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