UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
Form 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d)of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1997, or
[ ] Transition report pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
Commission File Number 0-4766
JERRY'S, INC.
STATE OF FLORIDA I.R.S. NO. 59-1060780
1500 NORTH FLORIDA MANGO ROAD, SUITE 19
WEST PALM BEACH, FLORIDA 33409
TELEPHONE NUMBER: (407) 689-9611
COMMON STOCK, $.04 Par Value
Outstanding Shares at June 30, 1997 - 561,999
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 twelve (12) months and (2) has been subject to
such filing requirements for the past ninety (90) days.
YES [ ] NO [X]
TABLE OF CONTENTS
JERRY'S, INC. AND SUBSIDIARIES
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS................................3
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS..........................................7
CONSOLIDATED STATEMENT OF CASH FLOWS.......................9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS................11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................19
PART II.
OTHER INFORMATION
ITEMS 1 THROUGH 6...........................................................21
-2-
PART I. FINANCIAL INFORMATION
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 AND 1996
ASSETS 1997 1996
------ ----------- ------------
CURRENT ASSETS:
Cash and Cash Items $ 1,212,186 $ 1,168,863
Customers Accounts Receivable
Less - Allowance for Doubtful Accounts:
$326,000 in 1997 and $292,000 in 1996 1,002,212 955,025
Inventories (Note A-2) 394,450 401,706
Refundable Income Taxes 693,375 301,684
Deferred Tax Assets - Current Portion 223,596 105,109
Prepaid Expenses and Other Current Assets 442,060 406,224
------------ ------------
Net of $5,000 Allowance in 1997 and
in 1996
Total Current Assets $ 3,967,879 $ 3,338,611
------------ ------------
INVESTMENTS:
Land Held for Investment $ 87,000 $ 87,000
Other Investments 348,289 388,519
------------ ------------
Total Investments $ 435,289 $ 475,519
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Cost $ 12,709,875 $ 14,028,257
Less: Accumulated Depreciation 9,658,166 10,380,852
------------ ------------
Net Book Value $ 3,051,709 $ 3,647,405
------------ ------------
OTHER ASSETS:
Cash (Restricted) $ 617,175 $ 674,884
Leasehold Rights and Other Intangible
Assets (Note A-4) 8,540 9,834
Cash Surrender Value of Insurance 21,005 2,191
Deposits and Miscellaneous 273,037 233,257
Employee Loans Receivable (Net of
$15,000 Allowance in 1997,
$20,000 Allowance in 1996) 100,787 107,376
Other Receivables - Non-Current Portion
(Net of $15,000 Allowance in 1997
and $13,000 in 1996) 30,387 75,140
Deferred Tax Assets - Non Current 318,281 528,764
------------ ------------
Total Other Assets $ 1,369,212 $ 1,631,446
------------ ------------
TOTAL ASSETS: $ 8,824,089 $ 9,092,981
============ ============
See accompanying Notes to Consolidated Financial Statements.
-3-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997 AND 1996
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ----------- -----------
CURRENT LIABILITIES:
Notes Payable to Bank and
Others (Note D) $ 170,810 $ 14,673
Current Portion of Long-Term Debt (Note E) 506,697 488,541
Accounts Payable 1,739,480 1,598,900
Income Taxes Payable - -
Accrued Expenses 575,215 619,797
Advances - Officer 661,300 -
------------ -----------
Total Current Liabilities $ 3,653,502 $ 2,721,911
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current
Portion (Note E) 3,084,978 3,642,069
------------ -----------
TOTAL LIABILITIES $ 6,738,480 $ 6,363,980
------------ -----------
STOCKHOLDERS' EQUITY:
Capital Stock -
Common Stock of $.04 par value -
Authorized 4,000,000 shares;
622,377 Shares Issued
in 1997 and 1996 $ 24,895 $ 24,895
Capital in Excess of Par Value 116,178 116,178
Retained Earnings 2,113,212 2,755,010
------------ -----------
Subtotal: $ 2,254,285 $ 2,896,083
Less: Shares Reacquired and Held
in Treasury 60,378 shares
in 1997 and 59,955 shares
in 1996 at Cost) 168,676 167,082
------------ -----------
TOTAL STOCKHOLDERS' EQUITY: $ 2,085,609 $ 2,729,001
------------ -----------
Commitments, Contingencies and Subsequent
Events (Note H) -- --
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $ 8,824,089 $ 9,092,981
============ ===========
See accompanying Notes to Consolidated Financial Statements.
-4-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 AND 1995
ASSETS 1996 1995
------ ------------ ------------
CURRENT ASSETS:
Cash and Cash Items $ 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 223,596 105,109
Prepaid Expenses and Other Current Assets
(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 87,000 87,000
Other Investments 348,289 265,528
------------ ------------
Total Investments 435,289 352,528
------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
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) 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 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.
-5-
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 $ 258,437 $ -
Current Portion of Long-Term Debt 508,139 519,490
Accounts Payable 1,518,293 1,171,228
Income Taxes Payable - 12,307
Accrued Expenses 689,104 657,504
------------ ------------
Total Current Liabilities 2,973,973 2,360,529
LONG-TERM LIABILITIES:
Long-Term Debt, Less Current Portion 3,514,293 3,073,603
------------ ------------
TOTAL LIABILITIES 6,488,266 5,434,132
------------ ------------
STOCKHOLDERS' EQUITY:
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 - -
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 8,490,897 $ 8,773,550
============ ============
See accompanying notes to Consolidated Financial Statements.
-6-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
------------ ------------
NET SALES:
(A substantial portion of which is
attributable to two customers (Note B)
and a substantial portion of which has
been discontinued) $ 14,382,199 $ 14,770,842
------------ ------------
COSTS, EXPENSES, AND OTHER ITEMS:
Costs of Sales $ 8,537,995 $ 8,716,565
Selling and Administrative Expenses 6,739,577 7,302,515
Airline Port Fees (Income) (302,972) (384,534)
Interest (Income) (20,768) (24,869)
Interest Expense 328,505 225,618
(Gain) Loss on Disposition of Assets (1,027,580) (25,632)
Equity in (Earnings) of Joint Ventures - (83,591)
Other (Income) (63,536) (47,813)
------------ ------------
Total Costs, Expenses and Other Items $ 14,191,221 $ 15,678,259
------------ ------------
Income (Loss) Before Provision
for Income Taxes $ 190,978 $ (907,417)
------------ ------------
PROVISION (CREDIT) FOR INCOME TAXES:
Federal $ 92,000 $ (254,000)
State 16,000 (43,000)
------------ ------------
Total Provision for Income Taxes $ 108,000 $ (297,000)
------------ ------------
Net Income (Loss) $ 82,978 $ (610,417)
RETAINED EARNINGS, BEGINNING OF PERIOD: 2,030,234 3,365,427
------------ ------------
RETAINED EARNINGS, END OF PERIOD: $ 2,113,212 $ 2,755,010
============ ============
Net Income (Loss) Per Common Share: $ .15 $ (1.08)
============ ============
AVERAGE SHARES OF COMMON STOCK OUTSTANDING: 561,999 562,422
============ ============
See accompanying Notes to Consolidated Financial Statements.
-7-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
------------ ------------
NET SALES:
(A substantial portion of which is
attributable to two customers (Note B)
and a substantial, portion of which has
been discontinued) $ 4,922,886 $ 4,878,818
------------ ------------
COSTS, EXPENSES, AND OTHER ITEMS:
Costs of Sales $ 2,982,045 $ 3,073,430
Selling and Administrative Expenses 2,327,681 2,469,364
Airline Port Fees (Income) (91,478) (115,867)
Interest (Income) (7,769) (8,172)
Interest Expense 116,737 87,074
(Gain) or Loss on Disposition of Assets (27,580) -
Other (Income) (26,502) (13,603)
------------ ------------
Total Costs, Expenses and Other Items $ 5,273,134 $ 5,492,226
------------ ------------
Income (Loss) Before Provision for
Income Taxes $ (350,248) $ (613,408)
------------ ------------
PROVISION (CREDIT) FOR INCOME TAXES:
Federal $ (103,000) $ (175,000)
State (17,000) (29,000)
------------ ------------
Total Provision (Credit) for
Income Taxes $ (120,000) $ (204,000)
------------ ------------
Net Income (Loss) $ (230,248) $ (409,408)
RETAINED EARNINGS, BEGINNING OF PERIOD: 2,343,460 3,164,418
------------ ------------
RETAINED EARNINGS, END OF PERIOD: $ 2,113,212 $ 2,755,010
============ ============
NET INCOME (LOSS) PER COMMON SHARE: $ (.41) $ (.73)
============ ============
AVERAGE SHARES OF COMMON STOCK OUTSTANDING: 561,999 562,422
============ ============
See accompanying Notes to Consolidated Financial Statements.
-8-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
1997 1996
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 82,978 $ (610,417)
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 628,911 1,019,038
Provision for Losses on Accounts
Receivable 50,000 60,000
Equity In (Earnings) Loss of
Joint Ventures - (83,591)
Loss (Gain) on Sale of Assets (1,027,580) (25,632)
Change in Assets and Liabilities:
(Increase)Decrease in Accounts Receivable (324,407) (207,168)
(Increase)Decrease in Inventories (94,712) (90,058)
(Increase)Decrease in Prepaid Expenses
and Other (84,897) 42,854
(Increase)Decrease in Deposits and
Miscellaneous 12,742 (32,576)
Increase(Decrease) in Accounts Payable 221,187 427,672
Increase(Decrease) in Income Taxes Payable 8,000 (313,991)
Increase(Decrease) in Accrued Expenses (113,889) (37,707)
------------ ------------
Net Cash Provided by (Used By)
Operating Activities: $ (641,667) $ 148,424
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Property and
Equipment $ 1,009,724 $ 25,632
Payments Received on Notes from Sale of
Property and Equipment - 48,750
Additions to Investments - (39,400)
Purchase of Property and Equipment (374,563) (228,158)
------------ ------------
Net Cash Provided by (Used In) Investing
Activities: $ 635,161 $ (193,176)
------------ ------------
See accompanying Notes to Consolidated Financial Statements.
-9-
JERRY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 1996
(Continued)
1997 1996
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Line-of-Credit and
Long-Term Borrowings $ 167,701 $ 1,299,307
Decrease (increase) in Restricted Cash 145,677 (94,587)
Principal Payments Under Line-of Credit
and Long-Term Borrowings (642,666) (747,117)
Additions to Other Receivables - -
Additions to Intangible Assets - (3,121)
Payments to Acquire Treasury Stock - -
Proceeds from Officer Loans 661,300 -
Payments of Officer Loan - -
------------ ------------
Net Cash Provided (Used) by Financing
Activities $ 332,012 $ 454,482
------------ ------------
Net Increase in Cash and Cash
Equivalents $ 325,506 $ 409,730
CASH AND CASH EQUIVALENTS AT THE BEGINNING
of the Period 886,680 759,133
------------ ------------
CASH AND CASH EQUIVALENTS AT THE END OF
the Period $ 1,212,186 $ 1,168,863
============ ============
ADDITIONAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (Non-Capitalized) $ 328,505 $ 225,618
============ ============
Income Taxes $ 100,000 $ 7,623
============ ============
Non-Cash Investing and Financing Activities:
Purchase of Assets (Net of Cash Period)
for Notes $ - $ -
============ ============
Assets Received in Settlement of
Notes Receivable $ - $ -
============ ============
Sale of Assets (net of cash paid) for Notes $ - $ -
============ ============
Sale of Assets (net of cash paid)
for assumption of Notes Payable $ 43,419 $ -
============ ============
See accompanying Notes to Consolidated Financial Statements.
-10-
JERRY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND 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. Investments in partnerships are carried at equity in net
assets. Other investments are carried at cost.
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:
1997 1996
--------- ---------
Finished Goods $ 80,000 $ 121,175
Raw Materials 314,450 280,531
--------- ---------
Total $ 394,450 $ 401,706
========= =========
3. PROPERTY, PLANT, AND EQUIPMENT -
Property, plant, and equipment are carried at cost. The Company utilizes
the straight-line and accelerated methods to calculate depreciation. Such
calculations are made at annual rates based upon the estimated service
lives of the Company's property which generally are as follows:
Buildings and Improvements 20 to 35 years
Equipment and Furniture 5 to 7 years
Aviation and Automotive 3 to 7 years
Leasehold Improvements and Other 5 to 15 years
Assets with an original cost of approximately $5,200,000 have been fully
depreciated at September 30, 1996.
-11-
Jerry's, Inc. and Subsidiaries June 30, 1997
Notes to Consolidated Financial Statements (Continued)
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 share.
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. 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
-12-
Jerry's, Inc. and Subsidiaries June 30, 1997
Notes to Consolidated Financial Statements (Continued)
receivables were concentrated with six airlines. As of September 30, 1995,
approximately 71% of the receivables were concentrated with six airlines.
9. REVENUE RECOGNITION -
Revenues are recorded at the time of shipment of products or performance
of services.
10. ADVERTISING COSTS -
Advertising costs are generally charged to operations in the period
incurred and totaled $286,421 in 1997, and $268,000 in 1996 (six months
ended March 31).
11. 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.
12. USE OF ESTIMATES -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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.
NOTE B - SALES
The Company derives a substantial portion of its revenues from catering
flights of two airlines, as follows:
PERCENT OF TOTAL SALES
-------------------------
NINE MONTHS ENDED JUNE 30, CONTINENTAL U.S. AIR
-------------------------- ----------- --------
1997 7% 20%
1996 6% 21%
-13-
Jerry's, Inc. and Subsidiaries June 30, 1997
Notes to Consolidated Financial Statements (Continued)
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 were 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%
Nine Months Ended 6/30/97 $ - -
Nine Months Ended 6/30/96 $ 724,000 5%
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 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 February 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 ($3,300,000 post-tax). The
original agreement with respect to this asset sale was amended during September
1996. The amendment provided, in the event the Buyer sells the Miami and Orlando
catering kitchens, that the original contingent consideration payment plan would
be adjusted as follows:
a. The original buyer would be required to pay $1,000,000 to the Company
upon the closing of a sale of the Miami and Orlando kitchens.
b. The original buyer would be 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.
-14-
Jerry's, Inc. and Subsidiaries June 30, 1997
Notes to Consolidated Financial Statements (Continued)
c. The original buyer would be required to pay the Company a third
payment of $1,000,000 on March 2, 1998.
During November 1996, the original buyer sold the Miami and Orlando
facilities to a third party. In accordance with the amendment described above,
the original buyer paid the Company $1,000,000 at the time of the sale. This
payment was recorded as a $1,000,000 gain.
During the six months ended March 31, 1996, the Company sold vehicles
which resulted in a pre-tax gain of approximately $25,600 [$16,500 post-tax].
NOTE E - NOTES PAYABLE - BANKS AND OTHERS
DESCRIPTION JUNE 30, JUNE 30,
----------- 1997 1996
---------- ----------
Notes 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 and real
estate, intangibles and the personal
guaranty of the Company's president. $ 151,782 $ -
Insurance Premium Finance Plan 19,028 14,673
---------- ----------
$ 170,810 $ 14,673
========== ==========
NOTE F - LONG TERM DEBT
The principal balances outstanding and details of long-term debt are summarized
as follows:
JUNE 30, JUNE 30,
DESCRIPTION 1997 1996
----------- ---------- ----------
Chattel mortgage notes on equipment,
aircraft, automotive equipment, payable
in monthly installments of approximately
$40,000 (including interest), with
varying maturities through 2004. A
chattel mortgage note on automotive
equipment is further collateralized by a
certificate of deposit in the amount of
$151,000. $1,937,850 $2,133,937
-15-
Jerry's, Inc. and Subsidiaries June 30, 1997
Notes to Consolidated Financial Statements (Continued)
6% to 12-1/2 notes payable,
collateralized by land and buildings,
payable in monthly installments of
approximately $8,000 (including
interest), with varying maturities
through 2018. 646,242 721,738
10-1/4% (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 (including interest) with a final
payment of $52,995 due January 28, 2000. 109,917 126,328
18% note payable secured by the personal
guaranty of the Company's president,
payable in monthly installments of
$18,000 (including interest) through 1999. 349,934 489,424
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. 547,732 659,183
---------- ----------
TOTAL $3,591,675 $4,130,610
Less payments due within one year 506,697 488,541
---------- ----------
Long-Term Debt, less current portion $3,084,978 $3,642,069
========== ==========
Substantially all of the Company's assets are pledged as collateral for these
debts.
NOTE G - LEASE COMMITMENTS
The Company and its subsidiaries, under non-capitalized leases, lease
certain facilities and equipment used primarily for catering kitchens, dining
rooms, coffee shops, cocktail lounges, gift shops, warehouses, and a promotional
facility. These leases expire at various dates through the year 2008.
-16-
Jerry's, Inc. and Subsidiaries June 30, 1997
Notes to Consolidated Financial Statements (Continued)
Rental expense included in continuing operations are as follows:
1997 1996
---------- ----------
Rent $1,949,973 $1,920,408
Contingent rentals 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.
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 H - COMMITMENTS, CONTINGENCIES, OTHER MATTERS AND SUBSEQUENT EVENTS
1. Effective January 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 of $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
-17-
Jerry's, Inc. and Subsidiaries June 30, 1997
Notes to Consolidated Financial Statements (Continued)
of the opinion that their outcome will not have a 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. During December 1996, the Florida Department of Revenue issued a
proposed assessment for 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 $350,000 consist of $173,000 for taxes, $65,500 for
penalties, and $112,000 for interest. The proposed assessment includes sales tax
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 tax because they
are "passed-through" to other parties. The Company intends to vigorously defend
its position and has requested its 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.
5. During November 1996, the Company assigned its rights to receive earnout
payments under the agreement to sell the Miami and Orlando kitchen facilities
[Note D] in favor of the lender to Central Florida Terminals, Inc., operator of
the Orlando/Sanford, Florida airport. Jerry's, Inc. 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. On May 20,
1997, this assignment was terminated.
6. The Company expects to spend approximately $400,000 during 1997 to
improve its facilities at the St. Petersburg/Clearwater, Florida airport.
7. 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 fiscal 1995 and $53,400 in 1996 to correct and monitor the site.
-18-
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FIRST THREE QUARTERS OF 1997 FISCAL YEAR COMPARED TO
FIRST THREE QUARTERS OF 1996 FISCAL YEAR
SALES
The Company's net sales for the nine months ended June 30, 1997 were
$14,382,000 compared with $14,771,000 for the same period of 1996. The decrease
in net sales is primarily due to the termination of the Company's operations at
Tallahassee and Ft. Pierce (which had sales of $724,000 in the first nine months
of 1996). This decrease was offset by higher sales at the Company's new
operations at Sanford, Florida.
COST OF SALES
Cost of sales in the first nine months of the 1997 fiscal year were
$8,538,000 compared with $8,717,000 in 1996.
SELLING AND ADMINISTRATIVE EXPENSES
The Company's selling and administrative expenses decreased from
$7,303,000 in the first nine months of 1996 fiscal year to $6,740,000 in 1997,
primarily due to lower depreciation and insurance expenses.
AIRLINE PORT FEES
The Company charges each of its airline catering customers a port fee
equal to the amount of percentage rent the Company pays to each airport
authority. The amount of this income was $385,000 in the first nine months of
1996 fiscal year, compared with $303,000 in the first nine months of 1997. It is
directly offset by rental expense paid by the Company.
SALE OF ASSETS
In November 1996, the Company received a contingent payment of $1,000,000
in connection with the sale in 1995 of the Company's Miami and Orlando airline
catering operations. See Note D to the Consolidated Financial Statements.
-19-
NET INCOME
Due to the factors described above, the Company had net income of $83,000
for the first nine months of 1997 fiscal year, compared to a net loss of
$610,000 for 1996. After deducting the gain arising from the receipt of the
$1,000,000 contingent payment, the Company incurred a net loss (before taxes) of
$809,000 in 1997, compared with a net loss (before taxes) of $907,000 for 1996.
FINANCIAL CONDITION AT JUNE 30, 1997
On June 30, 1997, the Company's current assets and current liabilities
were $3,968,000 and $3,604,000, respectively, compared with $3,339,000 and
$2,722,000 on June 30, 1996. The Company's current ratio (current assets divided
by current liabilities) declined to 1.10 on June 30, 1997, compared with 1.23 on
June 30, 1996.
The Company's operations used $642,000 in cash during the first nine
months of the 1997 fiscal year due to the losses incurred by the Company's
continuing operations. The Company's investing activities provided $635,000 in
cash which reflects the receipt of the $1,000,000 contingent payment, which more
than offset $375,000 in purchases of property and equipment. Finally, the
Company's financing activities provided approximately $332,000 in cash. This
amount primarily represents borrowings from one of the Company's officers.
The modest increase in working capital of $326,000 was primarily due to
the receipt of $1,000,000 in connection with the prior sale of the Company's
Miami and Orlando facilities. Although the Company's financial condition
improved modestly during the first three quarters of the 1997 fiscal year, the
Company still faces serious long-term working capital problems due to the high
level of losses from continuing operations. Accordingly, the Company still needs
to substantially reduce the level of its selling and administrative expenses or
obtain additional sales through expansion in order to generate positive cash
flow from its operations. There can be no assurance that these efforts will be
successful.
-20-
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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, according to a historical DERM file, may have also been
impacted by effluent discharges by SMA.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27 Financial Data Schedule
There were no reports on Form 8-K filed for the three months ended June
30, 1997.
-21-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JERRY'S, INC.
Date: October 31, 1997 /s/ GERARD J. PENDERGAST, JR.
-----------------------------
Gerard J. Pendergast, Jr.
President and Chief Executive Officer
Date: October 31, 1997 /s/ KAREN P. RHODES
-------------------
Karen P. Rhodes,
Chief Financial Officer
-22-
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule