<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 July 1, 1996
---------------------------
[_] 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 1-9684
-----------------------------------
CHART HOUSE ENTERPRISES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 33-0147725
- -------------------------------------------------------------------------------
(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
115 South Acacia Avenue, Solana Beach, California 92075-1803
- -------------------------------------------------------------------------------
(Address of principal executive offices, including zip code)
(619)755-8281
- -------------------------------------------------------------------------------
(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 29, 1996:
Common Stock ($.01 par value) - 8,262,513
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
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CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
July 1, December 31,
ASSETS 1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 205 $ 245
Accounts Receivable 4,217 3,973
Inventories 3,564 3,900
Prepaid Expenses and Other Current Assets 1,172 1,592
------------ ---------
Total Current Assets 9,158 9,710
------------ ---------
Property and Equipment, at Cost:
Land 7,655 7,655
Buildings 27,917 27,871
Equipment 38,562 46,376
Leasehold Interests & Improvements 72,395 85,225
Construction in Progress 2,223 3,813
------------ ---------
148,752 170,940
Less: Accumulated Depreciation and Amortization 51,434 52,924
------------ ---------
Net Property & Equipment 97,318 118,016
------------ ---------
Leased Property under Capital Leases,
Less Accumulated Amortization of
$4,163 in 1996 and $4,051 in 1995 3,540 4,456
------------ ---------
Assets of Business Transferred Under
Contractual Arrangements 27,643 -
------------ ---------
Other Assets and Goodwill, Net 16,466 21,264
------------ ---------
$ 154,125 $ 153,446
============ =========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATExD BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
July 1, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Debt $ 7,780 $ 3,000
Current Portion of Lease Obligations 373 401
Accounts Payable 3,985 4,240
Accrued Liabilities 13,258 12,941
-------- --------
Total Current Liabilities 25,396 20,582
-------- --------
Long-Term Debt 44,020 46,274
-------- --------
Long-Term Obligations under Capital Leases 4,502 5,420
-------- --------
Deferred Income Taxes 4,518 4,518
-------- --------
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; 8,262,513
shares outstanding in 1996 and
8,216,123 in 1995 83 82
Additional Paid-In Capital 42,145 42,067
Retained Earnings 33,461 34,503
-------- --------
Total Stockholders' Equity 75,689 76,652
-------- --------
$ 154,125 $ 153,446
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Three Months Twenty-Six Weeks Six Months
Ended July 1, Ended June 30, Ended July 1, Ended June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 43,897 $ 46,563 $ 87,143 $ 89,335
--------- --------- --------- ---------
Operating Expenses:
Cost of Sales 13,505 13,361 26,057 25,767
Payroll and Related Taxes 12,487 12,344 24,919 23,758
Other Operating Costs 10,984 10,780 21,680 20,814
Depreciation and Amortization 2,384 2,627 5,089 5,220
--------- --------- --------- ---------
Total Operating Expenses 39,360 39,112 77,745 75,559
--------- --------- --------- ---------
Income from Restaurant Operations 4,537 7,451 9,398 13,776
Selling, General and Administrative
Expenses 4,201 4,008 8,794 7,828
Interest Expense 1,181 1,263 2,359 2,516
Interest Income (272) (56) (308) (92)
--------- --------- --------- ---------
Income (Loss) Before Income Taxes (573) 2,236 (1,447) 3,524
Provision (Benefit) for Income Taxes (161) 695 (405) 1,095
--------- --------- --------- ---------
Net Income (Loss) $ (412) $ 1,541 $ (1,042) $ 2,429
========= ========= ========= =========
Net Income (Loss) Per Common Share $ (.05) $ .19 $ (.13) $ .29
========= ========= ========= =========
Weighted Average Shares Outstanding 8,287 8,279 8,285 8,279
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Six Weeks Six Months
Ended July 1, Ended June 30,
1996 1995
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (1,042) $ 2,429
Adjustments to Reconcile Net Income (Loss) to
Cash Flows from Operating Activities:
Depreciation and Amortization 5,089 5,220
Deferred Income Taxes - 54
Loss on Retirement and Write-Down of Assets 481 202
Change in Net Current Liabilities (34) 1,496
-------- --------
Cash Provided by Operating Activities 4,494 9,401
-------- --------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (7,364) (8,099)
Reductions of Other Assets and Goodwill 331 37
Proceeds from Disposition of Assets 11 415
Payments Received on Notes 85 362
-------- --------
Cash Used in Investing Activities (6,937) (7,285)
-------- --------
Cash Flows from Financing Activities:
Principal Payments on Long-Term Obligations under
Capital Leases (202) (345)
Net Borrowings (Payments) under Revolving Credit
Agreement 2,526 (1,800)
Proceeds from Common Stock Issuance 79 26
------- --------
Cash Provided by (Used in) Financing Activities 2,403 (2,119)
------- --------
Decrease in Cash (40) (3)
Cash, Beginning of Period 245 245
------- --------
Cash, End of Period $ 205 $ 242
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Six Weeks Six Months
Ended July 1, Ended June 30,
1996 1995
-------- --------
<S> <C> <C>
The Change in Net Current Liabilities is Comprised of
the Following:
Decrease in Accounts Receivable $ 139 $ 1,628
Decrease (Increase) in Inventories 12 (195)
Increase in Prepaid Expenses and Other
Current Assets (29) (224)
Decrease in Accounts Payable (255) (1,125)
Increase in Accrued Liabilities 99 1,412
------- -------
Change in Net Current Liabilities $ (34) $ 1,496
======= =======
Supplemental Cash Flow Disclosures:
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $ 2,518 $ 2,630
Income Taxes (Net of Refunds) $ 172 $ 1,009
Non-Cash Investing and Financing Activities:
Notes Received from Sale of 75% of Islands
Restaurant Operations $23,000 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 1, 1996
(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 July 1, 1996 and June 30, 1995 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In 1996, the Company switched from a calendar-based fiscal year to a 52/53-
week fiscal year. This reporting method is favored by many companies in the
restaurant and retail industries and will improve future year-to-year
comparisons of operating results. The new fiscal year consists of four equal 13-
week quarterly periods ending on the Monday nearest to the calendar quarter end.
In 1996, the fiscal quarter end dates are April 1, July 1, September 30 and
December 30. The Company does not anticipate that this change will have a
material effect on reported results for the year. However, the fourth fiscal
quarter of 1996 may be slightly impacted, as the day of December 31, which
historically is the highest sales day for the Chart House restaurants, will fall
into the first fiscal quarter of 1997.
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, 1995 .
Certain balances and amounts for 1995 have been reclassified to conform to
the 1996 presentation.
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<PAGE>
(2) NET INCOME (LOSS) 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) LONG-TERM DEBT
Amounts in current portion of long-term debt at July 1, 1996 include
$3,000,000 payable in July 1996 under the 10.4% senior secured note, $3,000,000
payable in January 1997 under the 6.69% senior secured note, and $890,000
payable in each of January and April 1997 under the revolving credit and term
loan agreement.
(4) STOCKHOLDERS' EQUITY
In the first half of 1996, employees of the Company exercised stock options
to purchase an aggregate of 46,390 shares of common stock under the Company's
1985 Incentive Stock Option Plan at purchase prices ranging from $1.54 to $2.31
per share.
(5) SALE OF BUSINESS
On May 14, 1996, the Company completed the sale of a 75% interest in its
Islands restaurants operations to two affiliated partnerships of Islands
Restaurants, L.P., the owner/licensor of the Islands concept, for a total sale
price of $23 million in secured notes, with interest at 9% annually.
The notes are payable over a 20-year amortization period, with the
remaining principal balances due at the end of 15 years. The terms of one of the
notes allow for adjusted payments (either increased or decreased) depending on
available cash flows of the partnership.
In accordance with the agreements, the Company retained most current assets
and current liabilities as of the date of closing related to the Islands
restaurant operations, except as specifically provided in the agreements. These
amounts are to be collected and paid in the normal course as they come due. The
agreements provided for a reimbursement to the Company for certain current
items, such as cash reserves, inventories and prepaid expenses, following the
closing date of the transaction.
The Company has a 25% interest as a limited partner in both of the
partnerships, and is entitled to periodic distributions based on available cash
flows, as provided in the partnership agreements.
As part of the transaction, the existing area development and license
agreement and management agreement between the Company's subsidiary, Islands
Restaurants, Inc. and Islands Restaurants, L.P. terminated, thereby relieving
the Company of its obligation to continue developing Islands restaurants, and
reverting the license and development rights back to Islands Restaurants, L.P.,
which also reassumed responsibility for managing its 15 Islands restaurants in
the Los Angeles and Dallas markets as well as the new restaurants acquired from
the Company.
There was no gain or loss recognized as a result of the transaction. The
combined notes and 25% limited partner's interest are presented on the
consolidated balance sheet as of July 1, 1996 under the caption Assets of
Business Transferred under Contractual Arrangements.
-8-
<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 quarterly and six month periods ended July 1, 1996 and June 30, 1995. The
results of operations for the first half of 1996 are not necessarily indicative
of the results to be expected for the fiscal year ending December 30, 1996. The
dollar amounts in the table below are in thousands.
<TABLE>
<CAPTION>
Thirteen Weeks Three Months Twenty-Six Weeks Six Months
Ended July 1, Ended June 30, Ended July 1, Ended June 30,
1996 1995 1996 1995
----------------- ----------------- ------------------ ------------------
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- ------- ------- ------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 43,897 100.0 46,563 100.0 87,143 100.0 89,335 100.0
------ ----- ------ ----- ------ ----- ------ -----
Operating Expenses:
Cost of Sales 13,505 30.8 13,361 28.7 26,057 29.9 25,767 28.9
Payroll and Related Taxes 12,487 28.5 12,344 26.5 24,919 28.6 23,758 26.6
Other Operating Costs 10,984 25.0 10,780 23.2 21,680 24.9 20,814 23.3
Depreciation and Amortization 2,384 5.4 2,627 5.6 5,089 5.8 5,220 5.8
------ ----- ------ ----- ------ ----- ------ -----
Total Operating Expenses 39,360 89.7 39,112 84.0 77,745 89.2 77,559 84.6
------ ----- ------ ----- ------ ----- ------ -----
Income from Restaurant Operations 4,537 10.3 7,451 16.0 9,398 10.8 13,776 15.4
Selling, General and
Administrative Expenses 4,201 9.6 4,008 8.6 8,794 10.1 7,828 8.8
Interest Expense 1,181 2.7 1,263 2.7 2,359 2.7 2,516 2.8
Interest Income (272) (.6) (56) (.1) (308) (.3) (92) (.1)
------ ----- ------ ----- ------ ----- ------ -----
Income (Loss) Before Income
Taxes (573) (1.3) 2,236 4.8 (1,447) (1.7) 3,524 3.9
Provision (Benefit) for Income
Taxes (161) (.4) 695 1.5 (405) (.5) 1,095 1.2
------ ----- ------ ----- ------ ----- ------ -----
Net Income (Loss) (412) (.9) 1,541 3.3 (1,042) (1.2) 2,429 2.7
====== ===== ====== ===== ====== ===== ====== =====
</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 first half of 1996 decreased by
$2,666,000 and $2,192,000 from the respective periods of the prior year. The
disposition of Paradise Bakery (December 1995) and the Islands restaurants (May
1996) accounted for a combined net decrease in Revenues of $3,012,000 for the
second quarter and $1,633,000 for the six month period. Also, the closure or
temporary shut down of certain restaurants in the Chart House division accounted
for a decrease of approximately $700,000 and $1,600,000 for the second quarter
and six month periods, respectively. One new Chart House, which opened in April
1996, contributed Revenues of $759,000. Chart House comparable sales (sales at
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<PAGE>
restaurants open the entire period of both years) were up approximately 1% over
the prior year's second quarter, due to an increase in customer counts at Chart
House restaurants. Six month comparable sales were down 1%. In the opinion of
management, first quarter 1996 sales were negatively affected by the severe
winter weather conditions in the Northeast. Additionally, Revenues in the first
half of 1996 increased by approximately $800,000 because the period had two
extra days - one for leap year and one resulting from the period-end cutoff
under the Company's new 52/53-week fiscal year reporting change.
Restaurant operating margins (Income from Restaurant Operations as a
percentage of Revenues), which were 16.0% and 15.4% for the quarter and six
months, respectively, of 1995 fell to 10.3% and 10.8% for the 1996 periods.
Generally, increased operating expenses without corresponding revenue increases
have placed significant pressure on restaurant operating margins, contributing
to unfavorable operating results. Changes in the product mix through the
introduction of new menu items at Chart House restaurants, beginning in the
early part of 1996, most of which are priced lower than other existing menu
items, have resulted in significantly higher percentage food, hourly labor and
other operating costs. Also, the Company increased the allocation of advertising
and promotional-related expenses to the Chart House restaurants, equivalent to
approximately .7% of sales, over the prior year periods. Depreciation and
Amortization did not change significantly over the prior year periods.
Selling, General and Administrative Expenses increased by $193,000 and
$966,000 over the 1995 second quarter and first half, and as a percentage of
Revenues increased for the second quarter from 8.6% in 1995 to 9.6% in 1996, and
for the six month period from 8.8% in 1995 to 10.1% in 1996. The increases are
primarily the result of certain special charges recorded in the first six months
of 1996 totalling approximately $1.3 million. These charges consist of a two-
year severance and consulting arrangement with the Company's former chief
executive officer in the amount of $600,000 and an employment bonus of $110,000
paid to the new chief executive officer of the Company, both recorded in the
1996 first quarter. In the second quarter of 1996, the Company recorded
additional severance costs of $385,000 for certain terminated management
employees, and wrote down by $234,000 (to estimated net realizable value) the
cost of an investment in a Pizza Nova restaurant, in which the Company has a
limited partnership interest. These cost increases were partially offset by the
effect of reduced administrative payroll and other costs.
Interest Expense for the second quarter and first half of 1996 decreased by
$82,000 and $157,000, respectively, from the 1995 periods. The decreases are
due to reduced revolving credit borrowings (the result of cash proceeds received
from the sale of Paradise Bakery, Inc. in December 1995) and from lower
prevailing interest rates under the revolving credit agreement in 1996.
Interest Income increased over the 1995 periods due to interest earned on
the new notes received in connection with the sale of the Islands restaurant
operations in May 1996.
The Provision, or Benefit, for Income Taxes reflects an effective rate of
28% and 31% for the periods of 1996 and 1995, respectively.
As a result of the foregoing, Net Income decreased by $1,953,000 for the
second quarter of 1996 and $3,471,000 for the first half of 1996, from the
respective periods of the prior year.
Operating Trends
- ----------------
The introduction of new menu items at Chart House restaurants in 1996,
which include pasta entrees at all restaurants and other specialty dishes and
appetizers at the majority of restaurants, represented an initial phase of a
long-term program to revitalize the Chart House restaurants. The
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<PAGE>
program, in addition to placing a greater emphasis on food, will also rely on
remodeling and marketing efforts to drive restaurant sales increases. The
immediate impact of the changes in the menu has been an increase in operating
expenses, especially food costs and hourly restaurant labor costs, which has had
a significantly adverse effect on 1996 restaurant operating results. In
addition, management believes that organizational changes, particularly at the
operations management level following the replacement of the Company's chief
executive officer on April 1, 1996, created temporary operating difficulties.
Currently, management is committed to improving operating results under
these circumstances. The Company has hired new members of the management team to
evaluate and make necessary changes, if necessary, to purchasing and menu
pricing. In addition, labor scheduling and other processes are being reviewed
for cost-saving opportunities.
Management believes that 1996 will be a difficult transition year and
anticipates that food and labor costs will remain at their current levels over
at least the next fiscal quarter. Management believes that certain measures
taken currently will begin to have a positive effect on operating results
towards the end of 1996. However, there can be no assurances that such
improvements in operating results, if any, will occur.
The Clinton Administration introduced a proposal and both the House and
Senate passed versions of a bill that would increase the hourly minimum wage
required to be paid to employees. Although the bill has not yet been signed into
legislation, management believes its enactment appears likely. The measure, as
currently stated, would provide for a two-phase increase in the Federal hourly
minimum wage of $.90 over the course of the next year. This measure, if
ultimately enacted, could significantly increase the Company's labor costs.
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 $24,000,000 line of credit (reduced from $40,000,000 in
August 1996, as discussed below) with interest at the agent bank's base rate.
Any excess cash flows from operating and investing activities are used primarily
to reduce those borrowings. In the first half of 1996, the Company increased its
revolving credit debt by $2,526,000. At July 1, 1996, the Company had
outstanding borrowings of $17,800,000 under the revolving credit agreement
($22,000,000 as of August 14, 1996). On January 1, 1997, the outstanding
revolving credit loans convert to a term loan, payable in twenty equal quarterly
installments, beginning in April 1997.
At July 1, 1996, the balance of outstanding debt under the two senior notes
was $34.0 million. The first principal installment of $3,000,000 under the
Company's 10.4% senior secured note was paid in July 1996. The first principal
installment of $3,000,000 under the 6.69% senior secured note will become due in
January 1997.
Capital Expenditures for the first half of 1996, which totalled $7.4
million, included, among other things, expenditures for remodels of certain
Chart House restaurants and a newly-opened Chart House restaurant in the
Cincinnati, Ohio/Northern Kentucky metropolitan area. The Company does not
anticipate opening any new restaurants in the remainder of 1996. The Company's
strategic plan initially allocates capital resources to revitalizing the
existing base of Chart House restaurants. The Company plans to invest a
significant amount of capital over the next three or four years under the Chart
House revitalization program. The Malibu Chart House was the first restaurant
remodel completed under the program, in April 1996, at a cost of approximately
$1.4 million. A second restaurant remodel, in Cardiff, California, was completed
in August 1996 at slightly less cost. The remodels under the revitalization
program have featured a new decor package and upgraded kitchen and cookline to
accommodate a greatly expanded and more sophisticated menu. The newly-opened
Chart House in Cincinnati is modeled similarly. The Company will undergo a
critical evaluation of operating results for the two remodeled restaurants and
the new Cincinnati restaurant, and make adjustments, as necessary. Management's
plan for future Chart House restaurant remodels is subject to, among other
things, achievement of improved operating results referred to above and
resolution of financial matters described in the following paragraph.
-11-
<PAGE>
In August 1996, the Company and its lenders amended the existing debt
agreements, including the revolving credit agreement with the banks and the two
senior secured notes with an insurance company, and the lenders waived the
Company's non-compliance with two loan covenant ratios as of the end of the 1996
second quarter. The revolving credit agreement was amended to reduce the amount
of the banks' revolving credit commitment from $40 million to $24 million. All
of the debt agreements were amended to limit the aggregate amount of capital
expenditures for the 1996 fiscal year to $11 million. The loan covenants covered
by the waiver were an interest coverage ratio and a fixed charge coverage ratio
which were not in compliance for the twelve-month period ended July 1, 1996. The
Company recorded restructuring charges and certain special charges in the fourth
quarter of 1995 and first half of 1996, respectively, which contributed to the
lower earnings amounts used in computing the two ratios. The waiver covers the
loan covenant computations only through the second quarter of 1996. It is likely
that the Company will not meet the same loan covenant ratios as measured for the
twelve-month period ending September 30, 1996, and will either have to request
additional waivers or negotiate amendments to the debt agreements to modify the
loan covenant ratios. No assurances can be given that the Company will be able
to obtain further waivers or reach agreements with the lenders that will be
acceptable to both the Company and the lenders, in which case the Company could
be required to seek and obtain alternative financing. If in the future the
Company is not in compliance with specific covenants of its debt agreements, the
lenders have the right to accelerate payment of the outstanding borrowings.
Management believes that adequate alternative sources of financing are
available; however, financing costs could significantly increase under the above
circumstances. Pending the outcome of further discussions with the lenders,the
Company has elected to postpone temporarily any significant capital expenditures
for remodels of restaurants as part of the Chart House restaurant revitalization
program.
New Accounting Pronouncements
- -----------------------------
On January 1, 1996, the Company adopted the Financial Accounting Standards
Board Statement No. 121 ("Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of"). The initial adoption of this standard
did not have a material effect on the Company's financial statements. On an
ongoing basis, management will continue to evaluate and assess assets and
properties for impairment under the guidelines of this standard.
The Company also was required to adopt Statement No. 123 ("Accounting for
Stock-Based Compensation"), effective for the 1996 fiscal year. This standard
establishes a fair value based method of accounting for stock options and other
equity instruments. However, as permitted under the standard, the Company will
continue to use the intrinsic value method included in APB Opinion No. 25
("Accounting for Stock Issued to Employees") to account for compensation cost
associated with employee stock option plans. Statement No. 123 does require
significantly expanded disclosures in the footnotes to the fiscal year end 1996
financial statements, including disclosure of the pro forma amount of net income
and earnings per share as if the fair value based method were used to account
for stock-based compensation.
Seasonality and Other Information
- ---------------------------------
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.
This report contains forward-looking statements that were made within the
safe harbor provisions of the Securities Litigation Reform Act of 1995. Actual
results could differ materially from those projected in the forward-looking
statements.
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<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 7, 1996. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934 and Regulation 14A thereunder for
the purposes of (i) electing two directors, (ii) approving the 1996 Stock Option
Plan, and (iii) approving the 1996 Nonemployee Director Stock Compensation Plan.
There was no solicitation in opposition to management's
nominees for directors.
At the meeting, Arthur J. Nagle and Patrick W. Rose were elected as
directors for three-year terms expiring in 1999, and the two stock plans were
approved.
The tables below summarize the results of the stockholder vote:
<TABLE>
<CAPTION>
Number Percentage
------- ----------
<S> <C> <C>
Shares Outstanding and Entitled to Vote 8,238,293 100.0%
Shares Represented in Person or by Proxy 7,801,365 94.7%
Shares Not Voted at Meeting 436,928 5.3%
<CAPTION>
Votes Votes Shares
For Withheld Not Voted
----- -------- ---------
<S> <C> <C> <C>
Proposal I (Election of Directors)
Breakdown of votes cast for each nominee:
Arthur J. Nagle 6,727,169 1,074,196 436,928
Patrick W. Rose 6,733,169 1,068,196 436,928
<CAPTION>
Votes Votes Shares
For Against Abstain Not Voted
----- ------- ------- ---------
<S> <C> <C> <C> <C>
Proposal II (Approval of 1996 Stock
Option Plan) 3,949,568 1,819,453 114,310 2,354,962
Proposal III (Approval of 1996 Non-
employee Director Stock Compensation
Plan) 4,930,504 826,728 126,099 2,354,962
</TABLE>
-13-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. 27 Financial Date Schedule (required for electronic filing
only).
(b) Reports on Form 8-K. The Company filed with the SEC a report on Form
8-K dated May 28, 1996, for the event reported as of May 14, 1996. The
event reported was the sale of a 75% interest in the Company's Islands
restaurant operations.
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 14, 1996 By: /s/ HARRY F. ROBERTS
----------------------------------------
Harry F. Roberts
President and Chief Executive Officer
By: /s/ WILLIAM R. KUNTZ, JR.
----------------------------------------
William R. Kuntz, Jr.
Executive Vice President - Finance and
Administration, General Counsel and
Secretary
By: /s/ JAMES C. WENDLER
----------------------------------------
James C. Wendler
Vice President and Chief Accounting
Officer
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-START> APR-02-1996
<PERIOD-END> JUL-01-1996
<CASH> 205
<SECURITIES> 0
<RECEIVABLES> 4,217
<ALLOWANCES> 0
<INVENTORY> 3,564
<CURRENT-ASSETS> 9,158
<PP&E> 148,752
<DEPRECIATION> 51,434
<TOTAL-ASSETS> 154,125
<CURRENT-LIABILITIES> 25,396
<BONDS> 48,522
0
0
<COMMON> 83
<OTHER-SE> 75,606
<TOTAL-LIABILITY-AND-EQUITY> 154,125
<SALES> 43,897
<TOTAL-REVENUES> 43,897
<CGS> 13,505
<TOTAL-COSTS> 13,505
<OTHER-EXPENSES> 25,855
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,181
<INCOME-PRETAX> (573)
<INCOME-TAX> (161)
<INCOME-CONTINUING> (412)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (412)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
