SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11877
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ELXSI CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 77-0151523
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3600 Rio Vista Avenue, Suite A, Orlando, Florida 32805
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (407) 849-1090
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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 [ ]
On October 26, 2000, the registrant had outstanding 4,204,575 shares of Common
Stock, par value $0.001 per share.
<PAGE>
This Quarterly Report on form 10-Q (this "10-Q") includes forward-looking
statements, particularly in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section (Item 2 herein).
Additional written or oral forward-looking statements may be made by or on
behalf of the Company from time to time, in filings with the Securities and
Exchange Commission, in press releases and other public announcements or
otherwise. All such forward-looking statements are within the meaning of that
term in Section 27A of the Securities Act of 1933, as amended, and Section 21E
of the Securities Exchange Act of 1934, as amended. Such statements may include,
but not be limited to projections of revenue, income, losses and cash flows,
plans for future capital and other expenditures, plans for future operations,
financing needs or plans, plans relating to products or services, estimates
concerning the effects of litigation or other disputes, as well as expectations
and assumptions relating to any or all of the foregoing, relating to the
Company, its subsidiaries and/or divisions.
Although the Company believes that its forward-looking statements are based on
expectations and assumptions that are reasonable, forward-looking statements are
inherently subject to risks and uncertainties, some of which can not be
predicted. Accordingly, no assurance can be given that such expectations or
assumptions will prove to have been correct, and future events and actual
results could differ materially from those described in or underlying the
forward-looking statements. Among the factors that could cause future events and
actual results to differ materially are: the demand for the Company's products
and services and other market acceptance risks; the presence in the Company's
markets of competitors with greater financial resources, and the impact of
competitive products and services and pricing; the loss of any significant
customers or group of customers; general economic and market conditions
nationally and (in the case of Bickford's) in New England; the ability of Cues
to develop new products; capacity and supply constraints or difficulties; the
results of the company's financing efforts; the emergence of future
opportunities; and the effect of the Company's accounting policies.
More detail regarding these and other important factors that could cause actual
results to differ materially from such expectations, assumptions and
forward-looking statements ("Cautionary Statements") may be disclosed in this
10-Q, other Securities and Exchange Commissions filing and public announcements
of the Company. All subsequent written and oral forward-looking statements
attributable to the Company, its subsidiaries or divisions or persons acting on
their behalf are expressly qualified in their entirety by the Cautionary
Statements.
The Company assumes no obligation to update its forward-looking statements or
advise of changes in the expectations, assumptions and factors on which they are
based.
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
A S S E T S
September 30, December 31,
2000 1999
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Unaudited
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 957 $ 1,366
Accounts receivable, net 4,385 4,109
Accounts receivable - related party -- 7,487
Inventories, net 12,639 12,206
Prepaid expenses and other current assets 374 280
Deferred tax asset 5,832 5,832
------------- -------------
Total current assets 24,187 31,280
Property, buildings and equipment, net 33,900 32,444
Intangible assets, net 5,287 5,507
Accounts receivable - related party 9,552 --
Notes receivable - related party 4,307 4,442
Deferred tax asset - noncurrent 14,009 15,338
Other 1,053 840
------------- -------------
Total assets $ 92,295 $ 89,851
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in Thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
2000 1999
------------- -------------
Unaudited
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,835 $ 3,267
Accrued expenses 5,301 5,988
Capital lease obligations - current 50 51
Current portion of long-term debt 9,978 1,637
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Total current liabilities 19,164 10,943
Capital lease obligations - non current 976 1,014
Long-term debt 2,679 10,201
Other non-current liabilities 3,816 3,816
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Total liabilities 26,635 25,974
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, Series A Non-voting
Convertible, par value $0.002 per share
Authorized--5,000,000 shares
Issued and outstanding--none -- --
Common stock, par value $0.001 per share
Authorized--60,000,000 shares
Issued and outstanding 4,204,575 and
4,275,477 at September 30, 2000 and
December 31, 1999, respectively 4 4
Additional paid-in capital 223,203 224,118
Accumulated deficit (157,203) (159,993)
Accumulated other comprehensive income (344) (252)
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Total stockholders' equity 65,660 63,877
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Total liabilities and stockholders' equity $ 92,295 $ 89,851
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 26,593 $ 28,719 $ 76,975 $ 78,748
Costs and expenses:
Cost of sales 21,511 22,270 61,887 61,949
Selling, general and administrative 2,455 2,513 7,250 7,389
Depreciation and amortization 1,077 980 3,167 2,866
---------- ---------- ---------- ----------
Operating income 1,550 2,956 4,671 6,544
Other income (expense):
Interest income 409 251 1,097 545
Interest expense (342) (224) (988) (587)
Other 23 (13) (65) (15)
---------- ---------- ---------- ----------
Income before income taxes 1,640 2,970 4,715 6,487
(Provision) benefit for income taxes (661) 12,728 (1,925) 11,291
---------- ---------- ---------- ----------
Net income 979 15,698 2,790 17,778
Other comprehensive income net of tax:
Foreign currency translation adjustment (59) 20 (92) (37)
---------- ---------- ---------- ----------
Comprehensive income $ 920 $ 15,718 $ 2,698 $ 17,741
========== ========== ========== ==========
Net income per common share:
Basic $ 0.23 $ 3.67 $ 0.65 $ 4.15
========== ========== ========== ==========
Diluted $ 0.21 $ 3.28 $ 0.58 $ 3.72
========== ========== ========== ==========
Weighted average number of common and common equivalent shares:
Basic 4,257 4,281 4,275 4,285
========== ========== ========== ==========
Diluted 4,729 4,792 4,808 4,784
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Amounts in Thousands)
(Unaudited)
Accumulated
Common Stock Additional Accum- Other
------------------------ Paid-In ulated Comprehensive
Shares Dollars Capital Deficit Income
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 4,275,477 $ 4 $ 224,118 $ (159,993) $ (252)
Foreign currency translation
adjustment, net of tax -- -- -- -- (92)
Purchase and retirement of
Common Stock (93,700) -- (1,053) -- --
Exercise of Common Stock options
to purchase Common Stock 21,798 -- 138 -- --
Net income -- -- -- 2,790 --
---------- ---------- ---------- ---------- ----------
Balance at September 30, 2000 4,203,575 $ 4 $ 223,203 $ (157,203) $ (344)
========= ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 2,790 $ 17,778
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,167 2,866
Amortization of deferred debt costs 20 19
Gain on sale of land (75) --
Gain on sale of liquor license (60) --
Net realized loss on sale of trading securities 165 --
(Increase) decrease in assets:
Accounts receivable (276) (1,023)
Inventories (433) (1,860)
Prepaid expenses and other current assets (94) (10)
Deferred tax asset 1,329 (12,069)
Other (325) (249)
Increase (decrease) in liabilities:
Accounts payable 568 691
Accrued expenses (687) 799
Other non-current liabilities -- 750
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Net cash provided by operating activities 6,089 7,692
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CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property, buildings and equipment (4,468) (3,408)
Accounts receivable - related party 116 (3,083)
Collection of notes receivable - related party 135 --
Proceeds from sale of land 100 --
Net purchase of trading securities (2,346) --
Proceeds from sale of liquor license 100 --
Business acquisition -- (778)
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Net cash used in investing activities (6,363) (7,269)
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CASH FLOWS USED IN FINANCING ACTIVITIES:
Net borrowings of long-term debt 819 1,463
Purchase of Common Stock (1,053) (1,914)
Proceeds from exercise of Common Stock
options 138 25
Principal payments of capital lease obligations (39) (43)
------------- -------------
Net cash used in financing activities $ (135) $ (469)
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
ELXSI CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Dollars in Thousands)
(Unaudited)
Nine Months Ended September 30,
2000 1999
-------------- -------------
<S> <C> <C>
Decrease in cash and cash equivalents $ (409) $ (46)
Cash and cash equivalents, beginning of period 1,366 1,587
-------------- -------------
Cash and cash equivalents, end of period $ 957 $ 1,541
============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Income taxes $ 807 $ 903
Interest 1,017 550
</TABLE>
During the current year the Company sold investments with a net market value of
$2,181 to a related party.
The accompanying notes are an integral part of these consolidated
financial statements.
8
<PAGE>
ELXSI CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
NOTE 1. THE COMPANY
GENERAL. The information contained in this report is unaudited but, in
management's opinion, all adjustments necessary for a fair presentation have
been included and were of a normal and recurring nature. The results for the
three and nine months ended September 30, 2000 are not necessarily indicative of
results to be expected for the entire year. These financial statements and notes
should be read in conjunction with ELXSI Corporation's Annual Report on Form
10-K for the year ended December 31, 1999.
ELXSI Corporation (together with its subsidiary, the "Company") has historically
operated principally through its wholly-owned California subsidiary, ELXSI.
ELXSI's operating businesses consist of a Restaurant division in New England and
an equipment manufacturer in Orlando, Florida.
RESTAURANT DIVISION. On July 1, 1991, ELXSI acquired 30 Bickford's Restaurants
and 12 Howard Johnson's Restaurants from Marriott Family Restaurants, Inc. These
Restaurants were located in Massachusetts, Vermont, New Hampshire, Rhode Island
and Connecticut.
Between 1991 and 1999, ELXSI sold six of its Howard Johnson's Restaurants,
converted five into Bickford's Family Restaurants, and closed one when the lease
expired. During the same period, ELXSI opened 16 new Bickford's and acquired 16
Abdow's Family Restaurants ("Abdow's"). ELXSI subsequently converted 10 Abdow's
into Bickford's, sold two Abdow's, and closed another. During 2000, two
additional Abdow's were converted to Bickford's, one was closed when the lease
expired, three new Bickford's were opened, and one Bickford's was closed and is
being held for subleasing. As of September 30, 2000 ELXSI operates 65 Bickford's
(the "Restaurants" or "Restaurant Division").
EQUIPMENT MANUFACTURER. On October 30, 1992, ELXSI acquired Cues, Inc. of
Orlando, Florida and its two wholly-owned subsidiaries Knopafex, Ltd., a
Canadian company, and Cues B.V., a Dutch company, collectively referred to
herein as "Cues" or "Cues Division".
Cues is engaged in the manufacturing and servicing of video inspection and
repair equipment for wastewater and drainage systems primarily for governmental
municipalities, service contractors and industrial users.
NOTE 2. ACCOUNTS RECEIVABLE - RELATED PARTY
As of September 30, 2000 the Company has outstanding approximately $13,859,000
in notes and advances to related parties. Of this, approximately $2,307,000
consists of notes receivable from ELX Limited Partnership (ELX), the proceeds of
which were used to purchase ELXSI common stock. The remaining $11,552,000
million consists of a $2,000,000 note and $9,552,000 in advances to Cadmus
Corporation (Cadmus). Cadmus has used the proceeds to purchase an
9
<PAGE>
investment portfolio comprised primarily of technology-based public equity
securities. This portfolio, in combination with the personal guarantee of
Alexander Milley, President and Chief Executive Officer of the Company, secures
the note and advances due from Cadmus. Alexander Milley maintains a controlling
interest over both ELX and Cadmus. In addition, certain other officers,
directors and/or shareholders of ELX and Cadmus are officers and/or directors of
the Company.
During the nine months of 2000, the Company earned interest on notes receivable
from related parties at various rates and recorded $1,097,000 of interest income
in the nine months ended September 30, 2000 compared to $519,000 in the same
period in 1999.
NOTE 3. COMPOSITION OF INVENTORY
Inventory is summarized in the following table.
September 30, December 31,
2000 1999
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Inventories:
Raw materials and finished goods $ 7,111,000 $ 7,960,000
Work in process 5,528,000 4,246,000
------------- -------------
$ 12,639,000 $ 12,206,000
============= =============
NOTE 4. LONG TERM DEBT
In connection with the Bank of America (Bank) line of credit, supplemental line
of credit, and Orange County Industrial Development Authority Bonds, ELXSI had
covenant violations resulting from investments and advances to related parties
during 1999 and the first nine months of 2000. The Company has obtained a waiver
of these violations, which expires December 31, 2000. In addition, during 1999
ELXSI exceeded the capital expenditures limit included in the Orange County
Industrial Development Authority Bond agreement and obtained waivers from the
bank for the violation. The Bank line of credit expires on June 30, 2001.
NOTE 5. INCOME TAXES
The Company recognizes deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the carrying amounts
and the tax basis of other assets and liabilities. Temporary differences giving
rise to deferred tax assets and liabilities include certain accrued liabilities
and net operating loss carryforwards. The provision for income taxes includes
the amount of income taxes payable for the year that would be paid by the
Company (without their carryforwards) as determined by applying the provisions
of the current tax law to the taxable income for the year and the net change
during the year in the Company's deferred tax assets and liabilities. In
determining the amount of any valuation allowance required to offset deferred
tax assets, an assessment is made that includes anticipating future income in
determining the likelihood of realizing deferred tax assets.
On an ongoing basis, the Company reviews the adequacy of the valuation allowance
and is recognizing deferred tax asset benefits only as reassessment indicates
that it is more likely than not that the benefits will be realized.
10
<PAGE>
The utilization of the Company's net operating loss and tax credit carryforwards
may be impaired or reduced under certain circumstances. Events which may affect
the Company's ability to utilize these carryforwards include, but are not
limited to, cumulative stock ownership changes of 50% or more over a three-year
period, as defined by Section 382 of the Internal Revenue Code (IRC), and the
timing of the utilization of the tax benefit carryforwards. Such changes in
ownership would significantly restrict the Company's ability to utilize loss and
credit carryforwards in accordance with Sections 382 and 383 of the IRC.
NOTE 6. SEGMENT REPORTING.
The Company has two reportable segments, restaurant operations and equipment
manufacturing. The Company is primarily organized into two strategic business
units, which have separate management teams and infrastructures. Each segment
requires different employee skills, technology, and marketing strategies. The
restaurant operations segment includes 64 Restaurants located in New England,
operating primarily under the Bickford's brand name. The equipment manufacturing
segment produces sewer inspection equipment for sale to municipalities,
contractors, and foreign governments.
The Company evaluates the performance of each segment based upon profit or loss
from operations before income taxes not including non-recurring gains and losses
and foreign exchange gains and losses.
There has been no significant difference in the basis of segmentation or in the
measurement of segment profit since the Company's last annual report on Form
10-K for the year ended December 31, 1999. The "Other" lines include corporate
related items, results of insignificant operations and, as they relate to profit
and losses, income and expense not allocated to reportable segments.
Summarized financial information by business segment for the nine months ended
September 30, 2000 and 1999 is summarized in the following table.
2000 1999
------------ ------------
Revenues:
Restaurants $ 56,743,000 $ 55,716,000
Equipment 20,232,000 23,032,000
------------ ------------
$ 76,975,000 $ 78,748,000
============ ============
Segment Operating Income:
Restaurants $ 4,615,000 $ 5,717,000
Equipment 948,000 2,436,000
Other (892,000) (1,609,000)
------------ ------------
$ 4,671,000 $ 6,544,000
============ ============
Segment Assets:
Restaurants $ 33,491,000 $ 32,139,000
Equipment 24,570,000 24,782,000
Other 34,234,000 29,227,000
------------ ------------
$ 92,295,000 $ 86,148,000
============ ============
11
<PAGE>
There were no inter-segment sales or transfers during the first nine months of
2000 or 1999. Operating income by business segment excludes interest income,
interest expense, and other income and expenses.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
The Company's revenues and expenses result from the operation of the Restaurant
and Cues Divisions and the Company's corporate expenses ("Corporate").
COMPARISON OF FIRST NINE MONTHS OF 2000 RESULTS TO 1999 RESULTS
Nine month sales decreased $1,773,000, gross profit decreased $1,711,000,
selling, general and administrative expense decreased $139,000 and depreciation
and amortization increased $301,000 resulting in an operating income decrease of
$1,873,000. Interest expense increased by $401,000, interest income increased by
$552,000, other expense increased by $50,000 and income taxes increased by
$13,216,000 resulting in a decrease in net income of $14,988,000.
RESTAURANT DIVISION. Restaurant sales increased by $1,027,000, or 1.8% and gross
profit decreased by $688,000, or 7.1% in the first nine months of 2000 compared
to the same period in the prior year. Operating income decreased $1,102,000, or
19.3% after deducting an increase in selling general and administrative expense
of $166,000, or 10.1% and an increase in depreciation and amortization of
$248,000, or 10.6%. The sales increase was mainly due to an increase in same
store sales of $430,000, or 0.9%, sales from the opening of new Bickford's
Restaurants of $1,352,000, sales increases from the converted Abdow's of
$53,000, partially offset by a decrease in sales due to closed Restaurants of
$808,000. Customer counts at Restaurants operated in both periods decreased 4.0%
due primarily to the severe winter weather in February 2000 and increased
competition in certain market areas. In addition, the implementation by certain
local communities of non-smoking regulations also reduced customer counts.
In addition to the sales increase, there was a 1.5% decrease in the gross profit
percentage from 17.4% to 15.9%, and restaurant gross profit decreased by
$688,000, or 7.1%, in the first nine months of 2000 compared to the same period
in 1999. The decrease in the gross profit percentage was mainly the result of an
increase in labor costs.
Restaurant selling, general and administrative expense increased by $166,000, or
10.1%, during the first nine months of 2000 as a result of increased staffing.
Restaurant depreciation and amortization increased by $248,000, or 10.6%, during
the first nine months of 2000. Restaurant depreciation and amortization will
continue to increase each year with the addition of new restaurants.
As a result of the above items, operating income decreased by $1,102,000 or
19.3% in the first nine months of 2000.
12
<PAGE>
CUES DIVISION. Cues's sales decreased by $2,800,000 or 12.2% in the first nine
months of 2000 compared to the same period in the prior year. The primary reason
for the sales decrease was a decrease in sales of truck mounted systems, after
market parts and a decrease in sales by one of its foreign subsidiaries. As a
result of the sales decrease and a 0.8% decrease in the gross profit percentage
from 30.9% in the first nine months of 1999 to 30.1% in the first nine months of
2000, gross profit decreased by $1,023,000, or 14.3% in the first nine months of
2000. Operating income decreased by $1,488,000, or 61.1%. Included in the
decrease in operating income is the effect of an increase in selling, general
and administrative expense of $412,000, or 9.9% and an increase in depreciation
and amortization expense of $53,000, or 10.0%. The increase in expenses in the
first nine months of 2000 compared to the corresponding period in the prior year
is primarily attributable to increases in selling expense including: wages
resulting from both rate and headcount increases, sales and marketing expenses
including an increase in west coast sales efforts, where a satellite service and
sales office was established.
CORPORATE. Corporate general and administrative expenses decreased by $717,000
during the first nine months of 2000 primarily due to a decrease in phantom
option expense of $750,000 compared with fiscal 1999. Interest expense increased
by $397,000 due to a higher average debt balance in 2000. Interest income (as a
result of related party notes receivable) and other expense increased by
$570,000 and $182,000, respectively in the first nine months of 2000 compared to
the same period in 1999.
INCOME TAXES. Consolidated income tax expense in the first nine months of 2000
was $1,925,000 compared to an income tax benefit of $11,291,000 in the first
nine months of 1999. Both periods include non-cash expense (benefit) resulting
from calculating the deferred tax provision in accordance with Financial
Accounting Standards Board Statement No. 109 "Accounting For Income Taxes". The
first nine months of 1999 included a deferred tax benefit of $12,069,000
compared to deferred tax expense of $1,329,000, in the corresponding period of
2000. The Company will continue to pay taxes at the rate of approximately 12%,
but will recognize tax expense at a rate of approximately 40% on future
quarterly and annual income statements.
EARNINGS PER SHARE. Basic and diluted earnings per share for the nine months
ended September 30, 2000 were $0.65 and $0.58, respectively. The basic and
diluted weighted average number of shares outstanding for the nine months ended
September 30, 2000 were 4,275,000 and 4,808,000, respectively. This compares to
basic and diluted earnings per share of $4.15 and $3.72 per share, respectively
for the corresponding period in 1999 when there were basic and diluted weighted
average shares outstanding of 4,285,000 and 4,784,000, respectively. The
decrease in the diluted weighted average shares outstanding in the first nine
months of 2000 compared to the first nine months of 1999 resulted mainly from
the repurchase and retirement of Common Stock. The average stock market price
for the first nine months of 2000 was $12.21 compared to an average of $11.16 in
the corresponding period of 1999. An increase in the stock price results in a
slight increase in the number of shares outstanding for purposes of determining
the weighted average shares outstanding used in the earnings per share
calculation.
13
<PAGE>
COMPARISON OF THIRD QUARTER 2000 RESULTS TO 1999 RESULTS
Three month sales decreased $2,126,000, gross profit decreased $1,367,000,
selling, general and administrative expense decreased $58,000 and depreciation
and amortization increased $97,000 resulting in an operating income decrease of
$1,406,000. Interest expense increased by $118,000, interest income increased by
$158,000, other income increased by $36,000 and income taxes expense increased
by $13,389,000 resulting in a decrease in net income of $14,719,000.
RESTAURANT DIVISION. Restaurant sales decreased by $307,000, or 1.5% and gross
profit decreased by $668,000, or 17.1% in the third quarter of 2000 compared to
the same period in the prior year. Operating income decreased $790,000, or 31.0%
after deducting an increase in selling general and administrative expense of
$31,000, or 5.5% and an increase in depreciation and amortization of $91,000, or
11.5%. The sales decrease was mainly due to an decrease in same store sales of
$252,000, or 1.4%, a decrease in sales due to closed Restaurants of $548,000
partially offset by an increase in sales from the opening of new Bickford's
Restaurants of $462,000, and an increase in sales from the conversion of Abdow's
of $31,000. Customer counts at Restaurants operated in both periods decreased
5.6% due primarily to increased competition in certain market areas and the
implementation by certain local communities of non-smoking regulations.
As a result of the sales decrease and a 3.1% decrease in the gross profit
percentage from 19.4% to 16.3%, restaurant gross profit decreased by $668,000,
or 17.1% in the third quarter of 2000 compared to the same period in 1999. The
decrease in the gross profit percentage was mainly the result of an increase in
labor cost attributable to higher average hourly rates caused by a continued
competitive labor market, higher variable costs and the inefficiencies related
to the decline in customers.
Restaurant selling, general and administrative expense increased by $31,000, or
5.5% during the third quarter of 2000.
Restaurant depreciation and amortization increased by $91,000, or 11.5% during
the third quarter of 2000. Restaurant depreciation and amortization will
continue to increase each year with the addition of new restaurants.
As a result of the above items, operating income decreased by $790,000 or 31.0%
in the third quarter of 2000.
CUES DIVISION. Cues's sales decreased by $1,819,000 or 21.3% in the third
quarter of 2000 compared to the same period in the prior year. The primary
reason for the sales decrease was a decrease in sales of truck-mounted systems.
While Cues has not benefited from a large sales month in 2000, management does
not believe this is a sign of market weakness or decreasing market share. As a
result of the sales decrease and a 2.3% decrease in the gross profit percentage
from 29.7% in the third quarter of 1999 to 27.4% in the third quarter of 2000,
gross profit decreased by $699,000, or 27.5% in the third quarter of 2000.
Operating income decreased by $865,000, or 91.1%, including the effect of an
increase in selling, general and administrative expense of $160,000, or 11.4%
and an increase in depreciation and amortization expense of $6,000, or 3.2%.
Selling, general, and administrative expenses increased primarily as a result of
adding additional sales personnel and expanded market coverage.
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CORPORATE. Corporate general and administrative expenses decreased by $249,000
during the third quarter of 2000 due primarily to a decrease in phantom option
expense. Interest expense increased by $115,000 due to a higher average debt
balance in 2000. Interest income increased by $165,000 due to an increase in
advance to a related party receivable in the third quarter of 2000 compared to
the same period in 1999.
INCOME TAXES. Consolidated income tax expense decreased from a benefit of
$12,728,000 in the third quarter of 1999 to expense of $661,000 in the
corresponding period in 2000. Both periods include non-cash expense resulting
from calculating the deferred tax provision in accordance with Financial
Accounting Standards Board Statement No. 109 "Accounting For Income Taxes". The
third quarter of 2000 included deferred tax expense of $461,000 compared to a
deferred tax benefit of $13,061,000 in the corresponding period of 1999.
EARNINGS PER SHARE. Basic and diluted earnings per share for the third quarter
ended September 30, 2000 were $0.23 and $0.21 respectively. The basic and
diluted weighted average number of shares outstanding for the three months ended
September 30, 2000 were 4,257,000 and 4,729,000, respectively. This compares to
basic and diluted earnings per share of $3.67 and $3.28 per share, respectively
for the corresponding period in 1999 when there were basic and diluted weighted
average shares outstanding of 4,281,000 and 4,792,000, respectively. The
decrease in the diluted weighted average shares outstanding in the third quarter
of 2000 compared to the third quarter of 1999 resulted mainly from the
repurchase and retirement of Common Stock. The average stock market price for
the third quarter of 2000 was $11.22 compared to an average of $12.39 in the
corresponding period of 1999. An increase in the stock price results in a slight
increase in the number of shares outstanding for purposes of determining the
weighted average shares outstanding used in the earnings per share calculation.
LIQUIDITY AND CAPITAL RESOURCES
AVAILABLE RESOURCES. The Company's consolidated cash positions at September 30,
2000 and December 31, 1999 were $957,000 and $1,366,000, respectively. The
Company has a cash management system whereby cash generated by operations is
immediately used to reduce bank debt. The immediate reduction of outstanding
debt provides the Company with a reduction in interest expense greater than the
interest income that cash could safely earn from alternative investments.
Working capital needs, when they arise, are met by daily borrowings.
During the first nine months of 2000, the Company had cash flow from operations
of $6,089,000. The cash from operations of $6,089,000, borrowings of $819,000 of
long term debt, collection of accounts receivable - related party of $116,000,
collection of a related party note of $135,000, proceeds from the sale of land
of $100,000, proceeds form the sale of a liquor license of $100,000 and proceeds
from the exercise of common stock options totaling $138,000 funded additional
net advances to a related party of $2,065,000 (including the effect of a
non-cash sale of trading securities of $2,181,000), net purchase of trading
securities of $2,346,000, acquisition of property, plant and equipment totaling
$4,468,000, the purchase of common stock of $1,053,000, and payment of capital
lease obligations of $39,000. During the first nine months of 2000, current
assets decreased by $7,093,000 primarily due to a reclass to long term assets of
Corporate advances to a related party (see Note 2), partially offset by an
increase in Cues's accounts receivable and inventory. Current liabilities
increased $8,221,000 mainly due to an increase in the current portion of
long-term debt and accounts payable, partially offset by a decrease in accrued
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expenses. Current liabilities at September 30, 2000 and December 31, 1999
include $561,000 of the remaining payable to stockholders related to the
Company's June 28, 1999 reverse stock split, which resulted in the repurchase
and retirement of 157,000 shares of Common Stock, in 1999.
During the first nine months of 1999, the Company had cash flow from operations
of $7,692,000. The cash from operations, long-term debt borrowings of $1,463,000
and proceeds from the exercise of common stock options totaling $25,000 funded
the acquisition of property, plant and equipment totaling $3,408,000, the
advances to a related party of $3,083,000, a business acquisition totaling
$778,000, the purchase of Common Stock totaling $1,914,000 and the repayment of
capital leases obligations of $43,000. During the first nine months of 1999,
current assets increased by $5,303,000 primarily due to increases in Cues's
inventory, and accounts receivable and Corporate advances to a related party.
The Cues inventory increase of $1,910,000 resulted from an increase in work in
process inventory to support an increase in production of truck-mounted systems
and trucks used for sales and product demonstrations. The increase in Cues
accounts receivable of $1,051,000 resulted mainly from the large sales volume in
the month of September 1999. Also included in current assets is an increase in
an account receivable from a related party totaling $3,083,000 at September 30,
1999 (see Note 2). Partially offsetting the increase in current assets, current
liabilities increased $1,874,000 mainly due to an increase in accounts payable
and accrued expenses.
FUTURE NEEDS FOR AND SOURCES OF CAPITAL. Management believes that cash generated
by operations is sufficient to fund current operations including the interest
payments on the long-term debt. With bank approval, excess funds are available
under the Company's Loan Agreement to finance additional acquisitions. The
Company's Revolving Loan Agreement will expire on June 30, 2001 and management
plans to renew the agreement.
IMPACT OF INFLATION. Inflationary factors, such as increases in food and labor
costs, directly affect the Company's operation. Many of the Restaurant employees
are paid hourly rates related to the federal minimum wage, and accordingly,
increases in the minimum wage will result in increases in the Company's labor
costs. In addition, the cost of food commodities utilized by the Company is
subject to market supply and demand pressures. Shifts in these costs may have an
impact on the Company's food cost. The Company anticipates that food cost
increases can be offset through selective price increases, although no
assurances can be given that the Company will be successful in this regard.
Increases in interest rates could negatively affect the Company's operations.
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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.
ELXSI CORPORATION
--------------------------------------
(Registrant)
Date: November 7, 2000 /s/ ALEXANDER M. MILLEY
--------------------------------------
Alexander M. Milley,
Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 7, 2000 /s/ DAVID M. DOOLITTLE
--------------------------------------
David M. Doolittle, Vice President,
Treasurer and Secretary (Chief Accounting
Officer and Principal Financial Officer)
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