Company Quick10K Filing
J. Alexander's
Price11.65 EPS1
Shares15 P/E23
MCap174 P/FCF16
Net Debt3 EBIT9
TEV178 TEV/EBIT20
TTM 2019-09-29, in MM, except price, ratios
10-Q 2020-03-29 Filed 2020-06-09
10-K 2019-12-29 Filed 2020-03-13
10-Q 2019-09-29 Filed 2019-11-08
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-09
10-K 2018-12-30 Filed 2019-03-14
10-Q 2018-09-30 Filed 2018-11-08
10-Q 2018-07-01 Filed 2018-08-10
10-Q 2018-04-01 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-15
10-Q 2017-10-01 Filed 2017-11-09
10-Q 2017-07-02 Filed 2017-08-11
10-Q 2017-04-02 Filed 2017-05-11
10-K 2017-01-01 Filed 2017-03-16
10-Q 2016-10-02 Filed 2016-11-07
10-Q 2016-07-03 Filed 2016-08-16
10-Q 2016-04-03 Filed 2016-05-17
10-K 2016-01-03 Filed 2016-03-30
10-Q 2015-09-27 Filed 2015-11-09
S-1 2014-10-28 Public Filing
8-K 2020-06-25 Shareholder Vote
8-K 2020-06-05
8-K 2020-05-08
8-K 2020-04-24
8-K 2020-04-20
8-K 2020-04-10
8-K 2020-03-24
8-K 2020-03-12
8-K 2019-11-07
8-K 2019-08-09
8-K 2019-06-20
8-K 2019-05-01
8-K 2019-03-07
8-K 2018-11-30
8-K 2018-11-07
8-K 2018-08-08
8-K 2018-05-30
8-K 2018-05-03
8-K 2018-03-07
8-K 2018-01-30
8-K 2018-01-30

JAX 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1 - Organization and Business
Note 2 - Basis of Presentation
Note 3 - Earnings (Loss) per Share
Note 4 - Income Taxes
Note 5 - Commitments and Contingencies
Note 6 - Fair Value Measurements
Note 7 - Recent Accounting Pronouncements
Note 8 - Related Party Transactions
Note 9 - Revenue
Note 10 - Leases
Note 11 - Subsequent Events
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 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-10.1 jax-ex101_139.htm
EX-10.2 jax-ex102_140.htm
EX-18.1 jax-ex181_141.htm
EX-31.1 jax-ex311_7.htm
EX-31.2 jax-ex312_8.htm
EX-32.1 jax-ex321_9.htm

J. Alexander's Earnings 2020-03-29

Balance SheetIncome StatementCash Flow
2502001501005002013201520172020
Assets, Equity
6551382411-22013201520172020
Rev, G Profit, Net Income
10.06.02.0-2.0-6.0-10.02013201520172020
Ops, Inv, Fin

10-Q 1 jax-10q_20200329.htm FIRST QUARTER 2020 10-Q jax-10q_20200329.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 29, 2020

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: 1-37473

 

J. Alexander’s Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Tennessee

 

47-1608715

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

3401 West End Avenue, Suite 260

P.O. Box 24300

 

 

Nashville, Tennessee

 

37202

(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 each class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.001 par value

JAX

New York Stock Exchange

 

 

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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No

As of June 8, 2020, 15,011,676 shares of the registrant’s common stock, $0.001 par value, were outstanding.  

 

 



EXPLANATORY NOTE

 

As previously disclosed in the Current Report on Form 8-K filed by J. Alexander’s Holdings, Inc. (the “Company”) on May 8, 2020, the Company delayed the filing of this Quarterly Report on Form 10-Q due to circumstances related to the novel coronavirus (“COVID-19”) pandemic and in reliance on the U.S. Securities and Exchange Commission’s “Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public Companies” dated March 25, 2020 (Release No. 34-88465), which provides conditional relief to public companies that are unable to timely comply with a filing deadline due to circumstances related to the COVID-19 pandemic. As previously disclosed, the Company has experienced substantial disruptions in its operations as a result of the COVID-19 pandemic. In particular, the various government mandates and orders, and resulting office closures, staffing limitations, and remote working arrangements severely limited access to Company facilities by its financial reporting and accounting staff, and additional time was needed to process and evaluate financial information and to prepare required disclosures. Furthermore, management spent considerable time and attention on matters related to the COVID‑19 pandemic. Accordingly, the Company was not able to compile and review certain information required to be filed with this Quarterly Report on Form 10-Q prior to the original filing deadline.

 

 


TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

 

4

 

 

 

Item 1. Financial Statements (Unaudited)

 

4

 

 

 

Condensed Consolidated Balance Sheets

 

4

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

 

5

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity

 

6

 

 

 

Condensed Consolidated Statements of Cash Flows

 

7

 

 

 

Notes to Condensed Consolidated Financial Statements

 

8

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

Item 4. Controls and Procedures

 

35

 

 

 

PART II. OTHER INFORMATION

 

36

 

 

 

Item 1. Legal Proceedings

 

36

 

 

 

Item 1A. Risk Factors

 

36

 

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

37

 

 

 

Item 3. Defaults Upon Senior Securities

 

37

 

 

 

Item 4. Mine Safety Disclosures

 

37

 

 

 

Item 5. Other Information

 

37

 

 

 

Item 6. Exhibits

 

38

 

 

 

Signatures

 

39

 

 

 

 

 

 


PART I.  FINANCIAL INFORMATION

 

 

Item 1.  Financial Statements

J. Alexander’s Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited in thousands, except share amounts)

 

 

March 29,

 

 

December 29,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

24,818

 

 

$

8,803

 

Accounts and other receivables

 

 

1,530

 

 

 

2,035

 

Inventories

 

 

2,708

 

 

 

3,095

 

Prepaid expenses and other current assets

 

 

1,597

 

 

 

4,159

 

Total current assets

 

 

30,653

 

 

 

18,092

 

Other assets

 

 

5,661

 

 

 

5,698

 

Property and equipment, at cost, less accumulated depreciation and amortization of $66,496 and $64,967 as of March 29, 2020 and December 29, 2019, respectively

 

 

106,868

 

 

 

109,303

 

Right-of-use lease assets, net

 

 

74,241

 

 

 

70,277

 

Goodwill

 

 

-

 

 

 

15,737

 

Tradename and other indefinite-lived assets

 

 

25,648

 

 

 

25,648

 

Deferred income taxes, net

 

 

4,230

 

 

 

2,918

 

Deferred charges, less accumulated amortization of $358 and $343 as of March 29, 2020 and December 29, 2019, respectively

 

 

224

 

 

 

239

 

Total assets

 

$

247,525

 

 

$

247,912

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,697

 

 

$

6,353

 

Accrued expenses and other current liabilities

 

 

8,831

 

 

 

9,389

 

Unearned revenue

 

 

2,989

 

 

 

4,111

 

Current portion of long-term debt

 

 

5,250

 

 

 

7,056

 

Current portion of lease liabilities

 

 

4,546

 

 

 

4,317

 

Total current liabilities

 

 

26,313

 

 

 

31,226

 

Long-term debt, net of portion classified as current and deferred loan costs

 

 

20,411

 

 

 

2,845

 

Long-term lease liabilities

 

 

80,182

 

 

 

75,883

 

Deferred compensation obligations

 

 

6,968

 

 

 

7,103

 

Other long-term liabilities

 

 

123

 

 

 

138

 

Total liabilities

 

 

133,997

 

 

 

117,195

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share: authorized 30,000,000 shares; issued and outstanding 15,011,676 shares as of March 29, 2020 and December 29, 2019, respectively

 

 

15

 

 

 

15

 

Preferred stock, par value $0.001 per share: authorized 10,000,000 shares; no shares issued and outstanding as of March 29, 2020 or December 29, 2019

 

 

-

 

 

 

-

 

Additional paid-in capital

 

 

104,511

 

 

 

104,056

 

Retained earnings

 

 

7,444

 

 

 

25,088

 

Total stockholders' equity attributable to J. Alexander's Holdings, Inc.

 

 

111,970

 

 

 

129,159

 

Non-controlling interests

 

 

1,558

 

 

 

1,558

 

Total stockholders' equity

 

 

113,528

 

 

 

130,717

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

247,525

 

 

$

247,912

 

See accompanying Notes to Condensed Consolidated Financial Statements.

4

 


J. Alexander’s Holdings, Inc.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(Unaudited in thousands, except per share amounts)

 

 

 

 

Quarter Ended

 

 

 

 

March 29,

 

 

March 31,

 

 

 

 

2020

 

 

2019

 

 

Net sales

 

$

56,972

 

 

$

64,734

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

18,567

 

 

 

20,528

 

 

Restaurant labor and related costs

 

 

20,338

 

 

 

19,550

 

 

Depreciation and amortization of restaurant property and equipment

 

 

3,094

 

 

 

2,929

 

 

Other operating expenses

 

 

11,954

 

 

 

12,684

 

 

Total restaurant operating expenses

 

 

53,953

 

 

 

55,691

 

 

Transaction expenses

 

 

689

 

 

 

-

 

 

General and administrative expenses

 

 

4,740

 

 

 

4,756

 

 

Goodwill impairment charge

 

 

15,737

 

 

 

-

 

 

Long-lived asset impairment charges and restaurant closing costs

 

 

689

 

 

 

-

 

 

Pre-opening expenses

 

 

19

 

 

 

21

 

 

Total operating expenses

 

 

75,827

 

 

 

60,468

 

 

Operating (loss) income

 

 

(18,855

)

 

 

4,266

 

 

Other (expense) income:

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(116

)

 

 

(186

)

 

Other, net

 

 

(8

)

 

 

66

 

 

Total other expense

 

 

(124

)

 

 

(120

)

 

(Loss) income from continuing operations before income taxes

 

 

(18,979

)

 

 

4,146

 

 

Income tax benefit (expense)

 

 

1,387

 

 

 

(239

)

 

Loss from discontinued operations, net

 

 

(52

)

 

 

(59

)

 

Net (loss) income

 

$

(17,644

)

 

$

3,848

 

 

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share:

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations, net of tax

 

$

(1.20

)

 

$

0.27

 

 

Loss from discontinued operations, net

 

 

(0.00

)

 

 

(0.00

)

 

Basic (loss) earnings per share

 

$

(1.20

)

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

Diluted (loss) earnings per share:

 

 

 

 

 

 

 

 

 

(Loss) income from continuing operations, net of tax

 

$

(1.20

)

 

$

0.27

 

 

Loss from discontinued operations, net

 

 

(0.00

)

 

 

(0.00

)

 

Diluted (loss) earnings per share

 

$

(1.20

)

 

$

0.26

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

 

14,695

 

 

 

14,695

 

 

Diluted

 

 

14,695

 

 

 

14,695

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income

 

$

(17,644

)

 

$

3,848

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

Per share amounts may not sum due to rounding.

 

5

 


J. Alexander’s Holdings, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited in thousands, except share amounts)

 

 

Outstanding

shares

 

 

Common

stock

 

 

Additional

paid-in capital

 

 

Retained

earnings

 

 

Non-controlling

interests

 

 

Total

 

Balances at December 29, 2019

 

 

15,011,676

 

 

$

15

 

 

$

104,056

 

 

$

25,088

 

 

$

1,558

 

 

$

130,717

 

Share-based compensation

 

 

-

 

 

 

-

 

 

 

455

 

 

 

-

 

 

 

-

 

 

 

455

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(17,644

)

 

 

-

 

 

 

(17,644

)

Balances at March 29, 2020

 

 

15,011,676

 

 

$

15

 

 

$

104,511

 

 

$

7,444

 

 

$

1,558

 

 

$

113,528

 

 

 

 

Outstanding

shares

 

 

Common

stock

 

 

Additional

paid-in capital

 

 

Retained

earnings

 

 

Non-controlling

interests

 

 

Total

 

Balances at December 30, 2018

 

 

14,695,176

 

 

$

15

 

 

$

96,272

 

 

$

17,528

 

 

$

7,844

 

 

$

121,659

 

Cumulative effect of change in accounting policy (Note 10)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(1,257

)

 

 

-

 

 

 

(1,257

)

Share-based compensation

 

 

-

 

 

 

-

 

 

 

296

 

 

 

-

 

 

 

-

 

 

 

296

 

Cancellation of subsidiary Class B Units (Note 2(g))

 

 

-

 

 

 

-

 

 

 

6,286

 

 

 

-

 

 

 

(6,286

)

 

 

-

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,848

 

 

 

-

 

 

 

3,848

 

Balances at March 31, 2019

 

 

14,695,176

 

 

$

15

 

 

$

102,854

 

 

$

20,119

 

 

$

1,558

 

 

$

124,546

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

6

 


J. Alexander’s Holdings, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited in thousands)

 

 

 

Quarter Ended

 

 

 

March 29,

 

 

March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(17,644

)

 

$

3,848

 

Adjustments to reconcile net (loss) income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization of property and equipment

 

 

3,146

 

 

 

2,993

 

Share-based compensation expense

 

 

455

 

 

 

296

 

Asset impairment charges

 

 

16,426

 

 

 

-

 

Deferred income taxes

 

 

(1,312

)

 

 

(453

)

Other, net

 

 

71

 

 

 

59

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and other receivables

 

 

505

 

 

 

(139

)

Prepaid expenses and other current assets

 

 

2,562

 

 

 

979

 

Accounts payable

 

 

(1,685

)

 

 

(755

)

Accrued expenses and other current liabilities

 

 

(558

)

 

 

(6,325

)

Lease right-of-use assets and liabilities

 

 

564

 

 

 

881

 

Other assets and liabilities, net

 

 

(700

)

 

 

(515

)

Net cash provided by operating activities

 

 

1,830

 

 

 

869

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(1,416

)

 

 

(1,614

)

Other investing activities

 

 

(149

)

 

 

(90

)

Net cash used in investing activities

 

 

(1,565

)

 

 

(1,704

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowing under debt agreement

 

 

17,000

 

 

 

-

 

Payments on long-term debt

 

 

(1,250

)

 

 

(1,250

)

Other financing activities

 

 

-

 

 

 

(6

)

Net cash provided by (used in) financing activities

 

 

15,750

 

 

 

(1,256

)

Increase (decrease) in cash and cash equivalents

 

 

16,015

 

 

 

(2,091

)

Cash and cash equivalents at beginning of period

 

 

8,803

 

 

 

8,783

 

Cash and cash equivalents at end of period

 

$

24,818

 

 

$

6,692

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Property and equipment obligations accrued at beginning of period

 

$

1,116

 

 

$

819

 

Property and equipment obligations accrued at end of period

 

 

1,145

 

 

 

869

 

Cash paid for interest

 

 

93

 

 

 

171

 

Cash paid for income taxes

 

 

30

 

 

 

27

 

See accompanying Notes to Condensed Consolidated Financial Statements.

7

 


J. Alexander’s Holdings, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited, dollars in thousands except per share data)

 

Note 1 – Organization and Business

J. Alexander’s Holdings, Inc. (the “Company”) was incorporated on August 15, 2014 in the state of Tennessee and is a holding company which is the sole managing member of and owns all of the outstanding Class A Units of J. Alexander’s Holdings, LLC, the parent company of all of the Company’s operating subsidiaries. The Company is a publicly-traded company, with its stock listed on the New York Stock Exchange under the symbol “JAX.”

The Company, through J. Alexander’s Holdings, LLC and its subsidiaries, owns and operates full service, upscale restaurants including J. Alexander’s, Redlands Grill, Overland Park Grill, Merus Grill and Stoney River Steakhouse and Grill (“Stoney River”).  At both March 29, 2020 and December 29, 2019, the Company operated 47 restaurants in 16 states.  The Company’s restaurants are concentrated primarily in the East, Southeast, and Midwest regions of the United States.  The Company does not have any restaurants operating under franchise agreements.

Note 2 – Basis of Presentation

 

(a)

Interim Financial Statements

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and rules of the United States Securities and Exchange Commission (“SEC”).  Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the quarter ended March 29, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 3, 2021.  For further information, refer to the Consolidated Financial Statements and footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 29, 2019, filed with the SEC on March 13, 2020, and amended on April 17, 2020 (the “2019 Annual Report”).

Total comprehensive (loss) income is comprised solely of net (loss) income for all periods presented.  There have been no material changes in our significant accounting policies, other than those described in Note 2(k) – Inventory Method Change, Note 4 – Income Taxes and Note 7 – Recent Accounting Pronouncements, as compared to the significant accounting policies described in our 2019 Annual Report.

 

(b)

Effects of COVID-19

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due to the global spread of a new strain of coronavirus ("COVID-19") and the related risks to the international community. On March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic, and on March 13, 2020 the United States declared the pandemic a National Public Health Emergency.  In response, many states and jurisdictions in which the Company operates restaurants issued stay-at-home orders and other measures, including the closure of all in-restaurant dining, aimed at slowing the spread of the virus beginning in March 2020. Many of these measures have remained in place in various forms through the date of this report. These measures resulted in the closure of the Company’s dining rooms and a shift to an off-premise operations platform only until late April 2020 when certain states began to allow for partial reopening of dining rooms. As a result of the government-mandated restrictions and related public concerns, the Company’s revenues, results operations and cash flows were negatively impacted in the first quarter of 2020 due to significant reductions in guest counts. The Company has taken measures to increase its off-premise sales during the COVID-19 pandemic, including investing in its online ordering platform partnership with ChowNow, introducing curbside service, menu innovation which includes family-style meals and butcher-shop sales of cook-at-home, hand-cut steaks and whole loins, and increasing digital marketing and email campaigns to drive guest awareness.

In addition to the decline in restaurant sales, the Company has also incurred approximately $2,175 of costs directly related to the COVID-19 pandemic in the three months ended March 29, 2020, which consists primarily of continuing benefits and payments to furloughed restaurant employees for emergency sick leave and related payroll taxes and inventory waste. Additionally, the Company has continued to incur expenses related to the ongoing operations of the restaurants as well as monthly rent and occupancy-related costs during the period that its restaurants have been temporarily closed or operating

8

 


with limited capacity or on an off-premise basis only. The Company has implemented measures to reduce its costs and limit its cash outflows during the COVID-19 pandemic, including temporary reductions in staffing levels and related furloughs of restaurant-level hourly employees, deferral or cancellation of significant capital expenditure projects, engaging in ongoing negotiations with vendors and landlords regarding deferral or abatement of rental and other contractual obligations and the deferral of tax payments where allowed, any or all of which could become significant.

The disruption in operations and reduction in restaurant sales have also led the Company to consider the impact of the COVID-19 pandemic on the recoverability of its assets, including property and equipment, right-of-use assets for operating leases, goodwill and intangible assets, and others. Such impairment analyses resulted in the Company recording impairment charges totaling $16,426 for the quarter ended March 29, 2020, and are discussed further in Note 2(m) below. The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that additional impairments could be identified in future periods, and such amounts could be material.  

To preserve financial flexibility, the Company drew the remaining $17,000 of available capacity (at the time of the draw) under its revolving credit facilities in March 2020. During April 2020, the Company also entered into deferral letter agreements with its lender to postpone principal and interest payments on its outstanding indebtedness for a period of 90 days. Additionally, the Company entered into a modification agreement in April 2020 to defer the maturity of, and interest payments under one of its term loans to September 2021. Additionally, in June 2020, the Company entered into a modification agreement with its lender to increase the borrowing capacity under its revolving line of credit by an additional $15,000. Also, in May 2020, the Company obtained a waiver letter from its lender that waived existing financial covenants and instituted new financial covenants, which the Company expects to be in compliance with, through the period ending July 4, 2021. See Notes 2(l) and 11 below for further information.

The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. Given the uncertainty surrounding the global economy and governmental restrictions on our operations, the Company cannot reasonably predict when its restaurants will be able to return to normal dining room operations. Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate impact that the COVID-19 pandemic will have on its consolidated financial condition, liquidity and future results of operations, and therefore any prediction as to the ultimate material adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain. The Company does expect that its results of operations, cash flows and liquidity will be negatively affected by the pandemic in the second quarter of 2020.

 

(c)

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company as well as the accounts of its majority-owned subsidiaries.  All intercompany profits, transactions, and balances between the Company and its subsidiaries have been eliminated.  It is the Company’s policy to reclassify prior year amounts to conform to the current year’s presentation for comparative purposes, if such a reclassification is warranted.

The Company is a holding company with no direct operations and that holds as its sole asset an equity interest in J. Alexander’s Holdings, LLC and, as a result, relies on J. Alexander’s Holdings, LLC to provide it with funds necessary to meet its financial obligations.

 

(d)

Fiscal Year

The Company’s fiscal year ends on the Sunday closest to December 31, and each quarter typically consists of 13 weeks.  The quarters ended March 29, 2020 and March 31, 2019 each included 13 weeks of operations, respectively.  Fiscal years 2020 and 2019 include 53 and 52 weeks of operations, respectively.

 

(e)

Discontinued Operations and Restaurant Closure

The Company remains party to a lease agreement for a location that was closed in 2013 and is accounted for as a discontinued operation.  The $52 and $59 losses from discontinued operations included in the quarters ended March 29, 2020 and March 31, 2019, respectively, consist solely of exit and disposal costs for this location.

9

 


 

(f)

Transaction Expenses

Transaction expenses totaled $689 and $0 for the quarters ended March 29, 2020 and March 31, 2019, respectively. Expenses incurred in 2020 include legal fees, other professional fees and consulting fees related to the ongoing evaluation of strategic alternatives.  During the first quarter of 2020, the Company announced that given the uncertainties in the business community, the restaurant industry and the financial markets as a result of COVID-19, the ongoing review of strategic alternatives by the Company’s Board of Directors (the “Board”) will not be completed until these uncertainties are resolved.

 

(g)

(Loss) Earnings per Share

Basic (loss) earnings per share of common stock is computed by dividing net (loss) income by the weighted average number of shares outstanding for the reporting period.  Diluted (loss) earnings per share of common stock is computed similarly to basic (loss) earnings per share except the weighted average shares outstanding are increased to include potential shares outstanding resulting from share-based compensation awards and additional shares from the assumed exercise of any common stock equivalents, if dilutive.  In periods of net loss, no potential common shares are included in the diluted shares outstanding as the effect is anti-dilutive.  J. Alexander’s Holdings, LLC Class B Units are considered common stock equivalents for this purpose.  The number of additional shares of common stock related to these common stock equivalents is calculated using the if-converted method, if dilutive.  The number of additional shares of common stock related to stock option awards and unvested restricted share awards subject to only a service condition is calculated using the treasury stock method, if dilutive. Unvested restricted share awards that are subject to a performance condition are regarded as contingently issuable common shares and are included in the denominator of the diluted (loss) earnings per share calculation using the treasury stock method as of the beginning of the period in which the performance condition has been satisfied, if dilutive.  Refer to Note 3 – (Loss) Earnings per Share for the basic and diluted (loss) earnings per share calculations and additional discussion.

 

(h)

Non-controlling Interests

Non-controlling interests presented on the Condensed Consolidated Balance Sheets represent the portion of net assets of the Company attributable to the non-controlling J. Alexander’s Holdings, LLC Class B Unit holders.  As of each March 29, 2020 and December 29, 2019, the non-controlling interests presented on the Condensed Consolidated Balance Sheets were $1,558.  On February 28, 2019, in conjunction with the termination agreement (“Termination Agreement”) entered into in November 2018 between J. Alexander’s Holdings, LLC and Black Knight Advisory Services, LLC (“Black Knight”), the 1,500,024 Class B Units held by Black Knight were cancelled and forfeited for no consideration. Therefore, the Black Knight non‑controlling interest associated with their Class B Unit share-based compensation expense was reclassified to additional paid-in capital in the first quarter of 2019, and as of March 29, 2020 and December 29, 2019, non-controlling interests consist solely of the non-cash compensation expense relative to the Class B Units held by management.  The Hypothetical Liquidation at Book Value method was used as of each of March 29, 2020 and March 31, 2019 to determine allocations of non-controlling interests in respect of vested grants consistent with the terms of the Second Amended and Restated LLC Agreement of J. Alexander’s Holdings, LLC, and pursuant to those calculations, no allocation of net (loss) income was made to non-controlling interests for either of the quarters ended March 29, 2020 or March 31, 2019.

 

(i)

Use of Estimates

Management has made certain estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the unaudited Condensed Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods presented to prepare these unaudited Condensed Consolidated Financial Statements in conformity with GAAP.  Significant items subject to such estimates and assumptions include those related to the accounting for gift card breakage, determination of uncertain tax positions and the valuation allowance relative to deferred tax assets, if any, estimates of useful lives of property and equipment and leasehold improvements, the carrying amount of goodwill and intangible assets, fair market valuations, determination of lease terms, and accounting for impairment losses, contingencies, and litigation. Actual results could differ from these estimates.

 

(j)

Share Repurchase Program

 

On November 1, 2018, the Company’s Board authorized a share repurchase program which replaced the previous share repurchase program that expired on October 29, 2018, and allows for the repurchase of shares up to an aggregate purchase price of $15,000 over the three-year period ending November 1, 2021.  Any share repurchases under the current program are expected to be made solely from cash on hand and available operating cash flow.  Repurchases will be made in accordance

10

 


 

with applicable securities laws and may be made from time to time in the open market.  The timing, prices and amount of repurchases will depend upon prevailing market prices, general economic and market conditions and other considerations.  The repurchase program does not obligate the Company to acquire any particular amount of stock.  There was no common stock repurchase activity under the program during the first quarter of 2020.

 

(k)

Inventory Method Change

The Company recently completed the implementation of a new inventory management system. In connection with this implementation, the Company changed its method of accounting for inventory from the lower of cost (first-in, first-out) or net realizable value method utilized by its legacy system to the lower of cost or net realizable value method, with cost being determined using an average cost method, effective December 30, 2019 (the first day of the current fiscal year). The Company believes this change in accounting principle is preferable, as it will result in greater precision in the costing of inventories. In addition, the average cost method better aligns with the functionality of the new inventory management system. The Company determined that the effects of adopting the average cost method were not material to its Condensed Consolidated Financial Statements. Prior to the conversion to the new inventory management system, the Company was not able to determine the impact of the change to the average cost method. Therefore, it did not retroactively apply the change to periods prior to fiscal year 2020.

(l)Debt

 

The Company is party to the Second Amended and Restated Loan Agreement, dated May 20, 2015, by and between J. Alexander’s, LLC and Pinnacle Bank, as amended (the “Loan Agreement”). As of March 29, 2020, the Loan Agreement consists of the following loans: (i) a $5,000 term loan that matures on September 3, 2021 (the “Mortgage Loan”), (ii) a $20,000 development line of credit that matures on September 3, 2021 (the “Development Line of Credit”), (iii) a $10,000 term loan that was originally scheduled to mature on May 3, 2020 (the “Term Loan”) (original maturity date has been modified as discussed in Note 11 – Subsequent Events), and (iv) a $1,000 revolving line of credit that matures on September 3, 2021 (the “Revolving Line of Credit”).

 

As previously disclosed in the Company’s Form 8-K filed on March 24, 2020, during the first quarter of 2020, the Company announced it drew down the remaining $17,000 of available capacity (at the time of the draw) under the Development Line of Credit and the Revolving Line of Credit (the “Credit Draw”). Following the Credit Draw, a total of approximately $25,722 was outstanding under the Loan Agreement, including a total of $21,000 outstanding under the Development Line of Credit and the Revolving Line of Credit. Pursuant to the terms of the Loan Agreement, the borrowings under the Loan Agreement bear interest at 30-day LIBOR plus a sliding interest rate scale determined by a maximum adjusted debt to EBITDAR ratio (following the Credit Draw, prospectively set at 30-day LIBOR plus 2.10% as of March 29, 2020).

The Credit Draw was undertaken as a precautionary measure to provide increased liquidity and preserve financial flexibility in light of current disruption and uncertainty resulting from the COVID-19 pandemic. The proceeds from the Credit Draw will be available to be used for general corporate purposes, including working capital. See Note 11 below for further information regarding additional changes to the Company’s Loan Agreement subsequent to March 29, 2020.

(m)Asset Impairment Charges

 

In light of the recent decline in the market price of the Company’s common stock, the impact of mandated dining room closures on financial results, the expected reduction in economic activity in the near term, and the general economic and market volatility, the Company determined that these factors constituted an interim triggering event as of March 29, 2020, and performed impairment analyses with regard to its indefinite-lived intangible assets, property and equipment (including its right-of-use assets for operating leases) and goodwill. As a result, the Company recorded asset impairment charges totaling $16,426 in the first quarter of 2020.

 

The Company performed a quantitative goodwill impairment test as of the balance sheet date utilizing a market approach which included observable market prices associated with the Company’s common stock price in determining a fair value for the Company and its reporting units. As a result of this test, the Company determined that the J. Alexander’s / Grill reporting unit’s carrying value exceeded its fair value as of March 29, 2020 to such an extent that the full write-off of goodwill in the first quarter of 2020 in the amount of $15,737 was appropriate. The effect of this conclusion is presented as a component of “Goodwill impairment charge” on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

 

11

 


Additionally, the Company recorded a fixed asset impairment charge of $689 to state the assets at its Lyndhurst Grill location in Cleveland, Ohio, at their fair value as of March 29, 2020, which is presented as “Long-lived asset impairment charges and restaurant closing costs” on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. During the second quarter of 2020, the Company made the decision to permanently close this location after a review of its projected and historical financial performance. This location was also required to be temporarily closed in midMarch due to COVID-19-related traffic limitations unique to that specific restaurant which further impacted operating results. The Company assessed its other restaurant locations for indicators of impairment as of quarter-end and assessed recoverability of certain fixed assets as warranted.  No additional impairment was identified as of March 29, 2020.

 

The Company also performed a quantitative impairment analysis relative to its indefinite-lived intangible assets as of March 29, 2020 and determined that the fair value of these assets substantially exceeded their carrying values and no impairment existed as of March 29, 2020.

Note 3 – Earnings (Loss) per Share

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

 

 

Quarter Ended

 

(Dollars and shares in thousands, except per share amounts)

 

March 29,

 

 

March 31,

 

 

 

2020

 

 

2019

 

Numerator:

 

 

 

 

 

 

 

 

(Loss) income from continuing operations, net of tax

 

$

(17,592

)

 

$

3,907

 

Loss from discontinued operations, net

 

 

(52

)

 

 

(59

)

Net (loss) income

 

$

(17,644

)

 

$

3,848

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares (denominator for basic (loss) earnings per share)

 

 

14,695

 

 

 

14,695

 

Effect of dilutive securities

 

 

-

 

 

 

-

 

Adjusted weighted average shares and assumed conversions

     (denominator for diluted (loss) earnings per share)

 

 

14,695

 

 

 

14,695

 

 

 

 

 

 

 

 

 

 

Basic (loss) earnings per share:

 

 

 

 

 

 

 

 

(Loss) income from continuing operations, net of tax

 

$

(1.20

)

 

$

0.27

 

Loss from discontinued operations, net

 

 

(0.00

)

 

 

(0.00

)

Basic (loss) earnings per share

 

$

(1.20

)

 

$

0.26

 

Diluted (loss) earnings per share:

 

 

 

 

 

 

 

 

(Loss) income from continuing operations, net of tax

 

$

(1.20

)

 

$

0.27

 

Loss from discontinued operations, net

 

 

(0.00

)

 

 

(0.00

)

Diluted (loss) earnings per share

 

$

(1.20

)

 

$

0.26

 

 

 

 

 

 

 

 

 

 

Note:  Per share amounts may not sum due to rounding.

 

 

 

 

 

 

 

 

Basic (loss) earnings per share of common stock is computed by dividing net (loss) income by the weighted average number of shares outstanding for the reporting period.  Diluted (loss) earnings per share of common stock gives effect during the reporting period to all dilutive potential shares outstanding resulting from share-based compensation awards and additional shares from the assumed exercise of any common stock equivalents, if dilutive.  We incurred a net loss for the quarter ended March 29, 2020, and therefore diluted shares outstanding equaled basic shares outstanding for the first quarter of 2020.

The J. Alexander’s Holdings, LLC Class B Units are considered common stock equivalents, and the number of additional shares of common stock related to these Class B Units is calculated using the if-converted method.  The 833,346 Class B Units associated with management’s profits interest awards are considered to be antidilutive as of and for the quarter ended March 31, 2019 and, therefore, have been excluded from the diluted (loss) earnings per share calculations.

The number of additional shares of common stock related to stock option awards is calculated using the treasury stock method, if dilutive.  There were 1,495,750 stock option awards outstanding as of March 29, 2020 and March 31, 2019.  These awards were

12

 


considered antidilutive and, therefore, are excluded from the diluted (loss) earnings per share calculation for the quarter ended March 31, 2019.

As of March 29, 2020, there were 264,000 and 52,500 restricted share awards and performance share awards outstanding, respectively. The performance condition associated with the performance share awards had not been met as of March 29, 2020.  As noted above, the Company recorded a net loss for the quarter ended March 29, 2020. As such, none of these outstanding awards were considered dilutive for the first quarter of 2020.  No such awards were outstanding as of March 31, 2019.

Note 4 – Income Taxes

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted into law.  The CARES Act is a tax and spending package intended to provide economic relief to address the impact of the COVID-19 pandemic.  The CARES Act includes several significant income and other business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOLs”) and allow businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years, loosen the business interest limitation under section 163(j), and fix the qualified improvement property (“QIP”) regulations in the 2017 Tax Cuts and Jobs Act.   Additionally, the CARES Act provides for non-income tax-related relief such as refundable employee retention tax credits and the deferral of the employer-paid portion of social security taxes. As a result of the CARES Act, the Company estimates that it will be able to obtain a tax refund from the carryback of NOLs expected to be generated in fiscal 2020, and it is currently in the process of quantifying the estimated total amount of that carryback. The Company also intends to take advantage of the deferral offered for the employer-paid portion of social security taxes and the refundable employee retention tax credits. The Company continues to evaluate the various provisions of the CARES Act and their impact on its effective tax rate and its financial statements as a whole, but the Company does anticipate the impact for the full fiscal year 2020 could be significant.

The interim tax provision for the quarter ended March 29, 2020 was prepared on an actual effective tax rate basis for the quarter rather than on an estimated annual effective rate basis due to the fact that the Company has determined that a reliable estimate of the annual effective tax rate cannot be made as of the end of the first quarter.  The Company recognized an income tax benefit of $1,387 for the quarter ended March 29, 2020, which includes $106 of current benefit related to the carryback of calculated NOLs for the first quarter of 2020 to prior years as allowed under the CARES Act.  The actual net effective tax rate for the first quarter of 2020 was 7.3% compared to 5.8% for the quarter ended March 31, 2019. The factors that caused the net effective tax rate to vary from the federal statutory rate of 21% for the three-month period ended March 29, 2020 primarily related to the impact of the nondeductible book goodwill impairment charge recorded during the quarter, partially offset by the Federal Insurance Contribution Act (“FICA”) tip credit, state income taxes, the anticipated carryback of the NOLs generated during the quarter to prior years, including the impact of the correction of the QIP regulations on the anticipated carryback, and other items. For the three-month period ended March 31, 2019, the factors that caused the net effective tax rate to vary from the federal statutory rate included the impact of the FICA tip credit and other credits, partially offset by state income taxes and certain non-deductible expenses.

The Company regularly assesses the need for a valuation allowance related to its deferred tax assets, which includes consideration of both positive and negative evidence related to the likelihood of realization of such deferred tax assets to determine, based on the weight of the available evidence, whether it is more-likely-than-not that some or all of its deferred tax assets will not be realized.  In its assessment, the Company considers recent financial operating results, projected future taxable income, the reversal of existing taxable differences, and tax planning strategies.  The Company has evaluated the need for valuation allowances as of the quarter ended March 29, 2020 and has determined that a valuation allowance of $256 was necessary relative to certain state net operating losses and other deferred tax assets which are not expected to be realized.  Management also determined at March 29, 2020 that it is more likely than not that the results of future operations and reversal of deferred tax liabilities will generate sufficient taxable income to realize the remaining deferred tax assets not covered by this valuation allowance. The Company will continue to assess the likelihood of the realization of its deferred tax assets, especially in light of the COVID-19 pandemic and related economic uncertainty, and the valuation allowance will be adjusted accordingly in future periods if required.

Note 5 – Commitments and Contingencies

 

(a)

Contingent Leases

As a result of the disposition of the Company’s predecessor’s Wendy’s operations in 1996, subsidiaries of the Company may remain 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 five leases at March 29, 2020 was approximately $955.  In connection with the sale of the Company’s predecessor’s Mrs. Winner’s Chicken & Biscuit restaurant operations in 1989 and certain previous dispositions, subsidiaries of the Company also may remain secondarily liable for one real property lease.  The total estimated amount of lease payments remaining on this lease at March 29, 2020 was approximately $326. There have been

13

 


no payments by subsidiaries of the Company of such contingent liabilities in the history of the Company.  Management believes any significant loss is remote.

 

(b)

Tax Contingencies

The Company and its subsidiaries are subject to real property, personal property, business, franchise, income, withholding, unemployment, unclaimed property, sales and use taxes in various jurisdictions within the United States and are regularly under audit by tax authorities.  This is believed to be common for the restaurant industry.  Management believes the ultimate disposition of these matters will not have a material adverse effect on the consolidated financial position or results of operations of the Company.

 

(c)

Litigation Contingencies

The Company and its subsidiaries are defendants from time to time in various claims or legal proceedings arising in the ordinary course of business, including claims relating to workers’ compensation matters, labor-related claims, discrimination and similar matters, claims resulting from guest accidents while visiting a restaurant, claims relating to lease and contractual obligations, federal and state tax matters, and claims from guests or employees alleging illness, injury or other food quality, health or operational concerns, and injury or wrongful death under “dram shop” laws that allow a person to sue the Company and its subsidiaries based on any injury caused by an intoxicated person who was wrongfully served alcoholic beverages at one of the Company’s restaurants.

Management does not believe that any of the legal proceedings pending against the Company and its subsidiaries as of the date of this report will have a material adverse effect on the Company’s liquidity, consolidated results of operations or financial condition.  The Company may incur liabilities, receive benefits, settle disputes, sustain judgments, or accrue expenses relating to legal proceedings in a particular fiscal year, which may adversely affect its consolidated results of operations, or on occasion, receive settlements that favorably affect its consolidated results of operations.

Note 6 – Fair Value Measurements

As of each of March 29, 2020 and December 29, 2019, the fair value of cash and cash equivalents, accounts receivable, inventory, accounts payable, accrued expenses and other current liabilities approximated their carrying value due to their short-term nature.  The carrying amounts of the long-term debt approximate fair value as interest rates and negotiated terms and conditions are consistent with current market rates because of the close proximity of recent refinancing transactions to the dates of these unaudited Condensed Consolidated Financial Statements (Level 2).

The Company utilizes the following fair value hierarchy, which prioritizes the inputs into valuation techniques used to measure fair value.  Accordingly, the Company uses valuation techniques which maximize the use of observable inputs and minimize the use of unobservable inputs when determining fair value.  The three levels of the hierarchy are as follows:

Level 1

Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2

Defined as observable inputs other than Level 1 prices.  These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets or liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

Defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

As discussed in Note 2(m) above, during the first quarter of fiscal year 2020, primarily due to the impacts of the COVID-19 pandemic, the Company determined that a triggering event had occurred requiring an impairment evaluation of its long-lived assets, indefinite-lived intangible assets and goodwill. As a result of these analyses, the Company recorded a $689 impairment charge related to the long-lived assets at one restaurant location that management determined would be permanently closed (the Lyndhurst Grill location) and a $15,737 impairment charge related to the Company’s recorded goodwill. The impairment charges were measured based on the amounts by which the carrying values of the assets exceeded their relative fair values. No impairment was recorded for

14

 


indefinitelived intangible assets as their fair values were determined to substantially exceed their carrying values. Fair values for goodwill and long-lived assets that were impaired during the first quarter of 2020 were estimated utilizing a market approach, and fair value estimates for indefinite-lived intangibles were determined based on an income approach. Fair value estimates utilized market participant assumptions reflecting all available information as of the balance sheet date. The fair value associated with the impaired long-lived assets at the Company’s Lyndhurst Grill location as of March 29, 2020 was approximately $1,245 (Level 2), and the fair value of goodwill as of March 29, 2020 was $0 (Level 3). There were no non-financial assets measured at fair value on a non-recurring basis as of December 29, 2019.

The ultimate severity and longevity of the COVID-19 pandemic is unknown, and therefore, it is possible that additional impairments could be identified in future periods, and such amounts could be material.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present the Company’s financial assets and liabilities measured at fair value on a recurring basis as of the dates indicated:

 

 

March 29, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash and cash equivalents *

 

$

3

 

 

$

-

 

 

$

-

 

U.S. government obligations *

 

 

203

 

 

 

-

 

 

 

-

 

Corporate bonds *

 

 

2,298

 

 

 

-

 

 

 

-

 

Mutual and money market funds

 

 

855

 

 

 

-

 

 

 

-

 

Cash surrender value - life insurance *

 

 

-

 

 

 

2,257

 

 

 

-

 

Total

 

$

3,359

 

 

$

2,257

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 29, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Cash and cash equivalents *

 

$

71

 

 

$

-

 

 

$

-

 

U.S. government obligations *

 

 

300

 

 

 

-

 

 

 

-

 

Corporate bonds *

 

 

2,195

 

 

 

-

 

 

 

-

 

Mutual and money market funds

 

 

833

 

 

 

-

 

 

 

-

 

Cash surrender value - life insurance *

 

 

-

 

 

 

2,253

 

 

 

-

 

Total

 

$

3,399

 

 

$

2,253

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* - As held in the Trust (as defined below).

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents are classified as Level 1 of the fair value hierarchy as they represent cash held in a rabbi trust established under a retirement benefit arrangement with certain of our current and former officers (the “Trust”).  Cash held in the Trust is invested through an overnight repurchase agreement the investments of which may include U.S. Treasury securities, such as corporate bonds or Treasury bills, and other agencies of the U.S. government.  Such investments are valued using quoted market prices in active markets.

U.S. government obligations held in the Trust include U.S. Treasury Bonds.  These bonds as well as the corporate bonds listed above are classified as Level 1 of the fair value hierarchy given their readily available quoted prices in active markets.

At March 29, 2020 and December 29, 2019, the Company held investments in mutual and money market funds classified as trading securities that were also held in a rabbi trust as of March 29, 2020 (the “409a Trust”) to support its future obligations to participants of its nonqualified deferred compensation plan, which are carried at fair value based on quoted market prices in active markets for identical assets (Level 1).

Cash surrender value - life insurance is classified as Level 2 in the fair value hierarchy.  The value of each policy was determined by MassMutual Financial Group, an A-rated insurance company, which provides the value of these policies to the Company on a regular basis.

There were no transfers between the levels listed above during either of the reporting periods.

15

 


Unrealized gains or losses on investments held in either the Trust or the 409a Trust are presented as a component of “Other, net” on the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.  The assets of both the Trust and the 409a Trust disclosed above are presented as a component of “Other assets” on the Condensed Consolidated Balance Sheets.

Note 7 – Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU No. 2016-13”).  ASU No. 2016-13 was issued to update the methodology used to measure current expected credit losses (“CECL”). The update applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments. This ASU replaces the current incurred loss impairment methodology with a methodology to reflect CECL and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates.  ASU No. 2016-13 must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings in the period of adoption. The effective date relative to smaller reporting companies is for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU No. 2016-13 to have a material impact on its unaudited Condensed Consolidated Financial Statements and related disclosures.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU No. 2017-04”).  This update simplifies the subsequent measurement of goodwill by eliminating the second step of the two-step quantitative goodwill impairment test.  An entity will no longer perform a hypothetical purchase price allocation to measure goodwill impairment.  Instead, impairment will be measured at the amount by which the carrying value exceeds the fair value of a reporting unit, not to exceed the carrying value of the reporting unit goodwill.  The option remains for an entity to perform a qualitative assessment of a reporting unit to determine if the quantitative impairment test is necessary.  ASU No. 2017-04 requires prospective adoption and is effective commencing in fiscal years beginning after December 15, 2022, with early adoption permitted.  The Company adopted this guidance at the beginning of fiscal year 2020, which it followed in assessing goodwill for impairment as of March 29, 2020 as discussed in Note 2(m) above.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”).  This update eliminates, modifies and adds a number of disclosure requirements related to fair value measurements in connection with the FASB’s disclosure framework project, the objective of which is to improve the effectiveness of disclosures in the notes to financial statements.  ASU No. 2018-13 is effective for annual periods beginning after December 15, 2019, including interim periods within those annual periods, with early adoption permitted. The Company adopted this guidance at the beginning of fiscal year 2020, and it did not have a significant impact on its unaudited Condensed Consolidated Financial Statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). ASU No. 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. This standard is effective for annual periods beginning after December 15, 2020, including interim periods within those annual periods, with early adoption permitted. The Company is currently assessing the potential impact of ASU No. 2019-12 on its unaudited Condensed Consolidated Financial Statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848) (“ASU No. 2020-04”).  This update provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.  The amendments in ASU No. 2020-04 apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.  An entity may elect to apply the amendments for contract modifications by the impacted Accounting Standards Codification (“ASC”) topic as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for an ASC topic, the amendments in ASU No.2020-04 must be applied prospectively for all eligible contract modifications for that ASC topic.  The Company continues to assess the potential impact of ASU No. 2020-04 on its unaudited Condensed Consolidated Financial Statements and related disclosures.

Note 8 – Related Party Transactions

On September 28, 2015, J. Alexander’s Holdings, LLC entered into a management consulting agreement (“Management Consulting Agreement”) with Black Knight, pursuant to which Black Knight provided corporate and strategic advisory services to J. Alexander’s

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Holdings, LLC.  On November 30, 2018 (“Termination Date”), the Company terminated the Management Consulting Agreement by entering into the Termination Agreement.

Under the Management Consulting Agreement, J. Alexander’s Holdings, LLC issued Black Knight 1,500,024 non-voting Class B Units and was required to pay Black Knight an annual fee equal to 3% of the Company’s Adjusted EBITDA for each fiscal year during the term of the Management Consulting Agreement and to reimburse Black Knight for its direct out-of-pocket costs incurred for management services provided to J. Alexander’s Holdings, LLC.  Under the Management Consulting Agreement, “Adjusted EBITDA” meant the Company’s net income before interest expense, income tax (expense) benefit, depreciation and amortization, and adding asset impairment charges and restaurant closing costs, loss on disposals of fixed assets, transaction and integration costs, non-cash compensation, loss from discontinued operations, gain on debt extinguishment, pre-opening costs and certain unusual items.  As a result of the Termination Agreement, in the first quarter of 2019, the Company paid approximately $705 to Black Knight which represented the pro-rata portion of its consulting fees earned during 2018 through the Termination Date.  Additionally, the early termination of the Management Consulting Agreement by J. Alexander’s Holdings, LLC required the cash payment of $4,560 to Black Knight as a termination fee which the Company paid on January 31, 2019 using cash on hand.

Under the terms of the Termination Agreement, Black Knight had 90 days from the Termination Date to exercise its right to convert the value of the Class B units it was granted under the Management Consulting Agreement above the applicable hurdle rate to the Company’s common stock.  Since Black Knight did not exercise its conversion rights within the 90-day period, the Class B Units were cancelled and forfeited for no consideration on February 28, 2019.

Note 9 – Revenue

The following table presents the Company’s revenues disaggregated by revenue source for the periods presented:

 

Quarter Ended

 

 

March 29,

 

 

March 31,

 

 

2020

 

 

2019

 

Restaurant

$

56,744

 

 

$

64,497

 

Gift card breakage

 

228

 

 

 

237

 

Net sales

$

56,972

 

 

$

64,734

 

 

The Company recognized revenue associated with gift cards redeemed by guests of $1,434 and $1,515 during the quarters ended March 29, 2020 and March 31, 2019, respectively.  Further, of the amounts that were redeemed during the three-month periods ended March 29, 2020 and March 31, 2019, $1,263 and $1,313, respectively, were recorded within unearned revenue at the beginning of each the respective fiscal years.  Unearned revenue increased by $541 and $612 during the quarters ended March 29, 2020 and March 31, 2019, respectively, as a result of gift cards sold.

Note 10 – Leases

The Company adopted ASC Topic 842, Leases, as of the first day of fiscal year 2019, December 31, 2018, electing the optional transition method to apply the standard as of the effective date. Accordingly, the Company recorded a cumulative-effect adjustment to opening retained earnings for the impairment of an abandoned right-of-use (“ROU”) asset at the effective date for a restaurant that was previously impaired and the remaining lease payments were accounted for under ASC Topic 420, Exit or Disposal Obligations, as shown in the Condensed Consolidated Statement of Shareholders’ Equity.  Additionally, the adoption of Topic 842 had a material impact on the Company’s assets and liabilities as a result of the recognition of operating lease ROU assets and lease liabilities on its Condensed Consolidated Balance Sheets. The adoption of Topic 842 did not have a material effect on the Company’s Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income and Condensed Consolidated Statements of Cash Flows.

During the first quarter of 2020, the Company took possession of the new restaurant location slated to open in San Antonio, Texas during the fourth quarter of 2020. As a result, the Company recorded a ROU asset in exchange for a new lease liability of $5,206. Further, the Company entered into a lease for a new restaurant location in Madison, Alabama, which it anticipates will open during fiscal year 2021 but for which it has not yet taken possession.  Each of these leases include a lease term, including option periods, of 30 years.

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The Company modified an existing lease related to its Stoney River Annapolis location during the first quarter of 2020, which included changes to the length of the lease’s option periods.  However, the total number of years between the two option periods remained the same, and the modification did not extend the total lease period beyond that which was agreed upon in the original lease.  While base rental payments remained unchanged, the breakpoint and percentages applicable to percentage rental payments were modified should the restaurant’s sales exceed such thresholds.  The amendment also provided for a lease incentive payment of $527 contingent upon certain conditions which were met by the Company and recorded as a reduction to the ROU asset during the first quarter of 2020.  As a result of the modification, the Company updated the incremental borrowing rate associated with the lease as of the date of the modification.  

The cash paid during the first quarter of 2020 for amounts included in the measurement of lease liabilities totaled $2,219.

Maturities of lease liabilities by fiscal year for the Company’s operating leases are as follows:

 

 

March 29,

 

 

 

2020

 

2020 (1)

 

$

6,756

 

2021

 

 

9,377

 

2022

 

 

9,537

 

2023

 

 

9,562

 

2024

 

 

9,237

 

2025 and thereafter

 

 

92,521

 

Total minimum lease payments

 

 

136,990

 

Less: Imputed interest (2)

 

 

52,262

 

Present value of lease liabilities

 

$

84,728

 

(1)  Excluding the 13 weeks ended March 29, 2020

(2) Amount necessary to reduce net minimum lease payments to present value calculated using our incremental borrowing rates, which are consistent with the lease terms at adoption date (for those leases in existence as of the adoption date of Topic 842) or lease inception (for those leases entered into after the adoption date).

Note 11 – Subsequent Events

Paycheck Protection Program Loans

On April 10, 2020 and April 15, 2020 respectively, J. Alexander’s, LLC and Stoney River Management Company, LLC, each an indirect subsidiary of the Company, were each granted loans from Pinnacle Bank in the aggregate amounts of $10,000 and $5,100 pursuant to the Paycheck Protection Program under the CARES Act, which was enacted March 27, 2020.  On April 29, 2020, the Company repaid both the $10,000 and the $5,100 loans in full.

Loan Agreement

On April 15, 2020, the Company entered into a modification agreement impacting the Term Loan, which defers the two remaining principal payments totaling $555 until the Term Loan’s new maturity date which was modified to be September 3, 2021. On September 3, 2021, this principal amount will be paid in full in addition to interest accrued during the relevant period.  With respect to interest payments in the interim, the Term Loan was modified to defer such payments until July 3, 2020 at which point monthly interest payments will resume through the September 3, 2021 maturity date.  Similar to the Term Loan, the Company also negotiated for the deferral of principal and interest payments related to the Mortgage Loan. The three principal payments otherwise due in April, May and June 2020 totaling $417 will now be paid when the loan matures on September 3, 2021 and interest payments will resume on July 3, 2020. The Company also reached an agreement with its lender in April 2020 to defer interest payments on its Development Line of Credit and Revolving Line of Credit for the months of April, May and June 2020, and interest payments will resume on July 3, 2020.

On June 5, 2020, the Company entered into a Third Amended and Restated Loan Agreement with Pinnacle Bank (the “Third Amended and Restated Loan Agreement”) which amended its Revolving Line of Credit to expand its capacity from $1,000 to a total of $16,000 by adding an accordion feature for the additional $15,000, with the additional capacity being available for general

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corporate purposes, including working capital and letters of credit. This amendment also required the Company to pledge the previously unencumbered five owned properties as collateral to the lender. The additional capacity is available for borrowing by the Company in amounts up to and including $5,000 per fiscal month beginning in the eighth fiscal month of 2020, with any amounts not borrowed during any particular period to be carried over to subsequent periods. Any advances on the expanded Line of Credit are contingent on the Company achieving certain levels of revenue on a trailing three-fiscal-month basis. The Third Amended and Restated Loan Agreement was filed in its entirety as an exhibit to the Company’s Current Report on Form 8-K filed with the SEC on June 9, 2020. Borrowings under the Revolving Line of Credit under the Third Amended and Restated Loan Agreement bear interest at a rate of LIBOR plus 2.5%, with a floor for LIBOR of 1.5%, and will be payable quarterly beginn