-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WptwTSR8paB92VQVpmTSS+AM3uTdpcph5t+KIud95VQoFNzp9GMHwQQxe+yZ3vor v7mjKSt1f9E0c56CQvk28A== 0000898430-99-001032.txt : 19990322 0000898430-99-001032.hdr.sgml : 19990322 ACCESSION NUMBER: 0000898430-99-001032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990207 FILED AS OF DATE: 19990319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIZZLER INTERNATIONAL INC CENTRAL INDEX KEY: 0000870760 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 954307254 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10711 FILM NUMBER: 99569125 BUSINESS ADDRESS: STREET 1: 12655 W JEFFERSON BLVD CITY: LOS ANGELES STATE: CA ZIP: 90066 BUSINESS PHONE: 3108272300 FORMER COMPANY: FORMER CONFORMED NAME: COLLINS FOODS INC DATE OF NAME CHANGE: 19600201 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended February 7, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to _________ Commission File Number 1-10711 SIZZLER INTERNATIONAL, INC. ________________________________________________________________________________ (Exact Name of Registrant as specified in its Charter) Delaware 95-4307254 ________________________________________________________________________________ (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 6101 West Centinela Avenue, Suite 200, Culver City, California 90230 ________________________________________________________________________________ (Address of Principal Executive Offices, including zip code) (310) 568-0135 ____________________________________________________________ (Registrant's telephone number, including area code) ____________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ______ ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 19, 1999 - ------------------------------- ---------------------------------- Common Stock $0.01 Par Value 28,803,828 shares PART I. FINANCIAL INFORMATION SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS) ITEM 1. FINANCIAL STATEMENTS - ----------------------------
February 7, April 30, ASSETS 1999 1998 - ----------------------------------------------------------------- ------------ ------------ (Unaudited) (Audited) Current Assets: Cash and cash equivalents $ 16,609 $ 21,167 Receivables, net of reserves of $1,501 at February 7, 1999 and $2,608 at April 30, 1998 3,182 2,926 Inventories 4,401 4,333 Prepaid expenses and other current assets 1,223 1,281 - ----------------------------------------------------------------- -------- -------- Total current assets 25,415 29,707 - ----------------------------------------------------------------- -------- -------- Property and equipment, net 78,724 79,210 Long-term notes receivable, net of reserves of $508 at February 7, 1999 and $772 at April 30, 1998 1,534 1,268 Deferred income taxes 3,878 3,829 Intangible assets, net of accumulated amortization of $815 at February 7, 1999 and $696 at April 30, 1998 2,123 2,162 Other assets, net of accumulated amortization and reserves of $4 at February 7, 1999 and $1 at April 30, 1998 1,906 3,285 - ----------------------------------------------------------------- -------- -------- Total assets $113,580 $119,461 ================================================================= ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements. 2 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)-
February 7, April 30, LIABILITIES AND STOCKHOLDERS' INVESTMENT 1999 1998 - -------------------------------------------------------------------------------------- -------------- ------------ (Unaudited) (Audited) Current Liabilities: Current portion of long-term debt $ 5,802 $ 5,764 Accounts payable 8,686 7,753 Other current liabilities 8,979 9,562 Income taxes payable 5,101 3,761 - -------------------------------------------------------------------------------------- --------- --------- Total current liabilities 28,568 26,840 - -------------------------------------------------------------------------------------- --------- --------- Long-term Liabilities: Long-term debt, net of current portion 29,683 35,497 Other liabilities 5,702 13,364 - -------------------------------------------------------------------------------------- --------- --------- Total long-term liabilities 35,385 48,861 - -------------------------------------------------------------------------------------- --------- --------- Stockholders' Investment: Capital stock - Preferred, authorized 1,000,000 shares, $5 par value; no shares issued - - Common, authorized 50,000,000 shares, $0.01 par value; outstanding 28,803,828 shares at February 7, 1999 and 28,840,908 shares at April 30, 1998 288 288 Additional paid-in capital 278,140 277,353 Accumulated deficit (224,706) (229,583) Accumulated other comprehensive income - Foreign currency translation adjustments (4,095) (4,298) - -------------------------------------------------------------------------------------- --------- --------- Total stockholders' investment 49,627 43,760 - -------------------------------------------------------------------------------------- --------- --------- Total liabilities and stockholders' investment $ 113,580 $ 119,461 ======================================================================================= ========= ========= The accompanying notes are an integral part of these consolidated condensed financial statements.
3 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
FORTY WEEKS ENDED ---------------------------------------------- FEBRUARY 7, FEBRUARY 1, 1999 1998 ---------------- -------------- (Unaudited) Revenues Restaurants $165,853 $181,351 Franchise operations 5,841 4,815 - -------------------------------------------------------------------- -------- -------- Total revenues 171,694 186,166 - -------------------------------------------------------------------- -------- -------- Costs and Expenses Cost of sales 61,249 68,205 Labor and related expenses 45,568 49,696 Other operating expenses 36,426 38,490 Depreciation and amortization 7,459 9,180 General and administrative expenses 12,728 12,518 - -------------------------------------------------------------------- -------- -------- Total operating costs 163,430 178,089 - -------------------------------------------------------------------- -------- -------- Interest expense 2,656 4,078 Investment income (577) (997) - -------------------------------------------------------------------- -------- -------- Total costs and expenses 165,509 181,170 - -------------------------------------------------------------------- -------- -------- Income before income taxes 6,185 4,996 - -------------------------------------------------------------------- -------- -------- Provision for income taxes 1,308 1,978 - -------------------------------------------------------------------- -------- -------- Net income $ 4,877 $ 3,018 ==================================================================== ======== ======== Basic and diluted earnings per share $0.17 $0.11 =================================================================== ======== ========
The accompanying notes are an integral part of these consolidated condensed financial statements. 4 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
SIXTEEN WEEKS ENDED --------------------------------------------------- FEBRUARY 7, FEBRUARY 1, 1999 1998 ---------------------- ----------------------- (Unaudited) Revenues Restaurants $66,147 $68,311 Franchise operations 1,955 1,762 - ---------------------------------------------------------------------- ------- ------- Total revenues 68,102 70,073 - ---------------------------------------------------------------------- ------- ------- Costs and Expenses Cost of sales 24,728 25,917 Labor and related expenses 18,380 18,898 Other operating expenses 15,238 14,808 Depreciation and amortization 3,048 3,430 General and administrative expenses 4,228 4,310 - ---------------------------------------------------------------------- ------- ------- Total operating costs 65,622 67,363 - ---------------------------------------------------------------------- ------- ------- Interest expense 952 1,593 Investment income (217) (270) - ---------------------------------------------------------------------- ------- ------- Total costs and expenses 66,357 68,686 - ---------------------------------------------------------------------- ------- ------- Income before income taxes 1,745 1,387 - ---------------------------------------------------------------------- ------- ------- Provision for income taxes 533 632 - ---------------------------------------------------------------------- ------- ------- Net income $ 1,212 $ 755 ====================================================================== ======= ======= Basic and diluted earnings per share $0.04 $0.03 ====================================================================== ======= =======
The accompanying notes are an integral part of these consolidated condensed financial statements. 5 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FORTY WEEKS ENDING ------------------------------------------------ FEBRUARY 7, FEBRUARY 1, 1999 1998 ------------------ --------------- (Unaudited) OPERATING ACTIVITIES Net income $ 4,877 $ 3,018 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,459 9,180 Deferred income taxes 218 - Provision for bad debts 229 501 Other 103 (346) Changes in operating assets and liabilities: Receivables (779) 376 Inventories (68) 793 Prepaid expenses and other current assets 58 1,235 Accounts payable 933 (4,068) Accrued liabilities (3,194) (6,990) Income taxes payable 937 1,272 - ------------------------------------------------------------ -------- -------- Net cash provided by operating activities 10,773 4,971 - ------------------------------------------------------------ -------- -------- INVESTING ACTIVITIES Additions to property and equipment (6,451) (5,767) Proceeds from disposal of property and equipment 2,192 24,292 Other, net (443) (1,919) - ------------------------------------------------------------ -------- -------- Net cash provided by (used in) investing activities (4,702) 16,606 - ------------------------------------------------------------ -------- -------- FINANCING ACTIVITIES Issuance of long-term debt - 46,895 Reduction of long-term debt (5,556) (2,992) Payment of allowed claims pursuant to the reorganization plan (5,007) (72,613) Other, net (66) - - ------------------------------------------------------------ -------- -------- Net cash used in financing activities (10,629) (28,710) - ------------------------------------------------------------ -------- -------- Net decrease in cash and cash equivalents (4,558) (7,133) - ------------------------------------------------------------ -------- -------- Cash and cash equivalents at beginning of period 21,167 34,085 - ------------------------------------------------------------ -------- -------- Cash and cash equivalents at end of period $ 16,609 $ 26,952 ============================================================ ======== ======== The accompanying notes are an integral part of these consolidated condensed financial statements.
6 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS AS OF FEBRUARY 7, 1999 1. General: The condensed consolidated financial statements have been prepared by Sizzler International, Inc. (the "Company"), without audit, in accordance with generally accepted accounting principles. Pursuant to the rules and regulations of the Securities and Exchange Commission, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed. In the opinion of management, the condensed interim consolidated financial statements include all adjustments necessary for a fair presentation of financial position and results of operations for the periods presented. The results of operations for the periods presented should not necessarily be considered indicative of operations for the full year. Certain reclassifications have been made to prior period financial statements in order to conform to the current period presentation. It is recommended that these condensed consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's 1998 annual report on Form 10-K. 2. Earnings Per Share: The following table sets forth the computation of basic and diluted EPS:
Sixteen weeks ended Forty weeks ended -------------------------------- --------------------------------- February 7, February 1, February 7, February 1, In thousands, except EPS 1999 1998 1999 1998 ------------ -------------- ------------- -------------- Numerator for basic and diluted EPS - Net income $ 1,212 $ 755 $ 4,877 $ 3,018 ======= ======= ======= ======= Denominator: Denominator for basic EPS - weighted average shares of common stock outstanding 28,805 28,851 28,819 28,869 Effect of dilutive stock options 64 9 57 4 ------- ------- ------- ------- Denominator for diluted EPS - adjusted weighted average shares outstanding 28,869 28,860 28,876 28,873 ======= ======= ======= ======= Basic and diluted earnings per share $ 0.04 $ 0.03 $ 0.17 $ 0.11 ======= ======= ======= =======
7 3. Comprehensive Income: Total comprehensive income is summarized as follows:
Sixteen weeks ended Forty weeks ended --------------------------------- ---------------------------------- February 7, February 1, February 7, February 1, In thousands 1999 1998 1999 1998 ------------- --------------- -------------- --------------- Net income $1,212 $ 755 $4,877 $ 3,018 Currency translation adjustment 555 (1,372) (203) (6,240) ------ ------- ------ ------- Total comprehensive income (loss) $1,767 $ (617) $4,674 $(3,222) ====== ======= ====== =======
4. Restructuring Strategy: On June 2, 1996, the Company enacted a comprehensive restructuring strategy designed to return the U.S. operations to profitability. This strategy included the closure of under-performing restaurants in the U.S. and filing for bankruptcy protection through a Chapter 11 proceeding. On June 2, 1996, the Company and four subsidiaries, Sizzler Restaurants International, Inc. ("SRI"), Buffalo Ranch Steakhouses, Inc. ("BRSH"), Tenly Enterprises, Inc. ("Tenly"), and Collins Properties, Inc. ("CPI"), became debtors-in- possession subject to the supervision of the U.S. Bankruptcy Court of the Central District of California (the "Bankruptcy Court") under Chapter 11 of the federal bankruptcy code. On June 2, 1997, the Bankruptcy Court entered an order confirming the Chapter 11 plans of reorganization of the Company, SRI and CPI. The plans of reorganization for Tenly and BRSH were confirmed on February 24, 1997. On September 23, 1997, the reorganization plans became effective and the Company and its subsidiaries emerged from the bankruptcy proceedings. The Company and its subsidiaries have paid approximately $80 million in pre-petition claims and interest and reinstated the remaining pre-petition liabilities. Remaining bankruptcy liabilities were reclassified from "Liabilities subject to compromise under reorganization proceedings" to the appropriate liability captions of the consolidated balance sheet. 8 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MATERIAL CHANGES IN RESULTS OF OPERATIONS SIXTEEN WEEKS ENDED FEBRUARY 7, 1999 - ------------------------------------------------------------------------------ VERSUS FEBRUARY 1, 1998 - ----------------------- Domestic Company-operated restaurant sales and franchised restaurant revenues (including franchise fees, royalties and rental income) and international Company-operated restaurant sales and franchised restaurant revenues represent the Company's primary sources of revenue. The addition or closure of restaurants, both Company-operated and franchised, and the sales volume of comparable restaurants (those restaurants open more than one year) are important factors to consider in evaluating the Company's results. The following table shows the comparative Company-operated restaurant percentage change from the prior year.
FY 1998 FY 1999 ----------------------------------------------------------------------- QTR 1 QTR 2 QTR 3 QTR 4 QTR 1 QTR 2 QTR 3 ------- ------- ------- ------- ------- ------- ------- SIZZLER - ------- U.S.A. - Sales (4.3%) 0.6% 0.3% 2.2% 7.2% 7.4% 6.5% Customers (5.8%) (3.6%) (6.6%) (6.0%) (3.3%) (1.7%) (0.5%) AUSTRALIA Sales (20.9%) (13.6%) (9.3%) (8.1%) (5.3%) (0.3%) 2.2% (Based on A$) Customers (22.5%) (17.8%) (13.3%) (15.2%) (5.7%) (1.8%) (2.0%) KFC Sales (2.8%) (3.1%) (0.4%) 0.7% 1.3% (0.8%) (1.2%) - --- (Based on A$) Customers (8.5%) (7.3%) (6.6%) (4.1%) (4.3%) (5.0%) (4.6%)
On a comparative restaurant basis, Sizzler average sales per restaurant are showing a positive trend. Sizzler U.S.A. improved from 0.3 percent in the third quarter of fiscal 1998 to 6.5 percent in the third quarter of the current year. The positive results of the last six quarters reverses 27 consecutive quarters of decreases in comparable restaurant sales. Check averages and margins per guest have continued to increase in the U.S. reflecting the impact of the menu repositioning and a marketing strategy which minimizes the use of discounts. Australian sales trends are also showing a significant improvement although the percent change in customer counts is slightly down. KFC sales per restaurant and customer count decreased 1.2 percent and 4.6 percent respectively, reflecting the heavy discount programs offered by the competition during the period. INTERNATIONAL OPERATIONS - ------------------------ International operations generated approximately 58.1 percent of consolidated revenues for the third quarter of fiscal 1999. Revenues decreased $3.5 million or 8.2 9 percent compared to the prior year primarily due to a 7.4 percent decrease in the Australian dollar exchange rates and lower average KFC sales partially offset by higher Sizzler sales. Since the third quarter of fiscal 1998, international operations had a net reduction of one Company-operated and three franchised Sizzler restaurants. As of February 7, 1999, the international operation included 31 Company-operated, three joint ventured, and 50 franchised Sizzler restaurants and 100 KFC restaurants. On a comparative restaurant basis, sales in Australian dollars for Company- operated Sizzler restaurants and the average guest check increased 2.2 percent and 4.3 percent, respectively, even though the casual dining market is increasingly competitive. Customer count decreased 2.0 percent. The KFC restaurants decreased 1.2 percent in average restaurant sales and 4.6 percent in the average number of customers due to increased competition in the fast food market. The average customer check increased 3.6 percent which continues to reflect price increases, promotion of family meals and offering larger portion meals. The Company's international franchise revenues decreased $0.1 million or 20.9 percent primarily due to the overall economic turmoil and weakening of local currencies throughout much of Asia against the U.S. dollar. At February 7, 1999, there were 50 international franchised and joint-ventured Sizzler restaurants in Japan, Taiwan, Thailand, South Korea, Singapore and Indonesia, versus 53 restaurants in six countries at February 1, 1998. Earnings before interest, taxes and parent company overhead were $2.8 million, a decrease of $0.4 million or 13.2 percent from the prior year. DOMESTIC OPERATIONS - ------------------- Domestic restaurant operations accounted for 39.6 percent of the Company's consolidated revenues. Sales reflect an increase of $1.3 million or 4.9 percent to $26.9 million when compared to the prior year. There were 66 domestic Company-operated restaurants at February 7, 1999 and February 1, 1998. On a comparative restaurant basis, average sales per restaurant increased 6.5 percent and the average customer check increased 7.0 percent. These improvements are primarily due to signage and facility upgrades completed during the current fiscal year, and the menu repositioning. The average customers per restaurant declined 0.5 percent. Gross margins per guest increased by 5.5 percent reflecting the impact of the menu repositioning program and current marketing strategy. Management is continuing its plan to revitalize the restaurant concept. There are three major initiatives underway designed to complete the repositioning of the Sizzler concept away from the lower margin buffet positioning back to a mid- scale family steakhouse featuring high quality and high value entrees. The first of these is a test: a new higher-quality fresh fruit and salad bar, designed to be either a light lunch entree option or an add on to a grilled entree at dinner. Secondly, we are also testing a new service system designed to improve the guest's dining experience, making it consistent with higher quality, higher value menu offerings that have been introduced as part of the repositioning. Thirdly, work has begun on a new Sizzler prototype restaurant, which will be the basis for future remodeling of the current Sizzler system as well as for future growth of Sizzler restaurants in the U.S. 10 Domestic franchise revenues, including franchise fees, royalties and rental income, accounted for 2.3 percent of consolidated revenues. Compared to the prior year, revenues increased $0.3 million or 22.7 percent. The revenue increase reflects increased sales per restaurant in the current year and the impact of a temporary royalty abatement program in the prior year. As of February 7, 1999, the number of domestic franchised restaurants was 199, including 12 Latin American restaurants, versus 199 restaurants including 11 Latin American restaurants at February 1, 1998. Domestic earnings before interest, taxes and parent company allocation were $1.5 million, an increase of $0.6 million or 60.2 percent from the prior year. CONSOLIDATED COSTS AND EXPENSES - ------------------------------- Consolidated costs and expenses, as a percentage of revenues, decreased 0.6 percentage points from the prior year. This decrease is primarily the result of lower food costs, depreciation and amortization and interest expense. Interest expense declined to $1.0 million in fiscal 1999 from $1.6 million in fiscal 1998, primarily due to debt repayment. The effective income tax rate decreased from 45.6 percent of pretax income in fiscal 1998 to 30.5 percent in fiscal 1999, primarily due to the utilization of loss carryforwards to offset domestic earnings. MATERIAL CHANGES IN RESULTS OF OPERATIONS FORTY WEEKS ENDED FEBRUARY 7, 1999 - ---------------------------------------------------------------------------- VERSUS FEBRUARY 1, 1998 - ----------------------- INTERNATIONAL OPERATIONS - ------------------------ International operations generated approximately 55.0 percent of consolidated revenues for the first forty weeks of fiscal 1999. Revenues of $94.4 million reflected a decrease of $19.5 million or 17.1 percent compared to the prior year. This decrease was primarily due to a 14.5 percent decrease in the Australian dollar exchange rates and lower average sales. Since the third quarter of fiscal 1998, international operations had a net reduction of one Company-operated and a net increase of three franchised Sizzler restaurants. As of February 7, 1999, the international operation included 31 Company-operated, three joint ventured, and 47 franchised Sizzler restaurants and 100 KFC restaurants. On a comparative restaurant basis, sales in Australian dollars for Company- operated Sizzler restaurants and customer counts decreased 0.8 percent and 3.1 percent, respectively, due to the increasingly competitive casual dining market. The average guest check increased 2.4 percent. The KFC restaurants decreased 0.4 percent in average restaurant sales and 4.6 percent in the average number of customers per restaurant due to increased competition in the fast food market. The average customer check increased 4.5 percent The Company's international franchise revenues decreased $0.9 million or 48.2 percent primarily due to the overall economic turmoil and weakening of local currencies throughout much of Asia against the U.S. dollar. At February 7, 1999, there were 50 11 international franchised and joint-ventured Sizzler restaurants in Japan, Taiwan, Thailand, South Korea, Singapore and Indonesia, versus 53 restaurants in six countries at February 1, 1998. Earnings before interest, taxes and parent company overhead were $6.8 million, a decrease of $0.4 million or 5.1 percent from the prior year. DOMESTIC OPERATIONS - ------------------- Domestic restaurant operations accounted for 42.1 percent of the Company's consolidated revenues. Sales reflect an increase of $3.1 million or 4.5 percent to $72.3 million when compared to the prior year. At February 7, 1999 and February 1, 1998 the number of domestic Company-operated restaurants was 66. On a comparative restaurant basis, average sales per restaurant increased 7.0 percent and the average customer check increased 8.9 percent. The average customers per restaurant declined 1.8 percent. Gross margins per guest increased to $5.51 in fiscal 1999 from $5.00 in fiscal 1998. Domestic franchise revenues, including franchise fees, royalties and rental income, accounted for 2.9 percent of consolidated revenues. Revenues of $4.9 million, when compared to the prior year, increased $1.9 million or 62.5 percent. The revenue increase reflects increased sales per restaurant in the current year and the impact of a temporary royalty abatement program in the prior year. As of February 7, 1999, the number of domestic franchised restaurants was 199, including 12 Latin American restaurants, versus 199, including 11 Latin American restaurants at February 1, 1998. Domestic earnings before interest, taxes and parent company allocation increased $1.9 million to $6.2 million, from $4.3 million in the same period last year. CONSOLIDATED COSTS AND EXPENSES - ------------------------------- Consolidated costs and expenses, as a percentage of revenues, decreased 0.9 percentage points from the prior year. This decrease is primarily the result of lower food costs and interest expense. Interest expense declined to $2.7 million in fiscal 1999 from $4.1 million in fiscal 1998, primarily due to debt repayment. The effective income tax rate decreased from 39.6 percent of pretax income in fiscal 1998 to 21.1 percent in fiscal 1999, primarily due to the utilization of loss carryforwards to offset domestic earnings. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- WORKING CAPITAL - --------------- The Company's principal source of working capital is net cash provided by operations which amounted to $10.8 million for the first forty weeks of fiscal 1999 versus $5.0 million for the same period of the prior year. 12 The Company's working capital at February 7, 1999 was negative $3.2 million including cash and cash equivalents of $16.6 million. The Company's working capital is generally in a deficit position because, like most restaurant businesses, substantially all sales are for cash, while credit is received from trade suppliers. At April 30, 1998, working capital was $2.9 million. TOTAL ASSETS / CAPITAL EXPENDITURES - ----------------------------------- At February 7, 1999, total assets were $113.6 million, a decrease of $5.9 million or 4.9 percent from April 30, 1998. Property and equipment represented approximately 69.3 percent of total assets at February 7, 1999 and 66.3 percent at April 30, 1998. Capital expenditures were $6.5 million for the first forty weeks of fiscal 1999, including new restaurant construction of $1.0 million and replacements of $5.5 million. The Company anticipates continuing to build its international operations through additional investment in Company-operated restaurants and the development of the franchise system. Domestically the Company will focus on the previously mentioned revitalization program. DEBT - ---- On September 23, 1997, the Company obtained a $63.5 million AUD (approximately $46.9 million US) bank facility from Westpac Banking Corporation in order to refinance the claims of the Company's unsecured creditors. The Westpac loan provides for a five-year term at an interest rate equal to the Australian interbank borrowing rate, plus a margin. The margin will be based on a formula tied to the Company's international operations ratio of debt to earnings before interest and taxes, and will vary between 1.25% and 2.25%. The Westpac loan involved the collateralization of the Company's principal operating assets of its international division. The Westpac loan is subject to a number of financial covenants and other restrictions. Based on current levels of operations and anticipated sales growth, management believes that cash flow from operations will be sufficient to meet all of its debt service requirements when due and to fund its capital expenditure and working capital requirements. YEAR 2000 - --------- The Company is aware of the potential implications the year 2000 ("Y2K") issue could have on its business and as a result has established a comprehensive program to identify and remediate potential Y2K problems in its information technology systems. Several information technology projects previously planned have been accelerated due to potential Y2K problems. Specifically, the Company is currently upgrading certain software applications and adding hardware required by the software upgrades. In addition other hardware will be replaced in the ordinary course of business in connection with a lease that expires in June, 1999. The Company expects to fund the replacement of this hardware with new lease agreements. The cost incurred by the Company to date for software and hardware applications is approximately $40,000. Management estimates the remaining costs to complete the Y2K compliance to be 13 approximately $340,000. Based on communications with its outside consultants, service providers, software and hardware vendors, the Company has determined that its systems, both information technology and non-information technology, are not reasonably likely to be impacted by Y2K and the Company anticipates that it will be Y2K compliant by October, 1999. SUBSEQUENT EVENTS - ----------------- On February 8, 1999, the Company's Board of Directors elected Charles L. Boppell President and Chief Executive Officer of Sizzler International, Inc., effective March 15, 1999. FORWARD-LOOKING STATEMENTS - -------------------------- With the exception of any historical information contained in this report, the matters described herein contain forward-looking statements that are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve various risks and may cause actual results to differ materially. These risks include, but are not limited to, changes in global and local business and economic conditions; consumer preferences, spending patterns and demographic trends; food, labor and other operating costs; availability and cost of land and construction; currency exchange rates; and other risks outside the control of the Company referred to in the Company's registration statement and periodic reports filed with the Securities and Exchange Commission. 14 SIZZLER INTERNATIONAL, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K a. Exhibit 27 - Financial Data Schedule 15 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SIZZLER INTERNATIONAL, INC. Registrant Date: March 19, 1999 /s/Charles L. Boppell -------------------------------------------- Charles L. Boppell Chief Executive Officer Date: March 19, 1999 /s/Ryan S. Tondro -------------------------------------- Ryan S. Tondro Vice President (Principal Financial Officer) 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAY-02-1999 MAY-04-1998 FEB-07-1999 16,609 0 4,683 1,501 4,401 25,415 180,272 101,548 113,580 28,568 28,986 0 0 288 49,339 113,580 165,853 171,694 61,249 61,249 0 0 2,656 6,185 1,308 4,877 0 0 0 4,877 0.17 0.17
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