<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 25, 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 August 27, 1999
- ----------------------------- --------------------------------------
Common Stock $0.01 Par Value 28,780,194 shares
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
----------------------------
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
July 25, April 30,
ASSETS 1999 1999
- --------------------------------------------------------------------- ----------------- ---------------
(Unaudited) (Audited)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 18,518 $ 14,691
Receivables, net of reserves of $1,831 at
July 25, 1999 and $1,726 at April 30, 1999 3,511 3,546
Inventories 4,101 4,346
Prepaid expenses and other current assets 1,256 1,669
- --------------------------------------------------------------------- --------------- ---------------
Total current assets 27,386 24,252
- --------------------------------------------------------------------- --------------- ---------------
Property and equipment, net 75,296 77,836
Long-term notes receivable, net of reserves of $508
at July 25, 1999 and April 30, 1999 1,500 1,553
Deferred income taxes 650 795
Intangible assets, net of accumulated amortization of
$895 at July 25, 1999 and $887 at April 30, 1999 2,057 2,104
Other assets, net of accumulated amortization and reserves
of $8 at July 25, 1999 and $6 at April 30, 1999 6,535 2,129
- --------------------------------------------------------------------- --------------- ---------------
Total assets $ 113,424 $ 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>
July 25, April 30,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1999 1999
- ---------------------------------------------------------------------- -------------- ---------------
(Unaudited) (Audited)
Current Liabilities:
<S> <C> <C>
Current portion of long-term debt $ 5,791 $ 5,898
Accounts payable 10,313 7,892
Other current liabilities 7,965 8,853
Income taxes payable 2,739 2,449
- ---------------------------------------------------------------------- -------------- ---------------
Total current liabilities 26,808 25,092
- ---------------------------------------------------------------------- -------------- ---------------
Long-term Liabilities:
Long-term debt, net of current portion 25,096 26,918
Other liabilities 6,744 3,916
- ---------------------------------------------------------------------- -------------- ---------------
Total long-term liabilities 31,840 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 28,780,194 shares at July 25, 1999
and 28,797,828 shares at April 30, 1999 288 288
Additional paid-in capital 278,386 278,365
Accumulated deficit (219,685) (222,191)
Accumulated other comprehensive income (4,213) (3,719)
- ---------------------------------------------------------------------- -------------- ---------------
Total stockholders' investment 54,776 52,743
- ---------------------------------------------------------------------- -------------- ---------------
Total liabilities and stockholders' investment $ 113,424 $ 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
FOR THE TWELVE WEEKS ENDED JULY 25, 1999 AND JULY 26, 1998
(In thousands, except share data)
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------- ---------- ----------
(Unaudited)
<S> <C> <C>
Revenues
Restaurants $ 54,841 $ 50,733
Franchise operations 2,164 1,845
- ----------------------------------------------- ---------- ----------
Total revenues 57,005 52,578
- ----------------------------------------------- ---------- ----------
Costs and Expenses
Cost of sales 20,207 18,550
Labor and related expenses 14,845 13,745
Other operating expenses 11,551 10,604
Depreciation and amortization 2,078 2,259
General and administrative expenses 4,658 4,267
- ----------------------------------------------- ---------- ----------
Total operating costs 53,339 49,425
- ----------------------------------------------- ---------- ----------
Interest expense 872 863
Investment income (182) (166)
- ----------------------------------------------- ---------- ----------
Total costs and expenses 54,029 50,122
- ----------------------------------------------- ---------- ----------
Income before income taxes 2,976 2,456
- ----------------------------------------------- ---------- ----------
Provision for income taxes 470 395
- ----------------------------------------------- ---------- ----------
Net income $ 2,506 $ 2,061
=============================================== ========== ==========
Basic and diluted earnings per share $ 0.09 $ 0.07
=============================================== ========== ==========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWELVE WEEKS ENDED JULY 25, 1999 AND JULY 26, 1998
(in thousands)
<TABLE>
<CAPTION>
1999 1998
- ------------------------------------------------------- ---------------- ----------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $2,506 $2,061
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,078 2,259
Deferred income taxes 70 63
Provision for bad debts 112 160
Other 157 (25)
- ------------------------------------------------------- ---------------- ----------------
4,923 4,518
Changes in operating assets and liabilities:
Receivables (18) (56)
Inventories 245 226
Prepaid expenses and other current assets 413 33
Accounts payable 2,421 1,616
Accrued liabilities (1,803) (215)
Income taxes payable 358 286
- ------------------------------------------------------- ---------------- ----------------
Net cash provided by operating activities 6,539 6,408
- ------------------------------------------------------- ---------------- ----------------
INVESTING ACTIVITIES
Additions to property and equipment (559) (2,106)
Disposal of property and equipment 60 399
Other, net 148 (120)
- ------------------------------------------------------- ---------------- ----------------
Net cash used in investing activities (351) (1,827)
- ------------------------------------------------------- ---------------- ----------------
FINANCING ACTIVITIES
Reduction of long-term debt (1,382) (1,660)
Payment of allowed claims pursuant to
the reorganization plan (1,000) (900)
Other, net 21 (49)
- ------------------------------------------------------- ---------------- ----------------
Net cash used in financing activities (2,361) (2,609)
- ------------------------------------------------------- ---------------- ----------------
Net increase in cash and cash equivalents 3,827 1,972
- ------------------------------------------------------- ---------------- ----------------
Cash and cash equivalents at beginning of period 14,691 21,167
- ------------------------------------------------------- ---------------- ----------------
Cash and cash equivalents at end of period $18,518 $23,139
======================================================= ================ ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 25, 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 steak house 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.
6
<PAGE>
3. Earnings Per Share:
The following table sets forth the computation of basic and diluted EPS:
<TABLE>
<CAPTION>
Twelve weeks ended
------------------
July 25, July 26,
In thousands, except EPS 1999 1998
---- ----
<S> <C> <C>
Numerator for both basic and diluted EPS - Net income
$ 2,506 $ 2,061
======== =======
Denominator:
Denominator for basic EPS - weighted average
shares of common stock outstanding
Effect of dilutive stock options 28,795 28,832
150 44
Denominator for diluted EPS - adjusted -------- -------
weighted average shares outstanding
28,945 28,876
======== =======
Basic and diluted earnings per share
$ 0.09 $ 0.07
======== =======
</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 quarters
ended July 25, 1999 and July 26, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Twelve weeks ended
------------------
July 25, July 26,
1999 1998
---- ----
<S> <C> <C>
Net Income $2,506 $2,061
Foreign currency translation adjustments (no tax effect) (494) (931)
------- --------
Total comprehensive income $2,012 $1,130
======= ========
</TABLE>
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
7
<PAGE>
franchise operations. KFC consists of KFC franchise 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, taxes, and
corporate overhead represents corporate selling, and general and
administrative expenses prior to being allocated to the operating segments.
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
------------------
July 25, July 26,
1999 1998
---- ----
<S> <C> <C>
Revenues (in thousands):
------------------------
Sizzler - USA $ 25,829 $ 24,730
Sizzler - International 9,755 8,779
KFC 21,421 19,069
-------- --------
Total revenues $ 57,005 $ 52,578
======== ========
Earnings before Interest and Taxes (in thousands):
--------------------------------------------------
Sizzler - USA $ 2,719 $ 2,612
Sizzler - International 483 (18)
KFC 2,172 2,065
Corporate and other (1,708) (1,506)
-------- --------
Total earnings before interest and taxes $ 3,666 $ 3,153
======== ========
</TABLE>
8
<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 JULY 25, 1999 VERSUS JULY 26, 1998
- -----------------------------------------------------
CONSOLIDATED OPERATIONS
- -----------------------
Consolidated revenues for the quarter ended July 25, 1999 were $57,005,000
compared to $52,578,000 for the quarter ended July 26, 1998, an increase of
$4,427,000 or 8.4%. Approximately $1,553,000 of the increase is due to same
store sales increases associated with higher guest check averages related to
successful marketing programs. In addition, approximately $1,935,000 of the
increase or 4.4 percent is due to a 6.6 percent increase in the Australian
dollar exchange rate.
Company-operated restaurant sales and franchised restaurant revenues (including
franchise fees, royalties and rental income) represent the Company's primary
sources of revenue. The Company has three reportable segments: U.S. Sizzler
operations; International Sizzler operations; and KFC operations.
The following table shows the increase in Company-operated same store sales over
the prior year.
FY 1999 FY 2000
---------------------------------------------- -----------
QTR 1 QTR 2 QTR 3 QTR 4 QTR 1
----- ----- ----- ----- -----
SIZZLER
- -------
U.S.A. 7.2% 7.4% 6.5% 3.3% 2.9%
AUSTRALIA
(Based on A$) (5.3%) (0.3%) 2.2% 0.8% 4.3%
KFC
- ---
(Based on A$) 1.3% (0.8%) (1.2%) 10.5% 2.8%
On a comparative restaurant basis, Sizzler average sales per restaurant have
increased for six consecutive quarters, reversing 27 consecutive quarters of
decreases.
Consolidated operating expenses for the quarter ended July 25, 1999 were
$53,339,000 compared to $49,425,000 for the quarter ended July 26, 1998, an
increase of $3,914,000 or 7.9 percent. Approximately $1,703,000 of the increase,
or
9
<PAGE>
3.4 percent, is due to a 6.6 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 $872,000 in the current quarter compared to $863,000 in the
same period of the prior year, an increase of $9,000, or 1.0 percent. Interest
expense is primarily related to the Company's debt with Westpac. Interest income
was $182,000 in the current quarter compared to $166,000 in the same period of
the prior year, an increase of $16,000 or 9.6 percent.
Income tax expense has been computed based on management's estimate of the
annual effective income tax rate applied to income before taxes and was $470,000
in the current quarter compared to $395,000 in the same period of the prior
year, an increase of $75,000 or 19.0 percent.
U.S. SIZZLER OPERATIONS
- -----------------------
Revenues for the quarter ended July 25, 1999 were $25,829,000 compared to
$24,730,000 for the quarter ended July 26, 1998, an increase of 4.4 percent.
Restaurant sales for the current quarter were $23,960,000 compared to
$23,154,000 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
$1,869,000 in the current quarter compared to $1,576,000 in the same period of
the prior year, an increase of $293,000 or 18.6 percent. Franchise revenues were
produced by 200 franchised Sizzlers, including 13 in Latin America, in the
current quarter compared to 200 franchised Sizzlers, including 10 in Latin
America, in the same period of the prior year.
Prime costs were $15,390,000 in the current quarter compared to $14,747,000 in
the same period of the prior year. Prime costs, which include food, paper and
labor, increased to 64.2 percent of sales compared to 63.7 percent in the same
period of the prior year.
Other operating expenses amounted to $5,204,000 for the current quarter compared
to $4,974,000 for the same period of the prior year.
Management is continuing its plan to reposition the Sizzler concept 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.
10
<PAGE>
INTERNATIONAL SIZZLER OPERATIONS
- --------------------------------
Total revenues for the quarter ended July 25, 1999 were $9,755,000 compared to
$8,779,000 for the quarter ended July 26, 1998, an increase of 11.1 percent.
Approximately 6.6 points of the increase, or $606,000, was due to an increase in
the Australian dollar exchange rate. The increase is 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
current quarter were $9,460,000 compared to $8,510,000 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 $295,000 in
the current quarter compared to $269,000 in the same period of the prior year,
an increase of $26,000 or 9.7 percent. Franchise revenues were produced by three
joint ventures and 47 franchised Sizzlers in the current quarter 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 $6,434,000 in the current quarter compared to $5,881,000 in the
same period of the prior year. Prime costs, which include food, paper and labor,
decreased to 68.0 percent of sales compared to 69.1 percent in the same period
of the prior year due to lower labor costs offset by higher beef prices.
Other operating expenses amounted to $2,086,000 for the current quarter compared
to $1,934,000 for the same period of the prior year.
KFC OPERATIONS
- --------------
Revenues for the quarter ended July 25, 1999 were $21,421,000 compared to
$19,069,000 for the quarter ended July 26, 1998, an increase of 12.3 percent.
Approximately 6.6 points of the increase, or $1,330,000, 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
98 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 $13,063,000 in the current quarter compared to $11,386,000 in
the same period of the prior year. Prime costs, which include food, paper and
labor, increased to 61.0 percent of sales compared to 59.7 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 $5,142,000 for the current quarter compared
to $4,509,000 for the same period of the prior year. This increase was due to
higher marketing costs associated with the Star Wars(R) promotion.
11
<PAGE>
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 amount of
restaurant personnel.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Working Capital
- ---------------
The Company's principal source of working capital is net cash provided by
operations, which amounted to $6,539,000 for the first twelve weeks of fiscal
2000 compared to $6,408,000 for the same period of the prior year.
The Company's working capital at July 25, 1999 was $578,000 including cash and
cash equivalents of $18,518,000. At April 30, 1999 the Company had a working
capital deficit of $840,000. 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.
Total Assets / Capital Expenditures
- -----------------------------------
At July 25, 1999, total assets were $113,424,000, an increase of $4,755,000 or
4.4 percent from April 30, 1999. Property and equipment represented
approximately 66.4 percent of total assets at July 25, 1999 and 71.6 percent at
April 30, 1999.
Capital expenditures were $559,000 for the quarter ended July 25, 1999 and
$2,106,000 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, joint ventures and the development of the franchise system.
Domestically the Company will focus on the remodeling of its existing Company-
operated restaurants.
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
12
<PAGE>
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.
Sale 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
- ---------
The Company is aware of the broad impact the Year 2000 issue could have on its
business and, as a result, in fiscal 1998 established a comprehensive
enterprise-wide program to prepare its computer systems and applications. This
program consists of three areas: information systems, supply chain and critical
third party readiness and business equipment. The Company has utilized both
internal and external resources to inventory, assess, remediate, replace and
test its sytems for Year 2000 compliance and expects that all mission-critical
systems will be Year 2000 compliant by November, 1999.
The Company's assessment of the impact of the Year 2000 issue indicated that
several information technology projects required acceleration due to potential
Year 2000 issues. Specifically the Company has upgraded certain software
applications and is in the process of replacing others in connection with a
lease that ended in the ordinary course of business.
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 and
service providers 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
13
<PAGE>
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 is
currently being installed. 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.
The Company believes that based on available information the costs related to
Year 2000 compliance will not be material to its financial position. However,
the cost of the project and the date on which the Company plans to complete the
Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions including the availability of certain
resources, third party modification programs and other factors. Unanticipated
failures by critical vendors and franchise partners, as well as the failure by
the Company to execute its own remediation efforts could have a material adverse
effect on the cost of the project and its completion date. As a result there can
be no assurance that these forward looking estimates will be achieved and the
actual cost and vendor compliance could differ materially from those plans
resulting in material financial risk.
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. 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 1: LEGAL PROCEEDINGS
On August 16, 1999, the Company, its subsidiary Sizzler USA Restaurants,
Inc., and four present and former officers and directors were named as
defendants in a lawsuit filed by a former officer and employee of Sizzler
USA Restaurants, Inc., Kathryn McGuigan v. Sizzler USA Restaurants, Inc.,
--------------------------------------------------
Sizzler International, Inc., Chris Thomas, Dick Bermingham, Ryan Tondro,
------------------------------------------------------------------------
Barry Krantz et al., Case No. BC 215233 (Superior Court of the State of
---------------------
California For the County of Los Angeles). Plaintiff seeks damages in
excess of twenty million dollars and alleges sexual harassment, gender
discrimination, failure to investigate sexual harassment, retaliation and
wrongful termination. The Company believes the claims are without merit and
will vigorously defend the lawsuit. The Company does not believe that the
proceeding is material to the business or financial condition of the
Company.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
a. On August 17, 1999 Sizzler International, Inc. held its annual meeting of
stockholders.
b. The following directors were elected as members of the Board at the Meeting:
Term
Expires For Withheld
------- --- --------
Charles L. Boppell 2002 25,212,652 605,020
Phillip D. Matthews 2002 25,246,132 571,540
Robert A. Muh 2002 25,190,943 626,729
The following directors' terms of office continued after the meeting
Term
Expires
-------
Barry E. Krantz 2000
Kevin W. Perkins 2000
James A. Collins 2001
Charles F. Smith 2001
15
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27 - Financial Data Schedule
b. Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
July 25, 1999.
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: September 3, 1999 /s/ Charles L. Boppell
-----------------------------
Charles L. Boppell
Chief Executive Officer
Date: September 3, 1999 /s/ Steven R. Selcer
-----------------------------
Steven R. Selcer
Vice President
(Principal Financial Officer)
16
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