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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] 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 (Commission File (I.R.S. employer
incorporation or organization) Number) identification no.)
450 Newport Center Drive
Newport Beach, CA 92660
(714) 721-8000
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(Address and telephone number of principal executive offices)
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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 X No
----- -----
The number of outstanding shares of the Company's Common Stock (one cent par
value) as of May 5, 1997 was 93,150.
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AMERICAN RESTAURANT GROUP, INC.
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Consolidated Condensed Balance Sheets...................... 1
Consolidated Statements of Income.......................... 3
Consolidated Statements of Cash Flows...................... 4
Notes to Consolidated Condensed Financial Statements....... 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 6
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K........................... 9
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
DECEMBER 30, 1996 AND MARCH 31, 1997
December 30, March 31,
1996 1997
ASSETS ------------ ------------
(unaudited)
CURRENT ASSETS:
Cash ........................................... $ 7,493,000 $ 3,377,000
Accounts receivable, net of reserve of
$1,041,000 and $1,023,000 at December 30, 1996
and March 31, 1997, respectively ............. 7,465,000 6,906,000
Inventories .................................. 6,818,000 6,934,000
Prepaid expenses ............................. 4,485,000 3,982,000
------------ ------------
Total current assets ....................... 26,261,000 21,199,000
------------ ------------
PROPERTY AND EQUIPMENT:
Land and land improvements ..................... 6,158,000 6,158,000
Buildings and leasehold improvements ........... 110,071,000 110,948,000
Fixtures and equipment ......................... 84,162,000 85,310,000
Property held under capital leases ............. 12,375,000 12,375,000
Construction in progress ....................... 6,487,000 6,408,000
------------ ------------
219,253,000 221,199,000
Less -- Accumulated depreciation ............... 118,084,000 120,589,000
------------ ------------
101,169,000 100,610,000
------------ ------------
OTHER ASSETS -- NET .............................. 44,699,000 44,060,000
------------ ------------
Total Assets ................................. $172,129,000 $165,869,000
============ ============
The accompanying notes are an integral part of these
consolidated condensed statements.
(consolidated condensed balance sheets continued on the following page)
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December 30, March 31,
1996 1997
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY ------------- -------------
(unaudited)
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 33,394,000 $ 33,112,000
Accrued liabilities ......................................................... 14,315,000 9,993,000
Accrued insurance ........................................................... 15,848,000 14,362,000
Accrued interest ............................................................ 1,016,000 2,254,000
Accrued payroll costs ....................................................... 11,059,000 11,055,000
Current portion of obligations under capital leases ......................... 902,000 917,000
Current portion of long-term debt ........................................... 41,532,000 41,890,000
------------- -------------
Total current liabilities ................................................. 118,066,000 113,583,000
------------- -------------
LONG-TERM LIABILITIES, net of current portion:
Obligations under capital leases ............................................ 8,443,000 8,210,000
Long-term debt .............................................................. 131,260,000 132,028,000
------------- -------------
Total long-term liabilities ............................................... 139,703,000 140,238,000
------------- -------------
DEFERRED GAIN ................................................................. 5,806,000 5,622,000
------------- -------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE CUMULATIVE PREFERRED STOCK:
Redeemable cumulative senior preferred stock, $0.01 par value;
1,400,000 shares authorized, no shares issued or outstanding at
December 30, 1996 or March 31, 1997 ....................................... -- --
Redeemable cumulative junior preferred stock, $0.01 par value;
100,000 shares authorized, no shares issued or outstanding at
December 30, 1996 or March 31, 1997 ....................................... -- --
COMMON STOCKHOLDER'S EQUITY:
Common stock, $0.01 par value; 1,000,000 shares authorized;
93,150 shares issued and outstanding at December 30, 1996
and March 31, 1997 ........................................................ 1,000 1,000
Paid-in capital ............................................................. 63,246,000 63,246,000
Accumulated deficit ......................................................... (154,693,000) (156,821,000)
------------- -------------
Total common stockholder's deficit ........................................ (91,446,000) (93,574,000)
------------- -------------
Total liabilities and common stockholder's equity ......................... $ 172,129,000 $ 165,869,000
============= =============
The accompanying notes are an integral part of these
consolidated condensed statements.
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AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THIRTEEN WEEKS ENDED MARCH 25, 1996 AND MARCH 31, 1997
(UNAUDITED)
Thirteen Weeks Ended
-----------------------------------
March 25, March 31,
1996 1997
------------- -------------
REVENUES ............................... $ 114,598,000 $ 114,110,000
RESTAURANT COSTS:
Food and beverage .................... 36,850,000 36,350,000
Payroll .............................. 34,365,000 34,694,000
Direct operating ..................... 27,451,000 28,306,000
Depreciation and amortization ........ 5,124,000 4,823,000
GENERAL AND ADMINISTRATIVE EXPENSES .... 6,667,000 6,137,000
------------- -------------
Operating profit ..................... 4,141,000 3,800,000
INTEREST EXPENSE, net .................. 7,097,000 5,925,000
------------- -------------
Loss before provision for income taxes (2,956,000) (2,125,000)
PROVISION FOR INCOME TAXES ............. 12,000 3,000
------------- -------------
Net loss ............................. $ (2,968,000) $ (2,128,000)
============= =============
The accompanying notes are an integral part of these
consolidated condensed statements.
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AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED MARCH 25, 1996 AND MARCH 31, 1997
(UNAUDITED)
March 25, March 31,
1996 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers .................. $ 114,431,000 $ 114,669,000
Cash paid to suppliers and employees .......... (110,761,000) (111,718,000)
Interest paid, net ............................ (12,095,000) (4,660,000)
Income taxes paid ............................. (12,000) (4,000)
------------- -------------
Net cash used in operating activities ....... (8,437,000) (1,713,000)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .......................... (2,078,000) (2,272,000)
Net (increase) decrease in other assets ....... (151,000) 342,000
Proceeds from disposition of assets ........... -- 9,000
Sale/leaseback costs included in deferred gain -- (61,000)
-------------
Net cash used in investing activities ....... (2,229,000) (1,982,000)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on indebtedness ...................... (2,652,000) (100,000)
Borrowings on indebtedness .................... -- 1,199,000
Net increase in deferred debt costs ........... (21,000) (1,302,000)
Payments on capital lease obligations ......... (205,000) (218,000)
Contribution from parent ...................... 7,115,000 --
------------- -------------
Net cash provided by (used in)
financing activities ...................... 4,237,000 (421,000)
------------- -------------
NET DECREASE IN CASH ............................ (6,429,000) (4,116,000)
CASH, at beginning of period .................... 10,385,000 7,493,000
------------- -------------
CASH, at end of period .......................... $ 3,956,000 $ 3,377,000
============= =============
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES:
Net loss ...................................... $ (2,968,000) $ (2,128,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ............. 5,124,000 4,823,000
Loss on disposition of assets ............. 33,000 13,000
Amortization of deferred gain ............. -- (123,000)
Accretion on indebtedness ................. 24,000 27,000
(Increase) decrease in current assets:
Accounts receivable, net ................ (167,000) 559,000
Inventories ............................. 178,000 (116,000)
Prepaid expenses ........................ 1,523,000 90,000
Increase (decrease) in current liabilities:
Accounts payable ........................ (6,057,000) (282,000)
Accrued liabilities ..................... (3,227,000) (4,324,000)
Accrued insurance ....................... 1,612,000 (1,486,000)
Accrued interest ........................ (5,022,000) 1,238,000
Accrued payroll ......................... 510,000 (4,000)
------------- -------------
Net cash used in operating activities $ (8,437,000) $ (1,713,000)
============= =============
The accompanying notes are an integral part of these
consolidated condensed statements.
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AMERICAN RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. MANAGEMENT OPINION
The Consolidated Condensed Financial Statements included herein have
been prepared by the Company, without audit, in accordance with
Securities and Exchange Commission Regulation S-X. In the opinion of
management of the Company, these Consolidated Condensed Financial
Statements contain all adjustments (all of which are of a normal
recurring nature) necessary to present fairly the Company's financial
position as of December 30, 1996 and March 31, 1997, and the results of
its operations and its cash flows for the thirteen weeks ended March
25, 1996 and March 31, 1997. The Company's results for an interim
period are not necessarily indicative of the results that may be
expected for the year.
Although the Company believes that all adjustments necessary for a fair
presentation of the interim periods presented are included and that the
disclosures are adequate to make the information presented not
misleading, it is suggested that these Consolidated Condensed Financial
Statements be read in conjunction with the Consolidated Financial
Statements and notes thereto included in the Company's annual report on
Form 10-K, File No. 33-48183, for the year ended December 30, 1996.
2. SUBSIDIARY GUARANTORS
Separate financial statements of the Company's subsidiaries are not
included in this report on Form 10-Q because the subsidiaries are
unconditionally jointly and severally liable for the obligations of the
Company under the Company's Senior Secured Notes, due September 15,
1998, 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 on a consolidated basis.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of American Restaurant Group, Inc.'s
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 March 25, 1996 and March 31, 1997:
Revenues. Total revenues decreased from $114.6 million in the first quarter of
1996 to $114.1 million in the first quarter of 1997 reflecting a decrease in
comparable restaurant revenues of 4.8%. During the twelve months ended March 31,
1997, the Company opened nine new restaurants and closed thirteen poor
performing restaurants. There were 248 restaurants operating as of March 25,
1996 and 244 operating as of March 31, 1997.
Black Angus revenues increased 2.8% to $69.7 million in the first quarter of
1997 as compared to the same period in 1996. The increase was due to the
addition of nine new restaurants, which included expansion into two new markets,
Las Vegas, Nevada (two new restaurants) and Salt Lake City, Utah (one new
restaurant). Comparable restaurant revenues decreased 6.1% as compared to the
prior year.
Grandy's revenues decreased 10.2% to $20.4 million in the first quarter of 1997
as compared to the same period in 1996. The decrease was partially due to the
closure of twelve poor performing restaurants. Comparable restaurant revenues in
the first quarter of 1997 were 6.2% lower than the same period in 1996, in part
due to less use of discounting to stimulate sales and less effective advertising
and promotion. Franchise revenues were $0.5 million in the first quarter of 1996
and $0.4 million in the first quarter of 1997.
Other revenues remained approximately the same at $24.1 million in the first
quarter of 1996 and $24.0 million in the same period of 1997. The Company closed
one poor performing restaurant during the twelve months ended March 31, 1997.
Comparable restaurant revenues were approximately equal in the first quarter of
1996 and 1997.
Food and Beverage Costs. As a percentage of revenues, food and beverage costs
decreased from 32.2% in the first quarter of 1996 to 31.9% in the first quarter
of 1997. The decrease was primarily due to lower seafood costs at Black Angus.
Payroll Costs. As a percentage of revenues, labor costs increased from 30.0% in
the first quarter of 1996 to 30.4% in the first quarter of 1997. The increase
was partially due to higher food labor and restaurant management costs.
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 in the first quarter from 24.0% in 1996 to 24.8%
in 1997. The increase was due primarily to higher occupancy expenses.
Depreciation and Amortization. Depreciation and amortization consists of
depreciation of fixed assets used by individual restaurants, divisions and
corporate offices, as well as amortization of intangible assets. As a percentage
of revenues, depreciation and amortization decreased from 4.4% in the first
quarter of 1996 to 4.2% in the same period of 1997. The decrease was due
primarily to the non-cash reduction of the historical cost of certain long-lived
assets in December 1996.
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General and Administrative Expenses. General and administrative expenses
decreased 8.0% from $6.7 million in the first quarter of 1996 to $6.1 million in
the first quarter of 1997. The decrease was due primarily to decreased division
overhead payroll expenses. General and administrative expenses as a percentage
of revenues decreased from 5.8% to 5.4%.
Operating Profit. Due to the above items, operating profit decreased from $4.1
million in the first quarter of 1996 to $3.8 million in the first quarter of
1997. As a percentage of revenues, operating profit decreased from 3.6% to 3.3%.
Interest Expense - Net. Interest expense decreased from $7.1 million in the
first quarter of 1996 to $5.9 million in the first quarter of 1997. The decrease
was primarily due to a lower average debt balance in the first quarter of 1997.
The Company's average stated interest rate increased from 11.5% in the first
quarter of 1996 to 12.3% in the first quarter of 1997. The weighted average debt
balance (excluding capitalized lease obligations) decreased from $220.1 million
in the first quarter of 1996 to $171.1 million in the first quarter of 1997.
Liquidity and Capital Resources
The Company's primary sources of liquidity are cash flow from operations and
borrowings under its credit facilities. The Company requires capital principally
for the acquisition and construction of new restaurants, the remodeling of
existing restaurants and the purchase of new equipment and leasehold
improvements.
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 a few days, and 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 March 31, 1997, the Company had a working capital deficit of
$92.6 million which included $41.5 million in current portion of long-term debt.
The Company estimates that capital expenditures of $6.0 million to $10.0 million
are required annually to maintain and refurbish its existing restaurants. In
addition, the Company spends approximately $10.0 million to $13.0 million
annually for repairs and maintenance which are expensed as incurred. 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. The
Company expects to spend approximately $5.0 million for new restaurants in 1997.
Total capital expenditures year to date were $2.1 million in 1996 and $2.3
million in 1997. The Company's credit agreement contains limitations on the
amount of capital expenditures that the Company may incur.
In 1997, the Company was in default under a covenant that required certain sales
or sale/leaseback transactions by December 31, 1996. On March 13,1997, the
Company's Senior Secured Note holders consented to an amendment which replaced
the EBITDA covenants for the year ended December 30, 1996 and for the four
quarters ended March 31, 1997 with an EBITDA covenant for the twelve months
ended May 31, 1997 (tested at the same level as would have been required for the
four quarters ended March 31, 1997), reduced the amount of net cash proceeds
from asset sales or sale/leaseback transactions required by December 31, 1996 to
$15.0 million (which was accomplished) and waived any related existing defaults
or events
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of default. The amendment provided for an increase of $10 in the stated
principal amount for each $1,000 in stated principal amount of consenting
noteholders. This resulted in an increase of approximately $1.6 million in the
stated principal amount of the Senior Secured Notes and $1.2 million in the
actual outstanding principal amount of the Senior Secured Notes.
The Company was four weeks late in paying the quarterly interest of $1.2 million
on its Subordinated Debt which was due March 15, 1997. The Subordinated Debt
provides for a 30- day grace period for interest payments.
Substantially all assets of the Company are pledged to its senior lenders. In
addition, the subsidiaries have guaranteed the indebtedness owed by the Company
and such guarantee is 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.
The Company's senior credit facilities provide for a letter of credit facility
of $11.0 million until July 31, 1997. This letter of credit facility was fully
utilized as of May 5, 1997. A quarterly commitment fee of 0.5% per annum is
payable on the letter of credit facility and a quarterly fee of 3.75% per annum
is payable on outstanding letters of credit. Having repaid the outstanding bank
loan in September 1996, the Company does not have a working capital facility.
The Company is highly leveraged and is pursuing additional asset sales which
must be consummated in order to enable the Company to repay the required sinking
fund payment of $41.5 million due September 15, 1997 on the Senior Secured
Notes. Any additional asset sale proceeds in excess of the amount required to
repay the Senior Secured Notes in full, together with any proceeds from
additional refinancing, will be used to repay the Subordinated Debt. In the
absence of such a sale, the Company believes it could otherwise restructure its
debt. In addition, the Company expects to obtain a replacement letter of credit
facility. However, there can be no assurance that any such asset sales or
refinancing will be completed on acceptable terms.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
Exhibit No. Description
- ----------- -----------
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not
filed.
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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: May 15, 1997 By: /s/ WILLIAM J. MCCAFFREY, JR.
--------------------------- ------------------------------
William J. McCaffrey, Jr.
Vice President, Chief
Financial Officer
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