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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 29, 2001
or
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 1-12104
BACK YARD BURGERS, INC.
(Name of registrant as specified in its charter)
DELAWARE 64-0737163
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
1657 N. SHELBY OAKS DRIVE, SUITE 105
MEMPHIS, TENNESSEE 38134-7401
(Address of principal executive offices) (Zip code)
(901) 367-0888
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF
THE SECURITIES EXCHANGE ACT OF 1934:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- --------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Name of Each Market
Title of Each Class on Which Listed
------------------- -----------------------
Common Stock, $.01 par value Nasdaq SmallCap Market
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 is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or in 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 common stock held by non-affiliates on
March 1, 2002 was approximately $18,941,000.
The number of shares outstanding of the registrant's common stock as of
March 1, 2002 was 4,715,267.
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CERTAIN PORTIONS OF PART II ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S ANNUAL REPORT TO STOCKHOLDERS FOR THE YEAR ENDED DECEMBER 29, 2001
AND CERTAIN PORTIONS OF PART III ARE INCORPORATED BY REFERENCE FROM THE
REGISTRANT'S PROXY STATEMENT RELATING TO THE ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD ON MAY 16, 2002.
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FORWARD-LOOKING STATEMENTS: This Form 10-K contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that could cause our actual results to be materially different
from historical results or from any future results expressed or implied by such
forward-looking statements. The factors that could cause our actual results to
differ materially, many of which are beyond our control, include, but are not
limited to, the following: delays in opening new stores or outlets because of
weather, local permitting, and the availability and cost of land and
construction; increases in competition; increases in minimum wage and other
operating costs; shortages in raw food products; consumer preferences, spending
patterns and demographic trends; the possibility of unforeseen events affecting
the industry generally, and other risks described from time to time in our
periodic reports filed with the Securities and Exchange Commission. You are
urged to consider statements that include the words "may," "will," "would,"
"could," "should," "believes," "estimates," "projects," "potential," "expects,"
"plans," "anticipates," "intends," "continues," or the negative or other forms
of those words or other comparable words to be uncertain and forward-looking.
This cautionary statement applies to all forward-looking statements contained in
the Form 10-K. Back Yard Burgers, Inc. disclaims any obligation to update or
revise any forward-looking statement based on the occurrence of future events,
the receipt of new information, or otherwise.
PART I
ITEM 1. BUSINESS
GENERAL
Back Yard Burgers operates and franchises quick-service and fast-casual
restaurants in Memphis, Little Rock, Nashville and other markets across 17
states. Our restaurants specialize in charbroiled, freshly prepared, great
tasting food. As our name implies, we strive to offer the same high-quality
ingredients and special care typified by outdoor grilling in your own back yard.
Our menu features made-to-order gourmet 100% Black Angus hamburgers and chicken
sandwiches - charbroiled over an open flame, fresh salads, chili and other
special entrees as well as hand-dipped milkshakes, fresh-made lemonade and
fresh-baked cobblers. As of December 29, 2001, our operations included 37
company-operated restaurants and 67 franchised restaurants.
CORPORATE HISTORY
The company was incorporated in December, 1986 as Back Yard Burgers,
Inc., a Mississippi corporation, and opened its first restaurant in Cleveland,
Mississippi in March 1987. The company was reorganized under the laws of the
State of Delaware in January 1991. The company consummated its initial public
offering on July 2, 1993 and its common stock has traded on the Nasdaq SmallCap
Market since that time.
OPERATING STRATEGY
Our restaurants are designed to project a back yard theme that
emphasizes charbroiled, freshly prepared, great tasting food, including gourmet
100% Black Angus hamburgers, chicken sandwiches and other gourmet items as
customers would prepare in their own back yard. Our operating strategy includes:
- offering a diverse menu of freshly prepared food items that
are competitive with the everyday prices of the three largest
hamburger chains;
- utilizing restaurant designs featuring a single drive-thru
concept integrated with an inviting indoor dining area, which
projects a uniform image and creates pleasing curb appeal;
- serving premium quality, great tasting food comparable to that
of the best full-service casual dining restaurants;
- providing fast and friendly service with emphasis on a
positive customer experience; and
- actively training, supervising and supporting franchised and
company-operated restaurants.
1
GROWTH STRATEGY
During 2002, we will continue to focus on increasing same-store sales
by emphasizing quality food and service. Our growth strategy is to continue to:
- set our restaurants apart from the fast-food competition by
serving premium fast food, enhancing dine-in facilities and
re-imaging existing facilities with the company's new logo and
color schemes, so the design and feel of the restaurant will
match the standards set by the quality of the food;
- improve the work flow of existing units to improve
productivity and throughput;
- develop additional company-operated restaurants in existing
markets and fund such development with cash flow from
operations and potentially additional debt financing;
- develop additional franchised restaurants with a committed and
experienced group of franchisees; and
- nurture relationship with and provide support as needed to new
business partner, Tricon Global Restaurants, Inc. under our
multi-brand development agreement to promote additional unit
growth. This agreement was entered on January 2, 2002, and
under the terms of the agreement, Back Yard Burgers granted
Tricon the right to use the Back Yard Burgers trademarks in
connection with the establishment and operation of up to ten
Back Yard Burgers outlets as part of multi-brand units with
Taco Bell, Pizza Hut and/or KFC operations. It is anticipated
that the first ten outlets will be constructed and opened by
2003, of which at least six are expected to be opened during
2002. The development agreement also grants Tricon an option
to co-brand up to 500 additional restaurants within certain
geographic areas if the development schedule for the initial
ten outlets is being met. The operating results of the first
ten outlets could be a determining factor in whether or not
the option is exercised.
2
RESTAURANT OPERATIONS
RESTAURANT LOCATIONS. The following tables set forth the number of
restaurants located in each market of the company's system at December 29, 2001.
COMPANY-OPERATED: FRANCHISED:
---------------- ------------
CORE MARKETS NUMBER OF CORE MARKETS NUMBER OF
---------------- ----------- ------------ -----------
RESTAURANTS RESTAURANTS
----------- -----------
Memphis, TN Area 25 Kansas City, MO Area 9
Little Rock, AR Area 7 Birmingham, AL Area 4
Nashville, TN Area 5 Knoxville, TN Area 4
-----
37 Fayetteville, NC Area 3
=====
Hickory, NC Area 3
Jackson, MS Area 3
Orlando, FL Area 3
Akron, OH Area 2
Asheville, NC Area 2
Chattanooga, TN Area 2
Evansville, IN Area 2
Greenville, SC Area 2
Lexington, KY Area 2
Little Rock, AR Area 2
Marietta, GA Area 2
Memphis, TN Area 2
Tulsa, OK Area 2
OTHER MARKETS (1)
Mississippi 5
Arkansas 2
Kentucky 2
Missouri 2
Georgia 1
Illinois 1
Indiana 1
Kansas 1
Louisiana 1
North Carolina 1
Texas 1
-----
Total 67
=====
(1) The "Other Markets" portion of the table reflects the total
number of restaurants located in such markets by state. Other markets for the
restaurants range from small towns to large cities where franchisees have only
one restaurant.
3
The following table sets forth information as to the sales of both
company-operated and franchised restaurants in operation for the periods
indicated.
Restaurant Sales Year Ended Year Ended
---------------- December 29, 2001 December 30, 2000
----------------- -----------------
Company-operated $27,541,000 $26,182,000
Franchised 50,165,000 42,257,000
----------- -----------
System-wide $77,706,000 $68,439,000
=========== ===========
RESTAURANT OPENINGS AND CLOSINGS. The following table presents an
activity summary of the company-operated and franchised restaurants during the
periods presented.
Year Ended
--------------------------------------------------------------------
December 29, December 30, January 1, January 2,
2001 2000 2000 1999
------------ ------------ ---------- ----------
Restaurants
Company-operated (a)
Open at beginning of period 35 35 33 32
Opened during period 2 0 5 3
Converted to Company 0 3 0 0
Converted to Franchise 0 (1) (1) 0
Closed during period 0 (2) (2) (2)
----- ----- ----- -----
Open at end of period 37 35 35 33
===== ===== ===== =====
Franchised (b)
Open at beginning of period 58 51 48 45
Opened during period 13 10 6 8
Converted to Company 0 (3) 0 0
Converted to Franchise 0 1 1 0
Closed during period (4) (1) (4) (5)
----- ----- ----- -----
Open at end of period 67 58 51 48
----- ----- ----- -----
Total Restaurants 104 93 86 81
===== ===== ===== =====
(a) Subsequent to December 29, 2001, two company-operated
restaurants opened in Memphis, TN.
(b) Subsequent to December 29, 2001, two franchised restaurants
closed, one in Chattanooga, TN and one in Bossier City, LA and
one franchised restaurant opened in Somerset, KY.
4
SITE SELECTION. The company believes that the location of a restaurant
is critical to its success. Management inspects each potential restaurant site
prior to final selection of the site. In evaluating particular sites, the
company considers various criteria including traffic count, speed of traffic,
convenient access, size and configuration, demographics and density of
population, visibility and cost. The company also reviews potential competition
and the sales and traffic counts of national and regional chain restaurants
operating in the area. A majority of both company-operated and franchised
restaurants are located on leased land.
RESTAURANT DESIGN AND SERVICE. The restaurants are built to
company-approved specifications in configurations including:
- single drive-thru with indoor dining; and
- double drive-thru without indoor dining.
In some circumstances, restaurants may be constructed via the
conversion of buildings used previously by other concepts, including other
restaurants. The restaurants range in size from 820 square feet to 4000 square
feet. The restaurants also include company-approved interior and exterior decor,
equipment, fixtures, furnishings, signs, parking and site improvements. The
restaurants have a highly visible, distinctive and uniform look that is intended
to appeal to customers of all ages.
Prior to 1994, the company operated and franchised predominately double
drive-thru restaurants without indoor dining. Since that time, the company has
added a number of indoor dining facilities to its operations, including the
retrofitting of many existing double drive-thru restaurants to include indoor
dining. At December 29, 2001, the number of restaurants with indoor dining was
28 company-operated facilities and 53 franchised facilities.
It is the company's objective to serve customers within 60 seconds of
their arrival at the drive-thru window. Each restaurant has a computerized
point-of-sale system which displays each individual item ordered on a monitor in
front of the food and drink preparers. This enables the preparers to begin
filling an order before the order is completed and totaled, and thereby
increases the speed of service to the customer and the number of sales per hour.
The restaurants are generally open from 12 to 15 hours per day, seven days a
week, for lunch, dinner and late-night snacks and meals.
SUPPLIES. The company and its franchisees purchase their food,
beverages and supplies from company-approved suppliers. All products must meet
standards and specifications set by the company. Management constantly monitors
the quality of the food, beverages and supplies provided to the restaurants. The
company has been successful in negotiating price concessions from suppliers for
bulk purchases of food and paper supplies used by the restaurants. The company
believes that these arrangements have achieved cost savings, improved food
quality and consistency and helped decrease volatility of food and supply costs
for the restaurants. All essential food and beverage products are available or,
upon short notice, could be made available from alternate qualified suppliers.
MANAGEMENT AND EMPLOYEES. Each company-operated restaurant employs an
average of approximately 25 employees, many of whom work part-time. The
management staff of a typical restaurant operated by the company consists of a
unit supervisor and two co-unit supervisors. Each company-operated restaurant
unit supervisor reports directly to a district manager. The district managers
are able to provide close, hands-on management of each company-operated
restaurant since they have responsibility for only five to eight restaurants.
Each district manager reports directly to a director of operations.
SUPERVISION AND TRAINING. The company believes that training and
personnel development are crucial to its success. The company's training program
is an intensive four-week program consisting of both in-store and classroom
training. The in-store training stresses food quality, fast, friendly customer
service, restaurant cleanliness, and proper management operations of a quick
service restaurant. The classroom training consists of such topics as food
safety and sanitation, employment laws and regulations, interviewing and hiring
of employees, and systems to control both food and labor costs. Prior to
opening, each restaurant must have a minimum of three trained and certified
managers that have successfully completed the company training program.
5
The company sends a store opening team for each new restaurant opening.
The team arrives prior to the opening and stays during the first several days of
operation. The primary function of the store opening team is to ensure a smooth
and successful new store opening by assisting the franchisee's management staff
in the training and development of their employees.
The company has a staff of three franchise field consultants that
visits each restaurant in their territory every eight to ten weeks. Franchise
field consultants act as business consultants to franchisees to ensure that each
restaurant is providing quality products and fast, friendly service. The
franchise field consultant acts as the communication link between the company
and each franchisee. In addition, the consultant assists in developing business
and marketing plans, as well as assisting in the training and development of the
franchisee's staff. Presently, the company has one franchise field consultant
for each 22 restaurants. That ratio will increase as existing franchisees
develop new stores within existing territories. Franchise consultants are
compensated on a fixed salary basis.
ADVERTISING AND PROMOTION. Marketing promotions are planned by the
company's national marketing committee made up of four company employees and
four franchisees, two chosen by the company's franchise association and two
chosen by the company and certain of its executive officers. Production of some
marketing materials is paid for through a national advertising fund, which
collects 1% of taxable sales from each franchisee and company-operated
restaurant. Of that 1%, 50% goes toward the creation of marketing tools such as
advertising copy for use on local radio and television, ad slicks, four-color
art, design and other collateral pieces and marketing expenses and 50% goes
toward testing new products and systems, market research, improvements in
operation methods and techniques or for other such purposes that the company
deems to be in the interest of improving operations and earnings of restaurants.
Franchisees are required to participate in the seasonal promotions,
which are supported by television, radio, newspaper, banners, point-of-purchase
materials and other local store marketing activities. The company's marketing
manual outlines advertising and public relations promotions as well as new store
opening information, grand opening information, trade area surveys and describes
how to write a marketing plan and budget for the franchisee's area. Marketing is
supported by a staff consisting of a marketing director and marketing managers
who coordinate plans and implementation with a national advertising agency.
Approved suppliers are set up to facilitate such things as uniforms and
collateral materials.
RESTAURANT REPORTING. Each restaurant has a computerized point-of-sale
system monitored by the management of the restaurant. With this system, managers
are able to monitor sales, labor and food costs, customer counts and other
pertinent information every 30 minutes that the restaurant is open. This
information allows a manager to better control labor utilization, inventories
and operating costs. For company-operated restaurants, management monitors
sales, food and labor costs, product mix, inventories and customer counts on a
weekly basis and profit and loss statements and balance sheets on a monthly
basis.
FRANCHISE OPERATIONS
STRATEGY. In addition to the development of company-operated
restaurants, the company will continue to emphasize the development of
additional franchised restaurants expected to be opened pursuant to existing
area development agreements and franchise agreements as well as the pursuit of
additional franchised restaurants pursuant to new area development agreements
and franchise agreements. The company believes that it has attracted a committed
and enthusiastic group of franchisees as a result of the strength of its
concepts and operating strategies.
FRANCHISEE SUPPORT SERVICES. The company maintains a staff of
well-trained and experienced restaurant operations personnel whose only
responsibilities are to help train and assist franchisees in opening new
restaurants and to monitor the operations of existing restaurants. These
services are provided as part of the company's franchise program. Upon the
opening of a new franchised restaurant, the company sends an opening team to the
restaurant to assist the franchisee during the first several days that the
restaurant is open. This management team works in the restaurant to monitor
compliance with the company's standards as to quality of product and service.
The company employs three franchise field consultants, each of whom supervises
franchised restaurants in defined geographic areas. Each franchise field
consultant has been fully trained by the company to assist franchisees in
implementing the operating procedures and policies of the company once a
restaurant is open. As part of these services, the
6
franchise service representative rates the restaurant's hospitality, food
quality, speed of service and cleanliness and maintenance of facilities. The
franchisees receive a written report of the findings and, if any deficiencies
are noted, recommended procedures to be followed to correct such deficiencies.
The company also provides construction support services to its
franchisees. All site plans must be approved by the company before construction
or site improvements begin. These plans include information detailing building
location, internal traffic patterns and curb cuts, location of utilities,
walkways, driveways, signs and parking lots and a complete landscape plan. The
company also approves all plans and specifications for the restaurant building
to ensure uniformity of design of the building and the site improvements. The
company's personnel also visit the site during construction, to meet with the
franchisees and verify that all standards are met.
AREA DEVELOPMENT AND FRANCHISE AGREEMENTS. In addition to offering
single unit franchise agreements, the company also promotes franchisees to enter
into area development agreements. The area development agreement grants to the
franchisee the exclusive right to develop and open a specified number of
restaurants within a limited period of time and in a defined geographic
territory and thereafter to operate each restaurant in accordance with the terms
and conditions of the franchise agreement. The franchise agreement grants an
exclusive license at a specified location to operate a restaurant in accordance
with the Back Yard Burgers system and to utilize the company's trademarks,
service marks and other rights of the company relating to the sale of its menu
items. The term of a franchise agreement is 10 years, renewable for successive
five year periods, if certain conditions pertaining to such renewal are met,
including the payment of a $1,000 renewal fee.
Each area development agreement establishes the number of restaurants
the franchisee is to construct and open in the territory during the term of the
area development agreement after considering many factors, including the
residential, commercial and industrial characteristics of the area, geographic
factors, population of the area and the previous experience of the franchisee.
The franchisee's development schedule for the restaurants is set forth in the
area development agreement. As of December 29, 2001, the company had entered
into franchise agreements and area development agreements with certain
franchisees that require them to open or have under construction a minimum of 44
restaurants by the end of June 30, 2006. Of the 67 franchised restaurants as of
December 29, 2001, 46 were being operated under area development agreements by
multiple unit franchisees and 21 were being operated under single franchise
agreements by single unit franchisees. The company may revoke an area
development agreement of any franchisee who is unsuccessful in meeting its
projected development schedule. During the past three years, the company has
exercised its right to terminate eight area development agreements, five of
which were during 2001, for lack of performance by multiple unit franchisees
with respect to their projected development schedules. Additionally, during the
past three years, two franchise agreements were terminated because of a lack of
performance by single unit franchisees with respect to certain franchise
agreement requirements, both of which were during 2001. The company believes
that its overall experience with franchisees who commit to develop restaurants
under franchise agreements and area development agreements has been favorable,
although there can be no assurance that future performance by franchisees under
these agreements will be successful.
The franchise agreement and area development agreement require that the
franchisee submit information regarding proposed restaurant sites to the company
for its review. The company does not arrange or make any provisions for
financing the development of restaurants by its franchisees. Each franchisee is
required to purchase all fixtures, equipment, inventory, products, ingredients,
materials and other supplies used in the operation of its restaurants from
approved suppliers, all in accordance with the company's specifications. The
company provides a training program for management personnel of its franchisees.
Under the terms of the franchise agreement, the company has adopted standards of
quality, service and food preparation for franchised restaurants. Each
franchisee is required to comply with all of the standards for restaurant
operations as published from time to time in the company's operations manual.
The company may terminate a franchise agreement for several reasons,
including among others, the franchisee's bankruptcy or insolvency, default in
the payment of royalties or advertising fees to the company, failure to maintain
standards set forth in the franchise agreement or operations manual, material
violation of any law, ordinance or governmental rule or regulation or cessation
of business. In such event, the company may also elect to terminate a multiple
unit franchisee's area development agreement.
7
FRANCHISE FEES AND ROYALTIES. Under the current franchise agreement,
each franchisee is generally required to pay a franchise fee of $25,000. If a
franchisee purchases an area pursuant to an area development agreement, the
franchisee must pay $25,000 for the first restaurant and agree to pay a
franchise fee of $22,000 for each additional restaurant covered under the
agreement. With respect to the area development agreement, the amount of the fee
varies depending upon the number of restaurants the company estimates can be
developed within the territory. Upon signing the area development agreement, the
franchisee will pay to the company a franchise fee of $25,000 for the first
restaurant, plus a $5,000 (per restaurant) area development fee (to be credited
toward the subsequent $22,000 franchise fees(s)) for subsequent restaurants
covered under the area development agreement. For example, for a franchisee
whose area development agreement requires the development of five restaurants,
the franchise fee will be $25,000 for the first restaurant, and $17,000 ($22,000
less $5,000) for each of the next four restaurants for an aggregate total of
$113,000. Each franchisee is also generally required to pay the company a weekly
royalty of 4% of the restaurant's taxable sales and to pay 1% of the
restaurant's weekly taxable sales to the company's national advertising fund.
Each restaurant is required to spend not less than 2% of the restaurant's
taxable sales on local store marketing.
COMPETITION
RESTAURANT OPERATIONS. The restaurant industry, particularly the fast
food segment, is highly competitive with respect to price, service, food quality
and location and there are numerous well-established competitors possessing
substantially greater financial, marketing, personnel and other resources than
the company. The company believes that its primary direct competitors consist of
McDonald's, Burger King and Wendy's. In addition, there are other national,
regional and local fast food chains, many of which specialize in or offer
hamburger products. The company can also be expected to face competition from a
broad range of other restaurants and food service establishments. Many of the
company's competitors have achieved significant national, regional and local
brand name and product recognition and engage in extensive advertising and
promotional programs, both generally and in response to efforts by additional
competitors to enter new markets or introduce new products. In addition, the
fast food industry is characterized by the frequent introduction of new
products, accompanied by substantial promotional campaigns. In recent years,
numerous companies in the fast food industry have introduced products positioned
to capitalize on growing consumer preference for food products which are, or are
perceived to be, healthful, nutritious, low in calories and low in fat content.
It can be expected that the company will be subject to competition from
companies whose products or marketing strategies address these consumer
preferences. In addition, the market for suitable restaurant locations is highly
competitive in that fast food companies, major restaurant companies and non-food
companies compete for prime real estate sites.
CERTAIN FACTORS AFFECTING THE FAST FOOD RESTAURANT INDUSTRY. The
company is constantly required to respond to various factors affecting the
restaurant industry, including changes in consumer preferences, tastes and
eating habits, demographic trends and traffic patterns, increases in food and
labor costs and national, regional and local economic conditions. A number of
fast food restaurant companies have recently been experiencing flattening growth
rates and declines in average sales per restaurant, in response to which certain
of such companies have adopted "value pricing" strategies. Such strategies could
have the effect of drawing customers away from companies which do not engage in
discount pricing, including the company, and could also negatively impact the
operating margins of competitors.
FRANCHISE OPERATIONS. In addition to its restaurant operations, the
company competes with fast food chains, major restaurant chains and other
franchisors for franchisees. Many franchisors, including those in the restaurant
industry have greater market recognition and greater financial, marketing and
human resources.
TRADEMARKS AND SERVICE MARKS
The company believes its trademarks and service marks have significant
value and are important to its marketing efforts. The company has registered
certain trademarks and service marks (including the name "Great Little Burger")
with the United States Patent and Trademark Office. The company has also
registered the name "Back Yard Burgers" and the kettle and flame design as
service marks. The company's policy is to pursue registration of its marks
whenever possible and to oppose vigorously any infringement of its marks.
8
GOVERNMENT REGULATIONS
The company is subject to Federal Trade Commission regulation and
several state laws which regulate the offer and sale of franchises. The company
is also subject to state laws that regulate substantive aspects of the
franchisor - franchisee relationship. The FTC's Trade Regulation Rule on
Franchising requires the company to furnish to prospective franchisees a
franchise offering circular containing information prescribed by this rule.
State laws that regulate the offer and sale of franchises and the
franchisor - franchisee relationship presently exist in a substantial number of
states. Such laws generally require registration of the franchise offering with
state authorities and regulate the franchise relationship by, for example,
requiring the franchisor to deal with its franchisees in good faith, prohibiting
interference with the right of free association among franchisees, limiting the
imposition of standards of performance on a franchisee and regulating
discrimination against franchisees in charges, royalties or fees. Although such
laws may restrict a franchisor in the termination of a franchise agreement by,
for example, requiring "good cause" to exist as a basis for the termination,
advance notice to the franchisee of the termination, an opportunity to cure a
default and a repurchase of inventory or other compensation, these provisions
have not had a significant effect on the company's franchise operations. The
company is not aware of any pending franchise legislation which in its view is
likely to affect significantly the operations of the company. The company
believes that its operations comply in all material respects with rules and the
applicable state franchise laws.
Each company-operated and franchised restaurant is subject to licensing
and regulation by a number of governmental authorities, which may include
health, sanitation, safety, fire, building and other agencies in the state or
municipality in which the restaurant is located. Difficulties in obtaining or
failure to obtain the required licenses or approvals could delay or prevent the
development of a new restaurant in a particular area. The company is subject to
federal and state environmental regulations, but these regulations have not had
a material effect on the company's operations. More stringent and varied
requirements of local governmental bodies with respect to zoning, land use and
environmental factors could delay or prevent the development of a new restaurant
in a particular area.
The company is also subject to state and federal labor laws that govern
its relationship with its employees, such as minimum wage requirements, overtime
and working conditions and citizenship requirements. Significant numbers of the
company's food service and preparation personnel are paid at rates governed by
the federal minimum wage. Accordingly, further increases in the minimum wage
would increase the company's labor costs and may have an adverse effect on the
company's operating margins.
EMPLOYEES
As of March 1, 2002, the company employed approximately 1,000 persons
in its restaurant operations, 28 of whom are corporate personnel, 115 of whom
are restaurant management and supervisory personnel and the remainder of whom
are hourly restaurant personnel. Of the 28 corporate employees, 13 are in
management positions and 15 are administrative or office employees.
9
ITEM 2. PROPERTIES
Of the 37 company-operated restaurants as of December 29, 2001, the
company has entered into ground leases, as lessee, for 28 restaurants. The
company owns the real property for 8 restaurants. The company's leases are
generally written for a term of five to 15 years with one or more five-year
renewal options. The company's average monthly lease cost for the 15
company-operated restaurants located on leased sites is approximately $3,900 per
month. For the 13 restaurants where the company leases the building as well as
the site, the average monthly cost is approximately $5,300 per month. Most
leases are treated as operating leases. Leasehold improvements made by the
company generally become the property of the landlord upon expiration or earlier
termination of the lease; however, in most instances, if the company is not in
default under the lease, modular buildings remain the property of the company
and can be removed from the site upon expiration of the ground lease. With
respect to the buildings and equipment relating to the 37 company-operated
restaurants, management believes that its commercial insurance coverage is
adequate. Also see "Business-Restaurant Operations."
The company's executive offices are located in approximately 7,500
square feet of leased space at 1657 N. Shelby Oaks Drive, Suite 105, Memphis,
Tennessee 38134. The company's lease expires February 28, 2007 and provides for
a minimum annual rent of $80,040. Also, BYB Properties, Inc., a wholly-owned
subsidiary of the company, leases nominal office space at 103 Faulk Road, Suite
200, Wilmington, Delaware 19803. This lease expires on August 31, 2003, and
provides for annual rent of $4,570.
ITEM 3. LITIGATION
The company is involved in certain litigation matters incidental to its
business, including, but not necessarily limited to, claims alleging violations
of the Civil Rights Act of 1964 and/or violations of federal and state
discrimination laws. Aside from the cost of defense, such litigation is not
presently considered by management to be material to the financial condition of
the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No items are reportable hereunder.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The company's common stock is traded and quoted on The Nasdaq SmallCap
Market under the symbol "BYBI." The following table sets forth, for all periods
indicated, the high and low closing bid prices for the common stock as reported
by Nasdaq. Such price information contains inter-dealer prices, without retail
mark-up, mark-down or commissions paid, and may not necessarily reflect actual
transactions.
Quarter Ended High Low
------------- ----- -----
April 3, 1999...................... $2.13 $1.50
July 3, 1999....................... $1.88 $1.69
October 2, 1999.................... $2.31 $1.81
January 1, 2000.................... $1.94 $1.44
April 1, 2000...................... $1.56 $1.19
July 1, 2000....................... $1.44 $1.06
September 30, 2000................. $1.38 $1.13
December 30, 2000.................. $1.25 $0.59
March 31, 2001..................... $1.38 $0.94
June 30, 2001...................... $2.08 $1.12
September 29, 2001................. $2.91 $1.65
December 29, 2001.................. $3.65 $2.02
Through March 22, 2002............. $8.61 $3.89
At March 22, 2002, the common stock was held of record by approximately
520 record stockholders. On March 22, 2002, the last sale price for the common
stock as reported by Nasdaq was $6.45 per share.
The company has not paid or declared cash distributions or dividends
and does not intend to pay cash dividends on the common stock or its preferred
stock in the foreseeable future. Future cash dividends, if any, will be
determined by the board of directors based on the company's earnings, financial
condition, capital requirements and other relevant factors.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference from portions of the company's annual
report to the stockholders for the year ended December 29, 2001, filed as
Exhibit 13 to this Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Incorporated herein by reference from the company's annual report to
the stockholders for the year ended December 29, 2001, filed as Exhibit 13 to
this Form 10-K.
11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated herein by reference from the company's annual report to
the stockholders for the year ended December 29, 2001, filed as Exhibit 13 to
this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference from the company's annual report to
the stockholders for the year ended December 29, 2001, filed as Exhibit 13 to
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No items are reportable hereunder.
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information required herein is incorporated by reference from
the company's definitive proxy statement for the annual meeting of stockholders
to be held May 16, 2002, to be filed pursuant to Regulation 14A. Set forth below
is certain information regarding the company's directors and executive officers.
NAME AGE POSITION
- ---- --- --------
Lattimore M. Michael 58 Chairman of the Board and Chief Executive Officer
Michael W. Myers 43 President and Chief Operating Officer
William N. Griffith 39 Executive Vice President, Sec./Treasurer and Director
Michael G. Webb 33 Chief Financial Officer
W. Kurt Henke 44 Director
Jim L. Peterson 66 Director
William B. Raiford, III 41 Director
Joseph L. Weiss 42 Director
Mr. Michael has been chairman and chief executive officer of the
company since 1993. From 1987 to 1992, he was the company's president and chief
executive officer. He has been a director since 1987.
Mr. Myers has been chief operating officer since August 1999 and was
named president in April, 2001. From 1995 to 1999, he was a regional vice
president for Whataburger, Inc.
Mr. Griffith has been executive vice president and secretary/treasurer
of the company since 1993. From 1989 to 1992, he was the company's senior vice
president of operations. He has been a director since 1989.
Mr. Webb has been chief financial officer since March 1999. From 1995
to 1999, he was the controller for Shepherd Tissue, Inc. From 1993 to 1995, he
was a senior financial analyst for The Promus Companies. Prior to 1993, Mr. Webb
was an auditor for KPMG Peat Marwick.
Mr. Henke has been a director since 1993. He has been an attorney with
Henke-Bufkin since 1992.
Mr. Peterson is currently the chairman emeritus for Bojangles
Restaurants, Inc., a director for Earful of Books, and immediate past chairman
of Apigent Solutions. From 1994 to 1999, he was chairman, president and chief
executive officer of Bojangles' Restaurants, Inc. Prior to joining Bojangles,
he was president and chief executive officer for Whataburger, Inc. for 20
years.
Mr. Raiford has been a director since 1993. He has been an attorney
with Merkel & Cocke, P.A. since 1989.
Mr. Weiss is currently president of A. Weiss Company, a franchisee of
the company. He was president and chief operating officer of the company from
1993 to 1999. He has been a director since 1989.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the company's definitive proxy
statement for the annual meeting of stockholders to be held May 16, 2002, to be
filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the company's definitive proxy
statement for the annual meeting of stockholders to be held May 16, 2002, to be
filed pursuant to Regulation 14A.
13
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the company's definitive proxy
statement for the annual meeting of stockholders to be held May 16, 2002, to be
filed pursuant to Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) Consolidated Financial Statements
The following consolidated financial statements, notes related thereto
and report of independent auditors are referenced in Item 8 of this Form 10-K
and are incorporated herein by reference from the company's annual report to the
stockholders for the year ended December 29, 2001, filed as Exhibit 13 to this
Form 10-K:
- Consolidated Balance Sheets for the years ended December 29,
2001 and December 30, 2000
- Consolidated Statements of Operations for the years ended
December 29, 2001, December 30, 2000 and January 1, 2000
- Consolidated Statements of Changes in Stockholders' Equity for
the years ended December 29, 2001, December 30, 2000 and
January 1, 2000
- Consolidated Statements of Cash Flows for the years ended
December 29, 2001, December 30, 2000 and January 1, 2000
- Notes to Consolidated Financial Statements
- Report of Independent Accountants
(a)(2) Consolidated Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and therefore have been omitted.
14
(a)(3) Exhibits
Exhibit
Number Description
- ------- ------------
3.1 Restated Certificate of Incorporation. (5)
3.2 Amended and Restated By-Laws. (2)
4.1 Specimen Common Stock Certificate. (2)
10.1 Employment Agreement, dated April 15, 1993, between the
Registrant and Lattimore M. Michael. (1)
10.2 Form of Employment Agreement executed as of June 6, 1993, between
the Registrant and Joseph L. Weiss. (2)
10.3 Form of Employment Agreement executed as of June 6, 1993, between
the Registrant and William N. Griffith. (2)
10.4 Form of Incentive Stock Option Plan of 1993. (1)
10.5 Lease, dated February 1, 1990, between Trezevant Properties and
the Registrant. (1)
10.6 Joint Venture Agreement of Lester's Back Yard Burgers Joint
Venture I by and among William L. Lester, Pattie F. Lester,
Patricia B. Litow, Elizabeth B. Fox and Back Yard Burgers, Inc.,
dated November 15, 1994. (4)
10.7 Joint Venture Agreement of Lester's Back Yard Burgers Joint
Venture II by and among William L. Lester, Pattie F. Lester,
Patricia B. Litow, Elizabeth B. Fox, Charles B. Fox, David P. Fox
and Back Yard Burgers, Inc., dated November 15, 1994. (4)
10.8 1995 Employee Stock Purchase Plan of Back Yard Burgers, Inc. (5)
10.9 The 1995 Incentive Award Plan of Back Yard Burgers, Inc. (5)
10.10 Joint Venture Agreement of Lester's Back Yard Burgers Joint
Venture III by and among Pattie F. Lester, Patricia B. Litow,
Elizabeth B. Fox, Charles B. Fox, David P. Fox, Alexandra B.
Litow, Andrew R. Litow and Back Yard Burgers, Inc., dated
September 12, 1995. (5)
10.11 Line of Credit Commitment by and between Trust One Bank and Back
Yard Burgers, Inc. dated December 20, 1995. (6)
10.12 Loan commitment by and between Phoenix Leasing Incorporated and
Back Yard Burgers, Inc. dated October 4, 1996. (7)
10.13 Loan commitment by and between Trust One Bank and Back Yard
Burgers, Inc. dated January 23, 1997. (7)
10.14 Capital Contribution Agreement between Back Yard Burgers, Inc.
and BYB Properties, Inc. dated October 10, 1997. (8)
10.15 Trademark Assignment by Back Yard Burgers, Inc. to BYB
Properties, Inc. dated October 10, 1997. (8)
15
10.16 Trademark License Agreement between BYB Properties, Inc. and Back
Yard Burgers, Inc. dated October 10, 1997. (8)
10.17 Revolving Loan Agreement regarding Uncommitted Line of Credit
Agreement from BYB Properties, Inc. to Back Yard Burgers, Inc.
dated October 10, 1997. (8)
10.18 Promissory Note by and between BYB Properties, Inc. and Back Yard
Burgers, Inc. dated October 10, 1997. (8)
10.19 Tax Sharing Agreement between BYB Properties, Inc. and Back Yard
Burgers, Inc. dated October 10, 1997. (8)
10.20 Loan Agreement by and between Trust One Bank and Back Yard
Burgers, Inc. dated December 15, 1997. (8)
10.21 Promissory Note by and between Trust One Bank and Back Yard
Burgers, Inc. dated December 15, 1997. (8)
10.22 Business Loan Agreement by and between Cavalry Banking and Back
Yard Burgers, Inc., dated January 26, 1998. (9)
10.23 Promissory Note by and between Cavalry Banking and Back Yard
Burgers, Inc., dated January 26, 1998. (9)
10.24 Loan Agreement by and between Trust One Bank and Back Yard
Burgers, Inc., dated February 4, 1998. (9)
10.25 Promissory Note by and between Trust One Bank and Back Yard
Burgers, Inc., dated February 4, 1998. (9)
10.26 Promissory Note by and between Trust One Bank and Back Yard
Burgers, Inc., dated February 4, 1998. (9)
10.27 Promissory Note by and between Eagle Bank & Trust Company and
Back Yard Burgers, Inc., dated March 18, 1998. (9)
10.28 Promissory Note by and between Bank of Mississippi and Back Yard
Burgers, Inc., dated April 20, 1998. (10)
10.29 Form of Joint Venture Agreement of Lester's Back Yard Burgers
Joint Venture IV by and among William L. Lester, Pattie F.
Lester, Alexandra B. Litow, Andrew R. Litow and Back Yard
Burgers, Inc., dated August 28, 1998. (11)
10.30 Promissory Note by and between the Bank of Mississippi and Back
Yard Burgers, Inc. dated October 27, 1998. (12)
10.31 Promissory Note by and between the Bank of Mississippi and Back
Yard Burgers, Inc. dated November 10, 1998. (12)
10.32 Lease agreement by and between Amplicon, Inc. and Back Yard
Burgers, Inc. dated May 6, 1999. (13)
10.33 Lease agreement by and between Belz Devco, L.P. and Back Yard
Burgers, Inc. dated November 12, 1999. (14)
16
10.34 Revolving line of credit promissory note and related loan
agreement by and between First Tennessee Bank and Back Yard
Burgers, Inc. dated November 1, 2000. (15)
10.35(*) 2002 Equity Incentive Plan of Back Yard Burgers, Inc.
13(*) Registrant's annual report to stockholders for the 52-week period
ended December 29, 2001. Portions of the annual report not
specifically incorporated by reference herein are not deemed to
be filed herewith.
21(*) Subsidiaries of the Registrant.
(b) Reports on Form 8-K
None
(c) Exhibits
The exhibits to this report are listed in Item 14(a)(3) above.
(d) Financial Statement Schedule
Not applicable
- --------------
(*) Filed herewith.
(1) Previously filed with the Securities and Exchange Commission (the
"Commission") as an Exhibit to the Registrant's Form SB-2 on April 20,
1993 (File No. 33-61356).
(2) Previously filed with the Commission as an Exhibit to the Registrant's
Amendment No. 2 to Form SB-2 on June 25, 1993 (File No. 33-61356).
(3) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-K, dated January 1, 1994 and filed on March 30, 1994.
(4) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-K, dated December 31, 1994 and filed on March 31, 1995.
(5) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-QSB, dated September 30, 1995 and filed on November 14, 1995.
(6) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-K, dated December 30, 1995 and filed on March 29, 1996.
(7) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-K, dated December 28, 1996 and filed on March 28, 1997.
(8) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-K, dated January 3, 1998 and filed on April 3, 1998.
17
(9) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-QSB dated April 4, 1998 and filed on May 19, 1998.
(10) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-QSB dated July 4, 1998 and filed on August 14, 1998.
(11) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-QSB dated October 3, 1998 and filed on November 17, 1998.
(12) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-KSB dated January 1, 2000 and filed on April 2, 1999.
(13) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-Q dated July 3, 1999 and filed on August 17, 1999.
(14) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-K dated January 1, 2000 and filed on March 31, 2000.
(15) Previously filed with the Commission as an Exhibit to the Registrant's
Form 10-K dated December 30, 2000 and filed on March 30, 2001.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BACK YARD BURGERS, INC.
By: /s/ Lattimore M. Michael
------------------------------------
Lattimore M. Michael, Chairman
and Chief Executive Officer
Date: March 28, 2002
Pursuant to the requirements of the Securities Exchange Act, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Lattimore M. Michael Chairman of the Board and
- -------------------------------------------- Chief Executive Officer March 28, 2002
Lattimore M. Michael --------------
/s/ Michael W. Myers President and Chief
- -------------------------------------------- Operating Officer March 28, 2002
Michael W. Myers --------------
/s/ William N. Griffith Executive Vice President and Director March 28, 2002
- -------------------------------------------- --------------
William N. Griffith
/s/ Michael G. Webb Chief Financial Officer March 28, 2002
- -------------------------------------------- --------------
Michael G. Webb
/s/ W. Kurt Henke Director March 28, 2002
- -------------------------------------------- --------------
W. Kurt Henke
/s/ Jim Peterson Director March 28, 2002
- -------------------------------------------- --------------
Jim Peterson
/s/ William B. Raiford, III Director March 28, 2002
- -------------------------------------------- --------------
William B. Raiford, III
/s/ Joseph L. Weiss Director March 28, 2002
- -------------------------------------------- --------------
Joseph L. Weiss
19