<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/ X / QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended March 30, 1997
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 1-8766
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J. ALEXANDER'S CORPORATION
--------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Tennessee 62-0854056
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202
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(Address of principal executive offices)
(Zip Code)
(615)269-1900
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(Registrant's telephone number, including area code)
Volunteer Capital Corporation
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
---- ----
Common Stock Outstanding - 5,403,134 shares at May 13, 1997.
Page 1 of 14 pages.
Exhibit Index on page 14.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
MARCH 30 DECEMBER 29
1997 1996
---- ----
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................. $ 8,342 12,549
Accounts and notes receivable, including current portion of
direct financing leases ................................. 118 120
Inventories ............................................... 519 534
Deferred income taxes ..................................... 1,343 1,364
Prepaid expenses and other current assets ................. 265 369
Net assets held for disposal .............................. 310 618
------- -------
TOTAL CURRENT ASSETS .................................... 10,897 15,554
OTHER ASSETS ................................................. 1,207 1,197
PROPERTY AND EQUIPMENT, at cost, less allowances for
depreciation and amortization of $5,244 and $4,567 at
March 30, 1997, and December 29, 1996, respectively ....... 49,564 47,016
DEFERRED INCOME TAXES ........................................ 1,429 1,429
DEFERRED CHARGES, less amortization .......................... 1,492 1,631
------- -------
$64,589 $66,827
======= =======
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
MARCH 30 DECEMBER 29
1997 1996
---- ----
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable .......................................................................... $ 3,982 $ 3,748
Accrued expenses and other current liabilities ............................................ 3,272 6,023
Current portion of long-term debt and obligations under
capital leases .......................................................................... 56 54
-------- --------
TOTAL CURRENT LIABILITIES ............................................................... 7,310 9,825
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of portion classified as current .............................................. 15,915 15,930
DEFERRED COMPENSATION AND OTHER DEFERRED CREDITS ............................................. 583 611
STOCKHOLDERS' EQUITY
Common Stock, par value $.05 per share: Authorized 10,000,000
shares; issued and outstanding 5,397,846 and 5,322,507 shares at
March 30, 1997, and December 29, 1996, respectively ..................................... 269 266
Preferred Stock, no par value: Authorized 1,000,000 shares; none
issued .................................................................................. -- --
Additional paid-in capital ................................................................ 29,704 29,475
Retained earnings ......................................................................... 11,836 11,748
-------- --------
41,809 41,489
Note receivable - Employee Stock Ownership Plan ........................................... (1,028) (1,028)
-------- --------
TOTAL STOCKHOLDERS' EQUITY .............................................................. 40,781 40,461
$ 64,589 $ 66,827
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 4
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 30 MARCH 31
1997 1996
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<S> <C> <C>
Net sales ................................................................................................ $ 14,032 $ 21,687
Costs and expenses:
Cost of sales ......................................................................................... 4,759 7,646
Restaurant labor and related costs .................................................................... 4,442 6,469
Depreciation and amortization of restaurant
property and equipment .............................................................................. 642 890
Royalties ............................................................................................. -- 502
Other operating expenses .............................................................................. 2,475 3,388
-------- --------
Total restaurant operating expenses ................................................................. 12,318 18,895
-------- --------
Income from restaurant operations ........................................................................ 1,714 2,792
General and administrative expenses ...................................................................... 1,158 1,783
Amortization of pre-opening costs ........................................................................ 330 244
-------- --------
Operating income ......................................................................................... 226 765
-------- --------
Other income (expense):
Interest expense ...................................................................................... (247) (367)
Interest income ....................................................................................... 116 17
Other, net ............................................................................................ 22 55
-------- --------
Total other income (expense) ........................................................................ (109) (295)
-------- --------
Income before income taxes ............................................................................... 117 470
Income tax provision ..................................................................................... 29 164
-------- --------
Net income ............................................................................................... $ 88 $ 306
======== ========
Earnings per share:
Primary ............................................................................................... $ .02 $ .06
======== ========
Fully diluted ......................................................................................... $ .02 $ .06
======== ========
Weighted average number of shares:
Primary ............................................................................................... 5,495 5,448
======== ========
Fully diluted ......................................................................................... 5,500 5,448
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 5
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS)
<TABLE>
<CAPTION>
Quarter Ended
MARCH 30 MARCH 31
1997 1996
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<S> <C> <C>
Net cash (used) provided by operating activities ............. $ (231) $ 837
Net cash used by investing activities:
Purchase of property and equipment ........................ (4,206) (4,826)
Proceeds from maturities and sales of investments ......... -- 505
Other investing activities ................................ 11 (61)
------- -------
(4,195) (4,382)
Net cash provided by financing activities:
Payments on debt and obligations under capital leases ..... (13) (129)
Borrowings on line of credit .............................. -- 3,350
Other financing activities ................................ 232 55
------- -------
219 3,276
Decrease in cash and cash equivalents ........................ (4,207) (269)
Cash and cash equivalents at beginning of period ............. 12,549 2,234
------- -------
Cash and cash equivalents at end of period ................... $ 8,342 $ 1,965
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 6
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. Certain reclassifications have been made in
the prior year's consolidated condensed financial statements to conform to the
1997 presentation. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended March 30, 1997, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 28, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended December 29,
1996.
NOTE B - SALE OF WENDY'S RESTAURANT OPERATIONS
In November 1996, the Company sold 52 of its 58 Wendy's Old Fashioned
Hamburgers restaurants to Wendy's International, Inc. for $28.3 million in
cash plus the assumption of capitalized lease obligations and long-term debt
totaling approximately $2.5 million. This transaction generated a pre-tax gain
of $9.4 million. The six restaurants not sold as part of the November 1996
transaction had been sold or closed as of March 30, 1997.
In accordance with Emerging Issues Task Force Issue No. 94-3 "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity", the Company recorded expenses totaling $542,000 during the third
quarter of 1996 relative to accrued termination benefits ($450,000) and accrued
liabilities associated with the settlement of lease obligations. Management
provided for 21 employees eligible for termination benefits as a result of the
Company's exit from the Wendy's business. The Company recorded additional costs
during the fourth quarter of 1996 including provisions for additional severance,
insurance claims and other expenses and contingencies totaling approximately
$1,849,000 which were included in the determination of the gain on the sale of
the Wendy's restaurant operations. During the first quarter of 1997, the Company
paid $526,000 related to the exit of the Wendy's business. At March 30, 1997,
the Company maintains accruals related to the exit of the Wendy's business
totaling $1,503,000.
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<PAGE> 7
NOTE C - PRE-OPENING COSTS
Costs of hiring and training personnel and certain other costs relating
to a new J. Alexander's restaurant have historically been capitalized and
amortized over the restaurant's initial months of operations. In the fourth
quarter of 1996, the Company changed its period of amortization for these costs
from 24 months to 12 months. Management does not anticipate the change will have
a material impact on periods subsequent to fiscal 1996.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
J. Alexander's Corporation operated 14 J. Alexander's full-service,
casual dining restaurants at March 30, 1997. During the fourth quarter of 1996
the Company sold substantially all the assets of its 58 Wendy's Old Fashioned
Hamburgers restaurants. The first quarter of 1997 represents the first full
quarter reported by the Company since the divestiture of its Wendy's operations
which generated restaurant operating income of $1,549,000 on sales of
$12,539,000 during the first quarter of 1996. As a result of the divestiture,
the Company's sales and income from restaurant operations were significantly
reduced in the first three months of 1997 as compared to the same period in
1996.
For the first three months of 1997, consolidated restaurant operating
income decreased by $1,078,000 in the first quarter of 1997 as compared to the
same period of the prior year, as the effect of the disposition of the Company's
Wendy's restaurant operations more than offset an increase of $471,000, or
37.9%, in J. Alexander's restaurant operating income. While general and
administrative expenses and net interest expense also decreased as a result of
the Wendy's divestiture, these decreases were not large enough to offset the
decrease in income from restaurant operations, and income before income taxes
decreased by $353,000 for the quarter.
Management reached the decision to sell the Wendy's operations
because it believed focusing all of the Company's capital and resources
exclusively on casual dining offers the greatest potential for long-term return
for its shareholders. However, the divestiture is expected to have a negative
impact on earnings until the lost revenue and operating income from the Wendy's
operations can be replaced by the development of new J. Alexander's restaurants.
J. ALEXANDER'S RESTAURANT OPERATIONS
The Company operated fourteen J. Alexander's restaurants at March 30,
1997, compared with nine at March 31, 1996.
Operating results for the Company's J. Alexander's restaurants,
before allocation of other income, corporate overhead and net interest expense,
for the three months ended March 30, 1997, and March 31, 1996, were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 30, 1997 MARCH 31, 1996
-------------- --------------
AMOUNT % OF AMOUNT % OF
(IN THOUSANDS) SALES (IN THOUSANDS) SALES
-------------- -------- ------------- ------
<S> <C> <C> <C> <C>
Net sales........................................ $14,032 100.0 % $9,148 100.0%
Restaurant costs and expenses:
Cost of sales............................... 4,759 33.9 3,241 35.4
Labor and related costs..................... 4,442 31.7 2,765 30.2
Depreciation and amortization of
restaurant property and equipment 642 4.6 375 4.1
Other operating expenses.................... 2,475 17.6 1,524 16.7
------- ---- ----- ----
12,318 87.8 7,905 86.4
------ ---- ----- ----
Restaurant operating income...................... $ 1,714 12.2 % $1,243 13.6%
======= ==== ===== ====
</TABLE>
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<PAGE> 9
Net sales for the J. Alexander's restaurants increased 54% for the first
three months of 1997, as compared to the same period of 1996, due primarily to
the opening of new restaurants. In addition, same store sales, which include
comparable sales for all restaurants open for more than 12 months, averaged
$81,900 per week during the first three months of 1997, reflecting an increase
of 4.7% from $78,200 per week during the same period of the previous year.
The same store sales trend, while remaining positive, softened somewhat in
March and April, with the April increase being less than 1%. Average weekly
sales for all J. Alexander's restaurants were $77,100 for the first three
months of 1997, as compared to $78,200 for the corresponding period in 1996.
Restaurant operating margins for the nine restaurants open for more than
twelve months showed significant improvement to 17.4% in the first quarter of
1997 from 13.6% in the 1996 quarter. This improvement was primarily due to lower
food and labor costs achieved as sales volumes increased and operations of the
restaurants matured and became more efficient. Restaurant operating margins for
all restaurants decreased from 13.6% in the first quarter of 1996 to 12.2% in
the 1997 quarter due to the effect of new restaurants.
In order to maximize the quality of guest service and successfully complete
the extensive training and support of J. Alexander's staff, there is typically
little or no advertising or promotion of new J. Alexander's restaurant openings.
Management believes that this "quiet opening" approach enhances guest
experiences and contributes significantly to increases in same store sales over
a long period of time. Due to the slow building nature of sales and the emphasis
placed on training and quality of operations during the opening months of
operation, the financial performance of new restaurants typically trails that of
more mature restaurants and the Company expects newly opened restaurants to
experience operating losses in their initial months of operation. As a result,
all operating cost categories, with the exception of food cost, increased as a
percentage of sales for the three months ended March 30, 1997, as compared to
the same period of the prior year due to the effect of the five new restaurants
which have opened subsequent to the first quarter of 1996. Food costs decreased
as a percentage of sales in the 1997 quarter due primarily to continued
management emphasis on cost control in this area.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which include all costs above the
restaurant level, totaled 8.3% of net sales for the first three months of 1997,
as compared to 8.2% of net sales for the same period of the prior year. Actual
general and administrative expenditures decreased by $625,000, or 35%, during
the first quarter of 1997 as compared to the same period in 1996, primarily due
to the disposition of the Company's Wendy's restaurant operations. General and
administrative expenses directly related to the Wendy's operations totaled
$724,000 during the first quarter of 1996.
OTHER INCOME (EXPENSE)
Interest expense decreased by $120,000 during the first quarter of 1997, as
compared to the same period of the prior year, due primarily to elimination of
long term obligations associated with Wendy's restaurant operations and the
pay-off of all amounts outstanding under the Company's line of credit agreement
with proceeds from the Wendy's disposition.
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<PAGE> 10
Interest income increased by $99,000 during the 1997 quarter, as compared
to the same period of 1996, due to increased investment balances resulting from
the Wendy's disposition.
INCOME TAXES
Under the provisions of Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," the Company has significant deferred tax assets
at March 30, 1997 relating primarily to approximately $2.7 million of net
operating loss carryforwards and $1.8 million of tax credit carryforwards
available to reduce future federal income taxes. Management believes that future
taxable income will be sufficient to realize all of the Company's deferred tax
assets and, therefore, no valuation allowance has been provided for these
assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities represents a primary source of
liquidity for the Company and is also expected to be a resource for meeting
future capital needs. The Company's cash flow from operations totaled a deficit
of $231,000 (including $526,000 of payments against accruals related to the
Wendy's disposition) for the first quarter of 1997, as compared to $837,000 in
the same period of the prior year. In addition, the Company had cash and cash
equivalents of $8,342,000 at March 30, 1997.
The Company's primary investing activity has historically been capital
expenditures for the development and maintenance of its restaurants. Capital
expenditures totaled $3,224,000 during the first quarter of 1997 and were
primarily for the development of new J. Alexander's restaurants.
Management expects the primary needs for capital resources in the
future will be for the development of new J. Alexander's restaurants and for the
maintenance of existing restaurants. Management may also consider acquisitions
of additional restaurants similar to J. Alexander's.
The Company plans to open five J. Alexander's restaurants in 1997, four
of which are currently under construction in Tampa, Florida; Denver, Colorado;
San Antonio, Texas; and Livonia, Michigan. The Company estimates that its
capital expenditures for 1997 will total approximately $22,000,000.
The Company maintains a $30,000,000 line of credit which is available
for funding of capital expenditures and believes that this credit line together
with existing cash and cash equivalents, and cash flow from operations, will be
sufficient to fund the development of its J. Alexander's restaurants for all of
1997 and a portion of 1998.
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<PAGE> 11
J. Alexander's Corporation and Subsidiaries
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED
MARCH 30 MARCH 31
1997 1996
---------- ----------
<S> <C> <C>
Earnings per common and dilutive common
equivalent share
Net income .......................................................... $ 88,000 $ 306,000
========= ==========
Adjustment of shares outstanding:
Actual weighted average shares outstanding ........................ 5,356,000 5,277,000
Net additional shares issuable, based on the
treasury stock method ........................................... 139,000 171,000
---------- ----------
Adjusted shares outstanding ....................................... 5,495,000 5,448,000
========== ==========
Per share amount .................................................... $ .02 $ .06
========== ==========
Earnings per common share, assuming full dilution
Net income .......................................................... $ 88,000 $ 306,000
========== ==========
Adjustment of shares outstanding:
Actual weighted average shares outstanding ........................ 5,356,000 5,277,000
Net additional shares issuable, based on the
treasury stock method ........................................... 144,000 171,000
---------- ----------
Adjusted shares outstanding ....................................... 5,500,000 5,448,000
========== ==========
Per share amount .................................................... $ .02 $ .06
========== ==========
</TABLE>
Note: The computations of earnings per common and dilutive common equivalent
share and earnings per common share, assuming full dilution, are based on
the weighted average number of common shares outstanding each period
after considering the effect of stock options using the treasury stock
method. Shares issuable upon the conversion of convertible subordinated
debentures have not been included as the effect of their inclusion would
be antidilutive.
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<PAGE> 12
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) Special meeting of shareholders held February 7, 1997.
(b) Not applicable.
(c) At the Special Meeting conducted February 7, 1997, the
shareholders voted on a proposal to amend the Company's
charter to change the name of the Company to "J. Alexander's
Corporation". A summary of the vote is as follows:
For 4,102,807
Against 19,286
Abstentions 22,032
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (11) Computation of Earnings Per Share is filed with
Part I of this Form 10-Q.
Exhibit (27) Financial Data Schedule (for SEC use only)
(b) No further reports on Form 8-K were filed for the quarter
ended March 30, 1997.
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<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J. ALEXANDER'S CORPORATION
/s/Lonnie J. Stout II
-----------------------------------------------
Lonnie J. Stout II
Chairman, President and Chief Executive Officer
/s/R. Gregory Lewis
----------------------------------------------
R. Gregory Lewis
Vice-President and Chief Financial Officer
Date: May 14, 1997
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<PAGE> 14
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE NO.
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<S> <C> <C>
(11) Computation of Earnings per Share 11
(27) Financial Data Schedules (For SEC Use Only)
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE THREE MONTH PERIOD
ENDED MARCH 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 8,342
<SECURITIES> 0
<RECEIVABLES> 118
<ALLOWANCES> 0
<INVENTORY> 519
<CURRENT-ASSETS> 10,897
<PP&E> 54,808
<DEPRECIATION> 5,244
<TOTAL-ASSETS> 64,589
<CURRENT-LIABILITIES> 7,310
<BONDS> 15,915
0
0
<COMMON> 269
<OTHER-SE> 40,512
<TOTAL-LIABILITY-AND-EQUITY> 64,589
<SALES> 14,032
<TOTAL-REVENUES> 14,032
<CGS> 4,759
<TOTAL-COSTS> 9,201
<OTHER-EXPENSES> 3,117
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247
<INCOME-PRETAX> 117
<INCOME-TAX> 29
<INCOME-CONTINUING> 88
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
