-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RsO2d7uXAoVURiTRTXdZVxXoyKYn2pBM5exKDX7EeLVWStzDEgO98OyQYUcqxGJ1 PrrrnDXhzp3h9RdfM6Dq7A== 0000950144-02-008860.txt : 20020814 0000950144-02-008860.hdr.sgml : 20020814 20020814180621 ACCESSION NUMBER: 0000950144-02-008860 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALEXANDERS J CORP CENTRAL INDEX KEY: 0000103884 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 620854056 STATE OF INCORPORATION: TN FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08766 FILM NUMBER: 02737944 BUSINESS ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: P O BOX 24300 CITY: NASHVILLE STATE: TN ZIP: 37203 BUSINESS PHONE: 6152691900 MAIL ADDRESS: STREET 1: 3401 WEST END AVE STREET 2: SUITE 260 CITY: NASHVILLE STATE: TN ZIP: 37203 FORMER COMPANY: FORMER CONFORMED NAME: WINNERS CORP DATE OF NAME CHANGE: 19890910 FORMER COMPANY: FORMER CONFORMED NAME: VOLUNTEER CAPITAL CORP DATE OF NAME CHANGE: 19820520 FORMER COMPANY: FORMER CONFORMED NAME: VOLUNTEER CAPITAL CORP / TN / DATE OF NAME CHANGE: 19920703 10-Q 1 g77925e10vq.txt J. ALEXANDER'S CORPORATION FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarterly period ended June 30, 2002 ------------------- 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 No.) incorporation or organization) 3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202 ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (615)269-1900 (Registrant's telephone number, including area code) ----------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Common Stock Outstanding - 6,767,197 shares at August 13, 2002. Page 1 of 18 pages. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
JUNE 30 DECEMBER 30 2002 2001 ----------- ----------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents ......................... $ 693 $ 1,035 Accounts and notes receivable, including current portion of direct financing leases ............. 155 174 Inventories ....................................... 826 936 Prepaid expenses and other current assets ......... 1,134 835 ------- ------- TOTAL CURRENT ASSETS .............................. 2,808 2,980 OTHER ASSETS ......................................... 967 902 PROPERTY AND EQUIPMENT, at cost, less allowances for depreciation and amortization of $24,389 and $22,575 at June 30, 2002, and December 30, 2001, respectively ...................................... 66,175 66,946 DEFERRED CHARGES, less amortization .................. 444 475 ------- ------- $70,394 $71,303 ======= =======
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JUNE 30 DECEMBER 30 2002 2001 ----------- ------------ (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ................................... $ 2,300 $ 2,598 Accrued expenses and other current liabilities ..... 4,421 3,956 Unearned revenue ................................... 1,855 2,415 Current portion of long-term debt and obligations under capital leases ............................ 7,789 2,746 -------- -------- TOTAL CURRENT LIABILITIES........................ 16,365 11,715 LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, net of portion classified as current ....... 12,736 19,532 OTHER LONG-TERM LIABILITIES ........................... 2,174 1,886 STOCKHOLDERS' EQUITY Common Stock, par value $.05 per share: Authorized 10,000,000 shares; issued and outstanding 6,801,059 and 6,797,618 shares at June 30, 2002, and December 30, 2001, respectively ............. 340 340 Preferred Stock, no par value: Authorized 1,000,000 shares; none issued ............................. -- -- Additional paid-in capital ......................... 34,756 34,739 Retained earnings .................................. 5,593 4,692 -------- -------- 40,689 39,771 Note receivable - Employee Stock Ownership Plan .... (688) (688) Employee notes receivable - 1999 Loan Program ...... (882) (913) -------- -------- TOTAL STOCKHOLDERS' EQUITY....................... 39,119 38,170 -------- -------- $ 70,394 $ 71,303 ======== ========
See notes to consolidated condensed financial statements. -3- J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED QUARTER ENDED -------------------- -------------------- JUNE 30 JULY 1 JUNE 30 JULY 1 2002 2001 2002 2001 -------- -------- -------- -------- Net sales .................................... $ 49,982 $ 44,888 $ 24,350 $ 21,876 Costs and expenses: Cost of sales ............................. 15,768 14,612 7,566 7,189 Restaurant labor and related costs ........ 16,571 14,886 8,176 7,415 Depreciation and amortization of restaurant property and equipment....... 2,196 2,093 1,102 1,044 Other operating expenses .................. 9,198 8,161 4,685 4,080 -------- -------- -------- -------- Total restaurant operating expenses...... 43,733 39,752 21,529 19,728 General and administrative expenses .......... 4,026 3,435 1,944 1,581 Pre-opening expense .......................... -- 105 -- 103 -------- -------- -------- -------- Operating income ............................. 2,223 1,596 877 464 Other income (expense): Interest expense, net ..................... (582) (675) (285) (314) Gain on purchase of debentures ............ -- 7 -- -- Other, net ................................ (32) (59) (13) (33) -------- -------- -------- -------- Total other expense .................... (614) (727) (298) (347) -------- -------- -------- -------- Income before income taxes ................... 1,609 869 579 117 Income tax provision ......................... (708) (635) (255) (300) -------- -------- -------- -------- Net income (loss) ............................ $ 901 $ 234 $ 324 $ (183) ======== ======== ======== ======== Basic earnings (loss) per share .............. $ .13 $ .03 $ .05 $ (.03) ======== ======== ======== ======== Diluted earnings (loss) per share ............ $ .13 $ .03 $ .05 $ (.03) ======== ======== ======== ========
See notes to consolidated condensed financial statements. -4- J. ALEXANDER'S CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED IN THOUSANDS)
SIX MONTHS ENDED ------------------- JUNE 30 JULY 1 2002 2001 -------- -------- Net cash provided by operating activities .............. $ 3,162 $ 2,189 Net cash used by investing activities: Purchase of property and equipment .................. (1,736) (3,635) Other investing activities .......................... (63) (61) -------- -------- (1,799) (3,696) Net cash (used) provided by financing activities: Payments on debt and obligations under capital leases (1,721) (1,324) Proceeds under bank line of credit agreement ........ 19,621 20,758 Payments under bank line of credit agreement ........ (19,653) (18,204) Other ............................................... 48 11 -------- -------- (1,705) 1,241 Decrease in cash and cash equivalents .................. (342) (266) Cash and cash equivalents at beginning of period ....... 1,035 1,057 -------- -------- Cash and cash equivalents at end of period ............. $ 693 $ 791 ======== ========
See notes to consolidated condensed financial statements. -5- J. ALEXANDER'S CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made in the prior year's consolidated condensed financial statements to conform to the 2002 presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and six months ended June 30, 2002, are not necessarily indicative of the results that may be expected for the fiscal year ending December 29, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 30, 2001. NOTE B - EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:
SIX MONTHS ENDED QUARTER ENDED ----------------- ----------------- JUNE 30 JULY 1 JUNE 30 JULY 1 (In thousands, except per share amounts) 2002 2001 2002 2001 ------- ------- ------- ------- NUMERATOR: Net income (loss) (numerator for basic earnings per share) .................................. $ 901 $ 234 $ 324 $ (183) Effect of dilutive securities .................. -- -- -- -- ------- ------- ------- ------- Net income (loss) after assumed conversions (numerator for diluted earnings per share) .. $ 901 $ 234 $ 324 $ (183) ======= ======= ======= ======= DENOMINATOR: Weighted average shares (denominator for basic earnings per share) ......................... 6,788 6,857 6,790 6,857 Effect of dilutive securities: Employee stock options ...................... 59 3 87 -- ------- ------- ------- ------- Adjusted weighted average shares and assumed conversions (denominator for diluted earnings per share) .................................. 6,847 6,860 6,877 6,857 ======= ======= ======= ======= Basic earnings (loss) per share ................ $ .13 $ .03 $ .05 $ (.03) ======= ======= ======= ======= Diluted earnings (loss) per share .............. $ .13 $ .03 $ .05 $ (.03) ======= ======= ======= =======
-6- In situations where the exercise price of outstanding employee stock 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. For the quarter ended June 30, 2002, options to purchase 244,000 shares of common stock at prices ranging from $3.44 to $11.69 were excluded from the computation of diluted earnings per share due to their antidilutive effect. Due to the net loss during the second quarter of 2001, all outstanding options were excluded from the computation of diluted earnings per share. For the six months ended June 30, 2002 and July 1, 2001, respectively, options to purchase 486,000 and 704,000 shares of common stock were excluded from the diluted earnings per share calculation, at prices ranging from $2.75 to $11.69 (2002) and $2.25 to $11.69 (2001). NOTE C - LONG-TERM DEBT The Company maintains an unsecured bank line of credit for up to $20 million of revolving credit for the purpose of financing capital expenditures. Borrowings outstanding under this line of credit totaled $14,239,000 at June 30, 2002. The Company and its bank lender recently agreed to extend the maturity of the line of credit, as well as the Company's option to convert borrowings outstanding under the line of credit to a term loan, to October 1, 2002 on the same terms that existed prior to the extension. In the event of conversion to a term loan, the principal would be repaid in 84 equal monthly installments. Because the line of credit is scheduled to mature within three months of June 30, 2002, $1,526,000, representing nine months' principal payments if the total credit line balance were converted to a term loan, has been reflected as a current liability in the June 30, 2002 balance sheet. The Company also has $6,250,000 of Convertible Subordinated Debentures that mature on June 1, 2003 and are reflected as a current liability in the June 30, 2002 balance sheet. While the Company believes its existing credit facility will be adequate to meet its financing needs during 2002, it is in the final stages of 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 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, and would pursue alternate financing sources. -7- NOTE D - INCOME TAXES The Company's provisions for income taxes for the first six months and second quarters of both 2002 and 2001 include the effect of estimated federal alternative minimum tax (AMT) and state income taxes payable. The effective tax rates used in all periods are 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 certain other tax carryforwards that it has accumulated. ' NOTE E - RECENTLY ISSUED 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. SFAS 142 is effective for fiscal years beginning after December 15, 2001. The Company has applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. As of the date of adoption, the Company had unamortized goodwill of $171,000, which is subject to the transition provisions of SFAS 142. The Company is in the process of completing its assessment of SFAS 142 and until such assessment is finalized, it is not practicable to reasonably estimate the impact of SFAS 142's adoption on the Company's financial statements. Any charge related to the adoption of SFAS 142 would have no effect on the Company's cash position and would be reported as a cumulative effect of change in accounting principle effective as of the beginning of fiscal 2002. 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 -8- 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. The Company adopted SFAS 144 as of December 31, 2001 and adoption of the Statement did not have a significant impact on the Company's financial position or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, (i) the percentages which the items in the Company's Consolidated Statements of Operations bear to total net sales, and (ii) other selected operating data:
SIX MONTHS ENDED QUARTER ENDED --------------------- -------------------- JUNE 30 JULY 1 JUNE 30 JULY 1 2002 2001 2002 2001 -------- -------- -------- -------- Net sales ................................... 100.0% 100.0% 100.0% 100.0% Costs and expenses: Cost of sales ............................ 31.5 32.6 31.1 32.9 Restaurant labor and related costs ....... 33.2 33.2 33.6 33.9 Depreciation and amortization of restaurant property and equipment ..... 4.4 4.7 4.5 4.8 Other operating expenses ................. 18.4 18.2 19.2 18.7 -------- -------- -------- -------- Total restaurant operating expenses ... 87.5 88.6 88.4 90.2 General and administrative expenses ......... 8.1 7.7 8.0 7.2 Pre-opening expense ......................... -- 0.2 -- 0.5 -------- -------- -------- -------- Operating income ............................ 4.4 3.6 3.6 2.1 Other income (expense): Interest expense, net .................... (1.2) (1.5) (1.2) (1.4) Other, net ............................... (0.1) (0.1) (0.1) (0.2) -------- -------- -------- -------- Total other expense ................... (1.2) (1.6) (1.2) (1.6) -------- -------- -------- -------- Income before income taxes .................. 3.2 1.9 2.4 0.5 Income tax provision ........................ (1.4) (1.4) (1.0) (1.4) -------- -------- -------- -------- Net income (loss) ........................... 1.8% 0.5% 1.3% (0.8)% ======== ======== ======== ======== Restaurants open at end of period ........... 24 22 Weighted average weekly sales per restaurant: All restaurants .......................... $ 80,300 $ 78,500 $ 78,300 $ 76,500 Same store restaurants ................... $ 80,100 $ 78,500 $ 78,400 $ 76,500
-9- NET SALES Net sales increased by $5,094,000, or 11.3%, and $2,474,000, also 11.3%, for the first six months and second quarter of 2002, respectively, as compared to the same periods of 2001. These increases were attributable to new restaurants opened during September and December of 2001 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, averaged $80,100 and $78,400 per week on a base of 22 restaurants during the six months and second quarter ended June 30, 2002, representing increases of 2.0% and 2.5% compared to the same periods of 2001. Management estimates the average check per guest, excluding alcoholic beverage sales, was $15.86 and $15.79 for the first six months and second quarter of 2002 representing increases of 4.6% and 4.8% compared to $15.16 and $15.06 for the same periods of 2001. Menu prices for the first six months and second quarter of 2002 increased by an estimated 2.9% compared to the same periods in 2001. The Company estimates that customer traffic (guest counts) on a same store basis decreased by approximately 2.5% during the first six months and second quarter of 2002 compared to the corresponding periods of 2001. The menu price increases referenced above are primarily attributed to modest price increases implemented by management during August and October of 2001 on selected menu items. These changes positively impacted both sales performance and profitability during the last half of 2001 and the first half of 2002. While customer traffic decreased during the first six months and second quarter of 2002 compared to the corresponding periods of 2001, management anticipates that the effect of menu management and continued emphasis on providing professional service will reverse this trend over time. However, management anticipates that growth in customer traffic may continue to be constrained for the remainder of 2002 due to an apparent slowing of the nation's economic recovery. COSTS AND EXPENSES Total restaurant operating expenses decreased to 87.5% and 88.4% of sales in the first six months and second quarter of 2002 compared to 88.6% and 90.2% in the corresponding periods of 2001. Cost of sales decreased to 31.5% and 31.1% of sales in the first six months and second quarter of 2002 compared to 32.6% and 32.9% in the corresponding periods of 2001, as the impact of increased menu prices and favorable costs associated with poultry, salmon and effective March 1, 2002, beef, more than offset increased produce costs incurred during the first several months of 2002 as a result of inclement weather in the western United States. Restaurant labor and related costs decreased from 33.9% of sales during the second quarter of 2001 to 33.6% of sales during the same period of 2002. This decrease is attributed to the favorable effect of an increase during January of 2002 in the tip share percentage that servers are required to contribute to each restaurant's tip pool which, in turn, reduced the hourly wage paid by the Company to employees participating in the tip pool program. This change, when -10- coupled with lower management labor and efficiencies achieved at higher sales levels, more than offset increased payouts related to the Company's restaurant level bonus program, higher premiums related to the Company's workers' compensation insurance program and increased wages associated with kitchen staff. These same factors resulted in restaurant labor and related costs totaling 33.2% of sales for the first six months of both 2002 and 2001. Depreciation and amortization of restaurant property and equipment decreased to 4.4% and 4.5% of sales during the first six months and second quarter of 2002, compared to 4.7% and 4.8% of sales during the corresponding periods of the prior year, primarily due to assets which became fully depreciated subsequent to July 1, 2001. Other operating expenses increased to 18.4% and 19.2% of sales during the first six months and second quarter of 2002 compared to 18.2% and 18.7% of sales in the corresponding periods of 2001. These increases are primarily related to higher premiums associated with the Company's property and casualty insurance program effective October 1, 2001. Management expects a generally favorable cost environment for the remainder of 2002 as a result of lower beef prices and other factors. The Company's insurance brokers have indicated, however, that the Company's insurance premiums are likely to increase significantly at the time of the Company's annual policy renewal date of October 1 due to substantial hardening of insurance markets over the past year. For the first six weeks of the third quarter, the Company's same store sales have been slightly below prior year levels and management anticipates that same store sales for the third quarter may be even with, or slightly below, the levels achieved during the third quarter of 2001. However, management believes that, based on current sales trends and cost estimates, the Company will post improved operating results for the third quarter as well as the full year of 2002 as compared to the corresponding periods of 2001. 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 no more than 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. 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 8.1% and 8.0% of sales for the first six months and second quarter of 2002 compared to 7.7% and 7.2% of sales for the corresponding periods of 2001. These increases as a percent of sales are primarily related to the impact of providing for bonus accruals in the 2002 periods which were not present during the 2001 periods. Management anticipates general and administrative expenses will increase as a percentage of sales for fiscal 2002 when compared to fiscal 2001. -11- OTHER INCOME (EXPENSE) Net interest expense decreased from $675,000 to $582,000 during the first six months of 2002 compared to the same period of 2001. For the second quarter, net interest expense decreased from $314,000 in 2001 to $285,000 during the corresponding quarter of 2002. These decreases reflect reduced balances associated with the Company's convertible subordinated debentures and lower interest rates on the Company's line of credit, which more than offset increases in the average principal balance outstanding under the line during the 2002 periods. INCOME TAXES The Company's provisions for income taxes for the first six months and second quarters of both 2002 and 2001 include the effect of estimated federal alternative minimum tax (AMT) and state income taxes payable. The effective tax rates used in all periods are 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 selected tax carryforwards that it has accumulated. LIQUIDITY AND CAPITAL RESOURCES The Company had cash flow from operations totaling $3,162,000 and $2,189,000 during the first six months of 2002 and 2001, respectively. Cash and cash equivalents decreased from $1,035,000 at year end 2001 to $693,000 at June 30, 2002. The Company's primary need for capital is expected to continue to be for the development and maintenance of its J. Alexander's restaurants. In addition, the Company has $6,250,000 of outstanding Convertible Subordinated Debentures which mature on June 1, 2003 and which have been classified as a current liability as of June 30, 2002. The Company may also 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 August 13, 2002, the Company has repurchased approximately 112,000 shares at a cost of approximately $280,000. The Company expects to meet its capital needs and maintain liquidity primarily by use of cash flow from operations and use of its bank line of credit or other long-term real estate financing as discussed below. While management anticipates that the next J. Alexander's restaurant will not open until early 2003, a significant portion of the costs associated with the development of this property will be incurred during fiscal 2002. Management estimates that the cost to purchase property for, and build and equip this restaurant and for capital maintenance for existing restaurants will be -12- 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 additional 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 $13,557,000 existed as of June 30, 2002, 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. Finally, a significant portion of the current liabilities reflected in the June 30, 2002 balance sheet relate to debt which management anticipates will be refinanced prior to the end of fiscal 2002. The Company maintains a bank line of credit for up to $20 million of revolving credit for the purpose of funding capital expenditures and to provide liquidity for meeting working capital or other needs. At June 30, 2002, borrowings outstanding under this line of credit were $14,239,000. The line of 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. The Company was in compliance with these covenants at June 30, 2002 and, based on a current assessment of its business, believes it will continue to comply with these covenants during the remainder of 2002. The credit agreement 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 currently based on LIBOR plus a spread of two to three percent, depending on the ratio of senior debt to EBITDA. This agreement was recently amended to extend the expiration date to October 1, 2002. The agreement also 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 three months of June 30, 2002, $1,526,000, representing nine months' principal payments if the total credit line balance were converted to a term loan, has been reflected as a current liability in the June 30, 2002 balance sheet. While management believes its existing credit facility will be adequate to meet its financing needs during 2002, it is in the final stages of 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 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 -13- 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, and would pursue alternate financing sources. CRITICAL ACCOUNTING POLICIES The preparation of the Company's consolidated condensed 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. o 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 net 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. -14- o 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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 30, 2001, which contain accounting policies and other disclosures required by generally accepted accounting principles. FORWARD-LOOKING STATEMENTS In connection with the safe harbor established under the Private Securities Litigation Reform Act of 1995, the Company cautions investors that certain information contained in this Form 10-Q, particularly information regarding future economic performance and finances, development plans, and objectives of management is forward-looking information that involves risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by forward-looking statements. The Company disclaims any intent or obligation to update these forward-looking statements. Factors which could affect actual results include, but are not limited to, the Company's ability to increase sales in certain of its restaurants; the Company's ability to recruit and train qualified restaurant management personnel; competition within the casual dining industry, which is very intense; changes in business and economic conditions; the terms of financing arrangements; changes in consumer tastes; and government regulations. See "Risk Factors" included in the Company's Annual Report on Form 10-K for the year ended December 30, 2001 and incorporated herein by reference for a description of a number of risks and uncertainties which could affect actual results. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the disclosures set forth in Item 7a of the Company's Annual Report on Form 10-K for the year ended December 30, 2001. -15- PART II - OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit(10)(a) Correspondence dated June 18, 2002, extending maturity date of loan from Bank of America, NA ("Bank"), to J. Alexander's Corporation & J. Alexander's Restaurants, Inc. ("Borrower"), in the original principal amount of $20,000,000. (b) None. -16- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. J. ALEXANDER'S CORPORATION Date: 8/14/02 /s/ Lonnie J. Stout II ---------------------------------- ------------------------------------ Lonnie J. Stout II Chairman, President and Chief Executive Officer (Principal Executive Officer) Date: 8/14/02 /s/ R. Gregory Lewis ---------------------------------- ------------------------------------ R. Gregory Lewis Vice-President and Chief Financial Officer (Principal Financial Officer) -17- J. ALEXANDER'S CORPORATION AND SUBSIDIARIES INDEX TO EXHIBITS Exhibit No. Page No. - ----------- -------- (10)(a) Correspondence dated June 18, 2002, 20 extending maturity date of loan from Bank of America, NA ("Bank"), to J. Alexander's Corporation & J. Alexander's Restaurants, Inc. ("Borrower"), in the original principal amount of $20,000,000. -18- EX-10.A 3 g77925exv10wa.txt CORRESPONDENCE DATED 6/18/02 EXHIBIT (10)(a) June 18, 2002 By First Class and Certified Mail --------------------------------- Return Receipt Requested J. ALEXANDER'S CORPORATION & J. ALEXANDER'S RESTAURANTS, INC. ATTENTION: R. GREGORY LEWIS, VP AND CFO 3401 WEST END AVE, SUITE 260 NASHVILLE, TN 37203 OBLIGATION 681118/315-323 RE: Extension of Maturity Date of Loan From Bank of America, NA ("Bank"), to J. Alexander's Corporation & J. Alexander's Restaurants, Inc. ("Borrower"), in the original principal amount of $20,000,000.00. Dear Mr. Lewis, Bank is owner and holder of the certain Promissory Note dated AUGUST 14, 2001, between Borrower and Bank (the "Note"). As of the date of this letter (the "Effective Date"), the outstanding principal balance of the Note is $14,399,380.26. The Note has a maturity date of JULY 1, 2002, (the "Maturity Date"). The Borrower has requested and Bank has agreed to extend the Maturity Date of the Note. Effective as of the Effective Date, the Maturity Date is extended to OCTOBER 1, 2002, at which time all outstanding principal and accrued interest under the Note shall be due and payable in full. MONTHLY INTEREST PAYMENTS WILL CONTINUE TO BE DUE IN ACCORDANCE WITH THE NOTE. PRINCIPAL AND INTEREST SHALL BE PAID IN FULL IN A SINGLE PAYMENT ON OCTOBER 1, 2002. This extension shall not by implication or otherwise limit the rights and remedies of the Bank under the Note and all other loan documents, nor alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Note and all other loan documents, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Bank of America, NA By: /s/ Virginia Mooers ------------------------------------ Virginia Mooers Loan Administrator Cc: William Diehl, Client Manager -----END PRIVACY-ENHANCED MESSAGE-----