-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PXqrOSj2GO3LtrzeIkklZCHh+RKLh8noUO6h3D1Tjgpy8BpwfwuI1m5L2FY7X+FE VwlvtZeQV8fV/cA5BqSvFw== /in/edgar/work/20000814/0000912057-00-037235/0000912057-00-037235.txt : 20000921 0000912057-00-037235.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037235 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000702 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORTONS RESTAURANT GROUP INC CENTRAL INDEX KEY: 0000883981 STANDARD INDUSTRIAL CLASSIFICATION: [5812 ] IRS NUMBER: 133490149 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12692 FILM NUMBER: 698556 BUSINESS ADDRESS: STREET 1: 3333 NEW HYDE PK RD STE 210 CITY: NEW HYDE PARK STATE: NY ZIP: 11042 BUSINESS PHONE: 5166271515 MAIL ADDRESS: STREET 1: 3333 NEW HYDE PARK ROAD STREET 2: SUITE 210 CITY: NEW HYDE PARK STATE: NY ZIP: 11042 FORMER COMPANY: FORMER CONFORMED NAME: QUANTUM RESTAURANTS GROUP INC DATE OF NAME CHANGE: 19950315 10-Q 1 a10-q.txt FORM 10-Q 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 2, 2000 ------------------------------------------------- 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 incorporation or organization) identification no.) 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 8, 2000, the registrant had 4,396,068 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 2, 2000 and January 2, 2000 3-4 Consolidated Statements of Income for the three and six month periods ended July 2, 2000 and July 4, 1999 5 Consolidated Statements of Cash Flows for the six month periods ended July 2, 2000 and July 4, 1999 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 15 Signatures 16
2 Item 1. Financial Statements MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands)
JULY 2, JANUARY 2, 2000 2000 ---- ---- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 2,227 $ 5,806 Accounts receivable 1,151 1,093 Inventories 6,691 7,134 Landlord construction receivables, prepaid expenses and other current assets 4,244 2,724 Deferred income taxes 6,194 5,699 --------- --------- Total current assets 20,507 22,456 --------- --------- Property and equipment, at cost: Furniture, fixtures and equipment 32,063 30,696 Leasehold improvements 40,707 38,002 Land 6,236 6,236 Construction in progress 4,129 2,281 --------- --------- 83,135 77,215 Less accumulated depreciation and amortization 14,199 10,500 --------- --------- Net property and equipment 68,936 66,715 --------- --------- Intangible assets, net of accumulated amortization of $4,498 at July 2, 2000 and $4,286 at January 2, 2000 11,497 11,709 Other assets and deferred expenses, net of accumulated amortization of $628 at July 2, 2000 and $698 at January 2, 2000 5,982 5,970 Deferred income taxes 5,615 7,511 --------- --------- $112,537 $114,361 ========= =========
(Continued) 3 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued (amounts in thousands, except share data)
JULY 2, JANUARY 2, 2000 2000 ---- ---- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable $ 5,291 $ 7,870 Accrued expenses 19,761 22,036 Current portion of obligations to financial institutions and capital leases 4,542 4,422 Accrued income taxes 269 140 --------- --------- Total current liabilities 29,863 34,468 Obligations to financial institutions and capital leases, less current maturities 75,794 60,970 Other liabilities 5,768 6,855 --------- --------- Total liabilities 111,425 102,293 -------- -------- 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 6,760,825 shares at July 2, 2000 and 6,758,200 shares at January 2, 2000 68 68 Nonvoting common stock, $.01 par value per share. Authorized 3,000,000 shares, no shares issued or outstanding - - Additional paid-in capital 62,877 62,849 Accumulated other comprehensive income (loss) (93) (79) Accumulated deficit (21,986) (27,146) Less Treasury stock at cost, 2,288,143 shares at July 2, 2000 and 1,381,190 shares at January 2, 2000 (39,754) (23,624) --------- --------- Total stockholders' equity 1,112 12,068 --------- --------- $ 112,537 $ 114,361 ========= =========
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 2, JULY 4, JULY 2, JULY 4, 2000 1999 2000 1999 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) Revenues $ 58,600 $ 48,775 $ 122,195 $101,522 Food and beverage costs 19,603 16,520 41,025 34,640 Restaurant operating expenses 25,150 21,593 51,503 44,019 Pre-opening costs, depreciation, amortization and non-cash charges 2,939 1,165 6,019 2,721 General and administrative expenses 4,872 3,880 9,930 8,109 Marketing and promotional expenses 1,669 1,514 3,545 2,941 Interest expense, net 1,354 1,071 2,802 1,981 ------- ------- ------- ------- Income before income taxes and cumulative effect of a change in an accounting principle 3,013 3,032 7,371 7,111 Income tax expense 904 758 2,211 1,778 ------- ------- ------- ------- Income before cumulative effect of a change in an accounting principle 2,109 2,274 5,160 5,333 Cumulative effect of a change in an accounting principle, net of income tax benefit of $1,357 - - - 2,281 -------- -------- -------- ------- Net income $ 2,109 $ 2,274 $ 5,160 $ 3,052 ======== ======== ======== ======== Net income per share - basic: Before cumulative effect of a change in an accounting principle $ 0.45 $ 0.38 $ 1.05 $ 0.86 Cumulative effect of a change in an accounting principle - - - (0.37) -------- --------- -------- --------- Net income $ 0.45 $ 0.38 $ 1.05 $ 0.49 ======== ========= ======== ========= Net income per share - diluted: Before cumulative effect of a change in an accounting principle $ 0.43 $ 0.37 $ 1.02 $ 0.84 Cumulative effect of a change in an accounting principle - - - (0.36) -------- --------- -------- --------- Net income $ 0.43 $ 0.37 $ 1.02 $ 0.48 ======== ========= ======== ========= Weighted average common and potential common shares outstanding: Basic 4,698 6,037 4,896 6,195 ======== ========= ======== ========= Diluted 4,878 6,163 5,055 6,352 ======== ========= ======== =========
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 2, JULY 4, 2000 1999 ---- ---- (UNAUDITED) Cash flows from operating activities: Net income $ 5,160 $ 3,052 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 4,410 2,093 Deferred income taxes 1,401 1,193 Change in assets and liabilities: Accounts receivable (62) 127 Inventories 435 258 Prepaid expenses and other assets (1,564) 118 Accounts payable, accrued expenses and other liabilities (5,381) (6,649) Accrued income taxes 129 (152) -------- ------- Net cash provided by operating activities 4,528 2,321 -------- ------- Cash flows from investing activities: Purchases of property and equipment (5,248) (2,227) -------- -------- Net cash used by investing activities (5,248) (2,227) -------- -------- Cash flows from financing activities: Principal reduction on obligations to financial institutions (6,520) (3,987) Proceeds from obligations to financial institutions 19,777 14,958 Purchases of treasury stock (16,130) (11,060) Net proceeds from issuance of stock 28 59 ---------- -------- Net cash used by financing activities (2,845) (30) -------- -------- Effect of exchange rate changes on cash (14) 44 ---------- -------- Net (decrease) increase in cash and cash equivalents (3,579) 108 Cash and cash equivalents at beginning of period 5,806 2,117 -------- ------- Cash and cash equivalents at end of period $ 2,227 $ 2,225 ======== =======
See accompanying notes to consolidated financial statements. 6 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements July 2, 2000 and July 4, 1999 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 2, 2000 filed by the Company on Form 10-K with the Securities and Exchange Commission on March 31, 2000. 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. The Company uses a fiscal year which consists of 52 weeks. 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 $2,622,000 and $1,671,000, and income taxes of approximately $736,000 and $706,000, for the six months ended July 2, 2000 and July 4, 1999, respectively. During the first six months of fiscal 2000 and 1999, the Company entered into capital lease arrangements for approximately $1,715,248 and $2,057,000, respectively, for restaurant equipment. 3) Based on a strategic assessment of 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 2, 2000 and January 2, 2000, included in "Accrued expenses" in the accompanying consolidated balance sheets is approximately $2,402,729 and $2,582,000 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 based upon future operating results. One such underperforming restaurant was closed in September 1999. (See "Part II - Other Information, Item 1. Legal Proceedings".) 7 4) Beginning in fiscal 1999, in accordance with its adoption of Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of Start-up Activities", the Company expenses all costs incurred during start-up activities, including pre-opening costs, as incurred. In connection with the adoption, the Company recorded a charge for the cumulative effect of an accounting change of approximately $2,281,000, net of income tax benefits of approximately $1,357,000 in the first quarter of fiscal 1999. 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 2, 2000 and July 4, 1999 are as follows: JULY 2, 2000 JULY 4, 1999 ------------ ------------ (amounts in thousands) Net income $ 5,160 $ 3,052 Other comprehensive income (loss): Foreign currency translation (14) (5) --------- ---------- Total comprehensive income $ 5,146 $ 3,047 ========= ========== 6) Effective April 3, 2000, the Company changed the estimated useful lives for depreciation of computer equipment and software, from periods ranging from three to ten years to periods ranging from three to five years, so as to more accurately reflect the relative replacement periods. As a result of such change, the quarter ended July 2, 2000 included approximately $48,000 of additional depreciation expense. 7) 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 $9.8 million, or 20.1%, to $58.6 million for the three month period ended July 2, 2000, from $48.8 million during the comparable 1999 period. Of the increase in revenues, $7.0 million was attributable to incremental restaurant revenues from nine new restaurants opened after January 4, 1999 and $3.7 million, or 8.3%, was attributable to additional comparable revenues from restaurants open all of both periods. Revenues for the five closed Bertolini's restaurants (see Note 3) decreased by $0.9 million compared to the second quarter of fiscal 1999. Average revenue per restaurant open for a full period increased 9.7% for the quarter ended July 2, 2000. Higher revenues for the second quarter of fiscal 2000 reflect the impact of price increases of approximately 1% in each of September 1999, February 2000, and May 2000. Revenues increased $20.7 million, or 20.4%, to $122.2 million for the six month period ended July 2, 2000, from $101.5 million for the comparable 1999 period. Of the increase in revenues, $13.6 million was attributable to incremental restaurant revenues from nine new restaurants opened after January 4, 1999 and $9.0 million, or 9.4%, was attributable to additional comparable revenues from restaurants open all of both periods. Revenues for the five closed Bertolini's restaurants (see Note 3) decreased by $1.9 million compared to the first six months of fiscal 1999. Average revenue per restaurant open for a full period increased 10.9% for the six months ended July 2, 2000. Higher revenues for the first six months of fiscal 2000 reflect the impact of price increases of approximately 1% in each of September 1999, February 2000, and in May 2000. Percentage changes in comparable restaurant revenues for the three and six month periods ended July 2, 2000 versus July 4, 1999 for restaurants open all of both periods are as follows: THREE MONTHS SIX MONTHS ENDED JULY 2, 2000 ENDED JULY 2, 2000 PERCENTAGE CHANGE PERCENTAGE CHANGE ------------------ ------------------- Morton's 9.9% 11.2% Bertolini's -1.9% -2.1% Total 8.3% 9.4% Food and beverage costs increased from $16.5 million for the three month period ended July 4, 1999 to $19.6 million for the three month period ended July 2, 2000 and increased from $34.6 million for the six month period ended July 4, 1999 to $41.0 million for the six month period ended July 2, 2000. These costs as a percentage of revenues decreased from 33.9% for the three month period ended July 4, 1999 to 33.5% for the comparable 2000 period and decreased from 34.1% for the six month period ended July 2, 2000 to 33.6% for the comparable 2000 period. Restaurant operating expenses, which include labor, occupancy and other operating expenses, increased from $21.6 million for the three month period ended July 4, 1999 to $25.2 million for the three month period ended July 2, 2000, an increase of $3.6 million. For the six months ended July 2, 2000, these costs increased from $44.0 million during the 1999 period, to $51.5 million for the comparable 2000 period. Those costs as a percentage of revenues decreased 1.4% from 44.3% for the three month period ended July 4, 1999 to 42.9% for the three month period ended July 2, 2000 and decreased 1.3% from 43.4% for the six 9 month period ended July 4, 1999 to 42.1% for the comparable 2000 period. Included in the second quarter of fiscal 2000 is a gain of approximately $1.1 million resulting from the disposition of certain restaurant assets. Pre-opening costs, depreciation, amortization and non-cash charges increased from $1.2 million for the three month period ended July 4, 1999 to $2.9 million for the three month period ended July 2, 2000 and increased as a percentage of revenues by 2.6%. For the six months ended July 2, 2000, such costs were $6.0 million versus $2.7 million for the comparable 1999 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 month periods ended July 2, 2000 and July 4, 1999 were $0.8 million and $0.2 million, respectively, and for the six month period ended July 2, 2000 and July 4, 1999 were $1.6 million and $0.6 million, respectively. The timing of restaurant openings, as well as costs per restaurant, affected the amount of such costs. Included in the first quarter of fiscal 2000 are charges of approximately $0.5 million related to the March 2000 disposition of one Bertolini's restaurant and included in the second quarter of fiscal 2000 are charges of approximately $0.6 million related to the write-down, to net realizable values, of another Bertolini's restaurant. Such charges were not previously provided for in the fiscal 1998 charge. (See Note 3.) Effective April 3, 2000, the Company changed the estimated useful lives for computer equipment and software. (See Note 6). As a result of such change, the second quarter of 2000 included approximately $48,000 of additional depreciation expense. General and administrative expenses for the three month period ended July 2, 2000 were $4.9 million, which increased from $3.9 million for the three month period ended July 4, 1999. For the six months ended July 2, 2000, such costs were $9.9 million versus $8.1 million for the comparable 1999 period. Increases in such costs are driven by incremental costs associated with increased restaurant development, training and salary costs. Such costs as a percentage of revenues were 8.3% for the three month period ended July 2, 2000, an increase of 0.3% from the three month period ended July 4, 1999 and 8.1% for the six months ended July 2, 2000, an increase of 0.1% from the six month period ended July 4, 1999. Marketing and promotional expenses were $1.7 million, an increase of $0.2 million, for the three month period ended July 2, 2000 and $3.5 million, an increase of $0.6 million, for the six month period ended July 2, 2000. Such costs as a percentage of revenues were 2.8% for the three month period ended July 2, 2000, a decrease of 0.3% from the comparable 1999 period and 2.9% for the six month period ended July 2, 2000, which was consistent with the comparable 1999 period. Interest expense, net of interest income, increased to $1.4 million for the three month period ended July 2, 2000 from $1.1 million for the three month period ended July 4, 1999. For the six month periods ended July 2, 2000 and July 4, 1999, interest expense was $2.8 million and $2.0 million, respectively. The increase in interest expense was due to increased borrowings and higher interest rates. Income tax expense of $2.2 million for the six month period ended July 2, 2000 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 2000, as well as state income taxes. The Company's effective tax rate increased in part due to higher state income taxes. LIQUIDITY AND CAPITAL RESOURCES At present and in the past, the Company has had, and may have in the future, negative working capital balances. The working capital deficit is produced principally as a result of the Company's investment in long-term restaurant operating assets and real estate. The Company does not have significant receivables or inventories and receives trade credit based upon negotiated terms in purchasing food and 10 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 Fleet National Bank ("Fleet") (formally BankBoston, N.A.) 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 $74,500,000, consisting of a $24,500,000 term loan (the "Term Loan") and a $50,000,000 revolving credit facility (the "Revolving Credit"). 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 2, 2000, calculated pursuant to the Credit Agreement, the Company's applicable margin, on the Revolving Credit was 0.00% on base rate loans and 2.00% on Eurodollar Rate loans and the Company's applicable margin on the Term Loan was 0.25% on base rate loans and 2.25% on Eurodollar Rate loans. 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. Fleet has syndicated portions of the Credit Facility to First Union Corporation, Imperial Bank and Chase Manhattan Bank. As of July 2, 2000 and January 2, 2000, the Company had outstanding borrowings of $55,475,000 and $41,625,000, respectively, under the Credit Facility. At July 2, 2000, $292,000 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 $18,733,000 and the weighted average interest rate on all borrowings under the Credit Facility was 8.7%. Quarterly principal installments on the Term Loan of $250,000, which began March 31, 2000, are due at the end of each calendar quarter from thereafter through December 31, 2002. Quarterly principal installments of $2,500,000 are due 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 2, 2000 amount to $500,000 in 2000, $1,000,000 in 2001, $1,000,000 in 2002, $10,000,000 in 2003 and $42,975,000 in 2004. 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; (vi) the repurchase of the Company's outstanding common stock; and (vii) 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 2, 2000, 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 Fleet on notional amounts of $10,000,000 each. Interest rate swap agreements are used to reduce the potential impact of interest rate fluctuations relating to $20,000,000 of variable rate debt. The term of the agreements are for three years and may be extended for an additional two years at the option of Fleet. 11 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 10.002% per annum interest rate. Principal and interest payments will be made over the term of the loan. At July 2, 2000 and January 2, 2000 the outstanding principal balance of the CNL Loan was approximately $1,940,000 and $2,039,000, respectively, of which approximately $212,000 and $202,000, respectively, has been included in "Current portion of obligations to financial institutions and capital leases" in the accompanying consolidated balance sheets. During 1999 and 1998, various subsidiaries of the Company and FFCA Acquisition Corporation ("FFCA") entered into loan commitments, aggregating $27,000,000, to fund the purchases of land and construction of restaurants. During 2000, 1999 and 1998, $1,927,000, $4,757,000 and $5,315,000, respectively, was funded, with the interest rates ranging from 7.68% to 9.26% per annum. Monthly principal and interest payments have been scheduled over twenty-year periods. At July 2, 2000 and January 2, 2000 the aggregate outstanding principal balance due to FFCA was approximately $11,706,000 and $9,943,000, respectively, of which approximately $270,000 and $206,000, respectively, of principal is included in "Current portion of obligations to financial institutions and capital leases" in the accompanying consolidated balance sheets. During the first six months of fiscal 1999, the Company's net investment in fixed assets and related investment costs, including pre-opening costs, net of capitalized leases approximated $6.9 million. The Company estimates that it will expend up to an aggregate of $12.0 million in 2000 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, sale-leaseback and mortgage financing agreements with several financial institutions of which approximately $18.4 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. In fiscal 1999 and 1998, the Company's board of directors authorized repurchases of the Company's outstanding common stock of up to approximately 1,930,600 shares. In March 2000, the board of directors increased the Company's authorization by an additional 500,000 shares. In July 2000, the board of directors increased the Company's authorization by an additional 500,000 shares. As of July 2, 2000, the Company had repurchased 2,290,690 shares at an average stock price of $17.37. NEW ACCOUNTING PRONOUNCEMENT Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), as amended by Statement 137 "Accounting for Derivative Instruments and Hedging Activities -Deferral of the Effective Date of SFAS No. 133" and Statement 138 "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133", is effective for fiscal quarters 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 consolidated financial statements and believes that such determination will not be meaningful until closer to the date of initial adoption on January 1, 2001. 12 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 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. Item 3. Quantitative and Qualitative Disclosure about Market Risk The inherent risk in market risk sensitive instruments and positions primarily relates to potential losses arising from adverse changes in foreign currency exchange rates and interest rates. As of July 2, 2000, the Company operated three international locations, one in Singapore (opened May 1998), one in Toronto (opened September 1998), and one in Hong Kong (opened December 1999). As a result, the Company is subject to risk from changes in foreign exchange rates. These changes result in cumulative translation adjustments which are included in other comprehensive income. The potential loss resulting from a hypothetical 10% adverse change in quoted foreign currency exchange rates, as of July 2, 2000, is not considered material. The Company is subject to market risk from exposure to changes in interest rates based on its financing activities. This exposure relates to borrowings under the Company's Credit Facility which are payable at floating rates of interest. The Company has entered into interest rate swap agreements to manage some of its exposure to interest rate fluctuations. The change in fair value of our long-term debt resulting from a hypothetical 10% fluctuation in interest rates as of July 2, 2000 is not considered material. 13 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings During fiscal 1998, the Company identified several under performing 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. 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 The Company's 2000 Annual Meeting of Stockholders was held on May 9, 2000, for the following purposes: (i) to elect two directors to Class 2 of the Board of Directors to serve three-year terms and until their successors are duly elected and qualified, (ii) to ratify the re-appointment of KPMG LLP as the independent auditors of the Company for the fiscal year ending December 31, 2000, and (iii) to consider and act upon a proposal to adopt the 2000 Stock Option Plan. Shares were voted on each such matter as follows: Election of Directors John J. Connolly For: 4,452,343 Withheld: 186,580 David B. Pittaway For: 4,452,643 Withheld: 186,280 Ratification and Approval of KPMG LLP For: 4,511,448 Against: 3,410 Abstain: 124,065 Approval of the 2000 Stock Option Plan For: 2,860,900 Against: 1,073,366 Abstain: 5,054 Broker No Vote: 699,603 In addition, Lee M. Cohn, Dianne H. Russell and Alan A. Teran will continue to serve as Class 1 directors until the election and qualification of their successors at the 2002 Annual Meeting of Stockholders. Allen J. Bernstein, Thomas J. Baldwin and John K. Castle will continue to serve as Class 3 directors until the election and qualification of their successors at the 2001 Annual Meeting of Stockholders. 14 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4.04(p) Twelfth Amendment to the Second Amended and Restated Revolving Credit and Term Loan Agreement, dated July 21, 2000 among the Registrant, Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A., individually and as agent. 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. 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 AUGUST 14, 2000 --------------------------- By: /s/ ALLEN J. BERNSTEIN -------------------------------------- Allen J. Bernstein Chairman of the Board, President and Chief Executive Officer Date AUGUST 14, 2000 By: /s/ THOMAS J. BALDWIN --------------------------- -------------------------------------- Thomas J. Baldwin Executive Vice President, Chief Financial Officer and Director 16 INDEX TO EXHIBITS The following is a list of all exhibits filed as part of this report. Exhibit NUMBER PAGE DOCUMENT 4.04 (p) Twelfth Amendment to the Second Amended and Restated Revolving Credit and Term Loan Agreement, dated June 21, 2000 among the Registrant, Peasant Holding Corp., Morton's of Chicago, Inc. and BankBoston, N.A., individually and as agent. 27.0 Financial Data Schedule 17 EX-4.04 2 ex-4_04.txt EXHIBIT 4.04 Exhibit 4.04(p) AMENDMENT NO. 12 TO SECOND AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT This AMENDMENT NO. 12 (this "Amendment"), dated as of June 21, 2000, by and among MORTON'S RESTAURANT GROUP, INC., a Delaware corporation (formerly known as Quantum Restaurant Group, Inc.) having its principal place of business at Suite 210, 3333 New Hyde Park Road, New Hyde Park, New York 11042 (referred to below and in the Credit Agreement, as defined below, as "Quantum"). PEASANT HOLDING CORP., a Delaware corporation having its principal place of business at Suite 210, 3333 New Hyde Park Road, New Hyde Park, New York 11042 ("Peasant Holding"). MORTON'S OF CHICAGO, INC., an Illinois corporation with its principal place of business at 350 West Hubbard Street, Chicago, Illinois 60610 ("Morton's") (Quantum, Peasant Holding and Morton's are referred to herein collectively as the "Borrowers", and each, individually, as a "Borrower"), FLEET NATIONAL BANK (formerly known as BankBoston, N.A.), as Agent and Administrative Agent (the "Agent") for the Lenders (as defined in the Credit Agreement referred to below), FLEET NATIONAL BANK (formerly known as BankBoston, N.A. and referred to sometimes in the Credit Agreement, as defined below, as "FNBB") in its individual capacity as a Lender, THE CHASE MANHATTAN BANK, IMPERIAL BANK and FIRST UNION NATIONAL BANK, as Lenders, and FIRST UNION NATIONAL BANK, as documentation agent (the "Documentation Agent") for the Lenders, amends the Second Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 19, 1995, as amended by the First Amendment dated as of February 14, 1996, the Second Amendment dated as of March 5, 1996, a letter agreement dated as of May 2, 1996, the Third Amendment dated as of June 28, 1996, a letter agreement dated as of November 7, 1996, the Fourth Amendment dated as of December 26, 1996, the Fifth Amendment dated as of December 31, 1996, the Sixth Amendment dated as of February 6, 1997, the Seventh Amendment dated as of June 27, 1997, the Eighth Amendment dated as of February 12, 1998, the Ninth Amendment dated as of September 25, 1998, the Tenth Amendment dated as of November 18, 1998, a letter agreement dated as of January 24, 1999, the Eleventh Amendment dated as of May 20, 1999, a letter agreement dated as of March 31, 2000, and as the same may be further amended, modified, or supplemented from time to time (the "Credit Agreement"), by and among the Borrowers, the Administrative Agent, the Documentation Agent and the Lenders. Capitalized terms used but not defined herein shall have the meanings set forth in the Credit Agreement. WHEREAS, the Borrowers have requested that the Lenders agree to amend certain provisions of the Credit Agreement; and -2- WHEREAS, the Agent and the Lenders, subject to the terms and provisions hereof, have agreed to so amend the Credit Agreement; NOW THEREFORE, the parties hereto hereby agree as follows: Section1. AMENDMENTS TO THE CREDIT AGREEMENT. Section 10.5(b) of the Credit Agreement is hereby amended by deleting the figure "$40,000,000" and inserting in its place the figure "$50,000,000", and by inserting immediately after the phrase "$30 per share" the new parenthetical phrase "(such maximum price per share to be proportionately adjusted from time to time to take into account the effect of stock splits, reverse stock splits, stock dividends, and similar applicable, proportional stock transactions occurring from time to time)". Section2. REPRESENTATIONS AND WARRANTIES Section2.1. BORROWERS' REPRESENTATIONS AND WARRANTIES. The Borrowers hereby represent and warrant to the Agent and the Lenders as follows: (a) REPRESENTATIONS AND WARRANTIES IN CREDIT AGREEMENT. Except as specified in writing by the Borrowers to the Agent with respect to the subject matter of this Amendment prior to the execution and delivery hereof by the Agent and the Lenders, the representations and warranties of the Borrowers contained in the Credit Agreement were true and correct in all material respects when made and continue to be true and correct in all material respects on and as of the date hereof, and as of the Effective Date, except, in each case to the extent of changes resulting from transactions contemplated or permitted by the Loan Documents and this Amendment and changes occurring in the ordinary course of business which singly or in the aggregate are not materially adverse, and to the extent that such representations and warranties relate expressly to an earlier date. (b) AUTHORITY, NO CONFLICTS, ENFORCEABILITY OF OBLIGATIONS, ETC. Each of the Borrowers hereby confirms that the representations and warranties of the Borrowers contained in Sections6.1, 6.3 and 6.4 of the Credit Agreement are true and correct on and as of the date hereof, and as of the Effective Date, as if made on each such date, treating this Amendment, the Credit Agreement as amended hereby, and the other Loan Documents as amended hereby, as "Loan Documents" for the purposes of making said representations and warranties. Section3. CONDITIONS TO EFFECTIVENESS. This Amendment shall be deemed to be effective as of the date hereof (the "Effective Date"), upon the execution and delivery of this Amendment by each of the Borrowers, each of the Guarantors, the Agent, and the Majority Lenders. -3- Section4. NO OTHER AMENDMENTS OR WAIVERS; EXECUTION IN COUNTERPARTS. Except as otherwise expressly provided by this Amendment, all of the terms, conditions and provisions of the Credit Agreement and the other Loan Documents shall remain in full force and effect. Each of the Borrowers and the Guarantors confirms and agrees that the Obligations of the Borrowers to the Lenders under the Loan Documents, as amended, supplemented, and increased hereby, are secured by, guaranteed under, and entitled to the benefits, of the Security Documents. The Borrowers, the Guarantors, the Agent and the Lenders hereby acknowledge and agree that all references to the Credit Agreement and the Obligations thereunder contained in any of the Loan Documents shall be references to the Credit Agreement and the Obligations, as amended hereby and as the same may be amended, modified, supplemented, or restated from time to time. The Security Documents and the perfected first priority security interests of the Lenders thereunder as collateral security for the Obligations shall continue in full force and effect, and the collateral security and guaranties provided for in the Security Documents shall not be impaired by this Amendment. This Amendment may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Amendment it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought. Section5. GOVERNING LAW. This Amendment shall be construed according to and governed by the internal laws of the Commonwealth of Massachusetts without reference to principles of conflicts of law. 4 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized. FLEET NATIONAL BANK (formerly known as BankBoston. N.A.), for itself and as Administrative Agent By: Robert W. MacElhinay -------------------------------------- Name: Robert W. MacElhinay -------------------------------------- Title: Vice President -------------------------------------- FIRST UNION NATIONAL BANK, for itself and as Documentation Agent By: Joel Thomas -------------------------------------- Name: Joel Thomas -------------------------------------- Title: Vice President -------------------------------------- THE CHASE MANHATTAN BANK By: William DeMilt -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- IMPERIAL BANK By: -------------------------------------- Name: -------------------------------------- Title: -------------------------------------- 5 The Borrowers: MORTON'S RESTAURANT GROUP, INC. PEASANT HOLDING CORP. MORTON'S OF CHICAGO, INC. By: Thomas J. Baldwin -------------------------------------- Name: Thomas J. Baldwin Title: Executive Vice President and Chief Financial Officer CONSENTED AND AGREED TO, BY EACH OF THE GUARANTORS (as defined in the Credit Agreement) By: Thomas J. Baldwin -------------------------------------- Name: Thomas J. Baldwin Title: Executive Vice President and Chief Financial Officer for each of the Guarantors EX-27 3 ex-27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JULY 2, 2000 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-2000 JAN-03-2000 JUL-02-2000 2,227 0 1,151 0 6,691 20,507 83,135 14,199 112,537 29,863 68,639 0 0 68 1,044 112,537 122,195 122,195 41,025 98,547 13,475 0 2,802 7,371 2,211 5,160 0 0 0 5,160 $1.05 $1.02
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