UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 1996, or
[ ] Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
Commission File Number 0-4766
JERRY'S, INC.
STATE OF FLORIDA I.R.S. NO. 59-1060780
1500 NORTH FLORIDA MANGO ROAD, SUITE 19
WEST PALM BEACH, FLORIDA 33409
TELEPHONE NUMBER: (407) 689-9611
COMMON STOCK, $.04 Par Value
Outstanding Shares at December 31, 1996 - 562,422
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 twelve (12)
months and (2) has been subject to such filing requirements for the
past ninety (90) days.
YES [ ] NO [X]
<PAGE>
TABLE OF CONTENTS
JERRY'S, INC. AND SUBSIDIARIES
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS..............................3-6
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS..........................................7
CONSOLIDATED STATEMENT OF CASH FLOWS.....................8-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............10-17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................19
PART II.
OTHER INFORMATION
ITEMS 1 THROUGH 6...........................................................21
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<PAGE>
PART I. FINANCIAL INFORMATION
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
ASSETS: 1996 1995
------- ---------- ----------
CURRENT ASSETS:
Cash and Cash Items $ 902,066 $ 497,050
Customers Accounts Receivable
Less - Allowance for Doubtful Accounts:
$300,000 in 1996 and $252,000 in 1995 781,519 1,075,804
Inventories (Note A-2) 352,202 342,827
Deferred Income Taxes 223,596 105,109
Income Tax Refunds Receivable 563,375 81,693
Prepaid Expenses and Other Current Assets
(Net of $5,000 Allowance in 1996 and 1995) 234,909 511,825
---------- ----------
Total Current Assets $3,057,667 $2,614,308
---------- ----------
INVESTMENTS:
Land Held for Investment $ 87,000 $ 87,000
Other Investments 348,289 349,119
---------- ----------
Total Investments $ 435,289 $ 436,119
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Cost $12,442,019 $13,856,182
Less: Accumulated Depreciation 9,276,390 9,702,224
---------- ----------
Net Book Value $3,165,629 $4,153,958
---------- ----------
OTHER ASSETS:
Cash (Restricted) $ 668,423 $ 580,297
Leasehold Rights and Other Intangible
Assets (Note A-4) 9,402 7,635
Cash Surrender Value of Insurance 21,005 2,191
Deposits and Miscellaneous 331,331 221,529
Employee Loans Receivable (Net of
$15,000 Allowance in 1996 and
$20,000 Allowance in 1995) 111,312 79,616
Other Receivables - Non-Current Portion
(Net of $15,000 Allowance in 1996
and $13,000 in 1995) 43,875 88,391
Deferred Income Taxes Non-Current Portion 318,281 528,764
---------- ----------
Total Other Assets $1,503,629 $1,508,423
---------- ----------
TOTAL ASSETS: $8,162,214 $8,712,808
========== ==========
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996 AND 1995
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
- ------------------------------------ --------- ----------
CURRENT LIABILITIES:
Notes Payable to Bank and
Others (Note E) $ 36,159 $ 39,063
Current Portion of Long-Term Debt (Note F) 503,817 519,490
Accounts Payable 1,281,523 1,292,448
Accrued Expenses 767,912 799,632
---------- ----------
Total Current Liabilities $2,589,411 $2,650,633
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current
Portion (Note F) 3,386,346 2,963,257
---------- ----------
TOTAL LIABILITIES $5,975,757 $ 5,613,890
---------- -----------
STOCKHOLDERS' EQUITY:
Capital Stock -
Common Stock of $.04 par value -
Authorized 4,000,000 shares;
622,377 Shares Issued
in 1996 and 1995 $ 24,895 $ 24,895
Capital in Excess of Par Value 116,178 116,178
Retained Earnings $2,214,060 $3,124,927
---------- ----------
Subtotal: $2,355,133 $3,266,000
Less: Shares Reacquired and Held
in Treasury (60,378 shares
in 1996 and 59,955 shares
in 1995 at cost) 168,676 167,082
---------- ----------
TOTAL STOCKHOLDERS' EQUITY: $ 2,186,457 $3,098,918
----------- ----------
Commitments, Contingencies and Subsequent
Events (Note H) -- --
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $8,162,214 $8,712,808
========== ==========
See accompanying Notes to Consolidated Financial Statements
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<PAGE>
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
ASSETS 1996 1995
---------- -----------
CURRENT ASSETS:
Cash and Cash Items $ 886,680 $ 759,133
Customer Accounts Receivable
Less Allowance for Doubtful Accounts:
$236,000 in 1996 and $230,000 in 1995 727,805 807,857
Inventories 299,738 311,648
Income Tax Refunds Receivable 701,375 --
Deferred Income Taxes 223,596 105,109
Prepaid Expenses and Other Current Assets
(Net of $5,000 Allowance In 1996 and 1995) 357,163 449,078
---------- -----------
Total Current Assets 3,196,357 2,432,825
---------- -----------
INVESTMENTS:
Land Held for Investment 87,000 87,000
Other Investments 348,289 265,528
---------- -----------
Total Investments 435,289 352,528
---------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Cost 12,404,375 13,857,557
Less: Accumulated Depreciation 9,074,019 9,420,655
---------- -----------
Net Book Value 3,330,356 4,436,902
---------- -----------
OTHER ASSETS:
Cash (Restricted) 762,852 580,297
Leasehold Rights and Other Intangible Assets
Less Accumulated Amortization of $12,218 in
1996 and $13,482 in 1995 9,804 8,096
Cash Surrender Value of Insurance 23,119 39,393
Deposits and Miscellaneous 243,893 219,529
Employee Loans Receivable (Net of $15,000
Allowance in 1996 and $20,000 in 1995) 98,749 79,840
Other Receivables - Non-Current Portion
(Net of $15,000 Allowance in 1996 and
$13,000 in 1995) 72,197 95,376
Deferred Income Taxes - Non-Current Portion 318,281 528,764
---------- -----------
Total Other Assets 1,528,895 1,551,295
---------- -----------
TOTAL ASSETS $8,490,897 $ 8,773,550
========== ===========
See accompanying notes to Consolidated Financial Statements.
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<PAGE>
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------- ----------
CURRENT LIABILITIES:
Notes Payable to Bank and Others $ 258,437 $ --
Current Portion of Long-Term Debt 508,139 519,490
Accounts Payable 1,518,293 1,171,228
Income Taxes Payable -- 12,307
Accrued Expenses 689,104 657,504
----------- ----------
Total Current Liabilities 2,973,973 2,360,529
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current Portion 3,514,293 3,073,603
----------- ----------
TOTAL LIABILITIES 6,488,266 5,434,132
----------- ----------
STOCKHOLDERS' EQUITY:
Capital Stock -
Common Stock of $.04 par value - Authorized
4,000,000 Shares; 622,377 Shares Issued in
1996 and 1995 24,895 24,895
Capital In Excess of Par Value 116,178 116,178
Retained Earnings 2,030,234 3,365,427
----------- ----------
Subtotal 2,171,307 3,506,500
Less: Shares Reacquired and Held in
Treasury (60,378 Shares in 1996
and 59,955 Shares in 1995 at Cost) 168,676 167,082
TOTAL STOCKHOLDERS' EQUITY 2,002,631 3,339,418
Commitments, Contingencies, and Subsequent
Events -- --
----------- ----------
(Notes O, Q, and R)
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,490,897 $8,773,550
=========== ==========
See accompanying notes to Consolidated Financial Statements.
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<PAGE>
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
----------- -------
NET SALES:
(A substantial portion of which is
attributable to three customers (Note B)
and a substantial portion which have
been discontinued) (Note B) $ 4,027,052 $4,324,508
----------- ----------
COSTS, EXPENSES, AND OTHER ITEMS:
Costs of Sales 2,556,894 $2,583,009
Selling and Administrative Expenses 2,153,339 2,257,770
Airline Port Fees (Income) (90,307) (118,812)
Interest (Income) (4,085) (7,846)
Interest Expense 106,791 70,125
(Earnings) of Joint Ventures -- (83,591)
(Gain) Loss On Disposition of Assets (1,000,000) (25,632)
Other (Income) (17,406) (16,015)
----------- ----------
Total Costs, Expenses and Other Items $ 3,705,226 $4,659,008
----------- ----------
Income (Loss) Before Provision for
Income Taxes $ 321,826 $ (334,500)
----------- ----------
PROVISION (CREDIT) FOR INCOME TAXES:
Federal $ 118,000 $ (80,000)
State 20,000 (14,000)
----------- ----------
Total Provision (Credit) for
Income Taxes $ 138,000 $ (94,000)
----------- ----------
Net Income (Loss) $ 183,826 $ (240,500)
RETAINED EARNINGS, BEGINNING OF PERIOD: 2,030,234 3,365,427
----------- ----------
RETAINED EARNINGS, END OF PERIOD: $ 2,214,060 $3,124,927
=========== ==========
NET INCOME (LOSS) PER COMMON SHARE: $ .33 $ (.43)
=========== ==========
AVERAGE SHARES OF COMMON STOCK OUTSTANDING: 561,999 562,422
=========== ==========
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
<TABLE>
<CAPTION>
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
1996 1995
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 183,826 $ (240,500)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 202,773 341,854
Provision for Losses on Accounts
Receivable 25,000 25,000
Equity In (Earnings) Loss of
Joint Ventures -- (83,591)
(Gain) Loss on Sale of Assets (1,000,000) (25,632)
Change in Assets and Liabilities:
(Increase)Decrease in Accounts Receivable (78,714) (292,947)
(Increase)Decrease in Inventories (52,464) (31,179)
(Increase)Decrease in Prepaid Expenses
and Other 122,254 (62,747)
(Increase)Decrease in Deposits and
Miscellaneous (69,565) 26,161
Increase(Decrease) in Accounts Payable (236,770) 121,220
Increase(Decrease) in Income Taxes Payable 138,000 (94,000)
Increase(Decrease) in Accrued Expenses 78,808 142,128
---------- -----------
Net Cash Provided By (Used in)
Operating Activities: $ (686,852) $ (174,233)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sales of Property and
Equipment $1,000,000 $ 25,632
Payments Received on Notes from Sale of
Property and Equipment -- 16,250
Purchase of Property and Equipment (37,644) (58,449)
---------- -----------
Net Cash Provided (Used In)
Investing Activities: $ 962,356 $ (16,567)
---------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
-8-
<PAGE>
<TABLE>
<CAPTION>
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
(Continued)
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Line-of-Credit and
Long-Term Borrowings $ 36,159 $ 39,063
Principal Payments Under Line-of Credit
and Long-Term Borrowings (390,706) (110,346)
(Increase) Decrease in Restricted Cash 94,429 --
---------- ----------
Net Cash Provided by (Used In)
Financing Activities $ (260,118) $ (71,283)
---------- ----------
Net Increase (Decrease) in Cash and Cash
Equivalents $ 15,386 $ (262,083)
CASH AND CASH EQUIVALENTS AT THE BEGINNING
OF THE PERIOD 886,680 759,133
---------- ----------
Cash and Cash Equivalents at the End
of the Period $ 902,066 $ 497,050
========== ==========
ADDITIONAL CASH FLOW INFORMATION:
Cash Paid During the Year for:
Interest (Non-Capitalized) $ 106,791 $ 70,125
========= ==========
Income Taxes $ -- $ --
========== ==========
Non-Cash Investing and Financing Activities:
Purchase of Assets
(Net of Cash Paid) for Notes $ -- $ --
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
JERRY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. CONSOLIDATION -
The Consolidated Financial Statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned and all of which are
engaged in the food and beverage service and/or the gift shop businesses.
Significant intercompany accounts and transactions have been eliminated in
consolidation. Investments in partnerships are carried at equity in net
assets. Other investments are carried at cost.
2. INVENTORIES -
Inventories are valued at the lower of cost or market, with cost generally
determined on a first-in, first-out basis and market based upon the lower
of replacement cost or realizable value. Inventories consisted of the
following amounts:
1996 1995
----------- ----------
Finished Goods $ 61,932 $ 56,779
Raw Materials 290,270 286,048
---------- ----------
Total $ 352,202 $ 342,827
========== ==========
3. PROPERTY, PLANT, AND EQUIPMENT -
Property, plant, and equipment are carried at cost. The Company calculates
depreciation on the straight-line and accelerated methods at annual rates
based upon the estimated service lives of each type of asset. These service
lives are generally as follows:
Buildings and Improvements 20 to 35 years
Equipment and Furniture 5 to 7 years
Aviation and Automotive 3 to 7 years
Leasehold Improvements and Other 5 to 7 years
Assets with an original cost of approximately $5,200,000 have been fully
depreciated at September 30, 1996.
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
4. INTANGIBLES -
Intangible assets consist of finance and loan fees arising from the
addition of debt. The fees are being amortized using the straight-line
method over the expected life of the financing.
5. INCOME TAXES -
The Company adopted Statement of Financial Accounting Standards No.109,
"Accounting for Income Taxes," effective October 1, 1993. Under SFAS 109,
deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities and
are measured by applying enacted tax rates and laws to taxable years in
which such differences are expected to reverse.
The cumulative effect of this accounting change at October 1, 1993 was a
one-time, non-cash increase to net income of $142,094 OR $.25 per shares.
6. INCOME PER SHARE -
Income per share is computed based upon the weighted average number of
common shares outstanding during each year.
7. CASH -
The Company considers all short-term investments with an original maturity
of three months or less to be cash equivalents.
8. FINANCIAL INSTRUMENTS -
The carrying amounts of cash and cash equivalents, trade receivables, other
current assets, other receivables, other investments, other assets,
accounts payable, and debt approximate fair value.
9. CONCENTRATIONS OF CREDIT RISK -
The Company is subject to credit risk arising from the concentration of its
temporary cash investments and trade receivables. Most of the Company's
temporary cash investments are concentrated with a single financial
institution. This institution, however, has a high credit rating. The
Company's trade receivables are concentrated with a small number of
airlines. In particular, the Company primarily sells its products to about
60 airlines or aviation-related companies in the States of Florida, Georgia
and Alabama, and extends credit based on an evaluation of the customer's
financial condition, generally without requiring collateral.
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses. As of
September 30, 1996 approximately 69% of the recorded trade receivables were
concentrated with six airlines. As of September 30, 1995 approximately 71%
of the receivables were concentrated with six airlines.
10. REVENUE RECOGNITION -
Revenues are recorded at the time of shipment of products or performance of
services.
11. ADVERTISING COSTS -
Advertising costs are generally charged to operations in the period
incurred and totaled $101,000 in 1996, and $85,000 in 1995 (three months
ended December 31).
12. ENVIRONMENTAL CLEANUP MATTERS -
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no
current or future benefit is discernable. The Company determines its
liability on a site-by-site basis and records a liability at the time when
it is probable and can be reasonably estimated.
13. USE OF ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the consolidated financial
statements and related notes to the financial statements. Changes in such
estimates may affect amounts reported in future periods.
NOTE B - SALES
The Company derives a substantial portion of its revenues from catering
flights of three airlines, as follows:
PERCENT OF TOTAL SALES
-----------------------------
THREE MONTHS ENDED DECEMBER 31, CONTINENTAL U.S. AIR KIWI
- ------------------------------ ----------- -------- ----
1996 8% 21% -%
1995 6% 19% 6%
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
Kiwi International Airlines, Inc. is operating under Chapter 11 of the
Bankruptcy Code.
During June and September 1996, the lease agreements at the Company's Fort
Pierce, Florida and Tallahassee, Florida airport facilities were terminated,
respectively. The approximate sales that were discontinued during fiscal 1996
amounted to:
SALES PERCENTAGE OF
DISCONTINUED TOTAL SALES
------------ --------------
Year Ended 9/30/96 $801,000 4%
Year Ended 9/30/95 917,000 4%
Year Ended 9/30/94 805,000 3%
Three Months Ended 12/31/96 $ -- --
Three Months Ended 12/31/95 276,000 6%
NOTE C - RIGHT OF FIRST REFUSAL
On May 1, 1990, the Company entered into a right of first refusal agreement
with a competing airline caterer. Under the agreement, the Company granted the
purchaser a 10-year right of first refusal with respect to the sale of any
airline catering business owned by the Company. The purchaser agreed to pay the
Company $385,000 in 24 quarterly installments commencing on May 31, 1994. The
income will be recorded pro rata over the 10-year term of the agreement.
NOTE D - SALES OF ASSETS AND DISPOSITIONS
During February 1995, the Company sold its airline catering operations at
Miami, Florida and Orlando, Florida for $6,000,000 ($5,000,000 cash and the
assumption by the buyer of $1,000,000 of the Company's liabilities). The
approximate pre-tax gain on the sale was $5,400,000 ($3,300,000 post-tax). The
original agreement with respect to this asset sale was amended during September
1996. The amendment provided, in the event the original buyer sells the Miami
and Orlando catering kitchens, that the original contingent consideration
payment plan would be adjusted as follows:
a. The original buyer would be required to pay $1,000,000 to the Company
upon the closing of a sale of the Miami and Orlando kitchens.
b. The original buyer would be required to pay to the Company a second
payment based upon gross revenues of the Miami facility and the Orlando
facility during a "measuring period" [six months starting on the
closing date]. The parameters of this second payment is a low of
$500,000 to a high of $1,000,000.
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
c. The original buyer would be required to pay the Company a third payment
of $1,000,000 on March 2, 1998.
During November 1996, the original buyer sold the Miami and Orlando
facilities to a third party. In accordance with the amendment described above,
the original buyer paid the Company $1,000,000 at the time of the sale. This
payment was recorded as a $1,000,000 gain.
During the three months ended December 31, 1995, the Company sold vehicles
which resulted in a pre-tax gain of approximately $25,600 [$16,500 post-tax].
NOTE E - NOTES PAYABLE - BANKS AND OTHERS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
DESCRIPTION 1996 1995
----------- ------------ -----------
<S> <C> <C>
Notes payable to financial institution, of up to
$1,500,000 bearing interest at 3% plus prime
and collateralized by receivables, inventory,
equipment, investments leasehold rights and real
estate, intangibles, and the personal guaranty of
the Company's president. $ 36,159 $ --
Insurance premium financing plan -- 39,063
------------ -----------
TOTAL $ 36,159 $ 39,063
============ ===========
</TABLE>
NOTE F - LONG TERM DEBT
The principal balances outstanding and details of long-term debt are
summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
DESCRIPTION 1996 1995
----------- ------------ -----------
<S> <C> <C>
Chattel mortgage notes on equipment,
aircraft, automotive equipment, payable in
monthly installments of approximately $40,000
(including interest), with varying maturities
through 2004. A chattel mortgage on automotive
equipment is further collateralized by a certificate
of deposit in the amount of $151,000. $ 2,034,979 $ 2,303,901
</TABLE>
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
December 31, December 31,
DESCRIPTION 1996 1995
----------- ------------ ------------
6% to 12 1/2% notes payable, collateralized
by land and buildings, payable in monthly
installments of approximately $8,000
(including interest), with varying maturities
through 2018. 707,164 736,508
10 1/4% (1 1/2% above prime) note payable to
bank, collateralized by equipment, leasehold
and real estate at the Company's facilities in
Melbourne, Florida, along with the personal
guaranty of the Company's president, payable in
monthly installments of $1,667 plus interest with
a final payment of $52,995 due January 28, 2000. 118,250 136,328
18% note payable secured by the personal guaranty
of the Company's president, payable in monthly
installments of $18,000 (including interest)
through 1999. 422,880 --
11 1/4% note payable to collateralized by
leaseholds improvements at the Company's
facilities in Daytona Beach, Florida, along
with a certificates of deposit of $147,000 and
the personal guarantee of the Company's
president, payable in monthly installments
of $15,302 (including interest) through 2001. 606,890 306,010
------------ -----------
TOTAL $ 3,890,163 $ 3,482,747
Less payments due within one year 503,817 519,490
------------ -----------
Long-Term debt, less current portion $ 3,386,346 $ 2,963,257
============ ===========
Substantially all of the Company's assets are pledged as collateral for
these debts.
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
NOTE G - LEASE COMMITMENTS
The Company and its subsidiaries, under non-capitalized leases, lease certain
facilities and equipment used primarily for catering kitchens, dining rooms,
coffee shops, cocktail lounges, gift shops, warehouses, and a promotional
facility. These leases expired at various dates through the year 2008.
Rental expense included in continuing operations is as follows:
1996 1995
-------- -------
Rent $604,154 $602,487
Contingent rentals are generally calculated as a percentage of gross sales
and vary from three percent (3%) to forty percent (40%).
Most leases contain renewal options for five to ten year periods at
negotiated rates approved by both parties.
The Company's leases required the Company to spend approximately $1,400,000
for improvements and equipment at four locations. The Company has expended
$413,000 to fulfill these obligations.
The approximate minimum rental commitments for the years subsequent to
September 30, 1996 are as follows:
FINANCING OTHER
TOTAL LEASES LEASES
----------- ----------- -----------
1997 $ 1,386,129 -- 1,386,129
1998 1,233,629 -- 1,233,629
1999 1,158,369 -- 1,158,369
2000 1,107,210 -- 1,107,210
2001 1,006,829 -- 1,006,829
2002-2006 3,362,016 -- 3,362,016
2007-2008 149,640 -- 149,640
----------- ----------- -----------
TOTAL $ 9,403,822 $ -- $ 9,403,822
=========== =========== ===========
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
NOTE H - COMMITMENTS, CONTINGENCIES, OTHER MATTERS AND SUBSEQUENT EVENTS
1. Effective July 1, 1989, the Company entered into an consulting agreement
with a partnership under the control of a retired director of the Company in
recognition of his services to the Company. The agreement provides for monthly
payments of $1,800 for a 10-year period.
2. The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsel's evaluation
of such actions, management is of the opinion that their outcome will not have a
significant effect on the Company's financial position.
3. The Company is self-insured for a portion of its workers compensation
insurance in the state of Florida. The Company's maximum self-insured exposure
at September 30, 1996 for all open years is approximately $600,000.
4. During December 1996, the Company signed a five year agreement to provide
food and beverages to the South Florida Fair and Palm Beach County Expositions,
Inc.
5. During December 1996, the Florida Department of Revenue issued a proposed
assessment for its audit of the Company's sale tax returns and intangible tax
returns for the five year period ending December 31, 1993. The proposed
assessment of $350,000 consist of $173,000 for taxes, $65,500 for penalties, and
$112,000 for interest. The proposed assessment includes sales tax on port fees
and certain supplies used in the airline catering industry. The Company's
position is that both items are not subject to sales tax because they are
"passed-through" to other parties. The Company intends to vigorously defend its
position and has requested its legal counsel to file Letters of Protest with the
Florida Department of Revenue. Although the ultimate disposition of this matter
cannot be predicted with certainty, it is the present opinion of the Company's
management that the outcome of the tax assessment which is pending will not have
a material adverse effect on the Company's financial condition.
6. During November 1996, the Company assigned its rights to receive earnout
payments under the Agreement to sell the Miami and Orlando kitchen facilities
[Note D] in favor of the lender to Central Florida Terminals, Inc., the operator
of the Orlando/Sanford, Florida Airport. The president of the Company is a
stockholder in Central Florida Terminals, Inc.
7. During December 1996, St. Lucie County, Florida and the Company concluded
its negotiations with respect to the lease and other assets at the Company's
Fort Pierce, Florida location. The settlement indicates a net payment due the
County of approximately $4,000 which was substantially accrued for at September
30, 1996.
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<PAGE>
Jerry's, Inc. And Subsidiaries December 31,1996
Notes to Consolidated Financial Statements (Continued)
8. The Company expects to spend approximately $400,000 during 1997 to improve
its facilities at the St. Petersburg/Clearwater, Florida airport.
9. The Company has received notices from the Metro-Dade Department of
Environmental Resources Management (DERM) that the Company is responsible to pay
for remediation of the hazardous substance releases at the Company's Hialeah,
Florida facility. The Company recorded charges to earnings of $100,000 in fiscal
1995 and $53,400 in 1996 to correct and monitor the site.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FIRST QUARTER OF 1997 FISCAL YEAR COMPARED TO FIRST
QUARTER OF 1996 FISCAL YEAR
NET SALES
The Company's net sales for the three months ended December 31, 1996 were
$4,027,000 compared with $4,325,000 for the same period of the prior year. The
decline in sales was primarily due to the termination of the Company's
operations at Tallahassee and Ft. Pierce. See Note B to Financial Statements.
The loss of these sales was partially offset by higher sales at Sanford,
Florida.
COST OF SALES
Cost of sales in the first three months of the 1997 fiscal year were
$2,557,000 compared with $2,583,000 in 1996. The Company's gross margin
decreased from 40.3% in the first three months of 1996 fiscal year to 36.5 in
1997.
SELLING AND ADMINISTRATIVE EXPENSES
The Company's selling and administrative expenses decreased from $2,258,000
in the first three months of 1996 fiscal year to $2,153,000 in 1997, primarily
due to lower depreciation expense primarily arising from the closing of the
Tallahassee facility.
AIRLINE PORT FEES
The Company charges each of its airline catering customers a port fee equal
to the amount of percentage rent the Company pays to each airport authority. The
amount of this income was $119,000 in the first three months of 1996 fiscal
year, compared with $90,000 in the first three months of 1997. It is directly
offset by rental expense paid by the Company. The decline reflects lower airline
catering sales.
SALE OF ASSETS
In November 1996, the Company received a contingent payment of $1,000,000
with respect to the sale in 1995 of its Miami and Orlando flight catering
facilities to Alpha. See Note D to Consolidated Financial Statements.
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<PAGE>
NET INCOME
Due to the factors described above, the Company's net income for the first
three months of the 1997 fiscal year was $184,000, compared with a loss of
$241,000 for the same period of the prior year. After deducting the gain from
the receipt of the $1,000,000 contingent payment, the Company incurred a net
loss (before taxes) of $678,000 for the three months ended December 31, 1996,
compared to a net loss (before taxes) of $335,000 for the same period of the
prior year.
FINANCIAL CONDITION AT DECEMBER 31, 1995
On December 31, 1995, the Company's current assets and current liabilities
were $2,614,000 and $2,651,000, respectively, compared with $3,058,000 and
$2,589,000 on December 31, 1996. The Company's current ratio (current assets
divided by current liabilities) was at 1.07 on December 31, 1995 compared to
1.18 at December 30, 1996.
The Company's financial condition improved modestly during the first three
months of the 1997 fiscal year. The principal reason for this improvement was
the Company's receipt of the $1,000,000 contingent payment from the sale of the
Miami and Orlando facilities. The Company utilized this cash to offset the
Company's loss from operations before taxes of $678,000, to reduce its accounts
payable by $237,000 and reduce debt to third party lenders. Although the
Company's financial condition improved modestly during the first quarter of the
1997 fiscal year, the Company still faces serious long-term working capital
problems due to the high level of losses from continuing operations.
Accordingly, the Company still needs to substantially reduce the level of its
selling and administrative expenses or obtain additional sales through expansion
in order to generate positive cash flow from its operations. There can be no
assurance that these efforts will be successful.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 16, 1994, the Dade County Department of Environmental Resources
Management ("DERM") issued to the Company a Notice of Violation and Orders for
Corrective Action due to the presence of soil and groundwater contamination on
certain real property owned by the Company in Hialeah, Florida. In response to
the notice, the Company investigated and assessed the nature and the extent of
the contamination. The Company also engaged a consultant which assisted the
Company in preparing and submitting containment assessment reports to DERM.
Based on these reports, DERM required the removal of certain underground
structures on the property and contaminated soil. It also required quarterly
monitoring and reporting of levels of contaminants in the groundwater.
During the first half of 1996, the Company removed the underground
structures and contaminated soil. The Company has also performed periodic
monitoring of the groundwater. The most recent test indicates that the level of
contaminants has significantly decreased. The Company therefore anticipates that
no further remedial action will be necessary in the near future. To date, the
Company has expended approximately $120,000 in connection with the cleanup of
this property and related legal fees.
In connection with the environmental matter, the Company has filed a
complaint in the Circuit Court for Dade County, Florida against Steve Martin and
Associates, Inc. ("SMA"), the former owner and operator of the adjacent
property. In its complaint, the Company has alleged that SMA is responsible for
a significant portion of the contamination at the Hialeah property. The Company
is seeking recovery of its damages plus attorneys' fees and court costs incurred
as a result of the wrongful discharge of contaminants by SMA on the property.
The Company is also seeking an order requiring SMA to investigate, assess and,
if necessary, perform an environmental cleanup of certain other property owned
by the Company which, according to a historical DERM file, may have also been
impacted by effluent discharges by SMA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule
There were no reports on Form 8-K filed for the three months ended December
31, 1996.
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<PAGE>
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.
JERRY'S, INC.
Date: October 31, 1997 /s/ GERARD J. PENDERGAST, JR.
-----------------------------
Gerard J. Pendergast, Jr.,
President and Chief Executive Officer
Date: October 31, 1997 /s/ KAREN P. RHODES
------------------
Karen P. Rhodes,
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 902
<SECURITIES> 0
<RECEIVABLES> 1,082
<ALLOWANCES> 300
<INVENTORY> 352
<CURRENT-ASSETS> 3,058
<PP&E> 12,442
<DEPRECIATION> 9,276
<TOTAL-ASSETS> 8,162
<CURRENT-LIABILITIES> 2,589
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 2,161
<TOTAL-LIABILITY-AND-EQUITY> 8,162
<SALES> 4,027
<TOTAL-REVENUES> 4,027
<CGS> 2,557
<TOTAL-COSTS> 2,557
<OTHER-EXPENSES> 2,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 107
<INCOME-PRETAX> 322
<INCOME-TAX> 138
<INCOME-CONTINUING> 184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.33
</TABLE>
