<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 July 4, 1999
------------
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
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(Exact name of Registrant as specified in its charter)
Tennessee 62-0854056
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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)
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(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 - 6,772,216 shares at August 17, 1999.
Page 1 of 16 pages.
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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>
JULY 4 January 3
1999 1999
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................................ $ 796 $ 1,022
Accounts and notes receivable, including current portion of
direct financing leases ........................................ 107 77
Inventories ...................................................... 807 800
Prepaid expenses and other current assets ........................ 505 324
-------- --------
TOTAL CURRENT ASSETS ........................................... 2,215 2,223
OTHER ASSETS ........................................................ 898 887
PROPERTY AND EQUIPMENT, at cost, less allowances for
depreciation and amortization of $12,786 and $11,053 at
July 4, 1999, and January 3, 1999, respectively .................. 60,720 61,440
DEFERRED CHARGES, less amortization ................................. 532 570
-------- --------
$ 64,365 $ 65,120
======== ========
</TABLE>
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<TABLE>
<CAPTION>
JULY 4 January 3
1999 1999
-------- --------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................................. $ 3,167 $ 3,491
Accrued expenses and other current liabilities ................... 2,879 3,893
Current portion of long-term debt and obligations under
capital leases ................................................. 1,733 1,917
-------- --------
TOTAL CURRENT LIABILITIES ...................................... 7,779 9,301
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of portion classified as current ..................... 17,051 21,361
OTHER LONG-TERM LIABILITIES ......................................... 925 727
STOCKHOLDERS' EQUITY
Common Stock, par value $.05 per share: Authorized 10,000,000
shares; issued and outstanding 6,772,216 and 5,431,335 shares at
July 4, 1999, and January 3, 1999, respectively ................ 339 272
Preferred Stock, no par value: Authorized 1,000,000 shares; none
issued ......................................................... -- --
Additional paid-in capital ....................................... 34,741 30,007
Retained earnings ................................................ 4,350 4,272
-------- --------
39,430 34,551
Note receivable - Employee Stock Ownership Plan .................. (820) (820)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ..................................... 38,610 33,731
-------- --------
$ 64,365 $ 65,120
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Six Months Ended Quarter Ended
-------------------- --------------------
JULY 4 June 28 JULY 4 June 28
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .................................... $ 37,970 $ 35,607 $ 18,762 $ 18,095
Costs and expenses:
Cost of sales ............................. 12,245 12,510 6,151 6,318
Restaurant labor and related costs ........ 12,871 11,969 6,498 6,004
Depreciation and amortization of
restaurant property and equipment........ 1,820 1,778 900 925
Other operating expenses .................. 7,115 6,747 3,590 3,383
-------- -------- -------- --------
Total restaurant operating expenses...... 34,051 33,004 17,139 16,630
General and administrative expenses .......... 3,108 2,783 1,405 1,288
Pre-opening expense .......................... -- 364 -- 53
-------- -------- -------- --------
Operating income (loss) ...................... 811 (544) 218 124
Other income (expense):
Interest expense .......................... (823) (907) (372) (489)
Other, net ................................ 123 (18) (12) --
-------- -------- -------- --------
Total other income (expense) ............ (700) (925) (384) (489)
-------- -------- -------- --------
Income (loss) before income taxes ............ 111 (1,469) (166) (365)
Income tax provision ......................... (33) -- -- --
-------- -------- -------- --------
Net income (loss) ............................ $ 78 $ (1,469) $ (166) $ (365)
======== ======== ======== ========
Basic earnings (loss) per share .............. $ .01 $ (.27) $ (.03) $ (.07)
======== ======== ======== ========
Diluted earnings (loss) per share ............ $ .01 $ (.27) $ (.03) $ (.07)
======== ======== ======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
--------------------
JULY 4 June 28
1999 1998
-------- --------
<S> <C> <C>
Net cash provided by operating activities ................ $ 806 $ 1,079
Net cash provided (used) by investing activities:
Purchase of property and equipment .................... (1,312) (2,793)
Other investing activities ............................ (27) 309
-------- --------
(1,339) (2,484)
Net cash provided (used) provided by financing activities:
Payments on debt and obligations under capital leases . (2,075) (1,893)
Proceeds under bank line of credit agreement .......... 14,538 15,326
Payments under bank line of credit agreement .......... (16,957) (11,337)
Sale of stock and exercise of stock options ........... 4,801 1
-------- --------
307 2,097
(Decrease) increase in cash and cash equivalents ......... (226) 692
Cash and cash equivalents at beginning of period ......... 1,022 134
-------- --------
Cash and cash equivalents at end of period ............... $ 796 $ 826
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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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
1999 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 six months ended July 4,
1999, are not necessarily indicative of the results that may be expected for the
fiscal year ending January 2, 2000. 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 January 3, 1999,
as amended.
NOTE B - 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) Six Months Ended Quarter Ended
---------------- ------------------
JULY 4 June 28 JULY 4 June 28
1999 1998 1999 1998
------ ------- ------- -------
<S> <C> <C> <C> <C>
NUMERATOR:
Net income (loss) (numerator for basic earnings
per share) .................................. $ 78 $(1,469) $ (166) $ (365)
Effect of dilutive securities .................... -- -- -- --
------ ------- ------- -------
Net income (loss) after assumed conversions
(numerator for diluted earnings per share) .. $ 78 $(1,469) $ (166) $ (365)
====== ======= ======= =======
DENOMINATOR:
Weighted average shares (denominator for basic
earnings per share) ......................... 6,083 5,421 6,566 5,421
Effect of dilutive securities:
Employee stock options ...................... 166 -- -- --
------ ------- ------- -------
Adjusted weighted average shares and assumed
conversions (denominator for diluted earnings
per share) .................................. 6,249 5,421 6,566 5,421
====== ======= ======= =======
Basic earnings (loss) per share .................. $ .01 $ (.27) $ (.03) $ (.07)
====== ======= ======= =======
Diluted earnings (loss) per share ................ $ .01 $ (.27) $ (.03) $ (.07)
====== ======= ======= =======
</TABLE>
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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 six months of 1998, as well as
the second quarter of both 1999 and 1998, all outstanding options were excluded
from the computation of diluted earnings per share for these periods. Options
for the purchase of approximately 222,000 shares of common stock, ranging in
price from $4.97 to $11.69, were excluded from the computation of diluted
earnings per share for the first six months of 1999 due to their antidilutive
effect.
NOTE C - SALE OF STOCK
On March 22, 1999, the Company completed a private sale of 1,086,266
shares of common stock for approximately $4.1 million to Solidus, LLC
("Solidus"). E. Townes Duncan, a director of the Company, is a minority owner of
and manages the investments of Solidus. In addition, on June 21, 1999 the
Company completed a rights offering wherein shareholders of the Company
purchased an additional 240,615 shares of common stock at a price of $3.75 per
share, which was the same price per share as stock sold in the private sale.
When combined with the proceeds from the private sale noted above, the rights
offering raised net proceeds to the Company of approximately $4.8 million, which
was used to repay a portion of the debt outstanding under the Company's
revolving credit facility. Amounts repaid can be reborrowed in accordance with
the terms of the line of credit agreement.
NOTE D - PROPERTY AND EQUIPMENT
Effective as of January 4, 1999, the Company changed the estimated
useful life of its buildings from 25 years to 30 years. Also, the estimated life
of leasehold improvements was changed to include an amortization period based on
the lesser of the lease term, generally including renewal options, or the useful
life of the asset, including the longer 30 year life for structures. The effect
of these changes was to increase net income for the quarter and six month
periods ended July 4, 1999 by approximately $85,000 and $151,000, respectively,
representing an increase to diluted earnings per share of $.01 and $.02 for the
respective periods.
NOTE E - SHAREHOLDER RIGHTS PLAN
Effective May 6, 1999, the Company's Board of Directors amended the
existing shareholder rights plan by extending the final expiration date to May
16, 2004.
NOTE F - COMPREHENSIVE INCOME
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income". The Company has no items of
comprehensive income and, accordingly, adoption of the Statement has had no
effect on the consolidated financial statements.
-7-
<PAGE> 8
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>
Six Months Ended Quarter Ended
----------------------- -----------------------
JULY 4 June 28 JULY 4 June 28
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ................................... 100.0% 100.0% 100.0% 100.0 %
Costs and expenses:
Cost of sales .......................... 32.2 35.1 32.8 34.9
Restaurant labor and related costs ..... 33.9 33.6 34.6 33.2
Depreciation and amortization of
restaurant property and equipment .. 4.8 5.0 4.8 5.1
Other operating expenses ............... 18.7 18.9 19.1 18.7
--------- --------- --------- ---------
Total restaurant operating expenses 89.7 92.7 91.3 91.9
General and administrative expenses ......... 8.2 7.8 7.5 7.1
Pre-opening expense ......................... -- 1.0 -- 0.3
--------- --------- --------- ---------
Operating income (loss) ..................... 2.1 (1.5) 1.2 0.7
Other income (expense):
Interest expense ....................... (2.2) (2.5) (2.0) (2.7)
Other, net ............................. 0.3 (0.1) (0.1) --
--------- --------- --------- ---------
Total other income (expense) ....... (1.8) (2.6) (2.1) (2.7)
--------- --------- --------- ---------
Income (loss) before income taxes ........... 0.3 (4.1) (0.9) (2.0)
Income tax provision ........................ (0.1) -- -- --
--------- --------- --------- ---------
Net income (loss) ........................... 0.2% (4.1)% (0.9)% (2.0)%
========= ========= ========= =========
Restaurants open at end of period ........... 20 19
Weighted average weekly sales per restaurant:
All restaurants ........................ $ 73,100 $ 73,600 $ 72,300 $ 73,300
Same store restaurants ................. $ 75,300 $ 73,700 $ 73,800 $ 73,300
</TABLE>
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<PAGE> 9
NET SALES
Net sales increased 6.6% and 3.7% for the first six months and second
quarter of 1999, as compared to the same periods of 1998, due primarily to the
opening of new restaurants. Same store sales, which include comparable sales for
the 19 restaurants open for more than 12 months, averaged $75,300 and $73,800
for the first six months and second quarter of 1999, representing increases of
2.2% and 0.7% over the $73,700 and $73,300 recorded during the corresponding
periods of 1998. The increases in same store sales during the 1999 periods are
primarily attributed to the impact of three separate menu price increases of
approximately 3% each which were implemented in the months of March, May and
July of 1998. The average guest check, excluding alcoholic beverage sales,
increased by approximately 5% during the second quarter of 1999 compared to the
same period in 1998. Weighted average weekly sales for all restaurants, which
reflect the full impact of lower sales volumes in new restaurants opened in
1998, were $73,100 and $73,200 for the first six months and second quarter of
1999, compared to $73,600 and $73,300 for the corresponding periods of 1998.
As noted in previous filings, the Company's newer restaurants continue
to significantly affect its overall financial performance. As an indication of
this, the Company's 14 restaurants opened prior to 1997 posted restaurant
operating margins of 14.7% for the first half of 1999, while averaging weekly
sales per restaurant of $79,300. Restaurant margins for the remaining six
restaurants were a negative 3.6% for this period on average weekly sales of
$58,500. The Company's three newest restaurants posted losses at the restaurant
level of approximately $700,000 for the first six months of 1999. The Company
was profitable for the first quarter of 1999 and for the year to date, but was
not profitable for the second quarter of the year. Management believes that the
primary issue faced by the Company in achieving and maintaining profitability
is the improvement of sales and operating results in its newer restaurants.
Management intends to accomplish this through a series of initiatives which
began in 1997 when guest service support was increased in some of the Company's
newer restaurants in order to ensure the highest quality of operations. Other
actions taken include the implementation of operational systems designed to
provide quicker service and increase table turns and the implementation during
the fourth quarter of 1998 of an extensive profit improvement plan which
included certain menu and procedural changes and which took advantage of
significant purchasing opportunities. This plan resulted in significant food
cost savings without sacrificing product quality, while also improving the
quality and efficiency of operations. Management believes that all or virtually
all of the Company's restaurants have the potential over time to reach
satisfactory sales levels.
COSTS AND EXPENSES
Restaurant costs and expenses for all restaurants decreased to 89.7%
and 91.3% of net sales for the first six months and second quarter of 1999,
compared to 92.7% and 91.9% for the corresponding periods in 1998. These
decreases were due to reductions in restaurant costs and expenses in the same
store group of 19 restaurants from 92.5% and 91.9% of sales during the first six
months and second quarter of 1998 to 88.0% and 90.1% of sales during the
comparable periods in 1999, with such reductions more than offsetting higher
costs associated with the two new restaurants opened during 1998. For both
groups of restaurants, the decreases were due primarily to lower cost of sales
resulting from management's emphasis on increased efficiencies in this area,
including the profit improvement plan discussed previously, and the menu price
increases noted above. Despite the overall decrease in restaurant costs and
expenses, labor costs as a percentage of sales did increase, particularly in the
second quarter of 1999, when compared to the prior year due to increased labor
rate pressures, emphasis on staffing levels to ensure that appropriately high
levels of service are maintained, and special support programs in certain of the
Company's newer restaurants.
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<PAGE> 10
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative costs, which include supervisory costs as
well as management training costs and all other costs above the restaurant
level, totaled 8.2% and 7.5% of sales during the first six months and second
quarter of 1999, as compared to 7.8% and 7.1% of sales in the corresponding
periods of 1998. These increases were due primarily to favorable experience
under the Company's workers' compensation program which were included in the
1998 results. The Company also recorded the effect of favorable workers'
compensation experience in the second quarter of 1999, though not to the extent
as was included in the 1998 results. Primarily because the Company does not
expect to record further benefits of significance under its workers'
compensation program for the remainder of 1999 and because of expected increases
in training and other costs, general and administrative expenses for the third
and fourth quarters of 1999 are expected to be higher than for the second
quarter of 1999. Also, management anticipates that general and administrative
expenses will continue to represent a higher percentage of sales for the last
half of 1999 than for the last half of 1998 due, in part, to favorable
experience under the Company's workers' compensation program recorded during the
1998 period.
PRE-OPENING EXPENSE
The Company expenses pre-opening costs as incurred. As a result of the
timing of new restaurant openings, there was no pre-opening expense during the
first six months and second quarter of 1999. Pre-opening expense of $364,000 and
$53,000 during the first six months and second quarter of 1998 related to the
Louisville and Baton Rouge restaurants which opened in March and September of
1998, respectively.
OTHER INCOME (EXPENSE)
Interest expense decreased by $84,000 and $117,000 during the first six
months and second quarter of 1999 as compared to the corresponding periods in
1998 due primarily to the impact of reduced balances associated with the
Company's convertible subordinated debentures and a reduction in the Company's
line of credit after applying proceeds from sales of stock in March and June,
1999, to the outstanding balance on the line.
Other income increased $141,000 during the first six months of 1999 as
compared to the same period in 1998 due primarily to a $104,000 gain associated
with the Company's purchase of a portion of its outstanding convertible
debentures.
INCOME TAXES
The Company has recorded a tax provision for the first six months of
1999 totaling $33,000. No income tax benefit was recorded on the pre-tax losses
for the first six months and second 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash flow from operations totaling $806,000 and
$1,079,000 during the first six months of 1999 and 1998, respectively. Cash and
cash equivalents decreased from $1,022,000 at year end 1998 to $796,000 at July
4, 1999.
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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. The Company also has an annual sinking fund requirement of
$1,875,000 in connection with its Convertible Subordinated Debentures which has
been met through June 1, 1999. In addition, the Company has purchased
approximately $700,000 principal amount of these bonds, of which approximately
$500,000 principal amount were purchased subsequent to the end of the second
quarter, in the open market to be used toward the 2000 sinking fund requirement.
Management estimates that capital expenditures for 1999 for the West
Bloomfield, Michigan restaurant which will be located on leased land and opened
in 1999; for partial completion of the planned Cincinnati, Ohio restaurant (also
to be located on leased land) for which construction is expected to begin in the
fall of 1999 to be completed in 2000; and for other additions and improvements
to existing restaurants will total approximately $4.5 million. Although the
Company is seeking a location for an additional restaurant to be opened in 2000,
it does not expect to make significant cash outlays in 1999 with respect to any
such location.
While a working capital deficit of $5,564,000 existed as of July 4,
1999, the Company does not believe that this deficit impairs the overall
financial condition of the Company because it expects cash flow from operations
to be adequate to meet current obligations, including the annual sinking fund
payment noted above. Certain of the Company's expenses, particularly
depreciation and amortization, do not require current outlays of cash. Also,
requirements for funding accounts receivable and inventories are relatively
insignificant; thus virtually all cash generated by operations is available to
meet current obligations.
The Company maintains a bank line of credit of $20 million which is
expected to be used as needed for funding of capital expenditures through its
expiration date of July 1, 2000 and which will also provide liquidity for
meeting working capital or other needs. At July 4, 1999, borrowings outstanding
under this line of credit were $6,851,000. The line of credit agreement contains
certain covenants which require the Company to achieve specified levels of
senior debt to EBITDA (earnings before interest, taxes, depreciation and
amortization) and to maintain certain other financial ratios. The Company was in
compliance with these covenants at July 4, 1999 and, based on a current
assessment of its business, believes it will continue to comply with those
covenants through July 1, 2000. The credit agreement also contains certain
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
currently based on LIBOR plus a spread of two to three percent, depending on the
ratio of senior debt to EBITDA. The line of credit includes an option to convert
outstanding borrowings to a term loan prior to July 1, 2000. However, the
Company expects to seek an extension of the credit line prior to that time.
Management believes that it has the ability to complete related negotiations
prior to July 1, 2000 and that the line of credit will provide adequate
liquidity for the Company through 2000; however, there can be no assurance that
the Company will be successful in obtaining modifications to its existing credit
agreement.
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<PAGE> 12
In March 1999 the Company developed a plan for raising additional
equity capital to further strengthen its financial position and, as part of this
plan, completed a private sale of 1,086,266 shares of common stock for
approximately $4.1 million. In addition, on June 21, 1999, the Company completed
a rights offering wherein shareholders of the Company purchased an additional
240,615 shares of common stock at a price of $3.75 per share, which was the same
price per share as stock sold in the private sale. The private sale noted above
and the rights offering raised net proceeds to the Company of approximately $4.8
million which were used to repay a portion of the debt outstanding under the
Company's revolving credit facility. Amounts repaid can be reborrowed in
accordance with the terms of the line of credit agreement. The Company believes
that raising additional equity capital and repaying a portion of its outstanding
debt will benefit the Company by reducing its debt to equity ratio and reducing
interest expense and that it will provide greater flexibility to the Company in
providing for future financing needs.
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 COMPANY'S STATE OF READINESS. The Company has completed its
assessment of its internal information technology systems and its major
information technology vendors and detailed plans have been developed to address
system modifications required by September 30, 1999. Generally, the Company's
information systems are relatively new systems based on personal computer,
rather than mainframe, technology. As a result, the Company's remediation
process consists primarily of replacing personal computers which are not Year
2000 compliant and installing upgrades from certain third party software vendors
which the Company has been advised will make that software Year 2000 compliant.
As indicated, the assessment phase with respect to information technology
systems has been completed. With respect to remediation, all of the Company's
personal computers have been tested for Year 2000 compliance, and replaced as
necessary. Software upgrades are expected to be installed on or before August
31, 1999, with testing completed by September 30, 1999. The Company estimates
that its Year 2000 readiness initiative with respect to its information
technology systems is approximately 75% complete.
The Company is currently in the process of assessing its
non-information technology systems that utilize embedded technology such as
microcontrollers and reviewing them for Year 2000 compliance. The Company will
continue to assess these systems and take appropriate action with respect to
non-Year 2000 compliant systems of this nature where practicable. However, the
Company does not believe that non-Year 2000 compliance of these systems will
have a material effect on the Company's operations.
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<PAGE> 13
The Company's information systems are generally not interfaced with
third party vendors. However, 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
had discussions with a number of its Material Relationships regarding their Year
2000 readiness and has surveyed certain of its Material Relationships in order
to obtain additional information from them which will be used to further assess
its risks and assist in the development of contingency plans prior to the end of
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 $15,000 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 has begun the
testing phase of its Year 2000 Plan. However, until testing is complete 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 effect on the Company's financial condition and results of
operations.
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 substantial risk of a disruption resulting from
a Year 2000 related event. Because the Company's remediation, testing and, with
respect to Material Relationships, assessment phases are not complete, it has
not fully assessed its risk from potential Year 2000 failures and 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.
-13-
<PAGE> 14
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, particularly
its newer 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the disclosures set forth in
Item 7a of the Company's Annual Report on Form 10-K, as amended, filed with the
Commission on May 14, 1999.
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
As set forth in the Company's Form 8-A/A, Amendment No. 2
filed on May 12, 1999, effective May 6, 1999, the Company's
Board of Directors amended the existing shareholder rights
plan by extending the final expiration date to May 16, 2004.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit (27) Financial Data Schedule (for SEC use only)
(b) The following Current Reports on Form 8-K were filed for the
quarter ended July 4, 1999:
On May 28, 1999, the Company filed a Form 8-K containing Item
5 describing a press release dated May 28, 1999 (also filed as
an exhibit pursuant to Item 7 of Form 8-K) stating that the
Company's Board of Directors had declined to pursue
discussions regarding a contingent proposal by O'Charley's,
Inc. to purchase the Company for $5.50 per share in cash.
On June 23, 1999, the Company filed a Form 8-K containing Item
5 describing a press release dated June 22, 1999 (also filed
as an exhibit pursuant to Item 7 of Form 8-K) stating that the
Company's rights offering to existing holders of its common
stock had closed.
-14-
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J. ALEXANDER'S CORPORATION
/s/ Lonnie J. Stout II
-----------------------------------------------
Lonnie J. Stout II
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ R. Gregory Lewis
-----------------------------------------------
R. Gregory Lewis
Vice-President and Chief Financial Officer
(Principal Financial Officer)
Date: August 17, 1999
-15-
<PAGE> 16
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>
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF AND FOR THE SIX MONTH
PERIOD ENDED JULY 4, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-02-2000
<PERIOD-START> JAN-04-1999
<PERIOD-END> JUL-04-1999
<CASH> 796
<SECURITIES> 0
<RECEIVABLES> 107
<ALLOWANCES> 0
<INVENTORY> 807
<CURRENT-ASSETS> 2,215
<PP&E> 73,506
<DEPRECIATION> 12,786
<TOTAL-ASSETS> 64,365
<CURRENT-LIABILITIES> 7,779
<BONDS> 17,051
0
0
<COMMON> 339
<OTHER-SE> 38,271
<TOTAL-LIABILITY-AND-EQUITY> 64,365
<SALES> 37,970
<TOTAL-REVENUES> 37,970
<CGS> 12,245
<TOTAL-COSTS> 25,116
<OTHER-EXPENSES> 8,935
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 823
<INCOME-PRETAX> 111
<INCOME-TAX> 33
<INCOME-CONTINUING> 78
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78
<EPS-BASIC> .01
<EPS-DILUTED> .01
</TABLE>
