<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 JULY 20, 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 August 29, 1997
- ---------------------------- -------------------------------
COMMON STOCK $0.01 PAR VALUE 28,885,148 SHARES
<PAGE>
PART I. FINANCIAL INFORMATION
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
<TABLE>
<CAPTION>
July 20, April 30,
1997 1997
---------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 38,209 $ 34,085
Receivables, net of reserves of $3,653 at
July 20, 1997 and $3,547 at April 30, 1997 3,945 4,398
Inventories 5,153 5,464
Prepaid expenses and other current assets 1,318 2,323
-------- --------
Total current assets 48,625 46,270
Property and equipment, net 100,186 104,875
Long-term notes receivable, net of reserves of $485
at July 20, 1997 and $424 at April 30, 1997 1,510 1,619
Deferred income taxes 3,606 4,004
Intangible assets, net of accumulated amortization of
$633 at July 20, 1997 and $698 at April 30, 1997 1,391 1,430
Other assets, net of accumulated amortization and reserves
of $6 at July 20, 1997 and April 30, 1997 9,199 9,912
-------- --------
Total assets $164,517 $168,110
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
July 20, April 30,
1997 1997
------------ -------------
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 31 $ 94
Accounts payable 13,255 13,634
Other current liabilities 13,262 14,240
Income taxes payable 1,977 2,401
--------- ---------
Total current liabilities 28,525 30,369
Long-term Liabilities:
Long-term debt 310 329
Other liabilities 8,084 9,111
Liabilities subject to compromise under
reorganization proceedings 84,708 83,900
--------- ---------
Total long-term liabilities 93,102 93,340
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 28,885,148 shares at July 20, 1997
and 28,898,003 shares at April 30, 1997 289 289
Additional paid-in capital 276,378 276,200
Accumulated deficit (233,474) (234,961)
Cumulative foreign currency translation adjustments (303) 2,873
--------- ---------
Total stockholders' investment 42,890 44,401
Total liabilities and stockholders' investment $ 164,517 $ 168,110
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE TWELVE WEEKS ENDED JULY 20, 1997 AND JULY 21, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------- --------------- --------------
(Unaudited)
<S> <C> <C>
REVENUES
Restaurants $58,270 $80,936
Franchise operations 1,316 3,500
- --------------------------------------------- -------------- --------------
Total revenues 59,586 84,436
- --------------------------------------------- -------------- --------------
COSTS AND EXPENSES
Cost of sales 21,721 29,866
Labor and related expenses 15,851 24,414
Other operating expenses 11,837 18,028
Depreciation and amortization 2,819 3,586
General and administrative expenses 4,407 7,047
- --------------------------------------------- -------------- --------------
Total operating costs 56,635 82,941
- --------------------------------------------- -------------- --------------
Interest expense 1,379 393
Investment income (492) (277)
- --------------------------------------------- -------------- --------------
Total costs and expenses 57,522 83,057
- --------------------------------------------- -------------- --------------
INCOME BEFORE INCOME TAXES 2,064 1,379
Provision for income taxes 577 885
- --------------------------------------------- -------------- --------------
NET INCOME $ 1,487 $ 494
============================================= ============== ==============
Net income per common and
common equivalent share $ 0.05 $ 0.02
============================================= ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE TWELVE WEEKS ENDED JULY 20, 1997 AND JULY 21, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------------- ----------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,487 $ 494
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,819 3,586
Deferred income taxes - 37
Provision for bad debts 200 398
Other (29) 1,822
- -------------------------------------------------------- -------------- ----------------
4,477 6,337
Changes in operating assets and liabilities:
Receivables 362 (556)
Inventories 311 636
Prepaid expenses and other current assets 913 (1,807)
Accounts payable (398) 13,940
Accrued liabilities (4,937) (16,199)
Income taxes payable (322) (364)
- -------------------------------------------------------- -------------- ----------------
Net cash provided by operating activities 406 1,987
- -------------------------------------------------------- -------------- ----------------
INVESTING ACTIVITIES
Additions to property and equipment (1,511) (802)
Disposal of property and equipment 5,178 975
Other, net 133 1,772
- -------------------------------------------------------- -------------- ----------------
Net cash provided by investing activities 3,800 1,945
- -------------------------------------------------------- -------------- ----------------
FINANCING ACTIVITIES
Issuance of long-term debt - 11,310
Reduction of long-term debt (82) (74)
Other, net - (41)
- -------------------------------------------------------- -------------- ----------------
Net cash provided by (used in) financing activities (82) 11,195
- -------------------------------------------------------- -------------- ----------------
Net increase in cash and cash equivalents 4,124 15,127
- -------------------------------------------------------- -------------- ----------------
Cash and cash equivalents at beginning of period 34,085 9,216
- -------------------------------------------------------- -------------- ----------------
Cash and cash equivalents at end of period $38,209 $ 24,343
======================================================== ============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
AS OF JULY 20, 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 1997 annual report on Form 10-K.
On June 2, 1996, Sizzler International, Inc. (the "Company") enacted a
comprehensive restructuring strategy designed to return the U.S. operations
to profitability. This strategy included the closure of under-performing
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. ("SRI"), Buffalo Ranch Steakhouses,
Inc. ("BRSH"), Tenly Enterprises, Inc. ("Tenly"), and Collins Properties,
Inc.("CPI"), 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 federal bankruptcy code.
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 July 20, 1997, subject to adjustment in the
reorganization process.
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.
Liabilities subject to compromise under reorganization proceedings consist
of the following (in thousands):
<TABLE>
<CAPTION>
July 20, April 30,
1997 1997
----------- ---------
<S> <C> <C>
Accounts payable $15,025 $15,095
Notes payable and capital lease obligations 44,337 44,337
Other claims 25,346 24,468
------- -------
$84,708 $83,900
======= =======
</TABLE>
In the opinion of management, all adjustments necessary for fair
presentation of results of operations for the twelve weeks have been
included in the interim financial statements.
6
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHAPTER 11 BANKRUPTCY REORGANIZATION
- ------------------------------------
On June 2, 1996, in response to continued domestic operating losses, the Company
enacted a comprehensive restructuring strategy designed to return the U.S.
operations to profitability. This strategy included the closure of under-
performing restaurants in the U.S. and filing for bankruptcy protection. The
Company and four subsidiaries, SRI, BRSH, Tenly, and CPI became debtors-in-
possession subject to the supervision of the U.S. Bankruptcy Court. The debtor
subsidiaries collectively own and operate substantially all of the Company's
U.S. 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. 96-16075AG.
On February 24, 1997 the U.S. Bankruptcy Court confirmed the plans of
reorganization of BRSH (formerly the owner and operator of the Buffalo Ranch
restaurant chain), and Tenly (the owner and operator of certain non-operating
restaurant properties). The Company does not consider the assets and operations
of these subsidiaries to be material. The BRSH and Tenly plans call for the
repayment of creditors from the liquidation of assets.
On June 2, 1997, the U.S. Bankruptcy Court for the Central District of
California approved plans of reorganization for the Company, SRI and CPI. The
Company's plan provides for full payment of allowed creditor's claims, estimated
as approximately $70.0 million, primarily from the operation of the Company's
international division. SRI's plan provides for full payment of allowed
creditor's claims, estimated as approximately $25.0 million, over a four-year
period, primarily from U.S. operations. CPI's plan provides for full payment of
allowed creditor's claims, estimated as approximately $2.5 million. Funds for
the payment of CPI's claims are to be generated through the sale of CPI's
properties.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - TWELVE WEEKS
- --------------------------------------------------------
ENDED JULY 20, 1997 VERSUS JULY 21, 1996
- ----------------------------------------
Domestic Company-operated restaurant sales and franchised restaurant revenues
(including franchise fees, royalties and rental income) and international
Company-operated restaurant sales and franchised restaurant revenues represent
the Company's primary sources of revenue. The addition or closure of
restaurants, both Company-operated 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. As part of the
reorganization, franchised Sizzlers in Guam (1), Puerto Rico (6) and Guatemala
(2), are now included in domestic franchise results. Franchised Sizzlers in all
other countries are included in international operations.
7
<PAGE>
Total revenues were $59.6 million for the first twelve weeks of fiscal 1998,
which represents a decrease of $24.9 million, or 29.4 percent, compared to the
first twelve weeks of the prior fiscal year. Since July 21, 1996, there has been
a net decrease of 30 Company-operated and a net decrease of 56 franchised
Sizzlers in operation. During the same period, the Company added a net of four
KFC restaurants in Australia. Revenues declined domestically by $17.7 million or
43.4 percent. International revenues decreased by $7.2 million or 16.4 percent
compared to the first twelve weeks of the prior year.
Earnings before interest and taxes were $3.0 million for the first twelve weeks
of fiscal 1998, an increase of $1.5 million or 100.0 percent compared to the
prior year. In the international operations, earnings before interest and taxes
declined $0.8 million. Domestically, earnings before interest and taxes improved
from a loss of $0.7 million in the prior year, to income of $1.6 million in the
current fiscal quarter, primarily due to the impact of closing under-performing
units. Pretax income for the first twelve weeks of fiscal 1998 increased $0.7
million to $2.1 million or 3.5 percent of revenues. During fiscal 1997, pretax
income was $1.4 million or 1.6 percent of revenues.
Net income for the twelve weeks ended July 20, 1997, was $1.5 million or $0.05
per share, versus net income of $0.5 million or $0.02 per share in the prior
year. The average primary shares were 28,901,000 for the twelve weeks ended July
20, 1997, versus 28,848,000 for the same period last year.
INTERNATIONAL OPERATIONS
- ------------------------
International restaurant revenues accounted for 60.3 percent of consolidated
revenues. Revenues from Company operations of $35.9 million were $6.3 million or
14.9 percent lower than the prior year primarily due to lower foreign currency
exchange rates and the closure of under-performing Sizzlers, offset by the
addition of four KFC units. Since the first quarter of fiscal 1997,
international operations had a net reduction of 11 Company-operated and 31
franchised Sizzler restaurants. Nine franchised restaurants and one joint
venture restaurant were opened in Thailand, South Korea, Singapore, Indonesia
and Japan while a total of 41 restaurants were closed, 40 in Australia and one
in Indonesia. There were also four KFC restaurants opened in Queensland,
Australia. As of July 20, 1997, the international operation included 83
Company-operated, joint ventured, and franchised Sizzler restaurants and 97 KFC
restaurants.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 20.9 percent and 22.5
percent, respectively. The average guest check increased 2.1 percent. The KFC
restaurants decreased 2.8 percent in average restaurant sales and 8.5 percent in
the average number of customers per restaurant, reflecting increased competition
in the fast food industry. The average customer check has increased 6.3 percent,
reflecting price increases since the first quarter of the prior year.
The Company's international franchise revenues decreased $0.9 million or 59.5
percent due to the restaurant closures mentioned above. At July 20, 1997, there
were 50 international franchised Sizzler restaurants in Japan, Taiwan, Thailand,
Korea, Singapore and Indonesia, versus 81 restaurants in seven countries at
July 21, 1996.
8
<PAGE>
Earnings before interest and taxes were down $0.8 million or 36.1 percent from
the prior year. Occupancy costs and general and administrative expense increased
1.1 percent and 0.5 percent, respectively, as a percentage of revenues, due to
the relatively fixed nature of certain restaurant costs at lower sales levels.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 37.5 percent of the Company's
consolidated revenues. Revenues reflect a decrease of $16.4 million or 42.3
percent to $22.3 million when compared to the prior year. This decline is due to
the closure of 18 Company-operated restaurants and the franchising of one
Company-operated restaurant since the first quarter of last year. At July 20,
1997, the number of domestic Company-operated restaurants was 68 versus 87
restaurants at July 21, 1996.
On a comparative restaurant basis, average sales per restaurant decreased 4.3
percent, average customers per restaurant declined 5.8 percent while the average
customer check increased 1.6 percent. However, sales trends are continuing to
show improvement as the sales decrease was 13.8 percent in the prior year.
As previously discussed, Management believes that the Company's restructuring
program and the related transactions significantly improved overall prospects to
return to profitability and growth.
Domestically, earnings before interest and taxes from Company operations,
improved $3.0 million to $0.7 million, from a loss of $2.3 million in the same
period last year. This increase primarily reflects the improvement related to
closing under-performing units.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 1.2 percent of consolidated revenues. Compared to the
prior year, revenues decreased $1.3 million or 64.6 percent and earnings before
interest and taxes decreased $0.8 million or 47.5 percent. The revenue decline
reflects the impact of a temporary royalty abatement program, which expires
October 31, 1997, pursuant to the Plan of Reorganization and a net reduction of
25 franchised restaurants. Management expects that strategies being tested and
implemented by the Company will also improve sales and profits for domestic
franchisees. As of July 20, 1997, the number of domestic franchised restaurants
was 208 versus 233 restaurants at July 21, 1996.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 1.8
percentage points from the prior year. This decrease is primarily the result of
lower payroll and related expenses, reflecting the closure of unprofitable
restaurants, and general and administrative expense, offset by higher food costs
and interest expense. Interest expense was $1.4 million in fiscal 1998 and $0.4
million in 1997.
The effective income tax rate decreased from 64.2 percent in fiscal 1997 to 28.0
percent in fiscal 1998. Although the overall effective tax rate is 28.0 percent,
the international division incurred an effective tax rate of 45.8 percent while
the domestic division recognized no income taxes. Under current accounting
standards, the Financial Accounting Standards Board Statement No. 109
"Accounting for Income Taxes", the
9
<PAGE>
domestic division may record a tax benefit by using some of its prior years
valuation allowance against current year domestic earnings, thus decreasing the
overall effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
- ---------------
The Company's principal source of working capital is cash provided by operations
which amounted to $4.5 million for the first twelve weeks of fiscal 1998 versus
$6.3 million for the same period of the prior year. The Company has historically
maintained a relatively low current ratio, but because of the non payment of
pre-bankruptcy liabilities, the current ratio was 1.7 at July 20, 1997 and 1.5
at April 30, 1997.
The Company's working capital at July 20, 1997 was $20.1 million including cash
and cash equivalents of $38.2 million. At April 30, 1997 working capital was
$15.9 million.
TOTAL ASSETS/CAPITAL EXPENDITURES
- -----------------------------------
At July 20, 1997, total assets were $164.5 million, a decrease of $3.6 million
or 2.1 percent from April 30, 1997. Property and equipment represented
approximately 60.9 percent of total assets at July 20, 1997 and 62.4 percent at
April 30, 1997.
Capital expenditures were $1.5 million for the first twelve weeks of fiscal
1998, including new restaurant construction of $0.6 million and replacements of
$0.9 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. Domestically, no new unit
growth is planned in fiscal 1998. 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
- ----
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 which management believes will be sufficient to meet working capital and
capital expenditure requirements.
10
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 11 - Computation of Per Share Earnings.
27 - Financial Data Schedule
11
<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: August 29, 1997 /s/James A. Collins
-------------------------------
James A. Collins
Chief Executive Officer
Date: August 29, 1997 /s/Ryan S. Tondro
-------------------------------
Ryan S. Tondro
Vice President
(Principal Financial Officer)
12
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
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>
TWELVE WEEKS ENDED
-------------------------
July 20, July 21,
1997 1996
----------- ----------
<S> <C> <C>
Weighted average of outstanding shares 28,900,846 28,848,125
Common stock equivalents - 66
----------- -----------
Primary shares 28,900,846 28,848,191
Additional shares - 22
----------- -----------
Fully diluted shares 28,900,846 28,848,213
=========== ===========
Net income used to calculate primary
and fully diluted earnings per share $ 1,487,000 $ 494,000
=========== ===========
Earnings per share $ 0.05 $ 0.02
=========== ===========
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-03-1998
<PERIOD-START> APR-28-1997
<PERIOD-END> JUL-20-1997
<CASH> 38,209
<SECURITIES> 0
<RECEIVABLES> 7,598
<ALLOWANCES> 3,653
<INVENTORY> 5,153
<CURRENT-ASSETS> 48,625
<PP&E> 214,063
<DEPRECIATION> 113,877
<TOTAL-ASSETS> 164,517
<CURRENT-LIABILITIES> 28,525
<BONDS> 310
0
0
<COMMON> 289
<OTHER-SE> 42,601
<TOTAL-LIABILITY-AND-EQUITY> 164,517
<SALES> 58,270
<TOTAL-REVENUES> 59,586
<CGS> 21,721
<TOTAL-COSTS> 21,721
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,379
<INCOME-PRETAX> 2,064
<INCOME-TAX> 577
<INCOME-CONTINUING> 1,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,487
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
