ROANOKE, Va., April 16 /PRNewswire-FirstCall/ -- Western Sizzlin Corporation today reported financial results for the full year ended December 31, 2007. The financial data contained in this press release is qualified in its entirety by, and we urge shareholders to carefully read, our 10-K, which has been posted at http://www.westernsizzlin.com/ and filed with the SEC at http://www.sec.gov/.
It is important to note that the summary financial data set forth below reflects a change in the accounting treatment that now affects the reporting of our investment portfolio.
In past years, investments (namely, marketable securities) were held directly by Western, and changes in value affected the net worth on our balance sheet and were not reflected on our income statement, unless we sold holdings. In 2007, we formed an investment partnership and transferred most of our equity positions into Western Acquisitions, LP, which is managed by Western Investments, Inc., a wholly owned subsidiary of the company. Because we now own most of our equity positions through Western Acquisitions, L.P., which is consolidated on our financial statements and is treated as an investment company for generally accepted accounting principles (GAAP) purposes, changes in fair value of our investments in marketable equity securities are now applied to earnings every quarter. We believe that the application of certain GAAP requirements, which require our investments to be marked-to-market through earnings, can distort net income figures and comparisons between periods. However, despite the different accounting treatment, we believe that simply holding securities in different legal structures does not change our views on the intrinsic value of our investee companies, which we believe is primarily driven by cash flows that can be distributed out of the business. Thus, we believe the reported net income figures are not indicative of the actual business performance or value of the company.
Income from restaurant and franchise operations include accrued expenses of $741,287 and $289,109 in 2007, and 2006, respectively associated with the lawsuit regarding sublet properties. Because a judgment has been entered we have fully accounted for the lawsuit and do not expect additional liabilities to be accrued in 2008. Excluding the lawsuit and non-cash expense from depreciation and amortization, income from restaurant and franchise operations was $2.3 million in 2007 as compared to $1.9 in 2006. [Note: A reconciliation is provided below.]
As previously disclosed, on March 26, 2008, Western signed a term sheet to purchase a controlling interest in Houston, Texas-based Mustang Capital Advisors, LP, as well as in its general partner, Mustang Capital Management, LLC. Mustang Capital Advisors, which is owned by John K. H. Linnartz, currently manages approximately $55 million. Mustang, through its funds and its managed accounts, currently holds a total of 7.4% of Western's common stock; however, the funds will distribute the Western stock to their limited partners prior to the closing of the proposed transaction. Under the proposed transaction, Western will purchase (either directly or through a wholly-owned subsidiary) from Mr. Linnartz a 50.5% limited partnership interest in Mustang Capital Advisors and a 51% membership interest in Mustang Capital Management, which owns a 1% interest in Mustang Capital Advisors as its general partner. The total purchase price for these interests will be $1,173,000, consisting of $300,000 in cash and $873,000 in shares of Western's common stock. We are currently working on the definitive documentation for this transaction.
About Western Sizzlin Corporation
Western Sizzlin Corporation is a holding company which owns a number of subsidiaries. Its most important business activity is conducted through Western Sizzlin Franchise Corporation, which franchises and operates 122 restaurants in 19 states. Financial decisions are centralized at the holding company level, and management of operating businesses is decentralized at the business unit level. Western's prime objective is to maximize its intrinsic business value per share over the long term. In fulfilling this objective, Western will engage in a number of diverse business activities to achieve above-average returns on capital in pursuit of maximizing the eventual net worth of its stockholders.
Forward Looking Statements
This news release may include "forward-looking statements" within the meaning of the federal securities laws. These statements concerning anticipated future results are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ markedly from those projected or discussed here. Western Sizzlin Corporation cautions readers not to place undue reliance upon any such forward-looking statements, for actual results may differ materially from expectations. Further information on the types of factors that could affect the Company can be found in the Company's filings with the SEC.
Comment on Regulation G
This press release includes non-GAAP financial numbers. The reconciliations of such measures to the most comparable GAAP figures in accordance with Regulation G are included herein.
Western presents its results in the way its management believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use Western's financial information. That presentation includes the use of certain non-GAAP financial measure.
WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2007 and 2006 2007 2006 Assets Current assets: Cash and cash equivalents $727,378 $2,344,644 Trade accounts receivable, less allowance for doubtful accounts of $198,425 in 2007 and $470,758 in 2006 994,085 866,565 Current installments of notes receivable, less allowance for impaired notes of $50,904 in 2007 and $17,409 in 2006 219,501 205,624 Other receivables 132,283 239,531 Income tax receivable 90,161 248,559 Inventories 73,017 55,207 Prepaid expenses 228,396 253,556 Deferred income taxes 404,334 296,671 Total current assets 2,869,155 4,510,357 Notes receivable, less allowance for impaired notes receivable of $15,501 in 2007 and $164,396 in 2006, excluding current installments 625,231 800,841 Property and equipment, net 1,877,694 2,270,300 Investment in real estate 3,745,152 -- Investments in marketable securities 15,896,865 6,508,645 Franchise royalty contracts, net of accumulated amortization of $8,824,135 in 2007 and $8,193,840 in 2006 630,296 1,260,592 Goodwill 4,310,200 4,310,200 Financing costs, net of accumulated amortization of $192,832 in 2007 and $188,670 in 2006 7,378 11,540 Investment in unconsolidated joint venture 304,996 147,479 Deferred income taxes 235,655 -- Other assets 6,450 -- $30,509,072 $19,819,954 Liabilities and Stockholders' Equity Current liabilities: Note payable - line of credit $2,000,000 $-- Due to broker 342,022 -- Current installments of long-term debt 118,783 163,089 Accounts payable 733,983 555,110 Accrued expenses and other 383,237 279,443 Loss contingency - lawsuit 900,000 275,000 Total current liabilities 4,478,025 1,272,642 Long-term debt, excluding current installments 566,272 685,036 Other long-term liabilities 89,039 69,370 Deferred income taxes -- 394,885 5,133,336 2,421,933 Minority interest 1,873,748 -- Commitments and contingencies Stockholders' equity: Convertible preferred stock, series A, $10 par value (involuntary liquidation preference of $10 per share). Authorized 25,000 shares; none issued and outstanding -- -- Convertible preferred stock, series B, $1 par value (involuntary liquidation preference of $1 per share). Authorized 875,000 shares; none issued and outstanding -- -- Common stock, $0.01 par value. Authorized 4,000,000 shares; issued and outstanding 2,696,625 in 2007 and 1,787,750 shares in 2006 26,967 17,878 Additional paid-in capital 20,415,785 12,790,681 Retained earnings 2,978,189 3,340,193 Accumulated other comprehensive income - unrealized holding gains, net of taxes 81,047 1,249,269 Total stockholders' equity 23,501,988 17,398,021 $30,509,072 $19,819,954 WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations Years ended December 31, 2007, 2006 and 2005 2007 2006 2005 Revenues: Company-operated restaurants $12,908,577 $12,985,109 $14,688,360 Franchise operations 3,955,762 4,011,740 4,251,615 Other 393,274 407,091 432,078 Total revenues 17,257,613 17,403,940 19,372,053 Costs and expenses -- restaurant and franchise operations: Company-operated restaurants -- food, beverage and labor costs 99,307,50 9,294,432 10,503,746 Restaurant occupancy and other 2,366,121 2,458,666 2,613,764 Franchise operations -- direct support 1,050,628 1,234,256 1,408,784 Subleased restaurant property expenses 101,664 64,438 184,383 Corporate expenses 2,277,134 2,226,151 2,659,497 Depreciation and amortization expense 1,063,017 1,057,492 1,072,334 Closed restaurants expense -- -- 350,279 Impairment and other charges -- 46,284 319,830 Gain on settlement of insurance claims -- -- (1,166,683) Claims settlement and legal fees associated with lawsuit 741,287 289,109 -- Total costs and expenses -- restaurant and franchise operations 16,907,356 16,670,828 17,945,934 Equity in income (loss) of joint venture 157,516 (160,902) (21,618) Income from restaurant and franchise operations 507,773 572,210 1,404,501 Net realized gain on sales of marketable securities 1,972,252 -- -- Net unrealized losses on marketable securities held by limited partnership (2,787,876) -- -- Expense of investment activities (347,634) (105,000) -- Loss from investment activities (1,163,258) (105,000) -- Other income (expense): Interest expense (106,263) (159,518) (279,612) Loss on early extinguishment of long-term debt -- (92,535) -- Interest income 106,741 69,269 69,950 Other, net 11,048 175,721 31,779 Total other income (expense), net 11,526 (7,063) (177,883) Income (loss) before income tax expense and minority interest (643,959) 460,147 1,226,618 Income tax expense (benefit) (49,078) 185,808 545,258 Minority interest in net loss of limited partnership 351,252 -- -- Net income (loss) $(243,629) $274,339 $681,360 Earnings per share (basic and diluted): Net income (loss) $(0.13) $0.23 $0.57 WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2007, 2006 and 2005 2007 2006 2005 Cash flows from operating activities: Net income (loss) $(243,629) $274,339 $681,360 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Restaurant and franchise activities: Depreciation and amortization of property and equipment 428,099 427,195 423,865 Amortization of franchise royalty contracts and other assets 630,296 630,295 648,469 Write-off of financing costs related to early extinguishment of long-term debt -- 29,699 -- Amortization of finance costs 4,162 22,525 -- Provision for doubtful accounts 124,659 110,000 129,940 Share-based compensation 5,920 39,100 -- Provision for deferred income taxes 695,285 185,808 530,651 Loss on disposal of property and equipment -- 11,434 137,969 Gain on settlement of insurance claims -- -- (1,166,683) Loss on sale of asset held for sale -- 501 -- Common stock received related to termination of franchise agreement -- -- (15,000) Impairment charges -- 46,284 458,138 Equity in loss (income) of unconsolidated joint venture (157,516) 160,902 21,618 (Increase) decrease in current assets and other assets 50,543 43,698 (80,073) Increase (decrease) in current liabilities and other liabilities 831,788 (201,107) (715,840) 2,613,236 1,506,334 373,054 Investment activities: Realized gain on sales of marketable securities, net (1,972,252) -- -- Unrealized losses on marketable securities, net 2,787,876 -- -- Minority interest in loss of limited partnership (351,252) -- -- Proceeds from sales of marketable securities 12,384,056 -- -- Purchases of marketable securities (24,450,012) -- -- Increase in due to broker 342,022 -- -- Provision for deferred income taxes (765,676) -- -- Increase (decrease) in current liabilities 128,807 -- -- (11,896,431) -- -- Net cash provided by (used in) operating activities (9,526,824) 1,780,673 1,054,414 Cash flows from investing activities: Investment in unconsolidated joint venture -- -- (300,000) Change in money market and short-term investments -- 260,069 (5,415) Additions to property and equipment (35,493) (492,107) (312,532) Purchase of real estate held for investment (3,745,152) -- -- Purchases of marketable securities -- (4,543,768) -- Proceeds from fire casualties -- 784,993 694,439 Proceeds from sale of property -- 2,800 8,000 Proceeds from sale of asset held for sale -- 299,499 -- Deposits on construction -- -- (378,455) Net cash used in investing activities (3,780,645) (3,688,514) (293,963) WESTERN SIZZLIN CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 2007, 2006 and 2005 2007 2006 2005 Cash flows from financing activities: Cash received from exercise of stock options $85,290 $27,600 $-- Cash received from stock rights offering 7,640,438 4,171,475 -- Payments on stock rights offering (97,455) (123,280) -- Payments on long-term debt (163,070) (1,488,158) (1,201,354) Cash received from line of credit borrowings 2,000,000 695,000 -- Payment on line of credit borrowings -- (695,000) -- Borrowings related to margin debt -- 1,760,393 -- Payments on margin debt -- (1,760,393) -- Capital contributions from minority interests in limited partnership 2,225,000 -- -- Net cash provided by (used in) financing activities 11,690,203 2,587,637 (1,201,354) Net increase (decrease) in cash and cash equivalents (1,617,266) 679,796 (440,903) Cash and cash equivalents at beginning of the year 2,344,644 1,664,848 2,105,751 Cash and cash equivalents at end of the year $727,378 $2,344,644 $1,664,848 Supplemental disclosure of cash flow information: Cash payments for interest $101,176 $87,380 $291,745 Adoption of FIN-48 (non-cash) $118,375 $ -- $ -- Income taxes paid (refunded) $(51,969) $402,761 $25,557 Investment in Unconsolidated Joint Venture
The Company is a partner in a 50/50 joint venture with a franchisee, for a new restaurant in Harrisonburg, Virginia. The Company is accounting for the investment using the equity method and the Company's share of the net income (loss) for the joint venture of $157,516, ($160,902) and ($21,618) for the years ended December 31, 2007, 2006 and 2005, respectively, is included in equity in earnings of unconsolidated joint venture. The restaurant opened for business on December 14, 2006.
Financial Data
The following is selected financial information for the joint venture at December 31, 2007 and 2006:
Year Ended Year Ended December 31, December 31, 2007 2006 (unaudited) (unaudited) Statement of Operations Data: Total revenues $4,960,695 $272,511 Cost of food 2,110,602 131,891 Payroll expense 1,502,077 218,374 Marketing and smallware expense 204,374 90,005 General and administrative 404,106 86,001 Depreciation and amortization 200,869 17,954 Interest 223,574 73,897 Net Income (loss) 315,031 (321,805) Balance Sheet Data: Cash $332,740 $319,410 Current receivables 7,557 114,813 Prepaid expenses 3,171 6,274 Inventory 16,384 17,811 Land, leasehold improvements, and construction in progress, net 3,750,051 3,936,400 Loan costs, net 11,946 13,471 Total assets 4,122,050 4,408,378 Loan payable 3,138,580 3,300,000 Accounts payable and accrued expenses 433,479 873,418 Members' equity 549,991 234,960
