaxy Diner(R). It is the Company's policy to pursue registration of its marks
whenever possible and to vigorously oppose any infringement of its marks.
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.
COMPETITION
The restaurant business is highly competitive with respect to price, service,
restaurant location and food quality and is often affected by changes in
consumer tastes, economic conditions, population and traffic patterns. The
Company competes within each market with locally-owned restaurants as well as
with national and regional restaurant chains, many of which operate more
restaurants and have greater financial resources and longer operating histories
than the Company. There is also active competition for management and hourly
personnel, as well as for attractive commercial real estate sites suitable for
restaurants.
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GOVERNMENTAL REGULATION
The Company's business is subject to and affected by various federal, state and
local laws. Each restaurant must comply with state, county and municipal
licensing and regulation requirements relating to health, safety, sanitation,
building construction and fire prevention. Difficulties in obtaining or failure
to obtain required licenses or approvals could delay or prevent the development
of additional restaurants.
The Company is subject to Federal Trade Commission ("FTC") regulation and
various state laws that regulate the offer and sale of franchises. The FTC
requires the Company to provide prospective franchisees with a franchise
offering circular containing prescribed information about the Company and its
franchise operations. Some states in which the Company has existing franchisees
and a number of states in which the Company might consider franchising regulate
the sale of franchises; several states require the registration of franchise
offering circulars. Beyond state registration requirements, several states
regulate the substance of the franchisor-franchisee relationship and, from time
to time, bills are introduced in Congress aimed at imposing federal registration
on franchisors. Many of the state franchise laws limit, among other things, the
duration and scope of noncompetition and termination provisions of franchise
agreements.
The Company's restaurants are subject to federal and state laws governing wages,
working conditions, citizenship requirements and overtime. From time to time
legislative proposals are considered by governmental authorities that could, if
enacted, have a material effect on the Company's business. Examples of recently
considered legislation include mandatory health insurance for the Company's
employees and increased state or federal minimum wages. These types of proposals
could materially increase the Company's operating costs. There is no assurance
that the Company would be able to pass such increased costs on to its guests or
that, if it was able to do so, it could do so in a short period of time.
EMPLOYEES
As of December 15, l995 the Company employed approximately 4,500 persons, of
whom approximately 57 were corporate personnel. All other employees are involved
directly in the operation of the Company's restaurants.
The Company considers its employee relations to be good and believes that its
employee turnover rate is consistent with the industry average. Most employees,
other than restaurant management and corporate personnel, are paid on an hourly
basis. The Company believes that it provides working conditions and wages that
are comparable with those of its competition. The Company's employees are not
covered by a collective bargaining agreement.
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ITEM 2. PROPERTIES
The Company's home offices are located at 440 Lawndale Drive in Salt Lake City,
Utah, which the Company leases.
The following is a summary of the Company's restaurant properties as of
September 25, 1995:
JB'S HOMETOWN GALAXY DINER TOTAL
---- -------- ------------ -----
COMPANY OPERATED RESTAURANTS
Owned 14 -- -- 14
Leased 66 16 6 88
--- --- --- ---
80 16 6 102
=== === === ===
FRANCHISED RESTAURANTS
Owned 3 -- -- 3
--- --- --- ---
Subleased 14 -- -- 14
--- --- --- ---
17 -- -- 17*
=== === === ===
NON-OPERATING PROPERTIES
Owned -- -- -- --
Leased 9 -- -- 9
--- --- --- ---
9 -- -- 9 **
=== === === ===
TOTAL
Owned 17 -- -- 17
Leased 89 16 6 111
--- --- --- ---
106 16 6 128
=== === === ===
*At September 25, 1995, the Company had 24 franchised restaurants of
which it is sublessor for the 17 properties noted.
**Of the 9 non-operating properties; 8 are subleased. The ninth
non-operating property was subleased in fiscal year 1996.
Lease terms range from 10 to 25 years with most leases providing for 20-year
terms with options to renew for an additional 5 to 20 years. In most instances,
the Company has acquired lease or sublease rights to leases whose remaining
initial terms are from five to twenty years. The amount of rent paid and the
method of computing rent vary; most leases provide for a fixed rental to be
applied against a percentage of gross sales, usually 2.5% to 7% for a JB's
Restaurant or Galaxy Diner and 3% to 5% for a HomeTown Buffet restaurant.
Typically, the Company is responsible for maintenance and repair of the leased
premises and the payment of real estate taxes and insurance related to the
restaurant.
Management believes that the properties are adequate for their intended
purposes.
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The following is a geographic summary of the Company and franchised restaurant
locations as of September 25, 1995:
COMPANY FRANCHISED TOTAL
------- ---------- -----
JB'S RESTAURANT
Arizona 40 5 45
Idaho 7 3 10
Montana 5 2 7
New Mexico 8 1 9
South Dakota -- 2 2
Utah 15 5 20
Washington 1 2 3
Wyoming 4 4 8
--- --- ---
TOTAL JB'S RESTAURANTS 80 24 104
=== === ===
GALAXY DINER
Arizona 1 -- 1
Idaho 1 -- 1
Utah 4 -- 4
--- --- ---
TOTAL GALAXY DINERS 6 -- 6
=== === ===
HOMETOWN BUFFET
Arizona 8 -- 8
Colorado 2 -- 2
New Mexico 2 -- 2
Utah 3 -- 3
Wyoming 1 -- 1
--- --- ---
TOTAL HOMETOWN BUFFETS 16 -- 16
--- --- ---
TOTAL RESTAURANTS 102 24 126
=== === ===
ITEM 3. LEGAL PROCEEDINGS
During the fourth quarter of fiscal year 1995, the plaintiff in the matter of
Robbins v. HomeTown Buffet, Inc. et al., dismissed with prejudice the action
which had been filed in U.S. District Court for the Southern District of
California on October 27, 1994, and alleged violations of federal securities
laws. The action had named the Company and two of its officers among the 21
defendants. No consideration was paid by the Company or any other defendant in
connection with the dismissal.
In addition, the Company is engaged in ordinary and routine litigation
incidental to its business. Management does not anticipate that any amount which
it may be required to pay by reason thereof will have a material effect on the
Company's consolidated statements of operations or financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded in the over-the-counter market on the
NASDAQ National Market System under the symbol SMFR. The following table sets
forth, for the quarters indicated, the high and low closing sales prices per
share as reported on the National Market System.
FISCAL YEAR 1995 1994
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HIGH LOW HIGH LOW
------- ------- ------ ------
First Quarter $6.00 $3-5/8 $7-3/4 $5-5/8
Second Quarter 5-5/8 4.00 8-1/4 5-7/8
Third Quarter 5-3/4 3-5/8 8-1/4 4-1/2
Fourth Quarter 5-1/2 3-5/8 6-1/8 3-7/8
As of December 18, 1995, there were 521 holders of record of the Company's
common stock.
The Company has not declared a cash dividend in the last three fiscal years. The
Company currently reinvests its financial resources into the growth of the
business and consequently does not expect to pay cash dividends in the
foreseeable future. The Company's Series A Convertible Preferred Stock, issued
in October 1993, contains a restriction on the payment of dividends until August
18, 1996.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below, except store data, has
been derived from the historical consolidated financial statements of the
Company. The selected consolidated financial data for the years ended September
30, 1991, September 28, 1992, September 27, 1993, September 26, 1994, and
September 25, 1995 have been derived from financial statements which were
audited by KPMG Peat Marwick LLP, independent public accountants.
The selected financial information and other data presented below should be read
in conjunction with the "Consolidated Financial Statements", and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K.
YEAR ENDED
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SEPTEMBER 25, SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1995 1994 1993 1992 1991
------------- ------------- ------------- ------------- -------------
OPERATING STATEMENT DATA:
Total Revenues $ 121,099,000 $ 115,367,000 $ 114,768,000 $ 124,045,000 $ 127,294,000
Income (loss) from operations (5,052,000) (5,641,000)(1) (4,651,000)(2) 911,000 (3) (245,000)(4)
Income (loss) before income taxes (6,097,000) 6,826,000 (5) (3,797,000)(6) (1,307,000)(3) (1,686,000)(4)
Net Income (loss) (5,044,000) 3,756,000 (7) (2,314,000) (771,000)(8) (991,000)
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PER SHARE:
Net income (loss) $ (1.05) $ 0.66 $ (0.49) $ (0.17) $ (0.22)
Dividends $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Weighted avg. shares outstanding 4,794,000(9) 5,723,000(10) 4,693,000 4,585,000 4,534,000
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BALANCE SHEET DATA :
Total assets $ 70,884,000 $ 76,608,000 $ 67,716,000 $ 73,745,000 $ 74,768,000
Tangible assets 69,735,000 75,209,000 66,276,000 71,780,000 72,150,000
Stockholders' equity 40,127,000 44,336,000 32,598,000 34,156,000 34,830,000
Long-term debt 10,150,000 13,093,000 19,243,000 22,259,000 22,824,000
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Debt to capital 20% 23% 37% 39% 40%
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PER SHARE:
Stockholders' equity $ 6.99 $ 7.73 $ 6.85 $ 7.43 $ 7.61
Tangible book value $ 6.79 $ 7.49 $ 6.55 $ 7.00 $ 7.04
Shares outstanding 5,744,816(10) 5,735,473(10) 4,755,759 4,597,388 4,577,486
-----------------------------------------------------------------------------------------
OTHER DATA:
Operating Units
JB's Restaurants-Company 80 89 97 109 136
JB's Restaurants-Franchised 24 19 14 5 3
HomeTown Buffet restaurants 16 14 6 4 --
Galaxy Diner restaurants 6 1 -- -- --
Sbarro restaurants -- -- 10 12 4
-----------------------------------------------------------------------------------------
TOTAL 126 123 127 130 143
-----------------------------------------------------------------------------------------
(1) Fiscal 1994 is net of a charge for property dispositions of $2.0 million.
(2) Fiscal 1993 is net of a charge for property dispositions of $4.3 million.
(3) Fiscal 1992 is net of a charge for property dispositions of $3.2 million.
(4) Fiscal 1991 is net of a charge for property dispositions of $3.1 million
and a deferred compensation revaluation of $0.4 million.
(5) Fiscal 1994 is net of a charge for property dispositions of $2.0 million,
a loss on the disposition of a note receivable of $1.6 million and a gain
on the sale of HomeTown Buffet, Inc. common stock of $14.7 million.
(6) Fiscal 1993 is net of a charge for property dispositions of $4.3 million,
and a gain on the sale of HomeTown Buffet, Inc. preferred stock of $1.7
million.
(7) Fiscal 1994 is net of an extraordinary loss of $350,000 (net of tax
benefit) resulting from extinguishment of debt.
(8) Fiscal 1992 is net of the cumulative effect of a change in accounting
principle of $214,000.
(9) Excludes 946,714 shares of Series A Convertible Preferred Stock as they
are anti-dilutive.
(10) Includes 946,714 shares of Series A Convertible Preferred Stock.
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ITEM 7. 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 for the last three fiscal years. All references herein
to years, i.e., "1995," "1994" or "1993," are to fiscal years.
- ------------------------------------------------------------------------------------------
FISCAL YEAR 1995 1994 1993
- ------------------------------------------------------------------------------------------
(dollars in thousands)
Total revenues $121,099 $115,367 $114,768
Percentage change
from prior year 5.0 0.5 (7.5)
- ------------------------------------------------------------------------------------------
JB'S RESTAURANTS
- ------------------------------------------------------------------------------------------
Company owned units
at end of year 80 89 97
Franchised units at
end of year 24 19 14
Company Restaurants transferred
to franchisees, net 3 3 7
Company Restaurants converted to
Galaxy Diner 5 1 -
Company Restaurants closed 1 4 5
Company average annual
sales per unit $ 940 $ 953 $ 938
Percentage change
from prior year (1.4) 1.5 3.0
Same store sales percentage
change from prior year (3.6) (3.2) (1.3)
- ------------------------------------------------------------------------------------------
GALAXY DINERS
- ------------------------------------------------------------------------------------------
Company owned units
at end of year (1) 6 1 -
- ------------------------------------------------------------------------------------------
HOMETOWN BUFFETS
- ------------------------------------------------------------------------------------------
Units operated as a franchisee
at end of year 16 14 6
Average annual sales per unit $ 2,503 $ 2,674 (1)
Percentage change from
prior year (6.4) (1) (1)
- ------------------------------------------------------------------------------------------
SBARRO
- ------------------------------------------------------------------------------------------
Units operated as a franchisee
at end of year - - 10
- ------------------------------------------------------------------------------------------
(1) Average annual sales per unit, percentage change from prior year and same
store sales percentage change from prior year data is either not available
or is not presented due to the relatively small number of units open for a
full year.
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In 1995, as compared with 1994, total revenues increased 5.0% primarily due to
an increase in the number of HomeTown Buffet restaurants and Galaxy Diners in
operation which more than offset the decline in revenues resulting from the
decrease in the number of JB's Restaurants and the 3.6% decline in JB's
Restaurants same store sales. The average annual sales decrease per JB's
Restaurant of 1.4% reflected a decrease in average guest counts of 1.7%
partially offset by a 0.3% increase in the average guest purchase.
In 1994, as compared with 1993, total revenues increased 0.5%, primarily due to
the opening of eight new HomeTown Buffet restaurants in 1994 partially offset by
the closure of four underperforming JB's Restaurants, the franchising of three
JB's Restaurants, the disposition of all Sbarro restaurants and a 3.2% decline
in JB's Restaurants same store sales. The average annual sales increase per JB's
Restaurant of 1.5% reflected an increase in the average guest purchase of 3.7%
partially offset by a decrease in average guest counts of 2.2%.
COSTS AND EXPENSES; STATEMENT OF OPERATIONS DATA. The following table sets forth
costs as a percentage of revenues during the last three fiscal years as well as
statement of operations data:
- --------------------------------------------------------------------------------
FISCAL YEAR 1995 1994 1993
- --------------------------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0%
- --------------------------------------------------------------------------------
Costs and expenses
Food costs 33.0 32.6 31.9
Labor costs 35.0 34.9 33.3
Occupancy and other expenses 23.8 23.3 22.8
General and administrative
expenses 6.9 7.1 6.5
Depreciation and amortization 5.5 5.3 5.8
Charge for property dispositions -- 1.7 3.7
- --------------------------------------------------------------------------------
Total costs and expenses 104.2 104.9 104.0
- --------------------------------------------------------------------------------
Loss from operations (4.2) (4.9) (4.0)
Interest expense (1.3) (1.7) (2.2)
Interest income 0.4 0.6 0.4
Gain on sale of HomeTown
Buffet, Inc. stock -- 12.7 1.5
Gains on sales of restaurants
to franchisees and other 0.1 0.6 1.0
Loss on disposition of note
receivable -- (1.4) --
- --------------------------------------------------------------------------------
Income (loss) before income
taxes and extraordinary item (5.0) 5.9 (3.3)
Income taxes (benefit) (0.8) 2.3 (1.3)
- --------------------------------------------------------------------------------
Income (loss) before
extraordinary item (4.2) 3.6 (2.0)
Extraordinary loss resulting from
extinguishment of debt-net of tax -- 0.3 --
- --------------------------------------------------------------------------------
Net income (loss) (4.2)% 3.3% (2.0)%
- --------------------------------------------------------------------------------
FOOD COSTS. The increase in food costs as a percentage of total revenues in
1995, as compared with 1994, was primarily the result of an increase in the
number of HomeTown Buffet restaurants, which operate at a higher food cost
percentage than the Company's JB's Restaurants and Galaxy Diners, and higher
produce prices in all restaurant concepts during the third quarter of 1995 due
to the inclement weather in California. The increase in food costs as a
percentage of total revenues in 1994, as compared with 1993, was primarily the
result of an increase in the number of HomeTown Buffet restaurants which operate
at a higher food cost percentage than the Company's JB's Restaurants.
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LABOR COSTS. The increase in labor costs as a percentage of total revenues in
1995, as compared to 1994, was primarily due to the decline in same store sales
in the JB's Restaurants along with an increase in manager salaries (0.5
percentage points) offset by lower workers compensation costs (-0.4 percentage
points). The increase in labor costs as a percentage of total revenues in 1994,
as compared to 1993, was primarily due to costs incurred in training and
increased scheduling designed to improve customer service in the JB's
Restaurants along with a decrease in same store sales.
OCCUPANCY AND OTHER EXPENSES. The increase in occupancy and other expenses as a
percentage of total revenues in 1995, as compared to 1994, primarily reflected
higher pre-opening costs along with the decline in JB's Restaurants same store
sales. The increase in occupancy and other expenses as a percentage of total
revenues in 1994, as compared to 1993, primarily reflected higher equipment rent
as the Company leased most equipment in its new HomeTown Buffet restaurants (0.5
percentage points), higher smallware and supply costs (0.4 percentage points),
higher pre-opening costs resulting from the increased number of HomeTown Buffet
restaurant openings (0.2 percentage points) along with the decline in JB's
Restaurants same store sales partially offset by a decrease in marketing
expenditures (-0.6 percentage points).
GENERAL AND ADMINISTRATIVE EXPENSES. The decrease in general and administrative
expenses as a percentage of total revenues in 1995, as compared to 1994, was
primarily due to reduced employee relocation costs along with the 5.0% increase
in total revenues. The increase in general and administrative expenses as a
percentage of total revenues in 1994, as compared with 1993, was primarily the
result of an increase in salaries (0.6 percentage points) and relocation costs
(0.2 percentage points) resulting from upgrading the Company's administrative
staff support and an increase in legal expenses (0.2 percentage points).
Additionally, in 1993 the Company incurred one-time executive search costs and
wrote-off financing costs that were not incurred in 1994 (-0.4 percentage
points).
DEPRECIATION AND AMORTIZATION. The increase in depreciation and amortization as
a percentage of total revenues in 1995, as compared with 1994, primarily
reflected depreciation associated with remodeled JB's Restaurants and Galaxy
Diner conversions and the decrease in same store JB's Restaurants sales
partially offset by the increase in the number of HomeTown Buffet restaurants
which operate with lower depreciation and amortization as a percent of revenues.
The decrease in depreciation and amortization as a percentage of total revenues
in 1994, as compared with 1993, primarily reflected higher per store revenue
resulting from the disposition of underperforming restaurants and the increase
in the number of HomeTown Buffet restaurants which operate with lower
depreciation and amortization as a percent of revenues.
CHARGE FOR PROPERTY DISPOSITIONS. The charge of $1,982,000 for 1994 was
primarily related to the disposition of JB's Restaurants. The charge of
$4,264,000 for 1993, was primarily related to the disposition of certain JB's
Restaurants, Sbarro restaurants, non-operating properties and the termination of
exclusive area development rights with Sbarro, Inc.
INTEREST EXPENSE. The decrease in interest expense as a percentage of total
revenues in 1995, as compared with 1994, reflected lower outstanding debt
balances along with the 5.0% increase in total revenues. The decrease in
interest expense as a percentage of total revenues in 1994, as compared to 1993,
reflected lower outstanding debt partially resulting from the prepayment, in
April 1994, of $4.6 million of outstanding 11.1% interest bearing debt payable
to financial institutions.
INTEREST INCOME. The decrease in interest income as a percentage of total
revenues in 1995, as compared with 1994, was primarily a result of lower cash
and short term investment balances. The increase in interest income as a
percentage of total revenues in 1994, as compared to 1993 primarily resulted
from an increase in invested cash balances and an increase in notes receivable
resulting from the sale of restaurants to franchisees.
GAIN ON SALE OF HOMETOWN BUFFET, INC. STOCK. The $14.7 million gain in 1994
reflected the sale of 1,056,780 shares of HomeTown Buffet, Inc. ("HTBB") common
stock. The $1.7 million gain in 1993 reflected the sale of 250,000 shares of
HTBB preferred stock.
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15
LOSS ON DISPOSITION OF NOTE RECEIVABLE. The charge of $1,564,000 in 1994
reflected the Company's acceptance of $2.5 million as full repayment of a note
receivable related to the sale of a combined restaurant and motel.
INCOME TAXES. The Company's effective income tax rate was 17.3%, 39.8% and 39.1%
in 1995, 1994 and 1993, respectively. The effective tax rate in all three years
reflected federal and state income tax rates offset (benefited) by targeted jobs
tax credits. The 1995 tax rate is further impacted by a $1,535,000 reserve
against net deferred tax assets that may not be realized in the future.
EXTRAORDINARY LOSS RESULTING FROM EXTINGUISHMENT OF DEBT. The charge of $350,000
(net of tax) in 1994 reflected the prepayment premium and the write-off of
unamortized loan acquisition costs associated with the Company's prepayment of
$4.6 million of outstanding 11.1% interest bearing debt payable to financial
institutions.
LIQUIDITY & CAPITAL RESOURCES
The Company's primary sources of working capital have been cash flow from
operations, borrowings and sale of assets. The Company requires capital
principally for the acquisition and construction of new restaurants, remodeling
and conversion of existing restaurants, and renewals of equipment and leasehold
improvements. During 1996, the Company anticipates its capital requirements will
be primarily for renewals of equipment and leasehold improvements and expects to
fund these capital requirements through cash on hand at the end of the year,
internally generated funds and the sale of all, or a portion of, the Company's
investment in HTBB common stock.
During the fiscal year ended September 25, 1995, cash and cash equivalents were
provided by the following sources:
- -----------------------------------------------------------------------------------------------------------------
IN MILLIONS
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operations $ 4.0
Proceeds from the sale of assets 3.0
Proceeds from the sale of short term investments 2.0
Payments received on notes receivable .1
- -----------------------------------------------------------------------------------------------------------------
Total provided $ 9.1
- -----------------------------------------------------------------------------------------------------------------
During the same period, cash and cash equivalents were applied for the following uses:
- -----------------------------------------------------------------------------------------------------------------
IN MILLIONS
- -----------------------------------------------------------------------------------------------------------------
Other capital expenditures $ 6.9
Capital expenditures for new stores 3.7
Principal payments on long-term debt and capital leases 1.8
Other .1
- -----------------------------------------------------------------------------------------------------------------
Total used $ 12.5
- -----------------------------------------------------------------------------------------------------------------
During 1995, cash used exceeded cash provided by $3.4 million due primarily to
capital expenditures associated with the conversion of five underperforming JB's
Restaurants to Galaxy Diners, the remodeling of four JB's Restaurants and the
construction of two HomeTown Buffet restaurants.
The current ratio at the end of 1995 was 0.3:1.0 compared to 0.8:1.0 at the end
of 1994. Management does not consider the fact that the current ratio is less
than one to be, itself, an indication of a liquidity problem as the restaurant
business has practically no receivables and minimum inventories that typically
turn faster than accounts payable to suppliers.
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16
At the end of 1995, the Company had $2.0 million in letters of credit and $2.2
million in bank loans which were secured by the Company's 528,220 shares of HTBB
common stock and by certain properties owned by the Company. During the third
quarter of 1995, the Company terminated its $3.0 million line of credit in
exchange for the release of the lien on an office/warehouse property which the
Company sold generating net proceeds of approximately $1.5 million. The Company
was not in compliance with certain covenants in its lending agreements at the
end of the year. The Company obtained a waiver from the bank with respect to
these covenants.
As of September 25, 1995, the Company held 528,220 shares of HTBB common stock.
Between September 25, 1995, and December 11, 1995, 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 the $2.0 million in letters of credit with the remaining $2.0
million retained by the Company. The letters of credit are secured by certain
properties owned by the Company, by the remaining 130,000 shares of HTBB common
stock and by the escrow account noted above.
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. Operating results during fiscal
1995 reduced the Company's net worth to less than $40 million as of September
25, 1995. On December 7, 1995, the lessor notified the Company it was in
default under the terms of the Agreement and demanded a default payment in the
amount of $1,493,938 which represents all remaining rent and other payments due
to the lessor. Upon receipt of the default payment, the lessor is obligated to
transfer to the Company all rights of ownership to the leased assets.
Management is contesting the default and seeks a resolution with the lessor that
would allow the Company to continue periodic rent payments as stipulated under
the Agreement. While the final outcome of this matter cannot be determined at
this time, management, in consultation with legal counsel, believes that such a
resolution can be reached.
The Company opened two new HomeTown Buffet restaurants during 1995, bringing the
total number of HomeTown Buffet restaurants in operation to 16. The Company's
exclusive area development agreement with HomeTown Buffet, Inc. was amended
during the third quarter of 1995 to extend the Company's requirement to open a
minimum of 17 HomeTown Buffet restaurants to June 30, 1996 from December 31,
1995. In addition, in order to maintain its exclusive area development agreement
with HomeTown Buffet, Inc., the Company is required to open an additional 5
HomeTown Buffet restaurants by December 31, 1996. Should the Company not open
the required number of HomeTown Buffet restaurants, the Company would lose its
exclusive area rights.
During 1995, the Company remodeled four of its higher performing JB's
Restaurants bringing to 11 the total number of Company operated JB's Restaurants
remodeled to the latest remodeling scheme. The Company currently has no plans to
remodel any further JB's Restaurants in 1996. The Company continues to routinely
repair and maintain the Company's restaurants. In addition, the Company, in
1995, converted an additional five of its lower performing JB's Restaurants to
Galaxy Diners bringing the number of Galaxy Diners to six at the end of 1995.
Future Galaxy Diner conversions, JB's Restaurants remodels and new HomeTown
Buffet restaurants will be dependent upon the Company improving internal cash
flow and/or finding additional sources of capital including the potential sale
of assets. To the extent that these assets secure certain letters of credit, the
Company expects that it will maintain cash collateral for the letters of credit
when the assets are sold in accordance with the Company's agreement with the
bank noted above. If the Company's earnings do not improve or other sources of
financing are not obtained, the Company would not have the available financing
for capital spending beyond maintenance level capital additions.
Pursuant to certain change of control agreements, the Company may be obligated
to pay benefits to the President and seven Senior Vice Presidents in the event
of a significant change in ownership of the Company.
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17
The Merger Agreement described in Item 1 titled "Business" triggered a provision
in the change of control agreements that requires the Company to place in escrow
accounts approximately $1.7 million. Payment of benefits is made upon
involuntary termination of those individuals noted above 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 the 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 as is evidenced by the recent increase in produce prices (lettuce in
particular) resulting from the unusual weather conditions in the western U.S.
growing regions. Shifts in these costs may have a significant impact on the
Company's food costs. The Company anticipates that increases in these costs can
be offset through pricing and other cost control efforts; however, there is no
assurance that the Company would be able to pass such costs on to its guests or
if it were able to do so, it could do so in a short period of time.
ACCOUNTING STANDARDS ISSUED BUT NOT YET ADOPTED
In December 1991, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 107 "Disclosures about
Fair Value of Financial Instruments". SFAS No. 107 extends existing fair value
disclosure practices by requiring all entities to disclose, where practicable,
the fair value of financial instruments, both assets and liabilities, recognized
and not recognized, in the statement of financial position. SFAS No. 107 is
effective for the Company's fiscal year 1996. Management has not yet determined
for which of its financial instruments it is practicable to determine fair
value. It is management's intent to implement SFAS No. 107 in fiscal year 1996.
In May 1993, the FASB issued SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan". SFAS No. 114 addresses the accounting by creditors for
impairment of certain loans and requires impaired loans to be measured based on
the present value of expected future cash flows discounted at the loan's
effective interest rate or, as a practical alternative, at the loan's observable
market price or the fair value of the collateral if the loan is collateralized.
A loan is impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due under the terms of the
loan agreement. SFAS No. 114 is effective for the Company's fiscal year 1996.
Management believes that, if implemented currently, SFAS No. 114 would not have
a material effect on its financial position as of September 25, 1995. It is
management's intent to adopt SFAS No. 114 in fiscal year 1996.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires the assessment of certain long-lived assets, including many intangible
assets, for possible impairment when events or circumstances indicate the
carrying amounts of these assets may not be recoverable. SFAS No. 121 is
effective for the Company's fiscal year 1997 and, upon adoption, any impairment
losses recognized for assets to be held and used must be recorded in continuing
operations while such losses attributable to assets to be disposed of must be
reported as a cumulative effect of a change in accounting principle. The Company
has not yet completed all of the analysis required to estimate the impact of
SFAS No. 121. It is management's intent to implement SFAS No. 121 in fiscal year
1997.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index included at "Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
BOARD OF DIRECTORS
FREDERICK L. BRYANT. Mr. Bryant, 41, is a general partner of ABS Capital
Partners, L.P. and has been a Managing Director of Alex. Brown & Sons
Incorporated, an investment banking firm, since January 1, 1990. Mr. Bryant was
a Principal at Alex. Brown & Sons Incorporated from January 1, 1988 through
December 31, 1989. Mr. Bryant has been a director of the Company since October
1993 and serves on the Company's Audit Committee and Special Committee. Mr.
Bryant also serves as a director of Transaction Systems Architects, Inc., a
computer software company.
NORMAN N. HABERMANN. Mr. Habermann, 62, is the President of Scobrett Associates,
Inc., which is involved in venture capital and consulting activities. From
December 1986 to February 1994, Mr. Habermann was President and Chief Executive
Officer of The Restaurant Enterprises Group, Inc., and its predecessors. Mr.
Habermann has been a member of the Board since November 23, 1994, when he was
appointed by the Board to fill a vacancy. Mr. Habermann is also a member of the
Company's Audit Committee and serves as Chair of the Company's Special
Committee. Mr. Habermann serves as a director of International Food & Beverage,
Inc., a food manufacturer.
CARL R. HAYS. Mr. Hays, 58, is currently a franchisee of Outback Steakhouse,
Inc., a restaurant company. Mr. Hays was Chief Operating Officer of Al Copeland
Enterprises, Inc. from November 1989 to November 1992. Mr. Hays has served as a
director of the Company since 1987 and is Chair of the Company's Compensation
Committee and a member of the Nominating Committee. Mr. Hays also serves as a
director of Fresh Choice, Inc., a restaurant company.
CLARK D. JONES. Mr. Jones, 60, has been Chairman of the Board of the Company
since 1981. On June 30, 1995, Mr. Jones retired as an employee of the Company,
but remains Chairman of the Board. Since July 1995, Mr. Jones is also one of
three commissioners on the State of Utah Public Service Commission. Mr. Jones
served as Chief Executive Officer of the Company from 1981 to October 1, 1991.
Mr. Jones served as interim President and Chief Executive Officer of the Company
from May 31, 1993 to January 3, 1994. Mr. Jones has served as a director of the
Company since 1971. He is Chair of the Company's Nominating Committee. Mr. Jones
serves as a director of MDT Corporation, a medical technology company.
DON M. MCCOMAS. Mr. McComas, 51, has been President, Chief Executive Officer and
a director of the Company since January 3, 1994. From February 1993 through
December 1993 he was President and Chief Executive Officer of El Torito
Restaurants, Inc. From January 1988 to January 1993, Mr. McComas served as
President and Chief Executive Officer of Carrows Restaurants, Inc.
NORTON PARKER. Mr. Parker, 69, retired in April 1994 from his position of more
than five years as President and Chief Executive Officer of Capital City Bank.
Mr. Parker has served as a director of the Company since 1976 and is Chair of
the Company's Audit Committee and a member of the Company's Nominating
Committee.
WILLIAM L. PATERNOTTE. Mr. Paternotte, 50, has been a Managing Director of Alex,
Brown & Sons Incorporated, an investment banking firm, for more than five years,
and is currently the Director of Marketing and Client Services. Mr. Paternotte
has served as a director of the Company since 1985 and is a member of the
Company's Compensation and Nominating Committees. Mr. Paternotte serves as a
director of Miami Subs Corporation, a restaurant company.
RONALD N. PAUL. Mr. Paul, 61, has been President of Technomic, Inc., a marketing
consulting firm, for more than five years. Mr. Paul has served as a director of
the Company since 1989 and is a member of the Company's Audit Committee and
Special Committee.
THOMAS J. RUSSO. Mr. Russo, 54, is the President, Chairman and Chief Executive
Officer of Miami Subs Corporation, a restaurant company. Until January 1994, Mr.
Russo was Group Chairman and Chief Executive
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20
Officer of the Housewares Division of Hanson Industries for more than five
years. Mr. Russo has served as a director of the Company since 1990 and is a
member of the Company's Compensation Committee.
OFFICERS
IDENTIFICATION OF EXECUTIVE OFFICERS
The Company's executive officers are elected annually at the first meeting of
the Board of Directors following each annual shareholders' meeting. The
Company's executive officers as of December 1, 1995 are:
NAME AGE POSITION
Don M. McComas 51 President and Chief Executive Officer
Gary A. Bales 41 Senior Vice President of Marketing and Development
George H. Gehling 48 Senior Vice President of Human Resources and Franchising
Joseph J. Hollencamp 36 Senior Vice President of HomeTown Buffet Operations
Charlotte L. Miller 38 Senior Vice President, General Counsel and Secretary
David E. Pertl 43 Senior Vice President, Chief Financial Officer and Treasurer
Ronald L. Sacks 47 Senior Vice President of Family Restaurant Operations
Daniel Yanez 50 Senior Vice President of Food Services
INFORMATION ABOUT MR. MCCOMAS IS SET FORTH IN THE BOARD OF DIRECTORS SECTION OF
ITEM 10 OF PART III.
GARY A. BALES. Mr. Bales has been Vice President of Marketing since 1987. In
February 1993, Mr. Bales was given the additional title of Vice President of
Development. In April 1994, Mr. Bales' title was changed to Senior Vice
President of Marketing and Development.
GEORGE H. GEHLING. Mr. Gehling has been Vice President of Human Resources since
November 1988. In February 1993, Mr. Gehling was given the additional title of
Vice President of Franchising. In April 1994, Mr. Gehling's title was changed to
Senior Vice President of Franchising and Human Resources.
JOSEPH J. HOLLENCAMP. Mr. Hollencamp has been the executive responsible for
HomeTown Buffet Operations since August 1991. In June 1993, Mr. Hollencamp was
named Vice President of HomeTown Buffet Operations, and in April 1994, Mr.
Hollencamp's title was changed to Senior Vice President. From August 1990 to
August 1991, Mr. Hollencamp was a private contractor for CSI, a cable television
company.
CHARLOTTE L. MILLER. Ms. Miller has been Vice President, General Counsel and
Secretary since November 1992. In April 1994, Ms. Miller's title was changed to
Senior Vice President, General Counsel and Secretary. Prior to November 1992,
Ms. Miller was an attorney with the firm of Janove & Miller from January 1992 to
November 1992 and with the firm of Watkiss & Saperstein from December 1988 to
January 1992.
DAVID E. PERTL. Mr. Pertl has been Vice President and Chief Financial Officer of
the Company since September 1989. In November 1992, Mr. Pertl was also named
Treasurer. In April 1994, Mr. Pertl's title was changed to Senior Vice
President, Chief Financial Officer and Treasurer.
RONALD L. SACKS. Mr. Sacks joined the Company in April 1990 as Vice President of
Operations. During 1989 and 1990 Mr. Sacks was Vice President of Restaurant
Operations for Country Hospitality, a Carlson Company. In April 1994, Mr. Sacks'
title was changed to Senior Vice President of Family Restaurant Operations.
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DANIEL YANEZ. Mr. Yanez joined the Company in March 1994 as Vice President of
Food Services. In April 1994, Mr. Yanez' title was changed to Senior Vice
President. From 1969 to March 1994, Mr. Yanez was employed by Carrows
Restaurants, Inc. in various capacities, including Food and Beverage Vice
President from 1984 to March 1994.
FILING OF STOCK OWNERSHIP REPORTS BY DIRECTORS AND OFFICERS
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers, directors and more than 10% shareholders to file certain
reports of stock ownership with the Securities and Exchange Commission and with
the National Association of Securities Dealers. These persons are also required
to furnish the Company with copies of all Section 16(a) forms they file. Based
solely on its review of copies of the forms received by it, or on written
representations from reporting persons, the Company believes that there were no
late filings on Forms 3, 4 or 5, or unreported transactions, during fiscal 1995.
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation of the Company's Chief Executive
Officer in fiscal 1995 and the five named executive officers whose total annual
salary and bonus exceeded $100,000 in fiscal 1995 (the "Named Executive
Officers"):
Long Term
Compensation
Annual Compensation Awards
- ------------------------------------------------------------------------------ ------------
Other
Annual All Other
Name and Principal Fiscal Salary Bonus Compensation Options Compensation
Position Year ($) ($)(1) ($) (#) ($)(2)
- ------------------ ------ --------- ------ ------------ ------- ------------
Don M. McComas 1995 $ 200,000 $- $ - 10,000 $ 2,564
President & CEO 1994 147,000(3) - 58,049 100,000 114,086
1993 - - - - -
Clark D. Jones 1995 150,263(4) - - 33,000 21,045
Chairman of the Board 1994 175,000 - - 20,000 2,628
1993 168,000 - - 15,000 3,130
David E. Pertl, Senior 1995 125,000 - - 13,000 1,497
Vice President & Chief 1994 125,000 - - - 2,050
Financial Officer 1993 120,000 - - 10,000 2,337
Ronald L. Sacks, Senior 1995 118,500 - - 13,000 1,494
Vice President, Family 1994 118,500 - - 2,000 1,441
Restaurant Operations 1993 113,000 - - 10,000 1,918
Daniel Yanez, Senior 1995 115,000 - - 5,000 888
Vice President, Food 1994 62,000(5) - 7,530 30,000 54,625
Services 1993 - - - - -
Gary A. Bales, Senior 1995 104,000 - - 5,000 1,394
Vice President, Marketing 1994 104,000 - - 2,000 1,616
Development 1993 100,000 - - 10,000 1,815
(1) Perquisites for each executive officer for each of the three fiscal
years was less than 10% of each executive's salary and bonus combined.
The amounts shown for Messrs. McComas and Yanez for fiscal 1994 are
payments made as a result of taxes incurred in connection with
relocation expenses paid by the Company.
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(2) Of the amount shown for Mr. Jones for fiscal 1995, $15,851 is paid
retirement benefits, $440 is ESOP Company contributions, $338 is 401(k)
Company contributions, $666 is life insurance premiums paid by the
Company and $3,750 is director fees paid to Mr. Jones as a non-employee
director. Of the amount shown for Mr. McComas for fiscal 1994, $111,690
is relocation expenses and $2,396 is life insurance premiums paid by
the Company on behalf of Mr. McComas. Of the amount shown for Mr. Yanez
for fiscal 1994, $54,057 is relocation expenses and $568 is life
insurance premiums paid by the Company on behalf of Mr. Yanez. The
amounts shown for the other Named Executive Officers represent life
insurance premiums paid by the Company, 401(k) Company contributions to
the Named Executive Officer's account, and ESOP Company contributions
to the Named Executive Officer's account. For fiscal 1995, the amounts
are as follows:
Name Insurance ($) 401(k) ($) ESOP ($)
---- ------------- ---------- --------
McComas $ 2,564 $ -- $ --
Pertl 888 295 314
Sacks 888 309 298
Yanez 888 -- --
Bales 888 245 261
(3) The amount indicated is Mr. McComas' actual salary received during
fiscal 1994 which is less than his annualized salary of $200,000
because his employment with the Company did not commence until January
3, 1994.
(4) The amount indicated is Mr. Jones' actual salary received during fiscal
1995 which is less than his annualized salary of $175,000 because his
employment with the Company ended on June 30, 1995.
(5) The amount indicated is Mr. Yanez' actual salary received during fiscal
1994 which is less than his annualized salary of $115,000 because his
employment with the Company did not commence until March 14, 1994.
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OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning individual grants of stock
options made during fiscal 1995 to the Chief Executive Officer and to the Named
Executive Officers:
Potential
Realizable Value
at Assumed
Individual Grants Annual Rates of
----------------------------------------------------------- Stock Price
Number of % of Total Appreciation for
Securities Options Granted Exercise or Option Term (2)
Underlying to Employees Base Price Expiration ---------------------
Options Granted in Fiscal Year ($/Sh)(1) Date 5% ($) 10% ($)
--------------- -------------- ----------- --------- ------- --------
Don M. McComas 10,000 (3) 4.7393 $4.500 01/03/05 $28,300 $ 71,718
Clark D. Jones 10,000 (4) 4.7393 5.625 10/15/04 35,375 89,648
23,000 (5) 10.9004 4.000 06/21/05 57,858 146,624
David E. Pertl 8,000 (6) 3.7914 5.625 10/11/04 28,300 71,718
5,000 (7) 2.3696 4.625 09/19/05 14,543 36,855
Ronald L. Sacks 5,000 (8) 2.3696 4.750 04/15/05 14,936 37,851
8,000 (9) 3.7914 4.500 04/19/05 22,640 57,375
Daniel Yanez 5,000 (10) 2.3696 5.625 03/15/05 17,688 44,824
Gary A. Bales 5,000 (11) 2.3696 4.750 04/13/05 14,936 37,851
(1) The exercise price is equal to the fair market value of the stock on
the date of the grant.
(2) All values shown are pre-tax and are rounded to the nearest whole
dollar. No gain to the optionees is possible without an increase in the
market price of the Company's Common Stock above the market price on
the date of grant. If such increase occurs, shareholders will benefit
commensurately. If no increase in the market price occurs, optionees
will realize no value from stock options.
(3) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable January 3, 1996,
and each year thereafter until fully vested. The options have a term of
10 years.
(4) These options were canceled on June 21, 1995.
(5) These are nonqualified stock options all of which are immediately
exercisable. The options have a term of 10 years.
(6) Twenty percent (20%) of the options listed are exercisable and an
additional twenty percent (20%) will become exercisable October 11,
1996, and each year thereafter until fully vested. The options have a
term of 10 years.
(7) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable September 19, 1996,
and each year thereafter until fully vested. The options have a term of
10 years.
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(8) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable April 15, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
(9) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable April 19, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
(10) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable March 15, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
(11) None of the options listed are currently exercisable. Twenty percent
(20%) of the options listed will become exercisable April 13, 1996, and
each year thereafter until fully vested. The options have a term of 10
years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information regarding individual exercises of
stock options made during fiscal 1995 by the Chief Executive Officer and each of
the Named Executive Officers:
Number of Securities Value of Unexercised
Value Underlying Unexercised In-The-Money Options at
Shares Acquired Realized Options at FY-End (#) FY-End ($)(1)(2)
---------- -------------------------- -------------------------
Name on Exercise (#)($)(1) Exercisable Unexercisable Exercisable Unexercisable
- ----- -------------- ---------- ----------- ------------- ----------- -------------
Don M. McComas - $ - 55,000 55,000 $ - $ 1,250
Clark D. Jones - - 43,000 - 26,875 -
David E. Pertl - - 16,000 19,500 - -
Ronald L. Sacks - - 12,400 20,600 - 1,000
Daniel Yanez - - 12,000 23,000 - -
Gary A. Bales - - 14,400 12,600 - -
(1) All values shown are pre-tax and are rounded to the nearest whole
dollar.
(2) Based on the 1995 fiscal year-end fair market value of $4.625 per share
of Common Stock as quoted by the National Association of Securities
Dealers Automated Quotation System.
Directors' Compensation
For serving on the Board of Directors, each director who is not an employee of
the Company is paid $250 per month and $1,500 per board meeting, with no
additional compensation for committee meetings if the committee meeting is held
on the same day as a board meeting. Fees for committee meetings, with the
exception of the Special Committee, are $500 per meeting or $750 per meeting for
serving as chair. Members of the Special Committee are paid $1,000 per meeting
attended in person, plus $1,000 per month to Mr. Habermann, as Chair of the
Special Committee, and $250 per month to the other members of the Special
Committee, as long as the Special committee is continuing its assignment.
During fiscal 1995, Mr. Jones was granted nonqualified stock options to purchase
23,000 shares. Also, Mr. Habermann was granted nonqualified stock options to
purchase 5,000 shares, and Messrs. Bryant, Hays, Parker,
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Paternotte, Paul and Russo each were granted nonqualified stock options to
purchase 2,000 shares pursuant to the Formula Grant provisions of the 1992 Stock
Option Plan (the "Formula Grants").
EXECUTIVE AGREEMENTS
EMPLOYMENT AGREEMENT FOR PRESIDENT AND CHIEF EXECUTIVE OFFICER
The Company entered into an Employment Agreement with Don M. McComas on November
24, 1993, with a commencement date of January 3, 1994. The Employment Agreement
is for a term of three years and shall automatically renew for two years on
January 3, 1997, and every two years thereafter unless either party provides
written notice of intent not to renew 90 days or more prior to the renewal date.
Pursuant to the Employment Agreement, Mr. McComas initially received a base
salary of $200,000 which will be reviewed annually, and moving and transition
allowances. In addition, Mr. McComas receives an automobile allowance and
participates in the Executive Incentive Compensation Plan, the Executive Long
Term Incentive Plan and the 1992 Executive Long-Term Stock Award Plan. Pursuant
to the Employment Agreement, the Compensation Committee granted options to Mr.
McComas to purchase 75,000 shares of the Company's stock under the incentive
stock option provisions of the 1992 Stock Option Plan and 25,000 shares under
the nonqualified stock option provisions of the 1992 Stock Option Plan. The
Employment Agreement includes a change of control provision under which Mr.
McComas would be paid one dollar less than three times his annual base salary
upon a change of control of the Company, and other provisions as described
below.
EXECUTIVE CHANGE OF CONTROL AGREEMENTS
The Company has entered into agreements with the Named Executive Officers
(except Messrs. Jones and McComas) providing for certain termination benefits in
the event of any actual change in control of the Company. In the event the
Company is acquired, a change in control of the Company occurs, or certain
events likely to result in a change of control (that are enumerated in the
change of control agreements) occur, the Company must pay to an escrow account
one and one half times (1.5) the base salary of the participants which amount
they may demand be paid to them in the event (i) the participants' employment
terminates voluntarily other than for cause, disability, retirement or death
during the first 90 days following the change of control, or (ii) the
participants' employment terminates involuntarily other than for cause,
disability, retirement or death following the change of control; provided
however, the participant's right to demand such payments shall terminate upon
the earlier of (a) two years after the funds have been deposited in the escrow
account, or (b) one year from the date of a change of control. These agreements
are dated August 17, 1995 and expire on September 30, 1996 (unless renewed), and
replace prior similar agreements which have expired.
Amendments to the change of control agreements dated December 1, 1995 state that
in the event the merger contemplated by the Agreement and Plan of Merger and
Reorganization dated November 30, 1995 between the Company and CKE Restaurants,
Inc. (the "CKE Merger") is consummated, the participants may demand the amount
in their escrow account be paid to them if (i) the participants' employment
terminates involuntarily other than for cause, disability, retirement or death
during the first 90 days following the CKE Merger, (ii) the participants'
employment terminates voluntarily other than for cause, disability, retirement
or death during the second 90 days following the CKE Merger, or (iii) the
participants' employment terminates involuntarily other than for cause,
disability, retirement or death following the CKE Merger; provided however, the
participant's right to demand such payments shall terminate upon the earlier of
(a) two years after the funds have been deposited in the escrow account, or (b)
one year from the date of the CKE Merger. All other provisions of the change of
control agreements remain as originally set forth.
Mr. McComas' Employment Agreement, which is described above, contains change of
control provisions that provide for payment of one dollar less than three times
Mr. McComas' annual base salary upon termination of employment under similar
conditions as described above for the Named Executive Officers.
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RETIREMENT AGREEMENT
In 1985, the Company adopted an unfunded, noncontributory Supplemental Executive
Retirement Plan. No current executives participate in this plan. Six retired
individuals are currently receiving payments under this plan. The Company does
not intend to utilize the plan in the future for any other executives. Benefits
are determined using the participant's average annual base salary of the five
consecutive years during the ten-year period prior to the participant's
retirement which yields the highest average ("Final Average Earnings"), and are
affected by the participant's years of service and age at retirement. Actual
amounts payable under this plan are reduced by benefits paid to the participant
from the Company's Employee Stock Ownership Plan and 401(k) Plan.
Upon his retirement, Mr. Jones received credit for fifteen years of service to
the Company, which is the maximum credit allowed under the plan.
When he retired on June 30, 1995, Mr. Jones' Final Average Earnings were
$182,455. As of December 5, 1995, Mr. Jones' annual retirement benefit equaled
$60,636, including reductions due to early retirement and due to benefits paid
to Mr. Jones from the Company's Employee Stock Ownership Plan and 401(k) Plan.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of December 1, 1995,
except as noted, with respect to the voting securities of the Company held by
each person who owns of record, or is known by the Company to own beneficially,
more than five percent of any class of voting securities.
Amount and Nature
Title of Name and Address of of Beneficial Percent
Class Beneficial Owner Ownership of Class
--------- --------------------------------- ----------------- --------
Common Kennedy Capital Management, Inc. 514,000 (1)(2) 10.71%
425 North New Ballas Road
St. Louis, MO 63141
Common Heartland Advisors, Inc. 512,500 (3) 10.68%
790 North Milwaukee Street
Milwaukee, WI 53202
Common David L. Babson & Company, Inc. 422,500 (1)(2) 8.81%
One Memorial Drive
Cambridge, MA 02142
Common Dimensional Fund Advisors Inc. 315,150 (4) 6.57%
1299 Ocean Avenue, Suite 1100
Santa Monica, CA 90401
Series A ABS MB (JB) Limited Partnership 946,714 (2) 100.00%
Convertible 135 East Baltimore Street
Preferred Baltimore, MD 21202
(1) Holdings as of December 5, 1995.
(2) The shareholder has sole voting and sole dispositive power over all
shares listed.
(3) As disclosed by the shareholder in a telephone conversation on December
5, 1995, as of December 5, 1995, Heartland Advisors, Inc. held sold
dispositive power over all of the shares listed. Heartland Advisors,
Inc. has no direct voting control over any of the shares listed;
however, Heartland Group, Inc., a company advised by Heartland
Advisors, Inc., has sole voting power over 430,000 of the shares
listed.
(4) As disclosed by the shareholder in a telephone conversation on December
5, 1995, as of September 30, 1995, Dimensional Fund Advisors Inc. held
sole voting power over 211,750 shares; however, persons who are
officers of Dimensional Fund Advisors Inc. also serve as officers of
DFA Investment Dimensions Group Inc. (the "Fund"), and The DFA
Investment Trust Company (the "Trust"), each an open-end management
investment company registered under the Investment Company Act of 1940.
In their capacity as officers of the Fund and the Trust, these persons
vote 81,300 shares which are owned by the Fund and 22,100 shares which
are owned by the Trust. Dimensional Fund Advisors Inc. holds sole
dispositive power over 315,150 shares.
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SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information as of December 1, 1995,
except as noted, regarding the voting securities of the Company held by
directors and the Named Executive Officers.
Amount and Nature
Title of Name of of Beneficial Percent
Class Beneficial Owner Ownership(1) of Class
-------------- -------------------------------- --------------- ----------
Common Frederick L. Bryant 9,000 (2) (3) .19%
Common Norman N. Habermann 15,000 (4) .31%
Common Carl R. Hays 11,500 (5) .24%
Common Clark D. Jones 106,534 (6) 2.22%
Common Don M. McComas 60,000 (7) 1.25%
Common Norton Parker 11,500 (5) .24%
Common William L. Paternotte 14,000 (3) (8) .29%
Common Ronald N. Paul 11,500 (5) .24%
Common Thomas J. Russo 12,500 (5) .26%
Common Gary A. Bales 21,864 (9) .46%
Common David E. Pertl 25,760 (10) .54%
Common Ronald L. Sacks 16,978 (11) .35%
Common Daniel Yanez 15,000 (12) .31%
Common Directors and Executive
Officers as a Group
(16 persons) 381,520 (13) 7.95%
(1) Except as indicated all shares are beneficially owned and sole voting
and investment power is held by the persons named. Does not include
shares issuable upon exercise of options to purchase shares unless they
are exercisable within 60 days.
(2) Includes 7,000 shares subject to presently exercisable options.
(3) Does not include 946,714 shares of Series A Stock owned by ABS MB (JB)
Limited Partnership, an entity related to Alex. Brown & Sons
Incorporated, of which Messrs. Bryant and Paternotte are Managing
Directors.
(4) Includes 5,000 shares subject to presently exercisable options.
(5) Includes 11,500 shares subject to presently exercisable options.
(6) Includes 43,000 shares subject to presently exercisable options, 5,469
shares in the Employee Stock Ownership Plan and 206 shares held in Mr.
Jones' IRA.
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(7) Includes 55,000 shares subject to presently exercisable options.
(8) Includes 14,000 shares subject to presently exercisable options.
(9) Includes 15,400 shares subject to presently exercisable options, 623
shares in the Employee Stock Ownership Plan and 178 shares in the
Company's 401(k) Plan.
(10) Includes 18,600 shares subject to presently exercisable options, 292
shares in the Employee Stock Ownership Plan and 205 shares in the
Company's 401(k) Plan.
(11) Includes 13,400 shares subject to presently exercisable options, 264
shares in the Employee Stock Ownership Plan and 69 shares in the
Company's 401(k) Plan.
(12) Includes 12,000 shares subject to presently exercisable options.
(13) Includes 277,200 shares subject to presently exercisable options, 7,029
shares in the Employee Stock Ownership Plan and 724 shares in the
Company's 401(k) Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS INVOLVING MANAGEMENT
On October 13, 1993, the Company executed a Certificate of Designations,
Preferences and Rights of Series A Stock and issued 946,714 shares of Series A
Stock. The sole owner of the Series A Stock is ABS MB (JB) Limited Partnership
("ABS"), of which ABS MB Ltd. is the general partner. ABS MB Ltd. is a wholly
owned subsidiary of Alex. Brown Incorporated, which also owns Alex. Brown & Sons
Incorporated. Messrs. Bryant and Paternotte, two of the Company's directors, are
employees of Alex. Brown & Sons Incorporated. Personal funds of Messrs.
Paternotte and Bryant are invested in ABS MB II Employees Limited Partnership
which is one of the limited partners of ABS. Mr. Bryant is Vice President of ABS
MB Ltd. The 946,714 Series A Stock shares owned by ABS represents an approximate
16% ownership position in the Company. As a holder of Series A Stock, ABS has
the right to elect two members to the Board of Directors of the Company. Messrs.
Paternotte and Bryant are the current designees of ABS. The Series A Stock is
nondividend bearing and is convertible to Common Stock on a one-for-one basis at
the option of ABS subject to certain conditions. ABS is entitled to liquidation
preferences, rights to approve certain significant corporate transactions and
certain registration rights.
Mr. McComas and Pam McComas, his wife, are each fifty percent shareholders in
Wheels-Up Aircraft Co., an entity that owns an aircraft utilized by the Company
for employee travel. The Company pays a fee to Wheels-Up Aircraft for the use of
the aircraft. The amounts paid to Wheels-Up Aircraft are reasonable and
competitive. During fiscal 1995 the total amount paid by the Company to
Wheels-Up Aircraft was $42,000.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The financial statements referred to below are attached as pages F-1 to F-19.
PAGE
(A) (1) INDEX TO FINANCIAL STATEMENTS: NUMBER
------
Report of Independent Auditors F-1
Consolidated Balance Sheets -
September 25, 1995 and September 26, 1994 F-2
Consolidated Statements of Operations - Years Ended
September 25, 1995, September 26, 1994, and September 27, 1993 F-4
Consolidated Statements of Changes in Stockholders' Equity -
Years Ended September 25, 1995, September 26, 1994,
and September 27, 1993 F-5
Consolidated Statements of Cash Flows - Years Ended
September 25, 1995, September 26, 1994, and September 27, 1993 F-6
Notes to Consolidated Financial Statements F-8
(A) (2) FINANCIAL STATEMENT SCHEDULES:
All schedules to the Financial Statements for which provision
is made in Article 5 of Regulation S-X are not required under
related instructions, or the information is included in the
Consolidated Financial Statements or notes thereto or are
inapplicable and therefore have been omitted.
(A) (3) EXHIBITS:
The exhibits listed on the accompanying Index to Exhibits are
filed as part of this Form 10-K.
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
3 ARTICLES OF INCORPORATION AND BYLAWS:
The following exhibits are attached to this report:
3(a) Certificate of Incorporation, dated February 21, 1985.
3(b) Bylaws, dated February 25, 1985.
3(c) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated February 25, 1987.
3(1) Amendment to Bylaws, dated November 19, 1992.
3(2) Amendment to Bylaws, dated October 27, 1993.
3(3) Certificate of Ownership and Merger Merging JB's Specialty
Restaurants, Inc. into JB's Restaurants, Inc., dated October 15,
1993.
3(4) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated April 4, 1995.
3(5) Certificate of Change of Location of Registered Office and of
Registered Agent, dated July 11, 1995.
3(6) Amendment to Bylaws, dated November 30, 1995.
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS INCLUDING INDENTURES:
The following exhibits are incorporated in this report by reference from
identically numbered exhibits to Annual Reports on Form 10-K previously
filed by the Company:
4(c)(2) Undertaking to furnish to the Securities and Exchange Commission
Long-Term Debt Agreements dated December 22, 1986.
4(f)(g)(h)(3) Note Purchase Agreements between the Company and The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, and Warrants for Common Stock held by The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, dated September 1, 1987.
4(1)(7) First Amendment to Note Purchase Agreements between the Company and
The Canada Life Assurance Co., Security Mutual Group and Crown
Life Insurance Company, and Warrants for Common Stock held by The
Canada Life Assurance Co., Security Mutual Group and Crown Life
Insurance Company, dated April 30, 1992.
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33
4(2)(8) Second Amendment to Note Purchase Agreement between the Company and
Crown Life Insurance Company, The Canada Life Assurance Company
and Security Mutual Life Insurance Company (formerly known as
Security Mutual Group), dated October 26, 1993.
4(3)(8) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of the Company, dated October 11,
1993.
4(4)(8) Registration Rights Agreement by the Company for the benefit of ABS MB
(JB) Limited Partnership, dated October 27, 1993.
10 MATERIAL CONTRACTS:
The following exhibits are incorporated in this report by reference from identically
numbered exhibits to Annual Reports on Form 10-K previously filed by the Company:
*10(a)(1) JB's Supplemental Executive Retirement Plan, adopted 1985.
*10(7)(3) 1987 Non-Qualified Stock Option Plan and form of Agreement,
adopted February 13, 1987.
*10(8)(3) 1987 Employee Incentive Stock Option
Plan and form of Agreement adopted
April 21, 1987.
*10(9)(3) 1984 Incentive Stock Option Plan as Amended on February 13, 1987,
and form of Agreement.
*10(i)(5) Amendment to 1984 and 1987 Incentive Stock Option Plans dated
July 16, 1990.
10(dd)(6) Multiple Unit Agreement between HTB Restaurants, Inc., a
wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc.
dated October 9, 1991 effective November 25, 1991.
10(19)(7) First Amendment to Multiple Unit Agreement dated October 9, 1991
between HTB Restaurants, Inc., a wholly-owned subsidiary of the
Company, and HomeTown Buffet, Inc. dated January 3, 1992.
10(20)(7) Second Amendment to the Multiple Unit Agreement dated October 9,
1991 between HTB Restaurants, Inc. a wholly-owned subsidiary of
the Company, and HomeTown Buffet, Inc. dated June 23, 1992.
*10(22)(7) 1992 Stock Option Plan and Form of Agreement adopted September
24, 1992.
*10(23)(7) 1992 Executive Long-Term Stock Award Plan and Form of Agreement, adopted
by the Board of Directors of the Company dated September 24, 1992.
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34
*10(32)(8) Employment Agreement between the Company and Don M. McComas dated
November 24, 1993.
10(33)(8) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991 between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc. dated November
30, 1993.
10(34)(9) Note Cancellation Agreement and Release between the Company and
M. Robert Davis and Kathleen Davis dated August 5, 1994.
*10(35)(9) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain
severance benefits in the event of a change in control of the
Company, dated November 18, 1994.
*10(37)(9) Fiscal Year 1995 Executive Incentive Compensation Plan.
10(38)(9) Underwriting Agreement dated March 23, 1994 between the Company,
HomeTown Buffet, Inc. , other selling shareholders, and
Montgomery Securities.
10(39)(9) Letter dated March 1, 1994 between the Company and Crown Life Insurance
Company, Canada Life Assurance Company and Security Mutual Group
regarding prepayment of notes outstanding by the Company.
*10(40)(9) Executive Long Term Incentive Plan approved by the Board of
Directors on April 8, 1994.
*10(41)(9) 1992 Stock Option Plan as amended on April 8, 1994 and November
18, 1994.
The following exhibits are attached to this report:
10(42) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991, as amended January 3, 1992, June 23, 1992 and
November 30, 1993, between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc., dated July
20, 1995.
*10(43) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain benefits
in the event of a change in control of the company, dated August
17, 1995.
*10(44) Fiscal 1996 Executive Incentive Compensation Plan.
*10(45) Separation Compensation Plan adopted by the Board of Directors,
effective as of September 25, 1995.
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35
*10(46) Letter Agreement dated January 4, 1995, between the Company and Joseph
J. Hollencamp for certain benefits in the event of the sale of HTB
Restaurants, Inc., or all of its assets.
10(47) Agreement and Plan of Merger and Reorganization between the Company
and CKE Restaurants, Inc., dated November 30, 1995.
*10(48) Form of Amendment to Agreements, dated August 17, 1995, between
the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks,
George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph
J. Hollencamp for certain benefits in the event of a change in
control of the company, dated December 1, 1995.
11 COMPUTATION OF PER SHARE INCOME (LOSS).
22 SUBSIDIARIES OF THE COMPANY.
24 CONSENT OF KPMG PEAT MARWICK LLP.
RE: FORM S-8 NO. 2-99014; NO. 33-18431; NO. 33-17363; NO. 33-62150; NO.
33-62152; NO. 33-99144.
27 FINANCIAL DATA SCHEDULE.
*This exhibit is a compensatory plan or management contract filed pursuant to
Item 14(c) of Form 10-K.
34
36
(B) REPORTS ON FORM 8-K:
The Company has not filed any report on Form 8-K for the
quarter ended September 25, 1995.
(C) EXHIBITS:
Exhibits required to be filed in response to this paragraph of
Item 14 are listed above in subparagraph (a)(3).
(D) FINANCIAL STATEMENT SCHEDULES:
Schedules and report thereon by independent auditors required
to be filed in response to this paragraph of Item 14 are
listed above in subparagraph (a)(2).
- --------------
1 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 29, 1985 and is
incorporated herein by reference.
2 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 28, 1986 and is
incorporated herein by reference.
3 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 27, 1987 and is
incorporated herein by reference.
4 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 25, 1988 and is
incorporated herein by reference.
5 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 24, 1990 and is
incorporated herein by reference.
6 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 30, 1991 and is
incorporated herein by reference.
7 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 28, 1992 and is
incorporated herein by reference.
8 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 27, 1993 and is
incorporated herein by reference.
9 Previously filed with the Commission as an exhibit to the Company's Annual
Report on Form 10-K for the year ended September 26, 1994 and is
incorporated herein by reference.
35
37
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SUMMIT FAMILY RESTAURANTS INC.
(Registrant)
December 20, 1995 By: /s/ Don M. McComas
---------------------------------------
Don M. McComas
President and Chief Executive Officer
(principal executive officer)
December 20, 1995 By: /s/ David E. Pertl
---------------------------------------
David E. Pertl
Senior Vice President, Chief
Financial Officer, and Treasurer
(principal financial officer)
December 20, 1995 By: /s/ Theodore Abajian
---------------------------------------
Theodore Abajian
Vice President and Controller
(principal accounting officer)
Pursuant to the requirements of the Securities Exchange Act of l934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- ----------------------------------------------------------------------------------------------------------
/s/ Clark D. Jones Chairman of the Board December 20, 1995
- --------------------------------------------
Clark D. Jones
/s/ Don M. McComas President, Chief Executive December 20, 1995
- -------------------------------------------- Officer and Director
Don M. McComas
/s/ Frederick L. Bryant Director December 20, 1995
- --------------------------------------------
Frederick L. Bryant
/s/ Norman N. Habermann Director December 20 1995
- --------------------------------------------
Norman N. Habermann
/s/ Carl R. Hays Director December 20, 1995
- -------------------------------------------
Carl R. Hays
/s/ Norton Parker Director December 20, 1995
- --------------------------------------------
Norton Parker
/s/ William L. Paternotte Director December 20, 1995
- -------------------------------------------
William L. Paternotte
/s/ Ronald N. Paul Director December 20, 1995
- --------------------------------------------
Ronald N. Paul
/s/ Thomas J. Russo Director December 20, 1995
- --------------------------------------------
Thomas J. Russo
36
38
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors of
Summit Family Restaurants Inc., Salt Lake City, Utah
We have audited the accompanying consolidated balance sheets of Summit Family
Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26,
1994, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
September 25, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Summit Family
Restaurants Inc. and subsidiaries as of September 25, 1995 and September 26,
1994, and the results of their operations and their cash flows for each of the
years in the three-year period ended September 25, 1995, in conformity with
generally accepted accounting principles.
As discussed in notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for investments to adopt the provisions
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" during the first quarter of fiscal 1994.
/s/ KPMG Peat Marwick LLP
- --------------------------------------
KPMG Peat Marwick LLP
Salt Lake City, Utah
November 3, 1995, except
as to Note 15 which is
as of December 11, 1995.
F-1
39
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS SEPTEMBER 25, 1995 SEPTEMBER 26, 1994
- -----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 1,911,000 $ 5,303,000
Short-term investments 180,000 2,160,000
Receivables
Short-term portion of notes receivable - Note 4 190,000 173,000
Other receivables 1,898,000 3,404,000
Inventories 1,411,000 1,386,000
Deferred Taxes, net - Note 9 76,000 78,000
Prepaid expenses 199,000 309,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 5,865,000 12,813,000
- -----------------------------------------------------------------------------------------------------------------
PROPERTY, BUILDINGS AND EQUIPMENT, AT COST, LESS
ACCUMULATED DEPRECIATION AND AMORTIZATION -
NOTES 2 & 7 46,797,000 45,672,000
- -----------------------------------------------------------------------------------------------------------------
REAL PROPERTY AND EQUIPMENT UNDER CAPITALIZED
LEASES AT COST, LESS ACCUMULATED AMORTIZATION -
NOTES 2, 7 & 8 6,731,000 7,480,000
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Notes receivable, net of current portion - Note 4 2,696,000 2,580,000
Investment in HomeTown Buffet, Inc. - Note 6 6,999,000 5,678,000
Deposits and other 647,000 986,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 10,342,000 9,244,000
- -----------------------------------------------------------------------------------------------------------------
INTANGIBLE ASSET, AT COST, LESS ACCUMULATED
AMORTIZATION
Lease acquisition costs 414,000 569,000
Other intangible assets 735,000 830,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTANGIBLE ASSETS 1,149,000 1,399,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $70,884,000 $76,608,000
- -----------------------------------------------------------------------------------------------------------------
F-2
40
LIABILITIES & STOCKHOLDERS' EQUITY SEPTEMBER 25, 1995 SEPTEMBER 26, 1994
- ---------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable - trade $ 6,772,000 $ 6,874,000
Accrued liabilities
Payroll and related taxes 3,334,000 2,764,000
Sales and property taxes 2,071,000 1,855,000
Rent and other 2,045,000 2,762,000
Current maturities of long-term debt - Note 7 2,928,000 1,960,000
- ----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 17,150,000 16,215,000
- ----------------------------------------------------------------------------------------------------
LONG-TERM DEBT, NET OF CURRENT MATURITIES-
NOTES 6, 7 & 8
Capitalized real property and equipment leases 9,795,000 10,609,000
Notes payable 355,000 2,484,000
- ----------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT 10,150,000 13,093,000
- ----------------------------------------------------------------------------------------------------
DEFERRED TAXES, NET - NOTE 9 1,877,000 1,376,000
- ----------------------------------------------------------------------------------------------------
DEFERRED COMPENSATION - NOTE 11 1,580,000 1,588,000
- ----------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES - NOTES 8, 14 & 15
STOCKHOLDERS' EQUITY - NOTES 6, 7, 10, 11 & 12
Preferred stock, $1 par value; 1,000,000
shares authorized; 946,714 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 shared
authorized; 4,798,102 and 5,288,759 shared
issued 480,000 529,000
Additional paid-in capital 26,389,000 29,581,000
Unrealized gain on investment in HomeTown
Buffet, Inc., net of tax 3,565,000 2,773,000
Retained earnings 8,746,000 13,790,000
- ----------------------------------------------------------------------------------------------------
40,127,000 47,620,000
Less: 500,000 common stock treasury shares in 1994
at cost -- 3,284,000
- ----------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 40,127,000 44,336,000
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $70,884,000 $76,608,000
- ----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-3
41
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993
- -----------------------------------------------------------------------------------------------------------------
TOTAL REVENUES $121,099,000 $115,367,000 $114,768,000
- -----------------------------------------------------------------------------------------------------------------
COSTS AND EXPENSES:
Food costs 40,018,000 37,678,000 36,610,000
Labor costs 42,376,000 40,280,000 38,233,000
Occupancy and other expenses 28,809,000 26,846,000 26,168,000
General and administrative expenses 8,363,000 8,157,000 7,486,000
Depreciation and amortization 6,585,000 6,065,000 6,658,000
Charge for property dispositions -
Note 5 -- 1,982,000 4,264,000
- -----------------------------------------------------------------------------------------------------------------
TOTAL COSTS AND EXPENSES 126,151,000 121,008,000 119,419,000
- -----------------------------------------------------------------------------------------------------------------
LOSS FROM OPERATIONS (5,052,000) (5,641,000) (4,651,000)
- -----------------------------------------------------------------------------------------------------------------
INTEREST AND OTHER INCOME (EXPENSE):
Interest expense (1,535,000) (1,967,000) (2,486,000)
Interest income 452,000 668,000 487,000
Gain on sale of HomeTown Buffet, Inc.
stock - Note 6 -- 14,700,000 1,727,000
Gains on sales of restaurants to
franchisees and other 38,000 630,000 1,126,000
Loss on disposition of note
receivable - Note 4 -- (1,564,000) --
- -----------------------------------------------------------------------------------------------------------------
TOTAL INTEREST AND OTHER INCOME
(EXPENSE) (1,045,000) 12,467,000 854,000
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (6,097,000) 6,826,000 (3,797,000)
- -----------------------------------------------------------------------------------------------------------------
INCOME TAXES (BENEFIT) - NOTE 9
Current (1,028,000) 2,413,000 (369,000)
Deferred (25,000) 307,000 (1,114,000)
- -----------------------------------------------------------------------------------------------------------------
TOTAL INCOME TAXES (BENEFIT) (1,053,000) 2,720,000 (1,483,000)
- -----------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM (5,044,000) 4,106,000 (2,314,000)
- -----------------------------------------------------------------------------------------------------------------
EXTRAORDINARY LOSS RESULTING FROM
EXTINGUISHMENT OF DEBT (LESS TAX
BENEFIT OF $233,000) - NOTE 7 -- 350,000 --
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ (5,044,000) $ 3,756,000 $ (2,314,000)
- -----------------------------------------------------------------------------------------------------------------
Net income (loss) per common share before
extraordinary loss $ (1.05) $ 0.72 $ (0.49)
Extraordinary loss from early
extinguishment of debt, net of tax
benefit -- (0.06) --
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ (1.05) $ 0.66 $ (0.49)
- -----------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 4,794,000 5,723,000 4,693,000
- -----------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
F-4
42
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
ADDITIONAL
PREFERRED STOCK COMMON STOCK PAID-IN UNREALIZED RETAINED
SHARES PAR VALUE SHARES PAR VALUE CAPITAL GAIN EARNINGS
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1992 -- $ -- 5,097,388 $510,000 $24,582,000 $ -- $12,348,000
Common stock issued
Under options -- -- 164,730 17,000 772,000 -- --
Common stock redeemed
and retired -- -- (6,359) (1,000) (32,000) -- --
Net loss -- -- -- -- (2,314,000)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1993 -- -- 5,255,759 526,000 25,322,000 -- 10,034,000
Common stock issued
Under options -- -- 33,000 3,000 162,000 -- --
Preferred stock issued 946,714 947,000 -- -- 4,097,000 -- --
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- -- -- -- -- 2,773,000 --
Net income -- -- -- -- -- -- 3,756,000
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 26, 1994 946,714 947,000 5,288,759 529,000 29,581,000 2,773,000 13,790,000
Common stock contributed to
employee benefit plan -- -- 4,801 -- 13,000 -- --
Treasury stock retired -- -- (495,458) (49,000) (3,205,000) -- --
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- -- -- -- -- 792,000 --
Net income -- -- -- -- -- -- (5,044,000)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 25, 1995 946,714 $947,000 4,798,102 $480,000 $26,389,000 $3,565,000 $ 8,746,000
================================================================================================================================
TREASURY
STOCK TOTAL
- -----------------------------------------------------------------------
BALANCE, SEPTEMBER 28, 1992 $(3,284,000) $34,156,000
Common stock issued
Under options -- 789,000
Common stock redeemed
and retired -- (33,000)
Net loss -- (2,314,000)
- -----------------------------------------------------------------------
BALANCE, SEPTEMBER 27, 1993 (3,284,000) 32,598,000
Common stock issued
Under options -- 165,000
Preferred stock issued -- 5,044,000
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- 2,773,000
Net income -- 3,756,000
- -----------------------------------------------------------------------
BALANCE, SEPTEMBER 26, 1994 (3,284,000) 44,336,000
Common stock contributed to
employee benefit plan 30,000 43,000
Treasury stock retired 3,254,000 --
Unrealized gain on investment
in HomeTown Buffet, Inc., net of tax -- 792,000
Net income -- (5,044,000)
- -----------------------------------------------------------------------
BALANCE, SEPTEMBER 25, 1995 $ -- $40,127,000
=======================================================================
See accompanying notes to consolidated financial statements.
F-5
43
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993
- -----------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (5,044,000) $ 3,756,000 $ (2,314,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 6,585,000 6,065,000 6,658,000
Charge for property dispositions -- 1,982,000 4,264,000
Provision for losses -- 1,697,000 108,000
Loss on extinguishment of debt -- 583,000 --
(Gain) loss on disposal of assets 209,000 (592,000) (346,000)
Gain on sale of HomeTown Buffet, Inc. stock -- (14,700,000) (1,727,000)
Change in operating assets and liabilities
Decrease (increase) in receivables 1,561,000 399,000 (1,230,000)
Decrease (increase) in inventories (25,000) (72,000) 70,000
Decrease (increase) in other assets 449,000 (338,000) 296,000
Increase (decrease) in accounts payable (102,000) 1,910,000 292,000
Increase (decrease) in accrued liabilities 319,000 475,000 (731,000)
Increase (decrease) in net deferred taxes (2,000) 308,000 (1,114,000)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,950,000 1,473,000 4,226,000
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of HomeTown Buffet, Inc. stock -- 16,814,000 2,500,000
Payments received on notes receivables 135,000 2,580,000 297,000
Proceeds from sale of assets 3,028,000 1,865,000 2,762,000
Proceeds from sale of short-term investments 1,980,000 -- --
Purchase of short-term investments -- (2,160,000) --
Exercise of options in HomeTown Buffet, Inc. stock -- (120,000) --
Acquisition of intangible assets (45,000) (362,000) (222,000)
Acquisition of property, buildings and equipment (10,620,000) (13,935,000) (4,798,000)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES (5,522,000) 4,682,000 539,000
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings under line-of-credit agreement 815,000 -- 28,325,000
Payments under line-of-credit agreement (815,000) (762,000) (29,650,000)
------------ ------------ -----------
Net payments on revolving line-of-credit -- (762,000) (1,325,000)
Proceeds from issuance of preferred stock -- 5,044,000 --
Proceeds from issuance of common stock, net of
redemptions -- 165,000 756,000
Principal payments on long-term debt and
capital leases (1,820,000) (6,965,000) (5,354,000)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (1,820,000) (2,518,000) (5,923,000)
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (3,392,000) 3,637,000 (1,158,000)
Cash and cash equivalents at beginning of year 5,303,000 1,666,000 2,824,000
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,911,000 $ 5,303,000 $ 1,666,000
=======================================================================================================================
F-6
44
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT.)
YEARS ENDED SEPTEMBER 25, 1995 SEPTEMBER 26, 1994 SEPTEMBER 27, 1993
- ---------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow
information
Cash paid for interest $ 1,535,000 $ 2,055,000 $ 2,552,000
Cash paid for income taxes 1,000 3,839,000 106,000
- ---------------------------------------------------------------------------------------------------------------------
$ 1,536,000 $ 5,894,000 $ 2,658,000
=====================================================================================================================
Supplemental schedule of noncash investing and
financing activities
Debt incurred for acquisition of property,
buildings and equipment $ -- $ -- $ 1,439,000
Notes and other receivables from sale of
inventory, property and equipment -- 830,000 2,242,000
- ---------------------------------------------------------------------------------------------------------------------
$ -- $ 830,000 $ 3,681,000
=====================================================================================================================
During each of the fiscal years, stores were sold
to franchisees and notes receivable were
recorded in exchange for equipment as
follows - Note 4:
Notes receivable $ 377,000 $ 647,000 $ 1,226,000
Gain recognized (38,000) (630,000) (1,073,000)
Gain deferred (207,000) -- --
Cash received 98,000 157,000 312,000
- ---------------------------------------------------------------------------------------------------------------------
Net book value of equipment sold $ 230,000 $ 174,000 $ 465,000
=====================================================================================================================
See accompanying notes to consolidated financial statements.
F-7
45
SUMMIT FAMILY RESTAURANTS INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Summit Family
Restaurants Inc. and its wholly owned subsidiaries (the "Company"). All
intercompany accounts and transactions have been eliminated in consolidation.
FISCAL YEAR
The Company utilizes a 52/53 week fiscal year which ends on the last Monday in
September. Fiscal years 1995, 1994 and 1993 contain 52 weeks.
INVENTORIES
Inventories consist of food, beverages and restaurant supplies and are valued at
the lower of cost, determined by the first-in first-out method, or market.
INVESTMENT SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" during the first quarter of fiscal 1994. As discussed in Note
6, the Company's investment in HomeTown Buffet, Inc. common stock is treated as
an available-for-sale security and is reported at fair market value in the
accompanying consolidated balance sheets. Unrealized holding gains are shown as
a separate component of stockholders equity, net of tax.
Short term investments in the accompanying consolidated balance sheets
(consisting primarily of certificates of deposits, with original maturities of
greater than three months) represent held-to-maturity securities, and
accordingly, have been stated at their cost.
PROPERTY, BUILDINGS AND EQUIPMENT
Property, buildings and equipment and real property under capitalized leases are
carried at cost, less accumulated depreciation and amortization. Depreciation
and amortization are provided using the straight-line method over the following
useful lives: buildings and leaseholds - lesser of lease life or 20 years;
equipment - 5 to 8 years; capitalized leases - lesser of lease life or 20 years.
INTANGIBLE ASSETS
Lease acquisition costs are amortized using the straight-line method over the
remaining terms of the leases, which range from 3-1/2 to 25 years. Other
intangible assets are amortized using the straight-line method over the
estimated period of value, which ranges from 1 to 40 years.
Accumulated amortization totaled $1,913,000 and $1,901,000 in fiscal years 1995
and 1994, respectively.
PRE-OPENING COSTS
Pre-opening costs, which represent expenses incurred for hiring and training
personnel relating to new restaurants and expenses for promotion of new store
openings, are capitalized and amortized over the restaurant's first year of
operation.
F-8
46
FRANCHISING REVENUES AND EXPENSES
The Company is a franchisor of JB's Restaurants and a franchisee of HomeTown
Buffet restaurants. Gains or losses on Company operated JB's Restaurants sold to
franchisees are recognized as a gain or loss in the period the transaction is
completed provided the down payment received from the franchisee represents 20%
or more of the total purchase price. Otherwise, the gain or loss is deferred and
recognized over the period of the franchise agreement. Initial franchise fees
received are recognized as revenue in the period the franchised restaurant
opens. Franchise royalty revenues and all franchising costs are recognized on
the accrual basis.
Initial franchise fee payments related to HomeTown Buffet restaurants are
amortized using the straight-line method over the life of the franchise
agreement. Royalty costs and all other franchise costs are recognized as expense
on the accrual basis.
PROPERTY DISPOSITIONS
Assets which have been identified for closure and held for sale are written down
to management's best estimate of realizable value, including related costs of
disposition.
CASH EQUIVALENTS
Cash equivalents consist of short-term liquid assets with original maturities of
3 months or less.
INCOME TAXES
Income taxes are recorded using the asset and liability method under which
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized as income or
expense in the period that includes the enactment date. A reserve is recorded
for net deferred tax assets that may not be realized in the future.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed using the weighted average number
of shares of common stock and dilutive common stock equivalents outstanding
during each period.
PRESENTATION
Certain prior year amounts in the consolidated financial statements have been
reclassified to conform with the current year presentation.
F-9
47
2. PROPERTY, BUILDINGS AND EQUIPMENT AND REAL PROPERTY UNDER CAPITALIZED LEASES
The components of property, buildings and equipment and real property under
capitalized leases are as follows:
SEPTEMBER 25, September 26,
1995 1994
- -------------------------------------------------------------------------------------
Property, buildings and equipment
Land $ 5,263,000 $ 5,705,000
Buildings and leasehold improvements 44,023,000 42,653,000
Equipment 34,017,000 34,734,000
- -------------------------------------------------------------------------------------
83,303,000 83,092,000
Less accumulated depreciation
and amortization 36,506,000 37,420,000
- -------------------------------------------------------------------------------------
$46,797,000 $ 45,672,000
=====================================================================================
Real property under capitalized leases, net $15,872,000 $ 16,055,000
Less accumulated amortization 9,141,000 8,575,000
- -------------------------------------------------------------------------------------
$ 6,731,000 $ 7,480,000
=====================================================================================
3. OTHER RECEIVABLES
The components of other receivables are as follows:
SEPTEMBER 25, September 26,
1995 1994
- ------------------------------------------------------------------------------------
Income taxes $1,189,000 $2,045,000
Landlord receivables -- 830,000
Franchise royalties and rents 326,000 142,000
Other 383,000 387,000
- ------------------------------------------------------------------------------------
$1,898,000 $3,404,000
====================================================================================
4. NOTES RECEIVABLE
Notes receivable consist of amounts due from corporations and individuals
resulting primarily from the sale of property, buildings and equipment. The
components of notes receivable are as follows:
SEPTEMBER 25, September 26,
1995 1994
- ---------------------------------------------------------------------------------------
Sales of restaurants to franchisees $ 2,399,000 $ 2,254,000
Net investment in direct financing lease 487,000 499,000
- ---------------------------------------------------------------------------------------
2,886,000 2,753,000
Less short-term portion 190,000 173,000
- ---------------------------------------------------------------------------------------
$ 2,696,000 $ 2,580,000
=======================================================================================
In August 1994, the Company accepted $2.5 million as full repayment of the note
receivable related to the sale of a combined restaurant and motel, resulting in
a loss of $1,564,000. The note had a principal and accrued interest balance of
$4.1 million and was due in October 1994. The Company had received no payments
on the note since January 1994 and elected to accept the lesser payment to
eliminate the risks of collection of the full amount and to generate cash for
use in restaurant operations.
The Company has 14 notes relating to the sales of restaurants to franchisees
which are unsecured or secured by receivables, inventory and equipment. Eleven
of the notes bear interest at 10.0%. Two notes bear interest at prime plus 3.0%
and another bears interest at prime plus 0.5%. Payments are made using a 15-year
F-10
48
amortization with 13 of the notes having a 5-year balloon payment and the other
note having a 10-year balloon payment.
During 1991, the Company entered into a lease with a franchisee on the land and
building for a new JB's Restaurant. The Company's net investment in the direct
financing lease is as follows:
SEPTEMBER 25, September 26,
1995 1994
- --------------------------------------------------------------------------------------
Future minimum lease payments receivable $ 913,000 $ 975,000
Less unearned income 426,000 476,000
- --------------------------------------------------------------------------------------
Investment in direct financing lease, net 487,000 499,000
Less current portion 12,000 12,000
- --------------------------------------------------------------------------------------
$ 475,000 $ 487,000
======================================================================================
At September 25, 1995, future minimum lease payments are as follows: $61,000 in
1996, $61,000 in 1997, $61,000 in 1998, $61,000 in 1999, $61,000 in 2000 and
$608,000 thereafter.
5. CHARGE FOR PROPERTY DISPOSITIONS
In 1994, the charge for property dispositions of $1,982,000 is primarily related
to the disposition of certain JB's Restaurants. The charge of $4,264,000 for
1993 is primarily related to the disposition of certain JB's Restaurants, Sbarro
restaurants, and the termination of its exclusive area development rights with
Sbarro, Inc.
6. INVESTMENT IN HOMETOWN BUFFET, INC.
In November 1991, the Company invested $3.8 million with Americana Entertainment
Group, Inc., the predecessor of HomeTown Buffet, Inc. ("HTBB"), in exchange for
1,266,667 shares of convertible preferred stock. In July 1993, the Company sold
250,000 shares of its preferred stock investment in HTBB for $2.5 million,
resulting in a pre-tax gain of $1.7 million. In the fourth quarter of fiscal
1993, HTBB concluded an initial public offering ("IPO") of its common stock and
commenced trading on NASDAQ under the symbol HTBB. At the completion of the IPO
the outstanding preferred stock automatically was converted to common stock.
During the second quarter of fiscal 1994, the Company exercised its option to
purchase 60,000 shares of HTBB common stock and HTBB announced a three for two
stock split increasing the Company's ownership of HTBB common stock to 1,585,000
shares. In the third quarter of fiscal 1994, the Company sold 1,056,780 shares
of HTBB common stock as a selling shareholder in HTBB's secondary public
offering for $16.8 million resulting in a pre-tax gain of $14.7 million. The
Company's remaining 528,220 shares of HTBB common stock at September 25, 1995,
is pledged as security on certain notes payable (see notes 7 and 15).
On September 27, 1993, the Company reported its investment in HTBB at cost.
During the first quarter of fiscal 1994, the Company elected early adoption of
Statement of Financial Accounting Standards ("SFAS") No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". In accordance with SFAS No.
115, the Company's investment in the common stock of HTBB meets the definition
of available-for-sale securities and, as such, is reported at fair value. On
September 25, 1995 and November 3, 1995, the estimated fair value of the
Company's 528,220 shares of HTBB common stock was $13.25 and $12.88 per share or
$7.0 million and $6.8 million respectively. The unrealized gain of $3.6 million
(net of tax) at the fiscal 1995 year-end is recorded as a separate component of
stockholders' equity.
In addition, the Company has a franchise and exclusive area development
agreement with HTBB, under which, as amended, the Company has the exclusive
rights to develop and operate HomeTown Buffet restaurants, as a franchisee, in
eight western states. Under the terms of the agreement, the Company is required
to open a minimum of 17 HomeTown Buffet restaurants in these states prior to
June 30, 1996, and open an additional 5 HomeTown Buffet restaurants prior to
December 31, 1996.
F-11
49
7. LONG-TERM DEBT
Long-term debt consists of: SEPTEMBER 25, September 26,
1995 1994
- ---------------------------------------------------------------------------------------------------------
Debt secured by land, buildings, equipment and investment
in HomeTown Buffet, Inc.:
Note payable to a bank in monthly installments
through June 1997, interest at 9.13% per annum $ 1,742,000 $ 2,612,000
Note payable to a bank in monthly installments
through January 1997, interest at 8.5% per annum 453,000 747,000
Capitalized real property and equipment lease obligations
payable in monthly installments through 2013, interest at
8.9% to 13.9% 10,485,000 11,249,000
Other notes payable to individuals, financial institutions and
other companies in monthly, quarterly, and annual
installments through 2004, interest at 8.25% to 13.5%;
unsecured or secured by land, buildings, and equipment 398,000 445,000
- ---------------------------------------------------------------------------------------------------------
13,078,000 15,053,000
Less current maturities 2,928,000 1,960,000
- ---------------------------------------------------------------------------------------------------------
$ 10,150,000 $ 13,093,000
=========================================================================================================
Annual aggregate maturities of long-term debt, including obligations under
capitalized leases, are as follows: $2,928,000 in 1996; $799,000 in 1997;
$848,000 in 1998; $863,000 in 1999; $918,000 in 2000; and $6,722,000 thereafter.
On April 1, 1994, the Company used $5.1 million of the proceeds from the sale of
HTBB common stock to prepay outstanding 11.1% interest bearing debt payable to
financial institutions. The $5.1 million payment included a prepayment premium
of $442,000 and $85,000 of accrued interest. The $442,000 prepayment premium
combined with the write-off of unamortized loan acquisition costs of $141,000
are recorded as an extraordinary loss on extinguishment of debt of $350,000, net
of tax, in the accompanying 1994 consolidated statements of operations.
In connection with the issuance of certain secured notes payable to financial
institutions, the Company issued 8,000 nondetachable warrants, with each warrant
consisting of an option to purchase, as adjusted, 27.4 shares of the Company's
common stock. The warrants are exercisable until July 30, 1996 at $203.25 per
warrant ($7.42 per share of common stock). As of September 25, 1995, no warrants
had been exercised.
8. LONG-TERM LEASES
The Company occupies certain of its restaurants under long-term leases expiring
at various dates through 2035. Most restaurant leases have renewal options for
terms of five to twenty years, and substantially all require the payment of real
estate taxes and insurance. Certain of the leases provide for rent to be the
greater of a stipulated minimum rent or a specified percentage of sales.
Rent expense for fiscal years 1995, 1994 and 1993, was $6,942,000, $5,938,000,
and $5,696,000, respectively. Contingent rentals measured as a percentage of
sales, included in rent expense for fiscal years 1995, 1994 and 1993 were
$292,000, $615,000, and $706,000, respectively.
F-12
50
Future aggregate minimum rental payments on noncancellable leases as of
September 25, 1995, exclusive of taxes, insurance and percentage rentals based
on sales are as follows:
FURNITURE FIXTURES &
TYPE OF PROPERTY REAL PROPERTY EQUIPMENT
- --------------------------------------------------------------------------------------------------
Year Ended Capital Operating Operating
- --------------------------------------------------------------------------------------------------
1996 $ 1,837,000 $ 5,342,000 $ 1,556,000
1997 1,817,000 5,291,000 1,187,000
1998 1,776,000 5,115,000 1,050,000
1999 1,731,000 4,915,000 654,000
2000 1,728,000 4,783,000 74,000
Aggregate thereafter 9,863,000 37,853,000 --
- --------------------------------------------------------------------------------------------------
Total minimum
lease payments 18,752,000 $63,299,000 $ 4,521,000
===================================
Less amount representing
interest (8,267,000)
- --------------------------------------------------------
Present value of minimum lease
payments $10,485,000
========================================================
Gains related to sale and leaseback transactions have been deferred for
financial reporting purposes and are being amortized over the term of the
leases. Deferred gains of $560,000 at September 25, 1995 and $620,000 at
September 26, 1994 are reflected as a reduction of real property under
capitalized leases in the accompanying consolidated financial statements.
F-13
51
9. INCOME TAXES
The income tax expense (benefit) consists of the following:
CURRENT DEFERRED TOTAL
- ----------------------------------------------------------------------------------------------
Year ended September 25, 1995
U.S. federal $ (950,000) $ (22,000) $ (972,000)
State and local (78,000) (3,000) (81,000)
- ----------------------------------------------------------------------------------------------
$(1,028,000) $ (25,000) $(1,053,000)
==============================================================================================
Year ended September 26, 1994
U.S. federal $ 2,026,000 $ 258,000 $ 2,284,000
State and local 387,000 49,000 436,000
- ----------------------------------------------------------------------------------------------
$ 2,413,000 $ 307,000 $ 2,720,000
==============================================================================================
Year ended September 27, 1993
U.S. federal $ (310,000) $ (935,000) $(1,245,000)
State and local (59,000) (179,000) (238,000)
- ----------------------------------------------------------------------------------------------
$ (369,000) $(1,114,000) $(1,483,000)
==============================================================================================
The income tax expense (benefit) attributable to income (loss) before income
taxes and extraordinary item differs from the amounts computed by applying the
U.S. federal statutory tax rate as follows:
September 25, September 26, September 27,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Computed "expected" income tax expense (benefit) $(2,073,000) $ 2,321,000 $(1,291,000)
State Income Taxes (81,000) 436,000 (238,000)
General Business Credits (231,000) (230,000) (90,000)
Change in the valuation allowance for
deferred tax assets 1,356,000 -- --
Other, net (24,000) 193,000 136,000
- ------------------------------------------------------------------------------------------------------------
$(1,053,000) $ 2,720,000 $(1,483,000)
============================================================================================================
F-14
52
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are summarized below:
SEPTEMBER 25, 1995 SEPTEMBER 26, 1994
- --------------------------------------------------------------------------------------------------------------------------
CURRENT NON-CURRENT Current Non-Current
Deferred tax assets DEFERRED DEFERRED Deferred Deferred
- --------------------------------------------------------------------------------------------------------------------------
Deferred compensation $ -- $ 491,000 $ -- $ 520,000
Deferred gain -- 216,000 -- 251,000
Compensated absences, principally due to accrual
for financial reporting purposes 134,000 -- 63,000 --
Provision for store dispositions -- 605,000 -- 1,078,000
State net operating loss carryforward -- 225,000 -- --
General business credits -- 2,214,000 -- 739,000
Alternative minimum tax credits -- 508,000 -- 537,000
Other 84,000 70,000 26,000 117,000
- --------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets 218,000 4,329,000 89,000 3,242,000
Less valuation allowance (142,000) (1,783,000) (11,000) (379,000)
- --------------------------------------------------------------------------------------------------------------------------
Net deferred tax assets 76,000 2,546,000 78,000 2,863,000
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
- --------------------------------------------------------------------------------------------------------------------------
Plant and equipment, principally due to differences
in depreciation and capitalized interest -- (1,478,000) -- (1,435,000)
Market valuation of investment
in HomeTown Buffet, Inc. -- (2,377,000) -- (1,848,000)
Other -- (568,000) -- (956,000)
- --------------------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities -- (4,423,000) -- (4,239,000)
- --------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 76,000 $(1,877,000) $ 78,000 $(1,376,000)
==========================================================================================================================
The valuation allowance for deferred tax assets as of September 25, 1995, and
September 26, 1994, was $1,925,000 and $390,000, respectively.
At September 25, 1995, the Company has general business credit carryforwards for
federal income tax purposes of approximately $2,214,000 which are available to
reduce future federal income taxes, if any, through 2006. In addition, the
Company has alternative minimum tax credit carryforwards of approximately
$508,000 which are available to reduce future federal regular income taxes, if
any, over an indefinite period.
10. PREFERRED STOCK
In October 1993, the Company issued 946,714 shares of Series A Convertible
Preferred Stock to ABS MB (JB) Limited Partnership ("ABS"), the general partner
of which is ABS MB Ltd., a merchant banking affiliate of Alex. Brown & Sons
Incorporated for approximately $5.0 million. The preferred stock has a par value
of $1.00, is nondividend bearing and is convertible to common stock on a
one-for-one basis at the option of ABS subject to certain conditions. The
946,714 preferred shares represent an approximate 16% ownership position in the
Company. As holder of the preferred stock, ABS is entitled to liquidation
preferences, rights to approve certain significant corporate transactions and
certain registration rights. Also, as holder of the preferred stock ABS has the
right to elect two of the Company's nine Board members.
11. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an employee stock ownership plan to which the Company
contributes funds as authorized by the Board of Directors. The plan has the
authority to purchase shares of the Company's common stock. All employees of the
Company who have one year of service and are over age 21 participate in the
plan.
F-15
53
Participant vesting begins with the third year of participation in the
plan at the rate of 20 percent per year. Funds contributed to the plan are used
to retire debt previously incurred, to pay participants who are entitled to
benefits under the plan and to purchase shares of the Company's common stock.
Allocated shares within the plan were 92,737 and 114,857 at September 25, 1995,
and September 26, 1994, respectively. Contributions to the employee stock
ownership plan totaled $0, $85,000 and $90,000 in fiscal years 1995, 1994, and
1993, respectively.
401 (K) PLAN
The Company has a 401(k) plan covering all employees who have attained age 21
and completed one year of service. The plan allows participants to allocate up
to 10% of their annual compensation before taxes for investment in several
investment alternatives. From January 1, 1995, until September 25, 1995, and in
calendar 1994 and 1993, the Company made annual matching contributions of the
Company's stock to the employees' investment portfolio of up to 25% of the first
3% of annual compensation contributed by the employee. An employee must be
employed on December 31 to receive a matching contribution. The Company provided
contributions of $26,000 and $27,000 in fiscal years 1995 and 1994,
respectively, and the Company made no contribution in fiscal 1993.
DEFERRED COMPENSATION PLAN
The Company has a deferred compensation plan covering the Chairman and certain
former executives, which requires payment upon retirement or disability. Under
the plan, participants receive benefits based upon a multiple of compensation
prior to retirement and years of service (not to exceed 50 percent of average
annual compensation for the highest five-year period) reduced for benefits
payable from the Company's profit sharing and employee stock ownership plans.
The Company expects that participation in the plan will be limited to those
individuals with previously approved deferred compensation agreements. Accruals
for this plan were $133,000, $158,000 and $153,000 for fiscal years 1995, 1994,
and 1993, respectively.
12. STOCK OPTION AND AWARD PLANS
STOCK OPTION PLANS
The Company has stock option plans under which options to purchase the Company's
common stock may be granted to employees and directors at the fair market value
of the stock at the date of grant. Under the plans, options may be granted for a
term of not more than ten years. Incentive stock options granted to employees
through April 7, 1994, become exercisable over a four-year period. Incentive
stock options granted after April 7, 1994 become exercisable over a five-year
period. Nonqualified stock options issued to directors are not subject to
vesting. As of September 25, 1995, shares under option total 782,400 shares of
which 489,350 shares were exercisable at prices ranging from $4.00 to $7.88 per
share.
F-16
54
The following table presents, for the periods indicated, activity with respect
to the Company's stock option plans:
SEPTEMBER 25, September 26, September 27,
YEARS ENDED 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
Shares under option, beginning of fiscal year 679,700 527,600 574,430
Options granted (1995 at prices from
$3.63 to $6.00 per share; 1994 at prices from
$4.00 to $7.75 per share; 1993 at prices from
$5.00 to $7.88 per share) 261,000 237,000 207,000
Options expired due to terminations (1995 at prices
from $4.50 to $7.75 per share; 1994 at prices
from $4.88 to $7.75 per share; 1993 at prices from
$4.63 to $7.25 per share) 158,300 51,900 89,100
Options exercised (1995, none; 1994 at prices from
$4.13 to $6.88 per share; 1993 at prices
from $4.13 to $6.87 per share) -- 33,000 164,730
- ----------------------------------------------------------------------------------------------------------------------
Shares under option, end of fiscal year 782,400 679,700 527,600
======================================================================================================================
EXECUTIVE LONG-TERM STOCK AWARD PLAN
The Company has an Executive Stock Award Plan (the "Plan") adopted in September
1992 by the Board of Directors and approved in February 1993 by the Company's
shareholders. There are 100,000 shares authorized under the Plan to be awarded
to key employees based on the achievement of certain performance objectives
established by the Compensation Committee of the Board of Directors. There were
no shares awarded for fiscal years 1995, 1994 or 1993 under this Plan.
F-17
55
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes financial information by quarter for the two years
ended September 25, 1995 and September 26, 1994:
Net Income
Gross Net Income (Loss)
Revenues Profit (Loss) Per Share
- -----------------------------------------------------------------------------------------------------------------
1995
1st quarter $ 27,263,000 $18,296,000 $ (876,000) $ (.18)
2nd quarter 27,061,000 18,104,000 (678,000) (.14)
3rd quarter 38,095,000 25,413,000 (1,309,000) (.27)
4th quarter 28,680,000 19,268,000 (2,181,000) (.45)
- ------------------------------------------------------------------------------------------------------------------
$121,099,000 $81,081,000 $(5,044,000) $(1.05)
==================================================================================================================
1994
1st quarter $ 24,228,000 $16,520,000 $ (537,000) $ (.11)
2nd quarter 25,681,000 17,321,000 (290,000) (.06)
3rd quarter 36,948,000 24,932,000 5,765,000 (1) .99
4th quarter 28,510,000 18,916,000 (1,182,000) (.25)
- ------------------------------------------------------------------------------------------------------------------
$115,367,000 $77,689,000 $ 3,756,000 $ .66
==================================================================================================================
(1) Includes a charge for property dispositions of $1,982,000, a loss on the
disposition of a note receivable of $1,564,000, an extraordinary loss of
$350,000 (net of tax benefit) resulting from the extinguishment of debt and
a gain on the sale of HomeTown Buffet, Inc., common stock of $14,700,000.
See Notes 4, 5, 6 and 7.
Each quarter of the 52 week fiscal years 1995 and 1994 contain 12 weeks, except
for the third quarter, which contains 16 weeks.
14. COMMITMENTS AND CONTINGENCIES
In connection with the sale of restaurants, the Company has assigned its rights
and obligations under real property leases to the buyer. As such, the Company
remains contingently liable for these obligations. Future minimum payments under
these leases amount to $1,294,000 in 1996; $1,245,000 in 1997; $1,202,000 in
1998; $1,164,000 in 1999; $1,069,000 in 2000; and $3,287,000 thereafter.
In addition, the Company is engaged in ordinary and routine litigation
incidental to its business. Management does not anticipate that any amounts
which it may be required to pay by reason thereof will have a material effect on
the Company's consolidated statements of operations or financial position.
15. SUBSEQUENT EVENTS
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
On November 30, 1995, an Agreement and Plan of Merger and Reorganization
("Merger Agreement") was executed between the Company and CKE Restaurants, Inc.,
a Delaware corporation ("CKE"), pursuant to which a wholly-owned subsidiary of
CKE will merge with the Company, and CKE's wholly-owned subsidiary will be the
surviving entity. Consideration for the merger to be paid to the Company's
shareholders for each share of common stock and for each share of preferred
stock will consist of $3.00 in cash and .20513 shares of CKE common stock,
provided that the average CKE common stock price is between $12.25 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 $12.25 at the closing, the exchange ratio may be
adjusted accordingly. The transaction is currently expected to close during the
first calendar quarter of 1996, or as soon as practicable thereafter. The
transaction is conditioned upon the Company's shareholders approving the
transaction and the usual and customary conditions to closing, including,
F-18
56
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.
CHANGE IN CONTROL AGREEMENTS
Pursuant to certain change of control agreements, the Company may be obligated
to pay benefits to the President and seven Senior Vice Presidents in the event
of a significant change in ownership of the Company.
The Merger Agreement described above triggered a provision in the change of
control agreements that requires the Company to place in escrow accounts
approximately $1.7 million. Payment of benefits is made upon involuntary
termination of those individuals noted above 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 the escrow accounts.
LEASE COMMITMENT
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 minimum tangible
net worth of at least $40 million.
Operating results during fiscal 1995 reduced the Company's net worth to less
than $40 million as of September 25, 1995. On December 7, 1995, the lessor
notified the Company it was in default under the terms of the Agreement and
demanded a default payment in the amount of $1,493,938 which represents all
remaining rent and other payments due to the lessor. Upon receipt of the default
payment, the lessor is obligated to transfer to the Company all rights of
ownership to the leased assets.
Management is contesting the default and seeks a resolution with the lessor that
would allow the Company to continue periodic rent payments as stipulated under
the Agreement. While the final outcome of this matter cannot be determined at
this time, management, in consultation with legal counsel, believes that such a
resolution can be reached.
INVESTMENT IN HOMETOWN BUFFET, INC. COMMON STOCK
As of September 25, 1995, the Company held 528,220 shares of HTBB common stock.
Between September 25, 1995, and December 11, 1995, 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 certain
properties owned by the Company, by the remaining 130,000 shares of HTBB common
stock and by the escrow account noted above.
F-19
57
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
3 ARTICLES OF INCORPORATION AND BYLAWS:
The following exhibits are attached to this report:
3(a) Certificate of Incorporation, dated February 21, 1985.
3(b) Bylaws, dated February 25, 1985.
3(c) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated February 25, 1987.
3(1) Amendment to Bylaws, dated November 19, 1992.
3(2) Amendment to Bylaws, dated October 27, 1993.
3(3) Certificate of Ownership and Merger Merging JB's Specialty
Restaurants, Inc. into JB's Restaurants, Inc., dated October 15,
1993.
3(4) Certificate of Amendment of the Certificate of Incorporation of
JB's Restaurants, Inc., dated April 4, 1995.
3(5) Certificate of Change of Location of Registered Office and of
Registered Agent, dated July 11, 1995.
3(6) Amendment to Bylaws, dated November 30, 1995.
4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS INCLUDING INDENTURES:
The following exhibits are incorporated in this report by reference from
identically numbered exhibits to Annual Reports on Form 10-K previously
filed by the Company:
4(c)(2) Undertaking to furnish to the Securities and Exchange Commission
Long-Term Debt Agreements dated December 22, 1986.
4(f)(g)(h)(3) Note Purchase Agreements between the Company and The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, and Warrants for Common Stock held by The Canada Life
Assurance Co., Security Mutual Group, and Crown Life Insurance
Company, dated September 1, 1987.
4(1)(7) First Amendment to Note Purchase Agreements between the Company and
The Canada Life Assurance Co., Security Mutual Group and Crown
Life Insurance Company, and Warrants for Common Stock held by The
Canada Life Assurance Co., Security Mutual Group and Crown Life
Insurance Company, dated April 30, 1992.
58
4(2)(8) Second Amendment to Note Purchase Agreement between the Company and
Crown Life Insurance Company, The Canada Life Assurance Company
and Security Mutual Life Insurance Company (formerly known as
Security Mutual Group), dated October 26, 1993.
4(3)(8) Certificate of Designations, Preferences and Rights of Series A
Convertible Preferred Stock of the Company, dated October 11,
1993.
4(4)(8) Registration Rights Agreement by the Company for the benefit of ABS MB
(JB) Limited Partnership, dated October 27, 1993.
10 MATERIAL CONTRACTS:
The following exhibits are incorporated in this report by reference from identically
numbered exhibits to Annual Reports on Form 10-K previously filed by the Company:
*10(a)(1) JB's Supplemental Executive Retirement Plan, adopted 1985.
*10(7)(3) 1987 Non-Qualified Stock Option Plan and form of Agreement,
adopted February 13, 1987.
*10(8)(3) 1987 Employee Incentive Stock Option
Plan and form of Agreement adopted
April 21, 1987.
*10(9)(3) 1984 Incentive Stock Option Plan as Amended on February 13, 1987,
and form of Agreement.
*10(i)(5) Amendment to 1984 and 1987 Incentive Stock Option Plans dated
July 16, 1990.
10(dd)(6) Multiple Unit Agreement between HTB Restaurants, Inc., a
wholly-owned subsidiary of the Company, and HomeTown Buffet, Inc.
dated October 9, 1991 effective November 25, 1991.
10(19)(7) First Amendment to Multiple Unit Agreement dated October 9, 1991
between HTB Restaurants, Inc., a wholly-owned subsidiary of the
Company, and HomeTown Buffet, Inc. dated January 3, 1992.
10(20)(7) Second Amendment to the Multiple Unit Agreement dated October 9,
1991 between HTB Restaurants, Inc. a wholly-owned subsidiary of
the Company, and HomeTown Buffet, Inc. dated June 23, 1992.
*10(22)(7) 1992 Stock Option Plan and Form of Agreement adopted September
24, 1992.
*10(23)(7) 1992 Executive Long-Term Stock Award Plan and Form of Agreement, adopted
by the Board of Directors of the Company dated September 24, 1992.
59
*10(32)(8) Employment Agreement between the Company and Don M. McComas dated
November 24, 1993.
10(33)(8) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991 between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc. dated November
30, 1993.
10(34)(9) Note Cancellation Agreement and Release between the Company and
M. Robert Davis and Kathleen Davis dated August 5, 1994.
*10(35)(9) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain
severance benefits in the event of a change in control of the
Company, dated November 18, 1994.
*10(37)(9) Fiscal Year 1995 Executive Incentive Compensation Plan.
10(38)(9) Underwriting Agreement dated March 23, 1994 between the Company,
HomeTown Buffet, Inc. , other selling shareholders, and
Montgomery Securities.
10(39)(9) Letter dated March 1, 1994 between the Company and Crown Life Insurance
Company, Canada Life Assurance Company and Security Mutual Group
regarding prepayment of notes outstanding by the Company.
*10(40)(9) Executive Long Term Incentive Plan approved by the Board of
Directors on April 8, 1994.
*10(41)(9) 1992 Stock Option Plan as amended on April 8, 1994 and November
18, 1994.
The following exhibits are attached to this report:
10(42) Letter Agreement amending the Multiple Unit Agreement, dated
October 9, 1991, as amended January 3, 1992, June 23, 1992 and
November 31, 1993, between HTB Restaurants, Inc., a wholly-owned
subsidiary of the Company and HomeTown Buffet, Inc., dated July
20, 1995.
*10(43) Form of Agreement between the Company and David E. Pertl, Gary A.
Bales, Ronald L. Sacks, George H. Gehling, Daniel Yanez,
Charlotte L. Miller and Joseph J. Hollencamp for certain benefits
in the event of a change in control of the company, dated August
17, 1995.
*10(44) Fiscal 1996 Executive Incentive Compensation Plan.
*10(45) Separation Compensation Plan adopted by the Board of Directors,
effective as of September 25, 1995.
60
*10(46) Letter Agreement dated January 4, 1995, between the Company and Joseph
J. Hollencamp for certain benefits in the event of the sale of HTB
Restaurants, Inc., or all of its assets.
10(47) Agreement and Plan of Merger and Reorganization between the Company
and CKE Restaurants, Inc., dated November 30, 1995.
*10(48) Form of Amendment to Agreements, dated August 17, 1995, between
the Company and David E. Pertl, Gary A. Bales, Ronald L. Sacks,
George H. Gehling, Daniel Yanez, Charlotte L. Miller and Joseph
J. Hollencamp for certain benefits in the event of a change in
control of the company, dated December 1, 1995.
11 COMPUTATION OF PER SHARE INCOME (LOSS).
22 SUBSIDIARIES OF THE COMPANY.
24 CONSENT OF KPMG PEAT MARWICK LLP.
RE: FORM S-8 NO. 2-99014; NO. 33-18431; NO. 33-17363; NO. 33-62150; NO.
33-62152; NO. 33-99144.
27 FINANCIAL DATA SCHEDULE.
*This exhibit is a compensatory plan or management contract filed pursuant to
Item 14(c) of Form 10-K.