<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 April 2, 2000
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)
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 - 6,851,950 shares at May 15, 2000.
Page 1 of 14 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>
APRIL 2 January 2
2000 2000
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................................ $ 655 $ 933
Accounts and notes receivable, including current portion of
direct financing leases ........................................ 120 103
Inventories ...................................................... 629 703
Prepaid expenses and other current assets ........................ 485 422
-------- --------
TOTAL CURRENT ASSETS ............................................. 1,889 2,161
OTHER ASSETS ........................................................ 891 844
PROPERTY AND EQUIPMENT, at cost, less allowances for
depreciation and amortization of $15,424 and $14,495 at
April 2, 2000, and January 2, 2000, respectively ................. 62,280 62,142
DEFERRED CHARGES, less amortization ................................. 466 488
-------- --------
$ 65,526 $ 65,635
======== ========
</TABLE>
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<TABLE>
<CAPTION>
APRIL 2 January 2
2000 2000
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(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ................................................. $ 1,709 $ 2,254
Accrued expenses and other current liabilities ................... 4,594 3,630
Unearned revenue ................................................. 1,277 1,691
Current portion of long-term debt and obligations under
capital leases ................................................. 22 995
-------- --------
TOTAL CURRENT LIABILITIES ...................................... $ 7,602 8,570
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL
LEASES, net of portion classified as current ..................... 18,790 18,128
OTHER LONG-TERM LIABILITIES ......................................... 1,280 1,097
STOCKHOLDERS' EQUITY
Common Stock, par value $.05 per share: Authorized 10,000,000
shares; issued and outstanding 6,851,950 and 6,772,209 shares at
April 2, 2000, and January 2, 2000, respectively ............... 342 339
Preferred Stock, no par value: Authorized 1,000,000 shares; none
issued ......................................................... -- --
Additional paid-in capital ....................................... 34,756 34,733
Retained earnings ................................................ 4,445 3,940
-------- --------
39,543 39,012
Note receivable - Employee Stock Ownership Plan .................. (686) (686)
Employee receivables - 1999 Loan Program ......................... (1,003) (486)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ..................................... 37,854 37,840
-------- --------
$ 65,526 $ 65,635
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
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J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Quarter Ended
----------------------
APRIL 2 April 4
2000 1999
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<S> <C> <C>
Net sales ................................................. $ 22,208 $ 19,208
Costs and expenses:
Cost of sales .......................................... 6,939 6,094
Restaurant labor and related costs ..................... 7,253 6,373
Depreciation and amortization of restaurant property and
equipment ............................................ 966 920
Other operating expenses ............................... 3,837 3,525
-------- --------
Total restaurant operating expenses .................. 18,995 16,912
General and administrative expenses ....................... 2,071 1,703
Pre-opening expense ....................................... 59 --
-------- --------
Operating income .......................................... 1,083 593
Other income (expense):
Interest expense, net .................................. (381) (451)
Gain on purchase of debentures ......................... 29 90
Other, net ............................................. (30) 45
-------- --------
Total other expense .................................. (382) (316)
-------- --------
Income before income taxes ................................ 701 277
Income tax provision ...................................... 196 33
-------- --------
Net income ................................................ $ 505 $ 244
======== ========
Basic earnings per share .................................. $ .07 $ .04
======== ========
Diluted earnings per share ................................ $ .07 $ .04
======== ========
</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>
Three Months Ended
--------------------
APRIL 2 April 4
2000 1999
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<S> <C> <C>
Net cash provided by operating activities .............. $ 1,894 $ 325
Net cash used by investing activities:
Purchase of property and equipment .................. (1,302) (573)
Other investing activities .......................... (68) (45)
------- -------
(1,370) (618)
Net cash (used) provided by financing activities:
Payments on debt and obligations under capital leases (979) (1,433)
Proceeds under bank line of credit agreement ........ 6,982 6,776
Payments under bank line of credit agreement ........ (6,314) (9,882)
Purchase of stock for 1999 Loan Program ............. (517) --
Sale of stock and exercise of stock options ......... 26 4,102
------- -------
(802) (437)
Decrease in cash and cash equivalents .................. (278) (730)
Cash and cash equivalents at beginning of period ....... 933 1,022
------- -------
Cash and cash equivalents at end of period ............. $ 655 $ 292
======= =======
</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
2000 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 April 2, 2000, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 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 2, 2000,
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)
Quarter Ended
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APRIL 2 April 4
2000 1999
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<S> <C> <C>
NUMERATOR:
Net income (numerator for basic earnings per share) ................ $ 505 $ 244
Effect of dilutive securities ...................................... -- --
------ ------
Net income after assumed conversions (numerator for diluted earnings
per share) ...................................................... $ 505 $ 244
====== ======
DENOMINATOR:
Weighted average shares (denominator for basic earnings per share).. 6,828 5,600
Effect of dilutive securities:
Employee stock options ........................................ 147 173
------ ------
Adjusted weighted average shares and assumed conversions
(denominator for diluted earnings per share) .................... 6,975 5,773
====== ======
Basic earnings per share ........................................... $ .07 $ .04
====== ======
Diluted earnings per share ......................................... $ .07 $ .04
====== ======
</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.
For the quarter ended April 2, 2000, options to purchase 219,000 shares of
common stock at prices ranging from $3.81 to $11.69 were excluded from the
computation of diluted earnings per share due to their antidilutive effect. For
the quarter ended April 4, 1999, a total of 224,000 such options were excluded,
at exercise prices ranging from $4.97 to $11.69.
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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 Income
bear to total net sales, and (ii) other selected operating data:
<TABLE>
<CAPTION>
Quarter Ended
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APRIL 2 April 4
2000 1999
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<S> <C> <C>
Net sales ................................................... 100.0% 100.0%
Costs and expenses:
Cost of sales .......................................... 31.2 31.7
Restaurant labor and related costs ..................... 32.7 33.2
Depreciation and amortization of restaurant property and
equipment .......................................... 4.3 4.8
Other operating expenses ............................... 17.3 18.4
--------- ---------
Total restaurant operating expenses ................ 85.5 88.0
General and administrative expenses ......................... 9.3 8.9
Pre-opening expense ......................................... 0.3 --
--------- ---------
Operating income ............................................ 4.9 3.1
Other income (expense):
Interest expense, net .................................. (1.7) (2.3)
Other, net ............................................. -- 0.7
--------- ---------
Total other income (expense) ....................... (1.7) (1.6)
Income before income taxes .................................. 3.2 1.4
Income tax provision ........................................ (0.9) (0.2)
--------- ---------
Net income .................................................. 2.3% 1.3%
========= =========
Restaurants open at end of period ........................... 21 20
Weighted average weekly sales per restaurant:
All restaurants ........................................ $ 81,300 $ 73,900
Same store restaurants ................................. $ 80,800 $ 73,900
</TABLE>
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NET SALES
Net sales increased 15.6% for the first quarter of 2000, as compared to
the same period of 1999, due primarily to increased same store sales and the
opening of a new restaurant in November, 1999. Same store sales, which include
comparable sales for the 20 restaurants open for more than 12 months, averaged
$80,800 per week for the first quarter of 2000, an increase of 9.3% compared to
a weekly average of $73,900 in the corresponding period of the prior year.
Management estimates that menu prices were approximately 4% higher in
the first quarter of 2000 than during the same period of 1999 and that guest
counts on a same store basis were approximately the same as for the same period
of the prior year. In addition to adjusting menu prices, the Company
repositioned its menu near the end of the third quarter of 1999 to place more
emphasis on its premium offerings and daily feature items, while de-emphasizing
certain lower priced menu items. As a result of these changes and continued
emphasis on a number of guest service initiatives begun in 1997, same store
sales increased by 8.6% in the fourth quarter of 1999 as compared to the same
period of 1998, and effectively positioned the Company to realize the increases
during the first quarter of 2000 noted above.
COSTS AND EXPENSES
Restaurant costs and expenses decreased in all categories as a percent
of sales during the first quarter of 2000 compared to the first quarter of 1999,
with the total of 85.5% of sales comparing favorably to 88.0% of sales during
the corresponding period of 1999. Reduced cost of sales, which includes food and
alcoholic beverage costs, coupled with efficiencies in labor and other operating
expenses achieved at higher sales volumes and management's emphasis on expense
control, were the primary factors responsible for the improvements achieved
during the first quarter of 2000.
Management remains optimistic about the prospects for J. Alexander's
and continues to believe that the primary issue faced by the Company in
maintaining consistent profitability is the improvement of sales in several of
its restaurants, and particularly certain of its newer restaurants. It believes
that actions taken to date, including guest service initiatives which were
implemented two years ago and the menu repositioning implemented in the third
quarter of 1999, together with continued emphasis on increasing sales and
profits, are having and will continue to have a positive impact on the Company's
sales and financial performance for 2000 and that the Company will be profitable
in 2000.
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 9.3% of sales for the first quarter of 2000, up slightly from
8.9% of sales for the same period of 1999. Management expects general and
administrative expenses for the remainder of fiscal 2000 to approximate, on a
quarterly basis, the amount recorded for the quarter ended April 2, 2000.
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PRE-OPENING EXPENSE
The Company expenses pre-opening costs as incurred. Pre-opening expense
of $59,000 was incurred during the first quarter of 2000 in connection with the
Company's next new restaurant which is planned to open in July 2000. Additional
pre-opening costs will be recorded in connection with this restaurant in the
second and third quarters of 2000, with a significant portion of these amounts
being incurred in the third quarter when the restaurant will open. There was no
pre-opening expense recorded during the first quarter of 1999.
OTHER INCOME (EXPENSE)
Net interest expense decreased by $70,000 during the first quarter of
2000 as compared to the corresponding period in 1999 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.
In connection with the annual sinking fund requirement associated
with its Convertible Subordinated Debentures, the Company has periodically
purchased bonds at a discount in the open market, resulting in a gain to the
Company. Such gains totaled $90,000 in the prior year period as compared to
$29,000 during the first quarter of 2000.
INCOME TAXES
The Company was subject to alternative minimum tax during 1999 and
is projected to be in a similar position for fiscal 2000. For the first quarter
of 1999, the Company's effective tax rate was 12%. This amount differed from
the federal statutory rate of 34% primarily due to a provision for certain
expiring federal net operating loss and credit carryforwards, nondeductible
expenses and state income taxes, offset by a decrease in the valuation
allowance and the benefit of alternative minimum tax net operating loss
carryforwards and FICA tip credits generated during 1999. For the first quarter
of 2000, a similar analysis yielded an effective rate of 28%, with the higher
amount reflecting the impact of the Company's utilization of all alternative
minimum tax net operating loss carryforwards during fiscal 1999. Net deferred
tax assets are fully reserved by a valuation allowance.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash flow from operations totaling $1,894,000 and
$325,000 during the first quarters of 2000 and 1999, respectively. Cash and cash
equivalents decreased from $933,000 at year end 1999 to $655,000 at April 2,
2000.
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 an annual sinking fund requirement of
$1,875,000 in connection with its outstanding Convertible Subordinated
Debentures. At April 2, 2000, the 2000 sinking fund obligation had been met
through the purchase of bonds in the open market. The Company has met its recent
capital needs and maintained liquidity primarily by use of cash flow from
operations and use of its bank line of credit discussed below.
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For 2000, the Company plans to construct and open one restaurant on
leased land in the Cincinnati, Ohio market. Management estimates that the cost
to complete the Cincinnati restaurant and for capital maintenance for existing
restaurants will be approximately $4 million for 2000. In addition, the Company
may incur capital expenditures for the purchase of property and/or construction
of restaurants for locations to be opened in fiscal 2001. Any such expenditures
are dependent upon the timing and success of management's efforts to locate
acceptable sites and are not expected to exceed $2 million.
While a working capital deficit of $5,713,000 existed as of April 2,
2000, the Company does not believe this deficit impairs the overall financial
condition of the Company. 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.
In 1999, the Company's Board of Directors established a loan program
designed to enable eligible employees to purchase shares of the Company's common
stock. Under the program participants may borrow an amount equal to the full
price of common stock purchased. The plan authorized $1 million in loans to
employees. Purchases of stock under the plan totaled $486,000 during 1999, with
the remainder of the authorized amount being purchased by February 2000. The
employee loans, which are reported as a deduction from stockholders' equity, are
payable on December 31, 2006, unless repaid sooner pursuant to the terms of the
plan.
The Company maintains a bank line of credit of $20 million which is
expected to be used as needed for funding of capital expenditures and to provide
liquidity for meeting working capital or other needs. At April 2, 2000,
borrowings outstanding under this line of credit were $8,687,000. In March of
2000, the term of the line of credit was extended by one year through July 1,
2001. The amended line of credit agreement contains covenants which require the
Company to achieve specified results of operations and 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 April 2, 2000 and, based on a current
assessment of its business, believes it will continue to comply with these
covenants through July 1, 2001. 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, 2001.
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
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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, for the year
ended January 2, 2000.
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
April 2, 2000.
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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: May 16, 2000
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J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit No. Page No.
- ----------- --------
(27) Financial Data Schedules (For SEC Use Only)
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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 APRIL 2, 2000 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-31-2000
<PERIOD-START> JAN-03-2000
<PERIOD-END> APR-02-2000
<CASH> 655
<SECURITIES> 0
<RECEIVABLES> 120
<ALLOWANCES> 0
<INVENTORY> 629
<CURRENT-ASSETS> 1,889
<PP&E> 77,704
<DEPRECIATION> 15,424
<TOTAL-ASSETS> 65,526
<CURRENT-LIABILITIES> 7,602
<BONDS> 18,790
0
0
<COMMON> 342
<OTHER-SE> 37,512
<TOTAL-LIABILITY-AND-EQUITY> 65,526
<SALES> 22,208
<TOTAL-REVENUES> 22,208
<CGS> 6,939
<TOTAL-COSTS> 14,192
<OTHER-EXPENSES> 4,803
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> 701
<INCOME-TAX> 196
<INCOME-CONTINUING> 505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 505
<EPS-BASIC> .07
<EPS-DILUTED> .07
</TABLE>
