UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter ended April 2, 1997
Commission File No. 0-14311
FAMILY STEAK HOUSES OF
FLORIDA, INC.
Incorporated under the laws of IRS Employer Identification
Florida No. 59-2597349
2113 FLORIDA BOULEVARD
NEPTUNE BEACH, FLORIDA 32266
Registrant's Telephone No. (904) 249-4197
Indicate by check mark whether the registrant 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_____
Title of each class Number of shares outstanding
Common Stock 11,030,000
$.01 par value As of May 7, 1997
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 2, 1997
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions
to Form 10-Q, and do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results for
the interim period have been included. Operating results for the
thirteen week period ended April 2, 1997 are not necessarily
indicative of the results that may be expected for the fiscal
year ending December 31, 1997. For further information, refer to
the financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the fiscal year ended January 1,
1997.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany profits, transactions and balances have been
eliminated.
Note 2. Earnings Per Share
Earnings per share for the thirteen weeks ended April 2, 1997
and April 3, 1996 were computed based on the weighted average
number of common and common equivalent shares outstanding.
Common equivalent shares are represented by shares under option
and stock warrants.
SFAS No. 128 Required Disclosure
In 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128
"Earnings per Share" which will require the Company to disclose
Basic and Diluted earnings per share on the face of the income
statement. Basic earnings per share excludes dilution, and is
computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the
period. The Company will adopt SFAS 128 for the fiscal year ended
December 31, 1997. Application of this statement in the first
quarter of 1997 would have no material effect on earnings per
share as reported in the financial statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended April 2, 1997 versus April 2, 1996
The Company experienced an increase in total sales during
the first thirteen weeks of 1997 compared to the first thirteen
weeks of 1996, as a result of the opening of a new restaurant in
January 1997. Same-store sales (average unit sales in restaurants
that have been open for at least 18 months and operating during
comparable weeks during the current and prior year) in the first
quarter of 1997 decreased 5.2% from the same period in 1996,
compared to a decrease of 8.7% from 1996 as compared to 1995.
Management believes that the decrease in same-store sales is
primarily due to the effects of increasing competition, including
several new or remodeled restaurants opened by competitors in
areas close to Company restaurants. Management is seeking to
improve sales trends by focusing on improved restaurant
operations, remodeling certain restaurants, and devising
competitive strategies to offset the effects of new competition.
The costs and expenses of the Company's restaurants include
food and beverage, payroll, payroll taxes and employee benefits,
depreciation and amortization, repairs, maintenance, utilities,
supplies, advertising, insurance, property taxes, rents, and
licenses. The Company's food, beverage, payroll, and employee
benefit costs as a percentage of sales are believed to be higher
than the industry average, due to the Company's philosophy of
providing customers with high value of food and service for every
dollar a customer spends. In total, food and beverage, payroll
and benefits, depreciation and amortization and other operating
expenses as a percentage of sales decreased to 84.4% in the first
quarter of 1997 from 85.7% in same quarter of 1996.
Food and beverage costs decreased as a percentage of sales
from 40.1% in 1996 to 38.7% in 1997, due primarily to lower
produce costs and to sales price increases implemented in the
Company's restaurants after the first quarter of 1996. Payroll
and benefit costs as a percentage of sales increased to 27.4% in
1997 from 26.9% in 1996, primarily due to the decrease in same-
store sales, which resulted in lower efficiencies in labor
scheduling.
Depreciation and amortization expenses decreased as a
percentage of sales in the first quarter of 1997, compared to the
same period of 1996, primarily as a result of certain assets
becoming fully depreciated.
General and administrative expenses as a percentage of sales
increased to 5.6% in the first quarter of 1997 from 5.1% in the
same quarter in 1996. This increase was primarily due to costs
associated with the Company's response to an unsolicited tender
offer and consent solicitation by Bisco Industries, Inc. (see
"Recent Developments" below).
Interest expense was $390,500 in the first quarter of 1997
versus $391,000 in the same quarter of 1996.
The effective income tax rate for the first three months of
1997 was 20.0%, compared to 25.0% in 1996. The lower than
statutory rates are due to the realization of deferred tax assets
for which a reserve had been provided in prior periods.
Net earnings were $352,800 and $261,100 in the first
quarters of 1997 and 1996, respectively. Earnings per share for
the quarter were 3 cents in 1997 compared to 2 cents in 1996.
The Company's operations are subject to some seasonal
fluctuations. Revenues per restaurant generally increase from
January through April and decline September through December.
Operating results for the quarter ended April 2, 1997 are not
necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1997.
Recent Developments
In May 1997, the Company signed a letter of intent to
purchase land on which the Company intends to construct its 26th
Ryan's restaurant. The purchase of the property is contingent
upon completion of due diligence by the Company regarding the
suitability of the property for construction. The Company expects
to open the restaurant in the fourth quarter of 1997.
On March 6, 1997, Bisco Industries, Inc. ("Bisco"), a
shareholder of the Company, launched an unsolicited tender offer
designed to acquire approximately 24% of the Company's common
stock. If the tender offer is successful, Bisco and its
affiliates will own a total of approximately 30% of the Company's
outstanding common stock. The tender offer is subject to a number
of conditions including the non-applicability of a Florida law
which restricts a shareholder's ability to vote the Company's
shares if the shareholder acquires 20% or more of the Company's
outstanding shares, unless a majority of the Company's
shareholders agree to grant voting rights to this shareholder. On
April 30, 1997, Bisco filed its Consent Solicitation Statement
requesting that the Company's shareholders approve several
amendments to the Company's bylaws.
The Company's Board of Directors opposes the Bisco tender
offer and consent solicitation, and has implemented several
measures designed to protect the Company's shareholders against
the potential adverse effects of an unsolicited takeover.
As of May 7, 1997, approximately 2.2 million shares of the
Company's common stock had been tendered. On May 12, 1997 Bisco
announced that it was extending the tender offer until May 23,
1997. If the Bisco tender offer and consent solicitation are
successful, management is uncertain of the impact on the
Company's future operations. Bisco has detailed several possible
actions they might take if successful in the tender offer and
consent solicitation, including disposing of the Company's
restaurant operations.
For a complete discussion of the terms and conditions of the
Bisco tender offer and consent solicitation, and the Company's
response, see: the Schedule 14D-1 filed by Bisco on March 6,
1997, as amended; the Schedule 14D-9 filed by the Company March
19, 1997; the Consent Solicitation Statement by Bisco dated April
29, 1997; and the Revocation of Consent by the Company dated May
1, 1997.
Liquidity and Capital Resources
Substantially all of the Company's revenues are derived from
cash sales. Inventories are purchased on credit and are converted
rapidly to cash. Therefore, the Company does not carry
significant receivables or inventories and, other than repayment
of debt, working capital requirements for continuing operations
are not significant.
At April 2, 1997, the Company had a working capital surplus
of $18,300 compared to a working capital deficit of $616,800 at
January 1, 1997. The increase in working capital during the first
three months in 1997 was due primarily to net earnings generated
in the first quarter of 1997, and to the reclassification of a
mortgage receivable from long-term to current.
Cash provided by operating activities decreased .6% to
$1,206,600 in the first quarter of 1997 from $1,213,500 in the
first quarter of 1996.
The Company spent approximately $939,700 in the first
quarter of 1997 and $192,900 in the first quarter of 1996 for
equipment and improvements. Capital expenditures for 1997 and
1998 are estimated to be $4,100,000 and $3,100,000 respectively.
The Company projects that proceeds from the Company's financing
agreements, sales leaseback financing and cash generated from
operations will be sufficient to fund these improvements.
In December 1996, the Company entered into a $15.36 million
Loan Agreement with FFCA Mortgage Corporation ("FFCA"). The Loan
Agreement governs eighteen Promissory Notes payable to FFCA. Each
Note is secured by a mortgage on a Company restaurant property.
The Promissory Notes provide for a term of twenty years and an
interest rate equal to the thirty-day LIBOR rate plus 3.75%,
adjusted monthly. The Loan Agreement provides for various
covenants, including the maintenance of prescribed debt service
coverages. As of April 2, 1997, the outstanding balance due under
the loan was $15,288,900.
The Company used the proceeds of the FFCA loan to retire its
notes with Cerberus Partners, L.P., ("Cerberus") and its loans
with The Daiwa Bank Limited and SouthTrust Bank of Alabama, N.A.
The Company realized a discount on the retirement of the Cerberus
notes, which was partially offset by unamortized debt issuance
costs. The resulting gain of $348,500, net of income taxes, was
accounted for as an extraordinary item in 1996.
In addition, the Company retired Warrants for 1,050,000 shares of
the Company's common stock previously held by Cerberus. Cerberus
continues to hold Warrants to purchase 700,000 shares of the
Company's common stock at an exercise price of $.40 per share.
Also in December 1996, the Company entered into a separate
loan agreement with FFCA under which it may borrow up to an
additional $4,640,000 in 1997. This additional financing would be
evidenced by four additional Promissory Notes secured by
mortgages on four Company restaurant properties. The terms and
conditions of this loan agreement are substantially identical to
those of the loan agreement described above.
Impact of Inflation
Costs of food, beverage, and labor are the expenses most
affected by inflation in the Company's business. Although
inflation has not been a major factor for the past several years,
there can be no assurance that it will not be in the future. A
significant number of the Company's personnel are paid at the
federally established minimum wage level. On August 8, 1996,
President Clinton signed into law a bill which raised the
federally mandated minimum wage by $.50 per hour on October 1,
1996, and by an additional $.40 per hour on September 1, 1997.
The Company raised sales prices approximately 3.0% in 1996
in order to offset the effect of higher payroll and benefit
costs. The Company has not raised prices to date in 1997, but is
currently analyzing the possible need to increase prices in
response to the September 1997 minimum wage increase.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
As discussed in the Company's Schedule 14D-9 dated
March 19, 1997 and its Revocation of Consent Statement
dated May 1, 1997, the Board of Directors of the
Company on March 18, 1997 adopted Amended and Restated
Bylaws.
The Amended and Restated Bylaws adopted on March 18,
1997 included provisions to establish a classified
board of directors and to require a supermajority (80%)
vote of directors to fill any vacancy on the board of
directors. The classified board provisions were adopted
subject to shareholder approval. The Board intends to
recommend that the shareholders approve at the 1997
Annual Meeting of Shareholders an amendment to the
Company's Articles of Incorporation to classify the
board of directors, permit removal of directors only
for cause and require approval of 80% of current
directors to fill a vacancy on the board. This
amendment to the Articles of Incorporation will not be
effective without shareholder approval.
Among the revisions made pursuant to the Amended and
Restated Bylaws, the Board adopted provisions requiring
shareholders who wish to make director nominations and
proposals to comply with certain timing and notice
procedures and authorizing the Company to appoint an
inspector of elections and an inspector of written
consents, for the purpose of determining the validity
and effect of proxies, consents and revocations and
counting and tabulating all votes, consents, waivers
and releases, among other functions.
The Amended and Restated Bylaws included other changes
to provide more flexibility in connection with certain
management issues, such as providing that the annual
meeting may be scheduled by the Board rather than
requiring the meeting to take place during the first
two months of the second fiscal quarter. The Amended
and Restated Bylaws also included changes to expand on
the requirements for transfer of stock and to conform
with current Florida law such as deleting references to
Treasury Stock, which no longer exists by law.
The foregoing summary of the Amended and Restated
Bylaws is not complete and is qualified in its entirety
by reference to the complete text of the Amended and
Restated Bylaws which is attached as Exhibit 4 to the
Company's Registration Statement on Form 8-A dated
March 18, 1997.
At its March 18, 1997 meeting, the Board of Directors
also declared a dividend of one Right for each
outstanding share of the Company's common stock under a
Rights Agreement between the Company and Chase Mellon
Shareholder Services, Inc., as Rights Agent (the
"Rights Agreement"). Upon the occurrence of certain
events and subject to certain conditions and
adjustments, certain holders of the Rights may become
entitled to exercise the Rights to purchase additional
shares of common stock or other equity securities of
the Company or of an acquiring company or to
participate in an exchange of the Rights for shares of
the Company's common stock or equivalent equity
securities.
The Rights were more fully described in, and the
complete text of the Rights Agreement was filed as an
exhibit to, the Company's Registration Statement on
Form 8-A filed with the Securities and Exchange
Commission Agreement as of March 19, 1997. The
foregoing discussion is not complete and is qualified
in its entirety by reference to such Registration
Statement on Form 8-A.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
See discussion under "Recent Developments"
ITEM 5. OTHER INFORMATION
None
ITEM 6. Exhibits and reports on Form 8-K
(a) Exhibits
3 (a) Amended and Restated Bylaws of Family Steak
Houses of Florida, Inc. (incorporated by
reference to Exhibit 4 of the Company's
Registration Statement on Form 8-A filed with
the Securities and Exchange Commission as of
March 19, 1997).
4. Shareholder Rights Agreement, dated March 18,
1997, between Family Steak Houses of Florida,
Inc. and Chase Mellon Shareholder Services,
Inc., as Rights Agent, including the form of
Certificate of Designation for Junior
Participating Preferred Stock and the form of
Rights Certificate (incorporated by reference
to Exhibit 1 to the Company's Registration
Statement on Form 8-A filed with the
Securities and Exchange Commission as of
March 19, 1997).
27 Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed March 21, 1997 announcing
declaration of the Rights under the Rights
Agreement.
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.
FAMILY STEAK HOUSES OF FLORIDA, INC.
(Registrant)
/s/ Lewis E. Christman, Jr.
Date: May 12, 1997 Lewis E. Christman, Jr.
President
(Chief Executive Officer)
/s/ Edward B. Alexander
Date: May 12, 1997 Edward B. Alexander
Vice President of Finance
(Principal Financial and Accounting
Officer)
/s/ Michael J. Walters
Date: May 12, 1997 Michael J. Walters
Controller
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.
FAMILY STEAK HOUSES OF FLORIDA, INC.
(Registrant)
____________________________________
Date: May 12, 1997 Lewis E. Christman, Jr.
President
(Chief Executive Officer)
____________________________________
Date: May 12, 1997 Edward B. Alexander
Vice President of Finance
(Principal Financial and Accounting
Officer)
____________________________________
Date: May 12, 1997 Michael J. Walters
Controller
Financial Statements
Family Steak Houses of Florida, Inc.
Consolidated Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION> For The Quarters Ended
===========
April 2, April 3
1997 1996
===========
<S> <C> <C>
Sales *********** ***********
Cost and expenses:
Food and beverage 4,088,200 4,150,200
Payroll and benefits 2,897,400 2,783,300
Depreciation and amortization 415,100 425,300
Other operating expenses 1,517,200 1,524,900
General and administrative expenses 587,800 528,800
Franchise fees 316,600 310,600
Loss from disposition of equipment 17,300 18,600
----------- -----------
9,839,600 9,741,700
Earnings from operations 719,500 618,000
Interest and other income 112,000 121,100
Interest expense (390,500) (391,000)
----------- -----------
Earnings before income taxes 441,000 348,100
Provision for income taxes 88,200 87,000
----------- -----------
Net earnings $352,800 $261,100
=========== ===========
Net earnings per common and equivalent
share $0.03 $0.02
=========== ===========
Weighted average common shares and equiva11,638,000 12,122,000
=========== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION> April 2, January 1,
1997 1997
============
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $1,937,800 $1,750,800
Investments 1,586,700 1,093,100
Receivables 90,700 566,100
Current portion of mortgages recei 538,400 120,600
Inventories 264,700 202,300
Prepaid and other current assets 252,400 247,200
------------ ------------
Total current assets 4,670,700 3,980,100
Mortgages receivable 642,100 1,089,100
Property and equipment:
Land 9,089,200 9,089,200
Buildings and improvements 19,694,400 19,676,500
Equipment 12,663,300 12,240,400
------------ ------------
41,446,900 41,006,100
Accumulated depreciation (15,003,000) (14,656,200)
------------ ------------
Net property and equipment 26,443,900 26,349,900
Property held for resale 552,800 552,800
Other assets, principally deferred charges,
net of accumulated amortization 854,400 831,600
------------ ------------
$33,163,900 $32,803,500
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,635,900 $1,183,000
Accounts payable - construction -- 411,800
Accrued liabilities 2,680,500 2,582,100
Income taxes payable 54,500 84,800
Current portion of long-term debt 279,000 332,700
Current portion of obligation unde 2,500 2,500
------------ ------------
Total current liabilities 4,652,400 4,596,900
Long-term debt 15,013,000 15,107,200
Obligation under capital lease 1,058,000 1,058,600
Deferred income taxes 11,500 --
Deferred revenue 43,100 43,100
------------ ------------
Total liabilities 20,778,000 20,805,800
Shareholders' equity:
Preferred stock of $.01 par;
authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par;
authorized 20,000,000 shares;
outstanding 11,030,000 in 1997 and
10,920,700 in 1996 110,300 109,200
Additional paid-in capital 8,132,700 8,098,400
Retained earnings 4,142,900 3,790,100
------------ ------------
Total shareholders' equi 12,385,900 11,997,700
------------ ------------
$33,163,900 $32,803,500
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION> For the Quarter
============
April 2, April 3,
1997 1996
<S> <C> <C>
Operating activities:
Net earnings $352,800 $261,100
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 415,100 425,300
Directors' fees in the form of stock opt 2,500 5,000
Amortization of loan discount -- 13,900
Amortization of loan fees 5,500 22,400
Loss on disposition of equipment 17,300 18,600
Decrease (increase) in:
Receivables (700) 19,400
Inventories (62,400) 15,300
Prepaids and other current assets (5,200) 85,300
Other assets (50,800) --
Increase (decrease) in:
Accounts payable 452,900 296,600
Accrued liabilities 98,400 (11,400)
Income taxes payable (30,300) 62,000
Deferred income taxes 11,500 --
------------ -----------
Net cash provided by operating activities 1,206,600 1,213,500
Investing activities:
Proceeds from sale of property and equipme -- 92,400
Proceeds from notes receivable 29,200 31,900
Purchase of investments (493,600) --
Capital expenditures (939,700) (192,900)
------------ -----------
Net cash used by investing activities (1,404,100) (68,600)
Financing activities:
Payments on long-term debt (147,900) (395,000)
Construction draw on capital lease 500,100 --
Payments on capital lease (600) --
Proceeds from the issuance of common stock 32,900 6,000
------------ -----------
Net cash provided (used) by financing activi 384,500 (389,000)
Net increase in cash and cash equivalents 187,000 755,900
Cash and cash equivalents - beginning of per 1,750,800 711,400
------------ -----------
Cash and cash equivalents - end of period $1,937,800 $1,467,300
============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for interes $397,000 $356,700
============ ===========
Cash paid during the quarter for income $107,000 --
============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains summary financial informartion
extracted from the Company's 1997 first quarter 10-Q and is qualified
in it's entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> APR-07-1997
<CASH> 1937800
<SECURITIES> 1586700<F1>
<RECEIVABLES> 629100
<ALLOWANCES> 0
<INVENTORY> 264700
<CURRENT-ASSETS> 4670700
<PP&E> 41446900
<DEPRECIATION> 15003000
<TOTAL-ASSETS> 33163900
<CURRENT-LIABILITIES> 4652400
<BONDS> 0
0
0
<COMMON> 110300
<OTHER-SE> 12275600
<TOTAL-LIABILITY-AND-EQUITY> 33163900
<SALES> 10559100
<TOTAL-REVENUES> 10559100
<CGS> 4088200
<TOTAL-COSTS> 9839600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 390500
<INCOME-PRETAX> 441000
<INCOME-TAX> 88200
<INCOME-CONTINUING> 352800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 352800
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
<FN>
<F1>Represents investments in Certificates of Deposit and Banker's
Acceptances with maturies of less than one year.
</FN>
</TABLE>
