-----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, D705TtKaK6Tq3olaeeIeJajXGwFLBmXIFdE8BOzcXdtAKHNO/1bhmLU71yCM6Yun eJRsdxqfrGnatZ4J6FJ4Hw== 0001047469-98-019458.txt : 19980513 0001047469-98-019458.hdr.sgml : 19980513 ACCESSION NUMBER: 0001047469-98-019458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980329 FILED AS OF DATE: 19980512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORTONS RESTAURANT GROUP INC CENTRAL INDEX KEY: 0000883981 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 133490149 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12692 FILM NUMBER: 98616739 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 10Q 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 March 29, 1998 ---------------------------------------- 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 May 5, 1998, the registrant had 6,640,240 Shares of its Common Stock, $.01 par value, issued and outstanding. MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES INDEX
Part I - Financial Information Page ------------------------------ ---- Item 1. Financial Statements Consolidated Balance Sheets as of March 29, 1998 and December 28, 1997 3-4 Consolidated Statements of Income for the three month periods ended March 29, 1998 and March 30, 1997 5 Consolidated Statements of Cash Flows for the three month periods ended March 29, 1998 and March 30, 1997 6 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II - Other Information --------------------------- Item 1. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Stockholders 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 2 Item 1. Financial Statements MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (amounts in thousands) March 29, December 28, 1998 1997 ---- ---- (unaudited) Assets ------ Current assets: Cash and cash equivalents $ 2,276 $ 3,437 Accounts receivable 1,905 1,669 Inventories 5,345 5,420 Landlord construction receivables, prepaid expenses and other current assets 2,345 3,226 Deferred income taxes 5,180 4,890 ------- ------ Total current assets 17,051 18,642 ------ ------ Property and equipment, at cost: Furniture, fixtures and equipment 20,101 19,169 Leasehold improvements 22,360 21,876 Construction in progress 2,596 46 ------- --------- 45,057 41,091 Less accumulated depreciation and amortization 7,118 6,449 ------- ------- Net property and equipment 37,939 34,642 ------ ------ Intangible assets, net of accumulated amortization of $3,559 at March 29, 1998 and $3,458 at December 28, 1997 12,436 12,537 Other assets and deferred expenses, net of accumulated amortization of $2,339 at March 29, 1998 and $3,901 at December 28, 1997 10,744 11,902 Deferred income taxes 3,342 4,220 ------- ------ $ 81,512 $ 81,943 ------- ------ ------- ------
(Continued) 3 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets, Continued (amounts in thousands, except share data)
March 29, December 28, 1998 1997 ---- ---- (unaudited) Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Accounts payable $ 5,679 $ 6,159 Accrued expenses 10,935 14,629 Accrued income taxes 628 656 -------- ------- Total current liabilities 17,242 21,444 Bank debt 25,837 24,931 Other liabilities 6,852 7,013 -------- ------- Total liabilities 49,931 53,388 ------- ------- 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 6,636,915 shares at March 29, 1998 and 6,604,565 shares at December 28, 1997 66 66 Nonvoting common stock, $.01 par value per share. Authorized 3,000,000 shares, no shares issued or outstanding - - Additional paid-in capital 62,562 62,214 Accumulated deficit (31,047) (33,725) -------- -------- Total stockholders' equity 31,581 28,555 --------- -------- $ 81,512 $ 81,943 --------- -------- --------- --------
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 March 29, March 30, 1998 1997 ---- ---- (unaudited) Revenues $ 47,710 $ 46,534 Food and beverage costs 16,396 15,945 Restaurant operating expenses 20,042 20,284 Depreciation, amortization and other non-cash charges 2,485 2,087 General and administrative expenses 3,409 3,690 Marketing and promotional expenses 1,227 1,107 Interest expense, net 580 620 ------- ------- Income before income taxes 3,571 2,801 Income tax expense 893 700 ------- ------- Net income $ 2,678 $ 2,101 ------- ------- ------- ------- Net income per share: Basic $ 0.41 $ 0.33 ------- ------- ------- ------- Diluted $ 0.39 $ 0.31 ------- ------- ------- ------- Weighted average shares outstanding: Basic 6,606 6,452 ------- ------- ------- ------- Diluted 6,894 6,827 ------- ------- ------- -------
See accompanying notes to consolidated financial statements. 5 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (amounts in thousands)
Three Months Ended March 29, March 30, 1998 1997 ---- ---- (unaudited) Cash flows from operating activities: Net income $ 2,678 $ 2,101 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization and other non-cash charges 2,485 2,087 Deferred income taxes 588 757 Change in assets and liabilities: Accounts receivable (236) 354 Inventories 75 (447) Prepaid expenses and other assets 845 (1,970) Accounts payable, accrued expenses and other liabilities (4,936) (855) Accrued income taxes (28) (248) -------- ------- Net cash provided by operating activities 1,471 1,779 ----- ----- Cash flows from investing activities: Purchases of property and equipment, net (3,439) (2,384) Payments for pre-opening costs, licenses and other deferred expenses (350) (741) Proceeds from sale of Mick's and Peasant restaurants - 4,308 ------- ------- Net cash provided (used) by investing activities (3,789) 1,183 ------- ------ Cash flows from financing activities: Principal reduction on bank debt (691) (7,600) Proceeds from bank debt 1,500 4,397 Net proceeds from issuance of stock 348 53 ------- ------- Net cash provided (used) by financing activities 1,157 (3,150) ------ -------- Net decrease in cash and cash equivalents (1,161) (188) Cash and cash equivalents at beginning of period 3,437 2,276 ------ ------- Cash and cash equivalents at end of period $ 2,276 $ 2,088 ------ ------- ------ -------
See accompanying notes to consolidated financial statements. 6 MORTON'S RESTAURANT GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements March 29, 1998 and March 30, 1997 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 28, 1997, filed by the Company on Form 10-K with the Securities and Exchange Commission on March 26, 1998. 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 $627,000 and $555,000, and income taxes of approximately $324,000 and $542,000, for the three months ended March 29, 1998 and March 30, 1997, respectively. During the first quarter of fiscal 1998 and 1997, the Company entered into capital lease arrangements of approximately $571,000 and $140,000, 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"). The following represents the combined results of operations for Mick's and Peasant for the periods ended March 29, 1998 and March 30, 1997. Interest expense was not allocated.
Three Months Ended March 29, 1998 March 30, 1997 (1) --------------------------------- (amounts in thousands, unaudited) Revenues $ - $ 5,723 Food and beverage costs - 1,702 Restaurant operating expense - 3,449 Depreciation, amortization and other non-cash charges - 6 General and administrative expenses - 432 Marketing and promotional expenses - 101 ---------- -------- Income before income taxes $ - $ 33 ---------- -------- ---------- --------
7 (1) Includes the Atlanta-based Mick's and Peasant restaurants through February 6, 1997, the date of sale, as discussed below, and the five remaining non-Atlanta Mick's restaurants which the Company sold, closed or otherwise disposed of during fiscal 1997. Management had been actively seeking potential buyers for the sale of all Mick's and Peasant restaurants, however, 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, 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 the first quarter of fiscal 1997, restaurant occupancy expense of approximately $343,000 for the Remaining Restaurants has been charged against the accrual for lease exit costs. During fiscal 1997, the remaining seven Mick's restaurants were sold, closed or otherwise disposed of. At March 29, 1998 and December 28, 1997, included in "Accrued expenses" in the accompanying consolidated balance sheet is approximately $515,000 and $788,000 representing the remaining lease disposition liabilities related to the closing of these restaurants. 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 which, on April 6, 1998, was exchanged for a 19.9% interest in Atlanta Dining Group, Inc., parent of Mick's and Peasant. The unsecured promissory notes and the 19.9% interest in Mick's and Peasant were recorded at their estimated fair values on the date of the sale of approximately $2,200,000 and are included in "Other assets and deferred expenses" in the accompanying consolidated balance sheets at March 29, 1998 and December 28, 1997. In conjunction with the sale, the Company 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 were not part of the sale, both of which were disposed of in fiscal 1997. 4) The Company is involved in various legal actions. See "Part II Other Information, Item 1. Legal Proceedings" on page 13 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 - --------------------- The following table represents the unaudited combined results of operations for Morton's Restaurant Group, Morton's of Chicago Steakhouses (Morton's) and Bertolini's Authentic Trattorias (Bertolini's), excluding Mick's Restaurants, Inc. (Mick's) and The Peasant Restaurants, Inc. (Peasant). As discussed in Note 3 to the accompanying consolidated financial statements, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants on February 6, 1997 and closed, sold, or otherwise disposed of all other remaining Mick's and Peasant restaurants during fiscal 1997. Morton's Restaurant Group, Inc., Morton's and Bertolini's (excluding Mick's and Peasant):
Three Months Ended March 29, 1998 March 30, 1997 -------------- -------------- (amounts in thousands) Revenues $47,710 $40,811 Food and beverage costs 16,396 14,243 Restaurant operating expenses 20,042 16,835 Depreciation, amortization and other non-cash charges 2,485 2,081 General and administrative expenses 3,409 3,258 Marketing and promotional expenses 1,227 1,006 Interest expense, net 580 620 --------- --------- Income before income taxes $ 3,571 $ 2,768 --------- --------- --------- ---------
The following represents the unaudited combined results of operations for Mick's and Peasant. Interest expense was not allocated to Mick's and Peasant. Mick's and Peasant Restaurants:
Three Months Ended March 29, 1998 March 30, 1997 -------------- -------------- (amounts in thousands) Revenues $ - $ 5,723 Food and beverage costs - 1,702 Restaurant operating expenses - 3,449 Depreciation, amortization and other non-cash charges - 6 General and administrative expenses - 432 Marketing and promotional expenses - 101 ------------- ---------- Income before income taxes $ - $ 33 ------------- ---------- ------------- ----------
Revenues increased $1.2 million, or 2.5%, to $47.7 million for the three month period ended March 29, 1998, from $46.5 million during the comparable 1997 period. Revenues from Morton's and Bertolini's increased $6.9 million, or 16.9%, to $47.7 million for the three month period ended March 29, 1998, from $40.8 million during the comparable 1997 period. Of the increase in Morton's and Bertolini's revenues, $5.5 9 million was attributable to incremental restaurant revenues from eight new restaurants opened after December 30, 1996 and $1.9 million, or 4.8%, 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 2.1%. Included in 1997 first quarter revenues is approximately $0.5 million of investment income. As stated in Note 3, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants on February 6, 1997, and all remaining Mick's and Peasant restaurants were disposed of during fiscal 1996 and 1997. Revenues for the Mick's and Peasant restaurants were approximately $5.7 million in the first quarter of fiscal 1997. Percentage changes in comparable restaurant revenues for the three month period ended March 29, 1998 versus March 30, 1997 for restaurants open all of both periods are as follows: Three Months Ended March 29, 1998 Percentage Change ----------------- Morton's 4.8% Bertolini's 4.6% Total 4.8% Food and beverage costs increased from $15.9 million for the three month period ended March 30, 1997 to $16.4 million for the three month period ended March 29, 1998. Food and beverage costs excluding all Mick's and Peasant restaurants increased by $2.2 million to $16.4 million for the three month period ended March 29, 1998 from $14.2 million recorded for the three month period ended March 30, 1997. These costs as a percentage of revenues decreased 0.5% for the three month period. As a result of the disposition of Mick's and Peasant as discussed in Note 3, there was a reduction of approximately $1.7 million in the three month period ended March 29, 1998 compared to the corresponding 1997 period. Restaurant operating expenses which include labor, occupancy and other operating expenses decreased from $20.3 million for the three month period ended March 30, 1997 to $20.0 million for the three month period ended March 29, 1998, a decrease of $0.3 million. Restaurant operating expenses excluding all Mick's and Peasant restaurants increased from $16.8 million for the three month period ended March 30, 1997 to $20.0 million for the comparable 1998 period. Those costs as a percentage of revenues increased 0.8% from 41.2% for the three month period ended March 30, 1997 to 42.0% for the three month period ended March 29, 1998. Offsetting the increase in total restaurant operating expenses was a reduction of approximately $3.4 million during the three month period ended March 29, 1998 versus the comparable 1997 period due to the disposition of Mick's and Peasant restaurants as discussed in Note 3. Depreciation, amortization and other non-cash charges increased from $2.1 million for the three month period ended March 30, 1997 to $2.5 million for the three month period ended March 29, 1998 and increased from 4.5% of revenues to 5.2%, respectively. Pre-opening 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 March 29, 1998 were $3.4 million, which decreased from $3.7 million for the three month period ended March 30, 1997. General and administrative expenses excluding all Mick's and Peasant restaurants increased $0.1 million from $3.3 million for the three month period ended March 30, 1997 to $3.4 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 7.1% for the three month period ended March 29, 1998, a decrease of 0.9% from the three month period ended March 30, 1997. General and administrative expenses 10 relating to the Mick's and Peasant restaurants decreased $0.4 million during the three month period ended March 29, 1998 versus the comparable 1997 period as a result of the disposition of Mick's and Peasant restaurants as discussed in Note 3. Marketing and promotional expenses were $1.2 million for the three month period ended March 29, 1998 and $1.1 million for the three month period ended March 30, 1997. Marketing and promotional expenses excluding Mick's and Peasant were $1.2 million, or 2.6% of revenues for the three months ended March 29, 1998, as compared to $1.0 million, or 2.5% of revenues, for the comparable 1997 period. The increase is driven by incremental costs associated with increased restaurant development. Mick's and Peasant marketing and promotional expenses were $0.1 million during the three month period ended March 30, 1997. Interest expense, net of interest income, remained constant at $0.6 million for the three month periods ended March 29, 1998 and March 30, 1997. Income tax expense of $0.9 million for the three month period ended March 29, 1998 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 1998, 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. (formerly The First National Bank of Boston) ("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 (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"). 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 March 29, 1998, the Company's applicable margin, calculated pursuant to the Credit Agreement, was 0.00% on base rate loans and 1.75% on Eurodollar Rate loans. BBNA has syndicated portions of the Term Loan and Revolving Credit of the Credit Agreement. As of March 29, 1998 and December 28, 1997, the Company had outstanding borrowings of $23,550,000 and $22,700,000, respectively, under the Credit Agreement. At March 29, 1998, $230,000 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 $8,720,000. The weighted average interest rate on all bank borrowings on March 29, 1998 was 7.41%. 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. 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 will be payable in full on December 31, 2002. Borrowings under the Credit Agreement are secured by all tangible and intangible assets of the 11 Company. Total amounts of principal payable by the Company under the Credit Agreement during the five years subsequent to March 29, 1998 amount to $0 in 1998, $3,000,000 in 1999, $4,000,000 in 2000, $4,000,000 in 2001 and $12,550,000 in 2002. As stated in Note 3 to the accompanying consolidated financial statements, the Company completed the sale of its Atlanta-based Mick's and Peasant restaurants in fiscal 1997. Net cash proceeds from the sale were used to reduce the Company's Revolving Credit. 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 March 29, 1998, the Company believes it was in compliance with such covenants. On April 7, 1998, the Company entered into an interest rate swap agreement with BBNA on a notional amount of $10,000,000. The term of the agreement is 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. Proceeds from the CNL loan were used to reduce the Company's Revolving Credit. At March 29, 1998, the outstanding principal balance of the CNL loan was approximately $2,354,000, of which approximately $67,000 is payable within the next fiscal year and therefore has been included in "Accrued expenses" in the accompanying consolidated balance sheet as of March 29, 1998. During the first three months of fiscal 1998, the Company's net investment in fixed assets and related investment costs, net of capitalized leases approximated $3.8 million. The Company estimates that it will expend up to an aggregate of $15.0 million in 1998 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 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 $18.8 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 those available under the Credit Agreement will be sufficient to fund planned expansion. New Accounting Pronouncement - ---------------------------- In April 1998, Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up Activities", was issued. The SOP requires that costs incurred during start-up activities (including pre-opening costs) be expensed as incurred. The Company will adopt the SOP in the first quarter of fiscal 1999. Since the Company currently amortizes pre-opening costs over the twelve months following the underlying restaurant's opening, the impact of adopting this pronouncement will be dependent upon the amount of unamortized start-up costs at the date of adoption. Forward-Looking Statements - -------------------------- Except for the historical information contained in this Form 10-Q, certain statements made herein are forward-looking statements that involve risks and uncertainties and are subject to important factors that could cause actual results to differ materially from these forward-looking statements, including without limitation, the effect of economic and market conditions, the impact of competitive activities, the Company's expansion plans, restaurant profitability levels and other risks detailed in the Company's public reports and SEC filings. 12 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 US 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, punitive damages of $850,000, and an estimate of the Plaintiff's and the Company's legal fees and expenses. The Company intends to vigorously contest and appeal the judgment when entered. The Company is involved in various legal actions incidental to the normal conduct of its business. Management does not believe that the ultimate resolution of these actions will have a material adverse effect on the Company's consolidated financial position, equity, results of operations, liquidity and capital resources. Item 4. Submission of Matters to a Vote of Stockholders No matters were submitted to a vote of stockholders during the quarter for which this report was filed. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. 4.04(k) Letter Agreement, dated April 6, 1998, among BankBoston, N.A. and the Registrant regarding an Extendible Swap Transaction. 27.0 Financial Data Schedule 27.10 Financial Data Schedule -- 1997 Restated 27.20 Financial Data Schedule -- 1996 Restated (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report was filed. 13 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 May 12, 1998 By: /s/ ALLEN J. BERNSTEIN - ---- ------------ ---------------------- Allen J. Bernstein Chairman of the Board, President and Chief Executive Officer Date May 12, 1998 By: /s/ THOMAS J. BALDWIN --------------------------- --------------------- Thomas J. Baldwin Executive Vice President and Chief Financial Officer 14 INDEX TO EXHIBITS The following is a list of all exhibits filed as part of this report. Exhibit Number Page Document ------ ---- -------- 4.04 (k) Letter Agreement, dated April 6, 1998, among BankBoston, N.A. and the Registrant regarding an Extendible Swap Transaction. 27.00 Financial Data Schedule 27.10 Financial Data Schedule -- 1997 Restated 27.20 Financial Data Schedule -- 1996 Restated EX-4.04(K) 2 EX4.04(K) Exhibit 4.04(k) [LOGO] DATE: April 6, 1998 TO: Morton's Restaurant Group ATTN: Thomas J. Baldwin FAX: 516-627-1898 PHONE: 516-627-1515 FROM: BankBoston, N.A. ("BBNA") ATTN: Mary M. Scherr, Derivative Confirmations FAX: 617-434-4284 PHONE: 617-434-4405 RE: EXTENDIBLE SWAP TRANSACTION [Our Ref: SW56700US/SWN56701US] The purpose of this letter agreement is to set forth the terms and conditions of the Transaction entered into between BankBoston, N.A. ("BBNA") and Morton's Restaurant Group ("Morton's") on the Trade Date specified below (the "Transaction"). This letter constitutes a "Confirmation" as referred to in the ISDA Master Agreement specified below. The definitions and provisions contained in the 1991 ISDA (the "Definitions"), each as published by the International Swaps and Derivatives Association, Inc. ("ISDA"), are incorporated into this Confirmation. In the event of any inconsistency between the Definitions and provisions in this Confirmation, this Confirmation will govern. 1. This Confirmation evidences a complete binding agreement between you and us as to the terms of the Transaction to which this Confirmation relates. In addition, you and we agree to use our best efforts promptly to negotiate, execute and deliver an agreement in the form of the ISDA Master Agreement (Multicurrency-Cross Border) (the "ISDA Form") published by ISDA, with such modifications as you and we shall in good faith agree (such agreement, the "Agreement"). Upon the execution by you and us of the Agreement, this Confirmation will supplement, form a part of, and be subject to the Agreement. All provisions contained or incorporated by reference in the Agreement, upon its execution, shall govern this Confirmation except as expressly modified below. Until we execute and deliver the Agreement, this Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the ISDA Form as if we had executed an agreement in such form (with a Schedule thereto which provides that Market Quotation and the Second Method apply for purposes of Section 6(e) of such agreement) on the Trade Date hereof. In the event of any inconsistency between this Confirmation and either the ISDA Form or the Agreement, this Confirmation will govern. 2. The terms of the particular Transaction to which this Confirmation relates are as follows:- Notional Amount: USD 10,000,000 Trade Date: April 3, 1998 Effective Date: April 7, 1998
1 [LOGO] Termination Date: April 7, 2001, subject to adjustment according to the Modified Following Business Day convention and to Section 4 herein. FIXED AMOUNTS: Fixed Rate Payer: Morton's Fixed Rate: 5.59% Fixed Rate Payment Dates The 7th of January, April, July and October in each year beginning July 7, 1998, and ending on the Termination Date, subject to adjustment in accordance with the Modified Following Business Day convention. Fixed Rate Day Count Fraction: Actual/360 FLOATING AMOUNTS: Floating Player: BBNA Floating Rate Payment Dates: The 7th of January, April, July and October in each year beginning July 7, 1998, and ending on the Termination Date, subject to adjustment in accordance with the Modified Following Business Day convention. Floating Rate for Initial Calculation Period: 5.6875% Floating Rate Day Count Fraction: Actual/360 Floating Rate Option: USD-LIBOR-BBA Designated Maturity: Three months Spread: None Reset Dates: The first day of each Calculation Period. Compounding: Inapplicable Business Days: New York and London Business-Day Convention: Modified Following. Calculation Agent: BBNA Governing Law: New York law Documentation: ISDA Master Agreement to be provided by BBNA.
2 [LOGO] 3. Relationship Between Parties Each party represents to the other party that: (a) Non-Reliance. It is acting for its own account, and it has made its own independent decisions to enter into this Transaction and as to whether this Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Transaction; it being understood that information and explanations related to the terms and conditions of this Transaction shall not be considered investment advice or a recommendation to enter into this Transaction. It has not received from the other party any assurance or guarantee as to the expected results of this Transaction. (b) Evaluation and Understanding. It is capable of evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of this Transaction. It is also capable of assuming, and assumes, the financial and other risks of this Transaction. (c) Status of Parties. The other party is not acting as a fiduciary or an advisor for it in respect of this Transaction. (d) Risk Management. It has entered into this Transaction for the purpose of (i) managing its borrowings or investments, (ii) hedging its underlying assets or liabilities or (iii) in connection with its line of business. 4. OTHER PROVISION(S) As long as no Event of Default or Termination Event shall have occurred and then be continuing, the parties agree that the Floating Rate Payer may extend the Termination Date of this Transaction by two years and must notify the Fixed Rate Payer on April 5, 2001, by telephonic notice of its intention to do so on April 9, 2001, whereupon the obligations of the parties hereunder shall reflect a revised Termination Date of April 7, 2003, and all other terms of the Transaction shall remain in effect as detailed above. 5. ACCOUNT DETAILS: Payments to BBNA: Through the Federal Reserve Bank, Boston, Routing No. ABA 011000390, for A/C BBNA, Boston, for credit to Arbitrage Settlement Account #295032, Attn: Swap Desk, 01-13-08. Payments to MORTON'S: PLEASE ADVISE 5. CONTACT INSTRUCTIONS: BBNA: Swap Desk (Resets/Payments): Tel: (617)434-1321 FAX: (617)434-0505 3 [LOGO] Confirmations: Tel: (617)434-4405 FAX: (617)434-4284 MORTON'S: PLEASE ADVISE Very truly yours, BANKBOSTON, N.A. By: /s/ William K. LePard By: /s/ James Mather ------------------------------- ---------------------------------- Name: William K. LePard Name: James Mather Title: Managing Director Title: Managing Director Agreed and accepted as of the date first above written: MORTON'S RESTAURANT GROUP By: /s/ Thomas J. Baldwin ------------------------------- Name: Thomas J. Baldwin Title: EVP & CFO PLEASE SIGN AND FAX TO: 617-434-4284, ATTN: MARY SCHER REQUEST CORRECTIONS: 617-434-4405. 4 EX-27.00 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH 29, 1998 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-27-1998 DEC-29-1997 MAR-29-1998 2,276 0 1,905 0 5,345 17,051 45,057 7,118 81,512 17,242 25,837 0 0 66 31,515 81,512 47,710 47,710 16,396 38,923 4,636 0 580 3,571 893 2,678 0 0 0 2,678 $0.41 $0.39
EX-27.10 4 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the March 30, 1997 Form 10-Q, the June 29, 1997 Form 10-Q and the September 28, 1997 Form 10-Q. 1,000 3-MOS 6-MOS 9-MOS DEC-28-1997 DEC-28-1997 DEC-28-1997 DEC-30-1996 DEC-30-1996 DEC-30-1996 MAR-30-1997 JUN-29-1997 SEP-28-1997 2,088 2,534 2,252 0 0 0 1,762 2,114 2,766 0 0 0 4,701 4,642 4,624 15,338 16,532 16,753 31,536 32,772 36,737 4,841 5,345 5,871 67,316 69,350 75,978 16,770 16,102 15,710 21,697 21,970 27,276 0 0 0 0 0 0 65 65 65 23,176 25,136 26,240 67,316 69,350 75,978 46,534 87,595 125,056 46,534 87,595 125,056 15,945 30,171 42,958 38,316 72,264 104,142 4,797 8,974 12,813 0 0 0 620 1,209 1,772 2,801 5,148 6,329 700 1,287 1,582 2,101 3,861 4,747 0 0 0 0 0 0 0 0 0 2,101 3,861 4,747 0.33 0.60 0.73 0.31 0.56 0.69 Includes assets held for sale. Includes liabilities related to assets held for sale.
EX-27.20 5 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the March 31, 1996 Form 10-Q, the June 30, 1996 Form 10-Q, the September 29, 1996 Form 10-Q and the December 29, 1996 Form 10-K. 3-MOS 6-MOS 9-MOS YEAR DEC-29-1996 DEC-29-1996 DEC-29-1996 DEC-29-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996 MAR-31-1996 JUN-30-1996 SEP-29-1996 DEC-29-1996 2,944 2,045 1,254 2,276 0 0 0 0 1,458 1,296 2,105 2,116 0 0 0 0 3,623 3,934 3,919 4,254 33,797 33,162 33,512 27,336 22,771 25,147 26,523 29,024 2,999 3,305 3,779 4,353 72,850 74,273 75,469 76,986 23,399 21,347 19,902 25,323 24,200 25,950 27,400 24,900 0 0 0 0 0 0 0 0 64 64 64 64 20,520 21,802 22,515 21,023 72,850 74,273 75,469 76,986 48,869 95,345 140,804 193,378 48,869 95,345 140,804 193,378 16,271 31,910 47,112 64,723 41,399 81,047 120,739 163,559 4,841 9,398 13,807 30,264 0 0 0 0 570 1,144 1,701 2,297 2,059 3,756 4,557 (2,742) 515 940 1,140 (4,507) 1,544 2,816 3,417 1,765 0 0 0 0 0 0 0 0 0 0 0 0 1,544 2,816 3,417 1,765 0.24 0.44 0.53 0.28 0.23 0.42 0.50 0.26 Includes assets held for sale. Includes liabilities related to assets held for sale. Includes write down and related charges for net sales held for sale of $11,500.
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