1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarter ended March 29, 1995
Commission File No. 0-14311
FAMILY STEAK HOUSES OF
FLORIDA, INC.
Incorporated under the laws of IRS Employer
Florida Identification
No. 59-2597349
2113 FLORIDA BOULEVARD
NEPTUNE BEACH, FLORIDA 32266
Registrant's Telephone No. (904) 249-4197
Indicate by check mark whether the registrant 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_____
Title of each class Number of shares outstanding
Common Stock 10,815,070
$.01 par value As of May 5, 1995
2
Financial Statements
Family Steak Houses of Florida, Inc.
Consolidated Statements of Earnings
(Unaudited) For The Quarters Ended
--------------------------
March 29 March 30,
1995 1994
------------ ------------
Sales $11,342,100 $12,042,500
Cost and expenses:
Food and beverage 4,443,800 4,866,300
Payroll and benefits 2,917,000 3,170,100
Depreciation and amortization 440,600 515,500
Other operating expenses 1,553,100 1,560,800
General and administrative expenses 606,300 571,100
Franchise fees 340,300 529,200
Loss from joint venture 26,700 --
10,327,800 11,213,000
------------ ------------
Earnings from operations 1,014,300 829,500
Interest and other income 141,000 22,700
Loss on disposition of equipment (25,000) (25,000)
Interest expense (449,700) (485,700)
------------ ------------
Earnings before income taxes 680,600 341,500
Provision for income taxes 102,000 127,800
------------ ------------
Net earnings $578,600 $213,700
============ ============
Net earnings per common and equivalent
share $0.05 $0.02
============ ============
Weighted average common shares
and equivalents 11,084,000 10,822,000
============ ============
See accompanying notes to consolidated financial statements.
3
Family Steak Houses of Florida, Inc.
Consolidated Balance Sheets
(Unaudited) March 29, December 28,
1995 1994
ASSETS ------------ ------------
Current assets:
Cash and cash equivalents $2,137,600 $1,603,100
Investments 710,700 710,700
Receivables 133,300 104,900
Income taxes receivable 182,500 332,200
Current portion of mortgage receivable 103,200 32,500
Inventories 313,500 324,800
Prepaids and other current assets 196,600 475,500
------------ ------------
Total current assets 3,777,400 3,583,700
Mortgages receivable 1,292,700 537,500
Property and equipment:
Land 9,342,200 9,677,800
Buildings and improvements 18,204,200 18,726,800
Equipment 11,489,800 11,139,500
------------ ------------
39,036,200 39,544,100
Accumulated depreciation (12,570,200) (12,648,200)
------------ ------------
Net property and equipment 26,466,000 26,895,900
Investment in joint venture 73,300 100,000
Property held for resale 568,300 1,039,300
Other assets, principally deferred charges,
net of accumulated amortization 623,600 652,200
------------ ------------
$32,801,300 $32,808,600
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 1,792,500 1,462,900
Accrued liabilities 3,349,300 3,942,900
Current portion of long-term debt 845,400 851,200
------------ ------------
Total current liabilities 5,987,200 6,257,000
Long-term debt 15,844,600 16,304,800
Deferred revenue 55,200 55,200
Other non-current liabilities 248,300 198,300
------------ ------------
Total liabilities 22,135,300 22,815,300
Shareholders' equity:
Preferred stock of $.01 par;
authorized 10,000,000 shares;
none issued -- --
Common stock of $.01 par;
authorized 20,000,000 shares;
outstanding 10,785,100 shares in 1995
and 10,725,200 in 1994 107,900 107,300
Additional paid-in capital 8,095,800 8,002,300
Retained earnings 2,462,300 1,883,700
------------ ------------
Total shareholders' equity 10,666,000 9,993,300
------------ ------------
$32,801,300 $32,808,600
============ ============
See accompanying notes to consolidated financial statements.
4
Family Steak Houses of Florida, Inc.
Consolidated Statements of
Cash Flows
(Unaudited)
For the Quarters Ended
--------------------------
March 29, March 30,
1995 1994
------------ ------------
Operating activities:
Net earnings $578,600 $213,700
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization 440,600 515,500
Directors' fees in the form of stock options 12,500 10,000
Loss from joint venture 26,700 --
Amortization of loan discount 33,000 33,000
Amortization of loan fees 18,000 29,700
Loss on disposition of equipment 25,000 25,000
Decrease (increase) in:
Receivables (28,400) 5,500
Income tax receivable 149,700 --
Inventories 11,300 (37,300)
Prepaids and other current assets 278,900 88,500
Increase (decrease) in:.
Accounts payable 329,600 374,400
Accrued liabilities (639,300) 234,600
Other non-current liabilities 50,000 (25,000)
Deferred income taxes -- 127,800
------------ ------------
Net cash provided by operating activities 1,286,200 1,595,400
Investing activities:
Net proceeds from sale of land held for resale 471,000 --
Proceeds from sale of restaurant 106,600 --
Proceeds from notes receivable 9,100 --
Capital expenditures (821,000) (207,100)
------------ ------------
Net cash used by investing activities (234,300) (207,100)
Financing activities:
Payments on long-term debt (518,000) (202,300)
Proceeds from the issuance of common stock 600 --
------------ ------------
Net cash used by financing activities (517,400) (202,300)
Net increase in cash and cash equivalents 534,500 1,186,000
Cash and cash equivalents - beginning of period 1,603,100 1,513,200
------------ ------------
Cash and cash equivalents - end of period $2,137,600 $2,699,200
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the quarter for interest $420,500 $408,100
============ ============
Non-cash transactions:
Mortgage receivable as partial proceeds
on property sale $835,000 $ --
============ ============
Warrants issued $81,000 $ --
============ ============
Accrued interest reclassed to long-term debt $100,000 $ --
Equipment from closed restaurants transferred============ ============
other current assets $ -- $55,800
============ ============
See accompanying notes to consolidated financial statements.
5
FAMILY STEAK HOUSES OF FLORIDA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 1995
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions
to Form 10-Q, and do not include all the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the results for
the interim period have been included. Operating results for the
thirteen week period ended March 29, 1995 are not necessarily
indicative of the results that may be expected for the fiscal
year ending January 3, 1996. For further information, refer to
the financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 28,
1994.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant
intercompany profits, transactions and balances have been
eliminated.
Note 2. Earnings Per Share
Earnings per share for the thirteen weeks ended March 29, 1995
and March 30, 1994 were computed based on the weighted average
number of common and common equivalent shares outstanding.
Common equivalent shares are represented by shares under option
and stock warrants.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended March 29, 1995 versus March 30, 1994
The Company experienced a decrease in sales during the first
thirteen weeks of 1995 compared to the first thirteen weeks of
1994, primarily because it operated three fewer restaurants in
1995. First quarter sales decreased 5.8% to $11,342,100 from
$12,042,500 for the same period in 1994. Earnings from operations
increased 22.3% to $1,014,300 in 1995 from $829,500 for the same
period in 1994, primarily as a result of closing unprofitable
restaurants, lower food and beverage costs and lower franchise
fees as a percentage of sales. The Company operated twenty-four
Ryan's restaurants at March 29, 1995 compared to twenty-six
Ryan's restaurants and one Wrangler's restaurant at March 30,
1994. Sales at restaurants open throughout both three-month
periods increased 1.1%. Average sales per restaurant increased
6.0% from the same period in 1994.
The costs and expenses of the Company's restaurants include
food and beverage, payroll, payroll taxes and employee benefits,
depreciation and amortization, repairs, maintenance, utilities,
supplies, advertising, insurance, property taxes, rents, and
licenses. The Company's food, beverage, payroll, and employee
benefit costs as a percentage of sales are believed to be higher
than the industry average, due to the Company's philosophy of
providing customers with high value of food and service for every
dollar a customer spends. In total, food and beverage, payroll
and benefits, depreciation and amortization and other operating
expenses as a percentage of sales decreased to 82.5% in the first
quarter of 1995 from 84.0% in same quarter of 1994.
7
Food and beverage costs decreased as a percentage of sales
from 40.4% in 1994 to 39.2% in 1995, due primarily to lower beef
costs and to sales price increases implemented throughout 1994.
Payroll and benefit costs as a percentage of sales decreased to
25.7% in 1995 from 26.3% in 1994, primarily due to the increase
in average store sales, which resulted in increased efficiencies
in labor scheduling.
Depreciation and amortization expenses decreased as a
percentage of sales in the first quarter of 1995, compared to the
same period of 1994, primarily as a result of certain assets
becoming fully depreciated or amortized. Franchise fees decreased
to 3.0% of sales in 1995 from 4.40% in 1994 in accordance with
the Company's amended Franchise Agreement.
8
General and administrative expenses as a percentage of sales
were 5.3% in the first quarter of 1995 compared to 4.7% in the
same quarter in 1994. This increase was primarily due to costs
associated with settlement of an outstanding lawsuit, as well as
the addition of a new Vice President of Operations and two field
supervisor positions which were vacant in the prior year.
Interest expense as a percentage of total sales was 4.0% for
the first quarter of 1995 and 1994. Interest expense decreased
to $449,700 in the first quarter of 1995 versus $485,700 in the
same quarter of 1994. The decrease was due primarily to lower
outstanding principal balances, resulting from principal payments
made throughout the last twelve months, and due to a lower
interest rate on the Company's obligations to the Travelers
Insurance Company and certain of its affiliates.
The effective income tax rate for the first three months of
1995 was 15.0%, compared to 37.4% in 1994. The reduction was due
to the utilization of tax credits and the realization of deferred
tax assets for which a reserve had been provided in prior periods.
Net earnings were $578,600 and $213,700 in the first
quarters of 1995 and 1994, respectively. Earnings per share for
the quarter were 5 cents in 1995 compared to 2 cents in 1994.
The Company's operations are subject to some seasonal
fluctuations. Revenues per restaurant generally increase from
January through April and decline September through December.
Operating results for the quarter ended March 29, 1995 are not
necessarily indicative of the results that may be expected for
the fiscal year ending January 3, 1996.
9
Recent Developments
In March 1995, the Company entered into amended and
restructured debt agreements with its lenders. For a complete
discussion of the debt restructure, see "Liquidity and Capital
Resources" below.
In December 1994, the Company formed a subsidiary, Family
Steak JV, Inc. which acquired a 50% ownership in a limited
liability corporation, Cross Creek Barbeque, L.C. ("Cross
Creek"), for the purpose of opening a new restaurant. The Company
contributed the equipment formerly utilized by its Wrangler's
Roadhouse, Inc. subsidiary to Cross Creek and the other 50% owner
of Cross Creek contributed the cash necessary to remodel and open
the new Cross Creek restaurant. Wrangler's Roadhouse, Inc. leases
the land and building it formerly occupied to Cross Creek. The
Cross Creek restaurant opened in January 1995. As a result of
higher than anticipated operating costs, the joint venture
suffered a loss during the first quarter of 1995. The Company's
share of the joint venture loss during the first quarter of 1995
was $26,700.
Liquidity and Capital Resources
Substantially all of the Company's revenues are derived from
cash sales. Inventories are purchased on credit and are
converted rapidly to cash. Therefore, the Company does not carry
significant receivables or inventories and, other than repayment
of debt, working capital requirements for continuing operations
are not significant.
At March 29, 1995, the Company had a working capital deficit
of $2,209,800 compared to a working capital deficit of $2,673,300
at December 28, 1994. The decrease in the working capital deficit
during the first three months in 1995 was due primarily to net
earnings generated in the first quarter of 1995.
Cash provided by operating activities decreased 19.4% to
$1,286,200 in the first quarter of 1995 from $1,595,400 in the
first quarter of 1994, primarily due to reductions in accrued
liabilities as a result of timing of payments.
The Company spent approximately $821,000 in the first
quarter of 1995 and $207,100 in the first quarter of 1994 for
equipment and improvements. Capital expenditures for 1995 and
1996 are estimated to be $2,225,000 and $750,000, respectively.
The Company projects that cash generated from operations will be
sufficient to fund these improvements.
10
In March 1995, the Company entered into an Amended and
Restated Note Agreement, dated as of February 1, 1995, with The
Travelers Insurance Company and certain of its affiliates ("the
Travelers Agreement"). The Travelers Notes are due May 30, 1998
and provide for an interest rate of 9.0% with $65,000 monthly in
principal reductions beginning January 1, 1996. As of March 29,
1995, the outstanding balance due under the Travelers Notes was
$11,672,800.
The Travelers Agreement includes detachable Warrants for
purchases of up to 1,750,000 shares of the Company's common stock
at an exercise price of $.40 per share. The Travelers Notes are
secured by second mortgages on twenty-two Company restaurant
properties. The Travelers Agreement provides for various
convenants including prepayment options, the maintenance of
prescribed debt service coverages, limitations on the declaration
of cash dividends, sale of assets, and certain other
restrictions.
Also in March 1995, the Company entered into an Amended and
Restated Loan Agreement with The Daiwa Bank, Limited, and
SouthTrust Bank of Alabama, National Association (the "Bank
Loan") which extends the maturity date of the Bank Loan until May
30, 1998. The Bank Loan bears interest at prime rate plus 0.50%,
with monthly principal payments of $41,250 beginning April 1,
1995 ($67,100 prior to April 1, 1995). The Bank Loan is secured
by first mortgages on twenty-two of the Company's restaurant
properties, and provides for various covenants substantially
consistent with those of the Travelers Agreement. As of March 29,
1995, the outstanding balance under the Bank Loan was $4,575,400.
Impact of Inflation
Costs of food, beverage, and labor are the expenses most
affected by inflation in the Company's business. Althrough
inflation has not been a major factor for the past several years,
there can be no assurance that it will not be in the future. A
significant number of the Company's personnel are paid at the
federally established minimum wage level, which was last
increased April 2, 1991. Sale prices were increased approximately
4% in 1994.
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Prior to the execution of The Travelers Agreement and
the Bank Loan, the Company was in default of certain
covenants associated with the previous debt agreements.
Upon execution of the new debt agreements, the Company
was no longer in default of any debt covenants.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this
report on Form 10-Q, and this list comprises the
Exhibit Index.
No. Exhibit
4.01 Specimen Stock Certificate for shares of the
Company's Common Stock (Exhibit 4.01 to the Company's
Registration Statement on Form S-1, Registration No.
33-1887, is incorporated herein by reference.)
4.02 Amended and Restated Loan Agreement, dated March
14, 1995, by the Company and certain of its
subsidiaries, as borrowers, in favor of The Daiwa Bank,
Limited, and SouthTrust Bank of Alabama, National
Association, as lenders. (Exhibit 10.04 to the
Company's 1994 Annual Report on Form 10-K is
incorporated herein by reference.)
4.03 Second Amended and Restated Renewal Mortgage and
Security Agreement and Mortgage Spreading Agreement,
dated March 14, 1995, by the Company as mortgagor, and
The Daiwa Bank, Limited, and SouthTrust Bank of
Alabama, National Association, as lenders. (Exhibit
10.05 to the Company's 1994 Annual Report on Form 10-K
is incorporated herein by reference.)
4.04 Amended and Restated Senior Note Agreement, dated
as of February 1, 1995, by the Company and certain of
its subsidiaries, as maker, and The Phoenix Insurance
Company, and The Travelers Insurance Company, as
noteholders. (Exhibit 10.06 to the Company's 1994
Annual Report on Form 10-K is incorporated herein by
reference.)
4.05 Amended and Restated Warrant to Purchase Shares of
Common Stock, void after October 1, 2003, which
represents warrants issued to The Phoenix Insurance
Company, and The Travelers Indemnity Company, and the
Travelers Insurance Company (Exhibit 10.07 to the
Company's 1994 Annual Report on Form 10-K is
incorporated herein by reference.)
4.06 Warrant to Purchase Shares of Common Stock, void
after October 1, 2003, which represents warrants issued
to The Phoenix Insurance Company, and The Travelers
Indemnity Company, and the Travelers Insurance Company
(Exhibit 10.08 to the Company's 1994 Annual Report on
Form 10-K is incorporated herein by reference.)
4.07 Second Amended and Restated Renewal Promissory
Note, dated March 14, 1995, by the Company and certain
of its subsidiaries, as maker, in favor of SouthTrust
Bank of Alabama, National Association. (Exhibit 10.18
to the Company's 1994 Annual Report on Form 10-K is
incorporated herein by reference.)
4.08 Second Amended and Restated Renewal Promissory
Note, dated March 14, 1995, by the Company and certain
of its subsidiaries, as Maker, in favor of The Daiwa
Bank, Limited. (Exhibit 10.19 to the Company's 1994
Annual Report on Form 10-K is incorporated herein by
reference.)
13
4.09 Mortgage and Security Agreement, dated March 14,
1995, by the Company, as Mortgagor, in favor of The
Travelers Insurance Company, as collateral agent.
(Exhibit 10.20 to the Company's 1994 Annual Report on
Form 10-K is incorporated herein by reference.)
4.10 Amended and Restated 9.0% Senior Notes, due June
1, 1998, by the Company, as maker, in favor of TRAL &
CO., an affiliate of The Travelers Insurance Company,
dated as of February 1, 1995. (Exhibit 10.21 to the
Company's 1994 Annual Report on Form 10-K is
incorporated herein by reference.)
(b) During the first quarter of 1995, the Company
filed a current report on Form 8-K, dated January 5,
1995, to report; (i) the closure of it's Wrangler's
Roadhouse Restaurant and the effect on 1994 earnings,
(ii) the sale of the Company's restaurant located on
Old St. Augustine Road, Jacksonville, Florida on
December 29, 1995, and (iii) the Company had reached an
agreement in principle with its Bank lenders to extend
the maturity date of it's secured credit facility.
14
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.
FAMILY STEAK HOUSES OF FLORIDA, INC.
(Registrant)
/s/ Lewis E. Christman, Jr.
Date: May 10, 1995 Lewis E. Christman, Jr.
President
(Chief Executive Officer)
/s/ Edward B. Alexander
Date: May 10, 1995 Edward B. Alexander
Director of Finance
(Principal Financial and Accounting
Officer)
/s/ Michael J. Walters
Date: May 10, 1995 Michael J. Walters
Controller