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 21, 1996
[_] 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.
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(Exact Name of Registrant as specified in its Charter)
DELAWARE 95-4307254
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(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12655 WEST JEFFERSON BOULEVARD, LOS ANGELES, CALIFORNIA 90066
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(Address of Principal Executive Offices, including zip code)
(310) 827-2300
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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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 September 3, 1996
- -------------------------------- --------------------------------
COMMON STOCK $0.01 PAR VALUE 29,066,325 SHARES
PART I. FINANCIAL INFORMATION
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
July 21, April 30,
1996 1996
----------- ---------
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash and cash equivalents $ 24,343 $ 9,216
Receivables, net of reserves of $9,781 at
July 21, 1996 and $9,441 at April 30, 1996 5,252 5,026
Inventories 6,328 6,477
Prepaid expenses and other current assets 4,621 2,736
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Total current assets 40,544 23,455
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Property and equipment, net 131,603 135,231
Long-term notes receivable, net of reserves of $1,200
at July 21, 1996 and $1,200 at April 30, 1996 1,110 1,128
Intangible assets, net of accumulated amortization of
$629 at July 21, 1996 and $610 at April 30, 1996 982 996
Other assets, net of accumulated amortization and reserves of
$5 at July 21, 1996 and $4 at April 30, 1996 14,795 17,737
-------- --------
Total assets $189,034 $178,547
======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
July 21, April 30,
1996 1996
--------- ---------
(Unaudited) (Audited)
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 4 $ 28,196
Accounts payable 12,226 14,390
Other current liabilities 9,098 17,755
Income taxes payable 3,116 2,844
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Total current liabilities 24,444 63,185
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Long-term Liabilities:
Long-term debt, net of current portion - 7,041
Deferred income taxes 5,196 9,032
Other liabilities 30,866 55,822
Liabilities subject to compromise under reorganization proceedings 84,168 -
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Total long-term liabilities 120,230 71,895
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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 29,064,209 shares at July 21, 1996
and 27,767,706 shares at April 30, 1996 291 278
Additional paid-in capital 274,216 274,221
Retained earnings (deficit) (235,037) (235,526)
Cumulative foreign currency translation adjustments 4,890 4,494
--------- ---------
Total stockholders' investment 44,360 43,467
--------- ---------
Total liabilities and stockholders' investment $ 189,034 $ 178,547
========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE TWELVE WEEKS ENDED JULY 21, 1996 AND JULY 23, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1996 1995
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(Unaudited)
Restaurants $80,936 $102,243
Franchise operations 3,500 3,258
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Total revenues 84,436 105,501
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Cost of sales 29,866 38,003
Labor and related expenses 24,414 29,981
Other operating expenses 18,028 22,554
Depreciation and amortization 3,586 6,019
General and administrative expenses 7,047 7,543
Interest expense 393 345
Investment income (277) (264)
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Total costs and expenses 83,057 104,181
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Income before income taxes 1,379 1,320
Provision for income taxes 885 884
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Net income $ 494 $ 436
======= ========
Net income per common and common equivalent share $ 0.02 $ 0.02
======= ========
Dividends per share $ - $ 0.04
======= ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE TWELVE WEEKS ENDED JULY 21, 1996 AND JULY 23, 1995
(IN THOUSANDS)
1996 1995
-------- --------
(Unaudited)
OPERATING ACTIVITIES
Net income $494 $436
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,586 6,019
Deferred income taxes (benefit) 37 (337)
Provision for bad debts 398 407
Other 1,822 3,296
- ---------------------------------------------------- ------- -------
6,337 9,821
Changes in operating assets and liabilities:
Receivables (556) (975)
Inventories 636 (992)
Prepaid expenses and other current assets (1,807) 54
Accounts payable 13,940 1,055
Accrued liabilities (16,199) (7,311)
Income taxes payable (364) (3,545)
- ---------------------------------------------------- ------- -------
Net cash provided by (used in) operating activities 1,987 (1,893)
- ---------------------------------------------------- ------- -------
INVESTING ACTIVITIES
Additions to property and equipment (802) (5,802)
Disposal of property and equipment 975 122
Other, net 1,772 (626)
- ---------------------------------------------------- ------- -------
Net cash provided by (used in) investing activities 1,945 (6,306)
- ---------------------------------------------------- ------- -------
FINANCING ACTIVITIES
Issuance of long-term debt 11,310 -
Reduction of long-term debt (74) (1,156)
Dividends paid to stockholders - (1,111)
Other, net (41) -
- ---------------------------------------------------- ------- -------
Net cash provided by (used in) financing activities 11,195 (2,267)
- ---------------------------------------------------- ------- -------
Net increase (decrease) in cash and cash equivalents 15,127 (10,466)
- ---------------------------------------------------- ------- -------
Cash and cash equivalents at beginning of period 9,216 12,220
- ---------------------------------------------------- ------- -------
Cash and cash equivalents at end of period $24,343 $1,754
==================================================== ======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
AS OF JULY 21, 1996
1. The interim consolidated condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
the Company's 1996 annual report on Form 10-K.
On June 2, 1996, Sizzler International, Inc. (the "Company") enacted a
comprehensive restructuring strategy designed to return the domestic
operations to profitability. This strategy included the closure of
restaurants in the U.S. and filing for bankruptcy protection through a
Chapter 11 proceeding. On June 2, 1996, the Company and four subsidiaries,
Sizzler Restaurants International, Inc., Buffalo Ranch Steakhouses, Inc.,
Tenly Enterprises, Inc., and Collins Properties, Inc., became Debtors-in-
Possession subject to the supervision of the U.S. Bankruptcy Court of the
Central District of California. The Company continues to conduct normal
business operations as Debtors-in-Possession subject to the jurisdiction of
the Bankruptcy Court and intends to propose a plan of reorganization for
each filing company. As Debtors-in-Possession, the Company may not engage
in transactions outside the ordinary course of business without approval of
the Bankruptcy Court.
Under Chapter 11, actions to enforce claims against the Company are stayed
if the claims arose, or are based on events that occurred, on or before the
petition date of June 2, 1996, and such claims cannot be paid or
restructured prior to the conclusion of the Chapter 11 proceedings or
approval of the Bankruptcy Court. Other liabilities may arise or be
subject to compromise as a result of rejection of executory contracts,
including leases, or the Bankruptcy Court's resolution of claims for
contingencies and other disputed amounts. Liabilities subject to
compromise in the accompanying consolidated condensed balance sheet
represent the Company's estimates of liabilities as of July 21, 1996
subject to adjustment in the reorganization process.
The consolidated condensed financial statements have been prepared on a
going concern basis, which contemplates continuity of operations,
realization of assets and liquidation of liabilities in the ordinary course
of business. While the Chapter 11 cases are in process, the Company
continues in possession of its properties and operates and manages its
business as a Debtor-in-Possession pursuant to the Bankruptcy Code.
In the opinion of management, all adjustments necessary for fair
presentation
In the opinion of management, all adjustments necessary for fair
presentation of results of operations for the twelve weeks have been
included in the interim financial statements.
2. Liabilities subject to compromise under reorganization proceedings consist
of the following as of July 21, 1996 (in thousands):
Accounts payable $16,105
Other liabilities 20,767
Long-term debt 46,513
Other 783
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$84,168
=======
3. For the purpose of reporting cash flows, cash and cash equivalents include
cash on hand and cash invested in securities maturing in 90 days or less.
The following are additional disclosure requirements of SFAS No. 95:
FOR THE TWELVE WEEKS ENDED,
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July 21, July 23,
1996 1995
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Cash paid for (in thousands):
Interest (net of amount capitalized) $ 393 $ 345
Income taxes $1,112 $4,964
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CHAPTER 11 REORGANIZATION
- -------------------------
The Company's domestic operations have produced losses on declining revenues for
the past four years. As a result of these events, in the fourth quarter of
fiscal 1996, Management reviewed each U.S. restaurant and identified 87 that
were in strong markets with prospects for ongoing profitability. The remaining
130 restaurants the Company operated in the U.S. were determined to have
insufficient future prospects, even with an anticipated repositioning concept,
to warrant continued investment at their location. These 130 restaurants were
considered deserving of closure. Fourteen restaurants were closed in the fourth
quarter of fiscal 1996 and the remainder were closed in first quarter of fiscal
1997. The Company recorded a restructuring charge of $108.9 million. The
restructuring costs included predominantly non-cash write-offs of assets and
related disposition costs associated with the closure of the restaurants.
Overall, the restructuring charge reflects the efforts to redeploy capital to
those core markets which are expected to yield returns consistent with
Management's expectations and objectives, and to eliminate the Company's
investment in non-performing assets.
On June 2, 1996 the Company enacted a comprehensive restructuring strategy
designed to return the U.S. operations to profitability. This strategy included
the closure of restaurants in the U.S. and filing for bankruptcy protection. On
June 2, 1996, the Company and four subsidiaries, Sizzler Restaurants
International, Inc., Buffalo Ranch Steakhouses, Inc., Tenly Enterprises, Inc.,
and Collins Properties, Inc. became Debtors-in-Possession subject to the
supervision of the U.S. Bankruptcy Court of the Central District of California
under Chapter 11 of the United States Bankruptcy Code. The debtor subsidiaries
own and operate substantially all of the Company's domestic restaurant
businesses and assets. The Company's International division businesses and
assets are owned and operated by separate subsidiaries and are not subject to
the U.S. Chapter 11 cases. The cases involving the Company and its debtor
subsidiaries are jointly administered under Case No. 96-16075 AG.
MATERIAL CHANGES IN RESULTS OF OPERATIONS - TWELVE WEEKS
- --------------------------------------------------------
ENDED JULY 21, 1996 VERSUS JULY 23, 1995
- -----------------------------------------
Domestic Company restaurant sales and franchised restaurant revenues (including
franchise fees, royalties and rental income) and International Company
restaurant sales and franchised restaurant revenues represent the Company's
primary sources of revenue. The addition or closure of restaurants, both
Company and franchise, and the sales
volume of comparable restaurants (those restaurants open more than one year) are
important factors to consider in evaluating the Company's results.
Total revenues were $84.4 million for the first twelve weeks of fiscal 1997,
which represents a decrease of $21.1 million, or 20.0 percent, compared to the
first twelve weeks of the prior fiscal year. This decrease is primarily due to
the closure of the 130 U.S. restaurants noted above. Since July 23, 1995, there
has been a net decrease of 117 Company-operated and a net decrease of 40
franchised Sizzlers in operation. During the same period, the Company added a
net of three KFC restaurants and one The Italian Oven restaurant in Australia.
All eight Buffalo Ranch Steakhouse restaurants were closed in the U.S. Revenues
declined domestically by $23.2 million or 36.4 percent. International revenues
increased by $2.2 million or 5.2 percent compared to the first twelve weeks of
the prior year.
Earnings before interest and taxes were $1.5 million for the first twelve weeks
of fiscal 1997, an increase of $0.1 million or 6.7 percent compared to the prior
year. In the International operations, earnings before interest and taxes
declined $0.6 million principally due to higher general and administrative
expenses partially offset by higher gross margins. Loss before interest and
taxes improved domestically by $0.7 million versus the prior year, primarily due
to the impact of closing underperforming units. Pretax income for the first
twelve weeks of fiscal 1997 increased $0.1 million to $1.4 million or 1.6
percent of revenues. During fiscal 1996, pretax income was $1.3 million or 1.3
percent of revenues.
Net income for the twelve weeks ended July 21, 1996, was $0.5 million or $0.02
per share, versus net income of $0.4 million or $0.02 per share in the prior
year. The average primary shares were 28,848,191 for the twelve weeks ended
July 21, 1996, versus 27,797,688 for the same period last year.
INTERNATIONAL OPERATIONS
- ------------------------
International restaurant revenues accounted for 52.0 percent of consolidated
revenues. Revenues of $43.9 million were $2.2 million or 5.2 percent higher
than the prior year primarily due to the impact of foreign currency exchange
rates and the three additional KFC units. Lower sales at Company-operated
Sizzlers were offset by higher sales at franchised Sizzlers as well as the
additional KFC and The Italian Oven restaurants. Since the first quarter of
fiscal 1996, International operations added a net of nine franchised Sizzler
restaurants. One Company-operated Sizzler in Australia was converted to a The
Italian Oven restaurant in October 1995. Ten franchised restaurants were opened
in Puerto Rico, Thailand, South Korea, Australia and Japan, while one was closed
in Taiwan. In addition, three Company-operated Sizzlers in Canada were closed.
There were also three KFC restaurants opened in Queensland, Australia. As of
July 21, 1996, the International operation included 132 Company-operated, joint
ventured, and franchised Sizzler restaurants, 93 KFC restaurants and one The
Italian Oven restaurant.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 8.8 percent and 12.7
percent, respectively due to increased competition in the casual dining market.
The average guest check increased 4.5 percent. The KFC restaurants decreased
1.9 percent in average restaurant sales and 3.0 percent in the average number of
customers per restaurant, reflecting increased competition in the fast food
industry partially offset by the introduction of the breakfast menu. The
average customer check has increased 1.0 percent when compared to the prior
year.
The Company's international franchise revenues increased $0.7 million or 72.4
percent due to the store openings mentioned above and slightly higher royalty
rates offset by lower sales in the Australian market. At July 21, 1996, there
were 89 international franchised Sizzler restaurants in Australia, Japan,
Taiwan, Thailand, Korea, Singapore, Indonesia, Guatemala and two U.S.
territories, versus 80 restaurants in eight countries and two U.S. territories
at July 23, 1995.
Earnings before interest and taxes were down $0.6 million or 21.4 percent from
the prior year reflecting higher general and administrative expenses partially
offset by higher gross margins.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 48.0 percent of the Company's
consolidated revenues. Revenues reflect a decrease of $23.2 million or 36.4
percent to $40.5 million when compared to the prior year. This decline is due
to the closure of the domestic restaurants in the current fiscal year. At July
21, 1996, the number of domestic Company-operated restaurants was 87 versus 200
restaurants at July 23, 1995.
On a comparative restaurant basis, average sales per restaurant decreased 13.8
percent, average customers per restaurant declined 10.1 percent while the
average customer check increased 4.2 percent. The sales decrease reflects, in
large part, consumer uncertainty regarding the Chapter 11 filing.
As previously discussed, Management believes that the Company's restructuring
program and the related transactions significantly improve overall prospects to
return to profitability and growth. Restructuring will provide opportunities to
enhance the Company's cash flow by reducing the Company's cost structure,
increasing the Company's ability to focus on repositioning the Sizzler concept,
and expediting the return of domestic operations to profitability.
Sizzler restaurants operate in highly competitive markets. Domestically, the
Company's strategy is to a) continue the elimination of non-performing assets,
and b) revitalize the Company's dated facilities and upgrade restaurant
operations.
The Company is convinced that successful execution of basic restaurant
operations in
each of its restaurants is critical to its ongoing success. Accordingly,
significant effort is devoted to ensuring that all restaurants offer quality
food and service. Major emphasis is placed on the proper preparation and
delivery of appealing menu items to the consumer. All operations personnel are
being retrained in menu execution, guest interaction, sanitation and restaurant
management and control.
Domestically, loss before interest and taxes improved $0.7 million compared to
the prior year. This decrease primarily reflects the improvement related to
closing underperforming units.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 2.2 percent of consolidated revenues. Compared to the
prior year, revenues decreased $0.5 million or 20.4 percent while earnings
before interest and taxes increased $1.1 million or 258.6 percent due to the
reduction of general and administrative expenses. The revenue decline reflects
a net reduction of 49 franchised restaurants. Management expects that
strategies being tested and implemented by the Company will also improve sales
and profits for domestic franchisees. As of July 21, 1996, the number of
domestic franchised restaurants was 225 versus 274 restaurants at July 23, 1995.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 0.4
percentage points from the prior year. This decrease is largely the result of
lower food and other costs, reflecting the closure of unprofitable restaurants
in the U.S.
Net interest expense was $0.1 million in fiscal 1997 and 1996.
The income tax rate decreased from 67.0 percent of pretax income in fiscal 1996
to 64.2 percent in fiscal 1997. Under current accounting standards, the
Financial Accounting Standards Board Statement No. 109 "Accounting for Income
Taxes" the Company may not record a tax benefit for U.S. source losses. This
change has no immediate impact on the Company's cash flow or actual tax
liabilities.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
- ---------------
The Company's principal source of working capital is cash provided by operations
which amounted to $6.3 million for the first twelve weeks of fiscal 1997 versus
$9.8 million for the same period of the prior year. The Company has
historically maintained a relatively low current ratio, 1.7 at July 21, 1996 and
0.8 at July 23, 1995. The Company's working capital has generally been in a
deficit position because, like most restaurant businesses, substantially all
sales are for cash, while credit is received from trade suppliers.
The Company began to experience liquidity problems in 1996, due primarily to
continued sales declines in the Company's U.S. restaurants and costs associated
with the development of the Sizzler American Grill repositioning, and higher net
interest payments. The Company's working capital at July 21, 1996 was $16.1
million including cash and cash equivalents of $24.3 million. At April 30, 1996
the working capital deficit was $39.7 million.
TOTAL ASSETS / CAPITAL EXPENDITURES
- -----------------------------------
At July 21, 1996, total assets were $189.0 million, an increase of $10.5 million
or 5.9 percent from April 30, 1996 due primarily to the increase in cash and
cash equivalents. Property and equipment represented approximately 69.6 percent
of total assets at July 21, 1996 and 75.7 percent at April 30, 1996.
Capital expenditures were $0.8 million for the first twelve weeks of fiscal
1997, including new restaurant construction of $0.2 million and replacements of
$0.6 million. The Company anticipates continuing to build its International
operations through additional investment in Company-operated restaurants, joint
ventures and the development of the franchise system. The International
franchise restaurant base has grown by nine incremental franchised Sizzler
restaurants since the first quarter of the prior fiscal year. Three KFC
restaurants were also added to International operations since the third quarter
of last year. In addition, the Company has built one The Italian Oven
restaurant in Australia, to test the viability of the concept in that country.
Domestically, no new unit growth is planned in fiscal 1997. Instead, the
Company will focus on the previously mentioned revitalization program. The
Company has entered into certain commitments for capital expenditures necessary
to efficiently operate and to improve the profitability of existing businesses.
DEBT
- ----
During fiscal 1996, the Company began to experience liquidity problems resulting
from declining restaurant sales and higher operating costs which caused the
Company to not meet the required debt coverage ratio for the fiscal quarter
ended February 4, 1996, on its revolving line of credit. At April 30, 1996, as
a result of the Company's non-compliance with its line of credit covenants, no
additional amounts were available.
As a result of the Chapter 11 cases filed on June 2, 1996, and the related
restructuring strategy, the Company relies primarily on internally generated
funds, supplemented, if required, by working capital advances under a new
Debtor-in-Possession line of credit facility, totaling $15.0 million on a
revolving loan basis, for its liquidity. Management believes that funds
available from these sources will be sufficient to meet the Company's working
capital, debt service related to the Debtor-in-Possession credit facility and
capital expenditure requirements. At July 21, 1996 $15.0 million of the Debtor-
in-Possession credit facility was available.
On May 10, 1996, the beneficiary of the Company's letter of credit drew down on
the available balances totaling $11.3 million. The letter of credit was issued
to provide security for future amounts payable by the Company and its
subsidiaries under its captive insurance company, CFI Insurers, Ltd.
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 11 - Computation of Per Share Earnings.
Exhibit 27 - Financial Data Schedule.
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
(Debtors-in-Possession)
EXHIBIT 11 - PART I
COMPUTATION OF PER SHARE EARNINGS
The weighted average number of shares used in the computation of net income per
share is as follows:
TWELVE WEEKS ENDED
-----------------------
July 21, July 23,
1996 1995
---------- ----------
Weighted average of outstanding shares 28,848,125 27,775,434
Common stock equivalents 66 22,254
---------- ----------
Primary shares 28,848,191 27,797,688
Additional shares 22 5,153
---------- ----------
Fully diluted shares 28,848,213 27,802,841
========== ==========
Net income used to calculate primary
and fully diluted earnings per share $494,000 $436,000
========== ==========
Earnings per share $0.02 $0.02
========== ==========
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, 1996 /s/Kevin W. Perkins
--------------------------------------------
Kevin W. Perkins
Chief Executive Officer
Date: September 3, 1996 /s/Christopher R. Thomas
--------------------------------------------
Christopher R. Thomas
Executive Vice President, Finance
(Principal Financial Officer)