SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED COMMISSION FILE
- ------------------------- ---------------
SEPTEMBER 30, 1996 NO. 0-4766-3
JERRY'S, INC.
---------------------------------------------
A Florida Corporation - I.R.S. No. 59-1060780
1500 North Florida Mango Road
Suite 19
West Palm Beach, Florida 33409
Registrant's Telephone Number:
(407) 689-9611
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.04 PER SHARE
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 the
filing requirements for the past 90 days:
Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 [ ].
State the aggregate market value of the voting stock (which consists solely of
shares of common stock) held by non-affiliates of the registrant: The registrant
is unable to calculate this amount because there is no established trading
market for its common stock.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date (September 30, 1996): 562,422
shares of Common Stock, par value $.04 per share.
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TABLE OF CONTENTS
PAGE
----
PART I
ITEM 1. BUSINESS..........................................................5
ITEM 2. PROPERTIES.......................................................14
ITEM 3. LEGAL PROCEEDINGS................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS..............................................18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER
MATTERS..........................................................20
ITEM 6. SELECTED FINANCIAL DATA..........................................21
ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL
CONDITION........................................................22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLE-
MENTARY DATA.....................................................27
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.........................................27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT................................................28
Incorporated by reference to Registrant's
1996 Information Statement to be filed
with the Securities and Exchange Commission
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ITEM 11. EXECUTIVE COMPENSATION...........................................28
Incorporated by reference to Registrant's
1996 Information Statement to be filed
with the Securities and Exchange Commission
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.................................28
Incorporated by reference to Registrant's
1996 Information Statement to be filed
with the Securities and Exchange Commission
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS.....................................................28
Incorporated by reference to Registrant's
1996 Information Statement to be filed
with the Securities and Exchange Commissions
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K................................29
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PART I
ITEM 1. BUSINESS
GENERAL.
JERRY'S, INC., a Florida corporation, and its subsidiaries (collectively,
the "Company"), cater airline flights and operate coffee shops, lounges and gift
shops at airports and other facilities located in Florida, Alabama and Georgia.
For the 1996 fiscal year, the Company's airline catering sales were
approximately $9,363,000 compared to $10,440,000 in sales for the Company's
restaurants, coffee shops, lounges, gift shops and other facilities.
The Company's airline catering services include the preparation of meals
in kitchens located at or adjacent to airports and the distribution of meals and
beverages for service on commercial airline flights. The Company also provides
certain ancillary services, including, among others, the preparation of beverage
service carts, the unloading and cleaning of plates, utensils and other
accessories arriving on incoming aircraft, and the inventory management and
storage of airline-owned dining service equipment.
SALE OF MIAMI AND ORLANDO OPERATIONS.
In February 1995, the Company sold its Miami and Orlando
airline catering operations. These operations represented a
significant percentage of the Company's revenues. See "Item 7-
Management's Discussion and Analysis of Results of Operations and
Financial Condition."
CLOSING OF TALLAHASSEE AND FT. PIERCE OPERATIONS.
During the 1996 fiscal year, the Company closed its operations at
Tallahassee and Ft. Pierce due to poor operation results. The closing of the
Tallahassee facility was part of a settlement of certain litigation with the
Company's lessor at Tallahassee. See "Item 3 - Legal Proceedings."
THE AIRLINE CATERING INDUSTRY.
GENERAL. Almost all commercial airline flights that exceed 60 minutes
offer some form of food or beverage service. Two distinct groups of caterers
supply airlines with the food and beverages served on such flights. Independent
caterers such as the Company, which are not affiliated with any airline and
offer to serve all
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airlines, and captive caterers, which are owned by an airline and which serve
primarily that airline at selected locations.
Airlines generally enter into commitments for catering services covering
one or more airports rather than on a system-wide basis. Accordingly, a caterer
typically competes for the business of all airlines at the airports where the
caterer is located. The principal independent caterers have kitchens at most of
the major U.S. airports, and, in general, two or more caterers compete for the
non-captive business at most airports.
Most catering contracts are short-term and typically have termination
clauses that allow cancellation for nonperformance and other reasons. The
Company believes that, in practice, catering contracts generally are rescinded
only for material breaches or repeated failure to provide adequate service.
Although no assurances can be given that existing airline contracts will not be
terminated or will be renewed, the Company's experience has been that airlines
typically maintain stable relationships with their caterers. Favorable
experience on prior contracts, capacity constraints at airports and the cost of
changing caterers are among the factors contributing to the continuity of a
caterer's business.
OPERATING PERFORMANCE DISTINCT FROM AIRLINE PROFITABILITY. The Company's
revenues are dependent upon the number of passengers who travel on airlines, the
number of airline flights serviced by the Company and the level of meal service
provided by the airlines to their passengers. Factors that may affect the
profitability of an airline carrier, such as fare wars and high fixed costs,
generally do not adversely affect the Company's catering revenues, unless the
cumulative effect of such factors is to cause the airline to reduce its level of
meal service to its passengers or to curtail or cease flight operations.
The Company's airline catering operations have been supported for many
years by the consistent growth in airline passengers to the Florida market. This
growth is expected to continue for at least another decade. The positive impact
of this growth has been offset by the adverse effect of losses incurred by
airlines during the last few years, largely as a result of high fixed-costs and
excess capacity. As a result of these losses, U.S. airlines have implemented
modifications to in-flight service levels, such as downgrading of food service
and changing airline policies regarding flight segments that are eligible for
food service. Downgrading of food service has included, among other things,
switching from hot meal service to a snack service and eliminating individual
tray service in favor of "bulk" meal service.
-6-
PRINCIPAL CUSTOMERS.
The Company's airline catering customers consist of a wide variety of U.S.
and international carriers. During the 1996 fiscal year, the Company's major
customers were U.S. Air (which accounted for 19% of total sales), Air Canada
(which accounted for 4% of total sales), KIWI (which accounted for 5% of total
sales), and Continental (which accounted for 6% of total sales). No other
customer represented more than 4% of the Company's total sales during 1996.
CATERING OPERATIONS.
GENERAL. The Company's catering operations are conducted out of flight
kitchens located at or near to airports. The right to construct and operate the
kitchens typically is obtained through concession or lease agreements with local
airport authorities. The Company's flight kitchens essentially are large
processing and storage facilities in which bulk foods are prepared and assembled
into individual meals in accordance with airline specifications and loaded onto
the Company's trucks, which transport the meals to outgoing aircraft. Ancillary
services include the preparation of beverage service carts, the unloading and
cleaning of plates, utensils and other accessories arriving on incoming aircraft
and the inventory management and storage of airline-owned dining service
equipment. Some of the Company's kitchens also service restaurants and coffee
shops located in the airline terminals.
The terms of food service contracts with airlines vary. In general, an
airline specifies a menu and the Company purchases and prepares the food in
accordance with the airline's specifications. The prepared food is then
delivered to the aircraft designated by the airline, along with plates, utensils
and other accessories owned by the airline.
In general, the kitchens owned or operated by the Company are managed on a
day-to-day basis by general managers, who report to the Company's president.
KITCHEN FACILITIES. The size and structure of the Company's kitchens vary
depending upon the number of meals to be produced by each kitchen. Kitchens and
related facilities generally range in size from 7,000 to 25,000 square feet and
operate 20 to 24 hours a day.
In general, approximately half of the space in a kitchen is utilized for
the storage of food, beverages and airline-owned equipment. The remaining space
is used for the preparation of
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meals and related purposes. A kitchen typically is equipped with ovens, steam
kettles, exhaust equipment, refrigerators, freezers, ice machines, holding tanks
for maintaining the temperature of prepared meals, rolling stock used to move
food and equipment during the production process and other miscellaneous
equipment.
PURCHASE OF FOOD AND BEVERAGES. The Company purchases its food, beverages
and supplies in bulk. In connection with such purchases, the Company typically
receives a volume discount and believes that it can obtain food and beverages at
comparable prices from other sources.
The Company generally does not purchase liquor for the flights it serves.
The airlines ordinarily purchase the liquor, which the Company stores until
used. In addition, airlines sometimes purchase non-alcoholic beverages for the
Company to store and use.
The Company orders non-perishable food and beverages approximately two to
three weeks in advance of expected use. Although U.S. airlines may change menus
as often as every seven days according to a pre-determined seasonal cycle, these
changes usually are known in advance. This allows the Company to keep its
inventory (including its inventory of canned goods) at a low level and to
minimize waste.
PREPARATION OF MEALS. Approximately 24 hours in advance of a scheduled
flight, the airline provides a preliminary count of the number of meals required
to service the flight. At this time, depending on the menu items, production of
the meals may begin. A revised count is submitted three to eight hours before
the scheduled departure, and the final order is placed two to four hours before
departure. Entrees are usually prepared 24 hours in advance and are prepared to
meet applicable FDA requirements. Salads and other items generally are prepared
three to eights hours in advance. Most food is placed on board the plane in a
chilled state and then, if necessary, heated in a convection oven on board.
DELIVERY TO AIRCRAFT. Food and beverages are dispatched to aircraft in
special purpose catering vehicles shortly before the scheduled departure. The
number and size of vehicles dispatched and the lead time depend upon the number
of meals to be loaded, the galley equipment design and the extent of congestion
in the loading areas. The vehicles are designed to elevate the trunk box to the
appropriate level of the aircraft being serviced. The Company may dispatch as
many as three vehicles for a large aircraft, while short flights are usually
serviced by one vehicle. Sometimes a vehicle may carry food and beverages for
two to three flights if narrow-bodied airplanes are being serviced.
-8-
COMPETITION.
The Company confronts strong competition in the airline catering business.
Several large caterers, as well as a number of small caterers operating at one
or more locations, compete for airline catering contracts. The Company competes
primarily with other independent caterers. The Company's principal independent
competitors in its market area are CaterAir International (formerly Marriott
In-Flight Services), Sky Chefs, Inc. and Dobbs International Services, Inc.
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PRINCIPAL COMPETITORS AS OF 9/30/96
THE FOLLOWING TABLE SETS FORTH THE COMPANY'S PRINCIPAL COMPETITORS:
PRINCIPAL
AIRPORT COMPETITORS
- ------- -----------
Mobile, AL Sky Chef
Montgomery, AL None
Daytona Beach, FL None
Ft. Lauderdale, FL CaterAir(1), Dobbs
Ft. Walton Beach, FL None
Gainesville, FL None
Melbourne, FL None
West Palm Beach, FL CaterAir(1)
Pensacola, FL None
Sarasota, FL Dobbs
St. Petersburg, FL CaterAir
Tampa, FL CaterAir, Dobbs
Augusta, GA None
- -----------------------
(1) CaterAir was subsequently acquired by Sky Chefs.
-10-
OTHER AIRPORT BUSINESS.
In addition to airline catering, the Company operates restaurants, coffee
shops, lounges, restaurants and gift shops at 11 airports. It also provides
private catering from some of its flight kitchens. The Company's restaurants,
coffee shops, lounges and gift shops are all located in airline terminals.
The Company's revenues for these facilities is directly dependent on the
number of airline passengers who pass through each of the airports. In most
cases, the number of passengers has continued to increase at most of the
airports served by the Company.
SUMMARY OF CURRENT AIRPORT OPERATIONS.
The table on the following page summarizes the Company's airport
operations as of September 30, 1996:
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DESCRIPTION OF AIRPORT OPERATIONS
SEPTEMBER 30, 1996
COFFEE COCKTAIL GIFT IN-FLIGHT
AIRPORT RESTAURANT SHOP(S) LOUNGE(S) SHOP CATERING
------- ---------- ------- --------- ---- --------
Mobile, AL X X X
Montgomery, AL X X X X
Daytona Beach, FL X X X
Ft. Lauderdale, FL X
Ft. Myers, FL X X X
Ft. Walton Beach, FL X X X X
Gainesville, FL X X X X
Melbourne, FL X X X X
West Palm Beach, FL X
Pensacola, FL X X X
Sarasota, FL X
St. Petersburg, FL X X X
Sanford, FL (1) X X
Tampa, FL X
Augusta, GA X X X X
- ----------
(1) The Company opened a coffee shop and cocktail lounge at Sanford, Florida in
the spring of 1996. It opened a gift shop in 1997.
SEASONALITY.
The Company's sales are directly related to the number of airline
passengers in Florida. Sales ordinarily reach their peak during the winter
tourism season (December through April).
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FINANCIAL INFORMATION WITH RESPECT TO INDUSTRY SEGMENTS.
Specific financial information with respect to the Company's industry
segments is provided in Note F to the Consolidated Financial Statements.
EMPLOYEES.
At September 30, 1996, the Company employed approximately 350 persons, of
whom 315 were kitchen employees and 35 were managerial and administrative
personnel. The Company believes that it provides working conditions and wages
which compare favorably with those offered by its competitors and by businesses
which compete with the Company for labor in the geographic areas in which it
operates. The Company believes that its relations with its employees are
satisfactory.
The Company has a profit-sharing plan (covering its employees who meet
certain length of service requirements). The aggregate amount set aside for all
employees, including officers, for the 1996 fiscal year was $25,000. The Company
has a group term life and hospitalization insurance plan available to all
salaried employees and certain hourly employees. None of the Company's employees
are covered by a collective bargaining agreement.
GOVERNMENT REGULATION.
GENERAL. Each of the Company's catering kitchens is subject to federal,
state and local laws and regulations governing health, sanitation, safety,
customs and security. In addition, the design and construction of new kitchens
are affected by federal, state and local laws and regulations regarding food and
health matters, environmental matters, zoning and land use. None of these laws
and regulations has had a significant adverse effect on the Company's
operations, and the Company has not experienced any significant difficulties in
obtaining licenses and approvals necessary to its operations.
FEDERAL REGULATION OF FOOD SERVICES. In addition to applicable state and
local regulations, the Company's kitchens are subject to regulation and
inspection by the FDA. Every U.S. kitchen must meet the FDA's minimum standards
relating to the handling, preparation and delivery of food, including
requirements relating to the temperature of food and the cleanliness of the
kitchen and the hygiene of its personnel. Leftover and discarded food arriving
in the United States on incoming international flights must be disposed of in
accordance with requirements established by the U.S. Department of Agriculture
("USDA"), which
-13-
has the right to inspect the Company's food disposal procedures.
Kitchens also may be subject to USDA inspection.
CUSTOMS AND SECURITY. The Company and its operations are subject to
certain federal laws and regulations which are designed to prevent certain
criminal activities, primarily smuggling and terrorism. In an effort to prevent
such activities, the Federal Aviation Administration requires a five-year
background investigation of all employees of the Company who have access to the
airport ramps and loading docks from which meals are delivered and boarded onto
aircraft. The United States Customs Service, in addition to requiring a similar
background investigation, has the right to inspect all items removed from
incoming international flights, including food trays and related equipment.
LABOR LAWS. The Company is subject to the Fair Labor Standards Act, which
governs matters such as minimum wages, overtime and other working conditions.
The Company currently pays the majority of its employees excess of the minimum
wage. Accordingly, the Company should not be affected significantly by any
reasonably foreseeable changes in the current minimum wage, although it might
find it necessary to upgrade its hourly pay structure in order to maintain an
attractive wage scale.
ITEM 2. PROPERTIES
GENERAL.
At September 30, 1996, the Company operated 12 flight kitchens, which
served airports in Florida, Georgia and Alabama. The Company also operated 11
restaurants and coffee shops, 11 lounges and 5 gift shops. The kitchens are
located on or near major airports. The restaurants, coffee shops, lounges and
gift shops are all located at airport terminals. With the exception of its
facility located in Ft. Lauderdale, Florida, all of the Company's facilities are
leased. Most leases are under long-term lease agreements. The Company's
leasehold improvements with respect to these properties revert to the lessors
upon termination of the leases. The leases generally require that the consent of
landlords prior to any assignment. In the most cases, the Company has not
experienced any significant difficulty in renewing leases for kitchen properties
on satisfactory terms, and the Company does not anticipate any significant
problems with respect to renewing leases expiring in the near future.
Nearly all of the Company's leases on airport properties require the
Company to pay a minimum base rent, plus percentage rent generally ranging from
3% to 40% of gross receipts.
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The Company leases approximately 1,500 square feet at Suite 19, 1500 North
Florida Mango Road, West Palm Beach, Florida, as the Company's corporate
headquarters.
The following table summarizes information regarding the Company's
facilities as of September 30, 1996:
NATURE AND
LOCATION OF EXPIRATION DATE RENEWAL
FACILITY (FISCAL YEAR) OPTION(S)
----------- ---------------- ---------
Executive Offices and 2005 None
Catering Kitchen
West Palm Beach, Florida
Catering Kitchen, Coffee Shop, 2000 None
Lounge and Gift Shop
Melbourne, Florida
Catering Kitchen, Coffee Shop, 2000 None
and Cocktail Lounge,
Pensacola, Florida
Catering Kitchen Owned --
Ft. Lauderdale, Florida
Catering Kitchen, Coffee Shop, 2005 One Option
Lounge and Gift Shop of
Ft. Walton Beach, Florida Five Years
Coffee Shop and Lounge 2006 None
Sanford, Florida
Catering Kitchen, 2005 None
Coffee Shop and Lounge
St. Petersburg, Florida
Catering Kitchen 1998 None
Tampa, Florida
Catering Kitchen, Coffee Shop and 2002 One Option
Lounge, Daytona Beach, Florida of
Five Years
Catering Kitchen 2003 One Option
Sarasota, Florida of
Five Years
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Restaurant, Coffee Shop 1998 None
and Lounge
Ft. Myers, Florida
Catering Kitchen, Coffee Shop, Month None
Lounge and Gift Shop to Month
Augusta, Georgia
Catering Kitchen, Coffee Shop, 1997 None
and Lounge,
Mobile, Alabama
Catering Kitchen, Coffee Shop, 1999 One Option
Gift Shop and Lounge of Five
Montgomery, Alabama Years Each
- ----------
At September 30, 1996, the Company owned or leased and operated a fleet of
approximately 26 special purposes catering vehicles to deliver its catering
services to airplanes.
RESIDENTIAL PROPERTIES AND RELATED FACILITIES.
The Company owns homes located near several of the airports where the
Company maintains flight catering and other food service operations. These homes
are primarily used by the Company to house the managers in charge of such
operations. The Company also owns several condominiums which are located near
the Company's former operations.
INVESTMENT PROPERTIES.
The Company owns various investment properties, including the following:
10 acres and a subdivision lot in Dade County, Florida; a 21% interest in a
joint venture which owns undeveloped property in Dade County; a 25% interest in
a joint venture which owns undeveloped property in Dade County; and two
residential lots in Franklin, North Carolina. See Note H to the Consolidated
Financial Statements.
SERVICE MARKS.
The Company utilizes the name "Jerry's Caterers" in connection with its
business. The Company regards its service mark and logo as important to its
business and reputation, and believes that they have significant value.
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ITEM 3. LEGAL PROCEEDINGS
In the fall of 1993, the Company filed a complaint in the Circuit Court of
Leon County, Florida against the City of Tallahassee. In its complaint, the
Company alleged that the City had violated the terms of the Company's concession
agreement with the City by permitting other vendors to sell food, by opening a
game room and certain other actions. The litigation was settled in the fall of
1996. Under the settlement, the Company was released from any future liability
under the lease (which was terminated as of September 30, 1996) and the City
repurchased $22,000 in inventory from the Company. The Company incurred a loss
of $241,000 from the writeoff of leasehold improvements and equipment at this
facility.
On June 16, 1994, the Dade County Department of Environmental Resources
Management ("DERM") issued to the Company a Notice of Violation and Orders for
Corrective Action due to the presence of soil and groundwater contamination on
certain real property owned by the Company in Hialeah, Florida. In response to
the notice, the Company investigated and assessed the nature and the extent of
the contamination. The Company also engaged a consultant which assisted the
Company in preparing and submitting containment assessment reports to DERM.
Based on these reports, DERM required the removal of certain underground
structures on the property and contaminated soil. It also required quarterly
monitoring and reporting of levels of contaminants in the groundwater.
During the first half of 1996, the Company removed the underground
structures and contaminated soil. The Company has also performed periodic
monitoring of the groundwater. The most recent test indicates that the level of
contaminants has significantly decreased. The Company therefore anticipates that
no further remedial action will be necessary in the near future. To date, the
Company has expended approximately $120,000 in connection with the cleanup of
this property and related legal fees.
In connection with the environmental matter, the Company has filed a
complaint in the Circuit Court for Dade County, Florida against Steve Martin and
Associates, Inc. ("SMA"), the former owner and operator of the adjacent
property. In its complaint, the Company has alleged that SMA is responsible for
a significant portion of the contamination at the Hialeah property. The Company
is seeking recovery of its damages plus attorneys' fees and court costs incurred
as a result of the wrongful discharge of contaminants by SMA on the property.
The Company is also seeking an order requiring SMA to investigate, assess and,
if necessary, perform an environmental cleanup of certain other property owned
by the Company which,
-17-
according to a historical DERM file, may have also been impacted by effluent
discharges by SMA.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the name and age of each director and
executive officer of the Company, as well as their positions and offices held
and the period of service with the Company. Directors have been elected to serve
until the next annual meeting of shareholders of the Company and until their
successors are elected and qualified. The executive officers serve at the
discretion of the directors.
IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS.
AGE AT
NAME AND POSITION SEPTEMBER
WITH THE COMPANY 30, 1996 SINCE
---------------- -------- -----
Gerard J. Pendergast, Jr., 63 1964
President and Chairman
of the Board
Laura L. Pendergast, Director 33 1986
Karen P. Rhodes, Chief Financial
Officer, Vice-President,
Secretary, Treasurer and
Director 37 1986
Paula Pendergast, Vice-President 66 1978
of Public Relations
BUSINESS EXPERIENCE OF DIRECTORS AND EXECUTIVE OFFICERS.
GERARD J. PENDERGAST, JR. has been the Chairman of the Board of Directors
of the Company for the past 26 years and has been employed as President of the
Company since August 1967.
PAULA PENDERGAST has served as Vice-President of Public relations of the
Company since January 1978. During the five years prior to her appointment as
Vice-President, Mrs. Pendergast was employed by the Company in the promotion and
sales area.
-18-
KAREN P. RHODES was elected a director of the Company and
appointed Secretary and Treasurer in May 1986. In March 1991, she
became a Vice-President of the Company and in 1992 she was appointed
Chief Financial Officer of the Company. From 1984 to 1991, Ms.
Rhodes was a practicing Certified Public Accountant with Mosher
Seifert & Co. in Pasadena, Texas. From 1983 to 1984, Ms. Rhodes was
employed as an accountant by the Company.
LAURA L. PENDERGAST was elected a director of the Company in
February 1986. Ms. Pendergast has been employed by the Company in
various positions since 1985. She currently serves as the manager
of the Company's Melbourne operations.
FAMILY RELATIONSHIPS.
Paula Pendergast, Vice President of Public Relations, is the
wife of Gerard J. Pendergast, Jr., President and Chairman of the
board of Directors of the Company. Karen P. Rhodes, Director, Chief
Financial Officer, Secretary and Treasurer, and Laura L. Pendergast,
Director, are the daughters of Paula and Gerard J. Pendergast, Jr.
-19-
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded sporadically in the over-the-counter
market. The following table represents the high and low bid and ask prices for
the common stock for each fiscal quarter during the fiscal years ended September
30, 1995 and 1996:
BID PRICES ASK PRICES
1994 HIGH LOW HIGH LOW
- ---- --------------------------- -------------------------
OCT. 3
THRU $3 1/2 $2 1/2 $5 1/2 $4 1/2
DEC. 30
1995
- ----
JAN. 3
THRU $3 1/2 $2 1/2 $5 1/2 $4 1/2
MAR. 31
CLOSING BID
CLOSING ASK
HIGH LOW HIGH LOW
--------------------------- -------------------------
APR. 3
THRU $3 1/2 $3 1/2 $4 1/2 $4 1/4
JUNE 30
JULY 3
THRU $3 1/2 $3 $4 1/2 $4
SEPT. 29
CLOSING BID
CLOSING ASK
1995 HIGH LOW HIGH LOW
- ---- --------------------------- -------------------------
OCT. 2
THRU $3 1/2 $3 $4 1/2 $4
DEC. 29
1996
- ----
JAN. 2
THRU $3 1/2 $3 1/2 $4 1/2 $4 1/4
MAR. 29
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(EXCLUDING JAN. 8TH)
APR. 1
THRU $3 1/2 $3 1/2 $4 1/4 $4 1/4
JUNE 28
JULY 1
THRU $3 1/2 $3 1/2 $4 1/4 $4
SEPT. 30
The foregoing information was provided by National Quotation Bureau, Inc.
The above quotations represent prices between dealers and do not include retail
markups, markdowns, or other commissions.
They do not represent actual transactions.
There were approximately 680 holders of record of the Company's common
stock as of September 30, 1996.
The Company has not paid any dividends since 1984. The Company's loan
agreement with its principal lender prohibits the payment of any dividends. The
Company does not anticipate that it will pay any dividends in the foreseeable
future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been taken from the Consolidated
Financial Statements of the Company. The selected financial data should be read
in conjunction with "Management's Discussion and Analysis of Results of
Operations and Financial Condition" and the Consolidated Financial Statements.
SELECTED FINANCIAL DATA
-------------------------------------------
(Amounts in 1,000's, Except Per Share Data)
FISCAL YEAR: 1996 1995 1994 1993 1992
- ----------- ------- -------- ------- ------- -------
Net Sales from
Continuing
Operations $19,803 $21,527 $29,465 $28,167 $29,913
Income (loss)
from Continuing
Operations $(1,335) $ 1,804 $ (642) $ (729) $ 799
Income (loss)
from Continuing
Operations per
Common Share $ (2.37) $ 3.20 $(1.13) $(1.25) $ 1.26
Total Assets $ 8,491 $ 8,774 $12,117 $12,212 $13,156
Total Long-Term
Debt $ 3,514 $ 3,074 $ 4,304 $ 4,585 $ 4,185
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS.
The following table sets forth, for the periods indicated, the relative
percentage which items of income and expense bear to net sales for the fiscal
years ended September 30, 1996, 1995 and 1994.
YEARS ENDED SEPTEMBER 30,
1996 1995 1994
------ ------ -----
Net sales..................... 100.0% 100.0% 100.0%
Cost of sales (expenses)...... (58.5) (58.7) (59.3)
----- ------- -----
Gross profit.................. 41.5 41.3 40.7
Selling, general and
administrative (expenses)*.. (49.8) (50.9) (42.2)
------ ----- -----
Income from operations........ (8.3) (9.6) ( 1.5)
Interest (expense)............ (2.1) (2.6) ( 2.5)
Other income (expense)........ 1.3 1.0 .5
Gain or (loss) from
disposition................. (1.1) 25.4 --
------ ----- ----
Income (loss) before income
tax benefit................. (10.1) 14.2 ( 3.5)
Income tax benefit (expense).. 3.3 (5.8) 1.3
Extraordinary gain............ -- -- .5
--------------- -----
Net income (loss)............. (6.7) 8.4 ( 1.7)
====== ======== =====
(* Net of Airline Port Fees)
1996 COMPARED TO 1995.
NET SALES. The Company's net sales from continuing operations in 1996 were
$19,803,000 compared with $21,527,000 in 1995, or 8.1% lower. The drop in sales
was primarily due to the sale of the Company's Miami and Orlando airline
catering operations to Alpha Flight Services, Inc. ("Alpha") in February 1995.
There were no airline catering sales at these locations in 1996, compared to
sales of $3,008,000 in 1995. The airline catering sales at other locations were
$9,362,000 in 1996, compared to $10,393,000 in 1995. The decline of airline of
catering sales at other locations is primarily due to lower levels of service at
airports served by the Company and the bankruptcy of Kiwi Airlines.
The sales from restaurants, coffee shops, lounges, gift shops and private
catering were $10,440,000 in 1996, compared to $8,125,000 in 1995. This increase
reflects the following trends: (i) improved food and beverage sales at
restaurants and lounges at airports served by the Company; and (ii) the
Company's
-22-
participation in the summer school lunch program for Palm Beach County (which
yielded revenues of approximately $990,000).
During 1996, the Company terminated its operations at the Tallahassee
airport and Fort Pierce. Sales at these locations were $801,000 in 1996. The
Company believes that the closing of its operations will have a positive impact
in the Company's net income since the combined gross margin percentage at these
locations for 1996 was only 20.9% (compared to the Company's average of 41.5%).
COST OF SALES. Cost of sales in 1996 decreased 8.3% to $11,579,000 from
$12,632,000 in 1995. This drop corresponded to the decrease in sales. The
Company's gross margin percentage improved slightly from 41.3% in 1995 to 41.5%
in 1996. This improvement was due to a higher proportion of sales from
restaurants, lounges and gift shops (which have higher margins than airline
catering).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses decreased from $11,587,000 in 1995 to
$10,331,000 in 1996, due to the sale of the Miami and Orlando operations.
Expenses (net of port fees) represented 49.8% of the Company's net sales in
1996, compared with 50.9% in 1995. The decrease in this percentage reflects the
Company's efforts to reduce such expenses. Nevertheless, many of these expenses
(such as corporate overhead) are relatively difficult to reduce in a short
period of time.
AIRLINE PORT FEES. The Company charges each of its airline catering
customers a port fee equal to the amount of percentage rent which the Company
must pay to each airport authority. The amount of this income was $620,000 in
1995 and $471,000 in 1996. The decline parallels the decrease in airline
catering sales.
DISPOSITION OF ASSETS. In 1995, the Company recognized a gain of $5,448,000
from the disposition of assets to Alpha. In 1996, the Company recognized a loss
of $216,000 from the sale of its Tallahassee operations. See Note D to the
Consolidated Financial Statement.
NET EARNINGS. The Company had a net loss of $1,335,000 in 1996 compared
with net income of $1,804,000 in 1995. As described above, the net income in
1995 was primarily due to the sale of assets to Alpha.
The Company's loss (before taxes) for 1996 was $2,005,000, compared with a
gain (before taxes and accounting changes) of $3,062,000 for 1995. The
comparability of these amounts, however, was significantly impacted by the gain
of $5,478,000 earned by the
-23-
Company in 1995 from the sale of the Miami and Orlando flight catering kitchens
to Alpha (and other asset sales). After eliminating this gain, the income for
1995 before income taxes would decline to a pro forma loss of $2,416,000. The
principal reason for the actual loss in 1996 and the pro forma loss in 1995 was
the Company's inability to reduce its selling, general and administrative
expenses in proportion to the loss of sales at Miami and Orlando. During 1995
and 1996, the Company attempted to modify its selling, general and
administrative expenses to reflect the reduced size of its operations. Many of
these expenses, however, will require a relatively long period to reduce.
Accordingly, it is likely the Company will continue to incur significant losses
from operations in the future.
In addition to the Company's current operating difficulties, the Company's
future profitability may also be adversely affected by the potential loss of its
concession rights at the Southwest Florida International Airport. The Company
currently operates a restaurant, coffee shop and lounge at this facility. The
Company's Concession Agreement terminates in 1998 and the County Aviation
Authority is soliciting new bids for the concession rights. The Company has
filed a complaint against the Aviation Authority to enjoin the bid process and
require the Aviation Authority to negotiate with the Company to renew the
Company's Concession Agreement. There can be no assurance that the Company's
efforts will be successful. The loss of the Ft. Myers operation would have a
material adverse effect on the Company.
1995 COMPARED TO 1994.
NET SALES. The Company's net sales from continuing operations in 1995 were
$21,527,000 compared with $29,465,000 in 1994, or 26.9% lower. The drop in sales
was primarily due to the sale of the Company's Miami and Orlando airline
catering operations to Alpha Flight Services, Inc. ("Alpha") in February 1995.
The airline catering sales at these locations were $3,008,000 in 1995, compared
to $9,400,000 in 1994. The airline catering sales at other locations were
$10,393,000 in 1995, compared to $11,662,000 in 1994. This decrease was
primarily due to lower sales to U.S. Air, which has reduced the level of meal
sources on most of its flights to Florida. The sales from restaurants, coffee
shops, lounges, gift shops and private catering were $8,125,000 in 1995,
compared to $8,402,000 in 1994. This decrease reflects the following trends: (i)
the cancellation of the Company's contract for Dade School Lunch Program (which
resulted in a loss of $1,000,000 in revenues); and (ii) improved food and
beverage sales at restaurants and lounges at airports served by the Company.
-24-
COST OF SALES. Cost of sales in 1995 decreased 27.8% to $12,632,000 from
$17,472,000 in 1994. This drop corresponded to the decrease in sales. The
Company's gross margin percentage improved slightly from 40.7% in 1994 to 41.3%
in 1995. This improvement was due to a higher proportion of sales from
restaurants, lounges and gift shops (which have higher margins than airline
catering).
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. The Company's selling,
general and administrative expenses decreased from $13,290,000 in 1994 to
$11,587,000 in 1995, due to the sale of the Miami and Orlando operations.
Expenses (net of port fees) represented 50.9% of the Company's net sales in
1995, compared with 42.2% in 1994. The increase in this percentage reflects
difficulties encountered by the Company in reducing such expenses in proportion
to the decline in the Company's sales.
AIRLINE PORT FEES. The Company charges each of its airline catering
customers a port fee equal to the amount of percentage rent which the Company
must pay to each airport authority. The amount of this income was $867,000 in
1994 and $620,000 in 1995. The decline parallels the decrease in airline
catering sales.
DISPOSITION OF ASSETS. In 1995, the Company recognized a gain
of $5,448,000 from the disposition of assets to Alpha. See Note D
to the Consolidated Financial Statement. Such revenues were
insignificant in 1994.
NET EARNINGS. The Company had a net loss of $500,000 in 1994
compared with net income of $1,804,000 in 1995. As described
above, the net income in 1995 was primarily due to the sale of
assets to Alpha.
The Company's income (before taxes) for 1995 was $3,062,000, compared with
a loss (before taxes and accounting changes) of $1,014,000 for 1994. The
comparability of these amounts, however, was significantly impacted by the gain
of $5,478,000 earned by the Company in 1995 from the sale of the Miami and
Orlando flight catering kitchens to Alpha (and other asset sales). After
eliminating this gain, the income for 1995 before income taxes would decline to
a loss of $2,416,000. The principal reason for this loss was the combined effect
of the lost sales from Miami and Orlando and the Company's inability to reduce
its selling, general and administrative expenses in proportion to such lost
sales.
FINANCIAL CONDITION.
On September 30, 1996, the Company's current assets and current liabilities
were $3,196,000 and $2,974,000, respectively, compared
-25-
with $2,432,000 and $2,361,000 on September 30, 1995. The Company's current
ratio (current assets divided by current liabilities) was 1.07 to 1 on September
30, 1996 and 1.03 to 1 on September 30, 1995.
The Company's financial condition during 1995 was dramatically affected by
the sale of the Miami and Orlando operations to Alpha. At the closing, the
Company received $4,000,000 in cash and Alpha paid $1,000,000 of the Company's
accounts payable. The Company received an additional $1,000,000 three months
after the closing. The Company utilized these amounts to reduce its accounts
payable (which declined by $1,432,000), its accrued expenses (which declined by
$283,000), and its indebtedness to lenders (which declined by $3,448,000). Due
to the sale of Alpha, the Company's working capital increased by $294,000 for
the year, despite the substantial loss from continuing operations.
The Company's working capital position improved modestly in 1996 due to
additional borrowings from third parties, including the establishment of a new
line of credit, an increase in accounts payable, and a relatively modest level
of additional purchases of property and equipment (which totaled only $272,000
in 1996). These factors, among others, resulted in a $127,000 increase in the
Company's cash as of September 30, 1996 compared to September 30, 1995.
Despite the improvement in the Company's working capital position in 1996,
the Company continues to be faced with very serious long-term working capital
problems due to a relatively high level of losses from the Company's continuing
operations. The Company needs to significantly reduce the level of its
administrative expenses and/or increase its sales levels in order to eliminate
the losses from operations and the corresponding drain on the Company's cash
flow. There can be no assurance that the Company will be able to achieve these
objectives.
If the Company is unable to reduce the level of its selling and
administrative expenses to a level which is consistent with its current level of
sales (or to incur sales), then the Company will continue to incur significant
losses, which will undermine its working capital position. To address this
problem, the Company would need to seek financing from additional outside
lenders. If such funds were not available, the Company would need to sell
additional operations in order to raise cash.
Subsequent to September 30, 1996, the Company has received an additional
$2,000,000 in connection with the sale of its flight catering kitchens in Miami
and Orlando (as more fully discussed in the following section).
-26-
TRANSACTION WITH ALPHA FLIGHT SERVICES, INC..
In February 1995, the Company sold its Miami and Orlando airline catering
operations to Alpha. At the closing, the Company received $4,000,000 in cash and
Alpha assumed and paid $1,000,000 of the Company's liabilities. In the summer of
1995, the Company received an additional $1,000,000 from Alpha.
The agreement with Alpha originally provided that the Company would receive
up to an additional $3,000,000 (over a period of three years) depending on the
results of Alpha's operations in Miami and Orlando.
In the fall of 1996, Alpha requested the Company to modify the original
Alpha agreement. Alpha needed the Company's consent to the proposed sale of the
Miami and Orlando catering kitchens by Alpha to Flying Food Fair, Inc. ("FFF").
Under the terms of the modification, Alpha agreed to make the following payments
to the Company: (i) a payment of $1,000,000 to the Company upon the sale of the
catering kitchens to FFF; (ii) an additional payment of up to $1,000,000 upon
the six-month anniversary of the sale of the business to FFF (contingent upon
sales generated by FFF at the Miami and Orlando catering kitchens); and (iii) a
payment of $1,000,000 on March 2, 1998.
Alpha's sale to FFF closed in November, 1996 and the Company received the
initial payment of $1,000,000 at that time. In the spring of 1997, the Company
also received the second payment of $1,000,000 from Alpha.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements are attached to this Form 10-K.
Supplementary data is not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
-27-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the Company's 1996
Information Statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14C.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's 1996
Information Statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14C.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's 1996
Information Statement to be filed with the securities and Exchange Commission
pursuant to Regulation 14C.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Company's 1996
Information Statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14C.
-28-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
PAGE NO.
(a)(1) Financial Statements. The following
financial statements are filed as part
of this report:
i) Report of Independent Certified
Public Accountants 32
ii) Consolidated Balance Sheets
at September 30, 1996 and 1995 34
iii) Consolidated Statement of Operations
for the three years ended
September 30, 1996, 1995 and 1994 36
iv) Statement of Consolidated Shareholders'
Equity for the three years ended
September 30, 1996, 1995 and 1994 38
v) Consolidated Statement of Cash
Flows for the three years ended
September 30, 1996, 1995, and 1994 39
vi) Notes to Consolidated Financial
Statements 41
(a)(2) FINANCIAL STATEMENT SCHEDULES. The following
financial statements schedules are filed as a
part of this report:
i) Schedule III - Valuation and Qualifying
Accounts 59
(a)(3) EXHIBITS. The Exhibits set forth in the
following Index of the Exhibits are filed
as a part of this report:
(3) Articles of Incorporation and By-Laws:
(a) Articles of Incorporation are incorporated by reference from
the Company's Form 10-K for the fiscal year ended September 30,
1982.
-29-
(b) By-Laws are incorporated by reference from the Company's Form
10-K for the fiscal year ended September 30, 1988.
(10) Material Contracts:
(a) Material contracts incorporated by reference from the Company's
Form l0-K for the fiscal year ended September 30, 1982:
(i) Profit Sharing Plan.
(b) Material contracts incorporated by reference from the Company's
Report on Form 8-K dated December 28, 1989:
(i) Right of First Refusal Agreement, by and
between Marriott Corporation, Jerry's, Inc.,
Jerry's Caterers, Inc. and Gerard J.
Pendergast, Jr.
(c) Material contracts incorporated by reference from the Company's
Report on Form 8-K dated February 2, 1995:
(i) Asset Purchase Agreement dated February 2, 1995
by and among Jerry's, Inc., Jerry's Caterers,
Inc., Meiner's Catering Service, Inc., Gerard
J. Pendergast, Jr., Alpha Flight Services, Inc.
and Alpha Flight Services Florida, Inc.
(d) Material contracts incorporated by reference from the
Company's Form 10-K for the fiscal year ended September 30,
1995:
(i) Agreement dated September 1996 by and among Jerry's,
Inc., Jerry's Caterers, Inc., Meiner's Catering Service,
Inc., Gerard J. Pendergast, Jr., Alpha Flight Services,
Inc., Alpha Flight Services Florida, Inc., and Alpha
Overseas Holdings, Ltd.
27 Financial Data Schedule 60
(22) A list of the Company's subsidiaries is incorporated by reference
from the Company's Form 10-K for the fiscal year ended September 30,
1986.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed for the
quarter ended September 30, 1996.
-30-
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
JERRY'S, INC.
Dated: October 31, 1997 By: /s/ GERARD J. PENDERGAST, JR.
-------------------------------
Gerard J. Pendergast, Jr.
President
Dated: October 31, 1997 By: /s/ KAREN P. RHODES
---------------------
Karen P. Rhodes
Chief Financial and Accounting
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Dated: October 31, 1997 By: /s/ GERARD J. PENDERGAST, JR.
-------------------------------
Gerard J. Pendergast, Jr.
Director
Dated: October 31, 1997 By: /s/ LAURA L. PENDERGAST
-------------------------
Laura L. Pendergast, Director
Dated: October 31, 1997 By: /s/ KAREN P. RHODES
---------------------
Karen P. Rhodes, Director
-31-
INDEPENDENT AUDITOR'S REPORT
Shareholders and Board of Directors
Jerry's Inc.
West Palm Beach, Florida
I have audited the consolidated financial statements and related
schedules of Jerry's, Inc. and subsidiaries listed in the accompanying index to
financial statements (items 14(a) and (2)). These financial statements and
related schedules are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements and
related schedules based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements listed in the accompanying index
to financial statement (item 14(a)(1)) present fairly, in all material respects,
the consolidated financial position of Jerry's Inc. at September 30, 1996 and
1995 and the consolidated results of their operations and their cash flows for
each of the three years in the period ending September 30, 1996 in conformity
with generally accepted accounting principles.
-32-
Shareholders and Board of Directors
Jerry's, Inc.
West Palm Beach, Florida Page 2
Further, it is my opinion that the schedules listed in the accompanying
index to financial statements (Items 14(a)(2)) present fairly the information
set forth therein in compliance with the applicable accounting regulations of
the Securities and Exchange Commission.
As discussed, in Note A-5 to the financial statements, in fiscal 1994 the
Company changed its method of accounting for income taxes. As discussed in Note
B to the financial statements, during February, 1995, the Company sold the
assets of its Miami, Florida and Orlando, Florida airline catering operations.
These facilities represent a significant portion of the Company's total assets,
sales, and operations.
/s/ LARRY WOLFE
---------------------------
LARRY WOLFE
Certified Public Accountant
Miami, Florida
March 12, 1997, except for
Note Q, as to which the
date is October 8, 1997
-33-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
ASSETS 1996 1995
- ------ ----------- -----------
CURRENT ASSETS:
Cash and Cash Items (Note E) $ 886,680 $ 759,133
Customer Accounts Receivable
Less Allowance for Doubtful Accounts:
$236,000 in 1996 and $230,000 in 1995 727,805 807,857
Inventories (Note A-2) 299,738 311,648
Income Tax Refunds Receivable 701,375 --
Deferred Income Taxes (Note M) 223,596 105,109
Prepaid Expenses and Other Current Assets (Note G)
(Net of $5,000 Allowance In 1996 and 1995) 357,163 449,078
----------- -----------
Total Current Assets $ 3,196,357 $ 2,432,825
----------- -----------
INVESTMENTS:
Land Held for Investment (Note H-1) $ 87,000 $ 87,000
Other Investments (Note H-2) 348,289 265,528
----------- -----------
Total Investments $ 435,289 $ 352,528
----------- -----------
PROPERTY, PLANT AND EQUIPMENT: (NOTE I)
Cost $12,404,375 $13,857,557
Less: Accumulated Depreciation 9,074,019 9,420,655
----------- -----------
Net Book Value $ 3,330,356 $ 4,436,902
----------- -----------
OTHER ASSETS:
Cash (Restricted) (Note E) $ 762,852 $ 580,297
Leasehold Rights and Other Intangible Assets
Less Accumulated Amortization of $12,218 in
1996 and $13,482 in 1995 9,804 8,096
Cash Surrender Value of Insurance 23,119 39,393
Deposits and Miscellaneous 243,893 219,529
Employee Loans Receivable (Net of $15,000 Allowance
In 1996 and $20,000 in 1995) 98,749 79,840
Other Receivables - Non-Current Portion
(Net of $15,000 Allowance in 1996 and
$13,000 in 1995) 72,197 95,376
Deferred Income Taxes - Non-Current Portion (Note M) 318,281 528,764
----------- -----------
Total Other Assets $ 1,528,895 $ 1,551,295
----------- -----------
TOTAL ASSETS $ 8,490,897 $ 8,773,550
=========== ===========
See accompanying notes to Consolidated Financial Statements.
-34-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
---------- ----------
CURRENT LIABILITIES:
Notes Payable to Bank and Others (Note J) $ 258,437 $ --
Current Portion of Long-Term Debt (Note K) 508,139 519,490
Accounts Payable 1,518,293 1,171,228
Income Taxes Payable -- 12,307
Accrued Expenses (Note L) 689,104 657,504
---------- ----------
Total Current Liabilities $2,973,973 $2,360,529
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current Portion (Note K) 3,514,293 3,073,603
---------- ----------
TOTAL LIABILITIES $6,488,266 $5,434,132
---------- ----------
STOCKHOLDERS' EQUITY (NOTE N):
Capital Stock -
Common Stock of $.04 par value - Authorized
4,000,000 Shares; 622,377 Shares Issued in
1996 and 1995 $ 24,895 $ 24,895
Capital In Excess of Par Value 116,178 116,178
Retained Earnings 2,030,234 3,365,427
---------- ----------
Subtotal $2,171,307 $3,506,500
Less: Shares Reacquired and Held in Treasury
(60,378 Shares in 1996 and
59,955 Shares in 1995 at Cost) 168,676 167,082
---------- ----------
TOTAL STOCKHOLDERS' EQUITY $2,002,631 $3,339,418
---------- ----------
Commitments, Contingencies, and Subsequent Events -- --
---------- ----------
(Notes O, Q, and R)
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $8,490,897 $8,773,550
========== ==========
See accompanying notes to Consolidated Financial Statements.
-35-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE YEARS ENDING SEPTEMBER 30, 1996
1996 1995 1994
------------ ------------ ------------
NET SALES:
(A substantial portion of
which is attributable to four
customers and a substantial
portion of which have been
discontinued (Note B) $ 19,802,868 $ 21,526,532 $ 29,464,898
------------ ------------ ------------
COSTS, EXPENSES AND OTHER ITEMS:
Costs of Sales 11,579,468 12,631,936 17,471,955
Selling and Administrative Expenses 10,331,205 11,587,365 13,289,568
Airline Port Fees (Income) (470,995) (619,815) (866,845)
Interest (Income) (59,922) (96,320) (26,104)
Interest Expense 413,780 556,236 735,221
(Gain) or Loss on Disposition
of Assets 216,183 (5,478,266) (6,062)
Equity in (Earnings) Loss of
Joint Ventures (82,761) (2,229) (12,417)
Other (Income) (119,241) (114,066) (106,861)
------------ ------------ ------------
Total Costs, Expenses and
Other Items 21,807,717 18,464,841 30,478,455
------------ ------------ ------------
Income (Loss) Before Provision
for Income Taxes (2,004,849) 3,061,691 (1,013,557)
------------ ------------ ------------
PROVISION (CREDIT) FOR INCOME TAXES (NOTE M)
Federal (595,436) 1,103,313 (296,379)
State (74,220) 154,711 (74,882)
------------ ------------ ------------
Total Provision (Credit) For
Income Taxes (669,656) 1,258,024 (371,261)
------------ ------------ ------------
INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGES (1,335,193) 1,803,667 (642,296)
Cumulative Effect To October, 1993 of
Change In Accounting For Income Taxes
(Note A-5) -- -- 142,094
------------ ------------ ------------
Net Income (Loss) $ (1,335,193) $ 1,803,667 $ (500,202)
============ ============ ============
-36-
NET INCOME (LOSS) PER COMMON SHARE
Before Extraordinary Gain and
Cumulative Effect of Change In
Accounting Principal $ (2.37) $ 3.20 $ (1.13)
Cumulative Effect To October,
1993 Of Change In Accounting
For Income Taxes -- -- .25
----------- ----------- -----------
Net Income (Loss) Per Common Share $ (2.37) $ (3.20) $ (.88)
=========== =========== ===========
AVERAGE SHARES OF COMMON STOCK
Outstanding 562,414 5 62,512 567,877
=========== =========== ===========
See accompanying notes to Consolidated Financial Statements.
-37-
JERRY'S, INC. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996
TOTAL COMMON STOCK CAPITAL IN
STOCKHOLDERS' NUMBER EXCESS OF RETAINED TREASURY
EQUITY OF SHARES AMOUNT PAR VALUE EARNINGS STOCK
------------ ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1993 $ 2,077,941 622,377 $ 24,895 $ 116,178 $ 2,061,962 $ (125,094)
Acquisition of 18,848 Shares of
Treasury Stock (40,317) -- -- -- -- (40,317)
Net (Loss) (500,202) -- -- -- (500,202) --
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1994 1,537,422 622,377 24,895 116,178 1,561,760 (165,411)
Acquisition of 614 Shares of
Treasury Stock (1,671) -- -- -- -- (1,671)
Net Income 1,803,667 -- -- -- 1,803,667 --
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1995 3,339,418 622,377 24,895 116,178 3,365,427 (167,082)
Acquisition of 423 Shares
of Treasury Stock (1,594) -- -- -- -- (1,594)
Net (Loss) (1,335,193) -- -- -- (1,335,193) --
----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1996 $ 2,002,631 622,377 $ 24,895 $ 116,178 $ 2,030,234 $ (168,676)
=========== =========== =========== =========== =========== ===========
See accompanying notes to Consolidated Financial Statements.
-38-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THREE YEARS ENDED SEPTEMBER 30, 1996
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(1,335,193) $ 1,803,667 $ (500,202)
Adjustments to Reconcile Net Income
To Net Cash Provided by Operating
Activities:
Depreciation and Amortization 1,108,402 1,474,244 1,651,915
Provision for Losses on
Accounts 78,351 46,151 162,659
Provision for Losses on Employee
Loans and Other Receivables 16,718 75,029 65,029
Deferred Income Tax Provision 91,996 68,181 (562,271)
Equity in (Earnings) Loss of
Joint Ventures (82,761) (2,229) (12,417)
Loss (Gain) on Sale of Assets 216,183 (5,478,266) (6,062)
Change in Assets and Liabilities:
(Increase) Decrease in Accounts
Receivable 1,701 1,386,545 (488,584)
(Increase) Decrease in Inventory 11,910 99,217 44,954
(Increase) Decrease in Prepaid
Expenses and Other 97,299 (83,211) (169,784)
(Increase) Decrease in Other
Assets (41,717) (12,489) 76,979
Increase (Decrease) in Accounts
Payable 347,065 (1,431,752) 413,792
Increase (Decrease) in Accrued
Expenses 31,600 (282,999) 129,022
Increase (Decrease) in Income
Taxes Payable (713,682) (97,074) (35,352)
----------- ----------- -----------
Net Cash Provided by (Used in) Operating
Activities $ (172,128) $(2,434,986) $ 769,678
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Property
and Equipment $ 35,738 $ 6,331,781 $ 14,132
Payments Received on Note from
Sale of Property & Equipment 38,496 62,860 62,860
Proceeds from Investments -- 231,875 20,281
Purchase of Property & Equipment (272,137) (449,707) (506,891)
Additions to Investments -- -- --
----------- ----------- -----------
Net Cash Provided by (Used in Investing)
Activities $ (197,903) $ 6,176,809 $ (409,618)
----------- ----------- -----------
See accompanying notes to Consolidated Financial Statements.
-39-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1996
(Continued)
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Line-of-Credit and
Long-Term Borrowings $ 1,291,256 $ 415,790 $ 321,805
Principal Payments Under Line-of-
Credit and Long-Term Debt (603,480) (3,749,030) (839,383)
Payments to Acquire Treasury Stock (1,594) (1,671) (40,317)
Decrease (Increase) in Restricted
Cash (182,555) (112,732) (76,610)
Additions to Intangible Assets (6,049) -- (5,606)
----------- ----------- -----------
Net Cash Provided (Used) by
Financing Activities $ 497,578 $(3,447,643) $ (640,111)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents $ 127,547 $ 294,180 $ (280,051)
CASH AND CASH EQUIVALENTS
at Beginning of Year 759,133 464,953 745,004
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT
End of Year $ 886,680 $ 759,133 $ 464,953
=========== =========== ===========
Additional Cash Flow Information:
Cash Paid During the Year for:
Interest (Non-Capitalized) $ 390,935 $ 572,649 $ 749,027
=========== =========== ===========
Income Taxes $ (47,970) $ 1,286,916 $ 84,268
=========== =========== ===========
Non-Cash Activities:
Purchase of Property, Plant and
Equipment (net of Cash Paid)
For Notes $ -- $ -- $ 468,203
=========== =========== ===========
Sale of Property, Plant and
Equipment (Net of Cash Paid)
for Notes $ 22,701 $ -- $ --
=========== =========== ===========
See accompanying notes to Consolidated Financial Statements.
-40-
JERRY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. CONSOLIDATION -
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned and all of which are
engaged in the food and beverage service and/or the gift shop business.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
2. INVENTORIES -
Inventories are valued at the lower of cost or market, with cost generally
determined on a first-in, first-out basis and market based upon the lower
of replacement cost or realizable value. Inventories consisted of the
following amounts:
1996 1995
--------- ---------
Finished Goods $ 59,106 $ 63,085
Raw Materials 240,632 248,563
--------- ---------
Total $ 299,738 $ 311,648
========= =========
3. PROPERTY, PLANT, AND EQUIPMENT -
Property, plant and equipment are carried at cost. The Company calculates
depreciation under the straight-line and accelerated methods at annual
rates based upon the estimated service lives of each type of asset. These
service lives are generally as follows:
Buildings and Improvements 20 to 35 years
Equipment and Furniture 5 to 7 years
Aircraft and Automotive 3 to 7 years
Leasehold Improvements and Other 5 to 7 years
Assets with an original cost of approximately $5,200,000 have been
fully depreciated at September 30, 1996.
-41-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
4. INTANGIBLES -
Intangible assets consist of finance and loan fees arising from the
addition of debt. The fees are being amortized using the straight-line
method over the expected life of the financing.
5. INCOME TAXES -
The Company Adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", effective October 1, 1993. Under SFAS 109,
deferred tax assets and liabilities are determined based on differences
between the financial reporting and tax basis of assets and liabilities
and are measured by applying enacted tax rates and laws to taxable years
in which such differences are expected to reverse.
The cumulative effect of this accounting change at October 1, 1993 was a
one-time non-cash increase to net income of $142,094 or $.25 per shares.
6. INCOME PER SHARE -
Income per share is computed based upon the weighted average number of
common shares outstanding during each year.
7. CASH -
The Company considers all short-term investments with an original
maturity of three months or less to be cash equivalents.
8. FINANCIAL INSTRUMENTS -
The carrying amounts of cash and cash equivalents, trade receivables,
other current assets, other receivables, other investments, other assets,
accounts payable, and debt approximate fair value.
9. CONCENTRATIONS OF CREDIT RISK -
The Company is subject to credit risk arising from the concentration of
its temporary cash investments and trade receivables. Most of the
Company's temporary cash investments are concentrated with a single
financial institution. This institution, however, has a high credit
rating. The Company's trade receivables are concentrated with a small
number of airlines. In particular, the Company primarily sells its
products to about 60 airlines or aviation related companies in the States
of Florida, Georgia and Alabama, and extends credit based on an evaluation
of the customer's financial condition, generally without requiring
collateral. Exposure to losses on receivables is principally dependent on
each customer's financial condition. The Company monitors its exposure for
credit losses and maintains allowances for anticipated losses. As of
September 30, 1996, approximately 69% of the recorded trade receivables
were concentrated with 6 airlines. As of September 30, 1995 approximately
71% of the receivables were concentrated with 6 airlines.
-42-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
10. REVENUE RECOGNITION -
Revenue is recognized upon shipment of goods to customers and upon
performance of services.
11. ADVERTISING COSTS -
Advertising costs are generally charged to operations in the year incurred
and totaled $318,000 in 1996, $332,000 in 1995 and $344,000 in 1994.
12. ENVIRONMENTAL CLEANUP MATTERS -
The Company expenses environmental expenditures related to existing
conditions resulting from past or current operations and from which no
current or future benefit is discernable. The Company determines its
liability on a site by site basis and records a liability at the time when
it is probable and can be reasonably estimated.
13. USE OF ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the amounts reported in the consolidated financial
statements and related notes to the financial statements. Changes in such
estimates may affect amounts reported in future periods.
14. RECLASSIFICATIONS -
Certain prior year amounts have been reclassified to conform with the
current year presentation.
15. PENDING ACCOUNTING CHANGES -
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that the Company expects to sell. The
Company will adopt Statement No. 121 in the first quarter of fiscal 1997
and based on current circumstances, does not believe the effect of
adoption will be material.
-43-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE B - SALES
A substantial portion of the Company's revenues have been derived from
catering flights of four airlines, as follows:
PERCENT OF TOTAL SALES
-----------------------
YEAR ENDED SEPTEMBER 30, AIR CANADA CONTINENTAL U.S.AIR KIWI
- ------------------------ ---------- ----------- ------- ----
1996 4% 6% 19% 5%
1995 5% 5% 24% 6%
1994 7% 5% 23% 6%
KIWI International Air Lines, Inc. is operating under Chapter 11 of the
Bankruptcy Code.
During June, 1996 and September 1996 the lease agreements at the Company's
Fort Pierce, Florida and Tallahassee, Florida Airport Facilities were
terminated, respectively. The approximate sales that discontinued during fiscal
1996 amounted to:
SALES PERCENTAGE OF
DISCONTINUED TOTAL SALES
------------ ------------
Year Ended 9/30/96 $ 801,000 4%
Year Ended 9/30/95 917,000 4%
Year Ended 9/30/94 805,000 3%
During February 1995, the Company sold its airline catering operations at
Miami, Florida and Orlando, Florida to Alpha Flight Services Florida, Inc. The
sales that were discontinued during February, 1995 amounted to:
SALES PERCENTAGE OF
DISCONTINUED TOTAL SALES
------------ -------------
Year Ended 9/30/96 $ -- --%
Year Ended 9/30/95 3,008,000 14%
Year Ended 9/30/94 9,400,000 32%
NOTE C - RIGHT OF FIRST REFUSAL
On May 1, 1990, the Company entered into a right of first refusal
agreement with a competing airline caterer. Under the agreement, the Company
granted the purchaser a 10-year right of first refusal with respect to the sale
of any airline catering business owned by the Company. The
-44-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
purchaser agreed to pay the Company $385,000 in 24 quarterly installments
commencing on May 31, 1994. The income will be recorded pro rata over the
10-year term of the agreement.
NOTE D - SALES OF ASSETS AND DISPOSITIONS
During 1996 the Company sold its equipment and improvements at the
Tallahassee, Florida Airport for approximately $23,000. The approximate pre-tax
loss on the sale was $247,000 and $163,000 post-tax. Vehicles and equipment at
other Company locations were sold in 1996 for approximately $36,000 which
resulted in a pre-tax gain of approximately $31,000 [$20,000 post-tax].
During 1995, the Company sold its airline catering operations at Miami,
Florida and Orlando, Florida for $6,000,000 ($5,000,000 cash and the assumption
by the buyer of $1,000,000 of the Company's liabilities). The approximate
pre-tax gain on the sale was $5,400,000 ($3,000,000 post-tax). The original
agreement with respect to this asset sale was amended during September, 1996.
The amendment provides, in the event the buyer sells the Miami and Orlando
catering kitchens, that the original contingent consideration payment plan be
adjusted as follows:
a. The buyer is required to pay $1,000,000 to the Company upon the
closing of a sale of the Miami and Orlando kitchens.
b. The buyer is required to pay to the Company a second payment based
upon gross revenues of the Miami facility and the Orlando facility
during a "measuring period" [six months starting on the closing
date]. The parameters of this second payment is a low of $500,000 to
a high of $1,000,000.
c. The buyer will pay the Company a third payment of $1,000,000 on March
2, 1998.
During 1995, the Company sold real estate and equipment for approximately
$332,000 in cash which resulted in a pre-tax gain of approximately $78,000
($50,000 post-tax).
During 1994, the Company sold automotive equipment for approximately
$14,000 resulting in a pre-tax gain of $6,000 ($4,000 post-tax).
-45-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE E - CASH AND CASH ITEMS
Cash and cash items consisted of the following:
SEPTEMBER 30,
------------------------
1996 1995
---------- ----------
Cash funds and checking accounts $ 886,680 $ 759,000
Certificates of Deposit 762,852 580,297
---------- ----------
TOTAL 1,649,532 1,339,430
Portion Restricted and Shown as Other Assets 762,852 580,297
---------- ----------
Portion Shown as Current Assets $ 886,680 $ 759,133
========== ==========
Certificates of deposit in the amount of $414,835 have been pledged as
collateral for performance bonds at six locations of the Company. Certificates
of deposits in the amounts of $50,000 and $298,017 have been pledged as
collateral for a customs bond and for additional debt, respectively.
NOTE F - SEGMENT INFORMATION
During 1996, 1995, and 1994, the Company operated in two industry
segments: food and beverage, and gift shop. The Company operates only in the
continental United States.
Operations in the food and beverage segment involve the production and
sale of foods and beverages through in-flight catering, restaurants, cafeterias,
lounges and vending machines. Operations in the gift shops segment include the
sale of gifts, clothing, souvenirs, supplies, accessories, novelties, sundries,
and tobacco products.
BUSINESS SEGMENT DATA FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
The Company has not reported any segment information for the 1996, 1995
and 1994 fiscal years because the food and beverage segment consisted of more
than 90% of the Company's combined revenue, profits and assets for these
periods.
-46-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE G - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
SEPTEMBER 30 SEPTEMBER 30,
1996 1995
------------- --------------
Other Receivables $ 229,537 $ 271,500
Unexpired Insurance Premiums 53,527 75,435
Prepaid Rental and Concession Fees 3,254 23,559
Deferred Taxes and Licenses 42,770 50,889
Escrow Accounts and Other 28,075 27,695
----------- ------------
TOTAL $ 357,163 $ 449,078
=========== ============
Included in the Other Receivables is a $125,000 advance to a related party (See
Note S) for September 30, 1996 and 1995.
NOTE H - INVESTMENTS
1. LAND HELD FOR INVESTMENT -
Land held for investment for September 30, 1996 and 1995 consists of a 10
acre parcel and a lot in Dade County, Florida and two lots in Franklin, North
Carolina valued at a cost of $87,000.
2. OTHER INVESTMENTS
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1994
------------- ------------- -------------
a. Investment in unincorporated
Joint Venture - 20.8333%
Interest in acreage in Dade
County, Florida
(Equity Method) $ -- $(82,429) $149,851
========== ======== ========
Jerry's, Inc. Share
of Net Income (Loss) $ 82,429 $ (405) $ 670
========== ======== ========
-47-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1995 1994
------------ ------------ ------------
b. Investment in unincorporated
Joint Venture - 25% interest
in 80 acres of land in Dade
County, Florida
(Equity Method) $ 338,845 $ 337,686 $ 334,545
=========== =========== ===========
Jerry's, Inc. Share
of Net Income $ 1,159 $ 3,141 $ 5,357
=========== =========== ===========
c. Investment in working
interest in and to oil
and gas leases.
Jerry's Inc.
Carrying Value $ -- $ -- $ --
=========== =========== ===========
Jerry's Inc.
share of
Net Income (Loss) $ -- $ -- $ 4,706
=========== =========== ===========
d. Investment in 71%
interest in Red
Berry's Baseball
World, Ltd.
(Equity Method) $ 9,444 $ 10,271 $ 10,778
============ =========== ===========
Jerry's Inc. share of
Income (Loss) $ (827) $ (507) $ 1,684
============= =========== ===========
Equity in Earnings (Loss)
of Joint Ventures $ 82,761 $ 2,229 $ 12,417
============= =========== ===========
Total Other
Investments $ 348,289 $ 265,528 $ 495,174
============= =========== ===========
-48-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE I - PROPERTY, PLANT, AND EQUIPMENT (SUBSTANTIALLY PLEDGED)
At September 30, 1996 and 1995, property, plant, and equipment were
comprised of the following items:
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- ------------
Cost -
Land $ 149,281 $ 149,281
Buildings and Building
Improvements 1,431,685 1,431,686
Equipment and Furniture 3,534,202 3,820,593
Aircraft and Automotive Equipment 3,000,357 3,057,724
Leasehold Improvements
and Other 4,288,850 5,398,273
------------ -----------
Total Cost 12,404,375 13,587,557
Less: Accumulated Depreciation 9,074,019 9,420,655
------------ -----------
Net Book Value $ 3,330,356 $ 4,436,902
============ ===========
NOTE J - NOTES PAYABLE-BANK AND OTHERS
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------ ------------
Note payable to financial institution
of up to $1,500,000 bearing interest at
3% plus prime and collateralized by
receivables, inventory, equipment,
investments, leasehold rights,
real estate, intangibles, and the
personal guarantee of the Company's
president. $ 258,437 $ --
============ ===========
-49-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE K - LONG-TERM DEBT
Principal balances outstanding and details of long-term debt are
summarized as follows:
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
DESCRIPTION
-----------
Chattel mortgage notes on equipment,
improvements, aircraft and automotive
equipment, payable in monthly installments
of approximately $40,000 (including interest),
with varying maturities through 2004. A $ 2,093,374 $ 2,354,22
chattel mortgage on automotive equipment is
further collateralized by a certificates of
deposit in the amount of $151,000.
6 % to 12 1/2% notes payable, collateralized
by mortgages on land and buildings, payable
in monthly installments of approximately $8,000
(including interest), with varying maturities
through 2018. 715,082 743,688
18% note payable secured by the
personal guarantee of the President,
payable in monthly installments of $18,000
(including interest) through 1999. 456,897 --
9-1/4% (1-1/2 % above prime) note
payable to bank, collateralized by
equipment, leasehold and real estate at
the Company's facilities in Melbourne,
Florida, along with the personal guaranty of
the Company's president, payable in monthly
installments of $1,667 plus interest with a
final payment of $52,995 due January 28, 2000. 121,584 141,328
-50-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------- -------------
DESCRIPTION
-----------
11-1/4% note payable collateralized by
leasehold improvements at the Company's
facilities in Daytona Beach, Florida, along with
certificates of deposit of $147,000 and the
personal guarantee of the Company's President,
payable in monthly installments of $15,302
(including interest) through 2001 635,495 353,853
---------- ----------
TOTAL 4,022,432 3,593,093
Less payments due within one year 508,139 519,490
---------- ----------
Long-Term Debt, less current portion $3,514,293 $3,073,603
========== ==========
Payments of principal required on the foregoing long-term debt are as
follows:
FISCAL YEAR ENDING
1998 1999 2000 2001 THEREAFTER TOTAL
-------- -------- -------- -------- ---------- ----------
Amount $699,236 $536,880 $457,092 $287,357 $1,533,728 $3,514,293
======== ======== ======== ======== ========== ==========
Substantially all of the Company's assets are pledged as collateral for
these obligations.
NOTE L - ACCRUED EXPENSES
Accrued expenses consisted of the following:
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
------------ -------------
Payroll $ 115,019 $ 91,394
Interest 33,289 10,444
Rent 105,632 88,728
Taxes, Other than Income 141,914 142,824
Other 293,250 324,114
----------- ----------
Total $ 689,104 $ 657,504
=========== ==========
The Company does not accrue any amounts for compensated absences because
the amounts cannot be reasonably estimated and the accrual would not have a
material adverse effect on the financial condition of the Company.
-51-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE M - INCOME TAXES
The provision for income taxes consists of the following:
FOR THE YEAR ENDED SEPTEMBER 30,
----------------------------------------------------
1996 1995 1994
---------- ---------- ----------
Federal $ (595,436) $1,103,313 $ (296,379)
State (74,220) 154,711 (74,882)
---------- ---------- ----------
Total $ (669,656) $1,258,024 $ (371,261)
========== ========== ==========
Current $ (761,652) $1,189,842 $ 48,916
Deferred 91,996 68,182 (420,177)
---------- ---------- ----------
Total $ (669,656) $1,258,024 $ (371,261)
========== ========== ==========
Deferred income taxes arise primarily due to temporary differences in
recognizing certain revenues and expenses for tax purposes, the required use of
extended lives for calculation of depreciation for tax purposes, and the
expected use of tax loss carryforwards in future periods. The components of the
net deferred tax asset at September 30, 1996 and 1995 were as follows:
1996 1995
--------- ---------
Properties and Equipment
principally due to depreciation $ 318,281 $ 528,764
Accounts Receivable, principally due
to allowance for doubtful accounts 117,123 101,037
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 3,919 4,072
Net Operating Loss Carryforwards 199,628 82,856
--------- --------
Total gross deferred tax assets $ 638,951 $ 716,729
Less - Valuation allowance 97,074 82,856
--------- ---------
Net deferred tax assets $ 541,877 $ 633,873
========= =========
A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The net deferred assets
reflects management's assessment of the amount which will be realized from
future taxable earnings or alternative tax strategies. The valuation allowance
was increased by approximately $18,000 during fiscal 1996.
At September 30, 1996, the Company has net operating loss carryforwards
for state income tax purposes of $3,821,000, of which $1,858,000 is available to
offset future state taxable income through 2010 and $1,963,000 is available to
offset future state taxable income indefinitely.
-52-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
Total federal tax expense (credit) for years ended September 30, 1996,
1995 and 1994 differed from the amount computed by applying the U.S. federal
income tax rates of 34% to income (loss) from continuing operations before
income tax for the following reasons:
1996 1995 1994
-------------------- ------------------- -------------------
PERCENT PERCENT PERCENT
OF OF OF
PRE-TAX PRE-TAX PRE-TAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
----------- ------- ---------- ------- ----------- -------
Income (Loss) before
Provision (Credit)
for Income Taxes $(2,004,849) 100% $ 3,061,691 100% $(1,013,557) 100%
----------- ---- ----------- ---- ----------- ----
Computed Expected (681,649) (34%) 1,040,975 34% (344,609) (34%)
Tax Expense (Credit)
Increases in taxes
resulting from:
Non-deductible
items and other 64,130 3 129,661 4 54,768 6
Federal tax (benefit)
-State Income Taxes 22,083 1 (67,323) (2) 15,139 1
Change in Valuation
Allowance -- -- -- (21,677) (2)
----------- ---- ----------- ---- ----------- ----
Actual Federal Income
Tax Expense (Credit) $ (595,436) (30%) $ 1,103,313 36% $ (296,379) (29%)
========== ==== =========== === =========== ===
The Company's 1993 tax return was examined by the Internal Revenue Service.
The Internal Revenue Service accepted the return as filed.
-53-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE N - CAPITAL STOCK, CAPITAL IN EXCESS OF PAR VALUE, TREASURY STOCK
During 1996, the Company acquired 423 shares of treasury stock.
During 1995, the Company acquired 574 shares of treasury stock.
NOTE O - LEASE AND ROYALTY COMMITMENTS
The Company and its subsidiaries, under non-capitalized leases, lease
certain facilities and equipment used primarily for catering kitchens,
cafeterias, dining rooms, coffee shops, cocktail lounges, gift shops,
warehouses, and a promotional facility. These leases expire at various dates
through the year 2008.
Rental expenses included in continuing operations are as follows:
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1996 1995 1994
----------- ---------- -----------
Financing Leases $ -- $ -- $ --
=========== ========== ===========
Other Leases:
Base Rental Expense $ 1,739,023 $1,682,938 $ 2,075,790
Contingent Rental Expense 924,052 1,098,689 1,358,273
Less Sublease Rental (50,789) (49,275) (38,302)
----------- ---------- -----------
Total Rentals - Other Leases $ 2,612,286 $2,732,352 $ 3,395,761
=========== ========== ===========
Contingent rentals and royalties are generally calculated as a percentage
of gross sales and vary from three percent (3%) to forty percent (40%).
Most leases contain renewal options for five to ten year periods at
negotiated rates approved by both parties.
The Company's leases required the Company to spend approximately
$1,400,000 for improvements and equipment at four locations. The Company has
expended $413,000 to fulfill these obligations.
-54-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
The approximate minimum rental commitments for the years subsequent to
September 30, 1996, are as follows:
FINANCING OTHER
TOTAL LEASES LEASES
----------- --------- -----------
1997 $ 1,386,129 $ --- $ 1,386,129
1998 1,233,629 --- 1,233,629
1999 1,158,369 --- 1,158,369
2000 1,107,210 --- 1,107,210
2001 1,006,829 --- 1,006,829
2002-2006 3,362,016 --- 3,362,016
2007-2008 149,640 --- 149,640
----------- ---------- -----------
TOTAL $ 9,403,822 $ --- $ 9,403,822
=========== ========== ===========
NOTE P - PROFIT SHARING PLAN
The Company provides a profit sharing plan which covers all full-time
employees (as defined) who have at least three months of continuous service with
the Company. Contributions to the plan are limited to a maximum of 15% of the
participating employee's yearly salary. The Company contributed $25,000 each
year for 1996, 1995 and 1994 to the Plan.
NOTE Q - SUBSEQUENT EVENTS
1. During November 1996, the original buyer of the Company's Miami and Orlando
facilities resold these facilities to a third party. In accordance with the
amendment described in Note D, the original buyer paid the $1,000,000 to the
Company in connection with the resale of these facilities. The Company paid a
bonus of $75,000 to an employee related to this transaction. During July, 1997
the Company received the second payment from the Buyer in the amount of
$967,000.
2. During December 1996, the Company signed a five year agreement to provide
food and beverages to the South Florida Fair and Palm Beach County Expositions,
Inc. In this connection, the Company acquired the equipment, the concession
agreement, the inventory, and the liquor license during March 1997 and May 1997
for approximately $173,000.
3. During December 1996, the Florida Department of Revenue issued a proposed
assessment based on its audit of the Company's sale tax returns and intangible
tax returns for the five year period ending December 31, 1993. The proposed
assessment of $351,000, consists of $173,000 for taxes, $65,000 for penalties
and $112,000 for interest. The proposed assessment includes sales taxes on port
fees and certain supplies used in the airline catering industry. The Company's
position is that both items are not subject to sales taxes because they are
"passed-through" to other parties. The Company intends to vigorously defend its
position and has requested legal counsel to file Letters of Protest with the
Florida Department of Revenue. Although the ultimate disposition of this matter
cannot be predicted with certainty, it is the present opinion of the Company's
management that the outcome of the tax assessment which is pending will not have
a material adverse effect on the Company's financial condition. During July,
1997 the Florida Department of Revenue issued an amended proposed assessment
based upon the Letters of Protest filed on behalf of the Company.
-55-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
The amended assessment is $105,608 for tax, $27,384 for penalty, $79,816 for
interest. Although the Company's representatives continue to discuss a possible
settlement of this matter with the Department of Revenue, the Company filed a
Petition for an Administrative Hearing during September, 1997.
4. During November 1996, the Company collaterally assigned its right to receive
earnout payments under its agreement to sell the Miami and Orlando kitchen
facilities [Note D] in favor of the lender to Central Florida Terminals, Inc.,
the operator of the Orlando/Sanford, Florida Airport. The Company has a ten year
food and beverage concession with this airport that expires in 2006. The
President of Jerry's, Inc. is a stockholder of Central Florida Terminals, Inc.
This assignment was terminated on May 20, 1997.
5. During December 1996, St. Lucie County, Florida and the Company concluded its
negotiations with respect to the lease and other assets at the Company's Fort
Pierce, Florida location. The settlement requires a net payment to the County of
approximately $4,000, which was substantially accrued for at September 30, 1996.
6. During June, 1997, the Company entered into a Lease Termination Agreement
with its Landlord at the Company's BBQ facility in Royal Palm Beach, Florida.
The Agreement provides for the Company to leave all restaurant equipment,
appliances, personality, and fixtures. The approximate net book value of the
equipment, fixtures, and improvements left at the facility approximates $20,000.
Sales at this facility were immaterial. The Company was required to pay
professional fees of $16,700 to negotiate and conclude the Agreement.
7. Additions to improvements, vehicles, and equipment approximated $250,000.
8. During May, 1997, G. J. Pendergast, President of the Company, loaned Jerry's,
Inc. approximately $202,000.
9. During April, 1997, the Company sold real estate at an approximate pre-tax
gain of $28,000 [$18,000 post-tax].
10. The Company paid to the Comptroller of Florida approximately $57,000 during
September, 1997, for abandoned payroll and vendor checks for the period July 1,
1991 through December 31, 1996.
11. During September, 1997, Jerry's, Inc. filed a lawsuit against Lee County,
Florida, for Breach of Contract with respect to the Company's Concession
Agreement at the Fort Myers, Florida Airport which expires on May 14, 1998.
12. In connection with the environmental matter discussed in Note R-5, the
Company has filed a complaint in the Circuit Court for Dade County, Florida,
against owners and operators of adjacent properties to the Company's Hialeah,
Florida facility. In its complaint, the Company has alleged that the adjacent
property owners and operators are responsible for a significant portion of the
contamination at the Hialeah property. The Company is seeking recovery of its
damages plus attorneys' fees and court costs incurred as a result of the
wrongful discharge of contaminants by the owners and operators of adjacent
properties. The Company is also seeking an order requiring the owners and
operators of adjacent properties to investigate, assess and, if necessary,
perform an environmental cleanup of certain other property owned by the Company
that may have also been impacted by effluent discharges by the owners and
operators of adjacent property.
-56-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
NOTE R - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
1. Effective July 1, 1989, the Company entered into a consulting agreement with
a partnership under the control of a retired director of the Company in
recognition of his services to the Company. The agreement provides for monthly
payments $1,800 for a 10-year period.
2. The Company is involved in various legal actions arising in the normal course
of business. After taking into consideration legal counsel's evaluation of such
actions, management is of the opinion that their outcome will not have
significant effect on the Company's financial position.
3. The Company is self-insured for a portion of its workers compensation
insurance in the state of Florida. The Company's maximum self-insured exposure
at September 30, 1996 for all open years is approximately $600,000.
4. The Company expects to spend approximately $400,000 during 1997 to improve
its facilities at the St. Petersburg/Clearwater, Florida Airport.
5. The Company has received notices from the Metro-Dade Department of
Environmental Resources Management (DERM) that the Company is responsible to pay
for remediation of the hazardous substance releases at the Company's Hialeah,
Florida facility. The Company recorded charges to earnings of $100,000 in 1995
and $53,400 in 1996 to correct and monitor the site.
NOTE S - RELATED PARTY TRANSACTIONS
1. The Company purchased equipment and services from a supplier that is
considered to be a related party for fiscal years 1996, 1995 and 1994 in the
approximate amounts of $22,000, $15,000 and $6,500, respectively.
2. The Company rents on a month-to-month basis, certain real estate from its
President who is also the principal stockholder of the Company. During fiscal
1996, 1995 and 1994 the Company paid rent of approximately $10,800, $11,900 and
$9,000, respectively, for the use of the real estate.
3. Included in Other Receivables for September 30, 1996 and 1995 is a $125,000
advance to a related party. Employee Loans Receivable include advances to an
employee considered to be a related party of $44,000 and $46,000 at September
30, 1996 and 1995, respectively.
4. A related party holds the snack bar concession and the gift shop concession
at two separate locations. The Company also operates concessions at these
locations. The related party pays to the Company facilities rent, equipment
rent, and management fees. During fiscal 1996, 1995 and 1994 the related party
was charged the following:
1996 1995 1994
-------- -------- --------
Facilities Rent $ 51,339 $ 50,397 $ 38,302
Equipment Rent 18,156 18,156 16,330
Management Fees 24,000 24,000 18,000
-57-
Jerry's Inc. and Subsidiaries September 30, 1996
Notes to Consolidated Financial Statements
The related party owed the Company approximately $20,000, $83,000 and
$38,000 at September 30, 1996, 1995 and 1994.
5. The Company has a ten year food and beverage concession agreement at the
Orlando/Sanford, Florida Airport. This Airport is being operated by Central
Florida Terminals, Inc. The President of Jerry's, Inc. is a stockholder of
Central Florida Terminals, Inc. The concession agreement provides for minimum
rentals of approximately $193,000 per year and expires in 2006. The amount of
rent paid and accrued for fiscal 1996 [inception April 1996] approximated
$97,000. See [Note Q-4] for a subsequent event that relates to this facility.
-58-
SCHEDULE III
JERRY'S, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
ADDITIONS
(DELETIONS) ADDITIONS
BALANCE AT CHARGED CHARGED TO
BEGINNING (CREDIT) OTHER BALANCE AT
DESCRIPTION OF PERIOD TO INCOME ACCOUNTS DEDUCTIONS END OF PERIOD
----------- --------- ---------- ---------- ---------- -------------
YEAR ENDED SEPTEMBER 30, 1996
DEDUCTED FROM ASSET ACCOUNTS
Allowance for Doubtful Accounts $268,501 $ 98,069 $ -- $ 52,323 $311,247
======== ======== ========= ======== ========
YEAR ENDED SEPTEMBER 30, 1995
DEDUCTED FROM ASSET ACCOUNTS
Allowance for Doubtful Accounts $304,100 $ 56,151 $ -- $ 91,750 $268,501
======== ======== ========= ======== ========
YEAR ENDED SEPTEMBER 30, 1994
DEDUCTED FROM ASSET ACCOUNT
Allowance for Doubtful Accounts $222,100 $227,688 $ -- $145,688 $304,100
======== ======== ========= ======== ========
-59-
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule