<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 7, 1999
[ ] 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.)
6101 West Centinela Avenue, Suite 200, Culver City, California 90230
________________________________________________________________________________
(Address of Principal Executive Offices, including zip code)
(310) 568-0135
____________________________________________________________
(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 19, 1999
- ------------------------------- ----------------------------------
Common Stock $0.01 Par Value 28,803,828 shares
<PAGE>
PART I. FINANCIAL INFORMATION
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
<TABLE>
<CAPTION>
February 7, April 30,
ASSETS 1999 1998
- ----------------------------------------------------------------- ------------ ------------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 16,609 $ 21,167
Receivables, net of reserves of $1,501 at
February 7, 1999 and $2,608 at April 30, 1998 3,182 2,926
Inventories 4,401 4,333
Prepaid expenses and other current assets 1,223 1,281
- ----------------------------------------------------------------- -------- --------
Total current assets 25,415 29,707
- ----------------------------------------------------------------- -------- --------
Property and equipment, net 78,724 79,210
Long-term notes receivable, net of reserves of $508
at February 7, 1999 and $772 at April 30, 1998 1,534 1,268
Deferred income taxes 3,878 3,829
Intangible assets, net of accumulated amortization of
$815 at February 7, 1999 and $696 at April 30, 1998 2,123 2,162
Other assets, net of accumulated amortization and reserves of
$4 at February 7, 1999 and $1 at April 30, 1998 1,906 3,285
- ----------------------------------------------------------------- -------- --------
Total assets $113,580 $119,461
================================================================= ======== ========
</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>
February 7, April 30,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1999 1998
- -------------------------------------------------------------------------------------- -------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt $ 5,802 $ 5,764
Accounts payable 8,686 7,753
Other current liabilities 8,979 9,562
Income taxes payable 5,101 3,761
- -------------------------------------------------------------------------------------- --------- ---------
Total current liabilities 28,568 26,840
- -------------------------------------------------------------------------------------- --------- ---------
Long-term Liabilities:
Long-term debt, net of current portion 29,683 35,497
Other liabilities 5,702 13,364
- -------------------------------------------------------------------------------------- --------- ---------
Total long-term liabilities 35,385 48,861
- -------------------------------------------------------------------------------------- --------- ---------
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 28,803,828 shares at February 7, 1999
and 28,840,908 shares at April 30, 1998 288 288
Additional paid-in capital 278,140 277,353
Accumulated deficit (224,706) (229,583)
Accumulated other comprehensive income -
Foreign currency translation adjustments (4,095) (4,298)
- -------------------------------------------------------------------------------------- --------- ---------
Total stockholders' investment 49,627 43,760
- -------------------------------------------------------------------------------------- --------- ---------
Total liabilities and stockholders' investment $ 113,580 $ 119,461
======================================================================================= ========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
3
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FORTY WEEKS ENDED
----------------------------------------------
FEBRUARY 7, FEBRUARY 1,
1999 1998
---------------- --------------
(Unaudited)
<S> <C> <C>
Revenues
Restaurants $165,853 $181,351
Franchise operations 5,841 4,815
- -------------------------------------------------------------------- -------- --------
Total revenues 171,694 186,166
- -------------------------------------------------------------------- -------- --------
Costs and Expenses
Cost of sales 61,249 68,205
Labor and related expenses 45,568 49,696
Other operating expenses 36,426 38,490
Depreciation and amortization 7,459 9,180
General and administrative expenses 12,728 12,518
- -------------------------------------------------------------------- -------- --------
Total operating costs 163,430 178,089
- -------------------------------------------------------------------- -------- --------
Interest expense 2,656 4,078
Investment income (577) (997)
- -------------------------------------------------------------------- -------- --------
Total costs and expenses 165,509 181,170
- -------------------------------------------------------------------- -------- --------
Income before income taxes 6,185 4,996
- -------------------------------------------------------------------- -------- --------
Provision for income taxes 1,308 1,978
- -------------------------------------------------------------------- -------- --------
Net income $ 4,877 $ 3,018
==================================================================== ======== ========
Basic and diluted earnings per share $0.17 $0.11
=================================================================== ======== ========
</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 INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
---------------------------------------------------
FEBRUARY 7, FEBRUARY 1,
1999 1998
---------------------- -----------------------
(Unaudited)
<S> <C> <C>
Revenues
Restaurants $66,147 $68,311
Franchise operations 1,955 1,762
- ---------------------------------------------------------------------- ------- -------
Total revenues 68,102 70,073
- ---------------------------------------------------------------------- ------- -------
Costs and Expenses
Cost of sales 24,728 25,917
Labor and related expenses 18,380 18,898
Other operating expenses 15,238 14,808
Depreciation and amortization 3,048 3,430
General and administrative expenses 4,228 4,310
- ---------------------------------------------------------------------- ------- -------
Total operating costs 65,622 67,363
- ---------------------------------------------------------------------- ------- -------
Interest expense 952 1,593
Investment income (217) (270)
- ---------------------------------------------------------------------- ------- -------
Total costs and expenses 66,357 68,686
- ---------------------------------------------------------------------- ------- -------
Income before income taxes 1,745 1,387
- ---------------------------------------------------------------------- ------- -------
Provision for income taxes 533 632
- ---------------------------------------------------------------------- ------- -------
Net income $ 1,212 $ 755
====================================================================== ======= =======
Basic and diluted earnings per share $0.04 $0.03
====================================================================== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FORTY WEEKS ENDING
------------------------------------------------
FEBRUARY 7, FEBRUARY 1,
1999 1998
------------------ ---------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,877 $ 3,018
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,459 9,180
Deferred income taxes 218 -
Provision for bad debts 229 501
Other 103 (346)
Changes in operating assets and liabilities:
Receivables (779) 376
Inventories (68) 793
Prepaid expenses and other current assets 58 1,235
Accounts payable 933 (4,068)
Accrued liabilities (3,194) (6,990)
Income taxes payable 937 1,272
- ------------------------------------------------------------ -------- --------
Net cash provided by operating activities 10,773 4,971
- ------------------------------------------------------------ -------- --------
INVESTING ACTIVITIES
Additions to property and equipment (6,451) (5,767)
Proceeds from disposal of property and equipment 2,192 24,292
Other, net (443) (1,919)
- ------------------------------------------------------------ -------- --------
Net cash provided by (used in) investing activities (4,702) 16,606
- ------------------------------------------------------------ -------- --------
FINANCING ACTIVITIES
Issuance of long-term debt - 46,895
Reduction of long-term debt (5,556) (2,992)
Payment of allowed claims pursuant to
the reorganization plan (5,007) (72,613)
Other, net (66) -
- ------------------------------------------------------------ -------- --------
Net cash used in financing activities (10,629) (28,710)
- ------------------------------------------------------------ -------- --------
Net decrease in cash and cash equivalents (4,558) (7,133)
- ------------------------------------------------------------ -------- --------
Cash and cash equivalents at beginning of period 21,167 34,085
- ------------------------------------------------------------ -------- --------
Cash and cash equivalents at end of period $ 16,609 $ 26,952
============================================================ ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements.
</TABLE>
6
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
AS OF FEBRUARY 7, 1999
1. General:
The condensed consolidated financial statements have been prepared by
Sizzler International, Inc. (the "Company"), without audit, in accordance
with generally accepted accounting principles. Pursuant to the rules and
regulations of the Securities and Exchange Commission, certain information
and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. In the opinion of management,
the condensed interim consolidated financial statements include all
adjustments necessary for a fair presentation of financial position and
results of operations for the periods presented. The results of operations
for the periods presented should not necessarily be considered indicative
of operations for the full year. Certain reclassifications have been made
to prior period financial statements in order to conform to the current
period presentation. It is recommended that these condensed consolidated
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's 1998 annual report on Form
10-K.
2. Earnings Per Share:
The following table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Sixteen weeks ended Forty weeks ended
-------------------------------- ---------------------------------
February 7, February 1, February 7, February 1,
In thousands, except EPS 1999 1998 1999 1998
------------ -------------- ------------- --------------
<S> <C> <C> <C> <C>
Numerator for basic and diluted EPS - Net income $ 1,212 $ 755 $ 4,877 $ 3,018
======= ======= ======= =======
Denominator:
Denominator for basic EPS - weighted average
shares of common stock outstanding 28,805 28,851 28,819 28,869
Effect of dilutive stock options 64 9 57 4
------- ------- ------- -------
Denominator for diluted EPS - adjusted
weighted average shares outstanding 28,869 28,860 28,876 28,873
======= ======= ======= =======
Basic and diluted earnings per share $ 0.04 $ 0.03 $ 0.17 $ 0.11
======= ======= ======= =======
</TABLE>
7
<PAGE>
3. Comprehensive Income:
Total comprehensive income is summarized as follows:
<TABLE>
<CAPTION>
Sixteen weeks ended Forty weeks ended
--------------------------------- ----------------------------------
February 7, February 1, February 7, February 1,
In thousands 1999 1998 1999 1998
------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Net income $1,212 $ 755 $4,877 $ 3,018
Currency translation adjustment 555 (1,372) (203) (6,240)
------ ------- ------ -------
Total comprehensive income (loss) $1,767 $ (617) $4,674 $(3,222)
====== ======= ====== =======
</TABLE>
4. Restructuring Strategy:
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 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 (the "Bankruptcy Court") under Chapter 11 of
the federal bankruptcy code.
On June 2, 1997, the Bankruptcy Court entered an order confirming the
Chapter 11 plans of reorganization of the Company, SRI and CPI. The plans
of reorganization for Tenly and BRSH were confirmed on February 24, 1997.
On September 23, 1997, the reorganization plans became effective and the
Company and its subsidiaries emerged from the bankruptcy proceedings.
The Company and its subsidiaries have paid approximately $80 million in
pre-petition claims and interest and reinstated the remaining pre-petition
liabilities. Remaining bankruptcy liabilities were reclassified from
"Liabilities subject to compromise under reorganization proceedings" to the
appropriate liability captions of the consolidated balance sheet.
8
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS SIXTEEN WEEKS ENDED FEBRUARY 7, 1999
- ------------------------------------------------------------------------------
VERSUS FEBRUARY 1, 1998
- -----------------------
Domestic Company-operated restaurant sales and franchised restaurant revenues
(including franchise fees, royalties and rental income) and international
Company-operated restaurant sales and franchised restaurant revenues represent
the Company's primary sources of revenue. The addition or closure of
restaurants, both Company-operated and franchised, and the sales volume of
comparable restaurants (those restaurants open more than one year) are important
factors to consider in evaluating the Company's results.
The following table shows the comparative Company-operated restaurant percentage
change from the prior year.
<TABLE>
<CAPTION>
FY 1998 FY 1999
-----------------------------------------------------------------------
QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIZZLER
- -------
U.S.A. - Sales (4.3%) 0.6% 0.3% 2.2% 7.2% 7.4% 6.5%
Customers (5.8%) (3.6%) (6.6%) (6.0%) (3.3%) (1.7%) (0.5%)
AUSTRALIA Sales (20.9%) (13.6%) (9.3%) (8.1%) (5.3%) (0.3%) 2.2%
(Based on A$) Customers (22.5%) (17.8%) (13.3%) (15.2%) (5.7%) (1.8%) (2.0%)
KFC Sales (2.8%) (3.1%) (0.4%) 0.7% 1.3% (0.8%) (1.2%)
- ---
(Based on A$) Customers (8.5%) (7.3%) (6.6%) (4.1%) (4.3%) (5.0%) (4.6%)
</TABLE>
On a comparative restaurant basis, Sizzler average sales per restaurant are
showing a positive trend. Sizzler U.S.A. improved from 0.3 percent in the third
quarter of fiscal 1998 to 6.5 percent in the third quarter of the current year.
The positive results of the last six quarters reverses 27 consecutive quarters
of decreases in comparable restaurant sales. Check averages and margins per
guest have continued to increase in the U.S. reflecting the impact of the menu
repositioning and a marketing strategy which minimizes the use of discounts.
Australian sales trends are also showing a significant improvement although the
percent change in customer counts is slightly down. KFC sales per restaurant
and customer count decreased 1.2 percent and 4.6 percent respectively,
reflecting the heavy discount programs offered by the competition during the
period.
INTERNATIONAL OPERATIONS
- ------------------------
International operations generated approximately 58.1 percent of consolidated
revenues for the third quarter of fiscal 1999. Revenues decreased $3.5 million
or 8.2
9
<PAGE>
percent compared to the prior year primarily due to a 7.4 percent decrease in
the Australian dollar exchange rates and lower average KFC sales partially
offset by higher Sizzler sales. Since the third quarter of fiscal 1998,
international operations had a net reduction of one Company-operated and three
franchised Sizzler restaurants. As of February 7, 1999, the international
operation included 31 Company-operated, three joint ventured, and 50 franchised
Sizzler restaurants and 100 KFC restaurants.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and the average guest check increased 2.2 percent
and 4.3 percent, respectively, even though the casual dining market is
increasingly competitive. Customer count decreased 2.0 percent. The KFC
restaurants decreased 1.2 percent in average restaurant sales and 4.6 percent in
the average number of customers due to increased competition in the fast food
market. The average customer check increased 3.6 percent which continues to
reflect price increases, promotion of family meals and offering larger portion
meals.
The Company's international franchise revenues decreased $0.1 million or 20.9
percent primarily due to the overall economic turmoil and weakening of local
currencies throughout much of Asia against the U.S. dollar. At February 7, 1999,
there were 50 international franchised and joint-ventured Sizzler restaurants in
Japan, Taiwan, Thailand, South Korea, Singapore and Indonesia, versus 53
restaurants in six countries at February 1, 1998.
Earnings before interest, taxes and parent company overhead were $2.8 million, a
decrease of $0.4 million or 13.2 percent from the prior year.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 39.6 percent of the Company's
consolidated revenues. Sales reflect an increase of $1.3 million or 4.9 percent
to $26.9 million when compared to the prior year. There were 66 domestic
Company-operated restaurants at February 7, 1999 and February 1, 1998.
On a comparative restaurant basis, average sales per restaurant increased 6.5
percent and the average customer check increased 7.0 percent. These improvements
are primarily due to signage and facility upgrades completed during the current
fiscal year, and the menu repositioning. The average customers per restaurant
declined 0.5 percent. Gross margins per guest increased by 5.5 percent
reflecting the impact of the menu repositioning program and current marketing
strategy.
Management is continuing its plan to revitalize the restaurant concept. There
are three major initiatives underway designed to complete the repositioning of
the Sizzler concept away from the lower margin buffet positioning back to a mid-
scale family steakhouse featuring high quality and high value entrees. The first
of these is a test: a new higher-quality fresh fruit and salad bar, designed to
be either a light lunch entree option or an add on to a grilled entree at
dinner. Secondly, we are also testing a new service system designed to improve
the guest's dining experience, making it consistent with higher quality, higher
value menu offerings that have been introduced as part of the repositioning.
Thirdly, work has begun on a new Sizzler prototype restaurant, which will be the
basis for future remodeling of the current Sizzler system as well as for future
growth of Sizzler restaurants in the U.S.
10
<PAGE>
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 2.3 percent of consolidated revenues. Compared to the
prior year, revenues increased $0.3 million or 22.7 percent. The revenue
increase reflects increased sales per restaurant in the current year and the
impact of a temporary royalty abatement program in the prior year. As of
February 7, 1999, the number of domestic franchised restaurants was 199,
including 12 Latin American restaurants, versus 199 restaurants including 11
Latin American restaurants at February 1, 1998.
Domestic earnings before interest, taxes and parent company allocation were $1.5
million, an increase of $0.6 million or 60.2 percent from the prior year.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 0.6
percentage points from the prior year. This decrease is primarily the result of
lower food costs, depreciation and amortization and interest expense. Interest
expense declined to $1.0 million in fiscal 1999 from $1.6 million in fiscal
1998, primarily due to debt repayment.
The effective income tax rate decreased from 45.6 percent of pretax income in
fiscal 1998 to 30.5 percent in fiscal 1999, primarily due to the utilization of
loss carryforwards to offset domestic earnings.
MATERIAL CHANGES IN RESULTS OF OPERATIONS FORTY WEEKS ENDED FEBRUARY 7, 1999
- ----------------------------------------------------------------------------
VERSUS FEBRUARY 1, 1998
- -----------------------
INTERNATIONAL OPERATIONS
- ------------------------
International operations generated approximately 55.0 percent of consolidated
revenues for the first forty weeks of fiscal 1999. Revenues of $94.4 million
reflected a decrease of $19.5 million or 17.1 percent compared to the prior
year. This decrease was primarily due to a 14.5 percent decrease in the
Australian dollar exchange rates and lower average sales. Since the third
quarter of fiscal 1998, international operations had a net reduction of one
Company-operated and a net increase of three franchised Sizzler restaurants. As
of February 7, 1999, the international operation included 31 Company-operated,
three joint ventured, and 47 franchised Sizzler restaurants and 100 KFC
restaurants.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 0.8 percent and 3.1
percent, respectively, due to the increasingly competitive casual dining market.
The average guest check increased 2.4 percent. The KFC restaurants decreased 0.4
percent in average restaurant sales and 4.6 percent in the average number of
customers per restaurant due to increased competition in the fast food market.
The average customer check increased 4.5 percent
The Company's international franchise revenues decreased $0.9 million or 48.2
percent primarily due to the overall economic turmoil and weakening of local
currencies throughout much of Asia against the U.S. dollar. At February 7, 1999,
there were 50
11
<PAGE>
international franchised and joint-ventured Sizzler restaurants in Japan,
Taiwan, Thailand, South Korea, Singapore and Indonesia, versus 53 restaurants in
six countries at February 1, 1998.
Earnings before interest, taxes and parent company overhead were $6.8 million, a
decrease of $0.4 million or 5.1 percent from the prior year.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 42.1 percent of the Company's
consolidated revenues. Sales reflect an increase of $3.1 million or 4.5 percent
to $72.3 million when compared to the prior year. At February 7, 1999 and
February 1, 1998 the number of domestic Company-operated restaurants was 66.
On a comparative restaurant basis, average sales per restaurant increased 7.0
percent and the average customer check increased 8.9 percent. The average
customers per restaurant declined 1.8 percent. Gross margins per guest increased
to $5.51 in fiscal 1999 from $5.00 in fiscal 1998.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 2.9 percent of consolidated revenues. Revenues of $4.9
million, when compared to the prior year, increased $1.9 million or 62.5
percent. The revenue increase reflects increased sales per restaurant in the
current year and the impact of a temporary royalty abatement program in the
prior year. As of February 7, 1999, the number of domestic franchised
restaurants was 199, including 12 Latin American restaurants, versus 199,
including 11 Latin American restaurants at February 1, 1998.
Domestic earnings before interest, taxes and parent company allocation increased
$1.9 million to $6.2 million, from $4.3 million in the same period last year.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 0.9
percentage points from the prior year. This decrease is primarily the result of
lower food costs and interest expense. Interest expense declined to $2.7 million
in fiscal 1999 from $4.1 million in fiscal 1998, primarily due to debt
repayment.
The effective income tax rate decreased from 39.6 percent of pretax income in
fiscal 1998 to 21.1 percent in fiscal 1999, primarily due to the utilization of
loss carryforwards to offset domestic earnings.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
- ---------------
The Company's principal source of working capital is net cash provided by
operations which amounted to $10.8 million for the first forty weeks of fiscal
1999 versus $5.0 million for the same period of the prior year.
12
<PAGE>
The Company's working capital at February 7, 1999 was negative $3.2 million
including cash and cash equivalents of $16.6 million. The Company's working
capital is generally in a deficit position because, like most restaurant
businesses, substantially all sales are for cash, while credit is received from
trade suppliers. At April 30, 1998, working capital was $2.9 million.
TOTAL ASSETS / CAPITAL EXPENDITURES
- -----------------------------------
At February 7, 1999, total assets were $113.6 million, a decrease of $5.9
million or 4.9 percent from April 30, 1998. Property and equipment represented
approximately 69.3 percent of total assets at February 7, 1999 and 66.3 percent
at April 30, 1998.
Capital expenditures were $6.5 million for the first forty weeks of fiscal 1999,
including new restaurant construction of $1.0 million and replacements of $5.5
million. The Company anticipates continuing to build its international
operations through additional investment in Company-operated restaurants and the
development of the franchise system. Domestically the Company will focus on the
previously mentioned revitalization program.
DEBT
- ----
On September 23, 1997, the Company obtained a $63.5 million AUD (approximately
$46.9 million US) bank facility from Westpac Banking Corporation in order to
refinance the claims of the Company's unsecured creditors. The Westpac loan
provides for a five-year term at an interest rate equal to the Australian
interbank borrowing rate, plus a margin. The margin will be based on a formula
tied to the Company's international operations ratio of debt to earnings before
interest and taxes, and will vary between 1.25% and 2.25%. The Westpac loan
involved the collateralization of the Company's principal operating assets of
its international division. The Westpac loan is subject to a number of financial
covenants and other restrictions.
Based on current levels of operations and anticipated sales growth, management
believes that cash flow from operations will be sufficient to meet all of its
debt service requirements when due and to fund its capital expenditure and
working capital requirements.
YEAR 2000
- ---------
The Company is aware of the potential implications the year 2000 ("Y2K") issue
could have on its business and as a result has established a comprehensive
program to identify and remediate potential Y2K problems in its information
technology systems.
Several information technology projects previously planned have been accelerated
due to potential Y2K problems. Specifically, the Company is currently upgrading
certain software applications and adding hardware required by the software
upgrades. In addition other hardware will be replaced in the ordinary course of
business in connection with a lease that expires in June, 1999. The Company
expects to fund the replacement of this hardware with new lease agreements. The
cost incurred by the Company to date for software and hardware applications is
approximately $40,000. Management estimates the remaining costs to complete the
Y2K compliance to be
13
<PAGE>
approximately $340,000.
Based on communications with its outside consultants, service providers,
software and hardware vendors, the Company has determined that its systems, both
information technology and non-information technology, are not reasonably likely
to be impacted by Y2K and the Company anticipates that it will be Y2K compliant
by October, 1999.
SUBSEQUENT EVENTS
- -----------------
On February 8, 1999, the Company's Board of Directors elected Charles L. Boppell
President and Chief Executive Officer of Sizzler International, Inc., effective
March 15, 1999.
FORWARD-LOOKING STATEMENTS
- --------------------------
With the exception of any historical information contained in this report, the
matters described herein contain forward-looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements involve various risks and may cause actual
results to differ materially. These risks include, but are not limited to,
changes in global and local business and economic conditions; consumer
preferences, spending patterns and demographic trends; food, labor and other
operating costs; availability and cost of land and construction; currency
exchange rates; and other risks outside the control of the Company referred to
in the Company's registration statement and periodic reports filed with the
Securities and Exchange Commission.
14
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27 - Financial Data Schedule
15
<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 19, 1999 /s/Charles L. Boppell
--------------------------------------------
Charles L. Boppell
Chief Executive Officer
Date: March 19, 1999 /s/Ryan S. Tondro
--------------------------------------
Ryan S. Tondro
Vice President
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
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0
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