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 September 28, 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 of (I.R.S. employer identification no.)
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 November 3, 1997, the registrant had 6,538,940 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 September 28, 1997
and December 29, 1996................................................ 3-4
Consolidated Statements of Income for the three and
nine month periods ended September 28, 1997 and
September 29, 1996................................................... 5
Consolidated Statements of Cash Flows for the nine
month periods ended September 28, 1997 and
September 29, 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.............................. 14-15
Signatures............................................................. 16
2
ITEM 1. FINANCIAL STATEMENTS
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
SEPTEMBER 28, DECEMBER 29,
1997 1996
--------------- ------------
(UNAUDITED)
Assets
Current assets:
Cash and cash equivalents................. $2,252 $2,276
Accounts receivable....................... 2,766 2,116
Inventories............................... 4,624 4,254
Landlord construction receivables,
prepaid expenses and other current
assets.................................. 2,278 2,408
Deferred income taxes..................... 4,634 3,808
Assets held for sale...................... 199 12,474
------------ ------------
Total current assets.................... 16,753 27,336
Property and equipment, at cost:
Furniture, fixtures and equipment......... 17,010 13,552
Leasehold improvements.................... 17,662 14,188
Construction in progress.................. 2,065 1,284
------------ ------------
36,737 29,024
Less accumulated depreciation and
amortization........................... 5,871 4,353
------------ ------------
Net property and equipment.............. 30,866 24,671
------------ ------------
Intangible assets, net of accumulated
amortization of $3,357 at September 28,
1997 and $3,054 at December 29, 1996...... 12,638 12,941
Other assets and deferred expenses, net of
accumulated amortization of $3,631 at
September 28, 1997 and $3,963 at
December 29, 1996......................... 11,701 5,909
Deferred income taxes....................... 4,020 6,129
------------ ------------
$75,978 $76,986
------------ ------------
------------ ------------
(Continued)
3
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(amounts in thousands, except share data)
SEPTEMBER 28, DECEMBER 29,
1997 1996
--------------- ------------
(UNAUDITED)
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.......................... $5,823 $4,694
Accrued expenses.......................... 7,888 7,795
Accrued income taxes...................... 315 700
Liabilities related to assets held for
sale................................... 1,684 12,134
------------ ------------
Total current liabilities............... 15,710 25,323
Bank debt................................... 27,276 24,900
Other liabilities........................... 6,687 5,676
------------ ------------
Total liabilities....................... 49,673 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 6,528,815 shares at September
28, 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................ 62,102 61,632
Accumulated deficit....................... (35,862) (40,609)
------------ ------------
Total stockholders' equity........... 26,305 21,087
------------ ------------
$75,978 $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 NINE MONTHS ENDED
-------------------- ----------------------
SEPT. 28, SEPT. 29, SEPT. 28, SEPT. 29,
1997 1996 1997 1996
--------- --------- ---------- ----------
(UNAUDITED) (UNAUDITED)
Revenues........................................................... $ 37,461 $ 45,459 $ 125,056 $ 140,804
Food and beverage costs............................................ 12,787 15,201 42,958 47,112
Restaurant operating expenses...................................... 17,680 22,834 55,860 69,070
Depreciation, amortization and other non-cash charges.............. 1,410 1,657 5,324 4,557
General and administrative expenses................................ 2,993 3,352 9,885 10,598
Marketing and promotional expenses................................. 846 1,057 2,928 3,209
Interest expense, net.............................................. 564 557 1,772 1,701
--------- --------- ---------- ----------
Income before income taxes.................................... 1,181 801 6,329 4,557
Income tax expense................................................. 295 200 1,582 1,140
--------- --------- ---------- ----------
Net income.................................................... $ 886 $ 601 $ 4,747 $ 3,417
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Net income per share............................................... $ 0.13 $ 0.09 $ 0.69 $ 0.50
--------- --------- ---------- ----------
--------- --------- ---------- ----------
Weighted average shares outstanding................................ 6,949 6,827 6,878 6,793
--------- --------- ---------- ----------
--------- --------- ---------- ----------
See accompanying notes to consolidated financial statements.
5
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
NINE MONTHS ENDED
------------------------
SEPT. 28, SEPT. 29,
1997 1996
----------- -----------
(UNAUDITED)
Cash flows from operating activities:
Net income.............................................................................. $ 4,747 $ 3,417
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and other non-cash charges................................... 5,324 4,557
Deferred income taxes................................................................... 1,283 --
Change in assets and liabilities:
Accounts receivable................................................................ (650) 379
Inventories........................................................................ (370) (202)
Prepaid expenses and other assets.................................................. (3,090) (67)
Accounts payable, accrued expenses and other liabilities........................... (3,157) (5,855)
Accrued income taxes............................................................... (385) (52)
----------- -----------
Net cash provided by operating activities..................................... 3,702 2,177
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment, net................................................ (6,144) (2,930)
Payments for start-up costs, licenses and other deferred expenses....................... (4,896) (3,733)
Proceeds from sale of Mick's and Peasant restaurants.................................... 4,308 --
----------- -----------
Net cash used by investing activities......................................... (6,732) (6,663)
----------- -----------
Cash flows from financing activities:
Principal reduction on bank debt........................................................ (7,665) (2,250)
Proceeds from bank debt................................................................. 10,200 6,000
Payments on note payable to related party............................................... -- (483)
Net proceeds from issuance of stock..................................................... 471 122
----------- -----------
Net cash provided by financing activities..................................... 3,006 3,389
----------- -----------
Net decrease in cash and cash equivalents.................................................... (24) (1,097)
Cash and cash equivalents at beginning of period............................................. 2,276 2,351
----------- -----------
Cash and cash equivalents at end of period................................................... $ 2,252 $ 1,254
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
6
MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 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 $1,398,000 and $1,563,000,
and income taxes of approximately $954,000 and $800,000, for the nine months
ended September 28, 1997 and September 29, 1996, respectively. During the
first nine months of fiscal 1997 and 1996, the Company entered into capital
lease arrangements of approximately $1,569,000 and $2,445,000, 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
SEPTEMBER 28, DECEMBER 29,
1997 (1) 1996
------------- ------------
(AMOUNTS IN THOUSANDS,
UNAUDITED)
Current assets................................................................. $ 199 $ 2,166
Net property and equipment..................................................... 1,317 10,704
Unamortized goodwill........................................................... -- 8,077
Other assets................................................................... 466 2,143
Write-down of carrying values.................................................. (1,783) (10,616)
------------- ------------
Assets held for sale...................................................... 199 12,474
------------- ------------
Current liabilities............................................................ 304 3,495
Other liabilities.............................................................. -- 1,612
Lease exit and other transaction costs......................................... 1,380 7,027
------------- ------------
Liabilities related to assets held for sale............................... 1,684 12,134
------------- ------------
Net assets(liabilities related to assets) held for sale................. $ (1,485) $ 340
------------- ------------
------------- ------------
- ------------------------
(1) Includes the three remaining non-Atlanta Mick's restaurants.
The following represents the combined results of Mick's and Peasant for the
periods ended September 28, 1997 and September 29, 1996. Interest expense was
not allocated.
NINE MONTHS ENDED
----------------------------
SEPT. 28, SEPT. 29,
1997 (2) 1996
------------- -------------
(AMOUNTS IN THOUSANDS,
UNAUDITED)
Revenues............................................................................ $ 7,981 $ 41,839
Food and beverage costs............................................................. 2,407 12,293
Restaurant operating expense........................................................ 4,841 26,089
Depreciation, amortization and other non-cash charges............................... 6 138
General and administrative expenses................................................. 529 2,935
Marketing and promotional expenses.................................................. 138 778
------ -------------
Income (loss) before income taxes................................................... $ 60 $ (394)
------ -------------
------ -------------
- ------------------------
(2) Includes the Atlanta-based Mick's and Peasant restaurants through
February 6, 1997, the date of sale, as discussed below, two non-Atlanta Mick's
restaurants one of which was closed in June 1997 and the other in July 1997,
and the three 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 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,
8
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 nine months of
1997, restaurant occupancy expense of approximately $1,498,000 and $1,201,000
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, one Mick's was closed
in July 1997, and another was closed in October 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 October 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.) On September 18, 1997, the Company and William L. Hyde, Jr., the former
President and Chief Operating Officer, executed a Termination and Release
Agreement whereby Mr. Hyde's employment with the Company terminated.
5.) 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 $8.0 million, or 17.6%, to $37.5 million for the three
month period ended September 28, 1997, from $45.5 million for the comparable
1996 period. Revenues from Morton's and Bertolini's increased $4.6 million,
or 14.3%, to $36.7 million for the three month period ended September 28,
1997, from $32.1 million during the comparable 1996 period. Of the increase
in Morton's and Bertolini's revenues, $3.3 million was attributable to
incremental restaurant revenues from ten new restaurants opened after January
1, 1996 and $1.1 million, or 3.9%, was attributable to additional comparable
revenues from restaurants open all of both periods. Included in 1997 three
month revenues is approximately $0.2 million of consulting fee income.
Average Morton's and Bertolini's revenues per restaurant open for a full
period increased 1.6%.
Revenues decreased $15.7 million, or 11.2%, to $125.1 million for the
nine month period ended September 28, 1997, from $140.8 million for the
comparable 1996 period. Revenues from Morton's and Bertolini's increased
$18.1 million, or 18.3%, to $117.1 million for the nine month period ended
September 28, 1997, from $99.0 million for the comparable 1996 period. Of the
increase in Morton's and Bertolini's revenues, $12.6 million was attributable
to incremental restaurant revenues from ten new restaurants opened after
January 1, 1996 and $4.9 million, or 5.4%, 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 6.1%. Included in 1997 nine month revenues is approximately $0.5
million of investment income and $0.2 million of consulting fee 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 $12.6 million and
$33.9 million in the three and nine month periods ended September 28, 1997,
respectively, versus the comparable periods of 1996. As of October 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
nine month periods ended September 28, 1997 versus September 29, 1996 for
restaurants open all of both periods are as follows:
THREE MONTHS NINE MONTHS
ENDED SEPT. 28, 1997 ENDED SEPT. 28, 1997
PERCENTAGE CHANGE PERCENTAGE CHANGE
----------------------- -----------------------
Morton's.............. 3.2% 6.4%
Bertolini's........... 6.8% 0.7%
Total................. 3.9% 5.4%
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 $15.2 million for the three month
period ended September 29, 1996 to $12.8 million for the three month period
ended September 28, 1997 and decreased from $47.1 million for the nine month
period ended September 29, 1996 to $43.0 million for the nine month period
ended September 28, 1997. Food and beverage costs, excluding all Mick's and
Peasant restaurants, increased by $1.2 million to $12.5 million for the three
month period ended September 28, 1997 from $11.3 million recorded for the
three month period ended September 29, 1996 and increased by $5.7 million to
$40.5 million for the nine month period ended September 28, 1997, from $34.8
million for the comparable 1996 period. These costs as a percentage of
related revenues decreased 1.0% and 0.6% for the three and nine month
periods, respectively. 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 $3.6 million and $9.9 million in the three
and nine month periods ended September 28, 1997, respectively.
Restaurant operating expenses which include labor, occupancy and other
operating expenses decreased from $22.8 million for the three month period
ended September 29, 1996 to $17.7 million for the three month period ended
September 28, 1997, a decrease of $5.1 million. For the nine months ended
September 28, 1997, these costs decreased from $69.1 million during the 1996
period, to $55.9 million for the comparable 1997 period. Restaurant operating
expenses, excluding all Mick's and Peasant restaurants, increased from $14.7
million for the three month period ended September 29, 1996 to $17.2 million
for the comparable 1997 period and increased from $43.0 million for the nine
month period ended September 29, 1996 to $51.0 million for the comparable 1997
period. Those costs, excluding Mick's and Peasant, as a percentage of
revenues increased 1.0% from 45.8% for the three month period ended September
29, 1996 to 46.8% for the three month period ended September 28, 1997 and
increased 0.2% from 43.4% for the nine month period ended September 29, 1996
to 43.6% for the comparable 1997 period. Offsetting the increase in total
restaurant operating expenses was a reduction of approximately $7.6 million
and $21.2 million during the three and nine month periods ended September 28,
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 decreased from $1.7
million for the three month period ended September 29, 1996 to $1.4 million
for the three month period ended September 28, 1997 and increased from 3.6%
of revenues to 3.8%, respectively. For the nine months ended September 28,
1997, such costs were $5.3 million versus $4.6 million for the comparable
1996 period. The 1997 period increase is due to increased start-up
amortization. Start-up costs associated with the opening of new restaurants
are amortized over the 12 months following opening. The timing of restaurant
openings affects the amount of such costs amortized.
General and administrative expenses for the three month period ended
September 28, 1997 were $3.0 million, a decrease of $0.4 million, from $3.4
million for the three month period ended September 29, 1996. For the nine
months ended September 28, 1997, such costs were $9.9 million versus $10.6
million for the comparable 1996 period. General and administrative expenses,
excluding all Mick's and Peasant restaurants, increased $0.4 million from
$2.5 million for the three month period ended September 29, 1996 to $2.9
million for the comparable 1997 period and increased $1.7 million from $7.7
million for the nine month period ended September 29, 1996, to $9.4 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 September
28, 1997, an increase of 0.3% from the three month period ended September 29,
1996 and 8.0% for the nine months ended September 28, 1997, an increase of
0.3% from the nine months ended September 29, 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 $0.8 million and $2.4 million during the
three and nine month periods ended September 28, 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 $0.8 million for the three month
period ended September 28, 1997 versus $1.0 million for the comparable 1996
period and $3.0 million for the nine month period ended September 28, 1997
versus $3.2 million for the comparable nine month period ended September 29,
1996. Marketing and promotional expenses, excluding Mick's and Peasant, were
$0.8 million, or 2.3% of revenues for the three months ended September 28,
1997, as compared to $0.8 million, or 2.6% of revenues, for the comparable
1996 period and were $2.8 million, or 2.4% of revenues for the nine months
ended September 28, 1997, as compared to $2.4 million, or 2.5% 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 $0.2 million and $0.6 million
during the three and nine month periods ended September 28, 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 September 28, 1997 and September
29, 1996. For the nine month period ended September 28, 1997, interest
expense was $1.8 million, versus $1.7 million for the comparable 1996 period.
Income tax expense of $1.6 million for the nine month period ended
September 28, 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 September 28, 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 September 28, 1997 and December 29, 1996, the Company had
outstanding borrowings of $25,000,000 and $24,900,000, respectively, under
the Credit Agreement. At September 28, 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
$7,279,000. The weighted average interest rate on all bank borrowings on
September 28, 1997 was 7.79%. 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 September 28, 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 $14,000,000 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 September 28,
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
September 28, 1997, the outstanding principal balance of the CNL Loan was
approximately $2,435,000, of which approximately $159,000 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 September
28, 1997.
During the first nine months of fiscal 1997, the Company's net investment
in fixed assets and related investment costs, net of capitalized leases,
approximated $11.0 million. The Company estimates that it will expend up to
an aggregate of $13.8 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 $9.9 million in the aggregate has been funded from
February 1994 through October 1997 and $8.0 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
certain risks and uncertainties, including but not limited to, general
economic conditions, competitive activities, the Company's expansion plans
and restaurant profitability levels and other matters identified from time to
time in the Company's public reports and SEC filings. Actual results may vary.
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 and for the
County of San Francisco. Plaintiff's, Ms. Wendy Kirkland, complaint alleged
wrongful constructive termination in breach of an implied employment
agreement, breach of an implied covenant of good faith and fair dealing,
wrongful constructive termination in violation of public policy prohibiting
sex discrimination in employment, sex discrimination and sexual harassment in
violation of the California Fair Employment and Housing Act ("FEHA"),
intentional and negligent infliction of emotional distress, and failure to
pay wages timely on termination as required by the California Labor Code.
Plaintiff seeks general, special, and punitive damages in unspecified
amounts, as well as attorneys' fees and costs. The Company answered the
complaint in the California Superior Court on April 15, 1996, and
subsequently removed the case to the United States District Court for the
Northern District of California on June 24, 1996. On February 7, 1997, the
court dismissed the complaint as to Quantum Corporation and any of its
successors. On August 8, 1997, Plaintiff filed a motion for partial summary
judgment, seeking an order finding Morton's liable for sexual harassment
under California's FEHA as a matter of law. By order dated October 14, 1997,
the Court granted Plaintiff's motion, finding that an employer is strictly
liable under California law for the sexually harassing conduct of the
employer's supervisory employees. At a pretrial conference on October 14,
1997, Plaintiff stipulated to the dismissal of her claims for breach of an
employment agreement, breach of the covenant of good faith and fair dealing,
and intentional and negligent infliction of emotional distress. Trial is
scheduled to commence on November 6, 1997 as to the remaining issues in the
case, which are: damages on Plaintiff's sexual harassment claim, and
liability as well as damages on Plaintiff's claims for retaliation,
constructive termination, and failure to pay wages timely on termination in
violation of the California Labor Code. Because of the summary disposition
with regard to the sexual harassment claim, Plaintiff would be entitled to
recover attorney's fees and costs. Management does not expect the ultimate
outcome of this action to have a material adverse effect on the Company's
consolidated financial position, equity, liquidity and capital resources,
although a settlement, judgment or material damages award against the Company
could materially adversely affect the Company's results of operations in the
year in which it occurred.
The Company is also 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.
10.15 Termination and Release Agreement, dated September 18, 1997
between the Registrant and William L. Hyde, Jr.
14
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.
15
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 November 4, 1997
------------------
By: /s/ Allen J. Bernstein
---------------------------------
Allen J. Bernstein
Chairman of the Board, Chief Executive Officer
and President
Date November 4, 1997
------------------ BY: /s/ Thomas J. Baldwin
-------------------------------
Thomas J. Baldwin
Executive Vice President
and Chief Financial Officer
16
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report.
EXHIBIT
NUMBER PAGE DOCUMENT
- ------- ---- ------------------------------------------
10.15 Termination and Release Agreement, dated September 18, 1997
between the Registrant and William L. Hyde, Jr.
27.00 Financial Data Schedule