ALEXANDERS J CORP - 10-Q Quarterly Report

3401 West End Avenue, Suite 260, P.O. Box 24300, Nashville, Tennessee 37202
(Address of principal executive offices)
(Zip Code)

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.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

J. Alexander’s Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(Dollars in thousands, except per share amount)


		September 28		December 29
		2003		2002

		(Unaudited)
ASSETS
CURRENT ASSETS
	Cash and cash equivalents	$	742	$	10,525
	Accounts and notes receivable, including current portion of direct financing leases		108		97
	Inventories		895		790
	Deferred income taxes		488		488
	Prepaid expenses and other current assets		814		1,000

	TOTAL CURRENT ASSETS		3,047		12,900
OTHER ASSETS			1,012		951
PROPERTY AND EQUIPMENT, at cost, less allowances for depreciation and amortization of $29,042 and $26,247 at September 28, 2003, and December 29, 2002, respectively			73,530		69,521
DEFERRED INCOME TAXES			712		712
DEFERRED CHARGES, less amortization			915		949

		$	79,216	$	85,033


					September 28			December 29
					2003			2002

					(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
	Accounts payable				$	3,670		$	3,035
	Accrued expenses and other current liabilities					3,851			4,982
	Unearned revenue					1,848			2,692
	Current portion of long-term debt and obligations under capital leases					640			6,786

			TOTAL CURRENT LIABILITIES			10,009			17,495
LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES, net of portion classified as current						24,825			24,451
OTHER LONG-TERM LIABILITIES						2,497			2,288
STOCKHOLDERS’ EQUITY
		Common Stock, par value $.05 per share: Authorized 10,000,000 shares; issued and outstanding 6,433,041 and 6,660,535 shares at September 28, 2003, and December 29, 2002, respectively				322			333
		Preferred Stock, no par value: Authorized 1,000,000 shares; none issued				—			—
		Additional paid-in capital				33,613			34,357
		Retained earnings				9,058			7,527

						42,993			42,217
		Note receivable — Employee Stock Ownership Plan				(536	)		(688	)
		Employee notes receivable – 1999 Loan Program				(572	)		(730	)

				TOTAL STOCKHOLDERS’ EQUITY		41,885			40,799

					$	79,216		$	85,033

J. Alexander’s Corporation and Subsidiaries
Consolidated Statements of Income
(Unaudited in thousands, except per share amounts)


			Nine Months Ended						Quarter Ended

			Sept. 28			Sept. 29			Sept. 28			Sept. 29
			2003			2002			2003			2002

Net sales			$	78,697		$	73,680		$	25,832		$	23,698
Costs and expenses:
	Cost of sales			25,345			23,338			8,418			7,570
	Restaurant labor and related costs			25,751			24,644			8,519			8,073
	Depreciation and amortization of restaurant property and equipment			3,201			3,295			1,065			1,099
	Other operating expenses			14,332			13,849			4,814			4,651

		Total restaurant operating expenses		68,629			65,126			22,816			21,393
General and administrative expenses				5,888			5,915			1,968			1,903
Pre-opening expense				526			42			236			42

Operating income				3,654			2,597			812			360
Other income (expense):
	Interest expense, net			(1,594	)		(850	)		(500	)		(254	)
	Other, net			(19	)		(60	)		18			(28	)

		Total other expense		(1,613	)		(910	)		(482	)		(282	)

Income before income taxes and cumulative effect of change in accounting principle				2,041			1,687			330			78
Income tax (provision) benefit				(510	)		(742	)		55			(34	)

Income before cumulative effect of change in accounting principle				1,531			945			385			44
Cumulative effect of change in accounting principle				—			(171	)		—			—

Net income			$	1,531		$	774		$	385		$	44

Basic earnings per share:
	Income before cumulative effect of change in accounting principle		$	.24		$	.14		$	.06		$	.01
	Cumulative effect of change in accounting principle			—			(.03	)		—			—

	Basic earnings per share		$	.24		$	.11		$	.06		$	.01

Diluted earnings per share:
	Income before cumulative effect of change in accounting principle		$	.23		$	.14		$	.06		$	.01
	Cumulative effect of change in accounting principle			—			(.03	)		—			—

	Diluted earnings per share		$	.23		$	.11		$	.06		$	.01

J. Alexander’s Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(Unaudited in thousands)


		Nine Months Ended

		Sept. 28			Sept. 29
		2003			2002

Net cash provided by operating activities		$	3,309		$	4,359
Net cash used by investing activities:
	Purchase of property and equipment		(6,279	)		(4,437	)
	Other investing activities		(68	)		(55	)

			(6,347	)		(4,492	)
Net cash (used) provided by financing activities:
	Payments on debt and obligations under capital leases		(6,647	)		(1,723	)
	Proceeds under bank line of credit agreement		3,200			29,586
	Payments under bank line of credit agreement		(2,700	)		(28,625	)
	Common stock repurchased		(848	)		—
	Reduction of employee notes receivable – 1999 Loan Program		158			—
	Increase in bank overdraft		—			739
	Other		92			(97	)

			(6,745	)		(120	)
Decrease in cash and cash equivalents			(9,783	)		(253	)
Cash and cash equivalents at beginning of period			10,525			1,035

Cash and cash equivalents at end of period		$	742		$	782

J. Alexander’s Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements (Unaudited)

The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Certain reclassifications have been made in the prior year’s consolidated condensed financial statements to conform to the 2003 presentation. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter and nine months ended September 28, 2003, are not necessarily indicative of the results that may be expected for the fiscal year ending December 28, 2003. For further information, refer to the consolidated financial statements and footnotes thereto included in the J. Alexander’s Corporation’s (the “Company’s”) annual report on Form 10-K for the fiscal year ended December 29, 2002.

The following table sets forth the computation of basic and diluted earnings per share:


(In thousands, except per share amounts)		Nine Months Ended				Quarter Ended

		Sept. 28		Sept. 29		Sept. 28		Sept. 29
		2003		2002		2003		2002

Numerator:
Net income (numerator for basic earnings per share)		$	1,531	$	774	$	385	$	44
Effect of dilutive securities			—		—		—		—

Net income after assumed conversions (numerator for diluted earnings per share)		$	1,531	$	774	$	385	$	44

Denominator:
Weighted average shares (denominator for basic earnings per share)			6,504		6,780		6,424		6,764
Effect of dilutive securities:
	Employee stock options		123		59		208		61

Adjusted weighted average shares and assumed conversions (denominator for diluted earnings per share)			6,627		6,839		6,632		6,825

Basic earnings per share		$	.24	$	.11	$	.06	$	.01

Diluted earnings per share		$	.23	$	.11	$	.06	$	.01

In situations where the exercise price of outstanding employee stock options is greater than the average market price of common shares, such options are excluded from the

computation of diluted earnings per share because of their antidilutive impact. For the quarter ended September 28, 2003, options to purchase 206,000 shares of common stock, at prices ranging from $4.97 to $11.69, were excluded from the computation of diluted earnings per share due to their antidilutive effect. During the corresponding period of 2002, options to purchase 247,000 shares of common stock, at prices ranging from $3.44 to $11.69, were similarly excluded from the computation of diluted earnings per share.

For the nine months ended September 28, 2003 and September 29, 2002, respectively, options to purchase 350,000 and 417,000 shares of common stock were excluded from the diluted earnings per share calculation, at prices ranging from $3.42 to $11.69 (2003) and $2.75 to $11.69 (2002).

The Company’s provisions for income taxes for the first nine months of 2003 and the nine months and third quarter of 2002 result from estimated federal alternative minimum tax (AMT) and state income taxes payable. During the third quarter of 2003, the Company reduced its estimated effective annual income tax rate from 33% of income before taxes and cumulative effect of change in accounting principle to 25%. The impact of the effective rate reduction was to decrease the income tax provisions for the nine months and quarter ended September 28, 2003 by $164,000, resulting in a tax benefit of $55,000 for the quarter ended September 28, 2003. As a result, diluted earnings per share for the nine months and third quarter ended September 28, 2003 were increased by $.02 and $.03, respectively.

The effective tax rates result from the AMT rate being applied to the Company’s pre-tax accounting income after adding back certain tax preference items as well as permanent differences and timing differences in book and tax income. The Company maintains a significant valuation allowance on its deferred tax assets, and no benefit is recognized in the current year’s income tax provision with respect to the AMT credit carryforward or other tax assets generated for the year. Further, because of the application of AMT, the Company at its current taxable income level is unable to take advantage of certain tax carryforwards that it has accumulated.

In October 2002, the Company obtained $25,000,000 of long-term mortgage financing. The mortgage loan has an effective annual interest rate, including the effect of the amortization of deferred issue costs, of 8.6% and is payable in equal monthly installments of principal and interest of approximately $212,000 through November 2022. At September 28, 2003, the mortgage loan had an outstanding balance of $24,571,000. A portion of the proceeds from this loan was used to pay off the outstanding balance of $15,470,000 on the Company’s bank line of credit, terminating that facility. Remaining funds were used primarily for retiring the Company’s $6,250,000 Convertible Subordinated Debentures and for new restaurant development.

On May 12, 2003, the Company entered into a $5 million secured bank line of credit agreement which is available for financing capital expenditures related to the development of new restaurants and for general operating purposes. Borrowings outstanding under this line of credit totaled $500,000 at September 28, 2003. Provisions of the line of credit agreement require that a minimum fixed charge coverage ratio be maintained and that the Company’s leverage ratio

not exceed a specified level. The Company’s ability to incur additional debt outside of the line of credit is also restricted. The line of credit is secured by the real estate of two of the Company’s restaurant locations with an aggregate book value of $8,197,000 at September 28, 2003 and bears interest on the outstanding borrowings at the rate of LIBOR plus a spread of two to four percent, depending on the leverage ratio. The credit line expires on April 30, 2006, unless converted to a term loan prior to March 30, 2006 under the provisions of the agreement.

In connection with a new J. Alexander’s restaurant to be opened in the fourth quarter of 2003, the Company recorded a capital building lease asset and a capital building lease obligation in the amount of $375,000 during the quarter ended September 28, 2003. For cash flow purposes, this transaction was considered a non-cash investing and financing activity.

The Company accounts for its stock compensation arrangements using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25 “Accounting for Stock Issued to Employees” and, accordingly, typically recognizes no compensation expense for such arrangements.

The following table represents the effect on net income and earnings per share if the Company had applied the fair value based Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation.


		Nine Months Ended						Quarter Ended

		Sept 28			Sept 29			Sept 28			Sept 29
		2003			2003			2003			2002

(In thousands, except per share amounts)
Net income, as reported		$	1,531		$	774		$	385		$	44
Deduct: Total stock-based employee compensation expense determined under fair value methods for all awards, net of related tax effects			(66	)		(71	)		(29	)		(23	)

Pro forma net income		$	1,465		$	703		$	356		$	21

Net income per share:
	Basic, as reported	$	.24		$	.11		$	.06		$	.01
	Basic, pro forma	$	.23		$	.10		$	.06		$	—
	Diluted, as reported	$	.23		$	.11		$	.06		$	.01
	Diluted, pro forma	$	.22		$	.10		$	.05		$	—
Weighted average shares used in computation:
	Basic


Tennessee		62-0854056
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


PART I. FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II — OTHER INFORMATION
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
INDEX TO EXHIBITS
Ex-4.a 1st Amend. Stock Purchase/Standstill Agree.
EX-31.1 302 CERTIFICATION OF THE CEO
EX-31.2 302 CERTIFICATION OF THE CFO
EX-32.1 SECTIOIN 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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x		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.