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News8Austin via the AP: Schlotzsky's files for bankruptcy protection

The Schlotzsky's sandwich shop chain filed for Chapter 11 bankruptcy protection from its creditors on Tuesday. The Austin-based chain says it filed its voluntary petition for protection in a federal bankruptcy court in San Antonio.

It reported assets of more than $111 million against liabilities of about $72 million. But it said almost $65 million of its assets are intangible.

Copyright 2004 Associated Press, All rights reserved.

Schlotzsky's, Inc. (NASDAQ: BUNZ) today filed for voluntary Chapter 11 protection in U.S. Bankruptcy Court in San Antonio, Texas. The Company reported liabilities of approximately $71.3 million and assets of approximately $111.7 million, including approximately $64.8 million of intangible assets, according to the court filing. The Company reported a net loss of $11.7 million in 2003, compared to a net loss of $199,000 in 2002, and a net loss of $671,000 in the first quarter of 2004.

"Today we have taken an important step toward creating a stronger Schlotzsky's," said Sam Coats, Schlotzsky's President and Chief Executive Officer. "It became apparent to our Board that this action was necessary to protect Schlotzsky's from millions of dollars in claims, judgments, and debts accumulated during the past few years, while enabling us to restructure the Company. I believe the actions taken by the Board took great courage and are clearly in the best interest of the Company."

I do like the new wraps. The free Net access has also come in handy.

Over 95 percent of the restaurants in the Schlotzsky's system are franchisee-operated. At present there are 471 domestic franchisee-operated restaurants, 21 international franchisee-operated restaurants, and 21 Company-operated restaurants. Coats said that both franchisee-operated restaurants and company-operated restaurants are expected to continue normal operations during Schlotzsky's financial restructuring. "Our customers should not notice any changes in our great Schlotzsky's products as a result of today's court action," he said. Schlotzsky's closed 15 unprofitable Company-operated restaurants during the month of July, reducing its Company-operated restaurants by over 40 percent.

The Company will request that the bankruptcy court issue a sale order that would allow Schlotzsky's to sell nine pieces of real estate to Westdale Asset Management, Ltd., an affiliate of the Company's largest shareholder, for approximately $3.4 million. With this sale, the Company would have an additional source of liquidity for its operations over the next few months.

"Schlotzsky's has taken a number of steps during recent months to reduce expenses, decrease overhead and improve the Company's cash position," said Coats. "Unfortunately, the situation in which we found ourselves made it impossible to go forward without a formal reorganization. We believe that by taking this action, we can restructure our financial obligations, obtain new financial resources, and emerge from this proceeding as a stronger company."

In addition to the bankruptcy filing, Schlotzsky's reported that it has eliminated 15 positions. Four of those eliminated were currently unfilled positions. Of the remaining 11, approximately half were located in the corporate headquarters and half were in the field.

The case number for Schlotzsky's filing with the U.S. Bankruptcy Court for the Western District of Texas and further information will be available online at http://www.haynesboone.com/schlotzskys.