<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 March 30, 1998
--------------
[_] 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 (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 April 27, 1998:
Common Stock ($.01 PAR VALUE) - 11,731,755
----------
<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>
March 30, December 29,
ASSETS 1998 1997
------------ -----------
(Unaudited) <C>
<S> <C>
Current Assets:
Cash $ 200 $ 205
Accounts Receivable 2,908 3,249
Refundable Income Taxes 537 537
Inventories 2,171 2,624
Prepaid Expenses and Other Current Assets 593 429
-------- --------
Total Current Assets 6,409 7,044
-------- --------
Property and Equipment, at Cost:
Land 6,582 6,582
Buildings 19,178 19,145
Equipment 30,037 29,236
Leasehold Interests & Improvements 47,391 46,541
Construction in Progress 791 924
-------- --------
103,979 102,428
Less: Accumulated Depreciation and Amortization 42,305 40,726
-------- --------
Net Property & Equipment 61,674 61,702
-------- --------
Leased Property under Capital Leases, Less Accumulated
Amortization of $5,712 in 1998 and $5,479 in 1997 4,793 5,026
-------- --------
Deferred Tax Asset 5,349 5,675
-------- --------
Other Assets and Goodwill, Net 8,636 8,798
-------- --------
$ 86,861 $ 88,245
======== ========
</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>
March 30, December 29,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current Portion of Obligations under Capital Leases $ 813 $ 816
Accounts Payable 2,601 4,955
Accrued Liabilities 17,619 17,723
------ -------
Total Current Liabilities 21,033 23,494
------ -------
Long-Term Debt 500 -
------ -------
Long-Term Obligations under Capital Leases 5,540 5,746
------ -------
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; 11,728,589 shares outstanding in 1998 and
11,727,409 in 1997 117 117
Additional Paid-In Capital 60,933 60,926
Retained Earnings (1,262) (2,038)
------- -------
Total Stockholders' Equity 59,788 59,005
------- -------
$86,861 $88,245
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
-3-
<PAGE>
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
First Quarter First Quarter
Ended March 30, Ended March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Revenues $37,152 $38,347
------- -------
Costs and Expenses:
Cost of Sales 11,957 11,828
Restaurant Labor 10,022 10,333
Other Operating Costs 8,428 9,106
Selling, General and
Administrative Expenses 3,586 3,029
Depreciation and Amortization 1,823 2,384
Interest Expense 211 1,181
Interest Income - (491)
------- -------
Total Costs and Expenses 36,027 37,370
------- -------
Income Before Income Taxes 1,125 977
Provision for Income Taxes 349 303
------- -------
Net Income $ 776 $ 674
======= =======
Net Income Per Common Share Basic and
Diluted $ .07 $ .08
======= =======
Weighted Average Shares Outstanding 11,734 8,647
======= =======
</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>
First Quarter First Quarter
Ended March 30, Ended March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 776 $ 674
Adjustments to Reconcile Net Income to Cash
Flows from Operating Activities:
Depreciation and Amortization 1,823 2,384
Deferred Income Taxes 326 -
Loss on Retirement and Disposition of Assets 12 90
Change in Net Current Liabilities (1,828) 55
------- -------
Cash Provided by Operating Activities 1,109 3,203
------- -------
Cash Flows from Investing Activities:
Expenditures for Property and Equipment (1,516) (419)
Reductions of Other Assets 92 170
Proceeds from Disposition of Assets 12 19
Payments Received on Notes - 127
------- -------
Cash Used in Investing Activities (1,412) (103)
------- -------
Cash Flows from Financing Activities:
Principal Payments on Obligations under
Capital Leases (209) (190)
Net Borrowings (Payments) under Revolving Credit
Agreement 500 (5,500)
Payment of Long-Term Debt - (6,000)
Net Proceeds from Sale/Issuance of Common Stock 7 8,715
------- -------
Cash Provided by (Used in) Financing Activities 298 (2,975)
------- -------
Increase (Decrease) in Cash (5) 125
Cash, Beginning of Period 205 204
------- -------
Cash, End of Period $ 200 $ 329
======= =======
</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>
First Quarter First Quarter
Ended March 30, Ended March 31,
1998 1997
--------------- ---------------
<S> <C> <C>
The Change in Net Current Liabilities is Comprised of
the Following:
Decrease in Accounts Receivable $ 341 $ 1,167
Decrease in Inventories 453 326
Decrease (Increase) in Prepaid Expenses and
Other Current Assets (164) 210
Increase (Decrease) in Accounts Payable (2,354) 528
Decrease in Accrued Liabilities (104) (2,176)
------- -------
Change in Net Current Liabilities $(1,828) $ 55
======= =======
Supplemental Cash Flow Disclosures:
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $ 183 $ 1,596
Income Taxes (Net of Refunds) $ 12 $ 21
</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
March 30, 1998
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements of Chart House
Enterprises, Inc. and subsidiaries (the "Company") for the quarterly periods
ended March 30, 1998 and March 31, 1997 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.
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 29, 1997.
(2) NET INCOME PER COMMON SHARE
Earnings per share calculations are based on the weighted average number of
common shares and common stock equivalents (stock options) outstanding during
the period. Anti-dilutive securities are excluded from calculations of any loss
per share. Diluted earnings per share equals basic earnings per share for all
periods presented.
(3) COMPREHENSIVE INCOME
The Company implemented Statement of Financial Accounting Standards No. 130
("Comprehensive Income"), effective January 1, 1998. This statement requires
that all items that are required to be recognized under the standard as
components of comprehensive income be reported and displayed in the financial
statements. For the quarters ended March 30, 1998 and March 31, 1997, the
Company had no components of comprehensive income other than net income as
reported on the consolidated statement of operations.
-7-
<PAGE>
(4) LONG-LIVED ASSETS
On a regular basis, the Company evaluates and assesses its assets and
properties for impairment under the guidelines of Financial Accounting Standards
Board Statement No. 121 ("Accounting for Long-Lived Assets and for Long-Lived
Assets to be Disposed of"), and makes appropriate adjustments if and when an
asset is deemed to be impaired. In performing this analysis, the Company
generally groups assets by individual location or restaurant property. Future
estimated cash flows to be generated as a result of operating the particular
restaurant, generally over specified lease terms or useful lives, are compared
against the carrying value of the related assets.
(5) RESTRUCTURING ACTIONS AND SPECIAL CHARGES FROM 1997
Of the four restaurants held for disposal at December 29, 1997, one was
closed and listed for sale in January 1998. The Company anticipates that the
ultimate disposition of the remaining restaurants and other restructuring
actions, including the planned sale of Solana Beach Baking Company, will be
substantially completed throughout the second and third quarters of 1998.
However, no assurance can be given that the restaurants will be disposed of
within that time frame. In the event that the Company is unable to dispose of
the restaurants in a manner satisfactory to the Company, management will explore
other options with regard to these properties. Depreciation and amortization for
the restaurants, which amount was insignificant, has not been recorded in the
1998 first quarter in accordance with SFAS 121.
In the first quarter of 1998, amounts paid and charged against the
liability for severance and other special costs totaled $1,152,000. At March 30,
1998 and December 29, 1997, the balance of the liability (included in other
current liabilities) was $2,935,000 and $4,087,000, respectively.
Revenues and pre-tax operating profits from restaurants and operations held
for disposal at March 30, 1998 were $2.7 million and $460,000, respectively, for
the 1998 first quarter. Included in property and equipment in the accompanying
balance sheets are the carrying amount of assets held for disposal of
approximately $2.4 million at both March 30, 1998 and December 29, 1997.
(6) STOCKHOLDERS' EQUITY
In the first quarter of 1998, options for an aggregate of 230,000 shares of
common stock were granted to employees of the Company under the 1996 Stock
Option Plan at exercise prices ranging from $6.875 to $7.00 per share. In
addition, an option for 160,000 shares was granted in March 1998 to an officer
of the Company at an exercise price of $7.00 per share, the fair market value at
the date of grant. This option, which is not covered under the Company's option
plans, expires in ten years from date of grant. This option grant was approved
by shareholders at the annual meeting held on May 6, 1998.
In the first quarter of 1998, a former employee of the Company exercised
stock options to purchase an aggregate of 1,180 shares of common stock under
certain of the Company's stock option plans at purchase prices ranging from
$5.625 to $6.50 per share.
-8-
<PAGE>
The following table summarizes stock option transactions for the first
quarter of 1998:
<TABLE>
<CAPTION>
Weighted
Average
Total Option Price
1996 Plan 1992 Plan 1989 Plan Other Shares Per Share
------------- ------------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
December 29, 1997 406,100 74,600 37,000 112,500 630,200 $7.46
Granted 230,000 - - 160,000 390,000 $6.99
Exercised (380) (800) - - (1,180) $5.94
Forfeited (16,400) - - - (16,400) $7.65
------- ------ ------ ------- ---------
Outstanding at
March 30, 1998 619,320 73,800 37,000 272,500 1,002,620 $7.28
======= ====== ====== ======= =========
Exercisable at
March 30, 1998 31,580 58,500 37,000 100,000 227,080 $7.27
======= ====== ====== ======= =========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable stock options as of March 30, 1998:
<TABLE>
<CAPTION>
Shares Covered by Options Weighted Average Price
Range of ------------------------- ------------------------- Weighted Average
Exercise Prices Outstanding Exercisable Outstanding Exercisable Remaining Life
- --------------- ----------- ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 4.88 - $ 5.88 85,370 26,380 $ 5.57 $ 5.68 8.33
$ 6.25 - $ 8.38 871,250 154,700 7.14 6.65 9.54
$ 12.15 - $13.50 46,000 46,000 12.99 12.99 4.10
--------- ------- ------ ------ ----
Total 1,002,620 227,080 $ 7.28 $ 7.27 9.19
========= ======= ====== ====== ====
</TABLE>
An option for 100,000 shares was granted in May 1997 to a director of the
Company and became exercisable upon its approval at the annual shareholders
meeting held on May 6, 1998. For purposes of the table above, this option has
been presented as exercisable at March 30, 1998.
-9-
<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 periods ended March 30, 1998 and March 31, 1997. The results of
operations for the first thirteen weeks of 1998 are not necessarily indicative
of the results to be expected for the fiscal year ending December 28, 1998. The
dollar amounts in the table below are in thousands.
<TABLE>
<CAPTION>
First Quarter First Quarter
Ended March 30, Ended March 31,
1998 1997
Dollars Percent Dollars Percent
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
(Unaudited)
Revenues 37,152 100.0 38,347 100.0
------ ----- ------ -----
Costs and Expenses:
Cost of Sales 11,957 32.2 11,828 30.8
Restaurant Labor 10,022 27.0 10,333 26.9
Other Operating Costs 8,428 22.7 9,106 23.8
Selling, General and Administrative
Expenses 3,586 9.6 3,029 7.9
Depreciation and Amortization 1,823 4.9 2,384 6.2
Interest Expense 211 .6 1,181 3.1
Interest Income - - (491) (1.3)
------ ----- ------ -----
Total Costs and Expenses 36,027 97.0 37,370 97.4
------ ----- ------ -----
Income Before Income Taxes 1,125 3.0 977 2.6
Provision for Income Taxes 349 .9 303 .8
------ ----- ------ -----
Net Income 776 2.1 674 1.8
====== ===== ====== =====
</TABLE>
Management believes that the most meaningful approach to analyzing results
of operations is through comparable restaurant sales and 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 first quarter decreased by $1,195,000 from $38,347,000 in
1997 to $37,152,000 in 1998. Four Chart House restaurants which closed between
November 1997 and January 1998 accounted for a decrease in revenues of
$1,302,000. Sales at Solana Beach Baking Company, which is being held for
disposal, increased by $92,000 over the 1997 first quarter. Chart House
comparable sales (sales at restaurants open the entire quarter of both years)
were even for the quarter.
-10-
<PAGE>
Restaurant-level operating margins were lower in 1998 primarily because of
higher food costs. Cost of sales as a percentage of revenues was higher in 1998
primarily because of menu product mix changes implemented in mid and late-1997.
Restaurant labor was comparable between the 1998 and 1997 periods, as the
Company continued to focus efforts on controlling hourly labor costs to counter
the effects of Federal and state minimum wage increases. Other operating costs
as a percentage of revenues were lower in 1998 because, among other things, the
1997 first quarter had higher amortization of pre-opening costs and higher
occupancy and operating costs related to the four underperforming restaurants
which were closed between November 1997 and January 1998.
Selling, general and administrative expenses increased by $557,000 over the
1997 first quarter due primarily to continuing costs involving the Chart House
restaurant revitalization program and costs incurred to begin relocating the
Company's corporate office and hire and train new staff (which is expected to be
completed in June).
Depreciation and amortization decreased from 1997 levels because of asset
write-downs recorded at the end of the 1997 third quarter.
Interest expense was reduced significantly, as the Company throughout 1997
used net proceeds from the sale of shares of common stock and certain asset
sales and excess cash flows from operating activities to pay off or
substantially reduce remaining balances of long-term senior notes and
outstanding debt under the revolving credit agreement.
Interest income was eliminated in 1998 as the note receivable which
generated the interest income (related to the Islands investment) was paid in
December 1997.
Operating profits (before depreciation and amortization) at Solana Beach
Baking Company decreased by approximately $60,000 from the prior year's quarter
primarily because of higher freight costs.
The provision for income taxes reflects an effective rate of 31% for both
quarters presented.
As a result of the foregoing, net income increased by $102,000 from
$674,000 for the first quarter of 1997 to $776,000 for the first quarter of
1998.
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 $20 million line of credit with interest at the agent
bank's base rate (or LIBOR plus 1.25%). Net cash flows from operating,
financing and investing activities are used primarily to reduce or increase
those borrowings. During the first quarter of 1998, the Company increased its
revolving credit borrowings by $500,000. At March 30, 1998, the Company had
outstanding borrowings of $500,000 under the revolving credit agreement. The
Company expects borrowings to increase during 1998 depending on the timing of
working capital and capital expenditure needs.
-11-
<PAGE>
Capital expenditures for the first quarter of 1998 were primarily limited
to prioritized projects and regular additions at all restaurants. Capital
expenditures for each of the remaining three quarters of 1998 are expected to
increase as remodeling activities accelerate under the restaurant revitalization
program. Currently, there is one restaurant, located in Rancho Mirage,
California, undergoing significant remodeling work and conceptual changes. The
restaurant was closed to begin work in April and will re-open in mid-May.
In the opinion of management, cash flows from operations plus availability
under the $20 million revolving credit agreement will be sufficient to fund
working capital and regular capital expenditure commitments for 1998. Also, the
Company will reduce debt borrowings, if any, to the extent that proceeds are
received from the sale of certain remaining assets held for disposal. The
Company currently projects 1998 capital expenditures to be approximately $10
million, however, this amount may vary depending on the timing of revitalization
activities. The extent and timing of remodeling and revitalization activities
may require alternative sources of long-term financing to fully implement.
However, no assurance can be given that such financing will be available or on
terms satisfactory to the Company.
Costs Increases
- ---------------
The Company made modifications to the Chart House menu beginning in the
second half of 1997, which contributed to higher cost of sales. Management
plans to continue to test menu ideas and develop new products in efforts to
provide increased value to the customer, and expects higher cost of sales in
1998 related to those efforts.
On March 1, 1998, the minimum hourly wage to employees based in California
(a state in which the Company operates 19 restaurants) increased from $5.15 per
hour to $5.75. Management believes that this recent measure will increase the
Company's 1998 labor costs, and has begun taking specific steps to minimize the
impact of the increased wage rate.
The Company expects to incur higher costs in 1998, particularly in the
general and administrative area, in connection with the continuing Chart House
restaurant revitalization efforts and the relocation of the Company's corporate
office from Solana Beach, California to Chicago, Illinois, which is expected to
be completed by June 1998.
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.
-12-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit No. 27 Financial Data Schedule (required for electronic
filing only).
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter of which this report is filed.
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: May 13, 1998 By: /s/ F. PHILIP HANDY
-------------------------------------
F. Philip Handy
Acting Chief Executive Officer
By: /s/ THOMAS J. WALTERS
-------------------------------------
Thomas J. Walters
President and Chief Operating Officer
By: /s/ JAMES C. WENDLER
-------------------------------------
James C. Wendler
Vice President Finance and Chief
Financial Officer
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1998
<PERIOD-START> DEC-30-1997
<PERIOD-END> MAR-30-1998
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 2,908
<ALLOWANCES> 0
<INVENTORY> 2,171
<CURRENT-ASSETS> 6,409
<PP&E> 103,979
<DEPRECIATION> 42,305
<TOTAL-ASSETS> 86,861
<CURRENT-LIABILITIES> 21,033
<BONDS> 5,540
0
0
<COMMON> 117
<OTHER-SE> 59,671
<TOTAL-LIABILITY-AND-EQUITY> 86,861
<SALES> 37,152
<TOTAL-REVENUES> 37,152
<CGS> 11,957
<TOTAL-COSTS> 11,957
<OTHER-EXPENSES> 20,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 211
<INCOME-PRETAX> 1,125
<INCOME-TAX> 349
<INCOME-CONTINUING> 776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 776
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
