FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-20040
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THE KRYSTAL COMPANY
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(Exact name of registrant as specified in its charter)
TENNESSEE 62-0264140
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(State or other jurisdiction of (IRS Employer identification
incorporation or organization) Number)
One Union Square, Chattanooga, TN 37402
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(Address of principal executive offices, including zip code)
(423) 757-1550
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(Registrant's telephone number, including area code)
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 Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
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As of July 25, 1997, 7,476,088 shares of the Registrant's Common Stock were
issued and outstanding.
THE KRYSTAL COMPANY
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JUNE 29, 1997
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PART I. FINANCIAL INFORMATION
------------------------------
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the
information presented not misleading. These condensed financial
statements should be read in conjunction with the Company's latest
annual report on Form 10-K. In the opinion of management of the
Company, all adjustments necessary to present fairly (1) the financial
position of The Krystal Company and Subsidiary as of June 29, 1997
and December 29, 1996, and (2) the results of their operations, their
changes in common shareholders' equity and their cash flows for the
six months ended June 29, 1997 and June 30, 1996, and (3)the results
of their operations for the three months ended June 29, 1997 and
June 30, 1996 have been included. The results of operations for the
interim period ended June 29, 1997 are not necessarily indicative of
the results for the full year.
<TABLE>
PART I. FINANCIAL INFORMATION
-----------------------------
Item I. Financial Statements
THE KRYSTAL COMPANY AND SUBSIDIARY
----------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(In thousands)
<CAPTION>
June 29, December 29,
1997 1996
-------- ---------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
- -----------------
CURRENT ASSETS:
Cash and temporary investments $ 4,829 $ 28,765
Receivables, net 1,731 2,566
Net investment in direct financing
leases-current portion 372 562
Inventories 1,970 2,156
Deferred tax asset 8,327 8,327
Prepayments and other 1,311 1,980
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Total current assets 18,540 44,356
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NET INVESTMENT IN DIRECT FINANCING
LEASES, excluding current portion 159 305
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PROPERTY, BUILDINGS, AND EQUIPMENT, net 89,786 91,173
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LEASED PROPERTIES, net 1,555 1,653
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OTHER ASSETS:
Cash surrender value of life insurance 5,854 5,638
Other 1,815 745
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Total other assets 7,669 6,383
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TOTAL ASSETS $117,709 $143,870
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<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
THE KRYSTAL COMPANY AND SUBSIDIARY
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CONSOLIDATED BALANCE SHEETS (CONTINUED)
---------------------------------------
(In thousands)
<CAPTION>
June 29, December 29,
1997 1996
LIABILITIES AND SHAREHOLDERS' EQUITY ------- ---------
- ------------------------------------ (Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 5,398 $ 4,535
Accrued liabilities 15,209 17,986
Current portion of long-term debt 1,553 967
Current portion of capital
lease obligations 326 454
Income taxes payable 361 822
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Total current liabilities 22,847 24,764
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LIABILITIES SUBJECT TO COMPROMISE - 58,317
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LONG-TERM DEBT, excluding current portion 35,907 3,090
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CAPITAL LEASE OBLIGATIONS, excluding
current portion 2,135 2,278
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DEFERRED INCOME TAXES 2,287 2,286
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OTHER LONG-TERM LIABILITIES 8,903 8,447
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SHAREHOLDERS' EQUITY:
Preferred stock, without par value;
5,000,000 shares authorized:
no shares issued and outstanding - -
Common stock, without par value;
15,000,000 shares authorized;
issued and outstanding, 7,479,288 shares
at June 29, 1997, and 7,491,768 shares
at December 29, 1996 40,402 40,556
Retained earnings 6,717 5,873
Deferred compensation (1,489) (1,741)
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Total shareholders' equity 45,630 44,688
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $117,709 $143,870
======= =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
THE KRYSTAL COMPANY AND SUBSIDIARY
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(In thousands, except per share data)(Unaudited)
<CAPTION>
For The Three For The Six
Months Ended, Months Ended,
------------------ -------------------
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Restaurant sales $ 61,220 $ 58,867 $118,484 $114,743
Franchise fees 138 89 179 122
Royalties 767 690 1,474 1,308
Other revenues 1,200 1,257 2,351 2,397
------- ------- ------- -------
63,325 60,903 122,488 118,570
------- ------- ------- -------
COST AND OTHER EXPENSES:
Cost of restaurant sales 50,032 48,471 97,515 95,240
Depreciation and amortization
expenses 2,673 2,800 5,295 5,602
General and administrative
expenses 7,114 6,549 13,831 12,989
Other expenses, net 837 988 1,668 1,951
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60,656 58,808 118,309 115,782
------- ------- ------- -------
OPERATING INCOME 2,669 2,095 4,179 2,788
REORGANIZATION ITEM:
Professional fees and
other expenses ( 343) ( 545) ( 1,062) ( 1,512)
INTEREST EXPENSE:
Contractual rate interest ( 958) ( 1,004) ( 1,944) ( 2,013)
Interest related to certain
pre-petition liabilities, net 278 ( 146) 96 ( 314)
INTEREST INCOME 137 290 444 540
------- ------- ------- -------
INCOME (LOSS) BEFORE PROVISION FOR
(BENEFIT FROM) INCOME TAXES AND
EXTRAORDINARY ITEM 1,783 690 1,713 ( 511)
PROVISION FOR (BENEFIT FROM)
INCOME TAXES 676 264 649 ( 191)
------- ------- ------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY
ITEM 1,107 426 1,064 ( 320)
EXTRAORDINARY ITEM:
Loss on early extinguishment of
debt, net of applicable income
tax benefit of $134,000 in 1997 - - ( 220) -
------- ------- ------- -------
NET INCOME (LOSS) $ 1,107 $ 426 $ 844 $( 320)
======= ======= ======= =======
EARNINGS (LOSS) PER COMMON SHARE $ 0.15 $ 0.06 $ 0.11 $( 0.04)
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 7,479 7,492 7,482 7,507
======= ======= ======= =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
THE KRYSTAL COMPANY AND SUBSIDIARY
----------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
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FOR THE SIX MONTHS ENDED
--------------------------
JUNE 29, 1997 AND JUNE 30, 1996
-------------------------------
(In thousands)
(Unaudited)
<CAPTION>
Common Retained Deferred
Stock Earnings Compensation
------ -------- ------------
<S> <C> <C> <C>
BALANCE, December 29, 1996 $40,556 $ 5,873 $(1,741)
Net income - 844 -
Issuance of 720 common shares to
management and non-employee
director under restricted
stock plan 4 - ( 4)
Forfeiture of 13,200 restricted
shares ( 158) - 158
Amortization of deferred
compensation - - 98
------ ------ ------
BALANCE, June 29, 1997 $40,402 $ 6,717 $(1,489)
====== ====== ======
BALANCE, December 31, 1995 $40,830 $ 8,195 $(2,378)
Net loss - ( 320) -
Issuance of 960 common shares to
management and non-employee
director under restricted
stock plan 4 - ( 4)
Forfeiture of 36,000 restricted
shares ( 278) 278
Amortization of deferred
compensation - - 173
------ ------ ------
BALANCE, June 30, 1996 $40,556 $ 7,875 $(1,931)
====== ====== ======
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
<TABLE>
THE KRYSTAL COMPANY AND SUBSIDIARY
----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(In thousands)
(Unaudited)
<CAPTION>
For The Six Months Ended,
---------------------------
June 29, June 30,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income(loss) $ 844 $( 320)
Adjustments to reconcile net income(loss)
to net cash provided by operating
activities-
Depreciation and amortization 5,295 5,602
Increase in deferred taxes 1 -
Loss on early extinguishment of debt 354 -
(Increase)decrease in receivables 835 ( 244)
(Increase) in income tax receivable - ( 279)
Decrease in inventories 186 288
(Increase)decrease in prepayments and other 669 ( 442)
Increase in accounts payable 863 1,482
(Decrease) in income taxes payable ( 461) -
Increase(decrease) in accrued liabilities ( 2,777) 3,743
Other ( 1,387) 1
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Net cash provided by operating activities
before reorganization activities 4,422 9,831
Changes in liabilities from reorganization
activities:
(Decrease) in accounts payable ( 7,920) -
(Decrease) in accrued liabilities (14,397) (2,543)
-------- --------
Net cash provided by operating activities (17,895) 7,288
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INVESTING ACTIVITIES:
Additions to property, buildings,
and equipment ( 3,902) (2,211)
Proceeds from sale of property,
buildings, and equipment 393 1,119
Payments received on net investment in
direct financing leases 336 421
-------- --------
Net cash used in investing activities ( 3,173) ( 671)
-------- --------
FINANCING ACTIVITIES:
Decrease in debt from reorganization
activities (36,000) -
Proceeds from borrowing 36,320 -
Repayments of long-term debt ( 2,917) ( 29)
Principal payments of capital
lease obligations ( 271) ( 340)
-------- --------
Net cash used in financing activities ( 2,868) ( 369)
-------- --------
NET INCREASE(DECREASE) IN CASH AND
TEMPORARY INVESTMENTS (23,936) 6,248
CASH AND TEMPORARY INVESTMENTS,
beginning of period 28,765 13,713
-------- --------
CASH AND TEMPORARY INVESTMENTS,
end of period $ 4,829 $19,961
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 6,012 $ 309
Income taxes 1,159 127
Reorganization item: professional fees
and other expenses 870 327
======== =======
<FN>
See accompanying notes to consolidated condensed financial statements.
</TABLE>
THE KRYSTAL COMPANY AND SUBSIDIARY
----------------------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
----------------------------------------------------------------
BANKRUPTCY FILING
On December 15, 1995, the Company filed a voluntary petition under Chapter
11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the Eastern District of Tennessee for the purpose
of completely and finally resolving the various claims filed against the
Company by current and former employees alleging violations of the Fair
Labor Standards Act of 1938 (FLSA). Four pending lawsuits filed against
the Company under the FLSA were stayed by the bankruptcy filing.
Subsequent to December 29, 1996, the Company and the majority of the FLSA
plaintiffs reached a settlement providing for the payment of approximately
$13,000,000 for the FLSA claims and related legal costs. A plan of
reorganization, as amended (the "Plan") was formally filed on
February 24, 1997. On April 10, 1997, the Bankruptcy Court confirmed the
Company's plan of reorganization and on April 23, 1997, the Plan became
effective.
PENDING MERGER WITH PORT ROYAL HOLDINGS, INC.
As previously announced, on July 3, 1997 the Company agreed to be acquired
by Port Royal Holdings, Inc. ("Port Royal"), a privately held company located
in Atlanta, Georgia. The acquisition will be completed by the merger of a
subsidiary of Port Royal into the Company. Under the terms of the
agreement and plan of merger, Port Royal will pay total cash consideration of
approximately $108.5 million, or $14.50 per share, to the shareholders of
the Company.
The proposed merger, which is subject to approval by the shareholders of the
Company, is expected to be completed prior to the end of the third quarter
of 1997. In connection with the merger, holders of approximately 53 percent
of the Company's outstanding shares have granted Port Royal an option to
purchase their shares, and have further agreed to vote their shares in favor
of the merger.
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
Comparison of the Three Months Ended June 29, 1997
--------------------------------------------------
to the Three Months Ended June 30, 1996
--------------------------------------
Total revenues increased 4.0% to $63.3 million for the second quarter of
1997 from $60.9 million for the same period of 1996. Increases in restaurant
sales accounted for the entire $2.4 million increase. Company-owned average
same restaurant sales for the second quarter of 1997 were $246,000 compared to
$234,000 for the same period in 1996, an increase of 5.1%. The Company's
management believes the 1997 second quarter revenues increase can be
attributed to several factors, including price increases, new advertising and
promotional programs and continuing improvements in operations at the
restaurant level. The Company had 249 restaurants open at the end of the
second quarter of 1997 compared to 251 at the end of the second quarter
of 1996.
Franchise fees and royalties increased $126,000 to $905,000 in the second
quarter of 1997 versus the same period in 1996. The franchise system
had 93 restaurants open at the end of the second quarter of 1997
compared to 84 open at the end of the second quarter of 1996. This
increase in franchise fees and royalties is a result of the increase in
franchised restaurants.
Other revenue, which comes from the Company's aviation subsidiary, was
$1.2 million in the second quarter of 1997 compared to $1.3 million in
the second quarter of 1996. This decline in revenues was a result of
discontinued maintenance service.
The average customer check for Company-owned full size restaurants in
the second quarter of 1997 was $3.78 as compared to $3.52 in the same
period of 1996, an increase of 7.4%. The average customer check for
Company-owned double drive-thru restaurants in the second quarter of
1997 was $4.12 as compared to $3.82 in the same period of 1996, an
increase of 7.9%. The increases in average customer check are due to
product prices increasing approximately 3.7% in the second quarter of
1997 over the same period in 1996, and the introduction of new promotional
products and menu combinations. Customer counts per restaurant day decreased
to 708 in the second quarter of 1997 compared to 721 in the same period of
1996, a decrease of 1.8%.
Cost of restaurant sales increased $1.5 million, approximately 3.1%, to
$50.0 million in the second quarter of 1996, from $48.5 million in the
same period of 1996. Cost of restaurant sales as a percentage of
restaurant sales decreased to 81.7% in the second quarter of 1997 from
82.3% in the same period of 1996. These increases are primarily the result
of increases in food and paper costs and labor expenses that the Company was
able to pass through to customers with offsetting product price increases.
Total food and paper costs were $19.8 million in the second quarter of 1997
as compared to $18.3 million in the second quarter of 1996. Food and paper
costs as a percentage of restaurant sales increased to 32.3% in the second
quarter of 1997 as compared to 31.1% in the same period of 1996. Direct labor
cost increased $209,000 in the second quarter of 1997, approximately
1.6%, to 21.92% of restaurant sales in the second quarter of 1997 as compared
to 22.5% in the second quarter of 1996. Assistant restaurant manager labor
cost increased $167,000, approximately 6.4%. Assistant restaurant manager
labor cost as a percentage of restaurant sales increased to 4.5% in the second
quarter of 1997 from 4.4% in the same period of 1996. In an effort to improve
restaurant performance, the number of assistant managers has been increased to
improve training and supervision with an offsetting decrease in direct labor.
Restaurant manager labor cost increased $50,000, approximately 2.7%, due to
average salary increases for the second quarter of 1997.
Depreciation and amortization expenses decreased $127,000, approximately
4.5%, to $2.7 million in the second quarter of 1997 as compared to $2.8
million for the same period in 1996. This decrease in the second
quarter of 1997 is due to some assets being fully depreciated in late
1996.
General and administrative expenses were approximately $7.1 million in
the second quarter of 1997 as compared to $6.5 million for the same period
in 1996. Advertising expense was approximately $2.6 million in the second
quarters of 1997 and 1996. Advertising expense as a percentage of restaurant
sales was 4.2% in the second quarter of 1997 compared to 4.4% in the same
period of 1996. Salaries increased $270,000, approximately 14.3%, to
$2.2 million in the second quarter of 1997 from $1.9 million in the same
period of 1996. This increase in salaries was primarily the result of
accruing $231,000 for profit incentive bonuses in 1997; none were accrued
in 1996 as there was a year-to-date net loss.
In accordance with Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, issued by the
American Institute of Certified Public Accountants, the Company is
expensing Reorganization Items as incurred. The total of professional fees
and expenses relating to the reorganization during the second quarter of
1997 was $343,000 as compared to $545,000 for the same period in 1996.
A reducing adjustment of $331,000 in interest related to certain pre-petition
liabilities, net, resulted in $278,000 in income during the second quarter of
1997 compared to an expense of $146,000 in the same period of 1996.
Provision for income taxes increased to $676,000 in the second quarter
of 1997 from $264,000 in the same period of 1996. The effective tax
rate of 38.0% is the approximate combined statutory federal and state
income tax rates.
Comparison of the Six Months Ended June 29, 1997
------------------------------------------------
to the Six Months Ended June 30, 1996
------------------------------------
Total revenues increased 3.3% to $122.5 million for the first half of
1997 from $118.6 million for the same period of 1996. Increases in restaurant
sales accounted for $3.7 million of this $3.9 million increase. Company-owned
average same restaurant sales for the first half of 1997 were $478,000
compared to $456,000 for the same period in 1996, an increase of 4.8%. The
Company's management believes the 1997 first half revenues increase can be
attributed to several factors, including price increases, new advertising and
promotional programs, continuing improvements in operations at the restaurant
level and the mild weather in the southeast in the first quarter 1997 as
compared to the same period in 1996. The Company had 249 restaurants open
at the end of the first half of 1997 compared to 251 at the end of the first
half of 1996.
Franchise fees and royalties increased $223,000 to $1.7 million in the
first half of 1997 versus the same period in 1996. The franchise system
had 93 restaurants open at the end of the first half of 1997 compared to
84 open at the end of the same period in 1996. This increase in
franchise fees and royalties is a result of the increase in franchised
restaurants.
Other revenue, which comes from the Company's aviation subsidiary, was
$2.4 million in the first half of 1997 and 1996.
The average customer check for Company-owned full size restaurants in
the first half of 1997 was $3.75 as compared to $3.49 in the same period
of 1996, an increase of 7.4%. The average customer check for
Company-owned double drive-thru restaurants in the first half of 1997
was $4.08 as compared to $3.81 in the same period of 1996, an increase
of 7.1%. The increases in average customer check are due to product
prices increasing approximately 3.5% in the first half of 1997 over the
same period in 1996, and the introduction of new promotional products and
menu combinations. Customer counts per restaurant day decreased to 691 in
the first half of 1997 compared to 703 in the same period of 1996, a
decrease of 1.7%.
Cost of restaurant sales increased $2.3 million, approximately 2.4%, to
$97.5 million in the first half of 1997, from $95.2 million in the same
period of 1996. Cost of restaurant sales as a percentage of restaurant
sales decreased to 82.3% in the first half of 1997 from 83.0% in the
same period of 1996. These increases are primarily the result of
increases in food and paper costs and labor expenses that the Company
was able to pass through to customers with offsetting product price increases.
Total food and paper costs were $38.1 million in the first half of 1997 as
compared to $36.1 million in the first half of 1996. Food and paper costs as
a percentage of restaurant sales increased to 32.2% in the first half of 1997
as compared to 31.5% in the same period of 1996. Direct labor cost
increased $217,000 in the first half of 1997, approximately 0.8%, to
22.2% of restaurant sales in the first half of 1997, versus 22.7% in the
same period of 1996. Assistant restaurant manager labor cost increased
$416,000, approximately 8.0%. Assistant restaurant manager labor cost
as a percentage of restaurant sales increased to 4.8% in the first half
of 1997 from 4.6% in the same period of 1996. In a effort to improve
restaurant performance, the number of assistant managers has been
increased to improve training and supervision with an offsetting
decrease in direct labor. Restaurant manager labor cost increased
$33,000, approximately 0.9%, due to average salary increases for the
first half of 1997.
Depreciation and amortization expenses decreased $307,000, approximately
5.5%, to $5.3 million in the first half of 1997 as compared to $5.6
million for the same period in 1996. This decrease in the first half of
1997 is due to some assets being fully depreciated in late 1996.
General and administrative expenses increased by $842,000, approximately
6.5%, to $13.8 million in the first half of 1997 versus $13.0 million in
the same period of 1996. Advertising expense was approximately $5.0
million in the first half of 1997 and 1996. Advertising expense as a
percentage of restaurant sales was 4.2% in the first half of 1997 compared
to 4.4% in the same period of 1996. Salaries increased $258,000 approximately
6.8%, to $4.1 million in the first half of 1997 from $3.8 million in the same
period of 1996. This increase in salaries was primarily the result of
accruing $231,000 for profit incentive bonuses in 1997; none were accrued
in 1996 as there was a year-to-date net loss.
In accordance with Statement of Position 90-7, Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code, issued by the
American Institute of Certified Public Accountants, the Company is
expensing Reorganization Items as incurred. The total of professional fees
and expenses relating to the reorganization during the first half of 1997
was $1.1 million as compared to $1.5 million in the same period of 1996.
A reducing adjustment of $331,000 in interest related to certain pre-petition
liabilities, net, resulted in $96,000 in income during the first half of 1997
compared to an expense of $314,000 in the same period of 1996.
Provision for income taxes increased to $649,000 in the first half of 1997
as compared to an income tax benefit of $191,000 for the same period in 1996,
when the Company recorded a net loss for the period. The effective tax rate
of 38.0% is the approximate combined statutory federal and state income
tax rates.
Unamortized financing costs in conjunction with extinguishment of debt in the
amount of $354,000 pre-tax and $220,000 after-tax was recorded in the first
half of 1997.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The terms and provisions of the Company's reorganization plan were approved by
the Bankruptcy Court on April 10, 1997 and became effective April 23, 1997.
The confirmed plan provided for the following:
- --term loans of $10.0 million and $20.0 million and a revolving loan of
$23.0 million effective April 23, 1997, and maturing April 23, 2002;
- --the payment of senior debt and secured debt totaling approximately $38.6
million along with all past due interest and additional interest at 1.3%
per annum;
- --the settlement of approximately 6,000 FLSA claims totaling about $12.6
million with pro se claims settled for approximately $100,000; and
- --the payment of holders of approximately $7.6 million of trade claims of
100% of their claims with interest at 8.5% per annum for the period
December 15, 1995 - April 23, 1997.
The Company does not maintain significant inventory or accounts
receivables since substantially all of its restaurants' sales are for
cash. Like many restaurant businesses, the Company receives several weeks
of trade credit in purchasing food and supplies. The Company's receivables
from franchisees are closely monitored and collected weekly. The Company
normally operates with working capital deficits (current liabilities exceeding
current assets), and had a working capital deficit of $4.3 million at
June 29, 1997 compared to a working capital surplus of $14.8 million at
June 30, 1996. At June 30, 1996, approximately $26.9 million of liabilities
classified as Liabilities Subject to Compromise during Chapter 11 status, would
otherwise have been classified as Current Liabilities.
Capital expenditures totaled approximately $3.9 million in the first
half of 1997 compared to $2.2 million for the same period in 1996. The
Company opened no new restaurants during the first half of 1997 or the first
half of 1996. Approximately $7.6 million is budgeted for capital expenditures
in 1997 for refurbishing of certain restaurants and ongoing capital
improvements. The Company owns 53.8% of its restaurant sites and leases the
remainder.
After payment of substantially all the Chapter 11 claims during the second
quarter of 1997 and refinancing its long-term debt, the Company had available
cash of approximately $4.8 million and a revolving loan facility of $23.0
million of which approximately $4.0 million was used for letters of credit and
the balance was available for borrowing. The term loans are payable in
installments through April, 2002, and the revolving loan availability decreases
to $20.0 million June 30, 1998, and is due April, 2002. The term loans and the
revolving loan are floating rate loans. Management believes funds from
operations, existing cash and the available credit facility will be
sufficient to meet its operating requirements, anticipated capital
expenditures and other obligations for the foreseeable future.
PART II OTHER INFORMATION
Item l. Legal proceedings
On December 15, 1995, the Company filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code with the United States
Bankruptcy Court for the Eastern District of Tennessee, for the purpose
of completely and finally resolving the various claims filed against the
Company by current and former employees alleging violations of the Fair
Labor Standards Act of 1938 (FLSA).
In early 1997, the Company and a majority of the FLSA plaintiffs reached a
settlement providing for the payment of approximately $13,000,000 for FLSA
claims and related legal costs. A plan for reorganization was filed on
February 24, 1997. On April 23, 1997, after confirmation by the Bankruptcy
Court, the plan of reorganization became final resulting in the satisfaction
of the FLSA claims.
The Company is party to other various legal proceedings incidental to its
business. The ultimate disposition of these matters is not presently
determinable but will not, in the opinion of management, have a material
adverse effect on the Company's financial condition or results of operations.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits-
Exhibit-27 Financial Data Schedule is filed with this 10-Q.
Computation of per share earnings is shown on the Registrant's
Consolidated Statements of Operations.
(b) Reports on Form 8-K-
A Form 8-K was filed on April 23, 1997 by the Registrant regarding
the confirmation of the Company's reorganization plan in the Chapter 11
proceedings which plan incorporated the settlement of the outstanding
FSLA claims. Subsequent to the end of the second quarter, a Form 8-K
was filed on July 14, 1997 by the registrant regarding the entering of
the Agreement and Plan of Merger with Port Royal Holdings, Inc. and
TKC Acquisition Corp.
THE KRYSTAL COMPANY AND SUBSIDIARY
----------------------------------
SIGNATURES
----------
Pursuant to the requirements 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.
THE KRYSTAL COMPANY
(Registrant)
Dated: 7/25/97 /s/Camden B Scearce
- -------------- ------------------------
Camden B. Scearce
(Vice President and Chief Financial
and Accounting Officer)
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