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 OCTOBER 18, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
COMMISSION FILE NUMBER 1-10711
SIZZLER INTERNATIONAL, INC.
________________________________________________________________________________
(Exact Name of Registrant as specified in its Charter)
DELAWARE 95-4307254
________________________________________________________________________________
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6101 WEST CENTINELA AVENUE, SUITE 200, CULVER CITY, CALIFORNIA 90230
________________________________________________________________________________
(Address of Principal Executive Offices, including zip code)
(310) 568-0135
____________________________________________________________
(Registrant's telephone number, including area code)
____________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
-------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 20, 1998
- --------------------------- ----------------------------------
COMMON STOCK $0.01 PAR VALUE 28,803,828 SHARES
PART 1. FINANCIAL INFORMATION
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)
ITEM 1. FINANCIAL STATEMENTS
- ----------------------------
October 18, April 30,
ASSETS 1998 1998
- --------------------------------------------------------------- ---------- ---------
(Unaudited) (Audited)
Current Assets:
Cash and cash equivalents $ 17,832 $ 21,167
Receivables, net of reserves of $1,401 at
October 18, 1998 and $2,608 at April 30, 1998 3,560 2,926
Inventories 4,191 4,333
Prepaid expenses and other current assets 1,232 1,281
- --------------------------------------------------------------- -------- ---------
Total current assets 26,815 29,707
- --------------------------------------------------------------- -------- ---------
Property and equipment, net 78,549 79,210
Long-term notes receivable, net of reserves of $507
at October 18, 1998 and $772 at April 30, 1998 1,182 1,268
Deferred income taxes 3,562 3,829
Intangible assets, net of accumulated amortization of
$761 at October 18, 1998 and $696 at April 30, 1998 2,130 2,162
Other assets, net of accumulated amortization and reserves of
$3 at October 18, 1998 and $1 at April 30, 1998 2,176 3,285
- --------------------------------------------------------------- -------- ---------
Total assets $114,414 $ 119,461
=============================================================== ======== =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
2
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
October 18, April 30,
LIABILITIES AND STOCKHOLDERS' INVESTMENT 1998 1998
- ----------------------------------------------------------- ------------ ------------
(Unaudited) (Audited)
Current Liabilities:
Current portion of long-term debt $ 5,656 $ 5,764
Accounts payable 9,815 7,753
Other current liabilities 9,025 9,562
Income taxes payable 4,184 3,761
- ----------------------------------------------------------- --------- ---------
Total current liabilities 28,680 26,840
- ----------------------------------------------------------- --------- ---------
Long-term Liabilities:
Long-term debt, net of current portion 30,108 35,497
Other liabilities 8,081 13,364
- ----------------------------------------------------------- --------- ---------
Total long-term liabilities 38,189 48,861
- ----------------------------------------------------------- --------- ---------
Stockholders' Investment:
Capital stock -
Preferred, authorized 1,000,000 shares, $5 par value;
no shares issued - -
Common, authorized 50,000,000 shares, $0.01 par value;
outstanding 28,814,409 shares at October 18, 1998
and 28,840,908 shares at April 30, 1998 288 288
Additional paid-in capital 277,825 277,353
Accumulated deficit (225,918) (229,583)
Accumulated other comprehensive income -
Foreign currency translation adjustments (4,650) (4,298)
- ----------------------------------------------------------- --------- ---------
Total stockholders' investment 47,545 43,760
- ----------------------------------------------------------- --------- ---------
Total liabilities and stockholders' investment $ 114,414 $ 119,461
=========================================================== ========= =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TWENTY-FOUR WEEKS ENDED
-------------------------
OCTOBER 18, OCTOBER 12,
1998 1997
- ------------------------------------------ ----------- -----------
(Unaudited)
REVENUES
Restaurants $ 99,706 $ 113,040
Franchise operations 3,886 3,053
- ------------------------------------------ -------- ---------
Total revenues 103,592 116,093
- ------------------------------------------ -------- ---------
COSTS AND EXPENSES
Cost of sales 36,521 42,288
Labor and related expenses 27,188 30,798
Other operating expenses 21,188 23,682
Depreciation and amortization 4,411 5,750
General and administrative expenses 8,500 8,208
- ------------------------------------------ -------- ---------
Total operating costs 97,808 110,726
- ------------------------------------------ -------- ---------
Interest expense 1,704 2,485
Investment income (360) (727)
- ------------------------------------------ -------- ---------
Total costs and expenses 99,152 112,484
- ------------------------------------------ -------- ---------
INCOME BEFORE INCOME TAXES 4,440 3,609
- ------------------------------------------ -------- ---------
Provision for income taxes 775 1,346
- ------------------------------------------ -------- ---------
NET INCOME $ 3,665 $ 2,263
========================================== ======== =========
Basic and diluted earnings per share $ 0.13 $ 0.08
========================================== ======== =========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
TWELVE WEEKS ENDED
------------------------
OCTOBER 18, OCTOBER 12,
1998 1997
- -------------------------------------------- ----------- -----------
(Unaudited)
REVENUES
Restaurants $ 48,973 $ 54,770
Franchise operations 2,041 1,737
- -------------------------------------------- -------- --------
Total revenues 51,014 56,507
- -------------------------------------------- -------- --------
COSTS AND EXPENSES
Cost of sales 17,971 20,567
Labor and related expenses 13,443 14,947
Other operating expenses 10,584 11,845
Depreciation and amortization 2,152 2,931
General and administrative expenses 4,233 3,801
- -------------------------------------------- -------- --------
Total operating costs 48,383 54,091
- -------------------------------------------- -------- --------
Interest expense 841 1,106
Investment income (194) (235)
- -------------------------------------------- -------- --------
Total costs and expenses 49,030 54,962
- -------------------------------------------- -------- --------
INCOME BEFORE INCOME TAXES 1,984 1,545
- -------------------------------------------- -------- --------
Provision for income taxes 380 769
- -------------------------------------------- -------- --------
NET INCOME $ 1,604 $ 776
============================================ ======== ========
Basic and diluted earnings per share $ 0.06 $ 0.03
============================================ ======== ========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
TWENTY-FOUR WEEKS ENDING
-------------------------
OCTOBER 18, OCTOBER 12,
1998 1997
- ------------------------------------------------------ ----------- -----------
(Unaudited)
OPERATING ACTIVITIES
Net income $ 3,665 $ 2,263
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,411 5,750
Deferred income taxes 134 -
Provision for bad debts 37 360
Other 55 47
Changes in operating assets and liabilities:
Receivables (619) 729
Inventories 142 330
Prepaid expenses and other current assets 49 526
Accounts payable 2,062 (2,701)
Accrued liabilities (2,756) (1,877)
Income taxes payable 577 441
- ------------------------------------------------------ ------- -------
Net cash provided by operating activities 7,757 5,868
- ------------------------------------------------------ ------- -------
INVESTING ACTIVITIES
Additions to property and equipment (4,710) (3,563)
Disposal of property and equipment 1,313 22,895
Other, net (1,879) (3,919)
- ------------------------------------------------------ ------- -------
Net cash provided by (used in) investing activities (5,276) 15,413
- ------------------------------------------------------ ------- -------
FINANCING ACTIVITIES
Issuance of long-term debt - 46,895
Reduction of long-term debt (2,000) (141)
Payment of allowed claims pursuant to
the reorganization plan (3,769) (69,075)
Other, net (47) -
- ------------------------------------------------------ ------- -------
Net cash used in financing activities (5,816) (22,321)
- ------------------------------------------------------ ------- -------
Net decrease in cash and cash equivalents (3,335) (1,040)
- ------------------------------------------------------ ------- -------
Cash and cash equivalents at beginning of period 21,167 34,085
- ------------------------------------------------------ ------- -------
Cash and cash equivalents at end of period $17,832 $33,045
====================================================== ======= =======
The accompanying notes are an integral part of these consolidated condensed
financial statements.
6
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
AS OF OCTOBER 18, 1998
1. The condensed consolidated financial statements have been prepared by
Sizzler International, Inc. (the "Company"), without audit, in accordance
with generally accepted accounting principles. Pursuant to the rules and
regulations of the Securities and Exchange Commission, certain information
and footnote disclosures normally included in consolidated financial
statements prepared in accordance with generally accepted accounting
principles have been omitted or condensed. In the opinion of management,
the condensed interim consolidated financial statements include all
adjustments necessary for a fair presentation of financial position and
results of operations for the periods presented. The results of operations
for the periods presented should not necessarily be considered indicative
of operations for the full year. Certain reclassifications have been made
to prior period financial statements in order to conform to the current
period presentation. It is recommended that these condensed consolidated
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's 1998 annual report on Form
10-K.
2. During fiscal year 1998, the Company adopted Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share (EPS), which
replaced the previously reported primary and fully-diluted EPS. Basic EPS
is computed as net income (loss) divided by the weighted average number of
common shares outstanding for the period. Diluted EPS is similar to the
previously reported fully-diluted EPS. All EPS amounts for the periods
presented have been restated to conform to the requirements of SFAS 128.
The following table sets forth the computation of basic and diluted EPS:
Twelve weeks ended Twenty-four weeks ended
----------------------- -------------------------
October 18, October 12, October 18, October 12,
In thousands, except EPS 1998 1997 1998 1997
---- ---- ---- ----
Numerator for basic and diluted EPS - Net Income $ 1,604 $ 776 $ 3,665 $ 2,263
------- ------- ------- -------
Denominator:
Denominator for basic EPS weighted average
shares of common stock outstanding 28,822 28,855 28,827 28,878
Effect of dilutive stock options 34 3 39 2
------- ------- ------- -------
Denominator for diluted EPS - adjusted
weighted average shares outstanding 28,856 28,858 28,866 28,880
------- ------- ------- -------
Basic and diluted earnings per share $ 0.06 $ 0.03 $ 0.13 $ 0.08
------- ------- ------- -------
7
3. During fiscal year 1999, the Company adopted Statement of Financial
Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive
Income". Other comprehensive income may include foreign currency
translation adjustments, minimum pension liability adjustments, and
unrealized gains and losses on investments in equity securities. Total
comprehensive income is summarized as follows:
Twelve weeks ended Twenty-four weeks ended
----------------------- -------------------------
October 18, October 12, October 18, October 12,
In thousands 1998 1997 1998 1997
---- ---- ---- ----
Net Income $ 1,604 $ 776 $ 3,665 $ 2,263
Currency translation adjustment 579 (1,692) (352) (4,868)
--------- ------- --------- --------
Total comprehensive income (loss) $ 2,183 $ (916) $ 3,313 $ (2,605)
========= ======= ========= ========
4. 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 under-performing 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.
("SRI"), Buffalo Ranch Steakhouses, Inc. ("BRSH"), Tenly Enterprises, Inc.
(Tenly"), and Collins Properties, Inc. ("CPI"), became debtors-in-
possession subject to the supervision of the U.S. Bankruptcy Court of the
Central District of California (the "Bankruptcy Court") under Chapter 11 of
the federal bankruptcy code.
On June 2, 1997, the Bankruptcy Court entered an order confirming the
Chapter 11 plans of reorganization of the Company, SRI and CPI. The plans
of reorganization for Tenly and BRSH were confirmed on February 24, 1997.
On September 23, 1997, the reorganization plans became effective and the
Company and its subsidiaries emerged from the bankruptcy proceedings.
The Company and its subsidiaries have paid approximately $79 million in
pre-petition claims and interest and reinstated the remaining pre-petition
liabilities. Remaining bankruptcy liabilities were reclassified from
"Liabilities subject to compromise under reorganization proceedings" to the
appropriate liability captions of the consolidated balance sheet.
8
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS TWELVE WEEKS ENDED OCTOBER 18, 1998
- -----------------------------------------------------------------------------
VERSUS OCTOBER 12, 1997
- -----------------------
Domestic Company-operated restaurant sales and franchised restaurant revenues
(including franchise fees, royalties and rental income) and international
Company-operated restaurant sales and franchised restaurant revenues represent
the Company's primary sources of revenue. The addition or closure of
restaurants, both Company-operated and franchised, and the sales volume of
comparable restaurants (those restaurants open more than one year) are important
factors to consider in evaluating the Company's results.
The following chart shows the comparative Company-operated restaurant percentage
change from the prior year.
FY 1998 FY 1999
--------------------------------------- ------------------------
QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2
----- ----- ----- ----- ----- -----
SIZZLER
- -------
U.S.A. - Sales -4.3% 0.6% 0.3% 2.2% 7.2% 7.4%
Customers -5.8% -3.6% -6.6% -6.0% -3.3% -1.7%
AUSTRALIA Sales -20.9% -13.6% -9.3% -8.1% -5.3% -0.3%
(Based on A$) Customers -22.5% -17.8% -13.3% -15.2% -5.7% -1.8%
KFC Sales -2.8% -3.1% -0.4% 0.7% 1.3% -0.8%
- ---
(Based on A$) Customers -8.5% -7.3% -6.6% -4.1% -4.3% -5.0%
On a comparative restaurant basis, average sales per restaurant are showing a
very positive trend. Sizzler U.S.A. improved from 0.6 percent in the second
quarter of fiscal 1998 to an increase of 7.4 percent in the second quarter of
the current year. The positive results of the last five quarters reverses 27
consecutive quarters of decreases in comparable restaurant sales. Australian
sales trends are also showing a definite improvement although the year over year
percent change is still slightly down. The check average and margin per guest
has continued to increase in the U.S. reflecting the impact of the menu
repositioning and a marketing strategy which minimizes the use of discounts.
INTERNATIONAL OPERATIONS
- ------------------------
International operations generated approximately 53.0 percent of consolidated
revenues for the second quarter of fiscal 1999. Revenues decreased $7.2 million
or 21.0 percent compared to the prior year primarily due to an 18.7 percent
decrease in the Australian dollar exchange rates and lower average sales. Since
the second
9
quarter of fiscal 1998, international operations had a net reduction of one
Company-operated and a net increase of one franchised Sizzler restaurant. As of
October 18, 1998, the international operation included 31 Company-operated,
three joint ventured, and 50 franchised Sizzler restaurants and 99 KFC
restaurants.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 0.3 percent and 1.8
percent, respectively, due to the increasingly competitive casual dining market.
The average guest check increased 1.6 percent. The KFC restaurants decreased 0.8
percent in average restaurant sales and 5.0 percent in the average number of
customers. The average customer check increased 4.5 percent, reflecting price
increases and promotions of family meals and upsizing of combos.
The Company's international franchise revenues decreased $0.3 million or 55.1
percent primarily due to the overall economic turmoil and weakening of local
currencies throughout much of Asia against the U.S. dollar. At October 18, 1998,
there were 53 international franchised and joint-ventured Sizzler restaurants in
Japan, Taiwan, Thailand, South Korea, Singapore and Indonesia, versus 52
restaurants in six countries at October 12, 1997.
Earnings before interest, taxes and parent company overhead were $1.9 million,
an increase of $0.1 million or 6.6 percent from the prior year.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 43.6 percent of the Company's
consolidated revenues. Sales reflect an increase of $1.1 million or 5.0 percent
to $22.2 million when compared to the prior year. At October 18, 1998, the
number of domestic Company-operated restaurants was 66 versus 67 restaurants at
October 12, 1997.
On a comparative restaurant basis, average sales per restaurant increased 7.4
percent and the average customer check increased 9.2 percent. The average
customers per restaurant declined 1.7 percent. Gross margins per guest increased
by 16.8 percent reflecting the impact of the menu repositioning program and
current marketing strategy.
Management is continuing its plan to revitalize the restaurant concept. There
are three major initiatives underway designed to complete the repositioning of
the Sizzler concept away from a lower margin buffet positioning to a mid-scale
steakhouse featuring high quality and high value entrees. The first of these is
a test: a new higher-quality fresh fruit and salad bar, designed to be either a
light lunch entree option or an add on to a grilled entree at dinner. Secondly,
we are also testing a new service system designed to improve the guest's dining
experience, making it consistent with higher quality, higher value menu
offerings that have been introduced as part of the repositioning. The system
would allow Sizzler restaurants to offer customers new appetizer, beverage and
dessert selections and the ability to pay after their dining experience.
Thirdly, work has begun on a new Sizzler prototype restaurant, which will be the
basis for any future remodeling of the current Sizzler system as well as for
future growth of Sizzler restaurants in the U.S.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 3.4 percent of consolidated revenues. Compared to the
prior year,
10
revenues increased $0.7 million or 59.2 percent. The revenue increase reflects
increased sales per restaurant in the current year and the impact of a temporary
royalty abatement program in the prior year. As of October 18, 1998, the number
of domestic franchised restaurants was 198, including 10 Latin American
restaurants, versus 203 restaurants at October 12, 1997.
Domestically, earnings before interest, taxes and parent company allocation were
$2.1 million, an increase of $0.3 million or 19.2 percent from the prior year.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 1.2
percentage points from the prior year. This decrease is primarily the result of
lower food costs, depreciation and amortization and interest expense. Interest
expense declined to $0.8 million in fiscal 1999 from $1.1 million in fiscal
1998, primarily due to the refinancing of debt.
The effective income tax rate decreased from 49.8 percent of pretax income in
fiscal 1998 to 19.2 percent in fiscal 1999, primarily due to the utilization of
loss carryforwards to offset domestic earnings.
MATERIAL CHANGES IN RESULTS OF OPERATIONS TWENTY-FOUR WEEKS ENDED OCTOBER 18,
- -----------------------------------------------------------------------------
1998 VERSUS OCTOBER 12, 1997
- ----------------------------
INTERNATIONAL OPERATIONS
- ------------------------
International operations generated approximately 53.0 percent of consolidated
revenues for the first twenty-four weeks of fiscal 1999. Revenues of $54.9
million reflected a decrease of $16.0 million or 22.5 percent compared to the
prior year. This decrease was primarily due to an 18.7 percent decrease in the
Australian dollar exchange rates and lower average sales. Since the second
quarter of fiscal 1998, international operations had a net reduction of one
Company-operated and a net increase of one franchised Sizzler restaurant. As of
October 18, 1998, the international operation included 31 Company-operated,
three joint ventured, and 50 franchised Sizzler restaurants and 99 KFC
restaurants.
On a comparative restaurant basis, sales in Australian dollars for Company-
operated Sizzler restaurants and customer counts decreased 2.8 percent and 3.8
percent, respectively, due to the increasingly competitive casual dining market.
The average guest check increased 1.0 percent. The KFC restaurants increased 0.2
percent in average restaurant sales and 5.1 percent in the average customer
check reflecting price increases and promotions of family meals and upsizing
combos. The average number of customers per restaurant decreased 4.6 percent
The Company's international franchise revenues decreased $0.7 million or 58.0
percent primarily due to the overall economic turmoil and weakening of local
currencies throughout much of Asia against the U.S. dollar. At October 18, 1998,
there were 53 international franchised and joint-ventured Sizzler restaurants in
Japan, Taiwan, Thailand, South Korea, Singapore and Indonesia, versus 52
restaurants in six countries at October 12, 1997.
11
Earnings before interest, taxes and parent company overhead were $4.0 million,
an increase of less than $0.1 million or 1.7 percent from the prior year.
DOMESTIC OPERATIONS
- -------------------
Domestic restaurant operations accounted for 43.8 percent of the Company's
consolidated revenues. Sales reflect an increase of $1.9 million or 4.3 percent
to $45.4 million when compared to the prior year. At October 18, 1998, the
number of domestic Company-operated restaurants was 66 versus 67 restaurants at
October 12, 1997.
On a comparative restaurant basis, average sales per restaurant increased 7.3
percent and the average customer check increased 10.1 percent. The average
customers per restaurant declined 2.6 percent. Gross margins per guest increased
to $5.57 in fiscal 1999 from $4.94 in fiscal 1998.
Domestic franchise revenues, including franchise fees, royalties and rental
income, accounted for 3.2 percent of consolidated revenues. Revenues of $3.3
million, when compared to the prior year, increased $1.6 million or 92.0
percent. The revenue increase reflects increased sales per restaurant in the
current year and the impact of a temporary royalty abatement program in the
prior year. As of October 18, 1998, the number of domestic franchised
restaurants was 198, including 10 Latin American restaurants, versus 203
restaurants at October 12, 1997.
Domestically, earnings before interest, taxes and parent company allocation
increased $1.3 million to $4.7 million, from $3.4 million in the same period
last year.
CONSOLIDATED COSTS AND EXPENSES
- -------------------------------
Consolidated costs and expenses, as a percentage of revenues, decreased 1.2
percentage points from the prior year. This decrease is primarily the result of
lower food costs and interest expense. Interest expense declined to $1.7 million
in fiscal 1999 from $2.5 million in fiscal 1998, primarily due to the
refinancing of debt.
The effective income tax rate decreased from 37.3 percent of pretax income in
fiscal 1998 to 17.5 percent in fiscal 1999, primarily due to the utilization of
loss carryforwards to offset domestic earnings.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
WORKING CAPITAL
- ---------------
The Company's principal source of working capital is net cash provided by
operations which amounted to $7.8 million for the first twenty-four weeks of
fiscal 1999 versus $5.9 million for the same period of the prior year.
The Company's working capital at October 18, 1998 was negative $1.9 million
including cash and cash equivalents of $17.8 million. At April 30, 1998, working
capital was $2.9 million.
12
TOTAL ASSETS / CAPITAL EXPENDITURES
- -----------------------------------
At October 18, 1998, total assets were $114.4 million, a decrease of $5.0
million or 4.2 percent from April 30, 1998. Property and equipment represented
approximately 68.7 percent of total assets at October 18, 1998 and 66.3 percent
at April 30, 1998.
Capital expenditures were $4.7 million for the first twenty-four weeks of fiscal
1999, including new restaurant construction of $0.9 million and replacements of
$3.8 million. The Company anticipates continuing to build its international
operations through additional investment in Company-operated restaurants and the
development of the franchise system. Domestically, no new unit growth is planned
in fiscal 1999. Instead, the Company will focus on the previously mentioned
revitalization program.
DEBT
- ----
On September 23, 1997, the Company obtained a $63.5 million AUD (approximately
$46.9 million US) bank facility from Westpac Banking Corporation in order to
refinance the claims of the Company's unsecured creditors. The Westpac loan
provides for a five-year term at an interest rate equal to the Australian
interbank borrowing rate, plus a margin. The margin will be based on a formula
tied to the Company's international operations ratio of debt to earnings before
interest and taxes, and will vary between 1.25% and 2.25%. The Westpac loan
involved the collateralization of the Company's principal operating assets of
its international division. The Westpac loan is subject to a number of financial
covenants and other restrictions.
Based on current levels of operations and anticipated sales growth, management
believes that cash flow from operations will be sufficient to meet all of its
debt service requirements when due and to fund its capital expenditure and
working capital requirements.
YEAR 2000
- ---------
Many computerized systems and microprocessors that are embedded in a variety of
products used by the Company have the potential for operational problems if they
are unable to process information containing dates beginning in the year 2000.
We have established a comprehensive program to identify and remediate potential
Year 2000 problems in our information and non-information technology systems
with embedded technology applications. The Company expects that all mission-
critical systems will be Year 2000 compliant prior to the end of the 1999
calendar year.
The phases of our plan - inventory, assessment, remediation, testing,
implementation and contingency planning are expected not to have a material
impact on our financial statements. Several information technology projects
that were previously planned have been accelerated due to the potential Year
2000 problem. The majority of the costs include the replacement of hardware
already coming off of lease in calendar 1999 will be funded through new lease
agreements. A majority of the Company's other computer systems have been
outsourced to a service provider who has given assurances to the Company that
its computer systems are Year 2000 compliant. This compliance will be tested in
the following months.
13
The inventory and assessment phases of the project are still underway but are
expected to be substantially completed by the end of 1998. The remaining phases
of the project are expected to be completed by the third quarter in 1999.
We have identified key suppliers and other third-party relationships and are in
the process of assessing their readiness for the Year 2000. Contingency plans
will be developed for suppliers that we believe have risks after assessing their
responses.
The Company does not anticipate significant disruption of its business as a
result of the Year 2000 issue. However, there is uncertainty about the broader
scope of the Year 2000 issue as it may affect the Company and third parties that
are critical to the Company's operations. For example, lack of readiness by
electrical and water utilities or other providers of general infrastructure
could have a material adverse affect on our results of operations, financial
condition and cash flows.
FORWARD-LOOKING STATEMENTS
- --------------------------
With the exception of any historical information contained in this report, the
matters described herein contain forward-looking statements that are made
pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Such statements involve various risks and may cause actual
results to differ materially. These risks include, but are not limited to,
changes in global and local business and economic conditions; consumer
preferences, spending patterns and demographic trends; food, labor and other
operating costs; availability and cost of land and construction; currency
exchange rates; and other risks outside the control of the Company referred to
in the Company's registration statement and periodic reports filed with the
Securities and Exchange Commission.
14
SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27 - Financial Data Schedule
15
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: November 24, 1998 /s/ James A. Collins
--------------------------------------------
James A. Collins
Chief Executive Officer
Date: November 24, 1998 /s/ Ryan S. Tondro
--------------------------------------
Ryan S. Tondro
Vice President
(Principal Financial Officer)
16