EX-99.1 5 d944902dex991.htm EX-99.1 EX-99.1
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Exhibit 99.1

 

 

LOGO

Dear Stockholder:

I am pleased to inform you that the board of directors of Fidelity National Financial, Inc. (“FNF”) has approved the spin-off of our subsidiary, J. Alexander’s Holdings, Inc. J. Alexander’s Holdings, Inc. owns and operates three complementary upscale dining restaurant concepts. Each holder of FNFV Group common stock (“FNFV common stock”) will receive 0.17229 shares of J. Alexander’s Holdings, Inc. common stock for every one share of FNFV common stock held on September 22, 2015, the record date for this transaction.

The spin-off transaction will separate FNF and J. Alexander’s Holdings, Inc. into two distinct businesses with separate ownership and management. We believe this transaction will better enable both companies to capitalize on significant opportunities for growth. FNF will continue to focus on its title insurance, mortgage servicing technology, and other businesses. J. Alexander’s Holdings, Inc. will emerge as an independent, publicly-owned company and pursue its growth strategies and prioritize investment spending as it sees fit, without having to compete for capital or senior management resources with other FNF businesses. This transaction will provide holders of FNFV common stock with separate and distinct ownership interests in both FNF and J. Alexander’s Holdings, Inc., each with management teams focused on the unique needs and opportunities of their respective businesses. Certain executives of FNF will continue to provide consulting services to J. Alexander’s Holdings, Inc. pursuant to a Management Consulting Agreement described in the attached information statement.

The spin-off transaction will be in the form of a pro rata dividend to holders of FNFV common stock. The dividend will represent 100% of the common stock of J. Alexander’s Holdings, Inc. owned by FNF. FNF currently owns 87.44% of the issued and outstanding shares of capital stock J. Alexander’s Holdings, Inc.

Holders of FNFV common stock are not required to vote on or take any other action in connection with the spin-off transaction. Accordingly, you do not need to take any action to receive the shares of common stock of J. Alexander’s Holdings, Inc. to which you will be entitled as a holder of FNFV common stock. You do not need to pay any consideration or surrender or exchange your shares of FNFV common stock in connection with the spin-off transaction.

We expect that the spin-off transaction will be tax-free to stockholders and intend to complete the spin-off transaction only if we receive a favorable opinion of our tax advisor confirming the spin-off transaction’s tax-free status. The spin-off is also subject to other conditions, including the approval of the listing of the common stock of J. Alexander’s Holdings, Inc. on The New York Stock Exchange.

We encourage you to read the attached information statement, which is being provided to all holders of FNFV common stock. It describes the spin-off transaction in detail and contains important business and financial information about J. Alexander’s Holdings, Inc.

We believe the spin-off transaction is a positive event for our businesses and our stockholders. We look forward to your continued support as a stockholder of FNF and remain committed to working on your behalf to build long-term stockholder value.

Sincerely,

Raymond R. Quirk

Chief Executive Officer

September 8, 2015




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LOGO

Dear Future J. Alexander’s Holdings, Inc. Stockholder,

On behalf of the entire team at J. Alexander’s Holdings, Inc., I want to welcome you as a future stockholder. Our business consists of three complementary upscale dining restaurant concepts: J. Alexander’s, Redlands Grill and Stoney River Steakhouse and Grill. For more than 20 years, the J. Alexander’s team has provided its guests a quality dining experience with a contemporary American menu and high levels of customer service in restaurants with an attractive ambiance. As of the date hereof, we operate 41 locations across 14 states. During recent years, we have increased the number of restaurants we operate, increased same store sales and expanded our geographic reach.

As an independent, publicly-owned company, we believe we can more effectively execute on our strategic plans and deliver long-term value to you as a stockholder.

I encourage you to learn more about J. Alexander’s Holdings, Inc. and the strategies we are pursuing by reading the attached information statement. We look forward to our future as an independent, public company and your continued support as a J. Alexander’s Holdings, Inc. stockholder.

Sincerely,

Lonnie J. Stout II

President and Chief Executive Officer

September 8, 2015




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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the United States Securities and Exchange Commission under the United States Securities Exchange Act of 1934, as amended.

Preliminary and Subject to Completion, Dated July 31, 2015

INFORMATION STATEMENT

Distribution of Common Stock of

J. Alexander’s Holdings, Inc.

 

 

Fidelity National Financial, Inc. (“FNF”) is furnishing this information statement to the holders of FNFV Group common stock (“FNFV common stock”) in connection with the distribution by FNF to the holders of FNFV common stock of all of the issued and outstanding shares of common stock, par value $0.01 per share, of J. Alexander’s Holdings, Inc. held by FNF.

In this distribution, FNF will distribute the shares of J. Alexander’s Holdings, Inc. common stock on a pro rata basis to the holders of FNFV common stock. As a holder of FNFV common stock, you will receive 0.17229 shares of J. Alexander’s Holdings, Inc. common stock for every one share of FNFV common stock that you hold at the close of business on September 22, 2015, the record date for the distribution. You will receive cash in lieu of any fractional share of J. Alexander’s Holdings, Inc. common stock that you would otherwise have received. As discussed more fully in the “Distribution” section of this information statement, if you sell shares of FNFV common stock in the “regular way” market between September 18, 2015 and September 28, 2015, the distribution date, you will also be selling your right to receive shares of J. Alexander’s Holdings, Inc. common stock in the distribution. Immediately after the distribution is completed, J. Alexander’s Holdings, Inc. will be an independent, public company.

No stockholder action is necessary for you to receive the shares of J. Alexander’s Holdings, Inc. common stock to which you are entitled in the distribution. This means that you do not need to pay any consideration to FNF or to us for the shares of J. Alexander’s Holdings, Inc. common stock to be distributed to you and you do not need to surrender or exchange any shares of FNFV common stock to receive your shares of J. Alexander’s Holdings, Inc. common stock.

There is currently no trading market for J. Alexander’s Holdings, Inc. common stock. On September 18, 2015, shares of our common stock are expected to begin trading on a “when-issued” basis. We expect that “when-issued” trading will begin on or shortly before the record date and continue up to and including the distribution date, after which time all shares of our common stock will be traded on a regular settlement basis, or “regular-way” trading, on The New York Stock Exchange (“NYSE”) under the ticker symbol “JAX.” We cannot predict the trading prices for J. Alexander’s Holdings, Inc. common stock before, on or after the distribution date.

As you review this information statement, you should carefully consider the matters described in the “Risk Factors” section beginning on page 27.

 

 

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined that this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement is not an offer to sell nor does it seek an offer to buy any securities.

 

 

The date of this information statement is September 8, 2015.

 




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TABLE OF CONTENTS

 

     Page  

SUMMARY

     1   

DISTRIBUTION

     17   

RISK FACTORS

     27   

FORWARD-LOOKING STATEMENTS

     59   

OUR CORPORATE STRUCTURE

     61   

THE DISTRIBUTION

     66   

DIVIDEND POLICY

     74   

CAPITALIZATION

     75   

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

     76   

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

     82   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     84   

INDUSTRY AND COMPETITION

     120   

BUSINESS

     121   

MANAGEMENT

     137   

EXECUTIVE COMPENSATION

     144   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     154   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     162   

DESCRIPTION OF CAPITAL STOCK

     165   

DELIVERY OF INFORMATION STATEMENT

     172   

WHERE YOU CAN FIND MORE INFORMATION

     173   

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

     F-1   

 



 

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INDUSTRY AND MARKET DATA

This information statement contains industry and market data, forecasts and projections that are based on internal data and estimates, independent industry publications, reports by market research firms or other published independent sources. In particular, we have obtained information regarding the restaurant industry from the National Restaurant Association (“NRA”) and Technomic, Inc. (“Technomic”). NRA is the largest foodservice trade association in the world, supporting nearly 500,000 restaurant businesses. Technomic is a national consulting market research firm. Other industry and market data included in this information statement are from internal analyses based upon data available from known sources or other proprietary research and analysis.

We believe the data used in this information statement to be reliable as of the date of this information statement, but there can be no assurance as to the accuracy or completeness of such information. We have not independently verified the market and industry data obtained from these third-party sources. Our internal data and estimates are based upon information obtained from trade and business organizations, other contacts in the markets in which we operate and our management’s understanding of industry conditions. Though we believe this information to be true and accurate, such information has not been verified by any independent sources. You should carefully consider the inherent risks and uncertainties associated with the market and other industry data contained in this information statement, including those discussed under the heading “Risk Factors” beginning on page 27 of this information statement.

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

We own the trademarks, service marks and trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. This information statement may also contain trademarks, service marks, trade names and copyrights of other companies, which are the property of their respective owners. Solely for convenience, our trademarks, service marks, trade names and copyrights referred to in this information statement are listed without the TM, SM, © and ® symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors, if any, to these trademarks, service marks, trade names and copyrights.

BASIS OF PRESENTATION

Our fiscal year ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The period January 2, 2012 through September 30, 2012 included 39 weeks of operations, and the period October 1, 2012 through December 30, 2012 included 13 weeks of operations. Fiscal years 2013 and 2014 included 52 weeks of operations. Each of the six months ended June 28, 2015 and June 29, 2014 included 26 weeks of operations. All financial information herein relating to periods prior to the completion of the reorganization transactions described herein is that of J. Alexander’s Holdings, LLC and its consolidated subsidiaries. Financial information through and including September 30, 2012, the date Fidelity National Financial, Inc. (“FNF”) acquired J. Alexander’s Corporation (“JAC”) for accounting purposes, is referred to as “Predecessor” company information, which has been prepared using the previous basis of accounting. The financial information for periods beginning on or after October 1, 2012 is referred to as “Successor” company information and reflects the financial statement effects of recording fair value adjustments and the capital structure resulting from FNF’s acquisition of JAC.

Financial and operating information for all periods presented has been adjusted to reflect the impact of discontinued operations for comparative purposes.

 



 

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References to our same store restaurants and same store sales or average weekly same store sales in this information statement refer to sales from our restaurants in operation at the end of the period which have been open for longer than 18 consecutive months prior to the end of a specified period.

CERTAIN DEFINITIONS

Unless otherwise expressly indicated in this information statement or the context otherwise requires:

 

   

references to “J. Alexander’s Holdings, Inc.” and the “issuer” refer to J. Alexander’s Holdings, Inc., a Tennessee corporation, and not to any of its subsidiaries;

 

 

   

references to “J. Alexander’s Holdings, LLC,” refer to J. Alexander’s Holdings, LLC, a Delaware limited liability company, the sole owner of J. Alexander’s, LLC;

 

 

   

references to “J. Alexander’s, LLC” refer to J. Alexander’s, LLC, a Tennessee limited liability company, which is a wholly owned subsidiary of J. Alexander’s Holdings, LLC and, together with its subsidiaries (which we refer to as our “Operating Subsidiaries”), conducts all of our business operations; J. Alexander’s, LLC is the successor upon conversion of J. Alexander’s Corporation, which we refer to as “JAC”);

 

 

   

references to the “company,” “we,” “us” and “our” refer to J. Alexander’s Holdings, Inc. and its consolidated subsidiaries, including J. Alexander’s Holdings, LLC and J. Alexander’s, LLC, and the Operating Subsidiaries, giving effect to the reorganization transactions described below;

 

 

   

references to “FNF” refer to Fidelity National Financial, Inc., a Delaware corporation, our parent company;

 

 

   

references to “FNFV” refer to Fidelity National Financial Ventures, LLC, a Delaware limited liability company and wholly owned subsidiary of FNF, and its predecessor, Fidelity National Special Opportunities, Inc., a Delaware corporation, which converted into FNFV in May 2014;

 

 

   

references to the “Management Consultant” refer to Black Knight Advisory Services, LLC, a Delaware limited liability company, which is owned by certain directors and executive officers of FNFV and J. Alexander’s Holdings, Inc., and which provides business consulting services to us;

 

 

   

references to the “Management Consulting Agreement” refer to the Management Consulting Agreement between us and the Management Consultant.

 

 

   

references to “Newport” refer to Newport Global Opportunities Fund AIV-A LP, a Delaware limited partnership, whose investment manager is Newport Global Advisors LP; and

 

 

   

references to “FNH” refer to Fidelity Newport Holdings, LLC, a Delaware limited liability company and a joint venture owned by FNFV, Newport and certain individuals.

 

 



 

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NON-GAAP FINANCIAL MEASURES

In this information statement, we use the following financial measures that are not presented in accordance with generally accepted accounting principles in the United States (“GAAP”):

“Adjusted EBITDA,” defined as net income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items, is a non-GAAP financial measure that we believe is useful to investors because it provides information regarding certain financial and business trends relating to our operating results. Adjusted EBITDA does not fully consider the impact of investing or financing transactions as it specifically excludes depreciation and interest charges, which should also be considered in the overall evaluation of our results of operations.

“Restaurant Operating Profit,” defined as net sales less restaurant operating costs, which are cost of sales, restaurant labor and related costs, depreciation and amortization of restaurant property and equipment, and other operating expenses, is a non-GAAP financial measure that we believe is useful to investors because it provides a measure of profitability for evaluation that does not reflect corporate overhead and other non-operating or unusual costs. “Restaurant Operating Profit Margin” is the ratio of Restaurant Operating Profit to net sales.

Our management uses Adjusted EBITDA and Restaurant Operating Profit to evaluate the effectiveness of our business strategies. We caution investors that amounts presented in this information statement in accordance with the above definitions of Adjusted EBITDA or Restaurant Operating Profit may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP financial measures in the same manner. Adjusted EBITDA and Restaurant Operating Profit should not be assessed in isolation from, or construed as a substitute for, net income or net cash provided by operating, investing or financing activities, each as presented in accordance with GAAP.

A reconciliation of these non-GAAP financial measures to the closest GAAP measure is included in this information statement under the heading “Information Statement Summary—Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data.”

 



 

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SUMMARY

This summary highlights selected information from this information statement relating to our company. For a more complete understanding of our business, the separation and the distribution, you should carefully read this entire information statement, including the “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations” sections and our combined historical and pro forma financial statements and notes to those statements appearing elsewhere in this information statement.

Unless otherwise indicated, the information included in this information statement assumes the completion of the separation of our company from FNF (the “separation”) and the distribution of our common stock to holders of FNFV common stock (the “distribution”).

Our Company

We own and operate three complementary upscale dining restaurant concepts: J. Alexander’s, Redlands Grill and Stoney River Steakhouse and Grill (“Stoney River”). For more than 20 years, J. Alexander’s guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept. Stoney River provides “white tablecloth” service and food quality in a casual atmosphere at a competitive price point. Our newest concept, Redlands Grill, offers guests a different version of our contemporary American menu and a distinct architectural design and feel.

Our business plan has evolved over time to include a collection of restaurant concepts dedicated to providing guests with what we believe to be the highest quality food, high levels of professional service and a comfortable ambiance. By offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas. We want each of our restaurants to be perceived by our guests as a locally- managed, stand-alone dining experience. This multiple concept strategy permits us to successfully operate each of our concepts in the same geographic market and avoid being perceived as a “chain,” which we believe is less than ideal in the upscale segment of the restaurant industry. If this strategy continues to prove successful, we may expand beyond our current three concepts in the future.

While each concept operates under a unique trade name, each of our restaurants is identified as a “J. Alexander’s Holdings” restaurant. As of June 28, 2015, we operated a total of 41 locations across 14 states. To further expand our multiple concept strategy, we are currently planning to transition between 12 and 15 of our J. Alexander’s restaurants to Redlands Grill restaurants. Other restaurant locations may be added or converted in the future as we determine how best to position our multiple concepts in a given geographic market.

We believe our concepts deliver on our customers’ desire for freshly-prepared, high quality food and high quality service in a restaurant that feels “unchained” with architecture and design that varies from location to location. As a result, we have delivered strong growth in same store sales, average weekly sales, net sales and Adjusted EBITDA. Through our combination with Stoney River, we have grown from 33 restaurants across 13 states in 2008 to 41 restaurants across 14 states as of June 28, 2015. Our growth in same store sales since 2008 has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations, the development of plans to open new restaurants, and the hiring of personnel to support our growth plans.

Our J. Alexander’s restaurants have generated 22 consecutive fiscal quarters of positive same store sales growth, which we believe demonstrates the strength of that concept. We have grown the

 



 

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average weekly sales at our J. Alexander’s concept from approximately $88,400 in 2008 to approximately $107,000 in 2014, representing an increase of 21.0% over that time period. We have also grown the average weekly sales at the Stoney River locations since February 2013, even while implementing significant operational and remodeling improvements. From 2008 to 2014, our annual net sales (not including restaurants categorized as discontinued operations) increased from $137,622,000 to $202,233,000 and Adjusted EBITDA increased from $10,494,000 to $22,358,000. We generated net income of $105,000 in 2008 and $8,515,000 in 2014. For the six-month period ended June 28, 2015, our net sales were $109,275,000 and our net income was $5,514,000. For a definition and reconciliation of Adjusted EBITDA, a non-GAAP financial measure, to net income, see “—Summary Historical and Unaudited Pro Forma Consolidated Financial and Other Data.”

 

 

LOGO

 

 

 

(1)

Adjusted EBITDA presented for the 2012 period, as adjusted. See - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Year Ended December 29, 2013 Compared to Supplemental Pro Forma MD&A Information for the Year Ended December 30, 2012 for a discussion of the adjustments included.

 

(2)

Stoney River is reflected in the 2014 and YTD through June 28, 2015 periods only.

Our Concepts

J. Alexander’s

J. Alexander’s was founded in 1991 in Nashville, Tennessee and for more than 20 years has offered a quality upscale dining experience with a contemporary American menu in an environment with an attractive ambiance. At J. Alexander’s, we pride ourselves on our attentive, highly professional service. The J. Alexander’s menu focuses on made-from-scratch menu items created with high quality, fresh ingredients. It features prime rib of beef, hardwood-grilled steaks, seafood and chicken, pasta, salads, soups, and assorted sandwiches, appetizers and desserts. The menu is complemented by a broad wine list with several exclusive offerings and signature cocktails. Each restaurant is open for lunch and dinner seven days a week and had an average check per guest of $29.69 in 2014. As of June 28, 2015, we operated 21 J. Alexander’s locations. We plan to transition a total of 12 to 15 of the original J. Alexander’s locations to the Redlands Grill concept by the end of fiscal 2015.

 



 

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Stoney River Steakhouse and Grill

Stoney River was founded in 1996 in Atlanta, Georgia and is a steakhouse concept that seeks to provide the quality and service of a fine dining steakhouse at a more reasonable price point. Stoney River has a high quality steakhouse menu, but unlike many steakhouse competitors, the menu is not “a la carte” and every steak comes with a side item. The menu is broader than many steakhouses, and includes house specialties ranging from pasta and chicken to shrimp, salmon and baby back ribs, complemented by an extensive wine list and signature cocktails. Each restaurant is open seven days a week for dinner and had an average check per guest of $45.31 in 2014. Stoney River has been a part of the J. Alexander’s organization since February 2013 and, as of June 28, 2015, we operated ten Stoney River locations.

Redlands Grill

We have been working on the development of the Redlands Grill for over twelve months, and began the rollout in the first quarter of 2015. Redlands Grill offers a broad contemporary American cuisine featuring expanded menu offerings on a seasonal or rotational basis, including made-from-scratch flatbreads, sushi, and a strong emphasis on farm-to-table seasonal vegetables. Each restaurant is open for lunch and dinner seven days a week. Menu items are priced similarly to those at J. Alexander’s restaurants. As of June 28, 2015, we operated 10 Redlands Grills and plan to transition a total of 12 to 15 former J. Alexander’s locations to this concept by the end of fiscal 2015.

Competitive Landscape

The full-service restaurant business is highly competitive and highly fragmented, and the number, size and strength of competitors vary widely by region. We believe restaurant competition is based on quality of food products, customer service, reputation, restaurant décor, location, reputation and price. Each of our restaurant concepts compete with a number of other restaurants within each market location, including both locally-owned restaurants and restaurants that are part of regional or national chains. J. Alexander’s and Redlands Grill also compete with regional and national restaurant chains that market to the upscale restaurant customer, such as Del Frisco’s Grill, Kona Grill and Seasons 52. The principal competitors for our Stoney River concept include locally-owned upscale steakhouses. Stoney River also competes with the national “white tablecloth” steakhouse chains that market to the upscale steakhouse customer, such as The Capital Grille, Smith & Wollensky, The Palm, Ruth’s Chris Steak House, Morton’s The Steakhouse, Del Frisco’s and Fleming’s Prime Steakhouse and Wine Bar. Our concepts also compete with additional restaurants in the broader upscale and polished casual dining segments.

Our Strengths

Over our more than 20-year operating history, we have developed and refined the following strengths:

Three Distinct Yet Complementary Concepts

J. Alexander’s, Redlands Grill and Stoney River are concepts with more than 40 years of combined history, strong brand value and exceptional customer loyalty in their core markets. All three restaurant concepts blend what we believe are the best attributes of fine and casual dining: a focus on high quality food made with fresh ingredients in a scratch kitchen, exceptional service, diverse menus and individualized interior and exterior design unique to each community. Each concept has a distinct identity, and the differentiation in menu and restaurant design is substantial enough that they can successfully operate in the same markets or retail locations.

 



 

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Over time, we anticipate that we will continue to grow with our multi-branding strategy. Each restaurant concept will have 15 to 20 restaurants competing in the upscale casual dining segment of the restaurant industry. All of our restaurants will take advantage of our professional service system, made-from-scratch high-quality menu items, and unique architectural designs supported by upscale ambiance. We believe that this strategy will increase our national footprint and overall competitive advantage.

Delivering a Superior Dining Experience with the Highest Quality Service at a Reasonable Price Point

Our concepts seek to provide a high quality dining experience that appeals to a wide range of consumer tastes at reasonable price points, which we believe helps us to cultivate long-term, loyal guests who place a premium on the price-value relationships that our concepts offer.

Premium, Freshly Made Cuisine

Each of our concepts is committed to preparing high quality food from innovative menus. We are selective in the grade and freshness of our ingredients and in our menu offerings. Substantially all the protein and vegetables we use are delivered fresh to our restaurants and are not frozen in transport or in storage prior to being served, and are predominately preservative and additive-free. Virtually all of our made-to-order menu items are prepared from scratch. Stocks, sauces and desserts are made in-house daily. Our food menus are complemented by comprehensive wine lists that offer both familiar varietals as well as wines exclusive to our restaurants. While each menu has its own distinctive profile, we strive to continuously innovate with new ingredients and local “farm-to-table” produce to provide limited-time featured items to keep the experience new and interesting for our guests. Quality control is a key part of our mission and we have developed a taste plate process at all of our restaurants whereby all of our menu items are taste-tested daily by restaurant managers to ensure they meet our presentation and taste standards.

Outstanding Service

Prompt, courteous and efficient service delivered by a knowledgeable staff is an integral part of each of our concepts. Our goal is to have all staff working together to achieve the highest guest satisfaction, and we believe that our low table-to-server ratio, when coupled with team serving by a dedicated staff, ensures that our guests receive exceptional service.

Sophisticated Experience

Our concepts use a variety of architectural designs and building finishes to create beautiful, upscale décor with contemporary and timeless finishes. We are aggressive with our repair and maintenance program in all locations, ensuring that no restaurant ever looks “highly trafficked” or dated. This results in a reduced need for periodic major remodels to reimage a given location to acceptable standards.

Attractive Unit Economics and Consistent Execution

We believe that we have a long standing track record of consistently producing high average unit sales volumes and have proven the viability of our concepts in multiple markets and regions. We have successfully increased our average unit volumes at a compound annual growth rate of 3.2% from approximately $4,600,000 in 2008 to approximately $5,600,000 in 2014 for the J. Alexander’s concept. Our highest volume J. Alexander’s restaurant generated approximately $8,400,000 in net sales in

 



 

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2014. From 2008 to 2014, we have increased our Restaurant Operating Profit Margin (as defined herein) at J. Alexander’s by 5.9% to 15.7%. Since we began operating Stoney River, we have been able to increase the average weekly sales and Restaurant Operating Profit Margin at our Stoney River restaurants even while implementing significant operational improvements and remodeling several locations. We believe that additional remodels of locations in each of our concepts will contribute to increases in same store sales. Once operational for 36 months, we are targeting average unit volumes and Restaurant Operating Profit Margins for new locations to exceed system-wide fiscal year 2014 levels for all of our concepts.

Strong Cultural Focus on Continuous Training

We believe that our stringent hiring standards, coupled with our extensive and continuous training programs for all employees, provide our guests with outstanding service at each of our concepts. We prefer to hire general managers and regional management from within the organization; currently approximately 55% of those roles are filled by individuals promoted from within. We also seek to hire general manager prospects from top U.S. culinary and hospitality programs and train them in our systems and processes, which can be a three to five-year process. We believe that our hiring and training, and our focus on internal promotion help to ensure that our culture of excellent service is thoroughly disseminated throughout our organization.

Sophisticated and Scalable Back Office and Operations

Our back office and operations have developed over the last 20 years to provide us with advantages in our purchasing and shared services model. Most of our protein purchases are negotiated directly with our suppliers. Direct relationships with vendors provide us with cost and flexibility advantages that may not be available from third party distributors. We also have a shared service model for our back office that has centralized certain functions for all of our concepts at our corporate headquarters. Services shared between our concepts include staff training and recruiting, real estate development, purchasing, human resources, information technology, finance and accounting. From our vendor team to our shared services model, we believe that we have developed a scalable platform with the bench strength to support our planned growth with limited additions.

Experienced Management Team

We are led by a management team with significant experience in all aspects of restaurant operations. Our team of industry veterans at the executive level has an average of 30 years of restaurant experience. Our 41 general managers have an average tenure of approximately 9.8 years at J. Alexander’s, 10.6 years at Redlands Grill, and 6.1 years at Stoney River as of July 2015. Despite a challenging economic environment, this management team has achieved 22 consecutive fiscal quarters of same store sales growth at the J. Alexander’s concept, improved restaurant-level performance, integrated Stoney River operations and established new restaurant development efforts.

In addition, pursuant to the Management Consulting Agreement, we will continue to be able to leverage key management resources of FNF which have contributed significantly to our growth and financial performance since we were acquired by FNF in 2012.

 



 

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Our Growth Strategies

We believe that there are significant opportunities to grow our business, strengthen our competitive position and enhance our concepts through the implementation of the following strategies:

Deliver Consistent Same Store Sales Growth Through Continuing to Provide High Quality Food and Service

We believe we will be able to continue to generate same store sales growth by consistently providing an attractive price/value proposition for our guests through excellent service in an upscale environment. We remain focused on delivering freshly prepared, contemporary American cuisine, with exceptional quality and service for the price, while continuing to explore ways to increase the flexibility of dining options for our guests. We will continue to adapt to changing consumer tastes and incorporate local offerings to reinforce our boutique restaurant feel through limited-time featured food and drink offerings and potential menu additions. We also have a program of continuous investment in all of our locations to maintain our store images at the highest level to ensure a consistent guest experience across all concepts. We believe that our level of repair and maintenance expense, coupled with our planned remodeling schedule, will also contribute to improvements in same store sales.

Pursue Disciplined New Restaurant Growth in Target Markets

We believe that upscale casual dining has significant growth potential and we are in the early stages of our growth story. We have built a scalable infrastructure, successfully grown J. Alexander’s, commenced the conversion of certain J. Alexander’s to Redlands Grill, and completed the integration of the Stoney River locations. Historically, we have focused on organic growth, but in 2013, we began to establish a new restaurant development pipeline. The first of our new restaurant openings occurred in Columbus, Ohio in the fourth quarter of 2014, and we have two additional new sites under lease as of July 2015. We believe that there are significant opportunities to grow our concepts in both existing and new markets nationwide where we believe we can generate attractive unit economics. Developing the Redlands Grill concept is expected to further accelerate our growth as it will allow us to open additional restaurants in growing markets in which we already operate a J. Alexander’s and/or a Stoney River.

We are constantly evaluating potential sites for new restaurant openings and currently have approximately 30 locations in approximately 20 separate markets under various stages of review and development. We believe that having a large number of sites under review at any one time is necessary in order to meet our development goals. In our experience, sites under analysis often will not result in a new restaurant location for any number of reasons, including the delay or cancelation of larger development projects on which a future restaurant may depend, the loss of potential site locations to competitors or our ultimate determination that a site under review is not appropriate for one of our concepts. We believe that the number of available and potential sites under review by us, the anticipated cost of opening a new restaurant location, and the capital resources anticipated to be available to us following completion of the distribution will support four to five new restaurant openings annually starting in 2016. However, our ability to open any particular number of restaurants in any calendar year is dependent upon many factors, risks and uncertainties beyond our control as discussed more fully elsewhere in this information statement under the heading “Risk Factors—Risks Related to Our Business.”

Leverage Our Infrastructure to Enhance Profitability

We believe that we have a scalable infrastructure and can continue to expand our margins as we execute our strategy, particularly as we continue to improve the operations at the Stoney River locations. While each of our restaurant concepts has independent store-level operations, we use our

 



 

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shared services platform to conduct many of the training, quality control and administrative functions for our concepts. We believe that this approach will enhance our profitability as we grow. We believe we have the personnel in place to support our current growth plan without significant additional investments in infrastructure.

Capitalization

After completion of the distribution by FNF of our common stock, which we refer to as the “spin-off” or “distribution”, our outstanding capital stock will consist of approximately 15 million shares of common stock. Stockholders will hold shares of common stock of J. Alexander’s Holdings, Inc., the sole managing member of J. Alexander’s Holdings, LLC. See “Description of Capital Stock.”

History and Corporate Structure

The first J. Alexander’s restaurant opened in 1991 in Nashville, Tennessee. From 1991 to 2012, J. Alexander’s was owned and operated by JAC, the predecessor to J. Alexander’s, LLC, and grew from a single location in 1991 to 33 restaurants located in Alabama, Arizona, Colorado, Florida, Georgia, Illinois, Kansas, Kentucky, Louisiana, Michigan, Ohio, Tennessee and Texas.

Stoney River was founded by a group of entrepreneurs in Atlanta, Georgia in 1996. In 2000, O’Charley’s, Inc. (“O’Charley’s”) acquired Stoney River, which at that time operated two restaurant locations in suburban Atlanta, Georgia. From 2000 until 2012, O’Charley’s owned and operated Stoney River, adding additional locations in Georgia, Illinois, Kentucky, Maryland, Missouri and Tennessee.

In April of 2012, FNFV acquired O’Charley’s and in May of that year transferred its ownership in O’Charley’s to FNH. In September of 2012, FNFV acquired JAC and in February 2013, JAC was transferred to J. Alexander’s Holdings, LLC, then a newly formed, wholly owned subsidiary of FNFV. In February of 2013, FNH transferred the Stoney River Assets (as defined herein) to J. Alexander’s Holdings, LLC.

Redlands Grill is a new restaurant concept that we launched in the first quarter of 2015.

Corporate Structure

J. Alexander’s Holdings, Inc. was incorporated in the State of Tennessee on August 15, 2014 for the purpose of conducting an initial public offering of shares of its common stock. For reasons described in this information statement under the heading “The Distribution—Strategic Evaluation and Reasons for the Distribution,” including our long-term revenue growth objectives and desire to maximize value for holders of FNFV common stock, we terminated the offering in the second quarter of 2015. To date, J. Alexander’s Holdings, Inc. has engaged only in activities in contemplation of the terminated offering and the proposed spin-off. Prior to the completion of the spin-off, all of our business operations are being conducted through J. Alexander’s Holdings, LLC and its subsidiaries.

In anticipation of the spin-off and planned public offering, beginning in August 2014 we commenced an internal restructuring that, following the completion of the proposed spin-off, will have resulted in the following:

 

   

the formation of the issuer;

 

 

   

the formation of JAX Investments, Inc. (“JAX Investments”) by the issuer and the transfer to it of 1% of the Class A membership interests in J. Alexander’s Holdings, LLC;

 

 



 

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the issuance of shares of common stock by us to the holders of Class A Units of J. Alexander’s Holdings, LLC, including FNFV and Newport but excluding JAX Investments, in exchange for their membership interests in J. Alexander’s Holdings, LLC; and

 

 

   

the restatement of the current limited liability company agreement of J. Alexander’s Holdings, LLC (referred to herein as the “Restated Operating Agreement”) to provide for the governance and control of J. Alexander’s Holdings, LLC by us as its sole managing member and to establish the terms upon which the Management Consultant and other holders of “Class B Units” in J. Alexander’s Holdings, LLC may exchange such “Class B Units” for shares of our common stock or, with regard to Class B Units issued to certain members of management, a cash payment, to be determined at our option.

 

Following the consummation of the reorganization transactions and the spin-off, we will be a holding company and through our sole managing member, will control the business and affairs of J. Alexander’s Holdings, LLC and its subsidiaries. Our principal asset will be our direct ownership of 99% of the Class A Units and an indirect ownership through JAX Investments of the remaining 1% of the Class A Units of J. Alexander’s Holdings, LLC. In addition, following the consummation of the reorganization transactions and the spin-off, we will be treated as a corporation for U.S. federal income tax purposes, while J. Alexander’s Holdings, LLC will continue to be treated as a partnership for U.S. federal income tax purposes.

In this information statement, we refer to the transactions described above as the “reorganization transactions.” For a detailed description of the reorganization transactions, including a summary of the material terms and conditions of the documents and agreements adopted or entered into in connection with the reorganization transactions, please see “Certain Relationships and Related Party Transactions.”

 



 

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The diagram below summarizes our organizational structure immediately after completion of the reorganization transactions and the spin-off.

 

 

LOGO

*

Members of management who were previously granted Class B Units

See “Certain Relationships and Related Party Transactions,” and “Description of Capital Stock” for more information on our corporate structure and the rights associated with our common stock and Class B Units of J. Alexander’s Holdings, LLC.

About FNF

FNF is a leading provider of title insurance, technology and transaction services to the real estate and mortgage industries. FNF is the nation’s largest title insurance company through its title insurance underwriters—Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York—that collectively issue more title insurance policies than any other title company in the United States. FNF also provides industry-leading mortgage technology solutions and transaction services, including MSP ®, the leading residential mortgage servicing technology platform in the U.S., through its majority-owned subsidiary, ServiceLink Holdings, LLC. In addition, FNF indirectly owns majority and minority equity investment stakes in a number of entities, including Ceridian HCM, Inc., Digital Insurance, Inc., FNH and us.

Our Principal Shareholders

Newport is a limited partnership private equity investment fund managed by Newport Global Advisors LP, a Delaware limited partnership (“Newport Global Advisors”) and its controlled affiliates. Newport Global Advisors is a registered investment advisor, with $525 million in assets under management.

 



 

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Agreements with FNF and its Affiliates

In addition to the documents and agreements described above that comprise the reorganization transactions, in connection with the spin-off, we intend to enter into a Tax Matters Agreement with FNF and a Management Consulting Agreement with Black Knight Advisory Services, LLC, which is owned and controlled by certain key executive officers and directors of FNFV and J. Alexander’s Holdings, Inc. who have provided core advisory services to us since we were originally acquired by FNF. See, “Certain Relationships and Related Party Transactions” for a more complete description of the foregoing agreements.

Risk Factors

We face numerous risks and uncertainties in our operations that could have a material adverse effect on our business, results of operations and financial condition. Below is a summary of certain risk factors associated with our business that you should consider in evaluating an investment in our common stock. These risks are discussed more fully in the section titled “Risk Factors” immediately following this summary. Some of the more significant challenges and risks include the following:

 

   

the impact of, and our ability to react to, general economic conditions and changes in consumer preferences;

 

 

   

our ability to open new restaurants and operate them profitably, including our ability to locate and secure appropriate sites for restaurant locations, obtain favorable lease terms, attract customers to our restaurants or hire and retain personnel;

 

 

   

our ability to successfully develop and improve our Stoney River and Redlands Grill concepts;

 

 

   

our ability to successfully transition certain existing J. Alexander’s locations to Redlands Grill locations;

 

 

   

our ability to obtain financing on favorable terms, or at all;

 

 

   

the strain on our infrastructure caused by the implementation of our growth strategy;

 

 

   

the significant competition we face for customers, real estate and employees;

 

 

   

the impact of economic downturns or other disruptions in markets in which we have revenue or geographic concentrations within our restaurant base;

 

 

   

the impact of increases in the price of, and/or reductions in the availability of, commodities, particularly beef; and

 

 

   

the impact of negative publicity or damage to our reputation, which could arise from concerns regarding food safety and food-borne illnesses or other matters.

 

Corporate Information

We were incorporated in Tennessee on August 15, 2014. Our principal executive offices are located at 3401 West End Avenue, Suite 260, Nashville, Tennessee 37203, and our telephone number is (615) 269-1900. Our website address is www.jalexandersholdings.com. Our website and the information contained on, or that can be accessed through, the website is not deemed to be incorporated by reference in, and is not considered part of, this information statement.

 



 

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Questions and Answers About the Distribution

Q:            Why is FNF separating its premium restaurant business from its other businesses?

A:            The board of directors of FNF believes that the separation will enable: (i) J. Alexander’s to pursue a more focused, industry-specific strategy; (ii) FNF to allocate resources and deploy capital in a manner consistent with its own priorities; (iii) better align management incentives with stockholder interests; and (iv) in the case of our upscale dining concepts, provide greater transparency for investors. Furthermore, the board of directors of FNF believes that the separation of FNF and J. Alexander’s will (i) facilitate stock acquisitions using either company’s stock and (ii) enhance the equity compensation programs of FNF and J. Alexander’s. For more information, see “The Distribution—Reasons for the Distribution.”

In deciding whether to separate its upscale dining concept business, FNF’s senior management and board of directors considered certain potentially negative factors including: (i) the disruption to J. Alexander’s operations due to the substantial time and attention required by its executive management team in connection with the restructuring transactions and agreements with FNF effectuating the separation, (ii) the increased cost associated with building out a corporate infrastructure and retention of the Management Consultant to perform functions which have historically been provided by FNF; (iii) the ongoing compliance and reporting cost of being a publicly traded company; and (iv) risks associated with no longer being part of a diversified holding company including, but not limited to, not having access to capital generated by FNF’s other businesses and becoming more susceptible to market fluctuations and other adverse events.

Q:            Why did FNF decide to separate its upscale dining concepts business now?

A:            In 2014, FNF’s senior management and board of directors undertook a strategic review of FNF’s businesses, including an assessment of the market and growth characteristics of each of its businesses and the role of each business within FNF’s overall business portfolio. FNF originally pursued an initial public offering of J. Alexander’s but, due primarily to J. Alexander’s long-term revenue growth objectives and desire to maximize value for holders of FNFV common stock, terminated the IPO in the second quarter of 2015, and determined to undertake the separation and distribution. For more information, see “The Distribution—Reasons for The Distribution.”

Q:            How will FNF accomplish the separation of (and distribution of shares in) J. Alexander’s?

A:            The separation will be accomplished through a series of transactions resulting in FNF owning 87.44% of our common stock. In the distribution, FNF will then distribute to its holders of FNFV common stock, 100% of the shares of J. Alexander’s it owns. Following the distribution, J. Alexander’s will be an independent, publicly-owned company.

Q:            What will I receive in the distribution, and when will the distribution occur?

A:            FNF will distribute 0.17229 shares of our common stock for every one share of FNFV common stock outstanding at 5:00 p.m. Eastern Time on September 22, 2015, the record date for the distribution. You will pay no consideration and will not give up any portion of your FNFV common stock to receive shares in the distribution. FNF will distribute the shares on September 28, 2015, which we refer to as the “distribution date.”

 



 

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Q:            As a holder of FNFV common stock on the record date, what do I need to do to participate in the distribution?

A:            Nothing. You do not need to take any action, but we urge you to read this entire information statement carefully. No stockholder approval of the distribution is required or sought. You are not being asked for a proxy. You are not required to make any payment, surrender or exchange any of your shares of FNFV common stock or take any other action to receive your shares of our common stock.

Q:            How will fractional shares be treated in the distribution?

A:            FNF will not distribute any fractional shares of our common stock to holders of FNFV common stock. Fractional shares of our common stock to which FNFV stockholders of record would otherwise be entitled will be aggregated and sold in the public market by the distribution agent. The aggregate net cash proceeds of the sales will be distributed pro rata to each holder who would otherwise have been entitled to receive a fractional share in the distribution. No interest will be paid on the amount paid in lieu of a fractional share. Proceeds from these sales will generally result in a taxable gain or loss to those stockholders. If you are entitled to receive cash proceeds from fractional shares, you should consult your tax advisor as to your particular circumstances. The tax consequences of the distribution are described in more detail under “The Distribution—Material U.S. Federal Income Tax Consequences of the Distribution.”

Q:            If I sell my stock, after the record date and on or before the distribution date, shares of FNFV common stock that I held on the record date, am I still entitled to receive shares of J. Alexander’s common stock in the distribution?

A:            Beginning on or shortly before the record date and continuing up to and including the distribution date, we expect that there will be two markets in FNFV common stock: a “regular way” market and an “ex-distribution” market. Shares of FNFV common stock that trade on the regular way market will trade with an entitlement to receive shares of our common stock in the distribution. Therefore, if you owned shares of FNFV common stock on the record date and sell those shares on the regular way market before the distribution date, you will also be selling the right to receive shares of our common stock in the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to receive shares of our common stock in the distribution, so that holders who sell shares ex-distribution will remain entitled to receive shares of our common stock even though they have sold their shares of FNFV common stock after the record date. You are encouraged to consult your financial adviser regarding the specific implications of selling your FNFV common stock prior to or on the distribution date.

Q:            Will the distribution affect the number of shares of FNFV common stock that I currently hold?

A:            No. The number of shares of FNFV common stock held by a stockholder will be unchanged as a result of the distribution. The market value of each share of FNFV common stock, however, is expected to decline to reflect the impact of the distribution. See “The Distribution—The Number of Shares You Will Receive.”

Q:            What are the material United States federal income tax consequences of the distribution?

A:            FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the request, the distribution

 



 

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will qualify as a transaction that is tax-free under Section 355 and other related provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Please see “Risk Factors—Risks Related to our Separation from FNF,” “Risk Factors—Risks Related to Our Common Stock” and “The Distribution—Material U.S. Federal Income Tax Consequences of the Distribution” for more information regarding the potential tax consequences of the distribution. Holders of FNFV common stock should consult their tax advisors regarding the particular tax consequences of the distribution.

Q:            Will I receive a stock certificate for the shares of J. Alexander’s Holding’s shares distributed to me in the distribution?

A:            No. Registered holders of FNFV common stock (meaning FNFV stockholders who hold FNFV common stock directly through an account with the transfer agent for FNFV common stock, Computershare) who are entitled to participate in the distribution will receive from Computershare, the distribution agent, a book-entry account statement reflecting their ownership of our common stock. For additional information, registered stockholders should contact the distribution agent at (609) 430-7400 or through its website at www.computershare.com.

Q:            What if I hold my shares in “street name” through a broker, bank or other nominee?

A:            Holders of FNFV common stock who hold their shares through a broker, bank or other nominee will have their brokerage accounts credited with our common stock. For additional information, those stockholders should contact their broker, bank or other nominee directly.

Q:            What if I have stock certificates reflecting my shares of FNFV common stock? Should I send them to FNF’s transfer agent or to FNF?

A:            No. You should not send your stock certificates to Computershare or to FNF. You should retain your FNFV stock certificates.

Q:            Can FNF decide to cancel the distribution, even if all of the conditions are met?

A:            Yes. Until the distribution has occurred, the FNF board of directors has the right, in its sole discretion, to terminate the distribution, even if all of the conditions are met. Should the FNF board of directors determine to amend or modify any material terms of the spin-off and related transactions, we will file an amendment to this information statement discussing the reasons for such amendment or modification. Should the FNF board of directors determine to abandon the spin-off and related transactions in their entirety, FNF will file a Current Report on Form 8-K and issue a press release to disclose such abandonment.

Q:            Will J. Alexander’s incur any debt prior to or at the time of separation?

A:            No.

Q:            Does J. Alexander’s intend to pay dividends?

A:            The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors, and subject to regulatory and other constraints. See “Dividend Policy.”

 



 

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Q:            Will my shares of J. Alexander’s common stock trade on a stock market?

A:            Yes. Currently, there is no public market for our common stock, but we intend to list our common stock on the New York Stock Exchange (“NYSE”) under the ticker symbol “JAX.” We cannot predict the trading prices for our common stock when such trading begins or thereafter.

Q:            Will the distribution affect the market price of my FNFV shares?

A:            Yes. The trading price of FNFV common stock immediately after the distribution is expected to be lower than the trading price immediately before the distribution because the trading price immediately after the distribution will no longer reflect the value of J. Alexander’s business. Furthermore, until the market has fully analyzed the value of FNFV common stock after the distribution, FNFV common stock may experience more stock price volatility than usual. It is possible that the combined trading prices of FNFV common stock and our common stock immediately after the distribution will be less than the trading price of shares of FNFV common stock immediately before the distribution.

Q:            What are the conditions to the distribution?

A:            The Distribution is subject to final approval by the Board of FNF as well as a number of additional conditions, including, among others:

 

   

The receipt of a tax opinion from KPMG LLP;

 

   

The United States Securities and Exchange Commission declaring effective the registration statement on Form 10 of which this information statement forms a part;

 

   

The Separation and Distribution Agreement will not have been terminated;

 

   

Any government approvals and other material consents necessary to consummate the distribution will have been obtained and be in full force and effect;

 

   

The approval by the NYSE of the listing of our shares of common stock; and

 

   

Additional conditions as set forth in the Separation and Distribution Agreement.

Q:            Were the terms and conditions of the separation and related transactions determined on an arm’s-length basis?

A:            The terms and conditions of the separation and related transactions have not been negotiated or determined on an arm’s-length basis, because they have been negotiated and determined while we are still a majority-owned subsidiary of FNF. No independent committee of FNF’s board of directors or other independent body has negotiated the terms of the separation and related transactions on our behalf, and no fairness opinion has been or will be obtained. As a result, the terms and conditions of the separation and related transactions may not reflect terms and conditions that would have resulted from arm’s-length negotiations between unaffiliated third parties. See “Risk Factors—Risks Related to our Separation from FNF” and “Certain Relationships and Related Party Transactions—Agreements with FNF.”

 



 

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Q:            Will J. Alexander’s incur costs in connection with separation and related transactions?

A:            Yes. We estimate that we will incur legal, accounting and other transactional costs equal to approximately $2,000,000, in the aggregate. We also expect to incur additional ongoing costs associated with operating as an independent, publicly traded company.

Q:            What will the relationship be between FNF and J. Alexander’s after the distribution?

A:            Following the distribution, we will be an independent public company, and FNF will not retain any of our common stock. In connection with the separation and distribution, we will enter into a Separation and Distribution Agreement and a Tax Matters Agreement with FNF for the purpose of both effecting the separation and distribution and governing our relationship with FNF following the separation. We describe these agreements in more detail under “Certain Relationships and Related Party Transactions— Agreements with FNF.”

Q:            Why is J. Alexander’s entering into the consulting agreement with Black Knight Advisory Services, LLC?

A:            Our executive management team has substantial experience in the restaurant industry, particularly the upscale dining segment. The principals of the Management Consultant, most of whom who also serve as executive officers and directors of FNFV, have substantial experience in mergers, acquisitions, accessing public capital markets, managing public reporting and corporate governance, as well as extensive knowledge of our business, strategic plan, and finances. Rather than hiring additional executive management personnel with these skills or outsourcing to another consulting firm, in each case without the experience, background, track record and input on our business, we determined that using the services of the Management Consultant was the most cost effective way to provide us with these services. Factors considered included the cost savings from screening, recruiting and hiring such persons into our Company, reducing the burden on our operational management team to integrate and educate new officers or consultants, and the fact that the majority of the compensation payable to the Management Consultant is based on the performance of the Company. We describe this agreement in more detail under “Certain Relationships and Related Party Transactions—Management Consulting Agreement.”

Q:            What compensation is payable to Black Knight Advisory Services, LLC as a result of its consulting agreement with J. Alexander’s, and what potential dilution to J. Alexander’s stockholders may result from such compensation?

A:            Black Knight Advisory Services, LLC will receive compensation for the services that it will provide under the consulting agreement. Such compensation will consist of: (i) 3% of the Adjusted EBITDA of the Company for each year during the term of the consulting agreement, and (ii) a grant of Class B Units of J. Alexander’s Holdings, LLC, the Company’s operating subsidiary, which vest over a period of three years from the date of grant. The grant of Class B Units will not be dilutive to the stockholders of the Company initially and would potentially become dilutive upon the occurrence of one of the following events: (a) an exercise of Class B Units by Black Knight Advisory Services, LLC in accordance with the three year vesting schedule and the subsequent exchange of such Class B Units for Company common stock, (b) the Company exceeding certain financial thresholds of profitability, after which the holders of Class B Units, including Black Knight Advisory Services, LLC, could benefit from a distribution to them, or (c) a liquidation of J. Alexander’s Holdings, LLC, each of which events are set forth in the Second Amended and Restated Limited Liability Agreement of J. Alexander’s Holdings, LLC. The grant of Class B Units to Black Knight Advisory

 



 

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Services, LLC could be dilutive to public stockholders of the Company by up to 10%. However, on the distribution date, the Class B Units will have no immediate value. We describe the Class B Units in more detail under “Our Corporate Structure – The Management Consultant’s Profit Interests.”

Q:            Are there risks to owning J. Alexander’s common stock?

A:            Yes. These risks are described under “Risk Factors.” We encourage you to read that entire section carefully.

Q:            Will I have appraisal rights in connection with the separation and distribution?

A:            No. Holders of FNFV common stock are not entitled to appraisal rights in connection with the separation or the distribution.

Q:            Where can I get more information?

A:            If you have any questions relating to the transfer or mechanics of the distribution, you should contact the distribution agent at:

Computershare

250 Royall Street

Canton, MA 02051

(609) 430-7400

For other questions relating to the separation or the distribution, prior to the distribution, or for questions relating to FNFV common stock after the distribution, you should contact FNF’s investor relations department at:

Fidelity National Financial, Inc.

601 Riverside Avenue

Jacksonville, FL 32204

(904) 854-8100

For other questions relating to the separation or the distribution, after the distribution, you should contact our investor relations department at:

J. Alexander’s Holdings, Inc.

3401 West End Avenue, Suite 260

Nashville, Tennessee 37203

(615) 269-1900

 



 

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DISTRIBUTION

The following is a brief summary of the terms of the distribution. For a full discussion of the distribution, see “Distribution.”

 

Distributing Company:

  

Fidelity National Financial, Inc., a Delaware corporation, which after the distribution will not own any shares of our common stock.

Distributed Company:

  

J. Alexander’s Holdings, Inc., a Tennessee corporation, which is a majority-owned subsidiary of FNF. After the distribution, we will be an independent public company.

Distributed Shares:

  

All of the outstanding shares of our common stock owned by FNF immediately prior to the distribution, constituting 87.44% of all of our issued and outstanding shares, will be distributed to the holders of FNFV common stock in the distribution. The number of shares that FNF will distribute to its holders of FNFV common stock will be reduced to the extent that cash payments are to be made in lieu of the issuance of fractional shares of our common stock, as described below.

Distribution Ratio:

  

0.17229 shares of our common stock for every one share of FNFV common stock that you hold at the close of business on the record date for the distribution.

Fractional Shares:

  

FNF will not distribute any fractional shares of our common stock to the holders of FNFV common stock. Instead, the distribution agent will aggregate fractional shares into whole shares and sell them in the open market at prevailing market prices and distribute the proceeds pro rata to each person who otherwise would have been entitled to receive a fractional share in the distribution. You will not be entitled to any interest on the amount of payment made in lieu of a fractional share.

Record Date:

  

September 22, 2015 (5:00 p.m., New York City time).

Distribution Date:

  

September 28, 2015.

Distribution:

  

On or about the distribution date, the distribution agent will distribute the shares of our common stock by crediting such shares to book-entry accounts for persons who were holders of FNFV common stock at the close of business on the record date. You will not be required to make any payment or surrender or exchange your FNFV common stock or take any other

 



 

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action to receive your shares of our common stock. The transfer agent will mail an account statement to each such holder of FNFV common stock stating the number of shares of our common stock credited to such holder’s account. Beneficial stockholders will receive information from their brokerage firms. If you sell shares of FNFV common stock in the “regular way” market between the record date and the distribution date, you will also be selling your right to receive shares of our common stock in the distribution.

 

Under the Separation and Distribution Agreement, FNF may, in its sole and absolute discretion, without liability, decide not to proceed with the proposed distribution or change the terms of the distribution at any time prior to the time that the distribution is effected. See “Certain Relationships and Related Party Transactions—Related Party Transactions—Agreements with FNF—Separation and Distribution Agreement.”

Distribution Agent:

  

Computershare.

Transfer Agent and Registrar for our Shares:

  

Computershare.

Stock Exchange Listing:

  

We have applied to list our common stock on the NYSE under the ticker symbol “JAX.” There is currently no trading market for our common stock. On September 18, 2015, trading of shares of our common stock is expected to begin on a “when-issued” basis. See “Distribution—Trading Between the Record Date and Distribution Date.”

Current Debt:

  

On September 3, 2013, we entered into a loan agreement with Pinnacle Bank for a credit facility that includes a three-year $1,000,000 revolving line of credit and a seven-year $15,000,000 term loan. We used proceeds from the credit facility to retire our previously outstanding mortgage debt. On December 9, 2014, we executed an Amended and Restated Loan Agreement to provide for a five-year $15,000,000 development line of credit. Additionally, in May 2015, we increased our existing development line of credit to $20,000,000 and obtained a new term loan in the principal amount of $10,000,000, the proceeds of which were used to repay in full a promissory note payable to FNF. For additional information relating to our revolving credit facility and term loan facilities, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources”.

 



 

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Tax Considerations:

  

FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the request, the distribution will qualify as a transaction that is tax-free under Section 355 and other provisions of the Code. The distribution is conditioned upon the receipt by FNF of such a favorable opinion of its tax advisor confirming the distribution’s tax-free status. See “Distribution—Material U.S. Federal Income Tax Consequences of the Distribution.”

 

In connection with the distribution, we will be subject to restrictions on certain post-distribution actions, including significant transfers of our stock or assets, which could affect the qualification of the distribution as a tax-free transaction. We will also generally indemnify FNF if the distribution fails to qualify as a tax-free transaction for specified reasons. For additional information regarding these matters, see “Certain Relationships and Related Party Transactions—Tax Matters Agreement.”

Dividend Policy:

  

The declaration and payment of future dividends to holders of our common stock will be at the discretion of our board of directors and subject to regulatory and other constraints. See “Dividend Policy.”

Relationship with FNF:

  

Prior to the distribution, we will enter into a Separation and Distribution Agreement and a Tax Matters Agreement with FNF to effect the separation and distribution and provide a framework for our relationship with FNF after the separation. For a discussion of these arrangements, see “Certain Relationships and Related Party Transactions- Agreements with FNF.”

Relationship with Management Consultant:

  

Prior to the distribution, we will enter into a Management Consulting Agreement with Black Knight Advisory Services, LLC, which is owned by certain executive officers and directors of FNFV and J. Alexander’s Holdings, Inc. For a discussion of this arrangement, see “Certain Relationships and Related Party Transactions - Management Consulting Agreement.”

Risk Factors:

  

The separation, distribution and ownership of our common stock involve various risks. You should carefully read the “Risk Factors” section of this information statement.

 



 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables present J. Alexander’s Holdings, Inc.’s summary historical consolidated financial and operating data as of the dates and for the periods indicated. J. Alexander’s Holdings, Inc. was formed as a Tennessee corporation on August 15, 2014. J. Alexander’s Holdings, Inc. has not engaged in any business or other activities except in connection with its formation, the reorganization transactions and the distribution. Accordingly, all financial and other information herein relating to periods prior to the completion of the distribution is that of J. Alexander’s Holdings, LLC and its consolidated subsidiaries. Financial information through and including September 30, 2012 is referred to as “Predecessor” company information, which has been prepared using the previous basis of accounting. The financial information for periods beginning on or after October 1, 2012 is referred to as “Successor” company information and reflects the financial statement effects of recording fair value adjustments and the capital structure resulting from FNFV’s acquisition of JAC. The summary consolidated financial data as of and for the years ended December 30, 2012, December 29, 2013 and December 28, 2014 are derived from the audited consolidated financial statements included elsewhere in this information statement. The summary consolidated financial data as of June 28, 2015 and for the six months ended June 28, 2015 and June 29, 2014 are derived from the unaudited condensed consolidated financial statements included elsewhere in this information statement. The results for the six months ended June 28, 2015 are not necessarily indicative of the results that may be expected for the entire year.

The summary unaudited pro forma consolidated financial data for the six months ended June 28, 2015 and the fiscal year ended December 28, 2014 present our consolidated results of operations giving pro forma effect to the reorganization transactions and the distribution as if they had occurred at the beginning of fiscal 2014. The pro forma adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable in order to reflect on a pro forma basis, the impact of the reorganization transactions and the distribution on the historical financial information of J. Alexander’s Holdings, LLC. The pro forma results are for informational purposes only and do not reflect the actual results that we would have achieved had we operated as a public company and are not indicative of our future results of operations. See “Unaudited Pro Forma Consolidated Financial Information”.

 



 

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Financial information for all periods presented has been adjusted to reflect discontinued operations for comparative purposes. The following summary consolidated financial data should be read together with the audited consolidated financial statements, unaudited condensed consolidated financial statements, the unaudited pro forma consolidated financial information, and accompanying notes and information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this information statement.

 

    Pro Forma     Pro Forma     Successor     Successor     Successor     Predecessor     Successor  

Dollars in thousands, except Average Weekly Same Store Sales

   

 

 
 

Six months

Ended

June 28,
2015

  

  

  
  

   
 
 
Year Ended
December 28,
2014
  
  
  
   
 
 
Year Ended
December 28,
2014(1)
  
  
  
   
 
 
Year Ended
December 29,
2013(1)
  
  
  
   
 
 
 
October 1,
2012 to
December 30,
2012(1)
  
  
  
  
   
 
 
 
January 2,
2012 to
September 30,
2012(1)
  
  
  
  
 

 

 

 

Six Months Ended

 

  

               
 
June 28,
2015(1)
  
  
   

 

June 29,        

2014(1)          

  

  

    (unaudited)     (unaudited)                                 (unaudited)     (unaudited)          

Statement of Operations Data:

                   

Net sales

  $ 109,275      $ 202,233        $202,233        $188,223        $40,341        $116,555        $109,275        $102,196           

Cost of sales

    34,596        64,591        64,591        61,432        12,883        36,858        34,596        32,339           

Restaurant labor and related costs

    32,636        61,539        61,539        59,032        12,785        38,050        32,636        30,711           

Depreciation and amortization of restaurant property and equipment

    4,039        7,652        7,652        7,228        1,425        4,117        4,039        3,777           

Other operating expenses

    21,550        40,440        40,440        39,016        7,849        23,175        21,550        20,491           

General and administrative expense

    9,637        17,873        14,450        11,981        2,330        8,109        7,863        6,537           

Pre-opening expense

    2        681        681        -        -        -        2        21           

Transaction and integration expenses

    -        -        785        (217)        183        4,537        2,113        102           

Asset impairment charges and restaurant closing costs

    2        5        5        2,094        -        -        2        4           

Total operating expenses

    102,462        192,781        190,143        180,566        37,455        114,846        102,801        93,982           

Operating income

    6,813        9,452        12,090        7,657        2,886        1,709        6,474        8,214           

Interest expense

    402        668        2,908        2,888        187        1,174        776        1,491           

Other, net

    48        104        104        3,055        26        (161)        48        76           

Income from continuing operations before income taxes

    6,459        8,888        9,286        7,824        2,725        374        5,746        6,799           

Income tax (expense) benefit

    (2,454     (3,378     (328)        (138)        (1)        79        (21)        (37)           

Loss from discontinued operations, net

    -        -        (443)        (4,785)        (506)        (1,412)        (211)        (224)           

Net income (loss)

  $ -      $ -        $8,515        $2,901        $2,218        $(959)        $5,514        $6,538           
 

 

 

 

Income from continuing operations attributable to non-controlling interests

    590        578                   

Income from continuing operations attributable to J. Alexander’s Holdings, Inc.

    3,415        4,932                   
 

 

 

                 

Balance Sheet Data

                   

Cash and cash equivalents

    -        -        $13,301        $18,069        $11,127        $6,853        $15,152        $23,938           

Working capital (deficit)(2)

    -        -        (4,102)        1,001        (640)        (1,416)        1,449        8,132           

Total assets

    -        -        150,908        151,101        132,749        83,872        151,344        156,121           

Total debt

    -        -        22,921        34,640        20,654        17,648        22,084        33,781           

Total membership equity

    -        -        96,889        88,455        91,394        42,508        102,612        94,975           

 



 

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     Successor      Successor      Successor      Predecessor      Successor  

  Dollars in thousands, except Average

  Weekly Same Store Sales

    
 
 
Year Ended
December 28,
2014(1)
  
  
  
    
 
 
Year Ended
December 29,
2013(1)
  
  
  
    
 
 
 
October 1,
2012 to
December 30,
2012(1)
  
  
  
  
    
 
 
 
January 2,
2012 to
September 30,
2012(1)
  
  
  
  
  

 

 

 

Six Months Ended

 

  

                
 
June 28,
2015(1)
  
  
    

 

June 29,        

2014(1)          

  

  

                                     (unaudited)      (unaudited)          

  Other Financial Data:

                   

Net cash provided by operating activities

     $17,955         $15,907         $5,656         $3,036         $7,455         $9,377           

Net cash used in investing activities

     (10,693)         (6,126)         (1,159)         (2,608)         (4,599)         (2,630)           

Net cash used in financing activities

     (12,030)         (2,839)         (223)         (7,941)         (1,005)         (878)           

Capital expenditures

     10,536         6,610         1,159         2,535         4,541         2,510           

Restaurant Operating Profit (4)

     28,011         21,515         5,399         14,355         16,454         14,878           

Restaurant Operating Profit Margin(5)

     13.9%         11.4%         13.4%         12.3%         15.1%         14.6%           

Adjusted EBITDA(6)

     22,358         17,739         4,662         11,184         13,318         12,512           

Adjusted EBITDA Margin(7)

     11.1%         9.4%         11.6%         9.6%         12.2%         12.2%           

  Operating Data:

                   

J. Alexander’s/Redlands Grill:

                   

Restaurants (end of period)

     31         30         33         33         31         30           

Total same store restaurants (end of period)(3)

     30         30         31         31         30         30           

Average Weekly Same Store
Sales(3)

   $ 107,000         $102,200         $99,700         $96,400         $114,600         $108,700           

Change in Average Weekly Same Store Sales(3)

     4.7%         5.0%         2.0%         3.8%         5.4%         4.6%           

Stoney River:

                   

Restaurants (end of period)

     10         10         -         -         10         10           

Total same store restaurants (end of period)(3)

     10         10         -         -         10         10           

Average Weekly Same Store
Sales(3)

     $66,200         $64,200         -         -         $71,000         $67,100           

Change in Average Weekly Same Store Sales(3)

     3.1%         -         -         -         5.8%         2.3%           

 

  (1)

We utilize a 52- or 53-week accounting period which ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The period January 2, 2012 to September 30, 2012, included 39 weeks of operations, and the period October 1, 2012 to December 30, 2012, included 13 weeks of operations. Fiscal years 2014 and 2013 each included 52 weeks of operations. Each of the six-month periods ended June 28, 2015 and June 29, 2014 included 26 weeks of operations.

 

  (2)

Defined as total current assets minus total current liabilities.

 

  (3)

We consider a restaurant to be comparable in the first full accounting period following the eighteenth month of operations. Changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time.

 

  (4)

Restaurant Operating Profit is a metric used by management to measure operating performance at the restaurant level. Restaurant Operating Profit represents net income (loss) before losses from discontinued operations, income tax (expense) benefit, interest expense, gain on extinguishment of debt, stock option expense, general and administrative costs, asset impairment charges and restaurant closing costs, transaction and integration expenses, and

 



 

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other, net non-operating income or expense. Management believes this measure is useful to investors because it allows for an assessment of our operating performance without the effect of general and administrative expenses and other non-operating or unusual costs incurred at the corporate level. The following table presents a reconciliation of Restaurant Operating Profit to net income (loss) for all periods presented:

 

    Successor     Predecessor     Successor  
  (Dollars in thousands)    
 
 
Year Ended
December 28,
2014
  
  
  
   
 
 
Year Ended
December 29,
2013
  
  
  
   
 
 
 
October 1,
2012 to
December 30,
2012
  
  
  
  
   
 
 
 
January 2,
2012 to
September 30,
2012
  
  
  
  
 

 

 

 

Six Months Ended

 

  

           

 

June 28,

2015

 

  

   

 

June 29,      

2014     

  

  

                                (unaudited)     (unaudited)      
 

Net income (loss)

    $8,515              $2,901              $2,218              $(959)              $5,514              $6,538         

Loss from discontinued operations, net

    443              4,785              506              1,412              211              224         

Income tax (expense) benefit

    (328)              (138)              (1)              79              (21)              (37)         

Interest expense

    2,908              2,888              187              1,174              776              1,491         

Gain on extinguishment of debt

    -              (2,938)              -              -              -              -         

Stock option expense

    -              -              -              229              -              -         

Other, net

    (104)              (117)              (26)              (68)              (48)              (76)         

General and administrative expenses

    14,450              11,981              2,330              8,109              7,863              6,537         

Asset impairment charges and restaurant closing costs

    5              2,094              -              -              2              4         

Transaction and integration expenses

    785              (217)              183              4,537              2,113              102         

Pre-opening expense

    681              -              -              -              2              21         

Restaurant Operating Profit

    $28,011              $21,515              $5,399              $14,355              $16,454              $14,878         
                                               

 

  (5)

“Restaurant Operating Profit Margin” is the ratio of Restaurant Operating Profit to net sales.

 



 

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  (6)

Adjusted EBITDA is a financial measure that management uses to evaluate operating performance and the effectiveness of its business strategies. Adjusted EBITDA is defined as net income (loss) before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items. Management believes Adjusted EBITDA is a useful metric for investors because it provides a comparative assessment of our operating performance relative to our performance based on our results under GAAP, while isolating the effects of some items that vary from period to period without any correlation to core operating performance. Specifically, Adjusted EBITDA allows for an assessment of our operating performance without the effect of non-cash depreciation and amortization expenses or our ability to service or incur indebtedness. The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for all periods presented:

 

    Successor     Predecessor     Successor  
(Dollars in thousands)    
 
 
Year Ended
December 28,
2014
  
  
  
   
 
 
Year Ended
December 29,
2013
  
  
  
   
 
 
 
October 1,
2012 to
December 30,
2012
  
  
  
  
   
 
 
January 2, 2012 to
September 30,
2012
  
  
  
 

 

 

 

Six Months Ended

 

  

           
 
June 28,
2015
  
  
   
 
June 29,
2014
  
  
                                (unaudited)     (unaudited)  

Net income (loss)

    $8,515        $2,901        $2,218        $(959)        $5,514        $6,538   

Income tax (expense) benefit

    (328)        (138)        (1)        79        (21)        (37)   

Interest expense

    2,908        2,888        187        1,174        776        1,491   

Depreciation and amortization

    7,992        7,483        1,470        4,164        4,219        3,941   

EBITDA

    19,743        13,410        3,876        4,300        10,530        12,007   

Asset impairment charges and restaurant closing costs

    5        2,094        -        -        2        4   

Loss on disposals of fixed assets

    179        406        62        218        121        73   

Transaction and integration costs

    785        (217)        183        4,537        2,113        102   

Non-cash compensation

    522        199        35        717        339        81   

Loss from discontinued operations, net

    443        4,785        506        1,412        211        224   

Gain on debt extinguishment

    -        (2,938)        -        -        -        -   

Pre-opening expense

    681        -        -        -        2        21   

Adjusted EBITDA

    $22,358        $17,739        $4,662        $11,184        $13,318        $12,512   
                                               

 

  (7)

“Adjusted EBITDA Margin” is defined as the ratio of Adjusted EBITDA to net sales.

 



 

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The following table presents a reconciliation of Adjusted EBITDA to net income (loss) for the predecessor periods indicated below, which are reflected in the Adjusted EBITDA graph included above under “Summary—Our Company” and “Business” elsewhere in this information statement. The financial data for the years ended January 2, 2011 and January 1, 2012 have been derived from the audited consolidated financial statements of our predecessor that are not included in this information statement.

 

                                                                         
     Predecessor         Predecessor   
  (Dollars in thousands)     
 
Year Ended
January 1, 2012
  
  
    

 

Year Ended

January 2, 2011

  

  

Net income (loss)

     $857                 $2,795           

Income tax (expense) benefit

     (290)                 2,352           

Interest expense

     1,664                 1,853           

Depreciation and amortization

     5,619                 5,682           
  

 

 

    

 

 

 

EBITDA

     8,430                 7,978           

Asset impairment charges and restaurant closing costs

     -                 -           

Loss on disposals of fixed assets

     276                 298           

Transaction and integration costs

     -                 -           

Non-cash compensation

     962                 869           

Loss from discontinued operations, net

     2,081                 2,281           

Gain on debt extinguishment

     -                 -           

Pre-opening expense

     -                 -           
  

 

 

    

 

 

 

Adjusted EBITDA

     $11,749                 $11,426           
  

 

 

    

 

 

 

Adjusted EBITDA, Restaurant Operating Profit, Adjusted EBITDA Margin and Restaurant Operating Profit Margin are not measurements of our financial performance under GAAP and should not be considered in isolation or as an alternative to net income, net cash provided by operating, investing or financing activities or any other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. We caution investors that amounts presented above in accordance with the definitions of Adjusted EBITDA and Restaurant Operating Profit may not be comparable to similar measures disclosed by other companies, because not all companies calculate these non-GAAP financial measures in the same manner. Moreover, Adjusted EBITDA as presented throughout this information statement is not the same as similar terms in the applicable covenants of our credit facility or in the calculation of management incentive compensation.

Our management does not consider Adjusted EBITDA in isolation or as an alternative to financial measures determined in accordance with GAAP. Although Adjusted EBITDA may be used by securities analysts, lenders and others as tools for evaluating performance, the measure has limitations as an analytical tool. The principal limitation of Adjusted EBITDA is that it excludes significant expenses and income that are required by GAAP to be recorded in the financial statements. Some additional limitations are:

 

   

Adjusted EBITDA does not reflect discretionary cash available to us to invest in the growth of our business;

 

 

   

Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

 

 



 

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Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

 

 

   

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

 

 

   

Adjusted EBITDA does not reflect depreciation and amortization, which are non-cash charges, although the assets being depreciated and amortized will likely have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements;

 

 

   

Adjusted EBITDA does not reflect non-cash compensation expense, which is and will likely remain a key element of our overall long-term incentive compensation package; and

 

 

   

Adjusted EBITDA excludes tax payments that may represent a reduction in cash available to us.

 

 



 

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RISK FACTORS

You should carefully consider each of the following risks and all of the other information set forth in this information statement. Based on the information currently known to us, we believe that the following information identifies the material risk factors affecting our company in each of the noted risk categories: (i) Risks Relating to Our Business; (ii) Risks Relating to Our Separation from FNF; (iii) Risks Relating to Our Structure; and (iv) Risks Relating to Our Common Stock. However, additional risks and uncertainties not currently known to us or that we currently believe to be immaterial may also have a material adverse effect on our business.

If any of the following risks and uncertainties develop into actual events, they could have a material adverse effect on our business, results of operations and financial condition. In such a case, the trading price of our common stock could decline.

Risks Relating to Our Business

Changes in general economic conditions, including any economic downturn or continuing economic uncertainty, have adversely impacted our business and results of operations in the past and may do so again.

Purchases at our restaurants are discretionary for consumers, and we are therefore susceptible to economic slowdowns. We believe that consumers generally are more willing to make discretionary purchases, including upscale and high-end restaurant meals, during favorable economic conditions. The most recent economic downturn, uncertainty and disruptions in the overall economy, including high unemployment, reduced access to credit and financial market volatility and unpredictability, and the related reduction in consumer confidence, negatively affected customer traffic and sales throughout our industry, including our category. If the economy experiences a new downturn or there are continued uncertainties regarding U.S. budgetary and fiscal policies, our customers, particularly price-sensitive families and couples and cost-conscious business clientele, may reduce their level of discretionary spending, impacting the frequency with which they choose to dine out or the amount they spend on meals while dining out.

There is also a risk that, if uncertain economic conditions persist for an extended period of time, consumers might make long-lasting changes to their discretionary spending behavior, including dining out less frequently on a more permanent basis. The ability of the U.S. economy to withstand this uncertainty is likely to be affected by many national and international factors that are beyond our control. These factors, including national, regional and local politics and economic conditions, the impact of higher gasoline prices, and reductions in disposable consumer income and consumer confidence, also affect discretionary consumer spending. Uncertainty in or a worsening of the economy, generally or in a number of our markets, and our customers’ reactions to these trends could adversely affect our business and cause us to, among other things, reduce the number and frequency of new restaurant openings, close restaurants and delay our remodeling of existing locations.

Changes in consumer preferences and discretionary spending patterns could adversely affect our business and results of operations.

The restaurant business is often affected by changes in consumer preferences, national, regional or local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants. Our success depends in part on our ability to anticipate and respond quickly to these changes. Shifts in consumer preferences away from meals at our price point or our beef, seafood and signature cocktails and wine menu offerings, which are significant components of our concepts’ menus and appeal, whether as a result of economic, competitive or other factors, could adversely affect our business and results of operations.

 

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In addition, we place a high priority on maintaining the competitive positioning of our concepts, including the image and condition of our restaurant facilities and the quality of our customer experience. Consequently, we may need to evolve our concepts in order to compete with popular new restaurant formats or concepts that emerge from time to time, which could result in significant capital expenditures in the future for remodeling and updating. In addition, with improving product offerings, including an increased number of health-focused options at fast casual restaurants and quick-service restaurants, combined with the effects of uncertain economic conditions and other factors, consumers may choose less expensive alternatives, which could also negatively affect customer traffic at our restaurants. Any unanticipated slowdown in demand at any of our restaurants due to industry competition may adversely affect our business and results of operations.

Our future growth depends in part on our ability to open new restaurants and operate them profitably, and if we are unable to successfully execute this strategy, our business and results of operations could be adversely affected.

Our financial success depends in part on management’s ability to execute our growth strategy. One key element of our growth strategy is opening new restaurants. However, future developments, including macroeconomic changes, could cause us to re-evaluate this growth strategy. Additionally, in the past, we have experienced delays in opening some restaurants, and that could happen again. Delays or failures in opening new restaurants and operating them profitably could materially and adversely affect our growth strategy and expected results.

Our ability to open new restaurants on a timely basis, or at all, and operate them profitably is dependent upon a number of factors, many of which are beyond our control, including:

 

   

finding quality site locations, competing effectively to obtain quality site locations and reaching acceptable agreements to lease or purchase sites;

 

 

   

complying with applicable zoning, land use and environmental regulations and obtaining, for an acceptable cost and in a timely manner, required permits and approvals, including permits for construction, as well as required business and alcohol licenses;

 

 

   

having adequate capital for construction and opening costs and efficiently managing the time and resources committed to building and opening each new restaurant;

 

 

   

engaging and relying on third-party architects, contractors and their subcontractors responsible for building our restaurants to our specifications, on budget and within anticipated timelines;

 

 

   

timely hiring and training and retaining the skilled management and other employees necessary to meet staffing needs consistent with our superior professional service expectations in each local market;

 

 

   

successfully promoting our new locations and competing in their markets;

 

 

   

acquiring food and other supplies for new restaurants from local suppliers; and

 

 

   

addressing unanticipated problems or risks that may arise during the development or opening of a new restaurant or entering a new market.

 

 

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It has generally been our experience that new restaurants generate operating losses while they build sales levels to maturity, with maturity typically achieved within 18 to 24 months but in certain instances has taken considerably longer. This is due to lower sales generated by new restaurants compared to our restaurants operated in other areas, the costs associated with opening a new restaurant and higher operating costs caused by start-up and other temporary inefficiencies associated with opening new restaurants. For example, there are a number of factors which may impact the amount of time and money we commit to the construction and development of new restaurants, including landlord delays, shortages of skilled labor, labor disputes, shortages of materials, delays in obtaining necessary permits, local government regulations and weather interference. Once the restaurant is open, how quickly it achieves a desired level of profitability is impacted by many factors, including the level of market awareness and acceptance of our concepts when we enter new markets, as well as the availability of experienced, professional staff. Our business and profitability may be adversely affected if it takes longer than expected for our new restaurants to achieve the desired level of profitability.

Our ability to successfully execute new restaurant development depends heavily on successful site selection. If a site does not produce the anticipated results, a restaurant location may never reach our desired level of profitability, if it becomes profitable at all. In those cases, we may be forced to close restaurants and will incur significant costs associated with our exit from those markets, including costs associated with lease terminations or potential losses on the sale of real property that we own. For example, we have recently closed restaurants in Orlando, Scottsdale and Chicago because management determined that these restaurants were not producing acceptable levels of profitability. Additionally, previously successful restaurants may cease to produce acceptable or desired results in the future due to changes within the market in which they operate, such as a geographic shift in commercial development that drives customers away from the area in which we have an existing location. In those cases, if we determine that the market is still desirable, we may choose to relocate our existing restaurant or restaurants within that same market, which could result in increased costs associated with the purchase or lease of new property.

The failure to successfully develop and improve our Stoney River concept to achieve operational and quality standards consistent with those of our J. Alexander’s concept could have a material adverse effect on our financial condition and results of operations.

In February 2013, FNH transferred the Stoney River Assets to us, which had previously been operated by a separate restaurant company. Since that time, our focus has been on the improvement of restaurant-level operations and the integration of Stoney River into our existing infrastructure. Our growth strategy for Stoney River will continue to require significant capital expenditures and management attention. There can be no assurance that we will be successful in achieving the desired level of profitability at Stoney River while delivering on the quality standards that we expect, and a failure to achieve the desired profitability of our Stoney River concept may adversely affect our business and results of operations. Further, new openings of Stoney River restaurants may take longer to achieve the desired level of profitability than has been our experience with J. Alexander’s restaurants. We may not be able to attract enough customers to meet targeted levels of performance at new restaurants because potential customers may be unfamiliar with Stoney River or the atmosphere or menu might not appeal to them. In addition, although we believe that the differentiation in the menu and restaurant design between our concepts is substantial enough that they can both successfully operate within the same market, opening a new Stoney River in an existing market could reduce the revenue of our existing J. Alexander’s restaurants in that market, and vice versa. If we cannot successfully execute our growth strategies for Stoney River, or if customer traffic generated by Stoney River results in a decline in customer traffic at one of our other restaurants in the same market, our business and results of operations may be adversely affected.

 

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Significant capital is required to develop new restaurants and to maintain existing restaurants and to the extent financing is available to us, it may only be available on terms that could impose significant operating and financial restrictions on us.

We believe that the required capital investment in our upscale restaurants is high compared to more casual dining restaurants. Failure of a new restaurant to generate satisfactory net sales and profits in relation to its investment could result in our failure to achieve the desired financial return on the restaurant. Additionally, we may require capital beyond the cash flow provided from operations in order to open new units, which may be difficult to obtain on favorable terms, if at all. The terms of any financing we may obtain could impose restrictions on our operations, development and new financings. Further, after a restaurant is opened, we continue to incur significant capital costs associated with our strategy to reinvest in our restaurants in order to maintain the highly attractive, contemporary and comfortable environment in each of our locations that we believe our customers expect. For example, during 2015, we remodeled one of our J. Alexander’s locations at a cost of approximately $1,700,000. In addition, we expect to complete remodels of two Stoney River locations at an average cost of $600,000 per location and intend to complete reinvestments and improvements at our other remaining locations across all of our concepts at an approximate total cost of $6,800,000. Consequently, our ability to carry out our growth strategy and to execute on development and capital expenditure decisions that we believe to be in our long-term best interest could be limited by the availability of additional financing sources and could involve additional borrowing which would further increase our long-term debt and interest expense.

Our growth, including the development and improvement of our Stoney River and Redlands Grill concepts, may strain our infrastructure and resources, which could delay the opening of new restaurants and adversely affect our ability to manage our existing restaurants.

Following the distribution, we believe there are opportunities to open four to five restaurants annually beginning in 2016. Our targeted growth will increase our operating complexity and place increased demands on our management as well as our human resources, purchasing and site management teams. We also need to develop concept identity and concept awareness of our new Redlands Grill concept. This may require the commitment of a significant amount of human capital and marketing expenditures. While we have committed significant resources to expanding our current restaurant management systems, financial and management controls and information systems in connection with our integration of the Stoney River concept and development of our Redland Grills concept, if this infrastructure is insufficient to support our anticipated expansion, our ability to open new restaurants and to manage our existing restaurants could be adversely affected. If we fail to continue to improve our infrastructure or if our infrastructure fails, we may be unable to implement our growth strategy or maintain current levels of operating performance in our existing restaurants.

If we are unable to successfully transition certain of our J. Alexander’s locations to Redlands Grill locations, we may experience reduced revenue and margins at these locations, which could materially and adversely affect our financial condition and results of operation.

A key element of our business model is to pursue a multiple concept strategy consisting of the development of a number of restaurant concepts competing in the upscale casual dining segment of the restaurant industry. This is intended to, among other things, allow us to avoid being identified as a chain restaurant and to operate multiple concepts in the same market. In furtherance of this strategy, over the past twelve months we have developed the Redlands Grill concept and have commenced the conversion of a limited number of J. Alexander’s restaurants into Redlands Grills. These conversions are being undertaken in markets and particular locations where we believe the Redlands Grill concept will be successful. We have initiated the transition of ten J. Alexander’s restaurants to Redlands Grill restaurants, and we may experience a decrease in traffic, revenue or margins related to our strategy.

 

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If consumer preferences change, acceptance of the Redlands Grill concept is not as strong as expected, or the existing customer base patronizing these converted locations diminishes or discontinues, revenue at these restaurants would likely decrease and we could be required to expend additional resources on advertising and promotion which would reduce profit margins at these locations which would likely have a material adverse effect on our overall financial performance.

If our restaurants are not able to compete successfully with other restaurants, our business, financial condition and results of operations may be adversely affected.

Our industry is highly fragmented and intensely competitive with respect to price, quality of service, restaurant location, ambiance of facilities and type and quality of food. A substantial number of national and regional restaurant chains and independently owned restaurants compete with us for customers, real estate and qualified management and other restaurant staff. The principal competitors for our concepts are local, chef-driven restaurants and regional, high-quality restaurant chains in each of our local markets. However, we also compete with other upscale national chains. Some of our competitors have greater financial and other resources, have been in business longer, have greater name recognition and are better established in the markets where our restaurants are located or where we may expand. Additionally, in recent years many upscale and high-end restaurants have expanded into the smaller and midsize markets in which some of our restaurants are located. Our inability to compete successfully with other restaurants may harm our ability to maintain acceptable levels of revenue growth, limit or otherwise inhibit our ability to grow one or more of our concepts, or force us to close one or more of our restaurants.

As a result of revenue or geographic concentrations within our restaurant base, we may be more exposed to economic downturns or other disruptions in certain locations that could harm our business, financial condition and results of operation.

At June 28, 2015, we operated 41 restaurants in 14 states. Because of our relatively small restaurant base, unsuccessful restaurants could have a more adverse effect in relation to our financial condition and results of operations than would be the case in a restaurant company with a greater number of restaurants. For example, our J. Alexander’s locations in Franklin, Tennessee and Plantation, Florida represented approximately 4.9% and 5.0% of our revenues in 2014, respectively.

We currently have a high concentration of J. Alexander’s and Redlands Grill restaurants within the south Florida market (and in broader geographic markets, with respect to the concentration of J. Alexander’s and Redlands Grill restaurants in Ohio and the concentration of J. Alexander’s, Redlands Grill and Stoney River restaurants in Tennessee) and may in the future have similar concentrations of J. Alexander’s, Redlands Grill and Stoney River restaurants within one or more overlapping markets as we execute on our growth strategy. This concentration exposes us to risks that one or more of these markets may be adversely affected by factors that are unique to that particular market, such as negative publicity, changes in consumer preferences, demographic shifts or other adverse economic impacts, which could adversely affect our business, results of operations or financial condition.

In addition, any natural disaster, prolonged inclement weather, act of terrorism or national emergency, accident, system failure or other unforeseen event in or around regions in which we operate multiple locations could result in significant and prolonged declines in customer traffic in these geographic regions, or a temporary or permanent closing of those locations, any of which could adversely affect our business, financial condition and results of operations.

 

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If we are unable to increase our sales at existing J. Alexander’s, Redlands Grill and Stoney River restaurants or improve our margins at existing Stoney River restaurants, our profitability and overall results of operations may be adversely affected.

Another key aspect of our growth strategy is increasing same store sales across all restaurants and improving the restaurant-level margins at our Stoney River restaurants to the level achieved at our existing J. Alexander’s and Redlands Grill restaurants. Improving same store sales and restaurant-level margins depends in part on whether we achieve revenue growth through increases in the average check or traffic counts. Our ability to improve margins at Stoney River is further impacted by the costs that we have incurred, and will continue to incur, as we strive to improve the quality standards at Stoney River to make them consistent with those at our J. Alexander’s and Redlands Grill restaurants. We believe that there are opportunities to increase the average check at our restaurants through, for example, selective introduction of new profitable menu items and increases in menu pricing. However, these strategies may prove unsuccessful, especially in times of economic hardship, as customers may not order new or higher priced items. Further, we believe that part of the appeal of our concepts is the opportunity to experience outstanding, professional service and high-quality menu items at reasonable prices. Consequently, any price increases must be balanced with our desire to meet customer expectations with respect to service and quality at a reasonable value. Modest price increases generally have not adversely impacted customer traffic; however, we expect that there is a price level at which point customer traffic would be adversely affected. It is also possible that these changes could cause our sales volume to decrease. If we are not able to increase our sales at existing restaurants for any reason, our profitability and results of operations could be adversely affected.

Increases in the prices of, and/or reductions in the availability of commodities, primarily beef and seafood, could adversely affect our business and results of operations.

Our profitability is dependent in part on our ability to purchase food commodities which meet our specifications and to anticipate and react to changes in food costs and product availability. Ingredients are purchased from suppliers on terms and conditions that management believes are generally consistent with those available to similarly situated restaurant companies. Although alternative distribution sources are believed to be available for most products, increases in overall food prices, failure to perform by suppliers or distributors or limited availability of products at reasonable prices could cause our food costs to fluctuate and/or cause us to make adjustments to our menu offerings.

Beef costs represented approximately 31.7% of our food and beverage costs during 2014. We currently do not purchase beef pursuant to any long-term contractual arrangements with fixed pricing or use futures contracts or other financial risk management strategies to reduce our exposure to potential price fluctuations. The beef market is particularly volatile and is subject to extreme price fluctuations due to seasonal shifts, climate conditions, the price of feed, industry demand, energy demand and other factors. We expect beef prices will continue to increase, perhaps substantially, through the remainder of 2015 compared to prices incurred in 2014.

In addition, our dependence on frequent deliveries of fresh seafood subjects us to the risk of possible shortages or interruptions in supply caused by adverse weather, environmental factors or other conditions that could adversely affect the availability and cost of such items. In the past, certain types of seafood have experienced fluctuations in availability. In addition, some types of seafood have been subject to adverse publicity due to certain levels of contamination at their source or a perceived scarcity in supply, which can adversely affect both supply and market demand. We can make no assurances that in the future either seafood contamination or inadequate supplies of seafood might not have a significant and materially adverse effect on our operating results.

 

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Finally, the prices of other commodities can affect our costs as well, including corn and other grains, which are ingredients we use regularly and are also used as cattle feed and therefore affect the price of beef. Additional factors beyond our control, including adverse weather and market conditions, disease and governmental food safety regulation and enforcement, may also affect food costs and product availability. Energy prices can also affect our bottom line, as increased energy prices may cause increased transportation costs for beef and other supplies, as well as increased costs for the utilities required to run each restaurant. Historically, we have passed increased commodity and other costs on to our customers by increasing the prices of our menu items. While we believe these price increases generally have not affected our customer traffic, there can be no assurance that additional price increases would not affect future customer traffic. Although we believe that our integrated cost systems allows us to anticipate and quickly respond to fluctuations in commodity prices, including beef prices, if prices increase in the future and we are unable to anticipate or react to these increases, or if there are beef shortages, our business and results of operations could be adversely affected.

Negative customer experiences or negative publicity surrounding our restaurants or other restaurants could adversely affect sales in one or more of our restaurants and make our concepts less valuable.

Because we believe that our success depends significantly on our ability to provide exceptional food quality, outstanding service and an excellent overall dining experience, adverse publicity, whether or not accurate, relating to food quality, public health concerns, illness, safety, injury or government or industry findings concerning our restaurants, restaurants operated by other foodservice providers or others across the food industry supply chain could affect us more than it would other restaurants that compete primarily on price or other factors. If customers perceive or experience a reduction in our food quality, service or ambiance or in any way believe we have failed to deliver a consistently positive experience, the value and popularity of one or more of our concepts could suffer. Further, because we rely heavily on “word-of-mouth,” as opposed to more conventional mediums of advertisement, to establish concept recognition, our business may be more adversely affected by negative customer experiences than other upscale dining establishments, including those of our competitors.

Negative publicity relating to the consumption of beef, seafood, chicken, produce and our other menu offerings, including in connection with food-borne illness, could result in reduced consumer demand for our menu offerings, which could reduce sales.

Shifts in consumer preferences away from the kinds of food we offer, particularly beef and seafood, whether because of dietary or other health concerns or otherwise, would make our restaurants less appealing and could reduce customer traffic and/or impose practical limits on pricing. In addition, instances of food-borne illness, such as Bovine Spongiform Encephalopathy, which is also known as BSE or mad cow disease, as well as hepatitis A, listeria, salmonella and E. coli, whether or not found in the United States or traced directly to one of our suppliers or our restaurants, could reduce demand for our menu offerings. Any negative publicity relating to these and other health-related matters may affect consumers’ perceptions of our restaurants and the food that we offer, reduce customer visits to our restaurants and negatively impact demand for our menu offerings. Adverse publicity relating to any of these matters, beef in general or other similar concerns could adversely affect our business and results of operations.

Governmental regulation may adversely affect our ability to open new restaurants or otherwise adversely affect our business, financial condition and results of operations.

We are subject to various federal, state and local regulations, including those relating to building and zoning requirements and those relating to the preparation and sale of food. The development and operation of restaurants depends to a significant extent on the selection and acquisition of suitable sites, which are subject to zoning, land use, environmental, traffic and other

 

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regulations and requirements. Our restaurants are also subject to state and local licensing and regulation by health, alcoholic beverage, sanitation, food and occupational safety and other agencies. In addition, stringent and varied requirements of local regulators with respect to zoning, land use and environmental factors could delay or prevent development of new restaurants in particular locations or cause increases in development costs.

We are subject to the U.S. Americans with Disabilities Act (the “ADA”) and similar state laws that give civil rights protections to individuals with disabilities in the context of employment, public accommodations and other areas, including our restaurants. We may in the future have to modify restaurants by adding access ramps or redesigning certain architectural fixtures, for example, to provide service to or make reasonable accommodations for disabled persons. The expenses associated with these modifications could be material.

Our operations are also subject to the U.S. Occupational Safety and Health Act, which governs worker health and safety, the U.S. Fair Labor Standards Act, which governs such matters as minimum wages and overtime, and a variety of similar federal, state and local laws that govern these and other employment law matters. We may also be subject to lawsuits from our employees, the U.S. Equal Employment Opportunity Commission or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters, and we have been party to such matters in the past. Compliance with these laws can be costly and a failure or perceived failure to comply with these laws could result in negative publicity that could harm our reputation. In addition, federal, state and local proposals related to paid sick leave or similar matters could, if implemented, materially adversely affect our business, financial condition and results of operations.

The impact of current laws and regulations, the effect of future changes in laws or regulations that impose additional requirements and the consequences of litigation relating to current or future laws and regulations, or our inability to respond effectively to significant regulatory or public policy issues, could increase our compliance and other costs of doing business and, therefore, have an adverse effect on our results of operations. Failure to comply with the laws and regulatory requirements of federal, state and local authorities could result in, among other things, revocation of required licenses, administrative enforcement actions, fines and civil and criminal liability. Compliance with the aforementioned laws and regulations can be costly and can increase our exposure to litigation or governmental investigations or proceedings.

Legislation and regulations requiring the display and provision of nutritional information for our menu offerings and new information or attitudes regarding diet and health could result in changes in consumer consumption habits that could adversely affect our results of operations.

Regulations and consumer eating habits may change as a result of new information or attitudes regarding diet and health or new information regarding the adverse health effects of consuming certain menu offerings. Such changes may include federal, state and local regulations that impact the ingredients and nutritional content of the food and beverages we offer. The growth of our restaurant operations is dependent, in part, upon our ability to effectively respond to changes in any consumer health regulations and our ability to adapt our menu offerings to trends in food consumption. If consumer health regulations or consumer eating habits change significantly, we may choose or be required to modify or retire certain menu items, which may adversely affect the attractiveness of our restaurants to new or returning customers. We may also experience higher costs associated with the implementation of those changes. To the extent that we are unwilling or unable to respond with appropriate changes to our menu offerings, it could materially affect consumer demand and have an adverse impact on our business, financial condition and results of operations.

Such changes have also resulted in, and may continue to result in, laws and regulations requiring us to disclose the nutritional content of our food offerings, and they have resulted, and may

 

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continue to result in, laws and regulations affecting permissible ingredients and menu offerings. For example, a number of states, counties and cities have enacted menu labeling laws requiring multi-unit restaurant operators to disclose to consumers certain nutritional information, or have enacted legislation restricting the use of certain types of ingredients in restaurants. These requirements may be different or inconsistent with requirements under the Patient Protection and Affordable Care Act of 2010 (the “PPACA”), which establishes a uniform, federal requirement for certain restaurants to post nutritional information on their menus. Specifically, the PPACA requires chain restaurants with 20 or more locations operating under the same name to publish the total number of calories of standard menu items on menus and menu boards, along with a statement that puts this calorie information in the context of a total daily calorie intake. The PPACA also requires covered restaurants to provide to consumers, upon request, a written summary of detailed nutritional information for each standard menu item, and to provide a statement on menus and menu boards about the availability of this information upon request.

While we do not anticipate that we will have more than 20 locations operating under the same name when this particular component of the PPACA becomes effective on December 1, 2016, compliance with current and future laws and regulations regarding the ingredients and nutritional content of our menu items will likely be costly and time-consuming. The risks and costs associated with nutritional disclosures on our menus could also impact our operations, particularly given differences among applicable legal requirements and practices within the restaurant industry with respect to testing and disclosure, ordinary variations in food preparation among our own restaurants, and the need to rely on the accuracy and completeness of nutritional information obtained from third-party suppliers.

We may not be able to effectively respond to changes in consumer health perceptions or our ability to successfully implement the nutrient content disclosure requirements and to adapt our menu offerings to trends in eating habits. The imposition of menu labeling laws could materially adversely affect our business, financial condition and results of operations, as well as our position within the restaurant industry in general.

Compliance with environmental laws may negatively affect our business.

We are subject to federal, state and local laws and regulations concerning waste disposal, pollution, protection of the environment, and the presence, discharge, storage, handling, release and disposal of, and exposure to, hazardous or toxic substances. These environmental laws provide for significant fines and penalties for noncompliance and liabilities for remediation, sometimes without regard to whether the owner or operator of the property knew of, or was responsible for, the release or presence of hazardous toxic substances. Third parties may also make claims against owners or operators of properties for personal injuries and property damage associated with releases of, or actual or alleged exposure to, such hazardous or toxic substances at, on or from our restaurants. Environmental conditions relating to releases of hazardous substances at prior, existing or future restaurant sites could materially adversely affect our business, financial condition and results of operations. Further, environmental laws, and the administration, interpretation and enforcement thereof, are subject to change and may become more stringent in the future, each of which could materially adversely affect our business, financial condition and results of operations.

The effect of changes to healthcare laws in the United States may increase the number of employees who choose to participate in our healthcare plans, which may significantly increase our healthcare costs and negatively impact our financial results.

In 2010, the PPACA was signed into law in the United States to require healthcare coverage for many uninsured individuals and expand coverage to those already insured. We currently offer and subsidize a portion of comprehensive healthcare coverage, primarily for our salaried employees. Starting in 2015, the PPACA required us to offer healthcare benefits to all full-time employees

 

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(including full-time hourly employees) that meet certain minimum requirements of coverage and affordability, or face penalties. Starting in 2014, the PPACA also required most individuals to obtain coverage or face individual penalties. The amount of the individual penalty will increase significantly in future years. Accordingly, employees who are eligible for but currently elect not to participate in our healthcare plans may find it more advantageous to elect to participate in our healthcare plans. It is also possible that by making changes or failing to make changes in the healthcare plans offered by us we will become less competitive in the market for our labor. Finally, implementing the requirements of the PPACA is likely to impose additional administrative costs. The costs and other effects of these new healthcare requirements are not anticipated to have a significant effect on our business, financial condition or results of operations in fiscal 2015, but they may significantly increase our healthcare coverage costs in future periods and could materially adversely affect our business, financial condition and results of operations.

Changes to minimum wage laws and potential labor shortages could increase our labor costs substantially, which could slow our growth and adversely impact our ability to operate our restaurants.

Under the minimum wage laws in most jurisdictions, we are permitted to pay certain hourly employees a wage that is less than the base minimum wage for general employees because these employees receive tips as a substantial part of their income. As of June 28, 2015, approximately 40% of our employees earn this lower minimum wage in their respective locations since tips constitute a substantial part of their income. If cities, states or the federal government change their laws to require all employees to be paid the general employee minimum base wage regardless of supplemental tip income, our labor costs would increase substantially. In addition, any increase in the minimum wage, such as the last increase in the minimum wage on July 24, 2009 to $7.25 per hour under the Federal Minimum Wage Act of 2007, would increase our costs. Certain states in which we operate restaurants have adopted or are considering adopting minimum wage statutes that exceed the federal minimum wage as well. Any increases in federal or state minimum wages may cause us to increase the wages paid to our employees who already earn above-minimum wages in order to continue to attract and retain highly skilled personnel. We may be unable or unwilling to increase our prices in order to pass these increased labor costs on to our customers, in which case our business and results of operations could be adversely affected.

A failure to recruit, develop and retain effective leaders, the loss or shortage of personnel with key capacities and skills, could jeopardize our ability to meet growth targets.

Our success depends in part upon our ability to attract, motivate and retain a sufficient number of qualified employees, including restaurant managers, kitchen staff, hosts and servers, necessary to meet the needs of our existing restaurants and anticipated expansion schedule, and who can meet the high standards necessary to deliver the levels of food quality, service and professionalism on which our concepts are based. Qualified individuals of the caliber and number needed to fill these positions are in short supply in some communities and competition for qualified employees could require us to pay higher wages and provide greater benefits to attract sufficient employees. Any inability to recruit and retain qualified individuals may also delay the planned openings of new restaurants and could adversely impact our existing restaurants. Any such inability to retain or recruit qualified employees, increased costs of attracting qualified employees or delays in restaurant openings could adversely affect our business and results of operations. Further, increases in employee turnover could have an adverse effect on food quality and guest service resulting in an adverse effect on net sales and results of operations.

 

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Restaurant companies, including ours, have been the target of claims and lawsuits. Proceedings of this nature, if successful, could result in our payment of substantial costs and damages.

In recent years, we and other restaurant companies have been subject to claims and lawsuits alleging various matters, including those that follow. Claims and lawsuits may include class action lawsuits, alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits have been instituted from time to time alleging violations of various federal and state wage and hour laws regarding, among other things, employee meal deductions, the sharing of tips amongst certain employees, overtime eligibility of assistant managers and failure to pay for all hours worked. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these matters. Accordingly, if we are required to pay substantial damages and expenses as a result of these types or other lawsuits, our business and results of operations would be adversely affected.

Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illness or injury they suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food-borne illness and relating to notices with respect to chemicals contained in food products required under state law. We are also subject to a variety of other claims from third parties arising in the ordinary course of our business, including personal injury claims, contract claims and claims alleging violations of federal and state laws. In addition, most of our restaurants are subject to state “dram shop” or similar laws which generally allow a person to sue us if that person was injured by a legally intoxicated person who was wrongfully served alcoholic beverages at one of our restaurants. The restaurant industry has also been subject to a growing number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers. In addition, we may also be subject to lawsuits from our employees or others alleging violations of federal and state laws regarding workplace and employment matters, discrimination and similar matters. A number of these lawsuits in the restaurant industry have resulted in the payment of substantial damages by the defendants.

Additionally, certain of our tax returns and employment practices are subject to audits by the U.S. Internal Revenue Service (the “IRS”) and various state tax authorities. Such audits could result in disputes regarding tax matters that could lead to litigation that would be costly to defend or could result in the payment of additional taxes, which could affect our business, results of operations and financial condition.

Regardless of whether any claims against us are valid or whether we are liable, claims may be expensive to defend and may divert resources away from our operations. In addition, they may generate negative publicity, which could reduce customer traffic and sales. Although we maintain what we believe to be adequate levels of insurance, insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. Defense costs, even for unfounded claims, or a judgment or other liability in excess of our insurance coverage for any claims or any adverse publicity resulting from claims could adversely affect our business, results of operations and financial condition.

Our insurance policies may not provide adequate levels of coverage against all claims, and fluctuating insurance requirements and costs could negatively impact our profitability.

We currently maintain insurance coverage that we believe is reasonable for businesses of our size and type. However, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. These losses, if they occur, could have a

 

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material and adverse effect on our business and results of operations. Additionally, health insurance costs in general have risen significantly over the past few years and are expected to continue to increase. These increases could have a negative impact on our profitability, and there can be no assurance that we will be able to successfully offset the effect of such increases with plan modifications and cost control measures, additional operating efficiencies or the pass-through of such increased costs to our customers or employees.

Health concerns arising from food-related pandemics, outbreaks of flu viruses or other diseases may have an adverse effect on our business.

The United States and other countries have experienced, or may experience in the future, outbreaks of viruses, such as norovirus, avian flu or “SARS”, H1N1 or “swine flu” or other diseases such as bovine spongiform, encephalopathy, commonly known as “mad cow disease.” If a virus or disease is foodborne, or perceived to be foodborne, future outbreaks may adversely affect the price and availably of certain food products and cause our guests to eat less of a product, or could reduce public confidence in food handling and/or public assembly. If we change a restaurant menu in response to such concerns, we may lose guests who do not prefer the new menu, and we may not be able to attract a sufficient new guest base to produce the sales needed to make the restaurant profitable. We also may have different or additional competitors for our intended guests as a result of such a change and may not be able to successfully compete against such competitors. If a virus is transmitted by human contact, our employees or guests could become infected, or could choose, or be advised, to avoid gathering in public places, any of which events could adversely affect our restaurant guest volume, and our ability to adequately staff our restaurants, receive deliveries on a timely basis or perform functions at the corporate level.

We occupy most of our restaurants under long-term, non-cancelable leases for which we may remain obligated to perform under even after a restaurant closes, and we may be unable to renew leases at the end of their terms.

We are a lessee under both ground leases (under which we lease the land and build our own restaurants on such land) and improved leases (where the lessor owns the land and the building) with respect to 23 current locations. Many of our current leases are non-cancelable and typically have terms ranging from approximately 15 to 20 years and provide for rent escalations and for one or more five-year renewal options. We are generally obligated to pay the cost of property taxes, insurance and maintenance under such leases, and certain of our leases provide for contingent rentals based upon a percentage of sales at the leased location. We believe that leases that we enter into in the future will be on substantially similar terms. If we were to close or fail to open a restaurant at a location we lease, we would generally remain committed to perform our obligations under the applicable lease, which could include, among other things, payment of the base rent for the balance of the lease term. Our obligation to continue making rental payments and fulfilling other lease obligations in respect of leases for closed or unopened restaurants could have a material adverse effect on our business and results of operations. Alternatively, at the end of the lease term and any renewal period for a restaurant, we may be unable to renew the lease without substantial additional cost, if at all. If we cannot renew such a lease we may be forced to close or relocate a restaurant, which could subject us to construction and other costs and risks. If we are required to make payments under one of our leases after a restaurant closes, or if we are unable to renew our restaurant leases, our business and results of operations could be adversely affected.

The impact of negative economic factors, including the availability of credit, on our landlords and other retail center tenants could negatively affect our financial results.

Negative effects on our existing and potential landlords due to any inaccessibility of credit and other unfavorable economic factors may, in turn, adversely affect our business and results of

 

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operations. If our landlords are unable to obtain financing or remain in good standing under their existing financing arrangements, they may be unable to provide construction contributions or satisfy other lease covenants to us. If any landlord files for bankruptcy protection, the landlord may be able to reject our lease in the bankruptcy proceedings. While we would have the option to retain our rights under the lease, we could not compel the landlord to perform any of its obligations and would be left with damages as our sole recourse. In addition, if our landlords are unable to obtain sufficient credit to continue to properly manage their retail sites, we may experience a drop in the level of quality of such retail centers. Our development of new restaurants may also be adversely affected by the negative financial situations of developers and potential landlords. In recent years, many landlords have delayed or cancelled development projects (as well as renovations of existing projects) due to the instability in the credit markets and declines in consumer spending, which has reduced the number of high-quality locations available that we would consider for our new restaurants. These failures may lead to reduced customer traffic and a general deterioration in the surrounding retail centers in which our restaurants are located or are proposed to be located and may contribute to lower customer traffic at our restaurants. If any of the foregoing affect any of our landlords or their other retail tenants our business and results of operations may be adversely affected.

Fixed rental payments account for a significant portion of our operating expenses, which increases our vulnerability to general adverse economic and industry conditions and could limit our operating and financing flexibility.

Payments under our operating leases account for a significant portion of our operating expenses and we expect the new restaurants we open in the future will similarly be leased by us. Specifically, cash payments under our operating leases accounted for approximately 2.8% of our restaurant operating expenses in 2014. Our substantial operating lease obligations could have significant negative consequences, including:

 

   

requiring a substantial portion of our available cash flow to be applied to our rental obligations, thus reducing cash available for other purposes;

 

 

   

limiting our flexibility in planning for or reacting to changes in our business or the industry in which we compete;

 

 

   

increasing our vulnerability to general adverse economic and industry conditions; and

 

 

   

limiting our ability to obtain additional financing.

 

We depend on cash flow from operations to pay our lease obligations and to fulfill our other cash needs. If our business does not generate sufficient cash flow from operating activities and sufficient funds are not otherwise available to us from borrowings under our credit facility or other sources, we may not be able to meet our operating lease obligations, grow our business, respond to competitive challenges or fund our other liquidity and capital needs, which could adversely affect our business and results of operations.

Our level of indebtedness and any future indebtedness we may incur may limit our operational and financing flexibility and negatively impact our business.

J. Alexander’s, LLC is currently the borrower on a Second Amended and Restated Loan Agreement with Pinnacle Bank which consists of the following loans:

 

   

A seven-year $15,000,000 mortgage loan dated September 3, 2013.

 

 

   

A five-year $20,000,000 development line of credit dated May 20, 2015.

 

 

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A five-year $10,000,000 term loan dated May 20, 2015.

 

 

   

A three-year $1,000,000 line of credit dated September 3, 2013.

 

We may incur substantial additional indebtedness in the future. Our credit facility, and other debt instruments we may enter into in the future, may have important consequences to you, including the following:

 

   

our ability to obtain additional financing for working capital, capital expenditures, acquisitions or general corporate purposes may be impaired;

 

 

   

we are required to use a significant portion of our cash flows from operations to pay interest on our indebtedness, which will reduce the funds available to us for operations and other purposes;

 

 

   

our level of indebtedness could place us at a competitive disadvantage compared to our competitors that may have proportionately less debt;

 

 

   

our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate may be limited; and

 

 

   

our level of indebtedness may make us more vulnerable to economic downturns and adverse developments in our business.

 

We expect that we will depend primarily on cash generated by our operations for funds to pay our expenses and any amounts due under our credit facility and any other indebtedness we may incur. Our ability to make these payments depends on our future performance, which will be affected by financial, business, economic and other factors, many of which we cannot control. Our business may not generate sufficient cash flows from operations in the future and our currently anticipated growth in revenues and cash flows may not be realized, either or both of which could result in our being unable to repay indebtedness or to fund other liquidity needs. If we do not have enough money, we may be required to refinance all or part of our then existing debt, sell assets or borrow more money, in each case on terms that are not acceptable to us, or at all. In addition, the terms of existing or future debt agreements, including our existing credit facility, may restrict us from adopting some or any of these alternatives. Our inability to recapitalize and incur additional debt in the future could also delay or prevent a change in control of our Company, make some transactions more difficult and impose additional financial or other covenants on us. In addition, any significant levels of indebtedness in the future could make us more vulnerable to economic downturns and adverse developments in our business. Our current indebtedness and any inability to pay our debt obligations as they come due or inability to incur additional debt could adversely affect our business and results of operations.

The terms of our credit facility impose operating and financial restrictions on us.

Our credit facility contains certain restrictions and covenants that generally limit our ability to, among other things:

 

   

pay dividends or purchase stock or make other restricted payments to our equity holders;

 

 

   

incur additional indebtedness;

 

 

   

use assets as security in other transactions;

 

 

   

sell assets or merge with or into other companies; and

 

 

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sell equity or other ownership interests in our subsidiaries.

 

Our credit facility may limit our ability to engage in these types of transactions even if we believed that a specific transaction would contribute to our future growth or improve our operating results. Our credit facility also requires us to achieve specified financial and operating results and maintain compliance with specified financial ratios. Specifically, these covenants require that we have a fixed charge coverage ratio of at least 1.25:1 and maintain a leverage ratio (adjusted debt to EBITDAR (as defined in the credit facility)) that may not exceed 4.0:1, in each case, as of the end of any fiscal quarter. As of June 28, 2015, we were in compliance with each of these tests. Specifically, as of June 28, 2015, the fixed charge coverage ratio was 2.86:1 and our leverage ratio was 1.85:1. Our ability to comply with these provisions may be affected by events beyond our control. A breach of any of these debt covenants or our inability to comply with required financial ratios in our credit facility could result in a default under the credit facility in which case the lenders would have the right to declare all borrowings, which includes any principal amount outstanding, together with all accrued, unpaid interest and other amounts owing in respect thereof, to be immediately due and payable. If we are unable to repay all borrowings when due, whether at maturity or if declared due and payable following a default, the lenders would have the right to proceed against the collateral granted to secure the indebtedness. If we breach these covenants or fail to comply with the terms of the credit facility and the lenders accelerate the amounts outstanding under the credit facility our business and results of operations would be adversely affected.

Our credit facility carries floating interest rates, thereby exposing us to market risk related to changes in interest rates. Accordingly, our business and results of operations may be adversely affected by changes in interest rates. Assuming a 100 basis point increase on our base interest rate on our credit facility and a full drawdown on both of the revolving lines of credit, our interest expense would increase by approximately $435,000 over the course of 12 months. As of June 28, 2015, the balance outstanding under the $15,000,000 term loan was $12,084,000, and we had no borrowings outstanding under the $1,000,000 revolving credit facility or the $20,000,000 development line of credit. At June 28, 2015, we also had $10,000,000 outstanding under the $10,000,000 term loan dated May 20, 2015, which was used to refinance the remaining outstanding balance under the FNF Note.

We depend on the services of key executives and management-level employees, and our business and growth strategy could be materially harmed if we were to lose these individuals and were unable to replace them with executives of equal experience and capabilities.

Our success is materially dependent upon the contributions of our senior executives and management-level employees because their experience in the restaurant industry and tenure with us allow for their invaluable contributions in setting our strategic direction, day-to-day operations, and recruiting and training key personnel. The loss of the services of such key employees could adversely affect our business until a suitable replacement of equal experience and capabilities could be identified. We believe that they could not quickly be replaced with executives of equal experience and capabilities and their successors may not be as effective. See “Management.”

The failure to enforce and maintain our intellectual property rights could enable others to use names confusingly similar to the names and marks used by our restaurants, which could adversely affect the value of our concepts.

We have registered the names J. Alexander’s Restaurant, Redlands Grill, Stoney River Legendary Steaks and certain other names and logos used by our restaurants as trade names, trademarks or service marks with the United States Patent and Trademark Office (“PTO”). The success

 

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of our business depends in part on our continued ability to utilize our existing trade names, trademarks and service marks as currently used in order to increase our restaurant concept awareness. In that regard, we believe that our trade names, trademarks and service marks are valuable assets that are critical to our success. The unauthorized use or other misappropriation of our trade names, trademarks or service marks could diminish the value of our restaurant concepts and may cause a decline in our revenues and force us to incur costs related to enforcing our rights. In addition, the use of trade names, trademarks or service marks similar to ours in some markets may keep us from entering those markets. While we may take protective actions with respect to our intellectual property, these actions may not be sufficient to prevent, and we may not be aware of all incidents of, unauthorized usage or imitation by others. Any such unauthorized usage or imitation of our intellectual property, including the costs related to enforcing our rights, could adversely affect our business and results of operations.

Information technology system failures or breaches of our network security, including with respect to confidential information, could interrupt our operations and adversely affect our business.

We rely on our computer systems and network infrastructure across our operations, including point-of-sale processing at our restaurants and integrated cost systems that are instrumental in our procurement processes and in managing our food costs. Our operations depend upon our ability to protect our computer equipment and systems against damage from physical theft, fire, power loss, telecommunications failure or other catastrophic events, as well as from internal and external security breaches, viruses, worms and other disruptive problems. Any damage or failure of our computer systems or network infrastructure that causes an interruption in our operations could limit our ability to anticipate and react quickly to changing food costs and could subject us to litigation or actions by regulatory authorities. In addition, the majority of our restaurant sales are by credit or debit cards. Other restaurants and retailers have experienced security breaches in which credit and debit card information of their customers has been stolen or compromised. If this or another type of breach occurs at one of our restaurants, we may become subject to lawsuits or other proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of our customers’ credit or debit card information. Although we have made significant efforts to secure our computer network and to update and maintain our systems and procedures to meet the payment card industry data security standards, our computer network could be compromised and confidential information, such as guest credit card information, could be misappropriated. Any such claim, proceeding or action by a regulatory authority, or any adverse publicity resulting from such breaches and disruptions (or allegations of such breaches and disruptions), could adversely affect our business and results of operations.

If we are unable to effectively grow revenue and profitability at certain of our locations, we may be required to record impairment charges to our restaurant assets, the carrying value of our goodwill or other intangible assets, which could adversely affect our financial condition and results of operations.

We assess the potential impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value of the assets or asset group may not be recoverable. Factors considered include, but are not limited to, significant underperformance relative to historical or projected future operating results, significant changes in the manner in which an asset is being used, an expectation that an asset will be disposed of significantly before the end of its previously estimated useful life and significant negative industry or economic trends. We regularly review and compare the carrying value of our assets and properties, including goodwill, to the fair value of our assets and properties. We cannot accurately predict the amount and timing of any recorded impairment to our assets. Should the value of goodwill or other intangible assets become impaired, there could be an adverse effect on our financial condition and results of operations.

 

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From time to time we may evaluate acquisitions, joint ventures or other initiatives that could distract management from our business or have an adverse effect on our financial performance.

We may be presented with opportunities to buy or acquire rights to other companies, businesses, restaurant concepts or assets that might be complementary or adjacent to our current strategic direction at the time and may provide growth opportunities. Any involvement in any such acquisition, merger, joint venture, alliance or divestiture may create inherent risks, including without limitation:

 

   

inaccurate assessment of value, growth potential, weaknesses, liabilities, contingent or otherwise, and expected profitability of potential acquisitions or joint ventures;

 

 

   

inability to achieve any anticipated operating synergies or economies of scale;

 

 

   

potential loss of key personnel of any acquired business;

 

 

   

challenges in successfully integrating, operating and managing acquired businesses and workforce and instilling our Company’s culture into new management and staff;

 

 

   

difficulties in aligning enterprise management systems and policies and procedures;

 

 

   

unforeseen changes in the market and economic condition affecting the acquired business or joint venture;

 

 

   

possibility of impairment charges if an acquired business does not meet the performance expectations upon which the acquisition price was based; and

 

 

   

diversion of management’s attention and focus from existing operations to the integration of the acquired or merged business and its personnel.

 

Our business will suffer if we fail to successfully integrate acquired companies, businesses and restaurant concepts.

In the future, we may acquire companies, businesses, restaurant concepts and other assets. The successful integration of any companies, businesses, restaurant concepts and assets we acquire into our operations, on a cost-effective basis, can be critical to our future performance. The amount and timing of the expected benefits of any acquisition, including potential synergies, are subject to significant risks and uncertainties. The integration of acquisitions with our operations could be expensive, require significant attention from management, may impose substantial demands on our operations or other projects and may impose challenges on the combined business including, without limitation, consistencies in business standards, procedures, policies and business cultures.

We cannot guarantee that any acquired companies, businesses, restaurant concepts or assets will be successfully integrated with our operations in a timely or cost-effective manner, or at all. Failure to successfully integrate acquired businesses or to achieve anticipated operating synergies, revenue enhancements or cost savings could have an adverse effect on our business, financial condition and results of operations.

 

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We depend upon frequent deliveries of food and other supplies, in most cases from a limited number of suppliers, which subjects us to the possible risks of shortages, interruptions and price fluctuations.

Our ability to maintain consistent quality throughout our restaurants depends in part upon our ability to acquire fresh products, including beef, fresh seafood, quality produce and related items from reliable sources in accordance with our specifications. In addition, we rely on one or a limited number of suppliers for certain ingredients. This dependence on one or a limited number of suppliers, as well as the limited number of alternative suppliers of beef and quality seafood, subjects us to the possible risks of shortages, interruptions and price fluctuations in beef and seafood. If any of our suppliers is unable to obtain financing necessary to operate its business or its business is otherwise adversely affected, does not perform adequately or otherwise fails to distribute products or supplies to our restaurants, or terminates or refuses to renew any contract with us, particularly with respect to one of the suppliers on which we rely heavily for specific ingredients, we may be unable to find an alternative supplier in a short period of time or if we can, it may not be on acceptable terms. While we do not rely on any single-source supplier that we believe could not be replaced with one or more alternative suppliers without undue disruption, any delay in our ability to replace a supplier in a short period of time on acceptable terms could increase our costs or cause shortages at our restaurants that may cause us to remove certain items from a menu or increase the price of certain offerings, which could adversely affect our business and results of operations.

Our business is subject to seasonal and other periodic fluctuations and past results are not indicative of future results.

Our net sales and net income have historically been subject to seasonal fluctuations. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. In addition, certain of our restaurants, particularly those located in south Florida, typically experience an increase in customer traffic during the period between Thanksgiving and Easter due to an increase in population in these markets during that portion of the year.

Our quarterly results have been and will continue to be affected by the timing of new restaurant openings and their associated pre-opening costs, as well as any restaurant closures and exit-related costs and any impairments of goodwill, intangible assets and property, fixtures and equipment. As a result of these and other factors, our financial results for any quarter may not be indicative of the results that may be achieved for a full fiscal year.

Hurricanes and other weather-related disturbances could negatively affect our net sales and results of operations.

Certain of our restaurants are located in regions of the country which are commonly affected by hurricanes and tropical storms. Restaurant closures resulting from evacuations, damage or power or water outages caused by hurricanes, tropical storms, other natural disasters and winter weather could adversely affect our net sales and profitability. To the extent we maintain insurance policies or programs to mitigate the impact of these risks, our cash flows may be adversely impacted by delay in the receipt of proceeds under those policies or the proceeds may not fully offset any such losses.

 

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Risks Relating to Our Separation from FNF

We may not realize any potential benefits that we expect to achieve as an independent, publicly traded company, and we may not enjoy certain benefits we enjoyed as part of the FNF after the separation.

We may not realize any of the potential benefits we expect from our separation from FNF. As an independent, publicly traded company, we believe that our businesses will benefit from, among other things, sharpened focus on the financial and operational resources of our specific business, allowing our management to design and implement a capital structure, corporate strategies and policies that are based primarily on the business characteristics and strategic opportunities of our businesses. We anticipate this will allow us to respond more effectively to industry dynamics and to allow us to create effective incentives for our management and employees that are more closely tied to our business performance. However, we may not be able to achieve some or all of the expected benefits. See “Distribution—Reasons for the Distribution.”

We will also incur significant costs in connection with the separation, which may exceed our estimates, and we will experience some negative effects from the separation, including loss of access to some of the financial, managerial and professional resources from which we have benefited in the past. We expect this risk will be somewhat mitigated by the Management Consulting Agreement pursuant to which certain executive officers of FNFV will continue to provide consulting services to us. In addition, completion of the distribution will require a significant amount of our management’s time and effort, which may divert attention from operating and growing our business. By separating from FNF, there is also a risk that we may become more susceptible to market fluctuations and other adverse events than while we were a part of FNF. As part of FNF, we were able to enjoy certain benefits from FNF’s operating diversity and access to capital for investments, benefits that will no longer be available to us following the separation.

If we fail to achieve some or all of the benefits that we expect from the separation on a timely basis or at all, our business, results of operations and financial condition could suffer a material adverse effect.

There can be no assurance that we will have access to the capital markets on terms acceptable to us.

From time to time we may need to access the long-term and short-term capital markets to obtain financing. Although we believe that the sources of capital in place that the time of the distribution will permit us to finance our operations for the foreseeable future on acceptable terms and conditions, our access to, and the availability of, financing on acceptable terms and conditions in the future or at all will be impacted by many factors, including, but not limited to:

 

   

our financial performance;

 

 

   

our credit ratings or absence of a credit rating;

 

 

   

the liquidity of the overall capital markets; and

 

 

   

the state of the economy.

 

There can be no assurance, particularly as a new company, that currently has no credit rating, that we will have access to the capital markets on terms acceptable to us.

 

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Our combined historical and pro forma financial information is not necessarily representative of the results we would have achieved as a stand-alone company and may not be a reliable indicator of our future results.

Our combined historical and pro forma financial information included in this information statement does not reflect the financial condition, results of operations or cash flows we would have achieved as a stand-alone company during the periods presented or that we may achieve in the future. This is primarily a result of the following factors:

 

   

our combined historical and pro forma financial results may not fully reflect the costs associated with being a stand-alone public company, including significant changes that will occur in our cost structure, management, financing and business operations as a result of our separation from FNF; and

 

 

   

our combined historical and pro forma financial results reflect certain allocations of corporate expenses from FNF which allocations may be different than the comparable expenses that we would have actually incurred as a stand-alone company.

 

We have made adjustments based upon available information and assumptions that we believe are reasonable to reflect these factors, among others, in our combined historical and pro forma financial information. However, our assumptions may prove not to be accurate, and accordingly, the financial information presented in this information statement should not be assumed to be indicative of what our financial condition or results of operations actually would have been as a stand-alone company nor to be a reliable indicator of what our financial condition or results of operations actually may be in the future.

For a description of the components of our historical combined financial information and adjustments reflected in our pro forma financial information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Business Overview” and our combined historical and pro forma financial statements included elsewhere in this information statement.

Until the distribution occurs, FNF has sole discretion to change the terms of the distribution in ways that may be unfavorable to us.

Until the distribution occurs, we are a majority-owned subsidiary of FNF. Accordingly, and in accordance with the Separation and Distribution Agreement, FNF has the sole and absolute discretion to determine and change the terms of the distribution, including the establishment of the record date, and the distribution date. These changes could be unfavorable to us. In addition, FNF may decide at any time not to proceed with the separation or the distribution, in its sole discretion.

We will experience increased costs after the separation or as a result of the separation.

We will need to replicate certain facilities, systems, infrastructure and personnel to which we will no longer have access after our separation from FNF. We will also need to make investments to operate without access to FNF’s existing operational and administrative infrastructure. Although the Management Consulting Agreement is intended to mitigate this risk, we will likely need to retain additional personnel and infrastructure in order to operate as an independent company. These initiatives will be costly to implement. Due to the scope and complexity of the underlying projects, the amount of total costs cannot be accurately estimated at this time.

 

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Our accounting and other management systems and resources may not be adequately prepared to meet the financial reporting and other requirements to which we will be subject following the separation and the distribution.

Our financial results previously were included within the consolidated results of FNF, and our reporting and control systems were appropriate for those of subsidiaries of a public company. Prior to the distribution, we are not directly subject to reporting and other requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 404 of the Sarbanes-Oxley Act of 2002. After the distribution, we will be subject to such reporting and other requirements, which will require, among other things, annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These and other obligations will place significant demands on our management, administrative and operational resources, including accounting and IT resources.

To comply with these requirements, we will need to implement additional financial and management controls, reporting systems and procedures and hire additional staff. We will incur additional annual expenses related to these steps, including with respect to, among other things, director and officer liability insurance, director fees, expenses associated with our Securities and Exchange Commission (“SEC”) reporting obligations, transfer agent fees, increased auditing and legal fees and similar expenses, which expenses may be significant. If we are unable to upgrade our financial and management controls, reporting systems and procedures in a timely and effective fashion, our ability to comply with our financial reporting requirements and other rules that apply to reporting companies could be impaired. Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, results of operations and financial condition.

We also expect that being a public company subject to additional laws, rules and regulations will require the investment of additional resources to ensure ongoing compliance with these laws, rules and regulations.

The distribution could result in significant tax liability to FNF, and we could be required to indemnify FNF for such liability.

FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the opinion, the distribution will qualify as a transaction that is tax-free under Section 355 and/or other relevant provisions of the Code, and the distribution is conditioned upon the receipt by FNF of such favorable opinion confirming the distribution’s tax-free status. A United States holder (as defined in “The Distribution—Material U.S. Federal Income Tax Consequences of the Distribution”) of FNFV common stock generally will recognize capital gain or loss with respect to cash received in lieu of a fractional share of our common stock.

The opinion will be based upon various factual representations and assumptions, as well as certain undertakings made by FNF and J. Alexander’s. If any of those factual representations or assumptions are untrue or incomplete in any material respect, any undertaking is not complied with, or the facts upon which the opinion will be based are materially different from the facts at the time of the distribution, the distribution may not qualify for tax-free treatment. Opinions of tax advisors are not binding on the IRS or the courts. As a result, the conclusions expressed in an opinion could be challenged by the IRS, and if the IRS prevails in such challenge, the tax consequences to you could be materially less favorable.

If the distribution were determined not to qualify as a tax-free transaction under Section 355 of the Code, each United States holder generally would be treated as receiving a distribution taxable as a dividend in an amount equal to the fair market value of the shares of our common stock received by

 

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the holder with the consequences described in “The Distribution — Material U.S. Federal Income Tax Consequences of the Distribution.” In addition, FNF generally would, or could be required to, recognize gain with respect to the distribution and certain related transactions, and we could be required to indemnify FNF for any resulting taxes and related expenses, which could be material.

The distribution and certain related transactions could be taxable to FNF if J. Alexander’s or its stockholders were to engage in certain transactions after the distribution. In such cases, FNF and/or its stockholders could incur significant U.S. federal income tax liabilities, and we could be required to indemnify FNF for any resulting taxes and related expenses, which could be material.

We are agreeing to certain restrictions to preserve the treatment of the distribution as tax-free to FNF and holders of FNFV common stock, which will reduce our strategic and operating flexibility.

If the distribution fails to qualify for tax-free treatment as discussed above, it will be treated as a taxable dividend to holders of FNFV common stock in an amount equal to the fair market value of our stock issued to holders of FNFV common stock. In addition, in that event, FNF would be required to recognize a gain equal to the excess of the sum of the fair market value of our stock on the distribution date over FNF’s tax basis in our stock.

In addition, current tax law generally creates a presumption that the distribution would be taxable to FNF but not to holders of FNFV common stock, if we or our stockholders were to engage in a transaction that would result in a 50% or greater change by vote or by value in our stock ownership during the two-year period beginning on the distribution date, unless it is established that the distribution and the transaction are not part of a plan or series of related transactions to effect such a change in ownership. In the case of such a 50% or greater change in our stock ownership, tax imposed on FNF in respect of the distribution would be based on the fair market value of our stock on the distribution date over FNF’s tax basis in our stock.

Under the Tax Matters Agreement that we will enter into with FNF, we will generally be prohibited, except in specified circumstances, for specified periods of up to 24 months following the distribution, from:

 

   

issuing, redeeming or being involved in other significant acquisitions of our equity securities;

 

 

   

voluntarily dissolving or liquidating;

 

 

   

transferring significant amounts of our assets;

 

 

   

amending our certificate of incorporation or by-laws;

 

 

   

failing to engage in the active conduct of a trade or business; or

 

 

   

engaging in certain other actions or transactions that could jeopardize the tax-free status of the distribution.

 

See “Certain Relationships and Related Party Transactions — Agreements with FNF—Tax Matters Agreement.”

 

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In connection with our separation from FNF, we and FNF will undertake potentially significant indemnity obligations. If we are required to perform under these indemnities to FNF, we may need to divert cash to meet those obligations, which could have a material adverse effect on our business, results of operations and financial condition. In the case of FNF’s indemnity, there can be no assurance that the indemnity will be sufficient to insure us against the full amount of any relevant liabilities or that FNF will be able to satisfy its indemnification obligations in the future.

Under the Tax Matters Agreement that we will enter into with FNF, we will agree generally to indemnify FNF for taxes and related losses it suffers as a result of the distribution failing to qualify as a tax-free transaction, if the taxes and related losses are attributable to:

 

   

direct or indirect acquisitions of our stock or assets (regardless of whether we consent to such acquisitions);

 

 

   

negotiations, understandings, agreements or arrangements in respect of such acquisitions; or

 

 

   

our failure to comply with certain representations and undertakings from us, including the restrictions described in the preceding risk factor.

 

See “Certain Relationships and Related Party Transactions — Related Party Transactions —Agreements with FNF — Tax Matters Agreement.” Our indemnity will cover both corporate level taxes and related losses imposed on FNF in the event of a 50% or greater change in our stock ownership described in the preceding risk factor, as well as taxes and related losses imposed on FNF if, due to our representations or undertakings being incorrect or violated, the distribution is determined to be taxable for other reasons.

Indemnities that we may be required to provide FNF may be significant and could have a material adverse effect on our business, results of operations and financial condition, particularly indemnities relating to certain actions that could impact the tax-free nature of the distribution. Despite the Tax Matters Agreement providing to the contrary, third parties could also seek to hold us responsible for any of the liabilities that FNF has agreed to retain. Further, there can be no assurance that the indemnity from FNF will be sufficient to protect us against the full amount of such liabilities, or that FNF will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from FNF any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could have a material adverse effect on our business, results of operations and financial condition.

The continued ownership of FNF common stock and FNFV common stock by some of our directors may create, or may create the appearance of, conflicts of interest.

Because of their current or former positions with FNF, certain of our officers and non-employee directors own FNF common stock and FNFV common stock. These holdings in FNF common stock and FNFV common stock may be significant for some of these persons compared to that person’s total assets. Even though our board of directors will include directors who are independent from both FNF and our company, ownership of FNF common stock and FNFV common stock by our directors and officers after the separation may create, or may create the appearance of, conflicts of interest when these directors and officers are faced with decisions that could have different implications for FNF than they do for us.

 

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We could have potentially received better terms from unaffiliated third parties than the terms we receive in our agreements with FNF and its affiliates.

The agreements we will enter into with FNF or its affiliates in connection with the separation consist of the Separation and Distribution Agreement, the Tax Matters Agreement, and the Management Consulting Agreement, each of which were negotiated in the context of the separation while we were still a majority-owned subsidiary of FNF. Accordingly, during the period in which the terms of those agreements were negotiated, we did not have an independent board of directors or a management team independent of FNF. As a result, the terms of those agreements may not reflect terms that would have resulted from arm’s-length negotiations between unaffiliated third parties. The terms of the agreements negotiated in the context of the separation relate to, among other things, the consideration to be paid to Black Knight Advisory Services, LLC for management services under the Management Consulting Agreement. Arm’s-length negotiations between FNF and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to us. See “Certain Relationships and Related Party Transactions — Agreements with FNF.”

Risks Related to Our Structure

We will be a holding company and our only material asset after completion of the reorganization transactions and the distribution will be our interest in J. Alexander’s Holdings, LLC and, accordingly, we are dependent upon distributions from J. Alexander’s Holdings, LLC to pay taxes and other expenses.

We will be a holding company and will have no material assets other than our ownership of Units of J. Alexander’s Holdings, LLC. We will have no independent means of generating revenue. J. Alexander’s Holdings, LLC will be treated as a partnership for U.S. federal income tax purposes and, as such, will not itself be subject to U.S. federal income tax. Instead, its net taxable income will generally be allocated to its members, including us, according to the membership interests each member owns. Accordingly, we will incur income taxes on our proportionate share of any net taxable income of J. Alexander’s Holdings, LLC and also will incur expenses related to our operations. We intend to cause J. Alexander’s Holdings, LLC to distribute cash to its members, including us, in an amount at least equal to the amount necessary to cover their respective tax liabilities, if any, with respect to their allocable share of the net income of J. Alexander’s Holdings, LLC and to cover dividends, if any, declared by us. To the extent that we need funds to pay our tax or other liabilities or to fund our operations, and J. Alexander’s Holdings, LLC is restricted from making distributions to us under applicable agreements, laws or regulations or does not have sufficient cash to make these distributions, we may have to borrow funds to meet these obligations and operate our business, and our liquidity and financial condition could be materially adversely affected.

Under our Management Consulting Agreement with Black Knight Advisory Services, LLC, we have agreed to pay cash compensation equal to 3% of our annual Adjusted EBITDA which could result in significant increases in management fees and our expenses.

Under our Management Consulting Agreement with the Management Consultant, we will pay 3% of our annual Adjusted EBITDA to the Management Consultant in consideration for management consulting services. In entering into this agreement, we determined that given the level of services to be provided the terms were fair and reasonable to us. As we continue to execute our business plan and grow our concepts, we expect to generate increased Adjusted EBITDA which would result in automatic increases in the amounts payable to the Management Consultant under the Management Consulting Agreement. We have also agreed to issue Class B Units to the Management Consultant reflecting a 10% profits interest in J. Alexander’s Holdings, LLC. Although these arrangements are

 

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designed to align the interests of the Management Consultant with our public shareholders, the compensation payable to the Management Consultant could be substantial as we generate increased levels of Adjusted EBITDA. In such circumstances, the amount of profits allocable to our shareholders and the amount of cash flow otherwise available to us for other corporate purposes, including dividends or other distributions to our shareholders, would be reduced.

The issuance of common stock upon exchange of Class B Units may dilute your ownership of common stock.

The Class B Units of J. Alexander’s Holdings, LLC held by members of our management are exchangeable for, at our option, either shares of our common stock or a cash payment from J. Alexander’s Holdings, LLC, and the Class B Units held by the Management Consultant are exchangeable only for shares of common stock, as described under “Certain Relationships and Related Party Transactions – Management Consulting Agreement” and “Our Corporate Structure – J. Alexander’s Holdings, LLC Profits Interest Incentive Plan”. If we elect to issue common stock in respect of these exchanges, your ownership of common stock will be diluted.

If we elect to have J. Alexander’s Holdings, LLC make cash payments for future exchanges of Class B Units, in lieu of issuing shares of common stock, such payments may reduce the amount of overall cash flow that would otherwise be available to us.

If we elect to have J. Alexander’s Holdings, LLC make cash payments in lieu of issuing shares of common stock upon exchanges of Class B Units made by members of our management, such payments may require the payment of significant amounts of cash and may reduce the amount of overall cash flow that would otherwise be available for distribution to us from J. Alexander’s Holdings, LLC. In such event, our ability to successfully execute our growth strategy may be negatively affected.

Risks Related to Ownership of Our Common Stock

Once our common stock begins trading, substantial sales of common stock may occur, which could cause our stock price to decline.

There is currently no public market for our common stock. On September 18, 2015, in connection with the declaration by the board of directors of FNF of the distribution, our common stock is expected to begin trading publicly on a “when-issued” basis. We have not set an initial price for our common stock. The price for our common stock will be established by the public markets. The shares of our common stock that FNF distributes to its stockholders generally may be sold immediately in the public market. Because holders of FNFV common stock did not invest directly in our stock, our business profile may not fit their investment objectives and they may sell our shares following the distribution period.

There is no existing market for our common stock, and we do not know if one will develop. Even if a market does develop, the market price of our shares cannot be predicted.

There is currently no public market for our common stock. We intend to apply to list our common stock on the NYSE, but we cannot predict the prices at which our common stock may trade after the distribution. The combined market prices of our common stock and FNFV common stock after the distribution may not equal or exceed the market value of FNFV common stock immediately before the distribution. In addition, we cannot predict the extent to which investor interest in our Company will lead to the development of an active trading market on the NYSE, or how liquid that market may become. An active public market for our common stock may not develop or be sustained after the distribution. If an active trading market does not develop or is not sustained, you may have difficulty selling any shares of our common stock.

 

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Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price. Our quarterly operating results may fluctuate significantly because of several factors, including:

 

   

the timing of new restaurant openings and related expenses;

 

 

   

restaurant operating expenses for our newly-opened restaurants, which are often materially greater during the first several quarters of operation than thereafter;

 

 

   

labor availability and costs for hourly and management personnel;

 

 

   

profitability of our restaurants, especially in new markets;

 

 

   

changes in interest rates;

 

 

   

increases and decreases in same store sales;

 

 

   

impairment of long-lived assets and any loss on restaurant closures;

 

 

   

macroeconomic conditions, both nationally and locally;

 

 

   

negative publicity relating to the consumption of beef, poultry, seafood or other products we serve;

 

 

   

changes in consumer preferences and competitive conditions;

 

 

   

expansion to new markets;

 

 

   

increases in infrastructure costs; and

 

 

   

fluctuations in commodity prices.

 

Our fiscal year ends on the Sunday closest to December 31 and generally contains 52 weeks. As a result of this format, we will periodically have a fiscal year which contains 53 weeks of operation, including a 14-week fourth quarter. Fiscal year 2015 represents such a year.

Seasonal factors and the timing of holidays also cause our revenue to fluctuate from quarter to quarter. Net sales and operating income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter of the fiscal year due in part to the redemption of gift cards sold during the holiday season. As a result of these factors, our quarterly and annual operating results and same store sales may fluctuate significantly. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter or for any year, and same store sales for any particular future period may decrease. In the future, operating results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.

 

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The market price of our common stock may be volatile and you may not be able to sell your shares at an acceptable price.

The market price of our stock could fluctuate significantly, and you may not be able to resell your shares at an acceptable price. Those fluctuations could be based on various factors in addition to those otherwise described in this information statement, including those described under “—Risks Related to Our Business” and the following:

 

   

our operating performance and the performance of our competitors or restaurant companies in general and fluctuations in our operating results;

 

 

   

the public’s reaction to our press releases, our other public announcements and our filings with the SEC;

 

 

   

the failure of security analysts to cover our common stock after this offering or changes in earnings estimates or recommendations by research analysts who follow us or other companies in our industry;

 

 

   

global, national or local economic, legal and regulatory factors unrelated to our performance;

 

 

   

announcements by us or our competitors of new locations or menu items, capacity changes, strategic investments or acquisitions;

 

 

   

actual or anticipated variations in our or our competitors’ operating results, and our and our competitors’ growth rates;

 

 

   

failure by us or our competitors to meet analysts’ projections or guidance that we or our competitors may give the market;

 

 

   

changes in laws or regulations, or new interpretations or applications of laws and regulations, that are applicable to our business;

 

 

   

changes in accounting standards, policies, guidance, interpretations or principles;

 

 

   

the arrival or departure of key personnel;

 

 

   

the number of shares to be publicly traded after the distribution;

 

 

   

future sales or issuances of our common stock, including sales or issuances by us, our officers or directors and our significant shareholders, including Newport; and

 

 

   

other developments affecting us, our industry or our competitors.

 

In addition, in recent years the stock market has experienced significant price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. These fluctuations have often been unrelated or disproportionate to the operating performance of those companies. These broad market and restaurant industry fluctuations, as well as general economic, political and market conditions such as recessions or interest rate changes, may cause declines in the market price of our common stock. If the market price of our common stock after the distribution does not exceed the initial trading price, you may not realize any return on your investment in us and may lose some or all of your investment.

 

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As we operate in a single industry, we are especially vulnerable to these factors to the extent that they affect our industry or our products. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources, and could also require us to make substantial payments to satisfy judgments or to settle litigation.

The market price of our common stock could decline due to the number of shares of common stock eligible for future sale upon the exchange of Class B Units.

The market price of our common stock could decline as a result of issuances of additional shares of our common stock eligible for future sale upon the exchange of Class B Units, or the perception that such issuances could occur. These issuances, or the possibility that these issuances may occur, may also make it more difficult for us to raise additional capital by selling equity securities in the future, at a time and price that we deem appropriate. After completion of the spin-off, approximately 14.7% of the ownership interests in J. Alexander’s Holdings, LLC will be Class B Units held by certain members of our management and the Management Consultant. Based on the value of J. Alexander’s Holdings, LLC (determined primarily by reference to the trading price of our common stock) above a specified hurdle amount and time-based vesting provisions, vested Class B Units may be immediately exchanged for our common stock or, for those held by members of our management, for cash, at our option.

Our charter and bylaws and provisions of Tennessee law may discourage or prevent strategic transactions, including a takeover of our Company, even if such a transaction would be beneficial to our shareholders.

Provisions contained in our charter and bylaws and provisions of the Tennessee Business Corporation Act could delay or prevent a third party from entering into a strategic transaction with us, as applicable, even if such a transaction would benefit our shareholders. For example, our charter and bylaws:

 

   

divide our board of directors into three classes with staggered three-year terms, which may delay or prevent a change of our management or a change in control;

 

 

   

authorize the issuance of “blank check” preferred stock that could be issued by us upon approval of our board of directors to increase the number of outstanding shares of capital stock, making a takeover more difficult and expensive;

 

 

   

do not permit cumulative voting in the election of directors, which could otherwise make it easier for a smaller minority of shareholders to elect director candidates;

 

 

   

do not permit shareholders to take action upon less than unanimous written consent;

 

 

   

provide that special meetings of the shareholders may be called only by or at the direction of the board of directors, the chairman of our board of directors or the chief executive officer;

 

 

   

require advance notice to be given by shareholders for any shareholder proposals or director nominees;

 

 

   

require a super-majority vote of the shareholders to amend certain provisions of our charter; and

 

 

   

allow our board of directors to make, amend or repeal our bylaws but only allow shareholders to amend or repeal our bylaws upon the approval of 66 2/3 % or more of the voting power of all of the outstanding shares of our capital stock entitled to vote.

 

 

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In addition, we are subject to certain provisions of Tennessee law that limit, in some cases, our ability to engage in certain business combinations with significant shareholders. See “Description of Capital Stock.”

These restrictions and provisions could keep us from pursuing relationships with strategic partners and from raising additional capital, which could impede our ability to expand our business and strengthen our competitive position. These restrictions could also limit shareholder value by impeding a sale of us or J. Alexander’s Holdings, LLC.

Under the Tax Matters Agreement that we will enter into with FNF, we will generally be prohibited, except in specified circumstances, for specified periods of up to 24 months following the distribution from consenting to certain acquisitions of significant amounts of our stock.

As discussed above, an acquisition or further issuance of our equity securities could trigger a tax to FNF, requiring us under the Tax Matters Agreement to indemnify FNF for such tax. This indemnity obligation might discourage, delay or prevent a change of control that you may consider favorable.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock will be influenced in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If no or few securities or industry analysts commence coverage of us, the trading price for our common stock would be negatively impacted. If we obtain securities or industry analyst coverage and if one or more of the analysts who cover us downgrades our common stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our common stock could decrease, which could cause our stock prices and trading volume to decline.

We do not intend to pay dividends for the foreseeable future.

We may retain future earnings, if any, for future operations, expansion and debt repayment and have no current plans to pay any cash dividends for the foreseeable future. Any future determination to declare and pay cash dividends will be at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our board of directors deems relevant. In addition, our current credit facility restricts our ability to pay dividends. Our ability to pay dividends may also be limited by covenants of any future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our common stock unless you sell our common stock for a price greater than that which you paid for it. See “Dividend Policy.”

We will incur increased costs as a result of being a public company.

As a public, exchange listed company, we expect to incur significant legal, accounting and other expenses that we did not incur as a private company, particularly after we are no longer an emerging growth company as defined under the JOBS Act. In addition, new and changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated and to be promulgated thereunder, as well as under the Sarbanes-Oxley Act, and the JOBS Act, have created uncertainty for public companies and increased costs and time that boards of directors and

 

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management must devote to complying with these rules and regulations. The Sarbanes-Oxley Act and related rules of the SEC and the NYSE regulate corporate governance practices of public companies. We expect compliance with these rules and regulations to increase our legal and financial compliance costs and lead to a diversion of management time and attention from revenue generating activities. For example, we will be required to adopt new internal controls and disclosure controls and procedures. In addition, we will incur additional expenses associated with our SEC reporting requirements. We currently estimate that the additional costs we will incur as a result of being a public company will range from $750,000 to $1,000,000 annually.

Our reported financial results may be adversely affected by changes in accounting principles applicable to us.

Generally accepted accounting principles in the U.S. are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the SEC and various bodies formed to promulgate and interpret appropriate accounting principles. A change in these principles or interpretations could have a significant effect on our reported financial results, and could affect the reporting of transactions completed before the announcement of a change. In addition, the SEC has announced a multi-year plan that could ultimately lead to the use of International Financial Reporting Standards by U.S. issuers in their SEC filings. Any such change could have a significant effect on our reported financial results.

We are an emerging growth company and, as a result of the reduced disclosure and governance requirements applicable to emerging growth companies, our common stock may be less attractive to investors.

We are an emerging growth company, as defined under the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements applicable to other public companies, but not to emerging growth companies, including, but not limited to, an exemption from the auditor attestation requirement of Section 404 of the Sarbanes-Oxley Act, reduced disclosure about executive compensation arrangements pursuant to the rules applicable to smaller reporting companies and no requirement to seek non-binding advisory votes on executive compensation or golden parachute arrangements. We have elected to adopt these reduced disclosure requirements. We may take advantage of these provisions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of our fiscal year following the fifth anniversary of the first sale of our common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, (2) the last day our first fiscal year in which we have total annual gross revenue of at least $1.0 billion, (3) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period and (4) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter.

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to “opt out” of such extended transition period and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

 

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We cannot predict if investors will find our common stock less attractive as a result of our taking advantage of these exemptions. If some investors find our common stock less attractive as a result of our choices, there may be a less active trading market for our common stock and our stock price may be more volatile.

If we are unable to implement and maintain the effectiveness of our internal control over financial reporting, our independent registered public accounting firm may not be able to provide an unqualified report on our internal controls, which could adversely affect our stock price.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules adopted by the SEC and the PCAOB, starting with the second annual report that we file with the SEC after the consummation of the distribution, our management will be required to report on the effectiveness of our internal control over financial reporting. In addition, once we no longer qualify as an emerging growth company under the JOBS Act and lose the ability to rely on the exemptions related thereto discussed above, our independent registered public accounting firm will also need to attest to the effectiveness of our internal control over financial reporting under Section 404. We may encounter problems or delays in completing the implementation of any changes necessary to our internal control over financial reporting to conclude such controls are effective. If we conclude and, once we no longer qualify as an emerging growth company under the JOBS Act, our independent registered public accounting firm concludes, that our internal control over financial reporting is not effective, investor confidence and our stock price could decline.

Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC or violations of NYSE rules, and result in a breach of the covenants under our financing arrangements. There also could be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements also could suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us and lead to a decline in the price of our common stock.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our charter and bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Tennessee law. In addition, we have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. We will enter into indemnification agreements with our director nominees and amended indemnification agreements with each of our directors and officers. Under the terms of such indemnification agreements, we are required to indemnify each of our directors and officers, to the fullest extent permitted by the laws of the State of Tennessee, if the basis of the indemnitee’s involvement was by reason of the fact that the indemnitee is or was a director or officer of the issuer or any of its subsidiaries or was serving at the issuer’s request in an official capacity for another entity. We must indemnify our officers and directors against all reasonable fees, expenses, charges and other costs of any type or nature whatsoever, including any and all expenses and obligations paid or incurred in connection with investigating, defending, being a witness in, participating in (including on appeal), or preparing to defend, be a witness or participate in any completed, actual, pending or threatened action, suit, claim or proceeding, whether civil, criminal, administrative or investigative, or establishing or enforcing a right to indemnification under the indemnification agreement. The indemnification agreements also require us, if so requested, to advance within 30 days

 

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of such request all reasonable fees, expenses, charges and other costs that such director or officer incurred, provided that such person will return any such advance if it is ultimately determined that such person is not entitled to indemnification by us. Any claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Future offerings of debt securities, which would rank senior to our common stock upon our bankruptcy or liquidation, and future offerings of equity securities that may be senior to our common stock for the purposes of dividend and liquidating distributions, may adversely affect the market price of our common stock.

In the future, we may attempt to increase our capital resources by making offerings of debt securities or additional offerings of equity securities. Upon bankruptcy or liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common stock, or both, and may result in future limitations under the tax code that could reduce the rate at which we utilize any net operating loss carryforwards to reduce our taxable income. Preferred stock, if issued, could have a preference on liquidating distributions or a preference on dividend payments or both that could limit our ability to make a dividend distribution to the holders of our common stock. Our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control and may have the effect of reducing the market price of our common stock and diluting their ownership interest in our Company.

 

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FORWARD-LOOKING STATEMENTS

We caution that certain information contained in this information statement is forward-looking information that involves risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by the forward-looking statements contained herein. All statements other than statements of historical fact included in this information statement, including our unaudited pro forma financial data, are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “would,” “can,” “should,” “likely,” “anticipate,” “potential,” “estimate,” “pro forma,” “continue,” “expect,” “project,” “intend,” “seek,” “plan,” “believe,” “target,” “outlook,” “forecast,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. Forward-looking statements appear in a number of places throughout this information statement and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including among other things, the following risks and uncertainties:

 

   

the impact of, and our ability to adjust to, general economic conditions and changes in consumer preferences;

 

 

   

our ability to open new restaurants and operate them profitably, including our ability to locate and secure appropriate sites for restaurant locations, obtain favorable lease terms, attract customers to our restaurants or hire and retain personnel;

 

 

   

our ability to successfully develop and improve our Stoney River concept;

 

 

   

our ability to successfully transition certain of our existing J. Alexander’s locations to Redlands Grill locations;

 

 

   

our ability to obtain financing on favorable terms, or at all;

 

 

   

the strain on our infrastructure caused by the implementation of our growth strategy;

 

 

   

the significant competition we face for customers, real estate and employees;

 

 

   

the impact of economic downturns or other disruptions in markets in which we have revenue or geographic concentrations within our restaurant base;

 

 

   

our ability to increase sales at existing J. Alexander’s, Redlands Grill and Stoney River restaurants and improve our margins at existing Stoney River restaurants;

 

 

   

the impact of increases in the price of, and/or reductions in the availability of, commodities, particularly beef;

 

 

   

the impact of negative publicity or damage to our reputation, which could arise from concerns regarding food safety and food-borne illnesses or other matters;

 

 

   

the impact of proposed and future government regulation and changes in healthcare, labor and other laws;

 

 

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our expectations regarding litigation or other legal proceedings;

 

 

   

our inability to cancel and/or renew leases and the availability of credit to our landlords and other retail center tenants;

 

 

   

operating and financial restrictions imposed by our credit facility, our level of indebtedness and any future indebtedness;

 

 

   

the impact of the loss of key executives and management-level employees;

 

 

   

our ability to enforce our intellectual property rights;

 

 

   

the impact of information technology system failures or breaches of our network security;

 

 

   

the impact of any future impairment of our long-lived assets, including goodwill;

 

 

   

the impact of any future acquisitions, joint ventures or other initiatives;

 

 

   

the impact of shortages, interruptions and price fluctuations on our ability to obtain ingredients from our limited number of suppliers;

 

 

   

our expectations regarding the seasonality of our business;

 

 

   

the impact of hurricanes and other weather-related disturbances; and

 

 

   

the other matters described under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Business.”

 

These factors should not be construed as exhaustive and should be read with the other cautionary statements in this information statement. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible for us to anticipate all factors that could affect our actual results. Important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are disclosed under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and elsewhere in this information statement. All forward-looking statements are expressly qualified in their entirety by these cautionary statements. You should evaluate all forward-looking statements made in this information statement in the context of these risks and uncertainties.

 

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OUR CORPORATE STRUCTURE

Fidelity National Financial, Inc. Acquisition of Stoney River

Prior to April 2012, Stoney River was a steakhouse concept owned and operated by O’Charley’s, Inc., a multi-concept restaurant company that, as of December 25, 2011, operated and franchised over 340 restaurants under three concepts: O’Charley’s, Ninety Nine Restaurant, and Stoney River Legendary Steaks (the previous name of Stoney River Steakhouse and Grill).

In April 2012, FNF acquired O’Charley’s, Inc., which at that time was a publicly-traded company with shares of common stock listed for trading on the NASDAQ Global Select Market. O’Charley’s, Inc. became a wholly-owned subsidiary of FNFV. Upon completion of the foregoing transactions, the outstanding shares of common stock of O’Charley’s were delisted, and O’Charley’s, Inc. was subsequently converted into O’Charley’s, LLC. In May 2012, FNFV transferred its ownership in O’Charley’s, LLC to FNH, a joint venture controlled by FNFV and Newport.

Fidelity National Financial, Inc. Acquisition of J. Alexander’s Corporation

In September 2012, FNF acquired JAC, which is the predecessor to J. Alexander’s, LLC and at that time was a publicly-traded company with shares of common stock listed for trading on the NASDAQ Global Market. JAC became a wholly-owned subsidiary of FNFV. The outstanding shares of common stock of JAC were delisted upon consummation of the acquisition, and JAC was subsequently converted to J. Alexander’s, LLC.

Structure Prior to the Reorganization Transactions

In February 2013, J. Alexander’s Holdings, LLC was formed as a Delaware limited liability company by FNFV. On February 25, 2013, FNFV contributed 100% of the membership interests of J. Alexander’s, LLC to J. Alexander’s Holdings, LLC in exchange for a 72.1% membership interest in J. Alexander’s Holdings, LLC and FNH contributed 100% of the membership interests of Stoney River Management Company, LLC and its subsidiaries and related assets (the “Stoney River Assets”) to J. Alexander’s Holdings, LLC in exchange for a 27.9% membership interest in J. Alexander’s Holdings, LLC. J. Alexander’s Holdings, LLC then contributed the Stoney River Assets to J. Alexander’s, LLC. Additionally, in February 2013, J. Alexander’s Holdings, LLC assumed from FNFV a promissory note payable to FNF in the principal amount of $20,000,000 (the “FNF Note”). The FNF Note accrued interest at 12.5%, with the interest and principal due and payable in full on January 31, 2016. In May 2015, J. Alexander’s Holdings, LLC repaid the FNF Note in full.

Restatement of Operating Agreement; Issuance of Class B Units

On January 1, 2015, J. Alexander’s Holdings, LLC issued profits interests, designated as Class B Units, to members of our management, including our named executive officers. In connection therewith, J. Alexander’s Holdings, LLC entered into an Amended and Restated Limited Liability Company Agreement with its members and adopted the 2015 Management Incentive Plan described below.

J. Alexander’s Holdings, LLC Profits Interest Plan

On January 1, 2015, J. Alexander’s Holdings, LLC adopted its 2015 Management Incentive Plan and granted equity incentive awards to our management team and other key employees in the form of Class B Units. The Class B Units are profits interests in J. Alexander’s Holdings, LLC. Each Class B Unit represents a non-voting equity interest in J. Alexander’s Holdings, LLC that entitles the holder to a percentage of the profits and appreciation in the equity value of J. Alexander’s Holdings, LLC arising after the date of grant.

 

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Holders of Class B Units will participate in allocations and distributions by J. Alexander’s Holdings, LLC following such time as a specified hurdle amount has been previously distributed to holders of Units. The hurdle amount for the Class B Units issued to our management in January 2015 was set at $180 million, which at such time was a reasonable premium to the estimated liquidation value of the equity of J. Alexander’s Holdings, LLC. The Class B Units issued to our management vest with respect to 50% of the Grant Units on the second anniversary of the date of grant and with respect to the remaining 50% on the third anniversary of the date of grant.

Vested Class B Units may be exchanged for, at our option, either (i) cash in an amount equal to the amount that would be distributed to the holder of those Class B Units by J. Alexander’s Holdings, LLC upon a liquidation of J. Alexander’s Holdings, LLC assuming the aggregate amount to be distributed to all members of J. Alexander’s Holdings, LLC were equal to our market capitalization on the date of exchange, (net of any assets and liabilities of J. Alexander’s Holdings Inc. that are not assets or liabilities of J. Alexander’s Holdings, LLC) or (ii) shares of our common stock with a fair market value equal to the cash payment under (i) above.

The Class B Units issued to our management have been be classified as equity awards, and compensation expense based on the grant date fair-value is being recognized over the applicable vesting period of the grant in our consolidated financial statements.

In connection with the Reorganization Transactions, we issued additional Class B Units to the Management Consultant. For a description of the terms of these Class B Units, see “Our Corporate Structure — The Management Consultant’s Profits Interests”.

Distribution of Interests in J. Alexander’s Holdings, LLC

On August 18, 2014, FNH distributed its 27.9% interest in J. Alexander’s Holdings, LLC to FNFV, Newport and certain individual equity holders in FNH. As a result of this distribution, FNH no longer holds an ownership interest in J. Alexander’s Holdings, LLC.

Indebtedness

On September 3, 2013, we entered into a loan agreement with Pinnacle Bank for a credit facility that includes a three-year $1,000,000 revolving line of credit and a seven-year $15,000,000 mortgage loan (the “Mortgage Loan”). The Mortgage Loan presently bears interest at LIBOR plus 250 basis points, with a minimum interest rate of 3.25% per annum and a maximum interest rate of 6.25% per annum and will mature on October 3, 2020. The revolving line of credit note bears interest at LIBOR plus 250 basis points, with a minimum interest rate of 3.25% per annum. The revolving line of credit note will mature on September 3, 2016. We used proceeds from the Mortgage Loan to retire our previously outstanding mortgage debt.

On December 9, 2014, we executed an Amended and Restated Loan Agreement which encompasses the two existing credit facilities discussed above and also included a five-year, $15,000,000 development line of credit. On May 20, 2015, we executed a Second Amended and Restated Loan Agreement, which increased the development line of credit to $20,000,000 over a five-year term and also included a five-year, $10,000,000 term loan (the “Term Loan”), the proceeds of which were used to repay in full the $10,000,000 due under a note to FNF which was scheduled to mature January 31, 2016. Both the development line of credit and the Term Loan bear interest at LIBOR plus 220 basis points. The Term Loan is structured on an interest only basis for the first 24 months of the term, followed by a 36 month amortization period. The indebtedness outstanding under these facilities with Pinnacle Bank is secured by liens on certain personal property of J. Alexander’s Holdings, LLC and its subsidiaries, subsidiary guarantees and a mortgage lien on certain real property.

 

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The following diagram illustrates our corporate structure prior to the reorganization transactions.

 

 

LOGO

The Reorganization Transactions

In anticipation of an initial public offering of our shares, beginning in August 2014 we commenced an internal restructuring that will result in the organizational and ownership structure described below immediately prior to the distribution. We refer to these transactions as the “reorganization transactions.”

Formation of J. Alexander’s Holdings, Inc.

The issuer was incorporated in the State of Tennessee on August 15, 2014 for the initial purpose of engaging in an initial public offering and has engaged only in activities in contemplation of such offering and the distribution. Upon its formation, 1,000 shares of common stock were issued to FNFV in exchange for a nominal cash purchase price equal to the par value of such shares.

Contributions of J. Alexander’s Holdings, LLC to J. Alexander’s Holdings and J. Alexander’s Holdings to FNF

In June 2015, FNFV formed JAX Investments and transferred to it 1% of the Class A membership interests in J. Alexander’s Holdings, LLC. Prior to the distribution, FNFV, Newport, and all holders of membership interests in J. Alexander’s Holdings, LLC, other than JAX Investments and the holders of Class B Units, will exchange their membership interests in J. Alexander’s Holdings, LLC for shares of our common stock. These transactions will result in (i) us holding directly and indirectly 100% of the Class A membership interests in J. Alexander’s Holdings, LLC; and (ii) FNF owning 87.44% of our common stock immediately prior to the distribution.

 

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The Management Consultant

In connection with the distribution, J. Alexander’s Holdings, LLC will enter into a management consulting agreement (the “Management Consulting Agreement”) with Black Knight Advisory Services, LLC (the “Management Consultant”), a newly formed limited liability company owned by certain officers and directors of FNFV and J. Alexander’s Holdings, Inc. The Management Consultant will provide corporate and strategic advisory services to us. Under the Management Consulting Agreement, we will (i) issue Class B units to the Management Consultant, as described below, and (ii) pay the Management Consultant an annual base fee equal to 3% of our Adjusted EBITDA for each fiscal year during the term of the Management Consulting Agreement. We will also reimburse the Management Consultant for its direct out-of-pocket costs incurred for management services provided to us. The Management Consulting Agreement will continue in effect for an initial term of seven years and will be renewed for successive one-year periods thereafter unless earlier terminated (i) by us upon at least six months’ prior notice or (ii) by the Management Consultant upon 30 days’ prior notice. In the event that we terminate or either we or the Management Consultant fail to renew the Management Consulting Agreement prior to the tenth anniversary thereof, we will be obligated to pay to the Management Consultant an early termination payment equal to the product of (i) the annual base fee for the most recent fiscal year and (ii) the difference between ten and the number of years that have elapsed under the Management Consulting Agreement, provided that in the event of such a termination following a change of control event with respect to us, the multiple of the annual base fee to be paid to the Management Consultant shall not exceed three. In addition, all unvested Class B Units will become immediately vested.

The principals of the Management Consultant and our executive management team have complementary skills. Specifically, our executive management team has substantial experience in the restaurant industry, particularly the upscale dining segment, and the principals of the Management Consultant have substantial experience in mergers, acquisitions, accessing public capital markets, and corporate governance, as well as extensive knowledge of and input on our business, strategic plan, and finances. Rather than hiring additional executive management personnel with these skills or outsourcing to another consulting firm without the experience, background and insight on our business, we determined that using the services of the Management Consultant was the most cost effective way to provide us with these services. Factors considered included the cost savings from screening, recruiting and hiring such persons into our Company, reducing the burden on our operational management team to integrate and educate new officers or consultants, and the fact that the compensation payable to the Management Consultant is based on the performance of the Company.

The Management Consultant’s Profits Interest

Immediately prior to the distribution, J. Alexander’s Holdings, LLC will amend and restate its operating agreement to, among other things, (i) reflect the new members of J. Alexander’s Holdings, LLC and (ii) provide for the issuance to the Management Consultant of non-voting Class B Units, in an amount equal to 10% of the outstanding units of J. Alexander’s Holdings, LLC. Each Class B Unit represents an equity interest in J. Alexander’s Holdings, LLC that entitles the holder to a percentage of the profits and appreciation in the equity value of J. Alexander’s Holdings, LLC arising after the date of grant. The Class B Units issued to the Management Consultant will vest in equal installments over a three year period. The Class B Units issued to the Management Consultant will vest in full upon a change in control of us, our termination of the Management Consulting Agreement without cause, failure to renew the Management Consulting Agreement any time prior to the ten year anniversary thereof, or the termination of the Management Consulting Agreement by the Management Consultant as a result of our breach of the Management Consulting Agreement. Distributions with respect to the Class B Units will only be made in the event that certain specified hurdle amounts have been achieved. At the request of the holder, vested Class B Units may be exchanged for shares of our common stock.

 

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Following the termination of the Management Consulting Agreement for any reason, the Management Consultant will have 90 days to exchange its vested Class B Units. After the expiration of this 90-day period, any Class B Units then held by the Management Consultant will be forfeited. For more information regarding the Class B Units, see “Certain Relationships and Related Party Transactions – Management Consulting Agreement.”

The diagram below shows our organizational structure immediately following the completion of the reorganization transactions described herein and the distribution.

 

 

LOGO

See “Certain Relationships” and Related Party Transactions.

 

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THE DISTRIBUTION

General

On February 18, 2015, FNF announced its intention to pursue the disposition of our Company through the distribution of our common stock to holders of FNFV common stock.

In September 2015, FNF intends to issue a dividend on FNFV common stock consisting of all of the shares of our common stock that FNF will own on the date of the distribution. These shares will represent 87.44% of our outstanding shares of common stock immediately prior to the distribution. The dividend will be paid on September 28, 2015, the distribution date, in the amount of 0.17229 shares of our common stock for every one outstanding share of FNFV common stock as described below to each stockholder on September 22, 2015, the record date.

Please note that you will not be required to pay any cash or other consideration for the shares of our common stock distributed to you or to surrender or exchange your shares of FNFV common stock to receive the dividend of our common stock.

The Distribution as described in this information statement is subject to the satisfaction or waiver of certain conditions. We cannot provide any assurances that the Distribution will be completed. Please see “Certain Relationships and Related Party Transactions — Agreements with FNF” for additional information.

FNF

Currently, FNF is engaged, through its subsidiaries, in multiple business segments in the United States and around the world as follows:

FNF Core Operations

 

   

Title. This segment consists of the operations of FNF’s title insurance underwriters and related businesses. This segment provides core title insurance and escrow and other title related services including collection and trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance. This segment also includes the transaction services business consisting of other title related services used in production and management of mortgage loans, including mortgage loans that go into default.

 

 

   

BKFS. This segment provides core technology and data and analytics services through leading software systems and information solutions that facilitate and automate many of the business processes across the life cycle of a mortgage.

 

 

   

FNF Core Corporate and Other. This segment consists of the operations of FNF’s holding company, certain other unallocated corporate overhead expenses, and other smaller real estate and insurance related operations.

 

FNFV

 

   

Restaurant Group. This segment consists of our operations and the operations of ABRH, in which FNF has a 55% ownership interest. ABRH is the owner and operator of the O’Charley’s, Ninety Nine Restaurants, Max & Erma’s, Village Inn and Bakers Square concepts.

 

 

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FNFV Corporate and Other. This segment primarily consists of FNF’s share in the operations of certain of its equity investments, including Ceridian, Digital Insurance in which FNF owns 96%, and other smaller operations which are not title related.

 

Strategic Evaluation and Reasons for the Distribution

In 2014, and continuing into 2015, FNF’s senior management and board of directors undertook a strategic review of FNF’s businesses, including an assessment of the market and growth characteristics of each of its businesses and the role of each business within FNF’s overall business portfolio. Factors considered by FNF’s management and board of directors as part of the strategic review included:

 

   

portfolio clarification and enhanced management focus — holders of FNFV common stock will benefit from portfolio clarity as separating our upscale dining concepts business from FNF’s other business will allow each management team greater flexibility to pursue growth strategies and allocate capital appropriately within their respective market opportunities;

 

 

   

favorable market characteristics — upscale dining is a large and fast growing market with different valuation methodologies, capital requirements and marketing efforts, and we are well-positioned to capitalize on this opportunity;

 

 

   

favorable market conditions and competitive position for the upscale dining concepts business — the upscale dining industry has rebounded substantially since 2009, and FNF concluded that we are uniquely positioned to execute against opportunities throughout the United States;

 

 

   

FNF cash deployment—given FNF’s positive cash balance and strong cash flows, FNF’s management and board of directors weighed alternatives available to return excess cash to holders of FNFV common stock;

 

 

   

potential benefits and detriments of separating the upscale dining concepts business- FNF’s management and board of directors considered the potential benefits and detriments that could result from a spin-off, including: (i) potential market reaction to the increased autonomy and flexibility afforded to J. Alexander’s to pursue its growth strategies; (ii) potential market perception of J. Alexander’s no longer being part of FNF; (iii) potential perception of employees of J. Alexander’s if separated from FNF; and (iv) the significant management time and effort required to effect the spin-off.

 

Upon evaluating the foregoing factors, FNF’s management and board of directors considered various possible alternatives for structuring FNF’s business, specifically including a sale of the J. Alexander’s business and an initial public offering, and the implications that those alternatives would have on the holders of FNFV common stock and on the prospects for growth of our business. The most strongly considered alternative was an initial public offering of the common stock of J. Alexander’s Holdings, Inc. and a restructuring where J. Alexander’s Holdings, Inc. would have become the managing member of J. Alexander’s Holdings, LLC. After filing a registration statement with the SEC to effect an underwritten public offering of our common stock, FNF’s board of directors determined that, due to the Company’s minimal leverage, substantial public offering costs and proceeds effectively at a 10-15% discount to the fully distributed value of the Company’s common stock, the public offering was not in the best interests of the holders of FNFV common stock, or the business. Furthermore, the current structure which contemplates a distribution of the Company’s common stock to holders of FNFV common stock will avoid the dilution to their existing holdings, which

 

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would have resulted from the public offering. The FNF board of directors ultimately concluded, using its reasonable business judgment, that the transaction, as currently structured, maximizes the value of the Company for the benefit of the holders of FNFV stock.

As a result of its strategic review, FNF’s management and board of directors believe it is in the best interests of holders of FNFV common stock to separate the upscale dining concepts business from FNF’s other businesses. FNF’s management and board of directors believe that the separation will allow the creation of an independent public company focused on the upscale dining concepts which would be better positioned in management’s view to meet our long-term revenue growth objectives and generate stockholder value. FNF’s management and board of directors both believe that the upscale dining concepts business will have the opportunity to benefit from the increased fit and focus of a separation including:

 

   

Enhanced Stock Value. Because the FNFV common stock represents the economic performance of a portfolio of equity securities, it trades primarily with reference to the FNFV business segment’s net asset value. This value may be less than the full, undiscounted value of the assets underlying the FNFV business segments. The discount in value is attributable to a variety of factors, including FNF’s holding company status (the “Holding Company Discount”), the complexity of the tracking stock structure (the “Tracking Stock Discount”), and multiple layers of financial reporting. Following the distribution, we will own the upscale dining concepts business and holders of FNFV common stock will also hold our common stock. Thus, the restructuring will eliminate the holding company and tracking stock arrangement with respect to the upscale dining concepts business which is intended to reduce the Holding Company Discount and Tracking Stock Discount now applied to the FNFV common stock. Accordingly, as discussed in more detail below, FNF believes that our ability to use stock to grow the Company by making acquisitions and compensate employees will be enhanced and our higher market capitalization will increase the liquidity of our common stock.

 

 

   

Growth through Acquisitions. We intend to continue to grow our business, both organically and through acquisitions, and may, at times, issue equity as consideration for such future acquisition. Reducing the Holding Company Discount and Tracking Stock Discount is intended to enable us to issue equity at a higher valuation multiple following the distribution thereby enhancing our ability to make such acquisitions.

 

 

   

Improve Management and Executive Compensation. FNF now seeks, and following the distribution both we and FNF will continue to seek, to attract and retain highly qualified management and employees through incentive programs that include equity-based compensation. Under FNF’s Omnibus Plan, key employees can receive restricted stock, stock options, stock appreciation rights, restricted stock units, performance shares, performance units or other stock-based awards referencing shares of FNFV common stock. Following the distribution, we will implement a similar equity-based compensation plan. Any aggregate increase in value to the FNFV common stock and J. Alexander’s common stock that may result from the distribution may enhance equity rights that officers and employees already have in FNFV common stock. Accordingly, the distribution may provide both us and FNF with a more effective tool to motivate and reward employees and management. Further, FNF management believes that more directly aligning the interests of the employees of the upscale dining concepts business with the interests of the upscale dining concepts business will allow us to better attract prospective employees with appropriate skill sets, motivate key employees, and retain key employees for the long term.

 

 

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Optimization of Debt and Equity Structures. Following the distribution, our debt will not be consolidated on the FNF balance sheet. This is expected to benefit us by permitting us to (i) more easily raise debt capital to support future acquisitions and (ii) optimize our capital structure.

 

 

   

Management Independence from FNF Combined with Continuity of Key Advisors. We will have increased autonomy to pursue our strategic initiatives, acquisitions and other growth opportunities that may not be appropriate under the current combined structure and to deploy our capital as our management team sees fit and FNF would be insulated from any risks inherent in those pursuits. Also, retaining certain members of FNF’s senior management permits us the continued benefit of the knowledge and expertise of FNF’s management, which is familiar with our business and has enabled us to grow. The FNF management team brings a wide range of skills that complement our executive management and we believe that the synergistic gains to be derived from our collective managerial attributes would be challenging and costly to replicate. We believe there are limited options to engage a consulting firm that provides the experience in mergers and acquisitions, access to strategic financing sources, capacity to structure beneficial financing arrangements and demonstrated track record of delivering positive results. Moreover, it would otherwise be difficult to obtain the services of a firm of this high caliber in exchange for compensation contingent upon the performance of the company and enhanced value to its stockholders. We expect FNF’s senior management to positively impact our long term growth by developing acquisition strategies, developing and implementing corporate strategy, including, without limitation, business planning and improving the operating and financial performance of the company, and advising on debt and equity financings, as further described in the Management Consulting Agreement. We and FNF ultimately concluded that leveraging these existing management resources and working relationships was more cost effective than hiring new personnel or retaining a new consulting firm.

 

 

   

Strategic Focus. FNF management will have a sharpened focus on its title, information mortgage services and other businesses.

 

 

   

Investor Transparency. A separation will provide greater transparency for investors in J. Alexander’s.

 

 

   

Investor Alignment. Separate, publicly traded equity securities will provide greater alignment of management incentives with stockholder interests.

 

FNF’s management and board of directors believe that given our experienced management team, position in the marketplace, and strong cash flows, we will be able to advance our business goals and strategic growth initiatives.

The Number of Shares You Will Receive

It is expected that for every one share of FNFV common stock that you own at 5:00 p.m., New York City time on September 22, 2015, the record date, you will receive 0.17229 shares of our common stock on the distribution date.

It is important to note that if you sell your shares of FNFV common stock between the record date and the distribution date in the “regular way” market, you will also be selling your right to receive the share dividend in the distribution. Please see “—Trading Between the Record Date and Distribution Date” for more information.

 

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Trading Between the Record Date and Distribution Date

Beginning on September 18, 2015 and continuing up to and including September 28, 2015, the distribution date, there are expected to be two markets in FNFV common stock: a “regular way” market and an “ex-distribution” market. Shares of FNFV common stock that trade on the regular way market will trade with an entitlement to shares of our common stock to be distributed in the distribution. Shares that trade on the ex-distribution market will trade without an entitlement to shares of our common stock to be distributed in the distribution. Therefore, if you own shares of FNFV common stock at 5:00 p.m., New York City time, on the record date and sell those shares on the regular way market on or prior to the distribution date, you will also be selling the shares of our common stock that would have been distributed to you in the distribution. However, if you sell those shares of FNFV common stock on the ex-distribution market on or prior to the distribution date, you will still receive the shares of our common stock that were to be distributed to you in the distribution based on your ownership of the shares of FNFV common stock.

Furthermore, beginning on September 18, 2015 and continuing up to and including the distribution date, there is expected to be a “when-issued trading” market in our common stock. When-issued trading refers to a sale or purchase made conditionally because the security has been authorized but not yet issued. The when-issued trading market will be a market for shares of our common stock that will be distributed to holders of FNFV common stock on the distribution date. If you owned shares of FNFV common stock at 5:00 p.m., New York City time, on the record date, then you are entitled to shares of our common stock to be distributed in the distribution. You may trade this entitlement to shares of our common stock, without the shares of FNFV common stock that you own, on the when-issued trading market. On the first trading day following the distribution date, when-issued trading with respect to our common stock will end and regular way trading will begin.

When and How You Will Receive the Dividend

FNF will pay the dividend on September 28, 2015 by releasing its shares of our common stock to be distributed in the distribution to Computershare, the distribution agent. As part of the distribution, we will adopt a book-entry share transfer and registration system for our common stock. This means that instead of receiving physical share certificates, registered holders of FNFV common stock entitled to the distribution will have their shares of our common stock distributed on the date of the distribution credited to book-entry accounts established for them by our transfer agent. The transfer agent will mail an account statement to each such registered holder stating the number of shares of our common stock credited to the holder’s account.

For those holders of FNFV common stock who hold their shares through a broker, bank or other nominee, our transfer agent will credit the shares of our common stock to the accounts of those nominees who are registered holders, who, in turn, will credit their customers’ accounts with our common stock. We and FNF anticipate that brokers, banks and other nominees will generally credit their customers’ accounts with our common stock on the same day that their accounts are credited, which is expected to be the distribution date.

The distribution agent will not deliver any fractional shares of our common stock in connection with the distribution. Instead, the distribution agent will aggregate all fractional shares and sell them on behalf of those holders who otherwise would be entitled to receive a fractional share. We anticipate that these sales will occur between the record date and the distribution date. Such holders will then receive a cash payment in an amount equal to their pro rata share of the total net proceeds of those sales. Such cash payments will be made to the holders in the same accounts in which the underlying shares are held. If you physically hold FNFV stock certificates, your check for any cash that you may be entitled to receive instead of fractional shares of our common stock will be included together with the account statement in the mailing that our transfer agent expects to send out on the distribution date.

 

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None of FNF, our company, the distribution agent or our or FNF’s transfer agent will guarantee any minimum sale price for the fractional shares of our common stock. Neither our company nor FNF will pay any interest on the proceeds from the sale of fractional shares.

Material U.S. Federal Income Tax Consequences of the Distribution

The following discussion summarizes the material U.S. federal income tax consequences of the distribution for a U.S. holder of FNFV common stock (international holders of FNFV common stock should consult their own tax advisors) that holds such common stock as a capital asset for tax purposes. The discussion is of a general nature and does not purport to deal with persons in special tax situations, including, for example, financial institutions, insurance companies, regulated investment companies, dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of accounting for securities holdings, tax exempt entities, persons holding FNFV common stock in a tax-deferred or tax-advantaged account or persons holding FNFV common stock as a hedge against currency risk, as a position in a “straddle,” or as part of a “hedging” or “conversion” transaction for tax purposes.

This summary applies only to U.S. holders. A “U.S. holder” is a beneficial owner of FNFV common stock that is (i) an individual U.S. citizen or resident, (ii) a U.S. domestic corporation or other entity taxable as a corporation or (iii) otherwise subject to U.S. federal income tax on a net income basis in respect of such common stock.

This summary does not address all of the tax considerations that may be relevant to a holder of FNFV common stock. For example, we do not address:

 

   

the U.S. federal income tax consequences applicable to a stockholder that is treated as a partnership for U.S. federal income tax purposes;

 

 

   

the U.S. federal income tax consequences applicable to stockholders in, or partners, members or beneficiaries of, an entity that holds FNFV common stock;

 

 

   

the U.S. federal estate, gift or alternative minimum tax consequences of the distribution;

 

 

   

the tax considerations relevant to U.S. holders whose functional currency is not the U.S. dollar; or

 

 

   

the tax considerations relevant to holders of FNFV employee stock options, restricted stock or other compensatory awards.

 

This summary is based on laws, regulations, rulings, interpretations and decisions now in effect, all of which are subject to change, possibly on a retroactive basis. It is not intended to be tax advice.

You should consult your own tax advisor as to all of the tax consequences of the distribution to you in light of your own particular circumstances, including the consequences arising under state, local and foreign tax laws, as well as possible changes in tax laws that may affect the tax consequences described herein.

General

FNF has requested an opinion from KPMG LLP, its tax advisor, to the effect that, based on certain facts, assumptions, representations and undertakings set forth in the opinion, the distribution

 

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will qualify as a transaction that is tax-free under Section 355 and other provisions of the Code, and the distribution is conditioned upon the receipt by FNF of such favorable opinion confirming the distribution’s tax-free status.

Subject to the discussion below relating to the receipt of cash in lieu of fractional shares, if the distribution qualifies fully as tax-free, then, in general, for U.S. federal income tax purposes:

 

   

no gain or loss will be recognized by, and no amount will be includible in the income of, FNF as a result of the distribution, other than taxes arising out of foreign and other internal restructurings undertaken in connection with the separation and with respect to any “excess loss account” or “intercompany transaction” required to be taken into account under Treasury regulations relating to consolidated returns;

 

 

   

no gain or loss will be recognized by, and no amount will be includible in the income of, a U.S. holder of FNFV common stock solely as a result of the receipt of our common stock in the distribution;

 

 

   

the holding period for our common stock received in the distribution will include the period during which the FNFV common stock was held; and

 

 

   

the tax basis of the FNFV common stock immediately prior to the distribution will be apportioned between such FNFV common stock and the shares of our common stock received, including any fractional share of our common stock deemed received in the distribution, based upon relative fair market values at the time of the distribution.

 

An opinion of our advisors represents their best professional judgment but is not binding on the IRS or any court. The opinion will be based upon various factual representations and assumptions, as well as certain undertakings made by FNF and J. Alexander’s Holdings. If any of those factual representations or assumptions are untrue or incomplete in any material respect, any undertaking is not complied with, or the facts upon which the opinion will be based are materially different from the facts at the time of the distribution, the distribution may not qualify for tax-free treatment. If, on audit, the IRS were successful in asserting the position that the distribution is taxable, the above consequences would not apply and both FNF and holders of FNFV common stock could be subject to tax.

If the distribution were taxable to FNF and the holders of FNFV common stock, then in general:

 

   

FNF would recognize a gain equal to the excess of the sum of the fair market value of our common stock on the date of the distribution over FNF’s tax basis in our common stock;

 

 

   

Each U.S. holder of FNFV common stock that receives shares of our common stock in the distribution would be treated as if the U.S. holder received a taxable distribution equal to the full value of the shares of our common stock received, which would be taxed (i) as a dividend to the extent of the U.S. holder’s pro rata share of FNFV’s current and accumulated earnings and profits (including the gain to FNFV described in the preceding bullet point), then (ii) as a non-taxable return of capital to the extent of the U.S. holder’s tax basis in its FNFV common stock, and finally (iii) as capital gain with respect to the remaining value;

 

 

   

an individual U.S. holder would generally be subject to U.S. federal income tax at favorable rates with respect to the portion of the distribution that was treated as a dividend or capital gain, subject to exceptions for certain short-term and hedged

 

 

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positions (including positions held for one year or less, in the case of a capital gain), which could give rise to tax at ordinary income rates; and

 

 

   

a U.S. holder would not be subject to U.S. federal income tax with respect to the portion of the distribution that was treated as a return of capital, although its tax basis in its FNFV common stock would thereby be reduced.

 

If the IRS were successful in asserting the position that the distribution is taxable, we could be required to indemnify FNF (including in respect of claims asserted by its stockholders) for the taxes described above and related losses. In addition, current tax law generally creates a presumption that the distribution would be taxable to FNF, but not to the holders of FNFV common stock, if we or our stockholders were to engage in a transaction that would result in a 50% or greater change by vote or by value in our stock ownership during the two-year period beginning on the distribution date, unless it is established that the distribution and the transaction are not part of a plan or series of related transactions to effect such a change in ownership. If the distribution were taxable to FNF due to such a 50% or greater change in our stock ownership, FNF would recognize a gain equal to the excess of the fair market value of our common stock on the date of the distribution over FNF’s tax basis therein and we could be required to indemnify FNF for the tax on such gain and related losses. See “Certain Relationships and Related Party Transactions—Related Party Transactions—Agreements with FNF—Tax Matters Agreement.”

Cash in Lieu of Fractional Shares

No fractional shares of our common stock will be issued in the distribution. All fractional shares resulting from the distribution will be aggregated and sold by the distribution agent, and the proceeds will be distributed to the owners of such fractional shares. A holder that receives cash in lieu of a fractional share of our common stock as a part of the distribution will generally recognize capital gain or loss measured by the difference between the cash received for such fractional share and the holder’s tax basis in the fractional share determined as described under The Distribution—General” above. An individual U.S. holder would generally be subject to U.S. federal income tax at favorable rates with respect to such a capital gain, assuming that the U.S. holder had held all of its FNFV common stock for more than one year.

Payments of cash in lieu of a fractional share of our common stock made in connection with the distribution may, under certain circumstances, be subject to “backup withholding” and information reporting, unless a holder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the requirements of the backup withholding rules. Corporations and non-U.S. holders will generally be exempt from backup withholding, but may be required to provide a certification to establish their entitlement to the exemption. Backup withholding does not constitute an additional tax, but is merely an advance payment that may be refunded or credited against a holder’s U.S. federal income tax liability if the required information is supplied to the IRS.

Information Reporting

U.S. Treasury regulations require certain U.S. holders that receive our common stock pursuant to the distribution to attach to their U.S. federal income tax return for the year in which the distribution occurs a statement setting forth certain information relating to the distribution. Within a reasonable period after the distribution, FNF will provide holders of FNFV common stock who receive our common stock in the distribution with the information necessary to comply with such requirement. In addition, all U.S. holders are required to retain permanent records relating to the amount, basis, and fair market value of our common stock received in the distribution and to make those records available to the IRS upon request.

 

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DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings to fund the development and growth of our business and to repay indebtedness, and therefore we do not anticipate paying any cash dividends in the foreseeable future. Additionally, our ability to pay dividends on our common stock will be limited by restrictions on the ability of our subsidiaries and us to pay dividends or make distributions under the terms of current and any future agreements governing our indebtedness. Any future determination to declare and pay cash dividends will be at the discretion of our board of directors and will depend on, among other things, our financial condition, results of operations, cash requirements, contractual restrictions and such other factors as our board of directors deems relevant.

In addition, since we are a holding company, substantially all of the assets shown on our consolidated balance sheet are held by our subsidiaries. Accordingly, our earnings, cash flow and ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends. The ability of our subsidiaries to pay dividends is currently restricted by the terms of our credit facility and may be further restricted by any future indebtedness we or they incur. Accordingly, you may need to sell your shares of our common stock to realize a return on your investment. See “Risk Factors—Risks Related to Ownership of Our Common Stock—We do not intend to pay dividends for the foreseeable future.”

 

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CAPITALIZATION

The following table sets forth our capitalization as of June 28, 2015 on (i) an actual basis and (ii) a pro forma basis, assuming the separation, the distribution and the other transactions described in this information statement had occurred on June 28, 2015.

This table should be read in conjunction with “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto appearing elsewhere in this information statement. We are providing the capitalization table below for information purposes only, and it may not reflect the capitalization or financial condition that would have resulted had we been operating as a separate, independent entity on June 28, 2015 and is not necessarily indicative of our future capitalization or financial condition.

 

     As of June 28, 2015   
  Dollars in thousands      J. Alexander’s
  Holdings, LLC
  Actual(1)
     J. Alexander’s
Holdings, Inc.
Pro Forma(2)
 
  

 

 

 

  Cash and cash equivalents

     $           15,152       $ 12,652   
  

 

 

    

 

 

 

  Debt(2):

     

Pinnacle Bank Credit Facility

     22,084         22,084   
  

 

 

 

Total debt

     22,084         22,084   
  

 

 

 

  Member’s/shareholders’ equity:

     

Member’s equity

     102,612         -   

Preferred stock, $0.001 par value, 10 million shares authorized, no shares outstanding actual or pro forma as adjusted

     -         -   

Common stock, $0.001 par value per share, 30 million shares authorized, no shares outstanding actual and 15 million shares outstanding pro forma as adjusted

     -         15   

Additional paid in capital

     -         87,844   

Retained earnings

     -         (2,500

Non-controlling interests

     -         14,753   
  

 

 

 
     

  Total member’s/shareholders’ equity

     102,612         100,112   
  

 

 

 
     

  Total capitalization

     $ 124,696       $ 122,196   
  

 

 

 

 

  (1)

As of June 28, 2015, J. Alexander’s Holdings, LLC directly or indirectly held all of our assets and liabilities, and J. Alexander’s Holdings, Inc., which was incorporated on August 15, 2014, did not hold any significant assets or liabilities. Accordingly, the actual capitalization as of June 28, 2015 presents that of J. Alexander’s Holdings, LLC.

 

  (2)

Debt amounts do not include accrued interest.

 

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UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The unaudited pro forma consolidated statements of operations for the six months ended June 28, 2015 and the fiscal year ended December 28, 2014 present our consolidated results of operations giving pro forma effect to the reorganization transactions and the distribution as if they had occurred at the beginning of fiscal 2014. The unaudited pro forma consolidated balance sheet as of June 28, 2015 presents our unaudited pro forma consolidated balance sheet giving pro forma effect to the reorganization transactions and the distribution as if they had occurred as of the balance sheet date. The pro forma adjustments are based on available information and upon assumptions that our management believes are reasonable in order to reflect, on a pro forma basis, the impact of the reorganization transactions and the distribution on the historical financial information of J. Alexander’s Holdings, LLC.

The unaudited pro forma consolidated statements of operations and balance sheet information should be read in conjunction with information found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes thereto appearing elsewhere in this information statement.

In connection with the distribution and the related transactions, we will record in our consolidated statement of operations at the time of the transaction, a one-time charge of $2,500,000 related to the payment of special recognition bonuses to certain senior executives and other employees as described in “Executive Compensation – Narrative Disclosure to Summary Compensation Table – Special Recognition Bonus.” Because this charge is non-recurring in nature, we have not given effect to this transaction in the unaudited pro forma consolidated statements of operations. However, this has been reflected as an adjustment to retained earnings in the unaudited pro forma consolidated balance sheet as of June 28, 2015.

The unaudited pro forma consolidated financial information is included for informational purposes only and does not purport to reflect our results of operations or financial position that would have occurred had we operated as a public company during the periods presented. The unaudited pro forma consolidated financial information should not be relied upon as being indicative of our results of operations or financial condition had the reorganization transactions and the spin-off occurred on the dates assumed. The unaudited pro forma consolidated financial information also does not project our results of operations or financial position for any future period or date.

 

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Unaudited Pro Forma Consolidated Balance Sheet

As of June 28, 2015

(in thousands)

 

   
 
J. Alexander’s
Holdings, LLC (1)
  
  
   
 
 
Reorganization
and Distribution
Adjustments
  
  
  
    
 

 

J. Alexander’s
Holdings, Inc.

Pro Forma

  
 

  

Assets       

  Current assets:

      

  Cash and cash equivalents

  $ 15,152        $ (2,500)  (9)     $ 12,652     

  Accounts and notes receivable

    225          -             225     

  Accounts receivable from related party

    1          -             1     

  Inventories

    2,156          -             2,156     

  Prepaid expenses and other current assets

    2,216          -             2,216     
 

 

 

   

 

 

    

 

 

 

  Total current assets

    19,750          (2,500      17,250     
      

  Other assets

    4,141          -             4,141     

  Property and equipment, at cost, less accumulated depreciation and amortization of $21,592 as of June 28, 2015

    85,934          -             85,934     

  Goodwill

    15,737          -             15,737     

  Trade name and other indefinite-lived intangibles

    25,155          -             25,155     

  Deferred Charges, less accumulated amortization of $163 as of June 28, 2015

    627          -             627     
 

 

 

   

 

 

    

 

 

 
      

  Total assets

  $ 151,344          (2,500    $ 148,844     
 

 

 

   

 

 

    

 

 

 
Liabilities and Membership Equity       

  Current liabilities:

      

  Accounts payable

  $ 4,504        $ -           $ 4,504     

  Accrued expenses and other current liabilities

    9,730          -             9,730     

  Unearned revenue

    2,400          -             2,400     

  Current portion of long-term debt

    1,667          -             1,667     
 

 

 

   

 

 

    

 

 

 

  Total current liabilities

    18,301          -             18,301     
      

  Long-term debt, net of portion classified as current

    20,417          -             20,417     

  Deferred compensation obligations

    5,803          -             5,803     

  Other long-term liabilities

    4,211          -             4,211     
 

 

 

   

 

 

    

 

 

 

  Total liabilities

    48,732          -             48,732     

  Members’ / shareholders’ equity:

      

Members’ equity

    102,612          (102,612)         -       

Preferred stock, $0.001 par value, 10 million shares authorized, no shares outstanding actual or pro forma adjusted

    -            -             -       

Common stock, $0.001 par value per share, 30 million shares authorized, no shares outstanding actual and 15 million shares outstanding pro forma adjusted

    -            15 (2)(3)       15     

Additional paid in capital

    -            87,844 (2)(3)(4)       87,844     

Retained earnings

    -            (2,500) (9)       (2,500)     
      
 

 

 

   

 

 

    

 

 

 

  Total members’ / shareholders’ equity attributable to J. Alexander’s Holdings, Inc.

    102,612          (17,253      85,359     
      

  Non-controlling interests

    -            14,753 (4)       14,753     
      

  Total liabilities and equity

  $ 151,344        $ (2,500    $ 148,844     
 

 

 

   

 

 

    

 

 

 

 

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Unaudited Pro Forma Consolidated Statement of Operations

For the Six Months ended June 28, 2015

(in thousands, except per share data)

 

    
 
 J. Alexander’s
 Holdings, LLC (1)
  
  
    
 
 
Reorganization
and Distribution
Adjustments
  
  
  
     
 
J. Alexander’s Holdings,
Inc. Pro Forma
  
  
  

 

 

 

Net sales

     $             109,275           $                                  -        $ 109,275   

Costs and expenses:

         

Cost of sales

     34,596             -          34,596   

Restaurant labor and related costs

     32,636             -          32,636   

Depreciation and amortization of restaurant property and equipment

     4,039             -          4,039   

Other operating expenses

     21,550             -          21,550   
  

 

 

    

 

 

     

 

 

 

Total restaurant operating expenses

     92,821             -          92,821   

Transaction and integration expenses

     2,113             (2,113   (10)     -   

General and administrative expenses

     7,863             1,774      (5)(6)     9,637   

Asset impairment charges and restaurant closing costs

     2             -          2   

Pre-opening expense

     2             -          2   
  

 

 

    

 

 

     

 

 

 

Total operating expenses

     102,801             (339       102,462   
  

 

 

    

 

 

     

 

 

 

Operating income

     6,474             339          6,813   

Other income (expense):

         

Interest expense

     (776)             374      (11)     (402

Other, net

     48             -          48   
  

 

 

    

 

 

     

 

 

 

Total other income (expense)

     (728)             374          (354
  

 

 

    

 

 

     

 

 

 

Income from continuing operations before income taxes

     5,746             713          6,459   

Income tax (expense) benefit

     (21)             (2,433   (7)     (2,454
  

 

 

    

 

 

     

 

 

 

Income from continuing operations

     5,725             (1,720       4,005   

Income from continuing operations attributable to non-controlling interests

     -         590      (4)     590   

Income from continuing operations attributable to J. Alexander’s Holdings, Inc.

   $ -       $ 3,415        $ 3,415   
  

 

 

    

 

 

     

 

 

 

Earnings per share:

         

Weighted average of common stock outstanding

         

Basic

     N/A                 15,000   

Diluted

     N/A                 17,390   

Income from continuing operations available to common shareholders per share (8)

         

Basic

     N/A               $ 0.23   

Diluted

     N/A               $ 0.20   

 

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Unaudited Pro Forma Consolidated Statement of Operations

For the year ended December 28, 2014

(in thousands, except per share data)

 

    
 
J. Alexander’s
Holdings, LLC (1)
  
  
    
 
 
Reorganization
and Distribution
Adjustments
  
  
  
      
 
 
J. Alexander’s
Holdings, Inc.
Pro Forma
  
  
  
  

 

 

 
          

Net sales

     $         202,233           $                          -         $         202,233   

Costs and expenses:

          

Cost of sales

     64,591             -           64,591   

Restaurant labor and related costs

     61,539             -           61,539   

Depreciation and amortization of restaurant property and equipment

     7,652             -           7,652   

Other operating expenses

     40,440             -           40,440   
  

 

 

    

 

 

      

 

 

 

Total restaurant operating expenses

     174,222             -           174,222   

Transaction and integration expenses

     785             (785)      (10)      -   

General and administrative expenses

     14,450             3,423      (5)(6)      17,873   

Asset impairment charges and restaurant closing costs

     5             -           5   

Pre-opening expense

     681             -           681   
  

 

 

    

 

 

      

 

 

 

Total operating expenses

     190,143             2,638           192,781   
  

 

 

    

 

 

      

 

 

 

Operating income

     12,090             (2,638)           9,452   

Other income (expense):

          

Interest expense

     (2,908)             2,240      (11)      (668)   

Other, net

     104             -           104   
  

 

 

    

 

 

      

 

 

 

Total other income (expense)

     (2,804)             2,240           (564)   
  

 

 

    

 

 

      

 

 

 

Income from continuing operations before income taxes

     9,286             (398)           8,888   

Income tax (expense) benefit

     (328)             (3,050)      (7)      (3,378)   
  

 

 

    

 

 

      

 

 

 

Income from continuing operations

     8,958             (3,448)           5,510   
  

 

 

    

 

 

      

 

 

 

Income from continuing operations attributable to non-controlling interests

     -             578      (4)      578   
  

 

 

    

 

 

      

 

 

 

Income from continuing operations attributable to J. Alexander’s Holdings, Inc.

     $ -           $ 4,932         $ 4,932   
  

 

 

    

 

 

      

 

 

 

Earnings per share:

          

Weighted average of common stock outstanding

          

Basic

     N/A                  15,000   

Diluted

     N/A                  16,499   

Income from continuing operations available to common shareholders per share (8)

          

Basic

     N/A                $ 0.33   

Diluted

     N/A                $ 0.30   

 

  (1)

We have historically operated our business through J. Alexander’s Holdings, LLC and its subsidiaries. As of June 28, 2015, J. Alexander’s Holdings, LLC held all of our assets and liabilities and J. Alexander’s Holdings, Inc. did not have assets or liabilities and did not conduct operations. Accordingly, the unaudited pro forma consolidated statements of operations for the year ended December 28, 2014 and the six months ended June 28,

 

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2015 and the unaudited pro forma consolidated balance sheet as of June 28, 2015 present the historical results of J. Alexander’s Holdings, LLC as a starting point for the pro forma amounts.

 

  (2)

Represents the adjustments to reflect the reorganization transactions wherein common stock was authorized and issued to FNF, Newport, and other holders of Class A Units in exchange for their contribution of membership interests in J. Alexander’s Holdings, LLC. As a result of this contribution, we will be the sole managing member of J. Alexander’s Holdings, LLC. Accordingly, pursuant to ASC 810, we will consolidate the financial results of J. Alexander’s Holdings, LLC into our financial statements and record a non-controlling interest for the Class B membership units in J. Alexander’s Holdings, LLC not owned by us.

 

  (3)

Represents the recapitalization of J. Alexander’s Holdings, Inc. (to result in 15 million shares of common stock outstanding), and the distribution transaction wherein FNF distributed its ownership of J. Alexander’s Holdings, Inc. common stock to the holders of FNFV common stock by issuing 0.17229 shares of J. Alexander’s Holdings, Inc. common stock for every one share of FNFV stock held on the record date for the distribution.

 

  (4)

Represents the allocation of shareholders’ equity between non-controlling interests and equity allocable to J. Alexander’s Holdings, Inc. On the statements of operations for the six months ended June 28, 2015 and the year ended December 28, 2014, this represents the allocation of the non-controlling interests in the income of J. Alexander’s Holdings, LLC relating to the membership units not owned by us.

 

  (5)

Represents the estimated impact of the Class B Units issued in connection with the reorganization and distribution pursuant to the Management Consulting Agreement on general and administrative expenses. The estimated impact of these grants totals $2,772 and $1,386 for the year ended December 28, 2014 and the six month period ended June 28, 2015, respectively. These amounts were calculated by estimating the fair value of the grants using the Black-Scholes-Merton valuation model, and assumes no change in the fair value of the awards at either of the reporting dates presented.

 

  (6)

Represents the estimated impact of the annual base fee of 3% of annual Adjusted EBITDA payable to the Management Consultant pursuant to the Management Consulting Agreement. The estimated impact of this fee totals $651 and $388 for the year ended December 28, 2014 and the six month period ended June 28, 2015, respectively. These amounts were calculated using the Adjusted EBITDA amounts derived from the unaudited pro forma financial information for the respective periods. The Adjusted EBITDA used in this calculation is consistent with that definition of Adjusted EBITDA presented as a Non-GAAP financial measure within this Information Statement.

 

  (7)

J. Alexander’s Holdings, Inc. currently has no significant assets or liabilities, conducts no operations, and is a wholly-owned subsidiary of FNF. As such, it is included in the consolidated income tax returns of FNF. As a result of the reorganization and distribution transactions, J. Alexander’s Holdings, Inc. will be subject to applicable federal and certain state and local income taxes with respect to its share of allocable taxable income of J. Alexander’s Holdings, LLC, which will result in higher income taxes and an increase in income taxes paid. As a result, this reflects an adjustment to corporate income taxes to reflect a blended statutory tax rate of 38%, which includes a provision for U.S. federal income taxes. J. Alexander’s Holdings, LLC will continue to remain a partnership for U.S. federal, state and local income tax purposes.

 

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  (8)

Pro forma basic income from continuing operations per share was computed by dividing the pro forma continuing income from operations attributable to our common shareholders by the 15 million shares of common stock outstanding after completion of the distribution. Pro forma diluted income from continuing operations per share was computed by dividing the pro forma continuing income from operations attributable to our common shareholders by the shares of common stock outstanding after completion of the distribution and the effect of Class B Units both currently outstanding and those that will be issued in connection with the distribution. This adjustment assumes all Class B Units have met their respective hurdle rates.

 

  (9)

Reflects the payment of the special recognition bonus in connection with the distribution. See “Executive Compensation—Narrative Disclosure to Summary Compensation Table—Special Recognition Bonus.”

 

  (10)

Reflects the adjustment to the pro forma consolidated statements of operations to reflect the exclusion of transaction and integration costs that would have been incurred prior to the periods presented had the reorganization and distribution transactions occurred at the beginning of 2014.

 

  (11)

Reflects the refinancing of the FNF Note which occurred on May 20, 2015 with Pinnacle Bank under the Second Amended and Restated Loan Agreement. The interest rate of the FNF Note was 12.5%, and interest expense recorded in the historical financial statements related to that note was $2,479 and $493 for the year ended December 28, 2014 and the six month period ended June 28, 2015, respectively. The new $10,000 term loan under the Second Amended and Restated Loan Agreement bears interest at LIBOR plus 220 basis points, and the interest rate at June 28, 2015 was 2.3875%. This calculation assumes that the interest rate was 2.3875% for all periods presented, and therefore interest for the year-ended December 28, 2014 and the six months ended June 28, 2015 was $238 and $119, respectively. The adjustment for the refinancing in the Unaudited Pro Forma Consolidated Statements of Operations for the periods presented is the difference between the interest actually recorded in the historical financial statements and the interest calculated under the new $10,000 term loan using these assumptions.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

We have no material operations to date and, therefore, the information below is presented for J. Alexander’s Holdings, LLC, which, upon completion of the reorganization transactions and the distribution, will be our consolidated subsidiary and will directly or indirectly hold all of our consolidated operations. The following selected historical consolidated financial data of J. Alexander’s Holdings, LLC should be read in conjunction with, and is qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and notes thereto included elsewhere in this information statement. The statements of operations for the periods of January 2, 2012 to September 30, 2013 and October 1, 2012 to December 30, 2012 and for fiscal years 2013 and 2014 are derived from, and qualified by reference to, the audited consolidated financial statements of J. Alexander’s Holdings, LLC included elsewhere in this information statement and should be read in conjunction with those financial statements and notes thereto. Results for the six months ended June 28, 2015 and June 29, 2014 are not necessarily indicative of results that may be expected for the entire year.

The unaudited pro forma financial data included as Supplemental Pro Forma MD&A Information in the table below for the fiscal year ended December 30, 2012 represents the combination of the Successor 2012 period and the Predecessor 2012 period and the adjustments reflecting the JAC acquisition as if it had occurred on January 1, 2012. The pro forma adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable. The unaudited pro forma consolidated financial data included as Supplemental Pro Forma MD&A Information does not reflect any of the synergies or cost reductions that may have resulted from the JAC acquisition and does not include any restructuring costs or other one-time charges that may have been incurred. The Supplemental Pro Forma MD&A Information results are for informational purposes only and do not reflect the actual results that we would have achieved had the JAC acquisition been completed as of January 1, 2012 and are not indicative of our future results of operations.

Financial information for all periods presented has been adjusted to reflect the impact of discontinued operations for comparative purposes.

 

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Our combined financial information may not be indicative of our future performance and does not necessarily reflect what our financial condition and results of operations would have been had we operated as a separate, stand-alone entity during the periods presented, including many changes that will occur in the operations and capitalization of our company as a result of our separation from FNF.

 

    Successor     Successor     Supplemental
Pro Forma
MD&A
Information
    Successor     Predecessor     Successor  
Dollars in thousands    

 
 
 

Year

Ended
December 28,
2014(1)

  

  
  
  

   

 
 
 

Year

Ended
December 29,
2013(1)

  

  
  
  

   

 
 
 
 

Year

Ended
December 30,
2012, as
adjusted(1)

  

  
  
  
  

   
 
 
 
October 1,
2012 to
December 30,
2012(1)
  
  
  
  
   
 
 
 
January 2,
2012 to
September 30,
2012(1)
  
  
  
  
    Six Months Ended   
             
 
June 28,
2015(1)
  
  
   
 
June 29,
2014(1)
  
  
 

 

 

 
                (unaudited)                 (unaudited)     (unaudited)  
   

  Statement of Operations Data:

                 
   

  Net sales

    $202,233        $188,223        $156,896        $40,341        $116,555        $109,275        $102,196   
   

  Cost of sales

    64,591        61,432        49,741        12,883        36,858        34,596        32,339   
   

  Restaurant labor and related costs

    61,539        59,032        50,835        12,785        38,050        32,636        30,711   
   

  Depreciation and amortization of restaurant property and equipment

    7,652        7,228        5,837        1,425        4,117        4,039        3,777   
   

  Other operating expenses

    40,440        39,016        31,274        7,849        23,175        21,550        20,491   
   

  General and administrative expense

    14,450        11,981        10,439        2,330        8,109        7,863        6,537   
   

  Pre-opening expense

    681        -        -        -        -        2        21   
   

    Transaction and integration expenses

    785        (217)        -        183        4,537        2,113        102   
   

  Asset impairment charges and restaurant closing costs

    5        2,094        -        -        -        2        4   
                                                       
   

  Total operating expenses

    190,143        180,566        148,126        37,455        114,846        102,801        93,982   
                                                       
   

  Operating income

    12,090        7,657        8,770        2,886        1,709        6,474        8,214   
   

  Interest expense

    2,908        2,888        957        187        1,174        776        1,491   
   

  Other, net

    104        3,055        94        26        (161)        48        76   
                                                       

  Income from continuing operations before income taxes

    9,286        7,824        7,907        2,725        374        5,746        6,799   
   

  Income tax (expense) benefit

    (328)        (138)        (226)        (1)        79        (21)        (37)   

  Loss from discontinued operations, net

    (443)        (4,785)        (1,918)        (506)        (1,412)        (211)        (224)   
                                                       
   

  Net income (loss)

    $8,515        $2,901        $5,763        $2,218        $(959     $5,514        $6,538   
                                                       

  Balance Sheet Data

 

  Cash and cash equivalents

    $13,301        $18,069        -        $11,127        $6,853        $15,152        $23,938   
   

  Working capital (deficit)(2)

    (4,102)        1,001        -        (640)        (1,416)        1,449        8,132   

  Total assets

    150,908        151,101        -        132,749        83,872        151,344        156,121   

  Total debt

    22,921        34,640        -        20,654        17,648        22,084        33,781   

  Total membership equity

    96,889        88,455        -        91,394        42,508        102,612        94,975   

 

  (1)

We utilize a 52- or 53-week accounting period which ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks. The period January 2, 2012 to September 30, 2012, included 39 weeks of operations, and the period October 1, 2012 to December 30, 2012, included 13 weeks of operations. Fiscal years 2014 and 2013 each included 52 weeks of operations. Each of the six-month periods ended June 28, 2015 and June 29, 2014 included 26 weeks of operations.

 

  (2)

Defined as total current assets minus total current liabilities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our consolidated financial condition and results of operations for the 26 weeks ended June 28, 2015 and June 29, 2014 and for the fiscal years ended December 28, 2014 and December 29, 2013, and the three months ended December 30, 2012 and the nine months ended September 30, 2012 should be read in conjunction with “Selected Historical Consolidated Financial Data” and the consolidated financial statements and related notes to those statements included elsewhere in this information statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this information statement, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should review the section entitled “Risk Factors” for a discussion of important factors that could cause actual results to differ materially from the results described in, or implied by, the forward-looking statements contained in this information statement.

Overview

We own and operate three complementary upscale dining restaurant concepts: J. Alexander’s, Redlands Grill and Stoney River Steakhouse and Grill (“Stoney River”). For more than 20 years, J. Alexander’s guests have enjoyed a contemporary American menu, polished service and an attractive ambiance. In February 2013, our team brought our quality and professionalism to the steakhouse category with the addition of the Stoney River concept. Stoney River provides “white tablecloth” service and food quality in a casual atmosphere at a competitive price point. Our newest concept, Redlands Grill, offers customers a different version of our contemporary American menu and a distinct architectural design and feel.

Our business plan has evolved over time to include a collection of restaurant concepts dedicated to providing guests with what we believe to be the highest quality food, high levels of professional service and a comfortable ambiance. By offering multiple restaurant concepts and utilizing unique non-standardized architecture and specialized menus, we believe we are positioned to continue to scale and grow our overall restaurant business in an efficient manner in urban and affluent suburban areas. We want each of our restaurants to be perceived by our guests as a locally managed, stand-alone dining experience. This differentiation permits us to successfully operate each of our concepts in the same geographic market. If this strategy continues to prove successful, we may expand beyond our current three concept model in the future.

While each concept operates under a unique trade name, each of our restaurants is identified as a “J. Alexander’s Holdings” restaurant. As of June 28, 2015, we operated a total of 41 locations across 14 states. We currently plan to transition a total of between 12 and 15 of our J. Alexander’s restaurants to Redlands Grill restaurants. Other restaurant locations may be added or converted in the future as we determine how best to position our multiple concepts in a given geographic market.

We believe our concepts deliver on our guests’ desire for freshly-prepared, high quality food and high quality service in a restaurant that feels “unchained” with architecture and design that varies from location to location. As a result, we have delivered strong growth in same store sales, average weekly sales, net sales and Adjusted EBITDA. Through our combination with Stoney River, we have grown from 33 restaurants across 13 states in 2008 to 41 restaurants across 14 states as of June 28, 2015. Our growth in same store sales since 2008 has allowed us to invest significant amounts of capital to drive growth through the continuous improvement of existing locations, the development of plans to open new restaurants, and the hiring of personnel to support our growth plans.

 

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We plan to execute the following strategies to continue to enhance the awareness of our concepts, grow our revenue and improve our profitability by:

 

   

Pursuing new restaurant development;

 

 

   

Expanding beyond our current three restaurant concepts;

 

 

   

Increasing our same store sales through providing high quality food and service; and

 

 

   

Improving our margins and leverage infrastructure.

 

We resumed our new restaurant development program in 2013 and believe there are opportunities to open four to five new restaurants annually starting in 2016. We are actively pursuing development opportunities within all of our concepts and, as discussed elsewhere in this information statement, we are currently evaluating approximately 30 locations in approximately 20 separate markets in order to meet our stated growth objectives. The next new restaurant opening will be a Stoney River restaurant, which is scheduled to open during the fourth quarter of 2015.

Recent Transactions

The following events had an impact on the presentation of our results of operations over the past three years:

 

   

In September 2012, FNF acquired JAC. JAC was subsequently converted from a corporation to a limited liability company, J. Alexander’s, LLC, on October 30, 2012. The acquisition was treated as an acquisition for accounting purposes with FNF as the acquirer and JAC as the acquiree. In February 2013, the operations of Stoney River were contributed to J. Alexander’s by FNH. Additionally, in February 2013, J. Alexander’s Holdings, LLC assumed the $20,000,000 FNF Note, which was accounted for as a distribution of capital. The note accrued interest at 12.5%, and the interest and principal were payable in full on January 31, 2016. During the years ended December 28, 2014 and December 29, 2013, $2,479,000 and $2,139,000 of interest expense payable to FNF was recorded related to this note. In May 2015, this note was repaid in full.

 

   

During 2013, we closed three underperforming J. Alexander’s restaurants:

 

 

  ¡

Chicago, Illinois—closed February 2013

 

  ¡

Orlando, Florida—closed April 2013

 

  ¡

Scottsdale, Arizona—closed April 2013

For financial reporting purposes, the Orlando and Scottsdale locations were deemed to represent discontinued operations while results related to the Chicago location are reflected as a component of continuing operations.

Performance Indicators

We use the following key metrics in evaluating our performance:

Same Store Sales. We include a restaurant in the same store restaurant group starting in the first full accounting period following the eighteenth month of operations. Our same store restaurant

 

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base consisted of 31 restaurants at December 30, 2012, and 40 restaurants at each of December 29, 2013, December 28, 2014 and June 28, 2015. Changes in same store restaurant sales reflect changes in sales for the same store group of restaurants over a specified period of time. This measure highlights the performance of existing restaurants, as the impact of new restaurant openings is excluded.

Measuring our same store restaurant sales allows us to evaluate the performance of our existing restaurant base. Various factors impact same store sales including:

 

   

consumer recognition of our concepts and our ability to respond to changing consumer preferences;

 

 

   

overall economic trends, particularly those related to consumer spending;

 

 

   

our ability to operate restaurants effectively and efficiently meet guest expectations;

 

 

   

pricing;

 

 

   

guest customer traffic;

 

 

   

spending per guest and average check amounts;

 

 

   

local competition;

 

 

   

trade area dynamics; and

 

 

   

introduction of new menu items.

 

 

J. ALEXANDER’S AVERAGE WEEKLY SAME STORE SALES  

(Dollars Rounded to the Nearest $100)

 
     Average Weekly Same Store Sales  
             Q1                      Q2                      Q3                      Q4          

2009

   $     91,900       $     83,400       $     77,900       $     86,700   

2010

     92,000         87,200         84,800         92,900   

2011

     97,300         92,600         88,900         97,700   

2012

     101,600         96,200         91,400         99,700   

2013

     106,700         101,100         95,800         105,000   

2014

     111,800         105,600         100,500         110,100   

2015

     118,600         110,600         
           
     Average Weekly Same Store Sales Growth Rate  
     Q1      Q2      Q3      Q4  

2010

     0.1%         4.6%         8.9%         7.2%   

2011

     5.8%         6.2%         4.8%         5.2%   

2012

     4.4%         3.9%         2.8%         2.0%   

2013

     5.0%         5.1%         4.8%         5.3%   

2014

     4.8%         4.5%         4.9%         4.9%   

2015

     6.1%         4.7%         

 

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Average Weekly Sales. Average weekly sales per restaurant is computed by dividing total restaurant sales for the period by the total number of days all restaurants were open for the period to obtain a daily sales average. The daily sales average is then multiplied by seven to arrive at average weekly sales per restaurant. Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation. Revenue associated with reduction in liabilities for gift cards which are considered to be only remotely likely to be redeemed (based on historical redemption rates) is not included in the calculation of average weekly sales per restaurant.

Average Weekly Same Store Sales. Average weekly same store sales per restaurant is computed by dividing total restaurant same store sales for the period by the total number of days all same store restaurants were open for the period to obtain a daily sales average. The daily same store sales average is then multiplied by seven to arrive at average weekly same store sales per restaurant. Days on which restaurants are closed for business for any reason other than scheduled closures on Thanksgiving and Christmas are excluded from this calculation. Sales and sales days used in this calculation include only those for restaurants in operation at the end of the period which have been open for more than eighteen months. Revenue associated with reduction in liabilities for gift cards which are considered to be only remotely likely to be redeemed (based on historical redemption rates) is not included in the calculation of average weekly same store sales per restaurant.

Average Check. Average check is calculated by dividing total restaurant sales by guest counts for a given time period. Total restaurant sales includes food, alcohol and beverage sales. Average check is influenced by menu prices and menu mix. Management uses this indicator to analyze trends in customers’ preferences, the effectiveness of menu changes and price increases and per guest expenditures.

Average Unit Volume. Average unit volume consists of the average sales of our restaurants over a certain period of time. This measure is calculated by multiplying Average Weekly Sales by the relevant number of weeks for the period presented. This indicator assists management in measuring changes in customer traffic, pricing and development of our concepts.

Cost of Sales. Cost of sales, as defined below, is an important metric to management because it is the only truly variable component of cost relative to the sales volume while other components of cost can vary significantly due to the ability to leverage fixed costs at higher sales volumes.

Guest Counts. Guest counts are measured by the number of entrees ordered at our restaurants over a given time period.

Our business is subject to seasonal fluctuations. Historically, the percentage of our annual revenues earned during the first and fourth quarters has been higher due, in part, to increased gift card redemptions and increased private dining during the year-end holiday season. In addition, we operate on a 52- or 53-week fiscal year that ends on the Sunday closest to December 31. Each quarterly period has 13 weeks, except for a 53-week year when the fourth quarter has 14 weeks. As many of our operating expenses have a fixed component, our operating income and operating income margins have historically varied from quarter to quarter. Accordingly, results for any one quarter are not necessarily indicative of results to be expected for any other quarter, or for the full fiscal year.

Key Financial Definitions

Net Sales. Net sales consist primarily of food and beverage sales at our restaurants, net of any discounts, such as management meals and employee meals, associated with each sale. Net sales are directly influenced by the number of operating weeks in the relevant period, the number of restaurants we operate and same store sales growth.

 

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Cost of Sales. Cost of sales is comprised primarily of food and beverage expenses and is presented net of earned vendor rebates. Food and beverage expenses are generally influenced by the cost of food and beverage items, distribution costs and menu mix. The components of cost of sales are variable in nature, increase with revenues, are subject to increases or decreases based on fluctuations in commodity costs, including beef prices, and depend in part on the controls we have in place to manage cost of sales at our restaurants.

Restaurant Labor and Related Costs. Restaurant labor and related costs includes restaurant management salaries, hourly staff payroll and other payroll-related expenses, including management bonus expenses, vacation pay, payroll taxes, fringe benefits and health insurance expenses.

Depreciation and Amortization. Depreciation and amortization principally includes depreciation on restaurant fixed assets, including equipment and leasehold improvements, and amortization of certain intangible assets for restaurants. We depreciate capitalized leasehold improvements over the shorter of the total expected lease term or their estimated useful life. As we accelerate our restaurant openings, depreciation and amortization is expected to increase as a result of our increased capital expenditures.

Other Operating Expenses. Other operating expenses includes repairs and maintenance, credit card fees, rent, property taxes, insurance, utilities, operating supplies and other restaurant-level related operating expenses.

Pre-opening Expenses. Pre-opening expenses are costs incurred prior to opening a restaurant, and primarily consist of manager salaries, relocation costs, recruiting expenses, employee payroll and related training costs for new employees, including rehearsal of service activities, as well as lease costs incurred prior to opening. In addition, pre-opening expenses include marketing costs incurred prior to opening as well as meal expenses for entertaining local dignitaries, families and friends. We currently target pre-opening costs per restaurant at $625,000.

General and Administrative Expenses. General and administrative expenses are comprised of costs related to certain corporate and administrative functions for both concepts that support development and restaurant operations and provide an infrastructure to support future company growth. These expenses reflect management, supervisory and staff salaries and employee benefits, travel, information systems, training, corporate rent, depreciation of corporate assets, professional and consulting fees, technology and market research. These expenses are expected to increase as a result of costs associated with being a public company as well as costs related to our anticipated growth. As we are able to leverage these investments made in our people and systems, we expect these expenses to decrease as a percentage of net sales over time.

Interest Expense. Interest expense consists primarily of interest on our outstanding indebtedness. Our debt issuance costs are recorded at cost and are amortized over the lives of the related debt under the effective interest method.

Income Tax (Expense) Benefit. This represents expense related to the taxable income at the federal, state and local level. The predecessor entity, JAC, was organized as a C-corporation, and therefore filed federal and state income tax returns, as required in various jurisdictions. JAC was converted to J. Alexander’s, LLC on October 30, 2012, and thereafter the filing requirements and related tax liability at both the federal and state level were passed through to the ultimate parent corporation, FNF. Concurrent with the combination with Stoney River, partnership tax treatment became effective, and the federal and state tax filing requirements for J. Alexander’s Holdings, LLC went into effect. Although partnership returns for J. Alexander’s Holdings, LLC are filed in most jurisdictions, effectively passing the tax liability to the partners, there are a small number of

 

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jurisdictions, Tennessee being one of them, that do not recognize limited liability companies structured as partnerships as disregarded entities for state income tax purposes. In those jurisdictions, J. Alexander’s Holdings, LLC is liable for any applicable state income tax. J. Alexander’s Holdings, LLC is also liable for franchise taxes in the various jurisdictions in which it operates, which are recorded as a component of general and administrative expense. J. Alexander’s Holdings, LLC will continue to be treated as a partnership for U.S. federal, state, and local income tax purposes after the reorganization and distribution transactions are completed.

Discontinued Operations. On April 3, 2013 we closed our Orlando, FL location and on April 15, 2013 we closed our Scottsdale, AZ location. We determined that these closures met the criteria for classification as discontinued operations. See Note 2(c) “Summary of Significant Accounting Policies—Discontinued Operations” in the notes to our consolidated financial statements for more information.

Basis of Presentation

The Consolidated Statements of Operations and Cash Flows are presented for four periods: January 2, 2012 through September 30, 2012 (the “Predecessor Period”) (which relates to the period immediately preceding the JAC acquisition), October 1, 2012 through December 30, 2012, the year ended December 29, 2013, and the year ended December 28, 2014 (the “Successor Periods”). The supplemental pro forma results for the year ended December 30, 2012 provided herein represent the addition of the Predecessor and Successor periods as well as pro forma adjustments to reflect the JAC acquisition as if it had occurred prior to the beginning of the period presented (these combined and adjusted results are referred to herein as “Supplemental Pro Forma MD&A Information” or the “2012 period, as adjusted”). The Consolidated Financial Statements for the Successor Periods reflect the JAC acquisition under the purchase method of accounting. The results of the Successor Periods are not comparable to the results of the Predecessor Period due to the difference in the basis of presentation of purchase accounting as compared to historical cost. These adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable. The results reflected in the Supplemental Pro Forma MD&A Information are for informational purposes only and do not reflect the actual results we would have achieved had the JAC acquisition been completed as of the beginning of the year and are not indicative of our future results of operations. Results of Stoney River are included only for periods after February 24, 2013.

The 10 locations that began the transition from a J. Alexander’s restaurant to a Redlands Grill restaurant during 2015 have been included in the J. Alexander’s results of operations, average weekly same store sales calculations and all applicable other disclosures due to the timing of the applicable transitions.

 

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Results of Operations

The following tables set forth, for the periods indicated, our consolidated results, including our results expressed as a percentage of net sales, and other selected operating data:

 

($ in thousands)    26 Weeks Ended      Percent Change      
  

 

 

 
     June 28, 2015      June 29, 2014      2015 vs. 2014      
  

 

 

 
     (unaudited)      (unaudited)      (unaudited)      

Net sales

   $ 109,275       $ 102,196         6.9%       

Costs and expenses:

     

Cost of sales

     34,596         32,339         7.0%       

Restaurant labor and related costs

     32,636         30,711         6.3%       

Depreciation and amortization of restaurant property and equipment

     4,039         3,777         6.9%       

Other operating expenses

     21,550         20,491         5.2%       
  

 

 

 

Total restaurant operating expenses

     92,821         87,318         6.3%       

Transaction and integration expenses

     2,113         102         NM       

General and administrative expenses

     7,863         6,537         20.3%       

Asset impairment charges and restaurant closing costs

     2         4         NM       

Pre-opening expense

     2         21         NM       
  

 

 

 

Total operating expenses

     102,801         93,982         9.4%       
  

 

 

 

Operating income

     6,474         8,214         -21.2%       

Other income (expense):

     

Interest expense

     (776)         (1,491)         -48.0%       

Other, net

     48         76         -36.8%       
  

 

 

 

Total other (expense)

     (728)         (1,415)         -48.6%       
  

 

 

 

Income from continuing operations before income taxes

     5,746         6,799         -15.5%       

Income tax (expense)

     (21)         (37)         -43.2%       

Loss from discontinued operations, net

     (211)         (224)         -5.8%       
  

 

 

 
        

Net income

   $ 5,514       $ 6,538         -15.7%       
  

 

 

 

 

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As a Percentage of Net Sales:   

26 Weeks Ended

 
    

  June 28,  

2015

    

  June 29,  

2014

 
  

 

 

 

Costs and expenses:

     

Cost of sales

     31.7%         31.6%   

Restaurant labor and related costs

     29.9%         30.1%   

Depreciation and amortization of restaurant property and equipment

     3.7%         3.7%   

Other operating expenses

     19.7%         20.1%   
  

 

 

 

Total restaurant operating expenses

     84.9%         85.4%   

Transaction and integration expenses

     1.9%         0.1%   

General and administrative expenses

     7.2%         6.4%   

Asset impairment charges and restaurant closing costs

     *         *   

Pre-opening expense

     *         *   
  

 

 

 

Total operating expenses

     94.1%         92.0%   
  

 

 

 

Operating income

     5.9%         8.0%   
  

 

 

 

Other income (expense):

     

Interest expense

     -0.7%         -1.5%   

Other, net

     *         0.1%   
  

 

 

 

Total other expense

     -0.7%         -1.4%   
  

 

 

 

Income from continuing operations before income taxes

     5.3%         6.7%   

Income tax (expense)

     *         *   

Loss from discontinued operations, net

     -0.2%         -0.2%   
  

 

 

 

Net income

     5.0%         6.4%   
  

 

 

 

* Less than 0.1%

NM means not meaningful

Twenty-six Weeks Ended June 28, 2015 compared to Twenty-six Weeks Ended June 29, 2014

Net Sales

Net sales increased by $7,079,000, or 6.9%, in the first six months of 2015 compared to the corresponding period of 2014, due to a $614,000 increase in same store revenue at Stoney River restaurants, a $4,019,000 increase in same store revenue at J. Alexander’s restaurants, and the impact of a new J. Alexander’s restaurant which opened in Columbus, Ohio during November 2014. Due to atypically severe winter weather conditions during the first quarter of both periods, our concepts lost 32 days of revenue due to weather-related restaurant closures during the first quarter of 2015, compared to 36 revenue days during the first quarter of 2014. In addition, one of the J. Alexander’s restaurants was closed for 35 days during the first quarter of 2015 while undergoing a major remodel. Further, during the second quarter of 2014, we recorded a change in estimate related to the Stoney River gift card program which resulted in additional breakage of $373,000 being recognized in revenue. No similar adjustments were recorded during 2015.

Average weekly same store sales on a consolidated basis totaled $103,700 during the first six months of 2015, a 5.4% increase over the $98,400 recorded during the first six months of 2014. Average weekly same store sales at J. Alexander’s restaurants for the first six months of 2015

 

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increased by 5.4% to $114,600, compared to $108,700, in the corresponding period of 2014. At Stoney River, average weekly sales totaled $71,000, for the first six months of 2015, an increase of 5.8% over the $67,100 in average weekly sales for the first six months of 2014.

The average check per guest at J. Alexander’s in the first six months of 2015 was $30.68, representing an increase of approximately 4.1% from $29.47 in the corresponding period in 2014. Average menu prices increased by approximately 3.4% in the first six months of 2015 compared to the corresponding period in 2014. These price increase estimates reflect nominal amounts of menu price changes, without regard to any change in product mix because of price increases, and may not reflect amounts actually paid by customers. Weekly average guest counts increased on a same store basis by approximately 1.2% in the first six months of 2015 compared to the corresponding period of 2014.

At Stoney River, the average check per guest in the first six months of 2015 was $45.38, representing an increase of approximately 2.3% from $44.35 during the first six months of 2014. Weekly average guest counts increased on a same store basis by approximately 3.5% in the first six months of 2015 compared to the first six months of 2014.

Restaurant Costs and Expenses

Total restaurant operating expenses were 84.9% of net sales in the first six months of 2015, down from 85.4% in the corresponding period of 2014. The decrease in the 2015 period was due primarily to the effect of higher sales in the same store base of restaurants combined with favorable trends in certain other operating expenses such as utilities and advertising. Restaurant operating profit margins were 15.1% in the first six months of 2015 compared to 14.6% in the corresponding period of 2014.

Cost of sales increased to 31.7% of net sales in the first six months of 2015 from 31.6% of net sales in the corresponding period of 2014 due primarily to increases in the price of beef, which were partially offset by the effect of higher menu prices as well as reductions in various other cost categories such as seafood, pork, and produce. Management estimates inflation totaled 4.5% within the J. Alexander’s concept and 5.9% within the Stoney River concept during the first six months of 2015. Beef purchases represent the largest component of consolidated cost of sales and comprise approximately 32.6% of this expense category. We purchase beef at weekly market prices. Prices paid for beef within the J. Alexander’s restaurants were higher in the first six months of 2015 than in the corresponding period of 2014 by approximately 12.6%, and at Stoney River, prices paid for beef were up 8.3% in the first six months of 2015 compared to the same period of 2014.

Our beef purchases currently remain subject to variable market conditions and we anticipate that prices for beef over the remainder of 2015 will exceed those paid in previous comparable periods, perhaps substantially. We continually monitor the beef market and if there are significant changes in market conditions or attractive opportunities to contract at fixed prices arise, we will consider entering into a fixed price purchasing agreement.

Restaurant labor and related costs decreased to 29.9% of net sales in the first six months of 2015 from 30.1% in the corresponding period of 2014 due primarily to the effect of higher average weekly same store sales in each concept.

Depreciation and amortization of restaurant property and equipment remained flat at 3.7% of net sales for the first six months of 2015 as compared to the corresponding period in 2014, as the favorable effect of higher average weekly same store sales offset additional depreciation expense related to capital expenditures within each concept, including an extensive remodel of one J. Alexander’s location in the first quarter of 2015 and the impact of the new J. Alexander’s restaurant opened in the fourth quarter of 2014.

 

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Other operating expenses decreased to 19.7% of net sales in the first six months of 2015 from 20.1% of net sales in the corresponding period of 2014, primarily due to the favorable effect of higher average weekly same store sales and decreases in property insurance expense, utilities and advertising expense associated with Stoney River.

General and Administrative Expenses

Total general and administrative expenses increased by $1,326,000 in the first six months of 2015 compared to the corresponding period of 2014. As a percentage of net sales, general and administrative expense totaled 7.2% for the first six months of 2015 compared to 6.4% during the corresponding period of 2014. The more significant components of the increase during 2015 include non-cash compensation expense associated with the profits interest plan implemented on January 1, 2015, increased incentive compensation accruals, increased salaries and wages, additional payroll processing fees, increased rent expenses, increased franchise tax expense, increased employee relocation costs, and increased expense associated with legal, accounting, auditing and other professional fees, which more than offset the favorable effect of higher average weekly same store sales per restaurant.

Transaction and Integration Expenses

We incurred non-recurring transaction and integration expenses totaling $2,113,000 during the six months ended June 28, 2015, compared to $102,000 for the first six months of 2014. Transaction costs typically consist primarily of legal and consulting costs, accounting fees, and, to a lesser extent, other professional fees and miscellaneous costs. Integration costs consist primarily of consulting and legal costs. During the first six months of 2015, we incurred transaction costs related to the spin-off transaction totaling $820,000. Further, due to the abandonment of the initial public offering in the second quarter of 2015, deferred offering costs totaling $1,293,000 previously capitalized as other current assets were expensed during the second quarter of 2015.

Other Income (Expense)

Interest expense decreased by $715,000 in the first six months of 2015 compared to the corresponding period in 2014, primarily as a result of our prepayment of $10,000,000 of the 12.5%, $20,000,000 FNF note payable during December 2014, and the refinancing of the remaining $10,000,000 of the FNF note on May 20, 2015 at a substantially lower interest rate.

Discontinued Operations

During 2013, three underperforming J. Alexander’s restaurants were closed and two of these locations were considered to be discontinued operations. Losses from discontinued operations totaling $211,000 and $224,000 for the six-month periods ended June 28, 2015 and June 29, 2014, respectively, consist solely of exit and disposal costs which are primarily related to continued obligations under leases.

 

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Year Ended December 28, 2014 Compared to Year Ended December 29, 2013

The following tables set forth, for the periods indicated, our consolidated results, including our results expressed as a percentage of net sales, and other selected operating data:

 

    

Year Ended

December 28,
2014

    

Year Ended

December 29,
2013

    

Percent
Change

2014 vs. 2013

 
  

 

 

 

Net sales

   $ 202,233       $ 188,223         7.4%   

Costs and expenses:

        

Cost of sales

     64,591         61,432         5.1%   

Restaurant labor and related costs

     61,539         59,032         4.2%   

Depreciation and amortization of restaurant property and equipment

     7,652         7,228         5.9%   

Other operating expenses

     40,440         39,016         3.6%   
  

 

 

 

Total restaurant operating expenses

     174,222         166,708         4.5%   

Transaction and integration expenses

     785         (217)         NM   

General and administrative expenses

     14,450         11,981         20.6%   

Asset impairment charges and restaurant closing costs

     5         2,094         -99.8%   

Pre-opening expense

     681         -             NM   
  

 

 

 

Total operating expenses

     190,143         180,566         5.3%   
  

 

 

 

Operating income

     12,090         7,657         57.9%   
  

 

 

 

Other income (expense):

        

Interest expense

     (2,908)         (2,888)         0.7%   

Gain on extinguishment of debt

     -             2,938         NM   

Other, net

     104         117         -11.1%   
  

 

 

 

Total other income (expense)

     (2,804)         167         NM   
  

 

 

 

Income from continuing operations before income taxes

     9,286         7,824         18.7%   

Income tax (expense) benefit

     (328)         (138)         137.7%   

Loss from discontinued operations, net

     (443)         (4,785)         -90.7%   
  

 

 

 

Net Income (loss)

   $         8,515       $         2,901         193.5%   
  

 

 

 

 

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As a Percentage of Net Sales

     
    

Year Ended

  December 28,  

2014

    

Year Ended

December 29,

2013

 
  

 

 

 

Costs and expenses

     

Cost of sales

     31.9%         32.6%   

Restaurant labor and related costs

     30.4%         31.4%   

Depreciation and amortization of restaurant property and equipment

     3.8%         3.8%   

Other operating expenses

     20.0%         20.7%   
  

 

 

    

 

 

 

Total restaurant operating expenses

     86.1%         88.6%   

Transaction and integration expenses

     0.4%         -0.1%   

General and administrative expenses

     7.1%         6.4%   

Asset impairment charges and restaurant closing costs

     *         1.1%   

Pre-opening expense

     0.3%         *   
  

 

 

    

 

 

 

Total operating expenses

     94.0%         95.9%   
  

 

 

    

 

 

 

Operating income

     6.0%         4.1%   

Other income (expense):

     

Interest expense

     -1.4%         -1.5%   

Gain on extinguishment of debt

     *         1.6%   

Other, net

     0.1%         0.1%   
  

 

 

    

 

 

 

Total other income (expense)

     -1.4%         0.1%   
  

 

 

    

 

 

 

Income from continuing operations before income taxes

     4.6%         4.2%   

Income tax (expense) benefit

     -0.2%         -0.1%   

Loss from discontinued operations, net

     -0.2%         -2.5%   
  

 

 

    

 

 

 

Net income (loss)

     4.2%         1.5%   
  

 

 

    

 

 

 

 

*Less than 0.1%

NM means not meaningful

Net Sales

Net sales totaled $202,233,000 in 2014 compared to $188,223,000 in 2013, an increase of $14,010,000. This increase is attributed to $7,252,000 of additional revenue related to the 30 J. Alexander’s locations open during both 2014 and 2013, an increase of $6,563,000 related to Stoney River, and the impact of the new J. Alexander’s restaurant which opened in Columbus, Ohio during November 2014, which more than offset the $409,000 decrease in revenue associated with the closure of the J. Alexander’s in Chicago, Illinois during 2013. The increase at Stoney River was attributed partially to a full 52 weeks of operations during 2014 compared to 44 weeks of revenue during 2013.

Average weekly same store sales on a consolidated basis totaled $96,800 in 2014, a 3.2% increase over the $93,800 recorded during 2013. Average weekly same store sales per restaurant for J. Alexander’s totaled $107,000 during 2014 compared to $102,200 during 2013. For the Stoney River restaurants, average weekly same store sales totaled $66,200 during 2014 as compared to $64,200 for the 44 weeks subsequent to the transfer by FNH of the Stoney River Assets to us in 2013.

 

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With respect to the J. Alexander’s operations, the average check per guest in 2014 was $29.69, up approximately 3.7% compared to $28.62 in 2013. Management estimates that average menu prices increased by approximately 3.1% in 2014 compared to 0.9% in 2013. These price increase estimates reflect nominal amounts of menu price changes, without regard to any change in product mix because of price increases, and may not reflect amounts actually paid by customers. Weekly average guest counts increased on a same store basis by approximately 1.0% during 2014.

For the Stoney River concept, the estimated average check per guest during 2014 was $45.31 up approximately 10.2% compared to $41.11 during the 44 weeks of operations included in 2013. Weekly average guest counts decreased on a same store basis by approximately 7.2% in 2014 compared to the 44 weeks of operations included in 2013. This decrease in guest counts is attributable primarily to the fact that since we began operating Stoney River we have reduced, and in some markets eliminated, the coupons and other discounts previously offered to Stoney River guests. Also contributing to this decline was our conversion in the third quarter of 2013 of one Stoney River location that had previously been open for lunch to a dinner-only restaurant.

We recognize revenue from reductions in liabilities for gift cards which, although they do not expire, are considered to be only remotely likely to be redeemed (based on historical redemption rates). These revenues are included in net sales in the amounts of $772,000 for 2014 and $213,000 for 2013. Based on our historical experience, we consider the probability of redemption of a J. Alexander’s gift card to be remote when it has been outstanding for 24 months. With respect to outstanding Stoney River gift cards, breakage was historically calculated as a percent of gift cards sold and we continued to apply this historical methodology to the Stoney River population of gift cards outstanding subsequent to the transfer by FNH of the Stoney River Assets to us through the period ended March 30, 2014. During the second quarter of 2014, we recorded a change in estimate related to the Stoney River gift card program which resulted in additional breakage of $373,000 being recognized. Prospectively, we will calculate breakage for Stoney River consistent with the approach utilized for J. Alexander’s.

Restaurant Costs and Expenses

Total restaurant operating expenses were 86.1% of net sales in 2014 compared to 88.6% of net sales in 2013. The decrease in 2014 was due to the combination of improved sales in the same store base of restaurants, favorable trends in cost of sales at each concept, and the favorable impact of closing the underperforming J. Alexander’s in Chicago, which was partially offset by operating losses incurred relative to the new J. Alexander’s which opened in Columbus, Ohio during November 2014. Restaurant Operating Profit Margins were 13.9% in 2014 compared to 11.4% in 2013.

Cost of sales decreased to 31.9% of net sales in 2014 compared to 32.6% of net sales in 2013 primarily due to improvements realized within the Stoney River restaurants. Cost of sales at Stoney River decreased to 35.5% of net sales in 2014 compared to 40.0% of net sales for the 44 weeks of operations included in 2013 due to continued improvements in kitchen efficiencies, menu mix and sourcing. In addition, the effect of higher sales at J. Alexander’s restaurants more than offset estimated inflation of 4.8% within the J. Alexander’s concept, resulting in cost of sales totaling 31.2% in 2014 compared to 31.3% in 2013.

Beef purchases represent the largest component of consolidated cost of sales and comprise approximately 30% of this expense category. We purchase beef weekly at market prices. Prices paid for beef within the J. Alexander’s restaurants were higher in 2014 than in 2013 by approximately 8.3%.

Our beef purchases currently remain subject to variable market conditions and we anticipate that prices for beef in 2015 will exceed those paid in 2014, perhaps substantially. We continually

 

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monitor the beef market and if there are significant changes in market conditions or attractive opportunities to contract at fixed prices arise, we will consider entering into a fixed price purchasing agreement.

Restaurant labor and related costs decreased to 30.4% of net sales in 2014 compared to 31.4% of net sales in 2013 due primarily to the effect of higher average weekly same store sales in our concepts.

Depreciation and amortization of restaurant property and equipment totaled 3.8% of net sales for each of 2014 and 2013, as the favorable effects of higher average weekly same store sales was offset by additional depreciation expense related to capital expenditures within the Stoney River restaurants.

Other operating expenses decreased to 20.0% of net sales in 2014 compared to 20.7% of net sales in 2013 primarily due to the favorable effect of higher average weekly same store sales and decreases in both repair and maintenance expense as well as advertising expense associated with Stoney River.

General and Administrative Expenses

General and administrative expenses totaled $14,450,000 in 2014 compared to $11,981,000 in 2013, an increase of $2,469,000. As a percentage of net sales, general and administrative expense totaled 7.1% of net sales in 2014 compared to 6.4% in 2013. The increase during 2014 is attributed primarily to increased incentive compensation accruals, additional staffing of selected new positions, additional management training costs, increased expense associated with accounting and auditing fees, and non-cash expense related to the accounting for certain executive salary continuation agreements which more than offset the favorable effect of higher average weekly same store sales per restaurant.

Transaction and Integration Expenses

During 2013, we incurred certain nonrecurring transaction and integration costs of $189,000 in connection with the acquisition of J. Alexander’s and the contribution of the Stoney River Assets to us. This amount was offset by receipt of $406,000 in insurance proceeds under our directors and officers liability policy for costs previously incurred in connection with certain shareholder litigation.

During 2014, we incurred transaction and integration costs of $785,000 as indirect costs related to the contemplated initial public offering of our common stock. Transaction costs consisted primarily of legal and consulting costs, accounting fees and to a lesser extent other professional fees and miscellaneous costs. Integration costs consisted primarily of consulting and legal costs. In addition, we capitalized deferred offering costs of $1,675,000 consisting primarily of direct, incremental legal and accounting fees relating to the pursuit of an initial public offering. Such deferred offering costs would be offset against proceeds upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed.

Asset Impairment Charges

During 2013, we closed the J. Alexander’s restaurant in Chicago. At the time the decision to close the restaurant was made, an analysis was performed for asset impairment, and this restaurant was determined to be an impaired location and the related long-lived assets with a carrying amount of $1,583,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $1,583,000.

 

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In addition to asset impairment charges, we expensed $511,000 of restaurant closing costs in 2013 relative to the Chicago location, which is also presented in the “Asset impairment charges and restaurant closing costs” line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated sublease, as well as brokerage fees, lease break payments, moving costs and travel.

We did not incur any impairment charges in 2014.

Pre-Opening Expenses

Pre-opening expense consists of expenses incurred prior to opening a new restaurant and include principally manager salaries and relocation costs, payroll and related costs for training new employees, travel and lodging expenses for employees who assist with training new employees, and cost of food and other expenses associated with practice of food preparation and service activities. Pre-opening expense also includes rent expense for leased properties for the period of time between taking control of the property and the opening of the restaurant. In 2014, we incurred $681,000 of pre-opening expense related to the opening of a new J. Alexander’s in Columbus, Ohio in the fourth quarter of 2014.

Other Income (Expense)

Interest expense totaled $2,908,000 in 2014 compared to $2,888,000 in 2013. Interest expense of $2,479,000 and $2,139,000 in 2014 and 2013, respectively, was recorded relative to the FNF Note.

In 2013, we obtained a new credit facility and our previous mortgage loan was paid off. A gain on the debt extinguishment of $2,938,000 was recorded as the reacquisition price was less than the carrying amount of the debt, due to the fact that the carrying value included a fair-value adjustment made in connection with the purchase accounting for the JAC acquisition.

Income Taxes

We reported income tax expense of $328,000 in 2014 compared to $138,000 in 2013.

Discontinued Operations

During 2013, we closed the J. Alexander’s restaurants in Orlando and Scottsdale. The Orlando restaurant had been previously classified as an impaired asset, with substantially all of its assets written down to their fair value of zero. At the time the decision to close these restaurants was made, an analysis was performed for asset impairment, and both restaurants were determined to be impaired locations and the related long-lived assets with a carrying amount of $2,657,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $2,657,000.

In addition to asset impairment charges, we expensed $1,827,000 of restaurant closing costs in 2013 relative to these two locations, which is also presented in the “Loss from discontinued operations, net” line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases as well as brokerage fees, lease break payments, moving costs and travel.

During 2014, restaurant closing costs totaled $443,000 and were included in the “Loss from discontinued operations, net” line item and consisted solely of exit and disposal costs related to the Orlando and Scottsdale closings.

 

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Year Ended December 29, 2013 Compared to Supplemental Pro Forma MD&A Information for the Year Ended December 30, 2012

This supplemental discussion of 2012 results reflected in the Supplemental Pro Forma MD&A Information as compared to 2013 results is included to provide a more meaningful discussion of trends as compared to the discussion of historical successor and predecessor periods included later in this section. The following tables set forth, for the periods indicated, our consolidated results, with percentages expressed as a percentage of net sales:

 

     Successor      Supplemental
Pro Forma MD&A
Information (1)
 
  ($ in thousands)    Year Ended
December 29, 2013
     Year Ended
December 30 2012, as
adjusted
 
            (unaudited)  

  Net sales

     $                     188,223       $                         156,896       

  Costs and expenses:

     

Cost of sales

     61,432         49,741       

Restaurant labor and related costs

     59,032         50,835       

Depreciation and amortization of restaurant property and equipment

     7,228         5,837       

Other operating expenses

     39,016         31,274       
  

 

 

 

Total restaurant operating expenses

     166,708         137,687       

Transaction and integration expenses

     (217)         -       

General and administrative expenses

     11,981         10,439       

Asset impairment charges and restaurant closing costs

     2,094         -       
  

 

 

 

 

 

 

 

 

 

Total operating expenses

     180,566         148,126       
  

 

 

 

Operating income

     7,657         8,770       

  Other income (expense):

     

Interest expense

     (2,888)         (957)       

Gain on extinguishment of debt

     2,938         -       

Other, net

     117         94       
  

 

 

 

Total other income (expense)

     167         (863)       
  

 

 

 

  Income from continuing operations before income taxes

     7,824         7,907       

  Income tax (expense) benefit

     (138)         (226)       

  Loss from discontinued operations, net

     (4,785)         (1,918)       
  

 

 

 

  Net income

     $ 2,901       $ 5,763       
  

 

 

 

 

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As a Percentage of Net Sales:

 

    Successor   

Supplemental

Pro Forma

MD&A
Information(1)

    Year Ended
December 29,
2013
   Year Ended
December 30,
2012, as adjusted
         (unaudited)

Costs and expenses:

    

Cost of sales

  32.6%    31.7%

Restaurant labor and related costs

  31.4%    32.4%

Depreciation and amortization of restaurant property and equipment

  3.8%    3.7%

Other operating expenses

  20.7%    19.9%
 

 

Total restaurant operating expenses

  88.6%    87.8%

Transaction and integration expenses

  -0.1%        *

General and administrative expenses

  6.4%    6.7%

Asset impairment charges and restaurant closing costs

  1.1%        *
 

 

Total operating expenses

  95.9%    94.4%
 

 

Operating income

  4.1%    5.6%

Other income (expense):

    

Interest expense

  -1.5%    -0.6%

Gain on extinguishment of debt

  1.6%        *

Other, net

  0.1%    0.1%

Total other income (expense)

  0.1%    -0.6%
 

 

Income from continuing operations before income taxes

  4.2%    5.0%

Income tax (expense) benefit

  -0.1%    -0.1%

Loss from discontinued operations, net

  -2.5%    -1.2%
 

 

Net income

  1.5%    3.7%
 

 

*Less

than 0.1%

 

(1)

Supplemental Pro Forma MD&A Information for the year ended December 30, 2012 gives effect to the JAC acquisition as if it had occurred on January 1, 2012. The adjustments reflected in the statement of operations presented as Supplemental Pro Forma MD&A Information are comprised of the following:

 

   

the elimination of $4,720,000 of transaction and integration costs related to the JAC acquisition;

 

 

   

the addition of $295,000 in restaurant depreciation expense to reflect the impact of a full year of depreciation of the increased fair value basis of property, plant and equipment;

 

 

   

the addition of $250,000 of non-cash rent expense to reflect the restart of straight-line rent expense at the beginning of the year and a full year of amortization of favorable lease assets and unfavorable lease liabilities;

 

 

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a reduction of interest expense of $404,000 to reflect a full year of amortization of the fair value debt adjustment and the elimination of deferred loan cost amortization as of the beginning of the year;

 

 

   

the elimination of $229,000 of stock option expense that would not have been incurred had the transaction taken place prior to the beginning of the year; and

 

 

   

the addition of $304,000 of income tax expense to reflect the provision for income taxes on the adjusted pre-tax income.

 

Net Sales

Net sales increased by $31,327,000 or 20.0%, in 2013 compared to the 2012 period, as adjusted, due to $28,295,000 of revenue related to the addition of the Stoney River concept, and a $5,317,000 increase in revenue at the same store J. Alexander’s restaurants open for both periods, which more than offset the $2,285,000 decrease in revenue associated with the closure of the Chicago J. Alexander’s location.

Average weekly same store sales per J. Alexander’s restaurant increased by 5.0% to $102,200 during 2013 compared to $97,300 in the 2012 period, as adjusted. For the Stoney River restaurants, average weekly net sales per restaurant totaled $64,200 for the 44 weeks of 2013 that we operated Stoney River.

With respect to the J. Alexander’s operations, the estimated average check per guest in 2013 was $28.63, up approximately 1.9% from the estimated $28.09 in the 2012 period, as adjusted. Average menu prices increased by approximately 0.9% in 2013 compared to the 2012 period, as adjusted. These price increase estimates reflect nominal amounts of menu price changes, without regard to any change in product mix because of price increases, and may not reflect amounts actually paid by customers. Estimated weekly average guest counts increased on a same store basis by approximately 1.3% in 2013 compared to the estimated 2012 period, as adjusted.

For the Stoney River concept, the average estimated check per guest during 2013 was $41.11, up approximately 8.5% from the estimated $37.88 during the comparable 44 weeks of 2012. Estimated weekly average guest counts decreased on a same store basis by approximately 12.0% in 2013 compared to 2012 estimates. The decrease in guest counts is primarily attributable to a decline in the coupons and discounts provided to our guests after we began operating Stoney River and the transition of one location to dinner-only as previously discussed.

We recognize revenue from reductions in liabilities for gift cards which, although they do not expire, are considered to be only remotely likely to be redeemed based on historical redemption rates. These revenues are included in net sales in the amounts of $213,000 for 2013 and $171,000 for the 2012 period, as adjusted.

Restaurant Costs and Expenses

Total restaurant operating expenses were 88.6% of net sales in 2013, up from 87.8% in the 2012 period, as adjusted. The increase in 2013 was due primarily to the impact of the Stoney River restaurants. Restaurant operating expenses as a percentage of net sales at the Stoney River locations were higher than the J. Alexander’s locations in part due to the costs of integrating those ten restaurants into the J. Alexander’s systems, increased labor training costs to ensure consistent quality across our restaurants, and lower average unit volumes. These higher costs more than offset the combined favorable impact of higher sales within the J. Alexander’s same store group of restaurants and the impact of closing the underperforming J. Alexander’s in Chicago. Restaurant Operating Profit Margins were 11.4% in 2013 compared to 12.2% in the 2012 period, as adjusted.

 

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Cost of sales increased to 32.6% of net sales in 2013 from 31.7% of net sales in the 2012 period, as adjusted, due the impact of higher food costs at the Stoney River restaurants. For the 44 weeks that the Stoney River restaurants were included in the 2013 results, cost of sales were 40.0% compared to 31.3% for the J. Alexander’s restaurants in 2013, which was down from 31.7% in the 2012 period, as adjusted. There was no measurable inflation present during 2013 compared to the 2012 period, as adjusted.

Beef purchases represent the largest component of consolidated cost of sales and comprise approximately 30% of this expense category. We purchase beef weekly at market prices. Prices paid for beef within the J. Alexander’s restaurants were lower in 2013 than in the 2012 period, as adjusted, by approximately 4.2%.

Restaurant labor and related costs decreased to 31.4% of net sales in 2013 from 32.4% in the 2012 period, as adjusted, due primarily to the effect of higher average weekly sales per restaurant in the J. Alexander’s restaurants and the favorable impact of closing the Chicago J. Alexander’s restaurant.

Depreciation and amortization of restaurant property and equipment totaled 3.8% of net sales for 2013 and 3.7% in the 2012 period, as adjusted. The favorable impact of higher average weekly same store sales at the J. Alexander’s restaurants was offset by additional depreciation expense related to capital expenditures at Stoney River.

Other operating expenses increased to 20.7% of net sales in 2013 from 19.9% of net sales in the 2012 period, as adjusted. The 2013 increase reflects the impact of increased costs related to Stoney River, particularly in the area of repair and maintenance expense, which more than offset the favorable effect of higher average weekly same store sales per restaurant in the J. Alexander’s concept and the favorable impact of closing the Chicago J. Alexander’s restaurant.

General and Administrative Expenses

Total general and administrative expenses increased by $1,542,000 in 2013 compared to the 2012 period, as adjusted, $1,354,000 of which related to the addition of the Stoney River restaurant operations. As a percentage of net sales, general and administrative expense totaled 6.4% in 2013 compared to 6.7% for the 2012 period, as adjusted, as the favorable impact of improved average weekly same store sales at J. Alexander’s, reduced management training costs, reduced non-cash expense associated with the accounting for certain executive salary continuation agreements and certain efficiencies associated with no longer being a stand-alone publicly held company more than offset increases related to Stoney River, incentive compensation, rent, depreciation and amortization, travel and employee relocation costs.

Asset Impairment Charges and Restaurant Closing Costs

As disclosed above, during 2013 we closed the J. Alexander’s restaurant in Chicago. At the time the decision to close the restaurant was made, an analysis was performed for asset impairment, and this restaurant was determined to be an impaired location and the related long-lived assets with a carrying amount of $1,583,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $1,583,000.

In addition to asset impairment charges, we expensed $511,000 of restaurant closing costs in 2013 related to the Chicago location. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases. Additionally, brokerage fees, lease break payments, moving costs and travel are included in restaurant closing costs.

 

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Other Income (Expense)

Interest expense increased by $1,931,000 in 2013 compared to the 2012 period, as adjusted, primarily due to interest expense associated with the $20,000,000 FNF Note, and the adjustments recorded in the adjusted period to properly reflect the amortization of the fair value of debt adjustment for a full year.

Income Taxes

Income tax expense of $138,000 included in 2013 reflects the net return to provision adjustment associated with the preparation of the 2012 returns. For the 2012 period, as adjusted, we have reflected a tax provision of $226,000 based on the adjusted pre-tax income of $5,989,000, indicating an effective tax rate of 3.8% for the adjusted period.

Discontinued Operations

As noted above, during 2013 we closed the J. Alexander’s restaurants in Orlando and Scottsdale. The Orlando restaurant had been previously classified as an impaired asset, with substantially all of its assets written down to their fair value of zero. At the time the decision to close these restaurants was made, an analysis was performed for asset impairment, and both restaurants were determined to be impaired locations and the related long-lived assets with a carrying amount of $2,657,000 were written down to their fair value of zero, resulting in a non-cash impairment charge of $2,657,000.

In addition to asset impairment charges, we expensed $1,827,000 of restaurant closing costs in 2013 relative to these two locations, which is also presented in the “Loss from discontinued operations, net” line item. Restaurant closing costs consisted largely of accruals of remaining rent payments, net of estimated subleases. Additionally, brokerage fees, lease break payments, moving costs and travel are included in restaurant closing costs.

Finally, we incurred operating losses of $301,000 relative to these locations during 2013 compared to operating losses of $1,918,000 in the 2012 period, as adjusted.

 

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Year Ended December 29, 2013 Compared to Periods from January 2, 2012 to September 30, 2012 (Predecessor Period) and October 1, 2012 to December 30, 2012 (Successor Period)

The nine months ended September 30, 2012 and the three months ended December 30, 2012 are distinct reporting periods as a result of the JAC acquisition. The following tables set forth, for the periods indicated, our consolidated results, including our results expressed as a percentage of net sales, and other selected operating data:

 

    Successor     Predecessor     Percent
Change
      
    December 29,
2013
    October 1, 2012 to
December 30, 2012
    January 2, 2012 to
September 30, 2012
    2013 v. 2012       

Net sales

    $  188,223        $  40,341        $  116,555                        20.0  

Costs and expenses:

           

Cost of sales

    61,432        12,883        36,858                        23.5  

Restaurant labor and related costs

    59,032        12,785        38,050                        16.1  

Depreciation and amortization of restaurant property and equipment

    7,228        1,425        4,117                        30.4  

Other operating expenses

    39,016        7,849        23,175                        25.8    
           

Total restaurant operating expenses

    166,708        34,942        102,200                        21.6  

Transaction and integration expenses

    (217)        183        4,537                        -104.6  

General and administrative expenses

    11,981        2,330        8,109                        14.8  

Asset impairment charges and restaurant closing costs

    2,094                                      NM       
         

Total operating expenses

    180,566        37,455        114,846                        18.6    
         

Operating income

    7,657        2,886        1,709                        66.6  

Other income (expense):

           

Interest expense

    (2,888)        (187)        (1,174)                        112.2  

Gain on extinguishment of debt

    2,938                                      NM     

Stock option expense

                  (229)                        -100.0  

Other, net

    117        26        68                        24.5    
           

Total other income (expense)

    167        (161)        (1,335)                        -111.2    
           

Income from continuing operations before income taxes

    7,824        2,725        374                        152.5  

Income tax (expense) benefit

    (138)        (1)        79                        -276.9  

Loss from discontinued operations, net

    (4,785)        (506)        (1,412)                        149.5    
           

Net income (loss)

    $  2,901        $  2,218        $  (959)                    130.4