<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-9684
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CHART HOUSE ENTERPRISES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 33-0147725
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(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
115 South Acacia Avenue, Solana Beach, California 92075-1803
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(Address of principal executive offices, including zip code)
(619)755-8281
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(registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter periods 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
---- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of July 31, 1995:
Common Stock ($.01 par value) - 8,213,348
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
1
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 242 $ 245
Accounts Receivable 2,067 3,722
Inventories 4,156 3,992
Prepaid Expenses and Other Current
Assets 1,534 1,310
-------- --------
Total Current Assets 7,999 9,269
-------- --------
Property and Equipment, at Cost:
Land 10,283 9,400
Buildings 31,360 29,742
Equipment 45,673 43,224
Leasehold Interests & Improvements 79,881 79,332
Construction in Progress 5,344 3,752
-------- --------
172,541 165,450
Less: Accumulated Depreciation and
Amortization 52,131 48,276
-------- --------
Net Property & Equipment 120,410 117,174
-------- --------
Leased Property under Capital Leases,
Less Accumulated Amortization of
$4,071 in 1995 and $4,702 in 1994 4,775 5,285
-------- --------
Other Assets and Goodwill, Net 24,056 24,981
-------- --------
$157,240 $156,709
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current Portion of Lease Obligations $ 502 $ 646
Accounts Payable 2,101 3,226
Accrued Liabilities 11,968 10,509
-------- --------
Total Current Liabilities 14,571 14,381
-------- --------
Long-Term Debt 54,200 56,000
-------- --------
Long-Term Obligations under Capital
Leases 5,614 5,982
-------- --------
Deferred Income Taxes 6,442 6,388
-------- --------
Stockholders' Equity:
Preferred Stock, $1.00 par value,
authorized 10,000,000
shares; none outstanding - -
Common Stock, $.01 par value,
authorized 30,000,000 shares;
8,213,348 shares outstanding
in 1995 and 8,196,213 in 1994 82 82
Additional Paid-In Capital 42,062 42,036
Retained Earnings 34,269 31,840
-------- --------
Total Stockholders' Equity 76,413 73,958
-------- --------
$157,240 $156,709
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
3
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $46,563 $45,089 $89,335 $85,379
------- ------- ------- -------
Operating Expenses:
Cost of Food and Supplies 13,361 13,239 25,767 25,207
Payroll and Related Taxes 12,344 12,170 23,758 23,263
Other Operating Costs 10,780 9,875 20,814 18,841
Depreciation and Amortization 2,627 2,436 5,220 4,810
------- ------- ------- -------
Total Operating Expenses 39,112 37,720 75,559 72,121
------- ------- ------- -------
Income from Restaurant Operations 7,451 7,369 13,776 13,258
Selling, General and Administrative
Expenses 4,008 4,143 7,828 7,781
Interest Expense 1,207 1,097 2,424 2,170
------- ------- ------- -------
Income Before Income Taxes 2,236 2,129 3,524 3,307
Provision for Income Taxes 695 742 1,095 1,192
------- ------- ------- -------
Net Income $ 1,541 $ 1,387 $ 2,429 $ 2,115
======= ======= ======= =======
Net Income Per Common Share $.19 $.17 $.29 $.25
======= ======= ======= =======
Weighted Average Shares Outstanding 8,279 8,294 8,279 8,296
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,429 $ 2,115
Adjustments to Reconcile Net Income to Cash Flows
from Operating Activities:
Depreciation and Amortization 5,220 4,810
Deferred Income Taxes 54 59
Loss on Retirement of Assets 202 279
Change in Net Current Liabilities 1,496 246
------- -------
Cash Provided by Operating Activities 9,401 7,509
------- -------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (8,099) (8,673)
Reductions (Additions) to Other Assets and Goodwill 37 (48)
Proceeds from Disposition of Assets 415 66
Payments Received on Notes 362 208
------- -------
Cash Used in Investing Activities (7,285) (8,447)
------- -------
Cash Flows from Financing Activities:
Principal Payments on Long-Term Obligations under
Capital Leases (345) (383)
Net Borrowings (Payments) under Revolving Credit
Agreement (1,800) 1,300
Proceeds from Common Stock Issuance 26 31
------- -------
Cash Provided by (Used in) Financing Activities (2,119) 948
------- -------
Increase (Decrease) in Cash (3) 10
Cash, Beginning of Period 245 218
------- -------
Cash, End of Period $ 242 $ 228
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
-------- --------
<S> <C> <C>
The Change in Net Current Liabilities is Comprised of
the Following:
Decrease in Accounts Receivable $ 1,628 $ 1,331
Increase in Inventories (195) (25)
Decrease (Increase) in Prepaid Expenses and Other
Current Assets (224) 215
Decrease in Accounts Payable (1,125) (1,733)
Increase in Accrued Liabilities 1,412 458
------- -------
Change in Net Current Liabilities $ 1,496 $ 246
======= =======
Supplemental Cash Flow Disclosures:
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $ 2,630 $ 1,658
Income Taxes $ 1,009 $ 1,570
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995
(UNAUDITED)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements of Chart House
Enterprises, Inc. and subsidiaries (the "Company") for the quarterly and six
month periods ended June 30, 1995 and 1994 have been prepared in accordance with
generally accepted accounting principles, and with the instructions to Form
10-Q. These financial statements have not been audited by independent public
accountants, but include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of the financial condition, results of operations and cash flows
for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's annual report on
Form 10-K for the year ended December 31, 1994.
(2) NET INCOME PER COMMON SHARE
Per share calculations are based on the weighted average number of common
shares and dilutive common stock equivalents (stock options) outstanding during
the period. Fully diluted earnings per share equals primary earnings per share
for all periods presented.
(3) STOCKHOLDERS' EQUITY
In the six months of 1995, employees of the Company exercised stock options
to purchase an aggregate of 17,135 shares of common stock under the Company's
1985 Incentive Stock Option Plan at a purchase price of $1.54 per share.
(4) SUBSEQUENT EVENT
In July 1995, the Company entered into a definitive agreement to sell to an
unrelated third party all outstanding shares of common stock of its wholly-owned
subsidiary, Paradise Bakery, Inc. The sale price will consist of $5.1 million
of cash and a promissory note of approximately $1.5 million. The transaction is
expected to close in the third quarter of 1995.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
---------------------
The following is a comparative discussion of the results of operations for
the quarter and six months ended June 30, 1995 and 1994. The results of
operations for the first six months of 1995 are not necessarily indicative of
the results to be expected for the fiscal year ending December 31, 1995. The
dollar amounts in the table below are in thousands.
<TABLE>
<CAPTION>
Second Quarter Ended June 30, Six Months Ended June 30,
------------------------------------- --------------------------------------
1995 1994 1995 1994
----------------- ----------------- ------------------ -----------------
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 46,563 100.0 45,089 100.0 89,335 100.0 85,379 100.0
------ ----- ------ ------ ------ ----- ------ -----
Operating Expenses:
Cost of Food and Supplies 13,361 28.7 13,239 29.4 25,767 28.9 25,207 29.5
Payroll and Related Taxes 12,344 26.5 12,170 27.0 23,758 26.6 23,263 27.2
Other Operating Costs 10,780 23.2 9,875 21.9 20,814 23.3 18,841 22.1
Depreciation and
Amortization 2,627 5.6 2,436 5.4 5,220 5.8 4,810 5.7
------ ----- ------ ------ ------ ----- ------ -----
Total Operating
Expenses 39,112 84.0 37,720 83.7 77,559 84.6 72,121 84.5
------ ----- ------ ------ ------ ----- ------ -----
Income from Restaurant
Operations 7,451 16.0 7,369 16.3 13,776 15.4 13,258 15.5
Selling, General and
Administrative Expenses 4,008 8.6 4,143 9.2 7,828 8.8 7,781 9.1
Interest Expense 1,207 2.6 1,097 2.4 2,424 2.7 2,170 2.5
------ ----- ------ ------ ------ ----- ------ -----
Income Before Income Taxes 2,236 4.8 2,129 4.7 3,524 3.9 3,307 3.9
Provision for Income Taxes 695 1.5 742 1.6 1,095 1.2 1,192 1.4
------ ----- ------ ------ ------ ----- ------ -----
Net Income 1,541 3.3 1,387 3.1 2,429 2.7 2,115 2.5
====== ===== ====== ====== ====== ===== ====== =====
</TABLE>
Management believes that the most meaningful approach to analyzing results of
operations is through margin analysis, which requires critically reviewing the
relationships that certain costs and expenses bear to Revenues. Accordingly,
the discussion below follows this approach.
Revenues for the second quarter and six months of 1995 increased by
$1,474,000 and $3,956,000, respectively, from the same periods of the prior
year. Newly-opened Islands restaurants accounted for an increase in Revenues of
$2,549,000 for the second quarter and $4,609,000 for the six months. Also, the
Company's wholesale bakery increased its sales by $508,000 and $1,013,000 over
the previous second quarter and six month periods, respectively, due primarily
to the addition of the Starbucks Coffee Company retail account. The sale of the
Cork 'N Cleaver restaurants at the end of 1994 accounted for a decrease in
Revenues of $775,000 and $1,539,000 for the second quarter and six months,
respectively. Comparable restaurant sales (sales at restaurants open the entire
periods of both years) were down 2% for the second quarter and 1% for the six
months, due primarily to a decrease in customer counts at Chart House
restaurants.
8
<PAGE>
Restaurant operating margins (Income from Restaurant Operations as a
percentage of Revenues) were 16.0% for the second quarter and 15.4% for the six
months of 1995, compared to 16.3% and 15.5%, respectively, for the same periods
of 1994. Cost of Food and Supplies decreased as a percentage of Revenues mainly
because of lower costs of beef and chicken products and improved control of food
costs at Islands restaurants. Reductions in hourly employee labor were the
primary reason for the favorable decrease in Payroll and Related Taxes as a
percentage of Revenues, as management intensified its efforts to control labor
costs at the restaurant level. However, Other Operating Costs as a percentage
of Revenues increased in 1995 due to increased direct promotional costs of
redeeming Aloha Club awards at the Chart House restaurants, an increase in
insurance expenses over the prior year and from new Islands restaurants, which
initially have higher occupancy and other operating costs as a percentage of
Revenues. Deprecation and Amortization increased slightly as a percentage of
Revenues in 1995 because of the addition of several new Islands restaurants,
which generally have shorter asset lives than do Chart House restaurants.
Selling, General and Administrative Expenses as a percentage of Revenues
decreased for the second quarter from 9.2% in 1994 to 8.6% in 1995, and for the
six month period from 9.1% in 1994 to 8.8% in 1995. Marketing expenditures for
the Chart House Aloha Club were lower in 1995 than in 1994, as there were
significant start up and support costs in 1994 for the Aloha Club. In addition,
personnel and overhead costs were reduced in 1995, following the successful
transition to the Company's control of the Islands organization in mid-1994.
Interest Expense for the second quarter and six months of 1995 increased by
$110,000 and $254,000, respectively, from the same periods of the prior year due
to increases in borrowings in the latter half of 1994 to fund the expansion of
Islands restaurants and higher prevailing interest rates under the revolving
credit agreement in 1995.
The Provision for Income Taxes reflects an effective rate of 31% for the
second quarter and six months of 1995, compared with 35% for the second quarter
and 36% for the six months of 1994. The decrease in the rate primarily reflects
the increased amount of federal tax credit for employment-related FICA taxes
paid on tip earnings reported by the Company's employees.
As a result of the foregoing, Net Income increased by $154,000 for the second
quarter of 1995 and $314,000 for the six months of 1995, over the same periods
of the prior year.
Liquidity and Capital Resources
-------------------------------
The Company requires capital principally for the acquisition and construction
of new restaurants and the remodeling and refurbishing of existing restaurants.
The Company's primary sources of working capital are cash flows from operations
and borrowings under a revolving credit agreement with three banks which
provides a $40,000,000 line of credit (increased in April 1995 from $30,000,000)
with interest at the lead bank's base rate. Any excess cash flows from
operating and investing activities are used primarily to reduce those
borrowings. In the six months of 1995, the Company decreased its revolving
credit debt by $1,800,000. At June 30, 1995, the Company had outstanding
borrowings of $20,200,000 under the revolving credit agreement.
The Company opened two Islands restaurants in Pembroke Pines and Miami,
Florida, in the first six months of 1995. Capital Expenditures, which totalled
$8.1 million, also include expenditures for Islands restaurants under
construction and for remodels of certain Chart House restaurants.
9
<PAGE>
The Company expects to open five additional Islands restaurants in the
remaining six months of 1995 and one Chart House restaurant towards the end of
1995 or in early 1996. Total capital expenditures for 1995 are projected to be
approximately $20.0 million. Management believes that cash flows from
operations will be sufficient to fund a significant portion of the capital
expenditures for the planned new restaurants for 1995, the ongoing maintenance
and remodeling of existing restaurants, and construction of restaurants which
will open in 1996. Borrowings under the revolving credit agreement will meet
funding requirements not met by cash flows from operations in 1995.
Seasonality
-----------
Historically, the Company's business is seasonal in nature with Revenues and
Net Income for the second and third quarters being greater than in the first and
fourth quarters.
10
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Annual Meeting of Stockholders of Chart House Enterprises, Inc. was held
on May 2, 1995. Proxies for the meeting were solicited pursuant to Section 14(a)
of the Securities Exchange Act of 1934 and Regulation 14A thereunder for the
purpose of electing two directors. There was no solicitation in opposition to
management's nominees.
At the meeting, John M. Creed and William M. Diefenderfer III were elected
as directors for three-year terms expiring in 1998.
The tables below summarize the results of the stockholder vote:
<TABLE>
<CAPTION>
Number Percentage
--------- -----------
<S> <C> <C> <C>
Shares Outstanding and Entitled to Vote 8,208,348 100.0%
Shares Represented in Person or by Proxy at
Meeting 7,385,456 90.0%
Shares Not Voted at Meeting 822,892 10.0%
Votes Votes Shares
For Withheld Not Voted
--------- --------- ----------
Breakdown of votes cast for each nominee:
John M. Creed 7,338,034 47,422 822,892
William M. Diefenderfer III 7,338,032 47,424 822,892
</TABLE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter of which this report is filed.
11
<PAGE>
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.
CHART HOUSE ENTERPRISES, INC. (Registrant)
Date: August 9, 1995 By: /s/ JOHN M. CREED
------------------------------------
John M. Creed
President, Chief Executive Officer and
Chairman of the Board
By: /s/ HAROLD E. GAUBERT, JR.
------------------------------------
Harold E. Gaubert, Jr.
Vice President, Treasurer and Chief
Financial Officer
By: /s/ JAMES C. WENDLER
----------------------------------------
James C. Wendler
Vice President and Chief Accounting
Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 242
<SECURITIES> 0
<RECEIVABLES> 2,067
<ALLOWANCES> 0
<INVENTORY> 4,156
<CURRENT-ASSETS> 7,999
<PP&E> 172,541
<DEPRECIATION> 52,131
<TOTAL-ASSETS> 157,240
<CURRENT-LIABILITIES> 14,571
<BONDS> 59,814
<COMMON> 82
0
0
<OTHER-SE> 76,331
<TOTAL-LIABILITY-AND-EQUITY> 157,240
<SALES> 46,563
<TOTAL-REVENUES> 46,563
<CGS> 13,361
<TOTAL-COSTS> 13,361
<OTHER-EXPENSES> 25,751
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,207
<INCOME-PRETAX> 2,236
<INCOME-TAX> 695
<INCOME-CONTINUING> 1,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,541
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
