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 June 28, 2000
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 2,416,232
$.01 par value As of July 28, 2000
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 28, 2000
(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 periods have been
included. Operating results for the thirteen and twenty-six week
periods ended June 28, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ending January 3,
2001. 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 December 29, 1999.
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
Basic earnings per share for the thirteen and twenty-six weeks ended
June 28, 2000 and June 30, 1999 were computed based on the weighted
average number of common shares outstanding. Diluted earnings per
share for those periods have been computed based on the weighted
average number of common shares outstanding, giving effect to all
dilutive potential common shares that were outstanding during the
period. Dilutive shares are represented by shares under option and
stock warrants.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended June 28, 2000 versus June 30, 1999
The Company experienced an increase in total sales during the second
thirteen weeks of 2000 compared to the second thirteen weeks of 1999.
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 second quarter of 2000 increased 5.9%
from the same period in 1999, compared to an increase of 1.7% from
1999 as compared to 1998. Management estimates that approximately
one-half of the same store sales increase resulted from menu price
increases. Total sales increased 0.4%, despite the fact that the
Company operated a net total of two fewer restaurants in 2000. Since
the end of the second quarter of 1999, the Company sold three
restaurants and opened one new restaurant.
Management is seeking to continue to improve sales trends by focusing
on improved restaurant operations, devising competitive strategies to
offset the effects of new competition and making improvements to
certain restaurants. In 2000, the Company added exhibition cooking
areas to two of its restaurants, and experienced improved sales trends
at these locations. Management intends to make similar additions to at
least two more restaurants by the end of 2000. The Company also
recently initiated a program to emphasize take-out sales. This
program will include a separate take-out section which will be added
to four of the Company's restaurants during the third quarter of 2000.
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 and rents. The Company's
food, beverage, payroll and benefit costs are believed to be higher
than the industry average as a percentage of sales as a result of 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 86.0%
in the second quarter of 2000, from 88.5% in the same quarter of 1999,
primarily due to reductions in payroll and benefit costs and other
operating expenses as a percentage of sales.
Food and beverage costs as a percentage of sales decreased to 38.6%
in the second quarter of 2000 from 38.9% in the same period of 1999,
primarily due to menu price increases implemented by the Company.
Payroll and benefits as a percentage of sales decreased to 27.8% in
the second quarter of 2000 from 29.2% in the same quarter of 1999,
primarily due to a reduction in workers' compensation expense in 2000,
and to incremental payroll costs in 1999 associated with the opening
of a new restaurant.
Other operating expenses as a percentage of sales decreased to 14.4%
in the second quarter of 2000 compared to 15.9% in 1999, primarily due
to costs incurred in 1999 associated with the opening of a new
restaurant. Depreciation and amortization increased to 5.2% in 2000
from 4.5% in 1999, due to increased expense resulting from a reduction
in the estimated useful life of assets at one restaurant where the
Company's lease expired, and to additions to property and equipment
over the last year.
General and administrative expenses as a percentage of sales
were 6.2% in the second quarter of 2000, compared to 6.7% in the
same quarter of 1999, primarily due to lower manager training costs
in 2000, and to costs incurred in 1999 from a proxy contest. Interest
expense increased to $461,200 during the second quarter of 2000 from
$428,800 in 1999. The increase was due to higher interest rates in
2000, and to additional borrowings under the Company's credit facility
in 1999 and 2000.
The results for the second quarter of 2000 include realized gains
of $186,500 from the sale of marketable securities, which are included
in interest and other income. There were no such gains in the second
quarter of 1999.
The effective income tax rates for the quarters ended June 28, 2000
and June 30, 1999 were 0.0%. The 0% rate in both years was due to
the use of net operating loss carryforwards to offset taxable income.
Net income for the second quarter of 2000 was $274,700, compared to a
net loss of $192,500 in the second quarter of 1999. Earnings per share
were $.11 for 2000, compared to net loss per share of $.08 in 1999.
Six Months Ended June 28, 2000 versus June 30, 1999
For the six months ended June 28, 2000, total sales increased 2.4%
compared to the same period of 1999. Same-store sales increased
4.3% for the six months ended June 28, 2000.
Food and beverage costs as a percentage of sales for the six
month period ended June 28, 2000 decreased to 38.6% from 38.9% for the
same period in 1999, primarily due to menu price increases. Payroll
and benefits as a percentage of sales decreased to 27.4% in 2000 from
28.5% in 1999. The increase was primarily due to lower workers'
compensation costs in 2000.
For the six months ended June 28, 2000, other operating expenses
decreased to 14.2% from 15.1% in 1999, primarily due to costs incurred
in 1999 associated with the opening of a new restaurant, and to lower
property insurance costs in 2000. Depreciation and amortization
increased to 5.0% for the six month period ended June 28, 2000,
compared to 4.8% in 1999, due primarily to additions to property and
equipment over the past year.
General and administrative expenses for the six-month periods ended
June 28, 2000 and June 30, 1999 were 6.2% of sales. Interest expense
increased for the first six months of 2000 to $928,400 from $811,200
for the same period in 1999, due to higher interest rates in 2000 and
from additional borrowing under the Company's credit facility.
The results for the six months ended June 28, 2000 include
realized gains of $368,100 from the sale of marketable securities,
which are included in interest and other income. There were no such
gains in the same period of 1999.
The effective income tax rates for the six-month periods ended June 28,
2000 and July 30, 1999 were 0.0%. The 0% rate in both years was due
to the use of net operating loss carryforwards to offset taxable income.
Net earnings for the six months ended June 28, 2000 were $813,000
or $.34 per share, compared to net earnings of $41,300, or $.02 per
share for the same period in 1999.
The Company's operations are subject to some seasonal fluctuations.
Revenues per restaurant generally increase from January through April
and decline from September through December. Operating results for the
quarter ended June 28, 2000 are not necessarily indicative of the
results that may be expected for the fiscal year ending January 3, 2001.
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. As a result, working capital requirements for continuing
operations are not significant.
At June 28, 2000, the Company had a working capital deficit of
$1,306,500, compared to a working capital deficit of $2,491,100 at
December 29, 1999. The increase in the working capital during the
first six months in 2000 was due primarily to cash generated from
operations.
Cash provided by operating activities increased to $2,045,900 in
the first six months of 2000 from $1,213,600 in the same period of 1999.
This increase was primarily due to the increased net earnings in 2000.
The Company spent approximately $1,082,400 in the first six months
of 2000 for land, property and equipment. Total capital expenditures
for 2000, based on present costs and plans for expansion, are estimated
to be $4,000,000. The Company projects that cash generated from
operations, plus additional borrowing under the Company's credit
facility will be sufficient to fund these improvements.
In December 1996, the Company entered into two loan agreements with
FFCA Mortgage Corporation ("FFCA"). Pursuant to the first Loan Agreement
(the "$15.36 Million Loan Agreement"), the Company borrowed $15.36
million, which loans are evidenced by fourteen 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 $15.36 Agreement provides for various
covenants, including the maintenance of prescribed debt service
coverages. As of June 28, 2000, the outstanding balance due under the
loan was $11,674,600.
The Company used the proceeds of the $15.36 million loan agreement
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.
In addition, the Company retired Warrants for 210,000 shares of the
Company's common stock previously held by Cerberus. Cerberus continues
to hold Warrants to purchase 140,000 shares of the Company's common
stock at an exercise price of $2.00 per share.
Pursuant to the second loan agreement with FFCA, the Company borrowed
an additional $2,590,000 in 1998 to fund construction of new restaurants.
This additional financing is evidenced by three additional Promissory
Notes secured by mortgages on three Company restaurant properties. The
terms and conditions of this loan agreement are substantially identical
to those of the $15.36 million Loan Agreement. As of June 28, 2000, the
outstanding balance under this loan was $2,489,300.
In October 1998, the Company received two commitments for new financing
from FFCA. The Company borrowed a total of $2.6 million in 1999 under
the first commitment. The proceeds of the 1998 and 1999 borrowings
were used to fund construction of new restaurants in Leesburg, Deland
and Tampa, Florida. This loan is secured by mortgages on two Company
restaurant properties. As of June 28, 2000, the outstanding balance
under this loan was $2,548,400. The second commitment was for
construction financing for two new restaurants to be built in 2000
and 2001. Terms of this commitment include funding of a maximum of
$1,600,000 per restaurant. Other terms and conditions of these loan
agreements are substantially identical to those of the $15.36 million
Loan Agreement. In May 2000 the Company borrowed $503,800 under this
agreement to fund the purchase of land for a new restaurant to be
constructed in St. Cloud, Florida in 2000.
The Company plans to open one new restaurant in 2000 and three to four
new restaurants in 2001. In July 2000, the Company received a new
commitment from FFCA to fund $1,600,000 each for two new restaurants
to be constructed in 2001. In total, the Company has current commitments
from FFCA sufficient to construct four new restaurants, including the
one currently under construction in St. Cloud, Florida.
The preceding discussion of liquidity and capital resources contains
certain forward-looking statements. Forward-looking statements involve
a number of risks and uncertainties, and in addition to the factors
discussed herein, among the other factors that could cause actual
results to differ materially are the following: failure of facts to
conform to necessary management estimates and assumptions; the
willingness of FFCA or other lenders to extend financing commitments;
repairs or similar expenditures required for existing restaurants due
to weather or acts of God; the Company's ability to identify and
secure suitable locations on acceptable terms and open new
restaurants in a timely manner; the Company's success in selling
restaurants listed for sale; the economic conditions in the new
markets into which the Company expands; changes in customer dining
patterns; competitive pressures from other national and regional
restaurant chains and other food vendors; business conditions, such
as inflation or a recession, and growth in the restaurant industry and
the general economy; and other risks identified from time to time in
the Company's SEC reports, registration statements and public
announcements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is party to, or threatened with, litigation from time to
time, in the normal course of its business. Management, after reviewing
all pending and threatened legal proceedings, considers that the
aggregate liability or loss, if any, resulting from the final
outcome of these proceedings will not have a material effect
on the financial position or operation of the Company. The Company
will, from time to time when appropriate in management's estimation,
record adequate reserves in the Company's financial statements
for pending litigation.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 13, 2000, the Company held its annual meeting of
shareholders to elect directors to serve for the upcoming
year.
The following table sets forth the number of votes for and
against each of the nominees for director.
<TABLE>
<CAPTION> For Withheld
<C> <C>
<S>
Nominee:
Glen F. Ceiley 2,052,155 25,900
Jay Conzen 2,048,955 29,100
Steven Catanzaro 2,049,402 28,653
William Means 2,051,895 26,160
The Company is unable to determine the number of broker non-votes.
</TABLE>
Glen F. Ceiley, Jay Conzen, Steven Catanzaro and William Means
Were elected as directors by the affirmative vote of a majority
of the 2,077,927 shares of the Company's common stock represented
in person or by proxy at the annual meeting of shareholders.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed as part of the report on
Form 10-Q, and the list comprises the Exhibit Index.
Exhibit 11.1
The table below details the number of shares and common stock equivalents
used in the computation of basic and diluted earnings per share:
<TABLE>
Three Months Ended Six Months
<CAPTION> 6/28/00 6/30/99 6/28/00 6/30/99
<C> <C> <C> <C>
<S>
Basic:
Weighted average common
shares outstanding used
in computing basic
earnings per share 2,416,000 2,409,000 2,412,700 2,398,000
========= ========= ========= =========
Basic (loss) earnings
per share $ .11 $ (0.08) $ .34 $ .02
========= ========= ========= =========
Diluted:
Weighted average common
shares outstanding 2,416,200 2,409,000 2,415,800 2,401,800
Effects of shares
issuable under stock
plans using the treasury
method 7,800 - 6,200 1,200
Shares used in computing --------- --------- ---------- ---------
diluted earnings
per share 2,424,000 2,409,000 2,422,000 2,403,000
========= ========= ========= =========
$ .11 $ (0.08) $ .34 $ .02
========= ========= ========= =========
</TABLE>
27.01 Financial Data Schedule
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/ Glen F. Ceiley
Date: August 4, 2000 Glen F. Ceiley
Chairman of the Board
/s/ Edward B. Alexander
Date: August 4, 2000 Edward B. Alexander
Executive Vice President / CFO
(Principal Financial and Accounting
Officer)
Family Steak Houses of Florida, Inc.
Consolidated Results of Operations
(Unaudited)
<TABLE>
For The Quarters Ended
-----------------------
<CAPTION> June 29, June 30,
2000 1999
----------- -----------
<C> <C>
<S>
Revenues:
Sales $10,179,600 $10,143,100
Vending Revenue 42,400 40,400
___________ ___________
10,222,000 10,183,500
Cost and expenses:
Food and beverage 3,928,900 3,944,500
Payroll and benefits 2,829,400 2,963,500
Depreciation and amortization 529,500 456,700
Other operating expenses 1,466,400 1,612,800
General and administrative expenses 626,400 674,500
Franchise fees 305,100 303,700
Loss on store closings and
disposition of equipment 20,700 45,100
----------- ----------
9,706,400 10,000,800
Earnings from operations 515,600 182,700
Interest and other income 236,800 53,600
Gain on sale of property (16,500) --
Interest expense (461,200) (428,800)
----------- ----------
Earnings before income taxes 274,700 (192,500)
----------- ----------
Net earnings $274,700 ($192,500)
=========== ==========
Basic earnings per share $0.11 $0.08
=========== ==========
Diluted earnings per share $0.11 $0.08
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Results of Operations
(Unaudited)
<TABLE>
For The Six Months Ended
-----------------------
<CAPTION> June 29, June 30,
2000 1999
----------- -----------
<C> <C>
<S>
Revenues:
Sales $20,770,900 $20,289,500
Vending Revenue 114,800 79,200
___________ ___________
20,885,700 20,368,700
Cost and expenses:
Food and beverage 8,019,900 7,886,700
Payroll and benefits 5,700,300 5,788,400
Depreciation and amortization 1,037,600 963,700
Other operating expenses 2,939,700 3,067,000
General and administrative expenses 1,284,500 1,256,200
Franchise fees 622,500 607,700
Loss on store closings and
disposition of equipment 59,900 59,800
----------- ----------
19,664,400 19,629,500
Earnings from operations 1,221,300 739,200
Interest and other income 452,000 113,300
Gain on sale of property 68,100 --
Interest expense (928,400) (811,200)
----------- ----------
Earnings before income taxes 813,000 41,300
----------- ----------
Net earnings $813,000 $ 41,300
=========== ==========
Basic earnings per share $0.34 $0.02
=========== ==========
Diluted earnings per share $0.34 $0.02
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
June 28, December 29,
<CAPTION> 2000 1999
-------------- ---------------
<C> <C>
<S>
ASSETS
Current assets:
Cash and cash equivalents $1,693,000 $747,300
Investments 438,200 92,300
Receivables 98,400 125,000
Current portion of mortgages receivable 211,100 77,800
Inventories 251,800 285,400
Prepaid and other current assets 200,900 204,800
-------------- ---------------
Total current assets 2,893,400 1,532,600
Mortgages receivable 361,600 159,800
Certificate of deposit 10,700 10,800
Investments held to maturity 500,000 500,000
Property and equipment:
Land 7,994,400 7,537,300
Buildings and improvements 20,642,100 21,156,000
Equipment 11,563,300 11,908,100
-------------- ---------------
40,199,800 40,601,400
Accumulated depreciation (15,529,700) (15,340,500)
-------------- ---------------
Net property and equipment 24,670,100 25,260,900
Property held for sale 1,906,200 2,488,700
Other assets, principally deferred charges,
net of accumulated amortization 838,900 806,400
-------------- ---------------
$31,180,900 $30,759,200
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,461,600 $1,275,300
Accrued liabilities 2,379,700 2,363,600
Current portion of long-term debt 355,200 381,400
Current portion of obligation-capital lease 3,400 3,400
-------------- ---------------
Total current liabilities 4,199,900 4,023,700
Long-term debt 16,860,900 17,335,600
Obligation under capital lease 1,047,700 1,049,300
Deferred revenue 11,100 15,200
-------------- ---------------
Total liabilities 22,119,600 22,423,800
Shareholders' equity:
Preferred stock of $.01 par;
authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par;
authorized 4,000,000 shares; outstanding
2,414,000 shares in 2000 and
2,409,000 shares in 1999 24,200 24,100
Additional paid-in capital 8,628,100 8,624,700
Accumulated other comprehensive (loss) income (78,700) 11,900
Retained earnings (accumulated deficit) 487,700 (325,300)
-------------- ---------------
Total shareholders' equity 9,061,300 8,335,400
-------------- ---------------
$31,180,900 $30,759,200
============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
For the Six Months Ended
================================
<CAPTION> June 28, June 30,
2000 1999
============ =============
<C> <C>
<S>
Operating activities:
Net Earnings $813,000 $41,300
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,037,600 963,700
Directors' fees in form of stock options 3,300 7,500
Amortization of loan fees 15,300 13,700
Loss on disposition of equipment 35,700 34,800
Gain on sale of restaurants (68,100) --
Decrease (increase) in:
Receivables 26,600 (5,300)
Inventories 33,600 69,700
Prepaids and other current assets 3,900 5,000
Other assets (53,600) (37,300)
Increase (decrease) in:
Accounts Payable 186,300 47,300
Accrued liabilities 16,100 77,300
Deferred Revenue (4,100) (3,900)
__________ _________
Net cash provided by operating activities 2,045,600 1,213,800
__________ _________
Investing activities:
Net purchase of investments (436,400) (361,700)
Principal receipts on mortgage receivable 139,900 34,700
Proceeds from sale of restaurants 673,800 --
Proceeds from sale of property held for sale 582,500 --
Issuance of mortgages receivable (475,000) --
Capital expenditures (1,082,400) (2,291,500)
__________ _________
Net cash used by investing activities (597,600) (2,618,500)
Financing activities:
Payments on long-term debt (1,004,700) (214,400)
Proceeds from issuance of long-term debt 503,800 2,600,000
Payments on capital lease (1,600) (1,500)
Proceeds from issuance of common stock 200 7,900
__________ __________
Net cash (used in) provided by financing
activities (502,300) 2,392,000
__________ __________
Net increase in cash and cash equivalents 945,700 987,300
Cash and cash equivalents - beginning
of period 747,300 1,910,200
__________ __________
Cash and cash equivalents - end of period $1,693,000 $2,897,500
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the quarter for interest $909,900 $841,700
=========== ==========
Cash paid during the quarter for income
taxes -- --
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
