1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
/X/ Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934. For the fiscal year ended January 2, 2000.
or
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 1-8766
J. ALEXANDER'S CORPORATION
(Exact name of Registrant as specified in its charter)
Tennessee 62-0854056
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
P.O. Box 24300
3401 West End Avenue
Nashville, Tennessee 37203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615)269-1900
Securities registered pursuant to Section 12(b) of the Act:
Title of Class: Name of each exchange on which registered:
- ----------------------------------------------- ------------------------------------------
Common stock, par value $.05 per share. New York Stock Exchange
Series A junior preferred stock purchase rights. New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. / /
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the last sales price on the New York
Stock Exchange of such stock as of March 23, 2000, was $17,511,646, assuming
that (i) all shares beneficially held by members of the Company's Board of
Directors are shares owned by "affiliates," a status which each of the directors
individually disclaims and (ii) all shares held by the Trustee of the J.
Alexander's Corporation Employee Stock Ownership Plan are shares owned by an
"affiliate".
The number of shares of the Company's Common Stock, $.05 par value,
outstanding at March 23, 2000, was 6,851,950.
DOCUMENT INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the 2000 Annual Meeting of
Shareholders to be held May 16, 2000, are incorporated by reference into Part
III.
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Note: This Form 10-K/A is filed to correct the 1999 weighted average weekly
sales per restaurant in the table below, which was incorrectly stated as
$76,300 in the Form 10-K/A filed on April 3, 2000. The corrected figure is
$74,900.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
General
J. Alexander's Corporation owns and operates upscale, high-volume,
casual dining restaurants which offer a contemporary American menu and place a
special emphasis on food quality and professional service. At January 2, 2000,
the Company owned and operated 21 J. Alexander's restaurants in 11 states.
For fiscal year 1999, the Company's loss before income taxes of
$299,000 represented an improvement of almost $1.2 million from the loss before
income taxes of $1,485,000 incurred in 1998. This improvement was due primarily
to an improvement in operating income of approximately $700,000 and a reduction
in interest expense of approximately $400,000. In addition, the Company realized
a gain of $166,000 on the early retirement of a portion of its Convertible
Debentures purchased to meet sinking fund requirements.
The Company's loss of $1,485,000 before income taxes for 1998 compares
to a loss in 1997 of $2,421,000 before income taxes and the cumulative effect of
a change in accounting principle. The 1997 results include a gain of $669,000
related to the divestiture of the Company's Wendy's operations in 1996. An
additional gain of $264,000 was recorded on the divestiture in 1998. The loss
before the Wendy's gains, income taxes and cumulative effect adjustment
decreased by $1,341,000 in 1998 compared to 1997, as higher restaurant operating
income and reduced pre-opening expenses more than offset increased net interest
expense and a slight increase in general and administrative expenses during
1998. The Company's net loss of $1,485,000 for 1998 includes no income tax
benefit. All of the Company's deferred tax assets, consisting primarily of net
operating loss carryforwards and various tax credit carryforwards, were fully
reserved through the use of a valuation allowance at the end of both fiscal 1999
and 1998.
The Company's net loss of $5,991,000 for 1997 included an increase of
$2,393,000 in the valuation allowance for deferred tax assets and an $885,000
charge to reflect the cumulative effect of a change in the Company's accounting
principle for pre-opening costs to expense them as incurred.
The following table sets forth, for the fiscal years indicated, (i) the
percentages which the items in the Company's Consolidated Statements of
Operations bear to total net sales, and (ii) other selected operating data:
Fiscal Year
1999 1998 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales 32.6 34.2 34.1
Restaurant labor and related costs 33.5 33.2 33.0
Depreciation and amortization of restaurant property
and equipment 4.7 5.1 5.0
Other operating expenses 18.3 18.4 18.9
----- ----- -----
Total restaurant operating expenses 89.1 91.0 91.0
General and administrative expenses 9.1 7.8 10.1
Pre-opening expense .3 .9 2.8
Gain on Wendy's disposition -- .4 1.2
----- ----- -----
Operating income (loss) 1.5 .7 (2.8)
Other income (expense):
Interest expense, net (2.0) (2.7) (1.5)
Gain on purchase of debentures .2 -- --
Other, net (.1) -- --
----- ----- -----
Total other expense (1.9) (2.7) (1.5)
Loss before income taxes (.4) (2.0) (4.2)
Income tax provision -- -- (4.7)
----- ----- -----
Loss before cumulative effect of change in (.4) (2.0) (8.9)
accounting principle
Cumulative effect of change in accounting principle -- -- (1.5)
----- ----- -----
Net loss (.4)% (2.0)% (10.5)%
===== ===== =====
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Restaurants open at end of period 21 20 18
Weighted average weekly sales per restaurant $74,900 $73,200 $72,500
NET SALES
Net sales increased by approximately $4.3 million, or 5.7%, to $78.5
million in fiscal year 1999 from $74.2 million in 1998. The $74.2 million of
sales recorded in 1998 represents an increase of $17.1 million, or 29.9%, over
$57.1 million of sales reported in 1997. The 1999 increase was due to the
opening of new restaurants - two in 1998 and one in 1999 - and to an increase of
4.2% in weighted average weekly sales per restaurant. The increase in 1998 was
primarily a result of new restaurant openings; average weekly sales per
restaurant increased by 1% in 1998. Fiscal 1998 contained 53 weeks of operations
compared to 52 weeks for both 1999 and 1997.
Same store sales, which include comparable results for all restaurants
open for more than 12 months, increased 4.1% to $76,300 per week in 1999 on a
base of 20 restaurants. Same store sales for 1998 also averaged $76,300 per
week, on a base of 17 restaurants, and increased 4.8% over the $72,800 average
for 1997.
Management estimates that menu prices were approximately 5% higher in
1999 than in 1998 and also approximately 5% higher in 1998 than 1997. The
Company estimates that guest counts on a same store basis increased by
approximately 2% in 1998 and declined by approximately 1% in 1999. Near the end
of the third quarter of 1999, however, the Company repositioned its menu to
place more emphasis on its premium offerings and daily feature items, while
de-emphasizing certain lower priced menu items. As a result of these changes and
a number of other guest service improvement initiatives begun in 1997, same
store sales increased by 8.6% in the fourth quarter of 1999 as compared to the
same period in 1998, with guest counts increasing by approximately 2 to 3%
during this period. Same store sales increases have remained in this range
during the first two months of 2000.
RESTAURANT COSTS AND EXPENSES
Total restaurant operating expenses decreased to 89.1% for 1999
compared to 91% for both 1998 and 1997, with restaurant operating margins
increasing to 10.9% in 1999 from 9% in both 1998 and 1997. The decrease in
restaurant operating expenses as a percentage of sales in 1999 was a result of a
decrease in these costs and expenses in the same store group of 20 restaurants
to 87.8% in 1999 from 90.8% in 1998, with these same store reductions more than
offsetting higher costs associated with new restaurants opened during 1998 and
1999. Restaurant operating margins for the same store restaurant group increased
to 12.2% in 1999 from 9.2% in 1998. The largest factor contributing to the
operating expense decrease in 1999 was the decrease in cost of sales resulting
from management's emphasis on increased efficiencies in this area and the menu
price increases noted above. Another factor contributing to the improvement was
the Company's decision to change the estimated useful life of its buildings from
25 to 30 years and the estimated life of leasehold improvements to include an
amortization period based on the lesser of the lease term, generally including
renewal options, or the useful life of the asset. The effect of these changes,
which were implemented as of January 4, 1999, was to decrease restaurant
operating expenses for 1999 by $333,000, or .4% of sales. Restaurant operating
expenses for the same store group of 17 restaurants decreased to 87.7% in 1998
from 90.7% in 1997 due to the favorable effect of higher sales volumes,
particularly as relates to labor costs and other operating expenses, which
include certain components that are relatively fixed in nature.
As noted in previous filings, certain of the Company's newer
restaurants have not yet reached their targeted level of sales performance and
continue to significantly affect its overall financial performance. As an
indication of this, the Company's 14 restaurants opened prior to 1997 posted
restaurant operating margins of 14.9% for 1999, while averaging weekly sales of
$81,000 per restaurant. Restaurant margins for 1999 for the six restaurants
opened in 1997 and 1998 were a negative .8% on average weekly sales of $60,000
per restaurant. These six restaurants continue to show good progress, however,
and averaged sales of $64,200 per week in the fourth quarter of 1999. The
Company's four newest restaurants posted losses at the restaurant level of
approximately $1 million for 1999.
Management believes that the performance of newer restaurants is
attributable primarily to two factors. The first of these factors is the
Company's "quiet opening" approach. In order to maximize the quality of guest
service and successfully complete the extensive training and support of J.
Alexander's staff, there is typically little or no advertising or promotion of
new J. Alexander's restaurants. While management believes this approach is the
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best way to build a new restaurant's reputation and to build sales over time,
the sometimes lower initial sales volumes combined with higher expenses
associated with the emphasis placed on training and quality of operations during
the opening months, typically result in the financial performance of newer
restaurants trailing that of more mature restaurants. The Company expects newly
opened restaurants to experience operating losses in their initial months of
operation. Also, the Company believes that certain of its newer restaurants
located in mid-size, rather than larger markets will take longer to build to
satisfactory sales levels than was originally expected. Management believes that
all or virtually all of the Company's restaurants have the potential over time
to reach satisfactory sales levels.
Beginning in 1998 the Company lowered its new restaurant development
plans to allow management to focus intently on improving sales and profits in
its existing restaurants while maintaining operational excellence. Also, in 1997
the Company established criteria calling for higher population densities and
higher household incomes than were met by certain of its previous locations. The
West Bloomfield, Michigan restaurant opened in 1999 was the first restaurant to
be opened under these more stringent criteria. To date, the West Bloomfield
restaurant has met all of the Company's sales expectations.
Management remains optimistic about the prospects for J. Alexander's
and continues to believe that the primary issue faced by the Company in
maintaining consistent profitability is the improvement of sales in several of
its restaurants, and particularly certain of its newer restaurants. It believes
that actions taken to date, including guest service initiatives which were
implemented two years ago, the menu repositioning implemented in the third
quarter of 1999, and the change in development criteria, together with continued
emphasis on increasing sales and profits are having and will continue to have a
positive impact on the Company's sales and financial performance for 2000 and
that the Company will be profitable in 2000. The Company's profit of
approximately $400,000 for the fourth quarter of 1999 provides evidence of
significant improvements. Further, only two restaurants - one of which was the
new West Bloomfield restaurant opened in November - posted restaurant operating
losses in the fourth quarter of 1999; losses at those two restaurants totaled
approximately $100,000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses, which include supervisory costs as
well as management training costs and all other costs above the restaurant
level, increased by $1,309,000, or 22.5%, in 1999 compared to 1998. As a
percentage of sales these expenses increased to 9.1% in 1999 from 7.8% in 1998.
These increases were due primarily to lower than normal general and
administrative expenses in 1998 which were, in turn, principally due to
favorable experience under both the Company's workers' compensation program and
its self-insured group medical insurance program which allowed the Company to
reduce its level of accruals and expense related to those programs for 1998. In
addition, increases in management training costs which combined with management
relocation and procurement costs comprise approximately 20% of the general and
administrative category, contributed to higher general and administrative costs
during 1999.
General and administrative expenses increased slightly in fiscal 1998
compared to 1997. For the 1998 year favorable experience under the Company's
workers' compensation program and under the Company's self-insured group medical
insurance program largely offset increases in management training costs and
relocation costs for restaurant management personnel. As a percentage of sales,
general and administrative expenses decreased to 7.8% in 1998 from 10.1% in 1997
due to higher sales levels achieved.
General and administrative expenses for 2000 are expected to remain at
approximately the same percentage of sales as 1999.
PRE-OPENING EXPENSE
In 1997 the Company changed its accounting policy to expense all
pre-opening costs as incurred rather than deferring and amortizing them over a
period of twelve months from each restaurant's opening. A charge of $885,000 was
recorded as of the beginning of 1997 to reflect the cumulative effect of this
change. As the Company only opened one restaurant in 1999 and two restaurants in
1998, pre-opening expenses, which are typically approximately $350,000 per
restaurant, were significantly less in those years than the $1,580,000 of
pre-opening expenses incurred in 1997 when four restaurants were opened.
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OTHER INCOME AND EXPENSE
Interest expense decreased by $416,000 in 1999 compared to 1998 due
primarily to reductions in the outstanding balance of the Company's convertible
subordinated debentures and a reduction in the Company's line of credit after
applying proceeds from sales of stock in March and June, 1999, to the
outstanding balance on the line. Net interest expense increased by $1,142,000 in
1998 compared to 1997 primarily due to the use of the Company's line of credit
to fund a portion of the cost of developing new restaurants.
"Other, net" expense of $93,000 for 1999 was the result of expenses
associated with the write-off of facilities and equipment replaced in connection
with various capital maintenance projects which more than offset miscellaneous
income categories.
INCOME TAXES
Under the provisions of SFAS No. 109 "Accounting for Income Taxes", the
Company had gross deferred tax assets of $4,726,000 and $5,324,000 and gross
deferred tax liabilities of $616,000 and $929,000 at January 2, 2000 and January
3, 1999, respectively. The deferred tax assets at January 2, 2000 relate
primarily to $3,098,000 of net operating loss carryforwards and $3,079,000 of
tax credit carryforwards available to reduce future federal income taxes.
The recognition of deferred tax assets depends on the likelihood of
taxable income in future periods in amounts sufficient to realize the assets.
The deferred tax assets must be reduced through use of a valuation allowance to
the extent future income is not likely to be generated in such amounts. Due to
the loss incurred in 1997 and because the Company operates with a high degree of
financial and operating leverage, with a significant portion of operating costs
being fixed or semi-fixed in nature, management was unable to conclude that it
was more likely than not that its existing deferred tax assets would be realized
and in the fourth quarter of 1997 increased the beginning of the year valuation
allowance for these assets by $2,393,000. At December 28, 1997, the Company's
valuation allowance for deferred tax assets was $3,865,000.
During both 1998 and 1999, management was again unable to conclude that
it was more likely than not that its existing deferred tax assets would be
realized. The valuation allowance related to the Company's deferred tax assets
totaled $4,395,000 and $4,110,000 at January 3, 1999 and January 2, 2000,
respectively. Approximately $12,200,000 of future taxable income would be needed
to realize the Company's tax credit and net operating loss carryforwards at
January 2, 2000. These carryforwards expire in the years 2000 through 2019.
Approximately $1,400,000 of taxable income would be needed to realize the
carryforwards which expire in 2000 and $800,000 to use those which expire in
2001.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for capital for the past three years has
been for the development and maintenance of its J. Alexander's restaurants. In
addition, beginning in 1998, the Company has been required to meet an annual
sinking fund requirement of $1,875,000 in connection with its outstanding
Convertible Subordinated Debentures. The Company has met its capital needs and
maintained liquidity primarily by use of cash flow from operations, use of its
bank line of credit and through other sources discussed below.
Capital expenditures totaled $4,884,000, $4,914,000 and $16,619,000 for
1999, 1998 and 1997, respectively, and were primarily for the development of new
J. Alexander's restaurants. For 1997, the Company had negative cash flow from
operations totaling $2,150,000. Capital expenditures for 1997 were funded
primarily by the proceeds from the sale of the Company's Wendy's operations in
1996 and use of the Company's bank line of credit. Beginning in 1998, capital
expenditures were significantly reduced as a result of the Company's lower new
restaurant development rate, and cash flow from operations of $4,149,000
represented 84% of the capital expenditures for the year. For 1999, cash flow
from operations of $4,465,000 comprised 91% of total capital expenditures for
the year. The remaining capital expenditures for 1998 and 1999 along with other
needs during both years were funded by use of the Company's line of credit and,
for 1999, by the sale of common stock as discussed below.
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For 2000, the Company plans to construct and open one restaurant on
leased land in the Cincinnati, Ohio market. Management estimates that the cost
to complete the Cincinnati restaurant and for capital maintenance for existing
restaurants will be approximately $4 million for 2000. In addition, the Company
may incur capital expenditures for the purchase of property and/or construction
of restaurants for locations to be opened in fiscal 2001. Any such expenditures
are dependent upon the timing and success of management's efforts to locate
acceptable sites and are not expected to exceed $2 million.
While a working capital deficit of $6,409,000 existed as of January 2,
2000, the Company does not believe this deficit impairs the overall financial
condition of the Company. Certain of the Company's expenses, particularly
depreciation and amortization, do not require current outlays of cash. Also,
requirements for funding accounts receivable and inventories are relatively
insignificant; thus virtually all cash generated by operations is available to
meet current obligations. As of January 2, 2000, debentures in the principal
amount of $902,000 had been purchased by the Company for use toward satisfying
the annual sinking fund requirement of $1,875,000 for this issue for 2000.
In 1999, the Company's Board of Directors established a loan program
designed to enable eligible employees to purchase shares of the Company's common
stock. Under the program participants may borrow an amount equal to the full
price of common stock purchased. The plan authorizes $1 million in loans to
employees. Purchases of stock under the plan totaled $486,000 during 1999, with
the remainder of the authorized amount being purchased by February 2000. The
employee loans, which are reported as a deduction from stockholders' equity, are
payable on December 31, 2006, unless repaid sooner pursuant to terms of the
plan.
The Company maintains a bank line of credit of $20 million which is
expected to be used as needed for funding of capital expenditures and to provide
liquidity for meeting working capital or other needs. At January 2, 2000,
borrowings outstanding under this line of credit were $8,019,000. In March of
2000, the term of the line of credit was extended by one year through July 1,
2001. The amended line of credit agreement contains covenants which require the
Company to achieve specified results of operations and specified levels of
senior debt to EBITDA (earnings before interest, taxes, depreciation and
amortization) and to maintain certain other financial ratios. The Company was in
compliance with these covenants at January 2, 2000 and, based on a current
assessment of its business, believes it will continue to comply with these
covenants through July 1, 2001. The credit agreement also contains certain
limitations on capital expenditures and restaurant development by the Company
(generally limiting the Company to the development of two new restaurants per
year) and restricts the Company's ability to incur additional debt outside the
bank line of credit. The interest rate on borrowings under the line of credit is
currently based on LIBOR plus a spread of two to three percent, depending on the
ratio of senior debt to EBITDA. The line of credit includes an option to convert
outstanding borrowings to a term loan prior to July 1, 2001.
In March 1999 the Company developed a plan for raising additional
equity capital to further strengthen its financial position and, as part of this
plan, completed a private sale of 1,086,266 shares of common stock to Solidus,
LLC, an affiliate of one of the directors of the Company, for approximately $4.1
million. In addition, on June 21, 1999, the Company completed a rights offering
wherein shareholders of the Company purchased an additional 240,615 shares of
common stock at a price of $3.75 per share, which was the same price per share
as stock sold in the private sale. The private sale and the rights offering
raised total net proceeds to the Company of approximately $4.8 million which
were used to repay a portion of the debt outstanding under the Company's bank
line of credit. Amounts repaid can be reborrowed in accordance with the terms of
the line of credit agreement. The Company believes that raising additional
equity capital and repaying a portion of its outstanding debt will benefit the
Company by reducing its debt to equity ratio and reducing interest expense and
that it will provide greater flexibility to the Company in providing for future
financing needs.
IMPACT OF ACCOUNTING CHANGES
There are no pending accounting pronouncements that, when adopted, are
expected to have a material effect on the Company's results of operations or its
financial condition.
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IMPACT OF INFLATION AND OTHER FACTORS
Virtually all of the Company's costs and expenses are subject to normal
inflationary pressures and the Company is continually seeking ways to cope with
their impact. By owning a number of its properties, the Company avoids certain
increases in occupancy costs. New and replacement assets will likely be acquired
at higher costs but this will take place over many years. In general, the
Company tries to offset increased costs and expenses through additional
improvements in operating efficiencies and by increasing menu prices over time,
as permitted by competition and market conditions.
IMPACT OF THE YEAR 2000 ISSUE
In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of those planning and
implementation efforts, the Company experienced no significant disruptions in
mission critical information technology and non-information technology systems
and believes those systems successfully responded to the Year 2000 date change.
Management estimates the total cost associated with the remediation of its
system was approximately $200,000. The Company is not aware of any material
problems resulting from Year 2000 issues, either with its internal systems or
the products and services of third parties. The Company will continue to monitor
its mission critical computer applications and those of its suppliers and
vendors throughout the year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
The foregoing discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition. The
discussion should be read in conjunction with the consolidated financial
statements and notes thereto. All references are to fiscal years unless
otherwise noted. The forward-looking statements included in Management's
Discussion and Analysis of Financial Condition and Results of Operations
relating to certain matters involve risks and uncertainties, including
anticipated financial performance, business prospects, anticipated capital
expenditures and other similar matters, which reflect management's best judgment
based on factors currently known. Actual results and experience could differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements as a result of a number of factors.
Forward-looking information provided by the Company pursuant to the safe harbor
established under the Private Securities Litigation Reform Act of 1995 should be
evaluated in the context of these factors. In addition, the Company disclaims
any intent or obligation to update these forward-looking statements.
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SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) 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.
J. ALEXANDER'S CORPORATION
Date: 5/12/00 By: /s/ R. Gregory Lewis
-------- ------------------------------------------------
R. Gregory Lewis
Vice-President, Chief Financial Officer and
Secretary