10-K 1 g75140e10-k.txt J. ALEXANDER'S CORPORATION SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934. For the fiscal year ended December 30, 2001. or Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from ______________ to ______________. Commission file number 1-8766 J. ALEXANDER'S CORPORATION (Exact name of Registrant as specified in its charter) Tennessee 62-0854056 --------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) P.O. Box 24300 3401 West End Avenue Nashville, Tennessee 37203 ---------------------------- ----------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (615)269-1900 ------------- Securities registered pursuant to Section 12(b) of the Act: Title of Class: Name of each exchange on which registered: ------------------------------------------------ --------------------------------------------------- Common stock, par value $.05 per share. American Stock Exchange Series A junior preferred stock purchase rights. American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the last sales price on the American Stock Exchange of such stock as of March 26, 2002, was $15,397,926, assuming that (i) all shares beneficially held by members of the Company's Board of Directors are shares owned by "affiliates," a status which each of the directors individually disclaims and (ii) all shares held by the Trustee of the J. Alexander's Corporation Employee Stock Ownership Plan are shares owned by an "affiliate". The number of shares of the Company's Common Stock, $.05 par value, outstanding at March 26, 2002, was 6,779,293. DOCUMENT INCORPORATED BY REFERENCE Portions of the Proxy Statement for the 2002 Annual Meeting of Shareholders are incorporated by reference into Part III. PART I ITEM 1. BUSINESS J. Alexander's Corporation (the "Company") was organized in 1971 and operates as a proprietary concept 24 J. Alexander's full-service, casual dining restaurants located in Tennessee, Ohio, Florida, Georgia, Kansas, Alabama, Michigan, Illinois, Colorado, Texas, Kentucky and Louisiana. During 2001, the Company opened two new restaurants in Boca Raton, Florida and Atlanta, Georgia. J. Alexander's is a traditional restaurant with an American menu that features prime rib of beef; hardwood-grilled steaks, seafood and chicken; pasta; salads and soups; assorted sandwiches, appetizers and desserts; and a full-service bar. Prior to 1997, the Company was also a franchisee of Wendy's International, Inc. ("Wendy's International"). However, in November 1996, the Company sold 52 of its 58 Wendy's Old Fashioned Hamburgers restaurants to Wendy's International. The six restaurants not acquired by Wendy's International in November 1996 were sold or closed. Unless the context requires otherwise, all references to the Company include J. Alexander's Corporation and its subsidiaries. RESTAURANT OPERATIONS General. J. Alexander's is a quality casual dining restaurant with a contemporary American menu. J. Alexander's strategy is to provide a broad range of high-quality menu items that are intended to appeal to a wide range of consumer tastes and which are served by a courteous, friendly and well-trained service staff. The Company believes that quality food, outstanding service and value are critical to the success of J. Alexander's. Each restaurant is generally open from 11:00 a.m. to 11:00 p.m. Monday through Thursday, 11:00 a.m. to 12:00 midnight on Friday and Saturday and 11:00 a.m. to 10:00 p.m. on Sunday. Entrees available at lunch and dinner generally range in price from $5.95 to $24.00. The Company estimates that the average check per customer for fiscal 2001, excluding alcoholic beverages, was $15.38. J. Alexander's net sales during fiscal 2001 were $91.2 million, of which alcoholic beverage sales accounted for approximately 15.2%. The Company opened its first J. Alexander's restaurant in Nashville, Tennessee in May 1991. Since that time, the Company opened two restaurants in 1992, two restaurants in 1994, four restaurants in 1995, five restaurants in 1996, four restaurants in 1997, two restaurants in 1998, one restaurant during each of 1999 and 2000 and two restaurants in 2001. The Company plans to open one J. Alexander's restaurant during 2002 in Northbrook, Illinois. Menu. The J. Alexander's menu is designed to appeal to a wide variety of tastes and features prime rib of beef; hardwood-grilled steaks, seafood and chicken; pasta; salads and soups; and assorted sandwiches, appetizers and desserts. As a part of the Company's commitment to quality, soups, sauces, salsa, salad dressings and desserts are made daily from scratch; steaks, chicken and seafood are grilled over genuine hardwood; all steaks are U.S.D.A. Midwestern, Corn-fed Choice Beef, aged a minimum of 21 days; and imported Italian pasta, topped with fresh grated parmesan cheese, is used. Emphasis on quality is present throughout the entire J. Alexander's menu. Desserts such as chocolate cake and carrot cake are prepared in-house, and most restaurants bake featured croissants in-house as well. Guest Service. Management believes that prompt, courteous and efficient service is an integral part of the J. Alexander's concept. The management staff of each restaurant are referred to as "coaches" and the other employees as "champions". The Company seeks to hire coaches who are committed to the principle that quality products and service are key factors to success in the restaurant industry. Each J. Alexander's restaurant typically employs four to five fully-trained concept coaches and two kitchen coaches. Many of the coaches have previous experience in full-service restaurants and all complete an intensive J. Alexander's development program, generally lasting for 19 weeks, involving all aspects of restaurant operations. 2 Each J. Alexander's has approximately 40 to 60 service personnel, 25 to 30 kitchen employees, 8 to 10 host persons and 6 to 8 pubkeeps. The Company places significant emphasis on its initial training program. In addition, the coaches hold training breakfasts for the service staff to further enhance their product knowledge. Management believes J. Alexander's restaurants have a low table to server ratio, which is designed to provide better, more attentive service. The Company is committed to employee empowerment, and each member of the service staff is authorized to provide complimentary entrees in the event that a guest has an unsatisfactory dining experience or the food quality is not up to the Company's standards. Further, all members of the service staff are trained to know the Company's product specifications and to alert management of any potential problems. Quality Assurance. A key position in each J. Alexander's restaurant is the quality control coordinator. This position is staffed by a coach who inspects each plate of food before it is served to a guest. The Company believes that this product inspection by a member of management is a significant factor in maintaining consistent, high food quality in its restaurants. Another important component of the quality assurance system is the preparation of taste plates. Certain menu items are taste-tested daily by a coach to ensure that only the highest quality food is served in the restaurant. The Company also uses a service evaluation program to monitor service staff performance, food quality and guest satisfaction. Restaurant Design and Site Selection. The J. Alexander's restaurants built from 1992 through a portion of 1996 have generally been freestanding structures that contain approximately 7,400 square feet and seat approximately 230 people. The exterior of these restaurants typically combines brick, fieldstone and copper with awnings covering the windows and entrance. The restaurants' interiors are designed to provide a comfortable dining experience and feature high ceilings, wooden trusses with exposed pipes and an open kitchen immediately adjacent to the reception area. Consistent with the Company's intent to develop different looks for different markets, the last three restaurants opened in 1996 represented a departure from the "warehouse" style building described above. The J. Alexander's in Troy, Michigan is located inside the prestigious Somerset Collection mall and features a very upscale, contemporary design. The Chattanooga, Tennessee J. Alexander's features a stucco style exterior and includes a number of other unique design features as the result of being converted from another freestanding restaurant building acquired by the Company. Beginning with the Memphis, Tennessee restaurant opened in December 1996, a number of J. Alexander's restaurants have been built based on a building design intended to provide a high level of curb appeal using exterior craftsman-style architecture with unique natural materials such as stone, stained woods and weathering copper. The Company developed a new building design in conjunction with its entry into the Baton Rouge market during 1998 and utilized a similar building for its restaurants in West Bloomfield, Michigan and Cincinnati, Ohio. This building design features interior finishes and materials which reflect the blend of international and Craftsman architecture. Elements such as steel, concrete, stone and glass are subtly incorporated to give a contemporary feel to the space and provide an overall comfortable ambiance. The Boca Raton, Florida and Atlanta, Georgia restaurants opened in 2001, maintain the Wrightian architectural style of the more recent J. Alexander's designs. The buildings feature a high central-barreled roof and exposed structural steel system over an open, symmetrical plan. Angled window wall projections from the dining room provide a focus into the interior and create an anchor for the building. A garden seating area for waiting is provided by the patio and open trellis adjacent to the entrance, integrating the building into the adjacent landscape. Management anticipates the Northbrook, Illinois restaurant expected to open in late 2002 will be similar in design to the restaurants opened in 2001. Management estimates that capital expenditures for development of the one new restaurant planned in 2002 and for other additions and improvements to existing restaurants will total approximately $6.7 million in 2002. In addition, the Company is actively seeking locations for additional restaurants to be opened in 2003. If satisfactory locations are found and successfully negotiated, any amounts expended in 2002 for these locations, including land acquisition if the sites are purchased, will be in addition to the amounts discussed above. Excluding the cost of land acquisition, the Company estimates that the cash investment for site preparation and for constructing and equipping a J. Alexander's restaurant is currently approximately $3.0 to $3.4 million. The Company has generally preferred to own its sites because of the long-term value of real estate ownership. However, because of the Company's current development strategy, which focuses on markets with high population densities and household incomes, it has become increasingly difficult to find sites that are available for purchase and the Company has leased the sites for all but one of its restaurants opened since 1997. The cost of land purchased prior to 1998 averaged approximately $1 million per location. However, the two sites most recently purchased or placed under contract by the Company have averaged approximately $1.5 million each. Management anticipates that the cost of future sites, when and if purchased, will range from $1.25 to $2 million, and could exceed this range for exceptional properties. 3 The Company is actively seeking to acquire additional sites for new J. Alexander's restaurants primarily in the midwestern and the southeastern areas of the United States. Its current plans are to open one to two new restaurants per year. The timing of restaurant openings depends upon the selection and availability of suitable sites and other factors. The Company has no current plans to franchise J. Alexander's restaurants. The Company believes that its ability to select high profile restaurant sites is critical to the success of the J. Alexander's operations. Once a prospective site is identified and preliminary site analysis is performed and evaluated, members of the Company's senior management team visit the proposed location and evaluate the particular site and the surrounding area. The Company analyzes a variety of factors in the site selection process, including local market demographics, the number, type and success of competing restaurants in the immediate and surrounding area and accessibility to and visibility from major thoroughfares. The Company believes that this site selection strategy results in quality restaurant locations. SERVICE MARK The Company has registered the service mark J. Alexander's Restaurant with the United States Patent and Trademark Office and believes that it is of material importance to the Company's business. COMPETITION The restaurant industry is highly competitive. The Company believes that the principal competitive factors within the industry are site location, product quality, service and price; however, menu variety, attractiveness of facilities and customer recognition are also important factors. The Company's restaurants compete not only with numerous other casual dining restaurants with national or regional images, but also with other types of food service operations in the vicinity of each of the Company's restaurants. These include other restaurant chains or franchise operations with greater public recognition, substantially greater financial resources and higher total sales volume than the Company. The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants. PERSONNEL As of December 30, 2001, the Company employed 2,239 persons. The Company believes that its employee relations are good. It is not a party to any collective bargaining agreements. GOVERNMENT REGULATION Each of the Company's restaurants is subject to various federal, state and local laws, regulations and administrative practices relating to the sale of food and alcoholic beverages, and sanitation, fire and building codes. Restaurant operating costs are also affected by other governmental actions that are beyond the Company's control, which may include increases in the minimum hourly wage requirements, workers' compensation insurance rates and unemployment and other taxes. Difficulties or failures in obtaining the required licenses or approvals could delay or prevent the opening of a new restaurant. Alcoholic beverage control regulations require each of the Company's J. Alexander's restaurants to apply for and obtain from state authorities a license or permit to sell liquor on the premises and, in some states, to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time. The failure of any restaurant to obtain or retain any required liquor licenses would adversely affect the restaurant's operations. In certain states, the Company may be subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from the establishment which wrongfully served alcoholic beverages to the intoxicated person. Of the twelve states where J. Alexander's operates, eleven have dram-shop statutes or recognize a cause of action for damages relating to sales of liquor to obviously intoxicated persons and/or minors. The Company carries liquor liability coverage with an aggregate limit of $2 million and a limit per "common cause" of $1 million as part of its comprehensive general liability insurance. 4 The Americans with Disabilities Act ("ADA") prohibits discrimination on the basis of disability in public accommodations and employment. The ADA became effective as to public accommodations in January 1992 and as to employment in July 1992. Construction and remodeling projects since January 1992 have taken into account the requirements of the ADA. While no further expenditures relating to ADA compliance in existing restaurants are anticipated, the Company could be required to further modify its restaurants' facilities to comply with the provisions of the ADA. RISK FACTORS In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is including the following cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward looking statements of the Company made by, or on behalf of, the Company. The Company Faces Challenges in Opening New Restaurants. The Company's continued growth depends in part on its ability to open new J. Alexander's restaurants and to operate them profitably, which will depend on a number of factors, including the selection and availability of suitable locations, the hiring and training of sufficiently skilled management and other personnel and other factors, some of which are beyond the control of the Company. In addition, it has been the Company's experience that new restaurants generate operating losses while they build sales levels to maturity. The Company currently operates twenty-four J. Alexander's restaurants, of which four have been open for less than three years. Because of the Company's relatively small J. Alexander's restaurant base, an unsuccessful new restaurant could have a more adverse effect on the Company's results of operations than would be the case in a restaurant company with a greater number of restaurants. The Company Faces Intense Competition. The restaurant industry is intensely competitive with respect to price, service, location and food quality, and there are many well-established competitors with substantially greater financial and other resources than the Company. Some of the Company's competitors have been in existence for a substantially longer period than the Company and may be better established in markets where the Company's restaurants are or may be located. The restaurant business is often affected by changes in consumer tastes, national, regional or local economic conditions, demographic trends, traffic patterns and the type, number and location of competing restaurants. The Company May Experience Fluctuations in Quarterly Results. The Company's quarterly results of operations are affected by seasonality, timing of the opening of new J. Alexander's restaurants, and fluctuations in the cost of food, labor, employee benefits, and similar costs over which the Company has limited or no control. The Company's business may also be affected by inflation. In the past, management has attempted to anticipate and avoid material adverse effects on the Company's profitability from increasing costs through its purchasing practices and menu price adjustments, but there can be no assurance that it will be able to do so in the future. Government Regulation and Licensing May Delay New Restaurant Openings or Affect Operations. The restaurant industry is subject to extensive state and local government regulation relating to the sale of food and alcoholic beverages, and sanitation, fire and building codes. Termination of the liquor license for any J. Alexander's restaurant would adversely affect the revenues for the restaurant. Restaurant operating costs are also affected by other government actions that are beyond the Company's control, which may include increases in the minimum hourly wage requirements, workers' compensation insurance rates and unemployment and other taxes. If the Company experiences difficulties in obtaining or fails to obtain required licensing or other regulatory approvals, this delay or failure could delay or prevent the opening of a new J. Alexander's restaurant. The suspension of, or inability to renew, a license could interrupt operations at an existing restaurant, and the inability to retain or renew such licenses would adversely affect the operations of the new restaurants. 5 EXECUTIVE OFFICERS OF THE COMPANY The following list includes names and ages of all of the executive officers of the Company indicating all positions and offices with the Company held by each such person and each such person's principal occupations or employment during the past five years. All such persons have been appointed to serve until the next annual appointment of officers and until their successors are appointed, or until their earlier resignation or removal.
Name and Age Background Information ------------ ---------------------- Ronald E. Farmer, 55 Vice-President of Development since May 1996; Director of Development from October, 1993 to May, 1996; President of Dinelite Corporation, a franchisee of Po Folks Restaurants, from 1987 to 1993. R. Gregory Lewis, 49 Chief Financial Officer since July 1986; Vice President of Finance and Secretary since August 1984. J. Michael Moore, 42 Vice-President of Human Resources and Administration since November 1997; Director of Human Resources and Administration from August 1996 to November 1997; Director of Operations of Pioneer Music Group, a Nashville-based record label, April 1996 to August 1996; Director of Operations, J. Alexander's Restaurants, Inc. from March 1993 to April 1996. Mark A. Parkey, 39 Vice-President since May 1999; Controller of the Company since May 1997; Director of Finance from January 1993 to May 1997. Lonnie J. Stout II, 55 Chairman since July 1990; Director, President and Chief Executive Officer since May 1986.
ITEM 2. PROPERTIES As of December 30, 2001, the Company had 24 J. Alexander's casual dining restaurants in operation. The following table gives the locations of, and describes the Company's interest in, the land and buildings used in connection with the above:
Site Leased Site and Building and Building Space Owned by the Owned by the Leased to the Company Company Company Total ------- ------- ------- ----- J. Alexander's Restaurants: Alabama 1 0 0 1 Colorado 1 0 0 1 Florida 2 2 0 4 Georgia 1 0 0 1 Illinois 1 0 0 1 Kansas 1 0 0 1 Michigan 1 1 1 3 Ohio 3 2 0 5 Tennessee 3 0 1 4 Texas 0 1 0 1 Kentucky 0 1 0 1 Louisiana 0 1 0 1 - - - - Total 14 8 2 24 == = = ==
(a) In addition to the above, the Company leases two of its former Wendy's restaurant properties which are in turn leased to third parties. (b) See Item 1 for additional information concerning the Company's restaurants. 6 All of the Company's J. Alexander's restaurant lease agreements may be renewed at the end of the initial term (generally 15 to 20 years) for periods of five or more years. Certain of these leases provide for minimum rentals plus additional rent based on a percentage of the restaurant's gross sales in excess of specified amounts. These leases usually require the Company to pay all real estate taxes, insurance premiums and maintenance expenses with respect to the leased premises. Corporate offices for the Company are located in leased office space in Nashville, Tennessee. ITEM 3. LEGAL PROCEEDINGS As of March 15, 2002, the Company was not a party to any pending legal proceedings considered material to its business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2001. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Effective January 2, 2001, the common stock of J. Alexander's Corporation listed on the American Stock Exchange under the symbol JAX. Prior to that date, the Company's common stock traded on the New York Stock Exchange. The approximate number of record holders of the Company's common stock at March 25, 2002, was 1,550. The following table summarizes the price range of the Company's common stock for each quarter of 2001 and 2000, as reported from price quotations from the applicable exchanges:
2001 2000 ---- ---- Low High Low High 1st Quarter $2.00 $2.75 $3.00 $4.75 2nd Quarter 2.00 2.60 3.75 5.25 3rd Quarter 1.95 2.42 3.13 4.13 4th Quarter 1.80 2.40 1.88 3.31
The Company has never paid cash dividends on its common stock. The Company intends to retain earnings to invest in the Company's business. Payment of future dividends will be within the discretion of the Company's Board of Directors and will depend, among other factors, on earnings, capital requirements and the operating and financial condition of the Company. 7 ITEM 6. SELECTED FINANCIAL DATA The following table sets forth the selected financial data for each of the years in the five-year period ended December 30, 2001:
YEARS ENDED ----------- DECEMBER 30 DECEMBER 31 JANUARY 2 JANUARY 3 DECEMBER 28 (DOLLARS IN thousands, except per share data) 2001 2000 2000 19991 1997 ------------------------------------------------------------------------------------------------------------------- OPERATIONS Net sales $91,206 87,511 78,454 74,200 57,138 General and administrative expenses $ 7,199 7,206 7,124 5,815 5,793 Pre-opening expense $ 850 383 264 660 1,580 Net income (loss) $ 271 481 (332) (1,485)(2) (5,991)(3) Depreciation and amortization $ 4,428 4,299 4,041 4,067 3,138 Cash flow from operations $ 4,926 5,836 4,465 4,149 (2,150) Capital expenditures $ 8,815 4,814 4,884 4,914 16,619 FINANCIAL POSITION Cash and investments $ 1,035 1,057 933 1,022 134 Property and equipment, net $66,946 62,590 62,142 61,440 60,573 Total assets $71,303 66,370 65,635 65,120 64,421 Long-term obligations $19,532 16,771 18,128 21,361 20,231 Stockholders' equity $38,170 38,001 37,840 33,731 34,995 PER SHARE DATA Basic earnings (loss) per share $ .04 .07 (.05) (.27) (1.11) Diluted earnings (loss) per share $ .04 .07 (.05) (.27) (1.11) Dividends declared per share $ -- -- -- -- -- Stockholders' equity $ 5.62 5.55 5.59 6.21 6.45 Market price at year end $ 2.20 2.31 3.13 4.00 4.81 J. ALEXANDER'S RESTAURANT DATA Weighted average annual sales per unit $ 4,077 4,087 3,892 3,809 3,772 Units open at year end 24 22 21 20 18
1 Includes 53 weeks of operations, compared to 52 weeks for all other years presented. 2 Includes pre-tax gain of $264 related to the Company's divestiture of its Wendy's restaurants in 1996. 3 Includes an $885 charge to earnings to reflect the cumulative effect of the change in the Company's accounting policy for pre-opening costs to expense them as incurred. Also includes deferred tax expense of $2,393 related to an adjustment of the Company's beginning of the year valuation allowance for deferred taxes in accordance with Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" and a pre-tax gain of $669 related to the Company's divestiture of its Wendy's restaurants in 1996. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS GENERAL J. Alexander's Corporation (the Company) owns and operates upscale, high-volume, casual dining restaurants which offer a contemporary American menu and place a special emphasis on food quality and professional service. At December 30, 2001, the Company owned and operated 24 J. Alexander's restaurants in 12 states. During fiscal 2001, the Company posted income before income taxes of $902,000, up slightly from the $891,000 recorded during 2000. However, the Company's income tax provision increased by $221,000 during 2001 compared to 2000, resulting in net income of $271,000 for 2001 compared to $481,000 during 2000. For fiscal year 2000, the Company posted its first annual profit since the divestiture of its Wendy's operations in 1996. Net income for the year was $481,000 compared to a net loss of $332,000 in 1999, an increase of $813,000. Pre-tax results for the year improved approximately $1.2 million due primarily to higher operating income generated as a result of both higher sales and increased restaurant operating margin. The pre-tax increase was partially offset by the inclusion of a higher income tax provision which was required in 2000 as compared to 1999. The following table sets forth, for the fiscal years indicated, (i) the percentages which the items in the Company's Consolidated Statements of Operations bear to net sales, and (ii) other selected operating data:
Fiscal Year 2001 2000 1999 --------- --------- --------- Net sales 100.0% 100.0% 100.0% Costs and expenses: Cost of sales 32.4 32.0 32.6 Restaurant labor and related costs 33.5 33.8 33.5 Depreciation and amortization of restaurant property and equipment 4.7 4.6 4.7 Other operating expenses 18.2 18.1 18.3 --------- --------- --------- Total restaurant operating expenses 88.8 88.5 89.1 General and administrative expenses 7.9 8.2 9.1 Pre-opening expense .9 .4 .3 --------- --------- --------- Operating income 2.4 2.8 1.5 Other income (expense): Interest expense, net (1.4) (1.8) (2.0) Gain on purchase of debentures -- .1 .2 Other, net (.1) (.1) (.1) --------- --------- --------- Total other expense (1.4) (1.8) (1.9) --------- --------- --------- Income (loss) before income taxes 1.0 1.0 (.4) Income tax provision (.7) (.5) -- --------- --------- --------- Net income (loss) .3% .5% (.4)% ========= ========= ========= Restaurants open at end of year 24 22 21 Weighted average weekly sales per restaurant $ 78,400 $ 78,600 $ 74,900
9 NET SALES Net sales increased by approximately $3.7 million, or 4.2%, to $91.2 million in fiscal year 2001 from $87.5 million in 2000. The $87.5 million of sales recorded in 2000 represents an increase of $9.1 million, or 11.5%, over $78.5 million of sales reported in 1999. These increases were due to the opening of new restaurants and to sales increases within the Company's same store restaurant base. Same store sales, which include comparable results for all restaurants open for more than 18 months, totaled $78,100 per week in both 2001 and 2000 on a base of 22 restaurants. Same store sales for 2000 averaged $77,900 per week on a base of 20 restaurants, representing an increase of 3.7% over 1999. The method of computing same stores sales based on including restaurants open for more than 18 months was adopted effective with the third quarter of 2001. Under the previous method of reporting same store sales, which was based on restaurants open for more than 12 months, the weekly same store sales average decreased by .2% in 2001 and remained the same in 2000 compared to the respective prior years. Management estimates the average check per guest, excluding alcoholic beverage sales, was $15.38 for 2001, representing a decrease of approximately 1.5% compared to 2000. Menu prices for 2001 increased an estimated 0.4% compared to 2000. Management estimates that the average check per guest in 2000 totaled $15.62, representing an increase of approximately 8% over 1999. Menu prices for 2000 increased by an estimated 3.5% compared to 1999. The Company estimates that customer traffic (guest counts) on a same store basis for 2001 was equal to levels achieved in 2000 and decreased by approximately 4.6% in 2000 compared to 1999. Management believes that increases in check averages resulting from certain menu changes made in late 1999 proved to be excessive for the size and economic characteristics of its small and mid-market locations (those with less than 1.5 million people) and contributed to guest count declines experienced by the Company during the last three quarters of 2000. Beginning in the fourth quarter of 2000, the Company revised its menus and feature programs in certain of the restaurants in these markets in order to reduce the guest check average and improve customer traffic trends. As noted above, both of these objectives were accomplished during 2001 and the Company reported positive same store sales results for both the third and fourth quarters of 2001. Management implemented modest price increases during August and October of 2001 on selected menu items in an effort to improve sales and profitability. These changes positively impacted sales performance during the last half of 2001 and same store sales for the first two months of 2002 continue to show improvement when compared to the corresponding periods of 2001. However, customer traffic on a same store basis has decreased during the first two months of 2002 by approximately 1.7% compared to the corresponding periods of 2001. Management anticipates that, through menu management and continued emphasis on providing professional service, these trends will be reversed during the last half of 2002. RESTAURANT COSTS AND EXPENSES Total restaurant operating expenses, as a percentage of sales, have been relatively consistent during the past three years, totaling 88.8% for 2001, 88.5% for 2000 and 89.1% for 1999. Restaurant operating margins totaled 11.2% in 2001, 11.5% in 2000 and 10.9% in 1999. The most variable component of restaurant operating expenses during these years was cost of sales, which as a percentage of sales totaled 32.4%, 32.0% and 32.6% during 2001, 2000 and 1999, respectively. The increase during 2001 related primarily to a significant increase in the Company's cost of beef, a commodity that is contracted for annually and which comprises approximately 30% of the Company's cost of sales. The increased cost of beef more than offset the benefit of the nominal menu price increases noted above during 2001. The decrease in cost of sales during 2000 resulted from management's continued emphasis on increased efficiencies in this area and the menu price increases which were implemented during the year, as noted above. Management believes that continuing to increase sales volumes in the Company's restaurants is a significant factor in improving the Company's profitability and intends to maintain a low new restaurant development rate of one to two new restaurants per year to allow management to focus intently on improving sales and profits in its existing restaurants while maintaining its pursuit of operational excellence. Further, the Company's criteria for new restaurant development target locations with high population densities and high household incomes which management believes provide the best prospects for achieving outstanding financial returns on the Company's investments in new restaurants. 10 The Company has executed a new beef contract with more favorable pricing which became effective in March 2002. Management believes that the impact of the new beef prices, modest menu price increases and other cost control and reduction measures should more than offset increases in 2002 in certain other restaurant costs and expenses, including increases in insurance premiums. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses, which include supervisory costs as well as management training costs and all other costs above the restaurant level, totaled $7,199,000 in 2001, $7,206,000 in 2000 and $7,124,000 in 1999. Decreases in management training and relocation costs, which comprise approximately 18% to 20% of total general and administrative expenses, and certain other employee benefit related expenses allowed the Company to maintain total general and administrative expenses for 2001 at the prior year level by partially offsetting increases in other expenses related to the growth of the Company. As a percentage of sales, general and administrative expenses decreased to 7.9% in 2001 from 8.2% in 2000 due to the small decrease in expenditures and the higher sales levels achieved. General and administrative expenses increased only slightly in 2000 compared to 1999. However, as a percentage of sales, these expenses decreased to 8.2% in 2000 from 9.1% in 1999. Decreases in management training, relocation and procurement costs and certain other employee benefit related expenses contributed to the modest increase in total general and administrative expenses for 2000 by partially offsetting increases in other expenses related to the growth of the Company. General and administrative expenses as a percentage of sales for 2002 are expected to increase slightly as compared to 2001. PRE-OPENING EXPENSE Because the Company expenses all pre-opening costs as incurred, pre-opening expenses were higher in 2001, when two restaurants were opened, than in 2000 and 1999, when only one restaurant was opened in each year. OTHER INCOME AND EXPENSE Net interest expense decreased by $321,000 during 2001 compared to 2000 and increased only slightly in 2000 compared to 1999. The reduction in 2001 was primarily due to favorable interest rates on balances outstanding under the Company's revolving line of credit. "Other, net" expense of $51,000 for 2001, $81,000 for 2000 and $93,000 for 1999 was the result of expenses associated with the retirement of facilities and equipment replaced in connection with various capital maintenance projects which more than offset miscellaneous income categories. INCOME TAXES Under the provisions of SFAS No. 109 "Accounting for Income Taxes", the Company had gross deferred tax assets of $5,056,000 and $4,512,000 and gross deferred tax liabilities of $502,000 and $593,000 at December 30, 2001 and December 31, 2000, respectively. The deferred tax assets at December 30, 2001 relate primarily to $4,013,000 of tax credit carryforwards and $552,000 of net operating loss carryforwards available to reduce future federal income taxes. The recognition of deferred tax assets depends on the likelihood of taxable income in future periods in amounts sufficient to realize the assets. The deferred tax assets must be reduced through use of a valuation allowance to the extent future income is not likely to be generated in such amounts. Due to the losses incurred in 1997 through 1999 and because the Company operates with a high degree of financial and operating leverage, with a significant portion of operating costs being fixed or semi-fixed in nature, management has been unable to conclude that it is more likely than not that its existing deferred tax assets will be realized and has maintained a valuation allowance for 100% of its deferred tax assets, net of deferred tax liabilities, since 1997. 11 The provision for income taxes for 2001 and 2000 results from federal alternative minimum tax (AMT) and state income taxes payable. In 1999, the Company was able to reduce its AMT liability by the use of AMT net operating loss carryforwards. These carryforwards were all utilized in 1999, however, and were not available for 2000 and 2001. The effective tax rate of 70% for 2001 is significantly higher than the federal statutory rate because the AMT rate is applied to the Company's pre-tax accounting income after adding back certain tax preference items as well as certain permanent differences and timing differences in book and tax income. Because the Company maintains a 100% valuation allowance on its deferred tax assets, no benefit is recognized in the current year's income tax provision with respect to the AMT credit carryforward or other tax assets generated for the year. Further, because of the application of AMT, the Company at its current taxable income level is unable to take advantage of the sizable tax carryforwards which it has accumulated. LIQUIDITY AND CAPITAL RESOURCES The Company's primary need for capital for the past three years has been for the development and maintenance of its J. Alexander's restaurants. In addition, the Company has an annual sinking fund requirement, due on June 1, 2002, in connection with its outstanding Convertible Subordinated Debentures and may make purchases of up to $1,000,000 of its common stock under a repurchase program authorized by the Company's Board of Directors. From June 2001 through March 20, 2002, the Company has repurchased approximately 79,000 shares at a cost of approximately $179,000. The Company has met its capital needs and maintained liquidity primarily by use of cash flow from operations, use of its bank line of credit and through other sources discussed below. Capital expenditures totaled $8,815,000, $4,814,000 and $4,884,000 for 2001, 2000 and 1999, respectively, and were primarily for the development of new J. Alexander's restaurants. Cash flow from operations exceeded capital expenditures in 2000 and also represented 56% and 91% of capital expenditures for 2001 and 1999, respectively. The remaining capital expenditures along with other needs for the 2001 and 1999 years were funded by use of the Company's line of credit and, for 1999, by the sale of common stock as discussed below. In 2002, the Company plans to construct and open one restaurant. Management estimates that the cost to purchase property for, and build and equip this restaurant and for capital maintenance for existing restaurants will be approximately $6.7 million for 2002. In addition, the Company may incur capital expenditures for the purchase of property and/or construction of restaurants for locations to be opened in 2003. Any such expenditures are dependent upon the timing and success of management's efforts to locate acceptable sites. While a working capital deficit of $8,735,000 existed as of December 30, 2001, the Company does not believe this deficit impairs the overall financial condition of the Company. Certain of the Company's expenses, particularly depreciation and amortization, do not require current outlays of cash. Also, requirements for funding accounts receivable and inventories are relatively insignificant; thus virtually all cash generated by operations is available to meet current obligations. As of December 30, 2001, debentures in the principal amount of $162,000 had been purchased by the Company for use toward satisfying the annual sinking fund requirement of $1,875,000 for this issue for 2002. In 1999, the Company's Board of Directors established a loan program designed to enable eligible employees to purchase shares of the Company's common stock. Under the program participants were allowed to borrow an amount equal to the full price of common stock purchased. The plan authorized $1 million in loans to employees. Purchases of stock under the plan totaled $486,000 during 1999, with the remainder purchased in 2000. The employee loans, which are reported as a deduction from stockholders' equity, are payable on December 31, 2006, unless repaid sooner pursuant to terms of the plan. The Company maintains a bank line of credit of $20 million which is expected to be used as needed for funding of capital expenditures and to provide liquidity for meeting working capital or other needs. At December 30, 2001, borrowings outstanding under this line of credit were $14,271,000. The line of credit agreement, which was last amended on August 14, 2001, contains covenants which require the Company to achieve specified levels of senior debt to EBITDA (earnings before interest, taxes, depreciation and amortization) and to maintain certain other financial ratios. The Company was in compliance with these covenants at December 30, 2001 and, based on a current assessment of its business, believes it will continue to comply with these covenants during 2002. The credit agreement also contains certain limitations on capital expenditures and restaurant development by the Company (generally limiting the Company 12 to the development of two new restaurants per year) and restricts the Company's ability to incur additional debt outside the bank line of credit. The interest rate on borrowings under the line of credit is currently based on LIBOR plus a spread of two to three percent, depending on the ratio of senior debt to EBITDA. This agreement expires on July 1, 2002, but includes an option to convert outstanding borrowings to a term loan prior to that time. In the event of conversion, the principal would be repaid in 84 equal monthly installments. Because the line of credit is scheduled to mature within six months of December 30, 2001, $1,019,000, representing six months' principal payments if the total credit line balance were converted to a term loan, has been reflected as a current liability in the December 30, 2001 balance sheet. While management believes its existing credit facility will be adequate to meet its financing needs during 2002, it is actively evaluating proposals for long-term real estate financing and believes that such financing will be available on acceptable terms in an amount sufficient to reduce or fully repay the current line of credit as well as provide for payment of $7,963,000 related to the remaining balance of its convertible debentures. The Company presently intends to obtain such financing, but there can be no assurance that it will be successful in doing so. Interest rates on financing of this nature are expected to be significantly higher than those currently being paid on balances outstanding under the Company's line of credit. If the Company is unsuccessful in obtaining long-term real estate financing, then it can exercise the option to convert its credit facility to a term loan, as described above. In March 1999 the Company developed a plan for raising additional equity capital to further strengthen its financial position and, as part of this plan, completed a private sale of 1,086,266 shares of common stock to Solidus, LLC, an affiliate of one of the directors of the Company, for approximately $4.1 million. In addition, on June 21, 1999, the Company completed a rights offering wherein shareholders of the Company purchased an additional 240,615 shares of common stock at a price of $3.75 per share, which was the same price per share as stock sold in the private sale. The private sale and the rights offering raised total net proceeds to the Company of approximately $4.8 million which were used to repay a portion of the debt outstanding under the Company's bank line of credit. The Company believes that raising additional equity capital and repaying a portion of its outstanding debt benefited the Company by reducing its debt to equity ratio and reducing interest expense and that it will provide greater flexibility to the Company in providing for future financing needs. From 1975 through 1996, the Company operated restaurants in the quick-service restaurant industry. The discontinuation of these quick-service restaurant operations included disposals of restaurants that were subject to lease agreements which typically contained initial lease terms of 20 years plus two additional option periods of five years each. In connection with certain of these dispositions, the Company remains secondarily liable for ensuring financial performance as set forth in the original lease agreement. The Company can only estimate its contingent liability relative to these leases, as any changes to the contractual arrangements between the current tenant and the landlord subsequent to the assignment are not required to be disclosed to the Company. A summary of the Company's estimated contingent liability is set forth as follows: Wendy's Restaurants (39 leases) $6,448,000 Mrs. Winner's Chicken & Biscuits Restaurants (33 leases) 1,763,000 ---------- Total contingent liability related to assigned leases $8,211,000 ==========
There have been no payments by the Company of such contingent liabilities in the history of the Company. As of March 20, 2002, the Company had no financing transactions, arrangements or other relationships with any unconsolidated entities or related parties. Additionally, the Company is not a party to any financing arrangements involving synthetic leases or trading activities involving commodity contracts. Operating lease commitments for leased restaurants and office space are disclosed in Note F, "Leases" and Note K, "Commitments and Contingencies", to the consolidated financial statements. 13 CRITICAL ACCOUNTING POLICIES The preparation of the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. On an ongoing basis, management evaluates its estimates and judgments, including those related to its accounting for income taxes, impairment of long-lived assets, contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. Management believes the following critical accounting policies are those which involve the more significant judgments and estimates used in the preparation of its consolidated financial statements. - Income Taxes - the Company had $5,056,000 of gross deferred tax assets at December 30, 2001, consisting principally of $4,013,000 of tax credit carryforwards and $552,000 of net operating loss carryforwards. Generally accepted accounting principles require that the Company record a valuation allowance against its deferred tax assets unless it is "more likely than not" that such assets will ultimately be realized. Due to losses incurred from 1997 through 1999 and because the Company operates with a high degree of financial and operating leverage, with a significant portion of its costs being fixed or semi-fixed in nature, management has been unable to conclude that it is more likely than not that its existing deferred tax assets will be realized and has maintained a valuation allowance for 100% of its deferred tax assets, net of deferred tax liabilities, since 1997. As a result, the Company currently provides for income taxes only to the extent that it expects to pay cash taxes (primarily state taxes and the federal alternative minimum tax) on current taxable income. It is possible, however, that the Company could generate profits in the future at levels which would cause management to conclude that it is more likely than not that the Company will realize all or a portion of its various net deferred tax assets. Upon reaching such a conclusion, management would record the estimated net realizable value of the deferred tax assets. Subsequent revisions to the estimated net realizable value of the deferred tax assets could cause the Company's provision for income taxes to vary significantly from period to period, although its cash tax payments would remain unaffected until the benefit of the various carryforwards was fully utilized. - Impairments of Long-Lived Assets - when events and circumstances indicate that long-lived assets - most typically assets associated with a specific restaurant - might be impaired, management compares the carrying value of such assets to the undiscounted cash flows it expects that restaurant to generate over its remaining useful life. In calculating its estimate of such undiscounted cash flows, management is required to make assumptions relative to the restaurant's future sales performance, cost of sales, labor, operating expenses and occupancy costs, which include property taxes, property and casualty insurance premiums and other similar costs associated with the restaurant's operation. The resulting forecast of undiscounted cash flows represents management's best estimate based on both historical results and management's expectation of future operations for that particular restaurant. To date, all of the Company's long-lived assets have been determined to be recoverable based on management's estimates of future cash flows. The above listing is not intended to be a comprehensive listing of all of the Company's accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles, with no need for management's judgment in their application. There are also areas in which management's judgment in selecting any available alternative would not produce a materially different result. See the Company's audited consolidated financial statements and notes thereto included in this Annual Report on Form 10-K which contain accounting policies and other disclosures required by generally accepted accounting principles. 14 RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued SFAS No. 141 "Business Combinations" ("SFAS 141") and SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and that the use of the pooling-of-interest method is no longer allowed. SFAS 142 requires that upon adoption, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002, including the required impairment tests. As of the date of adoption, the Company expects to have unamortized goodwill of approximately $171,000, which will be subject to the transition provisions of SFAS 142. Amortization expense related to goodwill was $5,000 for the fiscal year ended December 30, 2001. Because of the extensive effort needed to comply with adopting SFAS 142, it is not practicable to reasonably estimate the impact of adopting this statement on the Company's consolidated financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. SFAS 144 provides a single framework for evaluating long-lived assets that are to be disposed of by sale and addresses the principal implementation issues. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company will adopt SFAS 144 as of December 31, 2001 and does not expect that the adoption of the Statement will have a significant impact on the Company's financial position and results of operations. IMPACT OF INFLATION AND OTHER FACTORS Virtually all of the Company's costs and expenses are subject to normal inflationary pressures and the Company is continually seeking ways to cope with their impact. By owning a number of its properties, the Company avoids certain increases in occupancy costs. New and replacement assets will likely be acquired at higher costs but this will take place over many years. In general, the Company tries to offset increased costs and expenses through additional improvements in operating efficiencies and by increasing menu prices over time, as permitted by competition and market conditions. SEASONALITY AND QUARTERLY RESULTS The Company's revenues and net income have historically been subject to seasonal fluctuations. Revenues and net income typically reach their highest levels during the fourth quarter of the fiscal year due to holiday business and the first quarter due to the redemption of gift cards sold during the holiday season. In addition, certain of the Company's restaurants, particularly those located in South Florida, typically experience an increase in customer traffic during the period between Thanksgiving and Easter due to local residents who live in these markets for only a portion of the year. As a result of these and other factors, the Company's financial results for any given quarter may not be indicative of the results that may be achieved for a full fiscal year. Quarterly results have been and will continue to be significantly impacted by the timing of new restaurant openings and their associated pre-opening costs. RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS The foregoing discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto. All references are to fiscal years unless otherwise noted. The forward-looking statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations relating to certain matters involve risks and uncertainties, including anticipated financial performance, business prospects, anticipated capital expenditures, financing arrangements and other similar matters, which reflect management's best judgment based on factors currently known. Actual results and experience could differ materially from the anticipated results or other expectations expressed in the Company's forward-looking statements as a result of a number of factors. Forward-looking information provided by the Company pursuant to the safe harbor established under the Private Securities Litigation Reform Act of 1995 should be evaluated in the context of these factors. In addition, the Company disclaims any intent or obligation to update these forward-looking statements. 15 ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Disclosure About Interest Rate Risk. The Company is subject to market risk from exposure to changes in interest rates based on its financing and cash management activities. The Company utilizes a mix of both fixed-rate and variable-rate debt to manage its exposures to changes in interest rates. (See Notes E and F to the consolidated financial statements appearing elsewhere herein.) The Company does not expect changes in market interest rates to have a material affect on income or cash flows in fiscal 2002, although there can be no assurances that interest rates will not significantly change. Commodity Price Risk. Many of the food products purchased by the Company are affected by commodity pricing and are, therefore, subject to price volatility caused by weather, production problems, delivery difficulties and other factors which are outside the control of the Company. Essential supplies and raw materials are available from several sources and the Company is not dependent upon any single source of supplies or raw materials. The Company's ability to maintain consistent quality throughout its restaurant system depends in part upon its ability to acquire food products and related items from reliable sources. When the supply of certain products is uncertain or prices are expected to rise significantly, the Company may enter into purchase contracts or purchase bulk quantities for future use. The Company has purchase commitments for terms of one year or less for food and supplies with a variety of vendors. Such commitments generally include a pricing schedule for the period covered by the agreements. The Company has established long-term relationships with key beef, seafood and produce vendors and brokers. Adequate alternative sources of supply are believed to exist for substantially all products. While the supply and availability of certain products can be volatile, the Company believes that it has the ability to identify and access alternative products as well as the ability to adjust menu prices if needed. Significant items that could be subject to price fluctuations are beef, seafood, produce, pork and dairy products among others. The Company believes that any changes in commodity pricing which cannot be adjusted for by changes in menu pricing or other product delivery strategies would not be material. 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX OF FINANCIAL STATEMENTS
Page ---- Independent Auditors' Report 18 Consolidated statements of operations - Years ended December 30, 2001, December 31, 2000 and January 2, 2000 19 Consolidated balance sheets - December 30, 2001 and December 31, 2000 20 Consolidated statements of cash flows - Years ended December 30, 2001, December 31, 2000 and January 2, 2000 21 Consolidated statements of stockholders' equity - Years ended December 30, 2001, December 31, 2000 and January 2, 2000 22 Notes to consolidated financial statements 23 - 32
The following consolidated financial statement schedule of J. Alexander's Corporation and subsidiaries is included in Item 14(d): Schedule II-Valuation and qualifying accounts All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. 17 Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Stockholders J. Alexander's Corporation We have audited the accompanying consolidated balance sheets of J. Alexander's Corporation and subsidiaries as of December 30, 2001 and December 31, 2000, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three fiscal years in the period ended December 30, 2001. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of J. Alexander's Corporation and subsidiaries at December 30, 2001 and December 31, 2000, and the consolidated results of their operations and their cash flows for each of the three fiscal years in the period ended December 30, 2001 in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/Ernst & Young LLP Nashville, Tennessee February 8, 2002 18 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended ----------- DECEMBER 30 December 31 January 2 2001 2000 2000 ----------- ------------ ----------- Net sales $91,206,000 $87,511,000 $78,454,000 Costs and expenses: Cost of sales 29,575,000 28,002,000 25,568,000 Restaurant labor and related costs 30,533,000 29,565,000 26,289,000 Depreciation and amortization of restaurant property and equipment 4,242,000 4,040,000 3,688,000 Other operating expenses 16,602,000 15,828,000 14,323,000 ----------- ------------ ----------- Total restaurant operating expenses 80,952,000 77,435,000 69,868,000 ----------- ------------ ----------- General and administrative expenses 7,199,000 7,206,000 7,124,000 Pre-opening expense 850,000 383,000 264,000 ----------- ------------ ----------- Operating income 2,205,000 2,487,000 1,198,000 ----------- ------------ ----------- Other income (expense): Interest expense, net (1,269,000) (1,590,000) (1,570,000) Gain on purchase of debentures 17,000 75,000 166,000 Other, net (51,000) (81,000) (93,000) ----------- ------------ ----------- Total other expense (1,303,000) (1,596,000) (1,497,000) ----------- ------------ ----------- Income (loss) before income taxes 902,000 891,000 (299,000) Income tax provision (631,000) (410,000) (33,000) ----------- ------------ ----------- Net income (loss) $ 271,000 $ 481,000 $ (332,000) =========== ============ =========== Basic earnings (loss) per share $ .04 $ .07 $ (.05) =========== ============ =========== Diluted earnings (loss) per share $ .04 $ .07 $ (.05) =========== ============ ===========
See notes to consolidated financial statements. 19 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 30 December 31 2001 2000 ---- ---- ASSETS CURRENT ASSETS Cash and cash equivalents $1,035,000 $1,057,000 Accounts and notes receivable, including current portion of direct financing leases, net of allowances for possible losses 174,000 112,000 Inventories at lower of cost (first-in, first-out method) or market 936,000 741,000 Prepaid expenses and other current assets 835,000 592,000 ----------- ------------ TOTAL CURRENT ASSETS 2,980,000 2,502,000 OTHER ASSETS 902,000 836,000 PROPERTY AND EQUIPMENT, at cost, less allowances for depreciation and amortization 66,946,000 62,590,000 DEFERRED CHARGES, less accumulated amortization of $1,269,000 and $1,217,000 at December 30, 2001, and December 31, 2000, respectively 475,000 442,000 ----------- ------------ $71,303,000 $66,370,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,598,000 $2,825,000 Accrued expenses and other current liabilities 3,956,000 3,346,000 Unearned revenue 2,415,000 1,961,000 Current portion of long-term debt and obligations under capital leases 2,746,000 1,993,000 ----------- --------- TOTAL CURRENT LIABILITIES 11,715,000 10,125,000 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, net of portion classified as current 19,532,000 16,771,000 OTHER LONG-TERM LIABILITIES 1,886,000 1,473,000 STOCKHOLDERS' EQUITY Common Stock, par value $.05 per share: Authorized 10,000,000 shares; issued and outstanding 6,797,618 and 6,851,816 shares at December 30, 2001, and December 31, 2000, respectively 340,000 343,000 Preferred Stock, no par value: Authorized 1,000,000 shares; none issued - - Additional paid-in capital 34,739,000 34,867,000 Retained earnings 4,692,000 4,421,000 ----------- ----------- 39,771,000 39,631,000 Note receivable - Employee Stock Ownership Plan (688,000) (686,000) Employee notes receivable - 1999 Loan Program (913,000) (944,000) ----------- ------------ TOTAL STOCKHOLDERS' EQUITY 38,170,000 38,001,000 ----------- ------------ Commitments and Contingencies $71,303,000 $66,370,000 =========== ============
See notes to consolidated financial statements. 20 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended ----------- DECEMBER 30 December 31 January 2 2001 2000 2000 ------------ ------------ ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $271,000 $481,000 $(332,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization of property and equipment 4,376,000 4,198,000 3,919,000 Amortization of deferred charges 52,000 101,000 121,000 Employee Stock Ownership Plan expense - - 134,000 Stock awards - 1999 Loan Program - 61,000 - Other, net 81,000 179,000 274,000 Changes in assets and liabilities: Increase in accounts and notes receivable (71,000) - (64,000) (Increase) decrease in inventories (195,000) (38,000) 97,000 Increase in prepaid expenses and other current assets (243,000) (170,000) (98,000) Increase in deferred charges (85,000) (55,000) (40,000) (Decrease) increase in accounts payable (669,000) 667,000 34,000 Increase (decrease) in accrued expenses and other current liabilities 542,000 (284,000) (274,000) Increase in unearned revenue 454,000 270,000 324,000 Increase in other long-term liabilities 413,000 426,000 370,000 ------------ ------------ ------------- Net cash provided by operating activities 4,926,000 5,836,000 4,465,000 ------------ ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (8,306,000) (4,910,000) (4,788,000) Other, net (54,000) (12,000) 82,000 ------------ ------------ ------------- Net cash used by investing activities (8,360,000) (4,922,000) (4,706,000) ------------ ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds under bank line of credit agreement 41,003,000 33,851,000 28,640,000 Payments under bank line of credit agreement (35,997,000) (32,605,000) (29,891,000) Payments on long-term debt and obligations under capital leases (1,492,000) (1,605,000) (2,904,000) Purchase of stock for 1999 Loan Program - (515,000) (486,000) Common stock repurchased (136,000) - - Reduction of employee notes receivable - 1999 Loan Program 31,000 57,000 - Sale of stock and exercise of stock options 3,000 27,000 4,793,000 ------------ ------------ ------------- Net cash provided (used) by financing activities 3,412,000 (790,000) 152,000 ------------ ------------ ------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (22,000) 124,000 (89,000) Cash and cash equivalents at beginning of year 1,057,000 933,000 1,022,000 ------------ ------------ ------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,035,000 $ 1,057,000 $ 933,000 ============ ============ =============
See notes to consolidated financial statements. 21 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Note Receivable- Employee Notes Employee Receivable- Additional Stock 1999 Total Outstanding Common Paid-In Retained Ownership Loan Stockholders' Shares Stock Capital Earnings Plan Program Equity ------------- ---------- ----------- ----------- ------------ --------- ------------ BALANCES AT JANUARY 3, 1999 5,431,335 $ 272,000 $30,007,000 $ 4,272,000 $ (820,000) $ - $ 33,731,000 Stock sold in private trans- action and through rights offering 1,326,881 66,000 4,697,000 - - - 4,763,000 Exercise of stock options 13,993 1,000 29,000 - - - 30,000 Reduction of note receivable- Employee Stock Ownership Plan - - - - 134,000 - 134,000 Purchase of stock-1999 Loan Program - - - - - (486,000) (486,000) Net loss - - - (332,000) - - (332,000) ------------- ---------- ----------- ----------- ------------ --------- ------------ BALANCES AT JANUARY 2, 2000 6,772,209 339,000 34,733,000 3,940,000 (686,000) (486,000) 37,840,000 Exercise of stock options 49,109 2,000 25,000 - - - 27,000 Purchase of stock-1999 Loan Program - - - - - (515,000) (515,000) Reduction of employee notes receivable - 1999 Loan Program - - - - - 57,000 57,000 Stock awards - 1999 Loan Program 30,498 2,000 109,000 - - - 111,000 Net income - - - 481,000 - - 481,000 ------------- ---------- ----------- ----------- ------------ --------- ------------ BALANCES AT DECEMBER 31, 2000 6,851,816 343,000 34,867,000 4,421,000 (686,000) (944,000) 38,001,000 Exercise of stock options 7,500 - 10,000 - - - 10,000 Reduction of employee notes receivable - 1999 Loan Program - - - - - 31,000 31,000 Common stock repurchased (61,226) (3,000) (133,000) - - - (136,000) Other, net (472) - (5,000) - (2,000) - (7,000) Net income - - - 271,000 - - 271,000 ------------- ---------- ----------- ----------- ------------ --------- ------------ BALANCES AT DECEMBER 30, 2001 6,797,618 $ 340,000 $34,739,000 $ 4,692,000 $ (688,000) $(913,000) $ 38,170,000 ============== =========== =========== ============ ============ ========= ============
See notes to consolidated financial statements. 22 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A - SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION: The consolidated financial statements include the accounts of J. Alexander's Corporation and its wholly-owned subsidiaries (the Company). The Company owns and operates 24 J. Alexander's restaurants in twelve states throughout the United States. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made in the prior years' consolidated financial statements to conform to the 2001 presentation. FISCAL YEAR: The Company's fiscal year ends on the Sunday closest to December 31 and each quarter typically consists of thirteen weeks. CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with an original maturity of three months or less when purchased. PROPERTY AND EQUIPMENT: Depreciation and amortization are provided on the straight-line method over the following estimated useful lives: buildings - 30 years, restaurant and other equipment - two to 10 years, and capital leases and leasehold improvements - lesser of life of assets or terms of leases, generally including renewal options. DEFERRED CHARGES: Costs in excess of net assets acquired have been amortized over 40 years using the straight-line method. Debt issue costs are amortized principally by the interest method over the life of the related debt. INCOME TAXES: The Company accounts for income taxes under the liability method required by Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes". SFAS No. 109 requires that deferred tax assets and liabilities be established based on the difference between the financial statement and income tax bases of assets and liabilities measured at tax rates that will be in effect when the differences reverse. EARNINGS PER SHARE: The Company accounts for earnings per share in accordance with SFAS No. 128 "Earnings Per Share". REVENUE RECOGNITION: Restaurant revenues are recognized when food and service are provided. Unearned revenue consists of gift certificates sold, but not redeemed. PRE-OPENING COSTS: The Company accounts for pre-opening costs by expensing such costs as they are incurred, consistent with the requirements under the American Institute of Certified Public Accountants' Statement of Position 98-5 "Reporting on the Costs of Start-Up Activities". FAIR VALUE OF FINANCIAL INSTRUMENTS: The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. Long-term debt: The carrying amount of the Company's borrowings with variable interest rates approximates their fair value. The fair value of the Company's convertible subordinated debentures was determined based on quoted market prices (see Note E). Due to the immaterial amounts involved, fair value of other fixed rate long-term debt was estimated to approximate its carrying amount. Contingent liabilities: In connection with the sale of its Mrs. Winner's Chicken & Biscuit restaurant operations and the disposition of its Wendy's restaurant operations, the Company remains secondarily liable for certain real and personal property leases. The Company does not believe it is practicable to estimate the fair value of these contingencies and does not believe any significant loss is likely. 23 DEVELOPMENT COSTS: Certain direct and indirect costs are capitalized as building costs in conjunction with acquiring and developing new J. Alexander's restaurant sites and amortized over the life of the related building. Development costs of $165,000, $200,000 and $203,000 were capitalized during 2001, 2000 and 1999, respectively. SELF-INSURANCE: The Company is generally self-insured, subject to stop-loss limitations, for losses and liabilities related to its group medical plan. Losses are accrued based upon the Company's estimates of the aggregate liability for claims incurred using certain estimation processes applicable to the insurance industry and, where applicable, based on Company experience. ADVERTISING COSTS: The Company charges costs of advertising to expense at the time the costs are incurred. Advertising expense was $29,000, $42,000 and $70,000 in 2001, 2000 and 1999, respectively. STOCK BASED COMPENSATION: The Company accounts for its stock compensation arrangements in accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" and, accordingly, typically recognizes no compensation expense for such arrangements. USE OF ESTIMATES IN FINANCIAL STATEMENTS: Judgment and estimation are utilized by management in certain areas in the preparation of the Company's financial statements. Some of the more significant areas include the valuation allowance relative to the Company's deferred tax assets and reserves for self-insurance of group medical claims. Management believes that such estimates have been based on reasonable assumptions and that such reserves are adequate. IMPAIRMENT: SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. Accordingly, when indicators of impairment are present with respect to an individual restaurant, the Company periodically evaluates the carrying value of that restaurant's property and equipment and intangibles. COMPREHENSIVE INCOME: The Company has no items of comprehensive income as defined under SFAS No. 130, "Reporting Comprehensive Income". BUSINESS SEGMENTS: In accordance with the requirements of SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information", management has determined that the Company operates in only one segment. RECENT ACCOUNTING PRONOUNCEMENTS: The Financial Accounting Standards Board has issued SFAS No. 141 "Business Combinations" ("SFAS 141") and SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and that the use of the pooling-of-interest method is no longer allowed. SFAS 142 requires that upon adoption, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be evaluated for impairment on an annual basis. Identifiable intangible assets will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002, including the required impairment tests. As of the date of adoption, the Company expects to have unamortized goodwill of approximately $171,000, which will be subject to the transition provisions of SFAS 142. Amortization expense related to goodwill was $5,000 for the fiscal year ended December 30, 2001. Because of the extensive effort needed to comply with adopting SFAS 142, it is not practicable to reasonably estimate the impact of adopting this statement on the Company's consolidated financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. 24 In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations" for a disposal of a segment of a business. SFAS 144 provides a single framework for evaluating long-lived assets that are to be disposed of by sale and addresses the principal implementation issues. SFAS 144 is effective for fiscal years beginning after December 15, 2001, with earlier application encouraged. The Company will adopt SFAS 144 as of December 31, 2001 and does not expect that the adoption of the Statement will have a significant impact on the Company's financial position and results of operations. NOTE B - SALE OF STOCK On March 22, 1999, the Company completed a private sale of 1,086,266 shares of common stock to Solidus, LLC ("Solidus") for approximately $4.1 million. E. Townes Duncan, a director of the Company, is a minority owner of and manages the investments of Solidus. In addition, on June 21, 1999 the Company completed a rights offering wherein shareholders of the Company purchased an additional 240,615 shares of common stock at a price of $3.75 per share, which was the same price per share as stock sold in the private sale. The net proceeds to the Company from the private sale noted above and the rights offering were approximately $4.8 million, which was used to repay a portion of the debt outstanding under the Company's revolving credit facility. NOTE C - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
YEARS ENDED ----------- DECEMBER 30 December 31 January 2 2001 2000 2000 ---- ---- ---- NUMERATOR: Net income (loss) [numerator for basic earnings (loss) per share] $ 271,000 $ 481,000 $ (332,000) Effect of dilutive securities -- -- -- ---------- ---------- ----------- Net income (loss) after assumed conversions [numerator for diluted earnings (loss) per share] $ 271,000 $ 481,000 $ (332,000) ========== ========== =========== DENOMINATOR: Weighted average shares [denominator for basic earnings (loss) per share] 6,840,000 6,846,000 6,428,000 Effect of dilutive securities 1,000 130,000 -- ---------- ---------- ----------- Adjusted weighted average shares and assumed conversions [denominator for diluted earnings (loss) per share] 6,841,000 6,976,000 6,428,000 ========== ========== =========== Basic earnings (loss) per share $ .04 $ .07 $ (.05) ========== ========== =========== Diluted earnings (loss) per share $ .04 $ .07 $ (.05) ========== ========== ===========
In situations where the exercise price of outstanding options is greater than the average market price of common shares, such options are excluded from the computation of diluted earnings per share because of their antidilutive impact. A total of 822,000 and 309,000 options were excluded from the computation of diluted earnings per share in 2001 and 2000, respectively. Due to a net loss in 1999, all options outstanding during the year were excluded from the computation of diluted earnings per share. 25 NOTE D - PROPERTY AND EQUIPMENT Balances of major classes of property and equipment are as follows:
DECEMBER 30 December 31 2001 2000 ---- ---- Land $14,340,000 $13,126,000 Buildings 33,714,000 30,176,000 Buildings under capital leases 276,000 276,000 Leasehold improvements 22,507,000 20,284,000 Restaurant and other equipment 18,452,000 16,816,000 Construction in progress (estimated cost to complete at December 30, 2001, $4,750,000) 232,000 326,000 ----------- ----------- 89,521,000 81,004,000 Less allowances for depreciation and amortization (22,575,000) (18,414,000) ----------- ----------- $66,946,000 $62,590,000 =========== ===========
NOTE E - LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES Long-term debt and obligations under capital leases at December 30, 2001, and December 31, 2000, are summarized below:
DECEMBER 30, 2001 December 31, 2000 ----------------- ----------------- CURRENT LONG-TERM Current Long-Term ------- --------- ------- --------- Convertible Subordinated Debentures, 8.25%, due 2003 $1,713,000 $ 6,250,000 $1,319,000 $ 8,125,000 Bank credit agreement, at variable interest rates ranging from 3.9% to 8.6%, available through July 1, 2002 1,019,000 13,252,000 662,000 8,603,000 Obligation under capital lease, 11.50% interest, payable through 2004 14,000 30,000 12,000 43,000 ---------- ----------- ---------- ----------- $2,746,000 $19,532,000 $1,993,000 $16,771,000 ========== =========== ========== ===========
Aggregate maturities of long-term debt, including required sinking fund payments and assumed conversion of the line of credit facility, for the five years succeeding December 30, 2001, are as follows: 2002 - $2,746,000; 2003 - $8,304,000 ; 2004 - $2,054,000; 2005 - $2,039,000; 2006 - $2,039,000. The Convertible Subordinated Debentures due 2003 are convertible into common stock of the Company at any time prior to maturity at $17.75 per share, subject to adjustment in certain events. At December 30, 2001, 448,620 shares of common stock were reserved for issuance upon conversion of the outstanding debentures. The debentures are redeemable upon not less than 30 days' notice at the option of the Company, in whole or in part, at 100% of the principal amount, together with accrued interest to the redemption date. The effective interest rate on the debentures is 8.68%. The Debenture Indenture requires minimum annual sinking fund payments of $1,875,000 through 2002. The Company maintains an unsecured bank line of credit agreement for up to $20,000,000 of revolving credit for the purpose of financing capital expenditures. Borrowings outstanding under this line of credit totaled $14,271,000 and $9,265,000 at December 30, 2001 and December 31, 2000, respectively. In August 2001, the term of the line of credit was extended by one year through July 1, 2002. The amended credit agreement contains covenants which require the Company to achieve specified levels of senior debt to EBITDA (earnings before interest, taxes, depreciation and amortization) and to maintain certain other financial ratios. It also contains certain limitations on capital expenditures and restaurant development by the Company (generally limiting the Company to the development of two new restaurants per year) and restricts the Company's ability to incur additional debt outside the bank line of credit. The interest rate on borrowings under the line of credit is based on LIBOR plus two to three percent, depending on certain financial ratios achieved by the Company. All amounts outstanding under the line become due on July 1, 2002, unless the Company exercises its option to convert outstanding borrowings to a term loan prior to that time. In the event of such a conversion, the principal would be repaid in 84 equal monthly installments. Because the line of credit is scheduled to mature within six months of December 30, 2001, $1,019,000 - representing six months' principal payments if the total credit line balance were converted to a term loan - has been reflected as a current liability as of December 30, 2001. 26 Cash interest payments amounted to $1,469,000, $1,652,000 and $1,606,000, in 2001, 2000 and 1999, respectively. Interest costs of $134,000, $67,000 and $48,000 were capitalized as part of building and leasehold costs in 2001, 2000 and 1999, respectively. The carrying value and estimated fair value of the Company's Convertible Subordinated Debentures were $7,963,000 and $7,326,000, respectively, at December 30, 2001. NOTE F - LEASES At December 30, 2001, the Company was lessee under both ground leases (the Company leases the land and builds its own buildings) and improved leases (lessor owns the land and buildings) for restaurant locations. These leases are generally operating leases. Real estate lease terms are generally for 15 to 20 years and, in many cases, provide for rent escalations and for one or more five-year renewal options. The Company is generally obligated for the cost of property taxes, insurance and maintenance. Certain real property leases provide for contingent rentals based upon a percentage of sales. In addition, the Company is lessee under other noncancellable operating leases, principally for office space. Accumulated amortization of buildings under capital leases totaled $271,000 at December 30, 2001 and $257,000 at December 31, 2000. Amortization of leased assets is included in depreciation and amortization expense. Total rental expense amounted to:
Years Ended ----------- DECEMBER 30 December 31 January 2 2001 2000 2000 ---- ---- ---- Minimum rentals under operating leases $ 2,101,000 $ 1,951,000 $ 1,768,000 Contingent rentals 56,000 72,000 67,000 Less: Sublease rentals (112,000) (131,000) (199,000) ----------- ----------- ----------- $ 2,045,000 $ 1,892,000 $ 1,636,000 =========== =========== ===========
At December 30, 2001, future minimum lease payments under capital leases and noncancellable operating leases (including renewal options) with initial terms of one year or more are as follows:
Capital Operating Leases Leases ------- --------- 2002 $ 19,000 $ 1,931,000 2003 19,000 1,962,000 2004 19,000 1,775,000 2005 - 1,653,000 2006 - 1,620,000 Thereafter - 33,447,000 -------- ----------- Total minimum payments 57,000 $42,388,000 -------- =========== Less imputed interest (13,000) -------- Present value of minimum rental payments 44,000 Less current maturities at December 30, 2001 (14,000) -------- Long-term obligations at December 30, 2001 $ 30,000 ========
Minimum future rentals receivable under subleases for operating leases at December 30, 2001, amounted to $522,000. NOTE G - INCOME TAXES At December 30, 2001, the Company had net operating loss carryforwards of $552,000 for income tax purposes that expire in 2003. Tax credit carryforwards (consisting of FICA tip credits which expire in the years 2009 through 2021 and alternative minimum tax credits which may be carried forward indefinitely) of $4,013,000 are also available to reduce future federal income taxes. 27 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 30, 2001, and December 31, 2000, are as follows:
DECEMBER 30 December 31 2001 2000 ---- ---- Deferred tax liabilities: Tax over book depreciation $ -- $ 91,000 Other - net 502,000 502,000 ----------- ----------- Total deferred tax liabilities 502,000 593,000 ----------- ----------- Deferred tax assets: Capital/finance leases 11,000 11,000 Deferred compensation accruals 306,000 257,000 Book over tax depreciation 51,000 -- Self-insurance accruals 55,000 55,000 Net operating loss carryforwards 188,000 644,000 Tax credit carryforwards 4,013,000 3,183,000 Other - net 432,000 362,000 ----------- ----------- Total deferred tax assets 5,056,000 4,512,000 Valuation allowance for deferred tax assets (4,554,000) (3,919,000) ----------- ----------- 502,000 593,000 ----------- ----------- Net deferred tax assets $ -- $ -- =========== ===========
SFAS No. 109 establishes procedures to measure deferred tax assets and liabilities and assess whether a valuation allowance relative to existing deferred tax assets is necessary. Since the fourth quarter of 1997, management has concluded that, based upon results of operations during the periods in question and its near-term forecast of future taxable earnings, a valuation allowance was appropriate relative to its deferred tax assets. At December 30, 2001, the Company had no net deferred tax assets and a valuation allowance of $4,554,000. The valuation allowance increased by $635,000 during the year ended December 30, 2001. Significant components of the income tax provision are as follows:
Years Ended DECEMBER 30 December 31 January 2 2001 2000 2000 ---- ---- ---- Currently payable: Federal $542,000 $340,000 $31,000 State 89,000 70,000 2,000 -------- -------- ------- Total 631,000 410,000 33,000 Deferred -- -- -- -------- -------- ------- Income tax provision $631,000 $410,000 $33,000 ======== ======== =======
The Company's consolidated effective tax rate differed from the federal statutory rate as set forth in the following table:
Years Ended DECEMBER 30 December 31 January 2 2001 2000 2000 ---- ---- ---- Tax expense (benefit) computed at federal statutory rate (34%) $ 307,000 $ 303,000 $(102,000) State income taxes, net of federal benefit 59,000 46,000 1,000 Effect of net operating loss carryforwards and tax credits (450,000) 239,000 259,000 Valuation of deferred tax assets 635,000 (191,000) (285,000) Other, net 80,000 13,000 160,000 --------- --------- --------- Income tax provision $ 631,000 $ 410,000 $ 33,000 ========= ========= =========
The Company made net income tax payments of $344,000, $492,000 and $180,000 in 2001, 2000 and 1999, respectively. 28 NOTE H - STOCK OPTIONS AND BENEFIT PLANS Under the Company's 1994 Employee Stock Incentive Plan, officers and key employees of the Company may be granted options to purchase shares of the Company's common stock. Options to purchase the Company's common stock also remain outstanding under the Company's 1985 Stock Option Plan and 1990 Stock Option Plan for Outside Directors, although the Company no longer has the ability to issue additional shares under these plans. A summary of options under the Company's option plans is as follows:
Weighted Average Exercise Options Shares Option Prices Price ------- ------ ------------- -------- Outstanding at January 3, 1999 678,820 $1.38- $11.69 $4.40 Issued 189,000 2.25- 4.06 2.30 Exercised (14,000) 1.75- 3.81 2.13 Expired or canceled (43,300) 3.81- 11.69 4.60 ------- --------------- ----- Outstanding at January 2, 2000 810,520 1.38- 11.69 3.95 Issued 44,750 3.44- 3.88 3.56 Exercised (75,750) 1.50- 2.75 1.51 Expired or canceled (17,890) 1.75- 3.44 2.77 ------- --------------- ----- Outstanding at December 31, 2000 761,630 1.38- 11.69 4.27 Issued 186,000 2.07- 2.25 2.23 Exercised (7,500) 1.38 1.38 Expired or canceled (28,450) 2.24- 11.69 4.04 ------- --------------- ----- Outstanding at December 30, 2001 911,680 $2.07- $11.69 $3.97 ======= =============== =====
Options exercisable and shares available for future grant are as follows:
DECEMBER 30 December 31 January 2 2001 2000 2000 ---- ---- ---- Options exercisable 686,845 577,584 344,004 Shares available for grant 80,656 245,206 190,564
The following table summarizes information about stock options outstanding at December 30, 2001:
Options Outstanding Options Exercisable ------------------- ------------------- Number Number Outstanding at Weighted Weighted Exercisable at Weighted Range of December 30 Average Remaining Average Exercise December 30 Average Exercise Prices 2001 Contractual Life Price 2001 Exercise Price --------------- ---- ---------------- ----- ---- -------------- $2.07- $2.25 180,500 9.3 years $2.23 - $ - 2.75- 3.44 508,680 7.2 years 2.87 490,758 2.85 3.81- 5.69 67,500 6.3 years 5.27 67,500 5.27 7.38- 11.69 155,000 3.1 years 9.02 128,587 8.87 --------------- ------- ----- ------- ----- $2.07- $11.69 911,680 $3.97 686,845 $4.21 =============== ======= ===== ======= =====
Options exercisable at December 31, 2000 and January 2, 2000 had weighted average exercise prices of $4.25 and $4.75, respectively. 29 In 1995, the Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock Based Compensation". This standard defines a fair value based method of accounting for an employee stock option or similar equity instrument. This statement gives entities a choice of recognizing related compensation expense by adopting the new fair value method or continuing to measure compensation using the intrinsic value approach under Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to Employees", the former standard. The Company has elected to follow APB No. 25 and related Interpretations in accounting for its stock compensation plans because, as discussed below, the alternative fair value accounting provided for under SFAS No. 123 requires use of option valuation models that were not developed for use in valuing employee stock options. Under APB No. 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which also requires that the information be determined as if the Company has accounted for its employee stock options granted subsequent to December 31, 1994 under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2001, 2000 and 1999, respectively: risk-free interest rates of 5.31%, 6.51% and 5.94%; no annual dividend yield; volatility factors of .4173, .4917 and .4500 based on monthly closing prices since August, 1990; and an expected option life of 10 years. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting periods. The Company's pro forma information follows:
Years Ended ----------- DECEMBER 30 December 31 January 2 2001 2000 2000 ---- ---- ---- Pro forma net income (loss) $46,000 $60,000 $(688,000) Pro forma income (loss) per share Basic $.01 $ .01 $(.11) Diluted $.01 $ .01 $(.11)
The weighted average fair value per share for options granted during 2001, 2000 and 1999 was $1.36, $2.48 and $1.50, respectively. The Company has an Employee Stock Purchase Plan under which 75,547 shares of the Company's common stock are available for issuance. No shares have been issued under the plan since 1997. The Company has a Salary Continuation Plan which provides retirement and death benefits to certain key employees. The expense recognized under this plan was $150,000, $130,000 and $94,000 in 2001, 2000 and 1999, respectively. The Company has a Savings Incentive and Salary Deferral Plan under Section 401(k) of the Internal Revenue Code which allows qualifying employees to defer a portion of their income on a pre-tax basis through contributions to the plan. All Company employees with at least 1,000 hours of service during the twelve month period subsequent to their hire date, or any calendar year thereafter, and who are at least 21 years of age are eligible to participate. For each dollar of participant contributions, up to 3% of each participant's salary, the Company makes a minimum 10% matching contribution to the plan. The Company's matching contribution for 2001 totaled $40,000, or 25% of eligible participant contributions. For 2000 and 1999, the Company's matching contribution expense was $38,000 and $36,000, respectively. 30 In 1999, the Company established the 1999 Loan Program (Loan Program) to allow eligible employees to make purchases of the Company's common stock. Under the terms of the Loan Program, all full-time employees as well as part-time employees who had at least five years of employment with the Company were eligible to borrow amounts ranging from a minimum of $10,000 to a maximum of 100% of their annual salary. Borrowings in excess of the maximum were allowed upon approval by the Compensation Committee or the officers of the Company, as applicable. Such borrowings were to be used exclusively to purchase shares of the Company's common stock and accrue interest at the rate of 3% annually from the date of the last purchase of shares under the program until paid in full. Interest is payable quarterly until December 31, 2006 at which time there will be a balloon payment of the unpaid interest and the entire principal amount due. In the event that a participant receives bonus compensation from the Company, 30% of any such bonus is to be applied to the outstanding principal balance of the note. Further, a participant's loan may be declared due and payable upon termination of a participant's employment or failure to make any payment when due, as well as under other circumstances set forth in the program documents. The maximum aggregate amount of loans authorized was $1,000,000. As of December 30, 2001, notes receivable under the Loan Program totaled $913,000. This amount has been reported as a reduction from the Company's stockholders' equity. In addition to shares purchased in the manner described above, participants in the Loan Program received a stock bonus award of one share of common stock for every 20 shares of common stock purchased under the program. Participants in the Loan Program also received an award of one share of restricted common stock for every 20 shares of common stock purchased under the program. Both the stock bonus award and the restricted stock award were issued pursuant to the Company's 1994 Employee Stock Incentive Plan, with the restricted stock award scheduled to vest at the rate of 20% of the number of shares awarded on each of the second through sixth anniversaries of the date of the last purchase of shares under the Loan Program, or February 18, 2000. For purposes of computing earnings per share, the shares purchased through the Loan Program are included as outstanding shares in the weighted average share calculation. NOTE I - EMPLOYEE STOCK OWNERSHIP PLAN In 1992, the Company established an Employee Stock Ownership Plan (ESOP) which purchased 457,055 shares of Company common stock from the Massey Company, a trust created by the late Jack C. Massey, the Company's former Board Chairman, and the Jack C. Massey Foundation at $3.75 per share for an aggregate purchase price of $1,714,000. The Company funded the ESOP by loaning it an amount equal to the purchase price, with the loan secured by a pledge of the unallocated stock held by the ESOP. The note receivable from the ESOP has been reported as a reduction from the Company's stockholders' equity. The Company has made a contribution to the ESOP each year since the ESOP was established allowing the ESOP to make its scheduled loan repayments to the Company, with the exception of 1996, when no contributions were made, and 2000 and 2001, when only the interest component of the contribution was made. Contributions made to the ESOP resulted in net compensation expense of $135,000 for 1999 with a corresponding reduction in the ESOP note receivable. The terms of the ESOP note, as amended, call for interest to be paid at an annual rate of 8% and for repayment of the ESOP note's remaining principal in annual amounts ranging from $152,000 to $192,000 over the period 2002 through 2005. All Company employees with at least 1,000 hours of service during the twelve month period subsequent to their hire date, or any calendar year thereafter, and who are at least 21 years of age are eligible to participate. The ESOP generally requires five years of service with the Company in order for an ESOP participant's account to vest. Allocation of stock is made to participants' accounts as the ESOP's loan is repaid and is in proportion to each participant's compensation for each year. Shares allocated under the ESOP were 325,154 and 316,416 at December 30, 2001 and December 31, 2000, respectively. For purposes of computing earnings per share, the shares originally purchased by the ESOP are included as outstanding shares in the weighted average share calculation. NOTE J - SHAREHOLDER RIGHTS PLAN The Company's Board of Directors has adopted a shareholder rights plan to protect the interests of the Company's shareholders if the Company is confronted with coercive or unfair takeover tactics by encouraging third parties interested in acquiring the Company to negotiate with the Board of Directors. 31 The shareholder rights plan is a plan by which the Company has distributed rights ("Rights") to purchase (at the rate of one Right per share of common stock) one-hundredth of a share of no par value Series A Junior Preferred (a "Unit") at an exercise price of $12.00 per Unit. The Rights are attached to the common stock and may be exercised only if a person or group acquires 20% of the outstanding common stock or initiates a tender or exchange offer that would result in such person or group acquiring 10% or more of the outstanding common stock. Upon such an event, the Rights "flip-in" and each holder of a Right will thereafter have the right to receive, upon exercise, common stock having a value equal to two times the exercise price. All Rights beneficially owned by the acquiring person or group triggering the "flip-in" will be null and void. Additionally, if a third party were to take certain action to acquire the Company, such as a merger or other business combination, the Rights would "flip-over" and entitle the holder to acquire shares of the acquiring person with a value of two times the exercise price. The Rights are redeemable by the Company at any time before they become exercisable for $0.01 per Right and expire May 16, 2004. In order to prevent dilution, the exercise price and number of Rights per share of common stock will be adjusted to reflect splits and combinations of, and common stock dividends on, the common stock. During 1999, the shareholder rights plan was amended by altering the definition of "acquiring person" to specify that Solidus, LLC and its affiliates shall not be or become an acquiring person as the result of its acquisition of Company common stock in excess of 20% or more of Company common stock outstanding (See Note B - Sale of Stock). NOTE K - COMMITMENTS AND CONTINGENCIES As a result of the disposition of its Wendy's operations in 1996, the Company remains secondarily liable for certain real property leases with remaining terms of one to fourteen years. The total estimated amount of lease payments remaining on these 28 individual leases at December 30, 2001 was approximately $5.1 million. In connection with the sale of its Mrs. Winner's Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, the Company remains secondarily liable for certain real and personal property leases with remaining terms of one to four years. The total estimated amount of lease payments remaining on these 33 individual leases at December 30, 2001, was approximately $1.8 million. Additionally, in connection with the previous disposition of certain other Wendy's restaurant operations, primarily the southern California Wendy's restaurants in 1982, the Company remains secondarily liable for certain real property leases with remaining terms of one to five years. The total estimated amount of lease payments remaining on these 11 individual leases as of December 30, 2001, was approximately $1.3 million. The Company is from time to time subject to routine litigation incidental to its business. The Company believes that the results of such legal proceedings will not have a materially adverse effect on the Company's financial condition. NOTE L - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities included the following:
DECEMBER 30 December 31 2001 2000 ---- ---- Taxes, other than income taxes $1,540,000 $1,818,000 Salaries, wages and vacation pay 983,000 446,000 Insurance 201,000 220,000 Interest 55,000 66,000 State and federal income taxes 167,000 -- Other 1,010,000 796,000 ---------- ---------- $3,956,000 $3,346,000 ========== ==========
32 QUARTERLY RESULTS OF OPERATIONS The following is a summary of the quarterly results of operations for the years ended December 30, 2001 and December 31, 2000 (in thousands, except per share amounts):
2001 Quarters Ended ------------------- April 1 July 1 September 30 December 30 ------- ------ ------------ ----------- Net sales $23,012 $21,876 $22,188 $24,130 Net income (loss) $ 417 $ (183) $ (274) $ 311 Basic earnings (loss) per share $ .06 $ (.03) $ (.04) $ .05 Diluted earnings (loss) per share $ .06 $ (.03) $ (.04) $ .05 2000 Quarters Ended ------------------- April 2 July 2 October 1 December 31 ------- ------ --------- ----------- Net sales $22,208 $21,241 $21,621 $22,441 Net income (loss) $ 505 $ 110 $ (322) $ 188 Basic earnings (loss) per share $ .07 $ .02 $ (.05) $ .03 Diluted earnings (loss) per share $ .07 $ .02 $ (.05) $ .03
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 33 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required under this item with respect to directors of the Company is incorporated herein by reference to the "Proposal No. 1: Election of Directors" section and the "Section 16(a) Beneficial Ownership Reporting Compliance" section of the Company's Proxy Statement for the 2002 Annual Meeting of Shareholders. (See also "Executive Officers of the Company" under Part I of this Form 10-K.) ITEM 11. EXECUTIVE COMPENSATION The information required under this item is incorporated herein by reference to the "Executive Compensation" section of the Company's Proxy Statement for the 2002 Annual Meeting of Shareholders. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required under this item is incorporated herein by reference to the "Security Ownership of Certain Beneficial Owners and Management" section of the Company's Proxy Statement for the 2002 Annual Meeting of Shareholders. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required under this item is incorporated herein by reference to the "Certain Relationships and Related Transactions" section of the Company's Proxy Statement for the 2002 Annual Meeting of Shareholders. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) See Item 8. (a)(2) The information required under Item 14, subsection (a)(2) is set forth in a supplement filed as part of this report beginning on page F-1. (a)(3) Exhibits: (3)(a)(1) Charter (Exhibit 3(a) of the Registrant's Report on Form 10-K for the year ended December 30, 1990, is incorporated herein by reference). (3)(a)(2) Amendment to Charter dated February 7, 1997 (Exhibit (3)(a)(2) of the Registrant's Report on Form 10-K for the year ended December 29, 1996 is incorporated herein by reference). (3)(b) Restated Bylaws as currently in effect. (Exhibit 3(b) of the Registrant's Report on Form 10-K for the year ended January 3, 1999 is incorporated herein by reference). (4)(a) Form of Indenture dated as of May 19, 1983, between the Registrant and First American National Bank of Nashville, Trustee (Exhibit 4 of the Registrant's quarterly report on Form 10-Q for the quarter ended June 30, 1983, is incorporated herein by reference). (4)(b) Rights Agreement dated May 16, 1989, by and between Registrant and NationsBank (formerly Sovran Bank/Central South) including Form of Rights Certificate and Summary of Rights (Exhibit 3 to the Report on Form 8-K dated May 16, 1989, is incorporated herein by reference). (4)(c) Amendments to Rights Agreement dated February 22, 1999, by and between the Registrant and SunTrust Bank. (Exhibit 4(c) of the Registrant's Report on Form 10-K for the year ended January 3, 1999 is incorporated herein by reference). 34 (4)(d) Amendment to Rights Agreement dated March 22, 1999, by and between the Registrant and SunTrust Bank. (Exhibit 4(d) of the Registrant's Report on Form 10-K for the year ended January 3, 1999 is incorporated herein by reference). (4)(e) Stock Purchase and Standstill Agreement dated March 22, 1999, by and between the Registrant and Solidus, LLC. (Exhibit 4(e) of the Registrant's Report on Form 10-K for the year ended January 3, 1999 is incorporated herein by reference). (10)(a) Employee Stock Ownership Trust Agreement dated June 25, 1992 between Registrant and Third National Bank in Nashville. (Exhibit 2 to the Registrant's Report on Form 8-K dated June 25, 1992, is incorporated herein by reference). (10)(b) Pledge and Security Agreement dated June 25, 1992, by and between Registrant and Third National Bank in Nashville as the Trustee for the Volunteer Capital Corporation Employee Stock Ownership Trust (Exhibit 5 to the Registrant's Report on Form 8-K dated June 25, 1992, is incorporated herein by reference). (10)(c) Amended and Restated Secured Promissory Note dated November 30, 2000 from the J. Alexander's Corporation Employee Stock Ownership Trust to Registrant (incorporated by reference to the Registrant's Annual Report on Form 10-K filed April 2, 2001). (10)(d) Asset Purchase Agreement dated October 25, 1996 by and between VCE Restaurants, Inc., Volunteer Capital Corporation and Wendy's International, Inc. (Exhibit 10.1 of the Registrant's quarterly report on Form 10-Q for the quarter ended September 29, 1996 is incorporated herein by reference). (10)(e) $30,000,000 Loan Agreement dated August 29, 1995 by and between Volunteer Capital Corporation, VCE Restaurants, Inc., Total Quality Management, Inc. and NationsBank of Tennessee, N.A. (Exhibit 10.1 of the Registrant's quarterly report on Form 10-Q for the quarter ended October 1, 1995 is incorporated herein by reference). (10)(f) Amendment to Loan Agreement dated March 27, 1998, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and NationsBank of Tennessee, N.A. (Exhibit (10)(h) of the Registrant's Report on Form 10-K for the year ended December 28, 1997 is incorporated herein by reference). (10)(g) Line of Credit Note dated March 27, 1998, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and NationsBank of Tennessee, N.A. (Exhibit (10)(i) of the Registrant's Report on Form 10-K for the year ended December 28, 1997 is incorporated herein by reference). (10)(h) Renewal of Line of Credit Note dated March 30, 2000, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.) (incorporated by reference to the Registrant's Annual Report on Form 10-K filed April 3, 2000). 35 (10)(i) Second Amendment to Loan Agreement dated March 30, 2000, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.) (incorporated by reference to the Registrant's Annual Report on Form 10-K filed April 3, 2000). (10)(j) Third Amendment to Loan Agreement dated August 14, 2001, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.) (Exhibit (10)(a) of the Registrant's quarterly report on Form 10-Q for the quarter ended July 1, 2001 is incorporated herein by reference). (10)(k) Renewal of Line of Credit Note dated August 14, 2001, by and between J. Alexander's Corporation, J. Alexander's Restaurants, Inc. and Bank of America, N.A. (successor to NationsBank of Tennessee, N.A.) (Exhibit (10)(b) of the Registrant's quarterly report on Form 10-Q for the quarter ended July 1, 2001 is incorporated herein by reference). (10)(l)* Written description of Salary Continuation Plan (description of Salary Continuation Plan included in the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 15, 2001, is incorporated herein by reference). (10)(m)* Form of Severance Benefits Agreement between the Registrant and Messrs. Stout and Lewis (Exhibit (10)(j) of the Registrant's Report on Form 10-K for the year ended December 31, 1989, is incorporated herein by reference). (10)(n)* 1985 Stock Option Plan (incorporated by reference to pages 15 through 20 of the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 8, 1985, and Exhibit A to the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 11, 1993.) (10)(o)* 1990 Stock Option Plan for Outside Directors (Exhibit A of the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 8, 1990, is incorporated herein by reference). (10)(p)* 1994 Employee Stock Incentive Plan (incorporated by reference to Exhibit 4(c) of Registration Statement No. 33-77476). (10)(q)* Amendment to 1994 Employee Stock Incentive Plan (Appendix A of the Registrant's Proxy Statement for Annual Meeting of Shareholders, May 20, 1997, is incorporated herein by reference). (10)(r)* Second Amendment to 1994 Employee Stock Incentive Plan (Appendix A of the Registrant's Proxy Statement on Schedule 14-A for 2000 Annual Meeting of Shareholders, May 16, 2000, (filed April 3, 2000) is incorporated herein by reference). (10)(s)* Third Amendment to 1994 Employee Stock Incentive Plan (Appendix B of the Registrant's Proxy Statement on Schedule 14-A for 2001 Annual Meeting of Shareholders, May 15, 2001, (filed April 2, 2001) is incorporated herein by reference). (10)(t)* 1999 Loan Program (incorporated herein by reference to Exhibit A of Registration Statement on Form S-8, Registration No. 333-91431). (10)(u) Employee Stock Ownership Plan, as amended and restated, effective January 1, 1997 and executed February 25, 2002. (21) List of subsidiaries of Registrant. (23) Consent of Independent Auditors. *Denotes executive compensation plan or arrangement. 36 (b) Reports on Form 8-K: During the quarter ended December 30, 2001, the Company filed no reports on Form 8-K. (c) Exhibits - The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules - The response to this portion of Item 14 is submitted as a separate section of this report. 37 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. J. ALEXANDER'S CORPORATION Date: 3/27/02 By: /s/Lonnie J. Stout II ---------------------------------------- Lonnie J. Stout II Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Name Capacity Date ---- -------- ---- /s/Lonnie J. Stout II Chairman, President, Chief Executive Officer 3/27/02 ------------------------------------ and Director (Principal Executive Officer) ------------------- Lonnie J. Stout II /s/R. Gregory Lewis Vice President and Chief Financial Officer 3/27/02 ------------------------------------ (Principal Financial Officer) ------------------- R. Gregory Lewis /s/Mark A. Parkey Vice President and Controller 3/27/02 ------------------------------------ (Principal Accounting Officer) ------------------- Mark A. Parkey /s/E. Townes Duncan Director 3/27/02 ------------------------------------ ------------------- E. Townes Duncan /s/Garland G. Fritts Director 3/27/02 ------------------------------------ ------------------- Garland G. Fritts /s/J. Bradbury Reed Director 3/27/02 ------------------------------------ ------------------- J. Bradbury Reed
38 ANNUAL REPORT ON FORM 10-K ITEM 14(A)(2), (C) AND (D) FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS FISCAL YEAR ENDED DECEMBER 30, 2001 J. ALEXANDER'S CORPORATION AND SUBSIDIARIES NASHVILLE, TENNESSEE 39 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS J. ALEXANDER'S CORPORATION AND SUBSIDIARIES
COL. A COL. B COL. C COL. D COL. E --------------------------- --------------- ---------------------- ------------ -------- Additions Balance at Charged to Charged to Balance Beginning Costs and Other Accounts Deductions- at End Description of Period Expenses Describe Describe of Period --------------------------- --------------- ---------- ------------ ------------ -------- Year ended December 30, 2001: Valuation allowance for deferred tax assets $3,919,000 $ 635,000 $0 $0 $4,554,000 Year ended December 31, 2000: Valuation allowance for deferred tax assets $4,110,000 $(191,000) $0 $0 $3,919,000 Year ended January 2, 2000: Valuation allowance for deferred tax assets $4,395,000 $(285,000) $0 $0 $4,110,000
40 J. ALEXANDER'S CORPORATION EXHIBIT INDEX
Reference Number per Item 601 of Regulation S-K Description ---------------- ----------- (10)(u) Employee Stock Ownership Plan, as amended and restated, effective January 1, 1997 and executed February 25, 2002. (21) List of subsidiaries of Registrant. (23) Consent of Ernst & Young LLP, independent auditors
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