FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 1997
-----------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission file number 1-12692
-----------------------------------------------
MORTON'S RESTAURANT GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3490149
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. employer identification no.)
of incorporation or organization)
3333 New Hyde Park Road, Suite 210, New Hyde Park, New York 11042
- --------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
516-627-1515
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 |_|
As of August 7, 1997, the registrant had 6,520,340 Shares of its Common Stock,
$.01 par value, issued and outstanding.
1
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page
- ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 29, 1997
and December 29, 1996 3-4
Consolidated Statements of Income for the three
and six month periods ended June 29, 1997 and
June 30, 1996 5
Consolidated Statements of Cash Flows for the six
month periods ended June 29, 1997 and June 30, 1996 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
Part II - Other Information
- ---------------------------
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Stockholders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
Item 1. Financial Statements
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(amounts in thousands)
June 29, December 29,
1997 1996
---- ----
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,534 $ 2,276
Accounts receivable 2,114 2,116
Inventories 4,642 4,254
Landlord construction receivables,
prepaid expenses and other
current assets 2,755 2,408
Deferred income taxes 4,116 3,808
Assets held for sale 371 12,474
------ ------
Total current assets 16,532 27,336
Property and equipment, at cost:
Furniture, fixtures and equipment 15,656 13,552
Leasehold improvements 16,644 14,188
Construction in progress 472 1,284
------ ------
32,772 29,024
Less accumulated depreciation and amortization 5,345 4,353
------ ------
Net property and equipment 27,427 24,671
------ ------
Intangible assets, net of accumulated amortization
of $3,256 at June 29, 1997 and $3,054 at
December 29, 1996 12,739 12,941
Other assets and deferred expenses, net of
accumulated amortization of $3,367 at
June 29, 1997 and $3,963 at December 29, 1996 7,855 5,909
Deferred income taxes 4,797 6,129
------ ------
$69,350 $76,986
====== ======
(Continued)
3
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(amounts in thousands, except share data)
June 29, December 29,
1997 1996
---- ----
(unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,765 $ 4,694
Accrued expenses 7,559 7,795
Accrued income taxes 426 700
Liabilities related to assets held for sale 3,352 12,134
-------- --------
Total current liabilities 16,102 25,323
Bank debt 21,970 24,900
Other liabilities 6,077 5,676
-------- --------
Total liabilities 44,149 55,899
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value per share.
Authorized 3,000,000 shares, no shares
issued or outstanding -- --
Common stock, $.01 par value per share.
Authorized 25,000,000 shares, issued and
outstanding 6,493,553 shares at June 29,
1997 and 6,443,673 shares at December 29, 1996 65 64
Nonvoting common stock, $.01 par value per share.
Authorized 3,000,000 shares, no shares issued
or outstanding -- --
Additional paid-in capital 61,884 61,632
Accumulated deficit (36,748) (40,609)
-------- --------
Total stockholders' equity 25,201 21,087
-------- --------
$ 69,350 $ 76,986
======== ========
See accompanying notes to consolidated financial statements.
4
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(amounts in thousands, except per share data)
Three Months Ended Six Months Ended
June 29, June 30, June 29, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(unaudited) (unaudited)
Revenues $41,061 $46,476 $87,595 $95,345
Food and beverage costs 14,226 15,639 30,171 31,910
Restaurant operating expenses 17,896 22,702 38,180 46,237
Depreciation, amortization and other
non-cash charges 1,826 1,306 3,913 2,900
General and administrative expenses 3,202 3,544 6,892 7,246
Marketing and promotional expenses 975 1,014 2,082 2,152
Interest expense, net 589 574 1,209 1,144
------ ------ ------ ------
Income before income taxes 2,347 1,697 5,148 3,756
Income tax expense 587 425 1,287 940
------ ------ ------ ------
Net income $ 1,760 $ 1,272 $ 3,861 $ 2,816
====== ====== ====== ======
Net income per share $ 0.26 $ 0.19 $ 0.56 $ 0.42
====== ====== ====== ======
Weighted average shares outstanding 6,844 6,807 6,838 6,773
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
5
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(amounts in thousands)
Six Months Ended
June 29, June 30,
1997 1996
---- ----
(unaudited)
Cash flows from operating activities:
Net income $ 3,861 $ 2,816
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and other
non-cash charges 3,913 2,900
Deferred income taxes 1,024 500
Change in assets and liabilities:
Accounts receivable 2 1,708
Inventories (388) (369)
Prepaid expenses and other assets (2,255) (303)
Accounts payable, accrued expenses
and other liabilities (2,008) (4,095)
Accrued income taxes (274) (39)
------ ------
Net cash provided by operating
activities 3,875 3,118
------ ------
Cash flows from investing activities:
Purchases of property and equipment, net (3,438) (2,527)
Payments for start-up costs, licenses
and other deferred expenses (1,966) (2,724)
Proceeds from sale of Mick's and Peasant
restaurants 4,308 --
------ ------
Net cash used by investing activities (1,096) (5,251)
------ ------
Cash flows from financing activities:
Principal reduction on bank debt (7,624) (2,100)
Proceeds from bank debt 4,850 4,400
Payments on note payable to related party -- (483)
Net proceeds from issuance of stock 253 10
------ ------
Net cash provided (used) by financing
activities (2,521) 1,827
------ ------
Net increase (decrease) in cash and cash
equivalents 258 (306)
Cash and cash equivalents at beginning
of period 2,276 2,351
------ ------
Cash and cash equivalents at end of period $ 2,534 $ 2,045
====== ======
See accompanying notes to consolidated financial statements.
6
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 29, 1997 and June 30, 1996
1) The accompanying unaudited, consolidated financial statements have been
prepared in accordance with instructions to Form 10-Q and, therefore, do not
include all information and footnotes normally included in financial statements
prepared in conformity with generally accepted accounting principles. They
should be read in conjunction with the consolidated financial statements of
Morton's Restaurant Group, Inc., formerly known as Quantum Restaurant Group,
Inc., (the "Company") for the fiscal year ended December 29, 1996, filed by the
Company on Form 10-K with the Securities and Exchange Commission on March 27,
1997.
The accompanying financial statements are unaudited and include all
adjustments (consisting of normal recurring adjustments and accruals) that
management considers necessary for a fair presentation of its financial position
and results of operations for the interim periods presented. The results of
operations for the interim periods are not necessarily indicative of the results
that may be expected for the entire year.
On May 9, 1996, at the Company's Annual Meeting of Stockholders, the
stockholders voted to change the name of the Company from Quantum Restaurant
Group, Inc. to Morton's Restaurant Group, Inc.
The Company uses a fiscal reporting period ending on the closest Sunday to
December 31. The fiscal year consists of 52 weeks and approximately every six or
seven years, a 53rd week will be added.
2) For the purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments purchased with a maturity of three
months or less to be cash equivalents. The Company paid cash interest and fees,
net of amounts capitalized, of approximately $965,000 and $1,004,000, and income
taxes of approximately $835,000 and $506,000, for the six months ended June 29,
1997 and June 30, 1996, respectively. During the first six months of fiscal 1997
and 1996, the Company entered into capital lease arrangements of approximately
$777,000 and $1,100,000, respectively, for restaurant equipment.
3) As described below, on February 6, 1997, the Company completed the sale of
its Atlanta-based Mick's and Peasant restaurants. Effective January 2, 1995, the
Company adopted Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of " ("Statement 121").
During the second quarter of fiscal 1995, the Company approved a plan for
the sale of Mick's Restaurants, Inc. ("Mick's") and The Peasant Restaurants,
Inc. ("Peasant"). Pursuant to Statement 121, the Company discontinued
depreciating fixed assets and amortizing goodwill relating to Mick's and Peasant
in April 1995.
Coincident with the Company's approval of the plan of sale, the assets
held for sale and related liabilities for Mick's and Peasant have been
reclassified as "Assets held for sale" and "Liabilities related to assets held
for sale" when the Company reports its financial position. The accompanying
consolidated balance sheets include the following components:
7
June 29, December 29,
1997 (1) 1996
---- ----
(amounts in thousands, unaudited)
Current assets $ 371 $ 2,166
Net property and equipment 1,897 10,704
Unamortized goodwill -- 8,077
Other assets 765 2,143
Write-down of carrying values (2,662) (10,616)
---------- -------
Assets held for sale 371 12,474
---------- -------
Current liabilities 478 3,495
Other liabilities -- 1,612
Lease exit and other transaction costs 2,874 7,027
---------- -------
Liabilities related to assets held
for sale 3,352 12,134
---------- -------
Net assets (liabilities related
to assets) held for sale $ (2,981) $ 340
========== =======
(1) Includes the four remaining non-Atlanta Mick's restaurants.
The following represents the combined results of Mick's and Peasant for
the periods ended June 29, 1997 and June 30, 1996. Interest expense was not
allocated.
Six Months Ended
June 29, June 30,
1997 (2) 1996
---- ----
(amounts in thousands, unaudited)
Revenues $ 7,181 $28,451
Food and beverage costs 2,151 8,395
Restaurant operating expense 4,320 17,948
Depreciation, amortization and other
non-cash charges 6 103
General and administrative expenses 477 2,053
Marketing and promotional expenses 123 561
------- ------
Income (loss) before income taxes $ 104 $ (609)
======= ======
(2) Includes the Atlanta-based Mick's and Peasant restaurants through February
6, 1997, the date of sale, as discussed below, one non-Atlanta Mick's restaurant
which was closed in June 1997, and the four remaining non-Atlanta Mick's
restaurants which the Company intends to sell or otherwise dispose of.
Management had been actively seeking potential buyers for the sale of all
Mick's and Peasant restaurants and in the fourth quarter of fiscal 1995 engaged
an investment banking firm to assist with the sale. Although marketing efforts
concentrated on selling all of the Mick's and Peasant restaurants, sales
materials indicated that a partial sale would be considered. Most of the
interest received related to the majority of the restaurants located mainly in
the Atlanta area. No meaningful offers were received for the remaining
8
restaurants (the "Remaining Restaurants"). Cash flow analyses prepared by
management for the Remaining Restaurants indicated that it would be less costly
to close such restaurants in an orderly fashion, rather than continue to operate
them through the end of their respective lease terms. Accordingly, assets of
$8,300,000 related to the Remaining Restaurants were written off and expenses of
$7,200,000, representing management's estimate of the expected costs to
terminate related leases, were accrued at December 31, 1995. During fiscal 1996
and the first six months of 1997, restaurant occupancy expense of approximately
$1,498,000 and $647,000 for the Remaining Restaurants has been charged against
the accrual for lease exit costs, respectively. During fiscal 1996, seven Mick's
restaurants and two Peasant restaurants were closed. During 1997, two Mick's
restaurants were closed in January, one Mick's was closed in June 1997 and
another was closed in July 1997.
On February 6, 1997, the Company completed the sale of its Atlanta-based
Mick's and Peasant restaurants. In connection with the sale, the Remaining
Restaurants were transferred to another subsidiary of the Company. Pursuant to
these agreements, MRI Acquisition Corporation acquired an 80.1% interest in
Mick's and PRI Acquisition Corporation acquired an 80.1% interest in Peasant for
an aggregate of $6,800,000, consisting of $4,300,000 in cash and $2,500,000 in
the form of two unsecured promissory notes. The Company retained a 19.9%
interest in Mick's and Peasant. In conjunction with the sale, the Company had
recorded a fiscal 1996 fourth quarter charge of $11,500,000 to write-down the
Atlanta-based restaurants to their net realizable values based on the fair value
of the consideration received, accrue for the various expenses related to the
closing of such sale and to write-off two restaurants which are not part of the
sale, both of which were closed in 1997. As of July 1997, the Company continues
to operate three Mick's restaurants which the Company intends to sell or
otherwise dispose of.
The write-down and related charges for net assets held for sale reflect
management's best estimate of the costs expected to be incurred in connection
with the disposition of Mick's and Peasant. As a result of the numerous
uncertainties which may impact the actual costs to be incurred by the Company,
such costs may differ from the current estimates used by management.
4) The Company is involved in various legal actions. See "Part II - Other
Information, Item 1. Legal Proceedings" on page 14 of this Form 10-Q for a
discussion of these legal actions.
9
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues decreased $5.4 million, or 11.7%, to $41.1 million for the three
month period ended June 29, 1997, from $46.5 million for the comparable 1996
period. Revenues from Morton's and Bertolini's increased $6.3 million, or 18.8%,
to $39.6 million for the three month period ended June 29, 1997, from $33.3
million during the comparable 1996 period. Of the increase in Morton's and
Bertolini's revenues, $4.3 million was attributable to incremental restaurant
revenues from seven new restaurants opened after January 1, 1996 and $2.0
million, or 6.6%, was attributable to additional comparable revenues from
restaurants open all of both periods. Average Morton's and Bertolini's revenues
per restaurant open for a full period increased 8.6%.
Revenues decreased $7.8 million, or 8.1%, to $87.6 million for the six
month period ended June 29, 1997, from $95.3 million for the comparable 1996
period. Revenues from Morton's and Bertolini's increased $13.0 million, or
20.2%, to $80.4 million for the six month period ended June 29, 1997, from $66.9
million for the comparable 1996 period. Of the increase in Morton's and
Bertolini's revenues, $9.2 million was attributable to incremental restaurant
revenues from seven new restaurants opened after January 1, 1996 and $3.8
million, or 6.1%, was attributable to additional comparable revenues from
restaurants open all of both periods. Average Morton's and Bertolini's revenues
per restaurant open for a full period increased 7.3%. Included in 1997 six month
revenues is approximately $0.5 million of investment income. As stated in Note
3, the Company completed the sale of its Atlanta-based Mick's and Peasant
restaurants on February 6, 1997. Nine other non-Atlanta Mick's and Peasant
restaurants were closed during fiscal 1996 and four additional Mick's have been
closed during fiscal 1997. As a result, revenues for the Mick's and Peasant
restaurants decreased approximately $11.7 million and $21.3 million in the three
and six month periods ended June 29, 1997 versus the comparable periods of 1996.
As of July 1997, the Company continues to operate three Mick's restaurants which
the Company intends to sell or otherwise dispose of.
Percentage changes in comparable restaurant revenues for the three and six
month periods ended June 29, 1997 versus June 30, 1996 for restaurants open all
of both periods are as follows:
Three Months Six Months
Ended June 29, 1997 Ended June 29, 1997
Percentage Change Percentage Change
----------------- -----------------
Morton's 8.1% 7.9%
Bertolini's -0.1% -2.1%
Total 6.6% 6.1%
The Company believes that revenues for the first quarter of 1996 were
adversely affected by severe winter storms in January 1996.
10
Food and beverage costs decreased from $15.6 million for the three month
period ended June 30, 1996 to $14.2 million for the three month period ended
June 29, 1997 and decreased from $31.9 million for the six month period ended
June 30, 1996 to $30.2 million for the six month period ended June 29, 1997.
Food and beverage costs, excluding all Mick's and Peasant restaurants, increased
by $2.1 million to $13.8 million for the three month period ended June 29, 1997
from $11.7 million recorded for the three month period ended June 30, 1996 and
increased by $4.5 million to $28.0 million for the six month period ended June
29, 1997, from $23.5 million for the comparable 1996 period. These costs as a
percentage of related revenues decreased 0.4% for the three and six month
periods. As a result of the sale and closings of the Mick's and Peasant
restaurants as discussed in Note 3, there was a reduction in food and beverage
costs of approximately $3.5 million and $6.2 million in the three and six month
periods ended June 29, 1997 and June 30, 1996, respectively.
Restaurant operating expenses which include labor, occupancy and other
operating expenses decreased from $22.7 million for the three month period ended
June 30, 1996 to $17.9 million for the three month period ended June 29, 1997, a
decrease of $4.8 million. For the six months ended June 29, 1997, these costs
decreased from $46.2 million during the 1996 period, to $38.2 million for the
comparable 1997 period. Restaurant operating expenses, excluding all Mick's and
Peasant restaurants, increased from $14.4 million for the three month period
ended June 29, 1996 to $17.0 million for the comparable 1997 period and
increased from $28.3 million for the six month period ended June 30, 1996 to
$33.9 million for the comparable 1997 period. Those costs, excluding Mick's and
Peasant, as a percentage of revenues decreased 0.1% from 43.1% for the three
month period ended June 30, 1996 to 43.0% for the three month period ended June
29, 1997 and decreased 0.2% from 42.3% for the six month period ended June 30,
1996 to 42.1% for the comparable 1997 period. Offsetting the increase in total
restaurant operating expenses was a reduction of approximately $7.5 million and
$13.6 million during the three and six month periods ended June 29, 1997 versus
the comparable 1996 periods, respectively, due to the sale and closings of
Mick's and Peasant restaurants as discussed in Note 3.
Depreciation, amortization and other non-cash charges increased from $1.3
million for the three month period ended June 30, 1996 to $1.8 million for the
three month period ended June 29, 1997 and increased from 2.8% of revenues to
4.4%, respectively. For the six months ended June 29, 1997, such costs were $3.9
million versus $2.9 million for the comparable 1996 period. The 1997 period
increase is due to increased startup amortization.
General and administrative expenses for the three month period ended June
29, 1997 were $3.2 million, a decrease of $0.3 million, from $3.5 million for
the three month period ended June 30, 1996. For the six months ended June 29,
1997, such costs were $6.9 million versus $7.2 million for the comparable 1997
period. General and administrative expenses, excluding all Mick's and Peasant
restaurants, increased $0.6 million from $2.5 million for the three month period
ended June 30, 1996 to $3.1 million for the comparable 1997 period and increased
$1.2 million from $5.2 million for the six month period ended June 30, 1996, to
$6.4 million for the comparable 1997 period. Such costs, excluding Mick's and
Peasant, as a percentage of revenues were 8.0% for the three month period ended
June 29, 1997, an increase of 0.4% from the three month period ended June 30,
1996 and 8.0% for the six months ended June 29, 1997, an increase of 0.2% from
the six months ended June 30, 1996. The increase in such expense is driven by
incremental costs associated with increased restaurant development. General and
administrative expenses relating to the Mick's and Peasant restaurant groups
decreased $1.0 million and $1.6 million during the three and six month periods
ended June 29, 1997, respectively, versus the comparable 1996 period as a result
of the sale and closings of Mick's and Peasant restaurants as discussed in Note
3.
11
Marketing and promotional expenses were $1.0 million and $2.0 million for
the three and six month periods ended June 29, 1997 and June 30, 1996,
respectively. Marketing and promotional expenses, excluding Mick's and Peasant,
were $1.0 million, or 2.4% of revenues for the three months ended June 29, 1997,
as compared to $0.7 million, or 2.2% of revenues, for the comparable 1996 period
and were $2.0 million, or 2.4% of revenues for the six months ended June 29,
1997, as compared to $1.6 million, or 2.4% of revenues, for the comparable 1996
period. The increase is driven by incremental costs associated with increased
restaurant development. Mick's and Peasant marketing and promotional expenses
decreased $0.3 million and $0.4 million during the three and six month periods
ended June 29, 1997, respectively, versus the comparable 1996 periods.
Interest expense, net of interest income, remained constant at $0.6
million for the three month periods ended June 29, 1997 and June 30, 1996. For
the six month period ended June 29, 1997, interest expense was $1.2 million,
versus $1.1 million for the comparable 1996 period.
Income tax expense of $1.3 million for the six month period ended June 29,
1997 represents Federal income taxes, which were partially offset by the
establishment of additional deferred tax assets relating to FICA and other tax
credits that were generated during fiscal 1997, as well as state income taxes.
Liquidity and Capital Resources
In the past, the Company has had, and may have in the future, negative
working capital balances. The Company does not have significant receivables or
inventories and receives trade credit based upon negotiated terms in purchasing
food and supplies. Funds available from cash sales not needed immediately to pay
for food and supplies or to finance receivables or inventories were used for
noncurrent capital expenditures and/or payments of long-term debt balances under
revolving credit agreements.
The Company and BankBoston, N.A. (formerly The First National Bank of
Boston) entered into the Second Amended and Restated Revolving Credit and Term
Loan Agreement dated as of June 19, 1995, as amended from time to time
(collectively the "Credit Agreement"), pursuant to which the Company's credit
facility is $32,500,000, consisting of a $15,000,000 term loan (the "Term Loan")
and a $17,500,000 revolving credit facility (the "Revolving Credit Facility").
The final maturity date is December 31, 2002. Loans made pursuant to the Credit
Agreement bear interest at a rate equal to the lender's base rate (plus
applicable margin) or, at the Company's option, the Eurodollar Rate (plus
applicable margin). At June 29, 1997, the Company's applicable margin,
calculated pursuant to the Credit Agreement, was 0.00% on base rate loans and
2.0% on Eurodollar Rate loans. The Company has no outstanding futures contracts
or interest rate hedge agreements.
During fiscal 1996, BankBoston syndicated portions of the Term Loan and
Revolving Credit Facility of the Credit Agreement to two additional lenders,
Imperial Bank and Heller Financial. BankBoston, as agent for the Lenders,
receives an annual fee of $10,000 paid by the Company.
As of June 29, 1997 and December 29, 1996, the Company had outstanding
borrowings of $19,650,000 and $24,900,000, respectively, under the Credit
Agreement. At June 29, 1997, $221,000 was restricted for letters of credit
issued by the lender on behalf of the Company. Unrestricted and undrawn funds
available to the Company under the Credit Agreement were $12,629,000. The
weighted average interest rate on all bank borrowings on June 29, 1997 was
7.83%. In addition, the Company is obligated to pay fees of 0.25% on unused loan
commitments less than $10,000,000, 0.375% on unused loan commitments greater
than $10,000,000 and a per annum letter of credit fee (based on the face amount
thereof) equal to the applicable margin on the Eurodollar Rate loans.
12
The availability under the Credit Agreement is scheduled to reduce by
$1,000,000 on June 30, 1999 and thereafter principal installments on the Term
Loan of $1,000,000 each will be due at the end of each calendar quarter through
December 31, 2002. The Revolving Credit Facility will be payable in full on
December 31, 2002. Borrowings under the Credit Agreement are secured by all
tangible and intangible assets of the Company. Total amounts of principal
payable by the Company under the Credit Agreement during the five years
subsequent to June 29, 1997 amount to $0 in 1997, $0 in 1998, $3,000,000 in
1999, $4,000,000 in 2000, $4,000,000 in 2001 and $8,650,000 in 2002. As stated
in Note 3 to the accompanying consolidated financial statements, the Company has
completed the sale of its Atlanta-based Mick's and Peasant restaurants. Net cash
proceeds from the sale were used to reduce the Company's Revolving Credit
Facility.
The Credit Agreement contains certain restrictive covenants with respect
to the Company that, among other things, create limitations (subject to certain
exceptions) on: (i) the incurrence or existence of additional indebtedness or
the granting of liens on assets or contingent obligations; (ii) the making of
investments in any person; (iii) mergers, dispositions of assets or
consolidations; (iv) prepayment of certain other indebtedness; (v) making
capital expenditures above specified amounts; and (vi) the ability to make
certain fundamental changes or to change materially the present method of
conducting the Company's business. The Credit Agreement also requires the
Company to satisfy certain financial ratios and tests. As of June 29, 1997, the
Company believes it was in compliance with such covenants.
In March 1997, a subsidiary of the Company and CNL Financial I, Inc.
("CNL") entered into a $2,500,000 loan agreement (the "CNL Loan"), which matures
on April 1, 2007 and has a 10.02% per annum interest rate. Principal and
interest payments will be made over the term of the loan. Proceeds from the CNL
loan were used to reduce the Company's Revolving Credit Facility. At June 29,
1997 the outstanding principal balance of the CNL Loan was $2,476,000, of which
approximately $156,000 is payable within the next fiscal year and therefore has
been included in "Accrued expenses" in the accompanying consolidated balance
sheet for the period ended June 29, 1997.
During the first six months of fiscal 1997, the Company's net investment
in fixed assets and related investment costs, net of capitalized leases
approximated $5.4 million. The Company estimates that it will expend up to an
aggregate of $12.0 million in 1997 to finance ordinary refurbishment of existing
restaurants and pre-opening costs and capital expenditures, net of landlord
development and rent allowances and net of equipment lease financing, for new
restaurants. The Company has entered into various equipment lease financing
agreements with several financial institutions of which approximately $9.1
million in the aggregate has been funded from February 1994 through July 1997
and $7.4 million in the aggregate is available for future fundings. The Company
anticipates that funds generated through operations and funds available through
equipment lease commitments as well as those available under the Credit
Agreement will be sufficient to fund planned expansion.
In addition, the Company is entering the international market. A lease has been
signed to open a Morton's of Chicago restaurant in Singapore and other
international opportunities are being investigated.
Forward-Looking Statements
Except for the historical information contained in this Form 10-Q, certain
statements made herein are forward-looking statements that involve risks and
uncertainties and are subject to important factors that could cause actual
results to differ materially from these forward-looking statements, including
without limitation, the effect of economic and market conditions, the impact of
competitive activities, the Company's expansion plans, restaurant profitability
levels and other risks detailed in the Company's public reports and SEC filings.
13
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
The Company is involved in various legal actions incidental to the normal
conduct of its business. Management does not believe that the ultimate
resolution of these actions will have a material adverse effect on the Company's
consolidated financial position, equity, results of operations, liquidity and
capital resources.
Item 4. Submission of Matters to a Vote of Stockholders
No matters were submitted to a vote of stockholders during the quarter for
which this report was filed.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
4.04 (i) Seventh Amendment to the Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated June 27, 1997 among the
Registrant, Peasant Holding Corp., Morton's of Chicago, Inc. and
BankBoston, N.A., individually and as agent.
27.00 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this
report was filed.
14
SIGNATURES
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.
MORTON'S RESTAURANT GROUP, INC.
(Registrant)
Date August 12, 1997
--------------------
By: /s/ ALLEN J. BERNSTEIN
------------------------------------
Allen J. Bernstein
Chairman of the Board and Chief
Executive Officer
Date August 12, 1997 By: /s/ THOMAS J. BALDWIN
--------------------- ------------------------------------
Thomas J. Baldwin
Executive Vice President
and Chief Financial Officer
15
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report.
Exhibit
Number Page Document
------ ---- --------
4.04(i) Seventh Amendment to the Second Amended and Restated Revolving
Credit and Term Loan Agreement, dated June 27, 1997 among the
Registrant, Peasant Holding Corp., Morton's of Chicago, Inc.
and BankBoston, N.A., individually and as agent
27.00 Financial Data Schedule