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 July 4, 1999
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
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MORTON'S RESTAURANT GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3490149
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(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
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(Address of principal executive offices) (zip code)
516-627-1515
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(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 9, 1999, the registrant had 5,772,960 Shares of its Common Stock,
$.01 par value, outstanding.
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
INDEX
Part I - Financial Information Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of July 4, 1999 and January 3, 1999 3-4
Consolidated Statements of Income for the three and six month
periods ended July 4, 1999 and June 28, 1998 5
Consolidated Statements of Cash Flows for the six month periods
ended July 4, 1999 and June 28, 1998 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9-13
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)
July 4, January 3,
1999 1999
---- ----
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 2,225 $ 2,117
Accounts receivable 768 894
Inventories 6,142 6,400
Landlord construction receivables, prepaid expenses and other
current assets 2,679 3,920
Deferred income taxes 5,931 6,005
------- -------
Total current assets 17,745 19,336
------- -------
Property and equipment, at cost:
Furniture, fixtures and equipment 21,847 20,658
Leasehold improvements 28,780 25,422
Land 5,379 4,287
Construction in progress 1,342 3,248
------- -------
57,348 53,615
Less accumulated depreciation and amortization 8,837 7,804
------- -------
Net property and equipment 48,511 45,811
------- -------
Intangible assets, net of accumulated amortization of $4,065 at
July 4, 1999 and $3,861 at January 3, 1999 11,930 12,134
Other assets and deferred expenses, net of accumulated
amortization of $652 at July 4, 1999 and $2,075 at
January 3, 1999 6,605 9,237
Deferred income taxes 8,704 8,466
------- -------
$93,495 $94,984
======= =======
(Continued)
3
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
(amounts in thousands, except share data)
July 4, January 3,
1999 1999
---- ----
(unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,873 $ 6,553
Accrued expenses 15,765 19,466
Current portion of obligations to financial institutions
and capital leases 2,211 1,801
Accrued income taxes 220 372
-------- --------
Total current liabilities 23,069 28,192
Obligations to financial institutions and capital leases,
less current maturities 51,765 40,254
Other liabilities 3,658 3,581
-------- --------
Total liabilities 78,492 72,027
-------- --------
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 6,752,475 shares at
July 4, 1999 and 6,661,370 shares at January 3, 1999 68 67
Nonvoting common stock, $.01 par value per share. Authorized
3,000,000 shares, no shares issued or outstanding -- --
Additional paid-in capital 62,775 62,717
Accumulated other comprehensive income (loss) (39) (34)
Accumulated deficit (32,545) (35,597)
Less treasury stock at cost, 878,290 shares at July 4, 1999 and
234,400 shares at January 3, 1999 (15,256) (4,196)
-------- --------
Total stockholders' equity 15,003 22,957
-------- --------
$ 93,495 $ 94,984
======== ========
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
July 4, June 28, July 4, June 28,
1999 1998 1999 1998
---- ---- ---- ----
(unaudited) (unaudited)
Revenues $ 48,775 $ 45,604 $ 101,522 $ 93,315
Food and beverage costs 16,520 15,530 34,640 31,927
Restaurant operating expenses 21,593 19,840 44,019 39,882
Pre-opening costs, depreciation, amortization and
non-cash charges 1,165 2,128 2,721 4,614
General and administrative expenses 3,880 3,407 8,109 6,816
Marketing and promotional expenses 1,514 1,226 2,941 2,453
Interest expense, net 1,071 602 1,981 1,182
--------- --------- --------- ---------
Income before income taxes and cumulative
effect of a change in an accounting principle 3,032 2,871 7,111 6,441
Income tax expense 758 718 1,778 1,610
--------- --------- --------- ---------
Income before cumulative effect of a change
in an accounting principle 2,274 2,153 5,333 4,831
Cumulative effect of a change in an accounting principle, net of
income tax benefit of $1,357 -- -- 2,281 --
--------- --------- --------- ---------
Net income $ 2,274 $ 2,153 $ 3,052 $ 4,831
========= ========= ========= =========
Net income per share - basic:
Before cumulative effect of a change in an accounting principle $ 0.38 $ 0.32 $ 0.86 $ 0.73
Cumulative effect of a change in an accounting principle -- -- (0.37) --
--------- --------- --------- ---------
Net income $ 0.38 $ 0.32 $ 0.49 $ 0.73
========= ========= ========= =========
Net income per share - diluted:
Before cumulative effect of a change in an accounting principle $ 0.37 $ 0.31 $ 0.84 $ 0.70
Cumulative effect of a change in an accounting principle -- -- (0.36) --
--------- --------- --------- ---------
Net income $ 0.37 $ 0.31 $ 0.48 $ 0.70
========= ========= ========= =========
Weighted average common and potential common shares
outstanding:
Basic 6,037 6,644 6,195 6,625
========= ========= ========= =========
Diluted 6,163 6,956 6,352 6,925
========= ========= ========= =========
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
July 4, June 28,
1999 1998
---- ----
(unaudited)
Cash flows from operating activities:
Net income $ 3,052 $ 4,831
Adjustments to reconcile net income to net cash provided
by operating activities:
Cumulative effect of a change in an accounting principle 2,281 --
Depreciation, amortization and other non-cash charges 2,093 4,614
Deferred income taxes 1,193 1,396
Change in assets and liabilities:
Accounts receivable 127 296
Inventories 258 (123)
Prepaid expenses and other assets 118 42
Accounts payable, accrued expenses and other liabilities (6,649) (6,222)
Accrued income taxes (152) (145)
-------- --------
Net cash provided by operating activities 2,321 4,689
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (2,227) (4,939)
Capitalized payments for pre-opening costs and other deferred expenses -- (1,050)
-------- --------
Net cash used by investing activities (2,227) (5,989)
-------- --------
Cash flows from financing activities:
Principal reduction on obligations to financial institutions (3,987) (2,635)
Proceeds from obligations to financial institutions 14,958 1,500
Purchases of treasury stock (11,060) --
Net proceeds from issuance of stock 59 484
-------- --------
Net cash used by financing activities (30) (651)
-------- --------
Effect of exchange rate changes on cash 44 (67)
-------- --------
Net increase (decrease) in cash and cash equivalents 108 (2,018)
Cash and cash equivalents at beginning of period 2,117 3,437
-------- --------
Cash and cash equivalents at end of period $ 2,225 $ 1,419
======== ========
See accompanying notes to consolidated financial statements.
6
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
July 4, 1999 and June 28, 1998
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. (the "Company") for the fiscal year ended
January 3, 1999 filed by the Company on Form 10-K with the Securities and
Exchange Commission on March 31, 1999.
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.
Certain items previously reported in specific financial statement captions
have been reclassified to conform to the fiscal 1999 presentation.
The Company uses a fiscal year which consists of 52 weeks. Approximately
every six or seven years, a 53rd week will be added. Fiscal 1998 consisted of 53
weeks.
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 $1,671,000 and $1,155,000, and
income taxes of approximately $706,000 and $351,000, for the six months ended
July 4, 1999 and June 28, 1998, respectively. During the first six months of
fiscal 1999 and 1998, the Company entered into capital lease arrangements for
approximately $2,057,000 and $571,000, respectively, for restaurant equipment.
3) Based on a strategic assessment of recent trends and a downturn in comparable
revenues of Bertolini's Authentic Trattorias, during the fourth quarter of
fiscal 1998, pursuant to the approval of the Board of Directors, the Company
recorded a nonrecurring, pre-tax charge of $19,925,000 representing the
write-down of impaired Bertolini's restaurant assets, the write-down and accrual
of lease exit costs associated with the closure of specified Bertolini's
restaurants as well as the write-off of the residual interests in Mick's and
Peasant restaurants. The Company performed an in-depth analysis of historical
and projected operating results and, as a result of significant operating
losses, identified several nonperforming restaurants which have all been closed.
At July 4, 1999 and January 3, 1999, included in "Accrued expenses" in the
accompanying consolidated balance sheets is approximately $3,696,000 and
$4,165,000 representing the lease disposition liabilities related to the closing
of these nonperforming restaurants. Additionally, the analysis identified
several underperforming restaurants, which reflected a pattern of historical
operating losses and negative cash flow, as well as continued projected negative
cash flow and operating results for 1999 and 2000. Accordingly, the Company
recorded an impairment charge in the fourth quarter of fiscal 1998 to write-down
these impaired assets and will contemplate their potential closure upon future
operating results. As of July 4, 1999, none of these restaurants have been
closed.
7
4) In April 1998, Statement of Position 98-5 ("SOP 98-5"), "Reporting on the
Costs of Start-up Activities", was issued. SOP 98-5 requires that costs incurred
during start-up activities, including pre-opening costs, be expensed as
incurred. The Company adopted SOP 98-5 in the first quarter of fiscal 1999 and
recorded a charge for the cumulative effect of a change in an accounting
principle of approximately $2,281,000, net of income tax benefits of
approximately $1,357,000.
5) During fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". The components of
comprehensive income for the six months ended July 4, 1999 and June 28, 1998 are
as follows:
July 4, 1999 June 28, 1998
------------ -------------
(amounts in thousands)
Net Income $ 3,052 $ 4,831
Other comprehensive income (loss):
Foreign currency translation (5) (73)
------- -------
Total comprehensive income $ 3,047 $ 4,758
======= =======
6) 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.
8
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 increased $3.2 million, or 7.0%, to $48.8 million for the three
month period ended July 4, 1999, from $45.6 million during the comparable 1998
period. Of the increase in revenues, $3.8 million was attributable to
incremental restaurant revenues from eight new restaurants opened after December
29, 1997 and $0.1 million, or 0.1%, was attributable to additional comparable
revenues from restaurants open all of both periods. Average revenue per
restaurant open for a full period decreased 0.7%. Revenues for the three closed
Bertolini's restaurants (see Note 3) decreased by $0.7 million compared to the
second quarter of fiscal 1998.
Revenues increased $8.2 million, or 8.8%, to $101.5 million for the six
month period ended July 4, 1999, from $93.3 million for the comparable 1998
period. Of the increase in revenues, $9.0 million was attributable to
incremental restaurant revenues from eight new restaurants opened after December
29, 1997 and $0.2 million, or 0.2%, was attributable to additional comparable
revenues from restaurants open all of both periods. Average revenue per
restaurant open for a full period increased 0.1%. Revenues for the three closed
Bertolini's restaurants (see Note 3) decreased by $1.0 million compared to the
first six months of fiscal 1998.
Percentage changes in comparable restaurant revenues for the three and six
month periods ended July 4, 1999 versus June 28, 1998 for restaurants open all
of both periods are as follows:
Three Months Six Months
Ended July 4, 1999 Ended July 4, 1999
Percentage Change Percentage Change
----------------- -----------------
Morton's 0.7% 1.3%
Bertolini's -3.5% -5.8%
Total 0.1% 0.2%
Food and beverage costs increased from $15.5 million for the three month
period ended June 28, 1998 to $16.5 million for the three month period ended
July 4, 1999 and increased from $31.9 million for the six month period ended
June 28, 1998 to $34.6 million for the six month period ended July 4, 1999.
These costs as a percentage of revenues decreased from 34.1% for the three month
period ended June 28, 1998 to 33.9% for the comparable 1999 period and decreased
from 34.2% for the six month period ended June 28, 1998 to 34.1% for the
comparable 1999 period.
Restaurant operating expenses, which include labor, occupancy and other
operating expenses, increased from $19.8 million for the three month period
ended June 28, 1998 to $21.6 million for the three month period ended July 4,
1999, an increase of $1.8 million. For the six months ended July 4, 1999, these
costs increased from $39.9 million during the 1998 period, to $44.0 million for
the comparable 1999 period. Those costs as a percentage of revenues increased
0.8% from 43.5% for the three month period ended June 28, 1998 to 44.3% for the
three month period ended July 4, 1999 and increased 0.7% from 42.7% for the six
month period ended June 28, 1998 to 43.4% for the comparable 1999 period.
9
Pre-opening costs, depreciation, amortization and non-cash charges
decreased from $2.1 million for the three month period ended June 28, 1998 to
$1.2 million for the three month period ended July 4, 1999 and decreased as a
percentage of revenues by 2.3%. For the six months ended July 4, 1999, such
costs were $2.7 million versus $4.6 million for the comparable 1998 period.
Beginning in fiscal 1999, in accordance with the adoption of SOP 98-5 (see Note
4), the Company expenses all costs incurred during start-up activities,
including pre-opening costs, as incurred. Pre-opening costs incurred and
recorded as expense for the three and six month periods ended July 4, 1999 were
$0.2 million and $0.6 million, respectively. The amount of pre-opening costs
recorded for fiscal 1998 represents pre-opening costs which were amortized over
the 12 months following opening. This amortization expense for the three and six
month periods ended June 28, 1998 was $1.1 million and $2.6 million,
respectively. The timing of restaurant openings affects the amount of such
costs.
General and administrative expenses for the three month period ended July
4, 1999 were $3.9 million, which increased from $3.4 million for the three month
period ended June 28, 1998. For the six months ended July 4, 1999, such costs
were $8.1 million versus $6.8 million for the comparable 1998 period. The
increase in such expense is driven by incremental costs associated with
increased restaurant development. Such costs as a percentage of revenues were
8.0% for the three month period ended July 4, 1999, an increase of 0.5% from the
three month period ended June 28, 1998 and 8.0% for the six months ended July 4,
1999, an increase of 0.7% from the six month period ended June 28, 1998.
Marketing and promotional expenses were $1.5 million, an increase of $0.3
million, for the three month period ended July 4, 1999 and $2.9 million, an
increase of $0.5 million, for the six month period ended July 4, 1999. Such
costs as a percentage of revenues were 3.1% for the three month period ended
July 4, 1999, an increase of 0.4% from the three month period ended June 28,
1998 and 2.9% for the six month period ended July 4, 1999, an increase of 0.3%
from the comparable 1998 period.
Interest expense, net of interest income, increased to $1.1 million for
the three month period ended July 4, 1999 from $0.6 million for the three month
period ended June 28, 1998. For the six month periods ended July 4, 1999 and
June 28, 1998, interest expense was $2.0 million and $1.2 million, respectively.
The increase in interest expense was due to increased borrowings.
Income tax expense of $1.8 million for the six month period ended July 4,
1999 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 1999, 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 are used for
noncurrent capital expenditures and or payments of long-term debt balances under
revolving credit agreements.
The Company and BankBoston, N.A. ("BBNA") 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 (the "Credit Agreement"), pursuant to which the
Company's credit facility (the "Credit Facility") is $75,000,000, consisting of
a $25,000,000 term loan (the "Term Loan") and a $50,000,000 revolving credit
facility (the "Revolving Credit"). The final maturity date of the Term Loan and
Revolving Credit is December 31, 2004. 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 July 4, 1999, the Company's applicable margin, calculated
pursuant to the Credit Agreement, was 0.00% on base
10
rate loans and 1.75% on Eurodollar Rate loans. BBNA has syndicated portions of
the Credit Facility to First Union Corporation and Imperial Bank.
As of July 4, 1999 and January 3, 1999, the Company had outstanding
borrowings of $35,875,000 and $29,475,000, respectively, under the Credit
Agreement. At July 4, 1999, $185,000 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 $38,940,000 and the weighted
average interest rate on all borrowings under the Credit Facility was 7.1%. 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.
Availability under the Credit Agreement is scheduled to reduce on March
31, 2000. Quarterly principal installments on the Term Loan of $250,000 will be
due at the end of each calendar quarter from March 31, 2000 through December 31,
2002, $2,500,000 from March 31, 2003 through December 31, 2003 and $3,000,000
from March 31, 2004 through December 31, 2004. The Revolving Credit will be
payable in full on December 31, 2004. 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 July 4, 1999 amount to $0 in 1999, $1,000,000 in 2000,
$1,000,000 in 2001, $1,000,000 in 2002 and $10,000,000 in 2003. The borrowings
under the Credit Agreement have been classified as non-current on the Company's
consolidated balance sheet since the Company may borrow amounts due under the
Term Loan from the Revolving Credit, including the Term Loan principal payments
commencing in March 2000.
The Credit Agreement, among other things, contains certain restrictive
covenants with respect to the Company that 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 certain investments; (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 July 4, 1999, the
Company believes it was in compliance with such covenants.
On April 7, 1998 and May 29, 1998, the Company entered into interest rate
swap agreements with BBNA on notional amounts of $10,000,000 each. The terms of
the agreements are for three years and may be extended for an additional two
years at the option of BBNA.
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. At July 4, 1999, the
outstanding principal balance of the CNL loan was approximately $2,132,000, of
which approximately $192,000 is payable within the next fiscal year and
therefore has been included in "Current portion of obligations to financial
institutions and capital leases" in the accompanying consolidated balance sheet
as of July 4, 1999.
During 1998, various subsidiaries of the Company and FFCA Acquisition
Corporation ("FFCA") entered into loan commitments, aggregating $12,000,000, to
fund the purchases of land and the construction for four restaurants. During
1998, $5,315,000 was funded, and during 1999 $4,757,000 was funded, with the
interest rates ranging from 7.68% to 8.06% per annum. During the remainder of
1999 an additional $1,928,000 is expected to be funded. Monthly principal and
interest payments are scheduled over twenty-year periods. At July 4, 1999, the
aggregate outstanding principal balance due to FFCA was approximately
$9,998,000, of which approximately $198,000 of principal is payable within the
next fiscal year and therefore has been included in
11
"Current portion of obligations to financial institutions and capital leases" in
the accompanying consolidated balance sheet for the period ended July 4, 1999.
During the first six months of fiscal 1999, the Company's net investment
in fixed assets and related investment costs, net of capitalized leases
approximated $2.9 million. The Company estimates that it will expend up to an
aggregate of $12.0 million in 1999 to finance ordinary refurbishment of existing
restaurants and capital expenditures, net of landlord development and rent
allowances and net of equipment lease and mortgage financing, for new
restaurants. The Company has entered into various equipment lease and mortgage
financing agreements with several financial institutions of which approximately
$9.9 million in the aggregate is available for future fundings. The Company
anticipates that funds generated through operations and funds available through
equipment lease and mortgage financing commitments as well as funds available
under the Credit Agreement will be sufficient to fund planned expansion.
New Accounting Pronouncement
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("Statement
133"), was issued which is effective for fiscal years beginning after June 15,
2000. Statement 133 standardizes the accounting for derivative instruments and
requires that all derivative instruments be carried at fair value. The Company
has not determined the impact that Statement 133 will have on its financial
statements and believes that such determination will not be meaningful until
closer to the date of initial adoption in January 2001.
Year 2000
The Company has instituted a company wide initiative to examine the
implications of the Year 2000 on the Company's computer systems and applications
to ensure that the Company's computer systems will function properly in the Year
2000 and thereafter. The Company's Year 2000 project is substantially complete
with continuous re-testing to be performed until the end of the year. The
Company believes that the Year 2000 issue will not pose significant operational
problems for its computer systems. The Company has also initiated communications
with suppliers and other third parties with which it has a business relationship
regarding compliance with Year 2000 requirements. Where practicable, the Company
will assess and attempt to mitigate its risks with respect to the failure of
these entities to be Year 2000 compliant. The effect, if any, on the Company's
results of operations from the failure of such parties to be Year 2000 compliant
is not reasonably estimable. Management currently believes that the costs
related to the Company's compliance with the Year 2000 issue should not have a
material adverse effect on its consolidated financial position, results of
operations or cash flows. While the Company has developed plans to test its
business critical computer systems prior to the Year 2000, there can be no
assurance that the systems of other parties upon which the Company's business
also relies will be Year 2000 compliant on a timely basis.
Forward-Looking Statements
This Form 10-Q contains various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Forward-looking
statements, written, oral or otherwise made, represent the Company's expectation
or belief concerning future events. Without limiting the foregoing, the words
"believes," "thinks," "anticipates," "plans," "expects," and similar expressions
are intended to identify forward-looking statements. The Company cautions that
these statements are further qualified by important economic and competitive
factors that could cause actual results to differ materially, or otherwise, from
those in the forward-looking statements, including, without limitation, risks of
the restaurant industry, including a highly competitive environment and industry
with many well-established competitors with greater financial and
12
other resources than the Company, and the impact of changes in consumer tastes,
local, regional and national economic and market conditions, restaurant
profitability levels, expansion plans, demographic trends, traffic patterns,
employee availability and benefits, cost increases, and other risks detailed
from time to time in the Company's periodic earnings releases and reports filed
with the Securities and Exchange Commission. In addition, the Company's ability
to expand is dependent upon various factors, such as the availability of
attractive sites for new restaurants, the ability to negotiate suitable lease
terms, the ability to generate or borrow funds to develop new restaurants and
obtain various government permits and licenses and the recruitment and training
of skilled management and restaurant employees. Accordingly, such
forward-looking statements do not purport to be predictions of future events or
circumstances and therefore there can be no assurance that any forward-looking
statement contained herein will prove to be accurate.
13
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
An employee (Plaintiff) of a subsidiary of the Company, initiated legal
action against Morton's of Chicago, Quantum Corporation and unnamed "Doe"
defendants on February 8, 1996 in California Superior Court in San Francisco.
Plaintiff's, Ms. Wendy Kirkland, complaint alleged under California law, among
other things, wrongful constructive termination, sex discrimination and sexual
harassment. Plaintiff sought general, special, and punitive damages in
unspecified amounts, as well as attorneys' fees and costs. The case was
subsequently removed to the US District Court for the Northern District of
California. By order dated October 14, 1997, the Court granted Plaintiff's
motion for partial summary judgment, finding that an employer is strictly liable
under California law for the sexually harassing conduct of the employer's
supervisory employees. On November 25, 1997, a jury in the U.S. District Court
for the Northern District of California awarded a judgment to the Plaintiff. In
conjunction with the judgment, the Company recorded a 1997 fourth quarter
nonrecurring, pre-tax charge of $2,300,000, representing compensatory damages of
$250,000 (reduced by the Court to $150,000 in fiscal 1998), punitive damages of
$850,000, and an estimate of the Plaintiff's and the Company's legal fees and
expenses. The Company filed an appeal and on July 12, 1999, settled all claims
relating to the lawsuit. The amount of the final settlement, including all
related legal and other costs, will not result in an adverse impact on the
Company's results of operations or financial position.
During fiscal 1998, the Company identified several nonperforming
Bertolini's restaurants and authorized a plan for the closure or abandonment of
specified restaurants which have all been closed. The Company is involved in
various legal actions relating to such closures, however, the Company does not
believe that the ultimate resolution of these actions will have a material
effect beyond that recorded during fiscal 1998. See Note 3 to the Company's
consolidated financial statements.
The Company is involved in other 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(o) Eleventh Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 20,
1999 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
10.17 Promissory Note, dated June 30, 1999, among FFCA
Acquisition Corporation and Morton's of
Chicago/Schaumburg LLC, a subsidiary of the registrant.
27.0 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 16, 1999
By: /s/ ALLEN J. BERNSTEIN
----------------------------------
Allen J. Bernstein
Chairman of the Board, President
and Chief Executive Officer
Date August 16, 1999 By: /s/ THOMAS J. BALDWIN
----------------------------------
Thomas J. Baldwin
Executive Vice President,
Chief Financial Officer and
Director
15
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report.
Exhibit
Number Page Document
- ------ ---- --------
4.04(o) Eleventh Amendment to the Second Amended and Restated
Revolving Credit and Term Loan Agreement, dated May 20,
1999 among the Registrant, Peasant Holding Corp.,
Morton's of Chicago, Inc. and BankBoston, N.A.,
individually and as agent.
10.17 Promissory Note, dated June 30, 1999, among FFCA
Acquisition Corporation and Morton's of
Chicago/Schaumburg LLC, a subsidiary of the registrant.
27.0 Financial Data Schedule
16