<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 October 17, 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
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(Registrant's telephone number, including area code)
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(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 November 24, 1999
- ---------------------------- -------------------------------------
Common Stock $0.01 Par Value 28,776,134 shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
----------------------------
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
October 17, April 30,
ASSETS 1999 1999
- ------------------------------------------------------------------ ----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 21,025 $ 14,691
Receivables, net of reserves of $1,916 at
October 17, 1999 and $1,726 at April 30, 1999 3,369 3,546
Inventories 4,001 4,346
Prepaid expenses and other current assets 1,663 1,669
- ------------------------------------------------------------------ ------------- -----------
Total current assets 30,058 24,252
- ------------------------------------------------------------------ ------------- -----------
Property and equipment, net 73,690 77,836
Long-term notes receivable, net of reserves of $528
at October 17, 1999 and $508 at April 30, 1999 1,453 1,553
Deferred income taxes 609 795
Intangible assets, net of accumulated amortization of
$918 at October 17, 1999 and $887 at April 30, 1999 2,030 2,104
Other assets, net of accumulated amortization and reserves
of $10 at October 17, 1999 and $6 at April 30, 1999 3,314 2,129
- ------------------------------------------------------------------ ------------- -----------
Total assets $ 111,154 $ 108,669
================================================================== ============= ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
October 17, April 30,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1999 1999
- ---------------------------------------------- ----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt $ 5,797 $ 5,898
Accounts payable 8,315 7,892
Other current liabilities 8,205 8,853
Income taxes payable 2,474 2,449
- ---------------------------------------------- ----------- ----------
Total current liabilities 24,791 25,092
- ---------------------------------------------- ----------- ----------
Long-term Liabilities:
Long-term debt, net of current portion 24,791 26,918
Other liabilities 4,824 3,916
- ----------------------------------------------- ----------- ----------
Total long-term liabilities 29,615 30,834
- ----------------------------------------------- ----------- ----------
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 28,776,134 shares at October 17, 1999
and 28,797,828 shares at April 30, 1999 288 288
Additional paid-in capital 278,377 278,365
Accumulated deficit (217,622) (222,191)
Accumulated other comprehensive income (4,295) (3,719)
- --------------------------------------------------- ----------- ----------
Total stockholders' investment 56,748 52,743
- --------------------------------------------------- ----------- ----------
Total liabilities and stockholders' investment $ 111,154 $ 108,669
=================================================== =========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
TWENTY-FOUR WEEKS ENDED
-----------------------
OCTOBER 17, OCTOBER 18,
1999 1998
- ---------------------------------------- ----------- -----------
(Unaudited)
Revenues
Restaurants $ 108,050 $ 99,706
Franchise operations 4,218 3,886
- ---------------------------------------- ----------- -----------
Total revenues 112,268 103,592
- ---------------------------------------- ----------- -----------
Costs and Expenses
Cost of sales 39,710 36,521
Labor and related expenses 29,377 27,188
Other operating expenses 23,272 21,188
Depreciation and amortization 4,232 4,411
General and administrative expenses 8,752 8,500
- ---------------------------------------- ----------- -----------
Total operating costs 105,343 97,808
- ---------------------------------------- ----------- -----------
Interest expense 1,688 1,704
Investment income (380) (360)
- ---------------------------------------- ----------- -----------
Total costs and expenses 106,651 99,152
- ---------------------------------------- ----------- -----------
Income before income taxes 5,617 4,440
- ---------------------------------------- ----------- -----------
Provision for income taxes 1,048 775
- ---------------------------------------- ----------- -----------
Net income $ 4,569 $ 3,665
======================================== =========== ===========
Basic and diluted earnings per share $ 0.16 $ 0.13
======================================== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
TWELVE WEEKS ENDED
------------------
OCTOBER 17, OCTOBER 18,
1999 1998
- -------------------------------------- ----------- -----------
Revenues
Restaurants $ 53,209 $ 48,973
Franchise operations 2,054 2,041
- -------------------------------------- ----------- -----------
Total revenues 55,263 51,014
- -------------------------------------- ----------- -----------
Costs and Expenses
Cost of sales 19,503 17,971
Labor and related expenses 14,532 13,443
Other operating expenses 11,721 10,584
Depreciation and amortization 2,154 2,152
General and administrative expenses 4,094 4,233
- -------------------------------------- ----------- -----------
Total operating costs 52,004 48,383
- -------------------------------------- ----------- -----------
Interest expense 816 841
Investment income (198) (194)
- -------------------------------------- ----------- -----------
Total costs and expenses 52,622 49,030
- -------------------------------------- ----------- -----------
Income before income taxes 2,641 1,984
- -------------------------------------- ----------- -----------
Provision for income taxes 578 380
- -------------------------------------- ----------- -----------
Net income $ 2,063 $ 1,604
====================================== =========== ===========
Basic and diluted earnings per share $ 0.07 $ 0.06
====================================== =========== ===========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
TWENTY-FOUR WEEKS ENDED
-------------------------
OCTOBER 17, OCTOBER 18,
1999 1998
- ----------------------------------------------------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 4,569 $ 3,665
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,232 4,411
Deferred income taxes 152 134
Provision for bad debts 221 37
Other 26 55
Changes in operating assets and liabilities:
Receivables 68 (619)
Inventories 345 142
Prepaid expenses and other current assets 6 49
Accounts payable 423 2,062
Accrued liabilities 2,724 (2,756)
Income taxes payable 49 577
- ----------------------------------------------------- --------- ----------
Net cash provided by operating activities 12,815 7,757
- ----------------------------------------------------- --------- ----------
INVESTING ACTIVITIES
Additions to property and equipment (1,837) (4,710)
Disposal of property and equipment 1,041 1,313
Other, net (1,523) (1,879)
- ----------------------------------------------------- --------- ----------
Net cash used in investing activities (2,319) (5,276)
- ----------------------------------------------------- --------- ----------
FINANCING ACTIVITIES
Reduction of long-term debt (1,627) (2,000)
Payment of allowed claims pursuant to
the reorganization plan (2,547) (3,769)
Other, net 12 (47)
- ----------------------------------------------------- --------- ----------
Net cash used in financing activities (4,162) (5,816)
- ----------------------------------------------------- --------- ----------
Net increase (decrease) in cash and cash equivalents 6,334 (3,335)
- ----------------------------------------------------- --------- ----------
Cash and cash equivalents at beginning of period 14,691 21,167
- ----------------------------------------------------- --------- ----------
Cash and cash equivalents at end of period $ 21,025 $17,832
- ----------------------------------------------------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF OCTOBER 17, 1999
1. General:
The condensed consolidated financial statements include Sizzler
International, Inc. and its wholly owned subsidiaries ("Sizzler" or the
"Company"). The financial statements include the Company's worldwide
operation of the Sizzler Family Steakhouse concept, including company-owned
outlets, activity related to the development and operation of Sizzler
franchises, and the operation of Kentucky Fried Chicken ("KFC") franchises
in Queensland, Australia. References to the Company throughout these Notes
to Financial Statements may be made using the first person notations of
"we" or "us."
The condensed consolidated financial statements have been prepared 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 our
opinion, 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 1999 annual report on Form
10-K.
2. The 1996 Restructuring:
As a result of continued domestic operating losses in the early 1990's the
Company's management enacted a restructuring strategy designed to return
its U.S. operations to profitability. In June 1996, the Company and four
subsidiaries filed for protection from creditors under Chapter 11 of the
federal Bankruptcy Code. The plans of reorganization were confirmed by the
Bankruptcy Court and all plans became effective by September 23, 1997.
Of the five companies that filed Chapter 11, final decrees have been
entered in all of the cases except the case involving Sizzler Restaurants
International, Inc., predecessor of Sizzler USA Restaurants, Inc., which
remains open with approximately 100 claims pending.
7
<PAGE>
3. Earnings Per Share:
The following table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
-------------------------- --------------------------
October 17, October 18, October 17, October 18,
In thousands, except EPS 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for basic and diluted EPS
Net income $ 2,063 $ 1,604 $ 4,569 $ 3,665
----------- ----------- ----------- -----------
Denominator:
Denominator for basic EPS - weighted average
shares of common stock outstanding 28,776 28,822 28,786 28,827
Effect of dilutive stock options 271 34 210 39
----------- ----------- ----------- -----------
Denominator for diluted EPS - adjusted
weighted average shares outstanding 29,047 28,856 28,996 28,866
=========== =========== =========== ===========
Basic and diluted earnings per share $ 0.07 $ 0.06 $ 0.16 $ 0.13
=========== =========== =========== ===========
</TABLE>
4. Comprehensive Income:
In fiscal year 1999, the Company adopted Statement of Financial Accounting
Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income". Other
comprehensive income may include foreign currency translation adjustments,
minimum pension liability adjustments, and unrealized gains and losses on
investments in equity securities. Comprehensive income for the twenty-four
weeks ended October 17, 1999 and October 18, 1998 are as follows (in
thousands):
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
--------------------------- ----------------------------
October 17, October 18, October 17, October 18,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 2,063 $ 1,604 $ 4,569 $ 3,665
Foreign currency translation
adjustments (no tax effect) (82) 579 (576) (352)
----------- ---------- ---------- -----------
Total comprehensive income $ 1,981 $ 1,981 $ 2,183 $ 3,993 $ 3,313
=========== ========== ========== ===========
</TABLE>
8
<PAGE>
5. Segment Information:
The Company's reportable segments are based on geographic area and product
type. Sizzler USA consists of all domestic Sizzler restaurant and franchise
operations. Sizzler International consists of all foreign Sizzler
restaurants and franchise operations. KFC consists of KFC restaurants in
Australia. Corporate and other includes any items not included in the
reportable segments listed above. The effect of all intercompany
transactions are eliminated when computing revenues and earnings before
interest and taxes.
The corporate and other component of earnings before interest and
taxes represents indirect corporate selling, and general and administrative
expenses prior to being allocated to the operating segments.
<TABLE>
<CAPTION>
Twelve weeks ended Twenty-four weeks ended
---------------------------- --------------------------
October 17, October 18, October 17, October 18,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues (in thousands):
-----------------------
Sizzler - USA $ 24,054 $ 23,989 $ 49,883 $ 48,719
Sizzler - International 9,874 8,874 19,629 17,653
KFC 21,335 18,151 42,756 37,220
----------- ----------- ----------- -----------
Total revenues $ 55,263 $ 51,014 $ 112,268 $ 103,592
=========== =========== =========== ===========
Earnings before Interest and Taxes (in thousands):
-------------------------------------------------
Sizzler - USA $ 2,568 $ 2,085 $ 5,287 $ 4,697
Sizzler - International 452 334 935 446
KFC 2,370 1,760 4,542 3,913
Corporate and other (2,131) (1,548) (3,839) (3,272)
----------- ----------- ----------- -----------
Total earnings before interest and taxes $ 3,259 $ 2,631 $ 6,925 $ 5,784
=========== =========== =========== ===========
</TABLE>
6. Subsequent Events:
On November 11, 1999, the Board of Directors authorized a plan to
repurchase up to 1.5 million shares of Sizzler common stock.
On November 17, 1999, the Company commenced the sale and leaseback of 49
KFC/Sizzler properties in Australia and contracts were entered into with
final closing contemplated before January 1, 2000. The remaining 18
properties are expected to be sold through private transactions by the end
of the Company's fiscal year. The leases are expected to be in the range of
three to 11 years.
9
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
TWELVE WEEKS ENDED OCTOBER 17, 1999 VERSUS OCTOBER 18, 1998
- -----------------------------------------------------------
CONSOLIDATED OPERATIONS
- -----------------------
Consolidated revenues for the quarter ended October 17, 1999 were $55,263,000
compared to $51,014,000 for the quarter ended October 18, 1998, an increase of
$4,249,000 or 8.3 percent. Approximately half of the increase is due to same
store sales increases from the international operations associated with higher
guest check averages. In addition, approximately $2,232,000 of the increase is
due to an 8.8 percent increase in the Australian dollar exchange rate.
Company-operated restaurant sales and franchised restaurant revenues (including
franchise fees, royalties and rental income) represent the Company's primary
sources of revenue. The Company has three reportable segments: U.S. Sizzler
operations; International Sizzler operations; and KFC operations.
The following table shows the increase in Company-operated same store sales over
the prior year.
<TABLE>
<CAPTION>
FY 1999 FY 2000
--------------------------------------- -------------------
QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2
----- ----- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
SIZZLER
- -------
U.S.A. 7.2% 7.4% 6.5% 3.3% 2.9% (0.6%)
AUSTRALIA
(Based on A$) (5.3%) (0.3%) 2.2% 0.8% 4.3% 2.0%
KFC
- ---
(Based on A$) 1.3% (0.8%) (1.2%) 10.5% 2.8% 6.4%
</TABLE>
Consolidated operating expenses for the quarter ended October 17, 1999 were
$52,004,000 compared to $48,383,000 for the quarter ended October 18, 1998, an
increase of $3,621,000 or 7.5 percent. Approximately $2,408,000 of the increase,
or 5.0 percent, is due to an 8.8 percent increase in the Australian dollar
exchange rate. The remaining increase is primarily due to increases in sales
volumes and to increases in prime costs from commodity price increases and to
additional labor costs incurred to increase guest service.
10
<PAGE>
Interest expense was $816,000 in the current quarter compared to $841,000 in the
same period of the prior year, a decrease of $25,000, or 3.0 percent primarily
due to lower principal balances. Interest expense is primarily related to the
Company's debt with Westpac. Interest income was $198,000 in the current quarter
compared to $194,000 in the same period of the prior year, an increase of $4,000
or 2.1 percent.
Income tax expense was $578,000 in the current quarter compared to $380,000 in
the same period of the prior year, an increase of $198,000 due primarily to an
increase in Australian taxable income relating to the Company's International
operations.
U.S. SIZZLER OPERATIONS
- -----------------------
Revenues for the quarter ended October 17, 1999 were $24,054,000 compared to
$23,989,000 for the quarter ended October 18, 1998, an increase of 0.3 percent.
Restaurant sales for the current quarter were $22,344,000 compared to
$22,232,000 in the same period of the prior year and were produced by 66
restaurants operating during the current quarter and the same period of the
prior year. Sales for the quarter reflect higher check averages due to
successful marketing promotions and menu repositioning. Franchise revenue was
$1,710,000 in the current quarter compared to $1,757,000 in the same period of
the prior year, a decrease of $47,000 or 2.7 percent. Franchise revenues were
produced by 199 franchised Sizzlers, including 12 in Latin America, in the
current quarter compared to 198 franchised Sizzlers, including 10 in Latin
America, in the same period of the prior year.
Prime costs were $14,367,000 in the current quarter compared to $14,319,000 in
the same period of the prior year. Prime costs, which include food, paper and
labor, decreased to 64.3 percent of sales compared to 64.4 percent in the same
period of the prior year.
Other operating expenses amounted to $5,288,000 for the current quarter compared
to $5,277,000 for the same period of the prior year.
Management is continuing its plan to reposition the Sizzler concept back to a
midscale family steakhouse by upgrading the quality of the food and improving
cooking methods and by recertifying all restaurant employees with updated
training programs. We also plan to improve the quality of the Sizzler customer
experience by remodeling existing restaurants with a new design that is
currently being tested and supporting these initiatives with appropriate
marketing programs.
INTERNATIONAL SIZZLER OPERATIONS
- --------------------------------
Total revenues for the quarter ended October 17, 1999 were $9,874,000 compared
to $8,874,000 for the quarter ended October 18, 1998, an increase of 11.3
percent. Approximately 8.8 points of the increase, or $782,000, was due to an
increase in the Australian dollar exchange rate. The balance of the increase is
due primarily to higher
11
<PAGE>
same store sales driven by increases in customer counts and check averages
associated with menu repositioning and successful marketing promotions.
Restaurant sales for the current quarter were $9,530,000 compared to $8,590,000
in the same period of the prior year and were produced by 31 restaurants
operating during the current quarter and the same period of the prior year.
Franchise revenue was $344,000 in the current quarter compared to $284,000 in
the same period of the prior year, an increase of $60,000 or 21.1 percent due to
same store sales increases and favorable Australian and Asian exchange rates.
Franchise revenues were produced by three joint ventures and 46 franchised
Sizzlers in the current quarter compared to three joint ventures and 50
franchised Sizzlers in the same period of the prior year. Current international
franchise restaurants are located in Japan, Taiwan, Thailand, South Korea,
Singapore and Indonesia.
Prime costs were $6,513,000 in the current quarter compared to $5,783,000 in the
same period of the prior year. Prime costs, which include food, paper and labor,
increased to 68.3 percent of sales compared to 67.3 percent in the same period
of the prior year due to higher food cost resulting from increases in commodity
prices.
Other operating expenses amounted to $2,152,000 for the current quarter compared
to $1,892,000 for the same period of the prior year primarily due to the
increased exchange rates and increased sales.
Management is continuing its plan to reposition the Sizzler concept in Australia
by implementing the menu and facility changes that achieved positive operating
results in the Company's domestic operations. Additionally, more emphasis will
be placed on providing customers with better service by increasing the number of
restaurant personnel.
KFC OPERATIONS
- --------------
Revenues for the quarter ended October 17, 1999 were $21,335,000 compared to
$18,151,000 for the quarter ended October 18, 1998, an increase of 17.5 percent.
Approximately 8.8 points of the increase, or $1,597,000, is due to an increase
in the Australian dollar exchange rate. In addition, sales for the current
quarter reflect 101 restaurants operating during the current quarter compared to
99 restaurants in the same period of the prior year. Sales for the quarter also
reflect higher check averages due to successful marketing promotions and price
increases.
Prime costs were $12,957,000 in the current quarter compared to $11,056,000 in
the same period of the prior year. Prime costs, which include food, paper and
labor, decreased to 60.7 percent of sales compared to 60.9 percent in the same
period of the prior year.
Other operating expenses amounted to $5,140,000 for the current quarter compared
to $4,400,000 for the same period of the prior year. This increase was due to
the increased Australian dollar exchange rate along with increased sales.
12
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
TWENTY-FOUR WEEKS ENDED OCTOBER 17, 1999 VERSUS OCTOBER 18, 1998
- ----------------------------------------------------------------
CONSOLIDATED OPERATIONS
- -----------------------
Consolidated revenues for the twenty-four weeks ended October 17, 1999 were
$112,268,000 compared to $103,592,000 for the twenty-four weeks ended October
18, 1998, an increase of $8,676,000 or 8.4 percent. Approximately half of the
increase is due to same store sales increases associated with higher guest check
averages related to successful marketing programs. In addition, approximately
$4,231,000 of the increase or 4.1 percent is due to a 7.7 percent increase in
the Australian dollar exchange rate.
Company-operated restaurant sales and franchised restaurant revenues (including
franchise fees, royalties and rental income) represent the Company's primary
sources of revenue. The Company has three reportable segments: U.S. Sizzler
operations; International Sizzler operations; and KFC operations.
Consolidated operating expenses for the twenty-four weeks ended October 17, 1999
were $105,343,000 compared to $97,808,000 for the twenty-four weeks ended
October 18, 1998, an increase of $7,535,000 or 7.7 percent. Approximately
$4,076,000 of the increase, or 4.1 percent, is due to a 7.7 percent increase in
the Australian dollar exchange rate. The remaining increase is primarily due to
increases in sales volumes and to increases in prime costs from commodity price
increases and to additional labor costs incurred to increase guest service.
Interest expense was $1,688,000 for the twenty-four weeks ended October 17, 1999
compared to $1,704,000 in the same period of the prior year, a decrease of
$16,000, or 0.9 percent. Interest expense is primarily related to the Company's
debt with Westpac. Interest income was $380,000 compared to $360,000 in the same
period of the prior year, an increase of $20,000 or 5.6 percent.
Income tax expense was $1,048,000 in the first twenty-four weeks of fiscal year
2000 compared to $775,000 in the same period of the prior year, an increase of
$273,000 due primarily to an increase in Australian taxable income relating to
the Company's International operations.
U.S. SIZZLER OPERATIONS
- -----------------------
Revenues for the twenty-four weeks ended October 17, 1999 were $49,883,000
compared to $48,719,000 for the twenty-four weeks ended October 18, 1998, an
increase of $1,164,000 or 2.4 percent. Restaurant sales were $46,304,000
compared to $45,386,000 in the same period of the prior year and were produced
by 66 restaurants operating during the current year and the same period of the
prior year. Sales for the
13
<PAGE>
year reflect higher check averages due to successful marketing promotions and
menu repositioning. Franchise revenue was $3,579,000 for the first twenty-four
weeks of this year compared to $3,333,000 in the same period of the prior year,
an increase of $246,000 or 7.4 percent primarily due to same store sales
increases. Franchise revenues were produced by 199 franchised Sizzlers,
including 12 in Latin America, in the current quarter compared to 198 franchised
Sizzlers, including 10 in Latin America, in the same period of the prior year.
Prime costs were $29,757,000 for the twenty-four weeks ended October 17, 1999
compared to $29,066,000 in the same period of the prior year. Prime costs, which
include food, paper and labor, increased to 64.3 percent of sales compared to
64.0 percent in the same period of the prior year.
Other operating expenses amounted to $10,492,000 for the current year compared
to $10,251,000 for the same period of the prior year.
Management is continuing its plan to reposition the Sizzler concept back to a
midscale family steakhouse by upgrading the quality of the food and improving
cooking methods and by recertifying all restaurant employees with updated
training programs. We also plan to improve the quality of the Sizzler customer
experience by remodeling existing restaurants with a new design that is
currently being tested and supporting these initiatives with appropriate
marketing programs.
INTERNATIONAL SIZZLER OPERATIONS
- --------------------------------
Total revenues for the twenty-four weeks ended October 17, 1999 were $19,629,000
compared to $17,653,000 for the twenty-four weeks ended October 18, 1998, an
increase of $1,976,000 or 11.2 percent. Approximately 7.7 points of the
increase, or $1,361,000, was due to an increase in the Australian dollar
exchange rate. The balance of the increase is primarily due to higher same store
sales driven by increases in customer counts and check averages associated with
menu repositioning and successful marketing promotions. Restaurant sales for the
twenty-four weeks ended October 17, 1999 were $18,990,000 compared to
$17,100,000 in the same period of the prior year and were produced by 31
restaurants operating during the current year and the same period of the prior
year. Franchise revenue was $639,000 in the current year compared to $553,000 in
the same period of the prior year, an increase of $86,000 or 15.6 percent.
Franchise revenues were produced by three joint ventures and 46 franchised
Sizzlers in the current year compared to three joint venture and 50 franchised
Sizzlers in the same period of the prior year. Current international franchise
restaurants are located in Japan, Taiwan, Thailand, South Korea, Singapore and
Indonesia.
Prime costs were $12,947,000 for the twenty-four weeks ended October 17, 1999
compared to $11,664,000 in the same period of the prior year. Prime costs, which
include food, paper and labor, were 68.2 percent of sales for the twenty-four
weeks ended October 17, 1999 and October 18, 1998.
14
<PAGE>
Other operating expenses amounted to $4,238,000 for the current fiscal year
compared to $3,826,000 for the same period of the prior year, reflecting the
increased exchange rates along with increased sales.
Management is continuing its plan to reposition the Sizzler concept in Australia
by implementing the menu and facility changes that achieved positive operating
results in the Company's domestic operations. Additionally, more emphasis will
be placed on providing customers with better service by increasing the number of
restaurant personnel.
KFC OPERATIONS
- --------------
Revenues for the twenty-four weeks ended October 17, 1999 were $42,756,000
compared to $37,220,000 for the twenty-four weeks ended October 18, 1998, an
increase of $5,536,000 or 14.9 percent. Approximately 7.7 points of the
increase, or $2,870,000, is due to an increase in the Australian dollar exchange
rate. In addition, sales for the current year reflect 101 restaurants operating
compared to 99 restaurants in the same period of the prior year. Sales for the
year also reflect higher check averages due to successful marketing promotions
and price increases.
Prime costs were $26,020,000 in the current year compared to $22,442,000 in the
same period of the prior year. Prime costs, which include food, paper and labor,
increased to 60.9 percent of sales compared to 60.3 percent in the same period
of the prior year due to improving the quality of the chicken menu and to
increasing store labor to provide better guest service.
Other operating expenses amounted to $10,282,000 for the current year compared
to $8,908,000 for the same period of the prior year. This increase was due to
the increased Australian dollar exchange rate along with increased sales.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working Capital
- ---------------
The Company's principal source of working capital is net cash provided by
operations, which amounted to $12,815,000 for the first twenty-four weeks of
fiscal year 2000 compared to $7,757,000 for the same period of the prior year.
The Company's working capital at October 17, 1999 was $5,267,000 including cash
and cash equivalents of $21,025,000. At April 30, 1999 the Company had a working
capital deficit of $840,000.
15
<PAGE>
Total Assets / Capital Expenditures
- -----------------------------------
At October 17, 1999, total assets were $111,154,000, an increase of $2,485,000
or 2.3 percent from April 30, 1999. Property and equipment, net of depreciation
and amortization, represented approximately 66.3 percent of total assets at
October 17, 1999 and 71.6 percent at April 30, 1999.
Capital expenditures were $1,837,000 for the twenty-four weeks ended October 17,
1999 and $4,710,000 for the same period last year. The current year's capital
expenditures were primarily used for replacements of equipment and building
improvements in existing restaurants. The Company anticipates continuing to grow
international operations through additional investment in Company-operated
restaurants, expanding its KFC's with other Tricon concepts, joint ventures and
the development of the franchise system.
Domestically the Company has begun testing a remodel design in one of its
existing Company-operated restaurants with three additional remodels in
progress. The remodel design includes updated decor and new cooking equipment.
Preliminary results are positive and, provided they continue, the Company plans
to remodel all Company-operated restaurants by the end of calendar year 2000 at
a total cost of approximately $13.2 million. The Company plans to fund its
remodel program with operating cash flow and cash generated from the planned
sale and leaseback of its real estate in Australia.
The cost of completing point of sale and corporate office systems upgrades in
connection with a lease that expired in the quarter ended July 25, 1999 is
approximately $1,600,000. The Company has a new lease in place to finance these
costs.
Debt
- ----
On September 23, 1997, the Company obtained a $63,500,000 AUD (approximately
$46,900,000 US) bank facility from Westpac Banking Corporation in order to
refinance the claims of the Company's Chapter 11 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 is 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.
16
<PAGE>
Sale and Leaseback
- ------------------
The Company has initiated a plan for a more strategic use of its assets via the
sale and leaseback of Company-owned real estate in Australia, primarily the
restaurants in which the Company operates KFC franchises in Queensland,
Australia. The Company plans to utilize the proceeds from this transaction to
expand its restaurant operations in the United States by remodeling existing
Company-owned stores, expanding its existing Sizzler Company-owned operations
and/or acquiring a new restaurant concept.
YEAR 2000
- ---------
In fiscal 1998, the Company established a comprehensive enterprise-wide program
to prepare its computer systems and applications for the year 2000 issue. This
program consisted of three areas: information systems, supply chain and critical
third party readiness and business equipment. Utilizing both internal and
external resources to inventory, assess, remediate, replace and test its sytems
for Year 2000 compliance the Company has completed all necessary modifications
to its mission-critical systems.
To reduce the risks associated with the Year 2000 the Company has closely
assessed the vendors supplying the Company's restaurants with food and other
products to ensure that they are aware of the Year 2000 business risks and are
appropriately addressing them. Surveys were sent to critical suppliers, service
providers and the Company's franchisees to obtain reasonable assurance that
plans are in place to address the Year 2000 issue. Contingency plans have been
developed for those vendors that have not provided the Company with satisfactory
evidence of their readiness to handle Year 2000 issues. The Company is also
communicating with its franchise business partners regarding the potential
business risks associated with the Year 2000 issue.
Equipment and software critical to restaurant and corporate office operations
was scheduled to be replaced in fiscal 2000 in connection with a lease ending in
the ordinary course of business. The new equipment is Year 2000 compliant and
installation is nearly complete. The cost of this hardware and software is
approximately $1,600,000 and, along with an additional $410,000 in costs related
to accounting software upgrades, has been financed with a new lease. These costs
have not had and are not expected to have a material impact on the Company's
financial position.
The Company does not believe Year 2000 issues relating its systems, suppliers or
the Company's franchisees present significant operational or financial
difficulties for the Company; however, in the unlikely event Sizzler, a
significant number of its key suppliers or its franchisees are unable to resolve
their issues in a timely manner, such matters could have a material impact on
the Company's results of operations. In addition, failures related to Year 2000
issues by providers of infrastructure services could have a material adverse
effect on results of operations. Possible consequences include delays in
delivering products to restaurants and temporary isolated restaurant closures.
The Company will have a team of management and technical personnel at both its
corporate and international offices to ensure a quick response to, and
resolution
17
<PAGE>
of any unforeseen Year 2000 problems that may occur.
All Year 2000 statements contained herein are designated as "Year 2000 Readiness
Disclosures" pursuant to the Year 2000 Information and Readiness Disclosure Act
of 1998.
QUANTITATIVE AND QUALITATIVE MARKET RISK DISCLOSURES
- ----------------------------------------------------
The Company is protected against the risk of foreign exchange fluctuations
associated with its bank facility with Westpac Banking Corporation because both
the borrowings and principal and interest payments are denominated in Australian
dollars and the Company funds its principal and interest payments from cash
generated by its restaurant operations in Australia.
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. Such forward-looking statements include, but are
not limited to, statements regarding (i) the successful implementation, and the
timing of the implementation, of the Company's current operating strategies,
including but not limited to food product enhancement, facilities remodeling,
co-branding, sale and leaseback and stock repurchase programs; (ii) the positive
impact on financial performance of the implementation of the Company's operating
strategies; (iii) the completion of the acquisition of a restaurant chain. The
Company cautions that these statements are qualified by important factors that
could cause actual results to differ materially from those reflected by the
forward-looking statements contained herein. Such factors include, but not are
limited to, (a) the Company's ability to implement its operating strategies
efficiently and on schedule; (b) the strength and duration of positive consumer
response of the Company's new food offerings and restaurant remodeling; (c) the
availability on favorable terms of acquisition opportunities meeting the
Company's criteria, and the Company's ability successfully to expand the
acquired concept; (d) exchange rate fluctuations and other financial market
changes that could affect the Company's revenues and earnings and (e) other
risks as detailed from time to time in the Company's SEC reports.
18
<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
b. Reports on Form 8-K
The Company filed a report on Form 8-K dated July 27, 1999 reporting that
on July 26, 1999 Sizzler International, Inc. issued a press release
relating to the retirement of its Chairman of the Board of Directors.
The Company filed a report on Form 8-K dated August 19, 1999 reporting the
following press releases:
On August 16, 1999 Sizzler International, Inc. issued a press release
announcing the naming of a new Chairman of the Board of Directors, Vice
President/ Chief Financial Officer, Vice President/ General
Counsel/Secretary and Vice President - Acquisitions and Development.
On August 16, 1999 Sizzler International, Inc. issued a press release
responding to a lawsuit filed by a former employee.
On August 17, 1999 Sizzler International, Inc. issued a press release
announcing an accelerated growth plan adopted by its new management team.
19
<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: November 30, 1999 /s/ Charles L. Boppell
-------------------------
Charles L. Boppell
Chief Executive Officer
Date: November 30, 1999 /s/ Steven R. Selcer
-------------------------
Steven R. Selcer
Vice President
(Principal Financial Officer)
20
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