<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 September 27, 1998
---------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from __________________ to ______________________.
Commission file number 1-8766
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J. ALEXANDER'S CORPORATION
--------------------------
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Tennessee 62-0854056
--------- ----------
<S> <C>
(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
---------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(615)269-1900
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(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------------
(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 - 5,431,354 shares at November 9, 1998.
Page 1 of 17 pages.
<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>
SEPTEMBER 27 December 28
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 981 $ 134
Accounts and notes receivable, including current portion of
direct financing leases.......................................... 131 241
Inventories........................................................ 677 689
Deferred income taxes.............................................. 400 400
Prepaid expenses and other current assets.......................... 496 387
Net assets held for disposal....................................... 156 156
------- -------
TOTAL CURRENT ASSETS............................................. 2,841 2,007
OTHER ASSETS.......................................................... 874 1,167
PROPERTY AND EQUIPMENT, at cost, less allowances for
depreciation and amortization of $10,006 and $7,322 at
September 27, 1998, and December 28, 1997, respectively............ 61,962 60,573
DEFERRED CHARGES, less amortization................................... 599 674
------- -------
$66,276 $64,421
======= =======
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
SEPTEMBER 27 December 28
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................................. $ 3,585 $ 3,573
Accrued expenses and other current liabilities............................... 3,370 3,048
Current portion of long-term debt and obligations under
capital leases............................................................. 1,922 1,922
------- -------
TOTAL CURRENT LIABILITIES.................................................. 8,877 8,543
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of portion classified as current................................. 23,535 20,231
DEFERRED COMPENSATION AND OTHER DEFERRED CREDITS................................ 700 652
STOCKHOLDERS' EQUITY
Common Stock, par value $.05 per share: Authorized 10,000,000
shares; issued and outstanding 5,431,354 and 5,421,538 shares at
September 27, 1998, and December 28, 1997, respectively.................... 272 272
Preferred Stock, no par value: Authorized 1,000,000 shares; none
issued..................................................................... -- --
Additional paid-in capital................................................... 29,930 29,909
Retained earnings............................................................ 3,905 5,757
------- -------
34,107 35,938
Note receivable - Employee Stock Ownership Plan..................... (943) (943)
------- -------
TOTAL STOCKHOLDERS' EQUITY........................................ 33,164 34,995
------- -------
$66,276 $64,421
======= =======
</TABLE>
See notes to consolidated condensed financial statements.
-3-
<PAGE> 4
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
SEPTEMBER 27 September 28 SEPTEMBER 27 September 28
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................... $53,694 $41,634 $18,087 $14,143
Costs and expenses:
Cost of sales............................ 18,651 13,985 6,141 4,721
Restaurant labor and related costs....... 18,002 13,639 6,033 4,814
Depreciation and amortization of
restaurant property and equipment...... 2,707 2,049 929 742
Other operating expenses................. 10,043 7,737 3,296 2,772
------- ------- ------- -------
Total restaurant operating expenses.... 49,403 37,410 16,399 13,049
------- ------- ------- -------
Income from restaurant operations........... 4,291 4,224 1,688 1,094
General and administrative expenses......... 4,065 4,058 1,282 1,571
Pre-opening expense......................... 660 1,161 296 551
Gain on Wendy's disposition................. -- 669 -- 300
------- ------- ------- -------
Operating income (loss) .................... (434) (326) 110 (728)
------- ------- ------- -------
Other income (expense):
Interest expense......................... (1,405) (690) (498) (230)
Interest income.......................... -- 186 -- 13
Other, net.................................. (13) 62 5 20
------- ------- ------- -------
Total other expense.................... (1,418) (442) (493) (197)
------- ------- ------- -------
Loss before income taxes.................... (1,852) (768) (383) (925)
Income tax benefit.......................... -- (297) -- (326)
------- ------- ------- -------
Loss before cumulative effect
of change in accounting principle........ (1,852) (471) (383) (599)
Cumulative effect of change in
accounting principle..................... -- (885) -- --
------- ------- ------- -------
Net loss.................................... $(1,852) $(1,356) $ (383) $ (599)
======= ======= ======= =======
Basic earnings per share:
Loss before accounting change............ $ (.34) $ (.09) $ (.07) $ (.11)
Cumulative effect of change in
accounting principle................... -- (.16) -- --
------- ------- ------- -------
Net loss................................. $ (.34) $ (.25) $ (.07) $ (.11)
======= ======= ======= =======
Diluted earnings per share:
Loss before accounting change............ $ (.34) $ (.09) $ (.07) $ (.11)
Cumulative effect of change in
accounting principle................... -- (.16) -- --
------- ------- ------- -------
Net loss................................. $ (.34) $ (.25) $ (.07) $ (.11)
======= ======= ======= =======
</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>
Nine Months Ended
SEPTEMBER 27 September 28
1998 1997
---- ----
<S> <C> <C>
Net cash provided (used) by operating activities................. $ 1,635 $ (805)
Net cash (used) by investing activities:
Purchase of property and equipment............................ (4,437) (13,548)
Other investing activities.................................... 324 (23)
-------- --------
(4,113) (13,571)
Net cash provided by financing activities:
Payments on debt and obligations under capital leases......... (1,909) (40)
Proceeds under bank line of credit agreement.................. 22,242 3,191
Payments under bank line of credit agreement.................. (17,029) (966)
Other financing activities.................................... 21 416
-------- --------
3,325 2,601
Increase (decrease) in Cash and Cash Equivalents................. 847 (11,775)
Cash and cash equivalents at beginning of period................. 134 12,549
-------- --------
Cash and Cash Equivalents at End of Period....................... $ 981 $ 774
======== ========
</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
1998 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 and nine months ended September
27, 1998, are not necessarily indicative of the results that may be expected for
the fiscal year ending January 3, 1999. 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 28,
1997.
NOTE B - SALE OF WENDY'S RESTAURANT OPERATIONS
In connection with the sale of its Wendy's restaurants in 1996, the
Company established various accruals for termination benefits and other costs
associated with its exit from the Wendy's business. At September 27, 1998, the
Company continues to maintain accruals related to the exit of the Wendy's
business totaling $260,000.
NOTE C - PRE-OPENING COSTS
Effective with the beginning of fiscal 1997, the Company changed its
method of accounting for pre-opening costs from deferring these costs and
amortizing them over 12 months subsequent to the restaurant's opening date to
expensing these costs as incurred and recorded the cumulative effect of this
change in accounting principle resulting in an after tax charge of $885,000
($.16 per share) in the first quarter of fiscal 1997, as restated. In addition
to the cumulative effect, the impact of this change on quarterly results for
1997 was as follows:
<TABLE>
<CAPTION>
Pre-opening expense Per share impact
Increase (decrease) Increase (decrease)
------------------- -------------------
<S> <C> <C>
First quarter $(110,000) $ .02
Second quarter 84,000 (.01)
Third quarter 245,000 (.03)
---------
$ 219,000
=========
</TABLE>
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<PAGE> 7
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
(In thousands, except per share amounts) Nine Months Ended Quarter Ended
----------------- -------------
SEPTEMBER 27 September 28 SEPTEMBER 27 September 28
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NUMERATOR:
Loss before cumulative effect of
change in accounting principle .......... $(1,852) $ (471) $ (383) $ (599)
Cumulative effect of change in accounting
principle ............................... -- (885) -- --
------- --------- ------- -------
Net loss (numerator for basic earnings per
share) .................................. (1,852) (1,356) (383) (599)
Effect of dilutive securities ................ -- -- -- --
------- --------- ------- -------
Net loss after assumed conversions (numerator
for diluted earnings per share) ......... $(1,852) $ (1,356) $ (383) $ (599)
======= ========= ======= =======
DENOMINATOR:
Weighted average shares (denominator for
basic earnings per share) ............... 5,431 5,422 5,431 5,422
Effect of dilutive securities:
Employee stock options .................. -- -- -- --
------- --------- ------- -------
Adjusted weighted average shares and
assumed conversions (denominator for
diluted earnings per share) ............. 5,431 5,422 5,431 5,422
======= ========= ======= =======
Basic earnings per share:
Loss before accounting change ........... $ (.34) $ (.09) $ (.07) $ (.11)
Cumulative effect of change in accounting
principle ........................... -- (.16) -- --
------- --------- ------- -------
Net loss ................................ $ (.34) $ (.25) $ (.07) $ (.11)
======= ========= ======= =======
Diluted earnings per share:
Loss before accounting change ........... $ (.34) $ (.09) $ (.07) $ (.11)
Cumulative effect of change in accounting
principle ........................... -- (.16) -- --
------- --------- ------- -------
Net loss ................................ $ (.34) $ (.25) $ (.07) $ (.11)
======= ========= ======= =======
</TABLE>
In situations where the exercise price of outstanding options is
greater than the average market price of common shares, such options are
excluded from the computation of diluted earnings per share because of their
antidilutive impact. Due to the net losses incurred during the first nine months
of both 1998 and 1997, as well as the third quarter of both 1998 and 1997, all
outstanding options were excluded from the computation of diluted earnings per
share for these periods. Options for the purchase of 633,000 shares of common
stock were outstanding at September 27, 1998, compared with 465,000 outstanding
at September 28, 1997.
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<PAGE> 8
NOTE E - COMPREHENSIVE INCOME
As of December 29, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes new rules for the reporting and display of comprehensive income
and its components. The adoption of this Statement had no impact on the
Company's results of operations or stockholders' equity. During the first nine
months of 1998 and 1997, total comprehensive income amounted to losses of
$1,852,000 and $1,356,000, respectively. For the third quarter of 1998 and 1997,
comprehensive income amounted to losses of $383,000 and $599,000, respectively.
-8-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, (i) the
percentages which the items in the Company's Consolidated Statements of
Operations bear to total net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
SEPT 27 Sept 28 SEPT 27 Sept 28
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales................................... 34.7 33.6 34.0 33.4
Restaurant labor and related costs.............. 33.5 32.8 33.4 34.0
Depreciation and amortization of
restaurant property and equipment........... 5.0 4.9 5.1 5.2
Other operating expenses........................ 18.7 18.6 18.2 19.6
----- ----- ----- -----
Total restaurant operating expenses......... 92.0 89.9 90.7 92.3
----- ----- ----- -----
Income from restaurant operations.................... 8.0 10.1 9.3 7.7
General and administrative expenses.................. 7.6 9.7 7.1 11.1
Pre-opening expense.................................. 1.2 2.8 1.6 3.9
Gain on Wendy's disposition.......................... -- 1.6 -- 2.1
----- ----- ----- -----
Operating income (loss).............................. (0.8) (0.8) 0.6 (5.1)
----- ----- ----- -----
Other income (expense):
Interest expense................................ (2.6) (1.7) (2.7) (1.6)
Interest income................................. -- 0.4 -- 0.1
Other, net...................................... -- 0.1 -- 0.1
----- ----- ----- -----
Total other income (expense)................ (2.6) (1.1) (2.7) (1.4)
----- ----- ----- -----
Income (loss) before income taxes.................... (3.4) (1.8) (2.1) (6.5)
Income tax provision (benefit)....................... -- 0.7 -- 2.3
----- ----- ----- -----
Income (loss) before cumulative effect of
change in accounting principle.................. (3.4) (1.1) (2.1) (4.2)
Cumulative effect of change in accounting
principle....................................... -- (2.1) -- --
----- ----- ----- -----
Net loss ............................................ (3.4)% (3.3)% (2.1)% (4.2)%
===== ===== ----- -----
Restaurants open at end of period.................... 20 16
Weighted average weekly sales per restaurant:
All restaurants................................. $73,300 $73,400 $72,600 $70,400
Same store restaurants.......................... $76,100 $73,600 $75,100 $70,500
</TABLE>
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<PAGE> 10
NET SALES
Net sales increased 29.0% and 27.9% for the first nine months and third
quarter of 1998, as compared to the same periods of 1997, due primarily to the
opening of new restaurants. Same store sales, which include comparable sales for
the 16 restaurants open for more than 12 months, averaged $76,100 and $75,100
per week for the first nine months and third quarter of 1998, representing
increases of 3.4% and 6.5% over the $73,600 and $70,500 recorded during the
corresponding periods of 1997. The increase in same store sales during the 1998
periods is attributed to increased guest counts and menu price increases of
approximately 3% which were implemented in each of March, May and July of 1998.
Same store sales trends have continued to remain positive in the fourth quarter.
Weighted average weekly sales for all restaurants, which reflect the impact of
lower sales volumes in new restaurants, were $73,300 and $72,600 for the first
nine months and third quarter of 1998, compared to $73,400 and $70,400 for the
corresponding periods in 1997.
Sales volumes in several of the Company's restaurants are currently
below management's expectations. However, the Company has undertaken a number of
initiatives to improve sales in these restaurants and most of them have shown
significant improvement throughout 1998. Steps taken to improve sales include
increased emphasis on improving service levels to the very high standards set by
the Company, the implementation of operational systems designed to provide
quicker service and increase table turns, and, in selected locations, local
marketing programs.
COSTS AND EXPENSES
Primarily due to the performance of newer restaurants which, as
discussed in previous filings, generally perform at lower sales and margin
levels than more mature restaurants, restaurant costs and expenses increased to
92.0% of net sales for the first nine months of 1998 compared to 89.9% in 1997.
Consequently, restaurant operating income as a percentage of sales decreased to
8.0% for the first nine months of 1998 compared to 10.1% in the corresponding
period of 1997.
For the quarter ended September 27, 1998, restaurant costs and expenses
decreased to 90.7% of net sales compared to 92.3% for the corresponding quarter
in 1997. Consequently, restaurant operating income as a percentage of net sales
increased to 9.3% in 1998 compared to 7.7% in 1997. The improvement in margins
during the third quarter of 1998 is primarily related to other operating
expenses, as management's emphasis on expense control, combined with operating
efficiencies achieved at higher sales levels, more than offset increased
utilities expense and rental expense associated with new restaurant development.
Restaurant operating income for the same store group of 16 restaurants
totaled 11.4% and 11.2% for the first nine months and third quarter of 1998,
compared to 10.4% and 8.0% during the same periods in 1997. Improved operating
margins for both the first nine months and third quarter of 1998 are primarily
attributed to the 3.4% and 6.5% sales increases recorded during the 1998
periods. Operating efficiencies were realized at the higher sales levels in
labor, depreciation and amortization and other operating expenses and more than
offset slight increases related to the cost of sales during the 1998 periods.
Because of the high level of fixed costs necessary to deliver and
sustain the high levels of food quality, service and ambiance which are
components of the J. Alexander's concept, management believes that it is
critical that sales be improved significantly in a number of the Company's
restaurants in order to achieve an acceptable level of profitability. Management
believes that all or virtually all of the Company's restaurants have the
potential over time to reach satisfactory sales levels.
-10-
<PAGE> 11
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which include supervisory costs as
well as management training costs and all other costs above the restaurant
level, totaled 7.6% and 7.1% of net sales during the first nine months and third
quarter of 1998, down from 9.7% and 11.1% recorded during the corresponding
periods of 1997. The decreases during the 1998 periods include the effects of
favorable experience under the Company's workers' compensation program for the
current and prior policy years and the Company's self-insured group medical
insurance program which, when coupled with operating efficiencies achieved at
higher sales levels, more than offset increases in management training costs,
relocation costs for restaurant management personnel and, with respect to the
nine-month comparison, increased corporate office rent resulting from the
expiration and renegotiation of the Company's office space lease in mid-1997.
Management anticipates that general and administrative expenses will increase
somewhat during the fourth quarter of 1998 but, as a percentage of sales, will
remain significantly below the 1997 level.
PRE-OPENING EXPENSE
In 1997 the Company changed its accounting policy for pre-opening costs
to expense them as incurred, rather than deferring and amortizing them over a
period of 12 months from each restaurant's opening. This change was effective as
of the beginning of 1997 and resulted in a charge of $885,000 in the first
quarter of 1997 to record its cumulative effect. The decreases in pre-opening
expense in the first nine months and third quarter of 1998, compared to the
corresponding periods of 1997, as restated to reflect the new accounting policy,
were due to the timing of restaurant openings and related costs in the
respective periods as well as to the reduced number of restaurants opened in the
last half of 1998 as compared to 1997.
OTHER INCOME (EXPENSE)
Interest expense increased by $715,000 and $268,000 during the first
nine months and third quarter of 1998 compared to the same periods of the prior
year due to the use of the Company's line of credit to fund development of new
restaurants and due to lower amounts of capitalized interest resulting from the
Company's lower new unit development rate.
There was no interest income for the first nine months and third
quarter of 1998 compared to $186,000 and $13,000 for the same periods of 1997
due to the use in 1997 of the remaining proceeds from the Company's Wendy's
divestiture in 1996 to fund a portion of the cost of developing new J.
Alexander's restaurants.
INCOME TAXES
No income tax benefits were recorded on the pre-tax losses for the
first nine months and third quarter of 1998 as management was unable to conclude
that it was more likely than not that the carryforwards generated by these and
previous losses would be realized. For the 1997 periods, tax benefits totaling
38.7% and 35.2% of pre-tax income were recorded for the first nine months and
third quarter, respectively.
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<PAGE> 12
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, the Company had cash flow from
operations of $1,635,000 as compared to a cash flow deficit from operations of
$805,000 during the first nine months of 1997. Cash and cash equivalents
increased from $134,000 at year end 1997 to $981,000 at September 27, 1998.
The Company's primary need for capital is expected to continue to be
capital expenditures for the development and maintenance of its J. Alexander's
restaurants. In addition, the Company has a $1,875,000 sinking fund payment due
annually on June 1 related to its Convertible Subordinated Debentures.
The Company has opened new restaurants in Louisville, Kentucky (March)
and Baton Rouge, Louisiana (September) during 1998. Capital expenditures for the
first nine months of 1998 were $4,311,000 and, for the full year, management
estimates that capital expenditures will total approximately $4.5 million.
The Company maintains a $20 million bank line of credit which is
expected to be used as the Company's primary means for funding of capital
expenditures in 1998 and 1999 and which will also provide liquidity for meeting
working capital or other needs. At September 27, 1998, borrowings outstanding
under this line of credit were $11,436,000. The line of credit agreement
contains certain covenants which require the Company to achieve specified
results of operations and specified levels of EBITDA (earnings before interest,
taxes, depreciation and amortization) to senior debt. Based on the Company's
current assessment of its business, the Company believes it will comply with
those covenants. The credit agreement also contains limitations on capital
expenditures and restaurant development by the Company (generally limiting the
Company to the development of two new restaurants per year) and restricts the
Company's ability to incur additional debt outside the bank line of credit. The
interest rate on borrowings under the line of credit is LIBOR plus three
percent. The line of credit expires on July 1, 2000 and includes an option to
convert outstanding borrowings to a term loan at that time. The Company believes
that amounts available for borrowing under the line of credit will be sufficient
to fund the development of J. Alexander's restaurants for 1998 and 1999.
IMPACT OF THE YEAR 2000 ISSUE
INTRODUCTION. The term "Year 2000" issue is a general term used to
describe the various problems that may result from the improper processing of
dates and date-sensitive calculations by computers and other machinery as the
year 2000 is approached and reached. These problems generally arise from the
fact that most of the world's computer hardware and software has historically
used only two digits to identify the year in a date, often meaning that the
computer will fail to distinguish dates in the "2000's" from dates in the
"1900's". These problems may also arise from other sources as well, such as the
use of special codes and conventions in software that make use of the date
field. The following information was prepared to comply with the guidelines for
Year 2000 disclosure that the Securities and Exchange Commission (the
Commission) issued in an Interpretive Release, effective August 4, 1998. These
guidelines required significantly more and detailed information than was
previously required by the Commission.
-12-
<PAGE> 13
THE COMPANY'S STATE OF READINESS. The Company's key financial,
informational and operational systems have been assessed and detailed plans have
been developed to address system modifications required by September 30, 1999.
These systems include information technology systems ("IT"). The Company has
assessed its major IT vendors and technology providers and is in the process of
testing its systems to determine Year 2000 compliance. In addition, the Company
is in the process of assessing its non-IT systems that utilize embedded
technology such as microcontrollers and reviewing them for Year 2000 compliance.
To operate its business, the Company relies upon government agencies,
utility companies, providers of telecommunication services, suppliers, and other
third party service providers ("Material Relationships"), over which it can
assert little control. The Company's ability to conduct its core business is
dependent upon the ability of these Material Relationships to fix their Year
2000 issues to the extent they affect the Company. If the telecommunications
carriers, public utilities and other Material Relationships do not appropriately
rectify their Year 2000 issues, the Company's ability to conduct its core
business may be materially impacted, which could result in a material adverse
effect on the Company's financial condition.
The Company has begun an assessment of all Material Relationships to
determine risk and assist in the development of contingency plans. This effort
is to be completed by June 30, 1999.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES. The Company expenses
costs associated with Year 2000 system changes as the costs are incurred except
for system change costs that the Company would otherwise capitalize. To date,
the Company has incurred costs of approximately $10,000 in connection with its
Year 2000 compliance plan ("Year 2000 Plan") and estimates it will spend an
additional $50,000 to $150,000 to complete its Year 2000 Plan. The financial
impact of these expenses has not been material, and the Company does not expect
future remediation costs to be material to the Company's consolidated financial
position or results of operations. However, the Company is unable to estimate
the costs that it may incur as a result of Year 2000 problems suffered by the
parties with which it deals, such as Material Relationships, and there can be no
assurance that the Company will successfully address the Year 2000 problems
present in its own systems.
RISKS PRESENTED BY YEAR 2000 PROBLEMS. The Company will soon begin the
testing phase of its Year 2000 Plan. However, until testing is substantially in
process the Company cannot fully assess the risks of its Year 2000 issue. As a
result of the testing process, the Company may identify areas of its business
that are at risk of Year 2000 disruption. The absence of any such determination
at this point represents only the current status of the implementation of the
Company's Year 2000 Plan, and should not be construed to mean that there is no
area of the Company's business which is at risk of a Year 2000 related
disruption. As noted above, many of the Company's business critical Material
Relationships may not appropriately address their Year 2000 issues, the result
of which could have a material adverse affect on the Company's financial
condition and results of operations.
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<PAGE> 14
THE COMPANY'S CONTINGENCY PLANS. The Company's Year 2000 Plan calls for
the development of contingency plans for areas of the business that are
determined to be susceptible to a substantive risk of a disruption resulting
from a Year 2000 related event. Because the Company has yet to begin testing,
and accordingly has not fully assessed its risk from potential Year 2000
failures, the Company has not yet developed detailed contingency plans specific
to Year 2000 events for any specific area of business. The Company does,
however, maintain contingency plans, outside of the scope of the Year 2000
issue, designed to address various other business interruptions. The Company is
prepared for the possibility that the testing process may hereafter identify
certain areas of business at risk. Consistent with its Year 2000 Plan, the
Company will develop specific Year 2000 contingency plans, to the extent
practicable, for such areas of business as and if such determinations are made.
FORWARD-LOOKING STATEMENTS
Certain information contained in this Form 10-Q, particularly
information regarding future economic performance and finances, development
plans, and objectives of management is forward-looking information that involves
risks, uncertainties and other factors that could cause actual results to differ
materially from those expressed or implied by forward-looking statements.
Factors which could affect actual results include, but are not limited to, the
Company's ability to increase sales in certain of its restaurants; the Company's
ability to recruit and train qualified restaurant management personnel;
competition within the casual dining industry, which is very intense; changes in
business and economic conditions; changes in consumer tastes; and government
regulations.
-14-
<PAGE> 15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (27) Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed for the quarter ended September
27, 1998.
-15-
<PAGE> 16
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: November 10, 1998
-16-
<PAGE> 17
J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
(27) Financial Data Schedules (For SEC Use Only)
</TABLE>
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE NINE-MONTH PERIOD
ENDED SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-START> DEC-29-1997
<PERIOD-END> SEP-27-1998
<CASH> 981
<SECURITIES> 0
<RECEIVABLES> 131
<ALLOWANCES> 0
<INVENTORY> 677
<CURRENT-ASSETS> 2,841
<PP&E> 71,968
<DEPRECIATION> 10,006
<TOTAL-ASSETS> 66,276
<CURRENT-LIABILITIES> 8,877
<BONDS> 23,535
0
0
<COMMON> 272
<OTHER-SE> 32,892
<TOTAL-LIABILITY-AND-EQUITY> 66,276
<SALES> 53,694
<TOTAL-REVENUES> 53,694
<CGS> 18,651
<TOTAL-COSTS> 36,653
<OTHER-EXPENSES> 12,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,405
<INCOME-PRETAX> (1,852)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,852)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
