American Restaurant 10-Q/A 2002 Q3 Quarterly report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 2

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from                 to

American Restaurant Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware	33-48183	33-0193602
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. employer identification no.)
4410 El Camino Real, Suite 201 Los Altos, CA  94022 (650) 949-6400
(Address and telephone number of principal executive offices)
Former name, former address and former fiscal year if changed since last report.

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   ý No   o

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

Yes   ý No   o

The number of outstanding shares of the Company’s Common Stock (one cent par value) as of November 4, 2002 was 128,081.

AMERICAN RESTAURANT GROUP, INC.

INDEX

PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS:	3
	Consolidated Condensed Balance Sheets	3
	Consolidated Condensed  Statements of Operations	5
	Consolidated Condensed Statements of Cash Flows	6
	Notes to Consolidated Condensed Financial Statements	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	13
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	17
ITEM 4.	CONTROLS AND PROCEDURES	17
PART II.	OTHER INFORMATION	17
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	17

2

PART I. FINANCIAL INFORMATION

EXPLANATORY NOTE

THIS AMENDMENT NO. 2 TO FORM 10-Q IS FILED TO AMEND CERTAIN FINANCIAL STATEMENTS AND RELATED DISCLOSURES IN THE QUARTERLY REPORT ON FORM 10-Q FOR THE REGISTRANT’S QUARTER ENDED SEPTEMBER 30, 2002.  AMERICAN RESTAURANT GROUP, INC. (THE “COMPANY”) HAS RESTATED ITS CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDING SEPTEMBER 24, 2001, DECEMBER 31, 2001, AND SEPTEMBER 30, 2002.  THE RESTATEMENT OF THE COMPANY’S FINANCIAL STATEMENTS FOR THE PERIODS ENDING SEPTEMBER 24, 2001 AND SEPTEMBER 30, 2002 ARE DESCRIBED WITHIN NOTE 2, “RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS.”

WE HAVE REVISED THE NARRATIVE TO REFLECT RELATED CORRECTIONS.  EXCEPT AS EXPLAINED IN THE NOTES, THIS REPORT CONTINUES TO SPEAK AS OF THE DATE OF THE ORIGINAL FILING.

ITEM 1.       FINANCIAL STATEMENTS:

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

DECEMBER 31, 2001 AND SEPTEMBER 30, 2002

	(Restated) December 31, 2001		(Restated and unaudited) September 30, 2002
ASSETS
CURRENT ASSETS:
Cash	$	7,384,000	$	4,542,000
Rebates and other receivables, net		2,985,000		3,899,000
Inventories		2,800,000		2,624,000
Prepaid expenses		3,002,000		2,122,000
Total current assets		16,171,000		13,187,000
PROPERTY AND EQUIPMENT, net:
Land and land improvements		834,000		742,000
Buildings and leasehold improvements		36,559,000		36,176,000
Fixtures and equipment		11,351,000		10,834,000
Property held under capital leases		1,060,000		797,000
Construction in progress		1,299,000		641,000
Net property and equipment		51,103,000		49,190,000
OTHER ASSETS, NET:		17,450,000		16,871,000
Total assets	$	84,724,000	$	79,248,000

3

	(Restated) December 31, 2001			(Restated and unaudited) September 30, 2002
LIABILITIES AND COMMON STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	11,126,000		$	8,255,000
Accrued liabilities	4,585,000			4,045,000
Gift-certificate liability	6,755,000			2,897,000
Self-insurance reserves	3,312,000			3,773,000
Accrued interest	3,447,000			7,937,000
Accrued occupancy	3,998,000			4,948,000
Accrued employee costs	4,207,000			3,544,000
Current portion of obligations under capital leases	796,000			773,000
Current portion of long-term debt	402,000			3,541,000
Liabilities from discontinued operations	525,000			—
Total current liabilities	39,153,000			39,713,000
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases	1,799,000			1,233,000
Long-term debt, net of unamortized discount	157,272,000			155,239,000
Total long-term liabilities	159,071,000			156,472,000
DEFERRED GAIN ON SALE-LEASEBACK	3,990,000			3,839,000
COMMITMENTS AND CONTINGENCIES
CUMULATIVE PREFERRED STOCK, MANDATORILY REDEEMABLE:
Senior pay-in-kind exchangeable preferred stock, $0.01 par value; 160,000 shares authorized; 58,883 shares outstanding and accrued at December 31, 2001 and 65,631 shares outstanding and accrued at September 30, 2002	64,108,000			71,828,000
COMMON STOCKHOLDERS’ (DEFICIT):
Common stock, $0.01 par value; 1,000,000 shares authorized; 128,081 shares issued and outstanding at December 31, 2001 and September 30, 2002	1,000			1,000
Paid-in capital	1,390,000			—
Accumulated (deficit)	(182,989,000		)	(192,605,000		)
Total common stockholders’ (deficit)	(181,598,000		)	(192,604,000		)
Total liabilities and common stockholders’ deficit	$	84,724,000		$	79,248,000

The accompanying notes are an integral part of these consolidated condensed statements.

4

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

FOR THE THIRTEEN WEEKS AND THE THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2001

AND SEPTEMBER 30, 2002

(UNAUDITED)

	Thirteen Weeks Ended						Thirty-Nine Weeks Ended
	(Restated) September 24, 2001			(Restated) September 30, 2002			(Restated) September 24, 2001			(Restated) September 30, 2002
REVENUES	$	68,345,000		$	70,119,000		$	226,696,000		$	226,595,000
RESTAURANT COSTS:
Food and beverage	22,901,000			23,267,000			76,054,000			74,936,000
Payroll	20,661,000			21,651,000			64,923,000			68,362,000
Direct operating	15,659,000			17,814,000			56,248,000			56,891,000
Depreciation and amortization	2,148,000			1,864,000			6,478,000			5,527,000
GENERAL AND ADMINISTRATIVE EXPENSES	2,434,000			2,723,000			7,217,000			7,557,000
Operating profit	4,542,000			2,800,000			15,776,000			13,322,000
INTEREST EXPENSE, net	4,325,000			5,484,000			12,804,000			16,316,000
Income (Loss) before provision for income taxes	217,000			(2,684,000		)	2,972,000			(2,994,000		)
PROVISION FOR INCOME TAXES	21,000			9,000			183,000			66,000
Income / (Loss) from continuing operations	196,000			(2,693,000		)	2,789,000			(3,060,000		)
NET (LOSS) FROM DISCONTINUED OPERATIONS	—			(225,000		)	—			(225,000		)
Net Income (Loss)		196,000			(2,918,000	)		2,789,000			(3,285,000	)
Preferred stock dividends, issued and accrued		2,319,000			2,664,000			6,722,000			7,720,000
Loss to common stockholders	$	(2,123,000	)	$	(5,582,000	)	$	(3,933,000	)	$	(11,005,000	)

The accompanying notes are an integral part of these consolidated condensed statements.

5

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 24, 2001 AND SEPTEMBER 30, 2002

(UNAUDITED)

	(Restated) September 24, 2001			(Restated) September 30, 2002
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Income (loss) from continuing operations	$	2,789,000		$	(3,060,000	)
Adjustments to reconcile net income (loss) from continuing operations to net cash provided by (used in) continuing operating activities:
Depreciation and amortization	6,478,000			5,527,000
Amortization of deferred gain	(155,000		)	(151,000		)
Amortization of non-cash interest expense	—			1,400,000
Decrease in current assets	1,218,000			142,000
(Decrease) in current liabilities	(13,549,000		)	(2,032,000		)
Net cash provided by (used in) continuing operating activities	(3,219,000		)	1,826,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures	(1,876,000		)	(2,491,000		)
Proceeds from disposition of assets	25,000			—
Net (increase) decrease in other assets	14,000			(544,000		)
Net cash (used in) investing activities	(1,837,000		)	(3,035,000		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (Payments) on indebtedness	3,705,000			(294,000		)
Payments on capital-lease obligations	(520,000		)	(589,000		)
Net cash provided by (used in) financing activities	3,185,000			(883,000		)
NET (DECREASE) FROM CONTINUING OPERATIONS	(1,871,000		)	(2,092,000		)
NET (DECREASE) FROM DISCONTINUED OPERATIONS	(2,067,000		)	(750,000		)
NET CHANGE IN CASH, CURRENT PERIOD	(3,938,000		)	(2,842,000		)
CASH, at beginning of period	3,938,000			7,384,000
CASH, at end of period	$	—		$	4,542,000
Cash payments during the period:
Interest	$	(16,918,000	)	$	(10,468,000	)
Income taxes	(33,000		)	(9,000		)

The accompanying notes are an integral part of these consolidated condensed statements.

6

AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

1.	BASIS OF PRESENTATION
	The Consolidated Condensed Financial Statements included were prepared by American Restaurant Group, Inc. without audit, in accordance with Securities and Exchange Commission Regulation S-X.  (References to “the Company,” “we,” “us,” or “our” refer to American Restaurant Group, Inc.)  In the opinion of our management, these Consolidated Condensed Financial Statements contain all adjustments necessary to state fairly our financial position as of December 31, 2001 and September 30, 2002, and the results of our operations for the thirteen weeks and thirty-nine weeks ended September 24, 2001 and September 30, 2002 and our cash flows for the thirty-nine weeks ended September 24, 2001 and September 30, 2002.  Our results for an interim period are not necessarily indicative of the results that may be expected for the year.
	Although we believe that we included all adjustments necessary for a fair presentation of the interim periods presented and that the disclosures are adequate to make the information presented not misleading, we suggest that these Consolidated Condensed Financial Statements be read in conjunction with the Consolidated Financial Statements and related notes included in our annual report on Form 10-K for the fiscal year ended December 30, 2002, which restated the financial results for the fiscal year ended December 31, 2001.
2.	RESTATEMENT OF QUARTERLY FINANCIAL STATEMENTS
	The Company’s previously issued consolidated financial statements as of and for the fiscal periods ended September 24, 2001, December 31, 2001, and September 30, 2002 are restated to correct the accounting of certain items.  Significant items are noted below.
	The Company’s previous liability for gift certificates was understated. The Company corrected its accounting for its gift-certificate liability and adjusted the liability on the balance sheet. The cumulative adjustment to the balance sheet as of December 31, 2001 was an increase to the gift-certificate liability of $2,408,000.  This adjustment increased the net income for the thirteen weeks ended September 24, 2001 by $503,000 and decreased the net loss for the thirteen weeks ended September 30, 2002 by $162,000.  This adjustment increased the net income for the thirty-nine weeks ended September 24, 2001 by $855,000 and increased the net loss for the thirty-nine weeks ended September 30, 2002 by $187,000.
	In connection with the issuance of the Company’s preferred stock in 1998, the Company did not properly record the accretion of the redemption price due at maturity.  Accordingly, the Company has recorded an adjustment that increased the carrying amount on the balance sheet for preferred stock and correspondingly adjusted paid-in capital, accumulated deficit and loss to common stockholders.  There was no impact to net income or loss in 2001 or 2002.
	Certain deposits, previously reported as other assets at December 31, 2001 and earlier periods, no longer represented recoverable assets as of December 27, 1999.  The cumulative adjustment to the balance sheet as of December 31, 2001 was a decrease to other assets of $985,000.  There was no impact to net income or loss in 2001 or 2002.
	The Company improperly recorded certain credit-card receivables and rebate receivables in 2001.  The Company reduced the carrying amount of the receivables on the balance sheet.  The cumulative adjustment to the balance sheet as of December 31, 2001 was a decrease to rebates and other receivables of $1,086,000.  The adjustment decreased net income for the thirteen weeks ended September 24, 2001 by $452,000.  There was no impact to net loss in the thirteen weeks ended September 30, 2002.  This adjustment decreased net income for the thirty-nine weeks ended September 24, 2001 by $634,000 and decreased the net loss for the thirty-nine weeks ended September 30, 2002 by $452,000.
	The Company incorrectly reduced an insurance accrual during the fiscal year ended December 25, 2000.  The Company adjusted the accrual accordingly.  The cumulative adjustment to the balance sheet as of December 31, 2001 was an increase to accrued liabilities of $352,000.
	The Company previously recorded in the fiscal year ended December 31, 2001 certain interest income earned in the fiscal year ended December 25, 2000.  The Company adjusted the recognition of the interest income accordingly.  The cumulative adjustment to the balance sheet as of December 31, 2001 was an increase to cash of $544,000. This adjustment increased the net income for the thirteen weeks ended September 24, 2001 by $18,000 and had no impact on the net loss for the thirteen weeks ended September 30, 2002. This adjustment increased the net income for the thirty-nine weeks ended September 24, 2001 by $96,000 and had no impact on the net loss for the thirty-nine weeks ended September 30, 2002.
	The effects of the corrections to the Company’s consolidated financial statements as of December 31, 2001 and for the periods ended September 24, 2001 and September 30, 2002 are as follows (in thousands):

7

	As of December 31, 2001						(Unaudited) September 30,202
(in thousands)	As Previously			As			As Previously			As
	Reported			Restated			Reported			Restated
ASSETS	(1)						(1)
CURRENT ASSETS:
Cash	$	7,814		$	7,384		$	4,833		$	4,542
Rebates and Other receivables, net	4,071			2,985			4,533			3,899
Inventories	3,040			2,800			2,864			2,624
Prepaid expenses	3,002			3,002			2,122			2,122
Total current assets	17,927			16,171			14,352			13,187
Net Property & Equipment	51,103			51,103			49,190			49,190
Net Other Assets	18,435			17,450			17,856			16,871
Total assets	$	87,465		$	84,724		$	81,398		$	79,248
LIABILITIES AND COMMON STOCKHOLDERS’ (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	11,126		$	11,126		$	8,255		$	8,255
Other current liabilities	25,267			28,027			28,511			31,458
Total current liabilities	36,393			39,153			36,766			39,713
LONG-TERM LIABILITIES, net of current portion:	159,071			159,071			156,472			156,472
DEFERRED GAIN ON SALE-LEASEBACK	3,990			3,990			3,839			3,839
CUMULATIVE PREFERRED STOCK	58,219			64,108			65,265			71,828
COMMON STOCKHOLDERS’ (DEFICIT):
Common Stock	1			1			1			1
Paid-in capital	7,279			1,390			233			—
Accumulated (deficit)	(177,488		)	(182,989		)	(181,178		)	(192,605		)
Total common stockholders’ (deficit)	(170,208		)	(181,598		)	(180,944		)	(192,604		)
Total liabilities and common stockholders’ (deficit)	$	87,465		$	84,724		$	81,398		$	79,248

(1) Certain accounts have been reclassified to conform with the current period’s presentation.

8

	(Unaudited)						(Unaudited)
	Thirteen Weeks Ended						Thirteen Weeks Ended
	September 24, 2001						September 30, 2002
	As Previously			As			As Previously				As
(in thousands)	Reported			Restated			Reported				Restated
	(1)						(1)
REVENUES	$	68,331		$	68,345		$		70,051		$	70,119
RESTAURANT COSTS:
Food and beverage	22,449			22,901			23,267				23,267
Payroll	20,661			20,661			21,651				21,651
Direct operating	16,187			15,659			17,947				17,814
Depreciation and amortization	2,148			2,148			1,864				1,864
GENERAL AND ADMIN. EXPENSES	2,428			2,434			2,717				2,723
Operating profit from Continuing operations	4,458			4,542			2,605				2,800
INTEREST EXPENSE, net	4,310			4,325			5,451				5,484
Income /(Loss) before Provision for income taxes	148			217			(2,846			)	(2,684		)
PROVISION FOR INCOME TAXES	21			21			9				9
Income/(Loss) from Continuing operations	127			196			(2,855			)	(2,693		)
Income/(Loss) from Discontinued operations	—			—			(225			)	(225		)
Net Income/(Loss)		127			196			(3,080		)		(2,918	)
Preferred stock dividends issued and accrued	2,117			2,319			2,431				2,664
Loss to common stockholders	$	(1,990	)	$	(2,123	)	$		(5,511	)	$	(5,582	)

(1) Certain accounts have been reclassified to conform with the current period’s presentation.

9

	(Unaudited) Thirty-Nine Weeks						(Unaudited) Thirty-Nine Weeks
	September 24, 2001						September 30, 2002
	As Previously			As			As Previously			As
(in thousands)	Reported			Restated			Reported			Restated
	(1)						(1)
REVENUES	$	226,808		$	226,696		$	226,522		$	226,595
RESTAURANT COSTS:
Food and beverage	75,602			76,054			75,388			74,936
Payroll	64,923			64,923			68,362			68,362
Direct operating	56,495			56,248			56,748			56,891
Depreciation and amortization	6,478			6,478			5,527			5,527
GENERAL AND ADMIN. EXPENSES	7,198			7,217			7,538			7,557
Operating profit from continuing operations	16,112			15,776			12,959			13,322
INTEREST EXPENSE, net	12,801			12,804			16,358			16,316
Income /(loss) before provision for income taxes	3,311			2,972			(3,399		)	(2,994		)
PROVISION FOR INCOME TAXES	183			183			66			66
Income/(Loss) from continuing operations	3,128			2,789			(3,465		)	(3,060		)
Income/(Loss) from discontinued operations	—			—			(225		)	(225		)
Net Income/(Loss)		3,128			2,789			(3,690	)		(3,285	)
Preferred stock dividends, issued and accrued	6,138			6,722			7,047			7,720
Loss to common stockholders	$	(3,010	)	$	(3,933	)	$	(10,737	)	$	(11,005	)

(1) Certain accounts have been reclassified to conform with the current period’s presentation.

3.             OPERATIONS AND REFINANCING

The Company’s operations are affected by local and regional economic conditions, including competition in the restaurant industry.

On October 31, 2001, we completed an exchange offer (the “Exchange”) in which we offered to exchange our 11½% Senior Secured Notes due 2006 (the “New Notes”) for all of our $142,600,000 outstanding 11½% Senior Secured Notes due 2003 (the “Old Notes”).  We simultaneously completed an offering (the “Offering”) of $30,000,000 aggregate principal amount of New Notes.  After the consummation of the Exchange, the Offering, and related transactions (collectively, the “Refinancing”), we have no further payment obligations with respect to over 97.6% of the outstanding Old Notes (constituting all but $3,410,000 aggregate principal amount of the Old Notes) and assumed payment obligations equivalent to $161,774,000 of the New Notes. The Refinancing substantially eliminates debt principal payments until November 2006.

10

We do not, however, expect to generate sufficient cash flows from operations in the future to pay fully the principal of the senior indebtedness upon maturity in 2006 and, accordingly, we expect to refinance all or a portion of such debt, obtain new financing, or possibly sell assets.

4.             SALE OF STOCK TO A RELATED PARTY

In June 2000, the Company sold all of the outstanding stock of four wholly owned subsidiaries (“Non-Black Angus Subsidiaries”) to Spectrum Restaurant Group, Inc. (formerly known as NBACo, Inc.).  The operations of the sold subsidiaries are accounted for as discontinued operations and the results for all periods are classified in accordance with Accounting Principles Board Opinion No. 30.

For the thirteen weeks ended September 30, 2002, the Company recognized $225,000 as a loss from discontinued operations for the expenses paid beyond the $12.6 million liability limitation agreed to with Spectrum Restaurant Group, Inc.  We believe these costs paid, as well as any future costs paid related to these retained assets and liabilities, are the responsibility of Spectrum Restaurant Group, Inc.  Until a settlement is reached, additional payments will also to be charged as a loss from discontinued operations as incurred.

5.             INCOME TAXES

The tax provision against the pre-tax income in 2002 and in 2001 consisted of certain state income taxes and estimated Federal income tax.  We established a valuation allowance against net-operating-loss carryforwards.

6.             PREFERRED STOCK

As part of the recapitalization plan in February 1998, we issued 35,000 preferred stock units (the “Units”) of the Company.  Each Unit consists of $1,000 initial liquidation preference of 12% senior pay-in-kind exchangeable preferred stock and one common-stock purchase warrant initially to purchase 2.66143 shares of the common stock at an initial exercise price of one cent per share.  Our preferred stock is mandatorily redeemable on August 15, 2003.  If on August 15, 2003 we do not redeem our preferred stock for cash at a price per share equal to 110% of the then-applicable liquidation preference, our preferred stock will be automatically redeemed for shares of our common stock at that time and all rights of the preferred stock will terminate.  Management believes that the preferred stock will convert to common stock.

We issued preferred stock dividends of 4,495 shares on August 15, 2002.  At September 30, 2002, we had 65,631 preferred shares outstanding and accrued.

7.             SUBSIDIARY GUARANTORS

Separate financial statements of our subsidiaries are not included in this report on Form 10-Q.  The subsidiaries are fully, unconditionally, jointly, and severally liable for our obligations under the Company’s Old Notes and New Notes, and the aggregate net assets, earnings, and equity of such subsidiary guarantors are substantially equivalent to the net assets, earnings, and equity of the Company (issuer) on a consolidated basis, as the Company has no significant operations.

8.             INSURANCE

The Company self-insures certain risks, including medical, workers’ compensation, property, and general liability, up to varying limits. Deductible and self-insured limits have varied historically, ranging from $0 to $1,000,000 per incident depending on the type of risk. The policy deductibles are $125,000 for annual medical and dental benefits per person. Reserves for losses are established based upon presently estimated obligations for the claim over time and the deductible or self-insured retention in place at the time of the loss.

11

9.            GOODWILL AND INTANGIBLES

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 141 and SFAS No. 142 on January 1, 2002, and is no longer amortizing goodwill, thereby eliminating annual goodwill amortization of approximately $331,000, based on anticipated amortization for fiscal year 2002 that would have been incurred under the prior accounting standard. The adoption reduced amortization expense by approximately $83,000 and $248,000 for the thirteen weeks and thirty-nine weeks ended September 30, 2002. In accordance with SFAS No. 142, the Company reclassified $501,000 net from intangible assets to goodwill relating to acquisition costs connected with the 1987 acquisition of Stuart Anderson’s from Saga Corporation. The Company completed the first step of the transitional goodwill-impairment test in the first quarter of 2002 and determined that no potential impairment existed. However, no assurances can be given that future evaluations of goodwill will not result in charges as a result of future impairment. The Company will evaluate goodwill at least on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable from its estimated future cash flow.  The Company will continue to amortize the identified intangibles. The amortization expense is estimated to be $1.5 million for fiscal 2002 and estimated thereafter to be $1.5 million each for fiscal years 2003, 2004, and 2005. Amortization of intangibles for the thirty-nine weeks ended September 30, 2002 was approximately $1.1 million.

10.          NEW ACCOUNTING PRONOUNCEMENTS

In April 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 145, “Rescission of FAS Nos. 4, 44, and 64, Amendment of FAS 13, and Technical Corrections” (“SFAS 145”).  SFAS 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” as well as FASB Statement No. 44, “Accounting for Intangible Assets of Motor Carriers.”  This Statement amends FASB Statement No.  13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions.  This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions.  The provisions of SFAS 145 will be adopted during fiscal year 2003. We do not anticipate that adoption of this statement will have a material impact on our consolidated balance sheets or consolidated statements of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Exit or Disposal Activities”  (“SFAS 146”). SFAS 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for under EITF No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).”  The scope of SFAS 146 also includes costs related to terminating a contract that is not a capital lease and termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract. SFAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002 and early application is encouraged. The provisions of EITF No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of EITF No. 94-3 prior to the adoption of SFAS 146. We do not anticipate that adoption of this statement will have a material impact on our consolidated balance sheets or consolidated statements of operations.

11.COMMITMENTS AND CONTINGENCIES

The Company is obligated under an employment agreement with an officer. The obligation under the agreement is $500,000 per year and expires in 2002 unless extended.

The Company has been named as defendant in various lawsuits.  Management’s opinion is that the outcome of such litigation will not materially affect the Company's financial position, results of operations, or cash flows.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations presented below reflects certain restatements to our previously reported consolidated financial statements as of December 31, 2001 and for the periods ended September 24, 2001 and September 30, 2002. (See “Restatement of Financial Statements” below.) The information set forth below should be read together with the Company’s consolidated financial statements and related notes appearing elsewhere in this report.

Certain statements contained in this Form 10-Q are forward-looking regarding cash flows from operations, restaurant openings, capital requirements, and other matters. These forward-looking statements involve risks and uncertainties and, consequently, could be affected by general business conditions, the impact of competition, governmental regulations, and inflation.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the historical financial information included in the Consolidated Condensed Financial Statements.

Results of Operations

Thirteen weeks ended September 24, 2001 and September 30, 2002:

Revenues.  Total revenues increased to $70.1 million in the third quarter of 2002 from $68.3 million in the third quarter of 2001. The revenue increase is from the four additional stores opened in 2001. In the 103 base stores, sales decreased by 0.4% in the third quarter of 2002 compared to the third quarter of 2001. Lunch counts were positive 3.3% and dinner counts were positive 1.5%; this is offset, however, by a lower average check from the sale of “more casual” lower-priced items on the menu. There were 109 Black Angus restaurants operating as of September 30, 2002 and 105 Black Angus restaurants operating as of September 24, 2001.

Food and Beverage Costs.  As a percentage of revenues, food and beverage costs decreased to 33.2% in the third quarter of 2002 from 33.5% in the third quarter of 2001.  The decrease in 2002 relates to favorable purchasing conditions.

Payroll Costs.  As a percentage of revenues, labor costs increased to 30.9% in the third quarter of 2002 from 30.2% in the third quarter of 2001.  The increase is primarily from the minimum-wage rate increase in 2002.

Direct Operating Costs.  Direct operating costs consist of occupancy, advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costs increased to 25.4% in the third quarter of 2002 from 22.9% in the third quarter of 2001.  The increase is largely from higher rental expense for the additional four new restaurants operating during the third quarter.

Depreciation and Amortization.  Depreciation and amortization consists of depreciation of fixed assets used by individual restaurants and at the Black Angus and corporate offices, as well as amortization of intangible assets.  As a percentage of revenues, depreciation and amortization decreased to 2.7% in the third quarter of 2002 from 3.1% in the third quarter of 2001. The decrease primarily relates to the reduction of amortization of the deferred debt costs for Old Notes purchased as part of the Refinancing in the fourth quarter of 2001 and the discontinued amortization of goodwill in 2002.

General and Administrative Expenses.  General and administrative expenses increased to $2.7 million in the third quarter of 2002 from $2.4 million in the third quarter of 2001, primarily because of an increase in management-training expense.

Operating Profit.  As a result of the above items, operating profit decreased to $2.8 million in the third quarter of 2002 from $4.5 million in the third quarter of 2001. As a percentage of revenues, operating profit decreased to 4.0% in the third quarter of 2002 compared to 6.6% in the third quarter of 2001.

Interest Expense - Net. Our interest expense increased to $5.5 million in the third quarter of 2002 from $4.3 million in the third quarter of 2001. The increase is from refinancing the senior notes in the fourth quarter of 2001.  The face value of senior notes increased by $22.6 million ($165.2 million face value) compared to the third quarter of 2001 ($142.6 million face value) at the same interest rate (11.5%).

Loss from Discontinued Operations.  This account consists of the payments made pursuant to the Stock Sale that are above the liability ceiling, primarily rent for properties of former restaurants of the Non-Black Angus Subsidiaries sold to Spectrum Restaurant Group, Inc. The amount for the third quarter of 2002 is $225,000.  There was no such expense in the third quarter of 2001.

Thirty-nine weeks ended September 24, 2001 and September 30, 2002:

Revenues.  Total revenues decreased slightly to $226.6 million in 2002 from $226.7 million in 2001. In the 103 base stores, sales decreased by 3.0% in 2002 compared to 2001. Although lunch sales are positive 1.6%, dinner sales decreased from a decline in dinner counts.  Average check also declined with the introduction of more casual “value” items on the dinner menu. There were 109 Black Angus restaurants operating as of September 30, 2002 and 105 Black Angus restaurants operating as of September 24, 2001.

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Food and Beverage Costs.  As a percentage of revenues, food and beverage costs decreased to 33.1% in 2002 from 33.5% in 2001.  The decrease is related to favorable purchasing conditions.

Payroll Costs.  As a percentage of revenues, labor costs increased to 30.2% in 2002 from 28.6% in 2001.  The increase is primarily from higher labor-related costs for vacation, employee incentives, and minimum-wage rate increases in 2002.

Direct Operating Costs.  Direct operating costs consist of occupancy, advertising, and other expenses incurred by individual restaurants.  As a percentage of revenues, these costs increased slightly to 25.1% in 2002 from 24.8% in 2001. The savings related to energy-conservation measures and general liability costs were offset by an increase in rental expense for the additional restaurants operating in 2002.

Depreciation and Amortization.  Depreciation and amortization consists of depreciation of fixed assets used by individual restaurants and at the Black Angus and corporate offices, as well as amortization of intangible assets.  As a percentage of revenues, depreciation and amortization decreased to 2.4% in 2002 from 2.9% in 2001. The decrease primarily relates to the reduction of amortization of the deferred debt costs for Old Notes purchased as part of the Refinancing in the fourth quarter of 2001 and the discontinued amortization of goodwill in 2002.

General and Administrative Expenses.  General and administrative expenses increased slightly to $7.6 million in 2002 from $7.2 million in 2001, primarily because of an increase in management-training expense.

Operating Profit.  As a result of the above items, operating profit decreased to $13.3 million in 2002 from $15.8 million in 2001.  As a percentage of revenues, operating profit decreased to 5.9% in 2002 compared to 7.0% in 2001.

Interest Expense - Net. Our interest expense increased to $16.3 million in 2002 from $12.8 million in 2001. The increase is from refinancing the senior notes in the fourth quarter of 2001.  The face value of senior notes increased by $22.6 million ($165.2 million face value) compared to 2001 ($142.6 million face value) at the same interest rate (11.5%).

Loss from Discontinued Operations.  This account consists of the payments made pursuant to the Stock Sale that are above the liability ceiling, primarily rent for properties of former restaurants of the Non-Black Angus Subsidiaries sold to Spectrum Restaurant Group, Inc. The amount for 2002 is $225,000.  There was no such expense in 2001.

Liquidity and Capital Resources

Our primary sources of liquidity are cash flows from operations and borrowings under our revolving credit facilities.  We require capital principally for the acquisition and construction of new restaurants, the remodeling of existing restaurants, the purchase of new equipment and leasehold improvements, and working capital. As of September 30, 2002, we had approximately $4.5 million of cash.

In general, restaurant businesses do not have significant accounts receivable because sales are made for cash or by credit-card vouchers, which are ordinarily paid within three to five days.  The restaurants do not maintain substantial inventory as a result of the relatively brief shelf life and frequent turnover of food products. Additionally, restaurants generally are able to obtain trade credit in purchasing food and restaurant supplies.  As a result, restaurants are frequently able to operate with working-capital deficits, i.e., current liabilities exceed current assets.  At September 30, 2002, our working-capital deficit was $26.5 million.

We estimate that capital expenditures of $2.0 million to $5.0 million are required annually to maintain and refurbish our existing restaurants.  Other capital expenditures, which are generally discretionary, are primarily for the construction of new restaurants and for expanding, reformatting, and extending the capabilities of existing restaurants and for general corporate purposes.  Total capital expenditures for continuing operations were approximately $2.5 million through the third quarter of 2002 and $1.9 million through the third quarter of 2001.  We estimate that capital expenditures in 2002 will be approximately $3.8 million.  We intend to open new restaurants with small capital outlays and to finance most of the expenditures through leases.

On October 31, 2001, we completed an exchange offer (the “Exchange”) in which we offered to exchange our 11½% Senior Secured Notes due 2006 (the “New Notes”) for all of our $142,600,000 outstanding 11½% Senior Secured Notes due 2003 (the “Old Notes”).  We simultaneously completed an offering (the “Offering”) of $30,000,000 aggregate principal amount of New Notes.  After the consummation of the Exchange, the Offering, and related transactions (collectively, the “Refinancing”), we have no further payment obligations with respect to over 97.6% of the outstanding Old Notes (constituting all but $3,410,000 aggregate principal amount of the Old Notes) and assumed payment obligations equivalent to $161,774,000 of the New Notes. The Refinancing substantially eliminates debt principal payments until November 2006.

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The principal elements of the Refinancing were: (a) the Exchange (approximately $124 million aggregate principal amount of Old Notes were exchanged for approximately $132 million aggregate principal amount New Notes); (b) the Offering (the issuance of $30 million aggregate principal amount of New Notes); (c) the consent of the holders of our outstanding preferred stock to amend the terms of the preferred stock to provide that if we do not redeem the preferred stock for cash on August 15, 2003 in accordance with its terms, then the preferred stock will automatically be redeemed for shares of our common stock at that time and all the rights of the preferred stock will terminate, including any rights of acceleration; to eliminate provisions that allow the holders to exchange preferred stock for new subordinate debt; and to amend the covenants of the preferred stock so that they are substantially similar to the covenants under the New Notes; and, (d) the consent of the lender under our former revolving credit facility (“Old Credit Facility”) to permit the issuance of the New Notes and any other aspects of the Refinancing requiring the lender’s consent.

$3,410,000 of the Old Notes were outstanding at September 30, 2002.  Under the Old Notes, we are obligated to make semiannual interest payments on February 15 and August 15 through February 2003.  Accordingly, we made an interest payment of $196,075 on August 15, 2002.

Under the New Notes, we are obligated to make semiannual interest payments on May 1 and November 1 through November 2006. Accordingly, we made an interest payment of $9,302,005 on November 1, 2002.

We have an additional $2.3 million in long-term debt that relates to mortgages and capital leases for improvements and equipment.

On December 17, 2001, we entered into a loan agreement for a revolving credit facility (“New Credit Facility”) with Foothill Capital Corporation to replace the Old Credit Facility.  Our New Credit Facility presently provides for up to $15 million in borrowings, including support for letters of credit. As of September 30, 2002, we had approximately $7.7 million of letters of credit outstanding and no borrowings, leaving approximately $7.3 million remaining under the New Credit Facility. The New Credit Facility expires in December 2005. An amendment to the Company’s New Credit Facility effective November 13, 2002 is disclosed in our Form 8-K filed November 14, 2002.

The Company and its subsidiaries do not guaranty the debt of any other parties outside the consolidated group.

The Company’s contractual obligations can be summarized as follows (in thousands):

Contractual Oligations	Paid in Q1, 2, & 3 2002		Remainder of Fiscal 2002		Fiscal Years 2003&2004		Fiscal Years 2005&2006		Fiscal Years Beyond 2006		Total Remaining
Long-Term Debt – Interest on Notes	$	9,694	$	9,354	$	37,404	$	37,208	$	—	$	93,660
Long-Term Debt – Other	294		108		3,476		161,867		949		166,694
Capital Leases	589		488		1,092		464		1,115		3,748
Operating Leases	14,512		4,932		34,189		28,528		180,276		262,437
Employment Agreements	—		500		—		—		—		500
Total Contractual Cash	$	25,089	$	15,382	$	76,161	$	228,067	$	182,340	$	527,039

Preferred stock dividends of 4,181 and 4,495 shares were issued on February 15, 2002 and August 15, 2002 respectively.  There were 65,631 shares of preferred stock outstanding and accrued at September 30, 2002. Our preferred stock is mandatorily redeemable on August 15, 2003. If we do not redeem our preferred stock for cash at a price per share equal to 110% of the then-applicable liquidation preference, our preferred stock will be automatically redeemed for shares of our common stock at that time and all of the rights of the preferred stock will terminate. Management believes that the preferred stock will convert to common stock.

Substantially all our assets are pledged to our senior lenders.  In addition, our direct subsidiaries guarantee most of our indebtedness and such guarantees are secured by substantially all of the assets of the subsidiaries. In connection with such indebtedness, contingent and mandatory prepayments may be required under certain specified conditions and events.  There are no compensating balance requirements.

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Although we are highly leveraged, based upon current levels of operations and anticipated growth, we expect that cash flows generated from operations together with our other available sources of liquidity will be adequate to make required payments of principal and interest on our indebtedness, to make anticipated capital expenditures, and to finance working-capital requirements for at least the next twelve months. We do not, however, expect to generate sufficient cash flows from operations in the future to pay fully the principal of the senior indebtedness upon maturity in 2006 and, accordingly, we expect to refinance all or a portion of such debt, obtain new financing, or possibly sell assets.

Critical Accounting Policies

Revenue Recognition. We record revenue from the sale of food, beverage, and alcohol as products are sold.   We record proceeds from the sale of a gift card of gift certificate in current liabilities and recognize income when a holder redeems a gift card of gift certificate.  We recognize unredeemed gift cards and certificates as revenue only after such a period of time indicates, based on the Company’s historical experience, the likelihood of redemption is remote

Use of Estimates.  The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

We believe that our financial statements are a reasonable representation of the realizable values of our assets, the level of our liabilities, and the amounts of revenues and expenses incurred in any given period.  There are estimates inherent in these amounts.  We may not be able to recover the assumed value of all of our assets, such as property and equipment or intangible assets, if circumstances cause us to close restaurants or we experience a decline in revenues.  Our actual liabilities for matters, such as self-insurance or discontinued operations, could possibly be significantly higher or lower than our estimates if actual conditions are ultimately different than the assumptions used in determining the estimates.

Leases.  We lease equipment and operating facilities under both capital and operating leases.  In future periods, leases for similar equipment or facilities may not qualify for the accounting applied historically because of changes in terms or our credit status. This would mean that we may be required to recognize more leases as capital leases in the future than we have in the past, causing a corresponding increase in our assets and liabilities, and the associated depreciation and interest expense.  Conversely, if many leases in the future were classified as operating leases, rental expense would increase.

Valuation Allowance for Deferred Tax Assets.  We provided a valuation allowance of $34.1 million and $34.8 million against the entire amount of our deferred tax assets as of the fiscal year ended 2001 and as of the fiscal quarter ended September 30, 2002, respectively. The Company fully reserves both the net-operating-loss and general-business-credit carryforwards because sufficient doubt exists regarding the Company’s ability to use the carryforwards before expiration.

Long-Lived Assets. The Company periodically reviews for impairment the carrying value of its long-lived assets.  The Company assesses the recoverability of the assets based on the estimated undiscounted cash flows of the assets.  If impairment is indicated, the Company writes down the assets to fair market value based on discounted cash flows.

Advertising Costs.  Advertising costs are expensed either as incurred or the first time the advertising takes place, in accordance with Statement of Position 93-7 “Reporting on Advertising Costs.”

Reclassification.  Certain accounts have been reclassified to conform with the current year’s presentation.

Self-Insurance Reserves. The Company self-insures certain risks, including medical, workers’ compensation, property, and general liability, up to varying limits. Deductible and self-insured limits have varied historically, ranging from $0 to $1,000,000 per incident depending on the type of risk. The policy deductibles are $125,000 for annual medical and dental benefits per person. Reserves for losses are established on a claims-made basis plus an actuarially determined provision for incurred-but-not-reported claims and the deductible or self-insured retention in place at the time of the loss.  The self-insured reserves are reported on the balance sheet under Self-insurance reserves.

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ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The market risk of our financial instruments as of September 30, 2002 has not materially changed since December 31, 2001.  The market risk profile on December 31, 2001 is disclosed in our annual report on Form 10-K, File No. 33-48183, for the fiscal year ended December 31, 2001.

ITEM 4.  CONTROLS AND PROCEDURES

The Company’s management has designed and periodically reviews and internally audits the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on those periodic reviews, the Company’s management, including the CEO and CFO, concluded that the Company’s disclosure controls and procedures were effective as of December 30, 2002.  There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to December 30, 2002.

PART II.                OTHER INFORMATION

ITEM 6.                 EXHIBITS AND REPORTS ON FORM 8-K

(a)	List of Exhibits
	Exhibit No.	Description
	99.1	Certificate of Chief Executive Officer and Chief Financial Officer
(b)	Form 8-K filed on August 9, 2002 - regarding change of independent accountants and amendment to our revolving credit facility
(c)	Form 8-K filed on September 4, 2002 - regarding change of independent accountants

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERICAN RESTAURANT GROUP, INC.
	(Registrant)
Date:  March 28, 2003	By:	/s/ Ralph S. Roberts
		Ralph S. Roberts
		Chief Executive Officer and President
Date:  March 28, 2003	By:	/s/ William G. Taves
		William G. Taves
		Chief Financial Officer

CERTIFICATION

I, Ralph S. Roberts, certify that:

1.I have reviewed this quarterly report on Form 10-Q/A of American Restaurant Group, Inc;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:      March 28, 2003
	/s/ Ralph S. Roberts
	Ralph S. Roberts
	Chief Executive Officer

CERTIFICATION

I, William G. Taves, certify that:

1.I have reviewed this quarterly report on Form 10-Q/A of American Restaurant Group, Inc;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date:      March 28, 2003
	/s/ William G. Taves
	William G. Taves
	Chief Financial Officer