<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended FEBRUARY 2, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 1-10711
SIZZLER INTERNATIONAL, INC.
_______________________________________________________________________________
(Exact Name of Registrant as specified in its Charter)
Delaware 95-4307254
________________________________________________________________________________
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12655 West Jefferson Boulevard, Los Angeles, California 90066
________________________________________________________________________________
(Address of Principal Executive Offices, including zip code)
(310) 827-2300
____________________________________________________________
(Registrant's telephone number, including area code)
____________________________________________________________
(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
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 14, 1997
- --------------------------------------- -----------------------------------
Common Stock $0.01 Par Value 28,911,628 shares
<PAGE>
PART I. FINANCIAL INFORMATION
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
<TABLE>
<CAPTION>
February 2, April 30,
1997 1996
----------- ---------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 3) $ 29,782 $ 9,216
Receivables, net of reserves of $4,120 at
February 2, 1997 and $9,441 at April 30, 1996 5,466 5,026
Inventories 5,831 6,477
Prepaid expenses and other current assets 4,982 2,736
--------- ---------
Total current assets 46,061 23,455
--------- ---------
Property and equipment, net 122,206 135,231
Long-term notes receivable, net of reserves of $542
at February 2, 1997 and $1,200 at April 30, 1996 1,277 1,128
Intangible assets, net of accumulated amortization of
$646 at February 2, 1997 and $610 at April 30, 1996 1,547 996
Other assets, net of accumulated amortization and reserves of
$6 at February 2, 1997 and $4 at April 30, 1996 10,059 17,737
--------- ---------
Total assets $ 181,150 $ 178,547
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
February 2, April 30,
1997 1996
----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 19 $ 28,196
Accounts payable 14,290 14,390
Other current liabilities 9,440 17,755
Income taxes payable 707 2,844
--------- ---------
Total current liabilities 24,456 63,185
--------- ---------
Long-term Liabilities:
Long-term debt, net of current portion 664 7,041
Deferred income taxes 5,831 9,032
Other liabilities 27,880 55,822
Liabilities subject to compromise under reorganization proceedings 82,084 -
--------- ---------
Total long-term liabilities 116,459 71,895
--------- ---------
Stockholders' Investment:
Capital stock -
Preferred, authorized 1,000,000 shares, $5 par value;
no shares issued - -
Common, authorized 50,000,000 shares, $0.01 par value;
outstanding 28,911,628 shares at February 2, 1997
and 27,767,706 shares at April 30, 1996 290 278
Additional paid-in capital 275,315 274,221
Retained earnings (deficit) (236,939) (235,526)
Cumulative foreign currency translation adjustments 1,569 4,494
--------- ---------
Total stockholders' investment 40,235 43,467
--------- ---------
Total liabilities and stockholders' investment $ 181,150 $ 178,547
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE FORTY WEEKS ENDED FEBRUARY 2, 1997 AND FEBRUARY 4, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Restaurants $231,526 $326,768
Franchise Operations 9,002 9,381
-------- --------
Total revenues 240,528 336,149
-------- --------
Cost of sales 89,018 121,293
Labor and related expenses 67,801 100,530
Other operating expenses 51,526 74,572
Depreciation and amortization 11,182 20,038
General and administrative expenses 20,517 24,670
Interest expense 779 1,624
Investment income (852) (751)
-------- --------
Total costs and expenses 239,971 341,976
-------- --------
Income (loss) before income taxes 557 (5,827)
Provision (benefit) for income taxes 1,966 (1,862)
-------- --------
Net income (loss) $ (1,409) $(3,965)
======== ========
Net income (loss) per common and common equivalent share $ (0.05) $ (0.14)
======== =======
Dividends per share $ - $ 0.08
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE SIXTEEN WEEKS ENDED FEBRUARY 2, 1997 AND FEBRUARY 4, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
------- --------
(Unaudited)
<S> <C> <C>
Restaurants $84,930 $125,254
Franchise operations 3,129 3,174
------- --------
Total revenues 88,059 128,428
------- --------
Cost of sales 32,912 47,047
Labor and related expenses 24,344 40,625
Other operating expenses 19,629 29,941
Depreciation and amortization 4,372 7,983
General and administrative expenses 7,577 9,863
Interest expense 295 890
Investment income (338) (268)
------- --------
Total costs and expenses 88,791 136,081
------- --------
Income (loss) before income taxes (732) (7,653)
Provision (benefit) for income taxes 549 (3,084)
------- --------
Net income (loss) $(1,281) $ (4,569)
======= ========
Net income (loss)per common and common equivalent share $ (0.04) $ (0.16)
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE FORTY WEEKS ENDED FEBRUARY 2, 1997 AND FEBRUARY 4, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- -------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income ($1,409) ($3,965)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,182 20,038
Deferred income taxes (benefit) 143 (6,284)
Provision for bad debts 387 738
Disposal of excess properties 16,460 4,506
Other 658 (2,715)
- --------------------------------------------------- ------- -------
27,421 12,318
Changes in operating assets and liabilities:
Receivables 30 (2,838)
Inventories 1,054 (330)
Prepaid expenses and other current assets (2,699) (512)
Accounts payable 15,849 (1,500)
Accrued liabilities (27,931) (9,273)
Income taxes payable (2,458) 1,624
- --------------------------------------------------- ------- -------
Net cash provided by (used in) operating activities 11,266 (511)
- --------------------------------------------------- ------- -------
INVESTING ACTIVITIES
Additions to property and equipment (4,584) (20,924)
Disposal of property and equipment 3,043 972
Other, net (225) (592)
- --------------------------------------------------- ------- --------
Net cash provided by (used in) investing activities (1,766) (20,544)
- --------------------------------------------------- ------- --------
FINANCING ACTIVITIES
Issuance of long-term debt 11,310 17,000
Reduction of long-term debt (184) (1,522)
Dividends paid to stockholders - (2,222)
Other, net (60) (32)
- --------------------------------------------------- ------- --------
Net cash provided by (used in) financing activities 11,066 13,224
- --------------------------------------------------- ------- --------
Net increase (decrease) in cash and cash equivalents 20,566 (7,831)
- --------------------------------------------------- ------- --------
Cash and cash equivalents at beginning of period 9,216 12,220
- -------------------------------------------------- ------- --------
Cash and cash equivalents at end of period $29,782 $ 4,389
================================================== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
AS OF FEBRUARY 2, 1997
1. The interim consolidated condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1996 annual report on Form 10-K.
On June 2, 1996, Sizzler International, Inc. (the "Company") enacted a
comprehensive restructuring strategy designed to return the domestic
operations to profitability. This strategy included the closure of
restaurants in the U.S. and filing for bankruptcy protection through a
Chapter 11 proceeding. On June 2, 1996, the Company and four subsidiaries,
Sizzler Restaurants International, Inc., Buffalo Ranch Steakhouses, Inc.,
Tenly Enterprises, Inc., and Collins Properties, Inc., became Debtors-in-
Possession subject to the supervision of the U.S. Bankruptcy Court of the
Central District of California. The Company continues to conduct normal
business operations as Debtor-in-Possession subject to the jurisdiction of
the Bankruptcy Court and has filed plans of reorganization for all of the
subsidiary debtors. The Company is in final negotiations and intends to
file its own plan of reorganization by March 24, 1997. As Debtor-in-
Possession, the Company may not engage in transactions outside the ordinary
course of business without approval of the Bankruptcy Court.
Under Chapter 11, actions to enforce claims against the Company are stayed
if the claims arose, or are based on events that occurred, on or before the
petition date of June 2, 1996, and such claims cannot be paid or
restructured prior to the conclusion of the Chapter 11 proceedings or
approval of the Bankruptcy Court. Other liabilities may arise or be
subject to compromise as a result of rejection of executory contracts,
including leases, or the Bankruptcy Court's resolution of claims for
contingencies and other disputed amounts. Liabilities subject to
compromise in the accompanying consolidated condensed balance sheet
represent the Company's estimates of liabilities as of February 2, 1997
subject to adjustment in the reorganization process.
Liabilities subject to compromise under reorganization proceedings consist
of the following as of February 2, 1997 (in thousands):
<PAGE>
<TABLE>
<S> <C>
Accounts payable $15,948
Other liabilities 19,496
Long-term debt 45,857
Other 783
-------
$82,084
=======
</TABLE>
The consolidated condensed financial statements have been prepared on a
going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. While the Chapter 11 cases are in process, the Company
continues in possession of its properties and operates and manages its
business as a Debtor-in-Possession pursuant to the Bankruptcy Code.
In the opinion of management, all adjustments necessary for fair
presentation of results of operations for the forty weeks have been
included in the interim financial statements.
2. In the fourth quarter of fiscal 1996, the Company recorded a pre-tax
restructuring charge of $108.9 million. The restructuring costs included
predominately non-cash write-offs of assets and related disposition costs
associated with the closure of 116 restaurants in the United States. At
February 2, 1997, the Company had unused reserves of $27.9 million.
3. During the second quarter of fiscal 1997, accounts aggregating a credit
balance of $4,577,000 that were formerly included in the cash line of the
balance sheet, were reclassed to accounts payable. These accounts included
such items as outstanding checks that because of the bankruptcy filing and
subsequent bank account closure, will never clear, and issued and
outstanding gift certificates. The balances in these accounts at April 30,
1996, were negative $11,033,000 and have not been restated on the balance
sheet.
4. For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand and cash invested in securities maturing in 90 days or less.
The following are additional disclosure requirements of SFAS No. 95:
<TABLE>
<CAPTION>
FOR THE FORTY WEEKS ENDED,
--------------------------
February 2, February 4,
1997 1996
------------ -----------
<S> <C> <C>
Cash paid for (in thousands):
Interest (net of amount capitalized) $ 779 $1,624
Income taxes $4,543 $5,140
</TABLE>
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHAPTER 11 REORGANIZATION
- -------------------------
The Company's domestic operations have produced losses on declining revenues for
the past four years. As a result of these events, in the fourth quarter of
fiscal 1996, Management reviewed each U.S. restaurant and identified 87 that
were in markets with prospects for ongoing profitability. The remaining 130
restaurants the Company operated in the U.S. were determined to have
insufficient future prospects to warrant continued investment at their location.
Fourteen restaurants were closed in the fourth quarter of fiscal 1996 and the
remainder were closed in first quarter of fiscal 1997. Subsequently, in the
third quarter of fiscal 1997, an additional 13 underperforming restaurants were
closed. At April 30, 1996, the Company recorded a restructuring charge of
$108.9 million. The restructuring costs included predominantly non-cash write-
offs of assets and related disposition costs associated with the closure of the
restaurants. Overall, the restructuring charge reflects the efforts to redeploy
capital to those core markets which are expected to yield returns consistent
with Management's expectations and objectives, and to eliminate the Company's
investment in non-performing assets. As the reorganization continues,
underperforming restaurants will continue to be closely monitored and are
subject to review.
On June 2, 1996 the Company enacted a comprehensive restructuring strategy
designed to return the U.S. operations to profitability. This strategy included
the closure of restaurants in the U.S. and filing for bankruptcy protection. On
June 2, 1996, the Company and four subsidiaries, Sizzler Restaurants
International, Inc., Buffalo Ranch Steakhouses, Inc., Tenly Enterprises, Inc.,
and Collins Properties, Inc. became Debtors-in-Possession subject to the
supervision of the U.S. Bankruptcy Court of the Central District of California
under Chapter 11 of the United States Bankruptcy Code. The debtor subsidiaries
own and operate substantially all of the Company's domestic restaurant
businesses and assets. The Company's International division businesses and
assets are owned and operated by separate subsidiaries and are not subject to
the U.S. Chapter 11 cases. The cases involving the Company and its debtor
subsidiaries are jointly administered under Case No. 96-16075 AG.
9
<PAGE>
MATERIAL CHANGES IN RESULTS OF OPERATIONS - FORTY WEEKS
- -------------------------------------------------------
ENDED FEBRUARY 2, 1997 VERSUS FEBRUARY 4, 1996
- ----------------------------------------------
Domestic Company restaurant sales and franchised restaurant revenues (including
franchise fees, royalties and rental income) and International Company
restaurant sales and franchised restaurant revenues represent the Company's
primary sources of revenue. The addition or closure of restaurants, both
Company and franchise, and the sales volume of comparable restaurants (those
restaurants open more than one year) are important factors to consider in
evaluating the Company's results.
Total revenues were $240.5 million for the first forty weeks of fiscal 1997,
which represents a decrease of $95.6 million, or 28.5 percent, compared to the
first forty weeks of the prior fiscal year. This decrease is primarily due to
the closure of the U.S. restaurants noted above. Since February 4, 1996, there
has been a net decrease of 145 Company-operated and a net decrease of 31
franchised Sizzlers in operation. During the same period, the Company added two
KFC restaurants. All six Buffalo Ranch Steakhouse restaurants were closed in
the U.S. Revenues declined domestically by $93.6 million or 48.5 percent.
International revenues decreased by $2.0 million or 1.4 percent compared to the
first forty weeks of the prior year.
Earnings before interest and taxes were $484,000 for the first forty weeks of
fiscal 1997, an increase of $5.4 million or 109.8 percent compared to the prior
year. In the International operations, earnings before interest and taxes
declined $5.6 million principally due to higher food costs and general and
administrative expenses. Earnings before interest and taxes improved
domestically by $11.1 million versus the prior year, primarily due to the impact
of closing underperforming restaurants. Pretax income for the first forty weeks
of fiscal 1997 increased $6.4 million to $557,000 or 0.2 percent of revenues.
During fiscal 1996, pretax income was a loss of $5.8 million or 1.7 percent of
revenues.
Net income for the forty weeks ended February 2, 1997, was a loss of $1.4
million or $0.05 per share, versus a net loss of $4.0 million or $0.14 per share
in the prior year. The average primary shares were 28,985,000 for the forty
weeks ended February 2, 1997, versus 27,791,000 for the same period last year.
INTERNATIONAL OPERATIONS
- ------------------------
International restaurant revenues accounted for 57.2 percent of consolidated
revenues. Revenues of $137.5 million were $2.7 million or 1.9 percent lower
than the prior year reflecting lower average sales per restaurant, offset by the
impact of higher foreign currency exchange rates and two additional KFC
restaurants. Since the third quarter of fiscal 1996, International operations
added a net of 10 franchised Sizzler restaurants. A total of 12 franchised
restaurants were opened in Puerto Rico, Thailand, South Korea, Indonesia,
Guatemala, Singapore and Japan, while one was closed in Taiwan and one in
Australia. In addition, three Company-operated Sizzlers in Canada were closed.
There were also two KFC restaurants opened in Queensland, Australia. As of
February 2, 1997,
10
<PAGE>
the International operation included 138 Company-operated, joint ventured, and
franchised Sizzler restaurants, 94 KFC restaurants and one The Italian Oven
restaurant.
On a comparative restaurant basis, average sales in Australian dollars for
Company-operated Sizzler restaurants, customer counts and the average guest
check decreased 16.0 percent, 15.3 percent and 0.9 percent, respectively due to
increased competition in the casual dining market. The KFC restaurants decreased
1.9 percent in average restaurant sales and 4.6 percent in the average number of
customers per restaurant, reflecting increased competition in the fast food
industry. The average customer check at KFC increased 2.7 percent when compared
to the prior year.
The Company's international franchise revenues accounted for 1.5 percent of
consolidated revenues. Revenues increased $676,000 or 22.6 percent primarily
due to the store openings mentioned above offset by lower sales in the
Australian market. At February 2, 1997, there were 95 international franchised
Sizzler restaurants in Australia, Japan, Taiwan, Thailand, South Korea,
Singapore, Indonesia, Guatemala and two U.S. territories, versus 85 restaurants
in 10 countries and two U.S. territories at February 4, 1996.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 39.1 percent of the Company's
consolidated revenues. Sales by Company-operated restaurants reflect a decrease
of $92.6 million or 49.6 percent to $94.1 million when compared to the prior
year. This decline is due to the closure of domestic restaurants in the current
fiscal year. At February 2, 1997, the number of domestic Company-operated
restaurants was 71 versus 215 restaurants at February 4, 1996.
On a comparative restaurant basis, average sales per Company-operated restaurant
decreased 11.1 percent, average customers per restaurant declined 8.3 percent
and the average customer check decreased 3.0 percent. The sales decrease
reflects, in large part, consumer uncertainty regarding the store closures.
As previously discussed, Management believes that the Company's restructuring
program and the related transactions significantly improve overall prospects to
return to profitability and growth. Restructuring will provide opportunities to
enhance the Company's cash flow by reducing the Company's cost structure,
increasing the Company's ability to focus on repositioning the Sizzler concept,
and expediting the return of domestic operations to profitability.
Sizzler restaurants operate in highly competitive markets. Domestically, the
Company's strategy is to a) continue the elimination of non-performing assets,
and b) revitalize the Company's dated facilities and upgrade restaurant
operations.
11
<PAGE>
The Company is convinced that successful execution of basic restaurant
operations in each of its restaurants is critical to its ongoing success.
Accordingly, significant effort is devoted to ensuring that all restaurants
offer quality food and service. Major emphasis is placed on the proper
preparation and delivery of appealing menu items to the consumer. All
operations personnel are being retrained in menu execution, guest interaction,
sanitation and restaurant management and control.
Domestically, the loss before interest and taxes improved $7.2 million, from a
loss of $17.0 million last year to a loss of $9.8 million this fiscal year.
This increase primarily reflects the improvement related to closing
underperforming restaurants.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 2.2 percent of consolidated revenues. Compared to the
prior year, revenues decreased $1.1 million or 16.5 percent while earnings
before interest and taxes increased $3.9 million due to the reduction of general
and administrative expenses and bad debt expense. The revenue decline reflects
a net reduction of 41 franchised restaurants. Management expects that
strategies being tested and implemented by the Company will also improve sales
and profits for domestic franchisees. As of February 2, 1997, the number of
domestic franchised restaurants was 201 versus 242 restaurants at February 4,
1996.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 2.0
percentage points from the prior year. This decrease reflects lower labor and
related expenses, occupancy costs and depreciation, offset by higher food, other
operating and general and administrative costs.
Net interest expense was $779,000 in fiscal 1997 and $1,624,000 in 1996.
The provision for income taxes increased from a benefit of $1.9 million in
fiscal 1996 to a provision of $2.0 million in fiscal 1997. The provision for
income taxes reflects taxes on foreign operations. Under current accounting
standards (Financial Accounting Standards Board Statement No. 109 "Accounting
for Income Taxes") the Company may not record a tax benefit for U.S. source
losses.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - SIXTEEN WEEKS
- ---------------------------------------------------------
ENDED FEBRUARY 2, 1997 VERSUS FEBRUARY 4, 1996
- ----------------------------------------------
Total revenues were $88.1 million for the third quarter of fiscal 1997, which
represents a decrease of $40.4 million, or 31.4 percent, compared to the third
quarter of the prior fiscal year. This decrease is primarily due to the closure
of the 144 U.S. restaurants noted above. Since February 4, 1996, there has been
a net decrease of 145 Company-operated and a net decrease of 31 franchised
Sizzlers in operation. During the same
12
<PAGE>
period, the Company added two KFC restaurants in Australia and closed six
Buffalo Ranch Steakhouse restaurants in the U.S. Revenues declined domestically
by $38.1 million or 54.3 percent. International revenues decreased $2.3 million
or 3.9 percent compared to the third quarter of the prior year.
Earnings before interest and taxes were a loss of $775,000 for the third quarter
of fiscal 1997, an improvement of $6.3 million or 89.0 percent compared to the
prior year. In International operations, earnings before interest and taxes
declined $2.9 million principally due to higher general and administrative
expenses and lower sales. The loss before interest and taxes improved
domestically by $9.1 million versus the prior year, primarily due to the impact
of closing underperforming restaurants. The Pretax loss for the third quarter
of fiscal 1997 decreased $6.9 million to a loss of $732,000 or 0.8 percent of
revenues. During fiscal 1996, the pretax loss was $7.7 million or 6.0 percent
of revenues.
Net income for the third quarter ended February 2, 1997, was a loss of $1.3
million or $0.04 per share, versus a net loss of $4.6 million or $0.16 per share
in the prior year. The average primary shares were 29,047,000 for the third
quarter ended February 2, 1997, versus 27,773,000 for the same period last year.
INTERNATIONAL OPERATIONS
- ------------------------
International restaurant revenues accounted for 62.0 percent of consolidated
revenues. Revenues of $54.6 million were $2.5 million or 4.4 percent lower than
the prior year primarily due to lower sales at Sizzler restaurants, offset by
the impact of foreign currency exchange rates and two additional KFC units.
Since the third quarter of fiscal 1996, International operations added a net of
ten franchised Sizzler restaurants. Twelve franchised restaurants were opened
in Guatemala, Indonesia, Japan, Puerto Rico, Singapore, South Korea and
Thailand, while one was closed in Taiwan and one in Australia. In addition,
three Company-operated Sizzlers in Canada were closed. There were also two KFC
restaurants opened in Queensland, Australia. As of February 2, 1997, the
International operations included 138 Company-operated, joint ventured, and
franchised Sizzler restaurants, 94 KFC restaurants and one The Italian Oven
restaurant.
On a comparative restaurant basis, average sales, in Australian dollars, for
Company-operated Sizzler restaurants, customer counts and the average guest
check decreased 19.5 percent, 16.8 percent and 3.2 percent respectively, due to
increased competition in the casual dining market. The KFC restaurants
decreased 2.7 percent in average restaurant sales and 5.2 percent in the average
number of customers per restaurant, reflecting increased competition in the fast
food industry. The average customer check has increased 2.6 percent when
compared to the prior year.
The Company's international franchise revenues increased $234,000 or 20.5
percent due to 10 additional restaurants. At February 2, 1997, there were 95
international franchised Sizzler restaurants in Australia, Japan, Taiwan,
Thailand, South Korea, Singapore,
13
<PAGE>
Indonesia, Guatemala and two U.S. territories, versus 85 restaurants in 10
countries and two U.S. territories at February 4, 1996.
Earnings before interest and taxes were down $2.9 million or 66.0 percent from
the prior year reflecting the lower sales as well as higher food costs and
general and administrative expenses.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 34.4 percent of the Company's
consolidated revenues. Sales by Company-operated Sizzler restaurants reflect a
decrease of $37.8 million or 55.5 percent to $30.3 million when compared to the
prior year. This decline is due to the closure of domestic restaurants in the
current fiscal year. At February 2, 1997, the number of domestic Company-
operated restaurants was 71 versus 215 restaurants at February 4, 1996.
On a comparative restaurant basis, average sales per Company-operated Sizzler
restaurant decreased 4.7 percent, average customers per restaurant declined 3.3
percent and the average customer check decreased 1.4 percent. The sales
decrease reflects, in large part, consumer uncertainty regarding the store
closures.
As previously discussed, Management believes that the Company's restructuring
program and the related transactions significantly improve overall prospects to
return to profitability and growth. Restructuring will provide opportunities to
enhance the Company's cash flow by reducing the Company's cost structure,
increasing the Company's ability to focus on repositioning the Sizzler concept,
and expediting the return of domestic operations to profitability.
Sizzler restaurants operate in highly competitive markets. Domestically, the
Company's strategy is to a) continue the elimination of non-performing assets,
and b) revitalize the Company's dated facilities and upgrade restaurant
operations.
The Company is convinced that successful execution of basic restaurant
operations in each of its restaurants is critical to its ongoing success.
Accordingly, significant effort is devoted to ensuring that all restaurants
offer quality food and service. Major emphasis is placed on the proper
preparation and delivery of appealing menu items to the consumer. All
operations personnel are being retrained in menu execution, guest interaction,
sanitation and restaurant management and control.
Domestically, the loss before interest and taxes improved $7.1 million, from a
loss of $11.1 million last year to a loss of $4.0 million this year. This
increase primarily reflects the impact of closing underperforming restaurants.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 2.0 percent of consolidated revenues. Compared to the
prior year,
14
<PAGE>
revenues decreased $279,000 or 13.7 percent while earnings before interest and
taxes increased $2.0 million to $1.8 million, due to the reduction of general
and administrative expenses. The revenue decline reflects a net reduction of 41
franchised restaurants.
Management expects that strategies being tested and implemented by the Company
will also improve sales and profits for domestic franchisees. As of February 2,
1997, the number of domestic franchised restaurants was 201 versus 242
restaurants at February 4, 1996.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 5.1
percentage points from the prior year. This decrease is largely the result of
lower labor and related expenses and lower occupancy costs, reflecting the
closure of unprofitable restaurants in the U.S.
Net interest expense was $295,000 in fiscal 1997 and $890,000 in fiscal 1996.
The provision for income taxes increased from a benefit of $3.1 million for the
third quarter of fiscal 1996 to a provision of $549,000 in fiscal 1997. The
provision for income taxes reflects taxes on foreign operations. Under current
accounting standards (Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes"), the Company may not record a tax benefit for
U.S. source losses.
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
The Company's principal source of working capital is cash provided by operations
which amounted to $27.4 million for the first forty weeks of fiscal 1997 versus
$12.3 million for the same period of the prior year. Historically, the company
has maintained a relatively low current ratio, but because of the non payment of
pre bankruptcy liabilities, the current ratio was 1.9 at February 2, 1997. The
current ratio was 0.4 at April 30, 1996. The Company's working capital has
generally been in a deficit position because, like most restaurant businesses,
substantially all sales are for cash, while credit is received from trade
suppliers.
The Company began to experience liquidity problems in 1996, due primarily to
continued sales declines in the Company's U.S. restaurants and costs associated
with the development of the Sizzler American Grill repositioning, and higher net
interest payments. The Company's working capital at February 2, 1997 was $21.6
million including cash and cash equivalents of $29.8 million. At April 30, 1996
the working capital deficit was $39.7 million.
At February 2, 1997, total assets were $181.2 million, an increase of $2.6
million or 1.5 percent from April 30, 1996 due primarily to the increase in cash
and cash equivalents.
15
<PAGE>
Property and equipment represented approximately 67.5 percent of total assets at
February 2, 1997 and 75.7 percent at April 30, 1996.
Capital expenditures were $4.6 million for the first forty weeks of fiscal 1997,
including new restaurant construction of $0.9 million and replacements of $3.7
million. The Company anticipates continuing to build its International
operations through additional investment in Company-operated restaurants, joint
ventures and the development of the franchise system. The International
franchise restaurant base has grown by ten incremental franchised Sizzler
restaurants since the third quarter of the prior fiscal year. Two KFC
restaurants were also added to International operations since the third quarter
of last year. Domestically, no new unit growth is planned in fiscal 1997.
Instead, the Company will focus on the previously mentioned revitalization
program. The Company has entered into certain commitments for capital
expenditures necessary to efficiently operate and to improve the profitability
of existing businesses.
DEBT
- ----
During fiscal 1996, the Company began to experience liquidity problems resulting
from declining restaurant sales and higher operating costs which caused the
Company to not meet the required debt coverage ratio for the fiscal quarter
ended February 4, 1996, on its revolving line of credit. At April 30, 1996, as
a result of the Company's non-compliance with its line of credit covenants, no
additional credit was available under that facility.
As a result of the Chapter 11 cases filed on June 2, 1996, and the related
restructuring strategy, the Company relies primarily on internally generated
funds, supplemented, if required, by working capital advances under a new
Debtor-in-Possession line of credit facility, totaling $15.0 million on a
revolving loan basis, and sales of company owned closed restaurants, for its
liquidity. Management believes that funds available from these sources will be
sufficient to meet the Company's working capital, debt service related to the
Debtor-in-Possession credit facility and capital expenditure requirements. The
Company has not required any borrowings on its debtor in possession credit
facility.
On May 10, 1996, the beneficiary of the Company's letter of credit drew down on
the available balances totaling $11.3 million. The letter of credit was issued
to provide security for future amounts payable by the Company and its
subsidiaries under its captive insurance company, CFI Insurers, Ltd.
16
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 11 - Computation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule.
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
SIZZLER INTERNATIONAL, INC.
Registrant
Date: March 14, 1997 /s/Kevin W. Perkins
---------------------------------
Kevin W. Perkins
Chief Executive Officer
Date: March 14, 1997 /s/Christopher R. Thomas
---------------------------------
Christopher R. Thomas
Executive Vice President, Finance
(Principal Financial Officer)
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
EXHIBIT 11 - PART I
COMPUTATION OF PER SHARE EARNINGS
The weighted average number of shares used in the
computation of net income per share is as follows:
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED FORTY WEEKS ENDED
---------------------------- -----------------------------
February 2, February 4, February 2, February 4,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average of outstanding shares 29,047,613 27,772,536 28,985,570 27,774,468
Common stock equivalents 11 219 26 16,604
----------- ----------- ----------- -----------
Primary shares 29,047,624 27,772,755 28,985,596 27,791,072
Additional shares 0 8 24 7,606
----------- ----------- ----------- -----------
Fully diluted shares 29,047,624 27,772,763 28,985,620 27,798,678
=========== =========== =========== ===========
Net income used to calculate primary
and fully diluted earnings per share ($1,281,000) ($4,569,000) ($1,409,000) ($3,965,000)
=========== =========== =========== ===========
Earnings per share ($0.04) ($0.16) ($0.05) ($0.14)
============ ============ ============ ============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> APR-30-1997 APR-30-1996
<PERIOD-START> MAY-01-1996 MAY-01-1995
<PERIOD-END> FEB-02-1997 FEB-04-1996
<CASH> 29,782 9,216
<SECURITIES> 0 0
<RECEIVABLES> 9,586 14,467
<ALLOWANCES> 4,120 9,441
<INVENTORY> 5,831 6,477
<CURRENT-ASSETS> 46,061 23,455
<PP&E> 235,518 246,061
<DEPRECIATION> 113,312 110,830
<TOTAL-ASSETS> 181,150 178,547
<CURRENT-LIABILITIES> 24,456 63,185
<BONDS> 0 0
0 0
0 0
<COMMON> 290 278
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 181,150 178,547
<SALES> 231,526 326,768
<TOTAL-REVENUES> 240,528 336,149
<CGS> 89,018 121,293
<TOTAL-COSTS> 239,192 340,352
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 779 1,624
<INCOME-PRETAX> 557 (5,827)
<INCOME-TAX> 1,966 (1,862)
<INCOME-CONTINUING> (1,409) (3,965)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,409) (3,965)
<EPS-PRIMARY> (0.05) (0.14)
<EPS-DILUTED> (0.05) (0.14)
</TABLE>
