<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 September 27, 1999
------------------
[ ] 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
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(State of other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
640 North LaSalle, Suite 295, Chicago, IL, 60610
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(Address of principal executive offices, including zip code)
(312) 266-1100
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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 November 5, 1999:
Common Stock ($.01 par value) - 11,775,191
--------------
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CHART HOUSE ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 27, December 28,
ASSETS 1999 1998
---------------- -----------------
(Unaudited)
Current Assets:
<S> <C> <C>
Cash and Equivalents $ 365 $ 266
Accounts Receivable 3,322 3,093
Inventories 1,992 2,288
Prepaid Expenses and Other Current Assets 291 306
Current Portion of Deferred Tax Asset 685 685
-------- --------
Total Current Assets 6,655 6,638
Property and Equipment, at Cost:
Land 4,273 6,258
Buildings 15,891 18,844
Equipment 36,594 31,400
Leasehold Interests & Improvements 54,358 50,532
Construction in Progress 3,475 2,063
-------- --------
114,591 109,097
Less: Accumulated Depreciation and Amortization 46,106 44,659
-------- --------
Net Property & Equipment 68,485 64,438
Leased Property under Capital Leases, Less Accumulated
Amortization of $6,985 in 1999 and $6,376 in 1998 3,519 4,128
Non-current Portion of Deferred Tax Asset 4,679 4,679
Other Assets and Goodwill, Net 19,270 8,127
-------- --------
$102,608 $ 88,010
======== ========
</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 BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
September 27, December 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------------- ------------------
(Unaudited)
<S> <C> <C>
Current Liabilities:
Current Portion of Long-Term Obligations $ 1,439 $ 724
Accounts Payable 2,679 4,772
Accrued Liabilities 14,179 14,290
-------- -------
Total Current Liabilities 18,297 19,786
Non-Current Liabilities (Excluding Current Portion):
Deferred Payments on Acquisition 1,187 -
Long-Term Debt 16,550 3,450
Long-Term Obligations under Capital Leases 4,498 5,020
-------- -------
Total Non-Current Liabilities (Excluding
Current Portion) 22,235 8,470
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; 11,775,191 shares outstanding in 1999 and
11,762,561 outstanding in 1998 118 118
Additional Paid-In Capital 61,178 61,103
Retained Earnings (Accumulated Deficit) 780 (1,467)
-------- -------
Total Stockholders' Equity 62,076 59,754
-------- -------
$102,608 $88,010
======== =======
</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 OPERATIONS
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks Thirty-Nine Weeks Thirty-Nine Weeks
Ended Sept. 27, Ended Sept. 28, Ended Sept. 27, Ended Sept. 28,
1999 1998 1999 1998
------------------ ------------------ ----------------------- -----------------
<S> <C> <C> <C> <C>
Revenues $36,040 $37,018 $108,000 $112,692
------- ------- -------- --------
Costs and Expenses:
Cost of Sales 11,416 12,336 34,325 36,465
Restaurant Labor 10,518 11,051 31,980 31,855
Other Operating Costs 7,825 8,708 23,884 26,475
Selling, General and Administrative
Expenses 2,905 3,655 9,033 11,092
Depreciation and Amortization 1,996 1,717 5,867 5,361
(Gain) Loss on Sales of Assets - - (742) 19
Interest Expense, Net 803 180 1,406 569
------- ------- -------- --------
Total Costs and Expenses 35,463 37,647 105,753 111,836
------- ------- -------- --------
Income/(Loss) Before Income Taxes 577 (629) 2,247 856
Provision/(Benefit) for Income Taxes - (153) - 308
------- ------- -------- --------
Net Income/(Loss) $ 577 $ (476) $ 2,247 $ 548
======= ======= ======== ========
Net Income/(Loss) Per Common Share,
Basic and Diluted $0.05 $(0.04) $0.19 $0.05
======= ======= ======== ========
Weighted Average Shares Outstanding 11,767 11,752 11,764 11,742
======= ======= ======== ========
</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>
Thirty-Nine Weeks Thirty-Nine Weeks
Ended September 27, Ended September 28,
1999 1998
- ---------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 2,247 $ 548
Adjustments to Reconcile Net Income to
Cash Flows from Operating Activities:
Depreciation and Amortization 5,867 5,361
Deferred Income Taxes - 329
Common Stock Issued in Lieu of Compensation 75 -
(Gain)/Loss on Retirement and Disposition of Assets (742) 8
Change in Net Current Liabilities (Excluding Net
Current Liabilities Acquired) (3,455) (1,917)
-------- -------
Cash Provided by Operating Activities 3,992 4,329
-------- -------
Cash Flows from Investing Activities:
Expenditures for Acquisitions, Net of Cash Acquired (10,596) -
Expenditures for Purchases of Property and Equipment (12,550) (6,820)
Additions of Other Assets (265) (11)
Proceeds from Disposition of Assets 6,700 2,802
-------- -------
Cash Used in Investing Activities (16,711) (4,029)
-------- -------
Cash Flows from Financing Activities:
Debt Issuance Costs (475) -
Principal Payments on Obligations under
Capital Leases (557) (797)
Net Borrowings/(Payments) under Revolving Credit
Agreement (1,150) 325
Proceeds from Issuance of Long-Term Debt 15,000 -
Net Proceeds from Sale/Issuance of Common Stock - 177
-------- -------
Cash Provided by/(Used in) Financing Activities 12,818 (295)
-------- -------
Increase in Cash 99 5
Cash, Beginning of Period 266 205
-------- -------
Cash, End of Period $ 365 $ 210
======== =======
</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>
Thirty-Nine Weeks Thirty-Nine Weeks
Ended September 27, Ended September 28,
1999 1998
- ------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
The Change in Net Current Liabilities (Excluding Net
Current Liabilities Acquired) is Comprised of
the Following:
Decrease/(Increase) in Accounts Receivable $ (229) $ 805
Decrease in Refundable Income Taxes - 537
Decrease in Inventories 442 709
Decrease in Prepaid Expenses and Other
Current Assets 15 32
(Decrease) in Accounts Payable (2,093) (1,546)
(Decrease) in Accrued Liabilities (1,590) (2,454)
------- -------
Change in Net Current Liabilities (Excluding
Net Current Liabilities Acquired) $(3,455) $(1,917)
======= =======
Supplemental Cash Flow Disclosures:
Cash Paid/(Received) During the Period for:
Interest (Net of Amount Capitalized) $ 726 $ 526
Income Taxes (Net of Refunds) $ (159) $ (376)
</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
September 27, 1999
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements of Chart House
Enterprises, Inc. and subsidiaries (the "Company") for the thirteen week and
thirty-nine week periods ended September 27, 1999 and September 28, 1998 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. 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 fiscal year ended December 28, 1998.
Historically, the Company's business is seasonal in nature with revenues
and net income for the second and third thirteen-week periods being greater than
in the first and fourth thirteen week periods.
(2) INCOME TAXES
No provision for income taxes has been recorded as of September 27, 1999 as
the Company expects to offset 1999 income tax expense with income tax benefits
associated with net operating losses and tax credits.
(3) COMPUTER SOFTWARE COSTS
The Company adopted AICPA, Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," effective
December 29, 1998. This Statement provides criteria to determine whether costs
of computer software developed or obtained for internal use are expensed or
capitalized. The adoption of this Statement had no material impact on the
Company's financial statements for the thirteen weeks and thirty-nine weeks
ended September 27, 1999.
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<PAGE>
(4) RESTRUCTURING ACTIONS AND SPECIAL CHARGES FROM 1997
At September 27, 1999 and December 28, 1998, the balance of the liability for
severance and other special costs (included in accrued liabilities) was $100,000
and $519,000, respectively. There were no significant charges taken against
this liability during the thirteen weeks and thirty-nine weeks ended September
27, 1999.
(5) BUSINESS COMBINATION
In April, 1999, the Company purchased a restaurant business located in New
York, New York d/b/a Angelo and Maxie's Steakhouse ("Angelo and Maxie's"). The
acquisition was accounted for under the purchase method of accounting. The
purchase price was $12,633,000. Of this amount approximately $10,383,000 was
paid at closing, including costs of acquisition, and the remaining $2,250,000
will be paid in equal monthly installments over three years. The identifiable
net assets acquired included tangible net assets of $1,015,000, the value of the
trade name of $6,975,000, and the value of a non-compete agreement of $450,000.
Goodwill of $4,193,000, representing the excess of purchase price over the fair
value of net assets acquired was recorded as a result of the acquisition. The
intangible assets are being amortized on a straight-line basis over lives of
three to twenty years. The results of operations of Angelo and Maxie's are
included in the Company's consolidated results of operations from the date of
its acquisition, April 22, 1999.
The following unaudited pro forma results of operations present combined
year to date historical financial information as if the acquisition occurred at
the beginning of each year. This unaudited pro forma information may not be
indicative of the results that actually would have occurred if the acquisition
had taken place at the beginning of the periods presented, or of the future
results of operations of the Company.
<TABLE>
<CAPTION>
1999 1998
$ per share $ per share
------------------- ------------------
<S> <C> <C> <C> <C>
Revenues (in thousands) $110,812 $119,557
Income before Extraordinary Items and
Cumulative Effects of Accounting
Changes (in thousands) $2,310 $.20 $1,971 $.17
Net Income (in thousands) $2,310 $.20 $1,935 $.16
</TABLE>
(6) LONG TERM DEBT
In April 1999, the Company paid off the outstanding balance of an existing
revolving credit agreement and entered into a revolving credit and term loan
agreement with the same bank. This agreement provides for a revolving loan of up
to $25 million and a term loan of $15 million, each of which mature on March 31,
2004. Interest under the agreement is payable, at the Company's option, at the
bank's base rate or LIBOR, plus a multiple based on certain financial covenants.
Principal payments on the term loan are not required before the third quarter
2000. The Company decreased its total outstanding borrowings during the third
quarter of 1999 by approximately $94,000. The proceeds of the $15 million term
loan were used to pay down the outstanding balance of the revolving credit
agreement and to execute the acquisition of Angelo and Maxie's.
-7-
<PAGE>
(7) GAINS AND LOSSES ON SALE OF ASSETS
The Company sold one restaurant property during the thirteen week period ended
September 27, 1999 and entered into an agreement with a third party to dispose
of another restaurant. A gain was realized on the sale while a loss is
anticipated on the pending sale. The loss is probable and estimable, thus it
was recorded offsetting the realized gain on the restaurant sold in the third
quarter.
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
thirteen and thirty-nine week periods ended September 27, 1999 and September 28,
1998. The results of operations for the first thirty-nine weeks of 1999 are not
necessarily indicative of the results to be expected for the fiscal year ending
December 27, 1999. The dollar amounts in the table below are in thousands.
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks Thirty-Nine Weeks Thirty-Nine Weeks
Ended Sept. 27, Ended Sept. 28, Ended Sept. 27, Ended Sept. 28,
1999 1998 1999 1998
---------------- ------------------- ------------------ -------------------
Dollars Percent Dollars Percent Dollars Percent Dollars Percent
------- ------- -------- -------- -------- -------- -------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues 36,040 100.0 37,018 100.0 108,000 100.0 112,692 100.0
------ ----- ------ ----- ------- ----- ------- -----
Costs and Expenses:
Cost of Sales 11,416 31.7 12,336 33.3 34,325 31.8 36,465 32.4
Restaurant Labor 10,518 29.2 11,051 29.9 31,980 29.6 31,855 28.3
Other Operating Costs 7,825 21.7 8,708 23.5 23,884 22.1 26,475 23.5
Selling, General and
Administrative Expenses 2,905 8.1 3,655 9.9 9,033 8.4 11,092 9.8
Depreciation and Amortization 1,996 5.5 1,717 4.6 5,867 5.4 5,361 4.8
(Gain)/Loss on Sales of Assets - - - - (742) (0.7) 19 -
Interest Expense 803 2.2 193 0.5 1,406 1.3 583 0.5
Interest Income - - (13) - - - (14) -
------ ----- ------ ----- ------- ----- ------- -----
Total Costs and Expenses 35,463 98.4 37,647 101.7 105,753 97.9 111,836 99.2
------ ----- ------ ----- ------- ----- ------- -----
Income/(Loss) Before Income
Taxes 577 1.6 (629) (1.7) 2,247 2.1 856 0.8
Provision/(Benefit) for
Income Taxes - - (153) (0.4) - - 308 0.3
------ ----- ------ ----- ------- ----- ------- -----
Net Income/(Loss) 577 1.6 (476) (1.3) 2,247 2.1 548 0.5
====== ===== ====== ===== ======= ===== ======= =====
</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.
-8-
<PAGE>
The table below summarizes the changes in revenue as a result of restaurant
closures and acquisitions.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
September 27, 1999 September 27, 1999
-------------------------- ------------------------------
<S> <C> <C>
Decrease in Revenue From
Restaurants Closed Between October
1998 and September 1999 ($2,769,000) ($5,807,000)
Decrease in Revenue From
the Sale of the Solana Beach
Baking Company (1,557,000) (4,747,000)
Increase in Revenue From
the Addition of
Angelo and Maxie's 2,137,000 3,772,000
Increase in Comparable
Restaurant Revenues 1,211,000 2,090,000
----------- -----------
Net Decrease in Revenue (978,000) (4,692,000)
</TABLE>
Cost of sales as a percentage of revenues decreased to 31.7% of sales
during the thirteen week period ended September 27, 1999 from 33.3% of sales
during the corresponding period in 1998. During the first thirty-nine weeks of
1999 the Company maintained a lower cost of sales percentage than in the
corresponding period of 1998. The lower cost of sales margins reflect the
disposition of several restaurants whose performances were below expectations.
Further, the Company has effectively managed product mix to compensate for the
impact of the new menu implementation. The new menu includes lower priced
entrees as well as larger, pre-portioned meat and better quality seafood, all of
which contribute a negative impact to the cost of sales margin. In general,
Chart House restaurants have been able to maintain a lower cost of sales
percentage than the Angelo and Maxie's restaurant. As the Company expands its
restaurant base to include more Angelo and Maxie's concepts, management
anticipates the consolidated cost of sales percentage to increase. Aware of this
potential, the Company is confident that this increasing cost can be controlled
by managing product mix and negotiations with current vendors.
Restaurant labor as a percentage of revenues was lower during the thirteen
weeks ended September 27, 1999 as compared to the corresponding 1998 period due
to the higher labor costs associated with the new menu roll-out initiated in
July 1998. Implementation of the new menu was completed as of September 27,
1999. Restaurant labor as a percentage of revenues was higher during the
thirty-nine weeks of 1999 as compared to 1998 due in part to the Company's
initiative to increase management presence at the restaurants. A significant
number of Catering Sales Managers were hired during the thirty-nine weeks of
1999 to focus exclusively on cultivating banquet and group sales.
Other operating costs have decreased during both periods of 1999 from the
respective periods in 1998 primarily because of a decrease in repairs and
maintenance. Several restaurants have undergone significant remodeling since
October 1998, eliminating the need for extensive and costly repairs.
Selling, general and administrative expenses decreased by $750,000 and
$2,059,000 for the thirteen week and thirty-nine week periods ended September
27, 1999, respectively, from the corresponding periods in 1998. These decreases
are primarily due to costs incurred in 1998 to relocate the Company's corporate
office. Further, the Company is realizing savings in both administrative
salaries and consulting fees during 1999.
-9-
<PAGE>
Depreciation and amortization has increased from 1998 levels as a result of
significant capital expenditures with restaurant remodeling and the acquisition
of tangible and intangible assets of Angelo and Maxie's.
The Company sold one restaurant property during the thirteen week period
ended September 27, 1999 and entered into an agreement with a third party to
dispose of another restaurant. A gain was realized on the sale while a loss is
anticipated on the pending sale. The loss is probable and estimable, thus it
was recorded offsetting the realized gain on the restaurant sold this period.
Interest expense has increased from 1998 levels as a result of the debt
incurred to acquire Angelo and Maxie's.
No provision for income taxes has been recorded as of September 27, 1999 as
the Company expects to offset 1999 income tax expense with income tax benefits
associated with net operating losses and tax credits.
As a result of the foregoing, net income increased by $1,053,000, from a loss
of $476,000 to income of $577,000 for the thirteen week period ended September
27, 1999. Net income for the thirty-nine weeks ended September 27, 1999
increased by $1,699,000 from $548,000 in 1998 to $2,247,000 in 1999.
Financial Condition
- -------------------
The significant changes in financial condition of the Company are the result
of both the acquisition of Angelo and Maxie's and the continuing remodeling of
existing Chart House restaurants. The acquisition included addition of
approximately $1 million in fixed assets acquired and $11 million in intangible
assets. The Company borrowed $15 million in a long-term loan. The proceeds of
the loan were used to execute the Angelo and Maxie's acquisition and to pay down
the outstanding balance on the revolving credit agreement. Approximately $5.9
million in net capital expenditures, exclusive of the Angelo and Maxie's
expenditure, have contributed to the increase in net assets for the thirty-nine
weeks of 1999.
The Company has completed the year-long process of rolling out a new, more
contemporary menu in designated restaurants. The sales for restaurants with the
new menu during the thirteen weeks ended September 27, 1999 were up overall by
approximately 4.5% over the same period of 1998. The first thirty-nine weeks of
the year realized a 3.2% increase in sales. The Company is evaluating the market
and financial feasibility of converting select Chart House restaurants into
Angelo and Maxie's Steakhouses. The decision to convert an existing restaurant
to the new concept is based upon several factors including location, cost,
customer preferences, and feasibility. Management is unable, at this phase in
the planning, to confirm the likelihood or timing of the proposed restaurant
conversions. The Company is aggressively pursuing real estate opportunities for
development of new Chart House and Angelo and Maxie's restaurants and has
executed a lease, beginning in the second quarter of 2000, for a second Angelo
and Maxie's in New York City.
Liquidity and Capital Resources
- -------------------------------
The Company requires liquidity principally for working capital, for the
acquisition and construction of new restaurants, and for the remodeling and
refurbishing of existing restaurants. The
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<PAGE>
Company's primary sources of working capital are cash flows from operations and
borrowings under a revolving credit and term loan agreement which provides a $25
million line of credit and a term loan of $15 million, each of which mature on
March 31, 2004. The proceeds of the term loan were used primarily for the
acquisition of Angelo and Maxie's as well as to pay down the outstanding balance
on the previous line of credit. Principal payments on this loan will not begin
until the third quarter 2000.
During the thirteen weeks ended September 27, 1999, the Company decreased
its revolving credit borrowings by $94,000 for an outstanding balance at
September 27, 1999 of $2,300,000. This reduction was funded by cash flows from
operating activities. At September 27, 1999 the Company had over $22 million in
available credit.
The Company had an $11,642,000 working capital deficit at the end of the
thirteen weeks ended September 27, 1999; a decrease of $2,883,000 from a deficit
of $14,525,000 at the end of the corresponding period of 1998. Part of this
decrease is attributed to the reduction in accrued liabilities of $1,090,000
since September 28, 1998. This reduction is mostly due to the reduction of the
balance of the liability for severance and other special costs (included in
accrued liabilities) from $740,000 at September 28, 1998 to $100,000 at
September 27, 1999. Additionally, the accounts receivable balance has increased
by $878,000 due to an increase in credit card receivables from September 28,
1998 to September 27, 1999.
In the opinion of management, cash flows from operations, plus availability
under the $25 million revolving credit agreement should be sufficient to fund
working capital, ongoing capital maintenance, remodeling of restaurants under
the restaurant revitalization program, repayment of long-term debt, and site
selection and development activities for new restaurants, for at least the next
twelve months. Significant unanticipated changes in the extent and timing of
remodeling and development activities may require alternative sources of long-
term financing. However, no assurance can be given that such financing will be
available or on terms satisfactory to the Company.
Seasonality and Other Information
- ---------------------------------
Historically, the Company's business is seasonal in nature with revenues and
net income for the second and third thirteen week periods being greater than in
the first and fourth thirteen week periods.
Year 2000
- ---------
Many software applications and operational programs written in the past
were not designed to recognize calendar dates beginning in the year 2000. The
failure of such applications or systems to properly recognize the dates
beginning in the year 2000 could result in miscalculations or system failures
that may adversely affect the Company's operations. The Company has instituted a
Year 2000 project in an attempt to prevent these occurrences. As of September
27, 1999, the Company was approximately 90% complete in achieving compliance
with the project's requirements. The Company has completed the Awareness and
Assessment phases of this project and has partially completed Replacement,
Testing, and Implementation. The Company expects the remaining phases to be
substantially complete by the end of 1999.
-11-
<PAGE>
The operation of Chart House restaurants does not rely heavily on
information technology. The most direct operational issue the Company faces with
its information technology is the point-of-sale system at each of the
restaurants. The replacement of the point-of-sale system was one part of a
significant operational and financial systems overhaul. The point-of-sale system
replacement was completed during second quarter 1999. The Company has received
assurances from the hardware and software manufacturers that the replacement
technology will be Year 2000 compliant. The remaining phase of the overhaul
includes upgrading the "back-office" system linking the point-of-sale system
with the general ledger system. Incremental expense of approximately $150,000 is
anticipated to ensure the upgraded technology will be Year 2000 compliant. The
Company expects to fund the remaining compliance requirements with operating
cash flows and availability under its revolving line of credit. The Company does
not believe that it faces any significant operational issues with embedded
technology or non-IT systems.
In identifying a "worst case scenario," the Company believes that a failure
of the project will only affect internal reporting capabilities. As a result,
the Company's restaurants should be able to function with no anticipated
interruption. Under this scenario, the Company's contingency plan consists of
administrative personnel analyzing source data information, if necessary, to
continue daily operations support for the Company.
The Company's potential third party risk is with its food distributors.
Evaluations, including review of disclosures in third party SEC filings and
review of correspondence regarding Year 2000 compliance, indicate that such
distributors are addressing the issue on a timely basis and, therefore, do not
expect significant operational difficulties.
Due to the general uncertainty inherent in the Year 2000 issue as well as
the uncertainty of third party suppliers and distributors becoming Year 2000
compliant, the Company is unable at this time to determine if consequences of
Year 2000 failures, both internal and external, will have a material impact on
the Company's results of operations, liquidity and financial condition. The
Company believes that its Year 2000 compliance efforts should reduce the
likelihood of a material and adverse impact to normal operations.
Other Information
- -----------------
Certain of the statements contained in this report may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward-looking statements
include financial projections, estimates and statements regarding plans,
objectives and expectations of the Company and its management. Examples of
certain forward-looking statements are the Company's estimates of the cost,
timing and effect of its Year 2000 compliance efforts, the anticipated effect of
menu changes and acquisitions, the Company's intentions to dispose of assets,
remodel assets, or acquire assets, and the Company's quantitative and
qualitative disclosures about market risk. Although the Company believes that
the expectations reflected in all such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
achieved. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements.
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<PAGE>
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. An 8-K/A was filed with the Securities and
Exchange Commission on July 6, 1999. Item 7 was reported describing financial
statements and pro forma financial information filed subsequent to the Angelo
and Maxie's acquisition.
-13-
<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: November 10, 1999 By: /S/ THOMAS J. WALTERS
----------------------------------------------
Thomas J. Walters
President and Chief Executive Officer
By: /S/ WILLIAM M. SULLIVAN
--------------------------------------
William M. Sullivan
Executive Vice President and Chief
Financial Officer
-14-
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