Sizzler sites target of 'land rush' amid chapter 11 wrangling

Nation's Restaurant News, Oct 21, 1996 by Richard Martin

LOS ANGELES -- While wrangling in bankruptcy court over issues affecting creditors shareholders, landlords, franchisees and competitors, Sizzler International Inc. has been buoyed by a year-to-year profit gain in its latest quarter.

The earnings increase follows the $134.5 million, fourth-period loss caused principally by the company's June 2 Chapter 11 filing and closure of 130 unprofitable units.

Sizzler's setbacks have triggered a land rush among rival brands eager to scoop up sites being jettisoned by the troubled grill-buffet chain which recently said it remains poised to begin large-scale conversions of its remaining restaurants to an upgraded, full-service format called Sizzler American Grill. That concept currently is in limited tests in Las Vegas, San Diego and Sacramento, Calif., that reportedly have boosted sales by 15 percent.

A recent court order spelled at least a partial loss for Sizzler in its fight to limit disclosure about the conversion concept. The company had argued that test-marketing results requested by creditors, franchisees and lenders could be construed as an "earnings claim" that would leave the company open to lawsuits because it currently is seeking to implement a new, uniform franchisee agreement with all licensees.

In an earlier courtroom controversy, the Securities and Exchange Commission and creditors' attorneys fought Sizzler over its plan to enact a generous bonus-and-severance plan for 19 senior executives. Sizzler wanted the bonuses to be paid either if a bankruptcy reorganization plan is approved or if management substantially concludes sales of all of Sizzler's assets.

Separately, Sizzler last month told the court that it was "just beginning" to participate in court-ordered mediation to resolve more than $100 million in personal-injury claims against the company. Those claims presumably stem from an E. cold outbreak at franchised restaurants in Oregon several years ago, but Sizzler officials could not be reached for comment.

Asserting that progress is being made on its strategic restructuring, Sizzler reported net income of $494,000 on revenues of $84.4 million for the 12-week first quarter ended July 21. That result compares with the Los Angeles-based company's $436,000 profit in last year's first quarter, when revenues were 21-percent higher, or $105.5 million, because of the larger number of Sizzlers then operating.

"We continue to proceed on track with our Chapter 11 filing and look forward to emerging from the Chapter 11 process by the end of this fiscal year" next April, said Kevin Perkins, Sizzler's president and chief executive.

After its 130-unit purge, Sizzler indicated the approximate annual scale of its down-sized holdings by pointing out that continuing operations last year contributed approximately $5.2 million in gross profits. However, additional restaurant closures are expected.

For the fiscal year ended April 30, Sizzler posted a net loss of $138.5 million on revenues of $436.2 million. Included in the loss was a fourth-quarter charge of $108.9 million, or $3.92 per Sizzler share, for costs of restaurant closures and reorganization.

Sizzler's bankruptcy maneuver to shed leases on underperforming restaurants led to the company's firing of 4,600 employees and closing of restaurants that included its six upscale Buffalo Ranch Steakhouses. The company was left with 85 company owned Sizzlers and 235 franchised branches in the United States as well as 131 branches abroad, including 44 company owned units in Australia where Sizzler also has 92 KFC units and one Italian Oven restaurant.

Sizzler's reported loss of nearly $4 million in the third quarter ended Feb. 4 drove its shares to a record low of $2.63 in March, compared with their $18-per-share value in 1992. The stock, which had climbed back to about $3.88 before the Chapter 11 filing, currently is trading at about $3.

The company's recent efforts to dispose of restaurants has ignited a shopping binge among competitors hungry for site opportunities, including such chains as Boston Market Lone Star Steakhouse & Saloon, Koo Koo Roo and International House of Pancakes.

Since Sizzler's bankruptcy filing the company has sought court approval to sell one company-owned restaurant and 12 location leases to the Lone Star chain for $3.2 million. Sizzler also wants to sell two restaurants to Koo Koo Roo for $2.2 million as well as one owned site and three leased locations to IHOP Corp. for $1.5 million.

Sizzler, granted authority by the court, has rejected dozens of restaurant leases as it fields inquiries from what it said are prospective buyers of more than 100 owned and leased locations. In a court filing last month, Sizzler said it hopes to raise at least $30 million from restaurant and lease sales.

An affidavit filed in court by Michael Wildman, Sizzler's vice president of franchise operations, said the company has been conducting "a systematic analysis of each of the restaurants it operates to determine which it will continue to operate and which will be closed." Wildman said Sizzler "has been involved in discussions with third parties who may wish to purchase these restaurants, to become assignees of the leases and to purchase the real estate."