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 September 27, 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 October 20, 2000
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 27, 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
thirty-nine week periods ended September 27, 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 weeks and thirty-nine weeks ended
September 27, 2000 and September 29, 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 September 27, 2000 versus September 29, 1999
The Company experienced an increase in sales during the third quarter of
2000 as compared to the same period in 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 third
quarter of 2000 increased 3.6% from the same period in 1999, compared to a
decrease of 1.5% from 1999 as compared to 1998.
Management estimates that most of the same store sales increase resulted
from menu price increases. Total sales increased 0.1%, despite the fact that
the Company operated a net total of two fewer restaurants in 2000. Since the
end of the third quarter of 1999, the Company sold two restaurants.
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 one more restaurant 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 has been added
to one store and will be added to three additional Company restaurants
during the fourth quarter of 2000.
Historically, the third and fourth quarters of each fiscal year are less
profitable for the Company than the first and second quarters. Even if the
sales trends improve, the Company is likely to incur losses in the fourth
quarter.
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 90.4% in the third quarter of 2000, from 90.6% in the same
quarter of 1999.
Food and beverage costs as a percentage of sales increased to 39.4% in the
third quarter of 2000 from 39.0% in the same period of 1999, primarily due to
substantial increases in beef prices in the third quarter of 2000. Payroll
and benefits as a percentage of sales decreased to 29.6% in the third quarter
of 2000 from 30.0% in the same quarter of 1999, primarily due to a reduction
in workers' compensation expense.
Other operating expenses as a percentage of sales decreased to 15.9% in
the third quarter of 2000 from 16.4% in 1999, primarily due to costs incurred
in 1999 associated with the opening of a new restaurant. Depreciation and
amortization increased to 5.5% in the third quarter from 5.2% in 1999,
due to additions to property and equipment over the past 12 months.
General and administrative expenses as a percentage of sales were 6.9% in
the third quarter of 2000, a decrease from 8.0% in the same quarter of 1999.
This was primarily due to costs incurred in 1999 associated with the proxy
contest from the Company's 1999 annual meeting of shareholders. Interest
expense increased to $478,500 during the third quarter of 2000 from $449,300
in 1999. The increase was due primarily to higher interest rates in 2000.
The results for the third quarter of 2000 include net realized gains of
$195,000 and unrealized losses of $71,500 from transactions in marketable
securities, which are included in investment and other income. There were
no such gains in the third quarter of 1999.
In July 1999 the Company incurred an expense of $907,500 for a one-time
payment to four employees pursuant to the terms of their employment
agreements upon the change in control of the Company's Board of Directors.
No such costs were incurred in 2000.
In July 1999 the Company realized a gain of $241,800 from the sale of a
restaurant in Jacksonville, Florida. No property sales were completed in
the third quarter of 2000.
The effective income tax benefit rate for the quarters ended September
27, 2000 and September 29, 1999 was 0.0%.
Net loss for the third quarter of 2000 was $342,500, compared to
$1,200,000 in 1999. Net loss per share was $.14 for the third quarter
of 2000, compared to a net loss per share of $.50 in 1999.
Nine Months Ended September 27, 2000 versus September 29, 1999
For the nine months ended September 27, 2000, total sales increased 1.7%
compared to the same period of 1999, due to an increase in same-store sales.
Same-store sales increased 4.1% for the nine months ended September 27,
2000, primarily due to increases in menu prices. This increase was offset
by the Company operating fewer stores in 2000.
Food and beverage costs as a percentage of sales for the nine month period
ended September 27, 2000 were 38.8%, compared to 38.9% for the same period in
1999. Payroll and benefits decreased to 28.1% in 2000 from 29.0% in 1999,
primarily due to lower workers' compensation costs in 2000 and to incremental
payroll costs incurred in 1999 associated with the opening of two new
restaurants.
For the nine months ended September 27, 2000, other operating expenses as a
percentage of sales decreased to 14.7% from 15.5% in 1999, primarily due to
costs incurred in 1999 associated with the opening of two new restaurants, and
to lower property insurance costs in 2000. General and administrative expenses
decreased to 6.4% in 2000 from 6.7% in 1999, primarily due to costs incurred in
1999 associated with the proxy contest.
Depreciation and amortization expense as a percentage of sales increased to
5.2% in 2000 from 4.9% in 1999, as a result of additions to property and
equipment over the past 12 months. Interest expense increased for the first
nine months of 2000 to $1,406,900 from $1,260,500 for the same period in 1999,
due primarily to higher interest rates.
In July 1999 the Company incurred an expense of $907,500 for a one-time
payment to four employees pursuant to the terms of their employment agreements
upon the change in control of the Company's Board of Directors.
For the nine months ended September 27, 2000, the Company realized gains of
$61,700 from the sales of restaurants, compared to $241,800 in 1999. Investment
and other income increased to $639,300 in 2000 from $150,900 in 1999. The
increase was due to net realized gains of $563,200 (offset by unrealized
losses of $71,500) from transactions in marketable securities in 2000.
The effective income tax rate for the nine-month periods ended September 27,
2000 and September 29, 1999 was 0.0%. The 0% rate in 2000 was due to the use
of net operating loss carryforwards.
Net income for the nine months ended September 27, 2000 was $470,500, or
$.19 per share, compared to a net loss of $1,158,700, or $.48 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 September
27, 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 September 27, 2000, the Company had a working capital deficit of
$880,800, compared to a working capital deficit of $2,491,100 at December
29, 1999. The decrease in the deficit was primarily due to cash generated
from operations in 2000.
Cash provided by operating activities increased to $2,125,600 in the first
nine months of 2000 from $469,000 in the same period of 1999. This increase
is primarily due to the increased net earnings in 2000.
The Company spent $1,649,300 in the first nine months of 2000 for land,
construction in progress and restaurant renovation and equipment. Capital
expenditures for the fiscal year ending January 3, 2001, based on present
costs and plans for expansion, are estimated to be $4,000,000. The Company
projects that cash generated from operations and funding previously received
under its financing agreement with Franchise Finance Corporation of America
("FFCA") will be sufficient to fund these expenditures.
In December 1996, the Company entered into two loan agreements with FFCA
Mortgage Corporation ("FFCA"). Pursuant to the first Loan Agreement (the
"1996 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 1996 Loan Agreement provides for
various covenants, including the maintenance of prescribed debt service
coverages. As of September 27, 2000, the outstanding balance due under the
1996 Loan Agreement was $11,616,900.
The Company used the proceeds of the 1996 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 its second loan agreement with FFCA (the "1998 Loan Agreement"),
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 the 1998 Loan Agreement are substantially
identical to those of the 1996 Loan Agreement. As of September 27, 2000, the
outstanding balance under the 1998 Loan Agreement was $2,479,400.
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 "1999 Loan"). The proceeds of the 1999 Loan were used
to fund construction of new restaurants in Leesburg, Deland and Tampa,
Florida. The 1999 Loan is secured by mortgages on two Company restaurant
properties. As of September 27, 2000, the outstanding balance under the
1999 Loan was $2,539,700. The second commitment (the "2000 Loan") was for
construction financing for two new restaurants to be built in 2000 and 2001.
Terms of the 2000 Loan include funding of a maximum of $1,600,000 per
restaurant. Other terms and conditions of the 1999 and 2000 Loans are
substantially identical to those of the 1996 Loan Agreement. The Company
has borrowed $850,800 under the 2000 Loan to fund the purchase of land and
construction in progress for a new restaurant 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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report on Form 10-Q, and
this 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:
Three Months Ended Nine Months Ended
9/27/00 9/29/99 9/27/00 9/29/99
Basic:
Weighted average common
shares outstanding used
in computing basic (loss)
earnings per share 2,416,200 2,409,000 2,413,900 2,401,000
========= ========= ========= =========
Basic (loss) earnings
per share $ (0.14) $ (0.50) $ .19 $ (.48)
========= ========= ========= =========
Diluted:
Weighted average common
shares outstanding 2,416,200 2,409,000 2,413,900 2,401,000
Effects of shares
issuable under stock
plans using the treasury
method 7,800 6,400 9,000 11,000
Effects of warrants
issuable using the
treasury method - - - -
Shares used in computing -------- -------- ---------- --------
diluted (loss) earnings
per share 2,424,000 2,415,400 2,422,900 2,412,000
========= ========= ========= =========
Diluted (loss) earnings
per share $ (0.14) $ (0.50) $ .19 $ (.48)
========= ========= ======== =========
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: October 30, 2000 Glen F. Ceiley
Chairman of the Board
/s/ Edward B. Alexander
Date: October 30, 2000 Edward B. Alexander
Executive Vice President
(Principal Financial and Accounting
Officer)
Family Steak Houses of Florida, Inc.
Consolidated Results of Operations
(Unaudited)
<TABLE>
For The Quarters Ended
------------------------
<CAPTION> Sept. 27, Sept. 29,
2000 1999
----------- -----------
<C> <C>
<S>
Revenues
Sales $ 9,248,500 $9,237,800
Vending revenue 40,600 48,400
----------- ----------
Total revenues 9,289,100 9,286,200
----------- ----------
Costs and expenses:
Food and beverage 3,641,600 3,600,300
Payroll and benefits 2,737,000 2,772,600
Depreciation and amortization 512,400 480,500
Other operating expenses 1,473,400 1,517,000
General and administrative expenses 642,500 735,400
Change in control payments -- 907,500
Franchise fees 277,200 276,800
Loss on store closings and disposition
of equipment 49,900 26,200
----------- ----------
9,334,000 10,316,300
(Loss) earnings from operations (44,900) (1,030,100)
Investment and other income 187,300 37,600
(Loss) gain on sale of property (6,400) 241,800
Interest expense (478,500) (449,300)
----------- ----------
Loss before income taxes (342,500) (1,200,000)
Provision for income taxes -- --
----------- ----------
Net loss ($342,500) ($1,200,000)
============ ============
Basic loss per share ($0.14) ($0.50)
=========== ==========
Diluted loss per share ($0.14) ($0.50)
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Results of Operations
(Unaudited)
<TABLE>
For The Nine Months Ended
--------------------------
<CAPTION> Sept. 27, Sept. 29,
2000 1999
------------- ------------
<C> <C>
<S>
Revenues:
Sales $30,019,400 $29,527,300
Vending revenue 155,400 127,600
----------- -----------
Total revenues 30,174,800 29,654,900
----------- -----------
Cost and expenses:
Food and beverage 11,661,500 11,487,000
Payroll and benefits 8,437,300 8,561,000
Depreciation and amortization 1,550,000 1,444,200
Other operating expenses 4,413,100 4,584,000
General and administrative expenses 1,927,000 1,991,600
Change in control payments -- 907,500
Franchise fees 899,700 884,500
Loss on store closings and disposition
of equipment 109,800 86,000
------------- ------------
Total costs and expenses 28,998,400 29,945,800
------------- ------------
(Loss) earnings from operations 1,176,400 (290,900)
Gain on sale of property 61,700 241,800
Investment and other income 639,300 150,900
Interest expense (1,406,900) (1,260,500)
------------- ------------
Earnings (loss) before income taxes 470,500 (1,158,700)
Provision for income taxes -- --
------------- ------------
Net earnings (loss) $470,500 ($1,158,700)
============= =============
Basic earnings (loss) per share $0.19 ($0.48)
============= ============
Diluted earnings (loss) per share $0.19 ($0.48)
============= ============
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
September 27, December 29,
<CAPTION> 2000 1999
-------------- ---------------
<C> <C>
<S>
ASSETS
Current assets:
Cash and cash equivalents $1,990,700 $747,300
Investments 644,700 92,300
Receivables 91,900 125,000
Current portion of mortgages receivable 191,800 77,800
Inventories 239,500 285,400
Prepaid and other current assets 191,500 204,800
-------------- ---------------
Total current assets 3,350,100 1,532,600
Mortgages receivable 358,600 159,800
Certificate of deposit 10,800 10,800
Investments held to maturity -- 500,000
Property and equipment:
Land 7,994,400 7,537,300
Buildings and improvements 21,120,300 21,156,000
Equipment 11,577,900 11,908,100
-------------- ---------------
40,692,600 40,601,400
Accumulated depreciation (15,997,400) (15,340,500)
-------------- ---------------
Net property and equipment 24,695,200 25,260,900
Property held for sale 1,903,600 2,488,700
Other assets, principally deferred charges,
net of accumulated amortization 814,500 806,400
-------------- ---------------
$31,132,800 $30,759,200
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,338,000 $1,275,300
Accrued liabilities 2,254,700 2,363,600
Securities sold not yet purchased 226,400 --
Current portion of long-term debt 408,400 381,400
Current portion of obligation under
capital lease 3,400 3,400
-------------- ---------------
Total current liabilities 4,230,900 4,023,700
Long-term debt 17,078,400 17,335,600
Obligation under capital lease 1,046,800 1,049,300
Deferred revenue 9,100 15,200
-------------- ---------------
Total liabilities 22,365,200 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 2,416,200 in 2000
and 2,409,000 shares in 1999 24,200 24,100
Additional paid-in capital 8,629,700 8,624,700
Accumulated other comprehensive (loss) income (31,500) 11,900
Retained earnings (accumulated deficit) 145,200 (325,300)
------------- --------------
Total shareholders' equity 8,767,600 8,335,400
-------------- ---------------
$31,132,800 $30,759,200
============== ===============
See accompanying notes to consolidated financial statements.
</TABLE>
Family Steak Houses of Florida, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION> For the Nine Months Ended
--------------------------
September 27, September 29,
2000 1999
------------ -------------
<C> <C>
<S>
Operating activities:
Net earnings (loss) $470,500 ($1,158,700)
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 1,550,000 1,444,200
Directors' fees in the form of
stock options 5,000 22,500
Amortization of loan fees 23,600 21,200
Unrealized loss on short
sale of securities 71,500 --
Gain on sale of restaurants (61,700) (241,800)
Loss on disposition of equipment 67,200 61,000
Decrease (increase) in:
Receivables 33,100 (51,800)
Income taxes receivable -- 60,200
Inventories 45,900 59,900
Prepaids and other
current assets 13,300 61,000
Other assets (40,500) (27,700)
Increase (decrease) in:
Accounts payable 62,700 (20,300)
Accrued liabilities (108,900) 245,400
Deferred revenue (6,100) (6,100)
------------ -------------
Net cash provided by operating activities 2,125,600 469,000
------------ -------------
Investing activities:
Principal receipts on notes receivable 162,200 52,800
Net sales (purchases) of investments 59,200 (687,700)
Proceeds from sale of restaurants 668,200 959,700
Proceeds from sale of property
held for sale 585,100 --
Issuance of mortgages receivable (475,000) --
Capital expenditures (1,649,300) (3,146,500)
------------ -------------
Net cash used in investing activities (649,600) (2,821,700)
------------ -------------
Financing activities:
Payments on long-term debt (1,081,000) (1,112,000)
Proceeds from issuance of long-term debt 850,800 2,600,000
Proceeds from investment margin debt -- 260,500
Payments on capital lease (2,500) (2,300)
Proceeds from the issuance of common stock 100 400
------------ -------------
Net cash (used in)provided by financing activities (232,600) 1,746,600
----------- -------------
Net increase (decrease) in cash and
cash equivalents 1,243,400 (606,100)
Cash and cash equivalents - beginning of period 747,300 1,910,200
------------ -------------
Cash and cash equivalents - end of period $1,990,700 $1,304,100
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 1,380,000 $1,285,100
============ ============
Cash paid during the period for income taxes $0 $0
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
