<PAGE> 1
UNITED STATES
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 1, 2000
[ ] 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 1-12104
BACK YARD BURGERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0737163
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1657 SHELBY OAKS DR. N. STE. 105, MEMPHIS, TENNESSEE 38134
(Address of principal executive offices)
(901) 367-0888
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 - Common stock, par value $.01 per share
Outstanding at August 1, 2000 - 4,630,619
<PAGE> 2
BACK YARD BURGERS, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I - Financial Information
------------------------------
Item 1 - Unaudited Consolidated Financial Statements:
Balance Sheet as of July 1, 2000 and January 1, 2000 3
Statement of Income for the Thirteen and Twenty-Six Weeks Ended
July 1, 2000 and July 3, 1999 4
Statement of Cash Flows for the Twenty-Six Weeks Ended
July 1, 2000 and July 3, 1999 5
Notes to Unaudited Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-14
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 14
Part II - Other Information
---------------------------
Item 1 - Legal Proceedings 15
Item 2 - Changes in Securities and Use of Proceeds 15
Item 3 - Defaults Upon Senior Securities 15
Item 4 - Submission of Matters to a Vote of Security Holders 15
Item 5 - Other Information 15
Item 6 - Exhibits and Reports on Form 8-K 15
Signatures 16
----------
</TABLE>
2
<PAGE> 3
BACK YARD BURGERS, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,014 $ 1,697
Receivables, net 439 284
Inventories 206 177
Current deferred tax asset 78 65
Prepaid expenses and other current assets 102 79
-------- --------
Total current assets 1,839 2,302
Property and equipment, at depreciated cost 13,104 13,211
Intangible assets 1,972 1,204
Noncurrent deferred tax asset 1,124 1,020
Note receivable 469 350
Other assets 239 253
-------- --------
$ 18,747 $ 18,340
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 524 $ 744
Accrued expenses 958 901
Reserve for closed stores 155 270
Income taxes payable 255 89
Current installments of long-term debt 1,317 489
-------- --------
Total current liabilities 3,209 2,493
Long-term debt, less current installments 5,104 5,689
Deferred franchise and area development fees 413 392
Other deferred income 593 633
Other deferred liabilities 69 75
-------- --------
Total liabilities 9,388 9,282
-------- --------
Commitments and contingencies -- --
Stockholders' equity
Preferred stock, $.01 par value, 2,000,000 shares authorized; 19,763 shares
issued and outstanding at July 1, 2000
(19,763 at January 1, 2000) -- --
Common stock, $.01 par value, 12,000,000 shares authorized;
4,630,619 shares issued and outstanding at July 1, 2000
(4,618,377 at January 1, 2000) 46 46
Paid-in capital 10,143 10,128
Deficit (830) (1,116)
-------- --------
Total stockholders' equity 9,359 9,058
======== ========
Total liabilities and stockholders' equity $ 18,747 $ 18,340
======== ========
</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE> 4
BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
--------------------- -----------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Restaurant sales $ 6,975 $ 7,111 $ 12,852 $ 13,286
Franchise and area development fees 72 -- 115 54
Royalty fees 437 398 822 740
Advertising fees 119 136 229 279
Other 156 118 315 255
------- ------- -------- --------
Total revenues 7,759 7,763 14,333 14,614
------- ------- -------- --------
Expenses:
Cost of restaurant sales 2,309 2,453 4,264 4,572
Restaurant operating expenses 3,375 3,353 6,447 6,329
General and administrative 859 900 1,663 1,725
Advertising 493 439 820 851
Depreciation and amortization 336 322 656 647
------- ------- -------- --------
Total expenses 7,372 7,467 13,850 14,124
------- ------- -------- --------
Operating income 387 296 483 490
Interest income 11 7 18 14
Interest expense (165) (144) (293) (273)
Other, net 116 (14) 237 (16)
------- ------- -------- --------
Income before income taxes $ 349 $ 145 $ 445 $ 215
Income taxes 128 58 159 86
------- ------- -------- --------
Net income $ 221 $ 87 $ 286 $ 129
------- ------- -------- --------
Income per share:
Basic $ .05 $ .02 $ .06 $ .03
------- ------- -------- --------
Diluted $ .05 $ .02 $ .06 $ .03
------- ------- -------- --------
Weighted average number of common shares
and common equivalent shares outstanding
Basic 4,628 4,605 4,625 4,603
------- ------- -------- --------
Diluted 4,650 4,634 4,645 4,635
------- ------- -------- --------
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE> 5
BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
JULY 1, JULY 3,
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 286 $ 129
Adjustments to reconcile net income to net cash provided
(used) by operating activities
Depreciation and amortization of property and equipment 596 594
Deferred income taxes (117) (144)
Amortization of intangible assets 60 53
Provision for losses on receivables 72 85
Gain on sales of assets (271) (6)
(Increase) decrease in assets
Receivables (227) (123)
Inventories (29) (16)
Prepaid expenses and other current assets (23) 20
Other assets 10 (6)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (163) 184
Reserve for closed stores (25) (12)
Income taxes payable 166 42
Other deferred income (40) 801
Other deferred liabilities (6) 2
Deferred franchise and area development fees 21 108
------- -------
Net cash provided by operating activities 310 1,711
------- -------
Cash flows from investing activities:
Proceeds from sale of property and equipment 155 8
Goodwill acquisition cost (225) --
Additions to property and equipment (581) (1,578)
------- -------
Net cash used in investing activities (651) (1,570)
------- -------
Cash flows from financing activities:
Issuance of stock 15 16
Principal payments on long-term debt and capital leases (357) (171)
Proceeds from issuance of long-term debt -- 289
------- -------
Net cash provided by financing activities (342) 134
------- -------
Net increase (decrease) in cash and cash equivalents (683) 275
Cash and cash equivalents
Beginning of period 1,697 815
------- -------
End of period $ 1,014 $ 1,090
------- -------
Supplemental disclosure of cash flow information
Income taxes paid $ 111 $ 188
------- -------
Interest paid $ 328 $ 273
------- -------
Noncash investing and financing activities
Property and equipment sold for a note receivable $ 119 --
------- -------
Note payable taken for goodwill acquisition costs $ 600 $ --
------- -------
</TABLE>
See accompanying notes to unaudited financial statements
5
<PAGE> 6
BACK YARD BURGERS, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
Back Yard Burgers, Inc. owns and operates quick-service and fast-casual
restaurants and is engaged in the sale of franchises and the collection of
royalties based upon related franchise sales. The company grants franchise
rights for the use of "Back Yard Burgers," "BYB" or "BY Burgers" trade names
and other associated trademarks, signs, emblems, logos, slogans and service
marks which have been or may be developed.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore do not include all
information and notes necessary for a fair presentation of financial position,
results of operations and cash flows in conformity with generally accepted
accounting principles. The statements do reflect all adjustments (consisting of
only normal recurring adjustments) which are, in the opinion of management,
necessary to present fairly the financial position and results of operations
and cash flows in conformity with generally accepted accounting principles. The
statements should be read in conjunction with the Notes to Financial Statements
for the year ended January 1, 2000 included in the company's 1999 Form 10-K as
filed with the Securities and Exchange Commission.
The financial statements include the accounts of Back Yard Burgers, Inc.
and its wholly-owned subsidiaries, Little Rock Back Yard Burgers, Inc., Atlanta
Burgers BYB Corporation and BYB Properties, Inc., as well as the Back Yard
Burgers National Advertising Fund. All significant intercompany transactions
have been eliminated.
The results of operations for the current period are not necessarily
indicative of the results that ultimately may be achieved for the full year.
The company maintains its financial records on a 52-53 week fiscal year
ending on the Saturday closest to December 31.
NOTE 2 - NET INCOME PER SHARE
The company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share, which requires the
presentation of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for
the period. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity.
COMPUTATION OF INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
---------------------- ------------------------
JULY 1, JULY 3, JULY 1, JULY 3,
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net Income $ 221 $ 87 $ 286 $ 129
------- ------- -------- --------
Weighted average number of common
shares outstanding during the period 4,628 4,605 4,625 4,603
------- ------- -------- --------
Basic income per share $ .05 $ .02 $ .06 $ .03
------- ------- -------- --------
Weighted average number of common
shares outstanding during the period 4,628 4,605 4,625 4,603
Preferred shares convertible to
common shares 20 23 20 23
Stock options 2 6 -- 9
------- ------- -------- --------
4,650 4,634 4,645 4,635
------- ------- -------- --------
Basic income per share $ .05 $ .02 $ .06 $ .03
------- ------- -------- --------
</TABLE>
6
<PAGE> 7
BACK YARD BURGERS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NOTE 3 - DEFERRED FRANCHISE AND AREA DEVELOPMENT FEES
Amounts received for certain franchise and area development rights, net of
commissions paid, have been deferred. Revenues on individual franchise fees are
recognized when substantially all of the initial services required of the
company have been performed, which generally coincides with the opening of the
franchises. Under the terms of the franchise agreements, these fees are
non-refundable, and may be recognized as income should the franchisee fail to
perform as agreed. Area development fees are recognized on a pro-rata basis as
each unit opens. At July 1, 2000, deferred fees include franchise and area
development rights sold during the following years:
<TABLE>
<CAPTION>
<S> <C>
2000 $ 125
1999 164
Previous years 124
-----
$ 413
=====
</TABLE>
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The company is party to several pending legal proceedings and claims. Although
the outcome of the proceedings and claims cannot be determined with certainty,
management of the company is of the opinion that it is unlikely that these
proceedings and claims will have a material adverse effect on the financial
condition or results of operations of the company.
The company purchased the operating businesses, including personal
property, of Back Yard Burgers stores located in Jackson, Tennessee, Tupelo,
Mississippi, and Jonesboro, Arkansas, from a franchisee, KEA Foods, effective
May 7, 2000. The acquisition was accounted for as an asset purchase, and the
company financed the purchase with a combination of existing cash on hand and
short-term notes payable to the seller. No real property was purchased by the
company.
As of July 1, 2000, the company had a loan of approximately $652,000 for
which it was in default of a financial covenant. However, acceleration of the
obligation and compliance with the covenant has been waived through November
30, 2001 by the financial institution holding the note.
7
<PAGE> 8
FORWARD-LOOKING INFORMATION
Certain information included herein may contain statements that are
forward-looking, such as statements related to financial items and results,
plans for future expansion and other business development activities, capital
spending or financing sources, capital structure and the effects of regulation
and competition. Forward-looking statements made by the company are based upon
estimates, projections, beliefs and assumptions of management at the time of
such statements and should not be viewed as guarantees of future performance.
Such forward-looking information involves important risks and uncertainties
that could significantly impact anticipated results in the future and,
accordingly, such results may differ materially from those expressed in any
forward-looking statements by or on behalf of the company. These risks and
uncertainties include, but are not limited to, increased competition within the
industry for customers, qualified labor and desirable locations, increased
costs for beef, chicken or other food products and management decisions related
to restaurant growth, financing, franchising and new product development, as
well as items described under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below. We caution you not to
place undue reliance on any such forward-looking statements. We assume no
obligation to update any forward-looking statements as a result of new
information, subsequent events or any other circumstances. Such statements
speak only as of the date that they are made.
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
INTRODUCTION
As of July 1, 2000, the Back Yard Burgers system included 90
restaurants, of which 37 were company-operated and 53 were franchised. The
company's revenues are derived primarily from company-operated restaurant
sales, franchise and area development fees and royalty fees. Certain expenses
(cost of restaurant sales, restaurant operating expenses, depreciation and
amortization and advertising) relate directly to company-operated restaurants,
while general and administrative expenses relate to both company-operated
restaurants and franchise operations. The company's revenues and expenses are
affected by the number and timing of the opening of additional restaurants.
Sales for new restaurants in the period immediately following their opening
tend to be high because of trial by public and promotional activities. As a
result, the timing of openings can affect the average volume and other
period-to-period comparisons.
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total revenue,
unless otherwise indicated, of certain items included in the company's
historical operations and operating data for the periods indicated.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------
JULY 1, JULY 3,
2000 1999
-------- --------
<S> <C> <C>
Revenues
Restaurant sales 89.7% 90.9%
Franchise and area development fees .8 .4
Royalty fees 5.7 5.1
Advertising fees 1.6 1.9
Other operating revenue 2.2 1.7
------- -------
Total revenue 100.0% 100.0%
------- -------
</TABLE>
8
<PAGE> 9
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------
JULY 1, JULY 3,
2000 1999
-------- -------
<S> <C> <C>
Costs and Expenses
Cost of restaurant sales(1) 33.2% 34.4%
Restaurant operating expenses(1) 50.2 47.6
General and administrative 11.6 11.8
Advertising 5.7 5.8
Depreciation and amortization 4.6 4.4
Operating income 3.4 3.3
Interest income .1 .1
Interest expense (2.0) (1.9)
Other, net 1.6 (.1)
Income before income taxes 3.1 1.5
Income taxes(2) (35.7) (40.0)
Net income 2.0 .9
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-----------------------
JULY 1, JULY 3,
2000 1999
-------- --------
($000'S)
<S> <C> <C>
System-wide restaurant sales
Company-operated $12,852 $13,286
Franchised 20,935 18,921
------- -------
Total $33,787 $32,207
======= =======
Average annual sales per restaurant open for a full year(3)
Company-operated $ 748 $ 774
Franchised $ 766 $ 769
System-wide $ 758 $ 771
Number of restaurants
Company-operated 37 35
Franchised 53 49
------- -------
Total 90 84
======= =======
</TABLE>
(1) As a percentage of restaurant sales.
(2) As a percentage of income before taxes.
(3) Includes sales for restaurants open for entire trailing twelve-month
period. Restaurants are included in the calculation after the
completion of eighteen months of operation as sales during the
six-month period immediately after the opening tend to be higher due to
promotions and trial by public.
9
<PAGE> 10
COMPARISON OF THE COMPANY'S RESULTS FOR THE THIRTEEN WEEKS ENDED JULY 1, 2000
AND JULY 3, 1999.
RESTAURANT SALES decreased 1.9% to $6,975,000 during the thirteen weeks
ended July 1, 2000, compared to $7,111,000 for the same 1999 period. This
decrease is primarily the result of a decrease in same-store sales at
restaurants open for more than one year of 8.2%. This decrease is offset by the
net increase in company-operated stores of two.
FRANCHISE AND AREA DEVELOPMENT FEES were $72,000 for the thirteen weeks
ended July 1, 2000, due to the recognition of income during the current year
relating to the opening of three franchised stores. There were no franchise and
area development fees recognized in the year-earlier period.
ROYALTY FEES increased 9.7% to $437,000 during the thirteen-week period
ended July 1, 2000, compared to $398,000 during the same period in 1999. The
increase is due to a net increase of four franchised stores since the prior
year. This increase was partially offset by a 4.0% decrease in same-store sales
at franchised restaurants compared with the prior year period.
ADVERTISING FEES decreased 12.5% to $119,000 for the thirteen weeks ended
July 1, 2000, compared to $136,000 during the comparable period in 1999. The
decrease is primarily due to a change in the number of franchisee direct mail
program participants from forty in the second quarter of 1999 to twelve in the
second quarter of 2000. Direct mail program fees represent a portion of the
overall advertising fees. This decrease was offset by increases in total
franchised restaurant sales from which a portion of the advertising fees are
derived.
OTHER REVENUES increased 32.2% to $156,000 for the thirteen weeks ended
July 1, 2000 compared to $118,000 during the year-earlier period. The increase
is due primarily to an increase in vendor rebates earned in the current year.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$2,309,000 for the thirteen weeks ended July 1, 2000, and $2,453,000 during the
same period in 1999, decreasing as a percentage of restaurant sales to 33.1%
from 34.5%. This decrease as a percentage of sales is primarily the result of a
decrease in coupons and discounts as well as a decrease in waste, consisting of
prepared food items not sold due to product hold time requirements of the
company and spoilage.
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
maintenance, rent and certain other unit level operating expenses, increased to
$3,375,000 for the thirteen weeks ended July 1, 2000, from $3,353,000 in the
same prior year period, increasing as a percentage of restaurant sales to
48.4%, from 47.2% for the year-earlier period. A portion of this increase as a
percentage of sales was due to the decrease in same-store sales for the quarter
given the fixed or semi-variable nature of some operating expenses; however,
management also made a conscious effort during the quarter to increase staffing
at certain locations to improve customer service and enhance the overall guest
experience. Labor costs as a percentage of sales increased by 1.7% over the
year-earlier period. Decreases in maintenance costs and operating supplies
accounted for the remaining .5% decrease.
GENERAL AND ADMINISTRATIVE COSTS which decreased to $859,000 for the
thirteen weeks ended July 1, 2000 from $900,000 in the same year earlier
period, decreased as a percentage of total revenue for the thirteen weeks ended
July 1, 2000, to 11.1% from 11.6% in the same period in 1999. The decrease of
$41,000 is the result of a combination of reduced travel spending and a
reduction in corporate personnel costs through turnover and the elimination of
certain corporate positions.
ADVERTISING EXPENSE which increased to $493,000 for the thirteen weeks
ended July 1, 2000, from $439,000 in the same period in 1999, increased as a
percentage of total revenues to 6.3% from 5.7%.
10
<PAGE> 11
This increase is primarily the result of an increase in local store advertising
spending for company-operated stores of 1% during the second quarter of 2000.
This increase is offset by the decrease in advertising fees as described above,
which are used for the development and production of marketing campaigns and
collateral material as well as scaling back spending on direct mail programs for
company-operated units.
INTEREST EXPENSE increased 14.6% to $165,000 for the thirteen weeks ended
July 1, 2000, from $144,000 in the year-earlier period. Since July 3, 1999,
debt increased by $845,000, or 15.2%, to $6,421,000 as of July 1, 2000.
OTHER, NET income was $116,000 for the thirteen weeks ended July 1, 2000,
compared with a net $14,000 expense in the prior year. This change is primarily
due to the recognition of $140,000 in net gains on the sale of assets during
the second quarter of 2000.
COMPARISON OF THE COMPANY'S RESULTS FOR THE TWENTY-SIX WEEKS ENDED JULY 1, 2000
AND JULY 3, 1999.
RESTAURANT SALES decreased 3.2% to $12,852,000 during the twenty-six weeks
ended July 1, 2000 compared to $13,286,000 for the same 1999 period. This
decrease is primarily the result of a decrease in same-store sales at
restaurants open for more than one year of 8.2%. This decrease is offset by the
net increase in company-operated stores of two.
FRANCHISE AND AREA DEVELOPMENT FEES increased to $115,000 for the
twenty-six weeks ended July 1, 2000 compared to $54,000 during the comparable
period in 1999. The increase is due to the opening of six franchised
restaurants during the first two quarters of 2000 compared with two openings in
the first two quarters of 1999.
ROYALTY FEES increased 11.1% to $822,000 during the twenty-six week period
ended July 1, 2000 compared to $740,000 during the same period in 1999. This is
due to an increase in franchised restaurant sales upon which the fees are
based, resulting from the net opening of six stores since July 3, 1999. This
increase is offset by a year-to-date same franchised store same-store sales
decline of 3.5%.
ADVERTISING FEES decreased 17.9% to $229,000 for the twenty-six weeks
ended July 1, 2000 compared to $279,000 during the comparable period in 1999.
The decrease is primarily due to a change in the number of franchisee direct
mail program participants from forty in the second quarter of 1999 to twelve in
the second quarter of 2000. Direct mail program fees represent a portion of the
overall advertising fees. This decrease was offset by increases in total
franchised restaurant sales from which a portion of the advertising fees are
derived.
OTHER REVENUES increased 23.5% to $315,000 for the twenty-six weeks ended
July 1, 2000 compared to $255,000 during the year-earlier period. The increase
is due primarily to an increase in vendor rebates earned in the current year.
COST OF RESTAURANT SALES, consisting of food and paper costs, totaled
$4,264,000 for the twenty-six weeks ended July 1, 2000, and $4,572,000 during
the same period in 1999, decreasing as a percentage of restaurant sales to
33.2% from 34.4%. This decrease as a percentage of sales is primarily the
result of a decrease in coupons and discounts as well as a decrease in waste,
consisting of prepared food items not sold due to product hold time
requirements of the company and spoilage.
11
<PAGE> 12
RESTAURANT OPERATING EXPENSES, consisting of labor, supplies, utilities,
maintenance, rent and certain other unit level operating expenses, increased to
$6,447,000 for the twenty-six weeks ended July 1, 2000, from $6,329,000 in the
same prior year period, increasing as a percentage of restaurant sales to
50.1%, from 47.6% for the year-earlier period. A portion of this increase as a
percentage of sales was due to the decrease in same-store sales for the quarter
given the fixed or semi-variable nature of some operating expenses; however,
management also made a conscious effort during the quarter to increase staffing
at certain locations as well as increase maintenance spending to improve the
physical condition and appearance of our restaurants. These steps were taken to
improve customer service and enhance the overall guest experience. Labor costs
as a percentage of sales increased by 2.2% over the year-earlier period.
Comparable spending on other costs of a fixed and semi-variable nature, such as
rent, utilities and accounted for the remaining 0.5% increase due to the
decline in same-store sales.
GENERAL AND ADMINISTRATIVE COSTS which decreased to $1,663,000 for the
twenty-six weeks ended July 1, 2000 from $1,725,000 in the same year earlier
period, decreased as a percentage of total revenue for the twenty-six weeks
ended July 1, 2000, to 11.6% from 11.8% in the same period in 1999. The
decrease of $62,000 is primarily the result of a reduction in corporate
personnel costs through a combination of turnover and the elimination of
certain corporate positions.
ADVERTISING EXPENSE which decreased to $820,000 for the twenty-six weeks
ended July 1, 2000, from $851,000 in the same period in 1999, decreased as a
percentage of total revenues to 5.7% from 5.8%. This is the result of the
decrease in advertising fees, as described above, which are used for the
development and production of marketing campaigns and collateral material as
well as scaling back spending on direct mail programs for company-operated
units. This decrease is offset by a second quarter 2000 increase in local store
company-operated store advertising of 1.0%.
INTEREST EXPENSE increased 7.3% to $293,000 for the twenty-six weeks ended
July 1, 2000, from $273,000 in the year-earlier period. Since July 3, 1999,
debt increased by $845,000, or 15.2%, to $6,421,000 as of July 1, 2000.
OTHER, NET income was $237,000 for the twenty-six weeks ended July 1,
2000, compared with a net $16,000 expense in the prior year. This change is
primarily due to the recognition of $271,000 in net gains on the sale of assets
during fiscal year 2000.
IMPAIRMENT OF LONG-LIVED ASSETS
The company reviews the carrying value of its long-lived and intangible
assets for possible impairment whenever events or changes in circumstances
indicate that the carrying amount of assets may not be recoverable. A new cost
basis is established for impaired assets based on the fair value of these
assets as of the date the assets are determined to be impaired.
In the past, the company incurred non-cash charges for the effect of
company-operated restaurant closings and impaired assets at company-operated
restaurants. Also, related accruals for future lease payments of closed stores,
net of estimated sub-lease income, were previously recorded. During the
twenty-six weeks ended July 1, 2000, $25,000 of lease obligation payments were
incurred for closed stores and charged against this reserve. Also, $90,000 of
the reserve was reversed as a result of the sale of one of the properties for
which the reserve was established. As of July 1, 2000, the company's remaining
accrual for all future lease obligations discussed above was $155,000 for the
remaining lease payments due, net of estimated sub-lease income.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures totaled $581,000 for the twenty-six weeks ended
July 1, 2000 and $1,578,000 for the year-earlier period. Generally, the
company constructs its restaurant buildings on leased properties for its
company-operated restaurants. The average monthly lease cost for the 15
company-operated restaurants on leased sites at July 1, 2000 is approximately
$3,279 per month. For the 13
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restaurants where the company leases the building as well as the site, the
average monthly lease cost is approximately $5,069.
Cash from operations for the company is primarily affected by net
earnings adjusted for deferred franchise fees and non-cash expenses which
consist primarily of depreciation and amortization. Depreciation and
amortization totaled $656,000 for the twenty-six weeks ended July 1, 2000 and
$647,000 for the year-earlier period. This increase is primarily the result of
the conversion of three franchised stores to corporate stores.
Cash provided by operations for the thirteen week period ended July 1,
2000, was $310,000 compared with $1,711,000 in the year-earlier period. In
recent history, cash from operations and debt have been used for the addition of
dining rooms to certain existing double drive-thru restaurants, new restaurants
and equipment.
As of July 1, 2000, the company had total long-term debt of $6,421,000
and unused lines of credit and loan commitments of potential additional
borrowings of $1,026,000. During the first quarter, the company repurchased
equipment sold in 1999 under a sale-leaseback transaction of approximately
$165,000, and the additional $435,000 borrowing commitment under the lease
agreement was cancelled as well. During the second quarter, the company issued
$600,000 in short-term notes payable as partial financing for the purchase of
three franchised stores on May 7, 2000.
The company is planning approximately $2,500,000 in capital
expenditures during 2000 and plans to fund these expenditures through existing
cash on hand, internally generated cash flow as well as the borrowing
commitments secured in 1998 or before. These capital expenditures may require
additional debt or equity financing, which the company has not secured at this
time.
SEASONALITY AND INFLATION
While the company does not believe that seasonality affects its operations
in a materially adverse manner, first quarter results will generally be lower
than other quarters due to seasonal climate conditions in the locations of many
of its restaurants. Management does not believe that inflation has had a
material effect on income during the twenty-six weeks ended July 1, 2000.
Increases in food, labor or other operating costs could adversely affect the
company's operations. In the past, however, the company generally has been able
to increase menu prices or modify its operating procedures to substantially
offset increases in its operating costs.
CONVERSION OF PREFERRED STOCK
In accordance with the provisions of the company's Certificate of
Incorporation regarding preferred stock, as a result of the company's having
attained after tax net income in excess of $600,000 during 1994, each share of
preferred stock is convertible into one share of common stock, at the option of
the holder. The company notified preferred stockholders of their right to
convert preferred stock to common stock, and anticipates that all shares of
preferred stock will eventually be converted. Such conversion began on July 5,
1995, at which time there were 1,199,979 shares of preferred stock outstanding.
As of July 1, 2000, only 19,763 shares have yet to be converted.
KNOWN TRENDS AND UNCERTAINTIES
Labor will continue to be a critical factor for the company in the
foreseeable future. In most areas where the company operates restaurants, there
is a shortage of suitable labor. This, in itself, could result in higher wages
as the competition for employees intensifies, not only in the restaurant
industry, but in practically all retail and service industries. It is crucial
for the company to develop and maintain programs to attract and retain quality
employees.
During the twenty-six weeks ended July 1, 2000, the cost of beef increased
approximately 2.5% and the cost of chicken decreased approximately 1.0%.
Management of the company expects these costs to rise at some point in the
future, and that it will be difficult to raise menu prices to fully cover these
anticipated increases due to the competitive state of the quick-service
restaurant industry. Additional
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margin improvements would have to be made through operational improvements,
equipment advances and increased volumes to help offset these potential
increases.
Due to the competitive nature of the restaurant industry, site selection
continues to increase in difficulty as the number of businesses vying for
locations with similar characteristics increases. This will likely result in
higher occupancy costs for prime locations.
Same-store sales decreased 8.2% during the second quarter of 2000. The
company has implemented a targeted local store marketing plan combined with a
broader media campaign to aid in the reversal of this negative trend.
The future success of the company will be determined, to a great extent,
by its ability to positively address these issues.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to certain financial market risks, the most
predominant being fluctuations in interest rates on variable rate debt and the
repricing of fixed rate debt at maturity. Management monitors interest rate
fluctuations as an integral part of the company's overall risk management
program, which recognizes the unpredictability of financial markets and seeks
to reduce the potential adverse effect of our results. The effect of interest
rate fluctuations historically has been small relative to other factors
affecting operating results, such as food, labor and occupancy costs.
Less than 25% of the company's debt portfolio as of July 1, 2000, had
variable rates or had maturity dates of less than two years. With every 25
basis point increase in interest rates, the company could be subject to
additional interest expense of approximately $4,000 annually, depending on the
timing of the rate changes and debt maturities.
The company has considered the use of hedging instruments to minimize
interest rate fluctuation risk, but based on the debt portfolio structure
described above, no hedging tool has been deemed necessary for the company at
this time.
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PART II OTHER INFORMATION
Item 1 Legal Proceedings
The company is involved in litigation incidental to its business,
including, but not necessarily limited to, claims alleging violations of the
Civil Rights Act of 1964 and/or discrimination. Aside from the cost of defense,
such litigation is not presently considered by management to be material to the
financial condition or results of operations of the company.
Item 2 Changes in Securities and Use of Proceeds
None
Item 3 Defaults Upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
On May 18, 2000, the Company held its Annual Meeting of
Stockholders in Memphis, Tennessee, for the purpose of: (1)
electing three Class III members to the Board of Directors;
(2) ratifying the appointment of PricewaterhouseCoopers LLP as
independent public accountants for 2000, and (3) to transact
such other business as may have properly come before the
meeting or an adjournment thereof.
The following table sets forth the Class III directors elected
at such meeting and the number of votes cast by the Company's
stockholders for, against and withheld for each director:
<TABLE>
<CAPTION>
Directors For Against Withheld
--------- --------- -------- --------
<S> <C> <C> <C>
Lattimore M. Michael 4,292,700 -- 56,437
Joseph L. Weiss 4,292,400 -- 56,737
Jim L. Peterson 4,312,400 -- 36,737
</TABLE>
The appointment of PricewaterhouseCoopers LLP as independent
public accountants was ratified at the meeting as follows:
<TABLE>
<S> <C>
For 4,328,784
Against 10,953
Abstentions 9,400
</TABLE>
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
Exhibits
27 - Financial Data Schedule, which is submitted
electronically to the Securities and Exchange Commission
for information only and not filed.
Reports on Form 8-K
None
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SIGNATURES
In accordance with 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 thereto duly authorized.
BACK YARD BURGERS, INC.
Date: August 14, 2000 By: /s/ Lattimore M. Michael
-------------------------------------
Lattimore M. Michael
Chairman and Chief Executive Officer
Date: August 14, 2000 By: /s/ Michael G. Webb
-------------------------------------
Michael G. Webb
Chief Financial Officer
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